ACIT-5(1), MUMBAI V. M/S. BOMBAY CYCLE & MOTOR AGENCY LTD, MUMBAI

ITA 2535/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8335 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV AGARWAL
• Assessee Lawyers: VASANTI B PATEL
• Keywords: Notional interest
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NO. 2535/MUM/2010 ASSESSMENT YEAR 2006-2007 ACIT 5 (1) MUMBAI 20. VS. M/S. BOMBAY CYCLE & MOTOR AGENCY LTD. MUMBAI 400 007 PAN AAACB0481D (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI RAJIV AGARWAL (DR) FOR RESPONDENT : MS VASANTI B. PATEL ORDER PER D. MANMOHAN 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 19-1-2010 PASSED BY THE CIT(A)-IX, MUMBAI AND IT PERTAINS TO THE ASSESSMENT YEAR 2006-2007. FOLLOWING GROUNDS WE RE URGED BEFORE US : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DIRECT ING THE A.O. TO ALLOW RS.94,95,000/- BEING 15% OF THE NON INTEREST BEARING DEPOSIT OF RS.6.33 CRORES RECEIVED FROM WIL IGNORING THE DETAILED REASONING GIVEN BY THE A.O. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DIRECT ING THE A.O. TO DELETE THE ADDITION OF RS.7,44,000/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS DERIVED THE BENEFIT FROM THE INTEREST FREE DEPOSITS AND THEREFORE, THE SAME WAS RIGHTLY BROUGHT TO TAX U/S. 28 (IV) OF THE ACT. 2 2. THE FACTS NECESSARY FOR THE DISPOSAL OF THE APP EAL ARE STATED IN BRIEF. THE ASSESSEE IS A DEALER IN CARS, TWO WHEELERS ETC., IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2006-07, IT DECLARED TOTAL INCOME OF RS.6.61 CRORES. THOUGH THE CASE WAS ORIGINALLY PROCESSED UNDER SECTION 143 (1) OF THE A CT, IT WAS TAKEN-UP FOR SCRUTINY SUBSEQUENTLY, BY ISSUING NOTICE UNDER SECTION 143 (2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDING S, ASSESSING OFFICER NOTICED THAT ASSESSEE-COMPANY WAS HAVING DE ALERSHIP OF HUNDAI MOTORS WITH A SHOWROOM AND SERVICE STATIONS AT CHURCHGATE, AND SION. THE COMPANY ALSO MAINTAINS RESTAURANTS AT DIFFERENT PLACES IN MUMBAI. M/S. WALLCHAND NAGAR INDUSTRIES LIMITED IS A FLAGSHIP COMPANY OF THE ASSESSEES GROUP. AN AMOUNT OF RS.6. 33 CRORES WAS RECEIVED BY THE ASSESSEE FROM THE AFOREMENTIONED CO MPANY ON WHICH NO INTEREST IS PAYABLE. THE ASSESSING OFFICER CALLE D UPON THE ASSESSEE TO EXPLAIN AS TO WHY VALUE OF BENEFIT SHOULD NOT BE ADDED AS INCOME UNDER SECTION 28 (IV) OF THE ACT IN RESPECT OF INTE REST FREE DEPOSIT OF RS. 6.33 CRORES. IN RESPONSE THERETO, ASSESSEE SUBMITTE D THAT THE AMOUNT WAS RECEIVED ON THE STRENGTH OF THE MEMORANDUM OF U NDERSTANDING BETWEEN THE ASSESSEE AND WALLCHAND NAGAR INDUSTRIES LIMITED. IT WAS ALSO CONTENDED THAT THE DEPOSIT AMOUNT WAS A PRE-CO NDITION TO ENABLE WALLCHAND NAGAR INDUSTRIES LIMITED TO PARTICIPATE I N THE ASSESSEES FACILITIES. THIS TRANSACTION HAS ENABLED THE ASSESS EE TO SAVE THE INTEREST COST AND TO REDUCE ITS LOSS. AS SUCH, THER E IS NO GROUND FOR TAXING A NOTIONAL RECEIPT IN THE HANDS OF THE ASSES SEE. IT MAY BE NOTICED THAT SIMILAR SUBMISSIONS WERE MADE DURING T HE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS 199 9-2000 TO 2001- 2002. BUT THE ASSESSING OFFICER REJECTED THE CONTEN TION ON THE GROUND THAT THIS IS THE VALUE OF BENEFIT ARISING FROM THE BUSINESS OF THE ASSESSEE AND HENCE NOTIONAL INTEREST OF 15% ON THE SAID DEPOSIT SHOULD BE TREATED AS BENEFIT ACCRUING TO THE ASSESS EE UNDER SECTION 28 (IV) OF THE ACT. IN THE ALTERNATIVE, IT HAS TO BE A SSESSED UNDER SECTION 56 (1) (III) OF THE ACT BY TREATING IT AS AMOUNT RE CEIVED ON LETTING OUT 3 THE BUILDING, PLANT AND MACHINERY ETC., TO WALLCHAN D NAGAR INDUSTRIES LIMITED. 3. ASSESSEE HAS ALSO RECEIVED A SUM OF RS. 62 LAKH S FROM WALLCHAND NAGAR INDUSTRIES LIMITED FOR ITS RESTAURA NT DIVISION AS AN ADVANCE, AS PER THE AGREEMENT. HERE ALSO ASSESSING OFFICER WAS OF THE OPINION THAT ESTIMATED INTEREST @ 12% ON THE OUTSTA NDING BALANCE HAS TO BE TREATED AS INCOME OF THE ASSESSEE UNDER SECTI ON 28 (IV) OF THE ACT AND ACCORDINGLY BROUGHT TO TAX A SUM OF RS.7,44,000 /-. 4. ON AN APPEAL FILED BY THE ASSESSEE, LEARNED CIT (A) OBSERVED THAT IDENTICAL ISSUE WAS DECIDED BY THE IT AT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-2002 (ITA.856 2/M/2004) WHEREIN THE BENCH OBSERVED THAT THERE IS NO PROVISI ON IN THE ACT TO CHARGE INCOME ON NOTIONAL BASIS. CONSISTENT WITH TH E VIEW TAKEN THEREIN, THE LEARNED CIT(A) DELETED THE ADDITION OF RS.94,95,000/- REFERABLE TO THE NOTIONAL INTEREST ON THE INTEREST FREE DEPOSIT OF RS.6.33 CRORES. 5. AS REGARDS THE ADDITION OF RS.7,44,000/-, LEARN ED CIT(A) OBSERVED THAT THERE IS NO CASE FOR ANY ADDITION IN VIEW OF THE FACT THAT THE AMOUNT WAS UTILISED FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY DELETED THE SAME BY OBSERVING IN PARA 3.2. AS UNDER : I HAVE CONSIDERED THE FACTS OF THE CASE. IT IS NOT DISPUTED THAT THE APPELLANT HAS RECEIVED INTEREST F REE LOANS. IT IS ALSO NOT DISPUTED THAT THE APPELLANT H AS USED THESE LOANS FOR THE PURPOSE OF BUSINESS. THERE FORE, BENEFIT RECEIVED BY THE APPELLANT IS ALREADY DECLAR ED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS AS BY UTILIS ING THIS INTEREST FREE FUND, THE INTEREST LIABILITY OF THE A PPELLANT IS LESS. HAD THIS INTEREST FREE FUND NOT AVAILABLE WIT H THE APPELLANT, INTEREST LIABILITY OF THE APPELLANT WOUL D HAVE BEEN MORE. THIS SAVING OF INTEREST BY THE APPELLANT HAS 4 ALREADY BEEN OFFERED TO TAX. THEREFORE, I HOLD THAT NO FURTHER ADDITION CAN BE MADE BY INVOKING THE PROVIS IONS OF SECTION 28 (IV) OF THE INCOME TAX ACT. FURTHER, THIS ISSUE IS ALSO COVERED BY THE APPELLATE ORDERS OF CI T(A) IN THE CASE OF THE APPELLANT FOR ASSESSMENT YEAR 2003- 04 AND ASSESSMENT YEAR 2005-06 IN APPEAL NO. CIT(A)V/5(1)/187/06-07 AND IN APPEAL NO. CIT(A)V/%(1)/287/07-08. I HAVE ALSO ALLOWED THIS GROUND OF THE APPELLANT IN APPEAL ORDER DATED 30-06 - 2009 FOR THE ASSESSMENT YEAR 2002-2003. ACCORDINGLY , ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEAR NED DR STRONGLY RELIED UPON THE ORDER PASSED BY THE ASSESS ING OFFICER; WHEREAS, THE LEARNED COUNSEL, APPEARING ON BEHALF O F THE ASSESSEE, PLACED BEFORE US COPIES OF THE ORDERS OF THE ITAT, MUMBAI BENCHES IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-0 2, 2005-06 AND 2002-03 AND FURTHER SUBMITTED THAT EVEN THE HIGH CO URT HAS AFFIRMED THE ORDERS PASSED BY THE ITAT. 1. ITA. NO. 8562, 8507/MUM/2004(ASSESSMENT YEAR 2001- 02) DATED 17-12-2007 (HONBLE HIGH COURT AFFIRMED T HE SAID ORDER, ITA (L) NO.1485/2008) 2. ITA. NO. 4470/MUM/2008 DATED 16-7-2009 (HONBLE HIG H COURT AFFIRMED THE SAID ORDER, ITA (L) NO.2987/2009 ) 3. ITA. NO. 5351/MUM/2009 DATED 30 TH SEPTEMBER, 2010. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. ADMITTEDLY BOTH THE ISSUES STAND COVERE D BY THE DECISIONS OF THE ITAT (SUPRA) IN ASSESSEES OWN CASE FOR THE EARLIER YEARS. FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION A RE AKIN TO THE FACTS AS EXISTED IN THE EARLIER YEARS. SUCH BEING T HE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT( A) SINCE HE HAS MERELY FOLLOWED THE DECISIONS OF THE ITAT (SUPRA). WITH REGARD TO 5 DEPOSIT OF RS.6.33 CRORES AND RS. 62 LAKHS, LEARNED CIT(A) HELD THAT THE AMOUNT WAS UTILISED FOR THE PURPOSE OF BUSINES S WHICH INTURN HAS REDUCED THE INTEREST LIABILITY OF THE ASSESSEE AND IMPLIEDLY INCOME FROM THE SAID ACTIVITY HAS GONE UP. SIMILAR ISSUE W AS ADDRESSED BY THE ITAT, B-BENCH, IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2002- 2003 (SUPRA). BY RESPECTFULLY FOLLOWING THE DECISIO N CITED (SUPRA), WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE, AS PRONOUNCED IN THE OPEN COURT. SD/- SD/- (B.RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 03 RD MARCH, 2011 VBP/- COPY TO 1. ACIT-5 (1), ROOM NO. 568/525, AAYAKAR BHAVAN, M .K. ROAD, MUMBAI 20. 2. M/S. BOMBAY CYCLE & MOTOR AGENCY LTD. 534, SARDA R VALLABHAI PATEL ROAD, MUMBAI 400 007 PAN AAACB0481D 3. CIT(A)-9, MUMBAI 4. CIT-5, MUMBAI 5. DR B BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.