Smt Lizy George, Bangalore V. Assistant Commissioner of income tax, Bangalore

ITA 1377/BANG/2014

• Counselvise Citation: 137721114 RSA 2014
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: B S N PRASAD
• Keywords: Business expenditure; Opportunity of being heard; Deemed dividend
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T . A. NO. 1377 /BANG/20 1 4 (ASSESSMENT YEAR : 200 9 - 10 ) SMT. LIZY GEORGE, J BLOCK, I FLOOR, UNITY BUILDI NG, J.C. ROAD, BANGALORE - 560 0 02 . APPELLANT. PAN ADAPG 2712A VS. ASST . COMMISSIONER OF INCOME TAX, CIRCLE 7 (2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI B.S.N. PRASAD, ADVOCATE. R E SPONDENT BY : DR.P.K. SRIHARI, ADDL. CIT (D.R.) DATE OF H EARING : 27.7.2015. DATE OF P RONOUNCEMENT : 18.9. 201 5 . O R D E R PER SHRI JASON P. BOAZ , A.M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, BANGALORE DT.26.8.2014 FOR ASSESSMENT YEAR 2009 - 10. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE, PROPX : CHEMMANUR JEWELLERS, FILED HER RETURN OF INCOME FOR ASSESSMENT YEAR 2009 - 10 ON 29.9.2009 DECLARING NIL INCOME. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') VIDE ORDER DT.30.12.2011, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT 2 IT A NO. 1377 /BANG/201 4 RS.3,21,90,393 AS AGAINST NIL INCOME RETURNED IN VIEW OF THE FOLLOWING ADDITIONS/ DISALLOWANCES : (I) DISALLOWANCE OF PURCHASE OF GOLD FROM OTHERS : RS.1,04,56,712. (II) DISALLOWANCE TOWARDS SUSPENSE CREDIT : RS.13,92,417. (III) DISALLOWANCE OF LOSS CLAIMED ON ACCOUNT OF KU RIE S : RS.11.74,162. (IV) UNSECURED LOAN TREATED AS DEEMED DIVIDEND U/S.2(22)(E) : RS.1,91,67,102. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2009 - 10 DT.30.12.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEAL S) III, BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED OFF THE APPEAL VIDE ORDER DT.26.8.2014 ALLOWING THE ASSESSEE PARTIAL RELIEF. IN THIS ORDER THE LEARNED CIT (APPEALS) DELETED THE ADDITIONS / DISALLOWANCES LISTED AT S.NOS.(I), (II) AND (IV) LISTED A T PARA 2.1 OF THIS ORDER (SUPRA). 3.1 AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) III, BANGALORE DT.26.8.2014 FOR ASSESSMENT YEAR 2009 - 10 IN UPHOLDING THE DISALLOWANCE OF THE LOSS OF RS.11,74,162 CLAIMED ON KU RIE S , THE ASSESSEE HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS : - 1. THE IMPUGNED APPELLATE ORDER PASSED BY THE LEARNED CIT (APPEALS), TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS ARBITRARY, ERRONEOUS, UNREASONABLE AND OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW AND DESERVES TO BE QUASHED. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OFRS.11,74,162 MADE BY THE LD. ASSESSING OFFICER ON THE LOSS INCURRED BY THE APPELLANT ON KURIES AND IN ERRONEOUSLY HOLDING THAT INTEREST ON KURIES IS NOT A DEDUCTIBLE EXPENDITURE UNDER SECTION 36(10(III), ALTHOUGH THE APPELLANT HAD CLAIMED THE LOSS UNDER SECTION 37(1). 3. THE LEARNED CIT (APPEALS) HAS ERRED IN RELYING ON JUDICIAL PRONOUNCEMENTS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE A PPELLANT S CASE AND IN IGNORING THE RELEVANT AND APPLICABLE CASE LAWS CITED BY THE APPELLANT IN SUPPORT OF HER CLAIM. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (APPEALS) HAS ERRED IN NOT CONSIDERING THE APPELLANT S PLEA FOR ALLOWING A SET OFF FOR THE LOSS FROM KURIES AGAINST THE AMOUNT OFRS.3,99,108 CREDITED TO THE PROFIT AND LOSS ACCOUNT AS INCOME FROM KURIES. 3.2.1 THE ABOVE GRO UNDS RAISED BY THE ASSESSEE AT S .NOS.1 TO 3, CHALLENGE THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) IN CONFI RMING THE DISALLOWANCE OF RS.11,74,162 CLAIMED ON ACCOUNT OF LOSS INCURRED BY THE ASSESSEE ON KU RIE S ON THE GROUND THAT INTEREST ON KU RIES IS 3 IT A NO. 1377 /BANG/201 4 NOT A DEDUCTIBLE EXPENDITURE U/S.36(1)(III) ALTHOUGH THE ASSESSEE CLAIMED THE LOSS UNDER SECTION 37(1) OF THE ACT. IT IS ALSO CONTENDED THAT IN COMING TO SUCH A FINDING THE AUTHORITIES BELOW HAD ERRED FOLLOWING INAPPLICABLE JUDICIAL PRONOUNCEMENT S AND IN IGNORING THOSE RELEVANT AND APPLICABLE CASES CITED BY THE ASSESSEE. 3.2.2 IN GROUND NO.4 , THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO ITS CONTENTIONS IN GROUNDS 1 TO 3, THE LEARNED CIT (APPEALS) OUGHT TO HAVE CONSIDERED THE ASSESSEE'S PLEA FOR ALLOWING SET OFF OF THE LOSS ON KU R I E S OF RS.11,74,162 AGAINST THE AMOUNT OF RS.3,99,108 CREDITED IN THE PROFIT AND LOS S ACCOUNT AS INCOME FROM KU R I E S. 3.3. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION HAD DEBITED TO THE PROFIT AND LOSS ACCOUNT AN AMOUNT OFRS.11,74,162 (SCHEDULE N ) AS LOSS FROM KU RIE S AND OFFERED AN AMOUNT OF RS.3,9 9 ,108 (SCHEDULE L ) AS INCOME FROM KU RIE S. IT IS CONTE NDED THAT THE ASSESSING OFFICER HAS ERRONEOUSLY HELD THAT THE LOSS FROM KU RIE S IS NOT AN ALLOWABLE EXPENDITURE AS PER THE ACT AS KU RIE S ARE BASED ON THE PRINCIPLE OF MUT UALITY AND ALSO THAT THE SAID AMOUNT IS NOT ALLOWABLE AS A BUSINESS EXPENDITURE AS THE ASSESSEE IS NOT IN THE BUSINESS OF CHITS. THE LEARNED AUTHORISED REPRESENTATIVE ASSAILED THE FINDING OF THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER IN HOLDING THA T AN AMOUNT OF RS.7,75,054 IS IN THE NATURE OF INTEREST AND THEREFORE INADMISSIBLE UNDER SECTION 36(1)(III) OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE HAS CLAIMED THIS LOSS AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND THE ASSESSEE'S CLA IM SHOULD BE ALLOWED THEREUNDER. IN THIS REGARD THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF V. RAJKUMAR V CIT (2014) 44 TAXMANN. C OM 283 (MAD). 3.4 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN DISALLOWING THE ASSESSEE'S CLAIM OF RS.11,74,162 ON ACCOUNT OF LOSS FROM 4 IT A NO. 1377 /BANG/201 4 KU RIE S . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT BEFORE COMING TO THE ADMISSIBILITY OR OTHERWISE OF THE ASSESSEE'S CLAIM , IT APPEARS THAT THE BASIC FACT OF WHETHER AT ALL THESE EXPENSES CLAIMED PERTAIN TO THE YEAR UNDER CONSIDERATION HAS NOT BEEN ESTABLISHED BY THE ASSESSEE , AS IS CLEAR FROM PAGE 4 OF THE ASSESSMENT ORDER WHERE THE A R OF THE ASSESSEE HAS ACCEPTED THAT THIS LOSS IS OF ACCUMULATED TRANSACTIONS NOT ACCOUNTED PROPERLY IN THE EARLIER YEARS. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLEADED THAT IN VIEW OF THIS FACTUAL SITUATION, THE ISSUE REQUIRES TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER. 3.5.1 WE H AVE HEARD THE RIVAL CONTENTIONS OF BOTH PARTIES AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION, HAS DEBITED AN AMOUNT OF RS.11,74,162 IN THE PROFIT AND LOSS ACCOUNT O N ACCOUNT OF THE CLAIM OF LOSS FROM KU R IES. THE ASSESSING OFFICER HELD THAT THIS AMOUNT IS NOT ADMISSIBLE AS CHIT FUNDS ARE BASED ON THE PRINCIPLE OF MUTUALITY AND THEREFORE NO LOSS IS ALLOWABLE EVEN IF IT IS USED FOR BUSINESS. THE LEARNED CIT (APPEALS), IN THE IMPUGNED ORDER, FOLLOWING THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT V ABDUL GAFOOR 45 DR 343, DISALLOWED THE ASSESSEE'S CLAIM HOLDING THAT INTEREST ON ACCOUNT OF KU R IES IS NOT DEDUCTIBLE AS PER THE PROVISIONS OF LAW. 3.5.2 ON APPRECIATION OF THE FACTS ON RECORD, WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT THE PRELIMINARY FACT OF WHETHER THE EXPENSES OF RS.11,74,162 CLAIMED BY THE ASSESSEE ON ACCOUNT OF LOSSES FROM KU R IES ACTUALLY PERTAINS TO THE YEAR UNDER CONSIDERATION HAS NOT BEEN ESTABLISHED. IN THIS REGARD, THE LEARNED DEPARTMENTAL REPRESENTATIVE DREW THE ATTENTION OF THE BENCH TO THE OBSERVATION OF THE ASSESSING OFFICER AT PAGE 4 OF THE ASSESSMENT ORDER THAT - 5 IT A NO. 1377 /BANG/201 4 .THE AUTHORISED REPRE SENTATIVE VIDE THIS OFFICE ORDER SHEET NOTING DT.22.11.2011 STATED THAT THIS LOSS IS ON ACCOUNT OF ACCUMULATED TRANSACTIONS NOT ACCOUNTED PROPERLY IN THE OLDER YEARS. IN THIS FACTUAL MATRIX, WE ARE OF THE OPINION , AS POINTED OUT BY THE LEARNED DEPARTMENT AL REPRESENTATIVE AND AS ADMITTED BY THE ASSESSEE'S A.R. BEFORE THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS (SUPRA) THAT THE SAID EXPENDITURE COULD PERTAIN TO ACCUMULATED TRANSACTIONS OF EARLIER YEARS. THE BASIC FACT OF WHETHER THE SAID EXPENSES CLAIM ED ACTUALLY PERTAIN TO THIS YEAR AT ALL HAS NEITHER BEEN EXAMINED BY THE ASSESSING OFFICER NOR ESTABLISHED BY THE ASSESSEE. IN TH E SE CIRCUMSTANCES, IN THE INTEREST OF EQUITY AND JUSTICE, WE DEEM IT FIT TO RESTORE THE ISSUE OF THE ASSESSEE'S CLAIM FOR LOS S ON KU R IES AMOUNTING TO RS.11,74,162 TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE PERIOD TO WHICH THE SAID EXPENDITURE PERTAIN AND TO FACTUALLY ADJUDICATE THE ALLOWABILITY OF THE ASSESSEE'S CLAIM IN ACCORDANCE WITH LAW. NEEDLESS TO ADD THAT THE AS SESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS/SUBMISSIONS REQUIRED , BEFORE THE ASSESSING OFFICER TAKES A DECISION IN THE MATTER. IT IS ORDERED ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2015. SD/ - (P. MADHAVI D EVI) JUDICIAL MEMBER SD/ - (JASON P BOAZ) ACCOUNTANT MEMBER *REDDY GP