RAMCHAND RAIMALANI, MUMBAI V. ITO - 18(3)(1), MUMBAI

ITA 5970/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1322 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 07-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure

Judgement Text

, . . IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , , BEFORE SHRI SHAMIM YAHYA, AM / I.T.A. NO.5970/MUM/2016 ( ! '#! / ASSESSMENT YEAR:2012-13) SHRI RAMCHAND RAIMALANI PATWA CHAWL, GR. FLOOR, 80, SHEIKH MEMON STREET, MUMBAI - 400002 / VS. INCOME TAX OFFICER 18(3)(1) MUMBAI ./ ./PAN/GIR NO. : AEXPR5064A ( /APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 05.04.2017 /DATE OF PRONOUNCEMENT: 13.04.2017 / O R D E R PER SHAMIM YAHYA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-29, MUMBAI [HE REINAFTER REFERRED TO AS THE CIT(A)] DATED 22.07.2016 AND PERTAINS TO A.Y.2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:-:- ASSESSEE BY : MS. NEHA PARANJPE REVENUE BY: BEENA SANTOSH ITA NO.5970/MUM/2016 A.Y.2012-13 2 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) [H EREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE FO LLOWING ADDITIONS AND DISALLOWANCES MADE BY THE LD. ASSESSI NG OFFICER WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES O F THE CASE: SR. NO. PARTICULARS AMOUNT (RS.) A DISALLOWANCE OF INTEREST PAID FROM PERSONAL ACCOUNT FOR BUSINESS PURPOSE. 27,63,587 B DISALLOWANCE OF BANK CHARGES CHARGED BY BANK ON O/D. 1,32,259 C DISALLOWANCE OF 10% OF THE EXPENSE S DEBITED TO P&L ACCOUNT OF M/S.M.K.SONS JEWELLERS. 44,955 D DISALLOWANCE OF 10% OF THE EXPENSES DEBITED TO P&L ACCOUNT OF M/S.KUSH INDIA COMMODITIES. 5,281 A. DISALLOWANCE OF INTEREST PAID OF RS.27,63,587/- FRO M PERSONAL ACCOUNT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.27,63,587/- ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID FROM PERSO NAL ACCOUNT FOR BUSINESS PURPOSE. B. DISALLOWANCE OF BANK CHARGES OF RS.1,32,259/- CHARG ED BY BANK ON O/D. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,32,259/- ON ACCOUNT OF DISALLOWANCE OF BANK CHARGES CHARGED BY BANK FOR CLOSURE OF BANK O/D ACCOUNT. C. DISALLOWANCE OF 10% OF THE EXPENSES OF RS.4,49,553/ - DEBITED TO P&L ACCOUNT OF M/S. M.K.SONS JEWELLERS. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.44,955/- ON ACCOUNT OF DISALLOWANCE OF 10% OF THE BUSINESS EXPE NSES DEBITED TO P&L ACCOUNT. D. DISALLOWANCE OF 10% OF THE EXPENSES OF RS.4,49,553/ - DEBITED TO P&L ACCOUNT OF M/S. KUSH INDIA COMMODITIES. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.5,281/- ON ACCOUNT OF DISALLOWANCE OF 10% OF THE BUSINESS EXPE NSES DEBITED TO P&L ACCOUNT. THE ADDITION IS NOT AT ALL JUSTIFIED AND THE SAME M AY BE DELETED. ITA NO.5970/MUM/2016 A.Y.2012-13 3 3. AT THE OUTSET THE LEARNED COUNSEL OF THE ASSESSE E SUBMITTED THAT SHE WILL NOT BE PRESSING GROUND NO. B. HENCE THE ABOVE GROUND NO.B IS DISMISSED AS NOT PRESSED. APROPOS GROUND NO. A:- 4. IN THIS CASE THE ASSESSING OFFICER OBSERVED IN T HE ASSESSMENT ORDER THAT ASSESSEE HAS ALREADY DEBITED INTEREST AMOUNT O F RS.23,42,057/- AND RS.31,98,922/- IN THE PROPRIETARY CONCERNS, M/S. M. K.SONS JEWELLERS AND M/S. KUSH INDIA COMMODITIES RESPECTIVELY. THAT ASS ESSEE FURTHER CLAIMED DEDUCTION OF INTEREST OF RS.27,63,587/- PAID FOR AC QUIRING PERSONAL ASSETS WHICH ARE REFLECTED IN HIS PERSONAL BALANCE SHEET. THE ASSESSING OFFICER HELD THAT THIS NOT BEING RELATED TO BUSINESS PURPOS ES CANNOT BE ALLOWED AND HE MADE ADDITION OF RS.27,63,587/-. 5. BEFORE THE LEARNED CIT(A), THE LEARNED COUNSEL F OR THE APPELLANT CLAIMED THAT IT IS NOT EASY TO GET LOANS FOR THE PR OPRIETARY CONCERN DEALING IN COMMODITIES ON MCX WHICH IS THE BUSINESS OF KUSH IN DIA COMMODITIES. THEREFORE, THE PROPRIETOR HAS TAKEN LOANS IN HIS PE RSONAL NAME AND TRANSFERRED THE SAME TO THE PROPRIETARY CONCERN WHI CH CAN BE SEEN FROM THE CAPITAL ACCOUNT OF THE PROPRIETARY CONCERN. HE FUR THER SUBMITTED THAT THE BANK STATEMENT REFLECTS THE LOAN ACCOUNT BORROWED B Y THE ASSESSEE IN INDIVIDUAL CAPACITY WHICH WERE TRANSFERRED TO PROPR IETORSHIP CONCERNS. AS THE LOANS HAVE BEEN UTILIZED FOR EARNING PROFIT FRO M BUSINESS, THE INTEREST COST INCURRED ON THE SAID PERSONAL BORROWINGS WAS I NTEGRAL PART OF EARNING PROFIT IN THE SAID BUSINESS AND IS THEREFORE DEDUCT ED U/S.36(1)(III) OF THE ITA NO.5970/MUM/2016 A.Y.2012-13 4 INCOME TAX ACT, 1961 ( IN SHORT THE ACT). IN S UPPORT OF HIS ARGUMENT, HE HAD RELIED UPON THE CASES OF ACIT 19(1) VS. SMT. SUMAN JAIN, NEW DELHI, S.A.BUILDERS LTD. VS. CIT(A) (SC) AND ACIT V S. TULIP STAR HOTELS LTD. (SC). 6. HOWEVER THE LEARNED CIT(A) HAS NOT CONVINCED. H E HELD AS UNDER:- THEREFORE, THERE IS NO SUBSTANCE IN THE ARGUMENT O F THE LEARNED COUNSEL THAT LOANS WERE TAKEN IN THE PERSONAL CAPACITY AS I T IS DIFFICULT TO GET LOANS FOR COMMODITIES BUSINESS. IT IS ALSO THE CON TENTION OF THE LD. COUNSEL THAT THERE IS AN INTEREST FREE LOAN RECEIVE D FROM GURUKRIPA P. LTD. WHICH WENT INTO INVESTMENT IN ASSETS REFLECTED IN THE BALANCE SHEET AND ONLY THE INTEREST BEARING FUNDS HAVE BEEN TRANS FERRED TO THE PROPRIETARY CONCERN. BUT THE BANK STATEMENT OF THE APPELLANT SUBMITTED DURING THE APPELLATE PROCEEDINGS CLEARLY SHOWS THE LOANS RECEIVED FROM GURUKRIPA P. LTD. BEING TRANSFERRED TO KUSH INDIA C OMMODITIES. THIS CLEARLY SHOWS THAT THE INTEREST BEARING FUNDS HAVE BEEN INVESTED IN THE PERSONAL ASSETS OF THE APPELLANT AND THE INTEREST P AID ON THE SAME IS NOT AN ALLOWABLE BUSINESS EXPENDITURE. THE ARGUMENT OF THE LD. COUNSEL FOR THE APPELLANT DEFIES ALL LOGIC. IT IS NOTHING BUT AN ARGUMENT WITHOUT ANY SUBSTANCE. HE COULD NOT EXPLAIN SATISFACTORILY WHY THE LOANS COULD NOT BE RAISED DIRECTLY IN THE PROPRIETARY CONCERN WHERE INTEREST HAS BEEN CLAIMED. FURTHER, HE COULD NOT PROVE THAT INTEREST BEARING FUNDS HAVE NOT GONE INTO THE INVESTMENTS IN PERSONAL ASSETS. IN THE ABSENCE OF ANY EVIDENCE, THE CLAIM OF THE ASSESSEE THAT THE LOANS TAKEN HAVE BEEN USED ONLY FOR BUSINESS AND CONSEQUENTLY THE INTEREST PAI D ON THESE LOANS HAS TO BE ALLOWED AS BUSINESS EXPENDITURE CANNOT BE ACCEPT ED. THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE APPELLANT ARE NOT A PPLICABLE AS THE FACTS ARE DIFFERENT. IN THE CASE OF SMT. SUMAN JAIN, IT WAS PROVED THAT THE LOAN AMOUNT BORROWED BY THE ASSESSEE IN INDIVIDUAL CAPAC ITY FOR EARNING PROFIT FROM M/S. SANDIP ENTERPRISES. BUT IN THE PR ESENT CASE, THERE IS NO PROOF SUPPLIED BY THE APPELLANT. SAME IS THE CASE WITH OTHER TWO CASES WHERE THE LOANS HAVE BEEN ADVANCED FOR COMMERCIAL E XPEDIENCY. IN THE PRESENT CASE, THE APPELLANT COULD NOT PROVE THE COM MERCIAL EXPEDIENCY INVOLVED IN TAKING PERSONAL LOANS. FROM THE FACTS, IT APPEARS THAT LOANS RAISED IN PERSONAL CAPACITY HAVE BEEN UTILIZED FOR ACQUIRING PERSONAL ASSETS. THE ACTION OF THE AO IN DISALLOWING THE IN TEREST EXPENDITURE OF RS.27,63,587/- HOLDING THAT IT HAS NOT BEEN INCURRE D FOR BUSINESS BUT FOR ACQUIRING PERSONAL ASSETS IS UPHELD. ITA NO.5970/MUM/2016 A.Y.2012-13 5 7. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BE FORE THE ITAT. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECOR D. I FIND THAT FIRST ADVERSE INFERENCE HAS BEEN DRAWN BY THE AUTHORITIES BELOW IN THIS CASE, ON THE GROUND THAT ASSESSEE COULD HAVE TAKEN LOAN FOR COMMODITY BUSINESS AND SHOULD NOT HAVE UTILIZED LOA N TAKEN IN PERSONAL CAPACITY. I FIND THAT THIS ADVERSE INFERE NCE IS DEVOID OF COGENCY. ASSESSEE HAS RAISED LOAN AND USED IT FOR BUSINESS PURPOSE. REVENUE AUTHORITIES CANNOT SIT INTO THE SHOES OF TH E BUSINESSMAN AND DIRECT AS TO FROM WHERE HE SHOULD RAISE THE LOAN. SECONDLY THE ASSESSE HAS INTEREST BEARING AS WELL AS INTEREST FR EE FUNDS. IN THE SAID CIRCUMSTANCES IT IS THE SETTLED LAW THAT IT IS UP T O THE ASSESSE TO ATTRIBUTE THE SOURCE OF INVESTMENT IF INTEREST FREE AND INTEREST BEARING FUNDS ARE AVAILABLE. THE ASSESSEE CAN VERY WELL AT TRIBUTE THE INTEREST FREE FUNDS FOR OTHER PURPOSE AND INTEREST BEARING F UNDS FOR THE BUSINESS PURPOSE. HENCE ADVERSE INFERENCE DRAWN BY THE AUTHORITIES BELOW IS NOT ALSO SUSTAINABLE ON THIS ISSUE. IT IS NOT THE CASE OF THE REVENUE THAT INTEREST FREE FUNDS WERE NOT SUFFICIEN T TO MEET THE AMOUNT SPENT ON ACQUISITION OF OTHER ASSETS. HENCE ATTRIB UTION OF THE AUTHORITIES BELOW THAT INTEREST BEARING FUNDS WERE NOT USED FOR BUSINESS PURPOSE CANNOT BE SUSTAINED. ACCORDINGLY, I SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO.5970/MUM/2016 A.Y.2012-13 6 APROPOS GROUND NO. C&D:- 8. ON BOTH THE ISSUES THE ASSESSING OFFICER HAS MAD E 15% DISALLOWANCE OUT OF VARIOUS EXPENSES DEBITED IN PRO FIT & LOSS ACCOUNT. THIS WAS DONE BY THE ASSESSING OFFICER ON THE GROUND THAT ALL THE EXPENDITURES WERE NOT SUPPORTED BY COMPLETE EXPENDITURE BILLS AND VOUCHERS HENCE HE MADE AN ADHOC DISALLOWANCE OF 15%. UPON ASSESSEES APPEAL LEARNED CIT(A) RESTRICTED THE DISA LLOWANCE TO 10%. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL. 9. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORD. I NOTE THAT ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON ADHOC BASIS. HE HAS NOT BROUGHT ON RECORD SPECIFIC VOUCHERS AND THE DEFECTS THEREIN. HOWEVER THIS FACT ALSO CANNOT BE RULED OUT THAT THE EXPENDITURES WERE NOT FULLY BACKED BY PROPER EXTERNAL VOUCHERS. IN T HESE CIRCUMSTANCES IN MY CONSIDERED OPINION THE DISALLOWANCE OF 5% OF THE EXPENDITURE INVOLVED WOULD SERVE THE END OF JUSTICE. LEARNED COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THIS PROPOSITION. ACCORD INGLY, I DIRECT THAT DISALLOWANCE BE RESTRICTED TO 5% OF THE EXPENDITURE . 10. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.5970/MUM/2016 A.Y.2012-13 7 ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL, 2017 . SD/- (SHAMIM YAHYA) / ACCOUNTANT MEMBER MUMBAI; DATED :13 TH ' , 2017 MP () *#) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ' ( ) / THE CIT(A)- 4. ' / CIT 5. * , * , / DR, ITAT, MUMBAI 6. ) +, / GUARD FILE. / BY ORDER, //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI