KEWAL CHAUDHARY vs. COMMISSIONER OF INCOME TAX-I JALANDHAR

ITA No.233 of 2014 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 233 of 2014 (O&M) Date of decision: 18.8.2015 Shri Kewal Chaudhary ……Appellant. Commissioner of Income Tax I, Jalandhar …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Mr. Ravish Sood, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. Ajay Kumar Mittal,J. 1. The assessee has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 20.3.2014, Annexure A.7 passed by the Income Tax appellate Tribunal Amritsar Bench, Amritsar (in short, “the Tribunal”) in ITA No.283 (ASR)/ 2012 for the assessment year 2007-08, claiming following substantial questions of law:- i) Whether the Tribunal is right in law and facts of the case in dismissing the appeal by way of a non speaking order GURBAX SINGH 2015.09.24 09:59 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.233 of 2014 (O&M) 2 without recording any independent finding or giving any reasoning, specifically in the light of the settled position of law so laid down by the Hon'ble Supreme Court in the case of Kranti Associates P. Limited and another vs. Masood Ahmed Khan and others, (2010) 9 SCC 496 which statutorily requires recording of reasons by a quasi judicial authority in support of its conclusions? ii)Whether the Tribunal is right in law and facts of the case in sustaining the disallowance of interest on borrowed capital of ` 3,43,673/-? iii)Whether the Tribunal has erred in law and facts of the case by failing to appreciate that as the profits amounting to ` 1,23,87,990/- earned by the appellant from his business during the year were sufficient to cover the impugned advances of ` 28,63,942/- therefore in the light of the settled position of law laid down by the Hon'ble Supreme Court in the case of Munjal Sales Corporation vs. CIT (2008) 298 ITR 298 (SC), no disallowance of interest on borrowed capital was liable to be made? iv)Whether the Tribunal has erred in law and facts of the case by failing to appreciate that in the light of substantial interest free funds and accumulated amounts in the capital account available with the appellant, in the absence of any nexus between the interest free advances given and the interest bearing funds borrowed by the appellant, no disallowance of interest on borrowed capital was liable to be made? v) Whether the Tribunal has erred in law and facts of the case by failing to appreciate that even otherwise as the amounts had been advanced by the appellant at different points of time during the year, therefore the disallowance of interest on borrowed capital of ` 3,43,673/- as regards the entire amount of advances aggregating to ` 28,63,942/- (supra), for the whole of the year (i.e. for a period of 12 months) could not be sustained?” GURBAX SINGH 2015.09.24 09:59 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.233 of 2014 (O&M) 3 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant is a sole proprietor of a concern engaged in the business of manufacturing of batteries under the name and style of M/s Action Batteries at Jalandhar. He filed his return of income declaring net taxable income of ` 1,24,44,951/- on 31.10.2007 which was processed as such under section 143(1) of the Act. The case was taken up for scrutiny assessment under section 143(2) of the Act. The Assessing Officer vide order dated 8.5.2009, AnenxureA.5 disallowed interest on borrowed capital at the rate of 12% per annum on the amount of the interest free advances of ` 28,63,942/- for the whole of the year and made a disallowance of ` 3,43,673/- and assessed the income of the appellant at ` 1,34,48,302/-. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (appeals) [CIT(A)].Vide order dated 25.4.2012, Annexure A.6, the CIT(A) partly allowed the appeal but sustained the disallowance of ` 3,43,673/- made by the Assessing Officer towards interest on borrowed capital. The assessee went in appeal before the Tribunal. Vide order dated 20.3.3014, Annexure A.7, the Tribunal dismissed the appeal by merely referring to and reproducing the observations recorded by the Assessing Officer and the CIT(A) and without recording any independent finding or reasoning. Hence the instant appeal by the assessee. 3. We have heard learned counsel for the parties. 4. Learned counsel for the appellant submitted that the Tribunal has quoted the order of CIT(A) as it is without giving any reasons except that in para 7 of its order, it was stated that “we do not find any infirmity in GURBAX SINGH 2015.09.24 09:59 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.233 of 2014 (O&M) 4 the order of the CIT(A)”. 5. Learned counsel for the assessee-appellant to substantiate his plea, referred to para 3.4 of CIT(A)'s order which has been quoted ditto in para 6.3 by the Tribunal without any change in coma. Further illustrations were given by him as under:- Sr.No.