DCIT CIR 3(3), MUMBAI V. PHULDEVI SINGHANIA, MUMBAI

ITA 1861/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79109 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKAS AGARWAL
• Assessee Lawyers: S ATISH CHANDAK
• Keywords: Capital asset; Proportionate interest; Cost of acquisition

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI .., . .!'#, $ , % BEFORE SHRI I.P.BANSAL, JM AND SHRI N.K.BILLAIYA, A M ITA NO.1861/MUM/2013 : ASST.YEAR 2007-08 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-3(3), ROOM NO.609, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 SMT. PHULDEVI SINGHANIA, 14 TH FLOOR, SHREE VARDHAN CHS LTD., B.D.ROAD, OPP. TATA GARDEN, MUMBAI 400 019 PAN: AOHPS 6099E ( &' / // / APPELLANT) / VS. ( )*&'/ RESPONDENT) &' + , + , + , + , /APPELLANT BY : SHRI VIKAS AGARWAL )*&' + , + , + , + , /RESPONDENT BY : SHRI SATISH CHANDAK + -.$ / / / / DATE OF HEARING : 05.06.2014 /01 + -.$ / DATE OF PRONOUNCEMENT : 05.06.2014 2 2 2 2 / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST ORDER PASSED BY LD. CIT(A)-7, MUMBAI DATED 05/10/2012 FOR ASSESSMENT YEAR 2007- 08. THE GROUNDS OF APPEAL READ AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F A SUM OF RS.25,29,542/- BEING INTEREST EXPENDITURE IN COMPUTING THE SHORT TERM CA PITAL GAIN WITHOUT APPRECIATING THAT AS PER SECTION 48, EXPENDITURE IN CURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF ASSET I.E. SHARES IS ALLOWED TO BE DEDUCTED FROM THE SALE CONSIDERATION AND INTEREST EXPENDITURE OF RS.2 5,29,542/- IS NOT IN CONNECTION WITH SUCH TRANSFER. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) O N THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE A.O THAT ASSESSEE HAD REDUCED AN AMOUNT OF RS.25,29,54 2/- FROM THE INCOME SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES. HE REQUIRED THE ASSESSEE ITA NO.1861/MUM/2013 : ASST.YEAR 2007-08 2 TO EXPLAIN THE SAME. THE ASSESSEE VIDE HER LETTER DATED 20/11/2009 STATED THAT INTEREST HAS BEEN PAID TO THE BANKS FOR TAKING OVER DRAFT FACILITY FROM THE BANK. IT WAS FURTHER MENTIONED THAT OVERDRAFT FACILITY TAKEN FROM THE BANK WAS UTILIZED TO INVEST IN SHARES AND MUTUAL FUND. IT WAS SUBMITTED THAT INTEREST PAID BY THE ASSESSEE IS AN EXPENDITURE FOR EARNIN G CAPITAL GAIN BECAUSE THE INCOME FROM DEALING SHARES AND MUTUAL FUNDS HAS BEE N TREATED AS CAPITAL GAIN. THE AO DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESS EE AND DISALLOWED INTER- ALIA A SUM OF RS.25,29,542/-. THE ADDITION WAS CHA LLENGED IN AN APPEAL FILED BEFORE LD. CIT(A). THE SUBMISSIONS MADE BEFORE AO W ERE REITERATED BEFORE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS LD. CIT (A) HAS OBSERVED THAT AO WAS JUSTIFIED TO THE EXTENT THAT INTEREST EXPENDITURE O N OVERDRAFT COULD NOT BE ALLOWED AGAINST INCOME FROM OTHER SOURCES AS THE SAME IS NOT PERMITTED UNDER SECTION 57(III) OF THE INCOME TAX ACT, 1961 ( THE ACT). HOWEVER, ON GOING THROUGH THE DETAILS AND SUBMISSIONS OF THE ASSESSEE HE OBSERVED THAT THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR TH E PURPOSE OF INVESTMENT WHICH HAS GENERATED CAPITAL GAIN INCOME AS RETURNE D BY THE ASSESSEE. LD. CIT(A) HAS REFERRED TO THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF RAJENDRA PRASAD MODI, 115 ITR 519 (SC), WHEREIN IT HAS BEEN HELD THAT ASSESSEE SHOULD BE ALLOWED INTEREST EXPENDITURE INC URRED AS COST WHICH WAS INCURRED ON BORROWED FUNDS, WHICH IS UTILIZED EXCLU SIVELY FOR INVESTMENT IN SHARES/MUTUAL FUNDS OF THE CAPITAL ASSET, WHICH RES ULTED CAPITAL GAIN TO THE ASSESSEE ON TRANSFER OF SUCH SHARE/MUTUAL FUND DURI NG THE YEAR. IN THIS VIEW OF THE SITUATION, LD. CIT(A) HAS DIRECTED THE AO T O WORK OUT PROPORTIONATE INTEREST COST PERTAINING TO SUCH CAPITAL ASSET WHIC H RESULTED, CAPITAL GAIN TO THE ASSESSEE FROM SUCH INVESTMENT AS COST OF ACQUISITIO N. SUCH PROPORTIONATE INTEREST ON BORROWED FUNDS, WHICH WERE UTILIZED FO R ACQUISITION OF SHARES AND MUTUAL FUNDS SHOULD BE ALLOWED AS COST OF ACQUISIT ION WHICH WAS SOLD DURING THE CURRENT YEAR. LD. CIT(A) FURTHER DIRECTED TH AT IF AT ALL, ANY INTEREST STILL REMAIN OUT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE, THEN ASSESSEE CAN CARRY FORWARD THE SAME TO SUBSEQUENT YEAR AS COST O F ACQUISITION OF SUCH SHARES / MUTUAL FUNDS, WHICH REMAINED ON INVESTMEN T OF THE ASSESSEE. HE FURTHER OBSERVED THAT AS FAR AS INTEREST EARNED ON FDR IS CONCERNED, THE SAME WAS TO BE HELD AS INCOME FROM OTHER SOURCES. IN THIS MANNER, LD. CIT(A) HAS PARTLY ALLOWED THE CLAIM OF THE ASSESSEE. THE REVE NUE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. ITA NO.1861/MUM/2013 : ASST.YEAR 2007-08 3 3. AFTER NARRATING THE FACTS LD. DR RELIED UPON THE ORDER PASSED BY AO AND SUBMITTED THAT LD. CIT(A) WAS WRONG IN GRANTING REL IEF TO THE ASSESSEE AND HIS ORDER SHOULD BE SET ASIDE AND THAT OF AO BE RESTORE D. 4. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR TH AT THERE IS NOTHING WRONG IN THE ORDER PASSED BY LD. CIT(A). HE SUBMIT TED THAT LD. CIT(A) HAS RIGHTLY HELD THAT THE INTEREST BORNE BY THE ASSESSE E FOR INVESTMENT IN THE SHARES AND MUTUAL FUNDS ON WHICH THE ASSESSEE HAS EARNED CAPITAL GAIN SHOULD BE ALLOWED AS COST OF ACQUISITION. HE SUBMITTED THAT THIS PROPOSITION IS ALSO SUPPORTED BY THE DECISION OF HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT VS. TRISHUL INVESTMENT LTD., 305 ITR 434, WHEREIN IT HA S BEEN HELD THAT INTEREST ON CAPITAL BORROWED FOR INVESTMENT IN SHARES IS LIABLE TO BE ADDED TO THE COST OF ACQUISITION OF THE SHARES. THUS, HE PLEADED THAT DEPARTMENTAL APPEAL SHOULD BE DISMISSED. 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IN THE ASSESSMENT ORDER ITSELF THE AO HAS ACCEPTED THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS D IRECTLY LINKED TO THE SHARE TRADING ACTIVITY WHOSE INCOME HAS BEEN OFFERED UNDE R THE HEAD INCOME FROM CAPITAL GAIN. HE DENIED THE CLAIM OF THE ASSESSEE ONLY ON THE GROUND THAT THERE IS NO PROVISION IN THE ACT BY VIRTUE OF WHICH INTER EST EXPENSES CAN BE DEDUCTED FROM CAPITAL GAIN. LD. CIT(A) HAS DIRECTED THE AO TO ALLOW THE CLAIM OF INTEREST AS COST OF ACQUISITION ONLY IN RESPECT OF SHARES A ND MUTUAL FUNDS WHICH HAVE BEEN PURCHASED WITH THE HELP OF INTEREST BEARING BO RROWED FUNDS. IN OUR OPINION SUCH DECISION OF LD. CIT(A) IS IN ACCORDAN CE WITH THE DECISION RELIED UPON BY LD. AR I.E. IN THE CASE OF CIT VS. TRISHUL INVESTMENT LTD. (SUPRA) IN WHICH A LEGAL PROPOSITION HAS BEEN LAID DOWN THAT I NTEREST ON CAPITAL BORROWED FOR INVESTMENT IN SHARES IS LIABLE TO BE ADDED TO T HE COST OF ACQUISITION OF ITA NO.1861/MUM/2013 : ASST.YEAR 2007-08 4 SHARES. NO CONTRARY DECISION WAS CITED BEFORE US. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH JUNE, 2014 . 2 + /01 34 05/06/2014 0 + ; SD/- SD/- (N.K.BILLAIYA) (I.P.BANSAL) $ $ $ $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3 DATED : 5 TH JUNE, 2014. VM. 2 + )-! < !1- 2 + )-! < !1- 2 + )-! < !1- 2 + )-! < !1-/ COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. )*&' / THE RESPONDENT. 3. =() / THE CIT, MUMBAI. 4. = / CIT(A)-13, MUMBAI 5. !@; )-, , / DR, ITAT, MUMBAI 6. ;A B / GUARD FILE. 2 2 2 2 / BY ORDER, *!- )- //TRUE COPY// C CC C/ // /D E D E D E D E (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI