Mohini Marketing, Kolkata V. ITO, Ward - 40(1), Kolkata, Kolkata

ITA 1534/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5698 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2010
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2004-2005
• Appeal Filed On: 04-08-2010
• Court: TRIBUNAL
• Department Lawyers: PIYUSH KOLHE
• Assessee Lawyers: M SATNALIWALA
• Keywords: Business income; Reassessment proceedings
• Section: 80HHC; 250; 147

Judgement Text

1 , SMC(A) , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- SMC(A) , KOLKATA [ . . , ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER / ITA NOS. 1534 TO 1536 (KOL) OF 2010 !' / ASSESSMENT YEARS 2004-05 TO 2006-07 MOHINI MARKETING KOLKATA. (PAN-AAGFM2265H) INCOME-TAX OFFICER, WARD-40(1), KOLKATA. (%& / APPELLANT ) - - - VERSUS - ()*%&/ RESPONDENT ) %& + , -/ FOR THE APPELLANT: / SRI M. SATNALIWALA )*%& + , - / FOR THE RESPONDENT: / SRI PIYUSH KOLHE -. / ORDER THE ASSESSEE HAS FILED THESE THREE APPEALS FOR ASSE SSMENT YEARS 2004-05 TO 2006- 07 AGAINST THE COMMON ORDER OF LD. C.I.T.(A)-XII, K OLKATA DATED 30/06/2010, RAISING COMMON ISSUE, EXCEPT AN ADDITIONAL ISSUE IN THE APP EAL FOR ASSESSMENT YEAR 2005-06. FOR THE SAKE OF CONVENIENCE, ALL THESE APPEALS ARE DISP OSED OF BY THIS CONSOLIDATED ORDER. 2. THE COMMON ISSUE INVOLVED IN THESE APPEALS IS W HETHER THE INTEREST INCOME ON F.D.R. IS TO BE ASSESSED AS BUSINESS INCOME OR NOT AND CON SEQUENTIALLY THE PARTNERS REMUNERATION IS ALLOWABLE OR NOT. THE ADDITIONAL ISSUE IN THE A PPEAL FOR ASSESSMENT YEAR 2005-06 IS WHETHER THE INITIATION OF REASSESSMENT PROCEEDINGS U/S. 147 AND TO PASS THE ASSESSMENT ORDER U/S. 143(3)/147 IS LEGAL OR NOT. HOWEVER, IN RESPECT OF THE ABOVE ADDITIONAL GROUND TAKEN IN THE APPEAL FOR ASSESSMENT YEAR 2005-06, TH ERE WAS NO SUBMISSION ON BEHALF OF THE ASSESSEE. IT IS ALSO OBSERVED FROM THE ORDER O F THE LD. C.I.T.(A) THAT THERE WAS NO SUBMISSION MADE BY THE ASSESSEE BEFORE HIM, AS IS E VIDENT FROM PARA-4 OF THE SAID ORDER. HENCE, THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE IN THE APPEAL FOR ASSESSMENT YEAR 2005-06 IS REJECTED. 3. IN RESPECT OF THE COMMON GROUND TAKEN IN ALL TH E THREE APPEALS AS TO WHETHER THE INTEREST ON F.D.R. IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND/OR INCOME 2 FROM OTHER SOURCES, RELEVANT FACTS ARE THAT THE AS SESSEE-FIRM EARNED INTEREST INCOME ON FDRS KEPT IN A BANK AND THE SAME WAS ACCOUNTED FOR AS BUSINESS INCOME. ACCORDINGLY, THE REMUNERATION TO PARTNERS WAS CALCULATED AGAINST SUC H INTEREST INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS STATED BY THE ASSE SSEE BEFORE THE A.O. THAT THE INTEREST INCOME ON FDRS SHOULD BE TREATED AS BUSINESS INCOME SINCE BANK FDRS WERE USED BY THE ASSESSEE AS SECURITY FOR BANK LOAN TAKEN BY IT. TO TAL FDRS WERE MORTGAGED WITH THE BANK AGAINST OVERDRAFT LIMIT. THE A.O. REJECTED THE EXP LANATION OF THE ASSESSEE AND TREATED THE INTEREST INCOME ON FDRS AS INCOME FROM OTHER SO URCES ON THE GROUND THAT SEC. 14 OF THE I.T. ACT SET OUT THE DIFFERENT HEADS OF INCOME AND MERELY THE FACT THAT A PERSON IS ENGAGED IN A BUSINESS OR PROFESSION WOULD NOT CHANG E THE INTEREST INCOME INTO BUSINESS INCOME. IT WAS FURTHER HELD THAT SOURCE OF INTERES T INCOME BEING FIXED DEPOSITS WAS ALSO RELEVANT TO DECIDE THE NATURE OF INCOME. HE, THEREF ORE, TREATED THE INTEREST INCOME ON FDRS AS ASSESSEES INCOME FROM OTHER SOURCES. THE A .O. FURTHER OBSERVED THAT ON THE BASIS OF THE BUSINESS INCOME CLAIMED BY THE ASSESSE E, THE ASSESSEE HAS A BUSINESS LOSS. HE, THEREFORE, AFTER ALLOWING PARTNERS REMUNERATIO N OF RS.50,000/- FOR EACH OF THE ASSESSMENT YEARS UNDER APPEAL, DISALLOWED THE EXCES S CLAIM OF PARTNERS REMUNERATION AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS UNDER :- A.Y. 2004-05 RS.1,34,046/- A.Y. 2005-06 RS.1,55,274/- A.Y. 2006-07 RS.1,82,568/- 4. ON APPEAL, THE LD. C.I.T.(A) CONFIRMED THE ACTI ON OF THE A.O. IN TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND CO NSEQUENTIAL DISALLOWANCE OF PARTNERS REMUNERATION IN ALL THE THREE YEARS UNDER APPEAL, B Y OBSERVING AS UNDER :- 3.3. IN THESE APPEALS, DISALLOWANCE OF PARTNE RS REMUNERATION IS THE COMMON GROUND. THE APPELLANT HAS TREATED INTEREST ON FIXE D DEPOSITS AS INCOME FROM BUSINESS AND PROFESSION ON THE GROUND THAT THE FIX ED DEPOSITS WERE PLACED ONLY FOR THE PURPOSE OF OBTAINING BANK LOANS. CONSEQUEN TLY, WHILE CALCULATING BOOK PROFIT FOR THE PURPOSE OF DETERMINATION OF ELIGIBL E AMOUNT OF PARTNERS REMUNERATION THE APPELLANT HAS TAKEN INTO ACCOUNT I NTEREST ON SUCH FIXED DEPOSITS ALSO. THE A.O., HOWEVER, TREATED INTEREST INCOME U NDER THE HEAD INCOME FROM OTHER SOURCES. I HAVE PERUSED THE DETAILED REASON ING GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. I HAVE ALSO CONSIDERED THE SUBMI SSIONS AND THE CASE LAWS RELIED 3 ON BY THE APPELLANT. IN MY OPINION INTEREST EARNED ON FIXED DEPOSIT CANNOT BE TREATED AS BUSINESS INCOME EVEN IN THE CASES WHERE SUCH DEPOSITS ARE PLACED FOR THE PURPOSE OF OBTAINING BANK LOANS. RELIANCE IS PLACED ON TUTICORIN ALKALI CHEMICAL & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 (SC). IN THIS CASE IT WAS HELD BY THE APEX COURT THAT INTEREST EARNED ON DEPOSITS PLACED FOR THE PURPOSE OF OBTAINING LOA NS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES. THE HONBLE APEX COURT HAS REITERATED THE SAME VIEW IN THE CASE OF CIT VS. AUTOKAST LTD. (2001) 248 ITR 110(SC). THEREFORE, THE GROUNDS OF APPEAL ARE DISMISSED AND DISALLOWANCE OF PARTNERS REMUNERATION MADE BY THE A.O. IN ALL THE THREE YEARS IS CONFIRMED. HENCE THESE APPEALS BY THE ASSESSEE. 5. AT THE TIME OF HEARING BEFORE ME, THE ASSESSEE S LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LD. C.I.T.(A). HE FURT HER SUBMITTED THAT THE ASSESSEE EARNED INTEREST ON FIXED DEPOSITS PLEDGED WITH THE BANK AS SECURITY AGAINST OVERDRAFT ENJOYED FROM THE BANK. THEREFORE, THE ASSESSEE MADE THE FI XED DEPOSITS FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF INVESTMENT. IN VIEW OF THE ABOVE, THEREFORE, INTEREST INCOME ON SUCH FDRS SHOULD BE ALLOWED AS BUSINESS I NCOME AS AGAINST INCOME FROM OTHER SOURCES HELD BY THE AUTHORITIES BELOW. THE ASSESSE ES LEARNED COUNSEL IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISI ONS :- CIT VS. KOSHIKA TELECON LTD. [286 ITR 479 (DEL)] SNAM PROGATHI S.P.A. VS. ADDL. CIT [132 ITR 70 (D EL)] CIT VS. TAMILNADU DAIRY DEVELOPMENT CORPN. LTD. [ 250 ITR 273 (MAD)] CIT VS. HAJEE JAFFAR SHARIFF [(2010) 40 DTR (KAR ) 81]. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL PLACED ON RECORD. IN THIS CASE, THE A SSESSEE HAS INCLUDED BANK INTEREST INCOME EARNED ON FDRS WITH THE BUSINESS INCOME FOR CALCULATION OF PARTNERS REMUNERATION. IT WAS SUBMITTED BY THE ASSESSEE THAT THE FDRS WERE PLEDGED WITH THE BANK FOR OBTAINING LOAN AND/OR OVERDRAFT FACILITY FROM THE BANK AND, T HEREFORE, INTEREST INCOME EARNED ON 4 SUCH FDRS WAS BUSINESS INCOME OF THE ASSESSEE. HOW EVER, THERE IS NO EVIDENCE ON RECORD TO ESTABLISH THAT THE SAID FDRS WERE ACTUALLY MADE FOR KEEPING THEM PLEDGED WITH THE BANK FOR OBTAINING LOAN AND/OR C.C. LIMITS. IT WAS STATED BY THE A.O. THAT THE ASSESSEE PURCHASED FDRS OUT OF ITS SURPLUS FUNDS LYING WITH IT AND GENERATED IN BUSINESS IN THE FORM OF PROFITS. IN THIS CONNECTION I MAY REFER TO THE SPECIAL BENCH DECISION OF I.T.A.T., DELHI IN THE CASE OF DCIT VS. ALLIED CONSTRUCTION [(2007) 105 ITD 1 (DEL-SB)], WHEREIN IT HAS BEEN HELD THAT EVEN IF THE ASSESSEE IS ENGAGED IN T HE BUSINESS OF EXECUTION OF CIVIL CONSTRUCTION WORK AND HAD INVESTED CERTAIN FUNDS IN THE FIXED DEPOSITS WITH A BANK AND THEREAFTER OFFERED THE SAID FDS AS SECURITY FOR VAR IOUS LOANS AVAILED BY THE ASSESSEE FROM BANK, THE INTEREST INCOME ON FDRS WAS AN INCOM E SEPARATE AND APART FROM INCOME FROM CIVIL CONSTRUCTION BUSINESS AND THE SAID INTER EST INCOME ON FDRS IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AFTER ALLOWING DEDUCTION OF EXPENSES, IF ANY, U/S. 57(III) OF THE ACT. SIMILARLY HONBLE MADHYA PRADESH HIGH COURT I N FERRO CONCRETE CONSTRUCTION (INDIA) P. LTD. VS. CIT [290 ITR 713 (MP)] HAS HELD THAT IN TEREST EARNED ON SHORT-TERM BANK DEPOSITS IS INCOME FROM OTHER SOURCES. 7. THE CASE LAWS RELIED UPON BY THE ASSESSEE IN SU PPORT OF ITS CLAIM ARE ALSO DISTINGUISHABLE ON FACTS. THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KOSHIKA TELECOM LTD. (SUPRA), RELIED UPON BY THE AS SESSEE, IS NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN THAT CASE IT WAS FOUND THAT THE FDRS WERE PUT WITH THE BANK AS MARGIN MONEY TO AVAIL OF THE CREDIT FACILITIES AND, THEREFORE, IT WAS HELD THAT THE DEPOSITS OF MARGIN MONEY WITH THE BANK WAS INEXTRICABLY LINK ED TO THE BUSINESS OF THE ASSESSEE. IN THE CASE BEFORE US THERE ARE NO SUCH FACTS THAT THE ASSESSEE PUT THE FDRS AS DEPOSIT OF MARGIN MONEY FOR OBTAINING CREDIT FACILITIES IN CON NECTION WITH ITS BUSINESS. THEREFORE, THE CONTENTION OF THE ASSESSEE HAS NO MERIT. FURTH ER, THE FACTS BEFORE THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. HAJEE J AFFAR SHARIFF (SUPRA), RELIED UPON BY THE ASSESSEE, WERE THAT THE ASSESSEE WAS A 100 PER CENT. EXPORTER AND FIXED DEPOSITS WERE GIVEN AS A SECURITY FOR THE LOAN OBTAINED FOR THE PURPOSE OF UTILIZING THE SAME FOR ASSESSEES EXPORT BUSINESS AND, THEREFORE, IT WAS H ELD THAT DEDUCTION U/S. 80HHC WAS ALLOWABLE TO THE ASSESSEE. THE FACTS OF THE CASE B EFORE ME ARE CLEARLY DISTINGUISHABLE, 5 BECAUSE IN THIS CASE THE ASSESSEE IS NOT A 100 PER CENT. EXPORTER AND NO CLAIM AS SUCH U/S. 80HHC HAS BEEN MADE BY THE ASSESSEE FOR ALLOWANCE. 8. THEREFORE, KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS OF HONBLE MADHYA PRADESH HIGH CO URT AND SPECIAL BENCH OF I.T.A.T., DELHI, REFERRED TO ABOVE, I FIND NO JUSTIFICATION T O INTERFERE WITH THE ORDER OF LD. C.I.T.(A) IN HOLDING THAT THE INTEREST INCOME EARNED ON FDRS FOR EACH OF THE ASSESSMENT YEARS UNDER APPEAL WAS THE ASSESSEES INCOME FROM OTHER S OURCES AND NOT BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. THAT BEING SO, THE EXCESS CLAIM OF PARTNERS REMUNERATION FOR THESE ASSESSMENT YEARS UNDER APPEAL HAS RIGHTLY BEE N DISALLOWED BY THE AUTHORITIES BELOW, WHICH I UPHOLD. THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE, THEREFORE, DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE DISMISSED. / -. 01- 2 1 3 /4 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 10.09.2010. SD/- ( . . . . . .. . ) (B.R.MITTAL) , JUDICIAL MEMBER ( (( (60 60 60 60) )) ) DATE: 10 -09-2010 -. + )7 8-7!9- COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT : MOHINI MARKETING, P-59, CIT ROAD, SCHEME-VIIM, KOLKATA -700 054 )*%& / THE RESPONDENT : I.T.O., WARD-40(1), KOLKATA 3. . () / THE C.I.T.(A)-XII, KOLKATA. 4. . / THE C.I.T., KOL - 5. <3 ) / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 . GUARD FILE . *7 )/ TRUE COPY, -.1/ BY ORDER, (DKP) = > / DEPUTY REGISTRAR .