M/s Amrit Lal Shivji Ram Commission Agents, Patiala V. ITO, Sunam

ITA 461/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5351 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 04-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Business income; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,SMC BENCH,CH ANDIGARH BEFORE SHRI D K SRIVASTAVA, ACCOUNTANT MEMBER ITA NO. 461/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S AMRIT LAL SHIVJI RAM, V. ITO WARD, COMMISSION AGENTS, SUNAM. H.NO.2230,PHASE-II, URBAN ESTATE, PATIALA. PAN: AADFA-0450B APPELLANT BY: S/SHRI SUDHIR SEHGAL & ASHOK GOYAL RESPONDENT BY: SMT.JAISHREE SHARMA ORDER THE APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 28.02.2011 ON THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) PATIALA HAS ERRED I N CONFIRMING DISALLOWANCE OF RS.1,05,763/- MADE BY THE AO BY APP LYING PROVISIONS OF SECTION 36(1)(III) OF THE INCOME-TAX ACT,1961 (THE ACT). 2. THAT THE DISALLOWANCE OF INTEREST OF RS.1,05,763 /- HAS BEEN CONFIRMED BY THE LD. CIT(A) AGAINST THE FACTS AND C IRCUMSTANCES OF THE CASE AND SUBMISSIONS MADE BY ASSESSEE HAS NOT B EEN CONSIDERED PROPERLY. 3. THAT THE LD. CIT(A) HAS ERRED TO CONSIDER THAT C C LIMIT ON WHICH INTEREST WAS PAID HAS BEEN AVAILED IN FULL AN D THE SAME WAS USED FOR BUSINESS PURPOSE. 4. THAT THE LD. CIT(A) HAS ALSO ERRED TO CONSIDER T HAT THERE IS NO DIRECT NEXUS BETWEEN THE BORROWINGS FROM THE BAN K AND AMOUNT OF INTEREST FROM ADVANCES STANDING IN THE BO OKS OF ACCOUNT. AS SUCH NO ADDITION CAN BE MADE AS PER VAR IOUS CASE LAWS QUOTED BY THE APPELLANT. 5. THAT THE LD. CIT(A) HAS ALSO ERRED TO CONSIDER T HAT INTEREST FROM ADVANCES WERE MADE OUT OF INTEREST FREE UNSECU RED LOANS AND THE JUDGMENT IN THE CASE OF CIT V ABHISHEK INDUSTRI ES LTD. 286 ITR 1 IS NOT APPLICABLE IN THIS CASE. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 RETURNING TOTAL INCO ME AT RS.2290/-. THE ASSESSEE IS A COMMISSION AGENT. CASE OF THE ASSESSE E WAS TAKEN UP FOR SCRUTINY. DURING THE COURSE OF SCRUTINY, THE AO NOT ICED THAT THE ASSESSEE HAD GIVEN INTEREST-FREE ADVANCES AMOUNTING TO RS.22 ,94,694/- TO DIFFERENT PERSONS RELATED TO THE ASSESSEE WITHIN THE MEANING OF SECTION 40A(2)(B). ITA 461/CHD/2011 AMRIT LAL SHIVJI RAM 2 THE AO ALSO NOTICED THAT THE AFORESAID PERSONS HAD NO BUSINESS DEALINGS WITH THE ASSESSEE EITHER IN THE YEAR UNDER APPEAL O R IN THE PAST THE AO FURTHER FOUND THAT THE ASSESSEE HAD PAID INTEREST A MOUNTING TO RS.1,05,763/- ON BANK CC LIMIT OF RS.10,00,000/-. T HE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST CLAIMED AS DEDUCTION SHOULD NOT BE DISALLOWED. IN REPLY, THE ASSESSEE EXPLAINED BEF ORE THE AO THAT THE INTEREST-FREE FUNDS ALREADY AVAILABLE WITH THE ASSE SSEE WERE MORE THAN THE INTEREST-FREE ADVANCES AMOUNTING TO RS.22,94,694/- GIVEN TO THE PERSONS RELATED TO THE ASSESSEE. THE AO, HOWEVER, DID NOT A CCEPT THE AFORESAID EXPLANATION AND ACCORDINGLY DISALLOWED THE INTEREST WITH THE FOLLOWING OBSERVATIONS: 1.2 THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE AS IF THE FIRM WAS HAVING INTEREST FREE LOANS THE SAME WOULD HAVE BEEN UTILIZED FOR PAYMENT OF CC LIMIT AND WOULD HAVE AVOIDED PAYMENT OF INTEREST TO BANK. THE ASSESSEE FAILED TO PROVE COMMERCIAL EXPED IENCY OF THESE INTEREST FREE ADVANCES. THESE INTEREST FREE ADVANCE S WERE MADE TO VARIOUS PERSONS WHO ARE NO WHERE CONNECTED WITH THE RUNNING OF ASSESSEE'S BUSINESS. THE ASSESSEE HAS FAILED TO INT IMATE HOW THESE ADVANCES WERE UTILIZED BY THESE PERSONS. IT WAS AL SO NOT ESTABLISHED HOW THESE ADVANCES WERE IN THE BENEFIT OF RUNNING OF ASSESSEE'S BUSINESS. 1.3 THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V ABHISHEK INDUSTRIES LTD. REPORTED IN 286 ITR 1 HA S HELD THAT FOR CLAIMING DEDUCTION U/S 36(I)(III) OF THE INCOME-TAX ACT 1961 THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE LOANS RAI SED WERE UTILIZED FOR BUSINESS PURPOSES. THE INTEREST CHARGEABLE ON T HESE INTEREST FREE ADVANCES COMES TO RS.2,73,363/- @ 12% PA, HOWE VER THE DISALLOWANCE IS RESTRICTED TO RS.1,05,763/- BEING T HE INTEREST CLAIMED BY ASSESSEE. 3. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ORDE R PASSED BY THE AO WITH THE FOLLOWING OBSERVATIONS : I HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. AFTER CAREFUL CONSIDERATION, I FIND NO FORCE IN THE ARGUMENTS OF THE COUNSEL FOR THE APPELLANT AS HE COULD NOT PROVE ANY COMMERCIAL EXPEDIENCY FOR GIVING INTEREST FREE ADVANCES TO VAR IOUS PERSONS WHEN ON THE OTHER SIDE HE HAS TAKEN LOANS FROM BANK S AND PAID INTEREST THEREON. THE CASE LAWS CITED BY THE COUNSE L FOR THE APPELLANT DO NOT HELP THE APPELLANT AND ARE DIFFERE NT ON FACTS. THEREFORE, I HOLD THAT AO IS FULLY JUSTIFIED IN COM ING TO THE ITA 461/CHD/2011 AMRIT LAL SHIVJI RAM 3 CONCLUSION THAT APPELLANT HAS DIVERTED FUNDS FROM N ON-BUSINESS PURPOSES. HENCE, GROUND RAISED BY THE APPELLANT IS NOT ACCEPTED AND ADDITION IS SUSTAINED. 4. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF THE APP EAL, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS WHICH WERE EARLIER MADE BEFORE THE DEPARTMENTAL AUTHORITIES. HE SUBMITTED THAT INTERES T-FREE ADVANCES AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE INTE REST-FREE ADVANCES GIVEN BY HIM AND THEREFORE THE IMPUGNED DISALLOWANC E WAS COMPLETELY UNWARRANTED. IN SUPPORT OF HIS CASE, THE LD. COUNS EL FOR THE ASSESSEE RELIED UPON CIT V. RELIANCE UTILITIES & POWER LTD., 313 IT R 340 (BOM); WOOLCOMBERS OF INDIA LTD. V. CIT, 134 ITR 219 (CAL. ); TORRENT FINANCIERS V. ACIT, 73 TTJ 624; AND S.A.BUILDERS V. CIT, 288 ITR 1 (S.C). 5. IN REPLY, THE DR SUPPORTED THE ORDER PASSED BY T HE AO/CIT(A). 6. I HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONS IDERED THEIR SUBMISSIONS. THE FACTS BROUGHT ON RECORD BY THE AO CLEARLY ESTABLISH THAT INTEREST-FREE ADVANCES WERE GIVEN TO THOSE PERSONS WHO WERE RELATED TO THE ASSESSEE AND THAT TOO WITHOUT ANY COMMERCIAL EXPEDI ENCY. THE FINDING RECORDED BY THE AO AND CIT(A) TO THE AFORESAID EFFE CT HAS NOT BEEN REBUTTED BEFORE ME. IT IS THEREFORE HELD THAT THE I MPUGNED INTEREST-FREE ADVANCES WERE GIVEN BY THE ASSESSEE TO THE RELATED PERSONS WITHOUT ANY COMMERCIAL EXPEDIENCY. 7. THE SUBMISSION OF THE ASSESSEE THAT IMPUGNED DIS ALLOWANCE CANNOT BE MADE AS INTEREST-FREE FUNDS AVAILABLE WITH IT WE RE MORE THAN THE INTEREST FREE-ADVANCES GIVEN BY IT, CANNOT BE ACCEPTED IN VI EW OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V ABHI SHEK INDUSTRIES LTD., 286 ITR 1 (P&H) IN WHICH THE HON'BLE HIGH COURT HAS OBS ERVED AS UNDER: THE ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A C OMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOANS , AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC., DO NOT HAVE AN Y DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS, THEY HAVE THE COLOUR OF BUSINESS RECEIPTS AND HAVE NO SEPARATE ID ENTIFICATION. SOURCES HAVE NO CONCERN WHATSOEVER. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO A SISTER CONCERN WITHOUT CARRYING ANY INTEREST ITA 461/CHD/2011 AMRIT LAL SHIVJI RAM 4 FOR NON-BUSINESS PURPOSES WOULD BE THAT THE ASSESSE E HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH ACCORDING TO IT, COULD NOT BE REPAID PREMATURELY TO ANY FINANCIAL INSTITUT ION, STILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILIZ ED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER I N WHICH IT GENERATES INCOME AND NOT THAT IT IS DIVERTED TOWARD S SISTER CONCERNS FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING THE TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASS ESSEE AS AT THE COST BEING INCURRED BY THE ASSESSEE, THE SISTER CON CERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY B E HELD THAT THE FUNDS TO THE EXTENT DIVERTED TO SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST WERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS O F THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THERE OF FOR NON- BUSINESS PURPOSES. RATHER, THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III). IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT THE IN TEREST FREE ADVANCES MADE TO THE SISTER CONCERNS FOR NON-BUSINE SS PURPOSES WERE OUT OF ITS OWN FUNDS IN THE FORM OF CAPITAL IN TRODUCED IN BUSINESS, THAT AGAIN WILL SHOW A CAMOUFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASSESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A MARGIN FOR LOANS BEIN G RAISED AND AFTER THE LOANS ARE RAISED, WHEN SUBSTANTIAL AMOUNT IS DIVERTED TO THE SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHO UT INTEREST, A PLEA IS SOUGHT TO BE RAISED THAT THE AMOUNT ADVANCE D WAS OUT OF ITS CAPITAL, WHICH IN FACT STOOD EXHAUSTED IN SETTI NG UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTABLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT THE TIME OF DISBURSE MENT OF FUNDS. THIS WOULD DEPEND ON THE FACTS OF EACH CASE. 8. AT PAGE 19-20 OF THE SAID REPORTS, THE HON'BLE H IGH COURT HAS FURTHER OBSERVED AS UNDER: . ONCE IT IS BORNE OUT FROM THE RECORD THAT T HE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRY ING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTE REST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING A NY INTEREST IS TO BE DISALLOWED U/S 36(1)(III) OF THE ACT. SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD FOR THE PURPOSE OF BUSINESS ITA 461/CHD/2011 AMRIT LAL SHIVJI RAM 5 BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DER IVING ANY BENEFIT OUT OF IT. ACCORDINGLY THE ASSESSEE WILL NO T BE ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWINGS T O THE EXTENT THOSE ARE DIVERTED TO SISTER CONCERNS OR OTHER PERS ONS WITHOUT INTEREST. 9. IT IS CLEAR FROM THE FACTS AVAILABLE ON RECORD T HAT THE ASSESSEE HAD TO SUPPLEMENT ITS FUNDS THROUGH BORROWINGS FROM THE BA NK ONLY FOR THE REASON THAT IT HAD DIVERTED A PART OF ITS AVAILABLE FUNDS WITHOUT ANY COMMERCIAL EXPEDIENCY. HAD THE ASSESSEE NOT DIVERTED SUCH FUN DS, THE ASSESSEE WOULD NOT HAVE HAD TO RESORT TO BORROWINGS FROM THE BANK AND PAID INTEREST THEREON. 10. IN VIEW OF THE FOREGOING, DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE CIT(A) IS CONFIRMED. APPEAL FILED BY THE ASS ESSEE IS DISMISSED. ORDER PRONOUNCED ON 30 TH JUNE, 2011. SD/- (D K SRIVASTAVA) ACCOUNTANT MEMBER DATED: THE 30 TH JUNE 2011. POONAM COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A), 4. THE CIT 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH