ITO 9(2)(2), MUMBAI V. LAKOZY MOTORS P.LTD, MUMBAI

ITA 7146/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92509 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: VIPUL SHAH
• Keywords: Capital asset; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA , A M AND SHRI AMIT SHUKLA, J M ./ I.T.A. NO. 6982/MUM/2012 ( / ASSESSMENT YEAR: 2009 - 10 ) LAKOZY MOTORS PRIVATE LIMITED 167, VIDYANAGARI MARG, KALINA, SANTACRUZ (E), MUMBAI - 400 098 / VS. INCOME TAX OFFICER - 9(2)(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAACL 1889 K ( /ASSESSEE ) : ( /REVENUE ) & ./ I.T.A. NO. 7146/MUM/2012 ( / ASSESSMENT YEAR: 2009 - 10 ) INCOME TAX OFFICER - 9(2)(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS . LAKOZY MOTORS PRIVATE LIMITED 167, VIDYANAGARI MARG, KALINA, SANTACRUZ (E), MUMBAI - 400 098 ./ ./ PAN/GIR NO. AAACL 1889 K ( /REVENUE ) : ( /ASSESSEE ) / A SSESSEE BY : SHRI VIPUL S HAH / R EVENUE BY : SHRI SACHCHIDANAND DUBE / DATE OF HEARING : 25.02.2015 / DATE OF PRONOUNCEMENT : 08 .05.2015 / O R D E R PER SANJAY ARORA, A. M.: TH ESE ARE CROSS APPEALS, I.E., BY THE ASSESSEE AN D THE REVENUE, AGITATING THE PART ALLOWANCE OF THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 2 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED 26.09.2012 BY THE COMMISSIONER OF INCOME T AX (APPEALS) - 20, MUMBAI (CIT(A) FOR SHORT) VIDE HIS ORDER DATED 29.12.2011. ASSESSEES APPEAL (IN ITA NO. 6982/MUM/2012 ) 2. THE APPEAL RAISES TWO GROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM. THE FIRST CONCERNS THE DISALLOWANCE OF COMMISSION EXPEN SES IN THE SUM OF RS.21,34,840/ - ON ACCOUNT OF NO N - DEPOSIT OF TAX DEDUCTED AT SOURCE (TDS) WITHIN THE STIPULATED TIME PERIOD U/S. 40(A)(IA) OF THE ACT, AS AMENDED BY FINANCE ACT, 2008 W.R.E.F 01.04.2005. THE DUE DATES OF DEPOSIT OF TAX WERE 01. 1 0.2008, 04. 11.2008, 04.12.2008, 01.01.2009 AND 02.02.2009 , SO THAT THE SAME OUGHT TO HAVE BEEN DEPOSITED LATEST BY 31.03.2009, WHILE W ERE ADMITTEDLY DEPOSITED ONLY ON 22.09.2009 . THE DEDUCTION IN ITS RESPECT WOULD , UNDER LAW, THUS B E E XIGIBLE TO DEDUCTION ONLY IN THE YEAR OF PAYMENT, I.E., FOR A. Y . 2010 - 11. THIS REPRESENTS AND SUMS UP THE REVENUES CASE , SO THAT , AGGRIEVED , THE ASSESSEE IS IN SECOND APPEAL, RAISING THE FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE LEARNED COMMISSIONER O F INCOME TAX A PPEAL ERRED IN CONFIRMING THE DISALLOWANCE OF PAYMENT OF COMMISSION OF RS.21,34,840/ - U/S. 40(A)(IA) OF THE INCOME TAX ACT, 1961 WITHOUT CONSIDERING DECISION OF ITAT AND HIGH COURT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL O N RECORD. THE ONLY DECISION CITED BY THE ASSESSEE, AS PER THE ORDERS BY THE AUTHORITIES BELOW , IS BY THE TRIBUNAL IN THE CASE OF BANSAL PRIVAHAN (INDIA) PVT. LTD. VS. ITO [ 2011] 43 SOT 619 (MUM), STATING THAT THE AMENDMENT BY FINANCE ACT, 2010 (W.E.F 01. 04.2010) , PROVIDING TIME FOR DEPOSIT OF TDS UP TO THE DUE DATE OF FILING OF THE RETURN OF INCOME , WHICH IN THE INSTANT CASE IS 30.09.2009 , LES T THE EXPENSE BE ALLOWED IN COMPUTING THE INCOME FOR THE YEAR OF PAYMENT OF TDS, AS RETROSPECTIVE, SO THAT IT WOUL D APPLY FOR THE CURRENT YEAR AS WELL. WE ARE HOWEVER UNABLE TO FIND ANY INFIRMITY ON THAT SCORE IN - AS - MUCH AS THE TRIBUNAL PER ITS DECISION IN BHARATI SHIPYARD LTD. VS. DY. CIT [ 2011] 11 ITR(T RIB ) 599 (MUM ) (SB) , REL IED UPON BY THE ASSESSING OFFICER (A.O. ), H E LD THE AMENDMENT AS NOT RETROSPECTIVE. SO, HOWEVER, THE DECISIONS BY THE HONBLE HIGH COURTS, 3 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED AS IN THE CASE OF CIT V S. VIRGIN CREATIONS (IN ITA NO. 302 OF 2011 [G.A. NO.3200 OF 2011, DATED 23.11.2011 ] ) AND CIT VS. NARESH KUMAR [ 2014] 362 ITR 256 (DEL ) HAVE SINCE BEEN DELIVERED, HOLDING THE AMENDMENT TO SECTION 40(A)(IA) BY FINANCE ACT, 2010 AS RETROSPECTIVE. ACCORDINGLY , THE ASSESSEE SUCCEEDS. AS A COROLLARY, WE MAY THOUGH ADD , WHERE THE ASSESSEE HAS CLAIMED OR OTHERWISE BEEN ALLOWED , AS THE REVENUE W AS OBLIGED TO, DEDUCTION IN RESPECT OF THE IMPUGNED SUM FOR A.Y. 2010 - 11, I.E., FOLLOWING THE REVENUES STAND OF THE AMENDMENT AFORE - STATED BEING NOT RETROSPECTIVE, A MODIFICATION TO THE ASSESSMENT FOR THAT YEAR SHALL , IN CONSEQUENCE , FOLLOW. WE DECIDE ACC ORDINGLY. 4. GROUND N O. 2 RELATES TO THE DEDUCTION U/S.14A , AT RS.5,83,310/ - . THE ASSESSEE WAS OBSERVED TO HAVE MADE AN INVESTMENT IN SHARES AT RS.1,07,41,401/ - , INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. INDIRECT EXPENDITURE, BY WAY OF IN TEREST AND ADMINISTRATIVE EXPENDITURE, HAD, HOWEVER, BEEN INCURRED, SO THAT A DISALLOWANCE IN ITS RESPECT, TO THE PROPORTIONATE EXTENT, WOULD ARISE, AND WAS ACCORDINGLY MADE IN TERMS OF R ULE 8D(2)(II) (AT RS.5,29,603/ - ) AND R ULE 8D(2)(III) (AT RS.53,707/ - ) , AND CONFIRMED FOR THE SAME REASON/S. AGGRIEVED, THE ASSESSEE IS IN APPEAL ; ITS GROUND READING AS UNDER: 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE LEARNE D COMMISSIONER OF INCOME TAX A PPEAL ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS.5,83,310/ - U/S.14A OF THE I T ACT, 1961. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE H AS BEFORE THE AUTHORITIES BELOW CONTENDED THAT OF THE TOTAL INVESTMENT IN SHARES THAT FOR RS.102.50 LACS IS IN SHARES OF COMPAN IES FOR DIVERSE B USINESS REASONS, NOT YIELDING ANY DIVIDEND INCOME, WHICH ALSO EXPLAINS THE LOW LEVEL OF DIVIDEND INCOME AT RS.2367. THE CLAIM WAS FOUND, IN THE WORDS OF THE LD. CIT(A), AS VAGUE, U NVERIFIABLE AND UNSUBSTANTIATED , SO THAT IRRESPECTIVE OF TH E VOLUME OF DIVIDEND, DISALLOWANCE OF CORRESPONDING EXPENDITURE SHALL ARISE. APART FROM UN - SUBSTANTIATION OF ITS CLAIMS, THE SAME WOULD BE OF NO ASSISTANCE . THIS IS AS , ADMITTEDLY, THE PURPOSE OF INVESTMENT IS NOT TO GENERATE INCOME, SO THAT THE SAME CANNO T BE REGARDED AS TOWARD A SOURCE OF INCOME, BUT PERHAPS AN INVESTMENT, MADE FOR ST RATEGIC REASONS. HOW , THEN, ONE MAY ASK, COULD THE 4 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED SAME BE DISREGARDED FOR DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO SUCH INVESTMENT S , WHICH HAVE NEVERTHELESS TO BE MANAGED ? TH E INCOME, TO WHATEVER EXTENT, THAT MAY ARISE OUT OF SUCH INVESTMENT WOULD NOT FORM PART OF THE TOTAL INCOME, WHILE EXPENDITURE, PARTICULARLY INDIRECT EXPENDITURE, IS NOT INCURRED IN ANY PROPORTION TO INCOME, WHICH MAY BE PALTRY, OR PERHAPS EVEN NEGATIV E, CONSIDERING THAT INCOME FOR THE PURPOSES OF THE ACT IS ONLY ONE WHICH CORRESPONDS WITH THE COMMON UNDERSTANDING OF THE SAID TERM, I.E., NET OF EXPENSES, SO THAT THE SAME WOULD ONLY BE AFTER DEDUCTING EXPENSES ATTRIBUTABLE THERETO. AS REGARDS THE NON - RE CEIPT OF INCOME TH E R E - AGAINST , IT IS THE INCOME FROM THE SHARES, I.E., AS A CLASS OF INVESTMENT, THAT HAS TO BE CONSIDERED, AND NOT QUA EACH SHARE/INDIVIDUAL INVESTMENT. AS SUCH, WHERE, AS IN THE PRESENT CASE, THE ASSESSEE IS NOT ABLE TO ADVANCE ITS CASE OF HAVING NOT INCURRED ANY INDIRECT EXPENDITURE TOWARD SUCH INVESTMENT YIELDING OR LIABLE TO YIELD EXEMPT INCOME , WITH REFERENCE TO ITS ACCOUNTS, A DISALLOWANCE, FOLLOWING THE PRESCRIPTION OF R ULE 8D, MANDATORY FOR THE CURRENT YEAR, SHALL FOLLOW. WE, ACCOR DINGLY, DO NOT FIND ANY INFIRMITY IN THE ORDERS BY THE AUTHORITIES BELOW. SO, HOWEVER, THE ASSESSEE HAS BEFORE US RAISED A PLEA, RELYING ON THE DECISION BY THE TRIBUNAL IN THE CASE OF AFL P . LTD. VS. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) , STATING T HAT WHERE THE ENTIRE BORROWING BY WAY OF CASH CREDIT ( ACCOUNT ) STANDS ABSORBED IN THE RELEVANT CLASS OF ASSETS, I.E., THOSE INTENDED TO BE FINANCED THEREBY , NO DISALLOWANCE U/S. 14A SHALL ENSUE . WE FIND MERIT IN THE SAID ARGUMENT. WHERE THE BORROWING UNDER T HE CASH CREDIT ACCOUNT IS WITHIN THE DRAWING POWER (I.E., THE AMOUNT THAT THE ASSESSEE - BORROWER COULD VALIDLY DRAW OR AVAIL IN TERMS OF THE RELEVANT LOAN AGREEMENT), THE PRESUMPTION , BOTH ON FACTS AND IN LAW , WOULD ONLY BE OF THE ENTIRE SUM AS HAVING BEEN UTILIZED TOWARD THE INTENDED BUSINESS PURPOSE /S , FINANCING OF INVENTORY OF STOCK - IN - TRADE FOR EXAMPLE. THE TERM LOANS ARE, IN ANY CASE, TOWARDS SPECIFIC/DEFINED CAPITAL ASSETS, SO THAT , WHERE PURCHASED , THE BORROWINGS CAN ONLY BE CONSIDERED AS HAVING BEEN APPLIED TOWARD THE SAME. THE MATTER IS, ACCORDINGLY, RESTORED BACK FOR NECESSARY VERIFICATION , AND TOWARD WHICH THE ASSESSEE SHALL EXTEND ALL ASSISTANCE AND COOPERATION, ONLY FOR ITS OWN BENEFIT . THE A.O. SHALL A D JUDICATE, ISSUING DEFINITE FINDINGS OF FACT , SO THAT WHERE THE BORROWINGS ARE SHOWN TO HAVE BEEN UTILIZE D IN TERMS OF THE AGREEMENT, AS INDICA TED 5 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED ABOVE, THE ASSESSEE C OULD ONLY BE SAID TO HAVE COM PLIED WITH THE TERMS OF SECTION 14A(2). WE DECIDE ACCORDINGLY. 6. THE THIRD AND FINAL GROUND OF THE AS SESSEES APPEAL IS IN RESPECT OF SUMS, AG GREG ATING TO RS.1,07,75,254/ - , BEING OSTENSIBLY ADVANCES , TREATED AS INCOME AS NO VALID GROUND FOR TREATING THE SAME AS SUCH, I.E., AS ADVANC E, OR EVIDENCE TOWARD THE SAME AS REPRESEN T ING A LIABILITY , STOOD FURNISHE D. IN FACT, MOST OF THE SUMS HAD BEEN OFFERED AS INCOME FOR THE IMMEDIATELY SUCCEEDING YEAR , AND FOR WHICH NO APPARENT REASON HAD BEEN ADVANCED. SURELY, THE CHARACTER OF AN AMOUNT COULD NOT BE CHANGE D ON THE BASIS OF JOURNAL VOUCHER, AND THE SAME WAS ONLY A DEFERMENT OF INCOME. EVEN IN CASE S WHERE S ALE/INCOME WAS BOOKED AGAINST THE IMPUGNED SUM /S IN THE FOLLOWING YEAR, THE SAME WERE NOT ACCOMPANIED BY EITHER DELIVERY OF GOODS OR RENDERING OF SERVICES, SO THAT THE SAME WAS, AGAIN, WITHOUT BAS IS , AND WITH A V IEW TO NEUTRALIZE A NON - EXISTING LIABILITY. THIS D EFINES THE REVENUES CASE, WHICH STANDS AGITATED BY THE ASSESSEE, RAISING THE FOLLOWING GROUND: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE LEARNED COMMISSIONER OF INCOME TAX A PPEAL ERRED IN CONFIRMING THE TREATMENT OF ADVANCE RECEIVED FROM CUSTOMERS AS UNEXPLAINED ADVANCE WITHOUT APPRECIATING THE DETAILS SUBMITTED TO HIM AND ALSO IGNORING THE FACT THAT THOSE ADVANCES WERE OFFERED AS INCOME IN SUBSEQUENT YEARS AND THE SAME HAS RESULTED IN DOUBLE TAXATION OF SAME INCOME. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE IMPUGNED AMOUNTS (14 IN NUMBER) HAVE BEEN RECEIVED FROM CUSTOMERS, EITHER DURING THE PREVIOUS YEAR OR EARLIER YEARS , PURPORTEDLY BY WAY OF ADVANCE S AG AINST SALES OF GOODS, VIZ. VEHICLE S , SPARE PARTS, ETC. OR SERVICES, I.E., AGAINST SERVICING OF VEHICLES THE ASSESSEE BEING IN THE BUSINESS OF SALES AND SERVICES OF AUTOMOBILES. IT IS ONLY FOR THE ASSESSEE TO, THEREFORE, EXHIBIT THAT THE AMOUNT/S , THOUGH RECEIVED, DID NOT REPRESENT INCOME, AS CONTRACTUAL OBLIGATION/S IN ITS RESPECT HAD NOT BEEN PERFORMED AS AT THE YEAR - END, SO THAT NO INCOME HAD IN FACT ACCRUED, SO AS TO BE APPROPRIATED IN ACCOUNTS TO THE INCOME ACCOUNT FOR THE YEAR. WHERE AND TO THE EXTEN T THE ASSESSEE HAS IN FACT BEEN ABLE TO DO SO, THE A.O. HAS ACCEPTED THE ASSESSEES CLAIM, AS IN THE CASE OF HAPPY HOME AND 6 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED SCHOOL FOR B LIND ( R S.4,34,998/ - ) AND MU NICIPAL CORPORATION OF GREATER MUMBAI (RS.21,90,581/ - ). INCOME, IT IS TRITE LAW, IS TO BE ASS ESSED IN THE HANDS OF THE RIGHT PERSON AND FOR THE RIGHT YEAR (REF: SS. 4 & 5 R/W SS. 28 AND 145 OF THE INCOME - TAX ACT, 1961; CIT V. BRITISH PAINTS INDIA LTD . (1991) 188 ITR 44 (SC); AND ITO V. CH. ATCHAIAH (1996) 218 ITR 239 (SC)) . HOWEVER, MERELY FOR THE REASON THAT THE SAME STANDS OFFERED AS INCOME FOR A FUTURE YEAR WOULD NOT BY ITSELF ESTABLISH THE ASSESSEES CASE OF INCOME HAVING NOT ACCRUED FOR THE CURRENT YEAR . A ND WHICH WOULD DECIDEDLY BE THE CASE WHERE NO TAXABLE EVENT HAS OCCURRED DURING THE YEA R FOR WHICH INCOME STANDS OFFERED TO TAX, BEING THE FOLLOWING YEAR IN MOST CASES. A CCOUNTING ENTRY, IT NEEDS TO BE APPRECIATED, DOES NOT CREATE INCOME, BUT ONLY RECOGNIZES IT , WHERE IT HAS INURED. THE WHOLE PREMISE OF ACCOUNTS IS THE TRUE AND FAIR STATEMEN T OF THE ASSESSEES AFFAIRS. AS SUCH, TREATMENT IN ACCOUNT S , UNSUBSTANTIATED BY OR DE HORS ANY ACTIVITY OR TAXABLE EVENT IS BY ITSELF OF NO CONSEQUENCE , AND HAS BEEN RIGHTLY IGNORED AND INFERRED BY THE REVENUE AS A REVENUE DEFERMENT EXERCISE BY THE ASSESSE E. EVEN BEFORE US THE ASSESSEES EMPHASIZE D AND ITS PRINCIPAL CONTENTION WAS IN RESPECT OF A SUM OF RS.96,62,322/ - , RECEIVED FROM R YAN INTERNATIONAL SCHOOL, STATED AS AN ADVANCE LEASE RENTAL. NO LEASE AGREEMENT TO SUPPLEMENT THE CLAIM OF ADVANCE, HOWEVER, STOOD ADDUCED BEFORE THE REVENUE, AND WHICH POSITION CONTINUE S BEFORE US. THE RECEIPT WAS, ACCORDINGLY, TREATED AS REALIZED ON ACCOUNT OF SALE/INCOME. THE ASSESSEE BEFORE US HAS PRODUCED CHALLANS FOR PAYMENTS OF SALES TAX (MVAT) ON 26.04.2010 (RS.3,25,508/ - ) AND 21.03.2010 ( R S.63,259/ - ), PLACED AT PGS. 72 AND 73 RESPECTIVELY OF THE ASSESSEES PAPER BOOK (APB). WE ARE, EVEN ASSUMING THE SAID TAX TO BE IN RESPECT OF THE RELEVANT TRANSACTION, UNABLE TO SEE AS TO HOW THE SAME SUPPORTS THE ASSESSEES CASE. LE A S E TAX, EVEN IF PAYABLE BY THE ASSESSEE OUT OF THE S UM REALIZE D , I.E., RS.96.62 LACS, BEING A STATUTORY DUE, WOULD STAND TO BE ALLOWED IN THE YEAR OF PAYMENT. APPROPRIATING THE AMOUNT IN ACCOUNT S AS A LIABILITY WOULD, THEREFORE, BE OF LITTLE ASSISTANCE TO TH E ASSESSEE ; ITS CASE CONTINUING TO BE DE HORS A N Y SUBSTANTIATION O N FACTS , WITH THE AMOUNT OUTSTANDING IN BOOKS PRIOR TO 31.03.2008 (APB PG. 44). CONTINUING FURTHER, TRUE , THE AMOUNT/S UNDER REFERENCE MAY HAVE BE EN BROUGHT TO TAX FOR THE FOLLOWING (ANOTH ER) YEAR/S . H OWEVER, IT IS ONLY THE ASSESSEE WHO IS RESPONSIBLE 7 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED FOR THE SAME , I.E., BY DISCLOSING IT AS I T S INCOME FOR THAT YEAR/S. I T IS ONLY WHERE THE ASSESSEE CONCEDES TO THE INCOME BEING SUBJECT TO TAX FOR THE CURRENT YEAR THAT THE REVENUE COULD BE FAU LTED FOR, DESPITE THE ASSESSEE HAVING RETURNED IT AS SO, I.E., FOR THE FOLLOWING YEAR/S, ASSESSING IT AS INCOME FOR THAT YEAR/S , AND WHICH IS NOT THE CASE. BE THAT AS IT MAY, THERE IS NO DENYING THAT THE SAME CANNOT BE SUBJECT TO TAX , AND NEITHER COULD IT ACCRUE TO THE ASSESSEE, I.E., AS INCOME , TWICE, SO THAT THE SECOND/ SUBSEQUENT ACCRUAL , ON WHICH THERE IS NO FINDING THOUGH; THE REVENUE HAVING MERELY ACCEPTED THE ASSESSEES RETURN FOR THAT YEAR/S , IS INVALID BOTH ON FACTS AND IN LAW. WE, ACCORDINGLY, DIR ECT THE A.O. TO VERIFY THE ASSESSEES CLAIM/S FOR THE SAID INCOME AS HAVING BEEN OFFERED AS INCOME AND , CONSEQUENTLY , AS HAVING BEEN SUBJECT TO TAX FOR THE FOLLOWING YEAR/S AND, WHERE SO, DELETE THE SAME. THE A.O. SHALL UNDERTAKE THE EXAMINATION , AND TOWAR D WHICH THE ASSESSEE SHALL EXTEN D ALL NECESSARY AND REASONABLE COOPERATION, WHILE PASSING APPEAL EFFECT GIVING ORDER. WE DECIDE ACCORDINGLY. REVENUES A PPEAL (IN ITA NO. 7146/MUM/2012) 8.1 VIDE ITS TWO GROUNDS, THE REVENUE IMPUGNS THE DELETION OF DISALLO WANCE OF BANK INTEREST IN THE SUM OF RS.32,73,421/ - , REPRESENTING THE INTEREST ON CASH CREDIT ACCOUNT WITH IT S BANK, BANK OF INDIA. THE BASIS OF THE DISALLOWANCE BY THE A.O., AS A READING OF HIS ORDER WOULD SHOW, IS THE NON - PAYMENT OF THE SAID SUM, WHICH STANDS CREDITED BY THE ASSESSEE IN ITS ACCOUNTS TO THE RELEVANT BANK (CASH CREDIT) ACCOUNT, INCREASING THE BALANCE IN THE SAID (LOAN) ACCOUNT TO THAT EXTENT IN - AS - MUCH AS THE LIABILITY TO THE BANK ON ACCOUNT OF INTEREST HAD NOT BEEN REFLECTED SEPARATELY BY THE ASSESSEE IN ITS ACCOUNTS. BANK INTEREST IS A SUM SPECIFIED U/S.43B(E) AND, ACCORDINGLY, ALLOWANCE IN ITS RESPECT WOULD FOLLOW ITS PAYMENT, I.E., BY ACTUAL DISCHARGE OF LIABILITY. EVEN ITS CONVERSION TO LOAN/LIABILITY ACCOUNT SHALL NOT, AS CLARIFIED BY EXPLANATION 3D THERETO, AMOUNT TO ITS PAYMENTS. THE DELETION BY THE LD. CIT(A) IS ON THE BASIS THAT THE A.O. , WHO HAD BEEN FURNISHED WITH THE COPY OF THE CASH CREDIT ACCOUNT, HAD , HOWEVER , CONSIDERED THE SAME AS A TERM LOAN, AND WHICH WAS NOT THE CASE; TH E TWO ACCOUNTS BEING DISTINCT. HOW WOULD THAT, WE WONDER, ALTER THE REVENUES CASE, I.E., EVEN ASSUMING THAT THE A.O. HAS CONSIDERED THE BANK INTEREST AS ON A 8 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED TERM LO A N ACCOUNT WITH BANK OF INDIA , A SCHEDULE D BANK. WE SAY SO AS SECTION 43B(E) IS, W.E.F. 01 .04.2004, I.E., A.Y. 2004 - 05 ONWARDS, APPLICABLE EQUALLY TO A TERM LOAN OR TO ANY OTHER LOAN/ADVANCES BY SUCH A BANK. IN FACT, IT IS THE LD. CIT(A) WHO HAS COMMITTED A FAUX PASS ; THE A.O. ALL THROUGH REFERRING TO A LOAN, AND NOWHERE MENTIONS THE BANK BORRO WING TO BE A TERM LOAN, WHICH WE HAVE THOUGH FOUND IRRELEVANT IN VIEW OF THE LAW AND THE REVENUES CASE, AS ENUMERATED ABOVE. 8.2 WE MAY, NEXT , DISCUSS THE ISSUE ON MERITS. THE PROVISION READS AS UNDER: CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. 43 B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) (B) ( E ) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR AD VANCES FROM A SCHEDULED BANK IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, OR EXPLANATION 3D. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT A DEDUCTION OF ANY SUM, BEING INTEREST PAYABLE UNDER CLAUSE ( E ) OF THIS SECTION, SHALL BE ALLOWED IF SUCH INTEREST HAS BEEN ACTUALLY PAID AND ANY INTEREST REFERRED TO IN THAT CLAUSE WHICH HAS BEEN CONVERTED INTO A LOAN OR ADVANCE SHALL NOT BE DEEMED TO HAVE BEEN ACTUALLY PAID. 8.3 A CASH CREDIT ACCOUNT O P E R A T E S BOTH AS A LOAN ( FLUCTUATING ) OR ADVANCE ACCOUNT AS WELL AS A CURRENT ACCOUNT , WITH ALL THE RECEIPTS AND PAYMENTS OF THE ASSESSEE B ORROWER BEING CHANNELIZE D THR OUGH I T. THE BANK, ACCORDINGLY, ALSO DE B IT S ITS INTEREST TO THIS ACCOUNT, INCREASING ITS BALANCE IMMEDIATELY TO THAT EXTENT, AND WHICH THUS BECOMES PART OF THE LOAN /ADVANCE A M OUNT, I.E., BORROWED CAPITAL, AND ON WHICH THEREFORE IT IS ENTITLED TO , AND CHARGE S, INTER E ST. THE NON REFLECTION OF LIABILITY TOWARD BANK INTEREST BY THE ASSESSEE IN ITS ACCOUNT IS , THUS, NOT A N INCORRECT REPRESENTATION OF ITS FINANCIAL POSITION. THE QUESTION, HOWEVER, REMAINS AS TO HOW THE PAYMENT OF INTEREST CHARGED BY BANK IS TO BE RECKONED IN SUCH CIRCUMSTANCE , PARTICULARLY CONSIDERING EXPLANATION 3D TO SECTION 43B, WHICH CLE ARLY STATES OF CONVERSION OF INTEREST INTO BORROWING TO BE NOT CONSTRUED AS A 9 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED ACTUAL PAYMENT OF INTEREST. THE CONTROVERSY ARISES ON ACCOUNT OF NON - APPRECIATION OF FACT THAT THE PAYMENT COULD WELL BE CAUSED BY MO VE MENT OF FUNDS AS AGAINST PER ACTUAL CASH. P A YMENTS IN MODERN BUSINESS ARE RECEIVED AND MADE THROUGH CREDITS AND DE BITS IN THE BANK ACCOUNTS OF THE PAYEE AND THE PAYER. WHERE THE BANK BORROWINGS AT THE ENHANCED AMOUNT, I.E., I NCLUSIVE OF THE CHARGE OF INTEREST, IS WITHIN THE DRAWING POWER, THE BANK IS DEEMED TO HAVE EXTENDED ADVANCES (I.E., ON PRINCIPAL A CCOUNT ) TO THE ASSESSEE TO THAT EXTENT. AS SUCH, IT IS NOT A CASE OF CONVERSION OF INTEREST INTO BANK BORROWING BUT OF THE SAME BEING ACTUALLY PAID OUT OF BORROWED FUNDS ADVANCED BY THE BANK. THE DRA WING POWER IS DRAWN BY THE BANK AT DIFFERENT INTERVALS OF THE TIME ON THE BASIS OF THE FINANCIAL INFORMATION/ STATEMENT /S FURNISHED BY THE ASSESSEE, I.E., IN PURSUANCE TO HIS OBLIGATION/S UNDER THE RELEVANT LOAN AGREEMENT, ONLY TO CONFIRM IF THE BORROW ED FU NDS ARE WITHIN THE PRESCRIBED LIMIT / S , AND UTILISED FOR THE INTENDED PURPOSES. TO EXEMPLIFY, A CASH CREDIT ACCOUNT AGAINST HYPOTH E CA TION OF INVENTORIES OF STOCK - IN - TRADE (SAY), STIPULATING A MARGIN OF 25% (SAY) , WOULD THUS YIELD A DRAWING POWER ( DP ) OF RS. 750/ - AGAINST AN INVENTORY OF RS.1,000/ - (I.E., RS.1000 RS.1000 X 25%), THE BALANCE RS.250/ - BEING FINANCED BY THE PAYER FROM HIS OWN SOURCE S . AS LONG AS, THEREFORE, THE BANK BALANCE IS WITHIN THE DRAWING POWER OF RS. 750/ - , THE PAYER CAN ONLY BE, IRRESP ECTIVE OF THE NATURE OF THE CHARGES OR DEBIT S TO I TS ACCOUNT BY THE BANK, CONSIDERED AS TOWARD THE INTEN DED PURPOSE. THE SAID CHARGES/DEBITS STAND, IN CONSEQUENCE, PAID. IT IS ONLY WHERE T HE BANK BALANCE EXCEEDS THE DP OF R S.750/ - , THAT THE EXCESS CAN BE C ONSTRUED AS AN APPLICATION BY THE ASS ESSEE FOR OTHER THAN INVENTORIES , OR AS A LIABILITY TOWARD UNPAID CHARGES . THE PAYMENT OR OTHERWISE OF BANK INTEREST SHALL, THEREFORE, HAVE TO BE RECKONED WITH REFERENCE TO DRAWING POWER AS AT THE YEAR - END DRAWN AS PER THE TERMS OF THE BORROWING AGREEMENT. THIS IS PRECISELY WHY, AND ALSO EXPLAINS REFERENCE THERETO, IN SECTION 43B(E). FURTHER STILL, AS THE PAYMENT, TO QUALIFY FOR ALLOWANCE, COULD BE VALIDLY MADE B Y THE DATE OF FURNISHING THE RETURN OF INCOME U/S. 1 39(1), T HE DRAWING POWER FOR THE FUTURE DATES MAY ALSO BE RELEVANT IN THIS REGARD. SURELY, THE DP SHOULD BE ON THE BASIS OF NORMATIVE BALANCES AND NOT CONTRIVED, I.E., WHICH IS BROUGHT DOWN ONLY TO EXHIBIT A BELOW PAR BALANCE FOR A B RIEF PERIOD, BEFORE ASSUMING IT S NORMAL, HIGHER BALANCE. THE MATTER IS, ACCORDINGLY, RESTORED TO THE FILE OF 10 ITA NOS. 6982/MUM/2012 & 7146/MUM/2012 (A.Y. 2009 - 10) LAKOZY MOTORS PRIVATE LIMITED THE A.O. FOR NECESSARY VERIFICATION AND TOWARD WHICH THE ASS ESSEE SHALL EXTEND COOPERATION TO ENABLE PROPER DETERMINATION OF THE MATTER BY THE F O RMER, I.E., IN ACCORDANCE WITH T HE LAW , KEEPING IN VIEW ITS FOREGOING ELUCIDATION. WE DECIDE ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES , AND THE R EVENUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNC ED IN THE OPEN COURT ON MAY 08 , 201 5 SD/ - SD/ - ( AMIT SHUKLA ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 08 . 0 5 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI