Shri Shreyas Chinubhai Sheth(HUF), Ahmedabad V. The Income tax Officer,Ward-10(4), Ahmedabad

ITA 678/AHD/2010

• Counselvise Citation: 67820514 RSA 2010
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Recovery proceedings; Business income; Principle of natural justice
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI D K TYAGI JUDICIAL MEMBER AND SHRI A MOHAN ALANKAMONY - AM ITA NO.678/AHD/2010 (ASSESSMENT YEAR:-2007-08) SHREYAS CHINUBHAI SHETH (HUF), 301, AKSHAY, 35, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD V/S THE INCOME-TAX OFFICER, WARD-10(4), AHMEDABAD PAN: AADHS 2295 Q [APPELLANT] [RESPONDENT] ASSESSEE BY :- MS. URVASHI SHODHAN, AR REVENUE BY:- SHRI DINESH SINGH, SR. DR DATE OF HEARING:- 29-03-2012 DATE OF PRONOUNCEMENT:- 30-03-2012 O R D E R PER D K TYAGI (JM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XVI, AHMEDA BAD DATED 16-12-2009 FOR ASSESSMENT YEAR 2007-08. THE ASSESSE E HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1 THE ID. CIT (A) HAS GROSSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING DISALLOWANCE OF RS.8,38,894/- OUT OF TOT AL DISALLOWANCE OF INTEREST EXPENSES OF RS.12,37,775/- MADE BY AO. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT AP PRECIATING THE FACT THAT THE ADVANCES GIVEN BY THE APPELLANT T URNED BAD AND DUE TO RECOVERY PROCEEDINGS BEING INITIATED, NO INT EREST WAS CHARGED ON THE SAID ADVANCES. THE ID. CIT (A) OUGHT TO HAVE ALLOWED THE TOTAL INTEREST EXPENSES CLAIMED BY THE APPELLANT. 2 THE ID. CIT (A) HAS FURTHER ERRED IN HOLDING THAT SARAFI (FINANCING) BUSINESS OF THE APPELLANT IS NO LONGER CONTINUING THAT 2 2 IS NEITHER THE BASIS OF DISALLOWANCE OF INTEREST BY AO NOR THE CONTROVERSY EMERGING FROM THE ASSESSMENT ORDER. THE ID. CIT (A) HAS GROSSLY ERRED IN HOLDING SO WITHOUT CONSIDE RING VARIOUS FACTS, SUBMISSIONS, EXPLANATIONS AND A CLARIFICATIO N SUBMITTED BY THE APPELLANT. THIS FINDING OF CIT (A) IS PERVERSE, UNJUST AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE THAT OUGH T TO BE QUASHED. 3 THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAS UTILIZ ED INTEREST FREE FUNDS IN FINANCING BUSINESS THAT ARE MUCH MORE THAN THE LOANS ADVANCED ON WHICH INTEREST IS NOT CHARGED BY THE AP PELLANT. THE ID. CIT (A) OUGHT TO HAVE TAKEN INTO CONSIDERATION THIS FACT OF AVAILABILITY OF INTEREST FREE FUNDS TO THE APPELLAN T. 4 THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING THE GROUND RAISED IN THE APPEAL AGAINS T NON ALLOWANCE OF SET OFF OF BUSINESS LOSS OF THE CURREN T YEAR AS WELL OF EARLIER YEARS BY AO AGAINST THE INCOME COMPUTED AFTER DISALLOWANCE OF INTEREST OF THE YEAR UNDER CONSIDER ATION. BOTH THE LOWER AUTHORITIES HAVE ERRED IN OVERLOOKING THE FACT THAT NOTES FORMING PART OF STATEMENT OF TOTAL INCOME NAR RATED THE CLAIM OF CARRY FORWARD OF LOSSES AGAINST FUTURE PR OFITS THAT OUGHT TO HAVE BEEN TAKEN INTO CONSIDERATION. 5 LEVY OF INTEREST UNDER SECTION 234B & 234C OF THE ACT IS NOT JUSTIFIED. 2 THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF RS.8,38,894/- SUSTAINED BY THE LEARNED CIT(A) OUT OF TOTAL DISALLOWANCE OF INTEREST EXPENS ES OF RS.12,37,775/-. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DEBITED INTEREST EXPENSES IN ITS P&L ACCOUNT RS.12,37,775/- BEING INTEREST EXPENSES OF RS.3,98,881/- FOR M/S ARUSHI M ARKETING (A MANUFACTURING CONCERN OF THE ASSESSEE), AND RS.8,33 ,894/- FOR S 3 3 C SHETH (HUF) CLAIMED TO BE ENGAGED IN THE BUSINESS OF SHARAFI. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS ADVANCED FUNDS TO THE TUNE OF RS.2,10, 94,089/- TO 11 [ELEVEN] PARTIES AS HAS BEEN DISCUSSED BY THE AO IN PARA-4 OF HIS ASSESSMENT ORDER, FROM WHOM NO INTEREST WAS CHARGED BY THE ASSESSEE. BEFORE THE AO, THE ASSESSEE SUBMITTED THA T THE INTEREST WAS NOT CHARGED FROM THESE PARTIES BECAUSE THE ASSE SSEE WAS RUNNING THE BUSINESS OF SHARAFI (FINANCING BUSINESS AMONG OTHER PARTIES LOANS WERE GIVEN TO THREE PARTIES VIZ. VIZA R AGROCHEMICALS [RS.1.54 CRORE (AS ON 31-03-2007]; CH AUDHARY AIRWAYS PVT. LTD. [BALANCE RS.29,37,907/- AS ON 31- 03-2007] AND AMIT CONSTRUCTION [BALANCE RS.5,03,801/- AS ON 31-0 3-2007]. THE FIRST PARTY PAID THE INTEREST INITIALLY TILL FY 199 6-97. SUBSEQUENTLY THEY FACED FINANCIAL PROBLEMS AND COUL D NOT PAY INTEREST AS WELL AS THE PRINCIPAL. SOME OF THEM HAV E GONE INTO LIQUIDATION AND THE ASSESSEE HAD LODGED CLAIM BEFOR E LIQUIDATOR. THE SECOND PARTY VIZ. CHAUDHARY AIRWAYS PVT. LTD. P AID INTEREST DURING FYS 1997-98 AND 1998-99 ON THE LOANS PAID TO THEM DURING FY 1997-98. THE ASSESSEE CHARGED INTEREST IN THEIR BOOKS UPTO AY 2002-03, HOWEVER, NO INTEREST / PRINCIPAL C OULD BE RECOVERED FROM CHAUDHARY AIRWAYS PVT. LTD. SIMILARL Y, LOAN WAS GIVEN TO AMIT CONSTRUCTION DURING FY 1989-90 AND IN TEREST WAS CHARGED UPTO FY 2000-01. AFTER THAT THEY DID NOT PA Y EITHER PRINCIPAL OR INTEREST. AS THE PRINCIPAL AMOUNT WAS DOUBTFUL, THE ASSESSEE DID NOT CHARGE INTEREST IN ITS BOOKS OF AC COUNTS. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE TO T HE AO AND HELD THAT SINCE 10% OF THE INTEREST WAS PAID BY THE ASSESSEE ON THE BORROWED FUNDS, HE SHOULD HAVE CHARGED AT-LEAST 10% INTEREST 4 4 ON THE ADVANCES OF RS.2,10,94,090/-. ACCORDING TO H IM, INTEREST TO THE EXTENT OF RS.21,09,409/- SHOULD HAVE BEEN DI SALLOWED BUT SINCE THE ASSESSEE HAS DEBITED TOTAL INTEREST OF RS .12,37,775/-, HE THEREFORE, DISALLOWED WHOLE OF THE INTEREST CLAIMED AS EXPENSES OF RS.12,37,775/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4 THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CI T(A) AND FOLLOWING CONTENTION WAS TAKEN:- I) SHREYAS CHINUBHAI SHETH, HUF WAS DOING SARAFI B USINESS SINCE 1995-96 OR SO. ON THE LOANS GIVEN TO VARIOUS PARTIE S INITIALLY INTEREST WITH ITS PRINCIPAL WAS RECOVERED FOR TWO T O THREE YEARS BUT DUE TO BAD FINANCIAL POSITION THE APPELLANT COU LD NOT RECOVER EITHER THE INTEREST OR EVEN THE PRINCIPAL AMOUNT FR OM SUCH PARTIES. THE INTEREST WAS THEREFORE NOT SHOWN AS R ECEIVABLE FROM THESE PARTIES. II) DURING A Y 2007-08 THE APPELLANT TOOK OVER THE BUSINESS OF PARTNERSHIP FIRM M/S. ARUSHI MARKETING AS ITS PROPR IETARY CONCERN. OUT OF TOTAL INTEREST EXPENSES OF RS.12,37 ,775/-, RS.3,98,881 ARE DEBITED IN THE P & L A/C OF ARUSHI MARKETING WHICH IS IN THE MARKETING BUSINESS & BALANCE AMOUNT OF RS.8,38,894/-IN THE P & L A/C. OF S C SHETH (HUF) I .E. IN THE CASE OF SARAFI BUSINESS. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT(A) GAVE PARTIAL RELIEF OF RS.3,98,8 81/- BY OBSERVING AS UNDER:- 4 ON THE PERUSAL OF THE P & L A/C OF SHREYAS CHINU BHAI SHETH (HUF) FOR A Y 2007-08, IT WAS NOTICED THAT THOUGH I T IS SHOWN TO BE DOING THE BUSINESS OF SARAFI, NO INTEREST INCOME FR OM SARAFI BUSINESS WAS SHOWN IN THIS A/C. ONLY INTEREST INCOME FROM PA RTNERSHIP FIRM WAS SHOWN UNDER THE HEAD OF BUSINESS INCOME. THEREFORE IN ORDER TO KNOW WHETHER THE BUSINESS OF SARAFI IS CONTINUING OR NOT THE AUTHORIZED REPRESENTATIVE WAS ASKED TO FILE THE P & L A/C. OF THE SHREYAS CHINUBHAI SHETH, (HUF) FOR THE LAST FOUR YEARS I.E. A Y 2005-06 TO A Y 2009-10. SUCH DETAILS WERE FURNISHED BY THE AUTHO RIZED 5 5 REPRESENTATIVE ON 11-12-2009. ON THE PERUSAL OF THE P & L A/C., IT WAS NOTICED THAT SINCE A Y 2005-06 ONWARDS NOT A SI NGLE RUPEE OF INTEREST INCOME FROM SARAFI BUSINESS WAS SHOWN TILL A Y 2009-10. HE WAS THEN ASKED TO PROVE THAT THE APPELLANT IS STILL IN THE BUSINESS OF SARAFI SINCE IN THE LAST 4-5 YEARS TILL A Y 2009-10 . THE APPELLANT HAS NOT GIVEN A SINGLE RUPEE OF LOAN DURING THIS PERIOD TO ANYBODY TO EARN INTEREST INCOME. TO THIS IT WAS STATED THAT THE APP ELLANT HAS BORROWED FUNDS FROM OTHER PARTIES TO REPAY THE LOANS BORROWE D FROM OLD PARTIES DURING THIS PERIOD. THEREFORE, THE APPELLANT IS STA TED TO HAVE ENGAGED IN THE BUSINESS OF SARAFI. 5 AFTER EXAMINING THE P & L A/C. & BALANCE SHEET OF THE SHREYAS CHINUBHAI SHETH, HUF FOR THE LAST 4-5 YEARS, I AM C ONVINCED THQT THE BUSINESS OF SARAFI WAS DISCONTINUED BY THE APPELLAN T LONG BACK SINCE F Y 2002-03. NOT A SINGLE RUPEE OF LOANS HAS BEEN GIV EN ON INTEREST BY THE APPELLANT TO EARN INTEREST INCOME SINCE A Y 200 4-05. NOT A SINGLE RUPEE OF INTEREST INCOME IS SHOWN FROM THIS SARAFI BUSINESS TILL A Y 2009-10. THERE CANNOT BE ANY INTERPRETATION THAN TH AT THE APPELLANT HAS DISCONTINUED ITS SARAFI BUSINESS BEFORE F Y 2004-05 ITSELF. AFTER F Y 2004-05 THE APPELLANT HAS SHOWN THE LOSSES ON ACCOU NT OF INTEREST PAYMENT TO THE OLD CREDITORS. DURING THIS PERIOD FR ESH LOANS ARE ALSO TAKEN TO REPAY THE OLD LOANS BUT NOT A SINGLE PENNY IS GIVEN ON INTEREST BY THE APPELLANT. THE CASE OF THE APPELLANT IS LIKE THAT OF A TRADER WHO HAS TO GIVE INTEREST ON LATE PAYMENT TO HIS CREDITO RS BUT HAS NOT SOLD ANY ITEM FOR THE LAST 4/5 YEARS. UNDER SUCH CIRCUMS TANCES WHETHER IT CAN BE SAID THAT THE APPELLANT WAS CONTINUING HIS B USINESS OF SARAFI OR HE HAS DISCONTINUED HIS BUSINESS. IN MY OPINION THE BUSINESS OF SARAFI WAS DISCONTINUED BY THE APPELLANT BEFORE 31-3-2204. BECAUSE NO NEW LOANS ARE GIVEN ON INTEREST BY THE APPELLANT DURING A Y 2004-05 ONWARDS. THEREFORE INTEREST EXPENSES PERTAINING TO A DISCONTINUED BUSINESS ARE NOT ALLOWABLE EXPENSES. 6 SINCE INTEREST EXPENSES OF RS.8,38,894/- ARE PERT AINING TO SHREYAS CHINUBHAI SHETH, HUF, THE SAME ARE NOT ALLO WABLE AS THEY ARE PERTAINING TO A DISCONTINUED BUSINESS. 7 THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE IN TEREST EXPENSES OF RS.3,98,881/- PERTAINING TO ANOTHER PROPRIETARY CONCERN NAMELY ARUSHI MARKETING. 6 6 5 FURTHER AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING, THE LEARNED COUNSEL OF THE ASSESSEE ARGUED AT LENGTH REITERATING THE SUBMISSIONS MAD BEFORE TH E LEARNED CIT(A). 6 THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A). 7 AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ECORD, WE FIND THAT THE LEARNED CIT(A) FOR THE REASONS GIVEN BY HIM IN HIS ORDER IN PARAS 4 AND 5, HAS HELD THAT INTEREST EXPE NSES OF RS.8,38,894/- PERTAINING TO SHREYAS CHINUBHAI SHETH HUF ARE NOT ALLOWABLE AS THEY ARE PERTAINING TO DISCONTINUE D BUSINESS. THIS FINDING OF THE LEARNED CIT(A) REMAINS UNCONTRO VERTED BEFORE US AS NO MATERIAL WHATSOEVER WAS BROUGHT ON RECORD TO THE CONTRARY. THEREFORE, WE ARE NOT INCLINED TO INTERFE RE WITH THE ORDER PASSED BY THE LEARNED CIT(A) AND THE SAME IS HEREBY UPHELD. 8 IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-03-2012 SD/- SD/- (A MOHAN ALANKAMONY) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 30-03-2012 7 7 COPY OF THE ORDER FORWARDED TO: 1. SHREYAS CHINUBHAI SHETH (HUF), 301, AKSHAY, 35, SHRIMALI SOCIETY, NAVRANGPURA, AHMEDABAD 2. THE INCOME-TAX OFFICER, WARD-10(4), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD