SHRI MANGILAL JHAWAR, Indore V. THE DCIT 1(1), Indore

ITA 478/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5840 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 29-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: GIRISH AGARWAL
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3)

Judgement Text

PAGE 1 OF 5 SHRI MANGILAL JHAWAR,INDORE VS. DCIT1(1)ITA NO.478/ IND/2015/AY:2005-06 , , 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.478/IND/2015 (( / ASSESSMENT YEAR:2005-06 SHRI MANGILAL JHAWAR 69 JANKI NAGAR EXTENSION, INDORE VS. DCIT 1(1), INDORE APPELLANT RESPONDENT PAN: ABJPJ 8399P APPELLANT BY SHRI GIRISH AGARWAL, CA RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 16 .01.2017 DATE OF PRONOUNCEMENT 16 .01.2017 O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, INDORE [HEREINAFTER REFERRED TO AS THE CIT (A)] DATED 26.02.2015. THIS APPEAL PERTAINS TO ASSESSMENT YEAR 2005-06 AS AGAINST APPEAL DECIDED IN RESPECT OF ASSESSMENT ORDER DATED 16.10.2007 PASSED U/S. 143(3) OF INCOME TAX ACT, 1961(HEREIN AFTER REFERRED TO AS 'THE ACT) BY THE D CIT 1(1), INDORE [HEREINAFTER REFERRED TO AS THE AO]. THE ASSESSEE HAS TAKEN FOLL OWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF RS. 6,28,000/- MADE BY THE AO ON ACCOUNT OF DISALLOWANC E OF INTEREST UNDER SECTION 36(1)(III). PAGE 2 OF 5 SHRI MANGILAL JHAWAR,INDORE VS. DCIT1(1)ITA NO.478/ IND/2015/AY:2005-06 2. THE LD. CIT (A) HAS ERRED IN NOT APPRECIATING AND ADJUDICATING JUDGEMENTS JURISDICTIONAL HIGH COURT AND APEX COURT SUBMITTED BEFORE HIM. 3. THE ADDITION MADE TO RETURNED INCOME AND SUSTAINED BY THE CIT(A) MAY PLEASE BE DELETED. 4. THE APPELLANT PRAYS TO GRANT SUCH RELIEF AS IS FOUN D ADMISSIBLE UNDER THE LAW & EQUITY. 2. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND HAS FILED HIS RETURN OF INCOME ON 07.03.2006 DECLARING TOTAL INCOME OF RS.1, 15,710/-. IT WAS NOTED THAT T HE ASSESSEE HAS NOT CHARGED AN INTEREST FROM M/S. MAA ANNAPURNA AGRITECH PVT. LTD. WHICH WAS SHOWN ITS OPENING DEBIT BALANCE AT RS.85,33,412/- AND CLOSING DEBIT BA LANCE AT RS. 17,00,000/- AND AVERAGE CLOSING DEBIT BALANCE WAS RS.16,50,000/-. I T WAS FURTHER NOTICED THAT THE ASSESSEE HAD RECEIVED INTEREST OF RS.8,90,706/- AND PAID INTEREST OF RS.8,67,414/-, AND HAS THUS, SHOWN NET INTEREST INCOME OF RS. 23,2 92/-. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST@ 12% SHOU LD NOT BE DISALLOWABLE ON THE DEBIT BALANCE OF M/S. MAA ANNAPURNA AGRITECH PVT. L TD. ACCORDINGLY, ASSESSING OFFICER HAS WORKED OUT PROPORTIONATE DISALLOWABLE I NTEREST OF RS.6,28,000/- BY COMPUTING DISALLOWABLE INTEREST AT RS.85,00,000/-BE ING OPENING DEBIT BALANCE TO RS. 17,00,000/- BEING CLOSING DEBIT BALANCE AT THE END OF THE YEAR. 3. BEING, AGGRIEVED WITH THE ORDER, THE ASSESSEE HA S FILED AN APPEAL BEFORE THE LD. CIT (A). THE LD. CIT(A) WAS OF THE VIEW THAT THE ONUS W AS ON THE APPELLANT TO PROVE THAT SUCH LOAN AND ADVANCES FOR THIS YEAR AND LAST YEAR WAS NOT EXTENDED OUT OF INTEREST BEARING FUNDS. SINCE THE ASSESSEE HAS FAILED TO FUR NISH COPY OF BANK ACCOUNT TO SHOW THE NEXUS, THEREFORE THE LD. CIT(A) HAS DRAWN AN IN FERENCE THAT BORROWED FUNDS WERE USED FOR NONE BUSINESS PURPOSE HENCE INTEREST DISAL LOWANCE BY THE ASSESSING OFFICER WAS CONFIRMED. PAGE 3 OF 5 SHRI MANGILAL JHAWAR,INDORE VS. DCIT1(1)ITA NO.478/ IND/2015/AY:2005-06 4. BEING, AGGRIEVED THE ASSESSEE FILED AN APPEAL BE FORE US. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAD SHOWN NET INTEREST INCOME OF RS.23,292/- (890706-867414) AND RECEIVED INTEREST OF LOAN ADVANCES OF RS.1,34,5 9,744/- @ 12% PER ANNUM. THE ASSESSEE HAS PAID INTEREST @ 6% TO 24% DURING THE YE AR AS FOLLOWS: @6% FOUR PARTIES RS.4,79,251/ - @9% ONE PARTY RS. 78,149/ - @11.15% TWO PARTIES RS. 65,100/ - @12% TWO PARTIES RS.1,46,780/ - @24% ONE PARTY RS. 98,134/ - 5. THE LEARNED COUNSEL SUBMITTED THAT FROM THE ABOVE C ALCULATION THE INTEREST OF RS.6,22,500/- HAS BEEN PAID AT THE RATE OF 6 % TO 1 2% WHICH IS LESS THAN 12% I.E. THE RATE AT WHICH IS INTEREST IS RECEIVED EXCEPT IN ONE CASE WHICH IS @ 24%. THEREFORE, THE ASSESSEE HAS PAID AN AMOUNT OF INTEREST OF RS.98,13 4/ WHICH IS EXCEEDING 12% I.E. @ OF 24% WHICH THE LD. ASSESSING OFFICER HAS TAKEN NO TE IN THE ASSESSMENT ORDER. THE ASSESSEE HAS TOTAL INCOME FREE DEPOSIT OF RS.20,90, 000/- AND OWN CAPITAL OF RS.44,39,966/-. THUS, THE ASSESSEE HAS TOTAL INTERES T FREE FUNDS AVAILABLE HIS DISPOSAL AT RS.65,32,966/- AS AGAINST INTEREST FREE/EXEMPT I NCOME YIELDING INVESTMENTS OF RS.47,81,682/- WHICH HAS BEEN ARRIVED AFTER REDUCIN G RS.1,34,59,744/- BEING INTEREST BEARING LOANS AND ADVANCES GIVEN FROM THE TOTAL ASS ET OF RS.1,82,41,426/- IN THE BALANCE SHEET. IT WAS ALSO SUBMITTED THAT OTHER INV ESTMENT AND ASSETS OF RS.47,81,682/- ALSO WERE INCLUDED DEBIT BALANCE OF RS.16,50,000/- OF M/S. MAA ANNAPURNA AGRITECH PVT. LTD. THEREFORE, IT WAS ARG UED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE AT RS.65,32,966/- WHICH ARE MORE THAN THE INTEREST FREE/EXEMPT INCOME YIELDING INVESTMENT OF RS.47,81, 682/- THEREFORE, DISALLOWANCE OF PAGE 4 OF 5 SHRI MANGILAL JHAWAR,INDORE VS. DCIT1(1)ITA NO.478/ IND/2015/AY:2005-06 INTEREST CALCULATED ON A NOTIONAL BASIS BY APPLYING INTEREST RATE OF 12% WHICH IS UNWARRANTED, HENCE, SAME MAY BE DELETED. 6. WE HAVE CONSIDERED THE FACTS AND PERUSED THE MATERI AL ON RECORD AND ALSO CONSIDERED RIVAL SUBMISSIONS OF THE PARTIES. FROM THE SUBMISSI ONS OF LD. COUNSEL, WE FIND THAT THE ASSESSEE HAD TOTAL INTEREST FREE FUNDS AVAILABL E AT HIS DISPOSAL AT RS.65,32,966/- AS AGAINST THE INTEREST FREE/EXEMPT INCOME YIELDING INVESTMENT OF RS.47,81,682/-. WE ARE ALSO AWARE OF THE FACT THAT THE ASSESSEE HAS SHOWN NET INTEREST INCOME OF RS.23,292/- WHICH IS THE OUTCOME OF INTEREST RECEIV ED @ 12% ON LOAN AND ADVANCES AND INTEREST PAID @ 12% LOAN AND ADVANCES AS COULD BE SEEN FROM THE CHART AS GIVEN ABOVE. WE FIND THAT THE ASSESSEE HAS GIVEN INTEREST OF RS.98,134/- ONLY WHICH IS EXCEEDING 12% INTEREST RATE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.98,134 /- IS REQUIRED TO BE SUSTAINED AND BALANCE DISALLOWANCE OF INTEREST OF RS.5,29,866/- IS DELETED AS THE ASSESSEE HAD INTEREST FREE FUNDS AVAILABLE AT HIS DISPOSAL AMOUN TING TO RS.65,32,966/- AS AGAINST INTEREST FREE/EXEMPT INCOME YIELDING INVESTMENTS OF RS.47,81,683/-. IN THE LIGHT OF THESE FACTS, THE ABOVE GROUNDS OF APPEALS OF THE AS SESSEE ARE PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 8. THIS ORDER WAS PRONOUNCED ON OPEN COURT AS ON 16.0 1.2017. S D / - (D.T.GARASIA) JUDICIAL MEMBER S D / - (O.P.MEENA) ACCOUNTANT MEMBER DATED : 16 JANUARY, 2017/OPM PAGE 5 OF 5 SHRI MANGILAL JHAWAR,INDORE VS. DCIT1(1)ITA NO.478/ IND/2015/AY:2005-06