M/s. Nagaur Automobiles Pvt. Ltd. , Nagaur V. DCIT, Circle, Nagaur

ITA 437/JODH/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6726 (ITAT-JODHPUR)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 04-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI N.K.SAINI, VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO.437/JODH/2018 (ASSESSMENT YEAR-2012-13 ) M/S. NAGAUR AUTOMOBILES PVT. LTD.,MUNDAWA ROAD,NAGAUR. PAN: AABCN3622M VS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE- NAGPUR (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMIT KOTHARI, CA RESPONDENT BY SH. P.K. SINGI, DR DATE OF HEARING 06.05.2019 DATE OF PRONOUNCEMENT 06.05.2019 O R D E R PER A. T. VARKEY, J.M. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, JODHPUR DATED 19.07.2018 FOR AY 2012-13. 2. THE SOLE ISSUE THAT HAS BEEN RAISED BY THE ASSE SSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.2,51,148/- ON ACCOUN T OF NOTIONAL INTEREST ON ADVANCE. 2 ITA NO.437/JODH/2018 M/S. NAGAUR AUTOMOBILES PVT. LTD., AY 2012-13 3. BRIEF FACTS OF THE CASE ARE THAT WHILE SCRUTI NIZING THE ASSESSMENT OF THE ASSESSEE, THE AO NOTED THAT THE ASSESSEE COMPANY HA S GIVEN INTEREST FREE ADVANCE TO M/S. CHOUDHARY MULA RAM MEMORIAL EDUCATION SOCIE TY (HEREINAFTER REFERRED TO AS THE EDUCATIONAL SOCIETY) ON VARIOUS DATES DURI NG THE YEAR AND THE ACCOUNT WAS SQUARED UP DURING THE YEAR ITSELF. THE AO HAS PREP ARED A CHART IN WHICH THE AMOUNT ADVANCED BY THE ASSESSEE TO THE EDUCATIONAL SOCIETY ON VARIOUS DATES HAVE BEEN STATED; AND DATES ON WHICH IT WAS RETURNED BACK FRO M WHICH IT WAS NOTED BY HIM THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO THE EDUCATIONAL SOCIETY FOR DAYS VARYING FROM 49 DAYS TO 1 DAY AND THAT THE AO NOTED THAT THE EDUCATIONAL SOCIETY HAS REPAID THE SAME TO THE ASSESSEE. ACCOR DING TO AO, FROM A PERUSAL OF THE LEDGER ACCOUNT OF ASSESSEE, IT WAS NOTED THAT THE A SSESSEE HAS NOT CHARGED ANY INTEREST ON THE ADVANCES GIVEN, HOWEVER, HAS GIVEN INTEREST ON THE LOANS OBTAINED BY IT. FROM THE P&L ACCOUNT THE AO NOTED THAT THE ASS ESSEE HAS DEBITED AN AMOUNT OF RS.77,44,621/- ON ACCOUNT OF BANK INTEREST AND RS.2 8,24,272/- ON ACCOUNT OF INTEREST PAID TO OTHERS, THUS THE AO NOTED THAT A TOTAL INT EREST EXPENDITURE OF RS.,1,05,68,884/- HAS BEEN CLAIMED BY THE ASSESSEE. THUS, ACCORDING TO THE AO, THE ASSESSEE ON ONE HAND IS PAYING HUGE INTEREST AND ON THE OTHER HAND, IS GIVING INTEREST FREE LOANS WHICH IS AKIN TO DEPLOYING THE INTEREST BEARING FUNDS FOR GIVING INTEREST FREE LOANS WHICH ACTION OF THE ASSESSEE IS NOT ALLOWABLE AS PER THE PROVISION OF SEC. 36(1)(III) OF THE ACT. THE ASSESSEE CONTEN DED THAT IT HAD NOT MADE ANY SPECIFIC BORROWING FOR ADVANCING AMOUNTS TO THE EDU CATIONAL SOCIETY AND ACCORDING TO IT, THE ADVANCES MADE TO EDUCATIONAL SOCIETY IS FROM ITS OWN FUNDS AND NOT FROM THE INTEREST BEARING BORROWED FUNDS. THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND CALCULATED THE AMOUNT DISALLOWABLE AT 12% FOR THE DAYS THE ADVANCE WAS GIVEN TO EDUCATIONAL SOCIETY AND COMPUT ED DISALLOWANCE OF RS.2,51,148/-. AGGRIEVED, ASSESSEE PREFERRED AN AP PEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO CONFIRM THE SAME. AGGRIEVED, ASSESSE E IS BEFORE US. 3 ITA NO.437/JODH/2018 M/S. NAGAUR AUTOMOBILES PVT. LTD., AY 2012-13 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET ITSELF, IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSEE COMPANY IS HAVING OWN FUNDS I.E. SHARE CAP ITAL OF RS.1,60,00,000/- AND RESERVE AND SURPLUS OF RS.26,38,712/- AND IT WAS AL SO BROUGHT TO OUR NOTICE THAT THE ASSESSEE COMPANY HAS REGULAR DEPOSIT OUT OF SALE PR OCEEDS OF GOODS TRADING AND THERE HAS BEEN TOTAL SALES OF RS.128.66 CR. AND, T HEREFORE, MONEY IS REGULARLY COMING INTO THE BANK ACCOUNT OF THE ASSESSEE ON ACC OUNT OF SUCH SALES REALIZATION. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE ASSESSEE IS HAVING A COMMON BANK ACCOUNT WHERE MIXED FUNDS ARE THERE AND FROM WHICH ONLY THE ASSESSEE HAS GIVEN ADVANCES TO THE CHARITABLE EDUCATIONAL SOCIETY AT TIMES WHEN THERE IS URGENCY AND IT IS ONLY AN ADVANCE FOR FEW DAYS WHICH IS RETURNED BACK TO THE ASSESSEE. THUS, ACCORDING TO ASSESSEE, THE AMOUNT GIVEN AS ADVANCE IS FROM ASSES SEES OWN FUNDS AND NOT FROM THE INTEREST BEARING BORROWED FUNDS. WE NOTE THAT THE ASSESSEE HAS SHARE CAPITAL OF RS.1.60 CR. AND RESERVE & SURPLUS OF RS.27.38 LACS AS WELL AS REGULAR DEPOSIT OUT OF THE SALE PROCEEDS OF GOODS TRADED COMES TO RS.128.6 6 CR. IN SUCH A SCENARIO, THE ASSESSEE HAS SUFFICIENT OWN FUNDS TO GIVE IT AS A H AND LOAN/ADVANCE FOR FEW DAYS FOR WHICH NO NOTIONAL INTEREST INCOME COULD HAVE BEEN C OMPUTED BY THE AO AT THE FIRST PLACE. FOR THIS PROPOSITION OF LAW, WE RELY ON THE HONBLE BOMBAY HIGH COURT DECISION IN RELIANCE UTILITIES & POWER LTD. VS. CIT 313 ITR 340 WHEREIN THEIR LORDSHIPS HELD THAT WHERE THE ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDES ITS OWN FUNDS IN SUFFICIENT QUANTITY, A PRESUMPTION THAT IT S OWN FUNDS WERE UTILIZED FOR ADVANCE IS TO BE DRAWN. THIS PROPOSITION OF LAW HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT IN CIT VS. RELIANCE INDUSTRIES LTD. R EPORTED IN 410 ITR 466 BY ORDER DATED 02.01.2019. MOREOVER, WE NOTE THAT THE ASSESS EE HAS NOT CLAIMED ANY INTEREST EXPENDITURE ON THIS ADVANCE GIVEN TO THE CHARITABLE ORGANIZATION. THEREFORE, THE QUESTION OF DISALLOWANCE AT THE FIRST INSTANCE DID NOT ARISE. SO, THE ACTION OF THE AO IS ARBITRARY IN NATURE AND ADDITION OF NOTIONAL INT EREST IS ANTITHESIS TO THE CONCEPT OF REAL INCOME WHICH IN ANY CASE, THE ASSESSEE HAS NOT RECEIVED. IN THE LIGHT OF THE 4 ITA NO.437/JODH/2018 M/S. NAGAUR AUTOMOBILES PVT. LTD., AY 2012-13 ABOVE, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. APPEAL OF THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2019 SD/- SD/- (N.K. SAINI) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED : 06.05.2019 J.D. SR. PS. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. / CIT 4. ( )/ THE CIT(A) 5. % , '% , * / DR, ITAT, JODHPUR 6. - / GUARD FILE / BY ORDER / ASSISTANT REGISTRAR