DCIT 13(2), MUMBAI V. RAJENDERA B. MEHTA, MUMBAI

ITA 212/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79340 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: M P MAKHIJA; S M MAKHIJA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI . . , ! #, ! % BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER /. ITA NO. 212/MUM/2011 # # # # # ## # / ASSESSMENT YEAR: 2007-08 DCIT 13(2) R.NO.421, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. SHRI RAJENDRA B. MEHTA 12, C.L. SHAH FAMILY TRUST BEHIND SANT TUKARAM MANDIR MUMBAI. 400 009 ( ) / APPELLANT) ( *+) / RESPONDENT) PERMANENT ACCOUNT NO. :- AAHPM 0155 B APPELLANT BY : SHRI OM PRAKASH MEENA RESPONDENT BY : SHRI M.P. MAKHIJA & S.M. MAKHIJA / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPE AL: 1.(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE/ADDIT ION OF RS.14,05,028/-. (II) WHILE DOING SO, THE LD. CIT(A) HAS FAILED TO C ONSIDER THE FACT THAT VIDE ORDER SHEET ENTRY DT.26.08.2009, THE ASSESSEE HAD A GREED TO THE ADDITION/DISALLOWANCE AND OFFERED THIS AMOUNT FOR T AXATION. 2.(I) ON THE FACT AND IN THE CIRCUMSTANCES OF THE C ASE IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.2,59,92 0/- OUT OF THE TRAVELING EXPENSES TO RS.1,03,968/- (II) WHILE DOING SO, THE LD. CIT(A) HAS FAILED TO A PPRECIATED THAT THE TRAVELING EXPENSES INCLUDED THOSE RELATING TO HIS FAMILY MEMB ERS AND NOT ASSESSEES WIFE ALONE AND THAT THE ASSESSEE FAILED TO PROVE THAT TH E SAID EXPENSES WERE INCURRED - / DATE OF HEARING : 13.05.2014 - / DATE OF PRONOUNCEMENT : 16.07.2014 ITA NO. 212/MUM/2011 SHRI RAJENDRA B.MEHTA ASSESSMENT YEAR: 2007-08 2 WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE AND THUS ALLOWABLE U/S.37 OF THE I.T.ACT,1961. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSMENT OFFICER BE RESTORE D. GROUND NO.1: 2. THE REVENUE VIDE GROUND NO. 1 HAS AGITATED THE D ELETION OF THE INTEREST DISALLOWANCE OF RS.14,05,028/-/- BY THE CIT(A), W HICH ADDITION WAS MADE BY THE ASSESSING OFFICER U/S 36(1) (III) ON THE GROUN D THAT BORROWED FUNDS WERE USED BY THE ASSESSEE FOR ADVANCEMENT OF INTEREST F REE LOAN OF RS.7138842/-TO HIS BROTHER BHUPINDER B. MEHTA. 3. BEFORE US, THE CONTENTION OF THE LD. D.R. HAS BE EN THAT THE ASSESSEE HAD DEBITED INTEREST EXPENDITURE OF RS.1,24,07,353/- IN HIS P&L ACCOUNT. HE HAS STRESSED THAT PROPORTIONAL DISALLOWANCE OF INTEREST EXPENDITURE ON ACCOUNT OF INTEREST FREE ADVANCES MADE BY THE ASSESSEE TO HIS BROTHER WAS RIGHTLY MADE BY THE A.O. HIS FURTHER CONTENTION HAS BEEN THAT THE A SSESSEE HIMSELF OFFERED RS.14,05,028/- AS NOTIONAL INTEREST, WHICH WAS ADDE D BACK BY THE A.O. INTO THE INCOME OF THE ASSESSEE. 4. THE LD. A.R. OF THE ASSESSEE, ON THE OTHER HAND, HAS RELIED UPON AN AUTHORITY OF THE HON'BLE BOMBAY HIGH COURT STYLED A S 'CIT VS. RELIANCE UTILITIES AND POWER LTD.' [2009] 313 ITR 340 (BOM.) WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND OVERDRAFT/LOANS TAKEN, THEN PRESUMPTION WOULD A RISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAIL ABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. THE LD. A.R. HAS FURTHER SUBMITTED THAT THE LOAN WAS ADVANCED BY THE ASSESSEE TO HIS BROTHER OUT OF OWN FUNDS. MOREOVER IT WAS UP TO ASSESSEE TO DEC IDE AS HOW TO CONDUCT HIS BUSINESS AND THE REVENUE CANNOT DICTATE TERMS TO TH E ASSESSEE FOR THE CONDUCT OF THE BUSINESS. HE HAS FURTHER STRESSES THAT THE ASSE SSEE DID NOT OFFER ANY INTEREST EXPENDITURE AS NOTIONAL INTEREST AS OBSERVED BY THE AO AND THAT THE SAID OBSERVATION OF THE AO WAS WRONG. 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND HAVE ALSO GONE THROUGH THE RECORD. WE MAY OBSERVE THAT THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF 'CIT VS. RELIANCE UTILITIES AND POWER LTD.' HAS OBSERVED THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND O VERDRAFT/LOANS TAKEN, THEN ITA NO. 212/MUM/2011 SHRI RAJENDRA B.MEHTA ASSESSMENT YEAR: 2007-08 3 PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE ASSESSEE. 6. THERE IS A FORCE IN THE CONTENTION OF THE LD. AR THAT IN DAY TO DAY BUSINESS, IT IS FOR THE ASSESSEE TO SEE HOW TO MANA GE ITS BUSINESS. EVEN THOUGH THE ASSESSEE MAY NOT SHOW IN THE ABSENCE OF SEPARA TE FUND FLOW STATEMENT OR SEPARATE ACCOUNTS RELATING TO BUSINESS LOANS AND TR ANSACTIONS AND INVESTMENTS MADE FROM OWN FUNDS, BUT IF THE ASSESSEE IS ABLE TO SHOW THE NEAR PROXIMITY OF AVAILABILITY OF OWN FUNDS MAY BE EXACTLY NOT ON THE DATE OF INVESTMENT OR ADVANCEMENT OF LOAN BUT IN A VERY NEAR FUTURE DATE OR WITHIN A REASONABLE SHORT PERIOD OF TIME, EVEN THEN THE PRESUMPTION WILL BE T HAT THE ADVANCEMENT OF LOAN/ INVESTMENT WAS MADE BY THE ASSESSEE FROM HIS OWN FU NDS OR IN ANTICIPATION OF AVAILABILITY OF ITS OWN FUNDS WITHIN A SHORT PERIOD OF TIME. THE PRINCIPLE UNDERLYING THIS PROPOSITION IS THAT A BUSINESSMAN H AS TO CIRCULATE HIS MONEY ACCORDING TO THE DAY TO DAY REQUIREMENTS AND THE LI KELY INFLOW AND OUTFLOW OF MONEY IN THE NEAR FUTURE IS TAKEN INTO CONSIDERATIO N WHILE MAKING ADVANCEMENT/EXPENDITURE. EVEN IF ON THE DATE OF INV ESTMENT/EXPENDITURE, OWN FUNDS MAY NOT BE AVAILABLE WITH THE ASSESSEE BUT IF THE ADVANCEMENT / EXPENDITURE IS MADE IN ANTICIPATION OF AVAILABILITY OF OWN FUNDS AND THE OWN FUNDS ARE AVAILABLE TO THE ASSESSEE WITHIN A VERY S HORT PERIOD OF TIME, THEN UNDER SUCH CIRCUMSTANCES DISALLOWANCE CAN NOT BE MADE ON THE ENTIRE LOAN AMOUNT BUT A VERY REASONABLE PROPORTIONATE DISALLOWANCE CAN BE MADE AND EVEN IN CERTAIN CASES CAN BE IGNORED DUE TO THE SHORTNESS OF THE PE RIOD BETWEEN THE DATE OF ADVANCEMENT/EXPENDITURE AND DATE OF AVAILABILITY OF OWN FUNDS. IT CAN BE OBSERVED BY THE ASSESSING OFFICER FROM THE BALANCE SHEET AS TO WHETHER SUFFICIENT OWN FUNDS WERE AVAILABLE TO THE ASSESSEE DURING THE FINANCIAL YEAR OR THE THE INTEREST FREE FUNDS WERE GENERATED DURING T HE COURSE OF THE YEAR EVEN IF THE ASSESSE COULD NOT PROVE THE AVAILABILITY OF OWN FUNDS OF THE PARTICULAR DATE OF INVESTMENT/ADVANCEMENT/EXPENDITURE. 7. IN THE INSTANT CASE, THE CONTENTION OF THE ASSES SEE HAS BEEN THAT THE ASSESSEES OWN CAPITAL AS ON 31.3.2007 WAS RS.81,64 ,872/- WHICH WAS MORE THAN THE AMOUNT OF INTEREST FREE ADVANCE OF RS.71,3 8,842/- TO HIS BROTHER BHUPINDER B. MEHTA. THE LD. CIT(A) AFTER GOING THR OUGH THE ACCOUNTS OF THE ASSESSEE HAS FOUND THE CONTENTION OF THE ASSESSEE TO BE CORRECT AND THEREFORE DELETED THE DISALLOWANCE SO MADE BY THE A.O. SO FAR SO THE CONTENTION THE LD. DR THAT THE ASSESSEE HIMSELF OFFERED RS.14,05,028/- AS NOTIONAL INTEREST IS ITA NO. 212/MUM/2011 SHRI RAJENDRA B.MEHTA ASSESSMENT YEAR: 2007-08 4 CONCERNED, THE LD. AR HAS BROUGHT OUR ATTENTION TO THE LETTER DATED 30.11.2009 OF THE ASSESSEE ADDRESSED TO THE AO VIDE WHICH THE ASSESSEE HAS AGITATED THE ABOVE DISALLOWANCE PROPOSED BY THE AO. HE HAS FURTH ER SUBMITTED THAT THE NOTIONAL INTEREST WAS WORKED OUT ON THE ASKING OF T HE AO BUT WITHOUT ADMITTING THE LIABILITY. THE PERUSAL OF THE LETTER DATED 30.1 1.2009 REVEALS THAT THE ASSESSEE DID NOT ADMIT ITS LIABILITY OF DISALLOWANCE OF NOTI ONAL INTEREST BEFORE THE AO. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE CIT(A) WHILE DELETING THE DISALLOWANCE ON THE ABOVE ISSUE. HENCE GROUND NO.1 OF THE APPEAL IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. GROUND NO.2 8. THE REVENUE VIDE THIS GROUND OF APPEAL HAS AGITA TED THE ACTION OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE OUT OF TRAVE LLING EXPENSES TO RS.103968/- AS AGAINST THE DISALLOWANCE OF RS.2,59,920/- MADE B Y THE AO. 9. THE AO OBSERVED THAT THERE WERE INCLUDED BILLS O F THE FAMILY MEMBERS ALSO RELATING TO THE FOREIGN TRAVEL MADE BY THE ASS ESSEE FOR BUSINESS PURPOSES. HE THEREFORE DISALLOWED 50% OUT OF THE TRAVELLING E XPENSES CLAIMED BY THE ASSESSEE. THE LD. CIT(A) AFTER CONSIDERATION OF OVE RALL FACTS AND CIRCUMSTANCES OF THE CASE, RESTRICTED THE DISALLOWANCE TO 20% I. E. AT RS.103968/-. WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE REASON ED ORDER OF THE CIT(A) ON THIS ISSUE ALSO. 10. GROUND NO.3 OF THE APPEAL IS GENERAL IN NATURE AND DOES NOT NEED ANY ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS HER EBY DISMISSED . - 0 16 .07. 201 4 - ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JULY, 2014. SD/- SD/- ( P.M. JAGTAP ) (SANJAY GARG) ! ! ! ! / ACCOUNTANT MEMBER ! ! ! ! / JUDICIAL MEMBER /MUMBAI, 0 /DATED: 16.07.2014. . ./ P.S. *A.K.PATEL ITA NO. 212/MUM/2011 SHRI RAJENDRA B.MEHTA ASSESSMENT YEAR: 2007-08 5 COPY TO: ) / THE APPELLANT *+) / THE RESPONDENT 2 3 / THE CIT, CONCERNED, MUMBAI 2 3 / THE CIT(A) CONCERNED, MUMBAI 4 * /THE DR D BENCH # / GUARD FILE. +4 * //TRUE COPY// / BY ORDER / DY/ASSTT. REGISTRAR, , / ITAT, MUMBAI.