DCIT, Circle-4, Kolkata, Kolkata V. M/S. Astor Dealers Pvt. Ltd., Kolkata

ITA 1906/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1724 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 11-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 13-10-2014
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: D S DAMLE
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NOS. 1906 & 190 7/KOL/2014 ASSESSMENT YEARS : 2003- 04 & 2004-05 D.C.I.T., CIRCLE-4, -VS.- M/S. ASTOR DEA LERS PVT. LTD. KOLKATA KOLKATA [PAN : AACCA 5565 B] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SAURABH KUMAR, ADDL. CIT, SR.DR FOR THE RESPONDENT : SHRI D.S.DAMLE, FCA DATE OF HEARING : 11.05.2017. DATE OF PRONOUNCEMENT : 19.05.2017. ORDER PER N.V.VASUDEVAN, JM THESE ARE APPEALS BY THE REVENUE AGAINST TWO ORDER S DATED 25.07.2014 AND 23.07.2014 RESPECTIVELY OF C.I.T.(A)-XII, KOLKATA RELATING TO A.Y.2003-04 & 2004-05. 2. THE COMMON ISSUE THAT ARISES FOR CONSIDERATIO N IN BOTH THESE APPEALS BY THE REVENUE IS AS TO WHETHER THE CIT(A) WAS JUSTIFIED I N COMING TO THE CONCLUSION THAT THE INTEREST PAID ON DEBENTURES OF M/S. SPENCER INTERN ATIONAL HOTELS LTD ACQUIRED BY THE ASSESSEE FROM M/S. CEAT LTD WOULD BE ALLOWED AS DE DUCTION IN COMPUTING THE INCOME FROM BUSINESS OF THE ASSESSEE. FOR THE PURPOSE OF R EADY REFERENCE THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN BOTH THE ASSESSMENT YEARS IN THIS REGARD ARE AS FOLLOWS :- ITA NO.1906/KOL/2014 A.Y.2003-04 1)THAT THE LD. C1T(A) HAS ERRED IN LAW AND ON FACT S BY DELETING THE ADDITION OF RS. 1,01,81,738/- ON ACCOUNT OF INTEREST PAID ON ACQUIS ITION OF DEBENTURES THOUGH THE BUSINESS OF THE ASSESSEE WAS NOT INVESTMENT IN DEBE NTURES FOR THE YEAR AND THOSE DEBENTURES WERE HELD BY THE ASSESSEE-COMPANY AS ITS INVESTMENT AND NOT STOCK IN TRADE. 2)THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELET E, AMEND OR MODIFY ANY GROUND BEFORE OR AT THE TIME OF APPELLATE PROCEEDINGS. 2 ITA NOS.,1906 & 1907/KOL/2014 M/S. ASTOR DEALERS PVT. LTD. A.YR.2003-04 & 2004-05 2 ITA NO.1907/KOL/2014 A.Y.2004-05 1)THAT THE LD. C1T(A) HAS ERRED IN LAW AND ON FACT S BY DELETING THE ADDITION OF RS. 1,01,27,547/- ON ACCOUNT OF INTEREST PAID ON ACQUIS ITION OF DEBENTURES THOUGH THE BUSINESS OF THE ASSESSEE WAS NOT INVESTMENT IN DEBE NTURES FOR THE YEAR AND THOSE DEBENTURES WERE HELD BY THE ASSESSEE-COMPANY AS ITS INVESTMENT AND NOT STOCK IN TRADE. 2)THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELET E, AMEND OR MODIFY ANY GROUND BEFORE OR AT THE TIME OF APPELLATE PROCEEDINGS. 3. AT THE TIME OF HEARING THE LD. COUNSEL FOR TH E ASSESSEE BROUGHT TO OUR NOTICE THAT IDENTICAL PAYMENT OF INTEREST ON DEBENTURES ACQUIRE D WAS THE SUBJECT MATTER OF CONSIDERATION BY THIS TRIBUNAL IN ASSESSEES OWN CA SE FOR A.Y.2001-02 IN ITA NO.816/KOL/2005 AND THIS TRIBUNAL BY ITS ORDER DATE D 13.10.2006 WAS PLEASED TO HOLD THAT THE PAYMENT OF INTEREST WAS HELD TO BE AN ALLO WABLE DEDUCTION. 4. THE BRIEF FACTS WITH REGARD TO ACQUISITION OF DEBENTURES WAS THAT THE ASSESSEE PURCHASED 32,00,000 OF DEBENTURE OF RS.100/- EACH H ELD BY M/S. SPENCER INTERNATIONAL HOTELS LTD ON 29.09.1998 FROM M/S. CEAT LTD WHICH W AS THE REGISTERED DEBENTURE HOLDER. AS PER THE AGREEMENT WITH M/S. CEAT LTD THE ASSESSEE WAS TO PAY 10% INTEREST TO M/S. CEAT LTD ON UNPAID PURCHASE CONSIDERATION. THE ASSESSEE HAD SHOWED DEBENTURES AS INVESTMENT IN ITS BOOKS OF ACCOUNTS. BUT IN THE RETURN OF INCOME THE ASSESSEE HAD CLAIMED THAT THE DEBENTURES WERE HELD AS BUSINESS A SSET AND PROFIT AND LOSS ON SALE OF DEBENTURES WOULD BE OFFERED FOR TAXATION AS BUSINES S INCOME/LOSS. THE PAYMENT OF INTEREST ON UNPAID PURCHASE CONSIDERATION WAS CLAIM ED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. ACCORDING TO THE AO THE DEBEN TURES IN QUESTION WERE HELD AS INVESTMENT AND THEREFORE INTEREST PAID SHOULD BE CO NSIDERED AS PART OF THE COST OF DEBENTURES AND SHOULD HAVE BEEN CAPITALIZED AND CAN NOT BE CLAIMED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. THE CIT(A) HOWEVER CAME TO THE CONCLUSION THAT THOUGH THE DEBENTURES WERE HELD BY THE ASSESSEE AS INVESTMENT AND WAS CLOSELY RELATED TO THE COMMERCIAL ACTIVITY OF THE ASSESSEES BUSINE SS OF DEALING IN SHARES AND SECURITIES. THEREFORE INTEREST PAID WAS TO BE ALLOWED AS A BUSI NESS EXPENDITURE. 3 ITA NOS.,1906 & 1907/KOL/2014 M/S. ASTOR DEALERS PVT. LTD. A.YR.2003-04 & 2004-05 3 5. THE TRIBUNAL IN ITS ORDER FOR A.Y.2001-02 REF ERRED TO IN THE EARLIER PARAGRAPH CONCURRED WITH THE VIEW OF CIT(A). THE FOLLOWING W ERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL :- 9. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF TAX AUTHORITIES. WE HAVE ALSO CONSIDERED THE PAPER BOOK AND THE CASE LAWS FILED BY THE LD. COUNS EL FOR THE ASSESSEE. THE ASSESSEE IN THIS CASE HAS CLAIMED THAT THE DEBENTURES' OF SP ENCER INTERNATIONAL HOTELS LTD. WERE KEPT BY IT AS BUSINESS ASSET AND, THEREFORE, I NTEREST ON ACCOUNT OF SUCH INVESTMENT OUGHT TO HAVE BEEN ALLOWED BY THE A.O. I T HAS FURTHER BEEN CONTENDED THAT SUCH CLAIM OF INTEREST BY THE ASSESSEE WAS ACC EPTED BY THE REVENUE IN EARLIER YEARS AND SUCH CONTENTION OF THE ASSESSEE HAS NOT B EEN CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEFORE US. THE MAIN OBJECTION RAISED BY THE REVENUE WHILE TREATING SUCH DEBENTURES AS IN VESTMENT IS BASED UPON THE TREATMENT OF SUCH DEBENTURES IN BALANCE- SHEET, WHE REIN SUCH INVESTMENT IN DEBENTURES HAS BEEN SHOWN AS INVESTMENT AND NOT AS STOCK-IN-TRADE. HOWEVER. IT IS ALSO RELEVANT TO NOTE THAT THE ASSESSEE' IS TREATIN G SUCH INVESTMENT IN DEBENTURES AS BUSINESS ASSET, WHICH WAS ALSO ACCEPTED BY THE DEPA RTMENT IN THE EARLIER ASSESSMENT. APART FROM THE ABOVE FACTS, IT' IS ALSO AN UNDISPUTED FACT THAT THE MAIN ACTIVITY OF THE ASSESSEE IS DEALING IN SHARES AND S ECURITIES AND THE ASSESSEE HAS ALSO SOLD SUCH DEBENTURES OF SPENCER INTERNATIONAL HOTEL S LTD IN EARLIER YEARS ARE OFFERED THE SAME AS BUSINESS INCOME. WE FURTHER FI ND THAT IN ALMOST IDENTICAL CONCLUSIONS THE HON 'BLE SUPREME COURT IN THE CASE OF BOMBAY STEAM NAVIGATION COMPANY PVT LTD. (SUPRA) HAS HELD THAT 'THE INTERES T PAID BY THE ASSESSEE WAS BUSINESS EXPENDITURE AND WAS ALLOWABLE AS A DEDUCTI ON UNDER SECTION 10(2) (XV). THE TRANSACTION OF ACQUISITION OF ASSETS WAS CLOSEL Y RELATED TO THE COMMENCEMENT AND CARRYING ON OF THE ASSESSEE'S BUSINESS AND INTE REST PAID ON THE UNPAID BALANCE OF THE CONSIDERATION FOR THE ASSETS ACQUIRED HAD, I N THE NORMAL COURSE TO BE REGARDED AS EXPENDED FOR THE PURPOSE OF THE BUSINES S WHICH WAS CARRIED ON IN THE ACCOUNTING PERIODS'. SINCE IN THE PRESENT CASE ALSO , THE PURCHASE OF DEBENTURES BY THE ASSESSEE-COMPANY IS CLOSELY RELATED TO ITS COMM ERCIAL ACTIVITY AS ALSO EVIDENT FROM THE FACT INVOLVED IN THIS CASE, IN OUR CONSIDE RED OPINION, THE ACTION OF A.O. IN TREATING SUCH DEBENTURES' AS INVESTMENT AND THEREAF TER .DISALLOWING THE INTEREST FOR ACQUISITION OF SUCH DEBENTURES WAS NOT CORRECT AND THE LD. CIT(A) WAS JUSTIFIED. IN ALLOWING THE CLAIM OF INTEREST AS BUSINESS EXPENDIT URE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME AND REJECT THE GROUND RAISED BY THE REVENUE. 6. THE LD. COUNSEL BROUGHT TO OUR NOTICE THAT AS AGAINST THE DECISION OF THE TRIBUNAL IN A.Y.2001-02 THE REVENUE PREFERRED AN APPEAL BEFO RE THE HONBLE CALCUTTA HIGH 4 ITA NOS.,1906 & 1907/KOL/2014 M/S. ASTOR DEALERS PVT. LTD. A.YR.2003-04 & 2004-05 4 COURT IN ITA NO.105 OF 2007 AND THE HONBLE CALCUTT A HIGH COURT BY ITS ORDER DATED 04.05.2016 DISMISSED THE APPEAL OF THE ASSESSEE OBS ERVING THAT THE FINDING CONCURRENTLY RECORDED BY CIT(A) AND THE TRIBUNAL WAS THAT DEBENT URES WERE HELD BY WAY OF BUSINESS ASSETS AND THAT FINDING WERE NOT CHALLENGED BY THE REVENUE. THE HONBLE CALCUTTA HIGH COURT THEREFORE HELD THAT INTEREST EXPENDITURE IS ALLOWABLE U/S 36(1)(III) OF THE ACT. 7. IT IS NOT IN DISPUTE BEFORE US THAT THE FAC TS AND CIRCUMSTANCES UNDER WHICH THE DISALLOWANCE WAS MADE BY AO AND DELETED BY CIT(A) I N A.Y.2003-04 AND 2004-05 ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREV AILED IN A.Y.2001-02. THE DECISION OF THE TRIBUNAL FOR A.Y.2001-02 WOULD THEREFORE EQUALL Y APPLY TO TWO ASSESSMENT YEARS 2003-04 AND 2004-05. IN THIS CIRCUMSTANCE WE ARE OF THE VIEW THAT CIT(A) WAS FULLY JUSTIFIED IN COMING TO THE CONCLUSION THAT THE ADDI TION MADE BY THE AO CANNOT BE SUSTAINED IN THE LIGHT OF THE DECISION RENDERED IN A.Y.2001-02. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS A PPEAL FILED BY THE REVENUE. ACCORDINGLY BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 8. IN THE RESULT BOTH THE APPEALS OF THE REVENU E ARE DISMISSED. ORDER PRONOUNCED IN THE COUR T ON 19.05.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED : 19.05.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. ASTOR DEALERS PVT. LTD., 31, N.S.ROAD, KOLK ATA-700001. 2. D.C.I.T., CIRCLE-4, KOLKATA. 3. CIT(A)-XII, KOLKATA 4. C.I.T.-II, KO LKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES 5 ITA NOS.,1906 & 1907/KOL/2014 M/S. ASTOR DEALERS PVT. LTD. A.YR.2003-04 & 2004-05 5