M/s. LMJ Business Centre (P) Ltd., Kolkata V. ITO, Ward - 8(3), Kolkata, Kolkata

ITA 1619/KOL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1682 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 10-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATYAJIT MONDAL AD DL
• Assessee Lawyers: ARTI DEBNATH; SHITAL KHEMKA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BE NCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM ] I.T.A NOS.1618&1619/K OL/2017 ASSESSMENT YEARS : 2008- 09 & 2009-10 M/S LMJ BUSINESS CENTRE (P) LTD. -VS.- I.T. O., WARD-8(3) KOLKATA KOLKATA [PAN : AAACL 9393 C] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SHITAL KHEMKA, FCA & SMT. ARTI DEBNATH, ADVOCATE FOR THE RESPONDENT : SHRI SATYAJIT MONDAL, AD DL. CIT DATE OF HEARING : 01.02.2018. DATE OF PRONOUNCEMENT : ORDER ITA NO.1618/KOL/2017 IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 18.05.2017 OF CIT(A)- 15, KOLKATA RELATING TO A.Y. 2008-09. ITA NO.1619/KOL/2017 IS ALSO AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DA TED 31.05.2017 OF CIT(A)- 15, KOLKATA RELATING TO A.Y.2009-10. ITA NO.1618/KOL/2017 (A.Y.2008-09) 2. THE ONLY GROUND OF APPEAL RAISED BY THE ASSESSEE IN THIS APPEAL READS AS FOLLOWS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. IN DISALLOWING THE INTEREST ON LOAN OF RS.12,60,716/- STATING THAT TH E LOAN AMOUNT WAS ADVANCED TO GROUP COMPANIES AS INTEREST FREE ADVANCE. 3. THE ASSESSEE IS A COMPANY. IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED AS DEDUCTION IN COMPUTING INCOME FROM BUSINESS A SUM OF RS.12,60,716/- ON ACCOUNT OF INTEREST PAID ON LOANS. THE SOURCE OF INCOME OF THE ASSESSEE IS INCOME FROM HOUSE PROPERTY AND TRAD ING ACTIVITY. THE AO NOTICED THAT THE LOAN ON WHICH INTEREST WAS PAID WAS AVAILED FRO M BANK WAS GIVEN TO SISTER CONCERN M/S OCTAVAIUS TEA AND INDUSTRIES LTD WITHOUT CHARGI NG ANY INTEREST. ACCORDING TO THE 2 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 2 AO THE ASSESSEE FAILED TO PROVE THE COMMERCIAL EXPE DIENCY OF GIVING OF INTEREST FREE LOAN OUT OF THE FUNDS THAT WERE RECEIVED BY THE ASS ESSEE ON AVAILING LOAN FROM THE BANK. THE AO WAS ACCORDINGLY OF THE VIEW THAT THE INTERES T EXPENSES CLAIMED AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT SHOULD NOT BE ALLOWED A S DEDUCTION. THE AO ACCORDINGLY ADDED A SUM OF RS.12,60,716/- TO THE TOTAL INCOME O F THE ASSESSEE. 4. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT IT HAD ITS OWN INTEREST FREE FUNDS OUT OF WHICH INTEREST FREE LOAN WAS GIVEN TO ONE OF ITS SISTER COMPANY VIZ. M/S OCTAVIUS TEA AND INDUSTRIES LTD. THE ASSESSEE POINTED OUT THAT T HE INTEREST FREE LOAN AND ADVANCE GIVEN TO THE SISTER COMPANY WAS A SUM OF RS.68,00,0 00/-. THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD ITS OWN INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL OF RS.1 CRORE AND DEPOSIT RECEIPT FROM VARIOUS TENANTS OF PROPERT Y OWNED BY IT OF RS.85,00,000/-. THE ASSESSEE POINTED OUT THAT SINCE IT HAD ITS OWN INTE REST FREE FUNDS WHICH WERE MUCH MORE THAN THE INTEREST FREE ADVANCE GIVEN TO THE SISTER CONCERN THE DISALLOWANCE OF INTEREST MADE BY THE AO CANNOT BE SUSTAINED. IN THIS REGARD THE ASSESSEE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I) CIT VS RELIANCE UTILITIES & POWER LTD. 221 CTR 435 (BOMBAY HC) II)CIT VS TIN BOX CO. 182 CYR 171 (DELHI HC) III) JCIT VS ITC LTD, 115 TTJ 45 (KOLKATA SPECIAL B ENCH). 5. IN THE AFORESAID DECISIONS IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS INTEREST FREE FUND AS WELL AS BORROWED FUNDS AND WHERE INTER EST FREE LOANS ARE GIVEN TO THE SISTER CONCERN WHICH ARE LESSER THAN THE INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE THEN IT IS TO BE PRESUMED THAT THE LOANS TO GIVEN TO SISTER CONCERN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE ALSO POIN TED OUT THAT ON AN IDENTICAL ISSUE IN ASSESSEES OWN CASE IN A.Y.2004-05 AND 2006-07 THE HONBLE ITAT IN ITA NOS. 541/KOL/2012 AND 87&88/KOL/2012 VIDE ITS ORDER DATE D 14.09.2015 WAS PLEASED TO DELETE SIMILAR ADDITION MADE BY THE REVENUE AUTHORI TIES. 3 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 3 6. THE CIT(A) DID NOT AGREE WITH THE ABOVE SUBMISS IONS MADE BY THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO. THE CIT(A) H ELD THAT OWN FUNDS WERE ALREADY INVESTED IN FIXED ASSETS OF THE ASSESSEE FOUND IN T HE BALANCE SHEET. THE CIT(A) MADE THE FOLLOWING OBSERVATIONS :- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS OF THE ASSESSEE. KOLKATA ITATS DECISION IN APPELLANT'S OWN CASE AND THE CASE LAWS CITED BY THE APPELLANT REST ON THE PREMISES THAT- ASSESSEE HAS I TS OWN SUFFICIENT FUND AND INTEREST FREE LOANS HAVE BEEN GIVEN OUT OF ITS OWN FUNDS. NO W LET US LOOK AT THE FACTUAL POSITION. ASSESSEE'S BALANCE SHEET SHOWS THAT IT HA S SHARE CAPITAL OF RS. 1,00,00,000/-, RESERVES AND SURPLUS OF RS.7.55 LACS AND SECURED LOANS OF RS. 18.72 LACS. ON THE ASSETS SIDE ASSESSEE HAS FIXED ASSETS OF RS. 2.08 CRORES (GROSS VALUE). THUS IT IS SEEN THAT ENTIRE SHARE CAPITAL OF THE AP PELLANT ALONG WITH RESERVES AND SURPLUS AND DEPOSITS FROM THE TENANTS ARE LODGED IN CREATION OF FIXED ASSETS. ASSESSEE'S CLAIM THAT IT HAD SURPLUS FUNDS OF ITS O WN, IS NOT SUPPORTED BY FACTS. HENCE, RATIOS OF THE JUDGMENTS AND DECISION OF THE HON'BLE ITAT IN ASSESSEE'S OWN CASE FOR EARLIER YEAR IS NOT APPLICABLE. ON THE OTH ER HAND, AO HAS MENTIONED THAT LOANS WERE TAKEN FROM THE BANK AND THIS AMOUNT WAS PASSED ON TO THE SISTER CONCERNS AS INTEREST FREE LOANS. BALANCE SHEET ALSO SHOWS THAT ASSESSEE HAD OVERDRAWN ITS ACCOUNT IN INDUSIND BANK BY RS. 12,81 ,695/-. AS IT IS APPARENT THAT ASSESSEE HAD PASSED ON BORROWED FUNDS AS INTEREST F REE LOANS TO ITS SISTER CONCERNS, AO IS JUSTIFIED IN DISALLOWING THE INTEREST ON LOAN S TAKEN FROM BANK CORRESPONDING TO THE INTEREST FREE LOAN GIVEN. HENCE, DISALLOWANC E OF RS. 12,60,716/- IS CONFIRMED. 7. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. I HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF TH E BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2008 IS AVAILABLE AT PAGE NO.9 OF THE ASSE SSEES PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE CONTENTION OF THE ASSESSEE WITH REGARD TO AVAILABILITY OF OWN FUNDS IS TRUE. EVEN THE CIT(A) HAS NOT DISPUTED THIS FACT . THE ONLY REASON ASSIGNED BY THE CIT(A) FOR DISREGARDING THE PLEA OF AVAILABILITY O F OWN FUNDS OF THE ASSESSEE WAS THAT THE OWN FUNDS ALREADY STOOD INVESTED IN THE VARIOUS FIXED ASSETS SHOWN IN THE BALANCE SHEET. WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE ON IDENTICAL FACTS CAME TO THE FOLLOWING CONCLUSION :- 4 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 4 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE THAT THE ASSESSEE HAS ADVANCED INTEREST FR EE LOANS TO ITS SISTER CONCERNS TO THE EXTENT OF RS.1.06 CR. AND ASSESSEE NOW BEFORE U S CLAIMED THAT IT HAS INTEREST FREE FUNDS AVAILABLE I.E. TOTAL FUND OF RS.L.39 CR. IN THE SHAPE OF SHARE CAPITAL OF RS. 1 CR., DEPOSITS OF RS. 0.19 CR. AND ADVANCE OF RS.0 .10 CR. AND PBT FUND OF RS.0.I0 CR. ACCORDING TO ASSESSEE, THE TOTAL FUNDS AVAILABI LITY I.E. INTEREST FREE FUND OF RS.L.39 CR. IS MORE THAN THE LOAN GIVEN TO ITS SIST ER CONCERNS AT RS.1.60 CR. AND HENCE, FOLLOWING THE DECISION OF HON'BLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. (2009) 313 ITR 340 (BORN.) AS WELL AS THE DECISION OF KOLKATA ITAT 3 RD MEMBER IN THE CASE OF S. P. JAISWAL ESTATE REPORT ED IN 147 TTJ 649 THERE CANNOT BE ANY DISALLOWANCE. WE FIND THAT THE LOAN GIVEN TO SISTER CONCERN IS LESS THAN THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE AND ACCORDINGLY, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWERS LTD., SUPRA WHEREIN IT IS HELD AS UNDER: 'IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD R AISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T-FREE FUNDS AVAILABLE. ' FURTHER, THE ASSESSEE ALSO ARGUED THE COMMERCIAL EX PEDIENCY FOR GIVING INTEREST FREE LOANS TO SISTER CONCERN M1S. LMJ INTERNATIONAL LTD. AS THE ASSESSEE'S SISTER CONCERN IS ENGAGED IN THE SAME NATURE OF BUSINESS A ND ALSO UTILIZATION. AS THE ISSUE WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE ON THE FA CTUAL ASPECT OF AVAILABILITY OF INTEREST FREE FUND, WE NEED NOT TO GO ON COMMERCIAL EXPEDIENCY. ACCORDINGLY, THIS ISSUE OF ASSESSEE'S APPEAL IS ALLOWED. SIMILAR IS T HE FACTS IN OTHER APPEALS ALSO AS NOTED ABOVE, AND LD. COUNSEL FOR THE ASSESSEE AS WE LL AS LD. SR. DR ADMITTED THAT THE FACTS ARE EXACTLY IDENTICAL IN OTHER APPEALS AL SO. TAKING A CONSISTENT VIEW, WE ALLOW THIS COMMON ISSUE OF ASSESSEE'S APPEALS FOR A LL THE YEARS IN ENTIRETY. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL, I DIRECT THE AO TO DELETE THE ADDITION MADE ON DISALLOWANCE OF INTEREST. THE APPE AL OF THE ASSESSEE IS ACCORDINGLY STAND ALLOWED. ITA NO.1619/KOL/2017 (A.Y. 2009-10) 10. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOL LOWS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. IN DISALLOWING THE INTEREST ON LOAN OF RS.9,28,501/- STATING THAT THE LOAN AMOUNT WAS ADVANCED TO GROUP COMPANIES AS 'INTEREST FREE ADVANCE'. 5 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 5 11. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO .1 RAISED BY THE ASSESSEE IN A.Y.2008-09. FOR THE REASONS GIVEN WHILE DECIDING G ROUND NO.1 IN A.Y.2008-09, I DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTERES T ON LOAN. I MAY ALSO ADD THAT THE FACTS WITH REGARD TO AVAILABILITY OF OWN FUNDS VIS--VIS THE INTEREST FREE LOANS TO THE SISTER COMPANY IN THIS ASSESSMENT YEAR ARE ALSO IDENTICAL AS IN A.Y.2008-09. GROUND NO.1 IS ACCORDINGLY ALLOWED. 12. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOL LOWS :- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DISALLOWANCE OF TRADING LOSS OF RS. 3,66,780/- FROM THE BUSINESS OF TRADING OF WHEAT. 13. THE ASSESSEE CLAIMED THAT IT PURCHASED WHEAT OF ABOUT 28.9295 METRIC TONES FROM M/S NAMASKAR TOUR PVT. LTD. AND M/S AMODINI COMPUTE RS PVT. LTD. THE ASSESSEE FURTHER CLAIMED THAT IT SOLD WHEAT PURCHASED TO VAR IOUS PERSONS. THE ASSESSEE CLAIMED THAT DUE TO DETERIORATION IN QUANTITY OF WHEAT PURC HASED DUE TO IMPROPER STORAGE FOR THREE MONTHS PRIOR TO SALE AND RESULTING IN POOR Q UALITY THE WHEA, THEY WERE SOLD AT A LESSER PRICE. THE ASSESSEE CLAIMED THAT IT HAD INCU RRED A LOSS OF RS.3,66,780/- IN THE TRADING ACTIVITY OF PURCHASE AND SALE OF WHEAT. THE AO FOUND THAT THE EVIDENCE WITH REGARD TO SALE OF WHEAT WAS ONLY IN THE FORM OF CAS H BILLS AND DID NOT CONTAIN THE NAME OF THE PARTIES TO WHOM WHEAT WAS SOLD AND THE ADDRE SS AT WHICH IT WAS DELIVERED. THE AO CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF THE PARTIES TO WHOM SALE OF WHEAT WAS MADE. THE ASSESSEE DID NOT FURNISH THE REQUIRED DETAILS. IN THE ABOVE CIRCUMSTANCES, THE AO TREATED THE LOSS FROM THE BUSINESS OF TRADIN G IN WHEAT AS NOT A GENUINE LOSS AND ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FO R DEDUCTION OF THE AFORESAID LOSS. 14. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. BEFORE ME THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIN CE THE SALES WERE MADE IN CASH NO DETAILS OF THE SELLERS COULD BE FURNISHED. IN MY VI EW THIS EXPLANATION OF THE ASSESSEE COULD NOT BE ACCEPTED. THE BURDEN WAS ON THE ASSESS EE TO SHOW THAT IT HAD INCURRED A 6 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 6 LOSS IN THE BUSINESS TRADING IN WHEAT. FOR ESTABLIS HING ITS CASE THE ASSESSEE HAS TO NOT ONLY IDENTIFY THE PERSONS TO WHOM WHEAT WAS SOLD BU T ALSO THE PRICE AT WHICH IT WAS SOLD. THE ADDITIONAL FACT IN THE PRESENT CASE IS TH AT THE ASSESSEE IN THE PAST DID NOT DO ANY TRADING IN WHEAT. IN THE GIVEN FACTS AND CIRCUM STANCES OF THE CASE, I AM OF THE VIEW THAT THE LOSS CLAIMED AS DEDUCTION BY THE ASSESSEE WAS RIGHTLY HELD TO BE NOT PROVED AND NOT ALLOWED BY THE REVENUE AUTHORITIES. I MAY ADD T HAT THERE IS NO MATERIAL ON RECORD TO SAY THAT THE LOSS CLAIMED WAS BOGUS. GROUND NO.2 RA ISED BY THE ASSESSEE IS DISMISSED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 15. IN THE RESULT ITA NO.1618/KOL/2017 IS ALLOWED A ND ITA NO.1619/KOL/2017 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 09.02.2018. SD/- [ N.V.VASUDEVAN ] JUDICIAL MEMBER DATED : 09.02.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S LMJ BUSINESS CENTRE (P)LTD., 15B, HEMANTA BA SU SARANI, KOLKATA-700001. 2. I.T.O., WARD-8(3), KOLKATA. 3. CIT(A)-15, KOLKATA 4. C.I.T-3, KOLKAT A. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECR ETARY HEAD OF OFFICE/ D.D.O., ITAT KOLKATA BENCHES 7 ITA NO.1618 & 1619/KOL/2017 M/S. LMJ BUSINESS CENTRE (P)LTD. A.YR.2008-09 & 2009-10 7