M/s. SJK Investment Co., Ahmedabad V. The Income tax Officer,Ward-10(4), Ahmedabad

ITA 1074/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5857 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R GHOSH
• Keywords: Notional interest

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC AHMEDABAD BEFORE SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER M/S S.J.K. INVESTMENT CO., KINARIVALA HOUSE, OPP. K.P. BOARDING, GULBAI TEKRA, ELLISBRIDGE, AHMEDABAD- 380006 VS. THE INCOME-TAX OFFICER, WARD 10(4), AHMEDABAD. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI TUSHAR HEMANI, AR REVENUE BY:- SHRI P. R. GHOSH, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LD. CIT(A) WHEREIN HE HAS CONFIRMED THE ADDITION OF RS. 5,28,487/- BEING INTEREST INCOME @ 1% ON SUM OF RS.5,28,48,727/- ADV ANCED BY THE ASSESSEE TO THE SISTER CONCERN. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A FIN ANCE AND INVESTMENT COMPANY. TILL 31.3.2006 THE ASSESSEE WAS CHARGING I NTEREST @ 10% ON LOAN/ADVANCES GIVEN BY IT AND WAS PAYING INTEREST @ 9% ON UNSECURED LOAN TAKEN BY IT. HOWEVER, AFTER 31.3.2006 ASSESSEE STOPPED CHARGING INTEREST ON BOTH UNSECURED LOANS AS WELL AS ADVANCE S GIVEN BY IT. THE AO FOUND THAT AT THE END OF THE YEAR ASSESSEE HAS GIVE N LOANS TO THE EXTENT OF RS.5,28,48,727/- WHEREAS IT HAS TAKEN UNSECURED LOA N TO THE EXTENT OF ITA NO.1074/AHD/2010 ASST. YEAR :2007-08 2 RS.6,45,39,559/-. IT NEITHER CHARGED INTEREST ON TH E ADVANCES NOR PAID INTEREST ON UNSECURED LOANS. 3. IT FILED RETURN OF INCOME ON A LOSS OF RS.39,845 /-. HOWEVER, THE AO NOTICED THAT ONCE ASSESSEE IS CHARGING INTEREST ON ADVANCES GIVEN BY IT THERE IS NO REASON NOT TO CHARGE INTEREST THIS YEAR . SINCE THE DIFFERENCE BETWEEN THE RATES OF INTEREST PAID AND CHARGED IS 1 % THE AO CALCULATED INTEREST INCOME @ 1% ON LOANS WITH ADVANCES GIVEN B Y IT TO THE EXTENT OF 5.28 CRORES AND THUS WORKED OUT INTEREST INCOME OF ASSESSEE AT RS.5,28,487/-. 4. THE LD. CIT(A) CONFIRMED THE ORDER OF AO FOR THE SAME REASONS. ACCORDING TO HIM IT IS NOT CLEAR WHY THE ASSESSEE H AS NOT CHARGED INTEREST. 5. BEFORE ME, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT IT IS THE BUSINESS DECISION NOT TO PAY INTEREST OR CHARGE INT EREST. MONEY HAS BEEN BORROWED FROM SISTER CONCERNS AND HAS BEEN PAID TO THE SISTER CONCERN IN THE GROUP AND, THEREFORE, IT WAS CONSIDERED A BUSIN ESS DECISION NEITHER TO CHARGE INTEREST NOR TO PAY INTEREST. IN ANY CASE IF INTEREST IS TO BE PAID THEN ASSESSEE HAS TO PAY INTEREST ON ENTIRE SUM OF RS.6. 45 CRORES AND NOT ON 5.28 CRORES AS PRESUMED BY LOWER AUTHORITIES. IN VI EW OF THE MATTER ASSESSEE WOULD SUFFER A LOSS OF RS.5,23,687/- AS UN DER :- NOTIONAL INTEREST RS. LOANS & ADVANCES GRANTED RS.5,28,48,727.88 INTEREST @ 10% 5284872/- LESS LOANS & ADVANCES TAKEN RS.64539550.76 INTEREST @ 9% 5808559/- LOSS 523687/- 3 6. AGAINST THIS, THE LD. DR SUBMITTED THAT IF ASSES SEE HAS ONLY GIVEN ADVANCES OF RS.5,28 CRORES THEN PAYMENT AND RECEIPT OF INTEREST WILL HAVE TO BE CONSIDERED ONLY ON THIS AMOUNT. THERE IS NO E VIDENCE TO SHOW THAT THE DIFFERENCE BETWEEN RS.6.45 CRORES AND RS.5.28 C RORES WERE USED FOR ANY BUSINESS PURPOSES. NO BALANCE SHEET AS SUCH HAS BEEN FILED BY THE ASSESSEE. THEREFORE, PAYMENT OF INTEREST ON DIFFERE NCE BETWEEN RS.6.45 CRORES AND RS.5.28 CRORES CANNOT BE CONSIDERED AS B USINESS EXPENDITURE AND, THEREFORE, THE SAME CANNOT BE ALLOWED. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD I RESTORE THE MATTER TO THE FILE OF AO FO R GIVING AN OPPORTUNITY TO THE ASSESSEE TO SHOW AS TO WHAT HE HAS DONE WITH THE DIFFERENCE BETWEEN RS.6.45 CRORES IT HAS TAKEN AS LOAN AND RS. 5.28 CRORES IT HAS GIVEN AS ADVANCE. ASSESSEE HAS TO SHOW THAT SUCH DI FFERENCE HAS BEEN UTILIZED FOR BUSINESS PURPOSES. IN CASE IT IS NO SO THEN PAYMENT OF INTEREST @ 9% ON SUCH DIFFERENCE CANNOT BE CONSIDERED AS BUS INESS EXPENDITURE. SO FAR AS THE FINDING OF AUTHORITIES BELOW THAT WIT HOUT THERE BEING ANY REASON NO TO PAY OR CHARGE INTEREST, INTEREST WOULD ACCRUE TO THE ASSESSEE ON ADVANCES GIVEN AND PAYMENT OF INTEREST WILL ALSO ACCRUE TO THE ASSESSEE AS THERE ARE CONTRACTUAL AGREEMENTS BETWEEN THE PAR TIES AND ASSESSEE COULD NOT UNILATERALLY DECIDE EITHER NOT TO PAY INT EREST OR NOT TO CHARGE INTEREST. IF EARLIER THE AGREEMENT WHETHER ORAL OR OTHERWISE PROVIDED THAT ASSESSEE HAS TO PAY @ 9% ON MONEY BORROWED THEN WIT HOUT THERE BEING ANY CHANGE IN CONTRACTUAL POSITION BETWEEN THE TWO PARTIES IT CANNOT BE ACCEPTED THAT ASSESSEE WILL NOT HAVE TO PAY INTERES T ON THE MONEY BORROWED BY IT. SIMILARLY WITHOUT THERE BEING ANY C HANGE IN THE CONTRACTUAL POSITION BETWEEN THE ASSESSEE AND THE P ARTIES TO WHOM ASSESSEE HAS PAID MONEY AS ADVANCES IT COULD NOT BE PRESUMED THAT THOSE PARTIES ARE NOT LIABLE TO PAY INTEREST TO THE ASSES SEE AT THE STIPULATED RATES. 4 ACCORDINGLY, I CONFIRM THE ORDERS OF AUTHORITIES BE LOW THAT THERE IS AN INCURRING OF EXPENDITURE @ 9% ON THE UNSECURED LOAN OBTAINED BY THE ASSESSEE AS IT WAS THE POSITION IN EARLIER YEARS AN D SIMILAR INTEREST WILL ACCRUE TO THE ASSESSEE @ 10% AS WAS THE POSITION IN EARLIER YEARS. HOWEVER, THE ASSESSEE HAS TO ESTABLISH THAT THE DIF FERENCE IN CAPITAL (BETWEEN RS.6.45 CRORES AND RS.5.28 CRORES) WAS UTI LIZED FOR BUSINESS PURPOSES. IF IT IS SO ONLY THEN INTEREST EXPENDITUR E ON SUCH DIFFERENCE CAN BE CONSIDERED BY THE AO FOR ALLOWANCE OR TO THE EXT ENT IT IS SO PROVED. ACCORDINGLY FOR RECONSIDERATION OF THE ISSUE ON THE LINES SUGGESTED ABOVE I RESTORE THE MATTER TO THE FILE OF AO. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 6/7/2010 SD/- (D.C.AGRAWAL) ACCOUNTANT MEMBER AHMEDABAD, DATED : 6/7/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD