Impulse Marketing, New Delhi V. ACIT, New Delhi

ITA 5791/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5607 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Assessee Lawyers: RAJAT SHARMA
• Keywords: Notional interest; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: BENCH C NEW DELHI BEFORE SRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 5791/DEL/2014 A.Y. 2010-11 IMPULSE MARKETING VS. ACIT 609, ABW ELEGANCE TOWER, CIRCLE-24(1) JASOLA DISTRICT CENTRE NEW DELHI NEW DELHI PAN : AABFI1861L (APPELLANT) (RESPONDENT) REVENUE BY : SH. S.L.ANURAGI, SR. DR ASSESSEE BY : SH. RAJAT SHARMA, FCA DATE OF HEARING: 11.04 . 2018 DATE OF PRONOUNCEMENT : 16.04.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST ORDER DATED 29.08.2014 PASSED BY LD. CIT (A)-XXIII, NEW D ELHI FOR ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON THEFACTS AND CIRCUMSTANCES OF THE CASE, THE ORDE R PASSED BY THE LEARNED CIT (A) IS BAD BOTH IN EYE OF LAW AND ON FA CTS. 2. ON THEFACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN ADDING NOTIONAL INTEREST INCOME AT THE RATE OF 12% ON THE DEBIT BALANCE OF PARTNER'S LOAN (INCL UDING ERSTWHILE EMPLOYEES) AND BUSINESS ADVANCES STANDING AS ON 31. 03.2010 ON THE FOLLOWING GROUNDS: I. LEARNED CIT (A) NOT WAS JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE TO MAKE AN ADDITION ON THE BASIS OF NOTIONAL/D EEMED INTEREST IN THE HANDS OF THE ASSESSEE WHICH FACTUALLY NEITHER ACCRU ES, OR ARISES, NOR IS 2 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) RECEIVED BY THE ASSESSEE AND IGNORING THE FACT NO P ROVISION IS CONTAINED IN THE INCOME TAX ACT, 1961 FOR ADDING NOTIONAL INTEREST. II. WITHOUT PREJUDICE TO OUR CONTENTION THAT NOTIONAL INTEREST IS NOT CHARGEABLE, AND WITHOUT ADMITTING ANYTHING TO THE C ONTRARY, LEARNED CIT(A) CONCURRED WITH ASSESSING OFFICER TO A CATEGORIC FIN DING THAT THE ASSESSEE FIRM CLAIMED INTEREST U/S 36(L)(III) FOR RS. 24,74,934/- BUT ADDED NOTIONAL INTEREST INCOME OF RS. 36,85,558/- WITHOUT DISALLOWING INTER EST U/S 36(L)(III) WHICH INDICATES THAT THE INTEREST PAID IN RESPECT OF CAPI TAL BORROWED WAS ONLY FOR THE PURPOSES OF BUSINESS OR PROFESSION. III. WITHOUT PREJUDICE TO OUR CONTENTION THAT NOTIONAL I NTEREST IS NOT CHARGEABLE, AND WITHOUT ADMITTING ANYTHING TO THE C ONTRARY, THE LEARNED CIT(A) CONCURRED WITH THE ASSESSING OFFICER IN ARBI TRARILY CHARGING NOTIONAL INTEREST INCOME @ 14% ON THE DEBIT BALANCE OF LOANS TO PARTNERS (INCLUDING ERSTWHILE EMPLOYEES) AND OTHERS AS ON 31/03/2010 FO R RS. 2,63,25,412/- WITHOUT ADJUSTING THE CREDIT BALANCE OF PARTNER'S C APITAL OF RS. 1,52,46,691/- ON WHICH NO INTEREST WAS PAID TO THE PARTNERS, THOUGH THE LEARNED CIT(A) REDUCED THE INTEREST FROM 14% TO 12% . 3. THAT THE ABOVE ADDITION HAS BEEN MADE BY IGNORING & WITHOUT GOING INTO THE VERACITY OF THE DETAILS AND EXPLANATIONS A S SUBMITTED BY THE APPELLANT COMPANY AND BY IGNORING THE FACTS OF THE CASE & WIT HOUT BRINGING ANY ADVERSE MATERIAL ON RECORD. FINDINGS OF FACTS ARE P ERVERSE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THAT THE ABOVE ADDITION HAS BEEN MADE BY IGNOR ING THE FACTS OF THE CASE. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION ON 15/10/10 DECLARING INCOME OF RS. 2 ,06,75, 351/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATU TORY NOTICES UNDER SECTION 143 (2) WAS ISSUED TO ASSESSEE, IN RE SPONSE TO WHICH REPRESENTATIVES OF ASSESSEE APPEARED BEFORE L D.AO AND FILED REQUISITE DETAILS AS CALLED FOR. 3. LD.AO OBSERVED THAT ASSESSEE IS A PARTNERSHIP FI RM, ENGAGED IN BUSINESS OF PURCHASE AND SALE OF EDUCATIONAL BOO KS. ON PERUSAL OF BOOKS OF ACCOUNTS, LD. AO OBSERVED THAT ASSESSEE DEBITED RS. 24,74,937/-UNDER THE HEAD BANK INTERES T AND FROM THE DETAILS IT WAS OBSERVED THAT ASSESSEE RECEIVED LOANS FROM 3 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) BANKS AND PAID INTEREST THEREON. IT WAS OBSERVED I N THE BALANCE SHEET THAT ASSESSEE HAS GIVEN ADVANCES TO FOLLOWING PERSONS WITHOUT CHARGING INTEREST: KAMAL AHUJA- RS. 19 LAKHS SOMNATH MUNJAL-RS. 10 LACS MANISH ANAND RS.64,73,059/- POOJA SINGH- 82,000 SANJAY BAKSHI- RS.1,63,70,353/- ZEESHAN - 5 LACS 4. ASSESSEE WAS ASKED TO EXPLAIN THE BUSINESS E XIGENCY OF THESE INTEREST-FREE LOAN/ADVANCES TO ABOVE REFERRED PERSONS, WHILE IT WAS PAYING INTEREST ON LOANS BORROWED. AS ASSESSEE FAILED TO JUSTIFY THE INTEREST FREE LOANS ADVANCED, LD.AO HELD THAT ASSESSEE DIVERTED INTEREST-BEARING LOANS. HE ACCORD INGLY CALCULATED THE DEEMED INTEREST AT RS. 36, 85, 558/- EARNED BY IT ON THE ADVANCEMENT AT 14% OF THE TOTAL LOAN AMOUNT AND ADDED THE SAID AMOUNT BACK TO THE INCOME DECLARED BY ASSE SSEE. 5. ON AN APPEAL BEFORE LD. CIT (A) THE RATE OF INTEREST CHARGED WAS REDUCED TO 12% AND ASSESSING OFFICER WAS DIRECT ED TO RECALCULATED DISALLOWANCE ACCORDINGLY. 6. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE I S IN APPEAL BEFORE US NOW. ALL GROUNDS RAISED PERTAIN TO THE IS SUE OF DEEMED INTEREST IN THE HANDS OF ASSESSEE. ASSESSEE HAS FIL ED REVISED RETURN CONTAINING 6 GROUNDS TODAY BEFORE US. 7. GROUND NO. 1 & 6 ARE GENERAL IN NATURE AND THEREFORE DOES NOT CALL FOR ANY ADJUDICATION. 8. GROUND NO. 2-5 DEALS WITH THE ADDITION MADE BY LD. AO ON ACCOUNT OF DEEMED INTEREST. 4 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) 9. LD. AR SUBMITTED THAT THESE LOANS AND ADVANCES W ERE GIVEN TO PARTNERS/BUSINESS ASSOCIATES OF ASSESSEE WHICH I S CONTINUING FROM EARLIER YEARS, EXCEPT FOR LOAN ADVANCED TO POO JA SINGH AMOUNTING TO RS. 82,000. IT HAS BEEN SUBMITTED THAT ASSESSEE HAS BEEN MAINTAINING TWO ACCOUNTS OF PARTNERS 1 BEI NG CAPITAL ACCOUNT AND THE OTHER BEING LOANS TO PARTNERS. I N THE CAPITAL ACCOUNT, TRANSACTION RELATING TO PARTNERS SALARY A ND PROFITS OF THE FIRMS WAS CREDITED WHEREAS IN LOANS TO PARTNER S ACCOUNT PARTNERS MADE DRAWINGS OTHER THAN PARTNERS REMUNERA TION AND PROFIT WAS RECORDED, AND THIS ACCOUNT WAS MAINTAIN ED AS CURRENT ACCOUNT. IT HAS BEEN SUBMITTED THAT THE LOAN WAS AD VANCED TO KAMAL AHUJA AND SOMNATH MUNJAL DURING FINANCIAL YEA R 2007- 08, WHEN BOTH OF THEM WERE EMPLOYEES OF THE FIRM AN D THEY WERE SUBSEQUENTLY INDUCTED AS PARTNERS W.E.F. 01/10/08. IN ALTERNATIVE, LD. AR SUBMITTED THAT IF AT ALL ANY NO TIONAL INTEREST SHOULD BE MADE, IT MUST BE MADE ONLY ON NET DEBIT B ALANCE IN THE ACCOUNTS OF THE PARTNERS. 10. ON CONTRARY LD. CIT DR PLACED RELIANCE UPON ORD ERS OF AUTHORITIES BELOW. SHE SUBMITTED THAT EXCEPT FOR KA MAL AHUJA AND SOMNATH MUNJAL, ASSESSEE HAS NOT GIVEN ANY REAS ON FOR ADVANCING SUCH HUGE LOANS TO THE OTHER PERSONS WIT HOUT ANY INTEREST. SHE ALSO SUBMITTED THAT THE ARGUMENTS ADV ANCED BY LD.AR IS ALSO NOT VERIFIABLE SINCE THERE IS NO PART NERSHIP DEED THAT HAS BEEN PLACED ON RECORD AS WELL AS NO PROOF HAS BEEN TENDERED BY ASSESSEE IN ORDER TO ESTABLISH THAT THE LOANS ADVANCED TO KAMAL AHUJA AND SOMNATH MUNJAL WERE DUR ING FINANCIAL YEAR 2007-08. 5 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) 11. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOT H THE SIDES AND THE LIGHT OF THE RECORDS PLACED BEFORE US . 12. FROM THE LIST OF THE PEOPLE TO WHOM INTEREST FR EE ADVANCES HAS BEEN MADE BY ASSESSEE ONLY KAMAL AHUJA AND SOMN ATH MUNJAL HAS BEEN STATED TO BE PARTNERS AND THAT THE AMOUNT HAVE BEEN ADVANCED DURING THE FINANCIAL YEAR 2007-08. TH ESE DETAILS ARE NOT VERIFIABLE, SINCE ASSESSEE HAS NOT TENDERED ANY DOCUMENTARY EVIDENCE TO THAT RESPECT. 13. WE ARE THEREFORE INCLINED TO SET ASIDE THIS ISS UE BACK TO LD. AO FOR DUE VERIFICATION OF ALL THESE DETAILS. ASSES SEE IS DIRECTED TO PRODUCE ALL RELEVANT DOCUMENTS IN THE FORM OF PARTN ERSHIP DEED AS ON 2007-08, AS WELL SUBSEQUENT PARTNERSHIP DEED TO ESTABLISH THAT KAMAL AHUJA AND SOMNATH MUNJAL WERE INDUCTED T O BE THE PARTNERS W.E.F. 01/10/08 AND THAT AMOUNT ADVANCED T O THESE PEOPLE WERE DURING THE RELEVANT PERIOD. AFTER CONSI DERING THE EVIDENCES SUBMITTED BY ASSESSEE IN RESPECT OF KAMAL AHUJA AND SOMNATH MUNJAL, ASSESSING OFFICER MAY REVISIT THE C OMPUTATION OF INTEREST HAVING REGARD TO THE ACCOUNTS OF ASSESSEE AND NETTING OF MAY BE ALLOWED AS PER LAW UPON BEING SATISFIED REGA RDING THEIR STATUS AS PARTNERS. 14. IN RESPECT OF REMAINING PEOPLE, ASSESSING OFFIC ER IS DIRECTED TO TAKE A VIEW AS PER LAW. IN THE EVENT ASSESSEE IS ABLE TO ESTABLISH BY WAY OF DOCUMENTARY EVIDENCES REGARDING THE EXIGENCY OF PROVIDING INTEREST FREE ADVANCES, ASSES SING OFFICER MAY TAKE A VIEW UPON VERIFICATION OF THE SAME BEING GENUINE. 15. ON THE CONTRARY IF ASSESSSING OFFICER IS NOT SA TISFIED WITH THE SUBMISSIONS/EVIDENCES ADVANCED BY ASSESSEE IN RESPE CT OF ALL THE PERSONS TO WHOM INTEREST FREE ADVANCES HAS BEEN TEN DERED, IS 6 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) NOTIONAL INTEREST SHALL BE COMPUTED BY APPLYING RAT E OF INTEREST AT 12% AS DIRECTED BY LD. CIT (A). WITH THE ABOVE DIRE CTIONS WE ARE INCLINED TO SET ASIDE THIS ISSUE BACK TO LD. AO REC ONSIDERATION ON THE BASIS OF THE EVIDENCES TENDERED BY ASSESSEE. 16. ACCORDINGLY THE GROUNDS RAISED BY ASSESSEE STAN DS ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16/04/2 018. SD/- SD/- (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16 TH APRIL, 2018 BINITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES 7 ITA NO. 5791.DEL.2014 (IMPULSE MARKETING) S.NO. DETAILS DATE 1 DRAFT DICTATED ON 13 .04 .201 8 2 DRAFT PLACED BEFORE AUTHOR 13.04.2018 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON 16.04.2018 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE A.R. 10 DATE OF DISPATCH OF ORDER