Virender Kumar Gupta, Gurgaon V. ITO, Gurgaon

ITA 6293/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3603 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 07-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHAUDHURI
• Assessee Lawyers: P K KAMAL
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.6293/DEL/2016 ASSESSMENT YEARS 2013-14 VIRENDER KUMAR GUPTA, NAI ANAJ MANDI, FARRUKHNAGAR. PAN: ABTPG 0018L VS. INCOME TAX OFFICER, WARD-4(5), GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE(S) BY : S/SHRI GAUTAM JAIN, ADV. AND P.K. KAMAL, ADV. REVENUE BY : MS. BEDOBANI CHAUDHURI, D.R. / DATE OF HEARING : 20/04/2017 / DATE OF PRONOUNCEMENT: 25/04/2017 ORDER THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF LEARNED CIT(A)-I, GURGAON, VIDE ORDER DATED 14.10.2016 FOR THE ASSESS MENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 2.1 GROUND NO.4 IS GENERAL IN NATURE, THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. GROUNDS NO.1, 2 AND 3 RELATES TO ONE ISSUE, I.E., DISALLOWANCE U/S.36(1)(III) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS PAID INTEREST AMOUNTING TO RS.37,53,220/- TO THE BANK ON THE BORR OWED CAPITAL. IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DEBITED N ET INTEREST OF RS.33,87,491/- AND SHOWN THE INTEREST RECEIVED AMOU NTING TO RS.3,65,729/-. THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO TH E PERSONS REFERRED U/S.40A(2)(B) OF THE ACT FOR WHICH THE LIST HAS BEE N REPRODUCED BY THE ASSESSING OFFICER AT PAGE 2 OF HIS ORDER AND ACCORD INGLY THE INTEREST ITA NO.6293/DEL/2016 2 ATTRIBUTABLE TO SUCH ADVANCES @12% PER ANNUM WHICH WORKED OUT TO RS.21,30,898/- HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. 4. LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER BY HOLDING AS UNDER: 4.4 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS. THE APPELLANT HAS PRIMARILY RAISED TWO CONTENTIONS WITH REGARD TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. (I) MOST OF THE ADVANCES WERE GIVEN DURING THE YEAR OUT OF INTEREST FREE ADVANCES AND THEREFORE NO DISALLOWANCE ON THIS ACCO UNT IS CALLED FOR. (II) SOME OF THE ADVANCES WERE GIVEN IN THE EARLIER YEARS AND AS SUCH NO DISALLOWANCE CAN BE MADE WITH REGARD TO THE ADVANCE S GIVEN IN THE EARLIER YEARS. 4.5 EACH OF THE AFORESAID CONTENTIONS IS BEING DIS CUSSED AS UNDER:- (I) MOST OF THE ADVANCES WERE GIVEN DURING THE YEA R OUT OF INTEREST FREE ADVANCE AND THEREFORE NO DISALLOWANCE ON THIS ACCOUNT IS CA LLED FOR. AS REGARDS THIS ISSUE , KEEPING IN VIEW THE FACTS OF THE CASE , THE APPELLANT ' S SUBMISSIONS AND THE CASE LAWS RELIED UPON BY THE APPELLANT, THE A.O IS DIRECTED TO GIVE CREDIT FOR THE INTEREST FREE ADVANCES RECEIVED BY THE APPELLANT DURING THE YEAR AND RECOMPUTE THE DISALLOWANCE U / S 36(1)(III) ACCORDINGLY . (II) SOME OF THE ADVANCES WERE GIVEN IN THE EARLIE R YEARS AND AS SUCH NO DISALLOWANCE CAN BE MADE WITH REGARD TO THE ADVANCES GIVEN IN THE EARLIER YEARS. THE APPELLANT ' S CONTENTIONS ON THIS ISSUE IS LEGALLY NOT TENABLE . RELIANCE IN THIS REGARD IS ALSO PLACED ON THE DECIS ION DATED 4.1 . 2012 OF HON'BLE ITAT CHANDIGARH IN ITA NO . 438/CHD/2011 IN THE CASE OF MIS JAMNA AUTO IND ~ RIES LTD., VS. THE J.C.I.T.,AND ITA NO . 418/CHD/2011 IN THE CASE OF D.C.I.T., VS. MIS JAMNA AUTO INDUSTRIES LTD. THE HON ' BLE ITA T H E LD AS UNDER: '17. COMING TO THE FACTS OF THE PRESENT CASE THE ISSUE I S TO BE LOOKED INTO IN VIEW OF THE RATIO LAID DOWN BY THE JURISDICTIONA L HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA). THE PLEA OF THE L EARNED A.R. FOR THE ASSESSEE WAS THAT SOME OF THE SAID ADVANCES WERE MA DE IN THE EARLIER YEARS, AGAINST WHICH NO INTEREST WAS DISALLOWED IN THE AFORESAID YEARS, THOUGH THE ASSESSMENTS WERE COMPLETED UNDER SECTION 143(3) OF THE ACT, HOLD NO FORCE. EVEN WHERE THE INTEREST FREE ADVANCE S WERE MADE IN THE ITA NO.6293/DEL/2016 3 EARLIER YEAR AND THE ASSESSEE INCURS THE LIABILITY OF INTEREST EXPENDITURE ON SECURED LOANS IN THE LATER YEARS, THE INTEREST RELA TABLE TO SUCH INTEREST FREEE ADVANCES IS TO BE DISA L LOWED IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA).' 4.6 RELIANCE IN THIS REGARD IS ALSO PLACED ON THE FOLLOWING DECISIONS OF THE HON ' BLE IT AT CHANDIGARH: ( I ) DCIT V S ORBIT RE S ORT S (P) LTD ITA NO . 1142/CHANDIJ2010, DECISION DATED 19.9.2011 (II) R AKE S H J AI N VS IT O ITA NO.37/CHDI2011, DECISION DATED 21.06 . 2011 4.7 THIS CONTENTION OF THE APPELLANT IS ACCORDINGL Y REJECTED. THE GROUNDS OF APPEAL FILED BY THE APPELLANT ARE PARTLY ALLOWED. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. IT WAS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE, MR. GAUTAM JAIN, ADV. THAT THE DECISION OF HONBLE PUNJAB AND HARYANA HIG H COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. REPORTED IN 286 IT R 1 (P &H) IS NO LONGER A GOOD LAW IN VIEW OF THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS. CIT REPORTED IN 379 ITR 3 47. THE RELEVANT DECISION IN THE CASE OF HERO CYCLES PVT. LTD. IS RE PRODUCED HEREINBELOW: A PERUSAL OF THE ORDER PASSED BY THE HIGH COURT WOU LD REVEAL THAT THE HIGH COURT HAS NOT AT ALL DISCUSSED THE AFORESAID FACTS WHICH WERE ESTABLISHED ON RECORD PE RTAINING TO THE INTEREST FREE ADVANCE GIVEN TO M/S. HERO FIB RES LIMITED AS WELL AS L OANS GI V EN TO ITS OWN DIRECTORS AT INTEREST AT THE RATE OF 10 PER CENT . ON THE OTHER HAND , THE HIGH COULI HAS SIMPLY QUOTED FROM ITS OWN JUDGMENT IN THE CASE OF 'COMMISSIONER OF IN COME TAX-I , LUDHIANA V. M/S. ABHISHEK INDUSTRIES LIMITED, LUDHIANA' [ITA NO. 110/2005 DECIDED ON 04.08.2006]. ON THAT BASIS, IT HAS HELD THAT WHEN LOANS WERE TAKEN FROM THE B A NKS AT WHICH INTEREST WAS PAID FOR THE PURPOSES OF BUSINESS, THE INTEREST THEREON COULD NOT BE CLAIMED AS BUSINESS EXPENDITURE. WE ARE OF THE OPINION THAT SUCH AN APPROACH IS CLEA RLY ITA NO.6293/DEL/2016 4 FAULTY IN LAW AND CANNOT BE COUNTENANCED. INSOFAR AS LOANS TO THE SISTER CONCERN / SUBSIDIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAPITULATED BY THIS COURT IN THE CASE OF 'S.A. BUILDERS LTD. V. COMMISS IONER OF INCOME TAX (APPEALS) AND ANOTHER' [2007 (288) ITR 1 (SC)]. AFTER TAKING NOTE OF AND DISCUSSING ON THE S COPE OF COMMERCIAL EXPED I ENCY , THE COURT SUMMED UP THE LEGAL POSITION IN THE FOLLOWING MANNER:- '26. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDI TURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUS INESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER AN Y LEGAL OBLIGATION , BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CL ' I ' [1979 (118) ITR 200 (SC)], IF THE BORROWED AMOUNT WAS DON ATED 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 )(II I) OF THE ACT . IN MADHAV PRASAD S CASE [1979 (118) ITR 200 (SC)] , THE BORROWED AMOUNT WAS DONATED TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASE D HUSBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY THIS COURT THAT THE INTEREST ON THE BORROWE D FUND IN SUCH A CASE COULD NOT BE ALLOWED , AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDIENCY . 28. THUS, THE RATIO OF MADHAV PRASAD JATIA'S CASE [ 1979 (118) ITR 200 (SC)] IS THAT THE BORROWED FUND ADVAN CED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY I F IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)(III) OF TH E ACT . 29. IN THE PRESENT CASE , NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHE R THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY TILLS COURT THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS WIDER I N SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING PRO FITS' VIDE CITV.MALAYALAM PLANTATIONS LTD. [1964 53 ITR 1 40 (SC), CIT V. BIRLA COTTON SPINNING AND WEAVING MILL S LTD. [1971 82 ITR 166 (SC)] , ETC.' IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN 'CIT V. DALMIA CEMENT (B . ) LTD . '[2002 (254) ITR 377] WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXU S BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED ITA NO.6293/DEL/2016 5 NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITS ELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM - CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CA N BE COMPELLED TO MAXIMIZE ILLS PROFIT AND THAT THE INCO ME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. APPLYING THE AFORESAID RATIO TO THE FACTS OF TILLS CASE AS ALREADY NOTED ABOVE, IT IS MANIFEST THAT THE ADVANC E TO M/S. HERO FIBRES LIMITED BECAME IMPERATIVE AS A BUS INESS EXPEDIENCY IN VIEW OF THE UNDERTAKING GIVEN TO THE FINANCIAL INSTITUTIONS BY THE ASSESSEE TO THE EFFEC T THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO M/S. HERO FIBRES LIMITED TO MEET THE WORKING CAPITAL FOR MEETING ANY CASH LOSES 6. THE DECISION IN THE CASE OF MUNJAL SALES CORPN. VS. CIT REPORTED IN 298 ITR 298 WAS ALSO RELIED UPON THE DECISION OF HO NBLE SUPREME COURT OF INDIA AND RELEVANT DECISION IN PARAGRAPH 17 IS REPR ODUCED HEREINBELOW: 17. ONE ASPECT NEEDS TO BE MENTIONED DURING THE ASSESSMENT YEAR 1995-96 , APART FROM THE LOAN GIVEN IN AUGUST / SEPTEMBER 1991 , THE ASSESSEE ADVANCED INTEREST- FREE LOAN TO ITS SISTER CONCERN AMOUNTING TO RS . 5 LAKHS . ACCORDING TO THE TRIBUNAL , THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE GIVEN TO THE SISTER CONCER N BY THE ASSESSEE- FIRM OUT OF ITS OWN FUNDS AND , THEREFORE , IT WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 36(1) (III) . THIS FINDING IS ERRONEOUS. THE OPENING BALANCE AS O N 1-4-1994 WAS RS . 1 . 91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS. 5 LAKHS. IN OUR VIEW, THE PROFITS EARNED B Y THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LAKHS. 7. FROM THE FACTS OF THE PRESENT CASE AND THE DECIS IONS OF HONBLE SUPREME COURT REFERRED TO HEREINABOVE ESSENTIALLY T HERE HAS TO BE A COMMERCIAL EXPEDIENCY OR THERE HAS TO BE INTEREST F REE FUNDS WITH THE ASSESSEE AND THE DECISION OF ABHISHEK INDUSTRIES IS NOT A GOOD LAW IN VIEW OF THE DECISION OF HONBLE APEX COURT REFERRED TO HERE INABOVE. SINCE, THE EARLIER YEAR ADVANCES HAVE BEEN ACCEPTED IN THE PRE CEDING YEARS AND NO ITA NO.6293/DEL/2016 6 INTEREST ON THE SAME HAS BEEN DISALLOWED, THEREFORE , NO DISALLOWANCE IN THE IMPUGNED YEAR CAN BE MADE IN VIEW OF THE DECISION O F HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRIDEV ENTERPRISES REPORT ED IN 92 ITR 165 WHERE THE RELEVANT DECISION IS REPRODUCED HEREINBELOW: 'WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY THE APPELLATE TRIBUNAL . THE STATUS OF THE AMOUNT OUTSTANDING FROM NALANDA ON THE FIRST DAY OF THE ACCOUNTING YEA R IS THE AMOUNT THAT STOOD OUTSTANDING ON THE LAST DAY OF TH E PREVIOUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FROM ITS NATURE AND STATUS AS ON TH E LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS, THE ASSESSEE'S CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOSE YEARS; THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS, WHETHER A SPECIFIC FINDING W AS RECORDED OR NOT . A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING; IT WILL NOT BE E QUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PRE VIOUS YEARS' ASSESSMENTS; CONSISTENCY AND DEFINITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNISING THE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF A CONCLUDED ASSESSMEN T WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASSES SMENT . THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT A DEBT WHICH HAD BEEN TREATED BY THE REVENUE A S A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENT BE HELD BY IT HAVE BECOME BAD PRIOR TO THAT YEAR.' 8. THE SAID DECISION HAS ALSO BEEN FOLLOWED BY HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GIVO LTD IN ITA N O.941/2010 (DEL) DATED 27.7.2010 AND THE RELEVANT DECISION IS REPRODUCED H EREINBELOW: '4. WE ARE OF THE OPINION THAT AS IN PAST ASSESSMEN T YEARS, THE INTEREST EXPENDITURE HAD BEEN ALLOWED, IT WAS N OT OPEN TO THE ASSESSING OFFICER TO DISALLOW THE SAID EXPEN DITURE IN THE YEAR UNDER CONSIDERATION. THE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. SRIDEV ENTERPRISES, (1991) 192 ITR 165 HAS HELD THAT A DEPARTURE FROM A ITA NO.6293/DEL/2016 7 FINDING IN RESPECT OF DEDUCTIONS PERMITTED DURING T HE PAST YEARS WOULD RESULT IN A CONTRADICTORY FINDING. 5. WE ARE ALSO OF THE VIEW THAT IT WOULD NOT BE EQU ITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND IN RES PECT OF EXPENSES WHICH WERE THE SUBJECT MATTER OF PREVIOUS YEARS' ASSESSMENTS. IN OUR OPINION, CONSISTENCY AND DEFINITENESS OF APP ROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNIZING T HE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASI S OF A CONCLUDED ASSESSMENT IS NOT IGNORE WITHOUT ACTUALLY REOPENING THE ASSESSMENT. 9. IN THE CIRCUMSTANCES AND FACTS OF THE CASE AND T HE DECISION RELIED UPON NO DISALLOWANCE U/S.36(1)(III) CAN BE MADE AND THE DISALLOWANCE SO MADE IS DIRECTED TO BE DELETED AND ORDER OF THE LEARNED CIT (A) IS REVERSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS DAY 25 TH APRIL, 2017 SD/- (B.P. JAIN) ACCOUNTANT MEMBER DATED: 25/04/2017 PRABHAT KUMAR KESARWANI, SR.P.S. COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSTT. REGISTRAR, ITAT, NEW DELHI