Ocean Properties Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1186/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6815 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 01-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 16-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: MRS ROLI CHOBEY
• Keywords: Business expenditure; Commercial expediency; Set aside

Judgement Text

ITA NO. 1186/DEL/2010 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1186/DEL/2010 A.Y. : 2006-07 OCEAN PROPERTIES PVT. LTD., BIOTECH BUSINESS CENTER, VIPPS CENTER, 2 ND LOCAL SHOOPING COMPLEX, FIRST FLOOR, MASJID MOTH, GREATER KAILASH-II, NEW DELHI 110 048 (PAN: AAACO1654K) VS. INCOME TAX OFFICER - 13(4), NEW DELHI (APPELLANT ) (RESPONDENT ) ASSEESSEE BY : MRS. ROLI CHOBEY, C.A. DEPARTMENT BY : SHRI H.K. LAL, SR. D.R. ORDER PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 19.1.2 010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAS ERRED IN HIS DECISION PERTAINING TO DISALLOWANCE OF INTEREST ON LOAN OF ` 90,000/-. 3. ASSESSING OFFICER IN THIS CASE OBSERVED THAT O N EXAMINATION OF EXPENSES IN PROFIT AND LOSS ACCOUNT, IT WAS NOTICED THAT ASSESSEE COMPANY HAD DEBITED A SUM OF ` 90,000/- AS INTEREST ON ` 10,00,000/- BORROWED FROM SHRI KANWAL PAINTAL. THIS LOAN WAS T AKEN BY THE ASSESSEE DURING THE PREVIOUS YEARS. IT WAS FURTHE R NOTICED THAT ITA NO. 1186/DEL/2010 A.Y. 2006-07 2 ASSESSEE COMPANY HAD GIVEN A LOAN AMOUNTING TO ` 4813 567/- TO ITS DIRECTOR SHRI VIRENDER DHINGRA, ON WHICH NO INTERES T HAS BEEN CHARGED BY THE COMPANY. ASSESSING OFFICER FURTHER OBSERV ED THAT AT THE BEGINNING OF THE YEAR THE COMPANY HAD SUFFICIENT B ALANCE OF ` 1320175/- IN ITS BANK ACCOUNT TO REPAY THE LOAN OF SH. KANWAL PAINTAL, INSTEAD OF THIS THE COMPANY CHOSE TO GIVE FURTHER LO AN TO SHRI VIRENDER DHINGRA, DIRECTOR OF THE COMPANY. IN VIEW OF THE AB OVE CIRCUMSTANCES, HE HELD THAT ASSESSEE COMPANY HAD BOR ROWED INTEREST BEARING LOAN FROM SHRI KANWAL PAINTAL ONLY TO GIVE INTEREST FREE UNSECURED LOAN TO ITS DIRECTOR. HENCE THE INTERES T OF ` 90,000/- DEBITED IN PROFIT AND LOSS ACCOUNT WAS HELD TO BE NOT ALLOWABLE AS BUSINESS EXPENDITURE. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), IT WAS INTER-ALIA ARGUED THAT LOAN FROM SH. KANWAL PAINTAL WAS TAKEN IN F.Y. 2002-03 AND THAT THE LOAN TO SHRI DHINGRA DURING TH E SAID YEAR WAS ` 5827000/- WHICH WAS HIGHER THAN HIS DEBIT BALANCE OF ` 4813567/- IN THE CURRENT YEAR. IT WAS ALSO SUBMITTED THAT THE CO MPANY IN F.Y. 2002- 03 HAD OTHER NON-INTEREST BEARING LOANS OF ` 75.48 LACS AND THE ASSESSING OFFICER HAS NOT PROVED ANY NEXUS BETWEEN UNSECURED LOAN RECEIVED BY THE ASSESSEE AND THE LOAN ADVANCED TO ITS DIRECTOR AND HENCE THE ADDITIONS NEEDS TO BE DELETED. LD. COM MISSIONER OF INCOME TAX (APPEALS) DID NOT ACCEPT THIS CONTENTIO N. HE HELD THAT THERE IS NO DENYING THE FACT THAT THE MONEY USED FO R GIVING INTEREST FREE LOAN TO THE DIRECTOR COULD HAVE VERY WELL BEEN USED TO LIQUIDATE THE INTEREST BEARING LOANS TAKEN BY THE COMPANY. HE NCE, HE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. ITA NO. 1186/DEL/2010 A.Y. 2006-07 3 6. LD. COUNSEL OF THE ASSESSEE REPEATED THE SUBMISSI ONS MADE BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). SHE ARGUED THAT THE LOAN WAS TAKEN IN EARLIER YEARS AND NO DIS ALLOWANCE WAS MADE IN EARLIER YEARS. THIS IS THE FIRST TIME THE DIS ALLOWANCE IS BEING MADE. 6.1 LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE OR DERS OF THE AUTHORITIES BELOW. 6.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. A DMITTEDLY ASSESSEE HAS NOT TAKEN ANY INTEREST BEARING LOAN DU RING THE YEAR TO GRANT INTEREST FREE LOAN TO ITS DIRECTOR. THE INTE REST BEARING LOAN IS APPEARING FROM FINANCIAL YEAR 2002-03. NO DISALLOW ANCE OF INTEREST ON THAT ACCOUNT HAD BEEN MADE IN EARLIER YEARS. IT IS A LSO NOT THE CASE OF THE REVENUE THAT ASSESSEE HAD USED BORROWED FUNDS I N A.Y. 2002-03 TO GIVE THE INTEREST BEARING LOANS TO SHRI KANWAL PAINT AL. NOR IT IS A CASE THAT INTEREST BEARING LOANS HAVE BEEN TAKEN DURIN G THE YEAR TO GRANT INTEREST FREE LOAN TO THE DIRECTOR. UNDER THE CIR CUMSTANCES, THE PLEA OF THE AUTHORITIES BELOW THAT ASSESSEE SHOULD HAVE USE D ITS BALANCES AVAILABLE WITH HIM TO SQUARE OFF THE INTEREST BEARIN G LOAN IS NOT SUSTAINABLE, AS IT IS A SETTLED LAW THAT REVENUE CA NNOT SIT IN THE SHOE OF THE BUSINESSMAN. 6.3 IN THIS REGARD, WE REFER THE DECISION OF THE HO NBLE APEX COURT IN THE CASE OF CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD. IN 65 ITR 381, WHEREIN IT WAS HELD THAT 'IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE W AS WHOLLY AND EXCLUSIVELY FOR BUSINESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF REVENUE' . ITA NO. 1186/DEL/2010 A.Y. 2006-07 4 6.4 HENCE, ON THE TOUCHSTONE OF THE ABOVE, WE FIN D THAT OPINION OF THE AUTHORITIES BELOW THAT ASSESSEE SHOULD USE THE FUNDS AVAILABLE TO PAY OFF EARLIER LOANS IS TOTALLY AMOUNTING TO REVEN UE STEPPING INTO BUSINESSMANS SHOE, HENCE, THE ACTION OF THE AUTHORI TIES BELOW CANNOT BE SUSTAINED. 6.5 IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4/11/2010. SD/- SD/- [R.P. TOLANI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 4/11/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES