The ITO, Ward-1, Patan V. Shreekunj Creators, Patan

ITA 415/AHD/2012

• Counselvise Citation: 41520514 RSA 2012
• Duration Of Justice: 3 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Rejection of books of accounts; Difference of opinion; Corroborative evidences; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI G. D. AG RAWAL, VICE PRESIDEN T, AND SHRI S. S. GODAR A, JUDICIAL MEMBER . ITA. NO. 415 /AHD/201 2 (ASSES SMENT YEAR:200 5 - 0 6 ) I.T.O., WARD - 1, PATAN A PPELLANT VS. SHREEKUNJ CREATORS SHREEKUNJ STATION ROAD, AT & P.O. PATAN RESPONDENT PAN: AA NFS1094D / BY REVENUE :SHRI DINESH SINGH, SR. D.R. / BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. / DATE OF HEARING : 12 . 08.2015 / DATE OF PRONOUNCEMENT : 04 .0 9 .2015 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENU ES APPEAL FOR ASSESSMENT YEAR 20 0 5 - 0 6 ARISE S FROM ORDER OF THE CIT(APPEALS), GANDHINAGAR, DATED NOVEMBER 09/11/ 2011 PASSED IN APPEAL N O. CIT(A) /GNR / 2 61 / 10 - 11 , IN PROCEEDINGS U/S.143(3) R.W.S . 147 OF THE INCOME TAX ACT, 1961, HEREAFTER THE ACT . ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 2 2. FOLLOWING ARE THE SUBSTANTIVE GROUNDS PLEADED IN T HE APPEAL. 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONSIDERING THE RE - ASSESSMENT INVALID BY NOT APPRECIATING THAT EXPLANATION 2(C)(I) TO SECTION 147 OF THE I T ACT WAS APPLICABLE IN THE CASE. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS OF TH E CASE IN HOLDING THAT RE - OPENING OF ASSESSMENT WAS MERE CHANGE OF OPINION WITHOUT APPRECIATING THE FACT THAT THERE WAS NO CONSCIOUS CONSIDERATION ON THE ISSUE OF INTEREST FREE LOANS BY THE AO DURING ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE I T ACT. THE ASSESSING OFFICER HAD NOT FORMED ANY OPINION IN THIS REGARD AT THE TIME OF ORIGINAL ASSESSMENT. 3. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING DISALLOWANCE OF INTEREST EXPENSES WHEN FUNDS ( INTEREST BEARING FUNDS) WERE UTILIZED FOR NON - BUSINESS PURPOSES SPECIALLY FOR INTEREST FREE ADVANCES OF RS.80,52,240/ - GIVEN TO M T SHROFF, ASSOCIATE CONCERN OF ONE OF THE PARTNERS. 3. THE ASSESSEE - FIRM CARRIES LAND DEVELOPMENT BUSINESS. IT FILE D RETURN ON 31.10.2005 ADMITTING INCOME OF RS.3,51,260/ - . THE ASSESSING OFFICER FRAMED A REGULAR ASSESSMENT ON 26.11.2007 DISALLOWING A SUM OF RS.20,000/ - ON TELEPHONE EXPENSES. TOTAL INCOME ACCORDINGLY STOOD ASSESSED AS RS.3,71,260/ - . 4. T HE ASSESSING OFFICER THEREAFTER FOUND REASONS TO BELIEVE THAT ASSESSEES INCOME LIABLE TO BE ASSESSED HAD ESCAPED ASSESSMENT. HE ISSUED THE REOPENING NOTICE U/S.148 OF THE ACT DATED 30.3.2010 AFTER RECORDING THE FOLLOWING R EASONS: 'GOING THROUGH THE CASE RECORDS IT AP PEARS THAT THE ASSESSEE PAID INTEREST TO ITS PARTNERS AND A DEPOSITORS TO EXTENT OF RS. 19,08,2 47, BUT FAILED TO CHARGE INTEREST ON THE LOA N ADVANCED TO THE TUNES OF RS. 1 , 11 ,99,404/ - . AS THE ASSESSEE FAILED TO CHARGE INTEREST ON THE ABOVE AMOUNT RESULTED IN TO UNDERASSESSMENT TO THE TUNE OF RS. 13,43,928/ - AND SHORT LEVY OF TAX OF RS.6,49,146/ - '. ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 3 5. THE ASSESSEE FILED A LETTER DATED 09.05.2010 SEEKING TO TREAT ITS INCOME ALREADY ADMITTED ASSESSED TO BE THAT RELEVANT FOR THE IMPUGNED RE - OPENING AS WELL. THE A SSESSING OFFICER NOTICED IN THE COURSE OF RE - ASSESSMENT THAT IT HAD PAID INTEREST TO PARTNERS AND DEPOSITORS OF RS.19,08,247/ - AND NO INTEREST HAD BEEN CHARGED ON LOANS OF RS.1,11,99,404/ - ADVANCED TO 10 PARTIES. THE ASSESSING OFFICER COMPUTED INTEREST @ 12% THEREUPON OF RS.13,43,928/ - AND DISALLOWED IT IN RE - ASSESSMENT FRAMED ON 24.12.2010. 6. THE ASSESSEE PREFERRED APPEAL CHALLENGING VALIDITY OF THE REOPENING AS WELL AS CORRECTNESS OF THE INTEREST DISALLOWANCE HEREINABOVE ON MERITS. THE CIT(A) ACCEPTS BOTH THESE PLEAS AS UNDER: 6. THE FIRST GROUND OF APPEAL IS ON THE ISSUE OF VALIDITY OF REOPENING. AS DISCUSSED EARLIER, THE REASONS RECORDED ARE AS UNDER: ON GOING THROUGH THE CASE RECORDS IT APPEARS THAT, THE ASSESSEE PAID INTEREST TO ITS PARTNERS AN D THE DEPOSITORS TO THE EXTENT OF RS.19,08,247/ - BUT FAILED TO CHARGE INTEREST ON THE LOAN ADVANCED TO THE TUNE OF RS.1,11,99,404/ - . AS THE ASSESSEE FAILED TO CHARGE INTEREST ON THE ABOVE AMOUNT RESULTED INTO UNDER ASSESSMENT TO THE TUNE OF RS.13,43,928/ - AND SHORT LEVY OF TAX OF RS.6,49,146/ - . FROM THE REASONS ITSELF, THE FOLLOWING FACTS ARE DISCERNABLE: A) THE INCOME ESCAPING ASSESSMENT IS CLAIMED TO BE INTEREST HOT CHARGED. WHEN INTEREST IS NOT CHARGEABLE AS PER THE TRANSACTION ENTERED, NO INTEREST CA N BE BROUGHT TO TAX ON NOTIONAL BASIS. THE OPENING ON THIS FORMATION OF BELIEF IS CLEARLY INVALID. B) EVEN IF WE TAKE IT AS ASSUMED DISALLOWANCE OF INTEREST, A V ALID REASON TO BELIEVE WOULD REQUIRE - (I) THE BELIEF THAT THE ADVANCE IS FOR NON - BUSINESS PURP OSE AND (II) THE ADVANCE IS FROM INTEREST BEARING FUND. NO SUCH BELIEF IS RECORDED AND THEREFORE, THE REASONS RECORDED ARE NOT THE LOGICAL BASIS FOR FORMATION OF BELIEF FOR INCOME HAVING ESCAPED ASSESSMENT. ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 4 THE HON'BLE CALCUTTA HIGH COURT HAS DECIDED IN T HE CASE OF EAST WEST COMMERCIAL CO LTD 128 ITR 326 (CAL) THAT 'CIRCUMSTANCES MUST EXIST AND CAN T BE DEEMED TO EXIST, BELIEF SHOULD BE HONEST AND NOT BASED ON SUSPICION, GOSSIP OR CONJECTURE'. HERE THE SO CALLED BELIEF, W I THOUT CONSIDERING THE RELEVANT FAC TS AND THE CIRCUMSTANCES OF THE SO CALLED COMPARABLE CASES IS REACHING MERE CONJECTURES. FURTHER, THE ORIGINAL ASSESSMENT WAS U/S 143(3). NO NEW INFORMATION WAS AVAILABLE WITH THE AO FOR FORMATION OF A NEW BELIEF. THE HON'BLE SUPREME COURT IN THE CASE OF DINESHCHANDRA H. SHAH 82 ITR 367 HAD HELD THAT A CASE CANNOT BE RE OPENED ON MERE CHANGE OF OPINION. THIS HAS BEEN REITERATED IN T H E CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561 IN THE LIGHT OF PRESENT LA W . THE A.O. HAS GOT NO POWER TO REVIEW. THE RE - OPENI NG IN THIS CASE BEING A CLEAR CASE OF CHANGE OF OPINION, BASED ON CONJECTURES, A CASE WHERE NO NEW INFORMATION IS THERE, IS HELD INVALID. THE RE - ASSESSMENT PROCEEDINGS ARE THEREFORE DIRECTED TO BE ANNULLED. 7. GROUNDS 2, 3 & 4 ARE O N THE MERITS OF THE ADDITION OF R S. 13,43,928/ - , I N THE REASSESSMENT PROCEEDINGS AND THE GROUNDS ARE TAKEN TOGETHER . I) THE MAJOR ADVANCES WHICH IS INTEREST FREE IS TO M.T. SHROFF WHICH IS AMOUNTING TO RS. 80,52,840/ - . THE APPELLANT BEFORE THE AO HAD GIVEN THE FOLLOWIN G REASONS FOR GIVING THE AMOUNT INTEREST FREE: A) THE AMOUNT WAS GIVEN TO SISTER CONCERN SO THAT THIS CAN BE RECEIVED AT SHORT NOTICE FOR THE PURPOSE OF RUNNING BUSINESS. B) THE FUNDS WERE GIVEN FROM INTEREST FUNDS RECEIVED FROM RUDRAKSH DEVELOPERS AMOU NTING TO RS.1,05,00,997/ - THE AO HAS REJECTED THE CONTENTIONS WITH THE FOLLOWING COMMENTS: 'IT IS NOT UNDERSTOOD WHY ASSESSEE NEEDS TO TAKE INTEREST FREE ADVANCE FROM RUDRAKSH DEVELOPERS WHEN ASSESSEE IS HAVING FUND OF RS. 80,52,840/ - WITH HIM WHICH ASSE SSEE HAS ADVANCED INTEREST FREE TO M. T. SHROFF. THEREFORE, THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE AT ALL.' NOW, WITHOUT PROVING OR EVEN DOUBTING THAT THE ADVANCE WAS FROM INTEREST FREE FUNDS, HOW CAN AN ADDITION OF 12% OF THE ADVANCE CAN BE MADE ON MERE CONJECTURES AND SURMISES. IN FACT, NO INTEREST INCOME CAN BE BROUGHT TO TAX WHICH IS NOT RECEIVABLE. FURTHER, WHERE THE ADVANCE IS FROM INTEREST FREE FUND, THERE CANNOT BE DISALLOWANCE U/S.36 ( 1 )(III). NO ADDITION/DISALLOWANCE IS THEREFORE JUSTIFIED W ITH RESPECT TO THIS ADVA N CE. ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 5 II) ADVANCES CLAIMED TO CUSTOMERS DILIPBHAI R. MAYANKER RS.8,28,764/ - , RASHMIKA A. PATEL RS.11,00,000/ - , SHILP BUILDERS RS. 1,79,4007 - & JYOTI M. KAPADIA RS.6,3 9,000 / - THE APPELLANT HAS CLAIMED BEFORE THE AO THAT THESE WER E PAYMENTS DUE FROM THEIR CUSTOMERS. NOT ONLY THIS, THEY HAVE GIVEN THE NAMES AND SPECIFIC PROPERTY WHICH IS SHOWN ALLOTTED TO THEM. WITHOUT GIVING ANY SPECIFIC REQUIREMENT THE AO WENT ON TO REJECT THE CONTENTION OF THE ASSESSEE FOR WANT OF EVIDENCES. IT IS NOT UNDERSTOOD HOW CAN THE CLAIM OF SALE OF PROPERTIES BE DOUBTED, WITHOUT DISTURBING THE SALE FIGURES SHOWN BY THE APPELLANT. IT IS SEEN THAT THE CASE WAS ASSESSED UNDER SCRUTINY AFTER EXAMINATION OF ACCOUNTS IN THE REGULAR ASSESSMENT TOO. THE TRADING RESULTS HAVE BEEN ACCEPTED IN BOTH ASSESSMENT AND REASSESSMENT PROCEEDINGS. THE AO, IT APPEARS WAS PREJUDICED IN MAKING THE ADDITION. IN FACT, NO INTEREST INCOME CAN BE BROUGHT TO TAX WHICH IS NOT RECEIVABLE. NO NEXUS HAS BEEN PROVED FROM THE LOANS TAKEN. THE ASSESSEE HAD CLAIMED INTEREST FREE FUNDS OF OVER RS.2 CRORES WHICH HAS NOT BEEN CONTRADICTED. IN THESE FACTS AND CIRCUMSTANCES, NO DISA LLOWANCE EVEN UNDER SECTION 36(1 )(III) IS JUSTIFIED, BASED ON THESE DEBIT BALANCES. III) ARVINDBHAI R. PRAJAPATI RS . 1,00,000; KANTABEN G. PRAJAPATI RS.50,000; BHAILALBHAI R. PRAJAPATI RS.1,00,000; SMT. KASHIBEN R. PRAJA PATI RS. 1,00,000 AND LAXMIBEN J. PRAJAPATI RS. 50,000 THE APPELLANT HAS CLAIMED THAT THE ADVANCE PAYMEN TS TO THESE 5 PERSONS WAS MADE FOR PURCHASE OF THE LAND. SPECIFIC SURVEY NUMBER AND ADDRESS HAS BEEN GIVEN. IT HAS BEEN FURTHER CLAIMED THAT THE LAND WA S ACTUALLY PURCHASED FROM THEM IN THE SUBSEQUENT YEAR AND THE ADVANCE WA S ADJUSTED . THE AO HAS REJECTED THE CONTENTIONS WITH THE FOLLOWING COMMENTS: 'THE ASSESSEE PREPARED ACCOUNT OF THE PERSONS IN THE BOOKS OF SHREEKUNJ CREATORS AND COPY OF THAT ACCOUNT WITHOUT ENCLOSING ANY SUPPORTING EVIDENCES AS MENTIONED ABOVE DOES NOT ALLOW THE ASSESSEE TO ESCAPE FROM NO T CHARGING INTEREST @12% ON RS.1 , 00 , 000/ - .' THE AO HAS REJECTED THE CONTENTION WITHOUT ACTUALLY ASKING FOR ANY EVIDENCES AS HE HAS DISCUSSED. THE SPE CIFIC ADDRESS OF PROPERTY HAS BE EN GIVEN. THE PROPERTY HAS BEEN PURCHA SED LATER ON. IN CASE THE AO W A S DOUBTING THE COPY OF ACCOUNTS OF ALL THE PAT TIES, HE SHOULD HAVE AT LEAST REJECTED THE BOOKS OF ACCOUNTS. THE BOOKS CAN BE MANIPULATED TO SUCH AN EXTENT ONLY WITH MAJOR FRAUDULENT ENTRIES. THE AO, IT APPEARS WAS PREJUDICED IN MAKING THE ADDITION. IN FACT, NO INTEREST INCOME ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 6 CAN BE BROUGHT TO TAX WHI CH IS NOT RECEIVABLE. NO NEXUS HAS BEEN PROVED FROM THE LOANS TAKEN. THE ASSESSEE HAD CLAIMED INTEREST FREE FUNDS OF OVER RS.2 CRORES WHICH HAS NOT BEEN CONTRADICTED. IN THESE FACTS AND CIRCUMSTANCES, NO DISALL OWANCE EVEN UNDER SECTION 36(1 )(III) IS JUST B ASED ON THESE DEBIT BALANCES. IN TOTALITY, THE TOTAL ADDITION OF RS.13,43,928/ - IS NOT HELD JUS AND IS DIRECTED TO BE DELETED. 7. THE REVENUE ARGUES THAT THE CIT(A) HAS ERRED IN QUASHING VALIDITY OF THE REOPENING AS WELL AS IN DELETING THE IMPUGNED INTE REST DISALLOWANCE ON MERITS. CASE LAW OF 2014 44 TAXMANN. COM 450 (ALLAHABAD) GHAZIABAD ISPAT UDHYOG VS. DCIT IS QUOTED IN SUPPORT. WE FIND THIS DECISION TO BE INAPPLICABLE AS THE ASSESSING OFFICER THEREIN HAD REOPENED THE ASSESSMENT AFTER CONDUCTING A D ISCREET INQUIRY WHICH PROVED UNSECURED LOANS OBTAINED FROM PAPER COMPANIES. THIS CASE LAW IS ACCORDINGLY DISTINGUISHED. THE ASSESSEE STRONGLY SUPPORTS THE CIT(A)S ORDER EXTRACTED HEREINABOVE. IT ALSO FILES A PAPER BOOK COMPRISING OF THE CASE RECORD. 8. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE CASE FILE. RELEVANT FACTS NARRATED HEREINABOVE ARE NOT REPEATED FOR THE SAKE OF BREVITY. THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT IN QUESTION ON THE GROUND THAT ASSESSEE PAID INTEREST TO ITS P ARTNERS/DEPOSITORS ON THE ONE HAND AND DID NOT CHARGE THE SAME QUA IMPUGNED ADVANCES OF RS.1,11,99,404/ - . HE ACCORDINGLY ADDED 12% INTEREST IN RE - ASSESSMENT. THE CIT(A) HOLDS THAT THE ASSESSEE HAS ALREADY AVAILED INTEREST FREE LOANS AND ADVANCED THE SAME TO THE ABOVE STATED 10 PARTIES. ITA NO. 41 5 /AHD/201 2 , A.Y. 0 5 - 0 6 ( IT O VS. SHREEKUNJ CREATORS ) 7 AND THAT A PORTION THEREOF WAS EARMARKED FOR PURCHASING LAND. ALL THESE CRUCIAL FINDINGS HAVE GONE UNREBUTTED IN THE COURSE OF HEARING BEFORE US. THIS IS NOT THE REVENUES CASE THAT THE ASSESSEE HAD DIVERTED ANY OF ITS I NTEREST BEARING FUND IN MAKING INTEREST FREE ADVANCES OR IT DID NOT HAVE PROPORTIONATE NON - INTEREST BEARING FUNDS AVAILABLE. THE RELEVANT BALANCE SHEET AND P&L ACCOUNT AND BALANCE SHEET FORM PART OF THE CASE RECORD AT PAGES 18 AND 19 OF THE PAPER BOOK. T HE REVENUE IS UNABLE TO REBUT CORRECTNESS THEREOF. WE ACCORDINGLY UPHOLD THE CIT(A)S FINDING QUASHING REOPENING ON LEGALITY AND IMPUGNED ADDITION OF INTEREST ON MERITS . THE REVENUES ARGUMENTS ON BOTH COUNTS FAIL. 5. THIS REVENUES APPEAL IS DISMI SS ED . PRONOUNCED IN THE OPEN COURT ON THIS THE 04 TH DAY OF SEPTEMBER , 201 5 . SD/ - SD/ - (G. D. AGRAWAL) (S. S. GODARA) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD: DATED 04 /0 9 /2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1. / REVENUE 2. / ASSESSEE 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER / , / ,