Income Tax Appellate Tribunal - Delhi
Impulse Marketing, New Delhi vs Acit, New Delhi on 16 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: BENCH "C" NEW DELHI
BEFORE SRI R.K.PANDA, ACCOUNTANT MEMBER
AND
SMT. BEENA A PILLAI, JUDICIAL MEMBER
ITA No. 5791/Del/2014
A.Y. 2010-11
Impulse Marketing vs. ACIT
609, ABW Elegance Tower, Circle-24(1)
Jasola District Centre
New Delhi New Delhi
PAN : AABFI1861L
(Appellant) (Respondent)
Revenue by : Sh. S.L.Anuragi, Sr. DR
Assessee by : Sh. Rajat Sharma, FCA
Date of hearing: 11.04.2018
Date of Pronouncement: 16.04.2018
ORDER
PER BEENA A PILLAI, JUDICIAL MEMBER
The present appeal has been filed by assessee against order dated 29.08.2014 passed by Ld. CIT (A)-XXIII, New Delhi for assessment year 2010-11 on the following grounds of appeal:
1. On thefacts and circumstances of the case, the order passed by the learned CIT (A) is bad both in eye of law and on facts.
2. On thefacts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in adding notional interest income at the rate of 12% on the debit balance of Partner's Loan (including erstwhile employees) and business advances standing as on 31.03.2010 on the following grounds:
i. Learned CIT (A) not was justified on the facts and circumstances of the case to make an addition on the basis of notional/deemed interest in the hands of the assessee which factually neither accrues, or arises, nor is
2 ITA no. 5791.Del.2014 (Impulse Marketing) received by the assessee and ignoring the fact no provision is contained in the Income Tax Act, 1961 for adding notional interest. ii. Without prejudice to our contention that notional interest is not chargeable, and without admitting anything to the contrary, Learned CIT(A) concurred with Assessing officer to a categoric finding that the assessee firm claimed interest u/s 36(l)(iii) for Rs. 24,74,934/- but added notional interest income of Rs. 36,85,558/- without disallowing interest u/s 36(l)(iii) which indicates that the interest paid in respect of capital borrowed was only for the purposes of business or profession.
iii. Without prejudice to our contention that notional interest is not chargeable, and without admitting anything to the contrary, the Learned CIT(A) concurred with the Assessing officer in arbitrarily charging notional interest income @ 14% on the debit balance of loans to partners (including erstwhile employees) and others as on 31/03/2010 for Rs. 2,63,25,412/- without adjusting the Credit balance of partner's capital of Rs. 1,52,46,691/- on which no interest was paid to the partners, though the Learned CIT(A) reduced the interest from 14% to 12%.
3. That the above addition has been made by ignoring & without going into the veracity of the details and explanations as submitted by the appellant company and by ignoring the facts of the case & without bringing any adverse material on record. Findings of facts are perverse to the facts and circumstances of the case.
4. That the above addition has been made by ignoring the facts of the case."
2. Brief facts of the case are as under:
Assessee filed its return of income for the year under consideration on 15/10/10 declaring income of Rs. 2,06,75, 351/-. The case was selected for scrutiny and statutory notices under section 143 (2) was issued to assessee, in response to which representatives of assessee appeared before Ld.AO and filed requisite details as called for.
3. Ld.AO observed that assessee is a partnership firm, engaged in business of purchase and sale of educational books. On perusal of books of accounts, Ld. AO observed that assessee debited Rs. 24,74,937/-under the head "bank interest" and from the details it was observed that assessee received loans from 3 ITA no. 5791.Del.2014 (Impulse Marketing) banks and paid interest thereon. It was observed in the balance sheet that assessee has given advances to following persons without charging interest:
Kamal Ahuja- Rs. 19 lakhs Somnath Munjal-Rs. 10 Lacs Manish Anand - Rs.64,73,059/-
Pooja Singh- 82,000 Sanjay Bakshi- Rs.1,63,70,353/-
Zeeshan - 5 Lacs
4. Assessee was asked to explain the business exigency of these interest-free loan/advances to above referred persons, while it was paying interest on loans borrowed. As assessee failed to justify the interest free loans advanced, Ld.AO held that assessee diverted interest-bearing loans. He accordingly calculated the deemed interest at Rs. 36, 85, 558/-earned by it on the advancement at 14% of the total loan amount and added the said amount back to the income declared by assessee.
5. On an appeal before Ld. CIT (A) the rate of interest charged was reduced to 12% and assessing officer was directed to recalculated disallowance accordingly.
6. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now. All grounds raised pertain to the issue of deemed interest in the hands of assessee. Assessee has filed revised return containing 6 grounds today before us.
7. Ground No. 1 & 6 are general in nature and therefore does not call for any adjudication.
8. Ground No. 2-5 deals with the addition made by Ld. AO on account of deemed interest.
4 ITA no. 5791.Del.2014 (Impulse Marketing)
9. Ld. AR submitted that these loans and advances were given to partners/business associates of assessee which is continuing from earlier years, except for loan advanced to Pooja Singh amounting to Rs. 82,000. It has been submitted that assessee has been maintaining two accounts of partners 1 being "capital account" and the other being "loans to partners". In the "capital account", transaction relating to partners salary and profits of the firms was credited whereas in "loans to partners" account partners made drawings other than partners remuneration and profit was recorded, and this account was maintained as current account. It has been submitted that the loan was advanced to Kamal Ahuja and Somnath Munjal during financial year 2007- 08, when both of them were employees of the firm and they were subsequently inducted as partners w.e.f. 01/10/08. In alternative, Ld. AR submitted that if at all any notional interest should be made, it must be made only on net debit balance in the accounts of the partners.
10. On contrary Ld. CIT DR placed reliance upon orders of authorities below. She submitted that except for Kamal Ahuja and Somnath Munjal, assessee has not given any reason for advancing such huge loans to the other person's without any interest. She also submitted that the arguments advanced by Ld.AR is also not verifiable since there is no partnership deed that has been placed on record as well as no proof has been tendered by assessee in order to establish that the loans advanced to Kamal Ahuja and Somnath Munjal were during financial year 2007-08.
5 ITA no. 5791.Del.2014 (Impulse Marketing)
11. We have perused the submissions advanced by both the sides and the light of the records placed before us.
12. From the list of the people to whom interest free advances has been made by assessee only Kamal Ahuja and Somnath Munjal has been stated to be partners and that the amount have been advanced during the financial year 2007-08. These details are not verifiable, since assessee has not tendered any documentary evidence to that respect.
13. We are therefore inclined to set aside this issue back to Ld. AO for due verification of all these details. Assessee is directed to produce all relevant documents in the form of partnership deed as on 2007-08, as well subsequent partnership deed to establish that Kamal Ahuja and Somnath Munjal were inducted to be the partners w.e.f. 01/10/08 and that amount advanced to these people were during the relevant period. After considering the evidences submitted by assessee in respect of Kamal Ahuja and Somnath Munjal, assessing officer may revisit the computation of interest having regard to the accounts of assessee and netting of may be allowed as per law upon being satisfied regarding their status as partners.
14. In respect of remaining people, assessing officer is directed to take a view as per law. In the event assessee is able to establish by way of documentary evidences regarding the exigency of providing interest free advances, Assessing Officer may take a view upon verification of the same being genuine.
15. On the contrary if Assesssing officer is not satisfied with the submissions/evidences advanced by assessee in respect of all the persons to whom interest free advances has been tendered, is 6 ITA no. 5791.Del.2014 (Impulse Marketing) notional interest shall be computed by applying rate of interest at 12% as directed by Ld. CIT (A). With the above directions we are inclined to set aside this issue back to Ld. AO reconsideration on the basis of the evidences tendered by assessee.
16. Accordingly the grounds raised by assessee stands allowed for statistical purposes.
17. In the result appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on 16/04/2018.
Sd/- Sd/-
(R.K.PANDA) (BEENA A PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dt. 16th April, 2018
Binita
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY -
By Order,
ASSISTANT REGISTRAR
ITAT Delhi Benches
7 ITA no. 5791.Del.2014
(Impulse Marketing)
S.No. Details Date
1 Draft dictated on 13.04.2018
2 Draft placed before author 13.04.2018
Draft proposed & placed before the
3
Second Member
Draft discussed/approved by
4
Second Member
Approved Draft comes to the Sr.
5
PS/PS
6 Kept for pronouncement on 16.04.2018
7 File sent to Bench Clerk
Date on which the file goes to the
8
Head Clerk
9 Date on which file goes to the A.R.
10 Date of Dispatch of order