ITO 11(1)(2), MUMBAI V. JACKIE SHROFF, MUMBAI

ITA 8057/MUM/2011

• Counselvise Citation: 805719914 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 30-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Business expenditure; Opportunity of being heard; Commercial expediency
• Section: 145

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI .. , # %, & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ./ I.T.A. NO.7580 /MUM/2011 ( &% % / ASSESSMENT YEAR : 2008-2009 MR. JACKIE SHROFF, 101 FIRST FLOOR, RITU APARTMENTS, BANDSTAND ROAD, BANDRA (WEST), MUMBAI 400 050. / VS. I.T.O.- 11(1)(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI.20 . / PAN : AAJPS6596A ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.8057 /MUM/2011 ( &% % / ASSESSMENT YEAR : 2008-2009 I.T.O.- 11(1)(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI.20 / VS. MR. JACKIE SHROFF, 101 FIRST FLOOR, RITU APARTMENTS, BANDSTAND ROAD, BANDRA (WEST), MUMBAI 400 050. ./ PAN : AAJPS6596A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI PANKAJ JAIN REVENUE BY : SHRI S.D. SRIVASTAVA / DATE OF HEARING : 31-12-13 / DATE OF PRONOUNCEMENT : 07-02-14 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THESE TWO APPEALS, ONE BY THE ASSESSEE BEING ITA NO . 7580/MUM/2011 AND THE OTHER BY THE REVENUE BEING ITA NO. 8057/MUM /2011, ARE CROSS ITA 7580/M/11 & 8057/M/11 2 APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) 3, MUMBAI DATED 09-09-2011. 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENU E BEING ITA NO. 8057/MUM/2011WHICH INVOLVES A SOLITARY ISSUE RELATI NG TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 53,86,566/- MADE BY THE A.O. ON ACCOUNT OF ADVANCE RECEIVED BY THE ASSESSEE AND CREDITED IN TH E BOOKS OF ACCOUNT. 3. THE ASSESSEE IN THE PRESENT CASE IS A FILM ACTOR WHO FILED HIS RETURN OF INCOME ON 26-9-2008 DECLARING TOTAL INCOME OF RS. 1 1,31,443/-. IN THE P&L ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS. 96,17,000/- WAS CREDITED ON ACCOUNT OF PROFESSIONAL FEES. HOWEVER, THE AMOUNT OF RS. 53,86,566/- RECEIVED BY THE ASSESSEE FROM FILM PROD UCERS AS ADVANCE, WHICH WAS REFLECTED IN THE BALANCE SHEET, HAD NOT BEEN IN CLUDED IN THE SAID PROFESSIONAL FEES. SINCE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, HE WAS CALLED UPON BY THE A.O. TO EXPLAIN WHY THE A DVANCE AMOUNT RECEIVED FROM THE FILM PRODUCERS FOR HIS PERFORMANCE AS AN A CTOR IN THEIR FILMS SHOULD NOT BE TREATED AS HIS INCOME FOR THE YEAR UNDER CON SIDERATION. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE AMOUNT OF RS. 53,86,566/- RECEIVED FROM THE FILM PRODUCERS WAS IN THE NATURE OF ADVANCE AND THE SAME WAS TO BE ADJUSTED AGAINST THE CONTRACTED AMOUNT O F PROFESSIONAL FEES ONLY ON THE COMPLETION AND RELEASE OF THE CORRESPONDING FILMS AS PER THE PRACTICE CONSISTENTLY FOLLOWED. IT WAS POINTED OUT THAT EVEN TAX DEDUCTED AT SOURCE FROM THE SAID AMOUNT WAS NOT CLAIMED BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION AND CREDIT FOR THE SAME WAS CLAIMED O NLY IN THE RELEVANT YEAR WHEREIN THE CORRESPONDING AMOUNT WAS OFFERED TO TAX ON COMPLETION AND RELEASE OF THE FILM. IT WAS CONTENDED THAT IF THE PRACTICE CONSISTENTLY FOLLOWED BY THE ASSESSEE IS NOT ACCEPTED AND ADVANCE AMOUNT OF RS. 53,86,566/- IS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE ON RECE IPT BASIS, THE RECEIPTS OF RS. 96,17,000/- OFFERED BY THE ASSESSEE ON THE BASI S OF COMPLETION AND RELEASE OF FILMS WILL HAVE TO BE REDUCED AS THE SAI D AMOUNT WAS NOT RECEIVED ITA 7580/M/11 & 8057/M/11 3 BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION BUT THE SAME WAS RECEIVED IN THE EARLIER YEAR. THE A.O. DID NOT FIND MERIT IN T HIS SUBMISSION MADE BY THE ASSESSEE AND FOR THE REASONS GIVEN IN PAGE 3 OF HIS ASSESSMENT ORDER, HE MADE THE ADDITION OF RS. 53,86,566/- TO THE TOTAL I NCOME OF THE ASSESSEE ON ACCOUNT OF ADVANCE RECEIVED FROM THE PRODUCERS TREA TING THE SAME AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 4. THE ADDITION OF RS. 53,86,566/- MADE BY THE A.O. ON ACCOUNT OF ADVANCE RECEIVED FROM THE PRODUCERS WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LD. CIT(A) AND BESIDES REIT ERATING THE SUBMISSIONS MADE BEFORE THE A.O., IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) BY THE ASSESSEE THAT THE PRACTICE FOLLOWED BY HIM OF DECLA RING THE PROFESSIONAL FEES RECEIVED FROM THE PRODUCERS ON THE BASIS OF COMPLET ION AND RELEASE OF FILM WAS CONSISTENTLY ACCEPTED IN THE EARLIER YEARS. IT WAS ALSO SUBMITTED THAT IF THE ADDITION MADE BY THE A.O. ON THIS ISSUE WAS TO BE S USTAINED, THE RELIEF MAY BE GIVEN TO THE ASSESSEE IN LATER YEARS WHEN THE SAME AMOUNT WAS OFFERED AS INCOME ON THE BASIS OF COMPLETION/RELEASE OF THE FI LM. THE LD. CIT(A) FOUND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSE SSEE AND DELETED THE ADDITION MADE BY THE A.O. ON THIS ISSUE BY OBSERVIN G AS UNDER:- I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERI AL ON RECORD. I FIND THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING FOR HIS PROFESSIONAL RECEIPTS. THIS SYST EM OF ACCOUNTING HAS ALSO BEEN ACCEPTED BY THE CIT (A) IN THERE APPELLAT E ORDER FROM AY 96- 97 TO AY 04-05. HOWEVER, FOR AY 05-06, THE BASIC ME THOD OF ACCOUNTING OF RECEIPT ON CASH BASIS HAS BEEN ACCEPTED. HOWEVER , THE ADDITION WHICH WERE CONTESTED ON THE BASIS OF WITHOUT PREJUD ICE GROUND WERE CAME TO BE CONFIRMED. THE AR ARGUED THAT OBSERVATIO N OF THE CIT (A)FOR AY 06-07 ARE FACTUALLY INCORRECT A THE ORDER PASSED BY THE CIT (A) F OR AY 05-06 HAS ACTUALLY ACCEPTED THE METHOD OF ACCOUN TING FOLLOWED BY THE APPELLANT IF THAT BE THE CASE THE CIT (A) SHOUL D HAVE CONFIRMED THE ADDITION OF RS. 1,34,40,137 BEING THE AMOUNT ACTUAL LY RECEIVED DURING THE YEAR AND NOT THE AMOUNT OF RS. 56,58,062 WHICH ARE THE AMOUNT WHICH WERE TAXED BY THE AO DURING THE YEAR AND THE AMOUNT WHICH WERE ALSO OFFERED BY THE ASSESSEE DURING THE YEAR. THEREFORE, THE APPELLATE ORDER FOR AY 06-07 CANNOT BE MADE THE BAS IS TO HOLD THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WHICH HAS BEEN CONSISTENTLY FOLLOWED BY HIM AND ALSO ACCEPTED IN A PPEAL. IT IS SEEN THAT ITA 7580/M/11 & 8057/M/11 4 THE APPELLANT HAS BEEN OFFERING INCOME ON FILM COMP LETION BASIS. THE CHANGE IN METHOD OF ACCOUNTING AT THIS STAGE WOULD ONLY DISTURB THE METHOD BEING FOLLOWED AND THE APPELLANT WOULD BE GI VEN SET OFF THE ADVANCES SO FAXED IN SUCCEEDING ASSESSMENT YEARS FO R WHICH INCOME IS SHOWN ON THE FILM COMPLETION METHOD FOR WHICH RETUR N OF INCOME FOR AY 09-10 AND 10-11 IS STATED TO HAVE ALREADY FILED. CO NSIDERING THESE FACTS AND THE RESPECTFULLY FOLLOWING THE CIT (A) ORDERS F OR EARLIER YEARS FROM AY 96-97 10 AY 04-05 AND IN ACCOUNTING PRINCIPLE AL SO ACCEPTED DURING AY 05-06, THE ADDITION OF RS. 53,85,566 IS THEREFOR E DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION IN ASSESSEES OWN CASE BE FORE THE TRIBUNAL FOR A.Y. 2005-06 AND VIDE ITS ORDER DATED 29-8-2012 PASSED I N ITA NO. 6457 & 6468/MUM/2008, THE TRIBUNAL DECIDED THE SAME VIDE P ARA NO. 8 AS UNDER:- 8. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE CO UNSELS AND ALSO PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE PAP ER BOOK SUBMITTED BY THE ASSESSEE. WE FIND THAT FOR THE YEAR UNDER CONSIDE RATION, THE ASSESSEE HAS OFFERED INCOME FOR THE YEAR WHICH INCLUDES AN AMOUN T OF RS. 28,48,000/- OUT OF OPENING ADVANCES TO WHICH AN AMOUNT OF RS. 53,52 ,000/- HAS BEEN ADDED OUT OF CURRENT YEARS ADVANCE TOTALING TO RS. 82,00 ,000/-. THE TOTAL ADVANCES RECEIVED DURING THE YEAR UNDER CONSIDERATION ARE AT RS. 1,10,10,062/-. WE DO NOT AGREE WITH THE SUBMISSION OF THE COUNSEL THAT S IMILAR PRACTICE HAS BEEN ACCEPTED IN THE PAST BY THE DEPARTMENT AS IN OUR CO NSIDERED VIEW THE PROVISIONS OF SEC 145 OF THE ACT HAVE BEEN AMENDED W.E.F 01.04.1997 WHERE IN IT HAS BEEN PROVIDED THAT FOR THE PURPOSES OF COMPU TING THE INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION T HE ASSESSEE CAN FOLLOW EITHER CASH SYSTEM OR MERCANTILE SYSTEM OF ACCOUNTING THER EBY PROHIBITING THE HYBRID SYSTEM OF ACCOUNTING, WHICH THE ASSESSEE WAS FOLLOWING IN EARLIER YEARS. THE CIT[A] WHILE GIVING RELIEF TO THE ASSESS EE IN EARLIER YEARS HAS FAILED TO CONSIDER THE AMENDMENT BROUGHT UNDER SECTION 145 OF THE ACT . WE CANNOT FOLLOW THE DECISIONS OF THE REVENUE AUTHORITIES WHI CH ARE INCONSISTENT WITH THE PROVISIONS OF SEC. 145 OF THE ACT. IN OUR CONSIDER ATE VIEW, THE METHOD OF COMPUTING THE INCOME BY THE ASSESSEE, IS FAULTY. IT IS THE CASE OF THE ASSESSEE THAT THE ADVANCES ARE TAKEN AS INCOME IN THE YEAR O F THE RELEASE OF THE FILMS WHICH IN ITSELF IS A FAULTY PRACTICE AS THE RELEASE OF THE FILMS ARE NOT IN THE HANDS OF THE ASSESSEE AS IT IS THE SOLE PREROGATIVE OF THE PRODUCERS OF THE FILMS, WHERE AS THE ASSESSEE IS ENJOYING THE FRUITS OF THE ADVANCES FROM THE DAY HE GETS THEM. IN THE FILM LINE, PRODUCERS SIGN ACTORS AND PAY FOR THEIR SERVICES AS PER THEIR BOX OFFICE REPUTATION, THEREFORE ANY PAYM ENT RECEIVED BY THE ACTOR IS ACCORDING TO HIS USP AT THE BOX OFFICE WHICH IS DET ERMINED AT THE TIME OF THE SIGNING OF THE AGREEMENTS. WE FIND THAT DURING TH E YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED RS.1,10,10,062.00 OUT OF WHICH HE HAS ALREADY OFFERED RS.53,52,000.00 IN THE COMPUTATION OF INCOM E . THE COUNSEL POINTED ITA 7580/M/11 & 8057/M/11 5 OUT THAT THE ASSESSEE HAS ALSO OFFERED RS 27,58,062 .00 IN A.Y 2006-07 AND RS.2,50,000.00 IN A.Y 2007-08 OUT OF THE ADVANCE OF RS. 1,10,10,062.00 . IN OUR HUMBLE OPINION THIS ISSUE NEEDS FURTHER VERIFIC ATION AT THE ASSESSMENT STAGE, WE THEREFORE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE THAT H E HAS OFFERED OUT OF THE TOTAL ADVANCE OF RS. 1,10,10,062.00, RS 27,58,062.00 IN A .Y 2006 -07 AND RS.2,50,000.00 IN A.Y 2007-08 AND IF FOUND CORRECT ONLY THE BALANCE AMOUNT SHOULD BE TAXED IN THE YEAR UNDER CONSIDERATION, TO AVOID DOUBLE TAXATION OF THE SAME INCOME . THIS WILL ALSO COVER THE DECISION OF THE DELHI BENCH IN THE CASE OF ACIT VS FOX MONDAL & CO., IN ITA 3377 / DEL / 2006 RELIED UPON BY THE ASSESSEE. 6. A SIMILAR ISSUE AGAIN CAME UP FOR CONSIDERATION IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND VIDE ITS ORDER DATED 21-11-201 2 PASSED IN ITA NO. 7843/MUM/2010, THE TRIBUNAL FOLLOWED ITS ORDER FOR A.Y. 2005-06 AND DIRECTED THE A.O. TO VERIFY THE CLAIM OF THE ASSESS EE THAT HE HAS OFFERED OUT OF THE TOTAL ADVANCE OF RS. 1,79,31,626/-, A SUM OF RS . 97,58,062/- IN A.Y. 2006-07 AND TO TAX ONLY THE BALANCE AMOUNT IF THE C LAIM OF THE ASSESSEE IS FOUND TO BE CORRECT ON SUCH VERIFICATION. THE A.O. WAS ALSO DIRECTED BY THE TRIBUNAL TO TAX THE ADVANCE AMOUNT, IF ANY, PERTAIN ING TO THE EARLIER YEARS WHICH HAD REMAINED UNTAXED IN THAT YEAR BY REOPENIN G THE ASSESSMENT. 7. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS FURNISHED A STATEMENT SHOWING THAT THE SUBSTANTIAL AMOUNT OF THE ADVANCE RECEIVED IN THE YEAR UNDER CONSIDERATION HAS ALREAD Y BEEN OFFERED TO TAX IN THE SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2009-10, 201 0-11 AND 2011-12. ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOR A.Y. 2005-06 AND 2006-07, WE REST ORE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SA ME DIRECTION AS GIVEN BY THE TRIBUNAL FOR A.Y. 2006-07. THE REVENUES APPEA L IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 8. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE BEING ITA NO. 7580/MUM/2011 WHICH INVOLVES A SOLITARY ISSUE RELAT ING TO THE ADDITION OF ITA 7580/M/11 & 8057/M/11 6 RS. 45,42,290/- MADE BY THE A.O. AND CONFIRMED BY T HE LD. CIT(A) BY WAY OF DISALLOWANCE OF INTEREST. 9. IN THE P&L ACCOUNT FILED ALONG WITH THE RETURN O F INCOME, THE ASSESSEE HAD DEBITED INTEREST EXPENDITURE OF RS. 45,43,290/- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE F OR DEDUCTION ON ACCOUNT OF THE SAID INTEREST WAS EXAMINED BY THE A.O. ON S UCH EXAMINATION, HE FOUND THAT SUBSTANTIAL AMOUNTS OF RS. 2.31 CRORES AND RS. 9.01 CRORES WERE ADVANCED BY THE ASSESSEE TO HIS WIFE MRS. AYESHA SH ROFF AND HER CONCERN M/S QUEST FILM RESPECTIVELY. THE A.O., THEREFORE, HELD THAT THE FUNDS BORROWED BY THE ASSESSEE ON INTEREST WERE UTILIZED FOR NON-BUSI NESS PURPOSE AND THEREFORE THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF INTEREST PAID ON SUCH BORROWED FUNDS AS PER THE PROVISIONS OF SEC TION 36(1)(III) OF THE ACT. HE THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE F OR DEDUCTION ON ACCOUNT OF INTEREST. 10. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INTEREST EXPENDITURE WAS DISPUTED BY THE ASSESSEE IN AN APPEAL FILED BEF ORE THE LD. CIT(A) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT OUT OF THE TOTAL LOANS OF RS. 4 CRORES BORROWED DURING THE YEA R UNDER CONSIDERATION, A SUM OF RS. 1.35 CRORES WAS UTILIZED TO REPAY THE LO ANS TAKEN IN THE EARLIER YEARS WHICH WERE ALREADY TREATED AS LOANS TAKEN FOR THE PURPOSE OF ASSESSEES BUSINESS IN THOSE YEARS. AS REGARDS THE AMOUNT ADVA NCED TO MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST FILM, IT WAS CONTE NDED ON BEHALF OF THE ASSESSEE THAT THE SAID ADVANCES WERE GIVEN FOR COMM ERCIAL PURPOSE AND THE SAME COULD NOT BE EQUATED WITH THE UTILIZATION OF B ORROWED FUNDS FOR NON- BUSINESS PURPOSE. IT WAS CONTENDED THAT THE SAID AD VANCES WERE GIVEN TO MRS. AYESHA SHROFF AND M/S QUEST FILM IN ORDER TO ENABLE THEM TO REPAY THE LOANS TAKEN BY THEM AND IF THE SAID PARTIES HAD FAILED TO DISCHARGE THEIR LIABILITY, IT WOULD HAVE GREATLY DAMAGED THE IMAGE OF THE ASSESSE E AS A FILM STAR ADVERSELY AFFECTING HIS PROFESSION. IT WAS CONTENDED THAT THE FUNDS BORROWED THUS WERE ITA 7580/M/11 & 8057/M/11 7 UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUS INESS AND INTEREST PAID THEREON WAS DEDUCTIBLE AS BUSINESS EXPENDITURE U/S 36(1)(III) OF THE ACT. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMISSIONS MA DE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND CONFIRMED THE DISALLOWAN CE MADE BY THE A.O. ON ACCOUNT OF INTEREST FOR THE FOLLOWING REASONS GIVEN IN PARA 2.3 OF HIS IMPUGNED ORDER:- I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERI AL ON RECORD. THE CLAIM OF THE AR THAT LOANS WERE TAKEN AS APPELLANT WAS A STAR OF SUBSTANTIVE REPUTE AND THE IMAGE OF APPELLANT WAS CRUCIAL WHICH WAS TO BE PRESERVED AT ANY COST. NONPAYMENT OF DUES WOU LD HAVE A SUBSTANTIAL IMPACT ON HIS IMAGE AND CONSEQUENTLY, HIS REPUTATION AS A FILM ARTIST. IT WAS ALSO SEEN THAT APPELLANTS SUBM ISSION DID NOT DISCUSS DETAILS OF EARLIER YEAR LOANS OR PURPOSES THEREOF W HICH HAD TO BE REPAID BY LATER LOANS. IT IS SEEN THAT OUT OF THE LOAN OF RS. 4 CRORE, LOANS OF RS. 1 .35 CRORES WERE UTILISED FOR REPAYMENT OF LOAN TA KEN FROM BANK OF INDIA AND INDUSIND BANK IN EARLIER YEARS WHICH WERE DIVERTED TO HIS WIFES PROPRIETARY CONCERN AND SAME WERE HELD TO BE NON-BUSINESS PURPOSE BY THE CIT(A) IN Y06-07, AND 07-08. FURTHE R THE BALANCE LOAN AMOUNT OF RS. 2.65 CRORES IS ALSO GIVEN TO M/S. QUE ST FILMS A PROPRIETARY CONCERN OF MRS. AYESHA SHROFF WIFE OF T HE APPELLANT. FURTHER THE REPAYMENTS OF LOAN WERE ALSO OUT OF LOAN TAKEN EARLIER AND GIVEN TO AYESHA SHROFF WIFE OF THE APPELLANT AND UTILISED FO R PERSONAL PURPOSES. THEREFORE, THE APPELLANT HAS FAILED TO CORRELATE TH AT THE TOTAL AMOUNTS BORROWED, HOW LOANS WERE TAKEN AND HOW THESE WERE U TILIZED FOR THE BUSINESS PURPOSE. IT IS SEEN THAT THE APPELLANT HAS NOT CHARGED ANY INTEREST ON THESE AMOUNT OF LOAN ADVANCED TO M/S. Q UEST FILM. NOR THE APPELLANT IS INDULGING IN MONEY LENDING BUSINESS. I T IS ALSO SEEN THAT SOME PORTION OF LOAN OF EARLIER YEARS PERTAINED TO APPELLANTS RESIDENCE WHICH IS PERSONAL IN NATURE. FURTHER, IN SO FAR AS APPELLANTS CLAIM THAT LOAN HAVING BEEN GIVEN TO IN EARLIER YEARS TO APPEL LANTS OWN COMPANY IS CONCERNED, THOUGH RELYING ON HONBLE SUPREME COURT DECISION IN S.A. BUILDERS, APPELLANT HAS NOT ESTABLISHED AS TO HOW T HESE LOANS WERE FOR THE PURPOSE OF BUSINESS AND/OR IN COMMERCIAL EXPEDI ENCY. IT IS ALSO TO BE NOTED THAT HONBLE SUPREME COURT IN ITS DECISION HAS STATED THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT S. THE I.T. AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. HOWEVER, THE H ONBLE SUPREME COURT HAS NOT STATED THAT A PRUDENT BUSINESSMAN WOU LD BE INCURRING LOSSES YEAR AFTER YEAR BY UTILIZING INTEREST BEARIN G LOANS FOR ADVANCING MONIES OR LOANS INTEREST-FREE. MERE RELIANCE ON THE HONBLE COURTS DECISION WOULD NOT SUFFICE WHEN APPELLANT HAS FAILE D TO ESTABLISH THE FACTS OF ITS CASE AND FAILED TO SATISFY THE PRONOUN CEMENT OF THE COURT. THE AR HAS ALSO CITED VARIOUS DECISION STATING THAT THE AO SHOULD ESTABLISH NEXUS BETWEEN THE FUNDS WITH THE INTEREST TO THE AMOUNTS ITA 7580/M/11 & 8057/M/11 8 ADVANCED FREE OF INTEREST. HOWEVER, THIS CAN BE DON E ONLY WHEN PRIMARY DETAILS ARE FURNISHED BY APPELLANT. LNSPITE OF HAVI NG BEEN CALLED TO DO SO, THE APPELLANT HAS NOT FILED ANY DETAILS MATERIA L TO THE ISSUE EVEN DURING APPELLATE PROCEEDINGS. INSTEAD, RELIANCE IS PLACED ONLY ON THE APPELLATE ORDERS REGARDING EARLIER ASSESSMENTS FOR AYS. 96-97 TO 98-99 AND 05-06. WHEREAS IN AY 06-07, THESE LOAN WERE CON SIDERED TAKEN AS FOR NON BUSINESS PURPOSE, THEREFORE THE CASE LAWS R ELIED ARE NOT BE APPLICABLE IN THE CASE OF THE APPELLANT. THEREFORE, I AM FULLY IN AGREEMENT WITH THE FINDING OF THE AO THAT THE LOAN WERE TAKEN FOR REPAYING PERSONAL LIABILITY AND THAT SAID LOAN WERE NOT UTILIZED FOR THE PURPOSE OF THE APPELLANTS BUSINESS OR PROFESSION. FURTHER THE PRINCIPLE OF RESJUDICATA IS NOT APPLICABLE IN INCOME TAX PROC EEDINGS. HOWEVER, EVEN BEFORE APPLICATION OF THE PRINCIPLE OF CONSIST ENCY, THE FACTS OF THE IMPUGNED APPEAL NEED TO BE STATED CLEARLY AND UNDER STOOD. IN ABSENCE THEREOF, SIMILARITY OR NOT WITH THE PRECEDENCE CITE D CANNOT BE ESTABLISHED. THE APPELLANT HAS ALSO NOT ESTABLISHED THAT THE LOANS ADVANCED BY HIM WERE FOR PURPOSES OF BUSINESS AND/O R IN COMMERCIAL EXPEDIENCY. IN SO FAR AS THE LOANS TAKEN ARE CONCER NED, AO HAS CATEGORICALLY OBSERVED THAT THE LOANS WERE FOR PERS ONAL PURPOSES. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THA T THERE IS NO CAUSE FOR DISTURBING THE DISALLOWANCE AND CONSEQUENT ADDITION MADE BY THE AO IN REGARD TO INTEREST. THIS GROUND OF APPEAL IS THE REFORE DISMISSED. 11. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET INVITED OUR ATTENTION TO THE COPY OF BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2008 PLACED AT PAGE 1 OF HIS PAPER BOOK TO POINT OUT THAT OWN CAPI TAL AND INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE TO THE FOLLOWING E XTENT: MR. JACKIE SHROFFS CAPITAL ACCOUNT RS. 65,188,2 81/- UNSECURED LOANS (INTEREST FREE) RS. 33,540,280/ - ADVANCES RECEIVED FOR FILMS RS. 20,604,566/- HE SUBMITTED THAT OWN FUNDS AND INTEREST FREE FUNDS AGGREGATING TO RS. 11.92 CRORES THUS WERE AVAILABLE WITH THE ASSESSEE AT THE RELEVANT TIME AND SINCE THE SAME WERE MORE THAN THE TOTAL AMOUNT OF RS. 11. 30 CRORES ADVANCED BY THE ASSESSEE TO HIS WIFE MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST FILM, THERE WAS NO UTILIZATION OF THE BORROWED FUNDS FOR THE PURPOSE OF GIVING THE SAID ADVANCES. HE SUBMITTED THAT THE ONLY BORROWED FUNDS OF RS. 3.92 CRORES AS REFLECTED IN THE BALANCE SHEET AS ON 31 ST MARCH, 2008 WERE BORROWED BY THE ASSESSEE ON INTEREST AND THE SAME HAVING BEEN UTILI ZED BY THE ASSESSEE FOR THE ITA 7580/M/11 & 8057/M/11 9 PURPOSE OF HIS BUSINESS AND NOT FOR GIVING THE INTE REST FREE ADVANCES TO MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST FILM, THE I NTEREST PAID THEREON IS ALLOWABLE AS BUSINESS EXPENDITURE AS CLAIMED BY THE ASSESSEE. 12. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIE D ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE THAT THE ASSESSEE HAVING UTILIZED THE BORROWED FUNDS FOR NON-BUSINESS PURPOS E, INTEREST PAID THEREON CANNOT BE ALLOWED AS BUSINESS EXPENDITURE OF THE AS SESSEE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE FUNDS BORROWED BY THE ASSESSEE ON INTEREST WERE NOT UTILIZED FOR THE PURPOSE OF HIS BUSINESS BUT THE SAME WERE UTILIZED FOR GIVI NG LOANS/ADVANCES TO HIS WIFE MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST F ILM. BEFORE THE LD. CIT(A), THE MAIN CONTENTION RAISED BY THE ASSESSEE WAS THAT THERE WAS COMMERCIAL EXPEDIENCY IN GIVING THE LOANS/ADVANCES TO MRS. AYESHA SHROFF AND M/S QUEST FILM AND THEREFORE INTEREST PAID ON B ORROWED FUNDS UTILIZED FOR GIVING THE SAID LOANS/ADVANCES WAS ALLOWABLE AS BUSINESS EXPENDITURE. FOR THE DETAILED REASONS GIVEN IN HIS IMPUGNED ORDE R, THE LD. CIT(A) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE OF COMMERCIAL EXPE DIENCY IN GIVING LOANS/ADVANCES TO MRS. AYESHA SHROFF AND M/S QUEST FILM AND AFTER CONSIDERING THE REASONS SO GIVEN BY THE LD. CIT(A), WE FIND OURSELVES IN AGREEMENT WITH THE VIEW OF THE LD. CIT(A). AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RAISED AN ALTE RNATIVE PLEA THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS AND INTEREST F REE FUNDS AVAILABLE WITH HIM AT THE RELEVANT TIME TO GIVE LOANS/ADVANCES TO MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST FILM, THERE WAS NO CASE OF UTILIZ ATION OF INTEREST BEARING BORROWED FUNDS FOR GIVING THE SAID LOANS/ADVANCES A ND SUCH INTEREST FREE BORROWED FUNDS HAVING BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS, THE INTEREST PAID THEREON IS ALLOWABLE AS BUSINESS EXPENDITURE. ITA 7580/M/11 & 8057/M/11 10 ALTHOUGH HE HAS FILED THE BALANCE SHEET OF THE ASSE SSEE AS ON 31 ST MARCH, 2008 ALONG WITH THE RELEVANT SCHEDULE TO SUPPORT AN D SUBSTANTIATE THIS NEW PLEA, WE ARE OF THE VIEW THAT THE SAME REQUIRES VER IFICATION BY THE A.O. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A. O. FOR DECIDING THE SAME AFRESH AFTER VERIFYING THE CLAIM OF THE ASSESSEE THAT SUFF ICIENT OWN FUNDS AND INTEREST FREE FUNDS WERE AVAILABLE TO GIVE LOANS/ADVANCES TO MRS. AYESHA SHROFF AND HER CONCERN M/S QUEST FILM. NEEDLESS TO OBSERVE THA T THE A.O. SHALL AFFORD SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY TREATED AS ALLOWED FOR STAT ISTICAL PURPOSE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS THAT OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2014. . ( ) * 07-02-2014 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) (- JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; * DATED 07-02-2014 [ .-../ RK , SR. PS , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / () / THE CIT(A)23, MUMBAI. 4. / / CIT 12, MUMBAI 5. 2 --4 , 4 , / DR, ITAT, MUMBAI C BENCH 6. 7 / GUARD FILE. / BY ORDER, 2 - //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI