JCIT(OSD), Circle -4, Kolkata, Kolkata V. M/s. Monet Securities (P)Ltd, Kolkata

ITA 1074/KOL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4279 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure
• Section: 143(3); 142(1); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.1074/KOL/2012 ASSESSMENT YEARS:2009-10 JCIT (OSD) CIRCLE-4, P-7, CHOWRINNGHEE SQUARE, 8 TH FLOOR, KOLKATA-700 069 / V/S . M/S MONET SECURITIES PVT. LTD., 7, LYONS RANGE, 3 RD FLOOR, KOLKATA-01 [ PAN NO.AABCM 7058 A ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI NIRAJ KUMAR, CIT-DR /BY RESPONDENT SHRI NAGESWAR RAO, ADVOCATE /DATE OF HEARING 15-09-2016 /DATE OF PRONOUNCEMENT 21-10-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA DATED 18.05.2012. ASSESSM ENT WAS FRAMED BY JCIT(OSD) SCIRCLE-4, KOLKATA U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 30.12.2011 FOR ASSE SSMENT YEAR 2009-10. SHRI NIRAJ KUMAR, LD. DEPARTMENTAL REPRESENTATIVE A PPEARED ON BEHALF OF REVENUE AND SHRI NAGESWAR RAO, LD. ADVOCATE APPEARED ON BEH ALF OF ASSESSEE. 2. FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND IS A NON BANKING FINANCIAL CORPORATION REGISTER ED WITH RESERVE BANK OF INDIA. THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION H AS FILED ITS RETURN OF INCOME SHOWING LOSS OF 99,72,509/- COMPRISING OF LOSS UNDER THE HEAD BUSI NESS AND ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 2 PROFESSION. SUBSEQUENTLY THE CASE WAS SELECTED UND ER SCRUTINY THROUGH CASS MODULE. ACCORDINGLY NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED TO THE ASSESSEE. 3. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION OF 68,03,07,175/- ON ACCOUNT OF SALE OF PROPERTY. FOR THIS, REVENUE HAS RAISED FOLLOWING EFFECTIVE GROUND:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN DELETING 68,03,07,175/- WITHOUT CONSIDERING THE MONETARY INV OLVEMENT OF THE ASSESSEE COMPANY IN THE PROPERTY DEAL CONFIRMED BY THE SUB REGISTRAR OFFICE AND THE ITS DETAILS. 4. AS PER THE INFORMATION GATHERED BY INCOME TAX DE PARTMENT THROUGH ITS ON 06.09.2011, THE ASSESSEE JOINTLY WITH M/S NEPTUNE I NFRASTRUCTURE (MNI FOR SHORT) PURCHASED A PROPERTY ON 26.09.2008 FOR A CONSIDERAT ION OF 111,43,65,000/- WHICH WAS REGISTERED AT VADODARA SUB-REGISTRAR OFFICE. FR OM THE SAME DETAILS OF ITS, IT WAS FOUND THAT ASSESSEE HAS SOLD THE PROPERTY ON 21.10. 2008 FOR A SUM OF 68,03,07,175/- WHICH WAS ALSO REGISTERED IN VADODARA, SUB-REGISTRA R OFFICE. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND T HAT DETAILS FOR THE SALE OF PROPERTY HAS NOT BEEN SHOWN IN ITS BOOKS OF ACCOUNT. ON QUES TION BY AO ABOUT THE NON DISCLOSURE OF SALE OF PROPERTY IN THE BOOKS OF ACCO UNT, THE ASSESSEE AT THE FAG-END OF THE ASSESSMENT SUBMITTED THAT NO SUCH PROPERTY HAS BEEN SOLD. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING THAT THE SALE TRANSACTION HAS NOT BEEN SHOWN IN THE BOOKS OF ACCOUNT, ACCORDINGLY, AO TREA TED THE SALE TRANSACTION OF 68 CRORES AS UNDISCLOSED CASH CREDIT IN THE HANDS OF A SSESSEE AND ADDED TO THE TOTAL INCOME OF ASSESSEE U/S. 68 OF THE ACT. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT NO SUCH TRANSACTION FOR THE SALE OF PROPERTY ON 21.10.2008 WAS MADE BY ASSESSEE ON THAT DATE, THE PROPERTY WAS SOLD BY M/S AMBALA SARABHAI ENTERPRISES LTD. (MASEL FOR SHORT) OF VADODARA TO THIRD PARTY BASED IN PUNE. THE ASSESSEE AND ITS PARTNERS MNI WERE ACTING ONLY AS CONFIRMING PARTY I N THE AFORESAID TRANSACTIONS OF SUCH SALE OF THE IMPUGNED PROPERTY. THEREFORE SUCH IMPUGNED TRANSACTION WAS NOT REFLECTING IN ASSESSEES BOOKS OF ACCOUNT. THE ASSE SSEE IN SUPPORT OF ITS CLAIM HAS SUBMITTED THE COPY OF SALE DEED FOR THE AFORESAID T RANSACTION. THE ASSESSEE ALSO ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 3 SUBMITTED THAT THE PROVISION OF SEC. 68 OF THE ACT ARE NOT APPLICABLE AS IT IS APPLIED TO A CASE WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACCOUNT AND THE AO FOUND NO SUCH CREDIT IN THE BOOKS OF ACCOUNTS. AS SUCH, IN T HE INSTANT CASE, THERE WAS NO CREDIT IN ASSESSEES BOOKS OF ACCOUNT AND ACCORDINGLY THER E IS NO QUESTION OF INVOKING THE PROVISION OF SEC. 68 OF THE ACT. A PERSON CANNOT MA KE A SALE UNLESS HE MAKES THE PURCHASE FOR THE SAME. ASSESSEE HAS NOT SHOWN ANY P URCHASE OF THE IMPUGNED PROPERTY IN ITS BOOKS OF ACCOUNT. IN THE INSTANT CA SE, THE NAME OF MASEL WAS APPEARING IN THE REGISTERED SALE DEED DATED 21.10.2 008 AS THE SELLER TO THE PARTIES BASED IN PUNE. CONSIDERING THIS LD. CIT(A) CALLED FOR REM AND REPORT FROM AO WHICH STAND AS UNDER:- 1) FROM THE TRANSACTION OF SALE OF THE IMPUGNED PR OPERTY, THE NAMES OF THE FOLLOWING PERSONS ARE APPEARING IN THE LIST OF VEND ORS. A) AMBALAL SARABHAI ENTERPRISES LTD. 28.73 CRORES B) M/S NEPTUNE INFRASTRUCTURE 30 .80 CRORES C) MONET SECURITY PVT. LTD. 8.50 CRORES 2) THE BUYERS OF THE IMPUGNED PROPERTY HAVE MADE T HE PAYMENT TO THE ABOVE PARTIES AS STATED SUPRA. THE ASSESSING OFFICER TO VERIFY THE VERACITY OF SUC H TRANSACTIONS REQUESTED THE ASSESSEE TO PRODUCE ITS BOOKS OF ACCOUNT OF MASEL A LONG WITH BANK STATEMENT BUT ASSESSEE FAILED TO DO SO. THE AO FURTHER SUBMITTED THAT ASSESSEE ALONG WITH ITS ASSOCIATES MNI HAS ENTERED INTO A MEMORANDUM OF UND ERSTANDING (MOU FOR SHORT) WITH MASEL FOR THE PURCHASE OF IMPUGNED PROPERTY AS PER THE MOU. THE ASSESSEE WAS TO MAKE THE PAYMENT OF 68.03 CRORES TO MASEL. OUT OF THE SAID SUM, ASSESS EE ALONG WITH ITS ASSOCIATES HAS MADE THE PAYMENT OF 39.30 CRORES. AS PER ASSESSEE, A SUM OF 8.05 CRORES WAS PAID BY IT AND BALANCE OF 30.08 CRORES WAS BY MNI. FROM THE ABOVE, AO SUBMITTED THAT THERE WAS A COMPLETE D ENIAL FROM THE SIDE OF ASSESSEE FOR HAVING TRANSACTIONS FOR SALE OF IMPUGNED PROPERTY. NOW FROM THE ABOVE, MOU IT IS CLEAR THAT THE TRANSACTION BETWEEN ASSESSEE AND ITS ASSOCIATES HAS TAKEN PLACE AND THEREFORE THE CLAIM OF ASSESSEE THAT IT DID NOT ENT ER INTO ANY TRANSACTION IS NOT TENABLE. THE ASSESSEE IN COMPLIANCE TO REMAND REPORT SUBMITT ED THAT IT HAS NOT ENTERED INTO ANY TRANSACTIONS OF SALE OF IMPUGNED PROPERTY. THE ASSE SSEE ALONG WITH MNI HAS ADVANCED ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 4 THE MONEY TO MASEL FOR THE PURCHASE OF IMPUGNED PRO PERTY AND FOR THE SAME, A MOU WAS MADE BUT THAT MOU DOES NOT AMOUNT TO SALE OF TH E IMPUGNED PROPERTY. ALL THE NECESSARY TRANSACTIONS FOR THE PAYMENT MADE TO MASE L HAVE BEEN DULY DISCLOSED IN ITS RESPECTIVE BOOKS OF ACCOUNT. ACTUALLY THE SALE WAS MADE BY MASEL TO THE PARTY BASED IN PUNE. LD. CIT(A), ACCORDINGLY, DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 10. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER RECEIVED INFORMATION THROUGH ITS ON 06.09.2011. IN THE ITS DETAILS THE N AME OF THE ASSESSEE COMPANY APPEARED AS THE SOLE TRANSACTOR OF A PROPER TY FOR THE AMOUNT OF RS. 68,03,07,1751- AND THE ASSESSEE COMPANY DENIED ANY KNOWLEDGE OF THIS DURING ASSESSMENT PROCEEDINGS THOUGH IT WAS POINTED OUT RE PEATEDLY TO HIM DURING ASSESSMENT PROCEEDINGS AS MENTIONED IN THE 'ASSESSM ENT ORDER. THE ASSESSING OFFICER ASKED 'ASSESSEE TO FURNISHED INFORMATION RE GARDING THE SAME. THE APPELLANT ATTENDED THE PROCEEDINGS FROM TIME TO TIM E BUT THE ASSESSING OFFICER DID NOT GET THE FULL DETAILS REGARDING SALE OF PROP ERTY OF RS. 68 CRORES. THE PERUSAL OF THE DOCUMENTS SUBMITTED BY THE APPELLANT SHOWS THAT IN THE SALE DEED DATED 21.09.2008 ( ANNEXURE-'D' OF APPEAL PAPERS ) THE APPELLANT AND M/S. NEPTUNE ARE CONFIRMATORY PARTIES TO THE SALE OF A P ROPERTY BETWEEN M/S. AMBALAL SARABHAI ENTERPRISES LTD., AND M/S. SRI RAS IKLAL MANIKCHAND DHARIWAL FOR A CONSIDERATION OF RS.68,03,07,175/- E XECUTED ON 22.10.2008. THE APPELLANT AND M/S. NEPTUNE INFRASTRUCTURES ARE NOT PARTIES AS SELLER BUT ONLY AS CONFIRMING PARTIES IN THE SAID SALE OF PROPERTY. TH E APPELLANT AND M/S. NEPTUNE INFRASTRUCTURE WAS CONFIRMATORY PARTY BECAUSE EARLI ER THIS PROPERTY WAS TO BE PURCHASED BY THEM FROM M/S. AMBALAL SARABHAI ENTERP RISES LTD., AND HAD PAID MONEY TO M/S. AMBALAL SARABHAI ENTERPRISES LTD. (AS CL) IN ASSESSMENT YEAR 20.07.08 AND ALSO 2008-09. THE APPELLANT HAS GIVEN THE SOURCE OF INVESTMENTS TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROC EEDINGS FOR ASSESSMENT YEAR 2008-09 AND THE ASSESSMENT WAS DULY COMPLETED AFTER SCRUTINY U/S 143(3). HOWEVER, THE APPELLANT AND M/S NEPTUNE INFRASTRUCTU RE AGREED TO RELINQUISH THEIR RIGHTS ON THE CONDITION THAT THE APPELLANT AN D M/S. NEPTUNE INFRASTRUCTURE WILL RECEIVE RS.39.03 CRORES FROM THE VENDOR I.E. M /S. ASCL, WHICH WAS AGREED UPON BY THE SELLER AND RESULTING THEREBY BOTH THE A PPELLANT AS WELL AS M/S. NEPTUNE INFRASTRUCTURE BECAME CONFIRMING PARTIES. T HE APPELLANT HAS SUBMITTED THAT THE INFORMATION IN ITS AS SELLER IS WRONG AND INCORRECT. 11. THERE WAS NO TRANSACTION OF SALE OF ANY PROPERT Y BY THE APPELLANT DURING THE SALE PROCEEDINGS ON 21.09.2008 EXCEPT RECEIVING OF ITS INVESTMENTS AMOUNTING TO RS.39.03 CRORES FROM THE SELLER. THE S OURCE OF INVESTMENTS BY THE APPELLANT HAVE ALREADY BEEN SUBMITTED TO THE ASSESS ING OFFICER DURING THE ASSESSMENT PROCEEDINGS IN ASSESSMENT YEAR 2008-09 W HICH HAVE BEEN DULY VERIFIED. THE APPELLANT HAS DULY ACCOUNTED FOR THE MONEY RECEIVED AS CONFIRMING PARTIES IN THE BOOKS OF ACCOUNTS AND THE RE IS NO DISPUTE ON THE ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 5 SAME. THEREFORE, INFORMATION IN THE ITS WAS WRONG A ND INCORRECT BY DISCLOSING THE SALE OF SUCH PROPERTY BY THE APPELLANT AND M/S. NEPTUNE INFRASTRUCTURE. IT IS HELD THAT THE APPELLANT IS ONLY A CONFIRMATORY PART Y TO THE SALE OF SAID PROPERTY AND NOT A SELLER. THE AMOUNT OF RS. 39.03 CRORES RE CEIVED AS CONFIRMATORY PARTY BEING THE OLD ADVANCE GIVEN FOR PURCHASE OF SAID PR OPERTY HAS BEEN DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. THEREFORE, THE ADDITION OF RS.68,03,07,175/- MADE BY THE ASSESSING OFFICER IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US LD. DR SUBMITTED THAT AS PER ITS DETAI LS, THE NAME OF ASSESSEE IS REFLECTING AS SELLER OF THE IMPUGNED PROPERTY AND T HEREFORE THERE IS NO DOUBT THAT ASSESSEE HAS MADE SALE OF IMPUGNED PROPERTY. HOWEVE R, FROM THE DEED OF SALE OF THE IMPUGNED PROPERTY, THE NAME OF ASSESSEE ALONG WITH MNI IS APPEARING AS CONFIRMING PARTY. NOW THE QUESTION ARISE THAT WHY THE ASSESSEE WILL BE A CONFIRMING PARTY A TRANSACTIONS BETWEEN MAESL VS. PUNE BASED PARTY. HE VEHEMENTLY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR BEFORE US FILED PA PER BOOK WHICH IS RUNNING PAGES FROM 1 TO 289 AND SUBMITTED THAT ASSESSEE ALONG WIT H MNI WERE WISHING TO BUY THE IMPUGNED PROPERTY FROM MAESL BUT SAME WAS CANCELLED ON A LATER DATE. TO BUY A PROPERTY, A SUM OF 39.30 CRORES WAS ADVANCED BY ASSESSEE ALONG WITH MN I TO MAESL, BUT THE MOU GOT CANCELLED BETWEEN ASSESSEE A ND MAESL. ACCORDINGLY, THE PARTY ENTERED INTO ANOTHER DEED WITH THE PARTY BASE D IN PUNE FOR THE SALE OF SUCH IMPUGNED PROPERTY. THE MONEY WHICH WAS ADVANCED BY ASSESSEE ALONG WITH MNI TO MAESL WAS RETURNED. NO CONSIDERATION OR PROFIT WAS RECEIVED BY ASSESSEE ALONG WITH MNI OVER AND ABOVE, THE AMOUNT ADVANCED TO MAESL. L D. AR IN SUPPORT OF ASSESSEES CLAIM HAS SUBMITTED THE COPY OF DEED OF CONVEYANCE WHICH IS PLACED ON PAGES 90 TO 114 OF THE PAPER BOOK. THE DETAILS OF T HE MONEY RETURNED TO ASSESSEE AND ITS ASSOCIATES HAVE BEEN DISCLOSED IN THE AFORESAID DEED OF CONVEYANCE. LD. AR FURTHER SUBMITTED THAT THE NECESSARY DETAILS WERE PLACED BE FORE AO AS THE ASSESSEE IS BASED IN WEST BENGAL AND THE DETAILS WAS TO BE COLLECTED FRO M THE SUB REGISTRY OFFICE OF VADODARA. THEREFORE, THERE WAS A DELAY IN COLLECTIN G THE DESIRED REPORT. LD. AR FURTHER SUBMITTED THAT AO WAS EMPOWERED U/S 133(6) OF THE A CT TO COLLECT THE REPORT FROM THE OFFICE OF SUB REGISTRAR TO ASCERTAIN ACTUAL TRANSAC TION FOR THE SALE OF IMPUGNED PROPERTY. ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 6 BUT AO FAILED TO DO SO. LD. AR ALSO DREW OUR ATTENT ION OF PAGES 149 TO 190 WHERE THE NECESSARY DETAILS OF MNI AND MAESL WERE PLACED IN R ELATION TO SALE TRANSACTION OF SAID IMPUGNED PROPERTY. LD. AR ALSO SUBMITTED THE D ETAILS OF THE PAYMENT MADE BY ASSESSEE AND MNI TO MAESL WHICH IS PLACED ON PAGE 2 70 OF THE PAPER BOOK. LD. AR FURTHER SUBMITTED THAT THE SAME AMOUNT OF MONEY WAS RETURNED BY ASSESSEE AND ITS ASSOCIATES MNI. LASTLY, HE RELIED ON THE ORDER OF L D. CIT(A). 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION, WE FIND THAT AO HAS MADE THE ADDITION OF 68 CRORES AS UNDISCLOSED CASH CREDIT IN THE HANDS OF ASSESSEE ON THE GROUND THAT ASSESSEE HAS MADE THE SALE OF THE IMPUG NED PROPERTY WITHOUT RECORDING THE SAME IN ITS BOOKS OF ACCOUNT. WE FIND THAT ASSE SSEE COLLECTED THE DETAILS FOR THE SALE OF IMPUGNED PROPERTY ON THE BASIS OF ITS RECEI VED FROM SUB REGISTRAR OFFICE OF VADODHARA. HOWEVER, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING THAT ASSESSEE IN THE INSTANT CASE WAS A CONFIRMING PARTY AND IT HAS NOT MADE ANY SALE. THE ASSESSEE INITIALLY ADVANCED THE MONEY TO MAESL WHIC H WAS RETURNED BACK TO ASSESSEE AND MNI. NOW THE QUESTION BEFORE US ARISE SO AS TO WHETHER ASSESSEE HAS MADE ANY SALE OF THE IMPUGNED PROPERTY WITHOUT RECORDING THE IMPUGNED SALE IN ITS BOOKS OF ACCOUNT. FROM THE FACTS, WE FIND THAT PROVISION OF SEC. 68 OF THE ACT ARE ATTRACTED ONLY IN A CASE WHERE ANY CREDIT ENTRY FOUND IN THE BOOKS OF ACCOUNT OF ASSESSEE WHICH IS NOT EXPLAINED BY ASSESSEE. IN THE INSTANT CASE, NO SUCH ENTRY WAS DETECTED BY AO. IN OUR CONSIDERED VIEW, THE PROVISIONS OF SEC. 68 ARE NOT APPLICABLE IN THE PRESENT CASE. SIMILARLY, FROM THE DETAILS SUBMITTED BY ASSESSEE, WE FIND THAT ASSESSEE HAS GIVEN ADVANCED MONEY FOR THE PURCHASE OF IMPUGNED PROPERT Y AND SAME MONEY WAS RETURNED. IN THIS POINT, LD. DR HAS NOT BROUGHT ANY THING ON RECORD TO THE FINDING OF LD. CIT(A). WE ALSO FIND THAT AO BEFORE MAKING SUCH ADDITION ON THE BASIS OF ITS INFORMATION FROM THE OFFICE OF SUB REGISTRAR SHOULD HAVE ISSUED A NOTICE U/S. 133(6) OF THE ACT. THE AO HAS NOT EXERCISED HIS POWER U/S. 13 3(6) OF THE ACT. IN THIS VIEW OF THE MATTER, WE FIND NO REASON TO INTERFERE WITH THE FIN DINGS ARRIVED BY THE LD. CIT(A). UNDER THE CIRCUMSTANCES, THIS ISSUE OF REVENUES AP PEAL IS DISMISSED. ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 7 8. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO U/S 36(1)(III) OF THE ACT. FOR THIS, REV ENUE HAS RAISED THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN DELETING 2,47,91,689/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE ADMITTEDLY DEALS IN THE BUSINESS OF TRADING IN SHAR ES & SECURITIES AND IS NOT IN THE BUSINESS OF DEALING IN PROPERTY TRANSACTION AND ALSO WITHOUT CONSIDERING THE PROVISION OF SEC.36(1)(III). 9. THE ASSESSEE HAS PURCHASED THE IMPUGNED PROPERTY JOINTLY WITH MNI FOR A CONSIDERATION OF 111 CRORES WHICH WAS ALSO FINANCED OUT OF THE BORR OWED FUND AND ASSESSEE HAS INCURRED INTEREST EXPENDITURE ON THE B ORROWED FUND FOR A SUM OF 2,47,91,689/-. THE ASSESSEE HAS SHOWN THE IMPUGNED PROPERTY AS STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNT. THE AO DURING THE COURSE OF ASSES SMENT PROCEEDINGS OBSERVED THAT THE MAIN BUSINESS OF ASSESSEE IS TRADING OF SHARE A ND SECURITIES AND THEREFORE IT HAS NO EXPERIENCE IN TRADING PROPERTY BUSINESS. ON QUESTIO N BY AO WHY THE IMPUGNED PROPERTY HAS BEEN SHOWN AS STOCK-IN-TRADE, ASSESSEE OFFERED NO EXPLANATION. ACCORDINGLY, ASSESSING OFFICER CONSIDERING THE SIZE AND MAGNITUDE OF THE PROPERTY WAS OF THE OPINION THAT IT SHOULD HAVE BEEN REFLECT ED AS INVESTMENT. THE AO FURTHER OBSERVED THAT ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE SAID IMPUGNED PROPERTY BECAUSE IT HAS NOT BEEN PUT TO USE IN THE YEAR UNDE R CONSIDERATION. CONSIDERING THE SAME, AO WAS OF THE OPINION THAT THE INTEREST AMOUN T SHOULD HAVE BEEN CAPITALIZED AS PER THE PROVISION OF SEC. 36(1)(III) OF THE ACT. TH E AO ACCORDINGLY DISALLOWED THE INTEREST EXPENSE OF 2,47,91,689/- AND ADDED TO THE TOTAL INCOME OF ASSE SSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT IT IS INTENDING TO DEAL IN THE PROPE RTY BUSINESS. THEREFORE THE AFORESAID IMPUGNED PROPERTY WAS PURCHASED WHICH IS LOCATED AT A VERY PROMINENT AREA OF VADODARA AND IT HAS GOOD COMMERCIAL VALUE IF PROPER LY UTILIZED. THEREFORE, THE IMPUGNED PROPERTY WAS PURCHASED WITH A SOLE INTENTI ON OF CARRYING THE BUSINESS OF REAL ESTATE AND SAME WAS SHOWN AS CLOSING STOCK IN ITS BOOKS OF ACCOUNT. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS EARNED BUSINESS INCOM E OF 40,500/- BY WAY OF STORAGE CHARGES AND SAME WAS SHOWN IN ITS BOOKS OF ACCOUNT UNDER THE HEAD BUSINESS AND ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 8 PROFESSION . ACCORDINGLY, LD. CIT(A) DELETED THE ADDITION MAD E BY AO BY OBSERVING AS UNDER:- 15. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLA NT. THE APPELLANT HAS BOUGHT THE PROPERTY JOINTLY WITH M/S NEPTUNE INFRAS TRUCTURE FOR A CONSIDERATION OF RS.111,43,65,000/- AND THE APPELLANTS SHARE WAS RS.39,33,71,283/-. THIS PIECE OF LAND IS SITUATED IN A PROMINENT AREA AT VA DODARA AS PER THE APPELLANT AND IT HAS CONSIDERABLE COMMERCIAL VALUE. THE APPEL LANT FURTHER SUBMITTED THAT IT WAS WITH THE SOLE INTENTION OF VENTURING INTO TH E REAL ESTATE BUSINESS THAT IT HAS ENTERED INTO THE TRANSACTION OF PURCHASE OF SUC H HUGE PLOT OF LAND AND FUNDED THE SAME PRINCIPALLY OUT OF BORROWED MONEY. THIS PURCHASE APPEARS IN THE BOOKS OF APPELLANT AT THE END OF THE YEAR AS CL OSING STOCK. THE APPELLANTS INTENTION OF DEALING IN SUCH LARGE PIECE OF LAND BY WAY OF BUSINESS VENTURE HAS BEEN CLEARLY SPELT OUT BY THE APPELLANT. THE ASSESS ING OFFICER OBSERVED THAT THE APPELLANT IS DOING THE BUSINESS OF TRADING IN SHARE S AND SECURITIES WHILE THIS PROPERTY HAS BEEN DISCLOSED AS STOCK IN TRADE AND N OT AS INVESTMENT. THE ASSESSING OFFICER HOWEVER, OBSERVED THAT THE APPELL ANT DOES NOT INDULGE IN SALE OR PURCHASE OF PROPERTY AND SPECIALLY IT IS A FACTO RY PROPERTY WHICH WILL BE UTILIZED BY THE APPELLANT IN FUTURE AND THEREFORE, SUBSEQUENTLY IT HAS TO BE TREATED AS FUTURE INVESTMENT PURPOSE. 16. HOWEVER, THE APPELLANT HAS SUBMITTED THAT IT IS A COMMERCIAL PROPERTY WHOSE VALUE WILL BE EXPLOITED IN NEAR FUTURE. THE S OLE INTENTION OF BUYING THIS PROPERTY IS TO VENTURE INTO REAL ESTATE BUSINESS AL SO. THE APPELLANT HAS ALSO SUBMITTED THAT IT HAS USED ITS BORROWED FUND FOR TH E SAME AND IT HAS BEEN SHOWING IT AS STOCK IN TRADE TILL DATE. THE APPELLA NT HAD ALSO EARNED INCOME OF RS.40,500/- BY WAY OF STORAGE CHARGES AND THE SAME HAS BEEN ACCOUNTED AS HIS BUSINESS INCOME IN THE BOOKS OF A/C. WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. THE APPE LLANT HAS CLAIMED DEDUCTION IN RESPONSE OF INTEREST OF BORROWED CAPIT AL TAKEN AS LOAN FOR PURCHASE OF PROPERTY AND THE SAID INTEREST EXPENDIT URE AN AMOUNT OF RS.2,47,91,6889/- AND IS ALLOWABLE AS PER HIS STATE MENT U/S. 36(1)(III). 17. LOOKING INTO THE FACTS AND CIRCUMSTANCES IT IS CLEAR THAT THE APPELLANT HAS PURCHASED THIS PROPERTY JOINTLY FOR EXPLOITING IT C OMMERCIALLY IN FUTURE AND THE PROPERTY HAS BEEN BOUGHT S STOCK IN TRADE AND NOT A S INVESTMENT. THE ASSESSING OFFICER CANNOT SUBSTITUTE HIS OWN CRITERIA TO MAKE IT AS INVESTMENT WHEN THE APPELLANT HAS BOUGHT IT AS STOCK IN TRADE. THEREFOR E, THE APPELLANT IS FULLY ENTITLED TO TREAT IT AS STOCK IN TRADE. ONCE THE PR OPERTY IS CONSIDERED AS STOCK IN TRADE, THE APPELLANT IS ENTITLED FOR CLAIMING OF EX PENSES INCURRED AS INTEREST IN PROFIT & LOSS ACCOUNT. THE SAID INTEREST EXPENDITUR E AMOUNTING TO RS.2,47,91,6889/- IS HELD TO BE ALLOWABLE U/S 36(1) (III). IN VIEW OF THIS, THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.2,47,91,689/- IS HEREBY DELETED. THESE GROUNDS OF APPEAL ARE ALLOWED. ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 9 BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 11. LD. DR BEFORE US VEHEMENTLY RELIED ON THE ORDER OF AO AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. ON THE OTHER HAND, LD. AR BEFORE US SUBMITTED THAT THE IMPUGNED PROPERTY WAS PURCHASED WITH THE SOLE INTEN TION TO VENTURE THE REAL ESTATE BUSINESS. LD. AR FURTHER SUBMITTED THAT THE ACTIVIT Y OF THE PROPERTY BUSINESS IS DULY COVERED IN THE MAIN OBJECT OF THE ASSESSEE AND IN S UPPORT OF ASSESSEES CLAIM HAS SUBMITTED THE COPY OF ITS MEMORANDUM & ARTICLES OF ASSOCIATION AND DREW OUR ATTENTION TO ITS CLAUSE (IV) WHICH READS AS UNDER:- 4. TO CARRY ON THE BUSINESS AS DEALERS, OWNERS AND INVESTORS IN LAND, BUILDING, FACTORIES FOR WHICH PURPOSE TO ACQUIRE AND PURCHASE , TAKE ON LEASE, TENANCY OR N EXCHANGE, HIRE OR BY OTHER MEANS OBTAIN OWNERSHIP AND/OR OPTIONS OVER ANY FREEHOLD OR OTHER PROPERTY FOR THE SAID ESTATE OR I NTEREST THEREOF ANY RIGHTS, PRIVILEGES OR EASEMENTS OVER OR IN RESPECT OF ANY P ROPERTY, LAND OR ANY BUILDING AND TO TURN INTO ACCOUNT, DEVELOP THE SAME AND DISP OSE OF OR MAINTAIN THE SAME AND TO BUILD TOWNSHIPS MARKETS OR OTHER BUILDINGS O R CONVENIENCES AND TO EQUIP THE SAME OR ANY PART THEREOF WITH ALL OR ANY AMENIT IES OR CONVENIENCES, DRAINAGE FACILITY, ELECTRIC, AIR-CONDITIONING, TELE GRAPHIC, TELEPHONIC, TELEVISION INSTALLATIONS AND TO DEAL WITH THE SAME IN ANY MANN ER WHATSOEVER AND TO BUILD, TAKE ON LEASE AND/OR ON RENT, PURCHASE OR ACQUIRE I N ANY MANNER WHATSOEVER ANY DEPARTMENT HOUSES, FLATS, ROOMS, FLOORS, HUTS O R OTHER ACCOMMODATION AND LET OR DISPOSE OF THE SAME ON INSTALMENT BASIS, HIR E PURCHASE BASIS OR BY OUTRIGHT SALE WHETHER BY PRIVATE TREATY OR BY AUCTI ON OR IN ASSESSMENT YEAR OTHER MODE OF DISPOSITION ALL OR ANY INTEGRAL PART THEREOF. LD. AR FURTHER SUBMITTED THAT ASSESSEE HAS SHOWN IT S BUSINESS INCOME OF 40,500/- DURING THE YEAR UNDER CONSIDERATION AND THE SAME HA S BEEN ACCEPTED BY AO. THEREFORE INTEREST EXPENDITURE HAS BEEN INCURRED BY ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, IT SHOULD BE ALLOWED AS AN EXPENDITURE A ND HE RELIED ON THE ORDER OF LD. CIT(A). 12. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION, WE FIND THAT ASSESSEE IN THE INSTANT CASE, HAS INCURRED INTEREST EXPENDITURE ON THE MONE Y BORROWED FOR AN AMOUNT OF 2,47,91,689/- AND ASSESSEE CLAIMED THE INTEREST EXP ENDITURE AS REVENUE EXPENDITURE. HOWEVER, THE AO DISALLOWED THE SAME BY HOLDING THAT ASSESSEE HAS NO EXPERIENCE OF PROPERTY BUSINESS, THEREFORE, IT SHOULD HAVE BEEN T REATED AS INVESTMENT IN ASSESSEES BUSINESS. THEREFORE, THE INTEREST EXPENDITURE INCUR RED ON THE BORROWED FUND UTILIZED ITA NO.1074/KOL/2012 A.Y . 2009-10 JCIT(OSD) KOL. VS. M/S MONET SECURITIES PVT. LTD. PAGE 10 FOR THE PURPOSE OF INVESTMENT CANNOT BE ALLOWED AS DEDUCTION. HOWEVER, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING THAT A SSESSEE HAS TREATED THE SAME AS STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNT. NOW THE ISS UE BEFORE US ARISE SO AS TO WHETHER THE INTEREST EXPENDITURE IS BUSINESS EXPENDITURE OR PART OF INVESTMENT. FROM THE FACTS, WE FIND THAT THE ACTIVITIES FOR THE PROPERTY BUSINE SS ARE DULY COVERED IN THE MEMORANDUM & ARTICLES OF ASSOCIATION OF THE ASSESSE E IN TERMS OF ITS CLAUSE-4. BESIDES, WE ALSO FIND THAT ASSESSEE DURING THE YEAR HAS EARNED A SUM OF 40,500/- BY WAY OF STORAGE CHARGES WHICH HAS BEEN OFFERED AS IN COME UNDER THE HEAD BUSINESS & PROFESSION. WE FURTHER ALSO FIND THAT ASSESSEE HAS SHOWN THE PROPERTY AS STOCK-IN- TRADE IN ITS BOOKS OF ACCOUNT. FROM THE FACTS, WE F IND THAT ASSESSEE HAS SHOWN THE IMPUGNED PROPERTY AS STOCK-IN-TRADE AND AO CANNOT S TEP IN THE SHOES OF ASSESSEE TO DECIDE WHETHER IT IS CAPITAL ASSET OR STOCK-IN-TRAD E. IN THE BACKGROUND OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF LD. CIT(A) AND ACCORDINGLY WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMI SSED. 13. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21/10/2016 SD/- SD/- (K.NARSIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ! - 21 /10/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-JCIT(OSD),CIRCLE-4,P-7,CHOWRINGHEESQUARE ,8 TH FLOOR,KOLKATA-69 2. /RESPONDENT-M/S MONET SECURITIES PVT. LTD.,7, LYONS RANGE, 3 RD FL, KOL-01 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,