V. Madhusudhan Reddy (HUF), Bangalore V. ACIT, Bangalore

ITA 192/BANG/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1091 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 05-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO C IT DR I
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Opportunity of being heard; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 192 / BANG/201 4 ASSESSMENT YEAR : 200 9 - 10 SHRI V. MADHUSUDHAN REDDY (HUF), NO. 502, CMH ROAD, INDIRANAGAR, BANGALORE 560 038. PAN: AABHV7947N VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7 (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ASHOK KULKARNI, ADVOCATE RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT (DR - I) DATE OF HEARING : 0 6 .0 9 .2018 DATE OF PRONOUNCEMENT : 14 .0 9 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-III, BANGALORE DATED 24.10.2013 FOR A SSESSMENT YEAR 2009-10. 2. THE CONCISE GROUNDS OF APPEAL RAISED BY THE ASSE SSEEARE AS UNDER. SRI V.MADHUSUDHANA REDDY (HUF) PAN. AABHV7947N ASSE SSMENT YEAR 2009-10 APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE. 1. DISALLOWANCE OF RS. 1,20,397/- CLAIMED AS DEPREC IATION ON EQUIPMENT AND TIPPER. 2. ADDING RS. 1,23,07,353/- CALCULATED @ 12.75% ON LOANS AND ADVANCES TO DEBTORS OF RS. 12,38,45,350/- AND RESTR ICTING THE SAME TO INTEREST PAID. 3. DISALLOWANCE OF AN AMOUNT OF RS. 17,271/- CLAIME D AS AMORTIZATION OF LAND ADVANCES. 4. DISALLOWANCE TRADING LOSS OF RS. 20,38,256/- REL ATED TO SHARE TRADING BUSINESS, AND TREATING THE SAME AS CAPITAL GAINS-LOSS. 3. THE LD. AR OF ASSESSEE SUBMITTED THAT GROUND NOS . 1 AND 3 OF CONCISE GROUNDS OF APPEAL ARE NOT PRESSED AND ACCORDINGLY, THESE GR OUNDS ARE REJECTED AS NOT PRESSED. ITA NO.192/BANG/2014 PAGE 2 OF 6 4. REGARDING GROUND NO. 2, IT WAS SUBMITTED THAT AS PER PARA 4 OF THE ORDER OF CIT(A), THIS WAS THE CONTENTION RAISED BEFORE CIT(A ) THAT THE ASSESSEE HAS BORROWED INTEREST FREE FUNDS OF RS. 5,32,46,738/- A ND THEREFORE, OUT OF INTEREST FREE ADVANCES GIVEN BY ASSESSEE OF RS. 12,38,45,350 /-, THIS MUCH AMOUNT SHOULD BE REDUCED AND FIGURE OF INTEREST FREE ADVAN CES SHOULD BE RESTRICTED TO RS. 7,05,98,612/-. HE POINTED OUT THAT THIS WAS AC CEPTED BUT IN ADDITION TO THIS, THERE WERE TWO MORE REQUESTS OF ASSESSEE ON THIS IS SUE. HE SUBMITTED THAT ONE REQUEST WAS THIS THAT THE ASSESSEE HAS EARNED I NTEREST INCOME OF RS. 61.20 LAKHS FROM M/S. B V REDDY AND SONS TO WHOM AN AMOUNT OF RS. 5.10 CRORES WAS ADVANCED AND THEREFORE, OUT OF TOTAL INT EREST EXPENDITURE DEBITED BY ASSESSEE TO P&L ACCOUNT OF RS. 93,63,712/- TOWARDS B V REDDY AND SONS(FIN) AND RS. 29,43,641/- TOWARDS B V REDDY AND SONS (PB) , THIS MUCH INTEREST INCOME EARNED BY THE ASSESSEE FROM THE B.V. REDDY A ND SONS (FIN) SHOULD BE REDUCED AND OUT OF SUCH REDUCED INTEREST EXPENDITUR E ONLY, THE DISALLOWANCE OF INTEREST EXPENDITURE SHOULD BE COMPUTED. IT IS ALS O SUBMITTED THAT SECOND ISSUE RAISED WAS THIS THAT INTEREST HAS BEEN PAID @ 9% TO M/S. B.V. REDDY AND SONS AND THEREFORE, THE DISALLOWANCE SHOULD BE WORKED OU T @ 9% ONLY AND NOT @ 12.75% AS HAS BEEN DONE BY THE AO AS CAN BE SEEN ON PAGE NO. 4 OF THE ASSESSMENT ORDER. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW ON THIS ISSUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT TO THE EXTENT OF INTEREST FREE LOAN BORROWED BY THE ASSESSEE OF RS. 5,32,46,738/-, RELIEF HAS BEEN ALLOWED BY CIT(A) AND IT WAS HELD BY HIM THAT THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE OUT OF INTEREST BEARING BORRO WED FUNDS SHOULD BE REDUCED BY THIS AMOUNT OF INTEREST FREE FUNDS BORRO WED BY ASSESSEE OF RS. 5,32,46,738/- AND THERE IS NO DISPUTE ON THIS ASPEC T OF THE MATTER BUT AFTER HOLDING SO, THE CIT(A) HAS HELD THAT INTEREST TO BE DISALLOWED IS RESTRICTED TO RS. 90,01,323/- AS AGAINST DISALLOWANCE MADE BY THE AO OF RS. 1,23,07,353/-. HENCE IT IS SEEN THAT LD. CIT(A) HAS ALSO WORKED OU T THE DISALLOWANCE @ 12.75% INSTEAD OF ASSESSEES CLAIM TO BE COMPUTED @ 9%. IN OUR CONSIDERED OPINION, THIS CLAIM OF ASSESSEE SHOULD HAVE BEEN EX AMINED BY CIT (A) AND IT SHOULD HAVE BEEN DECIDED BY WAY OF A SPEAKING AND R EASONED ORDER AND SINCE LD. CIT (A) HAS NOT DONE SO, WE FEEL IT PROPER TO R ESTORE BACK THE MATTER TO THE FILE OF CIT (A) FOR FRESH DECISION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING ITA NO.192/BANG/2014 PAGE 3 OF 6 HEARD TO BOTH SIDES AND HE SHOULD PASS A SPEAKING A ND REASONED ORDER ON THIS ISSUE. 6. REGARDING THE SECOND CLAIM OF THE ASSESSEE THAT THE INTEREST INCOME EARNED BY ASSESSEE OF RS. 61.20 LAKHS RECEIVED FROM M/S. B.V. REDDY AND SONS (FIN) SHOULD BE REDUCED FROM INTEREST EXPENDITURE TO BE C ONSIDERED FOR WORKING OUT INTEREST DISALLOWANCE, IN OUR CONSIDERED OPINION, O N THIS ISSUE, THE ASSESSEE HAS NOT MADE OUT ITS CASE BECAUSE WE FIND THAT THIS IS UNDISPUTED THAT AN AMOUNT OF RS. 12,38,45,350/- WAS GIVEN BY ASSESSEE AS INTEREST FREE ADVANCES AND THIS IS ALSO NOT BEING DISPUTED THAT THIS INTER EST FREE ADVANCES ARE FINANCED BY INTEREST BEARING LOANS EXCEPT RS. 5,32,46,738/- WHICH HAS BEEN BORROWED BY ASSESSEE INTEREST FREE. TO THE EXTENT OF INTEREST FREE BORROWING OF RS. 5,32,46,738/-, RELIEF HAS ALREADY BEEN ALLOWED BY C IT(A). NOW WHETHER THIS INTEREST BEARING LOAN ADVANCED BY ASSESSEE TO M/S. B V REDDY AND SONS (FIN), ADVANCED TO THE EXTENT OF RS. 5.10 CRORES IS OUT OF INTEREST BEARING BORROWED FUNDS OR OUT OF OWN FUNDS AVAILABLE WITH THE ASSESS EE OF RS. 56.98 CRORES APPROX. IS RELEVANT FOR THIS PURPOSE AND IT HAS NOT BEEN ESTABLISHED BY ASSESSEE BY BRINGING DIRECT NEXUS OF SUCH LOAN OF R S. 5.10 CRORES ADVANCED BY ASSESSEE TO M/S. B V REDDY AND SONS (FIN DIVISION) FOR EARNING INTEREST INCOME WITH THE INTEREST BEARING BORROWED FUNDS BOR ROWED BY THE ASSESSEE AND IN THE ABSENCE OF SUCH DIRECT NEXUS HAVING BEEN BRO UGHT ON RECORD BY ASSESSEE, THIS CLAIM OF ASSESSEE CANNOT BE ACCEPTED . HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE AND ONLY THIS MUCH ISSUE IS BEING RESTORED BACK TO THE FILE OF CIT(A) FOR FR ESH DECISION AS TO WHETHER IN RESPECT OF NET INTEREST FREE ADVANCES OF RS. 7,05,9 8,612/-, DISALLOWANCE SHOULD BE MADE @ 12.75% OR @ 9% PER ANNUM. THIS ISSUE SHO ULD BE DECIDED BY CIT(A) AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES AND THIS ISSUE SHOULD BE DECIDED BY CIT(A) BY PASSI NG A SPEAKING AND REASONED ORDER AND IN THIS MANNER, GROUND NO. 2 OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. NOW WE TAKE UP THE ISSUE RAISED BY ASSESSEE AS P ER GROUND NO. 4. THIS ISSUE HAS BEEN DECIDED BY CIT(A) AS PER PARA NO. 6.1 OF H IS ORDER AND THE SAME IS REPRODUCED HEREINBELOW FOR READY REFERENCE. THIS P ARA READS AS UNDER. 6.1 IN THE COURSE OF APPELLATE PROCEEDINGS, APPELLA NT WAS ASKED TO FURNISH DETAILS OF PURCHASE AND SALE TRANSACTIONS A ND SOURCE OF FUNDS INVESTED. IN SUBMISSIONS FILED ON 21-10-2013, IT IS CLAIMED BY THE ITA NO.192/BANG/2014 PAGE 4 OF 6 APPELLANT THAT APPELLANT HAS BORROWED FUNDS FROM A SISTER CONCERN B V REDDY AND SONS. IT IS CLAIMED THAT THE EXACT DATES OF PURCHASE AND SALE ARE NOT AVAILABLE. HOWEVER, A CONSOLIDATED STA TEMENT GIVEN BY THE BROKER SHOWS THAT THE SHARES HAVE BEEN HELD FOR LES S THAN A YEAR. IN MY CONSIDERED VIEW, THIS DOES NOT SUPPORT THE CASE OF THE APPELLANT. ALTHOUGH THE APPELLANT HAS STATED THAT A SEPARATE S HARE TRADING ACCOUNT WAS MAINTAINED, THIS HAS NOT BEEN FURNISHED TO THE AO WHEN SPECIFIC DETAILS WERE CALLED FOR. FURTHER, THE APPE LLANT IS NOT IN A POSITION TO FURNISH THE EXACT DATES OF PURCHASE AND SALE. THIS CLEARLY SHOWS THATTHERE HAS BEEN NO SYSTEMATIC ACTIVITY OFT RADING. FURTHER, THE FACT THAT THE REPORT U/S 44AB HAS NOT TAKEN COGNIZA NCE OF THE SHARE TRADING ACTIVITY AS PART OF BUSINESS ITSELF INDICAT ES THAT ASSESSEE WAS ONLY AN INVESTOR IN SHARES. IT IS ALSO OBSERVED THA T NO SIMILAR ACTIVITY HAS BEEN CARRIED OUT BY THE APPELLANT IN EARLIER YE ARS. CONSIDERING THE FACTS IN TOTALITY, I UPHOLD THE FINDINGS OF THE AO IN THIS REGARD. THIS GROUND IS DISMISSED. 8. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER OF CIT(A), IT IS SEEN THAT A CATEGORICAL FINDING IS GIVEN BY CIT(A) THAT AS PER THE AUDIT REPORT U/S. 44AB, IT HAS NOT TAKEN COGNIZANCE OF THE SHARE TRADING ACTIV ITY AS PART OF THE BUSINESS. THE SAID TAX AUDITED REPORT HAS BEEN MADE AVAILABLE BEFORE US AND AS PER ANNEXURE-I, PART-B OF THE SAID REPORT, IT IS SEEN T HAT THE NATURE OF BUSINESS OR PROFESSION OF THE ASSESSEE HAS BEEN REPORTED AS MON EY LENDING ONLY AND THERE IS NO MENTION OF SHARE TRADING BUSINESS. MOREOVER AS PER P&L ACCOUNT OF ASSESSEE AVAILABLE ON PAGE NO. 7 OF PAPER BOOK, THE RE IS NO CREDIT ON ACCOUNT OF SHARE SALES AND THERE IS NO DEBIT ON ACCOUNT OF SHARE PURCHASES AND SIMPLY THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 10,98,326 /- TOWARDS TRADING LOSS AND RS. 6,57,153/- TOWARDS TRADING LOSS (NIFTY) AND VARIOUS EXPENSES ARE ALSO DEBITED IN THIS REGARD BEING INTEREST PAID (STOCK H OLDING) OF RS. 40,409/-, RS. 82,545/- TOWARDS STT DELIVER CHARGES, RS. 69,298/- TOWARDS TRADING EXPENSES CHARGES AND RS. 16,075/- TOWARDS TRADING EXPENSES ( NIFTY). AS NOTED BY AO ON PAGE NO. 6 OF THE ASSESSMENT ORDER, VARIOUS QUER IES WERE RAISED BY THE AO IN THIS REGARD AND ASSESSEE WAS ASKED TO ESTABLISH THAT THESE SAID TRANSACTIONS ARE DISTINGUISHABLE FROM INVESTMENT PART OF SHARE T RANSACTIONS. THE ASSESSEE WAS ALSO ASKED TO BRING ON RECORD THE OPENING BALAN CE AS ON 01.04.2008 AND THE CLOSING BALANCE AS ON 31.03.2009 ALONG WITH THE OPENING BALANCE AS ON 01.04.2007 AND CLOSING BALANCE AS ON 31.03.2008 SO AS TO REFLECT THE BUSINESS NATURE OF TRANSACTIONS. BUT LD. AR OF ASSESSEE WAS NOT ABLE TO FURNISH ANY OF THESE DOCUMENTS. THIS IS ALSO TRUE THAT EVEN IF TH E ASSESSEE IS MAKING TRANSACTIONS IN SHARE PURCHASE AND SALE AS BUSINESS ACTIVITY AND ASSESSEE IS ITA NO.192/BANG/2014 PAGE 5 OF 6 CLAIMING THE LOSS INCURRED IN THIS REGARD AS BUSINE SS LOSS, THE ASSESSEE HAS TO ESTABLISH THAT SUCH BUSINESS LOSS HAS BEEN INCURRED IN RESPECT OF DELIVERY TRANSACTIONS AND NOT IN RESPECT OF SPECULATIVE TRANSACTIONS AND IN THE ABSENCE OF ANY DETAILS AND EVIDENCES IN THIS REGARD , ASSESSEES CLAIM THAT LOSS HAS BEEN INCURRED AS BUSINESS LOSS IS NOT ALLOWABLE . THE AO ON PAGE NO. 6 OF THE ASSESSMENT ORDER HELD THAT THESE TRANSACTIONS A RE DELIVERY BASED AND THEREFORE, HE HAS ALSO GIVEN A FINDING THAT STT WAS ALSO PAID ON SAID TRANSACTIONS AND ON THIS BASIS, THE AO HAS COME TO THE CONCLUSION THAT THE LOSS INCURRED BY THE ASSESSEE IS CAPITAL LOSS WHICH SHOU LD BE CARRIED FORWARD AND SET OFF AGAINST CAPITAL GAINS OF SIMILAR COMPUTATIO N IN THE SUBSEQUENT YEARS. IN SPITE OF THIS CATEGORICAL FINDING OF AO, NOTHING HA S BEEN BROUGHT ON RECORD BY ASSESSEE BEFORE CIT(A) OR BEFORE US TO ESTABLISH TH AT THESE TRANSACTIONS IN PURCHASE AND SALE OF SHARES HAS BEEN UNDERTAKEN BY ASSESSEE AS BUSINESS ACTIVITY AND NOT AS INVESTMENT ACTIVITY. MERELY BE CAUSE THE LOSS INCURRED HAS BEEN DEBITED AS BUSINESS LOSS, IT CANNOT BE ACCEPTE D THAT THE LOSS WAS INCURRED IN COURSE OF SHARE TRADING BUSINESS PARTICULARLY WH EN AS PER TAX AUDIT REPORT, SHARE TRADING IS NOT A BUSINESS OF THE ASSESSEE AND IN SPITE OF CATEGORICAL FINDING OF THE AO IN THE ASSESSMENT ORDER, NOTHING HAS BEEN BROUGHT ON RECORD BEFORE CIT (A) OR BEFORE US TO ESTABLISH THAT THE L OSS HAS ARISEN IN COURSE OF SHARE TRADING BUSINESS. HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. THIS ISSUE IS DECIDED AGAINST T HE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/ - SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 14 TH SEPTEMBER, 2018. /MS/ ITA NO.192/BANG/2014 PAGE 6 OF 6 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.