KESHAV PRASAD RUIA, MUMBAI V. ITO WD 14(2)(4),

ITA 4449/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1705 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 01-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: RAJAN VORA MR MANOJ ANDHALIA
• Keywords: Depreciation; Rule of consistency; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R.K. PANDA, AM & SMT. ASHA VIJAYARAGHAV AN, JM I.T.A. NO. 4449/MUM/2008 (ASSESSMENT YEAR 2004-05) SHRI KESHAV PRASAD RUIA C/O. DINESH S. AGARWAL & ASSOCIATES, CAS, 609-B, MANGALARAMBH, KORA KENDRA ROAD, BORIVALI WEST, MUMBAI-400 092 PAN: AABPR7584H VS. I.T.O. WARD 14(2)(4) MUMBAI APPELLANT RESPONDENT APPELLANT BY: MR. RAJAN VORA, MR. MANOJ ANDHALIA RESPONDENT BY: MR. KESHAVE SAXENA O R D E R DATE OF HEARING: 03.06.2010 DATE OF ORDER: 11.06.2010 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 28 TH APRIL, 2008 OF THE CIT(A)-XIV, MUMBAI RELATING TO ASSESSMENT YEAR 2004-05. 2. GROUNDS OF APPEAL NOS. 1 AND 2 BY THE ASSESSEE READ AS UNDER: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION IN CASE OF ELECTRICITY EXPENSES AT 100% OF RS.23,966/- , TELEPHONE EXPENSES AT 50% AMOUNTING TO RS.26,060/- AND SOCIETY MAINTENANCE EXPENSES AT 100% OF RS.23,746/- , AGGREGATING TO RS.73,772/- WITHOUT SUFFIXING IT WIT H ADEQUATE REASON AS TO WHY THESE PERCENTAGES ARE CHA RGED AND THE SAID PERCENTAGES ARE CALCULATED ON WHAT BAS IS. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION S OF MOTOR CAR EXPENSES AT 20% OF RS.16,168/- MOTORCAR DEPRECIATION AT 20% OF RS.1,616/- AGGREGATING TO RS.17,784/- WITHOUT SUFFIXING IT WITH ADEQUATE REAS ON AS TO WHY THESE PERCENTAGES ARE CHARGED AND THE SAID PERCENTAGES ARE CALCULATED ON WHAT BASIS. I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURING OF SYNTHET IC FABRICS IN THE NAME AND STYLE OF M/S. PASUPATI SILK INDUSTRIES AND ANOT HER PROPRIETARY CONCERN VIZ., M/S. SURAJ TEXTILES ENGAGED IN WEAVIN G GREY FABRIC ON JOB WORK BASIS. WHILE CALCULATING THE PROFIT FROM BUSI NESS ACTIVITY THE ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ACCORDING T O THE ASSESSING OFFICER CONTAIN A PART IN THE NATURE OF PERSONAL EX PENSES. ON FURTHER APPEAL THE CIT(A) ALLOWED PART RELIEF. THE EXPENDI TURE CLAIMED BY THE ASSESSEE, DISALLOWANCE MADE BY THE ASSESSING OFFICE R AND PART RELIEF GIVEN BY THE CIT(A) ARE AS UNDER: SR. NO. NATURE OF EXPENDITURE AMOUNT (RS.) DISALLOWED BY AO (RS.) CONFIRMED BY CIT(A) (RS.) 1. ELECTRICITY EXPENSES 23,966 23,966 (100%) 23,966 (100%) 2. TELEPHONE EXPENSES 52,135 26,060 (50%) 26,060 (50%) 3. SOCIETY MAINTENANCE EXPENSES 23,746 23,746 (100%) 23,746 (100%) 4. MOTORCAR EXPENSES 80,835 20,210 (25%) 16,168 (20%) 5. DEPRECIATION ON MOTORCAR 8,083 2,020 (25%) 1,616 (20%) 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BEEN DOING BUSINESS FROM HIS RESIDENCE EVERY DA Y BEFORE AND AFTER OFFICE HOURS AND THE EXPENDITURE AT SR. NO. 1, 2 AN D 3 ABOVE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. AS FAR AS TH E DISALLOWANCE OF MOTORCAR EXPENSES AND DEPRECIATION ON MOTORCAR @ 25 % ON ESTIMATE BASIS BY THE ASSESSING OFFICER WHICH HAS BEEN RESTR ICTED TO 20% BY THE CIT(A), HE SUBMITTED THAT THE MOTORCAR IS USED EXCL USIVELY FOR THE PURPOSES OF BUSINESS AND, THEREFORE, NO DISALLOWANC E CAN BE MADE. REFERRING TO THE ORDER OF THE TRIBUNAL FOR A.Y. 200 3-04, HE SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE RIVAL ARGUMENTS HAD RESTRICTED SUCH DISALLOWANCE TO 10% OF THE TOTAL EXPENSES. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE CIT(A) AND SUBMITTED THAT SINCE SUBSTANTIAL RELIEF HAS BEEN GRANTED BY THE CIT(A) NO FURTHER RELIEF IS REQUIRED IN ABSENCE OF ANY FRESH EVIDENCE. I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 3 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. AS REGARDS S OCIETY MAINTENANCE CHARGES AND ELECTRICITY EXPENSES OF RS.23,966 DISAL LOWED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A), WE FIND THESE ISSUES WERE NOT BEFORE THE TRIBUNAL IN THE EARLIER YEAR. THE LEARNED COUN SEL FOR THE ASSESSEE ALSO COULD NOT SUBSTANTIATE AS TO HOW THESE PERSONAL EXP ENSES CAN BE TREATED AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE S OF BUSINESS OF THE ASSESSEE. WE, THEREFORE, UPHOLD THE ORDER OF THE C IT(A) ON THESE TWO ISSUES. 8. AS REGARDS TELEPHONE EXPENSES OF RS.52,145 AND MOTO RCAR EXPENSES OF RS.80,835 AND DEPRECIATION ON MOTORCAR AT RS.8,083 WE FIND THE ASSESSING OFFICER DISALLOWED 50% OF THE TELEPHO NE EXPENSES WHICH WAS UPHELD BY THE CIT(A). SIMILARLY, OUT OF THE DI SALLOWANCE OF MOTORCAR EXPENSES AND DEPRECIATION ON MOTORCAR AT 25% MADE B Y THE ASSESSING OFFICER, THE CIT(A) HAD RESTRICTED THE SAME TO 20%. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NO. 3282/MUM/2008 O RDER DATED 28 TH OCTOBER, 2009 HAS RESTRICTED SUCH DISALLOWANCE TO 10%. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN THE PRECEDING YEAR AND IN ABSENCE OF ANY CONTRARY MATER IAL BROUGHT TO OUR NOTICE BY THE LEARNED DR, WE DIRECT THE ASSESSING O FFICER TO RESTRICT THE DISALLOWANCE OF TELEPHONE EXPENSES, MOTORCAR EXPENS ES AND DEPRECIATION ON MOTORCAR AT 10%. WE HOLD AND DIRECT ACCORDINGL Y. THE FIRST AND THE SECOND GROUND RAISED BY THE ASSESSEE ARE ACCORDINGL Y PARTLY ALLOWED. 9. THE THIRD GROUND RAISED BY THE ASSESSEE READS AS UN DER: 3. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING ADDIT ION OF RS.12,20,852/- TO THE INCOME OF THE ASSESSEE BEI NG PROPORTIONATE INTEREST EXPENSES ON THE GROUND OF UT ILISATION OF FUNDS FOR NON-BUSINESS PURPOSE. 10. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED THE INTEREST EXPENSES OF RS.26,81,906 AFTER CREDITING RS.8,64,21 3 RECEIVED FROM SHRI KESHAV PRASAD RUIA IN THE ACCOUNTS OF M/S. PASUPATI SILK INDUSTRIES FROM I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 4 THE GROSS FIGURE OF RS.35,46,119. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THE LOAN OUTSTANDING AS ON 31 ST MARCH, 2004 IS RS.2,86,34,507 WHICH INCLUDES LOAN IN THE NAME OF THE ASSESSEES WIFE M/S. SUNITA RUIA RS.20,02.058, WHER EAS IN ASSESSEES BALANCE SHEET IN THE ASSET SIDE AN AMOUNT OF RS.45, 66,700 IS SHOWN AGAINST MRS. SUNITA RUIA. ON BEING QUESTIONED BY T HE ASSESSING OFFICER, IT WAS STATED THAT THIS AMOUNT WAS GIVEN TO THE BUILDE RS FOR BOOKING A FLAT IN JOINT NAMES OF ASSESSEE AND HIS WIFE. HOWEVER, THE AGREEMENT WAS EXECUTED ON 6.4.2004. THE ASSESSEE HAS OBTAINED LO AN AND AS ON 31.3.2004, SUCH LOANS STOOD AT RS.2,86,34,507. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DIVERTED THE FUNDS FROM THIS CONCERN AND HIS CAPITAL ACCOUNT STOOD AT A DEBIT BALANCE OF RS.1,49 ,94,479 AS ON 31.3.2004. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESS EE HAS MADE INVESTMENTS IN THE FOLLOWING: I) EQUITY SHARES OF LIMITED COMPANY - RS. 56,99, 000 II) NEW RESIDENTIAL FLAT - RS. 60,92,400 III) FOR ADDITIONAL FLAT (AMOUNT STANDING IN THE NAME OF WIFE) - RS. 45,66,700 ------------------- RS.1,63,58,100 ------------------- RS.2,86,34,507 ============ IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HA S DECLARED INTEREST RECEIPT OF RS.9,12,501 FROM M/S. VIJAYALAK SHMI TEXTILE INDUSTRIES BUT REDUCED THE SAME BY RS.8,64,213 CLAIMED TO HAVE BEEN PAID TO PASUPATI SILK INDUSTRIES. NO SUCH LIABILITY IS SHO WN IN THE BALANCE SHEET FOR MAKING SUCH A CLAIM FOR PAYMENT. 11. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSE E TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED . IT WAS EXPLAINED BY THE ASSESSEE THAT THESE ARE OLD LOANS TAKEN IN THE EARLIER YEARS WHEREAS INVESTMENTS ARE NEW AND, THEREFORE, NO BORROWED FUN DS ARE UTILISED FOR ACQUIRING THE ABOVE ASSETS. IT WAS SUBMITTED THAT BORROWED FUNDS ARE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSE SSEES BUSINESS. AS REGARDS THE ACQUISITION OF A NEW HOUSE, IT WAS SUBM ITTED THAT LOAN HAS I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 5 BEEN TAKEN FROM HDFC BANK WHICH HAS BEEN REFLECTED IN THE BALANCE SHEET. 12. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE ASSESSEE HAS IN HIS CAPITAL ACCOUNT ALL ALONG SHOWN DEBIT BALANCE FROMR S.1,63,93,776 AS ON 1.4.2003 TO 1,49,94,479 AS ON 1 ST JULY, 2004 AND THAT THE FUNDS IN PERSONAL BALANCE SHEET HAVE BEEN UTILISED MAINLY FOR INVESTM ENT IN EQUITY SHARES OF CORPORATE BODIES, THE INCOME, BY WAY OF DIVIDEND, O F WHICH IS EXEMPT U/S. 10 OF THE ACT AND IN RESIDENTIAL PROPERTY IN HIS OW N NAME AND ALSO IN THE NAME OF HIS WIFE. MERELY BECAUSE THE LOANS TAKEN I N EARLIER YEAR BUT FUNDS DIVERTED FOR PERSONAL AND NON BUSINESS PURPOSES IN THE LATER YEAR, WOULD NOT MITIGATE THE CASE THAT THE BORROWED FUNDS HAVE BEEN DIVERTED FOR NON BUSINESS INVESTMENT. AS REGARDS THE CLAIM OF THE A SSESSEE THAT LOAN HAS BEEN OBTAINED FROM THE BANK FOR ACQUISITION OF HOUS E PROPERTY, THE ASSESSING OFFICER NOTED THAT ONLY AN AMOUNT OF RS.3 3,23,157 IS OUTSTANDING AS ON 31.3.2004. HE ACCORDINGLY REDUCE D THIS AMOUNT FROM THE TOTAL INVESTMENT FOR NON BUSINESS PURPOSES. TH E ASSESSING OFFICER ACCORDINGLY CALCULATED THE PROPORTIONATE AMOUNT DIS ALLOWABLE AT RS.16,14,257. 13. BEFORE THE CIT(A), THE ASSESSEE FURNISHED A FUND FL OW STATEMENT OF SELF AND OF M/S. PASUPATI SILK INDUSTRIES AND SUBMI TTED THAT BORROWED FUNDS WERE NOT AT ALL UTILISED FOR NON BUSINESS PUR POSES. IT WAS FURTHER SUBMITTED THAT EVEN AS PER ASSESSING OFFICERS WORK ING THE DISALLOWANCE AT BEST COULD HAVE BEEN RS.12,20,852 AND NOT RS.16, 14,257. THE LEARNED CIT(A) AFTER CONSIDERING THE VARIOUS ARGUMENTS ADVA NCED BY THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS, CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.12,20,852. WHILE HOLDING SO HE NOTED THAT THERE IS NO CONCRETE EVIDENCE TO SHOW THAT THE ASSESSEE WAS HAV ING SUFFICIENT SURPLUS FUNDS TO MAKE THE INVESTMENT IN SHARES OR FLAT. AG GRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 6 14. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NEITHER NEW BORROWING NOR INVESTMENT IN NEW SHARES DURING THE YEAR. HE SUBMITTED THAT THE SHARES HAVE BEEN HELD BY THE ASS ESSEE SINCE LAST SO MANY YEARS. REFERRING TO THE ASSESSMENT ORDER OF A .Y. 2003-04 PASSED U/S. 143(3) OF THE ACT, HE SUBMITTED THAT NO DISALL OWANCE OF INTEREST HAS BEEN MADE BY THE ASSESSING OFFICER. HE SUBMITTED T HAT IN THE SUBSEQUENT YEAR ALTHOUGH INTEREST HAS BEEN DISALLOWED BY THE A SSESSING OFFICER, THE CIT(A) HAS DELETED THE DISALLOWANCE AND THE REVENUE HAS NOT FILED ANY APPEAL BEFORE THE TRIBUNAL. REFERRING TO THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISE S REPORTED IN 192 ITR 165, HE SUBMITTED THAT WHEN LOAN TAKEN IN EARLIER Y EAR AND INTEREST HAS BEEN ALLOWED IN THE PAST ON THE SAME LOAN, INTEREST CANNOT BE DISALLOWED IN THE CURRENT YEAR. HE SUBMITTED THAT THE ABOVE D ECISION HAS BEEN FOLLOWED IN THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTH INDIA CORPORATION, 293 ITR 237. REFE RRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD., REPORTED IN 313 ITR 340, HE SUBMITTED THAT IN THE A BSENCE OF NEXUS, PRESUMPTION IS THAT NO BORROWED FUNDS ARE USED FOR GRANTING LOANS AT LOWER RATE OF INTEREST AND NO DISALLOWANCE CAN BE M ADE ON ACCOUNT OF INVESTMENT OUT OF BORROWED CAPITAL. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE TOTAL INVESTMENTS MADE BY THE ASSESSEE ARE AS UNDER: INVESTMENT AMOUNT (RS.) EQUITY SHARES OF VIJAY TEXTILE INDUSTRIES 56,99,000 NEW RESIDENTIAL FLAT (60,92,400 LESS LOAN TAKEN FROM BANK RS.33,23,157) 27,69,243 NEW RESIDENTIAL FLAT IN NAME OF WIFE 45,66,700 TOTAL 1,30,34,943 16. AS REGARDS INVESTMENT IN SHARES, HE SUBMITTED THAT THE DETAILS OF SOURCE OF INVESTMENT IN SHARES OF VIJAY SILK INDUST RIES AREAS UNDER: I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 7 DATE NUMBER OF SHARES AMOUNT (RS.) 31.03.1999 492,400 @ RS.10 49,24,000/- (APPLICATION MONEY) 31.03.2000 492,500 @ RS.10 49,25,000/- (ALLOTMENT) 31.03.2002 77,400 @ RS.10 7,74,000/- (ALLOTMENT) TOTAL 56,99,000/- 17. SIMILARLY THE DETAILS OF SOURCE OF INVESTMENT IN FL AT IS AS UNDER: SOURCE OF INVESTMENT FY 2002-03 AMOUNT (RS.) FY 2003-04 AMOUNT (RS.) STANDARD CHARTERED BANK - 35,00,000 SALE OF ANOTHER PROPERTY (DESHMUKH FAMILY TRUST) 12,01,000 - ELECTRO GOLD PLATING (RENT INCOME) - 52,400 M/S.PASUPATI SILK INDUSTRIES (PROFIT AND WITHDRAWAL) 5,00,000 7,09,400 TOTAL INVESTMENT IN FLAT (RS.60,92,400) 17,01,000 43,91,400 18. AS REGARDS INVESTMENT IN FLAT IN THE NAME OF HIS SP OUSE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DETAILS OF SOURCE OF INVESTMENT ARE AS UNDER: SOURCE OF INVESTMENT FY 2002-03 AMOUNT (RS.) FY 2003-04 AMOUNT (RS.) FROM VIJAYLAXMI TEXTILE INDUSTRIES - 13,60,000 SALE OF ANOTHER PROPERTY (DESHMUKH FAMILY TRUST) 5,00,000 - ELECTRO GOLD PLATING (RENT INCOME) 39,300 - M/S. PASUPATI SILK INDUSTRIES (PROFIT AND WITHDRAWAL) 20,65,000 5,46,940 FUNDS AVAILABLE - 59,460 TOTAL INVESTMENT IN FLAT (RS.45,66,700) 26,04,300 19,62,400 19. HE SUBMITTED THAT THE ASSESSING OFFICER AND THE CIT (A) HAVE PROCEEDED ON THE PREMISES THAT THE INVESTMENT IN SH ARES, FLATS, ETC., HAS BEEN MADE DURING THE YEAR. AFTER ANALYSING THE BAL ANCE SHEET AS ON 31 ST MARCH, 2004 THEY HAVE CONCLUDED THAT INVESTMENT HAD BEEN MADE FROM BORROWED FUNDS. HOWEVER, THE ABOVE CONCLUSION BY B OTH OF THE LOWER AUTHORITIES IS CONTRARY TO THE FACTS ON RECORD. RE FERRING TO VARIOUS PAGES I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 8 OF THE PAPER BOOK PARTICULARLY THE FUND FLOW STATEM ENT OF SHRI KESHAV PRASAD RUIA (PAPER BOOK PAGE 20), FUND FLOW STATEME NT OF M/S. PASUPATI SILK INDUSTRIES FOR THE YEAR ENDED 31 ST MARCH, 2004 (PAPER BOOK PAGE 21) AND THE FUND UTILISATION STATEMENT FOR INVESTMENT M ADE FOR FLAT IN THE NAME OF ASSESSEE AND HIS WIFE (PAGES 22 TO 24 OF TH E PAPER BOOK), HE SUBMITTED THAT NO BORROWED FUNDS WERE UTILISED FOR THE PURPOSES OF NON BUSINESS PURPOSES. HE SUBMITTED THAT AN EXAMINATIO N OF THE FUND FLOW STATEMENT SHOWS THAT THE ASSESSEE WAS HAVING SUFFIC IENT FUNDS FROM WHICH INVESTMENTS HAVE BEEN MADE. THE ASSESSEE HAS UTILI SED HIS OWN FUNDS FOR THE PURPOSE OF INVESTMENT AND NO INTEREST BEARING F UND HAS BEEN UTILISED. HE SUBMITTED THAT WHILE MAKING THE DISALLOWANCE, TH E ASSESSING OFFICER MERELY ASSUMED THAT INVESTMENTS HAVE BEEN MADE OUT OF INTEREST BEARING FUNDS WITHOUT ESTABLISHING THE NEXUS. REFERRING TO A COUPLE OF DECISIONS, HE SUBMITTED THAT IF THE DEPARTMENT IS HAVING ANY D OUBT ABOUT THE SOURCE OF THE INVESTMENT, IT IS THE DUTY OF THE DEPARTMENT TO PROVE THE NEXUS IN THIS REGARD. REFERRING TO THE UNREPORTED DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASHOK CHEMICAL E NTERPRISES VIDE INCOME-TAX APPEAL NO. 2985 OF 2009 ORDER DATED 9 TH FEBRUARY, 2010, HE SUBMITTED THAT THE HONBLE HIGH COURT FOLLOWING THE DECISION OF THE HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD. (SUPRA) HAS HELD THAT IF THE ASSESSEE HAS FUNDS AVAILABLE, BOTH INTEREST FREE AND LOAN, THERE WOULD BE A PRESUMPTION THAT THE INVESTMENTS WERE OU T OF INTEREST FREE FUNDS IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE OUTLAY OF INVESTMENT. REFERRING TO A COUPLE OF DECISIONS, HE SUBMITTED THAT SINCE THE ASSESSING OFFICER IN THE ORDER PASSED U/S. 143( 3) OF THE ACT FOR THE A.Y. 2003-04 HAS NOT DISALLOWED ANY PROPORTIONATE INTERE ST EXPENDITURE AND SINCE THERE ARE NO CHANGES IN THE FACTS AND CIRCUMS TANCES OF THE CASE DURING THE YEAR NO DISALLOWANCE CAN BE MADE FOLLOWI NG THE RULE OF CONSISTENCY. 20. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE INVESTMENT IN SHARES AND PROPERTIES WERE NOT OUT OF BORROWED FUNDS. THE I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 9 ASSESSEE HAS NOT DISCHARGED THE ONUS EVEN TILL TODA Y. REFERRING TO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SRIDEV ENTERPRISES (SUPRA), HE SUBMITTED THAT IN THAT CASE INTEREST ON BORROWED CAPITAL WAS NOT DISALLOWED IN THE EARLIER ASSESSMEN T YEAR FOR WHICH THE HONBLE COURT HAS HELD THAT THE AMOUNT STANDING DUE ON THE FIRST DAY OF THE RELEVANT ASSESSMENT YEAR CANNOT BE TAKEN INTO A CCOUNT FOR THE PURPOSE OF DISALLOWANCE. HOWEVER, IN THE INSTANT C ASE THE FACTS ARE NOT CLEAR AS TO WHETHER THERE WAS ANY DISALLOWANCE IN T HE PAST OR NOT. HENCE THE DECISION OF HONBLE KARNATAKA HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. AS REGARDS THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND PO WER LTD. (SUPRA), HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID D ECISION HAS GIVEN A FINDING OF FACT THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WO ULD ARISE THAT INVESTMENT SHOULD BE OUT OF INTEREST FREE FUNDS DIV ERTED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENT. IN THAT CASE THE PRESUMPTION WAS ESTAB LISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND TRIBUNAL. HOWEVER, IN THE INSTANT CASE THERE WAS NO SUCH FIND ING GIVEN BY THE CIT(A). THEREFORE, THIS DECISION IS ALSO NOT APPLI CABLE TO THE FACTS OF THE PRESENT CASE. 21. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT FROM THE A.Y. 1997-98 TILL A.Y. 2003-04 THERE WAS NO DISALLOWANCE. FURTHER THE ASSESSEE HAS INVESTED IN THE SHARES OF THE COMPANY WITH WHICH IT HAS BUSINESS RELATIONSHIP. THEREFORE, TH E DEPARTMENT NOW CANNOT CHANGE ITS STAND. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BOMBAY SAMACHAR REPORTED IN 74 ITR 723, HE SUBMITTED THAT THE ASSESSING OFFICER CANNOT DECIDE AS TO HOW THE ASSESSEE SHALL CONDUCT ITS BUSINESS. REFERRING TO PAPER BOO K PAGES 22 TO 24,HE DREW THE ATTENTION OF THE BENCH TO THE DATE-WISE IN FLOW AND OUTFLOW OF THE FUNDS FOR INVESTMENT IN THE FLAT IN THE NAME OF THE ASSESSEE AS WELL AS HIS I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 10 WIFE. FINALLY HE SUBMITTED THAT SINCE NO PART OF T HE BORROWED FUND HAS BEEN DIVERTED FOR NON-BUSINESS PURPOSES, NO DISALLO WANCE CAN BE MADE. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE COPY OF THE BA LANCE SHEET OF MR. KESHAV PRASAD RUIA, PARTNER AND M/S. PASUPATI SILK INDUSTRIES FILED AT PAPER BOOK PAGES 56 AND 57, WE FIND THE INVESTMENT IN SHARES AT RS.56,99,000 IS APPEARING FROM 31 ST MARCH, 2002 ONWARDS AND THE SAME IS SHOWN AT RS.56,99,000 AS ON 31 ST MARCH, 2004. SIMILARLY, THE INVESTMENT SHOWN AT RS.1,25,57,566 IN THE NAME OF SHRI KESHAV PRASAD RUIA AS ON 31.34.2002 HAS GONE DOWN TO RS.60,76,152. WE FURTH ER FIND THE UNSECURED LOAN SHOWN AT RS.1,53,05,507 AS ON 31.3.2 002 HAD GONE UP TO RS.1,54,49,479 AS ON 31 ST MARCH, 2004. THE INCREASE IN THE UNSECURED LOAN AS ON 31 ST MARCH, 2004 AS COMPARED TO 1 ST MARCH, 2002 IS ONLY RS.1,43,972. SIMILARLY WE FIND FROM THE BALANCE SH EET OF M/S. PASUPATI SILK INDUSTRIES THAT THE UNSECURED LOANS AS ON 31 ST MARCH, 2002 APPEARING AT RS.3,06,37,986 HAS GONE DOWN TO RS.2,86,34,507. WE, THEREFORE, FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ON THE BASIS OF THE DETAILS FILED ON ACCOUNT OF INVESTMENT IN SHARES, INVESTMENT IN FLAT IN THE NAME OF SELF AND SPOUSE AND FROM THE DE TAILS OF BALANCE SHEET OF THE ASSESSEE SELF AS WELL AS THE PROPRIETARY CONCER N M/S. PASUPATI SILK INDUSTRIES THAT NO PART OF THE BORROWED FUNDS HAS BEEN UTILISED FOR INVESTMENT DURING THE CURRENT YEAR. 23. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWER LTD. (SUPRA) HAS HELD THAT IF THE RE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT SHOULD BE O UT OF THE INTEREST FREE FUNDS DIVERTED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN V IEW OF THE ABOVE DECISION IT IS CLEAR THAT THE PRESUMPTION OF THE UT ILISATION OF FUNDS FOR I.T.A. NO. 4449/MUM/2008 SHRI KESHAV PRASAD RUIA ================== 11 INVESTMENT IN SHARES AS WELL AS OTHER ASSETS HAS TO BE FIRSTLY OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. SINCE THE LEARNED COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED BEFORE US THE DETAILS OF SOURCE OF INVESTMENT IN SHARES AS WELL AS IN FLATS THAT NO PART OF THE B ORROWED FUND HAS GONE FOR INVESTMENT IN NON BUSINESS PURPOSES, THEREFORE, IN OUR OPINION, NO PART OF SUCH INTEREST CAN BE DISALLOWED. WE ALSO FIND MERI T IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE NO DISALLOWANCE HAS BEEN MADE IN THE PRECEDING ASSESSMENT YEAR AND SINCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE SUBSEQUENT YEAR HAS BEEN DELETED BY THE CIT(A) FOR WHICH THE DEPARTMENT IS NOT IN APPEAL BE FORE THE TRIBUNAL, THEREFORE, FOLLOWING THE RULE OF CONSISTENCY ALSO N O PART OF SUCH INTEREST HAS TO BE DISALLOWED. IN THIS VIEW OF HE MATTER, W E SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING O FFICER TO DELETE THE DISALLOWANCE. 24. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 11 TH JUNE, 2010. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 11 TH JUNE, 2010 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT(A)-XIV, MUMBAI, (4) THE CIT-14, MUMBAI, (5) THE DR, H BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO