Mondal Brothers, Birbhum V. I.T.O, Ward -3, Suri, Birbhum

ITA 1192/KOL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2538 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 13-07-2009
• Court: TRIBUNAL
• Department Lawyers: SANJAY BARA
• Assessee Lawyers: D S DAMLE
• Keywords: Gift; Business income
• Section: 28

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH - A , KOLKATA ( ) BEFORE . . , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . . , , SHRI C.D. RAO, ACCOUNTANT M EMBER . / I.T.A.NO. 1192/KOL/2009 / ASSESSMENT YEAR 2005 - 06 MONDAL BROTHERS, DESH BANDHU C.R.DAS ROAD, SURI, DIST.BIRBHUM, WEST BENGAL PAN AAJFM 6991 R - - - VERSUS - . INCOME - TAX OFFICER, WARD 3, SURI ( / A PPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI D.S.DAMLE, AR / FOR THE RESPONDENT : / SHRI SANJAY BARA, DR / ORDER . . , , SHRI C.D. RAO, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILE D BY THE ASSESSEE AGAINST ORDER DT.27.4.2009 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) ASANSOL FOR THE ASSESSMENT YEAR 2005 - 06 ON THE FOLLOWING GROUNDS. 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN LAW AN D IN FACT IN UPHOLDING THE ASSESSMENT OF INTEREST RECEIVED ON FIXED DEPOSITS UNDER THE HEAD OTHER SOURCES AS AGAINST PROFITS & GAINS OF BUSINESS. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE A.O. BE DIRECTED TO ASSESS THE INTEREST INCOME RECEIVED ON F. DS MADE OUT OF SURPLUS BUSINESS FUNDS UNDER THE HEAD PROFITS & GAINS OF BUSINESS. 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO BE DIRECTED TO ALLOW THE DEDUCTION F OR REMUNERATION PAID TO PARTNER WITH REF ERENCE TO BUSINESS INCOME WHICH SHOULD INTER - ALIA INCLUDE INTEREST ON BANK DEPOSITS. 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN NOT DELETING THE ENTIRE DISALLOWANCE / I.T.A.NO. 1192/KOL/2009 2 OF RS.5,000/ - OUT OF ADVERTISEMENT EXPE NSES AND JEWELLERYS GIFT BOX EXPENSES. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) WAS UNJUSTIFIED IN NOT DELETING THE ADDITION OF RS.8,590/ - MADE IN RESPECT OF VALUE OF CLOSING STOCKS EVEN THOUGH THE INVENTORY VALUATION W AS CARRIED OUT BY FOLLOWING ACCEPTED PRINCIPLES OF VALUATION FOLLOWED CONSISTENTLY BY THE APPELLANT. 6) FOR THAT THE APPELLANT CRAVES LEAVE TO SUBMIT ADDITIONAL GROUNDS AND/OR AMEND OR ALTER THE GROUNDS ALREADY TAKEN EITHER AT THE TIME OF HEARING OF THE A PPEAL OR BEFORE. 2. AT THE TIME OF HEARING, THE LEARNED AR OF THE ASSESSEE DID NOT PRESS GROUND NO.4 AND AS SUCH, THE SAID GROUND IS DISMISSED AS NOT PRESSED. 3. IN SUPPORT OF GROUNDS 1 AND 2 THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE LEARNED CIT( A) IS NOT JUSTIFIED IN UPHOLDING THE ASSESSMENT OF INTEREST RECEIVED ON FIXED DEPOSITS UNDER THE HEAD OTHER SOURCES AS AGAINST PROFITS & GAINS OF BUSINESS. HE CONTENDED THAT THE PARTNERS OF THE ASSESSEE MUTUALLY DECIDED TO INVEST THE LIQUID COMMERCIAL ASSETS OF THE FIRM IN SUCH A MODE SO AS TO GENERATE SOME INCOME RATHER THAN KEEPING THAT IDLE AND SINCE THE MONEY INVESTED IS THE COMMERCIAL ASSET OF THE FIRM AND IS RELATED TO ITS BUSINESS, THE INTERST INCOME FROM SUCH INVESTMENT FALLS WITHIN THE SCOPE OF SECTION 28 AND THEREFORE SHOULD BE TREATED AS AN BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. IN SUPPORT OF HIS CONTENTION , BESIDES RELYING ON THE DECISIONS AS RELIED ON BEFORE THE LEARNED CIT(A), THE LEARNED AR OF THE ASSESSEE FURTHER RELIE D ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF EVEREADY INDUSTRIES INDIA LIMITED V. CIT IN INCOME - TAX APPEAL NO.123 OF 2000 DT.22.12.2009 (COPY PLACED ON RECORD). THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. HE ALSO CONTENDED THAT THE DECISIONS RELIED ON BY THE LEARNED AR OF THE ASSESSEE ARE DISTINGUISHABLE ON FACTS. 4. HAVING HEARD BOTH PARTIES AND PERUSING THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DECISIONS RELIED ON BY THE LEARNED AR OF THE ASSESSEE. WE FIND THAT SIMILAR CONTENTION WAS ALSO RAISED BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND REPORT THE AO HAD GIVEN A CHART FOR AYS 2003 - 04, 2004 - 05 AND 2005 - 06 ALONGWITH THE TOTAL INVESTMENT AND INTEREST INCOME SHOWN IN BALANCE / I.T.A.NO. 1192/KOL/2009 3 SHEET AND P & L ACCOUNT. FROM THE SAID CHART, THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEES INVESTMENT OUTSIDE THE BUSINESS INCREASES FROM YEAR TO YEAR IN INTEREST AND THEREFORE , HE CAME TO CONCLUDE THAT THAT IT CANNOT BE SAID THAT BY INVESTMENT OF LIQUID COMMERCIAL ASSET, BUSINESS INCOME WAS GENERATED AND HAS NO NEXUS EVEN WITH HIS BUSINESS ACTIVITY AS THE INVESTED SURPLUS FUND INCREASES YEAR AFTER YEAR WITH THE ACTIVITY WHICH I S NEITHER CONNECTED WITH PRESENT BUSINESS NOR WITH ANY OTHER BUSINESS ACTIVITY. THEREFORE, THE LEARNED CIT(A) RELYING ON THE DECISION OF HONBLE RAJSTHAN HIGH COURT IN THE CASE OF MURLI INVESTMENT CO. V. CIT (167 ITR 368) HELD THAT MERELY INVESTING SURPLUS FUNDS INSTEAD OF KEEPING THEM IDLE WOULD NOT CONSTITUTE BUSINESS AND THEREFORE, THE INTEREST EARNED BY THE ASSESSEE WOULD NOT BE ASSESSABLE AS BUSINESS INCOME. THE LEARNED CIT(A) HAS CONSIDERED SEVERAL DECISIONS AND FOUND THEM DISTINGUISHABLE ON FACTS. I N THE CASE OF CIT V. TIRUPATI WOOLEN MILLS LTD (193 ITR 252), HONBLE CALCUTTA HIGH COURT HAS HELD INTEREST INCOME AS BUSINESS INCOME IF THE COMMERCIAL ASSETS IN THE FORM OF SURPLUS CASH WERE INVESTED BY WAY OF MAKING FIXED DEPOSITS WITH BANKS TEMPORARILY TO EARN INTEREST . WHEREAS IN CASE OF THE ASSESSEE THE INVESTMENT WAS MADE TO EARN INTEREST ON LONG TERM BASIS AND NOT THAT THE SURPLUS FUND WERE INVESTED TEMPORARILY TO EARN INTEREST AND THE INVESTMENT INCREASES YEAR AFTER YEAR. THE LEARNED CIT(A) HAS AL SO CONSIDERED THE DECISIONS IN THE CASE OF G.R.NARASIMIER & CO., V. CIT (73 ITR 257)(MAD), CIT V. K.S.VENKATASBBIAH REDDIAR (221 ITR 28,21 (MAD) AND CIT V. R.M.MEENAKSHISUNDARAM (212 ITR 220, 223 - 24 (MAD), SNAM PROGETTI S.P.A. V. ADDL.CIT (132 ITR 70)(DEL) AND FOUND THOSE DISTINGUISHABLE TO THE FACTS OF THE CASE. WE FIND THAT THE LEARNED CIT(A) HAS CORRECTLY HELD THAT THESE DECISIONS ARE DISTINGUISHABLE TO THE FACTS OF THE CASE. WE ALSO FIND THAT THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF EV EREADY INDUSTRIES INDIA LTD. V. CIT IN INCOME TAX APPEAL NO.123 OF 2000 DT.22.12.2009 IS ALSO DISTINGUISHABLE TO THE FACTS OF THE CASE. IN THAT CASE, THE ASSESSEE PROCURED LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS FOR ITS TEA GROWING AND MANUFACTUR ING BUSINESS AND PART OF SUCH FUND REMAIN TEMPORARY UNUTILIZED. THE ASSESSEE, INSTEAD OF KEEPING THE AMOUNT IDLE , INVESTED THE SURPLUS FUND IN SHORT - TERM INTEREST BEARING FIXED DEPOSITS AND EARNED INTEREST. HONBLE HIGH COURT CONSIDERING THESE FACTS HELD THAT THE ASSESSEE EARNED INTEREST ON SUCH / I.T.A.NO. 1192/KOL/2009 4 SHORT - TERM FIXED DEPOSITS MADE OUT OF THE BUSINESS FUND AVAILABLE WITH THE ASSESSEE BEFORE THEY WERE UTILISED FOR ACTUAL BUSINESS AND THEREFORE, THE SAME WAS INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE COM PANY AND INTEREST ON SUCH SHORT - TERM DEPOSITS MUST BE TREATED AS THE BUSINESS INCOME. BUT, IN THE PRESENT CASE ON HAND, THE FACTS ARE DIFFERENT THAT THE INVESTMENT WAS MADE TO EARN INTEREST ON LONG TERM BASIS AND NOT THAT THE SURPLUS FUND WERE INVESTED TEM PORARILY TO EARN INTEREST AND THE INVESTMENT INCREASES YEAR AFTER YEAR. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICE R. WE CONFIRM THE SAME AND DISMISS GROUNDS NO.1 AND 2. 5. IN GROUND NO.3, THE ASSESSEE HAS URGED THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEDUCTION FOR REMUNERATION PAID TO PARTNERS WITH REFERENCE TO BUSINESS WHICH SHOULD INTER ALIA INCLUDE INTE REST ON BANK DEPOSITS. THIS GROUND IS INTERLINKED WITH GROUNDS NO.1 AND 2 AND SINCE, FOR THE REASONS DISCUSSED IN THE FOREGOING PARAGRAPH, WE HAVE DISMISSED THE SAME, GROUND NO.3 DOES NOT MERIT CONSIDERATION. THEREFORE, WE DISMISS GROUND NO.3 OF THE APPEAL TAKEN BY THE ASSESSEE. 6. IN RESPECT OF GROUND NO.5, THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE LEARNED CIT(A) WAS NOT JUST IFIED IN NOT DELETING THE ADDITION OF RS.8,590 MADE IN RESPECT OF VALUE OF CLOSING STOCKS. 7. HAVING HEARD BOTH THE PARTIES AND PERUSING THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE FIRM SHOWED VALUE AT RS.11,74,420 FOR 2120.68 GRAMS OF GOLD WITHOUT ANY OTHER DETAILS LIKE CARAT/METHOD OF VALUATION LIKE FIFO, LIFO ETC. THE ASSESSING OFFICER STATED THAT IN THE TAX AUDIT REPORT AS PER CLAUSE 12(A), IT IS STATED THAT THE VALUATION IS AT LOWER OF COST OR NET REALIZABLE VALUE. THE AVERAGE COST PRICE OF GOLD WORKS OUT TO RS.557.85 PER GRAM AND THE AVERAGE SALE PRICE OF GOLD WORKS OUT TO RS.598.32 PER GRAM. THE LEARNED AR OF THE ASSESSEE DID NOT DISPUTE THE ABOVE AVERAGE COST PRICE AND SALE PRICE OF GOLD. IT THAT IS SO, THERE IS NOTHING WRONG IN ESTIMATING THE VALUE OF CLOSING STOCK BY TAKING THE LOWER OF COST OR NET RELISABLE VALUE AT RS.557.85 PER GRAM AT R S.11,83,009 AND THUS MAKING ADDITION OF RS.8,590 (I.E., VALUE ESTIMATED AT RS.11,83,009.07 VALUE DISCLOSED AT RS.11,74,420.00). IN VIEW OF THE ABOVE, WE DO NOT FIND ANYTHING / I.T.A.NO. 1192/KOL/2009 5 WRONG IN THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSI NG OFFICER IN THIS REGARD BY SUSTAINING THE ADDITION OF RS.8,590 ON ACCOUNT OF UNDERSTATED VALUE OF CLOSING STOCK. WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DISMISS GROUND NO.5 OF THE APPEAL TAKEN BY THE ASSESSEE. 8. GROUND NO.6 IS OF GENERAL NATURE AND HENCE, NEEDS NO SPECIFIC ADJUDICATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 25.06.2010 SD/ - SD/ - ( . . ), ( B.R.MITTAL ), JUDICIAL MEMBER ( . . ) (C.D. RAO), ACCOUNTANT MEMBER ( ) DATE : 25.06.2010 - COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT : MONDAL BROTHERS, DESH BANDHU C.R.DAS ROAD, SURI, DIST.BIRBHUM, WEST BENGAL 2 / THE RESPONDENT - INCOME - TAX OFFICER, WARD 3, SURI 3. / THE CIT, 4. ( )/ THE CIT(A), 5. / DR, KOLKATA BENCH 6. GUARD FILE . / TRUE COPY , / BY ORDER , / DEPUTY REGISTRAR . ( /) H.K.PADHEE / SNR.PRIVATE SECRETARY.