Shri Piyushbhai Dahyabhai Mehta, Surat V. The ACIT.,Circle-7, Surat

ITA 1236/AHD/2013

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2143 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANIL K SHAH
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 1 OF 7 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./I.T.A NO.1236/AHD/2013/SRT /ASSESSMENT YEAR : 2008-09 SHRI PIYUSHBHAI DAHYALAL MEHTA, 1-D, 303, PANCHRATNA APARTMENT, GOPIPURA, KAZI NU MAIDAN, SURAT. PAN: [ACAPM 1123 G] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7, SURAT. APPELLANT /RESPONDENT /ASSESSEE BY SHRI ANIL K. SHAH ADV. /REVENUE BY SHRI DILEEP KUMAR SR.DR / DATE OF HEARING: 06 .0 7 .2018 /PRONOUNCEMENT ON 11 .07.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)V, SURAT(IN SHORT THE CIT (A)) DATED 03.12.2012 PERTAINING TO ASSESSMENT YEAR 2008-09, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7, SURAT, (IN SHORT THE AO) DATED 31.12.2010 UNDER SECTION 143(3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 2 OF 7 2. THE SOLE GROUND RELATES TO CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.12,13,699/-. 3. THE PERUSAL OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AND OTHER DETAILS SHOWED THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO THE TUNE OF RS.1,16,20,424/- AND TAKEN LOAN FROM CITI BANK OF RS.60,09,894/- (OUTSTANDING AS ON 31.03.2008). HOWEVER, THE ASSESSEE HAS PAID INTEREST OF RS.4,45,176/- TO CITI BANK AND INTEREST OF RS.7,78,493/- TO INDIAINFOLINE PVT. LTD. THEREFORE, THE AO CONCLUDED THAT THE INTEREST FREE LOANS GIVEN IS NOTHING BUT USAGE OF INTEREST BEARING BORROWED FUNDS FOR THE PURPOSE OTHER THAN BUSINESS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT INTEREST IS PAID AGAINST THE BUSINESS TO THE EXPEDIENCY WAS NOT ACCEPTED, HENCE, INTEREST PAYMENT OF RS.12,13,699/- [RA.4,45,176/- + RS.7,78,493/-] WAS DISALLOWED. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A), WHEREIN IT WAS SUBMITTED THAT LOAN FROM CITI BANK WAS TAKEN TO SETTLE THE DUES OF THE BROKERS AS THE APPELLANT HAD INCURRED LOSSES DUE TO SUDDEN FALL IN SHARE MARKET. WHILE, ON THE OTHER HAND, THE APPELLANT HAS GIVEN INTEREST FREE ADVANCES TO THE TUNE OF RS.1.16 CRORES AND HAS SUBMITTED THAT ON THESE ADVANCES AND LOANS MADE TO THE RELATIVES AND FRIENDS, NO INTEREST HAS BEEN PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 3 OF 7 CHARGED BY THE ASSESSEE, AS THEY HAVE GIVEN INTEREST FREE ADVANCES TO THE ASSESSEE IN PAST. HOWEVER, THE CIT(A) OPINED THAT THE APPELLANT IS NOT ABLE TO FURNISH ANY DETAILS AND EVIDENCES TO SHOW THAT THE FUNDS WERE RECEIVED BY THE APPELLANT FROM THESE PERSONS IN EARLIER YEARS ON WHICH NO INTEREST HAS BEEN PAID. IT IS WELL SETTLED PRINCIPLE THAT THE BUSINESSMAN HIS FREE TO CARRY OUT HIS BUSINESS ACTIVITY ACCORDING TO HIS OWN PRUDENCE AND JUDGMENT, BUT TO CLAIM CERTAIN DEDUCTIONS UNDER THE INCOME TAX ACT 1961, THE BUSINESS EXPEDIENCY AND COMMERCIAL INTEREST HAS TO PROVE FOR MAKING SUCH CLAIM FOR DEDUCTIONS. THEREFORE, IN ABSENCE OF THE NEXUS OF THE FUNDS ADVANCES WITH COMMERCIAL/BUSINESS EXPEDIENCY, THE AO HAS RIGHTLY DISALLOWED THE CLAIM OF INTEREST EXPENSES OF RS.12,13,699/-, ACCORDINGLY, THE ADDITION WAS CONFIRMED. 5. BEING AGGRIEVED, THE ASSESSEE HAS FILED APPEAL BEFORE THIS TRIBUNAL. THE LD.AUTHORISED REPRESENTATIVE (AR) FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS OBTAINED LOANS FROM CITI BANK OF RS.6,00,894/- AND FROM INDIAINFOLINE PVT. LTD. AND THE ENTIRE LOAN WAS UTILISED FOR THE PURCHASES OF SHARES. THE LD.AO DISALLOWED THE INTEREST PAID TO CITI BANK AT RS.4,35,176/- AND TO INDIAINFOLINE PVT. LTD. AT RS.7,78,493/- ON THE GROUNDS THAT THE SAID FUND WAS DIVERTED TO INTEREST FREE LOANS AND ADVANCES. HOWEVER, THE LOANS PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 4 OF 7 WERE TAKEN DUE TO COMMERCIAL EXPEDIENCY AS THERE WAS SUDDEN FALL IN THE SHARE MARKET AND THE ASSESSEE HAS TO INCUR HEAVY LOSSES, HENCE, THERE WAS BIG PRESSURE FROM BROKERS TO SETTLE THE DUES. HENCE, THE ASSESSEE HAS TAKEN LOAN FROM CITY BANK AND PAID THE INTEREST THEREON. IT IS PURELY FOR THE PURPOSE OF BUSINESS. THE LOAN AND ADVANCES OF INTEREST FREE HAVE BEEN MADE TO THE RELATIVES AND FRIENDS AND NO INTEREST HAVE BEEN CHARGED AS ON THE BASIS THE ASSESSEE HAS BORROWED FUND FROM THEM FOR WHICH THEY HAVE NOT CHARGED ANY INTEREST. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAS ITS OWN INTEREST FREE FUNDS OF RS.1,6,2,38,114/- WHILE INTEREST FREE ADVANCES ARE MADE AT RS.1,16,20,423/-. THEREFORE, THE INTEREST FREE ADVANCES ARE GIVEN OUT OF INTEREST FREE FUND AVAILABLE, HENCE NO DISALLOWANCE OF INTEREST BE MADE. IN THE LIGHT OF RATIO LAID DOWN IN THE CASE OF SA BUILDERS LTD. VS. CIT 288 ITR 1 (SC) WHEREIN IT WAS HELD THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS OCCURRING UNDER THE PROVISIONS OF SECTION 36(1)(III) IS WIDER IN SCOPE THEN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME, PROFIT OR GAINS AND THIS HAS BEEN THE CONSISTENT VIEW OF THE SUPREME COURT. THE LD.COUNSEL, FURTHER PLACING RELIANCE IN THE CASE OF TORRENT FINANCIERS VS. ACIT [2001] 73 TTJ 624 (AHD) SUBMITTED THAT IF THE TOTAL INTEREST FREE ADVANCES INCLUDING DEBT BALANCES OF PARTNERS DO NOT EXCEED THE TOTAL INTEREST FREE FUND PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 5 OF 7 AVAILABLE WITH THE ASSESSE, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSE AND IF IT IS SO EXCEEDS, THE PROPORTIONATE DISALLOWANCE CAN BE MADE. SINCE, IN THE CASE OF ASSESSEE THE INTEREST FREE FUND AVAILABLE ARE AT RS.1.62 CRORES WHEREAS INTEREST FREE FUND GIVEN ARE AT RS.1.16 CRORES. HENCE, NO DISALLOWANCE OF INTEREST CAN BE MADE U/S.36(1)(3) OF THE ACT. THE LD.COUNSEL, FURTHER RELIED IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 178 TAXMANN 135 AND DECISION OF SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS. CIT 63 TAXMANN.COM 308 AND OTHERS AS PER PAPER BOOK SUBMITTED BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LD.DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF INTEREST AS ACCORDING TO HIM THE ASSESSEE HAS NOT BEEN ABLE FURNISH THE DETAILS OF INTEREST FREE ADVANCES TAKEN BY THE ASSESSEE IN PAST FROM HIS FRIENDS AND RELATIVE. WE FIND THAT THE ASSESSEE WAS HAVING INTEREST FREE OWN FINDS AMOUNTING TO RS.1,62,78,114/- AS AGAINST THE INTEREST FREE ADVANCES WAS GIVEN AT RS.1,16,20,423/-. THEREFORE, WHERE INTEREST FREE FUNDS OF ASSESSEE ARE MORE THAN THE INTEREST FREE ADVANCES THEN NO INTEREST IS DISALLOWABLE ON PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 6 OF 7 ACCOUNT OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSES AS HELD BY AHMEDABAD TRIBUNAL IN THE CASE OF TORRENT FINANCIERS (SUPRA). WE, FURTHER FIND THAT THE LOANS FROM CITI BANK HAS BEEN TAKEN TO MEET THE OUTSTANDING DUES OF BROKERS AS THERE WAS SUDDEN FALL IN THE SHARE MARKET. THEREFORE, THE LOANS FROM CITI BANK AND INDIAINFOLINE PVT. LTD. ARE TAKEN ON ACCOUNT OF COMMERCIAL EXPEDIENCY, THEREFORE, NO DISALLOWANCE OF SUCH PAYMENT OF INTEREST CAN BE MADE AS THE LOAN AND ADVANCES ARE TAKEN FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDER (SUPRA) AS WELL AS RELIANCE UTILITIES, HERO CYCLES PVT LTD. (SUPRA). THE LD.AUTHORISED REPRESENTATIVE (AR) HAD ALSO PLACED RELIANCE IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. [2013] 354 ITR 222 (GUJARAT) / 217 TAXMANN 178 WHEREIN IT WAS HELD THAT WHERE HUGE FUNDS WERE AVAILABLE WITHOUT ANY INTEREST LIABILITY THAT THE ASSESSEE AND THERE WAS NO EVIDENCE TO HOLD THAT BORROWED MONEY WAS UTILISED FOR THE PURPOSE OF ADVANCES TO SISTER CONCERNS, NO DISALLOWANCE OF INTEREST WAS WARRANTED. 8. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS TAKEN INTEREST BEARING LOANS/ADVANCES FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY. THERE WAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN FORM OF HIS OWN PIYUSHBHAI DAHYALAL MEHTA V.ACIT, CIR-7, SURAT/I.T.A. NO.1236/AHD/2013/A.Y.:2008-09 PAGE 7 OF 7 CAPITAL AND RESERVES AS PER BALANCE SHEET AMOUNTING TO RS.1.62 CRORES AS AGAINST THE INTEREST FREE ADVANCES OF RS.1.16 CRORE WHICH WERE GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. [2008] 178 TAXMAN 135 [BOMBAY] AS RELIED BY THE LD.AR, THEREFORE, DISALLOWANCE OF INTEREST OF RS.12,13,699/- SUSTAINED BY THE CIT(A) ARE HEREBY DELETED. ACCORDINGLY THIS SOLE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 10. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11-07-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED: 11 TH JULY , 2018 COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT