R. NATWARLAL PAREKH, MUMBAI V. ITO-15(1)(4), MUMBAI

ITA 6143/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3435 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH SONKAR
• Assessee Lawyers: B P PUROHIT
• Keywords: Depreciation; Notional interest
• Section: 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . !' #$%& , !' () ! BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO. 6143/MUM/2011 ( * * * * / ASSESSMENT YEAR : 2006-07 SHRI R. NATVARLAL PAREKH, 55/6 RAJBAUG ESTATE,1 ST FLOOR, TAMBAKANTA, MUMBAI-400 003 / VS. THE ITO 15(1)(4), MUMBAI )+ !' ./ ,- ./PAN/GIR NO. : AAFFR 8461H ( +. /APPELLANT ) .. ( /0+. / RESPONDENT ) +. 1 ! / APPELLANT BY: SHRI B.P. PUROHIT /0+. 2 1 ! / RESPONDENT BY : SHRI PEEYUSH SONKAR 2 3' / DATE OF HEARING : 30.5.2013 45* 2 3' / DATE OF PRONOUNCEMENT : 30.5.2013 (!6 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-26, MUMBAI DT. 3.6.2011 PERTAINING TO ASSESS MENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1 RELATES TO DISALLOWANCE OF INTEREST TO THE TU NE OF RS. 5,51,667/-. 3. THE BUSINESS OF THE ASSESSEE FIRM IS YARN COMMIS SION AGENT AND TRADING IN SECURITIES. DURING THE COURSE OF THE SC RUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED INTEREST OF RS. 9,22,268/- IN THE PROFIT AND LOSS A CCOUNT. ON PERUSING THE INTEREST ACCOUNT, THE AO OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF ITA NO.6143/M/2011 2 RS. 22,60,273/- AND INTEREST RECEIVED AT RS. 13,38, 005/-. ON FURTHER SCRUTINY OF THE BALANCE SHEET, THE AO NOTICED THAT THE ASSESSEE HAS GIVEN LOANS AND ADVANCES OF RS. 99.82.260/- WHICH COMPRIS ES OF LOAN OF RS. 15,00,000/- TO RECOLENE SYNTEX PVT. LTD. AND RS. 37 ,00,000/- TO SHRI RAMESHCHANDRA JAIN. THE AO FOUND THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON BOTH THESE COUNTS. THE AO SOUGHT CLARI FICATION FROM THE ASSESSEE WHETHER THESE ADVANCES ARE INTEREST FREE O R INTEREST BEARING. 3.1. THE ASSESSEE FILED A REPLY EXPLAINING THAT AD VANCE OF RS. 15,00,000/- TO RECOLENE SYNTEX PVT. LTD. IS NOT IN TEREST FREE . INTEREST AT THE RATE OF 12% AMOUNTING TO RS. 33,667/- IS RECEIV ABLE FROM THE SAID PARTY. SINCE THE SAID PARTY ACKNOWLEDGED THE INTER EST AFTER 31 ST MARCH, 2006, THE SAME HAS BEEN ACCOUNTED FOR IN THE SUCCEE DING YEAR. THIS EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FRO M THE AO WHO WAS OF THE OPINION THAT SINCE THE METHOD OF ACCOUNTING OF THE ASSESSEE IS MERCANTILE, THEREFORE INTEREST ACCRUED ON ADVANCE T O M/S. RECOLENE SYNTEX PVT. LTD. SHOULD HAVE BEEN TAKEN INTO ACCOUN T DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE AO ADDED RS . 33,667/- AS INCOME FOR THE YEAR UNDER CONSIDERATION. 3.2. REGARDING ADVANCE OF RS. 37 LAKHS TO SHRI RAME SHCHANDRA JAIN, IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID ADVANCE HAS BEEN GIVEN FOR BUSINESS PURPOSE. IT WAS FURTHER EXPLAINED THAT SH RI RAMESHCHANDRA JAIN IS THE MAIN DIRECTOR OF THE COMPANY WHO IS A MAJOR CUSTOMER OF THE COMPANY THEREFORE THE ADVANCE OF RS. 37,00,000/- HA S BEEN GIVEN INTEREST FREE. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS ADVANCED RS. 37 LAKHS OUT OF INTEREST BEARING LOANS THEREFORE INTER EST AT THE RATE OF 14% DESERVES TO BE CHARGED ON ADVANCE OF RS. 37 LAKHS T O SHRI ITA NO.6143/M/2011 3 RAMESHCHANDRA JAIN ACCORDINGLY THE AO MADE AN ADDIT ION OF RS. 5,18,000/-. 4. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. SO F AR AS INTEREST OF RS. 33,667/- IS CONCERNED, WE FIND THAT THE ASSESSEE HI MSELF HAS ADMITTED THAT THIS INTEREST HAS BEEN ACCRUED TO THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION THOUGH ACKNOWLEDGED BY THE OTHER PART Y AFTER MARCH, 2006. BE THAT AS IT MAY , AS THE ASSESSEE IS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING, IT IS INCUMBENT UPON THE ASSESSEE TO SH OW ALL THE INCOME EARNED DURING THE YEAR UNDER CONSIDERATION WHETHER RECEIVED OR NOT. THEREFORE, ADDITION OF RS. 33,667/- IS CONFIRMED. 6. SO FAR AS INTEREST ON ACCOUNT OF ADVANCE TO SHRI RAMESHCHANDRA JAIN IS CONCERNED, WE FIND THAT THE SIMILAR MATTER WAS CONSIDERED DURING THE ASSESSMENT YEAR 2003-04 WHEN NO INTEREST WAS CH ARGED AND THE CIT INVOKING HIS POWER U/S. 263 SOUGHT TO REVISE THE AS SESSMENT OF A.Y. 2003-04 WHICH IS EVIDENT FROM THE NOTICE EXHIBITED AT PAGE-8 OF THE PAPER BOOK. HOWEVER, SUBSEQUENT TO THE ISSUE OF NOTICE, THE CIT DROPPED THE PROCEEDINGS U/S. 263 AS IS EVIDENT FROM THE ORDER E XHIBITED AT PAGE-26 OF THE PAPER BOOK. CONSIDERING THESE FACTS, IT IS APP ARENT THAT THE ADVANCE HAS BEEN GIVEN IN EARLIER YEARS. THEREFORE WE DO N OT FIND ANY REASON FOR CHARGING NOTIONAL INTEREST ON THIS COUNT. ACCORDIN GLY, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 5,18,000/- ON ACCOUNT OF INTEREST ON ADVANCE TO SHRI RAMESHCHANDRA JAIN. GROUND NO. 1 IS PARTLY ALLOWED. ITA NO.6143/M/2011 4 7. GROUND NO. 2 RELATES TO THE ADHOC DISALLOWANCE O F RS. 23,969/- ON MOTOR CAR AND CONVEYANCE EXPENSES. 8. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT TH E ASSESSEE HAS CLAIMED MOTOR CAR EXPENSES AT RS. 70,468/-, MOTOR C AR DEPRECIATION AT RS. 1,25,025/- AND CONVEYANCE EXPENSES AT RS. 44,194/- TOTALING TO RS. 2,39,687/-. THE AO WAS OF THE FIRM BELIEF THAT PER SONAL ELEMENT CANNOT BE RULED OUT AND ACCORDINGLY DISALLOWED 20% OF THE AGGREGATE EXPENSES AND MADE AN ADDITION OF RS. 47,937/-. 9. THE MATTER WAS AGITATED BEFORE THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) REDUCED THE DISALLOWANCE FROM 20% TO 10%. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE COU LD NOT SUBSTANTIATE HIS CLAIM NOR THE LD. COUNSEL COULD DENY THE PERSON AL ELEMENT INVOLVED IN THESE EXPENSES. WE FIND THAT THE LD. CIT(A) HAS REDUCED DISALLOWANCE FROM 20% TO 10% OF SUCH EXPENSES. THEREFORE, WE DO NOT FIND ANY REASON TO TAMPER WITH THE FINDINGS OF THE LD. CIT(A ). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.5.2013 . (!6 2 5* '! 7 8( 9 30.5.2013 5 2 : SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) /PRESIDENT !' () / ACCOUNTANT MEMBER MUMBAI; 8( DATED 30.5.2013 . . ./ RJ , SR. PS ITA NO.6143/M/2011 5 (!6 (!6 (!6 (!6 2 22 2 /3# /3# /3# /3# ;!#*3 ;!#*3 ;!#*3 ;!#*3 / COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. < ( ) / THE CIT(A)- 4. < / CIT 5. #=: /3 , , / DR, ITAT, MUMBAI 6. : > / GUARD FILE. (!6 (!6 (!6 (!6 / BY ORDER, 0#3 /3 //TRUE COPY// ? ?? ? / @ @ @ @ , , , , (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI