Naresh Sital & Sons HUF, Ludhiana V. Income Tax Officer W 1(2), Ludhiana

ITA 857/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5136 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S C JAIN SHRI MANJIT SINGH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 857 /CHD/2016 (ASSESSMENT YEAR: 2009-10) NARESH SITAL & SONS HUF, VS. THE I.T.O., PROP M/S SITAL INDUSTRIES, WARD 1(2), D-138A, PHASE-V, FOCAL POINT, LUDHIANA. LUDHIANA. PAN : AACHN0241E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.C. JAIN SHRI MANJIT SINGH, DR RESPONDENT BY : DATE OF HEARING : 26.04.2017 DATE OF PRONOUNCEMENT : 19.05.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER : THIS PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 27.5.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)-1, LUDHIANA (HEREINAFTER REFER RED TO AS CIT(A)) RELATING TO ASSESSMENT YEAR 2009-10. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS: 1. THAT THE CIT (A) HAS NOT APPRECIATED THIS FACT THAT THE ASSESSEE HAS SUFFICIENT CAPITAL AND INTEREST FREE L OANS, HENCE NO DISALLOWANCE IS JUSTIFIED U/S 36(1)(III) O F THE INCOME TAX ACT, 1961. 2. THAT THE CIT (A) HAS NOT APPRECIATED THIS FACT T HAT THE INTEREST IS BEING PAID BY THE ASSESSEE TO OTHER PER SONS @ 3% P.A. ON BORROWINGS WHEREAS THE CIT (A) HAS DISALLOW ED THE INTEREST @ 12% P.A. THE ADDITIONS ON THIS ISSUE MAY PLEASE BE DELETED. 3. THE DISALLOWANCE U/S 36(1) (III) AT RS.142011/- MAY PLEASE BE DELETED SINCE THE CASE OF ABHISHEK INDUSTRIES LI MITED IS NOT APPLICABLE. 2 4. THE CIT(A) HAS RESTRICTED THE DISALLOWANCE ON MAINTENANCE OF CAR, MOBILE PHONE EXPENSES, TELEPHON E EXPENSES, CAR DEPRECIATION, INTEREST ON CAR LOAN AT L/8 TH OF ALL THE ABOVE EXPENSES. THE RELIEF MAY PLEASE BE GIVEN AS DEEMED FIT BY THE HON'BLE BENCH. 5. THAT THE ASSESSEE CRAVES TO LEAVE, AMEND, ALTER, TAKE ADDITIONAL GROUNDS OF APPEAL AT THE TIME OF HEARING OR BEFORE THE TIME OF HEARING. 3. GROUND NOS.1 TO 3 OF THE APPEAL ARE INTERCONNECTED AND ARE TAKEN TOGETHER FOR ADJUDICAT ION. THESE GROUNDS OF APPEAL RELATE TO THE ISSUE OF DISA LLOWANCE OF RS.1,81,200/- MADE BY THE ASSESSING OFFICER U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT T HE ACT) WHICH, HOWEVER, HAS BEEN RESTRICTED TO THAT OF RS.1,42,011/- BY THE CIT(A). DURING THE COURSE OF APPEAL THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MADE INTEREST FREE AD VANCES TO THE FOLLOWING PERSONS: I) MANDEEP JAIN RS. 2,60,000/- II) RAJINDER JAIN RS.12,00,000/- III) RAKESH JAIN RS. 50,000/- RS.15,10,000/- 4. ON BEING ASKED TO EXPLAIN IN THIS RESPECT, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD TAKEN INTE REST FREE UNSECURED LOAN OF RS.20 LACS EACH FROM S/SHRI RAJINDER JAIN AND MANDEEP JAIN IN THE FINANCIAL YEA R 2005. OUT OF THE OUTSTANDING AMOUNT OF RS.20 LACS, THE ASSESSEE HAD PAID CHEQUE OF RS.12 LACS TO SHRI RAJI NDER JAIN DURING FINANCIAL YEAR 2008-09 AND THE SAME WAS INADVERTENTLY DEBITED TO THE ACCOUNT OF SHRI RAJIND ER JAIN, DELHI AS LOANS AND ADVANCES ALTHOUGH THE SAME WAS 3 REQUIRED TO BE TRANSFERRED TO THE ACCOUNT OF SHRI N ARESH JAIN. SIMILARLY, THE AMOUNT OF RS.2,60,000/- PAID TO SHRI MANDEEP JAIN WAS ALSO TOWARDS REPAYMENT OF LOAN AND IT WAS ALSO A CASE OF INADVERTENT ERROR IN RECORDING T HE RELEVANT ACCOUNTING ENTRY. APART FROM THAT, IT HAS BEEN PLEADED THAT SO FAR AS THE INTEREST FREE ADVANCE OF RS.50,000/- TO SHRI RAKESH JAIN WAS CONCERNED, THE SAID AMOUNT WAS ADVANCED ABOUT MORE THAN 10 YEARS BACK. THAT THE CAPITAL OF THE ASSESSEE AS PER BALANCE SHE ET WAS RS.15,74,167/- AND FURTHER THE ASSESSEE HAD RECEIV ED INTEREST FREE LOAN OF RS.17 LACS FROM M/S SATYAM IM PEX, LUDHIANA, OUT OF WHICH RS.5 LACS WERE OUTSTANDING A S ON 31.3.2009. IT HAS, THEREFORE, BEEN PLEADED THAT OW N CAPITAL OF THE ASSESSEE WAS SUFFICIENT AS AGAINST T HE AMOUNT OF INTEREST FREE ADVANCES MADE BY THE ASSESS EE. THE LD. COUNSEL FOR ASSESSEE IN THIS RESPECT HAS RE LIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF HERO CYCLES (P). LTD. VS. CIT(CENTRAL, LUDH IANA (2015) 63 TAXMANN.COM 308(SC) AND THE DECISION OF T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM). A PART FROM THAT, THE LD. COUNSEL FOR ASSESSEE HAS FURTHER PLEA DED THAT THE ASSESSEE DURING THE YEAR HAD RAISED VARIOUS LOA NS AT INTEREST RATE OF 3%, 6%, 7% AND 14% RESPECTIVELY. HE IN THIS RESPECT HAS RELIED UPON THE DECISION OF THE HON'BLE JURISDICTION PUNJAB & HARYANA HIGH COURT IN THE CAS E OF CIT VS. KUDU INDUSTRIES, ITA NO.388 OF 2014 (O &M ) DATED 31.7.2015 WHEREIN THE HON'BLE PUNJAB & HARYANA HIGH COURT 4 HAS HELD THAT WHERE MIXED FUNDS WERE DIVERTED TOWAR DS INTEREST FREE ADVANCES, THE DISALLOWANCE SHOULD BE MADE UP TO THE LEVEL OF THE AVERAGE DEBT COST TO THE ASSESS EE. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, HAS STATED THAT IN THE WORST SCENARIO, THE DISALLOWANCE OF INTEREST U/S 36(1)(II I) OF THE ACT SHOULD HAVE BEEN MADE ON THE BASIS OF AVERAGE INTER EST RATE AT WHICH THE ASSESSEE HAS AVAILED OF THE ADVANCES FORM OTHER PARTIES. 5. THE LD. DR, ON THE OTHER HAND, HAS RELIED UPON T HE FINDINGS OF THE LOWER AUTHORITIES. 6. AFTER GOING THROUGH THE RECORD, WE FIND THAT VAR IOUS CONTENTIONS RAISED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES HAVE NOT BEEN PROPERLY DEALT WITH AND ADJUDICATED UPON. THE CONTENTION OF THE ASSESSEE T HAT THE AMOUNT PAID TO SHRI MANDEEP JAIN AND SHRI RAJINDER JAIN WAS TOWARDS REPAYMENT OF THE LOAN, HAS NOT BEEN EXAMINED/VERIFIED BY THE ASSESSING OFFICER. IF THE SAID PAYMENT WAS TOWARDS REPAYMENT OF THE LOAN EARLIER T AKEN BY THE ASSESSEE, THERE WAS NO QUESTION OF ANY DISALLOWANCE U/S 36(1)(III) OF THE ACT. FURTHER IT HAS BEEN PLEADED BY THE ASSESSEE THAT EVEN OTHERWISE, THE AS SESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS WITH IT A ND IN THAT CASE, AS PER THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P). LTD. (SUPRA) AND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RE LIANCE UTILITIES & POWER LTD. (SUPRA), A PRESUMPTION WOULD ARISE THAT THE INVESTMENT WAS MADE OUT OF INTEREST FREE F UNDS. 5 THIS PLEADING OF THE ASSESSEE HAS ALSO NOT BEEN EXA MINED BY THE ASSESSING OFFICER. IT IS PERTINENT MENTION HER E THAT THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES ( P). LTD. (SUPRA) HAS HELD THAT WHERE THE TAX RESERVES AND SURPLUSES OF THE ASSESSEE ARE SUFFICIENT AND THE AS SESSEE, IN ANY CASE, UTILIZE THESE FUNDS FOR INTEREST FREE ADVANCES, NO DISALLOWANCE U/S 36(1)(III) OF THE ACT IS ATTRAC TED. SIMILARLY, THE HON'BLE BOMBAY HIGH COURT IN THE CAS E OF RELIANCE UTILITIES & POWER LTD. (SUPRA) HAS HELD THAT IF INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE , THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WAS MADE OU T OF SUCH AVAILABLE INTEREST FREE FUNDS WITH THE ASSESSE E PROVIDED THAT THE SAID FUNDS WERE SUFFICIENT TO MEET INVESTM ENT. THE LD. ASSESSING OFFICER HAS ALSO NOT DEALT WITH THE A LTERNATIVE ARGUMENTS OF THE ASSESSEE THAT EVEN OTHERWISE, THE ASSESSEE DURING THE YEAR HAS BORROWED CERTAIN FUNDS AT A LOW ER INTEREST RATE OF 3%, 6% AND 7% ALSO AND THAT IN THE WORST SCENARIO, THE ADDITION, IF ANY, COULD HAVE BEEN MAD E BY THE ASSESSING OFFICER TAKING THE AVERAGE COST OF DEBIT TO THE ASSESSEE AS LAID DOWN BY THE HON'BLE PUNJAB & HARYA NA HIGH COURT IN THE CASE OF KUDU INDUSTRIES (SUPRA). IN VIEW OF THIS, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSE SSING OFFICER FOR RE-ADJUDICATION IN THE LIGHT OF THE DISCUSSION AS MADE ABOVE. GROUND NOS.1 TO 3 RAISED BY THE ASSESSEE AR E TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. SO FAR AS GROUND NO.4 OF THE APPEAL IS CONCERNED, NO ARGUMENTS HAVE BEEN ADVANCED. EVEN OTHERWISE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE 6 CIT(A) WHILE RESTRICTING DISALLOWANCE ON MAINTENANC E OF CAR, MOBILE PHONE EXPENSES, TELEPHONE EXPENSES, ETC . AT 1/8 TH OF THE SAID EXPENSES. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS, TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19.5.2017. SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 19 TH MAY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH