M/s Swami Auto Sales, Chandigarh V. Addl. CIT, Chandigarh

ITA 820/CHANDI/2011

• Counselvise Citation: 82021514 RSA 2011
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Source of fund; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BEN CH A BEFORE SHRI H.L.KARWA, VP AND SHRI MEHAR SINGH, AM ITA NO. 820/CHD/2011 ASSESSMENT YEAR 2007-08 SWAMI AUTO SALES V ADDL C.I.T. R-II, CHANDIGARH PLOT NO. 26, IA, PHASE I CHANDIGARH AAQFS 8273 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRIKSHIT AGGARWAL RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 16.2.2012 DATE OF PRONOUNCEMENT: 07 .03.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE, FOR ASSE SSMENT YEAR 2008-09, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), CHANDIGARH DATED 10.06.2011 U/S 250(6) OF THE INCO ME-TAX ACT (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) IN APPEAL NO. 213/09-10 DATED 1 0.06.2011 HAS ERRED IN PASSING THAT ORDER IN CONTRAVENTION OF THE PROVISIONS OF SECTION 250(6) OF THE INCOME-TAX ACT, 1961. 2. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING ADDITI ON MADE BY HE AO WHEREIN HE HAD ERRED IN MAKING ADDITION OF RS . 6,60,000/- BY ERRONEOUSLY COMPUTING THE NOTIONAL VA LUE OF INTEREST ON ADVANCE FOR PURCHASE OF PROPERTY ON FOL LOWING GROUNDS: 2.1 THAT THE ADVANCE WERE GIVEN FOR ACQUIRING BUSIN ESS ASSETS. HENCE THE ADDITION MADE BY COMPUTING NOTIO NAL INTEREST ON SAID ADVANCES WAS ERRONEOUS. 2.2 THAT OUT OF ABOVE ADDITION OF RS. 6,60,000/-, R S. 60,000/- WAS ACTUALLY RECOVERED FROM ONE OF THE PAR TY IN AY 2008-09 AND WAS RECOGNIZED AS INCOME. BUT SINCE NO DETAILS 2 WERE CALLED, THE ADDITION HAS RESULTED INTO DOUBLE TAXATION OF THE SAME AMOUNT. 2.3 THAT THE ABOVE ADDITION HAS BEEN MADE WITHOUT C ALLING FOR THE LEDGER ACCOUNTS OF THE PARTIES AND WITHOUT CONFRONTING THE ADDITION. 2.4 THAT THE ABOVE ADDITION IS AGAINST THE PROVISIO NS OF LAW AND FACTS. 3. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ON OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE AC TION OF THE AO WHEREIN HE HAD ERRED IN MAKING ADDITION OF RS. 1 ,02,241/- BY MAKING AN ESTIMATING ADDITION OF 1/6 TH OF TELEPHONE/MOBILE EXPENSES AND VEHICLE RUNNING EXPENSES WHEREAS 20% O F THE TOTAL EXPENDITURE HAS ALREADY BEEN OFFERED TO TAX T HROUGH FBT PROVISIONS. HENCE FURTHER DISALLOWANCE WITHOUT CO NFRONTING THE SAME WAS ERRONEOUS. 4. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION , DELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 3. THE LD 'AR' FOR THE ASSESSEE IN THE COURSE OF AP PELLATE PROCEEDINGS EXPRESSED THAT GROUND NO. 1, IS NOT BEI NG PRESSED. HENCE GROUND NO. 1 IS DISMISSED AS NOT PRESSED. 4. IN SUPPORT OF GROUND NO. 2, THE LD 'AR' FOR THE ASSESSEE AFTER NARRATING BRIEF FACTS AND THE HISTORY OF THE CASE R EFERRED TO PARA 4.3 OF THE ORDER PASSED BY THE LD. CIT(A). THE LD 'DR' FOR THE REVENUE PLACED RELIANCE ON THE ORDER PASSED BY THE LD. CIT( A) AND MADE REFERENCE TO THE PROVISIONS OF SECTION 36(1)(III) A ND THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AB HISHEK INDUSTRIES LTD., 286 ITR 1 TO SUPPORT HIS CONTENTION. 5. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS AND ALSO REFERRED TO PAGE NO. 8 OF THE PAPER BOOK FILED BY T HE ASSESSEE. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT HAD ADVANCED FOLLOWING AMOUNTS: I) PLOT AT DELHI RS. 5,00,000/- II) ADVANCE FOR LAND RS. 50,00,000/- THE AO OBSERVED THAT THE APPELLANT HAD SECURED LOAN S AND HAD BEEN PAYING INTEREST THEREON AND SO PROPORTIONATE I NTEREST ON THE 3 AMOUNTS ADVANCES FOR INVESTMENT IN ASSETS NOT PUT T O USE HAD TO BE DISALLOWED. HE MADE THE ADDITION OF RS. 6,60,000/- BY CALCULATING INTEREST @ 12%. 5. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THA T THE APPELLANT ADVANCED AN AMOUNT OF RS. 50.00 LAKHS FOR ACQUIRING LAND AT ZIRAKPUR AS THE ASSESSEE INTENDED TO SHIFT ITS S ERVICE CENTRE FROM RENTED PREMISES. TO SAVE THIS RENT, THE APPELLANT INTENDED TO ACQUIRE THIS LAND. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE SAID DEAL COULD NOT BE MATERIALIZED AND THE APPELLA NT HAD TO GET BACK THE LOAN AMOUNT, AS REFUND, IN THE FINANCIAL Y EAR 2007-08. IT WAS, FURTHER, CONTENDED BY THE LD 'AR', FOR THE ASS ESSEE, THAT THE APPELLANT ADVANCED AN AMOUNT OF RS. 5.00 LAKHS FOR ACQUIRING PLOT AT DELHI. THE DEAL COULD NOT BE MATERIALIZED DUE TO D EFAULT ON THE PART OF THE SELLER AND THE AMOUNT WAS RECEIVED BACK IN T HE SUCCEEDING AY. THE AO MADE THE ADDITION OF RS. 6,60,000/- AS DISALLOWANCE OF INTEREST @ 12% ON THE TOTAL INVESTMENT OF RS. 55.00 LAKHS. THE AO INVOKED THE PROVISIONS OF SECTION 36(1)(III) AND PR OVISO THEREUNDER. THE FINDINGS OF THE AO WERE UPHELD BY THE LD. CIT(A ). THE RELEVANT PORTION OF THE FINDINGS OF THE LD. CIT(A) ARE REPR ODUCED HEREUNDER: 4.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL FOR THE APPELLANT. THE AMOUNT OF RS. 50,00,000/- WAS A DVANCED FOR BUYING LAND. ACCORDING TO THE APPELLANT, THE D EAL DID NOT MATERIALIZE. SIMILAR WAS THE POSITION WITH RESPECT TO THE ADVANCE OF RS. 5,00,000/- FOR ACQUIRING A PLOT AT D ELHI AND THIS DEAL ALSO DID NOT MATERIALIZE. THE PLEA THAT ADVAN CE OF RS. 5,00,000/- WAS RECEIVED BACK WITH INTEREST IN SUBSE QUENT YEAR AND THIS INTEREST WAS DISCLOSED IN THE RETURN OF IN COME OF THE (SUBSEQUENT YEAR) AND SO NO PROPORTIONATE INTEREST SHOULD BE DISALLOWED ON THIS AMOUNT IS NOT CONVINCING BECAUSE DURING THE YEAR UNDER CONSIDERATION, THE AMOUNT REMAINED A DVANCED FOR NON-BUSINESS PURPOSES. WHATEVER WAS THE REASON , THE FACT REMAINS THAT BOTH THESE ASSETS NEVER BECAME BUSINES S ASSETS, WHAT TO TALK OF PUT TO USE. HENCE, THE PROVISION S OF SECTION 36(1)(III) CLEARLY APPLY TO BOTH THESE ADVANCES AND THE PROPORTIONATE INTEREST HAD TO BE DISALLOWED. THE R ATIO OF DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD, 286 ITR 1 IS SQUARE LY APPLICABLE ON THE FACTS OF THE CASE SINCE NO DISTIN CTION CAN BE MADE TO THE SOURCE OF FUNDS SO FAR AS THE UTILIZATI ON IS 4 CONCERNED. HENCE, THE AO WAS RIGHT IN DISALLOWING INTEREST @ 12% ON THESE ADVANCES AND HIS ACTION IN THIS REGARD IS CONFIRMED. GROUND OF APPEAL NO. 4 IS DISMISSED. 6. THE FACT SITUATION OF THE CASE SQUARELY FALLS UN DER THE PROVISO TO SECTION 36(1)(III) AND THE DECISION OF HON'BLE J URISDICTIONAL HIGH COURT QUOTED AND RELIED ON BY THE LD. CIT(A). THER EFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND T HE SAME IS UPHELD. 7. REGARDING GROUND NO. 3, THE BRIEF FACTS OF THE C ASE ARE THAT THE APPELLANT CLAIMED CERTAIN EXPENSES ON ACCOUNT O F TELEPHONE/MOBILE EXPENSES AND VEHICLE RUNNING EXPEN SES. WHEN THE APPELLANT WAS QUESTIONED THAT THESE MIGHT HAVE BEEN USED FOR PERSONAL PURPOSES, THE APPELLANT HAD SUBMITTED THAT FBT HAD BEEN PAID IN RESPECT OF THESE EXPENSES AND SO DISALLOWAN CE SHOULD NOT BE MADE FOR PERSONAL USE. THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN AND DISALLOWED RS. 1,02,241/- OUT OF TOTAL EXPENSES CLAIMED OF RS. 6,13,447/-. 8. THE LD. CIT(A) ON APPRECIATION OF FACTUAL MATRIX AND CIRCULAR NO. 8 ISSUED BY THE CBDT DATED 29.8.2005, THE LD. CIT(A) GAVE HIS FINDING IN PARA 5.4 WHICH ARE REPRODUCED HEREUNDER: AS THE USE OF TELEPHONE, MOBILE AND FOUR WHEELER V EHICLE FOR PERSONAL PURPOSES CANNOT BE RULED OUT, THE DISALLOW ANCE MADE IN RESPECT OF THE SAME IS UPHELD. HOWEVER, IN VIE W OF ETH CIRCULAR NO. 8 (SUPRA) THE AMOUNT OF DISALLOWANCE SHOULD BE REDUCED FOR THE PURPOSES OF LEVYING FBT AND THE AO IS ACCORDINGLY DIRECTED TO RECTIFY THE ORDER PASSED U/ S 115WE(3) OF INCOME-TAX ACT, 1961, IF ANY. THIS DISPOSES OF GROUND OF APPEAL NO. 3, WHICH IS PARTLY ALLOWED. 9. WE HAVE PERUSED THE RIVAL SUBMISSIONS AND THE FI NDINGS OF THE LD. CIT(A) AND FIND THAT THE FINDINGS OF LD. CIT(A) ARE FAIR AND REASONABLE IN ACCORDANCE WITH RELEVANT TO THE PROVI SIONS OF THE ACT. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 10. GROUND NO. 4 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION IN THE MATTER. 5 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON 07.03.2012 SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER CHANDIGARH, THE 07 .03.2012 SURESH COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR