SHRI ANOOP KUMAR GUPTA, AJMER V. INCOME TAX OFFICER, AJMER

ITA 921/JPR/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5951 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DHK
• Assessee Lawyers: NIKHILESH KATARIA
• Keywords: Business income; Validity of assessment; Commercial expediency; Set aside
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH SMC, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 921/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. SHRI ANOOP KUMAR GUPTA, PROP. M/S. SHRI GUPTA ELECTRICALS, SHOP NO. 5, GROUND FLOOR, KHAILAND MARKET, AJMER. CUKE VS. INCOME TAX OFFICER, WARD 1(1) AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABMPG 5571 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI NIKHILESH KATARIA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.09.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 26/09/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 26 TH SEPTEMBER, 2017 OF LD. CIT (A), AJMER FOR THE ASSES SMENT YEAR 2014-15. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE ASSESSMENT ORDER PASSED U/S 143(3) IS BAD IN LAW AS WELL AS ON FACTS AND HENCE, THE SAME MAY PLEASE BE QUASHED. 2. RS. 8,32,568/-. THE LD. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE PRESENT CASE IN PROPORTIONATE DISALLOWANCE OF I NTEREST PAID ON UNSECURED LOAN MERELY ON THE BASIS OF PRESUMPTIO N AND THE LD. CIT (A) ERRED IN SUSTAINING THE SAME. 4. THE APPELLANT PRAYS YOUR HONORS INDULGENCE TO A DD, AMEND, MODIFY OR DELETE ALL OR ANY GROUND OF APPEAL. 2 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER. GROUND NO. 1 IS REGARDING VALIDITY OF ASSESSMENT . 2. AT THE TIME OF HEARING, THE LD. A/R OF THE ASSES SEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 OF THE APPEAL AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. D/R HAS RAISED NO OBJECTIO N IF THE GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCO RDINGLY, GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. GROUND NO. 2 IS REGARDING DISALLOWANCE OF INTEREST ON ACCOUNT OF INVESTMENT AND INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED THE INTEREST EXPENDITURE OF RS. 20,45,6 61/- AGAINST HIS REVENUE AND OTHER RECEIPTS. THE AO FURTHER NOTED THAT THE ASSE SSEE HAS MADE INVESTMENT IN THE SHARES OF VARIOUS COMPANIES AS WELL AS FUNDS TOTAL AMOUNTING TO RS. 1,35,91,216/-. THE AO NOTED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN OF RS. 2,19,21,894/- AND INVESTMENT IN NON-BUSINESS INCOME OF RS. 1,35,91,21 6/- WAS MADE OUT OF THE BORROWED FUND AND CONSEQUENTLY A PROPORTIONATE INTE REST WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE IT ACT. THE ASSESSEE CHA LLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED. 4. BEFORE THE TRIBUNAL, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE AO AS WELL AS THE LD. CIT (A) HAS IGNORED THE CRUCIAL FAC T THAT THE ASSESSEES OWN INTEREST FREE FUNDS AS WELL AS INTEREST FREE BORROWINGS ARE MORE THAN THE INVESTMENT IN QUESTION AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR IN RESPECT OF THE INTEREST EXPENDITURE. HE HAS REFERRED TO THE DETAILS OF INT EREST FREE ADVANCES RECEIVED BY THE ASSESSEE FROM 16 PERSONS OUT OF WHICH ADVANCES FROM 6 PERSONS WERE REPAID DURING 3 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER. THE YEAR UNDER CONSIDERATION AND, THEREFORE, THE BA LANCE AMOUNT RECEIVED FROM 10 PARTIES IS CLAIMED AS INTEREST FREE ADVANCE OF RS. 51,10,532/- BEING CLOSING BALANCE. THE LD. A/R HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO RECEIVED AN AMOUNT OF RS. 31,50,000/- BEING ADVANCE AGAINST SALE OF PROPE RTY. APART FROM THESE TWO SUMS, THE LD. A/R HAS FURTHER CONTENDED THAT THE ASSESSEE S OWN CAPITAL IS ALSO RS. 60,48,228/- AS ON 31 ST MARCH, 2013. THEREFORE, THE TOTAL INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE IS RS. 1,43,08,760/-. THE LD. A/ R HAS THUS SUBMITTED THAT AN INVESTMENT OF RS. 1,35,91,216/- IS COVERED BY THE I NTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND CONSEQUENTLY NO DISALLOWANCE IS CA LLED FOR. ALTERNATIVELY, THE LD. A/R HAS SUBMITTED THAT EVEN OTHERWISE THE INVESTMEN T WAS MADE DUE TO COMMERCIAL EXPEDIENCY AND, THEREFORE, NO DISALLOWANCE ON ACCOU NT OF INTEREST EXPENDITURE CAN BE MADE. 5. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE AO HAS GIVEN THE DETAILS OF THE ASSESSEES OWN FUNDS AS WELL AS THE INVESTMENT MADE BY THE ASSESSEE WHICH IS NOT GENERATING ANY BUSINESS INCOME. THE A SSESSEE IS HAVING ONLY A CAPITAL OF RS. 60,48,228/- FOR WHICH THE AO HAS NOT CONSIDE RED THE SECURED LOAN OF RS. 66,46,510/- WHILE MAKING THE PROPORTIONATE DISALLOW ANCE OF INTEREST EXPENDITURE. THE LD. D/R HAS CONTENDED THAT THE AO HAS CONSIDERE D ONLY THE INTEREST EXPENDITURE ON UNSECURED LOAN AND, THEREFORE, WHEN THE INVESTME NT WAS MADE FROM THE BORROWED FUNDS, THE PROPORTIONATE EXPENDITURE WILL BE LIABLE TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER. 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO QUARREL ON THE POINT THAT IF T HE ASSESSEE IS HAVING HIS OWN FUNDS OR INTEREST FREE FUNDS TO MEET THE REQUIREMENT OF I NVESTMENT MADE BY THE ASSESSEE IN THE SHARES OF VARIOUS COMPANIES, THEN EVEN IF TH E ASSESSEE HAS INCURRED SOME INTEREST EXPENDITURE THE PRESUMPTION WILL BE RAISED THAT THE INVESTMENT WILL BE MADE OUT OF INTEREST FREE FUNDS AND CONSEQUENTLY NO DISA LLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS CALLED FOR. IN THE CASE IN HAND, TH E ASSESSEE HAS MADE AN INVESTMENT OF RS. 1,35,91,216/-, THE DETAILS OF WHICH ARE GIVE N BY THE AO IN PARA 6 AS UNDER :- S.NO. DETAILS AMOUNT 1. M/S. GUPTA UNIQUE EVENT MANAGER RS. 53,214.00 2. SHARES OF M/S. GUPTA PRIME RESORTS PVT. LTD. RS. 16,00,000.00 3. SHARES OF M/S. TONGYA RESORTS PVT. LTD. RS. 1,01,13,002.00 4. SHARES OF M/S. ARAVALI DREAMS ESTATE PVT. LTD. RS. 25,000.00 5. M/S. ARAVALI DREAMS ESTATE PVT. LTD. (LOAN) RS. 3,00,000.00 THE AO HAS CONSIDERED THE ASSESSEES OWN FUNDS ONLY TO THE EXTENT OF CAPITAL OF RS. 60,48,228/- AND, THEREFORE, THE AO HAS TAKEN INTO A CCOUNT UNSECURED LOAN OF RS. 2,19,21,894/- FOR THE PURPOSE OF MAKING PROPORTIONA TE INTEREST DISALLOWANCE ON ACCOUNT OF INVESTMENT IN QUESTION. THE AO HAS NOT C ONSIDERED THE SECURED LOAN AND INTEREST ON THE SECURED LOAN FOR THE PURPOSE OF MAK ING THIS DISALLOWANCE. THUS THE FACT OF AVAILABILITY OF INTEREST FREE FUNDS WITH TH E ASSESSEE IN THE SHAPE OF INTEREST FREE ADVANCES FROM SEVERAL PARTIES AS MANY AS 10 PE RSONS TOTAL AMOUNTING TO RS. 51,10,532/- HAS NOT BEEN CONSIDERED EITHER BY THE A O OR BY THE LD. CIT (A). SO FAR AS THE ADVANCE OF RS. 31,50,000/- AGAINST THE PROPE RTY IS CONCERNED, THE SAME IS 5 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER. SHOWN BY THE ASSESSEE AS CURRENT LIABILITY AND, THE REFORE, THE SAID AMOUNT CANNOT BE CONSIDERED AS AVAILABLE WITH THE ASSESSEE FOR MAKIN G THE INVESTMENT IN THE SHARES OF THE COMPANIES. ONLY IF THE SAID PROPERTY WAS FINAL LY SOLD BY THE ASSESSEE, THEN THE SALE CONSIDERATION WOULD BE AVAILABLE AS INTEREST F REE FUNDS BUT MERE ADVANCE RECEIVED BY THE ASSESSEE AGAINST SALE OF PROPERTY C ANNOT BE REGARDED AS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE FOR MAKING T HE INVESTMENT IN THE SHARES OF THESE COMPANIES. THEREFORE, TO THE EXTENT OF RS. 31 ,50,000/- SHOWN IN THE CURRENT LIABILITY TOWARDS ADVANCE AGAINST THE PROPERTY, SAM E CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE INTEREST FREE FUNDS AVAILA BLE WITH THE ASSESSEE. THERE IS NO DISPUTE REGARDING THE CAPITAL OF RS. 60,48,228/- . HOWEVER, THE AO HAS NOT CONSIDERED EVEN THE SAID AMOUNT FOR THE PURPOSE OF AVAILABILITY OF FUNDS. AS REGARDS THE CONTENTION OF THE LD. A/R THAT THE INVESTMENT W AS MADE FOR COMMERCIAL EXPEDIENCY, IT IS PERTINENT TO NOTE THAT WHEN THE A SSESSEE IS NOT HAVING ANY BUSINESS TRANSACTIONS WITH THESE COMPANIES IN WHOSE SHARES T HE INVESTMENT IS MADE NOR THESE COMPANIES ARE IN THE SAME BUSINESS AS OF ASSE SSEE, THEN THIS PLEA OF COMMERCIAL EXPEDIENCY IS DEVOID OF ANY SUBSTANCE OR MERIT. SINCE THE AO HAS NOT CONSIDERED THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE, THEREFORE, THIS ISSUE REQUIRES A PROPER VERIFICATION AND RECONSIDER ATION. IF THE ASSESSEE IS FOUND TO BE HAVING INTEREST FREE FUNDS AVAILABLE, THEN TO TH E EXTENT OF MAKING THE DISALLOWANCE, THE FUND OF RS. 51,10,532/- AS WELL A S RS. 60,48,228/- BEING THE CAPITAL SHALL BE TREATED AS AVAILABLE FOR MAKING TH E INVESTMENT AND ONLY BALANCE IF ANY SHALL BE TAKEN AS BORROWED FUND. ACCORDINGLY, THE MATTER IS SET ASIDE TO THE RECORD OF THE AO TO RE-COMPUTE THE DISALLOWANCE OF INTEREST, IF ANY, AFTER VERIFICATION 6 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER. AND CONSIDERATION OF THESE FACTS. NEEDLESS TO SAY THAT THE ASSESSEE BE GIVEN AN APPROPRIATE OPPORTUNITY OF HEARING. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 26/09/20 19. SD/- ( FOT; IKY JKWO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 26/09/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI ANOOP KUMAR GUPTA, AJMER. 2. THE RESPONDENT THE ITO WARD 1 (1), AJMER. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 921/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NO. 921/JP/2017 SHRI ANOOP KUMAR GUPTA, AJMER.