DCIT CIR 8(2), MUMBAI V. PLAZA HOTELS P.LTD, MUMBAI

ITA 4427/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4049 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2003-2004
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: R C JAIN; ARUN G VERMA
• Section: 143(3)

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 3335 / MUM/ 20 1 3 ( ASSESSMENT YEAR : 200 3 - 04 ) PLAZA HOTELS PVT. LTD., 70 - C, NEHRU ROAD, VILE PARLE (EAST) , MUMBAI - 400 099 VS. JCIT (OSD) , RANGE 8(2) , MUMBAI . PAN/GIR NO. : A AACP 2117 N ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 4427 /MUM/20 13 ( ASSESSMENT YEAR :2003 - 04) JCIT (OSD), RANGE 8(2), MUMBAI. VS. PLAZA HOTELS PVT. LTD., 70 - C, NEHRU ROAD, VILE PARLE (EAST), MUMBAI - 400 099 PAN/GIR NO. : AAACP 2117 N ( APPEL LANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. R.C.JAIN & MR. ARUN G VERMA /REVENUE BY : MR. O.P. SINGH DATE OF HEARING : 1 1 TH JULY , 201 3 DATE OF PRONOUNCEMENT : 24 TH JULY , 2013 O R D E R TH ESE CROSS APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AS WELL AS BY THE DEPARTMENT AGAINST THE ORDER OF LEARNED CIT(A) , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 3 - 04 . 2 . THE DEPARTMENT IN ITS APPEAL I.E. ITA NO. 4427/M/2013 , IS OBJECTING IN REDUCING THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT ITA NO S . 3335 & 4427 /20 1 3 2 TO THE EXTENT OF RS. 14,92,123/ - BY CORRELATING THE SAID INTEREST ON TERM LOAN TO THE INCOME EARNING INVESTMENT BY WAY OF WINDMILL, WHEREAS THE ASSESS EE IN ITS APPEAL I.E. ITA NO. 3335/M/2013 , IS OBJECTING THE CONFIRMING THE REMAINING ADDITION MADE BY THE AO OUT OF TOTAL ADDITION OF RS. 20,90,752/ - . 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 1 - 12 - 2003 BY WHICH AN INTEREST E XPENDITURE OF RS. 22,55,640/ - WAS CLAIMED . IN ORIGINAL ASSESSMENT MADE UNDER SECTION 143(3) VIDE ORDER DATED 28 - 3 - 2006, THE AO HAD DISALLOWED THE ENTIRE INTEREST EXPENDITURE OF RS. 22,55,640/ - ALLEGING THAT LOANS ON WHICH INTEREST WAS PAID, WERE DIVERTED TO GROUP COMPANIES FREE OF INTEREST. ON APPEAL, LEARNED CIT(A) VIDE HIS ORDER DATED 31 - 5 - 2006 ALLOWED THE DEDUCTION FOR ABOVE INTEREST EXCEPT ON A LO A N OF RS. 10 LACS UTILIZED FOR FINANCING IN THE PURCHASE OF SHARES OF A GROUP COMPANY. ON SECOND APPEAL, BOTH B Y THE ASSESSEE AND THE DEPARTMENT, THE TRIBUNAL VIDE ORDER DATED 3 - 7 - 2009 SENT BACK THE ISSUE TO THE FILE OF THE AO. THE AO WAS DIRECTED TO RECONSIDER THE FACTS OF THE CASE AND TO LIVE LINK ALL THE INTEREST INCOME. THE DIRECTION OF THE TRIBUNAL HAS BEEN R ECORDED IN PARA 11, WHICH IS REPRODUCED IN THE ORDER OF LEARNED CIT(A) AT PAGE 2 OF THE PRESENT ORDER. THE AO WHILE COMPLETING THE FRESH ASSESSMENT FOUND THAT THE ASSESSEE HAS GIVEN LOANS TO VARIOUS PARTIES AND, THEREFORE, THE ASSESSEE HAS DIVERTED THE INT EREST BEARING LOAN TO INTEREST FREE ADVANCES. ACCORDINGLY, HE DID NOT ACCEPT THE EXPLANATION FILED ON BEHALF OF THE ASSESSEE AND DISALLOWED A SUM OF RS. 20,90,752/ - OUT OF TOTAL INTEREST EXPENDITURE OF RS.22,35,640/ - . ITA NO S . 3335 & 4427 /20 1 3 3 4. ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) . DETAILED SUBMISSIONS WERE FILED BEFORE HIM, WHICH ARE REPRODUCED IN THE ORDER OF THE CIT(A) AT PAGE S 5 TO 9. THEREAFTER LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, FOUND THAT THE ASSESSEE DESERVES TO SU CCEED IN PART. THE CIT(A) FOUND THAT A LOAN OF RS. 2 CRORES HAS BEEN OBTAINED FROM ALLAHABAD BANK FOR THE PURPOSE OF INVESTMENT IN WINDMILL AT SATARA. HE FOUND THAT THE ASSESSEE HAS TAKEN LOAN AT THE RATE OF 15%, HOWEVER, ON CERTAIN LOAN, 14% INTEREST WAS C HARGED. LEARNED CIT(A) FURTHER NOTED THAT INVESTMENT IN WINDMILL PROJECT HAS BEEN SHOWN AT RS. 2.54,00,000/ - AND REMAINING AMOUNT OF RS. 25 LAKHS HAS BEEN SHOWN AS INFLATION IN THE PROJECT COST. THERE FORE, HE DISALLOWED A SUM OF RS. 1,44,645/ - OUT OF TOTAL INT EREST PAID ON THIS AMOUNT OF RS.16,14,343/ - TO ALLAHABAD BANK. 5. IN RESPECT TO LOAN TAKEN FROM SATARA SAHAKARI BANK LIMITED AT RS. 1.25 CRORES, LEARNED CIT(A) FOUND THAT THIS LOAN HAS NOT BEEN USED BY THE ASSESSEE FOR ITS BUSINESS PURPO SE. THE CIT(A) NOTED THAT A CASH OF ABOUT RS. 14 LAKHS IN HAND OF THE ASSESSEE WAS MAINTAINED IN SATARA SAHAKARI BANK AND NOT USED BY THE ASSESSEE. THE CIT(A) FURTHER NOTED THAT THE ASSESSEE HAS REPAID RS. 45 LAKHS TO HIMCO (I) LTD., WHICH WAS TAKEN AS SHARE APPLICATION AND SIMILARLY CERTAIN AMOUNT HAS BEEN REPAID BY THE ASSESSEE, WHICH WAS TAKEN EARLIER. ACCORDINGLY, HE OBSERVED THAT THERE IS APPARENTLY NO BUSINESS CONNECTION OR ANY PURPOSE FOR TAKING LOAN AT HIGHER INTEREST AND REPAID THE SISTER CONCERN AT LOW RATES. THEREFORE, HE DISALLOWED THE ENTIRE INTEREST AT RS. 4,53,984/ - PAID TO SATARA SAHAKARI ITA NO S . 3335 & 4427 /20 1 3 4 BANK LIMITED. HOWEVER, NO FINDING HAS BEEN GIVEN IN RESPECT OF INTEREST DISALLOWED BY THE AO OF RS. 1,87,313/ - . 6 . AS STATED ABOVE, THE DEPARTMENT IN APPEAL AG AINST THE RELIEF ALLOWED BY THE LEARNED CIT(A) AND THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE CONFIRMED BY THE LEARNED CIT(A) . 7 . LEARNED DR HAS PLACED RELIANCE ON THE ORDER OF AO TO THE EXTENT OF WHICH THE DISALLOWANCE HAS BEEN DELETED BY THE CIT (A) AND HAS PLACED RELIANCE ON THE ORDER OF CIT(A) TO THE EXTENT OF WHICH THE DISALLOWANCE HAS BEEN CONFIRMED BY THE CIT(A) . 8 . ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT(A) TO THE EXTENT OF WHICH DISALLOWANC E HAS BEEN DELETED AND IN RESPECT TO ASSESSEES APPEAL THE CONTENTION RAISED BEFORE THE CIT(A) HAS BEEN REITERATED HERE BEFORE THE TRIBUNAL. 9 . AFTER CONSIDERING THE ORDER OF THE AO , CIT(A) AND THE SUBMISSION OF BOTH THE PARTIES, I FOUND THAT THERE IS NO SUBSTANCE IN THE APPEAL OF THE DEPARTMENT, HOWEVER, THE ASSESSEE DESERVES TO SUCCEED IN ITS APPEAL IN PART . I NOTED THAT A SUM OF RS. 2 CRORES LOAN WAS TAKEN FROM ALLAHABAD BANK ON 4 - 9 - 2002 ON WHICH INTEREST HAS BEEN PA I D AT RS. 16,43,343/ - DURING THE YEAR UNDER CON SIDERATION. FURTHER A LOAN OF RS. 1.25 CRORES WAS TAKEN FROM SATARA SAHAKARI BANK LIMITED ON 31 - 12 - 2002 ON WHICH INTEREST HAS BEEN PAID AT RS. 4,53,984/ - . FURTHER A DISALLOWANCE OF RS. 1,87,313/ - WAS MADE BY THE AO ON ACCOUNT OF INTEREST PAID TO SHARE HOLDERS ON LOANS TAKEN IN EARLIER YEAR. AFTER PERUSING THE MATERIAL ON RECORD, I FOUND THAT THE LOAN OF RS. 2 CRORES WAS PAID DIRECTLY TO THE CREDITOR VESTAS RRB INDIA LIMITED AGAINST THEIR INVOICES TOWARDS SUPPLY OF WIND MILL. THIS IS ITA NO S . 3335 & 4427 /20 1 3 5 UNDISPUTED FACT THAT TH E AMOUNT OF LOAN TAKEN FROM ALLAHABAD BANK WAS PAID DIRECTLY BY THE BANK TO THE CREDITOR M/S VESTAS RRB INDIA LIMITED. THEREFORE, IN MY CONSIDERED VIEW, THERE WAS NO OCCASION TO HOLD THAT THE ASSESSEE IS INFLATED THE COST OF PROJECT BY RS. 25 LAKHS OR CHARG ING LESS INTEREST FROM THE SISTER CONCERN AT THE RATE OF 14%, AGAINST 15% INTEREST PAID BY THE ASSESSEE. THE MOOT QUESTION FOR CONSIDERATION IS THAT WHETHER THE LOAN OF RS. 2 CRORES WAS UTILIZED FOR BUSINESS PURPOSE OR NOT. FROM THE FACTS OF THE CASE, IT IS CLEARLY SEEN THAT AMOUNT OF RS. 2 CRORES WAS DIRECTLY PAID TO M/S VESTAS RRB (I) PVT. LTD. BY THE BANK, THEREFORE, THERE IS NO QUESTION OF DOUBTING THAT THE SAME WAS NOT FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, I HOLD THAT THE ENTIRE INTEREST PAID BY THE ASSESSEE WAS FOR COMMERCIAL PURPOSES. ACCORDINGLY, THE DISALLOWANCE SUSTAINED BY RS.1,44,645/ - IS HERE BY DELETED. 10 . REGARDING THE LOAN OF RS. 1.25 CRORES, I FOUND THAT THE ASSESSEE INDULGED IN FINANCIAL BUSINESS AND ALMOST THE ENTIRE LOAN HAS BEEN UTILI ZED FOR REPAYMENT OF OTHER CREDITORS, WHICH WAS ON ACCOUNT OF BUSINESS EXPEDIENCY. THE CIT(A) HAS NOTED THAT THE REPAYMENT OF LOAN WAS NOT FOR BUSINESS PURPOSE, HOWEVER, NOTHING HAS BEEN BROUGHT ON RECORD , HOW THE SAME WAS NOT FOR THE BUSINESS PURPOSE . IT I S A MATTER OF FACT THAT IN ORIGINAL APPELLATE PROCEEDING, AT THE END OF THE CIT(A) THE ENTIRE INTEREST WAS ALLOWED BY THE CIT(A ) BY OBSERVING THAT THE LOAN TAKEN FROM SATARA SAHAKARI BANK WAS UTILIZED FOR THE BUSINESS PURPOSE AND, THEREFORE, THE SAME WAS A LLOWABLE AS DEDUCTION. HOWEVER, IN SECOND ROUND LEARNED CIT(A) HAS TAKEN A DIFFERENT VIEW. IN MY CONSIDERED VIEW, THE CASE OF THE ASSESSEE REQUIRED TO BE CONSIDERED IN RIGHT PERSPECTIVE. THE LOAN WAS NOT ITA NO S . 3335 & 4427 /20 1 3 6 UTILIZED SOMEWHERE ELSE OTHER THAN THE BUSINESS PURP OSE. UNDISPUTEDLY THE ASSESSEE DID SOME FINANCING ACTIVITY. IN PAST, LOANS WERE TAKEN FOR FINANCING PURPOSE AND IN THIS YEAR THE LOAN TAKEN FROM SATARA SAHAKARI BANK WAS UTILIZED FOR REPAYING THE OLD CREDITORS. THEREFORE, IT CANNOT BE SAID THAT THE SAME WA S NOT FOR THE BUSINESS PURPOSE. ACCORDINGLY, I DELETE THE DISALLOWANCE OF RS.4,53,984/ - , CONFIRMED BY THE CIT(A) , EXCEPT THE INTEREST ON THE AMOUNT OF RS. 10 LAKHS INVESTED BY THE ASSESSEE IN BOMBAY AMUSEMENT PARK PVT. LIMITED FOR PURCHASE OF SHARES. 11 . REMAI NING ISSUE REMAINS IN RESPECT OF INTEREST DISALLOWED BY THE AO AT RS. 1,87,313/ - . THE AO HAS DISALLOWED FOR THE REASON THAT THE FUNDS WERE UTILIZED FOR NON BUSINESS PURPOSE. THE CONTENTION OF THE ASSESSEE WAS NOT FOUND FAVOURABLE TO THE AO THAT THE INTEREST WAS PAID TO SHARE HOLDERS FROM WHOM THE LOAN WAS TAKEN IN EARLIER YEARS, WHICH WAS USED FOR BUSINESS PURPOSE OF THE ASSESSEE. THE CIT(A) HAS NOT GIVEN ANY FINDING ON THIS ISSUE. KEEPING IN MIND THE SMALLNESS OF THE AMOUNT, I AM OF THE VIEW THAT THIS AMOUNT IS ALSO ALLOWABLE FOR THE REASON THAT THE LOAN WAS TAKEN FROM THE SHARE HOLDERS IN EARLIER YEARS AND INTEREST PAID IN EARLIER YEAR WAS NOT DISALLOWED. THEREFORE, THERE WAS NO REASON TO DISALLOW THE INTEREST ON THE AMOUNT OF LOAN TAKEN FROM THE SHARE HOLDE RS PAID DURING THE YEAR. THEREFORE, THE ADDITION MADE BY THE AO OF RS. 1,87,313/ - IS ALSO HEREBY DELETED. 12 . IN THE RESULT, APPEAL OF THE DEPARTMENT I.E. ITA NO. 4427/M/2013 IS DISMISSED, WHEREAS THE APPEAL OF THE ASSESSEE I.E. ITA NO. 3335/M/2013 IS HEREB Y ALLOWED IN PART . ITA NO S . 3335 & 4427 /20 1 3 7 I.E. ITA NO.4427/M/2013 ( I.E. ITA NO.3335/M/2013) ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF JU LY .2013 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI; DATED : 24/07 / 2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. G UARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI