TOLARAM & CO, MUMBAI V. ASST CIT CEN CIR 31, MUMBAI

ITA 6772/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101074 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Keywords: Rule of consistency; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA NO. 6772 /MUM/2012 (ASSESSMENT YEAR: 200 9 - 10 ) M/S.TOLARAM & CO. LALASHISH , PLOT NO.219, 11 TH ROAD, CHEMBUR, MUMBAI - 400071. APPELLANT PAN: AAAFT5775H VS. ASST. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 31, MUMBAI. RESPONDENT APPELLANT BY : SHRI J.P.BAIRAGRA (AR) RESPONDENT BY: SHRI SUMIT KUMAR (DR). DATE OF HEARING: 17 /08/2015 . DATE OF PRONOUNCEMENT : : 16 / 0 9 /2015 O R D E R PER VIJAY PAL RAO, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22/8/2012 OF THE CIT(A) - 40, MUMBAI, FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.7,29,640/ - OUT OF INTEREST PAID ON THE GROUND THAT THE SAME SHOULD HAVE BEEN CAPITALIZED TO WIP OF MOOLJI SHAH PROJECT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING DISALLOWANCE OF RS. 3,10,000/ - MADE U/S ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 2 OF 8 40A (2)(B) OUT OF BUSINESS CENTRE FACILITY CHARGES AND ADMINISTRATIVE CHARGES PAID TO M/S KUKREJA SERVICES PVT LTD. 3. THE APPELLANT FIRM CRAVES LEAVE TO ADD TO, ALTER OR AMEND ANY GROUND BEFORE OR AT/ THE TIME OF HEARING. GROUND NO.1 REGARDING DISALLOWANCE OF INTEREST: 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSE RVED THAT THE ASSESSEE HAS SHOWN UNSECURED LOAN TO THE EXTENT OF RS.5,78,51,743/ - WHICH INCLUDES INTEREST - FREE LOAN FROM SISTER CONCERN OF RS.4,20,04,087/ - . THE AO CONCLUDED THAT INTEREST - BEARING FUNDS ARE BEING USED TOWARDS INVESTMENT IN STOCK OF PLOTS AN D WORK - IN - PROGRESS PERTAINING TO MULTI PROJECTS. ACCORDINGLY, AO DISALLOWED THE INTEREST OF RS.7,29, 6 40/ - ON THE GROUND THAT THE SAME SHOULD BE CAPITALIZED AND PART OF WORK - IN - PROGRESS PERTAINING TO MOOLJI SHAH PROJECT. 3.1 ON APPEAL, THE ASSESSEE CONTENDED THAT THE WORK - IN - PROGRESS OF PROJECT IS ONLY RS.1.70 CRORE WHEREAS ADVANCE AGAINST THE SALES RECEIVED FROM THE SAID PROJECT IS AT RS.3.85 CRORES. THUS IT WAS CONTENDED THAT BORROWED FUND CANNOT BE SAID TO HAVE BEEN UTILIZ ED FOR MOOLJI PROJECT. THE CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. 3.2 BEFORE US, LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE DETAILS OF ADVANCE RECEIVED FROM THE BUYERS OF MOOLJI SHAH PRO JECT TO THE TUNE OF RS.3.85 CRORE AND SUBMITTED THAT WHEN THE SAID AMOUNT OF ADVANCE IS MORE THAN COST OF WORK - IN - PROGRESS OF ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 3 OF 8 RS.1.07 CRORE, THEN THERE IS NO QUESTION OF UTILIZING THE INTEREST - BEARING FUND IN THE SAID PROJECT AND CONSEQUENTLY, NO DISALLOWA NCE OF INTEREST IS CALLED FOR. THE LEARNED AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GROUP CONCERN OF THE ASSESSEE M/S.MOTILAL TOLARAM VS. ACIT IN ITA NO.6773/MUM/2012 DATED 10/10/2014 AND SUBM ITTED THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. HE HAS FURTHER POINTED OUT THAT FOR THE SUBSEQUENT ASSESSMENT YEARS I.E. 2010 - 11 AND 2011 - 12, THE AO HAS ALLOWED THE CLAIM OF INTEREST AND NO DISALLOWANCE WAS MADE IN THIS RE GARD. THE LEARNED AR OF THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. K.RAHEJA (P) LTD., (102 ITD 414). 3.3 ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THAT NO INTEREST BEARING FUND WAS USED FOR THE ON - GOING PROJECT THEREFORE, THE AO IS JUSTIFIED IN DISALLOWING PROPORTIONATE INTEREST AND CAPITALIZING THE SAME AS PART OF THE W ORK - IN - PROGRESS OF THE PROJECT. 3.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT THE AUTHORITIES BELOW HAVE NOT DISPUTED THE FACT THAT THE ASSESSEE HAS RECEIVED ADVANCE AGAINST SALE OF T HE SAID PROJECT VIZ., MOOLJI SHAH PROJECT OF RS.3.85 CRORE. WE FURTHER NOTE THAT WORK - IN - PROGRESS OF THE PROJECT AS ON 31/3/2009 IS RS.1.70 CRORE. THEREFORE, THE ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 4 OF 8 AMOUNT OF ADVANCE AGAINST THE SALE OF THE SAID PROJECT IS MUCH MORE THAN THE COST OF THE SAID PROJECT AS ON 31/3/2009. WHEN THE ASSESSEE HAS RECEIVED MUCH MORE AMOUNT BEING ADVANCE TAX ON SALE OF THE PROJECT IN QUESTION, THEN THE QUESTION OF UTILIZING THE BORROWED FUND AND CONSEQUENTIAL DISALLOWANCE OF INTEREST DOES NOT ARISE. IT IS PERTINENT TO NOTE THAT FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12, THE AO WHILE COMPLETING THE ASSESSMENT U/S 143(3) HAS NOT MADE ANY DISALLOWANCE ON ACCOUNT OF INTEREST BY TREATING THE SAME TO BE PART OF WORK - IN - PROGRESS OF THE PROJECT. THE ORDER PASSED BY THE AO FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 ARE PLACED AT PAGES 19 AS WELL AS 24 OF THE PAPER BOOK. ACCORDINGLY, HAVING CONSIDERED THE PECULIAR FACT THAT THE ADVANCE RECEIVED AGAINST THIS PROJECT BY THE ASSESSEE IS MUCH MORE THAN THE COST OF WORK - IN - PROG RESS, DISALLOWANCE OF INTEREST MADE BY THE AO IS NOT JUSTIFIED AND THE SAME IS DELETED. GROUND NO.2 REGARDING DISALLOWANCE U/S 40A(2)(B) ON ACCOUNT OF BUSINESS CENTRE FACILITY CHARGES AND ADMINISTRATIVE CHARGES PAID TO SISTER CONCERN. 4. THE ASSESSE E AND ITS GROUP CONCERN ARE USING THE COMMON FACILITY OF THE BUSINESS CENTRE AGAINST WHICH THE ASSESSEE IS CONTRIBUTING THE EXPENSES BEING RE - IMBURSEMENT TO ITS SISTER CONCERN. THE ASSESSEE PA ID TO ITS GROUP CONCERN M/S.KUKREJA SERVICES P. LTD., A SUM OF RS.3,28,000/ - ON ACCOUNT OF BUSINESS CENTRE FACILITY AND ANOTHER SUM OF RS.82,000/ - TOWARDS ADMINISTRATI VE CHARGES FOR UTILIZATION OF BUSINESS CENTRE. THE AO ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 5 OF 8 HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT A SIMILAR DISALLOWANCE WAS MADE IN T HE EARLIER YEAR AND THE DECISION OF THE CIT(A) FOR EARLIER ASSESSMENT YEAR HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFORE THIS TRIBUNAL. 4.1 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS.3 ,10,000/ - OUT OF TOTAL DISALLOWANCE OF RS.4,10,000 - . THUS A PART RELIEF WAS GRANTED BY THE CIT(A). 4.2 BEFORE US, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08. HE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06 AND SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE. 4.3 ON TH E OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT PAYMENT FOR THE YEAR UNDER CONSIDERATION IS MUCH MORE THAN THE PAYMENT FOR EARLIER ASSESSMENT YEARS. 4.4. WE HAVE CONSIDERED T HE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06 VIDE ORDER DATED 31/5/2010 IN ITA NO.1371/MUM/2009 IN PARAGRAPHS 3 TO 5 AS UNDER: ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 6 OF 8 3 . WE HAVE HEARD THE LEARNED DR AND LEARNED AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT RECORDS. THE LEARNED AR OF THE ASSESSEE HAS POINTED OUT THAT THE IDENTICAL - ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE'S CASE FOR THE ASSESSMENT YEAR 2000 - 01 AND FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE CIT(A) HAS DECIDED THE ISSUE BY FOLLOWING THE ORDER OF THIS TRIBUNAL. 4. AT THE OUTSET, WE NOTE THAT THE CIT(A) IN PARAGRAPH 13 OF THE IMPUGNED ORDER HAS REPRODUCED THE ORDER OF THE TRIBUNAL DATED 27.10.2004, PASSED IN ITA NO.2960/MUM/2004 AND ITA NO.4144/MUM/2004 FOR THE ASSESSMENT YEAR 2000 - 01 AS UNDER: 13. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AR AND FIND THAT THE SIMILAR PAYMENTS MADE BY M/S. TOLARAM AND CO. TO M/ S KUKREJA SERVICES PVT. LTD WAS THOUGH DISALLOWED BY THE AO, BUT ALLOWED BY THE CIT(A) AND ON THE APPEAL FILED BY THE DEPARTMENT BEFORE THE HON BLE TRIBUNAL, THE HON BLE TRIBUNAL HAS DECIDED THE ISSUE IN ITA NO.2960/M/2004 AND ITA NO.4144/MUM/2004 (DEPARTM ENT S APPEAL) AND AY 2000 - 01 VIDE ORDER DATED 27.10.2004 AND GAVE THE FINDING IN PARA 14 OF THE ORDER WHICH IS AS UNDER: '14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE RELEVANT EXTRACT FROM THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF M/S SURAT BUILDERS, IS REPRODUCED AS UNDER 'THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS FOR THE DISALLOWANCE EXCEPT THAT THE ASSESSEE COULD NOT PRODUCE THE COMPARABLE RATES TO PROVE THAT THERE WAS NOT EXCESSIVE RATE OF PAYMENT TO ITS SISTER CONCERN. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UPPER INDIA PUBLISHING HOUSE (P) LTD V/S C/T (1979) 117 1TR 569 THAT S ECTION 40A(2)(A) CANNOT HAVE ANY APPLICATION UNLESS IT IS FIRST HELD THAT THE EXPENDITURE WAS EXCESSIVE AND UNREASONABLE. NOW THE QUESTION ARISES, WHETHER THE ONUS FOR PROVING THE EXCESSIVENESS AND UNREASONABLENESS OF THE EXPENDITURE IS ON THE ASSESSEE OR ON THE DEPARTMENT. IN OUR OPINION, THE ONUS IS ON THE DEPARTMENT TO PROVE THAT THE EXPENDITURE INCURRED IS EXCESSIVE OR UNREASONABLE. THE ASSESSEE HAS MADE THE PAYMENTS ACCORDING TO THE ASSESSEE ARE REASONABLE. IT IS, THEREFORE, FOR THE DEPARTMENT TO PROVE THAT THE PAYMENT HAS BEEN MADE TO SISTER CONCERN, WHICH IS UNREASONABLE, KEEPING IN VIEW THE SERVICES RENDERED BY THE SISTER CONCERN. THIS PROVISION IS ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 7 OF 8 APPLICABLE TO ALL TYPE OF EXP ENDITURE INCURRED IN BUSINESS OR PROFESSION BUT IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE AND UNREASONABLE PAYMENTS TO RELATIVE AND ASSOCIATE CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHICH CAUSES HARDSHIP IN BONAFIDE CASES. THIS HAS BEEN EXPLAINED BY THE CBDT IN THEIR CIRCULAR NO. 6P DATED 6 TH JULY, 1968 WE ARE INCLINED TO AGREE WITH THE AFORESAID OBSERVATIONS OF THE 1TAT MUMBAI BENCH 'F'. THE OTHER DECISIONS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESSEE. WE, THEREFORE HOLD THAT THE ONUS OF PROVING THAT THE EXPENDITURE WAS EXCESSIVE OR UNREASONABLE WAS ON THE DEPARTMENT WHICH HAS NOT BEEN DISCHARGED IN THIS CASE. WE HOLD THAT THE EXPENDITURE WAS LEGITIMATELY INCURRED FOR THE PURPOSES OF THE BUSINESS AND IS ALLOWABLE. WE, THEREFORE, DELETE THE ADDITION OF RS.20.00 LAKHS SUSTAINED BY THE CIT(A). GROUND OF APPEAL NO.2 OF THE ASSESSEE STAND ALLOWED' IT IS CLEAR FROM THE ORDER OF THE TRIBUNAL THAT FOR THE ASSESSMENT YEAR 2005 - 06, THE DISALLOWANCE MADE BY THE AO WAS OF RS.16 LAKHS AND THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE AO THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION TO THE SIS TER CONCERN IS MUCH MORE THAN THE EARLIER YEAR. WE FURTHER NOTE THAT AN IDENTICAL ISSUE WAS AGAIN CONSIDERED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.2039/MUM/2010 DATED 19/10/2011 IN PARAGRAPHS 22 TO 24 AS UNDER: 22. NOW, WE TAKE UP REVENUE S APPEAL FOR THE AY 2006 - 07 BEING ITA NO.2626 OF 2010. 23. GROUND NO. 1 READS AS UNDER: - '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF 1,60,000/ - & 40,000/ - BEING PAYMENTS MADE U1S.40A ( 2) ( B) BY THE ASSESSEE ON ITA NO .6772/MUM/2012 M/S.TOLARAM & CO PAGE 8 OF 8 ACCOUNT OF BUSINESS CENTRE CHARGES AND ADMINISTRATIVE CHARGES RESPECTIVELY, TO IT'S SISTER CONCERN M/S. KUKREJA SERVICES PUT. LTD., FOR SERVICES RENDERED; WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO PROVIDE ANY COGENT EVIDENCE IN SUPPORT OF ANY SERVICES RENDERED BY IT'S SISTER CONCERN.' 24. THE LD. CIT DR WAS FAIR ENOUGH TO SUBMIT THAT THE ISSUE ARISING FROM GROUND NO.1 IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE A.Y. 2005 - 06. WE HAVE ALSO HEARD THE LD. COUNSEL WHO SUBMITS THAT THE COPY OF THE TRIBUNAL DECISION IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 2005 - 06 IS PLACED ON RED AT PAGES NO.72 TO 76 OF THE COMPILATION. AS CONCEDED BY THE DR THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) AND ACCORDING LY GROUND NO.1 IS DISMISSED. A CCORDINGLY, TO MAINTAIN THE RULE OF CONSISTENCY, WE FOLLOW THE EARLIER ORDER OF THIS TRIBUNAL AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE DISALLOWANCE MADE BY THE AO IS DELETED. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1 6 TH SEPTEMBER , 2015. S D / - S D / - (N.K.BILLAIYA) (VIJAY PAL RAO) ACCOUNANT MEMBER JUDICIAL MEMBER EKSRINIVASULU, SR.PS COPY TO: 1. A PPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, MUMBAI. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL MUMBAI (