Shri Amar Kumar Agrwal, v. The ITO 5 (2),

ITA 283/IND/2008 | 2004-2005
Pronouncement Date: 24-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 28322714 RSA 2008
Assessee PAN ABBPA1280E
Bench Indore
Appeal Number ITA 283/IND/2008
Duration Of Justice 1 year(s) 8 month(s)
Appellant Shri Amar Kumar Agrwal,
Respondent The ITO 5 (2),
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 24-02-2010
Date Of Final Hearing 01-02-2010
Next Hearing Date 01-02-2010
Assessment Year 2004-2005
Appeal Filed On 23-06-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JM AND SHRI V.K. GUPTA AM ITA NO.283/IND/2008 AY: 2004-05 AMAR KUMAR AGRAWAL (PAN ABBPA 1280 E) C/O K.R. MANDOVARA & CO. 2 WHITE CHURCH COLONY INDORE APPELLANT VS. ITO-5(2) INDORE RESPONDENT FOR ASSESSEE : SHRI R.P. MANDOVARA ADV. FOR DEPARTMENT : SMT. APARNA KARAN SR. DR ORDER PER V.K. GUPTA A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORDE R OF THE LD. CIT(A)-II INDORE DATED 17.3.2008 FOR THE ASSESSMENT YEAR 20 04-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PER USED THE MATERIAL AVAILABLE ON RECORD. 3. THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE IN T HIS APPEAL READ AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE AUTHORITIES BELOW ERRED IN MAKING THE FOLLOWING ADDITION BEING A) RS.6320/- ON ACCOUNT OF DISALLOWANCE OF TELEPHONE EX PENSES. B) RS.2765/- ON ACCOUNT OF DISALLOWANCE OF CAR DEPRECIA TION. C) RS.24446/- ON ACCOUNT OF DISALLOWANCE OUT OF INTERES T. D) RS.47998/- ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK. E) RS.145858/- ON ACCOUNT OF DISALLOWANCE OUT OF DEDUCT ION U/S 80IB. 2 4. ITEMS AT SL. NO.1(A) AND 1(B) WERE NOT PRESSED B Y THE ASSESSEE HENCE DISMISSED AS NOT PRESSED. 5. AS REGARDS TO DISALLOWANCE OUT OF INTEREST THE FACTS IN BRIEF ARE THAT ASSESSEE MADE AN ADVANCE OF RS.3 31 054/- TO CHETAN KUMAR MITHULAL FROM WHOM THE ASSESSEE HAD PURCHASED KAPAS WORTH RS.1 68 946/ -. IT WAS FURTHER FOUND THAT A SUM OF RS.5 LAKHS HAD ALSO BEEN PAID ON VARIOUS DAT ES. THE ASSESSEE EXPLAINED THAT SAID AMOUNT WAS ADVANCED AGAINST THE PURCHASE OF KA PAS. THE AO HOWEVER DISALLOWED THE PROPORTIONATE INTEREST ON THE AMOUNT OF ADVANCE AND WORKED THE SAME AT RS.24 446/-. 6. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A) WHEREIN IT WAS CONTENDED THAT ADVANCE HAD BEEN GIVE N FOR PURCHASE OF KAPAS AND IN ADDITION TO PURCHASE OF KAPAS FROM SHRI CHETAN KUMA R ASSESSEE HAD ALSO PURCHASED KAPAS FROM HIS WIFE SMT. NEETA BAI CHETAN KUMAR FOR A SUM OF RS.1 13 497/-. IT WAS ALSO CONTENDED THAT THERE WER E SOME OUTSTANDING CREDITORS TO WHOM NO INTEREST HAD BEEN PAID. IT WAS ALSO CONTEND ED THAT ASSESSEE WAS HAVING INTEREST FREE FUNDS ALSO AND IN THESE CIRCUMSTANCES NO NOTIONAL DISALLOWANCE OF INTEREST WAS WARRANTED. THE LD. CIT(A) FOUND THAT S HRI CHETAN KUMAR MITHULAL WAS A PERSON SPECIFIED U/S 40A(2)(B) OF THE ACT. THE ASSESSEE HAS ALSO NOT ESTABLISHED THE FACT THAT THERE WAS PRACTICE OF GIV ING ADVANCE IN THIS LINE OF BUSINESS AND IT HAS BEEN FOLLOWED IN OTHER CASES AL SO. THE LD. CIT(A) FURTHER HELD THAT ON CONTRARY GOODS WERE PURCHASED ON CASH AS W ELL AS ON CREDIT GENERALLY. THE LD. CIT(A) RELYING ON THE DECISION OF HONBLE P & H HIGH COURT IN THE CASE OF CIT 3 VS. ABHISHEK IND. LTD. AS REPORTED IN 286 ITR PAGE 1 HELD THAT NEXUS BETWEEN THE USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS H AD NOT BEEN ESTABLISHED. ACCORDINGLY HE HELD THAT INTEREST BEARING FUNDS BO RROWED UPTO THE EXTENT OF MAKING INTEREST FREE ADVANCE OF RS.5 LAKHS COULD T HEREFORE NOT BE SAID FOR THE PURPOSE OF BUSINESS. ACCORDINGLY HE CONFIRMED THE ACTION OF THE AO. 7. AGGRIEVED BY THIS THE ASSESSEE HAS PREFERRED TH IS APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS AND REI TERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. THE LD. SR. AR ON T HE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE HAS MADE INTEREST FREE ADVANCE TO THE PERSONS CONNECTED WITH THE ASSESSEE AND THE PURCHASES MADE THEREFROM ARE MUCH LESS THAN THE AMOUNT SO ADVANCED EXCEPT SUCH PURCHASES. THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH ANY COMMERC IAL CONSIDERATION INVOLVED IN GIVING IN SUCH INTEREST FREE ADVANCE. EVEN IN CASE O F PURCHASES THE ASSESSEE HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT DUE TO THIS INTEREST FREE ADVANCE THE SELLERS SOLD KAPAS TO THE ASSESSEE AT CONCESSIO NAL PRICE OR ANY OTHER BENEFIT RESULTED TO THE ASSESSEE. WE FURTHER FIND THAT THE ASSESSEE HAS NOT ESTABLISHED THE NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE AND SUCH INTEREST FREE ADVANCES. IN THIS VIEW OF THE MATTER WE FIND NO IN FIRMITY IN THE FINDINGS OF THE LD. CIT(A) HENCE WE DECLINE TO INTERFERE. THUS THIS G ROUND OF THE APPEAL OF ASSESSEE IS DISMISSED. 4 9. THE FACTS RELATING TO ISSUE OF VALUATION OF CLOS ING STOCK IN BRIEF ARE THAT THE AO FOUND THAT CLOSING STOCK OF COTTON SEED WAS VALU ED BY THE ASSESSEE @RS.800/QTL. THE AO ON THE BASIS OF LAST SALE BILL OF COTTON SEED DATED 27.3.04 VALUED THE SAME AT RS.815/QTL. AND MADE AN ADDITION OF RS.47 998/-. 10. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE LD. CIT(A) WHEREIN ASSESSEE SUBMITTED THAT IT WAS VALUING STOC K AT COST AT MARKET PRICE WHICHEVER IS LESS AND SALE PRICE OF THIS COMMODITY CHANGE ON DAY-TO-DAY BASIS. IT WAS ALSO SUBMITTED THAT FIRST SALE OF COTTON SEED A FTER 31.3.2004 WAS @RS.791/QTL. THE ASSESSEE ALSO SUBMITTED A COPY OF BROKERS AS REG ARDS TO MARKET RATE OF COTTON SEED AS ON 31.3.2004 AT RS.775/QTL. TO RS.800/QTL. THE LD. CIT(A) HOWEVER HELD THAT THE CERTIFICATE OF BROKER WAS NOTHING BUT A SE LF SERVING DOCUMENT PARTICULARLY WHEN THE ASSESSEE FAILED TO FURNISH ANY AUTHENTIC R ATE OF COTTON SEED AS ON 31.3.2004 ON THE BASIS OF NEWSPAPERS ETC. ACCORDING LY HE UPHELD THE ACTION OF THE AO. 11. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BE FORE US. THE LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS AND REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. THE LD. SR. AR ON THE OTHER H AND PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT ASSESSEE IS DEALING IN THE COMMODITY LIKE COTTON SEED WHOSE PRICES VARY FREQUE NTLY. IT IS ALSO TO BE NOTED THAT ASSESSEE IS VALUING A STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER. THUS IN OUR 5 VIEW THE PRICES NOT ONLY OF SALES MADE IN IMMEDIAT E PAST BUT ALSO OF NEAR FUTURE HAVE TO BE TAKEN INTO CONSIDERATION. THE FIRST SAY IN THE NEXT FY IS @RS.791/QTL. AND THIS FACT HAS NOT BEEN TAKEN INTO CONSIDERATION BY BOTH THE REVENUE AUTHORITIES WHICH IN OUR OPINION MUST HAVE BEEN TAKEN INTO CO NSIDERATION. ACCORDINGLY THE VALUATION @800/QTL. AT THE END OF THE YEAR APPEARS TO BE REASONABLE. THUS THIS GROUND OF THE ASSESSEE IS ACCEPTED. 13. AS REGARD TO REMAINING ISSUE THE LD. COUNSEL F OR THE ASSESSEE FAIRLY SUBMITTED THAT IT WAS PRESSING ONLY FOR NETTING OF INTEREST. THE LD. SR. AR SUBMITTED THAT THE ASPECT OF THE NETTING HAD BEEN DULY EXAMIN ED BY THE LD. CIT(A) AND SHE REFERRED TO PARA 6.2 OF THE APPELLATE ORDER. HAVING CONSIDERED THESE SUBMISSIONS AS WELL AS THE FACT THAT EVEN IN THE COURSE OF HEARING BEFORE US THE ASSESSEE HAS NOT BROUGHT ON RECORD TO ESTABLISH THE FACT OF NEXUS BE TWEEN THE INTEREST BEARING BORROWED FUNDS AND INTEREST EARNING ADVANCES HENC E WE FIND NO MERIT IN THE CONTENTION OF THE ASSESSEE REGARDING EXCLUSION OF O NLY NET INTEREST. THUS THIS GROUND OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 14. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.2.2010. SD/- SD/- (JOGINDER SINGH) (V.K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24.2.2010 !VYAS! COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR/GUARD FI LE