Dhiraj Kumar Bhandari, Bangalore v. Addl. CIT, Bangalore

ITA 978/BANG/2010 | 2007-2008
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 97821114 RSA 2010
Bench Bangalore
Appeal Number ITA 978/BANG/2010
Duration Of Justice 11 month(s) 3 day(s)
Appellant Dhiraj Kumar Bhandari, Bangalore
Respondent Addl. CIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 15-07-2011
Date Of Final Hearing 14-06-2011
Next Hearing Date 14-06-2011
Assessment Year 2007-2008
Appeal Filed On 11-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N BARADHVAJA SANKAR VICE PRESIDENT AND SMT. P MADHAVI DEVI JUDICIAL MEMBER ITA NO. 978/BANG/2010 (ASST. YEARS 2007-08) SHRI DHIRAJ KUMAR BHANDARI PROP : MYSORE STEEL SUPPLIERS P.C LANE S.P ROAD CROSS BANGALORE. . APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME-TAX RANGE-5 BANGALORE. . RESPONDENT APPELLANT BY : SHRI H.N KHINCHA RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI O R D E R PER SMT. P MADHAVI DEVI JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEV ANT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) II AT BANGAL ORE DATED 29.03.2010. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME-TAX ACT 1961. ITA NO.978/B/10 2 2. IN THIS APPEAL THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITIONS MADE BY THE AO O N ACCOUNT OF DISALLOWANCE OF INTEREST OF RS.5 59 391/- U/S 40A(2 ) READ WITH SEC. 36(1)(III) OF THE INCOME-TAX ACT AND ALSO THE ADDIT ION OF RS.1 53 000/- IN RESPECT OF AGRICULTURAL INCOME AS UNEXPLAINED CA SH CREDIT U/S 68 OF THE INCOME-TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS AS A DEALER IN IRON ORE AND STEEL. THE ASSESSEE FILED ITS RETURN OF INCOME ON 18.10.2007 D ECLARING A TOTAL INCOME OF RS.1 80 73 030/-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT THE ASSESSING OFFICER OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS CLAIM ED SUBSTANTIAL AMOUNT OF INTEREST EXPENSES. FROM THE DETAILS IN T HE BALANCE SHEET THE AO OBSERVED THAT THE ASSESSEE HAS SUBSTANTIAL VALUE OF TRADE DEBTORS AMOUNTING TO RS.8.32 CRORES IN THE DETAILS OF THE T RADE DEBTORS AND AN AMOUNT OF RS.1 41 37 746/- IS SHOWN AS RECEIVABLE F ROM M/S MYSORE METAL INDUSTRIES. THIS IS THE PROPRIETARY CONCERN OF THE ASSESSEES BROTHER SHRI L VIJAY BHANDARI. THE ASSESSEE WAS TH EREFORE ASKED TO EXPLAIN THE NATURE OF THE SAID TRADE DEBTORS AND TH E ASESSEE VIDE LETTER DATED 13.11.2009 STATED THAT THE DEBIT BALANCE OF M /S MYSORE METAL ITA NO.978/B/10 3 INDUSTRIES A PROPRIETARY CONCERN OF HIS BROTHER SH RI L VIJAY BHANDARI REPRESENTS THE LOAN ADVANCED. THE LOANS/ADVANCES A RE TAKEN AND GIVEN MUTUALLY FOR BUSINESS NECESSITIES AND AT THE YEAR E ND M/S MYSORE METAL INDUSTRIES HAD A DEBIT BALANCE. THE ASSESSEE ALSO ENCLOSED LEDGER EXTRACT OF MYSORE METAL INDUSTRIES IN SUPPOR T OF THE TRANSACTIONS. ON PERUSAL OF THE LEDGER EXTRACT OF M/S MYSORE METAL INDUSTRIES IN THE BOOKS OF M/S MYSORE STEEL SUPPLIE RS THE AO OBSERVED THAT THEY HAVE MORE LENDING ENTRIES THAN THAT OF TRADING ENTRIES IN THE LEDGER FOLIO. HE OBSERVED THAT THE ASSESSEE HAS BEEN PAYING INTEREST AT THE RATE OF 15% ON VARIOUS LOANS TAKEN AND HAS ALSO PAID 60.54 LAKHS OF INTEREST ON THE OVERDRAFT TAKEN BUT HAS NOT COLLECTED ANY INTEREST ON THE TRADE DEBTORS. HE HE LD THAT THE INTEREST BEARING AMOUNTS BORROWED CANNOT BE ALLOWED TO BE DI VERTED TO THE ASSESSEES BROTHERS CONCERN AND THE INTEREST EXPEN DITURE DEBITED IN THE BOOKS OF ACCOUNTS ARE TO BE TREATED AS EXCESSIV E AND UNREASONABLE AS ATTRACTED U/S 40A(2) OF THE INCOME-TAX ACT. HE THEREFORE DISALLOWED INTEREST OF RS.5 59 395/- AS ATTRACTED U /S 40A(2) READ WITH SEC. 36(1)(III) OF THE INCOME-TAX ACT. THEREAFTER THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS CLAI MED AN AGRICULTURAL INCOME OF RS.1 65 300/- FOR THE YEAR AND IN RESPONS E TO A QUERY THE ASSESSEE HAS STATED THAT THE AGRICULTURAL LAND OF A BOUT 6 BHIGAS IS ITA NO.978/B/10 4 SITUATED AT SAYALA VILLAGE JALORE DISTRICT RAJAST HAN WHICH IS GIVEN TO LOCAL FARMERS TO CARRY OUT AGRICULTURAL ACTIVITIES. IT IS STATED THAT 1/3 OF THE PROCEEDS RECEIVED ON SALE OF CROPS IS PAID TO H IM AND THE SAME IS OFFERED AS AGRICULTURAL INCOME. THE AO HELD THAT 6 BHIGAS OF LAND APPROXIMATELY COMES TO ABOUT 1 ACRES AND THEREFO RE HE HELD THAT RS.30 000 PER ANNUM WOULD BE THE INCOME THAT COULD BE FETCHED AND THE ASSESSEES SHARE BEING 1/3 LIMITED IT TO 10 00 0/- FOR THE YEAR. THEREAFTER THE BALANCE AGRICULTURAL INCOME CLAIMED OF RS.1 53 000/- WAS TREATED AS UNEXPLAINED ENTRY IN THE BOOKS OF AC COUNTS AND MADE THE ADDITION U/S 68 OF THE INCOME-TAX ACT AND TAXED ACCORDINGLY. 4. AGGRIEVED BY THE ABOVE ADDITION THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI H.N KH INCHA WHILE REITERATING THE SUBMISSIONS MADE BY THE ASSESSEE BE FORE THE AUTHORITIES BELOW SUBMITTED THAT THE ASSESSEE AND HIS BROTHER H AD TRADE RELATIONS AND BOTH WERE DEALERS IN IRON ORE AND STEEL AND TH EREFORE THERE HAS BEEN TRANSACTIONS BETWEEN THEM. HE SUBMITTED THAT THERE WERE TRANSACTIONS OF LOANS ALSO BETWEEN BOTH THE BROTHER S DURING THE YEAR AS ITA NO.978/B/10 5 IS EVIDENT FROM THE LEDGER EXTRACT WHICH IS REPRODU CED IN THE ASSESSMENT ORDER. HE SUBMITTED THAT THE ASSESSEE HA S SUFFICIENT CAPITAL WHICH WAS NON INTEREST BEARING WHICH HAS BEEN ADVAN CED TO HIS BROTHER. HE SUBMITTED THAT NO INTEREST BEARING FUN DS WERE DIVERTED TO THE ASSESSEES BROTHER OR HIS PROPRIETARY CONCERN A ND THEREFORE INTEREST AMOUNT CANNOT BE DISALLOWED. FOR THIS PRO POSITION THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UP ON THE DECISION OF THE APEX COURT IN THE CASE OF S.A BUILDERS REPORTED IN 288 ITR 1 (SC). HE ALSO SUBMITTED THAT WHERE THE INTEREST BEA RING AND NON INTEREST BEARING FUNDS ARE MIXED AND IT IS NOT CLEA R AS TO WHICH FUNDS HAVE BEEN ADVANCED INTEREST FREE THEN IT HAS TO BE PRESUMED THAT NON INTEREST BEARING FUNDS HAVE BEEN ADVANCED. FOR THIS PROPOSITION HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF MUNJAL SALE CORPORATION VS. CIT REPORTED IN 298 ITR 298 (SC). HE ALSO PLACED RELIANCE ON THE DECISIONS OF T HIS TRIBUNAL IN THE CASE OF M/S UNITED BREWERIES (HOLDINGS) LTD. IN ITA NO.61 AND 62/BANG/2009 DATED 20.11.2009 AND IN THE CASE OF B. C NANJUNDA SETTY IN ITA NO.763/BANG/2009 DATED 26.2.2010 WHER EIN AFTER CONSIDERING THE DECISION OF THE HONBLE APEX COURT THE DISALLOWANCE OF INTEREST HAS BEEN DELETED. AS REGARDS DISALLOWA NCE OF THE AGRICULTURAL INCOME CLAIMED AND THE ADDITION U/S 68 IS CONCERNED THE ITA NO.978/B/10 6 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE OWNS ACRE OF LAND AND THE CROPS GROWN THEREIN WAS RAI AN D MEHANDI WHICH ARE COMMERCIAL CROPS AND THEREFORE THE 1/3 RD OF THE SALE CONSIDERATION FROM THE SAID CROPS IS PAID TO THE ASSESSEE WHICH IS 1 62 000/-. HE SUBMITTED THAT THE ASSESSEE HAD BEEN OFFERING AGRIC ULTURAL INCOME IN THE PREVIOUS YEARS AND ALSO IN THE SUBSEQUENT YEARS WHICH HAS NOT BEEN DISTURBED AND THEREFORE IT CANNOT BE DOUBTED IN THIS YEAR ALONE. 6. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS CLEARLY FAILED TO SHOW THAT ONLY THE NON-INTEREST BEARING FUNDS HAVE BEEN ADVANCED TO HIS BROTHERS PROPRIETARY CONCERN. 7. AS REGARDS THE DISALLOWANCE OF AGRICULTURAL INCO ME IS CONCERNED THE LEARNED DR SUBMITTED THAT AGRICULTURAL INCOME B EING EXEMPT INCOME ONUS IS ON THE ASSESSEE TO PROVE THAT THE C ROPS GROWN IN THE AGRICULTURAL LAND WOULD YIELD SUCH HIGH INCOME AND IN THE ABSENCE OF THE SAME THE AO HAS RIGHTLY ESTIMATED THE AGRICULT URAL INCOME AT RS.20 000/- PER ACRE PER ANNUM AND ARRIVED AT RS.3 0 000 PER ANNUM FOR 1 ACRES WHICH IS MORE THAN JUSTIFIABLE. THUS SHE SUPPORTED THE ITA NO.978/B/10 7 ORDERS OF THE AUTHORITIES BELOW AND HAS PRAYED THAT THE ORDERS OF THE CIT(A) MAY BE CONFIRMED. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS AND MATERIAL ON RECORD WE FIND THAT TH E ASSESSEE HAS UNDISPUTEDLY ADVANCED INTEREST FREE ADVANCES TO THE PROPRIETARY CONCERN OF HIS BROTHER. AS SEEN FROM THE CIT(A)S ORDER THERE HAVE BEEN TRADING ACTIVITIES ALSO BETWEEN THE ASSESSEE A ND THE PROPRIETARY CONCERN OF HIS BROTHER M/S MYSORE METAL INDUSTRIES. THE ASSESSEE HAD CLAIMED BEFORE THE CIT(A) THAT HE HAD SUFFICIENT C APITAL TO ADVANCE INTEREST FREE ADVANCES. THE HONBLE SUPREME COURT IN THE CASE OF S.A BUILDERS CITED SUPRA HAS SQUARELY HELD THAT MERELY BECAUSE INTEREST FREE ADVANCE HAVE BEEN GIVEN TO SISTER CONCERNS TH E DISALLOWANCE CANNOT BE MADE AND WHAT HAS TO BE SEEN IS THE COMME RCIAL EXPEDIENCY OF MAKING SUCH ADVANCES. SINCE BOTH THE BROTHERS A RE IN THE SAME BUSINESS OF IRON AND STEEL AND ALSO THERE BEING TRA DING ACTIVITIES BETWEEN THEM IT IS QUITE NATURAL THAT THE ASSESSEE WOULD HAVE MADE ADVANCES TO HIS BROTHERS CONCERN OUT OF COMMERCIAL EXPEDIENCY. FURTHER AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALE CORPORATION CITED SUPRA WHERE THE INTEREST FRE E FUNDS AND NOT INTEREST BEARING FUNDS ARE CLUBBED TOGETHER AND THE NEXUS BETWEEN THE ITA NO.978/B/10 8 INTEREST BEARING FUNDS AND THE ADVANCES IS NOT PROV ED IT IS TO BE PRESUMED THAT THE ADVANCES ARE OUT OF OWN AND NON-I NTEREST BEARING FUNDS AND NOT OUT OF INTEREST BEARING FUNDS. IN VI EW OF THE SAME WE ARE OF THE OPINION THAT THE INTEREST AMOUNT CANNOT BE DISALLOWED. FURTHER SEC. 40A(2) PROVIDES THAT WHERE THE ASSESS EE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MA DE OR IS TO BE MADE TO ANY PERSON REFERRED IN CLAUSE (B) OF THIS S UB SEC. AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VA LUE OF THE GOODS SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREA SONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. IN THE CASE BEFORE US T HE ISSUE IS OF ADVANCING OF INTEREST FREE LOANS AND THE ASSESSING OFFICER HAS NOT STATED OUT AS TO WHAT IS THE PAYMENT MADE BY THE A SSESSEE TO THE PERSON REFERRED TO IN SEC. 40A(2) AND AS TO HOW THE SAID EXPENDITURE IS EXCESSIVE OR UNREASONABLE. THEREFORE IN OUR OPINIO N THIS PROVISION DOES NOT APPLY TO THE FACTS OF THE CASE BEFORE US. IN VIEW OF THE SAME THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.978/B/10 9 9. AS REGARDS DISALLOWANCE OF AGRICULTURAL INCOME A ND THE CONSEQUENTIAL ADDITION U/S 68 IS CONCERNED WE FIND THAT THE ASSESSEE IS HAVING AGRICULTURAL LAND AND ALSO HAS BEEN OFFERING INCOME THEREFROM IN THE EARLIER YEARS. HOWEVER WE ARE ALSO NOT INC LINED TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE IS EARNING RS.1 63 000/- FROM 1/3 RD OF THE TOTAL INCOME FROM 1 1/2 ACRES OF LAND SITUATED AT SAYALA VILLAGE IN RAJASTHAN. EVEN THOU GH THE ASSESSEE HAS ONLY ORALLY STATED THAT CROPS GROWN ARE COMMERCIAL CROPS WHICH EARN HIGH INCOME BUT THERE IS NO PROOF OF SUCH CROPS BE ING GROWN OR SUCH INCOME BEING EARNED THEREFROM PRODUCED BEFORE THE A UTHORITIES BELOW OR BEFORE US. THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A). THIS GROUND IS ACCORDINGLY R EJECTED. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH JUL 2011. SD/- SD/- (N BARADHVAJA SANKAR) (P MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER VMS. BANGALORE DATED : 15/07/2011 ITA NO.978/B/10 10 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR I TAT BANGALORE.