French Motor Car Co. Ltd., Kolkata V. Addl.C.I.T Range -12,kolkata, Kolkata

ITA 2457/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1640 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL SRDR
• Assessee Lawyers: A K TIBREWAL
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 2457 / KOL / 2013 ASSESSMENT YEAR :2008-09 FRENCH MOTOR CAR CO. LTD.,234/3A, A.J.C.BOSE ROAD, KOLKATA-700 020 [ PAN NO.AAACF 4735 G ] V/S . ACIT, RANGE-12, P-7, CHOWRINGHEE SQUARE, KOLKAT-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI A.K. TIBREWAL, FCA /BY RESPONDENT SHRI RAJAT KUMAR KUREEL, SR-DR /DATE OF HEARING 17-04-2017 /DATE OF PRONOUNCEMENT 02-06-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOLKATA D ATED 22.08.2013. ASSESSMENT WAS FRAMED BY ACIT, RANGE-12, KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 29.12.2010 FOR ASSESSMENT YEAR 2008-09. SHRI A.K.TIBREWAL, LD. AUTHORIZED REPRESENTATIVE AP PEARED ON BEHALF OF ASSESSEE AND SHRI RAJAT KR. KUREEL, LD. DEPARTMENTA L REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. GROUND NO. 1 TO 4 ARE INTER-RELATED AND THEREFOR E BEING TAKEN UP TOGETHER TO PASS A CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. THE ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER BY SUSTAIN ING THE DISALLOWANCE OF ITA NO.2457/KOL/2013 A.Y. 2008-09 FRENCH MOTOR CAR CO. LTD. VS. ACIT, RG-12 K OL. PAGE 2 52,01,397/- ON ACCOUNT OF INTEREST ON THE BORROWED FUND UTILIZED FOR THE PURPOSE OF INVESTMENT IN PROPERTY. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A LIMI TED COMPANY AND ENGAGED IN THE VEHICLE BUSINESS. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS CLAIMED INTEREST EXPENSE OF 3,39,24,382/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS ALSO SHOWN A SUM OF 7,43,05,666/- UNDER THE HEAD ADVANCE TOWARDS THE PURCHASE OF THE PROPERTY. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED FROM THE TAX AUDIT REPORT THAT ASSESSEE IS NOT ENGAGED IN PROPERTY BUSINESS, THEREFORE, HE TREATED THE ADVANCE GIVEN FOR THE PURCHASED OF IMPUGNED PROPERTY AS INVESTMENT. ACC ORDINGLY, HE OPINED THAT THE PROPORTIONATE INTEREST SHOULD BE DISALLOWED. TH US, AO HELD THE ESTIMATED RATE OF INTEREST @ 7% FOR THE PURPOSE OF DISALLOWAN CE AFTER CONSIDERING THE ADVANCE SHOWN BY ASSESSEE. THE INTEREST ON THE ADVA NCE WAS WORKED OUT AT 52,01,397/- (7% OF 7,43,05,666) WHICH WAS DISALLOWE D AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) CLAIM TO HAVE BEEN ENGAG ED IN PROPERTY BUSINESS SINCE THE FINANCIAL YEAR 1992-93 AND PRAYED FOR DEL ETION OF THE INTEREST AS MADE BY AO. THE ASSESSEE ALSO SUBMITTED THAT THERE WAS SUFFICIENT OWN FUND AVAILABLE WITH IT FOR MAKING THE INVESTMENT IN THE IMPUGNED PROPERTY BUT AO WITHOUT BRINGING ANYTHING ON RECORD THAT THE BORROW ED FUND WAS UTILIZED IN THE IMPUGNED PROPERTY HAS DISALLOWED THE PROPORTIONATE INTEREST. THE DISALLOWANCE MADE BY THE AO WAS BASED ON SURMISE AN D CONJECTURE. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF T HE ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- THE APPELLANT HAS PLEADED THAT HE IS CARRYING ON TH E BUSINESS OF DEALING IN IMMOVABLE PROPERTIES SINCE LAST SEVERAL YEARS AND A LSO PRODUCED SOME DETAILS OF SMALL TRANSACTIONS WHICH WERE ENTERED PE RTAINING TO FINANCIAL YEAR 1992-93 TO 1995-96. THEREFORE, I AM OF THE FIRM OPI NION THAT APPELLANT IS NOT DOING BUSINESS OF IMMOVABLE PROPERTIES IN TRUE SPIR IT. IT IS A COMMON FEATURE THAT EVERY COMPANY IS HAVING PROPERTY TRANSACTIONS IN ADDITION TO THEIR BUSINESS. IN ORDER TO AVAIL DEDUCTION U/S. 36(1)(II I) THE FOLLOWING CONDITION MUST BE SATISFIED; I. THE ASSESSEE MUST HAVE BORROWED MONEY. ITA NO.2457/KOL/2013 A.Y. 2008-09 FRENCH MOTOR CAR CO. LTD. VS. ACIT, RG-12 K OL. PAGE 3 II. THE MONEY SO BORROWED MUST HAVE BEEN USED FOR T HE PURPOSE OF BUSINESS. III. INTEREST IS PAID OR PAYABLE ON SUCH BORROWINGS . IT IS NEEDLESS TO SAY THAT THE APPELLANT HAS FULFIL LED THE ABOVE CONDITIONS EXCEPT CONDITION II. THE INVESTMENT WAS MADE NOT FO R THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION 36(1)(III). NOT ONLY THAT THIS INVESTMENT IN PROPERTIES WAS NOT IN THE REGULAR COURSE OF BUSINES S BUT ALSO LACKING COMMERCIAL EXPEDIENCY AS THE APPELLANT IS DEBITING HUGE INTEREST WITHOUT MAKING ANY SUBSTANTIAL PROFIT WHILE DEALING IN PROP ERTIES. AS PER THE APPELLANTS VERSION, THE AMOUNT WAS INVESTED OUT OF ITS OWN FUND AND NOT FROM THE BORROWED CAPITAL FUND AND ARGUING THAT THERE WA S SUFFICIENT FUND AVAILABLE AND THE INVESTMENT MADE FROM THE MIXED ACCOUNT. SUC H TYPE OF VAGUE EXPLANATION DOES NOT HOLD MUCH WATER. THE AO HAS TA KEN THE RATE OF INTEREST @ 7% TO GIVE A TOUCH OF REASONABLENESS TOWARDS HIS DISALLOWANCE. RATE OF INTEREST NATURALLY DEPENDS UPON VARIOUS FACTORS SUC H AS THE CREDIT OF THE DEBTOR IN THE MARKET AND AVAILABILITY OF CAPITAL IN THE MARKET AT A PARTICULAR TIME. ON ACCOUNT OF BUSINESS EXIGENCIES WHEN A BUSI NESSMAN MAY BE FORCED TO PAY A HIGHER RATE OF INTEREST, IT MAY BE REASONA BLE TO HOLD THAT NO PRU9DENT BUSINESSMAN WOULD AGREE TO BORROW CAPITAL AT AN EXC ESSIVE OR UNREASONABLE RATE OF INTEREST. IT SEEMS THAT THE AO HAS TAKEN CA RE OF THIS ASPECT AND TAKEN THE INTEREST RATE @ 7% ON FAIR ESTIMATE BASIS. THER EFORE, ADDITION MADE ON THIS COUNT AMOUNTING TO 52,01,397/- IS JUSTIFIED AND CONFIRMED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF RS.52,01,397 MADE BY THE LD. ASSESSING OFFICER O UT OF INTEREST PAID ON BORROWINGS ON THE ALLEGED GROUND THAT PART OF THE B ORROWED FUNDS WERE USED FOR INVESTMENT IN PROPERTY. 2) THAT ALTHOUGH THE EXPLANATION OF THE APPELLANT C OMPANY, THAT THE INVESTMENT IN PROPERTIES WERE MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, WAS SUPPORTED BY EVIDENCES ON RECORD, THE LD . COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTING THE SAID EX PLANATION BY WRONGLY AND ARBITRARILY ALLEGING THAT THE EXPLANATION IS VAGUE AND DOES NOT HOLD MUCH WATER. 3) THAT THERE BEING NO FINDING BY REVENUE IN ANY YE AR WHATSOEVER, THAT THE BORROWED FUNDS WERE EVER USED BY THE APPELLANT COMP ANY FOR ANY PURPOSE OTHER THAN BUSINESS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST OF RS.52,01,3 97 ON ANY ARBITRARY AND UNFOUNDED ALLEGATION THAT THE BORROWED FUNDS WERE N OT WHOLLY USED BY THE APPELLANT FOR THE PURPOSES OF ITS BUSINESS. 4) THAT THE ADVERSE FINDINGS AND ALLEGATIONS IN PAR A 5.2 OF THE IMPUGNED ORDER PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEA LS), FOR CONFIRMING THE DISALLOWANCE OF RS.52,01,397 MADE BY THE ASSESS ING OFFICER, ARE CONTRARY TO FACTS ON RECORD AND PERVERSE. ITA NO.2457/KOL/2013 A.Y. 2008-09 FRENCH MOTOR CAR CO. LTD. VS. ACIT, RG-12 K OL. PAGE 4 5. LD. AR FOR THE ASSESSEE BEFORE US FILED PAPER BO OK WHICH IS RUNNING PAGES FROM 1 TO 172 AND SUBMITTED THAT ASSESSEE IS ENGAGED IN BUSINESS OF PROPERTY AND THEREFORE THE INTEREST EXPENSE SHOULD BE ALLOWED AS DEDUCTION U/S. 36(1)(III) OF THE ACT. BESIDES THE ABOVE, HE A LSO SUBMITTED THAT THERE WAS SUFFICIENT OWN FUND AVAILABLE WITH THE ASSESSEE FOR MAKING SUCH INVESTMENT IN THE IMPUGNED PROPERTY. LD. AR IN SUPPORT OF ASSESSE ES CLAIM DREW OUR ATTENTION ON PAGE 138 OF THE PAPER BOOK WHERE THE B ALANCE-SHEET OF ASSESSEE WAS PLACED. HE ALSO SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST WAS MADE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2007-08 THOUGH THE ASSESSMENT WAS FRAMED U/S. 143(3) OF THE ACT. LD. A R ALSO DREW OUR ATTENTION ON PAGES 116 TO 118 OF THE PAPER BOOK WHERE THE ASS ESSMENT ORDER WAS PLACED. LD. AR ALSO SUBMITTED THAT MOST OF THE INVE STMENT IN THE ADVANCE OF THE IMPUGNED PROPERTY IS COMING FROM THE EARLIER YE ARS AND IN THE YEAR UNDER CONSIDERATION ADVANCE FOR 1,36,95,000/- ONLY WAS MADE. LD. AR FOR THE ASSESSEE IN SUPPORT OF ASSESSEES CLAIM DREW OUR AT TENTION ON THE AMOUNT OF OPENING BALANCE AND THE ADVANCE GIVEN IN THE CURREN T YEAR WHICH IS PLACED ON PAGE 97 OF THE PAPER BOOK. ON THE OTHER HAND, LD. DR BEFORE US SUBMITTED THAT NEXUS BETWEEN BORROWED FUND/ OWN FUND VIS--VIS TO THE INVESTMENT IN IMPUG NED PROPERTY SHOULD BE ESTABLISHED BY THE ASSESSEE AND ONUS LIES UPON THE ASSESSEE TO DEMONSTRATE THAT NO BORROWED FUND HAS BEEN UTILIZED IN THE INVE STMENT OF IMPUGNED PROPERTY. HE VEHEMENTLY RELIED ON THE ORDER OF AUTH ORITIES BELOW. 6. WE HAVE HEARD RIVAL CONTENTIONS OF THE PARTIES A ND PERUSED THE MATERIALS AVAILABLE ON RECORD AND PERUSED THE ORDER OF AUTHORITIES BELOW. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWAN CE MADE BY THE AUTHORITIES BELOW ON ACCOUNT OF UTILIZATION OF BORROWED FUND IN THE INVESTMENT OF IMPUGNED PROPERTY. AS PER LD. AR, THE ASSESSEE IS E NGAGED IN THE BUSINESS OF PROPERTY. HOWEVER, ON PERUSAL OF RECORDS, WE FIN D THAT LD. AR FAILED TO SUBSTANTIATE ITS CLAIM ON THE BASIS OF DOCUMENTARY EVIDENCE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY. THEREFORE, WE ARE NOT INCLINED TO HOLD ITA NO.2457/KOL/2013 A.Y. 2008-09 FRENCH MOTOR CAR CO. LTD. VS. ACIT, RG-12 K OL. PAGE 5 THAT ASSESSEE IS ENGAGED IN PROPERTY BUSINESS AND T HUS THE ADVANCE IN IMPUGNED PROPERTY IS REPRESENTING INVESTMENT. NOW, HOWEVER, COMING TO OTHER ARGUMENTS OF LD. AR P LACED BEFORE US THAT ASSESSEE HAS INVESTED IN THE IMPUGNED PROPERTY OUT OF ITS OWN FUND, IN THIS REGARD, WE FIND THAT EARLIER YEAR, THE REVENUE HAS NOT DISALLOWED ANY INTEREST ON ACCOUNT OF UTILIZATION OF BORROWED FUND IN THE I MPUGNED PROPERTY AND THERE WAS AN INVESTMENT IN THE IMPUGNED PROPERTY TO THE T UNE OF 6,06,10,665/- WHICH WAS ENHANCED IN THE YEAR UNDER CONSIDERATION BY 1,36,95,000/-. AT THE SAME TIME, WE FIND THAT INVESTMENT IN THE PROPERTY WAS ENHANCED WHEREAS THE LOAN LIABILITY OF THE ASSESSEE WAS REDUCED FROM 38. 89 CRORES TO 27.98 CRORES AS EVIDENT FROM THE AUDITED BALANCE-SHEET OF THE AS SESSEE WHICH IS PLACED ON PAGE 138 OF THE PAPER BOOK. THEREFORE, THE POSSIBIL ITY OF MAKING SUCH INVESTMENT IN THE IMPUGNED PROPERTY IN THE CURRENT YEAR OUT OF BORROWED FUND IS RULED OUT. ADMITTEDLY, NO DISALLOWANCE WAS MADE BY THE REVENUE ON ACCOUNT OF INTEREST IN THE IMMEDIATE PRECEDING YEAR . THUS, THE QUESTION BEFORE US REMAINS TO BE ADJUDICATED WHETHER THE INVESTMENT IN THE PROPERTY IN THE CURRENT YEAR WAS OUT OF THE BORROWED FUND. IN THIS CONNECTION, WE OBSERVE THAT LOAN LIABILITY OF THE ASSESSEE HAS REDUCED IN THE Y EAR UNDER CONSIDERATION. THEREFORE, WE HOLD THAT NO BORROWED FUND HAS BEEN U TILIZED IN THE IMPUGNED PROPERTY. FOR THE AFORESAID REASONS, WE REVERSE THE ORDER OF LD. CIT(A) IN THIS REGARD AND DIRECT THE AO TO DELETE THE ADDITION. TH IS GROUND OF ASSESSEES APPEAL IS ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 02 /06/2017 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S $!% &- 02 / 06 /201 7 ITA NO.2457/KOL/2013 A.Y. 2008-09 FRENCH MOTOR CAR CO. LTD. VS. ACIT, RG-12 K OL. PAGE 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-FRENCH MOTOR CAR CO. LTD., 234/3A,A.J.C. BOSE ROAD, KOLKATA-20 2. /RESPONDENT-ADDL. COMMISSIONER OF INCOME-TAX, RANGE -12, P-7, CHOWRINGHEE SQUARE, KOLKAT A-69 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 1 /0 ,