Shri Poonamchand R.Acharya, Deesa V. The Income tax Officer,(OSD)Cent.Ward-2(1), Ahmedabad

ITA 1437/AHD/2012

• Counselvise Citation: 143720514 RSA 2012
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 29-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 1437/ AHD/2012 (ASSESSMENT YEAR 2004-05) SHRI POONAMCHAND R ACHARYA, SINDHI COLONY, NR. TALUKA SCHOOL, AT. DEESA, (DISTT. B.K.)-385535 VS. ITO (OSD), CENTRAL WARD 2(1), AHMEDABAD PAN/GIR NO. : ABKPA0624R (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S N SOPARKAR, AR RESPONDENT BY: SHRI D K SINGH, SR. DR DATE OF HEARING: 26.10.2012 DATE OF PRONOUNCEMENT: 30.11.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A) XX, AHMEDABAD DATED 16.05.2012 FOR THE ASSES SMENT YEAR 2004- 05. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDE R: 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN S ET ASIDE PROCEEDINGS TO HOLD THAT ONLY RS.1,13,328/- INTERES T EXPENSES INCURRED IN CONNECTION WITH SHARE TRADING BUSINESS OF THE APPELLANT AS ALLOWABLE. LD. CIT (A) ERRED IN NOT ALLOWING INT EREST EXPENSE OF RS.11,34,387/- INCURRED DURING THE COURSE OF OTHER BUSINESSES OF THE APPELLANT. THE ORDER OF LD. CIT (A) BEING PERVE RSE, BAD IN LAW AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE DESER VES TO BE QUASHED AND LEGITIMATE BUSINESS EXPENDITURE BE ALLOWED TO T HE APPELLANT. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN NO T APPRECIATING THE FACT THAT THE APPELLANT IN THE SCRUTINY ASSESSMENT AS WELL APPELLATE PROCEEDINGS CONSISTENTLY MAINTAINED THAT INTEREST C OMPONENT OF EXPENDITURE CLAIMED AGAINST THE INCOME RETURNED WAS UTILIZED FOR I.T.A.NO.1437 /AHD/2012 2 INVESTMENT IN SHARE TRADING ACTIVITY AS WELL OTHER BUSINESSES OF THE APPELLANT. LD. CIT (A) OUGHT TO HAVE ALLOWED INTERE ST EXPENSES CLAIMED U/S 36(L)(III) OF THE ACT BY FULLY APPRAISI NG HIMSELF OF THE FACTS ON RECORD WHEN THE HON'BLE IT AT HAD SET ASID E THE MATTER FOR DECIDING AFRESH IN ACCORDANCE WITH LAW. 3. LD. CIT (A) HAS GROSSLY VIOLATED PRINCIPLES OF NATURAL JUSTICE IN DISMISSING THE CLAIM OF THE APPELLANT IN A SUMMA RY MANNER WITHOUT CONSIDERING MATERIAL AVAILABLE ON RECORD AS WELL SUBMISSIONS AND GRIEVANCES RAISED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS. 2. IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF CIT VS SMT. LEENA RAMACHAND RAN AS REPORTED IN 339 ITR 296 (KER.). 3. HE FURTHER SUBMITTED THAT AS PER PARA 3.4 ON PAG E 28 OF HIS ORDER, IT IS STATED BY LD. CIT(A) THAT THE ASSESSEE HAD NOT B EEN ABLE TO ESTABLISH THE NEXUS OF THIS EXPENDITURE OF RS.12,02,351/- WIT H SHARE TRADING BUSINESS. HE SUBMITTED THAT UNDER THIS FACTUAL POS ITION, THE MATTER MAY BE RESTORED BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION BECAUSE THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUNITY TO ES TABLISH THE NEXUS. LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGEMENTS CITED BY THE LD. A.R. OF THE ASSESSEE. IN THE CASE OF CIT VS LEENA RAMACHANDRAN (SUPRA), ALTHOUGH THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BUT HONBLE KERALA HIGH COURT IN THE FACTS OF THAT CASE, NOTED THAT THE SHARES WERE PURCHASED FOR INVESTMENT AND N OT FOR TRADING PURPOSE BUT IT WAS STATED BY HONBLE KERALA HIGH COURT IN T HEIR JUDGEMENT THAT IN THEIR VIEW, THE ASSESSEE WOULD BE ENTITLED TO DEDUC TION OF INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 ON THE BORRO WED FUNDS UTILIZED FOR THE ACQUISITION OF SHARES ONLY IF SHARES ARE HELD A S STOCK IN TRADE WHICH I.T.A.NO.1437 /AHD/2012 3 ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING O F SHARES. HENCE, IF IN THE FACTS OF A CASE, IT IS FOUND THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF TRADING IN SHARES AND THE BORROWED FUNDS ON WHICH I NTEREST WAS PAID, HAS BEEN UTILIZED FOR ACQUISITION OF SHARES IN SUCH A B USINESS, THEN DEDUCTION OF INTEREST PAYMENT IS ALLOWABLE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ES TABLISHED THIS ASPECT THAT THE BORROWED FUNDS ON WHICH INTEREST WAS PAID, HAD BEEN UTILIZED FOR THE PURCHASE OF SHARES IN THE BUSINESS OF SHARE TRADING . IN THE PRESENT CASE, THIS FINDING IS GIVEN BY LD. CIT(A) IN PARA 3.4 ON PAGE 28 OF HIS ORDER THAT THE ASSESSEE COULD NOT ESTABLISH THE NEXUS OF THESE EXPENDITURE WITH SHARE TRADING BUSINESS. IN THIS REGARD, IT WAS CON TENDED BY LD. A.R. THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION TO ALLOW THE ASSESSEE ONE MORE OPPORTUNITY TO ESTABLISH SUCH NEXUS. IN THIS REGARD, WE FIND THAT IT IS NOTED BY LD. CIT(A) IN PARA 3.2 OF HIS ORDER THAT INITIALLY, THE DISALLOWANCE WAS CONF IRMED BY LD. CIT(A) VIDE ORDER DATED 28.08.2007 AND AGAINST THIS ORDER, THE MATTER WAS CARRIED BEFORE THE TRIBUNAL IN 2 ND APPEAL AND THE ISSUE WAS RESTORED BACK BY THE TRIBUNAL FOR A FRESH DECISION WITH A SPECIFIC DIREC TION AS TO WHETHER THE EXPENDITURE HAD ANY NEXUS WITH THE BUSINESS OF SHAR E TRADING CARRIED OUT BY THE ASSESSEE OR NOT. WE FIND THAT IN PARA 3.3 O F HIS ORDER, LD. CIT(A) HAS ALLOWED DEDUCTION OF RS.1,13,328/- BY HOLDING T HAT THIS EXPENDITURE WAS INCURRED IN CONNECTION WITH SHARE TRADING BUSIN ESS OF THE ASSESSEE. IN THE ASSESSMENT ORDER, THE DISALLOWANCE WAS MADE BY THE A.O. ON THIS BASIS THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSIN ESS OF SHARE TRADING AND THE SHARES WERE ACQUIRED BY HIM AS INVESTMENT. THI S FINDING OF THE A.O. IS NOT APPROVED BY LD. CIT(A) AS PER THE IMPUGNED O RDER AND THERE IS NO APPEAL OF THE REVENUE ON THIS ASPECT. HENCE, THIS FINDING OF LD. CIT(A) HAS BECOME FINAL THAT THE ASSESSEE IS ENGAGED IN SH ARE TRADING BUSINESS. NOW, THE QUESTION IS, WHETHER THE EXPENDITURE INCUR RED BY THE ASSESSEE IN I.T.A.NO.1437 /AHD/2012 4 ADDITION TO THIS AMOUNT OF RS.1,13,328/- ALREADY AL LOWED BY LD. CIT(A), WERE INCURRED FOR SUCH SHARE TRADING BUSINESS OR NO T AND WE FEEL THAT THE MATER MAY BE RESTORED BACK TO THE FILE OF LD. CIT(A ) FOR AFRESH DECISION IN THE INTEREST OF JUSTICE AND HENCE, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FI LE OF LD. CIT(A) FOR A FRESH DECISION. BEFORE LD. CIT(A), THE ASSESSEE HA S TO ESTABLISH THAT THESE EXPENDITURE WERE INCURRED BY HIM FOR SHARE TRADING BUSINESS. AFTER CONSIDERING THE MATERIAL TO BE BROUGHT ON RECORD BY THE ASSESSEE IN THIS REGARD, HE SHOULD DECIDE THE ISSUE AFRESH IN THE LI GHT OF THIS JUDGEMENTS OF HONBLE KERALA HIGH COURT. HE SHOULD PASS A WELL REASONED AND SPEAKING ORDER IN THE LIGHT OF ABOVE DISCUSSION AFT ER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. 5. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALL OWED FOR STATISTICAL PURPOSE. 6. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (G. C. GUPTA) (A. K. GARODIA) VICE PRESIDENT ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO.1437 /AHD/2012 5 1. DATE OF DICTATION 21/11/2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22/11/2012.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 30/11/2012 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.30/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30/11/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .