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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Assistant Commissioner of Income Tax, Circle 19 (1), New Delhi (hereinafter referred to as ‘the revenue’), by filing the present appeal sought to set aside the impugned order dated 24.12.2012 passed by the Commissioner of Income-tax (Appeals)- XXII, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :-
“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition on account of bogus purchase of Rs.26,86,130/- without appreciating the facts on the basis of which addition was made by the AO.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition on account of interest paid on borrowed capital amounting to Rs.35,43,206/- without appreciating the facts on the basis of which addition was made by the AO.
3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition on account of interest paid on borrowed capital amounting to Rs.35,43,206/- by admitting additional evidence without giving an opportunity to the AO to examine the same in- contravention of Rule 46A(3).
4. The appellant craves leave to amend or alter all or any of the aforesaid grounds of appeal and amend, alter or add any other ground of appeal.”
Briefly stated the facts of the case are : on the basis of scrutiny of the return of income filed by the assessee qua the assessment year 2009-10, notices under section 143(2) and 142 (1) of the Income-tax Act, 1961 (hereinafter ‘the Act’) were issued and consequently, Shri Devi Dayal Gupta, CA attended the proceedings, filed necessary details and also discussed the case.
The assessee is into the business of importer, intender and trader of steel and steel bars and has declared gross profit (GP) rate of 5.52% on the total sales turnover of Rs.37,70,07,570/- as compared to immediate preceding year’s GP rate of 4.68% on the total sales turnover of Rs.31,72,37,116/-. Consequent upon the notice issued u/s 133 (6) of the Act, M/s. Sumit Agriculture Industries, Mandi, Gobindgarh, Punjab intimated that neither in the financial year 2008-09 nor subsequently they had transacted any business with the assessee. Pursuant to the show-cause notice, the assessee submitted copy of M/s. Sumit Agriculture Industries showing sundry creditor balance of Rs.18,88,028/- dated 28.12.2011 on 30.12.2011, which shows that M/s. Sumit Agriculture Industries has been pressurized to change its own reply dated 19.12.2011 after issuance of show-cause notice dated 27.12.2011 to the assessee. Finding the reply filed by the assessee not tenable, the AO treated the total purchase of Rs.26,86,130/- as bogus purchases and made an addition of Rs.26,86,130/-.
In the profit and loss account, assessee claimed profits and gains from the business and profession to the tune of Rs.18,00,975/- after deducting interest on personal capital. On failure of the assessee to substantiate the reason for the interest paid on the borrowed capital introduced by Smt. Suman Jain amounting to Rs.35,42,206/- and failure to produce the evidences like bank statement, personal capital account, detail of interest paid, TDS return and payment challan, disallowed the amount of Rs.35,43,206/- and thereby made the addition of Rs.35,43,206/-.
Assessee carried the matter before the ld. CIT (A) who has allowed the appeal. Feeling aggrieved, the revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1 6. First addition made by the AO and deleted by the ld. CIT (A) vide impugned order is on account of bogus purchase to the tune of Rs.26,86,130/-. Undisputedly, during the assessment proceedings, the AO issued notice dated 12.12.2011 u/s 133(6) of the Act to M/s. Sumit Agriculture Industries, Vishavkarma Nagar, Mandi, Gobindgarh, Punjab seeking detail of his business transaction with Smt. Suman Jain instead of M/s. Sandip Enterprises. Copy of notice dated 12.12.2011 is lying at page 4 of the paper book. No doubt, M/s. Sumit Agriculture Industries denied transaction with Smt. Suman Jain vide letter dated 19.12.2011 lying at page 5 of the paper book but, in any case, the information required to be sought for was qua M/s. Sandip Enterprises. However, on disclosing true facts by the assessee, M/s. Sumit Agriculture Industries confirmed its business transaction with M/s. Sandip Enterprises showing Rs.18,88,028/- recoverable as on 31.03.2009 vide letter dated 28.12.2011 lying at page 6 of the paper book.
During appellate proceedings, the assessee has brought on record copies of accounts in the books of M/s. Sandip Enterprises, proprietorship concern of Smt. Suman Jain showing complete detail of business transaction with M/s. Sumit Agriculture Industries for the financial year 2008-09 and the said documents are lying at page 7 & 23 of the paper book. Assessee also produced purchase bills, stock register to prove the delivery, copy of bank accounts to prove the payment, lying in the paper book, which have not been disputed by the revenue.
Since the AO has merely proceeded to make an addition of Rs.26,86,130/- on the basis of letter dated 19.12.2011, wherein M/s. Sumit Agriculture Industries denied business transaction with Smt. Suman Jain, the same is not sustainable in the eyes of law because Smt. Suman Jain transacted with M/s. Sumit Agriculture Industries only as proprietor of M/s. Sandip Enterprises and not in her individual capacity. This fact has been got rectified by the assessee during the appellate proceedings by producing the entire record of M/s. Sandip Enterprises referred hereinbefore. In the given circumstances, there is no question of issuance of second letter dated 28.12.2011 by M/s. Sandip Enterprises confirming all the business transaction with assessee under pressure. Had the notice u/s 133(6) of the Act been issued to M/s. Sumit Agriculture Industries seeking complete business transaction with M/s. Sandip Enterprises, the incorrect information would not have been filed by M/s. Sumit Agriculture Industries. So, we find no infirmity or irregularity in the findings returned by the ld. CIT (A). Hence, ground no.1 is determined against the revenue.
GROUNDS NO.2 & 3 9. Before taking up the grounds no.2 & 3 for adjudication, we deem it necessary to dispose of the application filed by the assessee for leading additional evidence. Applicant/assessee, Smt. Suman Jain by moving an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 sought to prove on record bank proposal and sanction letter dated 10.11.2006 of Bank of India by way of additional evidence in order to prove the fact that the assessee has raised loan of Rs.3.30 crores and Rs.3.31 crores having been invested in the proprietorship concern, namely, M/s.
Sandip Enterprises through capital account of assessee was sanctioned at lower rate on the ground that the assessee has substantial cause to prove the documents in additional evidence.
Keeping in view the fact that the document sought to be proved by the assessee in additional evidence are necessary for complete adjudication of the controversy at hand, the same are allowed to be proved in additional evidence without prejudice to the merits of the case. Consequently, the application for additional evidence is hereby allowed.
Assessee in the profit & loss account claimed the interest having been paid to the tune of Rs.35,43,206/- which has been disallowed by the AO on the ground that the assessee could not substantiate the reasons for the interest paid on account of borrowed personal capital introduced by Smt. Suman Jain nor she has produced any supporting evidence i.e. bank statement, personal capital account and details of interest paid, TDS return and payment challan.
Assessee claimed to have raised loan of Rs.3.33 crores and Rs.3.31 crores and have invested the same in the proprietorship firm, M/s. Sandip Enterprises through capital account of the assessee on 31.03.2008 and 31.03.2009 respectively. During the appellate proceedings, the assessee summarized the capital account, personal account, investment through capital account and the bank loans raised as under :-
“Statement of Capital Account, Personal Loans invested through Capital Account and Bank Loans raised in the past years Year Ended Own funds Personal Loans Total Bank loan Invested raised form through UBI Capital Account (1) (2) (3) [(2)+(3)]=(4) (5) 31.03.2008 968,329.33 33,333,322.00 34,301,651.33 49,383,237.05 31.03.2009 6,988,927.64 33,163,018.25 40,151,945.89 83,082,048.34
In order to get the loan sanctioned from UBI Bank, the Appellant showed net worth of Smt. Suman Jain by showing that Smt. Suman Jain had sufficient Capital in the Balance sheet of M/s Sandeep Enterprises and it is for this reason that the loans raised by Smt. Suman Jain in the personal saving bank account were invested through the capital account of Smt. Suman Jain in M/s. Sandeep Enterprises.”
In the backdrop of the aforesaid facts and circumstances, the sole question arises for determination is, “as to whether interest paid on capital borrowed by the assessee in individual capacity, for the purpose of business is eligible for deduction?”
Undisputedly, assessee raised the loan of Rs.3.33 crores and Rs.3.31 crores. Assessee claimed deduction of interest of Rs.35,43,206/- on her individual borrowing against profit of Rs.53,44,181/- of the proprietorship firm of M/s. Sandip Enterprises, a proprietorship concern of the assessee.
Undisputedly, during the assessment proceedings, the assessee produced her capital account for financial year 2008-09, datewise saving account for the assessment year 2008-09, confirmation from 32 lenders as on 31.03.2009 lying at pages 248, 63 – 65, 66 – 91, 31 – 62 of the paper book respectively. Assessee also produced statement lying at pages 92 to 94 of the paper book showing borrowed amount having been deposited in the saving bank account no.3966020108006327 invested in the capital account of Smt. Suman Jain, proprietor of M/s. Sandip Enterprises.
Assessee also produced TDS return showing name of the borrowers of whom TDS has been deducted (amounting to Rs.26,82,682/-) lying at pages 97 to 108 of the paper book. During the appellate proceedings, the assessee also produced loan account of borrowers for financial year 2008-09 lying at pages 121 to 161 of the paper book and also produced confirmation from 10 lenders lying at pages 183 to 197 of the paper book. The aforesaid relied upon documents have been duly verified and have never been disputed by the AO on any account whatsoever who has merely made the addition by returning cryptic findings that the assessee has failed to substantiate the reasons by producing supporting evidence.
Assessee by way of additional evidence before the Tribunal allowed vide order of the even date, brought on record the sanction letter dated 14.01.2016 whereby bank limit of Rs.5.5 crores was sanctioned at lower bank interest rate lying at page 1 to 17 of the additional evidence.
Hon’ble Apex Court has decided the identical issue in the judgment cited as Indian Cements Ltd. vs. 60 ITR 52 (SC) wherein it has been held that when the act of borrowing money was incidental to carrying on the business the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was taken.
In the instant case, when from the document produced before the AO, CIT (A) as well as in the additional evidence before the Tribunal by the assessee, it is proved that the loan amount borrowed by the assessee in individual capacity was utilized for earning profit from M/s. Sandip Enterprises, a proprietorship concern of the assessee, a direct link has been established and as such, the interest cost incurred on the said personal borrowing was integral part of the earning profit in the said business.
Moreover, when assessee has proved that borrowings taken in individual capacity was on lower bank interest of 0.25% BPLR as against regular rate of 1.75% BPLR it has certainly enhanced the profit of M/s. Sandip Enterprises also and in such circumstances, the interest amount of Rs.35,43,206/- has been rightly allowed to be deducted by the CIT (A). So we find no illegality or infirmity in the finding returned by the CIT (A) and consequently, grounds no.2 & 3 are also determined against the revenue.
In view of what has been discussed above, the appeal of the revenue is dismissed. Order pronounced in open court on this 30th day of March, 2016.