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

ITA 1406/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1546 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 29-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Salary income; Question of law
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1406/PN/2015 / ASSESSMENT YEAR : 2012-13 ACIT, CIRCLE - 1, NASHIK . / APPELLANT V/S LALITPRASAD KANHAIYALAL KALYA, 3-4, TARANKUNJ APARTMENT, AGRA ROAD, ADGAON NAKA, NASHIK 422003 PAN NO.ABBPK7975Q . / RESPONDENT / APPELLANT BY : SHRI HITENDRA NINAWE / RESPONDENT BY : SHRI PRAMOD SHINGTE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 11-08-2015 OF THE CIT(A)-I, NASHIK RELATING TO THE ASSESSMENT YEAR 2012-13. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM HIS PROPRIETARY CONCERN R ELIABLE ENTERPRISES DEALING IN HIGH EXPLOSIVE PRODUCTS, MACHINERY HIR E CHARGES, SALARY INCOME AND AGRICULTURAL INCOME. HE FILED HIS RETURN OF INCOME ON 31-03-2011 DECLARING TOTAL INCOME AT NIL. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.45,67,557/ - AGAINST SUCH TRADING BUSINESS. HE OBSERVED FROM THE BALA NCE SHEET OF RELIABLE ENTERPRISES THAT THE ASSESSEE HAS BORROWED R S.3 CRORES / DATE OF HEARING :21.07.2016 / DATE OF PRONOUNCEMENT:22.07.2016 2 ITA NO.1406/PN/2015 FROM JANLAXMI COOPERATIVE BANK. THE CLOSING BALANCE IN THE BALANCE SHEET OF RELIABLE ENTERPRISES WAS RS.3,02,40,438/-. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED SINCE THE EXPENDITURE OF RS.45,46,557/- WA S CLAIMED AGAINST TRADING BUSINESS WHEREAS THE LOAN WAS OBT AINED FOR THE EXPLOSIVE BUSINESS. IT WAS SUBMITTED BY THE ASSESSE E THAT IT HAD OBTAINED CASH CREDIT LOAN OF RS.3 CRORES FROM JANLAXMI B ANK IN 1999 FOR THE PROPRIETARY BUSINESS OF EXPLOSIVE CARRIED UND ER THE NAME OF RELIABLE ENTERPRISES. THE ASSESSEE HAD INVESTED IN LAND IN 1999 AND CONVERTED THE LAND INTO STOCK IN TRADE AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT IN 2005. COST OF LAN D WAS RS.4.5 CRORES. IN THE YEAR 2007 THERE WAS BLAST IN EXPLO SIVE FACTORY OWNED IN FAMILY CONCERN AND BUSINESS OF TRADING IN EXPLOSIV E WAS LOWERED DOWN AND NOT CLOSED. THEREAFTER THE ASSESSEE IS DOING SMALL CONTRACT WORK RELATED TO EXPLOSIVE WORK AND HIRING OUT OF MACHINERY. EXPLOSIVE LICENSE IS STILL VALID AND ALIVE. SINCE THE RE WAS NO TRADING IN EXPLOSIVE BUSINESS AND SINCE THE ASSESS EE HAD TRANSFERRED FUNDS FROM RELIABLE ENTERPRISES TO PERSONAL ACC OUNT IN WHICH LAND BUSINESS ACTIVITY IS CARRIED OUT, THEREFORE, THE I NTEREST WAS CLAIMED IN THE LAND TRADING ACCOUNT. IT WAS FURTHER S UBMITTED THAT THE ASSESSEE HAS GIVEN AROUND RS.3.48 CRORES LOAN TO FAMILY CONCERNS AS AGAINST WHICH THE ASSESSEE HAS OWN CAPITAL OF RS.4.30 CRORES. 3. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE LOAN IS TAKEN B Y THE ASSESSEE IN THE BOOKS OF RELIABLE ENTERPRISES. TURNOVER OF THIS CONC ERN IS VERY LOW. THEREFORE, THE ASSESSEE DID NOT BOOK THIS INTER EST EXPENSE IN THIS ACCOUNT BUT CLAIMED IT AS EXPENDITURE IN THE ACCOU NT OF LAND 3 ITA NO.1406/PN/2015 TRADING BUSINESS. THIS INTEREST EXPENSES ARE CLEARLY NOT FOR THE PURPOSE OF LAND TRADING ACTIVITY. ASSESSEE COULD NOT ESTA BLISH THE DIRECT NEXUS BETWEEN UTILIZATION OF FUNDS FOR THE INVESTMENT S IN LAND. RATHER, IT IS CLEAR THAT FUNDS WERE RAISED IN ALL TOGET HER DIFFERENT CONCERN RELIABLE ENTERPRISES. THEREFORE, IT IS EST ABLISHED THAT THERE IS NO DIRECT NEXUS BETWEEN FUND RAISING AND IT S UTILIZATION FOR BUSINESS PURPOSE. FUNDS IN BUSINESS COME IN A COMMON KITTI AND CANNOT BE SEGREGATED. AS PER THE PRO VISIONS OF SECTION 36(1)(III) OF THE I.T. ACT, 1961 INTEREST EXPENDITURE O F THE LOAN WHICH HAS NOT BEEN UTILIZED FOR THE PURPOSE OF BUSINES S IS NOT AN ALLOWABLE EXPENDITURE. THE AO ACCORDINGLY DISALLOWED THE INTEREST EXPENDITURE OF RS.45,46,557/- CLAIMED AGAINST LAND TRADING BUSINESS U/S.36(1)(III) OF THE I.T. ACT. 4. BEFORE CIT(A) THE ASSESSEE MORE OR LESS REITERATED TH E SAME SUBMISSIONS. THE DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. TATA CHEMICALS LTD. WAS RELIED UPON. IT WA S SUBMITTED THAT SINCE BOTH THE BUSINESSES ARE CARRIED OU T BY THE ASSESSEE HIMSELF, THEREFORE, THERE IS NO JUSTIFICATION IN DISALLO WING ANY EXPENDITURE. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSION OF THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER AND MATERIAL AVAILABLE ON RECORDS. IT IS AN ADMITTED FACT THAT THE APPELLANT APART FROM BEING PARTNER IN PARTNERSHIP FIRM IS RUNNING MULTIPLE BUSINESS OPERATION UNDER PROPRIETORSHIP VIZ. (I) EXPLOSIVE BUSI NESS (II) LAND TRADING BUSINESS FOR PAST MANY YEARS. IT IS MAINTAINING SE PARATE BOOKS OF ACCOUNTS FOR EXPLOSIVE BUSINESS IN THE NAME OF RELIAB LE ENTERPRISES AS EXPLOSIVE BUSINESS IS UNDER STRICT GOVERNMENT REGULATI ON. THE FACTS ON RECORD DEMONSTRATE THAT THERE WAS DOWNTURN IN EXP LOSIVE BUSINESS. THEREFORE, LIKE A PRUDENT BUSINESS MAN THE FUNDS OF EXP LOSIVE BUSINESS WAS UTILISED IN LAND TRADING AND INTEREST WAS DEBITED I N LAND TRADING. I DO NOT FIND ANY INCONGRUITY IN THE APPELLANT ACTION . THERE IS UNITY OF 4 ITA NO.1406/PN/2015 BUSINESS AS BOTH THE BUSINESS ARE CARRIED BY THE APPELLANT . THE FUND WAS TAKEN FOR BUSINESS PURPOSE AND UTILIZED FOR BUSINESS PU RPOSE. 4.4 REFERENCE IN INVITED TO THE DECISION OF BOMBAY H IGH COURT IN THE CASE OF CIT VS. TATA CHEMICALS LTD. 256 ITR 395 WHEREI N IT IS HELD INTER- ALIA AS UNDER : ' THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE DECI SIVE TEST IS THE UNITY OF CONTROL WHICH IS INDICATED BY INTER-L ACING , INTER- DEPENDENCE AND INTER-CONNECTION BETWEEN THE BUSINESSES AND DOVETAILING OF ONE INTO THE OTHER . IN THE PRESENT CASE , IT IS QUITE CLEAR THAT THE AMALGAMATION OF THE SUBSIDIARY WAS ALL OWE D BY THE HIGH COURT . THEREAFTER , IT IS FOR THE MANAGEMENT OF THE COMPANY TO MANAGE ITS AFFAIRS AND THE BENEFIT WHICH W OULD BE AVAILABLE FOR THE BORROWINGS DONE FOR A UNIT WOULD C ERTAINLY BE CLAIMABLE BY THE COMPANY AS SUCH . SECTION 36(1)(III) WHICH PERMITS THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPI TAL BORROWED FOR THE PURPOSES OF THE BUSINESS WILL HAVE TO I NCLUDE THE BORROWING FOR A UNIT OF THE COMPANY WHICH IS WHA T THE FERTILIZER UNIT AT BABRALA IS . CONSIDERING THE FACT THAT FINDING IS BASED ON APPRECIATION OF EVIDENCE BROUGHT ON RECORD, WE DO NOT FIND THAT THIS QUESTION CAN BE SAID TO BE A QUESTION OF LAW WARRA NTING A DJ UDICATION BY THIS COURT. ' 4.5 ADVERTING TO THE FACT IN THE INSTANT CASE IT IS OB SERVED THAT THERE IS UNITY OF CONTROL AS BOTH THE CONCERNS ARE PROPRIETO RSHIP OF THE APPELLANT. THE FUNDS ARE INTERLACED AND ARE IN COMMO N POOL. APPLYING THE RATIO OF JURISDICTIONAL HIGH COURT DECI SION, SUPRA, IT IS HELD THAT THE APPELLANT IS LIABLE FOR DEDUCTION UNDE R SECTION 36(1)(III) OF THE ACT. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 45,37,700/-. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN ALLOWING THE CAPITALIZED INTEREST EXPENDITURE OF RS.45,37,700/-. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR CAPITALIZED INTEREST EXPENDITURE. 3. THE APPELLANT PRAYS THE ORDER OF THE AO MAY BE RE STORED. 4. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDENC E TO SUBSTANTIATE HIS CASE. 5. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY, AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN THE OCCASIO N DEMANDS. 5 ITA NO.1406/PN/2015 7. I HAVE HEARD THE ARGUMENTS MADE BY BOTH THE SIDES , PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOO K FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARI OUS DECISIONS CITED BEFORE ME. I FIND THE AO IN THE INSTANT CASE HAS DISALLOWED THE INTEREST OF RS.45,37,700/- (CORRECT FIGURE RS.45,46,557/ -) U/S.36(1)(III) ON THE GROUND THAT THE ASSESSEE HAS DIVERTED THE LOAN OBTAINED IN THE BUSINESS OF RELIABLE ENTERPRISES TO LAND BUS INESS AND THERE IS NO NEXUS BETWEEN FUND RAISING AND ITS UTILIZA TION FOR BUSINESS PURPOSE. ACCORDING TO HIM, FUNDS IN BUSINESS COM E IN A COMMON KITTI AND CANNOT BE SEGREGATED. I FIND THE CIT(A) FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF T ATA CHEMICALS LTD. (SUPRA) HAS ALLOWED THE INTEREST SINCE THERE IS UNITY OF CONTROL AS BOTH THE CONCERNS ARE PROPRIETORSHIP OF TH E ASSESSEE HIMSELF. THE FUNDS ARE INTERLACED AND ARE IN COMMON POOL. 8. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT O UT ANY INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF TATA CHEMICALS LTD. (SUPRA). I, THEREFORE, DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SA ME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-07-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 22 ND JULY, 2016. 6 ITA NO.1406/PN/2015 '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , /// TRUE COPY /// //TRUE COPY // // $ % // E &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - I, NASHIK 4. 5. 6. THE CIT-I, NASHIK $ %%*, *, SMC BENCH / DR, ITAT, SMC BENCH PUNE; 2 / GUARD FILE.