Appeal Details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 7955 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 1 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-08-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
13-08-2014
Assessment Year
2007-2008
Appeal Filed On
17-06-2011
Judgement Text
, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.4881/MUM/2011(A.Y.2007-08) ITA NO.2992/MUM/2012(A.Y.2008-09) BAKLIWAL INVESTMENTS, 19/21, AMBALAL DOSHI MARG, 63, BOMBAY MUTUAL CHAMBERS, FORT, MUMBAI 400 023 PAN: AAEFB 8741M INCOME TAX OFFICER, RANGE-4(1)(1), MUMBAI ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) ITA NO.4880/MUM/2011 (A.Y.2007-08) ITA NO.2990/MUM/2012(A.Y.2008-09) BAKLIWAL SECURITIES (INDIA) PVT. LTD., 19/21, AMBALAL DOSHI MARG, 63, BOMBAY MUTUAL CHAMBERS, FORT, MUMBAI 400 023 PAN: AABCB 3107H INCOME TAX OFFICER, RANGE-4(1)(1), MUMBAI ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANTS BY : SHRI ANIL SATHE ()$% * + * + * + * + /RESPONDENT BY : SHRI V.R.PATIL ' * ,-' / / / / DATE OF HEARING : 13.8.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 13.08.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : ITA NO.4881/MUM/2011 AND 2992/MUM/2012 ARE APPEALS DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A)-9 MUMBAI D ATED 10/3/2011 & 23/1/2012 RESPECTIVELY FOR ASSESSMENT YEARS 2007-08 AND 2008- 09. 2. ITA NO.4880/MUM/2011 AND 2990/MUM/2012 ARE APPEA LS DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A)-9 MUMBAI D ATED 9/3/2011 AND 23/1/2012 RESPECTIVELY FOR ASSESSMENT YEARS 2007-08 AND 2008-09. ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 2 GROUNDS OF APPEAL IN ITA NO.4881/MUM/2011: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ENHANCING THE INCOME BY RS.41,60,000/-. 2. THE LEARNED CIT(APPEALS) ERRED IN CALCULATING IN TEREST ON AMOUNTS ADVANCED TO SISTER CONCERNS WITHOUT APPRECIATING THAT THE AMOUNTS WERE GIVEN IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND NOT FOR ANY PERSONAL BENEFI T OF PARTNERS. 3. THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE TH AT THE INTEREST-FREE LOANS WERE ADVANCED OUT OF OWNED FUNDS AND THAT THE INTEREST B EARING BORROWED FUNDS WERE WHOLLY USED FOR BUSINESS PURPOSE. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THERE IS DIRECT NEXUS BETWEEN THE INTEREST BEARING LOANS TAK EN AND INTEREST FREE ADVANCES GIVEN. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING. GROUNDS OF APPEAL IN ITA NO.2992/MUM/2012: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER AND DISALLOWING THE AGGREGATE EXPENSES INCURRED ON VSAT / LEASE-LINE CHARGES OF RS.1,09,791/- U/S 40(A)(IA). 2. THE LEARNED CIT(A) ERRED IN ENHANCING THE DISALL OWANCE OF 1EASELINEJ / VSAT CHARGES TO RS.2,58,611/- U/S 40(A)(IA) OF THE ACT. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.1,04,68,460/ -. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ENHANCING THE DISALLOWANCE OF INTEREST EXPENDITURE BY RS.6,56,147 /-. 5. THE LEARNED CIT (APPEALS) ERRED IN CALCULATING I NTEREST ON AMOUNTS ADVANCED TO SISTER CONCERNS WITHOUT APPRECIATING THAT THE AMOUNTS WERE GIVEN IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND NOT FOR ANY PERSONAL BENEFI T OF PARTNERS. 6. THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE TH AT THE INTEREST-FREE LOANS WERE ADVANCED OUT OF OWNED FUNDS AND THAT THE INTEREST B EARING BORROWED FUNDS WERE WHOLLY USED FOR BUSINESS PURPOSE. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THERE IS DIRECT NEXUS BETWEEN THE INTEREST BEARING LOANS TAK EN AND INTEREST FREE ADVANCES GIVEN. 8. THE LEARNED COMMISSIONER (APPEALS) ERRED IN ENHA NCING THE ASSESSED INCOME AND DISALLOWING THE TRANSACTION CHARGES OF RS.86,849/- U/S 40(A)(IA). GROUNDS OF APPEAL IN ITA NO.4880/MUM/2011: ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 3 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY DISALLOWING THE INTEREST PAID TO THE BANK OF RS.23,89,782 AS WELL AS INTEREST PAID TO MR. C.U.SHAH PERTAINING TO INTEREST FREE ADVANCES TO SISTER CONCERNS. 2. THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATI NG THE FACT THAT ON A GLOBAL BASIS THE APPELLANT HAD MORE OWN INTEREST FREE FUNDS THAN THE INTEREST FREE ADVANCES TO SISTER CONCERNS. 3. THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATI NG THAT THE ADVANCES TO SISTER CONCERNS WERE IN THE NORMAL COURSE OF BUSINESS AND THERE WAS AN ELEMENT OF COMMERCIAL EXPEDIENCY IN THE TRANSACTIONS. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THERE IS DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE ADVANCES GIVEN. 5. IN THE ALTERNATE AND WITHOUT PREJUDICE TO THE AB OVE THE LEARNED CIT(A) ERRED IN IGNORING INTEREST EARNED OF RS. 1,15,347 WHILE COMP UTING THE DISALLOWANCE. GROUNDS OF APPEAL IN ITA NO.2990/MUM/2012: 1. THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ADDITION AND TREATING THE SHARES RECEIVED IN THE PROCESS OF DEMUTUALIZATION A S AN INDEPENDENT CAPITAL ASSET AND IN TREATING THE SURPLUS AS LONG TERM CAPITAL GAIN A S AGAINST THE APPELLANTS CLAIM OF BUSINESS INCOME. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.5,95,431/- U/S. 14A READ WITH RULE 8D AS EXPENDITURE INCURRED IN RELATI ON TO EXEMPT DIVIDEND INCOME. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS.40,08,433/- BY DISALL OWING THE INTEREST PAID TO CREDITORS AND BANKS IN RELATION TO INTEREST FREE ADVANCES MAD E TO SISTER CONCERNS. 4. THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIAT ING THE FACT THAT ON A GLOBAL BASIS THE APPELLANT HAD MORE INTEREST FREE FUNDS THAN THE INT EREST FREE ADVANCES TO SISTER CONCERNS. 5. THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIAT ING THAT THE ADVANCES TO SISTER CONCERNS WERE IN THE NORMAL COURSE OF BUSINESS AND THERE WAS AN ELEMENT OF COMMERCIAL EXPEDIENCY IN THE TRANSACTIONS. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN HOLDING THAT THERE IS DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE ADVANCES GIVEN. 3. SOME OF THE ISSUES RAISED IN THE PRESENT APPEALS ARE COMMON AND BOTH THE ASSESSEES ARE OF THE SAME GROUP. THESE APPEALS WER E ALSO ARGUED TOGETHER BY BOTH THE PARTIES, THEREFORE, FOR THE SAKE OF CONVENIENCE ALL THESE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 4 4. THE ONLY ISSUE RAISED IN THE APPEAL IS REGARDING DISALLOWANCE OF RS.41,60,000/- ON ACCOUNT OF INTEREST. THIS ADDIT ION WAS NOT MADE BY THE AO BUT IS A RESULT OF ENHANCEMENT MADE BY THE LD. CIT(A) D URING THE COURSE OF HEARING OF THE APPEAL FILED BY THE ASSESSEE. DURING THE COUR SE OF HEARING OF THE APPEAL, IT WAS NOTICED BY LD. CIT(A) FROM THE BALANCE SHEET AND OT HER PAPERS THAT ASSESEE HAD ADVANCED LARGE AMOUNT OF INTEREST FREE LOANS TO THE PARTNERS OF THE FIRM OR ITS CONCERNS. IT WAS FOUND BY LD. CIT(A) THAT OUT OF THE FUNDS BORROWED BY THE ASSESSEE FROM SHRI C.U.SHAH ON WHICH INTEREST @13% WAS PAID BY THE ASSESSEE, A SUM OF RS.2.00 CRORES WAS GIVEN TO SISTER CONCERNS M/S.BAKLIWAL FINANCIAL SERVICES (I) P. LIMITED AND RS.1.00 CRORE TO SHRI PRAKASH BA KLIWAL AND FURTHER AMOUNT OF RS.20.00 LACS WAS GIVEN AS INTEREST FREE LOAN TO A NOTHER SISTER CONCERN. FINDING THAT THERE WAS A DIRECT NEXUS OF THE AMOUNT BORROWED BY THE ASSESSEE FROM SHRI C.U.SHAH AND DIVERSION THEREOF TO THE ABOVE MENTION ED THREE PARTIES, LD. CIT(A) HAS COMPUTED THE DISALLOWANCE AT RS.41,60,000/-. LD. CIT(A) HAS ADDED THIS AMOUNT TO THE INCOME OF THE ASSESSEE AND HAS REJECT ED THE CONTENTION OF THE ASSESSEE THAT THIS AMOUNT WAS ADVANCED BY THE ASSES SEE TO ITS GROUP CONCERNS FREE OF INTEREST ON ACCOUNT OF BUSINESS EXPEDIENCY. ACCO RDING TO LD. CITA) RELIANCE BY THE ASSESSEE ON THE DECISION IN THE CASE OF S.A.BUI LDERS LTD. VS. CIT, 288 ITR 1 IS MISPLACED AS THE ASSESSEE COULD NOT ESTABLISH TH E BUSINESS EXPEDIENCY. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED APPEAL FOR A.Y 2007-08. 5. AFTER NARRATING THE FACTS LD. AR REFERRED TO THE FOLLOWING CHART TO EXPLAIN THE UTILIZATION OF RS.8.00 CRORES OBTAINED BY THE ASSESSEE FROM SHRI C.U.SHAH FROM 23/7/2003 TO 11/2/2005. DATE OF RECEIPT AMOUNT TRANSFER TO UTILISED FOR REMARKS FOR THE F.Y. 2003-04 23.07.2003 5,000,000.00 TRF TO HDFC PAYIN A/C. NO.6076 FOR PAYIN (NSE) GROSS INTEREST PAID FOR THE F.Y.2003-04 25.07.2003 5,000,000.00 TRF TO HDFC PAYIN A/C. NO.6076 FOR PAYIN (NSE) RS.19,68,494/- AND TDS RS.5,30,537/- 29.09.2003 5,000,000.00 TRF TO HDFC A/C. NO.7888 TRF TO BAKLIWAL SECURITIES PVT. LTD. RS.10.00 LACS ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 5 TRF TO HDFC A/C. NO.0374 TRF TO BAKLIWAL FIN. SER. (I) PVT. LTD. RS.40.00 LACS 24.10.2003 5,000,000.00 TRF TO HDFC PAYIN A/C. NO.6076 FOR PAYIN (NSE) 30.10.2003 5,000,000.00 TRF TO HDFC PAYIN A/C. NO.6076 FOR ADDITIONAL BASE CAPITAL 08.12.2003 5,000,000.00 TRF TO HDFC A/C. NO.0374 TRF TO BAKLIWAL FIN. SER. (I) PVT. LTD. FOR THE F.Y. 2004-2005 06.10.2004 10,000,000.00 TRF TO HDFC PAYIN A/C. NO.6076 FOR PAYIN (NSE) GROSS INTEREST PAID FOR THE F.Y. 2004-2005 12.10.2004 10,000,000.00 TRF TO HDFC SAVING A/C. NO.6754 TRF. TO PARTNER PRAKASH R. BAKLIWAL RS.60,63,698/- AND TDS RS.6,68,183/- 09.12.2004 10,000,000.00 TRF TO HDFC A/C. NO.0374 TRF TO BAKLIWAL FIN. SER. (I) PVT. LTD. 10.02.2005 5,000,000.00 TRF TO HDFC A/C. NO.0374 TRF TO BAKLIWAL FIN. SER. (I) PVT. LTD. 11.02.2005 5,000,000.00 TRF TO HDFC A/C. NO.0374 TRF TO BAKLIWAL FIN. SER. (I) PVT. LTD. 80,000,000.00 5.1 IT WAS SUBMITTED BY LD. AR THAT AMOUNT OF ADVAN CE AGGREGATING TO RS.4.00 CRORES WAS UTILIZED TO MAKE PAYMENT TO ITS SISTER C ONCERN M/S.BAKLIWAL FINANCIAL SERVICES (I) P. LIMITED. THESE CONCERNS ARE CLIEN TS OF THE ASSESSEE FIRM AND THE ASSESSEE MAINTAINS A RUNNING TRADING ACCOUNT OF THE SE COMPANIES IN ITS BOOKS. SINCE THE ASSESSEE FIRM DOES NOT POSSESS THE TRADI NG RIGHTS OF BOMBAY STOCK EXCHANGE (BSE) THE SAID SISTER CONCERN WAS CARRYIN G OUT THE TRADING ACTIVITIES ON BEHALF OF THE ASSESSEE. THEREFORE, IT WAS SUBMITTE D THAT THE PAYMENT MADE TO THE SISTER CONCERNS RELATE TO PURELY BUSINESS EXPENDITU RE FOR THE INDIRECT BENEFIT OF THE ASSESSEE FIRM AND NOT FOR ANY PERSONAL BENEFIT OF T HE SISTER CONCERNS. IT WAS SUBMITTED THAT FURTHER AMOUNT OF RS.3.00 CRORES WAS UTILIZED FOR MAKING PAYMENT TO NATIONAL STOCK EXCHANGE (NSE) IN THE COURSE OF SHAR E AND STOCK TRADING TO OBTAIN TRADING RIGHTS AND ADDITIONAL CAPITAL BASE, THEREFO RE, SUCH LOAN WAS UTILIZED SOLELY FOR THE PURPOSE OF BUSINESS. WITH REGARD TO BALANC E AMOUNT OF RS.1 CRORES IT WAS ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 6 SUBMITTED THAT THE SAME WAS PAID TO ONE OF THE PART NERS OF THE ASSESSEE FIRM BEING IN THE NATURE OF CAPITAL WITHDRAWAL. IT WAS SUBMI TTED THAT THOUGH THE FIRM HAD SUFFICIENT FUNDS IN THE CAPITAL ACCOUNT OF THE RELE VANT PARTNER BUT THE FUNDS WERE LOCKED IN LONG TERM CAPITAL INVESTMENT AND THEREFO RE, THE SAID AMOUNT WAS PAID TO HIM. IT WAS SUBMITTED THAT ALL THESE CONTENTIONS WERE RAISED BEFORE LD. CIT(A) AND THEY HAVE BEEN RECORDED BY LD. CIT(A) IN PARA 3.7. THUS, IT WAS SUBMITTED BY LD. AR THAT LD. CIT(A) WAS NOT JUSTIFIED IN MAKING ADDI TION OF RS.41,60,000/-. THUS, IT WAS PLEADED BY LD. AR THAT ADDITION SHOULD BE DELET ED. 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR TH AT THE ADDITION HAS BEEN MADE BY LD. CIT(A) ONLY WITH RESPECT TO AMOUNT OF R S.2.00 CORES WHICH WAS DIVERTED BY THE ASSESSEE TO M/S. M/S.BAKLIWAL FINANCIAL SERV ICES (I) P. LIMITED. AND ALSO OF RS.1.00 CRORES WHICH WAS GIVEN TO PARTNERS AND RS. 20.00 LACS WAS GIVEN TO ANOTHER SISTER CONCERN FOR WHICH ASSESSEE COULD NOT SHOW AN Y BUSINESS PURPOSE. HE SUBMITTED THAT THE REST OF THE EXPLANATION OF THE ASSESSEE HAS BEEN ACCEPTED BY LD. CIT(A). THEREFORE, LD. DR PLEADED THAT TO THE EXTE NT DISALLOWANCE OF RS.41,60,000/- THE ASSESSEE DOES NOT HAVE ANY CASE AND THE ORDER OF LD. CIT(A) SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTE NTIONS HAVE CAREFULLY BEEN CONSIDERED. BEFORE US ALSO ASSESSEE COULD NOT SHOW ANY BUSINESS NEED OR EXPEDIENCY FOR ADVANCING THE AMOUNT OF RS.2.00 CRO RES AND RS.20.00 LACS TO M/S.BAKLIWAL FINANCIAL SERVICES (I) P. LIMITED. AND RS.1.00 CRORES TO THE PARTNER SHRI PRAKASH BAKLIWAL ON THESE AMOUNTS LD. CIT(A) HAS CALCULATED DISALLOWANCE OF INTEREST AT RS.41,60,000/-. ACCORDING TO CHART THE RE IS A DIRECT NEXUS BETWEEN OBTAINING INTEREST BEARING LOANS FROM SHRI C.U.SHAH AND DIVERSION THEREOF TO THE AFOREMENTIONED PARTIES. WITH RESPECT TO THESE AMOUN TS ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE BUSINESS PURPOSE OR EXPEDIENCY. I N ABSENCE OF ANY MATERIAL TO SUPPORT BUSINESS NEED OR EXPEDIENCY AND IN VIEW OF ESTABLISHED NEXUS BETWEEN INTEREST BEARING LOANS AND INTEREST FREE ADVANCES W HICH IS CLEAR FROM THE ABOVE CHART, WE HOLD THAT LD. CIT(A) WAS JUSTIFIED IN MAK ING ENHANCEMENT OF INCOME TO THE EXTENT OF RS.41,60,000/-. ITA NO.4881/MUM/2011 IS DISMISSED. ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 7 ITA NO.2992/MUM/2012: 8. GROUND NO.1,2 & 8 OF THIS APPEAL WERE NOT PRESS ED, THEREFORE, THEY ARE DISMISSED AS BEING NOT PRESSED. 9. APROPOS GROUND NO.3 TO 7, IT MAY BE MENTIONED H ERE THAT GROUND NO. 3 & 4 ARE SUBSTANTIVE GROUNDS AND GROUND NO.5 TO 7 ARE ARGUMENTS. IN GROUND NO.3 THE ASSESSEE IS AGITATING THE DISALLOWANCE MADE BY A.O ON ACCOUNT OF INTEREST AND GROUND NO.4 IS AGITATING THE ENHANCEMENT MADE BY LD . CIT(A) ON ACCOUNT OF INTEREST. THOUGH NO ADDITION ON ACCOUNT OF INTEREST WAS MADE BY THE AO IN ASSESSMENT YEAR 2007-08 BUT THIS YEAR THE AO NOTIC ED THAT THE ASSESSEE HAD SHOWN TOTAL INTEREST INCOME OF RS.6,46,197/- AND INTERES T EXPENDITURE OF THE ASSESSEE WERE RS.1,47,14,657/-. THE DETAIL IS DESCRIBED IN THE A SSESSMENT ORDER AS UNDER: UNSECURED LOAN (LIABILITY) RS. 11,39,83,352/- LOANS AND ADVANCES (ASSETS) RS. 19,91,47,686/- EXPENSES DEBITED AS INTEREST PAID RS. 1,13,62, 195/- EXPENSES OF BANK INTEREST RS. 33,52,462/- TOTAL INTEREST EXP ENSE RS. 1,47,14,657/- INTEREST ON INCOME TAX RS. 2,78,198/- INTEREST RECEIVED ON FDR RS. 1,79,125/- INTEREST RECEIVED RS. 1,88,874/- TOTAL INTEREST INCO ME RS. 6,46,197/- 9.1 THUS, IT WAS NOTICED BY THE AO THAT NET INTERE ST EXPENDITURE OF THE ASSESSEE ARE TO THE TUNE OF RS.1,40,68,460/-. THE ASSESSEE EXPLAINED THAT IT DID NOT CHARGE INTEREST ON LOANS AND ADVANCES. THE INTEREST ON UN SECURED LOAN PERTAIN TO LOANS PROCURED FROM SHRI C.U. SHAH FOR RS.8.00 CRORES OUT OF WHICH RS.2.50 CRORES WAS TAKEN FOR PAYMENT TO NSE AS TRADE MARGIN MONEY. H OWEVER, IN RESPECT OF BALANCE LOAN AMOUNT PROCURED FROM SHRI C.U.SHAH A SUM OF R S.3.90 CRORES WAS PAID TO SISTER CONCERNS AND RS.10.00 LCAS TO ANOTHER SISTER CONCERN. AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE IT WAS OBSERVED BY AO T HAT THE AMOUNT OF RS.3.00 CRORES WAS PAID TO NSE FOR BUSINESS PURPOSE BUT FOR THE BA LANCE AMOUNT ASSESSEES ARGUMENTS OF BUSINESS PURPOSE IS NOT ACCEPTED. THU S, AO OBSERVED THAT ASSESSEE HAS BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAVE BEEN ADVANCED TO SISTER CONCERN OR OTHERS ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 8 WITHOUT CARRYING ANY INTEREST, THUS, THE INTEREST T O THE EXTENT THE ADVANCES ARE MADE WITHOUT CARRYING ANY INTEREST HAVE TO BE DISALLOWE D. INTEREST FREE ADVANCES WAS GIVEN BY THE ASSESSEE OUT OF MIXED FUNDS WHERE BAN K IS CHARGING THEIR INTEREST, THUS, IT CAN BE SAID THAT THE INTEREST FREE ADVANCE S WERE GIVEN OUT OF INTEREST BEARING FUNDS. SINCE CHARGING OF INTEREST IS NOT PERMISSI BLE IN THE INCOME TAX ACT, PROPORTIONATE DISALLOWANCE WAS TO BE MADE TO THE E XTENT OF INTEREST CHARGEABLE ON THE ADVANCES MADE. HE WORKED OUT 12% INTEREST ON T OTAL AMOUNT OF RS.19,39,80,268/- TO A SUM OF RS.2,32,77,632/-. AS THE SAID AMOUNT WAS MORE THAN THE NET INTEREST EXPENDITURE IT WAS RESTRICTED TO NET INTEREST EXPENDITURE. A FURTHER SUM OF RS.36.00 LACS WAS ALLOWED ON ACCOUN T OF INTEREST ON RS.3.00 CRORES WHICH WAS UTILIZED FOR THE PURPOSE OF BUSINESS AND THUS, NET ADDITION OF RS.1,04,68,460/- WAS MADE. 9.2 IN THE APPEAL FILED BEFORE LD. CIT(A) THE ASSES SEE WAS REQUIRED TO EXPLAIN AS TO WHY THE ENHANCEMENT SHOULD NOT MADE AS PER ASSESSME NT YEAR 2007-08. IT WAS CONTENDED THAT NO DISALLOWANCE WAS CALLED FOR, HOWE VER, LD. CIT(A) HAS CALCULATED THE DISALLOWANCE AT RS.1,11,14,657/- AND AS DISALL OWANCE OF RS.1,04,68,460/- WAS ALREADY MADE A FURTHER SUM OF RS.6,56,197/- WAS ADD ED FOLLOWING THE DECISION OF A.Y 2007-08. ACCORDING TO LD. CIT(A) THIS DISALLOW ANCE IS AS PER HIS PREDECESSORS ORDER FOR A.Y 2007-08. THIS FACT IS MENTIONED BY L D. CIT(A) IN PARA- 6.2 OF IMPUGNED ORDER. 9.3 IT WAS SUBMITTED BY LD. AR THAT POSITION DID NO T CHANGE DURING THE YEAR UNDER CONSIDERATION. HE INVITED OUR ATTENTION TOWARDS B ALANCE SHEET OF THE PRESENT YEAR, COPY OF WHICH IS PLACED AT PAGE-1 OF THE PAPER BOOK , WHERE LOANS AND ADVANCES ARE SHOWN AT RS.19,91,47,686/- AS AGAINST SIMILAR LOANS AND ADVANCES SHOWN IN THE BALANCE SHEET FOR ASSESSMENT YEAR 2007-08, IN WHICH THESE LOANS ARE SHOWN AT RS.18,24,,88,401/-, COPY IS PLACED AT PAGE 1 OF T HE PAPER BOOK. HE SUBMITTED THAT POSITION REGARDING UNSECURED LOAN ALSO DID NOT CHAN GE MUCH AS UNSECURED LOANS FOR THE YEAR UNDER CONSIDERATION IS A SUM OF RS.11,39,8 3,352/- AS AGAINST UNSECURED LOANS OF RS. 10,39,92,848/- FOR ASSESSMENT YEAR 200 7-08. HE SUBMITTED THAT IN THE ASSESSMENT ORDER ALSO AO DID NOT COMMENT UPON ANY O THER ADVANCE EXCEPT ADVANCE RECEIVED FROM SHRI C.U. SHAH. HE IN THIS REGARD RE FERRED TO THE OBSERVATION OF AO IN PARA-5 OF THE ASSESSMENT ORDER. REFERRING TO THE O RDER OF LD. CIT(A) IT WAS SUBMITTED ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 9 BY LD. AR THAT IN THE SAID ORDER ALSO LD. CIT(A) IS RELYING ONLY UPON THE ORDER OF LD. CIT(A) PASSED FOR ASSESSMENT YEAR 2007-08. THUS, I T WAS SUBMITTED BY LD. AR THAT THE FACTS DURING THE YEAR UNDER CONSIDERATION DID N OT CHANGE AND DISALLOWANCE HAS BEEN MADE ONLY ON THE BASIS OF TOTAL LOAN AND ADVA NCES AND NO SPECIFIC INSTANCE OTHER THAN LOAN OF RS.8.00 CRORES OBTAINED BY THE A SSESSEE FROM SHRI C.U.SHAH HAS BEEN MENTIONED. RELYING UPON THE SUBMISSIONS MADE IN RESPECT OF A.Y 2007-08, IT WAS SUBMITTED BY LD. AR THAT NO ADDITION SHOULD HAV E BEEN SUSTAINED BY LD. CIT(A). 9.3 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD. CIT(A) AND PLEADED THAT ORDER PASSED BY LD. CIT(A) SHOULD BE UPHELD. 9.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GONE THROUGH T HE ORDER PASSED BY THE AO. THOUGH HE HAS MENTIONED ABOUT THE TOTAL LOANS AND ADVANCES BY THE ASSESSEE BUT HE HAS NOT CO-RELATED ANY OTHER INTEREST BEARING BO RROWED FUNDS WHICH COULD BE RELEVANT TO SHOW THAT ANY INTEREST BEARING FUND WAS UTILIZED BY THE ASSESSEE FOR NON- BUSINESS PURPOSES. IT HAS BEEN SHOWN BY LD. AR THA T POSITION REGARDING LOANS AND ADVANCES AND UNSECURED LOANS DID NOT MUCH CHANGE D URING THE YEAR UNDER CONSIDERATION. IF THERE IS NO CHANGE EITHER IN THE UNSECURED LOANS OR IN THE LOANS AND ADVANCES THEN IN ABSENCE OF ANY DIRECT MATERIA L WHICH SHOWS THE UTILIZATION OF INTEREST BEARING FUNDS TOWARDS NON-BUSINESS PURPOS ES DISALLOWANCE CANNOT BE MADE. THEREFORE, THERE IS A FORCE IN THE CONTENT ION OF LD. AR THAT THE FACTS LEADING TO DISALLOWANCE IN ASSESSMENT YEAR 2007-08 WILL LEA D TO THE DISALLOWANCE IN THIS YEAR ALSO. FOR A.Y 2007-08, AFTER CONSIDERING EACH AND EVERY ENTRY LD. CIT(A) HAS ARRIVED A CONCLUSION THAT DISALLOWANCE WAS CALLED FOR ONLY FOR AN AMOUNT OF RS.41,60,000/-. HERE IT MAY BE SUBMITTED THAT THE CHART SUBMITTED T O BY THE ASSESSEE IN RESPECT OF LOANS OBTAINED BY IT FROM SHRI C.U.SHAH CLEARLY SHO WS THAT THE LAST LOAN OBTAINED BY THE ASSESSEE FROM SHRI C.U.SHAH OF RS.50.00 LACS WAS ON 11/2/2005. THEREFORE, FOR THE ENTIRE FINANCIAL YEAR 2006-07 THE POSITION OF LOAN OF RS.8.00 CRORES OBTAINED BY THE ASSESSEE FROM SHRI C.U.SHAH DID NOT CHANGE AFTER FINANCIAL YEAR 2004-05. IN THIS VIEW OF THE SITUATION THE DISALLOWANCE MADE IN ASSESSMENT YEAR 2007-08 WILL REGULATE PRESENT YEAR ALSO. THEREFORE, WE RESTRIC T THE DISALLOWANCE ONLY TO THE EXTENT OF RS.41,60,000/- AND BALANCE DISALLOWANCE OF RS.6 3,08,460/- MADE BY THE AO AND ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 10 RS.6,56,197/- ENHANCED BY THE CIT(A) ARE DELETED. G ROUND NO.3 IS PARTLY ALLOWED AND GROUND NO.4 IS ALLOWED. 9.5 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.4880/MUM/2011 & 2990/MUM/2012: 10. IN ITA NO.4880/MUM/2011 THE ASSESSEE DID NOT PR ESS GROUND NO.5 AND IN ITA NO.2990/MUM/2012 THE ASSESSEE DID NOT PRESS GROUND NO.1 & 2. THEREFORE, ABOVE GROUNDS OF THESE APPEALS ARE DISMISSED BEING NOT PR ESSED. 11. REST OF THE GROUNDS IN BOTH THESE APPEALS RELAT E TO DISALLOWANCE OF INTEREST OF RS.23,89,782/- AND RS.40,08,433/- FOR ASSESSMENT YE ARS 2007-08 AND 2008-09 RESPECTIVELY. IT MAY BE MENTIONED HERE THAT FOR A. Y 2007-08 AO DID NOT MAKE ANY SUCH DISALLOWANCE. DURING THE COURSE OF FIRST APPE AL THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY INTEREST SHOULD NOT BE DISALLOWED ON ACCOUNT OF UTILIZATION OF INTEREST BEARING FUNDS TOWARDS NON-INTEREST BEARING LOANS AND ULTIMATELY LD. CIT(A) RELYING UPON INTEREST BEARING LOANS RECEIVED BY T HE ASSESSEE FROM SHRI C.U.SHAH AS FOUND IN THE CASE OF BALKIWAL INVESTMENT PVT. LTD . FOR A.Y 2007-08 HAS CALCULATED THE DISALLOWANCE OF RS.23,89,782/- AND RS.40,08,43 3/- FOR A.Y 2008-09 AND HAS ENHANCED THE INCOME OF THE ASSESSEE FOR BOTH THE AS SESSMENT YEARS. 11.1 IT WAS THE CONTENTION OF LD. AR THAT IN THE PR ESENT CASE THERE IS NO SUCH LOAN OBTAINED BY THE ASSESSEE FROM SHRI C.U.SHAH. HE IN THIS REGARD REFERRED TO THE BALANCE SHEET, COPY OF WHICH IS PLACED AT PAGE 1 O F THE PAPER BOOK IN WHICH UNSECURED LOANS ARE STATED TO BE RS.95,98,350/- AS PER SCHEDULE 3 OF THE PAPER BOOK, COPY OF WHICH IS PLACED AT PAGE -3 OF THE PAP ER BOOK AND DETAIL IS AS UNDER: PARTICULARS AS ON 31.03.2007 AMOUNT RS. AS ON 31.03.2006 AMOUNT RS. FROM DIRECTORS KAMAL R. BAKLIWAL TOTAL : A: FROM SHARE HOLDER ALKA K. BAKLIWAL TOTAL :B: FROM OTHERS RAMESH KUMAR JAIN HUF SUSHI DOSHI RADHAKISHAN VYAS 1,455,000.00 1,455,000.00 2,200,000.00 2,200,000.00 465,501.00 100,000.00 350,000.00 4,700,000.00 4,700,000.00 2,200,000.00 2,200,000.00 420,219.00 100,000.00 350,000.00 ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 11 R.S.PHADKE (HUF) KARAN P. BAKLIWAL BAKLIWAL CORPORATE SERVICE PVT.LTD. TOTAL : C : 300,000.00 600,000.00 4,127,849.56 5,943,350.56 300,000.00 600,000.00 4,127,849.56 5,898,068.56 TOTAL (A+B+C) 9,598,350.56 12,798,068.56 HE SUBMITTED THAT THE NAME OF SHRI C.U.SHAH IS NOT THERE AND LD. CIT(A) HAS COMMITTED AN ERROR IN RELYING UPON THE FACTS OF OTH ER CASE WHICH IS NOT PERMISSIBLE. FOR A.Y 2008-09, DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE AO DISALLOWED ONLY A SUM OF RS.2.00 LACS ON ACCOUNT OF INTEREST B EARING FUNDS TOWARDS NON-INTEREST BEARING ADVANCES. HOWEVER, LD. CIT(A) RELYING UPON THE EARLIER ORDER HAS ENHANCED THE INCOME OF THE ASSESSEE TO RS.40,08,433/-. 11.2 IN THIS VIEW OF THE FACTUAL ASPECT WE HAVE HEA RD BOTH THE PARTIES. SINCE THE REASONS GIVEN BY LD. CIT(A) FOR MAKING ENHANCEMENT IN RESPECT OF A.Y 2007-08 ARE CONTRARY TO THE FACTS EXISTED ON RECORD AND ORDER F OR A.Y 2008-09 IS SIMPLY BASED ON THE FINDINGS GIVEN IN A.Y 2007-08, WE ARE OF THE OP INION THAT THIS ISSUE HAS TO BE RESTORED BACK TO THE FILE OF AO FOR RECONSIDERATION . THE AO IS DIRECTED TO PROVIDE THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND P LACING ALL THE EVIDENCES ON RECORD ON THE ISSUE REGARDING DISALLOWANCE OF INTER EST. AFTER GIVING SUCH OPPORTUNITY, THE AO WILL RE-DECIDE THIS ISSUE AS P ER LAW FOR THESE YEARS. THEREFORE, THE GROUNDS OTHER THAN WHICH ARE NOT PRESSED BY LD. AR, THE ISSUE IS RESTORED BACK TO THE FILE OF AO AS PER DIRECTIONS GIVEN ABOVE AND THESE GROUNDS ARE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER A FORESAID. 12. IN THE RESULT, ITA NO.4881/MUM/2011 IS DISMISSE D, ITA NO.2992/MUM/2012 IS PARTLY ALLOWED AND ITA NO.4880/MUM/2011 & 2990/M UM/2012 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH AUG., 2014. 1 * ./0 2'3 13.08.2014 / * : SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 13TH AUG. 2014. VM. ITA NO.4881&4880/MUM/2011(A.Y.2007-08) ITA NO.2992&2990/MUM/2012(A.Y.2008-09) 12 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. =() / THE CIT, MUMBAI. 4. = / CIT(A)-13, MUMBAI 5. ;@: (,' , , / DR, ITAT, MUMBAI 6. :A B / GUARD FILE. 1' 1' 1' 1' / BY ORDER, );, (, //TRUE COPY// C CC C/ // /D D D D (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI
Other Referred Cases
-
Laws Referred To
-
1:1 Consultation on Startup Compliance
₹1
1:1 Consultation on Tax Litigation
₹1
1:1 Consultation on Startup Fundraising
₹5000
Affidavit - Application for condonation of delay in filing the appeal before ITAT - Type 2
Mehul₹0
Rectification Letter - Application for rectification of mistake under Section 154 of I.T. Act
Mehul₹0
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026