ADDL CIT RG 17(3), MUMBAI V. C.H. JAVA & CO., MUMBAI

ITA 3045/MUM/2010

• Counselvise Citation: 304519914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3045/MUM/2010 (ASSESSMENT YEAR: 2006-07) D C I T - 17(3) M/S. C.H. JAVA & CO. ROOM NO. 614, 6TH FLOOR A-206, BYCULLA SERVICE INDU STRIES PIRAMAL CHAMBERS, PAREL VS. D.K. MARG, BYCULLA MUMBAI 400012 MUMBAI 400027 PAN - AAAFC 1085 D APPELLANT RESPONDENT APPELLANT BY: SHRI M.K. KUBAL RESPONDENT BY: SHRI VIMAL PUNMIYA DATE OF HEARING: 11.08.2011 DATE OF PRONOUNCEMENT: 24.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXIX, MUMBAI DATED 19.02.2010. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING INTEREST EXPENDITURE WITHO UT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT DISCHARGED ITS O NUS TO PROVE THAT THE BORROWINGS WERE FOR THE PURPOSE OF BUSINES S. 3. THE ISSUE IS WITH REFERENCE TO DISALLOWANCE OF ` 16,45,074/- BEING INTEREST ON BANK DEPOSITS AND BANK CHARGES OF ` 1,49,807/- BY THE A.O. ON THE REASON THAT ASSESSEE HAS BORROWED FUNDS AND HAS CLAIMED INTEREST PAYMENT WITHOUT UTILISING OWN FUNDS DURING THE YEAR UNDER CONSIDERATION FOR THE PURPOSE OF BUSINESS. 4. BRIEFLY STATED, THE A.O. NOTICED THAT ASSESSEE HAS TAKEN CASH CREDIT FACILITIES FROM SARASWATH CO-OPERATIVE BANK AND HAS AN OVERDRAFT OF ` 3,23,30,970/- AT THE END OF THE YEAR. HE ALSO NOTIC ED THAT ASSESSEE HAS ITA NO. 3045/MUM/2010 M/S. C.H. JAVA & CO. 2 SUNDRY DEPOSITS IN THE SAME BANK AND OTHER BANKS TO THE EXTENT OF ` 6,48,98,297/- AND ALSO ACCEPTED DEPOSITS FROM MRS. CHANDRA H. JAVA OF ` 30,00,000/- AND PAID INTEREST. IT WAS HIS CONTENTIO N THAT WHEN ASSESSEE HAD OWN FUNDS THERE IS NO NECESSITY FOR BORROWED FU NDS AND ACCORDINGLY THE CLAIM OF INTEREST ON THE BORROWED FUNDS AND THE BAN K CHARGES WERE DISALLOWED. IT IS ALSO HIS CONTENTION THAT ASSESSEE FAILED TO ESTABLISH THE NEXUS WITH BORROWED FUNDS TO THAT OF BUSINESS. 5. BEFORE THE CIT(A) IT WAS CONTENDED THAT ASSESSEE HA D A SALES OF ` 79 CRORES AND A TAXABLE INCOME OF ` 1.75 CRORES AND THE INTEREST PAID TO BANK AND OTHERS WAS ` 16.45 LAKHS. ASSESSEE ALSO EARNED INTEREST FROM BAN K DEPOSITS TO THE TUNE OF ` 24.23 LAKHS. IT WAS SUBMITTED THAT ASSESSEE HAD TO MAINTAIN OVERDRAFT FACILITIES IN ORDER TO PAY THE A MOUNTS TO THE COMPANIES FOR PURCHASE OF MATERIAL IN BULK AND RECEIVED FUNDS LATER WHICH WERE KEPT IN DEPOSITS IN ORDER TO EARN INTEREST. IT WAS SUBMITTE D THAT THERE IS A NET CREDIT AND NOT DEBIT AND SO THE DISALLOWANCE OF INTEREST I S NOT CORRECT. THE LEARNED CIT(A) GAVE THE FOLLOWING FINDINGS AND DELETED THE DISALLOWANCE: - 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, ARGUMENTS OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE AR OF THE APPELLANT. I FIND THAT APPELLANT HAS MAINTAINED A CASH CREDIT FACILITY TO MEET BUSINESS REQUIREMENTS AS AND WHEN SHORT TERM FUNDS ARE NEEDED. THE SURPLUS MONEY HAS BEEN KEPT IN BANK DEPOSITS AN D THE INTEREST EARNED IS RS.20.73 LAKHS, THIS IS MORE THAN THE INT EREST DEBITED IN THE P & L ACCOUNT. IT IS LOGICAL TO PLACE FUNDS IN FIXE D DEPOSITS FOR LONGER TERMS TO EARN HIGHER RATE OF INTEREST. THERE IS NO EVIDENCE TO SHOW THAT THERE IS EITHER INTENTIONAL DIVERSION OF FUNDS OR BORROWING FOR NON- BUSINESS PURPOSES. THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER CANNOT BE SUSTAINED. THE DISALLOW ANCE OF RS.16,45,074/- AND BANK CHARGES OF RS.1,49,807/- IS DELETED. 6. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. AN D EXPLAINED THE CIRCUMSTANCES IN WHICH THE INTEREST AND BANK CHARGE S WERE DISALLOWED WHEREAS THE LEARNED A.R. SUBMITTED THAT ASSESSEE HA S KEPT ALL THE MONEYS IN CURRENT ACCOUNT IN EARLIER YEARS WITHOUT EARNING AN Y INTEREST WHEREAS IN THIS YEAR ASSESSEE MAINTAINED OVERDRAFT ACCOUNT AND PAID INTEREST ONLY FOR THE PERIOD OF DRAWING FACILITIES AND THE SURPLUS FUNDS RECEIVED IN THE BUSINESS WERE KEPT IN FIXED DEPOSITS EITHER WITH THE SAME BA NK OR WITH THE BANKS WITH WHICH IT IS TRANSACTING AS A SECURITY. HE REFERRED TO THE BALANCE SHEET OF THE ITA NO. 3045/MUM/2010 M/S. C.H. JAVA & CO. 3 ASSESSEE FIRM TO SUBMIT THAT AN AMOUNT OF ` 5,43,52,267/- WAS KEPT WITH THE SAME BANK IN THE DEPOSITS AND SECURITY DEPOSITS WIT H BPL (ITC GROUP COMPANY) WERE TO THE TUNE OF ` 1.39 CRORES WHICH WERE NECESSITATED FOR THE BUSINESS PURPOSES. IT IS ALSO THE SUBMISSION THAT H AVING BEEN ASSESSED THE INTEREST EARNED ON DEPOSITS AS BUSINESS INCOME THE INTEREST PAID TO THE BANK ON THE OVERDRAFT FACILITIES HAS TO BE ALLOWED AS DE DUCTION AND SUPPORTED THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE ISSUE. AFTER EXAMINING THE I SSUE AND CONSIDERING THE FACTS ON RECORD, WE ARE OF THE OPIN ION THAT THERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE CIT(A). AS PER T HE PROVISIONS OF SECTION 36(1)(III), DEDUCTION IS ALLOWABLE IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 ON THE AMOUNT OF INTEREST PAID IN RESPEC T OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. IN THIS CASE, THERE IS NO DISPUTE WITH REFERENCE TO THE PAYMENT OF INTEREST TO THE BANK IN RESPECT OF C APITAL BORROWED FOR THE PURPOSE OF BUSINESS ON THE OVERDRAFT FACILITY. THE A.O. HAS NOT BROUGHT OUT ANY FACTS WITH REFERENCE TO BORROWED FUNDS BEING DI VERTED FOR NON-BUSINESS PURPOSES. IT IS HIS CONTENTION THAT WHEN ASSESSEE H AD ITS OWN FUNDS THAT TOO IN DEPOSITS THERE WAS NO NECESSITY FOR BORROWAL OF FUNDS AND ACCORDINGLY DISALLOWED THE INTEREST. WE ARE OF THE OPINION THAT THE ACTION OF THE A.O. CANNOT BE SUPPORTED. FIRST OF ALL HE CANNOT STEP IN TO THE SHOES OF THE ASSESSEE TO EXAMINE WHETHER THE FUNDS ARE REQUIRED TO BE BORROWED OR NOT. AS SUBMITTED BY ASSESSEE THE FUNDS ARE INITIALLY RE QUIRED FOR PAYMENT TO THE COMPANIES AND ASSESSEE RECEIVES AMOUNTS SUBSEQUENTL Y AFTER DISTRIBUTING THE GOODS IN WHOLE SALE BUSINESS, I.E. TIMING DIFFE RENCE OF REQUIREMENT OF FUNDS AND AVAILABILITY OF FUNDS. MOREOVER, AS POINT ED OUT BY THE LEARNED COUNSEL, ASSESSEE HAS TO MAINTAIN OVERDRAFT FACILIT Y IN THE BANK FOR WHICH THERE ARE NECESSARILY BANK CHARGES AND AS AND WHEN THE FACILITY WAS UTILISED IT PAID INTEREST TO THE EXTENT OF FUNDS BORROWED. T HESE ASPECTS HAVE NOT BEEN EXAMINED BY THE A.O. AT ALL. THE CIT(A) HAS EXAMINE D THESE ISSUES AND GAVE A FINDING THAT FUNDS ARE UTILISED FOR THE PURPOSE O F BUSINESS AND ON THE EXCESS FUNDS AVAILABLE WITH THE ASSESSEE, ASSESSEE ALSO EARNED INTEREST AND THE NET AMOUNT WAS A CREDIT TO THE P & L ACCOUNT A ND NOT A DEBIT. THIS SHOWS THE PRUDENCE IN ASSESSEES BUSINESS ACTIVITY. ON THE FACTS OF THE CASE ITA NO. 3045/MUM/2010 M/S. C.H. JAVA & CO. 4 WE ARE OF THE OPINION THAT THE ASSESSING OFFICERS ACTION IN DISALLOWING INTEREST AND BANK CHARGES CANNOT BE SUPPORTED. THER EFORE WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS REVENUES GROUND. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIX, MUMBAI 4. THE CIT XVIII, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.