Assistant Commissioner of Income-tax, V. Lalitprasad Kanhaiyalal Kalya, Nashik

ITA 1405/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7381 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-09-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Salary income
• Section: 45(2); 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , '#$ %& BEFORE MS. SUSHMA CHOWLA, JM & SHRI D. KARUNAKARA R AO, AM # / ITA NO.1405/PUN/2015 ' ( ( / ASSESSMENT YEAR: 2011-12 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE - 1, NASHIK. .. APPELLANT VS. SHRI LALITPRASAD KANHAIYALAL KALYA, 3-4, TARANKUNJ APARTMENT, AGRA ROAD, ADGAON NAKA, NASHIK-422 003. PAN: ABBPK7975Q .. RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE DEPARTMENT BY : SHRI AJAY MODI DATE OF HEARING : 26-09-2017 DATE OF PRONOUNCEMENT : 29-09-2017 ) / ORDER PER D.KARAUNAKARA RAO, AM : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CI T(A)-1, NASHIK DATED 11.08.2015 FOR THE A.Y.2011-12. 2. IN THE APPEAL, REVENUE RAISED FOLLOWING STATEMENT OF FACT S READ AS UNDER : THE ASSESSEE IS AN INDIVIDUAL AND HAS DERIVED INCOM E FROM BUSINESS AND PROFESSION FROM THE BUSINESS OF TRADING IN HIGH EXPLOSIVE PRODUCTS AND DETONATOR AND MACHINERY HIRE CHARGES IN THE NAM E AND STYLE M/S TRIBHUVANLAL KALYA AND COMPANY AND M/S SHREE BHAWAN I TEXTILES, PARTNERSHIP FIRMS. THE ASSESSEE HAS ALSO RECEIVED L OSS FROM M/S RELIABLE ENTERPRISES, A PROPRIETARY CONCERN. THE AS SESSEE HAS DERIVED 2 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 INCOME FROM LTCG ON SALE OF S K MALL. THE ASSESSEE HAS FILLED RETURN OF INCOME ON 30.03.2013 DECLARING TOTAL INCOME AT 2,37 ,51,767/-. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY UNDE R CASS. NOTICES U/S 143(2) AND 142(1) OF THE ACT WAS ISSUED AND SERVED. ORDER U/S 143(3) WAS PASSED ON 28.03.2014, ASSESSING TOTA L INCOME AT RS 2,73,31,650/- AND AGRICULTURAL INCOME AT RS. 1,08,8 97/- BY MAKING THE FOLLOWING ADDITIONS:- I. ADDITION AMOUNTING TO RS. 2,39,717 BY TREATING AGRI CULTURE EXPENSES AT RS. 4,17,497/- II. ADDITION U/S 36(1)(III) OF THE ACT ON GROUND TREATI NG INTEREST AMOUNTING TO RS.32,40,170/- DEBITED TO LAND TRADING ACCOUNT AS NOT FOR BUSINESS PURPOSE III. DISALLOWANCE AMOUNTING TO RS. 50,000 SALARY PAID TO AMIT KALYA, IV. DISALLOWANCE AMOUNTING TO RS. 50,000 OUT OF MACHINE RY CHARGES PAID 02 AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE F ILED APPEAL BEFORE LD. CIT(A)-I, NASHIK. THE LD.CIT(A) VIDE ORD ER DATED 11.08.2015 DELETED THE ABOVE ADDITIONS AND ALLOWED THE ASSESSE E'S APPEAL. 03. THE ORDER OF THE LD. CIT(A) IS NOT ACCEPTABLE IN RESPECT OF ADDITION MADE BY THE AO, ON ACCOUNT INTEREST DEBITED TO LAND TRADING ACCOUNT OF RS. 32,40,170/- VIDE U/S 36(1)(III) ON THE FOLLOWIN G GROUNDS: A. THE ASSESSEE HAD TAKEN CASH LOAN OF RS. 3 CRORES FR OM JANALAXMI BANK FOR THE BUSINESS OF EXPLOSIVES CARRI ED OUT IN THE NAME OF M/S. RELIABLE ENTERPRISES. THE ASSESSEE INVESTED THE BORROWED AMOUNT IN LAND AND CONVERTED LAND INTO STOCK IN TRADE AS PER PROVISIONS OF SEC. 45(2) OF THE I.T. A CT AND DEBITED THE ACCOUNT OF LAND BUSINESS WITH THE INTEREST PAID ON THE SAID LOAN. B. THUS, THE CAPITAL BORROWED BY THE ASSESSEE WAS NOT USED FOR HIS BUSINESS PURPOSES BUT WAS DIVERTED IN ANOTHER A SSET WHICH WAS LATER CONVERTED INTO STOCK IN TRADE. C. THERE IS NO EVIDENCE THAT THE FUNDS WERE USED FOR B USINESS. THE SAME WAS ALSO USED FOR LAND BUSINESS. IT WAS S IMPLY CAPITALIZED IN THAT ACCOUNT. THEREFORE, ON THE BASIS OF THE ABOVE FACTS THE ACTI ON OF CIT(A) IN DELETING THE ADDITION MADE U/S 36(1)(III) IS NOT JU STIFIED. 04. IN VIEW OF THE ABOVE DISCUSSION IT IS PRAYED TH AT ADDITION MADE BY THE ASSESSING OFFICER OF RS.32,40,170/- MAY BE REST ORED AND THAT OF THE LD. CIT(A) BE VACATED. 3. BRIEFLY STATED RELATED FACTS ARE, THE ASSESSEE IS ENGAG ED IN TRADING IN HIGH EXPLOSIVE PRODUCTS IN THE NAME OF M/S.RELIABLE ENTERPRIS ES, A 3 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 PROPRIETORSHIP CONCERN. HE ALSO EARNS SHARE INCOME FROM TL KALYA AND COMPANY AND ALSO EARNS SALARY INCOME FROM M/S.TK INFRAST RUCTURE. ASSESSEE OWNS A GRAPE GARDENS IN 15 ACRES OF LAND AND REPORTED EARNING OF AGRICULTURAL INCOME. ASSESSEE FILED THE RETURNS OF INCOME DECLARING THE INCOME OF RS.2,37,51,767/- AND ALSO CLAIMED THE AGRICULTURAL IN COME. THE RETURN OF INCOME WAS SCRUTINIZED U/S.143(3) OF THE ACT AN D THE ASSESSED INCOME IS DETERMINED AT RS.2,73,31,650/-. APART FROM OTHERS , AO MADE AN ADDITION OF RS.32,40,170/- ON ACCOUNT OF CAPITALIZED INTEREST EXPENDITURE. SIMILAR ADDITION WAS MADE IN NEXT A.Y.2012-13 TOO. 4. DURING THE ASSESSMENT PROCEEDINGS AND IN RESPONSE TO THE AOS PROPOSAL TO DISALLOW THE SAME, ASSESSEE SUBMITTED THAT TH E BORROWED RS.3 CRORES FROM JANALAXMI CO-OPERATIVE BANK BY THE SAID M/S. RELIABLE ENTERPRISES IN THE YEAR 1999. HOWEVER, THE SAID LOAN WA S UTILISED BY THE ASSESSEE IN PURCHASE OF A LAND AS THE EXPLOSIVE BUSINESS WAS NOT DOING WELL. SINCE, THERE IS NO TRADING IN EXPLOSIVE BUSINESS, ASSES SEE TRANSFERRED THE SAID LOAN TO THE PERSONAL ACCOUNT IN WHICH LAND BUSINE SS ACTIVITY WAS CARRIED OUT. ASSESSEE SUBMITTED THAT THE INTEREST EXPE NDITURE OF RS.32,40,170/-, PAID ON THE SAID LOAN TO THE BANK, WAS CA PITALIZED IN STOCK OF LAND TRADING ACTIVITY. THEREFORE, THE INTEREST WAS BO OKED IN THE LAND TRADING ACCOUNT PERTAINING TO THE LAND BUSINESS AND THE SAME CONSTITUTES AN ALLOWABLE AS BUSINESS EXPENDITURE OF THE ASSESSEE. UN SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE, AO PROCEEDED TO MAKE DISALLOWANCE OF THE SAID INTEREST EXPENDITURE AS PER THE DISCUSSION GIVEN IN PARA 4 OF HIS ORDER. 4 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 5. DURING THE PROCEEDINGS BEFORE THE CIT(A), ASSESSEE MAD E WRITTEN SUBMISSIONS WHICH WERE EXTRACTED IN PARA 5.2 OF HIS ORDER, WHEREIN IT WAS SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN BOTH THE H IGH EXPLOSIVE BUSINESS AS WELL AS THE LAND TRADING BUSINESS. ASSESSEE H AS CONTROL AND MANAGEMENT OF BOTH ACTIVITIES AND THE FUNDS ARE INTERLACED . ALTHOUGH THE LOAN IS TAKEN BY THE EXPLOSIVES BUSINESS (RELIABLE ENTERPRISE S), THE SAME WAS UTILISED FOR OTHER STREAM OF INCOME OF THE ASSESSEE. I N THAT CASE, THE INTEREST EXPENDITURE BECOMES BUSINESS EXPENDITURE OF THE ASSESSEE AND THE SAME SHOULD BE ALLOWED. IN THIS REGARD, THE ASSESSEE RE LIED ON THE HIGH COURT JUDGMENT OF TATA CHEMICALS LIMITED 256 ITR 395 IN SUPPORT OF HIS ARGUMENTS. ON CONSIDERING THE SAME, THE CIT(A) DECIDED TH E ISSUE AND IN FAVOUR OF THE ASSESSEE AND ALLOWED THE ASSESSEES CLAIM O F DEDUCTION OF EXPENDITURE U/S.36(1)(III) OF THE ACT. CIT(A) HELD THE UNITY O F CONTROL OF BOTH THE CONCERNS I.E. LAND TRADING ACTIVITY AS WELL RELIABLE ENTERP RISES, AND THE FUNDS ARE INTERLACED AND ARE IN COMMON POOL. THEREFORE, TH E DECISION IN THE CASE OF TATA CHEMICALS LIMITED (SUPRA) APPLIES TO THE PR ESENT CASE. ACCORDINGLY, HE ALLOWED THE APPEAL OF THE ASSESSEE. 6. AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL BEFOR E US WITH THE ABOVE EXTRACTED GROUNDS. BEFORE THE TRIBUNAL, LD.DR FOR T HE REVENUE RELIED HEAVILY ON THE ORDER OF AO AND SUBMITTED THAT THE CAP ITALIZED INTEREST EXPENDITURE IS OF CAPITAL IN NATURE AND THE SAME IS NOT ALLO WABLE U/S.36(1)(III) OF THE ACT. LD.DR RELIED DUTIFULLY ON THE ORDER OF THE AO. 7. ON THE OTHER HAND, LD.COUNSEL FOR THE ASSESSEE RELIED H EAVILY ON THE DISCUSSION OF THE CIT(A) GIVEN IN PARA 5.3 TO 5.5 OF THE CI T(A). IN THE SAID PARAGRAPH, CIT(A) DISCUSSED THE FACT OF ASSESSEE HAVING M ULTIPLE BUSINESS 5 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 OPERATIONS SUCH AS OF I) EXPLOSIVE BUSINESS AND; II) LAND TRADING BUSINESS FOR THE PAST MANY YEARS, THE FACT OF TAKING THE LOAN OF RS.3 CRORES FOR THE EXPLOSIVE BUSINESS OF RELIABLE ENTERPRISES, TRANSFER OF SAID LOA N TO THE LAND BUSINESS DUE TO THE DOWNWARD TREND OF THE SAID BUSINESS , THE UTILIZATION OF SAID FUNDS FOR LAND TRADING BUSINESS, INTEREST ACCRUAL ON T HE SAID LOAN, DEBITING OF SAID SAME IN LAND TRADING BUSINESS ACTIVITY ETC., THE CIT(A), FURTHER DISCUSSED THE APPLICABILITY OF THE JURISDICTION HIGH CO URT JUDGMENT OF TATA CHEMICALS LIMITED (SUPRA). 8. FURTHER, FILING A COPY OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE LATER ASSESSMENT YEAR 2012-13 VIDE ITA.NO.1406/PUN/2015 DATED 22/07/2016, LD.COUNSEL SUBMIT TED THAT THE IDENTICAL ISSUE WITH COMMON FACTS I.E. LIABILITY OF INTEREST EXPEND ITURE ON THE SAID LOAN OF RS.3 CRORES, CAME UP FOR ADJUDICATION BEFOR E THE TRIBUNAL. HE ALSO MENTIONED THAT THE TRIBUNAL DECIDED ISSUE IN FAVOUR OF THE A SSESSEE AS PER THE DISCUSSION GIVEN IN PARA 7 AND 8 OF THE SAID ORDER OF THE TRIBUNAL. ACCORDING TO THE LD.AR, THE PRESENT ISSUE CONS TITUTES A COVERED MATTER BY THE SAID ORDER OF THE TRIBUNAL. 9. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF ALLOWAB ILITY OF CAPITALIZED INTEREST EXPENDITURE RS.45,46,557/-. WE FIND THE IS SUE ADJUDICATED BY THE TRIBUNAL IN A.Y.201213 IS IDENTICAL. WE FIND THE ISSUE WAS DEALT BY THE TRIBUNAL IN PARA 7 AND 8 AND THE SAME ARE EXTRACTED AS UNDER : 7. I HAVE HEARD THE ARGUMENTS MADE BY BOTH THE SID ES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECIS IONS CITED BEFORE ME. I FIND THE AO IN THE INSTANT CASE HAS DISALLOWED THE INTEREST OF RS.4,37,700/- (CORRECT FIGURE RS.45,46,557/-) U/S.36(1)(III) ON T HE GROUND THAT THE ASSESSEE HAS DIVERTED THE LOAN OBTAINED IN THE BUSINESS OF R ELIABLE ENTERPRISE TO LAND 6 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 BUSINESS AND THERE IS NO NEXUS BETWEEN FUND RAISING AND ITS UTILIZATION FOR BUSINESS PURPOSE. ACCORDING TO HIM, FUNDS IN BUSIN ESS COME IN A COMMON KITTI AND CANNOT BE SEGREGATED. I FIND THE CIT(A) FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF TATA CHEMI CALS LTD. (SUPRA) HAS ALLOWED THE INTEREST SINCE THERE IS UNITY OF CONTRO L AS BOTH THE CONCERNS ARE PROPRIETORSHIP OF THE ASSESSEE HIMSELF. THE FUNDS ARE INTERLACED AND ARE IN COMMON POOL. 8. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT PO INT OUT ANY INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS ALLOWED THE CLAI M OF THE ASSESSEE BY FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF TATA CHEMICALS LTD. (SUPRA). I, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND TH E GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 10. FROM THE ABOVE, IT IS EVIDENT THAT ISSUE RAISED BY THE REVENUE IN THIS APPEAL CONSTITUTES A COVERED ONE BY THE ORDER OF THE T RIBUNAL (SUPRA). THE FACTS ARE IDENTICAL AND THE LOAN IN QUESTION IS ONE AND THE SAME. FURTHER, WE FIND THAT THE ORDER OF THE TRIBUNAL (SUPRA) WAS NOT IN E XISTENCE AT THE TIME OF PASSING THE IMPUGNED ORDER OF THE CIT(A). THEREFORE, THE CA PITALIZED INTEREST EXPENDITURE RELATABLE TO THE LOAN OF RS.3 CRORES CONSTITUTES AN ALLOWABLE EXPENDITURE. HENCE, THE ORDER OF THE CIT(A) IS FAIR AND REASONA BLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THEREFORE, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 29 TH DAY OF SEPTEMBER, 2017. SD/- SD/- /SUSHMA CHOWLA) *'#$ /D.KARUNAKARA RAO) + JUDICIAL MEMBER &+ ACCOUNTANT MEMBER / PUNE; / DATED : 29 TH SEPTEMBER, 2017 S S . . G G A A N N G G A A D D H H A A R R A A R R A A O O 7 ITA NO.1405/PUN/2015 OF SHRI LALITPRASAD KANHAIYALAL KALYA` FOR A.Y. 2011-12 ),-./010. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)-1, NASHIK. 4. / THE CIT-1, NASHIK. 5. , ! , ' '#$ , / DR, ITAT, B BENCH, PUNE. 6. &' () / GUARD FILE. // TRUE COPY // * + / BY ORDER, / / TRUE COPY / / .- + $ / SR. PRIVATE SECRETARY, ! , / ITAT, PUNE