Shri Purshottam B. Pitroda, Ahmedabad V. The ACIT, Circle-12, Ahmedabad

ITA 566/AHD/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6934 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJAN KUMAR SINGH
• Assessee Lawyers: A C SHAH; BHAUMIL K PATEL
• Keywords: Capital asset; Depreciation; Notional interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NOS. 566 & 567/AHD/2016 (ASSESSMENT YEARS : 2011-12 & 2012-13) PURSHOTTAM B. PITRODA, PROP. M/S. J. P. F ABRICATORS, OPP. AMBALAL ESTATE, NR. CADILA BARIDGE, GHODASAR, AHMEDABAD 380 050. VS. THE ACIT, CIRCLE 12, AHMEDABAD. [ PAN NO. ABWPM 6274 B ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI A. C. SHAH & BHAUMIL K. PATEL, A.R. RESPONDENT BY : SHRI RANJAN KUMAR SINGH, SR.D. R. DATE OF HEARING 12.02.2019 DATE OF PRONOUNCEMENT 03.05.2019 O R D E R PER MS. MADHUMITA ROY - JM: BOTH THE APPEALS FILED BY THE ASSESSEE ARE AGAINST THE COMMON ORDER DATED 19.01.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS)-6, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ARISING OUT OF THE ORDERS DATED 28.11.2013 AN D 09.06.2014 PASSED BY THE ACIT, CIRCLE -12, AHMEDABAD FOR THE ASSESSMENT YEAR S 2011-12 & 2012-13. ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 2 - GROUND NO.1 2. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LEARNED ADVOCATE APPEARING FOR THE ASSESSEE DID NOT PRESS THIS GROUN D. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO.2 3. THE SECOND GROUND RELATES TO CONFIRMING THE ADDI TION OF RS.2,58,906/- U/S 36(1)(III) OF THE ACT ON THE GROUND THAT THE AS SESSEE HAS NOT ABLE TO PROVED THE NEXUS BETWEEN INTEREST FREE FUNDS AND INTEREST FREE ADVANCES. 4. DURING THE FINANCIAL YEAR UNDER CONSIDERATION, T HE ASSESSEE HAS ADVANCED RS.25,89,060/- INTEREST FEE FOR LAND. A S HOW-CAUSE NOTICE DATED 21.10.2013 WAS ISSUED AS TO WHY THE AMOUNT OF RS.2, 58,906/- I.E. 10% OF THE ABOVE INTEREST SHOULD NOT BE ADDED TO THE TOTAL INC OME OF THE ASSESSEE U/S 36(1)(III) R.W.S. 37 OF THE INCOME TAX ACT WHEREUPO N THE ASSESSEE SUBMITTED AS FOLLOWS: 1. IN YOUR LETTER POINT NO.2-1 YOU HAVE STATED THA T WHY RS.2,58,906.00 SHOULD NOT BE ADDED U/S. 36(I)(III) FOR ADVANCE GIVEN OF RS. 25,89,060.00 FOR PURCHASE OF LAND. WE ARE GIVING OUR REPLY AS UNDER: A. WE ARE SUBMITTING HEREWITH ANNEXURE I FOR DET AILS OF ADVANCE OF LAND RS.25,89,060.00. IN SAID DETAILS. B. WE ARE SUBMITTING HEREWITH OPENING BALANCE CURRENT YEAR CLOSING BALANCE ANNEXURE 1 2589060.00 0 2589060.00 ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 3 - C. ADV: FOR AGRICULTURAL LAND - ANNEXURE I RS. 25, 89,060.00 IS VERY OLD. THERE IS INTEREST FREE FUND OF RS.6,57,85,074. 00 AS PER ANNEXURE A. D. DURING THE YEAR THERE IS NO NEW INVESTMENT. THE RE IS ONLY OLD INVESTMENT OF RS.25,89,060.00. THE SAID IS DONE FRO M PROFIT GENERATED DURING THE YEAR OF RS.87,84,446.36. E. THERE IS NO DIRECT NEXUS FROM INTEREST BEAR ING FUND TO THE ABOVE STATED LOAN & ADVANCES. F. FURTHER WE ARE GIVING HEREWITH DETAILS OF INTEREST FREE FUND AS PER ANNEXURE - A. G. FROM THE SAID DETAILS PROVES THAT THERE IS DIRECT INTEREST EXPENSES OF BANKS & FINANCIAL INSTITUTE IN FIXED ASSETS LIKE PLANT MACHINERY & VEHICLES LOAN. H. FROM ABOVE WE STATE THAT RS.25,89,060.00 F OR PURCHASE OF LAND IS FROM NAN INTEREST BANKING FUNDS AVAILABLE WITH THE ASSESSEE. I. INTEREST IN RESPECT OF INTEREST FREES LOANS. DU RING THE YEAR, WE HAVE NOT GIVEN ANY INTEREST FREE LOANS AND THERE IS NO DIRECT NEXUS BETWEEN LOANS TAKEN AND GIVEN DURING THE YEAR . WHATEVER LOANS WE HAVE GIVEN ARE OUT OF OUR OWN FUND WHICH I S INTEREST FREE. OVER AND ABOVE, WE HAVE ALSO TAKEN RS. 1,35,0 0,000/- AS INTEREST FREE LOANS ALONG WITH OPENING BALANCE RS. 5,99,85,074/-. OUT OF WHICH WE HAD RE-PAID RS.77,00,000/- LACS BAL ANCE REMAINING AT THE YEAR END RS. 6,57,85,074/-. DURING THE FIN. YEAR 2011-12, WE HAVE NOT GIVEN ANY ADVANCE TO THE LAND LORDS, BUT IN EARLIER YEARS, WE HAVE MADE ADVANCE OF RS. 25,89,06 0/- I.E. OUT OF TOTAL INTEREST FREE FUNDS. SO QUESTION OF CHARGI NG ANY NOTIONAL INTEREST THEREON IS NOT ARISE. (PL REF. GAUHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION COMPANY LIMITED VS. CIT REPORTED AT 19 9 UK 702 HAS HELD THAT THERE IS NO COMPULSION THAT ONE MUST EARN, AND IF ONE HAS NOT EARNED INCOME, NOTIONAL INCOME CANNOT B E CHARGED TO TAX. REF - 2. CIT VS. CHELLADURAI REPORTED AT 20 4 TAXMANN 258 (MAD). J. SO FROM ABOVE WE STATE THAT THERE IS NO QUESTIO N FOR DISALLOWANCE OF RS.25,89,060.00 U/S- 36(1)(III) ARISE AT ALL.' ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 4 - THE ASSESSEES SUBMISSION WAS NOT FOUND TENABLE AND HAVING NO BUSINESS INTEREST OR COMMERCIAL EXPEDIENCY FOUND IN SUCH ADVANCES GIVEN BY THE ASSESSEE. ADDITION TO THE EXTENT OF RS.2,58,906 /- WAS MADE BY THE LEARNED AO WHICH WAS CONFIRMED IN APPEAL. DURING THE APPELLATE PROCEEDING THE ASSESSEE SUBMIT TED AS FOLLOWS: DURING THE YEAR, ASSESSEE HAS PAID INTEREST RS.8,3 2,84,191/- TO VARIOUS PERSONS I.E. RS.3,53,72,450/- TO BANKS, RS.4,79,11, 741/- FOR VARIOUS MACHINERIES AND VEHICLES. AS EXPLAINED TO LEARNED A SSESSING OFFICER THAT WE HAVE ENOUGH INTEREST FREE FUND AVAILABLE AN D OUT OF WHICH HE HAS GIVEN ADVANCE OF RS.25,89,060/- AS LOANS & ADVA NCE AND WE HAVE NOT TAKEN ANY INTEREST PAID FUNDS FOR GIVING ADVANC E FOR LAND DURING THE ,EAR. HENCE THERE IS NO DIRECT NEXUS THAT INTEREST PAID FUNDS ARE BEING USED FOR ADVANCES. EVEN THOUGH AO HAS MADE ADDITION OF INTEREST @ 10% ON RS. 25,89,060/- I.E. RS.2,58,906/-. WHATEVER INTEREST WE HAVE PAID ARE EXCLUSIVE FOR THE PURPOSE OF BUSINESS ONLY . PL. REF. GAUHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION COM PANY LIMITED VS. CIT REPORTED IN 199 ITR 702 HAS THERE IS NO COMPULS ION THAT ONE MUST EARN AND IF ONE HAS NOT EARNED INCOME, NOTIONAL INC OME CANNOT BE CHARGED TO TAX. REF -2 CIT VS. CHELLADURAI REPORTED AT 204 TAXMANN 258 (MAD). (COPY OF CASE LAWS ARE ATTACHED). HENCE DISALLOWANCE OF INEREST EXP BYAO HAVE NOT DIRECT NEXUS AND IS ILLEG AL. WE HAVE ENOUGH INTEREST FREE FUNDS INFORM OF UNSECU RED LOANS AND WE HAVE RECEIVED RS 2,70,72,093/- AS ADVANCE FOR ASSET S IN PRECEDING YEARS. OUT OF WHICH WE HAVE GIVEN ADVANCE ON FOR RS . 25,89,060/- LOOKING TO ABOVE, WE HAVE NOT MADE ANY ADDITION TO ADVANCE FOR LAND; HENCE WE HAVE NOT USED ANY FUND FOR ADVANCE FOR LAN D DURING THE YEAR. WE HAVE MADE USED FUNDS FOR ADV. FOR AGRICULTURE LA ND RS. 25,89,060/- IN PRECEDING FINANCIAL YEARS OUT OF BALANCE OF RS. 2,70,72,093/- AS ADVANCE RECEIVED FOR ASSETS AND OUT OF BALANCE INTE REST FREE LOANS IN INTEREST FREE UNSECURED LOANS OF RS.6,15,94,678/-PR ECEDING YEARS. A. OVER AND ABOVE THERE IS NO ADDITION TO THE INVESTME NT DURING THE YEAR AND OLD INVESTMENT 25,89,060/- WE HAVE GENERAT ED CASH INFLOW ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 5 - BY WAY OF INTERNAL CASH ACCRUAL OF RS.87,84,446/- P ROFIT AND RS.7,62,94,157/- BY WAY OF DEPRECIATION DURING THE YEAR. B. OVER AND ABOVE WE HAVE RECEIVED RS.2,70,72,093/- AS ADVANCE FOR ASSETS IN PRECEDING YEARS, DETAILS OF WHICH ARE ATT ACHED FOR YOUR READY REFERENCE. C. THERE IS NO DIRECT NEXUS FROM INTEREST BEARING FUND TO THE ABOVE STATED LOAN AND ADVANCES. D. DURING THE FINANCIAL YEAR 2011-12, WE HAVE NOT GIVE N ANY ADVANCE TO THE LAND LORDS, BUT IN EARLIER YEARS, WE HAVE MA DE ADVANCE OF RS.25,89,060/- I.E. OUT OF TOTAL INTEREST FREE FUND S. HENCE, THERE IS NEXUS TO ADD THE INTEREST INCOME ON INTEREST FREE FUND AND NOT TO ADD INTEREST INCOME RS.258906/- AND DELE TE THE ADDITIONS MADE AS NOTIONAL INCOME. THE ASSESSEE PAID AN AMOUNT OF INTEREST OF RS.8,32, 84,191/- TO BANKS AND OTHERS AND FURTHER GIVEN INTEREST FREE ADVANCES OF RS.25,89,060/- . IT APPEARS ON RECORD THAT THE ASSESSEE HAS RS.2,70, 72,093/- AS ADVANCE FOR ASSETS IN THE PRECEDING YEARS, OUT OF WHICH THE ADVANCE OF RS.25,89,060/- WAS GIVEN. SUCH FUND WAS USED FOR AGRICULTURE LAND IN PRECEDING FINANCIAL YEARS OUT OF THE BALANCE OF RS.2,70,72,093/- AS ADVANCE R ECEIVED FOR ASSETS AND OUT OF THE BALANCE INTEREST FREE LOAN IN INTEREST FREE UNS ECURED LOAN OF RS.6,15,94,678/- IN PRECEDING YEARS. THE INTERNAL CASH ACCRUAL OF RS .87,84,446/- AS PROFIT AND RS.7,62,94,157/- BY WAY OF DEPRECIATION DURING THE YEAR UNDER CONSIDERATION IS ALSO EVIDENT ON RECORD. DURING THE ASSESSMENT YEAR 2011-12, THE ASSESSEE HAS NOT GIVEN ANY ADVANCE TO THE LAND LORDS BUT IN THE EARLIER YEARS ADVANCE OF RS.25,89,060/- WAS PAID OUT OF THE TOTAL INTEREST F REE FUNDS AVAILABLE WITH THE ASSESSEE. FURTHER THE ENTIRE BORROWING IS TERM LOAN AGAINST CAPITAL ASSETS, THUS, THE BORROWING IS USED FOR THE PURPOSE OF BUSINESS A ND THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT ARISE IN TERM OF THE RATIO LA ID DOWN BY THE HONBLE APEX ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 6 - COURT IN THE MATTER OF TAPARIA TOOLS LTD-VS-CIT REP ORTED IN 372 ITR 605. IN THAT VIEW OF THE MATTER, WE FIND NO JUSTIFICATION O F THE ADDITION MADE BY THE AUTHORITIES BELOW. HENCE, THE SAME IS DELETED. THIS GROUND OF APPEAL IS THUS ALLOWED. GROUND NO.3 5. THIS GROUND RELATES TO CONFIRMING THE ESI & PF W ITH REGARD TO CONTRIBUTION BY EMPLOYEE OF RS.1,89,774/- U/S 36(1) (VA) OF THE ACT ON THE GROUND THAT THE ISSUE IS COVERED BY THE JURISDICTIO NAL HIGH COURT IN THE JUDGMENT PASSED IN THE MATTER OF CIT-VS-GSRTC REPOR TED IN 366 ITR 170. IT IS A SETTLED PRINCIPLE OF LAW THAT TO BE ELIGIBLE FOR DEDUCTION U/S 36(1)(VA) OF THE ACT, THE ASSESSEE HAS TO PAY THE AMOUNT OF EMPLOYEE S CONTRIBUTION TOWARDS PF/ESI TO THE GOVERNMENT ACCOUNT WITHIN THE DUE DAT E SPECIFIED IN THE CONCERNED ACT. IN THIS PARTICULAR CASE, THE ASSESSE E HAS FAILED TO CREDIT THE SAME WITHIN THE STIPULATED TIME AND IN THAT VIEW OF THE MATTER CONSIDERING THE JUDGMENT PASSED BY THE HONBLE KERALA HIGH COURT IN THE MATTER OF CIT-VS- SOUTH INDIA CORPORATION LTD. [2000] 242 ITR 114 (KE RALA) AS WELL AS THE JUDGMENT PRONOUNCED BY THE JURISDICTIONAL HIGH COUR T IN THE CASE OF GSRTC (SUPRA), THE REVENUE HAS DISALLOWED THE AMOUNT OF E MPLOYEES CONTRIBUTION OF ESI & PF TO THE TUNE OF RS.1,89,774/- AND ADDED BAC K TO THE TOTAL INCOME OF THE ASSESSEE. WE FIND NO INFIRMITY IN SUCH ORDER PASSED BY THE AU THORITIES BELOW HENCE ASSESSEES GROUND OF APPEAL FAILS. 6. HENCE, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 7 - ITA NO.567/AHD/2016 FOR A.Y. 2012-13: GROUND NO.1 7. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LEARNED ADVOCATE APPEARING FOR THE ASSESSEE DID NOT PRESS THIS GROUN D. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO.2 & 3 8. REST OF THE ISSUE INVOLVED IN THIS APPEAL ARE ID ENTICAL TO THAT OF THE ISSUES ALREADY BEEN DEALT WITH BY US IN ITA NO.566/ AHD/2016 FOR A.Y. 2011- 12 AND IN THE ABSENCE OF ANY CHANGED CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS. HENCE, THIS APPEAL PREFERRED BY T HE ASSESSEE IS ALSO PARTLY ALLOWED. 9. IN THE COMBINED RESULT, BOTH THE ASSESSEES APPE ALS ARE PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03 / 0 5 /201 9 SD/- SD/- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 03/05/2019 PRITI YADAV, SR.PS ITA NOS.566 & 567/AHD/2016 PURSHOTTAM B. PITRODA VS. ACIT ASST.YEARS 2011-12 & 2012-13 - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-6, AHMEDABAD. 5. , ! ', #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER , //TRUE COPY// / (DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 11.04.2019 (DICTATION PAGES 4) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16.04.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 30.04.2019 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER