RADIOHMS INVESTMENT & TRADING P.LTD, MUMBAI V. ITO 5(3)(1), MUMBAI

ITA 7449/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93208 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' D ' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA , ACCOUNTANT MEMBER ITA NO. 7449/MUM/2012 (ASSESSMENT YEAR: 2009 - 10 ) M/S. RADIOHMS INVESTMENT VS. INCOME TAX OFFICER - 5(3)(1) & TRADING P VT . LTD. 403 - 405, SUMET KENDRA, BEHIND MAHINDRA TOWERS, PANDURANG BUDHKAR MARG, WORLI MUM BAI 400018 MUMBAI PAN - AAACR1937Q APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI SANJEEV KASHYAP DATE OF HEARING: 15.07. 2015 DATE OF PRONOUNCEMENT: 15.07.2015 O R D E R PER SANJAY ARORA , A.M . THIS APPEAL IS FILED AT THE INSTANCE OF THE ASSESSEE - COMPANY AND IT ARISE S OUT OF THE ORDER PASSED BY THE CIT(A) - 9, MUMBAI. 2. THE ONLY GROUND URGED BY THE ASSESSEE READS AS UNDER: - 1. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (APPEALS) HAS ERRED IN CONFIRMING THE PART INTEREST ADDITION OF RS.18,89,188/ - WRONGLY COMPUTED AND ASSESSED BY THE LD. A.O. ON NOTIONAL BASIS, WITHOUT PROPERLY APPRECIATING THE ENT IRE FACTS & TAX LAW PROVISIONS. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE IS AN INVESTMENT COMPANY. FOR THE YEAR UNDER CONSIDERATION IT DECLARED TOTAL INCOME OF ` 18,28,299/ - BUT THE TAX PAYABLE ON THE SAME HAS BEEN SET OFF U NDER MAT PROVISIONS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE COMPANY ADVANCED UNSECURED LOANS TO M/S. JSK MARKETING PVT. LTD., A SISTER CONCERN OF THE ASSESSEE COMPANY, @8% PER ANNUM , BUT IN THIS YEAR IT HAS ACCOUNTED F OR ONLY 4% INTEREST. ITA NO. 7449/MUM/2012 RADIOHMS INVESTMENT & TRADING P. LTD. 2 WHEN CALLED UPON TO EXPLAIN AS TO WHY THE ASSESSEE HAS CHARGED LESSER INTEREST ON THE LOANS AND ADVANCES AS AGAINST THE APPLICABLE GOVERNMENT RATE OF 12% PER ANNUM THE ASSESSEE SUBMITTED THAT THERE WAS A FINANCIAL CRISIS IN THE CASE OF GROUP COMPANIES AND HENCE AS PER THE BOARD RESOLUTION THE RATE OF INTEREST WAS REVISED. IT WAS THUS SUBMITTED THAT THE INTEREST CHARGED AT 4% PER ANNUM IS REASONABLE. 4. THE AO OBSERVED THAT THE JIWARAJKA FAMILY MEMBERS ARE THE DIRECTORS OF OTHER GROUP COMPA NIES SUCH AS JSK MARKETING PVT. LTD. AND SO ON, HENCE THE SO CALLED FINANCIAL CRISIS AND BOARD RESOLUTION ARE SELF - MADE STORY WHICH CAN BE PREPARED AT ANY TIME AND THIS IS NOTHING BUT DIVERSION OF TAXABLE INTEREST INCOME. IT IS ALSO OBSERVED THAT THE GROUP COMPANIES HAVING A COMMON DIRECTOR COLLUDED WITH THE INTENTION TO REDUCE TAX LIABILITY AND THE GOVERNMENT RATE OF INTEREST OUGHT TO HAVE BEEN TAKEN INTO CONSIDERATION. HE ACCORDINGLY PROCEED ED TO BRING TO TAX THE NOTIONAL INTEREST INCOME AT 12% PER ANNUM. 5. AGGRIEVED , ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ASSESSEE - COMPANY HAS OBTAINED INTEREST FREE LOAN OF ` 53 LAKHS WHICH WAS GIVEN AS LOA N TO M/S. JSK MARKETING P. LTD. IT WAS ALSO SUBMITT ED THAT NO NOTIONAL INTEREST ADDITION CAN BE MADE BY THE AO SINCE THE ASSESSEE IS FREE TO ADVANCE THE AMOUNT AT A REDUCED RATE OR EVEN ON INTEREST - FREE BASIS . IT WAS ALSO SUBMITTED THAT THE ASSESSEE CHARGED INTEREST AT 8% WHICH WAS SUBSEQUENTLY REDUCED TO 4% BY WAY OF A BOARD RESOLUTION AND HENCE THE REVENUE AUTHORITIES ARE NOT COMPETENT TO CHALLENGE THE DECISION TAKEN BY THE MANAGEMENT WHICH IS BASED ON THE OVERALL APPRAISAL OF THE FINANCIAL POSITION OF THE LOANEE COMPANY. THE LEARNED CIT(A) AGREED IN PRIN CIPL E THAT NOTIONAL INTEREST CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, HE OBSERVED THAT THE ASSESSEE HAVING LOANED THE AMOUNT WITH AN UNDERSTANDING TO CHARGE INTEREST AT 8%, THE CONTRACT PREVAILING AT THE RELEVANT POINT OF TIME SHOULD B E TAKEN AS THE BASIS FOR ARRIVING AT THE INCOME ACCRUED FOR THE YEAR UNDER CONSIDERATION. IN THE INSTANT CASE THE ASSESSEE ADMITTED THAT THE INTEREST RATE WAS REDUCED FROM 8% TO 4% ONLY BY VIRTUE OF THE LETTER DATED 16.06.2009, WHICH FALLS AFTER THE END OF THE ACCOUNTING YEAR RELEVANT TO A.Y. 2009 - 10. SINCE THE INTEREST RATE AGREED UPON ACCRUED TO THE ITA NO. 7449/MUM/2012 RADIOHMS INVESTMENT & TRADING P. LTD. 3 ASSESSEE AS ON 31.03.2009, THE SAME OUGHT TO HAVE BEEN OFFERED TO TAX AS INCOME. IN THIS REGARD HE RELIED UPON THE FOLLOWING DECISIONS: - I) TUTICORIN ALKALINE C HEMICALS AND FERTILISERS LTD. VS. CIT 227 ITR 172 (SC) II) STATE BANK OF TRAVANCORE VS. CIT 158 ITR 102 (SC) III) NAVIN R. KAMANI VS. ITO 185 ITR 408 (BOM) LEARNED CIT(A) THUS CONFIRMED PART INTEREST ADDITION. 6. FURTHER A GGRIEVED, ASSESSEE - COMPANY IS IN APPEAL BEFORE US. THOUGH THE APPEAL WAS ADJOURNED FROM TIME TO TIME AT THE REQUEST OF THE ASSESSEE, NONE APPEARED ON BEHALF OF THE ASSESSEE TODAY. WE, THEREFORE, PROCEED TO DISPOSE OF THE APPEAL EXPARTE, QUA THE ASSESSEE. 7. IT IS WELL SETTLED THAT NOTIONAL INTEREST CANN OT BE CHARGED TO TAX. ASSESSEE ADMITTEDLY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING WHEREBY INTEREST ACCRUES BY THE END OF THE YEAR AND ONCE THE INTEREST ACCRUED IT CANNOT BE REDUCED BASED ON SUBSEQUENT BOARD RESOLUTION. IN THE INSTANT CASE INTEREST INCOME ACCRUED TO THE ASSESSEE 8 @% PER ANNUM AS PER THE ORIGINAL CONTRACTUAL AGREEMENT. AS RIGHTLY POINTED OUT BY THE CIT(A) , THE SO CALLED BOARD RESOLUTION AND THE CORRESPONDENCE WAS ONLY IN THE MONTH OF JUNE, 2009 WHICH CANNOT RETROSPECTIVELY IMPACT ACCRUAL OF INCOME. IN THIS REGARD THE LEARNED CIT(A) RELIED UPON SEVERAL DECISIONS INCLUDING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NAVIN R. KAMANI (SUPRA) WHEREIN IT WAS HELD THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING THE DIMINISHED HOPE OF RECOVERY OF INTEREST AND PRINCIPAL WAS NOT SUFFICIENT TO NEGATE THE ACCRUAL ON THE BASIS OF REAL INCOME. NO CONTRARY DECISION WAS PLACED ON BEHALF OF THE ASSESSEE TO HIGHLIGHT THAT THE VIEW TAKEN BY THE LEARNED CIT(A) IS NOT IN ACCORDANCE WITH LAW. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND, THEREFORE, WE DISMISS THE APPEAL FILED THE ASSESSEE - COMPANY. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2015. SD/ - SD/ - (D. MANMOHAN) ( SANJAY ARORA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 15 TH JULY, 2015 ITA NO. 7449/MUM/2012 RADIOHMS INVESTMENT & TRADING P. LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 9 , MUMBAI 4. THE CIT 5 , MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.