SHRI VENUE EXPORTS, MUMBAI V. ITO WD 17(2)(3), MUMBAI

ITA 1437/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79070 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 20-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BHAVESH R MAJITHIA
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 1437/MUM/2013 ( / ASSESSMENT YEAR: 2008-09) VENUE EXPORTS 4-A, DHUN BUILDING, DADASAHEB PHALKE ROAD, DADAR (E), MUMBAI-400 014 / VS. INCOME TAX OFFICER, WARD-17(2)(3), PIRAMAL CHAMBERS, MUMBAI 400 012 ' ./# ./PAN/GIR NO. AAAFV 1216 D ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI BHAVESH R. MAJITHIA %&'$ ' ( / RESPONDENT BY : SHRI MAURYA PRATAP )* + ' , / DATE OF HEARING : 19.05.2014 -./ ' , / DATE OF PRONOUNCEMENT : 13.06.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-29, MUMBAI (CIT(A) FOR SH ORT) DATED 14.12.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 30.12.2010. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, A FIRM DEALING IN FOODGRAINS, SPICES, ETC., WAS OBSERVED TO HAVE EARNED INTEREST INCOME AT RS.13,04,850/-, WHICH WAS REFLECTED AS AN INDIRECT INCOME IN ITS OPERATING ST ATEMENT FOR THE RELEVANT YEAR. THE SAME WAS CLEARLY IN THE NATURE OF INCOME FROM OTHER SOUR CES. AS THE ASSESSEE HAD CLAIMED 2 ITA NO. 1437/MUM/2013 (A.Y. 2008-09) VENUE EXPORTS VS. ITO REMUNERATION TO PARTNERS (AT RS.6.44 LACS) BASED ON ITS BUSINESS PROFIT, THE SAID INCOME WOULD, IN THE VIEW OF THE ASSESSING OFFICER (A.O.), STAND TO BE EXCLUDED, SO THAT HE WORKED OUT THE ALLOWABLE REMUNERATION ACCORDINGLY. ITS ASSESSMENT BEING MADE THUS, THE ASSESSEE, IN APPEAL, EXPLAINED THE INTEREST INCOME TO BE ONLY A MANNER OF CUTTING DOWN ITS INTEREST COST, INCURRED AT RS.40.37 LACS FOR THE YE AR. THE LOANS OR THE BORROWINGS BEING FOR A FIXED TERM OR TENURE, THE IDLE FUNDS (FOR THE TIM E BEING) ARE DEPOSITED IN BANK, YIELDING INTEREST, BRINGING DOWN THE OVERALL INTEREST BURDEN . IN FACT, DEPOSIT/S IN BANK WAS ALSO MADE TO SECURE THE FUNDING FACILITY FROM THE BANK. THIS WAS THUS A BUSINESS DECISION AND, ACCORDINGLY, THE INTEREST INCOME OUGHT TO BE CONSID ERED AS A BUSINESS INCOME. THE LD. CIT(A) FOUND THE ASSESSEES CLAIM ACCEPTABLE. HOWEV ER, THE SAME WAS VALID ONLY FOR THE INTEREST ON BANK FDRS, AT RS.7,01,681/-. THE BALANC E INTEREST INCOME OF RS.6,03,169/- WAS FROM OUTSIDE PARTIES, WHICH SURELY COULD NOT BE CONSIDERED AS A PART OF THE ASSESSEES BUSINESS ACTIVITY OR AS INCIDENTAL THERETO. THE SAM E WAS THUS HELD AS ASSESSABLE AS INCOME FROM OTHER SOURCES, I.E., AT RS.6,03,169/-, LEADING TO A DISALLOWANCE IN RESPECT OF REMUNERATION TO PARTNERS BEING RESTRICTED TO RS.2,4 0,919/-. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 WE ARE UNABLE TO ACCEPT THE ARGUMENT ADVANCED B Y THE LD. AUTHORIZED REPRESENTATIVE (AR) WITH REFERENCE TO EXPLANATION 1 TO SECTION 40(B)(V), I.E., THAT NOTWITHSTANDING A PART OF THE INTEREST INCOME BEING ASSESSABLE AS INCOME FROM OTHER SOURCES, IT WOULD YET NOT IMPACT THE QUANTUM OF REM UNERATION ALLOWABLE TO THE PARTNERS. THIS IS AS THE SAME IS, THOUGH CAPPED AS PER THE FO RMULA PRESCRIBED U/S.40(B)(V), DEDUCTIBLE ONLY U/S.37(1) (REFER: MUNJAL SALES CORPORATION VS. CIT [2008] 298 ITR 298 (SC) ), WHICH COULD ONLY BE AGAINST BUSINESS INCOME. THA T IS, IT IS INCONCEIVABLE THAT AN EXPENDITURE COULD BE ALLOWED U/S.37(1) IN COMPUTING AN INCOME ASSESSABLE U/S.56, OR EVEN BE COMPUTED WITH REFERENCE TO SUCH INCOME. THE ARGUMENT IS INCONSISTENT WITH THE SCHEME OF THE ACT, AND ALSO DOES NOT FOLLOW ANY MEA NINGFUL READING OF EXPLANATION 1 TO SECTION 40(B)(V). 3 ITA NO. 1437/MUM/2013 (A.Y. 2008-09) VENUE EXPORTS VS. ITO 3.2 SO HOWEVER, ON FACTS, WE FIND THE ASSESSEE TO H AVE, WHILE HAVING INTEREST INCOME AT RS.13.05 LACS, INCURRED INTEREST EXPENDITURE AT RS. 40.37 LACS, DEDUCTIBILITY OF WHICH AS BUSINESS EXPENDITURE U/S.36(1)(III) IS NOT IN DISPU TE. BOTH THE INTEREST PAID AND EARNED ARISING FROM A COMMON POOL OF FUNDS, COULD IT THERE FORE BE SAID THAT THE ASSESSEE HAD AT ALL EARNED ANY INCOME ON ACCOUNT OF INTEREST ? WE COULD STILL CONSIDER A CASE WHERE THERE ARE EARMARKED FUNDS, YIELDING INTEREST INCOME, EVEN THOUGH IT IS OPEN IN SUCH A CASE TO BE ARGUED THAT SUCH FUNDS FORM PART OF THE BUSINESS FU NDS, DEDICATED TO MEET SOME DEFINED BUSINESS PURPOSE, WHILE THE INTEREST INCOME IS ONLY INCIDENTAL. NO DOUBT, THE SAME WOULD REQUIRE BEING DEMONSTRATED, BUT THE FACT OF THE MAT TER REMAINS THAT TO CONCLUDE THAT THE INTEREST INCOME, WHICH ACQUIRES ITS CHARACTER FROM THE SURROUNDING CIRCUMSTANCES (REFER: CIT VS. GOVINDA CHOUDHURY & SONS [1995] 203 ITR 881 (SC); BHARAT COMMERCE AND INDUSTRIES LTD VS. CIT [1998] 230 ITR 733 (SC)), IN THE PRESENT CASE IS INCOME FROM OTHER SOURCES IS HARDLY TENABLE ON THE BASIS OF TH E FACTS ON RECORD; WE, RATHER, FINDING THAT IT IS EVEN NOT POSSIBLE TO SAY CONCLUSIVELY IF ANY INTEREST INCOME HAS AT ALL BEEN EARNED, EXCEPT PERHAPS FOR THE INTEREST REALIZED AT RATE/S IN EXCESS OF THAT AT WHICH THE MONEYS ARE BORROWED. 3.3 UNDER THE CIRCUMSTANCES, WE ARE UNABLE TO ACCEP T THE REVENUES STAND. NEEDLESS TO ADD, THE REMUNERATION TO INDIVIDUAL PARTNERS, BEING ASSESSABLE AT THE AMOUNT AS ACTUALLY ALLOWED IN THE ASSESSMENT PROCEEDINGS OF THE PAYER- FIRM, SHALL STAND TO BE CORRESPONDINGLY REVISED. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 0/ 1 )2 30 ' * 4 ' 56 ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 13, 2014 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 7+ MUMBAI; 8) DATED : 13.06.2014 *.)../ ROSHANI , SR. PS 4 ITA NO. 1437/MUM/2013 (A.Y. 2008-09) VENUE EXPORTS VS. ITO ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %& '$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. ;*< = %)>2 , , >2/ , 7+ / DR, ITAT, MUMBAI 6. = ?3 @ + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 7+ / ITAT, MUMBAI