The J C I T (Asstt) Sr-2, Ahmedabad V. M/S Megh Mahar Finstock Pvt Ltd, Ahmedabad

ITA 1428/AHD/2000

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0521 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-11-2009
• Assessment Year: 1995-1996
• Appeal Filed On: 02-06-2000
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S BENUPANI
• Keywords: Business income; Speculation loss; Revenue expenditure; Set aside; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING:3.11.2009 DRAFTED ON: 3.11.2 009 ITA NO.1924/AHD/2002, ITA NO.1428/AHD/2000 & ITA NO.2381/AHD/2002 ASSESSMENT YEAR : 1997-1998, 1995-1996, 1996- 1997 ACIT/JCIT, CIR.-4, AHMEDABAD. VS. M/S. MEGH MALHAR FINSTOCK (P) LTD., AMBUJA TOWER, OPP. MEMNAGAR FIRE STATION, AHMEDABAD. PAN/GIR NO. : 31-108-CQ-7229 (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI D.S.BENUPANI CIT D.R. RESPONDENT BY: SHRI S.N.SOPARKAR, SR. ADV. WITH SHRI M.K.KAJI O R D E R PER BENCH:- THESE APPEALS ARE FILED BY THE REVENUE AGAINST TH E SEPARATE ORDERS OF THE LD.CIT(APPEALS)-VIII, AHMEDABAD, DATED 13.03.2 002, 1.03.2000 AND 2.04.2002. ITA NO.1924/AHD/2002 1. THE LD.CIT(A) HAS ERRED IN LAW AND AS WELL AS ON FA CTS IN DIRECTING THE A.O. TO TREAT DIVIDEND INCOME AS INCOME FROM SPECULATION BUSINESS AND TO GIVE SET OFF OF SPECULATION LOSS AMOUNTING TO RS.4,28,10 0/- AGAINST THE DIVIDEND INCOME AMOUNTING TO RS.3,90,015/-. 2. THE LD.CIT(A) HAS ERRED IN LAW AND AS WELL AS ON FA CTS IN DELETING ADDITION OF RS.80,89,754/- TREATING IT AS REVENUE EXPENDITURE W HEREAS FROM THE DETAILED DISCUSSION IN ASSESSEES OWN CASE FOR A.Y. 1995-96 AND 1996-97, IT WAS PROVED THAT THE AMOUNT WAS BORROWED FOR THE PUR POSE OF INCREASING STAKE OF THE ASSESSEE IN GUJARAT AMBUJA COTSPIN LTD . AND NOT FOR THE PURPOSE OF BUSINESS. ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 2 - 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF ASSESSING OFFICER. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. C IT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE E XTENT. ITA NO.1428/AHD/2000 1. THE LD. CIT(A), DY. CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE FOLLOWING ADDITION:- I) INTEREST ON FUNDS BORROWED FROM SFC RS.2,00,89,053/- II) INTEREST ON ALLOTMENT MONEY PAID TO GACL R S. 81,37,701/- III) INTEREST ON SHARE APPLICATION MONEY TO GACL RS. 20,02,192/- IV) ALLOWING TO SET OFF SPECULATION LOSS AGAINST DIVIDE ND RS. 43,750/- 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) DY.CIT(A) CAUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OF FICER. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. C IT(A) DY. CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. ITA NO.2381/AHD/2002 1. THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING DISALLOWANCE OF INTEREST OF RS.4,53,10,429/- MADE BY THE A.O. 2. THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DIRECTING THE A.O. TO ALLOW SET OFF OF SPECULATION LOSS AMOUNTING TO RS.2 3,000/- AGAINST DIVIDEND INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF ASSESSING OFFICER. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CI T(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE E XTEND. 2. GROUND NO.1 OF THE APPEAL IN ASSESSMENT YEAR 199 7-1998, GROUND NO.1(IV) OF THE APPEAL IN ASSESSMENT YEAR 1995-1996 AND GROUND NO.2 OF THE APPEAL IN ASSESSMENT YEAR 1996-97 ARE DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN DIRE CTING THE LEARNED ASSESSING OFFICER TO TREAT THE DIVIDEND INCOME AMOU NTING TO RS.3,90,015/- IN ASSESSMENT YEAR 1997-98, RS.40,750/- IN ASSESSMENT YEAR 1995-96 AND RS.8,35,051/- ASSESSMENT YEAR 1996-97 AS INCOME FRO M SPECULATION BUSINESS AND TO GIVE SET OFF OF SPECULATION LOSS AMOUNTING TO RS.4,28,100/- IN ASSESSMENT YEAR 1997-98, RS.3,55,73,144/- IN ASSESS MENT YEAR 1995-96 AND RS.23,000/- IN ASSESSMENT YEAR 1996-97. ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 3 - 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN PURCHASE AND SALE OF SHARES AND LOSS DERIVED HAS BEEN CONSID ERED IN THE RETURN OF INCOME AS SPECULATION TRANSACTION OF SHARES AND SEC URITIES. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.43,750/- IN ASSESSMENT YEAR 1995-96 AND SHOWED THE SAME AS OTHER INCOME IN THE PROFIT AND L OSS ACCOUNT. THE ASSESSEE COMPANY HAS ALSO SHOWN BUSINESS LOSS OF RS.3,55,73, 144/- IN THE SHARE TRANSACTIONS. THIS LOSS WAS TREATED AS SPECULATION BUSINESS LOSS AS PER THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT 196 1 AND DIVIDEND INCOME OF RS.43,750/- WAS REDUCED FROM THE AFORESAID SPECULAT ION BUSINESS LOSS AND NET LOSS WAS COMPUTED. THE LEARNED ASSESSING OFFICER WA S OF THE VIEW THAT THE TREATMENT GIVEN BY THE ASSESSEE IS NOT IN ACCORDANC E WITH THE PROVISIONS OF SECTION 73 OF THE ACT AND THE SPECULATION BUSINESS LOSS CAN BE SET OFF ONLY AGAINST THE SPECULATION BUSINESS PROFIT. SINCE, THE RE WAS NO SPECULATION BUSINESS INCOME, THE SPECULATION BUSINESS LOSS COUL D NOT BE SET OFF AGAINST THE INCOME FROM OTHER SOURCES. IN VIEW OF THE ABOVE FAC TS, THE LEARNED ASSESSING OFFICER TAXED THE DIVIDEND INCOME OF RS.43,750/- UN DER THE HEAD INCOME FROM OTHER SOURCES AND DID NOT ALLOW SET OFF AGAINST THE SPECULATION LOSS. EXCEPT FOR THE CHANGE IN FIGURES SIMILAR ARE THE FACTS IN THE ASSESSMENT YEARS 1996-97 AND 1997-98. IN APPEAL, THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) HELD THAT DIVIDEND INCOME ARISING OUT OF SHARES HELD AS STOCK IN TRADE FOR THE PURPOSE OF SET OFF OF LOSS WAS BUSINESS INCOME ALLO WED THE CLAIM OF THE ASSESSEE. 4. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE FILED CONSOLIDATED ORDER OF THE TRIBUNAL IN ASSESSEES OW N CASE IN THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE FOR ASSESSMEN T YEAR 1992-93 IN ITA NOS. 5303/AHD/1996 AND ITA NO.4599/AHD/1996 DATED 30 TH JULY 2002 AND ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 4 - SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE SAID ORDER OF THE TRIBUNAL. FOLLOWING THE SAME, THE APPE AL OF THE ASSESSEE SHOULD BE ALLOWED IN THE PRESENT YEARS OF APPEAL ALSO. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED SET OFF OF DIVIDEND INCOME EAR NED FROM SHARES HELD AS STOCK IN TRADE AGAINST THE BUSINESS LOSS SUFFERED I N THE PURCHASE AND SALE OF SHARES WHICH WAS TREATED AS DEEMED SPECULATION LOSS UNDER PROVISO TO SECTION 73 OF INCOME TAX ACT, 1961. THE SAME WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER AS ACCORDING TO HIM SPECULATIVE BUSINESS LO SS CAN BE SET OFF AGAINST SPECULATIVE BUSINESS INCOME AND AS DIVIDEND INCOME WAS TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, THE SAME CANNOT BE SET O FF AGAINST THE SPECULATIVE BUSINESS LOSS OF THE ASSESSEE. IN APPEAL, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE SET OFF AS CLAIMED BY THE ASSESSEE HOLDING THAT DIVIDEND INCOME ARISING OUT OF SHARES HELD AS STOCK IN TRADE FOR THE PURPOSES OF SET OFF OF LOSS WAS BUSINESS INCOME. BEING AGGRIEVE D BY THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE R EVENUE IS IN APPEAL BEFORE US. WE FIND THAT A SIMILAR ISSUE CAME BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1992-93, WHE REIN VIDE ORDER PASSED IN ITA NO.5303/AHD1996 AND ITA NO.4599/AHD/1996 ON 30 TH JULY, 2002, THE TRIBUNAL HAS HELD AS UNDER: 2. THE LEARNED DR RELIED UPON THE DETAILED REASONS MENTIONED IN THE ASSESSMENT ORDER. IT WAS POINTED OUT BY HIM THAT TH E LOSS OF RS.3, 10,900/- CLAIMED BY THE ASSESSEE ON SALE AND PURCHA SE OF 2000 SHARES OF ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 5 - RELIANCE LIMITED WAS CLEARLY A SPECULATION LOSS WHI CH COULD NOT BE SET OFF AGAINST PROFITS OF REGULAR BUSINESS CARRIED OUT BY THE ASSESSEE. HE THUS STRONGLY URGED THAT THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) ON THIS POINT SHOULD BE REVERSED AND THAT OF THE LEARNED ASSESSING OFFICER SHOULD BE RESTORED . THE LD. COUN SEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE LOSS OF R S.3, 10,900/- CLAIMED BY THE ASSESSEE ON SALE AND PURCHASE OF 2000 SHARES OF RELIANCE LIMITED IS UNDOUBTEDLY AS SPECULATION LOSS BUT THE ENTIRE P ROFITS DERIVED BY THE ASSESSEE IN OTHER TRANSACTIONS OF DEALING IN SHARES IS ALSO DEEMED TO BE SPECULATIVE PROFITS BY VIRTUE OF A CLEAR INTERPRETA TION OF PLAIN LANGUAGE USED IN EXPLANATION TO SECTION 73. HE DREW OUT ATTE NTION TO THE AUDITED STATEMENTS AND THE NOTE MENTIONED BELOW THE COMPUTA TION OF TOTAL INCOME AND THE AUDITED BALANCE SHEET SUBMITTED AT P AGES 63 AND 69 OF THE COMPILATION TO SHOW THAT THE ASSESSEE COMPANY I S AN INVESTMENT COMPANY SOLELY ENGAGED IN THE BUSINESS OF PURCHASIN G AND SELLING OF SHARES OF COMPANIES. THE EXPLANATION TO SECTION 73 IS REPRODUCED BELOW. EXPLANATION:-WHERE ANY PART OF THE BUSINESS OF A CO MPANY [OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER S OURCES] OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN TH E PURCHASES AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, F OR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULA TION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHA SE AND SALE OF SUCH SHARES.] 2.1 THE AUDITED PROFIT & LOSS ACCOUNT SHOWS THAT OU T OF TOTAL INCOME OF RS.12,11,808/-, THE OTHER INCOME WAS ONLY RS.71, 060/-. THE REMAINING AMOUNT REPRESENTS PROFIT/LOSS ON PURCHASE/SALE OF S HARES. IT IS ALSO NOT A COMPANY WHOSE PRINCIPAL BUSINESS IS BUSINESS OF BAN KING OR GRANTING LOANS AND ADVANCES. THEREFORE, THE PURCHASE AND SAL E OF SHARES OF OTHER COMPANIES MADE BY THE APPELLANT COMPANY SHALL, FOR THE PURPOSE OF SECTION 73, BE DEEMED TO BE CARRYING ON A SPECULA TIVE BUSINESS. THEREFORE, THE LOSS IN SPECULATIVE BUSINESS HAS RIG HTLY BEEN SET OFF AGAINST PROFITS WHICH ARE DEEMED TO BE PROFITS OF S PECULATION BUSINESS. 2.2 AFTER CONSIDERING THE AFORESAID SUBMISSIONS MAD E BY THE LEARNED REPRESENTATIVES OF THE PARTIES, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE CIT (A), IN RESPECT OF THE AFORESAID POINT I S PERFECTLY VALID AND JUSTIFIED. THE VIEW SO TAKEN BY THE CIT (A) IS SUPP ORTED BY CLEAR ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 6 - INTERPRETATION OF PLAIN LANGUAGE USED IN EXPLANATIO N TO SECTION 73. THE ORDER PASSED BY THE CIT (A) IN RELATION TO THIS GRO UND IS THEREFORE, HELD TO BE VALID AND JUSTIFIED. THE REVENUES APPEAL HAS TH EREFORE, NO MERIT. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NO T SHOW ANY GOOD REASONS TO NOT TO FOLLOW TO THE ABOVE QUOTED ORDER OF THE TRIBUNAL. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE IN ALL THE YEARS OF APPEAL. 8. GROUND NO.2 OF THE APPEAL IN ASSESSMENT YEAR 199 7-98, GROUND NO.2 AND GROUND NO.3 OF THE APPEAL IN ASSESSMENT YEAR 19 95-96 AND GROUND NO.1 OF THE APPEAL IN ASSESSMENT YEAR 1996-97 ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETIN G THE ADDITION OF RS.80,89,754/- IN ASSESSMENT YEAR 1997-98, RS.81,37 ,701/- AND RS.20,02,192/- IN ASSESSMENT YEAR 1995-96 AND RS.4,53,10,429/- IN ASSESSMENT YEAR 1996-97 TREATING IT AS REVENUE EXPENDITURE WHEN FROM THE DI SCUSSION IN THE ASSESSMENT ORDER, IT IS SHOWN THAT AMOUNT WAS BORROWED FOR THE PURPOSE OF INCREASING THE STAKE OF ASSESSEE IN GUJARAT AMBUJA COTSPIN LTD. AN D NOT FOR A PURPOSE OF BUSINESS. 9. THE BRIEF FACTS OF THE CASE ARE THAT IN THE ASSE SSMENT YEARS 1995-96; THE ASSESSEE HAD ADVANCES A SUM OF 7 CRORES OUT OF BORR OWED FUNDS TO M/S. GACL. THIS MONEY WAS GIVEN ON 1.2.1995 TOWARDS SHARE APPL ICATION MONEY FOR THE PROPOSED PUBLIC ISSUE OF THE COMPANY TO FINANCE THE DENIM PROJECT. M/S. GACL PROJECTED THE NEED OF TOTAL FINANCE OF RS.85 CRORES FOR THE SAID PROJECT. AS A PROMOTER OF THE COMPANY, THE ASSESSEE WAS ALSO ASKE D TO FINANCE THE PROJECT BY INVESTING THE FUNDS IN THE NATURE OF SHARES APPL ICATION MONEY TO BE SUBSEQUENTLY CONVERTED INTO SHARES. M/S. GACL, THER EAFTER, IN THE LAST WEEK OF ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 7 - MARCH, 1995, DECIDED TO SET UP THE PROJECT FROM INT ERNAL ACCRUALS AND LOANS FROM THE FINANCIAL INSTITUTIONS INSTEAD OF EQUITY A ND THEREFORE, IT REFUNDED THE TOTAL APPLICATION MONEY TO THE ASSESSEE. ON THIS IN VESTMENT OF RS.7 CRORES, THE ASSESSEE WAS SADDLED WITH THE INTEREST BURDEN OF RS .20, 02,192/-. THE FINDING OF THE LEARNED ASSESSING OFFICER WAS THAT THIS EXPE NDITURE ON INTEREST WAS NOT FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE INTE REST PAYMENT OF RS.20, 02,192/- WAS DISALLOWED. FURTHER, ASSESSEE CLAIMED INTEREST PAID TO M/S. GACL ON DELAYED PAYMENT OF ALLOTMENT MONEY AT RS.81, 37, 702/-. THE LEARNED ASSESSING OFFICER OBSERVED THAT ACTION OF THE ASSES SEE IN PURCHASE/SUBSCRIPTION OF THE SHARES OF M/S.GACL IS NOT AT ALL THAT OF A N ORMAL TRADER AND INVESTOR AND HENCE, DISALLOWED THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. 10. IN THE ASSESSMENT YEAR 1996-97, THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT SO FAR AS DISALLOWA NCE OF INTEREST OF OPENING BALANCE IS CONCERNED, IT HAS BEEN MADE ON THE BASIS OF FINDINGS RECORDED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 1995- 96. EVEN FOR INTEREST ON FRESH LOANS TAKEN DURING THE YEAR IT WAS HELD BY LE ARNED ASSESSING OFFICER THAT AS DISCUSSED FOR ASSESSMENT YEAR 1995-96, THE SOLE PURPOSE OF ACQUIRING SHARES OF GUJARAT AMBUJA COTSPIN LTD. WAS TO ACQUIRE CONTR OL AND HENCE THE REASONING GIVEN IN ASSESSMENT YEAR 1995-96 WERE APPLICABLE EV EN TO THIS TRANSACTION. 11. IN ASSESSMENT YEAR 1997-98, INTEREST EXPENDITUR E OF RS.80, 89,759/- WAS DISALLOWED FOLLOWING THE ORDER OF THE LEARNED ASSES SING OFFICER PASSED IN ASSESSMENT YEAR 1995-96 AND 1996-97. THE LEARNED AS SESSING OFFICER DISALLOWED THE INTEREST EXPENDITURE IN ASSESSMENT Y EAR 1995-96 FOR THE REASON THAT INTEREST EXPENDITURE WAS NOT FOR THE PURPOSE O F BUSINESS AS IT WAS INCURRED ON LOANS BORROWED FOR THE PURPOSE OF INCREASING THE SHARE HOLDING OF THE ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 8 - ASSESSEE IN GUJARAT AMBUJA COTSPIN LTD AND NOT FOR THE PURPOSE OF BUSINESS. DURING THE YEAR UNDER CONSIDERATION, NO FRESH LOAN WAS BORROWED AND INTEREST EXPENDITURE RELATED TO THE OUTSTANDING BORROWING AS REDUCED BY REPAYMENTS MADE. 12. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE IN AS SESSMENT YEAR 1995-96 BY OBSERVING AS UNDER: IT IS NOTICED THAT THE FACTS AND CIRCUMSTANCES AN D THE BASIS OF THIS DISALLOWANCE IS EXACTLY SIMILAR AS IT WAS IN THE CA SE OF SMT. SULOCHANA V. GUPTA APPEAL NO.CIT(A)XIT/CC.1(2)/110/98-99 FOR A.Y . 95-96. THIS APPEAL HAS SINCE BEEN DECIDED BY ME WITH REGARD TO THIS ISSUE ON 1.03.2000. THE REASONING OF THE AO FOR MAKING THIS DISALLOWANCE IS EXACTLY SIMILAR AS IT WAS IN THE CASE OF SMT. SULOC HANA V. GUPTA. THE ARGUMENTS OF THE APPELLANT AGAINST THE DISALLOWANCE ARE AGAIN EXACTLY SIMILAR AS THESE WERE IN THE CASE OF SMT. SULOCHANA V. GUPTA. NATURALLY, THE SAME FINDING HAS TO FOLLOW WITH REGARD TO THIS DISALLOWANCE. FOLLOWING MY OWN ORDER AS REFERRED ABOVE IN THE CAS E OF SMT. SULOCHANA V. GUPTA, FOR THE SAME REASONING AND LOGIC, THE LEA RNED ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF INTEREST AS MADE BY THE APPELLANT. THIS GROUND OF APPEAL IS ACCORDINGLY DEC IDED IN FAVOUR OF THE ASSESSEE. 13. FOR THE VERY SAME REASONS FOR WHICH THE DISALLO WANCE OF INTEREST EXPENDITURE WAS DELETED IN ASSESSMENT YEAR 1995-96, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE OF INTEREST EXPENDITURE IN THE ASSESSMENT YEARS 1996-97 AND 199 7-98. 14. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE DURING THE COURSE OF THE HEARING FILED COPY OF THE CONSOLIDATED ORDER OF THE TRIBUNAL DATED 25.04.2008 PASSED IN THE CASE OF SHRI VIJAYKUMAR D. GUPTA AND SMT. SULOCHANA V. GUPTA IN ITA NOS. 1430/AHD/2000, 1359/AHD/2003, 1431/AHD/2000 WITH ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 9 - C.O.NO.225/AHD/2002 IN THE ASSESSMENT YEARS 1995-96 AND 1997-98 AND SUBMITTED THAT THIS GROUND OF APPEAL OF THE REVENUE HAS TO BE ALLOWED IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE HAS UTILISED THE BORROWED FUNDS FOR INCREA SING ITS SHARE HOLDING IN THE COMPANY M/S.GUJARAT AMBUJA COTSPIN LTD. AND CLAIMED DEDUCTION FOR INTEREST ON BORROWED FUNDS WHICH WAS DISALLOWED BY THE LEARN ED ASSESSING OFFICER AND WAS ALLOWED BY THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) FOLLOWING THE ORDER DATED 1.03.2000 OF THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) IN THE CASE OF SMT. SULOCHANA V. GUPT A APPEAL NO.CIT(A)XIT/CC.1(2)/110/98-99 FOR A.Y. 95-96. ON F URTHER APPEAL TO THE TRIBUNAL IN THE CASE OF SMT.SULOCHANA GUPTA, THE AP PEAL OF THE REVENUE WAS ALLOWED AND ORDER OF THE LEARNED ASSESSING OFFICER WAS RESTORED. WE FIND THAT THE TRIBUNAL WHILE DOING SO HELD AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND, PERUSED THE MATERIAL ON RECORD. THIS IS AN UNDISPUTED FACT THAT WHEN THE ASSESSEE HAS APPLIED FOR ALLOTMENT OF SHARES AND PAID THE SHARE APPLICATION MONEY, GACL WAS HAVING AUTHORISED CAPITAL OF RS.95 CRORES, THE COMPANY COULD NOT HAVE ISSUED THE SHARES WITHOUT INCREASING THE A UTHORISED CAPITAL. THE SHARE APPLICATION MONEY WAS RETURNED TO THE ASSESSE E SUBSEQUENTLY WITHOUT ALLOTTING THE SHARES. THE ASSESSEE IS ONE O F THE PROMOTERS OF GACL. THE FUNDS HAVE BEEN ADVANCED BY GACL TO SFC W HOSE PROPRIETOR WAS ONE OF THE EMPLOYEES OF GACL AND IN TURN THE AS SESSEE HAS RECEIVED THE FUNDS FROM SFC AND ULTIMATELY GIVEN THE SHARE A PPLICATION MONEY TO GACL. THE MONEY WAS ADVANCED IN RESPECT OF SHARES W HICH WERE NEVER ALLOTTED TO THE ASSESSEE. THE ASSESSEE ALTHOUGH CLA IMS THAT HE DERIVED INCOME FROM THE BUSINESS AND HAS CLAIMED THE DEDUCT ION U/S. 36(1)(III). WE HAVE ALSO GONE THROUGH THE COMPANY OF THE BALANC E SHEET AS FILED BY THE ASSESSEE AND WE NOTED THAT THE ASSESSEE HAS SHO WN SOME OF THE SHARES IN GUJARAT ALKALIES GROUP COMPANY AS INVESTM ENT WHILE THE OTHER ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 10 - SHARES WERE SHOWN AS STACK IN TRADE. THEREFORE, WE DO NOT AGREE WITH THE PLEA OF THE LEARNED AUTHORISED REPRESENTATIVE T HAT THE SHARES WERE HELD AS STOCK IN TRADE AND THE ASSESSEE PAID THE SH ARE APPLICATION MONEY FOR ACQUIRING THE BUSINESS ASSETS. WE HAVE ALSO GON E THROUGH THE DECISION AS RELIED UPON BY THE LEARNED DR IN THE C ASE OF DCIT V. PRAMUKH OXYGEN PVT. LTD. [ITA NOS.3939/AHD/2002, 1935 AND 1 936/AHD/2001, FOR AYS 1996-97 TO 1998-99] AND WE FIND THAT THE FACTS INVOLVED IN THAT CASE ARE SIMILAR TO THE FACTS IN THE CASE OF THE ASSESSE E. IN THAT CASE ALSO THE ASSESSEE HAD MADE PAYMENT OF RS.43, 30,000/- AS SHA RE APPLICATION MONEY TO ONE M/S. AKSHAR PVT. LTD. A SISTER CONCERN OF THE ASSESSEE OUT OF THE FUNDS BORROWED BY TAKING LOAN FROM BARODA PE OPLES CO-OP. BANK FOR WHICH THE ASSESSEE HAS DEPOSITED A SUM OF RS.12 ,40,000/- AS MARGIN MONEY WITH THE BANK FOR THIS PURPOSE WHICH WAS TAKE N FROM ASHOKJYOT OXYGEN PVT. LTD. ANOTHER CONCERN OF THE ASSESSEE. I N THE CASE BEFORE US THERE IS A CLEAR CUT FINDING GIVEN BY THE AO THAT T HE FUNDS HAD BEEN ROTATED FROM GACL TO SFC, FROM SFC TO THE ASSESSEE AND AGAINST WENT BACK TO GACL. NO MATERIAL OR EVIDENCE WAS BROUGHT BEFORE US BY THE LEARNED AR WHICH MAY PROVE THAT THE FINDING GIVEN B Y THE AO IS NOT CORRECT. THIS FINDING, IN OUR OPINION, REMAINS UNCO NTROVERTED AND DUE TO THIS FINDING THE FACT INVOLVED IN THIS CASE ARE ALS O SIMILAR TO THE FACTS IN THE CASE OF DCIT V. PRAMUKH OXYGEN LTD. IN WHICH TH IS TRIBUNAL HAS VIDE ORDER DATED 31.10.2005 RESTORED THE ORDER OF THE LE ARNED ASSESSING OFFICER DISALLOWING THE INTEREST BY OBSERVING AS UN DER:- 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THEIR RIVAL SUBMISSIONS. WHEN THE ASSESSEE HAS APPLIED FOR ALLO TMENT OF SHARES ON 8-5-1995 AND PAID THE FULL VALUE OF THE SHARES AND WHEN THE PROJECT FOR WHICH THE SHARE CAPITAL WAS BEING RAISED COULD NOT BE COMPLETED BECAUSE OF RECESSION IN THE MARKET AND ANOTHER UNFA VORABLE MARKET CONDITIONS, THE QUESTION OF RETAINING THE ASSESSEE S MONEY DID NOT ARISE. THIS MAY AMOUNT TO BE UTILIZATION OF ASSESSEES MON EY BY THEM RECEIVED IN THE GARB OF APPLICATION MONEY. BE THAT AS IT MAY, EVEN IF IT IS CONSIDERED TO BE APPLICATION MONEY, THE INTEREST WO ULD NOT BE AN ALLOWABLE DEDUCTION TO THE ASSESSEE BECAUSE THE SHA RES HAVE NEVER COMES ON THE SURFACE. IT IS TRUE THAT IN VIEW OF TH E CALCUTTA HIGH COURT DECISION IN THE CASE OF RAJIV LOCHAN KANORIA (SUPRA ), AN INTEREST ON BORROWED CAPITAL UTILISED FOR PURCHASE OF SHARES OF DIFFERENT COMPANIES IN ORDER TO ACQUIRE CONTROLLING INTEREST MAY BE AN ALLOWABLE DEDUCTION BUT THE AS HAD NOT ACQUIRED ANY CONTROLLING INTERES T AND, THEREFORE, THE SAID DECISION WOULD NOT BE OF ANY HELD TO THE ASSES SEE. SIMILARLY, THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF L AXMI AGENTS PVT. LTD. (SUPRA), THE INTEREST PAID WAS FOR ACQUIRING SHARES OF ITS MANAGED ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 11 - COMPANY AND IT WAS HELD TO BE AN ALLOWABLE DEDUCTIO N UNDER SECTION 36(1)(III) OF THE ACT. THIS DECISION WOULD ALSO NOT BE OF ANY HELP TO THE ASSESSEE IN THE ABSENCE OF PURCHASE OF SHARES. THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF SHI VALIK AGRO POLYPRODUCTS (SUPRA) REFERRED TO BY THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) IS ALSO OF NO HELP TO THE ASSES SEE BECAUSE IN THAT CASE, THE DIVERSIFICATION OF BUSINESS BY THE SISTER CONCERN OUT OF BORROWED FUNDS WAS HELD TO BE FOR THE PURPOSE OF BU SINESS. HERE, THE PROJECT WAS ABANDONED BY THE COMPANY OF WHOSE SHARE S. THE ASSESSEE THOUGHT OF PURCHASING AND IN SPITE OF THE ABANDONME NT OF THE PROJECT THE ASSESSEES MONEY WAS RETAINED BY THEM. 5. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT E VEN OTHERWISE THE MONEY GIVEN FOR THE PURCHASE OF SHARES AS APPLI CATION MONEY WOULD BE FOR MAKING AND EARNING INCOME FROM DIVIDEND OF T HAT COMPANY AND THEREFORE, WOULD BE AN ALLOWABLE DEDUCTION U/S. OF THE ACT. HERE ALSO WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESS EE. THE SHARES HAVE NEVER COME INTO EXISTENCE. THE INTEREST PAYMENT WIT H RELATION TO THE AMOUNT ATTRIBUTABLE TO SHARE APPLICATION MONEY WITH OUT THE ALLOTMENT OF SHARES WOULD NOT ENTITLE THE ASSESSEE TO CLAIM A NY DEDUCTION FOR THE INTEREST PAID ON SUCH BORROWINGS AND COULD NOT BE S AID TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING AND EARNING INCOME FROM OTHER SOURCES. THE ORDERS O F THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), IN OUR OPINION , ARE NOT IN ACCORDANCE WITH LAW AND THE SAME ARE REVERSED AND T HOSE OF THE AO ARE RESTORED. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THIS TRIBUNAL, WE SET ASIDE THE ORDER OF THE CIT (A) AND RESTORE THE ORDER OF THE AO DISALLOWING THE CLAIM OF INTEREST. THUS, GRO UND NO.1 STANDS ALLOWED. 16. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE HAS SUBMITTED THAT THE APPEAL OF THE REVENUE HAS TO BE ALLOWED IN VIEW OF THE ABOVE QUOTED DECISION OF THE TRIBUNAL, THEREFORE, RESPECTFULLY F OLLOWING THE ABOVE DECISION OF TRIBUNAL, WE ALLOW THIS GROUND OF APPEAL IN ALL THE YEARS OF APPEAL. 17. GROUND NO.1 OF THE APPEAL IN ASSESSMENT YEAR 19 95-96 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETING ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 12 - THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INT EREST ON FUNDS BORROWED FROM SFC RS.2,00,89,053/- . 18 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD CLAIMED AN AMOUNT OF RS.3,02,28,947/- AS INTEREST PAID. OUT OF THIS A MOUNT, A SUM OF RS. 2,20,91,245/- STOOD PAID TO M/S. SHARMA FINANCE CO . (SFC FOR SHORT). THE CASE OF THE ASSESSEE WAS THAT DURING THE YEAR UNDER CONS IDERATION IT HAD RECEIVED LOANS FROM M/S. SFC WHO WAS PROVIDING SHORT TERM FI NANCE AT THE RATE OF 18% PER ANNUM TO THE ASSESSEE ON NEED BASIS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD BORROWED SUBSTANTIAL FUNDS FROM M/ S. SFC FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN SUPPORT, STATEMENT OF UTILIZATION OF LOANS RECEIVED FROM M/S. SFC WAS PROVIDED TO THE LEARNED ASSESSING OFFICER. AS PER ASSESSEE, IT COULD BE VERIFIED FROM THE STATEMENT THAT THE BO RROWED FINANCE WAS UTILISED EITHER IN STOCK IN TRADE OR INVESTMENT OR FUNDS WER E UTILISED TO REPAY THE CREDITORS OR TO MEET TEMPORARY BANK OVER DRAFTS OR TO MEET WORKING CAPITAL GAP. IT WAS THE CASE OF THE ASSESSEE BEFORE THE LEA RNED ASSESSING OFFICER THAT IT COULD BE VERIFIED THAT NONE OF THE APPLICATION OF F UNDS WAS MADE OUT OF BUSINESS AND THEREFORE, THE INTEREST ON BORROWED LO ANS HAS TO BE ALLOWED IN FULL. THE LEARNED ASSESSING OFFICER POINTED OUT THA T CLAIM OF INTEREST ON FUNDS UTILISED FOR PURCHASE/SUBSCRIPTION OF SHARES OF GRO UP COMPANY WAS LIABLE TO BE DISALLOWED IN VIEW OF THE DECISION OF IBLE GUJARAT HIGH COURT IN THE CASE OF VIRMALI RAMKRISHNA VS. CIT (131 ITR 659) AND SARABH AI & SONS VS. CIT (201 ITR 464). 19. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING TO QUOTE AS UNDER: ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 13 - AFTER CAREFULLY CONSIDERING THE ISSUE INVOLVED, IT IS FELT THAT THE ACTION OF THE LEARNED ASSESSING OFFICER IN THIS REGARD IS UNJ USTIFIED. THE FACTS OF THE ISSUE ARE SO CLEAR THAT NO ADVERSE INFERENCE COULD POSSIBLY BE DRAWN. THERE IS NO DISPUTE WITH REGARD TO THE BASIC FACT T HAT THE APPELLANT COMPANY WAS CARRYING ON BUSINESS AS A DEALER IN SHA RES AND THEREFORE SHARES ACQUIRED BY IT WERE AN ITEM OF STOCK IN TRAD E. IT IS ALSO UNDISPUTED FACT THAT DURING THE YEAR, THE ASSESSEE HAD BORROWE D SUBSTANTIAL FUNDS FROM M/S. SFC FOR THE PURPOSE OF BUSINESS OF THE AS SESSEE. PERUSAL OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET REVEALS S UBSTANTIAL INCREASE IN THE STOCKS ACQUIRED, SINCE AGAINST OPENING STOCK OF RS.19,54,175/- CLOSING STOCK SHOT UP TO RS.19,00,15,930/-. STATEME NT OF UTILIZATION OF LOANS RECEIVED FROM M/S. SFC AND HAS PRODUCED BEFOR E THE LEARNED ASSESSING OFFICER CLARIFIED THE POSITION WITH REGAR D TO UTILIZATION OF THE LOANS. IT WAS VERIFIED AND FOUND CORRECT BY THE LEA RNED ASSESSING OFFICER THAT NONE OF THE APPLICATION OF FUNDS WAS MADE FOR NON-BUSINESS PURPOSES. FOR THIS VERY SIMPLE REASON ALONE THE CLA IM OF INTEREST WAS LIABLE TO BE ALLOWED IN FULL. IN PARA 5 ABOVE, IT H AS BEEN REPRODUCED AS HOW THE BORROWED FUNDS WERE UTILISED FOR ACQUISITIO N OF SHARES OF DIFFERENT GROUP AS WELL AS OUTSIDE COMPANIES AND TH E VERSION OF THE ASSESSEE IS NOT FOUND TO BE CONTRARY TO THE CLAIM M ADE. SHARES OF GROUP COMPANIES AS WELL AS OTHER COMPANIES WERE ALSO SOLE D DURING THE YEAR AND THE BALANCE STOCK REMAINED WITH THE ASSESSEE AT THE END OF THE YEAR. NONE OF THESE FACTS ARE DISPUTED BY THE LEARNED ASS ESSING OFFICER. IN THIS VIEW OF THE FACTUAL SITUATION, THE CLAIM OF INTERES T ON BORROWINGS WAS CLEARLY ALLOWABLE 36(1)(III). THERE IS A CLEAR NEXU S ESTABLISHED IN THE FACTS OF THE CASE THAT THE APPELLANT HAD MADE BORROWING S FOR THE PURPOSE OF BUSINESS AND SHARES ACQUISITIONS WERE PART OF THE T RADING ACTIVITY OF THE ASSESSEE. ONCE IT IS ESTABLISHED THAT THE APPELLANT HAD MADE BORROWINGS FOR THE PURPOSE OF BUSINESS. THERE IS NO WAY TO DIS ALLOW THE CLAIM OF INTEREST MADE. THE CASE LAW AS CITED BY THE ASSESSE E ABOVE FULLY SUPPORTS THE CLAIM OF THE ASSESSEE. IT SEEMS, PERHAPS THE LE ARNED ASSESSING OFFICER GOT INFLUENCED BY THE FACT THAT EARNING OF INCOME DID NOT RESULT IN THE INSTANT CASE. BUT THE LEGAL POSITION IS THAT EA RNING OF INCOME IS NOT SINE QUA NON FOR ALLOWING THIS CLAIM. THE CLAIM IS CLEARLY ALLOWABLE I 36(1)(III) OF THE INCOME TAX ACT. IN VIEW OF THE C LEAR FACTUAL AS WELL AS LEGAL POSITION ABOVE, THE IMPUGNED DISALLOWANCE AS MADE BY THE LEARNED ASSESSING OFFICER IS DIRECTED TO BE DELETED SINCE THE SAME IS CONTRARY TO THE FACTS AS WELL AS LAW. IT IS ALSO NO TICED THAT THE LEARNED ASSESSING OFFICER HAS REFERRED TO THE FACTS FROM OT HER CONNECTED CASES ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 14 - WHICH HAVE ALSO BEEN SINCE ADJUDICATED BY ME. IN TH E CONNECTED CASE OF SMT. SULOCHANA V. GUPTA IN APPEAL NO.CIT(A)XII/CC.1 (2).110/98-99, I HAVE HELD THAT THERE WAS ACTUAL BORROWING LEADING O F FUNDS INVOLVED AND M/.S SFC WAS AN ACCEPTED TAX PAYING IDENTITY. SIMIL ARLY, ASSESSMENTS OF M/S. GACL AND M/S.SFC WERE COMPLETED BY THE DEPARTM ENT WITHOUT ANY ADVERSE INFERENCE. IN THIS BACKGROUND, THERE WAS NO THING TO HOLD ANYTHING AGAINST THE PRESENT ASSESSEE. LEARNED ASSE SSING OFFICER HAS NOT BEEN ABLE TO PROVE THAT THE TRANSACTIONS INVOLVED W ERE SHAM AND LOANS WERE NOT ACTUALLY TAKEN. IT IS ALSO NOT PROVED THAT THE SHARES OF DIFFERENT COMPANIES WERE NOT ACQUIRED. ONCE THESE FACTS REMAI N UNDISPUTED, THE CLAIM OF THE ASSESSEE FOR PAYMENT OF INTEREST HAS T O SUCCEED IRRESPECTIVE OF THE FACT OF NON-EARNING OF INCOME. THE ASSESSEE WAS ALREADY HAVING CONTROLLING STAKE IN M/S. GACL AND THEREFORE, IT CO ULD NOT BE HELD THAT PURCHASE/SUBSCRIPTION OF SHARES WAS MADE WITH THE M OTIVE OF ACQUISITION OF CONTROLLING STAKE. TO CONCLUDE, THE LEARNED ASSE SSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF INTEREST AS MADE. TH IS GROUND OF APPEAL IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 20. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF AH MEDABAD BENCH OF TRIBUNAL IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TA X V. ATAKU HOLDINGS (P) LTD. (2005) 87 TTJ 293 AHD WHERE IT WAS HELD THAT INTERE ST ON AMOUNT BORROWED FOR PURCHASE OF SHARES BY ASSESSEE, AN INVESTMENT COMPA NY, WAS ALLOWABLE AS DEDUCTION. HE FURTHER SUBMITTED THAT THIS DECISION WAS FOLLOWED BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF INCO ME TAX OFFICER V. VIKALPO FINANCIAL & MANAGEMENT SERVICES, IN ITA NO.965/AHD/ 2000 ASSESSMENT YEAR 1996-97 ORDER DATED 16.12.2005. HENCE, IT WAS HIS S UBMISSION THAT THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER. ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 15 - 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION FOR INTEREST EXPENDITURE OF RS.3,02,28,947/- OUT OF WHICH SUM OF RS.2,20,91,245/- WAS PAID TO M/S. SHAR MA FINANCE COMPANY. THE ASSESSEE CLAIMED THAT IT HAD RECEIVED LOANS FROM M/ S. SFC @ 18% PER ANNUM WHICH WAS UTILISED FOR ITS BUSINESS PURPOSES AND HE NCE, WAS ALLOWABLE DEDUCTION TO THE ASSESSEE. THE LEARNED ASSESSING OF FICER POINTED OUT THAT THE CLAIM OF INTEREST ON FUNDS UTILISED FOR PURCHASE/SU BSCRIPTION OF SHARES OF GROUP COMPANY WAS LIABLE TO BE DISALLOWED IN VIEW OF DECI SION OF GUJARAT HIGH COURT IN THE CASE OF VIRMATI RAMKRISHNA V.S. CIT (131 ITR 659). IN VIEW OF THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DI SALLOWED THE INTEREST EXPENDITURE OF RS.2,00,89,053/-. THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE ASSESSEE COMPANY WAS CARRYING ON BUSINESS AS A DEALER IN SHARES AND THE SHARES WERE ACQUIRED BY IT AS STOCK IN TRADE. FURTHER, DURING THE YEAR ASSESSEE BORROWED FUNDS FROM M/S. S FC FOR THE BUSINESS. FROM THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET, IT IS FOUND THAT THERE IS SUBSTANTIAL INCREASE IN THE STOCKS ACQUIRED SINCE AGAINST OPENI NG STOCK OF RS.19,54,175/- CLOSING STOCK WAS RS.19,00,15,930/-. THE ASSESSEE F ILED STATEMENT OF UTILIZATION OF LOAN RECEIVED BEFORE THE LEARNED ASSESSING OFFIC ER WHICH CLARIFIED THE POSITION WITH REGARD TO THE UTILIZATION OF LOAN AND THE SAME WAS VERIFIED AND FOUND TO BE CORRECT. THE LEARNED ASSESSING OFFICER HAS NOT FOUND THAT ANY OF THE FUNDS WAS UTILISED FOR NON BUSINESS PURPOSES. T HE ASSESSEE HAS ACQUIRED SHARES OF DIFFERENT GROUPS WHICH WERE SOLD DURING T HE YEAR AND BALANCE STOCK REMAINED WITH THE ASSESSEE AT THE END OF THE YEAR. THESE FACTS ARE NOT DISPUTED BY THE LEARNED ASSESSING OFFICER. THUS, THERE IS A CLEAR NEXUS ESTABLISHED BETWEEN THE BORROWED FUNDS AND THEIR UTILIZATIONS F OR PURPOSE OF BUSINESS AND ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 16 - SHARE ACQUISITION WERE PART OF TRADING ACTIVITY OF THE ASSESSEE. THEREFORE, WE HELD THAT THE INTEREST WAS ALLOWABLE DEDUCTION UNDE R SECTION 36(1) (III) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ALSO OBSERVED THAT THE LEARNED ASSESSING OFFICER RELIED ON THE FACTS FROM OTHER CONNECTED CASES WHICH HAVE SINCE BEEN ADJUDICATED BY HIM. IN THE CONNECTE D CASE OF SMT. SULOCHANA V. GUPTA IN APPEAL NO. CIT (A)XII/CC.1(2)/110/98-99 , IT WAS HELD BY HIM THAT THERE WAS ACTUAL BORROWING/LENDING OF FUNDS INVOLVE D AND M/S. SFC WAS AN ACCEPTED TAX PAYING ENTITY. SIMILARLY, ASSESSMENTS OF M/S.GACL AND M/S.SFC WERE COMPLETED BY THE DEPARTMENT WITHOUT ANY ADVERS E INFERENCE. THEREFORE THERE WAS NOTHING TO HOLD ANYTHING AGAINST THE ASSE SSEE. THE LEARNED ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE THAT T HE TRANSACTION INVOLVED WAS SHAM AND LOANS WERE NOT ACTUALLY TAKEN AND THAT SHA RES OF DIFFERENT COMPANY WERE NOT ACQUIRED. WE THUS FIND THAT IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE TRADING OF SHARES, THE SHARES FORMS PART OF THE BUSINESS ASSETS OF THE ASSESSEE, BORROWED FU NDS WERE UTILIZED FOR THE PURPOSE OF ACQUISITION OF SHARES AND INTEREST WAS A CTUALLY PAID BY THE ASSESSEE IN RESPECT OF SUCH BORROWINGS. ONLY CONTENTION RAIS ED BY THE REVENUE WAS THAT AS THE ASSESSEE HAS ALSO ACQUIRED SHARES OF GROUP C OMPANIES WITH BORROWED FUNDS, INTEREST THEREON IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF VIRMATI RAMKRISHN A VS.- CIT (SUPRA) AND SARABHAI & SONS VS.- CIT (SUPRA). WE HAVE GONE THR OUGH BOTH THE ABOVE DECISIONS AND FIND THAT BOTH ARE DISTINGUISHABLE ON FACTS AND ARE NOT APPLICABLE IN THE INSTANT CASE. IN BOTH THE ABOVE DECISIONS, I T WAS FOUND THAT BORROWED FUNDS WERE UTILIZED NOT FOR THE PURPOSE OF EARNING INCOME BUT WERE UTILIZED EITHER FOR ACQUIRING CONTROLLING INTEREST OR WERE I NCURRED FOR THE PURPOSE OF SAVING TAX LIABILITIES. THUS IN THOSE CASES, IT WAS FOUND THAT INTEREST EXPENDITURE ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 17 - WAS INCURRED NOT FOR THE PURPOSE OF EARNING INCOME AND IN BOTH THE CASES DEDUCTION WAS CLAIMED BY THE ASSESSEE UNDER SECTION 57 OF THE ACT. IN THE INSTANT CASE, DEDUCTION WAS CLAIMED UNDER SECTION 3 6(1)(III) AND NO MATERIAL WAS BROUGHT ON RECORD TO CONTROVERT THE ABOVE SUBMI SSION OF THE ASSESSEE THAT THE INTEREST EXPENDITURE WAS INCURRED FOR THE PURPO SE OF ACQUIRING OF STOCK-IN- TRADE OF BUSINESS WITH A VIEW TO EARN BUSINESS INCO ME. IN OUR CONSIDERED OPINION, THE ABOVE DECISIONS ARE THEREFORE, NOT APP LICABLE IN THE INSTANT CASE. FURTHER, WE FIND THAT THE ASSESSMENT YEARS INVOLVED IN THE PRESENT APPEALS ARE ASSESSMENT YEARS 1995-96, 1996-97 AND 1997-98 IN WH ICH DIVIDEND INCOME WAS TAXABLE. WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 23. GROUND NO.3 AND 4 OF THE APPEAL IN ASSESSMENT Y EAR 1997-98, GROUND NO.2 AND 3 OF THE APPEAL IN ASSESSMENT YEAR 1995-96 AND 3 AND 4 OF THE APPEAL IN ASSESSMENT YEAR 1996-97 ARE GENERAL IN NATURE AN D REQUIRES NO ADJUDICATION BY US. 24. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE PARTLY ALLOWED AS ABOVE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 6/11/2009. SD/- SD/- ( H.L. KARWA ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 6/11/ 2009 PREPARED AND COMPARED BY : PARAS ITA NO. .1924/AHD/2002,1428/AHD/2000&ITA NO.2381/AHD/2002 M/S.MEGH MALHAR FINSTCOK P. LTD. AY : 1997-98, 1995-96, 1996-97 - 18 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD