Narendra Bhimsen Agarwal, Pune V. ITO, Ward 9(1), Pune

ITA 636/PUN/2013

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0935 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY DHOKE
• Keywords: Business income; Onus to prove; Set aside; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 636 /PUN/201 3 / ASSESSMENT YEAR : 20 0 9 - 10 NARENDRA BHIMSEN AGARWAL, M/S. MZSK & ASSOCIATES, CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO. : 84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AARPA2445C ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD 9(1), PUNE / RESPONDENT ASSESSEE BY : S HRI NEELESH KHANDELWAL REVENUE BY : SHRI AJAY DHOKE / DATE OF HEARING : 09 - 12 - 2019 / DATE OF PRONOUNCEMENT : 20 - 12 - 2019 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 31 - 12 - 2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - V, PUNE [CIT(A)] FOR ASSESSMENT YEAR 20 0 9 - 10. 2. BESIDES MAIN GROUNDS, THE ASSESSEE ALSO RAISED TWO ADDITIONAL GROUNDS VIDE ITS APPLICATION DATED 04 - 07 - 2019 AND SHRI NEELESH 2 ITA NO.636/PUN/2013, A.Y. 2009 - 10 KHANDELWAL, THE LD. AR SUBMITS THAT THE ASSESSEE IS NOT INTERESTED TO PROSECUTE ADDITIONAL GROUND NO. 1 AND PRAYED TO DISMISS THE SAME AS NOT PRESSED. ACCORDINGLY, THE ADDITIONAL GROUND NO. 1 RAISED BY THE ASSESSEE IS DI SMISSED AS NOT PRESSED. THEREFORE, THE MAIN GROUND NOS. 1 AND 2 AND ADDITIONAL GROUND NO. 2 REMAINS FOR OUR ADJUDICATION. 3. THE GROUND NO. 1 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF CIT(A) IN RESTRICTING THE DISALLOWANCE TO RS.42,83,924/ - AGAINST RS.70,57,756/ - MADE BY THE AO ON ACCOUNT OF PROVISIONS OF SECTION 17(2) OF THE ACT R.W.R. 3(7)(I) OF THE INCOME TAX RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. HEARD BOTH PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ACCORDING TO THE AO THE ASSESSEE IS A DIRECTOR EMPLOYEE OF ESSEN PRODUCT INDIA LTD. (HEREINAFTER REFERRED TO AS EPIL) AND ALSO A PROPRIETOR OF THE FIRM M/S. S & N ENTERPRISES, WHICH IS ENGAGED IN THE BUSINESS OF TRADING OF CONSUMER PRODUCTS. ON EXAMINATION OF DE TAILS FILED BY THE ASSESSEE, THE AO FOUND THAT THE ASSESSEE STATED TO HAVE RECEIVED HUGE INTEREST FREE ADVANCES FROM EPIL AND REPAID THE SAME DURING THE YEAR ITSELF. THE SAID ADVANCES ARE NOT GIVEN OR TAKEN DURING THE COURSE OF NORMAL BUSINESS AND THE ASS ESSEE COULD NOT DISCHARGE HIS ONUS TO PROVE THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS TRANSACTIONS AND CONSIDERING THE ASSESSEE HAVING EMPLOYEE AND EMPLOYER RELATION SHIP TREATED THE AFORESAID AMOUNTS AS ADVANCES , FOR INVOKING THE PROVISIONS OF SECTION 17(2) R.W.R. 3(7)(I) OF THE INCOME TAX RULES COMPUTED THE INTEREST @ 1.02% AND ADDED AN AMOUNT OF RS.70,57,756/ - TO THE TOTAL INCOME OF ASSESSEE. THE CIT(A) RESTRICTED THE ADDITION TO RS.42,83,924/ - . BEFORE US, THE LD. AR REFERRED TO ANNEXURE 1 TO AOS ORDER AT PAGE NO. 5 AND SUBMITTED THAT THE CLOSING BALANCE AS ON 31 - 03 - 2009 IS RS.2,8 2 ,18,652/ - WHICH IS THE LEDGER ACCOUNT OF EPIL , 3 ITA NO.636/PUN/2013, A.Y. 2009 - 10 F URTHER, HE REFERRED TO PAGE NOS. 3 AND 4 OF ANNEXURE 2 OF AOS ORDER AND SUBMITTED THE SAID LEDGER ACCOUNT REFLECTS THE S ALES AND RECEIPTS. THE ENTIRE ADVANCES ARE IN THE NAME OF M/S. S & N ENTERPRISES WHICH IS A PROPRIETARY CONCERN OF ASSESSEE AND ARE BUSINESS TRANSACTIONS WITH EPIL. FURTHER, THERE ARE MORE THAN 1000 ENTRIES IN THE ABOVE SAID LEDGER ACCOUNTS CLEARLY SHOWS THE BUSINESS TRANSACTIONS BETWEEN EPIL AND M/S. S & N ENTERPRISES AND THE INVOCATION OF SECTION 17(2) R.W.R. 3(7)(I) TREATING THE SAME AS ADVANCES IS BAD IN LAW. 5. SHRI AJAY DHOKE, THE LD. DR SUBMITS THAT THE PROVISIONS OF SECTION 7(2)(3) MAY BE CONSI DERED AND NO ARGUMENTS WITH REGARD TO COMPUTATION OF INTEREST WERE ADVANCED. 6. HEARD BOTH PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO TREATED MAXIMUM OUTSTANDING MONTHLY BALANCES IN THE ACCOUNT OF ASSESSEE AS INTEREST FREE ADVANCES F ROM EPIL AND COMPUTED THE INTEREST AS PER RATE CHARGED BY THE STAGE BANK OF INDIA. THE CONTENTION OF LD. AR IS THAT IT IS A CURRENT ACCOUNT BETWEEN M/S. S & N ENTERPRISES WHICH IS A PROPRIETARY CONCERN OF ASSESSEE HAVING BUSINESS TRANSACTIONS WITH THE EPI L IN WHICH THE ASSESSEE IS A DIRECTOR. ON PERUSAL OF LEDGER ACCOUNTS AS ANNEXURE 2 TO THE ASSESSMENT ORDER AS RIGHTLY POINTED BY THE LD. AR , IT REFLECTS THE BUSINESS TRANSACTIONS BETWEEN EPIL AND M/S. S & N ENTERPRISES PARTICULARLY AT PAGE NO. 5 THE CLOSI NG BALANCE AS ON 31 - 03 - 2009 IS RS.2,82,18,652/ - AND PAGE NOS. 3 AND 4 OF ANNEXURE 2 OF THE ASSESSMENT ORDER REFLECTS SALES AS ON 06 - 10 - 2008, 07 - 10 - 2008, 08 - 10 - 2008 AND 09 - 10 - 2008 WHICH CLEARLY SHOWS THE BUSINESS TRANSACTIONS BETWEEN EPIL AND M/S. S & N E NTERPRISES. ACCORDING TO CIT(A) THERE WAS NO SUCH FACILITY OF HUGE AMOUNT BEING AS CLOSING BALANCE WAS NOT AVAILABLE TO OTHER CASES AND UPHELD THE INVOCATION OF SECTION 17(2) 4 ITA NO.636/PUN/2013, A.Y. 2009 - 10 OF THE ACT. WE FIND THAT IN THE ASSESSMENT ORDER AT PAGE NO. 8 FACILITY OF CREDIT WAS GIVEN TO OTHER CASES ALSO AND THEREFORE, THE FINDING OF CIT(A) NOT GIVING FACILITY TO OTHER PARTIES REMAINS INCORRECT. FOR READY REFERENCE THE RELEVANT PORTION OF PAGE NO. 8 OF AOS ORDER IS REPRODUCED HERE - IN - BELOW : 3. AS REGARDS ISSUE RAISED BY YOU AT POINT 5, THE SAME HAS BEEN DEALT IN GREAT DETAIL IN MY PARA 1 ABOVE. EPIL DOES NOT HAVE ANY STRICT POLICY REGARDING PERIOD FOR PAYMENT OF PURCHASE PRICE. YOUR OBSERVATION THAT EPIL HAS ALLOWED EXCESS PERIOD TO PAY IS N OT CORRECT. IN FACT THERE IS NO DEFINED POLICY OF EPIL REGARDING PERIOD FOR PAYMENT. THE SAME DIFFERS FROM CUSTOMER TO CUSTOMER AND CHANGES FROM TIME TO TIME AS AND WHEN REQUIRED IN THE BEST INTEREST OF THE COMPANY. IN TODAYS CHALLENGING BUSINESS ATMOS PHERE, RIGID STANDS WITH RESPECT TO COLLECTIONS ADVERSELY AFFECTS THE BUSINESS OF ANY COMPANY. THIS FLEXIBLE POLICY IS ADOPTED IN CASE OF ALL DISTRIBUTORS AND NOT ONLY FOR THE ASSESSEE. IN FACT IN SOME OTHER CASES, CREDIT BEYOND AGREED PERIOD HAVE ALSO B EEN ALLOWED Y THE COMPANY, SINCE IT IS A BUSINESS DECISION TAKEN IN THE BEST INTEREST OF THE COMPANYS BUSINESS. AS ALREADY INFORMED TO YOU, AN AMOUNT OF RS.1,95,13,801/ - WAS OUTSTANDING PAYABLE TO CREDITOR M/S. VILASKUMAR SUBHASHCAND & CO. AGAINST A PURC HASE OF RS.2,26,42,116/ - DURING THE YEAR UNDER CONSIDERATION. HENCE JUST BECAUSE CERTAIN AMOUNTS ARE OUTSTANDING AGAINST A PARTICULAR CREDITOR, IT CANNOT BE TERMED AS EXCESS PERIOD OF CREDIT. 7. HAVING CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE ASSESSEE BEING A PROPRIETARY OF M/S. S & N ENTERPRISES HAVING BUSINESS TRANSACTIONS WITH EPIL AND TREATING THE CLOSING BALANCE AS ON 31 - 03 - 2009 IS INTEREST FREE ADVANCES IS NOT MAINTAINABLE. THUS, THE ORDER OF CIT(A) IN UPHOLDING TH E VIEW OF AO IN INVOKING THE SECTION 17(2) R.W.R. 3(7)(I) IS NOT WARRANTED. THUS, THE ORDER OF CIT(A) IS SET ASIDE AND GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. 8 . ADDITIONAL GROUND NO. 2 RAISED BY THE ASSESSEE QUESTIONING THE ACTION OF CIT(A) IN CONFIRMING THE ADDITION OF RS.14,34,224/ - IN THE HANDS OF ASSESSEE ON ACCOUNT OF CAPITAL GAINS. 9 . HEARD BOTH PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. AR PLACED ON RECORD THE ORDER IN THE CASE OF ASHOK RAGHUNATH MANE VS. ACIT IN ITA NO. 2091/PUN/2012 RELATING TO A.Y. 2009 - 10 AND SUBMITTED THAT THE CAPITAL GAINS ARISING OUT OF SAME TRANSACTION RELATING TO 5 ITA NO.636/PUN/2013, A.Y. 2009 - 10 ACQUISITION OF LANDS HAVE BEEN CONFIRMED IN THE HANDS OF ASHOK RAGHUNATH MANE AND THE ADDITION MADE IN THE HANDS OF ASSESSEE IS NOT MAINTAINABLE. IT IS NOTED THAT THE GOVERNMENT ACQUIRED THE LANDS BELONG TO SUBHASH ANAND AND ALLOTTED A DEVELOP ED AREA OF LAND EQUAL TO 12.5% OF THEIR TOTAL LAND AREA ACQUIRED. THE FARMERS HAD OPTION OF SELLING SUCH 12.5% DEVELOPED AREA. SHRI SUBHASH ANAND AND ANOTHER PARTY ENTERED INTO SEPARATE MOU WITH ASHOK RAGHUNATH MANE, THE ASSESSEE THEREIN ON DIFFERENT DATES FOR TRANSFER OF THEIR 12.5% AREA OF THE DEVELOPED LAND IN ADVANCE AT A PREDETERMINED PRICE. IN TURN, ASHOK RAGHUNATH MANE AGREED T O TRANSFER 50% OF SUCH DEVELOPED LANDS TO THE AGARWAL BROTHERS WHEREIN NARENDRA BHIMSEN AGARWAL, THE ASSESSEE HEREIN IS ONE OF AMONGST THEM AT A PRICE OF RS.335/ - PER SQ. FT. AND CLAIMED RS.1.51 CRORES AS SALE CONSIDERATION FROM AGARWAL BROTHERS. THIS TRI BUNAL HELD THE TRANSACTION BETWEEN ASHOK RAGHUNATH MANE AND SHRI NARENDRA BHIMSEN AGARWAL AS INGENUINE, IT WAS AN ATTEMPT BY THE ASHOK RAGHUNATH MANE TO DIVERT PROFIT TO AGARWAL AND UPHELD THE ADDITION MADE AND CONFIRMED BY THE AO AND CIT(A) THEREIN IN THE HANDS OF ASHOK RAGHUNATH MANE. IN ORDER TO COME TO SUCH CONCLUSION THIS TRIBUNAL EXAMINED THE INCOME TAX RETURN FILED BY THE AGARWAL BROTHERS FOR THE YEAR UNDER CONSIDERATION THEREIN, WHEREIN IT WAS FOUND THE BUSINESS INCOME SHOWN BY THE NARENDRA BHIMSEN AGARWAL AT RS.3.34 LAKHS AND OPINED THERE IS NO MATCH TO THE INCOME OF RS.1.05 CRORES. THESE FACTS ARE NOT DISPUTED BY BOTH THE PARTIES. THEREFORE, WE FIND FORCE IN THE ARGUMENTS OF LD. AR THAT THE ADDITION MADE IN THE HANDS OF ASSESSEE IS NOT MAINTAINA BLE. THUS, ADDITIONAL GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. 10. THE GROUND NO. 2 IN MAIN GROUNDS OF APPEAL IS INTERLINKED TO ADDITIONAL GROUND NO. 2. WE HAVE TAKEN A VIEW IN THE AFOREMENTIONED PARAGRAPHS THE ADDITION MADE BY THE AO AND CONFI RMED BY THE CIT(A) IN 6 ITA NO.636/PUN/2013, A.Y. 2009 - 10 ASSESSING CAPITAL GAINS IN THE HANDS OF ASSESSEE IS NOT MAINTAINABLE IN VIEW OF ORDER OF THIS TRIBUNAL IN THE CASE OF ASHOK RAGHUNATH MANE WHEREIN IT WAS UPHELD THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) IN THE HANDS OF A SSESSEE THEREIN . WE FIND THE CAPITAL GAINS AS ASSESSED IN THE HANDS OF PRESENT ASSESSEE BEFORE US IS ARISING OUT OF SAME TRANSACTION BE THAT OF ASHOK RAGHUNATH MANE. SINCE, WE HAVE HELD THE ADDITION IS NOT MAINTAINABLE IN THE HANDS OF ASSESSEE , THE GROUN D NO. 2 BECOME ACADEMIC. 11 IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2019. SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 20 TH DECEMBER, 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - V, PUNE 4. / THE CIT - V, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE