INCOME TAX OFFICER 9(2)-3, MUMBAI V. M/S. MAHARAJA BUILDERS PVT.LTD., MUMBAI

ITA 6129/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1362 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 10-10-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D CHANDA SHRI S S RANA
• Assessee Lawyers: ARVIND DALAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER I T A NO: 6129/MUM/2008 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER 9(2)-3, MUMBAI APPELLANT VS M/S MAHARAJA BUILDERS PVT. LTD., MUMBAI RESPONDE NT (PAN: AAACM7464M) APPELLANT BY: SHRI D CHANDA / SHRI S S RANA RESPONDENT BY: SHRI ARVIND DALAL O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL FILED BY THE DEPARTMENT AND IT R ELATES TO THE ASSESSMENT YEAR 2003-04. THE ASSESSEE RESPONDENT I S A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF REAL EST ATE DEVELOPMENT AND TRADING IN PRECIOUS METALS. 2. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.21,56,916/- ON ACCOUNT OF INTEREST PAID AND THAT THE INTEREST RECEIVED WAS ONLY RS.43,786/- . HE FURTHER NOTICED THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS OF RS.8 ,39,11,497/- BUT HAD ADVANCED INTEREST FREE LOANS OF RS.19,77,68,051 /-. THE ASSESSEE WAS CALLED UPON TO EXPLAIN WHY NO INTEREST WAS CHAR GED ON THE ADVANCES EVEN THOUGH HUGE INTEREST WAS PAID ON THE BORROWINGS. THE ASSESSEE EXPLAINED THAT THE INTEREST WAS PAID TO A COOPERATIVE CREDIT SOCIETY AND A BANK ON THE LOANS TAKEN TO PAY OFF SO ME OF THE CREDITORS ITA NO: 6129/MUM/2008 2 AND FOR MAKING DEPOSITS. IT WAS FURTHER EXPLAINED THAT THE LOANS WERE TAKEN IN THE COURSE OF THE BUSINESS AND, THEREFORE, THE INTEREST PAID SHOULD BE ALLOWED AS A DEDUCTION. THE ASSESSING OF FICER DID NOT ACCEPT THE ASSESSEES CLAIM. HE HELD THAT THE ASSE SSEE HAD FAILED TO ESTABLISH WITH DOCUMENTARY EVIDENCE THAT THE BORROW INGS WERE PUT TO USE FOR THE BUSINESS AND THAT THE INTEREST FREE ADV ANCES MADE BY IT CAME OUT OF FUNDS OTHER THAN THE BORROWED FUNDS. H E ACCORDINGLY DISALLOWED THE ENTIRE INTEREST PAYMENT. 3. THE ASSESSEE APPEALED TO THE CIT(A) AND APPEARS TO HAVE TAKEN THE FURTHER ARGUMENT THAT IT WAS POSSESSED OF INTEREST FREE FUNDS TO THE EXTENT OF RS.49.02 CRORES CONSISTING OF CAPI TAL, UNSECURED LOANS, DEPOSITS, ADVANCES FROM CUSTOMERS, ETC. AND THAT TH E INTEREST FREE ADVANCES MADE BY IT CAME OUT OF ITS OWN FUNDS. IT WAS ALSO SUBMITTED THAT THE ADVANCES WERE MADE IN THE EARLIER YEARS. IT WAS POINTED OUT THAT THE ASSESSEE HAD LOST ALL ITS ACCOUNTS AND DOC UMENTS IN THE FLOODS ON 26 TH JULY 2005, WHICH FACT HAD ALSO BEEN DULY INTIMATED TO THE ASSESSING OFFICER. AS REGARDS THE DISALLOWANCE OF INTEREST MADE IN THE EARLIER YEARS IT WAS SUBMITTED THAT NO APPEAL WAS P REFERRED BECAUSE OF THE ABOVE. THE CIT(A) ACCEPTED THE ASSESSEES PLEA THAT THE INTEREST FREE ADVANCES CAME OUT OF INTEREST FREE FUNDS AVAIL ABLE TO THE ASSESSEE AND DELETED THE DISALLOWANCE. 4. THE OBJECTION OF THE REVENUE IS THAT THE CIT(A) OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE ASSESSING OFFICER TO EX AMINE THE FACTUAL POSITION REGARDING AVAILABILITY OF INTEREST FREE FU NDS WITH THE ASSESSEE FROM WHICH THE INTEREST FREE ADVANCES WERE ALLEGEDL Y MADE. IT IS ITA NO: 6129/MUM/2008 3 SUBMITTED THAT THIS IS A FACTUAL ISSUE WHICH REQUIR ES VERIFICATION BY THE ASSESSING OFFICER AND FURTHER THAT THIS FACTUAL POS ITION WAS NOT BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. WE FIND ME RIT IN THE CONTENTION OF THE DEPARTMENT. BEFORE THE ASSESSING OFFICER TH E ASSESSEE DOES NOT APPEAR TO HAVE PUT FORTH THE FACTUAL POSITION T HAT THE INTEREST FREE ADVANCES CAME OUT OF INTEREST FREE FUNDS AVAILABLE TO IT TO THE EXTENT OF RS.49.02 CRORES. THE ONLY SUBMISSION MADE BEFORE T HE ASSESSING OFFICER WAS THAT THE BORROWINGS WERE MADE FOR THE P URPOSE OF THE BUSINESS OF THE ASSESSEE. THAT ASPECT HAS NOT BEEN DECIDED BY THE CIT(A), BEFORE WHOM THE ASSESSEE PUT FORTH A FACTUA L SUBMISSION REGARDING AVAILABILITY OF INTEREST FREE FUNDS, WHIC H WAS ACCEPTED BY HIM WITHOUT GIVING THE ASSESSING OFFICER AN OPPORTUNITY TO EXAMINE THE SAME. WE, THEREFORE, SET ASIDE THE ORDERS OF THE I NCOME TAX AUTHORITIES ON THIS POINT AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL EXAMINE THE ASSESSEES CLAIM REGARDING AVAILABILITY OF INTEREST FREE FUNDS AND TAKE A FRES H DECISION ON THE ALLOWABILITY OF THE INTEREST IN ACCORDANCE WITH LAW . BEFORE ANY DECISION IS TAKEN THE ASSESSEE SHALL BE GIVEN DUE OPPORTUNIT Y OF BEING HEARD. THE APPEAL OF THE DEPARTMENT IS THUS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2010. SD/- SD/- (J SUDHAKAR REDDY) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 30 TH JUNE 2010 SALDANHA ITA NO: 6129/MUM/2008 4 COPY TO: 1. M/S MAHARAJA BUILDERS PVT. LTD. 4A, VIKAS CENTRE, S V ROAD SANTACRUZ (WEST), MUMBAI 400 054 2. ITO 9(2)-3 3. CIT-IX 4. CIT(A)-IX 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI