Ritesh Futurmal Mehta, Pune V. Addl CIT Rg- 9 Pune., Pune

ITA 444/PUN/2012

• Counselvise Citation: 44424514 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Assessee Lawyers: KISHORE FADKE
• Keywords: Opportunity of being heard; Rule of consistency; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 444/PN/2012 (ASSESSMENT YEAR : 2008-09) RITESH FUTURMAL MEHTA SHOP NO. 216, 217 KOHINOOR ARCADE, TILAK CHOWK, NIGDI, PUNE 411 044 PAN : AHUPM7258H . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 9, PUNE. . RESPONDENT APPELLANT BY : MR. KISHORE FADKE RESPONDENT BY : MR. Y. K. BHASKAR DATE OF HEARING : 14-05-2013 DATE OF PRONOUNCEMENT : 28-05-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - V, PUNE DATE D 20.12.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 27.12.2010 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST ON THE ADVANCE OF RS.47,77,799/- PAID FOR PURCHASE OF THE LAND OFFERED AS SECURITY FOR THE BANK BORROWINGS ON THE GROUND THAT THE SAME CANNOT BE REGARDED FOR BUSINESS PURPOSES. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DISALLOWING THE INTEREST ON THE ADVANCE OF RS.51,19,338/- MADE TO MR. PRITESH MEHTA, AN EMPLOY EE/RELATIVE ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 REJECTING THE CONTENTION OF THE APPELLANT THAT THIS ADVANCE IS FOR COMMERCIAL EXPEDIENCY. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DISALLOWING THE INTEREST ON THE ADVANCE OF RS.11,00,000/- MADE TO TWO RELATIVES ADMITTEDLY FOR THE PERSONAL PURPOSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN NOT ACCEPTING THE APPELLANTS C ONTENTION THAT EVEN OTHERWISE NO DISALLOWANCE OF INTEREST IS WARRA NTED IN THE PRESENCE OF SUBSTANTIAL HUGE CAPITAL OF THE APPELLA NT BESIDES SUBSTANTIAL INTEREST FREE SUNDRY CREDITORS AND OTHE R UNSECURED LOANS. 3. ALTHOUGH, THE ASSESSEE HAS RAISED MULTIPLE GROUN DS OF APPEAL, THE ESSENTIAL DISPUTE RELATES TO A SOLITARY ISSUE O F DISALLOWANCE OF INTEREST EXPENDITURE ON THE GROUND THAT CERTAIN AMO UNTS HAVE BEEN ADVANCED BY THE ASSESSEE INTEREST-FREE FOR NON-BUSI NESS PURPOSES AND AT THE SAME TIME ASSESSEE HAD INCURRED EXPENDIT URE BY WAY OF INTEREST ON BORROWED FUNDS. 4. IN BRIEF, THE FACTS ARE THAT ASSESSEE IS AN INDI VIDUAL ENGAGED IN SCRAP BUSINESS AND FOR THE ASSESSMENT UNDER CONSIDE RATION, HE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.3,4 9,01,250/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAD ADVANCED INTEREST-FREE LOANS TO VA RIOUS INDIVIDUALS OF RS.1,80,74,183/- WHO WERE MOSTLY CLOSE RELATIVES AND FRIENDS WHEREAS THE ASSESSEE HAS BEEN PAYING INTEREST @ 12% ON THE FUNDS BORROWED FROM THE BANK. ON BEING ASKED TO JUSTIFY T HE ALLOWABILITY OF THE CORRESPONDING INTEREST EXPENDITURE, THE ASSESSE E FURNISHED AN EXPLANATION WHICH WAS NOT FOUND SATISFACTORY BY THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER DISALLOWE D A SUM OF RS.21,68,901/- OUT OF INTEREST EXPENDITURE WHICH WA S QUANTIFIED BY HIM BY APPLYING @ 12% ON THE INTEREST-FREE ADVANCES MADE TO THE RELATIVES ETC. OF RS.1,80,74,183/-. THE ASSESSEE CA RRIED THE MATTER IN ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 APPEAL BEFORE THE CIT(A), WHO HAS ALLOWED PARTIAL R ELIEF TO THE ASSESSEE INASMUCH AS ACCORDING TO THE CIT(A), DISAL LOWANCE OF INTEREST CORRESPONDING TO THE ADVANCES OF RS.70,77, 046/- WAS NOT JUSTIFIED AND FOR THE BALANCE ADVANCES AMOUNTING TO RS.1,09,97,137/- THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN RETAINED. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), A SSESSEE IS IN FURTHER APPEAL BEFORE US, ON THE ABOVE STATED GROUN DS OF APPEAL WITH REGARD TO THE PART DISALLOWANCE SUSTAINED BY THE CI T(A). THE DETAILS OF THE INTEREST-FREE ADVANCES MADE BY THE ASSESSEE FOR WHICH THE CORRESPONDING INTEREST EXPENDITURE HAS BEEN DISALLO WED BY THE CIT(A) IS AS UNDER :- (I) AMOUNT PAID FOR PURCHASE OF PLOTS SITUATED AT A KURDI, PUNE AND BARSHI, DISTRICT- SOLAPUR RS.47,72,799/-, (II) ADVANCE PAID TO MR. PRITESH MEHTA RS.51,19,3 38/-, AND (III) ADVANCES MADE TO MRS. DISHA MEHTA AND MR. FUT URMAL MEHTA RS.11,00,000/-. 5. WITH RESPECT TO THE AFORESAID THREE ADVANCES, TH E PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS AS FOLLOWS. WITH REG ARD TO THE ADVANCE MADE FOR PURCHASE OF PLOT, ASSESSEE CONTEND ED THAT THE SAME WAS MADE IN THE COURSE OF AND FOR THE BENEFIT OF ASSESSEES BUSINESS AS THE SAID LAND WAS SUBSEQUENTLY OFFERED AS SECURITY FOR AVAILING LOANS WHICH HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. SECONDLY, WITH REGARD TO THE ADVANCE OF RS.51,19,33 9/- MADE TO MR. PRITESH MEHTA IT WAS CONTENDED THAT THE SAID PE RSON WAS ALSO CARRYING ON THE BUSINESS OF DEALING IN SCRAP AND CO NSIDERING THAT IT WAS A SISTER CONCERN OF THE ASSESSEE, THE ADVANCE W AS MADE FOR COMMERCIAL EXPEDIENCY. THIRDLY, WITH REGARD TO THE ADVANCES MADE TO MRS. DISHA MEHTA AND MR. FUTURMAL MEHTA, THE ASS ESSEE ADMITTED THAT THE SAID ADVANCES WERE OF PERSONAL NATURE. ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 6. ON THE ISSUE OF THE MONEY UTILIZED FOR PURCHASE OF LAND AND IN GIVING ADVANCE TO MR. PRITESH MEHTA, THE CIT(A) DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT THERE WAS ANY BUSINESS PU RPOSE FOR THE SAME. WITH REGARD TO THE FUNDS UTILIZED FOR PURCHAS E OF LAND, AS PER THE CIT(A) THE SAME WERE UTILIZED FOR MAKING A PERS ONAL INVESTMENT AND AS THE ASSESSEE WAS NOT IN THE BUSINESS OF REAL ESTATE OF LAND DEALING, SAME COULD NOT BE TREATED AS HAVING BEEN I NCURRED FOR APPELLANTS BUSINESS PURPOSE. SIMILARLY, WITH REGAR D TO THE ADVANCE GIVEN TO MR. PRITESH MEHTA WHO WAS AN EMPLOYEE/RELA TIVE, THE CIT(A) NOTED THAT MERELY BECAUSE THE SAID PERSON WAS ALSO DEALING IN THE BUSINESS OF SCRAP, IT WOULD NOT IMPLY ANY COMMERCIA L EXPEDIENCY AND THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH ANY BUS INESS PURPOSE IN THIS REGARD. SO FAR AS THE ADVANCES OF RS.11,00,000 /- THE CIT(A) UPHELD THE DISALLOWANCE FOR THE REASON THAT THE ASS ESSEE HIMSELF ADMITTED THE NON-BUSINESS PURPOSE INASMUCH AS THE S AID ADVANCES WERE ADMITTEDLY MADE FOR PERSONAL PURPOSES. 7. IN THIS BACKGROUND, THE PLEA OF THE ASSESSEE BEF ORE US IS TWO FOLDS. FIRSTLY, THE LEARNED COUNSEL POINTED OUT THA T SO FAR AS THE ADVANCE MADE FOR PURCHASE OF LAND OF RS.47,72,799/- AND OF RS.11,00,000/- MADE TO MRS. DISHA MEHTA AND MR. FUT URMAL MEHTA ARE CONCERNED, THESE WERE ACTUALLY ADVANCED IN THE EARLIER ASSESSMENT YEARS AND IN THE ASSESSMENT OF THOSE ASS ESSMENT YEARS WHICH WERE MADE UNDER SECTION 143(3) OF THE ACT, NO DISALLOWANCE WAS MADE. IN THIS REGARD, THE LEARNED COUNSEL FOR T HE ASSESSEE HAS RELIED UPON THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES (1991) 192 I TR 165 (KAR.) TO POINT OUT THAT IN PREVIOUS ASSESSMENT YEARS, ASSESS EE HAD CLAIMED INTEREST ON BORROWED CAPITAL AND SUCH ADVANCES WERE NOT SUBJECT TO A DISALLOWANCE, THEN IN THIS YEAR ALSO IT IS NOT PR OPER FOR THE ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 ASSESSING OFFICER TO EFFECT ANY DISALLOWANCE BY TAK ING A DIFFERENT STAND. 8. APART FROM THE AFORESAID, THE LEARNED COUNSEL PO INTED OUT THAT THE ASSESSEE HAD CONTENDED BEFORE THE CIT(A) THAT H E HAD ENOUGH INTEREST-FREE FUNDS WHICH INCLUDED HIS OWN CAPITAL OF RS.6,06,77,316/- AND OTHER UNSECURED LOANS ETC. WHI CH WOULD COVER THE NON-BUSINESS ADVANCES AND THEREFORE IT WOULD IM PLY THAT THE INTEREST-FREE ADVANCES HAVE BEEN MADE OUT OF INTERE ST-FREE FUNDS AVAILABLE AND NOT OUT OF INTEREST BEARING BORROWED FUNDS AND IN THIS MANNER NO DISALLOWANCE WOULD BE CALLED FOR. IN THIS CONNECTION, RELIANCE HAS PLACED ON THE FOLLOWING JUDGMENTS: (I) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.); AND, (II ) CIT VS. RADICO KHAITAN LTD. (2005) 274 ITR 354 (ALL.). AS PER THE LEARNED COUNSEL THE AFORESAID SUBMISSIONS WERE MADE BEFORE THE CIT( A), AS REPRODUCED BY HIM IN PARA 8 OF THE IMPUGNED ORDER, SO HOWEVER WHILE ADJUDICATING THE GROUND OF APPEAL RAISED, THE LEARNED CIT(A) HAS NOT CONSIDERED THE SAME. IT HAS BEEN CONTENDED BEFORE US THAT HAVING REGARD TO THE AFORESAID SUBMISSIONS NO DISAL LOWANCE WOULD BE WARRANTED OUT OF INTEREST EXPENDITURE. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS POINTED OUT THAT THE CIT(A) HAS RECORDED A FINDING THAT THE ADVANCES IN QUESTION WE RE NOT MADE FOR ANY BUSINESS PURPOSE AND THEREFORE, THE CORRESPONDI NG EXPENDITURE ON ACCOUNT OF INTEREST WAS RIGHTLY DISALLOWED. IN T HIS CONNECTION, THE OBSERVATIONS OF THE ASSESSING OFFICER IN PARA 8 OF THE ASSESSMENT ORDER TO THE EFFECT THAT THE STATED ADVANCES ARE BE ING MADE OUT OF THE BANK ACCOUNT ON WHICH INTEREST HAS BEEN PAID AL SO ESTABLISHES THAT THE ADVANCES HAVE BEEN MADE OUT OF INTEREST BE ARING BORROWED FUNDS. ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OSTENSIBLY, THE FACTUAL MATRIX IN THE PRESENT CASE LIES IN A NARROW COMPASS. THE ASSESSEE WAS FOUND TO HAVE ADVANCED CE RTAIN INTEREST-FREE SUMS, AS DETAILED IN THE EARLIER PORT ION OF THIS ORDER, AND THE ASSESSEE HAD BORROWINGS FROM BANK AND HAD B EEN PAYING INTEREST THEREON. THE INTEREST PAYMENT WAS CLAIMED AS A DEDUCTION OUT OF TOTAL INCOME. IN THESE CIRCUMSTANCES, THE LO WER AUTHORITIES HAVE DISALLOWED THE DEDUCTION OF INTEREST EXPENDITU RE CLAIMED BY THE ASSESSEE TO THE EXTENT OF INTEREST-FREE ADVANCES AN D AFTER THE ORDER OF THE CIT(A) THE IMPUGNED DISALLOWANCE IS RETAINED ONLY WITH REGARD TO THE THREE ADVANCES NOTICED BY US IN PARA 4 ABOVE . 11. WITH REGARD TO THE ADVANCES AT ITEM NOS. (I) AN D (III) NOTED IN PARA 4 ABOVE, APART FROM CONTENDING WITH THE SAME W ERE FOR BUSINESS PURPOSES, ASSESSEE SET-UP A PLEA BEFORE TH E CIT(A) THAT SUCH ADVANCES WERE NOT MADE DURING THE ACCOUNTING Y EAR RELEVANT TO THE INSTANT ASSESSMENT YEAR. FURTHER IT WAS POINTED OUT THAT IN THE PAST YEARS NO DISALLOWANCE WAS MADE WITH REGARD TO SUCH ADVANCES IN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT. THE CIT(A) HAS NOT OPINED ON THIS ASPECT OF THE MATTER AND INS TEAD PROCEEDED TO SUSTAIN THE DISALLOWANCE BY NOTICING THAT THERE WAS NO BUSINESS PURPOSE FOR MAKING SUCH ADVANCES. 12. IN OUR CONSIDERED OPINION, THE PLEA OF THE ASSE SSEE DESERVES TO BE EXAMINED ON ITS MERITS. IF, AS CONTENDED BY T HE ASSESSEE NO ADDITIONS HAVE BEEN MADE IN THE EARLIER YEARS, OUT OF INTEREST EXPENDITURE WITH REGARD TO THE AFORESAID ADVANCES, THEN THE ASSESSING OFFICER COULD NOT TAKE A DIFFERENT STAND IN THE INSTANT YEAR BASED ON THE PRINCIPLE OF CONSISTENCY AND DEFINITEN ESS OF APPROACH, AS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES (SUPRA) WHICH HAS BEEN RENDERED IN A SIMILAR ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 SITUATION. IN CASE, NO ADDITIONS HAVE BEEN MADE IN EARLIER YEARS WITH REGARD TO THE ITEM NOS. (I) AND (III) NOTED IN PARA 4 WHEN SUCH ADVANCES WERE ACTUALLY MADE, THE OPENING BALANCE IN THIS YEAR CANNOT BE A SUBJECT MATTER OF THE ENQUIRY MADE BY T HE ASSESSING OFFICER. THEREFORE ON THIS ASPECT WE DEEM IT FIT AN D PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTE R BACK TO THE FILE OF THE ASSESSING OFFICER TO RECORD A FINDING AS TO WHETHER OR NOT ANY ADDITION WAS MADE IN THE EARLIER YEARS AS CANVASSED BY THE ASSESSEE ON THE BASIS OF THE ASSESSMENT FINALIZED U NDER SECTION 143(3) OF THE ACT AND IF IT SO FOUND THEN NO DISALL OWANCE SHALL BE PERMISSIBLE. ON THE BASIS OF MATERIAL ON RECORD BEF ORE US, THE AFORESAID FINDING CANNOT BE RECORDED AND BEING A FA CTUAL MATTER, THE SAME IS BEING REMANDED BACK TO THE FILE OF THE ASSE SSING OFFICER. NEEDLESS TO MENTION THE ASSESSING OFFICER SHALL ALL OW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THEREAF TER PASSED AN ORDER AFRESH ON THIS LIMITED ASPECT AS PER LAW. 13. WITH REGARD TO THE ADVANCE AT ITEM NO. (II) NOT ED IN PARA 4, RELATING TO AN AMOUNT OF RS.51,19,339/- GIVEN TO MR . PRITESH MEHTA, IN OUR VIEW, HAVING REGARD TO THE MATERIAL ON RECOR D THERE IS NOTHING TO ESTABLISH THAT THE SAME HAS BEEN ADVANCED FOR AN Y BUSINESS PURPOSE. THE CIT(A) WAS THUS JUSTIFIED IN HOLDING T HAT THERE WAS NO COMMERCIAL EXPEDIENCY IN ADVANCING OF SUCH SUM DURI NG THE YEAR UNDER CONSIDERATION. HOWEVER, A PLEA HAS BEEN RAISE D BY THE ASSESSEE BEFORE THE CIT(A) AS WELL AS BEFORE US, WH ICH IS TO THE EFFECT THAT THE ASSESSEE HAS ENOUGH INTEREST-FREE F UNDS TO COVER THE AFORESAID NON-BUSINESS ADVANCE AND THEREFORE NO DIS ALLOWANCE WAS REQUIRED TO BE MADE AND IN SUPPORT THE RATIO OF THE JUDGEMENTS OF THE HONBLE BOMBAY HIGH COURT AND THE HONBLE ALLAHABAD HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES & POWER LTD . (SUPRA) AND CIT VS. RADICO KHAITAN LTD. (SUPRA) HAVE BEEN PRESSED I NTO SERVICE. ITA NO. 444/PN/2012 RITESH FUTURMAL MEHTA A.Y. 2008-09 14. WE FIND THAT THE AFORESAID ASPECT OF THE MATTER , WHICH IS FACTUAL IN NATURE, HAS NOT BEEN ADDRESSED BY THE CI T(A). THE AFORESAID WAS NECESSARY ON THE PART OF THE CIT(A) T O DO SO FOR THE REASON THAT ASSESSEE HAD SOUGHT TO CHALLENGE THE OB SERVATION OF THE ASSESSING OFFICER THAT THERE WAS A NEXUS BETWEEN TH E INTEREST BEARING BORROWED FUNDS AND THE IMPUGNED ADVANCES. S INCE THIS IS A FACTUAL ASPECT AND THE PROPOSITION SOUGHT TO BE CAN VASSED BY THE ASSESSEE IS SUPPORTED BY THE JUDGEMENT OF THE HONB LE BOMBAY HIGH COURT IN THE CASE RELIANCE UTILITIES & POWER LTD. ( SUPRA) THE SAME IS LIABLE TO BE EXAMINED ON ITS MERITS. FOR THE SAID P URPOSE, WE DEEM IT FIT AND PROPER TO REMAND THE MATTER BACK TO THE FIL E OF THE ASSESSING OFFICER WHO SHALL RE-APPRAISE THE FACTUAL POSITION SOUGHT TO BE MADE OUT BY THE ASSESSEE AND THEREAFTER PASS AN ORDER AF RESH ON THIS ASPECT. NEEDLESS TO SAY ON THIS ASPECT ALSO THE ASS ESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY O F BEING HEARD AND THEREAFTER PASSED AN ORDER AFRESH ON THIS ASPEC T AS PER LAW. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MAY, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH MAY, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR, B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY I.T.A.T., PUNE