Rahul Sehgal, Agra V. Dy. C.I.T.- 4(1), Agra

ITA 49/AGR/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60192 (ITAT-AGRA)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 49/AGRA/2012 ASSTT. YEAR : 2007-08 RAHUL SEHGAL, VS. D.C.I.T., 4(1), 9/635, MOTI KATRA, AGRA. AGRA. (PAN : ADBPS 5664 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE. RESPONDENT BY : SHRI A.K. SHARMA, JR. D.R. DATE OF HEARING : 17.07.2012 DATE OF PRONOUNCEMENT OF ORDER : 20.07.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A), AGRA DATED 02.11.2011 FOR THE ASSESSMENT YEAR 2007-08. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NO. 1 TO 4, THE ASSESSEE CHALLENGED TH E ADDITION OF RS.1,89,658/- MADE BY THE AO U/S. 36(1)(III) OF THE IT ACT TREATI NG THE PROPORTIONATE INVESTMENT MADE TOWARDS PURCHASE OF PROPERTY OUT OF BORROWED F UNDS. ACCORDING TO THE AO, ITA NO. 49/AGRA/2012 2 THE ASSESSEE HAD MADE THE INVESTMENT IN TWO PROPERT IES, I.E., PROPERTY AT TRANSPORT NAGAR AND AT BUSINESS PARK TOWN PLANNERS, DELHI FOR RS.7,88,000/- AND RS.7,92,487/- RESPECTIVELY TOTALING TO RS.15,80,487 /- IN HIS PERSONAL CAPACITY. THE ASSESSEE HAD DEBITED INTEREST OF RS.8,95,679/-, AS THE ASSESSEE DURING THE YEAR HAD AVAILED LOAN FACILITY OF RS.76,48,377/- FROM THE BA NK. THE ASSESSEE EXPLAINED THAT BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUS INESS AND THE INVESTMENT WAS MADE IN THE PROPERTIES IN HIS PERSONAL CAPACITY OUT OF FUNDS AVAILABLE WITH THE ASSESSEE. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLA NATION OF THE ASSESSEE AND MADE DISALLOWANCE IN A SUM OF RS.1,89,658/- BY INVO KING THE PROVISIONS OF SECTION 36(1)(III) OF THE IT ACT. IT WAS SUBMITTED BEFORE T HE LD. CIT(A) THAT SUFFICIENT CAPITAL OF RS.60.58 LACS WAS AVAILABLE WITH THE AS SESSEE AS ON 31.03.2007, FROM WHICH INVESTMENT IS MADE IN THE PROPERTIES WHICH WE RE ALSO RELATED TO THE BUSINESS OF THE ASSESSEE. NO INVESTMENTS HAVE BEEN MADE OUT OF BORROWED FUNDS, WHICH HAVE BEEN USED ONLY FOR THE PURPOSE OF BUSINESS. IN TEREST WAS PAID ON LOANS USED FOR THE PURPOSE OF BUSINESS. THE DECISIONS CITED BY THE AO ARE NOT APPLICABLE TO THIS CASE. THEREFORE, THE ADDITION IS UNJUSTIFIED. THE LD. CIT(A) CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ADDITION IS CLEARLY UNJUSTIFIED. PB-1 IS THE COMPUTATION OF INCOME, IN WHICH DURING THE ASSESSMENT UNDER APPEAL, THE ASSESSEE HAS TAXABLE I NCOME OF RS.27,79,603/- AFTER ITA NO. 49/AGRA/2012 3 DEDUCTIONS CLAIMED AND THE CAPITAL ACCOUNT OF THE A SSESSEE HAS CAPITAL OF RS.60.58 LACS AS ON 31.03.2007 (PB-2). NO LOAN WAS TAKEN DUR ING THE ASSESSMENT YEAR UNDER APPEAL BECAUSE AS PER ANNEXURE TO THE BALANCE SHEET ON 31.03.2007 (PB-5), UNSECURED LOANS HAVE BEEN MENTIONED AT RS.74,94,914 /- AND IN THE PRECEDING ASSESSMENT YEAR ENDING ON 31.03.2006, THE LOANS WER E OF RS.86,18,797/- (PB-10). THUS, LOANS AND ADVANCES HAVE REDUCED IN THE ASSESS MENT YEAR UNDER APPEAL. THEREFORE, NO LOAN IS TAKEN IN THE ASSESSMENT YEAR UNDER APPEAL. PB-4 IS THE CAPITAL ACCOUNT OF THE ASSESSEE IN WHICH DURING THE ASSESSM ENT YEAR UNDER APPEAL, THE ASSESSEE HAS WITHDRAWN RS.20,81,116/-, WHICH IS ALS O AVAILABLE TO THE ASSESSEE FOR MAKING INVESTMENT IN THE PROPERTY. THE LD. DR, HOWE VER, POINTED THAT THE ASSETS ARE NOT SHOWN IN THE BALANCE SHEET. IT HAS NO RELEV ANCE IN THE MATTER IN ISSUE BECAUSE THE INVESTMENT HAS BEEN MADE IN PERSONAL CA PACITY. NO REASONS HAVE BEEN SHOWN AS TO WHY PROPORTIONATE INTEREST HAS BEEN DIS ALLOWED IN THIS CASE WHEN SUFFICIENT CAPITAL WITHDRAWALS AND TAXABLE INCOME I S AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENT IN THE PROPERTY. H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LT D., 313 ITR 340 HELD HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FUNDS AVA ILABLE BOTH INTEREST-FREE AND OVERDRAFT AND / OR LOANS TAK EN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST- FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST- FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE, THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE IN TEREST WAS DEDUCTIBLE. ITA NO. 49/AGRA/2012 4 5. CONSIDERING THE FACTS OF THE CASE, NOTED ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE HAD SUFFICIENT FUNDS FOR THE PURPOSE OF MA KING INVESTMENT IN THE PROPERTIES AND NO EVIDENCE HAS BEEN BROUGHT ON RECO RD BY THE AO TO PROVE IF THE ASSESSEE MADE INVESTMENT IN THE PROPERTY OUT OF BOR ROWED FUNDS. THEREFORE, IN ABSENCE OF ANY NEXUS BETWEEN THE INVESTMENT AND THE BORROWED FUNDS, THERE IS NO JUSTIFICATION FOR THE AO TO MAKE PROPORTIONATE DISA LLOWANCE OUT OF INTEREST. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.1,89,658/-. RESULTANTLY, GROUND NOS. 1 TO 4 OF T HE APPEAL OF THE ASSESSEE ARE ALLOWED. 6. ON GROUND NO.5, THE ASSESSEE CHALLENGED THE DISA LLOWANCE OF RS.30,000/- OUT OF EXPENSES. THE AO NOTED THAT SOME OF THE EXPE NSES WERE NOT VERIFIABLE IN A PROPER MANNER FROM BILLS/VOUCHERS. RS.60,000/- WAS DISALLOWED TO COVER POSSIBLE LEAKAGES. IT WAS SUBMITTED BEFORE THE LD. CIT(A) TH AT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT DULY AUDITED BY THE AUDITOR AND ALL THE EXPENSES ARE INCURRED FOR THE BUSINESS PURPOSE, WHICH IS SUPPORT ED BY THE BILLS AND VOUCHERS. THEREFORE, ADHOC ADDITION IS UNJUSTIFIED. THE LD. C IT(A), CONSIDERING THE EXPLANATION OF THE ASSESSEE, RESTRICTED THE DISALLO WANCE OF RS.30,000/-. 7. ON CONSIDERATION OF THE ABOVE FACTS, WE DO NOT F IND ANY JUSTIFICATION TO SUSTAIN PART OF THE ADDITION ON THIS ISSUE. THE AO MERELY STATED IN THE ORDER THAT ITA NO. 49/AGRA/2012 5 SOME OF THE EXPENSES WERE NOT VERIFIABLE IN PROPER MANNER FROM THE BILLS/VOUCHERS. IT WOULD MEAN THAT THE ASSESSEE PRODUCED ALL THE BI LLS AND VOUCHERS IN RESPECT OF THE EXPENSES. NOTHING IS POINTED OUT SPECIFICALLY I N THE ASSESSMENT ORDER AS TO WHICH OF THE EXPENSES ARE NOT VERIFIABLE. ADHOC ADD ITION IS MADE TO COVER POSSIBLE LEAKAGES. THEREFORE, THE ADDITION IS CLEARLY UNJUST IFIED. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.30,000/-. GROUND NO. 5 OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY