ADDL CIT 6(1), MUMBAI V. A 2 Z ONLINE SERVICES P. LTD, MUMBAI

ITA 4955/MUM/2009

• Counselvise Citation: 495519914 RSA 2009
• Duration Of Justice: 4 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH PO PHARE
• Assessee Lawyers: DHARMESH SHAH
• Keywords: Business income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , , BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIA L MEMBER . / ITA NO. 4 955 / MUM./ 2009 ( / ASSESSMENT YEAR : 20 0 6 07 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S. A 2 Z ONLINE SERVIC ES PVT. LTD. CULTURAL CENTRE OF RUSSIA 31 A, DR. GOPAL RAO DESHMUKH PEDDAR ROAD, MUMBAI 400 026 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER A ACCA5376J / REV ENUE BY : MR. ASHISH PO PHARE / ASSESSEE BY : MR. DHARMESH SHAH / DATE OF HEARING 10 . 0 4 .201 4 / DATE OF ORDER 30.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE, CHALLENGING THE IMPUGNED ORDER DATED 21 ST JANUARY 2009, PASSED BY THE LEARNED COMMISSIONER (APPEALS) V I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 06 07 , VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF ` 19,38,913 (WRONGLY WRITTEN AS ` 18,38,913 IN THE GR OUNDS OF APPEAL) REPRESENTING INTEREST ATTRIBUTABLE TO INTEREST FREE LOANS ADVANCED OUT OF INTEREST BEARING LOAN WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN THE INTEREST BEARING LOANS AND THE INTEREST FREE ADVANCE. 2 . F ACTS IN BRIEF : TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FINANCE, SERVICE RELATING TO ACCOUNTING, PROJECT MANAGEMENT, LEGAL, FINANCE PROCUREMENT AND COMPLIANCE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS TAKEN HUGE LOANS DURING THE YEAR AN D HAS ALSO RE PAID SOME OF THEM. THE LOANS TAKEN W ERE BOTH INTEREST BEARING LOANS AS WELL AS INTEREST FREE LOANS. THE ASSESSEE HAS ALSO ADVANCED LOANS ON INTEREST AND ALSO AS INTEREST FREE. AS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT IN RESPONSE TO THE QUERY AS TO WHY INTEREST ATTRIBUTABLE TO INTEREST FREE LOANS SHOULD NOT BE DISALLOWED, THE ASSESSEE HAD SUBMITTED THAT ONLY THOSE INTEREST SHOULD BE DISALLOWED WHICH HAVE BEEN GIVEN AS INTEREST FREE LOANS FROM INTEREST BEARING FUNDS / LOANS . THE ASSESSEE HAS ALSO GIVEN WORKING ON THE BASIS OF PRODUCT METHOD. THUS, THE AMOUNT OF ` 19,38,913 WAS HELD TO BE DISALLOWABLE. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE VEHEMENTLY OBJECTED TO THE OBSERVATION AND FINDINGS OF THE ASSESSIN G OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE CORRECT FACTS ON RECORD. IN FACT, BEFORE THE ASSESSING OFFICER, IT WAS ARGUED THAT THE ASSESSEE HAD SUBSTANTIAL OWN FUNDS / INTEREST FREE FUNDS WHICH WERE USED TO ADVANCE THE I NTEREST FREE LOANS TO VARIOUS PERSONS, HENCE, THE PRESUMPTION DRAWN BY THE ASSESSING M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 3 OFFICER THAT THE SAID ADVANCES WERE GIVEN OUT OF INTEREST BEARING LOANS IS INCORRECT. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN MUNJAL SALES CORP ORATION V/S CIT, [2008] 298 ITR 298 (SC), WHEREIN, THE HON'BLE SUPREME COURT HAS HELD THAT IF THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THEM THEN ON THE IMPUGNED LOAN GIVEN WITHOUT INTEREST, THEN NO AMOUNT SHOULD BE DISALLOWED UNDER SECTION 36(1)(III). ANOTHER DECISION OF THE BOMBAY HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD. , [2009] 313 ITR 340 (BOM.), WAS ALSO RELIED UPON. A DETAIL CHART OF THE INTEREST FREE FUNDS AVAILABLE AND THE INTEREST FREE LOANS WHICH WERE GIVEN WAS ALSO SUBMITTED. ALTERNATIVELY, IT WAS ARGUED THAT THE INTEREST WHICH HAS BEEN PAID AND CLAIMED AS EXPENDITURE WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HENCE, NO DISALLOWANCE SHOULD IS CALLED FOR. 4 . THE LEARNED COMMISSI ONER (APPEALS), AFTER EXAMINING THE MATERIAL PLACED ON RECORD, NOTED THAT THE ASSESSEE HAS TAKEN INTEREST BEARING LOANS ON WHICH INTEREST TO THE TUNE OF ` 1,82,74,880, WAS PAID WHICH HAS BEEN CLAIMED AS DEDUCTION. APART FROM THE INTEREST BEARING LOAN, THE ASSESSEE HAS ALSO INTEREST FREE LOANS TO THE EXTENT OF ` 29,76,48,648. THUS, SUBSTANTIAL FUNDS WERE AVAILABLE ON WHICH NO INTEREST WAS PAYABLE . THE AVAILABILITY OF INTEREST FREE FUNDS IN THE BALANCE SHEET WAS ALSO NOTED BY HIM IN THE FOLLOWING MANNER: P ARTICULARS A.Y. 2006 07 SHARE CAPITAL ` 1,00,000 RESERVE INCLUDING CURRENT YEAR PROFIT ` 5,85,42,051 CURRENT LIABILITIES 5,67,89,935 INTEREST FREE LOANS TAKEN DURING THE YEAR ` 29,76,48,648 TOTAL: ` 41,30,80,634 M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 4 5 . THUS, HE CONCLUDED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS OUT OF WHICH INTEREST FREE LOANS OF ` 9,39,79,832 WAS GIVEN. HE ALSO HELD THAT THE DECISION OF BOMBAY HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD. (SUPRA) IS ALSO DIRECTLY APPLICABLE. HE ALSO APPRECIATED THE A SSESSEES ALTERNATE SUBMISSION AND HELD THAT THE INTEREST WHICH HAS BEEN PAID AND CLAIMED AS DEDUCTION ARE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND, HENCE, THE SAME IS ALLOWABLE UNDER SECTION 36(1)(III). HE ALSO REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN S.A. BUILDERS V/S CIT, [ 2007 ] 288 ITR 001 (SC). 6 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ONE HAS TO SEE THE AVAILABILITY OF INTEREST FREE FUNDS AT THE TIME OF ADVANCING THE INTEREST FREE LOANS AND THAT EXERCISE HAS NOT BEEN EXAMINED BY THE LEARNED COMMISSIONER (APPEALS). REFERRING TO THE FIGURES OF THE BALANCE SHEET AS AT 31 ST MARCH 2005, HE POINTED OUT THAT RESERVE AND SURPLUS INCLUDING SHARE CAPITAL WAS ONLY ` 4,49,191. THUS, THE AVAILABILITY OF OWN FU NDS WAS QUITE MEAGER UP TO 31 ST MARCH 2005. THEREAFTER, THE ASSESSEE HAD ADVANCED HUGE INTEREST FREE LOANS TO SOME PERSONS IN THE MONTH OF APRIL 2005 ITSELF . HE FURTHER SUBMITTED THAT THE NEXUS BETWEEN THE INTEREST FREE LOANS RECEIVED AN D INTEREST FREE LOA NS GIVEN HAS TO BE SUBSTANTIATED BY THE ASSESSEE. IN SUPPORT OF HIS CONTENTIONS, HE STRONGLY RELIED UPON THE DECISION OF THE KERALA HIGH COURT IN CIT V/S HARRISONS MALAYALAM LTD., [2012] 25 TAXMAN.COM 546 (KER.). 7 . THE LEARNED COUNSEL, ON THE OTHER HAND, SU BMITTED THAT INSOFAR AS THE OBSERVATIONS AND FINDINGS OF THE ASSESSING OFFICER ARE CONCERNED THAT THE ASSESSEE HAS ACCEPTED BEFORE THE ASSESSING OFFICER THAT ONLY M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 5 THOSE INTEREST SHOULD BE DISALLOWED ON THE ADVANCE OF INTEREST FREE LOANS , WHICH WERE GIVEN O UT OF INTEREST BEARING FUNDS IS NOT CORRECT BECAUSE THE ASSESSEES MAIN CONTENTION W ERE TWO FOLDS; FIRSTLY, THE ASSESSEE HAD HUGE INTEREST FREE FUNDS WHICH WERE GIVEN TO CERTAIN PERSONS AS INTEREST FREE LOANS AND, SECONDLY, THE INTEREST, WHICH HAS BEEN PAI D AND CLAIM ED BY THE ASSESSEE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE WORKING WHICH WAS GIVEN BEFORE THE ASSESSING OFFICER WAS WHOLLY WITHOUT PREJUDICE AND THAT TOO W AS PREPARED AT THE INSTANCE OF THE ASSESSING OFFICER. HE FURTHER SUBMI TTED THAT ON THE FACTS OF THE CASE, IF THE AVAILABILITY OF INTEREST FREE FUNDS IS TO BE SEEN THEN THE ASSESSEE HAD MORE THAN ` 41.40 CRORES OF FUNDS WHICH WERE INTEREST FREE, OUT OF WHICH THE ASSESSEE HAS ONLY GIVEN ` 9,39,79,832 AS INTEREST FREE LOAN. THE ASSESSEES MAIN BUSINESS IS TO PROVIDE FINANCING AND ITS INTEREST INCOME HAS BEEN ASSESSED AS BUSINESS INCOME BY THE ASSESSING OFFICER , WHICH IS EVIDENT FROM THE FACT THAT T HE ASSESSEE HAS GIVEN INTEREST BEARING LOANS OF MORE THAN ` 50.53 CRORES FROM WHIC H THE ASSESSEE HAS EARNED HUGE INTEREST INCOME. HE ALSO FURNISHED THE DETAILS OF INTEREST FREE LOANS RECEIVED FROM VARIOUS PARTIES AND ALSO THE DETAILS OF INTEREST FREE LOANS GIVEN. FROM THESE DETAILS, HE POINTED OUT THAT THE ASSESSEE HAD RECEIVED OVERALL ` 71.95 CRORES AS INTEREST FREE LOANS DURING THE YEAR ON VARIOUS DATES AND THE CLOSING BALANCE AS ON 31 ST MARCH 2006 WAS AT ` 29,76,48,648, WHEREAS THE INTEREST FREE LOANS GIVEN TO VARIOUS PERSONS DURING THE YEAR WAS AT ` 19,60,10,696 AND AS ON 31 ST MARCH 2006, THE CLOSING BALANCE WAS ONLY ` 9,39,79,832. BESIDES THIS, HE SUBMITTED THAT THE ASSESSEE HAS HUGE PROFIT IN THIS YEAR AND AFTER TAX THE NET PROFIT WAS ` 5,81,26,556. THUS, HE SUBMITTED THAT THE AVAILABILITY OF INTEREST FREE LOAN, RESERVE AND SURPLUS INCLUDING CURRENT PROFIT WERE SUFFICIENT TO MEET THE REQUIREMENT OF INTEREST FREE ADVANCE / LOANS M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 6 GIVEN BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE INTEREST FREE LOANS WERE NOT GIVEN TO ANY RELATED PARTIES BUT TO OUTSIDERS WHOLLY AND EXCLUSIVELY DURING THE COURSE OF THE BUSINESS. THE INTEREST, WHICH HAS BEEN PAID ARE ONLY FOR THE BUSINESS PURPOSE , AS THE ASSESSEES MAIN INCOME IS INTEREST ONLY. THEREFORE, THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(III) SHOULD NOT BE DISTURBED. HE REITERATED THE CASE LAW S WHICH WERE RELIED UPON BEFORE THE LEARNED COMMISSIONER (APPEALS). 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE MAIN DISPUTE IS DISALLOWANCE OF INTEREST ON THE GROUND THAT THE ASSESSEE HAS GIVEN INT EREST FREE LOANS OUT OF INTEREST BEARING FUNDS. FROM THE MATERIAL PLACED ON RECORDS, IT IS SEEN THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO VARIOUS PERSONS AS ON 31 ST MARCH 2006 AT ` 9,39,79,832. THE AVAILABILITY OF VARIOUS INTEREST FREE LOANS AND FU NDS HAVE ALSO BEEN PROVIDED WHICH GOES TO SHOW THAT AT THE YEAR END SUCH INTEREST FREE LOANS WERE AT ` 29,76,48,648. BESIDES THIS, THE ASSESSEE HAD CURRENT YEARS PROFIT OF MORE THAN ` 5.81 CRORES. THE AVAILABILITY OF INTEREST FREE FUNDS HAVE ALSO BEEN NOT ED BY THE LEARNED COMMISSIONER (APPEALS) WHICH HAS BEEN INCORPORATED ABOVE IN THE FORGOING PARAGRAPH. BASED ON THESE AVAILABILITY OF FUNDS, THE LEARNED COMMISSIONER (APPEALS) HAS HELD THAT INTEREST FREE LOAN IS OUT OF THESE FUNDS ONLY. SUCH A FINDING OF TH E LEARNED COMMISSIONER (APPEALS) APPEARS TO BE PRIMA FACIE CORRECT. FROM THE DETAILS, WHICH HAS BEEN SUBMITTED, IT IS SEEN THAT DURING T H E MONTH OF APRIL 2005 ITSELF, THE ASSESSEE HAS RECEIVED HUGE INTEREST FREE LOANS WHICH AGGREGATED TO MORE THAN ` 50 CRO RES. OUT OF THESE FUNDS, THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LOANS IN THE MONTH OF APRIL. BESIDES THIS, IF THE AVAILABILITY OF OVER ALL INTEREST FREE LOANS HAS TO BE SEEN, THEN THE ASSESSEE HAS RECEIVED MORE THAN ` 71.95 CRORES OUT OF WHICH INTEREST FREE LOAN DURING THE YEAR GIVEN WAS AT ` 19,60,10,696. M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 7 FROM THESE FACTS, A PRESUMPTION CAN BE DRAWN THAT THE INTEREST FREE LOAN HAS BEEN GIVEN OUT OF THESE INTEREST FREE UNSECURED LOANS RECEIVED BY THE ASSESSEE. THUS, WE DO NOT FIND ANY REASON TO DEVIATE F ROM THE CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS). BES IDES THIS, IT IS ALSO NOTED THAT THE ASSESSEE HAS ALSO GIVEN HUGE LOANS WHICH ARE INTEREST BEARING AND ON WHICH THE ASSESSEE HAD SHOWN INTEREST INCOME OF ` 1.96 CRORES. THE INTEREST WHICH H AS BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS, HAS BEEN SHOWN AT ` 1.83 CRORES, WHICH HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 36(1)(III) . S UCH A CLAIM OF DEDUCTION CANNOT BE DISALLOWED , UNLESS IT HAS BEEN SHOWN THAT THE ASSESSEE HAS ACTUALLY DIVERTE D ITS INTEREST BEARING LOAN EITHER FOR SOME NON BUSINESS PURPOSE OF FOR PERSONAL USE. THERE IS NO DIVERSION OF INTEREST BEARING LOAN FOR ANY OTHER PURPOSE EXCEPT FOR THE PURPOSE OF THE BUSINESS. HENCE, THE CLAIM OF THE ASSESSEE UNDER SECTION 36(1)(III) CAN NOT BE DISALLOWED. THUS, THE FINDING AND THE CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS) APPEARS TO BE FACTUALLY AND LEGALLY CORRECT AND WE DECLINE TO INTERFERE IN THE MATTER AS SUCH. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9 . 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 30 TH APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL 2014 . SD / - . . N.K. BILLAIYA ACCOUNTANT MEMBE R SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 30 TH APRIL 2014 M/S. A 2 Z ONLIN E SERVICES PVT. LTD. 8 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI