ACIT, New Delhi V. M/s. D.D. Sales Corporation, New Delhi

ITA 3999/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3604 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-05-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 29-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P N MONGA; MANU MONGA S
• Assessee Lawyers: BK GUPTA
• Keywords: Business expenditure; Capital Gains
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D: NEW DELHI BEFORE SHRI I.P. BANSAL AND SHRI R.C. SHARMA ITA NO.3746/D/2009 ASSESSMENT YEAR : 2002-03 D.D. SALES CORPORATION, VS. D.C.I.T., F-1/9, OKHLA INDL. AREA, PHASE-I, CIRCLE 22(1), NEW DELHI NEW DELHI PAN/GIR NO. AAAFD 1937B ITA NO.3999/D/2009 ASSESSMENT YEAR : 2002-03 D.C.I.T., VS. D.D. SALES CORPORATION, CIRCLE 22(1), F-1/9, OKHLA INDL. AREA, NEW DELHI PHASE-I, NEW DELHI ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P.N. MONGA & MANU MONGA, ADVOCATES RESPONDENT BY : SHRI B.K. GUPTA, DR O R D E R PER R.C. SHARMA, AM: THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 09.07.2009 FOR AS SESSMENT YEAR 2002-03. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE ENGAGED IN TRADING AUTO COMPONENT S. DURING THE YEAR, IT HAD DISCLOSED GP RATE @12.20% AS AGAINST GP RATE @ 12.79% IN THE I.TA N0S.3746-3999/D/2009 2 IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER STATED THAT DURING THE YEAR, THE ASSESSEE HAS MADE A PROVISION FOR GRATUIT Y OF RS.1,69,757/- OUT OF WHICH ACTUAL PAYMENT OF RS.1,09,676/- WAS MADE AND THE BALANCE OF RS.60,081/- WAS ADDED BY THE ASSESSEE ITSELF IN THE COMPUTATION OF ITS TAXABLE INCOME. THE ASSESSING OFFICER DISALLOWED ACTUAL PA YMENT OF RS.1,09,676/- ON THE PLEA THAT ASSESSEE COMPANY HAS NOT OBTAINED APPROVAL FROM COMMISSIONER OF INCOME-TAX REGARDING GRATUITY FUND CREATED BY IT. ON THE PLEA THAT ANY SUM PAID ON ACCOUNT OF GRATUITY CANNO T BE ALLOWED, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,09,676. WE DO NOT FIND ANY MERIT IN THE ACTION OF ASSESSING OFFICER IN SO FAR AS PROVISION MADE FOR GRATUITY TOWARDS A GRATUITY FUND WHICH IS NOT APPRO VED CAN BE DISALLOWED U/S 36(1), BUT THE ACTUAL PAYMENT MADE TOWARDS GRATUITY WHICH IS FOR THE PURPOSE OF BUSINESS, CANNOT BE DISALLOWED FOR CLAIMING EXPE NDITURE ON ACCOUNT OF ACTUAL PAYMENT OF GRATUITY. FOR CLAIMING DEDUCTION OF AMOUNT ACTUALLY PAID TOWARDS GRATUITY, IT IS NOT NECESSARY THAT ASSESSEE SHOULD HAVE APPROVED GRATUITY FUND. ONLY PROVISION MADE FOR UNAPPROVED GRATUITY FUND CAN BE DISALLOWED, BUT NOT THE ACTUAL PAYMENT TOWARDS GRAT UITY. ACCORDINGLY, WE REVERSE THE ORDER OF LOWER AUTHORITIES AND DIRECT T HE ASSESSING OFFICER TO ALLOW THE SAME AS BUSINESS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. 3. ASSESSING OFFICER ALSO MADE ADDITION OF RS.79.70 LACS ON ACCOUNT OF LOAN TAKEN BY THE ASSESSEE DURING THE YEAR. THE AS SESSEE WAS ASKED TO I.TA N0S.3746-3999/D/2009 3 FURNISH BANK STATEMENT AND IT RETURNS OF THE PERSON S ADVANCED THE LOAN TO JUSTIFY THE GENUINENESS OF TRANSACTION AND CREDITWO RTHINESS OF THE CREDITORS. THE ASSESSING OFFICER STATED THAT ASSESSEE HAD ONLY FILED CONFIRMATION OF LOAN CREDITORS IN THE LEDGER ACCOUNT OF ASSESSEES BOOKS. HOWEVER, NO OTHER DETAILS WERE FURNISHED, ACCORDINGLY THE ASSESSING O FFICER ADDED THE SAME U/S 68 OF THE INCOME-TAX ACT. HOWEVER, BEFORE THE CIT( A) THE ASSESSEE FILED APPLICATION UNDER RULE 46A, AS HE WAS PREVENTED BY SUFFICIENT CAUSE FOR PRODUCING THE EVIDENCE AND MATERIAL BEFORE THE ASSE SSING OFFICER WITH REGARD TO THESE CREDITORS. THE CIT(A) OBSERVED THA T IN 12 OUT OF 15 CASES, THE IT DETAILS HAVE BEEN FURNISHED WHICH ESTABLISHE S THE IDENTITY OF THE CREDITORS. BY OBSERVING THAT ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION , HE CONFIRMED THE ADDITIONS MADE BY THE AO. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE DETAILS PLA CED IN THE RECORD WITH REGARD TO CREDITS AVAILED BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION. WE FOUND THAT DURING THE YEAR, THE ASSESSEE HAS RAI SED UNSECURED LOANS OF RS.79.70 LAKHS. HOWEVER, AT THE ASSESSMENT STAGE, HE COULD NOT FURNISH COMPLETE DOCUMENTS TO ESTABLISH THE GENUINENESS OF THE LOAN CREDITORS. BEFORE THE CIT(A), THE ASSESSEE HAS FURNISHED THEIR CONFIRMATIONS AND THE DETAILS OF IT RETURNS. ALL THESE DOCUMENTS PRIMA-F ACIE ESTABLISH THE IDENTITY I.TA N0S.3746-3999/D/2009 4 OF THE LOAN CREDITORS. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT IN CASE OF LOAN CREDITORS NOT ONLY IDENTITY IS REQUIRED TO BE ESTABLISHED BUT ALSO GENUINENESS OF THE LOAN TRANSACTION AS WEL L AS CREDITWORTHINESS OF LOAN CREDITORS IS EQUALLY IMPORTANT TO BE ESTABLISH ED. AT THE APPELLATE STAGE, EVEN THOUGH THE CIT(A) HAS CALLED FOR A REMAND REPO RT BUT THE SAME IS NOT COMPLETE AND IT APPEARS THAT DETAILED EXERCISE HAS NOT BEEN UNDERTAKEN BY THE AO TO FIND OUT CREDITWORTHINESS AND GENUINENESS OF THE LOAN TRANSACTION. IN MOST OF THE CASES, THE ASSESSEE HAS ALSO FURNISHED NOT ONLY BALANCE SHEET OF THE LOAN CREDITORS DULY INDICATING THE AMOUNT ADVAN CED TO THE ASSESSEE BUT ALSO ACKNOWLEDGEMENT/ASSESSMENT ORDERS AND PAN DETA ILS. ALL THESE DOCUMENTS WERE SUFFICIENT AND AFTER MAKING ENQUIRY THE AO COULD HAVE EASILY ASCERTAINED ALL THE THREE INGREDIENTS AS NAR RATED ABOVE. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS GROUND BA CK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 5. THE DISALLOWANCE OF 1/10 TH OF THE EXPENDITURE INCURRED ON VEHICLE MAINTENANCE AND TELEPHONE EXPENSES APPEARS TO BE RE ASONABLE IN VIEW OF THE FACT THAT PERSONAL USE OF TELEPHONE AND VEHICLE BY THE PARTNERS AND ITS FAMILY MEMBERS CANNOT BE RULED OUT. ACCORDINGLY, WE CONFI RM THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES. I.TA N0S.3746-3999/D/2009 5 6. IN THE REVENUES APPEAL, A GROUND HAS BEEN TAKEN AGAINST THE ACTION OF CIT(A) FOR TREATING THE INCOME OF RS.17,89,648/- AS SHORT TERM CAPITAL GAINS AS AGAINST INCOME ASSESSED UNDER THE HEAD INCOME FR OM OTHER SOURCES. 7. RIVAL CONTENTIONS HAVE BEEN HEARD. FROM THE REC ORD, WE FOUND THAT AO HAS TREATED THE AMOUNT OF SHORT TERM CAPITAL GAI N OF RS.17.89 LAKHS AS INCOME FROM OTHER SOURCES ON THE PLEA THAT TRANSACT ION OF SALE OF MUTUAL FUND UNITS CANNOT BE TREATED AS SHORT TERM CAPITAL GAIN TRANSACTION BECAUSE THE SAID TRANSACTION IS A MERE ARRANGEMENT AND A COLORABLE D EVICE. WHILE EXAMINING THE GENUINENESS OF THE TRANSACTION, THE CIT(A) RECO RDED A CATEGORICAL FINDING TO THE EFFECT THAT ASSESSEE WAS ALLOTTED ORIGINAL U NITS OF J.M.MUTUAL FUND ON 22.3.2002 AND WAS ALSO ALLOTTED BONUS UNITS ON 25.3 .2002. THE CIT(A) OBSERVED THAT ASSESSEE WAS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING AND WAS IN POSSESSION OF ORIGINAL UNITS WHICH IS CLEARL Y EVIDENT FROM THE STATEMENT ISSUED BY J.M.MUTUAL FUND. IT WAS ALSO F OUND THAT IN THE ENTIRE TRANSACTION A GROUP CONCERN OF J.M.MUTUAL FUND WAS THE BROKER BY THE NAME AND STYLE OF J.M.MORGAN STANLEY RETAIL SERVICES PVT .LTD. MERELY BECAUSE THERE WAS A DELAY IN MAKING THE PAYMENT OF THE SHAR ES SO ALLOTTED, CANNOT BE MADE THE REASON FOR TREATING THE TRANSACTION AS A C OLORABLE DEVICE. WE FOUND THAT IT WAS ONLY AN ACCOMMODATION PROVIDED BY THE B ROKER FOR MAKING THE PAYMENT. NEITHER ACTUAL PAYMENT THROUGH BANKING CH ANNEL WAS DISPUTED NOR THE ALLOTMENT OF UNITS. A DETAILED FINDING HAS BEE N RECORDED BY THE CIT(A) I.TA N0S.3746-3999/D/2009 6 AT PARA 12 TO 15 OF HIS ORDER WHICH HAS NOT BEEN CO NTROVERTED BY THE LEARNED DR, WE THEREFORE DO NOT FIND ANY REASON TO INTERFER E IN THE FINDING RECORDED BY THE CIT(A) TO THE EFFECT THAT THERE WAS A GENUIN E TRANSACTION AND PROFIT ARISING THEREON WAS A SHORT TERM CAPITAL GAIN AND N OT INCOME FROM OTHER SOURCES. 8. NEXT GRIEVANCE OF THE REVENUE RELATES TO DISALLO WANCE OF RS.2,10,838/- ON ACCOUNT OF NOT CHARGING OF INTERES T ON DEBIT BALANCE OF CAPITAL ACCOUNT OF TWO PARTNERS. 9. RIVAL CONTENTIONS HAVE BEEN HEARD. FROM THE REC ORD, WE FOUND THAT PARTNERS CAPITAL ACCOUNT AS ON 31.3.2001 SHOWS A DE BIT BALANCE OF RS.3.76 LAKHS, RS.7.94 LAKHS IN THE NAME OF SHRI RAJIV GAMB HIR AND SMT.REENA GAMBHIR. THE AO OBSERVED THAT ASSESSEE HAS NOT CHA RGED ANY INTEREST ON THE DEBIT BALANCE OF THE TRANSACTIONS WHILE ITS PAI D INTEREST ON THE BORROWED FUNDS TO THE TUNE OF RS.4.58 LAKHS TO THE BANK AND RS.31.94 LAKHS TO OTHERS. AS PER PARTNERSHIP DEED, THERE WAS A PROVISION FOR PAYMENT OF INTEREST AT 18% ON THE CREDIT BALANCE IN CAPITAL OF PARTNERS. THE AO THEREFORE HELD THAT SINCE THERE WAS A CONDITION FOR PAYING THE INTEREST ON THE CREDIT BALANCE, THE ASSESSEE FIRM SHOULD HAVE ALSO CHARGED INTEREST ON THE DEBIT BALANCE. ACCORDINGLY, OUT OF THE EXPENDITURE ON INTEREST PAY MENT, THE AO WORKED OUT RS.2,10,838/- AS INTEREST PAYABLE ON THE DEBIT BALA NCE ON PARTNERS CAPITAL ACCOUNT, AND THE SAME WAS DECLINED DEDUCTION. THE CIT(A) DELETED THE I.TA N0S.3746-3999/D/2009 7 DISALLOWANCE BY OBSERVING THAT NO EFFORT HAS BEEN M ADE BY THE AO TO FIND OUT ANY DIVERSION OF INTEREST BEARING FUNDS TAKEN B Y THE ASSESSEE FROM OVERDRAFT ACCOUNT OF INDIAN OVERSEAS BANK AND OTHER LOAN CREDITORS. WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER OF CIT(A) I NSOFAR AS WHAT THE AO HAS FAILED TO DO EITHER HE CAN DO THE SAME OR HE CAN AS K FOR THE REMAND REPORT. IT IS ASSESSEES ONUS TO SHOW THAT INTEREST BEARING FU NDS HAVE NOT BEEN UTILIZED FOR NON-BUSINESS PURPOSES OR IN ADVANCING INTEREST FREE LOANS. SINCE NEITHER THE ASSESSEE HAS BEEN ABLE TO SHOW NOR THE LOWER AU THORITIES HAVE MADE ANY EFFORT TO FIND OUT ANY SUCH DIVERSION OF FUNDS, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO TO UNDERTAKE THIS EXERCISE FOR F INDING OUT WHETHER ANY ADVANCE WAS GIVEN OUT OF BORROWED FUNDS TO THE PART NERS, AND TO DECIDE THE MATTER AFRESH AS PER LAW. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE ALLOWED IN PART, IN TERMS INDICATED HEREINABOVE. THIS ORDER PRONOUNCED IN THE COURT ON 25-06-2010. SD/- SD/- ( I.P. BANSAL ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.06.2010 NS : I.TA N0S.3746-3999/D/2009 8 COPY OF THE ORDER FORWARDED TO : - 1. D.D. SALES CORPORATION, F-1/9, OKHLA INDUSTRIAL ARE A, PHASE-I, NEW DELHI 2. DCIT, CIRCLE 22(1), NEW DELHI 3. RESPONDENT 4. CIT 5. CIT(A) 6. DR, ITAT TRUE COPY DY. REGISTRAR,