ACIT, New Delhi V. Sh. Kusharg Jindal, New Delhi

ITA 5281/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77579 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH VERMA
• Assessee Lawyers: S K CHATURVEDI
• Keywords: Rejection of books of accounts; Gift; Business income; Principle of natural justice; Proportionate interest; Notional interest; Commercial expediency
• Section: 80HHC; 144

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5281 /DEL/ 2011 (ASSESSMENT YEAR: 2008 - 09 ) ACIT CIRCLE - 25(1), NEW DELHI VS. KUSHARG JINDAL, C - 161, PUNDRIK VIHAR, PITAMPURA, NEW DELHI 110034 PAN AEBPJ5647M (APPELLANT) (RESPONDENT) APPELLANT BY : YOGESH VERMA, CIT DR RESPONDENT BY : S. K. CHATURVEDI, CA O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - XXI V , NEW DELHI DATED 16.09.2011 FOR THE ASSESSMENT YEAR 2008 - 09 . 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,73,97,988/ - WITHOUT GOING INTO THE MERITS OF THE CASE AND RELYING SOLELY ON SELF SERVING EVIDENCE FURNISHED BY THE ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN TREATING THE INTEREST INCOME AMOUNTING TO RS. 26,40,581/ - AS INCOME FROM BUSINESS AS AGAINST INCOME FROM OTHER SOURCES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 4,21, 164/ - WITHOUT GOING INTO THE MERITS OF THE CASE AND RELYING SOLELY ON EVIDENCES FURNISHED BY THE ASSESSEE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ACCEPTING SELF SERVING DOCUMENTS NOT CORROBORATED OR EXAMINED DURING ASSESSMENT P ROCEEDINGS. 5. SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE ASSESSING OFFICER TO RE EXAMINE FRESH EVIDENCE IN A HOLISTIC MANNER. 6. THE APPELLANT CRAVES THE RIGHT TO ADD ANY OTHER GROUND OF APPEAL. 3. APROPOS DELETION OF ADDITION OF RS. 1,73,97,988/ - . 4. BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF JEWELLERY AND TRADING IN GOLD UNDER THE NAME AND STYLE OF M/S V - BIZ - IT. RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 20 , 42,560 WAS DECLARED FOR THE YEAR UNDER CONSIDERATION ON 29.09.2008. AIR INFORMATION WAS RECEIVED INFORMING ABOUT THE PURCHASE OF UNITS OF MUTUAL FUNDS AGGREGATING TO RS. 2 LACS, BANK CASH PAGE NO. 2 TRANSACTION OF RS. 4,62,99,700/ - AND CASH DEPOSITS AGGREGATING TO RS. 45,00,000/ - . THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER CALLED FOR BOOKS OF ACCOUNT, BILLS AND VOUCHERS AND VERIFIED THE SAME VIS - - VIS THE BILLS AND VOUCHERS OBTAINED BY THE ASSESSING OFFICER FROM VARIOUS PARTIES TO WHOM SALES WERE M ADE BY THE ASSESSEE. ASSESSING OFFICER FOUND NUMEROUS DISCREPANCIES LIKE VARIATION OF BILL NUMBERS, DESCRIPTION OF GOODS, WEIGHT OF METAL AND RATE ETC. THE ASSESSING OFFICER AFTER GIVING SHOW - CAUSE NOTICE AS TO WHY BOOKS OF ACCOUNT SHOULD NOT BE REJECTED U/S 145(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) REJECTED THE BOOKS OF ACCOUNT, BEING NOT SATISFIED WITH THE REPLY OF THE ASSESSEE . THERE AFTER THE ASSESSING OFFICER WENT AHEAD WITH SECTION 144 BEST JU DGMENT ASSESSMENT AND FOR THAT ASSESSING OFFICER COMPARED THE GP OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 AND ASSESSMENT YEAR 2007 - 08 WHICH WAS @ 15.245% AND @ 0.306% RESPECTIVELY. SINCE THERE WAS A GLARING DIFFERENCE BETWEEN THE GP RATIO OF THE PAST TW O YEARS, THE ASSESSING OFFICER FOUND IT MORE REASONABLE TO COMPARE THE NET PROFIT RATION (NP) FOR THE PAST TWO YEARS WHICH WAS @ 3.58% AND @ 0.085% FOR ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 RESPECTIVELY. SO THE AVERAGE NP RATIO FOR THE PAST TWO YEARS DOES CA ME TO 1.83% AND APPLYING THIS TO THE DECLARED SALES TURNOVER OF RS. 1,06,65,17,665/ - , THE ASSESSING OFFICER WORKED OUT THE NP AT RS. 1,95,13,613/ - AS AGAINST THE DECLARED NP OF RS. 21,15,652/ - AND THUS MADE AN ADDITION OF RS. 1,73,97,988/ - TO THE INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO VIDE THE IMPUGNED ORDER REDUCED THE N P OF THE ASSESSEE FROM 1.83 % TO 0.25 % FOR THE RELEVANT ASSESSMENT YEAR . AGGRIEVED BY THE SAID DECISION OF THE LD CIT(A) THE REVENUE IS BEFORE US. 6. THE MAIN GRIEVANCE OF THE LD CIT DR IS THAT THE LD CIT(A) ERRED TO HAVE ALLOWED NEW EVIDENCE TO BE ADDUCED BEFORE HIM BY THE ASSESSEE IN RESPECT TO COMPARABLE CASES WITHOUT GIVIN G AN OPPORTUNITY TO THE ASSESSING OFFICER WHICH IS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES , 1962 . THUS, ACCORDING TO THE LD DR THERE IS V IOLATION OF NATURAL JUSTICE. THE LD DR CONTENDED THAT THE LD CIT(A) HAS NOT DISCUSSED IN THE IMPUGNED ORDER HOW THE CASES WHICH WERE NEWLY INTRODUCED BY THE ASSESSEE ARE COMPARABLE . THE LD CIT DR STRENUOUSLY CONTENDS THAT THE LD CIT(A) HAS POINTED OUT CERTAIN DEFECT S IN THE ASSESSMENT ORDER, HOWEVER HE HAS NOT CARED TO CORRECT THE SAME BUT HAS HIGHLIGHTED THE SA ID DEFECTS AS A RUSE TO REDUCE THE NP SUBSTANTIALLY WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSING OFFICER, THUS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE, THEREFORE PLEADED THAT THE ORDER OF THE LD CIT(A) MAY BE SET ASIDE. ON THE OTHER HAND THE LD AR SUP PORTED THE DECISION OF THE LD CIT(A) AND PLEADED THAT THE ORDER OF THE LD CIT(A) MAY NOT BE INTERFERED WITH. PAGE NO. 3 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS. WE FIND THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT AND PASSED THE ASSESSMENT ORDER BASED ON BEST JUDGMENT U/S 144 OF THE ACT AND THE LD CIT(A) HAVE UPHELD THE SAID REJECTION OF BOOK OF ACCOUNTS OF THE ASSESSEE . WE FIND FORCE IN THE CONTENTION OF THE L D CIT DR THAT DURING THE APPELLATE PROCEEDING BEFORE THE LD CIT(A), THE ASSESSING OFFICER WAS NOT GIVEN AN OPPORTUNITY WHEN NEW COMPARABLES WERE ADMITTED BY THE LD CIT(A) AND THE IMPUGNED ORDER ESTIMATIN G THE NET PROFIT (NP) OF THE ASSESSEE FROM 1.83% TO 0 .25% FOR THE RELEVANT ASSESSMENT YEAR IS VITIATED AS IT VIOLATES RULE 46A. WE FIND PRIMA - FACIE, THERE IS VIOLATION OF NATURAL JUSTICE. THEREFORE WE SET ASIDE THE ORDER OF THE LD CIT(A) AND DIRECT THE LD CIT(A) TO ADJUDICATE AFRESH THIS GROUND AFTER FOLLOWING THE PROCEDURE STIPULATED IN RULE 46A ; AND NEEDLESS TO SAY THAT WHILE ADJUDICATING AFRESH THE APPEAL, ADEQUATE OPPORTUNITY MAY BE GRANTED TO BOTH ASSESSING OFFICER AND ASSESSEE . THEREFORE THIS GROUND OF THE APPEAL OF THE REVENUE IS ALLOWED FOR S TATISTICAL PURPOSES. 8. APROPOS TREATING THE INTEREST INCOME AMOUNTING TO RS. 26,40,581/ - AS INCOME FROM BUSINESS AS AGAINST INCOME FROM OTHER SOURCES . 9. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADI NG OF JEWELLERY AND TRADING IN GOLD UNDER THE NAME AND STYLE OF M/S V - BIZ - IT. AFTER GETTING AIR INFORMATION REGARDING CERTAIN CASH DEPOSITS AND CASH TRANSACTION THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDING THE ASSESSING O FFICER AFTER FINDING NUMEROUS DISCREPANCIES IN THE BOOKS OF ACCOUNT LIKE VARIATION OF BILL NUMBERS, DESCRIPTION OF GOODS, WEIGHT OF METAL AND RATE ETC. REJECTED THE BOOKS OF ACCOUNTS AFTER GIVING NOTICE U/S 145(3) OF THE ACT AND DID BEST JUDGMENT ASSESSMENT U/S 144 OF THE ACT. THE FDR AMOUNTING TO RS. 46,40,581/ - WAS SHOWN BY THE ASSESSEE AS BUSINESS INCOME WHILE THE ASSESSING OFFICER DECIDED TO CATEGORISE IT UNDER INCOME FROM OTHER SOURCES . 10. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFI CER , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO WAS PLEASED TO ALLOW THE SAID GROUND IN FAVOR OF THE ASSESSEE. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE REVENUE IS BEFORE US. 11. THE LD DR CONTENDED THAT UNDER THE SCHEME OF THE ACT INTEREST INCOME IS GENERAL LY SPEAKING IS TREATED AS INCOME FROM OTHER SOURCES , UNLESS THE ASSESSEE IS CARRYING ON LENDING BUSINESS. THEREFORE ACCORDING TO THE LD DR THE LD CIT(A) ERRED IN ALLOWING THE PLEA OF THE ASSESSEE THAT THE INTEREST FROM THE FDR AS A BUSINESS INCOME. SO ACCORDING TO THE LD DR, THE IMPUGNED ORDER SHOULD BE SET ASIDE. ON THE OTHER HAND THE LD AR SUBMITTED THAT THE INTEREST IMPUGNED ARE FROM FDRS THAT HAS BEEN PLEDGED WITH THE BANK AND THAT WITHOUT PLEDGING TH ESE FDRS WITH THE BANKS, THE PURCHASE OF PAGE NO. 4 GOLD WAS NOT POSSIBLE AS THE BANK INSISTED ON THIS MARGIN MONEY TO BE PLEDGED WITH THEM. THEREFORE ACCORDING TO THE LD AR INTEREST EARNED ON SUCH FDRS WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND CHARGING THE SAME TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES WAS UNJUST, ARBITRARY AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. AND SINCE THIS FACT WAS CORRECTLY APPRECIATED BY THE LD CIT(A) SHE HAS CORRECT ED THE ERROR COMMITTED BY THE ASSESSING OFFICER, SO THE ORDER OF THE LD CIT(A) MAY NOT BE INTERFERED WITH . 12. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORD AND CASE LAWS RELIED BY BOTH THE PARTIES. WE FIND THAT THE LD ASSESSING OFFICER HAS MADE A FINDING THAT THE ASSESSEES SUBMISSION WA S NOT ACCEPTABLE AS THE INTEREST EARNED ON FIXED DEPOSITS, FOR PURPOSE OF AVAILING CREDIT FACILITIES FROM BANK DOES NOT HAVE ANY IMMEDIATE NEXUS WITH BUSINESS AND THEREFORE THIS INC OME SHOULD BE TREATED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INC OME. RELIANCE WAS PLACED BY THE AO, ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX, DELHI VS. SHRI RAM HONDA POWER EQUIP (2007) 158 TAXMAN 474 (DELHI) WHERE IN THE HONBLE HIGH COURT OF DELHI DISCUSSED THIS ISSUE IN DEPTH AND HELD THAT WHERE SURPLUS FUNDS ARE PARKED WITH BANK AND INTEREST IS EARNED THEREON, IT CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME AND IT GOES ENTIRELY OUT OF RECKONING FOR PURPOSES OF SECTION 80HHC. IT WAS ALSO HE LD BY THE COURT THAT INTEREST EARNED ON FIXED DEPOSITS, FOR PURPOSES OF AVAILING CREDIT FACILITIES FROM BANK, DOES NOT HAVE AN IMMEDIATE NEXUS WITH EXPORT BUSINESS, AND, THEREFORE, HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME AND HAS CITED THE FOLLOWING JUDGMENTS TO SUPPORT HER FINDING: 13. SUPREME COURT IN PARIMISETTI SEETHARAMAMMA VS. CIT (1996) 57 ITR 532, TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. VS. CIT (1997) 227 ITR 172 2, PANDIAN CHEMICALS LTD. VS. CIT (2003 ) 262 ITR 2783 AND OF THE THIS COURT IN ADDL. CIT VS. NETAR KRISHANA SAHGALS (P) LTD. (1993) ITR 6814 (DELHI). 14 . THE LD ASSESSING OFFICER CITED KERALA HIGH COURT JUDGMENT WHEREIN THE HONBLE HIGH COURT HAS CONSISTENTLY HELD THAT IN THE CONTEXT OF SECTIO N 80HHC THE INTEREST INCOME EARNED ON FIXED DEPOSITS HAVING TO BE KEPT BY THE ASSESSEE FOR AVAILING OF CREDIT FACILITIES FROM BANK, DOES NOT QUALIFY AS BUSINESS INCOME AND THEREFORE, WILL GO TO REDUCE THE DEDUCTIBLE AMOUNT FOR THE PURPOSES OF THAT SECTION: (I) NANJI TOPANBHAI & CO. VS. ASSTT. CIT (2000) 243 ITR 1921 (II) ABAD ENTERPRISES VS. CIT (2002) 253 ITR 3192 (III) CIT VS. JOSE THOMAS (2002) 253 ITR 5533 (IV) CIT VS. ABAD FISHERIES (2002) 258 ITR 6414 (V) SOUTHERN CASHEW EXPORTS VS. DY. CIT (2003) 130 TAXMAN 203 PAGE NO. 5 (VI) ASSTT. CIT VS. SOUTH INDIA PRODUCE CO. (2003) 262 ITR 205 (VII) K. RAVINDRANATHAN NAIR VS. CIT (2003) 262 ITR 6691 (VIII) URBAN STANISLAUS CO. VS. CIT (2003) 263 ITR 102 (IX) G.T.N. TEXTILES LTD. VS. DY. CIT (2005) 279 ITR 72 . 15 . THE LD ASSESSING OFFICER HAS MADE A FINDING THAT THE INTEREST EARNED BY THE ASSESSEE ON FDRS DOES NOT HAVE ANY IMMEDIATE NEXUS WITH THE BUSINESS CARRIED OUT BY THE ASSESSEE AND RELIED ON PLETHORA OF JUDGMENTS IN THE ASSESSMENT ORDER AND THEREAFTER O NLY SHE ORDERED ADDITION OF 26,40,581/ - TO BE MADE UNDER THE HEAD INCOME FROM OTHER SOURCES. WE FIND THAT IN THE APPELLATE PROCEEDING THE LD CIT(A) HAS DEALT WITH THE ISSUE IN A CASUAL MANNER AND HAS PASSED A CRYPTIC ORDER WITHOUT EVEN DISTINGUISHING THE CASE LAWS CITED BY THE LD ASSESSING OFFICER. THE ORDER OF THE LD CIT(A) ON THIS GROUND IS AS FOLLOWS: - 4.6 THE NEXT GROUND PERTAINS TO THE ASSESSMENT OF BANK INTEREST AMOUNTING TO RS. 26,40,581/ - EARNED ON FDRS PLEDGED WITH THE BANK FOR BANK GUARANTEES T O MAKE PURCHASES OF GOLD. THE APPELLANT HAS SUBMITTED THAT WITHOUT PLEDGING THESE FDRS WITH THE BANKS, THE PURCHASE OF GOLD WAS NOT POSSIBLE AS THE BANKS INSISTED ON THIS MARGIN MONEY TO BE PLEDGED WITH THEM. THEREFORE, THE INTEREST EARNED ON SUCH FDRS WAS INCIDENTAL TO THE BUSINESS OF THE APPELLANT AND CHARGING THE SAME TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES WAS UNJUST, ARBITRARY AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. I HAVE GIVEN CAREFUL CONSIDERATION TO THE ARGUMENT AND SUBMISSIO NS OF BOTH THE SIDES AND I AGREE WITH THE OPINION OF THE LD AR THAT GIVEN THE NATURE OF BUSINESS TO PLEDGE OF THE APPELLANT, IT WAS NECESSARY FOR HIM DURING THE COURSE OF BUSINESS TO PLEDGE THE FDRS WITH THE BANKS AND THEREFORE, EARNING INTEREST THEREON WA S INCIDENTAL TO HIM BUSINESS AND SHOULD BE BROUGHT TO TAX UNDER THE HEAD BUSINESS INCOME ONLY AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO TAKE ACTION ACCORDINGLY AND THIS GROUND OF APPEAL IS ALLOWED. 16 . A PERUSAL OF THE AFORESAID ORDER WHICH IS IMPUGNED BY THE REVE NUE BEFORE US, REVEALS THAT THE LD CIT(A) HAS NOT PASSED A REASONED ORDER AND HAS NOT DISTINGUISHED THE CASE LAWS RELIED ON BY THE LD ASSESSING OFFICER. A Q UASI JUDICIAL BODY WHILE ADJUDIC ATING AN APPEAL HAS TO PASS REASONED ORDER. THEREFORE , WE SET - ASIDE THE IMPUGNED ORDER AND DIRECT THE LD CIT(A) TO ADJUDICATE THE ISSUE AFRESH AFTER HEARING THE ASSESSEE AND PASS A REASONED ORDER AND IF NEED BE AFTER DISTINGUISH ING THE CASES RELIED ON BY T HE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 17 . APROPOS DELETION OF ADDITION OF RS. 4,21,164/ - . 18 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF THE MANUFACTURING AND TRADING OF JEWELLERY AND TRADING IN GOLD UNDER THE NAME AND STYLE OF M/S V - BIZ - IT. AFTER GETTING AIR INFORMATION REGARDING CASH DEPOSITS AND CASH TRANSACTION THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY. AFTER FINDING NUMEROUS DISCREPANCIES LIKE VARIATION OF BILL NUMBERS, DESCRIPTION OF GOODS, WEIGHT OF METAL AND PAGE NO. 6 RATE ETC. AND AFTER GIVING NOTICE U/S 145(3) OF THE ACT THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND WENT AHEAD WITH THE BEST JUDGMENT ASSESSMENT U/S 144 OF THE ACT. THE ASSESSING OFFICER CALCULATED AD - HOC INTEREST ON BUSINESS ADVANCES GIVE N TO THREE CONCERNS ON NOTIONAL BASIS. THE ASSESSING OFFICER ADDED SIMPLE INTEREST @ 14% AMOUNTING TO RS. 3,54,667/ - , RS. 35,000/ - AND RS. 31,500/ - RESPECTIVELY AND ADDED IT TO THE INCOME OF THE ASSESSEE. 19 . AGGRIEVED BY THE SAID ORDER OF THE ASSESSING O FFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO ALLOW IT AND DELETED THE SAID ADDITION. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) REVENUE IS BEFORE US. 20 . ACCORDING TO THE LD DR THE LD CIT(A) HAS NOT ADDRESS ED THE QUESTION AS TO THE PURPOSE AND NECESSITY ON THE PART OF THE ASSESSEE TO ADVANCE INTEREST - FREE LOANS TO THE THREE CONCERNS WAS NOT SPEL T OUT IN THE IMPUGNED ORDER . ACCORDING TO HIM, T HE ASSESSEE HAD BORROWED MONEY FROM ALLAHABAD BANK AND IS PAYING 16% INTEREST ; AND THE ASSESSING OFFICER HAS DISALLOWED PROPORTIONATE INTEREST AS THE ASSESSEE HAS FAILED TO PROVE THAT THE CAPITAL BORROWED WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS; AND IN THE ASSESSMENT ORDER THERE IS NO WHISPER OF ANY ASHOK KUMAR WHO HAD GIVEN INTEREST FREE LOAN TO THE TUNE OF RS. 26 LA CS TO THE ASSESSEE AND IN THIS RESPECT THE LD CIT(A) OUGHT TO HAVE CALLED FOR THE REMAND REPORT FROM ASSESSING OFFICER , THEREFORE RULE 46A WAS VIOLATED . THE REASON GIVEN BY THE LD CIT(A) TO DELETE THE I MPUGNED ADDITION WAS ON THE GROUND THAT THE ASSESSEE RECEIVED AN INTEREST FREE LOAN OF RS. 26 LACS FROM A FRIEND (ASHOK KUMAR) AND THE ASSESSEE HAS DISBURSED ONLY RS. 19 LACS AS INTEREST FREE LOAN TO THE THREE CONCERNS , SO THE AD - HOC INTEREST OF 14% CANNOT BE LEVIED, WHICH ACCORDING TO THE LD DR IS NOT A VALID REASONING AND THEREFORE NEED TO BE SET ASIDE . ON THE OTHER HAND THE LD AR SUPPORTED THE DECISION OF THE LD CIT(A) AND STATED THAT THESE DEB I T BALANCE S AGAINST M/S. YUVIKA JEWELLERS, M/S. GAN GA PRODUCTS AND M/S. R. K. GIFT WERE STANDING IN THE NORMAL COURSE OF BUSINESS AND OUT OF COMMERCIAL EXPEDIENCY. THE LD AR CONTENDED THAT THESE ADVANCES TO THE CONCERNS WERE TRANSACTION DURING REGULAR BUSINESS DEALING AND TWO OUT OF THE THREE CONCERNS ARE ITS SISTER CONCERN S . THE LD AR ALSO SUBMITTED THAT THE ADVANCES TOGETHER AMOUNTED TO ONLY RS. 19 LACS , ON WHICH NO INTEREST HAS BEEN CHARGED , WHEREAS THE ASSESSEE HAS TAKEN UNSECURED INTEREST - FREE LOAN AMOUNTING TO RS. 26 LACS FROM A FAMILY FRIEND MR. ASHO K KUMAR. THEREFORE CHARGING NOTIONAL INTEREST AND ADDING TO IT TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER WAS NOT JUSTIFIABLE AND THEREFORE THE LD CIT(A) HAS CORRECTLY DELETED THE SAID ADDITION. THE LD AR CITED THE FOLLOWING CASES IN HIS SUPPOR T : - PAGE NO. 7 DCIT VS. UK PAINTS INDIA LTD. (2010) 4 ITR (TRIB) 455 (DEL), DCIT VS. JH FINVEST PVT LTD. (2010) 2 ITR (TRIB) 320 (DEL) AND EXTEMPORE SECURITIES & INVESTMENTS PVT. LTD. VS. DCIT (2008) 116 TTJ (MUM) 525. 21 . WE HAVE HEARD BOTH THE PARTIES AND HAS GONE THROUGH THE RECORDS AND THE CASE LAWS RELIED ON BY THE PARTIES. FROM A PERUSAL OF THE IMPUGNED ORDER WE FIND THAT THE LD CIT(A) HAS MADE A FINDING THAT THE APPELLANT HAD TAKEN INTEREST - FREE UNSECURED LOAN FROM A FAMILY FRIEND TO THE TUNE OF RS. 26 LACS FROM ONE MR. ASHOK KUMAR, A FAMILY FRIEND WHICH WAS FREE OF INTEREST. HOWEVER IN THE ASSESSMENT ORDER WE DO NOT FIND A WHISPER ABOUT THIS UNSECURED INTEREST - FREE LOAN OF RS. 26 LACS, IF THAT IS THE CASE THEN THIS EVIDENCE MUST HAVE BEEN INTRODUCED FOR THE FIRST TIME BEFORE THE LD CIT(A), IF THAT IS SO , WE FIND FORCE IN THE CONTENTION OF THE LD DR THAT RULE 46 A HAS BEEN VIOLATED. THEREFORE WE SET ASIDE THE ORDER OF THE LD CIT(A) AND DIRECT THAT THIS ISSUE ALSO MAY BE ADJUDICATED AFRESH AFTER TAKING REMAND REPORT FROM THE ASSESSING OFFICER. 22 . IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 4 . 04 .2014. - SD/ - - SD/ - ( S.V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 4 / 04 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI