ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, Alwar V. SHRI KISHAN LAL AGARWAL, Alwar

ITA 97/JPR/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 9356 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 28-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Audit objection; Tax effect; Commercial expediency
• Section: 148; 143(3)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “B”, JAIPUR Jh lanhi x®lkÃa] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 97/JP/2019 fu/kZkj.k o"kZ@Assessment Year :2012-13 A.C.I.T., Circle-2, Alwar. cuke Vs. Kishan Lal Agarwal, Prop.-M/s Shree Balaji Cattle Feeds, G1-112, RIICO Industrial Area, Behror, Alwar (Raj) LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEYPA 8480 Q vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (JCIT-DR) fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv) lquokbZ dh rkjh[k@ Date of Hearing : 01/09/2021 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 12/10/2021 vkns'k@ ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the Revenue against the order of the ld. CIT(A), Alwar dated 20/11/2018 for the A.Y. 2012-13, wherein the Revenue has raised solitary ground of appeal which reads as under: “1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in deleting the disallowance of Rs. 2,28,000/- made U/s 36(1)(iii) of the Act, without properly appreciating the facts of the case and the material brought on record.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 2 3. In the first round of litigation, the appeal of the Revenue was dismissed by the Coordinate Bench (SMC) vide its order dated 04/10/2019 on the ground of low tax effect but the Bench had given liberty to the Revenue that the department is at liberty to file the Misc. application in case tax effect in this appeal was found to be more than Rs. 50.00 lacs on the case falls in any of the exceptions of the CBDT circular. 4. Against the said order of the Tribunal, the Revenue preferred Misc. application being M.A. No. 29/JP/2020 for recalling of the order of the Tribunal dated 04/10/2019 on the ground that the present appeal falls in the exception under para 10(c) of Circular No. 3/2018 dated 11/07/2018 and vide its order dated 25/08/2020, the Tribunal has recalled its earlier order dated 04/10/2019. 5. The brief facts of the case are that the assessee is an individual. The original return was selected for scrutiny and the assessment u/s 143(3) of the Income Tax Act, 1961 (in short, the Act) was completed on total income of Rs. 16,91,387/- against declared income of Rs. 16,81,520/-. Subsequently notice u/s 148 was issued for the reason that certain loans of Rs. 18,99,999/- was advanced to the various parties without charging any interest and thereafter an addition ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 3 of Rs. 2,28,000/- was made on account of interest payment by the assessee on notional basis. 6. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, had deleted the addition. Against the said order of ld. CIT(A), the Revenue has preferred the present appeal on the ground mentioned above. 7. The solitary ground raised by the Revenue relates to challenging the order of ld. CIT(A) in deleting the disallowance of Rs. 2,28,000/- made U/s 36(1)(iii) of the Act. In this regard, the ld. DR appearing on behalf of the Revenue has vehemently supported the order of the A.O. and submitted that the original assessment order in the present case was passed U/s 143(3) of the Act on 16/03/2015 thereby assessing total income of Rs. 16,91,387/- as against the returned income of Rs. 16,81,520/-. However, subsequent to the completion of the assessee, it was noticed that certain income in the case of the assessee had escaped assessment, therefore, after recording reasons, notice U/s 148 of the Act was issued and after providing opportunity of hearing to the assessee, ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 4 order U/s 143(3) r.w.s. 147 of the Act was passed. It was further submitted by the ld. DR that the assessee had taken unsecured loans from various persons and paid interest @ 12% amounting to Rs. 10,09,536/- and on the other hand, the assessee had given interest free loans and advances of Rs. 18,99,999/-. It was further submitted that the assessee had given interest free loan and advances of Rs. 18,99,000/- then he would have saved the amount of interest paid to unsecured loans to the extent of 12% which comes to Rs. 2,28,000/-. It was submitted that as per provisions of Section 36(iii) of the Act only those interest expenses are allowable which were incurred for the purpose of business and profession. However, the assessee has failed to brought any single evidence on record to prove that interest free loans and adv advances were given for the purpose of business of the assessee. The ld. DR has submitted that the assessee has failed to bring any material on record to demonstrate that there is no nexus between the interest bearing fund received and interest free loans and advances given by the assessee. Therefore, the ld. DR has supported the order of the A.O. passed U/s 143(3) of the Act. 8. On the other hand, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 