BHAGYALAXMI HOTELS P. LTD, MUMBAI V. ACIT CIR 6(1), MUMBAI

ITA 2302/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3792 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-04-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Non-deduction of tax
• Section: 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI . . , , !' #$, % , & BEFORE SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.2302 /MUM/2011 ( %' ( / ASSESSMENT YEAR: 2005-06) M/S. BHAGYALAXMI HOTELS PVT. LTD. 41-A, RAJKAMAL APARTMENT, RAJKAMAL STUDIO COMPOUND, DR.S.S.RAO ROAD, PAREL, MUMBAI - 400012 ' / VS. ACIT CIR 6(1) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AAACB4254C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 22.04.2016 !' /DATE OF PRONOUNCEMENT:10.08.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 27.09.2010 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 14, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y.2005-06. ASSESSEE BY: SHRI REEPAL G. TRALSHAWALA DEPARTMENT BY: SMT. POOJA SWAROOP ITA NO.2302/M/2011 A.Y. 2005-06 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE C.I .T.(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.56,00,00 0/- OUT OF INTEREST PAID WITHOUT APPRECIATING THE FACT THAT , LOAN TAKEN WAS UTILIZED BY THE APPELLANT. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE THE C.I.T .(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.2,58,919/- O UT OF COMMISSION PAID. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED THE RETURN OF INCOME DECLARING TOTAL LOSS TO THE TUNE O F RS.55,63,901/- ON 28.10.2005. THE RETURN WAS PROCESSED U/S.143(1) IN COME TAX ACT, 1961 (IN SHORT THE ACT). THE CASE WAS SELECTED F OR SCRUTINY, THEREFORE THE NOTICE U/S.143(2) AND 142(1) WERE ISS UED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF HOTEL INDUSTRY HAVING HOTEL AT SHIRDI. AFTER VE RIFICATION OF DETAILS, IT WAS FOUND THAT THE ASSESSEE CLAIMED THE INTEREST TO THE TUNE OF RS.97,38,031/- VIDE WHICH AN AMOUNT OF RS.41,38,030 /- WAS ALLOWABLE HENCE, THE BALANCE INTEREST TO THE TUNE OF RS.56,00 ,001/- WAS FOUND UNEXPLAINED, THEREFORE, DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED THE COM MISSION PAYMENT TO THE EXTENT OF 20%, THEREFORE, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE ASSESSING OFF ICER, THEREFORE THE PRESENT APPEAL HAS BEEN FILED BEFORE US. ITA NO.2302/M/2011 A.Y. 2005-06 3 ISSUE NO.1:- 4. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.56,00,001/- WITHIN THE I NTEREST PAID WITHOUT APPRECIATING THE FACT THAT THE LOAN TAKEN WAS UTILI ZED BY THE APPELLANT. THE ASSESSEE INITIALLY CLAIMED THE INTEREST TO THE TUNE OF RS.97,38,031/- AND EXPLAINED THE INTEREST TO THE TU NE OF RS.41,38,030/- THEREFORE, THE REMAINING INTEREST TO THE TUNE OF RS .56,00,001/- WAS DISALLOWED. THE CONTENTION OF THE ASSESSEE WAS DEA LT BY THE CIT(A), THEREFORE, DISCUSSING FURTHER WE ARE INCLINED TO RE PRODUCED THE FINDING OF THE CIT(A) ON RECORD:- 6. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS VERY CAREFULLY AND FACTS OF THE CASE AS WELL AS THE REMAND REPORT DATED 2.7.2009. THE A.O. HAS MADE DISALLOWANCE OF RS.56,00,000/- OUT OF TOTAL CLAIM OF RS.97,38,031/- AS FINANCIAL CHARGES AS THE ASSESSEE FAILED TO FURNISH THE BASIC DETAILS SUCH AS PARTY-WISE, UTILIZATION OF LO AN AND NON-COMPLIANCE OF TDS PROVISIONS OF SEC. 194A. 6.1 THE FACTS RELATED TO THE ISSUE ARE THAT IN THE AUDITED REPORT FILED ALONG WITH RETURN OF INCOME, THE CLOSING OUTS TANDING LOAN FROM VASANT SAHAKAR BANK WAS RS.2,30,000/- AS ON 31.03.2004. ITA NO.2302/M/2011 A.Y. 2005-06 4 6.2 AS PER VASANT DADA SHETHKARI BANK LTD., AN AMOU NT OF RS.3,95,00,000/- WAS GRANTED AS A LOAN TO M/S. INDI AN POLYPHARM VIDE SANCTION LETTER DATED 17.05.2004 AND THE AMOUNT WAS DISBURSED ON 12.06.2004. M/S. INDIAN POLYPHARM ALSO MAINTAIN A CURRENT ACCOUNT NO.1319 I N THE SAME BANK AND THE LOAN AMOUNT WAS TRANSFERRED T O THAT ACCOUNT. 6.3 THE DIRECTORS OF THE COMPANY SHRI M.J.BHUJBAL A ND SMT. M.BHUJBAL ALSO MAINTAINING BANK ACCOUNT BEARING NO.1326 & 1331. BOTH OF THEM RECEIVED LOAN FROM M/S.POLYPHARM AS UNDER: SHRI M.A.BHUJBAL RS.2,81,40,000 SMT. A.M.BHUJBAL RS. 81,00,000 RS.3,62,40,000 THEREFORE, IT APPEARS THAT OUT OF THE LOANS AMOUN T OF RS.3,82,48,000/-, M/S. INDIAN POLYPHARM HAD GIVEN T HE LOAN OF RS.3,62,40,000/- TO THE DIRECTORS OF THE AS SESSEE- COMPANY. THUS IT IS CLEAR THAT THE TOTAL AMOUNT OF LOAN GRANTED TO M/S. INDIAN POLYPHARM WAS NOT UTILIZED B Y THE ASSESSEE-COMPANY AS A WHOLE, AS CLAIMED BY THE APPELLANT. FROM THE DETAILS OF INTEREST ATTRIBUTABLE TO M/S. INDIAN POLYPHARM, SHOWS THAT A SUM OF RS.5,00,000/- ITA NO.2302/M/2011 A.Y. 2005-06 5 REPRESENTING INTEREST WAS PAID BY M/S. INDIAN POLYP HARM AND THE BALANCE AMOUNT OF RS.45,00,000/- WAS PAID B Y THE ASSESSEE-COMPANY THROUGH TRANSFERRING LOAN ACCO UNT OF M/S. INDIAN POLYPHARM. HOWEVER IT IS FOUND THAT A SUM OF RS.5,00,000/- WAS TRANSFERRED FROM THE ACCOU NT OF M/S.BHAGYALAXMI HOTELS PVT. LTD. IN ACCOUNT NO. 131 9 IN THE NAME OF INDIAN POLYPHARM AND THE SAID SUM WAS TRANSFERRED TO LOAN ACCOUNT TOWARDS THE PAYMENT OF INTEREST ON SECURED LOAN. FROM THE ABOVE FACTS, IT IS VERY CLEAR THAT SINCE THE LOAN WAS RECEIVED FROM SHRI M. A. BHUJBAL AND SMT. A.N.BHUJBAL, INTEREST, IF ANY WAS REQUIRED TO BE PA ID TO THEM ONLY AND NOT TO THE BANK. THE PAYMENTS MADE B Y THE APPELLANT TO THE BANK IS PURELY REPAYMENT OF LO AN / INTEREST FOR AND ON BEHALF OF THE ABOVE LOAN CREDIT ORS. EVEN THE BANK HAS ALSO CREDITED THE ACCOUNTS OF THE PERSONS ONLY ON RECEIPT OF PAYMENT FROM THE APPELLA NT. THEREFORE, I FULLY AGREE WITH THE A.O. THAT ASSESS EE WAS LIABLE TO DEDUCT TAX AT SOURCE U/S.194A ON PAYMENT OF INTEREST OF RS.51,00,000 TO BANK THROUGH LOAN ACCOU NT NO.5 IN THE NAME OF INDIAN POLYPHARM. THEREFORE, A S PER PROVISIONS OF INTEREST IN VIEW OF NON-DEDUCTION OF TAX AT SOURCE AND DEPOSIT THEREOF WITHIN THE PRESCRIBED TI ME ITA NO.2302/M/2011 A.Y. 2005-06 6 LIMIT. THUS, THE APPELLANT IS NOT ENTITLED FOR DED UCTION OF FINANCIAL CHARGES OF RS.56,00,000/-. ACCORDINGLY, THE ACTION OF THE A.O. IS CONFIRMED AND THIS GROUND OF APPEAL IS TREATED AS DISMISSED. 5. IT IS ADMITTED THAT THE ASSESSEE PAID INTEREST T O THE TUNE OF RS.51,00,000/- TO BANK THROUGH LOAN ACCOUNT NO.5 IN THE NAME OF M/S. INDIAN POLYPHARM. AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE APPELLANT WAS NOT ELIGIBLE FOR THE DEDUCTI ON OF PAYMENT OF INTEREST IN VIEW OF NON-DEDUCTION OF TAX AT SOURCE AND DEPOSIT THEREOF WITHIN THE PRESCRIBED LIMIT. THEREFORE IT WAS HELD THAT THE APPELLANT IS NOT ENTITLED FOR THE DEDUCTION TO THE TUNE OF RS.51 ,00,000/-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT M/S. INDIAN POLYPHARM UTILIZED THE TERM LOAN OF FLOATED BY THE DIRECTORS IN THE APPELLANT COMPANY FOR THE SOLE BENEFIT OF THE APPEL LANT FOR SUCH LOAN AND INTEREST PAYABLE ARE THE LIABILITY OF THE COMPA NY. THEREFORE, THE INTEREST PAID IS LIABLE TO BE ALLOWABLE IN VIEW OF THE PROVISION U/S.36(1)(III) OF THE ACT. IN SUPPORT OF THESE CON TENTIONS THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE ON THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.97&2974/MUM/2010 IN CASE OF ONWARD SERVICES LTD. VS. ACIT CENTRAL CIRCLE 37 DATED 09.05.2012. THE LEARNED RE PRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE ON THE PARA 9 OF THE S AID JUDGEMENT WHICH IS REPRODUCED BELOW:- ITA NO.2302/M/2011 A.Y. 2005-06 7 9. THERE ARE OTHER ASPECTS ALSO TO BE CONSIDERED. IT IS AN ACTUAL REIMBURSEMENT OF THE INTEREST BY THE PARENT COMPANY FROM THE ASSESSEE IN RESPECT OF THE UTILIZA TION OF THE BANKING FUNDS IN RESPECT OF BORROWING FACILITIE S ENJOYED BY THE M/S. OTL, THE PARENT COMPANY THEN IT CANNOT BE SAID TO BE THE INCOME OF THE PARENT COMPA NY. IN THE ASSESSMENT ORDER, AS PER THE EXPLANATION FIL ED BY THE ASSESSEE, THE OTL HAS REDUCED THE AMOUNT OF INTEREST RECEIVED FROM THE ASSESSEE COMPANY FROM IT S INTEREST ACCOUNT AND ONLY THE NET AMOUNT OF THE INT EREST IS TAKEN TO THE PROFIT AND LOSS ACCOUNT. MOREOVER, AS PER THE PROVISIONS OF SEC.194A, OTHERWISE ALSO THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT THE TAX AT SOUR CE IF THE INTEREST IS PAID TO ANY BANKING COMPANY TO WHICH BA NK REGULATIONS ACT, 1949 APPLIES. IN PRESENT CASE ASS ESSEE HAS PAID INTEREST TO BANK ONLY BUT THROUGH ITS PAR ENT COMPANY. 6. IN VIEW OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE OBSERVATIONS MADE BY THE INCOME TAX AP PELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.97&2974/MUM/2010 I N CASE OF ONWARD ESERVICES LTD. VS. ACIT CENTRAL CIRCLE 37 DA TED 09.05.2012, WE ARE OF THE VIEW THAT THE ISSUE IS REQUIRED TO BE RE-EXAMINED AT THE END OF THE ASSESSING OFFICER IN VIEW OF THE ABOVE M ENTIONED LAW, ITA NO.2302/M/2011 A.Y. 2005-06 8 THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE IN QUESTION AND REMAND THIS ISSUE TO THE ASSESSING OFF ICER TO DECIDE THE MATTER AFRESH IN THE LIGHT OF THE ABOVE MENTIONED L AW BY GIVING AN OPPORTUNITY TO HEARD TO THE ASSESSEE. ACCORDINGLY, THIS ISSUE IS DECIDE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.2:- 7. ISSUE NO.2 IS IN CONNECTION WITH THE CONFIRMATIO N OF THE DISALLOWANCE OF RS.2,58,919/- OUT OF THE COMMISSION PAID. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF HOTEL INDUST RY AND PAID CERTAIN COMMISSIONS TO THE TAXI DRIVERS AND RIKSHAW PULLERS FOR BRINING THEIR CLIENTS. IN SUPPORT OF THE CLAIM, THE ASSESSEE FUR NISHED NAMES OF TAXI DRIVERS AND RIKSHAW PULLERS AND CLAIMED THE COMMISS ION PAID TO THEM. IT IS NOT IN DISPUTE THAT THE HOTELIERS ARE REQUIRE D TO PAY COMMISSION TO THE PERSON WHO BRINGS BUSINESS TO THE ASSESSEE. TA XI DRIVERS AND RIKSHAW PULLERS ARE INTRODUCED TO BRING MORE BUSINE SS TO THE ASSESSEE. THE ENTIRE COMMISSION WAS PAID IN THE FORM OF CASH. THE PAYERS ARE NOT IDENTIFIABLE, THEREFORE THE ASSESSING OFFICER D ISALLOWED THE COMMISSION TO THE EXTENT TO 20%. ON SEEING THE BUS INESS OF THE ASSESSEE AND COMMISSION PAID TO THE TAXI DRIVERS AN D RIKSHAW PULLERS, WE ARE OF THE VIEW THAT THE DISALLOWANCE TO THE EXT ENT OF 20% OF THE TOTAL COMMISSION IS ON THE HIGHER SIDE, THEREFORE R ESTRICT THE DISALLOWANCE TO THE EXTENT OF 10% OF THE COMMISSION PAID. ITA NO.2302/M/2011 A.Y. 2005-06 9 ACCORDINGLY THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST , 2016. SD/- SD/- (R.C.SHARMA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 10 TH AUGUST, 2016 MP MP MP MP * +%'#, -,(' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ' / BY ORDER, - & //TRUE COPY// ./$ ! /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI