. . , , DVK Investments P Ltd. DIL Complex, Ghodblunder Road

आयकर अपीलय अ
धकरण, मब
ुं ई यायपीठ “डी” मब
ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
सवी बी.आर.बाकरन, लेखा सदय
एवं
ी संजय गग, यायक सदय के सम
आयकर अपील सं./I.T.A. No.838/Mum/2012
(नधारण वष / Assessment Years : 2008-09)
DVK Investments P Ltd.
DIL Complex,
Ghodblunder Road,
Majiwda,
Thane (W),
बनाम/
Vs.
..
(अपीलाथ% /Appellant)
Dy. Commissioner of Income Tax
Range 8 (1),
Aayakar Bhavan, M K Road,
Mumbai-400020
(&'यथ% / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AACCD0356K
अपीलाथ% ओर से / Appellant by
:
&'यथ% क* ओर से/Respondent by :
सन
ु वाई क* तार.ख / Date of Hearing
Shri Nitesh Joshi
Shri Durga Dutt
: 17.7.2014
घोषणा क* तार.ख /Date of Pronouncement : 31.7.2014
आदे श / O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal of the assessee is directed against the order dated 01-12-2011
passed by Ld CITA(16), Mumbai and it relates to the assessment year 2008-09.
2.
The first issue contested in the appeal relates to the assessment of
notional interest income on advances given by the assessee. The facts relating
thereto are stated in brief. The AO noticed that the assessee has advanced a
sum of Rs.3.64 crores and it did not charge any interest thereon. The assessee
Company was classified as “Non banking financial Company” (NBFC) by the
Reserve Bank of India. Hence, the AO took the view that the assessee should
2
ITA No.838/Mum/2012
have charged interest on the above said advance and accordingly rejected the
claim of the assessee that no interest accrued thereon.
With regard to the
accrual concept, the AO placed reliance on the decision of Hon’ble Supreme
Court in the case of CIT Vs. KRMTT Thiagaraja Chetty & Co. (24 ITR 525). The
advance amount of Rs.3.64 crores included a sum of Rs.1.91 crores advanced to
a subsidiary company and the balance amount of Rs.1.73 crores were advanced
to other persons. The AO estimated notional interest on the balance amount of
Rs.1.73 crores @ 9% and determined accrued interest at Rs.26,06,203/- and
assessed the same. Later in a rectification order passed u/s 154 of the Act, the
AO accepted that the interest amount computed @ 9% on Rs.1.73 crores would
work out to Rs.15,63,722/- and accordingly reduced the addition by
Rs.10,42,481/-.
In the appeal preferred by the assessee, the Ld CIT(A)
confirmed the assessment of notional interest of Rs.15,63,722/-.
The first
appellate authority also placed reliance on the following decision with regard to
the concept of accrual of income:-
(a) KRMTT Thiagaraja Shetty & Co. (supra)
(b) Morvi Industries Ltd Vs. CIT (82 ITR 835)(SC)
(c) CIT Vs. Shiv Prakash Jabak Raj & Co. (P) Ltd (222 ITR 583)(SC)
(d) E.D.Sassoon & Co. Ltd & Ors. Vs. CIT (26 ITR 27)(SC)
Aggrieved the assessee has filed this appeal before us.
3.
We have heard rival contentions and perused the record.
There is no
dispute with regard to the fact that the assessee did not have any interest
bearing borrowings.
Hence the question of diversion of such funds does not
arise here. The details of advances given by the assessee are as under:-
3
Rajeswari Datla
Prasmoney Investments
Satish Sharma
Silk Road Communications
Vishwanath Pandya
Mushtak Ahemed
VM Café De Art P Ltd
ITA No.838/Mum/2012
50,00,000
37,00,000
32,72,096
20,00,000
5,00,000
29,02,593
1,90,74,595
-------------------3,64,49,284
===========
We have already noticed that the AO himself has excluded the advance of
Rs.1.90 crores given to the subsidiary company named M/s VM Café De Art P
Ltd. In respect of the remaining advances, the assessee has offered following
explanations as to how it came to remain in its books of accounts:-
“2.2.2.
The appellant further submitted that VM Cafe De
Art Private Limited is a 100% subsidiary of the Appellant. Mr. Mushtak
Ahemad is VM Café in charge of its management and day to day
operations. Advances given to meet the business needs of the subsidiary.
The appellant further submitted in the year 2005 two Companies
namely Deft Investment Pvt Ltd and Difcosons Pvt Ltd. were
merged and amalgamated into the Appellant Co. Erstwhile
amalgamating company viz. Deft Investment had paid advance in the
year 2002 to Silk Road Communications Pvt. Ltd., Satish Sharma
and Prasmoney Investment Pvt. Ltd. for purchase of investments.
Pending transfer of investment to the appellant amount paid is
carried as advance. Similarly in 2004 the erstwhile Difcoson had given
an advance to Vishwaas Pandya for acquiring certain shares from
open market. Further advance given to Rajeshwari datla is for
purchase of office premises. The appellant further submitted that
these advances were given for the purpose of the business of the
Appellant Company. All advances are non interest bearing advances.
Therefore no interest could said to have accrued on these advances. The
appellant further submitted that the Ld. AO has misdirected himself in
holding that the Appellant Company being an Investment NBFC cannot
give interest free advance.”
4.
Before us, the Ld A.R contended that the assessing officer was not justified
in estimating the notional interest on the above said advances.
He further
submitted that the AO is not entitled to expect the assessee to earn income in
4
ITA No.838/Mum/2012
accordance with the expectations of the AO. In this regard, he placed reliance
on the following case law:-
(a) CIT Vs. Raman & Co. (67 ITR 11)(SC)
(b) India Finance & Constn. Co Pvt Ltd Vs. B.N.Pande, DCIT
(200 ITR 710)(Bom).
The Ld D.R, however, placed strong reliance on the order of Ld CIT(A).
5.
In the case of Raman & Co. (supra), the following observations made by
Hon’ble Supreme Court are relevant here.
“8. The plea raised by the ITO is that income which could have been
earned by the assessees was not earned, and a part of that income was
earned by the HUFs. That according to the ITO was brought about by "a
subterfuge or contrivance". Counsel for the CIT contended that if by
resorting to a "device or contrivance", income which would normally have
been earned by the assessee is divided between the assessee and another
person, the ITO would be entitled to bring the entire income to tax as if it
had been earned by him. But the law does not oblige a trader to
make the maximum profit that he can out of his trading
transactions. Income which accrues to a trader is taxable in his
hands : income which he could have, but has not earned, is not
made taxable as income accrued to him. By adopting a device, if it is
made to appear that income which belonged to the assessee had been
earned by some other person, that income may be brought to tax in the
hands of the assessee, and if the income has escaped tax in a previous
assessment a case for commencing a proceeding for reassessment under
s. 147 (b) may be made out.”
The above said decision of Hon’ble Supreme Court was followed by Hon’ble
Bombay High Court in the case of
India Finance & Constn. Co Pvt Ltd Vs.
B.N.Pande, DCIT (200 ITR 710)(Bom), wherein the following observations made
by the High Court are relevant:“7. The second transaction on the basis of which notice under s. 148 is
issued relates to a transaction entered into in May, 1982 under which the
assessee-company advanced to M/s C.R. Developers Pvt. Ltd. a sum of
Rs. 15 lakhs purporting to be an advance for the purpose of construction
of a hotel. The advance is in the nature of a loan and no interest is being
charged on this account. The respondents contend that the assessee-
5
ITA No.838/Mum/2012
company should have received an interest income worth approximately
Rs. 3 lakhs if interest had been charged on this advance. Hence, this
interest income of approximately Rs. 3 lakhs has escaped assessment.
Once again the reason which is recorded is beyond the scope of s. 147. It
is an accepted position that the assessee-company has in fact not
received any interest in respect of this advance from M/s C.R. Developers
Pvt. Ltd. in the asst. yr. 1988-89. When no income is received there
is no question of paying any tax on income which the
respondents think, should have been received but was in fact not
received. In the case of CIT vs. A. Raman and Co. reported in
(1968) 67 ITR 11 (SC), the Supreme Court said that the law does
not oblige a trader to make the maximum profit that he can out
of his trading transactions. Income which accrues to a trader is
taxable in his hands. Income which he could have but has not
earned is not made taxable as income accrued to him.”.
Though both the decisions cited above have been rendered in the context of
reopening of assessment, but the observations made in that regard are relevant
here. In the instant case, the contention of the assessee is that there was no
agreement between the assessee and the parties to whom advances were given
to receive any interest on the above said advances.
The assessee has also
explained the circumstances under which these advances came to be remained
in its books. On the contrary, we notice that the AO has not brought on record
any material to show that the assessee is entitled to receive interest from the
above said advances, but omitted to account for the same.
Only if such a
contract exists, in our view, the concept of accrual would come into play. In the
instance case, both the tax authorities have proceeded on the presumption that
the interest has accrued to the assessee by virtue of a contract. Hence both of
them have discussed extensively about the concept of accrual, which is
inapplicable to the facts of instant case.
ITA No.838/Mum/2012
6
6.
In view of the foregoing, we are of the view that the assessing officer was
not justified in assessing “notional interest” discussed above.
On the same
reasoning, the Ld CIT(A) was not justified in confirming the said assessment.
Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO
to delete the assessment of notional interest amount.
7.
During the course of hearing, the ld A.R submitted that the assessee would
not press the remaining grounds, if the above said ground is decided in favour of
the assessee. Accordingly the Ld A.R did not argue on the remaining grounds.
However, he pleaded that the assessee may given an opportunity to contend
other grounds, if the first ground is decided against the assessee. Since, we
have decided the first ground in favour of the assessee, we dismiss the
remaining grounds as “not pressed.”
8.
In the result, the appeal filed by the assessee is partly allowed.
The above order was pronounced in the open court on 31st July, 2014.
घोषणा खुले यायालय म1 2दनांकः
Sd
31st July, 2014 को क* गई ।
sd
(संजय गग /SANJAY GARG)
(बी.आर.बाकरन / B.R. BASKARAN)
यायक सदय / JUDICIAL MEMBER
लेखा सदय / ACCOUNTANT MEMBER
मब
ुं ई Mumbai:
31st July,2014.
व.न.स./ SRL , Sr. PS
ITA No.838/Mum/2012
7
आदे श क तल प अ!े षत/Copy of the Order forwarded to :
1.
अपीलाथ% / The Appellant
2.
&'यथ% / The Respondent.
3.
आयकर आय6
ु त(अपील) / The CIT(A)- concerned
4.
आयकर आय6
ु त / CIT concerned
5.
7वभागीय &तन9ध, आयकर अपील.य अ9धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
गाड फाईल / Guard file.
6.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील.य अ9धकरण, मंब
ु ई /ITAT, Mumbai

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