SAHANA BUILDERS & DEVELOPERS PRIVATE LIMITED, MUMBAI V. CIT(A) 52, MUMBAI

ITA 2099/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5389 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 17-11-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3); 14A; 37(1); 250; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 2099/Mum/2021 (A.Y: 2014-15) Sahana Builders and Developers Pvt Ltd 402, Plot No. 54, Sagar Avenue, SV Road, Andheri (W), Mumbai- 400058. Vs. CIT (A) – 52 6 th Floor, Aayakar Bhavan, MK Marg, Mumbai – 400 020. PAN/GIR No. : AAHCS4782P Appellant .. Respondent Appellant by : Shri. Amit Bothra.AR Respondent by : Shri. S.Anbuselvam.DR Date of Hearing 11.07.2022 Date of Pronouncement 14.07.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of Commissioner of Income Tax (Appeals)-52, Mumbai passed u/s 143(3) and 250 of the Act. The assessee has raised the following grounds of appeal: 1. That the Ld. CIT(A) has erred in law as well as under the circumstances of the case in disallowing interest u/s 36(i)(iii) and or u/s 37(1) of the Act amounting to Rs. 2,71,380/- ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 2 - 2. That your appellant craves to add, alter, or amend any of the grounds at the time of hearing of appeal. 2. The brief facts of the case are that, the assessee company is engaged in the business of construction of buildings. The assessee has filed the return of income for the A.Y 2014-15 on 28.11.2014 disclosing a total income of Rs. Nil. Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The Assessing officer (A.O) on perusal of the financial statements found that the assessee has interest income of Rs.14,37,56,913/- which includes FDR and other interest income and has offered to tax income from business. 3. The assessee was called to submit the details of interest received/paid to the parties, and the assessee has filed the details referred at Page 2 Para 3 of the assessment order, where the A.O. find the average rate of interest received @ 13.47% and average rate of interest paid @ 14.98%. The A.O. has issued show cause notice to the assessee to substantiate why ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 3 - higher rate of interest paid as against the interest received should not be subjected to proportionate disallowance. The assessee has filed the submissions on 31-08-2016 explaining the reasons and group companies differential interest rate chargeability on the loan transactions. The A.O was not satisfied with the explanations of the assessee and made disallowance of Rs.1,37,02,799/- u/s 36(1)(iii) of the Act. Similarly the A.O made disallowance u/s 14A r.w.r 8D(2) of the IT Rules of Rs.98,65,585/-. Further, in respect of motor car expenses, the A.O found that the assessee was not able to substantiate with the log book and requisite details on the usage of vehicle and the A.O. has observed that there is a personal usage of motor car is involved and made adhco-disallowance @ 25% of the total expenses which worked out to Rs. 13,44,138/- and finally assessed the total income of Rs. 7,90,24,632/-and passed the order u/s 143(3) of the Act dated 25.10.2016. 4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO and in respect of disputed issue ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 4 - claim of deduction u/s 36(1)(iii) of the Act the CIT(A) has considered the various aspects of transactions dealt by the assessee including the group companies and the facts of borrowed funds and the own funds available with the company. The CIT(A) observed that the A.O. could not identify the transactions were the barrowed funds are utilized for advancing the loans at lower rate and in one instance where the barrowing rate was higher, the CIT(A) has restricted the disallowance of interest to extent of Rs.2,71,380/- and in the other grounds of appeal the CIT(A) has granted partial relief and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Honble Tribunal. 5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the partial disallowance u/s 36(1)(iii) of the Act, though the assessee has substantiated before the appellate authority with the reasons for obtaining the loans on differential rate of interest and were provided to the group companies. Further the Ld.AR mentioned that the assessee own funds are more than the lending of funds and substantiated with the financial statements ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 5 - and judicial decisions and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A). 6. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld. AR that the CIT(A) erred in sustaining the partial disallowance u/s 36(1)(iii) of the Act to the extent of Rs.2,71,380/-.The Ld. AR’s contentions are that the CIT(A) having called for the information has made elaborate discussions on the point of interest chargeability on the sister concerns and group companies. The loan was provided to the group companies and others and interest income is offered in the books of accounts. Further, the Ld. AR mentioned that the assessee has substantial own funds to cover the lending transactions and demonstrated the facts in the financial statements in particular the balance sheet placed in the paper book where the assessee’s own funds are more than the barrowed funds. The Ld. AR relied on the catena of judicial decisions in supporting the claim that the amounts have been utilized for the purpose of business exigency and exist commercial expediency in the transactions. ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 6 - The contentions of the Ld.AR that the assessee has reserves and surplus as per note 2 to the balance sheet Rs.225,133, 206/- and the assessee has obtained the unsecured loans as per note 3 from the directors of Rs.41,247,775/-. 7. We have considered the facts of the availability of funds and the CIT(A) has dealt on the concept of the borrowed funds elaborately in his order but made discrimination, where the assessee has borrowed funds from Pawansut Dwellers Pvt Ltd @ 12.45% which is below the average rate of interest worked out @13.47%. Whereas in respect of Smt Hemlata Shetty and M/s Sahana Dwellers Pvt Ltd( director/Group concerns) fund were borrowed @ 16.25%, the CIT(A) has made a disallowance of differential interest @ 2.78% i.e [16.25%-13.47%] and sustained the interest disallowance. We find this concept of differential interest can be accepted only when there is no commercial expediency and business exigency. The assessee has proved before the appellate authority with the substantial information on the business funds and rationality of the business and effective participation of the group concerns. We considering the overall facts, ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 7 - circumstances and the judicial decisions are of the opinion that the assessee has substantiated with the evidences that the funds are utilized for the purposes of business and the revenue authorities having accepted the facts that the funds were utilized for the business but disagreeing on the higher rate of interest in respect of two parties were the funds are provided on the business exigency/urgency is not a acceptable theory. Therefore we do not find merits in the findings of the CIT(A) on this disputed issue of sustaining disallowance U/sec36(1)(iii) of the Act of Rs 2,71,380/- Accordingly, we direct the Assessing officer to delete the addition and allow grounds of appeal in favour of the assessee. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 14.07.2022 Sd/- Sd/- ( PRASHANT MAHARISHI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 14.07.2022 ITA No. 2099/Mum/2021 Sahana Builders & Developers Pvt Ltd., Mumbai. - 8 - KRK, PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. Concerned CIT 5. DR, ITAT, Mumbai 6. Guard file. आदेशान ु सार/ BY ORDER, //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai