Shri Mahalaxmi Bidi Trading Co., Jaipur vs Department Of Income Tax

The A.C.I.T., M/s Shri Mahalaxmi Bidi Trading Circle-2, Jaipur. Vrs. Company, Bullion Trading, Haldiyon Ka Rasta, Jaipur.

(Appellant) (Respondent)

Department by :- Mrs. Neena Jeph. Assessee by :- Shri T.C. Jain.

Date of hearing : 13/11/2014 Date of pronouncement : 09/ 01/2015

ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the Revenue against the order dated

13/04/2012 of the learned C.I.T.(A)-I, Jaipur for the A.Y. 2009-10.

The sole ground of appeal is against deleting the addition of Rs.

1,42,15,809/- made by the Assessing Officer as the assessee could not

establish nexus between borrowed funds and business purposes."

2. The learned Assessing Officer observed that total interest paid

by the assessee during the year at Rs. 2,78,90,623/-, which was Rs.

2,46,37,464/- for the immediate preceding year. This amount included 2 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

Rs. 30,19,687/- as interest paid for banking charges and commission,

Rs. 1,36,74,814/- as interest paid to partners and Rs. 1,11,96,122/- as

interest on other deposits. He further observed that loans had

increased from Rs. 3.2 crores to Rs. 4.12 crores. He gave the

comparative chart of the fund available with the assessee, which is

reproduced as under:-

S. No. On 31/03/2008 (Rs.) On 31/08/2009 (Rs.)

1. Cash in hand 52,05,360/- 15,96,311

2. Current account with 14,62,99,131/- 13,40,12,620/-

banks

3. Fixed deposits 4,00,00,000/- 5,00,00,000/-

4. Sundry Debtors Nil Nil Total 19,15,04,491/- 18,56,08,931/-

Borrowed funds 3,20,84,771/- 4,12,08,200/- The Assessing Officer gave reasonable opportunity of being heard on

this issue on payment of interest without any need of the company for

business purposes, which was replied by the assessee. After

considering the assessee's reply, the learned Assessing Officer

concluded as under:-

"1. The plea of the assessee that no fresh loans have been raised is wrong; the same was Rs. 3,20,84,771/- at the end of the F. year 2007-08, which increased to Rs. 4,12,08,200/- during the period in question. Despite having raised the loans of Rs. 91,23,429/- and the assessee still submits that he has not raised any loan during the period.

3 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

2. The cases on which the assessee has relied his submission do not have the facts similar to that of the assessee. Here the assessee is raising loans and paying the interest on despite having excessive funds with it where as the cases won which he has quoted in support of his contention are regarding the loans raised by the assessee to give the loans to the subsidiary companies and claiming the expenditure of interest for the payments of loans, whereas in this case the loans have been taken despite having the cash surplus which is more than four times the loans raised.

3. The debtors for the year in question and the last two preceding years are nil and thereby all the proceeds of the sales made during the year amounting to Rs. 154.7 crores have been realized by the end of the year. The claim of the assessee of interest paid has to be allowed keeping in view the provisions of section 36(1)(iii) and the onus of is on the assessee to establish with the facts and figures that the borrowed funds on which the interest has been claimed has been utilized for the purpose of the business and when the facts and figures are not given or not to the satisfaction of the A.O., the amount cannot be allowed as deduction. Further, there are no loans from the banks and the assessee has claimed huge deduction of Rs. 30,19,687/-. The explanation given the assessee in the point No. 3 clearly states that all these expenses are not incidental to the business e.g. giving the refund of the DD charges to the parties for making payments 4 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

through DD, whereas he is himself paying the DD charges to the banks. No bank charges any amount for the clearance of the cheques or payments through RTGS. The assessee has also failed to prove the business exigency of the expenses for the business purpose".

Therefore he made addition of Rs. 1,42,15,809/- in the income of the assessee.

3. Being aggrieved by the order of the learned Assessing Officer,

the assessee carried the matter to the learned CIT(A), who had

allowed the appeal by observing that no new loan was taken by the

assessee but capital of retiring partners had been shown as unsecured

loans, therefore, loan amount increased compared to preceding year,

actually no loan was taken by the company. She further observed that

both the disallowances on identical facts namely interest on unsecured

loan and bank charges and commission paid to the bank were the

subject matter of adjudication by the Hon'ble ITAT Jaipur "B" Bench,

Jaipur in the case of assessee for A.Y. 2008-09 vide its order dated

13/1/2012 in ITA No. 769/JP/2011. The Hon'ble ITAT gave finding in

favour of the assessee on both the issues by observing that the

increase in borrowings was due to the credit balance of the two retired

partners as unsecured loans. It was also observed that the assessee

had placed all its cards and its balance sheets, which did not indicate 5 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

any assets which were not for the purpose of business. Therefore, the

facts of the case were covered by the finding of the Hon'ble Apex Court

in the case of S.A. Builders. Similarly, regarding the bank charges and

commission the Hon'ble ITAT found the explanation of the assessee

acceptable and allowed the claim. Since the facts of the case are

identical for A.Y. 2008-09 under the year under consideration, the

learned Assessing Officer had failed to bring any new evidence or

argument or judicial pronouncement to controvert the finding of

Hon'ble ITAT, Jaipur Bench, Jaipur in case of assessee on same facts

the matter is covered by the finding of the Hon'ble ITAT. Accordingly,

she deleted the addition.

4. Now the Revenue is in appeal before us. The learned D.R.

vehemently supported the order of the learned Assessing Officer.

5. At the outset, the learned A.R. for the assessee placed reliance

on assessee's own case for A.Y. 2008-09 where identical issue has

been decided by the Hon'ble ITAT, Jaipur "B" Bench, Jaipur in favour

of the assessee in both the counts. He further submitted that there is

no fresh borrowing during the year but capital of retiring partners were

shown as unsecured loans from the preceding years, therefore, case is 6 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

covered by the order of the Hon'ble ITAT. Thus, he prayed to confirm

the order of the learned CIT(A).

6. We have heard the rival contentions and perused the material

available on the record. The issue is identical to A.Y. 2008-09, which

has been decided by the Coordinate Bench in ITA No. 769/JP/2011 for

A.Y. 2008-09 in assessee's own case. The operative portion of the

Coordinate Bench is reproduced as under:-

"13. We have also perused the Balance sheet. There is increase in partner's current accounts to the extent of Rs.8 Crores. There is increase in current liabilities & provisions to be extent of Rs.26 Crores. Page 38 of Paper book showed that fixed deposits are being taken in the last two months of the financial year and are encashed in the month of April. It appears that such deposits are taken to help the bank authorities to show the deposits as on the last day of the financial year.

14. The Hon'ble Apex Court in the case of S.A. Builders (supra) has observed as under:

We agree with the view taken by the Delhi High Court in CIT V. Dalmia Cement (B) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman

7 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

15. The A.O. from the books of account could have noticed as to whether there are substantial surpluses during the year. The assessee has placed all his cards and balance sheets do not indicate any asset which is not for the purpose of business. Hence ld. CIT (A) was justified in deleting the addition on account of interest.

16. In respect of bank charges and commission, the assessee has explained the nature of expenses and details have been perused by the ld. CIT (A). We therefore feel that ld. CIT (A) was justified in deleting the addition of Rs.42,96,440/-."

By respectfully following the order of the Coordinate Bench on similar

and identical facts, we confirm the order of the learned CIT(A).

8 ITA 643/JP/2012 ACIT Vs. M/s Shri Mahalaxmi Bidi Trading Co.

7. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 09/01/2015.

Sd/- Sd/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Jaipur, Dated : 09th, January, 2015

* Ranjan

Copy forwarded to :- 1. The ACIT, Circle-2, Jaipur.

2. M/s Shri Mahalaxmi Bidi Trading Company, Jaipur.

3. The CIT (A)

4. The CIT

5. The D/R Guard file (I.T.A. No. 643/JP/2012)

By Order,

AR ITAT Jaipur.