ASST CIT CIR 21(1), MUMBAI V. MOVEMENT IMPEX TRADING CO, MUMBAI

ITA 3764/MUM/2012

• Counselvise Citation: 376419914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: BHAVESH R MAJITHIA

Judgement Text

, CH CHCH CH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B BENCH. . .. . . .. . , ,, , !'#$ !'#$ !'#$ !'#$ , ' ' ' ' %& %& %& %& BEFORE S/SH.H.L.KARVA,PRESIDENT & RAJENDRA,ACCOUNTA NT MEMBER /. ITA NO. 3764/MUM/2012 , ' ' ' ' ( ( ( ( / ASSESSMENT YEAR-2009-10 ASST. CIT CIR 21(1), 6 TH FLOOR, ROOM NO. 601, PRATYAKSHAKAR BHAVAN, BANDRA- KURLA COMPLEX, BANDRA(E) MUMBAI- 400051 VS. M/S MOVEMENT IMPEX TRADING, 29, MAKHARIA HOUSE, SHRADDHANAND ROAD, OPP. SYNDICATE BANK, VILE PARLE(E) MUMBAI- 400057 PAN:AAGFM4315G ( )* / APPELLANT ) ( +,)* / RESPONDENT ) )* )* )* )* - - - - ' '' ' / APPELLANT BY : SHRI R.K.SAHU +,)* . - ' / RESPONDENT BY : SHRI BHAVESH R. MAJITHIA ' ' ' ' . .. . /0 /0 /0 /0 / DATE OF HEARING : 16 -12-2013 12( . /0 / DATE OF PRONOUNCEMENT : 24-12-2013 PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED 16.03.2012 OF THE CIT(A )-32,MUMBAI,ASSESSING OFFICER(AO) HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 23,85,778/- BEING INTE REST PAID NOT FOR THE PURPOSE OF BUSINESS AS THE ASSESSEE HAD FAILED TO PROVE THE NEXUS THAT INTERES T FREE ADVANCES WERE GIVEN OUT OF INTEREST FREE FUN DS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A)FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE INCURRED INTE REST EXPENSES OF RS. 40,82,504/- AS INTEREST ON BORROWED FUNDS. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR TO ALTE R ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF EXPORT OF COTTON FABRIC AND OTHER COMMODITIES,FILED ITS RETURN OF INCOME ON 20.9.2009 DECLARING TOTAL INCOM E OF RS.83.22 LACS.AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT ON 19.12.2011 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.1.07 CRORES. 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE A DDITION OF RS. 23.85 LACS BY THE FIRST APPELLATE AUTHORITY(FAA).DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT A SUM OF RS. 1.21 CRORES WAS OUTSTANDING AS ADVANCED TO M/S SHREENATH ASSOCIATES (SA),THAT RS. 1.65 CRORES WERE ADVANCED TO M/S MANHATTAN EXPORTS (ME),THAT THE ASSESSEE HAD DE BITED A SUM OF RS. 40.82 LACS AS INTEREST ON BORROWED FUNDS.AO ASKED THE ASSESSEE-FIRM AS TO WHY THE INTEREST SHOULD NOT BE DISALLOWED TO THE EXTENT OF FUNDS DIVERTED TO SA AND ME.AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT BORROWED FUNDS HAD BEEN DIVERTED TO MAKE INTER EST FREE ADVANCES TO THE ABOVE TWO CONCERNS AND ACCORDINGLY HE WORKED OUT THE INTEREST OF RS.14 .8 LACS AS INTEREST OF REDUCING BALANCES REFERABLE TO THE ADVANCES MADE TO SA AND RS.9.66 LACS AS INTE REST REFERABLE TO ADVANCES MADE TO ME AND 2 ITA NO. 3764/MUM/2012 MS MOVEMENT IMPEX TRADING. DISALLOWED THE SAME U/S 36(I)(III) OF THE ACT. 3. AGAINST THE ORDER OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT THE OUT OF THE TOTAL INTEREST BEARING FUNDS OF THE ASSESSEE A SUM OF RS.9,76,676 WAS AVA ILED AS CAR LOANS AND SAME HAD BEEN USED FOR THE ACQUISITION OF THE MOTOR CAR,THAT THE BALANCE L OAN OF RS.72.65 LACS WAS AGAINST THE LCS AS PER THE TERMS OF THE CREDIT FACILITY WITH THE BANK WHIC H WAS TO BE UTILISED IN THE WORKING CAPITAL REQUIREMENT AND HAS NO NEXUS WITH THE ADVANCES PAID DURING THE YEAR TO SA OR ME,THAT THE LOAN FROM BANK WAS ONLY 72.65 LACS, THAT THE ADVANCES OU TSTANDING WERE AT 2. 86 CRORES TO THE TWO CONCERNS,THAT THESE FACTS PROVED THAT THE LOANS COU LD NOT BE THE SOURCE OF SUCH ADVANCES,THAT ASSESSEE WAS HAVING CAPITAL OF 12.15 CRORES ON WHIC H NO INTEREST WAS BEING PAID WHICH WAS MUCH MORE THAN THE ADVANCES TO BOTH THE CONCERNS OUTSTAN DING AS ON 31.3.2009,THAT THE ASSESSEE HAD ALSO INTEREST FREE FUNDS OUT OF THE ACCRUAL OF THE PROFI TS TO THE EXTENT OF RS.83,15,330/-DURING THE YEAR,THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND HENCE IT COULD NOT BE SAID THAT BORROWED FUNDS OF RS.72.65 1ACS HAD BEEN DIVERTED TO MAKE TH E ADVANCES.HE RELIED UPON THE JUDGMENTS OF BOMBAY SAMAHCAR(74ITR723)BRITANIA INDUSTRIES LTD. ( 280ITR525) HOTEL SAVERA (239ITR79)AND HELD THAT WHEN THE ASSESSEE HAS SUFFICIENT OWN CAPI TAL, NO DISALLOWANCE COULD BE MADE THE PART OF THE BORROWED FUNDS WERE ADVANCED WITHOUT INTEREST. HE FURTHER HELD THAT WHEN THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AS COMPARED TO THE I NTEREST FREE ADVANCES MADE, THEN THE PRESUMPTION WOULD BE THAT SUCH INTEREST FREE ADVANCES HAD BEEN MADE OUT OF THE INTEREST FREE FUNDS ONLY.HE REFERRED TO THE CASE OF RELIANCE UTILITY & POWER LT D.(313 ITR340)DELIVERED BY THE HONBLE JURISDICTIONAL HIGH COURT AND FINALLY HELD THAT THE RE WAS NO REASON TO PRESUME THAT THE BORROWED FUNDS OF RS.72.65 LACS WERE USED TO MAKE THE INTERE ST FREE ADVANCES.AS A RESULT,HE DELETED THE ADDITION MADE BY THE AO. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE(DR) SUBMITTE D THAT ASSESSEE HAD NOT FURNISHED THE FUND FLOW OF ME,THAT INTEREST WAS NOT PAID FOR THE PURPO SE OF BUSINESS,THAT THE ASSESSEE HAD NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST FREE ADV ANCES AND INTEREST FREE FUNDS,THAT ASSESSEE HAD INCURRED INTEREST EXPENSE OF RS.40.82 LACS OF BORRO WED FUNDS.AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT ASSESSEE HAD BORROWED FUND FROM THE BANKS OF RS. 72.6 LACS, RS. 9.76 LACS PERTAINED TO THE CAR LOAN,THAT IT HAD CAPITAL OF MORE THAN RS . 12 CRORES,THA IT HAD ALSO INTEREST FREE FUNDS TO THE EXTENT OF RS. 83.15 LACS. HE RELIED UPON THE ORDER OF THE RELIANCE UTILITY AND POWER LTD. (SUPRA). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT FOR THE YEAR UNDER CONSIDERATION INTEREST FREE CAPITAL OF THE FI RM WAS MORE THAN 12.50 CRORES AND THE ACCRUALS DURING THE YEAR,OUT OF PROFIT,WERE MORE THAN RS.83 LACS.THUS THE ASSESSEE HAD SUFFICIENT OWN FUND TO ADVANCE LOANS.IN OTHER WORDS THE ASSESSEE COULD LEND MONEY FROM ITS RESOURCES.WE FURTHER FIND THAT A SUM OF RS. 9.76 LACS WAS AVAILED BY THE ASSE SSEE AS CAR LOAN AND IT HAD BEEN USED FOR ACQUISITION ON MOTORCAR.AO HAS NOT CONTROVERTED THE FACT OF ACQUISITION OF CAR BY THE ASSESSEE- FIRM.FROM THE MATERIAL AVAILABLE IT IS CLEAR THAT T HE ASSESSEE HAD ALSO AVAILED LOAN FACILITY OF RS. 72.65 LACS AGAINST THE LCS AS PER THE TERMS WITH TH E CREDIT FACILITY WITH THE BANK. THUS THERE WAS NO NEXUS BETWEEN THE ADVANCES PAID TO SA/ME AND THE BO RROWED FUNDS.WE FIND THAT IN THE CASE OF RELIANCE UTILITY AND POWER LTD. (SUPRA) HONBLE BOM BAY HIGH COURT HELD AS UNDER:- IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE A ND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. CONSIDERING THE FACTS;THAT AN AMOUNT OF ABOUT 13 CR ORES WAS AVAILABLE TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THAT LOAN TAKEN BY THE ASSESSEE WERE USED FOR SPECIFIC PURPOSES;WE ARE OF THE OPINION THAT FAA WAS RIGHT IN HOLDING THAT T HERE WAS NO REASON TO PRESUME THAT BORROWED FUNDS WERE USED TO MAKE INTEREST FREE ADVANCES.THER EFORE,FOLLOWING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT,WE CONFIRM HIS ORDER AND HOLD THA T DISALLOWANCE MADE BY THE AO U/S 36(I)(III) OF THE ACT WAS NOT JUSTIFIED. 3 ITA NO. 3764/MUM/2012 MS MOVEMENT IMPEX TRADING. EFFECTIVE GROUND OF APPEAL FILED BY T HE AO IS DECIDED AGAINST HIM. AS A RESULT,APPEAL FILED BY THE AO STANDS DI SMISSED. 3 &4 ' 3/ VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH . UK UKUK UK !5 . !/ 67. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DECEMBER,2013 . %'8 . 12( ' # 9 :%' 24 FNLACJ FNLACJ FNLACJ FNLACJ , 2013 2 . ;. SD/- SD/- ( . . - H.L.KARWA) ( !'#$ !'#$ !'#$ !'#$ / RAJENDRA) / PRESIDENT ' ' ' ' %& %& %& %& /ACCOUNTANT MEMBER / MUMBAI, :%' /DATE: 24 TH DECEMBER,2013 SK %'8 %'8 %'8 %'8 . .. . +/< +/< +/< +/< ='<(/ ='<(/ ='<(/ ='<(/ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / )* 2. RESPONDENT / +,)* 3. THE CONCERNED CIT (A) / > ? , 4. THE CONCERNED CIT / > ? 5. DR B BENCH, ITAT, MUMBAI / <@; +/' CH CHCH CH , . . # . 6. GUARD FILE/ ; A ,