ACIT, Circle-1, Nashik V. M/s. Purti Constructions, Nashik

ITA 2195/PUN/2012

• Counselvise Citation: 219524514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 05-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Charitable institution; Additional evidence; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2195/PN/2012 (A.Y: 2005-06) ACIT, CIRCLE 1, NASHIK APPELLANT VS. M/S. PURTI CONSTRUCTIONS, CONGRESS HOUSE, M.G. ROAD, NASHIK - 422001 PAN: AABCP3592J RESPONDENT ASSESSEE BY : SHRI MAYUR K ISNADWALA DEPARTMENT BY : SHRI P.L. PATHADE DATE OF HEARING : 19.03.2014 DATE OF ORDER : 27.03.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-II, [SHORT C IT(A)] NASHIK, DATED 31.08.2012 FOR A.Y. 2005-06 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE C IT (A) ERRED IN DELETING THE ADDITIONS OF RS. 18,93,29 1/- MADE BY THE AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN TREATING THAT THE INTEREST FREE ADVANC E OF RS.1,29,18,876/- WAS USED BY ASSESSEE FOR THE PURPO SE OF RENOVATION OF THE ROOMS, RESTAURANT BEING RUN BY TH E ASSESSEE AND HAS A CLOSE BUSINESS NEXUS AND COMMERC IAL EXPEDIENCY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN TREATING THAT THE AO IS NOT JUSTIFIED IN 2 DISALLOWING RS. 18,93,291/- HOLDING THAT THE INTERE ST FREE ADVANCE WAS GIVEN OUT OF BORROWED FUNDS TO ITS SIST ER CONCERN. 4. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE A.O. BE RESTORED. 5. THE APPELLANT REQUESTS FOR ADMISSION OF AN ADDITION AL GROUND OF APPEAL OR ADDITIONAL EVIDENCES IF REQUIRE D TO SUPPORT HIS CASE. 6. THE APPELLANT CRAVES, LEAVES TO ADD, ALTER, AMEND, OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONST RUCTION AND RUNNING A HEALTH CLUB, A RESTAURANT AND ICE CREAM P ARLOR. THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 29.10.20 05 DECLARING THE TOTAL TAXABLE INCOME AT NIL AFTER SETTING OFF B ROUGHT FORWARD BUSINESS LOSS OF 70,09,791/-. THE COMPANY HAS BORROWED FUNDS FOR BUSINESS. THE INTEREST PAYMENT ON LOAN W AS CHARGED BY THE ASSESSEE COMPANY TO PROFIT AND LOSS ACCOUNT FOR THE YEAR. AN AMOUNT OF 1,29,18,876/- HAS BEEN ADVANCED TO BASTIRAM SARDA CHARITABLE TRUST. THE ASSESSEE HAS INCURRED AN EXP ENSE OF 65,56,979/- ON ACCOUNT OF INTEREST ON BORROWED CAPI TAL. OUT OF IT 18,93,291/- HAS BEEN PAID TO RELATIVES AND SISTER CONCERN. THE ASSESSING OFFICER HAS DISALLOWED THE PART OF THE IN TEREST INTER ALIA, STATING THAT IT IS ATTRIBUTABLE TO LOANS TO A SISTE R CONCERN VIZ. BASTIRAM SARDA CHARITABLE TRUST. ACCORDINGLY, AN A MOUNT OF 18,93,291/- OUT OF TOTAL INTEREST EXPENDITURE WAS D ISALLOWED. THE TRUST HAS GIVEN ITS PROPERTY ON RENT TO COMPANY FOR WHICH, THE FORMER HAS RECEIVED AN INTEREST FREE ADVANCE FROM L ATTER. THE TRUST IS CHARGING A RENT OF 60,000/- PER MONTH. THE ENTIRE INCOME HAS BEEN SET OFF AGAINST CARRIED FORWARD LOS SES. IN THIS BACKGROUND, THE ASSESSING OFFICER DISALLOWED THE IN TEREST OF 18,93,291/-. 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE 3 AND HAVING CONSIDERED THE SAME, THE CIT(A) HAD GRAN TED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALIA SUBMITTED THAT THE CIT(A) HAS E RRED IN TREATING THAT THE INTEREST FREE ADVANCE OF 1,29,18,876/- WAS USED BY ASSESSEE FOR THE PURPOSE OF RENOVATION OF THE ROOMS , RESTAURANT BEING RUN BY THE ASSESSEE AND HAS A CLOSE BUSINESS NEXUS AND COMMERCIAL EXPEDIENCY. THE CIT(A) FURTHER ERRED IN TREATING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOW ING 18,93,291/- THAT THE INTEREST FREE ADVANCE WAS GIVE N OUT OF BORROWED FUNDS TO ITS SISTER CONCERN. ACCORDINGLY, THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER B E RESTORED. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATI VE HAS SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT TH E ASSESSEE HAS BORROWED THE FUNDS FOR THE PURPOSE OF BUSINESS PURPOSE. THE INTEREST PAYMENT ON LOAN WAS CHARGED BY ASSESSEE TO PROFIT AND LOSS ACCOUNT FOR THE YEAR. THE CERTAIN AMOUNT HAS BEEN ADVANCED TO BASTIRAM SARDA CHARITABLE TRUST, IT BEING A PUBL IC CHARITABLE TRUST, IS NOT A SISTER CONCERN OF THE ASSESSEE. TH E ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT IT IS A A TTRIBUTABLE LOAN TO SISTER CONCERN. ACCORDINGLY, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING 18,93,291/- OUT OF INTEREST. THE TRUST HAS GIVEN ITS PROPERTY ON RENT TO ASSESSEE, THEREFO RE, THERE IS BUSINESS NEXUS FOR MAKING ADVANCE. BESIDES THIS, T HE ASSESSEE MADE VARIOUS CONTENTIONS IN SUPPORT OF THE ORDER OF CIT(A). 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT IT IS UNDISPUTED THAT THE ASSE SSEE HAS TAKEN A PREMISES ON RENT FROM SHRIRAM BASTIRAMJI SARDA CH ARITABLE TRUST @ 60,000/- PER MONTH AND RUNNING A HEALTH CEN TRE, ICE CREAM PARLOR FROM THE SAID PREMISES. THE ASSESSEE H AS GIVEN AN INTEREST FREE ADVANCE OF 1,29,18,876/- AS DISCUSSED ABOVE. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST OF 18,93,291/- HOLDING THAT THERE WAS NO BUSINESS OR COMMERCIAL EX PEDIENCY TO HAVE ADVANCED SUCH A HUGE AMOUNT WITHOUT INTEREST T O THE SAID 4 TRUST. DURING THE APPELLATE PROCEEDINGS, THE ASSESS EE FILED A COPY OF THE RENT AGREEMENT DT. 01.08.1993 BETWEEN THE TR UST AND THE ASSESSEE COMPANY. THE PREMISES WAS TAKEN ON RENT FR OM 01.06.1994. THE ASSESSEES ADVANCE WAS USED FOR RE NOVATION OF 48 ROOMS AND ALSO THE RENTED RESTAURANT RUN BY THE ASSESSEE COMPANY. THE ADVANCE WAS THEREFORE, ULTIMATELY USED FOR THE PURPOSE OF THE COMPANY. THE ABOVE REFERRED LEASE A GREEMENT REVEALS THAT ONE OF THE CONDITIONS WAS THAT THE ASS ESSEE COMPANY WILL PAY A LICENSE CUM USER FEE OF 60,000/- PER MONTH AND SHALL KEEP 75 LACS AS INTEREST FREE DEPOSIT CUM ADVANCE WITH THE TRUST I.E. THE OWNER OF LAND. THE SAID AGREEMENT WA S RE-ENTERED ON 01.02.2005 AFTER EXPIRY OF THE EARLIER ONE ON 31 .01.2005. THE LICENSE CUM USER FEE REMAINED UNCHANGED I.E 60,000/- PER MONTH. THE INTEREST FREE DEPOSIT WAS REDUCED TO 50,00,000/- BESIDES SOME FLOATING DEPOSIT TO COVER THE RENT OF THE PREMISES AND AS A SECURITY AGAINST THE USAGE OF SPORTS COMPL EX FACILITIES. ON PERUSAL OF THE DETAILS AND TAKING INTO CONSIDERA TION THE RENT / LICENSE CUM USER FEE OF 60,000/- PER MONTH WHICH REMAINED UNCHANGED SINCE 01.06.1994, THE CIT(A) OBSERVED THA T INTEREST FREE ADVANCE OF 1,29,18,876/- WHICH WAS USED FOR THE PURPOSE OF RENOVATION OF THE ROOMS, RESTAURANT BEING RUN BY THE ASSESSEE, HAD A CLOSE BUSINESS NEXUS AND COMMERCIAL EXPEDIENC Y. IN THIS BACKGROUND, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING 18,93,291/- HOLDING THAT THE INTEREST FREE ADVANCE WAS GIVEN OUT OF BORROWED FUNDS TO ITS SISTER CONCERN WITHOUT ANY BUSINESS OR COMMERCIAL EXPEDIENCY. IN VIEW OF THE ABOVE, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF 18,93,291/-. THE SAME WAS RIGHTLY DELETED BY CIT(A) BY A REASONED FINDING, WH ICH NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D AS INDICATED ABOVE. 5 PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF MARCH, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YAD AV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH MARCH, 2014 GCVSR COPY TO:- 1. DEPARTMENT 2. ASSESSEE 3. THE CIT(A)-II, NASHIK 4. THE CIT-II, NASHIK 5. THE DR, A BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE