DEVANSHI DEVANGKUMAR GANDHI,SURAT vs. DY. COMMISSIONER OF INCOME TAX, SURAT

CT-Fh IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT Before Shri C M.GARG, Judicial Member, and Shri O.P. MEENA, Accountant Member ITA 746/AHD/ 2012 8 ITA No.2617 /AHD/ 2014 Assessment Year: 2008-09 Devanshi Devangkumar ITO , Ward -2(2)(5)_ Gandhi, 6/2507 Limbu T Surat Sheri, Mahidharpura, Surat Vs. 395001 (Appellant) (Respondent PA. No. ABGPG4734Q Assessee by Shri P. M._Jagaseth CA Revenue by Shri_Dilip Kumar Sr DR Final Date of Hearing: 18/12/2017 Date of Order: 10/01/2018 348 LORDER Per_Shri C M_Garg_JM: These appeals has been filed by the assessee against the order of the learned CIT (Appeals) IV , Surat, dated 24/01/2012 for A.Y_ 2008-09 in the quantum appeal and CIT (Appeals) I, Surat, dated 28.07.2014 passed under section 271(1)(c) of the Income Tax Act, 1961(for short the Act) for the assessment year 2008-09 in the penalty appeal: 39 Devanshi D Gandhi ITA No_ 746 AHD / 12 & ITA 2617 /AHD / 2014 2 of the hearing the Ld. Counsel In the beginn ing that inl quantum appeal ITA No submitted 746/AHD/2O12LSRT the assessee does not want to press 2 8 3 hence the same are dismissed as not ground no. Ground No. 4 & 5 are of general in nature which pressed. no adjudication and remaining sole effective ground requires no. 1 reads as follows: a) On the facts and in the circumstances of the case aS well as law on the subject; the learned commissioner of Income Tax (Appeals) has erred in confirming the the action of the assessing officer in making addition of Rs: on account of difference of interest 20,12,220/ expenditure u/ s 36 (iJiii) of the IT: Act 1961. We have heard the arguments from both the sides and 3 carefully perused the relevant material placed on the record of the Tribunal: The Ld Counsel of the assessee submitted that the Assessing Officer made disallowance by observing that no active business has been carried out and there is no evidence that the borrowed funds have been utilized for the purpose of business. The Ld Counsel further submitted that the Ld. CIT (A) wrongly held that interest was not incurred for the purpose the same was inadmissible u/s 43B of the of business and Act. The Ld. Counsel submitted that the Assessing Officer has GP rate of Rs_ 4,21,831 / - after rejection of made addition on of accounts which establish that there was business books the assessee and observations of the Assessing activity by 5 Devanshi Dj Gandhi ITA No 746 /AHD / 12 & ITA 2617 /AHD / 2014 Officer that there was no business activity becomes perverse and incorrect in the light of said facts. 4 The Ld_ Counsel also submitted that the assessee has paid interest to the Gujarat Industrial Co-operative Bank Ltd which is not a Scheduled Bank therefore, provisions of section 43B(a) of the Act does not apply to the present case. The Ld Counsel further submitted that as per decision of ITAT, Ahmadabad 'A' Bench provision of section 43B(a) of the Act interest paid on the loans availed by the assessee from Co- operative Bank cannot be disallowed as Co-operative Banks cannot be equated with the Scheduled Banks. The Ld. Counsel also submitted that in the case of sister concern of assessee i.e. M/s Hari Om Silk Mills, ITAT, Ahmadabad in the ITA No 1076/AHD/2012 for preceding AY. 2007-08 has restored the issue to the file of Assessing Officer, thus, present case may also be restored to the file of Assessing Officer on the same T} line. 5 Replying to the above , the Ld_ Departmental Representative (DR) strongly supported the orders of the authorities below However , he could not controvert the fact that the Tribunal, in the case of sister concern of the assessee by order dated 26/04/2016 (Supra)_ has restored the issue to the file of the Assessing Officer and assessee has paid impugned interest to the Gujarat Industrial Co-operative Bank Ltd, Surat_ Devanshi D_ Gandhi ITA No 746 /AHD / 12 & ITA 2617/AHD /2014 6_ to the above, the Ld_ Counsel of the Placing rejoinder assessee submitted that as per order of the ITAT, Ahmadabad the provision of section 43B(a) of dated 26/04/2016 (Supra) the Act are not applicable to the present case and thus, the case may be restored to the file of Assessing Officer for fresh after allowing opportunity of being heard to the adjudication assessee_ 7 point out that the parties to these First of all, we may agreed to the facts that the quantum appeal may appeals have the file of Assessing Officer for a fresh be restored to adjudication in the light of earlier Tribunal order in the case of dated 26/04/2016 (Supra) but since from the sister concern we find that every fact and circumstances required for record issue are there on the record of the adjudication of the decline to said request of the Tribunal therefore we accept parties and proceed to decide the quantum appeal on merits 8 On careful consideration of above rival submissions we are of the view that as per provisions of section 43Bla) of the payable by the assessee by way of tax, duty, cess Act any sum fee, by whatever name called, under any law for the time or be allowed only on actual being in force, the deduction is to As per section 43B(e) of the Act any sum payable by payment: the assessee as interest on any loan from a Scheduled Bank is on actual payment: As per explanation 4(aa) to to be allowed #a Devanshi D_ Gandhi ITA No _ 746 / AHD / 12 & ITA 2617 /AHD / 2014 section 43B of the Act Scheduled Bank shall have the meaning assigned to it in the explanation to clause (iii) of subsection (5) of section 11 of the Act, which provides that the Scheduled Bank means State Bank of India & other Banks created under various laws but it does not state that Co-operative Banks are Scheduled Banks. We may also point out that in clause (iii) of subsection (5) of section 11 of the Act, Scheduled Bank or a Co-operative Society engage in carrying on the business in banking has been mentioned but in the definition of Scheduled Bank there is no mentioning of letter kind of banks i.e. Co-operative Banks which means that the legislation has not included Co-operative Banks within the ambit of provision of Section 43B of the Act. 9 In this situation and in the backdrop of above facts, we are inclined to hold that the assessee was conducting business activities during the financial year under consideration as the Assessing Officer has made GP rate addition to the income of the assessee on estimate basis based on turnover. It is not a case of the Assessing Officer that the assessee either diverted or misused the borrowed funds out of business, thus, it is has to presume that the assessee used borrowed funds for her business_ So far as factum of non-payment of alleged interest during the financial period is concern_ as we have noted above that the provision of section 43B of the Act does not apply to the interest due to the Co-operative Bank therefore, no disallowance can be made by taking aid of said provision_ 310457 aar Devanshi D_ Gandhi ITA No 746 / AHD / 12 & ITA 2617 /AHD / 2014 Finally we are inclined to hold that the outstanding amount of 31/03/2008 i.e. 20,12, 220/- is allowable u/s interest as on when out of entire interest due to the 36(1)(iii) of the Act as 26,83,389.70 the major part of the same assessee i.e. Rs. 1, has been allowed then the outstanding amount on the last day i.e. difference between the due and paid interest cannot of year taking aid of section 43B of the Act as be disallowed by been paid to a Co-operative Bank: undisputedly interest has 1 of the assessee is allowed and Accordingly ground no. Assessing Officer is directed to allow the outstanding interest as on last day of the financial year to the Co-operative Bank: 10 The assessee has raised following grounds of appeal in ITA No_2617/AHD/2O14/SRT for_AY 2008-09: 3 a) On the facts and in the circumstances of the case as well law on the subject; the learned commissioner of the as Income Tax (Appeal) has erred confirming the action of the assessing officer in levying penalty of Rs. 6,48,260/ - u/ s 271(1)(c) of the Income Tax Act; 1961. that the above addition may please b) It is therefore prayed be deleted as learned members of the tribunal may deem it proper. 11_ placed reliance on the decision of The Ld; Counsel also in the case of CIT Vs MSK Hon ble Madras High Court dated 05/03/2007 in TC(A) No 196 & Construction Pvt. Ltd that the disallowance of interest 197 of 2007 and submitted u/s 43B of the Act does not amount to concealment of interest Devanshi D_ Gandhi ITA No_ 746 /AHD / 12 & ITA 2617 /AHD / 2014 and when there is no tax payable then penalty could not be levied The Ld. Counsel has also placed reliance on the order of ITAT, Ahmadabad 'C' Bench in the case of Evergreen Synthetics Pvt. Ltd dated 01/04/2016 in ITA No. 1151/AHD/2012 for A.Y. 2005-06, wherein considering the ratio of the decision of Hon ble Madras High Court in the case of MSK (Supra) it has been held that on mere disallowance of interest expenses u/s 43B of the Act penalty would not be leviable_ 12_ On the other hand, the Ld_ DR supported the penalty order and submitted that the assessee did not appear before the Ld. CIT(A) and after considering the record and facts of the case the first appellate authority rightly confirm the penalty. 13_ On careful consideration of above rival submission we are of the view that since by the earlier part of this order we have allowed appeal of the assessee challenging the addition made u/s 43B of the Act therefore, the penalty based on such addition, which was not in existence being found non sustainable, cannot be held as valid and sustainable thus, we direct the Assessing Officer to delete the penalty. Accordingly, grounds of assessee in penalty appeal are allowed_ 4 3067 8 Devanshi D_ Gandhi ITA No _ 746 AHD / 12 & ITA 2617 /AHD / 2014 14 In the result both the appeals are allowed. Order pronounced in the open court on 10/01/2018 (O.P Meena) (C.M. Garg) JUDICIAL MEMBER ACCOUNTANT MEMBER 87ih /Dated 10th January, 2018 Yia Nhanu/LDC Copy to: Assessee/AO/ Pr. CIT / CIT (A)/ITAT (DR) / Guard file. By order 8 lah:= 9s/whx Sr,Private SecretarySurat Pox Harye; tlter 31457 aniriy arrry wa7ria, Ta,