ASHRAJ FOODS & BEVERAGES P.LTD, MUMBAI V. ITO 9(1)(1), MUMBAI

ITA 1505/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3132 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 17-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 234B; 115JB

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1505/MUM/2016 ASSESSMENT YEAR: 2011-12 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. SHOP NO.22, GALAXY APARTMENTS, B.J. ROAD, BANDRA (W), MUMBAI-400050 / VS. ITO-9(1)(1), MUMBAI PAN. NO. AAACA5134E ( /ASSESSEE) ( ' / REVENUE ) / ASSESSEE BY SHRI VIMAL PUNAMIYA ' / REVENUE BY SMT. N.V. NADKARNI (DR) $ '% & ' / DATE OF HEARING : 13/06/2016 & ' / DATE OF ORDER: 13/06/2016 ITA NO.1505/MUM/2016 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 06/01/2016 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, CONFIRMING THE ADDITION OF RS.1,74,546/-, BEING LOA N ADVANCED TO SHRI AMIT DURGANI, ONE OF THE DIRECTOR, FOR HIGHER STUDIES AND FURTHER LEVYING INTEREST U/S 234B AND C OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) 2. DURING HEARING OF THIS APPEAL, THE LD. COUNSEL F OR THE ASSESSEE, SHRI VIMAL PUNAMIYA, CONTENDED THAT THE D IRECTOR WAS SENT ABROAD BY THE ASSESSEE FOR HIGHER EDUCATIO N, WHO WAS GETTING SALARY OF RS.10,000/- PER MONTH AND AFT ER COMPLETING THE EDUCATION, STILL WORKING WITH THE AS SESSEE. IT WAS EXPLAINED THAT THE CAPITAL AND RESERVES OF THE ASSESSEE ARE MUCH MORE THAN THE LOAN AMOUNT ADVANCED TO THE ASSESSEE BY CONTENDING THAT OWN FUNDS WERE USED AND NOT THE BORROWED ONE. THE LD. COUNSEL EXPLAINED THE AVA ILABILITY OF CAPITAL AND RESERVES AS ON 31/03/2011. IT WAS P LEADED THAT THE LOAN AMOUNT WAS RETURNED BACK. RELIANCE WA S PLACED UPON THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN CIT VS HDFC BANK LTD. (2014) 49 TAXMAN.COM 335 (BOM .), CIT VS RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) AND AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS CIT (2002) 258 ITR 601. ON THE OTHE R HAND, THE LD. DR, SMT. N.V. NADKARNI, DEFENDED THE ADDITI ON AND THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. ITA NO.1505/MUM/2016 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS AND BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN TEA AND COFFEE, DECLARED LOSS OF RS.9,194/- IN ITS RETURN FILED ON 24/09/2011 UNDER THE NORMAL PROVISIONS OF THE AC T AND INCOME OF RS.1,02,287/- U/S 115JB OF THE ACT. THE C ASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE LD. ASS ESSING OFFICER WHILE FRAMING THE ASSESSMENT MADE DISALLOWA NCE OF INTEREST EXPENSES ON THE ASSUMPTION THAT BORROWED F UNDS WERE UTILISED FOR NON-BUSINESS PURPOSES. THE ASSESS EE ADVANCED LOAN OF RS.13,67,703/- TO SHRI AMIT DURGAN I, ONE OF THE DIRECTOR, FOR HIGHER STUDIES. THE STAND OF THE ASSESSEE IS THAT SO AS TO MANAGERIAL EXPERTISE SHRI AMIT WAS SE NT FOR HIGHER STUDIES SO AS TO ENHANCE THE BUSINESS OF THE ASSESSEE. SHRI AMIT DURGANI WAS PAID A SALARY OF RS.12,000/- PER MONTH FOR HIS REGULAR EMPLOYMENT IN THE FIRM. PLEA OF THE DEPARTMENT AND THE STAND OF THE ASSESSING OFFICER W AS THAT THIS WAS MERELY AN ARRANGEMENT TO FACILITATE THE ED UCATION OF SHRI DURGANI, THUS, THE DISALLOWANCE OF RS.1,76,546 /- AT THE RATE OF 14.5% PER ANNUM WAS MADE. NOW THE QUESTION ARISES, WHETHER THE LOAN WAS ADVANCED FOR BUSINESS PURPOSES . THERE IS NO DISPUTE TO THE FACT THAT AFTER GETTING HIGHER MANAGEMENT EDUCATION, SHRI AMIT DURGANI, IS ASSISTING THE ASSE SSEE FIRM, THUS, THE BUSINESS PURPOSES OF THE ASSESSEE FIRM IS ACHIEVED. THE ASSESSEE PAID INTEREST DURING THE YEAR ONLY ON CASH CREDIT LOAN/SECURED LOANS, WHICH WERE TAKEN FOR SPECIFIC P URPOSES, THUS, INTEREST CANNOT BE DISALLOWED ON GENERAL PRES UMPTION. THUS, THE LOAN ADVANCED TO CLOSE RELATIVE FOR EDUCA TION ITA NO.1505/MUM/2016 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. 4 PURPOSES IS TO BE TREATED AS LEGIBLE BUSINESS ADVAN CE. SHRI AMIT DURGANI, DIRECTOR OF THE ASSESSEE FIRM WAS PRO VIDING SERVICE CONTINUOUSLY TO THE ASSESSEE AND EVEN AFTER COMPLETION OF EDUCATION FOR WHICH LOAN WAS TAKEN. E VEN OTHERWISE, THE LOAN TAKEN FROM THE ASSESSEE COMPANY WAS ALSO RETURNED. SO FAR AS, AVAILABILITY OF FUNDS, WI TH THE ASSESSEE, IS CONCERNED, FROM THE RECORD (PAGE 23 OF THE PAPER BOOK), WE FIND THAT AS ON 31/03/2011, THE SHARE CAP ITAL WAS TO THE TUNE OF RS.31 CRORE AND THE RESERVE AND SURP LUS WAS RS.2,48,008/- MEANING THEREBY SUFFICIENT FUNDS WERE AVAILABLE WITH THE ASSESSEE, WHEREAS, THE LOAN GRAN TED TO THE DIRECTOR WAS ONLY TO THE TUNE OF RS.13,67,703/-, TH US, THERE WAS NO QUESTION OF USING INTEREST BEARING FUNDS. IN SUCH A SITUATION, THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN CIT VS HDFC BANK LTD. (2014) 49 TAXMAN.COM 335(B OM.), CIT VS RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) AND AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS CIT (2002) 258 ITR 601, COMES TO THE RESCUE OF THE ASSESSEE. THE SUM AND SUBSTANCE OF THE DECIS IONS IS THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE, WHICH ARE SUFFICIENT TO MERITS INVESTMENT S AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN, IT CA N BE PRESUMED THAT INVESTMENT WAS FROM INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE. THE PRINCIPLE, THEREFO RE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE, BOTH INTEREST F REE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WO ULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE, IF THE IN TEREST FREE ITA NO.1505/MUM/2016 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. 5 FUNDS ARE SUFFICIENT TO MEET THE INVESTMENT. EVEN O THERWISE, IT IS SETTLED PRINCIPLE THAT THE BUSINESSMAN (ASSES SEE) KNOWS BEST HOW TO RUN ITS BUSINESS. ONCE IT IS ESTABLISHE D THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS, THE REVENUE CANNOT, JUSTIFIABLY, CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN TO DECIDE AS TO HOW TO RUN THE BUSINESS. NO BUSINESSMAN CAN BE COMPELLED T O MAXIMISE ITS PROFITS. THE RATIO LAID DOWN IN CIT VS DALMIA CEMENT LTD. (254 ITR 377) (BOM.) AND THE RATIO LAID DOWN IN AMARJOTHI PICTURES VS CIT 69 ITR 755 (MAD.), CIT VS GOBALD MOTOR SERVICE PVT. LTD. 100 ITR 240 (MAD.) COMES TO THE RESCUE OF THE ASSESSEE. CONSIDERING THE TOTALITY OF FACTS AND THE JUDICIAL PRONOUNCEMENTS DISCUSSED HEREINABOVE, IT IS CONCLUDED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, THEREFORE , THE DISALLOWANCE/ADDITION IS DELETED. THE APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESEN CE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCL USION OF THE HEARING ON 13/06/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGIND ER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ) DATED : 13/06/2016 F{X~{T? P.S/. . . ITA NO.1505/MUM/2016 M/S ASHRAJ FOODS & BEVERAGES PVT. LTD. 6 %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 $ 2 ( +, ) / THE CIT, MUMBAI. 4. 1 1 $ 2 / CIT(A)- , MUMBAI 5. 3'4 / , 1 +,' + 5 , $ % / DR, ITAT, MUMBAI 6. 6% / GUARD FILE. / BY ORDER, 03, / //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI