JCIT (OSD), CHENNAI V. Nemichand Marlecha, CHENNAI

ITA 1489/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7740 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 08-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 25-05-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: D ANAND
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 1489/MDS/2016 / ASSESSMENT YEAR : 2009-10 JOINT COMMISSIONER OF INCOME TAX (OSD), NON CORPORATE CIRCLE - 5, KANNAMMAI BUILDING, NO. 611, ANNA SALAI, CHENNAI - 600 006. VS. SRI NEMICHAND MARLECHA, FLAT NO. 24, VIJAY COMPLEX, VEERAPAN STREET, SOWCARPET, CHENNAI - 600 079. [PAN: AAEPM 2905L] ( / APPELLANT) ( / RESPONDENT) ) * / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT -.) * / RESPONDENT BY : SHRI D. ANAND, ADVOCATE * /DATE OF HEARING : 08.02.2017 * /DATE OF PRONOUNCEMENT : 16.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THIS APPEAL OF THE REVENUE ARISE OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI VID E PROCEEDINGS IN ITA NO. 158/CIT(A)-5/13-14 DATED 22.03.2016 FOR THE ASSESSM ENT YEAR 2009-10. :-2-: I.T.A. NO. 1489/MDS/2016 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING LD. AO TO ADD THE INTERE ST INCOME ON FIXED DEPOSIT AND ALSO ALLOW INTEREST EXPENDITURE ON GOLD LOAN IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS AN INDIVIDUAL DERIVED INCOME FROM BUSINESS IN TRADING IN GOLD AND SILVER BULLION. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 WAS FILED ADMITTING TOTAL INCOME OF RS. 25,21,090/-. THE RETURN WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO OBSERVED THAT ON PERUSAL OF THE TDS CERTIFICATES, WHEREIN THE ASSESSEE HAD CLAIMED THE SUM OF RS. 7,31,669/- TOWARDS TAX DEDUCTED BY SBI FOR THE CORRESPONDING INTEREST INCOME OF RS. 64,57,457/-. THE LD. AO OBSERVED ON VERIFICATION OF THE PROFIT A ND LOSS ACCOUNT OF THE ASSESSEE THAT THE ASSESSEE HAD NOT ADMITTED ANY INT EREST INCOME FROM SBI THEREON. ACCORDINGLY, THE ASSESSEE WAS SHOW CAUSED SEEKING FOR EXPLANATIONS ON THE SAME. THE ASSESSEE REPLIED BY STATING THE FOLL OWING:- 'REGARDING STATE BANK OF INDIA INTEREST RECEIVED, I HAD AVAILED GOLD METAL LOAN FACILITY AMOUNTING TO RS. 15.17 CRORES F ROM STATE BANK OF INDIA, OVERSEAS BRANCH AGAINST FIXED DEPOSIT. UNDER THE AGREEMENT, THE BANK WILL GIVE INTEREST @ 9% ON THE FIXED DEPOSIT HELD WITH THEM AS SECURITY AND WOULD CHARGE INTEREST @ 2.5% ON GOLD LOAN GIVEN BY THEM. THE INTEREST ON FIXED DEP OSIT AND MATURITY PROCEEDS OF FIXED DEPOSIT SHOULD BE CREDITED TO THE GOLD LOAN ACCOUNT. THE INTEREST ON GOLD LOAN WAS ALSO CHARGED TO THE GOLD LOAN ACCOUNT ONLY. :-3-: I.T.A. NO. 1489/MDS/2016 AS PER THE TERMS, AT THE END OF THE CONTRACT PERIO D THE BANK SHOULD CLOSE THE GOLD LOAN CONTRACTS AND ADJUST THE DUES W ITH OUTSTANDING FIXED DEPOSITS HELD WITH THE BANK. SBI PURPOSEFULLY VIOL ATED THE AGREEMENT DID NOT CLOSE THE FIXED DEPOSIT AT THE END OF THE CONTR ACT AND STARTED CHARGING HIGHER RATE OF INTEREST APPLICABLE TO NORMAL LOAN A CCOUNT ON THE OUTSTANDING GOLD LOAN AMOUNT. IN THE ABOVE CIRCUMSTANCES STIPULATED I HAVE NOT D EBITED INTEREST PAYMENT OF RS. 1,09,95,934/- PAYABLE TO SBI FOR THE GOLD LOAN AMOUNT IN MY PROFIT AND LOSS ACCOUNT AND I HAVE ALSO NOT CRED ITED THE F.D INTEREST OF RS. 64,57,457/- TO MY PROFIT AND LOSS ACCOUNT.' THE ASSESSEE ALSO FURNISHED DETAILS OF INTEREST PA YMENT OF RS. 1,09,95,934/- TOGETHER THAT THE RATE OF INTEREST CH ARGED BY THE BANK THEREON. THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS CONCLUDED THAT THE ISSUE THAT SBI PURPOSEFULLY DID NOT CLOSE THE FIXED DEPOSITS AT THE END OF CONTRACT AND STARTED CHARGING HIGHER RATE OF INTEREST AS APP LICABLE TO NORMAL OVER DRAFT ACCOUNT IS A PRIVATE ISSUE OF CONTENTION BETWEEN TH E ASSESSEE AND SBI. HE ALSO ARGUED THAT BECAUSE SBI HAS VIOLATED THE AGREEMENT ENTERED INTO BETWEEN ASSESSEE AND SBI, THE SAME CANNOT BE ACCEPTED AS TH E REASON FOR NOT ADMITTING THE INTEREST INCOME DERIVED THEREON IN THE PROFIT A ND LOSS ACCOUNT. HE FURTHER OBSERVED THAT THE ASSESSEE CANNOT CHOSE TO ADMIT CE RTAIN INCOMES AND NOT ADMIT CERTAIN OTHER INCOMES. BASED ON THESE OBSERVATIONS , THE LD. AO BROUGHT TO TAX INTEREST INCOME OF RS. 64,57,457/- ON FIXED DEPOSIT S FROM SBI AND ALLOWED INTEREST PAYMENT AT THE RATE OF 2.5% AS PER THE ORI GINAL AGREEMENT AMOUNTING TO RS. 20,17,898/- AND DETERMINED THE TOTAL INCOME OF RS. 69,60,649/-. :-4-: I.T.A. NO. 1489/MDS/2016 4. BEFORE THE LD. CIT(A) THE ASSESSEE CONTESTED THE ADDITIONS AND DISALLOWANCE MADE BY THE LD. AO. THE LD. CIT(A) BY PLACING RELIANCE ON THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. RANJITH KUMAR MACHELA IN ITA NO. 1252/MDS/2013 FOR THE ASSESSMENT YEAR 2009- 10 DATED 17.03.2010 AND GRANTED RELIEF TO THE ASSESSEE IN THIS REGARD BY MA KING THE FOLLOWING OBSERVATIONS: '6. THE FACTS IN THE CASE OF THE APPELLANT ARE IDE NTICAL TO THE FACTS OF THE ABOVE MENTIONED ITAT ORDER. HENCE RESPECTFULLY FOLLOWING THE DECISION OF THE H ON'BLE ITAT, THE ASSESSING OFFICER IS DIRECTED TO RE-DO THE WORKING OF THE BANK INTEREST AS UNDER: AS FAR AS THE FIXED DEPOSITS ARE CONCERNED, THE IN TEREST IS 9% AND THE INCOME ARISING ON THOSE DEPOSITS MUST BE TR EATED AS INDEPENDENT INCOME IN THE HANDS OF THE ASSESSEE. T HE SAID INCOME SHALL BE TREATED AS INCOME FROM OTHER SOURCES EXCEP T WHERE THE ASSESSING AUTHORITY MAY FIND REASONS TO TREAT IT AS BUSINESS INCOME. ONCE THE INTEREST ON FIXED DEPOSITS IS TREATED AS I NCOME IN THE HANDS OF THE ASSESSEE, THE ASSESSING OFFICER SHALL GIVE CREDIT FOR THE CORRESPONDING TDS MADE BY THE STATE BANK OF INDIA AS FAR AS THE INTEREST ON LOAN IS CONCERNED, THE I NTEREST AMOUNT HAS TO BE WORKED OUT INDEPENDENTLY ON THE LO AN AVAILED BY THE ASSESSEE AT 11.5%. THIS EXPENDITURE ON LOAN, I F INCURRED FOR THE PURPOSE OF BUSINESS, SHALL BE ALLOWED BY THE ASSESS ING AUTHORITY INDEPENDENTLY.' :-5-: I.T.A. NO. 1489/MDS/2016 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: '2.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE INTEREST AMOUNT HAS TO BE WORKED OUT AT 11.5% AS AGAINST 2.5 % WORKED OUT BY AO. 2.2 THE LD. CIT(A) FAILED TO APPRECIATE THAT AS PE R THE AGREEMENT BETWEEN SBI AND ASSESSEE INTEREST ON GOLD LOAN WAS TO BE CHARGED ONLY AT 2.5%. 2.3 THE LD. CIT(A) FAILED TO CONSIDER THAT IF THE INTEREST WAS TO BE CHARGED AT 11.5% IT WOULD HAVE BEEN CLEAR LY MENTIONED IN THE AGREEMENT WHICH HAS NOT BEEN DONE SO. ' THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF THE LD . AO. IN RESPONSE TO THIS, THE LD. AR ARGUED THAT THE ISSUE IN DISPUTE IS SQUA RELY COVERED BY THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL RELIED UPON BY THE LD. CIT(A) AND ACCORDINGLY PLEADED THAT THE SAID ORDER DO NOT REQUIRE ANY INTE RFERENCE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT ISSUE IS SQUARELY COVERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF SHRI RANJITH KUMAR MARCHEHA IN ITA NO. 1252/MDS/2013 DATED 17.03 .2014 WHEREIN IT WAS HELD : '11. NOW, AS FAR AS THE PRESENT CASE IS CONCERNED, THE ASSESSEE HAD MADE CERTAIN FIXED DEPOSITS WITH THE STATE BANK OF INDIA. THESE DEPOSITS EARNED AN INTEREST AT THE RATE OF 9%. THE ASSESSEE HAD ALSO AVAILED LOAN. THE LOAN CARRIED ON INTEREST AT THE RATE OF 11.5%. BUT AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND THE BANK, TH E ASSESSEE HAD TO :-6-: I.T.A. NO. 1489/MDS/2016 PAY INTEREST ONLY AT 2.5% ON THE LOAN AMOUNT OUTSTA NDING AGAINST HIM, BEING THE DIFFERENCE BETWEEN THE INTEREST ON FIXED DEPOSITS AND INTEREST ON LOAN. 12. THE WHOLE CONFUSION AROSE IN THE PRESENT CASE B ECAUSE THE ASSESSEE AS WELL AS THE LOWER AUTHORITIES HAVE UNNE CESSARILY CLUBBED UP THE DEPOSITS AND THE LOAN AND MIXED UP READING THE RATE OF INTEREST, WHICH IS QUITE UNCALLED FOR 13. THE STATE BANK OF INDIA DIRECTED THE ASSESSEE T O PAY 2.5% OF INTEREST ON THE LOAN ONLY BECAUSE 9% OF INTEREST DU E ON THE FIXED DEPOSITS MADE BY THE ASSESSEE HAS TO BE AUTOMATICALLY SET OF F AGAINST THE LOAN INTEREST OF THE ASSESSEE. IT IS ONLY AN ACCOUNTING ADJUSTMENT. IT IS TO BE SEEN THAT THE INTEREST ON DEPOSITS IS 9% AND THE IN TEREST ON LOAN IS 11.5%. 14. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . DR. V.P. GOPINATHAN (248 ITR 449) HAS HELD THAT THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK ON THE FIXED DEPOSIT WAS INC OME IN HIS HANDS AND IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISIO N IN LAW PERMITTING SUCH DIMINUTION. THERE WAS NO SUCH PROVISION OF LAW AND THE INTEREST ON THE LOAN TAKEN FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT. THE RATIO LAID DOWN BY THE HON' BLE SUPREME COURT IS THAT THE INTEREST ON LOAN MUST BE HANDLED SEPARATEL Y AND CANNOT BE SET OFF AGAINST EACH OTHER. 15. THE VERY SAME ISSUE WAS CONSIDERED BY THE HON'B LE KERALA HIGH COURT IN THE CASE OF CIT VS. VAIKUNDAM RUBBER CO. L TD., (241 ITR 50). THE HON'BLE COURT HELD THAT ANY SET OFF OR DEDUCTIO N OF ANY EXPENDITURE CAN ONLY BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE COURT HELD THEREFORE, THAT THE INTEREST PAID ON BORROWALS WAS NOT AN ALLOWABLE DEDUCTION. :-7-: I.T.A. NO. 1489/MDS/2016 16. IN VIEW OF THE ABOVE LEGAL POSITION, WE HAVE TO HOLD THAT THE AUTHORITIES HAVE ERRED IN OFFSETTING THE INTEREST O N DEPOSITS AND LOAN EACH OTHER. THEREFORE, THE COMPUTATION OF INCOME OR LOS S FROM THE BANK INTEREST HAS TO BE WORKED OUT BY THE ASSESSING OFFI CER AFRESH IN ACCORDANCE WITH LAW. WE, ACCORDINGLY, SET ASIDE TH E ORDERS OF THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF IN COME TAX (APPEALS) ON THE QUESTION OF COMPUTING THE INTEREST INCOME IN TH E HANDS OF THE ASSESSEE. 17. AS FAR AS THE FIXED DEPOSITS ARE CONCERNED, THE INTEREST IS 9% AND THE INCOME ARISING ON THOSE DEPOSITS MUST BE TREATE D AS INDEPENDENT INCOME IN THE HANDS OF THE ASSESSEE. THE SAID INCO ME SHALL BE TREATED AS INCOME FROM OTHER SOURCES EXCEPT WHERE THE ASSESSIN G AUTHORITY MAY FIND REASONS TO TREAT IT AS BUSINESS INCOME. ONCE THE I NTEREST ON FIXED DEPOSITS IS TREATED AS INCOME IN THE HANDS OF THE ASSESSEE, THE ASSESSING OFFICER SHALL GIVE CREDIT FOR THE CORRESPONDING TDS MADE BY THE STATE BANK OF INDIA. 18. AS FAR AS THE INTEREST ON LOAN IS CONCERNED, TH E INTEREST AMOUNT HAS TO BE WORKED OUT INDEPENDENTLY ON THE LOAN AVAILED BY THE ASSESSEE AT 11.5%. THIS EXPENDITURE ON LOAN, IF INCURRED FOR T HE PURPOSE OF BUSINESS, SHALL BE ALLOWED BY THE ASSESSING AUTHORITY INDEPEN DENTLY. 19. WITH THESE DIRECTIONS, THE FILE IS REMITTED BAC K TO THE ASSESSING OFFICER TO RE-DO THE WORKING OF BANK INTEREST AFRES H.' :-8-: I.T.A. NO. 1489/MDS/2016 RESPECTFULLY FOLLOWING THE SAID DECISION, WE DID NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THURSDAY, THE 16TH DAY OF FEBRU ARY, 2017 AT CHENNAI. SD/ - ( ' # . $ ) (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/- ( ) (M. BALAGANESH) / ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 16TH FEBRUARY, 2017 JPV * -&45 65 /COPY TO: 1. ) APPELLANT 2. -.) /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 -&& /DR 6. 9 /GF