The ITO, Ward-5(2), Baroda V. Smt. Lataben B.Gupta, Baroda

ITA 1542/AHD/2009

• Counselvise Citation: 154220514 RSA 2009
• Duration Of Justice: 3 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-10-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 15-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI MUKUL KUMAR SHRAWAT, JM AND SHRI T. R. MEENA, AM) ITA NO.1542 & 1543/AHD/2009 A. Y.: 2001-02 AND 2002-03 THE INCOME TAX OFFICER, WARD 5 (2), 5 TH FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA VS SMT. LATABEN B. GUPTA, 4/8, GOVARDHAN APARTMENT, NR. UTKARSH PETROL PUMP, BARODA P. A. NO. ACXPG 1538 J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI Y. P. VERMA, SR. DR RESPONDENT BY SHRI MEHUL K. PATEL, AR DATE OF HEARING: 11-10-2012 DATE OF PRONOUNCEMENT: 19-10-2012 O R D E R PER BENCH: BOTH THESE APPEALS PREFERRED BY THE REVENUE ARE EMANATING OUT OF THE COMMON ORDER OF THE LEARNED CI T(A)-V, BARODA DATED 05-02-2009 IN APPEAL NO. CAB/(A)-V-188 & 189/ 06-07, FOR ASSESSMENT YEARS 2001-02 AND 2002-03. 2. THE EFFECTIVE COMMON GROUNDS RAISED BY THE APPEL LANT IN THESE APPEALS ARE REPRODUCED HEREUNDER FOR REFERENCE: ITA NOS. 1542 & 1543/AHD/2009 (AY: 2000-01 AND 200 2-03) THE ITO, W-5 (2), BARODA VS SMT. LATABEN B. GUPTA 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DELETING THE INTEREST EXPENSES INCURRED BY THE ASSESSEE FOR NON-BUSINESS PURPOSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN DELETING THE BAD DEBTS DESPITE THE FACT THAT THE PLASTIC BUSINESS TO WHICH THE DEBTS RELATED WAS DISCONTINUED BY THE ASSESSEE IN EARLIER YEAR. 3. THE FACTUAL MATRIX OF THE CASE IS THAT ORIGINAL ASSESSMENTS WERE COMPLETED ON 29-03-2004 AND 31-03-2005 BY THE AO. T HE AMOUNT OF EXPENSES CLAIMED WHICH WERE DISALLOWED ARE RS.16,89 ,728/- AND RS.19,96,038/- RESPECTIVELY FOR THE ASSESSMENT YEAR S AND WERE INCURRED UNDER THE FOLLOWING HEADS: ASSESSMENT YEAR PARTICULARS 2001-02 2002-03 INTEREST 8,23,053/- 13,69,677/- BAD DEBTS 8,66,675/- 6,26,361/- TOTAL 16,89,728/- 19,96,038/- THE APPELLANT PREFERRED APPEAL BEFORE THE LEARNED CIT(A) WHO HAD SET ASIDE THE ISSUE BY HER ORDER DATED 14-12-2004 FOR A Y 2001-02 WITH DIRECTION TO THE LEARNED AO TO RE-EXAMINE THE ISSUE FROM THE POINT OF VIEW OF INTER CONNECTION, INTERLACING AND INTERDEPENDENC E AND UNITY IN BUSINESS. THE LEARNED AO RE-EXAMINED THE ISSUES IN HIS APPEAL EFFECT ORDER DATED 13-12-2006 AND HE FOUND THAT PLASTIC BUSINESS HAS B EEN CLOSED IN THE YEAR 1999-2000. THE EXPENSES RELATED TO THE LOAN TAKEN F OR M/S. L. B. POLYMERS AND THE BAD DEBTS WERE ALSO RELATED TO M/S. L. B. P OLYMERS. DURING THE YEAR UNDER CONSIDERATION THERE WAS NO BUSINESS TRAN SACTION IN M/S. L. B. POLYMERS. THE ENTIRE INCOME WAS FROM LAND DEVELOPME NT/REAL ESTATE BUSINESS AND OTHER MISC. INCOME. THE FUNDS USED IN THE LAND ITA NOS. 1542 & 1543/AHD/2009 (AY: 2000-01 AND 200 2-03) THE ITO, W-5 (2), BARODA VS SMT. LATABEN B. GUPTA 3 DEVELOPMENT/REAL ESTATE BUSINESS WERE ALSO SEPARATE FROM THE FUNDS OF M/S. L. B. POLYMERS. THERE WAS NO INTERCONNECTION, INTERLACING OR INTERDEPENDENCY BETWEEN THE PLASTIC BUSINESS AND TH E LAND DEVELOPMENT/REAL ESTATE BUSINESS OF THE APPELLANT. THE APPELLANT FAILED TO FURNISH ANY COGENT MATERIALS AS TO PROVE THAT THERE WAS A UNITY OR INTERCONNECTION BETWEEN BOTH THE BUSINESSES FOR CLA IMING THESE EXPENSES. THE LEARNED AO HELD THAT FOR CLAIMING SUCH EXPENSES THE BUSINESS SHOULD BE CONTINUED DURING THE PREVIOUS YEAR. THEREFORE, H E AGAIN DISALLOWED THE CLAIM AGAINST THESE EXPENSES IN AY 2001-02. SIMILA RLY, THE LEARNED AO DISALLOWED IN AY 2002-03 RS.13,69,677/- UNDER THE H EAD INTEREST, RS.6,26,361/- UNDER THE HEAD BAD DEBTS. THUS, TOT AL DISALLOWANCE IN AY 2002-03 WAS MADE AT RS.19,96,036/- ON SIMILAR FOOTI NG. 4. BEING AGGRIEVED, THE APPELLANT CARRIED THE MATTE R IN APPEAL BEFORE THE LEARNED CIT(A) WHO HAS DELETED THE ADDITIONS IN BOTH THE ASSESSMENT YEARS. THE OPERATIVE PORTION OF THE ORDER OF THE LE ARNED CIT(A) IS REPRODUCED HEREUNDER FOR REFERENCE: 4.5 I HAVE CONSIDERED THE SUBMISSIONS MADE ON BEH ALF OF THE APPELLANT AND THE FACTS AVAILABLE FROM THE ASSE SSMENT ORDER AND THE PAPER BOOK FILED. I AM INCLINED TO AGREE WITH T HE APPELLANT THAT THE BUSINESS OF REAL ESTATE AND PLASTIC PROCESSING WAS ONE AND THE SAME WHEN THE BORROWING WAS MAD. THE INCURRING OF L OSSES LED TO THE CLOSURE OF THE BUSINESS OF PLASTIC PROCESSING A ND THAT THE DEBTS WHICH WERE NOT REALIZED AND CLAIMED AS BAD DEBTS RE LATED TO THE SAME BUSINESS. I FIND THAT THE ENTIRE BUSINESS WAS MANAGED AND CONTROLLED BY THE SAME PERSON IN RESPECT OF WHICH T HOUGH SEPARATE PROFIT AND LOSS ACCOUNT WAS PREPARED, IT WAS MERGED AND CONSOLIDATED ACCOUNT WAS FILED WITH THE INCOME-TAX AUTHORITIES. IN THESE ACCOUNTS, THE TRANSACTIONS RELATING TO REAL E STATE BUSINESS AS WELL AS PLASTIC PROCESSING BUSINESS WERE SHOWN AS C OMBINED. THIS PRACTICE WAS FOLLOWED IN THE PAST ALSO AS IS REFLEC TED FROM THE BALANCE SHEET AND ACCOUNT FOR THE YEARS 1999-2000 A ND 1998-99 AND 1997-98, THE COPY OF WHICH IS FURNISHED TO ME. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY THE APPELLANT AND ITA NOS. 1542 & 1543/AHD/2009 (AY: 2000-01 AND 200 2-03) THE ITO, W-5 (2), BARODA VS SMT. LATABEN B. GUPTA 4 FIND THAT THE CLAIM OF THE APPELLANT IN RESPECT OF INTEREST AND BAD DEBTS ALLOWANCE SHOULD HAVE BEEN ALLOWED CONSIDERIN G THAT THE BUSINESS OF THE APPELLANT IS COMPOSITE ONE. IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES, I DIRECT THE AO TO ALLOW INTERES T EXPENSES OF RS.8,23,053/- FOR THE A. Y. 2001-02 AND RS.13,69,67 7/- FOR THE A. Y. 2002-03 RESPECTIVELY. I ALSO DIRECT THE AO TO ALLOW THE CLAIM OF BAD DEBTS OF RS.8,66,675 FOR A.Y.2001-02 & RS.6,26,361/ - FOR A. Y. 2002-03 IN THE LIGHT OF REASONS ENUMERATED ABOVE. 4. NOW THE APPELLANT IS IN APPEAL BEFORE US. THE LE ARNED AR OF THE APPELLANT FILED A PAPER BOOK CONTAINING PAGES 1 TO 98 AND CONTENDED THAT IN THE PAST IN THE NAME OF SMT. LATABEN B. GUPTA A CONSOLIDATED RETURN OF INCOME FOR BOTH THE BUSINESS I.E. REAL LAND DEVELOP MENT/REAL ESTATE AND M/S. L. B. POLYMER ALONG WITH CONSOLIDATED BALANCE SHEET WAS FILED. WHEN THE BUSINESS OF LAND DEVELOPMENT/REAL ESTATE WAS ST ARTED FUNDS WERE DIVERTED FROM THE ACCOUNTS OF M/S. L. B. POLYMERS. THE APPELLANT MAINTAINED TWO SEPARATE BANK ACCOUNTS ONE WITH BA NK OF BARODA AND THE OTHER WITH DENA BANK FOR MAINTAINING PROFITABIL ITY AS WELL AS FOR IDENTIFICATION OF THE BUSINESS TRANSACTIONS FOR MAI NTAINING BOOKS OF ACCOUNTS, BUT THE MANAGEMENT AND OWNER WAS THE SAME AND THE APPELLANTS BUSINESS WAS COMPOSITE ONE. HE HAS ALSO RELIED UPON THE FOLLOWING DECISION: (I) VEECUMSEES VS CIT, 220 ITR 185 (SC) WHERE THE I NTEREST EXPENSES IN RELATION TO THE BUSINESS OF EXHIBITION OF FILM IN THE THEATRE WAS DISALLOWED BY THE AO ON THE GROUND THAT THE BUSINESS WAS CLOSED OR DISCONTINUED. THE TRIBUNAL F OUND THAT UP TO THE EARLIER YEAR THE APPELLANT WAS RUNNING TH E BUSINESS OF THEATRE AND JEWELLERY AS COMPOSITE BUSINESS AND INTEREST HAD TO BE ALLOWED EVEN IF THE BUSINESS WAS CLOSED A S THE BUSINESS OF JEWELLERY AND RUNNING OF CINEMA THEATRE WAS COMPOSITE ONE AND THE DECISION OF THE TRIBUNAL WAS UPHELD BY THE HONBLE SUPREME COURT. HE FURTHER RELIED ON THE DECISION OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF BANSIDHAR PVT. LTD. VS CIT, 127 ITR 65 AND THE DECISION OF THE ITA NOS. 1542 & 1543/AHD/2009 (AY: 2000-01 AND 200 2-03) THE ITO, W-5 (2), BARODA VS SMT. LATABEN B. GUPTA 5 HONBLE SUPREME COURT IN THE CASE OF CIT VS PRUTHVI INSURANCE CO. LTD., 63 ITR 632 AND CLAIMED THAT THE INTEREST EXPENSES A S WELL AS BAD DEBTS IS REQUIRED TO BE ALLOWED. 5. AT THE OUTSET, THE LEARNED DR VEHEMENTLY OPPOSED THE ARGUMENTS PUT FORTH BY THE APPELLANT AND CONTENDED THAT THE B USINESS OF M/S. L. B. POLYMERS HAD BEEN CLOSED. THERE WAS NO INTERLACING AND INTERCONNECTION BETWEEN BOTH THE BUSINESSES. THE APPELLANT MAINTAIN ED TWO BANK ACCOUNTS FOR BOTH THE BUSINESSES. SALARIES OF THE E MPLOYEES WERE DEBITED IN THE RESPECTIVE BANK ACCOUNTS OF EACH BUSINESS. T HEREFORE, IN BOTH THE ASSESSMENT YEARS THESE EXPENSES ARE NOT ALLOWABLE. 6. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW, HEARD THE ARGUMENTS FROM BOTH THE SIDES AND GONE THROUGH THE PAPER BOOK SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. PAGE 32 OF THE PAPER BOOK SHOWS THAT IN AY 2000-01 THE NET PROFIT OF RS. 1,58,361/- WHICH INCLUDES THE BUSINESS PROFIT OF BOTH THE BUSI NESSES IN THE RETURN OF INCOME FOR AY 2000-01. PAGE 29 AND 30 OF THE PAPER BOOK ARE THE COPY OF THE RETURN AND COMPUTATION OF INCOME FOR AY 2000-01 FOR BOTH THE BUSINESSES. SIMILARLY IN AY 2001-02 AT PAGE 23 OF T HE PAPER BOOK THE NET PROFIT OF RS.1,73,763/- HAS BEEN SHOWN AFTER CONSID ERING THE PROFIT OF BOTH THE BUSINESSES IN THE CONSOLIDATED PROFIT & LOSS AC COUNT AND BALANCE SHEET. THE APPELLANT HAD CONDUCTED BOTH THE BUSINES SES FROM THE SAME OFFICE PREMISES WITH THE HELP OF THE SAME PERSON. T HE FUNDS OF ONE BUSINESS WERE UNDOUBTEDLY UTILIZED FOR OTHER BUSINE SS IN THE PAST. THUS, THE FACT OF HAVING INTERDEPENDENCE, INTERCONNECTION AND INTERLACING BETWEEN BOTH THE BUSINESSES HAS BEEN FULLY ESTABLIS HED BY THE APPELLANT. THE APPELLANT CAN DO NUMBERS OF BUSINESSES AS THERE IS NO PROHIBITION IN THE LAW BUT THE ASSESSEE WOULD BE ONE ONLY. AFTER C ONSIDERING THE PAST ITA NOS. 1542 & 1543/AHD/2009 (AY: 2000-01 AND 200 2-03) THE ITO, W-5 (2), BARODA VS SMT. LATABEN B. GUPTA 6 HISTORY AND FACT OF THE CASE IN THE YEAR UNDER CONS IDERATION, WE ARE IN AGREEMENT WITH THE ORDER OF THE LEARNED CIT(A). ACC ORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APP EALS OF THE REVENUE. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-10-2012 SD/- SD/- (MUKUL KUMAR SHRAWAT) JUDICIAL MEMBER (T. R. MEENA) ACCOUNTANT MEMBER LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER A SSTT. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 11-10-2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 12-10-2012/13-10-2012 OTHER MEMB ER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: