Shri Bhikamchand Bhawaniram, Khandwa V. THE ITO, Khandwa

ITA 380/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5953 (ITAT-INDORE)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S N AGRAWAL

Judgement Text

BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO.380/IND/2016 A.Y.2010-11 BHIKAMCHAND BHAWANIRAM INDORE PAN AADFB 5253F ::: APPELLANT VS INCOME TAX OFFICER KHANDWA ::: RESPONDENT APPELLANT BY SHRI S.N. AGRAWAL RESPONDENT BY SHRI R.A. VERMA DATE OF HEARING 25.5 .2016 DATE OF PRONOUNCEMENT 2 0 .6.2016 O R D E R THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 19.2.2016 OF THE LEARNED CIT(A )-22, NEW DELHI, HAVING CONCURRENT JURISDICTION OF CIT(A)- 2, INDORE. BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 2 2. GROUND NO. 1 OF THE APPEAL FILED BY THE ASSESSEE IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN MAINTAINING TH E DISALLOWANCE OF RS. 3,11,005/- AS MADE BY THE ASSESSIN G OFFICER OUT OF INTEREST PAID. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PAID INT EREST TO BANK AT 11.5% BUT HAS CHARGED INTEREST FROM AN ASSOCIATE CONCERN M/S GUPTA TRADING COMPANY AT 10%. THE ASSESSING OFFICER ISSUED NOTICE TO THE ASSESSEE TO EXPLAIN THE SAME. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE BANK LOAN RATES ARE FLUCTUATING AND SHOULD NOT BE COMPARED WITH THE INTEREST CHARGED IN RESPECT OF PROV IDING LOAN TO AN ASSOCIATE CONCERN. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THIS EXPLANATION OF THE ASSESSEE AND HELD THAT HIGHER RATE OF INTEREST BEARING FUNDS WERE DIVERT ED FOR LOW RATE OF INTEREST. THE ASSESSING OFFICER ACCORDING LY DISALLOWED THE EXCESS INTEREST PAID TO THE BANK AMOUNTI NG BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 3 TO RS. 3,11,005/-. BEING DIS-SATISFIED WITH THE ADDIT ION MADE BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXCE SS INTEREST PAID BY THE ASSESSEE TO THE BANK. NOW THE ASSE SSEE IS IN APPEAL TO THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE THAT THE ASSESSEE WAS HAVING HUGE AMOUNT OF INTEREST FREE FUNDS ALSO IN FORM OF PAR TNERS CAPITAL AND UNSECURED LOANS FROM THE FAMILY MEMBERS AND THEREFORE THE AVERAGE RATE OF INTEREST PAID WAS VERY LE SS AND, THEREFORE, THE ASSESSEE HAS NOT DIVERTED ITS HIGH ER RATE OF INTEREST BEARING FUNDS FOR LOW RATE OF INTEREST. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURNISHED THE FOLLOWING DETAILS :- BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 4 PARTICULAR AMOUNT [RS] PARTICULAR AMOUNT [RS] INTEREST PAID 27,11,190 INTEREST RECEIVED 26,84,126 INTEREST CHARGED TO THE PROFIT & LOSS A/C 22,224 27,11,190 27,11,190 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS UTILIZED THE ENTIRE AMOUNT OF BANK LOANS FO R THE PURPOSE OF BUSINESS AND THEREFORE THE CLAIM OF IN TEREST PAID IS LEGAL AND PROPER U/S 36[1][III] OF THE INCOME TAX ACT. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE , SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN DISALLOWING AN AMOUNT OF RS 3,11,005/- BY HOLDING THAT HIGHER RATE OF INTEREST BEARING FUNDS WERE DIVERTED B Y THE ASSESSEE FOR LOW RATE OF INTEREST. 5. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE HEARD BOTH THE SIDES. IN MY VIEW, SINCE TH E ASSESSEE WAS HAVING HUGE AMOUNT OF INTEREST FREE FUNDS BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 5 ALSO IN FORM OF PARTNERS CAPITAL AND UNSECURED LOANS FROM THE FAMILY MEMBERS AND THEREFORE THE AVERAGE RATE OF INTEREST PAID WAS LESS. IN THIS VIEW OF THE MATTER, T HIS GROUND OF THE ASSESSEE STANDS ALLOWED. 7. THE NEXT GROUND TAKEN BY THE ASSESSEE IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN MAINTAINING THE DISALLOWANCE OF RS.32,775/- OUT OF INTEREST PAID BY HO LDING THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUN DS WITHOUT INTEREST TO THE PARTNERS IN THE FORM OF ADVANC ES. 8. THE SHORT FACTS OF THE CASE ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE ADVANCED INTEREST FREE LOAN OF RS.2,10,000/- AND RS.72,500/- TO PARTNERS, SHRI DILIP KUMAR AND RAMESHWARDAS GUPTA, RESPECTIVELY WHEREAS THE ASSESSEE WAS PAYING INTEREST TO BANKS ON THE AMOUNT S OF LOAN TAKEN BY THE ASSESSEE. THE ASSESSING OFFICER, THEREFORE, DISALLOWED A SUM OF RS. 32,775/- TOWARDS BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 6 INTEREST ON THE AMOUNT PAID TO PARTNERS. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE FINDING OF THE ASSESSIN G OFFICER. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 9. I HAVE HEARD BOTH THE SIDES. IN MY VIEW, SINCE TH E ASSESSEE HAS NOT DIVERTED ITS INTEREST BEARING FUNDS F OR ADVANCING THE AMOUNT TO PARTNERS, THEREFORE, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWED AN AMOUNT OF RS.32,775/- AS INTEREST. THIS GROUND OF THE ASSESSEE IS, THEREFORE, ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. PRONOUNCED IN OPEN COURT ON 20 TH JUNE, 2016 SD/- (D.T. GARASIA) JUDICIAL MEMBER 20 TH JUNE, 2016 DN/- BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 7 BHIKAMCHAND BHAWANIRAM ITA NO. 380/IND/2016 8