Shri Rajesh Agrawal, Indore V. The I.T.O., Indore

ITA 131/IND/2010

• Counselvise Citation: 13122714 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: K C AGRAWAL
• Keywords: Salary income; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ADCPA5339F I.T.A.NO. 131/IND/2010 A.Y. : 2006-07 SHRI RAJESH AGRAWAL, ITO, A-7, SHRINAGAR ANNEXE, VS WARD 3(2), INDORE INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K. C. AGRAWAL, C. A. RESPONDENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 12.09.2011 DATE OF PRONOUNCEMENT : 20.10.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 04.01.2010 FOR THE ASSESSMENT YEAR 2006-07, IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFI CER U/S 143(3) OF THE INCOME-TAX ACT, 1961 DATED 16.9.2008. -: 2: - 2 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-I, INDORE, HAS ERRED IN 1. MAINTAINING THE DISALLOWANCE OF BANK CHARGES CLAIMED AT RS. 136/- AND INTEREST PAYMENT CLAIMED AT RS. 8,79,035/- AGAINST THE INCOME SHOWN. 2. MAINTAINING THE DISALLOWANCE OF BANK CHARGES CLAIMED AT RS. 145/- AND INTEREST PAID AT RS. 22,959/- IN THE ACCOUNT OF MINOR AGAINST THE INCOME SO CLUBBED U/S 64(1A). 3. MAINTAINING THE DISALLOWANCE OF BROKERAGE PAID AT RS. 41,625/- AGAINST THE INCOME SHOWN. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS CH AIRMAN OF M/S. PREMIER INDUSTRIES (INDIA) LIMITED, INDORE. AS SESSEE AND HIS FAMILY ARE THE PROMOTERS OF THE COMPANY. SINCE 1994-95 BECAUSE OF FINANCIAL CRUNCH AND VARIOUS OTHER REASO NS, THE COMPANY HAD INCURRED HUGE LOSSES. AS ON 31.3.1997, THE COMPANYS NET WORTH BECAME NEGATIVE DUE TO ACCUMULA TED -: 3: - 3 LOSSES. ACCORDINGLY, THE COMPANY HAD MADE A REFEREN CE TO BIFR (BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTI ON ) WHO HAD REGISTERED THE REFERENCE AND DECLARED THE COMPA NY AS A SICK UNIT. SUBSEQUENTLY AGAIN A REVIVAL PACKAGE WAS APPROVED BY BIFR/AAIFR FOR THE REHABILITATION OF THE COMPAN Y. IN THE REVIVAL ORDER, AAIFR HAS DIRECTED THE PROMOTERS OF THE COMPANY TO BRING IN FUNDS FOR REHABILITATION OF THE COMPANY. THE ASSESSEE IN PURSUANCE OF THE ORDER OF AAIFR HAS PUT IN INTEREST FREE ADVANCE OF RS. 67,00,000/-. COPY OF O RDER OF AAIFR ARE PLACED AT PAGE NOS. 2 TO 33 AND RELEVANT PAGE NO. IS 9 OF THE PAPER BOOK. THE SAID AMOUNT HAS BEEN CREDI TED IN THE BOOKS OF THE COMPANY AS LOANS AND ADVANCES. COPY OF BALANCE SHEET OF THE COMPANY AS PER PAGE NO.1 OF THE PAPER BOOK AND THE RELEVANT PAGE IN THE PRINTED BALANCE SHEET ON P AGE NO.9 ARE ALSO PLACED ON RECORD. 4. THE ASSESSEE HAS DISCLOSED INCOME FROM SALARY OF RS . 9,00,000/- (-) RS. 2500/- ( 16(III) = RS. 8,97,500/ - FROM M/S. GIRDHARILAL SUGAR & ALLIED INDUSTRIES LIMITED, SHAR E TRADING & OTHER SOURCES. AGAINST THE ABOVE ASSESSEE HAS CLAIM ED FOLLOWING EXPENSES :- -: 4: - 4 A. BANK CHARGES RS. 136/- B. INTEREST PAID RS. 8,79,035/- C. BROKERAGE RS. 41,625/- D. BANK CHARGES (KUSHAL AGRAWAL) RS. 145/- E. INTEREST PAID (KUSHAL AGRAWAL) RS. 22,959/- TOTAL RS. 9,43,900/- 5. THAT DURING THE YEAR INTEREST OF RS. 8,79,035/- AN D BROKERAGE OF RS. 41,625/- WERE CLAIMED U/S 57(III). COPY OF CAPITAL ACCOUNT ON PAGE 41 AND COMPUTATION OF INCOM E ON PAGE NOS. 39 AND 40 OF THE PAPER BOOK ARE PLACED ON RECORD. SIMILARLY, THE ASSESSEE ALSO CLAIMED INTEREST PAYME NT MADE BY THE MINOR SON MASTER KUSHAL OF RS. 22,959/- WHICH H AS ALSO BEEN DISALLOWED. THE SAID INTEREST PAYMENT OF RS. 2 2,959/- IS DEDUCTIBLE FROM THE INCOME OF MINOR WHILE COMPUTING HIS INCOME. COPY OF CAPITAL ACCOUNT OF MINOR IS ON PAGE NO.42. THIS FACT WAS BROUGHT ON RECORD BEFORE THE LD. CIT( A) IN THE WRITTEN SUBMISSION AND IS AS PER PAGES NO. 354 TO 3 7 AND THE RELEVANT PAGE IS 37. -: 5: - 5 6. THE LD. AO IN HIS ORDER DISALLOWED INTEREST AND BROKERAGE OF RS. 9,43,900/- ( WHICH SHOULD BE RS. 9 ,20,660/- I.E. 879035 + 41625) BY OBSERVING THAT IF INVESTMEN T OF RS. 67000000/- SO MADE IF YIELD INCOME THAT WOULD BE DI VIDED AND THE SAME SHALL BE EXEMPTED U/S 10(34) AND THEREFORE , APPLIED SECTION 14-A. FURTHER HE ALSO OBSERVED THAT AFTER C ONSIDERING THE ASSESSEES OWN SUBMISSION AS REGARD TO SECTION 57(III) THE EXPENDITURE ALLOWABLE HAS TO BE SUCH THAT SHOULD BE INCURRED OF EXPENDED FOR EARNING THE INCOME . SINCE THERE WA S NO INCOME, WHATEVER EXPENDITURE IS ATTRIBUTABLE TO THE INVESTMENT, THE SAME WILL NOT BE DEDUCTED. THUS, ON BOTH COUNTS THE EXPENDITURE ON ACCOUNT OF INTEREST AND B ROKERAGE OF RS. 9,43,900/- WAS DISALLOWED. 7. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 8. AT THE OUT-SET, THE LD. AUTHORIZED REPRESENTATIVE PLACED ON RECORD THE ORDER OF THE HON'BLE MADRAS HI GH COURT IN THE CASE OF CIT VS. M. ETHURAJAN IN T.C.(A) NO.2 32 OF 2004 DATED 15 TH JULY,2004, WHEREIN EXACTLY SIMILAR ISSUE WAS DECIDED BY THE HON'BLE COURT IN ASSESSEES FAVOUR. -: 6: - 6 9. ON THE OTHER HAND, THE LD. SENIOR D.R. RELIED ON TH E ORDERS OF LOWER AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D ALSO ORDER OF HON'BLE MADRAS HIGH COURT IN THE CASE OF M.ETHURAJAN (SUPRA). IN THIS CASE ALSO, THE ASSESSE ES CLAIM FOR INTEREST PAID ON THE BORROWING, WHICH WAS UTILIZED FOR ADVANCEMENT TO THE COMPANY UNDER REHABILITATION PRO GRAMME OF BIFR WAS DECLINED BY THE REVENUE AUTHORITIES U/S 57(III). IN AN APPEAL FILED BEFORE THE HON'BLE COURT, THE COURT OBSERVED AS UNDER :- 6. IT IS NOT IN DISPUTE THAT THE RESPONDENT/ASSESSEE WAS A MAJOR SHAREHOLDER OF BINNY & AMP.CO.LTD., WHICH WAS REFERRED TO BY THE BIFR AS A SICK INDUSTRY AND THE RESPONDENT/ASSESSEE BORROWED MONEYS FROM SUNDARAM FINANCE AND DIAMOND DISTRICT AND INVESTED THE SAME IN BINNY & AMP; CO.LTD., TO REHABILITATE THE SAID COMPANY UNDER THE BIFR SCHEME AND TO EARN DIVIDEND THEREFROM, BUT -: 7: - 7 HOWEVER, THE RESPONDENT/ASSESSEE DID NOT RECEIVE ANY DIVIDEND FROM THE COMPANY. HENCE, THE RESPONDENT/ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS. 60,00,000/- AS INTEREST PAID ON THE SAID BORROWALS U/S 57(III) OF THE ACT. 7. WHERE THE ASSESSEE BORROWED MONEYS FOR THE PURPOSE OF MAKING INVESTMENT IN CERTAIN SHARES AND PAID INTEREST THEREON DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR, BUT DID NOT RECEIV E ANY DIVIDEND ON THE SHARES PURCHASED WITH THOSE MONEYS, WHETHER THE INTEREST ON SUCH MONEYS BORROWED ARE ADMISSIBLE U/S 57(III) OF THE ACT IN COMPUTING INCOME FROM OTHER SOURCES CAME FOR THE CONSIDERATION OF THE FULL BENCH OF THE APEX COURT I N CIT VS. RAJENDRA PRASAD MOODY, (1978) VOL. 115 ITR 519, WHEREIN THE FULL BENCH HELD THAT THE INTEREST ON MONEYS BORROWED FOR INVESTMENT IN SHARES WHICH HAD NOT YIELDED ANY DIVIDEND WAS ADMISSIBLE AS A DEDUCTION U/S 57(III) OF THE ACT. -: 8: - 8 8. THE PLAIN AND NATURAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57(III) OF THE ACT, IRRESISTIBL Y LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THAT SECTION IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(III) OF THE ACT REQUIR ES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION: IT DOES N OT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY I F ANY INCOME IS MADE OR EARNED, VIDE CIT VS. RAJENDRA PRASAD MOODY, REFERRED SUPRA. 9. IN VIEW OF THE ABOVE WELL SETTLED PRINCIPLE OF LAW, WE ARE SATISFIED THAT THE SUBSTANTIAL QUESTION OF LAW RAISED BY THE COUNSEL FOR THE APPELLANT/REVENUE IS LIABLE TO BE REJECTED. HENCE, FINDING NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL DATED 28.10.2003, THIS APPEAL IS DISMISSED. -: 9: - 9 11. FACTS AND CIRCUMSTANCES OF THE INSTANT CASE BEFOR E US ARE EXACTLY THE SAME AS DECIDED BY THE HON'BLE M ADRAS HIGH COURT. RESPECTFULLY FOLLOWING THE PROPOSITION OF LAW LAID DOWN BY HON'BLE MADRAS HIGH COURT, WE REVERSE THE O RDERS OF BOTH THE LOWER AUTHORITIES AND DIRECT THE AO TO ALL OW CLAIM OF DEDUCTION OF INTEREST U/S 57(III) OF THE INCOME-TAX ACT, 1961. 12. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF BANK CHARGES AT RS. 145/- AND INTE REST OF RS. 22,959/- IN THE ACCOUNT OF MINOR AGAINST THE INCOME SO CLUBBED U/S 64(1A). 13. FROM THE RECORD, WE FOUND THAT PAYMENT OF INTEREST OF RS. 22,959/- WAS OUT OF INTEREST INCOME OF MINORS. THERE WAS BOTH INTEREST INCOME AND INTEREST EXPENDITURE IN TH E HANDS OF MINOR. THE ASSESSEE HAS CLAIMED INTEREST PAYMENT IN HIS COMPUTATION, WHEREAS THIS INTEREST WAS OUT OF MINOR S INTEREST INCOME. HOWEVER, WHILE CLUBBING THE INTEREST INCOME OF MINORS U/S 64, THE AO HAS TAKEN GROSS AMOUNT OF INTEREST I NCOME WITHOUT ALLOWING CLAIM OF INTEREST PAID BY MINOR. I T APPEARS THAT BOTH THE LOWER AUTHORITIES HAVE NOT DEALT WITH THE ISSUE -: 10: - 10 PRECISELY, THEREFORE, IN THE INTEREST OF JUSTICE, W E RESTORE THIS GROUND BACK TO THE FILE OF AO FOR DECIDING AFRESH A FTER VERIFICATION OF FACTS WITH REGARD TO PAYMENT OF INT EREST ON MINORS ACCOUNT. WE DIRECT ACCORDINGLY. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREIN ABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH OCTOBER, 2011. CPU* 1820