ADDL CIT 19(2), MUMBAI V. MANISH V THAKKAR, MUMBAI

ITA 5611/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1453 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2003-2004
• Appeal Filed On: 15-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MOHANTY
• Assessee Lawyers: APURVA R SHAH
• Keywords: Business expenditure; Commercial expediency; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) INCOME TAX OFFICER WARD 19(2)(4), PIRAM CHAMBERS, LALGAUG, PAREL,MUMBAI-400012 . APPELLANT VS MR.MANISH V THAKKAR SATELLIE BLDG,TAGORE ROAD, SANTACRUZ(W), MUMBAI-54, (PAN :AAAPT3286D RESPONDENT APPELLANT BY : SHRI S K MOHANTY RESPONDENT BY : SH.APURVA R SHAH O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 13.08.2009 OF CIT(A)-XIX, MUMBAI FOR THE AS SESSMENT YEAR 2003-04. 2. THE REVENUE HAS RAISED ONLY EFFECTIVE GROUNDS OF APPEAL WHICH READS AS UNDER : I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCES OF INTEREST EXPENDITURE OF RS.15,31,438/- PAID TO MANISH V THAKKAR (HUF), WITHOUT APPRECIATING THE FACT THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN THE DIVERSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES AND THAT THERE IS NO EVIDENCE TO SHOW THE TRANSACTION WAS FOR THE PURPOSES OF ASSESSEES BUSINESS ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE CONSTRUCTION BUSINESS AND DURING THE YEAR UN DER CONSIDERATION SOLD ONE PROJECT UNDER RADHIKA DEVE LOPERS AND THERE WAS NO ACTIVITIES IN OTHER PROJECT. THE ASS ESSEE HAS DEBITED A SUM OF RS.14,47,672/- UNDER THE HEAD ADMINISTRATIVE EXPENSES AND OTHER EXPENSES TO SCHEDULE H OF THE PROFIT AND LOSS ACCOUNT OF RADHIKA DEV ELOPERS. DURING THE ASSESSMENT, THE AO FOUND THAT RADHIKA DEVELOPERS HAD ISSUED CHEQUES TO M/S ADITI CONSTRU CTIONS AND DEVELOPERS PVT LTD, GOREGAON(EAST), MUMBAI, A G ROUP CONCERN OF THE ASSESSEE, FOR ACQUIRING DEVELOPMENT RIGHTS. THE TOTAL PAYMENT OF RS.2,68,50,000/- HAS BEEN ARRANGED FROM THE STATE BANK OF INDIA AND BANK OF INDIA. TH ESE LOANS WERE TAKEN BY MANISH V THAKKAR, HUF, IN TURN ADVA NCED THESE LOANS TO AN ANOTHER GROUP CONCERN WHICH IS A PRIVATE LIMITED COMPANY I.E M/S ADITI CONSTRUCTIONS AND D EVELOPERS PVT LTD, THROUGH RADHIKA DEVELOPERS. ACCORDINGLY, THE AO DISALLOWED THE INTEREST DEBITED BY THE ASSESSEE ON THE GROUND THAT THE LOANS WHICH WERE TAKEN BY ANOTHER CONCERN FOR ACQUIRING THE RIGHTS IN ANOTHER GROUP CONCERN WAS N OT AN EXPENDITURE FOR THE PURPOSES OF BUSINESS OF THE ASS ESSEE. ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) 3 4. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM BY FOLLOWING THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF S A BUILDERS (288 ITR 1) AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BOMBAY SA MACHAR (74 ITR 723) (BOM) 5. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT TH E SUM IN DISPUTE HAS BEEN ARRANGED BY SHRI MANISH V THAKKAR (HUF) AND PAID TO M/S M/S ADITI CONSTRUCTIONS AND DEVE LOPERS PVT LTD, THROUGH THE ASSESSEES CONCERN RADHIKA DEVELOP ERS. THE ASSESSEE HAS NO INTEREST IN M/S ADITI CONSTRU CTIONS AND DEVELOPERS PVT LTD, THEREFORE, THE INTEREST DEBITED BY THE ASSESSEE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE . HE HAS RELIED UPON THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSE E HAS SUBMITTED THAT THE ASSESSEE HAD ADVANCED SAID SUM TO M/S ADITI CONSTRUCTIONS AND DEVELOPERS PVT LTD, ON BEH ALF OF THE A.B. DEVELOPERS, A JOINT VENTURE OF BHOOMI GROUP. THE ASSESSEE HAD SHARE OF 50% IN THE JOINT VENTURE. T HEREFORE, THE ASSESSEE HAS ADVANCED THE MONEY FOR ITS BUSINES S IN THE COMMERCIAL EXPEDIENCY. HENCE, THIS IS ALLOWABLE EXP ENDITURE U/S 36(1)(III) OF THE IT ACT. HE HAS RELIED UPON T HE DECISION OF THE HON. SUPREME COURT IN THE CASE OF S A BUILDERS (288 ITR 1) (SC) AND SUPPORTED THE ORDER OF THE CIT(A). ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) 4 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. AS IT IS EVIDENT FROM THE RECORD THAT A S UM OF RS.2,68,50,000/- WAS NOT GIVEN BY JOINT VENTURE O F A B DEVELOPERS TO M/S ADITI CONSTRUCTIONS AND DEVELOP ERS PVT LTD, FOR ACQUIRING OF DEVELOPMENT RIGHTS. MOREOVER , THE SAID AMOUNT WAS NOT GIVEN BY THE JOINT VENTURE FROM ITS OWN FUND OR FROM THE FUNDS OF THE ASSESSEE BUT THE SAID AMOU NT WAS TAKEN BY THE ASSESSEE FROM SHRI MANISH V THAKKAR(H UF) WHO IN TURN TAKEN THE SAID AMOUNT AS LOAN FROM STATE B ANK OF INDIA AND BANK OF BARODA. IT IS IN FACT THE TRANSACTION FOR ARRANGING FUNDS BY HUF BY TAKING LOAN FROM THE BANKS FOR M/S ADITI CONSTRUCTIONS AND DEVELOPERS PVT LTD. IT IS NOT A CASE OF TAKING SOME LOAN BY THE ASSESSEE FOR ITS OWN BUSI NESS WHICH MERGED INTO THE FUNDS OF THE ASSESSEE AND OUT OF W HICH THE ASSESSEE HAS GIVEN INTEREST FREE LOAN TO ITS SISTER CONCERN FOR BUSINESS PURPOSE WHEREIN THE ASSESSEE HAD INTEREST. THE CIT(A) HAS RECORDED THE FACT THAT M/S ADITI CONS TRUCTIONS AND DEVELOPERS PVT LTD, IS NOT A GROUP CONCERN OF T HE ASSESSEE. ONCE, M/S ADITI CONSTRUCTIONS AND DEVE LOPERS PVT LTD, WAS FOUND AS NOT A GROUP CONCERN OF THE ASSESS EE THEN HOW COMMERCIAL EXPEDIENCY IS IN EXISTENCE WHILE ADV ANCING THE AMOUNT BY THE ASSESSEE AFTER TAKING THE SAME F ROM THE HUF. THE CONTENTION OF THE ASSESSEE IS THAT THE A SSESSEE HAS ADVANCED THIS AMOUNT ON BEHALF OF THE A B DEVEL OPERS, A ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) 5 JOINT VENTURE THEN THE SAID TRANSACTION SHOULD HAVE BEEN REFLECTED IN THE BOOKS OF ACCOUNTS OF THE JOINT VEN TURE AND THE INTEREST IF ANY WAS TO BE BORN BY THE JOINT VENTURE INSTEAD OF ASSESSEE. IT IS A TRANSACTION OF A SPECIFIC AMO UNT TAKEN BY SHRI MANISH V THAKKAR (HUF) FROM THE BANKS AS LOAN AND GIVEN TO M/S ADITI CONSTRUCTIONS AND DEVELOPERS PV T LTD, THROUGH THE ASSESSEES CONCERN RADHIKA DEVELOPERS. WE FAILED TO UNDERSTAND AS TO WHY THIS TRANSACTION OF ARRANGING THE FUND WAS NOT DIRECTLY GIVEN BY THE HUF TO M/S ADITI CONSTRUCTIONS AND DEVELOPERS PVT LTD. IF IT WAS GIV EN TO THE ASSESSEE THEN THE SAME SHOULD HAVE BEEN FURTHER GI VEN TO THE JOINT VENTURE AND THE BURDEN OF INTEREST SHOULD HAVE BEEN BORNE BY THE JOINT VENTURE INSTEAD OF THE ASSESSEE . IN THE ABSENCE OF ANY TRANSACTION IN THE BOOKS OF ACCOUNT OF THE JOINT VENTURE, THE EXPLANATION OF THE ASSESSEE IS NOT LOGICAL AND THEREFORE NOT ACCEPTABLE. THERE SHOULD BE A DI RECT NEXUS BETWEEN INTEREST BEARING FUND ADVANCED AND COMME RCIAL EXPEDIENCY. THE COMMERCIAL EXPEDIENCY SHOULD NOT BE CREATED BY A LONG CHAIN OF TRANSACTIONS TO BOOK THE EXPEN DITURE FOR REDUCE THE TAX LIABILITY. THE CIT(A) HAS NOT APPR ECIATED THE FACTS IN PROPER MANNER AND CONSEQUENTLY TAKEN AN I NCORRECT VIEW REGARDING THE EXISTENCE OF COMMERCIAL EXPEDIEN CY. HENCE WE DO NOT FIND ANY COGENT AND PLAUSIBLE REASO N IN THE TRANSACTION OF ADVANCING MONEY BY THE ASSESSEE ON BEHALF OF ITA NO. 5611/MUM/2009 (ASSESSMENT YEARS: 2003-04) 6 JOINT VENTURE TO M/S M/S ADITI CONSTRUCTIONS AND DEVELOPERS PVT LTD, WHEN THE MONEY WAS ARRANGED BY SHRI MANISH V THAKKAR (HUF) THROUGH LOANS FROM THE BANKS. ACCORD INGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ORDER OF THE AO IS RESTORED. THE DECISION RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 18.06.2010 S D SD (R.S.SYAL) (VIJ AY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 18 TH JUNE 2010 SRL:10610 COPY TO: 1. INCOME TAX OFFICER WARD 19(2)(4), PIRAM CHAMBERS, LALGAUG, PAREL,MUMBAI-400012 2.MR.MANISH V THAKKAR SATELLIE BLDG,TAGORE ROAD, SANTACRUZ(W), MUMBAI-54 3. CIT-19, MUMBAI 3. CIT(A)-XIX, MUMBAI. 4. CCIT-CITY X, MUMBAI 5. DR F BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI