HANJER BUILDERS LTD, MUMBAI V. ITO 5(1)(4), MUMBAI

ITA 6111/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49213 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 31-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Commercial expediency; Set aside
• Section: 208

Judgement Text

1 ITA NO. 6111/MUM/2009 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, AM & SHRI VIJAY PAL RAO, JM ITA NO. 6111/MUM/2009 (ASST YEAR 2005-06) HANER BUILDERS LTD SHALIMAR HOUSE 335 GRANT ROAD, MUMBAI 400 007 VS TH E INCOME TAX OFFICER WARD 5(1)(4), MUMBAI ( APPELLANT ) (RESPONDENT) PAN NO.AAACH9298N A SSESSEE BY DR K SHIVARAM REVENUE BY SHRI M P KUBAL PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20.8.2009 OF THE CIT(A) RELATING TO AY 2005-06. 2 THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS A PPEAL; HOWEVER, THE ONLY ISSUE ARISES FROM THE GROUNDS OF THE ASSESSEE IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN REDUCING THE INTEREST OF RS. 21,40,384/- FROM THE VALUE OF THE W ORK IN PROGRESS ON THE GROUND THAT BORROWED FUNDS WERE NOT UTILIZED FOR BUSINESS PURPO SES BUT GIVEN INTEREST FREE ADVANCES TO ITS SISTER CONCERN. 2.1 THE ASSESSING OFFICER OBSERVED FROM THE BALANCE SHEET AND P&L ACCOUNT AND SCHEDULE THERETO THAT ON ONE HAND THE ASSESSEE HAS TAKEN INTEREST BEARING SECURED LOANS AND ON THE OTHER HAND, IT HAD ADVANCED INTEREST FRE E LOANS TO OTHERS INCLUDING THE ASSOCIATE CONCERNS/COMPANIES. THE ASSESSEE BORROWED SECURED LOANS OF RS. 3,21,08,821/- ON WHICH INTEREST OF RS. 24,48,347/- HAS BEEN PAID. THE ASSE SSING OFFICER NOTED THAT AGAINST THIS, 2 ITA NO. 6111/MUM/2009 THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES OF RS . 2,80,70,046. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE INTEREST FREE ADVANCES GIVEN TO THE SISTER CONCERN WERE DUE TO BUSINESS EXPEDIENCY. THE ASSESSING OFFICER H AS OBSERVED THAT THE ASSESSEE HAS SHOWN WORK IN PROGRESS AND THERE WAS AN INCREASE O F RS. 34,68,714 IN THE WORK IN PROGRESS IN RESPECT OF ANDHERI PROJECT DUE TO ADMINISTRATIVE AND FINANCIAL EXPENSES AND NOT DUE TO CAPITAL WORK DONE. THUS, THE ASSESSING OFFICER WAS OF THE VIEW THAT WHEN NO CAPITAL CONSTRUCTION WAS IN PROGRESS DURING THE YEAR THEN UTILIZATION OF OVER DRAFT FACILITY WAS ONLY FOR GIVING INTEREST FREE ADVANCES TO ITS ASSOCIATE CONCERNS/SISTER CONCERNS AND NOT FOR THE BUSINESS PURPOSES. 2.2 ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSING OFFICER AND UPHELD THE DISALLOWANCE. 3 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSEE HAD CURRENT ACCOUNT WITH SISTER CONCERN TO WHOM THE ADVANCES WE RE GIVEN AS WELL AS THE MONEY WERE BORROWED BY THE ASSESSEE DUE TO COMMERCIAL EXPEDIE NCY. THE ADVANCE OF RS. 1,07,00,500/- WAS GIVEN ALMOST AT THE END OF TH E YEAR AND THE BUSINESS ADVANCES WERE REDUCED FROM THE TOTAL ADVANCES OF RS. 2 ,80,70,047 /-. THE LD AR OF THE ASSESSEE POINTED OUT THAT OUT OF THE RS. 2.80 CRORES, RS. 1.07 CROR ES WERE GIVEN ON 30.1.2005; THEREFORE, THE DISALLOWANCE OF INTEREST ON THIS ACCOUNT IS NOT JU STIFIED. HE FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS RELIED ON THE DECISION OF TH E JURISDICTION HIGH COURT IN THE CASE OF PHULTON SUGAR WORKS LTD VS CWT REPORTED IN 208 ITR 189 WHICH STANDS OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS R EPORTED IN 288 ITR 1. 3.1 SINCE THE ASSESSEE WAS HAVING CURRENT ACCOUNT W ITH SISTER CONCERN/ASSOCIATE CONCERN, AND THERE WAS TRANSFER OF FUNDS FROM BOTH THE SIDES, THUS, IT WAS SUBMITTED THAT NOT ONLY THE ASSESSEE FORWARD THE MONEY TO SISTER C ONCERN BUT THE ASSESSEE ALSO RECEIVED FUNDS FROM ITS SISTER CONCERN WHENEVER REQUIRED. SOME OF THE ACCOUNTS ARE HAVING CREDIT 3 ITA NO. 6111/MUM/2009 BALANCE IN THE ASSESSEES BOOKS OF ACCOUNT. HE HAS REFERRED PAGE 33 OF THE PAPER BOOK, WHICH IS THE LEDGER ACCOUNT OF SHALIMAR EXHIBITORS , ONE OF THE SISTER CONCERNS AND SUBMITTED THAT RS. 6,50,000/- WAS GIVEN ON LAST DAY OF THE FY ENDING ON 31.3.2005. HE THEN REFERRED TO THE ORDER OF THE CIT(A) FOR AY 2003-04 AND SUBMI TTED THAT SIMILAR ADDITION WAS MADE AND WAS DELETED BY THE CIT(A) AND THE REVENUE HAS NOT CHALLENGED THE SAME. THE LD AR OF THE ASSESSEE HAS RELIED UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF RAMKISHIN TEXTILES P LTD VS ITO REPORTED IN 9 ITR (TRIB) 321( MUM) AND SUBMITT ED THAT IN SIMILAR SITUATION WHEN THE REVENUE HAS ACCEPTED THE COMMERCIAL EXPEDIENCY OF T HE TRANSACTION THEN THE SAME CANNOT BE DENIED FOR THIS YEAR. THE LD AR OF THE ASSESSEE HAS SUMMARIZED HIS CONTENTION THAT THE ASSESSEE AS WELL AS SIX MAJOR PARTIES TO WHOM ADVAN CES MADE WERE ALSO COMPANIES; SOME OF THE PARTIES WERE HOLDING CREDIT BALANCES WITH TH E ASSESSEE COMPANY AND HENCE, ADVANCING TO THE SISTER CONCERN WAS MADE AS INTERE ST FREE FUNDS ALSO WERE RECEIVED FROM SISTER CONCERN. THE ASSESSING OFFICER HAS NOT DISPU TED THE COMMERCIAL EXPEDIENCY. THE LD AR OF THE ASSESSEE THEN SUBMITTED THAT OUT OF THE C LOSING BALANCE RS. 2,80 CORES OPENING BALANCE OF LOAN AND ADVANCES NEEDS TO BE REDUCED. FURTHER, THE ADVANCES GIVEN AT END OF THE YEAR WERE ALSO NEEDS TO BE REDUCED, AS THERE C ANNOT BE INTEREST AT THE ENDING OF THE YEAR. 3.2 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY CONSTRUCTION ACTIVITY IN THE YEAR. THE MONEY B ORROWED FUNDS WERE NOT UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND IT IS CLEAR THAT BORROWED FUND HAS BEEN UTILIZED FOR ADVANCING INTEREST FREE ADVANCES TO ITS SISTER CONCERN. THE ASSESSEE HAS TO ESTABLISH AS TO HOW THE INTEREST FREE LOANS GIVEN TO THE SISTER CONCERN IS HAVING THE ELEMENT OF COMMERCIAL EXPEDIENCY. HE RELIED ON THE ORDERS OF T HE AUTHORITIES BELOW. 4 ITA NO. 6111/MUM/2009 4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT TH E ASSESSEE HAS NOT CARRIED OUT ANY CONSTRUCTION WORK DURING THE YEAR. AS REGARDS THE COMMERCIAL EXPEDIENCY FOR ADVANCING THE INTEREST FREE LOANS TO ITS SISTER IS CONCERNED, IT IS TO BE NOTED THAT WHEN THE ASSESSEE IS NOT HAVING ANY BUSINESS CONNECTION WITH THE SISTER CONC ERN, WHO ARE IN THE SAME LINE OF BUSINESS AND THERE IS NO TRANSACTION OF BUSINESS BE TWEEN THE ASSESSEE AND ITS SISTER CONCERN THEN. EXCEPT GIVING ADVANCE AND RECEIVING SOME ADVA NCES, THERE IS NO OTHER BUSINESS BETWEEN THE ASSESSEE AND ITS SISTER. THEREFORE, WE DO NOT FIND ANY SUBSTANCE OR MERIT IN THE CONTENTION OF THE LD AR THAT THE INTEREST FREE LOAN S WERE GIVEN BY THE ASSESSEE DUE TO COMMERCIAL EXPEDIENCY. IT IS NOT THE CASE OF THE A SSESSEE THAT THE ASSESSEE TOOK ADVANCE FOR THE PURPOSE OF CARRY OUT THE CONSTRUCTION WORK BUT DUE TO SOME DEVELOPMENT THE CONSTRUCTION WORKS COULD NOT BE CARRIED OUT AND THE REFORE, THE ASSESSEE ADVANCED THESE FUNDS TO THE SISTER CONCERN. IN THE CASE IN HAND, T HE ASSESSEE UTILIZED THE OVERDRAFT FACILITY AND IT APPEARS THAT THERE IS A RELATION/NEXUS BETW EEN THE BORROWED FUNDS AND THE ADVANCES GIVEN TO THE SISTER CONCERN. HOWEVER, SOME OF THE ADVANCES WERE GIVEN AT THE END OF THE FY AS POINTED OUT BY THE LD AR; THEREFORE, THIS ASP ECT IS REQUIRED TO BE VERIFIED. 3.1 IT IS THE SETTLED PROPOSITION OF LAW THAT PRINC IPLE OF RES-JUDICATE DOES NOT APPLY TO THE INCOME TAX MATTERS. EACH ASSESSMENT YEAR IS SEPARAT E ACCOUNTING YEAR; HOWEVER, CONSISTENCY SHOULD BE MAINTAINED WHEN THERE IS NO D IFFERENCE IN THE FACTS AND CIRCUMSTANCES BETWEEN THE ASSESSMENT YEARS. IT IS REQUIRED TO BE VERIFIED WHETHER THE ADVANCES FOR THE AY 2003-04 WERE GIVEN TO THE SAME SISTER CONCERN A S IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND FROM THE OVERDRAFT FACILITY AND IF IT IS FOUND THAT THE ADVANCES WERE GIVEN TO THE SAME SISTER CONCERN, THEN UNDER THE SIMILAR CIRCUMSTANCES CONSISTENT VIEW IS REQUIRED TO BE TAKEN. 5 ITA NO. 6111/MUM/2009 4 IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDE R OF THE CIT(A) AND REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIF Y AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE IN THE LIGHT OF OUR ABOVE OBSERVATIONS. WE HOLD AND DIRECT AC CORDINGLY. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 29 TH , DAY OF JUNE 2011. SD/ SD/- ( J SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 29 TH ,JUNE 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI