Amrish I. Lalwani (Jain), Jalgaon V. JCIT, Range-1, Jalgaon

ITA 543/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1176 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 25-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: N O N E
• Keywords: Business expenditure; Speculation loss; Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 543/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2008-09 AMRISH I. LALWANI (JAIN), 169, JOHARI BAZAR, DISTT.-JALGAON, JALGAON PAN : AADPL1004A ....... / APPELLANT ' / V/S. JOINT COMMISSIONER OF INCOME TAX, RANGE 1, JALGAON / RESPONDENT ASSESSEE BY : N O N E REVENUE BY : SHRI B.C. MALAKAR / DATE OF HEARING : 08-07-2015 / DATE OF PRONOUNCEMENT : 31-08-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, NASHIK DATED 10-0 1-2013 FOR THE ASSESSMENT YEAR 2008-09. THE ONLY ISSUE RAISED IN APPEAL IS DISALLOWANCE OF INTEREST PAYMENT OF RS.7,04,067/-. 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS A N INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND COMMODITIES. BESIDES 2 ITA NO. 543/PN/2013, A.Y. 2008-09 THAT, THE ASSESSEE IS A PARTNER IN TWO FIRMS ENGAGED IN J EWELLERY BUSINESS. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE IM PUGNED ASSESSMENT YEAR ON 29-09-2008 DECLARING INCOME OF RS. (- ) 16,28,574/- AND SPECULATION LOSS OF RS.10,58,99,912/-. THEREAFTER, THE AS SESSEE FILED REVISED RETURN OF INCOME ON 10-02-2009 DECLARING INCOM E OF RS.(-) 25,09,994/- AND SPECULATION LOSS OF RS.10,58,99,912/-. THE CA SE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, NO TICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 17-08-2009. DURING SCRU TINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED T HAT THE ASSESSEE HAS ADVANCED SUBSTANTIAL SUM TO ITS SISTER CON CERNS AND RELATIVES WITHOUT INTEREST, OR AT THE INTEREST LOWER THAN THE RATE AT WHICH THE INTEREST WAS PAID BY HIM AND HAD CLAIMED THE PAYMEN T OF INTEREST AS DEDUCTION. THE CONTENTION OF THE ASSESSEE IS THAT HE HAS INTEREST FREE FUNDS WHICH ARE MUCH HIGHER THAN THE AGGREGATE AMO UNT OF ADVANCES GIVEN BY HIM. THE ADVANCES HAVE BEEN GIVEN FRO M THE INTEREST FREE FUNDS. THE ASSESSING OFFICER REJECTED THE C ONTENTIONS OF THE ASSESSEE AND MADE ADDITION/DISALLOWANCE INTER-ALIA ON A CCOUNT OF INTEREST PAID ON BORROWINGS WHICH WERE ADVANCED BY THE ASSESSEE TO RELATIVES AND SISTER CONCERNS. THE ASSESSING OFFICER HAD MADE DISALLOWANCE OF RS.14,08,135/- ON THIS COUNT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 06-12-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), T HE ASSESSEE GAVE THE DETAILS OF INTEREST FREE FUNDS AVAILABLE W ITH THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER A NALYZING THE DETAILS SUBMITTED BY THE ASSESSEE HELD THAT THE ASS ESSEE HAS FAILED TO PROVE THAT HE HAD GIVEN LOAN FOR THE PURPOSE OF BUSINESS OR THERE WAS ANY COMMERCIAL EXPEDIENCY IN MAKING THE INTEREST FREE FUNDS OUT OF THE FUNDS AVAILABLE WITH HIM. THE ASSESSEE HAS FAILED TO PROVE T HE NEXUS THAT THE BORROWED FUNDS WERE UTILIZED FOR BUSINESS PURPO SE ONLY. 3 ITA NO. 543/PN/2013, A.Y. 2008-09 HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTE D THE DISALLOWANCE OF INTEREST TO 50% I.E. RS.7,04,067/- ON THE GRO UND THAT SOME OF THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSE E WERE VERY OLD. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERV ICE OF NOTICE THROUGH RPAD. AN EXAMINATION OF AD CARD WHICH IS ON REC ORD SHOWS THAT THE NOTICE HAS BEEN DULY SERVED ON THE ASSESSEE . EVEN ON THE LAST DATE OF HEARING I.E. 20-03-2015, NONE HAD APPEARED ON BEH ALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. IT SEEMS THAT THE A SSESSEE IS NOT INTERESTED IN PURSUING THE APPEAL. THEREFORE, THE APPEAL IS TAKEN UP FOR ADJUDICATION IN THE ABSENCE OF ASSESSEE IN PERSON OR HIS AR, ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 4. SHRI B.C. MALAKAR REPRESENTING THE DEPARTMENT VEHEMEN TLY SUPPORTED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (A PPEALS) AND SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST FREE LOANS TO THE SISTER CONCERNS OR RELATIVES. THE ASSESSEE HAS FURTHER FAILED TO SHOW THAT THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR BUSINESS PURPOSE ONLY. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. DR AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE DISALLOWA NCE WAS MADE BY THE ASSESSING OFFICER ON PAYMENT OF INTEREST ON B ORROWED FUNDS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA D ADVANCED INTEREST BEARING FUNDS TO ITS SISTER CONCERNS AND ITS RELA TIVES, WITHOUT CHARGING INTEREST OR AT INTEREST LOWER THAN WHAT WAS PA ID BY HIM. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD FURNISHED 4 ITA NO. 543/PN/2013, A.Y. 2008-09 THE DETAILS OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSE E. AFTER THOROUGH ANALYSIS OF THE DETAILS FURNISHED BY THE ASSESSE E, THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE DISALLOW ANCE TO 50%. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED TH E EXPLANATION FURNISHED BY THE ASSESSEE WITH THE FOLLOWING OBSERVATION S: 7. THE APPELLANT HAS NOT GIVEN ANY EXPLANATION AS TO WHY, HOW THE LOANS TO THE GROUP CONCERNS/OTHER PERSONS IN THE FO RM OF INTEREST FREE ADVANCES ARE IN BUSINESS INTEREST AND WHY THE BORRO WED FUNDS GIVEN AS ADVANCES TO THESE PERSONS COULD NOT BE TREATED AS D IVERSION OF BORROWED FUNDS FOR NON-BUSINESS PURPOSES AND WHY THE INTERES T PAID ON THEM SHOULD NOT BE DISALLOWED. THE APPELLANT NEITHER PRO VED THE ISSUE OF COMMERCIAL EXPEDIENCY IN HIS OWN HAND NOR IN THE HA NDS OF THOSE PERSONS TO WHOM INTEREST FREE LOANS WERE MADE. IN V IEW OF THE ABOVE, THE APPELLANT CAN'T GET ANY SUPPORT FROM THE DECISION O F HON'BLE SC IN THE CASE OF SA BUILDERS LTD VS CIT 288 ITR 1(SC). IN AB SENCE OF ANY NEXUS BETWEEN THE INTEREST FREE FUNDS AND INTEREST FREE A DVANCES THERE IS ALWAYS A POSSIBILITY OF INTEREST BEARING FUNDS BEIN G DIVERTED TO ITS OWN ASSOCIATE CONCERNS/RELATED PERSONS FOR NON-BUSINESS PURPOSES. EVEN THE APPELLANT WITH LIQUIDITY CANNOT CLAIM THAT IT CAN G IVE INTEREST FREE ADVANCES AND THEN BORROW FUNDS FROM THE BANK ON INT EREST FOR BUSINESS PURPOSES. SUCH BORROWING WILL NOT BE FOR BUSINESS P URPOSES BUT FOR SUPPLEMENTING THE CASH DIVERTED BY THE ASSESSEE WIT HOUT ANY BENEFIT TO IT. IN THE PRESENT CASE WHEN THE APPELLANT HAS ADVA NCED HUGE FUNDS WITH NO INTEREST/LOW INTEREST IN GROUP CONCERNS OR RELAT ED PERSONS OUT OF THE MIXED FUNDS ON WHICH IT WAS PAYING INTEREST AND CLA IMING THE SAME AS DEDUCTION IN THE P& L A/C, HEAVY ONUS LIES ON THE A PPELLANT TO JUSTIFY DEDUCTION OF INTEREST PAID ON LOANS TO THAT EXTENT. THE THEORY OF DIRECT NEXUS OF THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON BUSINESS PURPOSES CANNOT BE ACCEPTA BLE. RATHER, THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PU RPOSE OF BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. COURTS H AVE HELD THAT APPELLANT'S SUBMISSION THAT THE AMOUNT IS ADVANCED FROM A MIXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS ETC., THE SAME WOULD NOT BE TERMED AS DIVERSION OF BORROWED CAPITAL OR THAT REVENUE HAD N OT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS ADVANCED TO THE SISTER CONCERNS WITH THE BORROWED FUNDS IS NOT TENABLE. THEREFORE, INTEREST PAID BY THE APPELLANT TO THE EXTENT THE AMOUNTS WERE DIVERTED TO SISTER C ONCERNS /OTHER RELATED PERSONS AS INTEREST FREE ADVANCES WITHOUT ANY COMME RCIAL EXPEDIENCY IS TO BE DISALLOWED. THE APPELLANT HAS CLEARLY FAILED TO ESTABLISH THAT THE BORROWED FUNDS WERE USED FOR THE BUSINESS PURPOSES ONLY. 5 ITA NO. 543/PN/2013, A.Y. 2008-09 6. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASS ESSEE HAS PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COU RT RENDERED IN THE CASE OF S.A. BUILDERS LTD. VS. COMMISSIONER OF INCOM E TAX (APPEALS), CHANDIGARH REPORTED AS 288 ITR 1 (SC). THE HON' BLE APEX COURT IN THE AFORESAID CASE OBSERVED THAT IT IS NOT THA T IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESS EE ADVANCES IT TO A SISTER CONCERN. IT DEPENDS ON THE FACTS AND CIRCU MSTANCES OF THE RESPECTIVE CASE. HOWEVER, IF THE AMOUNT IS FORWARDED FOR COMMERCIAL EXPEDIENCY/BUSINESS PURPOSE THE AMOUNT IS SURELY ALLOWAB LE AS BUSINESS EXPENDITURE. THE RELEVANT EXTRACTS OF THE ORDE R OF THE HONBLE SUPREME COURT OF INDIA IS AS UNDER: 25. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN E XPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NO T HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. XXXXXXXXXX XXXXXXXXXX 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPI NION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOW EVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMM ERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERA TED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE S UBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINI ON, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED L OANS. 7. IN THE PRESENT CASE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A CATEGORIC FINDING THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THE BUSINESS EXPEDIENCY FOR ADVANCING THE LOAN. FU RTHER, THE 6 ITA NO. 543/PN/2013, A.Y. 2008-09 ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETW EEN THE INTEREST EXPENDITURE AND THE BUSINESS. THEREFORE, WE ARE OF THE C ONSIDERED OPINION THAT THE RATIO LAID DOWN BY THE HONBLE APEX COU RT IN THE CASE OF S.A. BUILDERS LTD. VS. COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH (SUPRA) WOULD NOT COME TO THE RESCUE OF THE A SSESSEE. WE FIND THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS ) IS WELL REASONED AND JUSTIFIED. THUS, NO INTERFERENCE IS WARRANTE D IN THE IMPUGNED ORDER. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON MONDAY, THE 31 ST DAY OF AUGUST, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 31 ST AUGUST, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-II, NASHIK 4. ' / THE CIT-II, NASHIK 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. / // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- / ITAT, PUNE