Shri Nareshchandra Popatlal Shah, Ahmedabad v. The Income tax Officer,Ward-10(3),, Ahmedabad

ITA 2686/AHD/2008 | 2004-2005
Pronouncement Date: 12-08-2010 | Result: Allowed

Appeal Details

RSA Number 268620514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 2686/AHD/2008
Duration Of Justice 2 year(s) 12 day(s)
Appellant Shri Nareshchandra Popatlal Shah, Ahmedabad
Respondent The Income tax Officer,Ward-10(3),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 12-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 12-08-2010
Date Of Final Hearing 12-08-2010
Next Hearing Date 12-08-2010
Assessment Year 2004-2005
Appeal Filed On 30-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.2686/AHD/2008 ASSESSMENT YEAR :2004-05 DATE OF HEARING:12.8.10 DRAFTED:13.8.10 SHRI NARESHCHANDRA POPATLAL SHAH 20 KALYAN SOCIETY MITHAKHALI ELLISBRIDGE AHMEDABAD PAN NO.ADFPS9289K V/S . DY. COMMISSIONER OF INCOME-TAX CIRCLE- 10 AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI MEHUL K PATEL AR RESPONDENT BY:- SHRI S.C.TIWARI SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XVI AHMEDABAD IN APPEAL NO. C IT(A)/D.C CIR.10 /217/06-07 DATED 15-05-2008. THE ASSESSMENT WAS FRAMED DCIT C IRCLE-10 AHMEDABAD VIDE HIS ORDER DATED 29-12-2006 U/S.143(3) OF THE INCOME -TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2004- 05. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST MADE BY ASS ESSING OFFICER U/S 36(I)(III) OF THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- (1) THAT THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLO WANCE OF INTEREST OF RS.30 05 680/- U/S.36(I)(III) OF THE ACT. 3. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER D URING THE COURSE OF ASSESSMENT PROCEEDINGS DISALLOWED INTEREST EXPENSES ON THE BAS IS THAT EXPENSES ON THE ITA NO.2686/AHD/2008 A.Y. 2004-05 SH NARESHCHHANDRA P SHAH V. DCIT CIR-10 ABD PAGE 2 PAYMENT OF INTEREST ON BORROWED FUNDS WHICH HAS BE EN DIVERTED TO INTEREST FREE LOANS AND ADVANCES AND NON-BUSINESS INVESTMENTS AR E NOT ADMISSIBLE U/S.36(I)(III) OF THE ACT. ACCORDINGLY HE MADE DISALLOWANCE OF TH E TOTAL AMOUNT SO DIVERTED AS UNDER:- A) INVESTMENT IN INCOME FREE DEPOSITS & SHARES RS .1 67 26 527/- B) INTEREST FREE LOAN AND ADVANCES RS. 81 60 2 30/- C) INVESTMENT IN IMMOVABLE PROPERTY RS.1 43 35 1 10/- D) DEBIT BALANCE OF PROPRIETORS CAPITAL A/C. RS. 22 75 861/- THE TOTAL AMOUNT SO DIVERTED COMES TO RS.4 14 97 72 8/- AND THE ASSESSING OFFICER THEREFORE DISALLOWED INTEREST @ 18% WHICH WORKED O UT AT RS.74 69 591/-. ACCORDING TO AO SINCE THE EXPENSES ON ACCOUNT OF INTEREST CL AIM AGAINST THE BUSINESS INCOME IS ONLY RS.30 05 680/- HE RESTRICTED THE DISALLOWA NCE AT RS.30 05 680/- U/S. 36(I)(III) OF THE ACT. 4. AT THE OUTSET LD. COUNSEL FOR ASSESSEE REFERRED TO THE CIT(A)S FINDING IN PARA- 2.3 AND STATED THAT SIMILAR ADDITION IN IMMEDIATE PREC EDING YEAR HAS BEEN DELETED ON THESE AMOUNTS ONLY AND THE RELEVANT PARA OF CIT(A) READS AS UNDER:- 2.3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS ASSESSMENT ORDER AND THE HISTORY OF THE CASE. THE F ACTS OF THE CASE ARE SIMILAR TO LAST YEAR WHEN THE ADDITION WAS MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST. IT IS SEEN THAT IN THE LAST YEAR ALSO TH E INTEREST WAS DISALLOWED ON FOLLOWING AMOUNTS WHICH WERE HELD TO BE DIVERTED IN NON-BUSINESS PURPOSES AS UNDER:- (A) INVESTMENT IN INCOME FREE DEPOSITS & SHARES RS. 1 69 48527/- (B) INTEREST FREE LOAN & ADVANCE RS. 58 40 130 /- INVESTMENT IN IMMOVABLE PROPERTY RS. 1 47 60 47 9/- (D) DEBIT BALANCE OF PROPRIETORS CAPITAL A/C. RS. 36 64 691/- TOTAL RS.4 12 13 827/- DURING THIS YEAR ONLY THE AMOUNTS DIFFER IN ABOVE HEADS AND TOTAL OF ABOVE AMOUNT IS RS.4 14 97 728/- WHICH IS HIGHER THAN EAR LIER YEAR. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE LAST YE AR HAS DISCUSSED THE VARIOUS CONTENTIONS AND HAS GIVEN THE FINDINGS AS U NDER:- THE LD. COUNSEL IN VIEW OF THE ABOVE STATED THAT TH E TRIBUNAL HAS CONFIRMED THE FINDINGS OF CIT(A) IN ITA NO.1368/AHD/2007 FOR ASSESSMENT YEAR 2003-04 VIDE ORDER DATED 11-06-2010 WHEREIN IT IS HELD IN PARA-7 & 8 AS UNDER:- ITA NO.2686/AHD/2008 A.Y. 2004-05 SH NARESHCHHANDRA P SHAH V. DCIT CIR-10 ABD PAGE 3 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. HON'BLE SUPREME COURT IN THE C ASE OF S. A. BUILDERS LTD. VS CIT (A) 288 ITR 1 HELD THAT DECIS IONS RELATING TO SECTION 37 WILL BE APPLICABLE TO SECTION 36(1) (III ) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PUR POSE OF BUSINESS. FOR THE PURPOSE OF BUSINESS INCLUDES EXP ENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SRI DEV ENTERPRISES 192 ITR 165 HELD THAT THE AMOUNT DUE FROM N ON THE FIRST DAY OF THE ACCOUNTING YEAR WAS THE AMOUNT THAT STOOD OUTST ANDING ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND THERE FORE ITS NATURE AND STATUS COULD NOT BE DIFFERENT FROM ITS NATURE A ND STATUS AS ON THE LAST DAY OF THE PREVIOUS YEAR. REGARDING PAST Y EARS THE ASSESSEES CLAIMS FOR DEDUCTION WERE ALLOWED IN RES PECT OF THE SUMS ADVANCED DURING THOSE YEARS. THIS COULD BE ONL Y ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORR OWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS Y EARS WAS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE P AST YEARS. IT WOULD NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAK E A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT- MATTER OF PREVIOUS YEARS ASSESSMENTS. HON'BLE M. P. HIGH COURT IN THE CASE OF R.D. JOSHI & CO. VS CIT 251 ITR 332 HELD THE ASSESSEE WAS A PARTNERSHIP FIRM ASSESSED IN THE STA TUS OF A REGISTERED FIRM. FOR THE ASSESSMENT YEARS 1978-79 1979-80 1980-81 AND 1981-82 THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORROWINGS. THE INCOME-TAX OFFICER HELD THAT THE BORROWINGS TO THE EXTENT OF THE OVERDRAWINGS AND CONSEQUENT DE BIT BALANCE TO THE PARTNERS ACCOUNT WERE NOT UTILIZED FOR THE PURPOSE OF THE BUSINESS THEREFORE DISALLOWED THE INTEREST PAID TO THE CREDITORS TO THE EXTENT OF THE FOLLOWINGS NOT UTILIZED FOR THE B USINESS. ON APPEAL THE COMMISSIONER OF INCOME-TAX (APPEALS) HEL D THAT THE DEPARTMENT FAILED TO ESTABLISH A DIRECT NEXUS BETWE EN THE BORROWINGS AND THE WITHDRAWALS MADE BY THE PARTNERS AND THAT THE ORDER OF THE ASSESSING OFFICER WAS NOT SUSTAINA BLE. THE TRIBUNAL HELD THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS INCORRECT AND ERRONEOUS AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ON A REFERENCE: HELD THAT WH EN THE TRIBUNAL WAS TO DISLODGE THE ORDER PASSED BY THE AP PELLATE AUTHORITY IT WAS OBLIGATORY ON THE PART OF THE TRIB UNAL TO DEMONSTRATE AS TO HOW THE FINDINGS RECORDED BY THE APPELLATE AUTHORITY WERE NOT CONSISTENT WITH THE FACTS AND TH E PROVISIONS OF LAW. IT WAS OBLIGATORY ON THE PART OF THE TRIBUNAL TO DEMONSTRATE AS TO HOW THE DEPARTMENT PROVED A NEXUS BETWEEN THE BORROWINGS AND WITHDRAWALS MADE BY THE PARTNERS. IT WAS OBLIGATORY ON THE PART OF EVERY APPELLATE AUTHORITY TO POINT OUT BY GOOD AND ACCEPTABLE REASONING AS TO HOW THE FACTS A ND CIRCUMSTANCES OF ONE CASE HAPPENED TO BE DIFFERENT FROM OTHER CASES. IT WAS IMPROPER TO CLOSE THE DOORS TO A LITI GANT BY A CASUAL TREATMENT OF SOME STATEMENTS MOVING TOWARDS A CONCL USION THAT ITA NO.2686/AHD/2008 A.Y. 2004-05 SH NARESHCHHANDRA P SHAH V. DCIT CIR-10 ABD PAGE 4 THE PRECEDENTS ON WHICH SUCH LITIGANT RELIED WERE D IFFERENT FROM HIS CASE. THEREFORE THE TRIBUNAL WAS NOT JUSTIFIED IN LAW IN DISALLOWING THE INTEREST ON THE ENTIRE DEBIT BALANC ES INCLUDING THE OPENING BALANCES OF T HE PARTNERS. ITAT AHMEDABAD B BENCH IN THE CASE OF M. RAJVI & CO. VS DCIT IN ITA NO.1745/A HD/1995 DATED 23-01-2001 COPY OF WHICH IS FILED BY LEARNED COUNSEL FOR ASSESSEE CONSIDERING THE IDENTICAL ISSUE OF OPENIN G BALANCES OF THE EARLIER YEARS BY FOLLOWING THE DECISION IN THE CASE OF SRI DEV ENTERPRISES (SUPRA) DELETED THE DISALLOWANCE OF INT EREST. 8. CONSIDERING THE FACTS IN THE CASE IN THE LIGHT O F THE ABOVE DECISIONS IT IS CLEAR THAT THE AUTHORITIES BELOW H AVE NOT APPRECIATED THE CONTENTION OF THE ASSESSEE IN PROPE R PERSPECTIVE. THE MATERIAL ON RECORD PRIMA FACIE PROVES THAT ALL THE FOUR ITEMS WHICH HAVE BEEN CONSIDERED BY THE AUTHORITIES BELOW FOR THE PURPOSE OF DISALLOWING THE INTEREST ARE THE OPENIN G BALANCES IN THE ASSESSMENT YEAR UNDER APPEAL. THE A O HAS NOT M ADE ANY DISALLOWANCE OUT OF THE INTEREST IN THE PRECEDING A SSESSMENT YEARS 2001-02 AND 2002-03 IN THE ORDERS U/S 143(3) OF THE IT ACT. THE MATERIAL ON RECORD ALSO MAKES IT CLEAR THAT THE ASSESSEE PAID RS.1 81 91 142/- IN THE ASSESSMENT YEAR UNDER APPEA L FOR REPAYMENT TO THE CREDITORS AND THERE WAS INCREASE I N THE BORROWINGS OF RS.1 62 02 964/-. THE COMPARATIVE STU DY OF THE BALANCE SHEETS OF THE PRECEDING ASSESSMENT YEARS AN D THE BALANCE SHEET OF THE ASSESSMENT YEAR UNDER APPEAL A LSO MAKES IT CLEAR THAT THE AMOUNT OF LOAN AND ADVANCES TO THE R ELATIVES AND ASSOCIATE CONCERNS HAVE REDUCED IN THE ASSESSMENT Y EAR UNDER APPEAL. IT WOULD ALSO SUPPORT CONTENTION OF LEARNED COUNSEL FOR ASSESSEE THAT IN THE ASSESSMENT YEAR UNDER APPEAL T HE OPENING BALANCES OF THE EARLIER YEARS HAVE REDUCED AND NO N EW ADVANCE HAS BEEN GIVEN IN THE ASSESSMENT YEAR UNDER APPEAL TO ANY RELATIVES OR THE OTHERS. THE LEARNED CIT (A) HAS AL SO NOTED IN PARA 16 OF THE ORDER THAT THE INTEREST FREE ADVANCE S AND INVESTMENTS MADE FOR NON-BUSINESS PURPOSES ARE THE OPENING BALANCES THIS YEAR. IT IS ALSO NOT CLARIFIED BY THE AUTHORITIES BELOW AS TO HOW THERE WAS A NEXUS BETWEEN BORROWED FUNDS AND THE FUNDS ALLEGED TO HAVE BEEN DIVERTED FOR NON-BUSINES S PURPOSES. THE ABOVE FACTS AND MATERIAL ON RECORD CLEARLY PROV ES THAT THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE ISSUE PRO PERLY. THE MATTER THEREFORE REQUIRES RECONSIDERATION IN THE LIGHT OF THE OBSERVATION ABOVE AND THE DECISIONS CITED. WE ACCOR DINGLY SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE T HIS ISSUE TO THE FILE OF A O WITH DIRECTION TO RE-DECIDE THIS ISSUE IN THE LIGHT OF THE OBSERVATION IN THIS ORDER AND THE DECISIONS QUOTED ABOVE. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 5. ON QUERY FROM THE BENCH THE LD. SR-DR STATED TH AT THE FACTS ARE EXACTLY IDENTICAL IN THIS YEAR ALSO. ITA NO.2686/AHD/2008 A.Y. 2004-05 SH NARESHCHHANDRA P SHAH V. DCIT CIR-10 ABD PAGE 5 6. AS THE ISSUE IS SQUARELY COVERED BY THE TRIBUNAL S DECISION IN ASSESSEES OWN CASE IN IMMEDIATE PRECEDING YEAR THE FACTS BEING E XACTLY IDENTICAL RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER WE SET ASIDE THIS I SSUE TO THE FILE OF ASSESSING OFFICER EXACTLY ON SIMILAR DIRECTIONS. THIS ISSUE OF THE AS SESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.10 366/- MADE BY ASSESSING OFFICER U/S.36(I)(VA) R.W.S. 2(24)(X) OF THE ACT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS ALSO REQUEST FOR SETTING ASIDE OF THIS ISSUE FOR VERIFICATION AND LD.SR-DR H AS NOT OBJECTED TO THE SAME. ACCORDINGLY THIS ISSUE IS ALSO SET ASIDE TO THE FI LE OF ASSESSING OFFICER FOR RE- ADJUDICATION. 9. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 12/08 /2010 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 12/08/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XVI AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD