ACIT CEN CIR 24, MUMBAI V. BHOJWANI INVESTORS & DEVELOPERS P. LTD, MUMBAI

ITA 3215/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49116 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 30-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: YOGESH A THAR
• Keywords: Business income; Business expenditure; Proportionate interest; Question of law; Commercial expediency

Judgement Text

1 ITA NO. 3215/MUM/2010 (ASST YEAR 2007-08) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI H HH H BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI J SUDHAKAR REDDY, J SUDHAKAR REDDY, J SUDHAKAR REDDY, J SUDHAKAR REDDY,AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 3215/MUM/2010 3215/MUM/2010 3215/MUM/2010 3215/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2007 2007 2007 2007- -- -08 0808 08) )) ) THE ASST COMMR OF INCOME TAX CEN.CIR 24, MUMBAI VS BHOJWANI INVESTORS & DEVELOPERS PVT LTD SAMIR COMPLEX ST ANDREW ROAD, BANDRA(W) MUMBAI 50 ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AACCB 0633P AACCB 0633P AACCB 0633P AACCB 0633P A SSESSEE BY SHRI YOGESH A THAR REVENUE BY SHRI GOLI SRINIWAS RAO PER PER PER PER VIJAY P VIJAY P VIJAY P VIJAY PAL RAO AL RAO AL RAO AL RAO, , , , JM JMJM JM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 4.1.2010 OF THE CIT(A) -39, MUMBAI FOR THE ASSESSME NT YEAR 2007-08. 2 THE ONLY ISSUE RAISED BY THE REVENUE IN THIS APPE AL READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN HOLDING THAT MERE CHARGING OF INTEREST DURING THE EARLIER YEARS DOES NOT MERIT DISALLOWANCE OF INTERE ST EXPENDITURE INCURRED BY THE ASSESSEE, WITHOUT CONSIDERING THAT THE LENDE RS AND THE ASSESSEE COMPANY AS WELL AS ITS SISTER CONCERNS TO WHOM INT EREST FREE ADVANCES WERE GIVEN WERE ALL EITHER PART OF THE SAMIR BHOJWA NI FAMILY OR MANAGED BY SAMIR BHOJWANI AND HIS FAMILY MEMBERS, THEREBY C LEARLY ATTRACTING THE PROVISIONS OF SEC. 40A(2)(B) 3 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT RECORDS. THE LD AR OF THE ASSESSEE HAS POINTED OUT THAT THE ASSESSING OFFICER, WHILE DISALLOWING THE INTER EST EXPENDITURE INCURRED BY THE ASSESSEE HAS FOLLOWED THE ORDER FOR THE ASSESSMENT YEAR 2002-03. HE HAS FURTHER SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR THE AYS 2002-03 AND 2003-04 AND THE SAME HAS BEEN UPHELD BY THE HONBLE 2 ITA NO. 3215/MUM/2010 (ASST YEAR 2007-08) JURISDICTIONAL HIGH COURT VIDE ORDER DATED 15.11.20 10. HE HAS FILED COPIES OF THE ORDER OF THE TRIBUNAL AS WELL AS THE ORDER OF THE J URISDICTIONAL HIGH COURT. HE HAS FURTHER POINTED OUT THAT THE ISSUE WAS ALSO CAME B EFORE THE TRIBUNAL FOR AYS 2004-05 AND 2005-06 AND THE TRIBUNAL HAS DECIDED TH E ISSUE IN FAVOUR OF THE ASSESSEE. THE LD DR HAS NOT CONTROVERTED THE FACT S POINTED OUT BY THE AR; HOWEVER, HE HAS SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER. 3.1 AFTER CONSIDERING THE RIVAL CONTENTION AND THE RELEVANT RECORDS, WE FIND THAT THE ASSESSING OFFICER, WHILE ADDRESSING THE IS SUE OF DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE HAS FOLLOWED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03. THE RELEVANT PORTION OF T HE ORDER OF THE ASSESSING OFFICER IS REPRODUCED AS UNDER: IN THE LIGHT OF THE ABOVE DISCUSSION AND FOLLOWING THE REASONS FOR DISALLOWANCE IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2002-03, THE PROPORTIONATE INTEREST ON THE FUND, WHICH IS INTERE ST FREE ADVANCED TO M/S BALKRISHNA DEVELOPERS P LTD AND M/S PAPAYON DEVELOP ERS P LTD. 3.2 FURTHER, WE FIND THAT THE TRIBUNAL IN THE CASE OF THE ASSESSEE HAS CONSIDERED AND ADJUDICATED THE ISSUE IN FAVOUR OF T HE ASSESSEE FOR THE AYS 2002-03 AND 2004-05 IN ITA NO 1664/M/2006 AND 1 595/M/07 VIDE ORDER DATED 28.1.2009. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RECORDS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENTS AND AS PART OF HIS BUSINESS HAD BORROWED CERTAIN FUNDS FRO M MR SAMIR BHOJWANI BY WAY OF DEEP DISCOUNT BONDS. THE SAID INTEREST BE ARING FUNDS WERE ADVANCED TO BDPL IN THE ASSESSMENT YEAR 1995-96 AND THE INTEREST EARNED THERE FROM WAS SET OFF AGAINST THE INTEREST EXPENDITURE AND THE BALANCE INCOME WAS SHOWN AS BUSINESS INCOME BY THE ASSESSEE FROM YEAR TO YEAR. UP TO ASSESSMENT YEAR 2001-02, THE ASSESSE E WAS NETTING OFF THE INTEREST INCOME EARNED WITH THE INTEREST EXPENDITUR E. AS BDPL WAS 3 ITA NO. 3215/MUM/2010 (ASST YEAR 2007-08) INCURRING LOSSES FROM YEAR TO YEAR AS TABULATED BY THE CIT(A) IN HIS ORDER IN PARA 55, THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION DID NOT RECEIVE ANY INTEREST FROM BDL AND ALSO DID NOT ACCOUNT FOR ANY INTEREST ACCRUED ON THE ADVANCES MADE TO THE SAID COMPANY HOWEVER, IT C ONTINUED TO PAY THE INTEREST TO MR SAMIR BHOJWANI. FROM THE PERUSAL OF THE FINANCIAL STATEMENT SUBMITTED BY THE ASSESSEE FOR THE YEAR UNDER APPAL I.E. ASSESSMENT YEAR 2002-03, WE FIND THAT AS ON 31.3.2002, THE UNSECURE D LOANS ARE APPROX. RS. 27.28 CRORES AND IN THE PRECEDING YEARS I.E. TH E YEAR ENDING ON 31.3.201, THE SAID UNSECURED LOANS WERE RES. 28.19 CRORES . DURING THE FINANCIAL YEAR 2001-02, THE FINANCE EXPENSES HAVE R EDUCED TO RS. 1,30,14,763/- AS AGAINST RS. 3,87,55,580/- INCURRED IN THE PRECEDING YEARS. THE CLAIM OF THE ASSESSEE IS THAT THE INTEREST PAYA BLE ON THE DEEP DISCOUNT BONDS DURING THE YEAR HAS BEEN REDUCED TO 4.7% AS AGAINST 13.70% CHARGED DURING THE YEAR. THE ASSESSEE HAD BO RROWED THE FUNDS FOR THE PURPOSE OF CARRYING ON ITS BUSINESS AND THE INT EREST EXPENDITURE WAS ALLOWED AS BUSINESS EXPENDITURE FROM YEAR TO YEAR. THE NATURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE CONTINUES TO BE SAME AND THE PROVISIONS OF SEC. 36(1)(III) OF THE ACT ARE COMPLI ED WITH BY THE ASSESSEE. MERE NON-CHARGING OF INTEREST DURING THE YEAR AS AG AINST THE INTEREST CHARGED IN THE EARLIER YEARS DOES NOT MERIT THE DIS ALLOWANCE OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. WE CONFIRM TH E ORDER OF THE CIT(A IN THIS REGARD IN ALLOWING THE INTEREST EXPENDITURE IN ENTIRETY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEREIN THE ASSESSEE HIM SELF HAD TAKEN STEPS TO REDUCE ITS INTEREST LIABILITY ON BORROWALS MADE AND OUTSTANDING FROM THE EARLIER YEARS IN THE CHANGED CIRCUMSTANCES, WHEREIN IT WAS NOT IN A POSITION TO CHARGE INTEREST ON THE ADVANCES MADE TO ITS GROUP CONCERN, WE ALLOW THE CLAIM OF THE ASSESSEE. THE ASSESSEE WAS I N A POSITION TO RECOVER PART OF ITS LOAN AND THE STEPS TAKEN AS A PRUDENT B USINESS MAN CANNOT BE DEFECTED. THE CASE OF COMMERCIAL EXPEDIENCY STANDS PROVED AND THE CLAIM OF ASSESSEE IS ALLOWABLE. WE CONFIRM THE ORDER OF C IT(A IN THIS REGARD AND DISMISS THE GROUNDS OF APPEALS RAISED BY THE REVENU E. 3.3 THE REVENUE HAS CHALLENGED THE ORDER OF THE TRI BUNAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT AND THE HONBLE JURISDICT IONAL HIGH COURT VIDE ITS ORDER DATED 15.11.2010 HAS AFFIRMED THE DECISION OF THE TRIBUNAL BY DISMISSING THE APPEALS OF THE REVENUE AS UNDER: THE ASSESSEE HAD BORROWED CERTAIN FUNDS FROM MR SA MIR BHOWANI, A DIRECTOR OF THE ASSESSEE COMPANY AND ADVANCED IT TO M/S BALKJRISHNA DEVELOPERS P LTD IN 1995-96. ADMITTEDLY, THE INTERE ST RECEIVED FROM M/S BALKRISHNA DEVELOPERS P LTD FROM TIME TO TIME HAS B EEN OFFERED TO TAX AND INTEREST PAID ON BORROWED FUNDS HAS BEEN ALLOWED AS BUSINESS 4 ITA NO. 3215/MUM/2010 (ASST YEAR 2007-08) EXPENDITURE. HOWEVER, IN ASSESSMENT YEAR 2002-03 AN D 203-04 DUE TO CERTAIN FINANCIAL DIFFICULTIES, M/S BALKRISHNA DEVE LOPERS P LTD COULD NOT PAY THE INTEREST AND, THEREFORE, THE ASSESSEE TOOK A CO MMERCIAL DECISION NOT TO CHANGE INTEREST FOR THESE TWO ASSESSMENT YEARS. THE TRIBUNAL HAS RECORDED A FINDING OF FACT IN PARA 5 OF ITS ORDER T HAT THE DECISION OF THE ASSESSEE TO FORGO THE INTEREST WAS A PRUDENT BUSINE SS DECISION AND IN FACT HE SAID DECISION HAS ENABLED THE ASSESSEE TO RECOVE R THE PRINCIPLE AMOUNT. IN OUR OPINION, THE DECISION OF THE TRIBUNA L DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. ACCORDINGLY BOTH T HE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS. 4 THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER ORD ERS OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 15 TH , DAY OF JUNE 2011. SD/- SD/- ( (( ( J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 15 TH JUNE 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI