The ACIT, Mehsana Circle, Mehsana V. Shri Rajni J.Desai, Mehsana

ITA 4168/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6028 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: G C PIPARA
• Keywords: Question of law; Notional interest; Tax effect; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER DATE OF HEARING : 01/06/2010 DRAFTED ON: 01/06/ 2010 APPEAL(S) SL. NO(S). ITA NO(S) ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 4165/AHD/2007 2003-04 ACIT MEHSANA CIRCLE MEHSANA SHRI RAJESH J.DESAI 5, ASHOKNAGAR SOCIETY RADHANPUR ROAD MEHSANA PAN:AAWPD3248B 2. 4166/AHD/2007 2004-05 -DO- -DO- 3. 4167/AHD/2007 2004-05 -DO- SHRI RAMESH J.DESAI 5, ASHOKNAGAR SOCIETY RADHANPUR ROAD MEHSANA PAN:AAWPD3249A 4. 4168/AHD/2007 2004-05 -DO- SHRI RAJNI J.DESAI 5, ASHOKNAGAR SOCIETY RADHANPUR ROAD MEHSANA PAN:AAWPD3250B 5. 4040/AHD/2007 2003-04 -DO- SHRI RAMESH J.DESAI MEHSANA 6. 4042/AHD/2007 2003-04 -DO- SHRI RAJNI J.DESAI MEHSANA ASSESSEE(S) BY : SHRI G.C. PIPARA REVENUE BY : SHRI M.C.PANDIT, SR.D.R. O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THE APPEALS BEARING ITA NOS.4165 TO 4168/AHD/2007 HAVE BEEN FILED BY THE REVENUE ARISING FROM THE ORDERS OF LEA RNED CIT(APPEALS)- XXI, AHMEDABAD DATED 14/09/2007 AND 17/09/2007. IN ALL THESE YEARS, THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOW ANCE OF NOTIONAL ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 2 - INTEREST. THE ITA NOS. I.E. 4040 AND 4042/AHD/2007 FOR ASSESSMENT YEAR 2003-04 HAVE ALSO BEEN FILED BY THE REVENUE I N THE CASE OF S/SHRI RAMESH J.DESAI AND RAJNI J. DESAI RESPECTIVELY ARIS ING FROM THE ORDERS OF LEARNED CIT(APPEALS)-XXI, AHMEDABAD DATED 06/08/200 7, WHEREIN ALSO IDENTICALLY THE REVENUE HAS CHALLENGED THE QUESTION OF ADDITION ON ACCOUNT OF NOTIONAL INTEREST. (A) ITA NOS.4166 TO 4168/AHD/2007 AS FAR AS THE DISALLOWANCE OF INTEREST FOR ASSESSME NT YEAR 2004-05 IN THE CASE(S) OF S/SHRI RAJESH J. DESAI, RAMESH J. DESAI AND RAJNI J.DESAI ARE CONCERNED, THE AMOUNT OF DISALLOWANCE W AS NOMINAL AS STATED BY THE PARTIES APPEARING BEFORE US. ON ACCOUNT OF THIS REASON, IT WAS OBJECTED FROM THE SIDE OF THE RESPONDENT-ASSESSEE N OT TO ENTERTAIN THESE THREE APPEALS OF THE REVENUE ON THE GROUND OF TAX EFFECT LESS THAN THE PRESCRIBED LIMIT. 2. AT THE OUTSET, A QUERY WAS RAISED BY THE BENCH AS TO THE MAINTAINABILITY OF THE APPEALS, IN VIEW OF RECENT C BDT CIRCULAR RESTRICTING FILING OF APPEALS BY THE REVENUE, THE L EARNED DR DID NOT CONTROVERT THE SAME, AND STATED THAT THE TAX EFFECT IN THE PRESENT CASES ARE BELOW THE TAX LIMIT PRESCRIBED THE CBDT. LEARNED C OUNSEL FOR THE ASSESSEE CONTENDS THAT IN VIEW OF THE VARIOUS INSTR UCTIONS OF THE CBDT RESTRICTING THE FILING OF APPEALS BEFORE THE APPELL ATE TRIBUNALS, HIGH COURTS AND SUPREME COURT, THE APPEALS FILED BY THE REVENUE SHOULD BE DISMISSED IN LIMINE . ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 3 - 3. AFTER HAVING HEARD BOTH PARTIES, CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND THE CBDT CIRCULARS ON THIS ISSUE, WE FIND THAT ITAT IS TAKING CONSISTENT VIEW IN NUMBER OF CASES ABOUT ADM ISSIBILITY OF APPEAL(S) FILED BY THE REVENUE IN VIEW OF VARIOUS I NSTRUCTIONS ISSUED BY CBDT FROM TIME TO TIME, VIZ. INSTRUCTION NO.1979 DA TED 27-3-2000, NO.1985 DATED 29-6-2000, NO.6 OF 2003 DATED 17-07-2 003, NO.19 OF 2003 DATED 23-12-2003, NO.5/2004 DATED 27-5-2004, NO.2/2005 DATED 24-10-2005 AND NO.5/2007 DATED 16-7-2007 AND LASTLY INSTRUCTION NO.F.NO.279/MISC.142/2007-IT DATED 15-5-2008 WHEREI N MONETARY LIMITS FOR FILING DEPARTMENTAL APPEALS (INCOME-TAX MATTERS) AND OTHER CONDITIONS WERE SPECIFIED, FOR FILING APPEALS BEFOR E APPELLATE TRIBUNALS, HIGH COURTS AND SUPREME COURT. DECISION OF COORDIN ATING BENCH OF ITAT, RAJKOT IN THE CASE OF ACIT VS. RAJOO ENGINEE RS LTD.[2006] 100 ITD 555, WHEREIN THE HON'BLE BENCH HAS DISMISSED TH E REVENUES APPEAL BY HOLDING AS UNDER (HEAD NOTES):- IT IS TRUE THAT THE HIGH COURT DECISION IN COMMISS IONER OF INCOME-TAX V. PITHWA ENGG. WORKS [2005], 276 ITR 519 WAS NOT DEAL ING WITH THE NEW LIMIT OF THE CIRCULAR DATED 24-10-2005. IT WAS WITH REFE RENCE TO THE EARLIER CIRCULAR WHERE REFERENCE WAS NOT REQUIRED TO BE FILED TO THE HIGH COURT IF THE TAX EFFECT WAS LESS THAN RS.2 LAKHS. THE CONTENTION OF THE RE VENUE IN THAT CASE WAS THAT RS.2 LAKHS LIMIT WAS INCREASED BY CIRCULAR DATED 27 -3-2000 AND PRIOR TO THAT, THE LIMIT WAS ONLY RS.50,000/- AND THE CONTENTION O F THE REVENUE WAS THAT THE NEW LIMIT WOULD NOT BE APPLICABLE TO THE OLD REFERE NCES. THE HIGH COURT REJECTED THE SAID CONTENTION OF THE REVENUE. [PARAG RAPH 4]. IN THOSE CIRCUMSTANCES, THOUGH THE SAID HIGH COURT DECISION DID NOT DEAL WITH THE CIRCULAR DATED 24-10-2005, BUT IT HAD DEALT WIT H THE EARLIER CIRCULAR AND THE LIMITS OF THAT CIRCULAR WERE APPLIED EVEN TO TH E CASES WHICH WERE PRIOR TO THE OLD CIRCULAR. THEREFORE, THE RATIO OF THAT DECI SION WAS APPLICABLE IN THE INSTANT CASE AS WELL. THE CBDT HAS TAKEN A POLICY DECISION NOT TO FILE APPEALS IN SUCH TYPE OF CASES AND THE CIRCULAR IS BINDING O N THE REVENUE EVEN TO APPEALS FILED BEFORE 31-10-2005 AND THE DEPTT.. WOU LD NOT BE JUSTIFIED IN PROCEEDING WITH THOSE APPEALS WITHIN THE MONETARY L IMIT OF TAX EFFECT PRESCRIBED IN THE CIRCULAR DATED 24-10-2005 [PARAGR APH 5]. ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 4 - THE CONTENTION OF THE REVENUE THAT THE CASE OF THE ASSESSEE WAS COVERED BY THE EXCEPTION 3 HAD ALSO NO FORCE INASMUCH AS THE SAID EXCEPTION PROVIDES THAT THE CBDT HAS ALSO DECIDED THAT IN CASES INVOLVING S UBSTANTIAL QUESTION OF LAW OF IMPORTANCE AS WELL AS IN CASES WHERE THE SAME QU ESTION OF LAW WILL REPEATEDLY ARISE, EITHER IN THE CASE CONCERNED OR I N SIMILAR CASES, SHOULD BE SEPARATELY CONSIDERED ON MERITS WITHOUT BEING HINDE RED BY THE MONETARY LIMITS [PARAGRAPH 6]. 4. IN THIS VIEW OF THE MATTER, RESPECTFULLY FOLLOWI NG VARIOUS ORDERS OF THIS TRIBUNAL ON THIS ISSUE INCLUDING THE DECISION CITED ABOVE, WE DISMISS THE APPEALS OF THE REVENUE IN LIMINE . 5. IN THE RESULT, ALL THE THREE APPEALS OF THE RE VENUE ARE DISMISSED IN LIMINE. 6. NOW, WE ARE LEFT WITH THE APPEAL OF SHRI RAJESH J.DESAI, I.E. ITA NO.4165/AHD/2007 FOR ASSESSMENT YEAR 2003-04. FACT S IN BRIEF IN THIS REGARD AS EMERGED FORM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 20/03/2006 WERE THAT ON ONE HAND, THE ASSESSEE HAS TAKEN LOAN FROM BANK STATED TO BE ON INTEREST AT TH E RATE OF 18%, HOWEVER, ON THE OTHER HAND, THE ALLEGATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE DIVERTED HIS FUNDS TO RELATIVES ON INTERES T AT THE RATE OF 12%. THEREAFTER, THE ASSESSING OFFICER HAS MADE AN ELABO RATE DAY-WISE EFFECT OF DIFFERENCE OF INTEREST FOR THE ENTIRE PERIOD IN QUESTION AND THEREUPON MADE A DISALLOWANCE OF RS.14,70,552/-. BEING AGGRI EVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 7. AFTER DETAILED DISCUSSION AND ON EXAMINATION OF FEW CASE LAWS, THE LEARNED CIT(APPEALS) HAS MADE AN OBSERVATION THAT T HE APPELLANT HAD ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 5 - MADE THE PAYMENT OF INTEREST WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF HIS BUSINESS. VIDE PARAGRAPH NO.5, IT WAS FURTHER OBSERVED THAT ADMITTEDLY THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LAND. HE HAS ALSO MENTIONED THAT THE ASSESSEE HA S CARRIED OUT LAND DEVELOPMENT ACTIVITY. ACCORDING TO HIM, IT WAS A MATTER OF COMMON KNOWLEDGE THAT WHILE PURCHASING LAND FROM FARMERS, THE NORMAL MODE OF PAYMENT WAS IN CASH AND FOR THAT PURPOSE, HUGE CASH WAS ALWAYS AVAILABLE AS CASH BALANCE IN HAND. HE HAS ALSO NOT ED THAT IT WAS NOT THE CASE OF ASSESSING OFFICER THAT THE BORROWED FUNDS H AVE NOT BEEN UTILIZED FOR THE PURPOSE OF THE BUSINESS. ACCORDING TO HIM , REVENUE MUST NOT BE PERMITTED TO DECIDE THE MANNER IN WHICH A BUSINESS MAN SHOULD CARRY OUT HIS BUSINESS. THE LEARNED CIT(APPEALS) HAS ALSO DI SCUSSED THE THEORY OF REAL INCOME. ACCORDING TO HIM, NOTIONAL INCOME SHOULD NOT BE SUBJECT TO TAX AND ONLY THE REAL INCOME IS SUBJECT TO TAX AS HELD IN THE CASE OF B AND A PLANTATIONS & INDUSTRIES LTD. VS. CIT (20 01) 117 TAXMAN 323 (GAUHATI) FOR THE PROPOSITION THAT NOTIONAL INTERES T ON LOANS SHOULD NOT BE ADDED FOR TAX PURPOSE. IN ORDER TO FIND OUT THE CO RRECT POSITION OF THE TOTAL AMOUNT BORROWED BY THE APPELLANT ON INTEREST AND AMOUNT OF INTEREST PAID, THE APPELLANT WAS ASKED TO FURNISH THE REQUIS ITE DETAILS. IT WAS ALSO ASKED TO CALCULATE BOTH THE AVERAGE RATE OF INTERES T PAID AND THE AVERAGE RATE OF INTEREST RECEIVED. IN COMPLIANCE, FEW CHAR TS WERE PRODUCED AND ON THE BASIS OF SEVERAL CALCULATIONS MADE BY THE AS SESSEE, THE LEARNED CIT(APPEALS) HAS ARRIVED AT THE FOLLOWING CONCLUSIO N:- FROM THE ABOVE CHART IT IS CLEAR THAT ON THE FOLLO WING DATES EXCESS AMOUNT HAS BEEN ADVANCED AS INTEREST FREE WHICH HAS BEEN GIVEN FROM INTEREST BEARING FUNDS. ON THE SAID AMOUNT INTERE ST @ 18% IS DISALLOWED, FOLLOWING DETAILED FINDING GIVEN BY ME IN APPELLATE ORDER ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 6 - NO.CIT(A)-XXI/MEH/173/06-07 DATED 6/08/2007 IN CASE OF RAJNI J.DESAI FOR A.Y. 2003-04. DATE AMOUNT ADVANCED INTEREST @ 18% -------------- --------------------- ----------- -------- 24-03-2003 5,03,388 745/- 27-03-2003 54,03,388 10,659/- 31-03-2003 42,66,857 2,104/- ACCORDINGLY, AN AMOUNT OF RS.13,508/- IS HEREBY SEP ARATELY CONFIRMED. THE ADDITION HAS BEEN CONFIRMED BY ME ON A DIFFEREN T GROUND THAN THE ADDITION MADE BY THE A.O. AS DISCUSSED BY ME HEREIN ABOVE. ACCORDINGLY, ADDITION OF RS.1,00,928/- (87420/- + 1 3,508/-) HEREBY CONFIRMED AND BALANCE AMOUNT OF RS.13,69,624/- IS H EREBY DELETED OUT OF THE TOTAL AMOUNT OF RS.14,70,552/-. 8. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND NO F ALLACY IN THE DECISION OF LEARNED CIT(APPEALS) PRIMARILY ON THE G ROUND THAT NO COGENT OR DIRECT EVIDENCE WAS PLACED FROM THE SIDE OF THE REVENUE TO DEMONSTRATE THAT THE BORROWED FUNDS HAVE BEEN DIVER TED TOWARDS ADVANCE TO RELATIVES. SECONDLY, IT HAS ALSO NOT BEEN DEMO NSTRATED BY THE REVENUE DEPARTMENT THAT THE BORROWED FUNDS WERE FACTUALLY N OT UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT ONLY ON NOTIONAL BASIS THE ADDITION WAS MADE. BEFORE US, IN ADDITION TO THE CASE LAW CITED BY THE LEARNED CIT(A PPEALS), THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE ON GODHRA ELECTRICITY CO.LTD. 225 ITR 746(SC) FOR THE PROPOSITION THAT NO HYPOTHETICAL INCOME SHOULD BE SUBJECT TO TAX. ON CE IT IS PROVED TO THE HILT, AS DISCUSSED BY LEARNED CIT(APPEALS), THAT IT WAS FOR COMMERCIAL EXPEDIENCY THEN IN ADDITION TO THE ABOVE RULINGS, A DECISION OF HON'BLE SUPREME COURT IS ALSO WORTH CITATION VIZ. S.A.BUIL DERS LTD. (2007) 288 ITR 01(SC) CONSIDERING THE TOTALITY OF THE FACTS A ND CIRCUMSTANCES OF ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 7 - THE CASE AND THE SEVERAL CHARTS FURNISHED, WE ARE O F THE VIEW THAT THERE IS NO FALLACY IN THE FINDINGS OF THE LEARNED CIT(APPEA LS), HENCE CONFIRMED. WITH THE RESULT, THE REVENUES GROUND IS HEREBY DIS MISSED. (B) ITA NOS.4040 & 4042/AHD/2007 9. THESE TWO CASES ARE ALSO PART OF THE GROUP CASES WHICH WERE HEARD ON 01/06/2010 AND CLUBBED TOGETHER. IN THESE TWO CASE S AS WELL THE REVENUE HAS CHALLENGED THE QUESTION OF ADDITION OF NOTIONAL INTEREST. FACTS OF THESE TWO CASES ARE IDENTICAL AS ALREADY DISCUSSED SUPRA. PARTIES APPEARING BEFORE US HAVE AGREED THAT THE DECISION I N RESPECT OF THE OTHER CASES SHALL APPLY MUTATIS MUTANDIS ON THESE TWO AP PEALS. ONCE A VIEW HAS ALREADY BEEN TAKEN AS NOTED ABOVE, THEREFORE, O N IDENTICAL LINES THE GROUND RAISED BY THE REVENUE IN THESE TWO APPEALS I S HEREBY DISMISSED. 10. IN THIS MANNER, THREE APPEALS BEARING ITA NOS.4 166, 4167 & 4168/AHD/2007 ARE DISMISSED IN LIMINE ; ITA NO.4165/AHD/2007 IS DECIDED AGAINST THE REVENUE ON MERITS AND FOLLOWING IT ITA NOS.4040 & 4042/AHD/2007 ARE ALSO DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/ 06 /2010. SD/- SD/- ( A.N. PAHUJA ) ( MUKUL SHRAWA T ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 11 / 06 /2010 T.C. NAIR, SR. PS ITA NO.4165 TO 4168/AHD/2 007& ITA NOS.4040 AND 4042/AHD/2007 ACIT VS. RAJESH J.DESAI & OTHERS ASST.YEARS 2003-04 & 2004-05 - 8 - COPY OF THE ORDER FORWARDED TO : . THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XXI, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD