The ACIT, Central Circle-1, Surat V. M/s. Patel Natverlal Chunilal & Co., Surat

ITA 737/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9950 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 27-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABA D (BEFORE HON'BLE SHRI G.D. AGRAWAL, V.P.(AZ) & HON BLE SHRI T.K. SHARMA, J.M. ) I.T.A. NO. 737/AHD./2008 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S. PATEL NATVERLAL CHINUBHAI & CO., CENTRAL CIRCLE-1, SURAT SURAT (PAN : ACDF P 5995 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR, SR . D.R. RESPONDENT BY : SHRI P.M. MEHTA O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 23.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX-II, AHMEDABAD FOR THE AS SESSMENT YEAR 2005-06. 2. THE GROUND NO. 1 RAISED BY THE REVENUE IS AGAINS T DELETING THE ADDITION OF RS.87,493/-, WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST. 2.1. THE ASSESSING OFFICER MADE THIS ADDITION FOR T HE DETAILED REASONS GIVEN IN PARA 6 OF THE ASSESSMENT ORDER. IN THIS PARA, THE ASSESSING OFFIC ER OBSERVED THAT THE ASSESSEE HAD SUBSTANTIAL AMOUNT OF CASH IN HAND, WHICH ACCORDING TO HIM WAS NEVER USED FOR THE PURPOSE OF BUSINESS. HE, THEREFORE, TOOK THE VIEW THAT CASH IN HAND IS NOTHI NG BUT UNSECURED LOANS TAKEN FROM OTHERS AND PARTNERS CAPITAL. IT WAS ALSO STATED THAT SINCE TH E BUSINESS OF THE ASSESSEE IS TO TRANSPORT PARCELS AND CASH FROM ONE PLACE TO ANOTHER, IT IS NOT REQUI RED FOR THE ASSESSEE TO KEEP SO MUCH CASH IN HAND AT ANY POINT OF TIME. THE ASSESSING OFFICER AS KED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST SHOULD NOT BE DISALLOWED. IN REPLY, THE AS SESSEE HAS GIVEN THE FOLLOWING REASONS FOR CASH BALANCE :- (I) TO MEET THE EXPENSE OF ROUTINE NATURE. (II) TO MEET THE EXTRA ORDINARY EXPENSES, LIKE PAYM ENT TOWARDS LOSSES AND DAMAGES. (III) TO QUICKLY AFFECT THE DELIVERY IF THERE IS AN Y DELAY IN TRANSPORTATION BY RAIL/ ROAD. 2 ITA NO. 737/AHD/2008 (IV) THE ASSESSEE CAN ONLY DECIDE THE QUANTUM AS TO WHAT IS TO BE KEPT AS CASH IN HAND. (V) THE ASSESSEE HAS NOT DIVERTED ITS INCOME BY WAY OF PAYMENT OF INTEREST. (VI) THE ASSESSEE HAS NOT GIVEN ANY FRIENDLY LOANS TO OTHERS. 2.2. THE ASSESSING OFFICER FOUND THE AFORESAID EXPL ANATION OF THE ASSESSEE UNACCEPTABLE ON ACCOUNT OF THE FOLLOWING REASONS :- (I) THE DAILY CASH COLLECTION IS MORE & SUFFICIENT TO MEET THE ROUTINE EXPENSES. (II) THE APPELLANTS CLAIM THAT THE CASH WAS KEPT T O MEET EXTRA ORDINARY CIRCUMSTANCE IS NOT ACCEPTED BECAUSE THE ASSESSEE F OR PAYMENT OUT OF CASH SUBMITTED NO EVIDENCE IN HAND IN RESPECT OF LOSSES AND DAMAGES. (III) THE ARGUMENT OF THE ASSESSEE THAT CASH IN HAN D IS UTILIZED FOR DELAY IN TRANSPORTATION HAS NOT BEEN ACCEPTED BY THE A.O. ST ATING THAT NO SUCH PAYMENTS HAD BEEN FOUND OUT OF THE CASH IN HAND AS PER CASH BOOK. IT IS STATED THAT THE APPELLANT DID NOT SUBMIT ANY OTHER ARGUMENT EXCEPT STATING THAT THE CASH WAS REQUIRED FOR SUCH PURPOSE. IT IS STATED BY THE A.O. THAT OPENING CASH BALANCE WAS OF RS.94,79,851/- AND CLOS ING BALANCE IS OF RS.86,92,390/- AND SUCH HUGE CASH BALANCE WAS NOT R EQUIRED FOR ROUTINE EXPENSES AND LOSSES. (IV) IT IS STATED THAT THE ASSESSEE WAS REQUIRED TO PROVE THE ACTUAL USE ON THE FUNDS BORROWED ON WHICH INTEREST IS PAID AND THAT T HE APPELLANT HAD NOT BEEN ABLE TO PROVE THE ACTUAL USE OF FUND FOR THE P URPOSE OF BUSINESS. (V) ASSESSEES CONTENTION THAT FUNDS WERE NOT DIVER TED OR THAT INCOME WAS NOT DIVERTED BY WAY OF PAYMENT IS NOT ACCEPTABLE ON THE GROUND THE DEDUCTION OF INTEREST IS TO BE ALLOWED ONLY ON THE CAPITAL USED FOR THE PURPOSE OF BUSINESS AND ACCORDING TO HIM THERE IS N O USER OF FUND BORROWED BY THE APPELLANT. THE MAIN CONTENTION OF THE A.O. I S THAT THE CAPITAL BORROWED HAS TO BE PROVED TO HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. HE HAS, THEREFORE, WORKED OUT THE INTEREST ON THE C ASH BALANCE AT THE RATE OF 12% WHICH IS RS.10,90,334/-. AS THE INTEREST EXPEND ITURE CLAIMED BY THE ASSESSEE IS RS.87,493/- ONLY, THE SAME IS DISALLOWE D. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE CONTENDED THAT THE BUSINESS OF THE ASSESSEE INCLUDE S SERVICES OF TRANSFER OF PARCELS AND TRANSFER OF CASH OF THE CUSTOMERS FROM ONE PLACE TO ANOTHER. TH E ASSESSEE HAS TO GIVE QUICK SERVICES FROM TIME DUE TO UNAVOIDABLE CIRCUMSTANCES LIKE DELAY IN TRANSPORTATION ON ACCOUNT OF CANCELLATION OF TRAINS OR OTHER PROBLEMS LIKE STRIKE ON THE SAY TO THE DESTINATION, ABSENCE OF EMPLOYEES AND OTHER 3 ITA NO. 737/AHD/2008 REASONS LIKE RIOTS ETC. IT WAS FURTHER SUBMITTED TH AT CASH IN HAND WAS AFFECTED IN THE CASH BOOK AND SAME IS ALLOWABLE UNDER SECTION 36(1)(III) OF T HE INCOME TAX ACT, 1961. 4. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE OBSERVING THAT THE ASSES SING OFFICER HAS NOT ESTABLISHED THAT BORROWED FUNDS ARE NOT USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS NOT DIVERTED BORROWED FUNDS ANY WHERE. HE ACCORDINGLY TOOK THE VIEW THAT INTEREST I S ADMISSIBLE UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, ON BEHALF OF REVENUE SHR I ANIL KUMAR, LD. SR. D.R. APPEARED AND RELYING ON THE REASONING GIVEN BY THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER CONTENDED THAT THERE WAS NO NECESSITY OF CASH IN HAND. THE ASSESSI NG OFFICER RIGHTLY DISALLOWED THE INTEREST PAID AMOUNTING TO RS.87,493/-. 6. ON THE OTHER HAND, SHRI P.M. MEHTA, LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HA D CASH BALANCE AS PER THE CASH BOOK. LOOKING TO THE NATURE OF BUSINESS, IT IS NECESSARY FOR THE ASS ESSEE TO MAINTAIN CASH BALANCE. THEREFORE, IT CANNOT BE SAID THAT BORROWINGS ARE NOT USED FOR THE PURPOSE OF BUSINESS. IT IS ALSO PERTINENT TO NOTE THAT NOWHERE IN THE ASSESSMENT ORDER, THE ASSE SSING OFFICER HAS POINTED OUT THAT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS FOR NON-BUSINESS PU RPOSE. THE CASH BALANCE MAINTAINED IN BUSINESS IS AS PER THE NEEDS AS JUDGED BY THE ASSES SEE. THEREFORE, WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGA LLY AND FACTUALLY CORRECT IN HOLDING THAT NO DISALLOWANCE OF INTEREST IS CALLED FOR. WE, THER EFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, G ROUND NO. 1 OF THIS APPEAL IS REJECTED. 8. THE ONLY OTHER GROUND OF APPEAL RAISED BY THE RE VENUE IS AS UNDER :- THE CIT(A.) HAS ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.25,00,000/- MADE BY THE A.O. ON ACCOUNT OF UNACC OUNTED CASH FOUND. 4 ITA NO. 737/AHD/2008 9. FROM THE RECORD, WE FIND THAT THE DETAILED REASO NS FOR MAKING THE AFORESAID ADDITION ARE DISCUSSED BY THE ASSESSING OFFICER IN PARA 5 OF THE ASSESSMENT ORDER. IN PARA 2 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER STATED THAT AT THE MUM BAI CENTRAL RAILWAY STATION, WHERE THE WARRANT OF AUTHORIZATION TO SEARCH IN A MINI BUS TO OK PLACE. DURING THE COURSE OF SEARCH, CASH AND JEWELLERY WORTH RS.2,17,04,640/- WAS FOUND FROM WHICH CASH OF RS.1,33,05,000/- AND JEWELLERY AND DIAMOND OF RS.83,99,640/- WERE SEIZED . THE SAID CASH AND JEWELLERY BELONG TO NINE FIRMS WHICH WERE CARRYING THE SAME FROM THEIR RESPE CTIVE OFFICES TOGETHER. THE DETAILS OF CASH AND JEWELLERY FOUND AND SEIZED ARE MENTIONED BY THE ASSESSING OFFICER AT PAGE 2 OF THE ASSESSMENT ORDER. DURING THE COURSE OF SEARCH, CASH BELONGED TO THE ASSESSEE AMOUNTING TO RS.26,25,000/-. THIS CASH FOUND WAS SEIZED. IN PARA 5 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER STATED THAT CASH OF RS.25,00,000/- FOUND WR APPED IN NEWSPAPER AND KEPT IN A BAG, AND DOES NOT SHOWN NAMES OF SENDER OR THE RECEIVER. SHR I PRAKASH ISHVERLAL PATEL WAS AVAILABLE AT THAT TIME AND HIS STATEMENT WAS RECORDED UNDER SECTION 1 31 OF THE ACT ON 21/22.07.2004. IN THIS STATEMENT, HE STATED THAT CASH BELONGED TO THE FIRM AND WAS BEING TRANSFERRED TO AHMEDABAD. THE DDIT(INV.), UNIT-II(3), MUMBAI SEIZED THE AMOUNT FO R THE REASONS THAT SINCE NO SATISFACTORY EXPLANATION WITH REGARD TO THE SOURCE OF CASH AND D ISCLOSURE IN REGULAR BOOKS OF ACCOUNTS COULD BE FURNISHED BY THE PERSON OR ANY OTHER PERSON EVEN AFTER PASSES 15 HOURS SINCE COMMENCEMENT OF SEARCH, THE AMOUNT OF RS.25 LACS WAS SEIZED. IN THE ASSESSMENT ORDER, AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE ASSESSING OFFICER MADE T HE ADDITION OF RS.25,00,000/-. 10. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAID ADDITION FOR THE DETAILED REASONS GIVEN IN PARA 6 OBSERVING AS UNDER :- I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABO VE SUBMISSIONS FURNISHED BY THE APPELLANT. IT IS NOTICED THAT IN T HE COURSE OF SEARCH AT THE MINI BUS IN MUMBAI CASH WAS FOUND WHICH INCLUDED AM OUNT OF RS.25 LAKH BELONGING TO THE APPELLANT. ALONG WITH THE SAI D CASH, A LETTER WAS FOUND WHEREIN IT WAS STATED THAT SUCH CASH WAS BEIN G SENT TO AHMEDABAD FROM OUT OF CASH BALANCE OF MUMBAI OFFICE OF THE AP PELLANT. THE PERSON FROM APPELLANT WHO WAS PRESENT AND EXAMINED AT THE TIME OF SEARCH ALSO EXPLAINED THAT AS PER THE INSTRUCTIONS OF ONE OF TH E PARTNERS, CASH WAS BEING SENT FROM MUMBAI TO AHMEDABAD AND THAT SUCH C ASH WAS BELONGING TO THE APPELLANT ITSELF. HE HAD ALSO STAT ED THAT SUCH CASH WAS PART OF CASH BALANCE AS PER THE CASH BOOK. THE AUTH ORIZED OFFICER HAD SIMPLY ASKED AS TO WHETHER CASH BOOK WAS AVAILABLE WITH THAT PERSON AND HE HAD EXPLAINED THAT HE WAS NOT CARRYING CASH BOOK WITH HIM BUT IT WAS 5 ITA NO. 737/AHD/2008 LYING WITH MUMBAI OFFICE. THEREAFTER IT APPEARS THA T THE SEARCH PARTY HAD NOT CARRIED OUT ANY FURTHER EXAMINATION. THE APPELL ANT HAS FURNISHED COPIES OF THE RELEVANT PAGES OF CASH BOOK WHICH CLE ARLY SHOW THAT THERE WAS CASH BALANCE OF MORE THAN RS.25 LAKH AT MUMBAI OFFICE AND THAT THE CASH SO SENT WAS ALSO RECORDED ON THE DATE OF SEARC H. THUS ALL THE EVIDENCES FOUND AT THE TIME OF SEARCH AND EXPLANATI ON GIVEN IN THE COURSE OF ASSESSMENT PROCEEDINGS BY THE APPELLANT ARE SUPP ORTING THE APPELLANTS CLAIM THAT THE CASH SO SEIZED WAS AS PE R THE CASH BOOK OF MUMBAI OFFICE. THE A.O. HAS SIMPLY STATED THAT THE REASONS FOR TRANSFER OF CASH FROM MUMBAI TO AHMEDABAD ARE NOT GIVEN AND THAT THE TRANSFER COULD HAVE BEEN TO HEAD OFFICE. I AM OF THE VIEW TH AT IT IS FOR THE ASSESSEE TO DECIDE AS TO WHERE THE CASH IS REQUIRED AND IT I S NOT THE A.O. WHO HAS TO DECIDE AS TO WHERE THE CASH SHOULD BE TRANSFERRE D. THE EVIDENCE THAT THE APPELLANT HAD AT THE TIME OF SEARCH ITSELF EXPL AINED THAT SUCH CASH WAS OUT OF THE CASH BALANCE AS PER THE BOOKS OF MUMBAI AND IT IS RECORDED IN THE SAID CASH BOOK IS SUFFICIENT TO PROVE THAT THE CASH WAS DULY ACCOUNTED FOR. CONSIDERING ALL THESE ASPECT I HOLD THAT THE A DDITION OF RS.25 LAKH MADE BY THE A.O. DESERVES TO BE DELETED. THIS GROUN D OF APPEAL IS ACCORDINGLY ALLOWED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 11. AT THE TIME OF HEARING, ON BEHALF OF REVENUE SH RI ANIL KUMAR, LD. SR. D.R. APPARED AND CONTENDED THAT SINCE FOR ABOUT 15 HOURS, NO CASH BO OK WAS PRODUCED BEFORE THE DDIT(INVESTIGATION) FOR VERIFICATION, THE ADDITION WAS RIGHTLY MADE AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN DELETI NG THE SAME. 12. ON THE OTHER HAND, SHRI P.M. MEHTA, LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PERSON, WHO WAS CARRYING ON THE CASH, STATED THAT RS.25 LACS IN CASH WAS BEING TO SENT TO AHMEDABAD O FFICE FROM MUMBAI OFFICE. THE AUTHORIZED OFFICER HAD SIMPLY ASKED AS TO WHETHER CASH BOOK WA S AVAILABLE WITH THAT PERSON AND HE HAD EXPLAINED THAT HE WAS NOT CARRYING CASH BOOK WITH H IM BUT IT WAS LYING WITH MUMBAI OFFICE. THE LD. COUNSEL OF THE ASSESSEE EXPLAINED THAT WHENEVER CASH IS BEING CARRIED, IT IS NOT THE PRACTICE TO CARRY THE CASH BOOK. SUBSEQUENTLY, RELEVANT PAGES O F CASH BOOK WERE PRODUCED, WHICH CLEARLY INDICATE THAT CASH BALANCE AVAILABLE WAS MORE THAN RS.25 LACS AT THE MUMBAI OFFICE, AND THAT THE CASH SO SENT WAS RECORDED ON THE DATE OF SEARCH. HE ACCORDINGLY CONTENDED THAT THE ASSESSING 6 ITA NO. 737/AHD/2008 OFFICER MADE THE ADDITION ON DOUBTS AND SUSPICION A ND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN DE LETING THE SAME. 13. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AT THE TIME OF SEARCH ITSELF, SHRI PRAKASHBHAI I. PATEL STATED THA T AT THE MINI BUS IN MUMBAI CASH WAS FOUND WHICH INCL UDED THE AMOUNT OF RS.25 LACS BELONGED TO THE ASSESSEE. ALONG WITH THE SAID CASH, A LETTER WA S FOUND WHEREIN IT WAS STATED THAT SUCH CASH WAS BEING SENT TO AHMEDABAD FROM OUT OF CASH BALANC E OF MUMBAI OFFICE OF THE ASSESSEE. THE EMPLOYEE OF THE ASSESSEE WHO WAS PRESENT AND EXAMIN ED AT THE TIME OF SEARCH ALSO EXPLAINED THAT AS PER THE INSTRUCTIONS OF ONE OF THE PARTNERS, CAS H WAS BEING SENT FROM MUMBAI TO AHMEDABAD AND THAT SUCH CASH WAS BELONGING TO THE ASSESSEE IT SELF. LOOKING TO TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, REASONING GIVEN BY THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER, WE ARE CONVINCE D THAT THE ASSESSING OFFICER MADE THE ADDITION OF RS.25,00,000/- ON DOUBTS AND SUSPICION AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING T HE SAME. THEREFORE, WE DECLINE TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TA X(APPEALS). RESULTANTLY, THIS GROUND OF APPEAL IS REJECTED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 03.09.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 03/ 09 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT CONCERNED, (4) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR, ITAT, AHMEDABAD LAHA/SR.P.S.