Shri Jayantkumar Motichand Doshi, RAJKOT-GUJARAT V. The Income Tax Officer, Ward-2 (2), RAJKOT-GUJARAT

ITA 574/RJT/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0176 (ITAT-RAJKOT)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHHATRE
• Assessee Lawyers: RANJIT LALCHANDANI
• Keywords: Business income; Income from undisclosed sources; Proportionate interest
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 43B; 271(1)(b); 139; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AH MEDABAD] (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 574/RJT/2015 (ASSESSMENT YEAR: 2010-11) SHRI JAYANTKUMAR MOTICHAND DOSHI ILLA VILLA, ASHAPURA ROAD, B/H. KARANSHINHJI SCHOOL, RAJKOT V/S THE INCOME TAX OFFICER WARD 2(2), RAJKOT (APPELLANT) (RESPONDENT) PAN: ABIPD9933E APPELLANT BY : SHRI RANJIT LAL CHANDANI, A.R. RESPONDENT BY : SHRI D.R. CHHATRE, SR. D.R. ( )/ ORDER DATE OF HEARING : 08 -08-201 6 DATE OF PRONOUNCEMENT : 11-08-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT(A)-2, RAJKOT DATED 09.10.2015 PERTAINING TO A.Y. 2010-11. ITA NO. 574/ RJT/2015 . A.Y. 2010-11 2 2. THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE ADDITION OF RS. 42,862/- AS GODOWN RENTAL INCOME. 2. WITHOUT PREJUDICE TO GROUND NO. 1, THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DIRECT THAT ALLOWANCE OF 30% OF THE RENT AS DEDUCTION. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN UPHOLDING THE DISALLOWANCE OF RS. 15,74,330/- OUT OF INTEREST EXP ENSES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE IS NOT JUSTIFIED. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E FAIRLY CONCEDED THAT THE ADDITION OF RS. 42,862/- MAY BE CONFIRMED AS RENTAL INCOME FROM THE GODOWN. WE, ACCORDINGLY, DIRECT THE A.O. T O TREAT RS. 42,862/- AS INCOME FROM HOUSE PROPERTY. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 4. SINCE, WE HAVE UPHELD THE ACTION OF TREATING RS. 42 ,862/- AS INCOME FROM HOUSE PROPERTY, THE ASSESSEE IS ELIGIBLE FOR T HE STATUTORY DEDUCTION OF 30% FROM THE RENTAL INCOME. WE, ACCORD INGLY, DIRECT THE A.O. TO ALLOW 30% OF THE RENTAL INCOME OF RS. 42,86 2/- AS STATUTORY DEDUCTION. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 5. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS. 15, 74,330/- OUT OF INTEREST EXPENSES. 6. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE A.O. NOTICED THAT THE ASSESSEE HAS BORROWED HUGE FUNDS F ROM VARIOUS BANKS AND ALSO FROM PRIVATE PARTIES. THE A.O. FURTHER NOT ICED THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO SHRI B HAVDEEP V. VALA RS. 90,00,000/- AND TO SHRI JESINGHBHAI M. SEGALIYA RS. 12,12,068/-. ITA NO. 574/ RJT/2015 . A.Y. 2010-11 3 THE A.O. WAS OF THE FIRM BELIEF THAT INTEREST BEARI NG FUNDS HAVE BEEN UTILIZED FOR GIVING INTEREST FREE ADVANCES. THE A.O . ACCORDINGLY COMPUTED THE PROPORTIONATE INTEREST AND DISALLOWED A SUM OF RS. 15,74,330/- . 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRONGL Y SUBMITTED THAT THE ADVANCES GIVEN TO SHRI JESINGHBHAI M. SEGALIYA WAS ON ACCOUNT OF BUSINESS TRANSACTIONS AS THE SAID PERSON WAS ACTING AS A CONTRACTOR AND THE ADVANCES ARE NOTHING BUT CONTRACTUAL ADVANC ES. THE LD. COUNSEL FURTHER STATED THAT ADVANCES TO SHRI BHAVDE EP V. VALA WERE GIVEN IN EARLIER YEARS WHEREIN A SIMILAR DISALLOWAN CE WAS MADE AND THE MATTER TRAVELLED UP TO THE TRIBUNAL AND THE TRIBUNA L HAS DIRECTED FOR THE DELETION OF THE ADDITION SO MADE. 9. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 10. WE HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BE LOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE UNDERLYING FACTS IN ISSUES. INSOFAR AS THE ADVANCES GIVEN TO SHRI JESINGHBHAI M . SEGALIYA, WE FIND THAT FIRSTLY, THE AMOUNT IS AN OPENING BALANCE, NO ADVANCES WERE GIVEN DURING THE YEAR UNDER CONSIDERATION AND THE SAID PE RSON IS A CONTRACTOR WHO LEVELLED ASSESSEES LAND AND THE SAID AMOUNT WA S GIVEN AS ADVANCE IN THE EARLIER YEARS. WE FURTHER FIND THAT SINCE THE FINAL BILL HAS NOT BEEN RECEIVED, THE AMOUNT IS STILL SHOWN AS OUTSTANDING. ON THESE FACTS, WE DO NOT FIND ANY REASON FOR THE DISA LLOWANCE OF ITA NO. 574/ RJT/2015 . A.Y. 2010-11 4 PROPORTIONATE INTEREST ON ADVANCES TO SHRI JESINGHB HAI M. SEGALIYA AMOUNTING TO RS. 12,12,068/-. 11. INSOFAR AS THE ADVANCES TO SHRI BHAVDEEP V. VALA AM OUNTING TO RS. 90,00,000/- IS CONCERNED, WE FIND THAT THIS AMO UNT WAS ADVANCED IN THE YEAR 2001. WE FURTHER FIND THAT AN IDENTICAL ISSUE AROSE IN A.Y. 2005-06 WHERE THE MATTER TRAVELLED UP TO THE TRIBUN AL QUA GROUND NO. 3 OF THE APPEAL BEFORE THE TRIBUNAL, THE RELEVANT F INDINGS OF THE TRIBUNAL READ AS UNDER:- 13.IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 21199383/-. THE COMMISSIONER OF IN COME TAX (APPEALS) HAS CONFIRMED THE DISALLOWANCE OF INTEREST HOLDING THAT . 'I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY T HE ASSESSING OFFICER AND THE ABOVE SUBMISSION OF THE AR OF THE APPELLANT. AS HELD IN THE PRECEDING PARA, THE LABOUR INCOME HAS BEEN TREATED AS NON GEN UINE AND ADDITION U/S. 68 OF THE IT ACT, 1961 HAS, BEEN CONFIRMED, THEREFO RE, THE CLAIM OF THE APPELLANT TO ALLOW THE INTEREST EXPENDITURE AS BUSI NESS EXPENDITURE CANNOT BE SUSTAINED. THE APPELLANT HAS FAILED TO PROVE ANY NEXUS BETWEEN THE BORROWINGS AND ITS USE FOR THE BUSINESS PURPOSE: AS THERE IS NO BUSINESS, THERE IS NO QUESTION OF ANY BUSINESS PURPOSE, THERE FORE, AS I HOLD TOTAL INTEREST EXPENDITURE OF RS. 23510301/- IS CONSIDERE D AS NOT INCURRED FOR EARNING INCOME OF THE CURRENT YEAR. HOWEVER, CONSID ERING THE FACT THAT THE APPELLANT HAS SHOWN EARNING OF INTEREST INCOME TO T HE EXTENT OF RS. 6773123/-, THE DISALLOWANCE OF EXPENDITURE WILL REM AIN AT RS. 21199383/- AS DISALLOWED BY THE ASSESSING OFFICER IT IS ALSO N OTICED THAT AN AMOUNT OF RS. 4287359/-ON LOAN FROM RAJKOT NAGRIK SAHAKARI BA NK A/C NO. 3485 WAS NOT PAID BY THE APPELLANT DURING THE YEAR BUT T HE DISALLOW ABILITY OF SAME U/S 43B OF THE IT ACT, 1961 WILL NOT ARISE AS INTEREST WAS NOT FOUND INCURRED FOR NON BUSINESS PURPOSE AND THE NET INTER EST EXPENDITURE OF RS. 21199383/- HAS BEEN DISALLOWED HENCE NO SEPARATE DI SALLOWANCE IS CALLED FOR. THIS GROUND OF APPEAL IS DISMISSED.' ITA NO. 574/ RJT/2015 . A.Y. 2010-11 5 14. THE A.R. STATED THAT THE AMOUNTS HAVE BEEN UTIL IZED FOR THE PURPOSE OF BUSINESS. THE AMOUNTS HAVE BEEN BORROWED IN THE EAR LIER YEARS. THERE HAS BEEN NO DISALLOWANCE IN THE EARLIER YEARS. REFERENCE WAS INVITED TO THE DECISION OF THE RAJKOT BENCH IN M/S. SWASTIK ENGINEERING STORES (IT A 462/R/2003). HE SUBMITTED THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE DEPARTMENT TO THE EFFECT THAT THE MONIES WERE NOT UTILIZED FOR THE PURPOSE OF BUS INESS OF INCOME EARNING ASSETS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD BORROWED MONIES IN THE NAMES OF M/S. JAYANT TRADING COMPANY AND M/S. SUPER MFG. CO. THE ASSESSEE HAS PAID INTEREST ON MONIES BORROWED FOR THE PURPOSE OF HIS BUSINESS AND OTHER INTEREST BEARING ADVANCES. THE AMOUNTS HAVE BEEN BORROWED IN THE PAS T. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST ON THE GROUND THAT THE INCOME EARNED HAS BEEN TAXED UNDER THE HEAD INCOME FROM UNDISCLOSED SOURCES AND THAT NO EXPENSES CAN BE ALLOWED AGAINST THE SAME. HE FURTHER STATED THAT TH E ASSESSEE HAS BORROWED FUNDS FROM (A) RAJKOT NAGRIK SAHAKARI BANK (RNSB) (B) RAJ KOT COMMERCIAL CO- OPERATIVE BANK (RCC). THESE FUNDS HAVE BEEN BORROWE D MANY YEARS AGO. THE BALANCE SHEETS FOR AND FROM 1990 TO 2000 HAVE BEEN FILED IN THE PAPER BOOK. THESE SHOW THAT THE FUNDS HAVE BEEN BORROWED MANY Y EARS AGO AND THE LIABILITY CONTINUES TILL DATE. FOR THE UTILIZATION OF THE FUN DS IN THAT YEAR THE A.R. SUBMITTED THAT AN AMOUNT OF RS. 7 CRORES WAS BORROWED IN THE FINANCIAL YEAR 2000-01 FROM RCC BANK. THE AMOUNT OUTSTANDING CURRENTLY IS THE A CCUMULATION OF THE DEBT OVER THE PERIOD. THIS VALUE OF CLOSING STOCK IS RS. 6453 050/- IN 2000 [ WHICH AS ON 31.03.2005 WAS RS. 19452650], LAND AT NAVAGAM FOR A SUM OF RS. 13121850/- FROM WHERE THE ASSESSEE RUNS HIS BUSINESS OF STONE CRUSHING TO REPAY AN EXISTING LOAN OF RS. 14224188/- FROM RNSB, TO REPAY A EXISTI NG LOAN FROM SBS OF RS. 777552/-, A SUM OF RS. 370060/- WAS INVESTED IN M/S . RELIABLE CONSTRUCTION COMPANY ON WHICH THE ASSESSEE IS A PARTNER AND IS G ETTING 21% INTEREST, A DEPOSIT OF SUM OF RS. 480995/- WITH HAREN DOSHI ON WHICH T HE ASSESSEE IS GETTING 21% INTEREST, DEPOSIT OF SUM OF RS. 35669038/- WITH ILL ABEN DOSHI ON WHICH THE ASSESSEE GETTING 21% INTEREST, DEPOSIT OF SUM OF RS . 14456584/- WITH PARUL DOSHI ITA NO. 574/ RJT/2015 . A.Y. 2010-11 6 ON WHICH THE ASSESSEE GETTING 21 INTEREST DEPOSIT O F SUM OF RS. 97984/- WITH TELECARE SERVICE ON WHICH THE ASSESSEE GETTING 21% INTEREST. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CO NTENTIONS OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE DECISION OF M/S. SWASTIK E NGINEERING STORES [ITA 462/R/2003]. WE FIND THAT THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAVE MAINLY DISALLOWED THE INTEREST ON TH E GROUND THAT THE INCOME OF THE ASSESSEE IS TO BE TAXED AS INCOME FROM UNDISCLO SED SOURCES AND NOT AS BUSINESS INCOME. WE HAVE ALREADY DECIDED THIS MATTE R IN GROUND NO. 1. WE HAVE ALSO VERIFIED AND FOUND THAT THERE IS NO DISALLOWAN CE IN THE PAST. THE AMOUNT HAS BEEN BORROWED IN THE PAST. THEREFORE, THE A.R. HAS CORRECTLY CLAIMED THAT THE MATTER IS COVERED BY THE DECISION OF THIS BENCH REF ERRED ABOVE. WE, THEREFORE, DIRECT THAT THE ADDITION BE DELETED ON THIS ACCOUNT . 12. AS THE ADVANCES WERE GIVEN IN THE YEAR 2001 AND AS THE SIMILAR DISALLOWANCE MADE IN EARLIER YEARS WAS DELETED BY T HE TRIBUNAL (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE SET AS IDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE DI SALLOWANCE OF RS. 15,74,330/-. GROUND NO. 3 IS ACCORDINGLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11 - 08 - 2016 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT.