Sri.T. Muhammed Mustafa, Malappuram V. The ACIT, Tirur

ITA 525/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8606 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSE
• Assessee Lawyers: SHAJI PAULOSE
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3); 263

Judgement Text

ITA NO . 525/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 525/COCH/2015 (ASST YEAR 2010 - 11 ) SHRI T MUHAMMED MUSTHAFA THARAYIL CEMENT DEALER MAKKARAPARAMBA PO MALAPPURAM 676 507 VS THE ASST COMMR OF INCOME TAX CIRCLE 1, TIRUR MALAPPURAM DIST ( APPELLANT) (RESPONDENT) PAN NO. ADVPM0478Q ASSESSEE BY SH SHAJI PAULOSE REVENUE BY SH SHANTOM BOSE, CIT - DR DATE OF HEARING 18 TH MAY 2016 DATE OF PRONOUNCEMENT 24 TH MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE CITS ORDER DATED 14.8.2015 PASSED U/S 263 OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. 2 THE REVISED GROUNDS READ AS UNDER: 1 . THE ORDER OF THE LEARNED CIT IS OPPOSED TO FACTS AND AGAINST LAW . 2 . THE LEARNED CIT OUGHT TO HAVE SEEN THAT THE ASSESSING OFFICER HAD MADE PROPER ENQUIRIES AT THE TIME OF ASSESSMENT REGARDING PAYMENT OF INTEREST TO BANKS AND ACCORDINGLY FOUND THAT THERE ARE NO GROUNDS EXISTING FO R DISALLOWANCE OF ANY PORTION OF THE SAME. ITA NO . 525/C/2015 2 3.THE LEARNED CIT OUGHT TO HAVE SEEN THAT THARAYIL AUTOMOBILES PRIVATE LIMITED IS A CONCERN IN WHICH THE ASSESSEE T . MOHAMMED MUSTHAFA IS HAVING INTIMATE CONNECTION AND THE FUNDS ADVANCED TO THE SAID CONCERN IS O UT OF COMMERCIAL EXPEDIENCY. 4 . THE LEARNED CIT OUGHT TO HAVE SEEN THAT THE ORDER OF ASSESSING OFFICER IS NOT ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND HENCE OUGHT NOT HAVE EXERCISED JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT 1961 AND OUGHT TO HAVE SEEN THAT THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS. 5. LT IS SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE GROUNDS OTHER MAY BE ALLOWED AT THE TIME OF HEARING. 3 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A N INDIVIDUAL. HE DERIVES INCOME FROM BUSINESS BY WAY OF TRADING IN CEMENT AND STEEL . THE ASSESSEE IS ALSO A DIRECTOR OF M/S THARAYIL AUTOMOBILES PVT LTD, A DEALER IN HYUNDAYI VEHICLES. THE ASSESSMENT FOR THE RELEVANT YEAR WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DA T ED 28.3.2014. 4 SUBSEQUENTLY, THE CIT ISSUED NOTICE U/S 263 OF THE ACT. ACCORDING TO THE CIT, THE ASSESSEE HAD INCURRED HUGE INTEREST EXPENDITURE ON BORROWINGS AND DIVERTED INTEREST FREE TO M/S THARAYIL AUTOMOBILES PVT LTD. THEREF ORE, ACCORDING TO THE CIT, PROPORTIONATE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE OUGHT TO HAVE BEEN DENIED DEDUCTION. THE OBJECTIONS RAISED BY THE ASSESSEE WERE REJECTED BY THE CIT AND HE PASSED AN ORDER U /S 263 ON 14.8.2015 . THE CIT SET ASIDE THE AS SESSMENT AND DIRECTED THE AO TO EXAMINE WHETHER INTEREST FREE FUNDS HAVE BEEN DIVERTED FOR NON BUSINESS PURPOSES. THE RELEVANT FINDINGS OF THE CIT READ AS UNDER: ITA NO . 525/C/2015 3 11 FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE NEXUS BETWEEN THE OVER DRAFT AVAILED FOR THE INDIVIDUAL BUSINESS OF THE ASSESSEE FROM THE SOUTH INDIA BANK AND THE INVESTMENT MADE IN M/S THARAYIL AUTOMOBILES PVT LTD NEED FURTHER VERIFICATION. THE ADMISSIBILITY OF DEDUCTION OF INTEREST PROPORTIONATE TO THE DIVER TED BORROWED FUND, PAID TOWARDS TH E OVER DRAFT AVAILED FROM THE SOUTH INDIA BANK HAS NOT BEEN VERIFIED. IT IS APPARENT THAT THE AO HAS NOT MADE SUFFICIENT ENQUIRIES/VERIFICATION TO ASCERTAIN THE ADMISSIBILITY OF THE DEDUCTION CLAIMED U/S 36(1)(III) OF THE INCOME TAX ACT, IN RESPECT OF INTE REST ON BORROWED CAPITAL. IT IS SEEN THAT THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT PROPER APPLICATION OF MIND. THEREFORE, THE ASSESSMENT ORDER PASSED ON 28.3.2014 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE . HENCE, I HEREBY SET ASIDE THE ASSESSMENT ORDER ON THE ABOVE PAINT AND DIRECT THE AO TO CONDUCT PROPER VERIFICATION IN THIS REGARD AND TO PASS THE ASSESSMENT ORDER AS PER LAW AFTER AFFORDING SUFFICIENT OPPORTUNITIES TO THE ASSESSEE. 5 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO WHILE COMPLETING THE ASSESSMENT U/S 143(3) HAD CONDUCTED PROPER ENQUIRIES AND APPLIED HER MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAS TAKEN ONE OF THE POSSIBLE VIEWS . THEREFORE, IT WAS SUBMITTED THAT THE ORDER OF THE CIT U/S 263 IS WITHOUT JURISDICTION. 6 THE LD DR, ON THE OTHER HAND SUBMITTED THAT THE ISSUE OF DIVERSION OF FUNDS AND LIABILITY ON INTEREST EXPENDITURE WAS NEVER EXAMINED BY THE AO IN THE COURSE OF ASSESSMENT . IT WAS SUBMITTED THAT THE ASSESSEE, WHO HAD CLAIMED A HUGE INTEREST EXPENDITURE OF RS. 1,03,13,974/ - OUGHT TO HAVE ESTABLISH ED THAT THE DIVERSION OF FUNDS AR E OUT OF COMMERCIAL EXPEDIENCY . IT WAS SUBMITTED THAT THE CIT HAD ONLY DI RECT THE A O TO EXAMINE THE SAME AND HENCE NO INTERFERENCE OF CIT ORDER U/S 263 IS CALLED FOR. ITA NO . 525/C/2015 4 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CLAIM OF THE LD AR THAT THE AO HAS CONDUCTED PROPER ENQUIRIES AND HAD APPLIED HER MIND ON FA CTS AND CIRCUMSTANCES OF THE CASE IS NOT FULLY CORRECT . IN THE INSTANCE CASE, ON PERUSAL OF THE RECORDS, WE FIND THAT ONLY QUESTION THAT WAS ASKED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS WITH REGARD TO THE DETAILS OF THE INTEREST E XPENDITURE. NO QUESTION WAS ASKED TO THE ASSESSEE BY THE AO WITH REGARD TO DIVERSION OF FUNDS TO M/S THARAYIL AUTOMOBILES P LTD. THERE IS NO DISCUSSION ON THIS ASPECT AS REGARDS DIVERSION OF FUNDS AND DEDUCTIBILITY OF INTEREST EXPENDITURE EITHER IN THE ASS ESSMENT ORDER OR IN THE ORDER SHEET . THE INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW WILL LEAD TO AN ORDER OF ASSESSMENT BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, ACCORDING TO US, THE CIT HAS RIGHTLY INV OKED HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT. T HE CIT HAS ONLY SET ASIDE THE ASSESSMENT AND REMANDED THE MATTER TO TH E AO FOR DE - NOVA CONSIDERATION AND THE ASSESSEE IS AT LIBERTY TO PLACE ALL NECESSARY DOCUMENTS/EVIDENCES BEFORE THE AO FOR ESTABL ISHING THAT THE FUNDS HAVE BEEN DIVERTED OUT OF COMMERCIAL EXPEDIENCY. IF FUNDS ARE DIVERTED OUT OF COMMERCIAL EXPEDIENCY, NECESSARILY THERE CANNOT BE ANY DISALLOWANCE OF INTEREST EXPENDITURE GOING BY THE DICTUM LAID DOWN BY THE HONBLE APEX COURT IN T HE CASE OF SA BUILDERS CASE REPORTED IN 288 ITR 1. FOR THE AFORESAID REASONS, WE REJECT THE CONTENTIONS RAISED BY THE ASSESSEE. IT IS ORDERED ACCORDINGLY. ITA NO . 525/C/2015 5 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF MA Y 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 24 TH , M AY 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN