KARP IMPEX LTD, MUMBAI V. ADDL CIT 5(2), MUMBAI

ITA 4500/MUM/2010

• Counselvise Citation: 450019914 RSA 2010
• Duration Of Justice: 4 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Assessee Lawyers: B V JHAVERI
• Keywords: Depreciation; Revenue expenditure
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ITA N O. 4500 / MUM/20 1 0 ( ASSESSMENT YEAR : 2006 - 07 ) KARP IMPEX LTD., PRASAD CHAMBERS, OPERA HOUSE, MUMBAI - 400 004 VS. ADCIT - 5(2), MUMBAI PAN/GIR NO. : A A BCK 1823 F ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI B.V.JHAVERI /REVENUE BY : SHRI ASGHAR ZAIN VP DATE OF HEARING : 27 TH NOVEMBER , 201 4 DATE OF PRONOUNCEMENT 21 ST JANUARY, 2015 O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , DATED 31 - 3 - 2010 FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) OF THE I.T. ACT . 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUS ED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING, PROCESSING AND EXPORTING CUT AND POLISHED DIAMONDS, FILED ITS RETURN OF INCOME FOR A.Y.2006 - 07 ON 30 - 11 - 2006 DECLARING TOTAL INCOME OF RS.17. 27 CRORES. ON SCRUTINIZING THE SAI D RETURN THE AO DISALLOWED RS.1,05,00,150 / - U/S. 14A OF THE ACT AND DISALLOWED INTEREST U/S.36(L)(III) OF THE ACT OF RS.9,45,028/ - . THE CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ITA NO. 4500 / 1 0 2 COMPANY AND REDUCED THE DISALLOWANCE U/S. 1 4A OF THE ACT TO RS.45,35,572 / - . THE CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST OF RS.9,45,028/- U/S.36(1 )(III) OF THE ACT. AGAINST THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 3. IN THE WRITTEN SUBMISSION FILED BY THE LD. AR, HE REQUESTED FOR WITHDRAWAL OF GROUNDS NO. 1 TO 3 IN RESPECT OF PARTIAL DISALLOWANCE U/S.14A OF THE ACT. ACCORDINGLY, GROUNDS NO.1 TO 3 ARE DISMISSED AS NOT PRESSED. 4. WITH REGARD TO DISALLOWANCE U/S.36(1)(III), WE FOUND THAT T HE ASSESSEE COMPANY HAD BOOKED THE OFFICE PREMISES IN BHARAT DIAMOND BOURSE AT BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI IN THE YEAR 1996 AND ACCORDINGLY PAID INSTALMENTS AS DEMANDED FROM TIME TO TIME BY BHARAT DIAMOND BOURSE. THE ASSESSEE COMPANY HAD PAID THE AGGREGATE SUM OF RS.2,40,75,000 / - TILL 31 - 3 - 2005. THE ASSESSEE COMPA NY PAID FURTHER SUM OF RS.14,65,000 / - DURING THE YEAR ENDED 31 - 3 - 2006. THE AO INVOKED SECTION 36( 1 )(III) OF THE ACT AND OBSERVED THAT THE ASSESSEE COMPANY HAS USED THE BORROWED FUNDS IN PURCHASING THE OFFICE PREMISES WHICH ARE NOT PUT TO USE IN THE YEAR ENDED 31 - 3 - 2006 AND THEREFORE, A PORTION OF INTEREST PAID BY IT CANNOT BE ALLOWED AS A REVENUE EXPENDITURE BUT IT IS TO BE CAPITALISED TILL THE OFFICE PREMISES ARE PUT TO USE. ACCORDINGLY T HE ASSESSING OFFICER COMPUTED DISALLOWANCE U/S.36(L)(I II) OF THE AC T AT RS.9,45,028/ - . 5. IT WAS CONTENDED BY LD. AR THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, CAPITAL AND RESERVES TO MEET OUT THE ABOVE EXPENDITURE, THEREFORE, THE AO WAS NOT JUSTIFIED IN DISALLOWING INTEREST EXPENDITURE. ITA NO. 4500 / 1 0 3 6. FROM THE RECORD, WE FOUND THAT AS PER BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31 - 3 - 2006 WHICH SHOWS THAT IT HAS OWN FUNDS OF RS.217.63 CRORES AND FURTHER INTEREST FREE FUNDS OF RS.15.50 CRORES. OUT OF THE AFORESAID OWN FUNDS INVESTMENT IN THE OFFICE PREMISES IS RS.2.5 5 CRORES I.E., 1.18% OF THE OWN FUNDS. WE ALSO FOUND THAT DURING THE YEAR ENDED 31 - 3 - 2006 THE ASSESSEE COMPANY HAS EARNED PROFIT AFTER INTEREST, DEPRECIATION AND TAX OF RS.22.25 CRORES WHICH WAS AVAILABLE FOR MAKING INVESTMENT OF RS.14,65,000/ - IN THE OFF ICE PREMISE S. 7. RELYING ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CA E OF IT VS. RELIANCE UTILITIES & POWERS LTD. (313 ITR 340) , WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESU MPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 8. IN THE PRESENT CASE THE INVESTMENT IN OFFICE PREMISES IS ONLY 1.18% OF THE OWN FUNDS OF THE ASSESSEE COMPANY IN THE YEAR UNDER CONSIDERATION AND THEREFORE THE PRESUMPTION WOULD ARISE THAT THE ASSESSEE COMPANY HAS INVESTED ITS OWN FUNDS IN PURCHASING THE OFFICE PREMISES AND NOT USED THE BORROWED FUNDS AND THEREFORE, NO POR TION OF INTEREST PAID ON BORROWINGS CAN BE DISALLOWED INVOKING SECTION 36(1 )(III) OF THE ACT. 9. IN VIEW OF THE ABOVE , WE DO NOT FIND ANY JUSTIFICATION IN THE DISALLOWANCE MADE U/S.36(1)(III). 10 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART OR DER PRONOUNCED IN THE OPEN COURT ON THIS 21/01 / 201 5 . ITA NO. 4500 / 1 0 4 21/01 / 201 5 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 21/01 /201 5 /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//