The ACIT, Circle-5,, Surat v. Shri Prafulbhai @ Rohitbhai J.Shah, Surat

ITA 2656/AHD/2009 | 2006-2007
Pronouncement Date: 28-07-2011 | Result: Dismissed

Appeal Details

RSA Number 265620514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 2656/AHD/2009
Duration Of Justice 1 year(s) 10 month(s) 3 day(s)
Appellant The ACIT, Circle-5,, Surat
Respondent Shri Prafulbhai @ Rohitbhai J.Shah, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 25-09-2009
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI G.D. AGRAWAL V.P. AND D.K. TYAGI JM ASSTT. CIT CIRCLE-5 SURAT. VS. SHRI PRAFULBHAI @ ROHITBHAI J. SHAH 2/4456. SHIVDAS ZAVERI NI SHERI SAGRAMPURA SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWAL SR.DR RESPONDENT BY:- SHRI RAJESH M. UPADHYAY AR O R D E R PER D.K. TYAGI JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A). THE REVENUE HAS TAKEN UP TWO EFFECTIVE GROU NDS AS UNDER :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETING THE ADD ITION OF RS.15 74 828/- MADE ON ACCOUNT OF NOTIONAL INTEREST . (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETING THE ADD ITION OF RS.95 429/- MADE ON ACCOUNT OF DISALLOWANCE OF INTE REST EXPENSES DEBITED TO THE P & L A/C OF THE ASSESSEE. ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 2 2. THE FIRST GROUND RELATES TO AN ADDITION OF RS.15 74 828/- MADE ON ACCOUNT OF NOTIONAL INTEREST. 3. THE BRIEF FACTS OF THE CASE ARE THAT A SEARCH OP ERATION U/S 132 OF THE ACT WAS CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE CONSEQUENCE TO WHICH THE ASSESSEE MADE A TOTAL DISCLOSURE OF RS.2 76 68 805/- FOR THE BLOCK PERIOD FROM 1998-99 TO 2004-05. THIS DISCLOSURE WAS INTER ALIA MADE ON THE BASIS OF CERT AIN CHEQUES OF VARIOUS PERSONS FOUND IN THE POSSESSION OF THE ASSESSEE. OU T OF THIS DISCLOSURE AN AMOUNT OF RS.1 41 10 541/- PERTAINED TO ASST. YEAR 2004-05. AS PER ASSESSMENT ORDER THIS ADDITIONAL INCOME OF RS.1 41 10 541/- THOUGH OFFERED FOR TAX IN THE ASSESSMENT YEAR 2004-05 WAS NOT CAPITALIZED IN THAT YEAR. IN THE YEAR UNDER APPEAL THE ASSESSEE RECEIVE D PART PAYMENT OF THOSE BUSINESS CHEQUES FROM THE CONCERNED PERSONS AND CRE DITED THE SAME IN HIS CAPITAL ACCOUNT. AS PER THE AO THOUGH THE SAID AMOU NT WAS COVERED BY THE INCOME DISCLOSED FOR ASST. YEAR 2004-05 THE ASS ESSEE DID NOT SHOW ANY INTEREST INCOME ON THE SAID BUSINESS CHEQUES. A CCORDING TO THE AO AS THE ASSESSEE WAS IN BUSINESS OF FINANCE I.E. CASH L OANS WERE GIVEN TO HIS CLIENTS AND BY WAY OF SECURITY CHEQUES WERE TAKEN FROM THE PERSONS TO WHOM THE LOANS WERE ADVANCED THE INTENTION OF THE ASSESSEE WAS TO EARN INCOME FROM SUCH BUSINESS. THE ASSESSEE WAS REQUIRE D BY THE AO TO SHOW CAUSE WHY INTEREST SHOULD NOT BE CALCULATED ON THE CASH LOANS ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 3 DISCLOSED BY THE ASSESSEE @ 18%. ASSESSEES REPLY W AS THAT HE HAD DISCLOSED A SUM OF RS.2.61 CRORES IN THE EARLIER YE AR WHICH INCLUDED BUSINESS CHEQUES OF RS.1.41 CRORES AND THAT THE TAX DUE THEREON HAD ALSO BEEN PAID AND ACCEPTED FOR THE RELEVANT ASST. YEAR 2004-05. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT NEITHER ANY INTEREST WAS SHOWN NOR CHARGED ON THE SAID SUM AS THE PRINCIPAL AMOUNT ITSELF WAS DISPUTED AND RECOVERY THEREOF WAS DIFFICULT. THIS REPLY OF THE ASSESSEE W AS NOT ACCEPTABLE TO THE AO. IN HIS OPINION THE ASSESSEE HAD HIMSELF DISCLOS ED ADVANCES OF RS.1.41 CRORES LYING WITH ITS CLIENTS AND THAT SUCH ADVANCES COULD NOT HAVE BEEN GIVEN WITHOUT CHARGING ANY INTEREST. HE THEREFORE CALCULATED NOTIONAL INTEREST @ 18% PER ANNUM ON THIS AMOUNT AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE THEREBY MAKING AN ADDITION OF RS.15 74 828/- ON THIS ACCOUNT. 4. BEFORE LD. CIT(A) BESIDES REITERATING THE SUBMI SSIONS MADE BEFORE THE AO ASSESSEES FURTHER SUBMISSION WAS THAT AFTER THE SEARCH OPERATION ON THE PREMISES OF THE ASSESSEE BUSINESS OF THE AS SESSEE WAS SEVERELY DISTURBED AS A RESULT OF WHICH RECOVERY FROM THE DE BTORS WAS NOT POSSIBLE TILL THE YEAR UNDER CONSIDERATION. FOR THIS REASON THE ASSESSEE AS A PRUDENT BUSINESSMAN DECIDED NOT TO CHARGE INTEREST TO SAFEGUARD THE RECOVERY OF PRINCIPAL AMOUNT AND THAT HE WAS ABLE T O RECOVER A CONSIDERABLE AMOUNT OF OVER RS.50 LACS AFTER A LONG PERIOD AND PROLONGED ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 4 NEGOTIATION WITH HIS DEBTORS. THIS FACT IS BORN OUT FROM THE ASSESSMENT ORDER ALSO. IT WAS FURTHER CONTENDED BY THE ASSESSE E THAT THE FACT REGARDING RECOVERY OF PAST DEBT WAS ACCEPTED BY THE AO ALSO A ND THE ADDITION OF INTEREST MADE ON NOTIONAL BASIS IN THE ABSENCE OF ANY EVIDENCE IN THIS REGARD WAS THEREFORE NOT IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT. CONCLUDING HIS ARGUMENT ASSESSEES CONTENTION WAS THAT AS NO INTEREST WAS RECEIVED BY THE ASSESSEE THE ADDITION ON ACCOU NT OF NOTIONAL INTEREST INCOME MADE BY THE AO ONLY ON PRESUMPTION AND SURMI SES SHOULD BE DELETED. RELIANCE WAS ALSO PLACED ON THE DECISION I N THE CASE OF CIT VS. GOVIND AGENCIES 295ITR 290 IN SUPPORT OF ITS CONTEN TION. 5. AFTER TAKING INTO CONSIDERATION THESE SUBMISSION S OF THE ASSESSEE LD. CIT(A) DELETED THIS ADDITION. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING THE LD. DR VEHEMENTLY SUP PORTED THE ORDER OF AO AND THE LD. COUNSEL FOR THE ASSESSEE ON THE O THER HAND RELIED ON THE ORDER OF LD. CIT(A) AND REITERATED THE SAME SUBMISS IONS MADE BEFORE THE LOWER AUTHORITIES AND RELIANCE WAS PLACED ON THE FO LLOWING THREE DECISIONS:- (1) GAJJAR BUILDWARE SURAT VS. ASSESSING OFFICER WARD 3(5) SURAT IN ITA NO.1108/AHD/2001 ASST. YEAR 1998-99 (ITAT AHMEDABAD) ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 5 (2) CIT VS. EICHER LTD. IT APPEAL NO.431 OF 2009 15 JU LY 2009. (3) CIT VS. GOVIND AGENCIES (P) LTD. (2007) 295 ITR 290 (ALL). 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT BY THE REVENUE AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE. DURING THIS SEARCH OPERATION ASSESSEE MAD E A DISCLOSURE OF RS.2.76 CRORES FOR THE BLOCK PERIOD FROM 1998-99 TO 2004-05 OUT OF WHICH AN AMOUNT OF RS.1.41 CRORES PERTAINED TO ASST. YEAR 2004-05 WHICH IS NOT IN DISPUTE. THIS DISCLOSURE MADE BY THE ASSESSEE HA S ALSO BEEN ACCEPTED BY THE REVENUE AND THE TAXES DUE HAVE BEEN PAID BY THE ASSESSEE. THE FACT THAT AGAINST THE DISCLOSURE OF RS.1.41 CRORES MADE FOR ASST. YEAR 2004-05 THE ASSESSEE HAS SHOWN RECOVERY OF RS.51.81 LACS DURING THE YEAR UNDER APPEAL IN RESPECT OF THE BUSINESS CHEQUES FOU ND DURING THE SEARCH AND AGAINST WHICH LOANS WERE ADMITTED TO HAVE BEEN ADVANCED TO VARIOUS PARTIES BY THE ASSESSEE HAS ALSO BEEN ACCEPTED BY T HE AO. THE ONLY DISPUTE BEFORE US THAT ASSESSEE HAS NOT SHOWN ANY I NTEREST INCOME AGAINST THE AFORESAID LOANS WHILE THE AO HAS CHARGED INTERE ST @ 18% ON THESE LOANS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS NOTIONAL INTEREST INCOME. THE CASE OF THE REVENUE THAT ADVAN CES TO THE TUNE OF RS.1.41 CRORES WERE LYING WITH ASSESSEES CLIENTS A ND INTEREST MUST HAVE BEEN CHARGED ON THOSE ADVANCES WAS HOWEVER NOT SU BSTANTIATED BY ANY ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 6 EVIDENCE BROUGHT ON RECORD. IF THE ASSESSEE DECIDED NOT TO CHARGE INTEREST IN ORDER TO SAFEGUARD THE PRINCIPAL AMOUNT AND ENSU RE ITS RECOVERY THEN HIS PRUDENCE AS A BUSINESSMAN CANNOT BE QUESTIONED BY THE AO WITHOUT BRINGING ANY MATERIAL ON RECORD TO DISPROVE SUCH CO NTENTION OR TO ESTABLISH THAT SUCH INTEREST INCOME HAD ACTUALLY AR ISEN OR ACCRUED TO THE ASSESSEE. IN VIEW OF THIS AND IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE AO TO SHOW THAT INTEREST INCOME WAS E ARNED BY THE ASSESSEE ON THE SAID ADVANCES I.E. BUSINESS CHEQUES IN OUR CONSIDERED OPINION THERE WAS NO JUSTIFICATION IN MAKING ANY ADDITION O N ACCOUNT OF NOTIONAL INTEREST @ 18% ON THE SAID ADVANCES. THIS VIEW OF O URS GETS SUPPORT FROM THE CASE LAWS RELIED ON BY THE LD. COUNSEL OF THE A SSESSEE. THE ADDITION OF RS.15 74 828/- MADE ON ACCOUNT OF NOTIONAL INTEREST INCOME WAS RIGHTLY DELETED BY LD. CIT(A). THEREFORE THE ORDER PASSED BY HIM IS HEREBY UPHELD. THIS GROUND OF REVENUE IS DISMISSED. 8. THE SECOND GROUND OF REVENUES APPEAL RELATES TO DISALLOWANCE OF INTEREST EXPENSES OF RS.95 429/- AGAINST UNSECURED LOAN OF RS.26 68 106/-. DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED T HAT THE LOANS AND ADVANCES OF THE ASSESSEE AT THE END OF THE YEAR WER E OF RS.53 81 604/- MOST OF WHICH IN THE FORM OF CASH ADVANCES AND BANK FDRS AND THAT ASSESSEE HAD ALSO CASH BALANCE OF RS.24 08 719/-. A CCORDING TO THE AO THE ASSESSEE WAS HAVING SUFFICIENT FUNDS WITH HIM B UT HAD TAKEN LOAN ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 7 FROM OUTSIDE AND PAID UNNECESSARY INTEREST ON THAT. ACCORDING TO THE AO MAJOR PORTION OF THE ADVANCES WERE MADE BY THE ASSE SSEE WITHOUT CHARGING ANY INTEREST. BUT HE HAD PAID INTEREST @ 1 2% TO HIS RELATIVES COVERED UNDER SECTION 40A(2)(B) OF THE ACT WHICH WA S ALSO EXCESSIVE. IN THE OPINION OF THE AO KEEPING BORROWED FUNDS IN THE FORM OF IDLE CASH AND INTEREST FREE ADVANCES DID NOT AMOUNT TO UTILIZ ATION OF BORROWED FUNDS FOR BUSINESS PURPOSES. THE INTEREST EXPENSES OF RS. 95 429/- CLAIMED BY THE ASSESSEE WERE ACCORDINGLY DISALLOWED BY HIM AND ADDED TO THE INCOME OF THE ASSESSEE. 9. BEFORE THE LD. CIT(A) THE ASSESSEES CASE WAS T HAT MAJOR PART OF INTEREST PAYMENT HAS BEEN MADE BY THE ASSESSEE TO M /S DHAWAL TEX AND M/S KRUTI TEXTILES WHICH WERE CARRIED FORWARD BALAN CES FROM THE LAST MANY YEARS AND THE SAME WERE FULLY UTILIZED IN THE BUSINESS OF THE ASSESSEE. NO DISALLOWANCE OF INTEREST PAYMENT MADE TO THESE PARTIES HAS BEEN MADE IN THE ASSESSMENTS MADE U/S 143(3) FOR TH E EARLIER ASSESSMENT YEARS IN WHICH SUCH LOANS WERE BORROWED AND ALSO UT ILIZED FOR BUSINESS PURPOSES. IT WAS FURTHER SUBMITTED THAT NO CASH LOA NS WERE TAKEN DURING THE YEAR BY THE ASSESSEE FROM THESE PARTIES. IT WAS ALSO SUBMITTED THAT THE INTEREST FREE ADVANCES WERE GIVEN DURING THE YEAR T O M/S PRITI CORPORATION AND M/S SHREE TEXTILES OUT OF THE CAPITAL AND INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE. ACCORDING TO THE ASSESSEE IN THE PRECEDING YEAR THE ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 8 ASSESSEE HAD BORROWED FUNDS FROM M/S PRITI CORPORAT ION AND NO INTEREST WAS PAID ON SUCH BORROWINGS ALSO. IT WAS THUS ARGUE D BY HIM THAT AS THE INTEREST BEARING LOANS BORROWED IN THE EARLIER YEAR S WERE UTILIZED FOR BUSINESS PURPOSES THERE WAS NO JUSTIFICATION IN MAK ING DISALLOWANCE OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE U/S 3 6(1)(III) OF THE ACT. RELIANCE WAS PLACED ON THE JUDGMENTS IN THE CASE OF S.A. BUILDERS 228 ITR 1 SHAHIBAUG ENTERPRISES VS. ITO (1995) SDTD 13 29 AHD GUJJAR BUILDWARE VS. ITO (ITA NO.1108/AHD/2001) AND OTHER DECISIONS. 10. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE THE LD. CIT(A) DELETED THIS ADDITION. AGGRIEVED BY THIS ORDER THE REVENUE IS NOW IN APPEAL BEFORE US. 11. AT THE TIME OF HEARING THE LD. DR PLACED RELIAN CE ON THE ORDER OF AO WHEREAS THE LD. AR RELIED ON THE ORDER OF LD. CI T(A). 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT OUT OF NET INTEREST EXPENSES OF RS.95 429/- CLAIMED BY THE ASSESSEE THE MAJOR PORTION PERTAINED TO THE TWO PARTIES I.E. M/S DHAWAL TEX AND M/S KRUTI TEXTILES. IT WAS FURTHER FOUND THAT THESE LOA NS HAVE BEEN CARRIED FORWARD FROM THE PRECEDING YEARS WHEREIN THE GENUIN ENESS AND BUSINESS PURPOSE OF THE INTEREST PAYMENT MADE HAVE NOT BEEN DISPUTED BY THE AO IN THE ASSESSMENTS COMPLETED U/S 143(3) OF THE ACT. AS THE BUSINESS ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 9 PURPOSE OF THE FUNDS BORROWED FROM THESE PARTIES WA S ALREADY ACCEPTED IN EARLIER YEARS THE SAME CANNOT BE HELD TO BE FOR NO N-BUSINESS PURPOSES IN THE YEAR UNDER CONSIDERATION. IN THE LIGHT OF THESE UNDISPUTED FACTS THERE WAS NO JUSTIFICATION IN DISALLOWANCE OF INTEREST PA YMENT OF RS.95 429/- CLAIMED BY THE ASSESSEE U/S 36(1)(III) OF THE ACT A ND THEREFORE THE LD. CIT(A) HAS RIGHTLY DELETED THIS ADDITION SO MADE BY THE AO. THE ORDER OF LD. CIT(A) IS UPHELD ON THIS ISSUE ALSO. THIS GROUN D OF THE REVENUE IS ALSO DISMISSED. 13. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 28/7/11. SD/- SD/- (G. D. AGRAWAL) (D.K. TYAGI) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD DATED : 28/7/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ITA NO.2656/AHD/2009 ASST. YEAR 2006-07 10 1.DATE OF DICTATION 27/7/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 28/7/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 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..