Sh. Tarak Jain, Ludhiana V. DCIT, Ludhiana

ITA 371/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95675 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Depreciation; Opportunity of being heard; Question of law

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 371/CHD/2014 ASSESSMENT YEAR: 2008-09 SH. TARAK JAIN, VS. THE DCIT, CIRCLE VII, LUDHIANA LUDHIANA PAN NO. ACUPJ3374B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUBHASH AGGARWAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 14.10.2015 DATE OF PRONOUNCEMENT : 16.11.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-II, LUDHIANA DATED 14.02.2014 RELATING TO AS SESSMENT YEAR 2008-09. 2. GROUND NO. 1 OF THE APPEAL READS AS UNDER:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING DISALLOWANCE OF THE CAR EXPENSE IGNORING THE PAST & SUB SEQUENT HISTORY OF THE CASE. 3. WHILE FRAMING THE ASSESSMENT THE ASSESSING OFFIC ER DISALLOWED RS. 38,252/- OUT OF CAR EXPENSES, DEPRECIATION AND INSURANCE OF CAR. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT MAINTAINED LOG BOOK RELATING TO CAR. THE ASSESSING OFFICER 2 WAS OF THE OPINION THAT PERSONAL USAGE OF CAR BY TH E ASSESSEE CANNOT BE RULED OUT. HE, THEREFORE, MADE THE DISALLOWANCE OF RS. 38,252/ - OUT OF ABOVE EXPENSES. 4. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS OBSE RVED THAT THE ASSESSEE HIMSELF HAS ALREADY ADDED BACK RS. 61,517/- UNDER T HE HEAD CAR EXPENSES & CAR DEPRECIATION IN HIS COMPUTATION OF INCOME. THE ASS ESSING OFFICER HAS DISALLOWED THE AMOUNT OF RS. 38,252/- ON THE BASIS OF SURMISES AND CONJECTURES. IN FACT, HE HAS MADE AN ADHOC DISALLOWANCE WITHOUT POINTING OUT AN Y ITEM OF EXPENSES WHICH WAS INCURRED FOR NON-BUSINESS PURPOSES. HOWEVER, WE ARE OF THE CONSIDERED OPINION, THAT THE DISALLOWANCE APPEARS TO BE ON HIGHER SIDE PARTICULARLY WHEN THE ASSESSEE HIMSELF HAS ALREADY ADDED BACK RS. 61,517/- UNDER T HE HEAD CAR EXPENSES & DEPRECIATION IN THE COMPUTATION OF INCOME. ACCORDI NGLY, WE HOLD THAT 1/8 TH OF THE DISALLOWANCE ON ACCOUNT OF ABOVE EXPENSES WILL MEET THE ENDS OF JUSTICE IN THIS CASE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW TH E RELIEF ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWED PARTLY. 6. GROUND NO.2 OF THE APPEAL, READS AS UNDER:-- 2 THAT THE LD. CIT(A) II HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST U/S 36(1)(III) OF RS. 6,1 8,802/- ON ALLEGED INTEREST FREE ADVANCES TO VARIOUS PARTIES I GNORING THE PAST HISTORY OF THE CASE AND ALSO THE FACT THAT THE ADVANCES AVAILABLE WITH THE APPELLANT. 7. THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS. 6,18,802/- OUT OF INTEREST EXPENSES. THE ASSESSING OFFICER HAS DISCU SSED THIS ISSUE IN PARA 4 OF THE ASSESSMENT ORDER. ACCORDING TO ASSESSING OFFICER, T HE ASSESSEE HAS GIVEN INTEREST 3 FREE LOAN AND ADVANCE TO FOUR PARTIES AGGREGATING T O RS. 67,83,618/-. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAS SHOWN LIABILITIES ON ACCOUNT OF SECURED LOANS OF RS. 10,72,13,355/-, OF UNSECURE D LOANS OF RS. 40,40,000/- FROM M/S K. OSWAL SHAWLS AND RS. 1,38,88,483/- FROM SMT. SHUBH JAIN IN THE BALANCE SHEET OF THE CONCERN. ACCORDING TO ASSESSING OFFICE R, THE ASSESSEE HAS PAID INTEREST OF RS. 1,14,15,688/- ON TOTAL LOAN OF RS. 12,51,41, 838/- I.E. @ 9.122%. THE ASSESSEE HAD PAID INTEREST ON THESE BORROWED FUNDS BUT ASSESSEE HAD NOT CHARGED ANY INTEREST ON THE LOANS AND ADVANCES GIVEN TO THE ABOVE PARTIES. THE ASSESSING OFFICER DISALLOWED RS. 6,18,802/- US/ 36(I)(III) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 8. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE AS SESSING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUBHA SH AGGARAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED A CHART SHOWING A PAST H ISTORY OF OWN CAPITAL INTEREST FREE LOANS GIVEN AND RECEIVED, WHICH IS REPRODUCED HEREIN BELOW:- SR._ NO. NAME 31.03.2005 31.03.2006 31.03.2007 31.03.2008 1. OWN CAPITAL 78,76,864 93,54,042 86,53,359 34,21,815 INTEREST FREE ADVANCES GIVEN 2. SUBHASH KUMAR JAIN 8,28,000 17,36,618 24,39,618 40,33,618 3. PAYAL JAIN NIL NIL 2,50,000 15,50,000 4. 5. TARUN JAIN NIL 10,00,000 10,00,000 10,00,000 TILAK RAJ KOCHHAR NIL NIL 2,00,000 2,00,000 INTEREST FREE LOANS AVAILABLE 4 6 K.OSWAL SHAWLS NIL 40,40,000 40,40,000 40,40,000 INCOME AS PER PROFIT & TOSS ACCOUNT 7. INCOME 3,15,778 17,26,874 29,78,750 1,00,59,487 8. DEPRECIATION 9,05,752 33,74,276 35,61,819 46,19,798 ON THE BASIS OF ABOVE, SHRI SUBHASH AGGARWAL, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AND ITS OWN CAPITAL TO ADVANCE INTEREST FREE FUNDS TO THE ABOVE FOUR PARTI ES. HE FURTHER SUBMITTED THAT PRESUMPTION IN SUCH CASE IS THAT THE ADVANCES ARE O UT OF INTEREST FREE FUNDS AND OUT OF ITS OWN CAPITAL. THE HONBLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT LTD V CIT, JALANDHAR, IN ITA NO. 22 4 OF 2013 DATED 24.7.2015 HAS HELD AS UNDER:- 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FRE E ADVANCES MADE BY IT OF RS. 10.29 CRORES TO ITS SIST ER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDG MENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAI LABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. FURTHER, IN THE CASE OF CIT-1, LUDHIANA V RAKESH G UPTA IN ITA 37 OF 2014 DATED 2.7.2015, THE HON'BLE PUNJAB & HARYANA HIGH COURT HELD AS UNDER:- AS REGARDS QUESTION (I), THE APPELLANT'S CASE IS T HAT AN AMOUNT OF RS. 8.89 CRORES WAS ADVANCED BY THE RESPO NDENT / ASSESSEE TO HIS SON. THE RESPONDENT/ASSESSEE ON T HE OTHER HAND CONTENDS THAT DURING THE ASSESSMENT YEAR IN QU ESTION 5 2008-2009, ONLY ABOUT RS.2.14 CRORES WAS ADVANCED B Y HIM TO HIS SON. IT WOULD MAKE NO DIFFERENCE. THE TRIBU NAL HAS RIGHTLY UPHELD THE DETAILED AND REASONED ORDER OF T HE CIT(APPEALS). THE CIT(APPEALS) HAS ANALYZED THE CAS H AVAILABLE WITH THE RESPONDENT. FOR INSTANCE, THE OP ENING BALANCE OF CAPITAL AS ON 01.04.2007 WAS ABOUT RS. 1 3.45 CRORES AND THE CLOSING BALANCE AS ON 31.03.2008 WAS ABOUT RS. 10.40 CRORES. THE OPENING BALANCE AS ON 01.04.2 007 WAS ABOUT RS. 73.57CRORES AND THE CLOSING BALANCE A S ON 31.03.2008 WAS ABOUT RS. 86.60 CRORES. THE OPENING BALANCE OF INTEREST FREE UNSECURED LOANS FROM FAMIL Y AND FRIENDS AS ON 01.04.2007 WAS ABOUT RS. 55.95 CRORES AND THE CLOSING BALANCE OF INTEREST FREE UNSECURED LOAN S FROM FAMILY AND FRIENDS AS ON 31.03.2008 WAS ABOUT RS. 5 1.46 CRORES. IT WAS NOT THE CASE OF THE AO THAT THE ASSE SSEE HAD DIVERTED THE FUNDS BORROWED ON INTEREST FOR THE PUR POSE OF ADVANCING THE SUM TO HIS SON FOR BUSINESS. THE TRIB UNAL NOTED THAT THE AO HAD IN FACT ACCEPTED THAT NO SUCH BORROWED FUNDS HAD BEEN DIVERTED / ADVANCED BY THE ASSESSEE TO HIS SON. THERE WAS NO NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND THE FUNDS DIVERTED/ AD VANCED TO HIS SON. THERE WERE FREE RESERVES AVAILABLE WITH THE ASSESSEE TO ADVANCE THE INTEREST FREE LOAN TO HIS S ON. IT IS NOT POSSIBLE TO HOLD THAT THE APPRECIATION OF THESE FACTS WAS PERVERSE OR ABSURD. NO QUESTION OF LAW, THEREFORE, ARISES IN THIS REGARD EITHER. 13. IN THE ABOVE CASE,, THE SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVENUE WAS THAT THE TRIBUNAL HAS PASSED THE ORDER IGNORING THE JUDGMENT OF HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT VS. M/S ABHISHEK INDUSTRIES LTD ., 286 ITR 1. IT APPEARS THAT WHILE DECIDING THE SUBSTANTIAL QUES TION OF LAW, THE HON'BLE HIGH COURT HAS CONSIDERED THE DECISION RENDERED IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA). IN THE INSTANT CASE ALSO, THE REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT (APPEALS) ON THE GROUND THAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE LEARNED CIT (APPEALS) H AS IGNORED THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE 6 CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA). IN MY OPINION, THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COU RT PASSED IN THE CASE OF RAKESH GUPTA (SUPRA) IS SQUARELY APPLI CABLE TO THE FACTS OF PRESENT CASE. IN THAT VIEW OF THE MATTER , I DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT (A PPEALS) ON THIS ISSUE AND ACCORDINGLY, I UPHOLD THE ORDER OF THE LE ARNED CIT (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 10. KEEPING IN VIEW THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF BRIGHT ENTERPRISES (P) LTD V CIT AND CIT - 1 VS. RAKESH GUPTA (SUPRA), WE THINK IT APPROPRIATE TO SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND REMAND THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW KEEPING IN VIEW THE A BOVE DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT. THE CONTENTION OF THE A SSESSEE NEEDS TO BE VERIFIED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IS ALS O DIRECTED TO GIVE AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLO WED FOR STATISTICAL PURPOSES. 11. IN THE RESULT THE APPEAL IS ALLOWED PARTLY AND PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2015 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED: NOV., 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR