Smt. Vandana Gupta, Chandigarh V. ACIT, Chandigarh

ITA 787/CHANDI/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5389 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.787/CHD/2012 ASSESSMENT YEAR : 2009-10 SMT. VANDANA GUPTA, VS THE A.C.I.T., SECTOR 22, CIRCLE 3(1), C/O KIRAN CINEMA, CHANDIGARH. CHANDIGARH. PAN : AHKPG 4828M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI J.S.NAGAR DATE OF HEARING : 15.01.2014 DATE OF PRONOUNCEMENT : 20.01.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH DAT ED 31.05.2012 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ( 'THE A CT' FOR SHORT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL : THAT THE ORDER DATED 31-05-2012 PASSED U/S 250 OF THE INCOME-TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED AS SESSING OFFICER IN DISALLOWING/ADDING BACK A SUM OF RS 18,04,318/- BY RESORTING TO THE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 ON THE GROUND THAT APPELLANT BORROWED CAPITAL FROM M/S NIKUNJ AGR O TRADING CO @ 12% AND FORM DEUTSCHE BANK @ 14% AND FURTHER ADVANC ED THE LOANS TO ITS SISTER CONCERNS AT CONCESSIONAL RATE I.E. 9% AN D 12%. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINS T THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT. THE BRIEF 2 FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CONTRIB UTED CAPITAL IN THE PARTNERSHIP FIRM I.E. M/S R.L. TRAVELS AND M/S INDO ARAB AIR SERVICES, NEW DELHI ON WHICH THE ASSESSEE WAS RECEI VING INTEREST @ 12% AND 9% RESPECTIVELY. THE ASSESSEE, ON THE OTHE R HAND, HAD BORROWED INTEREST BEARING ADVANCES FROM M/S NIKUNJ AGRO TRADING CO. AND FROM DEUTSCHE BANK ON WHICH IT WAS PAYING I NTEREST @ 12% AND 14% RESPECTIVELY. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE ASSESSEE HAD BORROWED CAPITAL @ 12%/14% A ND HAD IN TURN ADVANCED THE MONEY AT INTEREST RATES OF 9%/12%, THE N PROPORTIONATE HIGHER RATE OF INTEREST CLAIMED AS AN EXPENDITURE W AS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE A CT. THE ASSESSING OFFICER UNDER PARA 4.3 AT PAGE 3 OF THE ASSESSMENT ORDER HAS TABULATED THE OPENING BALANCE AND CLOSING BALANCES OF THE SAI D LOAN AMOUNTS AND ON THE AVERAGE AMOUNT HAD COMPUTED THE SHORT CH ARGING OF INTEREST @ 2% / 5% AND MADE A DISALLOWANCE OF RS. 1 8,04,318/-. 4. THE CIT(APPEALS) UPHELD THE ORDER OF THE ASSESSI NG OFFICER AND ASSESSEE IS IN APPEAL AGAINST THE SAME. 5. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE INVESTMENTS IN THE PARTNERSHIP FIRMS WERE MADE FOR EARNING INCOME AND HENCE, THERE IS NO MERIT IN THE DISALLOWANCE OF INTEREST UNDER S ECTION 36(1)(III) OF THE ACT. IN THE ALTERNATIVE, IT WAS POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE BASIS OF CALCULATION OF THE INTER EST COMPONENT WAS WRONG AS THE PROFIT AT THE CLOSE OF THE YEAR, ADDED TO THE CAPITAL OF THE ASSESSEE WAS ALSO CONSIDERED AS PART OF CLOSING BALANCE. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT AT BEST, THE D ISALLOWANCE OF INTEREST COULD BE WORKED OUT ON THE BASIS OF MONTHL Y BALANCES. 6. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW. 3 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELAT ION TO PART DISALLOWANCE OF INTEREST EXPENDITURE BY APPLYING PR OVISIONS OF SECTION 36(1)(III) OF THE ACT. THE ASSESSEE IN THE PRESENT SET OF FACTS HAD BORROWED CAPITAL @ 12% AND 14% FROM THE DIFFERE NT CONCERNS AND IN-TURN HAD INVESTED THE SAID CAPITAL IN PARTNERSHI P FIRMS BY WAY OF CAPITAL CONTRIBUTION OF WHICH INTEREST WAS RECEIVED @ 9% / 12%. THE ASSESSING OFFICER COMPUTED THE DIFFERENTIAL AMOUNT OF INTEREST ON THE CLOSING BALANCE LESS THE OPENING BALANCE AND MADE A DISALLOWANCE OF RS. 18,04,318/-. WE ARE IN CONFORMITY WITH THE ORD ER OF ASSESSING OFFICER THAT IN THE PRESENT SET OF FACTS WHERE THE ASSESSEE HAD BORROWED CAPITAL AT A HIGHER RATE OF INTEREST AND H AD INVESTED THE SAME AT LOWER RATE OF INTEREST, THE DIFFERENTIAL AM OUNT OF INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INTE REST DISALLOWABLE IN THE HANDS OF THE ASSESSEE BY TAKING MONTHLY BALA NCES IN THE CAPITAL ACCOUNT OF THE ASSESSEE. THE DISALLOWANCE UNDER SEC TION 36(1)(III) OF THE ACT WOULD BE RECOMPUTED BY THE ASSESSING OFFICE R AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOW ED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED: 20 TH JANUARY,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.