M/s Banu Mal Inder Lal & Co., Chandigarh V. ITO, Chandigarh

ITA 995/CHANDI/2011

• Counselvise Citation: 99521514 RSA 2011
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILESH GUPTA
• Assessee Lawyers: JASPAL SHARMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: SMD BENCH: CHANDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 995/CHANDI/2011 ASSESSMENT YEAR: 2007-08 M/S BABU MAL INDER LAL & CO V I.T.O. WARD 3(4), CH ANDIGARH SCO 828 NAC, MANIMAJRA CHANDIGARH AAFFB 2665 K APPELLANT BY: SHRI JASPAL SHARMA RESPONDENT BY: SHRI AKHILESH GUPTA DATE OF HEARING: 01.12.2011 DATE OF PRONOUNCEMENT: 21.12.2011 ORDER D K SRIVASTAVA : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE LD. CIT(A) ON 7.7.2011, ON THE FOLLOWING GROUNDS: 1 THE IMPUGNED ORDER IS BOTH AGAINST FACTS AND ERR ONEOUS IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN HAVING CONFIRMED THE ACTION OF THE AO IN REJECTI NG THE TRADING RESULTS U/S 145(3) OF THE INCOME-TAX ACT, 1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN HAVING CONFIRMED THE ADDITIONS OF RS. 1,35,466/- MADE BY THE AO ON ACCOUNT OF FALL IN GP RATE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN HAVING CONFIRMED THE DISALLOWANCE OF INTEREST AM OUNTING TO RS. 5000/- MADE BY THE AO U/S 36(1)(III). THE ASSESSEE CRAVES LEAVE TO ADD TO, ALTER OR AMEND THE ABOVE GROUNDS OF APPEAL BEFORE THE SAME IS HEARD OR DISPOSED OF. IT IS PRAYED THAT APPROPRIATE RELIEF MAY KINDLY BE ALLOWED AS PER THE ABOVE GROUNDS OF APPEAL. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN GOLD AND DIAMOND JEWELLERY. IT FILED ITS RETURN OF INCOME ON 31.10. 2007 RETURNING TOTAL INCOME AT RS. 3,05,210/-. AFTER PROCESSING, THE RETURN WAS SELEC TED FOR SCRUTINY AS A RESULT OF WHICH THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMP LETED ON 17.12.2009 ASSESSING THE TOTAL INCOME AT RS. 4,45,670/-. THE AO HAD ADDED A SUM OF RS. 1,35,466/- ON ACCOUNT OF LOW RATE OF GROSS PROFIT AND ALSO DISALLOWED INTEREST AMOUNTING TO RS. 5,000/-. 3. BOTH THE ADDITIONS/DISALLOWANCES MADE BY THE AO WERE CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A) HOWEVER BOTH THE ADD ITIONS/DISALLOWANCES MADE BY THE AO WERE CONFIRMED BY THE LD. CIT(A). AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE TH IS TRIBUNAL. AS REGARDS THE M/S BABU MAL INDER LAL & CO. ITA NO. 995/CHANDI/2011 2 ADDITIONS OF RS.1,35,466/-, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE PURCHASES AND SALES WERE NOT ONLY FULLY VOUCHED BUT ALSO THAT THE BOOKS OF ACCOUNT WERE DULY MAINTAINED AND AUDITED. AS REGAR DS THE RATE OF GROSS PROFIT, HE SUBMITTED THAT THE ASSESSEE HAD SHOWN GROSS PROFIT RATE OF 16.91% IN THE YEAR UNDER APPEAL AS AGAINST 17.69% IN AY 2006-07 AND 10 % IN AT 2005-06 WHICH HAVE BEEN DULY ACCEPTED BY THE DEPARTMENT. HE PRAY ED THAT THE IMPUGNED ADDITION SHOULD BE DELETED. 4. IN REPLY THE LD. DR RELIED UPON THE ORDERS PASSE D BY THE AO AND THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE RATE OF GROSS PROFIT SHOWN BY THE ASSESSEE AT 1 6.91% IN THE YEAR UNDER APPEAL CANNOT BE SAID TO BE UN-REASONABLE WHEN IT I S COMPARED WITH THE GROSS PROFIT SHOWN BY THE ASSESSEE AT 17.69% IN AY 2006-0 7 AND 10% IN AY 2005-06. IN THIS VIEW OF THE MATTER, THE IMPUGNED ADDITION I S DELETED. GROUND NO. 3 TAKEN BY THE ASSESSEE IS ALLOWED. 6. APROPOS GROUND NO. 4, THE IMPUGNED DISALLOWANCE HAS BEEN CONFIRMED BY THE LD. CIT(A) WITH THE FOLLOWING OBSERVATIONS:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE APPELLANT. THE APPELLANT MAY BE HAVING SUFFICIENT UNSECURED LOAN ON WHICH NO INTEREST HAD BEEN PAID BUT AT THE SAME TIME IT H AD BORROWED LOANS FROM THE BANK ON WHICH IT WAS PAYING INTEREST @ 10% AND SO THE RATIO OF DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (286 ITR 1) IS APPLICABLE. THE HON'BLE HIGH COURT HAD HELD IN THIS CASE THAT ONCE IT IS BORNE OUT FRO M THE RECORDS THAT THE APPELLANT HAD BORROWED CERTAIN FUNDS ON WHICH LIABI LITY TO PAY TAX WAS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUN TS HAD BEEN ADVANCED WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSIN ESS PURPOSE, INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYI NG ANY INTEREST IS TO BE DISALLOWED U/S 36(1)(III). THEIR LORDSHIPS HAD HELD THAT SUCH BORROWING TO THE EXTENT CANNOT POSSIBLY BE HELD FOR THE PURPO SE OF BUSINESS BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DERIVING AN Y BENEFIT OUT OF IT AND SO THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUC TION OF INTEREST ON THE BORROWING TO THE EXTENT THOSE ARE DIVERTED WITHOUT INTEREST. IF THE APPELLANT HAD NOT GIVEN OUT INTEREST FREE ADVANCES FOR NON-BU SINESS PURPOSES, IT WOULD NOT HAVE TO BORROW FUNDS AND INCUR UNNECESSAR Y INTEREST LIABILITY. HENCE, THE AO WAS RIGHT IN MAKING THE DISALLOWANCE OF INTEREST OF RS. 5,000/- U/S 36(1)(III) OF THE INCOME-TAX ACT, 1961. GROUND OF APPEAL NO. 2 IS DISMISSED. 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THE AFORESAID FINDING RECORDED BY THE LD. CIT(A). IN OUR VIEW THE LD. CI T(A) HAS CORRECT APPRECIATED THE FACTUAL AND LEGAL ASPECTS OF THE CASE. HIS ORDER IN THIS BEHALF IS THEREFORE CONFIRMED. GROUND NO. 4 IS DISMISSED. M/S BABU MAL INDER LAL & CO. ITA NO. 995/CHANDI/2011 3 8. APROPOS GROUND NO. 2, WE HAVE ALREADY DELETED TH E ADDITION OF RS. 1,35,466/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) AND THEREFORE GROUND NO. 2 TAKEN BY THE ASSESSEE HAS BECOME PURELY ACADE MIC AND THEREFORE IS NOT BEING ADJUDICATED. 9. IN VIEW OF THE FOREGOING THE APPEAL OF THE ASSES SEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 21 .12.2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBEER ACCOUNTANT MBMER CHANDIGARH: THE 21 .12.2011 SURESH COPY TO: 1. THE APPELLANT, M/S BABU MAL INDER LAL & CO. 2. THE RESPONDENT, I.T.O 3. THE CIT(A), CHANDIGARH 4. THE LD. CIT, CHANDIGARH 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH