Income Tax Appellate Tribunal - Ahmedabad
M/S. K. Chimanlal & Co., (R.F.),, ... vs The Jt.Cit, Range-2,, Ahmedabad on 11 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "SMC" BENCH
Before: Shri Mahvavir Prasad, Judicial Member
And Shri Amarjit Singh, Accountant Member
ITA No. 1281/Ahd/2015
Assessment Year 2011-12
M/s. K. Chimanlal & Co. The JCIT,
(R.F.), G-15, Range-2
New Madhupura Market, Vs Ahmedabad
Shahibaug, Ahmedabad (Respondent)
PAN: AAIFK7742H
(Appellant)
Revenue by: Prajna Madam, Sr. D.R.
Assessee by: Shri S.N. Divetia, A.R.
Date of hearing : 21-09-2017
Date of pronouncement : 11-10-2017
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2011-12, arises from order of the CIT(A)-10, Ahmedabad dated 10-02-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The assessee has raised following grounds of appeal:-
"(1) Order u/s.250 Dt.10.02.2015 being erroneous, without appreciating facts on record properly and against the principles of justice be cancelled and set aside.I.T.A No. 1281/Ahd/2015 A.Y. 2011-12 Page No 2
M/s. K. Chimanlal & Co. (R.F) vs. JCIT (2) Addition sustained Rs.4,73,604/- out of Rs.7,30,285/- on account of notional interest on interest free advances being unjudicious and against the provisions of law be deleted. (3) The learned Commissioner of Income Tax (Appeals), Ahmedabad has erred in law in not considering properly and judiciously that
i) Advances are not made in the year.
ii) Even there is no mention of provision for taxing notional income.
iii) Indian Income Tax Act is based on concept of real income.
iv) There is no fall in Gross Profit of the Appelant.
v) Appelant relies on the following decisions.
a) Godhara Electricity Co. Ltd. v/s. Commissioner of Income Tax 225 ITR 746 (SC)
b) Commissioner of Income Tax v/s. A. Ramand & Co. 67 ITR 11 (SC)
c) Commissioner of Income Tax v/s. Manharlal Girdharlal Doshit 231 ITR 89 (Gujarat)
d) Highway Construction Co. Pvt. Ltd. v/s. Commissioner of Income Tax 199 ITR 702 (Gauhati)
e) Kesarichand Jaysukhlal v/s. Commissioner of Income Tax 122 Taxman 307 (Gauhati) (4) Interest charged u/s.234B be deleted.
(5) Interest charged u/s.234D be cancelled.
(6) Appellant craves leave to add/ alter any grounds of appeal. Appellant therefore prays that addition sustained Rs.4,73,604/- out of Rs.7,30,285/- be deleted, assessment be revised and relief be granted accordingly."
3. In this case, return of income declaring income of Rs. 25,29,530/- was filed on 29th Sep, 2011. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) on 31st August, 2012. During the course of assessment proceedings, the assessing officer noticed that assessee has shown loan and advances at Rs. 6,99,131 in the balance sheet inter alia he also observed that assessee has advanced interest free loan to the following persons:-
Ramanlal C. Shah Rs. 72,037/-
Premlataben Shah Rs. 34,900/-
Jaswantbhai P. Patel Rs. 2,00,000/-
Bhavesh G. Shah HUF Rs. 28,89,386/-
Amit G. Shah HUF Rs. 28,89,381/-
Total Rs. 60,85,704/-
The assessee has failed to substantiate with supporting evidences that these advances were given for business purpose. Consequently, I.T.A No. 1281/Ahd/2015 A.Y. 2011-12 Page No 3 M/s. K. Chimanlal & Co. (R.F) vs. JCIT the assessing officer has determined proportionate interest @ 12% to the amount of Rs. 7,30,285/-on the aforesaid loan and advances and added the same to the total income of the assessee.
4. Aggrieved against the decision of the assessing officer, the assessee preferred appeal before he ld. CIT(A). The ld. CIT(A) has allowed part relief to the assessee by observing as under:-
"5.1. The effective ground of appeal is regarding addition of Rs.7,30,285/-on account of disallowance interest on loans.
During the assessment proceedings, the AO observed that the appellant had advanced interest free loans of Rs.60,85,704/-. The appellant did not charge any interest on these loans. The AO observed that these advances were not made for the purpose of business. Since the appellant could not give a satisfactory reply as to why interest was not charged on these advances, the AO added Rs.7,30,285/- on account of interest on these advances charged at the rate of 12%.
During the appellate proceedings, the appellant submitted that notional interest on interest free advances considered as income is injudicious and unlawful. The appellant further submitted that advances are not made in the year and are brought forwarded from earlier years. Further, the Indian Income tax Act is based on the concept of "Real Income" and that there is no provision in the Act for taxing notional income. Further, there is no fall in Gross Profit during the year. In support of its contention, the appellant relied on the following judgments: -
- Godhra Electric Co. Ltd. vs. CIT 225 ITR 746 (SC).
- Highway construction Co. Pvt. Ltd. vs. CIT 199 ITR 702 (Guj.).
- CIT vs. Motor Credit Co. Pvt. Ltd. 127 ITR 572.
-H. M. Kashi Parekh & Co. vs. CIT 39 ITR 706.
- Pune Electric Supply Co. Ltd. vs. CIT 57 ITR 521, 529.
- CIT vs. Shoorji Vallabhdas & Co. 46 ITR 144.
Decision. The rival submissions have been considered. It is a fact that the appellant -33 advanced interest free loans of Rs.60,85,704/-. The appellant was not able to give convincing reply as to why it did not charge interest on these loans. Further, the appellant submitted during appeal proceedings that unsecured loans of Rs.54,16,046/-are outstanding on which it has paid interest of Rs.4,73,604/-, and claimed the same as deduction.
Facts narrated above show that while the appellant has borrowed interest bearing funds of Rs.54,16,046/- on which it has paid interest of Rs.4,73,604/-, it has advanced its own funds of Rs.60,85,704/- without charging any interest. The appellant has not been able to give any justification for this or establish business expediency for doing this. The appellant is free to advance its funds and charge no interest on the same but then it cannot claim deduction in respect of interest paid on the funds that it has borrowed which leads to reduction in profits. With due regard to ratio of judgments in cases relied upon by the appellant, the same are not applicable to the present case.
In view of this discussion above, I uphold the addition made by the AO to the extent of Rs.4,73,604/-.Out of addition of Rs.7,30,285/-,addition of Rs.4,73,604/- is upheld while addition of Rs.2,56,681/- is deleted. The appellant gets partial relief. This ground of appeal is partly allowed."
5. During the course of appellate proceedings before us, the ld.
counsel has submitted paper book containing tax audit report, ledger account and submission made before the assessing officer etc. He I.T.A No. 1281/Ahd/2015 A.Y. 2011-12 Page No 4 M/s. K. Chimanlal & Co. (R.F) vs. JCIT further contended that ld. CIT(A) had partly sustained the addition made by the assessing officer on account of notional interest on free advances. On the other hand, ld. departmental representative supported the order of the ld. CIT(A).
6. We have heard both the sides and perused the material on record. We observed that the assessee has borrowed interest bearing fund of Rs. 54,16,046/- on which it has paid interest of Rs. 4,73,604/-. On the other hand, the assesee has advanced its own fund of Rs. 60,85,740/- without charging any interest. We have noticed that assessee failed to substantiate with supporting evidences why it has not charged interest on these loans. We also find that ld. CIT(A) has also allowed part relief to the assesse of the interest amount of Rs. 4,73,604/- which it has paid on the unsecured loan of Rs. 54,16,046/-. In view of the facts and circumstances and after considering the detailed findings of the ld. CIT(A), we do not find any reason to interfere in the findings of the ld. CIT(A), therefore, the appeal of the assessee is dismissed.
7. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 11-10-2017 Sd/- Sd/-
(MAHAVIR PRASAD) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 11/10/2017
I.T.A No. 1281/Ahd/2015 A.Y. 2011-12 Page No 5
M/s. K. Chimanlal & Co. (R.F) vs. JCIT
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद