DCIT CEN CIR 4(2) CEN RG 4, MUMBAI V. ILESH A GADHIA, MUMBAI

ITA 3860/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0541 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINBGESHEN
• Keywords: Source of fund
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3860/MUM/2016 (ASSESSMENT YEAR: 2010-11) DCIT, CENTRAL CIRCLE - 4(2) CENTRAL RANGE-4 ROOM NO. 1918, 19TH FLOOR AIR INDIA BLDG., NARIMAN POINT, MUMBAI 400021 VS. SHRI ILESH A. GADHIA 201, 2ND FLOOR, VYAPAR BHAVAN, 368/370, NN STREET MASJID BUNDER MUMBAI 400009 PAN AJHPG8596P APPELLANT RESPONDENT APPELLANT BY: SHRI M.C. OMI NINBGESHEN RESPONDENT BY: SHRI MAYUR KISNADWALA DATE OF HEARING: 02.01.2018 DATE OF PRONOUNCEMENT: 30.01.2018 O R D E R PER RAJESH KUMAR, AM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-28, MUMBAI DATED 04.03.2016 FOR A.Y. 2010-11 . 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - (I) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF RS.62,28,563/- ON ACCOUNT OF INTEREST EXPENSES CLAI MED ON BILL DISCOUNTING CHARGES EVEN WHEN THE ASSESSEE HAD SUFF ICIENT FUND TO MEET THIS BUSINESS REQUIREMENT WHICH WAS INSTEAD USED BY THE ASSESSEE FOR MAKING INTEREST FREE ADVANCE TO IT S RELATED PARTIES. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A), MUMBAI ERRED IN DIRECTING THE AO TO DEL ETE THE DISALLOWANCE OF RS. 11,03,000/- ON ACCOUNT OF BROKE RAGE PAID FOR GETTING THE CREDIT FACILITY FROM NATIONALIZED BANKS EVEN WHEN THE ASSESSEE COULD NOT ESTABLISH THE IDENTITY OF THE PA RTY AND GENUINENESS OF TRANSACTION. ITA NO. 3860/MUM/2016 SHRI ILESH A. GADHIA 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S CARRYING OF THE BUSINESS OF TRADING IN STEEL AND FILED RETURN OF IN COME ON 28 TH SEPTEMBER, 2010 DECLARING TOTAL INCOME OF ` 28,37,533/-. THEREAFTER THE CASE OF THE ASSESSEE WAS FIXED FOR SCRUTINY UNDER CASS AND NOTI CE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) DATED 24.08.2011 WAS DULY SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS DE BITED ` 62,28,563/- AS INTEREST ON BILL DISCOUNTING CHARGES. THE LEARNED A O ALSO OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENTS/GIVEN ADVANCES TO VAR IOUS PARTIES AS STATED IN PARA 6 OF THE ORDER AGGREGATING TO ` 25,00,60,128/- AND THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE SAID INVESTMENTS/AD VANCES AND THUS THE REACHED A CONCLUSION THAT THE ASSESSEE HAS INVESTED THE MONEY OUT OF INTEREST BEARING FUNDS RECEIVED BY WAY OF BILL DISC OUNTING. THE ASSESSEE WAS ASKED TO FURNISH SOURCE OF FUNDS FOR THESE ADVANCES /INVESTMENTS. THE AO NOTICED THAT THE ASSESSEE HAS DISCOUNTED VARIOUS BI LLS FROM INDIAN OVERSEAS BANK WITH A CREDIT LIMIT OF ` 10 CRORES AND THE ASSESSEE TRANSFERRED THE AMOUNT TO M/S. USHDEV INTERNATIONAL LTD. AND IN MAK ING OTHER INTEREST FREE ADVANCES AND THEREFORE CLAIM OF INTEREST RELATING T O THE SAID AMOUNT CANNOT BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT AS T HE FUNDS WERE DIVERTED TO RELATED PERSONS WITHOUT CHARGING INTEREST. 4. IN THE APPELLATE PROCEEDINGS THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - 5.1 GROUND 1: THIS IS AGAINST THE DISALLOWANCE OF BILL DISCOUNTIN G CHARGES AMOUNTING TO RS 62,28,563. I FIND THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO ON MISCONCEIVED FACTS. I REFER TO THE CHART OF BILL DISCOUNTING CHARGES SUBMITTED BY THE APPELLANT AND REPRODUCED IN HIS SUBMISSIONS ABOVE. THE APPELLANT ISSUED TWO SALE BILLS TO USHDEV INTL AMOUNTING TO RS 10,05,79,463 ON 29/09/2 009. THESE WERE DISCOUNTED WITH THE BANK. THE BANK RETAINED MA RGIN MONEY @5% OF EACH BILL WHICH WAS RS 26,73,480 AND RS 23,8 5,500 RESPECTIVELY. THE BANK ALSO RETAINED PROCESSING CHA RGES OF RS 1,68,000 AND CHARGED INTEREST FOR PERIOD OF DISCOUN T AMOUNTING TO RS 31,21,752. I HAVE EXAMINED THE BANK STATEMENT OF THE APPELLANT WITH INDIAN OVERSEAS BANK FOR SEPT 2009 AND FIND TH AT THE BANK HAS CREDITED THE SALES AMOUNTS INTO THE ACCOUNT AND ON THE SAME DAY DEBITED THE INTEREST, PROCESSING CHARGES AND TH E MARGIN MONEY ITA NO. 3860/MUM/2016 SHRI ILESH A. GADHIA 3 ON THE TWO BILLS. THE VALUE OF THE SALE BILLS APPEA RS AS A CREDIT IN THE BANK ACCOUNT, WHILE THE OTHER AMOUNTS APPEAR AS DEB ITS ON THE SAME DAY. THE NET EFFECT OF THIS WAS THAT THE BALAN CE AMOUNT OF RS.9,22,30,731 WAS PAID TO THE APPELLANT ON 29/09/2 009. THE IMMEDIATE NEXT ENTRY IN THE BANK ACCOUNT IS A DEBIT OF RS.9,51,05,441 PAID BY RTGS TO ROYAL OAK STEELS PVT LTD. IT IS THE REFORE CLEAR THAT THE PROCEEDS OF THE SALE DISCOUNTED HAVE BEEN UTILI ZED TO PAY THE CREDITOR ROYALOAK. SIMILARLY, THE APPELLANT FURTHER ISSUED TWO MORE SALE BILLS TO USHDEV INTL AMOUNTING TO RS.10,00,98, 098 ON 13/01/2010 AND THE BANK DISCOUNTED THE SAME BY RETA INING PROCESSING CHARGES, INTEREST AND MARGIN MONEY. THE GROSS SALE PROCEEDS HAVE BEEN CREDITED INTO THE BANK ACCOUNT O N 13 TH JAN 2010 AND ON THE SAME DAY, THE BANK HAS DEBITED THE PROCE SSING CHARGES, INTEREST AND MARGIN MONEY. THE IMMEDIATE NEXT ENTRY IN THE BANK ACCOUNT IS ON 15 TH & 19 TH OF JAN 2010 WHEN RS.5,00,00,057 AND RS 4,19,86,424 HAVE BEEN PAID BY RTGS TO LLOYDS METALS & ENGINEERS LTD. IT IS THUS CLEAR THAT THE PROCEEDS OF SALE DIS COUNTED HAVE BEEN UTILIZED TO PAY ANOTHER CREDITOR. THE APPELLANT HAS DEBITED THE INTEREST CHARGED ON THESE TWO TRANSACTIONS OF BILLS DISCOUNTED AMOUNTING TO RS 62,28,563 TO HIS P&L A/C. THE AO HA S NOT APPRECIATED THESE FACTS AND HAS SIMPLY TAKEN SOME O VERALL VIEW WITHOUT ANY BACKING OF FACTS. THE FACTS AS EXAMINED AND NARRATED BY ME ABOVE CLEARLY SHOW THAT THE AMOUNTS RECEIVED FROM BILLS DISCOUNTED HAVE BEEN UTILIZED TO PAY HIS CREDITORS AND THEREFORE USED IN THE BUSINESS. THE INTEREST OF RS 62,28,563 IS THEREFORE ALLOWABLE TO THE APPELLANT. I THEREFORE DELETE THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD INCLUDING THE IMPUGNED ORDER OF THE CIT(A). THE LD DR ARGUED BEFORE US THAT THE ORDER OF CIT(A) WAS WRONG AS MUCH AS THE INTEREST BEARING FUNDS ADVANCED FREE OF INTEREST WITHOUT ANY BUSINESS EXI GENCIES RESULTING INTO SUPPRESSION OF INCOME OF THE ASSESSEE BY CLAIMING I NTEREST ON DISCOUNTING BILLS WHEREAS THE LD AR TRIED TO SUBSTANTIATE THAT THE FUNDS WERE USED TO PAY OFF THE SUNDRY CREDITORS INCURRED IN THE ORDINA RY COURSE OF BUSINESS. IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE HAS GIVEN TWO LOANS TO M/S. USHDEV INTERNATIONAL LTD. AMOUNTING TO ` 10,05,79,463/- IN SEPTEMBER, 2009 WHICH WAS DISCOUNTED WITH THE BANK AND THE BAN K AFTER RETAINING MARGIN MONEY AND PROCESSING CHARGES RELEASED THE NE T BALANCE OF ` 9,22,30,731/- TO THE ASSESSEE ON 29.09.2009. THE NE XT DAY A PAYMENT OF ` 9,51,05,441 WAS MADE TO ROYAL OAK STEELS PVT. LTD. THUS THE PROCEEDS OF DISCOUNTED BILLS WERE USED TO PAY THE CREDITOR M/S ROYAL OAK STEELS PVT. ITA NO. 3860/MUM/2016 SHRI ILESH A. GADHIA 4 LTD. SIMILARLY TWO BILLS WERE ISSUED TO USHDEV INTE RNATIONAL LTD. AMOUNTING TO ` 10,00,98,098/- ON 31.01.2010 AND THE BANK DISCOUNTE D THE SAME. THE NET AMOUNT RELEASED BY THE BANK WAS ALSO USED TO PA Y THE SUNDRY CREDITORS. THE LEARNED CIT(A) HAS PASSED A DETAILED ORDER LISTING THEREIN THE FULL SEQUENCES OF EVENTS AND HOW THE BILLS HAVE DIS COUNTED AND PAYMENTS WERE MADE TO SUNDRY CREDITORS. WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE CIT(A) THAT THE AO HAS TAKEN AN OVERAL L VIEW OF THE MATTER AND DISALLOWED THE INTEREST CHARGE AMOUNTING ` 62,28,563/- IN ARBITRARY MANNER WITHOUT APPLICATION OF MIND. IN OUR OPINION THE ORDER OF THE CIT(A) IS CORRECT AND DESERVES TO BE UPHELD. ACCORDINGLY T HE GROUND RAISED BY THE REVENUE IS REJECTED. 6. THE ISSUE RAISED IN THE SECOND GROUND OF APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF ` 11,03,000/- ON ACCOUNT OF BROKERAGE PAID FOR OBTAINING CREDITS FROM NATIONALISED BANKS. 7. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YE AR THE ASSESSEE PAID ` 11,03,000/- AS BROKERAGE WHICH WAS CHARGED TO PROFI T & LOSS ACCOUNT. THE SAID BROKERAGE WAS PAID FOR OBTAINING CREDIT FA CILITY FROM NATIONALISED BANKS, I.E. INDIAN OVERSEAS BANK. THE AO ISSUED NOT ICE UNDER SECTION 133(6) OF THE ACT TO VERIFY THE GENUINENESS OF THE PAYMENT BUT THE SAME WAS RETURNED UNSERVED AS THE PARTY WAS NOT AVAILABL E ON THE GIVEN ADDRESS. THE AO THEREAFTER SIMPLY ADDED THE SAME TO THE INCOME OF THE ASSESSEE WHILE OBSERVING THAT IT IS VERY STRANGE AN D UNACCEPTABLE THAT A NATIONAL BANK HAS BEEN APPROACHED FOR CREDIT FACILI TY THROUGH BROKERS AND AS A RESULT DISALLOWED THE SAID AMOUNT AS NON-GENUI NE. THE LEARNED CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - 5.2 GROUND 2: THIS IS AGAINST THE DISALLOWANCE OF BROKERAGE PAID OF RS 11,03,000. THE AO HAS DISALLOWED THIS BROKERAGE CLAIMED PRIMARILY ON TWO GROUNDS. ONE IS THAT NO BROKERAGE NEEDS TO BE PAID FOR OBTAINING CREDIT FACILITIES IN A NATIONALIZED B ANK AND THE OTHER BEING THE FACT THAT THE NOTICE U/S 133(6) ISSUED TO AVIAS CORPORATE SERVICES PVT LTD -WAS RETURNED. THE APPELLANT HAS P RODUCED BEFORE ME A CONFIRMATION FROM AVIAS BEING THE BILL ISSUED TO HIM. I OBSERVE THAT THE BILL IS TOWARDS THE CREDIT FACILITIES ARRANGED BY AVIAS FOR THE APPELLANT FROM INDIAN OVERSEAS BANK. THE APPELLANT HAS ALSO ITA NO. 3860/MUM/2016 SHRI ILESH A. GADHIA 5 EXPLAINED THE NEED TO OBTAIN PROFESSIONAL SERVICES FROM THIS COMPANY. I ALSO FIND THAT APPROPRIATE TDS HAS BEEN DEDUCTED BY THE APPELLANT WHILE MAKING THE PAYMENT THROUGH BANKING CHANNELS. THE APPELLANT HAS ALSO SUBMITTED ALL THE RELEVANT PAPERS SUBMITTE D BY HIM THROUGH AVIAS TO IOB TO AVAIL THE BILL DISCOUNTING FACILITI ES. ON A CONSPECTUS OF FACTS, I AM INCLINED TO AGREE WITH THE APPELLANT ON THIS ISSUE. I THEREFORE DELETE THE DISALLOWANCE OF RS 11,03,000 M ADE BY THE AO. 8. BOTH THE PARTIES WERE HEARD AND THE RELEVANT RECORD S PLACED BEFORE US WERE PERUSED CAREFULLY. A PERUSAL OF THE ORDER O F THE CIT(A) REVEALS THAT CONFIRMATION FROM THE RECIPIENT M/S. AVIAS CORPORAT E SERVICES PVT. LTD. WAS PRODUCED BEFORE HIM. THE LEARNED CIT(A) ALSO RE CORDED A FINDING OF FACT THAT THE BILL IS TOWARDS THE CREDIT FACILITIES ARRA NGED FROM IOB AND THUS THE PAYMENT WAS MADE IN CONNECTION WITH PROFESSIONAL SE RVICES FOR OBTAINING CREDIT FACILITY. IT WAS ALSO NOTED BY THE CIT(A) TH AT TDS HAS BEEN DEDUCTED AND THE PAYMENT WAS MADE THROUGH BANKING CHANNELS. HAVING PERUSED THE FACTS ON RECORD AND AFTER HEARING BOTH THE PART IES, WE FIND THAT THE LEARNED CIT(A) HAS TAKEN A CORRECT VIEW OF THE MATT ER WHICH DESERVES TO BE UPHELD. ACCORDINGLY WE DISMISS THIS GROUND OF APPEA L. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2018. SD/ - SD/ - (D.T. GARASIA) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JANUARY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -28, MUMBAI 4. THE PR. CIT - 17, MUMBAI 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.