ACIT 18(1), MUMBAI V. V.S. APTE & SON, MUMBAI

ITA 6934/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3895 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KUMBHAR
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENCH MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA IN, JM ITA NO.6934/MUM/2014 (ASSESSMENT YEAR: 2009-10) ACIT-18(1), ROOM NO.116,1 ST FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-400 012. VS. M/S. V. S. APTE & SON, 325, ADHYARU INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013. PAN: AADFV 3228J APPELLANT .. RESPONDENT APPELLANT BY SHRI A. KUMBHAR RESPONDENT BY SHRI RUSHABH MEHTA DATE OF HEARING: 05-05-2016 DATE OF PRONOUNCEMENT:05-08-2016 O R D E R PER SANDEEP GOSAIN,JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LEARNED CIT (A)-29, MUMBAI DATED 20-08 -2014 PASSED IN APPEAL NO. CIT(A)-29/RG.18/1/88/11-12 FOR ASSESSMEN T YEAR 2009-10 WHEREBY THE LEARNED CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE ON THE GROUND MENTIONED HEREIN BELOW:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE INTEREST OF RS. 38 ,36,600/- AS DEDUCTIBLE EXPENSE IN A.Y.2009-10. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT INTEREST OF RS. 38 ,36,000/- HAS ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 2 BECOME PAYABLE IN F. Y.2008-09 AND NOT IN F.Y.1999- 2000 TO 2004- 05. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT FINANCE COST OF RS .19,82,930/- WAS DEDUCTIBLE EXPENSE IN A. Y.2009-10. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ONUS WAS ON A. O. AND NOT ON ASSESSEE TO PROVE THAT INTEREST FREE ADVANCE WAS FR OM BORROWED FUNDS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF IN TEREST EVEN THOUGH NO BUSINESS IS CARRIED ON BY THE ASSESSEE AN D THE ONLY INCOME EARNED BY THE ASSESSEE FROM RENT AND CAPITAL GAIN DOES NOT QUALIFY UNDER THE HEAD INCOME FROM BUSINESS . 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF IN TEREST PERTAINING TO BUSINESS WHICH HAS CEASED TO EXIST AND THEREFORE NOT ELIGIBLE FOR DEDUCTION OF INTEREST EXPENSE. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF IN TEREST BY RELYING UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF VEECUMSEES V/S CIT (1996) 86 TAXMAN 243 (SC) WHICH IS DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE EVEN THOUGH THE QUESTION OF THE SAME BUSINESS BEING CARRIED ON WAS NOT THE ISSUE UNDER APPEAL BECAUSE THE FACTS OF THE CASE OF THE A SSESSEE ARE RELATABLE TO ALLOWANCE OF EXPENSES AFTER CLOSURE OF THE BUSINESS. II. FOR THIS AND OTHER REASONS IT IS SUBMITTED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. III THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ARID A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS RUNNING TEXTILE PROCESSING UNIT AND THE RETURN OF INCOME DISCLOSING TOTAL INCOME AT RS.55,96,880/- WAS FILED ON 30 TH JULY, 2009. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. AFTER SERVING STATUTORY NOTI CES AND SEEKING REPLY OF THE ASSESSEE, THE ORDER OF ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 WAS PASSED BY DCIT(A) ON 05/12/2011. WHILE PAS SING THE ORDER OF ASSESSMENT, DCIT DISALLOWED THE INTEREST AND OTHER EXPENSES. AGGRIEVED BY THE ORDER OF THE ASSESSMENT, THE ASSES SEE PREFERRED APPEAL BEFORE THE LEANED CIT (A) AND THE LEARNED CI T (A) AFTER CONSIDERING THE CASE HAS ALLOWED THE APPEAL AND DEL ETED THE ADDITIONS OF THE ASSESSEE VIDE ITS ORDER DATED 20-08-2014. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US ON THE AFOREMENTIONED GROUNDS. GROUND NO.I (1,2&6) 4. SINCE ALL THE GROUNDS RAISED BY THE ASSESSEE ARE INTER-CONNECTED AND INTER-RELATED THEREFORE WE THOUGHT IT FIT TO DI SPOSE OFF THE SAME THROUGH THE PRESENT COMMON ORDER. THIS GROUND RAISE D BY THE REVENUE RELATES TO THE ISSUE OF ALLOWING THE INTEREST OF RS .38,36,600/- AS DEDUCTIBLE EXPENSES IN A.Y. 2009-10. IN THIS RESPECT, LD. DR A PPEARING ON BEHALF OF REVENUE SUPPORTED THE ORDERS PASSED BY AO AND SUBMI TTED THAT ALTHOUGH THE ASSESSEE HAS PAID INTEREST TO ITS LENDERS AND T HAT IS WHY IT HAS MADE TDS FROM SUCH PAYMENTS, HOWEVER THE ASSESSEE WAS NO T ENTITLED FOR THE ALLOWANCES OF THE SAID AMOUNT AS THE ASSESSEE IS MA INTAINING ITS BOOKS OF ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 4 ACCOUNTS ON MERCANTILE BASIS. THEREFORE, THE INTERE ST PAID DURING THE YEAR PERTAINING TO EARLIER YEARS WAS REQUIRED TO BE DEBI TED IN THE YEAR IN WHICH IT WAS LIABLE TO BE PAID OR ACCRUED. IT WAS FURTHER ARGUED BY LD. DR THAT MERELY BECAUSE THE ASSESSEE HAS MUTUALLY AGREED WIT H THE LENDERS THAT THE PROVISION OF INTEREST WOULD BE MADE IN THE ACCO UNT IN THE YEAR, THE FIRM (BORROWER) WOULD BE ABLE TO MAKE THE PAYMENT DOES N OT AUTOMATICALLY GIVE THE LIBERTY TO FOLLOW SUCH AGREEMENT. IT WAS A RGUED BY LD. DR THAT SECTION 145 CONTEMPLATES ONLY TWO ACCOUNTING SYSTEM EITHER CASH OR MERCANTILE SYSTEM AND IT DOES NOT ALLOW ANY OTHER S YSTEM. SO, IF THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM THEN TH E LIABILITY DOES NOT GET POSTPONED MERELY BECAUSE QUANTIFICATION IS DONE AFT ER THE YEAR, BUT ACCRUED IN THE PREVIOUS YEAR. LD. DR RELIED UPON TH E JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT 82 ITR 363 (SC). IT WAS FURTHER ARGUED BY LD. DR THAT PROVISO TO SECTION 40(A)(IA) DEALS WITH THE SITUATION WHERE IN RESPECT OF ANY SUCH SUM, I.E. IN THE PRESENT CONTEXT BEING INTEREST P AID OR PAYABLE ON WHICH TAX DEDUCTIBLE BUT NOT DEDUCTED WILL BE ALLOWED DED UCTION IN THE YEAR TDS IS DEDUCTED. AS PER THE ARGUMENTS OF LD. DR NO INTE REST WAS PAID OR PAYABLE AND NO PROVISION WAS AT ALL MADE IN THE YEA RS 1999-2000, 2004- 05, THEREFORE NO DEDUCTION OF INTEREST PAID COULD H AVE BEEN ALLOWED BY CIT(A). ON THE OTHER HAND, LD. AR HAS RELIED UPON T HE ORDERS PASSED BY CIT(A) AND HAD SUBMITTED THAT THE AO HAS NOT CONSID ERED THE FACTUAL LEGAL POSITION AS MADE BY THE ASSESSEE. AT THE TIME OF AS SESSMENT IT WAS ARGUED BY LD. AR THAT ALTHOUGH THE AO HAD EXPECTED THAT INTEREST WERE ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 5 PAID AND TDS WAS DEDUCTED AND PAID SUCH INTEREST IN THE INSTANT CASE SINCE THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCO UNTS ON MERCANTILE BASIS AND PASSED ENTRIES IN THE BOOKS OF ACCOUNTS O N ACCRUAL BASIS. THEREFORE, NO PROVISION FOR INTEREST WAS MADE BY TH E ASSESSEE IN THE ACCOUNTS AS THE LIABILITY WAS NOT ACTUALLY INCURRED OR DUE AT ALL AS PER THE TERMS OF BORROWING. IT WAS FURTHER ARGUED BY LD. AR THAT IN THE PRESENT CASE SECTION 40A (IA) OF THE INCOME TAX ACT,1961 IS NOT ATTRACTED AS THE LIABILITIES WERE NOT ACCRUED AND BORROWING WAS MADE FOR BUSINESS PURPOSE. IT WAS FURTHER SUBMITTED THAT THE AO HAS N OT ACCEPTED THE FACTS THAT LOAN WAS INTEREST FREE AND REPAID IN THE YEAR 2004-05, HOWEVER COMPENSATION BY WAY OF INTEREST WAS PAID MUCH LATTE R IN AY 2009-10. IT WAS ALSO POINTED OUT THAT THE LENDER COMPANY ALSO O FFERED THE SAID INCOME FOR TAXATION IN THE AY 2009-10 ON THE BASIS OF TDS CERTIFICATES ISSUED BY FIRM. IN THIS RESPECT LD. AR ALSO DRAWN O UR ATTENTION TO THE PAPER BOOK WHICH CONTAINS CERTIFICATES, P& L A/C, TDS CER TIFICATES ETC. 5. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. LD. CIT(A) HAS D EALT WITH THE SAID ISSUES IN ITS ORDER AND THE SAME IS REPRODUCED BELO W: 11. I HAVE PERUSED THE FACTS & CIRCUMSTANCES OF TH E CASE AS WELL AS THE ABOVE SUBMISSIONS OF THE APPELLANT CAREFULLY. 12. IT IS UNDISPUTED FACT THAT THE IMPUGNED LOANS W ERE TAKEN AT THE TIME WHEN THE BUSINESS OF ASSESSEE COMPANY WAS RUNNING I N LOSSES. IT CAN FURTHER BE OBSERVED THAT THE BUSINESS PURPOSE OF IN TEREST COST INCURRED IS NOT DISPUTED RATHER THE DISPUTE IS WITH REGARD TO T HE YEAR IN WHICH THE INTEREST EXPENSES SHOULD BE ALLOWED. THE APPELLANT HAS CONTENDED THAT ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 6 THE INTEREST WAS NOT PROVIDED FOR IN ITS BOOKS EARL IER DUE TO THE ARRANGEMENT BETWEEN THE PARTIES TO PAY THE PRINCIPL E AMOUNT FIRST AND THEN THE INTEREST WOULD BE ACCOUNTED FOR WHEN THE A PPELLANT IS ABLE TO PAY THE SAME. SUCH AN ARRANGEMENT HAS BEEN MADE LOOKING AT THE FINANCIAL CONDITION OF THE BUSINESS AND APPEARS TO BE VALID A RRANGEMENT. LATER ON THE APPELLANT'S TEXTILE BUSINESS WAS DOSED DOWN DUE TO ADVERSE BUSINESS CONDITIONS, AND ALSO A PART OF THE LOAN WAS RECOVER ED BY LENDERS BY SELLING THE PLEDGED SHARES. IT IS UNDERSTANDABLE TH AT IN SUCH A CASE, WHERE THE BORROWER'S FINANCIAL CONDITION WAS NOT SO UND, THE LENDERS MIGHT WISH TO POSTPONE THE RECOGNITION OF INTEREST INCOME WHICH MAY OR MAY NOT BE REALIZED AT ALL IN FUTURE. CONVERSELY IN SUCH A CASE, THE APPELLANT (BORROWER) MAY ALSO NOT BE EXPECTED TO CLAIM OR PRO VIDE FOR THE INTEREST EXPENSES ON ACCRUAL BASIS UNILATERALLY AS THE CERTA INTY OF THE PAYMENT OF THE SAME IS NOT DEFINITE. IN FACT, THE SAID INTERES T LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR, AS EARLIER IT WAS NOT CERTAIN WHETHER THE INTEREST WOULD BE PAYABLE OR NOT. THE APPELLANT HAS PAID THE INTEREST AFTER DEDUCTING TDS IN CURRENT ASSESSMENT YEAR, AND ACCOR DINGLY CLAIMED THE INTEREST EXPENSES IN CURRENT ASSESSMENT YEAR. SINCE THE APPELLANT WAS IN A POSITION TO PAY THE INTEREST COMPONENT, THE SAME WAS PROVIDED AND PAID DURING THE YEAR UNDER CONSIDERATION. AS SUCH IT IS AN ALLOWABLE EXPENDITURE. 13. IN VIEW OF THE FACTS AND CIRCUMSTANCES EXPLAINE D ABOVE, I FIND THAT THERE IS NO JUSTIFICATION IN DISALLOWING SUCH CLAIM OF THE APPELLANT FOR THE PAYMENT OF INTEREST. 14. THE AO HAS ALSO CONTENDED THAT THE CLAIM OF INT EREST EXPENSES SHOULD BE DEBITED TO THE YEARS IN WHICH IT WAS LIAB LE TO BE PAID OR ACCRUED. EVEN IF SAID CONTENTION OF AO IS ACCEPTED, THE RESP ECTIVE AMOUNTS CANNOT BE CLAIMED ALLOWED IN THOSE YEARS IN VIEW OF THE PR OVISIONS OF SEC. 40(A)(IA), SINCE NO TDS WAS DEDUCTED AGAINST THE SA ME IN THOSE YEARS. FURTHER, SINCE THE APPELLANT HAS DEDUCTED THE TDS I N A.Y. 2009-10 UNDER CONSIDERATION, IT WOULD BE AUTOMATICALLY BE ALLOWED IN THIS YEAR, AS PER PROVISO TO SEC. 40(A)(IA), 15. THE AO HAS ARGUED THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING, THE LIABILITY DOES NOT GET POSTPONED MERELY BECAUSE QUA NTIFICATION IS DONE LATER, RELYING UPON THE JUDGMENT IN THE CASE OF KED ARNATH JUTE MANUFACTURING CO. LTD. (SUPRA). I FIND THE SAID CAS E IS DISTINGUISHABLE ON FACTS. IT WAS HELD IN SAID JUDGMENT THAT THE ASSESS EE MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM WAS FULLY JUSTIFIED I N CLAIMING DEDUCTION OF SALES TAX WHICH IT WAS LIABLE TO PAY DURING THE REL EVANT ASSESSMENT YEAR, AND THE LIABILITY REMAINED INTACT EVEN AFTER THE AS SESSEE HAD TAKEN APPEALS TO HIGHER AUTHORITIES OR COURTS WHICH FAILE D. IN THE PRESENT CASE, THE LIABILITY OF APPELLANT WAS NOT ACCRUED IN EARLI ER YEARS DUE TO THE MUTUAL ARRANGEMENT OF APPELLANT WITH THE LENDERS AND THE A PPELLANT IS NOT CONTESTING AT ALL THE CLAIM OF LIABILITY ON ACCRUAL BASIS IN THOSE YEARS, IN CONTRAST TO THE CASE OF KEDARNATH JUTE MANUFACTURIN G CO LTD. (SUPRA). 16. IT IS A FACT ON RECORD THAT THE APPELLANT HAS P ROVIDED FOR & PAID THE INTEREST EXPENSES IN CURRENT ASSESSMENT YEAR, AND A LSO DEDUCTED THE APPLICABLE TDS THEREON, AND FURTHER, THE COUNTER PA RTIES HAVE ALSO RECOGNIZED THEIR CORRESPONDING INCOME IN CURRENT AS SESSMENT YEAR. IN THESE CIRCUMSTANCES, IT WOULD NOT BE JUSTIFIED TO D ISALLOW THE INTEREST ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 7 EXPENSES IN HANDS OF THE APPELLANT FOR VARIOUS REAS ONS STATED HEREINABOVE. 17. IN VIEW OF THE FACTS AND CIRCUMSTANCES EXPLAINE D ABOVE, I DELETE THE DISALLOWANCE OF INTEREST PAYMENT OF RS. 38,36,600/- . THEREFORE, THE GROUND NO. 1 OF APPEAL IS ACCORDINGLY ALLOWED. 6. AFTER HEARING THE ARGUMENTS AND AFTER PERUSAL OF DOCUMENTS AS WELL AS THE ORDERS PASSED BY CIT(A), WE ARE OF THE CONSI DERED VIEW THAT THE CIT(A) JUDICIALLY TAKEN INTO CONSIDERATION THAT AS PER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHERE THE BORROWE RS FINANCIAL CONDITION WAS NOT SOUND, THE LENDERS MIGHT WISH TO POSTPONE T HE RECOGNITION OF INTEREST INCOME WHICH MAY OR MAY NOT BE REALIZED AT ALL IN FUTURE. LD. CIT(A) HAS ALSO APPRECIATED THAT IN THE FACTS OF TH E PRESENT CASE THE SAID INTEREST LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR, AS EARLIER IT WAS NOT CERTAIN WHETHER THE INTEREST WOULD BE PAYABLE OR NO T. SINCE THE ASSESSEE HAS PAID THE INTEREST AFTER DEDUCTING TDS IN CURREN T ASSESSMENT YEAR, AND ACCORDINGLY CLAIMED THE INTEREST EXPENSES IN CURREN T ASSESSMENT YEAR AS THE ASSESSEE WAS IN A POSITION TO PAY THE INTEREST COMPONENT AND HENCE THE SAME WAS PROVIDED AND PAID DURING THE YEAR UNDE R CONSIDERATION. LD. CIT(A) HAS RIGHTLY FOUND NO JUSTIFICATION IN DISALL OWING SUCH CLAIM OF THE ASSESSEE FOR THE PAYMENT OF INTEREST. IT WAS ALSO A PPRECIATED BY LD. CIT(A) THAT SINCE THE ASSESSEE HAS DEDUCTED THE TDS IN AY 2009-10 UNDER CONSIDERATION THEREFORE IT WOULD AUTOMATICALLY BE A LLOWED IN THIS YEAR AS PER THE PROVISION OF SECTION 40(A)(IA). LD. CIT(A) HAS ALSO FOUND THE FACTS OF THE PRESENT CASE DISTINGUISHABLE FROM THE FACTS OF THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. (SUPRA) AS PE R THE FACTS OF THE ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 8 AFORE MENTIONED JUDGEMENT THE ASSESSEE MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM WAS FULLY JUSTIFIED IN CLAIMING D EDUCTION OF SALES TAX WHICH IT WAS LIABLE TO PAY DURING THE RELEVANT ASSE SSMENT YEAR, AND THE LIABILITY REMAINED INTACT EVEN AFTER THE ASSESSEE H AD TAKEN APPEALS TO HIGHER AUTHORITIES OR COURTS WHICH FAILED. HOWEVER WHILE DISTINGUISHING THE FACTS FROM THE PRESENT CASE IT WAS FOUND BY LD. CIT (A) THAT AS PER THE FACTS OF THE PRESENT CASE, THE LIABILITY OF ASSESSEE WAS NOT ACCRUED IN EARLIER YEARS DUE TO THE MUTUAL ARRANGEMENT OF ASSESSEE WIT H THE LENDERS, AND THE ASSESSEE IS NOT CONTESTING AT ALL THE CLAIM OF LIABILITY ON ACCRUAL BASIS IN THOSE YEARS IN CONTRAST TO THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. (SUPRA). 7. NO NEW CIRCUMSTANCE HAS BEEN BROUGHT ON RECORD B EFORE US BY THE LEARNED DR IN ORDER TO CONTROVERT OR REBUT THE FIND INGS RECORDED BY THE LEARNED CIT (A) ON THE BASIS OF THE REMAND REPORT. MOREOVER, THERE IS NO REASON FOR US TO DEVIATE FROM THE FINDINGS RECORDED BY THE LEARNED CIT (A). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE F INDINGS RECODED BY THE LEARNED CIT (A) ARE JUDICIOUS AND ARE WELL REASONED . ACCORDINGLY, WE UPHOLD THE SAME. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISSED. GROUND NO.3,4,5,7,8 8. SINCE ALL THE GROUNDS RAISED BY THE ASSESSEE ARE INTER-CONNECTED AND INTER-RELATED THEREFORE WE THOUGHT IT FIT TO DI SPOSE OFF THE SAME ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 9 THROUGH THE PRESENT COMMON ORDER. THE ISSUE PERTAI NS TO ALLOW DEDUCTION REGARDING FINANCE AGAINST RS.19,82,930/- IN AY 2009 -10. IN THIS RESPECT LD. DR SUPPORTED THE ORDERS PASSED BY AO AND SUBMIT THA T THE FINANCE PARTIES PERTAINING THE INTEREST PAID OF RS.16,78,36 8/-, BROKERAGE OF RS.2,97,829/- AND BANK CHARGES OF RS.6,733/- TOTAL AMOUNTING TO RS.19,82,930/- HAD BEEN LOADED BY THE ASSESSEE ON L OANS WHICH WERE TAKEN TO FINANCE THE LOSSES OF THE TEXTILE PROCESSI NG THE PROCESS WHICH WAS CLOSED DOWN MUCH EARLIER TO THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR BEING CONSIDERED FOR ASSESSMENT. IT WAS ARGUED BY LD. DR THAT SINCE THE ASSESSEE HAS DISCONTINUED ITS COR E BUSINESS OF TEXTILE PROCESSING FOR WHICH THE LOANS WERE TAKEN THEREFORE THE INTEREST PAID AND OTHER INCIDENTAL CHARGES FOR AVAILING THAT LOANS CO ULD NOT BE ALLOWED AS DEDUCTION. LD. DR WITHOUT PREJUDICE TO THE ABOVE AR GUMENTS FURTHER SUBMITTED THAT THE INTEREST CANNOT BE ALLOWED IN VI EW OF THE ASSESSEE ADVANCING INTEREST FREE LOANS TO VARIOUS PARTIES AM OUNTING TO NEARLY RS.2.82 CRORES, AND IN ORDER TO SUPPORT HIS ARGUMEN TS LD. DR RELIED UPON CIT VS. AVERY CYCLE INDUSTRIES INDIA LTD. (2008) 20 9 CTR 167 (P&H) AND CIT VS. ABHISEK INDUSTRIES LTD. (2006) 286 ITR 1 ( P&H). 9. ON THE OTHER HAND LD. AR REPRESENTING THE ASSESS EE RELIED UPON THE ORDERS PASSED BY CIT(A) AND SUBMITTED THAT INTEREST FREE LOAN GIVEN TO THE SISTER CONCERN WERE PARTLY ALLOWED OUT OF PROFIT GE NERATED FROM THE FIRM. IT WAS ARGUED BY LD. AR THAT THE AO HAS FAILED TO TAKE INTO CONSIDERATION THE FACT THAT THE FAMILY MEMBERS OF PROMOTERS HAS GIVE N INTEREST FREE LOAN TO ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 10 THE EXTENT OF RS.147.28 LAKHS AND PARTNERS CAPITAL ACCOUNT INCREASED BY RS.138.53 LAKHS. THEREFORE, THE DECISION OF THE AO TO THE EFFECT THAT THE INTEREST FREE ADVANCE GIVEN TO THE SISTER CONCERN O UT OF THE BORROWING MONEY IS ALTOGETHER INCORRECT. 10. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. LD. CIT(A) HAD DEALT WITH THE OTHER GROUND IN PARA NO. 24 TO 31 OF CIT(A) AND THE SAME IS REPRODUCED BELOW FOR THE SAKE OF REFERENCE. 24. I HAVE PERUSED THE FACTS OF PRESENT CASE AS WE LL AS THE ABOVE WRITTEN SUBMISSIONS OF THE APPELLANT CAREFULL Y. I FIND TWO ISSUES INVOLVED IN ADJUDICATING THE GROUND OF APPEA L: (I) WHETHER THE INTEREST CAN BE DISALLOWED DUE TO CLOSURE OF BU SINESS/ CLOSURE OF ONE OF THE ACTIVITIES: (II) WHETHER THE INTEREST EXPENSES COULD BE ATTRIBUTED TO INTEREST FREE LOANS GIVEN TO SISTER CONCERNS IN PRESENT CASE. 25. COMING TO THE FIRST ISSUE, I FIND THAT IN THE C ASE OF L.M. CHHABDA AND SONS (SUPRA) RELIED UPON BY THE AD, IT WAS HELD BY HON'BLE SUPREME COURT THAT IF AN ASSESSEE CARRIES O N SEVERAL DISTINCT AND INDEPENDENT BUSINESSES, AND ONE OF SUC H BUSINESS IS CLOSED BEFORE THE PREVIOUS YEAR, HE CANNOT CLAIM ALLOWANCE UNDER SECTION 10 OF THE 1922 ACT OF AN OUTGOING ATT RIBUTABLE TO THE BUSINESS WHICH IS CLOSED AGAINST THE INCOME OF HIS OTHER BUSINESSES IN THAT YEAR. I, HOWEVER, FIND THAT IN A NOTHER CASE OF VEECUMSEES VS. CIT (1996) 86 TAXMAN 243 (SC), THE S PECIFIC ISSUE OF ALLOW ABILITY OF INTEREST ON BORROWED CAPI TAL U/S 36(1)(III) ON DISCONTINUED BUSINESS WAS EXAMINED. THE HON'BLE SUPREME COURT HELD THAT 'THE FACT THAT THE PARTICULAR PART OF THE BUSINESS FOR WHICH THE LOANS HAD BEEN OBTAINED HAD BEEN TRAN SFERRED OR CLOSED DOWN DID NOT ALTER THE FACT THAT THE LOANS H AD, WHEN OBTAINED, BEEN FOR THE PURPOSE OF THE ASSESSEE'S BU SINESS. THE TEST OF 'SAME BUSINESS' APPROPRIATE FOR SET-OFF OF CARRIED FORWARD LOSSES WAS NOT APPROPRIATE HERE'. ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 11 26. IN THE PRESENT CASE, IT CAN BE OBSERVED THAT TH E LOAN WAS INITIALLY TAKEN FOR TEXTILE BUSINESS, WHICH HAS BEE N CLOSED I SUSPENDED DUE TO ADVERSE BUSINESS CONDITIONS. THE A PPELLANT IS STILL SHOWING INCOME FROM CERTAIN OTHER SOURCES SUC H AS RENTAL INCOME, & PROFIT ON SALE OF SHARES, THOUGH NOT UNDE R THE HEAD 'PROFITS OR GAINS OF BUSINESS OR PROFESSION'. IN VI EW OF THE LATER JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF VE ECUMSEES (SUPRA), I AM OF THE OPINION THAT CARRYING ON THE S AME BUSINESS FOR WHICH THE LOAN WAS INITIALLY TAKEN IS NOT NECES SARY FOR CLAIM OF DEDUCTION OF INTEREST U/S 36(1 )(III). THE BUSINESS OF THE APPELLANT IS A COMPOSITE BUSINESS DURING THE PERIOD UNDER CON SIDERATION AND EXPENDITURE IS INCURRED FOR THIS COMPOSITE BUSI NESS ACTIVITIES. HENCE, THE CLAIM OF APPELLANT OF INTEREST CANNOT BE DENIED. 27. NOW COMING TO THE SECOND ISSUE, THE APPELLANT H AS SHOWN BY GIVING FIGURES THAT IT HAS ADVANCED INTEREST FREE L OANS OUT OF INTEREST FREE LOANS FROM FAMILY & PARTNER'S CAPITAL . THE POSITION OF THE BORROWED FUNDS AND THE INTEREST FREE FUNDS GIVE N TO THE SISTER CONCERNS ARE AS UNDER:- DESCRIPTION BALANCE AS ON 1/4/2000 LESS: INTEREST FREE LOANS INCLUDED IN LOAN SCHEDULE AS OF 1-4- 2000 BALANCE INTEREST BEARING LOANS AS AT 1/4/2000 LOANS AMOUNT OUTSTANDING AS ON 31/3/2009 INCREASE/ DECREASE 1 LOANS- SECURED 139.89 0 139.89 NIL PAID IN 2004- 05 INTEREST PAID FOR EARLIER YR 2 LOANS UNSECURED 163.28 91.52 71.46 98.40 (+)26.64 3 LOANS & ADVANCES PAID TO SISTER CONCERN 237.11 0 237.11 282.58 (+) 45.47 4 INTEREST FREE LOANS FROM FAMILY 91.52 91.52 238.80 (+)147.28 5 PARTNERS CAPITAL A/C 171.54 DEBIT 171.54 DEBIT 110.28 (-)77.27 =33.01 (+)138.53 28. FROM THE ABOVE TABLE, THE FOLLOWING FACTS EMERG E:- 2) UNSECURED LOANS SHOWN AT SR.NO.2 ABOVE (BALANCE SHEET SCHEDULE A), AMOUNTING TO RS.163.28 LAKHS INC LUDES INTEREST FREE LOANS OF RS.91.53 RECEIVED FROM PARTN ER FAMILY AS SUCH NET INTEREST BEARING UNSECURED LOAN WAS RS. 71 . 76 LACS AS AT 31/03/2000 AND RS.98.40 LAKHS AS AT 3110312009 W HICH MEANS LOANS WERE JUST INCREASED BY RS 26.64LAKHS. ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 12 3) LOANS AND ADVANCES PAID TO SISTER CONCERNS AS AT 01-04-2000 WERE RS.237.11 LAKHS AND AS AT 31/03/2009 WERE RS.2 82.58 LACS WHICH MEANS ADVANCES INCREASED BY RS.45.47 LAKHS. 4) INTEREST FREE LOAN FROM FAMILY MEMBERS WERE RS.9 1.52 LAKHS AS AT 01/04/2000 AND RS.238.80 AS AT 31/03/2009 WHI CH IS SUBSTANTIALLY INCREASED BY RS.147.28 LACS. 5) PARTNERS' CAPITAL ACCOUNT AS AT 0110412000 WAS 1 71.54 LACS (DEBIT BALANCE) AND AS AT 3110312009 WAS RS.33.01 L ACS WHICH INDICATES THAT EITHER FIRM HAS MADE PROFIT OR PARTN ERS HAVE BOUGHT MONEY IN THE BUSINESS.' 29. IT CAN BE OBSERVED FROM THE ABOVE THAT NO ADVAN CES WERE GIVEN OUT OF THE BORROWED FUNDS. THE FAMILY MEMBERS OF THE APPELLANT FIRM HAVE BROUGHT IN INTEREST FREE FUNDS TO THE TUNE OF RS. 147.28 LAKHS. THE NET INCREASE OF THE INTEREST FREE FUNDS TO THE SISTER CONCERNS DURING THE PERIOD UNDER CONSIDE RATION ARE TO THE TUNE OF RS. 45.47 LAKHS, WHICH ARE MUCH LESS TH AN THE INTEREST FREE FUNDS RECEIVED FROM THE FAMILY MEMBER S. THEREFORE, IT CAN BE ASSUMED THAT THE INTEREST FREE FUNDS TO T HE SISTER CONCERNS DURING THE PERIOD UNDER CONSIDERATION WERE OUT OF THE INTEREST FREE FUNDS FROM THE FAMILY MEMBERS AND IT WILL NOT HAVE ANY IMPACT ON THE INTEREST PAYMENT MADE BY THE APPE LLANT FOR THE OTHER BUSINESS PURPOSES. 30. IT CAN BE OBSERVED FROM THE ASSESSMENT ORDER TH AT THE AO HAS NOT EXAMINED IN DETAIL TO ESTABLISH THAT THE IN TEREST FREE LOANS TO SISTER CONCERNS WERE OUT BORROWED FUNDS. IN ABSE NCE OF PROVING ANY NEXUS BETWEEN THE BORROWED FUNDS AND IN TEREST FREE LOANS GIVEN IT WOULD NOT BE JUSTIFIED TO MAKE ANY D ISALLOWANCE. 31. IN VIEW OF THE ABOVE, THE ADDITION MADE BY MAKI NG THE DISALLOWANCE AMOUNTING TO RS. 19,82,930/-IS NOT JUS TIFIED AND HENCE DELETED. THEREFORE, THE GROUND NO. 2 OF APPEA L IS ALLOWED. 11. WE HAVE CONSIDERED THE BOTH FACTUAL AND LEGAL I SSUES WHICH ARE INVOLVED IN ADJUDICATING THIS GROUND OF APPEAL (I) WHETHER THE INTEREST CAN BE DISALLOWED DUE TO THE CLOSURE OF BUSINESS/PROFES SION CLOSURE OF ONE OF THE ACTIVITIES. (II) WHETHER THE INTEREST EXPENSES CAN BE ATTRIBUTED TO INTEREST FREE LOANS GIVEN TO SISTER CONCERNS IN PRE SENT CASE. BOTH ISSUES ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 13 HAVE BEEN DISCUSSED IN DETAIL BY LD. CIT(A) AND THE CIT(A) WHILE DEALING WITH THE FIRST ISSUE HAS RIGHTLY CONSIDERED THE FAC TS OF THE PRESENT CASE AND OBSERVED THAT THE LOAN WAS INITIALLY TAKEN FOR TEXT ILE BUSINESS, WHICH HAS BEEN CLOSED/SUSPENDED DUE TO ADVERSE BUSINESS CONDI TIONS BUT THE ASSESSEE IS STILL SHOWING INCOME FROM CERTAIN OTHER SOURCES SUCH AS RENTAL INCOME AND PROFIT ON SALE OF SHARES THOUGH NOT UNDE R THE HEAD PROFITS OR GAINS OF BUSINESS OR PROFESSION. LD. CIT(A) WHILE CONSIDERING THE LATTER JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF V EECUMSEES (SUPRA) HAD RIGHTLY COME TO THE CONCLUSION THAT BUSINESS OF THE ASSESSEE IS A COMPOSITE BUSINESS DURING THE PERIOD UNDER CONSIDER ATION AND EXPENDITURE IS INCURRED FOR THIS COMPOSITE BUSINESS ACTIVITIES. HENCE, THE LD. CIT(A) HAS RIGHTLY HELD THAT THE CLAIM OF THE A SSESSEE OF INTEREST CANNOT BE DENIED. THE LD. CIT(A) HAS ALSO CONSIDERED THE F IGURES REGARDING ADVANCE OF INTEREST FREE LOANS OUT OF INTEREST FREE LOANS FROM FAMILY AND PARTNERS CAPITAL AND THE LD. CIT(A) AFTER CONSIDER ING THE FACTS AND FIGURES AND DOCUMENTARY EVIDENCES HAS CORRECTLY NOTICED THA T THE INTEREST FREE FUNDS TO THE SISTER CONCERNS DURING THE PERIOD UNDE R CONSIDERATION WERE OUT OF INTEREST FREE FUNDS FROM THE FAMILY MEMBERS AND IT WILL NOT HAVE ANY IMPACT ON THE INTEREST PAYMENT MADE BY THE ASSESSEE FOR THE OTHER BUSINESS PURPOSES. WE HAVE ALSO FOUND THAT AS PER A SSESSMENT ORDER THE AO HAD NOT EXAMINED IN DETAIL TO ESTABLISH THAT THE INTEREST FREE LOANS TO SISTER CONCERNS WERE OUT OF BORROWED FUNDS AND THER EFORE IN THE ABSENCE OF PROVING ANY NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE LOANS ITA NO.6934/M/2014(A.Y.2009-10) ACIT VS. M/S. V.S. APTE & SON 14 GIVEN BY THE ASSESSEE, IT WAS NOT JUSTIFIABLE FOR T HE AO TO MAKE ANY DISALLOWANCE. 12. AFTER ANALYZING THE AFORE MENTIONED ORDERS OF C IT(A) WE FOUND THAT THE CIT(A) HAS DEALT WITH THE ISSUES AND HAS PASSED JUDICIOUS AND WELL REASONED ORDER AND NO CIRCUMSTANCES HAVE BEEN BROUG HT BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY THE CIT(A). THEREFORE, WE SEE NO REASON TO DEVIATE OR INTERFERE INTO THE FINDINGS RECORDED BY THE CIT(A) AND HENCE, WE REJECT THESE G ROUNDS OF APPEAL RAISED BY THE REVENUE AND UPHOLD THE ORDER OF THE C IT(A). 13. GROUND NO. II & III OF THE REVENUES APPEAL ARE GENERAL IN NATURE AND, THEREFORE, NEEDS NO SEPARATE ADJUDICATION. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05-08-2016. SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 05/08/2016 ASHWINI/ ASHWINI/ ASHWINI/ ASHWINI/PS PSPS PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT 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//