ITO22(2)(1), MUMBAI V. NINE GLOBE BUILDERS, MUMBAI

MA 543/MUM/2023

AI Insights

The case revolves around a Miscellaneous Application filed by the Revenue seeking rectification of an earlier Tribunal order concerning the disallowance of interest under Section 36(1)(iii) of the Income Tax Act for the Assessment Year 2014-2015. The original Tribunal order mistakenly recorded that the assessee had taken loans from Navkar Developers, SRK Developers, and Girish Parekh, whereas the correct position was that the assessee had given advances to these parties. The rectification acknowledged this error and corrected the record, which was essential for the accurate application of the law regarding the disallowance of interest.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361247 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 21-05-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Rectification of order

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL \"B \" BENCH, MUMBAI SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER MA No.543/MUM/2023 (Arising out of ITA No.7260/Mum/2019) (Assessment Year: 2014-2015) Income Tax Officer 22(2)(1), Mumbai 312, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012. …………. Applicant Vs Nine Globe Builders B-2, Marathon Nextgen Innova, V.S.Lane. Off. S. B. Marg, Lower Parel (W), Mumbai – 400013. Maharashtra. [PAN:AAAHFN4211D] ……………. Respondent Appearance For the Applicant /Department For the Respondent/Assessee : : Shri Rajendra Joshi Smt. Monica H. Pande Shri Nishit Gandhi Ms. Aadnya Bhandari Date Conclusion of hearing Pronouncement of order : : 16.05.2025 21.05.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present Miscellaneous Application has been preferred by the Revenue seeking rectification of order, dated 10/03/2023, passed by the Tribunal in ITA No.7260/Mum/2019, pertaining to the Assessment Year 2014-2015. 2. We have heard both the sides and have perused the material on record. 3. It was contended on behalf of the Revenue that the Assessee had challenged the disallowance of interest under Section 36(1)(iii) of MA No. 543/Mum/2023 (Arising out of ITA No.7260/Mum/2019) Assessment Year 2014-2015 2 the Act in appeal before the Tribunal. The Assessing Officer had made the disallowance observing that interest free advances were given to (a) Navkar Developers, (b) SRK Developers and (c) Girish Parekh. The Tribunal had, vide order dated 10/03/2023, allowed the appeal of the Assessee for statistical purpose and had given certain direction to the Assessing Officer. According to the Revenue, inadvertently, the loans/advance given to the aforesaid three parties by the Assessee were stated to be loans taken from the three parties. Therefore, the Revenue had sought rectification of the Order, dated 10/03/2023, passed by the Tribunal. 4. On perusal of record we find the averments made by the Revenue to be factually correct. The Assessing Officer has made disallowance of interest invoking provision contained in Section 36(1)(iii) of the Act since the Assessee had, on one hand, paid interest cost and on the other hand, given interest-free advance to the parties. The quantum of disallowance was computed by the Assessing Officer at the rate of 12% of the aggregate interest-free advances. In paragraph 3 of the Order, while recording the submission made on behalf of the Assessee, it has been recorded that the Assessee had made borrowings from the aforesaid 3 parties. Further, after recording the submission of both the sides, in Paragraph 4 of the order it has been recorded that the Assessee had paid interest to the aforesaid three parties on advance received and no fresh advance were purportedly received by the Assessee during the relevant previous year. Considering the fresh plea raised on behalf of the Assessee, the issue of disallowance of interest under Section 36(1)(iii) of the Act was restored to the file of the Assessing Officer. In view of the inadvertent mistake pointed out by the Revenue, following rectification are made in Paragraph 3 and 4 of the order: “3. Shri Nishit Gandhi appearing on behalf of the assessee submits MA No. 543/Mum/2023 (Arising out of ITA No.7260/Mum/2019) Assessment Year 2014-2015 3 that the assessee is a partnership firm engaged in the business of development and redevelopment of properties. The assessee filed its return of income for Assessment Year 2014-15 declaring total income of Rs.34,50,590/-. During the period relevant to the assessment year under appeal the assessee earned interest income of Rs.30,25,005/- on loans and advances given to various parties. The assessee also paid interest of Rs.1,69,59,002/- on borrowings. In scrutiny assessment proceedings the Assessing Officer questioned non- charging of interest on payment advance to Navkar Developers, SRK Developers and Girish Parekh, from to whom the assessee had borrowed funds given advances aggregating to Rs 3,01,89,000/-. The disallowed Rs.36,22,680/- being interest @ 12% on the u/s. 36(1)(iii) of the Act. The Ld. Authorized Representative for the assessee submits that the assessee had made borrowings from given advances to the aforesaid three parties for the purpose of business. The Ld. Authorized Representative for the assessee further contended that in any case, no new borrowings were from aforesaid parties made in the impugned assessment year. The amounts reflected in accounts of the assessee against said parties are rolled over from preceding Assessment Years. In the preceding Assessment Year no question was raised by the Assessing Officer, hence, no disallowance can be made in respect of such advances in the Assessment Year under appeal. 4. Per contra, Ms.Samruddhi Dhananjay Hande representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The Ld. Departmental Representative submits that the assessee failed to submit any cogent reason for the disproportionate payment of interest, the Assessing Officer has rightly disallowed interest payment u/s. 36(1)(iii) of the Act. 4. We have heard the submissions made by rival sides and have perused the orders of authorities below. The short contention of the assessee is that the interest has been paid by the assessee to Navkar Developers, SRK Developers and Girish Parekh, on advances on loans received in the preceding Assessment Years, no fresh advances loans were purportedly received by the assessee during the impugned assessment year. We find that this is a fresh plea raised by assessee before the Tribunal. This plea was not raised by the assessee either before the Assessing Officer or the CIT(A). therefore, we deem it MA No. 543/Mum/2023 (Arising out of ITA No.7260/Mum/2019) Assessment Year 2014-2015 4 appropriate to restore this issue to the file of Assessing Officer for re-examination. In case it is found that the advances loans on which interest, has been disallowed u/s. 36(1)(iii) of the Act were rolled over from the preceding Assessment Year and no fresh advances loans were taken by the assessee in the impugned assessment year from the parties mentioned above i.e. Navkar Developers, SRK Developers and Girish Parekh, no disallowance u/s. 36(1)(iii) of the Act is warranted. The appeal of assessee is thus, allowed for statistical purpose in the terms aforesaid.” 5. In view of the above, Paragraph 3 and 4 of the order shall be replaced by and shall be read as under: “3. Shri Nishit Gandhi appearing on behalf of the assessee submits that the assessee is a partnership firm engaged in the business of development and redevelopment of properties. The assessee filed its return of income for Assessment Year 2014-15 declaring total income of Rs.34,50,590/-. During the period relevant to the assessment year under appeal the assessee earned interest income of Rs.30,25,005/- on loans and advances given to various parties. The assessee also paid interest of Rs.1,69,59,002/- on borrowings. In scrutiny assessment proceedings the Assessing Officer questioned non- charging of interest on advance to Navkar Developers, SRK Developers and Girish Parekh, to whom the assessee had given advances aggregating to Rs 3,01,89,000/-. The disallowed Rs.36,22,680/- being interest @ 12% on the u/s. 36(1)(iii) of the Act. The Ld. Authorized Representative for the assessee submits that the assessee had given advances to the aforesaid three parties for the purpose of business. The Id. Authorized Representative for the assessee further contended that in any case, no new borrowings were made in the impugned assessment year. The amounts reflected in accounts of the assessee against said parties are rolled over from preceding Assessment Years. In the preceding Assessment Year no question was raised by the Assessing Officer, hence, no disallowance can be made in respect of such advances in the Assessment Year under appeal. 4. Per contra, Ms.Samruddhi Dhananjay Hande representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The Ld. Departmental Representative submits that the assessee failed MA No. 543/Mum/2023 (Arising out of ITA No.7260/Mum/2019) Assessment Year 2014-2015 5 to submit any cogent reason for the disproportionate payment of interest, the Assessing Officer has rightly disallowed interest payment u/s. 36(1)(iii) of the Act. 4. We have heard the submissions made by rival sides and have perused the orders of authorities below. The short contention of the assessee is that the interest has been paid by the assessee, on loans received in the preceding Assessment Years, no fresh loans were purportedly received by the assessee during the impugned assessment year. We find that this is a fresh plea raised by assessee before the Tribunal. This plea was not raised by the assessee either before the Assessing Officer or the CIT(A). therefore, we deem it appropriate to restore this issue to the file of Assessing Officer for re-examination. In case it is found that the loans on which interest, has been disallowed u/s. 36(1)(iii) of the Act were rolled over from the preceding Assessment Year and no fresh loans were taken by the assessee in the impugned assessment year, no disallowance u/s. 36(1)(iii) of the Act is warranted. The appeal of assessee is thus, allowed for statistical purpose in the terms aforesaid.” 6. In result, in terms of paragraph 5 above the Miscellaneous Application preferred by the Revenue is allowed. Order pronounced on 21.05.2025. Sd/- Sd/- (Girish Agrawal) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांक Dated :21.05.2025 Milan, LDC MA No. 543/Mum/2023 (Arising out of ITA No.7260/Mum/2019) Assessment Year 2014-2015 6 आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. आयकर आयुƅ/ The CIT 4. Ůधान आयकर आयुƅ / Pr.CIT 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// उप/सहायक पंजीकार /(Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai "