CHITRALEKHA, MUMBAI V. ASST CIT 12(1), MUMBAI

ITA 7842/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8396 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-11-2012
• Assessment Year: misc
• Appeal Filed On: 12-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: SWETHA SAVLA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 7842/M/2010 ASSESSMENT YEAR:2007-2008 MESSRS. CHITRALEKHA, 62, VAJU KOTAK MARG, FORT, MUMBAI 400 001. PAN:AAAFC 1152B VS. THE ASST. COMMISSIONER OF INCOME- TAX-12(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SWETHA SAVLA RESPONDENT BY : SHRI OM PRAKASH MEENA, DR DATE OF HEARING: 6.11.2012 DAT E OF ORDER: 9.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 12.11.2010 AGA INST THE ORDER OF CIT (A)- 23, MUMBAI DATED 20.8.2010 FOR THE ASSESSMENT YEAR 2007-2008. 2. THE GROUNDS RAISED ARE FOUND TO BE ARGUMENTATIVE AND IT IS NOTICED THAT THE SAME REVOLVE AROUND THE ALLOWABILITY OF INTEREST U/ S 36(1)(III) OF THE ACT. 3. DURING THE SCRUTINY PROCEEDINGS, AO NOTED THAT A SSESSEE BORROWED INTEREST BEARING FUNDS AND A PART OF IT WAS ADVANCED TO ITS ASSOCIATE CONCERN AND THE INTEREST WAS CHARGED UP TO A PARTICULAR DATE AND DID NOT CHA RGE THE INTEREST FOR THE REST OF THE PART. AO DISALLOWED THE INTEREST EXPENDITURE P ROPORTIONATELY AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE CIT (A). WITH TH E ABOVE FACTS, LD COUNSEL FOR THE ASSESSEE FILED AN ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-2007 DATED 16.3.2012 WHERE THE ASSESSEES ARGUMENTS ARE REJECTED. IN THIS REGARD, LD COUNSEL BROUGHT TO OU R ATTENTION TO PARA 5 TO 13 OF THE SAID ORDER OF THE TRIBUNAL AND FAIRELY MENTIONED TH AT FACTS ARE IDENTICAL AND THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. THEREFORE, THE T RIBUNAL MAY TAKE A DECISION ON THE BASIS OF THE FACTS. 2 MESSRS. CHITRALEKHA 4. PER CONTRA, LD DR RELIED STRONGLY ON THE SAID ORDER OF THE TRI BUNAL AND MENTIONED THAT THE DISALLOWANCE MUST BE CONFIRMED F OR THE YEAR UNDER CONSIDERATION (2007-2008) ALSO IN VIEW OF THE FINDINGS OF THE TRI BUNAL FOR THE PRECEDING AY 2006- 07. 5. WE HAVE PERUSED THE SAID PARAGRAPHS REFERRED ABO VE AND FIND THAT PARA 14- 17 ARE NECESSARY AND RELEVANT FOR ADJUDICATION OF T HE GROUNDS RAISED BEFORE US AND THE SAME ARE REPRODUCED HERE UNDER: 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAV E ALSO GONE THROUGH THE CASES CITED BY LD. REPRESENTATIVES OF BOTH PARTIES IN THE LIGHT OF PROVISIONS OF DEDUCTION U/S 36(1)(III) OF IT ACT. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAD BORROWED FUNDS ON INTEREST AND A PART OF IT WAS ADVANCED BY ASSESSEE TO ITS SISTER CONCERN. THE ASSESSEE CHARG ED INTEREST @ 12% ON THE SAID LOAN ADVANCED UP TO 30 TH SEPTEMBER, 2002 AND THEREAFTER NO INTEREST WAS CHARGED. THE PLEA TAKEN BY ASSESSEE IS THAT ITS SI STER CONCERN CPPL HAD BECOME SICK UNIT AND THEREFORE ASSESSEE HAD TAKEN A DECISION DUE TO COMMERCIAL EXPEDIENCY NOT TO CHARGE INTEREST. WE O BSERVE THAT NO SUCH MATERIAL HAS BEEN PLACED ON RECORD THAT ASSESSEE HA D TAKEN COMMERCIAL DECISION BEFORE THE INTEREST ACCRUED NOT TO CHARGE INTEREST ON THE AMOUNT LENT AND ADVANCED BY ASSESSEE TO ITS SISTER CONCERN. WI THOUT GOING INTO THE QUESTION AS TO WHETHER SISTER CONCERN HAD BECOME FI NANCIALLY WEAK OR NOT, IT IS NOT IN DISPUTE THAT ASSESSEE HAS USED INTEREST BEAR ING LOAN TO GIVE ADVANCE TO ITS SISTER CONCERN. NOT ONLY THIS, ASSESSEE HAS AL SO GIVEN FURTHER ADVANCE OF RS. 56,76,894/- IN THE ASSESSMENT YEAR UNDER CONSID ERATION ON WHICH ALSO NO INTEREST IS CHARGED. THE ASSESSEE HAS TAKEN PLEA B EFORE AUTHORITIES BELOW AS WELL AS BEFORE US THAT IF INTEREST IS TO BE DISALLO WED, IT COULD BE DISALLOWED PROPORTIONATELY ATTRIBUTABLE TO THE LOAN ADVANCED