GOVIND KAKURAM KATARIA, MUMBAI V. ACIT CIR 14(2), MUMBAI

ITA 1208/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6189 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABANI KUMAR NAYAK
• Assessee Lawyers: V P KOTHARI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1208/MUM/2010 (ASSESSMENT YEAR: 2005-06) SHRI GOVINDRAM KAKURAM KATARIA ACIT, CIRCLE 14(2) 207, KRISHNA CHOWK, M.J. MARKET MUMBAI KALBADEVI ROAD, MUMBAI 400002 VS. PAN - AFVPK 066 J APPELLANT RESPONDENT APPELLANT BY: SHRI V.P. KOTHARI RESPONDENT BY: SHRI ABANI KUMAR NAYAK O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXV, MUMBAI DATED 24.11.2009. 2. ASSESSEE IS AN IMPORTER AND WHOLESALE TRADER AND DE RIVES INCOME FROM INTEREST ON LOANS GIVEN TO VARIOUS PARTIES. ASSESSE E MAINTAINS TWO SEPARATE BOOKS OF ACCOUNT AND THE INTERESTS EARNED WERE RETU RNED AS INCOME FROM OTHER SOURCES AND CLAIMED AN AMOUNT OF ` 5,67,109/- TOWARDS INTEREST OUT OF INTEREST RECEIVED FROM VARIOUS PARTIES. THE A.O. AS KED WHY THE SAME SHOULD NOT BE DISALLOWED UNDER SECTION 36(1)(III) AS THE A SSESSEE HAD ALSO INVESTMENTS MADE ON WHICH THERE IS NO INCOME. THE A SSESSEE SUBMITTED THAT THE ADVANCES WERE IN THE COURSE OF BUSINESS ONLY AN D THE INTEREST WAS ALSO PAID BUT THE A.O. DID NOT ACCEPT AND MADE DISALLOWA NCE OF THE ENTIRE INTEREST CLAIMED. BEFORE THE CIT(A) IT WAS SUBMITTE D THAT SIMILAR ISSUE WAS CONSIDERED IN EARLIER YEARS AND ITAT HAS ALREADY GI VEN A FINDING THAT THE ASSESSEE HAS SUBSTANTIAL FUNDS FOR INVESTING AND TH E INTEREST CLAIM IS ALLOWABLE EVEN IF THE INTEREST RECEIVED WAS ASSESSE D AS INCOME FROM OTHER SOURCES. THE CIT(A), HOWEVER, DID NOT ACCEPT THE CO NTENTIONS AND DISALLOWED THE AMOUNT ON THE PRETEXT THAT ASSESSEE HAS NOT EST ABLISHED THE NEXUS WITH THE INTEREST SO PAID FOR EARNING THE INCOME OFFERED UNDER OTHER SOURCES. ITA NO. 1208/MUM/2010 SHRI GOVINDRAM KAKURAM KATARIA 2 3. AT THE OUTSET THE LEARNED COUNSEL SUBMITTED THAT TH E ISSUES RAISED IN A.Y. 2003-04 WERE EXAMINED BY THE ITAT IN ASSESSEE S OWN CASE IN ITA NO. 5638/MUM/2006 AND REFERRED TO THE FINDINGS THEREIN. 4. THE LEARNED D.R., HOWEVER, TRIED TO DISTINGUISH THE SAME ON FACTS INDICATING THAT THE ASSESSEE HAS INVESTED SUBSTANTI AL AMOUNT SUBSEQUENT TO THE ASSESSMENT YEAR WHICH WAS CONSIDERED BY THE ITA T AND ACCORDINGLY THE ISSUE IS TO BE CONSIDERED ON MERITS AND NOT ON FOLL OWING THE PRECEDENT OF THE EARLIER YEAR. 5. WE HAVE EXAMINED THE FACTS PLACED ON RECORD AND THE SUBMISSIONS. THE ASSESSEE HAD SUBSTANTIAL INVESTMENT AND ALSO OWN CA PITAL AND WAS ALSO DECLARING INCOMES ON EARLIER YEARS. AS SEEN FROM PA GE 3 OF CIT(A)S ORDER, ASSESSEE HAD AROUND ` 9.37 LAKHS INTEREST INCOME FROM OTHERS AND ` 4.08 LAKHS FROM BANK AND ` 8.74 LAKHS FROM CLOTH BUSINESS IN A.Y. 2003-04. IN THIS YEAR THE INTEREST INCOME FROM OTHERS IS ` 14.37 LAKHS, FROM BANK ` 7.07 LAKHS AND FROM CLOTH BUSINESS AT ` 14.65 LAKHS. IT INDICATES PROPORTIONATE INCREASE IN THE INTEREST INCOME FROM ASSESSEES OWN FUNDS OR BUSINESS FUNDS. HOWEVER, THE INTEREST PAID ON THE BORROWINGS CONSIDERED IN A .Y. 2003-04 WAS AN AMOUNT OF ` 3,92,075/- AND IN THIS YEAR IT WAS ` 5,67,107/-. THIS INDICATE THAT ASSESSEES THE INTEREST PAID HAS NOT PROPORTIONATEL Y INCREASED. NOT ONLY THE ABOVE, THE ASSESSEE ALSO HAD LARGE AMOUNT OF OWN FU NDS, THE FINDING OF WHICH COULD NOT BE CONTROVERTED. THE A.O. ALSO DID NOT MA KE OUT ANY CASE THAT ANY OF THE BORROWED AMOUNTS HAVE BEEN DIVERTED FOR NON- BUSINESS PURPOSES AND IT IS ON RECORD THAT THE ASSESSEE HAS NOT MADE ANY FRESH INVESTMENTS DURING THE YEAR. IN VIEW OF THIS, WE ARE OF THE OPINION TH AT ASSESSEES CLAIM OF INTEREST DEBITED TO P & L ACCOUNT IS ALLOWABLE EXPENDITURE. THE ITAT IN A.Y. 2003-04 HAS CONSIDERED THE FACTS OF THAT YEAR AND CAME TO T HE FOLLOWING DECISION: - 3.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM TH E VARIOUS DETAILS FILED BY THE ASSESSEE WE FIND THAT THE FRESH INVESTMENTS MADE DURING THE YEAR IN BONDS, FD, PPF AND IMMOVABLE PROPERTIES ARE OUT OF MATURITY PROCEEDS OF FIXED DEPOSITS WITH SYNDICATE BANK. FUR THER AS AGAINST THE TOTAL INVESTMENT OF ` 84,63,564/- THE ASSESSEE HAS GOT CAPITAL OF RS.1,63,77,222/-. SIMILARLY AS AGAINST TOTAL LOANS AND ADVANCES (BOTH INTEREST FREE AND INTEREST BEARING) OF RS.3,74,91,7 60/- THE ASSESSEE IS HAVING SUNDRY CREDITORS FOR GOODS AT RS.3,08,41,882 /- AND SUNDRY CREDITORS FOR EXPENSES AT ` 6,56,726/-. WE FURTHER FIND MERIT IN THE ITA NO. 1208/MUM/2010 SHRI GOVINDRAM KAKURAM KATARIA 3 SUBMISSION OF LEARNED COUNSEL FOR THE ASSESSEE THAT AS AGAINST TOTAL INTEREST EXPENDITURE OF RS.3.92 LAKHS THE ASSESSEE HAS ALSO EARNED INTEREST INCOME OF RS.13.45 LAKHS AND, THEREFORE, S UCH INTEREST EXPENDITURE CAN BE DEDUCTED FROM SUCH INTEREST INCO ME. FURTHER, IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITY & POWER (SUPRA) WHEN AN ASSESSEE POSSESS SU FFICIENT OWN CAPITAL AND INTEREST FREE FUNDS OF ITS OWN PRESUMPTION STAN DS THAT INTEREST FREE LOANS ARE GIVEN OUT OF SUCH INTEREST FREE FUNDS AND , THEREFORE, NO PART OF THE INTEREST CAN BE DISALLOWED ON THE BASIS THAT TA X FREE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN THIS VI EW OF THE MATTER WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ENTITLED TO GET THE DEDUCTION OF SUCH INTEREST EXPENDITURE U/S. 57(III) OF THE ACT. THEREFORE, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESS ING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF DEDUCTION. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 6. SINCE THE FACTS ARE SIMILAR AND EVEN THE A.O. REFER RED TO A.Y. 2003-04 IN HIS ORDER, WE ARE OF THE OPINION THAT THE ASSESS EES CLAIM IS ALLOWABLE AND ACCORDINGLY WE DIRECT THE A.O. TO ALLOW THE CLAIM U NDER SECTION 36(1)(III). GROUND NOS. 1 & 2 WERE ALLOWED. 7. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF TELEPHONE EXPENSES ON RESIDENTIAL TELEPHONE AND MOBILE PHONE BILLS AND OF MOTOR CAR EXPENSES AND DEPRECIATION. 8. THE A.O. CONSIDERED THESE EXPENDITURES AND DISALLOW ED OF THE EXPENDITURE. ON EXAMINING THE FACTS THE CIT(A) REST RICTED THE AMOUNT TO 1/5 TH OF THE EXPENDITURE. 9. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED COUN SEL AND THE LEARNED D.R. ON THE ISSUE WE ARE OF THE OPINION THA T THE DISALLOWANCE IS REASONABLE CONSIDERING THE NATURE OF THE BUSINESS A ND THE EXPENDITURE CLAIMS. ACCORDINGLY THE ORDER OF THE CIT(A) IN REST RICTING THE DISALLOWANCE TO 1/5 TH OF THE EXPENDITURE IS UPHELD. ASSESSEES GROUND IS REJECTED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH NOVEMBER 2010 ITA NO. 1208/MUM/2010 SHRI GOVINDRAM KAKURAM KATARIA 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.