ACIT 11(1), MUMBAI V. PANORAMA FILMS, MUMBAI

ITA 1099/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75346 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Business income

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL C CC C BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.1099/MUM/2011 1099/MUM/2011 1099/MUM/2011 1099/MUM/2011 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2006-07) ACIT-11(1) ROOM NO. 439, AAYAKAR BHAVAN, M. K. MARG, MUMBAI-400020 % % % % / VS. M/S PANORAMA FILMS, 301, GUNDECHA CHAMBERS, N. M. ROAD, FORT, MUMBAI-400023 #' ! ./ ( ./ PAN/GIR NO. :AAFFM3729M ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $% $%$% $% ,- ,- ,- ,- . / . / . / . / /ASSESSEE BY : SHRI ASHOK J. PATIL # # # # . / . / . / . / / REVENUE BY : SHRI RAVI PRAKASH % % % % . .. . -! -! -! -! / DATE OF HEARING : 15 TH JANUARY 2014 01& 01& 01& 01& . .. .-! -! -! -! /DATE OF PRONOUNCEMENT: 22 ND JANUARY 2014 ' 2 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 4.11.2010 OF COMMISSIONER OF INCOME TAX(APPEALS) FO R THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN THE LAW, THE LD. CIT(A), MUMBAI ERRED IN DELETING THE D ISALLOWANCE OF ` 20,04,931/- ON ACCOUNT OF INTEREST EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A), MUMBAI FAILED TO APPRECIATE THE FAC T THAT THE INTEREST BEARING FUNDS WERE ADVANCED TO SISTER CONC ERNS BY THE ASSESSEE WITHOUT CHARGING ANY INTEREST FROM IT AND ALSO WITHOUT ANY SPECIFIED BUSINESS PURPOSE. ITA NO.1099/M/2011 PANORAMA FILMS 2 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER RESTORED. 3. THE ONLY ISSUE ARISES FROM THE GROUNDS RAISED BY THE REVENUE IS DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO ` 20,04,931/- ON THE GROUND THAT THE ASSESSEE HAS GIVEN INTEREST FREE LO AN TO ITS SISTER CONCERN. WE HAVE HEARD THE LD. D.R AS WELL AS LD. A.R AND CO NSIDERED THE RELEVANT MATERIAL ON RECORD. THE A.O NOTED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM VARIOUS PARTIES AMOUNTING TO ` 2,02,31,12 1/- ON WHICH AN INTEREST OF ` 20,04,931/- IS CLAIMED BY THE ASSESSE E. THE A.O FURTHER NOTED THAT THE ASSESSEE HAS MADE AN INTEREST FREE ADVANCE OF ` 2,31,40,000/- TO ITS SISTER CONCERN M/S DHARTI CINE ENTERPRISES PVT. LTD. AGAINST A THEATRE TAKEN ON LEASE FOR EXHIBITION OF FILMS, ADVERTISEME NT AND CANTEEN. THE A.O HELD THAT THE LOAN HAS BEEN ADVANCED BY THE ASSESSE E TO ITS SISTER CONCERN WHICH ATTRACTED A FINANCIAL COST OF ` 20,04,931/- A ND ACCORDINGLY DISALLOWED THE INTEREST DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT. ON APPEAL, THE CIT(A) HAS RECORDED THE FAC T THAT THE ASSESSEE HAS GIVEN THE INTEREST FREE DEPOSIT AGAINST THE THE ATRE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND SINCE NO RENT WAS PAID BY THE ASSESSEE FOR HIRING THE THEATRE THEREFORE, COST OF THE INTEREST FREE DEPOSIT IS EVEN LESS THAN THE 50% OF THE FAIR MARKET RENT OF THE THEATRE IN QUESTION. THE RELEVANT FINDING OF THE CIT(A) IN PARA 2.2 ARE AS U NDER: 2.2 FACT AND MATERIAL ON RECORD ARE CONSIDERED. IT IS SEEN THAT THE INTEREST FREE DEPOSIT GIVEN BY APPELLANT BY RAI SING UNSECURED LOANS AND PAYING INTEREST ON THEM WAS FOR ITS BUSIN ESS PURPOSE WHICH IS RUNNING A THEATRE COMMERCIALLY FOR EXHIBIT ING CINEMA, ADVERTISING SLIDES AND A CANTEEN. THE INCOME FROM T HESE SOURCES HAVE BEEN DISCLOSED BY APPELLANT IN ITS RETURN OF I NCOME IS BUSINESS INCOME. IN THE FACTS OF THE CASE, THE SAID DEPOSIT WAS ITA NO.1099/M/2011 PANORAMA FILMS 3 THEREFORE, FOR BUSINESS PURPOSE OF APPELLANT. INTER EST BORNE ON THIS COUNT WOULD, THEREFORE, BE AN ALLOWABLE EXPEND ITURE. FURTHER, APPELLANT HAS NOT PAID ANY RENT TO THE SIS TER CONCERN OTHER THAN THE INTEREST FREE DEPOSIT. THEREFORE, TH E ONLY ISSUE WHICH REMAINS FOR EXAMINATION IS WHETHER THE INTERE ST PAID FOR BUSINESS PURPOSE IS ALLOWABLE EXPENDITURE OR NOT. E VEN WHEN CONSIDERING APPELLANTS SUBMISSION OF GENERAL RENTA L OF COMMERCIAL SPACE IN PAREL WHERE THE SAID THEATRE IS SITUATED, THE ESTIMATED RENTALS ARE EXTREMELY HIGH COMPARED TO TH E INTEREST LIABILITY ON APPELLANT. EVEN FOR ARGUMENT SAY, IF N O INTEREST FREE DEPOSIT WAS PAID BUT RENTAL PAID EACH YEAR, AND EVE N AFTER DISCOUNTING THE PER SQ. FT. RENTAL SUBMITTED BY APP ELLANT BY 50% THE EXPENDITURE ON INTEREST IS NOT EXCESSIVE. IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITION MADE IS DEL ETED. 4. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS NOT PAID ANY RENT TO ITS SISTER CONCERN FOR HIRING OF THE THEATRE IN QUESTIO N WHICH WAS USED BY THE ASSESSEE FOR RUNNING THE THEATRE COMMERCIALLY FOR E XHIBITING CINEMA, ADVERTISING SLIDES AND A CANTEEN. THEREFORE, THE AD VANCE GIVEN TO THE SISTER CONCERN IS FOR THE BUSINESS PURPOSE OF THE A SSESSEE. THE CIT(A) HAS ALSO CONSIDERED THE CERTIFICATE OF ARCHITECT WHEREI N THE FAIR MARKET RENT HAS BEEN VALUED TO ` 100-120 PER SQ. FT. AND THAT W OULD BE AMOUNTING TO ` 69,60,000/- PER ANNUM FOR 5800 SQ. FT. SPACE OF THE THEATRE AND CANTEEN IN QUESTION. THUS, IT IS CLEAR THAT THE COST OF INT EREST OF ` 20,04,931/- IS LESS THAN 1/3 RD OF THE FAIR MARKET RENT ESTIMATED BY THE ARCHITECT . WE FURTHER NOTE THAT THE A.O HAS NOT GIVEN A FINDING THAT THE FAIR MARKET RENT OF PROPERTY IN QUESTION WOULD BE LESS THAN THE COST OF THE ADVANCE GIVEN TO THE SISTER CONCERN FOR HIRING THE THEATRE WHICH WAS WORK OUT TO ` 20,04,931/-. IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS UPHELD. ITA NO.1099/M/2011 PANORAMA FILMS 4 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY 2014 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 22 ND JANUARY 2014 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI