APURVA DEVELOPERS P.LTD, MUMBAI V. ITO 9(1)(1), MUMBAI

ITA 385/MUM/2011

• Counselvise Citation: 38519914 RSA 2011
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 16-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K VKBZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUM BAI JH VKJ JH VKJ JH VKJ JH VKJ- -- - LH LHLH LH- -- - 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA JH LAT; XXZ JH LAT; XXZ JH LAT; XXZ JH LAT; XXZ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS LE{K LE{K LE{K LE{K BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.385/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2006-07 APURVA DEVELOPERS PVT. LTD. 9, MADHUR APARTMENTS, 56, TPS ROAD, NEAR BABHAI NAKA BORIVALI WEST MUMBAI 400 092. CUKE@ VS. ITO 9(1)-1 AAYAKAR BHAVAN, MAHARISHI KARVE ROAD, MUMBAI 400 020. PAN:- AAACA8270F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI RASHMIKAND D. KUDALIA IZR;FKHZ DH VKSJ LS @ REVENUE BY SHRI O.P. SINGH VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER R.C. SHARMA, AM. THIS IS AN APPEAL, FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 28.9.2010 FOR A.Y. 2006-07, IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT. FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE ASSESSEE:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE O RDER OF THE AO WITHOUT FIRST ASCERTAINING AND APPRECIATING THE FAC TS OF THE APPELLANT. LQUOKBZ DH RKJH[K@ DATE OF HEARING 16 - 01 - 2014 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 22-01-2014 - 2 - 2. THE LEARNED CIT(A) HAS ERRED IN DISREGARDING THE CONTENTION OF THE APPELLANT THAT THE INTEREST-FREE LOANS AND ADVANCES HAVE FLOWN OUT OF INTEREST FREE UNSECURED LOANS. 3. THE LEARNED CIT(A) HAS ERRED IN DISREGARDING THE CONTENTION OF THE APPELLANT THAT IN COMPUTING DISALLOWANCE OF INTERES T, CREDIT OUGHT TO HAVE BEEN GIVEN FOR INTEREST ON UNSECURED LOANS AS IN TH E PREVIOUS TWO ASSESSMENTS FOLLOWING THE PRINCIPLE OF RES JUDICATA . 4. THE LEARNED CIT(A) HAS ERRED IN CONCLUDING THAT THE ADVANCES WERE NOT RELATED TO THE BUSINESS OF THE APPELLANT. 5. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT T HE APPELLANT FAILED TO PROVE THE NEXUS BETWEEN INTEREST FREE UNSECURED LOANS AND INTEREST FREE ADVANCES. 6. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT T HERE WAS NO COMMERCIAL EXPEDIENCY IN ADVANCING LOANS FREE OF IN TEREST. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO IN DISALLOWING THE INTEREST PAID ON LOAN. 8. BY CONFIRMING THE INTEREST DISALLOWANCE MADE BY THE AO DURING ASSESSMENT YEAR 2006-07, THE CIT(A) INTER ALIA ERRE D IN CONFIRMING THE AOS ACTION OF REDUCING THE WIP BY WAY OF INTEREST DISAL LOWED IN THE EARLIER ASSESSMENT YEAR 2003-04 & 2004-05. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE IS A PIVATE LIMITED COMPANY CARRYING ON BUSINESS OF BUILDERS AND DEVELOPERS. WHILE COMPLETING SCRUTINY ASSESSMENT, THE AO DISALLOWED ASSESSEES CLAIM OF INTEREST AMOUNTING T O RS. 5,76,090/- ON THE PLEA THAT ASSESSEE HAS DIVERTED INTEREST BEARING FU NDS FOR NON BUSINESS PURPOSES. 3. BY IMPUGNED ORDER CIT(A) CONFIRMED THE ACTION OF AO, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. - 3 - 4. IT WAS ARGUED BY LD. AR THAT THERE WAS BUSINESS EXPEDIENCY FOR ADVANCING THE LOAN WHICH HAVE NOT BEEN EXAMINED BY THE AO WHILE DISALLOWING THE INTEREST EXPENDITURE DEBITED TO THE P&L ACCOUNT. LD. AR FURTHER PLEADED THAT BY ADVANCING LOAN TO MR. KAN H . LAKHANI, THE ASSESSEE COMPANY WAS MUTUALLY BENEFITED BECAUSE THE ASSESSEE WAS IN MUTUALLY PROFITABLE RELATIONSHIP WITH MR. KAN H. LA KHANI. HE FURTHER INVITED OUR ATTENTION TO THE INTEREST FREE FUNDS AD VANCED BY THE ASSESSEE TO ASSOCIATE CONCERNS. 5. ON THE OTHER HAND LD. DR RELIED UPON THE ORDER O F AUTHORITIES BELOW AND CONTENDED THAT ASSESSEE HAD ADVANCED INTE REST FREE LOANS TO RELATIVES OUT OF INTEREST BEARING FUDNS TAKEN FROM BANK. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FIN D FROM RECORD THAT DISALLOWANCE OF INTEREST WAS MADE BY AO ON ACCOUNT OF LOAN ADVANCED TO THE SISTER/ASSOCIATE CONERNS EITHER AT A LOWER RATE OF INTEREST OR WITHOUT CHARGIN ANY INTEREST. THERE IS NO DISPUTE TO THE WE LL SETTLED PROPOSITION THAT INTEREST ON INTEREST BEARING FUNDS CAN BE ALLO WED ONLY IF FUNDS HAVE BEEN USED FOR THE PURPOSE OF BUSINESS, IN CASE OF D IVERSION OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES, INTEREST C ANNOT BE ALLOWED U/S 36(1)(III). FURTHERMORE IF THE ASSESSEE IS HAVING I NTEREST FREE FUNDS AVAILABLE WITH HIM, DIVERSION OF SUCH INTEREST FREE FUNDS EVEN WITHOUT CHARGING ANY INTEREST, NO DISALLOWANCE COULD BE MAD E WITH RESPECT TO SUCH ADVANCES. IN THE INSTANT CASE, PLEAS OF THE AS SESSE IS THAT IT HAS GIVEN ADVANCES AT A CONCESSIONAL RATE OF INTEREST WITH B USINESS EXPEDIENCY. HONBLE SUPREME COURT IN CASE OF S.A. BUILDERS VS. CIT ( 288 ITR 001) OBSERVED THAT BEFORE DISALLOWING INTEREST EXPENDITU RE ON THE BORROWED - 4 - FUNDS WHICH HAS BEEN GIVEN TO SISTER CONCERNS, ONE HAS TO EXAMINE THE BUSINESS EXPEDIENCY AND IF IT IS FOUND THAT TO FULF IL SUCH BUSINESS EXPEDIENCY THE ASSESSEE HAS DIVERTED INTERESTS BEAR ING FUNDS, NO DISALLOWANCE IS TO BE MADE. IN THE INTEREST OF JUST ICE AND FAIR PLAY, WE RESTORE THE APPEAL BACK TO THE FILE OF AO FOR EXAMI NING THE BUSINESS EXPEDIENCY OF THE ADVANCES SO GIVEN BY THE ASSESSE WITH RESPECT TO THE PROPOSITION LAID DOWN BY HONBLE SUPREME COURT IN T HE CASE OF S.A. BUILDERS (SUPRA). AO IS ALSO DIRECTED TO FIND OUT W HETHER THE ASSESSEE HAD ANY INTEREST FREE FUND AVAILABLE WITH IT AND WHICH HAS BEEN USED FOR ADVANCING TO ITS SISTER CONCERNS EVEN WITHOUT CHARG IN ANY INTEREST, NO DISALLOWANCE IS TO BE MADE WITH RESPECT TO SUCH INT EREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. AO IS TO DECIDE THE MA TTER AFRESH IN THE LIGHT OF OUR ABOVE OBSERVATIONS. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22/01/2014 SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 22 /01/2014 SKS SR. P.S - 5 - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI