Shri Rashmin Ramniklal Vora, Ahmedabad V. The Income Tax Officer, Ward-1(2)(5), Ahmedabad

ITA 1066/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2039 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 02-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHREEKANT S SHAH
• Keywords: Depreciation; Capital expenditure
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI RASHMIN RAMNIKLAL VORA 2/3, KARMYOG FLATS, ST. XAVIOURS COL L E GE CORNER, ELLISBRIDGE, AHMEDABAD PAN: AALPV6701G (APPELLANT) VS THE IT O , WARD - 1 (2)(5) , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI VIRENDRA SING H , SR. D . R. ASSESSEE BY: SHREEKANT S. SHAH, A.R. DATE OF HEARING : 13 - 06 - 2 019 DATE OF PRONOUNCEMENT : 18 - 06 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2013 - 14 , ARI SES FROM ORDER OF THE CIT(A) - 10, AHMEDABAD DATED 21 - 02 - 2 017 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : - 1. THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - IO REFERRED TO AS 'THE COMMISSIONER (APPEALS)' IS BAD IN LAW AND ERRONEOUS AS TO FACT. 2. THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING LOSS OF RS.2,94,917/ - IN PLACE OF LO SS OF RS.14,97 ,969/ - RETURNED. ' 3. THE COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT ASSESSEE IS A PARTNER IN M/S. SWEETOO APPARELS IN WHICH HE IS 40% PARTNER AND FOR HUGE FUTURE EXPANSION OF THE FIRM HE HAD TO INVEST AND BRING I T A NO . 1066 / A HD/20 17 A SS ESSMENT YEAR 2013 - 14 I.T.A NO. 1066 /AHD/20 17 A.Y. 2013 - 14 PAGE NO RASHMIN RAMNIKLAL VORA VS. IT O 2 PROPORTIONATE CAPITAL BY OWN OR BORROWED FUNDS BY PA YING INTEREST, AND THAT BECAUSE OF HUGE EXPANSION OF THE FIRM, IT HAD MADE LOSS ON ACCOUNT OF BANK INTEREST AND DEPRECIATION WHICH TURNED HIS CAPITAL IN A NEGATIVE BALANCE. 4. THE COMMISSIONER (APPEALS) OUGHT TO HAVE OBSERVED FRO M THE DETAILS ON RECORD THAT THERE IS A HUGE POTENTIALITY OF HIGHER INCOME. 5. THE COMMISSIONER (APPEALS) OUGHT TO HAVE FOLLOWED RATIO OF HON'BLE SUPREME COURT IN THE CASE OF CIT V/S RAJENDRAPRASAD M ODY, CALCUTTA 115 ITR 519 (SC) THAT 'IT IS NOT NECES SARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(HI) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SECTION 57(III ) AND THAT PURPOSE MUST BE MAKING OR EARNED OF INCOME. SECTION 57(III ) DOES NOT REQUIRE THAT PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. 6 . THE COMMISSIONER (APPEALS) OUGHT TO HAVE FOLLOWED THE RATIO OF APEX COURT IN THE CASE OF SHETH R. DALMIA V/S CIT (1977) 110 ITR 644 LAYING DOWN THAT THE DOMINANT PURPOSE OF THE EXPENDITURE INCURRED MUST BE TO EARN INCOME. THE CONNECTION BETWEEN THE E XPENDITURE AND THE EARNING OF INCOME NEED NOT BE DIRECT EVEN ON INDIRECT CONNECTION SHOULD PROVE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME. 7. THE COMMISSIONER (APPEALS) ERRED IN OBSERVING THAT INTEREST PAID IS A CAPITAL EXPENDITURE. 8. THE COMMISSIONER (APPEALS) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE OF INTEREST ONLY ON THE OPENING BALANCE IN THE CAPITAL ACCOUNT. 3. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE INTERCONNECTED TO THE COMMON ISSUE OF DISALLOWANCE OF INTEREST U/ S. 57(III) OF THE ACT IN RESPECT OF UNSECURED LOAN OBTAINED FOR INVESTMENT IN THE PARTNERSHIP FIRM. 4. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLARING LOSS OF RS. 14 , 97 , 969/ - WAS FILED ON 27 TH SEP, 2013. SUBSEQUENTLY , THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 3 RD SEP, 2014. DURING THE COURSE OF ASSESSMENT ON VERIFICATION OF COMPUTATION OF TO T AL INCOME FILED BY THE ASSESSEE, THE ASSESSING OFFICER HA S NOTICED THAT ASSESSEE SHOWN INCOME OF RS . 810 FROM INTER EST EARNED ON SAVING BANK ACCOUNT. AGAINST T HE AFORESAID INCOME , THE ASSESSEE H AS CLAIMED DEDUCTION OF RS. 12 , 03 , 052/ - ON ACCOUNT OF INTEREST PAID ON UNSECURED LOAN INVESTED AS CAPITAL IN THE PARTNERSHIP FIRM. THE ASSESSEE EXPLAINED THAT BORROWED MONEY W AS INVESTED AS CAPITAL IN THE PARTNERSH IP FIRM M/S. SWEETO APPARELS. T HE FIRM HAD MADE CAPITAL INVESTMENT IN THE PURCHASE OF N EW SHOPS. THE ASSESSEE HAS STATED THAT FUTURE POTENTIALITY OF EARN ING INCOME BY WAY OF PROFIT AND REMUNERATION FROM THE PARTNERS HIP FIRM HAS BEEN INCREASED BECAUSE OF I.T.A NO. 1066 /AHD/20 17 A.Y. 2013 - 14 PAGE NO RASHMIN RAMNIKLAL VORA VS. IT O 3 CONTRIBUTION TO THE CAPITAL ACCOUNT IN THE PARTNERSHIP FIR M. THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF THE ASSESSEE STATING THAT DEDUCTION OF INTEREST EXPENSES OF RS. 12 , 03 , 052/ - WAS NOT COVERED BY SECTION 57(I II) OF THE ACT. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 5.2 THE SUBMISSIONS FILED BY THE APPELLANT WERE PERUSED. IT HAS CLEARLY BEEN BROUGHT ON RECORD BY THE A.O THAT THE OPENING BALANCE OF THE APPELLANT IN THE BOOKS OF ACCOUNTS OF THE FIRM M/S. SWEETOO APPARELS WAS OPENING DEBIT BALANCE OF RS. 32,60,328/ - IN THE PARTNERS CAPITAL ACCOUNT OF THE APPELLANT AND THE CLOSING DEBIT BALANCE WAS OF RS. 108,07,884/ - . THEREFORE, THERE IS A CLEAR DEBIT BALANCE IN THE PARTNERS CAPITAL ACCOUNT OF THE APPELLANT IN THIS FIRM. EVEN BEFORE THE INVESTMENT OF RS. 25 CRORE IN THE IMMOVABLE PROPERTY OF THIS FIRM DURING THE YEAR, THE OPENING DEBIT BALANCE OF THE APPELLANT WAS RS. 32,60,328/ - . SINCE THERE IS A DEBIT BALANCE IN THE PARTNERS CAPITAL ACCOUNT, THE ARGUMENT THAT THE MONEY HAS BEEN BORROWED FOR INVESTING IN THE FIRM DOES NOT HOLD GOOD ON THE FACTS OF THE CASE. IF THE MONE Y HAS INDEED BEEN INVESTED IN THE PARTNERSHIP FIRM OF THE APPELLANT, THE APPELLANT WOULD NOT HAVE AN OPENING DEBIT BALANCE IN THE PARTNERS CAPITAL ACCOUNT. THE AO HAS PREPARED A CHART STARTING FROM F.Y.2003 - 04 TILL F.Y.2012 - 13LISTING'THE AMOUNT OF INTEREST PAID, THE TOTAL INCOME AND THE BREAK UP OF SUCH INCOME. ON PERUSAL OF THE SAME IT IS SEEN THAT TILL F.Y. 2011 - 12 THE APPELLANT HAS EARNED MORE IN TERMS OF THE PROFIT IN THE PARTNERSHIP FIRM, REMUNERATION AND INTEREST FROM PARTNERSHIP FIRM THAN THE INTERES T PAID. IN F.Y. 2011 - 12 THE INTEREST INCOME FROM THE PARTNERSHIP FIRM WAS RS. 12,51,918/ - OUT OF WHICH RS. 9,67,218/ - WERE CLAIMED AS INTEREST DEDUCTION. THEREFORE, THERE IS NO REASON AS TO WHY THE PARTNERS CAPITAL ACCOUNT WOULD HAVE AN OPENING DEBIT BALAN CE AS THE APPELLANT WAS A PARTNER OF THIS FIRM AND HAS EARNED INTEREST OF RS. 12,51,918/ - IN F.Y.2011 - 12 RELEVANT TO A.Y - 2012 - 13. HOWEVER, IN THE CURRENT YEAR DUE TO DEBIT BALANCE IN THE OPENING CAPITAL ACCOUNT OF THE APPELLANT, THE APPELLANT HAS PAID NE T INTEREST TO THE FIRM TO THE EXTENT OF RS. 3,29,327/ - . THIS CLEARLY SHOWS THAT THE APPELLANT HAS WITHDRAWN MORE MONEY FROM THE FIRM THAN ACTUALLY INVESTED AND THEREFORE, THE APPELLANT HAD TO PAY NET INTERES T TO TH E PARTN ERSHIP FIRM/FIRMS DURING THE YE AR. IN VIEW OF THIS, THERE IS NO BASIS IN CLAIM OF THE APPELLANT THAT THE MONEY, BORROWED HAS BEEN UTILISED FOR INVESTMENT IN THE PARTNERSHIP FIRM. THE APPELLANT HAS ALSO ARGUED THAT THE SHOP WHICH WAS PURCHASED FOR RS. 25 CRORES AS A MARKET VALUE OF RS. 40 CR ORES HAS NO RELEVANCE TO THE CLAIM OF INTEREST U/S. 57(III). THE ARGUMENT OF THE APPELLANT THAT IT IS NOT NECESSARY TO HAVE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES TO CLAIM DEDUCTION U/S.57(III) OF THE ACT IS CORRECT BUT IT NEEDS TO BE SEEN WHETHER THE APPELLANT WOULD BE GETTING ANY INCOME , MAY BE IN FUTURE WHICH WOULD BE ASSESSABLE AS INCOME FROM O THER SOURCES. THE APPELLANT HAS I NTEREST INCOME/SHARE IN THE PROFIT/REMUNERATION WHICH IS ASSESSABLE AS PER THE PROVISIONS OF THE ACT UNDER THE HEAD 'PRO FITS AND GAINS FROM BUSINESS OR PROFESSION'. THEREFORE, THE RE IS NO INCOME BEING EARNED BY THE APPELLANT EITHER IN THIS ASSESSMENT YEAR OR IN FUTURE YEARS WHICH WOULD BE ASSESS ABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS ARGUMENT OF THE APPELLANT FA ILS ON THE FACTUAL BASIS AS HAS BEEN HELD IN THE EARLIER PART OF THIS ORDER, AS THE APPELLANT IN THIS ORDER HAS PAID INTEREST ON THE DEBIT BALANCE ON THE CAPITAL ACCOUNT WITH THE PARTNERSHIP FIRM. EVEN ON THIS GROUND THE ARGUMENT OF THE APPELLANT ARE NOT T ENABLE. I.T.A NO. 1066 /AHD/20 17 A.Y. 2013 - 14 PAGE NO RASHMIN RAMNIKLAL VORA VS. IT O 4 5.3 THE RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY, IS ALSO NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT AS THE ISSUE BEFORE HON'BLE SUPREME COURT WAS WHETHER INTEREST ON BORROWED FUNDS WHICH HAVE BEEN INVESTED BY THE APPELLANT FOR PURCHASE OF SHARES WOULD BE, DEDUCTIBLE, IF THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND FROM THE INVESTEVCOMPAMES, , JFT MAY BE POINTED OUT HERE THAT AT THAT POINT OF TIME, INCOME FROM DIVIDEND WAS /ASSESSABLE AS INCOME FROM OTHER SOURCES U/S'56 OF THE ACT AND THEREFORE, IN THAT CONTEXT THE HON'BLE SUPREME COURT HAS HELD THAT IT IS NOT RELEVANT OR IMMATERIAL WHETHER THE APPELLANT HAD ACTUALLY EARNED INCOME DURING THE ASSESSMENT YEAR IN QUESTION OR NOT. THE F ACT THAT IF THERE IS AN INCOME W HICH WOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IS GOOD ENOUGH FOR CLAIMING DEDUCTION U/S.57 OF T HE ACT. HOWEVER, SUBSEQUENTLY, THE INCOME - TAX ACT HAS BEEN AMENDED AND DIVIDEND INCOME IS NO MORE TAXABL E IN THE HANDS OF THE RECIPIENT. THEREFORE, IN THE FACTS OF THE PRESENT CASE THE DECISION OF HON'BLE SUPREME COURT IS NOT APPLICABLE. 5.4 MOREOVER, EVEN IF THE APPELLANT HAS ANY INCOME FROM THE PARTNERSHIP FIRM, THE SAME WOULD BE ASSESSABLE UNDER THE HEAD P ROFITS AND GAINS OF BUSINESS. TH EREFORE, THE DEDUCTION FOR INTEREST EXPENSES CANNOT BE CLAIMED U/S.57 OF THE ACT. THE L ANGUAGE OF THE ACT IS VERY CLEAR WHICH REQUIRES THAT THE INTEREST EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THERE IS NO INCOME EITHER BEING MADE OR EARNED BY THE APPELLANT IN THIS CASE. IT WOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, THE ARGUMENT OF THE APPELLANT ARE NOT ACCEPTED AND REJ ECTED. THE GROUNDS OF APPEAL ARE ACCORDINGLY DISMISSED. 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT ASSES SEE HAS OBTAINED UNSECURED LOAN FOR INVESTING IN THE PARTNERSHIP FIRM AS CONTRIBUTION T O HI S CAPITAL ACCOUNT. IT IS VERY CLEAR AS ELABORATED IN THE FINDING OF THE LD. CIT(A) THAT THERE WAS DEBIT BALANCE OF ASSESSEE S CAPITAL ACCOUNT IN THE PARTNERSHIP FIRM AS THE OPENING DEBIT BALANCE WAS OF RS. 32 , 60 , 328/ - AND CLOSING DEBIT BALANCE WAS OF RS. 1 , 08 , 07 , 884/ - . THE LD. CIT(A) HAS CLEARLY DEMONSTRATED IN HIS FINDING THAT DUE TO THE AFORESAID DEBIT BALANCE IN THE CAPITAL ACCOUNT , THE ASSESSEE HAS PAID NET INTERES T TO THE PARTNERSHIP FIRM TO TH E AMOUNT OF R S. 3 , 29 , 327/ - . THE AFORESAID FACT S INDICAT E THAT ASSESSEE HAS WITHDRAWN MORE MONEY FROM THE PARTNERSHIP FIRM THA N ACTUALLY INVESTED IN THE PARTNERSHIP FIRM. A PART FROM THE ABOVE , EARNING OF INTEREST INCOME/SHARE IN THE PROFIT/REMUNERATION FROM THE PARTNERSHIP FIRM IS ASSESSED UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION AND THE ASSESSEE COULD NOT SUBSTANTIATE THAT HOW THE INCOME FOR MAKING INVESTMENT IN THE PARTNERSHIP FIRM WOULD BE ASSESSABLE I.T.A NO. 1066 /AHD/20 17 A.Y. 2013 - 14 PAGE NO RASHMIN RAMNIKLAL VORA VS. IT O 5 UNDER THE HEAD INCOME FROM OTHER SOURCES. WE HAVE FURTHER NOTICED THAT JUDICIAL PRONOUNCEM ENT REFERRED BY THE LD. COUNSEL IN THE CASE OF CIT VS. RAJENDRAPRASAD MOODY 1979 AIR 373 OF THE HON BLE SUPREME COURT IS DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE AS IN THE REFERRED JUDGMENT , THE ISSUE WAS PERTAINED TO RECEIVING OF DIVIDEND INCOME O N ACCOUNT OF INVESTMENT MADE IN THE COMPANIES WHICH WAS ASSESSABLE AS INCOME FROM OTHER SOURCES U/S. 56 OF T HE ACT WHEREAS THE ISSUE IN TH E CASE OF ASSESSEE IS CONTRIBUTION MADE BY THE ASSESSEE IN HIS CAPITAL A CCOUNT IN THE PARTNERSHIP FIRM AND INCOME F R O M THE PARTNERSHIP FIRM WOULD BE ASSE SS ABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS. THE LD. COUNSEL HAS ALSO FAILED TO EXPLAIN HOW THE OTHER JUDICIAL PRONOUNCEMENTS (1) EASTERN INVESTMENTS LTD VS . COMMISSIONER OF INCOME - TAX, WEST... ON 4 MAY, 1951 EQUI VALENT CITATIONS: 1951 AIR 278, 1951 SCR 594 (2 ) HAMENDRA SINGH VS. COMMISSIONER OF INCOME TAX, LAWS(RAJ) - 1987 - 7 67 (3 ) JASHVIDYABEN C. MEHTA VS. COMMISSIONER OF INCOME - TAX ON 29 SEPTEMBER, 1987 EQUIVALENT CITATIONS: 1988 172 ITR 680 GUJ AND (4 ) R. DALMIA VS C.I.T., DELHI, NEW DELHI ON 21 SEPTEMBER, 1977 EQUIVALENT CITATIONS: 1977 AIR 2394, 1978 SCR (1) 537 ARE APPLICABLE AS THE FACT S OF THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE FROM T HE F ACTS OF THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LD. COUNSEL. IN THE LIGHT OF THE ABOVE FACTS AND FINDING, WE OBSERVE THAT AS PER SPECIFIC PROVISION OF SECTION 28(V) OF IT ACT ANY INTEREST, SALARY ETC. EARNED BY A PARTNER FROM A PARTNERSHIP FIRM IS TAX ABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AND THERE IS NO QUESTION OF CATEGORIZING IT UNDER THE HEAD INCO M E FROM OTHER SOURCES. THEREFORE, WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 57(III) SINCE THERE WAS NO SCOPE FOR TREATING SUCH INCOME I.T.A NO. 1066 /AHD/20 17 A.Y. 2013 - 14 PAGE NO RASHMIN RAMNIKLAL VORA VS. IT O 6 EARNED FROM PARTNERSHIP FIRM AS FALLING UNDER THE HEAD INCOME FROM OTHER SOURCES. WE CONSIDER THAT ELIGIBILITY FOR DEDUCTION U/S. 57(III) ARISES ONLY IF EXPENDITURE I S LEAD OUT WHOLLY AND EXCLUSIVELY FOR PURPOSE OF EAR N I NG INCOM E WHICH IS CHARGEABLE UNDE R THE HEAD INCOME OTHER SOURCES, THEREFORE, I N THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND INFIRMITY IN THE DE CISION OF LD. CIT(A). ACCORDINGLY , THE APPEAL OF THE ASSESSEE IS DISMISSED. 7. IN THE RESU LT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 18 - 06 - 201 9 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 18 /06 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,