SHRI SUMIT CHANDOK, Bhopal V. THE ACIT-2(1), Bhopal

ITA 622/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5309 (ITAT-INDORE)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 13-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: N D PATWA
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER SHRI SUMIT CHANDOK, BHOPAL .. ./ PAN: AGMPC6881B VS. ACIT, 2(1), BHOPAL. / APPELLANT / RESPONDENT / APPELLANT BY SHRI ASHISH GOYAL AND SHRI N. D. PATWA, ADV. / RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 14.12.2016 DATE OF PRONOUNCEMENT 20.12.2016 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-31, NEW DEL HI, CAMP BHOPAL [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED .. . / I.T.A. NO. 622/IND/2016 %' ' / ASSESSMENT YEAR: 2011-12 I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 2 OF 8 16.03.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12 AS AGAINST APPEAL DECIDED IN ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT DATED 26.11.2013 OF ACIT, 2(1), BHOPAL [HEREINAFTER REFERRED TO AS THE AO]. 2. GROUND NOS. 1 & 2 RELATE TO SUSTAINING THE ADDITION OF RS. 2,75,498/- MADE BY THE AO ON ACCOUNT OF DISALL OWANCE OF INTEREST CLAIMED IN THE PROFIT AND LOSS ACCOUNT. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS RUNNING PROPRIETARY BUSINESS OF CONSTRUCTION IN THE NAME OF M/S. SHIVA CONSTRUCTION. IT WAS NOTICED FROM THE AUD ITED BALANCE SHEET THAT THE ASSESSEE HAS GIVEN LOANS/ADV ANCES AMOUNTING TO RS. 67,05,460/- TO SHRI P.S.CHANDOK AS INTEREST FREE LOAN. THE ASSESSEE HAS DEBITED INTEREST AMOUNT ING TO RS. 2,75,498/- IN PROFIT AND LOSS ACCOUNT. THEREFORE, T HE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY PROPORTIONATE AMOUNT OF INTEREST AS PER PREVAILING MARKET RATE SHOULD NOT B E DISALLOWED OUT OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSE E THAT THE SAME HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. THE AO FURTHER NOTICED THAT TH E INTEREST I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 3 OF 8 BEARING FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE FO R GIVING INTEREST FREE LOANS/ADVANCES TO THE FAMILY CONCERN OF THE ASSESSEE. IF THE ASSESSEE HAD SURPLUS FUND TO GIVE INTEREST FREE ADVANCES/LOANS TO ANOTHER PARTY, THEN THERE WAS NO N EED TO BORROW THE MONEY FROM THE MARKET ON INTEREST. IN VIE W OF THE SAME, EQUIVALENT AMOUNT @ 12 % ON LOANS AND ADVANCE S GIVEN OF RS. 67,05,460/- I.E. RS. 8,04,655/- IS NOT ALLOW ABLE IN THE CASE OF THE ASSESSEE. HOWEVER, IN THE CASE OF INTE REST EXPENSES OF RS. 2,75,498/- CLAIMED BY THE ASSESSEE WAS DISAL LOWED. 4. AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE HAS FILED THE APPEAL BEFORE THE CIT(A). 5. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAD P AID INTEREST @ 12 % TO THE LENDERS FROM WHOM IT HAD BORR OWED FUNDS, WHEREAS AT THE SAME TIME IT HAD ADVANCED INTE REST FREE LOANS TO THE FAMILY MEMBERS. THE ARGUMENT OF THE AS SESSEE THAT THE LOAN WAS GIVEN OUT OF SURPLUS FUND AND FOR BUSINESS PURPOSE WAS NOT FOUND TENABLE AS NONE OF THE ARGUMEN TS HAVE BEEN SUBSTANTIATED WITH ANY DOCUMENTARY EVIDENCE. TH E ASSESSEE HAS SHOWN AVAILABILITY OF NON INTEREST BEAR ING FUNDS I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 4 OF 8 BUT HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE SAME AND THE INTEREST FREE LOANS/ADVANCES. THE LD. CIT(A) FURTHE R OBSERVED THAT INTEREST BEARING AND INTEREST FREE FUNDS WHEN R EACHED THE CORPUS OF THE ASSESSEE, THEY LOSE THEIR IDENTITY, H ENCE THE ONUS IS UPON HIM TO SHOW WITH DOCUMENTARY EVIDENCE THAT TH E INTEREST FREE LOANS/ADVANCE ACTUALLY FLEW OUT OF INT EREST FREE FUNDS. THE LD. CIT(A) FURTHER NOTED THAT THE CASE O F DALMIA CEMENT LIMITED, 288 ITR 9 (S.C.) (ST. 34,35), IS NO T APPLICABLE TO THE PRESENT FACTS OF THE CASE AS IT IS SEEN THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN TH E EXPENDITURE AND THE BUSINESS. HOWEVER, THE RATIO O F THE DECISION IN THE CASE OF UPPER INDIA PUBLISHING HOUS E (P) LTD., 117 ITR 569 , CONTAINER FLOUR MILLS, 314 ITR 001, M OFFUSSIL WAREHOUSING AND TRADING CO.LTD., 238 ITR 867, WERE FOUND TO BE CLEARLY APPLICABLE TO THE CASE OF THE ASSESSEE. IN VIEW OF THE MATTER, THE LD. CIT(A) HAS CONFIRMED THE FINDINGS O F THE AO. 6. STILL NOT SATISFIED WITH THE FINDINGS OF THE LD. CIT (A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL. I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 5 OF 8 7. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AS CAPI TAL AND RESERVES AMOUNTING TO RS. 28,83,981/- AND NON INTER EST BEARING UNSECURED LOAN OF RS. 50,000/-. HENCE, IN V IEW OF THE DECISION IN THE CASE OF CIT VS. R. D. JOSHI & COMPA NY, 251 ITR 541 (M.P) AND CIT VS. RELIANCE UTILITY, 178 TAX MAN 135 (BOM). IT WAS CONTENDED THAT THERE ARE FUNDS AVAILAB LE BOTH INTEREST FREE AND OVER DRAFT AND/OR THE LOANS ARE T AKEN THEN A PRESUMPTION WOULD ARISE THAT THE INVESTMENT WOULD B E OUT OF INTEREST FREE FUNDS.. 8. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN THE BIFURCATION OF CAPITAL FUNDS OF RS. 2.88 CRORES AS TO IN WHAT FORM THEY ARE APPEARING IN THE BALANCE SHEET AND TH EY MIGHT HAVE BEEN INVESTED IN THE ASSETS. AS SUCH THERE IS NO INTEREST FREE FUNDS AS CLAIMED BY THE ASSESSEE ARE AVAILABLE . FURTHER, THE ASSESSEE HAS ADVANCED LOAN OF RS. 67.05 CRORES TO HIS RELATIVES SHRI P. S. CHANDOK WITH WHOM THE ASSESSEE H AS NO BUSINESS CONNECTION. THEREFORE, IT CANNOT BE SAID T HAT THE I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 6 OF 8 LOANS AND ADVANCES GIVEN AS INTEREST FREE FUNDS WER E FOR THE PURPOSE OF ANY BUSINESS CONNECTION. FURTHER, THE AS SESSEE HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST FREE LOANS/ADVANCES AND INTEREST FREE FUNDS AVAILABLE WIT H ANY DOCUMENTARY EVIDENCE BEFORE THE AO OR CIT(A). THERE FORE, THE LD. SR. DEPARTMENTAL REPRESENTATIVE HAS VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 9. WE HAVE CONSIDERED THE FACTS AND MATERIAL ON RECORD AND RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HA S PAID INTEREST @ 12% TO THE LENDERS FROM WHOM IT HAD BORRO WED FUNDS, WHEREAS AT THE SAME TIME IT HAD ADVANCED INTE REST FREE LOANS AMOUNTING TO RS. 67,05,460/- TO SHRI P. S. CH ANDOK, A FAMILY MEMBER, WITH WHOM THE ASSESSEE HAS NO BUSINESS CONNECTION. IT IS ALSO SEEN THAT THE ASSESSEE HAS C APITAL BALANCE OF RS. 2.88 CRORES. HOWEVER, THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE SAID FUNDS AND THE INTEREST FREE LOAN ADVANCES WITH ANY DOCUMENTARY EVIDENCE. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE TO ESTABLISH TH E NEXUS, WE TEND TO BELIEVE THE SUBMISSION OF THE LD. AUTHORI ZED I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 7 OF 8 REPRESENTATIVE OF THE ASSESSEE THAT THE CAPITAL AND RESERVES AVAILABLE OR MIGHT HAVE BEEN INVESTED IN THE FIXED ASSETS AND INVESTMENT AND THERE HAVE BEEN NO SURPLUS BALANCE A S INTEREST FREE AMOUNT, OUT OF WHICH THE ASSESSEE COULD ADVANCE INTEREST PAID TO LOANS TO HIS FAMILY MEMBERS. WE ARE ALSO OF THE VIEW WHEN INTEREST FREE FUNDS REACHES TO THE CORPUS OF TH E ASSESSEE, THEY LOSE THEIR IDENTITY. THEREFORE, THE ONUS IS CA ST UPON THE ASSESSEE TO PROVE WITH DOCUMENTARY EVIDENCE THAT THE INTEREST FREE LOANS ARE ADVANCED ACTUALLY OUT OF IN TEREST FREE FUNDS AT HIS DISPOSAL. THEREFORE, THE CASE LAWS AS R ELIED UPON BY THE LD. CIT(A) AS DISCUSSED ABOVE (SUPRA) ARE V ERY MUCH APPLICABLE TO THE PRESENT FACTS OF THE CASE. THE LD . COUNSEL FOR THE ASSESSEE HAS CITED TWO DECISIONS AS REFERRED TO ABOVE, IN SUPPORT OF HIS CLAIM, BUT THERE CANNOT BE PRECEDENC E ON FACTS. SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE INTEREST FREE FUNDS WERE ADVANCED OUT OF INTEREST FREE FUNDS AVAI LABLE HAS NOT BEEN ESTABLISHED, THEREFORE, CASE LAWS CITED BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE ON PRE SENT FACTS. CONSIDERING THE TOTALITY OF FACTS AND ALSO NON BUSI NESS I.T.A.NO. 622/IND/2016 A.Y.2011-12 SHRI SUMIT CHANDOK, BHOPAL. PAGE 8 OF 8 CONSIDERATION FOR ADVANCEMENT OF INTEREST FREE FUND S, WE ARE OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES A RE JUSTIFIED IN MAKING DISALLOWANCE OF RS. 2,75,498/- TOWARDS PROPORTIONATE INTEREST OF LOANS AND ADVANCES. ACCOR DINGLY, GROUND NOS. 1 & 2 OF THE APPEAL ARE DISMISSED. 10. GROUND NO. 3 RELATES TO INITIATION OF PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961, AGAINST WHICH NO APPEAL LIES. THEREFORE, THE BEING PRE-MATURED IS TREATED A S DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 20 TH DECEMBER, 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 20 TH DECEMBER, 2016. CPU* 16.19