M/s Supreme Sales, Jeypore V. ITO, Jeypore

ITA 47/CTK/2011

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0760 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 14-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2011
• Court: TRIBUNAL
• Department Lawyers: J KHANRA
• Assessee Lawyers: K PANIGRAHI
• Section: 143(3); 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, (SMC) CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. / ITA NO.047/CTK/2011 / ASSESSMENT YEAR 2006 - 07 M/S.SUPREME SALES, M.G.ROAD, JEYPORE. PAN: AAEFS 2858 Q - - - VERSUS - INCOME - TAX OFFICER, WARD 1, JEYPORE. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI K.PANIGRAHI, AR / FOR THE RESPONDENT: / SHRI J.KHANRA, DR / ORDER (SMC) . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CON FIRMING THE DISALLOWANCE OF INTEREST TO THE PARTNERS AS CLAIMED UNDER THE PROVISIONS OF SECTION 40(B) AND ALSO CONFIRMING THE ADDITION OF 33,900 BEING AN ADVANCE RECEIVED AS DEPOSIT FOR SALE OF A MOTOR CYCLE TO ONE MR.RATAN ADHIKARI, KALIMELA. 2. THE BRIE F FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS A DEALER IN HERO HONDA MOTOR CYCLES RETURNED INCOME OF 3,19,153 FOR THE IMPUGNED ASSESSMENT YEAR WHICH WAS SCRUTINIZED UNDER THE PROVISIONS OF SECTION 143(3) MAKING CERTAIN DISALLOWANCES AND ADDITIONS INTER ALIA THE ASSESSING OFFICER CONSIDERED FOR DISALLOWANCE OF INTEREST TO PARTNER BEING IN EXCESS AS ALLOWABLE U/S.40(B) R.W.S. 40A(2). THE ASSESSEE HAD CLAIMED INTEREST ON CAPITAL TO PARTNER SMT. ASHARANI KHURANA AT 1,08,284 WHICH THE ASSESSING OFFI CER ALLOWED AT 52,733 BY DISALLOWING 55,581. THE ASSESSING OFFICER ALSO NOTED THAT A SUM OF 33,900 HAD BEEN SHOWN AS RECEIPT FROM ONE SHRI RATAN ITA NO.047/CTK/2011 2 ADHIKARI AS ON 31.3.2006 WAS ACTUALLY VERIFIED U/S.131 WHEN SHRI ADHIKARI INFORMED THAT HE HAD PAID CASH FOR THE PURCHASE OF MOTOR CYCLE ON 11.4.2006 WAS BROUGHT TO TAX AS BOGUS CREDITOR AS ON 31.3.2006. THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO ALONG WITH THE OTHER ADDITIONS/DISALLOWANCES WHICH WERE PARTLY ALLOWED BUT THE ADDITION IN RESPEC T OF THESE TWO ISSUES WAS CONFIRMED. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD NO BASIS TO INITIATE INVOKING THE PROVISIONS OF SECTION 40A2) WHEN THE INTEREST @12% IS BEING CONSISTENTLY PAID BY THE ASSESSEE TO ITS PA RTNERS BEING THE INTEREST @12% ON THE OPENING BALANCE OF CAPITAL . NO EFFORT HAS BEEN MADE BY THE ASSESSING OFFICER TO COMPUTE THE EXCESS , IF ANY, PAID TO THE PARTNER U/S.40A(2) WHEN THE INTEREST PAYABLE TO PARTNERS U/S.40(B) IS INSCRIBED IN THE PARTNERS HIP DEED @12% IN COMPLIANCE TO THE PROFITS AS STIPULATED IN THE SAID SECTION. THE LEARNED CIT(A) ON THE OTHER HAND, DID NOT POINT OUT ANY DEFECT IN THE CLAIM OF THE ASSESSEE BUT SOUGHT TO CONFIRM THE ACTION OF THE ASSESSING OFFICER BECAUSE THE SAID PRACTIC E ADOPTED IN EARLIER YEARS AS WELL WAS NOT SUBSTANTIATED BY THE ASSESSEE. THE LEARNED COUNSEL ARGUED THAT BY NO STRETCH OF IMAGINATION CAN 12% RATE OF INTEREST BE CONSIDERED EXCESSIVE WHEN THE RATE OF INTEREST TO THE BANK IS 16%. NO COMPARISON HAS BEEN BRO UGHT ON RECORD BUT ONLY WITH THE SLIGHT DEVIATION , AS NARRATED BY THE ASSESSING OFFICER , TO THE EXTENT THAT HE SOUGHT TO CALCULATE INTEREST TO THE PARTNERS ON DIMINISHING BALANCE OF CAPITAL AS AGAINST ON THE OPENING CAPITAL BALANCE ON THE FIRST DAY OF T HE FINANCIAL YEAR AS WAS THE PRACTICE RENDERED TO TAX BY THE INDIVIDUAL PARTNERS IN THE EARLIER YEARS. 4. IN THE CASE OF THE CASH CREDITOR, HE SUBMITTED THAT THE PURCHASER OF THE MOTOR CYCLE HAD RIGHTLY SUBMITTED TO THE ASSESSING OFFICER THAT HE HAD NOT ITA NO.047/CTK/2011 3 P URCHASED A MOTOR CYCLE ON HIRE PURCHASE FROM THE ASSESSEE BUT ACTUALLY PAID CHEQUE INTO THE BANK IN MAY,2005 AGAINST WHICH THE ASSESSEE HAD DELIVERED THE MOTOR CYCLE IN APRIL, 2006 I.E., AFTER THE CLOSE OF THE FINANCIAL YEAR. IT IS NOT THE CASE OF THE ASS ESSING OFFICER THAT A LOAN COULD BE SHOWN AS BOGUS AS BECAUSE IT WAS MISINTERPRETED BY THE LEARNED CIT(A) AS CASH PAID ON 11.4.2006 WHEN THE DELIVERY WAS MADE AGAINST ADJUSTMENT OF THE PURPORTED CREDIT BALANCE OF SHRI RATAN ADHIKARI AS ON 31.3.2006.HE PRA YED THAT THIS FACT MAY BE RESTORED TO THE FILE OF THE LEARNED CIT(A) FOR CONSIDERATION AFRESH INSOFAR AS THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER AFTER VERIFICATION/S.131 OUGHT TO BE SUBSTANTIATED BY THE LEARNED CIT(A) TO THE EXTENT THAT FOR A CUSTOMER PAYMENT IN CASH OR BANK VIS - - VIS PURCHASE OF A MOTOR CYCLE UNDER HIRE PURCHASE MAKES A BIG DIFFERENCE. IN OTHER WORDS, HE SUBMITTED THAT WHEAT SHRI RATAN ADHIKARI INDICATE D WAS THAT HE HAD PURCHASED THE BIKE, GOT DELIVERY ON 11.4.2006 WAS CORRE CT AND WHAT THE LEARNED CIT(A) UNDERSTOOD WAS THAT IT WAS NOT A LOAN AGAINST WHICH A BOGUS CREDITOR HA D BEEN SHOWN BY THE ASSESSEE. 5 . THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER ON THE FACTS AS HAVE BEEN CONSIDERED BY THEM FOR CONFIRMING THE ADDITIONS/DISALLOWANCES. 6 . I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL HAS SUBMITTED THAT 12% INTEREST WAS ACCEPTABLE TO THE PARTNERS INTER SE VIDE RESOLUTION TO THIS EFFE CT IN THE PARTNERSHIP DEED FOR THE IMPUGNED ASSESSMENT YEAR AS RESOLVED CANNOT BE TERMED AS EXCESSIVE TO BE HIT BY THE PROVISION OF SECTION 40A(2). IN SO FAR AS THE PROVISIONS OF SECTION 40(B) ONLY RELATE TO THE FACT THAT THE INCOME OF THE FIRM SHOULD COMM ENSURATE WITH THE INTEREST PAYABLE TO THE PARTNERS WHICH IN ITA NO.047/CTK/2011 4 TURN IS A TAXABLE INCOME IN THEIR HANDS IN THEIR INDIVIDUAL CAPACITY. I FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT BOTH THE AUTHORITIES HAVE FAILED TO BRING ON RECOR D THE CONTRAVENING OF SECTION 40A(2) BY THE ASSESSEE INSOFAR AS INTEREST PAID TO THE PARTNERS ON THE OPENING BALANCE HAS N EVER BEEN CONSIDERED DISALLOWABLE U/S.40A(2).THE ASSESSING OFFICER, HAS HOWEVER, MENTIONED THE CAPITAL BALANCE HAVING DIMINISH ED IN TH E CASE OF THE SAID PARTNERS, THEREFORE, CANNOT BE A GROUND FOR REDUCING OR DISALLOWING PART OF THE INTEREST U/S.40A(2) IS FIT FOR DELETION. THE SAID AMOUNT IS DIRECTED TO BE DELETED FROM THE DISALLOWANCE. 7 . ON THE NEXT ISSUE BEING ADVANCE OF SHRI RATAN AD HIKARI OF 33,900 I FIND THAT THE SAID SUM HAD BEEN RECEIVED IN THE BANK ON 21.5.2005 WHICH STOOD UNADJUSTED AGAINST DELIVERY OF MOTOR BIKE ON 11.4.2006. IT WAS NOT SHRI RATAN ADHIKARI U/S.131 WHO STATED THAT HE HAD PAID CASH ON 11.4.2006 TO TAKE DELIVERY BUT WAS RATHER STATING THE TRUTH THAT HAVING PAID THE AMOUNT ELEVEN MONTHS AGO BY CHEQUE HE TOOK DELIVERY ONLY IN APRIL,2006 BY NO STRETCH OF IMAGINATION CAN IT BE CONSIDERED AS A BOGUS CREDITOR. THE LEARNED CIT(A) THEREFORE, OUGHT TO HAVE CONSIDERED THAT THE STATEMENT ON OATH UNDER THE PROVISIONS OF SECTION 131 HAD ONLY CONFIRMED THE ACTION OF THE ASSESSEE RETURNING THE AMOUNT HELD AS RECEIVED IN ADVANCE IN THE BANK 33,900 WAS CASH FROM RATAN ADHIKARI INDICATED WAS NOT A HIRE PURCHASE DEAL WITH THE ASSESSEE. IN OTHER WORDS, THERE WAS NO LOAN GIVEN BY THE ASSESSEE AGAINST THE PURPORTED DELIVERY OF THE MOTOR CYCLE WITHIN THE FINANCIAL YEAR WAS TO BE APPRECIATED IN ITS RIGHT EARNEST AND NOR MERELY ON INTERPRETATION OF CASH / BANK VIS - - VIS HIRE PURCHASE. FOR THIS ISSUE, I AM OF THE BELIEF THAT IN THE INTEREST OF JUSTICE , THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE CONTENTION OF THE ASSESSEE IN ITS RIGHT PERSPECTIVE INSTEAD OF ADHERING TO THE ASSESSING OFFICERS NOTINGS ON HAVING INVOKED SECTION 131. THIS ISSUE, ITA NO.047/CTK/2011 5 THEREFORE, STANDS RESTORED TO THE FILE OF THE LEARNED CIT(A) WHO WILL ADJUDICATE THE ISSUE APPROPRIATELY. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 14 TH MARCH, 2011 SD/ -- ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14 TH MARCH, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : M/S.SUPREME SALES, M.G.ROAD, JEYPORE. 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 1, JEYPORE. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.