ACIT, Patiala V. M/s A.B. Motors Pvt. Ltd., Patiala

ITA 893/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6544 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2014-2015
• Appeal Filed On: 31-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDER KANTA
• Keywords: Commercial expediency
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A CHANDIGARH BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 893/CHD/20 17 ASSESSMENT YEAR: 2014-15 THE ACIT, VS. M/S A.B. MOTORS PVT. LTD., CIRCLE, THE MALL, PATIALA. PATIALA. PAN NO. : AABCA5528M (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. CHANDER KANTA, SR.DR RESPONDENT BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 12.10.2017 DATE OF PRONOUNCEMENT : 12.12. 2017 ORDER PER DIVA SINGH,JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE ASSAILIN G THE CORRECTNESS OF THE ORDER DATED 14/03/2017 OF CIT(A) PA TIALA PERTAINING TO 201415 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS : 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A), PATIALA IS LEGALLY CORRECT IN DELETI NG THE ADDITION RS.78,00,000/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST ON UNSECURED LO ANS. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) PATIALA IS LEGALLY CORRECT IN DELETIN G THE ADDITION RS.28,32,000/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST IN RESPECT OF I NTEREST FREE ADVANCES. 2. RIGHT AT THE OUTSET THE LD. AR SUBMITTED THAT THE D EPARTMENTAL APPEAL MAY BE DISMISSED AS THE ISSUE IS FULLY COVERED IN FAVOUR O F THE ASSESSEE. ATTENTION WAS INVITED TO THE ORDER OF THE ITAT DATED 27 /09/2017 IN THE CASE OF THE ASSESSEE WHEREIN THE REVENUE HAD CHALLENGED THE DELETION OF IDENTICAL ADDITIONS BY THE CIT(A) IN 201213 ASSESSMENT YEAR. THE ITAT IN THE AFORESAID ORDER, IT WAS SUBMITTED, HAD DISMISSED THE REVENU ES APPEAL. COPY OF THE SAID ORDER WAS FILED. THE LD. SR.DR WAS REQUIRED TO C LARIFY THE POSITION FOR 2013-14 ASSESSMENT YEAR. IN RESPONSE SUBMITTED TH AT NO SUCH DISALLOWANCE HAD BEEN MADE IN THE IMMEDIATE PRECEDING ASSESSMENT Y EAR. 3. SINCE THE PRESENT APPEAL HAS BEEN FILED BY THE REVENU E, THE LD. SR.DR WAS REQUIRED TO ADDRESS THE POINTS AT ISSUE. CONSIDERING THE AFORESAID ORDER OF THE ITAT THE LD. SR.DR RELIED UPON THE ASSESSMENT ORDER. ITA-893-2017 A.Y. 2014-15 PAGE 2 OF 4 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. A PERUSAL OF THE RECORD SHOWS THAT T HE ASSESSEE COMPANY IS ENGAGED IN AUTOMOTIVE TRADING AND IS AUTHORIZ ED DEALER OF FORD CARS. CONSIDERING THE CASH LIQUIDITY OF THE ASSESSEE, THE AO REQUIRED THE ASSESSEE TO EXPLAIN WHY INTEREST ON UNSECURED LOANS M AY NOT BE DISALLOWED PROPORTIONATELY. THE FOLLOWING QUERY WAS RAISED BY THE ORDER SHEET ENTRY DATED 01/04/2016 : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 01/04/2016:'FROM PERUSAL OF YOUR REPLY DATED 28/03/2016 IT IS FOUND THAT YOU WERE HAVING A SOUND CASH LIQUIDITY P OSITION THROUGHOUT THE YEAR AND ON OTHER HAND YOU HAVE AVAILED INTEREST BEARING HUGE UNSECUR ED LOANS DURING THE YEAR. YOU ARE REQUIRED TO SHOW CAUSE WHY INTEREST ON UNSECURED LO ANS MAY NOT BE DISALLOWED PROPORTIONATELY' 4.1 THE ASSESSEE, APART FROM RAISING VARIOUS ARGUMENTS ON FA CTS AND LAW ALSO SUBMITTED AS UNDER: THE PIECE OF ADVICE SUGGESTED BY YOUR GOODSELF IS UTILIZATION OF SUCH LIQUID FUNDS AGAINST INTEREST BEARING FUNDS WHICH COULD HA VE SAVED INTEREST BURDEN AND AS WELL AS INCREASED THE PROFITABILITY. IT IS PERTINEN T TO MENTION HERE THAT THE SOURCE OF CASH GENERATION IS OUT OF BUSINESS REVENUES I.E. SA LES AND WORKSHOP INCOME AND THE SAME IS ALSO DEPOSITED IN BANK DEPENDING UPON THE R EQUIREMENTS OF THE BUSINESS. YOUR HONOUR, THE BUSINESS EXPEDIENCY AND PRUDENCE I S TO BE JUDGED BY THE ASSESSEE ONLY. IT IS FURTHER SUBMITTED THAT THE ASSESSING OF FICER CANNOT SIT IN THE ARMCHAIR OF BUSINESSMAN AND DECIDE WHAT THE ASSESSEE HAS TO DO TO MAXIMISE HIS PROFITS. YOUR HONOUR, IT IS SETTLED LEGAL POSITION THAT THE AO CA NNOT SIT IN THE ARMCHAIR OF THE BUSINESSMAN TO DECIDE WHETHER THE DECISION TAKEN BY HIM ARE IN HIS BEST INTEREST OR, NOT. 4.2 APART FROM THE ABOVE, THE ASSESSEE, IT IS SEEN ALSO CAN VASSED THAT MOST OF THE UNSECURED LOANS ARE EXISTING ONES AND HAVE BEEN UTILIZED FOR THE BUSINESS PURPOSES IN THE PAST AND THE FRESH LOANS WER E ALSO UTILIZED FOR THE BUSINESS PURPOSES. IT HAD ALSO BEEN ARGUED THAT THESE FACTS HAD BEEN VERIFIED AND SEEN BY THE ASSESSING OFFICER FROM THE BANK S TATEMENTS AND BOOKS OF ACCOUNTS OF THE ASSESSEE. HOWEVER, NOT CONVINCE D, THE ASSESSING OFFICER PROCEEDED TO MAKE THE ADDITION BY WAY OF A DISALLOWA NCE IN THE FOLLOWING MANNER DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS PAID INTEREST OF RS.96,26,265/- ON UNSECURED LOANS ON WHICH RATE OF INTEREST CHARGED BETWEEN 12% TO 18% P.A. HOWEVER, THE AVERAGE CASH IN HAND D URING THE YEAR REMAINED BETWEEN 5 TO 8 CRORES. IN OTHER WORDS, THE AVERAGE CASH IN HAND TO THE TUNE OF RS. 6.50 CRORES REMAIN IDLE WHICH COULD HAVE SAVED THE INTEREST EXPENDITURE. IT IS FURTHER BROUGHT ON RECORD THAT ASSESSEE MAKES PURCH ASES THROUGH BANKING CHANNELS AND AS SUCH KEEPING OF HUGE CASH HAS NEITHER BEEN U NDERSTOOD NOR EXPLAINED. THEREFORE, TO BE FAIR AND REASONABLE AND IN THE LIG HT OF ABOVE DISCUSSIONS INTEREST @ 12% ON RS. 6.50 CRORES I.E. RS.78,00,000/- IS DISAL LOWED AS THE FUNDS WERE NOT UTILIZED FOR THE PURPOSES OF BUSINESS SPECIFICALLY WHEN THE ASSESSEE HAD HUGE LIQUID FUNDS OF ITS OWN AVAILABLE THROUGHOUT THE YE AR AND THE SAME ARE ADDED BACK TO THE RETURN OF INCOME OF THE ASSESSEE. ITA-893-2017 A.Y. 2014-15 PAGE 3 OF 4 4.3. THE SAID ADDITION CHALLENGED IN APPEAL BY THE ASSESSEE WAS DELETED BY THE CIT(A) VIDE PARAGRAPH 5.2 OF HIS ORDER WHICH IS UNDER C HALLENGE IN THE PRESENT PROCEEDINGS. IN THE AFOREMENTIONED PECULIAR FACTS AND CIRCUMSTANCES, WE FIND THAT THERE IS NO MERIT IN THE APPE AL OF THE REVENUE AS CONSIDERING THE ORDER HAS BEEN PASSED RELYING UPON THE JUDICIAL PRECEDENT AS AVAILABLE IN ASSESSEE'S OWN CASE IN 2012-13 ASSESSMENT Y EAR WHEREIN THE CO-ORDINATE BENCH CONSIDERING THE IDENTICAL ISSUE ON SIMILAR FACTS CONFIRMED THE ORDER OF THE CIT(A). IT IS A TRITE LAW THAT IT IS FOR TH E BUSINESSMAN TO TAKE DECISIONS BASED ON EXPEDIENCY AND BUSINESS EXIGENCIES. TH E AO IS NOT ENTITLED TO INSIST THAT THE ASSESSEE FIRST UTILIZES ITS FUNDS AVAILABLE AND ONLY THEN CAN JUSTIFY BORROWING OF MONEY FOR BUSINESS PURPOSE S. HOW THE BUSINESS IS TO BE DONE IS THE EXCLUSIVE DOMAIN OF THE BUSIN ESSMAN AND IT IS WELL SETTLED THAT THE AO IS NOT ENTITLED TO INTRUDE INTO THE SAID TERRITORY. THE REVENUE HAS NOT REBUTTED THE CONSISTENT CLAIM THAT TH E LOANS WERE OBTAINED FOR BUSINESS PURPOSES AND ALSO APPLIED FOR BUSINESS PURPOS ES. IN THE FACTS AS THEY STAND, THE DECISION IS FOUND SUPPORTED BY THE DE CISION OF THE APEX COURT IN THE CASE OF SA BUILDERS PRIVATE LTD. REPORTED IN 288 ITR 1 SC. RESPECTFULLY FOLLOWING THE PRECEDENT IN ASSESSEE'S OWN CAS E, THE IMPUGNED ORDER IS UPHELD. 5. QUA THE NEXT ISSUE AGITATED BY THE REVENUE, THE FACTS WERE STA TED TO BE IDENTICAL AS CONSIDERED BY THE ITAT IN THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR. RELIANCE IS PLACED BY THE SR.DR ON THE ASSESSMENT ORDER AND TH E LD. AR ON THE IMPUGNED ORDER AND THE ORDER OF THE ITAT IN THE IMMEDIATELY ASSESSMENT YEAR. ADMITTEDLY, THE ISSUE IS IDENTICAL AND TH ERE IS NO CHANGE IN EITHER FACTS OF POSITION OF LAW AS CONSIDERED BY THE CO-OR DINATE BENCH IN 2012-13 ASSESSMENT YEAR IN ITA 719/CHD/2017. THE CRU CIAL FACT WHICH HAS BEEN TAKEN INTO CONSIDERATION ARE THAT INTEREST FREE ADVANCES OF RS. 2.36 CRORE WERE MADE TO SMT. AMRINDER KAUR AND SMT. BHUPEND ER KAUR DIRECTORS OF THE COMPANY. THE AMOUNT WAS STATED TO HAV E BEEN ADVANCED AS A BUSINESS NEED AS IT WAS ADVANCED AS A SECURITY DEPOS IT AGAINST LAND SITUATED AT 658 INDUSTRIAL AREA A, GT ROAD, LUDHIANA. ON THE SAID LAND SHOWROOM OF THE COMPANY AT LUDHIANA WAS STATED TO HA VE BEEN SITUATED. THE ASSESSING OFFICER MADE AN IDENTICAL PROPORTIONATE DISALLOW ANCE AT THE RATE OF 12% OF RS. 2.36 CRORES IN 2012-13 ASSESSMENT YE AR ALSO WHICH HAS BEEN CONSIDERED BY THE CIT(A) AND THE ITAT HAS UPHELD T HE DECISION OF THE CIT(A) IN DELETING THE SAID ADDITION MADE BY WAY OF DISALLOWAN CE. IN THE AFOREMENTIONED PECULIAR FACTS AND CIRCUMSTANCES, FINDING OURS ELVES IN ITA-893-2017 A.Y. 2014-15 PAGE 4 OF 4 AGREEMENT WITH THE CONCLUSION DRAWN BY THE CIT(A). THE SPECIFIC R EASONING OF THE ITAT IS REPRODUCED HEREUNDER FOR READY REFERENCE 17. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE RATIONALE GIVEN BY THE LD. CIT(A) WHILE DELETING THE ADDITION. THE HONBLE SUPREME COURT IN CASE OF S.A. BUILDERS 288 ITR 1(SUPREME COURT) HELD AS UNDER: (I) 'THE EXPRESSIONS 'FOR THE PURPOSE OF BUSINESS I S WIDER IN SCOPE THEN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS'. FOR THE PURPOS E OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR 'COMMERCIAL EXPEDIENCY' A ND IT IS IMMATERIAL IF THIRD PARTY ALSO BENEFITS THEREBY. IT WAS SPECIFICALLY HELD BY THE HON'BLE APEX COURT THAT THE DECISIONS RELATING TO SECTION 37 WILL ALSO BE APPLI CABLE TO SECTION 36(1) (HI) BECAUSE IN THAT SECTION ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF BUSINESS.' (II) TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION S U/S 36(L)(III) OF INTEREST PAID BY THE ASSESSEE ON AMOUNT BORROWED BY IT FOR ADVANCING TO SISTER CONCERN, THE AUTHORITIES AND COURTS SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONEY. THA T THE BORROWED AMOUNT IS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HA D BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERNS IS NOT RELEVANT. WHAT I S RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS MEASURE OF 'COMMERCIAL EXPEDIENCY' AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS . (III)ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BE TWEEN THE EXPENDITURE AND PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSI NESS OF THE ASSESSEE ITSELF) THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM -CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESS MAN CAN BE COMPELLED TO MAXIMIZE HIS PROFITS.' VARIOUS COURTS HAVE HELD THAT THE COMMERCIAL EXPEDI ENCY OF A BUSINESSMAN'S DECISION TO INCUR AN EXPENDITURE CANNOT BE TESTED ON THE TOUCHSTONE OF A STRICT LEGAL LIABILITY TO INCUR SUCH AN EXPENDITURE. SUCH DECISIONS IN THE VERY NATURE OF T HINGS HAVE TO HE TAKEN FROM A BUSINESS POINT OF VIEW AND HAVE TO BE RESPECTED BY THE AUTHORITIES NO MATTER THAT IT MAY APPEAL TO THE LATTER THAT THE EXPENDITURE INCURRED WAS UN-NECESSARY OR AVOIDABLE. 18. IN THE INSTANT CASE IT CAN BE OBSERVED THAT THE ADVANCES WERE GIVEN AGAINST USE OF PLOT ON WHICH A SHOW ROOM WAS CONSTRUCTED AND BEING USED FO R THE BUSINESS PURPOSE, WHICH GOES TO PROVE IN DEFINITE TERMS THE COMMERCIAL EXPEDIENCY AND THE PURPOSE OF BUSINESS. THE LD.CIT(A) HAS CLEARLY DEALT THESE ISSUES IN DETAIL. HENCE WE DECL INE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS GROUND . 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 12.12. 2017. SD/- SD/- (ANNAPURNA GUPTA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSTT. REGISTRAR ITAT,CHANDIGARH.