Raychand Jain, Bangalore V. ACIT, Bangalore

ITA 932/BANG/2011

• Counselvise Citation: 93221114 RSA 2011
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNDER RAJAN
• Assessee Lawyers: H N KHINCHA
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.932/BAN G/2011 (ASST. YEAR - 2007-08) SHRI RAYCHAND JAIN, PROP : M/S JAIN AGENCIES RAJA MOTOR MARMET, 2 ND FLOOR, NO.27, JOURNALIST COLONY, BANGALORE-560 002. . APPELLANT PAN NO.AAPPJ 6620 E. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), BANGALORE. . RESPONDENT APPELLANT BY : SHRI H.N KHINCHA, C.A RESPONDENT BY : SHRI SUNDER RAJAN, JCIT DATE OF HEARING : 27-08-2012 DATE OF PRONOUNCEMENT : 21-09-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE ITA NO.932/B/11 2 COMMISSIONER OF INCOME-TAX - (APPEALS) I AT BANGAL ORE DATED 08.08.2011. THE APPEAL ARISES OUT OF THE ASSESSMEN T COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAINST TH E ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE A O OF A SUM OF RS.23,87,407/- BEING INTEREST ON INTEREST FREE LOAN S HOLDING THAT THE ASSESSEE HAS DIVERTED BORROWED FUNDS FOR NON BUSINE SS PURPOSES BY GIVING INTEREST FREE ADVANCES TO RELATIVES. 3. THE ASSESSEE HAS ALSO RAISED ANOTHER GROUND DENY ING ITS LIABILITY TO PAY INTEREST U/S 234B AND 234C OF THE INCOME-TAX ACT. WE FIND THAT THE GROUNDS OF APPEAL RELATING TO LEVY OF INTE REST U/S 234B AND 234C ARE CONSEQUENTIAL IN NATURE AND, THEREFORE, NE EDS NO ADJUDICATION. 4. AS REGARDS THE DISALLOWANCE OF SUM OF RS.23,87,4 07/- IS CONCERNED, BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE, WHO IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF FINAN CING, HAS FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 29.7.2007 DECLARING TOTAL INCOME OF RS.24,57,063/-. DURING T HE ASSESSMENT ITA NO.932/B/11 3 PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, THE A O OBSERVED THAT THE ASSESSEE HAS ADVANCED LOANS OF RS.2,89,11,334/- TO ITS RELATIVES I.E MS. SUNITA JAIN, SHRI ARUN KUMAR JAIN AND SHRI RAJK UAMR JAIN ON WHICH NO INTEREST HAS BEEN RECEIVED. THE ASSESSEE WAS, THEREFORE, ISSUED A SHOW CAUSE NOTICE AS TO WHY THE INTEREST U /S 36(1)(III) OF THE INCOME-TAX ACT SHALL NOT BE DISALLOWED ON INTEREST FREE ADVANCES GIVEN FOR NON BUSINESS PURPOSES. THE AO OBSERVED T HAT THE ASSESSEE HAS ADVANCED INTEREST BEARING LOANS TO OTHER PARTIE S AND CHARGED INTEREST AT 24 TO 36% P.A AND, THEREFORE, WHY THE SAME RATE OF INTEREST HAS NOT BEEN CHARGED ON THE LOANS ADVANCED TO THE R ELATED PARTIES FOR NON BUSINESS PURPOSES AND AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. HE ALSO CONSIDERED THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., REPORTED IN 286 ITR 1 TO DISALLOW THE INTEREST ON T HE INTEREST FREE LOANS GIVEN @ 12% P.A AND CONSEQUENTLY AN AMOUNT OF RS.23 ,87,407/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.932/B/11 4 6. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI H.N K HINCHA WHILE REITERATING THE ASSESSEES SUBMISSIONS BEFORE THE A UTHORITIES BELOW HAS DRAWN OUR ATTENTION TO THE BALANCE SHEET OF THE ASS ESSEE FILED BEFORE US WHICH IS FILED AT PAGE NO.55 OF THE PAPER BOOK TO D EMONSTRATE THAT THE ASSESSEE HAD A CAPITAL OF RS.3,82,82,807/ - AS ON 31.3.2008 AND, THEREFORE, IT FAR EXCEEDED INTEREST FREE ADVANCES G IVEN BY THE ASSESSEE TO ITS RELATIVES AND, THEREFORE, NO INTEREST PAYMEN T CAN BE DISALLOWED. IN THE ALTERNATIVE, HE FURTHER SUBMITTED THAT THE A SSESSEE HAD AN OVERDRAFT FACILITY WITH THE CORPORATION BANK AND TH ESE INTEREST FREE ADVANCES TO HIS RELATIVES WERE OUT OF OVERDRAFT ACC OUNT OF CORPORATION BANK. HE DREW OUR ATTENTION TO LEDGER ACCOUNTS OF SHRI ARUN KUMAR JAIN (HUF), SHRI RAJ KUMAR JAIN (HUF) AND SMT. SUMA N JAIN TO DEMONSTRATE THAT ADVANCES HAVE BEEN GIVEN OUT OF CO RPORATION BANK OVERDRAFT ACCOUNT ONLY AND NOT OUT OF ANY OTHER ACC OUNTS. HE, THEREFORE, SUBMITTED THAT EVEN IF THE INTEREST IS T O BE DISALLOWED, IT CAN ONLY BE OF THE INTEREST ON THE LOAN ADVANCES DURING THE RELEVANT PREVIOUS YEAR FROM THE CORPORATION BANK AND ALSO T HAT THE INTEREST PAID BY THE ASSESSEE TO THE CORPORATION BANK ON THE OVERDRAFT ACCOUNT ON THESE ADVANCES ONLY SHOULD BE DISALLOWED NOT ON THE INTEREST @ 12% AS COMPUTED BY THE AUTHORITIES BELOW. ITA NO.932/B/11 5 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE HONBLE HIGH COURTS H AVE TAKEN A VIEW THAT WHERE THE INTEREST BEARING FUNDS AND OWN FUNDS OF THE ASSESSES ARE MIXED FUNDS AND THE NEXUS CANNOT BE PROVED THAT THE INTEREST BEARING FUNDS HAVE BEEN ADVANCED INTEREST FREE, THE PRESUMPTION TO BE DRAWN IS THAT THE INTEREST FREE FUNDS ARE OUT OF OW N FUNDS OF THE ASSESSEE. HOWEVER, IN THE CASE BEFORE US, IT IS CL EARLY ESTABLISHED THAT THERE IS NEXUS BETWEEN THE INTEREST BEARING FUNDS F ROM CORPORATION BANK ADVANCED TO THE RELATIVES OF THE ASSESSEE AS I NTEREST FREE LOANS. AS THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INTEREST FREE ADVANCES IS CLEARLY PROVED, WE ARE OF THE OPINION T HAT THE INTEREST PAID TO THE CORPORATION BANK ON THE LOANS ADVANCED DURING THE RELEVANT ASSESSMENT YEARS TO THE RELATIVES ONLY IS TO BE DISALLOWED. IN VIEW OF THE SAME, WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY AS TO WHETHER TH E INTEREST FREE ADVANCES ARE SOLELY OUT OF THE OVERDRAFT ACCOUNT OF THE CORPORATION BANK AND IF IT IS FOUND TO BE SO, HE SHALL RESTRICT THE DISALLOWANCE TO THE INTEREST PAID TO CORPORATION BANK ONLY TO THE A MOUNTS ADVANCED TO THE RELATIVES DURING THE RELEVANT PREVIOUS YEAR. ITA NO.932/B/11 6 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST SEPT, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 21/09/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.