Mask Investment Ltd., Surat V. The Income tax Officer,Ward-1(3), Surat

ITA 601/AHD/2010

• Counselvise Citation: 60120514 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Keywords: Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.601/AHD/2010 ASSESSMENT YEAR:2007-08 MASK INVESTMENT LTD., 601-602/B A, WING, INTERNATIONAL TRADE CENTRE, MAJURA GATE, SURAT, PAN NO.ACCM7549P V/S . INCOME TAX OFFICER, WARD-1(3), SURAT (APPELLANT) .. (RESPONDENT) /BY APPELLANT NONE (WRITTEN SUBMISSION) /BY RESPONDENT SHRI B.L. YADAV, SR-DR /DATE OF HEARING 24-05-2012 /DATE OF PRONOUNCEMENT 07-06-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, SURAT DATED 15-01-2010 FOR THE ASSESSMENT YEAR 2007-08. SOLE GROUND HAS RAISED BY THE ASSESSEE REA DS AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF C ASE, HONBLE C.I.T.(A) HAS ERRED IN SUSTAINING DISALLOWANCE OUT OF INTERES T EXPENSES OF RS.1,79,207/-. 2. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE, HOWEVER WRITTEN SUBMISSIONS ARE ON RECORD. THEREFOR E, WE PROCEED TO HEARING THIS APPEAL. ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 2 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A COM PANY, FILED ITS E-RETURN OF INCOME FOR A.Y. 2007-08 SHOWING TOTAL INCOME OF RS.3,12,6.650/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE- COMPANY HAD RECEIVED INTEREST ON ACCOUNT OF LOAN GI VEN AND HAS ALSO GIVEN INTEREST ON ACCOUNT OF LOAN/ADVANCE TAKEN BY ASSESS EE-COMPANY. IT WAS OBSERVED BY AO THAT ASSESSEE-COMPANY HAD RECEIVED I NTEREST @ 9% P.A FROM THE LOAN GIVEN BUT THE ASSESSEE HAD PAID INTEREST @ 12%. THE AO MADE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE CLA IMED BY THE ASSESSEE. THE ASSESSEE FEELING AGGRIEVED BY THE ASSESSMENT ORDER FILED APPEAL BEFORE LD. CIT(A). WHO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE DISMISSED THE APPEAL. 4. NOW, ASSESSEE FILED SECOND APPEAL BEFORE US. IT IS SUBMITTED BY ASSESSEE THAT IN RESPECT OF INTEREST FREE ADVANCE G IVEN TO SHRI BONY N DALAL OF RS.14 LAKH THAT THE ADVANCE WAS GIVEN FOR TEMPORARY PERIOD AND WAS REPAID BY THE PARTY IN OCTOBER, 2006. THE ASSESSEE SUBMITT ED THAT IT HAD SUFFICIENT INTEREST FREE FUND IN THE FORM OF SHARE CAPITAL RES ERVE AND INTEREST FREE UNSECURED LOAN. THE AO DISALLOWED INTEREST EXPENSES OF RS.73,500/- ON ACCOUNT OF INTEREST FREE LOAN HAS BEEN GIVEN TO SHR I BONY N DALAL. IT IS SUBMITTED BY ASSESSEE THAT THE CASE OF ASSESSEE WAS DIRECTLY COVERED BY SPECIAL BENCH JUDGMENT AND JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF JCIT V. ITC LTD. (2008) 112 ITD 57 (KOL) (SB) AND MUNJAL SALES CORPORATION V. CIT & ANR. (2008) 215 CTR 105 (SC). IT IS SUBMITTED THAT IN B OTH JUDGMENTS, IT HAS BEEN HELD THAT WHERE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF CAPITAL RESERVE AND INTEREST FREE BORROWING TO COVER INTEREST FREE ADVANCES THEN NO DISALLOWANCE OF INTEREST U/S. 36(1 )(III) CAN BE MADE. IT IS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD SUF FICIENT INTEREST FREE FUNDS IN THE FORM OF CAPITAL RESERVE TO COVER THE AMOUNT ADVANCED. IT IS SUBMITTED BY THE ASSESSEE THAT LD. CIT(A) DISALLOWED THE INTERES T ON THE GROUND THAT COMMERCIAL EXPEDIENCY COULD NOT BE PROVED BUT HE DI D NOT CONSIDER AFORE- ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 3 MENTIONED CASE LAWS. IN RESPECT OF MOHIT OVERSEAS P VT. LTD. THE AO HAD DISALLOWED INTEREST TO THE TUNE OF RS.45,903/- ON A CCOUNT OF THAT INTEREST WAS PAID TO MOHIT OVERSEAS PVT. @ 12% WHILE INTEREST HA D BEEN CHARGED ON LOAN GIVEN @ 9%. IT IS SUBMITTED BY ASSESSEE THAT LOAN O N ACCOUNT OF MOHIT OVERSEAS PVT. WAS IN NATURE OF CURRENT ACCOUNT, WHE REIN FUNDS WERE RECEIVED AND PAID ON REGULAR BASIS AS PER REQUIREMENT OF THE ASSESSEE AND MOHIT OVERSEA PVT. DURING THE YEAR, THERE WAS BOTH DEBIT BALANCE AS WELL AS CREDIT BALANCE OF THIS LOAN ACCOUNT. FROM THE LEDGER ACCOU NT OF MOHIT OVERSEAS PVT. LTD., IT IS EVIDENT THAT IT WAS NOT A FIXED LOAN BU T WAS A CURRENT ACCOUNT. IN THIS ACCOUNT LOAN WAS GIVEN AS WELL AS TAKEN. IN FACT, T HE CLOSING BALANCE OF ACCOUNT IS DEBIT BALANCE. THE INTEREST WAS PROVIDED ON CURRENT CREDIT BALANCE @ 12% AND CHARGED ON DEBIT BALANCE @ 12%. HOWEVER, DURING THE YEAR UNDER CONSIDERATION A CREDIT BALANCE ACCOUNT WAS FO R MORE PERIOD THAN DEBIT BALANCE THEREFORE NET INTEREST WAS PAID TO ASSESSEE TO MOHIT OVERSEAS PVT. LTD. IT IS SUBMITTED BY THE ASSESSEE THAT THERE IS A DIFFERENCE BETWEEN THIS CURRENT ACCOUNT AND THE OTHER LOAN GIVEN BY THE ASS ESSEE TO OTHER PARTIES. IN THIS ACCOUNTS LOAN ARE GIVEN AND TAKEN ON REGULAR B ASIS I.E. ON CALL. THIS IS ADDITIONAL FACILITIES TO THE ASSESSEE AS AMOUNTS CA N BE GIVEN AND RECEIVED AS PER REQUIREMENT AND AVAILABILITY OF FUNDS. AS AGAIN ST THIS, THE LOANS GIVEN BY THE ASSESSEE WERE IN THE NATURE OF FIXED LOAN. TH US, THERE WAS BASIC DIFFERENCE BETWEEN THIS CURRENT ACCOUNT AND THE FIX ED LOAN GIVEN. INTEREST ON THIS CURRENT ACCOUNT AT 12% AS PER INTEREST ON THIS CURRENT ACCOUNT WAS APPLIED (PAID/CHARGED) @ 12% P.A. AS PER RATE SO AGREED WIT H THIS PARTY. WHILE INTEREST ON FIXED LOAN GIVEN WAS CHARGED @ 9% AS TH EY WERE FIXED NATURE AND INTEREST AGREED WITH THEM WAS AT 9% PA. IT IS SUBMI TTED THAT IN THIS ACCOUNT THE INTEREST WAS PAID AS WELL AS CHARGED. HAD THERE BEE N EXCESS DEBIT BALANCE FOR LONGER PERIOD THEN NET INTEREST WOULD HAVE BEEN REC EIVABLE THEN THIS ACCOUNT WITH THE SAME RATE. IT IS SUBMITTED BY ASSESSEE THA T DISALLOWANCE HAS BEEN MADE MERELY ON THE GROUND THAT ON RATE OF INTEREST @ 12% HAS BEEN APPLIED ON THIS ACCOUNT WHILE INTEREST CHARGED WAS @ 9%. IT IS SUBMITTED THAT THERE WAS NO COMPARISON WITH THE LOAN AS ONE WAS FIXED LO AN AND OTHER WAS CURRENT ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 4 ACCOUNT. THEREFORE, MAKING DISALLOWANCE IS WRONG. F URTHER, IN RESPECT OF ADVANCE GIVEN TO NIRANJAN DALAL, IT IS SUBMITTED TH AT THIS ADVANCE WAS GIVEN FOR PROPERTY. AS PER TERMS OF ADVANCE, IT WAS AGREE D THAT INTEREST WILL BE PAID ONLY FOR PERIOD UPTO 31-12-2006. IT IS FURTHER SUBM ITTED THAT EVEN OTHERWISE ALSO THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND S AVAILABLE IN THE FORM OF SHARE CAPITAL RESERVES AND INTEREST FREE UNSECURED LOAN TO THIS ADVANCE. IT IS SUBMITTED THAT CASE IS COVERED BY THE JUDGMENT AS R ELIED. FURTHER, IT IS SUBMITTED THAT WITHOUT PREJUDICE TO SUBMISSION MADE HEREINBEFORE DISALLOWED INTEREST OF RS.2,52,278/- IN ITS RETURN OF INCOME I N RESPECT OF INVESTMENT MADE IN SHARES. THE ASSESSEE HAD VOLUNTARILY DISALLOWED INTEREST OF RS.2,52,278/- U/S. 14A OF THE ACT. THE ASSESSEE HAD TAKEN INTERES T PAID OF RS.4,52,841/- AND CALCULATED DISALLOWANCE U/S. 14A OF THE ACT HAS BEE N WORKED OUT OF RS.4,52,841/-. NOW IF ANY PORTION OF INTEREST PAID IS DISALLOWED THEN THE INTEREST PAID IN ABOVE WILL BE REDUCED AND ACCORDIN GLY DISALLOWANCE U/S. 14A ALSO REDUCED. IT IS SUBMITTED THAT IF ANY PORTION O F DISALLOWANCE MADE BY AO IS SUSTAINED THEN DISALLOWANCE U/S. 14A IS TO BE REDUC ED. OTHERWISE, THERE WILL BE DOUBLE TAXATION I.E. ONE BY DISALLOWANCE MADE U/ S. 14A BY CONSIDERING WHOLE AMOUNT AS INTEREST ALLOWABLE AND THEN BY MAKI NG FURTHER DISALLOWANCE OUT OF THE WHOLE AMOUNT. IT IS THEREFORE, SUBMITTED THAT AO IN THAT CASE, BE DIRECTED TO REDUCE THE DISALLOWANCE U/S. 14A IN CAS E ANY PORTION OF INTEREST PAID IS DISALLOWED AND SUSTAINED BY THE TRIBUNAL. 5. LD. SR-DR SUPPORTED THE ORDERS PASSED BY AUTHOR ITIES BELOW. 6. WE HAVE HEARD THE LD. DR PERUSED THE MATERIALS A VAILABLE ON RECORD AND THE JUDGMENTS CITED BY PARTIES. WE FIND THAT LD . CIT(A) HAS DEALT WITH THIS ISSUE IN PARA-4.1 TO 4.3 OF HIS ORDER, SAME IS REPR ODUCED HEREINBELOW:- 4.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE AO. IT IS SEEN THAT THE ISSUE UN DER CONSIDERATION IS THAT THE INTEREST HAS BEEN PAID AT 12$ TO MOHIT OVE RSEAS PVT. LTD., WHEREAS THE ASSESSEE HAS CHARGED ONLY 9% ON THE LOA NS AND ADVANCES GIVEN TO OTHER PARTIES. NEITHER DURING THE ASSESSME NT PROCEEDINGS NOR DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS BEEN ABLE TO MAKE ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 5 OUT A CASE HAT THE ASSESSEE HAS COMMERCIAL EXPEDIEN CY TO TAKE THE LOAN AT HIGHER RATE, I.E. 12%. THEREFORE, THE DISAL LOWANCE OF INTEREST TO THE EXTENT OF RS.45,903/- OVER AND ABOVE 9% IS IN O RDER AND THIS DISALLOWANCE IS CONFIRMED. 4.2 WITH RESPECT TO THE INTEREST FREE LOAN GIVEN TO SHRI BONY N DALAL OF RS.14,00,000/-, IT IS SEEN THAT THE APPELLANT HAS N OT GIVEN ANY EVIDENCE TO SHOW TAT THE LOAN WAS GIVEN FOR COMMERCIAL EXPED IENCY AS PER THE DECISION OF THE HOBNBLE SUPREME COURT IN THE CASE OF S.A. BUILDER. IF THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO ITS DIRECTORS OR RELATIVE OF DIRECTORS OR GROUP COMPANIES WITHOUT CH ARGING INTEREST OR CHARGING LOW INTEREST WITHOUT ANY COMMERCIAL EXPEDI ENCY THEN THE NEXUS OF FUNDS IS NOT IMPORTANT. IN THE PRESENT CAS E, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY COMMERCIAL EXPEDIENCY AND HENCE THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR INTER EST FREE LOAN TO SHRI BONY N DALAL AND THEREFORE, THE INTEREST TO THIS EX TENT OF RS.73,500/- PAID ON INTEREST BEARING FUNDS IS NOT FOR THE PURPO SE OF BUSINESS. HENCE THIS DISALLOWANCE IS CONFIRMED. 4.3 WITH RESPECT TO SHRI NIRANJAN V DALAL, IT IS SE EN THAT THE ASSESSEE HAS GIVEN LOAN AT 9% AND THE SAME HAS BEEN ADMITTED BY IT BUT IT HAD STATED THAT INTEREST HAS BEEN SHOWN ONLY UPON 31.12 .2006 ON RECEIPT BASE. THE AO, THEREFORE, RIGHTLY ADDED THE INTEREST UPTO MARCH AND THE ADDITION MADE BY THE AO IS CONFIRMED. IN RESPECT OF ALL THESE DISALLOWANCES THERE IS REAS ONING GIVEN BY THE LD. CIT(A) FOR CONFIRMING THE DISALLOWANCE THAT THE ASS ESSEE COULD NOT MAKE OUT A CASE THAT THERE WAS ANY COMMERCIAL EXPEDIENCY TO TA KE THE LOAN AT HIGHER RATE @ 12% AND GIVING LOAN @ 9%. IT IS EVIDENT FROM THE FINDINGS OF LD. CIT(A) THAT HE HAS NOT EXAMINED WHETHER THE ADVANCES GIVEN BY T HE ASSESSEE WERE OUT OF INTEREST FREE FUND OR FROM THE INTEREST BEARING BORROWED CAPITAL. THE CONTENTIONS OF THE ASSESSEE IS THAT SUCH ADVANCES W ERE GIVEN OUT OF THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE IN T HE FORM OF SHARE CAPITAL, RESERVES AND INTEREST FREE UNSECURED LOAN. FROM THE BALANCE-SHEET OF ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT IS TR ANSPIRED THAT THE ASSESSEE WAS HAVING SHARE CAPITAL OF RS.30,515,000/-, RESERV ES AND SURPLUS OF RS.15,80,710.41 AND UNSECURED LOAN OF RS.11,99,055/ -. THE ASSESSEE HAD GIVEN LOAN TO SHRI BONY N DALAL OF RS.14 LAKH AND S HRI NIRANJAN V DALAL OF RS.20 LAKH. HOWEVER, IN RESPECT OF MOHIT OVERSEAS ( P) LTD, THE ASSESSEE WAS ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 6 HOLDING A CURRENT ACCOUNT, WHEREIN BOTH THE PARTIES HAD DEBIT AND CREDIT BALANCE AT DIFFERENT POINT OF TIME. IT IS SUBMITTED BY THE ASSESSEE THAT IN RESPECT OF THIS ACCOUNT THE INTEREST @ 12% P.A. WAS CHARGED AS WELL AS PAID. THE TRANSACTIONS WERE EVENTUALLY EFFECTED FOR BUSIN ESS PURPOSE. 7. IN THE LIGHT OF ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE HAS DEMONSTRATED THAT THE ADVANCE S WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH HIM NO ADDITION WAS CALLE D FOR IN RESPECT OF THE ADVANCES GIVEN TO SHRI BONEY N DALAL AND NIRANJAN V DALAL. IN RESPECT OF MOHIT OVERSEAS (P) LTD. WE FIND THAT THE ASSESSEE H AD BEEN GIVING AS WELL AS TAKING LOAN FROM THE SAID PARTY AND INTEREST WAS BE ING PAID AND CHARGED AT THE SAME RATE, THEREFORE WE FIND FORCE INTO THE CONTENT ION OF THE ASSESSEE THAT SUCH TRANSACTIONS WERE FOR BUSINESS PURPOSES. IN VI EW OF THIS, NO ADDITION WAS CALLED FOR. HENCE, WE HEREBY ALLOW THE APPEAL OF TH E ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1,79 ,207/-. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 07/06/2012 ()* + ,- ,- ,- ,- ../ ../ ../ ../ 0/ 0/ 0/ 0/ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. *.3 , ,4 / CONCERNED CIT 4. , ,4- / CIT (A) 5. /78 ...3, , .3 , ()* / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. ITA NO.601/AHD/2010 A.Y. 2007-08 MASK INVESTMENT LTD. V. ITO WD-1(3), SRT PAGE 7 BY ORDER/ ,- , /TRUE COPY/ >/ ( ? , .3 , ()* + STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 30/05 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO. 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 30/05. 31/05 4) DATE OF CORRECTION 1/06 5) DATE OF FURTHER CORRECTION 5/06 6) DATE OF INITIAL SIGN BY MEMBERS 06/06 7) ORDER UPLOADED ON 07/06 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 07/06