M/s Patwa Abhikaran, v. The ACIT, Ratlam

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO.463/IND/2008 A.Y.2005-06 M/S PATWA ABHIKARAN PRIVATE LIMITED RATLAM PAN AADCP-5646B APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX CIRCLE RATLAM RESPONDENT APPELLANT BY : SHRI MANJEET SACHDEVA RESPONDENT BY : SHRI P.K. MITRA O R D E R PER JOGINDER SINGH JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 29.8.2008. 2 2. THE FIRST GROUND OF APPEAL RELATES TO CONFIRMATI ON OF ADDITION OF RS.10 78 982/- OUT OF INTEREST PAYMENT HOLDING THAT PAYMENT OF INTEREST NOT BEING WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPO SES . DURING HEARING WE HAVE HEARD SHRI MANJEET SACHDEVA LD. COUNSEL FO R THE ASSESSEE AND SHRI PRADEEP KUMAR MITRA LEARNED SENIOR DEPART MENTAL REPRESENTATIVE. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE COMPANY MAINTAINS REGULAR BOOKS OF ACCOUNTS IN THE SHAPE OF CASH BOOK AND LEDGER AND THE BOOKS ARE DULY AUDITED VIDE REPORT DATED 27.7.2005. THE DISALLOWANCE OF INTEREST WAS ARGUED TO BE WITHOUT ANY JUSTIFICATION. ON THE OTHER HAND THE LEARNED SENIO R DEPARTMENTAL REPRESENTATIVE DEFENDED THE ADDITION. 2.1 ON PERUSAL OF RECORD AND AFTER CONSIDERING THE RIVAL SUBMISSIONS THE CASE OF THE REVENUE IS THAT THE ASSESSEE COMPAN Y GAVE INTEREST FREE LOAN TO THE TUNE OF RS.1 00 82 859/- TO THREE PERSO NS/DIRECTORS NAMELY SHRI M.K. PATWA SAMPATLAL PATWA AND SHRI S.K. PATW A AND PAID INTEREST TO THE BANK WHEREAS THE STAND OF THE ASSESSEE IS TH AT AT THE TIME OF NEED SUBSTANTIAL AMOUNT WAS BORROWED INTEREST FREE FROM THESE DIRECTORS. THE MAJOR ADVANCES GIVEN TO THE DIRECTOR S AND FAMILY MEMBERS ARE SUMMARIZED AS UNDER:- 3 NAME POST AND PERCENTAGE OF SHARES AMOUNT OUTSTANDING AS ON 31.3.2005 (IN RUPEES) INTEREST DISALLOWED (IN RUPEES) M.K. PATWA DIRECTOR SHARE 48% 8466415 1015970 SAMPATLAL PATWA RELATIVE OF DIRECTOR 127984 15358 S.K. PATWA DIRECTOR 51% 1488460 44654 TOTAL 10082859 1075982 IT IS CLEAR FROM THE ABOVE CHART THAT THE ASSESSING OFFICER HAS COMPUTED THE INTEREST ON THE CLOSING BALANCE STANDING AS ON 31 ST MARCH 2005. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CURRENT ACCOUNT OF THE DIRECTORS/RELATIVE OF THE DIRECTOR O F THE ASSESSEE COMPANY WHEREIN ON SO MANY OCCASIONS THE ASSESSEE COMPANY HAS ALSO TAKEN MONEY BACK FROM THE DIRECTORS/RELATIVE OF THE DIREC TOR. AS PER THE LD. COUNSEL FOR THE ASSESSEE NO INTEREST SHOULD BE CHA RGED ON THE CREDIT GIVEN BY THESE DIRECTORS/RELATIVE OF THE ASSESSEE C OMPANY. WE ARE IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THA T INTEREST SHOULD NOT BE CHARGED ON THE SINGLE DAY BALANCE STANDING AS AT THE END OF THE YEAR BUT SHOULD BE COMPUTED ON PRODUCT METHOD ON THE BAS IS OF THE AMOUNT OUTSTANDING ON VARIOUS DATES MEANING THEREBY THAT THE INTEREST SHOULD BE COMPUTED ON THE BASIS OF OUTSTANDING BALANCE OF VARIOUS DATES WHEN THE DIRECTORS/RELATIVE OF THE DIRECTOR HAD ALSO ADV ANCE THE MONEY TO THE ASSESSEE COMPANY WHICH WILL RESULT IN REDUCTION OF INTEREST AMOUNT COMPUTED BY THE ASSESSING OFFICER FOR DISALLOWANCE. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INTE REST ON PRODUCT 4 METHOD KEEPING IN VIEW THE CURRENT ACCOUNTS OF THE DIRECTORS/RELATIVE OF THE DIRECTOR IN THE ASSESSEE COMPANY. WE DIRECT AC CORDINGLY. 3. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF EXP ENSES ON ACCOUNT OF TELEPHONE TRAVELLING EXPENSES AND VEHICLE RUNNI NG AND MAINTAINING EXPENSES ON THE PLEA THAT PERSONAL ELEMENT IS INVOL VED. THE STAND OF THE ASSESSEE IS THAT IT IS THE CASE OF A COMPANY THERE FORE NO LUMP SOME DISALLOWANCE IS REQUIRED TO BE MADE ESPECIALLY WHEN THERE IS NO EVIDENCE ON RECORD THAT THESE FACILITIES WERE USED FOR NON-BUSINESS PURPOSES. 3.1 KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES NAR RATED BEFORE US WE ARE OF THE VIEW THAT SINCE THE ASSESSEE COMPANY IS A JURISTIC PERSON UNDER THE COMPANIES ACT 1956 NO DISALLOWANCE CAN BE MADE FOR PERSONAL USE. WE THEREFORE ALLOW THIS GROUND OF A PPEAL OF THE ASSESSEE. FINALLY THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 22 FEBRUARY 2 011. (R.C.SHARMA) (JOGI NDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 FEBRUARY 2011 COPY TO: APPELLANT RESPONDENT CIT CIT(A) DR G UARD FILE DN/- 5