WHITE- SMOKE TRADING P.LTD, MUMBAI V. ITO WD 3, PANVEL, PANVEL

ITA 4218/MUM/2013

• Counselvise Citation: 421819914 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Assessee Lawyers: VIMAL PUNMIYA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & VIVEK VARMA , J M ITA NO. 4218 / MUM/20 1 3 ( ASSESSMENT YEAR : 200 9 - 10 ) M/S WHITE SMOKE TRADING PVT. LTD. , C/O VIMAL PUNMIYA & CO., CHARTERED ACCOUNTANTS,501, NIRANJAN, 99, MARINE DRIVE, MUMBAI - 400 002 VS. ITO, WARD - 3, PANVEL PAN/GIR N O. : A A ACW 8375 P ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI VIMAL PUNMIYA /REVENUE BY : SHRI R.N.DSOUZA DATE OF HEARING : 1 8 TH NOVEMBER , 201 4 DATE OF PRONOUNCEMENT 28 TH NOVEMBER , 201 4 O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER CIT(A) DATED 30 - 1 - 2013 , IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) OF THE I.T. ACT, FOR THE ASSESSMEN T YEAR 200 9 - 10 . 2 . THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO CIT(A) S ACTION IN CONFIRMING THE ADDITION OF RS.20,34,078/ - ON ACCOUNT OF INTEREST AND THEREBY WRONGLY ALLEGED THAT THE SAID INTEREST BEARING FUNDS ARE UTILIZED FOR GIVING INTEREST FREE LOAN AND ADVANCE. ITA NO. 4218 / 1 3 2 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ACQUIRING BY PURCHASE, LEASE OR OTHERWISE FOR PURPOSE OF THE COMPANY REAL ESTATE PROPERTY, RIGHT, PRIVILEGE, AN D IN PARTICULAR ANY LAND BUILDING. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO DISALLOWED INTEREST ON THE PLEA THAT ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS FOR GRANTING INTEREST FREE LOANS. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTI ON OF THE AO BY OBSERVING THAT ASSESSEE SHOULD HAVE USED THE INTEREST FREE LOANS FOR GIVING INTEREST BEARING ADVANCES. 4 . FROM THE RECORD, WE FOUND THAT D URING THE YEAR ASSESSEE HAS TAKEN UNSECURED LOAN FROM INDIABULLS FINANCIAL SERVICES LTD. OF RS. 135,0 0,00,000/ - @ 14% OUT OF WHICH RS.75, 00 , 00 , 000 / - WAS GIVEN AS LOAN TO NEWFLIGHT REAL ESTATE PVT LTD @ 14% AND RS.60, 00 , 00 , 000 / - TO DELICIOUS PROPERTIES PVT. LTD. @ 14% THERE IS DIRECT NEXUS BETWEEN THE LOAN TAKEN AND GIVEN. THE A SSESSEE HAS INCURRED INTERE ST EXPENSE OF RS.1, 00 ,10,959/ - ON THE UNSECURED LOAN TAKEN FROM INDIABULLS FINANCIAL SERVICES LTD. ON WHICH TDS OF RS.2097814/ - WAS DEDUCTED ON 31/3/2009. TDS WAS ALSO DEDUCTED OUT OF INTEREST INCOME RECEIVED/ACCRUED IN FAVOUR OF ASSESSEE IN RESPECT OF LO ANS AND ADVANCES GIVEN BY ASSESSEE. 5 . THE ASSESSEE HAS RECEIVED INTEREST FREE ADVANCES FROM NITCO LTD. AMOUNTING TO RS. 4,22,00,000/ - FOR PROPOSED ACQUISITION OF PROPERTIES NEAR ALIBAG. THE SAME AMOUNT WAS USED IN GIVING INTEREST FREE ADVANCE TO ACCLAIM TRADING PVT. LTD. FOR THE PURPOSE OF THE PROPOSED ACQUISITION. ITA NO. 4218 / 1 3 3 THE RESPECTIVE DATES OF TAKING LOAN FROM NITCO LTD. AND I NDIABULLS , AND ADVANCING LOAN TO ACCLAIM, DELICIOUS & NEWFLIGHT WAS AS UNDER : - DATE RECEIVED FROM AMOUNT PAG E DATE GIVEN TO AMOUNT PA GE 24.12.08 NITCO LTD. 4,22,00,000 9 26.12.08 ACCLAIM 4,22,222 9 24.02.09 INDIABULLS 60,00,00,000 7 24.02.09 DELICIOUS 60,00,00,000 7 26.03.09 INDIABULLS 75,00,00,000 7 26.03.09 NEWFLIGHT 75,00,00,000 7 IT IS CLEAR FROM THE ABOVE THAT ASSESSEE HAD A DVANCED LOAN TO ACCLAIM ON 26 - 12 - 2008 ONLY AFTER RECEIPT OF INTEREST FREE ADVANCES FROM NITCO LTD. ON 24 - 12 - 2008 . THE AO HAS WRONGLY OBSERVED THAT ADVANCE TO ACCLAIM WAS GIVEN OUT OF INTEREST BEARING FUNDS RECEIVED FROM INDIABULLS, INSOFAR AS ADVANCE WAS R ECEIVED FROM INDIABULLS ON 24.2.2009 I.E. MUCH AFTER THE DATE OF ADVANCE GIVEN TO ACCLAIM ON 26.12.2008. HOWEVER, THE ADVANCE RECEIVED FROM INDIABULLS WERE USED ON THE VERY SAME DATE FOR GIVING ADVANCE TO D ELICIOUS AT AN INTEREST OF 14%. 6 . WE HAD VERIFIED THE AUDITED P&L ACCOUNT AND BALANCE SHEET PLACED ON RECORD, WHEREIN WE FOUND THAT INTEREST BEARING LOANS TAKEN FROM INDIABULLS AMOUNTING TO RS. 1.35 CRORES WERE UTILIZED FOR GIVING INTEREST BEARING ADVANCE TO M/S DELICIOUS RS. 60 LAKHS AND NEWFLILGHT RS. 75 LAKHS. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS RECEIVED INTEREST INCOME OF RS. 1.00 CRORES AND INCURRED INTEREST EXPENDITURE OF RS. 1.00 CRORES, WHICH MEANS ASSESSEE HAS NOT USED INTEREST BEARING ADVANCES FOR GIVING INTEREST BEARING LOANS. HOWEVER, THE CIT(A) IN HIS ORDER ALSO OBSERVED THAT ASSESSEE HAS UTILIZED INTEREST BEARING LOANS FOR GIVING INTEREST BEARING ADVANCES, HOWEVER, ON THE PLEA THAT ASSESSEE SHOULD HAVE USED INTEREST FREE LOANS FOR GIVING INTEREST BEARING ADVANCES, THE CIT(A) CONFIRME D THE DISALLOWANCE OF INTEREST WHICH IS NOT JUSTIFIED. ITA NO. 4218 / 1 3 4 ASSESSEE IS AT LIBERTY TO MANAGE ITS INTEREST FREE FUNDS. SINCE IN THE INSTANT CASE INTEREST FREE FUNDS WERE RECEIVED FOR SPECIFIC PURPOSE OF ADVANCING FOR ACQUISITION OF PROPERTIES NEAR ALIBUG, THEREF ORE, ASSESSEE HAS ADVANCED THIS MONEY TO M/S ACCLAIM FOR ACQUISITION OF SAID PROPERTY. SINCE THE AMOUNT SO ADVANCED WAS NOT OUT OF INTEREST BEARING FUNDS , THERE IS NO JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES FOR DECLINE OF CLAIM OF INTEREST ON TH E LOANS WHICH WERE USED ONLY FOR GIVING INTEREST BEARING ADVANCES. THE AMOUNT RECEIVED FROM NITCO LTD. AND SUBSEQUENTLY ADVANCE TO ACCLAIM TRADING PVT. LTD. IS IN THE NATURE OF ADVANCE FOR THE SPECIFIC PURPOSE OF PURCHASING PROPERTY NEAR ALIBUG AND NOT IN THE NATURE OF LOAN. THEREFORE, NEITHER ANY INTEREST WAS PAID ON SUCH ADVANCE NOR ANY INTEREST WAS RECEIVED ON THE SAID ADVANCE. HOW TO MAKE USE OF THE FUNDS AVAILABLE AT HAND IS THE PREROGATIVE OF THE ASSESSEE AND THE SAME CANNOT BE CHALLENGED. REVENUE CA NNOT PROPOSE THE END USE OF FUNDS BY THE ASSESSEE HAD , HENCE THE CONTENTION OF THE CIT(A) THAT THE AVAILABLE INTEREST FREE FUNDS SHOULD HAVE BEEN ADVANCED ONLY AFTER CHARGING INTEREST IS NOT SUSTAINABLE . IT IS PRUDENT DECISION OF THE ASSESSEE AS TO HOW HE ACQUIRES FUNDS AND SUBSEQUENTLY ALSO AS TO ITS APPLICATION. THE INTEREST FREE FUNDS ACQUIRED BY THE ASSESSEE CAN BE UTILIZED BY HIM FOR GIVING INTEREST FREE ADVANCE IN THE COURSE OF BUSINESS, THERE IS NO JUSTIFICATION FOR REVENUE TO DIRECT THE ASSESSEE TO UTILIZE SUCH INTEREST FREE ADVANCE ONLY FOR GIVING INTEREST BEARING LOANS. FURTHERMORE, NO TAX CAN BE LEVIED ON THE NOTIONAL INCOME WHICH HAS NEITHER BEEN EARNED NOR ACCRUED. IN THE INSTANT CASE, SINCE ASSESSEE HAS USED INTEREST FREE FUNDS FOR ADVANCING F OR ACQUISITION OF LAND, THERE IS NO JUSTIFICATION FOR DISALLOWING ITA NO. 4218 / 1 3 5 INTEREST PAID ON INTEREST BEARING FUNDS WHICH WERE UNDISPUTEDLY UTILIZED BY HIM FOR GIVING INTEREST BEARING ADVANCE ONLY. 7 . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ORDER OF L OWER AUTHORITIES. ACCORDINGLY, WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 / 11/ 201 4 . 28 /11/ 2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 28 / 11 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR ) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//