INCOME TAX OFFICER, ALWAR V. M/S SURESH CHAND RAVI DATT, ALWAR

ITA 1020/JPR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2108 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM SINGH
• Assessee Lawyers: C L YADAV
• Keywords: Capital asset; Business income; Capital receipt

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1020/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 THE ITO, WARD-1(2), ALWAR. CUKE VS. M/S SURESH CHAND RAVI DATT, 3, NEW MANDI YARD, KHERLI, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAKFS0746B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPO NDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI C.L. YADAV (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAM SINGH (ADDL. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 19/02/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 21/02/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 23.10.2017 OF LD. CIT (A), ALWAR FOR THE ASSE SSMENT YEAR 2010- 11. THE REVENUE HAS RAISED THE FOLLOWING GROUND:- (I) THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXCESS CL AIM OF REMUNERATION TO THE PARTNERS CLAIMED FOR RS. 1,37,6 29. ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 2 2. DURING THE COURSE OF ASSESSMENT PROCEEDINS, THE AO NOTED THAT THE ASSESSEE HAS SHOWN A SUM OF RS. 2,29,381/- INTE REST FROM FDRS WITH SBI WHICH WAS TAKEN INTO ACCOUNT FOR CALCULATI ON OF REMUNERATION TO THE PARTNERS. THE AO WAS OF THE VIEW THAT INTERE ST OF FDR IS NOT A BUSINESS INCOME BUT IT IS INCOME FROM OTHER SOURCES , THEREFORE, EXCESS REMUNERATION WAS ALLOWED TO THE PARTNERS ON THIS AC COUNT. ACCORDINGLY, THE AO MADE A DISALLOWANCE OF RS. 1,37,629/- ON THI S ACCOUNT. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF TRADING AND COMMISSION AGENCY OF FOOD GRAINS, OIL SEEDS AND PULSES ETC. AND HAVE AVAILED CASH CREDIT/ OVERDRAFT FACILITY FROM T HE BANK FOR THIS PURPOSE. THE ASSESSEES BUSINESS IS A SEASONAL BUSI NESS RELATED TO CROP SEASON, THEREFORE, THE ASSESSEE HAS PARKED SOME OF THESE FUNDS DURING THE SLACK SEASON IN FRD AND SOME OF THE FDRS WERE T AKEN FOR AVAILING OVER DRAFT FACILITY. THE ASSESSEE RELIED UPON THE D ECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. LOK HOLDING 30 8 ITR 356. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DELETE D THE ADDITION OF RS. 1,37,629/-. 3. BEFORE US, LD. DR HAS SUBMITTED THAT THE ASSESSE E HAS ADMITTEDLY PARKED ITS SURPLUS FUNDS IN THE BANK DEPOSIT AND TH EREFORE, THE INTEREST ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 3 ON THE FDR CANNOT BE TREATED AS INCOME OF THE ASSES SEE FOR THE PURPOSE OF REMUNERATION GIVEN TO THE PARTNERS. HE H AS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 4. ON THE OTHER HAND, LD. AR OF THE ASSESSEE HAS SU BMITTED THAT SINCE THE BUSINESS OF THE ASSESSEE IS DEPENDING UPO N THE CROP SEASON AND THEREFORE, DURING THE LEAN PERIOD THE FUNDS AVA ILABLE WITH THE ASSESSEE WAS KEPT IN FDR WHICH IS A TEMPORARY DEPOS IT IN THE BANK. FURTHER, SOME PART OF THE FDRS WERE MADE ONLY FOR A VAILING OVERDRAFT FACILITY FOR RUNNING THE BUSINESS, THEREFORE, THE I NTEREST ON THE FDR HAS DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSE SSEE. HE HAS SUPPORT THE ORDER OF THE LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NOT DISPUTE THAT THE B USINESS OF THE ASSESSEE DEALING IN FOOD GRAINS, OIL SEEDS AND PULS ES ETC IS A SEASONAL BUSINESS DEPENDING UPON CROP SEASONS. THEREFORE, DU RING THE NON HARVESTING SEASON THE ASSESSEE IS NOT HAVING MUCH B USINESS ACTIVITY AND ACCORDINGLY THE FUNDS WHICH ARE OTHERWISE REQUI RED FOR THE BUSINESS ACTIVITY HAS TO BE KEPT IN THE BANK. FURTHER, IT IS ALSO NOT DISPUTED BY THE AO THAT SOME OF THE FDRS WERE TAKEN BY THE ASSE SSEE TO AVAIL OVERDRAFT FACILITY FROM THE BANK FOR THE PURPOSE OF BUSINESS ACTIVITY ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 4 DURING THE PICK SEASON OF CROPS. THE LD. CIT(A) DEC IDED THIS ISSUE IN PARA 5.3 IS AS UNDER:- 5.3 I HAVE CONSIDERED THE ORDER PASSED BY THE A.O AND SUBMISSIONS FILED BY THE APPELLANT. THE MOOT QUESTI ON IN THE CASE IS WHETHER THE INCOME EARNED ON FDRS WHICH WAS MADE TO AVAIL OD FACILITIES FOR RUNNING THE BUSINESS SHALL BE INC LUDED IN THE DISTRIBUTION OF REMUNERATION TO THE PARTNERS UNDER SECTION 40 OF THE ACT. IN VIEW OF THE FACTS MENTIONED BY THE APPE LLANT AND THE MUMBAI HIGH COURT JUDGMENT IN THE CASE OF CIT VS LO K HOLDING AS CITED BY THE APPELLANT, IT IS MAY CONSIDERED VIEW T HAT THE INTEREST EARNED ON FDRS TO AVAIL OD FACILITIES FOR RUNNING T HE BUSINESS QUALIFIES FOR INCLUSION IN THE PROFIT TO BE CONSIDE RED FOR REMUNERATION TO THE PARTNERS. ACCORDINGLY, THE ADDI TION OF RS. 1,37,629/- IS DELETED. THUS, THE FUNDS WHICH COULD NOT BE UTILIZED DURING THE SLACK SEASON AND THEREFORE WAS NOT IMMEDIATELY NEEDED WERE KEPT IN B ANK DEPOSITS INCLUDING FDR. THE HONBLE BOMBAY HIGH COURT IN CAS E OF CIT VS LOK HOLDING (SUPRA) WHILE CONSIDERING THE IDENTICAL ISS UE HAS HELD IN PARAS 5 TO 8 AS UNDER:- 5. IN OUR VIEW, THE FACTS OF THE PRESENT CASE ARE COM PLETELY DIFFERENT THAN THE FACTS IN THE CASE OF TUTICORIN A LKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). IN THAT CASE, THE BUSINES S OF THE ASSESSEE- COMPANY HAD NOT COMMENCED AND, THEREFORE, THE APEX COURT HELD THAT THERE COULD BE NO INCOME FROM BUSINESS. 6. APART FROM THIS, THE BUSINESS OF THE ASSESSEE IN T HAT CASE WAS THE MANUFACTURING OF HEAVY CHEMICALS. THE INVESTMEN T OF LOANS RECEIVED AND THE ACCRUING OF INTEREST THEREFROM WER E NOT A PART OF ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 5 THE BUSINESS OF THE ASSESSEE-COMPANY. IN THE PRESEN T CASE, THE FACT SITUATION IS THAT THE INCOME ADMITTEDLY AROSE OUT OF A RUNNING BUSINESS OF THE ASSESSEE-COMPANY. INTEREST WAS EARN ED OUT OF SUCH MONIES ACCRUING FROM THE BUSINESS OF THE ASSES SEE-COMPANY AND THE SAME WAS ALSO UTILISED FOR THE PURPOSE OF B USINESS. THIS IS NOT A CASE WHERE THE ASSESSEE DID NOT HAVE A RUN NING BUSINESS DURING THE ASSESSMENT YEAR. 7. THE ADVOCATE APPEARING FOR THE RESPONDENT RELIED U PON A JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V. PARAMOUNT PREMISES (P.) LTD. [1991] 190 ITR 259 . THE FACTS OF PARAMOUNT PREMISES (P.) LTD.'S CASE (SUPRA ) WERE ALMOST SIMILAR TO THE FACTS BEFORE US. THE ASSESSEE IN THA T CASE HAD RECEIVED DEPOSITS IN INSTALMENTS FROM PROSPECTIVE P URCHASERS WHILE THE WORK OF CONSTRUCTION WAS IN PROGRESS. IF THE PURCHASERS FAILED TO MAKE DEPOSITS BY STIPULATED DATES, THEY W ERE REQUIRED TO PAY INTEREST. IDLE AMOUNTS WERE DEPOSITED WITH THE BANK OR GIVEN ON TEMPORARY LOANS UNTIL SUCH TIME AS THEY WERE REQ UIRED FOR CONSTRUCTION. THUS, INTEREST WAS EARNED ON THESE AM OUNTS. IN DUE COURSE THE ASSESSEE'S APPEAL WAS CONSIDERED BY THE TRIBUNAL AND THE TRIBUNAL RECORDED A FINDING THAT THE ENTIRE INT EREST SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND DID NOT ARISE OUT OF ANY INDEPENDENT ACTIVITY. THIS COURT HELD THAT THE AFORESAID INTEREST WAS ASSESSABLE AS INCOME FROM BUSINESS AND AFFIRMED THE CORRECTNESS OF THE VIEW OF THE TRIBUNAL THAT THE IN TEREST SO EARNED WAS 'INCOME FROM BUSINESS'. IN OUR VIEW, THE LAW AS LAID DOWN IN PARAMOUNT PREMISES (P.) LTD.'S CASE (SUPRA) IS S QUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 8. THE ADVOCATE FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE A JUDGMENT OF THE APEX COURT IN THE CASE OF CIT V. BO KARO STEEL LTD. [1999] 236 ITR 315 . IN THAT CASE, THE ASSESSEE-COMPANY WAS IN THE BUSINESS OF MANUFACTURING OF STEEL. FOR THE PURPOSE OF CONSTRUCTION OF THE PLANT THE COMPANY GAVE ADVANCES TO ITS CONTRACTORS AND EARNED INTEREST FROM SUCH ADVANCES, WHICH WERE ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRAC TORS, THUS ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 6 UTILISING THE INTEREST AMOUNT TO REDUCE THE COST OF CONSTRUCTION. IN SUCH A FACT SITUATION, THE APEX COURT AFFIRMED THE FINDING OF THE HIGH COURT, THAT THESE WERE CAPITAL RECEIPTS AND NO T INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE. THE FACT SITUATION IN THAT CASE WAS COMPLETELY DIFFERENT THAN THE FACT SI TUATION IN THE PRESENT CASE. THE ASSESSEE IN THE CASE BEFORE THE S UPREME COURT WAS NOT IN THE BUSINESS OF CONSTRUCTION. THE INTERE ST RECEIPTS HAD BEEN UTILISED TOWARDS CREATION OF CAPITAL ASSETS. T HE SAID JUDGMENT IS NOT RELEVANT FOR DECIDING THE PRESENT M ATTER. LASTLY, THE ADVOCATE FOR THE ASSESSEE BROUGHT TO OUR NOTICE , A MORE RECENT JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN THE CASE OF SHREE KRISHNA POLYSTER LTD. V. DY. CIT [2005] 274 ITR 21 . IN THAT CASE, THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SYNTHETIC YARN. THE ASSESSEE RECEI VED SURPLUS MONEY IN PUBLIC ISSUE OF SHARES AND THE SAID MONEY WAS INVESTED IN BANK DEPOSITS FOR A PERIOD OF 45 DAYS. IN THEIR RETURNS THE ASSESSEE CLAIMED THAT THIS INTEREST WAS 'BUSINESS I NCOME'. THE TRIBUNAL FOUND THAT THE ASSESSEE WAS NOT IN THE BUS INESS OF MONEY-LENDING AND, THEREFORE, THE INTEREST INCOME C OULD NOT BE SAID TO BE BUSINESS INCOME. IT TREATED THE INCOME A S 'INCOME FROM OTHER SOURCES'. THE FACT SITUATION IN THAT CAS E WAS ALSO DIFFERENT FROM THE FACT SITUATION IN THE PRESENT CA SE. IN THAT CASE, THE ASSESSEE-COMPANY WAS NOT IN THE BUSINESS OF MON EY-LENDING. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE-COMPA NY WAS ENGAGED IN A CONSTRUCTION BUSINESS AND HAD DEPOSITE D MONEY RECEIVED IN THE COURSE OF SUCH BUSINESS WITH THE BA NK, EARNING INTEREST THEREON. THUS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CI T VS. LOK HOLDING (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) QUA THIS ISSUE. ITA NO. 1020/JP/2017 ITO VS. M/S SURESH CHAND RAVI DATT, ALWAR 7 IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2018. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21/02/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ITO, WARD-1(2), ALWAR. 2. IZR;FKHZ@ THE RESPONDENT- M/S SURESH CHAND RAVI DATT, ALWAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1020/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR