M/S. SHRI SATYANANDJI TRADECOM P. LTD., MUMBAI V. DCIT, CC-7(2), MUMBAI

ITA 1819/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7984 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 04-10-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “E”, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI LALIET KUMAR, JM ITA No. : 1819/Mum/2020 Assessment Year : 2013-14 Shri Satyannadji Tradecom P. Ltd. 60, Vikas Nagar, Kelwadi Road, Jhotwara, Jaipur, Rajasthan-302 021 PAN : AAPCS 9443 K Vs. DCIT, Central Circle-7(2) Room No. 655, 6 th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400 020 (Appellant) (Respondent) Appellant by : Shri Ajay Singh Respondent by : Shri B. K. Bagchi Date of hearing : 22.02.2022 Date of Pronouncement : 25.02.2022 O R D E R Per Laliet Kumar, JM : This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-49, Mumbai (‘ld.CIT(A) for short) dated 03.03.2020 and pertains to the assessment year (A.Y.) 2013-14. The grounds raised by the assessee reads as under: 1. Disallowance of Interest u/s. 36(ii) of Rs. 36,12,000/- 1.1 The learned CIT(A) has ered both in law and on the facts of the case in confirming the disallowance of estimated interest expenses of Rs.36,12,000/- u/s.36(1)( iii) of the Act. 1.2 Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore ITA No. : 1819/Mum/2020 (A.Y. 2013-14) Shri Satyannadji Tradecom P. Ltd. vs. DCIT 2 deserves to be quashed. 2. Disallowance us. 14A of Rs. 2,51,221/- 2.1 That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition u/s. 14A to the extent of 0.5% of the investment although no satisfaction had been recorded by the AO and the facts that the appellant had not incurred any expenses in relation to the exempt income. 2.2 That on the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the addition of Rs. 2,51,221/- (out of the total additions made by the A.O. at Rs.26,61,809/-) on account of disallowance u/s 14A of the Income-tax Act read with Rule 8D and he failed to consider and appreciate the detailed submissions made before him. 2.3 That the Commissioner of Income Tax (Appeals)-49 has similarly further erred both on facts and in law in sustaining a disallowance made of Rs. 2,51,221/- made by the DCIT, Central Circle-7(2), Mumbai by invoking the provisions of the section 14A of the Income Tax Ac, 1961, as the aforesaid prevision had no application on the facts of the instant case, since the expenditure incurred and debited in the Profit & Loss A/c has absolutely to relationship with the exempted income. 3 The appellant craves leave to file additional grounds and/or amend or alter the grounds already taken either before or at the time of hearing of the appeal. 2. At the outset, the learned Authorised Representative (ld. AR for short) of the assessee has submitted that the assessee is not pressing ground no.2 and prayed that the same may be dismissed as not pressed. The ld. Departmental Representative (ld. DR for short) has not raised any objection for the same. Accordingly, the ground no2 raised by the assessee is dismissed as not pressed. 3. In respect to ground no 1 raised by assessee, the ld. AR for the assessee drew our attention to the paragraphs 6.1, 6.3.1 and 6.3.4 of the order passed by the ld. CIT(A) which are to the following effect: 6.1 During the assessment proceedings, the assessing Officer found from the balance sheet filed along with the return of income that the assessee had advance loan of Rupees 10100000/- to Jeenmata Traders P.Ltd and loan of Rupees 2,00,00,000/- to Manvi Computech P ltd. The assessee charged in the interest on these loans and advances whereas the interest of Rs. 1,00,25,918/- on loans amounting to Rs ITA No. : 1819/Mum/2020 (A.Y. 2013-14) Shri Satyannadji Tradecom P. Ltd. vs. DCIT 3 4,40,00,000/- has been paid debited in profit and loss account during the year under consideration. During the course of assessment proceedings, the assessee was asked to show caused why the interest out of the interest evident profit and loss account should not be disallowed and not been for the purpose of business, since it was very fun it been a trust for non-business activity certain parties and no interest charged on the same. In response the assessee submitted that the advances were given for the purpose of procurement of community, however the transition could not be metallised and amount was refunded by the party. The AO relied upon the decision of the Karnataka High Court in the case of Bellary steel sentinels Ltd 370 ITR 226 and decision of High Court in the case ofSubrata Roy 265 CTR 481. He stated that from the fact it was clear that the assessee has debited an interest-bearing fund for nonbusiness purposes and the interest paid by the assessee on borrowed fund was not incurred wholly and exclusively for the purpose of business. The assessee submitted that the rate of interest at which they have paid the interest on the following during the year under consideration was 12%. Therefore interest paid by the assessee amounting to Rs 36,12,000/- was disallowed under section 36(1) (iii) of the IT act and not being income for the purpose of business and added to the total income. 6.3.1 In this regard, it was submitted by the assessee that the assessee company had borrowed the interest free loans during the preceding previous year which was used for the business of the assessee whereas interest free advances were given during the relevant previous year. Assessee further submitted that no interest bearing loan had been raised for advancing the loans to M/s. Manvi Computech Pvt. Ltd. and M/s. Jeenmata Traders Pvt. Ltd., as fund so advanced was in fact given out of the fund received from the brokers I traders of the commodity market towards realisation of transaction and as such assessee contends that there was no direct nexus between interest bearing borrowing and interest free advances made to M/s. Manvi Computech Pvt. Ltd. and M/s. Jeenmata Traders Pvt. Ltd. and hence any disallowance is unjustified. 6.3.4 However, it is found that the assessee do not have sufficient own fund during the impugned financial year so as to have the presumption that these loans were advanced out of own funds. In this regard, I may observe that it is not for the Assessing Officer to prove that there is nexus between the borrowed funds and the investments made. This is not tenable. The basic detail as to when the relevant loans were advanced has to be first made available since these are in the exclusive knowledge of the assessee. Moreover, there is the claim of assessee which it has to support cogently, that no interest-bearing funds were used for this purpose. Hence, the initial onus lies on the assessee to lead the primary details linking each investment with the nature of funds deployed, and only when the same is adequately discharged, does it shift to the Assessing Officer to make his inferences as warranted by law. For this reason, the contention of the assessee that the Assessing Officer has not brought on record anything to reject-this. claim cannot be approved. ITA No. : 1819/Mum/2020 (A.Y. 2013-14) Shri Satyannadji Tradecom P. Ltd. vs. DCIT 4 4. ld. AR for the assessee contended before us that the Assessing Officer has not examined documents furnished by the assessee to satisfy the advances made to these two companies, namely, Jeenmata Traders Pvt. Ltd. and M/s. Manvi Computech Pvt. Ltd. were given from sources and funds available with the assessee and were not provided to these two companies from the borrowed funds. Further ld. AR submitted that the funds were given to M/s. Jeenmata Traders Pvt. Ltd. And M/s. Manvi Computech Pvt. Ltd in November 2022 and January 2013. Without prejudice ld. AR submitted that the lower authorities had computed the interest on these amounts for the whole year whereas, it was only required to be restricted for the actual period under consideration. It was also the contention of the ld. AR that the assessee had its own funds and, therefore, no disallowance of expenditure can be made. Further, it was submitted that these two companies returned the said loan amount to the assessee in the subsequent assessment year. It was again reiterated that the lower authorities had not examined the documents filed by the assessee in the form of the return of income, balance sheet, audit report and bank statement to record its satisfaction that assessee own funds were are not available with it at the time of advancing these amounts to these two companies. Lastly, it was submitted that the matter might be remitted back to the A.O. file for de-novo examination of the documents and the issue raised therein. 4.1 The ld. Departmental Representative (ld. DR for short) has no objection in remanding back the matter to the file of the A.O. 5. We have heard the rival contentions and perused the material available on record. As evident from paragraphs 6.1, 6.3.1 and 6.3.4, the lower authorities have recorded the finding that the assessee did not have its own funds and the amounts were advanced to these companies, namely M/s. Jeenmata Traders Pvt. Ltd. and M/s. Manvi Computech Pvt. Ltd. from the borrowed fund and, therefore, the lower authorities have disallowed the interest @ 12% on the amount advanced to these two companies. ITA No. : 1819/Mum/2020 (A.Y. 2013-14) Shri Satyannadji Tradecom P. Ltd. vs. DCIT 5 6. In our considered opinion, the finding of the fact is required to be recorded by the lower authorities after examining the documents furnished by the assessee in support of its claim that the assessee had its own fund, which were given as advances to M/s. Jeenmata Traders Pvt. Ltd. and M/s. Manvi Computech Pvt. Ltd.. The lower authorities recorded had not recorded the finding of fact based on these documents about the availability or non-availability of funds with the assessee for advancing to these two companies. In light of the above, we remand Ground no1 to the file of Assessing Officer for de-novo examination of the entire transaction, including the availability of the fund and the source of the said funds. Needful exercise be undertaken by the Assessing Officer as early as possible after giving the opportunity of hearing to the appellant. The appellant shall be at liberty file all the documents before the A.O with a view to prove the availability of the funds with it and the source thereof to these two companies namely M/s. Jeenmata Traders Pvt. Ltd. and M/s. Manvi Computech Pvt. Ltd. 7. In the result, the above appeal of the assessee is allowed for statistical purposes and the matter is remanded back to the file of the Assessing Officer. Order pronounced on this 25 th day of February, 2022. Sd/- - Sd/- (SHAMIM YAHYA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, Dt: 25.02.2022 ITA No. : 1819/Mum/2020 (A.Y. 2013-14) Shri Satyannadji Tradecom P. Ltd. vs. DCIT 6 Copy forwarded to : 1. The Appellant, 2. The Respondent, 3. The C.I.T. 4. CIT (A) 5. The DR, Bench, ITAT, Mumbai BY ORDER ASSISTANT REGISTRAR/SR. PRIVATE SECRETARY ITAT, Mumbai Benches, Mumbai Roshani, Sr. PS