The DCIT, Circle-1(1), Baroda V. M/s. Amigo Securities Pvt.Ltd., Baroda

ITA 1448/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63312 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-12-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Earning of tax free income

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , ! '#, $% $ & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.1448/AHD/2010 ( ! ) ! ) ! ) ! ) / / / / ASSESSMENT YEAR : 2002-03) THE DCIT CIRCLE-1(1) BARODA ! ! ! ! / VS. M/S.AMIGO SECURITIES P LTD. SUBHAAG B-15-16 RAMIN PARK OLD PADRA ROAD, BARODA * $% ./+, ./ PAN/GIR NO. : AAACB8634Q ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 $ / APPELLANT BY : SHRI T.SANKAR, SR.D.R. ./*- 1 0 $ / RESPONDENT BY : SHRI S.N.SOPARKAR, SR.ADV. !2 1 % / / / / DATE OF HEARING : 19.12.12 34) 1 % / DATE OF PRONOUNCEMENT : 21.12.12 $5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE ARISING FROM TH E ORDER OF LD.CIT(APPELLS)-I, VADODARA DATED 5/1/2010 PASSED F OR A.Y.2002-03. THE GROUND RAISED BY THE REVENUE IS REPRODUCED BELO W:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.22,05,095/- U/S.14A TOWARDS INTEREST EXPENSES ON THE FUNDS BORROWED FOR BUSINESS PURPOSE BUT, DIVERTED FOR NON -BUSINESS PURPOSE OF INVESTMENTS, WITHOUT TAKING NOTE OF THE LANDMARK DECISION IN THE CASE OF CIT(A) VS ABHISHEK INDUSTRI ES LTD. 286 ITA NO.1448/AHD /2010 DCIT VS. M/S.AMIGO SECURITIES P LTD. ASST.YEAR - 2002-03 - 2 - ITR 01 (P&H), WHEREIN IT IS HELD THAT THE ONUS WAS ENTIRELY ON THE ASSESSEE TO PROVE THAT ALL THE BORROWED FUNDS W ERE USED FOR THE PURPOSE OF BUSINESS, WHICH THE ASSESSEE FAILED TO DISCHARGE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 31.1.2005 WERE THAT THE ASS ESSEE-COMPANY IS IN THE BUSINESS OF INVESTMENT IN SHARES. THE COMPANY WAS ALSO LENDING MONEY BY PLACING INTER-CORPORATE DEPOSITS. THEREFO RE, THE ASSESSEE HAD SHOWN INCOME FROM DIVIDEND AND INCOME FROM INTEREST . THE DIVIDEND INCOME EARNED AT RS.98,50,952/- WHICH WAS CLAIMED A S EXEMPT U/S.10(33) OF THE I.T.ACT. APART FROM THAT, THE ASSESSEE HAD ALSO SHOWN INTEREST INCOME AT RS.15,67,860/-. IT WAS NOTED BY THE ASSE SSING OFFICER THAT UNSECURED LOANS TO THE TUNE OF RS.11.74 CRORES WERE TAKEN BY THE ASSESSEE AND DEBITED INTEREST EXPENSES OF RS.43,24,955/- IN THE PROFIT & LOSS ACCOUNT. THE INVESTMENT MADE IN SHARES AND SECURIT IES WERE AMOUNTED TO RS.6.32 CRORES. THE ASSESSING OFFICER HAD THEREUPO N NOTICED THAT THE RATIO OF BORROWED FUNDS TO THE TOTAL FUNDS AVAILABL E WITH THE ASSESSEE WAS AT 49% (RS.7.3 CRORES / RS.14.87 CRORES). SINCE TH E ASSESSEE HAD MADE INVESTMENT OF RS.6.32 CRORES IN SHARES AND SECURITI ES DURING THE YEAR, IN THE OPINION OF THE AO, 49% THEREOF, I.E. RS.3.09 CR ORES REPRESENTED BORROWED FUNDS UTILIZED FOR MAKING INVESTMENT IN SH ARES. THE INTEREST @ 14% THEREOF WAS WORKED OUT TO RS.43.24 LAKHS. IT W AS NOTED THAT THE ASSESSEE HAD RECEIVED RS.15.67 LAKHS AS INTEREST DU RING THE YEAR AND HAD ALSO ON ITS OWN DISALLOWED RS.5.52 LAKHS AS INTERES T PAID TO EARN DIVIDEND INCOME. AFTER REDUCING THESE TWO AMOUNTS FROM THE FIGURE OF RS.43.24 LAKHS, THE BALANCE OF RS.22,05,095/- WAS D ISALLOWED U/S.14A AS INTEREST EXPENSES. ITA NO.1448/AHD /2010 DCIT VS. M/S.AMIGO SECURITIES P LTD. ASST.YEAR - 2002-03 - 3 - 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, IT WAS INFORMED THAT THERE WERE SUFFICIENT INTEREST-FR EE FUNDS AVAILABLE WITH THE COMPANY. IT WAS INFORMED THAT THE COMPANY HAD INTEREST-FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPL US OF RS.3,12,97,169/-. IT WAS ALSO INFORMED THAT THE ASSESSEE HAD RECEIVED INTEREST-FREE ADVANCES FROM SHARE HOLDERS OF RS.4,44,94,000/-. THEREFORE, IT WAS EXPLAINED THAT TOTAL INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESS EE WAS AT RS.7,57,91,169/-. WHEREAS, INVESTMENT IN EQUITY SHA RES WAS ONLY AT RS.6,32,71,135/-. IN SUPPORT OF THIS CONTENTION, R ELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. MARUTI UDYOG LTD. VS. DCIT 92 ITD 119 2. ACIT VS. EICHER LTD. 101 TTJ 369 (DEL.)[ITAT] 3. CIT VS. BOMBAY SAMACHAR LTD. (1969) 74 ITR 723 (BOM) 4. CIT VS. HOTEL SAVERA (1999) 239 ITR 795 (MAD.) 5. TORRENT FINANCIERS VS. ASST.CIT (2001) 73 TTJ 624 (AHD) 6. GUJARAT NARMADA VALLEY FERTILIZERS CO.LTD. VS. DY.CIT 073 TTJ (AHD.) 0787 4. LEARNED CIT(APPEALS) HAS PASSED AN ELABORATE ORD ER AFTER DISCUSSING THE FACTS OF THE CASE IN DEPTH. THE LEA RNED CIT(APPEALS) ALSO DISCUSSED IN DETAIL THE PROVISIONS OF THE I.T.ACT. THE FIRST OBSERVATION OF LEARNED CIT(APPEALS) WAS THAT WHILE COMPUTING THE I NCOME, THE ASSESSEE HAS SUO MOTU DISALLOWED AN AMOUNT OF RS.5,52,000/- WORKED OUT ITA NO.1448/AHD /2010 DCIT VS. M/S.AMIGO SECURITIES P LTD. ASST.YEAR - 2002-03 - 4 - ON THE BASIS OF DIRECT NEXUS BETWEEN THE PAYMENT OF INTEREST AND THE EARNING OF THE EXEMPT INCOME. THE NEXT OBSERVATION OF THE LEARNED CIT(APPEALS) WAS THAT THE ASSESSEE HAD UTILIZED ITS OWN NON-INTEREST BEARING FUNDS AS WELL AS BORROWED FUNDS FOR INVESTM ENT IN SHARES. THE INVESTMENT IN SHARES DURING THE YEAR WAS AT RS.4.41 LACS. THE INVESTMENT IN SHARES OF RS.3,27,75,000/- WAS MADE OUT OF INTER EST-FREE FUNDS BEING LOAN FROM PUBLIC MEMBERS. THEREAFTER, THE LEARNED CIT(APPEALS) HAD UNDERTOOK AN EXHAUSTIVE EXERCISE AND EXAMINED THE I NVESTMENT MADE BY THE ASSESSEE AND THE SOURCE OF INVESTMENT. LEARNED CIT(APPEALS) HAS EXAMINED THE PATTERN OF INVESTMENT IN SHARES DURING THE YEARS 1995-96 TO 2001-02. ON THE BASIS OF THE SAID EXHAUSTIVE EXERC ISE, IT WAS NOTED THAT THE INVESTMENT IN SHARES WAS MADE OUT OF INTEREST-F REE FUNDS AVAILABLE WITH THE ASSESSEE. HOWEVER, IT HAS ALSO BEEN NOTED THAT IN CASES WERE BORROWED FUNDS WERE UTILIZED THE COMPANY HAD ITSELF DISALLOWED INTEREST AMOUNTING TO RS.5,52,000/-. THEREAFTER, LEARNED CI T(APPEALS) HAS QUOTED RELIANCE ON THE DECISION OF HON'BLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (20 09) 313 ITR 340 (BOM.). BY PLACING RELIANCE ON THE SAID CASE LAW, THE DISALLOWANCE U/S.14A WAS HELD AS UNJUSTIFIED. NOW THE REVENUE I S BEFORE US. 5. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PERU SED THE ORDERS OF AUTHORITIES BELOW AS DISCUSSED HEREINABOVE. WE PLA CE ON RECORD A WORD OF APPRECIATION FOR THE EXHAUSTIVE EXERCISE MADE BY LEARNED CIT(APPEALS) BY EXAMINING THE NEXUS OF EACH INVESTM ENT. HE HAS EXAMINED IN DEPTH THE SOURCE OF INVESTMENT IN SHARE S SO AS TO AFFIRM THE EXACT NEXUS OF THE INVESTMENT WHETHER MADE OUT OF T HE NON-INTEREST ITA NO.1448/AHD /2010 DCIT VS. M/S.AMIGO SECURITIES P LTD. ASST.YEAR - 2002-03 - 5 - BEARING FUNDS. THIS EXERCISE OF LEARNED CIT(APPE ALS) IS TO BE VIEWED IN THE LIGHT OF A LANDMARK DECISION OF HON'BLE BOMB AY HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. BOMBAY SAMACHAR 7 4 ITR 723 (BOM.), WHEREIN IT WAS EMPHASIZED THAT A NEXUS HAS TO BE ESTABLISHED BY THE ASSESSEE THAT NO PART OF THE BORROWED CAPITAL H AD BEEN UTILIZED FOR NON-INTEREST BEARING ADVANCE. THEREFORE, ACCORDING TO US, LEARNED CIT(APPEALS) HAS JUDICIOUSLY MADE AN ATTEMPT TO EXA MINE THE NEXUS AND THEREAFTER RIGHTLY REACHED AT THE CONCLUSION THAT M OSTLY THE OWN NON- INTEREST BEARING FUNDS OR OUT OF NON-INTEREST BEARI NG ADVANCES, THE ASSESSEE HAD MADE INVESTMENT IN SHARES EXCEPT AS SUO MOTU DISALLOWED BY THE ASSESSEE. WE ALSO AFFIRM THAT LEARNED CIT(APP EALS) HAS RIGHTLY PLACED RELIANCE ON THE CASE LAW OF RELIANCE UTILITI ES & POWER LTD.(SUPRA). APAART FROM THE DECISION, WE HAVE ALSO NOTED THAT I N THE PAST IN ASSESSEES OWN CASE FOR AYS 2005-06 & 2006-07 ITAT B BENCH AHMEDABAD IN ITA NOS.1532 & 1533/AHD/2009(RESPECTIV ELY) TITLED AS THE DCIT VS. AMIGO SECURITIES PVT.LTD. VIDE AN OR DER DATED 21/09/2012 HAS ARRIVED AT THE CONCLUSION THAT AS FO LLOWS:- 6. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS DEMONSTRATED THAT THERE WAS SUFFICIENT RESERVES, SHARE CAPITAL AND INTEREST-FREE ADVANCES STATED TO BE TO THE TUNE OF RS.1988.26 LACS IN A.Y. 2005-06 AND RS. 1827.39 LACS FOR A.Y. 2006-07, THEN THE DECISION OF THE CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM.) IS TO BE APPLIED ON THESE FACTS. RESULTANTLY, WE HEREBY CONFIRM THE FINDINGS OF THE LD.CIT(A) AND DISMISS THESE GROUNDS OF THE REVENUE FOR BOTH THE Y EARS. ITA NO.1448/AHD /2010 DCIT VS. M/S.AMIGO SECURITIES P LTD. ASST.YEAR - 2002-03 - 6 - 6. UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCE S OF THE CASE, WE FIND NO FORCE IN THE GROUND OF THE REVENUE, HENCE H EREBY DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . SD/- SD/- ( ! '# ) ( ) $% ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 21/ 12 /2012 6..!, .!../ T.C. NAIR, SR. PS $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-I, BARODA 5. 7<= .! , , / DR, ITAT, AHMEDABAD 6. = >2 / GUARD FILE. $5! $5! $5! $5! / BY ORDER, /7 . //TRUE COPY// ? ?? ?/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION DATED 19.12.12 (DICTATION-PAD 8 P AGES ATTACHED) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.12.12 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 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S21.12.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.12.12 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