5 the ld. CIT(A) and also relied on the written submissions filed before the Bench and the same is reproduced as under: “The original assessment was completed u/s 143(3) of the Income Tax Act, 1961 by making small addition on account of disallowance of expenses for Rs. 9867/-. The learned AO has reopened the assessment on the basis of audit objection as pleaded by the revenue in recalling proceedings. This fact came into the knowledge of the assesse first time that this reopening was on the basis of audit objection. Therefore the AR of the assesse has prayed before the Hon'ble Bench that assesse has right to raise the objection against the validity of reopening of the assessment and the Hon'ble Bench has mentioned in the recalling order dated 25/08/2019 that the assesse shall have a liberty to raise the objection if any against the decision of the AO based on audit objection. Therefore exercising our this right we firstly object that the reopening on the basis of audit objection is not valid. In this regard we place our reliance on the case of M/s Larsen and Toubro Limited vs. State of Jharkhand and others (Supreme Court of India) 5390/2007 dated 21.03.2017 wherein it has been held that the different opinion of a audit party on the basis of which the AO has issued notice for reopening not a valid reason because it has been issued on direction by the audit party and not on his personal satisfaction. Therefore the reopening of the assessment on the basis of observation or direction of the audit party is not sustainable. Even on the merits the learned CIT(A) has deleted the addition made by the learned AO by following observations – "I have considered the order passed by the learner assessing officer and submission filed by the appellant following facts have emerged :- (i) That the plant is engaged in the business of trading of cattle feed during the year under consideration. ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 6 (ii) That the appellant had filed regular return of income and the original assessment under section 143(3) was completed on 16.03.2015 at an income of Rs. 16,91,387/- as compared to return income of Rupees 16,81,520/- (iii) That the assessing officer alter issued notice under section 148 of the Act on the reason that certain loan Rupees 18,99,999/- advance to parties without charging any interest while on the other head paid interest on borrowed funds. (iv) That the assessing officer has added an amount of rupees 2,28,000/- as interest disallowed. (iv) That the appellant has submitted that an amount of Rupees 45,68,725/- has been deployed as capital which was totally interest free. (vi) That the appellant has further submitted that the appellant has closed business nexus with the done persons and interest free loan were given on account of business expediencies and in normal course of business deals. Therefore, it has been observed by the learned CIT(A) that the assesse has own funds of Rs. 45,68,725/- which were not interest bearing and otherwise all the advances given by the assesse for the purpose of business and not for any other purpose, therefore the addition was deleted by him. The details of interest free loans given by the assesse considered by the learned AO are as under: - 1. Ridhi Sidhi Cement Pvt Ltd 700000 2. Shree Balaji Agro Industries 500000 3. Shri Jitendra Kumar 699999 Total 1899999 The advanced to M/s Ridhi Sidhi Cement Pvt Ltd was given for the purpose of business dealing as the same was a group ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 7 company and assesse is director and share holder of the company. Shree Balaji Agro Industries was supplier of goods to the assesse and the advance was made to keep the regular supply in case of payment is delayed in routine. Therefore this advance was made as deposit against supply of goods. Shri Jitendra Kumar is a broker through whom goods were purchased and sold. He play a major role in the business of the assesse for securing purchase orders and sale of goods. So this advance was also for making good business relation. Therefore the addition was rightly deleted by the leaned CIT(A). The order of the learned CIT(A) deserves to be sustained.” The ld. AR also relied upon the decision of the Hon’ble Apex Court in the case of M/s Hero Cycles Pvt. Ltd. Vs CIT (Central), Ludhiana. 9. We have considered the rival contentions and carefully perused the material placed on record. From the facts of the case, we noticed that the assessee had advanced loan to the following parties: 1. Ridhi Sidhi Cement Pvt Ltd 700000 2. Shree Balaji Agro Industries 500000 3. Shri Jitendra Kumar 699999 Total 1899999 The advance to M/s Ridhi Sidhi Cement Pvt Ltd was given for the purpose of business dealing as the same was a group company and assesse is director and share holder of the company. Shree Balaji ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 8 Agro Industries was supplier of goods to the assesse and the advance was made to keep the regular supply in case of payment is delayed in routine. Therefore this advance was made as deposit against supply of goods. Shri Jitendra Kumar is a broker through whom goods were purchased and sold. He played a major role in the business of the assesse for securing purchase orders and sale of goods. So this advance was also for making good business relation. The ld AR has fairly submitted before us that all the loans/advances given to the above parties were for the purpose of business and not for any other purpose. The ld. AR has submitted that the advance to M/s Ridhi Sidhi Cement Pvt. Ltd was given for the purpose of business dealing as the same was a group company and assesse is also director and share holder of the said company. It was further submitted that Shree Balaji Agro Industries was supplier of goods to the assessee and the advance was made to keep the regular supply in case of payment is delayed in routine. Therefore, as per the assessee, this advance was made as deposit against supply of goods. It was further submitted that Shri Jitendra Kumar is a broker through whom goods were purchased and sold by the assessee. According to the assessee, the said Shri Jitendra Kumar played a major role in the business of the assessee for securing purchase orders and sale of ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 9 goods. Therefore, this advance was also for making good business relation. 10. We have also perused the documents placed on record by the assessee in the shape of tax audit report for the year under consideration which also contains certification to the effect that the balance sheet and profit and loss account are in agreement with the books of account maintained by the assessee. Since all the above parties have direct nexus with the business activities/operations of the assessee and all these entities also help in the business of the assessee either directly or indirectly by way of procuring/securing orders or selling goods, exploring new markets etc., therefore, keeping in view the principles laid down by the Hon’ble Apex Court in the case of M/s Hero Cycles Pvt. Ltd. Vs CIT (Central) Ludhiana, the amount advanced by the assessee to these entities is for the business purpose, therefore, the entire interest paid by the assessee is liable to be allowed as business expenditure. Moreover, we also draw strength from the decision of the Hon’ble Supreme court in the case of S.A. Builders Ltd. Vs CIT 288 ITR 1 (SC) in which the concept of “commercial expediency” was used. Thus, according to the Hon’ble Supreme Court, where the funds of business are diverted for interest free loans, the main criteria for permissibility of interest on ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 10 those funds are based on whether it was for commercial expediency or not. The phrase “commercial expediency” has following important traits: “* Such purpose as is expected by the assessee to advance its business interest. * May include measures taken for preservation, protection or advancement of its business interests. * To be distinguished from the personal interest of its directors or partners, as the case may be. * There has to be a nexus between the advancing of funds and business interest of the assessee. Some business objective should be sought to have been achieved by extending such interest free advances when the assessee firm/company itself is borrowing funds for running its business.” 11. In this case, the assessee had made advances/loans by expecting to establish business connections with the above entities. There is no compulsion under the Income Tax Act that interest should always be charged on any lending, nor there is any requirement that income must be earned by utilizing the capital borrowed with interest so as to be entitled to the deduction U/s 36(1)(iii) of the Act. Therefore, keeping in view the relations of the assesseee with the above entities, we found that all the above three entities were having direct nexus with the business ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 11 activities/operations and all these entities also help in the business of the assessee either directly or indirectly by way of procuring/securing orders or selling goods, exploring new markets etc., therefore, we are of the considered view that the ld. CIT(A) has rightly concluded that the amount so advanced by the assessee to these entities were for commercial and business expediency. The ld. CIT(A) has passed a speaking and reasoned order discussing all the facts and circumstances as well as legal propositions of law therefore, considering the totality of facts and circumstances and case laws, we find no reason to interfere in the order of the ld. CIT(A) qua this issue, hence, we uphold the same. 12. In the result, this appeal of the Revenue is dismissed. Order pronounced in the open court on 12 th October, 2021. Sd/- Sd/- ¼foØe flag ;kno½ ¼lanhi x®lkÃa½ (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 12/10/2021 *Ranjan vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- The A.C.I.T., Circle-2, Alwar. 2. izR;FkhZ@ The Respondent- Shri Kishan Lal Agarwal, Alwar. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr¼vihy½@The CIT(A) ITA 97/JP/2019_ ACIT Vs Kishan Lal Agarwal 12 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 97/JP/2019) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar