Rishab Felt Finishing Works, JAIPUR v. ITO, PALI

ITA 318/JODH/2012 | 2008-2009
Pronouncement Date: 15-07-2013 | Result: Allowed

Appeal Details

RSA Number 31823314 RSA 2012
Assessee PAN AAIFR9398C
Bench Jodhpur
Appeal Number ITA 318/JODH/2012
Duration Of Justice 10 month(s) 23 day(s)
Appellant Rishab Felt Finishing Works, JAIPUR
Respondent ITO, PALI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 15-07-2013
Date Of Final Hearing 05-03-2013
Next Hearing Date 05-03-2013
Assessment Year 2008-2009
Appeal Filed On 22-08-2012
Judgment Text
[1] IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI N. K. SAINI ACCOUNTANT MEMBER I.T.A. NO.318/JODH/2012 ASSESSMENT YEAR:2008-09 M/S RISHAB FELT FINISHING WORKS VS. INCOME TAX OFFICER F-309 MANDIA ROAD WARD-1 PALI-MARWAR. PALI. PAN:AAIFR9398C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P. C. PARWAL F.C.A. SHRI GAUTAM MUTHA RESPONDENT BY : SHRI MAHESH KUMAR D.R. DATE OF HEARING : 25/06/2013 DATE OF PRONOUNCEMENT : 15/07/2013 ORDER PER N. K. SAINI: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 26/06/2012 OF CIT(A) JODHPUR. THE ONLY EFFECTIVE GROUND RAIS ED IN THIS APPEAL READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN CONFIRMING DISALLOWANCE OF RS.4 66 762/- OUT OF INT EREST PAYMENT CLAIMED U/S 36(1)(III) BY HOLDING THAT NO COMMERCIAL EXPEDIENCY WAS INVOLVED IN GIVING INTERE ST FREE ADVANCES TO SHRI ARUN JAIN RISHAB AGENCIES & SURAB HI J.K.S.A.V. KENDRA PALI. [2] 2. THE FACTS RELATED TO THIS CASE IN BRIEF ARE TH AT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD GIVEN LOAN TO THE FOLLOWING PERSONS/CONCERNS AND HA D NOT CHARGED INTEREST: 1. SHRI ARUN JAIN RS.35 32 620/- 2. M/S RISHABH AGENCIES (A) PALI RS. 57 000/- 3. M/S SURABHI J.K.S.A.V. KENDRA PALI RS. 2 50 000/- RS.38 39 620/- 2.1 THE ASSESSING OFFICER FURTHER OBSERVED THAT AS PER THE DETAILS AVAILABLE IN SCHEDULE-10 OF THE AUDIT REPORT THE A SSESSEE HAD PAID TOTAL INTEREST OF RS.5 78 220/- TO THE RELATIVES BANK AN D OTHER. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN REGARDING INT EREST FREE ADVANCES. IN RESPONSE TO THE ABOVE THE ASSESSEE SUBMITTED AS UN DER: 'THE ASSESSEE HAS FULFILLED ALL THREE CONDITIONS LA ID DOWN IN ABOVE SECTION FOR ALLOW OF INTEREST PAID. THE CONDI TIONS ARE AS FOLLOW: (I) MONEY MUST HAVE BEEN BORROWED BY THE ASSESSEE. (II) IT MUST HAVE BEEN BORROWED FOR PURPOSE OF BUSINESS. (III) THE ASSESSEE MUST HAVE PAID INTEREST ON THAT AMOUNT AND CLAIMED IT AS DEDUCTION. THE LOANS TAKEN HAVE BEEN USED FOR BUSINESS PURPOSE . THEREFORE INTEREST PAID SHOULD BE ALLOWED. THE ASSESSEE HAS NOT CHARGED INTEREST ON ADVANCES B ECAUSE SHRI ARUN JAIN IS HAVING BUSINESS RELATION WITH THE FIRM AND MONEY ADVANCED FOR BUSINESS PURPOSES AND FOR BUSINESS EXP EDIENCY. ASSESSEE MAINLY DID JOB WORK OF M/S MARUDHARA FAB T EX PALI IN WHICH SH. ARUN JAIN IS A PARTNER AND BEING A PARTNE R HE TOLD TO THE ASSESSEE THAT HE WILL NOT PAY INTEREST TO THE F IRM ON MONEY LYING WITH ME AS SECURITY AND I WILL CONTINUOUSLY S END GOODS FOR FINISHING TO YOUR FIRM. THE COPY OF ACCOUNT FILED A LSO SHOWS THE FACT SHRI ARUN JAIN HAS NOT PAID ANY INTEREST TO TH E ASSESSEE FIRM [3] ON THAT GROUND AND THEREFORE THE ASSESSEE HAS NOT CHARGED INTEREST ON ADVANCE TO HIM. AN AFFIDAVIT OF SHRI AR UN JAIN IN SUPPORT OF ABOVE IS ALSO ENCLOSED. THE ASSESSEE HAS ADVANCED MONEY TO M/S SURBHI J.K.S .A.V. KENDRA PALI AND SUCH FIRM WAS CLOSED AND NOT IN EX ISTENCE SINCE LONG BACK. THE PRINCIPAL AMOUNT IS NOT RECOVERABLE AT ALL FROM SAID FIRM. THEREFORE NO INTEREST HAS BEEN RECEIVED / CHARGED. THE INTEREST FROM RISHABH AGENCIES ON ADVANCE OF RS .57 000/- FOR 9 MONTHS @12% MAY BE INCLUDED TO THE INCOME OF THE ASSESSEE.' 2.2 THE ASSESSING OFFICER ALSO EXAMINED ON OATH SHR I ARUN JAIN U/S 131 OF THE ACT (HEREINAFTER REFERRED TO AS THE ACT) O N 09/12/2010. IN HIS STATEMENT SHRI ARUN JAIN STATED THAT THE AMOUNT WAS RECEIVED BY HIM ON BEHALF OF THE FIRM M/S MARUDHARA FAB TEX IN WHICH HE IS ONE OF THE PARTNERS HAVING 50% SHARE AND OTHER TWO PARTNERS SH RI RAKESH KUMAR AND SHRI SAMPAT RAJ HAVING 25% SHARE EACH. SHRI ARUN JA IN CLAIMED THAT THE AMOUNT WAS RECEIVED AS SECURITY DEPOSIT AS MAJOR PA RT OF GREY CLOTH JOB WORK OF M/S MARUDHARA FAB TEX WAS GOT DONE FROM M/S RISHABH FELT FINISHING WORKS I.E. THE ASSESSEE. THE ASSESSING OF FICER HOWEVER CONSIDERED THE STATEMENT OF SHRI ARUN JAIN AS AN AF TERTHOUGHT AND NOT ACCEPTED THE SAME ON ACCOUNT OF THE FOLLOWING REASO NS: 1. APART FROM PARTNER IN M/S MARUDHARA FAB TEX SH RI ARUN JAIN IS NEITHER PROPRIETOR NOR PARTNER IN ANY OTHER CONCERN AND M/S RISHABH FELT FINISHING WORKS HAS ADVANCED L OAN TO SHRI ARUN JAIN IN HIS INDIVIDUAL CAPACITY AND NO T TO THE FIRM IN WHICH HE IS PARTNER. 2. IN THE AUDIT REPORT OF M/S RISHABH FELT FINISHIN G WORKS THE AMOUNT GIVEN TO SHRI ARUN JAIN HAS BEEN SHOWN A S LOAN TO THE RELATIVE AND NOT AS SECURITY DEPOSIT WI TH M/S MARUDHARA FAB TEX. [4] 3. IN THE STATEMENT SHRI ARUN JAIN DENIED OF HAVING ACCEPTED SECURITY DEPOSIT OR LOAN FROM OTHER CONCERNS FROM W HOM PROCESSING OF GREY CLOTH WAS GOT DONE BY THE FIRM M /S MARUDHARA FAB TEX IN WHICH HE IS ONE OF THE PARTNER S. 4. M/S MARUDHARA FAB TEX IS ALSO ENGAGED IN PROCESS ING OF CLOTH. BUT THE SAID CONCERN HAS NOT ADVANCED ANY A MOUNT AS SECURITY DEPOSIT TO ANY OF THE PARTY FROM WHOM G REY CLOTH HAS BEEN RECEIVED FOR JOB WORK. 5. ABOVE ALL IN THE PARTNERSHIP DEED SHRI ARUN JAI N OR OTHER PARTNERS HAVE NOT BEEN AUTHORIZED TO ACCEPT ANY LOA N OR SECURITY DEPOSIT ON BEHALF OF THE FIRM FROM OUTSIDE PARTIES. 2.3 THE ASSESSING OFFICER WAS OF THE VIEW THAT IF THE EXPENDITURE INCURRED WAS OSTENSIBLY FOR THE BUSINESS BUT IN REALITY WAS NOT FOR THE BUSINESS SUCH EXPENDITURE WAS NOT ALLOWABLE AND THAT THE CAPITAL BORROWED SHOULD BE FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ASSESSI NG OFFICER OBSERVED THAT SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSIN ESS THE INTEREST PAID ON SUCH BORROWING WAS AN EXPENDITURE WHICH WAS REQU IRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM THE BUSINESS. THE ASSESSING OFFICER HELD THAT THE ASSESSEE DIVERTED ITS INTEREST FREE A DVANCES TO THE RELATIVES AND PAID THE INTEREST WHICH WAS CLAIMED AS BUSINES S EXPENDITURE. HE WORKED OUT THE INTEREST ON THE AFORESAID REFERRED T O LOANS AT RS.4 66 762/- AND DISALLOWED THE SAME. THE RELIANCE WAS ALSO PLA CED ON THE FOLLOWING CASE LAWS: (I) K. SOMASUNDARAM AND BROTHERS VS. CIT [1999] 238 ITR 939 (MAD) (II) CIT VS. VENKATESWARAN [1996] 222 ITR 163 (MAD) (III) CIT VS. P. GANU RAO AND SONS [19990] 185 ITR 324 (M AD) (IV) CIT VS. V. I. BABY AND CO. [2002] 254 ITR 248 [5] (V) CIT VS. H. R. SUGAR FACTORY PVT. LTD. [1991] 187 IT R 363 (ALL) (VI) S. A. BUILDERS LTD. VS. CIT(A) [2007] 288 ITR 1 (SC ) (VII) CIT VS. ACCELERATED FREEZE DYING CO. LTD. [2010] 32 4 ITR 316 (KER.) 3. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A ) AND SUBMITTED THAT THE LOAN HAD BEEN USED FOR BUSINESS PURPOSE AND THE IMPUGNED ADVANCE TO SHRI ARUN JAIN WHO IS HAVING BUSINESS RELATION WITH THE ASSESSEE WAS FOR BUSINESS PURPOSE AND FOR BUSINESS EXPEDIENCY. IT W AS FURTHER STATED THAT THE ASSESSEE DID JOB WORK OF M/S MARUDHARA FAB TEX PALI IN WHICH SHRI ARUN JAIN WAS A MAJOR PARTNER AND BEING A PARTNER H E TOLD TO THE ASSESSEE THAT HE WOULD NOT PAY INTEREST ON MONEY LYING WITH HIM AS SECURITY ON BEHALF OF THE ASSESSEE AND HE WILL CONTINUOUSLY SEN D GOODS FOR FINISHING TO THE ASSESSEE. IT WAS CONTENDED THAT THE ADVANCE WA S GIVEN FOR BUSINESS PURPOSE ONLY. 3.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT ASSESSEE WAS PAYING INTERES T TO BANK AND OTHERS ON ACCOUNT OF LOAN IT HAD GIVEN INTEREST FREE ADVAN CES AMOUNTING TO RS.35 32 620/- TO SHRI ARUN JAIN AND TWO OTHER PERS ONS. HE FURTHER OBSERVED THAT THE ASSESSEES CLAIM THAT IT WAS A SE CURITY DEPOSIT WAS NOT CONVINCING BECAUSE IN THE AUDIT REPORT OF M/S RISHA B FELT FINISHING WORKS (THE ASSESSEE) THE AMOUNT GIVEN TO SHRI ARUN JAIN H AD BEEN SHOWN AS LOAN TO THE RELATIVE AND NOT AS SECURITY DEPOSIT WITH M/ S MARUDHARA FAB TEX. HE ALSO OBSERVED THAT SHRI ARUN JAIN WHILE REPLYING TO QUESTION NO. 7 STATED THAT THE ASSESSEE HAD NOT ADVANCED ANY AMOUNT AS SE CURITY DEPOSIT TO ANY OF THE OTHER PARTIES. THE LEARNED CIT(A) WAS OF TH E VIEW THAT THERE WAS NO SYSTEM TO ADVANCE THE AMOUNT AS SECURITY DEPOSIT AN D THAT THERE WAS NO SUCH AGREEMENT WHERE ANY SUCH TYPE OF CONDITION WAS GIVEN THAT THE [6] ASSESSEE WILL DEPOSIT THE SECURITY FOR BUSINESS. TH E LEARNED CIT(A) WAS OF THE VIEW THAT THE ASSESSEE FAILED TO PROVE ANY BUSI NESS EXPEDIENCY AND THAT THE ADVANCES WERE GIVEN FOR ANY BUSINESS PURPOSE. ACCORDINGLY THE LEARNED CIT(A) HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE DISALLOWANCE. 4. NOW THE ASSESSEE IS IN APPEAL. THE LEARNED COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE ALSO RECEIVED INTEREST FREE LOAN OUT OF WHICH INTEREST FREE ADVANCES/LOANS WERE GIVEN WHICH WERE ACCEPTED BY THE DEPARTMENT. IT WAS FURTHER STATED THAT THE ASSESSE E MADE THE DEPOSITS TO VARIOUS PERSONS THE DETAILS OF WHICH WAS FURNISHED IN THE AUDITED FINANCIAL STATEMENTS. THE REFERENCE WAS MADE TO PAGE NO. 10 OF THE ASSESSEES COMPILATION AND OUR ATTENTION WAS DRAWN TOWARDS ITE M NO.3 & 6 WHICH ARE THE DEPOSITS FROM SHRI SURYA PRAKASH AND M/S SHIV S HAKTI AGENCIES AMOUNTING TO RS.36 378/- AND RS.4 10 858/- RESPECTI VELY. IT WAS CONTENDED THAT NO INTEREST WAS GIVEN ON THE SAID DEPOSITS; TH EREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN OBSERVING THAT THE ASS ESSEE HAD GIVEN INTEREST FREE LOANS OUT OF THE INTEREST BEARING FUNDS. AS R EGARDS TO THE LOAN TO SHRI ARUN JAIN IT WAS STATED THAT SHRI ARUN JAIN WAS WO RKING PARTNER IN THE FIRM M/S MARUDHARA FAB TEX PALI HAVING 50% SHARE AND TH E ASSESSEE WAS GETTING THE JOB WORK FROM THE SAID FIRM I.E. M/S MA RUDHARA FAB TEX. IT WAS EXPLAINED THAT FOR THE YEAR UNDER CONSIDERATION A S UM OF RS.1 45 39 177/- WAS RECEIVED FROM THE SAID FIRM WHICH WAS ABOUT 30% OF THE TOTAL JOB RECEIPT. THEREFORE THE ASSESSEE MADE THE SECURITY DEPOSIT AND NO INTEREST WAS CHARGED. IT WAS EMPHASIZED THAT SHRI ARUN JAIN MAIN PARTNER IN M/S MARUDHARA FAB TEX WHILE REPLYING TO QUESTION NO. 7 TO THE ASSESSING OFFICER IN HIS STATEMENT RECORDED ON 09/10/2010 C LEARLY STATED THAT THEY [7] HAD NOT TAKEN SECURITY DEPOSIT FROM OTHER PARTIES B UT RECEIVED SECURITY ONLY FROM THE ASSESSEE FOR THE REASON THAT THE SUBSTANTI AL GOODS WERE LYING WITH THE ASSESSEE. A REFERENCE WAS MADE TO PAGE NO. 53 OF THE ASSESSEES COMPILATION WHICH IS THE COPY OF STATEMENT OF SHRI ARUN JAIN. THE ASSESSEE ALSO DREW OUR ATTENTION TOWARDS PAGE NO. 21 OF THE ASSESSEES COMPILATION WHICH IS THE COPY OF THE AFFIDAVIT DATED 13/10/2010 OF SHRI ARUN JAIN WHEREIN IT WAS STATED THAT NO INTEREST WAS PAID ON THE SECURITY AMOUNT RECEIVED FROM THE ASSESSEE. IT WAS ACCORDINGLY SUBM ITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION FO R NOTIONAL INTEREST WHEN THERE WAS NO NEXUS BETWEEN THE INTEREST BEARING FUN DS AND INTEREST FREE LOANS AND DEPOSITS GIVEN BY THE ASSESSEE AND THAT T HE LEARNED CIT(A) WITHOUT APPRECIATING THE FACTS OF THE CASE CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. IN HIS RIVAL SUBMISSIONS THE LEARNED D.R. STRO NGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE IT IS NOTICED THAT THE ASSESSING OFFICER CONSIDERED THE A MOUNT OF RS.35 32 620/- GIVEN BY THE ASSESSEE TO SHRI ARUN JAIN AS A LOAN G IVEN OUT OF THE INTEREST BEARING FUNDS. ON THE CONTRARY THE ASSESSEE CLAIME D THAT IT WAS A SECURITY DEPOSIT AND NO INTEREST WAS RECEIVED ON THE SAID DE POSIT. IN THIS REGARD SHRI ARUN JAIN VIDE AFFIDAVIT DATED 13/10/2010 AF FIRMED THAT HE WAS HAVING THE DEPOSITS FROM THE ASSESSEE SINCE SUBSTANTIAL GO ODS WERE LYING WITH THE ASSESSEE FOR JOB WORK AND NO INTEREST WAS PAID ON T HE SAID SECURITY DEPOSIT. THE SAME THING WAS STATED IN THE STATEMENT RECORDED ON 09/10/29010 WHILE GIVING THE REPLY TO QUESTION NO. 5 COPY OF WHICH I S PLACED AT PAGE NO. 23 OF [8] THE ASSESSEES COMPILATION WHEREIN IT WAS STATED TH AT THEY HAVE TAKEN DEPOSIT FROM THE ASSESSEE ONLY FOR THE REASON THAT THE SUBSTANTIAL GOODS GIVEN FOR JOB WORK WERE LYING WITH THE ASSESSEE. I N THE PRESENT CASE THE ASSESSEE RECEIVED ABOUT 30% OF THE TOTAL JOB RECEIP TS FROM THE FIRM M/S MARUDHARA FAB TEX IN WHICH SHRI ARUN JAIN IS HAVING 50% SHARE. THEREFORE THERE WAS NO REASON TO DISBELIEVE THAT T HE ASSESSEE HAD GIVEN INTEREST FREE SECURITY TO SHRI ARUN JAIN PARTNER O F M/S MARUDHARA FAB TEX FROM WHOM A SUM OF RS.1 45 39 177/- AS JOB CHARGES WAS RECEIVED BY THE ASSESSEE. THEREFORE THE LEARNED CIT(A) WAS NOT JU STIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF NOTIONAL INTEREST ON THE SECURITY DEPOSIT GIVEN TO THE PARTY FROM WHO M MAXIMUM JOB WORK WAS OBTAINED BY THE ASSESSEE. AS REGARDS TO THE OB SERVATION OF THE ASSESSING OFFICER THAT THE AMOUNT OUTSTANDING IN TH E NAME OF SHRI ARUN JAIN WAS SHOWN UNDER THE HEAD LOANS AND ADVANCES AND N OT UNDER THE HEAD SECURITY DEPOSIT IN THE BALANCE SHEET THE SAID O BSERVATION CANNOT CHANGE THE NATURE OF THE ENTRY BECAUSE THE RECIPIENT OF TH E AMOUNT CATEGORICALLY STATED IN HIS STATEMENT GIVEN TO THE ASSESSING OFFI CER AS WELL AS IN HIS AFFIDAVIT SWORN ON OATH THAT SECURITY DEPOSIT WAS R ECEIVED FROM THE ASSESSEE AND NO INTEREST WAS PAID ON THE SECURITY D EPOSIT. THEREFORE WE ARE OF THE CONFIRMED VIEW THAT NOTIONAL INTEREST WO RKED OUT BY THE ASSESSING OFFICER ON THE AMOUNT OUTSTANDING IN THE NAME OF SHRI ARUN JAIN WAS NOT JUSTIFIED. AS REGARDS TO THE OTHER LOANS A MOUNTING TO RS.57 000/- AND RS.2 50 000/- IN THE NAME OF M/S RISHABH AGENCI ES PALI AND M/S SURABHI J.K.S.A.V. KENDRA PALI RESPECTIVELY IS CONC ERNED IT IS NOTICED THAT THE ASSESSEE WAS HAVING SUFFICIENT AMOUNT OF INTERE ST FREE LOAN RECEIVED FROM SHRI SURYA PRAKASH AND M/S SHIV SHAKTI AGENCIE S AMOUNTING TO RS.36 378/- AND RS.4 10 858/- TOTALING TO RS.4 47 2 36/- WHICH WAS MORE [9] THAN THE AMOUNT GIVEN AS INTEREST FEE LOAN AT RS.3 07 000/- (RS.2 50 000/- + RS.57 000/-). THEREFORE NO DISALLOWANCE WAS CALL ED FOR OUT OF THE INTEREST AND ACCORDINGLY ADDITION MADE BY THE ASSES SING OFFICER ON ACCOUNT OF NOTIONAL INTEREST FROM THE AFORESAID PARTIES WAS ALSO NOT JUSTIFIED AND THE LEARNED CIT(A) WITHOUT APPRECIATING THE FACTS HA D CONFIRMED THE ACTION OF THE ASSESSING OFFICER. WE THEREFORE CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.4 66 762/- MADE BY THE ASSESSING OFFICER. ACCORDINGLY THE SAME IS DELETE D. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 15/07/2013) SD/. SD/. ( HARI OM MARATHA ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:15/07/2013 *CL SINGH COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. D.R. ASSISTANT REGISTRAR