HARSHAD F. SHETH, MUMBAI V. ITO 16(2)(2), MUMBAI

ITA 4209/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8933 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 30-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 23-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHATURBHUJ DAS
• Assessee Lawyers: B V JHAVERI
• Keywords: Onus to prove; Revenue expenditure
• Section: 143(3); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI , . . BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER / AND , . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 4208/MUM/2011 / ASSESSMENT YEAR 2003-04 SHRI HARSHAD F. SHETH, 12-A, MANEK, 11, L.D. RUPAREL MARG, MUMBAI 400 006. PAN: AAHPS 4577 P VS. I.T.O 16(2)(1), MATRU MANDIR, TARDEO ROAD, MUMBAI - 400 007. . / ITA NO. 4209/MUM/2011 / ASSESSMENT YEAR 2005-06 SHRI HARSHAD F. SHETH, 12-A, MANEK, 11, L.D. RUPAREL MARG, MUMBAI 400 006. PAN: AAHPS 4577 P VS. I.T.O 16(2)( 2 ), MATRU MANDIR, TARDEO ROAD, MUMBAI - 400 007. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI B.V. JHAVERI ! # ' / RESPONDENT BY : SHRI CHATURBHUJ DAS # $%& / DATE OF HEARING : 30 -08-2012 '( # $%& / DATE OF PRONOUNCEMENT : 05-09-2012 )* / O R D E R PER RAJENDRA, A.M. THE FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY TH E APPELLANT AGAINST THE ORDERS OF CIT(A)-28, MUMBAI DTD. 28-04-2011 & DTD. 01-03-2011 RESPECTIVELY: ITA NO. 4208/MUM/2011 ITA NO. 4209/MUM/2011 SHRI HARSHAD F. SHETH 2 A.Y. 2003-04 GROUNDS OF APPEAL DISALLOWANCE OF INTEREST OF RS. 1,02,931/- OUT OF T HE NET INTEREST PAID OF RS. 3,64,977/- 1.THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF INTEREST OF RS. 1,02,931/- OUT OF THE NET INTEREST PAID OF RS. 3,64,977/- ON THE GROUND THAT THE APPELLANT HAS NOT ESTABLISHED THE NEXUS BETWEEN THE ADVANCES RECEIVED OF RS. 4,15,000/- FROM M/S. DEEPAK HARDWARE AND RS. 1,50,0 00/- FROM SHRI JITENDRA VRAJLAL DOSHI, WHICH WAS CLAIMED TO HAVE BEEN ADVANCED TO T HE PROPRIETARY CONCERN OF THE ASSESSEES HUF, VIZ., M/S. CHETAN STEEL CO. 2. THE ORDER OF THE COMMISSIONER (APPEALS) IS BAD I N LAW AND WITHOUT JURISDICTION. 2. THE ASSESSEE AN INDIVIDUAL, FILED HIS RETURN OF INC OME ON 27-10-2003 DECLARING TOTAL INCOME OF RS. 6,90,980/-. ASSESSME NT WAS FINALISED ON 24-03-2006 U/S. 143(3) OF THE INCOME TAX ACT, 1961 (ACT) BY TH E ASSESSING OFFICER (AO) DETERMINING THE TOTAL INCOME AT RS. 18,64,940/-. D URING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT, THE ASSESSEE HAD PAID TOTAL INTEREST OF RS. 3,78,003/- INCLUDING INTEREST OF RS. 3,73,246/- PAID TO THE PERSONS NOTED U/S. 40 A(2)(B) OF THE ACT, THAT HE HAD RECEIVED INTEREST OF RS.13,026/-, THAT THE ASSESSEE HAD DEBITED NET AMOUNT OF RS. 3,64,977/- TO THE P&L A/C. AO ALSO NOTICED THAT TH E ASSESSEE HAD SHOWN AN AMOUNT OF RS. 7,94,623/- AS ADVANCE RECOVERABLE FROM M/S. CHETAN STEEL CO., AT THE END OF THE YEAR UNDER CONSIDERATION, THAT THE ASSESSEE HAD NOT SHOWN INTEREST RECEIVED ON THE SAID AMOUNT, THAT M/S. CHETAN STEEL CO.,WAS THE PROPRIET ARY CONCERN OF THE ASSESSEES HUF. AO MADE ENQUIRY IN THIS REGARD AND FINALLY HE LD THAT THE INTEREST FREE ADVANCES GIVEN EXCEEDED THE INTEREST FREE DEPOSITS CLAIMED T O HAVE BEEN RECEIVED, THAT THE ASSESSEE HAD ALSO SHOWN ADVANCES RECOVERABLE FROM M /S. K.C. ENTERPRISES, THAT ASSESSEE HAD NOT CHARGED ANY INTEREST ON THIS AMOUN T ALSO, THAT ASSESSEE DID NOT HAVE SUFFICIENT INTEREST FREE DEPOSITS FOR ADVANCING INT EREST FREE LOANS FROM M/S. CHETAN STEEL CO.,, THAT THE ASSESSEE HAD NOT PROVED THAT E NTIRE AMOUNTS BORROWED ON WHICH HE HAD PAID INTEREST WAS UTILIZED FOR THE PURPOSE OF H IS BUSINESS. ACCORDINGLY, OUT OF NET INTEREST OF RS. 3,64,977/- DEBITED TO P&L A/C, AN A MOUNT OF RS. 1,02,931/- WAS DIS-ALLOWED BY THE AO. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER, HE HELD THAT APPELLANT HAD NOT ESTABLISHED ANY NEXUS BETWEE N ADVANCES RECEIVED OF RS. 4.15 LAKHS (FROM M/S. DEEPAK HARDWARE CORPORATION) AND R S. 1.5 LAKHS (RECEIVED FROM SHRI JITENDRA V. DOSHI) THAT WAS CLAIMED TO HAVE BE EN ADVANCE TO M/S. CHETAN STEEL CO., THAT THE INTEREST FREE LOAN TO M/S. CHETAN STE EL CO., WAS GIVEN OUT OF INTEREST FREE DEPOSITS WAS NOT ESTABLISHED BY THE ASSESSEE, THAT ASSESSEE HAD NOT EXPLAINED THE NEXUS BETWEEN INTEREST FREE DEPOSITS AND INTEREST FREE AD VANCES IN THE SUBMISSIONS MADE TO THE AO AND ALSO DURING THE PROCEEDINGS BEFORE HIM. UPHOLDING THE ORDER OF THE AO, HE CONFIRMED DURING THE DISALLOWANCES OF THE INTERE ST TO THE EXTENT OF RS. 1,02,931/-. 4. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) SUBMI TTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID INTEREST OF RS. 3.78 LAKHS AND HAD RECEIVED INTEREST OF RS. 13,026/-, THAT THE NET INTEREST OF RS. 3.64 LAKHS WAS CLAIMED AS REVENUE EXPENDITURE, THAT THE ASSESSEE HAD HIS OWN INTEREST FREE FUNDS IN THE FORM OF CAPITAL OF ITA NO. 4208/MUM/2011 ITA NO. 4209/MUM/2011 SHRI HARSHAD F. SHETH 3 RS. 53.61 LAKHS AS ON 31-03-2003, THAT INTEREST FRE E ADVANCES GIVEN TO M/S. CHETAN STEEL CO., WAS OUT OF THE SAID CAPITAL, THAT NO POR TION OF THE INTEREST PAID ON BORROWINGS COULD BE DISALLOWED ON PRESUMPTION THAT THE BORROWED FUNDS WERE UTILIZED IN GIVING INTEREST FREE ADVANCES TO M/S. CHETAN STE EL CO., THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, ASSESSEE HAS ADVANCED LO AN OF RS. 3.84 LAKHS TO M/S. CHETAN STEEL CO., THAT NO PORTION OF INTEREST WAS D ISALLOWED IN THAT YEAR, THAT THE ASSESSEE HAD GIVEN A FURTHER LOAN OF RS. 4.10 LAKHS OUT OF HIS OWN FUNDS FOR THE PURPOSES OF INTEREST FREE ADVANCE TO M/S. CHETAN ST EEL CO., THAT ASSESSEE HAD TAKEN UN- SECURED LOAN ACCREDITING TO RS. 29.03 LAKHS, THAT O UT OF THE AFORESAID UN-SECURED LOANS, ASSESSEE HAD NOT PAID INTEREST ON THE LOAN T AKEN FROM M/S. DEEPAK HARDWARE CORPORATION (RS. 4.1 LAKHS) AND SHRI JITENDRA V. DO SHI (RS. 1.5 LAKHS) EITHER IN THE EARLIER YEAR OR IN THE SUBSEQUENT YEARS, THAT THE A SSESSEE HAD INTEREST FREE ADVANCE OF RS. 5.65 LAKHS AT HIS DISPOSAL, THAT ADVANCE GIVEN TO M/S. K.C. ENTERPRISES WAS ADVANCE BY THE ASSESSEE ON BEHALF OF NIRBAN STEEL T RADERS, THAT THE SAID ADVANCE WAS IN COURSE OF BUSINESS. 5. AR REFERRED TO PG NOS. 4,5,12 AND 15 OF THE PAPER B OOK TO SUPPORT THE SUBMISSIONS MADE BY HIM. HE RELIED UPON THE ORDER OF THE B BENCH OF ITAT, MUMBAI IN THE CASE OF M/S. MOHIT DIAMOND PVT. LTD., (ITA NO. 2097/M/2011 A.Y. 2006-07 DT. 31-07-2012). HE ALSO RELIED UPON THE C ASES OF M/S. RELIANCE UTILITY AND POWER LTD., (313 ITR 340). DEPARTMENTAL REPRESENTA TIVE (DR) SUBMITTED THAT HE WAS NO NEXUS BETWEEN THE INTEREST FREE LOANS ADVANCED B Y THE ASSESSEE AND BUSINESS CARRIED OUT BY HIM. HE RELIED UPON THE ORDERS OF T HE AO AND THE FAA. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THE BASIC ISSUE TO BE DECIDED HERE IS ABOUT TH E DIS-ALLOWANCE MADE BY THE AO WITH REGARD TO INTEREST PAYMENT. WE WOULD LIKE TO MENTION THE FACTS EMERGING FROM THE FILE. I. ASSESSEE HAD DEBITED RS. 3.78 LAKHS DURING THE A.Y. UNDER CONSIDERATION; II. HE RECEIVED INTEREST AMOUNTING TO RS. 13,026/-; III. NET INTEREST AMOUNTING TO RS. 3.64 LAKHS WAS DEBITE D TO P&L A/C; IV. RS. 3.73 LAKHS WAS PAID AS INTEREST BY THE ASSESSEE TO THE PERSONS COVERED BY SECTION 40A (2)(B) OF THE ACT; V. INTEREST AMOUNTING TO RS. 1.02 LAKHS WAS DIS-ALLOWE D BY THE AO. DIS-ALLOWANCE OF AN EXPENDITURE U/S. 37 OF THE ACT IS BASED ON CERTAIN PRINCIPLES. AS PER THE SETTLED PRINCIPLES OF LAW, BURDEN OF PROOF IS ON ASSESSEE TO PROVE THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS. BUT, ONCE HE PRODUCES NECESSARY EVIDENCE IN THIS REGARD, AO HAS TO ALLOW THAT EXPENDITURE. IF HE WANTS TO DIS-ALLOW THE SAME, BURDEN SHIFTS TO HIM F OR NOT ALLOWING THE SAID EXPENDITURE. IN THE CASE UNDER CONSIDERATION, ASSE SSEE HAD SUBMITTED THAT HE HAD SUFFICIENT FUNDS IN FORM OF CAPITAL AND INTEREST FR EE UN-SECURED LOANS. IN OUR OPINION, ASSESSEE HAD SUCCESSFULLY DISCHARGED THE BURDEN OF PROOF WITH REGARD TO ALLOWABILITY OF INTEREST EXPENDITURE. NEITHER THE AO NOR THE F AA HAD DEALT THIS ISSUE IN RIGHT PROSPECTIVE. FOR DIS-ALLOWING THE CLAIM OF THE ASS ESSEE, THEY SHOULD HAVE REBUTTED THE CLAIM WITH SOME POSITIVE EVIDENCE. CASE WAS DECIDE D AGAINST THE ASSESSEE ON THE ITA NO. 4208/MUM/2011 ITA NO. 4209/MUM/2011 SHRI HARSHAD F. SHETH 4 PRESUMPTION THAT LOANS WERE ADVANCE OUT OF THE INTE REST BEARING FUNDS. BUT THERE WAS NO BASIS FOR SUCH A PRESUMPTION. AVAILABILITY OF I NTEREST FREE LOANS AND CAPITAL ARE THE CRUCIAL DECIDING FACTORS FOR THE CASE UNDER CONSIDE RATION. WE HAVE GONE THROUGH THE CASES RELIED UPON BY THE AR ON THE MATTER OF RELIAN CE UTILITY AND POWER LIMITED, (SUPRA) HONBLE BOMBAY HIGH COURT HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN A SSESSEE SUFFICIENTLY IN EXCESS OF ITS INVESTMENT AND AT THE SAME TIME THE ASSESSEE HAS ALSO RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTE REST FREE FUNDS AVAILABLE. IN VIEW OF THE FACT THAT THE INTEREST FREE FUNDS AD VANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY ARE MUCH LESS THAN THE INTEREST FREE FUNDS AVAILABLE WITH IT IN THE SHAPE OF SHARE CAPITAL ALONG WITH RESERVE AN D SURPLUS, IN OUR CONSIDERED OPINION THERE CAN BE NO QUESTION OF SUST AINING ANY ADDITION IN THIS REGARD. SIMILAR VIEW HAS BEEN TAKEN BY THE B BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MOHIT DIAMOND PVT. LTD., (SUPRA). RESPECTFULL Y FOLLOWING THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DECIDE GROUND NO. 1 IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSE E FOR THE A.Y. 2003-04 STANDS ALLOWED. A.Y. 2005-06 GROUNDS OF APPEAL DISALLOWANCE OF INTEREST OF RS. 80,489/- OUT OF THE NET INTEREST PAID IN PROPRIETARY BUSINESS: 1.THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF INTEREST OF RS. 80,489/- OUT OF THE NET INTEREST PAID BY THE AS SESSEE ON BORROWINGS ON THE GROUND THAT THE ASSESSEE HAS NOT EXPLAINED THE NEXUS BETWE EN INTEREST FREE FUNDS AND THEIR UTILIZATION FOR THE PURPOSE OF GIVING INTEREST FREE ADVANCES. DISALLOWANCE OF INTEREST AND BANK CHARGES OF RS. 5 1,999/- AGAINST THE INTEREST INCOME RECEIVED OF RS. 35,696/-: 2.THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF INTEREST PAID BY THE ASSESSEE OF RS. 51,999/- TO HDFC BANK ON OVE RDRAFT FACILITIES AGAINST THE INTEREST INCOME RECEIVED FROM THE BANK OF RS. 35,69 6/-. 3. THE ORDER OF THE COMMISSIONER (APPEALS) IS BAD I N LAW AND WITHOUT JURISDICTION. 7. IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2005-06, FACTS AND CIRCUMSTANCES ARE IDENTICAL TO THE APPEAL FOR THE A SSESSMENT YEAR 2003-04 ONLY DIFFERENCE IS ABOUT AMOUNT OF DIS-ALLOWANCE. IN TH E A.Y. UNDER CONSIDERATION, FAA HAD CONFIRMED DISALLOWANCE OF INTEREST OF RS. 80,48 9/-. AS THE FACTS AND CIRCUMSTANCES OF THE CASE ARE SIMILAR TO THE A.Y 20 03-04, SO, FOLLOWING THE ORDER OF THAT ASSESSMENT YEAR, WE ALLOW THE APPEAL FILED BY THE AO. GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 4208/MUM/2011 ITA NO. 4209/MUM/2011 SHRI HARSHAD F. SHETH 5 ASSESSEE DID NOT PRESS GROUND NO.2. HENCE , SAME IS TREATED AS DISMISSED. APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2005-06 STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH SEPTEMBER, 2012. SD/- SD/- ( /VIJAY PAL RAO ) ( , / RAJENDRA ) ), / JUDICIAL MEMBER & ), / ACCOUNTANT MEMBER MUMBAI, -) DATE: 05 TH SEPTEMBER, 2012 TNMM )* )* )* )* # ## # $ $ $ $ .$ .$ .$ .$ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE !$ $ //TRUE COPY// )* )* )* )* / BY ORDER, / // / / 0 0 0 0 DY./ASSTT. REGISTRAR , / ITAT, MUMBAI