ITO 1(1)(2), MUMBAI V. COSMIC HOLDINGS P. LTD, MUMBAI

ITA 1194/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6583 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PARMINDER
• Keywords: Notional interest; Commercial expediency
• Section: 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , , BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER . / ITA NO. 1193 / MUM./ 2013 ( / ASSESSMENT YEAR : 20 0 8 09 ) . / ITA NO. 1194 / MUM./ 2013 ( / ASSESSMENT YEAR : 200 9 1 0 ) INCOME TAX OFFICER WARD 1(1) 2, AAYAKAR BHAVAN 101, M.K. ROAD,MUMBAI 400 020 .. / APPELLANT V/S M/S. COSMIC HOLDINGS PVT. LTD. 002, GULMOHAR COMPLEX GROUND FLOOR, STATION ROAD GOAREGAON (E), MUMBAI 400 063 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACC2184 Q / REV ENUE BY : MRS. PARMINDER / ASSESSEE BY : MR. VIJAY MEHTA / DATE OF HEARING 0 5 . 0 5 .201 4 / DATE OF ORDER 07.05.2014 / ORDER . . , / PER N.K. BILLAIYA , A .M. THESE APPEALS BY THE REVENUE ARE PREFERRED AGAINST THE TWO SEPARATE ORDERS DATED 23 RD NOVEMBER 2012, PASSED BY THE LEARNED M/S. COSMIC HOLDINGS PVT. LTD. 2 COMMISSIONER (APPEALS) 1, MUMBAI, FOR THE ASSESSMENT YEAR 2008 09 AND 2009 10. AS COMMON ISSUES AR E INVOLVED IN BOTH THESE APPEALS, THEREFORE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2 . WE FIRST TAKE UP REVENUES APPEAL IN ITA NO.1193/MUM./2013, OF THE ASSESSMENT YEAR 2008 09 , VIDE WHICH , THE SOLE GRIEVANCE OF THE REVENUE IS THAT , THE LEARNED COMMISSIONER (APPEALS) ERRED IN DELETING THE INTEREST ON ADVANCE TAX ON ACCRUAL BASIS AMOUNTING TO ` 2,01,73,580. 3 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF FINANC ING, INVESTMENT AND TRADING IN SHARES AND SECURITIES. THE RETURN OF INCOME WAS FILED ON 24 TH SEPTEMBER 2008, DECLARING THE TOTAL TAXABLE INCOME AT ` NIL WITH CURRENT YEARS LOSS AT ` 1,14,559. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND, ACCORDIN GLY, STATUTORY NOTICE WAS ISSUED AND SERVED UPON THE ASSESSEE. A SURVEY ACTION UNDER SECTION 133A OF THE ACT WAS CONDUCTED ON 7 TH FEBRUARY 2011 . IT WAS FOUND DURING THE SURVEY THAT THE ASSESSEE HAS ADVANCED AN AMOUNT OF ` 35 CRORES TO M/S. MOUNTAIN VIEW RE ALTORS PVT. LTD. (MVRPL). THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT ACCOUNTED FOR ANY INTEREST INCOME ON THIS ADVANCE FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER WAS OF THE STRONG BELIEF THAT THE ASSESSEE SHOULD HAVE EARNED INTERE ST ON THIS ADVANCE AND OFFERED THE SAME FOR TAX. THE ASSESSEE WAS ASKED TO EXPLAIN WHY NO INTEREST HAS BEEN OFFERED FOR TAX ON ACCRUAL BASIS. IT WAS EXPLAINED THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE TO MVRPL AMOUNTING TO ` 35 CRORES IN THE MONTH OF SEPTEMBER 2007 FOR THE PURPOSE OF BUSINESS. THERE WAS A TACIT UNDERSTANDING THAT IF THE BUSINESS OF THE BORROWERS STARTS WITHIN A REASONABLE PERIOD, NO INTEREST WILL ACCRUE. SINCE THE M/S. COSMIC HOLDINGS PVT. LTD. 3 BUSINESS OF THE BORROWER DID NOT TAKE OFF THE AMOUNT WAS RETURNED IN THE MONTH OF JULY 2008 WITHOUT INTEREST. IT WAS A BUSINESS ADVANCE. IT WAS FURTHER EXPLAINED THAT THE CHARGING ANY INTEREST ON THE LOAN ADVANCED DURING THE YEAR IS THE ASSESSEES PREROGATIVE. A BUSINESSMAN IS THE BEST JUDGE TO KNOW AS TO HOW TO RUN HIS BUS INESS ON THE BASIS OF COMMERCIAL EXPEDIENCY AND NEED AND REQUIREMENT OF THE BUSINESS. BASED ON THIS PRINCIPLE, THE ASSESSEE ADVANCED INTEREST FREE AMOUNT. SINCE THE AMOUNT ADVANCED WAS INTEREST FREE, NO INTEREST INCOME CAN BE SAID TO HAVE ACCRUED TO THE AS SESSEE ON HYPOTHETICAL BASIS. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE RELIED UPON THE DECISION S OF THE HON'BLE SUPREME COURT IN GODHRA ELECTRICITY CO. LTD. V/S CIT, [1997] 225 ITR 746 (SC) AND CIT V/S CHAMANLAL MANGALDAS AND CO., [1960] 039 ITR 008 (SC). T HE ASSESSEES SUBMISSIONS DID NOT FIND ANY FAVOUR FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER WENT ON TO COMPUTE ACCRUED INTEREST TO THE TUNE OF ` 2,01,73,580 AND ADDED TO THE INCOME OF THE ASSESSE AS UNDISCLOSED INTEREST INCOME. AGGRIEVED BY THIS, T HE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED COMMISSIONER (APPEALS). 4 . T HE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE ASSESSING OFFICER. IT WAS EXPLAINED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS AND INTEREST FREE BORROWINGS FROM WH ICH THE ASSESSEE HAS ADVANCED ` 35 CRORES TO MRVPL. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE HAS RECEIVED INTEREST FREE LOAN FROM M/S. RECKON TRADING PVT. LTD. THERE WAS AN UNDERSTANDING BETWEEN THE ASSESSEE AND M/S. RECKON TRADING PVT. LTD. THAT NO INTE REST IS PAYABLE ON THIS BUSINESS ADVANCE. IT WAS EXPLAINED TO THE LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE NEITHER PAID ANY INTEREST NOR RECEIVED ANY INTEREST. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE LEARNED M/S. COSMIC HOLDINGS PVT. LTD. 4 COMMISSIONER (APPEALS) OBSERVED THAT THE ASSESSING OFFICER HAS MADE ADDITIONS ON THE GROUND THAT THE ASSESSEE IS A FINANCING COMPANY HAVING MAIN OBJECT OF FINANCING , INVESTMENT AND TRADING IN SHARES AND SECURITIES. DRAWING SUPPORT FROM THE DECISION OF THE JURISDICTIONAL HIGH COURT IN C IT V/S RELIANCE UTILITIES AND POWER LTD., [2009] 313 ITR 340 (BOM.), THE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT NO NOTIONAL INTEREST CAN BE ADDED WHEN SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE. THE LEARNED COMMISSIONER (APPEALS) FURTHER OBSERVED THAT THE ASSESSEE HAS FURNISHED CONFIRMATION FROM MVRPL THAT NO INTEREST IS PAYABLE ON THE ADVANCE. SINCE THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE FOR BUSINESS PURPOSE OUT OF INTEREST FREE FUNDS, THERE CANNOT BE ANY ADDITION ON ACCOUN T OF NOTIONAL INTEREST, THE LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF ` 2,01,73,580. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ASSESS MENT ORDER, WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 6 . WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BEFORE US. THE UND ISPUTED FACTS EMANATING FROM THE ASSESSMENT ORDER ARE THAT THE ASSESSEE HAS A SHARE CAPITAL OF ` 83,73,800, RESERVE AND SURPLUS AT ` 7,26,23,980 , UNSECURED LOANS FROM COMPANIES AT ` 12,70,24,795. THE ASSESSEE HAD INTEREST FREE FUNDS OF ` 20,80,22,575. IT I S ALSO AN UNDISPUTED FACT THAT THE ASSESSEE RECEIVED ` 35 LAKHS FROM M/S. RECKON TRADING PVT. LTD. , WHICH WAS ALSO INTEREST FREE. THE ASSESSING OFFICER HAS NO WHERE DISPUTED THAT THE ASSESSEE WAS NOT HAVING SUFFICIENT INTEREST FREE FUNDS. WE FIND THAT THE ASSESSING OFFICER HAS M/S. COSMIC HOLDINGS PVT. LTD. 5 COMPLETELY IGNORED THE FACT THAT ` 35 CRORES WAS BORROWED BY THE ASSESSEE INTEREST FREE AND LENT THE SAME TO MVRPL INTEREST FREE. THE ASSESSING OFFICER HAS ASSUMED THA T THE INTEREST MUST HAVE BEEN ACCRUED AND, THEREFORE, THE ASSESSEE OUGHT TO HAVE OFFERED THE SAME FOR TAXATION. THE HON'BLE SUPREME COURT IN GODHRA ELECTRICITY CO. LTD. (SUPRA), HAS HELD THAT UNDER THE INCOME TAX ACT, 1961, ANY AMOUNT CHARGEABLE TO TAX IS THE INCOME THAT IS RECEIVED OR WHICH HAS ACCRUED DURING THE PREVIOU S YEAR AND NOT HYPOTHETICAL INCOME. THE HON'BLE SUPREME COURT, IN ANOTHER CASE, IN CHAMANLAL MANGALDAS AND CO. (SUPRA), HAS HELD THAT THE IN COME TAX ACT ONLY TAXES THE REAL INCOME AND THERE IS NO PROVISION UNDER THE ACT TO TAX THE HYPOTHETICAL INCOME WHICH HAS NEVER ARISEN OR ACCRUED TO THE ASSESSEE. CONSIDERING THE FACTS IN TOTALITY AND DRAWING SUPPORT FROM THE DECISION OF THE HON'BLE SUPREME COURT , AND ALSO THE FACT THAT THE ASSESSEE DID NOT PAY ANY INTEREST TO RECKON TRADING PVT. LTD FROM WHOM IT HAS BO RROWED RS.35 CRS.AND LENDED TO MVRPL , WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7 . 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.1194/MUM./2013, FOR THE ASSESSMENT YEAR 2009 10. 8 . THE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS SIMILAR TO THE GRIEVANC E RAISED BY THE REVENUE IN ITS APPEAL IN ITA NO.1193/MUM./ 2013, FOR THE ASSESSMENT YEAR 200 8 09 DECIDED ABOVE , THOUGH QUANTUM MAY DIFFER . CONSISTENT WITH THE VIEW TAKEN THEREIN, THIS APPEAL IS ALSO DECIDED AGAINST THE REVENUE. M/S. COSMIC HOLDINGS PVT. LTD. 6 9 . 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 10 . , 2008 09 20 09 10 10. TO SUM UP, REVENUES APPEALS FOR THE ASSESSMENT YEAR 2008 09 AND 2009 10 ARE DISMIS SED. 7 TH MAY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MAY 2014 SD / - SANJAY GARG JUDICIAL MEMBER SD / - . . N.K. BILLAIYA ACCOUNTANT MEMBER MUMBAI, D ATED : 7 TH MAY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI