M/s Sahdev Enterprises, Phagwara V. The Income Tax Officer, Phagwara

ITA 66/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0808 (ITAT-AMRITSAR)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVISH SUD
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR(SMC). BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.66(ASR)/2016 ASSESSMENT YEAR:2008-09 PAN:AACFS7293P M/S. SEHDEV ENTERPRISES, VS. INCOME TAX OFFICER, PHAGWARA. WARD-3, PHAGWARA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. RAVISH SUD, ADVOCATE RESPONDENT BY: SH. TARSEM LAL, DR DATE OF HEARING: 19/04/2016 DATE OF PRONOUNCEMENT: 21/04/2016 ORDER THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2008-09 AGAINST THE ORDER DATED 16.11.2015, PASSED BY THE LD. CIT(A), JALANDHAR. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 1. THAT THE ORDER OF THE CIT(A) TO THE EXTENT UPHO LDING THE ADDITIONS MADE BY THE AO IS AGAINST THE LAW AND FAC TS OF THE CASE. 2. THAT THE LD. CIT(A) HAD GRAVELY ERRED IN LAW AND FACTS OF THE CASE BY SUSTAINING PART OF THE DISALLOWANCES OF INT EREST ON BORROWED CAPITAL IN THE HANDS OF THE ASSESSEE FIRM, LOSING SIGHT OF THE FACT THAT IN LIGHT OF SUFFICIENT INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE FIRM, NO SUCH DISALLOWA NCE WAS LIABLE TO BE MADE. 3. THAT THE LD. CIT(A) HAD GRAVELY ERRED IN LAW AND FACTS OF THE CASE BY SUSTAINING THE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL PERTAINING TO A TRADE ADVANCE OF RS.70,000/ - GIVEN BY THE ASSESSEE FIRM TO SH. MADAN LAL DHALLA (VENDOR). 4. THAT THE LD. CIT(A) HAD GRAVELY ERRED IN LAW AND FACTS OF THE CASE BY SUSTAINING THE DISALLOWANCE OF INTEREST ON BORROWED 2 CAPITAL PERTAINING TO A TRADE ADVANCE OF RS.3,80,00 0/- GIVEN BY THE ASSESSEE FIRM TO SH. MOHAN LAL (VENDOR). 5. THAT THE LD. CIT(A) ON THE BASIS OF MISCONCEIVE D FACTS, HAD THEREIN GRAVELY ERRED IN LAW AND FACTS OF THE CASE IN SUSTAINING THE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL PERTAINING TO A DEBIT BALANCE OF RS. 5 LACS IN TH E LEDGER A/C OF M/S. KALIA GEARS, I.E. A SUPPLIER PARTY. 6. THAT THE LD. CIT(A) HAD GRAVELY ERRED IN LAW AND FACTS OF THE CASE BY PARTLY SUSTAINING THE DISALLOWANCE OF INTER EST ON BORROWED CAPITAL PERTAINING TO A TRADE ADVANCE OF R S. 1 LAC IN THE LEDGER A/C OF M/S. OM ENTERPRISES. 2. GROUND NO. 1 IS GENERAL. 3. APROPOS GROUND NOS. 2 TO 6, THE AO, INTER-ALIA, MADE THE DISALLOWANCE OF RS.7,86,000/-, PERTAINING TO THE FO LLOWING AMOUNTS ADVANCED BY THE ASSESSEE-FIRM: S.NO. PARTICULARS AMOUNT 1. SH. MADAN LAL DHALLA (VENDOR) RS. 70,000/- ( DR.) 2. SH. MOHAN LAL (VENDOR) RS. 3,80,000/- (DR.) 3. M/S. KALIA GEARS RS.5,00,000/- (DR.) 4. M/S. OM ENTERPRISES RS.1,00,000/-(DR.) TOTAL RS.10,50,000/- (DR.) 4. THE LD. CIT(A) CONFIRMED THESE DISALLOWANCES. 5. THE SOLE GRIEVANCE OF THE ASSESSEE BEFORE THIS B ENCH IS THAT THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOW ANCE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961, IS A RESULT OF NOT TAKING INT O CONSIDERATION THE SUBSTANTIAL SELF OWNED INTEREST FREE FUNDS AGGREG ATING TO 3 RS.1,16,71,637.98, WHICH WERE AVAILABLE WITH THE AS SESSEE FIRM IN THE FORM OF CAPITAL A/C OF THE PARTNERS, ESPECIALLY SI NCE NO INTEREST ON CAPITAL WAS BEING PAID BY THE ASSESSEE FIRM TO ITS SAID PARTNERS. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT FOR SUCH AVAILABILITY SUBSTANTIAL INTEREST FREE FUNDS WITH THE ASSESSEE FIRM, NO ADVERSE INFERENCE REGARDING ANY PART OF THE INTERES T ON BORROWED CAPITAL PERTAINING TO THE AFORESAID AMOUNT OF RS.10,50,000/ -, ADVANCED BY THE ASSESSEE FIRM COULD BE DRAWN. IT HAS BEEN POINTED O UT THAT THE COPIES OF THE RELEVANT BALANCE SHEET, TRADING AND SCHEDULE OF PARTNERS CAPITAL ACCOUNT AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE F IRM AS ON 31.03.2008 HAVE BEEN FILED AT APB 4 TO 7. IN SUPPORT OF THE A BOVE PROPOSITION RAISED, THE LD. COUNSEL FOR THE ASSESSEE HAS SOUGHT TO PLAC E RELIANCE ON THE FOLLOWING CASE LAWS: I) MUNJAL SALES CORPN. VS. CIT, 298 ITR 298 SC) ( COPY AT APB 8 TO 18). II) GURDAS GARG VS. CIT, RENDERED BY THE HONBL E P & H HIGH COURT IN ITA NO.413 OF 2014 ON 16.07.2015 (COPY OF AT APB 19 TO 28). III) HERO CYCLES (P) LTD. VS. CIT (CENTRAL), LUDHIANA, HANDED DOWN BY THE HONBLE SUPREME COURT VIDE JUDGMENT DA TED 05.11.2015 IN CIVIL APPEAL NO.514 OF 2008 (COPY AT ASPB 29 TO 36). 7. A QUERY WAS RAISED BY THE BENCH AS TO WHETHER AN D HOW THIS POSITION REGARDING AVAILABILITY OF SUBSTANTIAL SELF OWNED INTEREST FREE FUNDS AGGREGATING TO RS.1,16,71,637.98 WITH THE ASS ESSEE FIRM IN THE 4 FORM OF CAPITAL ACCOUNT OF THE PARTNERS, HAS BEEN D EALT WITH IN THE IMPUGNED ORDER. TO THIS, DRAWING OUR ATTENTION TO T HE IMPUGNED ORDER, AS WELL AS TO THAT PASSED BY THE AO, THE LD. COUNSE L FOR THE ASSESSEE HAS POINTED OUT THAT WHEREAS THE AO MADE THE ADDITION UNDER SECTION 40A(2)(B)(II) OF THE ACT, IT WAS FOR THE FIRST TIME THAT THE LD. CIT(A)S INVOKED THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, ON THE ASSESSEES OBJECTIONS BEFORE HIM AGAINST THE AOS ACTION OF IN VOKING THE PROVISIONS OF SECTION 40A(2)(B)(II) OF THE ACT. 8. PER CONTRA, RELYING HEAVILY ON THE IMPUGNED ORDE R, THE LD. DR HAS CONTENDED THAT THE POWERS OF LD. CIT(A) BEING CO-TE RMINUS WITH THOSE OF THE AO, THERE IS NO ERROR IN THE ACTION OF THE LD. CIT(A) IN MAKING ADDITION BY INVOKING THE PROVISIONS OF SECTION 36(1 )(III) OF THE ACT. IT HAS FURTHER BEEN CONTENDED THAT SO FAR AS REGARDS THE I SSUE OF ADVANCING FUNDS BY THE ASSESSEE, IN THE CASE OF S.A. BUILDER S, 281 ITR 1 (SC), IT HAS BEEN HELD TO THE EFFECT THAT THE ASPECT OF EXIS TENCE OF COMMERCIAL EXPEDIENCY FOR SUCH ADVANCING OF AMOUNT IS A SINE Q UA NON AND THAT INTEREST ON MONEY BORROWED FROM THE BANK AND LEND T O SISTER CONCERN WITHOUT CHARGING INTEREST IS ALLOWABLE IF MADE AS A MEASURE OF COMMERCIAL EXPEDIENCY. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, S.A. BUILDERS, (SUPRA) HAS BEEN CONSIDERED IN ALL THE THREE DECISIONS STATED BY HIM, AS ABOVE. 9. HAVING HEARD THE RIVAL CONTENTION, IT IS FOUND I NDEED, THAT THE AO HAD MADE THE ADDITIONS BY INVOKING THE PROVISIONS O F SECTION 40A(2)(B)(II) 5 OF THE ACT AND IT WAS THE LD. CIT(A) WHO CONFIRMED THE SAME BUT UNDER THE PROVISIONS OF SECTION 36(1)(III). THE ISSUE OF AVAILABILITY OF SUBSTANTIAL SELF OWNED INTEREST FREE FUNDS AMOUNTING TO RS.1,16 ,71,637.98 CAN ONLY BE DETERMINED BY EXAMINING THE ACCOUNTS OF THE ASSE SSEE, WHICH ACCOUNTS, WERE NOT EXAMINED FOR THIS PURPOSE BY THE AUTHORITIES BELOW. ACCORDINGLY, IT IS FOUND APPROPRIATE TO REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANC E WITH LAW ON EXAMINING THE ACCOUNTS OF THE ASSESSEE, AS ABOVE, I N THE LIGHT OF THE DECISIONS CITED, RESPECTIVELY BY BOTH THE PARTIES, AS ABOVE. 10. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/04/ 2016. SD/- (A.D. JAIN) JUDICIAL MEMBER /SKR/ DATED: 21/04/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SEHDEV ENTERPRISES, PHAGWARA. 2. THE ITO WARD-3, PHAGWARA. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.