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Shree Lalit Motors Versus Income-tax Officer, Ward 6 (2) , Surat

2016 (5) TMI 465 - ITAT AHMEDABAD

Reopening of assessment - diversion of interest bearing to non-interest bearing funds - Held that:- As regards the reasons for which reassessment proceedings have been initiated, assessee could not placed on record any communication referring to discussion about the diversion of interest bearing to non-interest bearing funds which means that there was no discussion at all on this point and, therefore, there cannot be any change of opinion because there was no opinion framed on this aspect during .....

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ssessing Officer has rightly initiated proceedings u/s 147 of the Act before the end of four years from the relevant assessment year. - Decided against assessee

Disallowance of interest - diversion of interest bearing funds to non-interest bearing loans and advances - Held that:- On perusal of list of loans and advances as given as on the close of the financial year 2007-08 we observe that most of the loans and advances are in the nature of trade and commerce which the assessee might .....

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₹ 5,56,268/- on the loans and advances given of ₹ 41,02,373/- is uncalled for as the assessee had sufficient interest free funds available to apply to the loans and advances given. We are of the view that no addition for disallowance of interest expenses is to be sustained. We delete the same. - Decided in favour of assessee - ITA No.2289/Ahd/2015 - Dated:- 1-4-2016 - Shri Rajpal Yadav, JM, & Shri Manish Borad, AM. For The Appellant : Mr. Pallav Desai, AR For The Respondent : Mr. .....

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Ld Ito Ward 6(2) lacked jurisdiction for reassessment as a. The reasons are based on change of opinion, b. The reasons are vague and based on suspicion. The appellant submits that as the reassessment proceedings initiated by Ld. Ito ward 6 (2) are not valid in law, the Asstt. Order and the consequent additions are to be quashed. 2. The Ld CIT-(Appeals}-1,Surat has erred in confirming disallowance of interest of ₹ 5,56,268 on Kotak Term Loans when the said borrowed funds are not used in ad .....

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CIT(A) dated 5/5/2015. 4. The Ld CIT-(Appeals)-1, Surat has erred in confirming the addition without considering and appreciating the facts stated by the assessee vide his submissions dated 27/1/2014 Para 1 to 3 and submission dated18/3/2014 Ann A Cash Flow Statement. 5. Without Prejudice to what is stated in the above grounds appellant submits that even if the funds are assumed to be used for advancing the loans, the same are given out of commercial expediency and therefore to be considered as .....

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rest bearing funds towards giving loans and advances without charging any interest thereon. In reply to notice u/s 148 assessee submitted that original return of income filed may be treated as return furnished in response to notice u/s 148. The reasons for issuance of notice u/s 148 of the Act and initiation of action u/s 147 of the Act given by Assessing Officer read as below :- On verification of the balance Sheet annexed with the return of Income, it is seen that the assessee has taken secure .....

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arket rate of 15% the interest on loan amount of ₹ 41,02,373/- comes to ₹ 5,56,268/-and as such income to the extent of ₹ 5,56,268/-. has escaped assessment and requires to be added in the total income of the assessee. 3. During the course of re-assessment proceedings assessee raised objections against issuance of notice u/s 148 of the Act and taking action u/s 147 of the Act because the documents on the basis of which information mentioned in the notice u/s 148 have been accep .....

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to business transactions and also interest payable on major portion of secured loan has been charged to the capital account of the persons and not debited to the profit and loss account and therefore, assessee was having sufficient interest free funds which deemed to have been applied towards loans and advances given on which no interest has been charged by assessee. However, ld. Assessing Officer was not convinced with the reply of assessee and went ahead to disallow interest expenditure to the .....

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he provisions of section 147 of the Act are applicable and dismissed the ground for disallowance of ₹ 5,56,268/- and confirmed the addition made by Assessing Officer by observing as under :- Discussion and appellate decision:- 6.1 The submission made by the appellant is duly considered inter a[ia the facts of the case. Case laws cited by the appellant have been gone through. As a matter of factly observed by the Ld. AO (Para- 6 of assessment order) that capital of ₹ 35,65,742/- vis-a .....

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the onus is on the assessee to be discharged by leading the evidences. Even with regard to Term Loans, the assessee failed to furnish evidences to justify the purpose & utilization of loans in spite of being asked to do so by the AO. The AO has raised a genuine quarry as to why the assessee would need Term Loan at first place considering the nature of business i.e. sale of diesel & petrol on cash basis. It is seen from the details filed by the assessee that the figure of "Loans & .....

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claim of the assessee is found factually incorrect. 6.2 The case was relied upon by the assessee are being factually distinguishable and not applicable to this case. Even the argument of business expediency will not provide any escape to the assessee. The appellant has given advances to sister concern but failed to demonstrate how far it is expedient for the assessee to advance such can to sister concern and what business purpose it actually served. Merely because any partner or his family memb .....

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Steel Ind. 128 ITD 12 (Del) that in such a situation interest on borrowed capita! has to be disallowed. Almost similar situation prevailed in this case also. 6.4 In view of the above discussion, I am of the considered view that disallowance of interest of ₹ 5,56,268/- was fully justified in this case. The ground of the assessee is dismissed. 5. Assessee is now in appeal before the Tribunal. 6. First we take ground no.1 raised against the action of ld. CIT(A) who erred in holding the juris .....

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on change of opinion and are well based on suspicion. 7. On the other land, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. To examine this aspect let us go through the provisions of section 147 of the Act:- Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment91 for any assessment year, he may, subject to the provisions of sections 1 .....

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section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material .....

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r revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily96 amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, na .....

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eduction, allowance or relief in the return ; [(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;] (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowan .....

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e not been included in the reasons recorded under sub-section (2) of section 148.] [Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] 9. From going through the above provisions of section 147 of the Act, we find that provisions of section 147 specifically mentioned that where an assessment u/s 143(3) of the A .....

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ngs have been initiated, assessee could not placed on record any communication referring to discussion about the diversion of interest bearing to non-interest bearing funds which means that there was no discussion at all on this point and, therefore, there cannot be any change of opinion because there was no opinion framed on this aspect during assessing proceedings u/s 143(3) of the Act and the period of four years given in the Act specifically pertains to those aspects which may have escaped a .....

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the relevant assessment year. Accordingly, this ground of assessee is rejected. 11. Ground nos.2 to 5 are raised against the order of ld. CIT(A) confirming disallowance of interest of ₹ 5,56,268/- out of the interest paid on Kotak Benk Term loans which have been held to be used for advancing loans and advances to various parties without charging any interest. During the course of assessment proceedings it was observed by Assessing Officer that assessee has taken secured loan of ₹ 85 .....

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caped income from assessment and accordingly disallowed the interest claimed as an expenditure in the profit and loss account to the extent of ₹ 5,56,268/-. 12. Ld. AR submitted that out of the total oans and advances of ₹ 41,02,373/- , major amount is pertaining to five parties namely - i) Desai Automobiles 1421873.00 ii) Desai Automobiles P. Ltd. 1600000.00 iii) Riddhi Siddhi Auto 825000.00 iv) Sagas Autotech P. Ltd. 100000.00 v) Shraddha Motors P. Ltd. 50000.00 Total - 39,96,873/- .....

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.59 iv) Indiable Credit Service Bank Rs.12,53,766.00 Rs.36,85,604.72 Referring to all the above details of secured loans, ld. AR submitted that interest debited in the profit and loss account was pertaining to secured loan is only limited to Kotak Bank term loan of ₹ 48,77,184/- whereas interest payable on the balance secured loan from four banks at ₹ 36,85,604/- has not at all been debited to the profit and loss account but has been debited to the partners capital account. In other .....

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al contentions and perused the material on record. The only issue for adjudication in ground no.2 to 5 is against confirmation of addition of ₹ 5,56,268/- made by Assessing Officer for diversion of interest bearing funds to non-interest bearing loans and advances. Ld. AR has tried to demonstrate in detail about the bifurcation of funds available with the assessee as interest bearing funds and non-interest bearing funds. The only basis taken by Assessing Officer for making addition of ͅ .....

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