Shah Himatlal Manilal & Co., Jalna V. Asstt.CIT, Cir.1, Aurangabad, Aurangabad

ITA 468/PUN/2006

• Counselvise Citation: 46824514 RSA 2006
• Duration Of Justice: 5 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 25-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 468/PN/2006 (ASSESSMENT YEAR: 2003-04) SHAH HIMATLAL MANILAL & CO. .. APPELLANT HIMCO HOUSE, NEHRU ROAD, JALNA PAN AADCS 7822 C VS. ASSTT.COMMISSIONER OF INCOME-TAX, .. RESPONDENT CIR.1, AURANGABAD APPELLANT BY : SMT DEEPA KHARE RESPONDENT BY : SHRI S K AMBASTHA DATE OF HEARING : 09.01.2012 DATE OF PRONOUNCEMENT : 30.01.2012 ORDER PER G.S. PANNU, A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, AURANGABAD DATE D 28.2.2006 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 30.12.2005 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3)(II) OF THE INCOME-TAX ACT , 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. THE FIRST GROUND RELATES TO A DISALLOWANCE OF INTERE ST OF RS 6,18,608/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICAT ION OF THE AUDIT REPORT IN FORM NO. 3CB, THE ASSESSING OFFICER NOTICED THA T DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD TAKEN LOANS FROM OU TSIDE PARTIES ON HIGHER INTEREST, WHILE IT HAD ADVANCED LOANS TO PARTNE RS, RELATIVES OF THE PARTNERS AND OTHERS ON LOWER RATES OF INTEREST. IT WAS N OTICED THAT ASSESSEE PAID INTEREST ON ITS LOANS AT THE RATE OF 16.5% TO 19 .5%, WHEREAS IT CHARGED LESSER INTEREST AT 12% ON ADVANCES TO PARTNERS/RELATIVES OF PARTNERS. AFTER GIVING A COMPARATIVE CHART IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED A SUM OF RS 6,18,608/- OUT OF INTEREST EXPEN DITURE, STATING THAT THE LOAN FUNDS HAVE BEEN PARTIALLY USED FOR NON-BUSINESS PU RPOSES. 3. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFFIRMED THE VIEW OF THE ASSESSING OFFICER AS ACCORDING TO HIM, THE BORROWI NG AT THE HIGHER RATE WAS ONLY TO BENEFIT THE PARTNERS. HE ACCORDINGLY CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS I N APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SU BMITTED THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT ESTABLISHING THAT A NY INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO THE PARTNERS OR THEIR RE LATIVES DURING THE YEAR UNDER CONSIDERATION. IN-FACT, DURING THE YEAR NO FRESH ADVANCES HAVE BEEN MADE TO THE PARTNERS OR THEIR RELATIVES, AND INSOFAR A S THE OPENING BALANCES ARE CONCERNED, THERE WAS NO SUCH DISALLOWANCE IN THE PAST, THEREFORE, IN TERMS OF THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SRIDEV ENTERPRISES 192 ITR 165 (KAR), NO DISALLOWANCE I S MERITED DURING THE YEAR UNDER CONSIDERATION. IN THE COURSE OF HEARING, THE LEARNED COUNSEL HAS REFERRED TO THE WRITTEN SUBMISSIONS MADE BEFORE THE LOW ER AUTHORITIES IN ORDER TO EXPLAIN THE FACTUAL MATRIX REGARDING THE ADVANCES M ADE TO PARTNERS. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, THE PRIMARY REASON WEIGHING WITH THE ASSESSING OFFICER TO D ISALLOW A PORTION OF THE INTEREST EXPENDITURE WAS THAT ON ONE HAND THE ASSESSEE W AS BORROWING FUNDS AT 16.5% TO 19% RATE OF INTEREST, WHEREAS THE ADVANCE S WERE MADE TO PARTNERS AND OTHER SISTER CONCERNS ON A LOWER RATE OF INT EREST. THE PRELIMINARY DEFENCE SET-UP BY THE APPELLANT IS THAT FACTUALLY SPEAKI NG IN THE INSTANT YEAR, INTEREST BEARING FUNDS HAVE NOT BEEN DIVERTED TO THE PARTNERS OR THEIR RELATIVES OR TO OTHER SISTER CONCERNS. QUITE CLEARLY, THE AFORESAID ASSERTION IS A QUESTION OF FACT, AND THE LEARNED COUNSEL HAS SOUGHT TO SUBSTAN TIATE THE ASSERTION BY REFERRING TO THE TABULATION IN WRITTEN SUBMISSIONS TO T HE LOWER AUTHORITIES WHICH CONTAINS AN ANALYSIS OF THE ACCOUNT BALANCES OF THE PARTNER S. HOWEVER, WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE NOT RECORDED ANY FINDING ON THE ASSERTIONS MADE BY THE ASSESSEE. BOTH THE AUTHORITIES HAVE MADE TH E DISALLOWANCE BY MERELY NOTICING THAT THERE IS A VARIATION IN THE PAYM ENT OF RATE OF INTEREST ON LOANS RAISED AND ADVANCES GIVEN. IN OUR VIEW, IT IS IMPE RATIVE THAT THE FACTUAL MATRIX IS CULLED OUT AND THE DISALLOWANCE BE MADE ONLY IF IT IS FACTUALLY ESTABLISHED THAT ANY INTEREST BEARING FUNDS HAVE BEEN D IVERTED FOR ANY NON- BUSINESS PURPOSES. THEREFORE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL EXAMIN E THE FACTUAL POSITION, CULL OUT APPROPRIATE FACTS AND THEREAFTER ADJUDICATE AS TO WHETHER OR NOT ANY DISALLOWANCE IS CALLED FOR. WHILE CARRYING OUT THE AFOR ESAID EXERCISE, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPOR TUNITY OF BEING HEARD IN SUPPORT OF ITS STAND AND THE ASSESSING OFFICER SHAL L CONSIDER THE PLEAS SET-UP BY THE ASSESSEE AND PASS AN ORDER AFRESH ON THIS ASPEC T IN ACCORDANCE WITH LAW. THUS, ON THIS GROUND, ASSESSEE SUCCEEDS FOR STATI STICAL PURPOSES. 7. THE NEXT GROUND OF APPEAL IS AGAINST SUSTENANCE OF ADDITION OF RS 72,560/- OUT OF TOTAL ADDITION OF RS 1,38,270/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BROKERAGE. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER FOUND THAT ASSESSEE HAD PAID BROKERAGE OF RS 1,38,270/- TO VARIOUS PARTIES FOR PROCUREMENT OF UNSECURED LOANS. THE ASSESSING OFFICER DISALLOWED THE ENTIRE EXPENDITURE FOR THE REASON THA T THE BORROWED FUNDS WERE PARTLY USED FOR NON-BUSINESS PURPOSES BY WAY OF LENDING T O PARTNERS, THEIR RELATIVES AND SISTER-CONCERNS. 8. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) RESTRICTED THE DISALLOWANCE TO RS 72,560/- BY OBSERVING THAT EVEN AS PE R THE ASSESSING OFFICER ONLY A PART OF LOANS RAISED HAVE BEEN DIVERTE D FOR NON-BUSINESS PURPOSES. THE FOLLOWING PORTION OF THE ORDER IS RELEV ANT: THE APPELLANT FIRM HAS NOT ENFORCED THE AMOUNTS DU E FROM PARTNERS AND SISTER CONCERNS TO WHOM LESSER RATE OF INTEREST IS CHARGED ON THE OUTSTANDINGS. THE APPELLANT FIRM NOT PAID DALALI TO RAISE FUNDS FROM MARKET. THERE ARE TWO COMPONENTS ON THE LOANS OBTAINED BY THE APPELLANT HIGHER RATE OF INTEREST RANGING FROM 16.5% TO 19.5% PLUS COST OF DALALI. THE APPELLANT HAS NOT PA SSED ON THE COST OF DALALI TO THE PARTNERS OR RELATIVES. THE APPELLANT HAS JEOPARDIZE D ITS BUSINESS INTEREST AND ITSELF UNDERTOOK THE COST OF RAISING THE FUNDS AND SUFFERI NG THE EXCESS INTEREST OWING TO CHARGING OF LESSER RATE OF INTEREST. THE APPELLANT HAS ALSO NOT FILED DETAILS OF THE ADVANTAGES ACCRUED TO IT ON ACCOUNT OF THIS TRANSAC TION. THE AO HIMSELF STATES THAT OUT OF RS 2 CRORES BORROWED MORE THAN RS 1 CRORE IS DIVERTED, THAT WOULD MEAN THAT A PART OF THE BORROWED AMOUNT IS USED FOR BUSINESS. T HAT BEING THE CASE DALALI DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS 72,56 0/-. THE GROUND IS PARTLY ALLOWED. STILL NOT SATISFIED, THE ASSESSEE IS IN FURTHER APPEAL B EFORE US. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED I N RETAINING THE ADDITION TO THE EXTENT OF RS 72,560/- AND INSTEAD, SHOULD HAVE DELETED THE ENTIRE ADDITION OF RS 1,38,270/- MADE BY THE ASSESSING O FFICER ON ACCOUNT OF DALALI. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. IN THIS REGARD, IT IS NOTICEABLE THAT THE DISALLOWA NCE ON BROKERAGE ON LOANS RAISED HAS BEEN RESTRICTED BY THE COMMISSIONER OF IN COME-TAX (APPEALS) TO THE EXTENT THE ASSESSING OFFICER HAD TREATED DIVERSI ON OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. THE ADDITION ON ACCOUNT OF INTREST ON FUNDS DIVERTED FOR NON-BUSINESS PURPOSES HAS BEEN SET ASIDE BY US TO THE FILE OF THE ASSESSING OFFICER WHILE DEALING WITH THE SAID ISSUE IN THE EARLIER PARAGRAPHS. CONSEQUENTLY, THE DISALLOWANCE SUSTAINED BY THE COMMISSION ER OF INCOME-TAX (APPEALS) IS ALSO SET-ASIDE AND RESTORED TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN THE LIGHT OF HIS DECISION ON THE EA RLIER ISSUE. THEREFORE, ON THIS GROUND ALSO, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF JANUARY, 2012. SD/- SD/- (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED 30 TH JANUARY, 2012 B COPY TO:- 1) SHAH HIMATLAL MANILAL & CO. JALNA 2) ACIT CIR.1 AURANGABAD 3) THE CIT (A)-I AURANGABAD 4 THE CIT AURANGABAD 5) DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE