MULCHAND LALAJI AND CO., MUMBAI V. ASST CIT WD 12(1), MUMBAI

ITA 4522/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3797 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Rule of consistency; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4522/MUM/2011 & ITA NO. 284/MUM/2102 ASSESSMENT YEAR: 2006-07 & 2008-09 M/S MULCHAND LALJI & CO. 203,RITA MENSION, BORA BAZAR STREET, FORT , MUMBAI-400001 PAN: AAACM3553D VS. ACIT 12(1) AYAKAR BHAWAN MUMBAI. 400001 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NISHIT GANDHI REVENUE BY : SHRI PRAKASH L. PA THADE (DR) DATE OF HEARING : 11.02.2016 DATE OF PRONOUNCEMENT : 06.05.2016 O R D E R PER PAWAN SINGH, JM: 1. THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A)-23, MUMBAI DATED 29.03.2011 & 30.11.2011 RESPECTIVELY, WERE HE ARD TOGETHER AS COMMON GROUNDS OF APPEALS ARE RAISED IN BOTH THE APPEALS I.E. CONFIRMING THE DISALLOWANCE OF INTEREST OF U/S 36(III) 2. FIRST WE SHALL TAKE UP APPEAL NO.4522/MUM/2011. THE BRIEF FACT OF THE CASE ARE THAT ASSESSEE WHO IS A COMPANY , FILED HIS RETURN O F INCOME FOR AY-2006-07 ON 26.10.2006 DECLARING TOTAL INCOME OF RS. 21,73,530 /-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND AO MADE DISALLOWANCE R S. 19,22,925, U/S 36(III) BESIDES OTHER ADDITION/ DISALLOWANCE IN ITS ORDER 143(3) DATED 01/12/2008, AGAINST 2 ITA NOS. 4522/M/11 & 284/M/12 M/S MULCHAND LALJI & CO. WHICH THE APPEAL WAS FILED BEFORE THE CIT(A). THE L D. CIT(A) WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE, CONFIRMED THE ADDITION IN ITS ORDER DATED 29.01.2011 AGAINST WHICH THE PRESENT APPEAL IS FILED BEFORE US . 3. WE HAVE HEARD THE AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE AND DEPARTMENTAL REPRESENTATIVE (DR) OF THE REVENUE AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. AR OF THE ASSESSEE HA S ARGUED THAT THE ASSESSEE HAS FILED AUDIT REPORT SHOWING THAT DEBTOR-COMPANY HAD STOPPED PAYMENT OF INTERESTS. THE COMPANY WHO HAS TAKEN MONEY FROM THE ASSESSEE TO INVEST IN PLOT OF LAND AT ANDHERI. WHEN THE PLOT WAS PURCHASED BY THE SAID PARTY IT WAS FREE FROM ALL ENCUMBRANCES. AFTER SOME TIME SAID PLOT WAS SUD DENLY COME UNDER ENCROACHMENT AND DESPITE THEIR BEST EFFORT THE SAME COULD NOT BE RECOVERED AND THUS, TO REDUCE THEIR CONCURRENT LOSSES STOPPED PAY MENT INTEREST TO THE ASSESSEE. THE ASSESSEE ALSO ARGUED THAT COPY OF RESOLUTION OF SAID COMPANY IS PLACED ON RECORD (PAGE NO. 65 OF PAPER BOOK) AND STATEMENT AC COUNT OF DEBTOR-COMPANY AT PAGE NO. 55 TO 64 ALONG WITH THE PURCHASER AGREEMEN T IS ALSO PLACED ON RECORD. ON THE OTHER HAND, DR RELIED UPON THE ORDER OF AUTH ORITIES BELOW AND FURTHER ARGUED THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE IN THE INCOME-TAX PROCEEDING. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO WHILE MAKING ADDITION U /S 36(III) OBSERVED THAT THE ASSESSEE CLAIMED INTEREST EXPENSES OF RS. 44,37,115 /- ON UNSECURED LOAN OF RS.3.82 CRORE. FURTHER THE ASSESSEE HAS SHOWN INTER EST INCOME OF RS. 27,23,2018/- ON THE LOAN OF RS. 4,21,48,963/-ADVANCES BY HIM. TH E ASSESSEE WAS ASKED TO EXPLAIN THAT THE HE PAID INTEREST AT THE AVERAGE IN TEREST OF 11.5%, WHEREAS INTEREST CHARGED BY HIM IS ONLY AT 7.5%. THE ASSESSEE EXPLA INED THAT HE HAS NOT RECEIVED INTEREST SINCE 1999 FROM PARSVATEJ NIRMAN PVT LIMIT ED. SINCE 2000-01 THE ASSESSEE STOPPED CREDITING INTEREST IN ITS BOOK. A ND THE ASSESSEE DECIDED FROM 2000-01ONWARDS NOT TO CREDIT THE INTEREST TILL THE PRINCIPAL AMOUNT IS RECEIVED BACK. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPT ED BY AO. THE AO CONCLUDED THAT THE INTEREST WAS ADVANCED TO THE SISTER CONCER N , THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE INTEREST AC CRUED ON LOAN OUGHT TO HAVE 3 ITA NOS. 4522/M/11 & 284/M/12 M/S MULCHAND LALJI & CO. OFFERED TO TAX, THERE WAS NO COMMERCIAL EXPEDIENCY, IT WAS NOT ESTABLISHED THAT ASSESSEE HAVE SUFFICIENT FUNDS. THE ASSESSEE MUST E STABLISH THE NEXUS BETWEEN INTEREST EXPENDITURE AND PURPOSE OF BUSINESS. THE A O CALCULATED THE TOTAL INTEREST AS UNDER: TOTAL INTEREST PAID X AMOUNT OF INTEREST FR EE LOANS TOTAL BORROWED FUNDS = 44,37,115 X 1,65,96,451 3,82,96,000 = RS. 19,22,925 5. THE LD. CIT(A) WHILE DEALING WITH THE GROUND HAS OB SERVED THAT THE ASSESSEE HAS NOT ADEQUATELY EXPLAINED THE COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST FREE LOAN, NOR ESTABLISHED ANY NEXUS BETWEEN THE INTERES T EXPENDITURE AND THE PURPOSE OF BUSINESS. THE ASSESSEE MERELY STATED THAT THE MO NEY WAS LENT TO ITS SISTER CONCERN TO EARN INTEREST. CIT(A) FURTHER CONCLUDED THAT NO DOCUMENT WAS FURNISHED TO SHOW THAT ANY EFFORTS WAS MADE TO RECO VER THE LOAN AND CONFIRMED THE ACTION OF AO. 6. WE FIND THAT THE ASSESSEE HAS EXPLAINED THAT FROM T HE YEAR 2001-TO AY-2006-07 NOT CHARGED INTEREST FROM PERSVATEJ NIRMAN PVT. LTD . AND FURTHER EXPLAINED THAT THE SAID COMPANY HAS NOT ABLE TO PAY INTEREST TO THE AS SESSEE DUE TO EXTRAORDINARY CIRCUMSTANCES. THE NO PAYMENT OF INTEREST IS SHOWN IN THE AUDITED ACCOUNT OF THE ASSESSEE. ASSESSEE HAS FILED DOCUMENTARY EVIDENCE A BOUT THE INABILITY OF DEBTOR- COMPANY TO PAY INTEREST. THE AO DISALLOWED THE INTE REST ONLY ON HYPOTHETICAL BASIS. IT IS AN ADMITTED FACT THAT IN THE EARLIER Y EARS NO INTEREST WAS RECEIVED AND THE DEPARTMENT HAS NOT MADE ANY ADDITION ON THE SAM E GROUND. WE HAVE SEEN THE COPY OF ASSESSMENT ORDER IN RESPECT OF AY-2003-04 P ASSED U/S. 143(3) OF THE ACT (PAGE NO. 52 TO 54 OF PAPER BOOK), WHEREIN NO DISAL LOWANCE U/S. 36(III) WAS MADE. WE HAVE NOTICED THAT THE CIT(A) DIRECTED THE AO TO DISALLOW INTEREST ON THE BASIS OF DAY TO DAY BALANCES OUTSTANDING IN THE LOAN ACCO UNT OF PERSVATEJ NIRMAN PVT. LTD. AS WE HAVE ALREADY OBSERVED THAT NO ADDITION W AS MADE IN THE PAST YEAR ASSESSMENT AND THERE WAS NO CHANGE OF CIRCUMSTANCES . HENCE, KEEPING IN VIEW THE 4 ITA NOS. 4522/M/11 & 284/M/12 M/S MULCHAND LALJI & CO. PRINCIPLE OF CONSISTENCY THE CIT(A) SHOULD NOT HAVE TREATED THIS YEAR IN DIFFERENT TO THE EARLIER YEARS. AS THERE WAS NO CHANGE OF CIR CUMSTANCES FOR THE RELEVANT YEAR UNDER CONSIDERATION, THUS THE ADDITION MADE U/S. 36 (III) IN THE RELEVANT AY IS ALSO LIABLE TO BE DELETED. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 7. NOW WE SHALL TAKE UP THE APPEAL NO. 6547/MUM2010 WH EREIN THE ASSESSEE RAISED THE SIMILAR GROUNDS IN RESPECT OF AY-2008-09. 8. AS WE HAVE NOTICED THAT ONLY ONE SUBSTANTIAL GROUND IS RAISED ITA NO. 4522/M/2011 AND THE SAME IS ALLOWED IN FAVOUR OF AS SESSEE ON THE SIMILAR GROUND, HENCE, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY , WE ALLOWED THIS GROUND IN THE PRESENT APPEAL IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH MAY 2016. SD/- SD/- (B. R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 06/05/2016 S.K.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/