JYOTSNA SHARMA, NEW DELHI V. ACIT, CIRCLE- 59(1), NEW DELHI

MA 118/DEL/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3790 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 11-07-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Set aside
• Section: 37(1); 251; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member MA No. 118/Del/2021 (in ITA No. 1508/Del/2018 : Asstt. Year : 2014-15) Jyotsna Sharma, A-165, Preet Vihar, New Delhi-110098 Vs ACIT, Circle-59(1), New Delhi (APPELLANT) (RESPONDENT) PAN No. AAYPS1805K Assessee by : Sh. Salil Aggarwal, Adv. & Sh. Shailesh Gupta, CA Revenue by : Sh. Sanjay Kumar, Sr. DR Date of Hearing: 20.05.2022 Date of Pronouncement: 27.06.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The Miscellaneous Application has been filed by the assessee arising out of the order in ITA No. 1508/Del/2018 dated 19.03.2021. 2. The AO disallowed an amount of Rs.44,80,053/- on account of interest free loans given to four parties. The ld. CIT(A) deleted the addition made by the AO of Rs.44,80,053/- and disallowed an amount of Rs.35,69,177/- claimed as interest under the schedule pertaining to financial expenses debited to P&L A/c. The ld. CIT(A) while passing the order held as under: “5.1 Ground No. 1 challenges the addition of Rs. 44,80,053/- made on account of notional loss due to advancing interest free MA No.118/Del/2021 Jyotsna Sharma 2 loans to parties and simultaneously claiming interest expenses in Profit & Loss account. I have considered assessment order and the submissions of the appellant. From the Profit & Loss account (page 28 of paper book) following are observed. Profit Rs. 4,11,21,857/- Interest income Rs. 78,74,075/- Bank interest under schedule pertaining to Financial expenses Rs. 35,69,177/- 5.1.1 From the computation of income (pages 9-10 of paper book) it is seen that income from other sources is disclosed at Rs.1,35,34,921/-. The said amount includes interest income of Rs. 78,74,075/- shown in the Profit & Loss account. 5.1.2 The contention of the appellant is that Assessing Officer has not seen profits returned in the three earlier years and that interest free loans have been given out of tax paid income and therefore, there is no notional loss to the business. During the appellate proceedings it has again been reiterated that the proprietorship concern has not taken any business loan/CC limit from the bank but had taken an overdraft facility from the bank against the FDRs owned by the assessee. It has however been mentioned that the overdraft facility has been used occasionally and interest paid only to the extent of overdraft facility availed. No details have been given as regards the purpose for which the overdraft facility was availed. It has also been submitted that had the FDR not been made, the said amount would have been used for business and interest amounting Rs.35,69,177/- would not be made and at the same time interest on FDRs amounting MA No.118/Del/2021 Jyotsna Sharma 3 to Rs.90,42,138/- on which tax had been paid would not have been earned. The appellant has argued that the interest income earned is more than interest paid. 5.1.3 The argument of the appellant is not acceptable. As mentioned above, interest amounting to Rs.35,69,177/- has been debited to the Profit & Loss account under the head Financial Expenses. Given the contention of the appellant that no business loans/CC limit had been taken from the bank, this interest would not be allowable while computing the Rs.35,69,177.26 cannot be allowed while computing the business income. The said amount is to be added back to the income of the assessee since this represents interest paid on over draft facility from bank against FDRs owned by the assessee which has not been used by the assessee for the purpose of the business. In conclusion, the addition of Rs.44,80,053/- made by the Assessing Officer is deleted and in view of the discussion above, the bank interest amounting to Rs.35,69,177/- debited to the Profit & Loss account is disallowed while computing the business income. Ground of appeal no. 1 is partly allowed.” 3. Aggrieved the assessee filed appeal before the Tribunal. The Tribunal vide order dated 19.03.2021 remanded the matter to the file of the AO who determine the ‘interest free funds’ available to advance ‘interest free loans’ and directed to restrict the disallowance to the months wherein ‘interest free own funds’ are not available to the assessee and to disallow only the percentage of interest paid to banks for the relevant period. MA No.118/Del/2021 Jyotsna Sharma 4 4. The order of the ITAT is as under: “The present appeal has been filed by the assessee against the order of the ld. CIT(A)-37, New Delhi dated 30.01.2018. 2. Following grounds have been raised by the assessee: “1. That the Ld. CIT(A) has wrongly directed to add a sum of Rs. 35,69,177.00 to the Income of the assessee, which the Ld. Assessing Officer has already allowed in her assessment order. 2. The Ld. CIT(A) is not justified in disallowing expenditure u/s 37(1) on account of bank interest amounting to Rs. 35,69,177.00 debited to the profit & loss account. 3. That the Ld. CIT(A) has wrongly directed to add a sum of Rs. 35,69,177.00 on account of interest paid on Overdraft Facility without affording reasonable opportunity to the appellant to explain the same. 4. That the Ld. CIT(A) has wrongly invoked the provisions of Section 251 of the Income-tax Act, 1961 without giving any show cause and reasonable opportunity of being heard to the appellant.” 3. Facts relevant to the case are that the assessee has given interest free loans to the parties as under: Party Opening as on 01/04/2013 Amount Given during the year Closing as on 31/03/2014 Arvind Gulati 128,000.00 - 128,000.00 BN Finlease Pvt. Ltd. 861,414.00 25,208,918.00 26,070,332.00 B.N. Estate Pvt. Ltd. - 11,112,851.00 11,112,851.00 Durga Global Pvt. Ltd. - 22,590.00 22,590.00 989,414.00 36,344,359.00 37,333,773.00 MA No.118/Del/2021 Jyotsna Sharma 5 4. The AO held that by advancing interest free loans to sister concerns, the assessee was channelizing interest bearing funds for non-business purposes. 5. The ld. CIT(A) confirmed the action of the Assessing Officer. 6. Before us, the ld. AR argued that the assessee has got sufficient own funds to lent the amounts to sister concerns and it was not the loan funds which have been given to sister concerns interest free. 7. We have perused the balance sheet of the assessee for the year ending 31.03.2014. Schedules Annexed to a forming part of Balance Sheet and Profit and Loss account for the year ended 31 st March 2014 Schedule-A Proprietor Capital Account Opening Balance Add: Profit for the year Add: Additions during the year 7,673,487.64 41,121,856.57 2,843,771.00 51,639,115.21 Less: Drawing 7,459,498.71 Total 44,179,616.50 Schedule-B Fixed Assets (at written down value) 102,448,808.61 102,448,808.61 8. From the above, we find that the proprietor’s capital account is on account of profit for the year and addition during the year both of which have been determined after closing of the books at the end of the financial year. Hence, it cannot be MA No.118/Del/2021 Jyotsna Sharma 6 said that the assessee has got sufficient interest free funds available with her to advance interest free loans. However, at the same time, the action of the Assessing Officer to consider interest for a period of 12 months also cannot be accepted. Hence, in the interest of justice, we remand the matter back to the file of the AO to go through the quarterly and half year unaudited accounts and to determine the availability of the funds at the given point of time of lending of loan and the restrict the disallowance to the earlier months only and on the percentage of the interest paid to the banks. 9. In the result, the appeal of the assessee is allowed for statistical purposes. Order Pronounced in the Open Court on 19/03/2021. Sd/- Sd/- (Bhavnesh Saini) (Dr. B. R. R. Kumar) Judicial Member Accountant Member 5. Aggrieved the assessee filed Miscellaneous Application which is as under: “Hon’ble Sir(s), The captioned appeal filed by the assessee company stands disposed off by an order dated 19.03.2021 (copy enclosed as Annexure - A). The applicant respectfully submits that, while disposing off the aforesaid appeal, mistakes of law as well as of facts have crept in the order and, therefore the assessee/applicant prays that, such mistakes which are apparent from record may kindly be rectified and, order made MA No.118/Del/2021 Jyotsna Sharma 7 be suitably either amended or modified or recalled. It is submitted that, mistakes apparent are such which go to the root of the matter and, are manifest in the order; hence the aforesaid prayer is being made. 2. That the ground nos. 1 to 5 so raised by Assessee in its Memo of Appeal filed along with From No. 36 before Hon’ble ITAT, reads as under: “1. That the Id. CIT(A) has wrongly directed to add a sum of Rs. 35,69,177/- to the income of the assessee, which the Id. Assessing officer has already allowed in her assessment order. 2. The Id. CIT(A) is not justified in disallowing expenditure u/s 37(1) on account of bank interest amounting to 35,69,177/- debited to the profit and loss account. 3. That the Ld. CIT(A) has wrongly directed to add a sum of Rs. 35,69,177/- on account of interest paid on overdraft facility without affording reasonable opportunity to the appellant to explain the same. 4. That the Id. CIT(A) has wrongly invoked the provisions of section 251 of the Act without giving any show cause and reasonable opportunity to the appellant to explain the same. 5. That appellant reserves the right to add, alter, amend or delete any ground of the appeal at the time of hearing.” 3. That further, the learned CIT(A) vide order dated 24.01.2018 partly allowed the appeal of assessee, wherein, addition made by Assessing officer of Rs. 44,80,053/- MA No.118/Del/2021 Jyotsna Sharma 8 representing deemed interest at the rate of 12% per annum on the interest free loan advanced to related parties was allowed by learned CIT(A), however, a separate addition of a sum of Rs. 35,69,177/- was made with respect to interest debited in Profit & Loss Account. In doing so, the learned CIT(A) returned following findings: “5.1.6 The appellant has relied on the decisions of the Delhi High Court in the case of M/s Shivnandan Buildcon Pvt. Ltd. vs. The CIT & Anr. In WP(C) 6265/2013 & 6326/2013 dated 30.4.2015 wherein the Hon’ble High Courts have held that in absence of any specific provision under which the so called income of notional advances could not be brought to tax and addition on account of notional income on advance was deleted. In the case under consideration also the Assessing Officer has disallowed deemed interest at the rate of 12% which cannot be sustained in view of the decision of the Delhi High Court. However, as seen from the discussion above and as per appellants own submission wherein it has been submitted that the proprietorship, i.e. M/s B.N Enterprises has not taken any business loan/CC limit, the amount of interest debited in Profit and Loss A/C amounting to Rs. 35,69,177/- cannot be allowed while computing the business income. The said amount is added back to the income of the assessee since this represents interest paid on over draft facility from bank against FDR’s owned by the assessee which has not been used by the assessee for the purpose of business. In conclusion, the addition of Rs. 44,80,053/- made by the Assessing officer is deleted and in view of the discussion above, the bank interest amounting to Rs. 35,69,177/- debited to P & L A/c is MA No.118/Del/2021 Jyotsna Sharma 9 disallowed while computing business income. Ground of appeal no. 1 is partly allowed.” 3. Thus, it can be seen that learned CIT (A) deleted the addition made by AO of a sum of Rs. 44,80,053/-, however, made another addition of Rs. 35,69,177/- against which assessee came up in appeal before Hon’ble Tribunal. 3.1 That however, the Hon’ble ITAT in the impugned order has inadvertently set aside the order to the file of assessing officer in respect of the issue which was allowed by learned CIT(A) and was never challenged before Hon’ble ITAT. The findings so recorded by Hon’ble ITAT are as below: “4. The AO held that by advancing interest free loans to sister concerns, the assessee was channelizing interest bearing funds for non-business purposes. 5. The Id. CIT (A) confirmed the action of the Assessing Officer. 6. Before us, the Id. AR argued that the assessee has not sufficient own funds to lent the amounts to sister concerns and it was not the loan funds which have been given to sister concerns interest free. ......... 8. From the above, we find that the proprietor’s capital account is on account of profit for the year and addition during the year both of which have been determined after closing of the books at the end of the financial year. Hence it cannot be said that the assessee has got sufficient interest free funds available with her to advance interest free loans. However, at the same time, the action of AO to MA No.118/Del/2021 Jyotsna Sharma 10 consider interest for a period of 12 months also cannot be accepted. Hence, in the interest of justice, we remand the matter back to the file of the AO to go though the quarterly and half year unaudited accounts and to determine the availability of the funds at the given point of time of lending of loan and the restrict the disallowance to the earlier months only and on the percentage of the interest paid to the banks. 9. In the result, the appeal of the assessee is allowed for statistical purposes." 4. Thus, it is apparent from the aforesaid that Hon’ble Tribunal has decided an issue which was never urged, raised or even argued during the course of hearing, as ground no. 1 to 5 so raised by the Assessee have not been adjudicated at all by Hon'ble Tribunal. 5. That it is an undisputed fact that the Revenue had never challenged the deletion of disallowance/addition of a sum of Rs.44,80,053/- representing deemed interest at the rate of 12% per annum on the interest free loan advanced to related parties by learned CIT (A). In fact, the only ground so raised by Assessee as is also apparent from memo of appeal before Hon’ble ITAT, was in respect of disallowance by learned CIT(A) of bank interest debited in t he Profit and loss account paid on over draft facility from bank against FDR’s of a sum of Rs. 35,69,177/- owned by the assessee. Thus, it is submitted, as is apparent from the ground so raised by Assessee and also arguments made by learned AR during the course of hearing that the Hon’ble Tribunal, inadvertently failed to adjudicate the issue raised by the assessee before it in respect of disallowance MA No.118/Del/2021 Jyotsna Sharma 11 of bank interest debited in the P&L account on account of overdraft facility from bank against FDR’s and has proceeded to give a finding in respect of an issue already decided by learned CIT(A) in favour of the assessee. 5.1 It is thus, most respectfully submitted that inadvertent mistake apparent from record has crept in the order of Hon’ble Tribunal, in adjudicating an issue already decided in the favour of assessee by the CIT(A), in assessee s appeal before ITAT, as the same were not even challenged by Assessee through its ground of appeal. 6. It is submitted that in view of aforesaid contentions/ submissions/orders (which have been inadvertently ignored by Hon’ble Tribunal), it would be evident that the Hon’ble Tribunal has inadvertently proceeded to record findings and conclusions contrary to the grounds and arguments raised during the course of hearing, and non consideration of the said arguments constitute a mistake apparent from record which needs to be rectified and for this proposition the assessee- applicant would seek to place its reliance on the following judgments: a) ACIT vs. Saurashtra Kutch Stock Exchange Ltd. (SC) reported in 305 11 R 227. b) CIT Vs. Smt. Aruna Luthra [(2001) 252 ITR 76 (P&H) (FB)]. c) KilKotagiri Tea And Coffee Estates Co. Ltd. Vs. Income Tax Appellate Tribunal and Others [(1988) 174 ITR 579 (Ker). MA No.118/Del/2021 Jyotsna Sharma 12 7. That further, on identical proposition, the Hon’ble High Court of Rajasthan in the case of Madhav Marbles & Granites vs ITAT reported in 246 CTR 243 and has held as follows: I. Section 254 of the Income-tax Act, 1961 - Appellate Tribunal - Order of - Assessment year 1999-2000 - Requirement on part of assessee to establish that debts in question had really turned bad is no longer thereafter 1-4-1989, and, therefore, a simple book keeping entry to write off same is enough to entitle assessee to claim such a deduction [ In favour of assessee] The assessee claimed deduction on account of bad advances written off and bad debts written off. The Tribunal held that such bad advances or bad debts could not be claimed as deduction since the assessee had failed to establish primarily that such advances were related and having a nexus to the business carried out by it. Held that the requirement on the part of the assessee to establish that debts in question had really turned bad is no longer thereafter 1-4-1989 and it is left to the business prudence of the assessee to claim such deduction by merely writing off such advances loss account of the assessee. As per amendment in law after 1-4-1989, a simple book-keeping entry to write off the same is enough to entitle the assessee to claim such a deduction. It was not in dispute from the side of the revenue that such a write off entry impugned order of Tribunal was to be set aside and the matter was to be remanded MA No.118/Del/2021 Jyotsna Sharma 13 back to Tribunal for passing fresh orders under section 254(2) on the miscellaneous application of the assessee. 8. That further, the assessee - applicant seeks to rely on the judgment of Hon’ble High Court of Delhi in the case of Seth Madan Lal Modi vs. CIT reported in 261 ITR 49, wherein it has been held by the Hon'ble High Court that, “As regards the propriety of the Tribunal in recalling its earlier order, the Tribunal was justified in doing so on the ground that while deciding the appeal, it had admittedly relied on a wrong section, which had no application to the year under appeal. There was no illegality in the observation of the Tribunal that it was difficult for them to say as to what extent reliance on a wrong section had affected the mind of the Tribunal. Obviously, reliance on a wrong provision of law’ tantamounts to an error apparent from the record within the meaning of the section 254.” 9. That the Hon'ble High Court in the case of Champalal Chopra vs. State of Rajasthan reported in 257 ITR 74 has further observed that, "A reading of sub-section (2) of Section 254 of the Income Tax Act, 1961, makes it clear that its scope and ambit is limited. It restricts the power of the Appellate Tribunal to rectify mistakes apparent from the record. In the normal course, the power of rectification cannot be extended to recalling the entire order, because obviously it would mean passing a fresh order. This is not the legislative intent. However, in a given case where the factual mistake is so apparent that it becomes necessary to correct the same, the Tribunal would be justified in not only correcting the said mistake by way of rectification but if the judgment has proceeded on the basis of that fact, it would be justified in recalling such order”. MA No.118/Del/2021 Jyotsna Sharma 14 9.1 It is therefore submitted that, applying the ratio laid down in the aforesaid judgments, it would be seen that, there are fundamental mistakes of fact as well as of law which are manifest in the order of the Tribunal and, therefore, the same deserve to be rectified in terms of provisions contained in section 254(2) of the Act. 10. The applicant, therefore, in terms of the instant application u/s 254(2) of the Income Tax Act seeks rectification of the mistakes in the order dated 19.03.2021, which are apparent from record in the light of the submissions made here-in- above.” 6. We have gone through the record, we find that the para no. 5 of the ITAT order “the ld. CIT(A) confirmed the action of the Assessing Officer” whereas the ld. CIT(A) deleted the addition of Rs.44,80,053/- made by the AO but disallowed an amount of Rs.35,69,177/- which was claimed by the assessee under the head bank interest. The Tribunal further at para no. 8 has directed that the availability of the sufficient interest free funds be determined so as to restrict the disallowance on account of interest. Thus, the grounds taken up by the assessee have been duly adjudicated with regard to affording of reasonable opportunity to the assessee. We find from para 5.1.1 and 5.1.2, the arguments of the assessee have been duly considered by the ld. CIT(A). Hence, it cannot be said that the ld. CIT(A) has not afforded any opportunity. MA No.118/Del/2021 Jyotsna Sharma 15 7. As a result, the Miscellaneous Application of the assessee is liable to be dismissed. Order Pronounced in the Open Court on 27/06/2022. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 27/06/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR