MOTIRAM TOLARAM, MUMBAI V. ASST CIT CEN CIR 31, MUMBAI

ITA 6773/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8054 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU JIT BANGAR
• Keywords: Business income; Fair market value
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI AMIT SHUKLA , J M ITA NO. 6773 / MUM/20 1 2 ( ASSESSMENT YEAR : 200 9 - 10 ) M/S MOTIRAM TOLARAM, LALASHISH, PLOT NO .219, 11 TH ROAD, CHEMBUR, MUMBAI - 400 071 VS. A CIT - CC - 31 , MUMBAI PAN/GIR NO. : A A BFM 5203 G ( APPELLAN T ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI J.P.BAIRAGRA /REVENUE BY : SHRI SUJIT BANGAR DATE OF HEARING : 10 TH SEPT. 201 4 DATE OF PRONOUNCEMENT : 10 TH OCT , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER CIT(A ) , FOR ASSESSMENT YEAR 200 9 - 10 , IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T. ACT ON THE FOLLOWING GROUNDS : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS 3 ,30,000 / - UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT OUT OF THE PAYMENTS MADE TO MI S. KUKREJA SERVICES PVT. LTD. TOWARDS BUSINESS CENTRE FACILITY AND ADMINISTRATION CHARG ES 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS 1,65,707 / - OUT OF INTEREST PAID, ON ACCOUNT OF ALLEGED INTEREST - FREE LOANS GIVEN TO THE SISTER CONCERNS. 3. THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS 1,62,16,245 / - OUT OF INTEREST PAID, ON THE GROUND THAT THE SAME SHOULD BE CAPITALIZED TOWARDS PROJECTS/PLOTS/ PREMISES . ITA NO. 6773 /1 2 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIE F ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION. DURING THE COURSE OF SCRUTINY AS SESSMENT THE AO OBSERVED THAT A S PER THE TAX AUDIT REPORT IN FORM NO.3CD, CLAUSE - 18, ANNEXURE - 3, THE ASSESSEE HAS MADE THE FOLLO WING PAYMENTS TO PERSONS SPECIFIED UNDER SECTION 40A(2)(B). NAME OF THE PERSON AMOUNT (RS) NATURE OF PAYMENT M/S KUKREJA SERVICES PVT. LTD. 3,44,000 BUSINESS CENTRE FACILITY M/S KUKREJA SERVICES PVT. LTD. 86,000 ADMINISTRATION CHARGES TOTAL 4,30,000 IN THIS REGARD, THE ASSESSEE WAS REQUIRED TO EXPLAIN WITH JUSTIFICATION WHY PAYMENTS OF THE AFORESAID AMOUNTS TO ITS RELATED CONCERNS AS MENTIONED ABOVE SHOULD NOT BE DISALLOWED AND ALSO TO PROVIDE COGENT EVIDENCES IN SUPPORT OF THE SERVICES RENDERED. IN RESPONSE, THE ASSESSEE HAS SUB M ITTED A REPLY WHICH IS REPRODUCED HEREUNDER: ' WE HAVE PAID TO KUKREJA SERVICES PVT. LTD., FOR BUSINESS CENTRE CHARGES AMOUNTING TO RS,3,44,00 0/ - AND ADMINISTRATION CHARGE S AT RS.86,000/ - FOR T HE UTILIZATION OF BUSI NESS C E NTRE AND ADMINISTRATIVE CHARGES AS PER THE DEBIT NOTE RAISED BY THE M . WE HAVE ALSO DEDUCTED THE T D S ON THE SERVICES WHILE CREDITING THE ACCOUNT AND PAID WITHIN THE SCHEDULE TIME. WE HAVE NOT PAID THE CHARGES EXCESSIVE OR UNRE ASONABLE TO KUKREJA SERVICES PVT. LTD. IN ASST. YEAR 2007 - 08 WE HAVE PAID THE BUSINESS CENTRE CHARGES FOR RS.16,00,00 0/ - AND ADMINISTRATIVE CHARGES RS.4, 00 , 000 / - TOTAL RS.20,00,000 / - AND FOR A.Y.2008 - 09 RS.9,44, 000/ - AND RS.2,36, 000 / - UNDER THE HEAD BUSINE SS CENTRE CHARGES AND ADMINISTRATIVE CHARGES RESPECTIVELY WHICH HAVE BEEN DISALLOWED WITHOUT GIVING REASONS FOR DISALLOWANCES. THE APPEAL AGAINST WHICH WAS FILED BEFORE CIT(A) WHICH HAS BEEN DISMISSED BY THE CIT(A) AND WE HAVE FILED APPEAL BEFORE ITAT WH ICH HAS BEEN HEARD ON 26.11.2010. THE SIMILAR ISSUE HAS BEEN DECIDED BY ITAT IN OUR SISTER CONCERN CASE M/S.TOLARAM & CO., FOR AY.2001 - 02 AND VAZIRANI LAND D EV. PVT. LTD., A Y.1999 - 2000. IN VIEW OF THE ABOVE, YOU ARE REQUESTED TO PLEASE ALLOW THE EXPENSES COVERED U/S. 40A(2)(B) WHICH ARE NEITHER UNREASONABLE NOR EXCESSIVE. ITA NO. 6773 /1 2 3 HOWEVER, THE AO WAS NOT SATISFIED BY THE REPLY OF ASSESSEE, THEREFORE, MADE A DISALLOWANCE OF RS. ,30,000/ - U/S.40A(2)(B) . 3 . BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ADDITION AN D ASSESSEE IS IN FURTHER APPEAL BEFORE US . 4 . IT WAS SUBMITTED BY LEARNED AR THAT EXACTLY SIMILAR ISSUE WAS DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A YS 2003 - 04, 2006 - 07, 2007 - 08 & 2008 - 09, COPY OF TH ESE ORDERS WERE ALSO PLACED ON RECORD. 5 . W E HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT EXACTLY SIMILAR ISSUE WAS DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AFORESAID ASSESSMENT YEARS. THE CONCLUSION OF THE TRIBUNAL IN ITS ORDER DATED 24 - 12 - 2013 FOR THE IMMEDIATELY PRECEDING A.Y. 2 008 - 09 WAS AS UNDER : - 4. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003 - 04, 2006 - 07 & 2007 - 08 (SUPRA). WE OBSERVE TH AT SIMILAR ADDITION WAS MADE BY THE AO IN ASSESSMENT YEARS 2003 - 04,2006 - 07 & 2007 - 08 (SUPRA) AND LD CIT(A) IN THE ASSESSMENT YEAR 2003 - 04 DELETED THE ADDITION FOLLOWING THE DECISION OF THE TRIBUNAL IN ANOTHER GROUP CASE, NAMELY M/S. VAZIRANI LAND DEVELOPER S. IN THE ASSESSMENT YEARS 2006 - 07 & 2007 - 08 ALSO, ON IDENTICAL FACTS SIMILAR ADDITION HAS BEEN MADE BY THE AUTHORITIES BELOW WAS DELETED BY TRIBUNAL TO WHICH ONE OF US IS A PARTY (JM). HENCE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEARS 2003 - 04 AND 2006 - 07 & 2007 - 08 (SUPRA) AND ALSO IN THE ABSENCE OF ANY CONTRARY DECISION BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDITION OF RS.10,80,000/ - FOR ASSESSMENT YEAR UNDER CONSIDERATION CONFIRMED BY LD. CIT(A). WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES CASE AND FOUND THAT ON IDENTICAL FACTS AND CIRCUMSTANCES, THE SIMILAR ADDITION MADE IN EARLIER YEARS WERE DELETED BY THE TRIBUNAL. WE ALSO ITA NO. 6773 /1 2 4 FOUND THAT PAYMENTS MADE FOR BU SINESS CENTRE FACILITY AND ADMINISTRATIVE CHARGES WERE NOT IN EXCESS OF FAIR MARKET VALUE OF SIMILAR SERVICES AVAILABLE IN THE MARKET. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE DO NOT FIND ANY MERIT IN TH E ADDITION SO MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT. ACCORDINGLY, WE DIRECT TO DELETE THE SAME. 6. THE AO HAS ALSO DISALLOWED A SUM OF RS. 1,65, 707/ - OUT OF INTEREST PAID ON ACCOUNT OF ALLEGED INTEREST - FREE LOANS GIVEN TO THE SISTER CONCERNS. RE LEVANT OBSERVATION OF THE AO WAS AS UNDER : - ON VERIFICATION OF PROFIT AND LOSS ACCOUNT, IT WAS FOUND THAT THE ASSESSEE CREDITED INCOME AS UNDER: 1. TRADING ACCOUNT K PLAZA RS.10,15,464/ - 2. INTEREST ON FD RS. 12,974/- 3. RENT RS. 4,98,997/- 4. MISCELLANEOUS INCOME RS. 2,891/- RS. 15,30,326/ - AGAINST THE ABOVE INCOME, THE ASSESSEE HAS DEBITED TOTAL EXPENDITURE OF RS.2,23,99,416/ - WHICH INCLUDES EXPENDITURE ON INTEREST PAYMENT ON UNSECURED LOANS UNDER THE HEAD OF FINA NCIAL CHA RGES AT RS.1,63,81,952/ - . IT IS WORTHWHILE TO MENTION HERE THAT BOTH THE PROJECTS HAVE BEEN COMPLETED FROM WHICH INCOME HAS BEEN CREDITED TO PROFIT AND LOSS ACCOUNT. 5.2 ON VERIFICATION OF BALANCE SHEET, IT IS OBSERVED THAT ASSESSEE HAS SHOWN UNSECURED LOANS OF RS.19,60,32,745/ - WHICH INCLUDES INTEREST FREE LOANS FROM SISTER CONCERNS AT RS.6,86,31,985/ - . THE ABOVE LOANS HAVE BEEN UTILIZED IN GIVING LOANS AND ADVANCES TO SIS TER CONCERNS AT RS.6,99,20,675/ - , ADVANCE TOWARDS PLOTS AT RS.4,32,38,015/ - , ADV ANCE TOWARDS PREMISES AT R S.26, 00 , 000 / - PARTNERS CURRENT ACCOUNT ON LOSS AT RS.2,29,88, 083 / - & STOCK OF PLOT AT RS.18,17,341/ - . THE POSITION OF LOANS AND ADVANCES IS AS UNDER: LOANS ADVANCES LOANS FROM SISTER CONCERNS - RS.6,86,31,985/ - ADVANCES TO SISTER CONCERNS - RS.6,99,20,675/ - INTEREST BEARING LOANS - RS. 12,74,00,800/ - STOCK OF PLOTS - RS.18,17,341 ITA NO. 6773 /1 2 5 ADVANCE TOWARDS PREMISES - RS.26,00,000/ - ADVANCE TOWARDS PLOT - RS.4,32,38,015/ - CLOSING STOCK OF PREMISES - RS.8,09,73,546/ - DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED WHY THE EXPENDITURE ON INTEREST SHOULD NOT BE CAPITALIZED AS ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION ACTIVITY AND HAS MADE INVESTMENT IN PLOTS, PREMISES, LOANS AND ADVANCES, CLOSING STOCK OF PR EMISES. IN THIS REGARD ASSESSEE HAS MADE WRITTEN SUBMISSION WHICH IS REPRODUCED HEREUNDER: 'REASONS FOR HIGH AMOUNT OF LOANS AND UTILIZATION THEREOF DURING THE YEAR UNDER CONSIDERATION WE HAVE THE INTEREST BEARING FUND OF RS. 12,74, 00,800/ - WHICH HAS BE EN UTILIZED FOR THE PURPOSE OF BUSINESS AS UNDER: ADVANCE TOWARDS PLOT RS.4,32,38,015/ - ADVANCE TOWARDS PREMISES RS. 26,00,000/ - CLOSING STOCK OF PREMISES RS.8,09,73,546/ - STOCK OF PLOT RS. 18,17,341/ - SUNDRY DEBTORS RS. 38,34,297/ - TOTAL RS.13,24,63,199/ - SINCE THE INTEREST BEARING FUNDS ARE USED FOR THE BUSINESS PURPOSE INTEREST PAID ON LOAN OF RS.16381952/ - INCLUDING BROKERAGE HAS BEEN DEBITED TO PROFIT AND LOSS ACCOUNT AND THEY ARE ALLOWABLE UNDER SEC.36(1)(III) OF THE I NCOME TAX ACT. LOANS AND ADVANCES GIVEN TO SISTER CONCERN RS. 6.99 CR O RES . DURING THE YEAR UNDER CONSIDERATION WE HAVE BEEN FOLLOWING NON INTEREST BEARING FUND WITH INTEREST AS UNDER: DETAILS OF NON INTEREST BEARING FUNDS PARTNERS CAPITAL RS. 9,60, 000/- CREDIT BALANCE OF SISTER CONCERN RS.6,86,31,985/- ADVANCE AGAINST PREMISES RS.1, 12, 38, 584/- SUNDRY CREDITORS RS.2,14,43,903/- RS.10,22,74,472/ - OUT OF WHICH WE HAVE ADVANCE D TO THE SISTER CONCERN TO BE 6, 99,2 0, 675/ - ON WHICH WE HAVE NOT PAID ANY INTEREST AS SUCH WE HAVE NOT CHARGED THE INTEREST ON ADVANCES GIVEN TO SISTER CONCERN. SINCE THE LOANS AND ADVANCES TO SISTER CONCERNS HAVE NOT BEEN GIVEN OUT OF INTEREST BEARING FUND THE CORRESPONDING INTEREST ON ADVANCES TO SISTER CONCERNS CANNOT BE DISALLOWED ' HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND DISALLOWED A SUM OF RS. 1,65,707/ - . BY THE IMPUGNED ORDER, CIT(A) ITA NO. 6773 /1 2 6 CONFIRMED THE ACTION OF THE AO AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7 . WE HAVE CONSIDERED RIV AL CONTENTIONS AND FOUND FROM THE RECORD THAT DISALLOWANCE OF INTEREST OF RS.1,65,707/ - WAS MADE BY THE AO ON THE PLEA THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR NON - BUSINESS PURPOSE. WE FOUND THAT BEFORE THE AO ASSESSEE HAS FURNISHED FULL DETAILS OF INTEREST FREE FUNDS AVAILABLE WITH IT AMOUNTING TO RS.10.22 CRORES OUT OF WHICH ADVANCE GIVEN TO THE SISTER CONCERN WAS RS.6.99 CRORES. THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT IF THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR NON - BUS INESS PURPOSE, DISALLOWANCE IS REQUIRED TO BE MADE WITH RESPECT TO THE INTEREST EXPENDITURE ATTRIBUTABLE TO SUCH ADVANCES. HOWEVER, WHERE INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR ADVANCING NON - BUSINESS PURPOSE, NO DISALLOWANCE CAN BE MADE. IN THE INSTANT CASE, ASSESSEE HAS DEMONSTRATED THE INTEREST FREE FUNDS AVAILABLE WHICH WAS ALLEGED TO BE ADVANCED TO SISTER CONCERN WITHOUT CHARGING INTEREST WHICH REQUIRES DUE CONSIDERATION BY THE AO. IN THE INTEREST OF JUSTICE, WE RESTORE THIS GROUND BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTER CONSIDERING THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE FIRM WITH REFERENCE TO THE INTEREST FREE ADVANCES GIVEN TO THE SISTER CONCERN. WE DIRECT ACCORDINGLY. 8 . THE AO HAS ALSO DISALLOWED A SUM OF RS.1,62,16,245/ - OUT OF INTEREST PAID ON THE GROUND THAT SAME SHOULD BE CAPITALIZED TOWARDS PROJECTS/PLOTS/PREMISES BY OBSERVING THAT ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION ACTIVITY FOR WHICH ASSESSEE WAS PURCHASING PLOT AND MAKING INVESTMENT FOR CONSTRUCTION OF BUI LDING. ACCORDINGLY, THE AO DISALLOWED ITA NO. 6773 /1 2 7 INTEREST EXPENDITURE AND DIRECTED FOR CAPITALIZATION FOR THE SAME TOWARDS PROJECT COST. 9 . IN RESPECT OF DISALLOWANCE OF BANK INTEREST OF RS. 1 .62 CRORES AND FOR THE DIRECTION OF LOWER AUTHORITIES FOR CAPITALIZING THE S AME TOWARDS PROJECT/PLOTS/PREMISES, WE FOUND THAT ASSESSEE HAS BORROWED FUNDS FROM THE BANK IN RESPECT OF THE VARIOUS PROJECTS UNDERTAKEN BY IT. SUCH INTEREST EXPENDITURE WAS INDIRECT EXPENDITURE WHICH WAS DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACC OUNT. THE CONTENTION OF THE LEARNED DR WAS THAT SUCH INTEREST SHOULD BE CAPITALIZED TO THE RESPECTIVE PROJECTS INSTEAD OF CLAIMING IN THE PROFIT AND LOSS ACCOUNT. 10 . WE ARE NOT IN AGREEMENT WITH THE CONTENTION OF THE LOWER AUTHORITIES AS WELL AS THE CONT ENTION OF THE LEARNED DR INSOFAR AS INTEREST EXPENDITURE WAS INDIRECT EXPENDITURE WHICH IS REQUIRED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT IN THE YEAR OF INCURRING OF SUCH EXPENSES WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. THE ISSUE IS ALS O COVERED BY THE DECISION OF THE ITAT MUMBAI IN THE CASE OF K. RAHEJA (P) LTD., (2006) 102 ITD 414 (MUM) , WHEREIN IT WAS OBSERVED THAT WHERE THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD FOR RECOGNIZING ITS INCOME/LOSS, BUT CLAIMED FINANCE COST IN N ATURE OF INTEREST AS A PERIOD COST, THE SAME IS DEDUCTIBLE IN THE YEAR IN WHICH IT WAS INCURRED OR ACCRUED. IT WAS FURTHER OBSERVED THAT THE ACCOUNTING STANDARD 7 ISSUED BY THE ICAI, ALSO SUGGESTED THAT IN CASE WHERE EXPENDITURE CANNOT BE ATTRIBUTED TO A P ARTICULAR ACTIVITY CARRIED ON BY THE ASSESSEE, SAME IS TO BE ALLOWED AS PERIOD COST. IT WAS FURTHER OBSERVED THAT VARIOUS BENCHES OF THE TRIBUNAL HAVE ALSO TAKEN A CONSISTENT VIEW THAT CLAIM MADE BY THE ASSESSEE FOR ITA NO. 6773 /1 2 8 DEDUCTION OF FINANCE COST BY WAY OF INTE REST IS IN CONFORMITY WITH SAID ACCOUNTING STANDARD. 11 . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR NOT ALLOWING THE CLAIM OF INTEREST EXPENDITURE PAID TO THE BANK ON THE FUNDS BORROWED AND DEBITED TO PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION . 12 . IT IS IMPORTANT TO MENTION HERE THAT EVEN AFTER DISALLOWING THE SAID INTEREST EXPENDITURE, THE DECLARED LOSS OF RS. 2.08 CRORES WAS ASSESSED BY AO AT A LOSS OF RS. 40.18 LAKHS. THUS, THERE WAS NO INTENTI ON OF ASSESSEE TO REDUCE ITS TAXABLE INCOME BY CLAIMING INTEREST PAID TO BANK AS EXPENDITURE OF THE YEAR UNDER CONSIDERATION. 13 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10/10 / 201 4 . 10/10 / 2014 SD/ - SD/ - ( ) ( AMIT SHUKLA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 10/10 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//