DCIT 9(2), MUMBAI v. PREM,IER OPTICALS P. LTD, MUMBAI

ITA 5356/MUM/2010 | 2006-2007
Pronouncement Date: 28-09-2011 | Result: Dismissed

Appeal Details

RSA Number 535619914 RSA 2010
Assessee PAN AAACP2280L
Bench Mumbai
Appeal Number ITA 5356/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 28 day(s)
Appellant DCIT 9(2), MUMBAI
Respondent PREM,IER OPTICALS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 28-09-2011
Assessment Year 2006-2007
Appeal Filed On 30-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI B. RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.5356/MUM/2010 ASSESSMENT YEAR-2006-07 THE DCIT-9(2) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. PREMIER OPTICALS PVT. LTD. KIRTI MANOR S.V. ROAD SANTACRUZ (W) MUMBAI-400 054 PAN-AAACP 2280L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ALEXANDER CHANDY RESPONDENT BY: SHRI JITENDRA JAIN DATE OF HEARING : 15.09.2011 DATE OF PRONOUNCEMENT: 28.9.2011 O R D E R PER B.R. MITTAL JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2006-07 AGAINST THE ORDER OF THE LD. CIT(A) DT. 23.04.2010 DISPUTING THE DELETION OF ADDITION OF RS. 12 72 210/- BEING INTEREST ON BORRO WED FUNDS 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DISPENSING OPTIC IAN TRADING IN FRAMES SUNGLASSES CONTACT LENSES AND RELATED ACCESSORIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS S TATED THAT ON PERUSAL OF BALANCE SHEET IT WAS FOUND THAT ASSESSEE COMPANY B ORROWED FUND OF RS. 92 76 059/- ON ACCOUNT OF UNSECURED LOANS ON WHICH AN INTEREST OF RS. ITA NO. 5356/MUM/2010 2 13 77 000/- HAD BEEN PAID AND DEBITED TO PROFIT AND LOSS ACCOUNT. HE HAS FURTHER STATED THAT THE ASSESSEE COMPANY GAVE AN AM OUNT OF RS. 89 41 312/- AS LOANS AND ADVANCES ON WHICH NO INTEREST WAS CHAR GED. THE AO HAS STATED THAT THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BE TWEEN INTEREST FREE LOANS AND ADVANCES GIVEN AND THE FUNDS AVAILABLE WITH THE ASSESSEE AS REFLECTED IN THE BALANCE SHEET. THE ASSESSEE COMPANY ALSO COULD NOT FURNISH ANY FUND FLOW/CASH FLOW STATEMENT WHEREIN THE CLAIM OF THE A SSESSEE STANDS ESTABLISHED. ACCORDINGLY THE AO DISALLOWED THE SU M OF RS. 12 72 210/- BEING INTEREST PORTION PERTAINING TO THE BORROWED FUND UT ILIZED FOR NON BUSINESS PURPOSE AND ADDED BACK TO THE TOTAL INCOME OF THE A SSESSEE. BEING AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE LD. CIT( A). 3. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THA T TOTAL SALES DURING THE CURRENT YEAR WAS RS. 24.78 CRORES. THERE WAS NO WO RKING CAPITAL LIMIT OR CASH CREDIT FACILITY WITH ANY BANK AND THEREFORE T HE ASSESSEE BORROWED FUNDS FROM ITS SHAREHOLDERS. IT WAS CONTENDED THAT THE AM OUNT BORROWED FROM THE SHAREHOLDERS IS RS. 76.05 LACS WHICH IS CONSISTENT FOR THE LAST 3 YEARS. THERE WAS NO NEW BORROWING MADE DURING THE YEAR. IT WAS A LSO CONTENDED THAT THE FUNDS WERE BORROWED FOR THE PURPOSE OF BUSINESS AND ALSO UTILIZED IN ITS BUSINESS. THE BORROWED FUND WAS NOT UTILIZED/DIVER TED FOR NON BUSINESS PURPOSES. THE LD. CIT(A) AFTER CONSIDERING THE SUB MISSION OF THE ASSESSEE HAS DELETED THE DISALLOWANCE OF INTEREST OF RS. 12 72 210/- MADE BY THE AO. HENCE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 4. DURING THE COURSE OF HEARING THE LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE COULD NOT ESTABLISH THE INTEREST FREE LOANS GIVEN BY IT AND THEREFORE THE AO WAS JUSTIFIED TO DISALLO W PROPORTIONATE INTEREST OUT OF THE TOTAL INTEREST PAID BY THE ASSESSEE ON BORRO WED FUNDS. ON THE OTHER HAND THE LD. AR SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER REFERRED PAGE-8 OF THE PAPER BOOK AND STATED THAT THE ASSESS EE HAD BORROWED THE FUND OF RS. 76 50 000/- IN ASSESSMENT YEAR 2003-04 AND THE SAID AMOUNT HAS CONTINUED IN ASSESSMENT YEAR 2004-05 ASSESSMENT YE AR 05-06 AS WELL AS IN ITA NO. 5356/MUM/2010 3 THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESS MENT YEAR 2006-07. HE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEARS I. E. 2003-04 AND 2004-05 NO DISALLOWANCE OF INTEREST WAS MADE BY THE AO. HO WEVER IN THE ASSESSMENT YEAR 2005-06 THE AO DISALLOWED INTEREST OF RS. 14 04 395/- BUT THE LD. CIT(A) VIDE HIS ORDER DT. 26.10.2009 DELETE D THE SAME AND DEPARTMENT HAS NOT FILED FURTHER APPEAL BEFORE THE TRIBUNAL. THE AR REFERRED PAGE 1 TO 5 OF THE PAPER BOOK WHICH CONTAIN COPY OF THE ORDER OF LD. CIT(A) DT. 26.10.2009 FOR ASSESSMENT YEAR 2005-06 TO SUBST ANTIATE HIS ABOVE SUBMISSION. THE LD. AR FURTHER REFERRED PAGE 10-16 OF THE PAPER BOOK WHICH CONTAIN DETAILS OF THE ADVANCES GIVEN BY THE ASSES SEE TO VARIOUS PERSONS AND SUBMITTED THAT THE SAID ADVANCES WERE GIVEN BY THE ASSESSEE IN CONNECTION WITH ITS BUSINESS PURPOSES. HE SUBMITTED THAT SINC E ADVANCES WERE GIVEN TO VARIOUS PERSONS FOR BUSINESS PURPOSES NON CHARGING OF INTEREST IS JUSTIFIED. THE LD. AR RELYING ON THE DECISION OF HONBLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS SRIDEV ENTERPRISES 192 ITR 165 (KAR) SUBMITTED THAT IF THE INTEREST ON BORROWED CAPITAL WAS NOT DISALLOWED IN EARLIER ASSESSMENT YEARS AND THE SAID AMOUNT IS STANDING DUE ON THE FIRST DA Y OF THE RELEVANT ASSESSMENT YEAR IT CANNOT BE CONSIDERED FOR THE PU RPOSE OF DISALLOWANCE. HE SUBMITTED THAT THE ABOVE CASE IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE AND JUSTIFIES THE ORDER OF LD. CIT(A) TO DELETE THE DISALLOWANCE OF INTEREST MADE BY THE AO. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ORDERS OF T HE AUTHORITIES BELOW. WE OBSERVE THAT THE ASSESSEE HAD TAKEN BORROWED FUNDS OF RS. 76 50 000/ -IN ASSESSMENT YEAR 2003-04 AND NO FURTHER BORROWING HA S BEEN MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. DR HAD HAS NOT DISPUTED THE FACTS THAT IN THE PRECEDING ASSESSMENT YEARS THE D EPARTMENT ALLOWED PAYMENT OF INTEREST ON THE SAID BORROWED AMOUNT OF RS. 76 50 000/-. WE OBSERVE THAT EVEN IN THE ASSESSMENT YEAR 2005-06 W HEN THE AO MADE DISALLOWANCE OF INTEREST OUT OF INTEREST PAID BY TH E ASSESSEE ON BORROWED FUNDS LD.CIT(A)VIDE HIS ORDER DT. 26.10.2009 DELET ED THE SAME AND IT IS ITA NO. 5356/MUM/2010 4 OBSERVED THAT NO FURTHER APPEAL WAS FILED BY THE DE PARTMENT. FURTHER ON PERUSAL OF DETAILS FILED BY THE ASSESSEE AS CONTAIN ED AT PAGES 10 TO 16 OF THE PAPER BOOK ALL THE LOANS AND ADVANCES GIVEN TO VAR IOUS PERSONS IT IS OBSERVED THAT THE SAID ADVANCES HAVE BEEN GIVEN IN CONNECTION WITH ITS BUSINESS PURPOSES AND THE DEPARTMENT HAS NOT BROUGH T ANY MATERIAL ON RECORD THAT THE SAID ADVANCES WERE NOT GIVEN BY THE ASSESSEE IN RESPECT OF ITS BUSINESS PURPOSES. THE HONBLE KARNATAKA HIGH COUR T IN THE CASE OF CIT VS SRIDEV ENTERPRISES HAS HELD THAT IF THE INTEREST ON BORROWED CAPITAL WAS NOT DISALLOWED IN EARLIER ASSESSMENT YEAR AND THE SAID BORROWED MONEY IS CONTINUING IN SUBSEQUENT ASSESSMENT YEAR THE DEPAR TMENT CANNOT MAKE DISALLOWANCE OF INTEREST TO TAKE A DEPARTURE FROM T HE FINDINGS IN RESPECT OF THE SAID AMOUNT ADVANCE AS IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND IN RESPECT OF THE SAME AMOUN T WHICH WAS THE SUBJECT MATTER OF THE PREVIOUS YEARS ASSESSMENT. WE ARE O F THE CONSIDERED VIEW THAT THE ABOVE DECISION OF THE HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS SRIDEV ENTERPRISES(SUPRA) IS APPLICABLE TO THE CASE OF THE ASSESSEE. HENCE WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DI SALLOWANCE OF INTEREST OF RS. 12 72 210/- MADE BY THE AO ON BORROWED FUNDS. THER EFORE GROUND OF APPEAL TAKEN BY THE DEPARTMENT IS REJECTED BY UPHOLDING TH E ORDER OF LD. CIT(A). 6. IN THE RESULT APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 28 TH DAY OF SEPTEMBER 2011 SD/- SD/- ( B. RAMAKOTAIAH ) ( B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 28 TH SEPTEMBER 2011 RJ ITA NO. 5356/MUM/2010 5 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 5356/MUM/2010 6 DATE INITIALS 1. DRAFT DICTATED ON: 15.9.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 16.09.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: