Sri Girish Ghelani, Kolkata V. ITO, WD-34(4), KOLKATA, Kolkata

ITA 519/KOL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4217 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 03-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2015
• Court: TRIBUNAL
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

1 ITA NO.519/KOL/2015 GIRISH GHELANI, AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO. 519/KOL/2015 ASSESSMENT YEAR: 2009-10 GIRISH GHELANI (PAN: AEFPG5747K) VS. INCOME-TAX OF FICER, WD-34(4), KOLKATA ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 08.11.2016 DATE OF PRONOUNCEMENT: 18.11.2016 FOR THE APPELLANT: SHRI MIRAJ D. SHAH, ADVOCAT E FOR THE RESPONDENT: SALLONG YADEN, ADDL. CIT ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XX, KOLKATA VIDE APPEAL NO. 26/CIT(A)-XX/WD-34(4)/2011-12/KOL DATED 04.03.2 014. ASSESSMENT WAS FRAMED BY ITO, WARD-34(4), KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2009-10 VIDE HIS ORDER DATED 27.1 2.2011. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS PROPORTIONATELY IN THE SUM OF RS.6,21,667/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF DEALING IN THE EXPORT IMPORT LICENSORS. THE AO OBS ERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO HIS CLOSE RELATIVES, WHICH ARE AS UND ER: 1. SMT. PRAGNYA GHELANI RS. 4,00,000/- WIFE OF AS SESSEE 2. SHRI RAHUL GHELANI RS. 22,66,361/- SON OF ASSESS EE 3. SMT. SMITA GHELANI RS. 12,16,629/- DAUGHTER OF A SSESSEE 4. THE AO ALSO OBSERVED THAT THE ASSESSEE HAD SOME BORROWINGS FROM BANKS BEARING INTEREST @ 16.01% AND ON INTEREST PAYMENT THEREON T O THE TUNE OF RS.49,56,755/-. THE AO CONCLUDED THAT THE BORROWED FUNDS WERE DIVERTED BY THE ASSESSEE FOR NON-BUSINESS PURPOSES 2 ITA NO.519/KOL/2015 GIRISH GHELANI, AY 2009-10 AND ACCORDINGLY, DISALLOWED THE INTEREST IN THE SUM OF RS.6,21,667/- (RS.38,82,990/- X 16.01%) ON PROPORTIONATE BASIS. THE ASSESSEE PLEADE D THAT IT HAD SUFFICIENT FUNDS WHICH IS QUITE EVIDENT FROM THE BALANCE SHEET AND ALSO INTER EST FREE FUNDS IN THE FORM OF SUNDRY CREDITORS AND NO BORROWED FUNDS WERE UTILIZED FOR A DVANCING INTEREST FREE FUNDS TO THE RELATIVES OF THE ASSESSEE. THE LD. CIT(A) CONFIRME D THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: 1. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSMENT ORDER PASSED WAS IN VIOLATION OF PRINCIPALS OF NATURAL JUSTICE HENCE IS BAD IN LAW AND BE QUASHED. 2. FOR THAT IN THE FACTS AND CIRCUMSTANCE THE LEARN ED CIT APPEALS ERRED IN CONFIRMING THE DISALLOWING RS.6,21,667/- ON ACCOUNT OF PROPORTIONA TE LOAN INTEREST. THE DISALLOWANCE WAS NOT CALLED FOR AND HENCE THE SAME BE DELETED. 3. FOR THAT IN THE FACTS AND CIRCUMSTANCE THE LEARN ED CIT APPEALS ERRED IN HOLDING THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT INTEREST FRE E FUNDS WERE UTILIZED TO GRANT THE INTEREST FREE ADVANCES. THIS WAS DIRECTLY CONTRARY TO THE SE TTLED LAW. HENCE THIS FINDING BE REVERSED. 5. THE LD AR PLACED COPY OF THE BALANCE SHEET OF T HE ASSESSEE AS AT 31.03.2009 AND PLEADED THAT THE PROPRIETORS CAPITAL ACCOUNT WAS R S.36,85,401/- AND WHEREAS THE INTEREST FREE ADVANCES GIVEN TO THE RELATIVES WERE RS.38,82, 990/-. HE PLACED RELIANCE ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V S. BRITANNIA INDUSTRIES LTD. REPORTED IN 280 ITR 525 (CAL) AND ALSO ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT REPORTED IN 298 ITR 298 W HEREIN IT WAS HELD THAT IN THE EVENT OF OWN FUNDS AND BORROWED FUNDS BEING MIXED UP THE PRE SUMPTION HAS TO BE IN FAVOUR OF THE ASSESSEE THAT THE INTEREST FREE FUNDS WERE GIVEN OU T OF OWN FUNDS OF THE ASSESSEE PROVIDED THE OWN FUNDS ARE MUCH MORE THAN THE INTEREST FREE FUNDS. HE PLEADED FOR DISALLOWANCE OF INTEREST ON PROPORTIONATE BASIS ONLY TO THE EXTENT OF DEFICIT IN AVAILABILITY OF OWN FUNDS I.E RS.1,97,589/- (RS.38,82,990/- - RS.26,85,401/-) AND APPLYING THE INTEREST RATE AT 16.01% ON THE SAME. IN RESPONSE TO THIS, LD. DR VEHEMENTLY R ELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE, THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. WE FIND THAT THE ASSESSEE HAS GOT OWN FUNDS TO THE TUNE OF RS.36,85,401/- WHICH IS EVIDENT FROM THE BALANCE SH EET OF THE ASSESSEE AND PLACING RELIANCE ON THE DECISION RELIED ON BY THE LD. AR SUPRA, WE HOLD THAT INTEREST FREE ADVANCES GIVEN TO 3 ITA NO.519/KOL/2015 GIRISH GHELANI, AY 2009-10 THE RELATIVES OF THE ASSESSEE WERE OUT OF OWN FUND S OF RS.36,85,401/- AND OUT OF BORROWED FUNDS TO THE TUNE OF RS.1,97,589/-. ACCORDINGLY, W E DIRECT THE AO TO DISALLOW INTEREST ON BORROWED FUNDS DIVERTED FOR NON BUSINESS PURPOSES P ROPORTIONATELY TO THE EXTENT OF RS.31,634/- I.E. RS.1,97,589 X16.01%. WE DIRECT TH E AO ACCORDINGLY. APPEAL OF ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18.11.2016 . SD/ SD/- (S.S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 18TH NOVEMBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT SHRI GIRISH GHELANI, C/O, D. J. SHAH & CO., KALYAN BHAVAN, 2, ELGIN ROAD, KOLKATA-700 020. 2 RESPONDENT ITO, WARD-34(4), KOLKATA 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .