ZODIAC DEVELOPERS P. LTD, MUMBAI V. ITO 7(3)(4), MUMBAI

ITA 909/MUM/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1722 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H V JAIN
• Assessee Lawyers: S C TIWARI
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

ITA NO. 909/MUM/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI R S PADVEKAR, JUDICIAL MEMBER ITA NO. 909/MUM/2010 (ASST YEAR 2005-06 ) M/S ZODIAC DEVELOPERS P LTD 404 DEV PLAZA, S V ROAD ANDHERI (W) MUMBAI 58 VS THE INCOME TAX OFFICER WARD 7(3)(4), MUMBAI (APPELLANT) (RESPONDENT) PAN AAAC0428N ASSESSEE BY: SHRI S C TIWARI REVENUE BY: SHRI H V JAIN O R D E R PER R S PADVEKAR: IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IMP UGNED ORDER OF THE LD CIT(A)-13, MUMBAI FOR THE ASSESSMENT YEAR 2005-0 6 DATED 22.10.2009. 2 THE ONLY ISSUE ARISED IN THIS APPEAL IS IN RESPE CT OF THE DISALLOWANCE MADE BY THE AO OF RS. 13,14,872/-, OUT OF THE TOTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE OF RS. 1,13,24,381/-. 3 THE FACTS WHICH REVEAL FROM THE RECORDS ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. THE RETURN FILED BY THE ASSE SSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS FRAMED U/S 143(3) O F THE ACT. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS MADE ADVANC ES/LOANS TO ZODIAC BOOK MANUFACTURING CO, WHICH IS SISTER CONCERN AND A SUM OF RS. 87,57,777/- WAS OUTSTANDING. THE ASSESSEE HAS SUBM ITTED BEFORE THE AO THAT THE ADVANCES/LOANS GIVEN TO M/S OXFORD BOOK MF G. CO WERE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF SHARE ITA NO. 909/MUM/2010 2 APPLICATION MONEY AND ADVANCE RECEIVED FROM SHRI S N BHOJWANI. THE AO HAS GIVEN THE DETAILS OF THE ADVANCES/LOANS GIVEN B Y THE ASSESSEE TO ZODIAC BOOK MFG CO IN THE ASSESSMENT ORDER. AS STATED BY T HE AO, THE ASSESSEE HAS ADVANCED TOTAL SUM OF RS. 1,30,70,000/- TO ITS SIST ER CONCERN M/S ZODIAC BOOK MFG CO.. THE AO REJECTED THE CONTENTION OF TH E ASSESSEE AND MADE DISALLOWANCE OF RS. 13,41,872/- OUT OF THE TOTAL IN TEREST EXPENDITURE DEBITED IN THE P&L ACCOUNT AT RS. 1,13,24,381/- WHICH WAS P AID BY THE ASSESSEE ON THE OVERDRAFT FACILITY GIVEN BY COSMOS BANK. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD CIT(A) BUT WITHOUT SUCCESS. 3 THE LD CIT(A) CONFIRMED THE ORDER OF THE AO ON TH IS ISSUE BY GIVING HIS FINDINGS AND CONCLUSION AS UNDER: 2.3 THUS, IT IS SEEN THAT THE APPELLANT HAS FAILED TO PROVE THAT; A) ADVANCES WERE GIVEN OUT OF SURPLUS INTEREST FREE FU NDS; B) WITHOUT PREJUDICE TO THE SAME, ADVANCES RECEIVED FR OM CUSTOMERS HAVE A TIME COST ATTACHED TO IT IN THE SE NSE THAT THE ASSESSEE HAS TO GIVE UPFRONT DISCOUNTS IN CASE THE PAYMENTS ARE MADE IMMEDIATELY. THIS NATURALLY RESULTS IN HIS INCOME OFFERED AT A LESSER AMOUNT. HENCE, INSTEAD OF THE F UNDS RECEIVED FROM THE PROJECTS ARE SUPPOSED TO HAVE BEE N ADVANCED TO SISTER CONCERNS AS INTEREST FREE AND LO ADING HE PROJECT COST BY INTEREST PAID ON OVERDRAFT RS.1,13, 24,381/- TO COSMOS BANK; C) WITHOUT PREJUDICE TO THE AFORESAID FACTS, THE ASSES SEE HAS FAILED TO PROVE THE COMMERCIAL EXPEDIENCY IN ADVANC ING THE INTEREST-FREE LOANS TO THE SISTER CONCERNS. THE SAM E THEREFORE CANT BE ALLOWED AS HELD IN THE CASE OF S A BUILDER S VS CIT 288 ITR 1(SC) NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIB UNAL. ITA NO. 909/MUM/2010 3 4 I HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE RELEVANT MATERIAL BEFORE ME. THE LD COUNSEL OF THE ASSESSEE VEHEMENTLY ARGUED THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD SHARE APPLICATION MONEY TO THE EXTENT OF RS.1.15 CRORES. HE FURTHER TOOK ME TO THE ASSESSMENT ORDER AND SUBMITTED THAT IT IS ALSO NOT IN DISPUTE THAT IN THIS CASE THE ASSESSEE HAD RECEIVED INTEREST FREE ADVANC ES GIVEN FOR FLAT BOOKING TO THE EXTENT OF RS.5,34,65,000/-. HE, THEREFORE, PLEADED THAT AT THE FIRST INSTANCE PRESUMPTION DRAWN BY BOTH THE AUTHORITIES THAT OVER DRAFT FACILITY UTILIZED WAS FOR ADVANCING THE LOANS TO THE SISTER CONCERN IS TOTALLY ERRONEOUS. IT IS ARGUED THAT THE ENTIRE RECEIPTS F ROM BUSINESS ARE DEPOSITED IN THE OVERDRAFT ACCOUNT. IT IS VERY DIFFICULT TO IDENTIFY HOW THE ADVANCES ARE GIVEN TO THE SISTER CONCERN BY UTILIZING FROM THE O VERDRAFT ACCOUNT. HE, THEREFORE, SUBMITTED THAT NOWHERE THE AO HAS BROUGH T ON RECORD THAT FROM THE OVERDRAFT ACCOUNT, THE ASSESSEE HAS TRANSFERRED ANY MONEY TO THE SISTER CONCERN. HE, THEREFORE, PLEADED THAT THERE IS NO J USTIFICATION TO THE FINDINGS AND CONCLUSION OF THE AO THAT THE ADVANCES GIVEN TO ZODIAC BOOKING MFG CO WERE OUT OF THE INTEREST BEARING FUNDS. THE LD COU NSEL OF THE ASSESSEE SUBMITTED THAT THE AO HAS NOT GONE INTO THE ASPECT OF THE COMMERCIAL EXPEDIENCY BUT THE LD CIT(A) HELD THAT THE ASSESSEE FAILED TO PROVE THE COMMERCIAL EXPEDIENCY. IT IS ARGUED THAT THERE IS COMMERCIAL EXPEDIENCY FOR ADVANCING LOANS TO THE SISTER CONCERN AS THE OVERAL L FINANCIAL PERFORMANCE OF THE SISTER CONCERN WILL HAVE THE IMPACT ON THE REPU TATION OF THE ASSESSEE COMPANY IN THE MARKET AND IN THAT CONTEXT THERE IS A COMMERCIAL EXPEDIENCY. HE ALSO RELIED ON THE FOLLOWING DECISI ONS: I) SA BUILDERS VS CIT ( 288 ITR 1 (SC) II) WOOLCOMBERS OF INDIA LTD VS CIT (134 IT R 219 (CAL) III) SASSOON J DAVID & CO P LTD VS CIT (118 ITR 2 61 (SC) PER CONTRA, THE LD DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 909/MUM/2010 4 5 THE LIMITED CONTROVERSY BEFORE ME IS IN RESPECT O F THE ADVANCE GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN M/S ZODIAC BOOK MFG CO . IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD SHARE APPLICATION MON EY TO THE EXTENT OF RS. 1.15 CRORES. MOREOVER, THE ASSESSEE HAD ALSO RE CEIVED ADVANCES AGAINST FLAT BOOKING WHICH WERE WITHOUT ANY INTEREST TO THE EXTENT OF RS. 5,34,65,000/-. ON THE PERUSAL OF THE ASSESSMEN T ORDER IT IS SEEN THAT THE AO HAS NOT GIVEN A SINGLE INSTANCE TO SHOW THAT ANY MONEY WAS TRANSFERRED FROM THE OVERDRAFT ACCOUNT OF THE COSMO S BANK THAT WOULD HAVE SUPPORTED THE CASE OF THE AO ALSO. THE AO HAS GON E ON PRESUMPTION THAT THE ASSESSEE HAS ADVANCES GIVEN TO THE ZODIAC BOOK MFG CO AND THE SAID ADVANCES WERE FROM THE INTEREST BEARING FUNDS. NO WHERE IT IS CONTROVERTED THAT THE ASSESSEE WAS DEPOSITED THE ENTIRE REVENUE/ RECEIPTS IN THE OVERDRAFT ACCOUNT WITH COSMOS BANK AND THE ALL AMOUNTS ARE MI XED AND ALSO LOST ITS IDENTITY. 5.1 SO FAR AS THE ISSUE IN RESPECT OF COMMERCIAL EX PEDIENCY IS CONCERNED, I FIND FORCE IN THE ARGUMENTS OF THE LD COUNSEL. THIS ASPECT HAS NOT BEEN TOUCHED BY THE AO, BUT THE LD CIT(A) HAS CONSIDERED THIS PARTICULAR ASPECT. BUT NOWHERE IT IS DISPUTED THAT ZODIAC BOOK MFG CO IS A SISTER CONCERN AND ITS FINANCIAL STABILITY IS VERY MUCH CONCERNED AS S AME CAN HAVE IMPACT ON THE GOODWILL OF THE ASSESSEE COMPANY IN MARKET AND THAT CAN BE SAID TO BE A COMMERCIAL EXPEDIENCY. IN MY OPINION, THERE IS NO JUSTIFICATION TO SUSTAIN THE DISALLOWANCE MADE BY THE AO OUT OF THE TOTAL IN TEREST EXPENDITURE AS THE RELEVANT MATERIAL HAS NOT BROUGHT ON RECORD; THEREF ORE, I DELETE THE SAME. 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 11TH DAY OF JUNE 2010. SD/- ( R S PADVEKAR ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 11 TH JUNE 2010 RAJ* ITA NO. 909/MUM/2010 5 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI