Mrs. Rekha Ravindra Khinvasara, Aurangabad V. Income-tax Officer,

ITA 827/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1059 (ITAT-PUNE)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Earning of tax free income
• Section: 10

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 827 /PN/201 6 / ASSESSM ENT YEAR : 20 11 - 12 MRS. REKHA RAVINDRA KHINVASARA 2, RAJHANS, SURANA NAGAR, JALNA ROAD, AURANGABAD 431001 . / APPELLANT PAN: A DZPJ1289J VS. THE INCOME TAX OFFICER , WARD 2(3), AURANGABAD . / RESPONDENT WARD 2(3), AURANGABAD . / RESPONDENT / APPELLANT BY : SHRI M.R. BHAGWAT / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 2 3 . 0 8 .201 6 / DATE OF PRONOUNCEMENT: 26 . 0 8 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 2 , AURANGABAD , DATED 22 . 0 2 .20 1 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 2 2 . THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: - 1) THE LEARNED COMMISSIONER (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.6,53,489/ - OUT OF INTEREST PAID ON BORROWED CAPITAL ON ACCOUNT OF ALLEGED INTEREST FREE ADVANCE GIVEN TO RELATED PARTIES. 2) THE LEARNED COMMISSION ER (APPEALS) ERRED IN NOT PROPERLY APPRECIATING THE FACTS OF THE CASE, THE CASE LAWS RELIED UPON AND SUSTAINING THE ADDITION. 3) THE ADDITION AS ABOVE BE DELETED AND THE INCOME OF THE ASSESSEE BE REDUCED TO THAT EXTENT. 4) SUCH OTHER ORDERS BE PASSED AS DEEMED FIT AND PROPER. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 36(1)( III ) OF THE ACT AMOUNTING TO RS.6,53,489/ - . 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS AN INDIVIDUAL ENGAGED IN CONSTRUCTIO N BUSINESS. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ONLY SHOWN WORK - IN - PROGRESS BUT HAD NOT SHOWN ANY OTHER INCOME FROM BUSINESS. ON THE OTHER HAND, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DECLARED INCOME ON ACCOUNT OF PR OFIT ON SALE OF GANDHELI LAND AT RS.85,00,181/ - AND HAD CLAIMED CAPITAL GAINS ARISING TO IT AS EXEMPT UNDER SECTION 10 OF THE ACT. THE TOTAL INCOME DECLARED BY THE ASSESSEE WAS RS.6,49,590/ - . THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF ASSESSEE THAT THE CAPITAL GAINS ARISING ON SALE OF AGRICULTURAL LAND IS TO BE ASSESSED AT NIL IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED SUM OF RS.25,50,519/ - TOWARDS INTEREST ON CCR E ACCOUNT NO.11 OF MALKAPUR URBAN CO - OPERATIVE BANK. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD NOT ENTERED INTO ANY COMMERCIAL ACTIVITY OF DEVELOPMENT OF LAND BEFORE 31.03.2010 BUT IN ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 3 THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD STARTED DEVELOPMENT ACTIVITY ON LAND WHICH WAS TAKEN FOR DEVELOPMENT FROM HER HUSBAND SHRI RAVINDRA KHINVASARA. THE ASSESSING OFFICER REFERRED TO THE BALANCE SHEET AS ON 31.03.2009, WHEREIN THE TOTAL OF ASSETS WERE RS.76,88,293/ - AND THE ASSESSEE HAD NOT RAISED A NY SECURED LOANS. IN THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE HAD OPENED THE CASH CREDIT ACCOUNT WITH MALKAPUR URBAN CO - OPERATIVE BANK AND AS ON 31.03.2010, THE CREDIT BALANCE IN THE BOOKS OF ACCOUNT OF ASSESSEE WAS TO THE TUNE OF RS. 1,80,78,231/ - . THE ASSESSEE HAD GIVEN ADVANCES TO SHRI R.C. KHINVASARA OF RS. 50,76,856/ - AND SUM OF RS.1,25,00,000/ - TO NEELVASTU H.R. PVT. LTD. ALL THE CHEQUES WERE ISSUED BY THE ASSESSEE FROM CC ACCOUNT ON 31.03.2010. THE ASSESSING OFFICER THUS, NOTED THAT THE ASSESSEE H AD GIVEN SUM OF RS.1,75,00,000/ - AS LOAN TO THE FAMILY MEMBERS. THE ASSESSING OFFICER FURTHER NOTED THAT FOR THE YEAR ENDING 31.03.2011 , THE LOANS REMAINED AT RS. 49,76,856/ - IN RESPECT OF SHRI R.C. KHINVASARA AND SUM OF RS.1.25 CRORES IN RESPECT OF NEELVA STU H.R. PVT. LTD. SINCE THE ASSESSEE HAD DEBITED INTEREST EXPENDITURE OF RS. 25,50,519/ - , THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE SAID INTEREST SHOULD NOT BE DISALLOWED BEING NOT USED FOR BUSINESS PURPOSE. IN REPLY, THE ASSESSEE EXPLAINED T HAT THE ADVANCE TO NEELVASTU H.R. PVT. LTD. WAS AN ADVENTURE FOR ACQUIRING THE PORTION OF LAND IN PROPOSED CONSTRUCTION SCHEME TO BE LAUNCHED BY THE SAID COMPANY AND IN RESPECT OF SAME, SEVERAL DOCUMENTS WERE FURNISHED IN THIS REGARD BEFORE THE ASSESSING O FFICER INCLUDING MOU BETWEEN THE PARTIES EXECUTED ON 29.10.2008. IN RESPECT OF LOAN TO HER HUSBAND, IT WAS EXPLAINED THAT THERE WAS NO DIRECT NEXUS BETWEEN THE LOAN TAKEN AND PAID. THE ASSESSING OFFICER REJECTING THE CLAIM OF ASSESSEE DISALLOWED INTEREST UNDER ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 4 SECTION 36(1)( III ) OF THE ACT ON BOTH THE AFORESAID ADVANCES TOTALING RS.16,25,000/ - AND RS. 6,53,489/ - = RS. 22,78,489/ - . 5. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE IN RESPECT OF BUSINESS ADVANCE MADE TO NEELVASTU H.R. PVT. LTD. AND DELETED THE ADD ITION OF RS. 16,25,000/ - , AGAINST WHICH NO APPEAL HAS BEEN FILED BY THE REVENUE. IN RESPECT OF SECOND ADDITION MADE ON ACCOUNT OF INTEREST RELATABLE TO ADVANCE TO SHRI R.C. KHINVASARA, THE ADDITION MADE BY THE ASSESSING OFFICER WAS UPHELD TO THE EXTENT OF RS. 6,53,489/ - SINCE THE AMOUNT WAS PAID OUT OF CC ACCOUNT OPENED WITH CO - OPERATIVE BANK AND THERE WAS IMMEDIATE AND PROXIMATE SOURCE OF MAKING THE ADVANCE ON 31.03.2010 OUT OF INTEREST BEARING FUNDS. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT (A). 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ADMITTEDLY, NO INTEREST WAS CHARGED ON THE ADVANCE MADE TO ASSESSEES HUSBAND AND THE RELATED PARTY. HE FURTHER STRESSED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE ADVANC ES IN THE FORM OF CAPITAL TO THE EXTENT OF RS.1.17 CRORES AND HENCE, THERE WAS NO MERIT IN THE SAID DISALLOWANCE OF INTEREST. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) FOR THE PROPOSITION THAT IN CASE OF AVAILABILITY OF INTEREST FREE FUNDS , THE PRESUMPTION WAS THAT THE SAID INTEREST FREE FUNDS WERE UTILIZED FOR MAKING INTEREST FREE ADVANCES. HE ADMITTED THAT THE TRANSACTION WERE FROM THE CC ACCOUNT BUT FURTHER POINTED OUT THAT FOR THE YEAR UNDER CONSIDERATION, HIS TAX FREE INCOME WAS TO THE EXTENT OF RS.85 LAKHS. ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 5 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND POINTED OUT THAT IN VIEW OF CLEAR - CUT EVIDENCE OF AMOUNTS BEING PAID INTEREST FREE TO THE RELATED PERSON BY THE ASSESSEE OUT OF CC ACCOUNT, ON WHICH THE ASSESSEE HAD OVERDRAFT FACILITIES, ON WHICH INTEREST WAS BEING PAID, THERE WAS NO MERIT IN THE CLA IM OF ASSESSEE. 9. ON PERUSAL OF RECORD AND AFTER HEARING BOTH THE LEARNED AUTHORIZED REPRESENTATIVES, THE ISSUE WHICH ARISES FOR ADJUDICATION IS THE CLAIM OF DEDUCTION OF INTEREST EXPENDITURE PAID / ACCRUED ON OVERDRAFT ACCOUNT UTILIZED BY THE ASSESSEE. THE ASSESSEE THOUGH , WAS ENGAGED IN CONSTRUCTION ACTIVITY, BUT ADMITTEDLY, FOR THE PAST SEVERAL YEARS HAD NOT CARRIED OUT ANY DEVELOPMENT ACTIVITIES. DURING THE YEAR UNDER CONSIDERATION, SOME ACTIVITY HAD ARISEN, BUT THERE WAS NO INCOME FROM BUSINESS. H OWEVER, THE ASSESSEE HAD SOLD ONE PIECE OF LAND ON WHICH IT HAD DECLARED NO CAPITAL GAINS IN VIEW OF THE PROVISIONS OF THE ACT, WHICH CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED. UNDOUBTEDLY, THE SAID AMOUNT WAS FROM SALE OF LAND IN THE YEAR UNDER CONSIDERATI ON AND THE INCOME ARISING THEREFROM WAS ABOUT RS.85 LAKHS. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS ANALYZED FUND S FLOW POSITION OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2009. THE ASSESSEE HAD NOT RAISED ANY LOANS FROM ANY B ANK AND THE ASSETS WHICH ADMITTEDLY, WERE HELD BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WERE SOURCED OUT OF CAPITAL OF THE ASSESSEE IN THE SAID YEAR . THE TOTAL ASSETS OF ASSESSEE WERE AT RS.76, 88,293/ - WHICH WAS MATCHED BY THE CAPITAL AND OTHER AD VANCES HELD BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER ANALYZED THE BALANCE SHEET FOR ASSESSMENT YEAR ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 6 2010 - 11, WHEREIN THE ASSESSEE HAD OVERDRAWN THE FACILITIES FROM THE CO - OPERATIVE BANK TO THE EXTENT OF RS.1,80,78,231/ - . THE ASSESSING OFFICER ALSO OBTAINED THE INFORMATION VIS - - VIS SAID BANK ACCOUNT FROM WHICH IT TRANSPIRED THAT FRESH LOAN OBTAINED WAS UTILIZED FOR GIVING ADVANCES TO SHRI R.C. KHINVASARA TO THE EXTENT OF RS.50,76,856/ - AND FURTHER SUM OF RS.1.25 CRORES TO NEELVASTU H.R. PVT. LTD. B OTH THESE ADVANCES WERE MADE INTEREST FREE. THE EXPLANATION OF ASSESSEE THAT THE ADVANCE OF RS.1.25 CRORES TO NEELVASTU H.R. PVT. LTD. WAS BUSINESS ADVANCE IN LIEU OF MOU BETWEEN THE PARTIES, WAS ACCEPTED BY THE CIT(A) AND THE DISALLOWANCE OF INTEREST MAD E BY THE ASSESSING OFFICER IN THIS REGARD WAS DELETED. NO APPEAL HAS BEEN FILED BY THE REVENUE IN THIS REGARD. HOWEVER, IN RESPECT OF ADVANCE MADE TO SHRI R.C. KHINVASARA OF RS.50,76,856/ - , OUT OF OD ACCOUNT, IN THE ABSENCE OF ANY BUSINESS EXIGENCY AND T HIS BEING SIMPLE LOAN BY THE ASSESSEE TO HER HUSBAND, INTEREST RELATABLE TO SUCH ADVANCES WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER HAS ESTABLISHED DIRECT NEXUS BETWEEN THE LOAN RAISED BY THE ASSESSEE AND UTILIZED BY THE AS SESSEE. ANOTHER ASPECT WHICH IS TO BE KEPT IN MIND IS THAT THIS LOAN WAS GIVEN IN ASSESSMENT YEAR 2010 - 11 AS ON 31.03.2010. SINCE THE CHEQUES WERE ISSUED BY THE ASSESSEE FROM CC ACCOUNT ON 31.03.2010, NO DISALLOWANCE OF INTEREST WAS TO BE MADE IN THE SAI D YEAR. HOWEVER, THE QUESTION WHICH ARISES IN THE PRESENT YEAR IS OF ALLOWANCE OF INTEREST PAID / ACCRUED ON THE OD ACCOUNT , W HERE THE PROCEEDS OF OD ACCOUNT WERE UTILIZED FOR MAKING INTEREST FREE ADVANCES FOR NON - BUSINESS PURPOSE , THE PROVISIONS OF SECTI ON 36(1)(III) OF THE ACT ARE SQUARELY APPLICABLE AND THE INTEREST ON INTEREST BEARING FUNDS CANNOT BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. IT MAY ALSO BE POINTED OUT HEREIN THAT THE ASSETS OWNED BY THE ASSESSEE ARE SOURCED OUT OF ITS CAPITAL ACC OUNT AND IN THE PRECEDING YEAR WHEN ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 7 THE LOAN WAS ADVANCED AS ON 31.03.2010, THERE WAS NO FURTHER INCOME TO THE ASSESSEE WHICH COULD BE THE CAPITAL OF ASSESSEE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE BECAUSE OF DIRECT NEXUS BETWEEN THE OD LIMITS RAISED BY THE ASSESSEE AND ITS DIRECT UTILIZATION FOR MAKING INTEREST FREE ADVANCES TO SHRI R.C. KHINVASARA, THE INTEREST RELATABLE TO THE SAID ADVANCES MERITS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. ACCORDINGLY, THE DISALLOWANCE OF RS. 6 ,53, 4 89/ - IS UPHELD IN THE HANDS OF ASSESSEE. 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY STRESSED THAT IN VIEW OF RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES & POWER LTD. (SUPRA) , PRESUMPTION IS TO BE DRAWN THAT THE INTEREST FREE FUNDS IN THE FORM OF CAPITAL WE RE AVAILABLE WITH THE ASSESSEE AND HENCE, THE SAME WERE UTILIZED FOR MAKING THE SAID INTEREST FREE ADVANCES. IT WAS ALSO POINTED OUT BY HIM THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.85 LAKHS, WHICH WAS ALSO AVAILABLE WITH THE ASSESSEE. HOWEVER, AS POINTED OUT IN THE PARAS HEREINABOVE, THE AVAILABILITY OF RS.85 LAKHS WITH THE ASSESSEE HAS NO CONNECTION WITH THE ADVANCE MADE BY THE ASSESSEE WHICH WAS MADE AT THE CLOSE OF LAST YEAR I.E. AS ON 31.03.2010 . SECONDLY, THE CAPITAL WHICH IS AVAILABLE WITH THE ASSESSEE HAS ALREADY BEEN UTILIZED FOR INVESTMENT WHICH STANDS TILL DATE AND NO INTEREST FREE CAPITAL CAN BE PRESUMED TO BE AVAILABLE WITH THE ASS ESSEE IN THE GIVEN SET OF FACTS. SINCE DIRECT NEXUS IS ESTABLISHED BETWEEN INTEREST FREE ADVANCES MADE BY THE ASSESSEE OUT OF INTEREST BEARING FUNDS, THERE IS NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE O N THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES ITA NO. 827 /PN/20 1 6 MRS. REKHA RAVINDRA KHINVASARA 8 & POWER LTD. (SUPRA). UPHOLDING THE ORDER OF CIT(A), THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED. 1 1 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED ON THIS 26 TH DAY OF AUGUST , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 26 TH AUGUST , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 2 , AURANGABAD ; 4. / THE PR. CIT 2 , AURANGABAD ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE