SUNIL DEVAKINANDAN SEKSARIA, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 31(3)(EARLIER ACIT-CIRCLE-2,THANE), MUMBAI

ITA 5375/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6240 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 18-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Keywords: Salary income; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE S HRI S. RIFAUR RAHMAN (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 5375/MUM/2017 ASSESSMENT Y EAR: 2012 - 13 SHRI SUNIL DEVAKINANDAN SEKSARIA, FLAT NO. 1602, ANMOL PRESTIGE BUILDING, NEAR HU DAI SHOWROOM, S.V. ROAD, MOTILAL NAGAR, GOREGAON (W), MUMBAI - 400104 PAN: ACCPS2383Q VS. THE ASSTT. COMMISSIONER OF INCOME TAX 31 (3), BKC, MUMBAI 400051(EARLIER ACIT, CIRCLE 2, THANE) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHARMESH SHAH (AR) REVENUE BY : SHRI V. VINOD KUMAR ( DR ) DATE OF HEARING: 15 /10 /201 9 DATE OF PRONOUNCEMENT: 10 / 01 /20 20 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 24.03.2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 (FOR SHORT THE CIT(A) , THANE , FOR THE ASSESSMENT YEAR 2012 - 13 , WHEREBY THE LD. CIT(A) HAS DISMISSED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 1 43(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DERIVING INCOME FROM SALARY, SHARE OF PROFIT FROM PARTNERSHIP FIRM, HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT RS. 1,18,90,306/ - . T HE CASE WAS SELECTED FOR S CRUTINY AND THE AO ISSUED NOTICE U/S 143 (2) OF THE ACT. IN RESPONSE THEREOF, THE AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE AO AND FILED THE DETAILS CALLED FOR. SINCE T HE ASSESSEE HA D DEBITED INTEREST OF LOAN 2 ITA NO. 5375 / MUM/2017 ASSESSMENT YEAR: 2012 - 1 3 AMOUNTING TO RS. 26,96,817/ - IN THE PROFIT AND LOSS ACCOUNT, AO ASKED THE ASSESSEE TO FURNISH THE EVIDENCE IN SUPPORT OF ITS CLAIM. THE AR SUBMITTED THAT THE ASSESSEE CLAIMED INTEREST EXPENSES OF RS. 26,96,817/ - ON UNSECURED LOANS TAKEN IN EARLIER YEARS WHICH WERE INVESTED IN THE CAPITALS OF VARIOUS FIRMS AND PRIVATE LIMITED COMPANIES IN WHICH THE ASSESSEE WAS PARTNER/DIRECTOR , FROM WHERE THE ASSESSEE WAS GETTING REMUNERATION AND SHARE S OF PROFIT. THE AR FURTHER SUBMITTED THAT SINCE THE ASSESSEE HAD ENTERED INTO NUMBER OF TRANSACTIONS, IT IS DIFFICULT TO MATCH ONE TO ONE CO - RELATION BETWEEN UNSECURED LOANS TAKEN AND ITS UTILIZATION IN EARLIER YEARS. SINCE, THE ASSESSEE FAILED TO MATCH ONE TO ONE CO - RELATION , TO ESTABLISH THAT THE LOANS TAKEN WERE UTILIZED FOR THE PURPOSE OF TDR , WHICH WAS SOLD DURING THE YEAR UNDER CONSIDERATION AND EARNED PROFIT AT RS. 4,82,400/ - , T HE AO HELD THAT THE ASSESSEE UTILIZED THE LOAN AMOUNTS FOR MAKING INVES TMENTS . ACCORDINGLY, THE CLAIM OF THE INTEREST PAYMENT OF RS. 26,96,817/ - WAS ALLOWED FOR CAPITALIZATION IN THE INVESTMENT MADE BY THE ASSESSEE AND MADE DISALLOWANCE OF RS. 26,96,817/ - (INCLUDING INTEREST EXPENSES AMOUNTING TO RS. 98,703/ - ON CAR LOAN) AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND CONFIRMED THE ADDITION MADE BY THE AO. AGAINST THE SAID FINDINGS, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3 . THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUND : - 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DI SALLOWANCE OF INTEREST EXPENSES OF 25,98,167/ - ON UNSECURED LOAN. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF 98,703/ - ON CAR LOAN. 4. BEFORE US, THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 3 ITA NO. 5375 / MUM/2017 ASSESSMENT YEAR: 2012 - 1 3 26,96,817/ - INCLUDING THE INTEREST EXPENSES OF RS. 98,703/ - ON CAR LOAN. THE LD. COUNSEL POINTED OUT THAT THE ASSESSEE EARNED AN AMOUN T OF RS. 1,18,90,310/ - DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO RECEIVED UNSECURED LOANS AMOUNTING TO RS. 5,54,17,944/ - . SINCE, THE ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE FOR MAKING VARIOUS BUSINESS ADVANCES; THE LD. CI T (A) OUGHT TO HAVE SET ASIDE THE FINDINGS OF THE AO. THE LD. COUNSEL RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES (CIVIL APPEAL NO 19 OF 2019), JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTIL ITIES AND POWER LTD. 313 ITR 340 (BOMBAY), AND DECISIONS OF THE MUMBAI TRIBUNAL, SUBMITTED THAT THE FINDINGS OF THE LD. CIT (A) ARE CONTRARY TO THE RATIO LAID DOWN IN AFORESAID CASES . THE LD. COUNSEL FURTHER CONTENDED THAT THE ASSESSEE HAD RAISED VARIOUS UNSECURED LOANS FROM HIS FAMILY MEMBERS AND RELATIVES . PART OF THESE LOANS WERE INTEREST FREE AND PART OF THE LOANS WERE INTEREST BEARING AND T HE ASSESSEE HAS CLAIMED THE INTEREST ON SUCH INTEREST BEARING UNSECURED LOANS . 5. ON THE OTHER HAND, THE LD. DE PARTMENTAL REPRESENTATIVE (DR) SUPPORTING THE ORDER PASSED BY THE LD. CIT (A) , SUBMITTED THAT , SINCE THE ASSESSEE HAS FAILED TO FILE ANY DOCUMENTARY EVIDENCE TO SHOW THAT THE INTEREST BEARING UNSECURED LOANS RAISED BY THE APPELLANT HAD UTILIZED FOR THE PUR POSE OF BUSINESS, THE LD. CIT (A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. THE ONLY GRIEVANCE OF THE ASSESSEE IS T HAT THE LD. CIT (A) HAS WRONGLY CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 26,96,817/ - . WE NOTICE THAT AO HAS DISALLOWED THE EXPENSES ON THE GROUND THAT THE ASSESSEE HAS UTILIZED THE LOAN AMOUNTS FOR THE PURPOSE OF MAKING INVESTMENTS. THE LD . CIT (A) HAS DISALLOWED THE SAME HOLDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE USE OF INTEREST BEARING UNSECURED LOANS FOR THE PURPOSE OF BUSINESS. DURING THE ARGUMENTS, THE LD. COUNSEL SUBMITTED A CHA RT 4 ITA NO. 5375 / MUM/2017 ASSESSMENT YEAR: 2012 - 1 3 SHOWING DETAILS OF OWN FUNDS AND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE , A S PER WHICH , THE ASSESSEE HAD RS. 2,57,18,456/ - IN ITS CAPITAL ACCOUNT, UNSECURED LOANS (INTEREST FREE) AMOUNTING TO RS. 3,45,13,444/ - AND CURRENT LIABILITIES AND DEPOSI TS (INTEREST FREE ) AMOUNTING TO RS. 25,00,000/ - 7. NOW T HE QUESTION BEFORE US IS WHETHER THE ASSESSEE HA D UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF HIS BUSINESS TO CLAIM INTEREST EXPENDITURE. PERUSAL OF THE BALANCE SHEET AND THE FINANCIALS OF THE AS SESSEE REVEAL THAT THE ASSESSEE HAD HIS OWN INTEREST FREE FUNDS AMOUNTING TO RS. 2.57 CRORES. THE ASSESSEE BORROWED UNSECURED INTEREST FREE LOANS TO THE EXTENT OF RS. 3.5 CRORES, HOWEVER, THE AUTHORITIES BELOW HAVE NOT GIVEN ANY FINDINGS ON THIS ASPECT . WE FURTHER NOTICE THAT ASSESSEE HAS MADE INVESTMENTS IN PROPERTIES, SECURITIES AND INVESTM ENT IN FIRMS AND PRIVATE LTD. TO THE EXTENT OF RS. 8.5 CRORES. FURTHER, THE ASSESSEE HAS INVESTED IN FIRMS AND PVT. LTD. AS SHARE MONEY TO THE EXTENT OF RS. 12.5 LACS. SINCE THE ASSESSEE HAD CAPITAL OF RS. 2.57 CRORES AND INTEREST FREE FUNDS OF RS. 3.45 CRORES, WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE INVESTMENTS IN QUESTION MADE BY THE ASSESSEE D URING THE RELEVANT PERIOD. IN THE CASE OF RELIANCE UTILITIES AND POWER (SUPRA), T HE HONBLE BOMBAY HIGH COURT HAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT OR LOAN TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD B E OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. HENCE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT) , WE HOLD THAT THE ASSESSEE HAS UTILIZED THE INTEREST BEARING BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND THE INVESTMENTS IN QUESTION WERE MADE FROM ITS OWN INTEREST FREE FUNDS AVAILABLE WITH IT . WE ACCORDINGLY ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 25,98,167/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES ON UNSECURED LOAN AND RS. 98,703/ - MADE ON CAR LOAN. 5 ITA NO. 5375 / MUM/2017 ASSESSMENT YEAR: 2012 - 1 3 IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2012 - 2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN CO URT ON 10 TH JANUARY, 2020 . SD/ - SD/ - ( S. RIFAUR RAHMAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER M UMBAI ; DATED: 10 / 01 / 20 20 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI