Income Tax Appellate Tribunal - Delhi
Ito, Baraut vs Tulsi Ram Bhagwan Dass on 13 June, 2005
Equivalent citations: [2005]4SOT512(DELHI)
ORDER
1. This appeal has been filed by the revenue on 12-1-2005 against the order of the learned CIT (Appeals), Meerut dated 8-10-2004 in the case of the assessee in relation to assessment order under section 143(3) for assessment year 2001-02.
2. In this appeal, the revenue has disputed deduction of Rs. 2,09,066 allowed to the assessee by the learned CIT(A) under the provisions of section 36(1)(iii) of the Act. There is a typographical error in the grounds of appeal inasmuch as section 36(1)(ii) but on the facts of the case it is clear that dispute pertains to section 36(1)(iii) of the Act.
3. Facts of the case leading to this appeal briefly are that the assessee claimed deduction of interest amounting to Rs. 2,09,066 on alleged cash loans from friends and relatives. The assessee argued that it had kept the cash loans inside an almirah for the purpose of business. The position of cash lying in almirah was as under:
2000-01 Rs. 49,72,716 2001-02 Rs. 53,50,000 2002-03 Rs. 54,93,366.
The learned assessing officer found out that trading activity of the assessee during 2001-02 and immediately preceding assessment year 2000-01 did not warrant maintenance of such huge cash balance with the assessee. The entire turn over of the assessee, during 2001-02 amounted to Rs. 57,33,562. There was no closing stock left at the end of the year that showed the involvement of very little circulating capital in the trading activity of the assessee. The learned assessing officer, therefore, held that the alleged cash borrowings had not been utilized by the assessee for the purpose of its business. The assessee had only resorted to a colourable device to create bogus deduction to reduce its tax liability. On assessee's appeal, the learned CIT(A) held that the matter was required to be looked from the point of view of a prudent businessman and assessee knew its necessity better than the other person and if the assessee had kept the cash in readiness, it was not for the assessing officer to find fault therewith. The learned CIT(A) held that there was no case for disallowance of interest as claimed by the assessee. He, therefore, allowed the assessee deduction on the sum of Rs. 2,09,066 as claimed.
4. During the course of hearing before me, the learned DR argued that under the provisions of section 36(1)(iii), deduction was allowable only in respect of the borrowed amounts utilized for the business of the assessee. The assessee had not produced any evidence at any stage that the cash borrowings in question had ever been utilized in the business of the assessee. As against it, the turn over and other aspects of trading disclosed by the assessee clearly showed that the assessee did not require liquid funds of this magnitude. The learned Authorized Representative of the assessee argued that the assessing officer was not an expert in business. It was not for him to dictate as to how the assessee should conduct his business. He rehed on the judgment of the Allahabad High Court in Dy. CIT v. Super Tannery (India) Ltd. (2005) 274 ITR 338 (All.).
5. I have carefully considered the rival submissions. If the cash amounts allegedly kept inside the almirah has ever been used by the assessee for the purpose of his business, it should have been easy to establish the same with reference to cash flow statements. No such material has been relied upon by the assessee instead the assessee has based his claim on general platitudes that assessee knows his interest better and he should be allowed to run his business in the manner he feels like. In short, the assessee has attempted to base his claim of deduction on arguments as a substitute of material/evidence. The learned CIT(A) clearly erred in taking the assessee's submissions at its face value without there being corresponding material/ evidence. It is firmly established position that the burden to establish business purpose of an expenditure lays on the assessee entirely. Reference in this respect may be made to the judgments in CIT v. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC); Swadeshi Cotton Mills Co. Ltd. v. CIT (1967) 63 ITR 57 (SC); Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634 (SC); CIT v. Ballarpur Industries Ltd. (1979) 119 ITR 817 (Bom.) and CIT v. Imperial Chemical Industries (India) (P.) Ltd. (1969) 74 ITR 17 (SC). In the absence of any specific material, it is not possible to hold that the assessee had been maintaining huge cash in his almirah for the purpose of his business only. The assessee might have intended to utilize this cash if it was indeed there for any other purpose. As the assessee failed to establish any nexus between the cash borrowings and business purpose, the learned assessing officer rightly disallowed the assessee's claim of, deduction and the learned CIT(A) erred in allowing the deduction merely on the basis of some general observations. 1, therefore, set aside the order of the learned CIT(A) and restore the disallowance as made in the assessment order.
6. In the result, this appeal filed by the revenue is allowed.