J SUGHANDH PRODUCTION P. LTD, MUMBAI v. ACIT 11(1), MUMBAI

ITA 710/MUM/2009 | 2005-2006
Pronouncement Date: 15-02-2010 | Result: Allowed

Appeal Details

RSA Number 71019914 RSA 2009
Assessee PAN AABCS6222Q
Bench Mumbai
Appeal Number ITA 710/MUM/2009
Duration Of Justice 1 year(s) 11 day(s)
Appellant J SUGHANDH PRODUCTION P. LTD, MUMBAI
Respondent ACIT 11(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 15-02-2010
Date Of Final Hearing 27-01-2010
Next Hearing Date 27-01-2010
Assessment Year 2005-2006
Appeal Filed On 03-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J BEFORE S/SHRI R.S. SYAL (AM) & N.V. VASUDEVAN (JM) I.T.A.NO. 710/MUM/09 (ASSESSMENT YEAR : 2005-06) J. SUGANDH PRODUCTION PVT. LTD. 3-C RAJPIPLA CHS LTD. 352 LINKING ROAD SANTAKRUZ WEST MUMBAI-400 054. VS. ACIT CIRCLE 11(1) ROOM NO. 439 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT PAN/GIR NO. : AABCS6222Q ASSESSEE BY : SHRI R. PRASAD RAO DEPARTMENT BY : SHRI ANILKUMAR MISHRA ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 29.10.2008 OF LEARNED CIT(A)-XI MUMBAI RELATING TO A.Y. 2005-06. 2. IN THE ORIGINAL GROUNDS OF APPEAL THE ASSESSEE HAS CHALLENGED THE ACTION OF LEARNED CIT(A) IN CONFIRMING THE ADDITION OF RS. 54 50 000/- MADE BY THE ASSESSING OFFICER HOLDING THAT THE AFOR ESAID SUM IS AN UNEXPLAINED CASH CREDIT AND MAKING THE ADDITION U/ S. 68 OF THE ACT. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PRODUCTION DISTRIBUTION AND FINANCE OF FILMS. IN COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD CALLED UPON THE ASSESSEE TO FURNISH CONFIRMATION IN RESPECT OF UNSECURED LOANS AS APPEA RING IN THE BALANCE SHEET IN RESPECT OF FOUR UNSECURED CREDITORS NAMELY MS. SHANTI NICHANI OF RS. 2 50 000/-; KISHORE MIRCHANDANI OF RS. 5 00 000/-; HANSA GADA OF RS. 40 00 000/- AND SANJANA NAGAPPA PROPRIETOR OF M/S. VINKRISH INVESTMENTS RS. 7 00 000/-. THE ASSESSING OFFICER H AD ISSUED NOTICE U/S. J. SUGANDH PRODUCTION PVT. LTD. 2 133(6) OF THE ACT. ACCORDING TO THE ASSESSING OFFIC ER NO REPLY WAS RECEIVED FROM THE CREDITORS. IT APPEARS THAT THE LE ARNED AR OF THE ASSESSEE WAS ASKED TO PRODUCE PARTIES FOR VERIFICAT ION. IT IS NECESSARY TO MENTION CERTAIN DATES THAT ARE RELEVANT FOR A DECIS ION ON THE ISSUE. THE ASSESSEE FILED RETURN OF INCOME ON 31.10.2005. AFTE R THE CASE WAS SELECTED FOR SCRUTINY NOTICE U/S. 143(2) DATED 3.9 .2007 WAS ISSUED AND SERVED ON THE ASSESSEE ON 5.9.2007. ON 24.9.2007 A QUESTIONNAIRE WAS ISSUE TO THE ASSESSEE. THE ASSESSEE HAD FILED CONFI RMATION OF THE AFORESAID LOANS BEFORE THE ASSESSING OFFICER ON 24. 11.2007 WHEREIN PAN OF ALL THE AFORESAID FOUR CREDITORS ARE FOUND. THE ASSESSING OFFICER ISSUED NOTICE U/S. 133(6) ON 30.11.2007. ON 10.12.2007 LE ARNED AR WAS ASKED TO PRODUCE PARTIES FOR VERIFICATION. LEARNED AR AS KED FOR AN ADJOURNMENT AND THE PROCEEDINGS WERE ADJOURNED TO 12.12.2007. O N 12.12.2007 MR. SHIVA RAO AR CAME ALONGWITH THE ACCOUNT OF RAJ EXP ORTS PVT. LTD. HE COMMUNICATED HIS INABILITY TO PRODUCE ANY OF THE FO UR ABOVE MENTIONED CONFIRMATIONS. HENCE RS. 2 50 000/- CLAIMED TO HAV E RECEIVED FROM SHANTI NICHANI RS. 5 LAKHS CLAIMED TO HAVE RECEIVE D FROM KISHORE MIRCHANDANI RS. 40 LAKHS RECEIVED FROM HANSA GADA AND RS. 7 LAKHS RECEIVED FROM VINKRISH INVESTMENTS WERE ADDED BACK TO THE INCOME OF THE ASSESSEE INVOKING PROVISIONS OF SECTION 68 OF T HE I.T. ACT 1961 (ALL THESE LOANS WERE TAKEN IN THIS VERY ASSESSMENT YEAR ). IT IS PERTINENT TO MENTION THAT THE ASSESSMENT ORDER PASSED WAS PASSED ON 12.12.2007 ON THE VERY SAME DAY ON WHICH THE A/R WAS ASKED TO PRO DUCE THE AFORESAID FOUR PARTIES BEFORE THE AO. 4. BEFORE LEARNED CIT(A) ASSESSEE POINTED OUT THAT THE CREDITORS DID NOT RESPOND TO THE NOTICE U/S. 133(6) ISSUED BY THE ASSESSING OFFICER BECAUSE THE ASSESSEE DEFAULTED IN MAKING PAYMENT TO THEM BECAUSE OF FINANCIAL DIFFICULTIES. IT WAS ALSO ARGUED THAT THE ASSESSING OFFICER OUGHT TO HAVE ISSUED SUMMONS TO ENFORCE THEIR ATTENDANCE AND THAT THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS BY FILING CONFIRMATION FROM ALL THE CREDITORS. LEARNED CIT(A) DID NOT ACCEPT CONTEN TION OF THE ASSESSEE. HE HELD THAT THE ASSESSEE FAILED TO PRODUCE CREDITO RS BEFORE THE ASSESSING J. SUGANDH PRODUCTION PVT. LTD. 3 OFFICER AND IN THE CIRCUMSTANCES THE ASSESSING OFF ICER WAS LEFT WITH NO OTHER OPTIONS BUT TO MAKE THE ADDITION. LEARNED CI T(A) ALSO HELD THAT THE ASSESSEE DISCHARGED HIS INITIAL ONUS BY FURNISH ING CONFIRMATION. SINCE CREDITORS DID NOT RESPOND TO THE LETTERS ISS UED BY THE ASSESSING OFFICER ONUS SHIFTED BACK TO THE ASSESSEE. FOR ALL THE ABOVE REASONS ORDER OF THE ASSESSING OFFICER WAS CONFIRMED BY LEA RNED CIT(A). 5. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE POIN TED OUT THAT PAN HAVE BEEN GIVEN IN RESPECT OF ALL THE CREDITORS IN THE CONFIRMATION. IT WAS ALSO SUBMITTED THAT THE NOTICE U/S. 133(6) WERE DUL Y SERVED ON THE CREDITORS AND THEREFORE THERE WAS NO DIFFICULTY ABO UT THE IDENTITY OF THE CREDITORS. THE ASSESSING OFFICER OUGHT TO HAVE VERI FIED FROM THE INCOME TAX RECORDS OF THE CREDITORS TO FIND OUT THE CORREC T POSITION. THE ASSESSING OFFICER COULD HAVE ALSO ISSUED SUMMONS TO THE CREDITORS AND COULD HAVE ENFORCED THEIR ATTENDANCE. 6. WE HAVE CONSIDERED HIS SUBMISSIONS AND ARE OF TH E VIEW THAT THE ASSESSING OFFICER HAS NOT AFFORDED PROPER OPPORTUNI TY TO THE ASSESSEE. EVEN LEARNED CIT(A) HAS MERELY REJECTED THE PLEA OF THE ASSESSEE WITHOUT PROPER CONSIDERATION. IN VIEW OF THE FACT THAT VALI D CONFIRMATIONS HAVE BEEN FILED BEFORE THE ASSESSING OFFICER IT WAS INC UMBENT ON THE PART OF THE ASSESSING OFFICER TO ISSUE SUMMONS IF HE WANTS TO VERIFY THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. WITH OUT DOING SO THE ASSESSING OFFICER WAS NOT ENTITLED TO DRAW ANY ADVE RSE INFERENCE. WE THEREFORE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMAND THE MATTER TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. T HE ASSESSING OFFICER WILL EXAMINE THE ISSUE IN ACCORDANCE WITH LAW AFTER AFFO RDING OPPORTUNITY OF BEING HEARD. 7. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND OF APPEAL. THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF INTEREST PAYMENT. GROUND OF APPEAL RAISED READ AS FOLLOWS :- J. SUGANDH PRODUCTION PVT. LTD. 4 THE HON'BLE LEARNED CIT(A) ERRED IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN NOT DELETING ALLEG ED DISALLOWANCE ON ACCOUNT OF INTEREST AND BANK INTEREST. PROPORTIO NATE DISALLOWANCE OF RS. 48 10 280/-. THE NON-INTEREST B EARING FUNDS IN MUCH MORE AND LARGER THAN THE INTEREST BEARING F UNDS AND IN VIEW OF THE FACT THAT THE INTEREST BEARING FUNDS HA VE BEEN DEPLOYED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CORE BUS INESS OF YOUR APPELLANT VIZ. FILM FINANCING AND FILM PRODUCTION THE QUESTION OF ANY ALLEGED DISALLOWANCE OF INTEREST/BANK INTEREST DOES NOT ARISE. THE ENTIRE ADDITION BE DELETED. IN THE B/S OF THE ASSESSEE THERE WAS AN UNSECURED LOAN AMOUNTING TO RS. 9 45 89 965/- AND AGAINST THE LOAN AND ADVANCES IN THE ASSET ASIDE ASSESSEE HAS SHOWN A FIGURE OF RS. 4 81 02 797/-. I N THE PROFIT AND LOSS ACCOUNT IT WAS OBSERVED THAT THE ASSESSEE HAS DEBI TED INTEREST AMOUNT OF RS. 32 40 422/- UNDER THE HEAD INTEREST ON LOAN AND RS. 21 92 533/- UNDER THE HEAD BANK CHARGES AND INTEREST. THE ASS ESSEE WAS CALLED UPON BY THE AO VIDE NOTE SHEET ENTRY DATED 10.12.20 07 AS TO WHY PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD NOT B E MADE IN HIS HANDS. SINCE NO REPLY WAS RECEIVED FROM THE ASSESSEE IN T HIS REGARD THE AO DISALLOWED THE FOLLOWING SUM AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE BASED ON THE WORKING WHICH IS SHOWN AS UND ER :- I UNSECURED LOANS RS. 9 45 89 965 II LOANS AND ADVANCES RS. 4 81 02 797 III INTEREST ON LOAN RS. 32 40 422 IV BANK CHARGES AND INTEREST RS. 21 92 533 TOTAL INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT I .E. POINT (III) + POINT (IV) (RS. 32 40 422/- + 21 92 533/-) = RS. 54 32 955/- W ORKS OUT TO 5.74% OF RS. 9 45 89 965/-. ACCORDING TO THE AO IN MANY OF T HE UNSECURED LOANS THE ASSESSEE HAD NOT CLAIMED ANY INTEREST. SINCE T HE CORRECT BIFURCATION WAS NOT AVAILABLE ON RECORD BASED ON WHICH EXACT CA LCULATION OF INTEREST CAN BE MADE HENCE AN OBJECTIVE FIGURE OF 10% WAS TAKEN UP BY THE AO FOR CALCULATION PURPOSE. THUS 10% OF THE LOANS ADV ANCED BY THE ASSESSEE WORKING OUT TO RS. 48 10 280/- (10% OF RS. 4 81 02 797) WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. J. SUGANDH PRODUCTION PVT. LTD. 5 7. BEFORE LEARNED CIT(A) THE ASSESSEE SUBMITTED TH AT THE LOANS AND ADVANCES GIVEN BY IT WERE IN THE NATURE OF ADVANCE FOR PRODUCTION OF FILMS. IT WAS ALSO SUBMITTED THAT THESE FILMS WERE NOT ULTIMATELY PRODUCED. THE ASSESSEE SUBMITTED THAT IN THESE CIRC UMSTANCES THERE CANNOT BE ANY DISALLOWANCE ON THE GROUND THAT INTER EST BEARING FUNDS WERE USED FOR GIVING THE INTEREST FREE LOANS. LEARN ED CIT(A) HOWEVER HELD THAT THE DISALLOWANCE OF INTEREST SHOULD BE RESTRIC TED TO INTEREST CLAIMED IN THE PROFIT AND LOSS ACCOUNT AND DIRECTED THE ASS ESSING OFFICER TO CALCULATE INTEREST DISALLOWANCE ON ADVANCE MADE IN PROPORTION TO INTEREST PAID BY THE ASSESSEE ON LOANS AND ADVANCES. 8. BEFORE US IT WAS SUBMITTED THAT THE LEARNED CIT (A) HAS FAILED TO CONSIDER THE PLEA RAISED BY THE ASSESSEE WITH REGAR D TO PURPOSE OF INTEREST FREE LOANS. IT WAS SUBMITTED THAT INTEREST FREE LOANS WERE FOR BUSINESS PURPOSES AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S. 36(1)(3) OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE SATISFIED THAT THE FAILURE TO RAISE THIS GROUND IN THE ORIGINAL GR OUNDS OF APPEAL IS NOT WILLFUL. ADDITIONAL GROUND ARISES OUT OF THE ORDER OF LEARNED CIT(A) AND IS MATERIAL FOR PURPOSE OF ADJUDICATION OF THE CORRECT TAX LIABILITY OF THE ASSESSEE. WE THEREFORE ADMIT ADDITIONAL GROUND FOR ADJUDICATION. WE FIND THAT THE ASSESSEE HAS TAKEN A PLEA THAT THE ADVANCE S GIVEN BY IT WERE FOR PRODUCTION OF FILMS. IN THIS REGARD WE DO NOT FIND ANY EVIDENCE HAVING BEEN FILED BY THE ASSESSEE. WE FEEL THAT IT WOULD B E IN THE INTEREST OF JUSTICE TO OFFER ONE MORE OPPORTUNITY TO THE ASSESS EE TO PRODUCE EVIDENCE TO ESTABLISH THAT THE LOANS GIVEN BY IT WERE IN THE NATURE OF ADVANCE FOR PRODUCTION OF FILMS. IN OTHER WORDS ASSESSEE WILL ESTABLISH THAT LOANS AND ADVANCES GIVEN BY IT WERE FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE. THE ORDER OF LEARNED CIT(A) IS SET ASIDE AND MATTER IS REMANDED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW AND AFTER AFFORDING OPPORTUNITY OF BEING HEARD. J. SUGANDH PRODUCTION PVT. LTD. 6 10. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOUNCED ON 15 TH DAY OF FEBRUARY 2010. SD/- (R.S. SYAL) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 15 TH FEBRUARY 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS