Kedar Nath Fatehpuria, Kolkata V. ITO, Ward-4(2), Kolkata, Kolkata

ITA 1870/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1681 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 26-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURAV KUMAR
• Assessee Lawyers: SOUMITRA CHOUDURY
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (SMC) BENCH, KOLKATA BEFORE SR I J. SUDHAKAR REDDY, HONBLE ACCOUNTANT MEMBER I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA...APPELLAN T 1, R.N. MUKHERJEE ROAD KOLKATA 700 001 [PAN : AADPF 5700 F] INCOME TAX OFFICER WARD-4(2), KOLKATARES PONDENT P-7, CHOWRIGHEE SQUARE KOLKATA-700 069 APPEARANCES BY: SHRI SOUMITRA CHOUDURY. APPEARED ON BEHALF OF THE A SSESSEE. SHRI SAURAV KUMAR, ADDL. CIT, DR, APPEARING ON BEHA LF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 8 TH , 2017 DATE OF PRONOUNCING THE ORDER : AUGUST 25 TH , 2017 O R D E R PER J. SUDHAKAR REDDY, AM :- THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOL KATA, (HEREINAFTER THE LD. CIT(A)), DT. 27/07/2016, PASSED U/S 250 OF TH E INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), RELATING TO ASSESSMENT YEA R 2009-10, ON THE FOLLOWING GROUNDS:- 1. FOR THAT ON THE FACTS OF THE CASE, THE ORDER PA SSED BY THE LD. C.I.T.(A) IS COMPLETELY ARBITRARY, PERVERSE AND ILL EGAL. 2 I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA 2. FOR THAT THE LD. C.I.T.(A) HAS ACTED ARBITRARILY BY DISALLOWING INTEREST AS UNDER: INTEREST ON BANK OVERDRAFT RS.2,4 7,246/ INTEREST ON LOAN RS.2,64,765/ INTEREST PAID ON LOAN IN PROP. ACCOUNT RS.315,000/ THE ABOVE INTEREST WERE INCURRED FOR THE PURPOSE OF THE BUSINESS, THEREFORE, THE ACTION OF THE LD. CIT(A) IS ARBITRAR Y, UNJUSTIFIED AND ILLEGAL. 3. FOR THAT ON THE FACTS OF THE CASE, THE LD. CIT(A ) WAS WRONG BY SUSTAINING DISALLOWANCE OF THE RENT CLAIMED AT RS.1 ,86,000/ , IT WAS CLAIMED FOR THE PURPOSE OF BUSINESS, THEREFORE, TO BE ALLOWED IN FULL. 4. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE DISALLOWANCE OF PREVIOUS YEAR ADJUSTMENT ON INTEREST PAID RS.59, 617/ IS TO BE ALLOWED IN FULL. 5. FOR THAT ON THE FACTS OF THE CASE, THE LD. CIT(A ) WAS WRONG IN CONFIRMING THE DISALLOWANCE OF RS.45,000/ AS BROK ERAGE PAID TO MAYANK SECURITIES WHICH IS COMPLETELY ARBITRARY, UN JUSTIFIED AND ILLEGAL. 6. FOR THAT ON THE FACTS OF THE CASE, THE DISALLOWA NCE OF BAD DEBTS RS.10,00,000/ AND THE SAID CLAIM HAS RIGHTLY BEEN CLAIMED AND PROPER ACCOUNTING TO PROVISION OF THE ACT, 1961, AS SUCH T O BE ALLOWED IN FULL. 7. FOR THAT ON THE FACTS OF THE CASE, THE LD. CIT(A ) WAS WRONG IN DITTOING THE ORDER OF THE A.O. AND CONFIRMING THE A DDITION OF RS.3,80,000/ AS CESSATION OF LIABILITY U/S. 41 (1 ) OF THE I.T. ACT WHICH IS COMPLETELY ARBITRARY, UNJUSTIFIED AND ILLEGAL. 8. FOR THAT ON THE FACTS OF THE CASE, THE LD. CIT(A ) SHOULD HAVE ADJUSTED THE CARRY FORWARD LOSS ACCEPTED IN ASSESSM ENT FOR ASSESSMENT YEAR 200102. 3 I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA 9. FOR THAT THE INTEREST U/S. 234A, 234B & 234D CHA RGED MECHANICALLY IS WRONG & ILLEGAL. 