GOPALDAS VASUDEV CONSTRUCTION P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 4238/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79068 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP ARYA
• Keywords: Notional interest
• Section: 14A; 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI . , !'# $ $ $ $ , %& '()* , %+ ,- % # BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO4238/MUM/2011 ( . . . . / ASSESSMENT YEAR : 2007-08 M/S. GOPALDAS VASUDEV CONSTRUCTION PVT. LTD., VALECHA CHAMBERS, 4 TH FLOOR ANDHERI NEW LINK ROAD, ANDHERI (W), MUMBAI / VS. THE DCIT 8(1), AAYAKAR BHAVAN, MUMBAI-400 020 -/ %+ ./ 0 ./ PAN/GIR NO. : AAACG 1875C ( /1 / APPELLANT ) .. ( 23/1 / RESPONDENT ) /1 4 % / APPELLANT BY: SHRI SUBHASH S. SHETTY 23/1 5 4 % / RESPONDENT BY: SHRI PRADEEP ARYA 5 6+ / DATE OF HEARING :10.06.2014 7. 5 6+ / DATE OF PRONOUNCEMENT :13.06.2014 ,%8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-16, MUMBAI DT.7.3.2011 PERTAINING TO A.YR. 2007-08. 2. THE GRIEVANCES OF THE ASSESSEE ARE AS UNDER: ITA NO. 4238/M/2011 2 1. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMI NG THE DISALLOWANCE OF INTEREST PAID ON THE BORROWED FUNDS MADE BY THE ASSESSING OFFICER, ON ACCOUNT OF THE LOAN GIVEN OUT OF THE BORROWED FUNDS BY THE APPELLANT COMPANY TO ITS SUBS IDIARY COMPANY, NAMELY JUHU BEACH REAL ESTATES PVT. LTD., AS NO INTEREST WAS CHARGED TO THE SUBSIDIARY COMPANY WHIC H WAS FINANCIALLY NOT SOUND DURING THE RELEVANT YEAR AND THEREFORE WAS NOT ABLE TO PAY SUCH INTEREST, SPECIALLY IN LIG HT OF THE FACT THAT THE SAID LOAN, FURTHER LENT BY THE APPELLANT C OMPANY TO A COMPANY NAMELY VARUN CEMENTS LTD., BECAME BAD AND N ON RECOVERABLE FROM THAT COMPANY WHICH GOT REGISTERED UNDER BIFR. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G THE DISALLOWANCE OF INTEREST OF RS. 11,05,742/- CALCULA TED AT THE RATE OF 11% BEING THE NOTIONAL INTEREST ON LOAN GIV EN TO THE APPELLANT COMPANYS SUBSIDIARY COMPANY AS DISALLOWE D BY THE ASSESSING OFFICER, THOUGH THERE WAS NO CHANCE O F RECOVERING ANY INTEREST FOR THE YEAR FROM THE SUBSI DIARY COMPANY DUE TO ITS BAD FINANCIAL CONDITION DURING T HE YEAR. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G THE ADDITION OF RS 5,44,500/- MADE BY THE ASSESSING OFF ICER AS ACCRUED INTEREST ON A STICKY LOAN GIVEN TO SECUREX CAPITAL MARKET LTD., WHICH THE APPELLANT COMPANY WAS NOT AB LE TO RECOVER AND THEREFORE NO INTEREST WAS CHARGED ON SU CH LOAN BY IT; INSPITE OF THE FACT THAT IT WAS BOUGHT TO HI S HONOURS NOTICE THAT NO INTEREST HAS BEEN RECEIVED FROM THE SAID COMPANY FOR THE YEAR, EVEN TILL SUCH TIME THE APPEA L WAS BEING HEARD. 4. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMIN G THE ADDITION OF RS 5,44,500/- AS ACCRUED INTEREST ON A STICKY LOAN GIVEN TO SECUREX CAPITAL MARKET. LTD., THOUGH ACCOR DING TO THE APPELLANT COMPANY, THE SAID INTEREST COULD NOT BE PRUDENTLY OR EVEN REASONABLY CONSIDERED TO ACCRUE D UE TO THE FINANCIAL DIFFICULTIES FACED BY THE BORROWER CO MPANY AND NON RECEIPT OF THE SAME TILL DATE. 5. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT DEALI NG WITH GROUNDS OF APPEAL NUMBER 5 IN RESPECT OF DISALLOWANCE/ADDITION OF INTEREST OF RS. 16,65,520/ - ITA NO. 4238/M/2011 3 INCLUDING DISALLOWANCE OF INTEREST U/S 14A AMOUNTIN G TO RS.15,548/-, AS AGAINST TOTAL INTEREST PAID OF RS.1 4,12,022/- AND THE PLEA OF THE APPELLANT THAT THE TOTAL INTERE ST ADDED/DISALLOWED SHOULD NOT EXCEED THE AMOUNT OF IN TEREST PAID OF RS.14,12,022/- BY THE APPELLANT. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE STATED THAT HE IS NOT PRESSING GROUND NO. 5, WHICH IS ACCORDINGLY D ISMISSED AS NOT PRESSED. 4. ISSUES RAISED BY GROUND NO. 1 TO 4 ARE IDENTICAL TO THE ISSUE RAISED IN ITA NOS. 80 & 81/MUM/2011 WHICH WAS HEARD BY US ON 09.06.2014. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HIS ARGUMENTS IN THOSE APPEALS MAY BE CONSIDERED HERE ALSO. 5. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED THAT THE DECISION IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS APPEALS MAY BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. WE FIND THAT IDENTICAL ISSUES WERE CONSIDERED BY US IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2005-06 & 2006-07 IN ITA NOS. 80 & 81/MUM/2011 WHEREIN THE FIRST GRIEVANCE OF THE ASSE SSEE WAS DECIDED AS UNDER: WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSEES RESERVE AND SHARE CAPI TAL ARE AT RS. 7,01,253/-. THE UNDISPUTED FACT IS THAT THE AS SESSEE HAS SECURED LOAN AT RS. 1,90,75,795/- AND UNSECURED LOA N AT RS. 70,79,754/-. THE ASSESSEE HAS PAID TOTAL INTEREST ON ITS BORROWINGS AT RS. 33,67,306/-. THUS IT IS CLEAR TH AT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUND TO ITS SUBSIDIARY. THE PAYMENT OF INTEREST ON THE AMOUNT NOT USED IN T HE BUSINESS CANNOT BE REGARDED AS BUSINESS EXPENDITUR E AS THE ITA NO. 4238/M/2011 4 BUSINESS DOES NOT DERIVE ANY BENEFIT BY THE OUTGOIN G BY WAY OF AN INTEREST ON AN AMOUNT WHICH IS NO LONGER IN T HE BUSINESS BUT HAD BEEN DIVERTED FROM THE BUSINESS. O NCE THE ASSESSEE HAD DECIDED TO LEND A SUBSTANTIAL PART OF INTEREST BEARING FUND TO ITS RELATED PARTY, WITHOUT INTEREST , IT WAS CLEARLY NOT A BUSINESS PURPOSE. IN OUR CONSIDERED VIEW, THE INTEREST PAID ON THE CAPITAL BORROWED TO THE EXTENT OF THE AMOUNT DIVERTED CAN NO LONGER BE AN ITEM OF EXPENDI TURE WHICH CAN BE CLAIMED FOR DEDUCTION AS AN ITEM OF BU SINESS EXPENDITURE. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A), THE DISALLOWANCE IS CONFIRMED. GROUND NO. 1 & 2 ARE ACCORDINGLY DISMISSED. 8. THE SECOND GRIEVANCE OF THE ASSESSEE WAS DECIDED AS UNDER: THE NEXT GRIEVANCE RELATES TO THE ADDITION OF RS.7 ,42,500/- ADMITTEDLY, THE ASSESSEE HAS ADVANCED LOAN OF RS. 49,50,000/- TO M/S. SECUREX CAPITAL MARKETING LTD., IN THE FORM OF INTER CORPORATE DEPOSIT IN THE YEAR 2003. IT IS ALSO NOT IN DISPUTE THAT THE SAID ICD CARRIED INTEREST A T THE RATE OF 15% PER ANNUM. MEANING THEREBY THAT AT THE END OF THE ACCOUNTING YEAR, THE INTEREST ACCRUED TO THE ASSESS EE AT THE RATE OF 15% PER ANNUM AS PER THE CONTRACTUAL LIABIL ITY. NOTHING HAS BEEN BROUGHT ON RECORD WHICH COULD SUGG EST THAT BEFORE THE CLOSE OF THE ACCOUNTING YEAR SOME A GREEMENT WAS ENTERED BETWEEN THE PARTIES FOR NOT CHARGING TH E INTEREST FOR THE YEAR UNDER CONSIDERATION. AS THE ICD WAS C ARRYING 15% INTEREST AND AS THE ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING, THE RIGHT TO RECEIVE THE INTE REST HAS ACCRUED ON THE LAST DAY OF THE ACCOUNTING YEAR. SI NCE THE ASSESSEE HAS NOT INCLUDED THE INTEREST ON ACCRUAL B ASIS, THE AO HAS RIGHTLY ADDED THE INTEREST OF RS. 7,42,500/- ON ACCRUAL BASIS. WE, THEREFORE, DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). RESPECTFULLY FOLLOWING OUR OWN DECISION IN ASSESSE ES OWN CASE, WE DISMISS THE APPEAL FILED BY THE ASSESSEE. ITA NO. 4238/M/2011 5 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE, 2014 ,%8 5 . +% 9 :, ; 13.6.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# /VICE PRESIDENT %+ ,- / ACCOUNTANT MEMBER MUMBAI; :, DATED 13 TH JUNE, 2014 . . ./ RJ , SR. PS ,%8 ,%8 ,%8 ,%8 5 55 5 26' 26' 26' 26' =%'.6 =%'.6 =%'.6 =%'.6 / COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. '?< 26 , , / DR, ITAT, MUMBAI 6. < @ / GUARD FILE. ,%8 ,%8 ,%8 ,%8 / BY ORDER, 3'6 26 //TRUE COPY// ! !! ! / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI