ACIT, New Delhi V. M/s. Anand & Anand, New Delhi

ITA 4991/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86498 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: B K ANAND
• Keywords: Proportionate interest
• Section: 37(1)

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K. , JUDICIAL MEMBER ITA NO. 4991 /DEL/201 2 ASSESSMENT YEAR 2009 - 10 ACIT, CIRCLE 37(1) VS. M/S. ANAND & ANAND NEW DELHI. B - 41, NIZAMUDDIN EAST, NEW DELHI - 110013 (PAN AA AFA 0186 F ) ( APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PARWINDER KAUR, SR. D.R. RESPONDENT BY: SH . B.K. ANAND . CA . ORDER PER SHRI GEORGE GEORGE K , J M : 1. THE APPEAL , AT THE INSTANCE OF THE REVENUE , IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 04 .07.201 2 . THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. 2. THE EFFECTIVE G ROUNDS RAISED READ AS FOLLOWS : - 1. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO A MOUNTING TO RS.23,33,368/ - ON ACCOUNT OF INTEREST ON BANK LOANS PAID BY THE ASSESSEE FIRM BEING NOT INCURRED FOR THE PURPOSE OF PROFESSIONAL ACTIVITIES OF THE ASSESSEE BUT WERE INCURRED FOR ADVANCING INTEREST FREE LOANS/ADVANCES TO ITS SISTER CONCERNS AND OTHER PARTIES. FURTHER, THE DEPARTMENT IS IN APPEAL BEFORE HON BLE ITAT ON SIMILAR GROUND IN THE CASE OF THE ASSESSEE FOR THE AY 2008 - 09. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,97,220 / - MADE BY THE AO OUT OF TOTAL FOREIGN TRAVEL EXPEN SES OF RS.14,86,101/ - AS THE ASSESSEE COULD NOT PRODUCE PROPER BILLS AND VOUCHERS. IT A NO. 4991 /DEL /201 2 2 3. THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS.3,25,508/ - MADE BY THE AO OUT OF TOTAL ENTERTAINMENT EXPENSES OF RS.32,5 6 ,087/ - BEING NOT INCURRED FOR PROFESSIONAL A CTIVITIES OF THE ASSESSEE. 3. GROUND NO.1 THE ABOVE GROUND RELATES TO DISALLOWANCE INTEREST EXPENDITURE. THE A SSESSEE FOR THE CURRENT ASSESSMENT YEAR HAD DEBIT ED TO P&L ACCOUNT A SUM OF RS.23,33,368/ - F O R INTEREST EXPENDITURE INCURRED ON LOANS TAKEN. THE AO DISALLOWED THE INTEREST EXPENDITURE FOR THE REASON THAT THERE WAS DIVERSION OF LOAN TO SISTER CONCERN S AND FOR NON - BUSINESS PURPOSES OF THE ASSESSEE. THE AO ALSO REFERRED TO THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAMEL Y, 2008 - 09 WHEREIN AN IDENTICAL DISALLOWANCE WAS MADE. THE REASONING OF THE AO FOR MAKING THE DISALLOWANCE READS AS UNDER: - 3.6. ACCORDINGLY, IN THE INSTANT CASE, PROPORTIONATE INTEREST PAID TO THE BANK BY THE ASSESSEE FIRM IS TO BE DISALLOWED BECAUSE THE ASSESSEE HAD ALLOWED SIZEABLE AMOUNT TO BE SIPHONED OFF BY THE RELATED CONCERNS/INVESTMENTS FOR THEIR PERSONAL NEEDS. THERE IS ALSO DIRECT NEXUS BETWEEN THE LOAN RAISED FROM THE BANK AND INTEREST FREE ADVANCES GIVEN TO VARIOUS PARTIES. THEREFORE, AFTER TA KING REASONABLE AN AVERAGE RATE OF INTEREST @ 12% P.A. ON ADVANCES OF RS.1,57,64,961/ - (CONSIDERED OUT OF TOTAL ADVANCES) , AN INTEREST AMOUNT OF RS.23,33,368/ - IS DISALLOWED ON ACCOUNT OF LOAN BEING NOT INCURRED FOR THE PURPOSE OF PROFESSIONAL ACTIVITIES O F THE ASSESSEE ON TOTAL AMOUNT OF INTEREST FREE ADVANCES GIVEN AS DISCUSSED ABOVE. IN VIEW OF THE FACT THAT ASSESSEE, BEING A WELL KNOWN LAW FIRM, HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND CONCEALED REAL INCOME . 3.1. ON FURTHER APP EAL, THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE. THE CIT (A) FOLLOWED THE ORDER OF THE F IRST APPELLATE AUTHORITY IN ASSESSEE S OWN CASE FOR AY 2008 - 09 . 3.2. THE REVENUE , BEING AGGRIEVED , IS IN APPEAL BEFORE US. THE LD. DR SUPPORTED THE ORDER OF THE AS SESSING OFFICER. ON THE OTHER HAND, LD. AR SUBMITTED IT A NO. 4991 /DEL /201 2 3 THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR AY 2008 - 09 (ITA NO.887/D/2012 DATED 15.10.2012) . A COPY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RECORD. 3.3 W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, INTEREST DISALLOWED RELATES TO , ADMITTEDLY , VERY SAME LOANS WHICH WERE TAKEN IN THE PREVIOUS ASSESSMENT YEAR , NAMELY , IN THE AY 2006 - 07. FOR THE AY 2008 - 09 , A SIMIL AR DISALLOWANCE WAS MADE ON THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. THE TRIBUNAL IN ITS ORDER CITED SUPRA FOR THE A . Y 2008 - 09 HELD THAT THERE WAS NO DIVERSION OF BORROWED FUND TO SISTER CONCERN AND DELETED THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. THE RELEVANT FINDING OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE AY 2008 - 09 (SUPRA) READS AS FOLLOWS: - 5 . WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE DID NOT DIVERT BORROWED FUNDS TO MLS . A NAND AND ANAND ASSOCIATES AND THE AMOUNT OF RS.36,43,517/ - WAS OUTSTANDING ON ACCOUNT OF PROFESSIONAL SUPPORT SERVICES. THE ID. CIT(A) FOUND IN THE PRECEDING YEAR THAT BALANCE OF RS.35,81,537/ - WAS BROUGHT FORWARD AS ON 1.4.2006. IN FACT BALANCE AS ON 1.4. 2003 - RS. 30,31,333/ - , INCREASED TO RS. 36,05,517/ - AS ON 1.4.2007.0N THE OTHER HAND, LOANS OF RS. 2,29,60,000+ RS. 20,40,000 WERE RAISED FORM CITI BANK ON 12.10.2006 AND UTILIZED TOWARDS ADDITION TO FIXED ASSETS AND PURCHASE OF STAMP PAPERS AND SECURITY DEPO SITS BESIDES PAYMENT OF ADVANCE RENT. TOTAL AMOUNT UTILIZED WAS RS. 2,82,71,768/ - . LN THESE CIRCUMSTANCES, THE ID. CIT(A) CONCLUDED IN THE PRECEDING YEAR THAT BORROWED FUNDS WERE NOT UTILIZED TOWARDS ADVANCES TO SISTER CONCERN AND DELETED THE DISALLOWANCE O F INTEREST. FOLLOWING HIS DECISION IN THE PRECEDING YEAR, DISALLOWANCE OF INTEREST HAS BEEN DELETED IN THE YEAR UNDER CONSIDERATION. HON'BLE KARNATAKA HIGH COURT IN BIT TUL (P.) LTD. V. CIT (ITRC 141 OF 1977 DATED 29 - 7 - 1980) HELD THAT THERE SHOULD BE MATER IAL TO JUSTIFY THE CONCLUSION THAT ANY BORROWED MONEY BY THE ASSESSEE IN A YEAR TO WHICH INTEREST HAD BEEN PAID HAD BEEN DIVERTED FOR NON - BUSINESS PURPOSE BEFORE MAKING ANY DISALLOWANCE. NO SUCH MATERIAL WAS FOUND IN THE INSTANT CASE BY THE ID. CIT(A) NOR HAS BEEN PLACED BEFORE US. THE ID. D R DID NOT BRING TO OUR NOTICE ANY MATERIAL, ESTABLISHING NEXUS OF THE BORROWED FUNDS WITH THE AFORESAID AMOUNT OUTSTANDING. IN H.B. STOCK HOLDINGS LTD. (SUPRA) HON'BLE JURISDICTIONAL HIGH COURT FOUND THAT LOAN WAS GIVEN TO A SISTER CONCERN BEFORE THE LOAN WAS TAKEN FROM THE BANK, WHILE SUFFICIENT INTEREST FREE FUNDS AND SURPLUS IN THE FORM OF SHARE PREMIUM MONEY WAS AVAILABLE WITH THE ASSESSEE. IN THESE CIRCUMSTANCES, HON'BLE HIGH COURT UPHELD THE FINDINGS OF THE ITAT, DE LETING THE DISALLOWANCE ON ACCOUNT OF INTEREST IN RELATION TO ADVANCES TO SISTER CONCERN. SIMILAR IS THE POSITION IN CIT VS. MS. SUSHMA KAPOOR, 188 TAXMAN 24( D EL.). IN THE LIGHT OF IT A NO. 4991 /DEL /201 2 4 VIEW TAKEN IN THESE DECISIONS AND IN THE ABSENCE OF ANY NEXUS OF BORROWED F UNDS WITH INTEREST FREE ADVANCES TO SISTER CONCERN, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE ID. CIT(A).THEREFORE, GROUND NOS. 1 & 2 IN THE APPEAL OF THE REVENUE ARE DISMISSED . 3. 4. SINCE THE FACTS OF THE INSTANT CASE ARE SIMILAR TO THE FACTS CONSIDERED BY THE TRIBUNAL FOR THE AY 200 8 - 0 9 , WE FOLLOW THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE CITED (SUPRA) AND REJECT THE GROUND NO.1 RAISED IN REVENUE S APPEAL. GROUND NO S .2 & 3 4 . IN THE ABOVE GROUNDS, THE REV ENUE CHALLENGES THE DELETION OF ADDITION OF RS.2,97,220/ - UNDER THE HEAD FOREIGN TRAVEL EXPENSES AND RS.3,25,508/ - UNDER ENTERTAINMENT EXPENSES . THE ASSESSEE IN ITS P&L ACCOUNT HAD DEBITED A SUM OF RS.14,86,101/ - UNDER FOREIGN TRAVEL EXPENSES . THE A SSESSEE WAS ASKED TO FILE THE DETAILS OF THESE EXPENSES AND TO JUSTIF Y THE CLAIM OF DEDUCTION. THE A SSESSEE FILED A COPY OF THE LEDGER ACCOUNT OF THESE EXPENSES. THE ASSESSING OFFICER MADE AN AD - HOC DISALLOWANCE OF RS.20% OF THE TOTAL EXPENSES INCURRED U NDER THE HEAD FOREIGN TRAVEL EXPENSES . THE AO WAS OF THE VIEW THAT THERE WERE NO PROPER BILLS AND VOUCHERS AND PERSONAL ELEMENT COULD BE INVOLVED IN THESE EXPENSES. THE REASONING OF THE ASSESSING OFFICER IN MAKING THE DISALLOWANCE READS AS FOLLOWS: - 4 . THE ASSESSEE HAS CLAIMED FOREIGN TRAVELLING EXPENSES OF RS.14,86,101/ - . THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF THESE EXPENSES AND JUSTIFY THESE EXPENSES WITH BILLS AND VOUCHERS ETC. THE ASSESSEE FILED COPY OF LEDGER ACCOUNT OF THESE EXPENSES. NO P ROPER BILLS & VOUCHER WERE FILED DURING THE ASSESSMENT PROCEEDINGS AND AS THE PERSONAL ELEMENT INVOLVED IN THESE EXPENSES CANNOT BE RULED OUT HENCE 20% OF RS.14,86,101/ - I.E. RS.2,97,220/ - OF THESE EXPENSES IS DISALLOWED AND ADDED BACK TO THE RETURNED INCO ME OF THE ASSESSEE. IT A NO. 4991 /DEL /201 2 5 4.1 . SIMILAR DISALLOWANCE WAS ALSO MADE FOR THE ENTERTAINMENT EXPENSES. THE REASONING OF THE ASSESSING OFFICER IN MAKING THE SIMILAR DISALLOWANCE OF 10% OF THE TOTAL EXPENDITURE CLAIMED UNDER ENTERTAINMENT EXPENSES READS AS FOLLOWS : 5. THE ASSESSEE HAS CLAIMED ENTERTAINMENT EXPENSES OF RS.32,55,087/ - . THE ASSESSEE WAS ASKED TO FILE THE DETAILS AND JUSTIFICATION OF THESE EXPRESSES WITH BILLS AND VOUCHERS ETC. NO PROPER BILLS & VOUCHER WERE FILED DURING THE ASSESSMENT PROCEEDINGS AN D AS THE PERSONAL ELEMENT INVOLVED IN THESE EXPENSES CANNOT BE RULED OUT HENCE 10% OF RS.32,55,087/ - I.E. RS.3,25,508/ - OF THESE EXPENSES IS DISALLOWED AND ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. 4.2. ON APPEAL, THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION OF RS.2,97,220/ - AND RS.3,25,508/ - . THE CIT (A) DELETED THE ADDITIONS FOR THE REASON ING THAT THE ASSESSEE HAD PAID F RINGE B ENEFIT T AX ON THESE EXPENSES INCURRED BY IT. THE RELEVANT FINDING OF THE CIT (A) READS AS F OLLOWS: - 5. (ON PAGE 15.) ... IT IS FOUND THAT THE APPELLANT HAS PAID FBT FOR BOTH THE HEADS FOR WHICH THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON ACCOUNT OF PERSONAL ELEMENT. AS FOR THE RELEVANT ASSESSMENT YEAR THE APPELLANT HAD FILED AND PAID FRINGE BENEFIT TAX, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING FURTHER DISALLOWANCES OF RS.2,97,220 + RS.3,25,508/ - , I THEREFORE, DELETE BOTH THE DISALLOWANCES . . 4.3 . THE REVENUE , BEING AGGRIEVED , IS IN APPEAL BEFORE US. THE L D. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND RELIED ON THE FINDINGS OF THE CIT (A). 4.4 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE AO FOR MAKING THE ABOVE DISALLOWANCE HAD CITED THAT 5 . NO PROPER BILLS AND VOUCHERS WERE FILED DURING THE ASSESSMENT PROCEEDINGS AND AS THE PERSONAL ELEMENT INVOLVED IN THESE EXPENSES CANNOT BE RULED OUT . THE ASSESSING OFFICER HAD MADE THE DISALLO WANCE ON AD - HOC BASIS WITHOUT GIVING A SPECIFIC REASONING THAT IT A NO. 4991 /DEL /201 2 6 ASSESSEE HAS NOT BEEN ABLE TO GIVEN ANY SPECIFIC INSTANCE S OF ANY PARTICULAR EXPENDITURE AS UN - VOUCHED . THE AO S CONCLUSION WAS THAT THERE WOULD HAVE BEEN PERSONAL ELEMENT INVOLVED IN TH E SE EX PENSES IS WITHOUT ANY BASIS . WE FIND THAT THE ASSESSEE HAD PAID F RINGE B ENEFIT T AX ON THESE EXPENSES AND ANY DISALLOWANCE ON ACCOUNT OF PERSONAL ELEMENT COULD GET DISSOLVED IN THE PAYMENT OF FBT . T HEREFORE, FOR THE AFORESAID REASON , WE SEE NO REASON TO IN TERFERE WITH THE FINDING OF THE CIT(A) AND, ACCORDINGLY, WE AFFIRM THE SAME . IT IS ORDERED ACCORDINGLY. 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY , 201 5 . SD/ - SD/ - ( N.K. SAINI ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 13 TH JANUARY , 201 5 . AKS/ - COPY FORWA RDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI