MAHIPAL CHOUDHARY, Jaipur V. JCIT(OSD), Jaipur

ITA 463/JPR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5451 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 11-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA JCIT DR DHK
• Assessee Lawyers: G G MUNDRA
• Keywords: Commercial expediency
• Section: 37(1); 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 463/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 SHRI MAHIPAL CHOUDHARY 22, GOPAL BARI JAIPUR CUKE VS. THE JCIT (OSD) CENTRAL CIRCLE- 3 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAHPC 1533 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI G.G. MUNDRA, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI RAJ MEHRA, JCIT - DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27/01/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 03 /03/2016 VKNS'K@ ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A), ALWAR; DATED 19-03-2015 FOR THE ASSESSMENT YEAR 2009-10 WHEREIN FOLLOWING SOLITARY GROUND IS RAISED. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING THE CLAIM OF INTEREST TO THE EXTENT OF RS. 13,20,25 8/- AGAINST INTEREST INCOME. ITA NO. 463/JP/2015 SHRI MAHIPAL CHOUDHARY VS. JCIT (OSD), CENTRAL CIR CLE- 3, JAIPUR . 2 2.1 BRIEF FACTS OF THE CASE ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD R AISED INTEREST BEARING LOANS FROM THE MARKET AND INVESTED IN A COMPANY M/S . PRISM BUILDCON (P) LTD. WHERE THE ASSESSEE IS A SHAREHOLDER AS WEL L AS DIRECTOR. THE ASSESSEE PAID INTEREST @ 12% ON BORROWING WHICH WER E ADVANCED TO M/S. PRISM BUILDCON AT A REDUCED RATE OF INTEREST @ 10%. ON INQUIRIES IN THIS BEHALF OF BY LD. AO, ASSESSEE FILED AN EXPLANATION IN THIS BEHALF AS NECESSITATED BY BUSINESS EXPEDIENCY WHICH WAS NOT A CCEPTED BY THE AO, IT RESULTED IN THE IMPUGNED ADDITION AMOUNTING TO R S. 13,20,258/-. 2.2 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE AO. AGGRIEVED ASSESS EE IS BEFORE ITAT. 2.3 THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSEE HAD BUSINESS AND COMMERCIAL CONNECTION WITH M/S. PRISM BUILDCON (P) LTD. DUE TO UNSOLD INVENTORY, THE COMPANY WAS FACING SEV ERE FINANCIAL PROBLEMS AND IN ORDER TO AND TO PROTECT IHISS COMME RCIAL CONNECTION, THE ASSESSEE HELPED THE COMPANY CHARGING REDUCED INTERE ST @ 10% . THE CHARGING OF LESSER INTEREST IS GOVERNED BY THE PRIN CIPLES OF BUSINESS EXPEDIENCY. RELIANCE IS PLACED AS UNDER:- (A) S.A. BUILDERS LTD. VS CIT(2007) 289 ITR 26 (SC) (B) CIT VS MOTOR GENERAL FINANCE LTD. (2005) 272 IT R 550 (DEL.) ITA NO. 463/JP/2015 SHRI MAHIPAL CHOUDHARY VS. JCIT (OSD), CENTRAL CIR CLE- 3, JAIPUR . 3 IT IS FURTHER CONTENDED THAT THE AO DISALLOWED INT EREST BY INVOKING SECTION 37(1) BUT THE EXPENDITURE AGAINST INCOME FR OM OTHER SOURCES HAS TO FOLLOW THE SAME RATIONALE AS U/S 37 FOR BUSINESS IN VIEW OF SECTION 57(III) PERMITS DEDUCTION OF WHAT IS WHOLLY AND EXC LUSIVELY INCURRED FOR EARNING SUCH INCOME. THE ASSESSEE CHARGED LOWER RAT E OF INTEREST BECAUSE OF WEAK FINANCIAL POSITION OF SISTER CONCERN WHICH IS COMMERCIAL EXPEDIENCY. THE BORROWING FROM MARKET AND LENDING T O SISTER CONCERN HAS A NEXUS WHICH IS ESTABLISHED AND DOUBTED BY THE AO. 2.4 ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE LD. CIT(A) WHO HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO B Y FOLLOWING OBSERVATIONS. 4.5 HAVING CONSIDERED THE MATERIAL AVAILABLE ON RECORD, I FIND THAT APPELLANT HAS FAILED TO FILE AN Y EVIDENCE WITH REGARD TO THE NATURE OF BUSINESS ACTIVITY BEIN G CARRIED OUT BY THE COMPANY (GROUP CONCERN) IN WHICH THE FUN DS HAVE BEEN INVESTED NEITHER AT THE STAGE OF ASSESSMENT NO R IN THE COURSE OF PRESENT PROCEEDINGS. NO EVIDENCE HAS BEEN BROUGHT ON RECORD WITH REGARD TO THE FINANCIAL POSI TION OF THE OTHER GROUP COMPANY AND ALSO WITH REGARD TO THE BEN EFITS ACCRUING FROM THE TRANSACTION OF LENDING FUNDS AT L OWER RATE. THE CASE LAWS RELIED UPON BY THE APPELLANT ARE CLEA RLY DISTINGUISHABLE ON FACTS AS THE PRESENT TRANSACTION S ARE NOT BETWEEN TWO COMPANIES 4.6 I HAVE CONSIDERED CAREFULLY THE SUBMISSIONS MADE AND FIND THAT IN THE ABSENCE OF ANY MATERIAL P LACED ON RECORD SO AS TO JUSTIFY THE CLAIM OF INTEREST PAID FOR THE PURPOSE OF BUSINESS AND THE FUNDS BEING BORROWED AN D ITA NO. 463/JP/2015 SHRI MAHIPAL CHOUDHARY VS. JCIT (OSD), CENTRAL CIR CLE- 3, JAIPUR . 4 UTILIZED IN THE BUSINESS, IT IS NOT PERMISSIBLE UND ER THE PROVISIONS OF THE I.T. ACT TO ALLOW THE CLAIM OF IN TEREST. I RELY ON THE DECISIONS OF THE HON'BLE ALLAHABAD HIGH COU RT IN THE CASE OF CIT VS. SAHU ENTERPRISES (P) LTD., 352 ITR 008, WHEREINIT WAS HELDTHAT ONCE THE ASSESSEE CLAIMS INT EREST AS DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WOULD B E ON THE ASSESSEE TO SATISFY THE AO THAT LOANS RAISED WERE U SED FOR THE PURPOSES OF THE BUSINESS. IN THIS CASE, THE APPELLA NT HAS FAILED BEFORE THE AO AND EVEN IN THE COURSE OF PRE SENT PROCEEDINGS TO PLACE ANY MATERIAL ON RECORD TO SATI SFY THAT THE LOANS RAISED HAVE BEEN USED FOR THE PURPOSES OF THE BUSINESS. THIS PRINCIPAL HAS ALSO BEEN UPHELD BY TH E HON'BLE ITAT, DELHI BENCH IN THE CASE OF ARUN KUMAR GUPTA ( HUF ) VS. ACIT(2012) 020 ITR (TRIBUNAL) 0727. ALSO RELIAN CE IS PLACED ON THE DECISION OF HON'BLE KERALA HIGH COU RT IN THE CASE OF ACCELERATED FREEZE DRAYING CO. LTD. VS. CI T 324 ITR 316, WHEREIN IT WAS HELD THAT INTEREST PAID BY THE COMPANY IS NOT DEDUCTIBLE AS FUNDS WERE GIVEN TO SI STER CONCERN. 4.7 THE APPELLANT IS AN INDIVIDUAL AND THE TRANSACT ION OF LENDING FUNDS TO THE COMPANY AT THE LOWER RATE OF I NTEREST THAN THE RATE AT WHICH THE FUNDS HAVE BEEN BORROWED IS AN ATTEMPT TO CLAIM EXCESSIVE LOSS TO LOWER THE TAX LI ABILITY IN THE HANDS OF THE ASSESSEE. THEREFORE, I DO NOT FIND ANY JUSTIFICATION IN THE CONTENTIONS OF THE APPELLANT A ND ACCORDINGLY CONFIRM THE DISALLOWANCE OF RS. 13,20,2 58/- MADE BY THE AO UNDER THIS HEAD. LD. DR FURTHER CONTENDS THAT MERELY BECAUSE THE ASS ESSEE IS A SHAREHOLDER AND DIRECTOR IN THE COMPANY AND IT DOES NOT DEMONST RATE ANY INEXTRICABLE BUSINESS RELATION LIKE ENGAGEMENT IN MUTUAL AFFAIRS LIKE SALES AND PURCHASES. THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS INEXTRICABLE RELATION OR BUSINESS EXPEDIENCY WITH M/S. PRISM BUILDCON (P) LTD. TO JUSTIFY ITA NO. 463/JP/2015 SHRI MAHIPAL CHOUDHARY VS. JCIT (OSD), CENTRAL CIR CLE- 3, JAIPUR . 5 EXPENDITURE INCURRED IN ADVANCING THE LOANS AT LOWE R RATE. THE CASE LAWS CITED (SUPRA) DO NOT INDICATE ANY PARITY WITH THE P RESENT FACTS AND CIRCUMSTANCES OF THE CASE. 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ASSESS EE IS A SHAREHOLDER AS WELL AS DIRECTOR IN THE COMPANY BUT IT DOES NOT CON STITUTE ANY BUSINESS RELATION WITH M/S. PRISM BUILDCON (P) LTD. TO ADVAN CE THE LOAN AT LOWER RATE FOR COMMERCIAL EXPEDIENCY. THE JUDGMENT CITED BY THE ASSESSEE IN THE CASE OF S.A. BUILDERS VS. CIT (SUPRA) DOES NOT APPLY IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE . BESIDES THERE IS NO MATERIAL AVAILABLE ON RECORD THAT M/S. PRISM BUILDC ON (P) LTD. HAD ALLEGED UNSOLD INVENTORY OR FACING FINANCIAL CRISIS AND M/S . PRISM BUILDCON (P) LTD. ASKED FOR THE HELP FROM THE ASSESSEE IN THIS B EHALF. THE ASSUMPTION ABOUT BUSINESS EXPEDIENCY CANNOT BE DRAWN BASED ON SWEEPING STATEMENTS OF THE ASSESSEE AND NON-AVAILABILITY OF ANY CORROBORATIVE MATERIAL TO THIS EFFECT, I FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS UPHELD. THUS THE APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 463/JP/2015 SHRI MAHIPAL CHOUDHARY VS. JCIT (OSD), CENTRAL CIR CLE- 3, JAIPUR . 6 3.0 IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 / 0 3/2016 SD/- VKJ-IH-RKSYKUH (R.P.TOLANI) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 03 /03/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI MAHIPAL CHOUDHARY, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE JCIT (OSD), CENTRAL CIRCLE- 3, JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 463/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR