The ITO, Ward 14(1), Ahmedabad V. Sheetal Agarwal L/h of late Omprakash Agarwal, Ahmedabad

ITA 2013/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1762 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-11-2009
• Assessment Year: misc
• Appeal Filed On: 09-06-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: B S RAJPUR
• Keywords: Recovery proceedings; Proportionate interest; Set aside
• Section: 143(3); 69A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI H L KARWA AND P K BANSAL) ITA NOS.2013, 2014, 2015 AND 2016/AHD/2004 (ASSESSMENT YEARS: 1985-86, 1988-89, 1989-90, 1990- 91) THE INCOME-TAX OFFICER, WARD-14(1), AHMEDABAD V/S LATE OMPRAKASH AGARWAL, L/H SHRI SHEETAL AGARWAL, A/2/2, ELITE APARTMENTS, SHAHIBAUG, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI H P MEENA, ADDL. CIT RESPONDENT BY:- SHRI B S RAJPUR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THESE FOUR APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE COMMON ORDER DATED 31 ST MARCH, 2004 PASSED BY THE COMMISSIONER OF INCOME-TA X (APPEALS)-XX, AHMEDABAD [THE ACT]. THE COMMON GRO UNDS TAKEN BY THE REVENUE IN THESE FOUR APPEALS ARE AS U NDER: (1) THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.11,90,420/- BEING INTEREST ESTIMATED TO BE EARNE D BY THE ASSESSEE ON HIS DEPOSITS WITH THE KALUPUR COMMERCIA L CO- OPERATIVE BANK LTD., AHMEDABAD ON THE GROUND THAT N O INTEREST HAD BEEN RECEIVED BY THE ASSESSEE IN RESPECT OF HIS FIXED DEPOSITS AND FURTHER THAT THE INTEREST PAID ON LOANS TAKEN F ROM BANK BY THE ASSESSEE FAR EXCEEDED THE INTEREST RECEIVED ON HIS FIXED DEPOSITS. WHILE ALLOWING THE RELIEF THE LD. CIT(A) HAS IGNORE D THE FACT THAT THE ASSESSEE HAD MISAPPROPRIATED LARGE SUM OF MONEY FOR VARIOUS PURPOSES EITHER IN HIS OWN NAME OR IN MANY OTHER BE NAMI NAMES AND THE KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. H AS SHOWN TO HAVE RECOVERED A SUM OF RS.221.31 LACS FROM THE ASSESSEE 2 TOWARDS FULL AND FINAL SETTLEMENT OF 30 ACCOUNTS OF THE GROUP. THE RECOVERY AMOUNT CONTAINS THE INTEREST INCOME EARNED BY THE ASSESSEE ON HIS FIXED DEPOSITS WITH THE BANK AND HE NCE ESTIMATION OF INTEREST INCOME WAS RIGHTLY MADE BY THE ASSESSIN G OFFICER. (2) THE LEARNED CIT(A) HAS ERRED IN ACCEPTING THE ASSES SEES CLAIM CONTENDING THAT THE FIXED DEPOSITS HAVE BEEN ACQUIR ED OUT OF THE BORROWED FUNDS AND THE INTEREST PAYABLE ON SUCH LOA NS IS MUCH MORE THAN THE INTEREST RECEIVED / RECEIVABLE BY THE ASSESSEE. IN FACT, THE ASSESSEE HAS FAILED TO PROVE THE NEXUS BE TWEEN THE BORROWED FUNDS AND THEIR INVESTMENTS IN THE SAID FI XED DEPOSITS AND THE RECEIPTS OF INCOME THEREOF. IN THIS CONNECTION, RELIANCE CAN BE PLACED ON THE FOLLOWING DECISIONS: (I) K SOMASUNDARAM AND BROTHERS V/S CIT REPORTED AT 238 ITR 939 (II) CIT V/S H R SUGAR FACTORY PVT. LTD. REPORTED AT 187 ITR 363 (3) IT IS, THEREFORE, PRAYED THAT THE ORDER PASSED BY T HE LD. CIT(A) BE REVERSED AND THE ASSESSMENT ORDER PASSED U/S 143(3) BY THE ASSESSING OFFICER ON 26-03-2003 BE RESTORED. 2 SINCE THE FACTS AND ISSUE INVOLVED IN THESE APPE ALS ARE COMMON FOR ALL THE ASSESSMENT YEARS, WE ARE TAKING THE FACTS FROM ASSESSMENT YEAR 1985-86 FOR DECIDING THE APPEA LS BY THIS COMMON ORDER. 3 THE FACTS OF THE CASE AS NOTED BY THE CIT(A) IN HIS ORDER ARE THAT A SEARCH UNDER SECTION 132(1) OF THE INCOME-TAX ACT, 1961 [THE ACT] WAS CARRIED OUT ON 06-11-1982 AND 09-11- 1982 AT THE RESIDENTIAL AND BUSINESS PREMISES OF TH E ASSESSEE, AND FAMILY MEMBERS AND CONCERNS, AND AT THE PREMISES OF VIKRAM CO- OPERATIVE BANK. THE ACTION RESULTED IN SEIZURE OF F DRS OF THE BANK TOTALING RS.72.95 LAKHS TOGETHER WITH INCRIMIN ATING DOCUMENTS WHICH REVEALED EXTENSIVE FRAUD BY THIS GR OUP IN THE BANK. ON 02-09-1983, THE ASSESSEE AND ALL ASSOCIATE S SOUGHT 3 SETTLEMENT OF THEIR INCOME-TAX CASES U/S 245C(1) OF THE ACT. APPLICATIONS IN RESPECT OF 10 ASSESSEES WERE ADMITT ED BY THE SETTLEMENT COMMISSION COVERING THE PERIOD 79-80 TO 83-4, THOUGH VARYING FROM ASSESSEE TO ASSESSEE. IN THEIR ORDER DATED 03-08-1992, THE SETTLEMENT COMMISSION HAS OBSERVED THAT INITIALLY THE ASSESSEE HAD DEPOSITED RS.3 LAKHS AS FIXED DEPOSITS IN THE VIKRAM CO-OPERATIVE BANK IN THE NAMES OF HIS FRIENDS. AGAINST THESE DEPOSITS, THE BANK IN TURN ADVANCED M ONEY TO THE ASSESSEE IN BENAMI NAMES ON HYPOTHECATION OF FICTIT IOUS, NON EXISTING STOCK. AGAINST THESE ADVANCES MADE BY THE BANK, THE ASSESSEE WAS ABLE TO OBTAIN FUNDS FROM THE APEX BAN K WHICH WERE RE-DEPOSITED IN THE VIKRAM CO-OPERATIVE BANK I N YET OTHER BENAMI NAMES. THIS PROCEDURE WAS REPEATED SEVERAL T IMES SO THAT THE ASSESSEE WAS ABLE TO OBTAIN TOTAL LOANS FROM TH E BANK EXCEEDING RS.206 LAKHS IN VARIOUS BENAMI NAMES. THE SETTLEMENT COMMISSION DETERMINED THE INCOME OF THE ASSESSEE IN RESPECT OF THE SETTLEMENT PETITIONS AT CERTAIN PERCENTAGE OF T HE TURNOVER OF THE TRADING AND MANUFACTURING ACCOUNTS OF THE VARIO US BENAMI CONCERNS. 4 THE ASSESSMENT ORDERS FOR THE IMPUGNED YEARS WER E PASSED ON VARIOUS DATES WHEREIN INTEREST INCOME REC EIVED / RECEIVABLE IN RESPECT OF THE SEIZED FDRS WAS ESTIMA TED AT VARIOUS AMOUNTS. HOWEVER, THIS ISSUE WAS ULTIMATELY DECIDED IN RESPECT OF ALL THE IMPUGNED ASSESSMENT YEARS BY THE CIT(A)- VIII, AHMEDABAD BY HIS ORDER DATED 28-03-95. VIDE THE SAI D COMBINED ORDER DATED 28-03-95 FOR AY 85-86, 88-89 TO 90-91, THE CIT(A) HELD THAT THE ASSESSEE WAS TO GET INTEREST AT THE R ATE OF 11% ON THE FDRS OF RS.1,08,22,000/- WHICH WORKS OUT TO RS. 11,90,420/-. 4 THE CIT(A) DIRECTED THAT THE SAID AMOUNT SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE FOR EACH OF THE SAID ASSESSME NT YEARS. 5 WHEN THE MATTER WENT BEFORE THE ITAT, AHMEDABAD, THE TRIBUNAL SET-ASIDE THE ASSESSMENT ORDERS OF ALL THE FOUR YEARS TO THE FILE OF THE AO WITH THE DIRECTIONS TO CONSID ER THE SUBMISSIONS OF THE ASSESSEE AND VARIOUS DOCUMENTS P ERTAINING TO VARIOUS CIVIL, CRIMINAL AND OTHER RECOVERY PROCEEDI NGS OF LOANS BY THE BANK, TO ASCERTAIN THE NEXUS BETWEEN BORROWI NGS AND DEPOSITS. THE ASSESSMENT ORDERS, PRESENTLY IN APPEA L BEFORE US HAVE BEEN FRAMED IN VIEW OF THE AFORESAID ORDER OF THE TRIBUNAL. BEFORE THE AO THE ASSESSEE REITERATED HIS CLAIM THA T THE VARIOUS FDS OF VIKRAM CO-OPERATIVE BANK, SUBSEQUENTLY MERGE D WITH THE KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD., WERE ACQUIRED OUT OF LOANS FROM THE BANK AND THAT NO INTEREST HAD BEEN RECEIVED BY HIM IN RESPECT OF THE SAID FDS. THE ASSESSEE FUR THER STATED VIDE LETTER DATED 22-02-2003, THAT ALL THE FD MATUR ITY AMOUNTS HAVE BEEN ADJUSTED AGAINST THE LOANS OF THE BANK. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY LETTER OF T HE KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD., ADJUSTING THE MA TURITY VALUE OF THE FDRS AGAINST THE LOAN ACCOUNTS, BUT HAS ONLY PRODUCED COPIES OF THE BANK STATEMENT OF KALUPUR BANK AND VI KRAM CO- OPERATIVE BANK. HENCE, THE AO REJECTED THE CLAIM OF THE ASSESSEE AND ADDED THE SAID AMOUNT OF RS.11,92,420/- AS ESTI MATED INTEREST INCOME FROM FDRS IN EACH OF THE FOUR ASSES SMENT YEARS, FOLLOWING THE EARLIER ORDERS GIVING EFFECT TO THE C IT(A)S ORDER DATED 28-03-1995. 5 6 AGAIN, WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A), THE CIT(A) DELETED THE ADDITION BY OBSERVIN G AS UNDER: 3.1 ON CONSIDERATION OF THE RIVAL CLAIMS, IT IS SE EN THAT AS PER THE STATEMENT OF FACTS SUBMITTED BEFORE THE SETTLEMENT COMMISSION, THE SOURCES OF INVESTMENTS IN SHARES, FDS, LANDS, BUILD INGS, SUNDRY DEBTORS STOCKS ETC. ARE PRIMARILY BANK LOANS AND TO A MUCH LESSER EXTENT, SUNDRY CREDITORS. CAPITAL IS SHOWN AT RS.1. 72 LAKHS ONLY AS ON 31-3-1983. FURTHER, AS APPARENT FROM THE ORDER OF T HE SETTLEMENT COMMISSION, THE MODUS OPERANDI OF THE APPELLANT HAS BEEN TO OBTAIN LOANS FROM THE BANK, INVEST IN FDS AND OBTAIN FURTH ER LOANS AGAINST SUCH FDS FOR OTHER INVESTMENTS. AS ON 31-3-1983, TO TAL BANK LOANS ARE RS.343.82 LAKHS AGAINST RS.72.95 LAKHS FDS. THE SET TLEMENT COMMISSION HAS ALSO OBSERVED ON PAGE 6 OF THEIR ORD ER THAT AN INITIAL INVESTMENT OF RS.3 LAKHS IN FDS APPEARS TO HAVE BEE N MADE WHICH HAS ULTIMATELY ENABLED THE APPELLANT TO OBTAIN TOTAL LO ANS EXCEEDING RS.206 LAKHS IN VARIOUS BENAMI NAMES. AS EVIDENT FR OM PARA 6.4 OF THE ORDER OF THE SETTLEMENT COMMISSION, A QUESTION AROSE AS TO THE SOURCE OF THE FDRS IN THE VIKRAM CO.OP BANK IN THE NAME OF THE APPELLANT AND HIS NOMINEES AND WHETHER THEY WERE UN EXPLAINED AND HENCE LIABLE TO BE TAXED UNDER SECTION 69A IN THE H ANDS OF THE APPELLANT. THIS WAS CONTROVERTED BY THE APPELLANT B Y POINTING OUT THAT THE FDS HAD COME OUT OF THE LOANS TAKEN FROM THE CO -OPERATIVE BANK (PARA 6.5 OF THE ORDER OF SETTLEMENT COMMISSION). E VENTUALLY, NO ADVERSE INFERENCE HAS BEEN DRAWN WITH REGARD TO THE SOURCES OF THE FDRS AND ACCRUED INTEREST BY THE HONBLE SETTLEMENT COMMISSION. 3.2 THUS, FOR THE VARIOUS REASONS CITED ABOVE, IT A PPEARS THAT THERE IS MERIT IN THE CONTENTION OF THE APPELLANT THAT TH E FUNDS OF THE BANK ONLY WERE UTILIZED FOR FDS., AND THAT NO FUND OF HI S OWN WAS INVOLVED. 3.3 IN THE COURSE OF APPELLATE PROCEEDINGS, THE AUT HORIZED REPRESENTATIVE FOR THE APPELLANT HAS CONTENDED THAT BORROWINGS FROM THE BANK HAD BEEN MADE AT THE RATE OF 18% WHEREAS T HE FDR INTEREST WAS RECEIVED AT 11%. VIDE LETTER DATED 30-3-2004, T HE AUTHORIZED REPRESENTATIVE HAS CONTENDED THAT THE INTEREST FOR THE ENTIRE YEAR HAS BEEN TAXED BY THE ASSESSING OFFICER WHEREAS, MANY O F THE FDRS HAD MATURED ON DIFFERENT DATES IN MAY, JULY AND NOVEMBE R, 1984. IT HAS BEEN FURTHER CONTENDED IN THE SAID LETTER THAT THE RATE OF INTEREST ON BORROWING BEING MORE THAN THE RATE OF INTEREST ON F DRS., AND THE FDRS HAVING BEEN ACQUIRED OUT OF SUCH BORROWED FUND S, NO INTEREST INCOME IS TAXABLE IN THE HANDS OF THE APPELLANT. IT HAS ALSO BEEN CLAIMED THAT CORRESPONDING INTEREST COST AT THE RAT E OF 18% WORKS OUT 6 TO RS.5,79,527/-, WHICH WAS PAID BY THE APPELLANT T O THE BANK AND HENCE SHOULD BE ALLOWED AS EXPENDITURE, BECAUSE THE FDRS WERE ACQUIRED ONLY OUT OF BANK BORROWINGS. 3.4 THE APPELLANT HAS ALTERNATIVELY SUBMITTED THAT THE BANK HAS CHARGED INTEREST ON LOANS UPTO 31-12-84. THEREFORE, PROPORTIONATE INTEREST FOR THE PERIOD 1-4-84 TO 31-12-84 IS ATTRI BUTABLE TO THE INTEREST BEARING LOANS INVESTED IN THE FDRS. AS INTEREST HAS BEEN CHARGED FOR THE PERIOD 1-4-1984 TO 31-12-1984 AT RS.27,71,227/- , INTEREST RELATED TO LOANS INVESTED IN FDS FOR THE PERIOD 1-4-84 TO 3 1-12-84 WORKS OUT AS UNDER: 27,71,227 X 72,95,000 2,21,90,374 27,71,227 =10,41,040 (RS.1,94,19,145/-) (RS.2,21,90,374/- CONSTITUTES BALANCE OF DUES OUTST ANDING AS ON 1-1- 1985 INCLUSIVE OF INTEREST OF RS.27,71,227/- FOR TH E PERIOD 1-4-1984 TO 31-12-1984. 4 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE S UBMISSIONS OF THE AUTHORIZED REPRESENTATIVE FOR THE APPELLANT AND FIND THAT IN VIEW OF THE CALCULATIONS GIVEN ABOVE, THE INTEREST COST IN EITHER SITUATION EXCEEDS THE INTEREST RECEIVED ON THE FDRS. IN VIEW OF THE PROVISIONS OF SECTION 57(III) SUCH INTEREST COST IS ALLOWABLE AS EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING T HE INTEREST INCOME. SINCE THE INTEREST RECOVERED BY THE BANK AS REFERRE D TO ABOVE, EXCEEDS THE INTEREST RECEIPTS, NO INTEREST INCOME IS FOUND TAXABLE IN THE HANDS OF THE APPELLANT FOR AY 1985-86. THEREFORE, THE ASS ESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.11,90,420/- O N ACCOUNT OF INTEREST INCOME ON FDRS FOR AY 1985-86. 5 TO SUM UP, ADDITION OF RS.11,90,420/- ON ACCOUNT OF INTEREST INCOME ON FDRS IS DIRECTED TO BE DELETED FOR EACH O F THE ASSESSMENT YEARS 1985-86, 88-89, 89-90 AND 90-91. 7 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THEM. WE HAVE AL SO PERUSED THE MATERIAL PLACED ON RECORD ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT EARLIER THE TRIBUN AL SET-ASIDE THE ASSESSMENT ORDERS OF ALL THE FOUR YEARS TO THE FILE OF THE AO 7 WITH THE DIRECTIONS TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND VARIOUS DOCUMENTS PERTAINING TO VARIOUS CIVIL, CRIMINAL AND OTHER RECOVERY PROCEEDINGS OF LOANS BY THE BANK, TO ASCERTAIN THE NEXUS BETWEEN BORROWINGS AND DEPOSITS. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, IN REPLY TO THE NOTICE, THE ASSESSEE VIDE LETTER DATED 22-02-2003 HAS REPLIED AS UNDER: THE QUESTION UNDER REFERENCE ON WHICH THE ITAT HAS SET ASIDE THE ORDER TO MAKE FRESH ORDER FOR TAXING THE REAL INCOM E. WE HAVE SUBMITTED ALL DOCUMENTS SHOWING NEXUS BETWE EN LOANS TAKEN AND FDR MADE. WE HAVE ALSO SUBMITTED THE LETTER FRO M KALUPUR CO- OP. BANK LTD. (SINCE VIKRAM BANK MERGED WITH KALUPU R BANK) ADJUSTING ALL FDR MATURITY VALUE AGAINST LOANS A/C. HENCE IT IS VERY CLEAR THAT WE HAD NEVER EARNED NET INTEREST IN THE TOTAL STORY. HENCE QUESTION OF TAX ON SAME DOES NOT ARISE. IT IS SURPRISING TO NOTE THAT YOU HAVE NOT ALL ESTA BLISHED THAT WE HAVE EARNED ANY INTEREST. MORE SURPRISING FACT IS THAT W E HAVE OFFERED YOU TO RECOVER THE OLD OUTSTANDING AGAINST US FROM THE SO CALLED EARNING WHICH YOU WANT TO TAX FROM BANK. SINCE YOU HAD SEIZ ED ALL THE FDRS FROM US AND NEVER RETURNED TO US, BUT YOU HAVE NOT UNDERSTOOD THE FACTS. IN THE LIGHT OF ABOVE IT IS VERY CLEAR THAT WE HAD NOT EARNED ANY INTEREST AND EXCEPT FOR THE ASSESSMENT YEAR UNDER R EFERENCE, THE SO CALLED INTEREST HAS NEVER BEEN TAXED IN ALL THE YEA RS TILL DATE. WE FIND THAT THE CIT(A) HAS CONSIDERED THESE FACTS PROPERLY AND HAS RIGHTLY DELETED THE ADDITIONS. BEFORE US ALSO, NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT ON RECORD TO PROVE OR ESTABLISH THAT THE ASSESSEE EARNED SUCH INTEREST INCOME. WE D O NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE IMPUGNED ADDITIONS. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A). 8 9 IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-12-2009 SD/- SD/- (H L KARWA) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 11-12-2009 COPY OF THE ORDER FORWARDED TO : 1. LATE OMPRAKASH AGARWAL, L/H SHRI SHEETAL AGARWAL , A/2/2, ELITE APARTMENTS, SHAHIBAUG, AHMEDABAD 2. THE ITO, WARD-14(1), 6 TH FLOOR, NATURE VIEW BUILDING, OFF ASHRAM ROAD, AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XX, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD