OLIVE BAR & KITCHEN PRIVATE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE 13(1)(1), Mumbai

ITA 3931/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6848 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 03-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAHESH R AJORA
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH , JM ITA NO.3931/MUM/2019 (ASSESSMENT YEAR: 2015-16) M/S. OLIVE BAR & KITCHEN PVT. LTD. PALI HILL TOURIST HOTEL, 14, UNION PARK, KHAR (W), MUMBAI-400 052 VS. ASST. CIT-13(1)(1) MUMBAI PAN/GIR NO. AAACO 5346 G ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI MAHESH RAJORA RESPONDENT BY : MS. SHREEKALA PARDESHI DATE OF HEARING : 16.02.2021 DATE OF PRONOUNCEMENT : 01.04.2021 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-21, MUMBAI (L D.CIT(A) FOR SHORT) DATED 28.03.2019 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y .) 2015-16. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-21, MUM BAI (HEREINAFTER THE CIT(A)) ERRED IN CONFIRMING THE DISALLOWANCE OF IN TEREST EXPENSES OF RS.10,30,036/- U/S. 36(1)(III) OF THE ACT MADE BY T HE A.O. ON THE GROUND THAT INTEREST FREE ADVANCE IS GIVEN BY THE APPELLANT TO ITS ASSOCIATE COMPANY JOIE DE VIVRE PVT. LTD. OUT OF INTEREST BEARING BORROWED F UNDS. THE APPELLANT SUBMITS THAT THE LOAN TO ASSOCIATE CO MPANY IS GIVEN OUT OF INTERNAL ACCRUALS FORMING PART OF ACCUMULATED RESER VES APPEARING IN THE BALANCE SHEET AND THAT BORROWED FUNDS HAVE NOT BEEN UTILIZE D TO GIVE INTEREST FREE LOAN TO ASSOCIATE COMPANY. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMI TS THAT LOAN GIVEN TO ASSOCIATE COMPANY IS FOR THE PURPOSE OF BUSINESS AN D IN THE NORMAL COURSE OF CARRYING ON ITS BUSINESS ACTIVITY; HENCE NO PART OF INTEREST PAID ON BORROWED FUNDS IS TO BE DISALLOWED. 2 ITA NO.3931/MUM/2019 (AY: 2015-16) M/S. OLIVE BAR & KITCHEN PVT. LTD. VS. ASST. CIT 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING O FFICER (A.O. FOR SHORT) HAS NOTICED FROM THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS SUBSTANTIAL BORROWED FUNDS ON WHICH HE HAS PAID INTEREST OF RS.10,30,036/-. FURTHER, THE A.O. OBSERVED THAT THE ASSESSEE HAS AD VANCED INTEREST FREE LOANS TO M/S. JOIE DE VIVRE PVT. LTD. THE A.O. HAS DISALLOWED THE INTE REST EXPENSES OF RS.10,30,036/- U/S. 36(1)(III) OF THE ACT WHEREIN THE A.O. HAS RELIED O N THE VARIOUS DECISIONS OF HIGH COURT. 4. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) UPHEL D THE A.O.S ORDER FOLLOWING HIS EARLIER YEAR ORDER. 5. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BE FORE US. 6. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT DECIS ION IN ASSESSEES OWN CASE. 7. UPON HEARING BOTH THE PARTIES AND PERUSING THE R ECORDS, WE FIND THAT THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 1177/MUM/2018 FOR A. Y. 2014-15, VIDE ORDER DATED 09.04.2019 HAS DECIDED THE IDENTICAL ISSUE AS UNDER : 6. SO FAR AS THE DISALLOWANCE U/S 36(1)(III) IS CO NCERNED, UPON PERUSAL OF FINANCIAL STATEMENTS, IT TRANSPIRES THAT THE ASSESSEES OPENI NG OWN FUNDS IN THE SHAPE OF SHARE CAPITAL AND FREE RESERVES AGGREGATING TO RS.36.87 C RORES FAR EXCEEDS THE INTEREST FREE LOANS OF RS.3.05 CRORES ADVANCED BY THE ASSESSEE. I T HAS BEEN ARGUED THAT IN CASE OF MIXED USAGE OF FUNDS, A PRESUMPTION WAS TO BE DRAWN IN ASSESSEES FAVOR THAT INTEREST FREE LOANS WERE GRANTED OUT OF FREE FUNDS AVAILABLE WITH THE ASSESSEE IN TERMS OF DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN CIT VS. RELIA NCE UTILITIES & POWER LTD. [313 ITR 340]. HOWEVER, BOTH THE LOWER AUTHORITIES DISTI NGUISHED THE SAME ON THE GROUND THAT THE DECISION WAS RENDERED IN THE CONTEXT OF INVESTM ENTS MADE BY THE ASSESSEE AND NOT IN THE CONTEXT OF GRANT OF INTEREST FREE ADVANCES. HOW EVER, THE SAID REASONING, IN OUR OPINION, WOULD HOLD NO WATER SINCE THE RATIO OF THE CITED DECISION WOULD APPLY IN ALL CASES WHERE THE FUNDS WERE DIVERTED FOR NON-BUSINESS PURP OSES I.E. EITHER TO MAKE INVESTMENTS OR TO ADVANCE INTEREST FREE LOANS. THEREFORE, THE L OWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE SAME PARTICULARLY IN VIEW OF THE FA CT THAT FRESH LOANS GRANTED BY THE ASSESSEE TO THE SAID ENTITY DURING IMPUGNED AY WAS ONLY TO THE TUNE OF RS.88.78 LACS. ANOTHER FACTOR IS TO BE NOTED THAT THE LOAN HAS BEE N GRANTED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY AND LD. AO HAS REJECTED THE STAN D OF THE ASSESSEE ON THE GROUND THAT THE BUSINESS OF THE SUBSIDIARY COULD NOT BE CONSIDE RED IN LAW AS THE BUSINESS OF THE ASSESSEE WITHOUT CONTROVERTING THE FACT THAT THE AF ORESAID SUBSIDIARY WAS ALSO ENGAGED IN THE BUSINESS OF RUNNING THE RESTAURANTS AND WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WOULD DERIVE BUSINESS BENEFITS OUT OF THE SAME. IN SUCH A SCENARIO, THE RATIO OF DECISION OF HONBLE APEX COURT RENDERED IN S.A. BUILDERS VS. CI T [288 ITR 1] WOULD ALSO BECOME APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, VIE WED FROM ANY ANGLE, THE IMPUGNED 3 ITA NO.3931/MUM/2019 (AY: 2015-16) M/S. OLIVE BAR & KITCHEN PVT. LTD. VS. ASST. CIT DISALLOWANCE, IN OUR OPINION, COULD NOT BE SUSTAINE D. HENCE, BY DELETING THE SAME, WE ALLOW THE ASSESSEES APPEAL. 8. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, W E SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD ON 01.04.20 21 SD/- SD/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 01.04.2021 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI