Rakesh Kumar Agarwal, Kanpur V. Astt. Commissioner of Income Tax-3, Kanpur

ITA 41/LKW/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1118 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-02-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 16-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 SHRI RAKESH KUMAR AGARWAL, 14/145-A, CHUNNI GANJ, KANPUR. PAN:ABTPA 6652 J VS. A.C.I.T.-3, KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A) DATED 24/10/2016. THE GROUNDS OF APPEAL TAK EN BY THE ASSESSEE ARE REPRODUCED BELOW: 1. LEARNED CIT (A) ERRED ON FACTS & IN LAW IN CONF IRMING THE DISALLOWANCE OF RS.2,02,057/- BEING NOTIONAL INTERE ST ON ALLEGED INTEREST FREE LOANS GIVEN BY THE ASSESSEE W ITHOUT APPEARING THE FACTS ON RECORD IN AS MUCH AS HE HAS FAILED TO APPRECIATE THAT THE ADVANCES GIVEN WERE COVERED BY OWN FUNDS AND THERE WAS NO NEXUS BETWEEN THE ADVANCES GIVEN AND THE BORROWED FUNDS. APPELLANT BY SHRI R. R. JAIN, F.C.A. SHRI SAMEER JAIN, F.C.A. RESPONDENT BY SHRI YASHVENDRA SINGH, D.R. DATE OF HEARING 19 / 02 /201 8 DATE OF PRONOUNCEMENT 22 / 02 /201 8 I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 2 2. THAT THE LEARNED CIT(A) ERRED ON FACTS & IN LAW IN CONFIRMING 15% DISALLOWANCE AMOUNTING TO RS.57,463/ - OUT OF CONVEYANCE & TELEPHONE EXPENSES IN A ROUTINE MANNER ON AD HOC BASIS. 3. THAT THE LEARNED CIT (A) ERRED ON FACTS & IN LAW IN CONFIRMING AD HOC ADDITION OF RS.30000/- OUT OF STAFF WELFARE, MISCELLANEOUS EXPENSES AND TRAVELLIN G EXPENSES. 4. THAT THE LEARNED CIT (A) ERRED ON FACTS IN LAW I N CONFIRMING ADHOC ADDITION AND DISALLOWANCES MADE ARBITRARILY AND EXCESSIVELY. 2. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT LEAR NED CIT(A) HAD CONFIRMED AN ADDITION OF RS.2,02,057/- BEING NOTION AL INTEREST ON ALLEGED INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE WITHOU T APPRECIATING THAT THE ADVANCES WERE GIVEN OUT OF OWN FUNDS OF THE ASSESSE E. IT WAS SUBMITTED THAT THE ASSESSEE HAD ADVANCED A LOAN OF RS.21,45,0 78/- TO HIS DAUGHTER AND FURTHER AMOUNT OF RS.1,00,000/- WAS ADVANCED TO THE HUF OF THE ASSESSEE. IT WAS SUBMITTED THAT THERE WAS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE ADVANCES GIVEN TO THE ABOVE PERSONS A S THE ASSESSEES OWN FUNDS WERE SUFFICIENT TO COVER THE ABOVE INTEREST FREE ADVANCES. OUR ATTENTION WAS INVITED TO PAGE NO. 17 OF THE PAPER B OOK WHERE A COPY OF ACCOUNT OF PROPRIETORS CAPITAL ACCOUNT WAS PLACED AND IT WAS SUBMITTED THAT THE ASSESSEE HAD A CAPITAL OF RS.1,68,25,925/- WHER EAS THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE WERE QUITE INSIGNIFI CANT AS COMPARED TO ASSESSEES OWN CAPITAL. IT WAS SUBMITTED THAT DURI NG THE YEAR ITSELF THE ASSESSEE HAD EARNED A NET PROFIT OF RS.21,95,000/- AS IS APPARENT FROM THE COPY OF CAPITAL ACCOUNT ITSELF. RELIANCE IN THIS R ESPECT WAS PLACED ON THE CASE OF SMT. CHANCHAL KATYAL VS. CIT 298 ITR 182 (A LL) AND IN THE CASE OF CIT VS. KAPSONS ASSOCIATES 381 ITR 204 (P&H) FOR TH E PROPOSITION THAT I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 3 WHERE THE OWN FUNDS EXCEED THE NON INTEREST BEARING ADVANCES, NO DISALLOWANCE CAN BE MADE U/S 36(1)(III) OF THE ACT. 2.1 AS REGARDS THE OTHER DISALLOWANCE SUSTAINED BY LEARNED CIT(A), LEARNED A. R. SUBMITTED THAT THE ASSESSING OFFICER HAD MADE AD HOC DISALLOWANCE WITHOUT POINTING OUT ANY DEFECT IN THE VOUCHERS OR POINTING OUT ANY SPECIFIC INSTANCE. IT WAS SUBMITTED THAT THE A SSESSING OFFICER HAS MERELY ACTED ON PRESUMPTIONS. AS REGARDS THE EXPEN SES ON VEHICLE MAINTENANCE, LEARNED A. R. SUBMITTED THAT THE ENTIR E EXPENSES WERE INCURRED FOR REPAIR AND MAINTENANCE AND WERE FULLY VOUCHED AND THEREFORE, THE DISALLOWANCE WAS NOT WARRANTED. SIMILARLY, IN RESPECT OF AD HOC ADDITION OF RS.30,000/- OUT OF STAFF WELFARE, MISC. EXPENSES AND TRAVELLING EXPENSES, LEARNED A. R. SUBMITTED THAT THE ENTIRE EXPENDITURE WAS OPEN TO STRICT VERIFICATION AND ASSESSING OFFICER HAS MERELY ACTED ON PRESUMPTIONS WHILE RECORDING THE CHARGE OF ALLEGED PERSONAL USE. RELI ANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS: (I) ASHOK SURANA VS. CIT 384 ITR 267 (DEL) (II) FRIENDS CLEARING AGENCY (P) LTD. VS. CIT 58 DTR 109 (DEL) (III) ACIT VS. ALLIED CONSTRUCTION 106 TTJ 616 (I.T.A.T. DELHI) 3. LEARNED D. R., ON THE OTHER HAND, HEAVILY PLACED HIS RELIANCE ON THE ORDER OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. AS REGARDS THE FIRST ISSUE OF DI SALLOWANCE U/S 36(1)(III) OF THE ACT, WE FIND THAT THE ASSESSEE IS HAVING A CAPI TAL OF RS.1,68,25,925/- WHICH IS APPARENT FROM THE COPY OF CAPITAL ACCOUNT OF THE ASSESSEE PLACED AT PAGE NO. 17 OF THE PAPER BOOK. AGAINST THIS INTERE ST FREE CAPITAL OF THE ASSESSEE, THE AMOUNT OF INTEREST FREE ADVANCES ARE ONLY TO THE EXTENT OF RS.22,45,078/-. SINCE THE INTEREST FREE OWN FUNDS OF THE ASSESSEE FAR I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 4 EXCEED THE INTEREST FREE ADVANCES, THE DISALLOWANCE U/S 36(1)(III) WAS NOT WARRANTED IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENT S RELIED ON BY LEARNED A. R. HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SMT. CHANCHAL KATYAL VS. CIT [2008] 298 ITR 182 (ALL) HAS HELD AS UNDER: THAT THE BORROWED MONEY ON WHICH THE ASSESSEE WAS LIABLE TO PAY INTEREST TO ITS CREDITORS HAD NOT BEEN DIVERTED TOWARDS INTEREST-FREE LOANS TO THE TWO FIRMS. IT WAS NOT TH E CASE OF THE REVENUE THAT THE ASSESSEE WAS FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNTING AND UNDER THE AGREEMENTS, THE INTERES T EVEN THOUGH NOT ACTUALLY CHARGED HAD ACCRUED AS INCOME A ND THEREFORE WAS LIABLE TO PAY TAX. THE REVENUE TOOK A SPECIFIC STAND THAT AS THE ASSESSEE HAD NOT TAKEN ANY INTERE ST ON THE ADVANCES MADE BY HER TO MG AND M, PROPORTIONATE INT EREST WHICH THE ASSESSEE COULD HAVE REALISED FROM THESE T WO FIRMS AND WHICH HAD NOT BEEN REALISED SHOULD NOT BE ALLOW ED UNDER SECTION 36(1)(III) . IF THE ASSESSEE HAD SUFFICIENT FUNDS OTHER THAN THE BORROWED MONEY FOR GIVING THE AMOUNT AS LO AN TO ANY OTHER CONCERN, THE CONDITIONS OF SECTION 36(1)(III) OF THE ACT HAD BEEN COMPLIED WITH AND THE ASSESSEE WAS ENTITLED TO FULL ALLOWANCE OF THE AMOUNT OF INTEREST PAID BY IT ON B ORROWED CAPITAL. THEREFORE THE TRIBUNAL WAS NOT JUSTIFIED I N CONFIRMING THE DISALLOWANCE FOR THE ASSESSMENT YEAR 1980-81. 4.1 W E ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSEE. 4.2 AS REGARDS THE OTHER DISALLOWANCES, IT IS NOTIC ED THAT ASSESSING OFFICER HAD MADE AD HOC DISALLOWANCE WITHOUT POINTING OUT A NY SPECIFIC DEFECT IN THE VOUCHERS OR POINTING OUT ANY SPECIFIC INSTANCE. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS MERELY ACTED ON PRESUMPTI ON. AS REGARDS THE EXPENSES ON VEHICLE MAINTENANCE, LEARNED A. R. SUBM ITTED THAT THE ENTIRE EXPENSES WERE INCURRED FOR REPAIR AND MAINTENANCE A ND WERE FULLY VOUCHED AND THEREFORE, THE DISALLOWANCE WAS NOT WARRANTED. SIMILARLY, IN RESPECT OF AD HOC ADDITION OF RS.30,000/- OUT OF STAFF WELFARE , MISC. EXPENSES AND TRAVELLING EXPENSES, LEARNED A. R. SUBMITTED THAT T HE ENTIRE EXPENDITURE I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 5 WAS OPEN TO VERIFICATION AND ASSESSING OFFICER HAS MERELY ACTED ON PRESUMPTION. IN OUR OPINION, THE ASSESSING OFFICER CANNOT MAKE AD HOC DISALLOWANCE SPECIFICALLY IN VIEW OF THE CASE LAWS RELIED ON BY LEARNED A. R. HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ASHOK SU RANA VS. CIT [2016] 384 ITR 267 (CAL) HAS HELD AS UNDER: THE ASSESSEE WAS AN INDIVIDUAL ENGAGED IN THE BUSI NESS OF PRODUCING TELEVISION SERIALS AND HAD OFFICES AT CAL CUTTA, BANGALORE, DELHI AND MUMBAI. FOR THE ASSESSMENT YEA R 2001- 02, THE ASSESSEE HAD SHOWN TO HAVE INCURRED EXPENSE S ON ACCOUNT OF TELEPHONE. THE ASSESSING OFFICER DISALLO WED 20 PER CENT. OF THE EXPENDITURE ON THE GROUND THAT THE ASS ESSEE FAILED TO MAINTAIN A CALL BOOK FOR MONITORING CALLS AND TH AT A PART OF SUCH CALLS WERE FOR PERSONAL AND NON-BUSINESS USE. THE ASSESSEE ALSO CLAIMED EXPENSES OF THE MUMBAI OFFICE , PART OF WHICH WERE SUPPORTED BY INTERNAL DEBIT VOUCHERS AND CLAIMED GENERAL EXPENSES AND EXPENSES TOWARDS TEA AND TIFFI N, SUPPORTED BY DEBIT VOUCHERS. THE ASSESSING OFFICER, DISALLOWED 20 PER CENT. OF EXPENSES ON THE GROUND THAT THEY WE RE NOT VERIFIABLE. THE COMMISSIONER (APPEALS) CONFIRMED TH IS. THE TRIBUNAL RESTRICTED THE DISALLOWANCE. ON APPEAL: HELD, THAT IT WAS NOT THE CASE OF THE ASSESSING OFF ICER THAT THE ASSESSEE WAS UNABLE TO ADDUCE SATISFACTORY EVIDENCE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF HIS BUS INESS. WHEN APPROPRIATE EVIDENCE WAS ADDUCED, IT WAS NOT IN THE POWER OF THE ASSESSING OFFICER TO ARBITRARILY DISALLOW ANY I TEM OF EXPENDITURE ON THE GROUND THAT THE SUMS WERE NOT VE RIFIABLE. THERE WAS NO INDICATION AS TO WHAT STEP WAS TAKEN B Y THE ASSESSING OFFICER TO HAVE THOSE EXPENSES VERIFIED. IF THE ASSESSING OFFICER HAD NOT TAKEN PAINS TO HAVE THE E XPENSES VERIFIED, HE COULD NOT DISALLOW ANY PORTION OF THE EXPENDITURE ON THE GROUND THAT IT WAS NOT VERIFIABLE. THE EXPENSES WERE TO BE ALLOWED. SIMILAR FINDINGS HAVE BEEN MADE IN OTHER CASE LAWS RELIED ON BY LEARNED A. R. I.T.A. NO.41/LKW/2017 ASSESSMENT YEAR:2012-13 6 4.3 IN VIEW OF THE ABOVE, THE DISALLOWANCES SUSTAIN ED BY LEARNED CIT(A) ARE NOT IN ORDER AND THEREFORE, WE DELETE THE AD HO C DISALLOWANCE CONFIRMED BY LEARNED CIT(A). 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 22/02 /2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:22/02/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW