THE ACIT-2(1), Ujjain V. SHRI JASWINDAR SINGH OBEROI, Ujjain

ITA 461/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5983 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATYAPAL SINGH MEENA
• Assessee Lawyers: S S DESH
• Keywords: Notional interest
• Section: 40A(3); 143(3)

Judgement Text

ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 1 OF 8 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .. , .. , % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER . . /. I.T.A. NO.461/IND/2015 ( ( / ASSESSMENT YEAR:2011-12 ACIT 2(1) UJJAIN VS. JASWINDER SINGH OBEROI 97 SHARDA BHAWAN, VIDYANAGAR UJJAIN APPELLANT RESPONDENT PAN:AAIPO 7177J APPELLANT BY SHRI SATYAPAL SINGH MEENA JCIT RESPONDENT BY SHRI S.S. DESHPANDE, CA DATE OF HEARING 09.01.207 DATE OF PRONOUNCEMENT 17.01.2017 O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-UJJAIN [HEREINAFTER REFERRED T O AS THE CIT (A)] DATED 23.03.2015. THIS APPEAL PERTAINS TO ASSESSMENT YEAR 20011-12 AS AGAINST APPEAL DECIDED IN RESPECT OF ASSESSMENT ORDER DATED 20.03.2014 PASSED U/S. 143(3) OF INCOME TAX ACT, 1961(HEREIN AFTER REFERRE D TO AS 'THE ACT) BY THE ACIT 2(1), UJJAIN INDORE [HEREINAFTER REFERRED TO A S THE AO]. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN: ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 2 OF 8 (I) DELETING THE ADDITION OF RS. 1,26,13,496/- MADE US 40A(3) OF INCOME TAX ACT,1961 WITHOUT APPRECIATING THAT THERE WAS NO MATERIAL BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT SUCH PAYMENTS WERE COVERED UNDER RULE 6DD(B). (II) WITHOUT ANY EVIDENCE TO SHOW THAT AS PER RULE 6DD(B) THE GOVERNMENT HAD FRAMED RULES FOR MAKING SUCH PAYMENT S IN CASH. (III) WITHOUT EVIDENCE TO SHOW THAT THIS PAYMENT WA S TO GOVERNMENT. (VI) DELETING THE DISALLOWANCE OF INTEREST OF RS. 2 0, 30,818/- EVEN WHEN AO HAD ESTABLISHED DIRECT NEXUS THAT INTEREST BEARING LOANS AND FUNDS WERE UTILIZED FOR NON-BUSINESS INVESTMENT /US E. 2. GROUND NO. (I) TO (III) PERTAINED TO DELETION OF DI SALLOWANCE UNDER SECTION 40A (3), HENCE, THESE ARE BEING CONSIDERED AS BELOW. 3. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE IS INDIVIDUAL AND LIQUOR CONTRACTOR FI LED RETURN OF INCOME ON 27.09.2011 DECLARING TOTAL INCOME OF RS. 70,36,460/ - WHICH WAS ASSESSED AT RS. 2,67,53,240/- BY MAKING DISALLOWANCES AND ADDITI ON. THE ASSESSEE HAS MADE PAYMENTS OF RS. 1, 39,60,280/- TO VARIOUS COUN TRY LIQUOR WAREHOUSES WHICH ARE AUTHORIZED AGENTS OF THE GOVERNMENT FOR D ELIVERING COUNTRY LIQUOR. OUT OF THIS , AN AMOUNT OF RS. 1,26,13.496/- WAS DI SALLOWED UNDER SECTION 40A(3) OF THE ACT BY THE AO ON THE GROUND THAT IN RE PLY TO NOTICE UNDER SECTION 133(6), THE GREAT GALLON LTD. ON BEHALF OF THE COUNTRY LIQUOR WAREHOUSES OF INDORE , BANGANGA, MHOW AND UJJAIN SU BMITTED THAT AS PER THE MODUS OPERANDI OF THE BUSINESS THE COMPANY DID NOT USE TO MAINTAIN THE INDIVIDUAL ACCOUNT OF DEBTORS UP TO FINANCIAL YEAR 2010-11, HENCE, THEY ARE UNABLE TO PROVIDE THE LEDGER ACCOUNTS AND ANY PAYM ENTS OF DETAILS BEFORE FINANCIAL YEAR 2011-12. THE ASSESSEE WAS ALSO FAILE D TO PRODUCE RECEIPTS ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 3 OF 8 ISSUED BY LIQUOR WAREHOUSES AGAINST THE PAYMENTS MA DE TO LIQUOR WAREHOUSES. THE AO ALSO OBSERVED THAT THE ASSESSEE USED TO ADOPT MODUS OPERANDI BY DEBITING THE RESPECTIVE WAREHOUSES ACC OUNT BY CASH LESS THAN RS. 20,000/- IN CASH BOOK SO THAT TRANSACTION IS NO T HIT BY PROVISIONS OF SECTION 40A(3) OF THE ACT. NO INDIVIDUAL LEDGER ACC OUNT OF INDIVIDUAL PARTY IS MAINTAINED. THEREFORE, THE AO CONCLUDED THAT ALL TH E PAYMENTS WERE MADE MORE THAN RS. 20,000/- BUT SHOWN LESS THAN RS. 20,0 00/- HENCE, THE ASSESSEE HAS DELIBERATELY TO AVOIDED TO FALL UNDER THE MISCHIEF OF THE PROVISION UNDER SECTION 40A(3) OF THE ACT. ACCORDING LY THE AO DISALLOWED THE SUM OF RS.1,26,13,496/- UNDER SECTION 40A(3) OF THE A CT. 4. BEING, AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). IT WAS CLAIMED THAT THE LIQUOR CONTRACTOR HAS TO TAKE DELI VERY FROM WAREHOUSES, WHICH ARE AUTHORIZED AGENTS FROM GOVERNMENT. WHILE TAKING DELIVERY THE LIQUOR CONTRACTOR IS, REQUIRE TO PAY SEALING AND BA RDANA CHARGES (EMPTY BOTTLES) TO THESE WAREHOUSES BEFORE TAKING THE DELI VERY. THESE CHARGES ARE FIXED BY THE GOVERNMENT AND WHICH COMPULSORY REQUIR ED TO BE PAID BY THE ASSESSEE. THEREFORE, SUCH PAYMENTS AMOUNTS TO PAYME NTS TO GOVERNMENT WHICH IS EXEMPT UNDER RULE 6DD (B) OF INCOME-TAX RU LES, 1962. THE ASSESSEE HAS RELIED IN THE CASE OF M/S. AMRAI PACHWAI & C. S. SHOPS VS. DCIT CIRCLE 1 DURGAPUR IN I.T.A. NO. 1251/KOL/2011 A.Y. 2008-09 WHEREIN IT WAS HELD THAT IN THE CIRCUMSTANCES WE ARE OF THE OPINION TH AT PAYMENT MADE BY THE ASSESSEE FOR THE PURCHASE OF COUNTRY LIQUOR AND COU NTRY SPIRIT FROM THE TERRITORIAL LICENSEE BOTTLING PLANT , IFB AGRO INDU STRIES LTD. , CITY CENTER IS PROTECTED BY EXEMPTION IN TERMS OF RULE 6DD(B) OF I NCOME-TAX RULES, 1962. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE A O AND AS CONFIRMED BY THE LD. CIT (A) BY INVOKING THE PROVISIONS OF SECTI ON 40A(3) OF I.T. ACT,1961 ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 4 OF 8 IS DELETED. THE ASSESSEE HAS ALSO RELIED IN THE CASE OF ITO W ARD 2(1) VS. MIDANPORE VS. SHRI SANKARDAS , I.T.A. NO. 2255/KOL/ 2013/A.Y. 2010-11 WHEREAS IT WAS HELD THAT THE PAYMENT OF BARDANA AND SEALING CHARGES ARE COVERED BY EXCEPTIONS PROVIDED IN RULE 6DD , DISALL OWANCE UNDER SECTION 40A(3) SHALL NOT APPLICABLE. IN THE LIGHT OF ABOVE , THE LD. CIT (A) HELD THAT THE PAYMENT IS MADE BY THE APPELLANT TO GOVERNMENT AUTHORIZED AGENTS IS FALLING UNDER EXCEPTIONS PROVIDED UNDER RULE 6DD. THE LD. CIT (A) FURTHER OBSERVED THAT THE LEDGER ACCOUNT OF PAYMENT HAS BEE N PRODUCED DURING THE COURSE OF APPELLATE PROCEEDINGS AND IT IS FOUND THA T THE INDIVIDUAL PAYMENTS IS BELOW 20,000/- IN A SINGLE DAY. THEREFORE, THERE IS NO INFRINGEMENT OF SECTION 40A(3) . THEREFORE, , THE ADDITION MADE BY T HE AO AMOUNTING TO RS. 1,26,13,496/- WAS DELETED. 5. BEING, AGGRIEVED THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. D.R. RELIED ON THE ORDER OF THE AO AND SUBMITTE D THAT THE PAYMENT MADE TO LIQUOR WAREHOUSES ARE NOT IN THE NATURE OF GOVER NMENT PAYMENT. FURTHER, THE PAYMENT HAVE BEEN SHOWN BELOW RS. 20,000/- TO A VOID THE PROVISION OF SECTION 40A (3) OF THE ACT WHEREAS ENTER PAYMENT IS MADE BY CASH. THEREFORE, PROVISIONS OF SECTION 40A (3) ARE APPLIC ABLE AND PAYMENTS ARE NOT COVERED BY RULE 6DD(B). 6. ON THE OTHER HAND, THE LEARNED COUNSEL PLEADED THAT PAYMENT MADE TO AUTHORIZED AGENTS OF GOVERNMENT WHICH IS COMPULSORY AND COVERED BY EXCEPTION PROVIDED UNDER RULE 6DD(B). FURTHER, THE LEARNED COUNSEL SUBMITTED THAT THE INDIVIDUAL PAYMENTS ON A SINGLE DAY IS BELOW RS. 20,000/- AS REFLECTED IN LEDGER ACCOUNT PLACED AT P AGE NO 49 TO 55 OF PAPER BOOK. THIS FACT HAS ALSO BEEN VERIFIED BY THE LD. C IT (A) AS MENTIONED BY HIM IN THE ORDER. THE LEARNED COUNSEL PLACED RELIANCE IN THE CASE OF M/S. AMRAI ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 5 OF 8 PACHWAI & C. S. SHOPS VS. DCIT CIRCLE 1 DURGAPUR IN I.T.A. NO.1251/KOL/2011 A.Y. 2008-09 AND ITO VS. SANKARDAS I.T.A. NO. 2255/ KOL/2013/AY2011-11 DTD. 21.02.2014, COPY OF THE SAME ARE FILED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LD. CIT (A) HAS GAVE A CLEAR-CUT FINDINGS THAT HE HAS VERIFIED THE LEDGER ACCOUNT OF WAREHOUSES AND OBSERVED THAT CASH PAYMENT ON A SINGLE DAY DOES NOT EXCEEDED RS. 20,000/-. THEREFORE, WE FIND THAT THE PAYMENTS MADE IN A SING LE DAY IS BELOW RS. 20,000/- HENCE, THERE IS NO VIOLATIONS OF PROVISION S OF SECTION 40A (3) OF THE ACT. WE ALSO FIND THAT THE PAYMENTS IS MADE TO AUTH ORIZED AGENTS BEING WAREHOUSES AUTHORIZED BY THE GOVERNMENT, THEREFORE, SUCH PAYMENTS ARE ALSO COVERED BY DECISIONS OF COORDINATED BENCH OF KOLKA TA TRIBUNAL IN THE CASE OF ITO VS. SANKARDAS I.T.A. NO. 2255/KOL/2013/AY2011-1 1 DTD. 21.02.2014, AS RELIED BY THE LD. A.R. AND M/S. AMRAI PACHWAI & C. S. SHOPS VS. DCIT CIRCLE 1 DURGAPUR IN I.T.A. NO. 1251/KOL/2011 A.Y. 2008-09 , WHEREIN IT WAS HELD THAT IN THE CIRCUMSTANCES WE ARE OF THE OPINION TH AT PAYMENT MADE BY THE ASSESSEE FOR THE PURCHASE OF COUNTRY LIQUOR AND COU NTRY SPIRIT FROM THE TERRITORIAL LICENSEE BOTTLING PLANT, IFB AGRO INDUS TRIES LTD. , CITY CENTER IS PROTECTED BY EXEMPTION IN TERMS OF RULE 6DD(B) OF I NCOME-TAX RULES, 1962. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE A O AND AS CONFIRMED BY THE LD. CIT (A) BY INVOKING THE PROVISIONS OF SECTI ON 40A(3) OF I.T. ACT,1961 IS DELETED.. THUS, THE PAYMENTS ARE ALSO COVERED BY E XCEPTIONS PROVIDED UNDER RULE 6DD(B) OF INCOME-TAX RULES, 1962. IN THE LIGH T OF ABOVE FACTS, THE GROUNDS NO.(I)TO (III) OF REVENUE APPEAL IS DISMISS ED. 8. GROUND NO.(IV) RELATES TO DELETION OF DISALLOWANCE OF INTEREST OF RS. 20,30,818/- MADE OUT OF INTEREST PAYMENTS. ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 6 OF 8 9. BRIEFLY, STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE, HAS CLAIMED INTEREST PAYMENTS OF RS. 27,20,006/- ON SECURED LOAN TAKEN F ROM BANKS. WHEREAS THE ASSESSEE HAS ALSO ADVANCED UNSECURED LOAN OF RS. 60 LAKH TO SMT. SEEMA JAIN , RS. 80,50,000/- TO M/S. MALWA RESORTS & HOTE LS INDIA LTD. AND MADE INVESTMENT IN PURCHASE OF LANDS AT RS. 46,26,000/-, AND THERE WERE PERSONAL LOANS WITHOUT INTEREST WERE OUTSTANDING OF RS. 44,13, 513/- THE AO ACCORDINGLY WORKED OUT THE INTEREST CHARGEABLE ON S UCH INTEREST FREE LOANS AT RS. 20,30,818/- @15% ON SUCH ADVANCES AND DISALLOWE D THE SAME OUT OF TOTAL INTEREST PAYMENTS OF RS. 27,20,006/-. ACCORDING TO THE AO, THE ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN LOAN TAKEN FROM B ANK AND INTEREST FREE LOANS AND THE BUSINESS CONNECTION. THE ASSESSEE HAS ALSO NOT PROVED THAT BORROWED FUND HAVE BEEN USED FOR BUSINESS PURPOSE O NLY. IN VIEW OF THIS MATTER, THE AO DISALLOWED THE NOTIONAL INTEREST OUT OF INTEREST PAID TO BANK ON LOANS TAKEN FOR BUSINESS PURPOSE. 10. BEING, AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). WHERE IT WAS CLAIMED THAT INVESTMENT IN BUSINESS IS MORE THA N BORROWED FUNDS, HENCE, IT CANNOT BE SAID THAT BORROWED FUNDS HAS BE EN USED FOR NON-BUSINESS PURPOSE. THE LD. CIT (A) OBSERVED THAT THE ASSESSEE HAS NOT GIVEN INTEREST- BEARING FUNDS FOR NON-BUSINESS PURPOSE. THE ASSES SEE HAS SUFFICIENT CAPITAL AND NON-INTEREST BEARING FUNDS TO MAKE INVESTMENT I N NON-BUSINESS PURPOSE TO GIVE INTEREST FREE LOAN. ACCORDINGLY, DISALLOWAN CE OF INTEREST MADE BY THE AO WERE DELETED. 11. BEING, AGGRIEVED THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. D.R. SUBMITTED THAT THE INTEREST FREE LOANS WER E GIVEN OUT OF INTEREST- BEARING FUNDS BORROWED FROM BANK. HENCE, THE LD. C IT (A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF NOTIONAL INTEREST. THE ASSESSEE HAS GIVEN LOAN TO ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 7 OF 8 SUCH PERSON FROM WHOM NO BUSINESS INTEREST HAS BEEN DERIVED; NOR INTEREST FREE LOANS WERE EITHER GIVEN FOR BUSINESS PURPOSE. THEREFORE, THE FINDING OF LD. CIT (A) IS NOT CORRECT. 12. THE LEARNED COUNSEL SUBMITTED THAT LD. CIT (A) JUS TIFIED IN DELETING DISALLOWANCE OF INTEREST. THE ASSESSEE HAS SUFFICIE NT CAPITAL AND FUNDS AT HIS DISPOSAL OUT OF WHICH INTEREST FREE LOANS WERE GIVE N. SOME OF LOANS WERE OLD ADVANCES NOT GIVEN DURING THE YEAR UNDER CONSIDERAT ION, THEREFORE, NO DISALLOWANCES ON SAME COULD BE MADE. THE ASSESSEE H AS GIVEN ADVANCES FOR PURCHASE OF LAND AND VEHICLES HENCE, THERE IS DIRE CT NEXUS BETWEEN LOAN TAKEN AND GIVEN. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS AMOUNTING TO RS. 50 LAKH DURING YEAR TO SMT. SEEMA JAIN OUT OF LOAN ACCOUNT MAINTAINED WITH PUNJAB & SINDH BANK. T HIS LOAN IS NOT GIVEN FOR ANY BUSINESS CONSIDERATION, HENCE, THE PAYMENT OF INTEREST TO BANK ON SUCH AMOUNT IS DIVERSION OF INTEREST BEARING FUNDS TO NON-INTEREST BEARING FUNDS, HENCE, DISALLOWANCE OF INTEREST AMOUNTING TO RS. 4,37,500/- IS CORRECTLY MADE BY THE AO. WE FURTHER FIND THAT LOAN OF RS. 80, 50,000/- IS ALSO GIVEN OUT OF LOAN ACCOUNT FROM UCO BANK; THERE FORE, THERE IS DIRECT NEXUS OF INTEREST BEARING FUNDS DIVERTED TO NON-IN TEREST BEARING FUNDS. THE AO HAS WORKED OUT INTEREST ATTRIBUTABLE ON THESE LO ANS AT RS. 5, 93,750/- . HENCE, THIS DISALLOWANCE OF INTEREST IS ALSO CONFI RMED AS THERE IS DIRECT NEXUS BETWEEN INTEREST BEARING LOANS TAKEN AND INTEREST F REE LOANS GIVEN. IN VIEW OF THIS MATTER, THE DISALLOWANCE OF INTEREST OF RS. 10 ,31,250/-[ 4,37,500+5,93,750]IS CONFIRMED OUT OF TOTAL DISALLOW ANCE OF INTEREST OF RS. 20,30,818/- AND BALANCE IS DELETED. WE THEREFORE, M ODIFY THE ORDER OF LD. CIT ACIT 2(1)UJJAIN VS. JASWINDER SINGH OBEROI/ I.T.A. NO. 461/IND/2015/AY11-12 PAGE 8 OF 8 (A) ACCORDINGLY. THE BALANCE DISALLOWANCE OF INTERE ST IS ALLOWED IN FAVOUR OF THE ASSESSEE AS SAME PERTAINED TO BUSINESS ASSETS A ND CARRIED FORWARD LOAN FROM EARLIER YEARS. THUS, THIS GROUND OF APPEAL OF REVENUE IS PARTLY ALLOWED IN FAVOUR OF THE REVENUE. 14. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALLOWED. 15. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.01.201 7 S D / - S D / - (D.T.GARASIA) JUDICIAL MEMBER (O.P.MEENA) ACCOUNTANT MEMBER DATED : 17TH JANUARY, 2017/OPM