DENVER TRADING COMPANY LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 5736/MUM/2011

• Counselvise Citation: 573619914 RSA 2011
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: SARITA PURI
• Keywords: Opportunity of being heard
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.5736/MUM/2011 (ASSESSMENT YEAR: 2007-08) M/S. DENVER TRADING COMPANY LTD., ML PURI & CO., 146, CHINAR BUILDING, SHER E. PUNJAB CHS LTD., ANDHERI (EAST), MUMBAI -400 093 ...... APPELLANT VS ACIT -8(1), AAYAKAR BHAVAN, M.K. ROAD, MARINE LINES, MUMBAI ..... RESPONDENT PAN: AAACD 3475 B APPELLANT BY: MISS SARITA PURI RESPONDENT-REVENUE BY: SHRI SATBIR SINGH DATE OF HEARING: 18.04.2012 DATE OF PRONOUNCEMENT: 25.04.2012 O R D E R R.S. PADVEKAR, JM : IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-16, MUMBAI DATED 09.06.2011 FOR THE A.Y. 2007-08. THE SOLITARY ISSUE IN CONTROVERSY IS IN RESPECT OF THE DISALLOWANCE OF THE INTEREST OF ` 71,74,467/-. 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE IS AN INVESTMENT COMPANY AND FILED THE RETURN OF INCOME F OR THE A.Y. 2007- 08 DECLARING LOSS OF ` 76,99,894/-. ON THE EXAMINATION OF THE PROFIT AND LOSS ACCOUNT IT WAS SEEN BY THE A.O. THAT THE A SSESSEE HAS DEBITED ` 71,74,467/- TOWARDS INTEREST EXPENDITURE. THE A.O . HAS OBSERVED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE FINANCIAL YEAR RELEVANT TO THE A.Y. 2007-08. THE A .O. SOUGHT THE EXPLANATION OF THE ASSESSEE WHY THE INTEREST DEBITE D TO THE P&L ACCOUNT SHOULD NOT BE DISALLOWED. THE ASSESSEE STA TED THAT COMPANY ITA NO.5736/MUM/2011 M/S. DENVER TRADING COMPANY LTD. 2 HAS SOLD SHARES DURING THE YEAR AS PER THE INVESTME NT SCHEDULE SHOWN IN THE BALANCE-SHEET. DUE TO VOLATILE MARKET, THE ASSESSEE COULD NOT TAKE RISK AND HOLD THE INVESTMENT FOR SOME TIME BUT THERE WERE SALE AND PURCHASE TRANSACTIONS DURING THE YEAR AND HENCE , THE SAID INTEREST EXPENDITURE IS ALLOWABLE IN A.Y. 07-08. TH E A.O. REJECTED EXPLANATION OF THE A.O. AND DISALLOWED SAID EXPENDI TURE. 3. THE LD. CIT (A) CONFIRMED THE ACTION OF THE A.O . THE OPERATIVE PART OF THE FINDINGS OF THE LD. CIT (A) IS AS UNDER : 2.3.1 1 HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AND ALSO CAREFULLY GONE THROUGH THE DOCUM ENTS AS ARE AVAILABLE ON RECORD. I FIND THAT DURING THE YEAR UN DER CONSIDERATION, THE APPELLANT HAD SOLD SHARES AND HA D UNDERTAKEN ONLY 7 TRANSACTIONS FOR THE ENTIRE YEAR. THERE IS H ARDLY ANY INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION EXCEPT IN THE CASE OF IVORY INVESTMENT & TRADING CO. LTD. AND SUHANNA INTERNATIONAL PVT. LTD. WHOSE UNQUOTED SHARES PURCH ASED. THE APPELLANT SUBMITTED THAT DURING THE YEAR UNDER CONS IDERATION IT HAD OBTAINED A LOAN OF ` 11.O3 CRORES WHICH WERE UTILIZED FOR PAY OFF THE CURRENT LIABILITIES. I FIND THAT THE CURREN T LIABILITIES OF THE APPELLANT HAD REDUCED FROM 28.5 CRORES TO 9.78 CROR ES INDICATING THEREBY THE APPELLANT HAD INTRODUCED 18.77 CRORES A S AGAINST 11.3 CRORES STATED SUPRA. THE LD. AO HA RIGHTLY POI NTED OUT THAT THE LEDGER EXPENDITURE OF THE APPELLANT DURING THE YEAR UNDER CONSIDERATION IS INTEREST PAID I.E. 71,74,467. NO O THER EXPENDITURE OTHER THAN THIS IS SIZABLE. THE LD. AO HAS STATED T HAT SINCE NO BUSINESS ACTIVITY OF THE APPELLANT WAS CARRIED OUT DURING THE YEAR UNDER CONSIDERATION, THE EXPENDITURE CANNOT BE ALLO WED. I FIND THAT THE APPELLANT EVEN BEFORE ME HAS NOT GIVEN ANY COGENT REASON FOR ALLOWANCE OF THE EXPENDITURE EXCEPT STAT ING IN GENERALITY THAT THE AMOUNT WAS BORROWED FOR THE PUR POSE OF REPAY OF THE CURRENT LIABILITY. THE ALLOWANCES OF E XPENDITURE U/S. 37 OR U/S. 36 ARE VERY SPECIFIC. APPELLANT HAD TO S HOW THAT THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITA NO.5736/MUM/2011 M/S. DENVER TRADING COMPANY LTD. 3 BUSINESS U/S. 37 AND U/S. 36(I(III). THE AMOUNT OF INTEREST IS ALLOWABLE IN RESPECT OF CAPITAL BORROWED FOR THE PU RPOSES OF BUSINESS OR PROFESSION. THE APPELLANT MISERABLY FAI LED TO SHOW THAT THE AMOUNT WAS BORROWED FOR THE PURPOSE OF BUS INESS AND THEREFORE, THE SAME CANNOT BE ALLOWED. THE ADDITION S MADE BY THE LD. AO IS ACCORDINGLY CONFIRMED TO THE EXTENT O F ` 71,74,467 AS REST OF THE EXPENDITURE ARE NOMINAL AND REQUIRED FOR MAINTENANCE OF THE CORPORATE STATUS OF THE APPELLAN T AND ARE ALLOWABLE THIS APPEAL IS ACCORDINGLY PARTLY ALLOWED . 4. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. I HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED TH E RECORDS. LD. COUNSEL ARGUES THAT THE ASSESSEE HAS BORROWED MONEY FROM OSWAL AGRO MILLS LTD. @ 6% ON WHICH INTEREST OF ` 71,74,467/- WAS PAID AND THE SAID BORROWED FUNDS WERE UTILISED FOR PAYMENT O F THE OUTSTANDING SUNDRY CREDITORS. ON THE PERUSAL OF THE AUDITED ST ATEMENT OF ACCOUNTS, MORE PARTICULARLY, PAGE NO.6 OF THE BALAN CE-SHEET AS ON 31.03.2007, THE OUTSTANDING SECURED LOANS IS REFLEC TED AS ON 31.03.2006 WAS ` 60.49,631/- AND THE SAME HAS BEEN INCREASED TO ` 11,93,39,631/-. AS PER THE SCHEDULE D IN THE BAL ANCE-SHEET SUNDRY CREDITORS AND OTHER LIABILITIES OUTSTANDING AS ON 3 1.03.2006 ARE SHOWN AT ` 28,55,22,030/- AND SAME HAVE BEEN REDUCED TO ` 9,78,57,474/-. THE ARGUMENT OF THE LD. COUNSEL IS THAT THE BORROWED MONEY WAS UTILISED FOR PAYMENT TO THE SUNDRY CREDIT ORS AND IT WAS PURELY TRADE CREDITORS. I FIND THAT THE ASSESSEE H AS ENTERED INTO FEW TRANSACTIONS OF SALES AND PURCHASES OF THE SECURITI ES DURING THE YEAR AS PER PROFIT AND LOSS ACCOUNT. IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT HAVING ANY BUSINESS ACTIVITY DURING THE FINANCI AL YEAR RELEVANT TO THE A.Y. 2007-08. THE ONLY QUESTION TO BE ADJUDICA TED IS WHETHER THE BORROWED AMOUNT OF FUNDS WAS UTILISED FOR PAYMENT O F THE TRADE CREDITORS. IF THE ASSESSEE HAS UTILISED THE BORRO WED AMOUNT FOR PAYMENT OF OUTSTANDING TRADE CREDITORS THEN THE S AME IS TO BE ALLOWED KEEPING IN MIND THAT THE ASSESSEE IS AN IN VESTMENT COMPANY. THE RELEVANT DETAILS ARE NOT AVAILABLE ON RECORD. I CONSIDER IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE A.O. TO VERIF Y WHETHER THE BORROWED ITA NO.5736/MUM/2011 M/S. DENVER TRADING COMPANY LTD. 4 FUNDS ARE UTILISED FOR PAYMENT OF THE OUTSTANDING T RADE CREDITORS I.E. SUNDRY CREDITORS KEEPING INTO CONSIDERATION THAT THE ASSESSEE IS AN INVESTMENT COMPANY. IF THE BORROWED FUNDS ARE UT ILISED FOR PAYMENT OF THE OUTSTANDING CREDITORS PERTAINING TO THE INVE STMENT OF THE ASSESSEE THEN INTEREST IS TO BE ALLOWED. THE ASSES SEE SHOULD FURNISH ALL THE DETAILS BEFORE THE A.O. AS WILL BE REQUIRED BY HIM. THE A.O. IS DIRECTED NOT TO TRAVEL BEYOND ISSUE RESTORED. THE A.O. SHOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 5TH APRIL 2012. SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 25TH APRIL 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-16, MUMBAI. 4) THE CIT -8, MUMBAI. 5) THE D.R. SMC BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN