Shanti Swaroop Goyal, Agra V. I.T.O.-1(1), Agra

ITA 69/AGR/2013

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0691 (ITAT-AGRA)
• Duration Of Justice: 6 year(s) 2 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 29-07-2013
• Assessment Year: misc
• Appeal Filed On: 08-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Keywords: Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (S.M.C.)AGRA BENCH, AGRA BEFORE: SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 69 AGRA/ 2013 ASSTT. YEAR: 2008-09 SHANTI SWAROOP GOYAL VS. INCOME TAX OFFICER-1(1), 20 NEHRU NAGAR AGRA AGRA (PAN AEXPG 6869 C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI K.K. MISHRA, JR. D.R. DATE OF HEARING : 29.07.2013 DATE OF PRONOUNCEMENT : 31.07.2013 ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)- I, AGRA DATED 24.09.2012 FOR A.Y. 2008-09. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE FINDINGS OF AUTHORITIES BELOW. 3. ON GROUND NO.1, ASSESSEE CHALLENGED THE DISALLOW ANCE OF RS.59,784/- UNDER SECTION 36(1)(III) OF THE I.T. ACT. ITA NO.69/AGRA/2013 A.Y. 2008-09 2 4. THE A.O. NOTED THAT ASSESSEE HAD BORROWED HOUSIN G LOAN RS.2,50,00,000/- FROM ICICI BANK LTD., SANJAY PLACE, AGRA DURING F.Y . 2006-07 AGAINST PURCHASE OF PROPERTY SITUATED AT NEW FRIENDS COLONY, NEW DEL HI. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID TOTAL INTEREST OF RS.31,31,915/- @ 10.5%. OUT OF THIS INTEREST AMOUNT, RS.27,13,428/- WAS CAP ITALIZED AGAINST THE PROPERTY AND BALANCE AMOUNT RS.4,18,487/- AGAINST LOAN ACCOU NT GIVEN TO THREE OTHER PARTIES OR SISTER CONCERN AND INTEREST WAS RECEIVED @ 9% FROM THESE PARTIES. ON PERUSAL OF PAPERS SUBMITTED BY THE ASSESSEE IT WAS FOUND THAT OUT OF BORROWED LOAN FROM BANK THE ASSESSEE HAS GIVEN A PART OF THI S LOAN TO HIS SISTER CONCERNS AND RECEIVED INTEREST @ 9% AGAINST THE PAYMENT OF LOAN INTEREST @ 10.5% TO THE BANK. THE A.O. THEREFORE, FOUND THAT ASSESSEE HAD MISUSED BORROWED FUND/LOAN. HENCE, INTEREST @ 9% SHALL BE ALLOWED AS THE DEDUCTION ON THIS LOAN AMOUNT WHICH IS QUANTIFIED AT RS.3,58,703/-AND THE REST OF BALANCE AMOUNT OF RS.59,784/- WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 5. THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT ST ATEMENT OF LOANS AND ADVANCES TO SISTER CONCERNS HAVE BEEN FILED, IT WIL L BE SEEN THAT THE ASSESSEE HAS CHARGED INTEREST @ 16% ON LOAN OF RS.10,00,000/- ADVANCED TO M/S COMMERCIAL AUTO PRODUCTS (P) LTD. THUS, EXCESS INTEREST CHARGE D BY THE ASSESSEE OVER AND ITA NO.69/AGRA/2013 A.Y. 2008-09 3 ABOVE 9% COMES TO RS.70,000/-. THEREFORE, ADDITION IS UNJUSTIFIED. IT WAS ALSO SUBMITTED THAT MOREOVER THE ASSESSEE HAS OWN CAPITA L OF RS.2,17,23,767/- AS ON 31.03.2008, THEREFORE, ADDITION IS UNJUSTIFIED. THE LD. CIT(A) THOUGH DID NOT DISPUTE THE ABOVE STATEMENT OF FACTS SUBMITTED BY T HE ASSESSEE, IT WAS NOTED THAT ASSESSEE HAS NOT SHOWN THE SOURCE OF GIVING LOAN BE ING OUT OF THE BANK LOAN AND BANK LOAN WAS ADVANCED TO SISTER CONCERN AT LOWER R ATE AND ADDITION WAS CONFIRMED. 6. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSION MADE BEFORE AUTHORITIES BELOW AND REFERRED TO P.B.1 AND P.B. 4 AND ORDER OF THE ITAT AGRA BENCH IN THE CASE OF M/S SURAJ BHAN AGENCIES (P) LT D. VS. DCIT, ITA NO. 28/AGR/2012 AND M/S PEE CEE SOAP & CHEMICALS (P) LT D. VS. DCIT, ITA NO. 29/AGR/2012 DATED 31.07.2012 IN WHICH PARA 18 AND 1 9 IT WAS HELD :- 18. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATI VE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF I.T.A.T, AGRA BENCH IN THE CASE OF M/S. PEE CEE SOAPS & CHEMICALS (P) LTD. I.E. THE AS SESSEES OWN CASE IN ITA NO.236/AGR/2011 FOR A.Y. 2006-07, ORDER DATED 2 0.04.2012. THE RELEVANT FINDING OF I.T.A.T. IN THE SAID ORDER IS R EPRODUCED FROM PARAGRAPH NOS.6, 7 & 8 AS UNDER OF WHICH COPY IS PLACED AT PA GE NOS. 62 TO 69 OF THE ASSESSEES PAPER BOOK :- 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE ASSESSING OFFICER MADE OUT TH E CASE THAT SECTION 14A OF THE ACT READ WITH RULE 8D OF WHICH T HE EFFECT IS RETROSPECTIVE AND APPLICABLE TO ASSESSMENT YEAR 200 6-07, THE YEAR ITA NO.69/AGRA/2013 A.Y. 2008-09 4 UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLO WED THE AMOUNT CALCULATED UNDER RULE 8D OF IT RULES. THE CIT(A) D ID NOT AGREE WITH THE VIEW THAT SECTION 14A READ WITH RULE 8D IS APPLICABLE IN THE YEAR UNDER CONSIDERATION FOLLOWING A JUDGEMENT OF B OMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 234 CTR (BOMBAY) 1 WHEREIN IT HAS BEEN HELD THAT RULE 8D RE AD WITH SECTION 14A IS APPLICABLE W.E.F. ASSESSMENT YEAR 2007-08. 7. THE LD. REPRESENTATIVES OF PARTIES ADMITTED THAT THE REVENUE DID NOT FILE ANY APPEAL AGAINST THIS FINDING OF THE CIT(A). THUS, THE CONTROVERSY RELATING TO WHETHER SECTION 14A OF THE ACT READ WITH RULE 8D IS APPLICABLE IN THE YEAR UNDER CONSIDERATION, A SSESSMENT YEAR 2006-07, OR NOT BECAME FINAL AS REVENUE DID NOT FIL E ANY APPEAL AGAINST THE ORDER OF CIT(A) WHEREIN IT HAS BEEN HEL D THAT SECTION 14A READ WITH RULE 8D IS APPLICABLE W.E.F. 2007-08. HOWEVER, THE PRESUMPTION OF THE CIT(A) WAS THAT SOME BORROWED FU NDS HAVE BEEN DIVERTED TO INVESTMENT IN SHARES OF WHICH INCOME IS EXEMPT. THE LD. AUTHORISED REPRESENTATIVE POINTED OUT THE POSITION OF SHARE CAPITAL, RESERVE & SURPLUS, UNSECURED LOAN ETC. AND LOAN GIV EN AND INVESTMENT IN SHARES. THE DETAILS WHICH IS POINTED OUT FROM ORDER OF THE CIT(A) AT PAGE NO.2 READS AS UNDER :- SHARE CAPITAL RS.44,50,000/- RESERVE AND SURPLUS RS.12,59,74,541/- UNSECURED LOAN NIL SECURED LOAN:- O.D. LIMIT RS.2,52,72,561/- VEHICLE LOAN RS.15,50,588/- RS.2,68,23,149/- LOAN GIVEN RS.5,15,88,194/- INTEREST RECEIVED RS.60,36,620/- INTEREST PAID RS.34,81,490/- INVESTMENT IN SHARES RS.5,28,01,422/- 8. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF T HE CASE, THE LIMITED ISSUE TO BE DECIDED BEFORE US IS WHETHER TH E INTEREST CLAIM OF THE ASSESSEE IS DISALLOWABLE ON THE GROUND THAT THE ASSESSEE HAS USED ITA NO.69/AGRA/2013 A.Y. 2008-09 5 THE INTEREST BEARING BORROWED FUNDS IN THE INVESTME NT OF SHARES. THE CLAIM OF INTEREST ON BORROWED FUND IS ALLOWABLE UND ER SECTION 36(1)(III) OF THE ACT. ACCORDING TO THE SAID SECTI ON 36(1)(III) THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS ALLOWABLE EXPE NSES SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSINESS. THE I NTEREST PAID ON SUCH BORROWING IS AN EXPENDITURE WHICH IS REQUIRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM BUSINESS. TO EXAMINE THE PROBLEM IN CASES WHERE FUNDS ARE PUMPED OUT OF THE BUSINESS WHICH ARE COMPRISED OF BOTH TYPE OF FUNDS I.E. BORROWED A S WELL AS OWN FUNDS, FOR NON-BUSINESS PURPOSE. IN ALL SUCH CASES WHERE MIXED FUNDS ARE USED FOR BUSINESS AND OTHER THAN BUSINESS PURPOSES IN SUCH CIRCUMSTANCES THE I.T.A.T., MUMBAI BENCH IN THE CAS E OF ACIT VS. H.P. SHAH & CO. ITA NO.3694/M/2006 ORDER DATED 15.0 1.2009 HELD THAT THERE IS NO PRESUMPTIONS THAT MONEY USED FOR O THER PURPOSES CAME OUT OF BORROWED FUNDS. IT CAN BE SAID THAT IN TEREST FREE FUNDS GIVEN ON INVESTMENT IF ARE OUT OF OWN FUNDS, I.E. O WN CAPITAL AND RESERVES IS SUFFICIENT TO COVER SUCH INTEREST FREE INVESTMENT. IN THAT CIRCUMSTANCES, IT IS PRESUMED THAT THE INVESTMENT I N INTEREST FREE FUNDS WERE OUT OF OWN CAPITAL AND RESERVES AND UNDE R SUCH CIRCUMSTANCES, THE REVENUE CANNOT DISALLOW INTEREST CLAIM OF THE ASSESSEE UNDER SECTION 36(1)(III) OF THE ACT. THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. LTD., 285 ITR 554 (ALLD.) WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS BY WAY OF PROPRIETARY CAPITAL OR BY WAY OF INTEREST FREE DEPOSITS FROM CU STOMERS, THERE IS INFERENCE THAT BORROWED FUNDS ARE NOT DIVERTED FOR NON-BUSINESS PURPOSES. THE APEX COURT IN THE CASE OF MUNJAL SA LES CORPORATION VS. CIT(A) 298 ITR 298 WHEREIN LAW LAID DOWN THAT I NTEREST FREE FUNDS TO SISTER CONCERN OUT OF OWN FUNDS, THE DISAL LOWANCE CANNOT BE MADE UNDER SECTION 36(1)(III) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE RELIED UPON VARIOUS DECISIONS OF WHI CH GIST HAS BEEN FILED BUT THESE DECISIONS RELATED TO THE INVOCATION OF SECTION 14A OF THE ACT. THESE CASES HAVE BEEN DECIDED BY THE COUR T/BENCH CONSIDERING THE FACTS OF RESPECTIVE CASES. IN THE LIGHT OF ABOVE DISCUSSIONS AND JUDICIAL PRONOUNCEMENTS NOTED ABOVE , IF WE CONSIDER THE FACTS, WE FIND THAT THE ASSESSEE WAS H AVING SHARE ITA NO.69/AGRA/2013 A.Y. 2008-09 6 CAPITAL OF RS.44,50,000/- AND RESERVE AND SURPLUS O F RS.12,59,74,541/- OUT OF WHICH THE INVESTMENT IN SH ARES WAS RS.5,28,01,422/-. THUS, WE FIND THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL A ND RESERVES TO MAKE INVESTMENT IN SHARES. UNDER THE CIRCUMSTANCES , NO DISALLOWANCE IS REQUIRED UNDER SECTION 36(1)(III) O F THE ACT. IN THE LIGHT OF THE FACT, WE DO NOT AGREE WITH THE FINDING THE CIT(A) WHICH IS ON PRESUMPTION BASIS THAT BORROWED FUNDS HAS BEEN D IVERTED TO INVESTMENT IN SHARES AND THAT PART OF THE ORDER OF CIT(A) IS SET SIDE AND DELETE THE ADDITION OF RS.8,00,000/- SUSTAINED BY HIM. 19. THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DIS PUTE AS REGARDS TO THE FACTS OF THE CASE UNDER CONSIDERATIO N AND THE FACTS OF THE CASE IN EARLIER YEAR I.E. 2006-07. SINCE THE F ACTS ARE IDENTICAL, THEREFORE, WE FOLLOW THE ABOVE ORDER OF I.T.A.T. IN ASSESSEES OWN CASE FOR A.Y. 2006-07. THE A.O. IS DIRECTED TO CAL CULATE THE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH THE ABOVE ORDER OF THE I.T.A.T., KEEPING IN MIND THAT THE ASSESSEE WAS HAV ING SHARE CAPITAL OF RS.44,50,000/- AND RESERVE AND SURPLUS OF RS.12, 76,48,308/- AS INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE. TH E A.O. IS DIRECTED ACCORDINGLY. 7. LD. D.R. HOWEVER, RELIED UPON THE ORDER OF THE A UTHORITIES BELOW. 8. ON CONSIDERATION OF RIVAL SUBMISSION WE DO NOT F IND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE ASSESSEES SUBMISSION THA T HE HAS CHARGED MORE INTEREST ON THE ADVANCE GIVEN TO M/S COMMERCIAL AUTO PRODUCT S PVT. LTD IS NOT DISPUTED. THUS, THE ADDITION BEING LESSER THAN THE AMOUNT OF INTEREST, THERE WAS NO JUSTIFICATION TO MAKE DISALLOWANCE OF THE INTEREST AS PROPOSED BY THE A.O. FURTHER THE CAPITAL OF THE ASSESSEE OF RS.2.17 CRORES IS AL SO NOT DISPUTED THEREFORE SUFFICIENT FUNDS ARE AVAILABLE TO THE ASSESSEE TO G IVE THE LOAN TO SISTER CONCERN. ITA NO.69/AGRA/2013 A.Y. 2008-09 7 THE DECISION IN THE CASE OF M/S SURAJ BHAN AGENCIES (P) LTD. AND OTHERS (SUPRA) WOULD APPLY IN FAVOUR OF THE ASSESSEE. I, ACCORDING LY DELETE THE ADDITION OF RS.59,784/-. GROUND NO.1 APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 9. ON GROUND NO.2 ASSESSEE HAS CHALLENGED THE DISAL LOWANCE OF RS.1,22,234/- BEING 5% OF LABOUR EXPENSES. THE A.O. FOUND THAT TH E ASSESSEE HAD DEBITED THE COMPOST LABOUR EXPENSES TO RS.24,44,677/- IN THE PR OFIT & LOSS ACCOUNT THE ASSESSEE HAS PRODUCED SELF GENERATED VOUCHERS, WHIC H WERE HAVING NO COMPLETE ADDRESSES. THE A.O. THEREFORE, DISALLOWED 5% OF THE EXPENSES. THE LD. CIT(A) ON THE SAME REASONING DISMISSED THE GROUND OF APPEAL O F THE ASSESSEE. 10. ON CONSIDERATION OF THE RIVAL SUBMISSION, I AM OF THE VIEW THAT ADDITION IN PRINCIPLE IS JUSTIFIED BECAUSE THE VOUCHERS DID NOT CONTAIN FULL ADDRESS OF THE RECIPIENT, THEREFORE VERIFICATION OF THE VOUCHERS W AS NOT POSSIBLE. HOWEVER, IT IS ADMITTED FACT THAT ASSESSEE HAS SHOWN NIL INCOME WI TH AGRICULTURAL INCOME OF RS.2,44,905/-, THEREFORE, THE EARNING OF THE INCOME BY THE ASSESSEE WOULD NOT BE MUCH TO SUSTAIN THE HEAVY ADDITION OF THIS NATURE I N THE CASE OF THE ASSESSEE. THE ADDITION OF RS.1,22,234/- IS THEREFORE, MODIFIED AN D RESTRICTED TO RS.50,000/- IN ALL. ITA NO.69/AGRA/2013 A.Y. 2008-09 8 11. IN THE RESULT, ON GROUND NO.2 ADDITION IS MAINT AINED AT RS.50,000/- AND REST OF THE ADDITION IS DELETED. GROUND NO.2 IS, TH EREFORE, PARTLY ALLOWED. 12. ON GROUND NOS. 3 AND 4, ASSESSEE HAS CHALLENGED THE ADDITION OF RS.38,159/- OUT OF VARIOUS EXPENSES. THE A.O. CONSI DERED VARIOUS EXPENSES LIKE POSTAGE AND TELEPHONE EXPENSES, CONVEYANCE EXPENSES , STAFF AND LABOUR WELFARE EXPENSES AND MISC. EXPENSES AND FOUND THAT THE ENTI RE EXPENSES ARE NOT USED FOR THE PURPOSE OF BUSINESS OR USED FOR PERSONAL PURPOS ES AND THE SAME ARE NOT SUBJECTED TO CROSS VERIFICATION, THEREFORE, 15% OF THESE EXPENSES WERE DISALLOWED. ON ACCOUNT OF PLASTIC PACKING BAGS EXPENSES, THE A. O. DISALLOWED 5% OF THE EXPENSES ON ACCOUNT OF THE VOUCHERS BEING SELF GENE RATED AND FOR WANT OF CROSS VERIFICATION. THE A.O. THEREFORE, ON OF THESE EXPEN SES DISALLOWED RS.51,356/-. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF THE A SSESSEE RESTRICTED THE DISALLOWANCE TO 5% OF THE ALL EXPENSES AND REDUCED THE ADDITION TO RS.38,159/-. 13. ON CONSIDERATION OF RIVAL SUBMISSIONS, I AM OF THE VIEW, NO FURTHER REDUCTION IS REQUIRED IN THE MATTER. THE A.O. GAVE SPECIFIC REASON FOR MAKING DISALLOWANCE, WHICH HAVE NOT BEEN REBUTTED DURING C OURSE OF ARGUMENT. THE LD. CIT(A) CONSIDERING THE ISSUE IN DETAIL CORRECTLY RE STRICTED THE ADDITION TO 5% OF THE DISALLOWANCE OUT OF VARIOUS EXPENSES. LD. COUNS EL FOR THE ASSESSEE SUBMITTED ITA NO.69/AGRA/2013 A.Y. 2008-09 9 THAT ON PLASTIC PACKING BAGS THE PAYMENTS ARE MADE THROUGH BANKING CHANNEL HOWEVER NO DETAILS HAVE BEEN FURNISHED OR POINTED O UT BY THE ASSESSEE DURING COURSE OF ARGUMENT. IN THE RESULT, GROUND NOS.3 & 4 APPEAL OF THE ASSESSEE ARE DISMISSED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- (BHAVNESH SAINI) JUDIC IAL MEMBER AMIT/ COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY