BHAVARLAL MANGILAL JAIN, MUMBAI V. ACIT 19 (1), MUMBAI

ITA 2245/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4953 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 10-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Proportionate interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI , ! BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER . 2245 / / 2019 (%. 2012-13 ) ITA NO.2245/MUM/2019 (A.Y 2012-13) SHRI BHAVARLAL MANGILAL JAIN, 58/1, GANESH KRIPA BUILDING, MUGHBHAT LANE, THAKURDWAR ROAD, MUMBAI 400 004 PAN: AABPJ 9306K ...... ' / APPELLANT % VS. THE ACIT -19(1), 203, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 ..... ()/ RESPONDENT '*/ APPELLANT BY : SHRI NIMESH CHOTHANI ()*/ RESPONDENT BY : SHRI SANJAY J. SETH %+) / DATE OF HEARING : 06/01/2021 ,-. +) / DATE OF PRONOUNCEMENT : 05/04/2021 / ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-60, MUMBAI [IN SHORT THE CIT(A)], DATED 15/02/2019 FOR THE ASSESSMENT YEAR 2012-13. 2. SHRI NIMESH CHOTHANI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN HIS RETURN OF INCOME HAD WRONG LY CLAIMED INTEREST EXPENDITURE UNDER THE HEAD, INCOME FROM OTHER SOUR CES. CONSEQUENTLY, THE 2 . 2245 / / 2019 (%. 2012-13 ) ITA NO.2245/MUM/2019 (A.Y 2012-13) ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE. IN FIRST APPELLATE PROCEEDINGS THE ASSESSEE RAISED AN ADDITIONAL GROUN D THAT THE INTEREST EXPENDITURE BE ALLOWED UNDER THE HEAD, INCOME/PROF IT FROM BUSINESS AND PROFESSION. THE CIT(A) AFTER PLACING RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE U TILITIES & POWER LTD., 313 ITR 340 ALLOWED INTEREST EXPENDITURE UNDER SECTION 36(1)(III). HOWEVER, THE CIT(A) RESTRICTED THE INTEREST RATE TO 12%. INTERES T PAID BEYOND 12% WAS DISALLOWED ON THE GROUND THAT THE RATE OF INTEREST IS HIGHER THAN THE INTEREST RECEIVED ON PARTNERSHIP CAPITAL ACCOUNT. THE LD. AU THORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ONCE THE INTEREST EXPEN DITURE IS TREATED AS BUSINESS EXPENDITURE UNDER SECTION 36(1)(III), THE DEPARTMENT CANNOT DISALLOW PROPORTIONATE INTEREST IN AN ARBITRARY MANNER. IN SUPPORT OF HIS CONTENTIONS THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE P LACED RELIANCE ON THE FOLLOWING DECISIONS: I. CIT VS. BOMBAY SAMACHAR LTD., 74 ITR 723 (BOM); AND II. SUBHKARAN SAMPATHLAL (HUF) VS. ITO, IN ITA NO.3 44/KOL/2020 FOR A.Y. 2007-08 DECIDED ON 08/07/2020. 3. ON THE OTHER HAND, SHRI SANJAY J. SETHI REPRESEN TING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER. THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS TAKE N DIFFERENT STAND BEFORE THE ASSESSING OFFICER AND THE CIT(A) IN RESPECT OF INTEREST EXPENDITURE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE HAS FURNISHED DETAILS OF INTEREST PAID AND INTEREST RECEIVED. A PERUSAL OF THE SAME WOULD SHOW THAT THE ASSESSEE HAS RECEIVED INTEREST ON PAR TNERSHIP CAPITAL ACCOUNT @12%. WHEREAS, THE ASSESSEE HAS PAID INTEREST TO SO ME OF THE PARTIES AS HIGH AS 24%. THE CIT(A) HAS MADE DISALLOWANCE OF INTERES T IN EXCESS OF 12%. 3 . 2245 / / 2019 (%. 2012-13 ) ITA NO.2245/MUM/2019 (A.Y 2012-13) 4. BOTH SIDES HEARD, ORDERS OF THE AUTHORITIES BELO W EXAMINED. THE ASSESSEE IN PRESENT APPEAL HAS RAISED SOLITARY GROU ND ASSAILING DISALLOWANCE OF INTEREST PAID ON UNSECURED LOANS TO THE EXTENT OF R S.11,09,464/-. THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS HAD DISALLOWED AS SESSEES ENTIRE CLAIM OF INTEREST EXPENDITURE, AS THE ASSESSEE HAD CLAIMED I NTEREST EXPENDITURE UNDER THE HEAD, INCOME FROM OTHER SOURCES. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE MADE A CLAIM THAT THE INTEREST EXPENDI TURE BE TREATED AS BUSINESS EXPENDITURE. THE CIT(A) ACCEPTED THE ALTERNATE CLAI M AND ALLOWED INTEREST AS BUSINESS EXPENDITURE. THE DEPARTMENT IS NOT IN APPE AL AGAINST THE FINDINGS OF CIT(A) IN ACCEPTING INTEREST AS BUSINESS EXPENDITU RE UNDER SECTION 36(1)(III) OF THE ACT. THUS, THE DEPARTMENT ACCEPTED THAT THE INT EREST PAID BY THE ASSESSEE IS A BUSINESS EXPENDITURE. 5. THE CIT(A) WHILE ALLOWING INTEREST EXPENDITURE U NDER SECTION 36(1)(III), RESTRICTED THE PAYMENT OF INTEREST @ 12% ON THE GRO UND THAT THE ASSESSEE HAS RECEIVED INTEREST ON PARTNERSHIP CAPITAL ACCOUNT @ 12%, THEREFORE, INTEREST PAID TO THE EXTENT OF 12% IS ALLOWABLE. IT IS OBSER VED THAT THE DEPARTMENT HAS ACCEPTED GENUINENESS OF THE LOAN TRANSACTIONS AND T HE FACT THAT IT IS FOR THE PURPOSE OF BUSINESS. ONCE THE CIT(A) HAS ACCEPTED T HAT THE PAYMENT OF INTEREST IS BUSINESS EXPENDITURE, THE CIT(A) CANNOT IN AN ARBITRARILY MANNER RESTRICT THE INTEREST RATE. FOR DISALLOWING INTERES T BEYOND A CERTAIN RATE, THE CIT(A) HAS TO SHOW THAT THE INTEREST PAID BY THE AS SESSEE IS UNREASONABLE OR FOR EXTRANEOUS CONSIDERATION. IN THE ABSENCE OF ANY SU CH FINDING BY THE CIT(A), RESTRICTING INTEREST PAYMENT @ 12% IS ARBITRARY AND A RESULT OF SURMISES AND CONJUNCTURES. IN THE IMPUGNED ORDER, A LIST GIVING DETAIL OF THE PARTIES VIZ. NAME, AMOUNT AND RATE OF INTEREST, TO WHOM INTEREST IS PAID BY THE ASSESSEE IS 4 . 2245 / / 2019 (%. 2012-13 ) ITA NO.2245/MUM/2019 (A.Y 2012-13) TABULATED. A PERUSAL OF THE SAME REVEALS THAT THE A SSESSEE HAS PAID INTEREST RANGING FROM 5% TO 24% PER ANNUM. SOME OF THE PARTI ES TO WHOM INTEREST AT A RATE MORE THAN 12% PER ANNUM IS PAID INCLUDE BANKS, NON-BANKING FINANCE COMPANIES AND SOME PRIVATE LENDERS. THE CIT(A) HAS NOT POINTED THAT ANY OF THESE PARTIES ARE RELATED TO THE ASSESSEE WITHIN TH E MEANING OF SECTION 40A OF THE ACT OR EXCESSIVE INTEREST IS PAID ON ACCOUNT OF EXTRANEOUS CONSIDERATION. I FIND MERIT IN THE CONTENTIONS RAISED BY THE ASSESSE E, CONSEQUENTLY, THE SOLE GROUND RAISED IN THE APPEAL IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY , THE 05TH DAY OF APRIL, 2021. SD./- (VIKAS AWASTHY) / JUDICIAL MEMBER / MUMBAI, 0%/ DATED: 05/04/2021 VM , SR. PS (O/S) 5 . 2245 / / 2019 (%. 2012-13 ) ITA NO.2245/MUM/2019 (A.Y 2012-13) COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT , 2. () / THE RESPONDENT. 3. 1) ( )/ THE CIT(A)- 4. 1) CIT 5. 23()% , . . . , / DR, ITAT, MUMBAI 6. 34567 / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI