Lalbhai Reality Finance Pvt.Ltd., Ahmedabad V. The ACIT.,(OSD)-I,Range-4, Ahmedabad

ITA 2416/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1781 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 30-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: S N SOPARKAR WITH P M MEHTA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 2415 & 2416/AHD/2012 (ASSESSMENT YEAR: 2002-03& 2003-04) LALBHAI REALTY FINANCE PVT. LTD. 303, SWAGAT COMPLEX, C.G. ROAD, AHMEDABAD-380009 V/S ACIT, (OSD)-1, RANGE-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACL1991N APPELLANT BY: SHRI S.N. SOPARKAR WITH P.M. MEHTA, AR RESPONDENT BY : SHRI NARENDRA SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 19 -04-201 6 DATE OF PRONOUNCEMENT : 28-04-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 2415 & 2416/AHD/2012 ARE APPEALS BY THE AS SESSEE AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-VIII, AHMEDAB AD DATED 07.08.2012 PERTAINING TO A.Y. 2002-03 & 2003-04. BO TH THESE APPEALS HAVE COMMON GRIEVANCE ON IDENTICAL SET OF FACTS; TH EREFORE, THESE ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 2 APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR TH E SAKE OF CONVENIENCE. 2. THE COMMON GRIEVANCE IN BOTH THESE APPEALS RELATE T O THE DISALLOWANCE OF DEDUCTION FOR INTEREST PAID BY THE ASSESSEE ON ITS BORROWING FROM HDFC BANK. 3. IN THIS CASE, THE RETURN OF INCOME FOR A.Y. 2002-03 WAS FILED ON 02.12.2003; THE RETURN WAS SELECTED FOR SCRUTINY AS SESSMENT. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE A.O FOUND THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 7 ,17,59,981/- BEING PAID TO HDFC LTD. ON FURTHER PROBE, THE A.O FOUND T HAT THE ASSESSEE HAS RECEIVED A LOAN OF RS. 46 CRORES FROM HDFC LTD. , OUT OF WHICH RS. 21 CRORES WHICH WERE RECEIVED ON 21.06.2001 WAS PAI D TO ARVIND MILLS LTD. SIMILARLY, RS. 10 CRORES RECEIVED ON 07.09.200 1 WAS AGAIN PAID TO ARVIND MILLS LTD. AND RS. 15 CRORES RECEIVED ON 27. 11.2001 WAS GIVEN AS LOAN/ADVANCE TO SSKI ON THE VERY SAME DATE. 4. THE ASSESSEE WAS ASKED TO EXPLAIN THE PURPOSE OF TH E LOAN/ADVANCE MADE TO SSKI ALONG WITH THE INTEREST CHARGED FROM I T. THE ASSESSEE EXPLAINED THE NATURE OF TRANSACTION VIDE LETTER DAT ED 27.02.2006 CLAIMING THAT THE ADVANCE IS MADE OUT OF THE INTERE ST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 5. THIS CONTENTION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS UTILIZ ED BORROWED FUNDS FOR NON-BUSINESS PURPOSE AND ACCORDINGLY PROCEEDED BY C OMPUTING THE INTEREST PAID TO HDFC LTD. ON LOAN OF RS. 15 CRORES . THE A.O COMPUTED THE IMPUGNED DISALLOWANCE AT RS. 1,16,40,385/-. ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 3 6. THIS DISALLOWANCE OF INTEREST TRAVELLED UP TO THE T RIBUNAL AND THE TRIBUNAL AFTER CONSIDERING THE FACTS AND THE CIRCUM STANCES RESTORED THIS ISSUE TO THE FILES OF THE A.O WITH THE DIRECTION TH AT THE A.O SHALL RE- DECIDE THIS ISSUE AFTER GIVING FINDING WHETHER THE ASSESSEE HAS GIVEN LOAN FOR COMMERCIAL EXPEDIENCY OR NOT. 7. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, FRESH N OTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS ASKE D TO EXPLAIN THE CLAIM OF INTEREST IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL. 8. ASSESSEE CATEGORICALLY STATED THAT IT HAS APPROACHE D M/S. SSKI TO JOINTLY DEVELOP THE PROJECT AT MUMBAI WHICH PROPOSA L WAS ACCEPTED BY SSKI AND IT WAS MUTUALLY DECIDED BETWEEN THEM TO UT ILIZE THEIR FINANCIAL RESOURCES, MAN POWER AND EXPERIENCE SO AS TO DEVELOP AND MAKE THIS PROJECT SUCCESSFUL. COPY OF MOU ENTERED B ETWEEN TWO PARTIES WERE SUPPLIED TO THE A.O. IT WAS STATED THA T RS. 15 CRORES ADVANCED BY THE ASSESSEE IS IN LINE WITH THE MOU SI GNED BETWEEN ASSESSEE AND M/S. SSKI. IT WAS ONCE AGAIN CLAIMED T HAT THE ADVANCES WERE GIVEN DURING THE COURSE OF THE BUSINESS ONLY A ND THERE IS A DIRECT NEXUS BETWEEN THE ADVANCE OF MONEY AND THE BUSINESS OF THE ASSESSEE. 9. THE REPLY OF THE ASSESSEE WAS CONSIDERED BUT WAS NO T FOUND ACCEPTABLE TO THE A.O. THEREAFTER, THE A.O SIMPLY I NCORPORATED THE FINDINGS FROM THE ORIGINAL ASSESSMENT ORDER, AND ON CE AGAIN, THE INTEREST EXPENSE OF RS. 77,35,960/- IN A.Y. 2002-03 & RS. 1,16,40,385/- IN A.Y. 2003-04 WERE DISALLOWED. THE ONLY REASON GIVEN BY THE A.O FOR THE DISALLOWANCE IS THAT THE MAIN BU SINESS OF THE ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 4 ASSESSEE IS OF FINANCE AND LEASING, HIRE, PURCHASE, INVEST TO ASSIST OR SUBSIDIZING IN PURCHASING OF INDUSTRIAL AND OFFICE PLANT, EQUIPMENTS MACHINERY, VEHICLES MOVABLE ASSETS, LAND & BUILDING REAL ESTATE AND CONSUMER GOODS OF ALL KIND BY WAY OF LEASING HERE P URCHASES. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. THE FIRST APPELLATE AUTHORITY WAS CONV INCED WITH THE A.O THAT THE MAIN OBJECT OF THE ASSESSEE COMPANY IS NOT IN CONSONANCE WITH THE INTEREST FREE ADVANCES AND, THEREFORE, THE RE IS NO NEXUS BETWEEN THE ADVANCE/LOAN AND BUSINESS OF THE ASSESS EE. 11. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED DURING THE FIRST ROUND OF LITIGATION IN THE PRESENT ASSESSMENT PROCEEDINGS/AP PELLATE PROCEEDINGS. THE LD. COUNSEL VEHEMENTLY STATED THAT THERE IS A DIRECT NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE ADVANCING OF MONEY TO SSKI. THE LD. COUNSEL DREW OUR ATTENTION T O THE OBJECT CLAUSES IN THE MEMORANDUM OF ASSOCIATION OF THE COM PANY. IT IS THE SAY OF THE LD. COUNSEL THAT THE LOWER AUTHORITIES H AVE SIMPLY DISREGARDED THE OTHER OBJECTS OF THE COMPANY AND HA VE GROSSLY ERRED IN NOT UNDERSTANDING THE VARIOUS CLAUSES OF THE MEM ORANDUM OF ASSOCIATION OF THE COMPANY. THE LD. COUNSEL FURTHER STATED THAT THERE IS NO DISCUSSION ON THE FACTS QUA THE DIRECTIONS OF TH E TRIBUNAL. THE LD. COUNSEL CONCLUDED BY STATING THAT THE ASSESSEE HAS SUCCESSFULLY ESTABLISHED THE NEXUS AND, THEREFORE, THE CLAIM OF INTEREST EXPENSES SHOULD BE ALLOWED. 12. SUPPORTING THE FINDINGS OF THE REVENUE AUTHORITIES , THE LD. D.R. VEHEMENTLY STATED THAT THE ASSESSEE HAS NOT DISCHAR GED THE ONUS CAST ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 5 UPON IT BY THE DIRECTIONS OF THE TRIBUNAL IN THE FI RST ROUND OF LITIGATION. THEREFORE, THERE IS NO ERROR/INFIRMITY IN THE FINDI NGS OF THE FIRST APPELLATE AUTHORITY. 13. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FIN DINGS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREFULLY PERUSED T HE DIRECTIONS OF THE TRIBUNAL GIVEN IN THE FIRST ROUND OF LITIGATION. TH ERE IS NO DISPUTE IN SO FAR AS THE FINDING OF THE TRIBUNAL IS CONCERNED. AL L THAT IS TO BE CONSIDERED IS WHETHER THE ASSESSEE HAD SUCCESSFULLY ESTABLISHED A DIRECT NEXUS OF LENDING/ADVANCING THE MONEY TO SSKI QUA ITS COMMERCIAL EXPEDIENCY. 14. ON A CAREFUL PERUSAL OF THE MEMORANDUM OF ASSOCIATI ON OF THE ASSESSEE COMPANY, WE FIND THAT THE FINDINGS OF THE REVENUE AUTHORITIES IS EXCLUSIVELY BASED ON CLAUSE 1 WHICH READ AS UNDE R:- TO CARRY ON BUSINESS OF FINANCE AND LEASING COMPAN Y, TO FINANCE, AND TO GIVE ON LEASE, HIRE, PURCHASE, INVEST AND TO ASSIST OR SUBSIDIZING IN PURCHASING OF INDUSTRIAL AND OFFICE PLANT, EQUIPMENTS MACHINERY, VEHICLES, MOVABLE ASSE TS, LAND AND BUILDING, REAL ESTATES AND CONSUMER GOODS OF ALL KIND BY WAY OF LEASING, H IRE PURCHASE. 15. HOWEVER, WE FIND THAT CLAUSE 4 IS VERY RELEVANT FOR THE UNDERSTANDING OF THE IMPUGNED TRANSACTIONS, WHICH R EADS AS UNDER:- TO CARRY ON THE BUSINESS OF FINANCIERS, FOR PURCHA SE OF PROPERTY, LENT OR ADVANCE MONEY ON THE SECURITY OF MOVABLE OR IMMOVABLE PROPERTY, T AKEOVER OF STOCK UNITS, LEGAL CLAIMS, CHOSE IN ACTION OR OTHER SUCH RIGHTS AND ASSETS IN FINANCING THE BUSINESS UNDERTAKINGS AND INDUSTRIES. 16. UNDER THE HEAD THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS CLAUSE 5 READ A S UNDER:- ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 6 TO ACQUIRE ALL MACHINERIES, PLANTS STOCK-IN-TRADE, TRADEMARKS AND SUCH OTHER MOVABLE AND IMMOVABLE PROPERTIES OF ALL DESCRIPTION, TO ACH IEVE THE MAIN OBJECTS OF THE COMPANY. 17. AT THIS STAGE, IT WOULD BE PERTINENT TO UNDERSTAND THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND UNLIKE A LISTED CO MPANY, A PRIVATE LIMITED COMPANY CAN PURSUE THE OTHER OBJECTS AT PAR WITH MAIN OBJECTS OF THE COMPANY. 18. AS MENTIONED ABOVE, THE OBJECTS IN THE MEMORANDUM O F ASSOCIATION ARE CLEARLY IN FAVOUR OF THE IMPUGNED T RANSACTION AND ESTABLISH A DIRECT NEXUS BETWEEN THE BUSINESS OF TH E ASSESSEE AND THE ADVANCING OF MONEY. OUR VIEW IS ALSO FORTIFIED WITH THE FINANCIALS OF THE ASSESSEE IN AS MUCH AS IN THE BALANCE SHEET UNDER T HE HEAD STOCK- IN-TRADE THERE IS A BALANCE OF RS. 880,083,323/- W HICH INCLUDES BUILDING OF RS. 838,915,200/-. THESE FIGURES ARE EX HIBITED AT PAGES 6 AND 10 OF THE PAPER BOOK, BEING BALANCE SHEET AND I TS SCHEDULES FOR THE YEAR ENDING 31.03.2002. THESE FACTUAL DATAS CL EARLY SHOW THAT ASSESSEE IS VERY MUCH IN BUSINESS IN THE REAL ESTAT E AND SHOWING THE SAME AS STOCK-IN-TRADE IN ITS BALANCE SHEET. EVEN I N ITS PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS SHOWN RS. 63,46,92,800/- AS SALE OF BUILDING & FORFEITURE RECEIPTS. 19. OUR AFOREMENTIONED FACTUAL OBSERVATIONS CLEARLY SHO W THAT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN NOT ACCEP TING ASSESSEES CONTENTION THAT IS ONE OF THE BUSINESSES IS IN REAL ESTATE. THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION HAS DIRECTED THE A SSESSEE TO ESTABLISH DIRECT NEXUS BETWEEN THE ADVANCING OF MONEY TO SSKI AND ITS COMMERCIAL EXPEDIENCY. IN OUR UNDERSTANDING OF THE FACT, AS MENTIONED ELSEWHERE, THE ASSESSEE HAS SUCCESSFULLY DISCHARGED ITS ITA NOS. 241 5 & 2416/AHD/2012 . A.YS. 2002-0 3 & 2003-04 7 ONUS AND HAS COMPLIED WITH THE DIRECTIONS OF THE TR IBUNAL. WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITIONS OF RS. 77,35,960/- IN A.Y. 2002-03 AND RS . 1,16,40,385/- IN A.Y. 2003-04. 20. BOTH THESE APPEALS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 04 - 2 016. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD