M/S. EVEREST GEMS ( NOW ROSY BLUE INDIA P. LTD, Mumbai V. THE. ACIT RG16(3), Mumbai

ITA 3970/MUM/2004

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55295 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-08-2011
• Assessment Year: 1988-1989
• Appeal Filed On: 17-05-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: P J PARDIWALA P P BHANDARI
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.3970/MUM/2004 (ASSESSMENT YEAR: 1988-89) EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD., MEHTA MAHAL, 7TH FLOOR, 15 MATHEW ROAD, OPERA HOUSE, MUMBAI -400 004 ....... APPELLANT VS ASSTT. COMMISSIONER OF INCOME-TAX, RANGE 16(3), CIR.24(1), PRATIKSHAKAR BHAVAN, MUMBAI -400 020 ..... RESPONDENT PAN: AAAFE 0372 P APPELLANT BY: S/SHRI P.J. PARDIWALA / P.P. BHANDARI RESPONDENT BY: SHRI V.V. SHASTRI DATE OF HEARING: DATE OF PRONOUNCEMENT: 04.08.2011 16.09.2011 O R D E R PER R.S. PADVEKAR, JM: IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A) XVII, MUMBAI DATED 20.02.2004 FO R THE A.Y. 1988- 89. 2. THE SOLITARY ISSUE IN THIS APPEAL IS IN RESPECT OF DISALLOWANCE OF ` 2,96,414/- IN RESPECT OF THE FINANCE BROKERAGE PAID BY THE ASSESSEE. ITA 3970/MUM/2004 EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD. 2 3. IN THE FIRST ROUND OF APPEAL, THE TRIBUNAL HAS R ESTORED THIS ISSUE TO THE FILE OF THE A.O. WITH THE FOLLOWING DIRECTIO NS:- 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. IT IS DISPUTED ON BEHALF OF THE ASSESSEE THAT UNDER THE AGREEMENT, THERE WAS NO LIABILITY TO PAY FINANCE BR OKERAGE BEYOND 18.12.86. THE CLAIM IS FOUNDED ON THE PRINC IPLES OF COMMERCIAL EXPEDIENCY. WE FIND THAT THE AMOUNT REPRESENTS A PROVISION MADE IN THE ACCOUNTS. ACTUA L PAYMENT DOES NOT APPEAR TO HAVE BEEN EFFECTED DURIN G THE RELEVANT ACCOUNTING PERIOD. THE ASSESSEE HAS VOLUN TARILY UNDERTAKEN TO PAY ADDITIONAL BROKERAGE TO A.R. CORPORATION, IN VIEW OF THE HANDSOME RATE OF INTERE ST EARNED ON THE ADVANCES TO PATEL BISCUITWALLA WHICH ADVANCE WAS ARRANGED THROUGH A.R. CORPORATION. THE RE IS NO EVIDENCE ON RECORD TO SHOW WHETHER THE ASSESSEE CONVEYED ITS DECISION TO PAY THE ADDITIONAL BROKERA GE TO A.R. CORPORATION. IF THAT HAD BEEN DONE, THAT WOUL D BE AN INDICATION THAT THE ASSESSEE WAS EARNEST IN UNDERTA KING THE ADDITIONAL LIABILITY. MERELY PASSING AN ENTRY FOR ADDITIONAL LIABILITY IN THE ASSESSEES BOOKS IN THE ABSENCE OF ANY CONTRACTUAL OR STATUTORY COMPULSION MAY FROM THE BASIS OF A CLAIM FOR DEDUCTION, PROVIDED THAT THE D ESIRE TO PAY THE ADDITIONAL AMOUNT IS COMMUNICATED TO THE PE RSON WHO WOULD BE BENEFITED BY THE ENTRY. ANOTHER INDIC ATION MAY BE A PAYMENT OF THE ADDITIONAL LIABILITY IN THE SUBSEQUENT YEARS TO A.R. CORPORATION. THERE IS NO MATERIAL ON RECORD TO INDICATE WHETHER THE ADDITIONAL LIABIL ITY UNDERTAKEN BY THE ASSESSEE VOLUNTARILY HAS BEEN DISCHARGED BY ACTUAL PAYMENT IN THE SUBSEQUENT YEAR S. UNDER THE CIRCUMSTANCES, WE FIND IT DIFFICULT TO AD JUDICATE UPON THE CLAIM. WE, THEREFORE, SET ASIDE THE ORDER S OF THE DEPARTMENTAL AUTHORITIES ON THIS POINT AND RESTORE THE ITA 3970/MUM/2004 EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD. 3 MATTER TO THE FILE OF THE AO WHO WILL TAKE A FRESH DECISION IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND ADDITIO NS, AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEIN G HEARD. WE DIRECT ACCORDINGLY AND ALLOW THE GROUND FOR STAT ISTICAL PURPOSES. 4. AS PER THE DIRECTIONS OF THE TRIBUNAL, THE A.O. AGAIN CONSIDERED THE ISSUE BUT WAS NOT CONVINCED IN RESPECT OF THE G ENUINENESS OF THE CLAIM. THE OPERATIVE PART OF THE FINDINGS OF THE A .O. ARE AS UNDER:- THE SUBMISSION AND EXPLANATION OF THE ASSESSEE CAN NOT BE ACCEPTED IN VIEW OF THE FACT THAT THE ASSESSEE HAD ADVANCED SUBSTANTIAL AMOUNT OF LOAN TO M/S. PATEL BISCUITWAL LA AND ASSOCIATES AT THE RATE OF 30%. THE ASSESSEE HAS GI VEN FINANCE BROKERAGE AT THE RATE OF 0.5% TO M/S. A.R. CORPORAT ION. IN THE PRECEDING YEAR ALSO ASSESSEE HAD PAID SIMILAR BROKE RAGE TO M/S. A.R. CORPORATION WHICH WAS ALLOWED AND UPTO THE PER IOD OF 9 MONTHS FROM THE DATE OF ADVANCE OF LOAN. AS THE LO AN AGREEMENT POSTULATED THAT THE LOAN WOULD REMAIN OUTSTANDING, AT THE MOST, FOR PERIOD OF 9 MONTHS FROM THE DATE OF ADVANCE AND THE FINANCE BROKER WOULD BE PAID AS COMMISSION AT THE RATE OF PERCENT PER MONTH FOR THIS PERIOD. THIS PERIOD HAS ALREADY COM E TO END ON 18/12/1986. THE LOAN ADVANCED BY THE ASSESSEE IS S TILL OUTSTANDING AND THE ASSESSEE FIRM HAS DEBITED FURTH ER BROKERAGE OF ` 2,96,414/- DURING THE YEAR ENDING MARCH, 1988. TH E ASSESSEE IS NOT A PROFESSIONAL FIRM OF MONEY LENDER S. IT IS A FIRM ENGAGED IN THE EXPORT OF CUT AND POLISHED DIAMONDS. THEREFORE, IT CANNOT BE CONSIDERED COMMERCIALLY EXPEDIENT TO CONT INUE TO MAKE PAYMENT TO A FINANCE BROKER WHERE IT WAS NOT NECESS ARY. THIS PAYMENT IS CLEARLY NOT ALLOWABLE. 5. THE A.O. AGAIN MADE THE DISALLOWANCE OF THE ENTI RE AMOUNT OF THE FINANCE-BROKERAGE CLAIMED BY THE ASSESSEE. THE ASSESSEE CARRIED ITA 3970/MUM/2004 EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD. 4 THE ISSUE BEFORE THE LD. CIT (A) WHO PUT A STAMP OF APPROVAL ON THE DISALLOWANCE MADE BY THE A.O. IN THE SECOND ROUND. ADMITTEDLY, AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE WAS LI ABLE TO PAY THE FINANCE BROKERAGE CHARGES TO M/S. A.R. CORPORATION UPTO 18.12.1986 AND BEYOND THAT THERE WAS CONTRACTUAL LIABILITY ON THE ASSESSEE. WHILE RESTORING THE ISSUE TO THE FILE OF THE A.O. IN THE FIRST ROUND, THE TRIBUNAL OBSERVED THAT THERE WAS NO EVIDENCE ON REC ORD TO SHOW WHETHER THE ASSESSEE CONVEYED THE DECISION TO PAY T HE ADDITIONAL BROKERAGE TO M/S. A.R. CORPORATION AND ACCORDINGLY THE ASSESSEE HAD MADE THE PAYMENT TO THE ADDITIONAL LIABILITY IN THE SUBSEQUENT YEARS TO M/S. A.R. CORPORATION. THE LD. SR. COUNSEL ARGU ES THAT THE ASSESSEE PLACED ALL THE MATERIAL BEFORE THE A.O. AS WELL AS THE LD. CIT (A) TO SUBSTANTIATE THE CLAIM BUT THE SAME WAS NOT APPRECIATED. THE LD. COUNSEL REFERRED TO THE PAGE NO.4 OF THE PAPER BOOK AND SUBMITS THAT THE A.R. CORPORATION HAS ISSUED A DEBIT NOTE, I.E. A CLEAR INDICATION THAT THERE WAS AN UNDERSTANDING BETWEEN THE ASSESSEE AND M/S. A.R. CORPORATION TO MAKE THE PAYMENT OF FINANC E BROKERAGE EVEN AFTER 18.12.1986. THE LD. COUNSEL ALSO TOOK US THR OUGH PAGE NO.5 OF THE PAPER-BOOK AND SUBMITS THAT SUBSEQUENTLY THE PA YMENT OF FINANCE CHARGES HAVE BEEN MADE BY THE ASSESSEE BY THE CHEQU E. HE, THEREFORE, PLEADED THAT THERE IS SUFFICIENT EVIDENC E ON RECORD TO SHOW THAT THE ASSESSEE HAS MADE THE PAYMENT. 6. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL . IT IS SEEN THAT AS PER THE COPY OF THE STATEMENT-OF-ACCOUNT, THE AS SESSEE HAS MADE THE PAYMENT TO M/S. A.R. CORPORATION BY CHEQUE NO.9 92193 OF BANK OF INDIA WHICH IS CREDITED IN THE BOOKS-OF-ACCOUNT ON 07.11.1989. WHEN THE MATTER WAS RESTORED TO THE FILE OF THE A.O . ONE OF THE INDICATIONS DESIRED BY THE TRIBUNAL WAS THE PROOF O F SUBSEQUENT PAYMENT OF THE FINANCE CHARGES. THE OTHER ASPECTS HAVE ALREADY BEEN CONSIDERED IN THE FIRST ROUND OF APPEAL. THE ASSES SEE HAS ALSO FILED THE ACCOUNTS-STATEMENT OF THE BANK OF INDIA (PAGE N O.6 OF P/B) AND AS PER THE BANK STATEMENT THE CHEQUE ISSUED TO M/S. A. R. CORPORATION IS ITA 3970/MUM/2004 EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD. 5 CLEARED ON 07.11.1989. WE ARE, THEREFORE, OF THE O PINION THAT THE ASSESSEE HAS PROVED THAT THE COMMITTED PAYMENT WAS SUBSEQUENTLY MADE TO M/S. A.R. CORPORATION. WE ACCORDINGLY DELET E THE ADDITION OF ` 2,96,414/- AND ALLOW THE APPEAL FILED BY THE ASSES SEE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 6TH SEPTEMBER 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATED : 16TH SEPTEMBER 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)51, MUMBAI. 4) THE CIT- MUMBAI CITY - XVII, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 3970/MUM/2004 EVEREST GEMS NOW CONVERTED INTO ROSY BLUE INDIA PVT. LTD. 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 06.09.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 06.09.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER