ACIT 2(3), MUMBAI V. SURESH ESTATE P. LTD, MUMBAI

ITA 3395/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49175 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2001-2002
• Appeal Filed On: 30-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Keywords: Business expenditure; Opportunity of being heard; Rule of consistency; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI V. DURGA RAO , J.M. ITA NO. 3395/MUM/2010 ASSESSMENT YEAR: 2001-02 ASSTT. COMMISISONER OF INCOME TAX-2(3), APPELLAN T ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI. VS. M/S SURESH ESTATES PVT. LTD., RESPONDENT 2 ND FLOOR, SONAWALA BLDG., 59, MUMBAI SAMACHAR MARG, FORT, MUMBAI 400 023. APPELLANT BY : MR. G.P. TRIVEDI RESPONDENT BY : MR. SATISH MODY . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 6, MUMBAI, PASSED ON 24/02/2010 FOR THE ASS ESSMENT YEAR 2001-02. 2. THE ONLY GROUND RAISED IN THIS APPEAL IS AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS. 44,2 3,364/-. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THIS IS A SECOND ROUND OF LITIGATION AS ORIGINALLY RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 29/10/2001 DECLARING TOTAL LOSS AT RS. 29,64,148/-, WHICH WAS PROCESSED U/S 143(3) OF THE ACT ON 27/02/2004 ASSES SING TOTAL INCOME AT RS. 14,47,216/-. ON APPEAL, THE CIT(A) CO NFIRMED THE ACTION OF THE AO. THE ASSESSEE PREFERRED APPEAL AGAINST TH E ORDER OF CIT(A) AND THE ITAT RESTORED THE MATTER BACK TO THE FILE O F THE AO FOR FRESH ITA NO. 3395/M/2010 SURESH ESTATE PVT. LTD. 2 ASSESSMENT VIDE ITA NO. 2487/MUM/05, DTD. 27/11/07. ACCORDINGLY, NOTICES ISSUED U/S 142(1)/143(2), AGAINST WHICH THE ASSESSEE SUBMITTED DETAILS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF RECORDS AND SUBMISSIONS MADE BY THE ASSESSEE, IT WA S OBSERVED THAT THE ITAT DIRECTED TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS VS. CIT, 288 ITR 1 (SC), THEREFORE, THE ASSESSEE WA S ASKED TO PROVE COMMERCIAL EXPEDIENCY AND ALSO TO PROVE THE NEXUS B ETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS. THE AO WA S OF THE VIEW THAT ON ONE HAD THE ASSESSEE IS BORROWING LOANS ON WHICH IT CLAIMS TO HAVE PAID INTEREST WHEREAS ON THE OTHER HAND IT IS MAINTAINING HUGE AMOUNT OF CASH IN HAND. FURTHER IT WAS ALSO NOT PRO VED BY THE ASSESSEE THAT THE PROPERTIES WERE PURCHASED OUT OF THE LOAN TAKEN BY THEM OR OTHERWISE IN 1984-85 OR TO WHAT EXTENT THE LOAN HAD BEEN UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E BY WAY OF INVESTMENT IN PROPERTIES. SINCE THE ASSESSEE FAILE D TO ESTABLISH THE NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BU SINESS OR TO PROVE THE COMMERCIAL EXPEDIENCY FOR PAYING OUT RS. 44,23,365/- AS INTEREST, THE AO TREATED THE SAID EXPENSES AS CONST ITUTING A PART OF WORK-IN-PROGRESS AND DISALLOWED THE SAME AS NON-BUS INESS EXPENDITURE. AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMIT TED THAT THE ISSUE REGARDING DISALLOWANCE OF INTEREST ON SIMILAR GROUNDS HAD TRAVELED TO THE ITAT IN ASSESSMENT YEARS 1997-98 & 1998-99 ALSO AND IN THOSE YEARS THE ITAT HAD RESTORED THE MATTER TO THE FILE OF THE AO TO ADJUDICATE THE MATTER AFRESH AFTER GIVING THE ASSES SEE AN OPPORTUNITY OF BEING HEARD. IT WAS FURTHER SUBMITTED THAT IN TH OSE TWO YEARS THE AO HELD THAT THE INTEREST PAID WAS UITILZED FOR THE PURPOSES OF THE BUSINESS OF THE ASESSSEE BY WAY OF INVESTMENT IN PR OPERTIES AND, ITA NO. 3395/M/2010 SURESH ESTATE PVT. LTD. 3 THEREFORE, THE INTEREST PAID IN RESPECT OF THOSE LO ANS HAD BEEN ALLOWED AS A DEDUCTION BY THE AO. SINCE THE ISSUE UNDER CON SIDERATION IS SIMILAR TO THAT OF AY 1997-98 & 1998-99, NO DISALLO WANCE WAS WARRANTED IN THE YEAR UNDER CONSIDERATION ALSO. AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELETED THE DISALLOWANCE OF INTEREST PAYMENT OF RS. 44,23,364/- BY OBSERVING TH AT ON THE PRINCIPLE OF CONSISTENCY THE ASSESSEE HAS A GOOD CASE SINCE T HE IDENTICAL ADDITIONS MADE IN EARLIER YEARS AS WELL AS IN THE S UBSEQUENT YEARS HAVE BEEN DELETED BY THE AO HIMSELF. AGGRIEVED BY T HE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPE AL IS WHETHER THE ASSESSEE HAS UTILIZED THE BORROWINGS FOR THE PURPOS E OF BUSINESS OR NOT, AND INTEREST PAID ON SUCH BORROWINGS IS TO BE ALLOWED OR NOT. BEFORE THE CIT(A) THE CONTENTION OF THE ASSESSEE WA S THAT SIMILAR DISALLOWANCE OF INTEREST HAD TRAVELED TO THE ITAT I N ASSESSMENT YEARS 1997-98 & 1998-99 AND THE ITAT HAD RESTORED THE MAT TER TO THE FILE OF THE AO AND THE AO ALLOWED THE INTEREST EXPENDITURE AS BUSINESS EXPENDITURE. THE CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASESSSEE, DELETED THE DISALLOWANCE MADE BY THE AO IN THE YEAR CONSIDERATION. WE ARE OF THE VIEW THAT TO MEET THE ENDS OF JUSTICE , WE SET ASIDE THE ORDER OF CIT(A) AND REMIT THE MATTER BACK TO THE F ILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE WHETHER THE ASSESSEE HAS UTILIZED THE BORROWINGS FOR THE PURPOSE OF BUSINESS OR NOT, IF T HE SAME ARE UTILIZED FOR THE PURPOSE OF BUSINESS, THE INTEREST EXPENDITU RE MAY BE ALLOWED AS BUSINESS EXPENDITURE AS PER THE EARLIER YEARS, A FTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASESSSEE IN THE M ATTER. ITA NO. 3395/M/2010 SURESH ESTATE PVT. LTD. 4 7. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JUNE, 2011. SD/- SD/- (P.M. JAGTAP) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 22 ND JUNE, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.