DINESH JADHAVJI VORA, MUMBAI V. DCIT 23(2), MUMBAI

ITA 125/MUM/2011

• Counselvise Citation: 12519914 RSA 2011
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Assessee Lawyers: PRADIP N KAPASIAR
• Keywords: Capital asset; Business income; Proportionate interest; Fair market value
• Section: 2; 45(2)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , , !' # $, % & BEFORE SHRI B.R. BASKARAN, AM AND SHRI AMIT SHUKLA, JM . / ITA NO.125/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 ) DINESH JADHAVJI VORA, C/O. M/S. VIMAL ART (I) 59, JAMNADDAS IND. ESTATE, DR. R.P. ROAD, MULUND(W) MUMBAI-400080 .. / APPELLANT V/S DCIT 23(2) C-10 BANDRA KURLA COMPLEX. MUMBAI-400051 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAPV9129P APPELLANT BY : SHRI PRADIP N.KAPASI(AR) REVENUE BY : SHRI AKHILENDRA P. YADAV (DR) ! ' #$ / DATE OF HEARING 23.03.2015 %& '( ' #$ / DATE OF ORDER 22 .04.2015 # / ORDER !' # $, % ' / PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 19 TH OCTOBER 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS)33, MUMBAI, FOR THE QUANTUM OF ASSESSMENT P ASSED UNDER SHRI DINESH JADHAVJI VORA 2 SECTION 143(3), FOR THE ASSESSMENT YEAR 2006-07. IN VA RIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED MAINLY FOLLO WING ADDITIONS:- (I)DISALLOWANCE OF INTEREST EXPENDITURE OF RS.6,10,019 /-. (II) ADDITION OF RS.1,66,652/- ON ACCOUNT OF LOW W ITHDRAWALS; AND (III) ADDITION OF RS.16,50,000/- ON ACCOUNT OF ESTI MATION OF SHORT TERM CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET TO S TOCK-IN-TRADE. 2. REGARDING DISALLOWANCE OF INTEREST EXPENSES, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED INTEREST PAID ON LOANS AMOUNTING TO RS.9,60,019/-. HE OBSERVED THAT IN THE BA LANCE SHEET ASSESSEES OWN CAPITAL IS AT RS.1.24 CRORES AND HAS TAKEN FURTHER LOANS AMOUNTING TO RS.1.75 CRORES. ON THE ASSET SIDE OF THE BALANCE SHEET, THE ASSESSEE HAS SHOWN LOAN OF RS.2.33 CRORES GIVEN TO VARIOUS PERSONS WHICH IS MORE THAN THE LOAN TAKEN BY THE ASSES SEE. SINCE THE ASSESSEE HAD NOT DECLARED INTEREST INCOME CORRESPONDI NG TO THE LOANS ADVANCED AND HE IS LEFT WITH NO FUNDS TO ADVANCE INT EREST FREE LOANS, THEREFORE, THE PROPORTIONATE INTEREST SHOULD BE DISALLOW ED. ACCORDINGLY, HE DISALLOWED THE AMOUNT OF RS.6,10,019/- OUT OF INTER EST CALIMED AT RS.9,60,019/-. SUCH PROPORTIONATE DISALLOWANCE HAS ALSO BEEN CONFIRMED BY THE CIT(A). 3. BEFORE US, LD. COUNSEL SUBMITTED THAT THE AUTHORI TIES BELOW HAD FAILED TO APPRECIATE THAT APART FROM ITS OWN CAPITAL, THE ASSESSEE ON SHRI DINESH JADHAVJI VORA 3 THE ASSET SIDE HAD INTEREST FREE LOANS OF APPROXIMATELY RS.1.81 CRORES AS ON 31 ST MARCH 2006 AND INTEREST BEARING LOANS OF RS.52,19,00 0/- AND ON THE LIABILITY SIDE, CLOSING INTEREST BEARING LO ANS AS ON 31.03.2006 WAS RS.45,50,000/- AND CLOSING INTEREST FREE LOANS WAS AT 1.30 CRORES. THUS, THE ASSESSEE HAS SUFFICIENT INTER EST FREE FUNDS FOR ADVANCING THE LOANS. MORE OVER IN THIS YEAR THE ASSE SSEE HAS GIVEN LOANS TO FOUR PARTIES WHICH WERE INTERESTING FREE LOAN S GIVEN WHOLLY OUT OF INTEREST FREE FUNDS. HENCE, NO PROPORTIONATE DISAL LOWANCE TO THE EXTENT OF RS.6,10,019/- SHOULD HAVE BEEN MADE. ALL THESE DETAILS WERE POINTED OUT BEFORE US, FROM THE STATEMENTS PLACED AT P AGES 16 TO 18 OF THE PAPER BOOK. FURTHER HE SUBMITTED THAT THE LOANS WHIC H WERE TAKEN ON INTEREST HAS BEEN FULLY UTILIZED FOR THE BUSINESS PURPOSES. THUS, PROPORTIONATE DISALLOWANCE OF INTEREST SHOULD BE DELE TED. 4. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE FINDINGS OF THE AO AS WELL AS CIT(A) AND SUBMITTED THAT THE ASSESSE E IS REQUIRED TO FURNISH FUND FLOW STATEMENTS TO SHOW THE AVAILABILIT Y OF INTEREST FREE FUNDS FOR ADVANCING THE LOANS OR WHICH INTEREST HAS NO T BEEN CHARGED. HE FURTHER SUBMITTED THAT THE DOCUMENTS PLACED AT PAGES 16 TO 18 OF THE PAPER BOOK HAS NOT BEEN EXAMINED BY THE AO AS WEL L AS BY THE CIT(A) AND THEREFORE, MATTER SHOULD BE REMANDED BACK TO THE FILE OF THE AO. SHRI DINESH JADHAVJI VORA 4 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE PROPORTIONATE DISALLO WANCE OF INTEREST HAS BEEN MADE BY THE AO, ON THE GROUND THAT THE ASSES SEE HAS SHOWN INTEREST BEARING LOAN AMOUNTING TO RS.1.75 CRORES, WH EREAS IT HAS GIVEN INTEREST FREE LOAN OF RS.2.33 CRORES WHICH IS MORE THAN THE LOAN TAKEN BY THE ASSESSEE. SINCE THE ASSESSEE HAD NOT DEC LARED ANY INTEREST INCOME CORRESPONDING TO THE LOAN ADVANCED, THUS, IT WAS PRESUMED THAT THE INTEREST BEARING LOANS HAVE BEEN ADVAN CED FOR INTEREST FREE LOANS. FROM THE PERUSAL OF THE STATEMEN TS SHOWN AT PAGES 16 TO 18 OF THE PAPER BOOK, IT IS SEEN THAT LO ANS AS ON 31 ST MARCH 2006, ON THE LIABILITY SIDE OF THE BALANCE SHEET , THE ASSESSEE HAS SHOWN CLOSING INTEREST FREE LOAN AT RS.1,30,02,372/- AND CLOSING INTEREST BEARING LOANS AT RS.45,50,000/- BOTH AGGRE GATING TO RS.1,75,52,372/-. ON THE ASSET SIDE, IT IS SEEN THAT T HE ASSESSEE HAD SHOWN LOAN ADVANCED AS ON 31 ST MARCH 2006, WHICH COMPRISES OF CLOSING INTEREST FREE LOAN AT RS.1,81,39,840/- AND C LOSING INTEREST BEARING LOANS AT RS.52,19,000/-, BOTH AGGREGATING TO RS.2,33,58,840/- . THIS VITAL FACT HAS NEITHER BEEN CONSIDERED BY THE AO NOR EXAMINED BY THE CIT(A). IF THE ASSESSEE HAD HUGE INTEREST FREE LOANS, THEN DEFINITELY IT CONSTITUTES SOURCE FOR GIVING INTEREST FREE LOANS TO OTHERS. IN SUCH A CASE SUCH A PROPORTIONATE DISALLOWANCE OF INTEREST IS UNJUSTIFIED, ESPECIALLY IN VIEW OF THE DECISION OF H ONBLE BOMBAY HIGH SHRI DINESH JADHAVJI VORA 5 COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. REPORTED IN 313 ITR 340. UNDER THESE FACTS, WE ARE OF THE OPINIO N THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO EXAMI NE THE STATEMENT OF LOAN TAKEN AND STATEMENT OF LOAN ADVANCED AS APPEA RING IN THE BALANCE SHEET AND ACCORDINGLY, DECIDE THE ISSUE IN LIGHT OF THE OBSERVATION MADE ABOVE, AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. THUS, GROUND NO.1 IS TREATED AS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. AS REGARDING ADDITION ON ACCOUNT OF LOW WITHDRAWAL S, THE AO FROM THE PERUSAL OF CAPITAL ACCOUNT OF THE ASSESSEE NOTED THA T THE ASSESSEE HAD SHOWN PERSONAL HOUSEHOLD WITHDRAWAL OF RS.1,23,1 81/- AND OVERALL DRAWINGS OF HIS FAMILY MEMBERS CONSISTING OF 5 MEMB ERS, WERE SHOWN AT RS.3,33,348/-, WHICH ACCORDING TO HIM WAS ON LOWER SIDE. ACCORDINGLY, HE ESTIMATED SUM OF RS.1 LAKH, PER PERS ON AND ESTIMATED THE HOUSEHOLD WITHDRAWAL AT RS.5 LAKHS AND ADDED THE DI FFERENCE OF RS.1,66,652/-. THIS HAS BEEN CONFIRMED BY THE CIT(A) . 7. AFTER HEARING BOTH THE PARTIES, WE FIND THAT NO BA SIS HAS BEEN GIVEN BY THE AO FOR ESTIMATING THE WITHDRAWALS AT RS. 1 LAKH PER MEMBER. WHEN THE ASSESSEE ALONG WITH HIS OTHER FAMILY MEMBERS HAD SHOWN THE HOUSEHOLD WITHDRAWALS OF RS.3,33,348/-, THE N WITHOUT ANY MATERIAL TO REBUT THE SAME, NO AD HOC ADDITION CAN BE MADE. SHRI DINESH JADHAVJI VORA 6 ACCORDINGLY, THE ADDITION MADE BY THE AO AND SUSTAIN ED BY THE CIT(A) AT RS.1,66,652/- STANDS DELETED. 8. THE BRIEF FACTS RELATING TO GROUND NO.3 ARE THAT, THE ASSESSEE HAD A COMMERCIAL PREMISE IN THE FORM OF GODOWN WHICH WA S HELD BY HIM AS PERSONAL ASSETS. DURING THE YEAR THE ASSESSEE HAS CON VERTED THE SAME AS STOCK IN TRADE. THE COST OF THE ASSET WAS TAKEN AT RS.60,00,000/- AND ALONG WITH STAMP DUTY AND REGISTRATION CHARGES, IT WAS TAKEN AT RS.63,50,000/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT ASCERTAINED THE MARKET VALUE AS ON DATE OF CONVERS ION AND IN ABSENCE OF ANY DETAIL, HE TOOK THE FAIR MARKET VALUE AT RS.80,00,000/-. THUS, THE DIFFERENCE BETWEEN FAIR MARKET VALUE OF THE ASSET AND THE ORIGINAL COST OF THE CAPITAL ASSET AS PER BOOKS (RS.63 ,50,000/-) WAS TAXED BY HIM AS SHORT TERM CAPITAL GAIN. ACCORDINGLY, RS.16,50,000/- (80,00,000 63,50,000) WAS ADDED AND TAXED AS CAPIT AL GAIN. 9. THE LD. CIT(A) HELD THAT AS PER THE PROVISION OF SE CTION 45(2) THE MARKET VALUE OF THE ASSET ON THE DATE OF THE CONVERSION HAS TO BE TAKEN WHICH CAN BE BYWAY OF STAMP DUTY READY RECKONER OR AS PER VALUER REPORT FROM THE APPROVED VALUER. SINCE THE SALE OF THE ASSET HAS BEEN SHOWN DURING THE YEAR ITSELF, THEREFORE, TH E SHORT TERM CAPITAL GAIN HAS ARISEN TO THE ASSESSEE IN THIS YEAR AND THE DIFFERENCE BETWEEN THE SALE VALUE AND THE COST WHICH IS THE MARKET VALUE THE PROPERTY SHRI DINESH JADHAVJI VORA 7 WHICH HAS BEEN CONVERTED, HAS RIGHTLY BEEN TAXED BY THE AO BY TAKING THE COST AT RS.63,50,000/-. HOWEVER SHE HELD THAT THE F AIR MARKET VALUE NEEDS TO BE DETERMINED BY REFERRING IT EITHER TO STAMP DUTY READY RECKONER OR VALUERS REPORT FROM THE APPROVED V ALUER. 10. BEFORE US, LD. COUNSEL BROUGHT TO OUR NOTICE THAT T HE ASSESSEE HAD SOLD THE PROPERTY FOR RS.1.50 CRORES WHICH HAVE B EEN OFFERED AS BUSINESS INCOME. IF THE AO HAS TAKEN THE VALUATION ON CONVERSION AT RS.80,00,000/-. THEN, THE NOTIONAL GAIN OF RS.16.50 LAKHS WHICH HAS BEEN CHARGED AS SHORT TERM CAPITAL GAIN SHOULD BE RED UCED FROM THE BUSINESS INCOME. THIS PROPOSITION OF THE LD. COUNSEL HAS BEEN ACCEPTED BY THE DR ALSO AND SUBMITTED THAT MATTER SHOULD BE RESTORED BACK TO THE AO TO EXAMINE THE SAID CONTENTION AND REDU CE THE AMOUNT OF SHORT TERM CAPITAL GAIN CHARGED (AFTER GIVING EFF ECT TO THE CIT(A) ORDER) FROM THE BUSINESS INCOME OFFERED BY THE ASSES SEE. 11. AFTER HEARING THE RIVAL CONTENTIONS, AND ON PER USAL OF THE IMPUGNED ORDER, IT IS SEEN THAT THE AO HAS CHARGED THE SHORT TERM CAPITAL GAIN ON NOTIONAL BASIS BY VALUING THE FAIR MAR KET VALUE AT RS.80 LAKHS, WHEREAS THE COST DEBITED IN THE BOOKS WAS AT 63 .50 LAKHS. IF THE DIFFERENCE OF RS.16.5 LAKHS HAS BEEN TAXED AS SHORT TE RM CAPITAL GAIN, THEN DEFINITELY SAME SHOULD BE REDUCED FROM THE BUSIN ESS INCOME WHICH HAS BEEN EARNED BY THE ASSESSEE FROM SELE OF SAID STOCK-IN- SHRI DINESH JADHAVJI VORA 8 TRADE. ACCORDINGLY, WE DIRECT THE AO TO REDUCE THE AMO UNT OF SHORT TERM CAPITAL GAIN TAXED FROM THE BUSINESS INCOME OF THE ASSESSEE, DURING THE YEAR. WITH THIS DIRECTION THE MATTER IS RESTORE D TO THE FILE OF THE AO. ACCORDINGLY, GROUND NO.3 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. THE ASSESSEE HAS ALSO RAISED FOLLOWING AS ADDIT IONAL GROUND;- LD. CIT(A) ERRED IN LAW AND ON FACTS IN NOT ADJUDIC ATING THE ADDITIONAL GROUND OF APPEAL RAISED BY APPELLANT AND A DMITTED BY THE LD. CIT(A). IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT ADDITIONA L GROUND WAS RAISED BEFORE THE FIRST APPELLATE AUTHORITY WHICH HAS NO T BEEN ADJUDICATED BY THE LD. CIT(A). ACCORDINGLY, WE RESTO RE THIS GROUND TO THE FILE OF CIT(A) TO ADJUDICATE THE SAME AFRESH AFTER ADMITTING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF APRIL 2015. SD/- SD/- SD/ - . . B.R. BASKARAN ACCOUNTANT MEMBER SD/ - !' # $ % AMIT SHUKLA JUDICIAL MEMBER MUMBAI, () DATED: 22.04.2015 PATEL SHRI DINESH JADHAVJI VORA 9 %& ' #)* +*# / COPY OF THE ORDER FORWARDED TO : (1) ,# / THE ASSESSEE; (2) - / THE REVENUE; (3) .#( ) / THE CIT(A); (4) .# / THE CIT, MUMBAI CITY CONCERNED; (5) *12 #3, $ 3, ! / THE DR, ITAT, MUMBAI; (6) 2 5! / GUARD FILE. * # # / TRUE COPY %& / BY ORDER 6 / 7 - / (DY./ASSTT. REGISTRAR) $ 3, ! / ITAT, MUMBAI