HUMA EXHIBITORS, MUMBAI V. ACIT 23(1), MUMBAI

ITA 3303/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8815 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 10-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR , AM ITA NO. 3303 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 20 10 - 11 ) M/S HUMA EXHIBITORS, HUMA MALL, LBS MARG, BHANDUP (W), MUMBAI - 400078 / VS. THE ASSTT. COMMISSIONER OF INCOME - TAX - 23(1), MUMBAI . . ./ PAN : AA AFH0854R ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : NONE /RESPONDENT BY : MS.ANUPAMA SINGLA / DATE OF HEARING : 4.1.2017 / DATE OF PRONOUNCEMENT : 1. 201 7 / O R D E R PER R AJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 8.2.2016 PASSED BY THE LD.CIT(A) - 40 FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO. 3303 / MUM/201 6 2. THE CASE OF THE ASSESSEE WAS CALLED FOR THE HEARING BEFORE THE BENCH BUT NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE APPEARED TODAY BEFORE US TO ATTEND THE HEARING . WE, THEREFORE DISPOSING OF THE APPEAL EX - PARTE AFTER HEARING THE LD.DR ON MERIT AFTER PERUSAL OF MATERIAL S AVAILABLE BEFORE US. 3 . THE ISSUE RAISED IN THE FIRST GROUND OF A PPEAL IS AGAINST THE CONFIRMATION OF THE INTEREST OF RS.6,57,644/ - AT THE RATE OF 9.2% ON THE CLOSING BALANCE O F INTEREST FREE LOAN S AND ADVANCES GIVEN BY THE ASSESSEE . 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT WAS FRAMED ON 23.3.2013 UNDER SE CTION 143(3) OF THE INCOME TAX ACT, 1961 BY ASSESSING THE LOSS OF RS.56,35,184/ - AS AGAINST LOSS RETURNED OF RS.1,27 , 56,171/ - BY MAKING VARIOUS DISALLOWANCE S INTER ALIA NOTIONAL INTEREST ON INTEREST FREE ADVANCES OF RS.5,48,03,695/ - AT THE 12% WHICH COMES TO RS.65,76,443/ - AS AGAINST THE SUO MOTTO DISALLOWANCE @8% WHICH COMES TO RS.43,84,296/ - . 5. THE AGGRIEVED ASSESSEE FILED APPEAL BEFORE FAA , WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY SUSTAINING THE DISALLOWANCE OF RS.6,57,644 / - AT THE RATE BEING 9.2% ON INTEREST FREE LOAN AND ADVANCES AND THEREBY ALLOWED THE APPEAL PARTLY BY OBSERVING AND HOLDING AS UNDER : 7.4 IN THIS CASE, THE LD. AO HAS NOT BEEN ABLE TO PROVE THAT THE APPELLANT HAS ADVANCED INTEREST FREE LOANS, OUT OF ONLY INTEREST BEA RING FUNDS ONLY. SINCE THE APPELLANT HAD INTEREST FREE FUNDS ALSO AT HIS 3 ITA NO. 3303 / MUM/201 6 POSSESSION, I FIND MERIT IN THE ARGUMENT OF THE APPELLANT THAT SINCE IT IS NOT POSSIBLE TO IDENTIFY WHICH FUNDS HAD BEEN TRANSFERRED I.E. FROM INTEREST FREE OR INTEREST BEARING, IT IS APPROPRIATE TO CONSIDER THE AVERAGE RATE OF INTEREST. THUS, IT IS HELD THAT FOR DISALLOWANCE, AVERAGE RATE OF INTEREST ON THE TOTAL FUNDS AVAILABLE (INTEREST BEARING AND INTEREST FREE) ARE TO BE CONSIDERED. TH E APPELLANT HAS CALCULATED THE AVERAGE INTER EST PAID ON TOTAL FUNDS AS UNDER : - SECURED LOANS RS.49,173,514 UNSECURED LOANS RS.49,173,514 BANK OVER DRAFT FROM MCB RS.57,739,998 SUNDRY CREDITORS RS.23,640,009 TOTAL RS.21,13,58,978 TOTAL INTERE S T PAID WAS R S. 17,246,514/ - AND ON THIS BASI S, AVERAGE INTEREST PAID ON TOTAL FUND WAS CALCULATED AT 8%. IT IS S EEN FROM THE ABOVE, THAT THE APPELLANT HAS CONSIDERED SUNDRY CREDITORS IN THE ABOVE CALCULATION AS PART OF TOTAL FUNDS AVAILABLE FOR ADVANCING. HOWEVER, AMOUNT STANDING AS SUNDRY CREDITO RS CAN NOT BE USED FOR ADVANCING MONEY , SINCE IT IS THE LIABILITY OF TH E ASSESSEE WHICH HE NEEDS TO DISCHARGE, AND NOT FUNDS AVAILABLE WITH HIM. THEREFORE FOR CALCULATING THE AVERAGE RATE OF INTEREST, THE AMOUNT STANDING AS SUNDRY CREDITORS NEEDS TO BE RED UCED FROM THE TOTAL FUNDS AVAILABLE. IF WE REDUCE THE SUNDRY CREDITORS IN THE ABOVE CALCULATION, THEN, THE TOTAL FUNDS AVAILABLE COMES TO RS.187,718,969/ - AND AVERAGE INTERE S T PAID COMES TO 9.2% (17,246,514/187,718,969 X 100 ). THUS, IT IS HELD THAT FOR DIS ALLOWANCE, AVERAGE RATE OF INTERE S T ON THE TOTAL FUNDS AVAILABLE (INTEREST BEARING AND INTEREST FREE) IS TO BE CONSIDERED @ 9.2%. 7.5 IN VIEW OF THE ABOVE, THE DISALLOWANCE ON ACCOUNT OF INTEREST ON CLOSING BALANCE OF INTEREST FREE LOANS AND ADVANCES IS SU S TAINED AT 9.2%. THE APPELLANT HAD DISALLOWED @ 8% AND THE LD.AO HAD ENHANCED THE DI S ALLOWANCE TO 12%. THE TOTAL AMOUNT OF INTEREST DISALLOWABLE ON RS.5,48,03,695/ - @9.2% COMES TO RS. 50,41,940/ - ,OUT OF THIS, THE APPELLANT HAS ALREADY DISALLOWED RS.43,8 4,296/ - . THUS FURTHER AMOUNT OF DISALLOWANCE OF RS.6,57,644/ - IS SUSTAINED. 4 ITA NO. 3303 / MUM/201 6 THEREFORE, OUT OF THE TOTAL INTEREST OF RS.21,92,147/ - DISALLOWED AND ADDED BACK BY THE LD. AO, ADDITION OF RS.6,57,644/ - IS CONFIRMED. THUS, THE APPELLANT GETS RELIEF OF RS.15, 34,503/ - 6 . WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIAL PLACED BEFORE US. SINCE NONE APPEARED ON BEHALF OF THE ASSESSEE TO REPRESENT ITS CASE, WE ARE, THEREFORE , DECID ING THE APPEAL ON MERIT EX - PARTE AFTER HEARING THE LD.DR, . WE FIND THAT THE LD. CIT(A) PARTLY SUSTAINED THE DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE AT 9.2% FROM 12% BY THE /AO AFTER CONSIDERING THE CONTENTIONS AND ARGUMENTS OF THE ASSESSEE WHICH IN OU R OPINION IS QUITE JUSTIFIED AND REASONABLE AFTER CONSIDERING THE MERITS OF THE CASE. NOW, BEFORE US , THERE IS NOTHING ON RECORD TO CONTROVERT THE FINDING OF LD.CIT(A) AND THEREFORE, WE ARE INCLINED TO UPHOLD THE FINDING OF T HE LD.CIT(A). ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE STANDS DIS MISSED. 7. IN THE RESULTS , THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH JAN, 2017. S D SD ( C.N. PRASAD ) ( RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 16 . 1.2017 SRL,SR.PS 5 ITA NO. 3303 / MUM/201 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELL ANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI