DCIT, CHENNAI V. Thiru S.Venkatesh, CHENNAI

ITA 546/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5084 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: B RAMAKRISHNAN
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 546/MDS/2010 ASSESSMENT YEAR : 2007-08 THE DY. CIT CIRCLE V CHENNAI VS SHRI S.VENKATESH 627, 52 ND STREET, 9 TH SECTOR K.K.NAGAR CHENNAI 600 078 [PAN AADPV8855D ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.SRINIVAS RESPONDENT BY : SHRI B.RAMAKRISHNAN O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEAR 2007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), DATED 18.2.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME ON 31.10.2007. THIS RETURN WA S REVISED SUBSEQUENTLY ON 5.2.2008 ON THE GROUND THAT THE BAN K INTEREST WAS INADVERTENTLY ADMITTED UNDER THE HEAD BUSINESS AS AGAINST INCOME FROM OTHER SOURCES. THE ASSESSEE ALSO FILED INC OME AND EXPENDITURE ACCOUNT DURING ASSESSMENT PROCEEDINGS. IN THIS ACC OUNT, THE ASSESSEE ITA 546/10 :- 2 -: HAS SHOWN RECEIPTS OF ` 39,96,713/- AS COMMISSION, INTEREST AND OTHER INCOME. THE BREAK-UP OF THIS IS AS UNDER: (A) COMMISSION OF ` 24 LAKHS WAS RECEIVED FOR SALE OF SHARES OF OTHER GROUP OF COMPANIES. (B) INTEREST FROM SHRI JAWAHAR AYYA AMOUNTING TO ` 6 LAKHS AND INTEREST OF ` 7,15,992 FROM DCS P. LTD. (C) OTHER INCOME FROM DCS, A COMPANY, AMOUNTING ` 2,80,721. 3. THE ASSESSEE HAS SHOWN INCOME OF ` 9,91,063/- AND HAS CLAIMED A SUM OF ` 25,78,017/- AS INTEREST PAID ON DEPOSITS. THE ASS ESSEE HAD PAID INTEREST AMOUNTING TO ` 24 LAKHS TO M/S G.F. SECURITIES ON LOAN OF ` 2 CRORES AND ` 1,49,055/- TO SHRI R.THIRUMALMURUGAN-HUF, AND ` 28,961/- TO CITIBANK. THE MONEY BORROWED WAS ADVAN CED TO VARIOUS PERSONS FROM WHOM, ADMITTEDLY, NO INTEREST WAS REC EIVED. EVEN THE RECOVERY OF THE ADVANCED MONEY BECAME DOUBTFUL. T HE ASSESSEE HAS THUS CLAIMED THESE LOANS AS STICKY LOANS AND HENCE NO INTEREST HAS BEEN CHARGED. THE LOANS ADVANCED HAVE NOT BEEN WRITTEN OFF. FROM THESE FACTS, THE ASSESSING OFFICER HAS INFERRED THAT THER E HAS BEEN DIVERSION OF BORROWED FUNDS FOR NON-BUSINESS PURPOSES INCLUDING TO RELATIVES. THE NET INTEREST CLAIMED TO THE EXTENT OF ` 16,97,295/- (INTEREST PAID OF ` 25,78,016 MINUS ` 8,80,721/- INTEREST RECEIVED) IS TO BE DISALLOWED. ON THE CONTRARY, THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND NOW THE REVENUE IS AGGRIEVED. FOLLOWING GROUNDS HA VE BEEN RAISED BY THE REVENUE: ITA 546/10 :- 3 -: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E OF INTEREST AMOUNTING TO ` 16,97,295 ON THE GROUND THAT THE INCOME HAS NEITHER ACCRUED NOR RECEIVED WITHIN THE MEANING OF SEC. 145(5). 2.1. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE BEFORE HIM WAS NOT ADDITION OF INTEREST EARNE D BUT ONLY DISALLOWANCE OF INTEREST DIVERTED FOR NON BUSI NESS PURPOSES. 2.2. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT I N THE CASE OF S.A. BUILDERS (288 ITR 1), THE HON'BLE SUPREME C OURT HAS HELD THAT DIVERSION OF INTEREST BEARING LOANS T OWARDS INTEREST FREE LOANS IS NOT ALLOWABLE U/S 36(1)(11I) UNLESS THE BUSINESS CONTINGENCIES EXIST. 2.3. THE LD. CIT(A) HAS FAILED TO NOTE THAT IN THE ASSESSMENT ORDER, THE AO HAS CLEARLY MENTIONED THAT THERE IS DIVERSION OF BORROWED FUNDS FOR NON BUSIN ESS, INCLUDING RELATIVES AND THAT THE ASSESSEE HAS NOT ESTABLISHED THE PAYMENT OF LOANS WOULD FURTHER HIS BUSINESS INTEREST. 2.4. THE LD. CIT(A) OUGHT TO HAVE NOTED THAT THE AS SESSEE HAS NOT DISPUTED THE OBSERVATION OF THE ASSESSING O FFICER THAT MONEY BORROWED, , FROM VARIOUS PERSONS HAVE BE EN ADVANCED TO VARIOUS PERSONS FROM WHOM NO INCOME HAS BEEN RECEIVED, IN RESPECT OF WHICH ULTIMATELY THE A O MADE A DISALLOWANCE OF ` 16,97,295/-. 2.5. THE LD. CIT(A) HAS FAILED TO NOTE THE FINANCIA L STATUS OF THE ASSESSEE AS ON 31.3.2007, AS ADMITTED IN THE RE TURN OF INCOME AS UNDER: CAPITAL ACCOUNT 4,83,35,136 LOANS & ADV. 8,73,96,6 07 LOANS LIABILITIES 5,78,05,163 OTHERS .. TOTAL 10,61,40,299 1 0,61,40,299 FROM THE ABOVE IT IS CLEAR THAT THE CAPITAL (OWN FU NDS) IS NOT SUFFICIENT TO MAKE THE ADVANCES WHICH STRENGTHENS T HE VIEW OF THE AO THAT THE LOANS AVAILED HAVE BEEN UTI LIZED FOR ADVANCES AND IN THE PRESENT CASE, IT IS WITHOUT BUS INESS CONTINGENCIES AND WITHOUT CHARGING INTEREST. ITA 546/10 :- 4 -: 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SET ASI DE AND THAT OF ASSESSING OFFICER RESTORED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR HAS RELIED ON THE GROUNDS OF APPEAL. WE HAVE NOTICED THAT THE ASSESS EE HAS BEEN RETURNING INTEREST INCOME IN THE PAST ASSESSMENT YE ARS ALSO ON THE HOPE THAT THE ASSESSEE WOULD EARN INTEREST INCOME, HE HA D ADVANCED LOANS OUT OF BORROWED MONIES SO THAT THE MARGIN WOULD BE HIS NET INCOME. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING. THE ASSESSEE HAS NOT CHARGED INTEREST ON STICKY LOANS. THE HON'BLE SUPREME COURT HAS CLEARLY HELD IN SUCH CIRCUMSTANCE S WHILE DECIDING THE CASE OF UCO BANK, 237 ITR 889, THAT ONLY REAL INCOM E CAN BE TAXED IN THE ASSESSEES HANDS. THE PROVISIONS OF SECTION 14 5 CANNOT OVERRIDE SECTION 5. IF INCOME HAS NEITHER ACCRUED NOR RECEI VED WITHIN THE MEANING OF SECTION 5, WHATEVER SECTION 145 SPEAKS A BOUT, SUCH INCOME CANNOT BE CHARGED TO TAX. UNDISPUTEDLY, THE ASSESS EE HAS ALSO DEDUCTED TAX AT SOURCE FOR THE INTEREST PAID DURIN G THIS YEAR. IN THESE CIRCUMSTANCES, IN VIEW OF THE PROVISIONS OF SECTION S 145 AND 5 READ CONJOINTLY WITH THE DECISION OF HON'BLE APEX COURT RENDERED IN THE CASE OF UCO BANK (SUPRA), WE ARE OF THE CONSIDERED OPINI ON THAT THE DISALLOWANCE OF INTEREST PAID IS NOT JUSTIFIED. THE LD. CIT(A) HAS TAKEN A CORRECT DECISION AND WE DO NOT FIND ANY REASON TO INTERFERE THEREIN. ITA 546/10 :- 5 -: 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.5.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 19 TH MAY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR