JAYANTILAL SHAH, MUMBAI v. INCOME TAX OFFICER-21(1)(5), MUMBAI

ITA 5149/MUM/2019 | 2012-2013
Pronouncement Date: 18-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 514919914 RSA 2019
Assessee PAN AAPPS5091N
Bench Mumbai
Appeal Number ITA 5149/MUM/2019
Duration Of Justice 1 year(s) 7 month(s) 11 day(s)
Appellant JAYANTILAL SHAH, MUMBAI
Respondent INCOME TAX OFFICER-21(1)(5), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted SMC
Tribunal Order Date 18-03-2021
Last Hearing Date 25-02-2021
First Hearing Date 25-02-2021
Assessment Year 2012-2013
Appeal Filed On 06-08-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5149/MUM/2019 ASSESSMENT YEAR: 2012-13 JAYANTILAL SHAH 78 KAKAD INDUSTRIAL ESTATE L J ROAD MAHIM MUMBAI - 400016 VS. ITO-21(1)(5) PIRAMAL CHAMBERS LALBAUG MUMBAI - 400012. PAN NO. AAPPS 5091 N APPELLANT RESPONDENT ASSESSEE BY : MS. RADHAKANT SARAT AR REVENUE BY : MR. SANJAY J. SETHI DR DATE OF HEARING : 2 5 /02/2021 DATE OF PRONOUNCEMENT : 18/03/2021 ORDER PER N.K. PRADHAN A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2012-13. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-48 MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX A CT 1961 (THE ACT). 2. THE GROUND OF APPEAL FILED BY THE ASSESSEE READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING PROP ORTIONATE INTEREST EXPENSE OF RS.1 93 918/- CLAIMED AS A DEDUCTION U/S 36(1)(III) OF THE ACT. JAYANTILAL SHAH ITA NO. 5149/M/2019 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2012-13 ON 29.0 9.2012 DECLARING TOTAL INCOME OF RS.4 02 399/-. THE DISPUTE HERE IS THE DI SALLOWANCE OF PROPORTIONATE INTEREST EXPENSE OF RS.1 93 918/- MADE BY THE ASSES SING OFFICER (AO) U/S 36(1)(III) OF THE ACT. THE AO MADE THE SAID DISALLO WANCE ON THE GROUND THAT THE ASSESSEE HAD UTILIZED DIRECTLY OR INDIRECTLY ITS I NTEREST BEARING FUNDS FOR GIVING INTEREST-FREE LOANS TO SHRI SUNIL J. SHAH AND SHRI MANISH J. SHAH. IN RESPONSE TO A QUERY RAISED BY THE AO THE ASSESSEE STATED THAT : THE ASSESSEE HAS GIVEN ADVANCE TO SUNIL J. SHAH M ANISH J. SHAH. THESE ACCOUNTS ARE REPRESENTS THEIR RUNNING ACCOUNT WITH THE ASSESSEE WHICH ARE USED FOR THEIR PERSONAL PAYMENTS. THE CAPITAL OF ASSESSEE IS MORE THAN BOTH THESE ADVANCES; THERE IS NO QUESTION OF INTEREST BEARING FUNDS BEING GIVEN FOR ADVANCES RESULTING IN DISALLOWANCE OF PROPORTIONATE INTEREST. THE ASSESSEE HAS TAKEN INTEREST FREE LOANS ALSO WHI CH IS AS UNDER : SR. NO. NAME OF THE CONCERN SUM ADVANCED 1. C.K. SHAH HUF RS.62 810/ - 2. SARYU MANISH SHAH RS.31 410/ - TOTAL RS.94 220/ - HOWEVER THE AO WAS NOT CONVINCED WITH THE ABOVE E XPLANATION OF THE ASSESSEE ON THE GROUND THAT IT IS NOT SUPPORTED BY DOCUMENTARY EVIDENCE. THEREFORE HE CALCULATED THE PROPORTIONATE INTEREST AND ACCORDINGLY MADE A DISALLOWANCE OF RS.1 93 918/- U/S 36(1)(III) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT VIDE ORDER DATED 31.05.2019 THE LD. CIT(A) AFFIRMED THE ABOVE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT : JAYANTILAL SHAH ITA NO. 5149/M/2019 3 5.2 GROUND NO. 2-: THIS GROUND IS REGARDING ADDITION OF RS.1 93 918/- DUE TO DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSE. IN RESPECT OF THIS GROUND DURING ASSESSMENT PROCEEDINGS ASSESSEE HAS FAILED TO PROVE HIS CLAIM OF DISALLOWANCE U/S 36(1)(III) OF THE ACT. THE ASSESSEE HAD NOT ESTABLI SHED THAT ON THE DATE WHEN EACH INTEREST FREE LOAN WERE GIVEN THERE WERE SUFFICIEN T NON-INTEREST BEARING OR OWN CAPITAL FUNDS WAS AVAILABLE WITH IT TO ADVANCE THE SAME TO OTHERS WITHOUT CHARGING INTEREST AND MAINTAINING BALANCES. AS THE ASSESSEE HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE BORROWINGS AND THE UTILIZATION OF SUCH FUNDS FOR TH E BUSINESS AND HAS FAILED TO ESTABLISH THE NEXUS BETWEEN INTEREST FREE LOANS ADVANCES WIT H AVAILABLE INTEREST FREE FUNDS. A.O. DISALLOWED THE PROPORTIONATE INTEREST ON THE TOTAL ADVANCES FROM THE INTEREST PAID BY THE ASSESSEE. DURING APPELLATE PROCEEDINGS IN RESPECT OF THIS GR OUND ASSESSEE HAS FILED THE DETAILS AS COMPUTATION OF INCOME PERSONAL BALANCE SHEET LEDG ER ACCOUNTS OF LOANS GIVEN AS ON 31.03.2011 . VIDE ORDER SHEET NOTING DATED 24.01.2019 ASSESSEE W AS ASKED TO 'PROVE THE AVAILABILITY OF INTEREST FREE FUNDS ON THE DAY WHEN THE LOANS WERE EXTENDED. AS THE BALANCE SHEET FILED DOES NOT PROVE SUCH AVAILABILIT Y THE TIME OF EXTENDING LOANS.' IN REPLY TO THIS ASSESSEE SUBMITTED THAT THE LOANS WE RE GRANTED IN EARLIER YEARS (PRIOR TO A.Y. 2011-12) FOR WHICH THE RECORDS ARE NOT AVAILAB LE. THUS AVAILABILITY OF THE FUNDS AND GENUINENESS OF THE TRANSACTIONS REGARDING INTEREST PAID ON BORROWED LOAN BY ASSESSEE HAS NOT BEEN PROVEN WITH THE NECESSARY DOCUMENTARY EVIDENCE. IN VIEW OF ABOVE FACTS GROUND NUMBER 2 OF THE ASSE SSEE IS DISMISSED AND THE ADDITION MADE BY A.O. IN RESPECT OF DISALLOWANCE OF PROPORTIONATE INTERES T EXPENSES OF RS.1 93 918/- IS UPHELD. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE CAPITAL OF ASSESSEE BEING MORE THAN THE ADVANCES THERE IS NO QUESTION OF INTEREST BEARING FUNDS BEING GIVEN FOR ADVANCES RESULTING IN DISALLO WANCE OF PROPORTIONATE INTEREST. JAYANTILAL SHAH ITA NO. 5149/M/2019 4 ON THE OTHER HAND THE LD. DR SUBMITS THAT THE ASS ESSEE HAS NOT ESTABLISHED BEFORE THE AO AS WELL AS LD. CIT(A) THA T ON THE DATE WHEN EACH INTEREST-FREE LOAN WAS GIVEN THERE WAS SUFFICIENT NON-INTEREST BEARING OR OWN CAPITAL FUNDS AVAILABLE WITH IT TO ADVANCE THE SAME TO OTHERS WITHOUT CHARGING INTEREST AND MAINTAINING BALANCES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT V. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) HAS HELD IN THE CONTEX T OF SECTION 36(1)(III) OF THE ACT THAT IF THERE IS INTEREST-FR EE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME T IME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE F ROM THE INTEREST-FREE FUNDS AVAILABLE. THE ABOVE RATIO LAID DOWN BY THE HONBLE JURISDICT IONAL HIGH COURT IS TO BE EXAMINED IN THE INSTANT CASE. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE APPLICABILITY OF THE RATIO LAID DOWN IN RELIANCE UTILITIES & POWER LTD. (SUPRA). WE DIRECT THE ASSESSEE TO FILE THE RELEVAN T DOCUMENTS/EVIDENCE BEFORE THE AO. 7. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18/03/2021. SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER JAYANTILAL SHAH ITA NO. 5149/M/2019 5 MUMBAI; DATED: 18/03/2021 RAHUL SHARMA SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR ITAT MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSISTANT REGISTRAR) ITAT MUMBAI