Oval Developers Pvt. Ltd., Kolkata V. ITO, WD-4(1), KOLKATA, Kolkata

ITA 143/KOL/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4986 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 02-02-2016
• Court: TRIBUNAL
• Department Lawyers: DEBASISH BANERJEE
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Business expenditure; Additional evidence

Judgement Text

ITA NO.143/KOL/2016-OVAL DEVELOPERS PRIVATE LIMITED ,A.Y.2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BE NCH : KOLKATA [BEFORE HONBLE SRI P.M.JAGTAP, AM ] I.T.A NO.143/KOL/2016 ASSESSMENT YEAR : 2009-1 0 OVAL DEVELOPERS (P)LTD. . -VS.- I.T.O., WA RD-4(1), KOLKATA KOLKATA (PAN:AAACD7628P) (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI MANOJ KATARUKA, ADVOCATE FOR THE RESPONDENT : SHRI DEBASI SH BANERJEE, JCIT DATE OF HEARING : 25.04.2016. DATE OF PRONOUNCEMENT : 29.04.2016. ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-2, KOLKATA DATED 07.12.2015. 2. THE ISSUE RAISED IN GROUND NOS. 1 AND 2 OF THIS APPEAL RELATES TO THE DISALLOWANCE OF RS.4,50,000/- MADE BY AO AND CONFIR MED BY THE LD. CIT(A) ON ACCOUNT OF INTEREST EXPENDITURE ATTRIBUTABLE TO THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE COMPANY TO THE SISTER CONCERN. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND BUILDERS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 25.09.20 09 DECLARING TOTAL INCOME OF RS.11,560/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS PAID INTEREST OF RS.26.88 LAK HS @ 16% ON THE UNSECURED LOANS TAKEN FROM BODY CORPORATE. HE ALSO NOTICED THAT THE ASSESSEE COMPANY HAS GIVEN NET ADVANCE OF RS.28.16 LAKHS (ADVANCE GIVEN RS.71.98 L AKHS ADVANCE RECEIVED RS.43.82 LAKHS) TO ITS SISTER CONCERN. ACCORDING TO HIM, THE ASSESSEE COMPANY THUS HAD UTILISED THE LOANS BORROWED ON INTEREST FOR GIV ING INTEREST FREE ADVANCES TO ITS SISTER CONCERN AND ACCORDINGLY INTEREST ATTRIBUTABL E TO SUCH AN ADVANCE WORKED OUT AT RS.4,50,000/- WAS DISALLOWED BY HIM. ITA NO.143/KOL/2016-OVAL DEVELOPERS PRIVATE LIMITED ,A.Y.2009-10 2 4. THE DISALLOWANCE MADE BY THE AO OUT OF INTEREST AMOUNTING TO RS.4,50,000/- WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL BEFORE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE LD. CIT(A), IT WAS PO INTED OUT BY THE ASSESSEE THAT THE ADVANCES IN QUESTION WERE GIVEN BY IT TO ITS SISTER CONCERN IN THE FINANCIAL YEAR 2006- 07 ITSELF OUT OF ITS OWN FUNDS RECEIVED IN THE FORM OF SHARE APPLICATION MONEY AND SHARE PREMIUM AND SINCE THE SAME ADVANCE CONTINUED EVEN IN THE YEAR UNDER CONSIDERATION, IT WAS NOT A CASE OF DIVERSION OF TH E INTEREST BEARING BORROWED FUNDS FOR GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERN AS ALLEGED BY THE AO. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LD. CI T(A) AND HE PROCEEDED TO CONFIRM THE DISALLOWANCE OF RS.4,50,000/- MADE BY AO ON AC COUNT OF INTEREST FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 4.1. OF HIS OR DER. 4.1. I HAVE DULY CONSIDERED THE SUBMISSION OF THE LD. AR. THE ASSESSEE HAD PAID INTEREST TO THE TUNE OF RS.26.88 LAKHS ON UNSECURED LOAN FROM BODY CORPORATE. AT THE SAME TIME. IT ALLOWED INTEREST-FREE ADVANCE OF RS. 71.98 LAKHS TO A SUBSIDIARY COMPANY NAMELY. M/S. ROOSE ELECTRICAL WORKS (P) LTD. THE AS SESSEE COMPANY ALSO HAD RECEIVED INTEREST-FREE ADVANCES OF RS.43.82 LAKHS FROM TWO S UBSIDIARY COMPANIES. THE AO, THEREFORE, COMPUTED INTEREST AT THE SAME RATE OF IN TEREST PAID ON UNSECURED LOANS ON THE NET INTEREST-FREE ADVANCES OF RS.28.16 LAKHS AND DI SALLOWED THE SAME AS NON-BUSINESS EXPENSES. LD. AR CONTENDED THAT ADVANCE OF RS.72.21 LAKHS HAD BEEN GIVEN TO M/S. ROOSE ELECTRICAL WORKS (P) LTD IN THE F.Y. 2006-07, OUT OF INTEREST-FREE LOANS RECEIVED FROM FIVE COMPANIES AND THEREFORE, PROPORTIONATE IN TEREST SHOULD NOT HAVE BEEN DISALLOWED. IT IS NOT COMPREHENSIBLE AS TO HOW THIS ARGUMENT HAS ANYTHING TO DO WITH THE SCENARIO OF A.V. 2009-19. THE ASSESSEE MIGHT HAVE P ROVIDED INTEREST- FREE ADVANCE TO ONE OF ITS SUBSIDIARY COMPANY BY TAKING INTEREST-FR EE LOANS FROM OTHER SUBSIDIARY COMPANIES IN THE F.Y. 2006-07. BUT IN THE RELEVANT ASSESSMENT YEAR, ASSESSEE COMPANY HAD ACCEPTED UNSECURED LOANS AND PAID INTEREST OF R S.26.88 LAKHS. ON THE OTHER HAND, IT DID NOT RECOVER FROM ITS SUBSIDIARY COMPANY THE ADV ANCE GIVEN EARLIER. THIS BEING THE ISSUE, THE DECISION OF THE AO IN DISALLOWING PROPOR TIONATE INTEREST FOR THE NET INTEREST- FREE ADVANCE AS PER THE BOOKS, APPEARS TO BE JUSTIF IED. HENCE, THE ADDITION OF RS.4,50,000/- IS CONFIRMED. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED BEFORE ME THE STAND TAKEN BEFORE THE LD. CIT(A) THAT THE I NTEREST FREE ADVANCES TO ITS SISTER CONCERN HAVING BEEN GIVEN BY THE ASSESSEE OUT OF IT S OWN FUNDS IN THE EARLIER YEAR I.E. F.Y.2006-07, THERE WAS NO DIVERSION OF INTEREST BEA RING BORROWED FUNDS FOR GIVING SUCH ADVANCES CALLING FOR ANY DISALLOWANCE ON ACCOU NT OF INTEREST. HE HAS ALSO TAKEN ME THROUGH A BALANCE SHEET OF THE ASSESSEE FOR THE F.Y.2006-07 AS WELL AS FOR THE YEAR ITA NO.143/KOL/2016-OVAL DEVELOPERS PRIVATE LIMITED ,A.Y.2009-10 3 UNDER CONSIDERATION TO SHOW THAT THE INTEREST FREE ADVANCES WERE GIVEN BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN OUT OF ITS OWN FUNDS. 6. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELI ED ON THE ORDER OF LD. CIT(A) AND PARTICULARLY DREW MY ATTENTION TO THE FINDINGS AND OBSERVATIONS RECORDED BY THE LD. CIT(A) IN PARA 4.1. OF HIS IMPUGNED ORDER. 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. A PERUSAL OF THE BALANCE SHEE T OF THE ASSESSEE AS ON 31.03.2007 (COPY PLACED ON RECORD) CLEARLY SHOWS THAT INTEREST FREE ADVANCES TO ITS SISTER CONCERN WERE GIVEN BY THE ASSESSEE IN THE FINANCIAL YEAR 20 06-07 ITSELF AND THAT TOO OUT OF ITS OWN FUNDS GENERATED IN THE FORM OF SHARE APPLICATIO N MONEY AND SHARE PREMIUM. MOREOVER, A COPY OF THE RELEVANT LEDGER ACCOUNT PLA CED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CLEARLY SHOWS THAT TH E SAME ADVANCES GIVEN IN THE FINANCIAL YEAR 2006-07 CONTINUED EVEN IN THE YEAR U NDER CONSIDERATION. IN MY OPINION, THIS DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE CL EARLY SHOWS THAT THE INTEREST FREE ADVANCES IN QUESTION WERE GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN OUT OF OWN FUNDS AND IT WAS NOT THE CASE OF DIVERSION OF INTEREST BE ARING BORROWED FUNDS BY THE ASSESSEE FOR GIVING SUCH ADVANCES AS ALLEGED BY THE AO AS WE LL AS BY THE LD. CIT(A). HAVING REGARD TO ALL THESE FACTS OF THE CASE, I AM OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOU NT OF INTEREST IS NOT SUSTAINABLE AND DELETING THE SAME, I ALLOW GROUND NOS. 1 AND 2 OF THE ASSESSEES APPEAL. 8. THE NEXT ISSUE RAISED IN GROUND NO.3 RELATES TO THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO EX PORT PROMOTION COUNCIL WHICH IS SUSTAINED BY THE LD.CIT(A) TO THE EXTENT OF RS.1 5,000/-. 9. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, A SUM OF RS.50,000/- WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF PAYMENTS MADE TO THE EXPORT PROMOTION COUNCIL. IN THE ABSENCE OF ANY DOCUMENTAR Y EVIDENCE TO SUPPORT AND SUBSTANTIATE THE SAID PAYMENT TO THE EXTENT OF RS. 35,000/-, THE DISALLOWANCE OF RS.35,000/- WAS MADE BY THE ASSESSEE OUT OF PAYMENT MADE BY THE ASSESSEE TO THE EXPORT PROMOTION COUNCIL. BEFORE THE LD. CIT(A), TH E ASSESSEE FILED ADDITIONAL ITA NO.143/KOL/2016-OVAL DEVELOPERS PRIVATE LIMITED ,A.Y.2009-10 4 EVIDENCE TO SUPPORT AND SUBSTANTIATE ITS CLAIM OF H AVING MADE PAYMENT OF RS.35,000/- BY CHEQUE TO EXPORT PROMOTION COUNCIL. THE LEARNED CIT(A) ADMITTED THE SAID ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN THE IN TEREST OF JUSTICE AND FOUND THE SAME TO BE ACCEPTABLE ON VERIFICATION. HE HOWEVER HELD T HAT THE CLAIM OF THE ASSESSEE ON ACCOUNT OF PAYMENT MADE TO EXPORT PROMOTION COUNCIL WAS ESTABLISHED TO THE EXTENT OF RS.35,000/- AS AGAINST THE TOTAL CLAIM OF RS.50, 000/- MADE BY THE ASSESSEE ON THIS COUNT AND SUSTAINED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE TO THE EXTENT OF RS.15,000/-. 10. I HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIALS AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LE ARNED COUNSEL FOR THE ASSESSEE, THE CLAIM OF THE ASSESSEE ON ACCOUNT OF PAYMENT MADE TO EXPORT PROMOTION COUNCIL TO THE EXTENT OF RS.15,000/- WAS ALLOWED BY THE AO HIMSELF AND THE DISPUTE BEFORE THE LD. CIT(A) WAS ONLY TO THE EXTENT OF THE BALANCE AMOUNT OF RS.35,000/- WHICH WAS DISALLOWED BY AO FOR WANT OF RELEVANT SUPPORTING EV IDENCE. IN THESE CIRCUMSTANCES, WHEN THE PROOF OF PAYMENT OF RS.35,000/- WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND THE SAME WAS FOUND TO BE ACCEPTABLE BY H IM ON VERIFICATION, I AM OF THE VIEW THAT THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE OF RS.35,000/- AND THERE WAS NO JUSTIFICATION ON HIS P ART TO SUSTAIN THE DISALLOWANCE MADE BY AO ON THIS ISSUE TO THE EXTENT OF RS.15,000/-. I N VIEW OF THE MATTER, I DELETE THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) ON THIS IS SUE AND ALLOW GROUND NO.3 OF THE ASSESSEES APPEAL. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE COURT ON 29.04.2016. SD/- [P.M.JAGTAP ] ACCOUNTANT MEMBER DATED : 29.04.2016. [RG PS] ITA NO.143/KOL/2016-OVAL DEVELOPERS PRIVATE LIMITED ,A.Y.2009-10 5 COPY OF THE ORDER FORWARDED TO: 1.OVAL DEVELOPERS PRIVATE LIMITED, 15, BRABOURNE RO AD, 4 TH FLOOR, KOLKATA-700001. 2. I.T.O., WARD-4(1), KOLKATA. 3. CIT(A)-2, KOLKATA 4. CIT-2, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER A SSTT.REGISTRAR, ITAT, KOLKATA BENCHES