10. FOR THAT THE APPELLANT RESERVES THE RIGHT TO AD DUCE ANY FURTHER GROUND OR GROUNDS, IF NECESSARY, AT OR BEFO RE THE HEARING OF THE APPEAL. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING GROUND NO. 3, 4, 5 & 6. HENCE THESE GR OUNDS ARE DISMISSED AS NOT PRESSED. THIS LEAVES US WITH 3 GROUNDS. 3. AFTER HEARING THE RIVAL CONTENTIONS, I FIND AS F OLLOWS:- GROUND NO. 1 & 10 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO. 2 IS ON THE ISSUE OF DISALLOWANCE OF INTEREST PAID TO BANK ON OVERDRAFT AND INTEREST PAID TO OTHERS ON LO ANS. 4.1. BEFORE THE LD. FIRST APPELLATE AUTHORITY, THE ASSESSEE SUBMITTED AS FOLLOWS:- DISALLOWANCE OF INTEREST RS.886628/- INCURRED AS BU SINESS EXPENDITURE YOUR APPELLANT IS A PROPRIETOR OF M/S. K.N. FATEHUR IA & CO. CARRYING ON SHARE BUSINESS AT 1, R.N. MUKHERJEE ROAD, KOLKAT A 700001, SINCE LONG. THE SAID FIRM IS REGISTERED WITH SEBI INTERAL IA AS DEALER IN SHARES AND SECURITIES VIDE REGISTRATION NUMBER INB 030670915 DATED 23/11/94. DURING THE COURSE OF BUSINESS THE F OLLOWING AMOUNTS WERE INCURRED AND DEBITED AS INTEREST IN TH E BOOKS OF SAID PROPRIETARY CONCERN AS WELL AS IN HIS INDIVIDUAL P & L A/C, BUT THE ENTIRE AMOUNTS WERE INCURRED FOR THE PURPOSE OF SAI D SHARE BUSINESS AND AS SUCH IS ALLOWABLE AS BUSINESS EXPENDITURE: A) INTEREST PAID TO BANK ON OVERDRAFT 247246/ B) INTEREST PAID ON LOANS TO OTHERS 264765/ C) INTEREST RATE ON LOANS IN PROPRIETARY CONCERN 3 15000/ D) INTEREST PAID AND SHOWN AS 59617/ PREVIOUS YEAR ADJUSTMENT 4 I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA ALL THE ABOVE AMOUNTS WERE INCURRED AS INTEREST ON LOANS TAKEN IN EARLIER YEARS AND/OR FOR NEW LOAN TAKEN FOR MAKING PAYMENT OF EARLIER LOANS TAKEN FOR THE PURPOSE OF SAID SHARE B USINESS OF THE ASSESSEE. THE INTEREST INCURRED IN EARLIER YEARS WE RE DULY CLAIMED AS BUSINESS EXPENDITURE & THE SAME WERE ALLOWED AS SUC H IN VARIOUS YEARS. IT IS TO BE POINTED OUT BEFORE YOUR HONOUR THAT THE ASSESSEE SUFFERED HUGE LOSSES IN EARLIER YEARS IN SHARE BUSINESS AND AS CAPITAL CAME IN MINUS FIGURE AND LOAN REMAINED OUTSTANDING ON WHICH INTEREST IS BEING INCURRED. IT IS SUBMITTED THAT IT IS NOT NECE SSARY THAT TRANSACTIONS IN SHARE SHOULD HAVE BEEN DONE IN THE ABOVE ASSESSMENT YEAR BUT WHETHER THE BUSINESS IS CONTINU ED IN THE HOPE TO REVIVE THE SAME, THE EXPENSES INCURRED ALLOWABLE AS BUSINESS EXPENDITURE. IT IS ALSO SUBMITTED THAT RS. 59,617/ SHOWN AS PREVIOUS YEAR ADJUSTMENT WAS ALSO ON ACCOUNT OF INTEREST SET TLED & PAID DURING THE YEAR. DISALLOWANCE OF RS.45,000/- INCURRED AS BROKERAGE: THE ABOVE AMOUNT WAS PAID TO MAYANK SECURITIES AS B ROKERAGE FOR THEIR SERVICE CHARGES & SUGGESTIONS AS TO HOW TO RE VIVE & DEVELOP THE SHARE BUSINESS AND AS SUCH IS ALLOWABLE EXPENDI TURE. 5. THE SUM AND SUBSTANCE IS THAT THE ASSESSEE IS CA RRYING ON SHARE TRADING BUSINESS AND HAD TAKEN LOANS FOR THE PURPOS E OF BUSINESS AS WELL AS TO REPAY EARLIER LOANS TAKEN AND THE INTEREST IN QUESTION IS INCURRED ON SUCH LOANS. THE AO DISALLOWED THESE AMOUNTS AS T HE ASSESSEE COULD NOT FURNISH THE REQUIRED EXPLANATIONS. THE LD. CIT( A) CONFIRMED THE SAME ON THE GROUND THAT THE EXPENDITURE DOES NOT HA VE ANY RELATION WITH THE BUSINESS OF THE ASSESSEE. IN OUR VIEW, THE ASSESSEE HAS FILED SUFFICIENT EVID ENCES IN THE FORM OF LOAN BANK STATEMENT, COPIES OF LEDGER ACCOUNTS T O PROVE THE NEXUS OF THESE LOANS WITH THE ASSESSEES BUSINESS. THE ASSES SEE HAS SUFFERED HUGE LOSSES IN THE EARLIER YEARS IN SHARE TRADING BUSINE SS AND THESE LOANS 5 I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA WERE TAKEN TO REVIVE HIS BUSINESS. THUS, WE ALLOW T HIS GROUND OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION. 6. GROUND NO. 7 IS AGAINST THE ADDITION OF RS.3,80,000/-, U/S. 41 (1) OF THE ACT. THE ASSESSEE CLAIMED THAT THERE IS NO C ESSATION OF LIABILITY AND HENCE NO ADDITION CAN BE MADE UNDER SECTION 41 (1) OF THE ACT. THE EXPLANATION OF THE ASSESSEE IS BROUGHT OUT AT PARA 4 OF THE LD. CIT(A)S ORDER WHICH IS EXTRACTED FOR READY REFERENCE:- ADDITION OF RS.380000/- AS CESSATION OF LIABILITY U /S. 41(1) THE ABOVE AMOUNT WAS PAID TO MR. KUNAL GHOSAL AS AN ADVANCE FOR THE PURPOSE OF DEALING IN LIQUIDATOR MATTERS AND BRINGI NG THE LIQUIDATORS FEES OF THE COMPANIES FOR WHICH THE ASSESSEE WAS APPOINT ED AS LIQUIDATOR IN EARLIER YEARS AND LYING DEBITED ON 31/3/2008 AS LO ANS & ADVANCES IN ASSET SIDE OF THE BALANCE SHEET OF THE ASSESSEE. DU RING THE YEAR UNDER REVIEW THE ASSESSEE RECEIVED RS. 408805/ AS LIQUID ATOR FEES OF EARLIER YEARS ORDER WHICH WAS RS.3,80,000/ PAID TO MR. KUNAL GHO SH WAS DEDUCTED & THE BALANCE RS.28,805/WAS DULY SHOWN AS MISCELLANEOUS INCOME. THE ASSESSING OFFICER HAS WRONGLY PRESUMED THAT IT WAS SHOWN AS L IABILITY IN EARLIER YEAR AND AS A RESULT TREATED THE SAME AS CESSATION OF LI ABILITY U/S 41(1). YOUR HONOUR WOULD ALSO OBSERVE THAT SINCE IT WAS NO T A LIABILITY AT ALL, THERE REMAINS NO QUESTION OF CESSATION OF LIABILITY U/S 4 1(1). 7. A PERUSAL OF THE SAME, DEMONSTRATES THAT THE LD. CIT(A) CONFIRMED THIS ADDITION WITHOUT APPLICATION OF MIND, HENCE WE DELETE THE SAME. 8. GROUND NO. 8 IS ON THE ISSUE OF CARRY FORWARD OF LOSS, ACCEPTED IN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02. THIS GROUND IS CONSEQUENTIAL IN NATURE AND WE DIRE CT THE ASSESSING OFFICER TO GRANT SET OFF ACCEPTED IN THE ASSESSMENT YEARS. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6 I.T.A. NO. 1870/KOL/2016 ASSESSMENT YEAR: 2009-10 KEDAR NATH FATEHPURIA 9. GROUND NO. 9 IS ON THE ISSUE OF LEVY OF INTEREST U/S. 234A, 234B & 234D. THIS GROUND IS CONSEQUENTIAL IN NATURE. ADJUDICATI NG THE SAME WOULD BE A MERE ACADEMIC EXERCISE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. KOLKATA, THE 25 TH DAY OF AUGUST, 2017. SD/- [ J. SUDHAKAR REDDY ] ACCOUNTANT MEMBER DATED :25.08.2017 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. KEDAR NATH FATEHPURIA 1, R.N. MUKHERJEE ROAD KOLKATA 700 001 2. INCOME TAX OFFICER WARD-4(2), KOLKATA P-7, CHOWRIGHEE SQUARE KOLKATA-700 069 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES