C.H. JAVA & CO., MUMBAI V. JCIT 17(3), MUMBAI

ITA 355/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92474 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Maximum Marginal Rate
• Section: 234B; 28; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.355/MUM/2013 ( / ASSESSMENT YEAR : 2008-09 M/S. C.H.JAVA & CO., A/206, BYCULLA SERVICE INDUSTRIES, DADOJI KONDDEO MARG, BYCULLA, MUMBAI 400 027. / VS. THE JCIT - 17 (3), MUMBAI. ./ ./ PAN/GIR NO. : AAAFC 1085D ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI VIMAL PUNMIYA RESPONDENT BY SHRI PREMANAND J. ' #$ / DATE OF HEARING : 11/05/2015 ' #$ / DATE OF PRONOUNCEMENT : 11/05/2015 / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-16,MUMBAI DATED 19/11/2012 FOR ASSESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF PART OF INTEREST EXPENDITURE OF RS.20,33,081/- IN VIEW OF SECTION 36 (1)(III) (PARA) AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 2. THE LD. CIT(A) ERRED IN CHARGING INTEREST U/S. 2 34A, 234B & 234C OF THE INCOME TAX ACT. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE PROVISION S INVOKED U/S. 274 R.W.S. 271 (1)(C) OF THE INCOME TAX ACT, 1961. 2. A SUM OF RS.20,33,081/- WAS DISALLOWED BY THE AO UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961(THE ACT) ON THE GROUND THAT ASSESSEE IS RECEIVING INTEREST FROM BHADRACHALAM UNIT OF IT C LTD.(IN SHORT BPL) & ./ I.T.A. NO.355/MUM/2013 ( / ASSESSMENT YEAR : 2008-09 2 (TRIBENI UNIT OF ITC LTD. (IN SHORT TTL) @ 4.73AND 6.33% RESPECTIVELY AND ALSO RECEIVING INTEREST ON FDS FROM BANK @ 8%. AS AGAINST THIS THE ASSESSEE IS PAYING INTEREST TO BANK ON THE BORROWED CAPIT AL @11.5%. DURING THE YEAR PAYMENT AND RECEIPT OF INTEREST BY THE ASSESSE E IS AS FOLLOWS: PARTICULARS AMOUNT INTEREST PAID TO: PARTNERS 98,90,400 DEPOSITS 86,045 BANK INTEREST 14,16,617 BANK CHARGES 2,48,898 STAMPS 8,470 L/C. OPENING AND AMENDMENT CHARGES 46,897 TOTAL 1,16,97,327 INTEREST RECEIVED FROM: BPL ON SECURITY DEPOSIT 4,77,205 TTL ON SECURITY DEPOSIT 2,23,134 BANK INTEREST ON FIXED DEPOSI T 13,,09,138 OTHERS 22,40,142 SERVICE CHARGES 2,70,968 TOTAL 45,20,587 2.1 IT IS THE CASE OF THE ASSESSEE THAT AMOUNT PAID TO BPL AND TTL IS IN THE COURSE OF BUSINESS EXPEDIENCY AS ASSESSEE IS WO RKING ON BEHALF OF THOSE CONCERNS AND EARNING INCOME THERE FROM. THUS, IT I S THE CASE OF THE ASSESSEE THAT THE INTEREST RECEIVED BY THE ASSESSEE FROM BPL & TTL CANNOT BE COMPARED WITH THE INTEREST PAID TO PARTNERS AS THE PAYMENT MADE TO BPL & TTL IS FOR BUSINESS EXPEDIENCY AND COVERED BY T HE DECISION IN THE CASE OF HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. VS. CIT, 158 TAXMAN 74(SC) AND MADHAV PRASAD JATIA VS. CIT, 118 ITR 200 (SC). IT IS FURTHER THE CASE OF THE ASSESSEE THAT ALL THE PARTN ERS ARE HAVING TAXABLE INCOME AND PAYING MAXIMUM MARGINAL RATE OF TAX, THE REFORE, ALSO NO ADDITION IS CALLED FOR. IT IS ALSO THE CASE OF THE ASSESSEE THAT REVENUE CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO DECI DE WHAT IS BEST FOR THE BUSINESS OF THE ASSESSEE AND WHAT ASSESSEE SHOULD N OT DO. FOR THIS PROPOSITION RELIANCE IS PLACED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF DALMIA CEMENT (B) LTD., 254 ITR 377 (DEL), CIT VS. DHARMARAJ GIRIJI RIYA NARSINGIRIJI, 91ITR 544 AND HIVE COMMUNICATIO N PVT. LTD VS. CIT ./ I.T.A. NO.355/MUM/2013 ( / ASSESSMENT YEAR : 2008-09 3 (2001) 12 TAXMANN.COM 287 (DEL). IT IS FURTHER PLE ADED THAT SIMILAR ISSUE AROSE IN RESPECT OF A.Y 2006-07, WHEREIN DISALLOWAN CE OF RS.16,45,074/-WAS MADE AND IT WAS DELETED BY LD. CIT(A) AND THE ORDER PASSED BY LD. CIT(A) WAS UPHELD VIDE IT IS ORDER DATED 24/08/2011 IN IT A NO.3045/MUM/2010, COPY OF WHICH IS PLACED AT PAGE 1 TO 3 OF THE PAP ER BOOK. REFERENCE WAS INVITED TO THE FOLLOWING OBSERVATIONS OF THE TRIBU NAL: 7. WE HAVE CONSIDERED THE ISSUE. AFTER EXAMINING THE ISSUE AND CONSIDERING THE FACTS ON RECORD, WE ARE OF THE OPINION THAT THE RE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE CIT(A). AS PER THE PROVISIONS O F SECTION 36(1)(III), DEDUCTION IS ALLOWABLE IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 ON THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS. IN THIS CASE, THERE IS NO DISPUTE WITH REFERENCE TO THE PAY MENT OF INTEREST TO THE BANK IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF B USINESS ON THE OVERDRAFT FACILITY. THE A.O. HAS NOT BROUGHT OUT ANY FACTS WI TH REFERENCE TO BORROWED FUNDS BEING DIVERTED FOR NON-BUSINESS PURPOSES. IT IS HIS CONTENTION THAT WHEN ASSESSEE HAD ITS OWN FUNDS THAT TOO IN DEPOSITS THE RE WAS NO NECESSITY FOR BORROWAL OF FUNDS AND ACCORDINGLY DISALLOWED THE IN TEREST. WE ARE OF THE OPINION THAT THE ACTION OF THE A.O. CANNOT BE SUPPO RTED. FIRST OF ALL HE CANNOT STEP IN TO THE SHOES OF THE ASSESSEE TO EXAMINE WHE THER THE FUNDS ARE REQUIRED TO BE BORROWED OR NOT. AS SUBMITTED BY ASSESSEE THE FUNDS ARE INITIALLY REQUIRED FOR PAYMENT TO THE COMPANIES AND ASSESSEE RECEIVES AMOUNTS SUBSEQUENTLY AFTER DISTRIBUTING THE GOODS IN WHOLE SALE BUSINESS, I.E. TIMING DIFFERENCE OF REQUIREMENT OF FUNDS AND AVAILABILITY OF FUNDS. MOREOVER, AS POINTED OUT BY THE LEARNED COUNSEL, ASSESSEE HAS TO MAINTAIN OVERDRAFT FACILITY IN THE BANK FOR WHICH THERE ARE NECESSARILY BANK CH ARGES AND AS AND WHEN THE FACILITY WAS UTILISED IT PAID INTEREST TO THE E XTENT OF FUNDS BORROWED. THESE ASPECTS HAVE NOT BEEN EXAMINED BY THE A.O. AT ALL. THE CIT(A) HAS EXAMINED THESE ISSUES AND GAVE A FINDING THAT FUNDS ARE UTIL ISED FOR THE PURPOSE OF 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 AND NOT A DEBIT. THIS SHOWS THE PRUDENCE IN ASSESSEES BUSI NESS ACTIVITY. ON THE FACTS OF THE CASE WE ARE OF THE OPINION THAT THE ASSESS ING OFFICERS ACTION IN DISALLOWING INTEREST AND BANK CHARGES CANNOT BE SUP PORTED. THEREFORE WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS REVENUE S GROUND. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 2.2 REFERENCE WAS ALSO INVITED TO THE BALANCE SHEET , COPY OF WHICH IS SUBMITTED AT PAGE 6 OF THE PAPER BOOK TO CONTEND T HAT PARTNERS CAPITAL AMOUNTING TO RS.2.28 CRORES WAS NOT BEARING ANY INT EREST, ONLY PARTNERS DEPOSIT ACCOUNT WERE BEARING INTEREST. IT WAS S UBMITTED THAT MAINLY INTEREST WAS PAID BY THE ASSESSEE TO THE PARTNERS WHICH WAS A SUM OF RS.98.90 LACS AND CAPITAL PROVIDED BY THE PARTNER , FOR WHICH INTEREST IS GIVEN WAS RS.8.08 CRORES. IT WAS FURTHER SUBMITTE D THAT LOWER RATE OF INTEREST WAS RECEIVED BY THE ASSESSEE ON DEPOSITS WITH BPL & TTL, WHICH ./ I.T.A. NO.355/MUM/2013 ( / ASSESSMENT YEAR : 2008-09 4 WERE ONLY A SUM OF RS.86.12 LACS AND RS.35.25 LAC S RESPECTIVELY. THUS, IT WAS PLEADED THAT LD. CIT(A) HAS COMMITTED AN ERROR IN UPHOLDING THE DISALLOWANCE AND ON THE FACTS OF THE CASE NO DISALL OWANCE WAS CALLED FOR AS PER AFOREMENTIONED DECISION RELIED UPON BY THE ASS ESSEE. 3. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD. CIT(A). 4. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE MAIN ALLEGATION OF THE AO U PON WHICH IMPUGNED INTEREST HAS BEEN DISALLOWED IS THAT ASSESSEE IS RE CEIVING LOW RATE OF INTEREST FROM BPL AND TTL. THE AMOUNT ADVANCED TO BPL & TTL IS MENTIONED IN SCHEDULE IV UNDER THE HEAD SUNDRY DEPOSITS. COPY OF SCHEDULE IV IS PLACED AT PAGE 12 OF THE PAPER BOOK. THE AMOUNT AD VANCED TO BPL IS A SUM OF RS.86,12,783/- AND AMOUNT ADVANCED TO TTL IS A SUM OF RS.35,23,154/-. AS AGAINST THESE ADVANCES THE PAR TNERS CAPITAL ACCOUNT WHICH DOES NOT BEAR INTEREST ALONE IS A SUM OF RS.2,28,08,318/-, WHICH IS MUCH MORE THAN THE AMOUNT ADVANCED BY THE ASSESS EE TO AFOREMENTIONED TWO CONCERNS. FROM REST OF THE ADVANCES THE ASSES SEE IS RECEIVING BANK INTEREST AND INTEREST ON DEPOSITS WHICH HAS NOT BEEN CONSIDERED TO BE LOW BY THE AO. IN ANY CASE, NO OTHER ADVANCE HAS BEE N STATED TO BE MADE BY THE ASSESSEE FOR NON-BUSINESS PURPOSES. IN THIS VI EW OF THE FACTUAL POSITION, WE DO NOT SEE JUSTIFICATION IN MAKING DI SALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT AS THE SAME WOU LD BE CONTRARY TO THE POSITION OF LAW EXPLAINED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM). 4.1 SIMILAR SITUATION WAS DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07. RELEVANT PORTION OF THE O RDER OF THE TRIBUNAL HAS ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. ./ I.T.A. NO.355/MUM/2013 ( / ASSESSMENT YEAR : 2008-09 5 4.2 KEEPING IN VIEW THE ABOVE DISCUSSION AND FACTUA L POSITION, WE ARE OF THE OPINION THAT LD. CIT(A) HAS COMMITTED AN ERROR IN UPHOLDING THE DISALLOWANCE. THE DISALLOWANCE IS DELETED AND GRO UND NO.1 BY THE ASSESSEE IS ALLOWED. 5. UPON GROUND NO.2 & 3 NO ARGUMENTS WERE SUBMITTED BY LD.AR. IN RESPECT OF GROUND NO.2, WE HOLD THAT LEVY OF INTERE ST UNDER SECTION 234A, 234B & 234C IS MANDATORY AND AO IS DIRECTED TO CALC ULATE THESE INTEREST AFTER GIVING EFFECT TO OUR ORDER IN GROUND NO.1. S O FAR AS IT RELATES GROUND NO.3, THE SAME BEING PREMATURE IS DISMISSED. 6. IN VIEW OF ABOVE DISCUSSIONS, THE APPEAL IS TREA TED TO BE PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 11/05/2015 ' * +, 11/05/2015 ' SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; + DATED 11/05/2015 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /# ( ) / THE CIT(A)- 4. /# / CIT 5. 01 #23 , $ 23 , / DR, ITAT, MUMBAI 6. 4 / GUARD FILE. / BY ORDER, 0# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI