JSB SECURITIES LTD, MUMBAI V. JCIT SP RG 49, MUMBAI

ITA 3493/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3184 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: J
• Next Hearing Date: 10-02-2015
• Assessment Year: 1997-1998
• Appeal Filed On: 03-05-2013
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH SONHAR
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Business expenditure; Rule of consistency; Additional evidence; Fair market value; Speculation loss

Judgement Text

VK; DJ VIHYH; VF/KDJ.K] EQCBZA U;K;IHB] ,P] EQACBZ IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H MUMBAI. BEFORE JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER JH TKSFXUNJ FLAG] U;KF;D LNL; ,OA JH JKTS' K DQEKJ] YS[KK LNL; DS LE{K ITA NO 3493 /MUM/201 3 ASSES SMENT YEAR: - 1997 - 98 ITA NO 3494 /MUM/201 3 ASSESSMENT YEAR: - 199 8 - 9 9 JSB SECURITIES LIMITED 141, MAKER CHAMBERS III, NARIMAN POINT MUMBAI 400 021. VS.` THE INCOME TAX OFFICER - 3(2)(1), AAYKAR BHAVAN, M.K. ROAD MUMBAI. PAN/GIR NO. AAACJ1402A APPELLANT RESPONDENT ASSESSE E BY DR. K. SHIVARAM REVENUE BY SHRI PEEYUSH SONHAR DATE OF HEARING 17.08.2015 DATE OF PRONOUNCEMENT 28 .0 9 .2015 2 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 2 OF 14 ORDER PER RAJESH KUMAR, A CCOUNTANT M EMBER THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER S COMMISSIONER OF INCOME TAX(APPEALS){( HEREINAFTER REFERRED TO AS CIT (A) } EVEN DATED 18.02.2013 FOR A.Y. 1997 - 98 AND 1998 - 99 . SINCE SOME OF GROUNDS IN BOTH THESE A PPEALS ARE COMMON IN NATURE AND THEREFORE BOTH THE APPEA L S ARE CLUBBED TOGETHER , HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE BREVIT Y AND CONVENIENCE. WE FIRST TAKE THE ITA NO 3493/MUM/2013. THE GROUND S RAISED IN THE FORM NO 36 FOR ASSESSMENT YEAR 1997 - 98 READ AS UNDER : - A) CONSIDERING BUSINESS LOSS AS SPECULATION LOSS - RS. 1,46,03,171/ - 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 4, MUMBAI [CIT(A)] ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE 49, MUMBAI (AO) CONSIDERING THE BUSINESS LOSS SUFFERED BY THE APPELLANT AMOUNTING TO RS. 1,46,03,171/ AS THE SPECULATION LOSS AS PER THE PROVISIONS OF EXPLANATION TO SECTION 73. 2) THE APPELLANT PRAYS THAT YOUR HONOUR HOLD THAT THE BUSINESS LOSS SUFFERED BY THE APPELLANT AMOUNTING TO RS. 1,46,03,171/ CANNOT BE CONSIDERED TO BE SPECULATION LOSS AS PER THE PROVISIONS OF EXPLANATION TO SECTION 73. B) DISALLOWANCE OF SUB - BROKERAGE - RS. 89,32,288/ - 3) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMI NG THE ORDER OF THE AO DISALLOWING THE SUB BROKERAGE PAID BY THE APPELLANT TO THE EXTENT 3 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 3 OF 14 OF RS. 89,32,288/ ON THE ALLEGED GROUND THAT THE APPELLANT HAD NOT EXPLAINED THE NATURE AND GENUINENESS OF THE SAID SUB BROKERAGE NOR EVIDENCE WITH RESPECT TO THE SER VICES RENDERED NOR FURNISHED THE CONFIRMATIONS OF THE SAID PARTIES. 4) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF SUB BROKERAGE OF RS. 89,32,288/ AS MADE BY THE A O AND AS CONFIRMED BY THE CIT(A) MAY BE DELETED. C) DISALLOWANCE U/S. 40A(2)(B) - RS. 4 3,04,449/ - 5) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE AO DISALLOWING THE SUB BROKERAGE PAID BY THE APPELLANT TO ITS RELATED PARTIES AMOUNTING TO RS. 43,04,449/ U/S. 40A(2)(B) ON THE ALLEGED GROUND THAT THE APPELLANT H AD NOT PRODUCED ANY EVIDENCE THAT SERVICES WERE RENDERED BY THE RELATED PARTIES. 6) THE APPELLANT PRAYS THAT THE DISALLOWANCE MADE BY THE A O U/S. 40A(2)(B) OF RS. 43,04,449/ AND CONFIRMED BY THE CIT(A) MAY BE DELETED. 2. THE GROUND NO. 1 IS AGAINST TREATMENT OF BUSINESS LOSS OF RS. 1,46,03,171 AS SPECULATION LOSS. 3. THE ASSESSEE , A PUBLIC LTD COMPANY , IS A MEMBER OF STOCK EXCHANGE IN MUMBAI. ITS MAIN ACTIVITIES WERE SHARE AND STOCK BROKERING BUSINESS IN THE STOCK EXCHANGE, MUMBAI ON BEHALF OF ITS CLIENTS BESIDES DOING BUSINESS IN PRIMARY MARKET INCLUDING UNDERWRITING, MANAGEMENT OF EQUITY AND DEBT , PRIVATE PLACEMENT OF BOTH PUBLIC AND PRIVATE COMPANIES. 4 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 4 OF 14 4 . A T THE OUTSET , T HE LD. AR DREW OUR ATTENTION TO THE ORDER PASSED BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF EASTERN AVIATION & INDUSTRIES LTD VS CIT(1994) 208 ITR 1023 BY STATING THAT THE DECISION WAS COVERED AGAINST THE ASSESSEE AND THE G ROUND NO 1 BE DECIDED ACCORDINGLY . WE HAVE GONE THROUGH THE CONTENTS OF THE ABOVE DECISION AND FIND THAT THE FACTS IN THE SAID DECISION ARE IDENTICAL TO THE ASSESSEES CASE AND AS A RESULT THE INCOME OF THE ASSESSEE FROM SH A RE TRADING IS SPECULATIVE IN NATURE . RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HONBLE HIGH COURT ,WE UPHELD THE ORDER OF L D CIT(A) . ACCORDINGLY GROUND NO. 1 IS DISMISSED . 5 . GROUND NO. 2 IS REGARDING DISALLOWANCE OF SUB - BROKERAGE OF RS. 89,32,288/ - ON THE GROUND THAT ASSESSEE HAD NOT EXPLAINED THE NATURE AND GENUINENESS OF THE BROKERAGE , NOT PRODUCED EVIDENCE S WITH RESPECT TO THE SERVICES RENDERED AND ALSO NO T FURNISHED THE CONFIRMATIONS OF THE PART IES . 6 . THE FACTS IN BRIEF ARE THAT DURING THE YEAR ASSESSEE EARNED COMMI SSION AND OTHER JOBBING INCOME AMOUNTING TO RS. 2,51,04,468/ - AND PAID SUB - BROKERAGE OF RS. 1,64,98,254/ - . IN ORDER TO CARRY OUT THE WORK FOR THE CLIENTS OF THE ASSESSEE IN THE STOCK EXCHANGE IN BOMBAY , THE ASSESSEE HAD TO HIRE THE SERVICES OF OTHER SUB - BROKERS TO WHOM SUB - BROKERAGE WAS PAID AS PER THE RATES PRESCRIBED BY THE BOMBAY STOCK EXCHANGE . 7 . THE AO DISALLOWED THE SUB BROKERAGE PAID TO VARIOUS SUB - BROKERS ON THE GROUND THAT ASSESSEE DID NOT FURNISH THE DETAILS /EVIDENCES REGARDING SUCH 5 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 5 OF 14 SUB - BROKERAGE PAID, CONFIRMATIONS OF PARTIES AND NATURE OF SERVICES RENDERED BY THEM AS PER DETAILS BELOW: - SR. NO. NAME OF THE PARTY AMOUNT (I) (II) (III) (IV) (V) (VI) (VII) MUKESH PUROHIT JASWANT SHAH RAMCO FINANCIAL SERVICES JITESH SHAH C.S. FIRST BOSTON JMSSB OTHER SUBBROKERS TOTAL 18,968/ - 1,05,000/ - 1,07,125/ - 37,360/ - 82, 2 7,229 91,839/ - 3 , 44 , 7 6 7 89,32,288 / - 8 . THE CIT(A) UPHELD THE DISALLOWANCE MADE BY T HE AO ON THE GROUND THAT THE ASSESSEE DID NOT FILE THE DETAILS OF SERVI CES RENDERED BY THE SUB - BROKERS AND ALSO CONFIRMATION WERE NOT FILED. 9 . AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 10 . BEFORE US THE LD. AR SUBMITTED THAT DETAILED ACCOUNTS OF THE SUB - BROKER S NAMELY JASWANT SHAH (RS. 1,05,50/ - ) AND RAMCO FINANCIAL SERVICES (RS. 1,07,0125/ - ) ALONG WITH CONFIRMATION WERE FILED BEFORE THE CIT(A) AS ADDITIONAL EVIDENCE. THE LD. AR FURTHER SUBMITTED THAT COMMISSION TO C.S. BOSTON (HONG KONG) LTD OF RS. 82,27,229/ - WAS PROVIDED IN THE ACCOUNTS OF ASSESSEE DURING THE YEAR . HE FURTHER STATE D THAT T HE SINCE THE SAID COMPANY WAS A FOREIGN COMPANY , THE ASSESSEE APPLIED TO RESERVE BANK OF INDIA FOR 6 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 6 OF 14 GRANT OF PERMISSION TO REMIT THE SUB - BROKERAGE OUT OF INDIA WHICH WAS DENIED TO THE ASSESSEE VIDE LETTER OF RBI DATED 20.11.1997 EXHIBITED AT PAGE NO 153 OF THE PAPER BOOK FILED BY THE ASSESSEE . THEREAF TER, T HE ASSESSEE SUO MOTTO REVERSED THE SAID SUB - BROKERAGE OF RS. 82,27,229/ - IN THE FINANCIAL YEAR 1998 - 99 RELEVANT TO AY 1999 - 00 AND OFFERED THE SAME FOR TAXATION AND WAS TAXED ACCORDINGLY . THE LD AR ALSO SUBMITTED THAT CONFIRMATION OF DISALLOW ANCE IN THE CURRENT YEAR UNDER REFERENCE MEANS TAXING THE AMOUNT TWICE WHICH IS AGAINS T THE SPIRIT OF LAW . THE LD. AR FURTHER PRAY ED THAT SINCE THE AMOUNT STOOD OFFERED TO TAX IN THE A.Y. 1999 - 00, THE SAME MAY BE ALLOWED IN THE YEAR UNDER CONSIDERATION. HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAGRI MILLS CO. LTD. 33 ITR 681 (BOM. ) (HC). THE LD COUNSEL ALSO ARGUED THAT THE SUB BROKERAGE RS.91,839/ FOR PRIMARY MARKET TRANSACTIONS WAS PAID TO JMSSB THE DETAILS WHEREOF WERE FILED BEFORE THE LD CIT(A) AND ALSO BEFORE THIS TRIBUNAL WHICH WERE GENUINE BUSINESS EXPENSES AND MAY BE ALLOWED. 1 1 . LD. DR ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 1 2 . WE HAVE HEARD THE RIVAL SUBMISSIONS A ND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT CONFIRMATION S FROM TWO PARTIES NAMELY JASWANT SHAH AND RAMCO FINANCIAL SERVICES WERE FILED BEFORE THE LD CIT(A) AND ALSO BEFORE US . WE ALSO NOTE THAT SUB - BROKERAGE OF RS. 82,27,229/ - PAYABLE TO C.S. BOSTON (HONG KONG) LTD HAS BEEN TAXED IN THE A.Y. 1999 - 00 ON BEING OFFERED TO TAX BY THE ASSESSEE SUO MO TT O UPON DENIAL OF PERMISSION 7 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 7 OF 14 TO REMIT THE PAYMENT BY THE RESERVE BANK OF INDIA ON 20 TH NOVEMBER, 1997 . AS THE ASSESSEE HA D FILED CONFIRMATIONS FROM TWO PARTIES EXHIBITED AT PAGE NO 143 & 144 OF THE PAPER BOOK AND ALSO PROVED THE PAYMENTS HAVING BEEN MADE TO THE PARTIES FOR SERVICES RENDERED BY THEM . LIKEWISE WISE THE SUB - BROKERAGE TO JMSSB WAS PAID FOR PRIMARY MARKET TRANSACT IONS. IN VIEW OF THESE FACTS AND OBSERVATIONS , WE ARE OF THE VIEW THAT THE DISALLOWANCE S OF RS. 1,05,000 PAID TO JASWANT SHAH , RS. 1,07,125/ - PAID TO RAMCO FINANCIAL SERVICES , RS. 82,27,229/ - C.S. BOSTON (HONG KONG) LTD AND RS. 91,839/ FOR P RIMARY MARKET TRANSACTIONS PAID TO JMSSB WERE NOT JUSTIFIED AS THESE EXPENSES WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AS ASSESSEE REQUIRED THE SERVICES OF SUB - BROKERS TO CARRY OUT BUSINESS IN STOCK MARKET MUMBAI AND ALSO ACTIVITIES I N THE PRIMARY MARKETS ON BEHALF OF ITS CLIENTS AND TH US THESE DISALLOWANCES ARE HEREBY DELETED . THEREFORE, THE G ROUND NO. 2 OF ASSESSEES APPEAL IS PARTLY ALLOWED. 13. GROUND NO. 3 IS AGAINST DISALLOWANCE OF RS. 43,04,449/ - U/S 40A(2)(B). 14. THE ASSESSEE MADE PAYMENT OF RS. 86,08,898/ - TO RELATED PARTIES NAMELY M/S JM SHARE & STOCK BROKERS LTD., AND MR. ASHIT KAMPANI WHO ARE COVERED UNDER SECTION 40A(2)(B) OF INCOME TAX ACT. THE AO OBSERVED THAT THE ASSESSE E HAD NOT FILED ANY EVIDENCE TO SUBSTAN TIATE THE FACT THAT SERVICES WERE RENDERED BY THESE PARTIES . THE AO DISALLOWED THE 50% OF RS. 86,08,898/ - PAID AS SUB BROKERAGE TO M/S J. M. SHARE & STOCK BROKERS LTD. 8 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 8 OF 14 AND MR. ASHIT N. KAMPANI BY HOLDING THAT THE SAME WERE NOT PAID FOR GENUINE BUSINESS REQUIREMENT S . 15. THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UNDER: - THE DISALLOWANCE OF RS. 43,04,449/ U/S 40A(2) ON ACCOUNT OF SUB BROKERAGE PAID TO TWO RELATED PARTIES, M/S JM SHARE & STOCK BORKER S LTD. AND MR. ASHIT KAMPANI. SERVICES RENDERED ARE CLAIMED TO BE INTRODUCTION OF CLIENTS ONLY WITHOUT ANY EVIDENCE, WHEREAS, COMMISSION PAID IS 50% OF THE BROKERAGE EARNED. IN THESE CIRCUMSTANCES, I ALSO FIND THAT THE SUB BROKERAGE PAID IS VERY UNREASON ABLE, HENCE, THE DISALLOWANCE IS CONFIRMED. 15. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 16. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE TO THE EXTENT OF 50 % OF THE TOTAL PAYMENT TO M/S JM SHARE & STOCK BROKERS LTD. AND MR. ASHIT KAMPANI PROVE D THAT THE SERVICES WERE RENDERED BY THOSE PARTIES OTHERWISE THE LD AO WOULD HAVE DISALLOWED THE ENTIRE AMOUNT PAID TO RELATED PARTIES . FURTHER HE ARGUED THAT THE BROKERAGE PAID TO THESE PARTIES WERE DISALLO WED TO THE EXTENT OF 50% ONLY. THE AO DID NOT GO INTO THE UNREASONABLENESS OF THE PAYMENTS. HE CONTENDED THAT THE AO NOWHERE HAD POINTED OUT THAT THE PAYMENT WAS EITHER EXCESSIVE OR NON GENUINE OR NOT COMPARABLE WITH THE MARKET RATES AND, THEREFORE, TH E DISALLOWANCE U/S 40A(2B) IS UNWARRANTED AND UNCALLED FOR. HE RELIED UPON THE DECISION IN THE CASE OF CIT VS. ASHOK J. PATEL (2014) 225 TAXMAN 79 . HE FURTHER SUBMITTED THAT SUB - BROKERAGE PAID TO THESE PARTIES IN EARLIER YEAR WAS ACCEPTED BY THE 9 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 9 OF 14 REVENUE AND NO DISALLOWANCE WAS MADE U/S. 40A(2 )( B) .THE LD COUNSEL FURTHER ARGUED THAT THE SAID EXPENSES WERE ALLOWABLE ON THE PRINCIPLE OF CONSISTENCY . HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: - (I) RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) (II) BHARAT SANCHAR NIGAM LTD AND ANOTHER V. UNION OF INDIA (2006) 282 ITR 273 (286) (SC) (III) JIVRAJ TEA & INDUSTRIES LTD. V. ACIT (2014) 42 TAXMANN.COM 462. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE. WE NOTE THAT THE PROVISIONS OF SECTION 40A(1) BEGINS WITH NON ABSTANTE CLAUSE & (2) PROVIDES THAT WHERE THE ASSESSEE HAS INCURRED ANY EXPENDITURE BY MAKING THE PAYMENT TO ANY PERSON AS REFERRED TO CLAUSE( B) WHICH IS EXCESSIV E , UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THAT EXPENDITURE OR SERVICES OR GOODS , THEN SO MUCH OF THE EXPENDITURE AS IS CONSIDERED EXCESSIVE AND UNREASONABLE SHALL BE DISALLOWED BY THE ASSESSING OFFICER. IN THIS CASE RS. RS. 86,08,898/ - WE RE PAID AS SUB - BROKERAGE TO THE PERSONS COVERED BY THE CLAUSE (B) OF SECTION 40A(2). WE FURTHER NOTE THAT THE ASSESSING OFFICER NO WHERE OBSERVED THESE EXPENSES WERE EITHER EXCESSIVE OR UNREASONABLE AND DISALLOWED AND PROCEEDED TO MAKE THE DISALLOWANCE AND THUS THE PRE - CONDITION S FOR DISALLOWANCE U/S 40A(2B) WERE NOT SATISFIED. IT IS NOWHERE POINTED OUT BY BOTH THE AUTHORITIES THAT PAYMENT IS EXCESSIVE OR UNREASONABLE FROM PREVALENT MARKET RATES FOR SUCH SERVICES. WE ALSO NOTE THAT 10 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 10 OF 14 50% DISALLOWANCE WAS MADE ON PURELY ADHOC BASIS WHICH IS NOT PERMISSIBLE UNDER LAW BY DISREGARDING THE FACT THAT SIMILAR EXPENSES WERE ALLOWED IN THE EARLIER YEARS . WE ARE, THEREFORE , OF THE CONSIDERED VIEW THAT THE SAID DISALLOWANCE / ADDITION IS NOT JUSTIF IED AND THEREFORE THE SAME IS ORDERED TO BE DELETED. ACCORDINGLY GROUND NO. 3 IS DECIDED IN FAVOUR OF THE ASSESSEE. 18. THE GROUND S RAISED IN ITA NO 3494/MUM/2013 FOR ASSESSMENT YEAR 1998 - 99 READS AS UNDER: - A) DISALLOWANCE U/S. 40A(2)(B) RS. 22,54,117/ 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 4, MUMBAI [CIT(A)] ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE 49, MUMBAI (AO) DIS ALLOWING THE SUB BROKERAGE PAID BY THE APPELLANT TO ITS RELATED PARTIES AMOUNTING TO RS. 22,54,117/ U/S. 40A(2)(B) ON THE ALLEGED GROUND THAT THE APPELLANT HAD NOT PRODUCED ANY EVIDENCE THAT SERVICES WERE RENDERED BY THE RELATED PARTIES. 2) THE APPELLAN T PRAYS THAT THE DISALLOWANCE MADE BY THE AO U/S. 40A(2)(B) OF RS. 22,54,117/ AND CONFIRMED BY THE CIT(A) MAY BE DELETED. B) DISALLOWANCE OF INTEREST RS. 23,46,450/ 3) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE MA DE BY THE AO ON ACCOUNT OF INTEREST TO THE EXTENT OF RS. 23,46,450/ ON THE ALLEGED GROUND THAT THE APPELLANT HAD PAID INTEREST BUT HAD NOT CHARGED INTEREST FROM DIRECTORS AND THEIR FAMILY MEMBERS. 4) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF INTERES T AMOUNTING TO RS.23,46,450/ AS MADE BY THE AO AND AS CONFIRMED BY THE CIT(A) MAY BE DELETED. 11 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 11 OF 14 19. THE GROUND NO. 1 IN ITA NO 3494/2013 IS SIMILAR TO GROUND NO. 1 OF ITA NO 3493/MUM/2013 AND THEREFORE OUR DECISION ON THE GROUND NO. 1 IN ITA NO 3493/MUM/2013 SHALL APPLY TO GROUND NO.1 OF ITA NO 3494/MUM/2013 ALSO. 2 0 . GROUND NO. 2 IS REGARDING CONFIRMATION OF DISALLOWANCE ON A/C OF INTEREST OF RS. 23,46,450/ - ON THE GROUND THAT ASSESSEE PAID INTEREST BUT DID NOT CHARGE FROM ITS DIRECTOR AND T HEIR FAMILY MEMBERS . 21. THE FACT IN BRIEF ARE THAT T HE ASSESSEE PAID INTEREST OF RS. 32,02,948/ - ON BORROWED FUNDS. DURING THE YEAR, THE ASSESSEE IN ITS NORMAL COURSE OF ITS BUSINESS, PURCHASED SHARES AMOUNTING TO RS. 156.43 LACS ON BEHALF OF MR. ASHIT M. KAMPANI, MR. H.N. KAMPANI AND MR. HEMUL ASHIT KAMPA NI. THE COST OF THESE SHARES WERE DEBITED TO THEIR ACCOUNTS AND THE AMOUNTS DUE FROM THEM WAS SHOWN AS RECEIVABLE FROM THEM UNDER THE HEAD SUNDRY DEBTORS. 22. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE SHARES WORTH RS. 156.4 3 LACS WERE PURCHASED ON BEHALF OF THE DIRECTORS AND THEIR FAMILY MEMBERS AND AMOUNTS WERE SHOWN AS RECEIVABLE UNDER THE HEAD SUNDRY DEBTORS FROM THEM . THE AO FURTHER OBSERVED THAT SINCE THE ASSESSEE WAS PAYING INTEREST ON THE BORROWED FUNDS, IT COULD NOT DIVERT THE FUND FOR FINANCING THE TRANSACTION S TO THE RELATED PARTIES THEREBY CAUSING LOSS TO THE 12 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 12 OF 14 REVENUE AND THUS ADDED 15% OF RS. 156.43 LACS WHICH COMES OUT TO RS. 23,45,450/ - . 23. CIT(A) UPHELD THE DISALLOWANCE BY OBSERVING IN PARA 9 AS UNDE R: - I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. UNDISPUTEDLY, THE ASSESSEE HAS PAID INTEREST ON THE BORROWED FUNDS, WHEREAS, NO INTEREST HAS BEEN CHARGED FROM DIRECTORS OF THEIR FAMILY MEMBERS, WHEREAS, ASSESSEE HAS FAILED TO SHOW THAT THE LOAN OR ADVANCES HAVE BEEN GIVEN TO DIRECTORS OR FAMILY MEMBERS FOR ANY BUSINESS PURPOSE, NO EVIDENCE IN THIS REGARD IS PRODUCED. THEREFORE, DISALLOWANCE @ 15% OUT OF THE INTEREST PAID AGAINST SUCH INTEREST FREE ADVANCES/LOAN IS UPHELD. 24. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 25. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AO HIMSELF HAS STATED THAT AMOUNTS WERE APPEARING UNDER THE HEAD SUNDRY DEBTORS AND T HE AUDITORS DID NOT MADE ANY ADVERSE REMARKS WITH RESPECT TO SAID DEBTORS AND THUS THESE AMOUNTS WERE RECEIVABLES BY THE ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS . . IT WAS FURTHER SUBMITTED THAT THESE TRANSACTIONS WERE MADE AT THE MARKET RATE CHARGING COMMISSION FROM THESE PERSONS AS PER MARKET REGULATIONS. THE LD. AR FURTHER SUBMITTED THAT, WITHOUT PREJUDICE, THE OWN FUNDS OF THE ASSESSEE WERE SUFFICIENT TO TAKE CARE OF THE AMOUNT DUE FROM DIRECTORS AND THEIR FAMILY MEMBERS AND WHERE THE ASSESSEE HAD OWN FUNDS AS WELL AS BORROWED FUNDS , IN THAT THE EVENT THE PRESUMPTION IS THAT THE MONEY/ADVANCES ARE GIVEN OUT OF OWN FUNDS BY PLACED RELIANCE ON THE 13 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 13 OF 14 JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 3 40 (BOM.)(H C ) SUBMITTING THEREBY THAT THE ASSESSEE HA D ITS OWN FUND IN EXCESS FOR THE LOAN OUTSTANDING MEANING THEREBY THAT THE ASSESSEE HAS PURCHASED THE SHARES TO THE RELATED PARTIES OUT OF ITS OWN NET WORTH AND NOT OUT OF THE BORROWED FUNDS. 26. THE LD. DR ON TH E OTHER HAND RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL S ON RECORD. IT IS OBSERVED THAT THE TRANSACTIONS OF PURCHASE OF SHARES MADE ON BEHALF OF THE DIRECTORS AND THEIR FAMILY MEMBERS WERE MADE IN THE ORDINARY COURSE OF BUSINESS AND THE MONEY RECEIVABLE FROM THESE PERSONS WERE SHOWN IN THE BALANCE SHEET UNDER THE HEAD OF SUNDRY DEBTORS. O N THE OTHER HAND THE LD AO DISALLOWANCE WAS BASED SOLELY UPON THE PLEA THAT SINCE THE ASSESSEE HAD BORROWED FUNDS AND INTEREST ON THE SAID FUNDS WAS CLAIMED UNDER SECTION 36(1)(III) OF THE ACT THEREBY CAUSING LO SS TO THE REVENUE AND DISALLOWED INTEREST OF RS. 23,46,450/ - CALCULATED @ 15% OF RS. 1,56,43,000/ - BEING THE AMOUNT RECEIVABLE FROM DIRECTORS AND THEIR FAMILY MEMBERS FOR PURCHASE OF SHARES. ALTERNATIVELY , THE NET WORTH OF THE COMPANY WAS RS. 4,96,56,180/ - , WHEREAS, THE PURCHASES ON BEHALF OF THE RELATED PARTIES WERE WORTH RS. 1,56,44,818/ - WHICH PROVES THAT ASSESSEE HAD SUFFICIENT AND ADEQUATE OWN FUNDS TO FINANCE THE PURCHASES SO MADE FOR RELATED PARTIES. IN 14 ITA NO 3493/MUM/2013 ASSESSMENT YEAR: 1997 98 ITA NO 3494/MUM/2013 ASSESSMENT YEAR: 199 8 9 9 PAGE 14 OF 14 THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT IN CASE THE ASSESSEE HAS OWN FUNDS BESIDES HAVING BORROWED FUNDS , THE PRESUMPTION AS TO THE MONEY ADVANCED TO SISTER CONCERN WAS THAT THE ASSESSEE HAS ADVANCE D OUT OF OWN FUNDS AND NOT OUT BO RROWED FUNDS. WE, THEREFORE, RESPECT FULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), WE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 2 8. IN THE RESULT APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF S E P T E M B E R 2015. S D / - S D / - (JOGINDER SINGH) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 3 0 - 0 9 - 2015 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBA I