DCIT CENT. CIR. - 2(1), MUMBAI V. DHANERA DIAMONDS, MUMBAI

ITA 6064/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9920 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR LD
• Keywords: Earning of tax free income; Notional interest
• Section: 143(3); 14A

Judgement Text

ITA NO. 6064/MUM/2016 DHANERA DIAMONDS ASSESSMENT YEAR 20 11 - 1 2 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 6064 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 11 - 1 2 ) DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(1) OLD CGO BUILDING ANNEX ROOM NO. 804, 8 TH FLOOR M.K.ROAD MUMBAI - 400 020 / VS. DHANERA DIAMONDS GW - 5010 & 5021 TO 5023 BHARAT DIAMOND BOURSE BKC, BANDRA (E) MUMBAI 400 051 ./ ./ PAN/GIR NO. AA A FD - 0634 - K ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : NONE REVENUE BY : V. VIDHYADHAR , LD. DR / DATE OF HEAR ING : 1 3 /03/2018 / DATE OF PRONOUNCEMENT : 13 / 0 3/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 20 11 - 1 2 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 48 ITA NO. 6064/MUM/2016 DHANERA DIAMONDS ASSESSMENT YEAR 2011 - 12 2 [CIT(A)], MUMBAI APPEAL NO.CIT(A) - 48 /IT - 126/DCCC - 2(1)/2015 - 16 DATED 26/07/2016. T HE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(1) ON 20 /03/2015 U/S 143(3) OF THE INCOME TAX ACT, 1961. TH E EFFECTIVE GROUNDS RAISED BEFORE US READS AS UNDER: - I . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) W AS CORRECT IN DELETING DISALLOWANCE OF RS.36,31,377/ - BEING THE INTEREST CORRESPONDING TO THE INTEREST FREE LOANS AND ADVANCES GIVE N BY THE ASSESSEE TO THE SISTER CONCERN, FRIENDS AND RELATIVES, WITHOUT APPRECIATING THAT THE FUNDS WERE MIXED FUNDS AND THE ASSESSEE FAILED TO ESTABLISH THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR ADVANCING LOANS TO SISTER CONCERNS AND RELATIVES. II . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN RELYING ON THE DECISION IN THE CASE OF HDFC BANK LIMITED 366 ITR 505 WHICH WAS ON THE ISSUE OF INVESTMENT RESULTING AN EXEMPT INCOME FOR THE PURPOSE OF U/S. 14A AND THE F ACTS OF THE PRESENT CASE ARE DIFFERENT THAT OF HDFC BANK LIMITED. NONE HAS APPEARED FOR ASSESSEE DESPITE NOTICE. LEFT WITH NO OPTION WE PROCEED TO DISPOSE - OFF THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING LD. DEPARTMENTAL RE PRESENTATIVE [DR]. 2 .1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSEE BEING R ESIDENT FIRM HAS BEEN ASSESSED FOR IMPUGNED AY AT RS.21.80 CRORES AFTER CERTAIN ADDITIONS AS AGAINST RETURNED INCOME OF RS.21.16 CRORES E - FILED BY THE ASSESSEE ON 23/09/2011. ONE OF THE ADDITION PERTAINS TO DISALLOWANCE OF INTEREST EXPENDITURE FOR RS.36,31,377/ - , WHICH IS THE SOLE SUBJECT MATTER OF THIS APPEAL. 2.2 DURING ASSESSMENT PROCEEDING, IT WAS NOTED THAT THE INTEREST EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT REFLECTED S UBSTANTIAL JUMP DURING IMPUGNED AY. IT WAS FOUND THAT CERTAIN INTEREST FREE LOANS AND ADVANCES WERE GRANTED BY THE ASSESSEE TO VARIOUS ENTITIES, AS EXTRACTED IN THE QUANTUM ASSESSMENT ORDER. THE LD. AO ADOPTED NOTIONAL INTEREST ITA NO. 6064/MUM/2016 DHANERA DIAMONDS ASSESSMENT YEAR 2011 - 12 3 RATE OF 8% AGAINST THE SAME AND WORKED OUT IMPUGNED INTEREST DISALLOWANCE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 3. THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 26/07/2016 AND MADE VARIOUS SUBMISSIONS. AFTER DUE CONSIDERATION, T HE LD. CIT(A) CONCURRED WITH THE SAME AND ALLOWED THE ASSESSEES CLAIM BY MAKING FOLLOWING OBSERVATIONS: - 4.1 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. THE AO DISALLOWED RS.36,31,377/ - ON THE BASIS OF WORKING FURNISHED BY THE APPELLANT WITHOUT LINKING THE INTEREST FREE ADVANCES WITH THE INTEREST BEARING LOANS OBTAINED BY THE APPELLANT FROM BANK ETC. THE ASSESSING OFFICER HAS NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING LOAN AND T HE INTEREST BEARING LOANS GIVEN TO SISTER CONCERNS, FRIENDS AND RELATIVES. ON THE OTHER HAND, IT IS THE CASE OF THE APPELLANT THAT IT HAD OPENING BALANCE OF RS.46.43 CRORE AND CLOSING BALANCE OF RS.59.12 CRORE IN THE PARTNERS BALANCES, WHICH WAS NEVER IN DEBIT DURING THE ENTIRE YEAR. NO INTEREST ON THE CREDIT BALANCE ON THE PARTNERS CAPITAL ACCOUNTS WAS PAID. APART FROM INTEREST FREE CAPITAL, THE APPELLANT HAD ALSO INTEREST FREE UNSECURED LOANS TO THE TUNE OF RS.0.67 C RORE AT THE BEGINNING OF THE YEAR AND RS.5.02 CR ORE AT THE END OF THE YEAR. FURTHER THE APPELLANT HAD EARN ED POST TAX NET PROFI T OF RS.10.15 CRORE DURING THE Y EARS WHICH WAS ALSO SUFFICIENT TO MEET THE INTEREST FREE LOAN OF RS.1.86 C RORE TO SISTER CONCERNS. INTEREST IS PAID TO BANK ON BORROWI NGS FOR BUSINESS PURPOSES . THE APPELLANT HAS ALSO RELIED UPON THE DECISION O F THE HONBLE JURISDICTIONAL BOMBAY HIGH CO URT IN THE CASE OF HDFC BANK LTD. (366 ITR 505). 4.2 THE LD. AR FURTHER RELIED ON THE DECISION OF CIT(A) - 37, MUMBAI (APPEAL NO. CIT(A) - 37 /I.T.124/ACCC - 11/10 - 11 DATED 19.04.2011) IN APPELLANTS OWN CASE FOR A,Y,2008 - 09. I FIND THAT THE CIT(A) HAS ALLOWED THE ASSESSEES APPEAL FOR THE REASON THAT THERE WAS SUFFICIENT SELF OWNED FUNDS AND IN ABSENCE OF NEXUS BETWEEN INTEREST BEARING LOANS UTIL IZED FOR NON - INTEREST BEARING LOANS GIVEN, THE DISALLOWANCE WAS HELD AS NOT JUSTIFIED . I FIND THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT OF THE CASE DECIDED BY MY PREDECESSOR IN APPELLANTS OWN CASE FOR A Y 2008 - 09. CONSIDERING T HE ABOVE , THE AO IS DIRECTED T O DELETE THE DISALLOWANCE OF RS.36 , 31 , 377 / - IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT AS MENTION IN THE PRECEDING PARAGRAPHS. ACCORDINGLY , THE GROUND OF APPEAL IS ALLOWED. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US . ITA NO. 6064/MUM/2016 DHANERA DIAMONDS ASSESSMENT YEAR 2011 - 12 4 4. THE LD. DR, PLACING RELIANCE ON THE STAND OF LD. AO, SUBMITTED THAT THE ONUS WAS ON ASSESSEE TO PROVE THE FACTUAL MATRIX BEFORE LD. AO AND THEREFORE, THE IMPUGNED ADDITIONS WERE JUSTIFIED. 5. WE HAVE CAREFULLY HEARD THE CONTENTIONS AND PERUSED RELEVAN T MATERIAL ON RECORD. AFTER DELVING UPON THE OBSERVATIONS OF LD. CIT(A) AS EXTRACTED ABOVE, WE FIND THAT LD. CIT(A) HAS CLINCHED THE ISSUE IN THE RIGHT PERSPECTIVE SINCE THERE IS NO EVIDENCE ON RECORD TO S UGGEST T HAT INTEREST BEARING LOANS WERE DIVERTED BY THE ASSESSEE TO GRANT INTEREST FREE ADVANCES TO VARIOUS ENTITIES. THE LD. CIT(A) HAS ALREADY NOTED THAT THERE WAS SUFFICIENT CREDIT BALANCE IN PARTNERS CAPITAL ACCOUNT AND UNSECURED LOANS TO COVER THE INTEREST FREE LOANS GRANTED BY THE ASSESSEE WHICH IS ALSO SUPPORTED BY THE FACT THAT THE ASSESSEE HAD HEALTHY ACCUMULATED PROFITS DURING IMPUGNED AY . IN THE ABSENCE OF CLEAR NEXUS BETWEEN INTEREST BEARING LOANS OBTAINED BY THE ASSESSEE AND INTEREST FREE ADVANCES GRANTED BY THE ASSESSEE, A PRESUMPTION HAS TO BE DRAWN IN ASSESSEES FAVOR IN TERMS OF CITED JUDGMENT OF HONBLE BOMBAY HIGH COURT. 6. THE LD. CIT(A) HAS ALSO PLACED RELIANCE ON THE DECISION OF ITS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2008 - 09 . THE REVENUE IS UNABLE TO CONTROVERT THE SAME IN ANY MANNER. THEREFORE, FROM ANY ANGLE, WE FIND NO INFIRMITY IN THE ORDER OF LD. FIRST APPELLATE AUTHORITY AND HENCE, NO HESITATION IN DISMISSING REVENUES APPEAL. 7. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISSED. ITA NO. 6064/MUM/2016 DHANERA DIAMONDS ASSESSMENT YEAR 2011 - 12 5 ORDER PR ONOUNCED IN THE OPEN COURT ON 13 TH MARCH , 2018 . SD/ - SD/ - ( C.N.PRASAD ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13 . 03 .2018 SR.PS: - --- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI