Jayshree Motors Private Limited, Kolkata v. ITO, Ward - 3(4), Kolkata, Kolkata

ITA 1818/KOL/2010 | 2007-2008
Pronouncement Date: 28-09-2016 | Result: Allowed

Appeal Details

RSA Number 181823514 RSA 2010
Assessee PAN AABCJ2880K
Bench Kolkata
Appeal Number ITA 1818/KOL/2010
Duration Of Justice 6 year(s) 4 day(s)
Appellant Jayshree Motors Private Limited, Kolkata
Respondent ITO, Ward - 3(4), Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 28-09-2016
Date Of Final Hearing 19-09-2016
Next Hearing Date 19-09-2016
Assessment Year 2007-2008
Appeal Filed On 23-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI JUDICIAL MEMBER ITA NO.1818/KOL/2010 ASSESSMENT YEARS:2007-08 JAYSHREE MOTORS PVT. LTD. WHITE HOUSE 4 TH FLOOR BLOCK-D 119 PARK STREET KOLKTA-700 016 [ PAN NO.AABCJ 2880 K ] / V/S . ITO WARD-3(4) 8/2 ESPLANADE 3 RD FLOOR KOLKATA- 700 069 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI D.S.DAMLE FCA /BY RESPONDENT SHRI PROVASH ROY JCIT-SR-DR /DATE OF HEARING 19-09-2016 /DATE OF PRONOUNCEMENT 28-09-2016 /O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I KOLKATA DATED 26.07.2010. ASSESSME NT WAS FRAMED BY ITO WARD- 3(4) KOLKATA U/S 143(3)(II) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 22.12.2009 FOR ASSE SSMENT YEAR 2007-08. THE GROUNDS RAISED BY THE ASSESSEE PER ITS APPEAL ARE AS UNDER: - 01. FOR THAT ON THE FACTS AND IN THE GIVEN CIRCUM STANCES THE ADDITION OF RS.5 76 231/- ON ACCOUNT OF NOTIONAL INTEREST ON T EMPORARY ACCOMMODATION BY WAY O LOAN FREE OF INTEREST TO AN ASSOCIATE COMPANY WAS NOT JUSTIFIED AND THEREFORE IS LIABLE TO BE QUASHED/CANCELLED. ITA NO.1818/KOL/2010 A.Y. 2007-08 JAYSHREE MOTORS PVT. LTD. VS. ITO WD-3( 4) KOL. PAGE 2 02. FOR THAT ON THE FACTS AND IN THE GIVEN CIRCUMS TANCES THE LEARNED ASSESSING OFFICER WAS TOTALLY UNJUSTIFIED IN CONCLU DING THAT THE APPELLANT ADOPTED DUAL POLICY OF UTILIZING INTEREST BARING BA NK LOAN FOR RUNNING ITS BUSINESS OPERATIONS AND GIVING ITS OWN FUNDS TO A R ELATED COMPANY WITHOUT ANY INTEREST. THE LEARNED ASSESSING OFFICER DID NOT APP RECIATE THE OTHER ASPECT O COMMERCIAL PRUDENCE ON THE BASIS OF WHICH THE SUMS WERE GIVEN TO ASSOCIATE FIRM TIME TO TIME FOR MEETING ITS VARIOUS STATUTORY OBLIGATIONS. THUS THE ADDITION SO MADE IS TOTALLY UNJUSTIFIED COMPLETELY ILLEGAL AND BAD IN LAW AND MAY THEREFORE KINDLY BE DELETED. 03. FOR THAT ON THE FATS AND IN THE GIVEN CIRCUMST ANCES THE LEARNED CIT(A) DID NOT GO INTO THE DETAIL AND CONFIRMED THE ADDITI ON MADE BY THE ASSESSING OFFICER. THE OBSERVATION OF THE LEANED CIT AS REGAR DS TAKING LOANS ON INTEREST AND GIVING THEM TO A SISTER CONCERN WITHOUT INTERES T WAS NOT CORRECT. 04. FOR THAT THE APPELLANT COMPANY CRAVES LEAVE TO SUBMIT ADDITIONAL GROUNDS AND/OR AMEND OR ALTER THE PRESENT GROUNDS EITHER BE FORE OR DURING THE COURSE OF THE APPELLATE PROCEEDINGS. SHRI D.S. DAMLE LD. AUTHORIZED REPRESENTATIVE APPE ARED ON BEHALF OF ASSESSEE AND SHRI PROVASH ROY LD. SENIOR DEPARTMENTAL REPRESENT ATIVE APPEARED ON BEHALF OF REVENUE. 2. THE COMMON INTER-CONNECTED ISSUE RAISED BY ASSES SEE IN GROUND NO.1 AND 2 ARE THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER O F ASSESSING OFFICER BY SUSTAINING THE DISALLOWANCE OF INTEREST OF RS.5 76 231/- ON AC COUNT OF INTEREST FREE LOAN GIVEN TO ITS ASSOCIATE COMPANY. 3. FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LI MITED COMPANY AND ENGAGED IN SALES AND SERVICES OF FORD PASSENGER CARS AND ITS S PARE & ACCESSORIES. DURING THE YEAR ASSESSEE WAS HAVING INTEREST BEARING LOAN AND HAS I NCURRED INTEREST EXPENDITURE OF RS.35 13 420/- THEREON. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO ITS ASSOCIATE CONCERN ON WHICH THE INTEREST INCOME WAS WORKED OUT AT RS.5 76 231/- ON NOTIONAL BASIS. ACCORDINGLY AO ADDED A SUM OF RS.5 76 231/- TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.1818/KOL/2010 A.Y. 2007-08 JAYSHREE MOTORS PVT. LTD. VS. ITO WD-3( 4) KOL. PAGE 3 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT THE LOAN WAS GIVEN TO THE ASSOCIATE ENTERPRISES OUT OF ITS OWN SURPLUS FUND AND NO BORROWED FUND HAS BEEN UTILIZED FOR THE LOAN GIVEN TO THE ASSOCIATE ENTERPRISES. HOWEVER LD. CIT(A) REJECTED THE PLEA OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- I HAVE GONE THROUGH BOTH THE A/RS ARGUMENTS AS WE LL AS THE AO'S ORDER. I BELIEVE THE AO HAS FIRMLY ESTABLISHED THAT THE COMP ANY INDEED EXHIBITED A DUAL POLICY IN TAKING LOANS ON INTEREST AND ADVANCING TH E SAME WITHOUT INTEREST TO ITS SISTER CONCERN. THE CASE LAW AS CITED BY THE APPELL ANT THUS IS NOT RELEVANT TO THE FATS OF THE CASE. THE ADOPTION OF THE INTEREST RATE BY THE AO IS ALSO FAIR. IN THE CIRCUMSTANCES THIS GROUND OF THE APPELLANT FAI LS. THE ADDITION IS CONFIRMED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 5. BEFORE US LD. AR SUBMITTED PAPER BOOK WHICH IS R UNNING PAGES 1 TO 46 AND CITED CASE LAW. LD. AR OF ASSESSEE STATED THAT LOAN WAS GIVEN TO ASSOCIATE ENTERPRISE OUT OF ITS OWN SURPLUS FUND AND WHICH IS AS ON 31.0 3.2007 OF THE ASSESSEE IS OF RS.1 83 59 374/- AND INTEREST FREE ADVANCE GIVEN TO ITS ASSOCIATE CONCERN IS OF RS.45 01 820/-. HE ALSO SUBMITTED THAT AO IN THE IN STANCE CASE HAS WORKED OUT THE INTEREST INCOME ON THE ADVANCE GIVEN TO THE ASSOCIA TE CONCERN ON NOTIONAL BASIS THEREFORE THE ACT OF THE AO IS BEYOND THE PROVISION OF LAW. HAD THE AO DISALLOWED THE INTEREST EXPENSE RATHER CHARGING INTEREST INCOME ON THE ADVANCE GIVEN ON THE NOTIONAL BASIS THEN THE SITUATION WOULD HAVE BEEN DIFFERENT IN SO FAR AS TO MAKE THE DISALLOWANCE ON THE ADVANCE GIVEN. ON THE OTHER HAN D LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION WE FIND THAT THE AO IN THE INSTANCE CASE HAS ADDED THE INTEREST INCOME ON THE ADVANCE GIVEN BY ASSESSEE ON ITA NO.1818/KOL/2010 A.Y. 2007-08 JAYSHREE MOTORS PVT. LTD. VS. ITO WD-3( 4) KOL. PAGE 4 NOTIONAL BASIS AND IT WAS ALSO CONFIRMED BY LD. CIT (A). HOWEVER THE LD. AR BEFORE US ARGUED THAT THE DISPUTE BEFORE THE AO WAS THE IN TEREST EXPENSES CLAIMED BY THE ASSESSEE AND THEREFORE HE SHOULD HAVE DISALLOWED TH E INTEREST EXPENSES RATHER CHARGING THE INTEREST INCOME ON NOTIONAL BASIS ON THE AMOUNT ADVANCED TO THE ASSOCIATE CONCERN. IN THIS CONNECTION WE AGREE WITH THE ARGUMENT OF TH E LD. AR IN SO FAR THE INCOME CHARGING ON THE MONEY ADVANCED TO THE ASSOCIATE CON CERN. AS PER THE AO THE FUND WAS GIVEN OUT OF THE BORROWED FUND THEREFORE THE INTERE ST INCOME WAS CALCULATED ON SUCH FUND. THERE WAS A DIRECT LINK AS PER THE LOWER AUTH ORITIES BETWEEN THE BORROWED FUND AND MONEY ADVANCED TO ASSOCIATE CONCERN. WE ALSO F IND WHETHER THE AO HAS WORKED OUT THE INCOME ON NOTIONAL BASIS OR HE SHOULD HAVE DISALLOWED THE INTEREST EXPENSES IN EITHER CASE HE WANTED TO LEVY THE TAX ON THE BORROW ED MONEY UTILIZED FOR THE PURPOSE OF THE BUSINESS OTHER THAN ASSESSEE. BUT IN OUR CON SIDERED VIEW THE AO WAS TO DISALLOW THE INTEREST EXPENSES ON THE MONEY ADVANCE D TO THE ASSOCIATE CONCERN. THE LOWER AUTHORITIES NEEDS TO WORK OUT PERIOD FOR WHIC H THE INTEREST BEARING LOAN WAS UTILIZED BY THE ASSOCIATE CONCERN AND THE INTEREST PERTINENT TO THAT ADVANCED MONEY. BUT THE LOWER AUTHORITIES ERRED IN CHARGING THE INT EREST INCOME ON NOTIONAL BASIS. IN THIS CONNECTION WE RELY IN THE CASE LAW OF CIT VS. RUNGAMATEE TREXIM (PVT) LTD. IN GA NO. 3796 OF 2008 DATED 09.12.2008 CITED BY THE LD. AR. THE RELEVANT OPERATIVE PORTION OF THE SAID JUDGMENT IS REPRODUCED BELOW:- WE HAVE PERUSED THE ORDER PASSED BY THE COMMISSION ER OF INCOME TAX (APPEALS) AND THE ORDER PASSED BY THE LEARNED TRIBU NAL. IT APPEARS THAT THE QUESTION AROSE IN RESPECT OF NOTIONAL INTEREST N LO AN WHEN THE ASSESSEE HAD ADVANCE INTEREST-FREE LOAN TO ONE HINDUSTAN NATIONA L GLASS & INDUSTRIES LTD. IT FURTHER APPEARS THAT THE ASSESSEE WAS ONE OF THE PR OMOTER OF THE SAID COMPANY. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORD ER HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE FINDINGS OF THE ASSESSING OFFICER FROM THE AUDITED ACCOUNTS. I FIND THAT AS OF 31 ST MARCH 2005 THE ASSESSEES NET OWNED FUNDS WAS RS.6.88 CRO RES WHICH WERE FAR IN EXCESS OF THE INTEREST FREE ADVANCE GIVEN TO M/S HINDUSTAN NATIONAL GLASS & INDUSTRIES LTD. A COMPANY OF WHICH THE ASS ESSEE WAS A PROMOTER. THE ASSESSEE DID NOT HAVE ANY BORROWED FU NDS ON 31 ST MARCH 2005 AND AS SUCH IT WAS NOT A CASE WHERE BORROWED F UNDS WERE DIVERTED FOR GRANTING INTEREST FREE LOANS THE ASSESSEE HAD A PPLIED ITS OWN FUNDS IN GRANTING INTEREST FREE ADVANCE TO A BODY CORPORATE OF WHICH THE ASSESSEE WAS A PROMOTER. ON THESE FACTS I FULLY AGREE WITH THE A/RS SUBMISSIONS THAT THE ASSESSING OFFICER HAS BROUGHT TO TAX NOTIO NAL OR HYPOTHETICAL ITA NO.1818/KOL/2010 A.Y. 2007-08 JAYSHREE MOTORS PVT. LTD. VS. ITO WD-3( 4) KOL. PAGE 5 INCOME. THE SUPREME COURT IN CATENA OF CASE HAS HEL D THAT THE SUBJECT MATTER OF TAX IS ALWAYS INCOME WHICH SHOULD BE REAL INCOME AND NOT HYPOTHETICAL INCOME. THE INCOME TAX ACT DOES NOT PE RMIT TAXATION OF HYPOTHETICAL OR OPPORTUNITY INCOME AND WHAT IS SUBJ ECT MATTER OF TAX IS READ INCOME IRRESPECTIVE OF THE FACT WHETHER AN EN TRY IS MADE IN THE BOOKS OF ACCOUNT OR NOT. THIS IS THE RATIO LAID DOW N IN THE CASE OF GODHRA ELECTRIC CO. LTD. VS. CIT 225 ITR 746). THE INCOME TAX ACT DOES NOT COMPEL AN ASSESSEE TO EARN MAXIMUM INCOME BUT BRINGS TO TAX ONLY THE INCOME WHICH IS ACTUALLY EARNED BY AN ASSE SSEE. IT IS A SETTLED PROPOSITION OF LAW THAT IN WHAT MANNER THE ASSESSEE SHOULD CONDUCT HIS BUSINESS IS BEST LEFT TO THE DISCRETION OF THE ASSE SSEE AND THE ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF THE BUSINESS MAN TO DECIDE WHAT SHOULD HAVE BEEN THE INCOME EARNED. IF AN ASSESSEE DOES NOT BARGAIN TO EARN INCOME THEN AN ASSESSING OFFICER CANNOT COMPEL HIM TO EARN SUCH INCOME AND CANNOT RESUME ACCRUAL OF INCOME BASED E NTIRELY ON HIS SUBJECTIVE NOTIONS AS WHAT CONSTITUTES FARE RETURN ON INVESTMENT. IN BUSINESS THERE CANNOT BE CERTAINLY ABOUT EARNING OF INCOME AND THEREFORE BUSINESS INCOME CANNOT BE ASSESSED ENTIRELY ON NOTI ONAL BASIS. IN ANY OPINION NONE OF THE PROVISIONS OF CHAPTER-IV OF TH E INCOME TAX ACT AUTHORIZED THE ASSESSING OFFICER TO ASSESS NOTIONAL OF HYPOTHETICAL INCOME. THE ADDITION OF THE NOTIONAL INTEREST OF RS .10 LACS AS BUSINESS INCOME OF THE ASSESSEE IS THEREFORE DELETED. NOW COMING TO THE ARGUMENT OF LD. AR THAT THE BORRO WED FUND WAS NOT UTILIZED FOR THE PURPOSE OF GIVING THE INTEREST FREE LOAN TO ASSOCIA TE CONCERNS THE QUESTION ARISES BEFORE WHETHER IT IS GIVEN OUT OF THE BORROWED FUND OR OWNED FUND THAT NEEDS TO BE ADJUDICATED. FROM THE SUBMISSION OF THE ASSESSEE WE FIND THAT THE SUFFICIENT FUND WAS AVAILABLE WITH THE ASSESSEE AS DISCUSSED ABOVE TO A DVANCE THE MONEY TO ITS ASSOCIATE CONCERN. THE LD. DR HAS NOT BROUGHT ANYTHING CONTRA RY TO THE ARGUMENTS OF THE LD. AR. THEREFORE IN OUR CONSIDERED VIEW THE AUTHORITIES BELOW SHOULD HAVE DISALLOWED THE INTEREST EXPENSES RATHER THAN CHARGING INTEREST INC OME ON NOTIONAL BASIS. IN THE INSTANT CASE THE INTEREST EXPENSE CLAIMED BY ASSESSEE BUT AO INSTEAD OF DISALLOWING THE INTEREST HAS ADDED THE INTEREST INCOME ON NOTIONAL BASIS WHICH WAS NOT THE DISPUTE FROM THE FACTS OF THE CASE. IN THIS CONNECTION WE RELY IN THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RUNGAMATEE TREXIM (PVT) LTD. IN GA NO. 3796 OF 2008 DATED 09.12.2008 SUPRA . ITA NO.1818/KOL/2010 A.Y. 2007-08 JAYSHREE MOTORS PVT. LTD. VS. ITO WD-3( 4) KOL. PAGE 6 RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE JURI SDICTIONAL HIGH COURT WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND WE ALLOW GROUND OF ASSESSEES APPEAL. AO IS DIRECTED ACCORDINGLY. 7. LAST ISSUE IN THIS APPEAL OF ASSESSEE IS GENERAL IN NATURE AND CALL FOR ANY SPECIFIC ADJUDICATION. 8. IN THE RESULT ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28/09/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP !' - 28/09/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-JAYSHREE MOTORS PVT. LTD. WHITE HOUSE 4 TH FLOOR BLOCK-D 119 PARK STREET KOLKATA-16 2. /RESPONDENT-ITO WARD-3(4) 8/2 ESPLANADE EAST 3 RD FLOOR KOLKATA-69 3. !!#$ & / CONCERNED CIT 4. & - / CIT (A) 5. '() **#$ #$ / DR ITAT KOLKATA 6. )+ / GUARD FILE. BY ORDER/ /TRUE COPY/ / ! #$