M/s. Packaging Products,, Ahmedabad v. The Income tax Officer,Ward-6(4),, Ahmedabad

ITA 550/AHD/2007 | 2003-2004
Pronouncement Date: 18-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 55020514 RSA 2007
Assessee PAN AADFP3499F
Bench Ahmedabad
Appeal Number ITA 550/AHD/2007
Duration Of Justice 3 year(s) 13 day(s)
Appellant M/s. Packaging Products,, Ahmedabad
Respondent The Income tax Officer,Ward-6(4),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 18-02-2010
Date Of Final Hearing 04-02-2010
Next Hearing Date 04-02-2010
Assessment Year 2003-2004
Appeal Filed On 05-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI BHAVNESH SAINI JM & SHRI A.N. PAHUJA AM I.T.A. NO.550/AHD/2007 (ASSESSMENT YEAR 2003-04) M/S PACKAGING PRODUCTS VS ITO WARD-6(4) 12 AAKASHNEEM BUNGALOW AHMEDABAD OPP NEHRU FOUNDATION VASTRAPUR AHMEDABAD 380 054 [PAN : AADFP3499F] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JYOTISH M SHAH AR REVENUE BY: SHRI SANJEEV KASHYAP DR O R D E R AN PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 02-11-2006 OF THE LD. COMMISSIONER OF INCOME-TAX(APPEALS)-XII AH MEDABAD RAISES THE FOLLOWING GROUNDS: I. DISALLOWANCE OF INTEREST RS.6 05 478/- I) THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN CONFIRMING DISALLOWANCE OF RS.6 05 474/- BEING INTEREST PAID HOLDING THAT FUND S ARE DIVERTED FOR NON BUSINESS PURPOSE. II) THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN NOT ACCEPTING THAT THE FUNDS INVESTED IN THE JOINT VENTURE BUSINESS ARE CAPITAL CONTRIBUTION AS PARTNER. III) THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN NOT CONSIDERING THE FACT THAT NE W ADVANCES DURING THE YEAR WERE RS.6 000/-(STATED TO BE NIL DURING THE HEARING) ONLY. THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD WITHOUT CONSIDERING WRITTEN SUBMISSION FULLY IN ITS PROPER PERSPECTIVE IS NOT SPEAKING ORDER. IV) THE ACTION OF THE COMMISSIONER OF INCOME TAX (APPEALS)XII AHMEDBAD TO CONFIRM THE DISALLOWANCE IS UNJUSTIFIED AND BAD IN LAW. ITA NO.550/AHD/2007 2 II. DISALLOWANCE OF TELEPHONE EXPENSES THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN CONFIRMING DISALLOWANCE OF RS.17 352/- BEING TELEPHONE EXPENSES. THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN NOT ACCEPTING THE CONTENTION THE DISALLOWANCE BE MADE FOR FIXED AMOUNT INSTEAD ON PERCENTAGE BASIS. III. DISALLOWANCE OF DEPRECIATION ON MOTOR CYCLE THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN CONFIRMING DISALLOWANCE OF DEPRE CIATION RS.8 300/- HOLDING THAT VEHICLE IS NOT IN THE NAME OF FIRM. THE ACTION OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD TO CONFIRM DISALLOWANCE IS UNJUSTIFIED AND BAD IN LAW ON FACTS AND LAW. IV DISALLOWANCE OUT OF MANUFACTURING EXPENSES THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN CONFIRMING DISALLOWANCE OF RS.10 000/- OUT OF MANUFACTURING EXPENSES. THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN NOT ACCEPTING THE FACT THAT ASSE SSING OFFICER HAS NOT POINTED OUT SINGLE DEFECT. THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD IS UNJUSTIFIED AND BAD IN LAW. V WITHDRAWAL OF INTEREST U/S 244A THE COMMISSIONER OF INCOME TAX (APPEALS)-XII AHMEDABAD ERRED IN STATING THAT THE CHARGE OF INTER EST U/S 244A IS CONSEQUENTIAL. VI CHARGE OF INTEREST U/S 234B THE COMMISSIONER OF INCOME TAX (APPEALS)XII AHMEDBAD ERRED IN CHARGING INTEREST U/S 234-B. THE CHARGE OF INTEREST IS INVALID AND BAD IN LAW. ITA NO.550/AHD/2007 3 VII THE APPELLANT CRAVE FOR LEAVE TO ADD ALT ER OR AMEND ALL OR ANY GROUNDS BEFORE FINAL HEARING OF THIS APPEAL. 2. THIS APPEAL WAS EARLIER DISPOSED OF VI DE ORDER DATED 31.8.2007. HOWEVER ON AN APPLICATION BY THE ASSESSEE THE SAI D ORDER DATED 31.8.2007 WAS RECALLED ON 3.10.2008 WITH RESPECT TO THE ISSUES RA ISED IN THE MISCELLANEOUS APPLICATION. IN THEIR APPLICATION FILED ON 2.4.2008 THE ASSESSEE RAISED ISSUES MENTIONED IN THE AFORESAID GROUND NOS. I II III V & VI .ACCORDINGLY THE APPEAL WAS HEARD ON THE ISSUES RAISED IN THESE GROUNDS. 3. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING INCOME OF RS.2 36 106/- FILED ON 03-11-2003 BY THE ASSESSEE ENGAGED IN MANUFACTURING CORRUGATED BOXES AFTER BEING PROCES SED ON 5.7.2004 U/S 143(1) OF THE INCOME-TAX ACT 1961 (HEREINAFTER CALLED THE ACT) WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE ACT ON 18.10.2004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE ASSESSEE DEBITED INTEREST OF RS. 18 63 666/- IN THE PROFIT & LOSS ACCOUNT. THE DETAILS FURNISHED IN THIS CONNECTION REVEALED THAT INTEREST OF RS.19 55 366/- WAS PAID ON SECURED LOANS OBTAINED A GAINST THE HYPOTHECATION OF STOCK AND BOOK DEBTS MACHINERY LOAN AGAINST HYPOTH ECATION OF MACHINERY FROM THE MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD AND CAR LOANS FROM STANDARD CHARTERED GRINDLAYS BANK AND ANZ GRINDLAYS BANK AND ALSO BICYCLE LOAN FROM TATA FINANCE LTD. ALL THESE SECURED LOANS WERE OBT AINED IN EARLIER YEARS AND REPAYMENT OF THESE LOANS CONTINUED IN THE YEAR UNDE R CONSIDERATION. THE AO FURTHER NOTICED THAT THE ASSESSEE HAD GIVEN LOAN O F RS.40 36 494/- TO M/S KAVITAN AGRO ON WHICH NO INTEREST HAD BEEN CHARGED WHILE THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS.19 55 366/- TO VARIOU S BANKS. TO A QUERY BY THE AO THE ASSESSEE REPLIED VIDE LETTER DATED 06-01-2 006 THAT THEY ENTERED IN TO JOINT VENTURE AGREEMENT AS A PARTNER WITH M/S KAVIT AN AGRO IN TERMS OF AN AGREEMENT DATED 14-05-1996. AS PER THIS AGREEMENT THEY HAD TO CONTRIBUTE FINANCE OF RS.50 00 000 (RS.FIFTY LAKHS) BY 31.3.20 00.THE FIRM WAS TO RECEIVE ITA NO.550/AHD/2007 4 15% OF THE TURNOVER EFFECTED AFTER 1.4.2000 EVERY YEAR ON 31 ST MARCH AND HAD A FIRST CHARGE AND LIEN ON ALL CLAIMS DUES AND ASSET S OF JOINT VENTURE BUSINESS. THE INTENTION OF THE FIRM WAS TO DEVELOP A GREEN HO USE. THE INVESTMENT MADE BY JOINT VENTURE BUSINESS WAS AS UNDER:- BOREWELL RS. 1 15 320/- GREEN HOUSE RS. 13 21 354/- LAND (AGRICULTURAL) RS. 5 22 550/- LABOUR QUARTER & GODOWN RS. 7 28 553/- WATER PIPE RS. 7 07 036/- AGRICULTURE PRODUCE EXPENSES RS. 5 96 188/- ----------------------- RS. 31 91 001/- ----------------------- WHILE THE CAPITAL CONTRIBUTION BY THE FIRM IN DIFF ERENT YEARS WAS AS UNDER: UPTO 31/3/1997 RS. 22 81 064/- UPTO 31/3/1998 RS. 39 06 538/- UPTO 31/3/1999 RS. 40 14 710/- UPTO 31/3/2000 RS. 40 30 494/- UPTO 31/3/2001 RS. 40 36 494/- THEREAFTER THE ASSESSEE FIRM DID NOT MAKE ANY NEW INVESTMENTS IN THE JOINT VENTURE IN FYS 2001-02 AND 2002-03 RELEVANT TO A.YS 2002-03 AND 2003- 04.DESPITE THEIR BEST EFFORTS THE JOINT VENTURE OF GREEN HOUSE PROJECT FAILED DUE TO CLIMATIC CONDITIONS AND THE FIRM RECEIVED BACK R S.28 95 000/- OUT OF DISPOSAL OF VARIOUS ASSETS IN AUGUST/SEPTEMBER 2003 (A.Y. 2004 -05) TOWARDS CAPITAL CONTRIBUTION MADE BY THE FIRM. SINCE THE ASSESSEE I NVESTED OUT OF THEIR OWN FUNDS ONLY AND NOT BY BORROWING FROM OUTSIDERS WHILE NO NEW ADVANCES WERE MADE DURING THE YEAR UNDER CONSIDERATION IT CANNOT BE S AID THAT THE BUSINESS FUNDS WERE DIVERTED FOR NON-BUSINESS PURPOSES THE ASSESS EE POINTED OUT.INTER ALIA THE ASSESSEE RELIED UPON A NUMBER OF JUDGMENTS .HOWEVE R THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED I NTEREST OF RS.6 05 474/- CALCULATED @15% ON THE AFORESAID AMOUNT OF RS.40 36 494/- HOLDING AS UNDER: 4.4 THIS ISSUE HAS BEEN EXAMINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 1997-98 IN DEPTH. THE THEN ASSESSING OFFICER OBSERVED IN THE ORDER THAT MERELY FILING OF ITA NO.550/AHD/2007 5 PURCHASE BILLS OF SMALL AMOUNTS DID NOT ESTABLISH T HAT THE BUSINESS HAD COMMENCED. THE ASSESSEE HAD ALSO NOT PRODUCED ANY DOCUMENTARY EVIDENCES TO SHOW FOR WHAT PURPOSE M/S KAVIN AGRO HAD UTILIZED THE AMOUNT ADVANCED TO M/S KAVITAM AGR O BEFORE THE THEN ASSESSING OFFICER. DURING THE ASSESSMENT PROC EEDINS FOR A.Y. 1997-98 THE ASSESSEE HAD ONLY SUPPLIED TWO BILLS F OR RS.1 700/- DATED 15/07/1996 AND FOR RS.366/- DATED 12/10/1996 IN SUPPORT OF HIS CONTENTION THAT THE BUSINESS HAS ALREADY COMMEN CED ON 15/07/1996. THE CONTENTION OF THE ASSESSEE REGARDIN G COMMENCEMENT OF THE JOINT VENTURE BUSINESS WAS REJE CTED BY THE THEN ASSESSING OFFICER AND DISALLOWANCE OF INTEREST OUT OF THE INTEREST PAID ON BORROWED FUNDS WAS MADE. THE LEAR NED CIT(A)- XII AHMEDABAD ALSO DISMISSED THE ASSESSEES APPEAL FOR A.Y. 1997-98 VIDE HIS ORDER NO.CIT(A) XII/INV.CIR.3(1)/ 64/2000-01 DATED 04/12/2002. THE LEARNED CIT(A) OBSERVED AS UNDER: .DURING THE COURSE OF APPELLATE PROCEEDINGS THE COUNSEL OF THE APPELLANT HAS SUBMITTED THAT THE FUNDS HAVE BEE N DIVERTED TO JOINT VENTURE BUSINESS. IN VIEW OF THE AGREEMENT I NCOME IS STARTED AFTER SALES ARE AFFECTED AND IT HAS BEEN SU BMITTED THAT THE INTEREST EXPENSES ARE USED FOR THE BUSINESS PUR POSES. IN SUPPORT OF ITS CONTENTION THE COUNSEL OF THE APPEL LANT HAS ALSO RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MODY 115 ITR 519 1978 (SC). I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT AND OBSERVATION MADE BY TH E ASSESSING OFFICER. I HAVE ALSO CAREFULLY GONE THROUGH ALL TH E JUDGMENTS CITED BY THE COUNSEL OF THE APPELLANT AND I AM OF T HE VIEW THAT WHATEVER INCOME WILL COME TO THE APPELLANT THAT WIL L BE TREATED UNDER THE HEAD INCOME FROM OTHER SOURCES AND INCOME FROM THAT SOURCE IS YET TO ORIGINATE AND TO ENTER INTO J OINT VENTURE IS NOT THE BUSINESS OF THE APPELLANT. THEREFORE TO SA Y THAT FUNDS INVESTED IN THE JOINT VENTURE ARE FOR THE BUSINESS OF THE APPELLANT IS NOT CONVINCING AT ALL AND THE STAND OF THE ASSES SING OFFICER ON THIS POINT IS FULLY JUSTIFIED IN NO ALLOWING THE IN TEREST ON THE FUNDS DIVERTED TO THE JOINT VENTURE. THE RELIANCE BY THE COUNSEL OF THE APPELLANT IN THE RAJENDRA PRASAD MODY ALSO DOES NOT HELP THE APPELLANT BECAUSE THE JUDGMENT OF THE HONBLE SUPR EME HAS CLEARLY LAID DOWN THAT INTEREST U/S 57(III) WILL BE ALLOWED WHEN THERE IS INCOME UNDER THE HEAD INCOME FROM OTHER SO URCES THAT IS U/S 56. WHEN THERE IS NO INCOME FROM THE HEAD I NCOME FROM OTHER SOURCES HOW THE APPELLANT COULD BE ALLOWED I NTEREST OUT OF HIS BUSINESS INCOME. THEREFORE DISALLOWANCE OF INTEREST BY THE ASSESSING OFFICER IS FULLY IN ORDER AND HENCE A CTION OF THE ASSESSING OFFICER IS CONFIRMED. ITA NO.550/AHD/2007 6 4.5 IN THE ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02 ALSO THIS ISSUE HAD BEEN RE-EXAMINED WITH REFERENCE TO THE NE W FACTS AS BROUGHT ON RECORD. THE ASSESSEE HAD MADE MORE OR L ESS THE SAME SUBMISSIONS WHICH ARE NOW MADE IN THE PRESENT ASSES SMENT PROCEEDINGS WHICH ARE DULY CONSIDERED. SO FAR AS T HE UTILIZATION OF INTEREST BEARING LOANS ARE CONCERNED IT IS MENTION ED THAT IN BALANCE SHEET THE ASSESSEE HAS NOT SHOWN ANY INTERE ST FREE FUNDS. THE ASSESSEE HAS ALSO NOT PROVIDED ANY EVIDENCE IN SUPPORT OF ITS CLAIM. THE POSITION OF FUNDS AS PER BALANCE SHEET ARE AS UNDER: PARTICULARS AMOUNT (RS.) SOURCES OF FUNDS I) PARTNERS CAPITAL (-) 23544.50 II) SECURED LOANS 1 21 90 391.00 III) UN-SECURED LOANS NIL APPLICATION OF FUNDS FIXED ASSETS 38 53 441 LESS:DEPRECIATION 6 62 912 NET BLOCK (I) 31 78 419 INVESTMENTS (II) 44 71 994 CURRENT ASSETS (LOANS ADVANCES DEBTORS & CASH / BANK BALANCE 1 64 93 859 LESS : CURRENT LIABILITIES & PROVISIONS 1 19 77 425 NET CURRENT ASSETS RS.(III) 45 16 434 TOTAL (I+II+III) 1 21 66 847 4.6 ON VERIFICATION OF THE JOINT VENTURE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S KAVITAN AGRO IT IS NOTICED T HAT THE ASSESSEE SHALL BE ENTITLED TO A SUM OF 15% OF THE JOINT VENT URE TURNOVER EFFECTED AFTER 01/04/2000 WHICH SHALL BECOME DUE ON 31/03/2001. THE ASSESSEE HAS RECEIVED NO RECEIPTS FROM THE JOIN T VENTURE ACTIVITIES DURING F.Y. 2000-01 AS WELL AS DURING TH E YEAR UNDER CONSIDERATION. THE FIRST RECEIPT RECEIVED ON INVES TMENT IS IN A.Y. 2004-05 AS IS EVIDENT FROM THE REPLY OF THE ASSESSE E. EVEN IF THE ASSESSEE HAD RECEIVED ANY INCOME IT WOULD BE ONLY AN AGRICULTURAL INCOME WHICH IS EXEMPT FROM THE TAX AS PER THE PROV ISIONS OF SECTION 10 OF THE ACT. THEREFORE THE APPLICABILIT Y OF PROVISIONS OF ITA NO.550/AHD/2007 7 SECTION 14A WOULD BE APPLIED IN THE CASE OF THE ASS ESSEE. AS PER THE PROVISIONS OF THIS SECTION NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE INCOME TAX ACT. AS SUCH THE CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST ON B ORROWED FUNDS WHICH ARE UTILIZED TO EARN EXEMPTED INCOME WOULD NO T BE ENTERTAINED. 4.7 IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE H AS MADE THE INVESTMENT IN THE JOINT VENTURE OUT OF THE INTEREST BEARING FUNDS. IT IS WORTH TO MENTION THAT IT HAS BEEN OBSERVED BY TH E LEARNED CIT(A) IN HIS ORDER THAT TO ENTER INTO JOINT VENTURE IS NO T THE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS NOT PRODUCED OR FURNISH ED ANY EVIDENCE IN SUPPORT OF THE RECEIPTS DURING THE YEAR FROM JOINT VENTURE ACTIVITIES. IN THE LIGHT OF ABOVE FACTS I T IS VERY MUCH CLEAR THAT THE JOINT VENTURE BUSINESS WHICH HAS NOT BEEN COMMENCED IN THE FINANCIAL YEAR 1996-97 CAN BE SAID TO HAVE BEEN COMMENCED DURING THE FINANCIAL YEAR 2000-01 I.E. RELEVANT TO ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS ALSO NOT PRODUCED ANY NE W / FRESH DOCUMENTARY EVIDENCE TO SHOW FOR WHAT PURPOSE AND H OW THE AMOUNT ADVANCED TO M/S KAVITAN AGRO HAS BEEN UTILIZ ED BY M/S KAVITAN AGRO. IT IS CLEAR FROM THE ABOVE FACTS THA T THE AMOUNT ADVANCED TO M/S KAVITAN AGRO HAS NOT BEEN UTILIZED FOR THE BUSINESS PURPOSE AND EARNING THE INCOME WHICH HAS B EEN CREDITED IN THE PROFIT & LOSS ACCOUNT GENERATED THROUGH MANU FACTURING ACTIVITIES OF CORRUGATED PACKING MATERIAL. 4.8 THUS THE INTEREST PAID ON BORROWED FUND TO THE EXTENT OF INTEREST @15% ON RS.40 36 494/- WHICH IS WORKED OUT TO RS.6 05 474/- IS DISALLOWED AND ADDED IN THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL THE ASSESSEE REITERATED THEIR ARGU MENTS MADE IN THEIR APPEALS IN THE A.Y. 1997-98 AND 2001-02 . HOWEVER THE LD. CIT(A) FOLLOWING HIS PREDECESSORS ORDER DATED 30-07-2004 FOR THE AY 200 1-02 CONCLUDED AS FOLLOWS: 2.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT FACTS OF THE CASE AND ORDER OF THE AO. I HAVE ALSO GONE THR OUGH THE APPELLATE ORDER DATED 30.07.2004 PASSED BY MY PREDE CESSOR FOR A.Y. 2001-02. IN THIS ORDER ALL THE FACTS AND ASPE CTS ON THE CLAIM OF INTEREST ON INVESTMENT IN JOINT VENTURE HAVE BEEN D ISCUSSED IN DETAIL AND THE ISSUE HAS BEEN DECIDED AGAINST THE APPELLAN T. AGREEING TO THE VIEWS OF MY PREDECESSOR ON IDENTICAL ISSUE I A LSO HOLD THAT THE INTEREST AS CLAIMED BY THE APPELLANT IS NOT ALLOWAB LE. THE CLAIM OF THE APPELLANT IS HEREBY REJECTED AND HENCE THIS GRO UND OF APPEAL STANDS DISMISSED. ITA NO.550/AHD/2007 8 5. THE ASSESSEE IS IN NOW IN APPEAL BEFORE U S AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).AT THE OUTSET BOTH THE PARTIES A GREED THAT ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE AO IN VIEW OF DECISIONS OF THE ITAT FOR THE AYS 1997-98 & 2001-02. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITAT. WE FIND T HAT THE AO ADJUDICATED THE ISSUE RELATING TO DISALLOWANCE OF INTEREST INTER ALIA IN THE LIGHT OF FINDINGS OF THE LD. CIT(A) FOR THE AY 1997-98 AS ALSO HIS OWN ORDER FOR THE AY 2001-02 WHILE THE LD. CIT(A) RELIED UPON ORDER DATED 30.7.2004 OF HI S PREDECESSOR FOR THE AY 2001- 02 UPHOLDING THE DISALLOWANCE OF INTEREST. ON THE OTHER HAND ITAT VIDE THEIR ORDER DATED 15.2.2007 IN ITA NO.509/AHD./2003 FOR T HE AY 1997-98 SET ASIDE THE MATTER TO THE FILE OF THE AO SINCE IT WAS NOT EVIDE NT AS TO WHETHER OR NOT THE ASSESSEE RECEIVED TURNOVER OF 15% STIPULATED IN CLA USE 4 OF THE JOINT VENTURE AGREEMENT NOR CLARIFIED AS TO WHETHER OR NOT THE AS SESSEE INDEED BORROWED FUNDS FOR THE JOINT VENTURE. LIKE WISE IN THEIR ORDER DAT ED 18.5.2007 IN ITA NO. 549/AHD./2007 FOR THE AY 2001-02 THE ITAT WHILE FO LLOWING THE AFORESAID DECISION DATED 15.2.2007 OF THE ITAT AND THE DECISI ON OF HONBLE APEX COURT IN SA BUILDERS LTD. VS.CIT 288 ITR 1(SC) RESTORED THE ISSUE TO THE FILE OF THE AO. SINCE UNDISPUTEDLY FACTS OBTAINING IN THE YEAR UNDE R CONSIDERATION ARE SIMILAR TO THE FACTS IN THE AYS 1997-98 & 2001-02 AND NO FURTH ER AMOUNT IS STATED TO BE ADVANCED TO M/S KAVITAN AGRO IN THE YEAR UNDER CONS IDERATION WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE RELATING TO DISALLOWANCE OF INTEREST AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OP PORTUNITY TO THE ASSESSEE KEEPING IN MIND THE OBSERVATIONS OF THE ITAT IN THE AFORESAID ORDERS OF THE ITAT FOR THE AY 1997-98 & 2001-02. WITH THESE DIRECTION S GROUND NOS I(I) TO (IV) IN THE APPEAL ARE DISPOSED OF. ITA NO.550/AHD/2007 9 7. NEXT GROUND NO.II RELATES TO DISALLOWANC E OUT OF TELEPHONE EXPENSES. THE AO NOTICED THAT THE ASSESSEE DEBITED THE FOLLOWING TELEPHONE EXPENSES IN THE PROFIT & LOSS ACCOUNT: TELEPHONE EXPENSES IN RESPECT OF TELEPHONE NO.68531 93 RS. 19 252 TELEPHONE EXPENSES IN RESPECT OF TELEPHONE NO.68514 73 RS. 15 275 CELLULAR PHONE EXPENSES RS. 69 586 --------------- RS.104113 --------------- WHEN ASKED TO FURNISH THE DETAILS THE ASSESSEE STA TED THAT IN VIEW OF NATURE OF THEIR BUSINESS IT WAS NECESSARY FOR THE PARTNERS OF THE FIRM TO KEEP IN CONSTANT TOUCH WITH THEIR CLIENTS AND THE EXPENSES WERE INCU RRED SOLELY FOR THE BUSINESS PURPOSES. VIDE ANOTHER LETTER DATED 3.3.2006 THE A SSESSEE STATED THAT WE DONT HAVE OBJECTION IF REASONABLE AMOUNT IS DISALL OWED FROM TELEPHONE EXPENSES CONSIDERING THE NATURE OF BUSINESS. ACCORDINGLY THE AO ATTRIBUTED 1/6 TH OF THE TOTAL TELEPHONE EXPENSES FOR PERSONAL PURPOSES AND DISALLOWED AN AMOUNT OF RS.17 352/-. 8. ON APPEAL THE ASSESSEE CONTENDED THAT TELEP HONE EXPENSES OF RS.19 252 & RS.15 275 INCURRED IN RESPECT OF TELEPHONES IN TH E FACTORY WERE WRONGLY TREATED AS OF RESIDENTIAL TELEPHONES AND DID NOT DENY THE PERSONAL USE OF CELLULAR PHONE. HOWEVER THE LEARNED CIT(A) FOUND THAT TELEPHONE EX PENSES OF RS.34 527 WERE INCURRED IN RESPECT OF RESIDENTIAL PHONES BESIDES CELLPHONE EXPENSES RS. 69 586. ACCORDINGLY THE LD. CIT(A) UPHELD THE DI SALLOWANCE ON THE GROUND THAT THE RESIDENTIAL TELEPHONES WERE MOSTLY USED FOR PER SONAL PURPOSE MAINLY BY FAMILY MEMBERS WHILE IN RESPECT OF CELLPHONE PERSO NAL USE WAS NOT DENIED . 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR CONTENDED THAT IN THE AY 2001-02 DISALLOWANCE HAS BEEN RESTRICTED BY THE ITAT TO 1/10TH OF THE TOTAL TELEPHONE EXPENSES WHILE THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). ITA NO.550/AHD/2007 10 10. AFTER HEARING BOTH THE PARTIES AND IN TH E LIGHT OF VIEW TAKEN THE ITAT IN THE AY 2001-02 ESPECIALLY WHEN PERSONAL USE OF TEL EPHONES HAS NOT BEEN DENIED WE CONSIDER IT FAIR AND APPROPRIATE TO REST RICT THE DISALLOWANCE TO 1/10TH OF THE TOTAL EXPENSES INCURRED IN RESPECT OF TELEPHONE S . WITH THESE DIRECTIONS GROUND NO.II IS PARTLY ALLOWED. 11. GROUND III RELATES TO DISALLOWANCE OF DEPRECIAT ION ON MOTOR CYCLE. THE AO NOTICED THAT THE ASSESSEE PURCHASED MOTOR CYCLE IN THE NAME OF CHETAN VISHNUBHAI MOTIYANI THROUGH INVOICE NO.7487 ON 9-10 -2001 WHILE THE CAR ESTEEM LX WAS REGISTERED IN THE NAME OF PARTNER SMT. KAVIT A MOTIANI AND SANTRO IN THE NAME OF ANOTHER PARTNER SHRI NILESH MOTIANI. TO A QUERY BY THE AO AS TO WHY DEPRECIATION BE NOT DISALLOWED SINCE THESE VEHICLES WERE NOT OWNED BY THE ASSESSEE-FIRM AND WERE REGISTERED IN THE NAMES OF T HE PARTNERS OR MANAGER OF THE FIRM THE ASSESSEE CITED A JUDGMENT OF THE ITAT AHMEDABAD BENCH AHMEDABAD IN THE CASE OF M/S SHARAD BROTHERS & CO D ECIDED IN ITA NO.932/AHD/1996. BUT THE AO DISTINGUISHED THE SAID JUDGMENT ON THE GROUND THAT THIS WAS IN RESPECT OF DISALLOWANCE OF DEPREC IATION ON BUILDING AND WAS BASED ON A JUDGMENT OF HONBLE SUPREME COURT OF IND IA. HOWEVER THE AO ALLOWED THE CLAIM OF DEPRECIATION ON CARS FOLLOWIN G THE DECISION IN THE CASE OF CIT VS BASTI SUGAR MILLS CO LTD. 257 ITR 88 (DELHI ) BUT DID NOT ALLOW DEPRECIATION ON MOTOR CYCLE BEING NOT OWNED EITHER BY THE PARTNERS OF THE FIRM OR THE FIRM ITSELF. 12. ON APPEAL THE ASSESSEE CONTENDED THAT THE MOT OR CYCLE IS OWNED BY THE ASSESSEE FIRM AND DISALLOWANCE MADE IS INCORRECT . HOWEVER THE LD. CIT(A) CONFIRMED THE DISALLOWANCE WITH THE OBSERVATIONS TH AT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE MOTOR CYCLE WAS NOT OWNED EITHER BY THE PARTNERS OF THE FIRM OR THE FIRM ITSE LF. ITA NO.550/AHD/2007 11 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSE SSEE RELIED UPON DECISIONS IN THE CASE OF MYSORE MINERALS LTD. 239 ITR 775(SC) AN D NAVIL EXIM (P) LTD. VS. ITO IN ITA NO.4393/AHD./2003 (AHMEDABAD).ON THE OTH ER HAND THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. UNDISPUTEDLY THE ASSESSEE FIRM ALONE PURCHASED A MOTOR CYCLE IN THE NAME OF SHRI CHETAN VISHNUBHAI MOTIYANI VIDE INVOICE NO. 7487 DATED 9.10.2001 AND IS THUS BENEFICIAL OWNER OF THE SAID MOTOR CYCLE. THE RELEVANT PROVISIONS OF SECTION 32 OF THE ACT STIPUL ATE DEPRECIATION IN RESPECT OF BUILDING MACHINERY PLANT OR FURNITURE 'OWNED BY T HE ASSESSEE' AND 'USED' FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. UNDISPU TEDLY THE MOTOR CYCLE WAS PURCHASED WITH THE FUNDS OF THE FIRM AND USED BY TH E ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. THE CONTROVERSY IS IN REGARD TO OW NERSHIP OF THE MOTOR CYCLE IN THE NAME OF MANAGER OF THE FIRM. THE CONTENTION OF THE ASSESSEE IS THAT MOTOR CYCLE BEING NOT REGISTERED UNDER THE MOTOR VEHICLES ACT IN THE NAME OF THE FIRM OR PARTNERS BY ITSELF IS NOT SUFFICIENT TO HOLD THE C ONTRARY. THE FACTUAL POSITION AS STATED BY THE ASSESSEE IS NOT DISPUTED BY THE REVEN UE. THE CONTENTION OF THE REVENUE IS THAT UNLESS THE MOTOR CYCLE IS REGISTERE D IN THE NAME OF THE ASSESSEE OR ITS PARTNERS UNDER THE MOTOR VEHICLES ACT THE A SSESSEE WOULD NOT BE ENTITLED TO DEDUCTION OF DEPRECIATION ALLOWANCE IN RESPECT T HEREOF. WE ARE OF THE OPINION THAT THE ASSESSEE WHO HAD PURCHASED THE MOTOR CYCL E FOR VALUABLE CONSIDERATION AND USED THE SAME FOR ITS BUSINESS CANNOT BE DENIE D THE BENEFIT OF DEPRECIATION ON THE GROUND THAT THE TRANSFER WAS NOT RECORDED UN DER THE MOTOR VEHICLES ACT OR THAT THE VEHICLE STOOD IN THE NAME OF THE MANAGER I N THE RECORDS OF THE AUTHORITIES UNDER THE MOTOR VEHICLES ACT. 14.1 THE AFORESAID VIEW IS SUPPORTED BY THE DEC ISION IN THE CASE OF CIT VS. NAVDURGA TRANSPORT CO. 235 ITR 150(ALL) WHEREIN T HE ISSUE WAS AS TO WHETHER FIRM WAS ENTITLED TO DEPRECIATION ON CARS BROUGHT IN TO THE FIRM FOR USE OF BUSINESS OF THE FIRM EVEN THOUGH CARS CONTINUED TO BE REGISTERED IN THE NAME ITA NO.550/AHD/2007 12 PARTNERS. HONBLE ALLAHABAD HIGH COURT HELD THAT THE TRIBUNAL RIGHTLY REACHED THE CONCLUSION THAT THE ASSESSEE OWNED AND USED THE VEHICLES WITHIN THE MEANING OF S. 32 OF THE ACT. SIMILAR VIEW WAS TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS MOHD. BUX SHOKAT ALI(NO.2) 256 ITR357(RAJ). AND HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS FAZILKA DABWALI TPT CO. LTD. (2004) 270 ITR 398 (P&H) BASTI SUGAR MILLS CO LTD.(SUPRA) CIT V. SALKIA TRANSPORT ASSOCIATES [1983] 143 ITR 39 (CAL); CONTINENTAL CONSTRUCTION LTD. V. CIT [1990] 185 ITR 178 (DELHI); CIT V. DILIP SINGH SARDARSINGH BAGGAR [1993] 201 ITR 995 (BOM) AND CIT V. MIRZA ATAULLAHA BAIG [1993] 202 ITR 291 (BOM.) AS ALSO BY THE ITAT IN THEIR DECISIONS IN THE CASE OF THE CURIOUS HOUSE (P) LTD. V ITO (1980) 9 TTJ 348(INDORE) AND ITO VS. MODI AGENCY ITA NO. 198/GAU/1977-78(GAUHATI) & NAVIL EXIM (P) LTD.(SUPR A). 14.2 IN VIEW OF THE FOREGOING WE ARE OF TH E CLEAR OPINION THAT THE ASSESSEE WHO HAD PURCHASED THE MOTOR CYCLE FOR VALUABLE CONS IDERATION AND USED THE SAME FOR THEIR BUSINESS CANNOT BE DENIED THE BENEF IT OF DEPRECIATION ON THE GROUND THAT THE TRANSFER WAS NOT RECORDED UNDER THE MOTOR VEHICLES ACT OR THAT THE VEHICLE STOOD IN THE NAME OF THEIR MANAGER IN THE RECORDS OF THE AUTHORITIES UNDER THE MOTOR VEHICLES ACT. THEREFORE GROUND NO . 3 RELATING TO DISALLOWANCE OF DEPRECIATION ON MOTOR CAR IS ALLOWED. 15. GROUND NO. V PERTAINS TO WITHDRAWAL OF INTEREST U/S 244A OF THE ACT WHILE GROUND NO. VI PERTAINS TO CHARGING OF INTEREST U/S 234B OF THE ACT. THE LD. AR DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THESE TWO GRO UNDS AND MERELY STATED THAT THESE ISSUES ARE CONSEQUENTIAL.THE LEVY OF IN TEREST U/S 234B OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX.VS ANJU M M. H. GHASWALA AND OTHERS 252 ITR 1(SC) AFFIRMED BY HON'BLE APEX COUR T IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ] WHILE NO SUBMISSIONS HAVE BEEN MADE BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE THESE TWO GROUNDS ARE DISMISSED. HOWEVER THE AO MAY ALLOW CO NSEQUENTIAL RELIEF IF ANY WHILE GIVING EFFECT TO THIS ORDER. ITA NO.550/AHD/2007 13 16. NO ADDITIONAL GROUND HAS BEEN RAISED IN TERMS O F RESIDUARY GROUND NO.VII ACCORDINGLY THIS GROUND IS DISMISSED. 17. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED ON THIS 18TH DA Y OF FEBRUARY 2010. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 18TH FEBRUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO WARD-6(4) 3.CIT(A)-XII AHMEDABAD 4.CIT-III AHMEDABAD 2. DR C BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD