M/s Ved Parkash And Co, V. CIT,

ITA 865/CHANDI/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8730 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: PRERNA GOSWAMI; S K MOKHI
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Corroborative evidences; Commercial expediency; Onus to prove; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 865/CHD/2014 ASSESSMENT YEAR: 2007-08 M/S VED PARKASH & CO., VS THE DCIT, KHAJURI ROAD, CIRCLE, YAMUNA NAGAR. YAMUNA NAGAR. PAN: AAAFV6010D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MOKHI & MS. PRERNA GOSWAMI RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 12.01.2015 DATE OF PRONOUNCEMENT : 21.01.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) PANCHKULA DATED 11.08.2014 FOR ASSESSM ENT YEAR 2007-08. 2. ON GROUND NO. 2 ASSESSEE CHALLENGED THE ADDITION OF RS. 2,43,479/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTED FROM THE COPY OF ACCOUNT OF THE ASSESSEE FIRM RECEIVED FROM M/S RIYAZ TIMBER, PLOT NO. 100, SECTOR-1, OPP. LONDON PILSNOR, NERUL, NAVI MUMBAI T HAT THE ASSESSEE HAS MADE SALES OF RS.2,43,479/- BY WAY OF BILL NO. 4 DATED 22.04.2006 AGAINST WHICH PAYMENT OF THE IDENT ICAL AMOUNT OF RS.2,43,479/- VIDE CHEQUE NO. 217809 DATE D 05.06.2006 WAS MADE. THE SALE BILL NO. 4 DATED 22 .04.2006 2 WAS NOT REFLECTED IN THE ACCOUNT OF M/S RIYAZ TIMBE R. THE ASSESSEE'S CONTENTION THAT NO SUCH BILL WAS RAISED WAS NOT ACCEPTABLE TO ASSESSING OFFICER AS THE COPY OF BILL NO. 4 DATED 22.04.2006 WAS IDENTICAL IN SHAPE AND STYLE WHEN CO MPARED TO THE OTHER BILLS ISSUED BY THE ASSESSEE FIRM. THE AS SESSEE HAS ALSO RECEIVED PAYMENT OF RS.2,43,479/- AGAINST THE SAID BILL FROM M/S RIYAZ TIMBER, MUMBAI. SINCE THE SALE WAS N OT ACCOUNTED IN ASSESSEE'S ACCOUNT, THEREFORE, THE UNA CCOUNTED SALE OF RS.2,43,479/- WAS TREATED AS ASSESSEE'S UND ISCLOSED INCOME. 3. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT THROUGH ITS WRITTEN SUBMISSION DATED 05.11.2012 SUB MITTED THAT THE ASSESSING OFFICER HAS REFERRED IN HIS ORDE R WITH REGARD TO SUBMISSIONS MADE BY THE APPELLANT DATED 24.12.20 09 WHEREIN THE APPELLANT HAS CONTENDED THAT BILL NO. 4 DATED 22.04.2006 WAS NEVER ISSUED TO M/S RIYAZ TIMBER, MU MBAI BUT INSTEAD BILL NO. 4 WAS ISSUED TO M/S DHINGRA SALES SIRHIND FOR RS.1,30,216/- BUT HE HAS CONVENIENTLY OMITTED TO R EFER FURTHER CONCLUSIVE EVIDENCE FILED ALONGWITH THE SAID LETTER . INSPITE OF INDEPENDENT AND CONCLUSIVE EVIDENCE FILED BEFORE TH E ASSESSING OFFICER AND ALSO THE SAID PARTY HAVING NOT EVEN ACC OUNTED FOR THE ENTIRE PURCHASES DURING THE YEAR, THE ASSESSING OFFICER HAS ILLEGALLY AND ARBITRARY PROCEEDED TO MAKE ADDIT ION OF RS.2,43,479/- IN THE HANDS OF APPELLANT ALTHOUGH TH E PAYMENT OF RS.2,43,479/- HAS BEEN DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AND THE SALE MADE BY APPE LLANT WERE MORE THAN PURCHASES ENTERED BY THE SAID PARTY AND T HE ONUS LAY UPON THEM TO PROVE THEIR BONAFIDES. IN VIEW OF THE FACTS 3 STATED ABOVE, INDEPENDENT AND OVERWHELMING EVIDENCE , WITH REGARD TO SALES HAVING BEEN MADE VIDE BILL NO. 4 TO M/S DHINGRA SALES, SIRHIND WHICH HAS BEEN DULY VERIFIED BY THE PARTY, SALES TAX RECORDS AND TRANSPORT BILLS, THE ILLEGAL AND AR BITRARY ADDITION OF RS.2,43,479/- MADE BY THE ASSESSING OFF ICER NEEDS TO BE DELETED. 4. A REPORT WAS CALLED FROM THE ASSESSING OFFICER O N THE WRITTEN SUBMISSION FILED BY THE APPELLANT VIDE THIS OFFICE LETTER NO. CIT(A)/PKL/13-14/173 DATED 08.05.2014. THE REPO RT OF THE AO IS REPRODUCED AS UNDER :- 'THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE FIRM HAS DEALING WITH M/S RIYAZ TIMBER, MUMBAI. THE COPY OF ACCOUNT OF M/S VED PARKASH & CO. IN THE BOOKS OF M/S RIYAZ TIMBERS,MUMBAI WAS CALLED FOR VERIFICATION. FROM TH E COPY OF ACCOUNT PROVIDED BY M/S RIYAZ TIMBERS, MUMBAI, THE AO NOTED THAT BILL NO. 4 DATED 22.04.2006 FOR RS.2,43,479/- ISSUED BY M/S VED PARKASH & CO. IS ENTERED IN THE COPY OF ACCOUNT OF' - THE ASSESSEE IN THE BOOKS OF M/S RIYAZ TIMBERS WHEREAS THE & ASSESSEE HAS NOT ENTERED THE SAME IN HIS BOOKS OF ACCOUNTS. A COPY OF BILL ISSUED BY VED PARKASH & CO. WAS CALLED FROM M/S RIYAZ TIMBERS, MUMBAI. A PERUSAL OF THE COPY OF BILL REVEALS THAT TIN NO., TELEPHONE NO. AND ALL OTHER PARTICULARS OF THE COPY OF BILL PROVIDED BY M/S RIYAZ TIMBERS, MUMBAI TALLIES WITH THE STYLE AND ALL PARTICULARS OF BILLS ISSUED BY M/S VED PARKASH & CO. MOREOVER, THE ASSESSEE HAS RECEIVED THE PAYMENT OF THIS BILL VIDE CHEQUE NO. 217809 DATED 05.06.2006. THEREFORE, THE AO HAS RIGHTLY MADE AN ADDITION OF RS.2,43,479/- ON ACCOUNT OF UNACCOUNTED SALE BY THE ASSESSEE. ' 5. THE LD. CIT(APPEALS), CONSIDERING THE SUBMISSION OF THE ASSESSEE AND REMAND REPORT BY ASSESSING OFFICER CON FIRMED THE ADDITION. HIS FINDINGS IN PARA 5.3 OF THE APPE LLATE ORDER ARE 4 REPRODUCED AS UNDER : 5.3 I HAVE GONE THROUGH THE FACTS OF THE CASE, WRITTEN SUBMISSION FILED BY THE APPELLANT AND THE REMAND REPORT OF THE AO. AN OPPORTUNITY TO FILE A REJOINDER BY 24.07.2014 ON THE REPORT OF THE AO WAS GRANTED VIDE NOTICE DATED 16.07.2014. HOWEVER, THE APPELLANT SOUGHT ADJOURNMENT THROUGH ITS REPRESENTATIVE WHO WAS COMMUNICATED THAT ANY REPLY FILED ON OR BEFORE 31.07.2014 WILL BE CONSIDERED. HOWEVER, TILL DATE NO REJOINDER ON THE AO'S REPORT HAS BEEN SUBMITTED. SO, IT IS PRESUMED THAT APPELLANT H AS NO FURTHER SUBMISSION TO MAKE IN THIS REGARD. IT IS NOTED THAT THE AO HAS MADE ADDITION OF RS.2,43,749/- AS UNACCOUNTED SALE ON FINDING THAT A SALE THROUGH BILL NO. 4 DATED 22.04.2006 MADE TO M/S RIYAZ TIMBER, NAVI MUMBAI WAS NOT ENTERED IN ASSESSEE'S BOOKS OF ACCOUNT. THE APPELLANT HAS SUBMITTED THAT BILL NO. 4 WAS ISSUED TO M/S DHINGRA SALES, SIRHIND FOR RS.1,30,216/- AND NO SALE AGAINS T BILL NO. 4 WAS MADE TO M/S RIYAZ TIMBER, MUMBAI. ON PERUSAL OF COPIES OF BILLS ISSUED TO M/S RIYAZ TIMBER AND M/S DHINGRA SALES AND OTHER BILLS, IT IS FOUND THAT THE BILLS HAVE SAME FORMAT WITH SAME TIN NUMBER, TELEPHONE NUMBER AND OTHER PARTICULARS OF THE APPELLANT. THE BILL NO. 4 ISSUED TO M/S RIYAZ TIMBER, MUMBAI WAS OBTAINED FROM M/S RIYAZ TIMBER AND THEY HAVE NOT DENIED THE PURCHASE FROM THE APPELLANT. THE APPELLANT HAS NOT BROUGHT ANY EVIDENCE THAT THIS BILL DO NOT PERTAIN TO THE APPEL LANT AGAINST WHICH THE SAME AMOUNT HAS BEEN PAID BY M/S RIYAZ TIMBER. THE APPELLANT HAS NOT GIVEN ANY EXPLANATION ON THE FORMAT AND OTHER PARTICULARS OF THE APPELLANT FOUND ON THE BILL OBTAINED FROM M/S RIYAZ TIMBER, MUMBAI. MERELY SAYING THAT A BILL NO. 4 WAS ISSUED TO M/S DHINGRA SALES, SIRHIND DOES NOT ABSOLVE THE APPELLANT THAT BILL NO. 4 DATED 22.04.2006 WAS NOT ISSUED TO M/S RIYAZ TIMBER, MUMBAI. IN FACT TWO BILLS OF SAME NUMBER ISSUED BY THE APPELLANT CONFIRMS WITHOUT ANY DOUBT THAT APPELLANT HAS MADE UNACCOUNTED SALES WHICH HAS NOT BEEN RECORDED IN ITS BOOKS OF ACCOUNT. THE AO HAS NOT DOUBTED THE SALES MADE TO M/S DHINGRA SALES, SO ALL EVIDENCE IN SUPPORT OF SALES MADE TO MS/ DHINGR A SALES ONLY CONFIRM THE SALE TO M/S DHINGRA SALES. I T HAS NO BEARING ON UNACCOUNTED SALE MADE TO M/S RIYAZ TIMBER. THEREFORE, I AM IN AGREEMENT WITH THE FINDING OF THE AO THAT THE APPELLANT HAS NOT RECORD ED THE SALE MADE TO M/S RIYAZ TIMBER, MUMBAI THROUGH BILL NO. 4 DATED 22.04.2006. THUS, THE AO WAS JUSTIFIED IN MAKING THE ADDITION OF RS.2,43,479/- O N ACCOUNT OF UNACCOUNTED SALE MADE BY THE APPELLANT. THESE GROUNDS OF APPEAL ARE DISMISSED. 5 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE COPY OF BILL PROVIDED BY M/S RIYAZ TIMBER, MUMBAI IS FILED AT PA GE 44 OF THE PAPER BOOK AND AT PAGE 45 OF THE PAPER BOOK, TH E BILL ISSUED BY ASSESSEE IN FAVOUR OF M/S DHINGRA SALES I S FILED. THE ASSESSEE IN ITS SUBMISSIONS BEFORE LD. CIT(APPE ALS) HAS EXPLAINED THAT IN SUPPORT OF SALES MADE TO M/S DHIN GRA SALES, SIRHIND WAS SUPPORTED BY COPY OF THE ACCOUNT , COPY OF THE DECLARATION IN C-FORM ISSUED BY M/S DHINGRA SAL ES, SALES TAX RETURN OF M/S DHINGRA SALES, SIRHIND ALON GWITH BILL WAS FILED. IT WOULD, THEREFORE, SHOW THAT THE SALES MADE TO M/S DHINGRA SALES, SIRHIND WAS SUPPORTED BY THE STATUTORY FORM ISSUED BY SALES TAX AUTHORITIES AND SUCH SALE WAS INCLUDED IN THE ACCOUNTS OF M/S DHINGRA SALES, SIRHIND. THE SAME WAS ALSO SUPPORTED BY TRANSPORT GR RECEIPT THROUGH WHICH GOODS WERE TRANSFERRED. THESE INDEPE NDENT AND CORROBORATIVE EVIDENCES CLEARLY SUPPORT THE CLA IM OF THE ASSESSEE THAT IN-FACT SALES HAVE BEEN MADE VIDE BIL L NO. 4 TO M/S DHINGRA SALES, SIRHIND. THE ASSESSING OFFICER, HOWEVER, OBTAINED A COPY OF THE BILL FROM M/S RIYAZ TIMBER, MUMBAI FOR THE PURPOSE OF MAKING ADDITION AGAINST THE ASSE SSEE. THEREFORE, ONUS WAS UPON A.O. TO PROVE THAT ASSESSE E MADE SALES TO M/S RIYAZ TIMBER, MUMBAI HAS NOT BEEN DISC HARGED. EXCEPT THE INFORMATION SUPPLIED BY M/S RIYAZ TIMBER , MUMBAI, NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW IF ANY UNACCOUNTED SALES HAVE BEEN MADE BY ASSESSEE TO M/S RIYAZ TIMBER. THE ASSESSEE, SINCE BEGINNING HAS DENIED MA KING ANY SALES TO M/S RIYAZ TIMBER, MUMBAI, THEREFORE, A SSESSEE 6 COULD NOT BE PUT TO NEGATIVE ONUS TO PROVE THAT NO SALES HAVE BEEN MADE BY THE ASSESSEE TO M/S RIYAZ TIMBER. 7. THE ASSESSING OFFICER SHOULD HAVE ENQUIRED INTO THE SALES MADE TO M/S DHINGRA SALES, SIRHIND AND THE RE LATED SALES TAX RECORD PRODUCED BEFORE HIM IN RESPECT OF THE SALES MADE TO M/S DHINGRA SALES, SIRHIND. THE AUTHORITIE S BELOW HAVE MERELY COMPARED THE FORMAT OF THE BILL FOR THE PURPOSE OF MAKING ADDITION AGAINST THE ASSESSEE. THE BILL ISSUED TO M/S DHINGRA SALES, SIRHIND IS HAVING SIGNATURE OF T HE AUTHORIZED REPRESENTATIVE WHICH MATCH THE PAN NUMBE R OF THE AUTHORIZED REPRESENTATIVE ISSUED TO HIM. IT AP PEARS FROM THE COPY OF THE ACCOUNT OF M/S RIYAZ TIMBER (PB-10) THAT SINCE THE ASSESSEE HAS RECEIVED PAYMENT OF RS. 2 ,43,479/- FROM M/S RIYAZ TIMBER, MUMBAI VIDE CHEQUE NO. 21780 9 DATED 05.06.2006 AND THE AMOUNT WAS SIMILAR WITH TH E SALES BILL, THEREFORE, THE AUTHORITIES BELOW INFERRED THA T THE ASSESSEE HAS ISSUED THE BILL IN QUESTION TO M/S RIY AZ TIMBER, MUMBAI. HOWEVER, COPY OF THE ACCOUNT SHOWS THAT AS SESSEE RECEIVED TWO ADVANCE PAYMENTS FROM M/S RIYAZ TIMBER AND LATER ON, THE SALES HAVE BEEN MADE AND ULTIMATELY T HE CLOSING DEBIT BALANCE REMAINED IN A SUM OF RS. 15,210/-. T HE AUTHORITIES BELOW WERE, THEREFORE, NOT JUSTIFIED IN MAKING ADDITION AGAINST THE ASSESSEE OF UNACCOUNTED SALES MADE TO M/S RIYAZ TIMBER, MUMBAI. THE ASSESSING OFFICER SHOULD HAVE BROUGHT SUFFICIENT AND COGENT MATERIAL AGAINST THE ASSESSEE ON RECORD TO PROVE THAT IT WAS ACTUAL SALES MADE BY ASSESSEE TO M/S RIYAZ TIMBER, MUMBAI, OTHERWISE THE MATERIAL PRODUCED ON RECORD BY ASSESSEE WAS 7 SUFFICIENT TO SHOW THAT NO UNACCOUNTED SALES HAVE B EEN MADE BY ASSESSEE TO THIS PARTY. IN THE ABSENCE OF ANY A DEQUATE MATERIAL ON RECORD, THE BURDEN UPON ASSESSING OFFIC ER TO PROVE THAT UNACCOUNTED SALES HAVE BEEN MADE BY ASSE SSEE HAVE NOT BEEN DISCHARGED AND AS SUCH THE ADDITION I S WHOLLY UNJUSTIFIED. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION OF RS. 2, 43,479/-. 8. IN THE RESULT, GROUND NO. 2 OF APPEAL OF THE AS SESSEE IS ALLOWED. 9. ON GROUND NO. 3, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 7991/- ON ACCOUNT OF PERSONAL U SE OF TELEPHONE, CAR EXPENSES AND DEPRECIATION TO CAR. T HE ASSESSING OFFICER NOTED THAT ASSESSEE HAD DEBITED R S. 60,891/- ON ACCOUNT OF TELEPHONE EXPENSES, RS. 3500 /- ON ACCOUNT OF CAR EXPENSES AND RS. 15,523/- ON ACCOUNT OF DEPRECIATION ON CAR. THE ASSESSEE FAILED TO PRODUC E LOG BOOK OF THE CAR AND TELEPHONE REGISTER. KEEPING IN VIEW THE FBT HAD BEEN PAID BY ASSESSEE FIRM, 15% OF THE TOTA L EXPENDITURE IN A SUM OF RS. 11,987/- WAS DISALLOWED . THE LD. CIT(APPEALS) RESTRICTED THE DISALLOWANCE TO 1/1 0 TH AND SUSTAINED ADDITION OF RS. 7991/-. 10. AFTER HEARING RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. TH E ASSESSEE HAS FAILED TO PRODUCE COMPLETE DETAILS BEFORE ASSES SING OFFICER AND ALSO FAILED TO PRODUCE LOG BOOK OF THE CAR AND TELEPHONE REGISTER. THEREFORE, ASSESSING OFFICER W AS JUSTIFIED IN HOLDING THAT THESE HAVE BEEN USED FOR PERSONAL P URPOSES 8 AND FOR NON-BUSINESS PURPOSES. THE LD. CIT(APPEALS ) RIGHTLY RESTRICTED THE ADDITION TO 1/10 TH . NO FURTHER DELETION IS THEREFORE, POSSIBLE. THIS GROUND OF APPEAL IS, THE REFORE, DISMISSED. 11. ON GROUND NO. 4, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 5,000/- OUT OF TRAVELING EXPENS ES OF RS. 23,499/-. THE ASSESSING OFFICER NOTED THAT EXPENSE S ARE NOT SUBJECTED TO VERIFICATION IN THE ABSENCE OF EXTERNA L BILLS AND VOUCHERS. THE LD. CIT(APPEALS) CONFIRMED THE ADDIT ION OF RS. 5,000/-. 12. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY JUSTIFICATION TO INTERFERE FURTHER IN THE ORDERS OF THE AUTHORITIES BELOW. THE LD. COUNSEL FOR THE ASSESSE E REFERRED TO PB-48 WHICH IS LIST OF TRAVELING AND CONVEYANCE EXPENSES AND SUBMITTED THAT MOSTLY IT WAS PETROL EXPENSES ON WHICH AMOUNT HAD BEEN SPENT. HOWEVER, NO EXTERNAL VOUCHE RS HAVE BEEN PRODUCED EVEN BEFORE US TO SHOW THAT SAME EXPE NSES HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. ACCORD INGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 13. ON GROUND NO. 5, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 4,48,815/- OUT OF INTEREST EXPE NSES. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID INTEREST OF RS.4,48,815/- TO THE BANK AND THE SAME WAS DEBITED TO THE P&L ACCOUNT. THE ASSESSEE HAS ALSO ADVANCED TO SH. KUNAL NAYYAR AND IMPREST CASH TO ITS PARTNERS. BUT NO INT EREST WAS CHARGED ON THESE DEBIT BALANCES. INTEREST CHARGEABL E @ 12% 9 P.A. ON THE DEBIT BALANCES ON THE DIFFERENT DATES W ORKS OUT AS ON 31.03.2007 AS UNDER:- S/SH./SMT. AMOUNT ADVANCED INTEREST B.R. GUPTA RS. 2,3 8,000/- RS. 16,560/- VED PARKASH RS. 21,90,000/- RS. 1,44,300/- VIVEK GUPTA RS. 17,17,436/- RS. 1,1 0,090/- SANJAY GUPTA RS. 6,69,520/- RS. 80,342/- VIVEK GUPTA (CAPITAL DR.) RS.6,74,661/- RS.85,104/- TOTAL INTEREST RS.5,56,396/- NO INTEREST WAS CHARGED ON THESE ACCOUNTS AND THE F IRM HAS PAID INTEREST IN THE P&L ACCOUNT. THE AMOUNT OF INT EREST ON THESE ADVANCES/IMPREST TO THE ABOVE NOTED PERSONS O N THE DEBIT BALANCES WORKS OUT TO RS.5,56,396/- WHICH WAS THE INTEREST DEBITED BY THE ASSESSEE IN P&L ACCOUNT. TH E INTEREST DEBITED TO P&L ACCOUNT AT RS.4,48,815/- WAS DISALLO WED BY THE AO U/S 36(L)(III) OF THE I.T. ACT. THE AO ALSO PLAC ED RELIANCE ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. VS. CIT 286 ITR 1 . 14. DURING THE COURSE OF APPELLATE PROCEEDINGS, T HE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE APPELLANT HAD OPENING PARTNERS CAPITAL AS ON 01.04.2006 AT RS.75,91,881/- AND CLOSING BALANCE OF RS.83,51,498/- AS ON 31.03.2007 ON WHICH NO INTEREST IS PAID SIMILARLY, THE FIRM HAD UNSECUR ED LOANS OF'RS.,77,27,217/- AS ON 01.06,2006 AND CLOSING BAL ANCE OF THE SAME AMOUNT I.E. RS.77,27,217/- AS ON 31.03.2007. N O INTEREST IS PAID EVEN ON UNSECURED LOANS. THE APPEL LANT SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDING HE 10 HAS FILED COPIES OF IMPREST ACCOUNT OF SH. BABU RAM GUPTA, SH. VIVEK GUPTA, SH. VED PARKASH GUPTA AND SH. SANJ AY GUPTA. THE AMOUNT DUE FROM SH. KUNAL NAYYAR WAS ADV ANCED IN EARLIER YEARS FOR PURCHASE OF ASSETS. THAT ADVAN CES MADE WERE EXCLUSIVELY FOR BUSINESS PURPOSES. THE APPELLA NT FURTHER SUBMITTED THAT IT MAY NOT BE OUT OF PLACE TO MENTIO N THAT ASSESSEE HAD A SUM OF RS.I60.78 LAKHS AS NON INTERE ST BEARING FUNDS (PARTNERS CAPITAL RS.83.51 LACS AND RS.77.27 LACS UNSECURED LOANS.) THE APPELLANT RELIED UPON THE DEC ISION IN THE FOLLOWING CASE :- I) MUNJAL SALES CORPORATION VS. CIT & ANR. 29 8 ITR 298 (SC) II) S.A. BUILDERS LTD. VS. CIT 288 ITR 1 THE APPELLANT FURTHER SUBMITTED THAT SH. B.R. GUPTA HAD A CAPITAL BALANCE OF RS.7,36,285/89 AND SH. VED PARKA SH HAD CREDIT BALANCE OF RS. 16,63,308/- AS ALSO UNSECURED LOANS OF RS.77.27 LACAS ON WHICH NO INTEREST IS PAID BY THE FIRM. THE APPELLANT CONCLUDED THAT THE ADVANCES HAVING BEEN M ADE PURELY FOR BUSINESS PURPOSES AND OWN CAPITAL AND UNSECURED LOANS AMOUNTING TO RS.160.78 LACS WHICH IS FAR MORE THAN THE ALLEGED ADVANCES AT RS.64,89,617/- AND NO CONSIDERATION OF THE FACTS WITH REGARD TO BUSINESS ADVANCES AND SUBMISSIONS MA DE TO THE ALLEGED DISALLOWANCE IS ALTOGETHER ILLEGAL, VOID AN D UNCALLED FOR. 15. THE LD. CIT(APPEALS), CONSIDERING EXPLANATION O F THE ASSESSEE DISMISSED THIS GROUND OF APPEAL OF THE ASS ESSEE. HIS 11 FINDINGS IN PARA 8.2 TO 8.5 ARE REPRODUCED AS UNDER :- 8.2 I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE WRITTEN SUBMISSION FILED BY THE APPELLANT. IT IS NO TED THAT THE FIRM HAS DEBITED INTEREST OF RS.4,48,815/- IN THE P&L ACCOUNT ON ACCOUNT OF BORROWED FUND WHEREAS IT HAS GIVEN INTEREST FREE ADVANCES TO A NUMBER OF PERSONS. THE AO ESTIMATED INTEREST @ 12% ON THE DEBIT BALANCES AND REACHED TO THE CONCLUSION THAT INTEREST PAID BY THE FIRM IS NOT ALLOWABLE U/S 36(L)(III) OF THE ACT AS THE FUND HAS BEEN ADVANCED TO OTHERS WITHOUT ANY INTEREST. ON THE OTHER HAND THE APPELLANT HAS SUBMITTED THAT THE FIRM HAD A SUM OF RS. 160. 78 LACS AS NON INTEREST BEARING FUNDS ON ACCOUNT OF PARTNERS CAPITAL AND UNSECURED LOAN. THE APPELLANT IS ALSO OF THE VIEW THAT NON INTEREST BEA RING FUND IS MORE THAN THE ADVANCES GIVEN OF RS.64,89,617/- WHICH WERE GIVEN FOR BUSINESS PURPOSES, THEREFORE, THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(L)(III) WAS NOT CALLED FOR. 8.3 AFTER CONSIDERING THE FACTS AND SUBMISSIONS , IT IS SURPRISING TO NOTE THAT IF THE FIRM WAS HAVING S UCH AN AMOUNT AVAILABLE WITH IT THEN WHAT WAS THE NECESSITY TO BORROW THE FUND ON WHICH THE INTEREST HAS BEEN PAID. THE APPELLANT HAS NOT BROUGHT ANY FACT SHOWING THAT IT WAS THE AVAILABLE NON-INTEREST BEARING FUND WHICH HAS BEEN ADVANCED TO THE OTHER PERSON WITHOUT CHARGING ANY INTEREST. FURTHER, THE APPELLANT HAS ALSO NOT BEEN ABLE TO JUSTIFY THAT AMOUNT ADVANCED TO OTHER PERSONS WERE FOR THE BUSINESS PURPOSES ONLY. THE APPELLANT HAS NOT BEEN ABLE TO FURNISH EXPLANATION REGARDING THE BUSINESS NEED FOR PROVIDING ADVANCES TO OTHER PERSONS OUT OF THE NON INTEREST BEARING FUND AVAILABLE WITH IT. TH E AMOUNT SHOWN AS ADVANCES IN LAKHS DO NOT JUSTIFY THE IMPREST NEEDS TO RUN THE DAY TO DAY AFFAIRS TO BUSINESS. THE APPELLANT HAS BORROWED FUND ON WHICH IT HAS CLAIMED INTEREST EXPENDITURE AND ON THE OTHE R HAND IT HAS ADVANCED THE FUND TO THIRD PERSON ON WHICH NO INTEREST HAS BEEN CHARGED. IN MY VIEW, THE AO WAS RIGHT IN HOLDING THAT INTEREST EXPENDITURE RELEVANT TO THE AMOUNT TO THE EXTENT OF ADVANCES MADE TO THIRD PARTIES WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 8.4 REGARDING THE APPELLANT'S RELIANCE ON THE DECISION OF MUNJAL SALES CORP (SUPRA), IT IS NOTED THAT THE DECISION GIVEN BY HON'BLE SUPREME COURT WAS ON DIFFERENT FACTS THAT) THE FACTS OF THE INSTANT CASE . IN THAT CASE, THE HON'BLE SUPREME COURT OBSERVED THAT THERE WAS OPENING BALANCE OF THE PROFIT OF RS. 1 .91 12 CRORES AND THE PROFIT WAS SUFFICIENT TO COVER THE L OAN GIVEN TO A SISTER CONCERN OF RS.5 LACS ONLY. IN THE INSTANT CASE, THE ASSESSEE FIRM DOES NOT HAVE PROFI T DURING THE YEAR RATHER IT HAS BROUGHT FORWARD UNABSORBED DEPRECIATION SINCE A.Y. 2002-03 WHICH HAS BEEN CARRIED FORWARD TO BE SET OFF AGAINST FUTU RE INCOME. REGARDING THE OTHER CASE OF S.A. BUILDERS LTD. (SUPRA) RELIED BY THE APPELLANT, IT IS FOUND T HAT THE HON'BLE SUPREME COURT IN THAT CASE HAS REMANDED THE MATTER TO TRIBUNAL TO EXAMINE WHETHER AMOUNT ADVANCED TO SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. IN THE INSTANT CASE, THE AMOUNT ADVANCED IS TO INDIVIDUALS AND THE APPELLANT HAS NOT BROUGHT ANY FACT TO SHOW THAT THERE WAS ANY COMMERCIAL EXPEDIENCY IN ADVANCING THE INTEREST FRE E AMOUNTS TO OTHER PERSONS. THEREFORE, THE FACTS OF T HE CASE OF S.A. BUILDERS IS ALSO DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE. THUS, THE DECISIONS GIVE N IN THE CASES RELIED UPON BY THE APPELLANT HAVE NO DIRE CT RELEVANCE AS THE FACTS OF THE CASES ARE DIFFERENT F ROM THE INSTANT CASE. 8.5 IN VIEW OF THE FACTS AND DISCUSSION IN PREC EDING PARAS, I AM OF THE VIEW THAT THE AO WAS JUSTIFIED I N MAKING DISALLOWANCE OF INTEREST EXPENDITURE CORRESPONDING TO INTEREST FREE LOANS ADVANCED TO INDIVIDUALS. THESE GROUNDS OF APPEAL ARE DISMISSED. 16. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, W E ARE OF THE VIEW THE MATTER REQUIRES RE-CONSIDERATION AS REGARD S THE IMPUGNED ADVANCES TO THE PARTNERS ONLY AND THE REST OF THE ADDITION IS TO BE SUSTAINED. THE LD. COUNSEL FOR TH E ASSESSEE REFERRED TO PB-31 WHICH IS PARTNERS CAPITAL ACCOUN T AS ON 31.03.2007. IN THE CASE OF THE PARTNER SHRI B.R.GU PTA, THERE IS A CAPITAL BALANCE OF RS. 73,62,851/- AND THE AMOUNT ADVANCED TO THIS PARTNER WAS RS. 2,38,000/- ONLY. THE ASSES SEE CLAIMED THAT NO INTEREST HAS BEEN PAID TO THE PARTNERS. TH EREFORE, IN THE CASE OF THIS PARTNER, THERE WAS A SUFFICIENT CA PITAL BALANCE AVAILABLE IN THE PERSONAL ACCOUNT OF THE PARTNER SH RI B.R. GUPTA. HOWEVER, IN THE CASE OF THE PARTNER SHRI VE D PARKASH GUPTA, THE CAPITAL BALANCE WAS RS. 16,63,308/-. HO WEVER, THE 13 AMOUNT ADVANCED TO HIM WAS RS. 21,90,000/-. THEREF ORE, TO THE EXTENT OF CAPITAL AVAILABLE, THE DISALLOWANCE O F THE INTEREST MAY NOT BE PERMISSIBLE. HOWEVER, IN THE CASE OF SH RI VIVEK GUPTA, PARTNER THERE IS A DEBIT BALANCE OF RS. 6,74 ,661/-, AS REGARDS THE AMOUNT ADVANCED TO SHRI KUNAL NAYAR IN A SUM OF RS. 10,00,000/-, THE JUDGEMENT OF THE HON'BLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES LTD. VS CIT 286 ITR 1 IS CLEARLY APPLICABLE IN WHICH HON'BL E HIGH COURT HELD AS UNDER : ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSE SSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAI N AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT AN Y BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 17. IT IS NOT EXPLAINED WHETHER OTHER PERSONS SH RI VIVEK GUPTA OR SHRI SANJAY GUPTA ARE PARTNERS OR THE AMOU NTS HAVE BEEN ADVANCED TO THEM WERE BEING THE RELATIVES. TH E LD. COUNSEL FOR THE ASSESSEE HAS ALSO NOT POINTED OUT ANYTHING IN THIS REGARD. THEREFORE, IN THE ABSENCE OF ANY DETAIL AV AILABLE ON RECORD, WHETHER THESE PERSONS WERE PARTNERS IN THE ASSESSEE FIRM OR NOT, THE ASSESSING OFFICER SHOULD VERIFY TH IS FACT FROM THE RECORD AND IN CASE THESE TWO PERSONS SHRI VIVEK GUPTA AND SHRI SANJAY GUPTA ARE NOT THE PARTNERS, DISALLOWANC E OUT OF THE INTEREST SHOULD ALSO BE MADE AS IS CONFIRMED BY LD. CIT(APPEALS). IT IS NOT IN DISPUTE THAT ASSESSEE F IRM HAS DEBITED INTEREST OF RS. 4,48,815/- IN THE PROFIT & LOSS ACC OUNT ON ACCOUNT OF BORROWED FUNDS WHEREAS IT HAS GIVEN INTE REST FREE ADVANCES TO NUMBER OF PERSONS. THE LD. CIT(APPEALS ), THEREFORE, 14 CORRECTLY NOTED THAT IF THE FIRM WAS HAVING SUCH AN AMOUNT AVAILABLE WITH IT, THEN WHAT WAS THE NECESSITY TO B ORROW FUNDS ON WHICH INTEREST HAS BEEN PAID. THE ASSESSEE HAS NOT BROUGHT OUT ANY FACT SHOWING IT WAS THE AVAILABLE NON INTER EST BEARING FUNDS WHICH HAVE BEEN ADVANCED TO THE OTHER PERSONS WITHOUT CHARGING ANY INTEREST. THE ASSESSEE HAS ALSO NOT B ROUGHT ANY MATERIAL ON RECORD TO JUSTIFY THAT ADVANCES TO OTHE R PERSONS WERE MADE FOR BUSINESS PURPOSES ONLY. 18. IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL AVA ILABLE ON RECORD TO PROVE THAT ADVANCES TO OTHER PERSONS HAVE BEEN MADE FOR BUSINESS PURPOSE, AUTHORITIES BELOW WERE JUSTIF IED IN DISALLOWING THE INTEREST. WE, THEREFORE, IN PRINCI PLE CONFIRM DISALLOWANCE OF THE INTEREST IN RESPECT OF THE OTHE R PERSONS TO WHOM THE ADVANCES HAVE BEEN GIVEN BY THE ASSESSEE F IRM FOR NON-BUSINESS PURPOSE. HOWEVER, AS NOTED ABOVE IN C ASE OF THE ADVANCE GIVEN TO THE PARTNERS AND IN TWO PARTNERS CASES, EITHER SUFFICIENT CAPITAL BALANCE IS AVAILABLE OR PART CAP ITAL BALANCE IS AVAILABLE, THE ASSESSING OFFICER SHOULD VERIFY THIS FACT FROM THE RECORD AND SHALL PASS A REASONED ORDER FOR THE PURP OSE OF DELETING DISALLOWANCE OUT OF INTEREST, BECAUSE WHEN NO INTEREST IS PAID ON THE CAPITAL AND PARTNERS HAVE SUFFICIENT CAPITAL BALANCES, DISALLOWANCE OUT OF THE INTEREST MAY NOT BE PERMISSIBLE IN THEIR CASES. THEREFORE, WE MODIFY T HE ORDERS OF AUTHORITIES BELOW TO THE EXTENT THAT ASSESSING OFFI CER SHALL VERIFY THE DISALLOWANCE OF THE INTEREST ONLY IN THE CASES OF THE TWO PARTNERS TO WHOM SOME ADVANCES HAVE BEEN GIVEN AGAINST 15 CAPITAL AVAILABLE IN THEIR ACCOUNTS. OTHERWISE, TH E REST OF THE ADDITION WOULD BE MAINTAINED. THE ASSESSING OFFICER, WITH REGARD TO THE VERIFICATION OF THE CAPITAL BALANCES AVAILABLE IN THE CASES OF THE PARTNERS SHALL GIVE REASONABLE SUFFICI ENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 19. NO OTHER POINT IS ARGUED OR PRESSED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST JANUARY,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH