ADHIRAJ VENTURES PVT. LTD, MUMBAI V. DCIT (CC)-1(1)(1), MUMBAI

ITA 2918/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8355 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDI
• Keywords: Presumptive income; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH , JM & SHRI M.BALAGANESH, AM ITA NO. 2918 /MUM/201 8 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. ADHIRA J VENTURES PVT. LTD., 303, SHARDA CHAMBERS, 15 NEW MARINE LINES MUMBAI 400 013 VS. DEPUTY COMMISSIONER OF INCOME TAX 1(1)(1) MUMBAI PAN/GIR NO. AAACA5217G (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI GAURAV KABRA REVENUE BY MS. SAMATHA MULLAMUDI DATE OF HEARING 24 / 09 /2019 DATE OF PRONOUNCEMENT 04 / 10 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 2918/MUM/2018 FOR A.Y. 2013 - 14 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 2, MUMBAI IN APPEAL NO. CIT(A) - 2/IT/119/2016 - 17 DATED 01/01/2018 (LD. CIT(A) I N SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 29/03/2016 BY THE LD. DY. COMMISSIONER OF INCOME TAX 1(1)(1), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE MADE ON ACCOUNT OF ITA NO. 2918/MUM/2018 M/S. ADHIRAJ VENTURES PVT.LTD., 2 INTEREST ON BORROWED FUNDS ON A PROPORTIONATE BASIS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF GIVING PREMISES ON LEAVE AND LICENCE BASIS. THE LD AO OBSERVED THAT THE ASSESSEE HAD ACCUMULATED A TOTAL WORK IN PROGRESS (WIP) OF RS 6,90,14,263/ - AS ON 31.3.2013. THE ASSESSEE SU BMITTED THAT THE WIP APPEARING IN THE BALANCE SHEET REPRESENTS PURCHASE OF MATERIALS FOR AMBEY VALLEY BUNGALOW AT LONAVALA AND IT IS NOT FOR SALE SUBSEQUENT TO ITS COMPLETION AND THUS THE QUESTION OF PRESUMPTIVE INCOME ON PERCENTAGE OF COMPLETION METHOD DO ES NOT ARISE FOR THE SAME. THE LD AO FROM THE FINANCIAL STATEMENTS AND DETAILS SUBMITTED BY THE ASSESSEE FOUND THAT DURING THE YEAR , THE ASSESSEE PAID INTEREST OF RS 25,00,000/ - TO SHRI ABHISHEK MANU SINGHVI WHICH OUGHT TO HAVE BEEN CAPITALIZED TO WIP BU T WRONGLY CLAIMED AS DEDUCTION BY THE ASSESSEE. THE LD AO OBSERVED THAT AS ASSESSEE HAD NOT OFFERED ANY INCOME FROM THE OPERATION OF BUNGALOW AS RENTAL INCOME OR NOT HAVING ANY INTENTION TO SELL IT IN FUTURE AND THUS ENTIRE FINANCE COST PAID TOWARDS THE CA PITAL RAISED FOR CARRYING OUT THE CONSTRUCTION ACTIVITY CANNOT BE ALLOWED TO BE DEBITED TO PROFIT AND LOSS ACCOUNT. ACCORDINGLY, THE LD AO DISALLOWED THE ENTIRE INTEREST OF RS 25,00,000/ - AND CAPITALIZED THE SAME TO BE PART OF CAPITAL WIP, IGNORING THE FAC TUAL SUBMISSIONS OF THE ASSESSEE. 4. THE ASSESSEE SUBMITTED THAT THE LD AO ERRED IN HOLDING THAT THE LOAN BORROWED FROM SHRI ABHISHEK MANU SINGHVI WAS UTILIZED FOR MAKING INVESTMENT IN AMBEY VALLEY PROJECT. THE ASSESSEE SUBMITTED THAT OUT OF LOAN OF RS 5 CRORES BORROWED, THE ASSESSEE HAD UTILIZED RS 4.85 CRORES IN THE FORM OF SHARE APPLICATION MONEY WITH A VIEW TO ACQUIRE FURTHER SHARE ITA NO. 2918/MUM/2018 M/S. ADHIRAJ VENTURES PVT.LTD., 3 CAPITAL IN M/S ADHIRAJ CONSTRUCTIONS PVT LTD , WHICH WAS IN CONSTRUCTION BUSINESS. THE BALANCE OF RS 15 LACS WAS UTILI ZED FOR WORKING CAPITAL REQUIREMENTS IN THE BUSINESS OF THE ASSESSEE. THEREFORE, INTEREST EXPENDITURE INCURRED ON LOAN TAKEN TO SUBSCRIBE TO SHARES OF A COMPANY IS INCURRED FOR ONE OF THE BUSINESS PURPOSES OF THE ASSESSEE AND UTILIZED FOR WORKING CAPITAL R EQUIREMENTS AND HENCE THE SAME CANNOT BE SUBJECT MATTER OF DISALLOWANCE U/S 36(1)(III) OF THE ACT. THE ASSESSEE ALSO SUBMITTED THE BANK STATEMENT ALONG WITH THE RELEVANT LEDGERS WHICH SHOWED THAT AS SOON AS THE AMOUNT WAS RECEIVED FROM THE LENDER, IT GOT TRANSFERRED TO THE SISTER CONCERN M/S ADHIRAJ CONSTRUCTIONS PVT LTD. IT WAS SUBMITTED THAT THE LD AO ON THE CONTRARY HAD NOT BROUGHT ON RECORD ANYTHING TO PROVE THAT THE LOAN FROM SHRI ABHISHEK MANU SINGHVI WAS UTILIZED FOR MAKING INVESTMENT IN AAMBY VALLE Y PROJECT. THE ASSESSEE FURTHER SUBMITTED THAT THE FOREMOST PURPOSE OF MAKING THE SHARE APPLICATION MONEY WAS TO HAVE CONTROLLING INTEREST IN THE COMPANY FOR THE PURPOSE OF NORMAL BUSINESS ACTIVITIES AND COMMERCIAL EXPEDIENCY IS PROVED THEREON AS THE SAME IS LINKED WITH THE BUSINESS OF THE SISTER CONCERN IN WHICH THE ASSESSEE HAS DEEP CONTROLLING INTEREST. IT WAS SUBMITTED THAT IF THE SUBSIDIARY COMPANY EXPANDS AND PROGRESSES, THE ASSESSEE COMPANY WOULD BE BENEFITTED BY THE SAME AS THE VALUATION AND NET W ORTH OF THE ASSESSEE WOULD ALSO INCREASE. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S A BUILDERS LTD VS CIT REPORTED IN 288 ITR 1 (SC) AMONG OTHER DECISIONS. 5. THE LD CITA OBSERVED THAT DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE HAD FILED A COPY OF LEDGER ACCOUNT OF SHRI ABHISHEK MANU SINGHVI. FROM THE SAID LEDGER ACCOUNT AND ALSO FROM THE BANK STATEMENT OF THE ASSESSEE, THE LD CITA OBSERVED THAT ON 6.11.2009, THE ASSESSEE RECEIVED RTGS FROM HSBC ACCOUNT TO THE TUNE OF RS 5 CRORES AND ON ITA NO. 2918/MUM/2018 M/S. ADHIRAJ VENTURES PVT.LTD., 4 9.11.2009, THE ASSESSEE COMPANY HAD TRANSFERRED SUCH AMOUNT TO M/S ADHIRAJ CONSTRUCTION PVT LTD TO THE TUNE OF RS 4.85 CRORES TOWARDS INVESTMENT IN SHARE APPLICATION MONEY FOR ACQUIRING MORE CONTROLLING INTEREST IN THE SA ID SISTER CONCERN. THE LD CITA OBSERVED THAT ONLY A SUM OF RS 3,68,73,234/ - WAS UTILIZED BY THE ASSESSEE TOWARDS INVESTMENT IN SHARE APPLICATION MONEY IN M/S ADHIRAJ CONSTRUCTION PVT LTD AS ON 31.3.2013 AND NOT RS 4.85 CRORES. ACCORDINGLY, THE LD CITA RE STRICTED THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT ON THE PROPORTIONATE LOAN AMOUNT DIVERTED FOR NON - BUSINESS PURPOSES OF RS 1,31,26,766/ - ( 5,00,00,000 - 3,68,73,234). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RI VAL SUBMISSIONS. WE FIND THAT THE LD CITA HAD ACCEPTED THE FACT THAT THE INVESTMENT IN SHARE APPLICATION MONEY IN M/S ADHIRAJ CONSTRUCTION PVT LTD IS FOR BUSINESS PURPOSES OF THE ASSESSEE. FROM THE PERUSAL OF THE FINANCIAL STATEMENTS OF THE ASSESSEE FOR THE YEARS ENDED 31.3.2012 AND 31.3.2013 , WE FIND THAT THE ASSESSEE COMPANY IS HAVING OWN FUNDS AS UNDER: - 31 . 3 . 2013 31.3.2012 SHARE CAPITAL 3,75,000 3,75,000 RESERVES AND SURPLUS 2,17,42,240 2,57,33,887 SHARE APPLICATION MONEY PENDING AL LOTMENT 3,68,73,234 3,25,21,834 TOTAL 5,89,90,474 5,86,30,721 6.1. THE LD AR PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD IN CIVIL APPEAL NO. 10 OF 2019 DATED 2. 1.2019. HE HOWEVER STATED THAT THE LD AO HAD COMPLETELY PROCEEDED ON INCORRECT ASSUMPTION OF FACTS IN THE INSTANT CASE AND PRAYED FOR REMANDING THIS ISSUE TO THE FILE OF LD AO FOR DENOVO ADJUDICATION AFTER ITA NO. 2918/MUM/2018 M/S. ADHIRAJ VENTURES PVT.LTD., 5 CONSIDERING THE ACTUAL FACTS. PER CONTRA, THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD CITA. WE FIND THAT THE LD AO HAD PROCEEDED ON IRRELEVANT ASSUMPTION OF FACTS BY STATING THAT THE AAMBEY VALLEY PROJECT IS UNDER CONSTRUCTION AND THAT IT IS NOT MEANT FOR SALE , SO ON AND SO FORTH , WITHOUT GIVI NG ANY FACTUAL FINDING THAT WHETHER THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES OR NOT, WHICH IS RELEVANT FOR ALLOWABILITY OF INTEREST U/S 36(1)(III) OF THE ACT. HENCE WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTI CE AND FAIRPLAY, TO REMAND THIS ISSUE TO THE FILE OF LD AO FOR DENOVO ADJUDICATION OF THE ISSUE IN ACCORDANCE WITH LAW AND IN THE LIGHT OF VARIOUS DECISIONS THAT ARE RELIED UPON BY THE LD AR. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 04 / 10 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 04 / 10 / 2019 KARUNA , SR.PS ITA NO. 2918/MUM/2018 M/S. ADHIRAJ VENTURES PVT.LTD., 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FIL E. //TRUE COPY//