Ashok Kumar Grover, Ghaziabad V. ITO WARD - 69(4), New Delhi

ITA 5809/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3985 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 02-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Commercial expediency; Set aside
• Section: 68; 20

Judgement Text

1 | Page IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.5809/Del/2019 [Assessment Year : 2015-16] Ashok Kumar Grover, Plot No.604, Sec-3, Vasundhra, Ghaziabad, Uttar Pradesh-201012. PAN-AAMPG7063R vs ITO, Ward-69(4), New Delhi. APPELLANT RESPONDENT Appellant by None Respondent by Shri Mrinal Kumar Das, Sr.DR Date of Hearing 19.09.2022 Date of Pronouncement 23.09.2022 ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2015- 16 is directed against the order of Ld. CIT(A)-21, New Delhi dated 06.05.2019. The assessee has raised following grounds of appeal:- 1. “That on the facts and circumstances of the case and in law, the Ld. C1T(A) has erred in upholding the addition of Rs. 20,00,000 and that the order passed by the Ld. C1T(A) is bad in law. 2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in understanding the facts & circumstances of the case and relied on non-applicable judicial precedents. 3. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in passing the order just based on surmises & conjectures and ignored the factual details submitted during assessment/appellate proceedings. 4. That on the facts and circumstances of the case and in law, the Ld.CIT (A) has erred in passing the order by raising doubt on "commercial expediency" of lender company and compliance/non- 2 | Page compliance of provisions under Companies Act 2013 by lender company. The Appellant craves leave to add, amend, alter, delete, rescind, forego or withdraw any of the above grounds of appeal either before or during the course of the proceedings before the Hon'ble Tribunal in the interest of the natural justice. The aforesaid grounds are mutually exclusive and without prejudice to each other.” 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. It is seen from the records that there is no representation on behalf of the assessee since 01.06.2022. Therefore, the appeal of the assessee is taken up for hearing in the absence of the assessee and being disposed off on the basis of material available on record. 3. The only effective ground raised by the assessee is against the holding of addition of Rs.20,00,000/- made by the Assessing Officer [“AO”] on account of unexplained unsecured loans. FACTS OF THE CASE 4. Facts giving rise to the present appeal are that the case of the assessee was selected for limited scrutiny to ascertain the source of investment in property. In response to the statutory notices, the Ld. Authorized representative of the assessee attended the proceedings and explained the source of investment. It was stated before the AO that the assessee had obtained unsecured loan from M/s. Sumanglam Realtech Pvt.Ltd. amounting to Rs.20,00,000/-. The AO carried out inquiry in respect of this unsecured loan and came to the conclusion that the lendor had no creditworthiness and the transaction was also found to be not genuine. Hence, he made addition of 3 | Page Rs.20,00,000/- and assessed the income of Rs.30,24,410/- against the declared income of Rs.10,24,410/-. 5. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, sustained the addition and dismissed the appeal of the assessee. 6. Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. 7. Ld. Sr. DR appearing on behalf of the Revenue, supported the orders of the authorities below and submitted that the AO is clearly pointed out that the lendor company namely, M/s. Sumanglam Realtech Pvt.Ltd. was not having creditworthiness and the amount was deposited in the bank account of the lendor company one day before. Therefore, the assessee could not prove the creditworthiness and genuineness of the transaction. He therefore, submitted that the finding of the authorities below may be confirmed. 8. I have heard Ld.Sr.DR and perused the material available on record and gone through the orders of the authorities below. I find that Ld.CIT(A) has decided the issue by observing as under:- 6.5. “From the facts on record, it is noted that Mr. Ashok Kumar Grover was not related in any official capacity with the above company nor having any business relation. In the statement recorded by the AO, Mr. Rahul Jain, Director of the Company, specifically stated that the appellant Mr. Ashok Kumar Grover is his family friend and loan has been given to him without interest and without any collateral to meet his personal financial needs. From the above Resolution, it is further noticed that no time period has been specified in the above Resolution with regard to repaving the loan and the appellant has 4 | Page been given liberty to repay the same as and when the funds are available with him. In this connection, it is pertinent to mention here that the loan was advanced during the period 2015-16 and the same is still outstanding as on 31.03.2019. Since the advancement of the loan not a single pie has been returned back by the appellant, which raises serious doubts about the intention of repayment of alleged loan. It would not be out of place to mention here that it is not feasible to advance such a huge amount of Rs. 20 lakh to a person who is having only personal relations with the Director of the Company and in no way connected or having any nexus with the transactions / affairs of the company, for unlimited, period of time without collateral or without any interest. It is not acceptable that genuineness of the transaction is proved simply relying on the fact that the same is recorded in the Books of Account and the same has been made through banking channel. 6.6 As per submission of the appellant, it is noticed that attempt has been made to prove the creditworthiness of the company advancing loan relying on the fact that the company is having share capital of Rs. 22,80,000/-, reserve and surplus to the tune of Rs. 95,70,201/- and turnover of Rs. 20,15,39,652/-, which is suffice to lend an amount of Rs. 20 lakhs. Though above factual position has been explained in the written submissions but audited copies of account of the financial of the company, corroborating the above facts has not been provided with for cross verification. However, considering the submissions of the appellant the fact cannot be denied that the amount of loan advanced by the company is almost equal to the total share capital of the company, which is an alarming fact as far as exposure of the total share capital given by the company to an unrelated entity without having any collateral and without interest for an unlimited period of time. It is further noticed that as per the submission of the AR the above company had CC limit of Rs. 1,31,31,950/-, which clearly indicates that the company must have been paying interest to the nationalized banks against above CC limit whereas no interest is being charged on the advancement of 5 | Page loan, which is against the business motive of the company. As far as breakup of reserve and surplus is concerned, the same has not been provided either before the AO or during the appellate proceedings. Hence from the same the exact nature of the above reserve and surplus remains unexplained. 6.7 Considering the factual matrix of the case, it is pertinent to mention here that ‘loan’ has not been defined in Income tax Act, therefore, reliance is placed on definition as defined in Oxford English Dictionary as per which “a thing lent; something the use of which is allowed for a time, on the understanding that it shall be returned or an equivalent given, a sum of money lent on these conditions and usually with interest. However considering the fact on record, it is inferred that in the present case as per Resolution passed by the Board of Directors of the company, no time-frame has been defined / fixed for the appellant to repay the loan. Liberty has been granted to the appellant to repay the loan as and when the funds are available with him. Though Resolution has been passed by the company but there is no confirmation on the part of the appellant to repay the loan within any time frame. It is also worth mentioning that lending company has advanced interest free loan to the appellant whereas it has interest bearing liability in the form of CC limit of Rs. 1,31,31,950/-, thus advancing of interest free loan is quite peculiar in such circumstances. It is also not clear as to how the loan has been advanced by the company - i.e. whether from interest bearing funds or interest-free funds. Further, it is apparent that the appellant has no business connection/nexus with the above company, therefore, advancing of such a huge loan without any security for an indefinite period of time is found to be not-feasible as per the normal business module. 6.8 Considering the factual matrix of the case, reliance has been placed on the decision of Hon’ble Supreme Court of India in the case S. A. Builders Ltd vs Commissioner of Income Tax in Appeal (civil) 5811 of 2006 where the subject matter was advancement of borrowed funds 6 | Page and allowance of claim of deduction u/s 36(1)(iii) and the Hon’ble Court has held as under: “.... The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but vet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. No doubt, as held in Madhav Prasad Jantia vs. CIT (supra), if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under Section 36(1)(iii) of the Act. In Madhav Prasad's case (supra), the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named. It was held by this Court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. Thus, the ratio of Madhav Prasad Jantia's case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under Section 36(1)(iii) of the Act. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. It has been repeatedly held by this Court that the expression "for the purpose of business" is wider in scope than the expression " for the purpose of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140, CIT vs. Birla Cotton Spinning & Weaving Mills Ltd (1971) 82 ITR 166 etc. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for 7 | Page commercial expediency, but that has not been done. It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant Is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. Vs. Commissioner of Wealth-Tax (1994) in which it was held that deduction under Section 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd (supra) that the interest was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. From the ratio of above judicial pronouncement, it is apparently clear that for making even an advance the principle of ‘commercial expediency’ is a must whereas in the present case the lending company has lent an amount equal to its total paid up capital without having any business links for an indefinite period of time without any interest and collateral, which is against the principle of business / commercial expediency. 6.9 The company from which appellant has claimed to have obtained loan is a private limited company, therefore, it is bound to abide by 8 | Page the provisions of Companies Act, 2013 and for giving any loan, it is governed by the provisions of section 186 of the Companies Act. However as per details available on record, it is not established that the company in question has complied with these provisions before giving loan to the appellant. Thus in context of the above facts on record the genuineness of the transaction and creditworthiness of the lending company remains unexplained, for the reasons discussed above. Thus I am of considered view that no interference is called for to the addition made by the AO as appellant has failed to establish the genuineness of the transaction and creditworthiness of the lender, which is a pre-condition to discharge onus lies on the appellant as per the provisions of section 68 of the Act. Accordingly the ground of appeal taken by the appellant is dismissed.” 9. The above finding of Ld.CIT(A) is well-reasoned. The assessee could not rebut the finding of Ld.CIT(A) by placing any contrary material on record. Therefore, I do not see any reason to disturb the findings of Ld.CIT(A), the same is hereby affirmed. Thus, grounds raised by the assessee are dismissed. 10. In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 23 rd September, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI