ACIT, Bangalore V. Sri. V. Dinesh Reddy, Bangalore

ITA 461/BANG/2012

• Counselvise Citation: 46121114 RSA 2012
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: K NARASIMHAN
• Keywords: Depreciation; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SMT. P.MADHAVI DEVI , JUDICIAL MEMBER A ND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.461/BANG/2012 (ASSESSMENT YEAR: 2008-09) ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), BANGALORE - 560 001. VS. APPELLANT SHRI V.DINESH REDDY, S/O V.DWARAKNATH REDDY, NO.44/4, RACE COURSE ROAD, FAIR FIELD LAYOUT, BANGALORE - 560001. PAN : ABIPV7701Q RESPONDENT A PPELLANT BY: SMT.SUSAN THOMAS JOSE, JCIT. R ESPONDENT BY : SHRI K.NARASIMHAN, CA DATE OF HEARING: 13 - 12 - 2012. DATE OF PRONOUNCEMENT: 31 - 12 - 2012. O R D E R PER SMT. P.MADHAVI DEVI, JM: THIS IS REVENUES APPEAL FOR THE ASSESSMENT YEAR 20 08-09. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS INTEREST PAID OF ` 39,78,589/-. ITA NO.461/BANG/2012 PAGE 2 OF 6 2. THE CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF 50% OF EXPENDITURE CLAIMED BY THE APPELLANT AS LOSSES FROM M/S.SURYA ENTERPRISES HOLDING THAT IT IS NOT FOR THE AO TO DETERMINE THE COMMERCIAL EXPEDIENCY OF THE BUSINESSMAN, WHO RETAINS THE FREEDOM TO DEPLOY HIS BUSINESS ASSETS TO THE BEST OF HIS UNDERSTANDING OF THE BUSINESS. 3 . THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON SECOND HAND CARS PURCHASED BY THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT PRODUCED ANY PROOF FOR HAVING USED THE CARS FOR THE PURPOSE OF BUSINESS. 2. AS REGARDS GROUND NO.1, BRIEF FACTS ARE THAT THE ASSESSEE, WHO IS AN INDIVIDUAL, HAS FILED HIS RETURN OF INCOM E DECLARING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS U/S 143( 3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT'], THE AO OBSERVED THAT THE ASSESSEE HAS DERIVED INCOME FR OM DIVIDEND, COMMISSION, RENTAL INCOME, PROFIT ON SALE OF SHARES AND INTEREST RECEIPT. HE OBSERVED THAT AGAINST INTEREST RECEIPT OF ` 47,54,124/-, THE ASSESSEE HAS CLAIMED ` 85,78,579/- AS INTEREST PAYMENT. HE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MONEY LENDING AND THAT MOST OF THE LOANS ADVANCED ARE INT EREST-FREE, WHICH ARE MOSTLY TO SISTER CONCERNS. AFTER EXAMINI NG THE DETAILS FILED BY THE ASSESSEE, AO CAME TO THE CONCLUSION T HAT THE ASSESSEE HAS INVESTED BORROWED MONEY FOR ADVANCING INTEREST FREE LOAN TO SISTER CONCERN AND THEREFORE IT CANNOT BE S AID TO HAVE BEEN UTILIZED FOR THE PURPOSES OF BUSINESS. HE ACCORDIN GLY DISALLOWED A SUM OF ` 39,78,579/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.461/BANG/2012 PAGE 3 OF 6 2.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) WHO OBSERVED THAT THE ASSESSEE HAS NOT MADE ANY FRESH BORROWAL DURING THE PREVIOUS YEAR AND ALSO THAT THE BORROWED FUNDS OF EARLIER YEAR ARE GIVEN TO VARIOUS PARTIES FOR INTEREST AND BOTH INTEREST AND COMMISSION RECEIVED ARE DULY DECL ARED IN THE RETURN OF INCOME. HE ALSO OBSERVED THAT MAJOR BALAN CE AMOUNTS OF NEARLY ` 5.1 CRORES ARE FOUND TO HAVE BEEN PARKED IN MUTUAL FUNDS, SHARES IN COMPANIES AND IN THE FORM OF CASH IN BANK S WHILE SOME INVESTMENTS ARE MADE WITH SISTER CONCERNS WHICH THE ASSESSEE STATES TO HAVE MADE OUT OF BUSINESS INTEREST. TAKI NG NOTE OF THIS CONTENTION OF THE ASSESSEE AND FOLLOWING THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS (288 ITR 1) THE CIT(A) DELETED THE DISALLOWANCE. FURTHER HE HAS AL SO REFERRED TO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRIDEV ENTERPRISES (192 ITR 165) WHEREIN IT WAS HELD THAT OPENING BALANCE CANNOT BE INCLUDED IN THE CURRENT YEARS IN COME AND THE ENQUIRY HAS TO BE LIMITED TO THE ENTRIES MADE IN TH E CURRENT YEAR ONLY. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US . 2.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AO WHILE THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDERS OF THE CIT(A). 2.3 HAVING CONSIDERED THE RIVAL CONTENTIONS, WE FIN D THAT THE CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSES SEE THAT INTEREST-FREE ADVANCE TO SISTER CONCERNS IS TOWARDS INVESTMENT IN THE SISTER CONCERNS AND THEREFORE IT IS FOR HIS BUS INESS PURPOSES. WE FIND THAT THE CIT(A) HAS NOT EXAMINED WHETHER TH E AMOUNTS ITA NO.461/BANG/2012 PAGE 4 OF 6 ADVANCES ARE INVESTMENTS OR LOANS TO THE SISTER CON CERNS AND THE BUSINESS PURPOSE FOR WHICH THE ADVANCES/INVESTMENTS ARE CLAIMED TO HAVE BEEN MADE IN THE SISTER CONCERNS. THEREFO RE, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS TO BE RECONSIDERED B Y THE AO IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS (SUPRA) AND IF IT IS FOUND THAT THE ASSESSEES ADV ANCES TO SISTER CONCERNS ARE INTEREST-FREE AND FOR ITS BU SINESS PURPOSES, THEN THE DISALLOWANCE IS NOT CALLED FOR. HOWEVER, IF IT IS FOUND THAT THE FUNDS ARE INVESTMENTS AND NOT INTEREST-FREE ADV ANCES, THEN NO DISALLOWANCE IS CALLED FOR. WITH THIS DIRECTION, TH E ISSUE IS REMITTED TO THE FILE OF THE AO. THIS GROUND IS THEREFORE AL LOWED FOR STATISTICAL PURPOSES. 3. AS REGARDS GROUND NO.2, BRIEF FACTS ARE THAT THE ASSESSEE HAD CLAIMED A LOSS OF ` 12,56,354/- FROM ONE OF ITS PROPRIETARY CONCERNS M/S.SURYA ENTERPRISES. THE AO OBSERVED TH AT THE ASSESSEE IS MANAGING TWO OFFICES, ONE AT BANGALORE AND ANOTHER AT ANDHRA PRADESH AND HOLDING THAT THE ASSESSEE DOES N OT REQUIRE TO MAINTAIN TWO ESTABLISHMENTS AND THE EXPENDITURE CLA IMED IS EXCESSIVE, HE DISALLOWED 50% OF THE SAME. 3.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) WHO DELETED THE DISALLOWANCE HOLDING THAT IT IS NOT FOR THE AO TO DETERMINE THE COMMERCIAL EXPEDIENCY OF THE BU SINESSMAN WHO RETAINS THE FREEDOM TO DEPLOY HIS BUSINESS ASSE TS TO THE BEST OF HIS UNDERSTANDING OF THE BUSINESS. AGGRIEVED, TH E REVENUE IS IN APPEAL BEFORE US. ITA NO.461/BANG/2012 PAGE 5 OF 6 3.2 HAVING REGARD TO THE RIVAL CONTENTIONS, WE AGRE E WITH THE FINDINGS OF THE CIT(A) THAT THE BUSINESS IS TO BE CARRIED ON BY THE ASSESSEE ACCORDING TO HIS OWN UNDERSTANDING OF THE SAME AND THE AO CANNOT OCCUPY THE CHAIR OF THE ASSESSEE AND EXAMINE THE NECESSITY OR OTHERWISE OF INCURRING AN EXPENDITURE. AS LONG AS THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR ITS BUSIN ESS PURPOSES, THE SAME HAS TO BE ALLOWED. IN VIEW OF THE SAME, T HIS GROUND OF APPEAL IS REJECTED. 4. AS REGARDS GROUND NO.3, BRIEF FACTS ARE THAT THE AO HAS EXAMINED THE ASSESSEES CLAIM OF DEPRECIATION ON SE COND-HAND CARS PURCHASED FROM THE FIRM M/S.B.V.REDDY & SONS. HE DISALLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED PROOF OF PURCHASE OF THE VEHICLES BY FURNISHING REGISTRATION CERTIFICATE OF THESE VEHICL ES OWNED/TRANSFERRED. 4.1 ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSE E HAS FURNISHED COPIES OF SALE LETTERS FROM THE VENDORS A ND THAT THE ASSESSEE HAS USED THE SAME FOR ASSESSEES BUSINESS AND THEREFORE DENIAL OF DEPRECIATION IS NOT JUSTIFIED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4.2 HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAS PRODUCED COPIES OF THE SALE LETTERS BE FORE THE CIT(A) BUT THE CIT(A) HAS NEITHER VERIFIED THE SAME NOR VE RIFIED THE FACT WHETHER THE ASSESSEE HAS USED THE VEHICLES FOR HIS BUSINESS PURPOSES. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT ITA NO.461/BANG/2012 PAGE 6 OF 6 THIS ISSUE TO THE FILE OF THE AO FOR VERIFICATION A S TO WHETHER THE ASSESSEE HAS PURCHASED THE VEHICLES AND USED THE VE HICLE IN HIS BUSINESS. IF IT IS FOUND THAT THE VEHICLES HAVE BE EN PURCHASED AND USED IN THE BUSINESS OF THE ASSESSEE, THEN DEPRECIA TION IS TO BE ALLOWED TO THE ASSESSEE. THIS GROUND IS ACCORDINGL Y ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2012 . SD/- SD/- (JAS O N P. BOAZ ) ACCOUNTANT MEMBER (SMT. P. MADHAVI DEVI ) JUDICIAL MEMBER EKSRINIVASULU COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBU NAL, BANGALORE