Sunil & Company Vs ACIT (ITAT Jodhpur)
ITAT Jodhpur held that disallowance of interest which is not at all received by the assessee is unsustainable and accordingly, the disallowance is vacated.
Facts- Assessment u/s. 143(3) was completed by disallowing purchases which were bogus; disallowance of interest u/s 36(1)(iii) of Rs. 16,33,869/- and disallowance of part of personal nature expenses.
Against the above additions so made the appeal filed by the assessee before the CIT(A) against these additions. The said appeal was dismissed. Thereafter the assessee filed second appeal before the ITAT. The ITAT confirmed the addition on a/c of personal nature expenses amounting Rs. 1,56,776/-. Whereas, regarding other two issues restored back to the issue to the file of AO. To decide the issues afresh notice u/s 143(2) was issued to the assessee on 07.11.2012. Originally, appellant was being assessed at Mumbai, later, in the meanwhile, assessee got itself transferred to the jurisdiction of present AO. Now the assessee before us in the second round of litigation. The only issue before us in the second round is disallowance of interest which was earlier disallowed for an amount of Rs. 16,33,869/- which was reduced by the ld. AO and confirmed the addition to the extent of Rs. 13,23,694/-.
Conclusion- Held that when the interest is not received no disallowance can be made. Even the ld. AO through ld. DR at the time of hearing also did not controvert the fact the assessee is having sufficient balance which is interest free as on 31.03.2044 at Rs. 3,25,70,408/- as against the SIL debit balance of Rs. 1,22,45,671.90 and in fact that the assessee earlier charging interest and has stopped on account of the reason that the company becomes Sick and even the recovery of the principle amount in doubt how revenue can tax disallow the claim of interest to the extent of the advance of SIL as notional interest and that too on historic advance given in earlier years.
FULL TEXT OF THE ORDER OF ITAT JODHPUR
1. This appeal is filed by assessee and is arising out of the order of the Commissioner of Income Tax (Appeals)-1, Jodhpur dated 31.07.2018 [here in after referred as (CIT(A))] for assessment year 2004-05 which in turn arise from the order dated 28.03.2013 passed under section 143(3)/254 of the Income Tax Act, by ACIT, Circle-01, Jodhpur[ here in after reffered to as “ld. AO”].
2. The assessee has marched this appeal on the following grounds:-
“1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in sustaining the disallowance of interest for Rs. 13,23,694/- made by Ld. AO.
2. The appellant crave liberty to add, amend, alter, modify, or delete any of the ground of appeal on or before its hearing before your honour.”
3. At the outset of hearing, the Bench observed that there is delay of 03 days in filing of the appeal by the assessee for which the ld. AR of the assessee filed an application for condonation of delay with following prayers:
“Sub: Application for condonation of delay of 3 days in filing of appeal. The above appeal is preferred against the order of Ld. CIT(A)-1, Jodhpur.
2. The appeal ought to have been filed on 30/10/2018. But as the CA appeared before CIT(A) and received order, erroneously intimated last date of filing as 09/11/2018 (date of receipt erroneously taken as 10/09/2018 instead of 30/08/2018), and due to engagement of professionals in Income Tax Audits the correct date was not examined in due course and the appeal could not be preferred within the statutory period. Hence a delay of 3 days is caused in filing the appeal. The said delay is not due to wilful default.
It is prayed that the ITAT Bench may be pleased to condone the delay of 3 days in filing the appeal.”
4. During the course of hearing, the ld. DR did not objected to assessee’s application for condonation of delay and prayed that Court may decide the issue as deem fit in the interest of justice as delay is of three days only.
5. We have heard the contention of the parties and perused the materials available on record. The prayer by the assessee for condonation of delay of three days has merit and we concur with the submission of the assessee. Thus, the delay of three days in filing the appeal by the assessee is condoned in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause and therefore, the appeal is admitted and the same is decided based on the merits of the case.
6. The fact as culled out from the records is that in this case return was filed on 18.10.2004 declaring total income at Rs. 20,51,390/-. Assessment u/s 143(3) was completed on 29.12.2006 by then AO, ACIT 14(2), Mumbai at total income of Rs. 40,54,590/- by making following additions:
1. Disallowing purchases amounting to Rs. 2,12,551/- which were bogus in view of the observation of the ld. AO.
2. Disallowance of interest u/s. 36(1)(iii) of Rs. 16,33,869/-.
3. Disallowance of part of personal nature expenses of Rs. 1,56,776/-.
Against the above additions so made the appeal filed by the assessee before the CIT(A) against these additions. The said appeal was dismissed. Thereafter the assessee filed second appeal before the Hon’ble ITAT. The Hon’ble ITAT confirmed the addition on a/c of personal nature expenses amounting Rs. 1,56,776/-. Whereas, regarding other two issues restored back to the issue to the file of AO. To decide the issues afresh notice u/s 143(2) was issued to the assessee on 07.11.2012. Originally, appellant was being assessed at Mumbai, later, in the meanwhile, assessee got itself transferred to the jurisdiction of present AO. Now the assessee before us in the second round of litigation. The only issue before us in the second round is disallowance of interest which was earlier disallowed for an amount of Rs. 16,33,869/- which was reduced by the ld. AO and confirmed the addition to the extent of Rs. 13,23,694/-.
7. Aggrieved from the said order again the assessee preferred an appeal before the Commissioner of Income Tax, Appeals-1, Jodhpur. A propose to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:
“5.2.1 Following the directions of the Hon’ble ITAT vide Order in ITA No. 3147/Mum/2009 dated 09.03.2011, the assessing officer has considered the submissions of the appellant that as per balance sheet of the assessee on 31st March 2004, Rs.51.70 lacs was net profit of appellant.
However, the appellant wanted that Rs. 23.05 lacs also be added back to its profit, in arriving at the profit for the year, because this amount was debited for claiming the depreciation, which otherwise was not an outgo in real terms. AO rightly declined the claim of the appellant stating that though, depreciation is not an actual expenditure and hence it is not an outflow of funds but as per the Income Tax norms depreciation is to be claimed and allowed compulsorily if the assessee is eligible to get it. If there remains unabsorbed depreciation in the case of any assessee than it is carried forward until it becomes nil by reducing its amount from income of any subsequent year. In this way it is outflow of fund. I do concur with the view of the AO. In the case of Bombay Sales Corporation [2017] 86 taxmann.com 9 (Ahmedabad – Trib.) held that, since no interest free own funds were available at disposal of assessee, disallowance of proportionate interest expenses was justified.
5.2.2 Assessing Officer accepted the contention of the assessee that it had net profit of Rs.51.70 lacs. AO further stated that the appellant did not earn this profit in one day or it was not remaining same throughout the year. Therefore for simplification, he considered that it was zero at the beginning of the year and Rs.51.70 lacs (Rs.51,69,579/-) on the last day of the year i.e. 31.03.2004. Accordingly, for calculation purpose its average value Rs.25,84,790/- was taken and interest amount @12% was computed to Rs.3,10,175/-. Accordingly, interest amounting to Rs.16,33,869/- disallowed earlier was reduced by the amount Rs.3,10,175/-; thus, effective disallowance became Rs.13,23,694/-. Appellant himself had been charging interest in earlier years but non-charging of interest in the year under consideration cannot be agreed to in view of discussion at paras 5.1 and subparas included thereto, above. Thus, I do not find any infirmity in the stand taken by the assessing officer; disallowance made by the AO is confirmed, hereby. Appellant fails on this front.
6. In the result, the appeal is dismissed.”
8. The ld. AR appearing on behalf of the assessee has filed a paper book containing the following submission / evidences:
