INTER JEWEL P.LTD, MUMBAI V. ADDL CIT 5(2), MUMBAI

ITA 7013/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88278 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 09-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBEY
• Assessee Lawyers: K A VAIDYALIGAN
• Keywords: Source of fund; Proportionate interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BE NCH, MUMBAI , !' $ $ $ $ % & ' , !' ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 M/S.INTER JEWEL PRIVATE LIMITED, 211, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI 400004 / VS. THE ADDL. CIT-5(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 '* ./ +, ./ PAN/GIR NO. : AACCD 5877B ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY: SHRI K.A.VAIDYALIGAN ./*- 1 0 / RESPONDENT BY: SHRI SACHCHIDANAND DUBEY 1 %2 / DATE OF HEARING :09.02.2015 34) 1 %2 / DATE OF PRONOUNCEMENT :13.02.2015 !& / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD.CIT(A)-9, MUMBAI DATED 24/09/2012 PERTAINING TO ASSESSMENT YEAR 2008-09. THE ASESSEE HAS RAISED TWO SUBSTANTIVE G ROUNDS OF APPEAL. GROUND NO.1 RELATES TO THE DISALLOWANCE OF INTEREST OF RS.19,95,375/- MADE BY THE AO AND CONFIRMED BY LD. CIT(A) UNDER SE CTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (THE ACT). ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 2 2. THE ASSESSEE IS IN THE BUSINESS OF IMPORT AND EX PORT OF DIAMONDS. THE RETURN OF INCOME WAS FILED ON 25/09/2008. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ACCORDINGLY ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF SCR UTINY ASSESSMENT THE AO NOTICED THAT THE ASSESSEE HAS PAID INTEREST ON L OANS OBTAINED FROM BANKS TO THE TUNE OF RS.14.52 CRORES. THE AO FURT HER OBSERVED THAT THE ASSESSEE HAS GIVEN ADVANCES FOR PURCHASE OF BUSINES S PREMISES IN BHARAT DIAMOND BOURSE. THE TOTAL ADVANCES COMES TO RS.7. 70 CRORES. SINCE THE ADVANCES WERE FOR THE PURCHASE OF FIXED ASSETS, WHI CH ARE NOT PUT TO USE THE AO WAS OF THE OPINION THAT THERE SHOULD BE PRO PORTIONATE DISALLOWANCE OF INTEREST. THE ASSESSEE WAS ASKED T O SUBSTANTIATE ITS CLAIM. THE ASSESSEE EXPLAINED THAT THERE IS NO SPECIFIC BO RROWING FOR MAKING ADVANCES TO BHARAT DIAMOND BOURSE. FURTHER THE ASS ESSEE IS HAVING OWN FUNDS AT RS.73.12 CRORES. IT WAS ALSO EXPLAINED TH AT THE UNSECURED INTEREST FREE LOAN OF RS.106.93 CRORES WAS ALSO THERE IN THE BALANCE SHEET. IN SO FAR AS INTEREST EXPENSES ARE CONCERNED, IT WAS EXPL AINED THAT THEY HAVE BEEN PAID IN RESPECT OF PACKING CREDIT, POST SHIPME NT CREDIT AND THE INTEREST HAS NOT BEEN PAID FOR FUNDING THE PAYMENTS MADE FOR THE PURCHASE OF THE PREMISES. THE EXPLANATION OF THE ASSESSEE D ID NOT FIND ANY FAVOUR WITH THE AO, WHO PROCEEDED BY COMPUTING PROPORTIONA TE DISALLOWANCE ON ADVANCE GIVEN TO BHARAT DIAMOND BOURSE. THE DISALL OWANCE WAS COMPUTED AT RS.19,95,375/-. THE ASSESSEE CARRIED T HE MATTER BEFORE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 3. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED A DETAILED CHART EXPLAINING ITS OWN SOURCE OF FUND. IT IS THE SAY O F THE LD. COUNSEL THAT THE ADVANCES GIVEN FOR THE PURCHASE OF BHARAT DIAMOND BOURSE AT RS.7.70 ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 3 CRORES IS SPREAD OVER FOR MANY YEARS AND DURING TH E YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID ONLY RS.29.18 L ACS. LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT ASSESSEES CURRENT YEARS NET PROFIT IS RS.13.12 CRORES, WHICH IS SUFFICIENT TO COVER THE A DVANCE OF RS.29.18 LACS. LD. COUNSEL FURTHER STATED THAT ON IDENTICAL SET OF FACTS THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD.,313 ITR 340(MUM) HAS LAID DOWN THE PRINCIPLE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. 4. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDIN GS OF THE REVENUE AUTHORITIES. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE JUDICIAL DECISION BROUGHT TO OUR NOTICE IN THE LIGHT OF THE BALANCE SHEET FIGURES FILED BEFORE US. IT IS AN UNDISPUTED FACT THAT ASSESSEE WAS HAVING OWN FUNDS AT RS.219.86 CRORES AT THE BEGINNI NG OF THE YEAR AND RS.180.05 CRORES AT THE END OF THE YEAR. IT IS ALS O AN UNDISPUTED FACT THAT ASSESSEE ADVANCED RS.29.18 LACS ONLY DURING THE YEA R UNDER CONSIDERATION. SINCE THE ASSESSEE IS HAVING SUFFIC IENT OWN FUNDS TO MEET OUT THE ADVANCES WE DO NOT FIND ANY REASONS FOR DI SALLOWANCE OF THE PROPORTIONATE INTEREST. ON THE FACTS OF THE CASE W E SET ASIDE THE FINDINGS OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDI TION OF RS.19,95,375/-. GROUND NO.1 IS ALLOWED. ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 4 6. GROUND NO.2 RELATES TO THE CONFIRMATION OF THE A DDITION MADE AT RS.2,59,623/- BEING MARK TO MARKET LOSSES TREATING IT AS ONLY NOTIONAL AND CONTINGENT. 7. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THERE ARE 65 UNMATURED EXPORT FORWARD CONTRACTS AS ON 31/ 3/2008, OUT OF WHICH ONLY 17 CONTRACTS SHOW GAIN ON ACCOUNT OF M TO M COMPUTATION. ALL OTHER CONTRACTS SHOW LOSS. THE NET RESULT COMES TO RS.2,59,623/-. THE ASSESSEE WAS ASKED TO EXPLAIN ITS STAND. IT WAS EX PLAINED THAT FOLLOWING THE ACCOUNTING STANDARD AS-11, THE ASSESSEE HAS REC OGNIZED NET GAIN IN RESPECT TO MARK TO MARKET TREATMENT AND LOSS IS AT THE END OF THE YEAR AND IS AN ALLOWABLE LOSS IN THE LIGHT OF THE DECISION I N THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. 294 ITR 451 294 ITR (DEL). RELIANCE WAS FURTHER PLACED ON THE DECISION OF SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF BANK OF BAHRAIN & KUWAIT IN ITA NO. 4404 & 1883/MUM/04. IT WAS FURTHER EXPLAINED THAT THE AS SESSEE HAS EARNED NET GAIN ON ACCOUNT OF MARK TO MARKET TREATMENT AT RS.3 ,04,35,109/-, WHICH HAS BEEN SHOWN SEPARATELY. THE NET GAIN COMES TO R S.3,01,75,486/-. IN EFFECT, THE ASSESSEE HAS SHOWN SUBSTANTIAL GAIN FRO M THE MARK TO MARKET TREATMENT. THE EXPLANATION OF THE ASSESSEE WAS DIS MISSED BY THE AO, WHO WAS OF THE FIRM BELIEF THAT THE LOSS OR GAIN IS ONLY NOTIONAL AND CONTINGENT. DRAWING SUPPORT FROM THE CBDT INSTRUCT ION NO.3 OF 2010 THE AO DISALLOWED RS.2,59,623/-. THE ASSESSEE CARR IED THE MATTER BEFORE LD. CIT(A), BUT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN STATED BEFORE LOWER AUTHORITIES. LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE REVENUE AUTHORITIES HAVE PROCEEDED ON A MISTAKEN FACT THAT ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 5 THE ASSESSEE HAS CANCELLED THE FORWARD CONTRACTS AN D, THEREFORE, THE CONTRACTS ARE SPECULATIVE IN NATURE, WHEREAS THE LO SS IS ON ACCOUNT OF RESTATEMENT OF OUTSTANDING FORWARD CONTRACT AT THE END OF THE YEAR. LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION O F WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254 (SC) AND THE MUMBAI TRIBUNALS SPECIAL BENCH DECISION IN THE CASE OF BANK OF BAHRAIN & K UWAIT 5 ITR (TRIB.) 301. LD. COUNSEL ALSO RELIED UPON NUMBER OF DECIS IONS OF THE TRIBUNAL WHICH HAVE FOLLOWED THE DECISION OF THE HONBLE SUP REME COURT AND SPECIAL BENCH OF THE TRIBUNAL. 9. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDI NGS OF THE REVENUE AUTHORITIES. 10. WE HAVE CAREFULLY PERUSED THE ORDER OF LD. CIT( A) AND THE DECISIONS BROUGHT TO OUR NOTICE. IN OUR CONSIDERE D OPINION AND THE UNDERSTANDING OF THE FACTS WE FIND THAT THE REVENU E AUTHORITIES HAVE PROCEEDED ON A WRONG ASSUMPTION OF FACTS. WE FIND THAT THE DECISION OF THE TRIBUNALS SPECIAL BENCH IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA) SQUARELY APPLY ON THE FACTS OF THE CASE AND ALSO BY THE VARIOUS JUDICIAL PRONOUNCEMENTS LIKE KUMBH GEMS IN ITA NO. 6600/MUM/2012, H. DIPAK & CO. IN ITA NO. 7629/MUM/2011, BHAVANI G EMS IN ITA NO.2855/MUM/2010 AND M/S. SUTARIYA GEMS PVT. LTD. IN 3361/MUM/2013. THEREFORE, WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF LD. CIT(A) AND IN DIRECTING THE AO TO DE LETE THE ADDITION OF RS.2,59,623/-. GROUND NO.2 IS ALLOWED. ./I .T.A. NO. 7013/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 6 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 13TH OF FEB. 2015. SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 5! DATED : 13. 02.2015 . . ./ VM , SR. PS !& !& !& !& 1 11 1 .% .% .% .% 6)% 6)% 6)% 6)% / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 89 .% , , / DR, ITAT, MUMBAI 6. 9: ; / GUARD FILE. !& !& !& !& / BY ORDER, /% .% //TRUE COPY// < << < / = = = = + + + + (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI