Shri Mool Chand Khatri, Kanpur V. Income Tax Officer-2(2), , Kanpur

ITA 774/LKW/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0574 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 11-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Assessment record; Commercial expediency
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCHSMC, LUCKNOW [THROUGH VIRTUAL HEARING] BEFORE T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 774/LKW/2017 ASSESSMENT YEAR: 2013 - 14 SHRI MOOL CHAND KHATRI 126/9, P BLOCK, GOVIND NAGAR KANPUR V. ITO 2(2) KANPUR TAN/PAN: ADJPK1670N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ABHINAV MEHROTRA, ADVOCATE RESPONDENT BY: SHRI AJAY KUMAR, D.R. DATE OF HEARING: 08 0 7 202 1 DATE OF PRONOUNCEMENT: 15 0 7 202 1 O R D E R THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-I, KANPUR DATED 14.8.2017. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1, BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES: OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LD. CIT (A), CONFIRMING THE ORDER OF ASSESSMENT, TO THE EXTENT IT UPHOLD THE DISALLOWANCE OF 'DISCOUNT EXPENSES' FOR RS.48,000/-, PURELY ON AD HOC BASIS U/S 37 OF THE INCOME TAX ACT IS ILLEGAL AND IS UNSUSTAINABLE IN LAW AND DESERVES TO BE DELETED. ADDITION OF RS.48,000/-. 2. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LD. CIT (A), CONFIRMING THE ORDER OF ASSESSMENT, TO THE EXTENT IT UPHOLD THE DISALLOWANCE OF 'ELECTRICITY EXPENSES' FOR RS.21,674/-, PURELY ON AD HOC BASIS U/S 37 OF THE INCOME TAX ACT IS ILLEGAL AND IS UNSUSTAINABLE IN LAW AND DESERVES TO BE DELETED. ADDITION OF RS.21,674/-. PAGE 2 OF 6 3. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LD. CIT (A), CONFIRMING THE ORDER OF ASSESSMENT, TO THE EXTENT IT UPHOLD THE DISALLOWANCE OF 'CHARITY AND DONATION' FOR RS.2,299/-, PURELY ON SURMISES AND WITHOUT CONSIDERING THE TRUE AND CORRECT FACTS OF THE CASE. ADDITION OF RS. 2,299/-. 4. BECAUSE, ON- THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LD. CIT (A), CONFIRMING THE ORDER OF ASSESSMENT, TO THE EXTENT IT UPHOLD THE DISALLOWANCE OF 'INTEREST EXPENSES' FOR RS.7,68,728/-, PURELY ON AD HOC BASIS U/S 37 OF THE INCOME TAX ACT. ADDITION OF RS.7,68,728/-. 5. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), CONFIRMING THE ORDER OF ASSESSMENT, TO THE EXTENT IT UPHELD THE DISALLOWANCE OF INTEREST. 6. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF ASSESSMENT IS BAD IN LAW BEING BARRED BY LIMITATION. 7. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSMENT ORDER IS BAD IN LAW AS THE ASSESSING OFFICER WAS NOT HAVING THE JURISDICTION TO ASSESS THE INSTANT ASSESSEE. 8. BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS PASSED THE ORDER WITHOUT PROVIDING THE ASSESSEE WITH A DUE AND PROPER OPPORTUNITY OF HEARING AND THEREFORE THE IMPUGNED ORDER DESERVES TO BE SET-ASIDE BEING BAD IN LAW. 9. THE HUMBLE ASSESSEE, CRAVES FOR LEAVE TO ADD/AMEND ANY OTHER GROUND WITH THE PRIOR PERMISSION OF THE HON'BLE TRIBUNAL. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS RUNNING THE BUSINESS UNDER THE PROPRIETORSHIP FIRM IN THE NAME AND STYLE M/S KUSUMAKAR DESIGNER AND IS ENGAGED IN THE TRADING OF CLOTHS AND FINISHING OF THE SAME. DURING THE YEAR PAGE 3 OF 6 UNDER CONSIDERATION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.10,13,753/- UNDER THE HEAD DISCOUNTS ON SALE. HE FURTHER OBSERVED THAT THE ASSESSEE HAS BEEN VERY LIBERAL ON GIVING DISCOUNTS, SPECIFICALLY TO ONE FIRM, M/S SHYAM LEELA FASHION HOUSE PVT. LTD. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SALE OF THE ASSESSEE HAS GONE DOWN IN COMPARISON TO EARLIER YEAR, BUT THE AMOUNT OF DISCOUNT HAS GONE UP AND THEREFORE, HE DISALLOWED A SUM OF RS.48,000/-, TREATING IT AS EXCESS PAYMENT. 4. THE ASSESSING OFFICER FURTHER DISALLOWED AN AMOUNT OF RS.21,674/- OUT OF ELECTRICITY EXPENSES, AS THE ASSESSING OFFICER OBSERVED THAT SUCH EXPENSES WERE RELATED TO THE ELECTRICITY CONNECTION INSTALLED AT THE RESIDENCE OF THE ASSESSEES WIFE. THE QUERY PUT TO THE ASSESSEE WAS NOT REPLIED TO BY HIM AND THEREFORE, THE ASSESSING OFFICER MADE THE ADDITION. 5. THE ASSESSING OFFICER FURTHER MADE AN ADDITION OF RS.17,299/- WHICH COMPRISED OF RS.15,000/- AS INCOME-TAX PAID AND BALANCE OF RS.2,299/- REPRESENTED THE DONATION & CHARITY MADE BY THE ASSESSEE. THE ASSESSEE ALSO DID NOT REPLY TO THE QUERY REGARDING JUSTIFICATION OF CLAIMING THESE EXPENSES THEREFORE, THE ASSESSING OFFICER MADE THE ADDITION. 6. BESIDES THE ABOVE DISALLOWANCES OUT OF EXPENSES, THE ASSESSING OFFICER HAD ALSO MADE A DISALLOWANCE TO THE EXTENT OF RS.7,68,728/- BEING INTEREST PAID ON THE LOANS TAKEN BY THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD ADVANCED HUGE AMOUNT OF RS.84,38,432/- TO A COMPANY, ON WHICH NO INTEREST WAS BEING CHARGED. THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS PAYING INTEREST ON LOAN TAKEN BY IT FROM THE FAMILY MEMBERS, BUT HAS NOT BEEN CHARGING INTEREST ON LOAN AND THEREFORE, HE MADE THE DISALLOWANCE. PAGE 4 OF 6 7. THE APPEAL FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) DID NOT RESULT INTO ANY RELIEF AND HENCE THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE DISCOUNT WAS GIVEN BY THE ASSESSEE IN THE REGULAR COURSE OF ITS BUSINESS AND THE REVENUES ACTION IN DISALLOWING AND SUSTAINING THE ADDITION IS NOT JUSTIFIED, AS THE REVENUE CANNOT INTERFERE IN THE WORKING OF THE ASSESSEE WHICH THE ASSESSEE HAS TO UNDERTAKE AS PER HIS NEED AND BUSINESS REQUIREMENTS. 9. AS REGARDS THE EXPENSES OF ELECTRICITY AND DONATION & CHARITY, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT A REASONABLE VIEW MAY BE TAKEN BY THE BENCH IN THIS REGARD. 10. HOWEVER, AS REGARDS THE DISALLOWANCE OUT OF INTEREST EXPENSES, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT VARIOUS JUDICIAL PRONOUNCEMENTS HAVE HELD THAT A BUSINESSMAN WAS THE BEST JUDGE OF HIS AFFAIRS AND KNEW THE BEST WAY TO RUN HIS BUSINESS, AND THE AO COULD NOT STEP INTO HIS SHOES AND GUIDE HIM ABOUT THE EXPENDITURE AND THAT THE REASONABLENESS, COMMERCIAL EXPEDIENCY AND JUSTIFIABILITY OF EXPENDITURE HAD TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN. THEREFORE, THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) IS NOT JUSTIFIED. 11. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 12. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. AS REGARDS THE DISALLOWANCE OF RS.48,000/- OUT OF DISCOUNT EXPENSES, I FIND THAT THERE IS NO JUSTIFICATION ON THE PART OF THE AUTHORITIES BELOW TO MAKE AND SUSTAIN SUCH DISALLOWANCE, SPECIFICALLY KEEPING IN VIEW THE FACT THAT THE BOOKS OF ACCOUNT AND VOUCHERS WERE AVAILABLE BEFORE THE ASSESSING PAGE 5 OF 6 OFFICER AND THE REVENUE AUTHORITIES CANNOT JUDGE AS TO WHETHER CERTAIN EXPENDITURE PAID TO A CERTAIN BUSINESS FIRM IS EXCESSIVE OR NOT. IT IS NOT THE CASE OF THE REVENUE THAT SUCH DISCOUNT WAS ALLOWED TO A FAMILY BUSINESS CONCERN OR TO SOME RELATIVES. THEREFORE, THE ADDITION SUSTAINED BY THE LD. CIT(A) IS NOT JUSTIFIED AND HENCE, GROUND NO.1 IS ALLOWED. 13. NOW, COMING TO GROUND NO.2 RELATING TO DISALLOWANCE OF RS.21,674/- OUT OF ELECTRICITY EXPENSES, I FIND THAT THE ASSESSING OFFICER HAS CLEARLY HELD THAT THE EXPENSES WERE TOWARDS THE ELECTRICITY CONNECTION FITTED AT THE RESIDENCE OF THE WIFE OF THE ASSESSEE AND THE ASSESSEE DID NOT FILE ANY EXPLANATION BEFORE THE ASSESSING OFFICER DESPITE HIS SPECIFIC DIRECTION. BEFORE THE LD. CIT(A) ALSO NOTHING WAS FILED TO SUBSTANTIATE THIS EXPENDITURE. THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND HENCE, GROUND NO.2 IS DISMISSED. 14. AS REGARDS GROUND NO.3 RELATING TO DISALLOWANCE OF RS.2,299/- OUT OF CHARITY AND DONATION, I FIND THAT FOR THIS DISALLOWANCE ALSO, NOTHING WAS ARGUED BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A) AND NO SPECIFIC ARGUMENT WAS TAKEN BEFORE ME ALSO AND THEREFORE, THIS GROUND IS ALSO DISMISSED. 15. NOW, COMING TO GROUNDS NO.4 AND 5 RELATING TO DISALLOWANCE OF RS.7,68,728/- OUT OF INTEREST, I FIND THAT THE ASSESSEE HAS CLAIMED THAT SUCH INTEREST FREE LOANS WERE GIVEN OUT OF CAPITAL ACCOUNT. THE LD. CIT(A) ASKED THE COUNSEL OF THE ASSESSEE TO PRODUCE THE COPY OF CAPITAL ACCOUNT AS WELL AS CASH BOOK TO ESTABLISH THAT THE AMOUNT WAS AVAILABLE FROM FREE FUNDS OF THE ASSESSEE, BUT THE LD. CIT(A) HAS HELD THAT ON EXAMINATION, HE DID NOT FIND ANY ENTRY IN THE ASSESSMENT RECORD OF PREVIOUS YEAR. THE ASSESSEE, BEFORE THE LD. CIT(A), HAS CLAIMED THAT THE PAGE 6 OF 6 ASSESSEE HAD SURPLUS AND INTEREST FREE FUNDS WHEREAS THE LD. CIT(A) HAS HELD THAT THE ASSESSEE WAS SHORT OF FUNDS THEREFORE, HE HAD RAISED FRESH FUNDS. I AM AWARE OF VARIOUS JUDGMENTS WHEREBY THE HON'BLE COURTS HAVE HELD THAT THE ASSESSEE WAS FREE TO UTILIZE HIS INTEREST FREE FUNDS IN THE MANNER AS IS DESIRED BY HIM BUT FROM THE FACTS AND MATERIAL ON RECORD AVAILABLE IN THIS CASE, THE MATERIAL SHOWING SUCH EXISTENCE OF INTEREST FREE FUNDS IS NOT AVAILABLE THEREFORE, I DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHOULD DECIDE THE ISSUE KEEPING IN VIEW THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE. ACCORDINGLY, GROUNDS NO. 4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSES. 16. GROUNDS NO.6, 7 & 8 WERE NOT ARGUED AND THEREFORE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 17. GROUND NO.9 IS GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/07/2021. SD/ - [T.S. KAPOOR] ACCOUNTANT MEMBER DATED:15/07/2021 JJ: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR