I.T.O Wd-2(1), Kolkata V. M/s Rajashree Vanijya Pvt. Ltd., Kolkata

ITA 1722/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9175 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 17-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2013
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN
• Keywords: Commercial expediency

Judgement Text

1 ITA NO.1722/KOL/2013 RAJASHREE VANIJYA PVT. LTD., AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI A. T. VARKEY, JM & SHRI WASEEM AHMED, AM] I.TA NO. 1722/KOL/2013 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-2(1), KOLKATA VS. M/S. RAJAS HREE VANIJYA PVT. LTD. (PAN: AABCR2400B) APPELLANT RESPONDENT DATE OF HEARING 24.01.2017 DATE OF PRONOUNCEMENT 29.03.2017 FOR THE APPELLANT MD. GHAYAS UDDIN, JCIT, SR. DR FOR THE RESPONDENT SHRI SUBASH AGARWAL, ADVOCATE ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-1, KOLKATA DATED 25.03.2013 FOR AY 2009-10. 2. THE ONLY ISSUE THAT HAS BEEN ASSAILED BY THE REV ENUE IS AGAINST THE ACTION OF THE LD. CIT(A) DELETING THE DISALLOWANCE OF INTEREST MA DE BY AO OF RS.37,36,802/- BEING INTEREST ATTRIBUTABLE TO INTEREST FREE LOAN GIVEN T O SISTER CONCERN M/S. M/S. NLBED MARKETING (P) LTD. (IN SHORT M/S. NLBED). 3. THE BRIEF FACTS OF THE CASE IS THAT THE AO OBSER VED THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD ADVANCED TO M/S. NLBED A SISTER CONCERN RS.4,62,96,917/- AS PER AN MOU FOR PURCHASE OF PROP ERTY AND THE ASSESSEE HAD INCURRED HUGE INTEREST LIABILITY ON BORROWED FUNDS. IT WAS BROUGHT TO THE KNOWLEDGE OF THE AO BY THE ASSESSEE THAT THIS AMOUNT WAS AN ADVANCE GIV EN TO THE SISTER CONCERN FOR BUYING A PROPERTY IN THE INSTANT ASSESSMENT YEAR AND IT WA S GIVEN TO THE SISTER CONCERN BECAUSE OF COMMERCIAL EXPEDIENCY. BEFORE THE AO, THE LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F M/S. S. A. BUILDERS LTD. VS. CIT 2 ITA NO.1722/KOL/2013 RAJASHREE VANIJYA PVT. LTD., AY 2009-10 208 ITR 1 (SC) AND ARGUED THAT THE LOAN WAS BORROWE D BY THE ASSESSEE, WHICH HAVE BEEN GIVEN TO THE SISTER CONCERN DUE TO COMMERCIAL EXPEDIENCY AND THE AMOUNT WAS UTILIZED FOR THE BUSINESS PURPOSE AND THERE WAS DIR ECT NEXUS BETWEEN THE BORROWING AND THE ADVANCE GIVEN TO THE SISTER CONCERN AND DEMONST RATED BY EVIDENCES THAT THE ASSESSEE GOT BACK THE ENTIRE ADVANCE AND THE TRANSACTION RES ULTED IN ASSESSEE GETTING HUGE PROFITS IN AY 2011-12. HOWEVER, THE AO DID NOT ACCEPT TH E CLAIM MADE BY THE ASSESSEE AND DISALLOWED THE INTEREST PAID ON SUCH BORROWED CAPIT AL. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO ALLOW THE CLAIM IN RESPECT TO LOAN GIVEN TO M/S NLBED. HOWEVER, WE NO TE THAT AGAINST THE LOAN GIVEN TO M/S. PHOOL COMMERCIAL PVT. LTD. THE ASSESSEE GOT ON LY PART RELIEF. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL AN BEFO RE THE LD. CIT(A), WHO WAS PLEASED TO ALLOW THE CLAIM OF THE ASSESSEE BY HOLDI NG AS UNDER: AFTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORD ER AND THE WRITTEN SUBMISSION FILED BY ASSESSEE, IT IS NOTICED THAT THE AO DISALLOWED THE WHOLE OF INTEREST DEBITED IN P&L A/C FOR RS.45,01,802/- U/S 36(1)(III) ON ACCOUNT OF INT EREST FREE LOAN GIVEN TO SISTER CONCERNS VIZ, M/S. PHOOL COMMERCIAL PVT. LTD. AND M/S NLBD M ARKETING PVT. T.TD. AS PER P &L A/C FOR MARCH, 2009 ASSESSEE WAS TRADING OF IRON & STEEL AND OTHER TEXTILE PRODUCTS WITH TURNOVER OF RS.109.26 CORES, THE PAID-UP SHARE CAPITAL AND RESERVES AVAILABLE WITH THE ASSESSEE WERE TO THE TUNE OF RS.2.2 CRORES AND BALANCE OF RS.2.86 CRORES WAS SECURED LOANS ON WHICH INTEREST OF RS. 45,01,802/- WAS DEBITED AS PER SCHEDULE -14 OF AN ANNUAL REPORT AND ASSESSEE HAD ADVANCED A SUM OF RS .4,62,96,917/-AS ON 31.03,2009 TO M/S NLBD MARKETING PVT. LTD. AS PER MOU DATED 21.04 ,2008 AND THIS ADVANCE WAS GIVEN TO M/S NLBD MARKETING PVT. LTD. FOR PURCHASE OF LAND AND ASSESSEE-COMPANY EARNED A PROFIT OF RS.55,96,500/- ON ACCOUNT OF SAL E OF PROPERTY IN FY. 2010-11 WHICH WAS DULY REFLECTED IN THE COMPUTATION OF INCOME FOR AY-2011-12 AND FURTHER A SUM OF RS.30 LACS WAS RECEIVED ILL FORM OF A PLOT ON 04.10 .2012 AFTER RECEIVING THE PRINCIPAL AMOUNT ADVANCE TO M/S. NLBD MARKETING PVT. LTD. ON THE BASIS OF ABOVE MOU. IT WAS CONTENDED THAT ADVANCE GIVEN TO M/S. NLBD MARKETING PVT. LTD. WAS FOR THE PURPOSE OF THE BUSINESS CARRIED BY THE ASSESSEE COMPANY. KEEP ING IN VIEW THE ABOVE FACTUAL MATRIX IT CANNOT BE SAID THAT TRANSACTIONS WITH M/S. NLBD MARKETING PVT. LTD. WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY AS ASSE SSEE EARNED BUSINESS PROFITS FROM THE ABOVE ADVANCES GIVEN WHICH WERE REFLECTED IN TH E BOOKS OF ACCOUNTS FOR NEXT FINANCIAL YEAR. REGARDING THE ADVANCE GIVEN TO M/S PHOOL COMMERCIAL PVT. LTD. FOR RS.2.71CRORES IT WAS CONTENDED THAT THIS ADVANCE WAS GIVEN FOR PURCH ASE OF PROPERTY OUT OF THE RESERVES AND EQUITY CAPITAL AVAILABLE FOR RS.2.2CRORES AS ON 31.03.2009.THIS DEAL COULD NOT BE MATERIALIZED AND THE ABOVE ADVANCE WAS GIVEN FROM O VERDRAFT FACILITY WITH ALLAHABAD BANK. THE SATE PROCEEDS AND RELEVANT PURCHASE AN EX PENSE OF TRADING ACTIVITY WAS ALSO REFLECTED IN THIS VERY ACCOUNT MAINTAINED WITH ALLA HABAD BANK. IT WAS FURTHER CONTENDED THAT AO HAS NOT BEEN ABLE TO PROVE DIRECT NEXUS BET WEEN THE BORROWED FUNDS AND THE 3 ITA NO.1722/KOL/2013 RAJASHREE VANIJYA PVT. LTD., AY 2009-10 INTEREST FREE ADVANCES GIVEN AND RELIANCE WAS PLACE D ON THE SUPREME COURT DECISION IN THE CASE OF S.A BUILDERS. THE CONTENTION OF ASSESSE E IS NOT ACCEPTABLE AS THE AMOUNT OF THE INTEREST FREE FOR RS.2.71 CRORES EXCEEDED THE R ESERVES AND EQUITY BY AN AMOUNT OF RS.51,00,000/- FOR THE WHOLE FINANCIAL YEAR. THEREF ORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES AND AMOUNT OF RS.51 LAC WAS DIVERTED OUT OF CASH CREDIT ACCOUNT FOR GIVING INTEREST FREE ADVANCE TO M/S PHOOL COMMERCIA L PVT. LTD. AND ACCORDINGLY INTEREST @ OF 15% P.A. IS DISALLOWED ON AMOUNT OF R S.51,00,000/-AND THIS IS QUANTIFIED AT RS.7,65, 000/ -. AGGRIEVED, BY THE AFORESAID ORDER OF THE LD CIT(A), THE REVENUE IS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO DISALLOWED THE WHOLE OF INTEREST DEBITED IN P&L ACCOUNT FOR RS.45,01,802/- U/S. 36(1)(III) OF THE ACT ON ACCOUNT OF INTEREST F REE LOAN GIVEN TO SISTER CONCERNS VIZ., M/S. PHOOL COMMERCIAL PVT. LTD. AND M/S. NLBED. TH E LD. CIT(A) TOOK NOTE OF THE FACT THAT ASSESSEES TURNOVER WAS OF RS.109.26 CR. AND ITS PAID UP SHARE CAPITAL AND RESERVES AVAILABLE WITH THE ASSESSEE WERE TO THE TU NE OF RS.2.2 CR. RS. 2.86 CR. WAS SECURED LOANS ON WHICH INTEREST OF RS.45,01,802/- W AS DEBITED AS PER SCHEDULE 14 OF THE ANNUAL REPORT. THE ASSESSEE HAD ADVANCED A SUM OF RS. 4,62,96,917/- AS ON 31.03.2009 TO M/S. NLBED AND AS PER THE MOU DATED 2 1.04.2008 THIS ADVANCE WAS GIVEN TO M/S. NLBED FOR PURCHASE OF LAND. THE LD. CIT(A) HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE COMPANY EARNED PROFIT OF RS.55,96 ,500/- ON ACCOUNT OF SALE OF PROPERTY IN FY 2010-11, WHICH FACT IS DISCERNABLE F ROM A PERUSAL OF PAGE 43 OF THE PAPER BOOK AND THAT THE SAID PROFIT HAS BEEN DULY R EFLECTED IN THE COMPUTATION OF INCOME FOR AY 2011-12. THE LD. CIT(A) HAS ALSO TAK EN NOTE OF THE FACT THAT THE ASSESSEE RECEIVED FURTHER RS. 30 LACS ON 04.10.2012 FROM THE SALE OF A PLOT AFTER RECEIVING THE PRINCIPAL AMOUNT ADVANCED TO M/S. NLB ED. FROM THE AFORESAID FACTS AND THE MOU BETWEEN THE ASSESSEE AND THE SISTER CON CERN M/S. NLBED, IT IS CLEAR THAT THE ASSESSEE HAS ADVANCED THE AMOUNT FOR THE PURPOS E OF BUSINESS AND THAT IT WAS FOR COMMERCIAL EXPEDIENCY THAT THE AMOUNT WAS ADVANCED BY THE ASSESSEE. THE DECISION OF THE ASSESSEE TO GIVE ADVANCE OF THE AMOUNT HAS FRUC TIFIED AND THE ASSESSEE IS IN RECEIPT OF PROFIT IN THE FY 2010-11 WHICH FACT COULD NOT BE CONTROVERTED BY THE LD. DR BEFORE US. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSEES CASE FALLS IN THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS (SUPRA) AND, 4 ITA NO.1722/KOL/2013 RAJASHREE VANIJYA PVT. LTD., AY 2009-10 THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R PASSED BY THE LD. CIT(A) AND WE CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVE NUE. 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.03.201 7. SD/- SD/- (WASEEM AHMED) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29TH MARCH, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT INCOME-TAX OFFICER, WD-2(1), KOLKATA. 2 RESPONDENT M/S. RAJASHREE VANIJYA PVT. LTD., 7, G ANESH CHANDRA AVENUE, KOLKATA-700 013. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .