M/s. Narottamdas Harjivandas Corporation, Valsad v. The Income tax Officer,Ward-3,, Valsad

ITA 186/AHD/2011 | 2007-2008
Pronouncement Date: 09-09-2011 | Result: Dismissed

Appeal Details

RSA Number 18620514 RSA 2011
Assessee PAN AACFN2994G
Bench Ahmedabad
Appeal Number ITA 186/AHD/2011
Duration Of Justice 7 month(s) 15 day(s)
Appellant M/s. Narottamdas Harjivandas Corporation, Valsad
Respondent The Income tax Officer,Ward-3,, Valsad
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 09-09-2011
Date Of Final Hearing 02-09-2011
Next Hearing Date 02-09-2011
Assessment Year 2007-2008
Appeal Filed On 24-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI A N PAHUJA ACCOUNTANT MEMBER ITA NO.186/AHD/2011 (ASSESSMENT YEAR:-2007-08) M/S NAROTTAMDAS HARJIVANDAS CORPORATION DASHERA TEKRI BECHAR ROAD VALSAD-3960001. V/S INCOME-TAX OFFICER WARD-3 VALSAD PAN: AACFN 2994 G [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI RAJESH UPADHYAY AR REVENUE BY:- SHRI S K GUPTA DR DATE OF HEARING:- 02-09-2011 DATE OF PRONOUNCEMENT:- 09-09-2011 O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE FILED ON 24.1.2011 AGAI NST AN ORDER DATED 29-10-2010 OF THE LD. CIT(APPEALS) VALSAD FOR THE ASSESSMENT YEAR 2007-08 RAISES THE FOLLOWING GROUND :- (1) LR. AO HAS ERRED IN LAW AND ON FACTS TO ADD AN AM OUNT OF RS.1 64 404/- ESTIMATED ON NOTIONAL BASIS INTEREST AS INC OME. LR CIT(A) HAS ALSO ERRED IN SUSTAINING ADDITION. 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.2 29 220/- FILED ON 05-11-2007 BY THE ASSESSEE ENGAGED IN WHOLESALE TRADING OF CONSUMER GOODS AFT ER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 [H EREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTIN Y WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 26-09-2008.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS OF RS.1 50 24 140/- AND PAID INTEREST OF RS.16 01 649/ - ON THESE LOANS WHILE THE ASSESSEE ADVANCED AN AMOUNT OF RS.35 09 3 19/- OUT OF WHICH ON ADVANCES OF RS.21 42 289/- ALONE INTEREST HAD BEEN 2 ITA NO.186/AHD/2011 CHARGED. SINCE ON THE REMAINING ADVANCES OF RS.13 6 7 030/- NO INTEREST HAD BEEN CHARGED THE ASSESSEE WAS SHOWCA USED VIDE NOTICE DATED 16-11-2009 TO EXPLAIN AS TO WHY INTE REST PAID ON UNSECURED LOANS TO THE EXTENT OF INTEREST FREE ADV ANCES BE NOT DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED THA T AMOUNT OF NON BUSINESS ADVANCES OF RS.35 09 319/- WERE NOT OUT OF BORRO WED FUNDS. SINCE BUSINESS ASSETS WERE RS.2 29 50 327 WHILE BORROWED FUNDS W ERE RS.2 23 57 609/- THERE WAS NO NEXUS BETWEEN INTEREST BE ARING BORROWED FUNDS AND INTEREST FREE AMOUNT WITHDRAWN BY THE PARTNERS AS ALSO THEIR FAMILY MEMBERS AND THERE WAS NO PROVISION TO PAY ANY INTEREST ON WITH DRAWALS BY THE PARTNERS AS PER PARTNERSHIP DEED. ACCORDINGLY THE ASSESSEE PLEADED TH AT NO INTEREST COULD BE CHARGED ON AMOUNT OF RS.15 32 685/- WITHDRAWN BY T HE PARTNERS AND ADVANCES TO THE OTHER FAMILY MEMBERS AS DETAILED HEREUN DER: SR. NO. NAME OF THE MEMBER ADVANCE DURING AY 07-08 AY 06-07 DURING THE YEAR 1 HEMANT K SHAH (HUF) 5 76 981 5 76 981 --- 2 KAUSHIK H SHAH 1 59 910 1 42 775 17 135 3 K K FARM (OLD) 22 457 22 457 --- 4 SHAH ENTERPRISES 34 007 --- INTER ALIA THE ASSESSEE RELIED ON THE JUDGMENT IN TH E CASE OF MUNJAL SALES CORPORATION V/S. CIT & OTHERS (2005) 168 TAXMAN 43 (S C).HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND CONCLUDED AS UNDER: 5. THE ASSESSEE'S ABOVE SUBMISSION IS CONSIDERED. ON GOIN G THROUGH IT IT IS SEEN THAT THE ASSESSEE HAS WRITTEN THAT 'ASSETS OF THE BUSINESS EXCLUDING ADVANCES ARE AS UNDER' WHICH SHOWS TOTAL OF RS.2 29 56 748/-.THIS TOTAL INCLUDES OTHER CURRENT ASSE TS OF RS.43 71 023/- WHICH ALSO INCLUDES INTEREST FREE ADVANCES O N WHICH ASSESSEE HAS NOT CHARGED INTEREST. THUS BY EXCLUDING THE SAID ADVANCES ASSESSEE'S ASSETS SHALL COME TO RS.1 85 85 725/- WHICH IS LESS TH AN THAT OF THE BORROWED FUNDS WORKED OUT BY THE ASSESSEE AT RS.2 23 57 609/-. THUS ASSESSEE'S CONTENTION THAT THE NON BUSINESS ADVANCES OF RS.35 09 319/- ARE NOT OUT OF BORROWED FUNDS IS NOT CORRECT. ASSESSEE 3 ITA NO.186/AHD/2011 ITSELF IS ACCEPTING THAT THE ADVANCES ARE NON BUSINESS ADVAN CES. FURTHER ASSESSEE'S CONTENTION THAT THE PARTNERS ARE FREE TO USE THE BUSINESS FUNDS FOR THEIR PERSONAL USE IS NOT CONVINCING. ASSESSEE HAS FAIL ED TO ESTABLISH THAT THE ADVANCES ARE OUT OF INTEREST FREE FUNDS. AFTER VERIFICATION IT IS SEEN THAT THE ASSESSEE HAS CHARGED INTEREST ON ADVANCES OF RS.21 42 289/- GIVEN TO THE PARTNERS AND THEIR FAMILY MEMBERS WHICH ARE REDUCED FROM THE TOTAL ADVANCES OF RS.35 09 319/-. ACCORDING LY INTEREST @ 12% ON REMAINING ADVANCES OF RS.13 67 030/- IS WORKED OUT AT RS.1 64 404/-. ON VERIFICATION OF RECORDS IT IS SEEN THAT IN SOME INSTAN CES ASSESSEE HAS PAID INTEREST @ 15% AND @ 12% ALSO THEREFORE INTEREST IS WORKED OUT @ 12%. SINCE THE ASSESSEE HAS UTILIZED THE INTEREST BEARI NG FUNDS FOR GIVING INTEREST FREE ADVANCES TO THE PARTNERS AND THEIR FAMI LY MEMBERS AS HOUSING LOAN AS SUBMITTED BY THE ASSESSEE ITSELF IN ITS SUBMISSION ARE FOR NON BUSINESS PURPOSE. IN THE CASE OF THE ASSESSEE A DVANCES GIVEN AS WELL AS BORROWINGS ARE CARRIED FORWARD FROM EARLIER YEAR. ASSESSEE HAS FAILED TO ESTABLISH THAT THE INTEREST FREE ADVANCES ARE GIVEN OUT OF INTEREST FREE BORROWINGS. HERE IN THE ASSESSEE'S CASE ALL THE BORROW INGS ARE INTEREST BEARING BORROWINGS ONLY. HENCE ANY EXPENDITUR E INCURRED FOR NON BUSINESS PURPOSE IS NOT TO BE ALLOWED IN TERMS OF SECTION 37 OF THE ACT. ACCORDINGLY INTEREST OF RS.1 64 404/- OUT OF TOTAL INT EREST PAYMENT OF RS.19 41 000/- IS DISALLOWED AND ADDED TO THE TOTAL IN COME. 3. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALLO WANCE IN THE FOLLOWING TERMS:- 6. FINDINGS: I HAVE CAREFULLY PERUSED THE SUBMISSIONS PUT FORTH BY THE LD. AR. I HAVE ALSO CONSIDERED THE FINDING OF THE AO I N THE ASSESSMENT ORDER. THE ISSUE HERE IS HOW THE INTEREST BEARING BORRO WED FUNDS ARE USED BY THE APPELLANT. THE AO HAS GIVEN FINDING THAT INTER EST BEARING FUNDS HAVE BEEN DIVERTED TO RELATIVES FOR HOUSING PURPOSES. THE APPELLANT HAS FAILED TO DEMONSTRATE THE FUNDS GIVEN TO THE RELATIVES A RE FROM THE NON- INTEREST BEARING FUNDS AVAILABLE WITH HIM. ALTHOUGH I T WAS BROUGHT TO MY NOTICE THAT THE APPELLANT GOT RELIEF IN EARLIER YEAR ON SIMILAR GROUND BUT IN THIS CASE HE FAILED TO LINK THE USE OF NON-INTEREST BEAR ING FUNDS GIVEN TO THE RELATIVES FOR HOUSING PURPOSES. THE APPELLANT DID NOT FI LE CASH FLOW STATEMENT WHICH COULD HAVE SUPPORTED THE CAUSE OF THE APP ELLANT. IN THIS CIRCUMSTANCES I AM CONSTRAINED TO AGREE WITH THE FINDING O F THE AO. HENCE THIS GROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFOR E THE LEARNED CIT(A) RELIED UPON DECISIONS IN MUNJAL SALES CORPO RATION VS. CIT & ANR. [2008] 168 TAXMAN 43 (SC) AND THE DECISION DAT ED 05-06-2003 4 ITA NO.186/AHD/2011 OF THE ITAT AHMEDABAD BENCH-C IN THE CASE OF GAJJAR BUILDWARE VS. AO IN ITA NO.1108/AHD/2001 AS ALSO THE DECISION IN THE CASE OF SHAHIBAG ENTERPRENEURS VS. ITO. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) WHILE RELYING UPON THE DECISION OF THE HONBLE DELHI HIGH COURT I N THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES VS. CIT [2011] 19 6 TAXMAN 404 (DELHI). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. THE ISSUE BEFORE US RELATES TO DISALLOWANCE OF INTEREST @ 12% ON ADVANCES OF RS.13 67 030/- THE ASSESSEE HAVING FAILED TO ESTABLISH T HAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST FREE BORROWINGS. TH E LD. CIT(A) UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT THE ASSESSEE FAIL ED TO DEMONSTRATE THAT THE FUNDS GIVEN TO THE PARTNERS/RELATIVES WERE FROM TH E NON-INTEREST BEARING FUNDS AVAILABLE WITH THEM NOR SUBMITTED ANY CASH FLOW STATEM ENT BEFORE HIM. AS IS APPARENT FROM THE IMPUGNED ORDERS BEFORE THE AO OR THE LD. CIT(A) THE ASSESSEE DID NOT PLACE ANY EVIDENCE AS TO HOW THE FUNDS BO RROWED BY IT HAD BEEN UTILIZED AND WHAT WAS THE COMMERCIAL EXPEDIENCY IN SUCH BORROWINGS. IN THIS CONNECTION THE RELEVANT PROVISIONS OF SECTION 36(1) (III) OF THE ACT PROVIDE FOR DEDUCTION OF INTEREST ON THE BORROWED FUNDS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION THE ONUS IS ON THE ASS ESSEE TO SATISFY THE AO THAT LOANS RAISED BY THE ASSESSEE WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF CLAIM FOR SUCH A DEDUCTION IT TRANSPIRES THAT THE ASSESSEE HAD DIVERTED CERTAIN FUNDS TO ASSOCIATE OR SISTER CONC ERNS WITHOUT ANY INTEREST THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSE E TO BE DISCHARGED BEFORE THE AO TO THE EFFECT THAT IN SPITE OF PENDING LOANS ON WHICH THE ASSESSEE WAS INCURRING THE LIABILITY TO PAY INTEREST STILL THE RE WAS JUSTIFICATION FOR DIVERSION OF FUNDS TO ASSOCIATE OR SISTER CONCERNS FOR NON-BUSINESS PURP OSES . IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC) HONBLE SUPREME COURT OBSERVED THAT UNDER S. 10(2)(III) OF THE 1922 ACT( NOW SEC. 36(1 )(III) OF THE 1961 ACT) THREE CONDITIONS WERE REQUIRED TO BE SATISFIED IN ORDER TO E NABLE THE ASSESSEE TO CLAIM A DEDUCTION IN RESPECT OF INTEREST ON BORROWED CAPITAL NAMELY (A) THAT MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE (B) T HAT IT MUST HAVE BEEN 5 ITA NO.186/AHD/2011 BORROWED FOR THE PURPOSE OF BUSINESS AND (C) THAT THE A SSESSEE MUST HAVE PAID INTEREST ON THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTIO N. IT WAS ALSO HELD THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCURRING UN DER THE PROVISION IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF E ARNING INCOME PROFITS OR GAINS'. IN THE CASE UNDER CONSIDERATION THERE IS NOTHI NG IN THE ORDER OF LOWER AUTHORITIES TO SUGGEST THAT THE ASSESSEE DISCHARGED THE ON US LAID DOWN UPON THEM THAT BORROWED FUNDS HAD INDEED BEEN UTILIZED FO R THE PURPOSE OF ITS BUSINESS SO AS TO ENTITLE IT TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH ACCORDING TO HIM COULD NOT BE REPAID PREMATURELY TO ITS CREDITORS STILL THE SAME WERE EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTE D IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT THESE WERE DIVERTED TO WARDS ASSOCIATE OR SISTER CONCERNS FREE OF INTEREST . THIS WOULD RESULT IN NOT PR ESENTING THE TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSESSEE THE ASSOCIATE OR SISTER CONCERNS/PERSONS WOULD BE EN JOYING THE BENEFITS THEREOF. IT CANNOT BE HELD THAT THE FUNDS T O THE EXTENT DIVERTED TO ASSOCIATE CONCERNS/PERSONS WITHOUT CHARGING ANY INTEREST WER E REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EX TENT WERE REQUIRED TO BE RAISED. UNLESS THE INTEREST FREE LOAN GOES TO ADVANCE BUSINESS INTEREST OF THE ASSESSEE THERE CANNOT BE ANY COMMERCIAL EXPEDIENCY. 5.1 AS REGARDS RELIANCE ON DECISION IN MUNJAL SALES CO RPORATION(SUPRA) IT WAS FOUND IN THE SAID CASE THAT THE LOANS GIVEN TO THE SISTER CONCERNS WERE OUT OF THE FIRM'S FUNDS AND WERE ADVANCED FOR BUSINESS PURPOSES. LIKEWISE IN GAJJAR BUILDWARE(SUPRA) THE ITAT CONCLUDED THAT T HE BORROWED MONEY WAS UTILIZED FOR THE PURPOSE OF BUSINESS . SIMILARLY IN SHAHIBAG ENTERPRENEURS(SUPRA) THE ITAT OBSERVED WE DO NOT FIND THAT THE ASSESSING OFFICER NOTICED THAT THE LOANS OBTAINED BY T HE ASSESSEE-COMPANY FROM VARIOUS PARTIES FOR WHICH INTEREST WAS PAID WERE NO T UTILIZED FOR THE PURPOSE OF BUSINESS. HOWEVER I N THE INSTANT CASE SUCH ARE NOT THE FACTS AND CIRCUMSTANCES NOR ANY MATERIAL HAS BEEN PLACED BEFO RE LOWER AUTHORITIES AND EVEN BEFORE US THAT FUNDS WERE ADVA NCED BY THE 6 ITA NO.186/AHD/2011 ASSESSEE FOR BUSINESS PURPOSES. IN THESE CIRCUMSTAN CES RELIANCE PLACED ON THE AFORECITED DECISIONS BY THE LD. AR IS TOTALLY MISPLACED. 5.2 IN THE INSTANT CASE THE ASSESSEE FAILED TO ESTABLI SH THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST FREE BORROWINGS NOR EVEN ESTABLISHED ANY COMMERCIAL EXPEDIENCY IN ADVANCING FUNDS WHILE EVEN NO CASH FLOW STATEMENT WAS PLACED BEFORE LOWER AUTHORITIES AND EVEN BEFORE US . IN PUNJAB STAINLESS STEEL INDUSTRIES VS. CIT [2011] 196 TAXMAN 404 (DEL HI) HONBLE HIGH COURT HELD AS UNDER: IN THE INSTANT CASE THERE WAS ABSOLUTELY NO FINDING RE CORDED BY THE TRIBUNAL THAT THE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSEE TO SIST ER CONCERN FOR ITS BUSINESS PURPOSES. THERE WAS NO SUCH FINDING BY THE TRIBUNA L EVEN WITH RESPECT TO THE ADVANCES EXTENDED IN THE PREVIOUS YEARS. IT WAS NOT THE CASE OF THE ASSESSEE THAT IT HAD SO MUCH SURPLUS CASH AVAILABLE WITH IT AT THE TIME OF EXTENDING THOSE ADVANCES THAT THE SAME COULD HAVE BEEN EXT ENDED BY IT OUT OF THOSE SURPLUS FUNDS AVAILABLE TO IT. IN FACT THE PAYMENTS MADE TO SISTER CONCERN FROM CASH CREDIT ACCOUNT INDICATED TO THE CONTRARY AND SHOW ED THAT ADVANCES MADE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 WERE EXTENDED OUT OF BORROWED FUNDS AND NOT OUT OF ANY CREDI T BALANCE AVAILABLE WITH THE ASSESSEE-FIRM AT THAT TIME. 5.3 IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD . AR DID NOT PLACE ANY MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERE NT VIEW WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THE REFORE GROUND NO. 1 IN THE APPEAL IS DISMISSED. 6. IN THE RESULT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 9 -09-2011 SD/- SD/- ( BHAVNESH SAINI ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 9-09-2011 COPY OF THE ORDER FORWARDED TO: 7 ITA NO.186/AHD/2011 1. M/S NAROTTAMDAS HARJIVANDAS CORPORATION DASHERA TEKRI BECHAR ROAD VALSAD. 2. INCOME-TAX OFFICER WARD-3 VALSAD 3. CIT CONCERNED 4. CIT(A) VALSAD 5. DR ITAT AHMEDABAD BENCH-C AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD