ITO WD 21(1)(1), MUMBAI V. BHIMJI N. PATEL, MUMBAI

ITA 5605/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2381 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B MUMBAI. BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 I.T.O. WD. 21(1)(1), ROOM NO.603, 6 TH FLOOR, C-10, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA(E), MUMBAI. VS.` SHRI BHIMJI NANAJI PATEL PROP. M/S. NEW INFINITY 13, AMRAPALI SHOPPING CENTRE, V.M. MARG, VILE PARLE (W), MUMBAI- 400 056. PAN/GIR NO. AAEPP1014H APPELLANT RESPONDENT ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 05.06.2012 OF COMMISSIONER OF INCOME TAX (APPEALS) {(HEREINAFTER REFERRED TO AS CIT(A)} FOR A.Y. 2009-10. THE ONLY GROUND RAI SED IN THE APPEAL READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS. 17,35,000 /- MADE U/S 2(22)(E) OF THE LT. ACT. 1961. APPELLANT BY SHRI SAMIR TEKRIWAL RESPONDENT BY SHRI P. R. RAIYANI DATE OF HEARING 14.10.2015 DATE OF PRONOUNCEMENT 20.11.2015 2 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 2 OF 9 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE BUSINESS O F THE COMPANY A WELL AS THE ASSESSEE IS NOT PRIMARILY MONEY LENDING AS SUBS TANTIAL INCOME OF THE COMPANY IS FROM RENT. 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN THE FORM OF APPROVAL OF RBI OR APPLICAT ION FOR NBFC TO PROVE THAT THE ASSESSEE'S MAIN BUSINESS IS MONEY LENDING. ' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW. THE LD CIT (A) HAS FAILED TO APPRECIATE THAT IN THE CASE O F CIT VS PARLE PLASTICS LTD (BOM), IT WAS HELD THAT THE BUSINESS OF THE ASS ESSEE WAS COMPLIMENTARY TO THE BUSINESS OF THE COMPANY WHICH DOES NOT HOLD IN THIS CASE.' 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS.8,06,719/- ON ACCOUNT OF INTEREST INCOME. 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW. THE LD. CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS ADVANCING LOANS AT A LOWER RATE OF INTEREST AND TAKING LOANS AT A HIGHER RATE OF INTEREST.' 2. GROUND NO. 1 TO 4 ARE AGAINST THE DELETION OF A DDITION BY CIT(A) OF RS. 17,35,000/- MADE BY THE AO U/S 2(22)(E) OF THE AC T. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS 50 % SHARE HOLDER AS WELL AS DIRECTOR OF M/S MONIKA REALTORS PVT. LTD. THE ASSES SEE BORROWED MONEY FROM THE SAID COMPANY IN THE EARLIER YEARS AND THE AMOUNT OUTSTANDING AS ON 31.03.2009 WAS RS. 2,41,65,631/-. THE ASSESSEE HAD PAID INTERE ST OF RS. 29,03,360/- TO M/S 3 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 3 OF 9 MONIKA REALTORS PVT. LTD ON THE SAID BORROWINGS. T HE ASSESSEE REPAID RS. 40,38,000/- AGAINST THE OUTSTANDING BALANCE AND AGA IN TOOK A SUM OF RS. 17,35,000/- FROM THE SAID COMPANY DURING THE YEAR. THE LD. AO TREATED THE MONEY RECEIVED OF RS. 17,35,000/- AS DEEMED DIVIDEN D U/S 2(22)(E) OF THE ACT ON THE GROUND THAT THE ASSESSEE WAS HOLDING 50% PAID U P CAPITAL OF THE COMPANY AND, THEREFORE, THE PAYMENT RECEIVED WAS DEEMED DIV IDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE TOTAL INCOME OF THE COMPANY M/S MONIKA REALTORS PVT. LTD. COMPRISED OF RS. 90 LAKH AS RENT AL INCOME AND RS. 35,30,540/- AS INTEREST INCOME ON THE LOANS ADVANCED TO THE VAR IOUS PARTIES. THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE LOAN TA KEN BY THE ASSESSEE FROM M/S MONIKA REALTORS PVT. LTD WAS TAKEN IN THE ORDINARY COURSE OF BUSINESS OF THE COMPANY AND, THEREFORE, COVERED BY THE EXPLANATION PROVIDED IN CLAUSE (II) OF SECTION 2(22)(E) OF THE ACT WHEREIN IT IS MENTIONED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT DOES NOT INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WH ERE LENDING IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ARG UMENTS OF THE COUNSELS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECO RD. THE LD DR ARGUED THAT THE BORROWINGS BY THE ASSESSEE FROM THE COMPANY IN WHIC H HE HELD 50% SHARE CAPITAL WERE COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND PRAYED FOR SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THE ORDER OF AO. WE NOTE THAT THE ASSESSEE IS HOLDING 50% OF THE PAID UP CAPITAL AND ALSO WAS DIRECTOR OF THE 4 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 4 OF 9 COMPANY. THE COMPANY WAS HAVING INCOME FROM PROPERT Y TO THE TUNE OF RS. 90,00,000/- AND RS. 35,30,540/- AS INCOME FROM INTE REST FROM THE MONEY LENDING DIVISION. FROM THE INCOME PORTION OF THE COMPANY, IT IS CLEAR THAT 28% OF THE GROSS TOTAL INCOME IS FROM MONEY LENDING BUSINESS C ARRIED ON IN THE ORDINARY COURSE OF BUSINESS AND 43% OF THE TOTAL FUNDS DEPLO YED WERE BY WAY OF LOAN AND ADVANCES ON WHICH INTEREST OF RS. 35,30,540/- WAS E ARNED MEANING THEREBY THAT COMPANYS ONE OF THE MAIN ACTIVITIES INVOLVED MONEY LENDING BUSINESS. WE ALSO NOTE THAT THIS IS ONE OF THE MAIN OBJECT OF THE COM PANY AS PER THE MEMORANDUM AND ARTICLE OF ASSOCIATION WHICH WERE PRODUCED BEF ORE US DURING THE COURSE OF HEARING. THE ASSESSEE PAID A SUM OF RS. 29,03,360/ - AS INTEREST ON THE MONEY BORROWED FROM THE COMPANY I.E. M/S MONIKA REALTORS PVT. LTD. WHICH WERE OUTSTANDING AT RS. 2,41,65,631/-. THE LD COUNSEL FO R THE ASSESSEE SUBMITTED THAT IN THE CASE OF KRISH LTD. 119 ITD 49 (AHD) IT HAS BEEN HELD THAT THE ACTIVITY WITH MORE THAN 20% OF THE FUND DEPLOYMENT OF THE TOTAL F UNDS WILL BE SUBSTANTIAL BUSINESS FOR THE PURPOSE OF SECTION 2(22)(E). THE LD AR ALSO SUBMITTED THAT ASSESSEES CASE ALSO GOT SUPPORT FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PARLE PLASTICS LTD. 332 ITR 63 (BOM.), WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE IF THE MONEY BORROWED BY THE SHARE HOLDER FROM THE COMPANY IN TH E ORDINARY COURSE OF BUSINESS. THE FACTS OF THE ASSESSEES CASE ARE SQUA RELY COVERED BY THE ABOVE MENTIONED DECISIONS AS THE ASSESSEE BORROWED MONEY IN THE ORDINARY COURSE OF BUSINESS OF THE COMPANY WHERE THE MONEY LENDING WAS SUBSTANTIAL PART OF THE BUSINESS ACTIVITY AND HAD PAID INTEREST ON SUCH BO RROWINGS WE ,THEREFORE, 5 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 5 OF 9 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, UPHOLD AND SUSTAIN THE CONCLUSION DRAWN BY THE CIT(A) ON THIS ISSUE. ACCORDINGLY GROU ND NO 1 IS DISMISSED. 5. GROUND NO. 5 TO 7 RELATES TO DELETION OF ADDITIO N OF RS. 8,06,719/- ON ACCOUNT OF INTEREST . 6. THE FACTS IN BRIEF ARE THAT THE ASSESSEE USED TO RAISE MONEY FROM THE MARKET AT THE MARKET RATE OF INTEREST AND USED TO L END THE SAME AS PART OF HIS MONEY LENDING BUSINESS. THE AO ON NOTICING THE FACT THAT THE ASSESSEE WAS RECEIVING INTEREST AT THE RATE OF 12% AND PAYING IN TEREST ON THE MONEY RAISED FROM THE MARKET RANGING BETWEEN 13% TO 15%. THE AO ASK ED ASSESSEE TO EXPLAIN AS TO WHY THE EXCESS INTEREST PAID SHOULD NOT BE DISALLOW ED U/S 36(1)(III). THE AO WORKED OUT THE DIFFERENCE BETWEEN THE RATES AT WHIC H THE MONEY WAS RAISED AND LENT AT PAGE NO. 8 OF THE ASSESSMENT ORDER AND DISA LLOWED A SUM OF RS. 8,06,719/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEEE. 7. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION OF R S. 8,06,719/- ON THE GROUND THAT THE ASSESSEE HAD TAKEN LOAN FROM 26 PARTIES OUT OF WHICH INTEREST WAS PAID AT THE RATE OF 12% TO TWENTY PARTIES WHEREAS REMAINING SIX PARTIES WERE PAID AT THE RATE OF 12% TO 15% DEPENDING UPON THE URGENCY OF FUNDS , MARKET CONDITIONS AND 6 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 6 OF 9 PREVALENT INTEREST RATES IN THE MARKET. FURTHER THA T THE AO DID NOT MAKE OUT A CASE THAT THE ASSESSEE DEFLATED ITS PROFIT BY PAYIN G HIGHER RATE OF INTEREST ON THE MONEY BORROWED. AO ALSO FAILED TO PROVE THAT THE FU NDS WERE AVAILABLE IN THE MARKET AT THE LOWER RATE OF INTEREST UNDER THE SIMI LAR FACTS AND CIRCUMSTANCES. THUS THE CIT(A) DELETED THE ADDITION BY RELYING UPO N THE JUDGMENT OF HONBLE ORISSA HIGH COURT IN THE CASE OF BANSIDHAR OMKARLAL 58 ITR 462 (ORISSA). 8. THE LD. DR SUBMITTED THAT THE ASSESSEE WAS BORRO WING FUNDS FROM MARKET AT THE HIGHER RATE RANGING BETWEEN 12% TO 15% AND A DVANCED MONEY AT THE RATE OF 12%. HE FURTHER SUBMITTED THAT HE AO HAS RIGHTLY MADE THE ADDITION OF RS. 8,06,719/- U/S 36(1)(III) OF THE ACT BEING THE DIFF ERENTIAL INTEREST AND PRAYED THAT THE ORDER OF CIT(A) MAY BE REVERSED AND THAT OF AO BE RESTORED. 9. THE LD. AR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAD RAISED MONEY FROM THE MARKET ON THE PREVALENT RATE OF INTE REST AND SEVERAL OTHER FACTORS SUCH AS AVAILABILITY OF FUNDS IN THE MARKET, URGENC Y OF FUNDS REQUIRED ETC. DURING THE YEAR, THE APPELLANT RAISED MONEY FROM 26 PARTIE S OUT OF WHICH FROM 20 PARTIES MONEY WAS RAISED AT THE RATE OF 12%, FROM TWO PARTI ES IT WAS RAISED AT THE RATE OF 13% , FROM ONE PARTY(HDFC BANK) MONEY WAS RAISED AT THE RATE OF 13% AND IN RESPECT OF OTHER THREE PARTIES, THE MONEY WAS RAISE D AT THE RATE OF 15% MEANING THEREBY THAT THE ASSESSEE PAID INTEREST TO THREE PA RTIES AT THE RATE OF 15%. SINCE THE FUNDS WERE RAISED FROM THE MARKET FOR URGENT BU SINESS NEEDS AT A SHORTER 7 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 7 OF 9 NOTICE, THE LD. COUNSEL FURTHER SUBMITTED THAT THE AO HAS NO POWER TO DOWNGRADE THE RATE OF INTEREST ON THE GROUND OF REASONABLENES S OR EXCESSIVENESS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE CASE OF THE ASSE SSEE IS SUPPORTED BY THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE O F BANSIDHAR OMKARLAL (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE AO HAS NO POWER T O DOWNGRADE THE RATE OF INTEREST ON THE GROUND OF REASONABLENESS OR EXCESSI VENESS. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE RELEVANT MATERIAL ON RECORD AND FIND THAT THE ASSESSEE HAS RAISED MON EY FROM THE MARKET AT THE DIFFERENTIAL RATE OF INTEREST. WE NOTE THAT OUT OF 26 PARTIES ONLY TO 3 PARTIES INTEREST WAS PAID AT THE RATE OF 15%. WE ALSO NOTE THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF MONEY LENDING IN THE ORDINARY COURS E OF BUSINESS AND FOR THE PURPOSE OF DOING ITS BUSINESS THE ASSESSEE HAD TO B ORROW MONEY FROM THE MARKET AT THE PREVAILING MARKET RATE OF INTEREST WHICH ARE GOVERNED BY SEVERAL FACTORS SUCH AS URGENCY OF FUNDS REQUIRED, AVAILABILITY OF FUNDS IN THE MARKET, NOTICE AT WHICH FUND ARE REQUIRED AND CREDITWORTHINESS OF THE PERSONS RAISING THE MONEY. THE LD. CIT(A) HAD GIVEN A VERY DETAILED OBSERVATIO N FOR ARRIVING AT HIS DECISION. IN THE CASE OF BANSIDHAR OMKARLAL (SUPRA), IT HAS BEEN DECIDED THAT THERE WAS NO SCOPE FOR APPLICATION OF THE TEST OF THE REASONABL ENESS TO A CASE OF PAYMENT OF INTEREST AND THEREFORE THE RATE OF INTEREST COULD NOT BE SCALED DOWN. THUS IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE DECISION BY THE HONBLE ORISSA HIGH COURT , WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND UPHOLD THE SAME ON THIS POINT. 8 ITA NO 5605/MUM/2012 ASSESSMENT YEAR: - 2009-10 PAGE 8 OF 9 11. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF NOV. 2015. SD/- SD/- ( JOGINDER SINGH ) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 20 -11-2015 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI