SURESH AUTO DEAL, THANE V. ASSESSING OFFICER WD 3(4), KALYAN

ITA 402/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2483 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 18-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 402/MUM/2017 (ASSESSMENT YEAR: 2013-14) M/S. SURESH AUTO DEAL PLOT NO. A-129, MIDC PHASE-I, OPP. AUDITORIUM MIDC, DOMBIVILI 421201 VS. INCOME TAX OFFICER - 3(4) 2ND FLOOR, RANI MANSION MURBAD ROAD, KALYAN (W) PAN ABDFS7872A APPELLANT RESPONDENT APPELLANT BY: SHRI RAJIV KHANDELWAL RESPONDENT BY: SHRI S.K. BEPARI DATE OF HEARING: 27.09.2018 DATE OF PRONOUNCEMENT: 14.11.2018 O R D E R PER SAKTIJIT DEY, JM THIS APPEALBY THE ASSESSEEIS DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, THANEDATED 22.11.2016AND IT RELATES TO A.Y. 2013-14. 2. THE DISPUTE IN THE PRESENT APPEAL IS CONFINED TO DI SALLOWANCE OF AN AMOUNT OF ` 31,02,639/- ON ACCOUNT OF INTEREST ON BANK OVERDRAF T. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PA RTNERSHIP FIRM, IS A DEALER IN THREE-WHEELER VEHICLES. FOR THE ASSESSMEN T YEAR UNDER DISPUTE THE ASSESSEE FILED ITS RETURN OF INCOME N 30.09.201 3 DECLARING TOTAL INCOME AT ` 11,79,996/-. DURING ASSESSMENT PROCEEDINGS THE ASSE SSING OFFICER (AO), WHILE VERIFYING THE FINANCIAL STATEMENTS OF T HE ASSESSEE, NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 57,01,934/- TOWARDS OVERDRAFT FACILITY AVAILED FROM BANK. ON VERIFYING THE ACCOUN TS OF THE ASSESSEE HE FOUND THAT IT HAS ADVANCED INTEREST FREE LOANS OF ` 2,12,02,687/- TO M/S. SURESH ENTERPRISES, ` 16,25,955/- TO M/S. SURESH COMMERCIAL VEHICLE AND ` 1,79,371/- TO SHRI KISHORE K SEJWANI. THUS, THE AO FOUND THAT THE TOTAL ITA NO. 402/MUM/2017 M/S. SURESH AUTO DEAL 2 INTEREST FREE LOANS ADVANCED TO SISTER CONCERN/RELA TED PARTIES AMOUNTED TO ` 2,30,08014/-. THEREFORE, HE CALLED UPON THE ASSESSE E TO EXPLAIN WHY INTEREST DEBITED TO PROFIT & LOSS ACCOUNT ON ACCOUN T OF OVERDRAFT FACILITY AVAILED FROM BANK SHOULD NOT BE DISALLOWED UNDER SE CTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT') AS THE INTEREST-BEARING FUNDS WAS NOT WHOLLY AND EXCLUSIVELY UTILISED FOR THE PUR POSE OF ASSESSEES BUSINESS. IN RESPONSE, IT WAS SUBMITTED BY THE ASSE SSEE THAT IN THE EARLIER YEARS ASSESSEE WAS RECOVERING INTEREST @7% FROM SIS TER CONCERNS. HOWEVER, FROM THE CURRENT YEAR THE ASSESSEE DECIDED TO PURCH ASE KITS, CYLINDERS, ETC. FROM THEM WHICH WAS PROVIDED WITH AUTORICKSHAW AT T HE TIME OF SALE AND THE AMOUNT REPRESENTING PURCHASE OF THE ABOVE SAID ITEMS WOULD BE ADJUSTED AGAINST THE LOAN GIVEN. IT WAS SUBMITTED, IN THIS PROCESS THE LOAN ADVANCED BY THE ASSESSEE TO THE SISTER CONCERNS RED UCED FROM ` 2,84,45,020/- TO ` 2,12,02,687/- DURING THE YEAR. IT WAS FURTHER SUBMITTED, THE AMOUNT ADVANCED TO M/S. SURESH COMME RCIAL VEHICLE AND SHRI KISHORE K SEJWANI ARE NOTHING BUT ADVANCE AGAI NST MATERIAL TO BE PURCHASED. THE AO, HOWEVER, DID NOT FIND MERIT IN T HE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF ` 31,03,639/- ON ACCOUNT OF INTEREST FREE LOAN GIVEN TO M/S. SURESH ENTERPRISES. BEING A GGRIEVED OF SUCH DISALLOWANCE THE ASSESSEE PREFERRED APPEAL BEFORE T HE LEARNED CIT(A). THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD OBSERVED TH AT THE ASSESSEE HAD NOT PURCHASED ANY GOODS/ITEMS FROM M/S. SURESH ENTERPRI SES DURING THE YEAR UNDER CONSIDERATION. HENCE, THE CONTENTION OF THE A SSESSEE THAT LOAN ADVANCED WAS TO BE ADJUSTED AGAINST PURCHASES IS IN CORRECT. HE FURTHER OBSERVED THAT APART FROM ONE TRANSACTION OF SALE WI TH THE AFORESAID SISTER CONCERN NO OTHER TRANSACTION OR PURCHASE OF SALE WA S MADE DURING THE YEAR. AS REGARDS THE ALTERNATE CONTENTION OF THE AS SESSEE THAT THE LOAN ADVANCED TO SISTER CONCERN WAS OUT OF INTEREST FREE FUNDS AVAILABLE, THE LEARNED CIT(A) OBSERVED, SUCH CLAIM OF THE ASSESSEE WAS NOT SUPPORTED BY COGENT EVIDENCE. THE CIT(A) OBSERVED, THE PROFIT GE NERATED BY THE ASSESSEE COULD NOT HAVE ENABLED THE ASSESSEE TO ADVANCE LOAN OF ` 2.12 CRORES TO THE SISTER CONCERNS. THUS, HE CONCLUDED THAT THE FUND O BTAINED BY UTILISING THE ITA NO. 402/MUM/2017 M/S. SURESH AUTO DEAL 3 OVERDRAFT WAS PROVIDED AS INTEREST FREE ADVANCE TO THE SISTER CONCERNS. ACCORDINGLY, HE SUSTAINED THE DISALLOWANCE MADE UND ER SECTION 36(1)(III) OF THE ACT. 4. THE LEARNED AUTHORISED REPRESENTATIVE (A.R.) REITER ATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES SUBMITTED , THE LOAN/OVERDRAFT FACILITY AVAILED FROM THE BANK WAS MOSTLY UTILISED FOR THE PURPOSE OF ASSESSEES BUSINESS. DRAWING OUR ATTENTION TO A CHA RT SHOWING LOAN/OVERDRAFT FACILITIES AVAILED FROM BANK AND UTI LISATION OF FUND, THE LEARNED A.R. SUBMITTED THAT THE MAJOR PART OF THE L OAN WAS UTILISED IN BUSINESS ASSETS HENCE NO DISALLOWANCE SHOULD HAVE B EEN MADE. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSION, THE LEARNED A.R. SUBMITTED, SINCE 86% OF LOAN/OVERDRAFT FACILITY AVAILED FROM BANK WA S UTILISED IN BUSINESS ASSETS AS SHOWN IN THE BALANCE SHEET, PRORATA DISAL LOWANCE HAS TO BE MADE, WHICH ACCORDING TO THE ASSESSEE WORKS OUT TO ` 7,98,270/-. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE (D.R.) STRO NGLY RELYING UPON THE OBSERVATIONS OF THE AO AND CIT(A) SUBMITTE D, THE ASSESSEE ITSELF HAVING FURNISHED A WORKING OF DISALLOWANCE AT ` 31,02,639/- DURING THE ASSESSMENT PROCEEDINGS AND THE AO HAVING DISALLOWED THE INTEREST PAYMENT AS PER SUCH WORKING, NO FURTHER RELIEF CAN BE GRANTED TO THE ASSESSEE. 6. I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE LEARNED A.R. BY FURNISHING A WORKING OF LOAN\OVERDRAFT AND ITS UTILISATION IN BUSINESS ASSET HASTRIED BEFORE ME TO DEMONSTRATE THAT AS AGAINST INTEREST BEARING FUNDS AVAILED FROM BANK AM OUNTING TO ` 383.31 LAKHS, THE ASSESSEE HAS UTILISED AN AMOUNT OF ` 328.79 LAKHS IN BUSINESS ASSETS AS SHOWN IN THE BALANCE SHEET. THUS, IT HAS BEEN SUBMITTED BEFORE ME THAT INTEREST DISALLOWANCE, IF AT ALL, HAS TO BE MADE ON PRORATA BASIS BY RESTRICTING IT TO 14% OF THE AMOUNT CLAIMED AS DEDU CTION SINCE THE ASSESSEE HAS UTILISED 86% OF INTEREST-BEARING FUNDS IN BUSINESS ASSETS. IT IS EVIDENT, NEITHER THE AFORESAID CLAIM NOR THE WOR KING AS SUBMITTED BY THE LEARNED A.R. BEFORE ME WAS FURNISHED EITHER BEFORE THE AO OR BEFORE THE ITA NO. 402/MUM/2017 M/S. SURESH AUTO DEAL 4 CIT(A). THEREFORE, THE ASSESSEES CLAIM THAT 86% OF INTEREST-BEARING FUND WAS USED IN BUSINESS ASSETS REQUIRES FACTUAL VERIFI CATION. IN CASE, THE AFORESAID CLAIM OF THE ASSESSEE IS FOUND TO BE CORR ECT, DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF TH E ACT HAS TO BE MADE ON PRO RATA BASIS INSOFAR AS IT RELATES THE AMOUNT OF INTEREST-BEARING FUND ADVANCED AS INTEREST FREE LOAN TO SISTER CONCERNS. THEREFORE, FOR THE LIMITED PURPOSE OF VERIFYINGASSESSEES CLAIM OF UTILISATION OF 86% OFINTEREST-BEARING FUNDS IN BUSINESS, I RESTORE THE ISSUE TO THE FILE OF THE AO. IN CASE THE ASSESSEES CLAIM IS FOUND TO BE CORRECT, THE DISALL OWANCE OF INTEREST EXPENDITURE SHOULD BE RESTRICTED TO 14% OF THE AMOU NT CLAIMED AS DEDUCTION. GROUNDS ARE ALLOWED FOR STATISTICAL PURP OSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER, 2018. SD/ - (SAKTIJIT DEY) JUDICIALMEMBER MUMBAI, DATED: 14 TH NOVEMBER, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -1, THANE 4. THE PR. CIT- 1, THANE 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.