SHRI SUBHASH AGARWAL,ALWAR vs. PRINCIPAL COMMISSIONER OF INCOME TAX, ALWAR

PER VIJAY PAL RAO, J.M.

This appeal by the assessee is directed against the revision order of ld. Principal CIT, Alwar dated 22.03.2018 passed under section 263 of the I.T. Act for the assessment year 2014-15. The assessee has raised the following grounds :-

“ 1. The order passed by the ld. PCIT u/s 263 is illegal and bad in law. 2. The ld. PCIT has erred on facts and in law in holding the order passed by AO as erroneous and prejudicial to the interest of revenue only on account of audit objection raised by the audit party ignoring that AO has not accepted the audit objection.

2 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

29th March, 2016 accepting the returned income of the assessee. Subsequently, the

ld. Pr. CIT on examination of the record found that the AO did not conduct any

enquiry on account of allowability of the claim of interest expenditure under section

57(iii) as well as some other issues. Finally, the ld. Pr. CIT set aside the order passed

by the AO with the direction to examine the issue properly and then pass the

assessment order afresh.

material on record. The facts and circumstances as well as the issues are identical

to the appeal in ITA Nos. 699 & 700/JP/2018 in the case of Shri Naresh Agarwal.

The details of interest received and paid were given by the ld. Pr. CIT at pages 4 & 5

as under :-

Interest Received (All amounts in Rupees) Name of person to whom Opening Amount Balance Interest Rate money lent balance as on lent/repaid received for of 01.04.2013 during the year the year inter (+ -) est Nangalwala Auto Mfg Pvt. 1,69,52,300 (-)1,69,52,300 - 1,84,972 15% Ltd. (Assessee is director)

3 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

Nangalwala Chemical 2,90,78,030 5,79,103 2,96,57,133 3,36,083 12% Industries (Assessee is partner

Nangalwala Impex P. Ltd 28,46,839 (-) 59,03,647 (-) 30,56,808 33,96,453 15% The Madhur Glass & Chem. 1,08,44,376 65,78,805 1,74,23,181 35,94,808 12% Ind (Assessee is partner) Vijay Agarwal - 9,00,000 9,00,000 1,500 15% BOB Delhi 486 BOB HC 12,361 HDFC Bank 944 IT Refund 12,610 Total 5,97,21,545 (-)1,47,98,039 4,49,23,506 75,40,217 Interest Paid Name of person from Opening Amount Balance Interest Rate of whom money borrowed balance as on borrowed/repaid paid for the interest 01.04.2013 during the year year (+ -) A-One Financial Service - 10,00,000 10,00,000 1,50,000 15% Pvt. Ltd. Anita Agarwal (Jaipur) - 6,00,000 6,00,000 90,000 15% Arihant Dharmarth Nyas - 50,000 50,000 7,500 15% Ashok Agarwal - 35,00,000 35,00,000 4,20,000 12% Ashok Agarwal HUF - 10,00,000 10,00,000 1,03,750 15% Ashok Ameria - 3,50,000 3,50,000 50,896 15% Bhagwan Das Gupta - 1,00,000 1,00,000 15,000 15% LIC Loan 1,15,000 1,15,000 10,350 Govind Ram Narendra 2,00,000 - 2,00,000 15,280 15% Kumar HUF HDFC Loan 4,89,17,265 (-) 82,93,334 4,06,23,931 61,98,420 Jeetmal Jain 10,00,000 1,00,000 11,00,000 1,58,500 15% Jeevanlata Gupta 2,00,000 - 2,00,000 30,000 15% Kamla Jain 7,00,000 - 7,00,000 1,05,000 15% Mitalee Gupta - 4,00,000 4,00,000 29,699 10% Naveen Agarwal 2,25,000 - 2,25,000 33,752 15% Pawan Agarwal 1,29,236 - 1,29,236 19,385 15% Rajkumar Agarwal 25,214 - 25,214 3,782 15% Saurbh Jain 1,00,000 7,930 16% Suresh Chand Agarwal 5,76,756 - 5,76,756 64,660 12% Total 5,20,88,471 (-)10,93,334 4,16,92,137 75,13,904

Thus identical transactions are involved in this case as in the case of Shri Naresh

Agarwal. Both the parties have advanced identical arguments as raised in the case

of Shri Naresh Agarwal.

4 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

record, at the outset, we note that identical issues have been considered by us in

the case of Shri Naresh Agarwal vs. Pr. CIT (supra) in para 4 vide even date order as

under :-

“4. We have considered the rival submissions as well as the relevant material on record. The original assessment under section 143(3) was passed by the AO on 10th February, 2016 as under :-

“ Assessment Order

The assessee has filed his return of income on 30.07.2013 declaring total income of Rs. 12,05,000/-. The return was processed u/s 143(1) of Income Tax Act, 1961 on 10.05.2013. The case was selected under scrutiny through CASS and notice u/s 143(2) was issued on 05.09.2014. The preliminary query letter was issued on 30.10.2014. In compliance to these notices, Sh. Ravindra Shah, CA and A/R of the assessee attended the hearing time to time and filed the details which are placed on record. The case is discussed with him.

The assessee is partner in M/s. Ajanta Plastic Industries and M/s. Vishal Agencies and has shown interest from these firms. The assessee is deriving salary from M/s. Nangalwala Impex Pvt. Ltd and M/s. Zibaa Builders Pvt. Ltd. Apart from these, the assessee has declared income from house property, capital gain and income from other sources.

During the year under consideration the assessee has earned income from above said sources as mentioned. After examining relevant details/documents and after discussion returned income of Rs. 12,05,000/- as declared by the assessee is hereby accepted.

Assessed u/s 143(3) of the Income Tax Act 1961. The Income Tax computation form generated from the software system of the department, giving therein the details of tax, interest, credit for prepaid taxes etc., forms part of this order, is attached herewith.

Sd/- ( Asmita Pathak ) Place : Alwar Income-tax Officer, Dated : Ward 1(1), Alwar. “

5 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

Thus it is clear that the AO accepted the returned income in the summary proceedings whereas there are multiple transactions of loans taken by the assessee as well as given by the assessee. The ld. Pr. CIT has given the details at pages 4 & 5 of the impugned order as under :-

Interest Received (All amounts in Rupees)

Name of person to whom Opening Amount lent/ Balance Interest Rate money lent balance as on repaid during received for of 01.04.2012 the year (+ -) the year inter est Nangalwal Impex Pvt. Ltd. 1,04,89,313 (-) 80,33,000 24,56,313 2,78,164 15% (Assessee is a director) Golden Vegpro Ltd. 21,86,007 1,33,721 23,19,728 3,43,222 15% Zibra Builders Pvt. Ltd. 1,93,06,838 24,00,000 2,7,06,838 37,24,864 18% (Assessee is a director) Ajanta Plastic Industries 49,15,426 (-) 60,41,698 (-) 11,26,272 3,95,400 12% (Partner’s capital Vishal Agencies 2,43,949 28,21,000 30,64,949 2,13,202 12% (Partner’s Capital) BOB 24,313 - 24,313 7,950 UBI 2,188 (-) 2,188 - 42 BOB, Delhi 19,654 (-) 5,925 13,727 534 BOB, HC 6,10,505 (-) 6,09,1001, 1,405 HDFC Bank 27,956 (-) 27,956 - Total 3,78,26,149 (-) 2,84,61,100 49,63,444 93,65,146 Interest Paid (All amounts in Rupees) Name of person from Opening Amount Balance Interest Rate of whom money borrowed balance as on borrowed/ paid for the interest 01.04.2012 repaid during year the year (+ -) Amit Jain 2,00,000 - 2,00,000 24,000 12% Ashok Kumar Jain 20,00,000 - 20,00,000 2,40,000 12% Bombay Electricals 5,00,000 5,00,000 - 58,500 12% Ganpati Traders 10,00,000 - 10,00,000 1,20,000 12% Kranti Chand Jain HUF 2,00,000 - 2,00,000 24,000 12% Kranti Chand Jain 2,00,000 - 2,00,000 24,000 12% Meenakshi Jain 2,00,000 - 2,00,000 24,000 12% Preeti Tomer 4,00,000 - 4,00,000 60,000 15% Ram Singh 5,00,000 2,00,000 7,00,000 92,500 15.6% Sheetal Jain 2,00,000 - 2,00,000 24,000 12% Shushila Agarwal 6,50,000 (-) 1,50,000 5,00,000 76,438 15% Vishal Agencies 1,07,02,272 - 1,07,02,272 19,26,409 18% (Partner’ OD) LIC Loan 1,15,000 - 1,15,000 10,350 9% LIC Loan 3,22,000 -

6 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

HDFC Loan 2,03,95,832 (-) 11,96,891 1,91,98,941 22,28,677 12.75% Total : 3,72,63,104 (-) 16,46,891 3,56,16,213 52,32,874

As it is evident from the above details that there are various transactions of loans given by the assessee as well as capital introduced in the old partnership firms by using the borrowed funds from various parties as well as from the partnership firm. Thus the assessee has borrowed the fund from the partnership firm M/s. Vishal Agencies in the category of over-drawing and at the same time a capital of Rs. 28,21,000/- was also introduced in the same firm. This is not a newly formed firm but this is an old partnership firm and, therefore, it is not an initial introduction of capital by the partners. Further, we find that the AO while passing the assessment order has not raised even a query about the allowability of the interest under section 57(iii) of the Act. There is no such query raised either in the notice issued under section 142(1) or otherwise and, therefore, even if the details filed by the assessee were considered by the AO but if the same are not examined in the context of allowability of the claim under section 57(iii), then the case would certainly fall in the category of complete lack of enquiry on a particular issue of allowability of the claim of interest expenditure under section 57(iii) of the Act. Further, the details revealed that the assessee has received the interest @ 12% from M/s. Vishal Agencies, the partnership firm as against the interest charged by the same firm from the assessee @ 18%, hence there is a difference of 6% in the interest received and paid by the assessee. All these aspects were not even examined by the AO. Further, there is no bar for considering the audit objections by the ld. Pr. CIT if the audit objection reveals certain relevant and crucial facts about the allowability of the claim. Therefore, we do not find any substance or merit in the contention of the ld. A/R on this point as it is clear that it is a case of lack of enquiry particularly on the issue of allowability of the

7 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

claim under section 57(iii) of the Act. Thus the order of the AO suffers from error so far as it is prejudicial to the interest of the revenue. Hence the ld. Pr. CIT has rightly invoked the provisions of section 263 of the Act and directed the AO to conduct a proper enquiry on this issue. As regards the other issues raised by the ld. Pr. CIT in the show cause notice, those were not specifically discussed in the impugned order as the assessee explained some of the issues which were factually found to be correct. Accordingly, we restrict the fresh adjudication of the matter only on the issue of allowability of the claim under section 57(iii) of the Act, to that extent the impugned order of ld. Pr. CIT is upheld.”

Following the order in the case of Shri Naresh Agarwal, we uphold the impugned

order of the ld. Pr. CIT on the issue of allowability of the claim under section 57(iii)

of the Act.

Order pronounced in the open court on 03/08/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 03/08/2018. Das/

8 ITA No. 701/JP/2018 Shri Subhash Agarwal, Alwar.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत