RAJENDRA B. MEHTA, MUMBAI V. ACIT,CIR 17(3), MUMBAI

ITA 4125/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4513 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: DR DANIEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.4125/M/2017 ASSESSMENT YEAR: 2013-14 SHRI RAJENDRA B. MEHTA, 12, C.L. SHAH FAMILY TRUST, BEHIND SANT TUKARAM MANDIR, CARNAC SIDING ROAD, MUMBAI 400 009 PAN: AAHPM0155B VS. ACIT, CIRCLE 17(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : DR. DANIEL, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 20.02.2019 DATE OF PRONOUNCEMENT : 22.03.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 08.03.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.21,90,352/- BY C IT(A) MADE BY THE AO U/S 36(1)(III) OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE BEING D EALER IN STEEL, SHARES, IMPORT LICENSES AND BROKER & COMMISS ION AGENT FILED THE RETURN OF INCOME ON 30.11.2013 DECLARING AN INCOME OF RS.67,09,480/-.THE CASE WAS SELECTED FOR SCRUTINY U NDER CASS ITA NO.4125/M/2017 SHRI RAJENDRA B. MEHTA 2 AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED U PON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED FROM THE DETAILS AND INFORMATION FILED BY THE ASSES SEE THAT ASSESSEE RECEIVED INTEREST AT 12% WHEREAS BORROWED MONEY AT VARYING RATES VARYING FROM 12% TO 21%. THE AO CALCU LATED THE DIFFERENCE BETWEEN THE EXCESS OF INTEREST PAID OVER INTEREST RECEIVED AT RS. 21,90,352/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT THERE IS NO COMM ERCIAL EXPEDIENCY FOR THE SAME. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) ALSO UPHELD THE ORDER OF AO BY DISMISSING THE APPEAL OF THE ASSESSE E BY REJECTING THE CONTENTIONS OF THE ASSESSEE THAT INTEREST WAS N OT PAID TO ANY RELATED PARTY BUT TO FINANCE COMPANIES AND PRIVATE LENDERS DURING DIRE BUSINESS NEEDS. 5. THE LD AR VEHEMENTLY SUBMITTED BEFORE THE BENCH THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING. SO TH E MONEY IS BORROWED AND LENT IN THE ORDINARY COURSE OF BUSINES S. THE LD AR SUBMITTED BEFORE THE BENCH THAT OUT OF TOTAL INTERE ST PAID OF RS.73,43,141/-, THE ASSESSEE HAS SUO MOTTO DISALLOW ED INTEREST TO THE TUNE OF RS. 35,33,689/- U/S 36(1)(III) OF TH E ACT . THE LD AR ALSO PLACED BEFORE THE BENCH THE COPIES OF THE C OMPUTATION OF TOTAL INCOME IN WHICH DISALLOWANCE WAS MADE AND ALS O BALANCE SHEET AND PROFIT AND LOSS ACCOUNT ANNEXURE-I SCHEDU LE OF INTEREST AND FINANCE CHARGES WHICH SHOWS THAT INT EREST ON UNSECURED LOAN OF RS.73,43,141/- WAS CHARGED TO TH E PROFIT AND LOSS ACCOUNT. THE LD AR CONTENDED THAT WHEN THE ASS ESSEE HAS SUO MOTTO DISALLOWED INTEREST TO THE EXTENT OF RS.3 5,33,689/- THE FURTHER ADDITION/DISALLOWANCE TO THE TUNE OF RS. 21 ,90,352/- OUT ITA NO.4125/M/2017 SHRI RAJENDRA B. MEHTA 3 OF INTEREST TO UNSECURED CREDITORS WOULD BE WRONG AND WITHOUT ANY JUSTIFICATION MORE SO WHEN THE INTEREST AT HIGH ER RATE WAS PAID TO THE OUTSIDERS AND NOT TO THE RELATED PARTIE S. THE LD AR ALSO CONTENDED THAT NO DISALLOWANCE WAS IN MADE IN THE SUBSEQUENT YEARS EVEN IN THE SCRUTINY PROCEEDINGS B Y FILING ASSESSMENT ORDER FOR THE YEAR 2014-15. THE LD AR IN ORDER TO PROVE HIS CONTENTIONS FILED BEFORE THE BENCH THE CO PIES OF THE ORDER AND ANNUAL ACCOUNTS. THE LD AR ALSO DISTINGUI SHED THE DECISIONS RELIED BY THE REVENUE AUTHORITIES. 6. THE LD DR ON THE OTHER HAND RELIED ON THE ORDER OF AUTHORITIES BELOW BY SUBMITTING THE ASSESSEE HAS CL EARLY DIVERTED HIGH INTEREST BEARING FUNDS AT LOWER RATE OF INTERE ST WHICH WAS WITHOUT ANY BUSINESS CONSIDERATION AND THEREFORE PR AYED THAT THE ORDER OF LD CIT(A) MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS INCLUDING THE VARIOUS DECISIONS RELIED BY THE REVENUE AUTHORITIES. WE OBSERVE THAT THE ASSESSEE H AS PAID INTEREST OF RS. 73,43,141/- ON UNSECURED LOANS DURI NG THE YEAR OUT OF WHICH THE ASSESSEE HAS DISALLOWED INTEREST T O THE TUNE OF RS. 35,33,689/- U/S 36(1)(III) OF THE ACT MEANING T HEREBY THAT INTEREST WHICH WAS NOT FOR BUSINESS PURPOSES WAS NO T CLAIMED BY THE ASSESSEE. THE SAID FACT IS CLEAR FROM THE RE CORDS BEFORE US IN THE FORM OF COMPUTATION OF INCOME AND BALANCE SH EET OF THE ASSESSEE. FURTHER THE HIGH RATE OF INTEREST IS NOT PAID TO THE RELATED PERSON BUT TO UNRELATED PARTIES AND FINANCE COMPANIES FROM WHOM THE FINANCES WERE RAISED TO MEET THE EMER GENT SITUATION. THE AO HAS JUST CALCULATED THE DISALLOWA NCE AT RS.21,90,352/- BY JUST WORKING OUT THE DIFFERENCE B ETWEEN FUNDS ITA NO.4125/M/2017 SHRI RAJENDRA B. MEHTA 4 AT HIGH RATE AND LOW RATE WITHOUT ANY JUSTIFICATION . BESIDES, IN THE SUBSEQUENT YEAR AY 2014-14 THE REVENUE ACCEPTED THE INTEREST CLAIMED BY THE ASSESSEE WITHOUT MAKING ANY DISALLOWANCE U/S 36(1)(III) OF THE ACT UNDER SIMILA R FACTS AS IS APPARENT FROM THE COPY OF ASSESSMENT ORDER PLACED B EFORE US DURING THE HEARING. MOREOVER, THE DECISIONS RELIED UPON BY THE AUTHORITY BELOW ARE DISTINGUISHABLE ON FACTS. FOR E XAMPLE IN THE CASE OF CIT VS HINDUSTAN CONDUCTORS PVT. LTD. (1999 ) 240 ITR 762 (BOM) FUNDS WERE BORROWED FROM THE TRUST WHICH WAS FOUNDED BY ONE OF THE DIRECTORS BUT THIS IS NOT THE CASE BEFORE US. IN CASE OF CIT VS PUNJAB STAINLESS STEEL INDUSTR IES (2011) 137 TTJ 475 (DELHI ITAT), THE ISSUE WAS PAYMENT OF POLISHING CHARGES WHICH COULD NOT BE JUSTIFIED BY THE ASSESSE E. AFTER CONSIDERING THE FACTS OF THE CASE, WE ARE OF THE CO NSIDERED VIEW THAT THE INTEREST CHARGED BY THE ASSESSEE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND ONLY IF AT ALL THE MONE Y IS LENT AT THE LOWER RATE OF INTEREST BY BORROWING AT THE HIG HER RATE, THAT IS ONLY OUT OF BUSINESS EXIGENCY AND COMMERCIAL CONSID ERATIONS ESPECIALLY WHEN THE ASSESSEE HAS SUO MOTO DISALLOWE D INTEREST TO THE TUNE OF RS.35,33,689/-. THEREFORE IN VIEW OF O BSERVATIONS AS GIVEN ABOVE WE ARE NOT IN AGREEMENT WITH THE CONCLU SION OF THE LD CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWA NCE OF RS.21,90,352/-. 8. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.03.2019. SD/- SD/- (RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 22.03.2019. * KISHORE, SR. P.S. ITA NO.4125/M/2017 SHRI RAJENDRA B. MEHTA 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.