Pune Mumbai Realty, Pune V. ACIT, Circle-4, Pune

ITA 2558/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79788 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.2558/PN/2012 (ASSESSMENT YEAR : 2009-10) PUNE MUMBAI REALTY, 10 TH FLOOR, KUMAR BUSINESS CENTRE, CTS NO.29, OPP. PUNE CENTRAL BUND GARDEN ROAD, PUNE 411 001. PAN : AAJFP9373J . APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 4, PUNE. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. P. L. PATHADE DATE OF HEARING : 30-04-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE D ATED 31.08.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 27.12.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL THE SOLITARY GROUND OF APPEAL RAI SED BY THE ASSESSEE IS WITH REGARD TO A DISALLOWANCE OF RS.1,26,02,973/- O UT OF THE INTEREST EXPENDITURE INCURRED ON THE GROUND THAT SUCH FUNDS HAVE BEEN ADVANCED TO THE PARTNERS WITHOUT ANY APPARENT BUSINESS CONSIDER ATION. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT WHICH INCLUDES PURCHASE, SALE, DEVELOP, LEASE OR OTHERWISE DEALING WITH PROP ERTIES TO CONSTRUCT BUILDINGS, ETC.. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FIRM FURNISHED A ITA NO.2558/PN/2012 A.Y. 2009-10 RETURN OF INCOME DECLARING A LOSS OF RS.1,83,07,939 /- WHICH WAS SUBJECT TO SCRUTINY ASSESSMENT IN TERMS OF WHICH THE ASSESSED LOSS WAS DETERMINED AT RS.57,05,000/- AFTER MAKING A DISALLOWANCE OF RS.1, 26,02,973/- OUT OF INTEREST EXPENDITURE. THE ASSESSING OFFICER FOUND THAT ASS ESSEE HAD BORROWED UNSECURED LOANS FROM 178 PARTIES AND THE BORROWINGS WERE AT AN AVERAGE INTEREST RATE OF 17.10% I.E. THE INTEREST RATE RANG ED FROM 22.2% TO 12%. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE IN-T URN HAD ADVANCED LOANS TO ITS PARTNERS CARRYING INTEREST @ 12%. ACCORDINGLY, ASSESSEE EARNED AN INTEREST INCOME OF RS.2,16,05,097/- AS AGAINST INTE REST EXPENDITURE INCURRED OF RS.3,92,52,747/-. THE ASSESSING OFFICER INFERRED T HAT BORROWING OF LOANS AT A HIGHER RATE OF INTEREST AND IN-TURN ADVANCING LOANS TO THE PARTNERS AT A LOWER RATE OF INTEREST SHOWED THAT THE EXCESS OF INTEREST PAID WAS NOT RELATABLE TO THE BUSINESS ACTIVITIES OF THE ASSESSEE AND ACCORDINGLY A DISALLOWANCE OF RS.1,26,02,973/- WAS MADE. THE SAID AMOUNT WAS CAL CULATED BY CONSIDERING THE DIFFERENCE BETWEEN AVERAGE INTEREST RATE OF BOR ROWINGS OF 17.10% AND THE INTEREST RATE OF 12% CHARGED FROM THE PARTNERS. 4. THE ASSESSEE UNSUCCESSFULLY CARRIED THE MATER IN APPEAL BEFORE THE CIT(A). THE CIT(A) HAS SUSTAINED THE DISALLOWANCE AND HELD THAT THE ONUS WAS ON THE ASSESSEE TO SHOW THAT THE BORROWINGS WER E USED FOR BUSINESS PURPOSES AND ACCORDING TO HIM THE ASSESSEE HAD FAIL ED TO DISCHARGE ITS BURDEN OF PROVING THAT THE BORROWINGS WERE USED FOR THE PURPOSES OF BUSINESS BY ADVANCING MONEYS TO THE PARTNERS AT A LOWER RATE OF INTEREST. AGAINST THE AFORESAID DECISION OF THE CIT(A), ASSESSEE IS IN AP PEAL BEFORE US. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY ASSAILED THE ADDITION BY POINTING OUT TH AT THE ASSESSING OFFICER CANNOT FORCE THE ASSESSEE TO DECIDE THE MANNER IN W HICH THE FUNDS OF THE ASSESSEE ARE TO BE UTILIZED. FURTHER, THE LEARNED COUNSEL POINTED OUT THAT THE LOANS WERE GIVEN TO THE PARTNERS AND THE INTEREST C HARGED AT THE RATE OF 12% ITA NO.2558/PN/2012 A.Y. 2009-10 CORRESPONDED TO THE LIMIT PRESCRIBED IN SECTION 40( B) OF THE ACT RELATING TO THE INTEREST CHARGEABLE BY THE PARTNERS. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS DEFENDED THE ORDERS OF THE AUTHORITIES BELOW AND PL ACED RELIANCE ON THE SAME IN SUPPORT OF THE CASE OF THE REVENUE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE FACTUAL MATRIX BROUGHT OUT BY THE ASSESSING OFFICER CLEARLY REFLEC TS THAT ON ONE HAND ASSESSEE WAS BORROWING LOANS FROM PARTIES AT AN AVE RAGE RATE OF 17.10% WHEREAS IT HAS ADVANCED LOANS TO PARTNERS @ 12%. O STENSIBLY, THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE MERITS DEDUCTIO N U/S 36(1)(III) OF THE ACT ONLY IF IT CAN BE SHOWN THAT THE BORROWINGS HAVE BE EN UTILIZED FOR THE PURPOSES OF BUSINESS. THEREFORE, THE ONUS WAS ON THE ASSESS EE TO SHOW THE BUSINESS REASONS FOR ADVANCING LOAN TO THE PARTNERS OUT OF T HE BORROWINGS AND THAT TOO AT A RATE OF INTEREST LOWER THAN THE INTEREST PAID ON THE BORROWINGS. IN-FACT, THE RESPECTIVE ORDERS OF THE AUTHORITIES BELOW DO NOT S HOW ANY EVIDENCE OR COGENT MATERIAL BROUGHT OUT BY THE ASSESSEE TO DEMONSTRATE AS TO HOW THE ADVANCING OF MONEYS TO THE PARTNERS WAS FOR THE PURPOSE OF IT S BUSINESS. IN-FACT, IN PARA 3.3 OF ORDER OF THE CIT(A), IT HAS BEEN INFERRED BY THE CIT(A) THAT ASSESSEE HAS NOT BROUGHT ON RECORD THE PURPOSE FOR WHICH THE AMO UNTS HAVE BEEN ADVANCED TO THE PARTNERS. THEREFORE, ON THIS COUNT ITSELF W E FIND NO FAULT ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNED DISALL OWANCE. 8. APART THEREFROM, THE CIT(A) HAS RECORDED A FINDI NG THAT THERE IS NO MATERIAL TO SHOW THE ACTUAL CASH-FLOW OF THE FIRM T O DEMONSTRATE AVAILABILITY OF NON-INTEREST BEARING FUNDS AT THE TIME OF ADVANCING OF IMPUGNED SUMS TO THE PARTNERS. THE AFORESAID FINDING OF FACT HAS ALSO N OT BEEN ASSAILED BEFORE US ON THE BASIS OF ANY COGENT MATERIAL OR EVIDENCE. ITA NO.2558/PN/2012 A.Y. 2009-10 9. FOR ALL THE AFORESAID REASONS, WE THEREFORE DEEM IT FIT AND PROPER TO AFFIRM THE ORDER OF THE CIT(A) AND ACCORDINGLY, ASS ESSEE FAILS ON THIS ASPECT. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ABOVE DECISION WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF BOTH THE PARTIES AT THE CONCLUSION OF THE HEARING O N 30 TH APRIL, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH APRIL, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE