Shri Mohanlal C.Agarwal, Ahmedabad v. The Dy.CIT.,Circle-11,, Ahmedabad

ITA 3039/AHD/2010 | 2007-2008
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 303920514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 3039/AHD/2010
Duration Of Justice 8 month(s) 11 day(s)
Appellant Shri Mohanlal C.Agarwal, Ahmedabad
Respondent The Dy.CIT.,Circle-11,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 15-07-2011
Date Of Final Hearing 01-07-2011
Next Hearing Date 01-07-2011
Assessment Year 2007-2008
Appeal Filed On 04-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI D.K. TYAGI HONBLE JUDICIAL MEMBER AND SHRI A.N.PHAUJA HONBLE ACCOUNTANT MEMBER ITA NO.3039/AHD/2010 ASSESSMENT YEAR:2007-08 DATE OF HEARING:17..11 DRAFTED:6.7.11 SHRI MOHANLAL C AGARWAL 152 NEW CLOTH MARKET O/S RAIPUR GATE AHMEDABAD PAN NO.AAQPA3562M V/S. DCIT CIRCLE-11 AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SUNIL H TALATI AR RESPONDENT BY:- SHRIM.R. CHAUDHRY DR O R D E R PER D.K. TYAGI JUDICIAL MEMBER:- THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF COM MISSIONER OF INCOME-TAX (APPEALS)XVI AHMEDABAD DATED 01-09-2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THE LEARNED C.I.T(APPEALS) HAS ERRED IN CONFIRM ING THE DISALLOWANCE OF RS.14 728/- U/S.40A(2)(B) OF THE INCOME TAX ACT. IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE PROVISI ONS OF SEC. 40A(2)(B) ARE NOT AT AL ATTRACTED INASMUCH AS THE ASSESSEE HA S CHARGED INTEREST TO ITS SISTER CONCERN FIRM AT THE RATE OF 12% P.A. WHICH IS NOT AT ALL LOWER THAN THE MARKET RATE. IN VIEW OF THIS THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED C.I. T. (APPEALS) OF RS.14 728/- IS TOTALLY INCORRECT IN SO FAR AS THE P ROVISIONS OF SECTION ARE NOT ATTRACTED. MOREOVER ON THE FACTS AND CIRCUMSTA NCES OF THE CASE THE ASSESSEE HAS CHARGED INTEREST AT THE RATE OF 12% P. A. WHICH IS MARKET ITA NO.3039/AHD/2010 A.Y. 2007-08 SH MOHANLAL C AGARWAL V. DCIT CIR-11 ABD PAGE 2 RATE AND THE ADVANCES WERE GIVEN FROM HIS OWN SUBST ANTIAL CAPITAL AVAILABLE INTEREST-FREE. IN VIEW OF THIS THE ADDITI ON OF RS.14 728/- DESERVES TO BE DELETED. 2. SIMILARLY THE LEARNED C.I.T.(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.39 908/- ON THE GROUND THAT THE ASSESSEE HAS GIVEN INTEREST-FREE ADVANCE OF RS.2 66 050/- AND WORKING OUT THE INTEREST AT 15% THEREON. IT IS SUBMITTED THAT NON-CHARGING OF I NTEREST DOES NOT ATTRACT PROVISIONS OF SEC. 40A(2)(B) OF THE I.T. AC T AND THE ADDITION IS UNJUSTIFIED IN LAW. MOREOVER ON FACTS THE ASSESSEE HAS SUBSTANTIAL CAPITAL ON HIS OWN AVAILABLE INTEREST-FREE AND IN A BSENCE OF ANY NEXUS BETWEEN MONEY BORROWED ON INTEREST AND INTEREST-FRE E LOAN GIVEN THE INTEREST CHARGED ON RS.2 66 050/-= AT RS.39 908/- D ESERVES TO BE DELETED. IT IS SUBMITTED THAT THE SAME BE DONE SO N OW. 3. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF R S.10 13 191/- AND HAS ALSO SHOWN INTEREST INCOME WHICH IS LESS THAN INTER EST PAID. THE ASSESSEE HAS BEEN CHARGING INTEREST @ 15% FROM ALL THE PERSONS B UT HE HAS CHARGED INTEREST @ 12% FROM INDIA TRADING CO. A PERSON COVE RED BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME-TAX ACT 1961. THE ASSESSING OFFICER THEREFORE ON PROPORTIONATE BASIS DISALLOWED 3% OF T HE INTEREST IN RESPECT OF LOAN GIVEN TO THIS PERSON OUT OF THE INTEREST PAYME NT. THIS DISALLOWANCE COMES TO RS.14 728/-. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE HAD GIVEN INTEREST FREE LOAN TO RS.2 66 050/- TO HER GRAND-DA UGHTER. THE AO STATED THIS LOAN WAS NOT FOR THE PURPOSE OF BUSINESS AND HE DIS ALLOWED INTEREST OUT OF INTEREST PAYMENT ON PROPORTIONATE BASIS. THIS DISAL LOWANCE COMES TO RS.39 908/-. 4. BEFORE LD. CIT(APPEALS) THE ASSESSEE SUBMITTED T HAT ASSESSEE HAS PAID INTEREST @ 12% TO RELATIVES AND OUTSIDE PARTY ON PREVALENT MARKET RATES. WHILE IN RESPECT OF INTEREST FREE LOAN GIVEN TO THE GRAND-DAUGHTER THE ASSESSEE STATED IT HAD SUFFICIENT FUNDS OF ITS OWN AND THEREFORE NO DISALLOWANCE SHOULD BE MADE. HOWEVER LD. CIT(APPEA LS) CONFIRMED THE ACTION OF ASSESSING OFFICER. ITA NO.3039/AHD/2010 A.Y. 2007-08 SH MOHANLAL C AGARWAL V. DCIT CIR-11 ABD PAGE 3 5. FURTHER AGGRIEVED NOW ASSESSEE IS IN APPEAL BEFO RE US. 6. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE REITERATED THE SAME SUBMISSION AS MADE BEFORE LOWER AUTHORITIES THAT PR OVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE NOT ATTRACTED IN THE FACTS OF THIS CASE AS ASSESSEE HAS CHARGED INTEREST @ 12% WHICH IS PREVALENT MARKET RA TE AND THE ADVANCES WERE GIVEN FROM HIS OWN SUBSTANTIAL CAPITAL AND THE REFORE NO ADDITION WAS CALLED FOR. HE FURTHER SUBMITTED THAT DURING THE YE AR NO NEW ADVANCES WERE GIVEN AND ALL THESE ADVANCES WERE GIVEN IN EARLIER YEARS AND IN THOSE YEARS NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST PAID T O THEM AGAINST THE ADVANCES. FOR MAKING THIS SUBMISSION HE PLACED REL IANCE ON THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 AND ALSO ON THE D ECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SRIDEV ENTERPRISES (1991) 59 TAXMAN 439 (KAR). IN RESPECT OF OTHER ADDITION OF R S.39 908/- IT WAS SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE THAT ADDITION IS UN JUSTIFIED AS ASSESSEE HAD SUBSTANTIAL CAPITAL OF ITS OWN AVAILABLE INTEREST F REE AND IN ABSENCE OF ANY NEXUS BETWEEN MONEY BORROWED ON INTEREST AND INTERE ST FREE LOAN GIVEN THE INTEREST CHARGED ON RS.2 66 050/- AT RS.39 908/- DE SERVES TO BE DELETED. FOR MAKING THIS SUBMISSION HE PLACED RELIANCE ON CAPITA L ACCOUNT AND BALANCE- SHEET OF THE ASSESSEE TO SHOW THAT ASSESSEE HAD OPE NING BALANCE OF RS.93 28 758/- AS ON 1-4-2006 OUT OF WHICH INTEREST FREE LOAN OF RS.2 66 050/- WAS GIVEN TO HER GRAND-DAUGHTER. HE HAS ALSO PLACED RELIANCE ON A CASE LAW OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION V. CIT AND ANOTHER (2008) 298 ITR 298 (SC). 7. LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES . 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ADVANCES ON WHICH ASSESSEE HAS CHARGED INTEREST @ 1 2% WERE NOT GIVEN BY THE ASSESSEE DURING THE YEAR UNDER APPEAL AND THEY WERE ADVANCED IN EARLIER YEARS AND IN THOSE YEARS NO INTEREST WAS DISALLOWED . AS PER THE DECISION OF ITA NO.3039/AHD/2010 A.Y. 2007-08 SH MOHANLAL C AGARWAL V. DCIT CIR-11 ABD PAGE 4 HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRIDEV ENTERPRISE (SUPRA) THE ASSESSING OFFICER SHOULD NOT HAVE MADE ANY ENQUIRY ABOUT THE INTEREST PAYMENT DURING THE YEAR UNDER APPEAL AS THESE WERE OLD ADVANCES. IN THAT CASE OF SRIDEV ENTERPRISE (SUPRA) THE ASSESSEE-FIRM HAD ADVANCED CERTAIN SUMS TO A FIRM N. THERE WAS CERTAIN OPENING BALANCE ADVANCE MADE TO N DURING EARLIER YEARS. THE BALANCE OUTSTANDING FROM FIRM N WAS AT RS.2 55 750/- AS ON 31-03-1978. NO INTEREST WAS CHA RGED AGAINST THIS ADVANCE. SOME OF THE PARTNERS OF THE ASSESSEE AND N WERE COMMON AND THEY HAD BUSINESS LINK INTER SE. THE ASSESSEE HAD BORROW ED FROM THIRD PARTY AND HAD BEEN PAYING INTEREST THEREON. THE ASSESSEE CLAI MED DEDUCTION IN RESPECTED OF THE INTEREST PAYMENT TO THE THIRD PART Y. THE ASSESSING AUTHORITY DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE TO THE EXTENT OF INTEREST FREE ADVANCES STANDING IN THE NAME OF N ON THE GROUND TH AT THE AMOUNT BORROWED WERE NOT UTILIZED BY THE ASSESSEE FOR ITS OWN BUSIN ESS. ON SECOND APPEAL THE TRIBUNAL HELD THAT SINCE NO ADDITION HAS BEEN MADE IN THE EARLIER YEARS THE OPENING BALANCE COULD NOT BE CONSIDERED IN THE YEAR IN QUESTION AND THE ENQUIRY HAD TO BE LIMITED ONLY TO THE INCREASE IN T HE YEAR IN QUESTION. ON FURTHER APPEAL THE HONBLE KARNATAKA HIGH COURT HE LD THAT TRIBUNAL WAS JUSTIFIED IN HOLDING THAT SINCE NO ADDITION HAS BEE N MADE IN EARLIER YEARS THE OPENING DEBIT BALANCE COULD NOT BE CONSIDERED DURIN G THE CURRENT YEAR AND ENQUIRY HAD TO BE LIMITED TO THE INCREASE IN THE CU RRENT YEAR ONLY. SINCE THE FACTS ARE SIMILAR WE FEEL THAT RATIO AS LAID DOWN BY HONBLE HIGH COURT IS APPLICABLE TO THE FACTS OF THE INSTANT CASE AND THE ADDITION MADE BY ASSESSING OFFICER AND SUSTAINED BY LD. CIT(APPEALS) OF RS.14 720/- WAS UNCALLED FOR AS THE ADVANCES ON WHICH INTEREST HAS BEEN CHARGED WER E NOT GIVEN DURING THE YEAR UNDER APPEAL AND WERE THE OPENING BALANCE OF E ARLIER YEAR AND THE SAME IS HEREBY DELETED. 9. NOW COMING TO OTHER ADDITION OF RS.39 908/- WE FIND FORCE IN THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAD OPENING CAPITAL OF RS.93 28 758/- OUT OF WHICH A SUM OF RS. 2 66 050/- WAS GIVEN BY ITA NO.3039/AHD/2010 A.Y. 2007-08 SH MOHANLAL C AGARWAL V. DCIT CIR-11 ABD PAGE 5 HIM TO HIS GRAND-DAUGHTER WITHOUT CHARGING INTEREST . SINCE THE ASSESSEE WAS HAVING INTEREST FREE SUBSTANTIAL CAPITAL OF HIS OWN THE DISALLOWANCE MADE OF RS.39 908/- BY CHARGING INTEREST @ 15% ON AMOUNT OF RS.2 66 050/- DESERVED TO BE DELETED. THIS VIEW GETS SUPPORT FROM THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA) WHEREIN HONBLE COURT HAS HELD THAT SINCE OPENING BALANCE OF THE PROFIT O F THE ASSESSEE AS ON 01-04- 1994 WAS OF RS.1.98 CRORE AND THE PROFIT WAS SUFFIC IENT TO COVER THE LOAN GIVEN TO ITS SISTER CONCERN OF RS.5 LAKH ONLY THE TRIBUN AL OUGHT TO HAVE HELD THAT LOAN WAS GIVEN FROM THE ASSESSEES OWN FUND. 10. IN VIEW OF THE ABOVE BOTH THE ADDITION MADE BY ASSESSING OFFICER AND SUSTAINED BY LD. CIT(APPEALS) ARE HEREBY DELETED. B OTH THE GROUNDS OF ASSESSEE ARE ALLOWED. 11. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 15/07/2011 SD/- SD/- (A.N.PHAUJA) (D.K. TYAGI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 15/07/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 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