The ACIT, Circle-7,, Ahmedabad v. Shri Krishnavtar J.Kabra,HUF, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.2474/AHD/2010 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-7 AHMEDABAD V/S KRISHNAVTAR J KABRA-HUF 3 RAJESH APARTMENT BEHIND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD PAN: AADHK 0462 R [APPELLANT] [RESPONDENT] ITA NO.2770/AHD/2010 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-7 AHMEDABAD V/S SATYANARAYAN J KABRA (HUF) 3 RAJESH APARTMENT BEHIND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD PAN: AAGHS 7704 H [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI R K DHANESTA DR ASSESSEE BY:- SHRI SAKAR SHARMA AR O R D E R A N PAHUJA: THESE TWO APPEALS BY THE REVENUE AGAINST TWO SEPARATE ORDERS DATED 17-05-2010 AND 30-07-2010 OF THE LD. CIT(APPEALS)-I AHMEDABAD FOR THE AY 2004-05 RAISE THE FOLLOWING COMMON GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.10 90 307/- IN THE CASE OF KRISHNAVTAR J KABRA-HUF & RS. RS.5 94 4 20/- IN THE CASE OF SATYANARAYAN J KABRA (HUF) MADE ON ACC OUNT OF INTEREST PAYMENT DEBITED IN P&L ACCOUNT AND DIRECTI NG THE AO TO EXAMINE THE DATES WHEN THE INTEREST FREE FUNDS WERE ADVANCED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NO.2474 & 2770/A/2010 2 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D. COMMISSIONER OF INCOME-TAX (APPEALS)-I AHMEDABAD MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. SINCE SIMILAR ISSUES WERE INVOLVED THESE APPEALS WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 2. FACTS IN BRIEF AS PER RELEVANT ORDERS IN THE C ASE OF KRISHNAVTAR J KABRA (HUF) ARE THAT THE RETURN DECLA RING LOSS OF RS.6 50 388/- FILED ON 21-10-2004 BY THE ASSESSEE AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 [H EREINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTIN Y WITH THE SERVICE OF NOTICE U/S 143(2) OF THE ACT ON 26-07-2005. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.10 90 046 /- IN THE P/L ACCOUNT DUE TO INTEREST PAID TO THE FOLLOWING PERS ONS:- 1 B G KABRA HUF RS. 62 599/- 2 G S KABRA HUF RS. 67 334/- 3 GOVINDLAL A PATEL RS. 49 902/- 4 J S KABRA HUF RS. 78 100/- 5 K S KABRA HUF RS. 1 34 716/- 6 S R KABRA HUF RS. 64 015/- 7 RAJESH MEHTA & CO. RS. 6 69 718/- ----------------- RS.11 26 384/- 2.1 TO A QUERY BY THE AO THE ASSESSEE REPLIED T HAT THEY WERE TRADING IN SHARES AND A SUM OF RS.29 41 593/- WAS B LOCKED IN INVESTMENTS IN SHARES SHOWN IN OPENING STOCK. THEY HAD EARNED AN INCOME OF RS.4 54 702/- FROM SHARE TRADING AND NO D IVIDEND INCOME WAS RECEIVED AS SUCH. OUT OF INTEREST FREE ADVANCES OF RS.88 LAKHS RS.9 LAKHS WERE BLOCKED WITH TWO PARTIES FOR THE LA ST TWO YEARS AND THE BALANCE RS.79 LAKHS HAD BEEN ADVANCED TO SHRI K RISHNA AWTAR KABRA OF THE ASSESSEE-GROUP AT THE END OF THE YEAR WHICH HARDLY CARRIED ANY INTEREST. HOWEVER THE AO DID NOT ACCE PT THESE ITA NO.2474 & 2770/A/2010 3 SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DIVERTED THE INTEREST-BEARING FUNDS TO THE FOLLOWIN G THREE PERSONS:- 1. AIR POLYMERS LTD. 6 64 086 2. KRISHNAVTAR J KABRA 79 00 000 3. RAMANBHAI A PATEL 2 38 215 ------------- TOTAL 88 02 301 WHILE THE ASSESSEES OWN CAPITAL IN DEBIT BALANCE W AS RS.13 10 752/-. SINCE THE ASSESSEE DIVERTED THE INT EREST-BEARING FUNDS TO THE AFORESAID PERSONS REFERRING TO THE P ROVISIONS OF SECTION 14A AND 36(1)(III) OF THE ACT AND RELYING UPON THE DECISIONS IN THE CASES OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 28 6 ITR 1 (P&H) K SOMASUNDRAN AND BROTHERS VS. CIT (1999) 238 ITR 939 (MAD) AND CIT VS. V I BABY AND CO. (2002) 254 ITR 248 (KERALA ) THE AO DISALLOWED INTEREST EXPENDITURE OF RS.10 90 307/- OF THE ACT. 3. ON APPEAL THE LEARNED CIT(A) WHILE REFERRING TO DECISION IN THE CASE OF TORRENT FINANCIERS VS. ACIT 73 TTJ 624(AHD.) CO NCLUDED AS UNDER:- 6. IN THE PRESENT CASE AS PER APPELLANT 'S OWN SUBMISSION NO ADVANCES HAVE BEEN MADE TO M/S. AVI POLYMERS LTD. I N THE YEAR UNDER CONSIDERATION. THE APPELLANT HAD OPENING BALANCE OF RS.11 29 086/- WITH THIS PARTY AND DURING THE YEAR THERE IS A RECOVERY OF R S.4 65 000/- FROM THIS PARTY LEAVING THE BALANCE OF RS.6 64 0867- AT THE END OF THE YEAR. AS REGARD TO THE TRANSACTIONS WITH SHRI KRISHNAVTAR KABRA THE OPENI NG ADVANCE AT THE BEGINNING OF THE YEAR AMOUNTING TO RS.6 67 000/- WHICH WAS RE CEIVED BACK ON 29.07.2003. THE FURTHER ADVANCE OF RS.79 00 000/- HAS BEEN GIVE N TO THE ABOVE PARTY ON 31.03.2004 I.E. THE LAST DAY OF FINANCIAL YEAR. AS REGARD TO THE TRANSACTIONS WITH M/S. S.S. ENTERPRISES THE APPELLANT GAVE ADVANCE O F RS.79 37 000/- AND RECOVERED THE SAME ON 31.03.2004. CONSIDERING THE F ACTS IN TOTALITY I AM OF THE OPINION THAT THE ASSESSING OFFICER SHOULD WORK OUT THE TOTAL INTEREST FREE FUNDS AVAILABLE AT THE PARTICULAR TIME AND EXAMINE AS TO WHETHER SUCH FUNDS ARE SUFFICIENT TO LEND THE MONEY WITHOUT INTEREST. ACCO RDINGLY THE ASSESSING OFFICER IS DIRECTED THAT WHILE GIVING EFFECT TO THE INSTANT AP PELLATE ORDER EXAMINE THE DATES WHEN THE INTEREST FREE FUNDS WERE ADVANCED TO THE T HREE PARTIES REFERRED ABOVE. IN CASE THE INTEREST FREE FUNDS ARE SUFFICIENT TO MAKE SUCH INTEREST FREE ADVANCES AT THE GIVEN TIME THEN NO INTEREST IS REQUIRED TO BE DISALLOWED. HOWEVER AT ANY POINT OF TIME IF THE INTEREST FREE FUNDS ARE LESS THAN THE INTEREST FREE ADVANCES THEN PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD BE CARRIED OUT IN THE LIGHT OF ITA NO.2474 & 2770/A/2010 4 RATIO OF THE ITAT DECISION IN THE CASE OF TORRENT F INANCIERS LTD. SUPRA. THE ASSESSING OFFICER IS DIRECTED TO PASS A SPEAKING OR DER ON THIS POINT. 4. LIKEWISE IN THE CASE OF SATYANARAYAN J KABRA HUF LOANS AND ADVANCES WERE CLAIMED TO HAVE BEEN GIVEN TO THE FOL LOWING FIVE PERSONS:- 1. GOVINDLAL NAGARDAS PATEL 16963 2. JAYESH C PATEL 278480 3. MAHADEV ASSOCIATES 16575000 4. PRAFUL KANAIYALAL SHAH 166535 5. VISHESH INVESTMENT 10000 ------------- TOTAL 17046978 4.1 THE ASSESSEE PAID INTEREST OF RS.7 90 954 ON U NSECURED LOANS OF RS.1 72 93 294/- WHILE IT DID NOT CHARGE ANY INT EREST ON THE AMOUNT ADVANCED UNDER SARAFI TRANSACTIONS TO THE G ROUP CONCERNS. SINCE THE ASSESSEE DIVERTED THE INTEREST-BEARING FU NDS TO THE GROUP CONCERNS AND PAID INTEREST OF RS.5 94 420/- REFERR ING TO THE PROVISIONS OF SECTION 14A AND 36(1)(III) OF THE ACT AND RELYING UPON THE DECISIONS IN THE CASES OF CIT VS. ABHISHEK INDU STRIES LTD. (2006) 286 ITR 1 (P&H) K SOMASUNDRAN AND BROTHERS VS. CIT (1999) 238 ITR 939 (MAD) AND CIT VS. V I BABY AND CO. (2002) 2 54 ITR 248 (KERALA) THE AO DISALLOWED INTEREST EXPENDITURE O F RS.5 94 420/-. 5. ON APPEAL THE LEARNED CIT(A) WHILE REFERRING TO DECISION IN THE CASE OF TORRENT FINANCIERS VS. ACIT 73 TTJ 624(AHD.) CONCL UDED AS UNDER:- 6. CONSIDERING THE FACTS OF THE PRESENT CASE IN TOT ALITY I AM OF THE OPINION THAT THE ASSESSING OFFICER SHOULD WORK OUT THE TOTAL INT EREST FREE FUNDS AVAILABLE AT THE PARTICULAR TIME AND EXAMINE AS TO WHETHER SUCH FUNDS ARE SUFFICIENT TO LEND THE MONEY WITHOUT INTEREST. ACCO RDINGLY THE ASSESSING OFFICER IS DIRECTED THAT WHILE GIVING EFFECT TO THE INSTANT AP PELLATE ORDER EXAMINE THE DATES WHEN THE INTEREST FREE FUNDS WERE ADVANCED TO THE F IVE PARTIES REFERRED ABOVE. IN CASE THE INTEREST FREE FUNDS ARE SUFFICIENT TO MAK E SUCH INTEREST FREE ADVANCES AT THE GIVEN TIME THEN NO INTEREST IS REQUIRED TO BE DISALLOWED. HOWEVER AT ANY POINT OF TIME IF THE INTEREST FREE FUNDS ARE LESS THAN THE INTEREST FREE ADVANCES THEN PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD BE CARRIED OUT IN THE LIGHT OF RATIO OF THE ITAT DECISION IN THE CASE OF TORRENT F INANCIERS LTD. SUPRA. THE ASSESSING OFFICER IS DIRECTED TO PASS A SPEAKING OR DER ON THIS POINT. ITA NO.2474 & 2770/A/2010 5 6. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A).THE LEARNED DR SUPPO RTED THE ORDER OF THE AO WHILE CONTENDING THAT THE LD. CIT(A) DID NOT HAVE POWERS TO SET ASIDE. ON THE OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT( A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE LEARNED CIT(A) IN THE IM PUGNED ORDERS DIRECTED THE AO TO WORK OUT THE TOTAL INTEREST FREE FUNDS AVAILABLE AT THE PARTICULAR TIME WHEN THE ADVANCES WERE GIVEN TO THE AFORESAID PARTIES AND EXAMINE AS TO WHETHER SUCH FUNDS WERE S UFFICIENT TO LEND THE MONEY WITHOUT CHARGING ANY INTEREST. IN THE EVE NT THE FUNDS WERE SUFFICIENT TO MAKE SUCH INTEREST FREE ADVANCES NO INTEREST SHOULD BE BE DISALLOWED. HOWEVER IF INTEREST FREE FUNDS AVAI LABLE WERE LESS THAN THE INTEREST FREE ADVANCES THEN PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD BE MADE IN THE LIGHT DECISION IN TH E CASE OF TORRENT FINANCIERS LTD. 73 TTJ 624. THE LEARNED DR APPEARIN G BEFORE US MERELY CONTENDED THAT THE LD. CIT(A) COULD NOT SET ASIDE THE MATTER TO THE AO. HOWEVER WE FIND THAT THE LD. CIT(A) HAS NOT SET ASIDE THE MATTER BUT MERELY DIRECTED THE AO TO WORK OUT THE D ISALLOWANCE OF INTEREST IN THE MANNER INDICATED ABOVE. WE DO NOT F IND ANY INFIRMITY IN THIS APPROACH OF THE AO IN DIRECTING TO QUANTIFY THE DISALLOWANCE OF INTEREST IN TERMS OF HIS DIRECTIONS. SINCE THE R EVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW WE ARE NOT INCLINED TO INTERFERE WITH THE FIN DINGS OF THE LEARNED CIT(A) IN THESE TWO APPEALS. THEREFORE GROUND NO.1 IN THESE TWO APPEALS IS DISMISSED. 8. GROUND NOS.2 AND 3 IN THESE TWO APPEALS BEING ME RE PRAYER NOR ANY SUBMISSIONS HAVING BEEN MADE DO NOT REQUIR E ANY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. ITA NO.2474 & 2770/A/2010 6 9. IN THE RESULT BOTH THESE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON22-02-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 22 -02-2011 COPY OF THE ORDER FORWARDED TO: 1. 2. KRISHNAVATAR J KABRA-HUF 3 RAJESH APARTMENT BEHI ND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD SATYANARAYAN J KABRA (HUF) 3 RAJESH APARTMENT BE HIND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD 2. THE ACIT CIRCLE-7 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-I AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD CORRIGENDUM A N PAHUJA: IN LINE-16 OF PARA-7 OF THE ORDER DATED 22-02-2011 IN THE AFORESAID APPEALS THE WORD AO MAY BE READ AS CIT(A) . ACCORDINGLY RELEVANT SENTENCE WOULD READ AS UNDER: WE DO NOT FIND ANY INFIRMITY IN THIS APPROACH OF THE CIT(A) IN DIRECTING TO QUANTIFY THE DISALLOWANCE OF INTEREST IN TERMS OF HIS DIRECTIONS. ---- ORDER PRONOUNCED IN THE COURT TODAY ON 16-03-2011 ITA NO.2474 & 2770/A/2010 7 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 16-03-2011 COPY OF THE ORDER FORWARDED TO: 1. 2. KRISHNAVATAR J KABRA-HUF 3 RAJESH APARTMENT BEHI ND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD SATYANARAYAN J KABRA (HUF) 3 RAJESH APARTMENT BE HIND NAV GUJARAT COLLEGE ASHRAM ROAD AHMEDABAD 2. THE ACIT CIRCLE-7 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-I AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD