M/S. CHAT COMPUTERS PVT. LTD., V. DCIT CEN CIR 40,

MA 85/MUM/2011

• Counselvise Citation: [2011] 123 COUNSELVISE.COM (IT) 6991 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2002-2003
• Appeal Filed On: 11-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARTHASARATHY
• Keywords: Source of fund; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER MA NO. 85/MUM/2011 (ARISING OUT OF ITA NO. 4818/MUM/2007) (ASSESSMENT YEAR: 2002-03) M/S. CHAT COMPUTERS PVT.LTD. DCIT, CENTRAL CIRCLE 4 0 9, BHUPEN CHAMBERS, DALAL STREET AAYAKAR BHAVAN, M. K. ROAD FORT, MUMBAI 400023 VS. MUMBAI 400020 PAN - AABCC 1122 B APPLICANT RESPONDENT APPLICANT BY: SHRI RAJIV KHANDELWAL RESPONDENT BY: SHRI PARTHASARATHY DATE OF HEARING: 05.08.2011 DATE OF PRONOUNCEMENT: 09.09.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS MISCELLANEOUS APPLICATION IS FILED BY THE ASSE SSEE AGAINST THE ORDER OF THE ITAT IN ITA NO. 4818/MUM/2007 DATED 30.12.20 10. ASSESSEE IS OBJECTING TO THE FINDINGS OF THE ITAT IN PARA 12 IN PAGE 6 OF THE ORDER WHEREIN IT WAS STATED THAT .. THE FACT IS THAT THE ASSESSEE HAS ADVANCED ITS INTEREST BEARING FUND FROM MMCB, WHICH WERE UTILISE D FOR GIVING LOANS TO CLASSIC CREDIT LTD. AND THE DEBIT BALANCE IS CONTIN UING DURING THE YEAR ALSO . 2. IN THE MA IT WAS SUBMITTED THAT ASSESSEE HAS CLAIME D BY A DEBIT TO THE P & L ACCOUNT THE INTEREST AMOUNT AND A.O. BY STATI NG THAT THE AMOUNTS WERE DIVERTED TO M/S. CLASSIC CREDITS LTD. RESTRICT ED THE DISALLOWANCE UNDER SECTION 36(1)(III) AND IN THE COURSE OF ARGUMENTS B EFORE THE ITAT IT WAS CLEARLY STATED THAT NO MMCB FUNDS WERE UTILISED TIL L 26.12.2000 AND POST 26.12.2000 THE ACCOUNT OF CLASSIC CREDIT LTD. SHOWS INFLOW AND OUTFLOW INTER ALIA THROUGH THE ACCOUNT OF MMCB AND THE BALANCE AS ON 31.03.2000 WAS IN MA NO. 85/MUM/2011 M/S. CHAT COMPUTERS PVT.LTD. 2 FACT REDUCED AS COMPARED TO THE BALANCE AS ON 26 TH DECEMBER 2000 AND, THEREFORE, NO FUNDS OF MMCB BEING INTEREST BEARING FUNDS HAVE BEEN UTILISED TO GIVE INTEREST FREE LOANS TO CLASSIC CREDIT LTD. IT WAS THE SUBMISSION THAT THE TRIBUNAL HAS GIVEN A FACTUAL FINDING INCORRECTL Y, WHICH MAY RESULT/CAUSE PREJUDICE TO THE ASSESSEE WHILE WORKING OUT THE DIS ALLOWANCE AS THE MATTER WAS RESTORED TO THE FILE OF THE A.O. FOR WORKING OU T THE DISALLOWANCE. 3. THE LEARNED COUNSEL REFERRED TO THE SUBMISSIONS MAD E IN THIS REGARD AND THE PAPER BOOK ENCLOSED AND REITERATED THE SAME SUBMISSIONS WHEREAS THE LEARNED D.R. SUBMITTED THAT THE ISSUE OF QUANTI FICATION OF INTEREST IS RESTORED TO THE FILE OF THE A.O., THEREFORE, NO PRE JUDICE IS CAUSED TO THE ASSESSEE BY THE ABOVE FINDING. 4. WE HAVE CONSIDERED THE ISSUE. ASSESSEE HAS CLAIMED INTEREST ON BORROWALS FROM MMCB, WHICH WAS CONTESTED IN GROUND NO. 1 IN THAT APPEAL. THE ISSUE OF ALLOWANCE OF INTEREST, WHICH WAS NOT R ECORDED IN THE BOOKS ACCOUNT BUT WAS CLAIMED BY THE SAID BANK WAS CONSID ERED AND THE A.O. WAS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED IN THE COMP UTATION. GROUND NO. 2 IN THE APPEAL PERTAINS TO THE PROPORTIONATE DISALLO WANCE OF INTEREST ON THE GROUND THAT FUNDS HAVE NOT BEEN UTILISED FOR THE PU RPOSE OF BUSINESS. THE A.O. HAS GIVEN A FINDING THAT ASSESSEE HAS GIVEN IN TEREST FREE LOANS OF ` 80,10,25,775/- TO M/S. CLASSIC CREDIT LTD. AND GROU P CONCERNS AND DISALLOWED THE AMOUNT. THE CIT(A) CONFIRMED THE SAM E HOLDING THAT ASSESSEE HAS NOT SUBSTANTIATED THIS CLAIM THAT NO BORROWED F UNDS HAVE BEEN ADVANCED AND THE SHARE CAPITAL BEING ONLY ` 2.10 CRORES AND BORROWALS WERE TO THE TUNE OF ` 148.60 CRORES, THE A.O. WAS JUSTIFIED IN DISALLOWIN G PROPORTIONATE INTEREST INCOME. THE CONTENTIONS OF T HE LEARNED COUNSEL THAT FUNDS BORROWED FROM THE SAID BANK WERE NOT ADVANCED TO M/S. CLASSIC CREDIT LTD. AND THE ENTIRE AMOUNT CLAIMED WERE UTIL ISED IN THE BUSINESS AND SO ALLOWABLE WAS RECORDED IN PARA 9 OF THE ORDER. I T WAS HELD THAT PRO-RATA INTEREST WAS DISALLOWABLE ON THE BASIS OF EARLIER Y EARS ORDER WHICH WAS ALSO EXTRACTED IN PARA 9. AFTER CONSIDERING THE SUBMISSI ONS THE DISALLOWANCE PER SE WAS UPHELD ON THE BASIS THAT THE A.O. HAS GIVEN A F INDING IN EARLIER YEAR THAT THERE WAS DIVERSION OF BUSINESS FUNDS ON WHICH INTEREST WAS PAID TO MA NO. 85/MUM/2011 M/S. CHAT COMPUTERS PVT.LTD. 3 NON-INTEREST BEARING FUNDS AND ACCORDINGLY AN AMOUN T OF ` 579 LAKHS WAS DISALLOWED IN THE EARLIER YEAR, WHICH WAS NOT CHALL ENGED BY THE ASSESSEE FOR WHATEVER REASONS. THIS BEING THE CONSEQUENTIAL YEAR AND AS THERE IS A FINDING THAT NEITHER FRESH BORROWALS NOR FRESH ADVA NCES WERE MADE TO THE GROUP CONCERNS IN THIS YEAR, THE ITAT CAME TO THE C ONCLUSION THAT THE DISALLOWANCE PER SE HAS TO HE UPHELD. ASSESSEES CONTENTION THAT NO BORROWALS WERE MADE OUT OF THE FUNDS BORROWED FROM MMCB TO CLASSIC CREDIT LTD. COULD NOT BE EXAMINED IN THIS YEAR AS T HE SAID TRANSACTIONS OCCURRED IN EARLIER ASSESSMENT YEAR AND IN THAT YEA R THE A.O. AND THE CIT(A) HAS GIVEN A FINDING THAT ASSESSEES OWN FUNDS WERE ONLY ` 2.10 CRORES AND THERE ARE BORROWALS TO THE TUNE OF ` 148.60 CRORES. THE AMOUNTS OUTSTANDING WITH REFERENCE TO CLASSIC CREDIT LTD AS RECORDED IN THE BOOKS OF ACCOUNT WERE TO THE TUNE OF ` 80.10 CRORES. ON THESE FACTS, THE DISALLOWANCE PER SE WAS UPHELD. HOWEVER, FOR COMPUTATION OF DISALLOWANCE TH E ISSUE WAS RESTORED TO THE A.O. FOR EXAMINATION. WE ARE OF THE OPINION THA T THE FINDINGS GIVEN IN PARA 12 THAT ASSESSEE HAS ADVANCED INTEREST BEARING FUNDS FROM MMCB, WHICH WERE UTILISED FOR GIVEN LOANS TO CLASSIC CRED IT LTD. MAY NOT PREJUDICE THE CLAIM OF ASSESSEE, AS ASSESSEE HAS TO JUSTIFY T HE INTEREST BEARING FUNDS BEING UTILISED FOR THE PURPOSE OF BUSINESS. ASSESSE E IS FREE TO FURNISH THE NECESSARY DETAILS TO THE A.O. ABOUT BORROWALS OF FU NDS AND ITS UTILISATION IN THE BUSINESS SO AS TO CLAIM THE INTEREST EXPENDITUR E. THE ITAT ALSO GAVE A FINDING THAT THE AMOUNT ALLOWED IN GROUND NO. 1 ALS O BECOMES INTEREST PAYABLE ON THE BORROWED FUNDS AND ACCORDINGLY THE D ISALLOWANCE HAS TO BE WORKED OUT ON THE REVISED INTEREST ALLOWABLE DURING THE YEAR VIS--VIS FUNDS BORROWED AND FUNDS ADVANCED INTEREST FREE. ASSESSEE CAN VERY WELL SUBMIT THE NECESSARY DETAILS TO THE A.O., WHO SHOULD EXAMI NE AND DISALLOW THE AMOUNT TO THE EXTENT FUNDS ARE ADVANCED INTEREST FR EE OUT OF THE BORROWED FUNDS. SINCE, IN OUR VIEW, NO PREJUDICE IS CAUSED B Y THE ABOVE OBSERVATIONS, AS ASSESSEE IS FREE TO SUBMIT THE EVIDENCES BEFORE THE A.O. FOR NECESSARY ALLOWANCE OF INTEREST UNDER SECTION 36(1)(III), WE ARE OF THE OPINION THE THERE IS NO MERIT IN THE MISCELLANEOUS APPLICATION FILED. HOWEVER, WE MAKE IT CLEAR THAT THE A.O. IS FREE TO EXAMINE THE SOURCE OF FUND S AND ITS UTILISATION FOR MA NO. 85/MUM/2011 M/S. CHAT COMPUTERS PVT.LTD. 4 ALLOWING ANY INTEREST CLAIM AS A BUSINESS DEDUCTION . WITH THESE OBSERVATIONS THE MISCELLANEOUS APPLICATION IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9 TH SEPTEMBER 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL VII, MUMBAI 4. THE CIT CENTRAL IV, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.