Income Tax Appellate Tribunal - Ahmedabad
Patel Somabhai Maganbhai & Co.,, Surat vs Department Of Income Tax on 14 September, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C
"C" AHMEDABAD
Before Shri H.L. KARWA,
KARWA, JUDICIAL MEMBER and
Shri N.S. SAINI,
SAINI, ACCOUNTANT MEMBER
Date of hearing : 14.09.2009 Drafted on: 14.09.2009
ITA No.4296/AHD/2007,ITA No.4297/AHD/2007,
ITA No.4298/AHD/2007,ITA No.4299/AHD/2007,
ITA No.4300/AHD/2007,
Assessment Years: 2001-02, 2002-03, 2003-04,2004-05, 2005-06
The Dy. Commissioner of Vs. M/s. Patel Somabhai Maganlal &
Income Tax, Central Co.
Circle-3, Surat. 5/687, Haripura, Bhavanivad,
Surat.
PAN/GIR No. : AADEP1184B
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri M.C.Pandit Sr. DR.
Respondent by: Shri P.M.Mehta
ORDER
PER BENCH:-
BENCH:-
These appeals are filed by the Revenue against the separate orders of the ld.CIT(Appeals)-II, Ahmedabad, all dated 28.09.207.
ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -2-
2. The sole issue involved in all the grounds of appeal of the Revenue in Assessment Years 2001-02, 2002-03, 2003-04 and 2004- 05 and ground no.1 of the appeal in Assessment Year 2005-06 is that the Learned Commissioner of Income Tax(Appeals) erred in deleting the addition of Rs.4,38,293/- in Assessment Year 2001-02 Rs.7,71,134/- in Assessment Year 2002-03 Rs.9,36,950/- in Assessment Year 2003-04 Rs.9,48.704/- in Assessment Year 2004-05 and Rs.9,50,627/- in Assessment Year 2005-06 on account of disallowance of interest.
3. The brief facts of the case are that the Learned Assessing Officer observed that assessee claimed interest of Rs.4,38,293/-and assessee had substantial amount of cash in hand which was never used for the purpose of business. The cash in hand is nothing but unsecured loan taken from others and partner's capital. Since the business of the assessee is to transport parcels and cash from one place to another, it is not required of the assessee to keep so much cash in hand at any point of time. Therefore, he disallowed the interest expenditure of Rs.4,38,293/- claimed by the assessee. Similarly, the Learned ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -3- Assessing Officer disallowed the deduction of interest expenditure in Assessment Year 2001-02 of Rs.7,71,134/- in Assessment Year 2002- 03 of Rs.9,36,950/- in Assessment Year 2003-04 Rs.9,48.704/- in Assessment Year 2004-05 and Rs.9,50,627/- in Assessment Year 2005-06.
4. In appeal before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that the observation of the Assessing Officer referred to above are not justified. It is submitted that the cash balance is required for the purpose of business having regard to the nature of business, which is narrated in the statement of facts. It is submitted that the nature of business includes services of transfer of parcels and transfer of cash of the customers from one place to another and the appellant has to give quick services some time due to unavoidable circumstances like delay in transportation on account of cancellation of trains or other problems like strike on the way to the destination, absence of employees and other reasons like riots etc. the cash does not reach the destination and in such circumstances the firm has to utilize the cash lying with it for timely delivery to the customers.
ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -4- Since, this type of payments is not against the expenses or loans or deposits they are not necessarily reflected in the records like cashbook. For such circumstances, cash balance is required. It is stated that there are different branches at different places and cash balances is maintained at such branches for the purpose of routine business. It is also claimed that the partner's capital represents accumulation of profits on which balance interest is being paid. The appellant has not transferred any borrowed funds for any non-business purpose. It is also argued that case balance maintained is always thus for the purpose of business. Keeping in view the above position, the appellant has contented that the disallowance is not justified.
5. It is submitted that by the AR that the main ground of disallowance was that the appellant had not proved that the borrowed funds were actually used for the purpose of business, as the appellant has huge cash balance. In this regard, it is submitted that the cash balance is being maintained from year to year having regard to the nature of business of the appellant. It is submitted that what is required is that the funds are borrowed for the purpose of business and that the ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -5- interest is paid thereon. It is submitted that it is for the assessee to decide as to how much cash balance is to be maintained and that the cash balance maintained is for the purpose of business. It is not the case that borrowed funds is diverted for non-business purposes cash is maintained for business purposes.
6. The Learned Commissioner of Income Tax(Appeals) after considering the submissions of the assessee held as under:-
"I have considered the assessment order and the above submissions. It is seen that the appellant has cash balance as per the cashbook. The A.O. has the borrowed funds are not used for the purpose of business does not establish it. Merely because the appellant is maintaining cash balance, it cannot be said that the borrowing are not used for the business. It is not the case that borrowed funds are diverted anywhere. The cash balance is maintained in business and i.e. as per the needs as judged by assessee. The claim is thus admissible u/s. 36(1)(iii) of I.T. Act. The disallowance is unjustified and therefore, is deleted."
7. The Learned Departmental Representative supported the order of the Learned Assessing Officer, whereas the Learned Authorised ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -6- Representative of the Assessee supported the order of the Learned Commissioner of Income Tax(Appeals).
8. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The short issue involved in this ground of appeal is that interest expenditure on amount borrowed were disallowed on the ground that amount borrowed were kept as cash with the assessee and the same was in the opinion of the Learned Assessing Officer not utilised for the business purposes of the assessee. The Learned Commissioner of Income Tax(Appeals) deleted the disallowance observing that assessee's business was also consisting of transfer of money. Due to this business, the assessee was required to have sufficient cash always so that it can make payment of amount on due date. Thus, in the opinion of the Learned Commissioner of Income Tax(Appeals) cash possessed by the assessee was its business asset and therefore, interest paid on borrowed capital for that cash was business expenditure of the assessee. We find that genuineness and reasonableness of payment of interest is not in dispute. The only dispute was that the borrowed funds were utilised for ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -7- the purpose of business of the assessee or not. We find that the Learned Departmental Representative could not dispute the finding of Learned Commissioner of Income Tax(Appeals) that the assessee's nature of business required it to possess cash balance of sufficient amount of all the material time as the making of timely payment was the essence of business transaction of the assessee. We find that it is not the case of the revenue that the borrowed funds were utilised by the assessee for any other purposes than its business. The assessee may be imprudent in holding large amount of cash but when the cash was possessed for business purposes it would constitute business asset of the assessee and the borrowings connected therewith had to be held as for business purposes. We therefore, do not find any error in the order of the Learned Commissioner of Income Tax(Appeals) in deleting the disallowance of interest of expenditure. Therefore, this ground of appeal of Revenue is dismissed.
9. Ground no.2 of the Revenue's appeal in Assessment Year 2005- 06 relates to deleting the addition made by the Learned Assessing ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -8- Officer on account of unexplained cash seized from Mumbai Central Railway Station.
10. The brief facts of the case are that on 21.07.2004, the Additional Deputy Commissioner of Income Tax(Inv.), Unit-II (2), Scindia House, Bellard Estate, Mumbai searched a van No.MH-04-5-1298 in which luggage belonging to about 8 to 10 angadias were being transported from their offices situated at Bhuleshwar area to Mumbai Central Railway station. The said van was jointly hired by the various angadias to carry the valuable parcels from their offices for the security purpose, as many times in past at the time of transporting parcels individually, they were subject to attack and loot by miscreants/antisocial elements. During the course of search, parcels belonging to various angadias were found from the custody of the employees of respective angadias. During the course of search, an amount of Rs.20 lacs belonging to the applicant firm was seized by the authorised officers from the custody of the employee of the applicant firm. The said Rs.20 lacs were being sent by the Mumbai office of the applicant firm out of its cash balance as per cash books to the Ahmedabad Office. Along with the said amount, a ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06 -9- letter was also sent/enclosed informing therein that the amount of Rs.20 lacs is sent out of the cash balance of Rs.20,26,471/- as on 21.07.2004. Photocopy of the relevant page of the said cash book was enclosed during the course of assessment proceedings. This fact was also stated by employee of the appellant firm Shri Kanubhai K. Patel vide his statement recorded under section 132(4) of the Act on 22.07.2004. Relevant questions & answers are reproduced below:
Q.9 During the course of physical verification of gray colour trunk which was found in the blue colour van MH 0451298, an amount of Rs.20,00,000/- kept in four bundles of Rs.5,00,000/- each are available. Explain the details of the same.
A.9. The said cash belongs to M/s. Somabhai Maganlal Angadia & Co. which is the partnership firm. In this firm as sated earlier there are two partners one Mr.Chinubhai Mohanlal Patel and other Mr. Vishbubhai Mohanlal Patel. Mr. Chinubhai Mohanlal Patel one of the partner has instructed us to transfer the said cash to Ahmedabad office. Q.10 Do the firm maintain cash book? If so, pl. give the details of up to what date?
ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
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A.10 Yes, the cash book has been updated up to 21.07.2004. Q.11 As per the letter which is attached to the cash bundles shows that the letter head has been signed by Rajendra J. Patel. Pl. state the details of Rajendra J. Patel?
A.11 Mr. Rajendra J. Patel is working as a manager of Bombay office. (B) A letter dated 10.08.2004 explaining source of cash and documents sent along with the cash was filed with Deputy Director of Income Tax (Inv.) Unit.2, Mumbai which was acknowledged by the office of Additional Director of Income (inv) Unit 2 Mumbai. An application under Section132B was also filed on 13.08.2004 with ACIT Central Circle-3, Surat.
Thus, as the amount of Rs.20 lacs was from the cash balance as per cash book of Mumbai office, the same was fully explained. However, the Learned Assessing Officer rejected explanations/evidences filed by the appellant firm and made addition of Rs.20 lacs treating it as unaccounted cash of the appellant firm & for the following reasons.
(1) The appellant has not submitted anything as to why the cash was sent from one branch to another. The appellant is not required to ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
- 11 -
transfer its own cash from one branch to another, because the business of the appellant is to collect cash at one branch & sent the same cash to another branch where it is to be delivered. To sum-up, the appellant is not to transfer its own cash for any reason. Even if, the cash was surplus at one branch, the same can be sent to the head office & not otherwise.
(2) On verification of the cash book of the appellant firm it was found that there has not been any such transfer in the past. The appellant firm could not give any evidences that the cash is being transferred from time to time.
(3) As per the nature of business, i.e. Bharatia (transfer memo), always accompanies with the parcel or the cash being transferred from one place to another, but no such bharatia was found with the cash.
11. In appeal before the CIT(A) it was argued that reasons given by the Assessing officer as above are totally irrelevant. In fact, the Learned Assessing Officer has nothing to say about the evidences found, explanations submitted and statement recorded at the time of search, ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
- 12 -
which proved beyond doubt that cash was transferred from the cash balance of the Mumbai office & therefore, addition made by the Learned Assessing Officer is not justified. Therefore it was submitted to delete the addition of Rs.20 lacs & oblige.
12. The CIT(A) after considering the submissions of the assessee held as under :-
"I have considered the assessment order and the above submission furnished by the appellant. It is noticed that in the course of search at the mini bus in Mumbai cash was found which included amount of Rs.20 lakh belonging to the appellant. Along with the said cash, a letter was found wherein it was stated that such cash was being sent to Ahmedabad from out of cash balance of Mumbai office of the appellant. The person from appellant who was present and examined at the time of search also explained that as per the instructions of one of the partners, cash was being sent from Mumbai to Ahmedabad and that such cash was belonging to the appellant itself. He had also stated that such cash was part of cash balance as per the cash book. The authorised officer had simply asked as to whether cash book was available with that person and he had explained that he was not carrying cash book with him but it was lying with Mumbai office. Thereafter, it appears that the search party had not carried out any further examination. The appellant has furnished copies of the relevant pages of cash book which clearly show that there was cash balance of more than Rs.20 lakh at Mumbai office and that the cash so sent was also recorded on the date of search. Thus, all the evidences found at the time of search and explanation given in the course of assessment proceedings by the appellant are supporting the appellant's claim that the cash so seized was as per the cash book of Mumbai office. The Learned ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
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Assessing Officer has simply stated that the reasons for transfer of cash from Mumbai to Ahmedabad are not given and that the transfer could have been to Head office. I am of the view that it is for the assessee to decide as to where the cash is required and it is not the Learned Assessing Officer who has to decide as to where the cash should be transferred. The evidence that the appellant had at the time of search itself explained that such cash was out of the cash balance as per the books of Mumbai and it is recorded in the said book is sufficient to prove that the cash was duly accounted for. Considering all these aspects I hold that the addition of Rs.20 lacs made by the Learned Assessing Officer deserves to be deleted. This ground of appeal is accordingly allowed."
13. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, cash of Rs.20 lacs was found from the van at the time of carrying of the same from Mumbai to Ahmedabad. At the time of the search of van itself, the person who was found in possession of the cash explained that the cash belong to the Mumbai branch of the assessee and the same was being taken to the Ahmedabad branch of the assessee. The Learned Assessing Officer added above amount of Rs.20 lacs to the income of the assessee on the ground that reason for transfer from Mumbai branch to Ahmedabad branch of cash was not given and in his opinion, transfer of cash from branch should be to the ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
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head office and not to other branch. The Learned Commissioner of Income Tax(Appeals) deleted the above addition by observing that the evidence of the cash belonging to Mumbai branch was submitted at the time of search itself and the books of assessee's Mumbai branch shows availability of cash of more then of RS.20 lacs and entries of transfer of cash of RS.20 lacs from Mumbai to Ahmedabad. The Learned Commissioner of Income Tax(Appeals) further observed that it is the prerogative of the assessee to decide about transfer of cash from one branch to another and income tax authorities cannot dictate that cash should be transferred to head office only by the branch and not to another branch. We find that it is not in dispute that as per the books of account of the Mumbai branch of the assessee, cash balance on the date of transfer was more than Rs.20 lacs. Thus, the cash in question was out of accumulated cash available with the assessee is not controverted by the revenue. No defect in the books of account of the Mumbai branch could be pointed out by the revenue. On the above facts, we do not find any error in the order of the Learned Commissioner ITA No.4296 to 4300 /Ahd/2007, Ms. Patel Somabhai Maganlal & Co.
Asst.Year -2001-02 to 2005-06
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of Income Tax(Appeals) in deleting the addition of Rs.20 lacs. Therefore, this ground of appeal of the revenue is dismissed.
14. In the result, all the appeals filed by the revenue are dismissed. Order signed, dated and pronounced in the Court on 18/09/2009.
Sd/- Sd/-
( H.L. KARWA ) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 18/09/2009
Paras#
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-II, Ahmedabad.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad