Income Tax Appellate Tribunal - Chandigarh
Satpal Singh, Yamunanagar vs Assessee on 18 May, 2016
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
' S M C ' BEN C H , C H AN D I G AR H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA No. 501/CHD/2016
Assessment Year : 2009-10
Shri Satpal Singh, Vs The DCIT,
C/o M/s Haryana Kashmir Circle,
Transport Carriers, Yamuna Nagar.
Saharanpur Road,
Truck Adda,
Yamuna Nagar.
PAN: AVWPS0436M
&
ITA No. 502/CHD/2016
Assessment Year : 2010-11
Shri Satpal Singh, Vs The ITO,
C/o M/s Haryana Kashmir Ward - 4,
Transport Carriers, Yamuna Nagar.
Saharanpur Road,
Truck Adda,
Yamuna Nagar.
PAN: AVWPS0436M
(Appellant) (Respondent)
Appellant by : Shri Rohit Goel, CA
Respondent by : Shri S.K.Mittal,DR
Date of Hearing : 16.05.2016
Date of Pronouncement : 18.05.2016
O R D E R
Both the appeals by assessee are directed against different orders of ld. CIT(Appeals), Panchkula dated 17.02.2016 for assessment years 2009-10 and 2010-11. 2
2. I have heard ld. Representatives of both the parties and perused the material on record. Both the parties mainly argued in assessment year 2009-10.
( Assessment Year 2009-10 )
3. In this appeal, the assessee challenged the order of ld. CIT(Appeals) in confirming disallowance of Rs. 4,84,200/- being interest paid on borrowed funds and claimed deduction under section 57 of the Act.
4. Brief facts of the case are that assessee is a partner in M/s Haryana Kashmir Transport Carriers and M/s Yamuna Coal Company, having income from salary and interest of Rs. 11,85,276/- besides exempt income from partnership firm. The Assessing Officer completed the assessment under section 143(3) of Income Tax Act after disallowing the claim of deduction of Rs. 4,99,200/- under section 57 of the Act.
5. During the assessment proceedings, the AO noted that the assessee has declared loss of Rs.4,84,200/- under the head income from other sources. The loss has been set off against the business income from partnership firms of Rs. 11,85,276/-. The assessee was required to explain nature and also furnish the details of expenses claimed as deduction u/s 57 of Rs.4,99,200/-. The assessee submitted that interest was paid to Sh. Umesh Sapra on loan of Rs.40 lacs taken from him on 28.11.2007. The amount of unpaid interest 3 of Rs.l,60,000/- on such loan for the F.Y.2007-08 also credited to Sh. Umesh Sapra account and thus interest of Rs.4,99,200/- on total loan amount of Rs.41,60,000/- paid @ 12% for the F.Y, 2008-09 relevant to the A.Y. 2009-10. On being asked to explain the utilization of such interest bearing loan and also details of income if any derived from such utilization the assessee informed that the said loan was introduced in his capital account with firm M/s Haryana Kashmir Transport Carriers, Yamuna Nagar. Further, his statement of affairs as on 31.03.2009 showed that the assessee had given advances to the persons on which no interest income received as under :
i) Advance to M/s Blue Bird Build. : Rs.61,60,000/-
Well P. Ltd.
ii) Deposits with Ch. Lekh Raj : Rs, 1,25,000/- Educational Trust
iii) Advances to M/s Majha Stone : Rs. 15,00,000/-
Industries 5(i) The assessee on the one hand has raised interest bearing loans and has given interest free loans on the other hand, therefore interest paid and claimed as deduction is not allowable to the extent of interest chargeable on such interest free advances. The assessee submitted before the AO that interest free advance was given to M/s Blue Bird Build Well P. Ltd. out of funds received back from M/s Ch. Lekh Raj Educational Trust. On the loan amount raised from Sh. Umesh Sapra and 4 introduced in the capital account of the firm, the assessee has not substantiate his version by filing any documentary evidence. The assessee's contention was not correct in view of the fact that the assessee has raised loans of Rs.40 lacs form Sh. Umesh Sapra on 28.11.2007 through cheque whereas addition in his capital account in the books of firm was on different dates i.e. Rs.8,00,000/- on 12.12.2007 by cash, Rs.27,40,000/-on 29.01.2008, Rs.2,60,000/- on 30.01.2008 and Rs.2,33,000/- on 05.03.2008 by cheques. Thus, the assessee's explanation that borrowed funds was introduced in the capital account was not accepted by the AO. Further, the AO after placing reliance on the judgment of Hon'ble Supreme Court in the case of M/s McDowell & Co. Ltd. Vs. CTO [1958] 154 ITR 148 found that by incurring multiple transaction, the assessee used a colourable device to reduce its tax liability. Thus, the AO disallowed the claimed deduction of Rs.4,99,200/- under the head other sources.
6. During appellate proceedings, the counsel for the appellant submitted that the assessee had business income as well as income from other sources; being interest from banks. Besides, the assessee paid interest on a loan raised by him form one Sh. Umesh Sapra during the A.Y.2008-09 for the business purposes and the interest so paid; after having adjusted income from other sources: was set off against the business income 5 u/s 57 of the Act. The DCIT while framing the assessment; rejected the claim of interest paid by the assessee on borrowed capital and added back a sum of Rs. 4,99,200/-to the returned income terming the interest so paid as a colour full device in view of Hon'ble Supreme Court decision in the case of McDowell vs. CIT The appellant further submitted that the DCIT has wrongly added back the aforesaid sum to the taxable income of the assessee. He has failed to consider the fact that the loan was raised by the assessee during the A.Y. 2008-09 and not during current year. The assessee had paid interest in earlier year also and Sh.Umesh Sapra has been declaring the same in his income for the years 2008-09 and 2009-10. Thus taxing the interest in the hands of the assessee again shall amount to double taxation of the same amount i.e. in the hands of the assessee as well as in the hands of Sh. Umesh Sapara. The assessee raised loans amounting to Rs.15 lac from private parties and withdrew a sum of Rs.46.25 lacs from his deposit with Ch. Lekh Raj Educational & Charitable trust, Yamuna Nagar and further Rs.21.83 lac form M/s Yamuna Coal CO.; a partnership firm of assessee and out of this total amount of Rs. 83. 08 lacs advanced a sum of Rs.61.60 lacs to M/s Blue Buildwell P. Ltd. and Rs.15 lacs to M/s Majha Stone Industries; a partnership firm in which he is a partner. Thus out of a sum of Rs.83.08 lacs ; he invested Rs.76.60 lacs. The assessee had 6 introduced a sum of Rs.40.33 lacs in the partnership of the assessee as his capital contribution during the A.Y.2008-09 out of Rs.60 lacs. The assessee had never introduced the aforesaid sum in the business enterprises yielding profits/income. Further, the appellant made a distinction from the judgment in the case of McDowell & Co. (supra) by placing reliance on the judgment of Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 06 (SC), and others.
7. The ld. CIT(Appeals), considering the explanation of the assessee in the light of material on record, confirmed the addition on account of disallowance of interest under section 57 of the Act. His findings in para 7 to 7.2 of the impugned order are reproduced as under :
"7. I have gone through the facts of the case a n d t h e wr i t t e n s u b m i s s i o n o f t h e a p p e l l a n t . I t i s n o t e d t h a t t h e a p p e l l a n t a s p a r t n e r i n t wo partnership f irms have earned remuneration and interest of Rs.l 1,85,276/- besides share in p r o f i t s wh i c h i s e x e m p t u / s 1 0 ( 2 A ) o f t h e A c t . T h e a p p e l l a n t h a s a l s o s h o wn i n c o me f r o m o t h e r sources compr ising saving bank interest of Rs.l5,000/- and c l a i me d deduction of Rs. 4,99,200/- as interest expenditure incurred on l o a n s h o wn f r o m S h . U me s h S a p r a . T h u s , t h e appellant has set off an amount of Rs.4,84,200/- against the income under the head business & prof ession. The AO on 7 e x a m i n a t i o n o f a p p e l l a n t ' s s t a t e me n t o f s o n 31.03.2009 have f ound that appellant has given a d v a n c e s t o o t h e r t h r e e c o n c e r n s o n wh i c h n o interest has been charged. So, the appellant has claimed interest on loan wh e r e as it has provided interest f ree loans to other concerns. Further, the appellant has explained that loan r a i s e d f r o m S h . U me s h S a p r a o f R s . 4 0 l a c s wa s introduced as capital in the f irm. The AO has not accepted the appellant's contention on f i n d i n g t h a t t h e l o a n wa s r a i s e d t h r o u g h c h e q u e on 28.08.2007 wh e r e a s the introduction in c a p i t a l a c c o u n t i s o n d i f f e r e n t d a t e s b y wa y o f c a s h a n d t h r e e s e p a r a t e c h e q u e s . S o , t h e r e wa s no correlation that the b o r r o we d fund wa s introduced as capital in the f i r m. The AO concluded that appellant involved a series of transactions f or transf er of f und f rom one to a n o t h e r wh i c h i s me r e l y a c o l o r a b l e d e v i c e f o r r e d u c i n g t h e t a x l i a b i l i t y wh i c h w a s n o t a l l o we d af t e r placing reliance on the j u d g me n t of H o n ' b l e S u p r e me C o u r t i n t h e c a s e o f M c D o we l l & Co. (supra). On the other hand the appellant h a s s u b m i t t e d t h a t l o a n wa s r a i s e d d u r i n g t h e p r e c e d i n g a s s e s s me n t y e a r f o r t h e p u r p o s e o f contribution to the capital in the partnership f ir m wh i c h has been accepted by the AO himself . The appellant has relied on the j u d g me n t o f H o n ' b l e S u p r e me C o u r t i n t h e c a s e of Azadi Bachao Andolan (supra) to make distinction f rom the j u d g me n t i n the case of M c D o we l l & C o . ( s u p r a ) .
7.1 A f te r c o n s i d e r i n g t h e f a c t s a n d s u b m i s s i o n , a ref erence is made to the provisions of section 5 7 o f t h e A c t u n d e r wh i c h t h e a p p e l l a n t h a s 8 claimed deduction. The deduction u/s 57(iii) is a l l o wa b l e f o r a n y o t h e r e x p e n d i t u r e l a i d o u t o r expended wh o l l y and exclusively for the p u r p o s e o f m a k i n g o r e a r n i n g s u c h i n c o me . T h e d e d u c t i o n i s a v a i l a b l e u n d e r t h e h e a d ' i n c o me f r o m o t h e r s o u r c e s ' a g a i n s t v a r i o u s i n c o me f r o m other sources as stipulated u/s 56 of the Act. S o , t h e a p p e l l a n t h a s t o p r i m a r i l y f u l f i l l t wo conditions that i) the claim of expenditure should not be in the nature of personal e x p e n s e s a n d i i ) t h e e x p e n d i t u r e mu s t b e l a i d o u t o r e x p e n d e d wh o l l y a n d e x c l u s i v e l y f o r t h e p u r p o s e o f m a k i n g o r e a r n i n g s u c h i n c o me . I n the ins tan t c ase, even if it is accepted that appellant took loan f rom Sh. Umesh Sapra but the date of raising loan and the dates of additions to capital are not correlated. The c l a i m e d l o a n wa s r a i s e d o n 2 8 . 1 1 . 2 0 0 7 t h r o u g h a cheque wh e r e a s , the additions to capital account in the f irm are Rs.8,00,000/- by cash on 12.12.2007 and Rs.27,40,000/- Rs.2,60,000/- and Rs.2,33,000/- through cheques on 29.01.2008, 30.01.2008 and 0 5 . 0 3 . 2 0 0 8 r e s p e c t i v e l y . S o , wh e n t h e a p p e l l a n t i s i n v o l v e d i n n u me r o u s b a n k i n g t r a n s a c t i o n s , the appellan t h as not been able to jus tif y th at the same loan raised in his personal capacity can be considered as transf er to the capital account of the firm. T he deduction u/s 57 can o n l y b e c l a i me d a g a i n s t t h o s e i n c o me s wh i c h a r e i n t h e n a t u r e o f i n c o me s l i s t e d u / s 5 6 o f t h e Act. So, the relevance of the claim of deduction i s i m p o r t a n t u n d e r t h e h e a d i n c o me f r o m o t h e r sources. The appellant has neither utilized such a m o u n t f o r m a k i n g o r e a r n i n g a n y i n c o me n o r 9 earned any i n c o me during the year-as stipulated u/s 56 of the Act. It is the duty of the A O t o c o n s i d e r wh e t h e r t h e a s s e s s e e i s e n t i t l e d t o a d e d u c t i o n f r o m i n c o me f a l l i n g u / s 5 6 o f t h e A c t wh i c h h e h a s f o u n d t h a t t h e a l l e g e d l o a n w a s n o t u t i l i z e d f o r e a r n i n g a n y i n c o me f a l l i n g u/s 56 of the Act.
7.2 T h e a p p e l l a n t ' s r e l i a n c e o n t h e j u d g me n t s in various cases is primarily on the discussion o f j u d g me n t o f M c D o we l l & C o . ( s u p r a ) i n t h o s e c a s e s . H o we v e r , n o n e o f t h e c a s e s r e l i e d b y t h e appellant are on the issue of deduction of e x p e n d i t u r e u / s 5 7 a g a i n s t i n c o me f a l l i n g u / s 56 of the Act. So, the cases are distinguishable on the f acts f rom the f acts of the instant case. Regarding the appellant's reliance in the case of Azadi Bachao Andolan (supra), it is noticed that t h e H o n ' b l e S u p r e me C o u r t h a s n o t r e v e r s e d t h e j u d g me n t i n t h e c a s e o f M c D o we l l & C o . T h e principle of colorable device as in the case of M c D o we l l & Co. still holds good l a w. The c o l o r a b l e d e v i c e s wi l l n o t b e a c c e p t e d a s p a r t o f t a x p l a n n i n g . T h e a s s e s s e e c a n p l a n i t s af f a i r s o a s t o m i n i m i z e t h e t a x l i a b i l i t y w i t h i n t h e f r a me wo r k of l a w. One indication for determining wh e t h e r a c o l o r a b l e d e v i c e e x i s t s i s t o a s c e r t a i n wh e t h e r t h e p l a n n i n g c o n s i s t e d o f s e r i e s o f p r e - ordained steps that had no c o m me r c i a l or business purpose except to reduce the tax burden. In the instant case, the appellant had funds wh i c h has been advanced to other c o n c e r n s wi t h o u t a n y c h a r g e o f i n t e r e s t wh e r e a s it has claimed loan f or introduction to its capital a c c o u n t i n t h e p a r t n e r s h i p f i r m o n wh i c h i n t e r e s t expenditure has been claimed under the head 10 i n c o me from other sources. The earning from such introduction to the partnership f irm does not f all u/s 56 of the Act. Further, there is no c o - r e l a t i o n i n r a i s i n g t h e l o a n a n d t h e a mo u n t s introduced as capital in the f i r m. These transactions clearly established that it has been done as a colorable device to reduce its tax l i a b i l i t y . T h e i n t e r e s t i n c o me i f a n y , s h o wn b y the loanee in his return of income does not have any bearing on the correct tax liability in the case of the appellant. So, in vie w of the above f a c t s , I a m i n a g r e e me n t wi t h t h e A O t h a t t h e deduction of Rs. 4,84,200/- claimed as interest e x p e n d i t u r e u / s 5 7 i s n o t a l l o wa b l e . T h u s , t h i s ground of appeal is dismissed.
8. After hearing rival contentions, I do not find any merit in the appeal of the assessee. The ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that no loan was taken in assessment year under appeal. He has submitted that in preceding assessment year 2008-09, on the same facts, Assessing Officer did not make any addition in assessment order under section 143(3)/147 of Income Tax Act dated 11.02.2016. PB-5 is copy of account of the amount received from Shri Umesh Sapra of Rs. 40 lacs in preceding assessment year 2008-09 which was carried forward alongwith interest in assessment year under appeal. He has submitted that assessee received interest from the partnership firm 11 which were declared in the computation of income and reduced the interest paid to Shri Umesh Sapra under the head 'Income from other sources'. He has submitted that since in preceding assessment year 2008-09, no disallowance have been made therefore, the authorities below should follow rule of consistency and relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of Haryana Tourism Corporation Ltd. 327 ITR 26. He has also relied upon unreported decision of Bombay High Court in the case of CIT Vs M/s Raptakos Brett & Co. Ltd. dated 29.07.2011 in which one of the substantial question raised by the revenue was regarding overlooking of the provisions of Section 57(iii) by the ld. CIT(Appeals). In this judgement, the Tribunal recorded the finding of fact that if no disallowance of interest on borrowed funds is made in the year in which investments are made, then there is no reason as to why disallowance of interest on borrowed funds should be made in assessment year in question. Hon'ble High Court did not find any reason to interfere with the order of the Tribunal. 8(i) On the other hand, ld. DR relied upon orders of the authorities below and submitted that no interest has been earned by assessee against the interest incurred on income from other sources. Therefore, ld. CIT(Appeals) correctly disallowed deduction of interest under section 57(iii) of Income Tax Act. He has also 12 relied upon decision of Kerala High Court in the case of CIT Vs D.K.B. & Co. 243 ITR 618 in which it was held that, "There is no estoppel against Statute". Ld. DR, therefore, submitted that since no expenditure has been laid out or expanded wholly and exclusively for the purpose of making or earning such income i.e. 'income from other sources', therefore, appeal of the assessee may be dismissed.
9. I have considered rival submissions. It was found by the authorities below that assessee is a partner in two partnership firms and earned salary and interest besides share in profit which is exempt. The assessee has also shown income from other sources comprising Saving Bank interests of Rs. 15,000/- and claimed deduction of Rs. 4,99,200/- as interest expenditure incurred on loan shown from Shri Umesh Sapra. The assessee has set off an amount of Rs. 4,84,200/- against the income under the head 'business and profession'. The Assessing Officer also found out from the facts that assessee has given advances to other three concerns on which no interest has been charged. It is, therefore, clear that assessee has claimed interest on loan whereas he has provided interest free loan to other concerns.
9(i) The assessee explained that loan raised from Shri Umesh Sapra of Rs. 40 lacs was introduced as capital in 13 the firm but Assessing Officer has not accepted assessee's contention on finding that the loan was raised through cheque on 28.11.2007 whereas introduction in the capital account is on different dates by way of cash and three separate cheques. Therefore, there was no co-relation found between the borrowed funds and amount introduced as capital in the firm. The assessee claimed deduction of the impugned amount under section 57 of the Income Tax Act. The deduction under section 57(iii) of the Income Tax Act is allowable for any other expenditure laid out or expanded wholly and exclusively for the purpose of making or earning such income i.e. under the head 'income from other sources'. The deduction is, therefore, allowable under the head 'income from other sources' against various incomes from other sources as mentioned under section 56 of the Income Tax Act. The assessee has filed computation of income for assessment year under appeal in the Paper Book in which assessee has mentioned income of Rs. 11,85,276/- being remuneration and interest received from both the firms in which assessee was a partner and has shown the same under the head 'income from business and profession'. The assessee has shown interest paid to Shri Umesh Sapra in a sum of Rs. 4,99,200/- under the head 'income from other sources' and set off against interest income of Rs. 15,000/- being saving bank interest. Therefore, assessee has 14 not earned the interest from two of the firms as 'income from other sources', therefore, conditions of Section 57(iii) would not be satisfied in the present case. 9(ii) It may also be noted here that even if assessee took loan from Shri Umesh Sapra but the date of raising loan and date of addition to capital account in the firms are not co-related. The assessee has claimed that loan was raised on 28.11.2007 through cheque whereas, addition to capital account was made later on, on different dates through cheques and the cash in a sum of Rs. 40,33000/-. Therefore, dates and amounts are totally different. The assessee is involved in number of banking transactions therefore, assessee has not been able to justify that same loan was raised in his personal capacity, can be considered as transfer to the capital account of the firm. The deduction under section 57 can be claimed against those incomes which are in the nature of income listed under section 56 of the Income Tax Act. The authorities below were, therefore, justified in holding that the relevance of the claim of deduction is important under the head 'income from other sources'. The assessee has neither utilized such amount for making or earning any such income nor earned any income during the year as stipulated under section 56 of the Income Tax Act.
15
10. Apart from the above facts, the assessee had funds which have been advanced to other concerns without charging any interest, whereas assessee has claimed loans for introduction in the capital account in the partnership firm on which interest expenditure has been claimed under the head 'income from other sources'. The earning from such introduction to the partnership firm have been admitted as income from business and profession, therefore, same would not fall under the provisions of Section 56 of the Act. The authorities below, therefore, on proper appreciation of facts and provisions of law, correctly denied deduction under section 57(iii) of the Act. The ld. DR rightly contended that there cannot be estoppel against Statute. When assessee was claiming deduction under section 57(iii) of the Act, it is duty of the assessee to prove that such deduction is allowable in accordance with law. The ld. counsel for the assessee merely contended that since in preceding assessment year 2008-09, similar disallowance had not been made by Assessing Officer in scrutiny assessment, therefore, on principle of consistency, claim of assessee should not be disallowed. However, the assessment order dated 11.02.2016, copy of which is filed in the Paper Book for assessment year 2008-09 shows that Assessing Officer has not passed any speaking order and it is not clear whether Assessing Officer has considered the issue of allowability of deduction under section 57(iii) of the 16 Act. No material is produced before me to explain that Assessing Officer has applied his mind to the facts of the case for considering deduction under section 57(iii) of the Act, particularly in reference to earning of income under section 56 of the Act. Therefore, assessee would not get any benefit out of the same. 10(i) I may also note here that assessee has not raised a point before authorities below or in ground of appeal before the Tribunal, regarding set off of loss from one head against income from another.
11. Therefore, considering the totality of the facts and circumstances noted above, I do not find any infirmity in the orders of the authorities below in making and confirming the above addition. I do not find any merit in the appeal of the assessee. The same is, accordingly, dismissed.
12. In the result, appeal of the assessee is dismissed.
(Assessment Year : 2010-11 ) 13. The ld. counsel for the assessee did not press
ground No. 1 regarding addition of Rs. 1,50,000/- on account of interest paid on housing loan. This ground is, accordingly, dismissed being not pressed. 17
14. On ground No. 2, assessee challenged the disallowance of Rs. 4,80,000/- being interest paid and claimed deduction under section 57 of the Act. The ld. CIT(Appeals) followed his order for assessment year 2009-10 and dismissed this ground of appeal of the assessee.
15. Ld. Representatives of both the parties submitted that issue is same as have been considered in preceding assessment year 2009-10 in which I have confirmed the order of the ld. CIT(Appeals). Following the reasons for decision for assessment year 2009-10 (supra), I dismiss this ground of appeal of the assessee.
16. In the result, both appeals of the assessee are dismissed.
O r d e r pronounced in the Open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Dated: 18th May, 2016.
'Poonam' Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR Assistant Registrar, ITAT/CHD