Asst. CIT, Circle-2, Pune V. Nikash Land Developers Pvt. Ltd., Pune

ITA 1484/PUN/2013

• Counselvise Citation: 148424514 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-03-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 15-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1484/PN/2013 (ASSESSMENT YEAR : 2003-04) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE. . APPELLANT VS. NIKASH LAND DEVELOPERS PVT. LTD., 2, VASANT APARTMENTS, DR. KELKAR ROAD, 106/2, ERANDWANE, PUNE. PAN : AAACN6416C . RESPONDENT DEPARTMENT BY : SHRI RAJESH DAMOR ASSESSEE BY : SHRI NIKHIL PATHAK DATE OF HEARING : 09-03-2015 DATE OF PRONOUNCEMENT : 13-03-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGA INST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE D ATED 27.02.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 29.03.2006 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. BY WAY OF THE PRESENT APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN ALLOWING INTEREST ON INTEREST FREE LOANS ADVANCED TO FOUR SI STER CONCERNS AMOUNTING TO RS.1,95,78,014/- HOLDING THAT THE LOANS WERE OUT OF BUSINESS NEEDS & PROMPTED BY COMMERCIAL EXPEDIENCY WHEN THE SAME WER E EVIDENTLY DIVERTED FOR NON BUSINESS PURPOSES. 2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAD NOT USED THE BORROWED FUNDS WHOLLY & EXCLUSIVELY FOR ITS OWN BUSINESS AND THERE WAS NO NEXUS BETWEEN THE BORROWED FUNDS AND THEIR UTILITY AND THE ASSESSEE H AD NOT CHARGED ANY INTEREST ON THE ADVANCES GIVEN TO ITS SISTER CONCER NS. ITA NO.1484/PN/2013 3. IN BRIEF, THE RELEVANT FACTS ARE THAT IN THE COU RSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER DISALLOWED INTEREST EXPENDITURE OF RS.71,28,963/- DEBITED IN THE PROFIT & LOSS ACCOUNT ON THE GROUND THAT THE INTEREST BEARING FUNDS BORROWED BY THE ASSESSEE FRO M BANK AND THIRD PARTIES WAS DIVERTED FOR NON-BUSINESS PURPOSES BY ADVANCING INTEREST-FREE LOANS TO THE SISTER CONCERNS. SUBSEQUENTLY, THE CIT(A) BY W AY OF THE IMPUGNED ORDER RETAINED THE DISALLOWANCE TO THE EXTENT OF RS.10,26 ,698/- AND DELETED THE BALANCE OF THE ADDITION. THE REVENUE IS IN APPEAL BEFORE US ON A LIMITED ISSUE WHEREBY IT HAS CHALLENGED THE ORDER OF THE CIT(A) I N HOLDING THAT THE INTEREST EXPENDITURE RELATABLE TO THE INTEREST-FREE LOANS AD VANCED TO THE FOLLOWING FOUR SISTER CONCERNS AMOUNTING TO RS.1,95,78,014/- WAS A N ALLOWABLE EXPENDITURE AS SUCH LOANS WERE ADVANCED FOR COMMERCIAL EXPEDIEN CY. THE DETAILS OF SUCH ADVANCES ARE AS FOLLOWS :- NAME OF THE CONCERN AMOUNT IN RS. 1) BHOSALE MANAS DEVELOPERS 40,97,547/- 2) EVEREST ASSOCIATES 10,00,000/- 3) MANAS CONSTRUCTIONS 1,29,80,467/- 4) VISHAL CONSTRUCTIONS 15,00,000/- TOTAL 1,95,78,014/- 4. IN SO FAR AS THE LOANS ADVANCED TO (I) M/S BHOSA LE MANAS DEVELOPERS RS.40,97,547/-; (II) EVEREST ASSOCIATES RS.10,00, 000/-; AND, (III) VISHAL CONSTRUCTIONS RS.15,00,000/- ARE CONCERNED, THE C IT(A) NOTED THAT SUCH ADVANCES HAVE BEEN MADE TO THE RECIPIENT CONCERNS F OR ACQUISITION OF LANDS OR FOR A BUSINESS VENTURE AND THEREFORE EXPENDITURE OF INTEREST RELATABLE TO SUCH ADVANCES WAS AN ALLOWABLE DEDUCTION WITHIN THE MEAN ING OF SECTION 36(1)(III) OF THE ACT. 5. AT THE TIME OF HEARING, THE LD. DEPARTMENTAL REP RESENTATIVE POINTED OUT THAT THE AFORESAID FINDING OF THE CIT(A) WAS WITHOU T ANY BASIS INASMUCH AS IN THE BALANCE SHEET ITSELF ADVANCES GIVEN FOR PURCHAS E OF LAND, ETC. HAVE BEEN ITA NO.1484/PN/2013 SEPARATELY CLASSIFIED AND THE IMPUGNED ADVANCES TO THE SISTER CONCERNS ARE NOT CLASSIFIED AS ADVANCES FOR PURCHASE OF LAND. 6. ON THE OTHER HAND, THE LD. REPRESENTATIVE APPEAR ING FOR THE RESPONDENT-ASSESSEE HAS ALSO QUITE FAIRLY CONCEDED THAT THERE WAS NO MATERIAL ON RECORD WHICH COULD SUPPORT THE FINDING OF THE CI T(A) THAT SUCH ADVANCES WERE GIVEN FOR THE PURPOSES OF THE ASSESSEES BUSIN ESS. 7. OSTENSIBLY, SECTION 36(1)(III) OF THE ACT PERMIT S DEDUCTION FOR INTEREST EXPENDITURE WHERE THE MONIES HAVE BEEN UTILIZED FOR THE PURPOSES OF BUSINESS. IN THE PRESENT CASE, SO FAR AS THE ADVAN CES MADE TO THE AFORESAID THREE SISTER CONCERNS ARE CONCERNED, FACTUALLY, IT IS EVIDENT THAT THE SAME ARE NOT MADE FOR ANY BUSINESS PURPOSE AND THEREFORE THE CIT(A) WAS WRONG IN HOLDING THAT INTEREST EXPENDITURE RELATABLE TO SUCH ADVANCES WAS AN ALLOWABLE DEDUCTION IN TERMS OF SECTION 36(1)(III) OF THE ACT . THUS, ON THIS ASPECT, WE REVERSE THE ORDER OF THE CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 8. NOW, IN SO FAR AS THE ADVANCE TO M/S MANAS CONST RUCTIONS OF RS.1,29,80,467/- IS CONCERNED, THE RELEVANT FACTS A RE AS FOLLOWS. ASSESSEE HAS A RUNNING CURRENT ACCOUNT WITH THE SAID CONCERN AND THE AFORESAID AMOUNT OF RS.1,29,80,467/- IS THE CLOSING BALANCE AS ON 31 .03.2003. IN THE COURSE OF HEARING, A REFERENCE HAS BEEN MADE TO THE DAY-WISE ACCOUNT EXTRACT WITH THE SAID SISTER CONCERN, WHICH HAS BEEN PLACED IN THE P APER BOOK AT PAGES 32 TO 37. A PERUSAL OF THE ACCOUNT EXTRACT REVEALS THAT ASSESSEE HAS INDEED BORROWED MONEY FROM THE SAID CONCERN AND IT HAS PAI D INTEREST OF RS.21,90,645/- TO THE SAID CONCERN FOR THE BORROWIN G DURING THE YEAR UNDER CONSIDERATION. IT IS EVIDENT THAT THE CLOSING DEBI T BALANCE OF RS.1,29,80,467/- IS COMPRISED OF PAYMENTS OF RS.1,00,00,000/- AND RS .42,02,500/- MADE TO THE SAID CONCERN ON 28.03.2003 AND 31.03.2003 RESPECTIV ELY. APART FROM THE AFORESAID DEBITS, THE YEARLY ACCOUNT EXTRACT HAS A CREDIT BALANCE MEANING ITA NO.1484/PN/2013 THEREBY THAT ASSESSEE HAS INDEED BORROWED MONEY FRO M THE SAID CONCERN FOR A PRE-DOMINANT PART OF THE YEAR. THE INTEREST PAID TO THE SAID CONCERN OF RS.21,90,645/- WAS EXPLAINED BY THE LD. REPRESENTAT IVE AS HAVING BEEN CALCULATED ON THE BASIS OF DAY-WISE POSITION. THE AFORESAID FACTUAL MATRIX IS BORNE OUT OF MATERIAL ON RECORD AND WE FIND THAT TH E CIT(A) HAS ALSO APPRECIATED THE SAME AND THEREAFTER INFERRED THAT N O DISALLOWANCE OUT OF INTEREST EXPENDITURE IS JUSTIFIED IN RELATION TO TH E DEBIT BALANCE OF RS.1,29,80,467/- APPEARING IN THE ACCOUNT OF M/S MA NAS CONSTRUCTIONS. THE AFORESAID FACTUAL POSITION HAS NOT BEEN CONTROVERTE D BY THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US AND THEREFORE WE HEREBY AF FIRM THE ORDER OF THE CIT(A) TO THE AFORESAID EXTENT. THUS, WITH RESPECT TO THE FINDING OF THE CIT(A) IN RELATION TO THE ADVANCE TO M/S MANAS CONSTRUCTIO NS, THE SAME IS HEREBY AFFIRMED AND ACCORDINGLY, REVENUE HAS TO FAIL ON TH IS ASPECT. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED ON 13 TH MARCH, 2015. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 13 TH MARCH, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE