JALARAM ENTERPRISES CO. P. LTD., MUMBAI V. ACIT CENT CIR. 3, MUMBAI

ITA 4988/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6849 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 04-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Section: 143(3)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN , J M & HONBLE SH. N. K. PRAD HAN, A M ./ I.T.A. NO . 4988 / MUM/ 201 6 ( / ASSESSMENT YEAR: 2011 - 12 ) M/S JALARAM ENTERPRISES CO. P. LTD, 7, PATHAI NIWAS, N. S. ROAD, MULUND (WEST) MUMBAI - 400080 / VS. ACIT, CC - 3 , OLD CGO BUILDING, 9 TH FLOOR, M. K. ROAD , MUMBAI - 400 020 ./ ./ PAN/GIR NO. A A BCJ 6334 N ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENTBY : MS. POOJA SWAROOP , DR / DATE OF HEARING : 25 /0 4 /201 8 / DATE OF PRONOUNCEMENT : 2 9/05/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 47 , MUMBAI, DATED 2 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, 28.06.16 FOR AY 2011 - 12 O N THE GROUNDS MENTIONED HEREIN BELOW: - THE APPELLANT - COMPANY IS AGGRIEVED BY THE ORDER PASSED U/S. 143(3) OF THE INCOME - TAX ACT, 1961 BY ID. CIT (A) - 47, MUMBAI AND IS IN APPEAL 1. BECAUSE, ID. CIT(A) HAS ERRED IN FAILING TO ADJUDGE THE GROUND NO.5(B) BEFORE HER RELATING TO THE DUPLICATION OF ADDITION OF RS.773,704/ - 2. BECAUSE, ID. CIT(A) FAILED TO CONSIDER THAT AS PER HER OWN ORDER OUT OF RS.77 3,704/ - AN AMOUNT OF RS.607,130/ - STOOD ALLOWED AS BEEN GENUINELY CLAIMED AND RS.166,574/ - IS STOOD DISALLOWED. 3. BECAUSE, ID. CIT(A) HAS ERRED IN UPHOLDING THE TOTAL DISALLOWANCE MADE BY THE ID. AO IN RESPECT OF FUNDS ADVANCED TO M/S G.H. & CO. EVEN THOU GH THE SAME WAS ARITHMETICALLY INCORRECT AS THE LOAN HAD NOT BEEN ADVANCED ON THE FIRST DATE OF THE YEAR. 4. BECAUSE, THE ID. CIT(A) HAS ERRED IN DISALLOWING THE INTEREST CLAIMED U/S. 36(1) (III) AMOUNTING TO RS.816,316/ - ON THE GROUND THAT THE FUNDS HAVE BEEN TRANSFERRED TO THE SISTER CONCERN WITHOUT CHARGING INTEREST IGNORING THAT THE APPELLANT HAS ITSELF TAKEN COGNIZANCE OF THE MUTUAL INTEREST INCURRED ON THE SAME AND HAD DULY CAPITALIZED IT. 3 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, 5. BECAUSE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UP HOLDING THE DISALLOWANCE OF CAPITALIZATION OF INTEREST TO THE TUNE OF RS. 1,29,184/ - ON THE GROUND THAT THE FUNDS HAVE BEEN TRANSFERRED TO SISTER CONCERN FOR NON - BUSINESS PURPOSE. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY OR DELETE AN Y OFTHE GROUND. 2 . AT THE VERY OUTSET, IT IS NOTICED THAT NONE HAS APPEARED ON BEHALF OF ASSESSEE IN SPITE OF SEVERAL CALLS AND EVEN NO APPLICATION FOR ADJOURNMENT WAS MOVED . ON THE OTHER HAND L D. DR IS PRESENT IN THE COURT AND IS READY WITH ARGUMENTS. TH EREFORE WE HAVE DECIDED TO PROCEED WITH THE HEARING OF THE CASE EX - PA RTE WITH THE ASSISTANCE OF THE L D. DR AND THE MATERIAL PLACED ON RECORD. 3. AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS E - FILED ON 25 .09.11 DECLARING TOTAL INCOME OF RS. NIL . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STA TUTORY NOTICE 4 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, AND SEEKING REPLY, ORDER OF ASSESSMENT U/S 143(3) WAS PASSED BY AO THEREBY MAKING ADDITIONS UNDER VARIOUS HEADS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, DISMISSED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE APPEAL BY RAISING THE ABOVE GROUNDS. 4 . AT THE VERY OUTSET, LD. DR DRAWN OUR ATTENTION TO GROU ND NO. 1 & 2 RAISED BY THE ASSESSEE, THEREBY CHALLENGING THE ORDER OF LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS. 1,66,574/ - PAID TO APNA SAHAKARI BA NK AND FOR NOT ADJUDICATING GROUND NO. 5(B) RAISED BEFORE LD. CIT(A). 5. WE HAVE HEARD LD. DR AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS DEALT WITH THE ABOVE GROU NDS RAISE D BY THE ASSESSEE IN PARA NO. 4.3 OF ITS ORDER. 5 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, AFTER HAVING GONE THROUGH THE ORDER PASSED BY LD. CIT(A), WE FIND THAT LD. CIT HAD RIGHTLY DISMISSED THI S GROUND AS NO T PRESSED , BECAUSE VIDE ORDER SHEET NOTING DATED 26.04.16, THE ASSESSEE HIMSELF HAD STATED THAT THIS GROUND IS NOT PRESSED. T HEREFORE THE SAME CANNOT BE PRESSED AT THIS STA GE. ACCORDINGLY, WE DISMISS THESE GROUNDS RAISED BY THE ASSESSEE AND THE OTHER GROUND NO. 5(B) BEFORE THE LD. CIT(A) WAS ALSO DECIDED IN PARA NO. 4.4 OF IT ORDER. 6 . LD. DR ALSO DRAWN OUR ATTENTION TO OTHER GROU ND NO. 3 TO 4 RAISED BY THE ASSESSEE, WHEREIN CHALLENGING THE ORDER OF LD. CIT(A) IN DISALLOWING THE INTEREST CLAIMED U/S. 36(1) (III) AMOUNTING TO RS.816,316/ - AND ALSO ERRED IN UPHOLDING THE DISALLOWANCE OF CAPITALIZATION TO THE TUNE OF RS. 1,29,184/ - ON THE GROUND T HAT FUNDS HAVE BEEN TRANSFERRED TO SISTER CONCERN FOR NON - BUSINESS PURPOSE. 7 . WE HAVE HEARD LD. DR AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS DEALT WITH THE A BOVE 6 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, GROUNDS RAISED BY THE ASSESSEE IN PARA NO. 4.4 OF ITS ORDER AND T HE OPERATIVE POR TION OF THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: - I HAVE CAREFULLY CONSIDERED THE FACTS ON THE ISSUE. IT IS STATED THAT DURING F.Y. 2010 - 11, THE APPELLANT ADVANCED A SUM OF RS.65,00,000/ - , FROM FUNDS BORROWED ON INTEREST, TO M/S G.H. & CO., OSTENSIBLY PROPOSING TO PURCHASE PLOT NO.2, SECTOR 2, ULWE NODE, MUMBAI. THE APPELLANT AND M/S G.H. & CO., HAVE SHRI HARESHMAJETHIYA, IN COMMON AS DIRECTOR/PARTNER IN THE TWO ENTITI ES RESPECTIVELY. AS PER THE APPELLANT, THE TRANSACTION WAS LATER CANCELLED ON ACCOUNT OF PAUCITY OF FUNDS AND THE MONEY WAS REFUNDED BY M/S G.H. & CO. IN F.Y.2012 - 13. IT IS THE APPELLANT'S CONTENTION THAT THIS WAS A BUSINESS TRANSACTION AND THEREFORE DOES NOT CALL FOR DISALLOWANCE U/S 36(1)(III). THE AO ON THE OTHER HAND WAS NOT SATISFIED THAT THE TRANSACTION WAS RELATED TO THE BUSINESS OF THE APPELLANT AS THERE WAS NO EVIDENCE IN THE FORM OF THE AGREEMENT TO PURCHASE THE LAND AND THE LETTER OF CANCELLATION APPEARED TO BE A SELF - SERVING DOCUMENT. I FIND THAT EVEN IN APPEAL, THE APPELLANT HAS NOT BEEN ABLE TO FURNISH ANY DOCUMENT TESTIFYING TO THE SO - CALLED DEAL AND HAS LARGELY PLACED RELIANCE ON THE FACT THAT THE MONEY WAS SUBSEQUENTLY REFUNDED AND HAS STATE D THAT THE CANCELLATION OF THE 7 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, DEAL WAS BORNE OUT BY THE LETTER DATED 28.06.2012. THERE IS NO EVIDENCE REGARDING ANY SO - CALLED DISPUTE BETWEEN THE APPELLA NT AND M/S. G.H. &CO.ON PERUSAL OF THE DOCUMENTS, IT IS SEEN THAT THE SAID LAND WAS ULTIMATELY PURCHAS ED BY SHRI HARESHMAJETHIYA IN HIS INDIVIDUAL CAPACITY VIDE (.AGREEMENT DATED 06.06.2012. IT IS DIFFICULT TO UNDER STAND, WHY A DIRECTOR IN A COMPANY , WHO ONEARLIER OCCASIONS, HAS ADVANCED FUNDS TO THE APPELLANT COMPANY FOR PURCHASE OF LAND ETC. WOULD NOT DO SO THIS TIME AND INSTEAD OPT TO PURCHASE THE LAND IN QUESTION IN HIS INDIVIDUAL CAPACITY? THE TRANSACTION THUS APPEARS TO BE CORRECTLY INTERPRETED BY THE AO TO BE A COLLUSIVE ONE, STRUCTURED IN A MANNER SO AS TO AVOID CHARGING INTEREST FROM M/S G.H. & CO. IN THE ABSENCE OF AN ORIGINAL AGREEMENT TO SUPPORT THE CLAIM OF THE APPELLANT THAT SUCH A DEAL WAS ACTUALLY ENTERED INTO, THE SUBSEQUENT CANCELLATION LETTER APPEARS TO BE AN AFTERTHOUGHT. IN THE SUBMISSIONS MADE THE APPELLANT HAS RELIED ON THE CASE LAWS W HICH ARE DISTINGUISHED IN THE FOLLOWING PARAGRAPHS: (A) M/S . RATAN SILK MILLS GALA WOOD WORK COMPOUND V. ITO 2014 (3) TMI535 (MUMBAI ITAT) - PERUSAL OF THE DECISIONS SHOWS THAT THIS WAS A CASE WHERE FUNDS WERE HELD TO HAVE BEEN USED FOR BUSINESS PURPOSES A ND THE TRIBUNAL HELD THAT AS LONG AS THIS WAS THE CASE THE DISALLOWANCE UNDER SECTION 36(1)(III) 8 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, COULD NOT BE UPHELD. IN THE INSTANT CASE, IT HAS NOT SATISFACTORILY BEEN PROVED THAT THE FUNDS WERE USED FOR BUSINESS PURPOSES. (B) DEE GEE EXPORTS V. ITO 2014 (4) TMI 392 (MUMBAI ITAT) - IN THISCASE, THE TRIBUNAL HELD THAT BORROWED CAPITAL MUST CONTINUE TO BE USED FOR BUSINESS PURPOSES. AS STATED EARLIER, IN THE PRESENT CASE BUSINESS USE IS NOT SUFFICIENTLY DOCUMENTED. (C) SSPSL LTD. V. DCIT (2013) 24 ITR (TRIB ) 290 (HYDERABAD) - IN THISCASE, THE TRIBUNAL HELD THAT WHEN INTEREST HAD NOT BEEN HELD TO BE FOR NON - BUSINESS PURPOSES, DISALLOWANCE UNDER RULE 8D(2)(II) COULD NOT BE UPHELD. (D) ACIT V. MIS. BAGMANE DEVELOPERS PVT. LTD. 2013 (11) TMI 676 (ITATBANGALORE) - IN THIS CASE, THE APPELLANT, A COMPANY WAS FOUND TO HAVE ROUTED FUNDS THROUGH INDIVIDUALS FOR PURCHASE OF THE LAND AS COMPANIES WERE NOT ALLOWED TO DO SO. THE ASSESSEE COMPANY WAS FOUND TO HAVE ENTERED INTO AGREEMENTS WITH SUCH INDIVIDUALS. IN THE PRESEN T APPELLANT'S CASE, AS OBSERVED BY THE ASSESSING OFFICER THERE IS NO SUCH AGREEMENT. 9 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, AFTER HAVING GONE THROUGH THE ORDER PASSED BY LD. CIT(A), WE FIND THAT LD. CIT HAD RIGHTLY APPRECIATED THE FACTS OF THE PRESENT CASE BY UPHOLDING THE DECISION OF AO IN RESPECT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) MADE BY THE ASSESSEE AND ALSO REDUCTION OF CAPITALIZED INTEREST AMOUNTING TO RS. 1,29,184/ - BY CONSIDERING THAT ASSESSEE HAD NO DOCUMENTARY PROOF REGARDING THE DEAL OF ITS CANCELLATION. IT WAS THUS FOU ND THAT FUNDS WERE TRANSFERRED TO ITS SISTER CONCERN WITHOUT CHARGING OF INTEREST. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT (A) . THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT (A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. THUS, WE FIND NO INFIRMITY IN THE O RDER UNDER CHALLENGE. THE SAME IS HEREBY UPHELD. RESULTANTLY, THESE GROUND S RAISED BY THE ASSESSEE STANDS DISMISSED . 10 I.T.A. NO. 4988 /MUM/201 6 M/S JALARAM ENTERPRISES CO. P. LTD, 8 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY, 2018. SD/ - SD/ - (N. K. PRADHAN ) ( SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 29 . 05 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI