LIMELIGHT SECURITIES P. LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 6520/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8442 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 21-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: R C JAIN AJAY DAGA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT ASHA VIJAYARAGHA VAN (JM) ITA NO. 6520/MUM/2009 (ASSESSMENT YEAR-2005-06) M/S. LIMELIGHT SECURITIES PVT. LTD., 122/124 LAXMI PLAZA INDUSTRIAL ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI-400 053 PAN-AAACL 2313G VS. THE DCIT 8(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI R.C. JAIN/ AJAY DAGA RESPONDENT BY: SMT. ASHIMA GUPTA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-17 MUMBAI DATED 14 TH OCTOBER, 2009 FOR THE A.Y.2005-06. 2. THE FIRST GROUND RAISED HAS NOT PRESSED BY THE A SSESSEE THEREFORE IT IS DISMISSED AS NOT PRESSED. 3. THE SECOND GROUND RELATES TO DISALLOWANCE OF SUM OF RS. 1,94,111/- OUT OF INTEREST PAID U/S. 36(1)(III) OF THE I.T. ACT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD ADVANCED RS. 16,17,592/- TO M/S. RUPALI PROPERTIES PVT. LTD. A S ISTER CONCERN. THE ASSESSEE HAD CLAIMED INTEREST OF RS. 5,19,725/- ON BORROWED FUNDS AND HENCE THE AO DISALLOWED INTEREST OF 12% OF SUCH ADVANCES OUT OF INTEREST CLAIMED. THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD. (286 ITR 01 ) WAS RELIED UPON. ITA NO. 6520/M/09 2 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEES AR CONTENDED T HAT THE INTEREST FREE LOANS OF RS. 16,17,592/- TO M/S. RUPALI PROPER TIES PVT. LTD. WAS ADVANCED IN EARLIER YEAR OUT OF INTEREST FREE FUNDS AVAILABLE TO THE COMPANY. PHOTOCOPIES OF BANK STATEMENT EVIDENCING FUNDS AVAILABLE FOR SUCH ADVANCE WAS ALSO FILED. IT WAS SUBMITTED THAT AS INTEREST BEARING FUNDS HAD NOT BEEN UTILIZED THE DISALLOWANC E WAS NOT WARRANTED. 5. THE LD. CIT(A) HELD AS FOLLOWS: THE SUBMISSION HAS BEEN CONSIDERED. AS HELD BY TH E HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS VS CIT (288 ITR 01) WHERE FUNDS HAD BEEN ADVANCED TO SISTER CONCERN WITHOUT CHARGING INTEREST ONE HAS TO ENQUIRE WHETHER THE AD VANCE HAD BEEN GIVEN AS A MEASURE ON COMMERCIAL EXPEDIENCY. IT WAS HELD IN ACIT VS CENTURY TOWER (COCHIN) (312 ITR 161) FOL LOWING THE DECISION IN THE CASE OF CIT VS V.P. BABY & CO. (254 ITR 248) (KER) THAT BENEFICIAL NEXUS WAS A MUST BETWEEN THE APPELL ANT AND DIVERSION OF FUNDS. IF SUCH NEXUS WAS NOT ESTABLIS HED, PROPORTIONATE DISALLOWANCE OF INTEREST CLAIMED COUL D BE MADE. THE APPELLANT HAS NOT ESTABLISHED HOW THE GIVING OF ADVANCE HAS BENEFITED THE APPELLANT. IN THE CIRCUMSTANCES, THE ADDITION IS UPHELD. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ASSESSE E PREFERRED AN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SHRI R.C. JAIN SUBMITTED THAT INTEREST FEEE LOAN WAS ADVANCED IN EARLIER YEARS WH ICH WAS OUT OF ITS FREE FUNDS AND THE SAME WAS ACCEPTED BY DEPARTMENT IN EARLIER YEARS. 8. WE HEARD BOTH THE PARTIES. WE FIND THAT THE DEC ISION IN THE CASE OF CIT VS SRIDEV ENTERPRISES 192 ITR 165 (KAR.), IT HAS BEEN HELD THAT THE AO CANNOT DISALLOW THE INTEREST EXPENSE FOR THE YEAR UNDER CONSIDERATION ON THE PREMISE THAT INTEREST BEARING FUNDS ARE USED TO ITA NO. 6520/M/09 3 ADVANCE INTEREST FREE ADVANCES, IF NO SUCH DISALLOW ANCES ARE MADE IN ANY PRIOR ASSESSMENT YEAR. THEREFORE THE ASSESSEE S CLAIM IS TO BE ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 11 TH DAY OF FEBRUARY, 2011 SD/- SD/- (R.S. SYAL) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, DATED 11 TH FEBRUARY, 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASST. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 6520/M/09 4 DATE INITIALS 1 DRAFT DICTATED ON: 9.02.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 9.02.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9 DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER: ______