B Y ASSESSEE TO CPPL IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2004-200 5 WHICH COMES TO RS. 2,69,650/- AND NO INTEREST ON THE AMOUNT BROUGHT FO RWARD FROM PREVIOUS YEAR I.E. OF RS. 1,37,78,040/- SHOULD BE DISALLOWED. WE DO NOT FIND MERIT IN THE SAID CONTENTION OF LD AUTHORIZED REPRESENTATIVE OF ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS A FACT THAT ASSES SEE HAS GIVEN INTEREST ON THE CAPITAL OF PARTNERS BUT ASSESSEE HAS NOT CHARGED AN Y INTEREST FROM ITS SISTER CONCERN IN WHICH ITS PARTNERS HAVE MAJORITY STAKE. THEREFORE, WE FIND MERIT IN THE CONTENTION OF LD. DR THAT ASSESSEE HAS ADOPTED TAX AVOIDANCE DEVICE BY NOT CHARGING INTEREST ON ACCRUAL BASIS TO ITS SISTE R CONCERN AS SISTER CONCERN BEING A LOSS MAKING ENTITY WILL NOT GET ANY BENEFIT OF INTEREST. THEREFORE, THE CASES CITED BY LD AR THAT IT WAS A MIXED FUND AND D EPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE INTEREST BE ARING FUND WAS UTILIZED BY ASSESSEE TO GIVE INTEREST FREE LOAN TO ITS SISTER C ONCERN HAS NO MERIT AS IT IS FOR ASSESSEE TO PROVE THAT INTEREST FREE AMOUNT WAS GIV EN AS ADVANCE TO ITS SISTER CONCERN AND NOT INTEREST BEARING FUND WAS UTILIZED. WHEREAS CASES CITED BY LD DR (SUPRA) AND PARTICULARLY THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF PHALTAN SUGAR WORKS LTD. VS. COMMISSIONER OF WEALTH -TAX (SUPRA) AND THE CASE OF DOCTOR & CO. (SUPRA) SQUARELY APPLY TO THE FACTS OF THE CASE BEFORE US. 3 MESSRS. CHITRALEKHA THE BUSINESS OF SUBSIDIARY COMPANY THAT WAS A LOSS MAKING COMPANY AND HENCE ASSESSEE HAS NOT CHARGED INTEREST TO ENABLE T HE SISTER CONCERN CPPL TO CARRY ON ITS BUSINESS CANNOT BE CONSIDERED IN LAW A S THE BUSINESS EXPEDIENCY OF THE ASSESSEE COMPANY. THEREFORE, THE ABOVE CONTENTION OF LD AR THAT NO INTEREST WAS CHARGED ON COMMERCIAL EXPEDIENCY IS NOT ACCEPTED. IN VIEW OF ABOVE FACTS, WE DO NOT FIND ANY REASON T O INTERFERE WITH THE ORDER OF LD CIT (A). HENCE, WE UPHOLD THE ORDER OF LD CI T (A) AND REJECT GROUND OF APPEAL TAKEN BY ASSESSEE FOR ASSESSMENT YEAR 2004-2 005. 15. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2005- 2006 BEING ITA NO.2059/M/2010. 16. IN GROUND NO.1.1 READ WITH GROUND NO.2.1 OF APP EAL, ASSESSEE HAS DISPUTED THE ORDER OF LD CIT (A) TO DISALLOW INTERE ST EXPENDITURE OF RS. 22,78,146/- AS INTEREST ATTRIBUTABLE ON LOAN DUE FR OM CPPL. 17. AT THE TIME OF HEARING, LD REPRESENTATIVES OF B OTH PARTIES SUBMITTED THAT FACTS IN ASSESSMENT YEAR 2005-2006 ARE IDENTIC AL TO GROUND OF APPEAL FOR ASSESSMENT YEAR 2004-2005 SAVE AND EXCEPT THAT THE OPENING BALANCE AS ON 1.4.2003 WAS RS. 1,89,80,867/- AND FURTHER AMOUNT O F RS. 10,02,012/- WAS MADE BY ASSESSEE CPPL DURING THE FINANCIAL YEAR REL EVANT TO ASSESSMENT YEAR 2005-2006. THUS, OUTSTANDING BALANCE AS ON 31.3.20 05 WAS RS. 1,99,82,879/-. 6. WE FIND THAT THE FACTS ARE IDENTICAL IN THIS YEA R ALSO EXCEPT THE OPENING BALANCES. HONBLE TRIBUNAL ON SIMILAR FACTS CAME TO THE CONCLUSION THAT THERE IS SUFFICIENT GROUND FOR MAKING ADDITIONS IN THE AY 20 06-07 AND THE SAID DECISION IS EQUALLY RELEVANT AS STATED BY BOTH PARTIES IN VIEW OF THE SIMILARITY OF THE FACTS AND THE ARGUMENTS. CONSIDERING THE ABOVE UNDISPUTED MAT RIX OF PARTICULARS ON THIS ISSUE AND THE ADJUDICATION OF TRIBUNAL, THE DECISION IS C LEARLY APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION TOO. CONSIDERING THE COVE RED NATURE OF THE ISSUE, WE ARE OF THE OPINION THAT THE GROUNDS RAISED SHOULD BE DISMISSED . 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF NOVEMBER, 2012. SD/- SD/- (VIVEK VARMA) (D. KARUNAKAR A RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 9.11.2012 AT :MUMBAI OKK 4 MESSRS. CHITRALEKHA COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI