M/s. Amrapali International, New Delhi V. ACIT, New Delhi

ITA 4505/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53360 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Keywords: Business expenditure; Set aside
• Section: 234B

Judgement Text

ITA NO. 4505/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4505/DEL/2011 A.Y. : 2007-08 AMARPALI INTERNATIONAL, 4/8, ASAF ALI ROAD, NEW DELHI 110 002 (PAN: AAHFA 8022B) VS. ASSISTANT COMMISSIONER OF INCOME, TAX, CIRCLE 30(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : CA, LALITA KRISHNAMURTHY, DEPARTMENT BY : MRS. ANUSHA KHURANA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 3.8.20 11 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THAT THE SUSTAINING OF DISALLOWANCE OF INTEREST ` 1,61,226/- BY LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE G ROUND THAT ASSESSEE HAS MADE INTEREST FREE ADVANCE OF BORR OWED FUNDS IN ARBITRARY, UNJUST, UNWARRANTED AND AT ANY RATE VERY EXCESSIVE BY WRONGLY OBSERVING THAT BOOKS OF THE AS SESSEE ARE NOT PROPER AND DO NOT DISCLOSE ITS FULL AND TRU E INCOME AND AS SUCH ARE NOT RELIABLE. ITA NO. 4505/DEL/2011 2 (II) THAT THE SUSTAINING OF DISALLOWANCE OF BUSINES S DEVELOPMENT EXPENSES OF ` 2,13,123/- BY LD. COMMISSI ONER OF INCOME TAX (APPEALS) IS ARBITRARY, UNJUST, UNWARR ANTED AND AT NAY RATE VERY EXCESSIVE BY WRONGLY OBSERVING THAT BOOKS OF THE ASSESSEE ARE NOT PROPER AND DO NOT DIS CLOSE ITS FULL AND TRUE INCOME AND AS SUCH ARE NOT RELIABLE. (III) THAT THE SUSTAINING OF DISALLOWANCE OF TELEPH ONE EXPENSES OF ` 2,05,123/- BY LD. COMMISSIONER OF INCOME TAX (APPEALS) IS ARBITRARY, UNJUST, UNWARRANTED AND AT ANY RATE VERY EXCESSIVE BY WRONGLY OBSERVING THAT BOOKS OF T HE ASSESSEE ARE NOT PROPER AND DO NOT DISCLOSE ITS FUL L AND TRUE INCOME AND AS SUCH ARE NOT RELIABLE. (IV) THAT THE SUSTAINING OF DISALLOWANCE OF ELECTR ICITY AND WATER EXPENSES OF ` 1,52,155/- BY LD. COMMISSIONER OF INCOM E TAX (APPEALS) IS ARBITRARY, UNJUST, UNWANTED AND AT ANY RATE VERY EXCESSIVE BY WRONGLY OBSERVING THAT BOOKS OF THE ASSESSEE ARE NOT PROPER AND DO NOT DISCLOSE ITS F ULL AND TRUE INCOME AND AS SUCH ARE NOT RELIABLE. (V) THAT THE SUSTAINING OF DISALLOWANCE OF LEGAL AN D PROFESSIONAL EXPENSES OF ` 1,41,123/- BY LD. COMMISSIONER OF INCOM E TAX (APPEALS) IS ARBITRARY, UNJUST, UNWARRANTED AND AT ANY RATE VERY EXCESSIVE BY WRONGLY OBSERVING THAT BOOKS OF THE ASSESSEE ARE NOT PROPER AND DO NOT DISCLOSE ITS FUL L AND TRUE INCOME AND AS SUCH ARE NOT RELIABLE. (VI) THAT THE INTEREST UNDER SECTION 234B AND 234C HAS BEEN WRONGLY CHARGED. ITA NO. 4505/DEL/2011 3 (VII) THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. (VIII) APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARIN G. 3. APROPOS DISALLOWANCE OF INTEREST OF ` 1,61,226/- ON THIS ISSUE THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS GIVEN VARIOUS ADVANCES AND ALSO HAS KEPT CASH OF TH E FIRM WITH PARTNERS. ASSESSING OFFICER OBSERVED THAT ASSESSEE IS PAYING INTEREST ON LOANS TAKEN DURING THE YEAR. FROM THIS ASSESSIN G OFFICER INFERRED THAT ASSESSEE HAS NO INTEREST FREE FUNDS AVAILABLE TO THE FIRM. HE FOUND THAT ASSESSEE HAS NOT BEEN CHARGING ANY INTER EST ON THE ADVANCES GIVEN, AS PER THE TABLE BELOW:- OPENING OPENING OPENING OPENING BALANCE BALANCE BALANCE BALANCE DEBIT DEBIT DEBIT DEBIT CREDIT CREDIT CREDIT CREDIT CLOSING CLOSING CLOSING CLOSING BALANCE BALANCE BALANCE BALANCE INTEREST INTEREST INTEREST INTEREST FORGONE FORGONE FORGONE FORGONE INDIAN PAPER AND FERTILIZER (SISTER CONCERN OF THE ASSESSEE WITH SAME ADDRESS) 2,60,424 1,09,000 2,60,424 1,09,000 21,250 JAGDAMBAY BUILDERS PVT. LTD. 1,00,000 NIL NIL 1,00,000 12,500 MOZAIC NIL 1,00,000 NIL 1,00,000 11,460 KHANNA FARMS (SISTER CONCERN OF THE ASSESSEE) NIL 1,00,000 NIL 1,00,000 11,460 ITA NO. 4505/DEL/2011 4 56,670 CASH / IMPREST WITH PARTNERS 836045 104556 161226 161226 161226 161226 3.1 ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS F AILED TO JUSTIFY THE CONNECTION OF THESE ADVANCES WITH THE BUSINESS INCO ME OF THE ASSESSEE. HE OBSERVED THAT THE ADVANCES GIVEN WHI CH ARE INTEREST FREE ARE MOSTLY RELATED OR TO THE SISTER CONCERNS OF THE ASSESSEE. ASSESSING OFFICER OBSERVED THAT A SUM OF ` 1,61,22 6/- IS DISALLOWED AS NON-BUSINESS EXPENDITURE DEBITED ON ACCOUNT OF INT EREST EXPENSE BY THE ASSESSEE AND ON ACCOUNT OF INTEREST FREE ADVAN CES AND ON FUNDS OF THE FIRM LYING WITH THE PARTNERS. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ASSESSING OFFICERS ACTION . 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS ADEQUATE INTEREST FREE FUNDS AVAILABLE WITH THE FIRM WHICH HAVE BEEN USED TO MAKE THE ADVANC ES DURING THE YEAR. SHE CLAIMED THAT NO NEXUS HAS BEEN ESTABLI SHED BETWEEN THE INTEREST BEARING FUND AND ADVANCES TO SISTER CONCER NS. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THA T FOR MAKING ANY DISALLOWANCE IN CONNECTION WITH THE INTEREST, IT I S INCUMBENT UPON THE AUTHORITIES BELOW TO GIVE A FINDING WITH REGARD TO THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AVAILABLE WITH THE FIR M AND INTEREST FREE ADVANCES MADE DURING THE YEAR. IN OUR CONSIDERE D OPINION, THE ITA NO. 4505/DEL/2011 5 INTEREST OF JUSTICE WILL BE SERVED, IF THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH . ASSESSING OFFICER SHALL EXAMINE THE ASSESSEES CLAIM THAT SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE TO ASSESSEE TO GIVE ADVANCES TO THE CONCERNS. ACCORDINGLY, THE ISSUE STANDS REMITTED TO THE FILE OF THE ASSESSING OFFICER. 7. APROPOS DISALLOWANCES ON ACCOUNT OF BUSINESS DEV ELOPMENT EXPENSES; TELEPHONE EXPENSES; ELECTRICITY AND WATE R EXPENSES AND DISALLOWANCE OF LEGAL & PROFESSIONAL EXPENSES. THE ASSESSING OFFICER IN THIS CASE HAS MADE THE F OLLOWING DISALLOWANCES ON ESTIMATE BASIS :- I) BUSINESS DEVELOPMENT EXPENSES TOTAL EXPENSES OF ` 2, 56,404/- - DISALLOWED 80% BEING ` 2,13,123/-. II) TELEPHONE EXPENSES ` 3,72,430/- - DISALLOWED 80% BE ING ` 2,05,123/-. III) ELECTRICITY AND WATER CHARGES OF ` 2,02,874/- - DIS ALLOWED 75% BEING ` 2,02,874/-. IV) LEAL AND PROFESSIONAL CHARGES OF ` 2,54,830/- - D ISALLOWED 75% BEING ` 1,91,123/-. 8. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITIONS WITH REGARD TO TE LEPHONE EXPENSES AND BUSINESS DEVELOPMENT EXPENSES. 8.1 AS REGARDS ELECTRICITY AND WATER CHARGES, LD. C OMMISSIONER OF INCOME TAX (APPEALS) MODIFIED THE ASSESSING OFFICER S ORDER FOR ITA NO. 4505/DEL/2011 6 CALCULATION MISTAKE AND CONFIRMED THE DISALLOWANCE @ 75% AMOUNTING TO ` 1,52,155/- 8.2 AS REGARDS LEGAL AND PROFESSIONAL CHARGES, LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED ` 50,000/- AND CONFIRME D THE BALANCE AMOUNT OF ` 1,41,123/-. 9. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT O F THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE MADE THE D ISALLOWANCES ON ESTIMATE AND ADHOC BASIS. SHE CLAIMED THAT NO SPECI FIC INSTANCES FOR NON-BUSINESS EXPENSES HAVE BEEN BROUGHT ON RECORD. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT ASSESSING OFFICER HAS MADE THE DISALLOWANCES IN THIS REGARD ON ESTIMA TE BASIS AND IN MAKING THE DISALLOWANCES ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY SPECIFIC INSTANCES THAT THE VOUCHERS ARE NOT M AINTAINED OR THE EXPENSES ARE NOT RELATED TO THE BUSINESS OF THE ASS ESSEE. ASSESSING OFFICER HAS MADE THE DISALLOWANCES OF LUMPSUM 80% AND 75 AND LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS SUSTAINED T HE SAME ALSO. IN OUR CONSIDERED OPINION, SUCH DISALLOWANCES BASED ON ESTIMATE BASIS WITHOUT BRINGING ON RECORD ANY COGENT REASONS, ARE NOT SUSTAINABLE. ITA NO. 4505/DEL/2011 7 HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES B ELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/12/2011. SD/- SD/- [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/12/2011 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES