DC.C.C. 47, MUMBAI V. JYOTI REFINERY, MUMBAI

ITA 747/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7463 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 17-02-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 03-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Speculation loss; Set aside
• Section: 208

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH ,(AM) ITA NO.747/MUM/2009 ASSESSMENT YEAR : 1997-98 DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-47 ROOM NO.658, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. M/S. JYOTI REFINERY 202, KAPOLE CO-OP BANK BLDG. 19/21, R.C. (MAMA) PATH PICKET CROSS ROAD MUMBAI-400 022. ..( RESPONDENT ) P.A. NO. (AABFJ 2986 R) APPELLANT BY : MS. VANDANA SAGAR RESPONDENT BY : SHRI DHIREN P. TALATI O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 26.11.2008 PASSED BY THE LD. CIT(A) FOR T HE ASSESSMENT YEAR 1997-98. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, DEALS IN SHARES. THE RETURN WAS FILED DECLARING A LOSS OF RS.1,64,86,297/-. HOWEVER, THE ORIGINAL ASSESSMENT WA S COMPLETED ITA NO.747/M/09 A.Y:97-98 2 ASSESSING THE BUSINESS LOSS AT RS.4,63,469/- AND SPECULATION LO SS AT RS.1,48,52,500/- VIDE ORDER DT.8.3.2000 PASSED U/S. 143 (3)OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL THE LD. CI T(A) VIDE HIS ORDER DATED 12.10.00 CONFIRMED THE AOS ACTION AND DISM ISSED THE ASSESSEES APPEAL. ON FURTHER APPEAL BEFORE THE TRIBUNA L , THE TRIBUNAL SET ASIDE THE ORDER OF THE REVENUE AUTHORITIES AND RE STORED BACK THE ISSUES OF SPECULATION LOSS AND DISALLOWANCE OF INTEREST TO T HE FILE OF THE AO. PURSUANT TO THE ORDER OF THE TRIBUNAL THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS ADVAN CED AN AMOUNT OF RS.2.15 CRORES TO SHRI ABHISHEK PAREKH, RS. 1.00 LACS TO SHRI MADHUSUDAN BHATT AND RS.66.51 LACS TO SHRI JAYANTI LAL MALVIYA. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHETHER ANY IN TEREST WAS CHARGED AND ALSO SHOW CAUSE AS TO WHY INTEREST AT THE RAT E OF 18% PER ANNUM SHOULD NOT BE DISALLOWED ON TOTAL AMOUNT OF RS. 11.70 LACS AS IT WAS NOT LAID OUT FOR THE PURPOSE OF BUSINESS. IN RESPONSE THE ASSESSEE FILED REPLY DATED 25.2.2005 INTERALIA STATING THAT THE ASSESSEE HAS A DEPOSIT OF RS.1,500.00 LACS RECEIVED FROM PAREKH PLATINU M LTD. ON WHICH NO INTEREST HAD BEEN PAID. ACCORDINGLY IT CAN BE SAFELY CONSTRUED THAT THESE NON INTEREST BEARING FUNDS HAVE BE EN UTILISED FOR THE PURPOSE OF ADVANCES TO SHRI MADHUSUDAN BHATT AND SH RI JAYANTILAL MALVIYA. FURTHER, ON THE SIMILAR GROUND THE LD. CIT (A) IN ASSESSEES OWN CASE HAS DELETED THE ADDITION ON ACCOUNT OF INTEREST FOR THE ITA NO.747/M/09 A.Y:97-98 3 ASSESSMENT YEAR 1998-99. HOWEVER, THE AO WAS OF THE VIE W THAT SINCE THE ASSESSEE HAS BORROWED LOANS ON WHICH INTEREST HAS BE EN PAID THE BURDEN OF PROVING THAT THE MONEY BORROWED HAD N OT BEEN UTILISED FOR BUSINESS PURPOSE RESTS ON THE ASSESSEE. THE ASSESSEE IN ITS RE PLY STATED THAT NO INTEREST BEARING FUNDS HAVE BEEN UTILIS ED FOR THE PURPOSE OF MAKING INTEREST FREE ADVANCES BUT FAILED TO PROVE IT. FURTHER THE ASSESSEE STATED THAT THE ADVANCES MADE TO SH RI MADHUSUDAN BHATT AND SHRI JAYANTILAL MALVIYA WERE O UT OF ADVANCES MADE FOR EARLIER YEARS, FAILED TO PROVE THAT THE MON EY BORROWED HAD NOT BEEN UTILISED FOR NON-BUSINESS PURPOSES. THE AO AFTE R RELYING ON THE CERTAIN DECISIONS WAS OF THE VIEW THAT INTEREST PAID ON BORROWING DIVERTED FOR INTEREST FREE ADVANCES TO RELATIVES IS LI ABLE FOR DISALLOWANCE AND ACCORDINGLY HE DISALLOWED INTEREST OF RS .11,70,328/- AND ADDED TO THE INCOME OF THE ASSESSEE AND THEREBY COMP LETED THE ASSESSMENT AT A BUSINESS LOSS OF RS.4,63,469/- AND SPECULATION LOSS OF RS.1,48,52,500/- VIDE ORDER DT.1.3.2005 PASSED U/S.143( 3) OF THE ACT. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT UNDER IDENTICAL FACTS THE LD. CIT(A) IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 199 8-99 HAS DELETED THE SIMILAR ADDITION AND CONSIDERING THE FACT THAT THERE WERE SUBSTANTIAL INTEREST FREE FUNDS OF RS.15.00 CRORES FROM PA REKH PLATINUM LTD. AVAILABLE WITH THE ASSESSEE AND THERE WAS NO PROOF OR EVIDENCE OF ITA NO.747/M/09 A.Y:97-98 4 DIVERSION OF INTEREST BEARING BORROWINGS FOR NON-BUSIN ESS PURPOSES, DELETED THE DISALLOWANCE OF RS.11,70,328/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US CHALLENGING THE DELETION OF ADDITION OF RS.11,70,328/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST . 4. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER THE LD. CIT(A) WAS NOT JUST IFIED IN DELETING THE ADDITION OF RS.11,70,328/- MADE ON ACCOUN T OF DISALLOWANCE OF INTEREST. SHE THEREFORE, SUBMITS THAT T HE ADDITION MADE BY THE AO BE RESTORED. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE WH ILE REITERATING THE SAME SUBMISSION AS SUBMITTED BEFORE THE AO AND THE LD. CIT(A) RELIED ON THE ORDER OF THE LD. CIT(A). THE RELIANCE WAS ALSO PLACED ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OW N CASE IN ACIT VS. JYOTI REFINERIES IN ITA NO.380/NAG/2002 FOR ASSESSME NT YEAR 1998-99 DATED 19.8.2005 WHEREIN THE ORDER OF THE LD . CIT(A) IN DELETING SIMILAR DISALLOWANCE OF INTEREST WAS UPHELD B Y THE TRIBUNAL . HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF TH E TRIBUNAL . 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIN D THAT THERE IS NO ITA NO.747/M/09 A.Y:97-98 5 DISPUTE THAT THE ASSESSEE HAS FILED HIS EXPLANATION DT. 25 .2.2005 BEFORE THE AO INTERALIA STATING THAT THE NON INTEREST BEARING FUNDS OF RS.1,500.00 LACS RECEIVED FROM PAREKH PLATINUM LTD. WER E AVAILABLE WITH THE ASSESSEE WHICH HAVE BEEN USED FOR THE PURPOSES OF INTEREST FREE ADVANCES TO SHRI MADHUSUDAN PAREKH AND SHRI JAY ANTILAL MALVIYA AND FOR THE SAME REASONS THE LD. CIT(A) IN ASSESSEES OWN APPEAL FOR THE ASSESSMENT YEAR 1998-99 HAS DELETED THE ADDITION MAD E ON ACCOUNT OF INTEREST. WE FURTHER FIND THAT THE AO WITH OUT CONSIDERING THE AFORESAID EXPLANATION OF THE ASSESSEE IN TOTO AND WI THOUT DISTINGUISHING THE FACTS OF THE CASE FROM THE ASSESSMENT YEAR 1998-99 HAS DISALLOWED INTEREST OF RS.11,70,328/-. WE FURTHER FIND THAT THE LD. CIT(A) AFTER CONSIDERING THE FACTS THAT THERE WERE SUBST ANTIAL INTEREST FREE FUNDS OF RS.15 CRORES FROM PAREKH PLATINUM LTD. A VAILABLE WITH THE ASSESSEE AND THERE WAS NO PROOF OR EVIDENCE OF DIVERSI ON OF INTEREST BEARING BORROWINGS FOR NON BUSINESS PURPOSES AND ALSO RELYING ON THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 1998-99 IN ASSESSEE'S OWN CASE HAS DELETED THE ADDITION MADE BY THE AO. 7. THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YE AR 1998-99(SUPRA) HAS HELD VIDE PARA-5 OF ITS ORDER DATED 19.8.2005 AS UNDER :- ....WE ARE UNABLE TO ACCEPT THESE OBJECTIONS BY THE L D. DR IN SO FAR AS THE AOS CONTENTION HAS BEEN TO DISALLOW THE INTE REST BY COMPUTING 18% ON THE AMOUNTS STANDING AS ADVANCE TO THE SE PARTIES ITA NO.747/M/09 A.Y:97-98 6 WAS ON THE PRETEXT THAT INTEREST AMOUNTING TO RS.86,29 ,213/- HAD BEEN PAID TO ANOTHER SISTER CONCERN DURING THE YEAR WHI CH FACT REMAINS UNDISPUTED IN SO FAR AS NON INTEREST BEARING FUNDS WER E MADE AVAILABLE TO THE ASSESSEE IN THE FORM OF DEPOSIT OF RS.15 CRORES FRO M ANOTHER SISTER CONCERN, NAMELY, PAREKH PLATINUM LTD., THEREFOR E, IN SO FAR AS THE AVAILABILITY OF INTEREST FREE FUNDS WERE ESTABLISHE D BY THE ASSESSEE FOR THE PURPOSES OF ADVANCING TO THESE PARTIES CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE AND, THEREFORE, THE AGITATION BY THE REVENUE HAS NO LEGS TO STAND. THE ORDER OF THE CIT(A) IS, THE REFORE, UPHELD AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 8. IN MUNJAL SALES CORPORATION VS. CIT AND ANOTHER ( 2008)298 ITR 298 IT HAS BEEN HELD (PAGE 298 HEADNOTE): ..THAT SINCE THE OPENING BALANCE OF THE PROFITS OF THE ASSESSEE-FIRM AS ON APRIL 1, 1994,, WAS RS.1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS.5 LAKHS ON LY, THE APPELLATE TRIBUNAL OUGHT OT HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. 9. FURTHER THE DECISION RELIED ON BY THE AO IN CASE OF PHALTON SUGAR WORKS LTD. VS. CWT (1994) 208 ITR 989(BOM.) HAS BEEN O VER-RULED BY THE HONBLE SUPREME COURT IN S.A. BUILDERS LTD VS. CIT (A) AND ANOTHER(2007) 288 ITR 1 (SC) AND THE OTHER DECISION IN K. SOMASUNDARAM AND BROTHERS VS. CIT (1999) 238 ITR 939 ( MAD.) IS DISTINGUISHABLE ON FACTS AS IN THAT CASE IT HAS BEEN OBSERVE D THAT THE ASSESSEE CLEARLY DIVERTED THE FUNDS WHICH HAD BEEN BORROWE D AND AFTER SUCH DIVERSION, THE INTEREST PAID ON THE CAPITAL BORROWI NG TO THE EXTENT OF AMOUNTS DIVERTED COULD NO LONGER BE AN ITEM OF EX PENDITURE WHICH COULD BE CLAIMED FOR DEDUCTION AS AN ITEM OF BUSINESS EXPE NDITURE. ITA NO.747/M/09 A.Y:97-98 7 WHEREAS IN THE CASE BEFORE US IT IS NOT THE CASE OF THE R EVENUE THAT THE ASSESSEE HAS DIVERTED THE FUNDS WHICH HAD BEEN BORROWE D OR THERE IS ANY NEXUS BETWEEN THE BORROWINGS AND INTEREST FREE A DVANCES. 10. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF A NY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENU E, WE, RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA), AND THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE (SUPRA), HOLD THAT T HE DISALLOWANCE OF INTEREST MADE BY THE AO IS NOT SUSTAINAB LE IN LAW AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF T HE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.11,70,328/- MADE BY TH E AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 11. IN THE RESULT REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.3.2010. SD/- SD/- ( B. RAMAKOTAIAH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 4.3.2010. JV. ITA NO.747/M/09 A.Y:97-98 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17.2.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 18.2.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 4.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 5.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER