DCIT, CHENNAI V. Alto Enterprises (P) Ltd., CHENNAI

ITA 1711/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77227 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , !' # , $ % BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 1711/MDS/2013 ( / ASSESSMENT YEAR : 2007-08) DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), 121,M.G.ROAD,CHENNAI-34 VS M/S. ALTO ENTERPRISES P. LTD. 7, CRESCENT PARK STREET, T.NAGAR, CHENNAI-600 017. PAN:AAECA7489E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. GURU BHASHYAM, JCIT /RESPONDENT BY : MR.K.BALASUBRAMANIAN , ADVOCATE / DATE OF HEARING : 8 TH APRIL, 2014 ! /DATE OF PRONOUNCEMENT : 25 TH APRIL, 2014 & / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNA I DATED 21.02.2013 FOR THE ASSESSMENT YEAR 2007-08. 2. THE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING DISALLOWANCE OF EXPENDITURE MADE BY THE ASSESSING O FFICER. ITA NO.1711/MDS/2013 2 THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT ASSESSED INTEREST INCOME OF ` 60,06,258/- AND MISCELLANEOUS INCOME OF ` 27/- AS INCOME FROM OTHER SOURCES STATING THAT ASSESSEE RECEIVED INTEREST INCOME ON THE MONIES HEL D OUTSIDE BUSINESS BEFORE COMMENCEMENT OF BUSINESS. THE ASSESSING OFFICER ALSO OBSERVED THAT ASSESSEE INCUR RED TRAVELLING EXPENSES ON ACCOUNT OF FOREIGN TRAVEL UN DERTAKEN BY THE DIRECTOR AND THEIR RELATIVES. SINCE THE ASSE SSEE DID NOT COMMENCE ITS BUSINESS, THE ASSESSING OFFICER IGNORE D THE EXPENSES TREATED BY THE ASSESSEE AS BUSINESS EXPENS ES AND BROUGHT TO TAX INTEREST INCOME AND MISCELLANEOUS IN COME UNDER THE HEAD OTHER SOURCES. THE ASSESSEE CONTE NDED THAT IT HAD PAID INTEREST OF ` 28,20,000/- ON THE LOANS BORROWED BY IT AND THIS INTEREST HAS TO BE SET OFF AGAINST INT EREST INCOME RECEIVED BY THE ASSESSEE AND ONLY NET INTEREST, IF ANY HAS TO BE CONSIDERED. HOWEVER THIS SUBMISSION WAS IGNORED BY THE ASSESSING OFFICER. ON APPEAL, COMMISSIONER OF INCOM E TAX (APPEALS) THOUGH AGREED WITH THE VIEW OF THE ASSESS ING OFFICER THAT INTEREST INCOME SHOULD BE TREATED AS I NCOME FROM OTHER SOURCES THE COMMISSIONER OF INCOME TAX (APPEA LS) ITA NO.1711/MDS/2013 3 HELD THAT AS THE ASSESSEE DID NOT COMMENCE ITS BUS INESS ACTIVITIES, THE INTEREST SHOULD BE SET OFF AGAINST INTEREST INCOME EARNED AND DISALLOWANCE OF EXPENDITURE ON TR AVELLING WAS FOUND TO BE NOT CORRECT. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN ASSESSING INTERES T INCOME UNDER THE HEAD OTHER SOURCES WITHOUT SETTING OFF OF INTEREST PAID BY THE ASSESSEE ON THE LOANS BORROWED AND IGNO RING THE TRAVELLING EXPENSES INCURRED BY THE ASSESSEE. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE OBTAINED LOANS FROM VARIOUS PARTIES AND MADE CERTAI N DEPOSITS WITH THE BANK AS THE LOAN FUNDS WERE NOT IMMEDIATELY REQUIRED, THEY WERE LENT TO OUTSIDE PAR TIES. THE ASSESSEE ADMITTED INTEREST INCOME OF ` 60,06,258/- ON SUCH AMOUNTS LENT WHICH WERE ASSESSED UNDER THE HEAD OT HER SOURCES WITHOUT ALLOWING INTEREST OF ` 28,20,000/- TOWARDS UNSECURED LOANS. THE COUNSEL SUBMITS THAT SUCH BORR OWED FUNDS AMONG OTHERS HAVING BEEN LENT TO OTHERS BY T HE ASSESSEE ON INTEREST AND ON WHICH INTEREST INCOME H AVING ITA NO.1711/MDS/2013 4 BEEN ADMITTED BY THE ASSESSEE WHICH WAS BROUGHT TO TAX BY THE ASSESSING OFFICER, DISALLOWANCE OF CLAIM OF INT EREST ON BORROWED FUNDS WHICH EXPENDITURE WAS INCURRED FOR E ARNING INTEREST INCOME IS NOT CORRECT. COUNSEL FOR THE AS SESSEE SUBMITS THAT INTEREST HAS TO BE SET OFF AGAINST INT EREST PAID WHILE COMPUTING INCOME UNDER SECTION 57(III) OF THE ACT. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS IN SU PPORT OF HIS SUBMISSIONS:- I) PENCH POWER LTD. VS. ACIT (156 TAXMANN 84) II) JCIT VS. SUMATINATH ENTERPRISES (1 SOT 312) III) J.F.LABORATORIES LTD. VS ITO (96 ITD 448) IV) CIT VS. TAJ INTERNATIONAL JEWELLS (335 ITR 144 [DEL]) 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND CASE LAWS RELIED ON. INSOFAR AS EXPENDITURE INC URRED BY THE ASSESSEE ON TRAVELLING BY THE DIRECTOR AND THEI R RELATIVES, WE ARE IN AGREEMENT WITH THE ASSESSING OFFICER THAT SUCH EXPENSES HAVE TO BE IGNORED AND THEY HAVE TO BE CAP ITALIZED AS THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS AND THEY SHOULD FORM PART OF PRE-OPERATIVE EXPENSES. HOWEVER , WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO EXAMINE WHETHER TRAVELLING EXPENSES INCURRED BY THE ASSESSEE ARE FOR THE PURPOSE OF BUSINESS AND IF THE EXPENSES ITA NO.1711/MDS/2013 5 ARE INCURRED FOR THE PURPOSE OF BUSINESS, THE SAME MAY BE TREATED AS BUSINESS EXPENSES AND PRE-OPERATIVE EXPE NSES. 6. AS FAR AS THE INTEREST INCOME IS CONCERNED, SET OFF OF INTEREST PAID AGAINST INTEREST RECEIVED IS CONCERNE D, WE ARE IN AGREEMENT WITH THE COMMISSIONER OF INCOME TAX (APPE ALS) THAT INTEREST PAID BY THE ASSESSEE ON UNSECURED LOA NS HAS TO BE SET OFF AGAINST INTEREST RECEIVED ON LOAN FUNDS DEPOSITED BY THE ASSESSEE ON WHICH INTEREST INCOME WAS ADMITTED. THUS, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) TO THAT EXTENT. 7. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 25 TH DAY OF APRIL, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGEN DRA PRASAD ) ' . #!$ # ( %& '() * ) ACCOUNTANT MEMBER / *+ JUDICIAL MEMBER/ ( *+ %( /CHENNAI, ,* /DATED, 25 TH APRIL, 2014 SOMU ITA NO.1711/MDS/2013 6 *- ./0/ /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. 123 /CIT(A) 4. 1 /CIT 5. /4' 5 /DR 6. '67 /GF .