LOTUS INVESTMENTS LTD, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2 (3), MUMBAI

ITA 6737/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7734 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIDHYDHAR V LD
• Section: 143(3); 14A; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6737/MUM/2017 ( / ASSESSMENT YEAR: 2006-07) M/S. LOTUS INVESTMENTS LTD. 1, ANUP, SUB BEAM CO.OP HOUSING SOCIETY JUHU VERSOVA LINK ROAD ANDHERI (W), MUMBAI-400 053. / VS. D CIT - CENTRA L CIRCLE 2(3) CGO BUILDING, 10 TH FLOOR M.K. ROAD, MUMBAI-400 020. ! ./ ./PAN/GIR NO. AAACL-6350-M ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI STANY SALDANAH-DIRECTOR OF THE ASSESSEE COMPANY / RESPONDENT BY : SHRI VIDHYDHAR .V - LD.DR / DATE OF HEARING : 15/04/2019 / DATE OF PRONOUNCEMENT : 25/04/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2006-07 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-48, MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-48/I.T.-215/DCCC-2(3)/2015-16 DATED 24/10/2017 ON CERTAIN GROUNDS OF APPEAL CONTESTING DISALLOWANCE U/S 14A AS WELL AS INTEREST DISALLOWANCE. HOWEVER, THE DISA LLOWANCE U/S 14A HAS 2 NOT BEEN CONTESTED DURING HEARING BEFORE US AND THE REFORE, THESE GROUNDS STAND DISMISSED IN LIMINE. FOR INTEREST DISALLOWANCE, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 5. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF A SUM OF RS.7,82,402/- BEING INTEREST PAID ON BANK OVERDRAFT WITHOUT CONSIDERING THE MERITS OF THE SUBMISSION MADE BY THE APPELLANT COMPANY. 6. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE APPELLANT COMPANY HAD SHOWN INTEREST OF RS.6,83,467/- ON THE FIXED DEPOSIT WITH SBI ON WHICH INTEREST HAS BEEN EARNED BY THE APPELLANT AGAINST WHICH OVERDRAFT IS OBTAINE D AND INTEREST PAID THEREON. 7. THE ADDITION MADE BY THE LD. A.O. OF A SUM OF RS.7,82,402/- AND CONFIRMED BY THE LD. CIT (A) IS BAD IN LAW AND FACTS AND HENCE DIRECTED THE LD. A.O. TO DELETE THE SAME. 8. THE LD. CIT (A) ERRED IN MAKING AN OBSERVATIO N THAT THERE IS NO NEXUS BETWEEN THE INTEREST INCOME EARNED AND INTEREST PAID WHEN THE F ACT PRODUCED BEFORE THE LD. A.O. AND THE LD. CIT (A) CLEARLY INDICATE THAT THE INTEREST IS EARNED ON BANK FIXED DEPOSITS AND INTEREST IS PAID ON THE BANK OVERDRAFT. 2. THIS IS SECOND ROUND OF APPEAL SINCE THE MATTER, IN THE FIRST ROUND, WAS REMITTED BACK BY THE TRIBUNAL VIDE ITA NO. 4701/M/0 9 DATED 30/09/2013 WITH FOLLOWING DIRECTIONS: - 3. A PERUSAL OF THE ORDER UNDER APPEAL REVEALS THAT THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.7,82,403/- HAS BEEN CONFIRMED BY THE LD. CIT(A) OBSERVING THAT THERE WAS NO NEXUS BETWEEN THE INTEREST INCOME ACCRUED TO THE ASSESSEE ON THE FDR AND THE INTEREST PAID ON THE OVERDRAFT. WE DO NOT FIND ANY INFIRMITY OF THE FINDING OF THE LD. CIT(A), SO FAR THE NEXUS BETWEEN THE INTEREST INCOM E AND THE INTEREST PAID ON OVERDRAFT IS CONCERNED. IT MAY BE OBSERVED THAT EVEN IF THE FDR IN QUESTION WAS KEPT AS A SECURITY WITH THE BANK FOR THE OVERDRAFT FACILITY T HAT ITSELF DOES NOT ESTABLISH ANY NEXUS BETWEEN THE INTEREST EARNED ON SUCH FDR WITH THE LO AN TAKEN FROM THE BANK AND THE INTEREST PAID THERE UPON. FOR THE PURPOSE OF SANCT ION OF OVERDRAFT FACILITY/LOAN, THE BANK GENERALLY REQUIRES SOME SECURITY WHICH MAY BE EITHE R IN THE SHAPE OF FDR OR IN THE SHAPE OF ANY OTHER VALUABLE PROPERTY INCLUDING IMMO VABLE PROPERTY. MERELY BECAUSE THE FDR WAS KEPT AS A SECURITY FOR THE OVERDRAFT FACILI TY, IT DOES NOT ESTABLISH ANY NEXUS BETWEEN THE TWO. MOREOVER THE INCOME FROM INTEREST ON THE FDR HAS BEEN COMPUTED UNDER THE HEAD OTHER SOURCES, WHEREAS THE INTERES T PAID ON THE LOAN AMOUNT HAS BEEN CLAIMED FOR BUSINESS PURPOSES. HOWEVER, THERE SEEMS TO BE A FORCE IN THE SECOND CO NTENTION OF THE LD. A.R. TO THE EFFECT THAT THE OVERDRAFT LOAN AMOUNT WAS PAID/USED FOR TH E BUSINESS OR FOR THE REPAYMENT OF UNSECURED LOAN/INTEREST OF RS.13.53 CRORES OUTSTAND ING AGAINST THE ASSESSEE. HOWEVER, THIS CONTENTION OF THE ASSESSEE HAS NOT BE EN TAKEN INTO CONSIDERATION BY THE AUTHORITIES BELOW. UNDER SUCH CIRCUMSTANCES WE RES TORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE AS TO WHETHER THE OVERDRAFT AMOUNT OF LOAN UPON WHICH THE PAYMENT OF INTEREST EXPENDITURE OF R S.7,82,403/- HAS BEEN CLAIMED WAS USED FOR THE REPAYMENT OF THE OUTSTANDING LOANS WHI CH WERE USED BY THE ASSESSEE FOR 3 THE PURPOSE OF ITS BUSINESS. IF THE CONTENTION OF THE ASSESSEE IN THIS RESPECT IS FOUND TRUE, THEN THE ASSESSEE WILL BE ENTITLED TO CLAIM T HE EXPENDITURE BEING USED FOR THE PURPOSE OF BUSINESS. NEEDLESS TO SAY THAT THE AO W ILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE AND THE EVIDENCES/DOCU MENTS, IF ANY REQUIRED, THEREAFTER, TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW. THE PERUSAL OF THE SAME REVEAL THAT A DIRECTION WAS ISSUED TO LD. AO TO ASCERTAIN THE FACTS WHETHER THE UNSECURED LOANS WHI CH WERE PAID OUT OF OVERDRAFT LOANS WERE USED FOR THE PURPOSE OF ASSESS EES BUSINESS OR NOT. THE DEDUCTION WAS ALLOWABLE TO THE ASSESSEE IN CASE OF POSITIVE FINDINGS. 3. IN THE SET-ASIDE PROCEEDINGS, THE ASSESSEE, INTER-ALIA, SUBMITTED THAT THE AMOUNT OF INTEREST DISALLOWANCE SHOULD BE RESTR ICTED TO RS.98,936/- BEING DIFFERENTIAL OF INTEREST ON OVERDRAFT FOR RS. 7,82,403/- LESS INTEREST EARNED ON FIXED DEPOSITS RS.6,83,467/-. HOWEVER, NO T CONVINCED LD. AO OPINED THAT THE ASSESSEE DISCLOSED INTEREST INCOME UNDER THE HEAD OTHER SOURCES AND THE INTEREST PAID ON OVERDRAFT COULD NOT BE CON SIDERED TO BE INCURRED TO EARN THE INTEREST INCOME. THEREFORE, TH E ADDITIONS AS MADE IN ORIGINAL ASSESSMENT U/S 143(3) DATED 31/12/2008 WER E RETAINED. THE STAND OF LD. AO, UPON CONFIRMATION BY LD. FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 24/10/2017, IS UNDER CHALLENGE BEFORE U S. 4. THE DIRECTOR OF THE ASSESSEE COMPANY, SHRI STANY SALDANAH , DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER-BOOK SUBMITTED THAT THE ASSESSEE EARNED INTEREST INCOME OF RS.6,83,467/- ON FDRS HELD WITH STATE BANK OF INDIA AND OBTAINED OVERDRAFT FACILITIES AGAINST THE FDRS. THE INTEREST EXPENDED ON SUCH OVERDRAFT FACILITY AMOUNT ED TO RS.782,402/-. THE CREDIT FACILITY SO AVAILED HAS BEEN USED TO REPAY T HE UNSECURED LOANS STANDING IN THE BOOKS. THEREFORE, HAD THE ASSESSEE NOT TAKEN THE OVERDRAFT FACILITY BUT PAID THE UNSECURED LOANS DIRECTLY INST EAD OF MAKING FDRS, NO 4 INTEREST INCOME WOULD HAVE ACCRUED TO THE ASSESSEE AND NO DISALLOWANCE WOULD HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE. THE LD. DR RELIED UPON THE STAND OF LOWER AUTHORITIES. 5. UPON CAREFUL CONSIDERATION OF FACTUAL MATRIX, WE FIND LOGIC IN THE ARGUMENTS ADVANCED BY LD. AR SINCE THE BASIC FACTS ARE NOT IN DISPUTE. THE ASSESSEE OBTAINED OVERDRAFT FACILITY AGAINST THE FD RS AND PAID OUTSTANDING UNSECURED LOANS STANDING IN ASSESSEES BOOKS. HAD T HE ASSESSEE NOT TAKEN OVERDRAFT FACILITY BUT PAID THE UNSECURED LOANS DIR ECTLY INSTEAD OF PARKING THE FUNDS IN FDRS, NO INTEREST INCOME WOULD ACCRUE TO T HE ASSESSEE AND ACCORDINGLY, NO DISALLOWANCE WOULD BE MADE IN ASSES SEES HAND. FINDING SUBSTANTIAL FORCE IN THE SAME, WE DIRECT LD. AO TO RESTRICT THE DISALLOWANCE U/S 36(1)(III) TO RS.98,936/-, BEING THE DIFFERENTI AL OF INTEREST INCOME AND INTEREST EXPENDITURE. 6. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH APRIL, 2 019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 25/04/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 5 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )& * , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.