Shri Chirag R. Patwa (Indl.) Prop. M/s. Chirag Cotton Co., Ahmedabad V. ACIT, Circle-5(2), Ahmedabad

ITA 936/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0950 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 13-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEELIPKUMAR
• Keywords: Set aside
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NO: 936/AHD/2018 (ASSESSMENT YEAR: 2014-15) SHRI CHIRAG R. PATWA (INDL.) PROP. M/S. CHIRAG COTTON CO. 9, MAHAVIR FLATS, NR. JAIN TEMPLE, NAVRANGPURA, V/S ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(2), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AFHPP7488M APPELLANT BY : SMT. URVASHI SODHAN, A.R. RESPONDENT BY : SHRI DEELIP KUMAR, SR. D.R. ( )/ ORDER DATE OF HEARING : 18 -02-202 0 DATE OF PRONOUNCEMENT : 01 - 06 -2020 PER WASEEM AHMED, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-5, AHMEDABAD DATED 26.12.2016 PERTAINING TO A.Y. 2009-10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 2 1. ORDER U/S.250 DT.13.03.2018 BEING ERRONEOUS, U NLAWFUL AND WITHOUT CONSIDERING FACTS ON RECORD AND SUBMISSION PROPERLY BE CANCELLED AND SET ASIDE. 2. DISALLOWANCE OF INTEREST CLAIMED RS.17,20,954/ - U/S.36(L)(III) OF THE ACT SUSTAINED BEING UNJUDICIOUS, NOT CONSIDERING FACTS AND IMPROPER BE DELETED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) - 5, AHMEDABAD HAS ERRED IN NOT CONSIDERING THAT (A) ADVANCES ARE MADE FREE OF INTEREST IN THE COURS E OF BUSINESS. (B) IT IS IN THE NATURE OF CURRENT ADVANCE AND NOT DEPOSIT. (C) NO NEXUS AS TO BORROWING ON INTEREST AND ADVANC ES FREE OF INTEREST. (D) ADVANCES BEING INTEREST FREE, THERE IS NO ACCRU AL OF INTEREST MATERIALIZED AT ALL. (E) THERE ARE MISTAKE IN CALCULATION OF INTEREST, F UNDS AND COST OF FUNDS BORROWED. MEANING THEREBY DISALLOWANCE IS JUST FOR HIGH PITCH ED ASSESSMENT PURPOSE. (F) PROVISIONS OF SECTION 36(L)(III) ARE NOT APPLI CABLE AT ALL AS IT ENVISAGE AS TO INTEREST ON BORROWING FOR ACQUISITION OF ASSETS FOR EXTENSION OF BUSINESS / PROFESSION TILL DATE ON WHICH SUCH ASSETS FIRST PUT TO USE. (G) APPELLANT RELIES ON COMMISSIONER OF INCOME TAX (APPEALS) - VII, AHMEDABAD ORDER DT.26.02.2010 IN THE CASE OF M/S. CALCUTTA AU TO STORES (R.F.) FOR A.Y.2007- 08. (H) ATTENTION IS INVITED TO DECISION OF MADHYA PRAD ESH HIGH COURT IN THE CASE OF D & H SECHERON ELECTRODES PVT. LTD. V/S. COMMISSIONER OF INCOME TAX (142 ITR 528) IN SUPPORT. 3. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE L EARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DI SALLOWANCE OF RS. 17,20,954/- UNDER SECTION 36(1)(III) OF THE ACT, ON ACCOUNT OF DIVERSION OF INTEREST-BEARING FUND. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE P RESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE WHOLESALE BUSINESS. THE AO DURING TH E ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS DIVERTED ITS INTEREST-B EARING FUND FOR THE PURPOSE OF MAKING INTEREST-FREE LOANS AND ADVANCES TO CERTAIN PARTIES. ACCORDINGLY HE WAS OF THE VIEW THAT THE AMOUNT OF INTEREST CORRESPONDI NG TO SUCH INTEREST-FREE LOAN AND ADVANCES NEEDS TO BE DISALLOWED UNDER THE PROVI SIONS OF SECTION 36(1)(III) OF THE ACT. THUS THE AO WORKED OUT THE AVERAGE COST OF THE ASSESSEE ON THE MONEY BORROWED BY HIM AT RS. 11.45 %. ACCORDINGLY H E WORKED OUT THE ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 3 AMOUNT OF INTEREST WHICH NEEDS TO BE DISALLOWED AT RS. 17,20,954/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARN ED CIT (A) WHO CONFIRMED THE ORDER OF THE AO. 6. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 49 AND CONTENDED THAT THE RATE OF INTEREST WORKED OUT BY T HE AO AT 11.45 % IS INCORRECT. AS PER THE LEARNED AR THE CORRECT RATE O F INTEREST WORKED OUT AT 8.73% ON THE AMOUNT DIVERTED AS INTEREST-FREE LOANS AND ADVANCES. ACCORDINGLY THE LEARNED AR WORKED OUT THE AMOUNT OF DISALLOWANC E WHICH NEEDS TO BE MADE UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT AT RS. 13,91,941/- ONLY. 8. ON THE OTHER HAND THE LEARNED DR VEHEMENTLY SUPPORT ED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING D ISCUSSION WE NOTE THAT THE ASSESSEE HAS AGREED FOR THE DISALLOWANCE OF THE AMO UNT OF INTEREST ON THE AMOUNT DIVERTED AS INTEREST-FREE LOANS AND ADVANCES . AS SUCH THE ISSUE IS LIMITED TO THE EXTENT OF THE RATE OF INTEREST WHICH NEEDS TO BE APPLIED ON SUCH INTEREST-FREE LOANS AND ADVANCES. AS PER THE REVENU E THE AVERAGE RATE OF INTEREST IS 11.45% WHEREAS THE ASSESSEE CLAIMS THE SAME TO B E AT 8.73%. ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 4 10. HOWEVER, FROM THE ORDER OF THE AO WE FIND THAT THE ASSESSEE IN MOST OF THE CASES HAS BORROWED MONEY ON INTEREST AT THE RATE OF 12% AND IN VERY FEW CASES AT THE RATE OF 15% AND 10.5 %. ADMITTEDLY THE ASSES SEE HAS BORROWED MORE AMOUNT ON INTEREST AT THE RATE OF 10.50%. HOWEVER, THE AO HAS WORKED OUT AVERAGE COST OF THE BORROWED FUNDS AT THE RATE OF 1 1.45% WHICH APPEARS VERY REASONABLE AND LOGICAL IN THE GIVEN FACTS AND CIRCU MSTANCES. 11. AS SUCH THE ASSESSEE IN NONE OF THE CASE HAS BORROW ED FUND AT THE RATE OF 8.73% AS CLAIMED BY HIM AS THE COST OF BORROWED FUN D. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LEARNED AR FO R THE ASSESSEE. THUS, WE CONFIRM THE ORDER OF THE AUTHORITIES BELOW. HENCE T HE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12. BEFORE WE PART WITH THE ISSUE/APPEAL AS DISCUSSED A BOVE, IT IS PERTINENT TO NOTE THAT THE CLAUSE (C) OF RULE 34 OF THE APPELLATE TRI BUNAL RULES 1963 REQUIRES THE BENCH TO MAKE ENDEAVOUR TO PRONOUNCE THE ORDER WITH IN 60 DAYS FROM THE CONCLUSION OF THE HEARING. HOWEVER THE PERIOD OF 60 DAYS CAN BE EXTENDED UNDER EXCEPTIONAL CIRCUMSTANCES BUT THE SAME SHOULD NOT ORDINARILY BE FURTHER EXTENDED BEYOND ANOTHER 30 DAYS. IN SIMPLE WORDS TH E TOTAL TIME AVAILABLE TO THE BENCH IS OF 90 DAYS UPON THE CONCLUSION OF THE HEARING. HOWEVER, DURING THE PREVAILING CIRCUMSTANCES WHERE THE ENTIRE WORLD IS FACING THE UNPRECEDENTED CHALLENGE OF COVID 2019 OUTBREAK, RESULTING THE LOCKDOWN IN THE COUNTRY, THE ORDERS THOUGH SUBSTANTIALLY PREPAR ED BUT COULD NOT BE PRONOUNCED FOR THE UNAVOIDABLE REASONS WITHIN THE M AXIMUM PERIOD OF 90 DAYS. IN SUCH CIRCUMSTANCES WE FIND THAT THE HONBL E MUMBAI TRIBUNAL IN THE CASE OF JSW LIMITED VS DEPUTY COMMISSIONER OF INCOME TAX IN ITA ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 5 NO. 6103/MUM/2018 VIDE ORDER DATED 14-5-2020 EXTENDED THE TIME FOR PRONOUNCING THE ORDER WITHIN 90 DAYS OF TIME BY OBS ERVING AS UNDER: 9. LET US IN THIS LIGHT REVERT TO THE PREVAILING SI TUATION IN THE COUNTRY. ON 24TH MARCH, 2020, HONBLE PRIME MINISTER OF INDIA TOOK T HE BOLD STEP OF IMPOSING A NATIONWIDE LOCKDOWN, FOR 21 DAYS, TO PREVENT THE SP READ OF COVID 19 EPIDEMIC, AND THIS LOCKDOWN WAS EXTENDED FROM TIME TO TIME. A S A MATTER OF FACT, EVEN BEFORE THIS FORMAL NATIONWIDE LOCKDOWN, THE FUNCTIO NING OF THE INCOME TAX APPELLATE TRIBUNAL AT MUMBAI WAS SEVERELY RESTRICTE D ON ACCOUNT OF LOCKDOWN BY THE MAHARASHTRA GOVERNMENT, AND ON ACCOUNT OF STRIC T ENFORCEMENT OF HEALTH ADVISORIES WITH A VIEW OF CHECKING SPREAD OF COVID 19. THE EPIDEMIC SITUATION IN MUMBAI BEING GRAVE, THERE WAS NOT MUCH OF A RELAXAT ION IN SUBSEQUENT LOCKDOWNS ALSO. IN ANY CASE, THERE WAS UNPRECEDENTE D DISRUPTION OF JUDICIAL WOK ALL OVER THE COUNTRY. AS A MATTER OF FACT, IT HAS B EEN SUCH AN UNPRECEDENTED SITUATION, CAUSING DISRUPTION IN THE FUNCTIONING OF JUDICIAL MACHINERY, THAT HONBLE SUPREME COURT OF INDIA, IN AN UNPRECEDENTED ORDER I N THE HISTORY OF INDIA AND VIDE ORDER DATED 6.5.2020 READ WITH ORDER DATED 23.3.202 0, EXTENDED THE LIMITATION TO EXCLUDE NOT ONLY THIS LOCKDOWN PERIOD BUT ALSO A FE W MORE DAYS PRIOR TO, AND AFTER, THE LOCKDOWN BY OBSERVING THAT IN CASE THE LIMITATION HAS EXPIRED AFTER 15.03.2020 THEN THE PERIOD FROM 15.03.2020 TILL THE DATE ON WHICH THE LOCKDOWN IS LIFTED IN THE JURISDICTIONAL AREA WHERE THE DISPUTE LIES OR WHERE THE CAUSE OF ACTION ARISES SHALL BE EXTENDED FOR A PERI OD OF 15 DAYS AFTER THE LIFTING OF LOCKDOWN . HONBLE BOMBAY HIGH COURT, IN AN ORDER DATED 15T H APRIL 2020, HAS, BESIDES EXTENDING THE VALIDITY OF ALL INTERIM ORDERS, HAS ALSO OBSERVED THAT, IT IS ALSO CLARIFIED THAT WHILE CALCULATING TIME FO R DISPOSAL OF MATTERS MADE TIME-BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME S HALL STAND EXTENDED ACCORDINGLY , AND ALSO OBSERVED THAT ARRANGEMENT CONTINUED BY AN ORDER DATED 26TH MARCH 2020 TILL 30TH APRIL 2020 SHALL CO NTINUE FURTHER TILL 15TH JUNE 2020 . IT HAS BEEN AN UNPRECEDENTED SITUATION NOT ONLY IN INDIA BUT ALL OVER THE WORLD. GOVERNMENT OF INDIA HAS, VIDE NOTIFICATION D ATED 19TH FEBRUARY 2020, TAKEN THE STAND THAT, THE CORONAVIRUS SHOULD BE CO NSIDERED A CASE OF NATURAL CALAMITY AND FMC (I.E. FORCE MAJEURE CLAUSE) MAYBE INVOKED, WHEREVER CONSIDERED APPROPRIATE, FOLLOWING THE DUE PROCEDURE . THE TERM FORCE MAJEURE HAS BEEN DEFINED IN BLACKS LAW DICTIONARY, AS AN EVENT OR EFFECT THAT CAN BE NEITHER ANTICIPATED NOR CONTROLLED WHEN SUCH IS THE POSITION, AND IT IS OFFICIALLY SO NOTIFIED BY THE GOVERNMENT OF INDIA A ND THE COVID-19 EPIDEMIC HAS BEEN NOTIFIED AS A DISASTER UNDER THE NATIONAL DISA STER MANAGEMENT ACT, 2005, AND ALSO IN THE LIGHT OF THE DISCUSSIONS ABOVE, THE PERIOD DURING WHICH LOCKDOWN WAS IN FORCE CAN BE ANYTHING BUT AN ORDINARY PERI OD. 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE O F THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQU IRING PRONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT FACT THA T THE ENTIRE COUNTRY WAS IN ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 6 LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS B Y EXCLUDING AT LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN FORCE. WE M UST FACTOR GROUND REALITIES IN MIND WHILE INTERPRETING THE TIME LIMIT FOR THE P RONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMNIPOTENCE IN THE SKY. IT IS A PRA GMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRA GMATISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY IN CONSONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROACH AT A TIME WHEN A DISASTER, NOTIFIED UNDER THE DISASTER MANAGEMENT ACT 2005, IS CAUSING UNPRECEDENTED DISRUPTION IN THE FU NCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBTEDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)] , HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDE R BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THE N IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VIDE JUDGMENT DATED 15TH APRIL 2020, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBL E JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIOD OF LOCKDOWN CANNOT BE TREATED AS AN ORDINARY PERIOD DURING WHIC H THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE. IN OUR CONSIDERED VIEW, EVEN WI THOUT THE WORDS ORDINARILY, IN THE LIGHT OF THE ABOVE ANALYSIS OF THE LEGAL POSITI ON, THE PERIOD DURING WHICH LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIMITS SET OUT IN RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EXCEPTION, TO 90-DAY TIME-LIMIT FOR PRONOUNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLE ARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CAN NOT BE ANY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BECAUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHE N THE HEARING IS CONCLUDED AND THE POINT OF TIME WHEN THE ORDER THEREON IS BEI NG FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIRED TO B E CARRIED OUT ON THE FACTS OF THIS CASE. 11. TO SUM UP, THE APPEAL OF THE ASSESSEE IS ALLOWE D, AND APPEAL OF THE ASSESSING OFFICER IS DISMISSED. ORDER PRONOUNCED UNDER RULE 3 4(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DE TAILS ON THE NOTICE BOARD. CONSIDERING THE ABOVE, WE EXPRESS TO PRONOUNCE THE ORDER BEYOND THE PERIOD OF 90 DAYS. ACCORDINGLY, WE PROCEED TO PRONOUNCE TH E ORDER AS ON DATE. ITA NO. 936/ AHD/2018 . A.Y. 2014-1 5 7 13. IN THE RESULT THE APPEAL OF THE ASSESSEE DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 01- 06 - 2020 SD/- SD/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 01/ 06/2020 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD