M/S. BABUBHAI JAGJIVANDAS, MUMBAI V. DY. CIT. CIR. 16(3), MUMBAI

ITA 5648/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8483 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 14-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 16-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, F BENCH, MUMBAI. [ CORAM: PRAMOD KUMAR, AM AND R.S.PADVEKAR, JM ] I.T.A NO.5648/ MUM/2009 ASSESSMENT YEAR: 2007-08 BABUBHAI JAGJIVANDAS, .. APPELLANT 128, NEW CHARNI ROAD, MUMBAI. PA NO.AAAFB 5829 N VS DY.CIT, CIRCLE 16(3) ,. RESPONDENT MATRU MANDIR,GRANT ROAD(W), MUMBAI. APPEARANCES: BEHARILAL, FOR THE APPELLANT SUNIL KUMAR SINGH, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THE SHORT GRIEVANCE THAT WE ARE REQUIRED TO ADJU DICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT (A) WAS JUSTIFIED IN UPHOLDI NG THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.13,13,781 ON THE GROUND THAT INTERE ST BEARING FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSES. THE ASSESSMENT YEAR INVO LVED IS 2007-08 AND THE IMPUGNED ASSESSMENT WAS FRAMED UNDER SECTION 143)(3 ) OF THE INCOME TAX ACT, 1961. 2 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBIT BALANCE OF RS. 33,03,130 IN THE PARTNERS CAPITAL ACCOUNT DUE TO OVER WITHDRAWAL BY ALL THE PARTNERS EVEN AS THE ASS ESSEE WAS PAYING INTEREST ON BORROWINGS ON LOANS TAKEN. IT WAS OBSERVED THAT TH E ASSESSEE WAS PAYING INTEREST @ 7.5% ON THE BORROWINGS WHILE ADVANCED TO THE PART NERS WITHOUT CHARGING ANY INTEREST. ACCORDINGLY, THE AO PROCEEDED TO DISALLO W INTEREST @ 7.5% ON SUCH DEBIT BALANCES. AGGRIEVED, THE ASSESSEE CARRIED THE MATT ER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. 3. THE CIT (A) WAS OF THE VIEW THAT INTEREST PAID O N CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION IS ALLOWABLE UND ER SECTION 36(1)(III) BUT WHEN BORROWED FUNDS ARE DIVERTED AS INTEREST FREE LOANS OR ADVANCES TO SISTER CONCERNS, PARTNERS OR RELATED CONCERNS, THE CLAIM OF INTEREST ON THESE FUNDS CANNOT BE ALLOWED. SINCE ACCORDING TO THE CIT (A), THE ASSESSEE HAD AD VANCED INTEREST FREE ADVANCE TO PARTNERS WHEN THE FIRM ITSELF WAS PAYING INTEREST O N BORROWED FUNDS, THE AO WAS JUSTIFIED IN DISALLOWING THE INTEREST ATTRIBUTABLE TO SUCH ADVANCE. THE ACTION OF THE AO WAS THUS CONFIRMED. THE ASSESSEE IS NOT SATISFI ED AND IS IN FURTHER APPEAL BEFORE US. 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND THAT THERE IS NO DISPUTE TO THE POS ITION THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE ADVANCE INASMUCH AS ACCORD ING TO THE BALANCE SHEET FILED BY THE ASSESSEE SUNDRY CREDITORS BALANCE, ON WHICH NO INTEREST WAS PAID AMOUNTED TO RS. 4,41,29,493. IN VIEW OF THE HONBLE JURISDICTI ONAL HIGH COURTS JUDGEMENT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD., 313 ITR (BOM) 340, WHEN THE ASSESSEE HAS INTEREST BEARING FUNDS AS ALSO INTEREST FREE FU NDS THE PRESUMPTION CAN INDEED BE TAKEN THAT THE INVESTMENTS/ADVANCES ARE OUT OF INTE REST FREE FUNDS. IN THIS VIEW OF THE MATTER AND HAVING REGARD TO THE FACT THAT SUFFI CIENT INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSESSEE, THE DISALLOWANCE OF INTE REST WAS INDEED UNCALLED FOR. WE, 3 THEREFORE, UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 13,38,781. 5. IN THE RESULT, THE APPEAL STANDS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2011 SD/- (R.S.PADVEKAR ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 24 TH FEBRUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XVII, MUMB AI 4. COMMISSIONER OF INCOME TAX, 16, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 4 5