SHRI VENUE EXPORTS, MUMBAI V. ITO WD 17(2)(3), MUMBAI

ITA 6455/MUM/2009

• Counselvise Citation: 645519914 RSA 2009
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRISAMPAT KUMAR
• Assessee Lawyers: SHRIVIJAY MEHTA
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI R. S. PADVEKAR (J.M.) &SHRI B. RAMAKOTA IAH (A.M.) ITA NO.6455/MUM/2009 ASSESSMENT YEAR : 2006-07 SHRI VENUE EXPORTS 4A, DHUMBLDG, DADA SAHEBPHALKE ROAD, MUMBAI-400 014 PAN NO: AAAFV1216D VS. ITO WD 17(2)(3)) PIRAMAL CHAMBERS MUMBAI-400 012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRIVIJAY MEHTA RESPONDENT BY : SHRISAMPAT KUMAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29.09.2009 OF THE CIT(A) 29, MUMBAI RELATING TO A SSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING FIVE GROUN DS : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S IN UPHOLDING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S. 143(3) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE FINDING OF THE ASSESSING OFFICER THAT THE NOTICE IS SUED U/S.143(2) ON 29.10.2007 WAS DULY AND LEGALLY SERVED ON THE AP PELLANT FIRM ON 31.10.2007. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF RS.1,47,000/- ON A CCOUNT OF INTEREST PAYMENTS ON BORROWED FUNDS. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF AN AMOUNT OF RS.50 ,000/- WHICH BECAME IRRECOVERABLE FROM THE VENDOR M/S. BAL AJI INDUSTRIES TO WHOM THIS AMOUNT WAS GIVEN AS ADVANCE AGAINST PURCHASE OF GOODS DEALT IN BY THE APPELLANT IN THE COURSE OF ITS DAY TO DAY BUSINESS ACTIVITIES. 5. THE LEARNED CIT(A) HAS ERRED IN NOT RECOMMENDING THE CAPITAL LOSS OF RS.8,389/- SUSTAINED ON ACCOUNT OF SALE OF MOTOR CAR TO BE CARRIED FORWARD TO THE SUBSEQUENT YEAR. 3. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L PRESSED ONLY GROUND NO.3 WITHDRAWING ALL OTHER GROUNDS, THEREFORE, THE GROUND NO. 3 IS CONSIDERED. THE FACTS LEADING TO THE ABOVE GROUND ARE THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS. 32,95,327/- AS INTEREST, W HILE OFFERING AN AMOUNT OF RS.11,56,711/- AS INCOME IN ITS P & L A/C. THE A .O. NOTICED THAT THE ASSESSEE CHARGED INTEREST AT 8% TO 15%, WHEREAS THE LOANS WERE BORROWED AT THE RATE OF 13.2% TO 18%. THE A.O. SHOW CAUSED WHY THE DIFFERENCE INTEREST SHOULD NOT BE DISALLOWED FROM THE INTEREST CLAIM, A S FUNDS ARE BORROWED AT A HIGHER FIGURE AND ADVANCED AT A LOWER FIGURE. THE A SSESSEE CONTESTED STATING THAT THE BORROWINGS WERE MADE WHEN THEY REQUIRED FU NDS URGENTLY AND WHEN THE AMOUNTS ARE NOT REQUIRED THEY ADVANCED FOR SHOR T TERM DEPENDING ON THE REQUIREMENT AND MARKET DEMAND. IT WAS SUBMITTED THA T THERE IS NO CO- RELATION BETWEEN THE ADVANCE OF THE LOANS AND BORRO WINGS, AND THE MONEY WAS ADVANCED AS LOANS AT ANY RATE OF INTEREST TO M INIMIZE OR REDUCE THE PAYMENT OF INTEREST, THEREFORE, THE ASSESSEE HAD TO ADVANCE AT A LOWER INTEREST. THE AO DID NOT ACCEPT THE EXPLANATION AND ON THE BASIS OF THE DETAILS OF INTEREST PAID AND RECEIVED FURNISHED BY THE ASSESSEE, AN AMOUNT OF RS.1,47,200/- WAS DISALLOWED. BEFORE THE LD. CIT(A) THE ASSESSEEE REITERATED THE SAME CONTENTIONS, BUT THE LD. CIT(A) UPHELD THE CONTENTIONS STATING THAT IT IS A DIVERSION. 4. THE LD. COUNSEL SUBMITTED THAT BOTH THE A.O. A S WELL AS THE LD. CIT(A) HAVE WRONGLY CONSIDERED THE LEGAL PRINCIPLES AS WEL L AS FACTS. HE PLACED ON RECORD THE AMOUNTS BORROWED AND AMOUNTS ADVANCED AN D SUBMITTED THAT THE ASSESSEE WAS HAVING ABOUT 4.04 CRORE OF FUNDS, OUT OF WHICH 1.46 CRORES WERE FROM THE PARTNERS CAPITAL A/C WITH 0% INTEREST . THE AMOUNT OF RS.1.82 CRORES WAS BORROWED FROM THE BANK AT 7 TO 7.5%. IT WAS FURTHER SUBMITTED THAT ONLY RS.6 LAKH WERE ADVANCED AT 8% AND THE AMO UNT OF RS.48,95,000/- WERE ADVANCED AT 12%. THESE FUNDS CAN BE CONSIDERED AS ADVANCE OUT OF OWN FUNDS OR BORROWED FUNDS WHICH WERE AT LESS THAN 8%, WHICH WERE AVAILABLE TO THE TUNE OF ALMOST 3.3 CRORE. IT WAS F URTHER SUBMITTED THAT THE ASSESSEE BORROWED ABOUT RS.43 LAKHS OF FUNDS AT MOR E THAN 12%, WHEREAS THE ASSESSEE ADVANCED 59.95 LAKHS AT INTEREST VARYI NG FROM 12 TO 15%. ON THESE FACTS IT WAS SUBMITTED THAT THERE IS NO NEED TO DISALLOW ANY AMOUNT. FURTHER IT WAS SUBMITTED THAT THE FUNDS ARE NOT ADV ANCED INTEREST FREE, NOR THE ADVANCED TO SISTER CONCERNS AND THERE WAS NO DI VERSION OF THE FUNDS AS CONSIDERED BY THE LD. CIT(A) IN VARIOUS CASE LAWS R ELIED UPON BY HIM. IT WAS THE CASE OF BUSINESS ADVANCES, SOME WERE ADVANCED A T 8%, SOME ADVANCED AT 12% AND SOME WERE ADVANCED AT 15% DEPENDING ON T HE RISK INVOLVED. IT WAS HIS CASE THAT NO DISALLOWANCE WAS CALLED FOR. T HE LD. DR HOWEVER, RELIED ON THE ORDERS OF THE AO AND THE LD. CIT(A) AND SUBM IT THAT ASSESSEE HAS NOT FURNISHED THE REASON WHY IT ADVANCED AT A LESSER RA TE. 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE F ACTS THE ASSESSEE IS AN EXPORTER AND ADVANCING FUNDS WERE TEMPORARY IN N ATURE. THE BORROWINGS AS GIVEN IN THE STATEMENT WERE FROM THE BANK AT 7 T O 7.5% TO THE EXTENT OF RS.1.82 CORES AND AT 9% TO AN EXTENT OF RS.20.38 L AKHS. INCLUDING OWN CAPITAL ACCOUNT FUNDS OF RS.1.46 CRORES, ASSESSEE IS HAVING ABOUT 3.49 CRORES AT LESS THAN 9% BORROWINGS. THE ASSESSEE ADV ANCED ONLY AN AMOUNT OF RS.6 LAKHS AT 8%. THERE WERE ADVANCES AT 12% OF RS.48.95 LAKHS AND RS.11 LAKHS AT 15%. WE ARE UNABLE TO UNDERSTAND ON WHAT BASIS THE A.O. WORKED OUT THE INTEREST AT RS.1,47,200/- AS DIVERSI ON OF BORROWED FUNDS. ON THE FACTS OF THE CASE WE DO NOT SEE ANY REASON FOR DISALLOWING INTEREST. IT IS ALSO NOT THE CASE THAT FUNDS WERE ADVANCED,INTERES T FREE. AS SEEN FROM THE ORDER ALSO THERE IS NO ALLEGATION THAT FUNDS WERE A DVANCED TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES. SINCE THE ASSESSEE COMPA NY ADVANCED IN THE COURSE OF BUSINESS AND ALSO PAID INTEREST IN THE CO URSE OF BUSINESS, WE ARE OF THE OPINION THAT IT CANNOT BE CONSIDERED THAT FUNDS WERE ADVANCED FOR NON - BUSINESS PURPOSES. IT IS NOT A CASE OF DIVERSION OF FUNDS. THE CASES RELIED ON BY THE LD. CIT(A) ARE ABOUT DIVERSION OF FUNDS, AND THOSE PRINCIPLES ARE NOT APPLICABLE FOR DISALLOWANCE OF INTEREST TO THE FACT S OF THE CASE. IN VIEW OF THE FACTS, AS THE ASSESSEE HAS ADVANCED THE FUNDS IN TH E COURSE OF BUSINESS AND ALSO HAS MORE FUNDS AT HIS DISPOSAL TO ADVANCE THEM ,WE ARE OF THE VIEW THAT THE ADDITION IS NOT CALLED FOR. A.O. IS DIRECTED T O ALLOW THE SAME. THE GROUND IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 16 TH DAY OF MAY, 2011. SD/- (R. S. PADVEKAR) JUDICIAL MEMBER SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI, DATED : 16 TH MAY, 2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, H- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI