The DCIT, Circle -12,, Ahmedabad v. Shri Purshottam B. Pitroda/Mistry, Ahmedabad

ITA 2344/AHD/2008 | 2005-2006
Pronouncement Date: 29-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 234420514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 2344/AHD/2008
Duration Of Justice 3 year(s) 8 month(s) 8 day(s)
Appellant The DCIT, Circle -12,, Ahmedabad
Respondent Shri Purshottam B. Pitroda/Mistry, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-02-2012
Date Of Final Hearing 02-02-2012
Next Hearing Date 02-02-2012
Assessment Year 2005-2006
Appeal Filed On 20-06-2008
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI D.K.TYAGI JM AND A.L. GEHLOT AM. ITA NO.2344/AHD/2008 ASST. YEAR:2005-06 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12 NARAYAN CHAMBERS ASHRAM ROAD AHMEDABAD. VS. SHRI PURSHOTTAM B. PITRODA/MISTRY PROP. J.P. FABRICATORS OPP.AMBALAL ESTATE M.H. NO.8 GHODASAR AHMEDABAD. (APPELLANT) .. (RESPONDENT) ITA NO.1736/AHD/2009 ASST. YEAR:2006-07 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12 NARAYAN CHAMBERS ASHRAM ROAD AHMEDABAD. VS. SHRI PURSHOTTAM B. PITRODA/MISTRY PROP. J.P. FABRICATORS OPP.AMBALAL ESTATE M.H. NO.8 GHODASAR AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MR. J.P. JANGID SR.D.R. RESPONDENT BY:- MR. S.N.DIVATIA. DATE OF HEARING : 2/2/2012 DATE OF PRONOUNCEMENT : 29-2-12. ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 2 2 O R D E R PER A.L. GEHLOT ACCOUNTANT MEMBER . BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINS T THE ORDER OF CIT (A)-XX AHMEDABAD DATED 29-4-08 AND 13-2-2009 F OR THE ASSESSMENT YEARS 2005-06AND 2006-07 RESPECTIVELY. 2. THE REVENUE HAS RAISED AS MANY AS 10 GROUNDS OF APPEAL IN AY 2005-2006. HOWEVER THE EFFECTIVE GROUNDS ARE GROUN D NO.1 TO 4. GROUNDS NOS. 5 TO 10 ARE SUPPORTING OR GENERAL IN N ATURE. THE GROUNDS NO 1 TO 4 ARE REPRODUCED AS UNDER:- 3. THE FIRST GROUND IS IN RESPECT OF ADDITION OF R S 42 69 252 ON ACCOUNT INTEREST AND BANK CHARGES. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON PROPRIETARY B USINESS OF SALT HARVESTING EARTH EXCAVATION JOB WORK AND RUNNING C OLD STORAGE. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED BANK CHARGES RS.2 31 630/- AND INTEREST RS.14 37 63 0/-.THE A.O. FURTHER NOTICED THAT THESE EXPENSES WERE RELATED TO JOINT V ENTURE COMPANY WHICH IS A SEPARATE ENTITY FORMED BY EXECUTING A PARTNERS HIP DEED AND THE ASSESSEE WAS HAVING SHARE OF PROFIT OF 33%.THE ABOV E EXPENDITURE OF JOINT VENTURE COMPANY WITHOUT PASSING ANY ENTRY IN THE BOOKS OF ACCOUNT HAS PASSED HAVALA ENTRIES OF THESE CHARGES EITHER I N THE ACCOUNT OF THE ASSESSEE OR IN THE ACCOUNT OF OTHER TWO PARTNERS. A CCORDING TO AO THIS EXPENDITURE WAS NOT INCURRED BY THE ASSESSEE FOR TH E PURPOSE OF BUSINESS AS SAME WAS RELATED TO JOINT VENTURE COMPANY. THERE FORE THE AO DISALLOWED RS.42 69 252/-.THE CIT (A) AFTER CONSIDE RING THE ASSESSEES SUBMISSION AND AOS REMAND REPORT DELETED SAID ADDI TION BY OBSERVING AS UNDER:- ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 3 3 3.3. I HAVE CONSIDERED THE CONTENTIONS OF THE ASSE SSEE AS WELL AS THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE RELEVANT MATERIAL PRODUCED BY THE ASSESSEE IN THE PAPER BOO K. IN THE ASSESSMENT ORDER PASSED U/S. 143(3) DATED 3-8-2007 BY THE ITO WD 1(3) RAJKOT THE FIRM M/S. DHOLU-KCL-JPF-JOINT VENTURE CO. HAS BEEN TREATED BY THE ASSESSING OFFICER AS JOINT VENTURE CONSORTIUM ESPECIALLY FORMED TO BID FOR TENDER WORK OF GUJARAT INDUSTRIES POWER CO. LTD. ITS ROLE AND INCOME HAS B EEN EXAMINED BY THE A.O. THE AUTHORIZED REPRESENTATIVE SUBMITS T HAT SINCE THERE WAS SPECIFIC PURPOSE OF FORMING SUCH FIRM AFTER TH E CONTRACT IS COMPLETED THE EXISTENCE OF THE FIRM WILL AUTOMATIC ALLY COME TO AN END. THE FIRM IS QUITE SEPARATE SO FAR AS EXECUTIO N OF TENDERED WORK IS CONCERNED AS PER MEMORANDUM/AGREEMENT SIGNE D BY ALL THE PARTIES OF THE FIRM. SO AS REGARDS SEPARATE ASSESS MENTS OF THE DIFFERENT PARTIES IT HAS NO MATERIAL BEARING ON TH E ACTIVITY AND INCOME OF THE PARTIES WHO ACTED TO COMPLETE THEIR ACTIVITIES AS PER NORMS SET IN THE TENDER. I FIND THAT THE PERUSAL OF MEMORANDUM OF UNDERSTANDING (MOU) EXECUTED ON 15-11-2003 BETWEEN THE APPELLANT AND OTHER TWO PARTIES VIZ. DHOLU CONTRA CTS CO. AND KETAN CONSTRUCTION LTD. (P.66 TO 69 OF THE PAPER BO OK) SHOWS THAT ALL THE AFORESAID THREE PARTIES HAD JOINTLY PARTICI PATED IN THE TENDER BID IN JVC FORM RELATING TO THE GIPCL VASTAN LIGNIT E MINE AND THEY HAD AGREED TO EXECUTE THE SAID WORK JOINTLY IN CASE THE SAID WORK WAS AWARDED BY GIPCL AND THE TERMS AND CONDITI ONS INCLUDED IN CLAUSE (7) THEREOF THAT- ..ALL EXPENSES INCURRED FOR CARRYING OUT THESE SU CH COMMON SERVICES PROPORTIONATE SHARE OF SUCH COST SHALL BE RECOVERED FROM MEMBERS. THUS CLAUSE (7) ON WHICH RELIANCE WAS PLACED BY AO REFERRED TO THE COMMON EXPENSES INCURRED FOR EXECUTION OF THE W ORK. HOWEVER THE EXPENSES UNDER THE PRESENT DISPUTE ADM ITTEDLY PERTAINED TO THE APPELLANT INASMUCH AS THE APPELLAN T HAD ENJOYED BILL DISCOUNTING FACILITY TO THE EXCLUSION OF OTHER TWO PARTIES SO THAT THE SAME CANNOT BE SAID TO BE COMMON EXPENSES. MORE OVER SINCE THE APPELLANT REQUIRED THE FUNDS AT AN EARLY DATE THEN THE CREDIT PERIOD IT HAD REQUESTED THE JVC TO DISCOUNT THE BI LL RAISED ON THE CONTRACTEE. (SEE. P. 93).THEREFORE THE FUNDS AVAIL ED BY BILL DISCOUNTING HAS BEEN RECEIVED BY THE APPELLANT TO T HE EXTENT OF THE SHARE AND NATURALLY THEREFORE SUCH CHARGES WOULD BE THE LIABILITY OF ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 4 4 THE APPELLANT AND NOT OF OTHER TWO MEMBERS OF JVC. SECONDLY THE CONTENTION OF THE AO THAT THE SAID EXPENSES SHOULD HAVE BEEN TAKEN FIRST IN THE BOOKS OF JVC AND NOT IN THE BOOKS OF T HE APPELLANT DIRECTLY IS ALSO NOT SUSTAINABLE BECAUSE THE MANNE R OF MAINTAINING BOOKS OF ACCOUNT WOULD NOT DETERMINE THE LIABILITY OF ANY PARTY. SINCE THE BILL DISCOUNTING CHARGES PERTAINED TO THE FACILITY ENJOYED EXCLUSIVELY BY THE APPELLANT THE SAME COULD NOT BE ACCOUNTED FOR IN THE BOOKS OF JVC. THIRDLY EVEN THE PERUSAL OF L ETTER DATED 15-7- 2004 LONG WITH COPY OF ACCOUNT OF DHOLU KCL JPF CLEARLY INDICATES THAT NET AMOUNT IS CREDITED INASMUCH BANK ITSELF AND MADE DEDUCTION TOWARDS INTEREST FOR THE PERIOD OF 60 DAY S WHICH THE CREDIT ALLOWED TO GIPCL BY JVC. THEREFORE THE INTE REST AND BILL DISCOUNTING CHARGES WERE THE LIABILITY OF THE APPEL LANT AND NOT JVC. 3.3.(I) AFTER CONSIDERING THE REPORT OF THE A.O. A ND REPLY OF THE APPELLANT IN THIS REGARD AND IN VIEW OF ABOVE FACT AND CIRCUMSTANCES OF THE CASE I HOLD THAT THE DISALLOW ANCE OF RS.42 69 252 MADE BY AO IS NOT JUSTIFIED. THEREFORE THE DISALLOWANCE AND ADDITION MADE BY THE ASSESSING OFF ICER ON THIS SCORE IS HEREBY DELETED. 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF HE PART IES PERUSED RECORDS. THE ADMITTED FACTS OF THE CASE ARE THAT TH E ASSESSEE-FIRM EXECUTED A PARTNERSHIP DEED DATED 28-7-2003 IN RESPECT OF WO RK AWARDED BY GIPCL FOR MINING WORK. THE MOU WAS ALSO EXECUTED BE TWEEN THEM ON 15-11-2003 IN RESPECT OF THE AFORESAID WORK. THE SA ID GIPCL A PARTNERSHIP FIRM HAD GIVEN A SUB-CONTRACT TO THE AS SESSEE. THE CONTENTION OF THE ASSESSEE THAT THE SAID PARTNERSHIP FIRM HERE INABOVE REFERRED TO AS JVC AWARDED CONTRACT FROM GIPCL AND A PART OF THE W ORK WAS GIVEN TO THE ASSESSEE AS A SUB-CONTRACTOR WITHOUT RETAINING ANYTHING. THE ASSESSEE RAISED BILL ON JVC AND JVC IN TURN RAISED BILL ON G IPCL. THOSE BILLS WERE DISCOUNTED WITH KALUPUR BANK AND PAYMENT WAS MADE T O THE ASSESSEE. THE CLAIM OF THE EXPENDITURE OR BANK CHARGES AND IN TEREST WERE IN RESPECT OF BILL DISCOUNTING OF SUCH TYPE OF BILLS. THE CRUX OF THE MATTER TO BE EXAMINED IN THE CASE IS WHETHER THE CLAIM OF THE AS SESSEE IS THE ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 5 5 EXPENDITURE OF THE ASSESSEE OR JVC. WE NOTICED THAT THE SUBMISSION IS THAT THE MONEYS RECEIVED ON BILL DISCOUNTING THOUGH IN THE ACCOUNT OF JVC WAS UTILIZED BY THE ASSESSEE AND ASSESSEE HAS A VAILED FACILITIES OF DISCOUNTING BILL FOR THE AMOUNT TO BE UTILIZED FOR THE PURPOSE OF THE ASSESSEES BUSINESS. SINCE THE ASSESSEE HAS UTILIZE D FUND AND BILL DISCOUNTING AND THE EXPENDITURE CLAIMED IS IN RESPE CT OF THOSE BILL DISCOUNTING. THOUGH IT MAY BE NAMED AS JVC BUT REQU IREMENT OF SECTION 37 IS THAT EXPENDITURE NOT BEING IN THE NATURE OF C APITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LAID OUR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ALLOWABL E IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS. AS STATED ABOVE THE ADMITTED FACTS OF THE CASE ARE TH AT THE ABOVE CHARGES WERE CLAIMED BY THE ASSESSEE AS RELATED SERVICES WI TH SUCH AMOUNT ON BILL DISCOUNTED AND MONEY HAS BEEN USED BY THE ASSESSEE THEREFORE THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND SUCH EXPENSES ARE ALLOWABLE U/S. 37(1) OF THE ACT. 5. IN THE LIGHT OF ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A). 6. THE BRIEF FACTS OF SECOND GROUND ARE THAT THE AO DISALLOWED RS.12 76 050/- ON THE GROUND THAT THE ASSESSEE HAS DIVERTED THE INTEREST BEARING FUNDS TO 9 DIFFERENT PARTIES AS INTEREST FR EE ADVANCES. THE CIT (A) DELETED THE SAID ADDITION BY OBSERVING AS UNDER:- 4.2(I) HOWEVER I FIND CONSIDERABLE FORCE IN THE CONTENTION OF THE ASSESSEE THAT SINCE THE ASSESSEE WAS ENJOYING BANK GUARANTEE FACILITY AVAILABLE BY KALUPUR BANK TO KETAN CONSTRU CTION COMPANY PVT. LTD. IT WAS NECESSARY THAT THE FUNDS FOR THE MARGIN MONEY ARE PROVIDED BY THE ASSESSEE TO THE SAID COMPANY AND TH US THERE WAS A ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 6 6 COMMERCIAL EXPEDIENCY IN NOT CHARGING ANY INTEREST ON SUCH AMOUNT. RELIANCE IS PLACED BY THE ASSESSEE ON THE D ECISION OF HON. SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (288 ITR (1) WHEREIN IT HAS HELD THAT INTEREST COULD NOT BE DISALLOWED U/S. 36(1)(III) OF THE ACT WHEN THE BORROWINGS HAVE BEEN UTILIZED FOR THE PURPOSE OF GIVING ADVANCES TO SISTER CONCERNS OUT O F COMMERCIAL EXPEDIENCY. THE MATTER CAN ALSO BE LOOKED AT THIS A NGLE THAT HAD THE ASSESSEE AVAILED BANK GUARANTEE DIRECTLY IT WOULD HAVE PROVIDED MARGIN MONEY TO THE BANK AND NO INTEREST WOULD HAVE TO BE RECEIVED BY THE ASSESSEE. THE ALTERNATIVE CONTENTIO N OF THE ASSESSEE THAT THERE WERE HUGE INTEREST FREE FUNDS BY WAY OF BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE (RS.1 15 22 650) AN D INTEREST FREE UNSECURED LOANS OF NIRMA CHEMICALS LTD. (RS.93 66 1 64/-) ND NIRMA LTD. (RS.4 53 43 242/-) NO DISALLOWANCE COUL D BE MADE FOR SUCH INTEREST FREE ADVANCES AS HELD IN CASE OF RAD ICO KHAITAN LTD. [274 ITR 354] (ALL) AND TORRENT FINANCIERS LTD. [73 TTJ] (AHD).THEREFORE THE DISALLOWANCE OF INTEREST IN RE SPECT OF AMOUNT OF RS.49.75 LACS GIVEN TO KETAN CONSTRUCTION PVT. L TD. IS DELETED. (B) AS REGARDS DURGA RICOL IND. PVT. LTD. THE AO H AS OBSERVED THAT THAT INTEREST HAS TO BE CHARGED TILL THE ACCOU NT WAS WRITTEN OFF AS BAD DEBTS BECAUSE INTEREST ACCRUES IN VIEW OF TH E MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. HOWE VER I AGREE WITH THE CONTENTION OF THE ASSESSEE HAS NO HOPE OF RECOVERY THERE DOES NOT ARISE ANY QUESTION OF CHARGING INTEREST ON SUCH ADVANCES. THERE HAS TO BE REASONABLE CERTAINTY ABOUT RECEIVIN G THE INCOME BEFORE IT IS BROUGHT TO TAX BECAUSE IT IS THE REAL INCOME WHICH IS CHARGEABLE TO TAX (REFER TO GODHRA ELECTRICITY CO. VS. CIT [225 ITR 746]. IN VIEW OF ALL THE FACTS AS NARRATED BY THE A SSESSEE I AM OF THE OPINION THAT WHEN THE RECOVERY OF THE PRINCIPAL ADV ANCE IS NOT CERTAIN CHARGING OF INTEREST AND MAKING ADDITION I S NOT JUSTIFIED. ASSESSING OFFICER IS DIRECTED TO DELETE THE RELATED ADDITION. (C) AS REGARDS KHODAL SALES AND NISARG ENT. PVT. LT D. THE AO HAS OBSERVED THAT THE ASSESSEE HAS VOLUNTARILY WAIV ED HIS RIGHT OF EARNING INTEREST. ON THE OTHER HAND IT IS CONTENDE D BY THE ASSESSEE THAT THE ADVANCE TO NISARG ENG. PVT. LTD. BANGALOR E WAS GIVEN IN PAST AS AN ADVANCE FOR PURCHASE OF MACHINERY WHICH FAILED AND THE AMOUNT COULD NOT BE RECOVERED. THUS THE PURPOSE FO R WHICH THE ADVANCE WAS GIVEN TO THE SAID PARTY WAS OUT OF BUSI NESS OR COMMERCIAL CONSIDERATION AND THE ORDERS WERE PLACED IN COURSE OF THE BUSINESS. IT WAS NOT AN ADVANCE GIVEN WITH A VI EW TO EARN ANY INTEREST INCOME BUT TO FULFILL THE TERMS OF THE CON TRACT FOR PURCHASE ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 7 7 OF MACHINERY. THEREFORE THERE WAS NO QUESTION OF R ECEIVING ANY INTEREST ON SUCH ADVANCE. IT IS NOT CLEAR AS TO HOW THE AO HAS CONCLUDED THAT THE ASSESSEE HAD VOLUNTARILY WAIVED THE RIGHT OF EARNING INTEREST WHEN THERE WAS NO SUCH RIGHT AT A LL TO THE ASSESSEE. IT IS ALSO NOTICED FROM THE COPY OF ACCOUNT OF BOTH THESE PARTIES PLACED AT PAGE 95 TO 98 OF THE PAPER BOOK THAT THE ASSESSEE HAS GIVEN THE AMOUNTS DURING THE EARLIER FINANCIAL YEAR AND NOT THE YEAR UNDER APPEAL. EVEN NO DISALLOWANCE OF INTEREST IN R ESPECT OF BOTH THESE PARTIES HAS BEEN MADE IN THE EARLIER YEAR. TH EREFORE RESPECTFULLY FOLLOWING THE DECISION OF HON.KARNATAK A HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISE 192 ITR 16 5 (KAR.) THE DISALLOWANCE OF INTEREST IN THE YEAR UNDER APPEAL I S NOT JUSTIFIED. THE AO IS DIRECTED TO DELETE THE SAME. (D) AS REGARDS THE PARTIES AT SR.NO.5 TO 9 MENTIONE D BY AO IN THE ORDER THE AO HAS OBSERVED THAT THOUGH THE ADVA NCE WAS CLAIMED TO BE FOR PURCHASE OF LAND THE DEAL WAS NO T COMPLETED AND IT COULD NOT BE ASCERTAINED WHETHER THE PURCHASE WA S FOR THE PURPOSE OF BUSINESS OR OTHERWISE. HOWEVER S PER CL ARIFICATION MADE AND THE CONTENTION RAISED BY THE ASSESSEE EVE N PRESUMING AO TO BE CORRECT STILL NO INTEREST IS DISALLOWABLE IN VIEW OF THE FREE FUNDS AVAILABLE WITH THE ASSESSEE AS STATED HEREIN ABOVE. THEREFORE DISALLOWANCE OF INTEREST IN RESPECT OF THESE PARTIE S IS DIRECTED TO BE DELETED. 4.2. THERE IS YET ANOTHER REASON TO DELETE THE DISA LLOWANCE OF INTEREST MADE BY AO. IT IS NOTICED FROM THE DETAILS OF INTEREST THAT THE SAME PERTAINS TO THE BANK LOAN AND OTHER FACILI TY AVAILED BY THE ASSESSEE. THE ASSESSEE HAS PLACED AT PAGE 152 OF TH E PAPER BOOK THE DETAILS ABOUT THE SECURED LOAN WHEREFROM IT IS NOTI CED THAT MOST OF THEM ARE TERM LOANS FOR PURCHASE OF MACHINERY OR TR ACTOR AND THERE IS SINGLE ACCOUNT OF CASH CREDIT FACILITY WHICH IS MAINLY USED FOR THE PURCHASES OF DIESEL. THEREFORE THERE COULD NOT BE ANY DISALLOWANCE OF INTEREST AS IT PERTAINS TO THE AFORESAID TERM LO ANS AVAILED BY THE ASSESSEE. 4.2 (I) IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCES OF RS.12 76 050/- OUT OF INTEREST EXP ENSES MADE BY AO IS HEREBY DELETED. ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 8 8 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. WE NOTICED THAT THE CIT (A) EXAMINED THE P ARTY-WISE ADVANCES. IN RESPECT OF ADVANCES TO KETAN CONSTRUCTION PVT. L TD. RS.49 75 000/- WAS DELETED. APART FROM THE OTHER REASONS ON THE RE ASON THAT THE ASSESSEE WAS HAVING OWN CAPITAL OF RS.1 52 22 650/- WHILE DE LETING THIS ADDITION THE CIT (A) FOLLOWED THE JUDGMENT IN THE CASE OF RA DICO KHAITAN LTD. (274 ITR 354) AND IN THE CASE OF TORRENT FINANCIERS LTD. (73 TTJ) AND IN RESPECT OF DURGA RICOL IND. PVT. LTD. THE CIT (A) ALSO FOLLOWED THE JUDGMENT IN THE CASE OF GODHRA ELECTRICITY CO. VS. CIT (225 ITR 746) ACCEPTING THE ASSESSEES REASON THAT THE RECOVERY O F PRINCIPAL AMOUNT WAS ALSO IN DOUBT. IN CASE OF KHODAL SALES & NISARG ENT . PVT. LTD. THE AMOUNT WAS GIVEN AS ADVANCE FOR PURCHASE OF MACHINERY WHIC H FAILED AND THE AMOUNT COULD NOT BE RECOVERED. THEREFORE THE INTER EST WAS NOT CHARGED. THE AMOUNT IN RESPECT OF SR. NO. 5 TO 9 MENTIONED B Y THE AO IN THE ORDER ARE THE ADVANCES GIVEN FOR PURCHASE OF LAND. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE FIND THAT THE CIT (A) H AS DELETED THE ADDITION AFTER VERIFYING THE RECORDS AND GIVEN JUSTIFICATION FOR NOT CHARGING INTEREST ON THESE AMOUNTS. CONTRARY TO THE FINDING OF THE CI T (A) THE REVENUE HAS FAILED TO POINT OUT ANY MATERIAL. NOR SAME IS AVAIL ABLE ON RECORD. UNDER THE CIRCUMSTANCES WE ARE INCLINED TO UPHOLD THE ORD ER OF CIT (A). 8. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE O F RS.7 89 823/- U/S.14A OF THE ACT. THE AO DISALLOWED THE SAID AMOU NT AS THE ASSESSEE HAS MADE INVESTMENT IN AGRICULTURAL LAND AND SHARES OUT OF BORROWED FUNDS. THE CIT (A) DELETED THE SAID ADDITION BY OBS ERVING AS UNDER:- 5.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND ALSO CONSIDERED THE CONTENTIONS OF THE ASSESSEE. IT IS NOTICED FROM THE PERUSAL OF THE ASSESSMENT ORDER THAT AO HAS MADE A PRESUMPTION THA T THE INVESTMENT IN ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 9 9 SHARES AND AGRICULTURAL LAND HAS BEEN MADE OUT OF I NTEREST BEARING FUNDS BUT NO DIRECT NEXUS HAS BEEN PROVED NOR ANY MATERIA L HAS BEEN BROUGHT ON RECORD. ON THE OTHER HAND IT IS NOTICED THAT THERE ARE HUG INTEREST FREE FUNDS AND CURRENT YEARS PROFIT AVAILABLE TO THE AS SESSEE WHICH SHOULD HAVE BEEN CONSIDERED AS AVAILABLE FOR SAID INVESTME NT. EVEN AS REGARDS THE QUANTUM OF DISALLOWANCE MADE BY THE AO IT IS A LSO NOTICED THAT THE AO HAS WORKED OUT PRO-RATA BY TAKING AGGREGATE OF T HE BALANCE SHEET I.E. RS.35 55 57 069/- AS IF IT IS THE INTEREST BEARING BORROWINGS ON WHICH THE ASSESSEE HAS PAID INTEREST OF RS.2 64 05 349/-. HO WEVER THE CURRENT LIABILITIES AND PROVISIONS OF RS.4 49 84 296/- INCL UDED IN THE SAID AGGREGATE OF THE BALANCE SHEET OUGHT NOT TO HAVE BE EN CONSIDERED FOR THE PURPOSE OF ARRIVING AT INTEREST BEARING FUNDS. EVEN THE SAID AGGREGATE WOULD ALSO NOT INCLUDE INTEREST FREE FUNDS AS POINT ED OUT HEREIN ABOVE. THEREFORE THE DISALLOWANCE OF RS.7 89 823/- WORKED OUT BY AO IS EVEN FACTUALLY CORRECT. TAKING INTO ALL FACTS INTO CONSI DERATION AND THAT THE ASSESSING OFFICER HAS NOT PROVED THE NEXUS WHILE MA KING DISALLOWANCE THE ADDITION OF RS.7 89 823/- IS DIRECTED TO BE DEL ETED. 9 AT THE OUTSET THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN CASE O F INCOME TAX APPEALNO.1260 OF 2009 JUDGMENT DATED 8-8-2011 PHOTO -COPY OF THE JUDGMENT HAS BEEN FILED BY THE ASSESSEE HAS BEEN PL ACED ON RECORD. IN THE SAID JUDGMENT THE HON. JURISDICTIONAL HIGH COURT U PHOLDING THE ORDER OF ITAT WHEREIN THE ITAT DELETED THE ADDITION MADE BY THE AO U/S.14A OF THE ACT ON THE GROUND THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND AND INVESTMENT WAS MADE OUT OF THAT FOR EARNIN G EXEMPT INCOME. ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 10 10 10 WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORD PERUSED. WE NOTICED THAT THE RELEVANT FACTS REGARDI NG THE OWNED CAPITAL AND OTHER OWNED FUNDS ARE NOT AVAILABLE ON RECORD. WE THEREFORE SEND BACK THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE IN ACCORDANCE WITH THE ABOVE JUDGMENT OF THE JURISDICT IONAL HIGH COURT IN INCOME TAX APPEAL NO.1260 OF 2009 (SUPRA) AFTER PRO VIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 11 THE FOURTH GROUND OF APPEAL IS IN RESPECT O F THE ADDITION OF RS 110492/-THE AO MADE THE ADDITION OF RS.1 10 492/- O UT OF AGRICULTURAL INCOME THE CIT (A) DELETED THE ADDITION AFTER ACCE PTING THE ASSESSEES CONTENTION AS UNDER:- 7.2. THE ASSESSEE BEGS TO SUBMIT THAT AO HAS FAILE D TO APPRECIATE THE FACTS OF THE CASE. FIRSTLY THE ASSESSEE HA NOT INTRODUCED ANY CASH BY PASSING ENTRY OF RS.1 10 492/-.THE ASSESSEE HAD SOLD PADDY TO SHRI SARASWATI RICE MILL SOLA BHADAJ ROD BHADAJ (AO WRONGLY MENTIONED BAVLA) DURING THE YEAR BY DIFFERENT SALE BILLS (COPY ENCLOSED). HOWEVER THERE WAS RATE DIFFERENCE OF RS.25 PER KGS . IN AS MUCH AS THE SALE BILLS WERE OF RS.110/- AS AGAINST RS. 135/- FO R 20 KGS. AND ACCORDINGLY THE SAID PARTY PREPARED A BILL FOR TH E RATE DIFFERENCE OF RS.1 10 492/- ON 1-4-2005 (PAGE 148 OF THE PAPER BO OK). SINCE THE SAID RATE DIFFERENCE PERTAINS TO THE YEAR UNDER APPEAL THE ASSESSEE HAD DISCLOSED THE SAME AS THE INCOME FOR THIS YEAR. THE REFORE THERE IS NO ERROR ON PAR OF THE ASSESSEE TO DISCLOSE THIS INCOME IN T HE CURRENT YEAR. (B)SECONDLY WHEN THE RATE DIFFERENCE HAS BEEN BROU GHT INTO THE BOOKS BY HAVALA ENTRY AND NO CASH AMOUNT HAS BEEN CREDITED THERE CANNOT BE ANY ADDITION OF RS.1 10 492/- ON THE GROUND THAT UNDISC LOSED INCOME HAS BEEN BROUGHT INTO THE BOOKS. ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 11 11 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE ORDER AND REPORT OF AO AS WELL AS THE CONTENTIONS RAISED BY THE ASSESSEE AND WRITTEN SUBMISSION IN REPLY OF REPORT OF ASSESSING OFFICER AND EVIDENCE P RODUCED IN THE PAPER BOOK. FROM THE RECORDS AND CLARIFICATIONS OFFERED BY THE ASSESSEE IT IS CLEAR THAT THE AMOUNT OF RS.1 10 492/- REPRESENTS T HE BILL DIFFERENCE IN RESPECT OF AGRICULTURAL INCOME WHICH RELATES TO THE YEAR UNDER CONSIDERATION AS AGRICULTURAL INCOME CANNOT BE POS SIBLE ONLY IN ONE DAY I.E. ON 1-4-2005. THIS FACT IS VERIFIABLE FROM THE PURCHASER PARTY SHRI SARASWATI RICE MILL SOLA BHADAJ ROAD BHADAJ. IN V IEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE ADDITION OF RS.1 10 492 /- MADE BY THE AO IS DIRECTED TO BE DELETED. 12. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES RECORDS PERUSED. THERE IS NO DISPUTE ABOUT THE FACT THAT TH E AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF BILL DIFFERENCE IN RESPE CT OF AGRICULTURAL INCOME WHICH RELATED TO THE EARLIER YEAR. SINCE THE DIFFER ENCE OF SALE PRICE OF AGRICULTURE PRODUCES HAS BEEN RECEIVED BY THE ASSES SEE IN THE YEAR UNDER CONSIDERATION. IN ABSENCE OF CONTRARY MATERIAL TO T HE FINDING OF THE CIT (A) WE CONFIRM THE ORDER OF THE CIT (A). 13. IN THE RESULT APPEAL OF THE REVENUE FOR A.Y.20 05-2006 PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14 ITA. NO.1736AHD/2009 AY 2006-2007 BY REVE NUE. IN ASSESSMENT YEAR 2006-07 THE GROUNDS RAISED ARE IN RESPECT OF DISALLOWANCE OF RS.9 02 759/- ON ACCOUNT OF BILL DI SCOUNTING CHARGES AND DISALLOWANCE OF RS.4 97 500/- ON ACCOUNT OF INTERES T FREE ADVANCE GIVEN. THE LD. REPRESENTATIVES OF THE PARTIES SUBMITTED TH AT THE FACTS OF THE CASE ARE IDENTICAL TO THE AY 2005-2006; THEREFORE THE S AME MAY BE DECIDED ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 12 12 ACCORDINGLY. SINCE THE FACTS ARE IDENTICAL TO THE A Y 2005-2006 AND IN THE LIGHT OF THE DETAILED DISCUSSION IN A.Y. 2005-06 T HE GROUNDS RAISED IN AY 2006-2007 ARE DECIDED ACCORDINGLY. THE AO IS DIRECT ED ACCORDINGLY. 15. IN THE RESULT APPEAL OF REVENUE FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF REVENUE FOR A.Y. 2006-07 IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 29-1-12. SD/- SD/- (D.K. TYAGI) (A. L.GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER AHMEDABAD ORDER PRONOUNCED ON 29-2-12. PATKI SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) A.M. J.M. COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- XX AHMEDABAD. 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ITA NO.2344/AHD/08 & 1 736/A/09 ASST. YEARS 2005-06 & 2 006-07 13 13 1.DATE OF DICTATION 10 /2/2012. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 13 /2/2012 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 13-2-2012 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 29-2-2012. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 29-2-2012. 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29 -2-2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..