Income Tax Appellate Tribunal - Jaipur
Art Asia, Jaipur vs Department Of Income Tax on 16 June, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI T.R.MEENA, AM
vk;dj vihy la-@ITA No. 235/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2011-12
Dy. Commissioner of cuke M/s Art Asia,
Income Tax, Circle-7, Vs. G-292, 293, 294, EPIP
Jaipur. Industrial Area, Sitapura,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAIFA 3883 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
izR;k{[email protected]. No. 24/JP/2015
(Arising out of vk;dj vihy la-@ITA No. 235/JP/2015)
fu/kZkj.k o"kZ@Assessment Year : 2011-12
M/s Art Asia, cuke Dy. Commissioner of
G-292, 293, 294, EPIP Industrial Vs. Income Tax, Circle-7,
Area, Sitapura, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAIFA 3883 H
izR;k{ksid@Objector izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri R.S. Dangur (Addl.CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 13/06/2016.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 16/06/2016.
2 ITA No.235/JP/2015 & CO 24/JP/2015
DCIT Vs M/s Art Asia
vkns'k@ ORDER
PER T.R. MEENA, A.M.
The appeal filed by the revenue and cross objection filed by the assessee arise against the order dated 16/12/2014 passed by the ld. CIT(A)-III, Jaipur for the assessment year 2011-12 wherein the Revenue as well as the assessee raised following grounds:-
Ground of ITA No. 235/JP/2015 Revenue's appeal "1. On the facts & circumstance of the case and in law, the Ld. CIT(A) has erred in restricting the trading addition to Rs. 14,27,270/- in place of Rs. 24,40,423/- even though the same was made by the AO after proper rejection of Books and reasoned estimation of income.
2. On the facts & circumstance of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance from various expenses to Rs. 1,36,602/- without considering the fact that disallowance were made not only for personal use but also as the expenses were non verifiable.
3. On the facts & circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s 40(a)(ia) on the amount which were not found payable at the end of financial year without proper appreciation of the provision of the section & further directions issued by the CBDT in this regard.
4. On the facts & circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of interest calculated on the receivables from partners 3 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia without considering the fact that interest bearing loans were being diverted for the personal use of partners."
Ground of Assessee's C.O. No. 24/JP/2015 "1. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the application of sec. 145(3). He has further erred in confirming the trading addition of Rs. 14,27,270/- by applying G.P. rate of 25.50% on the turnover declared by the assessee as against G.P. rate of 24.82% declared by the assessee.
2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in disallowing 15% of expenses out of vehicle maintenance, depreciation on car and telephone expenses, thereby confirming disallowance of Rs. 1,36,602/-.
3. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming disallowance of Rs.32,957/- u/s 40(a)(ia) of the IT Act, 1961.
4. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming disallowance of Rs.5,88,000/- out of interest payment by holding that the interest bearing loans were used for investment in residential flat and such investment is not related to the business."
2. Ground No. 1 of the revenue's appeal is against restricting the trading addition of Rs. 14,27,270/- in place of Rs. 24,40,423/- and ground No. 1 of the assessee's appeal is against confirming the addition of Rs. 14,27,270/-. The assessee filed its return for the year under 4 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia consideration on 23/09/2011 declaring total income of Rs. 2,09,34,650/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act) vide order dated 14/2/2014. The assessee is in the business of manufacturing, trading and export of handicrafts, wooden furniture, embroidered textile madeups. The ld Assessing Officer observed that during the year under consideration the assessee had shown gross profit of Rs. 5,23,96,482/- @ 24.82% on total sales of Rs. 21,10,73,538/-. He had analysed GP for the last two years and found that during the year under consideration, the GP has been declined to 24.82% against 25.98% in immediate preceding year. The ld Assessing Officer gave reasonable opportunity of being heard on decline of GP and asked to produce the books of account and complete vouchers for expenses, stock register. He held that the assessee has not maintained stock register, therefore, opening and closing stocks were not possible to verify. The assessee has also not maintained quantitative and qualitative wise details of day to day stock position, therefore, verification of raw material consumed in the manufacturing process was not possible. Further some of the direct expenses, such as freight and cartage, job charges, wages had been claimed on the basis of self made vouchers. Payments in some of the cases even to the transporters have been made 5 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia in cash. Therefore, verification of the declared GP was not ascertainable with the books of account maintained by the assessee for its business purposes. He proposed to rejection of books of account, on which, the assessee also submitted reply vide letter dated 20/1/2014, which has been reproduced on page 2 and 3 of the assessment order. After considering the assessee's reply, he concluded that the assessee's case is liable to application of provisions of Section 145(3) of the Act by considering the following decisions on rejection of books of account and non-maintenance of stock register.
(1) Amiya Kumar Roy & Brothers Vs CIT 206 ITR 306 (Cal). (2) Ratan Lal Om Prakash 132 ITR 640. (3) Ram Krishan Poongalia 184 CTR 448 (Raj). (4) Namasivayam Chettiar (S.N.) Vs CIT 38 ITR 579 (SC). (5) Bastiram Naraindass Maheshwari Vs CIT 210 ITR 438 (Mum).
(6) M/s Havana Trading Company Pvt. Ltd. Vs. CIT 67 ITR 582.
Accordingly, he applied the provisions of Section 145(3) of the Act and also held reasonable GP applicable for the year under consideration @ 25.98%. He made trading addition of Rs. 24,40,423/-.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal partly by observing that the assessee's closing stock is not subject to 6 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia verification in absence of day to day stock register. The defects pointed out by the Assessing Officer are sufficient to apply provisions of Section 145(3) of the Act. The case law referred by the assessee i.e. decision of Hon'ble Jurisdictional High Court in the case of Malani Ram Jeevan Jagannath Vs ACIT 207 CTR 19 held distinguishable as closing stock was not found to be incorrect in that case.
3.1 He further held that after rejecting the books of account U/s 145(3), the ld Assessing Officer supposed to make an honest estimation either based on the past history of the appellant's own case or on the basis of any comparable case. The ld Assessing Officer had applied GP rate of preceding year i.e. 25.98% during the year under consideration but in assessee's case, sales has gone up from 19.90 crores to 21.10 crores comparable to preceding year. It is a fact that when turnover increases, it reduces profit margin. It is further contended by the assessee that during this year, the assessee credited foreign exchange rate differences in the P&L account and if such receipts being part of the sale proceeds, are considered, then the GP rate would be 25.42% and the decline in GP rate will be only 0.56%. The case laws relied by the assessee, support its case. After considering all the facts and 7 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia circumstances of the case of the assessee, he applied GP rate @ 25.50% on total turnover of Rs. 21,10,73,538/- and confirmed the addition of Rs. 14,27,270/-.
4. Now the revenue is in appeal and the assessee is in C.O. before us. The ld DR has vehemently supported the order of the Assessing Officer and argued that the assessee has not maintained day to day stock register and therefore, opening and closing stocks are not subject to verification. The ld CIT(A) was not justified in deleting the part addition made by the Assessing Officer, therefore, he prayed to confirm the order of the ld Assessing Officer.
5. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and submitted that the assessee has maintained day to day books of account, which was subject to audit. These books are duly supported by the bills and vouchers. Both the lower authorities had not found any defect in the purchase or sale or any other entry recorded on the books. Mostly payments were made through account payee cheques/DD. The assessee had not maintained stock register as it is not possible in such kind of business but it has verified the closing stock of all major items at the year end. In these circumstances, 8 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia even if the application of Section 145(3) is upheld, the same are not necessary lead to trading addition. He relied on the following decisions:-
(a) Pr. CIT Vs Hues India Ltd. 2015-TIOL-2275 (Raj) dated 30/07/2015.
(b) Malani Ramjivan Jagannath Vs ACIT 207 CTR 19 (Raj).
(c) Ashoke Refractories P. Limited Vs CIT 279 ITR 457 (Cal.)
(d) CIT Vs Jacksons House 198 Taxman 385 (Delhi).
(e) CIT Vs Jas Jack Elegance Exports 324 ITR 95/233 CTR 398 (Del)(2010).
(f) CIT Vs Smt. Poonam Rani 41 DTR 194 (Del.)(2010).
(g) CIT Vs Om Overseas 315 ITR 185 (P&H).
He further argued that during the year under consideration, the assessee had credited foreign exchange rate difference in the P&L account instead of the trading account as done in the last year, which is part of the sale proceeds, therefore, it should be considered for foreign exchange rate difference in sale proceeds, the GP would be 25.42%. Thereafter, hardly any difference is in GP rate is there. Further the sale has also gone up from 19.9 crores to 21.1 crores. For increase in turnover, it is automatic to reduce the profitability in the market. The lower authorities have not doubted any purchases and expenses claimed by the assessee. The ld CIT(A) also not right by holding that the Assessing Officer found closing stock not correct for which the ld AR argued that closing of this year has been accepted by the Assessing Officer as opening stock in subsequent 9 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia year. He further relied on the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. 358 ITR 295, thus no trading addition is called for. He further relied on the following case laws on marginal decline of GP:-
(i) ITO Vs Arun Kumar Gupta 103 TTJ 134 (Jd.)
(ii) Madan lal Vs ITO 99 TTJ 538 (Jd.) Therefore, he prayed to allow the assessee's appeal and appeal of the revenue may be dismissed.
6. We have heard the rival contentions of both the parties and perused the material available on the record. Whatever evidence pointed out by the Assessing Officer, which has been confirmed by the ld CIT(A) support that the assessee's books are not reliable and we also upheld the action of the Assessing Officer for application of provisions of Section 145(3) of the Act. It is a fact that the assessee is in the business of manufacturing, trading and export of handicrafts, wooden furniture, embroidered textile madeups. It is undisputed fact that the handicrafts market is not organized business as such. Most of raw materials are purchased from the local parties, which are processed by the assessee through the local labours. Being the extra ordinary nature of business, it 10 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia is not possible to get the purchase bill or bill of the expenses which can be relied upon and these parties generally accept the payments in cash on self made vouchers. It is also a fact that it is difficult to maintain day to day stock register in the line of handicraft business as number of items are so large and labour cost is vary from item to item and on expertise of the labour employed. The Bench specifically raised a query that in past, any addition has been made by the Assessing Officer which has been either deleted or confirmed by the higher appellate authority. The ld DR submitted that in past also, there was an addition, which has been partly confirmed by the ld CIT(A). The ld AR has not been able to clarify the past history of the case as referred by the ld DR. During the year, the assessee's GP has gone down compared to last year but turnover has increased. It is market principle that the turnover increases, reduces the profit. The ld CIT(A) has confirmed the addition partly but appears to be higher side. Various Hon'ble High Courts have upheld the addition on account of not maintaining stock register. The assessee has admitted that he has not maintained stock register, therefore, we upheld the lump sum addition of Rs. 10 lacs in place of 11 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia addition confirmed by the ld CIT(A) at Rs. 14,27,270/-. The assessee gets relief of Rs. 4,27,270/-.
7. In the result, revenue's appeal is dismissed and assessee's C.O. is partly allowed on this ground.
8. The ground No. 2 of the revenue's appeal is against restricting the disallowance from the various expenses at Rs. 1,36,602/- as against the addition made by the Assessing Officer at Rs. 3,44,523/- whereas the ground No. 2 of the assessee's C.O. is against confirming the addition of Rs. 1,36,602/- on account of expenses claimed by the assessee on vehicle maintenance, depreciation and telephone expenses. The ld Assessing Officer observed that the assessee had claimed vehicle maintenance and car running expenses at Rs. 1,90,163/-, Diwali expenses Rs. 95,153/-, depreciation on car Rs. 4,35,522/-, conveyance expenses Rs. 1,95,884/-, staff welfare expenses of Rs. 4,53,751/-, telephone expenses of Rs. 2,85,001/- and office expenses of Rs. 67,141/- . The ld Assessing Officer gave reasonable opportunity of being heard and asked to produce the books of account and bill/voucher for verification of the claim. On verification, he found that these expenses has been claimed on self made vouchers. Some of the expenses are not 12 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia supported by any bill/voucher. No call register for telephone, no log book for running of vehicles had been maintained by the assessee. Personal use cannot be ruled out, therefore, he disallowed 20% expenses at Rs. 3,44,523/- out of these expenses, which was challenged before the ld CIT(A), who had allowed the appeal partly by observing that the disallowance @ 20% appears to be higher side. Moreover, there was nothing on record, which may indicate that the partners of the firm have owned independent vehicle and telephone, mobile phone and that the facilities of firm were not used by these persons. Therefore, he confirmed the disallowance @ 15% out of vehicle maintenance, depreciation on car and telephone expenses at Rs. 1,36,602/-. The other disallowances have been deleted by the ld CIT(A) on the basis of these expenses were incurred wholly and exclusively for the business purposes.
9. Now the revenue is in appeal and the assessee is in C.O. before us. The ld DR has vehemently supported the order of the ld Assessing Officer whereas the ld AR of the assessee has submitted that the assessee had filed complete details of these expenses and also produced supporting evidences. The ld Assessing Officer had not pointed out any specific instances of expenses, which is not properly vouched. Even in the ledger account, complete details of expenses had been maintained. These 13 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia expenses were incurred for the purpose of business. Looking to the volume of the business, the expenses are reasonable. The ld CIT(A) has rightly deleted the disallowance at Rs. 1,62,386/- out of Diwali expenses, conveyance expenses, staff welfare expenses and office expenses by holding that they were incurred for business purposes but remaining disallowances had been wrongly confirmed by the ld CIT(A) under the head vehicle maintenance and car running expenses by holding that the personal use of these facilities cannot be ruled out, without specifying any particular expenditure which is for non-business purposes. Therefore, he prayed to delete the disallowance confirmed by the ld CIT(A). He relied on the following case laws on this issue.
(1) ACIT Vs Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi)(Trib).
(2) CIT Vs Oracle India (P) Ltd. 199 Taxman 181 (Del)(HC)(Mag).
(3) Arthur & Anderson & Co. Vs. ACIT 2010-TIOL-416-ITAT-
Mum.
(4) Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del)(Trib).
For depreciation, it has been argued that in case of Kailash Chand Gupta Vs. DCIT 35 Tax world 36, it has been held that depreciation is a statutory provision and on account of personal use, no disallowance can be made. Thus, he prayed to allow the assessee's C.O. 14 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia
10. We have heard the rival contentions of both the parties and perused the material available on the record. It is difficult to get 100% evidence to claim the expenses genuinely under the heads vehicle maintenance, car running expenses but the disallowances confirmed by the ld CIT(A) @ 15% appears to be higher side, therefore, we upheld the disallowance out of vehicle expenses, car running expenses and telephone expenses @ 10%. The ld Assessing Officer is directed to calculate the disallowance @ 10%. However, depreciation being a statutory deduction as held in the case of Kailash Chand Gupta Vs. DCIT (supra), therefore, disallowance made on account of depreciation is deleted. Accordingly, we dismiss the revenue's appeal and CO of the assessee is partly allowed.
11. The 3rd ground of the revenue's appeal as well as assessee's C.O. are against deleting the addition and confirming the disallowance of Rs. 32,957/- U/s 40(a)(ia) of the Act. The ld Assessing Officer observed that during the year under consideration, the assessee had made payment to the following parties towards cargo expenses without deducting TDS:-
S.No. Name of Party Amount Paid
1. APL India Pvt. Ltd. 4,13,276/-
2. Container Corporation of India Ltd. 8,60,496/-
3. Meridan Shipping Agency Pvt. Ltd. 72,411/-
Total 13,46,183/-
15 ITA No.235/JP/2015 & CO 24/JP/2015
DCIT Vs M/s Art Asia
The ld Assessing Officer gave reasonable opportunity of being heard, which was availed by the assessee vide letter dated 20/1/2014. It is submitted by the assessee in case of APL Pvt. Ltd. and Meridan Shipping Agency Pvt. Ltd., TDS is not liable to be deducted due to exemption certificate. On verification of the details, it is found that the assessee had furnished letter granting of 100% of DIT relief in both the cases but no exemption certificate from the TDS authority in case of payment to Container Corporation of India Ltd. It was claimed by the assessee that these payments were made to railway, therefore, TDS is not liable. After considering the assessee's reply, the ld Assessing Officer held that the assessee violated the provisions of TDS, therefore, he disallowed expenses claimed at Rs. 13,46,183/-.
12. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal partly by observing that as per provisions of Section 195, the TDS is to be deducted only when the amount was chargeable to tax in the India. He further observed that the certificate furnished by the assessee in respect of exemption of income on taxation in case of M/s APL India Pvt. Ltd. and M/s Meridan Shipping Agency Pvt. Ltd. but such exemption was only in 16 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia respect of income derived by way of freight on specific vessels. During the appellate proceedings, the appellant had failed to prove that the receipts/income on which TDS was not deducted was derived from such specific vessels ships. As regards non deduction of TDS on payment made to M/s Container Corporation of India, no justification has been filed. He further considered the alternate claim of the assessee on the basis of paid and payable. After considering the decision of Hon'ble ITAT in the case of JVVNL Vs. DCIT (2009) 123 TTJ 888 order dated 30/4/2009, which is binding on him and also considered the CBDT circular No. 10/DV/2013, F.No. 279/Misc/M-61/2012-ITJ(Vol-II) and held that disallowance is on the basis of payable as on 31/3/2011 U/s 40(a)(ia) of the Act. Thus, he confirmed the addition of Rs. 32,957/- as against Rs. 13,46,183/- made by the Assessing Officer.
13. Now the revenue is in appeal and the assessee is in C.O. before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and further relied on the decision of Special Bench of ITAT in the case of Merilyn Shipping & Transport Vs. ACIT 16 ITR(Trib) 1 wherein it has been held that disallowance U/s 40(a)(ia) can 17 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia be made only on the amount payable not paid during the year. He further relied on the decision of Hon'ble Gujarat High Court in the case of CIT Vs Sikandar Khan N. Tunvar 357 ITR 312 and Calcutta High Court decision in the case of CIT Vs Crescent Export Syndicate 94 DTR 81 wherein identical proposition has been held i.e. this section is applicable only in case of amount payable. He further relied on the decision of Hon'ble Allahabad High Court in the case of CIT Vs Vector Shipping Services (P) Ltd. 94 DTR 101/357 ITR 642 wherein also identical findings given by the Hon'ble High Court which were challenged before the Hon'ble Supreme Court in SLP but same has been dismissed. He further relied on the following case laws:-
(i) Amit Kaushik Vs. ITO ITA No. 45/JP/2014 A.Y. 2009-10 order dated 6/11/2015.
(ii) ACIT Vs Girdhari Lal bargoti ITA No. 757/JP/2012 A.Y. 2009- 10 order dated 10/4/2015.
(iii) DCIT Vs Ananda Marakala (2014) 150 ITD 323 (bang)(Trib).
(iv) ITO Vs M/s Theekathir Press (Chennai) (Trib) ITA No. 2076 (Mds) 2012 dated 18/09/2013.
He further argued that M/s ALP India Pvt. Ltd. and M/s Meridian Shipping Agency Pvt. Ltd. are agents of non-resident. In income of these persons is not taxable in India as per the exemption certificate issued to them. Copy of the certificate is also enclosed at page No. 43 and 44 of the 18 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia paper book. Further it is argued that Section 40(a)(ia) of the Act is applicable in the case of payments made to resident and not to non- resident. Therefore, disallowance confirmed by the ld CIT(A) made please be deleted.
14. We have heard the rival contentions of both the parties and perused the material available on the record. The various courts have decided that disallowance u/s 40(a)(ia) can be made only amount payable on which TDS has not been deducted and not amount paid during the year, therefore, ld CIT(A) rightly decided the issue. The remaining addition confirmed by the ld CIT(A) on the basis of amount payable as the ld AR has not been able to prove that M/s APL India Pvt. Ltd. and M/s Meridian Shipping Agency Pvt. Ltd. had taken exemption certificate, therefore, disallowance confirmed by the ld CIT(A) is justified. Accordingly, we uphold the order of the ld CIT(A).
15. In the result, on this ground, the revenue's appeal and assessee's C.O. are dismissed.
16. Ground No. 4 of the revenue's appeal is against deleting the disallowance of interest calculated on the receivables from the partners. The ld Assessing Officer observed that the partners namely Shri Sandeep 19 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia Moondra and Shri Ravi Kant Ladda had debit balance in the capital account. The firm has provided interest on fixed capital to the partners. However, had not charged interest on debit balance worked out to Rs. 1,68,138/- in respect of Shri Ravi kant Ladda and Rs. 4,19,121/- in respect of Shri Sandeep Moondra. The assessee had debited interest expenses at Rs. 34,43,436/- on borrowings. Similarly, the assessee had claimed interest to partners at Rs. 28,80,000/-. The ld Assessing Officer found that this duel policy of the assessee reflects no business expediency. Had the funds not been advanced to the partners without interest, the consequential interest liability of the assessee would have commensurately reduced. Therefore, he calculated the interest on debit balance @ 12% on day to day basis and made addition of Rs. 5,27,259/- U/s 36(1)(iii) of the Act.
17. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing that similar additions were made in A.Y. 2008-09 by the Assessing Officer which has been deleted by the ld CIT(A) in A.Y. 2008- 09, which has been confirmed by the Hon'ble ITAT. On careful consideration of the relevant facts, it was noted by him that the assessee had received money from the partners in the current account and on 20 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia certain dates, the assessee also advanced money to the partners. The ld Assessing Officer calculated interest liability @ 12% only in respect of debit balance but no interest has been calculated by the Assessing Officer on credit balance in current account of the partner. Such findings are also supported from the decision of worthy CIT(A) in respect of A.Y. 2008-09, which are also confirmed by the Hon'ble ITAT. IN this background, if the credit received from the partners are considered then there was no interest receivables from the partners. Accordingly, he allowed the appeal.
18. Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and argued that this issue has been considered by the Hon'ble ITAT and the ld Assessing Officer only had considered debit balance in the current account of the partners and not credit balance in the account of partners. The ld AR has drawn our attention on computation of disallowances on the basis of interest borrowed on debit balance and borrowed on credit balance. The firm had to pay more interest to the partners, it means no disallowance can be made by the Assessing Officer. 21 ITA No.235/JP/2015 & CO 24/JP/2015
DCIT Vs M/s Art Asia
19. We have heard the rival contentions of both the parties and perused the material available on the record. It is a fact that this issue has been considered by the Coordinate Bench in A.Y. 2008-09 on identical facts and disallowance made by the Assessing Officer, deleted by the ld CIT(A), upheld by the Coordinate Bench in A.Y. 2008-09. The computation of interest @ 12% made by the AR has not been controverted by the ld DR, therefore, we uphold the order of the ld CIT(A).
20. Ground No. 4 of the assessee's C.O. is against confirming the addition of interest at Rs. 5,88,000/- by holding that the interest bearing loans were used for investment in residential flats and such investment is not related to business. The ld Assessing Officer observed that the assessee made advances at Rs. 49.00 lacs to M/s Unique Builders. The ld Assessing Officer asked to explain the purpose of loan and advance to M/s Unique Builders during the course of assessment proceedings The ld Assessing Officer gave reasonable opportunity of being heard on this issue, which was availed by the assessee vide letter dated 20/1/2014 wherein it has been claimed that advance was given out of partners' capital, hence there should not be any disallowance of interest. The ld 22 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia Assessing Officer found that these advances made for purchase of flat for M/s Unique Builders. There is no business relation with M/s Unique Builders. These flats are residential in nature and no business use and the same is apparent. The assessee had paid interest at Rs. 34,43,436/- on its borrowings. Had it not been invested in the flats, the cost of interest would have reduced substantially, therefore, he calculated interest @ 15% on Rs. 49.00 lacs and made disallowance of Rs. 7,35,000/-, which was challenged before the ld CIT(A), who had confirmed the addition partly by observing that the prevailing interest rate is 10 to 12%, therefore, disallowance is to be made on the basis of prevailing interest rate in the market. Accordingly, he applied 12% interest rate which was worked out at Rs. 5.88 lacs out of total interest payment of Rs. 34,73,436/-, which was also incurred for other than business purposes. Accordingly, he confirmed the disallowance at Rs. 5,88,000/-.
21. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee made investment in flat for use as guest house to be utilized by the agent/supplier as well as buyers of the assessee whenever they come to Jaipur for visit to the showroom. This 23 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia explanation was given before the ld CIT(A), has not been disputed, therefore, advances were made for business purposes. It further argued that the assessee had not paid interest to the extent of Rs. 3,10,750/- to partners on their capital. Thus, funds to the extent of Rs. 25,89,583/- was available interest free with the firm. Hence, disallowance of interest is to be deleted.
22. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
23. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee undisputedly, invested funds in the purchase of flats. The ld AR has not been able to demonstrate that this flat is for guest house. In past also, no services have been provided by the assessee to their customers/clients. The other arguments also not found convincing that the assessee has not provided interest on capital to the extent of Rs. 25,89,583/- as current capital account as well as fixed capital account has been considered in disallowance of the interest on debit balance of the partners. Therefore, we do not find any reason to intervene in the order of the ld CIT(A), 24 ITA No.235/JP/2015 & CO 24/JP/2015 DCIT Vs M/s Art Asia accordingly, we uphold the order of the ld CIT(A). This ground of the C.O. of the assessee is dismissed.
24. In the result, appeal of revenue is dismissed and assessee's C.O. is partly allowed.
Order pronounced in the open court on 16/06/2016.
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(Kul Bharat) (T.R. Meena)
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fnukad@Dated:- 16th June, 2016
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT, Circle-7, Jaipur..
2. izR;FkhZ@ The Respondent- M/s Art Asia, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 235/JP/2015 & CO 24/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar