The ACIT, Central Circle-3,, Surat v. Shri Vasantlal Ambalal Patel, Surat

ITA 751/AHD/2008 | 2002-2003
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 75120514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 751/AHD/2008
Duration Of Justice 2 year(s) 10 month(s) 8 day(s)
Appellant The ACIT, Central Circle-3,, Surat
Respondent Shri Vasantlal Ambalal Patel, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-01-2011
Date Of Final Hearing 31-12-2010
Next Hearing Date 31-12-2010
Assessment Year 2002-2003
Appeal Filed On 28-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND BHAVNESH SAINI JUDICIAL MEMBER) ITA NO.748 751 752 AND 753/AHD/2008 [ASSTT. YEAR : 1999-2000 2002-2003 2003-2004 AND 2004-2005] DICTATED ON: 31-12-2010 ACIT CENT.CIR.3 SURAT. VS. SHRI VASANTLAL AMBALAL PATEL PROP: M/S.PATEL VASANTLAL AMBALAL B/5/556 MAIN ROAD HARIPURA SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ALOK JOHRI ASSESSEE BY : SHRI P.M.MEHTA O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THESE ARE FOUR APPEALS BY THE REVENUE AGAINST THE ORDERS OF THE CIT(A)-II AHMEDA BAD ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S. 153C OF THE I.T. ACT 1961. 2. THE ONLY GROUND RAISED IN ALL THESE APPEALS BY T HE REVENUE IS AGAINST DELETION OF DISALLOWANCE OF INTEREST. THEREFORE W E PROCEED TO DISPOSE OF ALL THESE APPEALS BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE AMOUNTS OF DISALLOWANCES IN THE RESPECTIVE ASSESSMENT YEARS ARE AS UNDER: ASSTT. YEAR AMOUNT (RS.) 1999-2000 RS.60 74 672/- 2002-2003 RS.7 67 492/- 2003-2004 RS.6 51 030/- 2004-2005 RS.6 41 886/- ITA NO.748 751 752 AND 753/AHD/2008 -2- 3. AT THE OUTSET IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE FOLL OWING DECISIONS OF THE ITAT: I) ITA NO.3748/AHD/2007 ACIT VS. PATEL SOMBHAI MANGAN BHAI & CO. ORDER DATED 30-4-2010; II) ITA NO.737/AHD/2008 ACIT VS. PATEL NATVERLAL CHINU BHAI & CO. DATED 3-9-2010; III) ITA NO.4296/AHD/2007 DCIT VS. PATEL SOMBHAI MAGANL AL & CO. DATED 18-9-2009; IV) ITA NO.842/AHD/1984 PATEL SOMBHAI KANCHANLAL VS. I TO DATED 2-3-1987. 4. THE LEARNED DR ON THE OTHER HAND STATED THAT DU RING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THERE WAS HUGE CASH BALANCE WITH THE ASSESSEE AND AT THE SAME TIME THE ASSESSEE BORROWED MONEY F ROM OUTSIDE. THUS THE BORROWED MONEY WAS KEPT AS CASH ON HAND AND NOT UTI LISED FOR THE PURPOSE OF BUSINESS. HE SUBMITTED THAT THE CIT(A) ACCEPTED TH E ASSESSEES CONTENTION THAT HE WAS CARRYING ON BUSINESS OF ANGADIA ( COURIER SERVICE). THEREFORE HE IS REQUIRED TO KEEP SUFFICIENT CASH BALANCE AT HEAD OF FICE AS WELL AS AT VARIOUS BRANCHES. THE ASSESSEE ALSO CLAIMED THAT IT IS ALS O TRANSFERRING THE CASH OF CLIENTS FROM ONE PLACE TO ANOTHER PLACE. IT IS CON TENDED BY THE LEARNED DR THAT THE TRANSFER OF CASH BY ANY PERSON OTHER THAN BANKI NG COMPANY IS ILLEGAL AND PROHIBITED BY LAW. THEREFORE IF THE ASSESSEE IS C ARRYING ON ANY BUSINESS OF MONEY TRANSFER SUCH BUSINESS IS ILLEGAL AND IF ANY SUCH ILLEGAL BUSINESS IS CARRIED OUT THE SAME CANNOT BE ALLOWED TO SET OFF AGAINST THE PROFIT OF THE LEGAL BUSINESS. HE HAS STATED THAT THE BUSINESS OF THE A SSESSEE OF TRANSFER OF GOODS POST AND PARCEL ETC. IS A LEGAL BUSINESS AND SEPARA TE PROFIT FROM SUCH LEGAL BUSINESS IS TO BE WORKED OUT WHILE THE BUSINESS OF THE ASSESSEE FROM TRANSFER OF CASH IS AN ILLEGAL BUSINESS AND THEREFORE LOSS FROM SUCH ILLEGAL BUSINESS IS TO BE WORKED OUT SEPARATELY. THE LOSS FROM THE ILLEGAL B USINESS CANNOT BE ALLOWED TO BE SET OFF AGAINST THE PROFIT OF THE LEGAL BUSINESS . HE THEREFORE STATED THAT THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT OF THE AO BE RESTORED. OR IN ITA NO.748 751 752 AND 753/AHD/2008 -3- ALTERNATIVE THE MATTER MAY BE SET ASIDE TO THE FIL E OF THE AO FOR SEPARATE DETERMINATION OF THE PROFIT/LOSS FROM LEGAL/ILLEGAL BUSINESS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF ANGADIA SINCE PAST SEVERAL YEARS AND IT IS ONLY ONE INTEGRATED BUSINESS BY WHICH THE ASSESSEE TRANSFERS GOODS VALUABLES POSTS CASH ETC. OF ITS CLIENTS FROM ONE PLACE TO ANOTHER PLACE. THE AO HIMSELF HAS NEVER HELD ANY PART OF THE BUSINESS TO BE ILLEGAL B USINESS. THAT NO ACTION IS EVER TAKEN AGAINST HIM FOR CARRYING ON ANY ILLEGAL BUSIN ESS BY THE RBI OR ANY OTHER CENTRAL GOVERNMENT OR THE STATE GOVERNMENT AUTHORIT IES. THAT EVEN THE INCOME-TAX AUTHORITIES NEITHER IN THE YEAR UNDER AP PEAL NOR IN ANY OF THE PRECEDING OR SUBSEQUENT YEARS HELD ANY PART OF THE BUSINESS TO BE ILLEGAL. THAT THE LEARNED DR FOR THE FIRST TIME HAS RAISED THIS A RGUMENT WITHOUT ANY BASIS OR JUSTIFICATION. THAT NO PART OF THE BUSINESS OF THE ASSESSEE IS ILLEGAL BUSINESS. SO FAR AS THE MERIT OF THE CASE IS CONCERNED HE HAS S TATED THAT THE MONEY WAS BORROWED FOR THE PURPOSE OF BUSINESS AND AS PER THE NATURE OF THE BUSINESS CASH IS REQUIRED TO BE KEPT AT HEAD OFFICE AS WELL AS AT VARIOUS BRANCHES. THIS FACT IS ADMITTED BY THE ITAT IN SEVERAL DECISIONS REFERRED ABOVE. 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. FROM THE PE RUSAL OF THE ASSESSMENT ORDER OF ALL THE YEARS UNDER CONSIDERATION WE FIND THAT THERE WAS NO ALLEGATION BY THE AO THAT ANY PART OF THE BUSINESS CARRIED ON BY THE ASSESSEE IS ILLEGAL BUSINESS. THE DISALLOWANCE OF INTEREST BY THE AO W AS ON THE GROUND THAT THE ASSESSEE KEPT HUGE CASH BALANCE. THE ASSESSEE CARR IED OUT ONLY ONE BUSINESS OF ANGADIA AND FROM SUCH COMPOSITE BUSINESS PROFIT/LOSS IS W ORKED OUT IN THE RESPECTIVE YEARS AND THE AO HIMSELF HAS TREATED THE BUSINESS OF THE ASSESSEE TO BE ONE BUSINESS. THE CONTENTION OF THE LEARNED COU NSEL THAT NEITHER IN ANY OF THE PAST YEARS NOR IN THE SUBSEQUENT YEARS PART OF THE BUSINESS OF THE ASSESSEE WAS HELD TO BE ILLEGAL BY THE AO HAS NOT BEEN DISP UTED BY THE LEARNED DR. THE CONTENTION OF THE LD. DR IS BASED UPON VARIOUS PRES UMPTION. HIS FIRST ITA NO.748 751 752 AND 753/AHD/2008 -4- PRESUMPTION IS THAT PART OF BUSINESS IS ILLEGAL BUS INESS AND PART IS LEGAL BUSINESS. HE FURTHER PRESUMES THAT THERE WOULD BE LOSS FROM ILLEGAL BUSINESS AND PROFIT FROM LEGAL BUSINESS WHICH CANNOT BE SET OFF AGAINST EACH OTHER. HOWEVER FACT ON RECORD REMAINS THAT THERE IS ONLY ONE BUSINESS OF THE ASSESSEE PART OF WHICH IS NOT HELD TO BE ILLEGAL EITHER BY I T DEPARTMENT OR BY ANY OTHER GOVERNMENT AGENCY. CONSIDERING THE TOTALITY OF THE ABOVE FACTS IN OUR OPINION THE CONTENTIONS OF THE LEARNED DR THAT PART OF THE BUSINESS BY THE ASSESSEE IS AN ILLEGAL BUSINESS AND THERE SHOULD BE SEPARATE WORKI NG OF THE PROFIT OF THE LEGAL/ILLEGAL CANNOT BE ACCEPTED. 7. NOW WE COME TO THE BASIS ON WHICH THE AO DISALLO WED THE INTEREST. THE AO DISALLOWED THE INTEREST ON THE GROUND THAT THE A SSESSEE HAD KEPT HUGE CASH BALANCE. WE FIND THAT THIS ISSUE IS CONSIDERED BY THE VARIOUS CO-ORDINATE BENCHES OF THE ITAT. IN THE CASE OF DCIT VS. M/S.P ATEL SOMABHAI MAGANLAL & CO. C BENCH OF THE ITAT HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. THE SHORT ISSUE INVOLVED IN THIS GROUND OF APPEAL IS THAT INT EREST EXPENDITURE ON AMOUNT BORROWED WERE DISALLOWED ON THE GROUND THAT AMOUNT BORROWED WERE KEPT AS CASH WITH THE ASSESSEE AND THE SAME WA S IN THE OPINION OF THE LEARNED AO NOT UTILISED FOR THE BUSINESS PURPOS ES OF THE ASSESSEE. THE LD.CIT(A) DELETED THE DISALLOWANCE OBSERVING TH AT ASSESSEES BUSINESS WAS ALSO CONSISTING OF TRANSFER OF MONEY. DUE TO THIS BUSINESS THE ASSESSEE WAS REQUIRED TO HAVE SUFFICIENT CASH A LWAYS SO THAT IT CAN MAKE PAYMENT OF AMOUNT ON DUE DATE. THUS IN THE O PINION OF THE LD.CIT(A) CASH POSSESSED BY THE ASSESSEE WAS ITS BU SINESS ASSET AND THEREFORE INTEREST PAID ON BORROWED CAPITAL FOR TH AT CASH WAS BUSINESS EXPENDITURE OF THE ASSESSEE. WE FIND THAT GENUINEN ESS AND REASONABLENESS OF PAYMENT OF INTEREST IS NOT IN DIS PUTE. THE ONLY DISPUTE WAS THAT THE BORROWED FUNDS WERE UTILISED F OR THE PURPOSE OF ITA NO.748 751 752 AND 753/AHD/2008 -5- BUSINESS OF THE ASSESSEE OR NOT. WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT DISPUTE THE FINDING OF LD. CIT(A) THAT THE ASSESSEES NATURE OF BUSINESS REQUIRED IT TO POSSES S CASH BALANCE OF SUFFICIENT AMOUNT OF ALL THE MATERIAL TIME AS THE M AKING OF TIMELY PAYMENT WAS THE ESSENCE OF BUSINESS TRANSACTION OF THE ASSESSEE. WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THAT TH E BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR ANY OTHER PURPOSES THA N ITS BUSINESS. THE ASSESSEE MAY BE IMPRUDENT IN HOLDING LARGE AMOUNT O F CASH BUT WHEN THE CASE WAS POSSESSED FOR BUSINESS PURPOSES IT WOU LD CONSTITUTE BUSINESS ASSET OF THE ASSESSEE AND THE BORROWINGS C ONNECTED THEREWITH HAD TO BE HELD AS FOR BUSINESS PURPOSES. WE THEREF ORE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) IN DELETING TH E DISALLOWANCE OF INTEREST OF EXPENDITURE. THEREFORE THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. SIMILAR VIEW IS TAKEN BY THE ITAT IN THE CASE OF AC IT VS. PATEL NATVERALAL CHINUBHAI & CO. (SUPRA) WHEREIN THE ITAT HELD AS U NDER: 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOT E THAT THE ASSESSEE HAD CASH BALANCE AS PER THE CASH BOOK. LOOKING TO THE N ATURE OF BUSINESS IT IS NECESSARY FOR THE ASSESSEE TO MAINTAIN CASH BALA NCE. THEREFORE IT CANNOT HE SAID THAT BORROWINGS ARE NOT USED FOR THE PURPOSE OF BUSINESS. IT IS ALSO PERTINENT TO NOTE THAT NOWHERE IN THE AS SESSMENT ORDER THE ASSESSING OFFICER HAS POINTED OUT THAT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS FOR NON-BUSINESS PURPOSE. THE CASH B ALANCE MAINTAINED IN BUSINESS IS AS PER THE NEEDS AS JUDGED BY THE AS SESSEE. THEREFORE WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT NO DISALLOWANCE OF INTEREST IS CALLED FOR. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED ITA NO.748 751 752 AND 753/AHD/2008 -6- COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY G ROUND NO. 1 OF THIS APPEAL IS REJECTED. NO CONTRARY DECISION IS BROUGHT TO OUR KNOWLEDGE. THE FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS IN THE ABOVE CA SES DECIDED BY THE VARIOUS BENCHES OF THE ITAT WE THEREFORE RESPECTFULLY FOL LOWING THE ABOVE DECISIONS OF THE ITAT UPHOLD THE ORDER OF THE CIT(A) AND DISM ISS THIS GROUND OF THE REVENUE. 8. IN RESULT REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 7 TH JANUARY 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 07-01-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD