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TMI Blog2014 (2) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... is against the facts of the case and against the provisions of law - thus the order of the CIT(A) is reversed - appeal of Revenue is allowed. - I.T.A. No.456(Asr)/2013 - - - Dated:- 28-2-2014 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER Appellant by:Sh. Mahavir Singh, DR Respondent by:Sh.Vineet Krishan, Advocate ORDER PER BENCH ; This appeal of the Revenue arises from the order of CIT(A), Bathinda dated 19.03.2013 for the assessment year 2009-10.The Revenue has raised following grounds of appeal: 1. The CIT(A) erred both in law and facts in deleting the disallowance of interest paid to banks when no interest was being charged on non-business advances, proportionately at ₹ 7,76,043/- and in not appreciating that the advances were not being made in commercial expediency and the fact that these advances were made to such persons as had no business dealings with the assessee, noticeably for short periods during the year, so that the advances were all squared up during the year and did not find any placed in the asset side of the balance sheet of the assessee, so that it can be reasonably construed that the assessee len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived back 1. Sh.Sunil Kumar Bansal S/o Sh. Girdhari Lal, Bathinda, 18,00,000 03.12.2008 24.03.2009 27,00,000 04.12.2008 24.03.2009 2. Sh. Subhash Goyal C/o M/s. Subhash Auto Home, Bathinda 11,00,000 05.09.2008 30.03.2009 3 M/s. Neha Enterprises Prop. Sh. Tarlochan Kumar S/o Sh.Raj Kumar, Bathinda. 5,00,000 01.04.2008 16.04.2008 4. Smt. Seema Mittal 5,00,000 15.09.2008 19.03.2009 5. Smt. Anu 1,79,200/- 01.04.2008 06.03.2009 6. M/s. Saree Palace 30,00,000/- 01.04.2008 06.03.2009 The assessee was show cause vide letters dated 13.09.2011 and 10.10.2011 as to why the ratio of judgment in the case of CIT vs. Abhishek Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit is embedded. If there is no motive to earn profit, the word commerce loses its meaning. The second word used by the Apex court is expediency which means that there was an urgency or necessity in the direction of promotion of trade to earn profits as well as to proliferate the activities of business. The assessee had pledged his assets by paying huge interest but did not charge any money on such money which is not easy to procure from banks. The assessee also runs a great risk of losing all the pledged assets in case the loan fails. It is, therefore, incomprehensible that the assessee is not earning any money by using this money and did not charge interest from them. This is a strange conduct of a business where he seems to be doing charity instead of business. Similar in the ratio of judgment of Hon ble P H in the case of M/s. Abhishek Industries, 286 ITR 1 (P H) read with judgment of Hon ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (supra) In the instant case, the assessee has failed to prove whether there was any commercial expediency in advancing the interest free loans. In fact, the assessee has not even claimed that the aforesaid loans were given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 776,043 Going by above mentioned facts, it was held that the profits have been compromised by not charging of interest from loans advanced to different debtors which have no business expediency and heavy interest have been paid to the bank and other financial institutions. The facts and circumstances of the cases mentioned in the plea of the counsel in his reply are entirely distinguishable and not relevant to the circumstances of the present case. The reply of the assessee was not found plausible. The ratio of the judgment in the case of CIT vs. Abhishek Industries Ltd. 286 ITR 1 read with judgment of Hon ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (Appeal) and others (288 ITR 1) is squarely applicable in this case. In view of above, an addition of ₹ 7,76,043/- was made on account of non charging of interest from debtors. 3. As regards the second addition made by the AO, the facts of the case are that during the course of assessment proceedings the detail of closing stock as on 31.03.2009 along with sales/purchase during the year was obtained from assessee and placed on record. It was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers for registration of such title deeds of the said properties but no evidence regarding payment to the Arji Navis for drafting/writing the registration deeds has been furnished. Hence, the value of ₹ 1,78,150/- made on account of purchase of stamp duty papers is liable to be deducted from the value of stock by considering the contravention of violation of section 40A(3) has no weightage as the assessee is maintaining many number of bank accounts and most of the title deeds have been registered with the Registrar, Bathinda which is the place where his office as well as residence is situated. Moreover, the sellers of the land/properties are also residents of Bathinda. Hence there is no possibility of emergency or business difficulty by preparing and issuing demand drafts to the sellers. These days everyone is maintaining bank accounts and no one can deny to receive the demand draft, nor he may have any complication or difficulty in preparing or encashment of the instrument. No hardship seems to be there in purchasing of demand draft or making payment order etc. Hence, the plea taken by the assessee is devoid of logical force. The assessee has brought nothing on record to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, he was having enough of interest free borrowings at its disposal. He accepted a submission of the assessee showing deemed interest not paid on interest free loans at ₹ 10,20,360/- vis- -vis foregone interest on interest free advances given at ₹ 6,30,380/-. It was accordingly held by him that the assessee had enough of interest free borrowings as its disposal. The facts have not been correctly appreciated by the ld. CIT(A). It is a fact that these advances were made to such perons as had no business dealings with the assessee for a short periods during the year, so that the advances were all squared up during the year and did not find any place in the asset side of the balance sheet of the assessee. The assessee lent the moneys for benefits which can only be called personal and the want of funds for business due to such adhoc lending has obviously been met out of interest bearing loans which were utilized even during the period the same funds were lent out of the cash kitty of the business of the assessee. The contentions of the assessee tat it has substantial amount of interest free borrowings on which no interest had been charged by him, is true. However, this f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the genuineness and correctness of the transaction and also the identity of the payee, as quoted from the CIT(a) s order. Rather, only where the so called three ingredients are present, can the assessee still be struck by the provisions of sec. 40A(3).If the so called three ingredients were not present, the entire transaction becomes a sham and the entire credit/debit is liable to be treated to be treated as deemed income in terms of sections 68, 69A, 69B and 69C of the Act, as the case may be. The rigors of section 40A(3) are only applicable where the genuineness of the transaction and the parties entering into the transaction is established and where nevertheless, cash is used for payments in place of the banking routes, unless protected by the express instances as laid down in Rule 6DD(a) to (I) of the I.T.Rules, 1962. The case of the assessee s impugned transaction is not covered in any of the instances clearly detailed in Rule 6DD(a) to 6DD(I). In determining expediency, the AO is obliged to remain within the parameters specified in Rule 6DD and cannot go beyond the Rules on any grounds, including the grounds of equity. The plea of the assessee that (a) the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before the AO and the ld. CIT(A) and argued that the assessee was having enough interest free fund borrowings at his disposal and therefore, the order of the ld. CIT(A) is correct order and prayed to uphold the same with regard to ground No.1 of the Revenue. 7.1. He further argued with regard to the disallowance u/s 40A(3) of the Act that the transaction is genuine and once the transaction is genuine deduction should be allowed, especially when the identity of the payee is proved and genuineness of transaction is duly documented by sale deed instrument and all the three ingredients of the genuineness and transaction are proved and therefore, the provisions of section 40A(3) are not attracted. He relied upon the decisions of various courts of law placed in the paper book in this regard. 8. We have heard the rival contentions and perused the facts of the case. As regards the interest paid to various persons i.e. Sh. Sunil Kumar, Sh. Subhash Goyal, M/s. Neha Enterprises, Smt. Seema Mittal, Smt. Anu and M/s. Saree Palace, nothing has been brought on record how the interest free funds which have been claimed to have been available for advancing these loans to various persons wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors :] 9.1. The Ld. CIT(A) accepted this contention of the assessee and deleted the addition. At the outset, in the proviso to section 40A(3) of the Act, the exceptions are prescribed under Rule 6DD of the Income Tax Rules, 1962. In our view, these exceptions have been prescribed under Rule 6DD, having regard to the nature and extent of banking facilities available for consideration of business expediency and other relevant factors. The said provisions have to be read together but not separately as suits to the assessee. There is no intention of the legislature to make a list of nature and extent of banking facilities available and other factors to be drafted by the assesse at their whims and fancies and as suits to the assessee. Therefore Rules have been prescribed which are Rule 6DD of I.T.Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X
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