Mr Bharat Jain, Kolkata V. ITO, WD-8(1), KOLKATA, Kolkata

ITA 1019/KOL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4158 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 30-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-05-2016
• Court: TRIBUNAL
• Department Lawyers: H R SINGH
• Section: 143(3)

Judgement Text

1 ITA NO.1019/KOL/2016 BHARAT JAIN, AY 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO. 1019/KOL/2016 ASSESSMENT YEAR: 2008-09 SHRI BHARAT JAIN, PAN:ACVPJ6636Q VS. INCOME-TAX OFFICER, WARD-8(1), KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 30.11.2016 DATE OF PRONOUNCEMENT: 09.12.2016 FOR THE APPELLANT: SHRI SOUMITRA CHOUDHURY, AD VOCATE FOR THE RESPONDENT: SHRI H. R. SINGH, JCIT ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-18, KOLKATA VIDE APPEAL NO. 282/CIT(A)-18/14-15/ITO,WD-8(1)/KOL DATED 01.03.201 6. ASSESSMENT WAS FRAMED BY ITO, WARD-8(1), KOLKATA U/S. 143(3) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2008-09 VIDE HIS ORDER DATED 31.12.20 10. 2. AT THE OUTSET, THERE IS A DELAY OF 3 DAYS IN FI LING OF APPEAL BY THE ASSESSEE BEFORE US. IN VIEW OF CONCESSION GIVEN BY THE LD DR FOR CONDON ATION OF THE SAME, THE DELAY IS HEREBY CONDONED AND THE APPEAL IS HEREBY ADMITTED FOR ADJU DICATION. 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF INTEREST TO THE EXTEN T OF RS. 7,94,500/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE BRIEF FACTS OF THIS CASE IS THAT THE ASSESS EE IS AN INDIVIDUAL HAVING INCOME FROM PROPRIETORSHIP CONCERN UNDER THE NAME AND STYLE OF BENZ TRADERS BESIDES DERIVING DIRECTORS REMUNERATION AND INCOME FROM OTHER SOURC ES. THE LD AO OBSERVED FROM THE ACCOUNTS OF BENZ TRADERS THAT THE ASSESSEE HAD AVAI LED UNSECURED LOANS OF RS. 57,15,334/- AS ON 31.3.2008 AND SUFFERING INTEREST THEREON. SINCE THERE WAS NO PURCHASE AND SALE DURING THE YEAR, THE LD AO CONCLUDED THAT THE UNSECURED LO AN HAS BEEN UTILIZED BY THE ASSESSEE FOR OTHER THAN BUSINESS PURPOSES AND HENCE THE INTEREST PAID THEREON WAS SOUGHT TO BE 2 ITA NO.1019/KOL/2016 BHARAT JAIN, AY 2008-09 DISALLOWED IN THE SUM OF RS. 19,26,671/-. THE ASSE SSEE REPLIED THAT THE LOANS WERE AVAILED IN EARLIER YEARS AND HAD BEEN USED ONLY FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE AND SINCE THE LOANS WERE SUBSISTING DURING THE YEAR, INTEREST THEREON WAS PAID AND CLAIMED AS DEDUCTION. THE LD AO HOWEVER PROCEEDED TO DISALL OW THE INTEREST PAID IN THE SUM OF RS. 19,26,671/- IN THE ASSESSMENT. 5. BEFORE THE LD CITA, THE ASSESSEE SUBMITTED PART Y WISE DETAILS OF LOANS TAKEN AND GIVEN AND THE INTEREST CHARGED ON SUCH LOANS. THE ASSESSEE ALSO SUBMITTED THAT DURING THE YEAR, HE HAD EARNED INTEREST TO THE TUNE OF RS. 3,0 7,241/- ON THE LOANS GIVEN BY THE ASSESSEE. IT WAS SUBMITTED THAT THE LOANS TAKEN IN THE EARLIE R YEARS WERE UTILIZED TO GAIN CONTROL OVER THE COMPANIES. HENCE INTEREST WAS NOT CHARGED BY TH E ASSESSEE ON THE MONIES ADVANCED TO SAID COMPANIES. DURING THE CURRENT YEAR, SAME OLD L OANS WERE BROUGHT FORWARD. IT WAS ALSO SUBMITTED THAT FOR THE ASST YEAR 2007-08 (I.E IMMED IATELY PRECEDING PREVIOUS YEAR), THE LD AO HAD DISALLOWED 50% OF INTEREST PAID WHICH WAS DE LETED BY THE LD CITA AND ON FURTHER APPEAL, THE ORDER OF THE LD CITA WAS UPHELD BY THE TRIBUNAL. THE ASSESSEE ALSO SUBMITTED BEFORE THE LD CITA THE FOLLOWING DETAILS :- INTEREST FREE LOANS TAKEN BY BENZ TRADERS BEAUTIFUL LIVING PVT LTD 10,00,000 YAMINI AGENCIES PVT LTD 21,75,000 GLOBAL COKE PVT LTD 8,00,000 RAJPUTANA GENERAL COM CORP. P LTD 21,00,000 ECO ORCHARDS PVT LTD 10,00,000 INTEREST FREE LOANS GIVEN TO COMPANIES WHERE ASSESS EE IS ONE OF THE DIRECTOR NERVE KNOCK THEME PARKS PVT LTD 20,30,987 BANSILAL CREDIT PVT LTD 6,00,000 AKHIL ORCHARDS PVT LTD 4,25,000 5.1. THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD TAKEN LOANS IN EARLIER YEARS AND HAD UTILIZED THE SAME FOR EXTENDING INTEREST FREE LOANS TO CERTAIN COMPANIES IN ORDER TO HAVE A CONTROL IN THE MANAGEMENT IN THE SAID COMPANIES. I N OTHER WORDS, THE BORROWED FUNDS WERE USED FOR ACQUIRING CONTROLLING INTEREST IN OTHER CO MPANIES AND THE SAME BEING IN THE INTEREST OF THE ASSESSEES BUSINESS, INTEREST PAID ON SUCH B ORROWED FUNDS IS DEDUCTIBLE U/S 36(1)(III) OF THE ACT. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS RAJEEV LOCHAN KANORIA R EPORTED IN 208 ITR 616 (CAL). THE ASSESSEE IS THE DIRECTOR OF ELEVEN COMPANIES AND EA RNED DIRECTORS REMUNERATION OF 3 ITA NO.1019/KOL/2016 BHARAT JAIN, AY 2008-09 RS.17,40,000/- DURING THE YEAR UNDER REVIEW. THE DIRECTORSHIP IS ALSO A VOCATION AND FOR GAINING CONTROL OF OTHER COMPANIES, THE BORROWED MO NEY HAD BEEN UTILIZED. IT WAS ALSO SUBMITTED THAT THE LD AO HAD IGNORED THE FACTUM OF RECEIPT OF INTEREST INCOME TO THE TUNE OF RS. 3,07,241/- ON THE LOANS GIVEN BY THE ASSESSEE 5.2. THE LD CITA WENT ON A WRONG ASSUMPTION THAT T HE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO VARIOUS COMPANIES (AS AGAINST INTEREST FRE E LOANS TAKEN BY THE ASSESSEE IN RESPECT OF FIVE COMPANIES ) AS LISTED OUT IN HIS ORDER AS BELO W:- BEAUTIFUL LIVING PVT LTD 10,00,000 GLOBAL COKE PVT LTD 8,00,000 RAJPUTANA GENERAL COM CORP. P LTD 21,00,000 NERVE KNOCK THEME PARKS PVT LTD 20,30,987 AKHIL ORCHARDS PVT LTD 4,25,000 YAMINI AGENCIES PVT LTD 21,75,000 ECO ORCHARDS PVT LTD 10,00,000 BANSILAL CREDIT PVT LTD 6,00,000 THE LD CITA OBSERVED THAT THE ASSESSEE HAD GIVEN LI ST OF TEN COMPANIES IN WHICH HE IS A DIRECTOR WHICH INCLUDED THREE COMPANIES LISTED HERE INABOVE. ACCORDINGLY HE CONCLUDED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS OF RS. 63,55,987/- TO THE COMPANIES IN WHICH HE IS NOT A DIRECTOR. THE LD CITA OBSERVED THAT T HE ASSESSEE HAS BEEN PAYING INTEREST @ 10 TO 15% ON LOANS TAKEN BY HIM ON AN AVERAGE. ACCOR DINGLY HE APPLIED 12.5% ON RS 63,55,987/- AND RESTRICTED THE DISALLOWANCE TO RS. 7,94,500/- MADE BY THE LD AO. AGGRIEVED , THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-18 HAS ERRED IN CONSIDERING RS.63,55,987/- AS LOANS NOT UTILIZED FO R BUSINESS PURPOSE. 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DISALLO WING RS.7,94,500/- TOWARDS INTEREST OUT OF RS.19,26,671/- AS INTEREST ON LOAN CLAIMED. 6. THE LD AR ARGUED THAT FIRST OF ALL THE LD CITA PROCEEDED ON AN ERRONEOUS PRESUMPTION THAT THE ASSESSEE HAD GIVEN INTEREST FR EE LOANS TO CERTAIN COMPANIES (FIVE COMPANIES) AS AGAINST THE INTEREST FREE LOANS TAKEN FROM THOSE FIVE COMPANIES BY THE ASSESSEE. HE ARGUED THAT ACCORDINGLY THE ASSESSEE HAD GIVEN INTEREST FREE LOANS ONLY TO THREE PARTIES I.E NERVE KNOCK THEME PARKS PVT LTD (RS. 20 ,30,987) ; AKHIL ORCHARDS PVT LTD (RS. 4,25,000) AND BANSILAL CREDIT PVT LTD (RS 6,00,000) AND CLAIMED THAT THE ASSESSEE IS ONE OF THE DIRECTORS IN THESE COMPANIES. HE PLACED RELIAN CE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF RAJEEV LOCHAN KANORIA SUP RA AS THE ADVANCES WERE MADE BY THE 4 ITA NO.1019/KOL/2016 BHARAT JAIN, AY 2008-09 ASSESSEE FOR OBTAINING CONTROLLING INTEREST AND ASS ESSEE HAD ALSO DERIVED DIRECTORS REMUNERATION FROM THESE COMPANIES WHICH WAS DULY OF FERED TO TAX. IN RESPONSE TO THIS, THE LD DR ARGUED THAT THERE WAS NO SALE AND PURCHASE TR ANSACTION DURING THE YEAR AND HENCE INTEREST SHOULD NOT BE ALLOWED AS DEDUCTION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THERE ARE FACTUAL DISCREPANCIES IN THE LIST OF COMPANIES IN WHICH THE ASSESSEE WAS DIR ECTOR AS POINTED OUT BY THE ASSESSEE AND AS POINTED OUT BY THE LD CITA IN HIS ORDER. MOREOV ER, THE ASSESSEE SEEMS TO HAVE TAKEN INTEREST FREE LOANS FROM CERTAIN COMPANIES WHICH TH E LD CIT(A) HAD STATED THAT THE SAME WERE INTEREST FREE LOANS GIVEN BY ASSESSEE. THE W ORKING OF PROPORTIONATE DISALLOWANCE OF INTEREST AS MADE BY THE LD CITA REVOLVES ON THIS FI NDING WHICH APPARENTLY SEEMS TO BE CONFLICTING. IN THESE CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO, TO DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW. THE LD AO IS ALSO DIRECTED TO GIVE A FINDING AS TO THE APPLICABILITY OF VARIOUS CASE LAWS RELIED UPON BY THE LD AR , IF ANY . ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.12.2016 SD/- SD/- (S. S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED :9 TH DECEMBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT SHRI BHARAT JAIN, C/O, BARIK & ASSOCIAT ES, 12, CHOWRINGHEE SQUARE , KOLKATA-700 001. 2 RESPONDENT ITO, WARD-8(1), KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .