Dy. Commissioner of Income Tax, Central Circle, Tirupathi V. Sri S Ramesh Babu, Chennai

ITA 569/HYD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6593 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 569/HYD/2014 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE, TIRUPATHI. VS. SRI S. RAMESH BABU, CHENNAI. PAN ADRPS 5919C (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M. SITARAM ASSESSEE BY : NONE DATE OF HEARING 21-04-2016 DATE OF PRONOUNCEMENT 06-05-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS), GU NTUR FOR AY 2007-08 WHEREIN THE REVENUE HAS RAISED THE FOLLOWIN G SUBSTANTIVE GROUND OF APPEAL: 1. THE LD. CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE GROUND ON WHICH THE ADDITION WAS MADE. 2. THE LD. CIT (A) HAS DELETED THE ADDITION OF RS.1 4,53,653/- MADE ON THE GROUND THAT THE ASSESSEE HAS DEBITED IN TEREST TO FIRMS IN P&L ACCOUNT, THOUGH NO WITHDRAWALS BY ASSE SSEE IN THE FIRMS DURING THE YEAR. THIS FACT HAS BEEN ACCEPTED BY THE LD. CIT (A) IN APPELLATE ORDER. 3. THE LD. CIT (A) OUGHT NOT TO HAVE DELETED THE AD DITION OF RS.14,53,653/- MADE SINCE THE ASSESSEE HAS NOT PROD UCED ANY EVIDENCE AND FAILED TO PROVE THAT THE MONIES OVERDR AWN FROM THE THREE FIRMS WERE UTILIZED FOR THE PURPOSE OF BUSINE SS. 2 ITA NO. 569/H/14 SHRI S. RAMESH BABU 4. THE LD. CIT (A) OUGHT NOT TO HAVE DELETED THE AD DITION OF RS.14,53,653/- MADE IN THE ABSENCE OF DETAILS SUCH AS THE YEAR IN WHICH FUNDS WITHDRAWN; PERCENTAGE OF INTEREST; I NTEREST ACCRUED; AND THE PURPOSE FOR WHICH FUNDS OVERDRAWN. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED HIS RETURN OF INCOME FOR ASST. YEAR 2007-08 DECLARING T OTAL INCOME OF RS. 1,12,94,316/- ALONG WITH AGRICULTURAL INCOME OF RS. 1,55,000/-. ASSESSMENT U/S.143(3) WAS COMPLETED DETERMINING TOT AL INCOME AT RS. 1,18,02,244/- SUBSEQUENTLY CIT(CENTRAL), HYDERA BAD PASSED A REVISION ORDER U/S.263 DATED 25.03.2011 WHEREIN THE A.O. WAS ASKED TO REDO THE ASSESSMENT AFTER DISALLOWING THE ASSESS EES CLAIM OF INTEREST AMOUNTING TO RS. 14,54,653/- TOWARDS 'INTE REST PAID TO PARTNERSHIP FIRMS', WHERE THE ASSESSEE IS A PARTNER . ACCORDINGLY, THE AO MADE THE ADDITION. 3. THE AO NOTED THAT IN THE P&L A/C FOR THE YEAR EN DING 31/03/2007, THE ASSESSEE HAD DEBITED AN AMOUNT OF R S. 14,54,653/- AS INTEREST PAID TO FIRMS, WHERE THE ASSESSEE IS A PARTNER. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTERE ST PAID ALONG WITH LEDGER ACCOUNT COPIES OF THE FIRMS. IN REPLY, THE A SSESSEE SUBMITTED THAT HE HAD PAID A SUM OF RS. 14,54,653/- TO THE VA RIOUS PARTNERSHIP CONCERNS FOR THE MONIES WITHDRAWN AND USED IN VARIO US BUSINESSES WHICH RESULTED AS INCOME. THE DETAILS OF INTEREST P AID TO VARIOUS CONCERNS ARE AS UNDER: S.NO. PARTICULARS AMOUNT (RS.) 1 LAKSHMI FINANCIERS 1,30,672.00 2 KANAKA JYOTHI FINANCIERS 4,40,669.00 3 KANAKARATHNA MOVIES 6,74,250.00 4 SRI DHANALAKSHMI FINANCIERS 1,44,489.00 5 PRASANTHI FINANCE SYNDICATE 35,880 6 SRI LAKSHMI VENKATESWARA FINANCIERS 28,693.00 TOTAL 14,54,653.00 3.1 THE AO NOTED THAT ON PERUSAL OF THE COPIES OF T HE DOCUMENTS AND OTHER INFORMATION PRODUCED BY THE ASSESSEE, IT IS FOUND THAT THE ASSESSEE HAS INCURRED THE ABOVE EXPENDITURE TOWARDS THE INTEREST ON 3 ITA NO. 569/H/14 SHRI S. RAMESH BABU THE MONIES OVERDRAWN FROM THE CURRENT ACCOUNTS WITH THE ABOVE PARTNERSHIP FIRMS IN WHICH THE ASSESSEE IS A PARTNE R. AS PER SECTION 37, ANY EXPENDITURE IS ALLOWED ONLY IF THAT EXPENDI TURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. HENCE, THE ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF AMOUNTS OVERDRAWN FROM THE ABOVE FIRMS AND ANY EVI DENCE TO PROVE THAT THE MONIES OVERDRAWN FROM THE ABOVE FIRMS WERE UTILIZED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE STATED THAT THE M ONIES WITHDRAWN FROM THE FIRMS WERE USED IN THE BUSINESS AND EARNED THE INCOME. HE FURTHER STATED THAT HE HAD NOT WITHDRAWN ANY MONIES FROM THE FIRMS DURING THE PY RELEVANT TO AY 2007-08. ALL INTEREST PAYMENTS TO FIRMS OF THIS YEAR WERE RELATED TO THE MONIES WITHDRAWN I N EARLIER YEARS AND USED IN VARIOUS BUSINESSES. IT WAS STATED THAT THE SAID INTEREST PAYMENTS WERE CONSIDERED WHILE COMPLETING THE PREVI OUS YEAR ASSESSMENTS AND ALLOWED THE SAME IN DETERMINING THE TAXABLE INCOME. 3.2 THE AO OBSERVED THAT THE ASSESSEE HAS GIVEN A V AGUE EXPLANATION FOR THE UTILIZATION OF MONIES DRAWN FRO M THE FIRMS. THE ASSESSEE IS NOT ABLE TO GIVE EVEN THE BASIC DETAILS SUCH AS THE YEAR IN WHICH THE FUNDS BORROWED OR OVERDRAWN, PERCENTAGE O F INTEREST, INTEREST ACCRUED AND THE PURPOSE FOR WHICH THE FUND S WERE UTILIZED. HE HAS SIMPLY SAYING THAT 'HE HAS NOT WITHDRAWN ANY MO NIES FROM THE FIRMS DURING THE PREVIOUS YEAR UNDER CONSIDERATION AND ALL THE ABOVE INTEREST PAYMENTS WERE RELATED TO THE MONIES WITHDR AWN IN EARLIER YEARS'. 3.3 IN VIEW OF THE ABOVE OBSERVATIONS, THE AO ADDED BACK THE SAID AMOUNT ON THE GROUND THAT THE ASSESSEE WAS UNABLE T O SHOW THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. 4 ITA NO. 569/H/14 SHRI S. RAMESH BABU 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) AND BEFORE THE CIT(A) HE STATED AS UNDER: IT IS THE SUBMISSION OF THE APPELLANT THAT THE AMO UNT BORROWED FROM THE FIRMS RELATING TO THE PERIOD FROM 1999-200 6. DETAILS OF THE BORROWALS ARE ENCLOSED HEREWITH. DURING THE YEA R UNDER CONSIDERATION, THERE WERE NO BORROWALS FROM THESE F IRMS. THE INTEREST WAS CHARGED BY THE FIRMS IN THE ACCOUNT CO PIES ISSUED BY THEM. FURTHER UP TO THE ASSESSMENT YEAR 2006-07, TH E CLAIM OF THE APPELLANT UNDER THIS HEAD WAS ACCEPTED BY THE D EPARTMENT EVEN IN THE SCRUTINY ASSESSMENT ALSO. THERE ARE NO CHANGES IN THE FACTS DURING THE YEAR UNDER CONSIDERATION WHICH WARRANT DISALLOWANCE OF INTEREST PAID. FURTHER RULE OF CONS ISTENCY HAS TO BE APPLIED WHEN THE OTHER FACTS ARE SAME AND CLAIM OF INTEREST EXPENDITURE OUGHT NOT HAVE BEEN DISALLOWED. IT IS T HE HUMBLE SUBMISSION OF THE APPELLANT THAT THE FUNDS WERE UTI LIZED FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE APPELLANT AND WERE DULY DISCLOSED IN THE BALANCE SHEET THEREFORE IT IS HUMB LY SUBMITTED THAT THERE IS NO CASE FOR DISALLOWANCE OF INTEREST PAYMENT TO THE PARTNERSHIP FIRMS AND YOUR GOODSELVES ARE REQUESTED TO DELETE THE ADDITION AND ALLOW THE APPEAL. I FURTHER SUBMIT THE FOLLOWING FOR YOUR KIND CONSI DERATION. COPIES OF THE BALANCE SHEET AS ON 31.03.2006 AND 31.03.200 7 ALONG WITH PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDING ON THOSE DATES ARE HEREWITH ENCLOSED FOR YOUR KIND CONSIDERA TION AND READY REFERENCE. THE AMOUNTS DUE TO FIRMS MENTIONED IN THE ASSESSMENT ORDER WHEREIN I AM THE PARTNER WERE DULY DISCLOSED IN THE BALANCE SHEETS REFERRED ABOVE. SINCE THE WIT HDRAWAL FROM THESE FIRMS WERE UTILIZED IN THE PROPRIETARY BUSINE SS CARRIED ON BY ME. I REQUEST YOUR GOODSELVES TO ALLOW THE INTEREST PAYMENTS TO THE FIRMS AS AN ALLOWABLE EXPENDITURE IN MY ASSESSM ENT AND DIRECT THE ASSESSING OFFICER ACCORDINGLY.' 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 7.3 I HAVE PERUSED THE SUBMISSIONS MADE BY THE APPE LLANT. THE BALANCE SHEET FOR THE PRECEDING YEAR SHOWS THAT THE AMOUNTS OUTSTANDING IN THE CAPITAL AND CURRENT ACCOUNT OF T HE APPELLANT MAINTAINED IN DIFFERENT FIRMS WAS RS.1.05 CRORES (A PPROX.), WHEREAS IN THE BALANCE SHEET FOR THE YEAR ENDING 31 .03.2007 I.E., RELEVANT PREVIOUS YEAR, THE OUTSTANDING AMOUNT HAS BEEN REDUCED TO RS.84 LAKHS (APPROX.). THE APPELLANT IS IN THE BUSINESS OF FINANCING AS WELL AS INVESTMENT IN MOVI ES AND VARIOUS AMOUNTS BORROWED HAVE BEEN UTILIZED TOWARDS LOANS GIVEN ON INTEREST. THE PROFIT & LOSS ACCOUNT FOR TH E YEAR SHOWS BOTH RECEIPT OF INTEREST FROM LOANS GIVEN AS WELL A S INTEREST FROM PARTNERSHIP FIRMS. THE PROFITS INCLUDE PROFITS RECE IVED FROM SUCH 5 ITA NO. 569/H/14 SHRI S. RAMESH BABU PARTNERSHIP FIRMS AS UMA MAHESWARA FINANCIERS AND KANAKARATHNA MOVIES. THIS INDICATES THAT THE AMOUN TS BORROWED BY THE APPELLANT INCLUDING AMOUNTS OVERDRAWN FROM T HIS PARTNERSHIP FIRMS HAVE BEEN UTILIZED TOWARDS HIS BU SINESS, WHICH HAVE RESULTED IN INCOME ON ACCOUNT OF INTEREST AS W ELL AS PROFITS FROM THE FIRMS WHERE INVESTMENTS HAVE BEEN MADE. FO R EXAMPLE, OUT OF RS.14,54,653/- PAID AS INTEREST TO PARTNERSH IP FIRMS, AN AMOUNT OF RS.6,74,250/- HAS BEEN PAID TO KANAKARAT HNA MOVIES ON OVERDRAWN BALANCES. SIMULTANEOUSLY, THE APPELLAN T HAS ALSO REFLECTED 2.62 CRORES AS PROFIT FROM THE FIRM KANAK ARATHNA MOVIES. IN VIEW OF THE ABOVE, THE APPELLANT'S CONTE NTION THAT THE OVER DRAWINGS FROM PARTNERSHIP FIRMS HAVE BEEN UTIL IZED TOWARDS THE APPELLANT'S BUSINESS AND THAT NO FRESH BORROWIN GS HAVE TAKEN PLACE DURING THE YEAR IS FOUND TO BE CORRECT AND AC CEPTABLE. THE ADDITION ON ACCOUNT OF INTEREST AMOUNTING TO RS.14, 54,653/- STANDS DELETED. THE APPELLANT'S APPEAL IN RESPECT O F GROUND NO.4 IS ALLOWED. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 7. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSESS EE. HOWEVER, WE PROCEED TO DISPOSE OF THIS APPEAL AFTER HEARING THE LD. DR AND ON MERITS OF THE CASE. 8. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT B ROUGHT ON RECORD THE NEXUS BETWEEN THE INTEREST INCOME AND IN TEREST PAID AND IT WAS NOT BROUGHT ON RECORD THAT THE ABOVE PAYMENT OF INTEREST IS INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS OF ASSE SSEE. HE RELIED ON THE ORDER OF THE AO. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. THERE IS NO DISPUTE THAT ASSESSEE HAD BORROWED THE FUNDS FROM PARTNERSHIP FIRMS, WHERE HE IS ONE OF THE PART NER. BUT ALL THE FUNDS BORROWED DURING PREVIOUS FINANCIAL YEARS. IT IS ALSO FACT THAT THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING AND MA KING MOVIES IN HIS INDIVIDUAL CAPACITY. FROM THE RECORDS, IT IS CL EAR THAT ASSESSEE HAD EARNED INTEREST INCOME AND DECLARED RS. 1,12,94,316 /- AS INCOME. IT IS NATURAL THAT THE ASSESSEE EARNS INCOME FROM MONE Y LENDING AND 6 ITA NO. 569/H/14 SHRI S. RAMESH BABU MAKING MOVIES, THE FUNDS BORROWED WILL HAVE TO BE U TILIZED IN THE ABOVE VENTURES. LD. CIT(A) GAVE A FINDING THAT THE ASSESSEE HAD REFLECTED RS. 2.62 CRORES AS PROFIT FROM THE FIRM K ANAKARATHNA MOVIES. ASSESSEE WAS ABLE TO GENERATE PROFIT ONLY BY UTILIS ING FUNDS IN THE MOVIES AND GENERATED INTEREST INCOME. SINCE, NO ONE REPRESENTED FOR ASSESSEE, WE ARE NOT AWARE OF THE NET WORTH OF THE ASSESSEE. IT INDICATES THAT THE ASSESSEE HAS UTILIZED THE BORROW ED FUNDS IN THE BUSINESS AND, ON THE CONTRARY, REVENUE HAS NOT BROU GHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS UTILIZED THE FUNDS OTHER THAN FOR BUSINESS PURPOSE. IN THE ABSENCE OF EVIDENCE TO PROVE THAT THE FUNDS WERE UTILIZED OTHER THAN THE BUSINESS, WE ARE INCLINED TO ACCEPT THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) TH AT THE BORROWED FUNDS WERE UTILIZED FOR BUSINESS. HENCE, THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 6 TH MAY, 2016 KV COPY TO:- 1) DCIT, CENTRAL CIRCLE, 3RD FLOOR, AAYAKAR BHAVAN , K.T. ROAD, TIRUPATHI. 2) SHRI S. RAMESH BABU, FLAT NO. D5, DOOR NO. 17, V AISHALI APTTS., DR. NAIR ROAD, T. NAGAR, CHENNAI 3 CIT(A), GUNTUR 4) CIT(CENTRAL), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 7 ITA NO. 569/H/14 SHRI S. RAMESH BABU S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER