MANOHAR MANAK ALLOYS P.LTD, MUMBAI V. ACIT 4(2), MUMBAI

ITA 2094/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79195 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Keywords: Proportionate interest; Notional interest
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2094/MUM/2013 ASSESSMENT YEAR: 2005-06 MANOHAR MANAK ALLOYS P. LTD. D.C. BOTHRA & CO. CHARTERED ACCOUNTANTS 297, TARDEO ROAD, WILLIE MANSION, NANACHOWK, 1 ST FLOOR, OPP. BANK OF INDIA, MUMBAI-400 007 VS. ACIT 4(2) AAYAKAR BHAVAN, 6 TH FLOOR, MK ROAD. MUMBAI-400 002 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACM 2688 K APPELLANT BY : SHRI RAJ KUMAR SINGH RESPONDENT BY : SHRI SAMBIT MISHRA DATE OF HEARING : 17.06.2014 DATE OF PRONOUNCEMENT : 17.06.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-8, MUMBAI DATED 21.03.2012 FOR THE ASSESS MENT YEAR 2005-06. 2. IN GROUND NO. 1, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOU NT OF PROPORTIONATE INTEREST OF RS.4,35,000/-. 2.1 BRIEFLY STATED, THE AO MADE A NOTIONAL DISALLOW ANCE OF INTEREST CLAIM OF RS.5,22,000/- MAINLY FOR THE REASON THAT THE ASSESS EE COMPANY HAD GIVEN INTEREST FREE LOANS AND THE ADVANCES TO ITS SISTER CONCERN M /S. MANOHAR EXPORT PVT. LTD. OF RS.40,00,000/- AND TWO OTHER PARTIES NAMELY DO-WELL INDUSTRIES OF RS.2,00,000/- AND TRAN-MEDIA SOFTWARE LTD. OF RS.1,50,000/- AND T HE ASSESSEE HAS CLAIMED THE EXPENSES ON ACCOUNT OF INTEREST PAID OF RS.1,98,69, 671/-. THE AO WAS OF THE VIEW ITA NO. 2094/MUM/2013 MANOHAR MANAK ALLOYS P. LTD. ASSESSMENT YEAR: 2005-06 2 THAT THE ASSESSEE HAD BURDENED ITS BUSINESS WITH IN TEREST AND SIMULTANEOUSLY ADVANCED MONEY AT FREE OF INTEREST. HENCE, THE AO C ALCULATED THE INTEREST COST ON THESE ADVANCES @ 12% AND THEREBY QUANTIFIED INTERES T DISALLOWANCE AT RS.5,22,000/-. THUS, THE SAID AMOUNT OF INTEREST WA S ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS EXPENDITURE WAS NOT INCURRED ONLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ON APPEAL, THE LD. CIT(A) CALCULATED THE NOTIONAL INTEREST @ 10% AS THE ASSESSEE HAD BORROWED FUNDS ON WHICH IT WAS PAYING INTEREST RANGING FROM 7% TO 12%. ACCORDINGLY, THE TOTAL ADDITION TO THE EXTENT OF RS.4,35,000/- WAS CONFIRMED BY THE LD.CIT(A). AGGRIEVED BY THE IMPUGNED ORDER, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS NOTED FROM P & L ACCOUNT THAT THE ASSESSEES COMPANYS OW N CAPITAL, RESERVE FUND AND INTEREST FREE LOANS AND ADVANCES ARE AS UNDER:- (I) OWN CAPITAL RS.60,00,000/- (II) OWN RESERVE & SURPLUS RS.5,81,41,366/- (III) INTEREST FREE LOANS RECEIVED RS.21,00,000/- (IV) INTEREST FREE ADVANCES RECEIVED FROM CUSTOMERS RS.6 4,65,378/- TOTAL INTEREST FREE FUND RS.7,27,06,744/- IT IS PERTINENT TO NOTE THAT DURING THE ASSESSMENT PROCEEDINGS AND FIRST APPELLATE PROCEEDING, THE ASSESSEE HAS TAKEN A PLEA THAT THE TOTAL INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE COMPANY IS SUFFICIENT TO MAKE THE I NTEREST FREE ADVANCES AND HENCE THE DISALLOWANCE OF NOTIONAL INTEREST IS UN-WARRANT ED. HOWEVER, IT APPEARS THAT THE SAID FACTS HAVE NOT BEEN TAKEN COGNIZANCE BY THE AU THORITIES BELOW. CONSIDERING THE ENTIRETY OF THE FACTS WITH SPECIFIC REFERENCE TO TH E DETAILS PROVIDED IN THE BALANCE SHEET (BOTH AT THE BEGINNING AND END OF THE RELEVAN T YEAR/PB PGS. 28-53), WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COMPANY HAS S UFFICIENT FUNDS TO MAKE INTEREST FREE ADVANCES AND HENCE THE DISALLOWANCE MADE/CONFI RMED BY THE AO/LD.CIT(A) ON THE BASIS OF NOTIONAL INTEREST IS NOT JUSTIFIED. RE SULTANTLY, THE DISALLOWANCE/ADDITION CONFIRMED BY THE LD.CIT(A) STANDS DELETED. GROUND NO. 1 IS ALLOWED. ITA NO. 2094/MUM/2013 MANOHAR MANAK ALLOYS P. LTD. ASSESSMENT YEAR: 2005-06 3 3. IN GROUND NO. 2, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) CONFIRMING THE ADDITION OF THE CONTRACTUAL RECEIPT OF RS.70,000/- BASED ON AIR INFORMATION FROM ONE MR. PRAVEEN DESAI. 3.1 BRIEFLY STATED, ON THE BASIS OF AIR INFORMATION , THE AO HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS RECEIVED PAYMENTS OF RS.28,000/- FROM ONE MR. PRAVEEN DESAI ON 30.04.2004 AND 31.05.2004 AND ANOT HER PAYMENT OF RS.14,000/- RECEIVED ON 30.06.2004 TOTALING TO RS.70,000/-. ACC ORDING TO THE AO, THESE AMOUNTS RECEIVED HAVE NOT BEEN CREDITED TO THE BOOKS OF ACC OUNTS AND HENCE THE SAME HAS BEEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL BEFORE THE LD.CIT(A), THE ASSESSEE HAS CONTENDED THAT IT HAS NOT ENTERED INTO ANY BUSINESS DEAL OR RENDERED ANY SERVICES TO MR. PRAVEEN DESAI AND HENCE THERE I S NO QUESTION OF RECEIVING ANY PAYMENTS FROM HIM. IN THIS CONNECTION, THE LD.CIT(A ) CALLED FOR THE REMAND REPORT FROM THE AO AND IN RESPONSE THE AO HAD SUBMITTED TH AT NOTICE U/S 133(6) WAS ISSUED TO PRAVEEN DESAI REQUIRING HIM TO GIVE THE D ETAILS OF PAYMENT AS APPEARING IN THE AIR SHEET HOWEVER, TILL DATE NO REPLY HAS BEEN RECEIVED IN RESPONSE THE SAID NOTICE. HOWEVER, THE LD.CIT(A) HELD THAT IN THE ABS ENCE OF ANY REPLY FROM SHRI PRAVEEN DESAI IT WAS FAIR TO ASSUME THAT THESE PAYM ENTS WERE UNACCOUNTED AND NOT SHOWN IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESS EE AND HENCE THE LD.CIT(A) CONFIRMED THE ADDITION OF RS.70,000/- MADE BY THE A O. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN TH E APPEAL BEFORE US. 3.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE IMPUGNED ADDITION OF RS.70,000/- HAS BEEN MADE BY THE AO AND THE SAME CONFIRMED BY THE LD.CIT(A) SOLE LY ON THE BASIS OF THE AIR INFORMATION TO WHICH THE ASSESSEE HAS CONTRADICTED BY STATING THAT IT HAS NOT ENTERED INTO ANY BUSINESS DEAL OR RENDERED ANY SERVICES TO MR. PRAVEEN DESAI AND HENCE THERE HAS BEEN NO QUESTION OF RECEIVING ANY PAYMENT S FROM HIM. WHEN THE ASSESSEE HAS CONTRADICTED THE AIR INFORMATION, IT IS A DUTY OF THE AUTHORITIES BELOW TO PROVE THAT THE SAID PAYMENT HAS BEEN MADE TO THE ASSESSEE . WHEN NO REPLY HAS BEEN RECEIVED FROM MR.PRAVEEN DESAI IN RESPONSE TO THE N OTICE U/S 133(6), AUTHORITIES BELOW ARE NOT JUSTIFIED TO ASSUME THAT THESE PAYMEN TS HAVE BEEN MADE TO THE ASSESSEE. IN VIEW OF THAT MATTER, WE ARE OF THE CON SIDERED VIEW THAT IT IS JUST AND ITA NO. 2094/MUM/2013 MANOHAR MANAK ALLOYS P. LTD. ASSESSMENT YEAR: 2005-06 4 PROPER TO RESTORE THE MATTER BACK TO THE FILE OF TH E AO TO MAKE A FRESH ASSESSMENT ON THIS ISSUE AFTER GIVING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. IN CASE, IF THE AO IS NOT ABLE TO ESTABLISH THAT THE I MPUGNED PAYMENT HAVE BEEN MADE TO THE ASSESSEE, AO CANNOT MAKE THE ADDITION MERELY ON THE BASIS OF AIR INFORMATION. WITH THE SAID OBSERVATION THIS MATTER IS REMANDED BACK TO THE FILE OF THE AO. RESULTANTLY, GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSE. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF JUNE 2014. SD/- SD/- (SANJAY ARORA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17.06.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.