MOHANLAL M SHAH, MUMBAI V. ITO WD 19(2)(4), MUMBAI

ITA 7181/MUM/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3551 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-06-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 19-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVAJI B GHODE
• Assessee Lawyers: NIKITA AGARWAL
• Keywords: Unexplained investment; Business expenditure; Source of fund
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 7181 /MUM/ 201 0 ( / ASSESSMENT YEAR : 2001 - 02 ) SHRI MOHANLAL M SHAH, 601, LAXMI VILLA, 45 - TAGORE ROAD, SANTACRUZ (W), MUMBAI - 400054 / VS. INCOME TAX OFFICER WARD 19(2)(4), PIRAMAL CHAMBERES, LALBAUG, MUMBAI - 40001 2 ./ PAN : AAB PS8064P / ASSESS EE BY MS.NIKITA AGARWAL / REVENUE BY SHRI SHIVAJI B GHODE / DATE OF HEARING : 3 .8 . 2016 / DATE OF PRONOUNCEMENT : 25 .8. 2016 / O R D E R PER RAJESH KU MAR, A. M: TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 2.7.2010 PASSED BY THE LD.CIT(A) - 30 , MUMBAI FOR THE ASSESSMENT YEAR 2001 - 02 . 2. THE ISSUE RAISED IN THE GROUND OF APPEAL IS IN RESPECT OF UPHOLDING THE ORDER OF AO DISALLO WING THE INTEREST OF RS.2,18,618/ - CONSIDERING THE SAME AS NON - BUSINESS EXPENDITURE. 2 7181 / MUM/201 0 3. FACTS OF THE CASE ARE THAT THIS IS SECOND ROUND OF LITIGATION. IN THE FIRST ROUND, THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.84/MUM/2005 VIDE ORDER DATED 4 .1.2008 SET ASIDE THE ADDITION OF RS.2,18,168/ - ON ACCOUNT OF DISALLOWANCE OF INTEREST MADE BY THE AO AND RESTORED THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER VERIFYING THE SOURCE OF FUNDS. SIMILARLY, THE ISSUE RAISED IN GROUND NO. 2 REGARDING ADDITION OF RS.27,477/ - AS UNEXPLAINED INVESTMENT WAS ALSO RESTORED TO THE FILE OF THE AO. THE AO AGAIN DISALLOWED THE SAID INTEREST FOR THE REASONS THAT THE ASSESSEE COULD NOT BRING ANY EVIDENCE ON RECORD WHICH WILL PROVE THAT THESE ADVANCES WERE GIVEN OUT OF INTEREST FREE ADVANCES TO THE FAMILY MEMBERS OF THE ASSESSEE AND OUT OF CAPITAL AVAILABLE IN THE BUSINESS. THE LD. CIT(A) DURING THE APPELLATE PROCEEDINGS, ALSO CONFIRMED THE ADDITION AS MADE BY THE AO AS UNDER : 2.6 IT IS ALSO SEEN THAT GOOD PART OF INTEREST BEARING FUNDS ARE SHOWN AS RECEIVED DURING THE CURRENT FINANCIAL YEAR. IT IS RS.6,99,000/- RECEIVED ON 3.12.2000. PERUSAL OF THE BANK ACCOUNT SHOWS THAT THE AMOUNT HAS GONE TO VANDANA ENTERPRISES. APPELLANT IS PARTNER IN THAT FIR M. SHARE OF INCOME FROM A PARTNERSHIP FIRM IS EXEMPT FROM TAX IN TERMS OF SECTION 10(2A) OF THE ACT. NO INTEREST EXPENSES CAN THEREFORE BE ALLOWED ON THE AMOUNT OF RS.6,99,000/ - IN TERMS OF SECTION 36(1 )(III) OF THE ACT IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 14A OF THE ACT. BALANCE INTEREST BEARING LOANS ARE SHOWN AS OPENING BALANCES WHICH HAVE BEEN CARRIED FORWARD FROM THE PRECEDING YEARS. THE UTILIZATION OF OR THE PURPOSES OF APPELLANT'S BUSINESS IS NOT EXPLAINED AND 2.7 IT IS A SETTLED LAW THA T TO CLAIM DEDUCTION U/S.36(1)(III), THE ONUS IS ON THE ASSESSEE TO PROVE THAT ALL THE THREE NECESSARY CONDITIONS ARE FULFILLED. THE CONDITIONS ARE THAT THE CAPITAL WAS 3 7181 / MUM/201 0 BORROWED WHICH WAS PAID/PAYABLE ON SUCH BORROWED CAPITAL AND FINALLY SUCH BORROWED CAPI TAL WAS USED FOR THE PURPOSES OF THE BUSINESS. IN THIS CASE, THE APPELLANT HAD FAILED TO DISCHARGE THE ONUS. IN VIEW OF THE ABOVE, THE ADDITION OF RS.2,18,130 / - IS CONFIRMED. THE GROUND OF APPEAL NO.1 IS DISMISSED. 4. WE HAVE CAREFULLY CONSIDERED THE SUB MISSIONS OF THE PARTIES, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW . THE LD.AR STRONGLY SUBMITTED BEFORE US THAT THE ASSESSEE HAS ITS OWN SUFFICIENT CAPITAL BALANCE AND INTEREST FREE FUNDS AVAILABLE IN THE BUSINESS O UT OF WHICH THE INTEREST FREE LOANS WERE GIVEN TO THE FAMILY MEMBERS AND THEREFORE THE ADDITION AS MADE BY THE AO AND SUSTAINED BY THE LD.CIT(A) WAS TOTALLY WRONG AND AGAINST THE FACTS OF THE CASE . THE LD. AR DREW OUR ATTENTION TO THE PAGE 46 OF THE PAP ER BOOK WHEREIN THE SOURCE OF FUND AND APPLICATION OF FUNDS WHICH IS REPRODUCED AS UNDER FOR THE SAKE OF CONVENIENCE : INTEREST FREE FUNDS CAPITAL ACCOUNT RS.58,09,192 RITABEN M SHAH RS.4,14,095 RAHUL M SHAH RS.2,65,000 TOTAL INTEREST FREE FUND 64,84 ,288 INVESTMENT - LAND RIGHT IN FLAT 16,25,,381 12,11,000 NAMRATA INVESTMENT 4,12,,450 RAVI NIRMAN GRAH 90,000 LOANS ON WHICH INTEREST NOT PAID 23,87,945 BALANCE 2,18,762 TOTAL INTEREST FREE INVESTMENTS 59,43,521 4 7181 / MUM/201 0 THE LD. AR WHILE EXPLAINING THE SOURCES AND UTILIZ ATION OF THE FUNDS ARGUED THAT SINCE THE ASSESSEE HAS SUFFICIENT CAPITAL FUNDS OF RS.58,09,192/ - AND OTHER FREE LOANS RS.6,79,096/ - THEREBY MAKING TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AT RS. 64,84,288 / - . THE ASSESSEE HAS GIVEN INTEREST FREE LOANS OF RS.23,87,945/ - AND MADE OTHER INVESTMENTS A GGREGATING TO RS.59,42,520/ - . A PERUSAL OF THE ABOVE FACTS REVEALS THAT THE ASSESSEE HA S SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM OUT OF WHICH HE ADVANCED INTEREST FRE E LOANS AND THERE REVENUE COULD CONTROVERT THE ARGUMENTS COUPLED WITH FACTS AND ALSO BRING ON RECORDS ANY MATERIALS TO THE CONTRARY AND THEREFORE THE ADDITION AS MADE BY T HE AO AND SUSTAINED BY THE LD.CIT(A) IS NOT JUSTIFIED AND CANNOT BE SUSTAINED . WE ALSO FIND STRONG SUPPORT FROM THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM) IN WHICH IT HAS BEEN HELD THAT IF THE ASSESSEE HAS MIXED FUNDS I.E. INTEREST BEARING AND INTEREST F REE FUNDS AND HE HAS MADE SOME INVESTMENT ON WHICH THERE IS NO INCOME OR THE INCOME IS EARNED THE N THE PRESUMPTION SHALL BE THAT THE ASSESSEE HA S MADE INVESTMENT OUT OF INTEREST FREE FUNDS. APPLYING THE SAME ANALOGY HERE WE ARE INCLINED TO HOLD THAT THE INTEREST FREE ADVANCES TO FAMILY MEMBERS WERE GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE, THEREFORE , FOLLOWING THE 5 7181 / MUM/201 0 RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT SET ASIDE THE ORDER OF T HE LD.CIT(A) AND DIRECT THE AO TO DELE TE THE ADDITION . 5 . AS REGARDS THE SECOND ISSUE RAISED BY T HE ASSESSEE , WE FIND THAT THE SAID ADDITION REPRESENTS THE DIFFERENCE IN THE OPENING BALANCE AS PER THE ASSESS EE S BOOKS OF ACCOUNTS AND CONFIRMATION WHICH IS ISSUED BY THE THIRD PARTY IN RESPECT OF ACCOUNT OF MINOR SON RAHUL M SHAH WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT. WE FIND THAT THE ADDITION H A S BEEN MA D E BY T HE AO ON THE BASIS OF THIRD PARTY CONFIRMATION THOUGH THE DIFFERENCE RELATED TO THE OPENING BALA NCE OF THE ASSE SSEES SON ACCOUNT IN THE BOOKS OF THE ASSESSEE. W E FIND THAT THE AO HAS RIGHTLY MADE THE ADDITION AND LD.CIT(A) RIGHTLY UPHELD THE SAME .IN OUR OPINION THE ORDER PASSED BY THE LD. CIT(A) DOES NOT CALL FOR OUR INTERFERENCE FROM OUR SIDE. ACC ORDINGLY THE SAME IS UPHELD BY DISMISSING THE GROUND OF THE ASSESSEE . 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25. 0 8 . 2016. SD SD ( SHAILENDRA KUMAR YADAV ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUN TANT MEMBER MUMBAI ; DATED : 25 TH AUG .2016 SR.PS:SRL: 6 7181 / MUM/201 0 / 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, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI