M/s Manohra Enterprises, Rajahmundry, Rajahmundry V. The ITO, Ward-3, Rajahmundry, Rajahmundry

ITA 382/VIZ/2011

• Counselvise Citation: 38225314 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B BABA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BEFORE S/SHRI B. RAMAKOTAIAH (AM) & SAKTIJIT DEY (JM) I.T.A. NO.382/VIZ/2011 ASSESSMENT YEAR :2008 - 09 M/S. MANOHARA ENTERPRISES, RAJAHMUNDRY. VS. ITO, WARD - 3, RAJAHMUNDRY PAN/GIR NO. : AADFM 5259 Q ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI G.V.N.HARI RESPONDENT BY : SHRI B. BABA RAO DATE OF HEARING : 10/12/2013 DATE OF PRONOUNCEMENT : 13 /12/2013 O R D E R PER SAKTIJIT DEY, JM THE ASSESEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2008 - 09 AGAINST ORDER DATED 9.9.2011 OF LD CIT(A) RAJAHMUNDRY. 2. THE SOLITARY ISSUE RAISED IN THE AFORESAID APPEAL IS WITH REGARD TO DISAL LOWANCE OF INTEREST PAID TO ICIC I BANK AMOUNTING TO RS.3,78,987/ - . 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIR M ENGAGED IN TRANSPORT BUSINESS. IN THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.9.2000 DECLARING TOTAL INCOME OF RS.9,51,360/ - . INITIALLY THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143 ( 1). SUBSEQUENTLY, HOWEVE R, ASSESSEES CASE WAS SELECTED FOR SCRUTINY . DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO WHILE EXAMINING THE PROFITS AND LOSS ACCOUNT OF THE ASSESSEE NOTED THAT IT HAS CLAIMED INTEREST PAYMENT TO 2 ICICI BANK OF RS.3,78,987/ - . HE FURTHER NOTED THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE LOANS GIVEN TO ITS PARTNERS, OUT OF THE LOAN TAKEN BY IT FROM ICICI BANK. WHEN THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST ATTRIBUTABLE TO THE ADVANCES GIVEN TO THE PARTNERS S HOULD NOT B E DISALLOWED, IT WAS CONTENDED BY THE ASSESSEE THAT VIDE SANCTION LETTER NO.1 DATED 18.4.2006, AND LETTER NO. 2 DATED 3.11.2006, ICICI BANK SANCTIONED LOAN OF RS. .60,80, 0007 / - AND RS.49,70,000/ - TO THE ASSESSEE. IT WAS SUBMITTED THAT THESE LOANS ARE AGRICULTURAL LOANS, HENCE THEY COULD NOT BE DIRECTLY SANCTIONED TO THE PARTNERS SHRI V.SIVAJI AND V. BHAGYA LAKSHMI FOR SOME TECHNICAL REASONS SUCH AS INSUFFICIENT INCOME UNDER AGRICULTURE LOANS SCH EME AND HENCE THEY WE RE SANCTIONED THROUGH PARTNERSHIP FIRM FOR INVESTMENT IN AGRICULTURE. THESE LOAN AMOUNTS WERE DRAWN FROM ASSESSEE FIRM S LOAN ACCOUNT IN TH E YEAR 2006 - 07 BY THE SAID PARTNERS . IT WAS SUBMITTED THAT AS INTEREST WAS DIRECTLY CHARGED TO THE ACCOUNT OF V.SIVAJI AND V.BHAGYA LAKSHMI , IT HAS NO BEARING ON THE INCOME OF THE PARTNERSHIP FIRM, AS THE I NTEREST HAS NOT BEEN DEBITED IN PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FIRM. THE AO HOWEVER WAS NOT CONVINCED WITH THE EXPLANATIONS SUBMITTED BY THE ASSESSEE AND NOTED THAT SINCE THE ASSESSEE FIRM HAS DEBITED RS.3,78,987/ - TO THE PROFIT AND LOSS ACCOUNT TOWARDS INTEREST PAID TO ICICI BANK ON THE LOANS AVAILED FOR THE PURPOSE OF ITS PARTNERS AND NOT FOR UTILISATION OF THE SAME FOR THE BUSINESS OF THE FIRM , SAME CANNOT BE ALLOWED. ACCORDINGLY, HE ADDED BACK THE AMOUNT OF RS.3,78,987/ - TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION IN APPEAL PREFERRED BEFORE THE CIT(A). 4. IN THE COURSE OF HEARING BEFORE THE CIT(A), ASSESSEE CONTENDED THAT THE INTEREST @ 15.66% IS RECOVERED FROM THE PARTNERS BY CALCULATING THE NUMBER OF DAYS FOR WHICH THE PARTNERS UTILIZED THE MONEY AND THE REMAINING AMOUNT OF I NTEREST IS DEBITED TO THE ASSESSEES ACCOUNT. IT WAS FURTHER CONTENDED THAT THE RATE AT WHICH INTEREST IS RECOVERED FROM THE PARTNERS IS MORE THAT WHAT IS 3 CHARGED BY THE ICICI BANK. THE CIT(A) DID NOT ACCEPT SUCH CONTENTIONS OF THE ASSESSEE BY HOLDING THAT THERE WAS NO REQUIREMENT FOR THE ASSESSEE TO APPLY FOR THE LOAN FOR THE PARTNERS REQUIREMENT. THEREFORE, ONCE THE LOAN ITSELF IS TAKEN WITH A SPECIFIC PURPOSE OF DIVERTING THE SAME TO PARTNERS, IT DOES NOT MATTER WHETHER PART OF THE FUNDS ARE LEFT WITH THE FIRM FOR SOME PERIOD. HE OBSERVED THAT THE FIRM CANNOT TAKE THE BURDEN OF INTEREST TO ACCOMMODATE THE PARTNERS INTEREST AND PERSONAL REQUIREMENT. HE, THEREFORE, HELD THAT THERE IS NO PROOF SUBMITTED BY THE ASSESSEE THAT THE LOAN FUNDS WERE REQUIRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. WITH THE AFORESAID OBSERVATION, THE CIT(A) UPHELD THE ADDITION MADE BY THE AO. 5. AT THE TIME OF HEARING, LD A.R. DREW OUR ATTENTION TO THE LOAN SANCTIONED LETTER, WHICH ARE PLACED AT PAG ES 20 - 23 OF PB AND SUBMITTED THAT NOT ONLY THE LOANS WERE UTILISED FOR AGRICULTURAL PURPOSES OF THE PARTNERS BUT CERTAIN AMOUNT OF LOAN IS ALSO FOR THE WORKING CAPITAL OF THE ASSESSEE FIRM. IT WAS THEREFORE CONTENDED THAT WHEN THE WORKING CAPITALS WERE UT ILIZED FOR THE BUSINESS OF THE ASSESSEE, THE AO AS WELL AS THE CIT(A) COULD NOT HAVE DISALLOWED THE INTEREST ON SUCH LOAN AS IT WAS UTILIZED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. IN THIS CONTEXT, LD A.R. REFERRED TO THE LOAN ACCOUNT COPY OF TH E ASSESSEE, WHICH IS PLACED AT PAGE 21 OF PB. LD A.R. FURTHER CONTENDED THAT IT WOULD BE CLEAR FROM THE SANCTION LETTER THAT THE ENTIRE LOAN WAS AVAILED IN THE F.Y. 2006 - 07 AND NOT IN THE Y EAR UNDER DISPUTE. I T IS ONLY OPENING BALANCE IN THE PRESENT ASSESSMENT YEAR. THEREFORE, WHEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THE YEAR WHEN THE LOAN WAS AVAILE D, NO DISALLOWANCE CAN BE MADE O N THE OPENING BALANCE IN THE SUBSEQUENT YEAR. IT WAS FURTHER CONTENDED THAT THE FACT THAT THE ASSESSEE HAS UTILIZED THE LOANS TAKEN FOR THE PURPOSE OF ITS BUSINESS, HAS NOT BEEN EXAMINED BY THE AO. HE, THEREFORE, SUBMITTED THAT SO FAR AS UTILIZATION OF LOAN BY THE ASSESSEE IS CONCERNED, THE SAME CAN BE REMITTED BACK TO THE FILE OF THE AO FOR VERIFICATION. 6. ON THE OTH ER HAND, LD D.R. SUPPORTED THE ORDER OF THE CIT(A). 4 7. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. IT IS NOT DISPUTED THAT THE ASSESSEE HAS AVAILED LOAN OF RS.1,10, 00, 000/ - DURING THE FINANCIAL YEAR 2006 - 07 FROM ICICI BANK. AS CAN BE SEEN FROM SANCTION LETTER DATED 18.4.2006, A COPY OF WHICH IS PLACED AT PAGE 10 OF PB, AN AMOUNT OF RS.60,80,000/ - WAS SANCTIONED FOR AGRICULTURAL PURPOSE. AS PER THE CONTENTION OF THE ASSESSEE, THE SAID LOAN WAS UTILIZED B Y TWO PARTNERS FOR AGRICULTURAL PURPOSES AND THE INTEREST CHARGED ON T HE SAID LOAN WAS DIRECTLY DEBITED TO PARTNERS ACCOUNT AND THE ASSESSEE NEVER CLAIMED SUCH INTEREST EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT. SO FAR AS LOAN OF RS.49,70,000/ - IS CONCE RNED, IT IS THE CONTENTION OF THE ASSESSEE THAT THE SAID LOAN AMOUNT AS PER THE SANCTION LETTER ITSELF IS FOR WORKING CAPITAL AND ACTUALLY UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. PERUSAL OF THE SANCTION LETTER AT PAGE 16 OF PB ALSO PROVE S THE AFORESAID FACT TO BE CORRECT. ON A PERUSAL OF ORDERS OF AUTHORITIES BELOW, IT HAS TO BE NOTED THAT ASSESSEES CLAIM OF UTILIZATION OF THE AFORESAID LOAN OF RS.49,70,000/ - HAVE NOT BEEN USED FOR THE PURPOSE OF BUSINESS, HAS NOT AT ALL BEEN EXAMINED. IN OUR VIEW, WITHOUT PROPERLY VERIFYING THE FACTS RELATING TO THE UTILIZATION OF THE LOAN AMOUNT OF RS.49,70,000/ - , THE AUTHORITIES BELOW WERE NOT CORRECT IN DISALLOWING THE INTEREST PAYMENT. IN VIEW OF THE AFORESAID, WE THINK IT PROPER TO REMIT THE ISS UE BACK TO THE FILE OF THE AO WHO SHALL VERIFY THE ASSE SSEES CLAIM IN THIS REGARD . IF ON VERIFICATION, IT IS FOUND THAT THE AMOUNT OF RS.49,70,000/ - HAS ACTUALLY BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THE INTEREST CHARGED OF RS .3,78,987/ - IS IN RESPECT OF AFORESAID LOAN AMOUNT, THEN NO DISALLOWANCE CAN BE MADE ON SUCH EXPENDITURE. WE ALSO DIRECT THE AO TO AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED AS INDIC ATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /12/2013 . SD/ - S D/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER VISHAKHAPATNAM DATED 13 / 12/2013 PARIDA , SR. PS 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT : M/S. MANOHARA ENTERPRISES, D - NO.68 - 8 - 1, GANDHIPURAM - 4, LALACHERUVU, RAJAHMUNDRY 2. THE RESPONDENT. : ITO, 3, RAJAHMUNDRY. 3. THE CIT(A) - RAJAHMUNDRY 4. CIT , RAJAHMUNDRY 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//