ACIT 18(1), MUMBAI V. VASANT R SAVLA, MUMBAI

ITA 2960/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8173 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 01-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP S ARYA
• Assessee Lawyers: MAYUR R MAKADIA
• Keywords: Salary income; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 2960/MUM/2012 (ASSESSMENT YEAR: 2007-08) A C I T - 18(1) VS. SHRI VASANT R. SAVLA 1ST FLOOR, PIRAMAL CHAMBERS LALBAUG, MUMBAI 400012 RAWAL SEA VIEW, 1ST FLOOR M.B. RAUT ROAD, SHIVAJI PARK DADAR, MUMBAI 400028 PAN - AMKPS7067B APPELLANT RESPONDENT APPELLANT BY: SHRI PRADEEP S. ARYA RESPONDENT BY: SHRI MAYUR R. MAKADIA DATE OF HEARING: 05.09.2014 DATE OF PRONOUNCEMENT: 19.09.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-29, MUMBAI AND IT PERTAINS TO AY 2007-08. 2. DISALLOWANCE OF EXPENDITURE UNDER SECTION 57(III) O F THE INCOME TAX ACT TO THE TUNE OF ` 11,02,768/- IS THE SUBJECT MATTER OF DISPUTE BEFORE THE TRIBUNAL. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. ASSESSEE, AN INDIVIDUAL BY STATUS, IS A DIRECTOR IN VARIOUS COMPANIES AND EARNED SALARY INCOME AND DIVIDEND & INTEREST INCOME . IN RESPECT OF PREVIOUS YEAR RELEVANT TO AY 2007-08 ASSESSEE DECLARED TOTAL INCOME OF ` 13,57,610/- WHICH INCLUDES INCOME EARNED IN THE FORM OF INTERES T. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT THE ASSESS EE CLAIMED ` 11,02,768/- AS INTEREST EXPENDITURE AGAINST INTEREST INCOME OF ` 17,92,134/- UNDER THE HEAD INCOME FROM OTHER SOURCES. BEFORE ANALYSING THE FACTS OF THE CASE THE AO EXTRACTED PROVISIONS OF SECTION 57(III), WHICH R EADS AS UNDER: - ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 2 ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. IN THE OPINION OF THE AO THE LANGUAGE OF THE SECTI ON IMPOSES AN OBLIGATION UPON THE ASSESSEE TO PROVE THAT SUCH EXPENDITURE WA S INCURRED TO EARN INTEREST INCOME. WHEN CALLED UPON TO EXPLAIN, THE A SSESSEE SUBMITTED THAT HE HAS A COMMON FUND WHEREIN THERE ARE SEVERAL RECE IPTS AND PAYMENTS IN THE SAME BANK ACCOUNT. THE ASSESSEE HAS BORROWED IN THE EARLIER YEARS AND THAT INTEREST BEARING FUNDS AND INTEREST FREE LOANS WERE MIXED UP AND UTILISED FOR MAKING INVESTMENTS INCLUDING INTEREST FREE LOANS AND NOW IT IS NOT POSSIBLE TO SEGREGATE AND IDENTIFY THE SOURCE O F INTEREST FREE ADVANCES MADE. IN HIS OPINION IT IS IMPOSSIBLE TO TRACE EACH AND EVERY FUND MOVEMENT. HE HAS GIVEN A BROAD PICTURE OF AVAILABIL ITY OF INTEREST FREE FUNDS OF ` 3.67 CRORES AND INTEREST BEARING BORROWALS OF ` 1.21 CRORES AGAINST WHICH INTEREST BEARING ADVANCES WERE OF ` 1,58 CRORES AND INTEREST FREE ADVANCES AND OTHER INVESTMENTS WERE TO THE TUNE OF ` 3.30 CRORES. HE POINTED OUT THAT INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE HAS TO BE ASSUMED TO BE UTILISED TOWARDS GRANTING INTEREST FREE ADVANCES AN D THEREAFTER TOWARDS INTEREST BEARING FUNDS. IN THE PRESENT CASE THE INT EREST BEARING ADVANCES BY THE ASSESSEE WERE TO THE TUNE OF ` 1.58 CRORES WHILE THE INTEREST BEARING BORROWINGS OF THE ASSESSEE IS ` 1.21 CRORES AND HENCE THE ENTIRE INTEREST BEARING ADVANCES HAVE TO BE ASSUMED TO HAVE BEEN DE PLOYED FOR MAKING INTEREST BEARING ADVANCES. 4. THE AO OBSERVED THAT THE INITIAL BURDEN IS UPON THE ASSESSEE TO PROVE THAT THE SAID EXPENDITURE WAS INCURRED TO EARN INTE REST INCOME WHEREAS THE ASSESSEE HAS NOT DISCHARGED THE ONUS AND HENCE THE CLAIM IS NOT ADMISSIBLE UNDER SECTION 57(III) OF THE ACT. THE AO RELIED UPO N THE JUDGEMENT IN THE CASE OF CONSOLIDATED FIBRES VS. CIT 146 TAXMAN 14 A ND ALSO THE DECISION OF THE ITAT IN THE CASE OF MANDIDEEP ENGINEERING & PAC KAGING INDUSTRIES (P) LTD. VS. CIT 77 ITD 307 TO HOLD THAT NETTING OF INT EREST IS NOT PERMISSIBLE UNLESS IT IS PROVED THAT THE EXPENDITURE WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR EARNING SUCH INCOME. HE EMPHASISED THAT UNDER S ECTION 57(III) OF THE ACT NEXUS SHOULD BE ESTABLISHED BETWEEN LOANS TAKEN AND LOANS ADVANCED SO AS ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 3 TO ALLOW OR DISALLOW THE INTEREST EXPENDITURE. HE A CCORDINGLY DISALLOWED THE CLAIM OF DEDUCTION OF INTEREST EXPENDITURE OF ` 11,02,768/- REFERABLE TO THE INTEREST PAID ON THE BORROWAL OF ` 1.21 CRORES.. 5. THE LEARNED CIT(A) IN A VERY CRYPTIC ORDER ALLOWED THE APPEAL OF THE ASSESSEE. IT DESERVES TO BE EMPHASISED THAT THE FAC TS WERE NOT ELABORATED AND THE REASONS GIVEN THEREIN ARE NOT SUPPORTED BY REFERRING TO ANY FACTS. THE LEARNED CIT(A) EXTRACTED THE BRIEF FACTS CULLED OUT FROM THE WRITTEN SUBMISSION FILED BY THE ASSESSEE I.E., (A) THE ASSE SSEE BORROWED ` 1.21 CRORES AND PAID INTEREST OF ` 17.92 LAKHS, AND (B) ON SIMILAR FACTS THE ITAT HAS ALLOWED THE ASSESSEES APPEAL IN THE CASE OF ASSESS EES BROTHER, SHRI CHIMANLAL R. SALVE (ITA NO. 1721/MUM/2008). IN HIS FINDINGS THE CIT(A) OBSERVED THAT WHEN THE FUNDS ARE INEXTRICABLY MIXED THERE IS NOTHING WRONG TO PRESUME THAT BORROWED FUNDS ARE USED TO ADVANCE FOR LENDING AND SECTION 57(III) ALLOWS RELEVANT EXPENDITURE AGAINST EARNING OF INCOME FROM OTHER SOURCES. HE ALSO OBSERVED THAT INTEREST FREE ADVANC ES AND OTHER INVESTMENTS OF THE ASSESSEE ARE DULY COVERED BY THE AMOUNT OF C APITAL AND INTEREST FREE FUNDS AND NO ADVERSE INFERENCE, OF DIVERSION OF FUN DS, CAN BE DRAWN. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . THE LEARNED D.R. ADVERTED OUR ATTENTION TO SECTION 57(III) OF THE AC T TO SUBMIT THAT THE INITIAL ONUS IS UPON THE ASSESSEE TO PROVE THAT THE EXPENDI TURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME U NDER THE HEAD OTHER SOURCES. IN THE INSTANT CASE, EXCEPT CLAIMING THAT THE FUNDS WERE MIXED, NO DETAILS WERE GIVEN AS TO WHAT ARE THE DATES OF AVAI LABILITY OF OWN FUNDS AND INTEREST BEARING FUNDS AND THE DATES ON WHICH INTER EST BEARING FUNDS OR INTEREST FREE ADVANCES WERE GIVEN SO AS TO APPRECIA TE FUND AVAILABILITY ON EACH DATE. THE LEARNED CIT(A) HAS NOT VERIFIED THE FACTS AND HENCE THE ORDER DESERVES TO BE SET ASIDE. HE ALSO SUBMITTED THAT EV EN THE ASSESSEE HAS NOT FILED THE DETAILS AS TO WHAT ARE THE DATES ON WHICH LOANS WERE TAKEN AND WHEN THE LOANS WERE ADVANCED. FOR EXAMPLE, ON A PAR TICULAR DATE THE ASSESSEE MAY BE HAVING SUFFICIENT OWN FUNDS OUT OF WHICH HE MIGHT HAVE ADVANCED SOME AMOUNT BY CHARGING INTEREST BUT AFTER ONE MONTH HE MIGHT HAVE BORROWED SOME AMOUNT FOR THE PURPOSE OF MAKING SOME SPECIFIC ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 4 INVESTMENT WHICH CAN EASILY BE CULLED OUT FROM THE DATE OF TAKING THE LOAN AND UNDER WHAT HEAD THE LOAN WAS TAKEN, ETC. THEREF ORE THE ONUS IS UPON THE ASSESSEE TO PROVE THE DATES SO THAT IT CAN BE A PPRECIATED AS TO ON A PARTICULAR DATE INTEREST BEARING FUNDS WERE UTILISE D FOR ADVANCING THE AMOUNT BY CHARGING INTEREST. HERE THE ASSESSEE IS S HRI VASANT R. SALVA WHEREAS THE SB ACCOUNT NO. 002767808 IS IN THE JOIN T NAME OF SHRI VASANT RAMJI SAVLA AND SMT. ANJANA VASANT SAVLA AND THEREF ORE IT CANNOT BE SAID THAT ALL THE FUNDS PERTAIN TO THE ASSESSEE HEREIN. IN SUCH AN EVENT THE ONUS IS MORE UPON THE ASSESSEE TO PROVE AS TO WHICH LOAN WAS TAKEN BY THE ASSESSEE EXCLUSIVELY AND WHICH LOAN WAS TAKEN IN TH E JOINT NAMES. IF THE LOAN IS TAKEN IN THE INDIVIDUAL NAME BUT IT WAS DEP OSITED IN THE BANK ACCOUNT IN THE JOINT NAME IT HAS TO BE ASSUMED THAT IT WAS MEANT FOR JOINT UTILISATION UNLESS IT IS SHOWN THAT THE JOINT ACCOU NT HOLDER HAS NO ROLE TO PLAY WITH REGARD TO UTILISATION OF BANK ACCOUNT. HE THUS SUBMITTED THAT THE ORDER PASSED BY THE CIT(A) DESERVES TO BE SET ASIDE . 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 TO SUBM IT THAT WHEN INTEREST FREE FUNDS AND INTEREST BEARING LOANS ARE MIXED UP, A PR ESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. 8. IT MAY BE NOTICED THAT THE HON'BLE COURT OBSERVED T HAT INTEREST FREE FUNDS SHOULD BE TREATED AS HAVING BEEN UTILISED FIR ST FOR ANY PURPOSE. THE BENCH THEREFORE POINTED OUT THAT IF INTEREST BEARIN G FUNDS ARE MIXED WITH INTEREST FREE FUNDS AND SUPPOSED TO BE UTILISED IN WHICH EVENT ANY AMOUNT GIVEN BY THE ASSESSEE AGAINST INTEREST BEARING FUND S SHOULD FIRST BE TREATED AS HAVING BEEN ADVANCED FROM OUT OF INTEREST FREE F UNDS, EVEN AS PER HON'BLE BOMBAY HIGH COURT JUDGEMENT, IN WHICH EVENT, NETTIN G OF INTEREST IS NOT PERMISSIBLE. THE LEARNED COUNSEL FOR THE ASSESSEE W AS THEREFORE CALLED UPON TO FILE DETAILED STATEMENT OF SOURCE AND UTILISATIO N OF FUNDS. THE LEARNED COUNSEL MERELY FILED THE JOINT BANK ACCOUNT STATEME NT AND STATEMENT OF SOURCES AND UTILISATION DATE-WISE. ON A PERUSAL OF THE STATEMENT IT IS NOTICED ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 5 THAT THE ASSESSEE HAD BALANCE OF ` 34,604/- ON 12.06.2006, WHICH APPEARS TO BE INTEREST FREE FUND AVAILABLE AND THEREAFTER T HE ASSESSEE HAD TAKEN SOME LOANS AND ALSO RECEIVED BACK CERTAIN INTEREST FREE FUNDS TO THE TUNE OF ` 3,00,000/- AND ` 5,000/- TILL 23.06.2006. IT CAN THUS BE SEEN THAT I NTEREST FREE FUNDS AVAILABLE AS ON 26.06.2006 WAS TO THE TU NE OF ` 3,40,604/- AND ON THAT DATE THE ASSESSEE ADVANCED A SUM OF ` 32,00,000/- TO SAVLA FOODS AND COLD STORAGE PVT. LTD. @12%. BY APPLYING THE RATIO OF THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IT HAS TO BE ASSUMED THAT THE ADVANCE WAS GIVEN OUT OF INTEREST FREE FUNDS THAT MEANS ` 3,40,000/- OF OWN FUNDS WERE UTILISED FOR ADVANCING A SUM OF ` 32,00,000/-. SIMILARLY, AS ON 08.09.2006 ASSESSEE HAS OWN FUNDS OF ` 5,91,200/- OUT OF WHICH ` 82,000/- LOAN WAS GIVEN TO SAVLA FOODS AND COLD STORAGE PVT. LTD. @12 % AND THEREFORE IT CANNOT BE SAID THAT INTEREST BEARING LOANS WERE UTI LISED FOR THIS PURPOSE. AS ON 19.12.2006 THE ASSESSEE HAD OWN FUNDS OF ` 25,84,423/- AND BY APPLYING THE SAME LOGIC ONE OF THE LOANS GIVEN ON 19.12.2006 TO THE TUNE OF ` 25,00,000/- CAN BE SAID TO HAVE BEEN OUT OF INTERES T FREE FUNDS AND EVEN IN RESPECT OF A SECOND LOAN OF ` 25,00,000/- ` 84,423/- IS OUT OF INTEREST FREE FUNDS AND ONLY THE BALANCE CAN BE SAID TO HAVE BEEN UTILISED FROM INTEREST BEARING FUNDS. IT COULD THUS BE SEEN THAT THE ASSES SEE HAS ADVANCED MONEY ON VARIOUS OCCASIONS FROM INTEREST FREE FUNDS AND H ENCE THE ENTIRE INTEREST BEARING FUNDS MIGHT NOT HAVE BEEN UTILISED FOR ADVA NCING LOANS. UNDER THESE CIRCUMSTANCES THE ONUS IS UPON THE ASSESSEE TO GIVE DATE-WISE STATEMENT OF AVAILABILITY OF FUNDS IN HIS INDIVIDUAL NAME (NOT F ROM OUT OF JOINT ACCOUNT) AND WHAT IS THE AVAILABILITY ON EACH DATE AND HOW I T WAS SPENT SO AS TO MAKE AN ANALYSIS; CERTAINLY IF THE FUNDS ARE MIXED UP ON A GIVEN DATE ONE HAS TO GO BY THE PRESUMPTION THAT FIRST INVESTMENT IS OUT OF INTEREST FREE FUNDS GENERATED, FOLLOWED WITH INTEREST BEARING FUNDS. ON THE SAME ANALOGY IF ON A PARTICULAR DATE ONLY INTEREST BEARING FUNDS WERE TH ERE WHICH WERE GIVEN TO ANY PERSON WITHOUT CHARGING INTEREST THEN INTEREST PAID ON THE INTEREST BEARING FUNDS CANNOT BE ALLOWED AS DEDUCTION. SECTI ON 57(III) IMPOSES AN OBLIGATION UPON THE ASSESSEE TO FURNISH DETAILS AND THE ASSESSEE CANNOT MERELY TAKE SHELTER UNDER THE DECISION OF THE HON'B LE BOMBAY HIGH COURT BY ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 6 CLAIMING THAT IT IS IMPOSSIBLE TO FURNISH DETAILS. WHEN THE DETAILS CANNOT BE FURNISHED THE AO WILL HAVE NO OTHER ALTERNATIVE BUT TO TAKE AN ADVERSE INFERENCE. 9. IN OUR CONSIDERED VIEW THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IS APPLICABLE ONLY WHEN ON A PARTICULAR DATE INTERE ST FREE FUNDS AND INTEREST BEARING FUNDS ARE AVAILABLE. FOR EXAMPLE, ON 15 TH OF FEBRUARY ASSESSEE HAD INTEREST FREE FUNDS OF ` 5,00,000/- AND INTEREST BEARING FUNDS OF ` 2,00,000/- AND THE ASSESSEE HAS ADVANCED A SUM OF ` 5,00,000/- TO ITS SISTER CONCERN WITHOUT CHARGING INTEREST OUT OF THE TOTAL AVAILABI LITY OF ` 7,00,000/-, THE NATURAL PRESUMPTION WOULD BE THAT INTEREST FREE FUN DS WERE FIRST UTILISED FOR ADVANCING TO THE SISTER CONCERN AND THEREFORE IT CA NNOT BE ASSUMED THAT INTEREST BEARING FUNDS WERE UTILISED FOR NON-BUSINE SS PURPOSES. HOWEVER, LET US TAKE ANOTHER EXAMPLE WHEREIN ON THE SAME STIPULA TED DATE ASSESSEE HAD INTEREST FREE FUNDS OF ` 2,00,000/- AND INTEREST BEARING FUNDS OF ` 5,00,000/- AND THE ASSESSEE ADVANCED A SUM OF ` 5,00,000/- TO ITS SISTER CONCERN WITHOUT CHARGING INTEREST. THE PRESUMPTION WOULD BE THAT ` 2,00,000/- INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WER E UTILISED FOR ADVANCING TO THE SISTER CONCERN AND THE BALANCE ` 3,00,00/- HAS BEEN ADVANCED FROM OUT OF THE INTEREST BEARING FUNDS AND INTEREST THEREON HAS TO BE DISALLOWED SINCE IT WAS UTILISED FOR NON-BUSINESS PURPOSES; MERELY B ECAUSE ` 5,00,000/- WAS ADVANCED FOR NON-BUSINESS PURPOSE IT CANNOT BE ASSU MED THAT ` 5,00,000/- INTEREST BEARING FUNDS WERE UTILISED FOR THAT PURPO SE. BEARING IN MIND SUCH CIRCUMSTANCES, THE HON'BLE BOMBAY HIGH COURT PROPOU NDED THIS THEORY THAT WHEN FUNDS WERE MIXED UP IT HAS TO BE ASSUMED THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WOULD HAVE BEEN FIRST U TILISED. SINCE THE LEARNED CIT(A) HAS NOT APPRECIATED THE JUDGEMENT OF THE HON 'BLE BOMBAY HIGH COURT IN ITS PROPER PERSPECTIVE AND THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS BEFORE THE AO, IN THE INTEREST OF JUSTICE W E SET ASIDE THE MATTER TO THE FILE OF THE AO WHO IS DIRECTED TO CALL UPON THE ASS ESSEE TO FURNISH DETAILED BANK ACCOUNT STATEMENT AND DATE-WISE UTILISATION OF FUNDS AND IF ON A GIVEN DATE FUNDS ARE MIXED, BENEFIT OF DOUBT SHOULD BE GI VEN TO THE ASSESSEE IN THE ITA NO. 2960/MUM/2012 SHRI VASANT R. SALVA 7 LIGHT OF THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH C OURT. IN THE LIGHT OF OUR DETAILED DISCUSSION THE AO WOULD RECONSIDER THE MAT TER AFRESH. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPTEMBER, 2014. SD/- SD/- ( RAJENDRA ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 19 TH SEPTEMBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 29, MUMBAI 4. THE CIT 18, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.