M/s. D.Khushalbhai Jewellers, Surat V. Asstt. Commissioner of Income Tax, Surat

ITA 822/AHD/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4818 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL PATEL
• Keywords: Notional interest; Commercial expediency; TDS
• Section: 143(3); 40(a)(ia); 40a(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM ./ITA NO.822/AHD/2015 ( [ [ / ASSESSMENT YEARS: (2010-11) (VIRTUAL COURT HEARING) M/S. D. KHUSHALBHAI JEWELLERS, 1, KHANDWALA ESTATE, PARLE POINT, SURAT. VS. THE ACIT, CIRCLE-3, SURAT. ./ ./ PAN/GIR NO.: AABFD7547G (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI MEHUL PATEL, AR REVENUE BY : MS USHA SHROTE, SR. DR / DATE OF HEARING : 05/04/2021 /DATE OF PRONOUNCEMENT : 17/05/2021 / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAINING TO THE ASSESSMENT YEAR (AY) 2010-11, IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT [IN SHORT THE LD. CIT(A)] IN APPEAL NO. CAS/IV/19/2013-14 & CAS/2/8/TRF/2014-15 DATED 09.01.2015 WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY ASSESSING OFFICER (IN SHORT THE AO) UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. THE GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: (1) THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN PARTLY CONFIRMING THE ADDITION IN RESPECT OF INTEREST ON ADVANCES GIVEN TO VIRENBHAI CHOKSI HUF AND RAJESH VAISHNAV. (2) THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF PAYMENT OF INTEREST OF RS.2,79,721/- FOR NON-DEDUCTION OF TDS. (3) ALTERNATIVELY, AND WITHOUT PREJUDICE TO ABOVE GROUND, THE ASSESSEE BE GRANTED THE BENEFIT OF SECOND PROVISO INSERTED TO SECTION 40(A)(IA) OF THE ACT. (4) THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL. PAGE | 2 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS 2. NOW, WE SHALL TAKE GROUND NO. 1 WHICH RELATES TO PARTLY CONFIRMING THE ADDITION IN RESPECT OF INTEREST ON ADVANCES GIVEN TO VIRENBHAI CHOKSI HUF AND RAJESH VAISHNAV. 3. SUCCINCT FACTS ARE THAT ON PERUSAL OF SUBMISSION FURNISHED BY THE ASSESSEE, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE HAS PAID INTEREST @ OF 12% PER ANNUM WHEREIN THE ASSESSEE HAS GIVEN LOAN AND ADVANCES @ OF 6% IN THE CASE OF SHRI KHUSHALBHAI V. CHOKSI (INDIVIDUAL) AND D. K. SLIVER ART AND IN CASE OF SHRI VIRENBHAI K. CHOKSI HUF AND SHRI RAJESH VAISHNAV THE ASSESSEE HAS NOT CHARGED ANY INTEREST. THE DETAILS ARE AS UNDER: S R . N O . NAME OF THE PERSON WHOM LOAN/ ADVANCES GIVEN AMOUNT WORKED OUT @ OF 1 SHRI KHUSHALBHAI V. CHOKSI RS.2,34,684/- @ OF 6% 2 D. K. SILVER ART RS.2,05,465/- @ OF 6% 3 SHRI VIRENBHAI K CHOKSI HUF RS.43,245/- @ OF 12% 4 SHRI RAJESH VAISHNAV RS.1,55,000/- @ OF 12% TOTAL RS.6,38,394/- THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PAID INTEREST @ OF 12% ON THE LOANS / ADVANCES TAKEN WHILE HE HAS GIVEN LOANS / ADVANCES @ OF 6% FROM SHRI KHUSALBHAI V. CHOKSI (INDIVIDUAL) AND D K SLIVER ART AND IN CASE OF SHRI VIRENBHAI K. CHOKSI (HUF) AND SHRI RAJESH VAISHNAY THE ASSESSEE HAS NOT CHARGED ANY INTEREST. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THE D. K. SILVER ART IS A SISTER CONCERN OF THE ASSESSEE AND IS A PART AND PARCEL OF THE SHOW ROOM OF M/S D. KHUSHALBHAI JEWELLERS. THE TRANSACTION WITH D. K. SILVER ART IS A BUSINESS TRANSACTION AND THE SAME IS BASED ON COMMERCIAL EXPEDIENCY AND A REASONABLE INTEREST @ OF 6% HAS BEEN CHARGED. IN THE CASE OF KHUSHALBHAI V CHOKSI THE ASSESSEE IS RUNNING THE SHOW ROOM FROM THE PREMISES OWNED BY M/S D. KHUSHALBHAI JEWELLERS AND SMT. NILAMBEN K CHOKSI. THE ASSESSEE DURING THE YEAR HAS STARTED THE CONSTRUCTION OF A NEW SHOWROOM ON THE LAND BELONGING TO ABOVE TWO PERSONS IN WHICH SHRI KHUSALBHAI CHOKSI HAD GIVEN ADVANCE OF RS.79,20,133/- FOR PURPOSE OF CONSTRUCTION OF NEW SHOWROOM. THE TRANSACTION WITH SHRI KHUSHALBHAI CHOKSI IS A BUSINESS TRANSACTION AND THE SAME IS BASED ON COMMERCIAL EXPEDIENCY AND PAGE | 3 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS A REASONABLE INTEREST @ OF 6% HAS BEEN CHARGED. IN THE CASE OF VIREN KHUSHALBHAI CHOKSI (HUF) IT WAS TEMPORARY LOAN FOR PERSONAL PURPOSE. IN THE CASE OF RAJESH VAISHNAV NO EXPLANATION HAS BEEN SUBMITTED BY THE ASSESSEE REGARDING THE PURPOSE OF EXTENDING THE LOAN ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT ASSESSEE HAS FAILED TO EXPLAIN THE DIFFERENCE OF INTEREST @ OF 6% IN THE CASE OF SHRI KHUSHALBHAI V. CHOKSI (INDIVIDUAL) AND D K SLIVER ART AND INTEREST @ OF 12% IN THE CASE OF SHRI VIRENBHAI K. CHOKSI HUF AND SHRI RAJESH VAISHNAV WHICH WAS CALCULATED BY AO AT RS.6,38,394/-, AS NOTED IN TABLE ABOVE, AND ADDED TO TOTAL INCOME OF THE ASSESSEE. 4.AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE OBSERVING AS FOLLOWS: 6.1.5 IN THE LIGHT OF THE ABOVE FACTS, THE ASSESSEE HAS SHOWN THAT HE WAS HAVING BUSINESS RELATIONSHIP WITH SHRI KHUSHALBHAI V CHOKSI AND D.K. SILVER ART AND THE ADVANCES HAVE BEEN GIVEN FOR COMMERCIAL EXPEDIENCY. HOWEVER, THE ASSESSEE HAS FAILED TO SUBMIT ANY DETAILS REGARDING THE ADVANCE GIVEN TO SHRI RAJESH. VAISHNAV AND VIRENBHAI CHOKSI HUF. HENCE, THE CHARGING OF INTEREST IN THE CASE OF SHRI KHUSHALBHAI V CHOKSI AND D. K. SILVER ART OF RS.2,34,684/- @ OF 6% AND RS.2,05,465/- @ OF 6% IS DELETED. HOWEVER, IN THE CASE OF VIRENBHAI CHOKSI HUF AND SHRI RAJESH VAISHNAV THE CHARGING OF INTEREST ON THE ADVANCES GIVEN OF RS. 43,245/- AND RS.1,55,000/- IS UPHELD. THE GROUND OF APPEAL IS PARTLY ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 6. SHRI MEHUL PATEL, LEARNED AUTHORIZED REPRESENTATIVE (IN SHORT THE LD. AR) FOR THE ASSESSEE BEGINS BY POINTING OUT THAT ASSESSEES OWN FUNDS ARE MORE THAN THE ADVANCES GIVEN BY THE ASSESSEE, THEREFORE NO INTEREST SHOULD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PAGE | 4 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS 7.ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE SUBMISSIONS PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACTS OF THE CASE INCLUDING THE FINDINGS OF THE LD. CIT(A) AND OTHER MATERIAL BROUGHT ON RECORD. AT THE OUTSET ITSELF, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD OWN FUNDS TO THE TUNE OF RS.6,95,47,723/- (VIDE PB-3) AND TOTAL INTEREST FREE ADVANCE GIVEN TO RAJESH VAISHNAV IS RS.15,00,000/- VIDE PAPER BOOK PAGE NO.10. THEREFORE, APPLYING THE RATIO LAID BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITY AND POWERS LTD. VS CIT 312 ITR 340 (BOM.) WHEREIN THEIR LORDSHIP HELD WHERE THE ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDES ITS OWN FUNDS IN SUFFICIENT QUANTITY, THE PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES IS TO BE DRAWN. WE NOTE THAT THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAD ITS OWN FUNDS IS TO THE TUNE OF RS. RS.6,95,47,723/- AND THE INTEREST FREE, ADVANCE GIVEN TO RAJESH VAISHNAV IS RS.15,00,000/-. WE NOTE THAT SINCE THE ASSESSEE POSSESSED MIXED FUNDS WHICH INCLUDES ITS OWN FUNDS IN SUFFICIENT QUANTITY, A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES IS TO BE DRAWN AND THEREFORE, QUESTION OF NOTIONAL INTEREST BEING ADDED ON THE ADVANCE GIVEN TO THE RELATIVES/SISTER CONCERN OF THE ASSESSEE ON WHICH NO INTEREST WAS CHARGED, DOES NOT ARISE. 9. THUS, WE NOTE THAT ASSESSEE HAS SUBMITTED BEFORE US THAT AUDITED BALANCE SHEET AS ON 31.03.2010 WHEREIN SHAREHOLDERS FUNDS ARE TO THE TUNE OF RS.6,95,47,723/-, WHICH IS MORE THAN THE ADVANCES GIVEN TO VIRENBHAI CHOKSI HUF AND RAJESH VAISHNAV (PAGE NO.3 OF THE PAPER BOOK). AS PER PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, THE NET PROFIT IS AT RS.38,16,929/- (PB-2). ADVANCES GIVEN TO VIRENBHAI K. CHOKSI HUF IS TO THE TUNE OF RS.3,89,191/-, PAGE | 5 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS WHICH IS COMING AS AN OPENING BALANCE AS ON 01.04.2009 ( VIDE PAPER BOOK PAGE NO.9). THEREFORE, WE NOTE THAT OWN FUNDS OF THE ASSESSEE IS MORE THAN THE ADVANCES GIVEN BY THE ASSESSEE, HENCE NO ADDITION SHOULD BE MADE ON ACCOUNT OF ADVANCE GIVEN BY THE ASSESSEE. FOR THAT WE RELY ON THE JUDGMENT OF THE CO- ORDINATE BENCH IN ITA NO.2421/AHD/2016 FOR AY.2012-13 IN THE CASE OF NIK-SAN ENGINEERING CO. LTD. ORDER DATED 01.08.2018 WHEREIN IT WAS HELD AS FOLLOWS: 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ASSESSMENT ORDER WOULD INDICATE THAT THE ASSESSEE HAS DEMONSTRATED BEFORE THE LD.AO THAT IT HAS GIVEN A SUM OF RS.3,42,50,000/- TO THESE FOUR ENTITIES/PERSON. HOWEVER, IT HAS A HUGE SURPLUS OF MORE THAN RS.16 CRORES IN THE SHAPE OF CAPITAL, RESERVES AND SURPLUS ON WHICH NO INTEREST EXPENDITURE WAS CLAIMED. THUS, THE CASE OF THE ASSESSEE WAS THAT OUT OF THESE INTEREST FREE FUNDS, IT COULD BE PRESUMED THAT INTEREST FREE ADVANCES WERE GIVEN. WE ALSO NOTICED THAT THOUGH THE ASSESSEE HAS CASH CREDIT AND UNSECURED LOANS TO THE TUNE OF RS.23.18 CRORES, BUT WE FIND THAT NONINTEREST BEARING FUNDS WAS TO THE EXTENT OF RS.16.30 CRORES AS ON 31.3.2011 AND RS.16.49 AS ON 31.3.2012. THE INTEREST FREE FUND HAS AN INCREASING TREND. THESE INTEREST FREE FUNDS COULD EASILY TAKE CARE OF INTEREST FREE ADVANCES AMOUNTING TO RS.3.42 CORES. IN ORDER TO FORTIFY OURSELVES, WE MAKE REFERENCE TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM) AND CIT VS. REGHUVIR SYNTHETICS LTD., 354 ITR 222 (GUJ). THEREFORE, WE ALLOW THIS GROUND OF APPEAL AND DELETE ADDITION OF RS.24,48,592/-. 10. WE NOTE THAT COORDINATE BENCH IN THE CASE OF NIK-SAN ENGINEERING CO. LTD(SUPRA) HAS RELIED ON THE JUDGMENT OF THE HON`BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM), AND DELETED THE ADDITION. THE ASSESSEE`S FACTS UNDER CONSIDERATION IS IDENTICAL, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, THE ADDITION IN CASE OF VIRENBHAI CHOKSI HUF AND SHRI RAJESH VAISHNAV, THE CHARGING OF INTEREST ON THE ADVANCES GIVEN OF RS. 43,245/- AND RS.1,55,000/-,WHICH WERE SUSTAINED BY THE LD CIT(A), ARE DIRECTED TO BE DELETED. THUS, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. PAGE | 6 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS 11.GROUND NO.2 AND 3 RELATES TO DISALLOWANCE OF PAYMENT OF INTEREST OF RS.2,79,721/- FOR NON-DEDUCTION OF TDS. 12. AT THE OUTSET ITSELF, THE LEARNED COUNSEL SUBMITS BEFORE US THAT THE ASSESSEE MAY BE GRANTED THE BENEFIT OF SECOND PROVISO TO SECTION 40A(IA) OF THE ACT WHICH CLEARLY SAYS THAT IF THE PAYEE HAS INCLUDED IN HIS RETURN OF INCOME, THE INCOME SO RECEIVED AND PAID THE TAXES THEREON THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST SHOULD BE MADE. LEARNED COUNSEL SUBMITS BEFORE US THAT INTEREST WAS PAID TO NBFC COMPANIES AND THESE NBFC COMPANIES HAVE INCLUDED THE INTEREST IN THEIR RETURN OF INCOME AND PAID THE TAXES THEREON, THEREFORE NO DISALLOWANCE SHOULD BE ATTRACTED. THEREFORE, LEARNED COUNSEL PRAYED THE BENCH THAT MATTER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION WHETHER PAYEE HAS INCLUDED, SUCH AMOUNT, IN HIS RETURN OF INCOME AND PAID THE TAXES THEREON OR NOT. 13.THE LEARNED DEPARTMENTAL REPRESENTATIVE (IN SHORT THE LD. DR) FOR THE REVENUE REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER. 14. WE HAVE HEARD BOTH THE PARTIES. WE NOTE THAT ASSESSEE HAS PAID INTEREST TO THE FOLLOWING NBFC COMPANIES; HOWEVER NO TDS HAS BEEN DEDUCTED. THE DETAILS WHICH ARE GIVEN BELOW: NO. NAME OF THE PERSON WHOM INTEREST PAID AMOUNT OF INTEREST OF RS. 1 CHOLA MANDIAN 2,06,768 2 G. E. MONEY 72,953 TOTAL 2,79,721 THE LD COUNSEL SUBMITS BEFORE US THAT THESE NBFC COMPANIES HAVE INCLUDED INTEREST INCOME IN THEIR RETURN OF INCOME AND PAID TAXES THEREON, THEREFORE IT IS SUFFICIENT COMPLIANCE AND NO ADDITION SHOULD BE MADE IN THE CASE OF THE ASSESSEE UNDER CONSIDERATION. WE FIND MERIT IN THE SUBMISSIONS OF LD COUNSEL PAGE | 7 ITA NO.822/AHD/2015 ASSESSMENT YEARS.2010-11 D. KHUSHALBHAI JEWELLERS AND NOTED THAT IF THE PAYEE HAS INCLUDED THE RECEIPTS IN THE BOOKS OF ACCOUNTS AND HAS OFFERED FOR TAXES THEN THE DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TDS WILL NOT ARISE. THEREFORE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE WHETHER THE SAID NBFC COMPANIES HAVE INCLUDED INTEREST IN THEIR RETURN OF INCOME AND PAID THE TAXES THEREON. IF THE SAID NBFC COMPANIES INCLUDED THE INTEREST INCOME IN THEIR RETURN OF INCOME AND PAID THE TAXES THEREON, NO DISALLOWANCE SHOULD BE WARRANTED. THEREFORE, WE ALLOW THESE TWO GROUNDS OF APPEALS FOR STATISTICAL PURPOSES. 15.IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED ON 17/05/2021 BY PLACING RESULT ON NOTICE BOARD. SD/- SD/- (PAWAN SINGH) (DR. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER LWJR /SURAT / DATE: 17/05/2021 SAMANTA COPY OF THE ORDER FORWARDED TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR/AR, ITAT, SURAT 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR/SR. PS/PS ITAT, SURAT