DCIT, Circle - 1, Kolkata, Kolkata V. Shri Subir Poddar, Kolkata

ITA 1557/KOL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7918 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 1999-2000
• Appeal Filed On: 06-08-2010
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY
• Assessee Lawyers: V N PUROHIT
• Keywords: Business income; Commercial expediency

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NOS.1557 & 1558/KOL/2010 #$ %&/ ASSESSMENT YEARS: 1999-2000 & 2000-01 DEPUTY COMMISSIONER OF INCOME-TAX, VS. SHRI SUB IR PODDER CIRCLE-1, KOLKATA. (PAN: AFTPP9062M) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 18.09.2014 DATE OF PRONOUNCEMENT: 14.10.2014 FOR THE APPELLANT: SHRI P. K. CHAKRABORTY, JCIT, SR . DR FOR THE RESPONDENT: SHRI V. N. PUROHIT, FCA / ORDER PER SHRI MAHAVIR SINGH, JM : THESE APPEALS BY REVENUE ARE ARISING OUT OF COMMON ORDER OF CIT(A)-1 KOLKATA IN APPEAL NO. 93/94/ CIT(A)-I/CIR-1/06-07 DATED 26.05.2010. ASSESSMENTS WERE FRAMED BY ACIT, CIRCLE-1, KOLKATA U/S. 143(3)/147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 1999-2000 AND 2000-01 VIDE HIS SEP ARATE ORDERS BOTH DATED 20.07.2006. 2. FIRST WE TAKE UP ITA NO. 1557/K/2010. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF IN TEREST BY THE AO AT RS.21,27,146/- FOR THE REASON THAT THE BORROWED CAPITAL WAS UTILISED FOR THE PURP OSE OF GIVING INTEREST FREE ADVANCE LIKE INVESTMENT IN LAND, UTILISED FOR THE PURPOSE OF EARNING EXEMPT ED INCOME AND INVESTMENT MADE IN PURCHASE OF SHARES OF SUBIR UDYOG LTD. AND AUTO DISTRIBUTOR LTD . FOR OBTAINING CONTROLLING INTEREST IN THESE COMPANIES. FOR THIS, REVENUE HAS RAISED FOLLOWING THREE GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) HAS ERRED IN NOT CONSIDERING DISALLOWANCE OF INTEREST ON BORROWED CA PITAL WHICH WAS UTILIZED FOR THE PURPOSE OF GIVING ADVANCE FOR LAND AMOUNTING TO RS.39.74 L AKH WHEN HE DISALLOWED SUCH INTEREST AT THE RATE OF 15% ON BORROWED CAPITAL OF 6.86 LAKH UT ILIZED FOR SIMILAR INVESTMENT N LAND. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE DISALLOWANCE OF INTEREST ON BORROWE D CAPITAL WHICH WAS UTILLZED FOR THE PURPOSE OF EARNING EXEMPTED INCOME. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) HAS TOTALLY MISDIRECTED HIMSELF BY CONSIDERING ASSESSEES CONTENTION THAT I NVESTMENTS WERE MADE TOWARDS PURCHASE OF 2 ITA NO.1557 & 1558/K/2010 SUBIR PODDAR, AY 1999-2000 & 2000-01 SHARES OF M/S. SUBIR UDYOG LIMITED AND M/S. AUTO DT RIBUTORS LIMITED TO OBTAIN CONTROLLING INTEREST OVER THE COMPANIES WHEN NO SUCH INVESTMENT IN SHARES OF THE SAID COMPANIES ARE APPEARING N THE BALANCE SHEET AS ON 31.03.1999. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO NOTED THE FACTUAL POSITION OF UNSE CURED AND SECURED LOANS THAT UNSECURED LOAN WAS BORROWED FOR THE PURPOSE OF BUSINESS BUT WAS USED I N PURCHASE OF LAND FOR EARNING EXEMPTED INCOME LIKE AGRICULTURAL AND ALSO FOR ACQUIRING SHARES OF SUBIR UDYOG LTD. AND AUTO DISTRIBUTOR LTD. FOR ACQUIRING CONTROLLING INTEREST IN THESE COMPANIES. THE RELEVANT DETAILS OF SECURED AND UNSECURED LOANS FROM 1998-99 TILL NOW READ AS UNDER: ASSTT. YEAR 19998-99 ASSTT. YEAR 1999-2000 INCREASED/ (DECREASED) SECURED LOAN UNSECURED LOAN NET INCREASE IN 15,45,185.92 1,83,88,416.20 1,99,33,602.12 7,98,041.41 2,75,57,193.00 2,83,55,234.41 (7,47,144.51) 91,68,776.80 84,21,632.29 THE ASSESSEE REPLIED THAT THE SAME ISSUE WAS THERE IN AY 1996-97 AND THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF CIT(A) FOR FRESH ADJUDICATION AND CIT(A)-XIX, KOLKATA VIDE APPEAL NO. 116- 117/CIT(A)-XIX/ITO-WD-32(3)/KOL/45 DATED 28.03.2006 , DELIBERATED ON THE SAME UNSECURED AND SECURED LOANS AND DECIDED THE ISSUE IN FAVOUR OF AS SESSEE IN VIEW OF THE DIRECTIONS OF THE TRIBUNAL. THE REVENUE HAS NOT PREFERRED ANY APPEAL AGAINST TH AT ORDER AND THAT ORDER HAS BECOME FINAL. EVEN THIS FACT WAS RECORDED BY AO IN PAGE 3 AS UNDER: ASSESSEE IN THE ABOVE EXPLANATION CONTENDED THAT E NTIRE LOAN WAS UTILIZED FOR THE PURPOSE OF BUSINESS AND HENCE ENTIRE INTEREST AS CLAIMED IS AL LOWABLE. FURTHER ASSESSEE STATED THAT SIMILAR ISSUE WAS EXAMINED BY ITAT IN ASSESSEES OW N CASE IN THE ASSESSMENT YEARS 1996-97 AND 1997-98. ON PERUSAL OF RECORDS I DO NOT AGREE WITH THE ASSESSEE THAT ENTIRE LOAN WAS UTILIZED FOR THE PURPOSE OF BUSINESS. THIS IS ALSO PERTINENT TO MENTION HERE THAT EACH YEAR IS A SEPARATE PROCEEDING. HOWEVER, ASSESSEE VIDE HIS OF FICE LETTER DATED 27.06.2006 WHICH IS REPRODUCED AS UNDER WAS REQUESTED TO EXPLAIN AS TO WHY INTEREST FOR RS.21,27,147/- SHOULD NOT BE DISALLOWED AS THE CORRESPONDING LOAN WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS. 4. WE FIND THAT THE AO NOTED THE FACT THAT THE ASSE SSEES OWN FUND I.E. CAPITAL IS AT RS.3.83 LACS WHICH IS NOT SUFFICIENT TO MEET BASIC INVESTMENTS. ACCORDING TO AO, WHICH HE NOTED FROM THE P&L ACCOUNT THAT HE HAS PAID INTEREST ON LOANS AT RS.14 ,71,190/-. THE ASSESSEE HAS ALSO DISCLOSED INCOME FROM INTEREST ON LOAN AT RS.17,66,963/- AND CLAIMED INTEREST EXPENSES AT RS.38,94,110/-. THE AO AFTER NOTING, DISALLOWED THE BALANCE INTERES T EXPENSES OF RS.21,27,147/- PAID ON LOANS, SUCH LOANS WERE INVESTED IN INCOME FREE ASSETS LIKE LOAN , DIVIDEND INCOME AND PURCHASE OF SHARES FOR ACQUIRING CONTROLLING SHARES IN THE ABOVE STATED TW O COMPANIES. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE EXCEPT THE DISALLOWANCE ON THE AMOUNT OF RS.6.86 LACS INVESTED IN LAND @ 15% BY OBSERVING IN PARAS 5, 6 AND 7 AS UNDER: 3 ITA NO.1557 & 1558/K/2010 SUBIR PODDAR, AY 1999-2000 & 2000-01 5. L HAVE CAREFULLY EXAMINED THE ASSESSMENT ORDER, THE SUBMISSIONS ON BEHALF OF THE APPELLANT. AND ALSO THE RELEVANT MATERIALS AND PAPERS. L AGREE WITH THE CONTENTION MADE ON BEHALF OF THE APPELLANT THAT EXCEPT INVESTMENT IN LAND TO THE EXT ENT OF RS.6.86 LAKHS, ALL OTHER INVESTMENTS WERE FOR THE PURPOSE OF BUSINESS IN A LARGER SENSE. TO THAT EXTENT AND BY FOLLOWING THE JUDGMENTS OF THE SUPREME COURT IN THE CASES OF SETH R. DALMIA (SC) 110 ITR 644 AND COCANADA RADHASWAMI BANK LTD. (SC) 57 ITR 306, IT W AS HELD THAT EVEN THE SALARY, DIVIDEND AND NVESTMENT INCOMES ALSO PARTAKE OF THE CHARACTE R OF BUSINESS INCOME FOR THE PURPOSE OF ALLOWANCE OF EXPENSES FOR EARNING SUCH INCOME. 6. THE A.O. HAS ALLOWED EXPENSE ON ACCOUNT OF INTER EST PAYMENT ONLY TO THE EXTENT OF ACTUAL INCOME RECEIPTS. HIS ACTION IS CLEARLY AGAINST THE RATIO DECIDENDI OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF S.A. BUILDERS [288 TR 1]. FOR THE PURPOSE OF ALLOWANCE OF INTEREST EXPENDITURE ON BORROWINGS, IT IS ONLY NECE SSARY TO SEE WHETHER THE BORROWINGS HAVE BEEN MADE FOR THE BUSINESS PURPOSE OF THE ASSESSEE OR IN ACCORDANCE WITH COMMERCIAL EXPEDIENCY. THE BUSINESS PURPOSE IS REQUIRED TO B E LOOKED INTO, IN THIS CONNECTION, FROM A MUCH LARGER PERSPECTIVE AND NOT FROM THE NARROW ANG LE OF THE INCOME TAX ACT ALONE. IF THE A.O.S ACTION IN ALLOWNG INTEREST EXPENDITURE TO T HE EXTENT OF INTEREST INCOME ONLY IS TO BE UPHELD, THEN INTEREST ON BORROWINGS FOR AN INVESTME NT WHICH DOES NOT YIELD ANY POSITVE RESULT DURING A PARTICULAR YEAR, WOULD HAVE TO BE DISALLOW ED IN THAT YEAR. BUT, SUCH IS NOT AT ALL THE SCHEME OF ALLOWANCE OF INTEREST EXPENDITURE ON BORR OWINGS, AS HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THE SUPREME COURT DECISIO N AS MENTIONED ABOVE. HENCE, THE PRINCIPLE ADOPTED BY THE A.O. FOR ALLOWING EXPENDIT URE BY WAY OF INTEREST PAYMENTS, AT VARIANCE WITH THE JUDICIAL PRONOUNCE MERITS IN THE SUBJECT. 7. THE APPELLANT IS A PARTNER OF THE FIRM M/S RAJEN DRA KUMAR SUBIR KUMAR.HE HAS EARNED INCOME BY WAY OF INTEREST AND SHARE OF PROFIT FROM THE SAID FIRM. EVIDENTLY, THE INTEREST PAYMENTS ON BORROWING MADE FOR INVESTING IN THE SAI D FIRM BY WAY OF EITHER CAPITAL CONTRIBUTION OR EVEN LOAN, HAVE GOT TO BE ALLOWED. THE A.O. HIMS ELF HAS ALSO ALREADY ALLOWED THE SAME, BUT TO THE EXTENT OF THE ACTUAL INCOME BY WAY OF INTERE ST. ON THE OTHER HAND, THE ENTIRE INTEREST PAYMENT ON THIS ACCOUNT NEEDS TO BE ALLOWED. SIMILA R IS THE POSITION WITH REGARD TO THE INVESTMENTS MADE IN M/S ANANDA EPOXIA LTD. AND M/S SUBIR UDYOG LTD. NOT ONLY INVESTMENTS IN THESE TWO CONCERNS HAD PRODUCED INTEREST INCOME, BU T, OTHERWISE ALSO, THE APPELLANT IS REQUIRED TO MAINTAIN A CONTROLLING INTERESTS IN THESE CONCER NS AND FOR THAT PURPOSE, MAKING INVESTMENTS THEREIN IS NECESSARY. THEREFORE, FOLLOWING THE JUDG MENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RAJEEVA LOCHAN KANORIA (SUPRA), INTEREST PAYMENT S ON THE BORROWINGS MADE FOR MAKING INVESTMENTS IN THOSE CONCERNS WOULD HAVE TO BE ALLO WED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE TRIBUNAL . 5. WE FIND THAT THE SAME INVESTMENTS WERE IN EARLI ER YEAR AND CIT(A) HAS DELETED THE ADDITION MADE IN AY 1996-97 AND 1997-98, WHICH WAS NOT CHALL ENGED BY THE REVENUE HAS ACCEPTED AS IT IS. THESE LOANS ARE CARRIED FORWARD FROM EARLIER YEAR, WHICH WERE NEVER SUBJECT MATTER OF DISALLOWANCE. WE FIND THAT THE ASSESSEE IS A PARTNER IN A FIRM M/ S. RAJENDRA KUMAR SUBIR KUMAR WHEREBY THE LOANS WERE INVESTED HAS PRODUCED INTEREST INCOME WH ICH IS DISCLOSED BY THE ASSESSEE. EVEN OTHERWISE, THE BORROWINGS ARE USED FOR THE PURPOSE OF BUSINESS EXPEDIENCY EVEN THOUGH INVESTMENT DOES NOT YIELD ANY POSITIVE RESULT DURING THE YEAR. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT TH E CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF INTE REST AND WE CONFIRM THE SAME. APPEAL OF REVENUE IS DISMISSED. 4 ITA NO.1557 & 1558/K/2010 SUBIR PODDAR, AY 1999-2000 & 2000-01 6. IN RESPECT OF ITA NO. 1558/KOL/2010, WE FIND THA T THE FACTS AND GROUNDS ARE EXACTLY IDENTICAL TO THE FACTS AND GROUNDS OF ITA NO. 1557/ KOL/2010. SINCE THE APPEAL OF REVENUE IN ITA NO. 1557/K/2010 IS DISMISSED, AND THE FACTS AND GRO UNDS ARE EXACTLY IDENTICAL TO THE FACTS OF THIS CASE, THE APPEAL BEING ITA NO. 1558/K/2010 IS ALSO DISMISSED. 7. IN THE RESULT, BOTH APPEALS OF REVENUE ARE DISMI SSED. 8. ORDER PRONOUNCED IN OPEN COURT ON 14.10.2014. SD/- SD/- , ! , (SHAMIM YAHYA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14TH OCTOBER, 2014 ,- #./ 0 JD.(SR.P.S.) 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-1, KOLKATA 2 *+() / RESPONDENT SHRI SUBIR PODDAR, 36, CHOWRINGHEE SQU ARE, KOLKATA- 700 069 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #