ITO 25(3)(2), MUMBAI v. KISHORE HARGOVINDAS MEHTA (HUF), MUMBAI

ITA 1770/MUM/2010 | 2006-2007
Pronouncement Date: 07-09-2011 | Result: Dismissed

Appeal Details

RSA Number 177019914 RSA 2010
Assessee PAN AACHK7504H
Bench Mumbai
Appeal Number ITA 1770/MUM/2010
Duration Of Justice 1 year(s) 6 month(s) 2 day(s)
Appellant ITO 25(3)(2), MUMBAI
Respondent KISHORE HARGOVINDAS MEHTA (HUF), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 07-09-2011
Assessment Year 2006-2007
Appeal Filed On 05-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI. BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER AND SMT ASHA VIJAYRAGHAVAN JUDICIAL MEMBER I.T.A NO.1770/ MUM/2010 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER 25(3)(2) .. APPELLANT C-11 R.NO.306 PRATYAKSHA KAR BHAVAN BANDRA-KURLA COMPLEX BANDRA (E) MUMBAI-51. VS KISHORE H MEHTA (HUF) .. RESPONDEN T D-201 PANCHSHEEL GARDENS DAHANUKAR WADI MAHAVIR NAGAR KANDIVALI(W) MUMBAI-400067 PA NO.AACHK 7504 H APPEARANCES: VIPUL JOSHI FOR THE APPELLANT C.G.K. NAIR FOR THE RESPONDENT DATE OF HEARING : 30.8.2011 DATE OF PRONOUNCEMENT : 7 -09-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSING OFFICER HAS CHALL ENGED CORRECTNESS OF CIT(A)S ORDER DATED 14 TH DECEMBER 2009 IN THE MATTER OF ASSESSMENT UNDER SECTI ON 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS: I.T.A NO.1770/ MUM/2010 ASSESSMENT YEAR: 2006-07 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANC E OF CLAIM OF INTEREST AGAINST THE CONSIDERATION RECEIVED FOR ENTERING INTO COLLUS IVE ARRANGEMENTS FACILITATING EVASION OF TAX WITHOUT APPRECIATING THE FACTS THAT CLAIM OF INTEREST WAS JUST TO GIVE A COLOURABLE LOOK TO THE ENTIRE TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN HOLDING THAT THERE IS NO PROVISION UNDER T HE INCOME TAX ACT 1961 TO DISALLOW THE INTEREST(SUPRA) SO AS TO OVERCOME THE PROVISION OF SECTION 2(22)(E) OF THE ACT WITHOUT APPRECIATING THE FACT THAT INTER EST CLAIMED WAS A PART OF THE SHAM TRANSACTION AND WITHOUT ANALYZING THE PROVISIO NS OF SECTION 57 OF THE I.T.ACT 1961 AND RELATED DECISION OF THE APEX COUR T ASSERTING THAT EXPENSES U/S.57 SHOULD BE ALLOWED ONLY WHEN INCURRING OF EXP ENSES IS ESSENTIALLY REQUIRED TO EARN SUCH INCOME. 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BORROWING THE FUNDS AT LESSER AMOUN T OF INTEREST AND ADVANCING THE LOAN AT A HIGHER RATE OF INTEREST. DURING THE COURSE O F ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD TAKEN LOAN FR OM M/S. MANIPUT INVESTMENT PVT LTD AND ADVANCED LOAN TO SOME PERSONS WHO WERE SHARE HO LDERS OF M/S. MANIPUT INVESTMENT PVT LTD. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS. 14 21 855 AND AFTER CLAIMING BANK CHARGES OF RS.706 AND INTEREST ON LOAN OF RS.11 56 486 THE NET PROFIT WAS DECLARE D AT RS.2 64 663. IT WAS IN THIS BACKGROUND THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO ESTABLISH THE NEXUS BETWEEN THE LOANS TAKEN AND LOANS ADVANCED FIXING T HE HEARING ON 28..11.2008. ON THE SAID DATE AS THERE WAS NO RESPONSE FROM THE SIDE O F THE ASSESSEE THE AO INFERRED THAT FOR THE PURPOSE OF AVOIDING SECTION 2(22)(E) M/S. MANIPUT INVESTMENT (P)LTD. ROUTED THE LOAN THROUGH THE ASSESSEE AND ACCORDINGLY DIS ALLOWED THE INTEREST CLAIM OF RS.11 56 486. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) IT WAS CONTENDED BY THE ASSESSEE THAT ON 28.11.2008 THERE WAS TERRORIST ATTACK IN DIFFERENT PLACES OF MUMBAI AAND THERE WAS FEARFUL ATMOSPHERE IN ALL OVER THE MUMBAI AND FOR THIS REASON THE ASSESSEE COULD NOT APPEAR BEFORE THE AO. THE CIT(A) AGREED WITH THE SUBMISSION OF THE ASSESS EE AND SOUGHT A REMAND REPORT FROM THE ASSESSING OFFICER WITH THE DIRECTION TO PROVIDE OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THE NEXUS BETWEEN THE LOAN TAKEN AND GIVE N. THE ASSESSING OFFICER SUBMITTED I.T.A NO.1770/ MUM/2010 ASSESSMENT YEAR: 2006-07 3 HIS REPORT INTER ALIA ACCEPTING THE NEXUS BETWEEN THE LOANS RECEIVED AN D LOANS GIVEN BUT THE ONLY OBJECTION OF THE AO WAS THAT THE ASSES SEE ACTED AS A CONDUIT FOR THE COMPANY M/S. MANIPUT INVESTMENT PVT LTD. TO ADVANC E LOAN TO ITS SHAREHOLDERS HAVING SUBSTANTIAL INTEREST. THE AO ALSO FURTHER OBSERVED THAT IT IS A COLLUSIVE ARRANGEMENT AND THE ASSESSEE RECEIVED CONSIDERATION ONLY FOR BE ING A PARTY TO THE COLLUSIVE ARRANGEMENT. WHEN THE COPY OF THE REMAND REPORT WAS CONFRONTED WITH THE ASSESSEE IT WAS CONTENDED THAT IF THE SHAREHOLDERS OF M/S. M ANIPUT INVESTMENT PVT LTD. AVAILED LOAN FROM THE COMPANY USING THE ASSESSEE AS A CONDU IT THE DEPARTMENT COULD HAVE TAKEN ACTION AGAINST THE SHAREHOLDERS BY APPLYING S ECTION 2(22)(E) AND THAT COULD NOT BE A GROUND FOR DENYING THE CLAIM OF THE ASSESSEE. AF TER CONSIDERING THE ASSESSEES SUBMISSIONS AND ALSO THE REMAND REPORT THE CIT(A) DIRECTED THE AO TO DELETE THE IMPUGNED DISALLOWANCE BY OBSERVING AS FOLLOWS: AFTER CONSIDERING THE SUBMISSIONS OF THE REPRESENT ATIVE AND THE REMAND REPORT I ACCEPT THE PLEA OF THE REPRESENTATIVE THAT AS FAR A S THE APPELLANT IS CONCERNED NO DISALLOWANCE COULD BE MADE AS THE BORROWED FUNDS WE RE UTILIZED FOR THE PURPOSE OF ADVANCING LOANS ON WHICH INTERESTS WERE CHARGED AND ADMITTED IN RETURN OF INCOME. IT IS TRUE THAT THE APPELLANT ACTED AS THE CONDUIT FOR THE SHAREHOLDERS OF M/S. MANIPUT INVESTMENT P. LTD. TO RECEIVE LOAN FRO M THE COMPANY SO AS TO OVERCOME THE PROVISIONS OF SECTION 2(22) (E) BUT NE CESSARY ACTION IS TO BE TAKEN AGAINST SUCH BENEFICIAL SHAREHOLDERS AND THERE IS N O PROVISION UNDER THE INCOME- TAX ACT 1962 TO DISALLOW THE INTEREST CLAIM OF THE APPELLANT. IN THE CIRCUMSTANCES THE A. O. IS DIRECTED TO DELETE THE DISALLOWANCE OF INTEREST CLAIMED AND INFORM THE A. O. OF THE SHAREHOLDERS OF M/S. MANIPUT INVESTMEN T P. LTD. FOR TAKING APPROPRIATE ACTION AS DEEMED FIT BY THE CONCERNED A . O. 3. HAVING CONSIDERED THE RIVAL CONTENTIONS AND HAVI NG PERUSED THE MATERIAL ON RECORD WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). WE HAVE NOTED THAT THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSES OF ADVANCING LOANS ON WHICH INTEREST WAS CHARGED AND ADMITTED IN THE RETU RN OF INCOME. THE AO IN HIS REMAND REPORT HAS ADMITTED THE NEXUS BETWEEN THE L OANS RECEIVED AND LOANS GIVEN. MERE BECAUSE THE FUNDS WERE ROUTED THROUGH THE SHAR EHOLDERS CANNOT BE A GROUND THAT THE ASSESSEE HAS ACTED AS A CONDUIT. IT WAS THE SU BMISSION OF THE ASSESSEE THAT IF THE SHAREHOLDERS OF M/S. MANIPUT INVESTMENT PVT LTD. A VAILED LOAN FROM THE COMPANY USING THE ASSESSEE AS A CONDUIT THERE WAS NO PREVENTION TO TAKE ACTION AGAINST THE SHAREHOLDERS BY THE DEPARTMENT BY APPLYING SECTION 2(22)(E) OF THE ACT. THE CIT(A) HAS I.T.A NO.1770/ MUM/2010 ASSESSMENT YEAR: 2006-07 4 RIGHTLY HELD THAT THERE IS NO PROVISION UNDER THE I NCOME TAX ACT 1961 TO DISALLOW THE INTEREST CLAIM OF THE ASSESSEE IF NEXUS BETWEEN TH E BORROWINGS AND GIVING ADVANCE IS ESTABLISHED. IN VIEW OF THIS WE UPHOLD THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE. 5. IN THE RESULT APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER 2011 SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI DATED 7 TH SEPTEMBER 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-35 MUMBAI 4. COMMISSIONER OF INCOME TAX 25 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI