M/s. Lotus Marketing, Surat V. The Dy.CIT.,Cent.Circle-1, Surat

ITA 956/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0702 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUFARIA
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Business expenditure; Income from undisclosed sources
• Section: 143(3); 153A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.956/AHD/2013 / ASSTT. YEAR: 2010-2011 M/S.LOTUS MARKETING 91, KHATODRA GIDC B/H. SUB-JAIL, RING ROAD SURAT 395 007. PAN : AAAFL 9315 P VS. DCIT, CENT.CIR.1 SURAT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI MEHUL R. SHAH, AR REVENUE BY : SHRI DEEPAK SUFARIA, SR.DR / DATE OF HEARING : 07/06/2016 / DATE OF PRONOUNCEMENT: 23/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-II, AHMEDABAD DATED 25.2.2013 PASSED FOR THE ASSTT.YEAR 2010-11. 2. ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL. IN G ROUND NO.1, IT HAS CHALLENGED VALIDITY OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 153A OF THE ACT. ACCORDING TO THE ASSESSEE, THERE WAS NO SEPARATE WARRANT ISSUED IN THE NAME OF THE ASSESSEE, BUT WAS A JOINT WARRANT ISSUED IN THE NAMES OF NUMBER OF PERSONS INCLUDING THE ASS ESSEE. THEREFORE, NOTICE ISSUED UNDER SECTION 153A OF THE ACT IS ILLE GAL. HOWEVER, AT THE ITA NO.956/AHD/2013 2 TIME OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE DI D NOT PRESS THIS GROUND OF APPEAL, HENCE, IT IS DISMISSED. 3. SIMILARLY, IN GROUND NOS.3 AND 4, THE ASSESSEE H AS NOT RAISED ANY SPECIFIC GRIEVANCE. THEY ARE GENERAL GROUNDS OF AP PEAL, WHICH DID NOT CALL RECORDING OF ANY SPECIFIC FINDING. 4. IN GROUND NO.2, GRIEVANCE OF THE ASSESSEE IS THA T THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.12,71,970/-. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ELECTRONICALLY ON 1.9.2010 DECLARING TOTAL I NCOME AT RS.2,85,758/-. ACCORDING TO THE AO, DURING THE SEA RCH, THE ASSESSEE HAS DISCLOSED RS.12,50,000/- AS UNACCOUNTED INCOME, BUT SAME WAS NOT DISCLOSED IN THE INCOME. ON SCRUTINY OF THE ACCOUN TS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS RECEIVED NET NEW UNSECURED LOAN OF RS.1.70 CRORES, ON WHICH, ASSESSEE HAS PAID INTEREST AT RAT E OF 12%. ACCORDING TO THE AO, THE ASSESSEE HAS TWO MAJOR DEBTORS VIZ. M/S .UDAY YARN TWISTER P.LTD. OF RS.1,56,99,493/- AND M/S.SHAHLON INDUSTRI ES P.LTD. OF RS.27,50,000/-. IN THE CASE OF SHAHLON INDUSTRIES LTD. THE ASSESSEE HAS MADE INVESTMENT IN THE SHARES. THE LD.AO HAS OBSER VED THAT THESE DEBTORS ARE LESS THAN OF SIX MONTHS OLD, THEREFORE, INTEREST EXPENDITURE ON THESE ACCOUNTS FOR THE PERIOD OF SIX MONTHS DESERVE S TO BE DISALLOWED. HE CALCULATED INTEREST WHICH OUGHT TO HAVE BEEN CHA RGED BY THE ASSESSEE ON THESE AMOUNTS AT THE RATE OF 12%. THE INTEREST WHICH OUGHT TO HAVE BEEN SHOWN BY THE ASSESSEE AS INCOME FROM M/S.UDAY YARN TWISTER PVT.LTD. WAS WORKED OUT BY THE AO AT RS.9,41,970/-. SIMILARLY, ON THE ITA NO.956/AHD/2013 3 INVESTMENT OF M/S.SHAHLON INDUSTRIES LTD., HE WORKE D OUT THE INTEREST EXPENDITURE OF RS.3,30,000/-. THIS WAY, THE LD.AO OBSERVED THAT THE ASSESSEE HAD UNNECESSARILY INCURRED INTEREST EXPEND ITURE OF RS.12,71,970/- ON THESE AMOUNTS WHICH HAS BEEN GIVE N FOR WITHOUT ANY BUSINESS PURPOSE. THE LD.AO HAS CONFRONTED THE ASS ESSEE AS TO WHY THE INTEREST EXPENDITURE TO THIS EXTENT SHOULD NOT BE D ISALLOWED OUT OF THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. IN RESP ONSE TO THE QUERY OF THE AO, THE ASSESSEE HAS SUBMITTED THE FOLLOWING RE PLY: 'IT IS TO BE NOTED THAT THE UDAY YAM TWISTER P. LTD . IS NOT SISTER CONCERN. AMOUNT RECEIVABLE WAS RECEIVED LATE AS THE RE IS FINANCIAL CRUNCH IN THE UDAY YARN TWISTER PVT. LTD AS INFORME D BY THE COMPANY. IN THE BUSINESS ALWAYS IT IS NOT POSSIBLE TO MAKE THE PROFIT AND AS PER THE CIRCUMSTANCE OF THE CASE WE H AVE TO RECEIVE THE PAYMENT LATE ON ACCOUNT OF CONTINUOUS BUSINESS TRANSACTIONS AND FOR SMOOTH AND LONG LASTING BUSINESS TRANSACTIO NS. IN NUMBER OF CASES THE DEBTS GOT BAD AND SAME WAS ALSO ALLOWA BLE AS THE BUSINESS EXPENDITURE. SO, YOUR GOOD SELF IS REQUEST ED NOT TO DRAW ANY ADVERSE INFERENCE ON THE NORMAL BUSINESS TRANSA CTION. ASSESSEE FIRM HAS INVESTED IN THE SHARES OF SHAHLON INDUSTRIES PVT. LTD. ON 02/7/2009. THE INVESTMENT WAS MADE AS THE C OMPANY WAS GOING FOR THE EXPANSION OF BUSINESS AND FIRM WANTS TO DO THE BUSINESS WITH THE COMPANY. SO, THE INVESTMENT MADE WAS FOR THE BUSINESS PURPOSE ONLY. SO, YOUR GOOD SELF IS REQUES TED NOT TO DRAW ANY ADVERSE INFERENCE.' 6. THE LD.AO WAS NOT SATISFIED WITH THE REPLY OF TH E ASSESSEE AND MADE AN ADDITION OF RS.12,71,970/-. ACCORDINGLY, H E ASSESSED THE INCOME AT RS.15,57,728/- AGAINST RS.2,85,758/- DISC LOSED BY THE ASSESSEE. APPEAL TO THE LD.CIT(A) DID NOT BRING A NY RELIEF TO THE ASSESSEE. ITA NO.956/AHD/2013 4 7. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT THE ALLEGED DEBT WITH M/S.UDAY YARN TWISTER P.LTD. WAS NOT ADVANCEMENT OF ANY UNSECURED LOAN. ON ACCOUNT OF FINANCIAL HARD SHIP, THAT CONCERN FAILED TO MAKE THE PAYMENT IN TIME. THESE WERE BUS INESS TRANSACTIONS. HE ALSO TOOK ME THROUGH PAGE NO.9 OF THE PAPER BOOK , WHEREIN SCHEDULE- 7 CONTAINING THE LIST OF DEBTORS AS ON 31.3.2010 IS AVAILABLE. HE DEMONSTRATED THAT THERE WERE 41 DEBTORS AND THE OUT STANDING AMOUNT WAS RS.2,35,08,807/-. MAJORITY OF THE AMOUNTS PERTAINED TO LESS THAN SIX MONTHS. SIMILARLY, THE ASSESSEE HAS UNSECURED LOAN S ON WHICH IT DID NOT INCUR ANY EXPENDITURE. HE TOOK ME IN THIS REGARD T O PAGE NO.10-11 OF THE PAPER BOOK, WHEREIN DETAILS OF AUDITED ACCOUNTS HAV E BEEN PLACED ON RECORD. THE ASSESSEE HAS SHOWN INTEREST INCOME OF RS.22,31,694/- WHICH IS MORE THAN THE LAST YEAR. IN THE YEAR ENDING ON 31.3.2009, INTEREST INCOME WAS RS.12,78,867/-. THUS, THE ASSESSEE HAS HIGHER INTEREST INCOME IN THIS ASSESSMENT YEAR. THE LD.DR, ON THE OTHER HAND RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 8. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. IN A RECENT JUDGMENT, THE HONBL E SUPREME COURT IN THE CASE OF HERO CYCLES P.LTD. VS. CIT, CIVIL APPEA L NO.514 OF 2008 DATED 5.12.2015, HAS HELD THAT IF THE ASSESSEE HAS USED FUNDS FOR THE PURPOSE OF BUSINESS, EVEN FOR THE BUSINESS OF SISTE R CONCERN, THEN, THE INTEREST EXPENDITURE CANNOT BE DISALLOWED. HONBLE SUPREME COURT HAS MADE REFERENCE TO THE HONBLE DELHI HIGH COURT IN T HE CASE OF CIT VS. DALMIA CEMENT P.LTD. HAS OBSERVED THAT BUSINESSMAN CANNOT BE COMPELLED TO MAXIMIZE ITS PROFIT, AND INCOME TAX AU THORITIES CANNOT ITA NO.956/AHD/2013 5 STEPS INTO THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MA TTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IN T HE PRESENT CASE, THE LD.AO, FOR MAKING DISALLOWANCE, AS MADE AN OBSERVAT ION THAT IF M/S.UDAY YARN TWISTER P.LTD. WAS IN FINANCIAL CRUNC H, THEN THAT COMPANY SHOULD HAVE TAKEN LOAN. TO MY MIND, IT IS THE ASSESSEE WHO HAS TO CARRY OUT ITS BUSINESS. IT IS FOR THE ASSES SEE TO DECIDE TO WHICH CONCERN, IT CAN EXTEND CREDIT FACILITY. THE LD.AO CANNOT THRUST UPON HIS POINT OF VIEW FOR CONDUCTING THE BUSINESS. IF THE ASSESSEE AS SIMPLICITOR , SIPHONED OFF THE INTEREST BEARING FUNDS FOR NON-BUS INESS PURPOSE, THEN, THE AO MIGHT BE JUSTIFIED, BUT IF CERTAIN PAYMENTS ARE NOT BEING RECEIVED BY THE ASSESSEE DURING THE COURSE OF BUSINESS OR SO ME INVESTMENT WAS MADE KEEPING IN MIND FUTURE BUSINESS INTEREST, THEN THE AO CAN DISALLOW THE INTEREST EXPENDITURE. RESPECTFULLY FOLLOWING T HE DECISION OF THE HONBLE SUPREME COURT, I ALLOW THIS GROUND OF APPEA L AND DELETE THE DISALLOWANCE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23 RD AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 23/08/2016