Sree Krishna Motors , Nalgonda v. Income Tax Officer, Ward-1, Nalgonda

ITA 1102/Hyd/2019 | 2015-2016
Pronouncement Date: 23-03-2021 | Result: Allowed

Appeal Details

RSA Number 110222514 RSA 2019
Assessee PAN ITANO1102O
Bench Hyderabad
Appeal Number ITA 1102/Hyd/2019
Duration Of Justice 1 year(s) 8 month(s) 19 day(s)
Appellant Sree Krishna Motors , Nalgonda
Respondent Income Tax Officer, Ward-1, Nalgonda
Appeal Type Income Tax Appeal
Pronouncement Date 23-03-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 23-03-2021
Date Of Final Hearing 16-02-2021
Next Hearing Date 16-02-2021
Last Hearing Date 16-02-2021
First Hearing Date 15-02-2021
Assessment Year 2015-2016
Appeal Filed On 04-07-2019
Judgment Text
ITA NO 1102 OF 2019 SREE KRISHNA MOTORS NALGONDA PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC BENCH HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NO.1102/HYD/2019 ASSESSMENT YEAR: 2015-16 M/S.SREEKRISHNA MOTORS NALGONDA PAN:AAFFS6974G VS. INCOME TAX OFFICER WARD-1 NALGONDA (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI K.C. DEVDAS REVENUE BY : SRI K.N. SURESH BABU DR DATE OF HEARING: 16/01/2021 DATE OF PRONOUNCEMENT: 23/03/2021 ORDER THIS IS ASSESSEES APPEAL FOR THE A.Y 2015-16 AGAIN ST THE ORDER OF THE CIT (A)-3 HYDERABAD DATED 27.05. 2019. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI RM CARRYING ON BUSINESS OF TRADING IN MOTOR VEHICLES ACCESSORIES & SPARES. THE ASSESSEE FIRM FILED ITS RETURN OF INCOM E FOR THE RELEVANT A.Y 2015-16 ON 30.09.2015 DECLARING TOTAL INCOME OF RS. NIL AFTER SET OFF OF BROUGHT FORWARD LOSS. THEREA FTER PURSUANT TO SELECTION OF ASSESSEES RETURN FOR SCRUTINY UNDER C ASS THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT WERE T AKEN UP. THE AO OBSERVED FROM BOOKS OF ACCOUNT OF THE ASSESSEE T HAT THE ASSESSEE FIRM HAD GIVEN AN INTEREST FREE LOAN OF RS .38.00 LAKHS TO ITS MANAGING PARTNER SHRI N. SURESH REDDY WHEREAS THE ASSESSEE WAS PAYING INTEREST ON LOANS TAKEN BY IT @ 13.25%. THEREFORE HE REQUIRED THE ASSESSEE TO EXPLAIN AS T O WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED U/S 37(1) OF T HE ACT SINCE IT ITA NO 1102 OF 2019 SREE KRISHNA MOTORS NALGONDA PAGE 2 OF 5 IS NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF ASSESSEES BUSINESS. THE ASSESSEE STATED THAT THE A MOUNT WAS PAID TO THE MANAGING PARTNER SHRI N. SURESH REDDY FOR CONSTRUCTION OF A SHED WHICH WAS USED BY THE ASSESS EE TO STORE THE VEHICLES AND PROTECT THEM FROM DIRECT SUN AND R AIN AND THEREFORE THE SAID EXPENDITURE WAS FOR THE PURPOSE S OF ASSESSEES BUSINESS ONLY. THE AO HOWEVER WAS NOT CONVINCED. HE HELD THAT THE EXPENDITURE INCURRED BY THE FIRM BY ADVANCING I NTEREST FREE LOAN TO THE ASSESSEES MANAGING PARTNER IS NOT WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEREFO RE THE INTEREST ATTRIBUTABLE TO INTEREST FREE LOAN ADVANCED TO THE PARTNER AT RS.30 85 923/- WAS DISALLOWED AND BROUGHT TO TAX. T HE AO ALSO MADE AN ADHOC DISALLOWANCE OF RS.4 37 570/- UNDER V ARIOUS HEADS ON THE GROUND THAT SOME OF THE BILLS/VOUCHERS ARE NOT PROPERLY MAINTAINED/IDENTITY IS NOT ESTABLISHED AS THEY WERE IN UNVERIFIABLE CONDITION. 3. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) AND SINCE NO NE APPEARED BEFORE THE CIT (A) THE CIT (A) CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNA L BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE HON'BLE CIT(A) IS ERRONEOUS IN LAW AS WELL AS FACTS OF THE CASE. 2. THE HON'BLE CIT(A) WITHOUT ALLOWING PROPER OPPOR TUNITY DISMISSED THE APPEAL AND THEREFORE THE ACTION OF TH E HON'BLE CIT(A) CANNOT BE SUSTAINED. 3. THE HON'BLE CIT(A) OUGHT TO HAVE ALLOWED SUFFICI ENT OPPORTUNITY BEFORE DECIDING THE APPEAL AND IN THE A BSENCE OF THE SAME THE DECISION OF THE HON'BLE CIT(A) CANN OT BE HELD AS JUDICIOUS. 4. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER ERRED IN DISALLOWING THE INTEREST OF ITA NO 1102 OF 2019 SREE KRISHNA MOTORS NALGONDA PAGE 3 OF 5 RS.30 85 923/-ON THE GROUND THAT THE ASSESSEE ADVAN CED INTEREST FREE LOANS FROM THE INTEREST-BEARING FUNDS . 5. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER OUGHT TO HAVE OBSERVED THAT THE A SSESSEE ADVANCED THE AMOUNTS IN THE COURSE OF BUSINESS AND BUSINESS EXPEDIENCY WAS THE MAIN REASON FOR MAKING SUCH ADVANCES. 6. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER ERRED IN DISALLOWING RS.23 150/- BY INVOKING PROVISIONS OF SECTION 40A(3) AND THEREFORE THE SAME IS LIABLE TO BE DELETED. 7. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER WITHOUT MENTIONING ANY DETAILS DI SALLOWED CERTAIN AMOUNTS OF EXPENSES INCURRED UNDER VARIOUS HEADS AND THEREFORE THE DISALLOWANCE CANNOT BE SUSTAINED. 8. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER WITHOUT CONSIDERING THE FACT THAT ANY EXPENDITURE CANNOT BE DISALLOWED WITHOUT MENTIONING COMPLETE DETAILS OF THE EXPENDITURE AND THEREFORE T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT SUSTAINABLE. 9. ANY OTHER GROUND WILL BE RAISED AT THE TIME OF H EARING. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE WAS A PARTNERSHIP FIRM AND THE PARTNE RS COULD WITHDRAW FROM THE FIRM THEIR CAPITAL AT ANY POINT OF TIME AND THEREFORE NO NOTIONAL INTEREST ON SUCH WITHDRAWALS CAN BE BROUGHT TO TAX OR DISALLOWED. IN SUPPORT OF HIS CO NTENTION HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPIKRISHNA MURAL IDHAR REPORTED IN (1963) 47 ITR 469 (AP). HE FURTHER SUBM ITTED THAT THE MANAGING PARTNER OF THE ASSESSEE FIRM HAD CONSTRUCT ED A SHED FOR STORAGE OF ASSESSEES VEHICLES AND THEREFORE IT WA S FOR THE BUSINESS PURPOSES OF THE ASSESSEE ONLY AND THEREFOR E IT CANNOT BE DISALLOWED U/S 37(1) OF THE ACT. AS REGARDS THE DIS ALLOWANCE OF ADMINISTRATIVE EXPENSES HE SUBMITTED THAT THE DISA LLOWANCES WERE NEARLY 10 TO 12% OF THE TOTAL EXPENDITURE UNDE R THE ITA NO 1102 OF 2019 SREE KRISHNA MOTORS NALGONDA PAGE 4 OF 5 RESPECTIVE HEADS WHICH IS VERY HIGH AND EXCESSIVE. THEREFORE HE PRAYED FOR DELETING THE ADDITIONS MADE BY THE AO. 5. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HA S FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF HIS CLAIM OF BUS INESS EXPENDITURE EXCEPT FOR MAKING A BLAND STATEMENT THA T THE INTEREST FREE LOAN WAS GIVEN TO THE MANAGING PARTNER FOR CON STRUCTION OF THE SHED WHICH WAS USED FOR ITS BUSINESS PURPOSES. AS REGARDS THE DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES HE PLACED RELIANCE ON THE ASSESSMENT ORDER. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD I FIND THAT THE ASSESSEE HAS GIVEN INTER EST FREE LOAN OF RS.38.00 LAKHS TO ITS MANAGING PARTNER AND THE ASSE SSEE CLAIMS THAT THE MD HAS USED IT FOR ASSESSEES BUSINESS PUR POSES ONLY AND IN SUPPORT OF CONTENTION THE LEARNED COUNSEL F OR THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF THE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPIKRISHNA MURALIDHAR ( SUPRA). HOWEVER THIS DECISION IS NOT APPLICABLE TO THE FAC TS OF THE CASE BEFORE ME AS IN THE SAID CASE IT WAS UNDISPUTED T HAT THE ASSESSEE THEREIN HAD BORROWED THE MONEY FROM HUF FO R THE BUSINESS OF THE FAMILY AND HAD NOT BORROWED FOR THE PURPOSE OF HOUSEHOLD EXPENSES. IT WAS HELD THAT THE FAMILY WA S ENTITLED TO WITHDRAW FROM THE CAPITAL SUPPLIED BY IT WITH THE RESULT OF THE CAPITAL BEING DEPLETED. IN THE CASE BEFORE ME IT I S NOT THE CONTENTION THAT THE MANAGING PARTNER HAS WITHDRAWN HIS CAPITAL. AS SEEN FROM THE BALANCE SHEET OF THE FIRM ALSO TH ERE IS NO WITHDRAWAL OF CAPITAL BY SRI SURESH REDDY. THEREFOR E THIS CONTENTION IS NOT ACCEPTABLE. THE ASSESSEE HAS IN FACT ITA NO 1102 OF 2019 SREE KRISHNA MOTORS NALGONDA PAGE 5 OF 5 CLAIMED IT AS SPENT FOR ITS BUSINESS PURPOSES ONLY. FURTHER THE AMOUNT SPENT ON CONSTRUCTION OF SHED IS NOT AVAILAB LE ON RECORD. THEREFORE I AM NOT INCLINED TO ACCEPT THIS CONTENT ION OF THE ASSESSEE AND THEREFORE THE DISALLOWANCE U/S 37(1) OF THE ACT IS UPHELD. 7. AS REGARDS THE ADMINISTRATIVE EXPENSES I ALSO F EEL THAT THE DISALLOWANCE OF 10% OF THE EXPENSES UNDER THE R ESPECTIVE HEAD IS QUITE EXCESSIVE. THEREFORE I RESTRICT THE DISALLOWANCE TO 5% OF THE EXPENSES UNDER THE RELEVANT HEADS. 8. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH 2021. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD DATED 23 RD MARCH 2021. VINODAN/SPS COPY TO: 1 M/S.SREE KRISHNA MOTORS C/O B NARSING RAO & CO. C .AS PLOT NO.554 ROAD NO.92 JUBILEE HILLS HYDERABAD 500096 2 SR R. JAGAN MOHAN RAO ITO WARD-1 NALGONDA 3 CIT (A)-3 HYDERABAD 4 PR. CIT 3 HYDERABAD 5 THE DR ITAT HYDERABAD 6 GUARD FILE BY ORDER