KARM TRADING & INVESTMENT P. LTD ( RENAMED- MID-CITY INFRASTRUCTURE P. LTD), MUMBAI V. ITO 4(2)(4), MUMBAI

ITA 1527/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88100 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Opportunity of being heard; Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N. K. BILLAIYA ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1527/MUM/2011 ASSESSMENT YEAR: 2006-07 KARM TRADING & INVESTMENT PVT. (RENAMED -MID-CITY INFRASTRUCTURE PVT. LTD LTD.) 4 TH FLOOR, DHEERAJ PLAZA OPP. BANDRA POLICE STATION, HILL ROAD, BANDRA (WEST) MUMBAI- 400 052 PAN:AABCK 5821 D VS. ITO 4(2)(4) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI SAN JIV M. SHAH REVENUE BY : SH RI ASGHAR ZAIN DATE OF HEARING : 03 .02.2015 DATE OF ORDER : 03.02.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE, AG AINST ORDER DATED 05.01.2011, PASSED BY LD. CIT(A)-8, U/S 143(3 ) FOR THE A.Y. 2006- 07, MAINLY ON THE FOLLOWING GROUNDS:- THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)-8, MUMBAI (CIT(A), ERRED IN CONFIRMING THE DISALLOWANC E OF INTEREST RS.18,07,753/- OUT OF TOTAL INTEREST PAYMENT OF RS. 67,73,799/- FOR THE REASON THAT THE FUNDS BORROWED BY THE APPELLANT HAD NOT BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AS LAID D OWN IN SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. ITA NO. 1527/MUM/2011 ASSESSMENT YEAR: 2006-07 2 2. THE LEARNED CIT(A) HAS FURTHER ERRED IN CONFIRME D THE DISALLOWANCE OF INTEREST RS.18,07,753/- CLAIMED UND ER SECTION 36(1)(III) OF THE ACT, FOR FAILURE TO ESTABLISH A D IRECT NEXUS BETWEEN INTEREST FREE FUND INCLUDING SHARE CAPITAL, RESERVES AND SURPLUS, DEPOSITS AND INTEREST FREE LOAN GIVEN TO T HE DIRECTORS AND RELATED CONCERNS AND HENCE, ERRED IN CONFIRMING THA T IN THE ABSENCE OF SUCH AN NEXUS THERE CANNOT BE ANY JUSTI FIABLE BASIS FOR PRESUMPTION FOR UTILIZING THE FUND FOR HE BUSIN ESS PURPOSE; 3. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING T HE ADDITIONS OF THE INTEREST RS.18,07,753/- DESPITE THE FACT THAT T HE ENTIRE NET INTEREST HAS BEEN CARRY FORWARD AS PART OF THE COST OF WORK IN PROGRESS AND REQUIRED TO BE CONSIDERED IN THE ASSES SMENT YEAR 2007-08, THE YEAR IN WHICH PROFITABILITY OF THE CON STRUCTION PROJECT IS DETERMINED. 2. AT THE OUTSET, THE LEARNED COUNSEL SUBMITTED THA T THE ISSUE INVOLVED IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06, VIDE ORDER DATED 02. 02.2009. IN THE SAID ORDER, THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THIS ISSUE AFRESH AND IN ACCORDANCE WITH LAW . THE LD. DR ALSO ADMITTED THAT, IN THE EARLIER YEAR, THIS MATTER HAS BEEN SET ASIDE TO THE FILE OF THE AO THEREFORE, IN THIS YEAR ALSO MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO. 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS ING OFFICER NOTED THAT ASSESSEE HAS TAKEN A LOAN OF RS.9.63 CRORES ON WHICH INTEREST LIABILITY OF RS.67,73,799/- HAS BEEN CLAIMED. THE A SSESSEE HAS ALSO GIVEN INTEREST FREE LOAN OF RS.2.57 CRORES TO VARIOUS PAR TIES. THE ASSESSEES CASE BEFORE THE AO WAS THAT, INTEREST FREE LOANS HA S BEEN GIVEN OUT OF INTEREST FREE FUNDS RECEIVED FROM THE PARTIES AS WE LL AS ASSOCIATE COMPANIES. BESIDES THAT, ASSESSEE HAD FUNDS IN THE NATURE OF ADVANCE AND BOOKINGS OF UNITS. HOWEVER, THE ASSESSING OFFIC ER REJECTED THE ASSESSEES CONTENTION MAINLY ON THE GROUND THAT, AS SESSEE HAS NOT ITA NO. 1527/MUM/2011 ASSESSMENT YEAR: 2006-07 3 STATED COMMERCIAL EXPEDIENCY FOR ADVANCING THE INTE REST FREE LOAN AND IF OWN FUNDS WAS AVAILABLE, THEN WHAT WAS THE NEED TO BORROW THE FUNDS. ACCORDINGLY, HE DISALLOWED PROPORTIONATE INTEREST O F RS.18,07,753/-. THIS HAS BEEN CONFIRMED BY THE LD. CIT(A) ALSO. 4. AFTER CONSIDERING THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER AND THE FACTS OF THE CASE, WE FIND THAT EXACTLY SIM ILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A.Y. 2005-06, WHEREIN THE TRIBUNAL HAS SET ASIDE THE MAT TER TO THE FILE OF THE AO, AFTER RECORDING THE FOLLOWING FACTS AND CONCLUS ION. 4. THE NEXT GRIEVANCE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.33,77,954/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF INTEREST. THE FACTS APROPOS THIS GROUND ARE THAT T HE ASSESSEE HAD CLAIMED DEDUCTION FOR TOTAL INTEREST PAID AT RS.58 .97 LAKHS. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD TAKEN LOAN OF RS.7.70 CRORES ON WHICH THIS INTEREST WAS PAID. THE ASSESSE E HAD ALSO GIVEN INTEREST FREE LOAN OF RS.6.45 CRORES. ON BEIN G CALLED UPON TO JUSTIFY THE DEDUCTION OF INTEREST THE ASSESSEE STAT ED THAT IT HAD LOAN OF RS.5.48 CRORES WITH IT WHICH WAS NON-INTERE ST BEARING. APART FROM THAT THE ASSESSEE HAD SHAREHOLDER FUND A LONG WITH RESERVES AND SURPLUS AT RS.73.76 LAKHS AND INTEREST FREE OTHER LIABILITIES OF RS.5.04 CRORES. THE ASSESSING OFFICE R OBSERVED THAT THE TOTAL FUNDS AVAILABLE WITH THE ASSESSEE WERE AT RS.11.26 CRORES. HE, THEREFORE, COMPUTED THE PROPORTIONATE D ISALLOWANCE AT RS.33,77,954/-. NO RELIEF WAS ALLOWED IN THE FIR ST APPEAL. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THERE IS NOT MUCH RELEVANT DISCUSSION ON THE TOTAL AMOUNT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE VIS--VIS INTEREST FREE LOANS GIVEN BY IT. IT IS FURTHER IMPORTANT TO CONSIDER THE PURPOSE FOR WHICH SUCH INTEREST FREE LOANS WERE GIVEN. IF SUCH LOANS ARE G IVEN FOR BUSINESS PURPOSES THEN THERE CANNOT BE ANY QUESTION OF MAKING ANY DISALLOWANCE OF INTEREST. IF HOWEVER, SUCH INT EREST FREE LOANS HAVE BEEN GIVEN FOR NO-BUSINESS PURPOSES THEN RELEV ANT CONSIDERATIONS NEED TO BE TAKEN INTO VIEW BEFORE CO NSIDERING THE ALLOWABILITY OR OTHERWISE OF THE DEDUCTION. FURTHER IT IS IMPERATIVE TO SEE THE NEXUS OF THE INTEREST FREE LOANS ADVANCE D BY THE ITA NO. 1527/MUM/2011 ASSESSMENT YEAR: 2006-07 4 ASSESSEE WITH THE FUNDS AVAILABLE AT IT. IN VIEW OF THE NON- AVAILABILITY OF SUCH INFORMATION ON RECORD, WE ARE CONSTRAINED TO DECIDE THE POINT. IN OUR OPINION IT WILL BE JUST AN D FAIR IF THE IMPUGNED ORDER IS SET ASIDE ON THIS ASPECT ALSO AND THE MATTER GOES TO THE FILE OF THE ASSESSING OFFICER. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISSUE AFRESH AS PER L AW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, RESPECTIVELY FOLLOWING THE SAME, IN THIS YEAR ALSO, WE SET ASIDE THE ISSUE OF DISALLOWANCE OF INTEREST TO THE FILE OF TH E AO ON SIMILAR LINES. THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW, AFTER GIVING OPPORTUNITY OF HEARING TO TH E ASSESSEE. THE ASSESSEE IS FREE TO RAISE ALL OTHER CONTENTIONS IN SUPPORT OF ITS CASE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE TRE ATED AS ALLOWED FOR STATISTICAL PURPOSE. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF FEBRUARY, 2015. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 03.02.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.