M/s. Alkesh Tacker (HUF), New Delhi V. ACIT, New Delhi

ITA 6040/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6856 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 20-09-2016
• Assessment Year: misc
• Appeal Filed On: 06-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH CHANDER DUBEY
• Keywords: Business expenditure
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-2, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 6040/DEL/2015 A.Y. 2009-10 M/S ALKESH TACKER (HUF) 6, TILAK MARG, B-26, SAGAR APARTMENTS, NEW DELHI 110 001 (PAN: AAGHA8675K) VS. ACIT, CIRCLE 52(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAJESH MALHOTRA, FCA DEPARTMENT BY : SH. UMESH CHANDER DUBEY, SR. DR ORDER PER H.S. SIDHU, JM ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER DATED 1 6.9.2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)18 , NEW DELHI PERTAINING TO ASSESSMENT YEAR 2009-10 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LA W THE AUTHORITIES BELOW HAVE ERRED IN REOPENING THE CASE U/S. 147 OF THE INCOME TAX ACT, 1961 AND NOTICE U/S. 148 IS BAD AT LAW, MISCONCEIVED AND UNJUSTIFIED. THEREFORE, I T SHOULD BE QUASHED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-18 HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY LD. ACIT, CIRCLE52(1) ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS. 2,10,000/. THE ACTION OF THE AUTHORITIES BELOW IS WRONG ILLEGAL, MISCONCEIVED, UNJUSTIFIED AND BAD AT LAW. THEREFORE, IT SHOULD BE QUASHED. ITA NO.6040/DEL/2015 2 3. THE APPELLANT CRAVES THE RIGHT TO ADD/ ALTER/ D ELETE ALL OR ANY OF THE GROUND OF APPEAL AT THE TIME OF HEARIN G. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RE TURN OF INCOME SHOWING GROSS TOTAL INCOME OF RS. 17,78,715/- AND TOTAL INCOME OF RS. 16,68,215/- ON 30.9.2009 AND THE SAME WAS PROCESSED U/ S. 143(1) OF THE INCOME TAX ACT, 1961 ON THE SAME INCOME. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 147/143(3) OF THE I.T. ACT, 1961 V IDE ORDER DATED 24.12.2014 AT AN INCOME OF RS. 18,88,720/-, WHEREIN THE AO HAS DISALLOWED INTEREST EXPENSES OF RS. 2,10,000/- ON ACCOUNT OF NON-BUSI NESS ADVANCES. IN RESPONSE TO NOTICE U/S. 148 OF THE I.T. ACT, 1961 THE ASSE SSEE HAS REQUESTED TO CONSIDER ORIGINAL RETURN FILED ON 30.9.2009 FOR TH E SAME. DURING THE ASSESSMENT PROCEEDINGS THE AO HAS ASKED REGARDING DISALLOW ANCE OF INTEREST EXPENSES ON NON-BUSINESS ADVANCE. IN RESPONSE THERETO THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAS OWN FUND S (CAPITAL BALANCE OF RS. 37.14 LACS) AGAINST THE ADVANCE OF RS. 14.00 LACS. IN ADDITION TO THAT THE ASSESSEE HAS ALSO RECEIVED THE INTEREST FREE UN-SECURE D OF RS. 95.78 LACS FROM MEMBER OF HUF. 4. AGAINST THE ASSESSMENT ORDER DATED 24.12.2014, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATE D 16.9.2015 HAS DISMISSED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. DURING THE HEARING, LD. COUNSEL OF THE ASSESSEE HAS F ILED AN APPLICATION FOR WITHDRAWAL OF GROUND NO. 1 AND REQU ESTED THAT SAME MAY BE TREATED AS NOT PRESSED. 6.1 WITH REGARD TO GROUND NO. 2 RELATING TO DISALL OWANCE ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS. 2,10,000/- IS CONCERNED , HE STATED THAT ITA NO.6040/DEL/2015 3 DURING THE FINANCIAL YEAR THE ASSESSEE HAS PAID INTEREST ON LOAN RS. 20.94 LACS INCLUDING INTEREST ON CAR LOAN. THE ASSESSEE HAS TA KEN FRESH UNSECURED LOAN FROM DIFFERENT BANK AND INSTITUTIONS DU RING THE FINANCIAL YEAR 2008-09 FOR FINANCIAL ARRANGEMENT TO RUN THE BUSINESS. THE AMOUNT OF UNSECURED LOANS HAS BEEN UTILIZED FOR THE BUSINESS PURPOSE. DURING THE FINANCIAL YEAR 2008-2009 THE ASSESSEE HAS NOT MADE ANY FR ESH INVESTMENT. THE ADDITION IN THE INVESTMENT IS DUE TO CAPITALIZATI ON OF INTEREST WHICH HAS BEEN PAID ON THE LOAN TAKEN FOR THE INVESTMENT. HE FU RTHER STATED THAT DURING THE FINANCIAL ENDED 31.03.2009 THE ASSESSEE HAS CLA IM INTEREST EXPENSES OF RS.20.94 LAC ON UNSECURED LOAN AS BUSINESS EXPEN DITURE. THESE LOANS ARE EXCLUSIVELY USED FOR THE BUSINESS PURPOSES. IN EA RLIER YEARS THE ASSESSEE HAS ALREADY ADDED THE INTEREST ON NON BUSINESS A DVANCE OF RS. 14.00 LAC. BUT DURING FINANCIAL YEAR 2008-2009 THE ASSE SSEE HAS NOT ADDED THE INTEREST ON NON BUSINESS ADVANCES. IT WAS FURTHER STA TED BY THE LD. COUNSEL OF THE ASSESSEE THAT AS IN THE BEGINNING OF THE FINANCIAL YEAR THE ASSESSEE HAS OWN FUNDS AS CAPITAL OF RS. 28.66 LACS AND THE END OF THE YEAR RS. 37.14 LACS AFTER ADD BACK THE PROFIT AND DRAWING FO R THE YEAR. IT WAS THE FURTHER CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT DURING THE FINANCIAL YEAR THE ASSESSEE HAS RAISED INTEREST FREE UNSECUR ED LOAN FROM MEMBER OF HUF AMOUNTING TO RS. 95.61 LACS, AND OUT OF A SSESSEE'S OWN FUND ON WHICH NO INTEREST HAS BEEN PAID IS ABOUT RS. 132.75 LACS (CLOSING CAPITAL BALANCE PLUS LOAN FROM MEMBER OF HUF) A MEAGER AMOUNT OF RS. 14.00 LACS HAS BEEN GIVEN INTEREST FREE ADVANCE. DURING THE YEAR THE ASSESSEE HAS UTILIZED OF RS. 110.27 LACS (OPENING CAPITAL PLUS LOAN FROM MEMBER OF HUF LESS INTEREST FREE ADVANCE) IN THE BUSINESS ON THAT NO IN TEREST HAS BEEN CLAIMED AS EXPENDITURE AND THE PROFIT DERIVED FROM TH E BUSINESS HAS BEEN OFFERED FOR TAX. IN VIEW OF THE ABOVE, HE REQUESTED THAT DISALLOWANCE OF INTEREST ON NON-BUSINESS ADVANCES ARE NOT JUSTIFIED. IN ORDER TO SUPPORT THIS ABOVE CONTENTIONS, HE RELIED UPON THE DECISION OF THE C OORDINATE BENCH OF ITA NO.6040/DEL/2015 4 THE ITAT, AHMEDABAD IN THE CASE OF PARESH LALCHAND SHA H VS. ITO PASSED IN ITA NO. 3409/ADHD/2010 (AY 2007-08) VIDE ORDER DATE D 29.4.2013 IN WHICH SIMILAR AND IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIB UNAL IN FAVOUR OF THE ASSESSEE. HE ALSO RELIED UPON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. VS. CIT REPORTED IN 313 ITR 340 (BOMBAY) AND COPY OF JUDGMENT OF THE HONBLE GUJRAT HIGH COURT IN THE CASE OF KAJAL EXPORTS VS. CIT 49 TAXMANN.COM 217 (GU JRAT). IN THIS BEHALF, HE FILED THE COPIES OF AFORESAID JUDGEMENTS / ORDERS BEFORE US. 7. ON THE CONTRARY, LD. DR OPPOSED THE REQUEST OF THE LD. COUNSEL OF THE ASSESSEE AND RELIED UPON THE ORDERS OF THE AUTHORITIES BE LOW AND REQUESTED THAT THE SAME MAY BE UPHELD. 8. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT RECORDS AVAILABLE WITH ME, ESPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND THE CASE LAWS CITED BY THE LD. COUNSEL OF THE ASSESSEE. I FIND THAT LD. COUNSEL OF THE ASSESSEE HAS FILED AN APPLICATION PRAYING T HEREIN TO WITHDRAW THE GROUND NO. 1, THE SAME IS ACCEPTED AND THE GROUND N O. 1 IS ACCORDINGLY DISMISSED AS NOT PRESSED. 8.1 WITH REGARD TO GROUND NO. 2 RELATING TO DISALLOW ANCE ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS. 2,10,000/- IS CONCERNED , I FIND THAT THE ASSESSEE HAS TAKEN FRESH UNSECURED LOAN FROM DIFFERENT BAN K AND INSTITUTIONS DURING THE FINANCIAL YEAR 2008-09 FOR FI NANCIAL ARRANGEMENT TO RUN THE BUSINESS. THE AMOUNT OF UNSECURED LOANS HAS BEE N UTILIZED FOR THE BUSINESS PURPOSE. DURING THE FINANCIAL YEAR 2008-2009 TH E ASSESSEE HAS NOT MADE ANY FRESH INVESTMENT. THE ADDITION IN THE INVESTM ENT IS DUE TO CAPITALIZATION OF INTEREST WHICH HAS BEEN PAID ON THE L OAN TAKEN FOR THE INVESTMENT. DURING THE FINANCIAL ENDING I.E ON 31.0 3.2009 THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.20.94 LAC ON UNSECURED LO AN AS BUSINESS EXPENDITURE. THESE LOANS ARE EXCLUSIVELY USED FOR THE B USINESS PURPOSES. IN ITA NO.6040/DEL/2015 5 EARLIER YEARS THE ASSESSEE HAS ALREADY ADDED THE INTEREST ON NON BUSINESS ADVANCE OF RS. 14.00 LAC. BUT DURING FINANCIAL YEAR 20 08-2009 THE ASSESSEE HAS NOT ADDED THE INTEREST ON NON BUSINESS ADVANCES. IN T HE BEGINNING OF THE FINANCIAL YEAR THE ASSESSEE HAS OWN FUNDS AS CAPITAL O F RS. 28.66 LACS AND THE END OF THE YEAR RS. 37.14 LACS AFTER ADD BACK T HE PROFIT AND DRAWING FOR THE YEAR. DURING THE FINANCIAL YEAR THE ASSESSEE HA S RAISED INTEREST FREE UNSECURED LOAN FROM MEMBER OF HUF AMOUNTING TO RS. 95.6 1 LACS, AND OUT OF ASSESSEE'S OWN FUND ON WHICH NO INTEREST HAS BEEN PAID IS ABOUT RS. 132.75 LACS (CLOSING CAPITAL BALANCE PLUS LOAN FROM MEMBER OF HUF) A MEAGER AMOUNT OF RS. 14.00 LACS HAS BEEN GIVEN INTEREST FREE ADVANCE. IT WAS FOUND THAT DURING THE YEAR THE ASSESSEE HAS UTILIZED OF RS. 110.27 LACS (OPENING CAPITAL PLUS LOAN FROM MEMBER OF HUF LESS INTER EST FREE ADVANCE) IN THE BUSINESS ON THAT NO INTEREST HAS BEEN CLAIMED AS EXPEN DITURE AND THE PROFIT DERIVED FROM THE BUSINESS HAS BEEN OFFERED FOR TAX. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED VIEW THAT THAT DISALLOWA NCE OF INTEREST ON NON-BUSINESS ADVANCES ARE NOT JUSTIFIED HENCE, THE SAME A RE DELETED. MY AFORESAID VIEW IS FULLY SUPPORTED BY THE FOLLOWING JUD GMENTS:- A) HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. REPORTED IN 313 IT R 340 (BOM) WHEREIN IT HAS BEEN HELD AS UNDER:- 8. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PARTI ES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOUGH T TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDER FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE SHEET AS O N 31 ST MARCH, 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CONCERNED WITH THE BALANCE SHEET AS OF 31-3-1999. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31-3- ITA NO.6040/DEL/2015 6 2000. APART FROM THAT, THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET THAT THE BALANCE SHEET AS ON 31-3-1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILIZED FOR THE PURPOSE OF FI XED ASSETS. TO OUR MIND THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET WOULD NOT SHOW WHETHER SHARE HOLDERS FUNDS HAVE BEEN UTILIZED FOR INVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. 9. APART FROM THAT WE HAVE NOTED EARLIER THAT B OTH IN THE ORDER OF THE CIT (APPEALS) AS ALSO THE APPELLATE TRIB UNAL, A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST- FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM 1-4-1999. APART FRO M THAT IN TERMS OF THE BALANCE SHEET THERE WAS, A FURTHE R AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CROR ES OF SHARE CAPITAL. IN THIS CONTEXT, IN OUR OPINION, THE FIN DING OF FACT RECORDED BY CIT (APPEALS) AND ITAT AS TO AVAILABI LITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE . IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. 'S CASE (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. 'S CASE (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENC E ITA NO.6040/DEL/2015 7 AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROF ITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUN T FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABL E FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWER ED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD. 'S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED I N THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOU NT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE F UNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LO ANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT S WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUN DS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF F ACT BOTH BY THE CIT (APPEALS) AND ITAT. 11. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS N O MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. ITA NO.6040/DEL/2015 8 B) ITAT, AHMEDABAD IN THE CASE OF PARESH LALCHAND SHAH VS. ITO PASSED IN ITA NO. 3409/ADHD/2010 (AY 2007-08) VIDE ORDER DATED 29.4.2013 WHEREIN IT HAS BEEN HELD THAT IF FUNDS ARE AVAILABLE BOTH INTER EST FREE AND OVERDRAFT AND LOANS TAKEN, THEN A PRESUMPTION WOU LD ARISE THAT INVESTMENT OULD BE OUT OF INTEREST FREE FU ND GENERATED AVAILABLE OR WITH THE COMPANY, IF THE INTE REST FREE FUNDS SUFFICIENT TO MEET THE INVESTMENTS. 8.2. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RE SPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID, I DELETE THE A DDITION IN DISPUTE AND ACCORDINGLY DECIDE THE ISSUE IN DISPUTE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STAN DS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/10/2016. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE: 18/10/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY OR DER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES