Case Law Details

Case Name : Sh. Rajiv Jain Vs Income Tax Officer (ITAT Delhi)
Appeal Number : Appeal No. ITA No. 297/Del/2012
Date of Judgement/Order : 26/07/2012
Related Assessment Year : 2007-08
Courts : All ITAT (7310) ITAT Delhi (1711)

Assessee has submitted in this case that advance  was given amounting to Rs.  39,36,860/- to M/s Kohinoor International  and interest was charged @ 6%. It was further claimed that the said  advances were given out of the partners capital which was Rs.   30,91,322/- as on 31.3.2007. Furthermore, assessee has contended  that there were commercial expediency involved in granting of the  said advance as the assessee was to obtained distributorship from  M/s Kohinoor International. I have carefully considered the  submissions. In my considered opinion, submission of the assessee  has considerable cogency that there was commercial expediency  involved in granting of the said loan. Hence, orders of the authorities below are not correct. Accordingly, I set aside the orders of the  authorities below and decide the issue in favour of the assessee.

INCOME TAX APPELLATE TRIBUNAL,  DELHI

Appeal No. ITA No. 297/Del/2012 – A.Y. : 2007-08

Sh. Rajiv Jain, vs. Income Tax Officer

ORDER

This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XXII, New Delhi dated 21.10.2011 pertaining to assessment year 2007-08.

2. The grounds of appeal read as under:-

1) On the facts and circumstances of the case and in law, the order passed by the Learned Commissioner of Income Tax (Appeals) – XXII, New Delhi [‘the CIT-(A)’] is grossly erroneous, unjustified, bad in law and is therefore liable to be quashed.

2) On the facts and circumstances of the case and in law, the Learned CIT-(A) erred in confirming the disallowance of interest to the extent of INR 118,000, on the ground that Appellant is paying interest at rate of 15 to 18 per cent whereas on the other hand the Appellant has advanced loan at rate of 6 per cent to MIs Kohinoor International.

2.1 That the Learned CIT-(A) on the facts and circumstances of the case, erred in not appreciating that the major part of the advance given to MIs Kohinoor International is out of the capital fund of Appellant on which no interest is charged.

2.2 Further, Learned CIT-(A) failed to take note of the fact that the loan outstanding in the books of Appellant as on March 31, 2007 only covers up 25 per cent of the advance outstanding in the name of MIs Kohinoor International and thus, the primary assumption on which Learned CIT-(A) proceeded, that the advance was given out of the loans taken by the Appellant, is contrary to the facts and circumstances of the case.

2.3 Assuming arguendo that the advance given to M/s Kohinoor International was funded from the loans taken by Appellant, the Learned CIT-(A) grossly erred in not appreciating the fact that MIs Kohinoor International is an unrelated enterprise and the decision to give advance to MIs Kohinoor International is completely driven by the principles of commercial expediency and accordingly, does not warrant any disallowance of interest.

2.4 That the Learned CIT-(A) erred in facts and in law in ignoring the third party confirmation obtained from MIs Kohinoor International, and thereby, alleging that the appellant has failed to prove the genuineness and business expediency of interest paid by appellant.

3. That on the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the disallowance made on adhoc basis, telephone expenses of INR 1,000 and vehicle repair and maintenance of INR 15,000. The appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.

3. In this case the assessee is engaged in the business of chemical in the name and style of M/s Electromariks India. During the year the assessee has debited an amount of Rs.  2,53,189/- under the head interest payment. The interest payment has been shown at the rate of 18% per annum. The assessee has given advance of ` 39,36,860/- to M/s Kohinoor International. On this advance the assessee has charged interest @ 6%. The Assessing Officer did not find any justification for taking loan @ of 18% and giving the same @ 6% to M/s Kohinoor International. Therefore, Assessing Officer disallowed ` 1,18,800/- out of interest payment. The Assessing Officer has also made addition of ` 1,000/- out of telephone expenses and ` 15,000/- out of vehicle running expenses.

4. Upon assessee’s appeal Ld. Commissioner of Income Tax (A) noted the assessee’s contention that assessee has given advance to  M/s Kohinoor International out of the partners capital which was `  30,91,322/- as on 31.3.2007. However, Ld. Commissioner of Income  Tax (A) noted that in this regard the assessee not established any  nexus. Ld. Commissioner of Income Tax (A) held that the partner’s  capital is coming from earlier years and same has been invested in  establishment of business, therefore, there was no surplus available  from the partner’s capital. Ld. Commissioner of Income Tax (A)  further noted that the assessee’s contention that loan was given @  6% to obtain distributorship from M/s Kohinoor International. In this  connection, the assessee had filed a letter from M/s Kohinoor  International. Ld. Commissioner of Income Tax (A) rejected this  contention also and held that assessee has not filed any agreement  entered into with M/s Kohinoor International prior to giving loans. He  held that the letter filed by M/s Kohinoor International is a  confirmation on a simple papers which cannot be relied upon at this  stage. Further Ld. Commissioner of Income Tax (A) held noted that  distributorship was to be awarded to the assessee in the event of  setting up of the factory by M/s Kohinoor International. However, Ld.  Commissioner of Income Tax (A) noted that no documentary evidence  has been placed before the Ld. Commissioner of Income Tax (A) that  M/s Kohinoor International was in the process of setting up of a factory  at Kathua, Jammu. Ld. Commissioner of Income Tax (A) concluded that  nothing has been proved with any documentary proof, therefore, the  submission made by the assessee was rejected. Accordingly, Ld.  Commissioner of Income Tax (A) confirmed the Assessing Officer’s  action.

5. Against the above order the assessee is in appeal before me.

6. I have heard the rival contentions in light of the material  produced and precedent relied upon. Ld. Counsel of the assessee,  submitted that there was adequate surplus funds to the assessee and  furthermore advance was given for the purpose of business and there  was commercial expediency involved in granting of the said loan.  Hence, he pleaded that orders of the authorities below should be  reversed and issue may be decided in the favour of the assessee.

6.1 Ld. Departmental Representative on the other hand relied upon  the orders of the authorities below.

6.2 I have carefully considered the submission and perused the  records. I find that assessee has submitted in this case that advance  was given amounting to Rs.  39,36,860/- to M/s Kohinoor International  and interest was charged @ 6%. It was further claimed that the said  advances were given out of the partners capital which was Rs.   30,91,322/- as on 31.3.2007. Furthermore, assessee has contended  that there were commercial expediency involved in granting of the  said advance as the assessee was to obtained distributorship from  M/s Kohinoor International. I have carefully considered the  submissions. In my considered opinion, submission of the assessee  has considerable cogency that there was commercial expediency  involved in granting of the said loan. Hence, orders of the authorities below are not correct. Accordingly, I set aside the orders of the  authorities below and decide the issue in favour of the assessee.

7. In the result, the appeal filed by the assessee stands allowed.

Order pronounced in the open court on 26/7/2012.

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