Ms. Neeru Suresh Jain, Baroda V. The Income tax Officer,Ward-2(2), Baroda

ITA 876/AHD/2012

• Counselvise Citation: 87620514 RSA 2012
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 20-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Keywords: Business expenditure; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 876/AHD/2012 ASSESSMENT YEARS :2007-08 MS. NEERU SURESH JAIN PROP. JYOTI TRADING CO. HARIDHAM SOKHDA, OPP. TELEPHONE EXCHANGE, DIST. VADODARA V/S . ITO WARD 2 (2) BARODA PAN NO. ADYPJ4171G (APPELLANT) .. (RESPONDENT) BY APPELLANT MS. URVASHI SHODHAN, A.R. /BY RESPONDENT SHRI D.K. SINGH, SR. D.R. /DATE OF HEARING 31.08.2012 /DATE OF PRONOUNCEMENT 19.10.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-II, BARODA, ORDER DATED 01 .02.2012 FOR A.Y. 2007-08. THE SOLE GROUND OF APPEAL IS AGAINST DISALLOWING TH E INTEREST PAID RS.3,70,532/- U/S. 36(1)(III) OF THE IT ACT. 2. THE FACTUAL MATRIX OF THE CASE IS THAT THE APPEL LANT HAD TAKEN SECURED LOAN OF RS.32,51,566/- AND UNSECURED LOAN OF RS.9,8 8,961/- TOTALING TO ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 2 RS.42,40,527/-. THE ASSESSEE HAS DEBITED THE INTER EST OF RS.3,70,532/- IN P&L ACCOUNT WHICH WAS PAID TO THE BANK AND GE MONEY FOR LOAN TAKEN BY THE ASSESSEE FROM THEM. THE ASSESSEE ALSO ADVANCED TO M/S. N.J. INDUSTRIES RS.55,69,156/- AND RADHESHYAM AGARWAL HUF RS.2,00,0 00/- WITHOUT ANY INTEREST. THE A.O. HAD GIVEN REASONABLE OPPORTUNIT Y OF BEING HEARD. AS THERE IS NO INTEREST EARNED ON ADVANCES, THEREFORE, HE DI SALLOWED ALL THE INTEREST EXPENSES DEBITED IN THE P&L ACCOUNT U/S. 36(1)(III) OF THE IT ACT. 3. BEING AGGRIEVED BY THE ORDER OF A.O., THE ASSESS EE FILED APPEAL BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDITION IN PARAGR APH NO.3.3 WHICH IS REPRODUCED AS UNDER: 3.3 DECISION: I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSE SSING OFFICER. IT BECOMES CLEAR THAT THE LOAN GIVEN TO A SSESSEES SON FOR HIS PROPRIETARY CONCERN, WAS FOR THE BUSINESS P URPOSE OF THE SON AND NOT FOR ANY BUSINESS PURPOSE OF THE ASSESSE E. THIS FACT WAS CATEGORICALLY ADMITTED BY THE AUTHORIZED REPRES ENTATIVE DURING APPELLATE PROCEEDINGS. IT WAS ALSO ADMITTED BY HIM THAT THE INTEREST FREE ADVANCE/LOAN WAS NOT GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. HENCE THE NEXUS OF INTEREST BEARING FUNDS BORROWED AND THE INTEREST FREE LOANS ADVANCE FOR NON-BUSINESS PURPOSE OF THE ASSESSEE, IS CLEARLY ES TABLISHED. THE BASIC ARGUMENT OF HE AUTHORIZED REPRESENTATIVE IS HIS RELIANCE ON THE HONBLE SUPREME COURT CASE OF S.A. BUILDERS. THE HEAD NOTES OF THIS CASE ARE REPRODUCED HEREUNDE R:- BUSINESS EXPENDITURE INTEREST ON BORROWED CAPITA L INTEREST-FREE LOAN TO SISTER CONCERN LOWE AUTHORI TIES DISALLOWED INTEREST ON BORROWED FUNDS ON THE GROUND ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 3 THAT THE AMOUNT HAS BEEN ADVANCED BY UTILIZING THE OVERDRAFT ACCOUNT NOT JUSTIFIED IT WAS REQUIRED TO BE ENQUIRED AS TO WHETHER THE INTEREST-FREE LOAN WAS G IVEN TO THE SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY IF IT IS SO, INTEREST ON BORROWED FUND S IS TO BE ALLOWED THE HIGH COURT AND THE OTHER AUTHORITI ES SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER-CONCERN, AND WHAT THE SISTER-CONCERN DID WITH THIS MONEY, IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEEN DONE THE MATTER IS REMANDED TO THE TRIBUNAL FOR A FRESH DECISION IN TH E LIGHT OF AFORESAID OBSERVATIONS. FROM THE ABOVE, IT IS VERY CLEAR THAT THE INTEREST EXPENSES CAN BE ALLOWED ONLY WHEN THE INTEREST FREE LOAN GIVEN TO S ISTER CONCERN IS SERVING ANY COMMERCIAL PURPOSE OF THE ASSESSEE I.E. IT IS COMMERCIALLY EXPEDIENT FOR THE ASSESSEE TO GIVE OUT INTEREST FREE LOANS AND BEAR THE INTEREST BURDEN HIMSELF. BUT IN THE PRESENT CASE, IT WAS CATEGORICALLY ACCEPTED BY THE AUTHORIZ ED REPRESENTATIVE THAT THE COMMERCIAL EXPEDIENCY / NEE D WAS THAT OF ASSESSEES SON AND NOT OF THE ASSESSEES BUSINES S, IN ADVANCING THESE LOANS. HENCE THIS IS A CLEAR CASE OF ASSESSEE BEARING THE INTEREST BURDEN OF HER SON FOR NO BUSIN ESS PURPOSE. SUCH EXPENSES CANNOT BE ALLOWED AS DEDUCTION UNDER I.T. PROVISIONS. THE ASSESSING OFFICER HAS CORRECTLY DI SALLOWED THE SAME. THE ACTION OF THE ASSESSING OFFICER IS THERE FORE UPHELD. IN RESPECT OF INTEREST FREE LOANS GIVEN TO RADHESH YAM AGARWAL HUF, AGAIN NO BUSINESS PURPOSE / COMMERCIAL EXPEDIENCY HAVE BEEN ESTABLISHED FOR ASSESSEES BUS INESS. JUST BECAUSE THE LOAN WAS EXTENDED IN PRECEDING YEAR, DO ES NOT ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 4 JUSTIFY THE ALLOWANCE OF EXPENDITURE THIS YEAR. TH E DISALLOWANCE IN RELATION TO THIS LOAN IS ALSO CORRECT AND IS UPH ELD. THE GROUND OF APPEAL IS THEREFORE REJECTED. 4. NOW THE MATTER IS BEFORE US. LD. COUNSEL FOR TH E APPELLANT, MS. URVASHI SODHAN FILED PAPER BOOK, WRITTEN SUBMISSION AND CON TENDED THAT THE APPELLANT HAD GIVEN ADVANCE TO HER SON, PROPRIETY CONCERN IN THE NAME OF M/S. N.J. INDUSTRIES FOR HIS NEW BUSINESS. THE APPELLANT FIL ED COPY OF LEDGER ACCOUNT OF M/S. N.J. INDUSTRIES. SHE ALSO DRAWN OUR ATTENTION ON PAPER BOOK AND SUBMITTED THAT THE AMOUNT RECEIVED FROM THE APPELLA NT WAS UTILIZED FOR THE PURPOSE OF BUSINESS OF THE APPELLANTS SON, PROPRIE TY CONCERN. THE APPELLANTS SONS BUSINESS WAS ALSO VERY ENCOURAGING DURING THE A.Y. 07-08 AND INVENTORY AND SUNDRY DEBTORS HAD ALSO INCREASED CONSIDERABLY AND CLAIMED THAT ADVANCES WERE GIVEN OUT OF BUSINESS EXPEDIENCY. SH E ALSO RELIED ON IN CASE OF S.A. BUILDERS LTD. VS. CIT, REPORTED IN 288 ITR 1. THE ADVANCE OF RS.2LACS WAS IN CASE OF HUF, WHICH WAS GIVEN IN EARLIER YEAR AND HAD SHOWN OPENING BALANCE AS CARRY FORWARDED FOR WHICH NECESSARY PAPE R HAD BEEN FILED BY THE APPELLANT. THE APPELLANT HAD CAPITAL OF RS.6,19,70 0/- AT THE BEGINNING AND OF RS.10,54,821/- AS AT THE CLOSE OF THE YEAR. THE AP PELLANT HAD SUFFICIENT INTEREST FREE FUND TO GIVE INTEREST FREE LOAN. SHE ALSO RELIED IN CASE OF ITO, WD.-4 VS. SHRI YASHWANT S. TEJANI, PROP. OF ANKITA EQUIPMENT IN ITA NO. 268/AHD/2005 FOR A.Y.2001-02 , WHERE THERE WAS SIMILAR GROUND BEFORE THE CO- ORDINATE BENCH HAD HELD IN FAVOUR OF THE ASSESSEE O N PAGE NO.8 IN PARAGRAPH NO.16 WHICH IS REPRODUCED AS UNDER: ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 5 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. IT IS BECAUSE INTEREST FREE ADVANCES TO KOKILABEN TEJANI & MAHESH S. TEJANI WERE OLD BALANCES AND NO DISALLOWANCE IN THE PAST HAS BEEN MADE. SECONDLY, SHRI MANISH TEJANI IS AN EMPLOYEE AND INTEREST FREE ADVANCES AR E GIVEN TO HIM FOR COMMERCIAL EXPEDIENCY. THIRDLY, LOAN TAKEN FROM BANK ARE APPARENTLY USED FOR PURCHASING PLANT AND MACHIN ERY AS EXPLAINED BY LD. A.R. NOTWITHSTANDING ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND ASSESSING OFFICER IS EXPECT ED TO SHOW THAT EXPLANATION FURNISHED BY THE ASSESSEE THAT IT IS ON LY OUT OF INTEREST FREE FUNDS FROM WHICH INTEREST FREE ADVANC ES ARE GIVEN IS NOT CORRECT BY POINTING OUT THAT WHEN MONEY WAS GIV EN TO THE FRIENDLY PERSONS, THE ASSESSEE HAD BUILT UP CASH BA LANCES BY BORROWING INTEREST BEARING LOANS FROM THE BANK OR F ROM OTHER PERSONS AND HAD HE NOT BORROWED FUNDS ON INTEREST, HE COULD NOT HAVE GIVEN SUCH ADVANCES TO FRIENDLY PERSONS WITHOU T INTEREST, AS HE WOULD NOT HAVE ADEQUATE CASH BALANCE AT THE POIN T OF TIME WHEN HE MADE INTEREST FREE ADVANCES. THE ONUS IS N EVER FIXED, IT GOES ON SHIFTING FROM ASSESSING OFFICER TO ASSESSEE AND FROM ASSESSEE TO ASSESSING OFFICER, DEPENDING UPON EVIDE NCE AND EXPLANATION FURNISHED BY THE PARTIES. IF, THE ASSE SSEE HAS FURNISHED AN EXPLANATION THAT IT HAS SUFFICIENT INT EREST FREE ADVANCES, THEN ASSESSEE HAS PRIMA-FACIE DISCHARGED THE ONUS AND IT IS NOW THE DUTY OF THE ASSESSING OFFICER TO SHOW THAT ASSESSEE DID NOT HAVE SUFFICIENT INTEREST FREE FUND S AVAILABLE AT THE POINT OF TIME WHEN HE HAD GIVEN INTEREST FREE A DVANCES. HE CAN DO SO BY CALLING DIRECTLY OR FROM ASSESSEE, COP IES OF BANK ACCOUNT SHOWING RECEIPT & TRANSFER OF THE FUNDS IN QUESTION. MERELY, REJECTING THE EXPLANATION OF THE ASSESSEE I S NOT SUFFICIENT. ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 6 THE VIEW OF HONBLE BOMBAY HIGH COURT IN RELIANCE U TILITIES AND POWER LIMITED GIVES CLEAR INDICATION THAT IF ASSESS EE HAS SUFFICIENT INTEREST FREE FUNDS, THEN IT SHALL BE PRESUMED THAT INTEREST FREE ADVANCES WAS GIVEN OUT OF INTEREST FREE FUNDS. SUC H PRESUMPTION IS REBUTTABLE AND THE ASSESSING OFFICER IS EXPECTED TO GIVE HIS FINDING ON THE AVAILABILITY OF CASH AT THE POINT OF TIME WHEN SUCH INTEREST FREE ADVANCES ARE GIVEN. IF HE CHOOSES NO T TO DO SO THEN HE LOSES THE RIGHT TO MAKE ADDITION. THIS IS EXACT LY WHAT HAS HAPPENED IN THIS CASE. THEREFORE, ADDITION MADE BY THE ASSESSING OFFICER CANNOT BE JUSTIFIED. AS A RESULT THIS GROUND OF REVENUE IS REJECTED. SHE ALSO CONTENDED THAT THESE ARE THE TRANSACTIONS OF SALE MADE BY PROPRIETY CONCERN OF THE ASSESSEE, NAMELY, JYOTI TRADING COMP ANY. THEREFORE, LOANS WERE GIVEN BECAUSE OF BUSINESS DEALINGS AND MADE FO R BUSINESS EXPEDIENCY. SHE REQUESTED TO DELETE THE ADDITION. FROM THE SID E OF THE REVENUE, LD. D.R. VEHEMENTLY RELIED ON THE ORDERS OF AUTHORITIES BELO W AND REQUESTED TO CONFIRM THE ADDITION. 5. WE HAVE GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW, CASE LAWS CITED BY THE APPELLANT AND HEARD THE ARGUMENTS. THE TOTA L ADVANCES OF RS.55,69,156/- SHOWN IN THE NAME OF N.J. INDUSTRIE S, PROPRIETY CONCERN OF MR. AKHIL JAIN S/O MS. NEERU SURESH JAIN AND RS.2 LACS ADVANCED TO RADHESHYAM AGARWAL HUF WHICH WAS CARRY FORWARDED FR OM THE EARLIER YEARS AND HAD SHOWN OUTSTANDING AS CARRY FORWARDED ADVANC ES GIVEN TO HUF. ON VERIFICATION OF THE PAPER BOOK, IT IS REVEALED THAT THE ASSESSEE HAS SOLD THE GOODS TO HIS SON IN THE NAME OF PROPRIETY CONCERN N .J. INDUSTRIES AND MAINTAINING TWO ACCOUNTS IN THE BOOKS AND COPY FILE D BEFORE US SHOWS SALES OF ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 7 RS.5,22,500/- AND IN ANOTHER ACCOUNT AT RS.28,50,00 0/-. PAGE NOS. 3 & 4 OF THE PAPER BOOK IS THE LOAN ACCOUNT WHERE THE APPELL ANT HAD SHOWN OUTSTANDING ADVANCES OF RS.55,64,156/-. AS CLAIMED BY THE APPELLANT THAT THESE FUNDS WERE UTILIZED IN PURCHASING THE GOODS F ROM HIS MOTHER AND THE APPELLANT HAD GIVEN THESE LOANS FOR COMMERCIAL EXPE DIENCY AND RELIED ON S.A. BUILDERS (SUPRA), WHEREIN HONBLE SUPREME COURT REM ANDED THE CASE TO THE TRIBUNAL ON THE GROUND THAT IF INTEREST FREE LOANS WERE GIVEN TO SISTER CONCERN AS THE MEASURES OF COMMERCIAL EXPEDIENCY THEN INTER EST ON BORROWED FUND IS TO BE ALLOWED. BUT THE ASSESSEE DID NOT HAVE INTER EST FREE FUND DURING THE YEAR UNDER CONSIDERATION. THESE ADVANCES WERE GIVE N OUT OF INTEREST PAID LOANS TO THE SON WITHOUT CHARGING INTEREST. THEREF ORE, HONBLE SUPREME COURT DECISION IN S.A. BUILDERS (SUPRA) IS NOT SQUARELY A PPLICABLE ON HER. FURTHER, THE ADVANCES GIVEN TO HUF WERE PERTAINED TO EARLIER YEAR AND SQUARELY COVERED BY THE ITAT DECISION IN CASE OF SHRI YASHWANT S. TEJANI (SUPRA). THE ASSESSEE HAD TAKEN LOAN FROM THE BANK AT RS. 32 ,51,556/- AND UNSECURED LOAN OF RS.9,88,961/- ON WHICH APPELLANT HAD DEBITE D INTEREST OF RS.3,70,532/- IN P&L ACCOUNT. WHEN ADVANCES MADE TO THE SON ARE MUCH MORE THAN UNSECURED LOAN AND SECURED LOAN THEN NO RELIEF CAN BE GIVEN BY CONSIDERING THE ITAT ORDER AS DISCUSSED ABOVE. ACCORDINGLY, TH E ADDITION MADE BY THE A.O. AND CONFIRMED BY THE CIT(A) IS CONFIRMED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 19.10.2012 ITA NO. 876/AHD/12 A.Y. 07-08 PAGE 8 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 15.10.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 15.10.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 19.10.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 19.10.2012