M/s Monali Developers, Baroda V. The ACIT. Circle-2, Baroda

ITA 737/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89424 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 737 /AHD/2011 (ASSESSM ENT YEAR: 2007-08) M/S. MONALI DEVELOPERS 2 ND FLOOR, PRESTIGE COMPLEX, OPP. BANK OF INDIA, RACE COURSE CIRCLE, BARODA V/S ADDL. C.I.T., CIRCLE-2, BARODA (APPELLANT) (RESPONDENT) PAN: AACFM9086E APPELLANT BY : SMT. URVASHI SODHAN, A.R. RESPONDENT BY : SMT. SONIA KUMAR, SR. D.R. ( )/ ORDER DATE OF HEARING : 23-04-201 5 DATE OF PRONOUNCEMENT : 07 -05-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-II, BARODA DATED 14.12.2010 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE DERIVIN G INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. ASSESSEE FI LED ITS RETURN OF INCOME ITA NO 737/A HD/2011 . A.Y. 2007-0 8 2 FOR A.Y. 2007-08 ON 31.07.2007 DECLARING TOTAL INCO ME OF RS. 1,16,79,930/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2009 AN D THE TOTAL INCOME WAS DETERMINED AT RS. 1,36,22,700/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 14.12.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND;- 1. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 1,19,978/- ON ACCOUNT OF DISALLOWANCE OF INTEREST ON ADVANCES MADE TO NITABE N M. PATEL. 2. THE LD. CIT(A) ERRED IN DISALLOWING A SUM OF RS. 7, 82,778/- U/S. 24(B) OF THE ACT. 1 ST GROUND IS WITH RESPECT TO ADDITION ON ACCOUNT OF D ISALLOWANCE OF INTEREST. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS ADVANCED INTEREST FREE LOAN AGGREGATING TO RS. 1,70 ,65,846 TO ONE OF THE PARTNERS, SMT. NITABEN PATEL. HE ALSO NOTICED THAT DURING THE YEAR, ASSESSEE HAD BORROWED FUNDS ON WHICH INTEREST WAS PAID BY TH E ASSESSEE AND HAD ALSO CHARGED INTEREST ON THE ADVANCES GIVEN TO OTHER PAR TNERS. THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST ON THE INTEREST FREE AMOUNT ADVANCED TO NITABEN PATEL NOT BE DISALL OWED TO WHICH ASSESSEE INTERALIA SUBMITTED THAT SMT. NITABEN PATEL WAS HA VING CREDIT BALANCE OF RS. 21,84,154/- ON 01.04.2006 WHICH WAS REPAID ON 22.04 .2006. IT WAS FURTHER SUBMITTED THAT THE AMOUNT HAVE BEEN ADVANCED FROM I CICI BANK WHICH IS A CURRENT ACCOUNT AND ON WHICH NO INTEREST HAS BEEN P AID BY THE FIRM. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O AS HE WAS OF THE VIEW THAT THE AMOUNT ADVANCED TO SMT. NITABE N PATEL OUT OF THE ITA NO 737/A HD/2011 . A.Y. 2007-0 8 3 CURRENT ACCOUNT BALANCES DOES NOT PROVE THAT THE AM OUNT ADVANCED WAS OUT OF THE SURPLUS FUNDS. HE WAS FURTHER OF THE VIEW TH AT SINCE ALL THE FUNDS WERE PARKED IN A COMMON BANK ACCOUNT, ONUS WAS ON THE AS SESSEE TO PROVE THAT THE FUNDS WHICH HAVE BEEN ADVANCED HAVE DIRECT NEXU S WITH THE SURPLUS FUNDS. HE THEREFORE CONCLUDED THAT THE ASSESSEE WAS NOT IN A POSITION TO PROVE AS TO ASSESSEE DID NOT CHARGE ANY INTEREST ON THE AMOUNT ADVANCED TO SMT. NITABEN PATEL. HE THEREAFTER, ON THE BASIS OF THE PREVAILING BANK RATE OF 12% WORKED OUT THE INTEREST EXPENSES ON THE AMOUNT ADVANCED TO NITABEN PATEL AND DISALLOWED RS. 1,19,978/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO U PHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THERE IS NO DISPUTE THAT AMO UNT HAS BEEN PAID FROM THE CURRENT ACCOUNT WHICH ALSO CARRIES THE BORROWED FUND. THE A PPELLANT HAS FAILED TO ESTABLISH THAT INTEREST FREE ADVANCE FROM THE CURRENT ACCOUNT WHIC H DOES CARRY INTEREST BURDEN HAVE BEEN UTILIZED EXCLUSIVELY FOR THE PURPOSE OF BUSINE SS. ON THE FACTS OF THE APPELLANT'S CASE IT IS APPARENT THAT BORROWED FUNDS HAVE BEEN DIVERT ED TO NON-BUSINESS PURPOSE. THIS GROUND IS REJECTED. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A).SHE FURTHER SUBMITTED THAT THE AMOUNT HAS BE EN ADVANCED FROM THE CURRENT ACCOUNT MAINTAINED WITH ICICI BANK AND NO I NTEREST IS PAID ON SUCH CURRENT ACCOUNT. SHE ALSO POINTED TO THE BANK COPY OF ACCOUNT MAINTAINED WITH ICICI BANK BEARING NO. 5/3285 WHICH WAS PLACED AT PAGE 56 TO 61 OF THE PAPER BOOK. SHE FURTHER SUBMITTED THAT ASSESSE E HAS INTEREST FREE FUNDS AND NO BORROWED FUNDS HAVE BEEN USED FOR ADVANCING THE LOAN AND THEREFORE ITA NO 737/A HD/2011 . A.Y. 2007-0 8 4 NO DISALLOWANCE OF INTEREST COULD BE MADE. SHE ALSO PLACED RELIANCE ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF RAGHU VIR SYNTHETICS REPORTED IN 354 ITR 222 (GUJ). SHE THEREFORE SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST WAS CALLED FOR. LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE AMOU NT WHICH HAS BEEN ADVANCED IS OUT OF INTEREST FREE FUNDS AND NOT BORR OWED FUNDS WHICH THE ASSESSEE HAS NOT PROVED. SHE THUS SUPPORTED THE ORD ER OF A.O AND LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, ONE OF THE ASSESSEES SUBMISSION IS THAT RS. 21.84 LACS PAID TO NITABEN PATEL WAS THE LOAN THAT WAS REPAID TO HER O N 22.04.2006 AND THAT THE LOAN IS OUT OF INTEREST FREE FUNDS AND NOT OUT OF B ORROWED FUNDS. BEFORE US, NO COPY OF LOAN ACCOUNT OF NITABEN PATEL FOR THE YE AR UNDER REVIEW HAS BEEN PLACED ON RECORD AND THEREFORE THE SUBMISSION OF TH E ASSESSEE THAT THE AMOUNT IS INTEREST FREE FUNDS COULD NOT BE VERIFIED AT OUR END. WE ARE THEREFORE OF THE VIEW THAT THE SUBMISSION OF THE AS SESSEE NEEDS VERIFICATION AT THE END OF A.O. WE THEREFORE REMIT THE ISSUE TO THE FILE OF A.O TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE CONTENTIONS RA ISED BY THE ASSESSEE AND IN ACCORDANCE WITH LAW. NEEDLESS TO STATE THAT A.O SHA LL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE REQUIRED DETAILS CALLED FOR BY THE A.O PROM PTLY. THUS THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2 ND GROUND IS WITH RESPECT TO DISALLOWANCE U/S. 24(B) OF THE ACT. ITA NO 737/A HD/2011 . A.Y. 2007-0 8 5 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS CLAIMED INTEREST PAYMENT OF RS. 68,27,226/- ON ACCO UNT OF BORROWED CAPITAL U/S. 24(B) OF THE ACT. THE ASSESSEE WAS ASKED TO JU STIFY ITS CLAIM TO WHICH ASSESSEE INTERALIA SUBMITTED THAT ASSESSEE HAS BORR OWED LOAN FROM UTI BANK AND FROM OTHERS ALSO AND THE AMOUNT WAS UTILIZ ED FOR THE PURPOSE OF ACQUISITION OF PROPERTY AND REPAYMENT OF LOAN TAKEN EARLIER FOR THE ACQUISITION OF PROPERTY. IT WAS THEREFORE SUBMITTED THAT THE BORROWED MONEY HAS BEEN UTILIZED TOWARDS REPAYMENT OF LOAN AND THE REFORE THE INTEREST HAS BEEN RIGHTLY CLAIMED. A.O ON PERUSING THE DETAILS F URNISHED BY THE ASSESSEE NOTICED THAT OUT OF THE AMOUNT BORROWED FROM UTI BA NK, THE AMOUNT USED TOWARDS REPAYMENT OF BORROWED CAPITAL OR PURCHASE O F PROPERTY WAS ONLY RS. 3,56,35,053/-. THE SUBMISSION OF THE ASSESSEE THAT THE ENTIRE BORROWED FUNDS WERE UTILIZED FOR ACQUISITION OF PROPERTY WAS NOT FOUND ACCEPTABLE TO THE A.O AS HE WAS OF THE VIEW ASSESSEE COULD NOT PR OVE AND SUBSTANTIATE AS HOW THE BORROWED CAPITAL WAS USED FOR THE PURPOSE O F ACQUISITION OF PROPERTY. HE THUS CONSIDERED RS. 93,64,947/- (BEING THE DIFFERENCE BETWEEN THE LOAN AMOUNT RECEIVED FROM UTI BANK AND AMOUNT U SED FOR PURCHASE OF PROPERTY) AS BEING NOT UTILIZED TOWARDS THE REPAYME NT OF CAPITAL AND HENCE THE INTEREST ON THE AFORESAID AMOUNT OF RS. 7,82,77 8/- WAS DISALLOWED. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO DECIDED THE ISSUE BY HOLDING AS UNDER:- 3.1. THE ASSESSING OFFICER HAS DISALLOWED THE ABOVE AMOUNT ON ACCOUNT OF PROPORTIONATE INTEREST BY MAKING THE DETAILS ANALYSES OF THE APPE LLANT'S ACCOUNT. THE ASSESSING OFFICER HAS NOTED THAT OUT OF BORROWED CAPITAL OF RS.4.50 C RORES FROM UTI BANK, THE APPELLANT HAD USED THIS AMOUNT TOWARDS REPAYMENT OF LOAN FROM THE PARTNERS AND PURCHASE OF NEW PROPERTY. THE ASSESSING OFFICER HAS GIVEN THE COMPL ETE WORKING ON PAGE~4 OF THE ASSESSMENT ORDER FROM WHERE IT IS SEEN THAT OUT OF THE TOTAL BORROWING OF RS.4.50 CRORES ONLY AN AMOUNT OF R.S.3.24 CRORES WERE USED FOR REP AYMENT OF LOAN OR PURCHASE OF ITA NO 737/A HD/2011 . A.Y. 2007-0 8 6 PROPERTY AND THE BALANCE AMOUNT OF RS.93,64,947/- W AS NOT USED FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER AFTER CONSIDERING T HE APPELLANT'S OBJECTION HAS DISALLOWED AN AMOUNT OF RS.7,82,778/-. 3.2. BEFORE ME THE APPELLANT HAS OBJECTED TO THE SA ME ON THE GROUND THAT THE AMOUNT HAS BEEN USED FOR THE PURPOSE OF BUSINESS. 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THE APPELLANT HAS NOT BEEN A BLE TO POINT OUT ANY ERROR IN THE WORKING OF THE ASSESSING OFFICER REGARDING RS.93,64 ,947/- AS NOT BEING USED FOR THE PURPOSE OF BUSINESS. IT HAS BEEN STATED THAT THE AM OUNT HAS BEEN INDIRECTLY USED FOR THE PURPOSE OF BUSINESS. THIS IS A VAGUE REPLY BUSINESS NOT SUPPORTED BY THE FACTS ON RECORD AND THEREFORE THIS GROUND IS DISMISSED. 9. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. 10. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MAD E BEFORE A.O AND LD. CIT(A) AND ON THE OTHER HAND LD. D.R. SUBMITTED THA T ASSESSEE HAS NOT DISCHARGED THE ONUS CAST UPON IT TO DEMONSTRATE THA T THE AMOUNT WAS USED FOR REPAYMENT OF LOAN AND THUS SUPPORTED THE ORDER OF A .O AND LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, IT IS ASSESSEES SUBMISSION THAT THE AMO UNT BORROWED FROM UTI BANK WAS UTILIZED TOWARDS THE REPAYMENT OF LOAN AND WAS ALSO USED FOR THE PROJECT. ON THE OTHER HAND IT IS A.OS CONTENTION T HAT OUT OF THE LOAN AMOUNT OF RS. 4.50 CRORE RECEIVED, RS. 93,64,947/- WAS NOT USED TOWARDS THE ACQUISITION OF PROPERTY OR FOR THE PURCHASE OF PROP ERTY ON WHICH HOUSE PROPERTY INCOME WAS OFFERED TO TAX. BEFORE US, APAR T FROM MAKING A STATEMENT THAT AMOUNT RECEIVED FROM UTI BANK HAS BE EN UTILIZED FOR ACQUISITION OF PROPERTY, NO EVIDENCE OR CASH FLOW S TATEMENT TO SUBSTANTIATE ITA NO 737/A HD/2011 . A.Y. 2007-0 8 7 ITS STAND HAS BEEN PLACED ON RECORD. FURTHER, EVEN THE SANCTION LETTER OF UTI BANK SANCTIONING THE LOAN WHICH WOULD CONTAIN THE T ERMS AND CONDITIONS OF THE LOAN HAS ALSO NOT BEEN PLACED ON RECORD. WE FUR THER FIND THAT LD. CIT(A) HAS ALSO BY A VERY CRYPTIC ORDER UPHELD THE ORDER O F A.O. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE SUBMISSION MADE BY THE ASSESSEE AND THE FACTUAL ASPECT NEEDS TO BE RE-EXAMINED. WE THEREFOR E SET ASIDE THE ISSUE TO THE FILE OF A.O TO DECIDE THE ISSUE AFRESH AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE AND IN ACCORDANCE WITH LAW. NEEDLESS TO STATE THAT A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESS EE. ASSESSEE IS ALSO DIRECTED TO PROMPTLY FURNISH ALL THE REQUIRED DETAI LS CALLED FOR BY THE A.O. THUS THE GROUND OF ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 07 - 05 - 2015. SD/- SD/- (SHAILENDRA KR. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD