VARDHMAN SONAL VENTURE, MUMBAI V. DCIT 24(3), MUMBAI

ITA 1500/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2717 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 01-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K DHONDIAL
• Assessee Lawyers: PATHIK SHAH
• Keywords: Fair market value; Onus to prove
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 1500/MUM/2014 (ASSESSMENT YEAR: 2009-10) VARDHMAN SONAL JOINT VENTURE VS. DEPUTY COMMISSIONER OF 111, PAGRAV, 57, S.V. ROAD GOREGAON (W), MUMBAI 400062 INCOME TAX - 24(3) MUMBAI PAN - AAAAV2912R APPELLANT RESPONDENT APPELLANT BY: SHRI PATHIK SHAH RESPONDENT BY: SHRI A.K. DHONDIAL DATE OF HEARING: 01.08.2016 DATE OF PRONOUNCEMENT: 23.09.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 34, MUMBAI DATED 12.12.2013 FOR A.Y. 2009-10. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, ENGAGED IN THE BUSINESS OF BUILDI NG CONSTRUCTION AND DEVELOPMENT, FILED ITS RETURN OF INCOME FOR A.Y. 20 09-10 ON 29.09.2009 DECLARING INCOME OF ` 20,20,593/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (I N SHORT 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. TH E ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDE R DATED 26.12.2011 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED A T ` 27,12,260/-, IN VIEW OF, INTER ALIA, DISALLOWANCE OF ` 19,21,287/- OUT OF INTEREST EXPENDITURE CLAIMED @2%, UNDER SECTION 40A(2) R.W.S. 37 OF THE ACT. THE PROPORTIONATE DISALLOWANCE ON LOAN FROM SIDDHI SONAL SERVICES IN CORPORATE AVENUE PROJECT BEING ` 6,91,663/- AND THE BALANCE ` 12,29,624/- PERTAINING TO S.T. SHAH PROJECT REDUCED THE WIP OF THIS PROJECT ACCORD INGLY. ITA NO. 1500/MUM/2014 VARDHMAN SONAL JOINT VENTURE 2 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 26.1 2.2011 FOR A.Y. 2009-10, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A)-34, MUMBAI. THE ONLY GROUND RAISED BY THE ASSESSEE BEFORE THE L EARNED CIT(A) WAS THAT THE ASSESSING OFFICER (AO) HAD ERRED IN DISALLOWING ADDITIONAL INTEREST OF 2% OF ` 19,21,287/-. ACCORDING TO THE ASSESSEES SUBMISSION S, THE DISALLOWANCE OF 2% INTEREST WAS EXCESSIVE SINCE IN FACT THE ASSESSEE HAD AVAILED THE LOAN FROM LABDHI SONAL SERVICES @18% IN TEREST IN THE PERIOD RELEVANT TO A.Y. 2007-08, BUT IN SUBSEQUENT ASSESSM ENT YEARS THE INTEREST RATE WAS REDUCED TO 15% IN THE PERIOD UNDER CONSIDE RATION. IT WAS SUBMITTED THAT THE LOAN FROM LABDHI SONAL SERVICES WAS FOR LONG TERM WHEREAS THE LOAN FROM SIDDHI SONAL SERVICES WAS FOR SHORT TERM AND THEREFORE BEING TAKEN FOR DIFFERENT PURPOSES AND TH E ADDITIONAL INTEREST PAID BEING ONLY 1%, THE DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT WAS NOT CALLED FOR. ALTERNATIVELY, IT WAS SUBMITTED BY THE ASSESSEE, BEFORE THE LEARNED CIT(A) THAT INTEREST PAID TO LABDHI SONAL S ERVICES SHOULD BE DISALLOWED AT 1% AND NOT 2% AS DONE BY THE AO. THE LEARNED CIT(A) ALLOWED THIS ALTERNATE CLAIM PUT FORTH BY THE ASSES SEE AND THEREBY RESTRICTED THE DISALLOWANCE FROM ` 19,21,287/- TO ` 9,60,644/-. CONSEQUENTLY, THE ASSESSEE WAS ALLOWED RELIEF OF ` 9,60,643/-. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-34, MUMBAI DATED 12.12.2013, THE ASSESSEE HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS: - 1. WHETHER HONOURABLE COMMISSIONER OF INCOME TAX ( APPEALS) IS CORRECT IN UPHOLDING THE VIEW OF ASSESSING OFFICER THAT RATE OF INTEREST PAID BY THE ASSESSEE IS HIGHER AND LIABLE TO DISALLOWANCE U/S 40(A)(2) WITHOUT ASSIGNING ANY REA SON, WHY THE RATE OF INTEREST PAID BY THE ASSESSEE IS HIGHER . 2. WHETHER HONOURABLE COMMISSIONER OF INCOME TAX (A PPEALS) HAS ERRED IN DISALLOWING INTEREST U/S 40(A)(2) WITHOUT DISTINGUISHING THE MUMBAI HIGH COURT JUDGEMENT IN CIT V. INDO SAND I SERVICES P. LTD. AND OTHER DECISIONS OF HONOURABLE TRIBUNALS AND HONOURABLE HIGH COURTS DURING ASSESSMENT PROCEEDING S. 3. THE APPELLANT CRAVES THE LEAVE TO ADD, AMEND, AL TER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL ON OR BEF ORE THE TIME OF HEARING. 3.1 THE LEARNED A.R. FOR THE ASSESSEE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED AND REITERATED THE SUBMISSIONS PUT FORTH BEF ORE THE AUTHORITIES BELOW, ITA NO. 1500/MUM/2014 VARDHMAN SONAL JOINT VENTURE 3 PLEADING THAT THE DISALLOWANCE UNDER SECTION 40A(2) BE DELETED. IN SUPPORT OF THIS CONTENTION THE LEARNED A.R. PLACED, INTER A LIA, RELIANCE ON THE DECISION OF ITAT AMRTISAR BENCH IN THE CASE OF SUBHASH CHAND ER & CO. VS. INCOME TAX OFFICER IN ITA NO. 568 (ASR)/2008 DATED 13.01.2 009. 3.2 PER CONTRA, THE LEARNED D.R. FOR REVENUE SUPPOR TED AND PLACED RELIANCE ON THE IMPUGNED ORDER OF THE LEARNED CIT(A ). ACCORDING TO THE LEARNED D.R., THE LEARNED CIT(A) WHILE UPHOLDING TH E DISALLOWANCE OF EXCESSIVE INTEREST PAID TO THE RELATED PARTY, LABDH I SONAL SERVICES UNDER SECTION 40A(2) OF THE ACT, ALLOWED THE ASSESSEES R ELIEF ON THE ALTERNATE GROUND PUT FORTH BY IT THAT THE INTEREST PAID TO LA BDHI SONAL SERVICES WAS 15% AND NOT 16% AS ADOPTED BY THE AO AS AGAINST 14% INTEREST PAID TO SIDDHI SONAL CONSTRUCTION AND THEREFORE RESTRICTED THE DISALLOWANCE TO 1% OF INTEREST AMOUNTING TO ` 9,60,644/- AS AGAINST ` 19,21,287/- (VIZ. @2% OF INTEREST) DISALLOWED BY THE AO. THE LEARNED D.R. FU RTHER SUBMITTED THAT THE LEARNED CIT(A) HAD, IN FACT, CONSIDERED THE JUDICIA L PRONOUNCEMENTS, CITED BY THE ASSESSEE WHILE RENDERING FINDING AND WAS OF THE OPINION THAT THEY WOULD NOT COME TO THE RESCUE OF THE ASSESSEE. 3.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, IN CLUDING THE JUDICIAL PRONOUNCEMENTS CITED. THE ONLY ISSUE FOR ADJUDICATI ON BEFORE US IN THIS APPEAL IS WHETHER OR NOT THE DISALLOWANCE OF INTERE ST PAID TO ASSOCIATED CONCERN UNDER SECTION 40A(2) OF THE ACT WAS CALLED FOR. THE FACTS OF THE MATTER AS EMANATE FROM THE RECORD IS THAT IN THE PE RIOD UNDER CONSIDERATION, THE AO OBSERVED FROM THE DETAILS OF INTEREST EXPENDITURE INCURRED, THAT THE ASSESSEE HAD PAID INTEREST OF ` 1,53,70,298/- TO LABDHI SONAL SERVICES @15% AND ` 11,57,272/- TO SIDDHI SONAL CONSTRUCTION @14% FOR UTILISATION IN ITS CONSTRUCTION PROJECTS. BOTH THESE PARTIES ADMITTEDLY COME WITHIN THE PURVIEW OF PROVISIONS OF SECTION 40 A(2) OF THE ACT. THE AO AFTER SEEKING THE ASSESSEES EXPLANATION IN THE MAT TER PROCEEDED TO DISALLOW UNDER SECTION 40A(2) OF THE ACT, AN AMOUNT OF ` 19,21,287/- BEING 2% OF THE 16% INTEREST PAID BY THE ASSESSEE TO LABDHI SONAL S ERVICES, WHICH WAS IN EXCESS THE 14% INTEREST PAID TO SIDDHI SONAL CONSTR UCTION. ITA NO. 1500/MUM/2014 VARDHMAN SONAL JOINT VENTURE 4 3.3.2 ACCORDING TO THE ASSESSEE, IT HAD AVAILED LOA N FROM LABDHI SONAL SERVICES @18% IN THE EARLIER PERIOD RELEVANT TO A.Y . 2007-08 WHICH WAS LATER REDUCED TO 15.5% IN A.Y. 2008-09 PROJECT CONSTRUCTI ON BUSINESS. BEFORE THE LEARNED CIT(A) THE ASSESSEE FACTUALLY ESTABLISHED T HAT THE INTEREST PAID TO LABDHI SONAL SERVICES WAS 15% AND NOT 16% AND WAS A LLOWED RELIEF WHEREBY THE INTEREST DISALLOWANCE UNDER SECTION 40A (2) WAS RESTRICTED TO 1% I.E. ` 9,60,644/- AS AGAINST ` 19,21,281/- ORIGINALLY DISALLOWED. 3.3.3 IT IS NOT THE CASE OF THE REVENUE THAT INTERE ST IN EXCESS OF 15% WAS NOT PAID IN THE EARLIER YEARS; AND WHICH WAS ACCEPT ED BY THE DEPARTMENT AT 18% IN A.Y. 2007-08. IN OUR VIEW, THE DISALLOWAN CE UNDER SECTION 40A(2) OF THE ACT CAN BE MADE WHEN THE EXPENDITURE IS EXCE SSIVE OR UNREASONABLE HAVING REGARD TO THE FMV OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSI NESS. THE AUTHORITIES BELOW HAVE NOT WORKED OUT AS TO HOW THE PAYMENT OF INTEREST TO ONE OF THE TWO RELATED PARTIES WAS EXCESSIVE WITHOUT MAKING CO MPARISON OF FMV OF THE SAME WITH PAYMENTS TO UNRELATED PARTIES. THE ON US WAS UPON REVENUE TO ESTABLISH THAT THE INTEREST PAID WAS EXCESSIVE O R UNREASONABLE HAVING REGARD TO THE LEGITIMATE BUSINESS NEEDS OF THE ASSE SSEE. IN THE CASE ON HAND, IT IS SEEN THAT THE CONCERNED INTEREST EXPEND ITURE OF ` 1,65,27,575/- WAS PAID TO TWO RELATED PARTIES, I.E. ` 1,52,70,298/- TO LABDHI SONAL SERVICES @15% AND ` 11,57,277/- TO SIDDHI SONAL CONSTRUCTION @14% FOR ITS BUSINESS PURPOSES OF CONSTRUCTION ACTIVITIES. I N OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, REVENUE HAS NOT DISC HARGED THE BURDEN TO PROVE THAT THE INTEREST EXPENDITURE PAID TO LABDHI SONAL SERVICES WAS EXCESSIVE OR UNREASONABLE HAVING REGARD THE LEGITIM ATE BUSINESS REQUIREMENTS OF THE ASSESSEE. THE AO/CIT(A) HAVE NO T SPECIFIED AS TO UNDER WHICH OF THE REQUIREMENTS OF SECTION 40A(2) O F THE ACT, THE CASE ON HAND FALLS. REVENUE CANNOT PLACE ITSELF IN THE ARMC HAIR OF THE BUSINESSMAN/ASSESSEE AND ASSUME THE ROLE OF DECIDIN G HOW MUCH EXPENDITURE IS REASONABLE IN THE FACTS AND CIRCUMST ANCES OF THE CASE AS THE BUSINESSMAN IS ALSO COMPELLED BY COMMERCIAL EXPEDIE NCY. IN THE PECULIAR FACTUAL AND LEGAL MATRIX OF THE CASE, WE ARE OF THE OPINION THAT EVEN THE PART DISALLOWANCE OF INTEREST OF ` 9,60,644/- SUSTAINED BY THE LEARNED ITA NO. 1500/MUM/2014 VARDHMAN SONAL JOINT VENTURE 5 CIT(A) IN THE IMPUGNED ORDER IS TO BE DELETED. WE H OLD AND DIRECT THE AO ACCORDINGLY. CONSEQUENTLY, GROUNDS RAISED BY THE AS SESSEE ARE ALLOWED. 4. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2009- 10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD SEPTEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -34, MUMBAI 4. THE CIT - 24, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.