M/s. Udit Finance Corporation,, Bhopal v. The I.T.O., Bhopal

ITA 207/IND/2010 | 2006-2007
Pronouncement Date: 19-01-2011 | Result: Allowed

Appeal Details

RSA Number 20722714 RSA 2010
Assessee PAN AAAFU2357A
Bench Indore
Appeal Number ITA 207/IND/2010
Duration Of Justice 9 month(s) 3 day(s)
Appellant M/s. Udit Finance Corporation,, Bhopal
Respondent The I.T.O., Bhopal
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 19-01-2011
Date Of Final Hearing 15-12-2010
Next Hearing Date 15-12-2010
Assessment Year 2006-2007
Appeal Filed On 16-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : AAAFU2357A I.T.A.NO. 207/IND/2010 A.Y. : 2006-07 M/S.UDIT FINANCE CORPN. ITO 3 SHAMLA ROAD VS 2(1) BHOPAL. BHOPAL (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. S. DESHPANDE C. A. RESPONDENT BY : SHRI P.K.MITRA SR. DR O R D E R PER R. C. SHARMA A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I BHOPAL DATED 13.01.2010 FOR THE ASSES SMENT YEAR 2006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME-TAX ACT 1961 WHEREIN THE ADDITION ON ACCOU NT OF NOTIONAL INTEREST CHARGED ON ADVANCES WERE AGITATED . 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. -: 2: - 2 3. FACTS IN BRIEF ARE THAT THE ASSESSEE FIRM IS ENGAGE D IN THE BUSINESS OF MONEYLENDING. DURING THE YEAR UNDER CONSIDERATION THE AO OBSERVED THAT THE ASSESSEE HA D SHOWN INTEREST INCOME OF RS. 17.2 LAKHS AND PAID INTEREST ON THE LOANS TAKEN AT RS. 14.29 LAKHS. THE AO OBSERVED THA T THE ASSESSEE HAD CHARGED LOW RATE OF INTEREST IN RESPEC T OF SOME OF THE ADVANCES AS MENTIONED AT PAGE 2 OF THE AOS ORD ER. THE AO HELD THAT NORMAL PREVAILING MARKET RATE OF INTER EST WAS 12 % ACCORDINGLY HE WORKED OUT LESSER INTEREST CHARG ED FROM RELATED PERSONS AND HELD THAT IT WAS NOT FOR THE PU RPOSE OF BUSINESS. ACCORDINGLY OUT OF TOTAL INTEREST PAID HE DISALLOWED A SUM OF RS. 5.62 LAKHS. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATI VE THAT UNDER THE SIMILAR FACTS AND CIRCUMSTANCES THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1996-97 H ELD THAT DISALLOWANCE OF INTEREST WAS NOT WARRANTED SINCE T HE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. HE FURTHER SUBMITTED THAT ALL THE ADVANCE S INDICATED -: 3: - 3 BY THE ASSESSING OFFICER WAS GIVEN IN THE EARLIER Y EARS THEREFORE NO DISALLOWANCE CAN BE MADE DURING THE Y EAR IN SO FAR AS THERE IS NO INCREASE IN THE ADVANCES MADE TO SUCH PERSONS. AS AN ALTERNATIVE ARGUMENT HE SUBMITTED T HAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS FOR MAKING SUCH ADVANCES GIVEN AT A LOWER RATE OF INTEREST AC CORDINGLY NO DISALLOWANCE WAS WARRANTED. HE RELIED ON THE PROPOS ITION OF HON'BLE M.P. HIGH COURT IN THE CASE OF R. D. JOSHI REPORTED IN 142 ITR 528 THE CASE REPORTED IN 251 ITR 332 AND ALSO ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT REPORT ED AT 285 ITR 554. 5. ON THE OTHER HAND THE LD. SR. DR RELIED ON THE OR DERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASS ESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR GIVING LOANS AN D ADVANCES TO ITS ASSOCIATE CONCERNS AT AN INTEREST LOWER THAN THE RATE OF INTEREST CHARGED BY THE ASSESSEE FROM OTHER CUSTOME RS. ACCORDINGLY DISALLOWANCE OF PROPORTIONATE INTEREST WAS JUSTIFIED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND -: 4: - 4 FROM RECORD THAT THE ASSESSEE WAS ENGAGED IN THE BU SINESS OF MONEYLENDING WHEREIN FUNDS WERE TAKEN AT INTEREST AND THE SAME IS AGAIN GIVEN AT INTEREST. DURING THE YEAR T HE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 17.21 LAKHS AGAI NST WHICH PAYMENT OF INTEREST ON THE BORROWINGS WAS RS. 14.29 LAKHS. IN THE COURSE OF ASSESSMENT THE AO OBSERVED THAT TO S OME OF THE RELATED PERSONS THE ASSESSEE HAS GIVEN ADVANCES AT AN INTEREST LOWER THAN THE RATE OF INTEREST PAID BY HI M WHICH DESERVES TO BE DISALLOWED AS THE SAME IS NOT FOR TH E PURPOSE OF BUSINESS. ACCORDINGLY A SUM OF RS. 5.62 LAKHS WAS DISALLOWED BY THE ASSESSING OFFICER AND THE ORDER OF THE AO WA S UPHELD BY THE LD. CIT(A). FROM THE RECORD WE FOUND THAT T HE ASSESSEE HAS GIVEN ADVANCES TO THE PERSONS INDICATED BY THE ASSESSING OFFICER @ 9% TO 10 %. AT THE VERY SAME TIME THE A SSESSEE HAS ALSO BORROWED FUNDS AT 12 % TO 15 % RATE OF INTERES T. HOWEVER DURING THE YEAR UNDER CONSIDERATION THERE WAS NO F RESH ADVANCE TO THESE PERSONS AND ALL THE LOANS WERE BEI NG CARRIED FORWARD FROM EARLIER YEARS. THUS THERE WAS NO DIVE RSION OF ANY INTEREST BEARING FUNDS FOR MAKING ADVANCE TO THESE PERSONS DURING THE YEAR UNDER CONSIDERATION. FURTHERMORE S INCE THE -: 5: - 5 ASSESSEE WAS ENGAGED IN THE BUSINESS OF MONEYLENDIN G KEEPING IN VIEW THE MARKET DEMAND OF MONEY HE USE TO TAKE DECISION FOR LENDING THE MONEY AT VARYING RATE OF I NTEREST SO THAT THE FUNDS ARE NOT KEPT IDLE AND THE BORROWED F UNDS MAY BE UTILIZED FOR THE PURPOSES OF BUSINESS. AT THE RE LEVANT POINT OF TIME WHEN MONEY WAS ADVANCED IN THE EARLIER YEA RS THE ASSESSEE WAS HAVING SUFFICIENT FUNDS AVAILABLE WITH HIM WHICH COULD BE EITHER LEFT IDLE OR COULD BE GIVEN ON INTE REST AT A PREVAILING RATE OF INTEREST. THEREFORE THE ASSESSE E HAS TAKEN THE PRUDENT DECISION TO ADVANCE THE MONEY LYING WIT H HIM AT THE MARKET RATE PREVAILING DURING THE PERIOD WHEN THE ADVANCE WAS GIVEN. HOWEVER THE AO HAS COMPARED THE RATE OF INTEREST AT WHICH ADVANCE WAS GIVEN DURING THE YEAR UNDER CONSIDERATION. THUS THERE WAS NO RIGHT COMPARISON BY THE ASSESSING OFFICER. SINCE THE ASSESSEE WAS IN MONEYL ENDING BUSINESS HE HAS TO TAKE DECISION FOR LENDING MONEY AT VARYING RATE OF INTEREST KEEPING INTO THE VIEW THE AVAILAB ILITY OF FUNDS WITH HIM WHICH MAY REMAIN IDLE AND WILL NOT EARN A NY INTEREST INCOME IF THE SAME IS NOT GIVEN. ACCORDINGLY PRUD ENT DECISION WAS TAKEN BY THE ASSESSEE AS A BUSINESSMAN. LD. AUT HORIZED -: 6: - 6 REPRESENTATIVE HAS ALSO POINTED OUT THE AMOUNTS OF FUND AVAILABLE IN EARLIER YEARS HAVING NO INTEREST LIABI LITY AND SUBMITTED THAT THE ADVANCE WAS GIVEN IN THE EARLIER YEARS OUT OF THIS FUND. HOWEVER THE AO HAS NOT ADVERSELY COM MENTED ON THIS FACTUAL ASPECT NARRATED BY THE ASSESSEE AND HE HAS JUST RELIED ON THE RATE OF INTEREST PREVAILING DURING TH E YEAR UNDER CONSIDERATION. ACCORDINGLY WE DO NOT FIND ANY JUST IFICATION FOR MAKING ADDITION ON ACCOUNT OF INTEREST BY COMPUTING NOTIONAL INTEREST AT A HIGHER RATE IN RESPECT OF ADVANCES GI VEN BY THE ASSESSEE IN THE NORMAL COURSE OF ITS MONEYLENDING B USINESS. ACCORDINGLY WE REVERSE THE FINDING OF THE LOWER AU THORITIES AND ALLOW THE APPEAL IN ASSESSEES FAVOUR. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :19 TH JANUARY 2011. CPU* 1718