BALUBHAI M SARDHARA, MUMBAI V. JT CIT 22(1), NAVI MUMBAI

ITA 1966/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0351 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: V IRAG H SHAH
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 1966 /MUM/20 14 (ASSESSMENT YEAR 20 09 - 10 ) BALUBHAI M. SARDHARA 204, CHANDRODAYA JEEV DAYA LANE LBS MARG, GHATKOPAR(W) MUMBAI - 400 086. PAN : ARWPS3645L V S . JT. CIT RAGE 22(1) TOWER NO. 6 4 TH FLOOR, VASHI RAILWAY STATION COMPLEX, VASHI NAVI MUMBAI - 400703 ( APPELLANT ) ( RESPONDENT ) A SSESSEE BY SHRI VIRAG H. SHAH DEPARTMENT BY S HRI SUMAN KUMAR DATE OF HEARING 5 . 0 2 . 201 8 DAT E OF PRONOUNCEMENT 5 . 0 2 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 10.1.2014 PASSED BY THE LEARNED CIT(A) - 7, MUMBAI AND IT RELATES TO A.Y. 2009 - 10. THE ASSESSEE IS AGGRIEVED BY TH E DECISION RENDERED BY THE LEARNED CIT(A) ON FOLLOWING TWO ISSUES : - (A) ADDITION TO INTEREST INCOME (B) DISALLOWANCE OF EXPENSES RELATING TO IPR 2. THE ASSESSEE FILED HI S RETURN OF INCOME DECLARING INCOME UNDER THE HEAD SALARY, BUSINESS AND OTHER SOURCES . THE ASSESSEE DECLARED INCOME FROM MONEY LENDING BUSINESS UNDER THE HEAD BUSINESS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID INTEREST ON THE LOAN TAKEN BY HIM @ 9% AND 10%. HOWEVER, HE HAS CHARGED INTEREST FROM THE ADVANCES MADE BY HIM AT VARYING RATE LIKE 3.25%, 4.25%, 6%, 10%, 12% AND 14%. EVEN THOUGH, THE ASSESSEE SUBMITTED THAT THE RATE OF INTEREST IS CHARGED ON THE LOANS BY CONSIDERING VARIOUS FACTOR LIKE RELATIONSHIP, AVAILABILITY OF FUNDS, PAST PERFORMANCE, PERIOD AND SIZE OF LOAN E TC., YET THE ASSESSING OFFICER TOOK THE VIEW THAT CHARGING OF INTEREST AT A LOWER RATE S LIKE 3.25%, 4.25%, 6% ETC. IS NOT BALUBHAIM. SARDHARA 2 A PRUDENT PRACTICE FOLLOWED BY A PRUDENT BUSINESSMAN. ACCORDINGLY THE ASSESSING OFFICER TOOK THE VIEW THAT INTEREST SHOULD HAVE BEEN C HARGED BY THE ASSESSEE @ 14% ON THE MONEY ADVANCED BY HIM. ACCORDINGLY, THE ASSESSING OFFICER, COMPUTED DIFFERENCE IN INTEREST INCOME AT ` 4,98,786/ - BY APPLYING RATE OF INTEREST @ 14% AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3. THE LEARNE D CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO COMPUTE INTEREST ON LOAN BY ADOPTING INTEREST RATE OF 12%. STILL AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. THE LEARNED AR SUBMITTED THAT OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN EXCESS OF ADVANCES GIVEN TO VARIOUS PERSONS AND HENCE THE ASSESSING OFFICER SHOULD NOT HAVE ADDED ANY AMOUNT TO THE INTEREST INCOME DECLARED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE RATE OF INTEREST IS DETERMINED B ETWEEN THE ASSESSEE AND THE BORROWE R ON VARIOUS FACTORS AND HENCE THE SAME SHOULD NOT HAVE BEEN DISTURBED BY THE ASSESSING OFFICER. IN THE ALTERNATIVE , THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS PAID INTEREST @ 9% & 10% AND HENCE, THE LEARNED CIT(A) SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO COMPUTE INTEREST BY ADOPTING INTEREST RATE OF 9% AND 10%. 5. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT INTEREST RATE OF 3.25%, 4.25% AND 6% CHA RGED BY THE ASSESSEE ON THE LOAN S ADVANCED BY THE ASSESSEE IS AGAINST TRADE PRACTICE AND IS ALSO BEYOND THE SCOPE OF HUMAN PROBABILITIES. ACCORDINGLY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSE SSING OFFICER TO COMPUTE DIFFERENTIAL INTEREST BY ADOPTING INTEREST RATE OF 12%. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY, VARIOUS REASONING GIVEN BY THE ASSESSEE FOR CHARGING INTEREST ON LOANS AT INTEREST RATE OF 3.25%, 4.25% AND 6% ETC., IS AGAINST TRADE PRACTICE AND BEYOND THE SCOPE OF HUMAN PROBABILITIES . NO PRUDENT BUSINESSMAN SHALL LEND MONEY BALUBHAIM. SARDHARA 3 AT SUCH A LOWER RATE, WHEN HE IS BORROWING MONEY @ 9% AND 10%. THE PURPOSE OF CARRYING BUSINESS IS TO EARN PROFIT AND NO BUSINESS MAN WILL DO THIS KNOWING FULL WELL THAT HE WOULD BE INCURRING LOSS IN THIS PROCESS. WE NOTICE THAT THE ASSESSEE HAS NOT CITED ANY COMPELLING REASONS FOR LENDING MONEY AT SUCH A LOWER RATE. WE NOTICE THAT THE ASSESSEE IS HAVING LONG RELATIONSHIP WITH P ATE L GROUP, TO WHOM THESE LOANS HAVE BEEN GIVEN. HENCE WE FIND MERIT IN THE CONTENTIONS OF THE LD D.R THAT THE ACTION OF THE ASSESSEE IS BEYOND THE SCOPE OF HUMAN PROBABILITIES. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE JUST IFIED IN COMPUTING INTEREST INCOME BY ADOPTING HIGHER RATE OF INTEREST . SINCE, THE ASSESSEE HA S BORROWED LOANS AT INTEREST RATE OF 9% & 10%, WE ARE OF THE VIEW THAT THE DIFFERENTIAL INTEREST RATE SHOULD BE COMPUTED BY ADOPTING COST OF FUNDS TO THE ASSES SEE, WHICH IN OUR VIEW MAY BE TAKEN A S 9.5%. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS HAVING OWN FUND S , WHICH IS MORE THAN THE AMOUNT ADVANCED. HOWEVER, A PERUSAL OF THE BALANCE - SHEET WOULD SHOW THAT THE ASSESSEE HAS ALSO MADE INVESTMENT S IN OTHER AS SETS AND FURTHER THE ASSESSEE HAS ALSO FAILED TO PROVE THE NEXUS BETWEEN THE OWN FUNDS AND AMOUNT ADVANCE D . ACCORDINGLY, WE ARE UNABLE TO AGREE WITH THIS CONTENTION OF THE ASSESSEE. ACCORDINGLY, WE MODIFY THE ORDER PASSED BY THE LEARNED CIT(A) AND DIRECT T HE ASSESSING OFFICER TO COMPUTE DIFFERENTIAL INTEREST INCOME BY ADOPTING INTEREST RATE AT 9.5% . 7. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO EXPENDITURE CLAIMED BY THE ASSESSEE AGAINST SALE PROCE ED S OF IPR. THE ASSESSEE PURCHASED A BRAND NAME NA MED ASK ME , AN IPR ASSET . THE SAID BRAND NAME WAS INITIALLY OWNED BY TWO PUBLIC LIMITED COMPANIES. THE ASSESSEE BECAME ONE OF THE ASSIGNEE S OF THE BRAND NAME ON 18.3.2000. T HEREAFTER THE ASSESSEE PURCHASED FULL RIGHT ON 22.2.2007. IN THE MEANTIME, ONE OF THE EX - EMPLOYEE OF THE PUBLIC LIMITED COMPANY ALSO APPLIED FOR TRADE MARK ASK ME IN HIS NAME IN THE YEAR 2006, BUT HE ALSO ASSIGNED ALL HIS RIGHT IN FAVOUR OF THE ASSESSEE ON 14.5.2008. ACCORDINGLY, THE ASSESSEE BECAME THE FULL OWNER OF BRAND NAME ASK ME . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD BRAND NAME FOR A SUM OF ` 210 LAKHS. THE ASSESSEE CLAIMED A SUM OF ` 28.63 LAKHS AS EXPENDITURE BALUBHAIM. SARDHARA 4 AND O FFERED BALANCE AMOUNT OF ` 181.37 LAKHS AS HIS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER EXAMINED THE DETAILS OF EXPENDITURE CLAIMED BY THE ASSESSEE. HE TOOK THE VIEW THAT CERTAIN PORTION OF EXPENSES CLAIMED BY THE ASSESSEE INCLUDED PRIOR PERIOD ITEMS AND IN RESPECT OF CERTAIN ITEMS THE ASSESSEE DID NOT FURNISH EVIDENC E S . ACCORDINGLY, HE DISALLOWED A SUM OF ` 11.85 LAKHS FROM THE CLAIM OF ` 28.63 LAKHS MADE BY THE ASSESSEE. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 8. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. THE L EARNED AR SUBMITTED THAT THE QUESTION OF PRIOR PERIOD EXPENSES DOES NOT ARISE IN THIS CASE SINCE THE ASSESSEE HAS INCURRED EXPENDITURE OVER THE YEARS IN ACQUIRING FULL RIGHT OF IPR ASK ME AND HENCE ALL THE EXPENSES INCURRED RELATING T O IPR SHOULD BE ALLOWED AS REVENUE EXPENDITURE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS AND EVIDENCE WITH REGARD TO VARIOUS EXPENSES AND THE TAX AUTHORITIES HAVE MADE DISALLOWANCE WITHOUT PROPERLY EXAMINING THE EVIDENCE S FURNIS HED BY THE ASSESSEE. ACCORDINGLY, THE LEARNED AR SUBMITTED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING VARIOUS EVIDENCES FURNISHED BY THE ASSESSEE. 9. WE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE ON THIS ISSUE AND P ERUSED THE RECORD . WE AGREE WITH THE CONTENTION S OF THE ASSESSEE THAT CONCEPT OF PRIOR PERIOD EXPENSES CANNOT BE APPLIED IN THE INSTANT CASE , SINCE THE ASSESSEE HAS ACQUIRED THE RIGHTS OVER THE IPR OVER A PERIOD. UNDER REVENUE COST MATCHING PRINCIPLE, ALL THE EXPENDITURE INCURRED IN ACQUIRING IPR HAVE TO BE TREATED AS REVENUE EXPENDITURE IRRESPECTIVE OF THE YEAR IN WHICH IT WAS INCURRED AND HAS TO BE ALLOWED AGAINST SALES REVENUE OF IPR. WITH REGARD TO THE REMAINING DISALLOWANCE, THE LEARNED AR SUBMITTED T HAT THE ASSESSEE WOULD BE IN A POSITION TO SATISFY THE ASSESSING OFFICER WITH RELEVANT EVIDENCES , IF OPPORTUNITY IS GIVEN. WE FIND MERIT IN THE SAID PLEA OF LEARNED AR . A CCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND RES TORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE BALUBHAIM. SARDHARA 5 VARIOUS EVIDENCES FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 5 . 0 2 .201 8 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER M UMBAI ; DATED : 5 / 0 2 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// SENIOR P RIVATE S ECRETARY PS ITAT, MUMBAI