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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-I’ NEW DELHI
Before: SMT DIVA SINGH
Date of Hearing 11.02.2016 Date of Pronouncement 03.03.2016 ORDER The present appeal has been filed by the assessee assailing the correctness of the order dated 07.10.2015 of CIT(A)-I, New Delhi pertaining to 2012-13 AY on the following grounds:-
1. “That having regard to the fact and circumstances of the case, Ld.CIT(A) has erred in law and on facts in confirming the action of Ld.AO in making aggregate addition of Rs.10,08,629/- on account of proportionate interest on estimate/notional basis.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld.AO in making aggregate addition of Rs.10,08,629/- on account of proportionate interest is bad in law, against the facts and circumstances of the case and without observing the principles of natural justice. 3. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
2. The relevant facts of the case are that the assessee returned an income of Rs.78,039/- which was selected for scrutiny assessment under CASS. The assessee was stated to be engaged in the business of trading of electronic items & retail counter. Addition on account of proportional disallowance of interest was I.T.A .No.-6726/Del/2015 made in regard to advancing of following loans amounting to Rs. 1,38,36,061/- to the following three companies:-
(i) M/s Amit Goyal Buildcon Pvt. Ltd. Rs.47,77,718/- (ii) M/s Goyal Electroworld Rs.19,36,093/- (iii) OM Prakash JIndal Rs.71,22,250/- 2.1. Considering the explanation filed the AO held as under:-
“The reply filed by the assessee is considered and not found acceptable. The assessee itself has admitted that the amount of Rs.72 lacs is not locked into funded assets. Moreover, there is no denying to the fact that the amounts advanced to the party Mr. Om Prakash Jindal has clear nexus with the interest borrowed funds. It is impossible to believe that somebody will part his own funds without any interest/consideration and will keep on paying interest on loan raised from the banks.”
Aggrieved by this, the assessee went in appeal before the CIT(A). Before the said authority, various decisions were relied upon in support of the prayer that the addition was wrongly made on facts.
3.1. The submissions were not accepted holding that no commercial expediency was demonstrated by the assessee. For ready-reference, the factual finding is reproduced hereunder:-
“1 have considered the submission of the appellant and observation of the Assessing Officer. It is seen that the appellant has allowed interest bearing funds to its sister concerns and one Sh. Om Prakash Jindal of Rs.1,38,36,061/-. It is also seen that appellant has borrowed Rs.1,93,95,181/- from SBI as cash credit facility and has paid interest of Rs.43,03,372/-. It is observed by the AO that out of the amount borrowed from SBI, the appellant has utilized Rs.121 lacs for purchase of assets and the remaining amount of Rs.72,00,000/- was not utilized for any specific purposes. The contention of the appellant that there is no concept of notional income and interest payment cannot be disallowed. However, it is seen that there is a clear nexus between the amount borrowed by the appellant and interest free advance given to Sh. Om Prakash Jindal to the extent of Rs.71,22,250/-. The interest free loans given to Amit Goyal Buildcon Pvt. Ltd. of Rs.47,77,718/- claimed to be for development of the property owned by the said company for future business of the appellant company. However, due to recession in the market the same could not be adjudicated. The appellant has also advanced money of Rs.19,36,093/- to M/s Goyal Electroworld a proprietary concern of Sh. Amit Goyal and no interest has been charged on this advance. The appellant has not explained as what was the business expediency for giving loans to M/s Goyal Electroworld without charging interest. The appellant has also claimed that loan was given to Page 2 of 4
I.T.A .No.-6726/Del/2015 Sh. O.P. Jindal for purchase of some property. However, due to the recession in the market the appellant company lost interest in the said property, in this regard, the appellant has not submitted any document or agreement with Sh. O.P. Jindal which could establish the nexus between the purchase of property and loan given to Sh. O.P. Jindal. There is no confirmation from Sh. O.P. Jindal and the property for which loan was given to Sh. O.P. Jindal, therefore, it is established that amount to the extent of Rs.72,00,000/- borrowed from State Bank of India was diverted for non-business purposes in the form of loan given to Sh. OP. Jindal. There is a clear nexus between the interest bearing funds diverted for non-business purposes. Hence, the disallowance of interest @ 14% on the amount of Rs.72,04,499/- (1,93,95,181 - 1,21,90,682) which comes to Rs.10,08,629/- is justified and same is confirmed. The appellant has placed reliance on various case laws in support of its contention. However, the facts of the case laws cited by the appellant are not identical with the facts of the appellant's case. Hence, the same are not applicable appellant…………”
Still Aggrieved the assessee is before the ITAT. The Ld. AR relies upon the submissions made before the tax authorities to state that the addition has wrongly been made on facts. The Ld. Sr. DR relies upon the orders of the tax authorities.
A perusal of the material available on record shows that the assessee instead of placing necessary facts in support of its claim has placed reliance on certain decisions in order to canvass that the issue was covered in its favour.
Ratio decidendi of a decision operates on certain set of facts. Before a decision can be relied upon, it is necessary to establish that facts are pari materia. No such effort has been made to establish “commercial expediency”. In the facts of the present case, the Revenue has established a clear nexus between the amounts borrowed for business purposes and the interest free advance made therefrom to Sh. Om Prakash Jindal. The assessee has stated that it is for acquiring certain property which did not fructify. However no evidence in support of the said claim is found to have been placed on record. Similarly for the loans advanced to Sh.
Amit Goyal & M/s Goyal Electroworld, the assessee has claimed business expediency. No evidence in support of the said claim has been brought on record.
Accordingly after hearing the submissions of the parties before the Bench where Page 3 of 4
I.T.A .No.-6726/Del/2015 the Ld. AR states that necessary effort may not have been placed on record.
Considering the overall factual matrix, it appears that instead of demonstrating its claim on facts, the assessee has infact relied on decisions. The decisions shall come into play only after the facts have been thrashed out. In the facts of the present case the said effort is found to be missing. Accordingly considering the overall factual matrix and the pleadings of the parties in the interests of substantial justice it is considered appropriate to provide the assessee an opportunity to place on record evidence in support of its claim. The impugned order is accordingly set aside and restored the issue back to the file of the CIT(A) with the direction to the assessee to place on record whatsoever evidences it has in support of its claim. The opportunity so provided should not be abused as failing which the CIT(A) would be at liberty to pass a speaking order in accordance with law.
In the result the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open Court on 03rd of March, 2016.