VIRJI BHARAMAL GALA, MUMBAI V. ITO 13(3)(1), MUMBAI

ITA 2995/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3781 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 14-10-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 02-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATA SUNDER
• Keywords: Business income; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO 2995 & 2996/MUM/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 SMT. VIRJI BHARMAL GALA. 267/71, NARSHI NATHA STREET, VEERMANI MARKET, MUMBAI- 400009. PAN : AAFPG1868B VS. THE ITO (13) (3)(1), ROOM NO. 428, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.MARG, MUMBAI- 400020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. RATAN SAMAL RESPONDENT BY : MS. LATA SUNDER DATE OF HEARING: 15/10/2015 DATE OF PRONOUNCEMENT: 24/02/2016 O R D E R PER RAM LAL NEGI, JM THESE APPEALS ARE DIRECTED AGAINST TWO ORDERS BOTH DATED- 23/02/2012 PASSED BY CIT(A)-24, MUMBAI FOR THE ASSESSMENT YEAR S 2004-05 & 2008-09. 2. SINCE BOTH THESE APPEALS PERTAIN TO THE SAME ASS ESSEE, FOR THE DIFFERENT ASSESSMENT YEARS AND THE ISSUES ARE IDENTICAL, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO 2995/MUM/2012 ASSESSMENT YEAR: 2004-05 3. BRIEF FACTS WHICH NEED NECESSARY MENTION FOR DIS POSAL OF THE PRESENT APPEAL ARE THAT THE APPELLANT/ASSESSEE HAVING RENTA L INCOME, BUSINESS INCOME AND INCOME FROM OTHER SOURCES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05, DECLARING THE TOTAL INCOME OF RS. 9,1 1,890/-. DURING THE RELEVANT 2 ITA NO 2995 & 2996/M/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 PERIOD THE APPELLANT/ASSESSEE RECEIVED AN INTEREST INCOME OF RS.10,95,690/- AND PAID INTEREST ON BORROWINGS FROM VARIOUS CREDIT ORS TO THE TUNE OF RS. 11,45,459/-. SINCE THE ASSESSEE HAD INVESTED RS. 27 ,32,580/-AS CAPITAL IN M/S. MAYANK ENTERPRISE IN WHICH THE APPELLANT/ASSES SEE IS A PARTNER, THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTE REST OF RS. 1,79,555/- U/S. 36(1)(III) OF THE INCOME TAX ACT 1961( IN SHORT TH E ACT) AGAINST THE SAID ASSESSMENT ORDER, THE ASSESSEE FILED FIRST APPEAL B EFORE THE LD. CIT(A). THE CIT(A) VIDE IMPUGNED ORDER CONFIRMED THE ADDITION M ADE BY THE ASSESSING OFFICER HOLDING THAT THE ASSESSING OFFICER HAS GI VEN THE SPECIFIC REASONS FOR MAKING DISALLOWANCE. FEELING AGGRIEVED BY THE IMPUG NED ORDER THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. THE ASSESSEE HAS CH ALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUND:- 1. LD. APPELLATE AUTHORITY HAS ERRED IN CONFIRMING THE ORDER OF THE ITO WHEREIN ITO HAS MADE ADDITIONS IN RESPECT OF TH E INTEREST PAID ON THE BORROWED FUNDS AMOUNTING TO RS. 1,75,555/- 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E US THAT AS PER THE SETTLED LAW THE ASSESSEE IS ENTITLED FOR SAID CLAIM AS THE EXPENDITURE IN QUESTION WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKIN G AND EARNING THE INCOME; THE SAME WAS NOT IN THE NATURE OF CAPITAL EXPENDITU RE OR OF THE NATURE OF PERSONAL EXPENDITURE AND THE SAME WAS EXPENDED IN T HE RELEVANT PREVIOUS YEAR AND NOT IN PRIOR OR SUBSEQUENT YEAR. 5. THE LD. COUNSEL RELYING UPON THE RATIO LAID DO WN BY THE HONBLE SUPREME COURT IN THE CASE OF M/S S.A. BUILDERS [(2007) 1 SC C 781)] AND BY THE HONBLE JURISDICTIONAL HIGH COURT IN M/S RAJASTHAN WAREHOUS ING CORPORATION (242 ITR 450), SUBMITTED THAT THE APPELLANTS CASE IS COVERE D BY THE AFORESAID JUDICIAL PRONOUNCEMENTS AND AS PER THE RATIO LAID DOWN IN TH E SAID CASES THE INTEREST 3 ITA NO 2995 & 2996/M/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 PAID BY ASSESSEE IS AN ALLOWABLE EXPENDITURE. THE L D. COUNSEL FURTHER SUBMITTED THAT THE ITAT MUMBAI HAS DECIDED THE SIMI LAR MATTER IN FAVOUR OF THE ASSESSEE IN CASE ITA NO 1510/MUM/2013. 6. ON THE OTHER HAND LD. DR RELYING ON THE CONCURRE NT FINDINGS OF ASSESSING OFFICER AND CIT(A), SUBMITTED THAT THE A PPEAL FILED BY THE ASSESSEE HAS NO MERIT AND THE SAME IS LIABLE TO BE DISMISSED . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THR OUGH THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE CONTENTIONS OF THE PARTIES. ADMITTEDLY, IN THE PRESENT CASE THE ASSESSEE HAS INVESTED RS. 27,32,58 0/-IN A PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS ONE OF THE PARTNERS AND HAS N OT RECEIVED ANY INTEREST FROM THE SAID COMPANY. IN THE LIGHT OF THE SAID FAC TS, THE SOLE ISSUE BEFORE THIS TRIBUNAL FOR DETERMINATION IS WHETHER THE LD. CIT(A ) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO IN RESPECT OF THE INTER EST PAID ON THE BORROWED FUNDS AMOUNTING TO RS 1,75,555/- 8. THE HONBLE SUPREME COURT IN M/S S.A. BUILDERS VS COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT INTEREST PAID ON T HE ASSESSEE BORROWED FUNDS FROM THE BANK CANNOT BE DISALLOWED MERELY BECAUSE O UT OF SUCH FUND ADVANCES AS INTEREST FREE LOAN WERE MADE TO ITS SISTER CONCE RN (A SUBSIDIARY). THE HONBLE COURT FURTHER HELD THAT WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDIN G COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE S UBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. THE HONBLE SUPREME COURT HAS FURTHER OBSERVED AS UNDER:- WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH CO URT IN COMMISSIONER INCOME TAX VS DALMIA CEMENT (BHART) LTD.(2002)254 I TR 377, THAT ONCE IT 4 ITA NO 2995 & 2996/M/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXP ENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS ITSELF),THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITU RE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN B E COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUS T PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINES SMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIE W WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 9. IN THE LIGHT OF THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN M/S S.A. BUILDERS VS COMMISSIONER OF INCOME TAX (SUPRA) , THERE IS NO MERIT IN THE CONTENTION OF THE REVENUE THAT THERE WAS NO COMMERC IAL EXPEDIENCY TO MAKE INVESTMENT OF BORROWED CAPITAL AND THAT THE ASSESSE E HAS NOT RECEIVED INTEREST THEREON AND FOR THESE REASONS THE ASSESSEE IS NOT E NTITLED FOR DEDUCTION ON BORROWED CAPITAL. NEITHER THERE IS ANY EVIDENCE ON RECORD TO REBUT THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT WAS MADE FOR THE PURPOSE OF BUSINESS NOR THE EVIDENCE SUGGEST THAT THE EXPENDIT URE IN QUESTION WAS IN THE NATURE OF PERSONAL EXPENDITURE. IN THE ABSENCE OF A NY COGENT REASON IT CANNOT BE CONCLUDED THAT THERE WAS NO COMMERCIAL EXPEDIENC Y AND THE INVESTMENT WAS NOT MADE FOR THE PURPOSE OF BUSINESS OR PROFESSION WITHIN THE MEANING OF SECTION 36(1)(III) OF THE ACT. ON THE OTHER SINCE T HE ASSESSEE WAS SUPPOSED TO TAKE DECISION REGARDING COMMERCIAL EXPEDIENCY AT THE RELEVANT TIME IT CAN SAFELY BE PRESUMED THAT THE ASSESSEE HAD INCURRED T HE EXPENDITURE IN QUESTION KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY AS A PRUD ENT BUSINESSMAN FOR THE PURPOSE OF HIS BUSINESS. 5 ITA NO 2995 & 2996/M/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 10. IN VIEW OF THE FOREGOING DISCUSSION IN THE LIG HT OF THE FACTS OF THE CASE AND THE RATIO LAID DOWN BY THE HONBLE SUPREME COUR T IN M/S S.A. BUILDERS VS COMMISSIONER OF INCOME TAX (SUPRA), WE ARE OF THE C ONSIDERED VIEW THAT THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS NOT IN A CCORDANCE WITH THE SETTLED PRINCIPLES OF LAW. WE THEREFORE, SET ASIDE THE IMPU GNED ORDER AND ALLOW THE GROUND OF THE APPEAL OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2004-05. AO IS DIRECTED TO ALLOW THE DEDUCTION ACCORDINGLY. ITA NO 2996/MUM/2012 ASSESSMENT YEAR: 2008-09 THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER DATE D- 23/02/2012 PASSED BY CIT(A)-24, MUMBAI FOR THE ASSESSMENT YEAR S 2008-09 ON THE FOLLOWING EFFECTIVE GROUND:- 1. LD. APPELLATE AUTHORITY HAS ERRED IN CONFIRMING TH E ORDER OF THE ITO WHEREIN ITO HAS MADE ADDITIONS IN RESPECT OF TH E INTEREST PAID ON THE BORROWED FUNDS AMOUNTING TO RS. 4,16,58 6/- 2. THE FACTS OF THIS APPEAL ARE IDENTICAL TO THE A PPEAL OF THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 2004-05, (EXCEPT THE AMOUNT OF ADDITION CONFIRMED BY THE CIT(A)). THEREFORE, WE DO NOT THINK IT NECESSARY TO REPRODUCE THE SAME. 3. SO FAR AS THE GROUND OF APPEAL IN THIS CASE IS CONCERNED THE SAME IS ALSO IDENTICAL TO THE GROUND OF APPEAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2004-05. 4. SINCE WE HAVE ALREADY ALLOWED THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) APPEAL IN THE PRESENT CASE AND ALLOW TH E APPEAL OF THE ASSESSEE 6 ITA NO 2995 & 2996/M/2012 ASSESSMENT YEAR: 2004-05 & 2008-09 FOR THE ASSESSMENT YEAR 2008-09 BEING IDENTICAL. AO IS, THEREFORE, DIRECTED TO ALLOW THE DEDUCTION ACCORDINGLY. 5. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2016 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 24/02/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA