PRAKASH FATEHCHAND KUNDALIA, MUMBAI V. ITO 12(2)(2), MUMBAI

ITA 8506/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75501 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH, MUMBAI , BEFORE SHRI VIJAY PAL RAO , JM & SHRI D.KARUNAKARA RAO , AM ITA NO. 8506 / MUM/ 20 1 0 ( ASSESSMENT YEAR : 20 06 - 20 07 ) SHRI PRAKASH FATEHCHAND KUNDALIA, FLAT NO.1, SORAB HOUSE, COLABA, MUMBAI - 400 039 VS. ITO 12(2)(2), MUMBAI PAN/GIR NO. : AA DPK 0839 J ( APPELLA NT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. RAJIV KHANDELWAL /REVENUE BY : MR. RAVI PRAKASH DATE OF HEARING : DATE OF PRONOUNCEMENT : O R D E R PER VIJAY PAL RAO , J M : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14 - 9 - 2010 , PASSED BY THE LEARNED CIT(A) - 23 , MUMBAI , PERTAINING TO ASSESSMENT YEAR 20 06 - 20 07 . 2 . THE ASSESSEE HAS RAISED FOLLOWING GRO UNDS : - 1. THE L EARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST RS. 6,84,610/ - . 2. THE LEARNED OFFICER ALSO ERRED IN CONFIRMING THE HOUSE RENT PAYMENT DISALLOWANCE OF RS. 30,098/ - . 3 . GROUND NO.1 IS REGARDING DISALLOWANCE OF INTEREST. 3. 1 THE FACTS IN SUCCINCT ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE H AS DEBITED AN AMOUNT OF ITA NO. 8506 /1 0 2 RS. 5,60,466/ - UNDER THE HEAD INTEREST. THE SAID AMOUNT INCLUDES AN AMOUNT OF RS. 55,755/ - BEING NET OF INTEREST RECEIVABLE FOR THE ASSESSMENT YEAR 2006 - 07 AND INTEREST PAYABLE FOR THE ASSESSMENT YEAR 2005 - 06 FROM TWO PARTIES, NAMELY, COL.JANKINATH RAINA AND M/S KLJ PLASTICIZERS, RESPECTIVELY. THE AO FOUND THAT THE INTEREST RECEIVABLE OF RS. 13,37,413/ - RELEVANT TO THE ASSESSMENT YEAR 2006 - 07 FROM COL.JANKINATH RAINA AND INTEREST PAYABLE OF RS. 12,81,658/ - TO M/S KLJ PLASTICIZERS WERE WAIVED BY THE ASSESSEE AND M/S KLJ PLASTICIZERS AND NET AMOUNT OF WAIVER RECEIVABLE OF RS. 55,755/ - IS INCLUDED IN THE INTEREST DEBITED TO THE PROFIT AND L OSS ACCOUNT. THE AO ASKED THE ASSESSEE TO EXPLAIN. IN RESPONSE, THE ASSESSEE SUBMITTED THE DETAILS SHOWING THE LOANS TAKEN AS WELL AS LOANS GIVEN TO THE VARIOUS PARTIES AND CONTENDED THAT IN THE EARLIER YEARS, THE LOAN WAS BORROWED FROM M/S KLJ PLASTICIZER S AND AT THE SAME TIME BIG AMOUNT S WERE ADVANCED TO COL.JANKINATH RAINA . DURING THIS YEAR, THE LOAN ACCOUNT OF M/S KLJ PLASTICIZERS WAS TO A GREAT EXTENT SQUARED UP AND PAID OFF. AT THAT TIME THE PARTY WAIVED CHARGE OF INTEREST. IT WAS EXPLAINED BY THE ASS ESSEE THAT THE LOAN ADVANCED TO COL.JANKINATH RAINA WAS BASICALLY ON SUGGESTION OF M/S KLJ PLASTICIZERS AND EVEN A BIG RECOVERY WAS MADE FROM THE PARTY AND CHARGE OF INTEREST WAS WAIVED. THEREFORE, THE TOTAL AMOUNT OF INTEREST LIABILITY WAIVED WAS RS. 12.8 LACS AND THE REMISSION GRANTED WAS RS. 13.3 LACS. THUS, THE ASSESSEE CONTENDED THAT THE NET EFFECT HAS BEEN GIVEN TO THE PROFIT AND LOSS ACCOUNT. THE AO DID NOT ITA NO. 8506 /1 0 3 ACCEPT THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE ENTIRE AMOUNT OF RS. 5,60,466/ - . 3.2 IN APPEAL , THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 3.3 BEFORE US, THE LEARNED A R OF THE ASSESSEE HAS SUBMITTED THAT IN THE PAST SO MANY YEARS THE ASSESSEE HAS BEEN RECEIVING LOANS AND ALSO GIVING LOANS. THE INTEREST INCOME AS WELL AS THE INTEREST EXPENDITURE HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PAST. HE HAS FURTHER SUBMITTED THAT ONLY AN AMOUNT OF RS. 55,755/ - IS INCLUDED IN THE AMOUNT OF INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT IN QUESTION AND THE SAID AMOUNT OF RS. 55,755/ - IS THE NET INTEREST RECEIVABLE AND PAYABLE WHICH HAS BEEN WAIVED AND REMISSION GRANTED BY THE ASSESSEE. LEARNED AR HAS REFERRED TO THE DETAILS OF INTEREST PAID AND RECEIVABLE AS WELL AS THE LOAN TAKEN AND GIVEN BY THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE HAS BORR OWED A SUBSTANTIAL AMOUNT OF RS. 1.28 CRORES FROM M/S KLJ PLASTICIZERS AND AT THE SAME TIME AN AMOUNT OF RS. 1.33 CRORES WAS ADVANCED TO COL.JANKINATH RAINA ON THE RECOMMENDATION OF M/S KLJ PLASTICIZERS . THE WAIVER OF INTEREST BY THE M/S KLJ PLASTICIZERS AN D BY THE ASSESSEE ON THE LOAN TO COL.JANKINATH RAINA IS A SIMULTANEOUS DECISION BETWEEN THE PARTIES. THE ASSESSEE IS CLAIMING INTEREST EXPENDITURE AS WELL AS OFFERING INTEREST INCOME WHICH HAS NOT BEEN D ISPUTED BY THE DEPARTMENT, THEREFORE, DEBITING A NET AMOUNT TO THE PROFIT AND LOSS ACCOUNT IS AS PER THE PRACTICE CONSISTENTLY ADOPTED BY THE ASSESSEE AND EVEN OTHERWISE IT DOES NOT AFFECT THE RESULT OF THE ASSESSEE. LEARNED AR HAS FURTHER SUBMITTED THAT THE ITA NO. 8506 /1 0 4 ASSESSEE IS GETTING BUSINESS AND FINANCIAL DEAL WI TH CHAWLA INTERBUILD CONSTRUCTION CO. PVT. LTD. ON THE RECOMMENDATION OF COL.JANKINATH RAINA AND, THEREFORE, THE DECISION OF WAIVER OF INTEREST WAS A COMMERCIAL EXPEDIENCY. HE HAS RELIED UPON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF MUNJAL SALE S CORPORATION VS. CIT, REPORTED IN (2008) 298 ITR 298 . 3.4 ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THOUGH THE CLAIM OF THE ASSESSEE WAS ACCEPTED IN THE PAST BUT THERE WAS NO SCRUTINY ASSESSMENT. THE RETURN OF INCOME WAS ACCEPTED UNDER SECTION 1 43(1). HE HAS FURTHER SUBMITTED THAT INCOME HAS TO BE TAKEN AS INCLUSIVE BUT NOT THE EXPENDITURE . T HE ASSESSEE HAS FAILED TO ESTABLISH THAT THE INTEREST EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WHEN THE ASSESSEE IS NOT IN T HE BUSINESS OF LENDING MONEY. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 3.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE AO HAS DISALLOWED THE TOTAL AMOUNT OF RS. 5,60,466/ - DEBITED IN THE PROFIT AND LO SS ACCOUNT UNDER THE HEAD INTEREST MAINLY ON THE GROUND THAT THE SAID EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS CARRIED OUT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IT APPEARS THAT THE AO HAS RAISE D THE QUERY ABOUT THE WAIVER OF THE LOAN BY THE ASSESSEE AS WELL AS THE LIABILITY BY THE CREDITOR M/S KLJ PLASTICIZERS, WHEREIN THE INTEREST LIABILITY OF RS. 12,80,000/ - WAS WAIVED AND AT THE ITA NO. 8506 /1 0 5 SAME TIME THE REMISSION GRANTED BY THE ASSESSEE OF RS. 13,30,000/ - AND THE NET AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT WHILE DECIDING THE ISSUE THE AO HAS DISALLOWED THE ENTIRE AMOUNT. IT IS PERTINENT TO NOTE THAT THE AO HAS NOT DISPUTED THE LOAN TAKEN BY THE ASSESSEE AS WELL AS LOAN GIVEN BY THE ASSESSEE OF THE AMOUNT IN QUESTION AND THE INTEREST PAYMENT AS WELL AS RECEIPT HAS BEEN ACCEPTED IN THE PAST. T HEREFORE, WHEN THE LOAN LIABILITY WAIVER IS ACCEPTED BY THE AO, THEN AT THE SAME TIME, THE REMISSION GRANTED BY THE ASSESSEE AS PER THE UNDERSTANDING BETW EEN THE PARTIES AND IN THE RETURN TO THE LOAN INTEREST LIABILITY WAVER, CANNOT BE DENIED. EVEN OTHERWISE THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT INCLUDES ONLY RS. 55,755/ - , WHICH IS THE NET AMOUNT ARISING FROM THE INTEREST LIABILITY WAIVED AND I NTEREST REMISSION GRANTED BY THE ASSESSEE THEN THE DISALLOWANCE OF TOTAL EXPENDITURE, WHICH IS NOTHING TO DO WITH THE WAIVER TRANSACTION CANNOT BE DISALLOWED. WE FURTHER NOTE THAT THE LOAN TRANSACTIONS IN QUESTION AS WELL AS THE OTHER TRANSACTIONS ON WHICH THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE RELATING TO THE EARLIER ASSESSMENT YEARS AND NOT IN THE YEAR UNDER CONSIDERATION . T HEREFORE, WHEN THESE TRANSACTIONS ARE ACCEPTED IN THE EARLIER YEARS, THEN THE INTEREST ON THE LOAN TAKEN CANNOT BE DENIED FOR THE YEAR UNDER CONSIDERATION. THE AO HAS NOT DISPUTED THE FACT OF LOAN TAKEN BY THE ASSESSEE FORM VARIOUS PARTIES ON WHICH THE INTEREST EXPENDITURE IS CLAIMED. THEREFORE, THE GENUINENESS OF THE CLAIM HAS NOT BEEN DOUBTED BY THE AO AND THE ASSESSEE IS SHOWI NG THE INTEREST INCOME AS WELL AS EXPENDITURE AND THE NET AMOUNT IS EITHER ITA NO. 8506 /1 0 6 CREDITED OR DEBITED TO THE PROFIT AND LOSS ACCOUNT, THEN THE CLAIM OF THE INTEREST CANNOT BE DENIED ON THE GROUND THAT IT IS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE BECAUSE THE SOURCE OF THE LOAN ADVANCED BY THE ASSESSEE IS LOAN TAKEN. EVEN OTHERWISE, THE TRANSACTION OF INTEREST RECEIVED AND PAID IS CONSIDERED AS FALLING UNDER THE HEAD INCOME FROM OTHER SOURCES, THE CLAIM OF THE ASSESSEE CANNOT BE DENIED AS THE PAYMENT OF INT EREST IS DIRECTLY RELATING TO THE INTEREST INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. 4 . GROUND NO.2 IS IN REGARD TO DISALLOWANCE OF RENT PAYMENT. 4.1 THE ASSESSEE HAS TAKEN A HOUSE PRO PERTY ON RENT AS CAMA HOUSE AND RENTED OUT THE SAME TO OTHER TENANTS SINCE THE YEAR 1994 - 1999 . THE ASSESSEE IS RECEIVING RENT INCOME AND ALSO PAYING THE RENT OF THE SAID HOUSE. THE RECEIPT AND PAYMENT HAS BEEN ACCEPTED BY THE DEPARTMENT SINCE BEGINNING AS THE ASSESSEE WAS OFFERING NET INCOME FROM RENTAL INCOME. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID THE REVISED RENT OF RS. 30,098/ - . THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENT ARY EVIDENCE OR CONFIRMATION OF THE PARTIES IN RESPECT OF HOUSE RENT PAID. 4.2 . ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THE SIMILAR REASONING THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE OR CONFIRMATION OF THE EXPENSES. ITA NO. 8506 /1 0 7 4. 3 BEFORE US, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT SINCE BEGINNING THE ASSESSEE IS OFFERING INCOME FROM THE RENT AFTER REDUCING THE RENT PAID BY THE ASSESSEE. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID THE REVISED RENT WHICH HAS BEEN DI SALLOWED. 4.4 LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE OR CONFIRMATION IN RESPECT OF THE RENT PAID. 4.5 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE DISALLOWANCE M ADE BY THE AUTHORITIES BELOW IS ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE OR CONFIRMATION REGARDING THE RENT PAID. THE ASSESSEE HAS CONTENDED THAT FOR THE YEAR UNDER CONSIDERATION, THE RENT PAYMENT HAS BEEN ENHANCED BY THE LANDLORD. TO SUBSTANTIATE HIS CLAIM, THE ASSESSEE IS REQUIRED TO PRODUCE THE EVIDENCE/CONFIRMATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO WITH ONE MORE OPPORTUNITY TO THE ASSESSEE TO FURNISH THE EVIDENCES IN SUPPORT OF HIS CLAIM. 5 . IN THE RESU LT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 05/02 / 201 4 . /2014 SD/ - ( ) ( D .KAR U N A KARA RAO ) SD/ - ( ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 05/02 /2014 /PKM , PS ITA NO. 8506 /1 0 8 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//