M/s Tirath Ram Ram Nath, Kapurthala V. The Income-tax Officer, Kapurthala

ITA 682/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8899 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Business income; Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (SMC) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.682(ASR)/2014 ASSESSMENT YEAR:2007-08 PAN:AABFT4609H M/S. TIRATH RAM RAM NATH, VS. INCOME TAX OFFICER, CIRCULAR ROAD, SULTANPUR LODHI, WARD-II, DISTT. KAPURTHALA. KAPURTHALA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. Y.K.SUD, CA RESPONDENT BY:SMT. RATINDER KAUR, DR DATE OF HEARING: 19/11/2015 DATE OF PRONOUNCEMENT: 22/01/2016 ORDER THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2007-08, AGAINST THE ORDER DATED 26.08.2014, PASSED BY THE L D. CIT(A), JALANDHAR. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.1,14,123/- OUT OF THE TOTAL DISA LLOWANCE OF RS.3,91,560/- MADE BY THE AO U/S 36(1)(III) OF THE INCOME TAX ACT. 2. THAT THE LD. CIT(A) WHILE SUSTAINING THE DISALLO WANCE OF RS.1,14,123/- WAS NOT COMPETENT TO GIVE A FINDING T HAT INTEREST @ 12% SHOULD HAVE BEEN CHARGED BY THE ASSE SSEE FROM THE AGRICULTURIST INSTEAD OF 8% CHARGED BY IT. 3. THAT THE CIT(A) FAILED TO APPRECIATE THAT THERE IS NO PROVISION OF THE INCOME TAX ACT, 1961 TO CHARGE TAX ON THE NO TIONAL INCOME. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF KACHA ARHTIA/COMMISSION AGENT, DERIVING INCOME FROM ITA NO.682(ASR)/2014 ASSTT. YEAR : 2007-08 2 DAMI, WHICH IS CHARGED @ 2.5% ON THE TOTAL SALES OF FOOD GRAIN ITEMS SOLD THROUGH IT. THE AO MADE AN ADDITION OF RS.3,91,560 /- ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT, AS THE ASSESSEE FIRM WAS ALLEGED TO HAVE ADVANCED INTEREST FREE LOANS AND A DVANCES OUT OF BORROWED FUNDS. 3. THE LD. CIT(A) RESTRICTED THE ADDITION TO RS.1,1 4,123/- HOLDING THAT THE ASSESSEE FIRM WAS NOT JUSTIFIED IN CHARGING IN TEREST ONLY @ 8% FROM THE AGRICULTURISTS, AS IT HAD PAID INTEREST @ 12% O N UNSECURED LOANS/ADVANCES TAKEN BY IT. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.1,14,123/- OUT OF THE TOTAL DISALLOWANCE OF RS.3,91,560/-. HE FURTHER CONTENDED THAT THE LD. CIT(A) WAS ALSO NOT JUSTIFIED TO GIVE A FINDING THA T INTEREST @ 12% SHOULD HAVE BEEN CHARGED BY THE ASSESSEE FROM AGRICULTURIS T INSTEAD OF 8% CHARGED BY IT. THE LD. CIT(A) ALSO FAILED TO APPREC IATE THAT THERE IS NOT PROVISION IN THE ACT TO CHARGE TAX ON THE NOTIONAL INCOME. HE ACCORDINGLY PRAYED THAT SINCE THE ACTION OF THE LD. CIT(A) TO R ESTRICT THE DISALLOWANCE TO RS.1,14,123/- IS NOT JUSTIFIED, THE DISALLOWANCE SO RESTRICTED MAY BE DELETED. 5. THE LD. DR, ON THE OTHER HAND, PLACED STRONG REL IANCE ON THE IMPUGNED ORDER. 6. HAVING CONSIDERED THE RIVAL CONTENTIONS IN THE L IGHT OF THE MATERIAL PLACED ON RECORD, IT IS SEEN THAT WHILE HOLDING THA T THE ASSESSEE WAS NOT ITA NO.682(ASR)/2014 ASSTT. YEAR : 2007-08 3 JUSTIFIED IN CHARGING INTEREST ONLY @ 8% FROM THE A GRICULTURISTS, AS IT HAD PAID INTEREST @ 12% ON UNSECURED LOANS/ADVANCES TAK EN BY IT, THE LD. CIT(A) HAS NOT GIVEN ANY REASON FOR DOING SO. IN IT S WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A), WHICH HAVE BEEN REPROD UCED BY THE LD. CIT(A) IN THE IMPUGNED ORDER, THE ASSESSEE HAD SPECIFICALL Y CONTENDED THAT IT HAD NOT GIVEN ANY INTEREST FREE ADVANCES; THAT THE ASSESSEE HAD CHARGED INTEREST @ 8% FROM THE FARMERS AND SO THE ADVANCES GIVEN FOR COMMERCIAL EXPEDIENCY. 7. NOW, ONCE THE LD. CIT(A) HAS NOT DISPUTED THE FA CTUM OF THE ASSESSEE HAVING GIVEN THE ADVANCES FOR COMMERCIAL E XPEDIENCY, IT IS NOT WITHIN THE PURVIEW OF THE LD. CIT(A) TO DECIDE THE RATE OF INTEREST, AS HAS BEEN CORRECTLY CONTENDED ON BEHALF OF THE ASSESSEE. MOREOVER, THE LD. CIT(A) HAS COMPLETELY LOST SIGHT OF THE FACT THAT THE ASSESSEE WAS EARNING DAMI @ 2.5% ON THE TOTAL SALES OF FOOD GRAIN ITEMS SOLD THROUGH IT. FURTHER, BY OBSERVING THAT THE ASSESSEE HAD CHARGE D INTEREST AT LEAST @ 12% ON LOANS AND ADVANCES RECEIVED BY IT. THE LD. C IT(A) HAS ERRED IN BRINGING IN NOTIONAL INCOME, WHICH IS NOT PURPORTED UNDER THE ACT, SO FAR AS REGARDS SECTION 36(1)(III) THEREOF. THE ADVANCES GIVEN TO THE AGRICULTURISTS WERE TO THE TUNE OF RS.28,53,069/-. THE ASSESSEE HAD EARNED INCOME ON ACCOUNT OF INTEREST AMOUNTING TO R S.2,14,095/- FROM THE AGRICULTURISTS. THE ASSESSEE HAD DULY FILED CO PIES OF ACCOUNTS OF THE AGRICULTURISTS BEFORE THE AO ALONGWITH ITS LETTER D ATED 17.04.2013. FROM THESE ACCOUNTS, IT WAS EVIDENT AND IT WAS NOT DISP UTED THAT THE ADVANCES ITA NO.682(ASR)/2014 ASSTT. YEAR : 2007-08 4 HAD BEEN MADE TO THE AGRICULTURISTS BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS AND THEY WERE INCIDENTAL TO THE BUS INESS ACTIVITIES CARRIED ON BY THE ASSESSEE. THIS WAS NOWHERE DISPUTED BY TH E LD. CIT(A). IN FACT, AS NOTED, THE LD. CIT(A) DID NOT GIVE ANY REASON FO R CONFIRMING THE ADDITION TO THE TUNE OF RS.1,14,123/- AND IT WAS ME RELY OBSERVED THAT THE ASSESSEE FIRM SHOULD HAVE CHARGED INTEREST ATLEAST @ 12%, THE RATE AT WHICH IT HAD PAID INTEREST TO THE RELATIVE AND OTHE RS, RATHER THAN @ 8% FROM THE AGRICULTURISTS. IT HAS NOWHERE BEEN DISPUT ED THAT FOR ENABLING THE ASSESSEE TO RUN ITS BUSINESS, IT IS VERY IMPO RTANT TO GET AGRICULTURAL PRODUCE FROM THE AGRICULTURISTS. IT WAS UNDER THESE CIRCUMSTANCES THAT THE LOANS WERE ADVANCED @ 8% AND THEREFORE, THE A SPECT OF COMMERCIAL EXPEDIENCY FOR DOING THIS CANNOT BE DOUBTED, AS HA S ALSO NOT BEEN DONE BY THE LD. CIT(A). NOW, IN CIT VS. SAMARTH SAHAKAR I SAKHAR KAHKHANA LTD., (2007) 213 CTR (BOM.) 8, UNDER SIMILAR CIRCU MSTANCES, IT HAS BEEN HELD THAT WHERE THE ADVANCES WERE MADE TO MEET BUSI NESS EXIGENCIES OF THE ASSESSEE, BEING IN THE BUSINESS INTEREST OF THE ASSESSEE, IT COULD NOT BE SAID THAT THE BORROWED FUNDS HAD BEEN DIVERTED F OR NON-BUSINESS PURPOSES MERELY BECAUSE SUCH ADVANCES WERE MADE AT A LOWER RATE OF INTEREST AND, THEREFORE, PROPORTIONATE INTEREST ON FUNDS BORROWED BY THE ASSESSEE COULD NOT BE DISALLOWED. 8. IN CIT VS. MARUDHAR CHEMICALS AND PHARMACEUTICA LS P.LTD., 319 ITR 75 (P&H), IT HAS BEEN HELD, FOLLOWING S.A. BU ILDERS VS. CIT(A), 288 ITR 1 (SC), THAT BEFORE DISALLOWING THE DEDUCTION O F INTEREST PERTAINING TO ITA NO.682(ASR)/2014 ASSTT. YEAR : 2007-08 5 INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN O R ITS DIRECTORS, IT WAS INCUMBENT ON THE AUTHORITIES TO RECORD A FINDING WH ETHER IT WAS NOT GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. IN THE PRESE NT CASE, AS OBSERVED, THE LD. CIT(A) HAS NOT RECORDED ANY OBSER VATION THAT THE LOAN ADVANCED BY THE ASSESSEE FIRM TO THE AGRICULTURISTS WAS NOT GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. IN OTHER WORDS, T HE LD. CIT(A) HAS ACCEPTED THAT THE LOANS WERE INDEED ADVANCED FOR C OMMERCIAL EXPEDIENCY. ONCE THIS IS SO, THE LD. CIT(A) WAS NOT CORRECT IN DECIDING THE RATE OF INTEREST TO BE CHARGED BY THE ASSESSEE, I.E ., @ 12%. RATHER, BY DOING SO, THE LD. CIT(A) HAS ERRONEOUSLY BROUGHT I N THE CONCEPT OF NOTIONAL INCOME, WHICH IS NOT ENVISAGED UNDER THE ACT. 9. IN SHIVGANGA BUILDERS (P.) LTD. VS. ACIT. 123 ITD 105 (AHD.), IT WAS HELD THAT THE INTEREST ON THE BORROWED FUNDS PA ID BY AN ASSESSEE IS AN ALLOWABLE EXPENDITURE WHEN BORROWED FUND IS UTI LIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THE DEPARTMENT IS NOT EMPOWERED TO DECIDE WHEN ASSESSEE IS TO BORROW AND WHEN IT SHOUL D NOT BORROW, AS THESE ARE MATTERS WHICH ARE REQUIRED TO BE DECIDED BY THE ASSESSEE AS A BUSINESSMAN; THAT THE ASSESSEE MAY MAKE AN IMPRUDEN T BUSINESS DECISION, BUT THE SAME ITSELF DOES NOT EMPOWER T HE REVENUE TO DISALLOW A LEGITIMATE AND BONA FIDE EXPENDITURE. IT IS PERTI NENT TO NOTE THAT IN THIS DECISION, THE MATTER WAS REMITTED TO THE FILE OF T HE AO FOR DECISION AFRESH, SINCE THE NECESSARY FACTS TO DECIDE THE IS SUE WERE NOT AVAILABLE ON RECORD. IN THE CASE AT HAND, HOWEVER, ALL THE FA CTS ARE ON RECORD. TO ITA NO.682(ASR)/2014 ASSTT. YEAR : 2007-08 6 REITERATE , THE LD. CIT(A) HAS NOT DISPUTED THAT TH E LOANS WERE ADVANCED BY THE ASSESSEE FIRM TO THE AGRICULTURISTS AS A MAT TER OF COMMERCIAL EXPEDIENCY, SINCE THE AGRICULTURAL PRODUCE IS A PRE -REQUISITE CONDITION OF THE ASSESSEES BUSINESS. 10. IN VIEW OF THE ABOVE, THE GRIEVANCE OF THE ASSE SSEE IS FOUND TO BE JUSTIFIED AND AS SUCH, IT IS ACCEPTED. THE ORDER OF THE LD. CIT(A) IS REVERSED. THE ADDITION IS DELETED. 11. IN THE RESULT, THE APPEAL IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 22/01/20 16. SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: 22/01/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. TIRATH RAM RAM NATH, SULTANPUR LODHI. 2. THE ITO, WARD-II, KAPURTHALA. 3. THE CIT(A), JALANDHAR 4. THE CIT, JALANDHAR. 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR.