MODAK RUBBER & TEXTILES INDUSTRIES LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 3565/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3376 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-05-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 06-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJAY R SINGH
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , / ! ! ! ! '#$% , # . . BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 3564/MUM/2010 & & & & / ASSESSMENT YEAR 2003-04 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., KONDAVITA ROAD, MAROL PIPE LINE, ANDHERI (EAST), MUMBAI 400 059. VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI. . / ITA NO. 3565/MUM/2010 & & & & / ASSESSMENT YEAR 2004-05 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., KONDAVITA ROAD, MAROL PIPE LINE, ANDHERI (EAST), MUMBAI 400 059. VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI. . / ITA NO. 3566/MUM/2010 & & & & / ASSESSMENT YEAR 2005-06 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., KONDAVITA ROAD, MAROL PIPE LINE, ANDHERI (EAST), MUMBAI 400 059. VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI. PAN: AAACM 0661N ( '( / APPELLANT ) ( )*'( / RESPONDENT ) '( + # / APPELLANT BY : SHRI AJAY R. SINGH )*'( , + # /RESPONDENT BY : SHRI MOHIT JAIN , - / DATE OF HEARING : 13-05-2013 .& , - / DATE OF PRONOUNCEMENT : 17-05-2013 /#0 / O R D E R PER RAJENDRA, A.M./ '#$% , # . . CHALLENGING THE ORDERS OF THE CIT(A)-17, MUMBAI, AS SESSEE-COMPANY HAS FILED THE APPEALS FOR AYS. 2003-04, 2004-05 AND 200 5-06. SOLITARY EFFECTIVE GROUNDS ITA NO. 3564 3565 3566/M/2010 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., 2 FOR ALL THE THREE AYS PERTAINS TO DISALLOWANCE CONF IRMED BY THE CIT(A) U/S. 36 OF THE INCOME-TAX, ACT,1961(ACT). GROUNDS OF APPEAL - AYS. 2003-04 & 2004-05 THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF LD. ASSESSING OFFICER DISALLOWING INTEREST EXPENSES OF RS. 4,10,2 50/- ON THE PRETEXT THAT INTEREST BEARING FUNDS HAS BEEN UTILISED FOR NON-BU SINESS PURPOSE. THE SAID DISALLOWANCE ARE MADE WITH REFERENCE TO SECTION 36( 1)(III) OF INCOME TAX ACT, 1961. IN VIEW OF THE ABOVE FACT, IT IS THEREFORE S UBMITTED THAT DISALLOWANCE MADE U/S. 36(1)(III) OF THE I.T.ACT, 1961 IS UNREAS ONABLE AND UNJUSTIFIED. IT IS THEREFORE SUBMITTED THAT SAID ADDITION SHOULD BE DE LETED. YOUR APPELLANT CRAVES TO ADD, ALTER, OR AMEND ANY O F THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL. GROUNDS OF APPEAL - AY. 2005-06 THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF LD. ASSESSING OFFICER DISALLOWING INTEREST EXPENSES OF RS. 28,60, 121/- ON THE PRETEXT THAT INTEREST BEARING FUNDS HAS BEEN UTILISED FOR NON-BU SINESS PURPOSE. THE SAID DISALLOWANCE ARE MADE WITH REFERENCE TO SECTION 36( 1)(III) OF INCOME TAX ACT, 1961. IN VIEW OF THE ABOVE FACT, IT IS THEREFORE S UBMITTED THAT DISALLOWANCE MADE U/S. 36(1)(III) OF THE I.T.ACT, 1961 IS UNREAS ONABLE AND UNJUSTIFIED. IT IS THEREFORE SUBMITTED THAT SAID ADDITION SHOULD BE DE LETED. YOUR APPELLANT CRAVES TO ADD, ALTER, OR AMEND ANY O F THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL. ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF TRAD ING IN TEXTILE-GOODS. DETAILS OF RETURNED INCOME, ASSESSED INCOME, DATES OF ORDERS BY THE AOS ETC. CAN BE SUMMARISED AS UNDER: ITA NO. & AY DT. OF FILING OF ROI RETURNED INCOME DT. OF ORDER U/S. 143(3) ASSESSED INCOME DT. OF CIT(A) ORDER 3564/M/10 2003-04 25-05-04 29,14,500 17-12-07 33,89,980 28-01-2010 3565/M/10 2004-05 01-11-04 25,43,660 17-12-07 1,84,98,180 28-01-2010 3566/M/10 2005-06 31-10-05 18,13,380 17-12-07 46,45,300 28-01-2010 2. ISSUE RAISED BY THE APPELLANT IN ALL THE APPEALS AR E IDENTICAL, AS STATED EARLIER, EXCEPT FOR THE AMOUNTS INVOLVED, THEREFORE WE ARE P ASSING A COMMON ORDER FOR SAKE OF CONVENIENCE. ITA NO. 3564/M/2010 - AY.2003 - 04 3. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD SHOWN UNSECURED LOAN OF RS.41.35 LAKHS FROM ONE OF THE DI RECTORS, THAT IT HAD ALSO SHOWN AN INVESTMENT IN SHARES TO THE TUNE OF RS 45.01 LAKHS. HE FURTHER FOUND THAT ASSESSEE HAD ITA NO. 3564 3565 3566/M/2010 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., 3 ADVANCED LOAN OF RS.13.23 CRORES AND IT HAD DEBITED RS.4,10, 250/- TO THE PROFIT AND LOSS ACCOUNT (P&LA/C.), THAT IT HAD SHOWN BORROWING S OF RS.30 LAKHS FROM ONE OF THE DIRECTORS, THAT IT HAD PAID INTEREST OF RS.4,10 ,250/- TO THE SAID DIRECTORS. AS THE ASSESSEE HAD PAID INTEREST OF THE DIRECTOR AND HAD NOT CHARGED ANY INTEREST FROM THE PARTIES TO WHOM IT HAD ADVANCED LOANS, SO HE ISSUED A NOTICE TO IT CALLING AN EXPLANATION FROM IT AS TO WHY THE INTEREST (RS.4.1 0 LAKHS) SHOULD NOT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT ASSESSEE HAD PAID INT EREST TO ONE OF THE DIRECTORS, BUT HAD NOT CHARGED INTEREST FROM THE SISTER CONCERNS. RELY ING UPON THE DECISION OF ABHISHEK INDUSTRIES, DELIVERED BY THE P & H HIGH COURT (286 ITR1), HE DISALLOWED THE ENTIRE INTEREST EXPENDITURE CLAIMED U/S.36(1)(III) OF THE ACT. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER HE HELD THAT ASSESSEE HAD NOT ESTABLISHED THAT FUNDS ADVANC ED TO SISTER CONCERNS WERE OUT OF OWN FUNDS. HE RELIED UPON THE CASES OF S A BUILDER S (288 ITR1) AND V I BABY & CO.(254 ITR 248) DELIVERED BY THE HONBLE SUPREME C OURT AND KERALA HIGH COURT RESPECTIVELY. HE FINALLY HELD THAT ASSESSEE HAD NOT EXPLAINED HOW THE ADVANCES TO SISTER CONCERNS WAS BENEFICIAL TO THE BUSINESS OF T HE ASSESSEE, THAT AO HAD RIGHTLY DISALLOWED THE INTEREST PAYMENT. 3.2. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT AO AND THE FAA HAD NOT CONSIDERED THE OPENING BALANCE AVAILABLE ON THE FIRST DAY OF THE AY, THAT ONLY RS. 30 LAKHS WERE BORROWED DURING THE YEAR UNDER CO NSIDERATION, THAT PROPORTIONATE DISALLOWANCE SHOULD HAVE BEEN MADE U/S.36(1) OF THE ACT. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDERS OF THE AO AND THE FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS FOUND THAT ONE OF THE DIRECTORS, MRS. M K MODAK HAD ADVANCED RS.1.35 LAKHS AND RS.10 LAKHS TO THE ASSESSEE-COMPANY ON 01.04.1997 A ND17.07.1997, THAT RS.30 LAKHS WERE RECEIVED AS LOAN ON 01.04.2002. SUCH BEING TH E CASE, DIS-ALLOWANCE OF PROPORTIONATE INTEREST ON BALANCE IS, IN OUR OPINIO N, NOT IN ACCORDANCE WITH LAW. IT IS NOT THE CASE OF THE REVENUE THAT INTEREST EXPENDITU RE, IF ANY, WAS DIS-ALLOWED IN THE EARLIER YEARS BEGINNING /FROM AY. 1997-98 ONWARDS T ILL 2002-03, REFERABLE TO INTEREST BEARING LOANS TAKEN IN THE YEAR 1997. IN OUR OPINI ON INTEREST EXPENDITURE WAS TO BE DIS-ALLOWED ONLY FOR RS.30 LAKHS ONLY AND NOT FOR T HE ENTIRE AMOUNT. DIRECTOR HAD ADVANCED RS.11.35 LAKHS IN THE YEAR 1997. THEREFORE , WE ARE OF THE OPINION THAT ONLY PROPORTIONATE DISALLOWANCE SHOULD HAVE BEEN MADE BY THE AO. THEREFORE, PARTLY ALLOWING THE APPEAL OF THE ASSESSEE, WE DIRECT THE AO TO RECALCULATE THE INTEREST DISALLOWANCE ON RS. 30 LAKHS ONLY I.E., THE AMOUNT RECEIVED DURING AY 2003-04. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ITA NO. 3565/M/2010 - AY.2004 - 05 4. IN THE APPEAL FOR THE AY 2003-04 IDENTICAL FACTS A RE THERE AS OF LAST AY AND AMOUNT OF DISALLOWANCE IS ALSO SAME I.E. RS.4.10 LA KHS. FOLLOWING THE ORDER FOR THE LAST YEAR, WE DIRECT AO TO DISALLOW INTEREST ON RS. 30 LAKHS ONLY. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. ITA NO. 3564 3565 3566/M/2010 M/S. MODAK RUBBER & TEXTILES INDUSTRIES LTD., 4 ITA NO. 3566/M/2010 - AY.2005 - 06 5. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD PAID INTEREST AMOUNTING TO RS.28.6 LAKHS TO VARIOUS PARTIES INCLUDING MRS. M K MODAK. AO AND FAA HELD THAT INTEREST BEARING FUNDS WERE UTILISED BY THE ASSESSE E FOR NON BUSINESS PURPOSES. AS THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL T O THE EARLIER AYS., FOLLOWING THE ORDERS FOR EARLIER AYS., WE DIRECT THE AO THAT INTE REST DISALLOWANCE SHOULD BE RECALCULATED AS PER THE DIRECTIONS GIVEN FOR EARLIE R AYS. INTEREST SHOULD BE DISALLOWED FOR THE SUMS THAT WERE RECEIVED DURING THE YEAR ONL Y FROM THE NEW SOURCES. AS FAR AS MRS. M K MODAK IS CONCERNED, OPENING BALANCE OF RS. 11.35 LAKHS AS ON 01.04.2002 SHOULD NOT BE CONSIDERED FOR DISALLOWANCE. APPEAL OF THE ASSESSEE FOR THE AY 2005-06 STANDS PA RTLY ALLOWED. AS A RESULT, APPEALS FILED BY THE ASSESSEE-COMPANY FOR THE AYS 2003-04, 2004-05 AND 2005-06 ARE ALLOWED IN PART. ORDER PRONOU NCED IN THE OPEN COURT ON 17 TH MAY, 2013 /#0 , .& # $ 2 3/ 17 ,2013 , 9 : SD/- SD/- ( . / D. MANMOHAN) ( '#$% / RAJENDRA) / VICE PRESIDENT # /; / ACCOUNTANT MEMBER MUMBAI, 3/ DATE: 17 TH MAY, 2013 TNMM /#0 /#0 /#0 /#0 , ,, , )-< )-< )-< )-< =#<&- =#<&- =#<&- =#<&- / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT/ '( 2. RESPONDENT/ )*'( 3. THE CONCERNED CIT(A)/ > ? 4. THE CONCERNED CIT/ > ? 5 . DR B BENCH, ITAT, MUMBAI / <@9 )- , . . $ . 6. GUARD FILE/ 9 B *<- )- //TRUE COPY// /#0 /#0 /#0 /#0 / BY ORDER, / ' ' ' ' DY./ASST. REGISTRAR , / ITAT, MUMBAI