SELL MORE MARKETING PRIVATE LIMITED, CHENNAI V. ITO CORPORATE WARD 6(1), CHENNAI

ITA 1527/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7706 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITAJCIT
• Assessee Lawyers: R S BALAJI
• Keywords: Business income; Principle of natural justice; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.1527/CHNY/2019 ( / ASSESSMENT YEAR: 2013-14) M/S. SELL MORE MARKETING PVT. LTD. 126/1, ENGLISH ELECTRIC NAGAR, 4O FEET ROAD, OPP.200 FEET ROAD, (PALLAVARAM RADIAL ROAD) OPP. TO SHELL PETROL BUNK, PALLAVARAM,CHENNAI-600 117. VS THE INCOME TAX OFFICER, CORPORATE WARD-6(1) CHENNAI. PAN: AARCS 2454A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.S.BALAJI, ADVOCATE /RESPONDENT BY : MS. R. ANITA,JCIT /DATE OF HEARING : 15.03.2021 /DATE OF PRONOUNCEMENT : 31.03.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED CIT(A)-15, CHENNAI DATED 27.0 2.2019 AND PERTAINS TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) IS CONTRARY TO THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN REJECTING THE SEVER AL OBJECTIONS RAISED IN THE GROUNDS OF THE APPEAL TO THE TOTAL IN COME DETERMINED AND THE STATUS IN WHICH THE ASSESSMENT H AS BEEN 2 ITA NO.1527/CHNY/2019 MADE ( IN SO FAR AS THE ADDITION AS BUSINESS INCOME IS CONCERNED) AND DISMISSING THE APPEAL). 3. THE APPELLANT COMPANY IS ONE OF THE AUTHORIZ ED DEALER OF M/S. HINDUSTAN LEVER LIMITED AND ENGAGED IN MARKETI NG OF VARIOUS KINDS OF PRODUCTS. FOR STORAGE OF SUCH PROD UCTS THE APPELLANT COMPANY NEEDS A VERY BIG GO-DOWN / STOCK YARD AND FOR THIS PURPOSES, THE APPELLANT COMPANY HAS EXECUT ED A LEASE RENT AGREEMENT WITH ONE MR.G.RAMESH DATED FIR ST OCTOBER 2012. THE GO-DOWN IS SITUATED AT PALLAVARAM RADIAL ROAD, CHENNAI & THE SIZE OF THE SAME IS 22,500 SQ F EET. FOR HUGE LEVEL DUMPING OF GOODS & FOR BUSINESS EXPEDIEN CY SUCH BIG SIZE OF THE STOCK YARD IS REQUIRED FOR THE COMP ANY AND FOR THIS PURPOSES, THE APPELLANT COMPANY HAS MADE A LEA SE RENT ADVANCE OF ` 3,40,00,000/- TO THE LAND LORD MR.G.RAMESH AND THE SAME IS ALSO INCORPORATED IN THE ABOVE SAID LEA SE RENT AGREEMENT AND THE COPIES OF THE SAME IS ALSO PRODUC ED BEFORE THE LD AO AND THE CIT(APPEALS). 4. AS PER THE CLAUSE 2 OF THE ABOVE LEASE RENT A GREEMENT, THE MONTHLY LEASE RENT WILL START FROM FIRST APRIL 2013 ONLY. WHEREAS, THE LEARNED AO HAS CAME TO A WRONG ASSUM PTION THAT AS THERE IS NO DEBIT TOWARDS RENTAL PAYMENTS I N THE BOOKS OF THE APPELLANT COMPANY AND CONCLUDED THAT THE ADV ANCE ON LEASE RENT ADVANCE IS NON-BUSINESS PURPOSES. IT IS TOTALLY AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND BAD I N LAW. 5. FURTHER FOR DEVELOPMENT OF THE COMPANY PROJECTS. MR. G. RAMESH, WHO IS ONE OF THE DIRECTOR OF THE COMPANY HAS ADVANCED RS.3,10,00,000I- TO THE APPELLANT COMPANY AND IN TURN HE RECEIVED SOME AMOUNT AS INTEREST INCOME TOW ARDS HIS ADVANCE AMOUNT PARKED IN THE COMPANY. 6. THE LD. AO HAS WRONGLY ASSUMED THAT THE INTEREST PAYMENT IS MADE FOR NON BUSINESS PURPOSES AND DISALLOWED TH E INTEREST PORTION TO THE EXTENT OF RS.15,33,950/- & ADDED BAC K TO THE TOTAL INCOME. 7. FOR THAT THE BALANCE OF CONVENIENCE AND MERIT OF THIS APPEAL IS LYING IN FAVOUR OF THE APPELLANT. 3 ITA NO.1527/CHNY/2019 8. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE APPELLANT PRAYS THAT THE HONBL E ITAT BE PLEASED TO ALLOW THE APPEAL AND RENDER JUSTICE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS A DISTRIBUTOR FOR HINDUSTAN LEVER LTD., FOR VARIOUS P RODUCTS FOR WHICH IT HAS TAKEN PREMISES ON LEASE, VIDE LEASE RENTAL AGREEMENT DATED 01.10.2012 FROM ONE MR.G.RAMESH, WHO IS ALSO ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. AS PER THE SAID LEASE RENTAL AGREEMENT, LEASE RENTAL SHALL CO MMENCE FROM 01.04.2013. THE ASSESSEE HAS ALSO PAID LEASE DEPOS IT OF ` 3.40 CRORES . THE ASSESSEE COMPANY HAD ALSO, RECEIV ED UNSECURED LOAN FROM SHRI G.RAMESH, DIRECTOR OF THE COMPANY AMOUNTING TO ` 4,84,85,119/-, ON WHICH INTEREST OF ` 43,82,716/- HAS BEEN PAID. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER WAS OF THE OPIN ION THAT INTEREST PAID ON LOAN CANNOT BE ALLOWED AS DEDUCTIO N U/S.36(1)(III) OF THE ACT, BECAUSE THE ASSESSEE HA S DIVERTED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSE TO ADVANCE LOAN TO SHRI G.RAMESH. ALTHOUGH, THE ASSESSEE CLAIM S THAT LEASE DEPOSIT WAS PAID FOR THE PURPOSE OF BUSINESS, BUT ON 4 ITA NO.1527/CHNY/2019 PERUSAL OF FINANCIAL STATEMENT, IT WAS NOTICED THAT NO LEASE RENTAL HAS BEEN DEBITED INTO PROFIT & LOSS ACCOUNT . THEREFORE, HE OPINED THAT RENTAL SECURITY DEPOSIT WAS NOT FO R BUSINESS PURPOSES AND ACCORDINGLY, BY TAKING NOTE OF LEASE DEPOSIT AND UNSECURED LOAN FROM MR. G.RAMESH DISALLOWED 70% INT EREST PAID TO MR. G.RAMESH WHICH WORKS TO ` 15,33,950/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LEARNED CIT(A), BUT COULD NOT SUCCEED. THE LEARNED CIT(A), FOR THE DETAILED REASONS RECORDED IN HIS APPELLATE ORDER, CONFIRMED ADDITION S MADE BY THE ASSESSING OFFICER TOWARDS INTEREST DISALLOWANC E ON THE GROUND THAT RENTAL ADVANCE GIVEN IN RELATION TO PR OPERTY TO BE TAKEN ON RENT WAS NOT GIVEN EFFECT TILL END OF THE YEAR, EVEN THOUGH THERE WAS A RENTAL AGREEMENT SUPPOSEDLY ENTE RED INTO. HE FURTHER OBSERVED THAT THE CIRCUMSTANCES UNDER WH ICH TWO SETS OF TRANSACTIONS HAVE BEEN ENTERED INTO HAVE G IVEN ENOUGH JUSTIFICATION TO THE ASSESSING OFFICER TO BELIEVE THAT SAID ADVANCE CLAIMED TO BE FOR RENTAL PURPOSE IS TO BE T REATED AS FUNDS DIVERTED FOR NON-BUSINESS PURPOSES AND MORE SO, THE SAID ARRANGEMENT IS TO CLAIM BENEFIT BY WAY OF IN TEREST CHARGED 5 ITA NO.1527/CHNY/2019 TO THE PROFIT & LOSS ACCOUNT SO AS TO LOWER THE PR OFIT. AGGRIEVED BY THE LEARNED CIT(A) ORDER, THE ASSESSEE IS IN APP EAL BEFORE US. 5. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST ON LOAN TAKEN FROM MR. G.RAMESH WITHOUT APPRECIATI NG THE FACT THAT LEASE RENTAL DEPOSIT PAID TO MR. G.RAMESH AN D LOANS TAKEN FROM MR. G.RAMESH ARE TWO SEPARATE TRANSAC TIONS AND BOTH FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. T HE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) HAVE DISREGARDED RENTAL AGREEMENT F ILED BY THE ASSESSEE TO PROVE ITS CLAIM THAT IT HAS TAKEN PRE MISES ON LEASE RENTAL BY PAYING LEASE DEPOSIT AND AS PER T HE SAID RENTAL AGREEMENT, MONTHLY RENT COMMENCES FROM 01.04.2013 , THEREFORE, QUESTION OF DEBITING RENTAL EXPENSES FO R THE IMPUGNED ASSESSMENT YEAR DOES NOT ARISE. THEREFORE, NORMAL ADVANCE GIVEN FOR THE PURPOSE OF BUSINESS CANNOT B E CONSIDERED AS DIVERSION OF FUNDS SO AS TO DISALLOW INTEREST PAID ON GENUINE LOAN BORROWED FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE. 6 ITA NO.1527/CHNY/2019 6. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUP PORTING THE ORDEROF THE LEARNED CIT(A) SUBMITTED THAT RENTA L AGREEMENT FILED BY THE ASSESSEE IS AN AFTERTHOUGHT TO CIRCUMV ENT DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSES TO ONE OF THE D IRECTORS OF THE ASSESSEE COMPANY. THEREFORE, ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAVE RIGHTLY REJECTED ARGUME NTS OF THE ASSESSEE THAT IT HAS PAID RENTAL DEPOSIT TO ONE OF THE DIRECTOR FOR THE PURPOSE OF BUSINESS, WHILE DISALLOWING INTE REST EXPENSES U/S.36(1)(III) OF THE ACT. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, DEALS WITH DEDUCTION TOWARDS INTEREST PAID ON LOANS BORROWED FOR BUSINESS PURPOSES. AS PER SAID SECTION, IF INTEREST PAID ON LOANS IS USED FOR NON-BUSINESS PURPOSES, THEN SAID INTEREST CANNO T BE ALLOWED AS DEDUCTION. THEREFORE, FROM A PLAIN READING OF SE CTION 36(1)(III) OF THE ACT, IT IS VERY CLEAR THAT ALL BU SINESS ADVANCES ARE OUTSIDE THE SCOPE OF SAID PROVISIONS. IN THIS CASE, THE ASSESSING OFFICER HAS DISALLOWED INTEREST PAID ON L OANS BORROWED FROM ONE OF THE DIRECTOR OF THE COMPANY ON THE 7 ITA NO.1527/CHNY/2019 GROUND THAT COMPANY HAS DIVERTED INTEREST BEARING F UNDS IN THE FORM OF LEASE RENTAL DEPOSIT TO THE SAME DIRECTOR FOR NON- BUSINESS PURPOSES. WE HAVE GONE THROUGH THE REASON S GIVEN BY THE ASSESSING OFFICER TO DISALLOW INTEREST PAID ON LOANS U/S.36(1)(III) OF THE ACT AND FIND THAT THERE IS NO MERIT IN THE FINDINGS OF THE ASSESSING OFFICER, BECAUSE THE ASSE SSEE HAS FILED RENTAL AGREEMENT COPY TO PROVE THAT IT HAS TA KEN PREMISES ON RENT BY PAYING LEASE RENTAL DEPOSIT TO MR. G.RAM ESH ON A MONTHLY RENTAL OF ` 75,000/- AND SUCH RENT SHALL COMMENCE FROM 01.04.2013. FURTHER, THE ASSESSEE HAS ALSO PRO DUCED NECESSARY EVIDENCE TO PROVE THAT IT HAS STARTED PAY ING RENTAL FOR THE PREMISES FROM NEXT FINANCIAL YEAR. IN FACT, THE ASSESSING OFFICER HAS NOT DISPUTED RENTAL AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND MR. G.RAMESH, BUT HE HAS DISALLOWE D INTEREST ONLY ON THE GROUND THAT ALTHOUGH, RENTAL A GREEMENT HAS BEEN ENTERED INTO BY PAYING DEPOSIT, BUT NO RENTAL PAYMENT HAS BEEN MADE FOR THE CURRENT FINANCIAL YEAR. WE FIND T HAT REASONS GIVEN BY THE ASSESSING OFFICER TO DISBELIEVE RENTA L AGREEMENT BETWEEN THE PARTIES IS NOT ON SOUND FOOTING, BECAUS E IT IS FOR THE PARTIES TO DECIDE FROM WHICH DATE RENTAL PAYMENT SH ALL 8 ITA NO.1527/CHNY/2019 COMMENCE. MERELY FOR THE REASON THAT THERE IS NO RE NTAL PAYMENT FOR CURRENT FINANCIAL YEAR, GENUINE RENTAL AGREEMENT AND CONSEQUENT RENT ADVANCE PAID CANNOT BE CONSIDER ED AS DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSES SO AS TO DISALLOW INTEREST EXPENSES PAID ON LOAN BORROWED FOR THE P URPOSE OF BUSINESS. BUT, THE LEARNED CIT(A) WITHOUT APPRECIA TING THE FACTS SIMPLY CONFIRMED ADDITIONS MADE TOWARDS DISALLOWANC E OF INTEREST EXPENSES. HENCE, WE SET ASIDE THE ORDER PA SSED BY THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF PROPORTIONAT E INTEREST U/S.36(1)((III) OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) (G.MANJUNATHA) ' % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER ' /CHENNAI, ( / DATED 31 ST MARCH, 2021 DS *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .