Mangla Agencies, Jagraon V. CIT-III, Ludhiana

ITA 522/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5400 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: B R GUPTA
• Keywords: Assessment record
• Section: 143(3); 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL: A BENCH: CHA NDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 522/CHANDI/2011 ASSESSMENT YEAR: 2006-07 MANGLA AGENCIES, V. C.I.T. III, LUDHIANA 634, GRAIN MARKET, JAGRAON PAN: AAGFM 6814 J APPELLANT BY: S/SHRI SARABJIT GARG AND B.R. GUPTA RESPONDENT BY: SHRI S.K. MITTAL ORDER D K SRIVASTAVA : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE LD. CIT U/S 263 ON 22.3.2011 BY WHICH HE HAS DIRECTED THE AO TO ENHANCE THE INCOME ASSESSED BY HIM BY RS. 2,14,5 34/- BEING THE AMOUNT OF INTEREST DISALLOWED BY HIM FOLLOWING THE JUDGMENT O F HON'BLE P & H HIGH COURT IN CIT V. ABHISHEK INDUSTRIES LTD, 286 ITR 1 (P&H). THE AS SESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD. CIT ERRED IN DISALLOWING INTEREST EXPENDITURE AMOUN TING TO RS. 214,534/- REJECTING THE REASONED SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD. CIT ERRED IN MAKING AFORESAID ADDITIONS APPLYING AB HISHEK INDUSTRIES CASE, WHEREAS THE DECISION IN THE SAID CASE STANDS OVER R ULED IN CASE OF MUNJAL SALES CORP V. CIT (2008) 298 ITR 298 (S.C) AND HAS NOT BEEN FOLLOWED BY EVEN THE HON'BLE JURISDICTIONAL HIGH COURT IN LATER DECISIONS IN CASE OF CIT V. AVON CYCLES LTD (2008) 303 ITR 345 (P & H) AND IN C IT V. MARUDHAR CHEMICALS AND PHARMACEUTICALS P LTD (2009) 319 ITR 75 (P & H). 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, LD. CIT ERRED IN NOT FOLLOWING THE DECISION OF APEX COU RT IN CASE OF S.A. BUILDERS LTD V. CIT AND ANR (2007) 288 ITR 1 (S.C). 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, LD. CIT ERRED IN MAKING ADDITION OF RS. 214,534/- SAME BEING AGAINST THE PROVISIONS OF THE ACT AND TOTALLY UNTENABLE AT LAW, AS ALSO THE ORDER OF LD. CIT IS TOTALLY PERVERSE AND MECHANICALLY PASSED. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE-FIRM FILED ITS RETURN OF INCOME ON 2.11.2006 RETURNING TOTAL INCOME AT RS .31,600 AGAINST WHICH THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 31.10.2008 A SSESSING THE TOTAL INCOME AT RS. 50,000/-. THE LD. CIT CALLED FOR THE ASSESSMENT RECORD AND EXAMINED THEM. HE CAME TO THE PRIMA FACIE CONCLUSION THAT THE INTERES T PAID BY THE ASSESSEE-FIRM SHOULD HAVE BEEN DISALLOWED TO THE EXTENT OF RS. 2,14,534/ - AS THE ASSESSEE HAD DIVERTED A PART OF ITS FUNDS FOR NON BUSINESS PURPOSES. HE THE REFORE, ISSUED A SHOW CAUSE NOTICE 2 CALLING UPON THE ASSESSEE AS TO WHY THE PRO-RATA DI SALLOWANCE OUT OF INTEREST SHOULD NOT BE MADE IN RESPECT OF ADVANCES GIVEN BY THE ASS ESSEE TO (I) ARIHANT MANGLA AGENCIES; (II) MANGLA COMMUNICATIONS; AND (III) VIJ AY KUMAR. AFTER HEARING THE ASSESSEE, THE LD. CIT, BY HIS IMPUGNED ORDER, DISAL LOWED THE INTEREST AMOUNTING TO RS.10534/- IN RESPECT OF THE ADVANCE AMOUNTING TO R S. 50,500/- GIVEN BY THE ASSESSEE TO ARIHANT MANGLA AGENCIES. THE DISALLOWAN CE WAS CALCULATED AS THE SAID AMOUNT WAS ONLY FOR 3 DAYS IN THE YEAR UNDER APPEAL . THE LD. CIT FURTHER DISALLOWED A SUM OF RS. 8984/- IN RESPECT OF THE AMOUNT ADVANC ED BY THE ASSESSEE TO MANGAL COMMUNICATIONS. THE LD. CIT ALSO DISALLOWED INTERES T TO THE EXTENT OF RS. 2,04,000/- IN RESPECT OF INTEREST-FREE ADVANCE OF RS. 17.00 LA KHS GIVEN TO SHRI VIJAY KUMAR. 4. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT, TH E ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. AS REGARDS THE DISALLOWANCE O F RS. 204,000/- IN RESPECT OF INTEREST-FREE ADVANCE OF RS. 17.00 LAKHS GIVEN TO S HRI VIJAY KUMAR, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SAID SUM OF RS. 17.00 LAKHS WAS NOT GIVEN AS INTEREST-FREE ADVANCE TO SHRI VIJAY KU MAR. HE SUBMITTED THAT SHRI VIJAY KUMAR WAS PROPRIETOR OF M/S CHARANJI LAL VIJAY KUMA R. HE (I.E., THE ASSESSEE) HAD TAKEN LOAN OF RS. 17.00 LAKHS FROM M/S CHIRANJI LAL VIJAY KUMAR. THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE SAID LOAN WAS REPAID IN THE YEAR UNDER APPEAL TO VIJAY KUMAR. THE AMOUNT SO REPAID WAS SHO WN BY INADVERTENCE AS ADVANCE TO SHRI VIJAU KUMAR IN THE BALANCE SHEET. A CCORDING TO HIM, THE REAL EFFECT OF REPAYMENT OF LOAN TAKEN FROM M/S CHARANJI LAL VIJAY KUMAR OF WHICH SHRI VIJAY KUMAR WAS THE PROPRIETOR WAS THAT THE LOAN ACCOUNT OF SHRI VIJAY KUMAR STOOD SQUARED UP IN THE YEAR UNDER APPEAL AND NOT THAT AN Y INTEREST-FREE ADVANCE WAS GIVEN TO HIM. HE SUBMITTED THAT IT WAS A SIMPLE CAS E OF INADVERTENCE IN WHICH REPAYMENT OF RS. 17.00 LAKHS WAS WRONGLY SHOWN AS A DVANCE. HE FURTHER SUBMITTED THAT THE AFORESAID ERROR OCCURRED AS LOAN WAS TAKEN FROM M/S CHARANJI LAL VIJAY KUMAR OF WHICH SHRI VIJAY WAS PROPRIETOR WHEREAS T HE MONEY WAS REPAID TO SHRI VIJAY KUMAR. HE SUBMITTED THAT THE JUDGMENT IN CIT V. ABHISHEK INDUSTRIES LTD WAS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. OTHER T WO DISALLOWANCES WERE HOWEVER NOT PRESSED AT THE TIME OF HEARING. 5. IN REPLY, THE DR SUPPORTED THE ORDER PASSED BY T HE LD. CIT. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE FACTS STATED BY THE LD. AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE WITH REGARD TO DISALLOWANCE OF INTEREST AMOUNTING TO RS. 2,04,000/ - HAVE NOT BEEN REBUTTED. MERE REPAYMENT OF LOAN TAKEN FROM A CREDITOR CANNOT BE H ELD AS DIVERSION OF FUNDS. INSTEAD SHOWING THE IMPUGNED SUM OF RS. 17.00 LAKHS AS REPAYMENT, THE ASSESSEE HAPPENED TO SHOW THE SAME AS ADVANCE TO SHRI VIJAY KUMAR WHO WAS PROPRIETOR OF CHIRANJI LAL VIJAY KUMAR FROM WHICH THE LOAN WAS TA KEN. THE ASSESSEE OUGHT TO HAVE SHOWN IT AS REPAYMENT OF LOAN AND SQUARED UP THE LO AN ACCOUNT. THE MERE OMISSION ON HIS PART TO DO SO HOWEVER WOULD NOT CHANGE THE B ASIC CHARACTER OF TRANSACTION, 3 I.E., THE IMPUGNED SUM SHOWN AS ADVANCE TO SHRI VIJ AY KUMAR WAS NOTHING BUT THE REPAYMENT OF LOAN TAKEN FROM CHIRANJI LAL VIJAY KUM AR OF WHICH SHRI VIJAY KUMAR WAS PROPRIETOR. IN THIS VIEW OF THE MATTER, THE IM PUGNED DISALLOWANCE OF RS. 2,04,000/- IS DELETED. SINCE OTHER GROUNDS OF DISA LLOWANCE WERE NOT PRESSED AT THE TIME OF HEARING, THEY ARE DISMISSED. APPEAL FILED B Y THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 24 JUNE 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH: THE 24 JUNE 2011 SURESH COPY TO: 1. THE APPELLANT, MANGLA AGENCIES, JAGRAON 2. THE RESPONDENT, CIT-III, LUDHIANA 3. THE CIT(A), LUDHIANA 4. THE LD. CIT, LUDHIANA 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH