SMT. BELA GOYAL, Jaipur V. ACIT, Jaipur

ITA 47/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5334 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA JDDL CIT DHK
• Keywords: Proportionate interest

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO. 47/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11. SMT. BELA GOYAL, DADI BARI MARKET, SIKAR ROAD, JAIPUR. CUKE VS. THE ACIT, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ACPPG 7457 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL, (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJ MEHRA, (JDDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 02.02.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 30/03/2016. VKNS'K@ ORDER PER SHRI R.P. TOLANI, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A)-II, JAIPUR DATED 07.11.2013 FOR THE ASSESSMENT YEAR 201 0-11. THE FOLLOWING GROUNDS ARE TAKEN :- 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ADHOC D ISALLOWANCE MADE @ 10% AMOUNTING TO RS. 54,286/- OUT OF VEHICLE REPAIR ING, TELEPHONE, DIWALI, PETROL AND DIESEL, TOUR AND TRAVELING AND DEPRECIAT ION ON CAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF INT EREST MADE BY THE LD. AO BY ALLEGING THAT INVESTMENT MADE IN PURCHASE OF LAN D IS NOT YIELDING INCOME TO THE ASSESSEE WITHOUT APPRECIATING THE FAC T THAT THE LAND WAS PURCHASED FOR BUSINESS PURPOSE FOR CONSTRUCTION OF FACTORY AND GODOWN AND FURTHER WITHOUT ESTABLISHING THE NEXUS BETWEEN BORROWED FUNDS AND INVESTMENT BY THE ASSESSEE, THEREFORE DISALLOWANCE SO SUSTAINED DESERVES TO BE DELETED. 2 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF BRO KERAGE ON FINANCE MADE BY THE LD. AO WITHOUT APPRECIATING THE FACTS OF THE CASE AND SUBMISSION MADE BY THE ASSESSEE THEREFORE DISALLOWANCE SO SUST AINED DESERVES TO BE DELETED. 2. WE HAVE HEARD BOTH THE PARTIES. APROPOS GROUND N O. 1 I.E. ADHOC DISALLOWANCE OUT OF VARIOUS EXPENSES, THE SAME HAS BEEN DISALLOWED FOR WANT OF VERIFICATION. NO SPECIFIC INSTANCE OF NON VERIFICAT ION HAS BEEN QUOTED AND THE DISALLOWANCE HAS BEEN MADE BY SWEEPING OBSERVATIONS . IN VIEW THEREOF, DISALLOWANCE OF RS. 54,286/- IS DELETED. 3. APROPOS GROUND NOS. 2 & 3 ARE INTER-CONNECTED. A SSESSEE PURCHASED A PIECE OF LAND CLAIMING TO BE FOR THE PURPOSE OF CONSTRUCT ION OF A FACTORY BUILDING AND GODOWN THEREON FOR THE PURPOSE OF HER BUSINESS. THE SAID LAND WAS PURCHASED FOR RS. 1,15,00,000/- AND AFTER INCLUDING COST TOWARDS REGISTRATION CHARGES ETC. THE TOTAL VALUE DEBITED IN THE BOOKS OF ACCOUNT WAS OF RS. 1, 25,29,580/-. DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAS PAID INTEREST OF RS. 75,12,338/- ON THE BORROWED FUNDS AS SHOWN IN THE BALANCE SHEET AND FURTHER PAI D BROKERAGE OF RS. 3,51,678/- ON THE FINANCE. THE LD. AO ALLEGED THAT THE COST OF TH E ASSETS WAS PAID OUT OF THE BORROWED FUNDS AND THUS SHE DISALLOWED A SUM OF RS. 22,55,324/- BEING ALLEGED INTEREST @ 18% ON THE FUNDS RELATABLE TO THE COST O F NEW ASSET WITHOUT ESTABLISHING THE NEXUS BETWEEN COST OF ASSET AND BORROWED FUNDS. LD. AO FURTHER DISALLOWED A SUM OF RS. 1,05,530/- @ 30% OUT OF FINANCE & BROKER AGE PAID ON THE FUNDS BORROWED FROM MARKET BY GROSSLY IGNORING THE FACT T HAT THE SAME WAS PAID ON THE GROSS VALUE OF BORROWED FUNDS AND NOT ON THE INTERE ST PAID. THE LD. CIT (A) THOUGH UPHOLD THE DISALLOWANCE, HOWEVER, RESTRICTED THE SA ME TO THE PERIOD FROM THE DATE 3 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT OF PURCHASES OF LAND TO THE END OF THE FINANCIAL YE AR AND INTEREST RATE IS REDUCED FROM 18% TO AVERAGE RATE OF INTEREST PAID ON BORROW ED FUNDS. 4. AGGRIEVED, THE ASSESSEE IS BEFORE US. 4.1. THE LD. A/R FOR THE ASSESSEE CONTENDS THAT THE ALLEGATION OF LD.AO THAT THE BORROWED FUNDS HAVE BEEN UTILIZED IN PURCHASING THE LAND IN QUESTION IS WITHOUT ANY BASIS IN VIEW OF THE FACT THAT THE ASSESSEE ALREADY HAD SUFFICIENT FUNDS AVAILABLE WITH HER TO PAY THE CONSIDERATION FOR THE PURCHASE OF SA ID LAND WHICH WAS PURCHASED FOR BUSINESS PURPOSES ONLY. HE SUBMITTED THAT THE AO HA S FAILED TO CONSIDER THAT THE ASSESSEE WAS HAVING AT HER DISPOSAL SUFFICIENT AMOU NT OF INTEREST FREE FUNDS IN THE SHAPE OF OPENING CAPITAL BALANCE OF RS. 3,04,03,271 /- AND ALSO, PROFIT EARNED DURING THE YEAR AT RS. 1,93,28,641/- WHICH IS APPARENT FRO M THE COPY OF BALANCE SHEET, COPY PLACED ON RECORD. AS PER SETTLED LAW, THE AO W AS OBLIGED TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND THE PAYMENT OF CONSI DERATION FOR PURCHASE OF LAND. HOWEVER, THE LD. AO HAD MISERABLY FAILED TO PROVE A NY SORT OF NEXUS BETWEEN BORROWED FUNDS AND THE PURCHASE OF SAID LAND, ESPEC IALLY WHEN THE ASSESSEE WAS HAVING AT HER DISPOSAL SUFFICIENT AMOUNT OF INTERES T FREE FUNDS TO MEET OUT THE PAYMENT OF CONSIDERATION TOWARDS PURCHASE OF SAID C OMMERCIAL LAND. THUS THE LD. A/R SUBMITTED THAT THE AO HAS FAILED TO EVEN SHOW/I NDICATE ANY NEXUS OF WHATSOEVER NATURE BETWEEN THE BORROWED FUNDS AND PAYMENT OF CO NSIDERATION FOR PURCHASE OF SAID LAND; AND WITHOUT ESTABLISHING ANY SUCH NEXUS MERELY ON ASSUMPTIONS AND PRESUMPTIONS, THE AO HAS TREATED A SUM OF RS. 22,55 ,324/- AS INTEREST TOWARDS THE AMOUNT USED FOR PAYMENT OF PURCHASE CONSIDERATION. THE LD. A/R SUBMITTED THE COMPARISON OF SOURCE AND APPLICATION OF FUNDS AS UN DER :- 4 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT SOURCE BALANCE AS ON 31.3.2009 BALANCE AS AT 31.3.2010 APPLICATION BALANCE AS AT 31.3.2009 BALANCE AS AT 31.3.2010. CAPITAL 3,04,03,271 4,42,43,829 FIXED ASSETS 56,37,108 1,84,71,335 SECURED LOANS 5,22,16,355 8,70,48,664 DEPOSITS 10,79,923 10,71,60 4 UNSECURED LOANS 3,68,59,721 5,68,84,875 CURRENT ASSETS 11,07,76,580 17,64,17,110 CURRENT LIABILITIES 45,75,266 3,30,67,613 VAT, STATUTORY AND OTHER BUSINESS ADVANCES 65,64,104 2,52,85,033 BESIDES THIS, THE LD. A/R SUBMITTED THAT THE TURNOV ER OF THE APPELLANT WAS INCREASED FROM RS. 90.94 CRORE TO RS. 100.08 CRORE. HE FURTH ER SUBMITTED THAT FROM THE ABOVE TABLE IT IS QUITE EVIDENT THAT AGAINST THE TOTAL BO RROWED FUNDS OF RS. 14.38 CRORES, THE CURRENT ASSETS ARE 17.64 CRORES. FURTHER, THE BORRO WED FUNDS TO THE TUNE OF RS. 8.90 CRORES WERE BROUGHT FORWARD FROM THE PRECEDING YEAR AND WERE ALREADY APPLIED IN THE BUSINESS. THE INCREASE IN THE BORROWED FUNDS AR E ALSO APPLIED IN THE CURRENT ASSETS, THEREFORE, IT IS CLEARLY ESTABLISHED THAT T HE BORROWED FUNDS ARE NOT APPLIED IN THE ACQUISITION OF THE LAND IN QUESTION. THE LD. A/ R CONTENDED THAT THE AO AS WELL AS LD. CIT (A) HAVE FAILED TO CONSIDER THIS ASPECT BEF ORE ARRIVING AT THE CONCLUSION THAT BORROWED FUNDS WERE USED FOR PURCHASE OF NEW COMMER CIAL LAND. IN SUPPORT OF HIS CONTENTION, THE LD. A/R RELIED ON THE FOLLOWING JUD GMENTS :- MUNJAL SALES CORPORATION VS. CIT & OTHERS 298 ITR 298 (SC) CIT VS. HOTEL SAVERA 239 ITR 795 (MAD.) CIT VS. RADICO KHAITAN LTD. 142 TAXMAN 681 (ALL.) 5 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT COMET HANDICRAFTS VS. ACIT 114 TTJ 124 (ITAT DELHI BENCH) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.) THE LD. A/R SUBMITTED THAT THE AO HAS MADE THE DISA LLOWANCE FOR THE REASON THAT THE LAND WAS NOT USED FOR BUSINESS PURPOSES. WHILE ALLEGING SO, THE AO HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE IS A TRADER O F IRON AND STEEL AND FOR STORING THE GOODS THE OPEN LAND WAS USED AS GODOWN THEREFORE TH E LAND WAS ALREADY PUT TO USE FOR THE BUSINESS PURPOSES. THE TERM BUSINESS PURPO SE EMPLOYED IN SECTION 36(1)(III) HAS A WIDE RANGING MEANING AND IS NOT RE STRICTED TO THE MEANS OF YIELDING IMMEDIATE AND DIRECT INCOME AND USER OF THE GODOWN IS ALWAYS FOR THE BUSINESS PURPOSES. THEREFORE, HE PRAYED THAT THE ADDITION O F RS. 22,55,324/- MAY PLEASE BE DELETED. 4.2. ON THE OTHER HAND, THE LD. D/R SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES. 4.3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT ASSESSEE HAD OWN CAPITAL OF RS. 3.04 CRORES IN THE BOOKS OF ACCOUNT. THE ADHOC DISALLOWANCE OF INT EREST AND BROKERAGE ON FINANCE HAS BEEN MADE MAINLY ON THE FOLLOWING TWO ISSUES :- (1) THE LAND PURCHASED WAS NOT FOR THE PURPOSE OF BUSIN ESS. (2) SINCE THE BORROWED FUNDS WERE UTILIZED IN THESE YEA RS, THEREFORE, IT CANNOT BE ASSUMED THAT OWN CAPITAL OF THE ASSESSEE WAS UTI LIZED FOR ACQUISITION OF THE LAND IN QUESTION. THEREFORE, THE PROPORTIONATE INTEREST AND BROKERAGE ON FINANCE SHOULD BE DISALLOWED. 6 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND CONTENDS THAT THE INVESTMENT IN QUESTION HAS BEEN SHOWN IN THE ASSESSEES BALANCE S HEET PERTAINING TO ITS BUSINESS TOWARDS ACQUISITION OF A BUSINESS ASSET. THERE WAS NO OTHER USE FOR THE ASSESSEE TO PURCHASE SUCH LAND. THE ASSESSEE IS IN THE BUSINES S OF IRON AND STEEL AND TO HAVE FUTURE PLAN FOR EXPANSION OF BUSINESS CANNOT BE ASS UMED TO BE A NON BUSINESS ACTIVITY. THEREFORE, THERE IS NO JUSTIFICATION IN T HE INFERENCE DRAWN BY AUTHORITIES BELOW THAT THE LAND WAS PURCHASED FOR NON BUSINESS PURPOSES. SUCH INFERENCE BEING WITHOUT ANY SUPPORTING OR PROBABILITIES, CANNOT BE SUSTAINED. THE ASSESSEES VERSION IS TO BE ACCEPTED UNLESS IT IS CONTROVERTED BY COGE NT REASONS AND EVIDENCE. THUS THE ALLEGATION IN THIS BEHALF IS UNTENABLE. 4.4. IN THE CASE LAWS CITED ABOVE, IT IS UNEQUIVOCAL LY HELD THAT WHEN COMMON FUNDS ARE INVOLVED, THE ASSESSEE IS AT LIBERTY TO U TILIZE HER OWN CAPITAL IN THE MANNER IT IS FOUND TO BE APPROPRIATE. 4.5. WHEN THE INTEREST HAS BEEN PAID FOR ACQUISITIO N OF A BUSINESS ASSET, THE SAME IS SQUARELY ALLOWABLE IN TERMS OF SECTION 36(1)(VII ) AS HELD BY HONBLE SUPREME COURT IN THE CASES OF S.A. BUILDERS VS. CIT, 288 ITR 1 (S C) AND EMPIRE JUTE CO. LTD. VS. CIT, 124 ITR 1 (SC). THEREFORE, THE DISALLOWANCE IS TOTALLY UNJUSTIFIED AND IS ALLOWABLE UNDER SECTION 36(1)(VII). 4.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE HAD HER OWN CAPITAL TO THE EXTENT OF RS. 3 .04 CRORES. THE ASSESSEES CLAIM THAT THE LAND WAS ACQUIRED FOR BUSINESS PURPOSES AN D SHOWN AS BUSINESS ASSET IN THE BALANCE SHEET HAS NOT BEEN DISPUTED AND ONLY ON ASS UMPTION IT HAS BEEN HELD THAT IT IS NOT BUSINESS PURPOSES. IN OUR CONSIDERED VIEW, SU CH TYPE OF ASSUMPTION CANNOT BE SUSTAINED WHEN IN BOOKS OF ACCOUNTS ASSESSEE HAS TR EATED THE INVESTMENT AS 7 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT BUSINESS INVESTMENT FOR FUTURE EXPANSION. THE INTER EST INCURRED ON ACQUISITION OF LAND FOR EXPANSION OF BUSINESS IS ALLOWABLE AS BUSI NESS EXPENDITURE IN TERMS OF SEC. 36(1)(VII). IN VIEW OF THE FACTS AND CIRCUMSTANCES AND JUDICIAL PRECEDENTS CITED ABOVE, WE SEE NO JUSTIFICATION TO DISALLOW THE INTE REST AND BROKERAGE CHARGES PAID BY ASSESSEE AS MENTIONED ABOVE WHICH IS WHOLLY AND EXC LUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE UNDER SECTION 36(1)(VII) BESIDES, THE ASSESSEE HAVING OWN INTEREST FREE FUNDS MORE THAN RS. 3.04 C RORES WHICH IS MORE THAN THE INVESTMENT IN QUESTION. EVEN ALTERNATIVELY THE ASSE SSEES CLAIM FOR INTEREST AND FINANCE CHARGES CANNOT BE DISALLOWED. IN VIEW THERE OF, GROUND NOS. 2 & 3 ARE ALSO ALLOWED. 5.. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30/03/2016. SD/- SD/- FOE FLAG ;KNO VKJ-IH-RKSYKUH (VIKRAM SINGH YADAV) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 30/03/ 2016 DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SMT. BELA GOYAL, JAIPUR. 2. THE RESPONDENT- THE ACIT, CIRCLE-4, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO.47/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NO. 47/JP/2014 SMT. BELA GOYAL VS. ACIT