SHRI DEEP CHAND GARG, AJMER V. INCOME TAX OFFICER, Ajmer

ITA 62/JPR/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5398 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 18-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: DEVANG GARGIEYA ITP
• Section: 271(1)(c); 143(3); 244A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES, B JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA- @ ITA NO. 62/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2014-15 SHRI DEEP CHAND GARG, NEAR RADHA KISHAN TEMPLE, GANDHI NAGAR, AJMER CUKE VS. THE ITO, WARD-2(1), AJMER LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AFLPG8278C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. MAHENDRA GARGIEYA (ADV.) & SH. DEVAN G GARGIEYA (ITP) JKTLO DH VKSJ LS @ REVENUE BY : MS. CHANCHAL MEENA (ADDL. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 01/10/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 07/10/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), AJMER DATED 09.11.2018 WHEREIN THE ASSESSEE HAS TAK EN FOLLOWING GROUNDS OF APPEAL:- 1. THE IMPUGNED ADDITIONS AND DISALLOWANCE MADE IN THE ORDER U/S 143(3) OF THE ACT DATED 19.12.2016 ARE BAD IN LAW A ND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER RE ASONS AND HENCE THE SAME KINDLY BE DELETED. 2. THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE FA CTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF INTEREST RS. 7,98,40 1/- IN RESPECT OF INTEREST FREE ADVANCES GIVEN TO RELATED CONCERNS. T HE DISALLOWANCE SO MADE & CONFIRMED BY THE LD. CIT(A), IS CONTRARY TO THE PROVISIONS OF LAW AND FACTS HENCE, KINDLY BE DELETED IN FULL. ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 2 3. THE LD. AO FURTHER ERRED IN LAW AS WELL AS ON TH E FACTS OF THE CASE IN CHARGING INTEREST U/S 234A, 234B, 234C & 23 4D OF THE ACT AND AS ALSO IN WITHDRAWING INTEREST U/S 244A OF THE ACT . THE APPELLANT TOTALLY DENIES ITS LIABILITY OF CHARGING AND WITHDR AWAL OF ANY SUCH INTEREST. THE INTEREST SO CHARGED/WITHDRAWN, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE DELETED IN F ULL. 2. DURING THE COURSE OF HEARING, THE LD AR SUBMITTE D THAT THE APPELLANTS INTEREST FREE ADVANCE TO RELATIVES ARE TO THE TUNE OF RS. 66,00,347/-, AS COMPARED TO THE PREVIOUS YEAR OF RS 70,80,336/-. TH US LOANS AND ADVANCES TO RELATIVES HAVE DECREASED DURING THE YEA R. THE APPELLANT HAS NOT CHARGED ANY INTEREST ON THE LOANS AND ADVANCES AS THE APPELLANT HAS SUFFICIENT INTEREST FREE CAPITAL AND TRADE CREDITOR S FOR MAKING THE INTEREST FREE ADVANCE TO THE ABOVE PARTIES. THE LD. A.O. HAS NOT ESTABLISHED THE DIRECT NEXUS BETWEEN INTEREST BEARING LOAN TAKEN AN D INTEREST FREE LOAN GIVEN. 3. IT WAS SUBMITTED THAT THE ASSESSEE HAD CAPITAL O F RS 37,62,815/-. BESIDES THIS, THE ASSESSEE HAD INTEREST FREE TRADE CREDITORS(NET) OF RS 28,37,532/- AS CALCULATED BELOW, ON WHICH NO INTERE ST HAD BEEN PAID:- TOTAL LIABILITIES AS PER BALANCE SHEET 3,95,33, 213/- (EXCLUDING CAPITAL) TOTAL ASSETS AS PER BALANCE SHEET 3,66,95,681/- (EXCLUDING ADVANCE TO FAMILY MEMBERS) ___________ TRADE CREDITORS INTEREST FREE 28,37,5 32/- ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 3 IT WAS SUBMITTED THAT ON PERUSAL OF ABOVE FIGURES, IT IS CLEAR THAT THE ASSESSEE HAD CAPITAL OF RS. 37,62,815/- AND INTERES T FREE TRADE CREDITORS(NET) OF RS. 28,37,532/- TOTALING TO RS. 6 6,00,347/- WHICH THE ASSESSEE HAS GIVEN AS INTEREST FREE ADVANCE. AS SUC H, ADVANCE WAS MADE OUT OF ASSESSEE'S OWN FUNDS AND INTEREST FREE TRADE CREDITORS AND NOT FROM THE BORROWED FUNDS. 4. IT WAS FURTHER SUBMITTED THAT THE LD A.O. HAS ME NTIONED AT PAGE 4 POINT NO. 6 OF ASSESSMENT ORDER THAT THE ASSESSEE H AS INTEREST FREE CREDITORS ONLY OF RS 2,17,31,640/- AS AGAINST INTER EST FREE DEBTORS OF RS 3,28,14,935/-. HENCE THE INTEREST FREE DEBTORS OF R S 1,10,83,295/- ARE HIS OWN FAMILY MEMBERS. THE LD A.O. HAS NOT CONSIDERED THE ASSESSEE'S REPLY DATED 30.11.2016 PARA 7 WHEREIN IT WAS STATED THAT ACCOUNTS OF SHREE MAHAVIR INDUSTRIES, SHRI SWASTIK PIGMENTS AND VR IN DUSTRIES ARE CURRENT ACCOUNT IN NATURE. IN VIEW OF THE SUBMISSION MADE I N PARA (6) ABOVE, YOUR HONOUR IS REQUESTED NOT TO DISALLOW ANY PART OF THE INTEREST PAID BY THE ASSESSEE. COPY OF ASSESSEES LETTER DATED 30.11.20 16 IS PLACED AT PAGE NO. 4-5 OF PAPER BOOK. EVEN IF THE BALANCE OF CURRE NT ACCOUNT OF RELATED PARTIES OF RS. 1,16,23,549/- IS ALSO CONSIDERED, TH E POSITION WOULD BE AS UNDER:- TOTAL LIABILITIES AS PER BALANCE SHEET 3,95,33, 213/- (EXCLUDING CAPITAL) TOTAL ASSETS AS PER BALANCE SHEET 2,50,72,132/- (EXCLUDING ADVANCE TO FAMILY MEMBERS AND BALANCE OF CURRENT ACCOUNTS OF RELATED PARTIES) ___________ TRADE CREDITORS INTEREST FREE 1,44,61,0 81/- FROM THE ABOVE, IT MAY BE NOTED THAT THE ASSESSEE H AD CAPITAL OF RS. 37,62,815/- AND INTEREST FREE TRADE CREDITORS(N ET) OF RS.1,44,61,081/- ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 4 TOTALING TO RS. 1,82,23,896/- AND AS SUCH, ADVANCE OF RS.66,00,347/- AND BALANCE IN CURRENT ACCOUNT OF RELATED CONCERNS OF R S.1,16,23,549/- TOTALLING TO RS 1,82,23,896/- WAS MADE OUT OF ASSES SEE'S OWN FUNDS AND INTEREST FREE TRADE CREDITORS AND NOT FROM THE BORR OWED FUNDS. 5. IT WAS FURTHER SUBMITTED THAT WHERE THERE ARE MI XED FUNDS AND THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS THEN IT IS TO BE PRESUMED THAT THE PAYMENTS WERE MADE OUT OF THE ASSESSEE'S OWN FU NDS AND NOT OUT OF BORROWED FUNDS. IN SUPPORT, RELIANCE WAS PLACED ON KUSHALBAGH MARBLES (P) LTD VS JCIT (ITA NO. 104/JODH/2016) AND ACIT VS . RAM KISHAN VERMA (2012) 143 TTJ 1 (JP). 6. PER CONTRA, THE LD. DR TAKEN US THROUGH THE FIN DINGS OF THE AO WHICH READS AS UNDER:- THE SUBMISSION OF THE AR IS CONSIDERED BUT NOT ACC EPTED FOR THE FOLLOWING REASONS. 1. THE ASSESSEE HAS FORWARDED ADVANCES TOO TO HIS R ELATED CONCERNS OF RS 1,16,23,549/- WHICH ARE THERE THROUGHOUT THE YEA R. 2) THE AR HAS STATED THAT THE ASSESSEE COULD HAVE F ORWARDED THE INTEREST FREE LOAN TO THE EXTENT OF THE CAPITAL OF RS 37,62, 815/- , THERE IS A BIG QUESTION 'COULD HAVE'. THE ASSESSEE HAS NOT FORWARD ED THE SAME FROM HIS CAPITAL. HAD HE FORWARDED FROM HIS CA PITAL HIS CAPITAL WOULD HAVE WIPED OFF. 3) THE FACT FURTHER IS THAT THE CAPITAL HAS ALREADY BEEN INVESTED AND THEREFORE THE NEED TO BORROW FROM THE BANK AND OTHE R PARTIES AROSE. THE ASSESSEE HAS FIXED ASSET AND INVESTMENT OF NON INCO ME PAYING NATURE FROM HIS CAPITAL. ACTUALLY THE WHOLE OF BUSINESS IS BEIN G RUN FROM THE INTEREST BEARING LOANS. ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 5 4) THE AR HAS NOT TAKEN INTO CONSIDERATION THE ADVA NCES GIVEN TO THE RELATED CONCERNS. THE PICTURE DEPICTS THAT THE RELA TED CONCERNS ARE THRIVING AT THE COST OF ASSESSE'S BUSINESS, WHICH IS NOT ALLOWA BLE UNDER THE INCOME TAX ACT 1961. ONLY THE EXPENSES WHICH ARE RELATABLE TO THE BUSINESS ARE TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. 5) THE AR HAS STATED THAT THE ASSESSEE HAD INTEREST FREE TRADE CREDITS FROM WHICH HE COULD HAVE GIVEN THE LOANS INTEREST FREE. THE AR HAS NOT TAKEN INTO CONSIDERATION THAT THE ASSESSEE HAS INTEREST FREE T RADE DEBTORS AS WELL OF RS. 3,28,14,935/- OF WHICH THE MAJOR WERE HIS RELATED P ARTIES OF RS. 1,16,23,549/-. 6) THE INTEREST FREE CREDITORS ARE ONLY OF RS. 2,17 ,31,640/- AS AGAINST INTEREST FREE DEBTORS OF RS. 3,28,14,935/-. HENCE T HE INTEREST FREE DEBTORS OF RS. 1,10,83,295/- ARE HIS OWN FAMILY MEMBERS. HENCE IN VIEW OF ABOVE DISCUSSION IT IS HELD THAT T HE INTEREST TO THE EXTENT OF THE LOAN AND ADVANCES WHICH ARE GIVEN INTEREST FREE TO RELATED CONCERNS IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE WORKING OF THE INTEREST DISALLOWANCE IS AS UNDER:- LOANS AMOUNT BANK OD ACCOUNT 1,13,72, 634/- SECURED LOANS 11,41,830/- UNSECURED LOANS 5,25,31,175/- TOTAL 1,77,67,639/- THE ASSESSEE IS PAYING INTEREST OF RS. 21,49,236/- ON THE LOANS OF RS. 1,77,67,639/- HENCE THE PROPORTIONATE DISALLOWANCE OF INTEREST WORKS OUT TO RS. 7,98,401/- WHICH IS DISALLOWED AND ADDED TO THE INC OME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT 1961 IS INITIATED FOR CONCEALMENT OF INCOME SEPARATELY. ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 6 7. THE LD DR FURTHER TAKEN US THROUGH THE FINDINGS OF THE LD CIT(A) WHICH READ AS UNDER: 6.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, GROU NDS OF APPEAL AND WRITTEN SUBMISSION CAREFULLY. IT IS SEEN THAT THE A PPELLANT HAD GIVEN INTEREST FREE ADVANCES OF RS. 1,82,23,896/- (RS. 1,16,23,549 /- + RS. 66,00,347/-). THE APPELLANT HAS NOT FURNISHED ANY FUND FLOW STATE MENT TO SHOW THAT INTEREST FREE ADVANCES HAVE BEEN GIVEN OUT OF ASSES SEES OWN FUNDS OR OUT OF INTEREST FREE FUNDS AVAILABLE WITH HIM NEITHER THE APPELLANT HAS BEEN ABLE TO SHOW THAT THE INTEREST FREE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES. IN VIEW OF THESE FACTS, THE PROPORTIONATE DISALLOWANCE OF RS. 7,98,401/- MADE BY THE APPELLANT OUT OF THE TOTAL INTEREST PAID OF RS. 21,49,236/- IS HEREBY CONFIRMED. THE LD DR ACCORDINGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT HE HAS SUFFICIENT INTEREST FREE CAPITAL AND TRADE CREDITORS FOR MAKIN G THE INTEREST FREE ADVANCE TO HIS RELATIVES. ON THE OTHER HAND, THE CONTENTIO N OF THE REVENUE IS THAT THE CAPITAL EVEN THOUGH INTEREST FREE IS NOT AVAILA BLE FOR GIVING ADVANCE TO THE RELATIVES AS THE SAME STAND INVESTED IN FIXED A ND OTHER ASSETS. FURTHER, THE INTEREST FREE DEBTORS ARE MORE THAN INTEREST FR EE CREDITORS AND THUS, THE LATTER ARE NOT AVAILABLE FOR GIVING ADVANCE TO THE RELATIVES. IN OUR VIEW, WHAT IS RELEVANT TO DETERMINE IS THE AVAILABILITY OF CAP ITAL AT THE RELEVANT POINT OF TIME OF MAKING INDIVIDUAL ADVANCES TO THE RELATIVES AS REPRESENTED BY FREE CASH AND BANK BALANCE WHICH IS AVAILABLE TO BE UTIL IZED. WHERE AT THE RELEVANT POINT IN TIME WHEN THE INDIVIDUAL ADVANCES HAVE BEEN GIVEN BY THE ASSESSEE, THE LATTER HAS FREE CASH AND BANK BALANCE WHICH THE ASSESSEE IS IN A POSITION TO DEPLOY/UTILIZE AND THEN FINALLY DECID E TO UTILIZE THE SAME FOR ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 7 MAKING ADVANCE TO HIS RELATIVES, IT CAN BE SAID THA T THE ADVANCES TO RELATIVES HAVE BEEN MADE OUT OF INTEREST FREE CAPITAL. ON THE OTHER HAND, WHERE THE ASSESSEES CAPITAL REMAIN INVESTED IN FIXED AND OTH ER ASSETS, IT CANNOT BE SAID THAT THE ADVANCES TO RELATIVES HAVE BEEN MADE OUT O F INTEREST FREE CAPITAL AND A NATURAL COROLLARY OF THE SAME IS THAT SUCH AD VANCES HAVE BEEN MADE OUT OF INTEREST BEARING LOAN FUNDS. SIMILAR ANALOG Y APPLIES IN RESPECT OF INTEREST FREE TRADE CREDITORS AND EVEN IN CASE OF M IXED FUNDS WHERE AGAIN THE AVAILABILITY OF MIXED FUNDS AT THE RELEVANT POI NT IN TIME NEEDS TO BE DETERMINED. THE POSITION AS REFLECTED IN THE BALAN CE SHEET SHOWS THE POSITION AT THE YEAR END AND THEREFORE, DOESNT REF LECT THE POSITION OF INTEREST FREE CAPITAL AND TRADE CREDITORS OR FOR THAT MATTER , THE MIXED FUNDS WHICH IS AVAILABLE WITH THE ASSESSEE AS FREE CASH AND BANK B ALANCE AT THE RELEVANT POINT IN TIME OF MAKING THE INDIVIDUAL ADVANCES DUR ING THE YEAR. IN THE INSTANT CASE, WHERE WE LOOK AT THE POSITION OF CASH AND BANK BALANCE AS ON THE BALANCE SHEET DATE OF 31.03.2014, IT SHOWS CASH OF RS 8,495 AND BANK BALANCE OF RS 45,697/- AS COMPARED TO ADVANCES TO R ELATIVES TO THE TUNE OF RS 66,00,347/- AND THEREFORE, IT STANDS PROVED THAT THE POSITION AT THE BALANCE SHEET DATE IS NOT REFLECTIVE OF THE AVAILAB ILITY OF APPROPRIATE FREE FUNDS WHETHER IN FORM OF CAPITAL, TRADE CREDITORS, LOAN FUNDS WITH THE ASSESSEE FOR MAKING SUCH ADVANCES. FURTHER, THE AS SESSEE HAS CONTENDED THAT INTEREST FREE ADVANCE TO RELATIVES DURING THE YEAR ARE TO THE TUNE OF RS. 66,00,347/- AS COMPARED TO THE PREVIOUS YEAR OF RS 70,80,336/- AND THEREFORE, WHAT IS EQUALLY RELEV ANT TO DETERMINE IS THE AMOUNT WHICH WAS ADVANCED IN THE PREVIOUS YEAR AND FRESH ADVANCES/REPAYMENT DURING THE YEAR AND AVAILABILITY OF FREE CASH AND BANK BALANCE IN THE PREVIOUS YEAR AND CURRENT YEAR AT TH E RELEVANT POINT IN TIME OF MAKING SUCH ADVANCES. IN THIS REGARD, THE FINDINGS OF THE LD CIT(A) BECOMES RELEVANT WHERE HE RIGHTLY SAYS THAT A FUND FLOW STA TEMENT WILL REFLECT SUCH A POSITION OF INTEREST FREE FUNDS WHICH ARE AVAILABLE TO BE UTILIZED AND WHICH ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 8 THE ASSESSEE HAS FAILED TO FURNISH DURING THE APPEL LATE PROCEEDINGS BEFORE HIM. EVEN DURING THE COURSE OF PRESENT PROCEEDINGS , THE ASSESSEE HAS NOT FURNISHED ANY FUND FLOW STATEMENT AND THEREFORE, TH E SAID FINDINGS OF THE LD CIT(A) REMAIN UNCONTROVERTED AND WE ARE THUS NOT IN CLINED TO INTERFERE WITH THE SAME AND THUS, THE CONTENTIONS SO ADVANCED BY T HE LD AR CANNOT BE ACCEPTED AS THE SAME REMAIN UNSUBSTANTIATED. HOWEV ER, REGARDING THE CONTENTION OF THE LD AR THAT OTHER ADVANCES TO RELA TED CONCERNS TO THE TUNE OF RS 1,16,23,549 ARE IN NATURE OF TRADE DEBTORS AN D THE MATTER HAS NOT BEEN EXAMINED BY THE AO, THE MATTER IS SET-ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE SAID CLAIM AND WHERE, ON VE RIFICATION, IT IS FOUND THAT SUCH TRANSACTIONS ARE IN COURSE OF THE ASSESSEES B USINESS, THE SAME IS DIRECTED TO BE EXCLUDED WHILE WORKING OUT THE DISAL LOWANCE OF INTEREST. IN THE RESULT, THE GROUND NO. 2 IS DISPOSED OFF. 9. GROUND NO. 1 IS GENERAL IN NATURE, IT DOESNT RE QUIRE ANY SEPARATE ADJUDICATION AND IS HEREBY DISMISSED. 10. GROUND NO. 3 IS REGARDING LEVY OF INTEREST, THE SAME BEING CONSEQUENTIAL IN NATURE, THE SAME IS ALSO DISMISSED . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISPOS ED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 07/10/2020. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO. 62/JP/2018 SHRI DEEP CHAND GARG, AJMER VS. ITO, AJMER 9 TK;IQJ@ JAIPUR FNUKAD@ DATED:- 07/10/2020 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI DEEP CHAND GARG, AJMER 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD 2(1), AJMER 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 62/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR