ITO, Ward-34(1), Kolkata, Kolkata V. M/S. Borojalingah Tea Co., Kolkata

ITA 1965/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0847 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHTTACHERJEE
• Assessee Lawyers: RAJ KUMAR PATADI
• Keywords: Business income
• Section: 143(3)

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1964-1965/KOL/2014 ASSESSMENT YEARS: 2011-12 & 2012-13 INCOME TAX OFFICER, WARD-34(1),110, SHANTI PALLY, AAYAKAR POORVA, 7 TH FLOOR, KOLKATA-107 / V/S . M/S BOROJALINGH TEA CO. JUTE HOUSE, 1 ST FLOOR, 12, INDIA EXCHANGE PLACE, KOLKATA-001 [ PAN NO.AACFB 7772 N ] /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI RAJ KUMAR PATADI, FCA ! /BY REVENUE SHRI ARINDAM BHTTACHERJEE, ADDL. CIT-DR /DATE OF HEARING 05-10-2017 /DATE OF PRONOUNCEMENT 06-12-2017 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE DIFFERENT ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA OF EVEN DATE 01.07.2014. ASSESSMENT WAS FRAMED BY ITO WARD-34(1), KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDERS DATED 17.12.2013 & 28.02.2014 FOR ASSESSMENT YEARS 2011-12 & 2012-13 R ESPECTIVELY. SHRI RAJ KUMAR PATODI, LD. AUTHORIZED REPRESENTATIV E APPEARED ON BEHALF OF ASSESSEE AND SHRI ARINDAM BHATTACHERJEE, LD. DEPARTMENTAL RE PRESENTATIVE APPEARED ON BEHALF OF REVENUE. 2. BOTH APPEAL ARE HEARD TOGETHER AND ARE BEING DIS POSED OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. FIR ST WE TAKE UP ITA NO.1964/KOL/2014 FOR A.Y. 2011-12. ITA NO.1964-1965/KOL/2014 A.YS 11-12 & 12-13 ITO WD-34(1) KOL. VS. M/S BOROJALING AH TEA CO. PAGE 2 3. THE GROUND RAISE BY THE REVENUE READS AS UNDER:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE A ND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING THE INTEREST EXPENDITURE TO RS.36,39,40 2/- IN VIEW OF THE SUBMISSIONS OF THE ASSESSEE THAT SINCE THE SOURCE OF EXPENDITURE FOR B USINESS AS WELL AS INCOME FROM OTHER SOURCE WAS OUT OF COMMON FUND ACCORDINGLY THE CALCULATION OF EXPENDITURE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO LENDING ACTIVI TIES SHOULD BE ASS PER MANNER PROVIDED IN RULE 8D IN SPITE OF FAILURE ON THE PART OF THE ASSESSEE TO EXPLAIN THE NEXUS BETWEEN THE EXPENDITURE AND INTEREST INCOME EARNED. 2. THE APPELLANT CRAVES LEAVE TO MAKE ANY ADDITION, ALTERATION MODIFICATION ETC. OF THE GROUNDS AT THE APPEAL STAGE. 4. SOLE ISSUE RAISED BY REVENUE IN THIS APPEAL IS T HAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 36,39,402/- ON ACCOUNT OF INTEREST EXPENSE CLAIMED AGAINST THE INTEREST INCOME. 5. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF GROWING AND MANUFACT URING TEA UNDER THE TRADE NAME BOROJALINGAH TEA COMPANY. BESIDES THE INCOME FROM TEA BUSINESS, THE ASSESSEE IS ALSO DERIVING INTEREST INCOME FROM MONEY LENDING AC TIVITY. THE INTEREST INCOME WAS CLASSIFIED UNDER THE HEAD INCOME FROM OTHER SOURCES . 6. THE ASSESSEE DECLARED ITS INCOME FROM TEA BUSINE SS FOR RS. 49,69,948/- FOR WHICH DEDUCTION OF THE SAME AMOUNT WAS CLAIMED UNDE R SECTION 80IE OF THE ACT. THE ASSESSEE DECLARED GROSS TOTAL INCOME OF RS.15,58,21 8/- ONLY WHICH IS REFLECTING THE INCOME FROM INTEREST. THE ASSESSEE IN ITS PROFIT AN D LOSS ACCOUNT HAS CLAIMED THE INTEREST EXPENSES AS DETAILED UNDER : 1. INTEREST ON PARTNERS CAPITAL RS. 68,57,703.00 2. BANK INTEREST RS. 2577.00 3. INTEREST ON THE LOAN (OTHERS) RS. 2,43,231.0 0 TOTAL 71,00,934.00 THE INTEREST INCOME WAS CALCULATED BY THE ASSESSEE IN THE FOLLOWING MANNER. GROSS INTEREST INCOME RS. 51,97,621.00 LESS INTEREST EXPENSES RS. 36,39,403.00 RS. 15,58,218.00 THE ASSESSEE COMPUTED THE AMOUNT OF INTEREST EXPENS ES IN THE MANNER AS PROVIDED IN RULE 8D OF INCOME TAX RULE. 1962. IN THIS REGARD, T HE ASSESSEE SUBMITTED THAT THE SURPLUS FUND AVAILABLE TO THE ASSESSEE FIRM WAS ADV ANCED TO VARIOUS PARTIES WITH A VIEW TO EARN INTEREST INCOME ON THE SURPLUS FUND. I N-FACT, THE SURPLUS FUND IS REPRESENTING THE CAPITAL OF THE FIRM WHICH BELONGS TO THE PARTNERS OF THE FIRM. THE ITA NO.1964-1965/KOL/2014 A.YS 11-12 & 12-13 ITO WD-34(1) KOL. VS. M/S BOROJALING AH TEA CO. PAGE 3 PARTNERS OF THE FIRM ARE BEING PAID INTEREST ON THE AMOUNT OF CAPITAL CONTRIBUTED BY THEM. THEREFORE THERE WAS A DIRECT NEXUS BETWEEN TH E INTEREST INCOME VIZ A VIZ INTEREST EXPENSES PAID TO THE PARTNERS. HOWEVER THE AO OBSERVED CERTAIN DEFECTS IN SUBMISSI ON MADE BY THE ASSESSEE AS DETAILED UNDER : 1. THE PARTNERS CAPITAL WAS FOR THE PURPOSE OF THE TEA BUSINESS AND THEREFORE THERE WAS NO CONNECTION BETWEEN THE INTEREST INCOME AND I NTEREST EXPENSE TO THE PARTNERS/ OTHERS. 2. INTEREST INCOME WAS OFFERED TO TAX UNDER THE HEAD I NCOME FROM OTHER SOURCES AND THEREFORE THE EXPENSES INCURRED IN CONNECTION S UCH INTEREST INCOME WHOLLY AND EXCLUSIVELY WILL BE ALLOWED AS DEDUCTION UNDER SECTION 57(III) OF THE ACT. 3. THE LOAN HAS BEEN ADVANCED ONLY OUT OF SURPLUS FUND WHICH EVIDENCES NO DIRECT NEXUS BETWEEN THE INTEREST INCOME & EXPENSES. 4. THE BASIS ADOPTED FOR THE BIFURCATION/ COMPUTATION OF INTEREST EXPENSES AS PER RULE 8D IS NOT CORRECT AS IT RELATES TO DIVIDEND IN COME. 5. THE ASSESSEE DID NOT BORROW ANY MONEY FROM ITS PART NERS TO LEND IT TO OTHERS BUT IT WAS CONTRIBUTED AS CAPITAL IN THE FIRM FOR THE T EA BUSINESS. THE AO DURING THE PROCEEDINGS ALSO OBSERVED THAT TH E ASSESSEE WAS CLAIMING THE DEDUCTION UNDER SECTION 80IE OF THE ACT IN RESPECT OF ITS TEA BUSINESS. THEREFORE THE EXPENSE IN RELATION TO INTEREST INCOME WAS CLAIMED AGAINST INTEREST INCOME. AS SUCH IT WAS A COLORABLE DEVICE OF THE ASSESSEE TO REDUCE TH E TAX BURDEN ON ITS INCOME. IN VIEW OF THE ABOVE THE AO DISALLOWED THE INTEREST EXPENSE S OF RS.36,39,403/- CLAIMED AGAINST THE INTEREST INCOME. 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A).THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED AS UNDER:- A) THE ASSESSEE IS ENGAGED IN TEA BUSINESS AS WELL AS FOR PROVIDING LOAN TO THE PARTIES; B) THE ASSESSEE HAS BEEN PROVIDING LOAN TO THE PAR TIES ON INTEREST ON REGULAR BASIS. THEREFORE, THE LENDING ACTIVITY WAS NOT IN THE NATU RE OF INVESTMENT OF ANY TEMPORARY SURPLUS FUND; ITA NO.1964-1965/KOL/2014 A.YS 11-12 & 12-13 ITO WD-34(1) KOL. VS. M/S BOROJALING AH TEA CO. PAGE 4 C) THE FUND AVAILABLE WITH THE ASSESSEE WAS INTERE ST BEARING FUNDS WHICH WERE USED TO PROVIDE THE ADVANCE TO THE PARTIES. THUS, I T CANNOT BE CONCLUDED THAT NO COST WAS INCURRED BY IT ON ITS INTEREST INCOME; D) AS PER THE PROVISION OF SECTION 57(III) OF THE ACT THE ASSESSEE IS VERY MUCH ENTITLED TO CLAIM THE DEDUCTION OF THE EXPENSES INC URRED IN RELATION TO SUCH INTEREST INCOME. THE ASSESSEE FURTHER SUBMITTED THAT IN SIMILAR FACT S AND CIRCUMSTANCES THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BURNIE BRAES TEA CO.( SISTER CONCERN OF ASSESSEE ) VS. ITO IN ITA NO.1866-1867/KOL/2010 FOR ASSESSMENT YEARS 2005-06 & 2006-07 DATED 31.10.2011, HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF ASSESSEE. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND T HE ORDER OF CO-ORDINATE BENCH HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- . .. AFTER GOING THROUGH THE FACTS AND CIRCUMSTANC ES OF THE CASE AND ALSO THE SUBMISSION OF THE APPELLANT, I FIND MERIT IN THEIR ARGUMENT, THEREFORE, AFTER CONSIDERING THE ARGUMENT (SUPRA) AND ALSO THE CASE LAW RELIED UPON, THE AO IS DIRECTED TO TAKE THE FIGURES OF INTEREST EXPENDITUR E ATTRIBUTABLE TO LENDING ACTIVITIES OF RS.36,39,402/- AS WHEN THE COMMON FUNDS ARE USED FO R DIFFERENT ACTIVITIES AND THEE APPELLANT GIVES SCIENTIFIC METHOD FOR CALCULATION O F AN EXPENDITURE ATTRIBUTABLE TO THE PARTICULAR ACTIVITY AND NO OTHER MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO THEN THE WORKING GIVEN BY THE APPELLANT CAN BE SAID TO B E JUSTIFIABLE. UNDER THESE CIRCUMSTANCES, THE AO IS DIRECTED TO REDUCE THE INT EREST EXPENDITURE TO RS.36,39,402/- ATTRIBUTABLE TO THE INCOME FROM OTHER SOURCES. ACCO RDINGLY, THE APPEAL IS ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 8. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF AO WHEREAS LD. AR BEFORE US FILED PAPER BOOK WHICH IS RUNNING FROM PA GES 1 TO 34 AND HE REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE LD. CIT(A) AND H E RELIED ON THE ORDER OF LD. CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ASSESSEE HAS EARNED IN TEREST INCOME WHICH WAS OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCE. THE MAIN BUSINESS OF ASSESSEE WAS GROWING & MANUFACTURING OF TEA. THE ASSESSEE AGAINST INTEREST INCOME CLAIMED TO HAV E INCURRED COST IN THE FORM OF INTEREST EXPENSES ON THE CAPITAL CONTRIBUTED BY THE PARTNERS. AS PER THE ASSESSEE THE SURPLUS FUND AVAILABLE WITH IT WAS ADVANCED FOR LOA N TO THE PARTIES FOR THE PURPOSE OF ITA NO.1964-1965/KOL/2014 A.YS 11-12 & 12-13 ITO WD-34(1) KOL. VS. M/S BOROJALING AH TEA CO. PAGE 5 EARNING INTEREST INCOME. THE ASSESSEE ACCORDINGLY C LAIMED INTEREST EXPENSE AGAINST THE INTEREST INCOME. 9.1 HOWEVER, AO WAS OF THE VIEW THAT SURPLUS FUND H AS BEEN UTILIZED FOR THE PURPOSE OF EARNING INTEREST INCOME AND THEREFORE TH ERE IS NO QUESTION OF CLAIMING ANY EXPENDITURE AGAINST SUCH INTEREST INCOME. HOWEVER, LD. CIT(A) REVERSED THE ORDER OF AO. NOW, THE QUESTION BEFORE US ARISES SO AS TO WH ETHER THE ASSESSEE IS ENTITLED FOR CLAIMING THE INTEREST EXPENSE AGAINST THE INTEREST INCOME IN THE GIVEN FACTS AND CIRCUMSTANCES. IT IS UNDISPUTED FACT THAT THE LOAN WAS PROVIDED TO THE PARTIES ON INTEREST AND ACCORDINGLY INTEREST INCOME WAS EARNED . NOW THE QUESTION ARISES WHETHER THE FUND USED BY THE ASSESSEE IN PROVIDING LOAN WAS INTEREST BEARING OR NOT. ON PERUSAL OF THE BALANCE-SHEET WE FIND THAT ASSESSEE HAS BEEN PAYING INTEREST ON THE CAPITAL CONTRIBUTED BY THE PARTNERS TO THE FIRM AS WELL AS MONEY BORROWED BY THE FIRM FROM THE OUTSIDE. AS THE INTEREST BEARING FUND HAS BEEN ADVANCED BY THE ASSESSEE TO THE PARTIES TO EARN INTEREST THEN IN OUR CONSIDERED VIE W THE INTEREST PAID QUA TO THE INTEREST INCOME WAS VERY MUCH ELIGIBLE FOR DEDUCTION U/S 57( III) OF THE ACT. IN HOLDING SO, WE ALSO FIND SUPPORT AND GUIDANCE FROM THE ORDER OF TH IS CO-ORDINATE BENCH, IN THE CASE OF BURNIE BRAESS TEA CO. (SUPRA) WHERE THE TRIBUNAL HAS HELD:- IN VIEW OF THESE FACTS WE CANNOT ACCEPT THE PLE A OF ASSESSEE THAT THIS INTEREST INCOME IS BUSINESS INCOME S DECLARED BY ASSESSEE, B UT THIS IS INTEREST INCOME AND LOWER AUTHORITIES HAVE RIGHTLY TREATED THE SAME AS INCOME FROM OTHER SOURCES WHILE ASSESSING THE INCOME OF ASSESSEE. HOWEVER, THE ASSE SSEE IS ENTITLED FOR DEDUCTION U/S. 57 OF THE ACT. THE ASSESSING OFFICER WILL ALLOW THE CLAIM OF ASSESSEE OF INTEREST EXPENDITURE INCURRED BY ASSESSEE QUA THE INCOME OF INTEREST EARNED AND DECLARED AS INCOME FROM OTHER SOURCES. THIS ISSUE OF ASSESSEES APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. FROM THE ABOVE PRECEDENT, WE HOLD THAT ASSESSEE IS VERY MUCH ENTITLED TO CLAIM THE EXPENSE INCURRED IN THE FORM OF INTEREST AGAINST TH E IMPUGNED INTEREST INCOME. 9.2 NEXT QUESTION BEFORE US ARISES THAT HOW TO COMP UTE INTEREST EXPENSE QUA TO THE INTEREST INCOME. IN THIS REGARD, WE FIND THAT THE A SSESSEE HAS ADOPTED THE MANNER FOR MAKING THE DISALLOWANCE OF INTEREST EXPENSE AS PROV IDED UNDER RULE 8D OF I.T. RULES, 1962. THOUGH PRIMA FACIE WE DISAGREED TO THE BASIS ADOPTED BY THE ASSESSEE FOR CLAIMING THE INTEREST EXPENSE QUA THE INTEREST INCO ME. HOWEVER, LD DR BEFORE US HAS NOT BROUGHT ANY DEFECT IN THE MANNER IN WHICH INTER EST EXPENSE WAS WORKED OUT ITA NO.1964-1965/KOL/2014 A.YS 11-12 & 12-13 ITO WD-34(1) KOL. VS. M/S BOROJALING AH TEA CO. PAGE 6 AGAINST THE INTEREST INCOME AS ADOPTED BY ASSESSEE. THEREFORE, WE ARE NOT INCLINED TO ADJUDICATE THE SAME. IN VIEW OF THE ABOVE, WE HOLD THAT IS ENTITLED TO CLAIM THE INTEREST EXPENSE AGAINST THE INTEREST INCOME. WE RESPECTFULL Y FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL DECLINE TO INTERFERE WITH THE ORDER PA SSED BY THE LD. CIT(A) ON THIS ACCOUNT AND ACCORDINGLY THE GROUND TAKEN BY THE REV ENUE IS REGRETTED. 10. LAST ISSUE IS GENERAL AND NEEDS NO ADJUDICATION . 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ITA NO.1965/KOL/2014 FOR A.Y 12-13 . 12. AS STATED EARLIER, THE ISSUE IN THIS YEAR IS SA ME AS THAT OF THE LAST YEAR. THE ONLY DIFFERENCE IS THE AMOUNT INVOLVED. SINCE THE FACTS ARE EXACTLY IDENTICAL, BOTH PARTIES ARE AGREED WHATEVER VIEW TAKEN IN THE ABOVE APPEAL OF THE REVENUE MAY BE TAKEN IN THIS APPEAL OF REVENUE ALSO. WE HOLD ACCORDINGLY. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 14. IN COMBINE RESULT, BOTH THE APPEAL OF REVENUE STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06/12/2017 SD/- SD/- ( ( !) ( !) (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S * - 06/12/2017 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S BOROJALINGAH TEA CO. JUTE HOUSE, 1 ST FLOOR, 12, INDIA EXCHANGE PLACE, KOLKATA-001 2. ! /REVENUE-ITO WARD-34(1) 110, SHANTI PALLY, AYAKAR PO ORVA, 7 TH FLOOR KOLKATA-107 3. - . / CONCERNED CIT 4. . - / CIT (A) 5. / ((- , - / DR, ITAT, KOLKATA 6. 3 / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY HEAD OF OFFICE/DDO -,