ITO 22(1)(2), NAVI MUMBAI V. JETHALAL LAXMICHAND DEDHIA, MUMBAI

ITA 4806/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8135 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 4806/MUM/2013 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER-22(1)(2) VS. SHRI JETHALAL LAXMICHAND DEDHIA ROOM NO. 405, 4 TH FLOOR TOWER NO. 6, VASHI RAILWAY STATION COMPLEX, VASHI NAVI MUMBAI 400705 D-2, PANCHVATI, M.G. ROAD GHATKOPAR (E), MUMBAI 400077 PAN - AABPD5572C APPELLANT RESPONDENT APPELLANT BY: SHRI AKHILENDRA P. YADAV RESPONDENT BY: NONE DATE OF HEARING: 13.10.2014 DATE OF PRONOUNCEMENT: 13.10.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL IS FILED AT THE INSTANCE OF THE REVENUE AND IT PERTAINS TO AY 2007-08. 2. THE FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.10 LAKHS MADE OUT OF INTEREST WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF TDS IN RESPECT OF PAYM ENT OF INTEREST. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE DISALLOWANCE O F INTEREST OF RS.10 LAKHS PAID BY THE ASSESSEE TO THE PARTY AS CO MPENSATORY INTEREST WITHOUT APPRECIATING THE FACTS THAT THE SA ME AMOUNT HAS BEEN TRANSFERRED TO RAJSHREE REALTORS LTD. WHER EIN THE ASSESSEE HAD A SUBSTANTIAL INTEREST IN THE COMPANY. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. ITA NO. 4806/MUM/2013 SHRI JETHALAL LAXMICHAND DEDHIA 2 3. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HEARD T HE LEARNED D.R. AND CAREFULLY PERUSED THE RECORD. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, IN HIS CAPACITY AS A BUILDER, TOOK UPON DEVELOPMENT ACTIVITY OF TWO PROPERTIES, NAMELY, PANCHAVADI NX AND KAVITA KUMKUM. ACCORDING TO THE ASSESSEE THERE WAS AN AGREEMENT WITH M/S. MOHANLAL D. PASAD (HUF) WHEREBY THE ASSESSEE INTENDED TO SELL TWO FLATS IN PANCHAVATI NX FOR A C ONSIDERATION OF ` 50 LAKHS PER FLAT AND THE ASSESSEE IN TURN WAS PAID ` 45 LAKHS EACH IN THE YEAR 2006 ON VARIOUS DATES. THE POSSESSION OF THE FLATS HAD TO B E GIVEN WITHIN SIX MONTHS BUT THE ASSESSEE COULD NOT GIVE THE POSSESSION OF T HE SAME AND HENCE M/S. MOHANLAL D. PASAD, HUF SOUGHT TO CANCEL THE AGREEME NT AND ALSO ASKED ASSESSEE TO PAY THE ADVANCE AMOUNT WITH INTEREST. A CCORDINGLY ASSESSEE PAID A SUM OF ` 10 LAKHS TOWARDS INTEREST. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF ` 12,64,756/- OUT OF WHICH ` 10 LAKHS WAS REFERABLE TO PAYMENT MADE TO M/S. MOHANLA L D. PASAD, HUF. IN HIS OPINION SUCH PAYMENT IS NOT WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS. THEREFORE, HE CALLED UPON M/S. MOHANLAL D . PASAD, HUF TO VERIFY CANCELLATION OF AGREEMENT TO PURCHASE TWO FLATS IN THE BUILDING KNOWN AS PANCHAVATI NX. A LETTER DATED 12.12.2006 BETWEEN TH E ASSESSEE AND M/S. MOHANLAL D. PASAD, HUF WAS PLACED BEFORE THE AO WHE REIN IT WAS STATED THAT THE PURCHASER DECIDED TO TAKE BACK THE MONEY A ND CANCELLED THE AGREEMENT BECAUSE THE ASSESSEE FAILED TO COMPLETE T HE WORK WITHIN THE PRESCRIBED TIME. IT IS ALSO STATED THAT THOUGH FORM AL AGREEMENT COULD NOT BE EXECUTED THE ASSESSEE IS DUTY BOUND TO REFUND THE S UM ALONGWITH REASONABLE INTEREST ON THE ADVANCE AMOUNT. THE HUF, VIDE THEIR LETTER DATED 18.11.2009 FURNISHED DETAILS OF THE PAYMENT RECEIVE D/ RECEIVABLE FROM THE ASSESSEE. ON VERIFICATION OF THE BANK STATEMENT OF M/S. MOHANLAL D. PASAD, HUF THE AO NOTICED THAT THE ALLEGED PURCHASER RECEI VED AN AMOUNT OF ` 45 LAKHS ON 05.01.2007 AND THE SAME AMOUNT WAS TRANSFE RRED ON 06.01.2007 TO RAJSHREE REALTORS LTD. WHEREIN SHRI JETHALAL DED HIA HAS SUBSTANTIAL INTEREST IN THE COMPANY AND HENCE THIS IS NOTHING B UT ADJUSTMENT OF THE AMOUNT. HE, THEREFORE, OBSERVED THAT IT IS ONLY AN ARRANGEMENT MADE ITA NO. 4806/MUM/2013 SHRI JETHALAL LAXMICHAND DEDHIA 3 BETWEEN THE ASSESSEE AND THE HUF WITHOUT THERE BEIN G ANY WRITTEN AGREEMENT WITH REGARD TO PAYMENT OF INTEREST AND HE NCE IT IS ONLY WITH A VIEW TO REDUCE TAX LIABILITY OF THE ASSESSEE. HE AL SO NOTICED THAT EVEN TAX WAS NOT DEDUCTED AT SOURCE ON THE SO CALLED PAYMENT OF INTEREST AND EVEN ON THAT COUNT DISALLOWANCE IS MAINTAINABLE UNDER SECTION 40 (A)(IA) OF THE ACT. 5. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T THE RECEIPT OF MONEY IS NOT DISPUTED BY M/S. MOHANLAL D. PASAD, HU F AND IT IS ALSO A FACT THAT THE SAID PARTY HAS DULY OFFERED THE SAME IN TH E RETURN OF INCOME FILED AND PAID TAX ON THE SAME. ASSESSEE HAS ALSO FILED P ROOF TO SHOW THAT IT HAS ALSO DEDUCTED TAX AT SOURCE ON THE INTEREST PAID TO THE SAID PARTY AND ENCLOSED COPY OF CHALLEN SHOWING PAYMENT OF TDS. IT WAS ALSO CONTENDED THAT THOUGH THE ASSESSEE PAID INTEREST TO M/S. MOHA NLAL D. PASAD, HUF, IT COULD RECEIVE BACK ALL THE RIGHTS AND TITLES IN THE SAID FLATS WHICH HELPED THE ASSESSEE TO SELL THE SAME PROPERTY AT A HIGHER PRIC E. SALES SHOWN TO THIRD PARTIES WERE HIGHLIGHTED TO SHOW THAT THE ASSESSEE EARNED ADDITIONAL PROFIT ON SALE OF THE ABOVE MENTIONED TWO FLATS. IT WAS TH US CONTENDED THAT MERELY BECAUSE THE ASSESSEE HAD A SUBSTANTIAL INTEREST IN THE PROJECT OF RAJSHREE REALTORS LTD. THE AO IS NOT JUSTIFIED IN DISALLOWIN G THE CLAIM OF THE ASSESSEE ON MERE SURMISES PARTICULARLY WHEN THE ASSESSEE GOT ADDITIONAL BENEFIT ON SALE OF THE SAID FLATS. 6. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) SET ASIDE THE ADDITION BY OBSERVING AS UNDER: - 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE SUBMISSIONS OF THE APPELLANT AND ASSESSMENT ORDER. THE AMOUNT OF RS.10,00,000/- PAID BY THE ASSESSEE TO THE PARTY IS MORE IN NATURE OF COMPENSATORY INTEREST TO THE TOTAL AMOUNT OF RS.90, 00,000/- TO THE PARTY AS THE APPELLANT COULD NOT DELIVER THE POSSES SION OF FLATS WITHIN THE AGREED PERIOD BETWEEN THE PARTIES. THEREFORE, T HE PAYMENT OF RS.10 LACS HAS BUSINESS NEXUS. THIS EXPENDITURE IS INCURR ED BECAUSE OF COMMERCIAL EXPEDIENTLY. THEREFORE, IT IS ALLOWED. I N VIEW OF THIS, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N OF RS.10 LACS. GROUND IS ALLOWED . 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED D.R. AND ALSO PERUSED THE RECORD. IT IS NOT DISPUTED THAT TH E ASSESSEE PAID REASONABLE RATE OF INTEREST ON THE ADVANCE RECEIVED FROM M/S. MOHANLAL D. PASAD, HUF. ITA NO. 4806/MUM/2013 SHRI JETHALAL LAXMICHAND DEDHIA 4 THE SAID PARTY ALSO ADMITTED TO HAVE RECEIVED THE M ONEY AND OFFERED IT TO TAX. IT IS ALSO NOT IN DISPUTE THAT THE FLATS WHICH WERE MEANT TO BE SOLD TO M/S. MOHANLAL D. PASAD, HUF WERE CANCELLED, UPON PA YMENT OF PRINCIPAL ALONGWITH REASONABLE RATE OF INTEREST, AND THEREAFT ER THE ASSESSEE COULD SELL THE SAME FLATS AT HIGHER PRICE. HAVING REGARD TO TH E CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW THAT THE INTEREST PAYMENT I S ALLOWABLE AS DEDUCTION. THE LEARNED CIT(A), IN OUR OPINION, WAS JUSTIFIED I N TREATING THAT THERE IS A BUSINESS NEXUS BETWEEN PAYMENT OF INTEREST AND RESA LE OF THE SAID TWO FLATS. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORD ER PASSED BY THE CIT(A). 8. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER, 2014. SD/- SD/- (SANJAY ARORA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 13 TH OCTOBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 19, MUMBAI 4. THE CIT 22, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.