The ITO, Ward-6(2), Ahmedabad V. Smt. Mrudulaben H.Patel, Ahmedabad

ITA 1549/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80472 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI , ACCOUNTANT MEMBER ITA NO . 1549 /AHD/20 1 1 A. Y. 200 7 - 08 THE ITO, WARD - 6(2), AHMEDABAD. VS SMT. MRUDULABEN HARSHABHAI PATEL, 100, SARTHI RAW HOUSE, GURUKUL ROAD, MEMNAGAR, AHMEDABAD. PAN: ABNPP 1841N (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.K. SINGH , SR. D.R. , ASSESSEE(S) BY : SHRI SUNIL H. TALATI , A.R. / DATE OF HEARING : 2 6 / 0 9 /201 4 / DATE OF PRONOUNCEMENT: 31 / 10 /201 4 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN A PPEAL FILED BY THE REVENUE EMANATING FROM AN ORDER OF L D. CIT (APPEALS) - XI , AHMEDABAD , DATED 2 1 . 0 3 . 201 1 . THE S UBSTANTIVE GROUND RAISED BY THE REVENUE IS REPRODUCED BELOW: 2 . THE LD. COMMISSIONER OF INCOME - TAX(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES OF RS.46,91,410/ - C LAIMED AS A PART OF THE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF COMPUTING CAPITAL GAIN ON THE SALE OF SHARES . 2 . FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) , DATED 24 .12.20 09 WERE THAT THE ASSESSEE IN INDI VIDUAL CAPACITY HAS DECLARED AN INCOME OF RS.1,50,583/ - WHEREIN ALSO DISCLOSED THAT ON PURCHASE AND SALE OF SHARES EARNED A CAPITAL GAIN OF RS. - 33,585/ - O N VERIFICATION OF THE DETAILS FURNISHED , IT WAS NOTED BY THE AO THAT THE ITA NO. 1549 /AHD/201 1 ITO, WARD - 6 ( 2 ), AHMEDABAD VS. SMT. MRUDULABEN H. PATEL FOR A.Y. 200 7 - 0 8 - 2 - ASSESSEE HAD INCLUDED THE INT EREST OF RS.46,91,410 IN THE COST PRICE OF THE SHARES FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS. ACCORDING TO AO, THE INTEREST AMOUNT DID NOT FORM PART OF THE COST OF ACQUISITION OF SHARES . I N RESPECT OF CLAIM , ASSESSEE HAS PLACED RELIANCE ON CIT VS . M I TH I LESH K UMAR I , 92 ITR 9, M. VIJAYKUMAR & ANOTHER VS. ITO, (2008) 307 ITR (AT) 4 (BANGALORE). THE ASSESSEE HAS EXPLAINED THAT THE INTEREST WAS PAID ON THE BORROWINGS WHICH WERE AVAILED SOLELY FOR THE PURPOSE OF INVESTMENT IN SHARES. HOWEVER, THE AO WAS NOT CONVINCED AND HELD THAT THE PAYMENT OF INTEREST ON BORROWED CAPITAL WAS NOT AN EXPENDITURE OF CAPITAL NATURE INCURRED; HENCE, NO T ALLOWABLE AS COST OF ACQUISITION. AGAINST THE SAID DISALLOWANCE , THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORI TY. 3. LEARNED CIT(A) HAS PASSED A CRYPTIC ORDER AND HELD AS UNDER: 2.2.1 IN THE INSTANT CASE, IT IS UNDISPUTED FACT THAT THE APPELLANT BORROWED FUNDS FROM BANKS FOR APPLYING FOR SHARES IN I.P.OS. SHE SHOWED THE SHARES AS INVESTMENT IN THE BOOKS OF ACCOU NTS. THEREFORE, IN THE LIGHT OF THE ABOVE DECISION, CAPITAL GAINS WORKED OUT BY HER IS IN ACCORDANCE WITH LAW. IMPUGNED DISALLOWANCE OF INTEREST EXPENSES OF RS.46,91,410/ - IS NOT SUSTAINABLE. IT IS DELETED. AS REGARDS DISALLOWANCE OF OTHER CHARGES OF RS.15 00/ - APPELLANT HAS NO EXPLANATION TO OFFER. HENCE, DISALLOWANCE OF SAID SUM IS UPHELD. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R., MR. M.K. SINGH HAS OBJECTED THE MANNER IN WHICH THE LEARNED CIT(A) HAS DECID ED THIS ISSUE WITHOUT APPRECIATING THE FACTS THAT WHETHER THE BORROWED MONEY WAS ACTUALLY UTILIZED FOR THE PURPOSE OF ACQUISITION OF SHARES. MR. SINGH HAS PLACED STRONG RELIANCE ON THE FINDING OF AO AND PLEADED TO REVERSE THE ORDER OF LEARNED CIT(A) . HE HA S PLACED RELIANCE ON THE DECISION OF MACINTOSH FINANCE ESTATES LTD. VS. ACIT, SPECIAL RANGE - 36, MUMBAI, (2007) 12 SOT 324 (MUM.). ITA NO. 1549 /AHD/201 1 ITO, WARD - 6 ( 2 ), AHMEDABAD VS. SMT. MRUDULABEN H. PATEL FOR A.Y. 200 7 - 0 8 - 3 - 5. FROM THE SIDE OF THE RESPONDENT - ASSESSEE, LEARNED AR, MR. SUNIL H. TALATI APPEARED AND PLACED RELIANCE ON ITAT PUNE BENCH DECISION PRONOUNCED IN THE CASE OF S. BALAN @ SHANMUGAM VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 3, PUNE, 120 ITD 469 (PUNE), DATED 31 ST JANUARY, 2008. THE COMPILATION HAS ALSO BEEN FILED CONTAINING WRITTEN SUBMISSION AND DETAILS OF INVESTMENT IN SHARES. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH IN THE LIGHT OF THE COMPILATION FILED AND CASE LAWS CITED. AT THE OUTSET, IT IS PERTAINING TO MENTION THAT THE ORDER OF LEARNED CIT(A) WAS CRYPTIC AND DEVOID OF CONSIDERING FULL FACTS OF THE CASE AS DISCUSS ED BY THE AO. WE HAVE NOTED THAT THE AO HAS DISCUSSED THE PROVISIONS OF SECTION S 48 & 49 OF IT ACT IN THE LIGHT OF THE FACTS OF THIS CASE AND HELD THAT THE INTEREST EXPENDITURE WAS NOT TOWARDS THE COST OF ACQUISITION OF SHARES. THEREFORE, IT WAS EXP E C TED F ROM LEARNED CIT(A) TO DEAL WITH ALL THOSE CONDITIONS OF THE AO WHILE GRANTING RELIEF TO THE ASSESSEE. THE ORDER OF LEARNED CIT(A) CONTAINED THE REPRODUCTION OF WRITTEN SUBMISSION OF THE ASSESSEE AND THEREAFTER A FINDING AS REPRODUCED ABOVE. WE ARE FINAL FA CT FINDING AUTHORITY , THEREFORE, TRIED TO EXAMINE THE DETAILS FURNISHED IN THE COMPILATION , BUT WE HAVE NOTED THAT THE ASSESSEE HAS NOT ESTABLISHED TO THE HILT THAT THE FUNDS WERE BORROWED EXACTLY FOR THE PURPOSE OF INVESTMENT IN SHARES. WE HAVE NOTED THAT A SUBSTANTIAL AMOUNT OF INTEREST TO THE TUNE OF RS.46,91,410/ - WAS CLAIMED BY THE ASSESSEE BUT IT IS NOT CLEAR THAT HOW MUCH AMOUNT WAS BORROWED AND HOW THE SAME WAS UTILIZED FOR ACQUISITION OF SHARES. THE ASSESSEE IS UNDER STRICT OBLIGATION TO ESTABLISH THE NEXUS BETWEEN THE BORROWINGS WITH THE INVESTMENT. THE LEDGER ACCOUNT OR THE LOAN ACCOUNT ; AS FURNISHED WITH THE COMPILATION ; ITA NO. 1549 /AHD/201 1 ITO, WARD - 6 ( 2 ), AHMEDABAD VS. SMT. MRUDULABEN H. PATEL FOR A.Y. 200 7 - 0 8 - 4 - DOES NOT ESTABLISH SUCH NEXUS. HOWEVER, WE HAVE ALSO NOTED THAT THE AO HAS NOT INVESTIGATED THE ISSUE IN THOSE LINES. THEREFORE , WE HEREBY HOLD THAT THE DECISION OF ITAT PUNE BENCH IN THE CASE OF S. BALAN @ SHANMUGAM (SUPRA) CANNOT BE RELIED PRESENTLY IN THE ABSENCE OF THOSE BASIC FACTS BECAUSE IN THAT CASE IT WAS PROVED THAT THE INTEREST WAS NEVER CLAIMED AS A REVENUE EXPENDITURE BUT IT WAS ALWAYS CAPITALIZED AND THAT THE BORROWING WERE UTILIZED TOWARDS THE ACQUISITION OF SHARES. RATHER IN A CASE OF CIT VS. SHRISTI SECURITIES (P) LTD., 183 TAXMAN 159 (BOM.), AS CITED BY LEARNED AR IT HAS BEEN HELD THAT IF FUNDS ARE BORROWED BY AN INVESTMENT COMPANY FOR MAKING INVESTMENT IN SHARES THEN INTEREST PAID ON SUCH BORROWED FUNDS WOULD BE DEDUCTIBLE U/S.36(1)(III) OF IT ACT. IN FACT THIS WAS THE EXACT REASON FOR THE AO NOT TO ALLOW THE CLAIM . H OWEVER WE DEEM IT PROPER THAT LEARNED CIT(A) SH OULD CONSIDER BOTH THE ASPECTS AFTER PROPERLY EXAMINING THE FACTS OF THE UTILIZATION OF BORROWED FUNDS AND THEREUPON DECIDE AS PER LAW. WITH THESE DIRECTIONS, WE HEREBY RESTORE THIS ISSUE BACK TO THE STAGE OF FIRST APPEAL TO BE DECIDED DE NOVO AS PER LAW, NEEDLESS TO SAY, AFTER PROVIDING AN ADEQUATE OPPORTUNITY OF HEARING TO BOTH THE SIDES. SINCE , THE MATTER HAS BEEN RESTORED BACK; HENCE , THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE ONLY. 7. IN THE RESULT, REVENUE S APPE AL IS ALLOWED FOR STATISTICAL PURPOSE ONLY. SD/ - SD/ - ( N.S. SAINI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31 / 10 / 20 1 4 PRABHAT KR. KESARWANI , SR. P . S . ITA NO. 1549 /AHD/201 1 ITO, WARD - 6 ( 2 ), AHMEDABAD VS. SMT. MRUDULABEN H. PATEL FOR A.Y. 200 7 - 0 8 - 5 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT (A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDAB AD