The ITO, Ward-8(4), Ahmedabad V. Shri Kaushikbhai R.Patel, Ahmedabad

ITA 2082/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80345 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AND ANOTHER
• Assessee Lawyers: ARE DIRECTED AGAINST SEPARATE
• Keywords: Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD . . , , BEFORE SHRI N.S. SAINI, A CCOUNTANT MEMBER AND SHRI KU L BHARAT, JUDICIAL MEMBER 1. . / I.T.A. NO.2082/AHD/2011 A.Y. 2008 - 09 2. . / I.T.A. NO.1829/AHD/2012 A.Y. 2009 - 10 1. THE ITO WARD - 8(4) AMBAWADI AHMEDABAD 2. SHRI KAUSHIKBHAI RATILAL PATEL C/O.KETAN H.SHAH,ADV AHMEDABAD / VS. 1. KAUSHIKBHAI R.PATEL C/O.KETAN H.SHAH, ADV. 903, SAPHIRE COMPLEX C.G.ROAD, NAVRANGPURA AHMEDABAD - 9 2. THE ITO WARD - 8(4) AHMEDABAD ./ ./ PAN/GIR NO. : AAXPP 0913 C ( / APPELLANT S ) .. ( / RESPONDENT S ) REVENUE B Y : SHRI V.K.SINGH, SR.D .R. ASSESSEE B Y : SHRI K.H. SHAH, A.R. / DATE OF HEARING 16/09/2014 / DATE OF PRONOUNCEMENT 26/09/2014 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : TH E S E TWO APPEAL S, ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XIV, AHMEDABAD ( CIT (A) IN SHORT) DATED 28/06/2011 AND 03/08/2012 PERTAINING TO ASSESSMENT YEAR S (AY S ) 2008 - 09 & 2009 - 10 RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED, THESE ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 2 - APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE REVENUE S APPEAL IN ITA NO. 2082/AHD/2011 FOR AY 200 8 - 0 9 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) THE LD.COMMISSIONER OF INCOME - TAX (APPEALS) - XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 21,21,783/ - MADE BY THE ASSESSING OFFICER BEING DISALLOWANCE OF INTEREST EXPENSES. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.COMMISIONER OF INCOME - TAX (APPEALS) - XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.COMMISSIONER OF INCOME - TAX (APPEALS) - XIV, AHMEDABAD MAY B SET - ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 3 . THE ONLY EFFECTIVE GROUND IS AGAINST THE DELETION OF ADDITI ON OF RS.21,21,783/ - BEING DISALLOWANCE OF INTEREST EXPENSES. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) OF THE I NCOME TAX ACT ,1961 (HEREINAFTER REFERRED TO AS THE ACT ) WA S FRAMED VIDE ORDER DATED 08/12/2010 , THEREBY THE ASSESSING OFFICER (AO IN SHORT ) MADE ADDITION OF RS.21,21,783/ - ON ACCOUNT OF THE DISALLOWANCE OF THE INTEREST EXPENSES CLAIMED U/S.57 OF THE ACT BY THE ASSESSEE. AGAINST THIS, THE ASSESSEE FILED AN APPEA L BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THE APPEAL. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 3 - 4. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE ORDER OF THE LD.CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. 4.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE LD.CIT(A) HAS RIGHTLY DELETED THE ADDITION. 5 . WE HAVE HEARD THE RI VAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE DECLARED TOTAL INCOME OF RS.3,10,269/ - . IT WAS OBSERVED BY THE AO THAT DURING THE YEAR UNDER CONSIDERATION, AN AMOU NT OF RS.24,02,772/ - WAS EARNED BY THE ASSESSEE ON SAVING ACCOUNT AND FIXED DEPOSITS. THE INTEREST INCOME HAS COME PRIMARILY FROM THE STATE BANK OF INDIA. AGAINST THIS INCOME, THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.21,21,783/ - AS HE HAD PAID INTE REST TO SUCH PARTIES, NAMELY, MAHIMA TRADING & INVESTMENT PVT.LTD. CMC (I) PVT.LTD. AND SBI ON OD ACCOU N T. THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: - 2.3. DECISION : I HAVE CAREFULLY PERUSED THE PENALTY ORDER AND THE WRITTEN SUBMISSIO N FILED BY THE LD.AR OF THE APPELLANT. THE PROVISIONS OF SECTION 57(III) OF THE I.T.ACT PROVIDES THAT THE EXPENDITURE, NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE, LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH IN COME SHALL BE ALLOWED AS DEDUCTION. THE APPELLANT HAS CLAIMED THAT IT HAS PAID THE INTEREST ON BORROWINGS FROM BANKS WHICH HAVE BEEN MADE FROM THE FDR ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 4 - ACCOUNTS IN THE BANK. THERE WAS NEXUS BETWEEN THE DEPOSIT AND THE BORROWING. VERIFICATION OF THE INFOR MATION AND DETAILS GIVEN BY THE APPELLANT SHOWS THAT THERE IS A FORCE IN THE SUBMISSION MADE BY THE APPELLANT. IT IS SEEN THAT THE APPELLANT HAS PAID THE FOLLOWING INTEREST WHICH HAS BEEN CLAIMED AS EXPENDITURE US/.57(III). SL.NO. INTEREST EXPENSES REL ATED TO AMOUNT 1 INTEREST PAID TO MAHIMA TRADING & INV. RS. 490237/ - 2 INTEREST PAID TO CMC(I) P.LTD. RS. 385000/ - 3 INTEREST PAID TO SBI RS.1246546/ - TOTAL RS.2121783/ - IN RESPECT OF INTEREST PAID TO MAHIMA TADING AND INVESTMENT LTD., THE APPELLAN T HAD WITHDRAWN RS.40 LACS FROM THE COMPANY FOR MAKING ON FDR WITH STATE BANK OF INDIA. SIMILARLY, IN RESPECT OF CMC INDIA PVT.LTD. ACCOUNT, THE APPELLANT HAS WITHDRAWN RS.35 LAC FOR MAKING THE FDR IN THE BANK. REGARDING INTEREST PAID TO SBI, THE APPELLA NT HAS SUBMITTED A CERTIFICATE FROM SBI THAT IT RECEIVED AN INTEREST OF RS.24,00,237/ - AND AGAINST THIS IT PAID INTEREST TO THE BANK AT RS.12,46,546/ - . A PERUSAL OF THE COPIES OF ODFD BANK ACCOUNT AND SAVING ACCOUNT SHOW THAT THERE IS A FLOW OF FUND FROM ODFD BANK ACCOUNT TO THE SAVINGS ACCOUNT AND, THEREFORE, THERE IS A DIRECT LINK BETWEEN THE INTEREST RECEIVED AND PAID BY THE SBI. THEREFORE, IT IS CLEAR FROM FACTS THAT THERE IS AN IMMEDIATE AND DIRECT NEXUS BETWEEN THE INTEREST PAID AND THE INTEREST REC EIVED IN ALL ACCOUNTS. THE APPELLANT BORROWED MONEY FROM THE COMPANIES IN WHICH HE IS A DIRECTOR AND MADE FDRS IN THE BANK. SIMILARLY, HE HAD OTHER FDRS IN THE STATE BANK OF INDIA AND ALSO BORROWED SOME MONEY FROM THAT ACCOUNT. HENCE, THERE WAS CLEAR INTERLINKING OF INTEREST PAYMENT AND INTEREST RECEIVED. THEREFORE, THE INTEREST PAYMENT MADE BY THE APPELLANT WOULD BE ALLOWABLE AS DEDUCTION FROM THE INTEREST EARNED. ACCORDINGLY, THE ADDITION OF RS.21,21,783/ - MADE BY THE A.O. IS DELETED. ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 5 - 5.1. THERE IS NO DISPUTE AS REGARD TO EXPENDITURE OF INTEREST INCURRED BY THE ASSESSEE. THE INTEREST HAS BEEN INCURRED ON THE LOAN RECEIVED FROM MAHIMA TRADING & INVESTMENT PVT.LTD., CMC (I) PVT.LTD. AND SBI ON OD ACCOUNT. DURING THE COURSE OF HEARING, A QUERY WA S RAISED BY THE BENCH TO THE LD.COUNSEL FOR THE ASSESSEE AS TO WHEN FDR WAS MADE AND WHEN THE OD FACILITIES FROM SBI WAS TAKEN BY THE ASSESSEE. IT WAS ALSO ASKED FROM THE LD.COUNSEL FOR THE ASSESSEE WHETHER THE INTEREST WAS PAID TO THE BANK AMOUNTING TO R S.12,46,546/ - TOWARDS THE MONEY OUT OF WHICH FIXED DEPOSIT WAS MADE AND EARNED INTEREST THEREFROM. WE FIND THAT THIS ASPECT IS NOT EXAMINED BY THE LD.CIT(A) WHETHER THE INTEREST PAID TO THE BANK WAS TOWARDS THE MONEY DEPOSITED FOR THE PURPOSE OF MAKING FD R WHEREFROM THE ASSESSEE HAS EARNED INTEREST INCOME. THEREFORE, THE ISSUE IS REMITTED BACK TO THE FILE OF LD.CIT(A) TO DECIDE IT AFRESH AND HE IS DIRECTED TO VERIFY WHETHER THE INTEREST CLAIMED AS EXPENDITURE BY THE ASSESSEE HAS DIRECT NEXUS TO THE AMOUN T DEPOSITED BY THE ASSESSEE FOR MAKING FDR . IF THE AMOUNT SO TAKEN FROM THE PARTIES WAS NOT UTILIZED FOR THE PURPOSE OF MAKING FIXED DEPOSIT WHEREFROM THE ASSESSEE HAS EARNED THE INTEREST, UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WOULD NOT BE ENTITLED FOR DEDUCTION OF THE EXPENDITURE CLAIMED U/S.57 OF THE ACT. THUS, THIS GROUND OF REVENUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT, REVENUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 6 . NOW, WE TAKE UP THE ASSESSEE S APPEAL IN ITA NO. 1829/AHD/2012 FOR AY 2009 - 10, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 6 - 6.1. THE ONLY EFFECTIVE GROUND IS AGAINST IN CONFIRMING THE ADDITION OF RS.3,25,724/ - DISALLOWED BY THE AO. THE FACTS RELATING TO THIS ISSUE IS THAT THE ASSE SSEE HAD CLAIMED EXPENDITURE U/S.57 OF THE ACT TOWARDS THE INTEREST PAID TO MAHIMA TRADING & INVESTMENTS PVT.LTD., CMC(I) PVT.LTD. AND SBI. THE AO DISALLOWED THE INTEREST EXPENSES PAID TO SBI. IN APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION. NOW, THE A SSESSEE IS IN APPEAL BEFORE US. 6.1. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO. HE SUBMITTED THAT IN EARLIER YEARS, THE LD.CIT(A) HAS ALLOWED SUCH EXPENDITURE. 7. WE HAVE HE ARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER: - AFTER CONSIDERING THE ASSESSMENT ORDER IN WHICH THE A. O. HAS CLEARLY LAID OUT THE FACTS AND THE WRITTEN SUBMISSION MADE BY THE APPELLANT BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH HAS BEEN RELIED BY HIM DURING THE COURSE OF APPELLATE PROCEEDINGS AS WELL, I AM OF THE CONSIDERED OPINION THAT THE CLAIM OF INTEREST EXPENSES U/S.57 IS NOT ALLOWABLE. THE BARE FACTS ARE THAT THE APPELLANT WAS HAVING A FIXED DEPOSIT IN THE STATE BANK OF INDIA ON WHICH OVERDRAFT FACILITY WAS TAKEN. THE APPELLANT IS SEEKING REDUCTION OF THE OVERDRAFT INTEREST EXPENSES FROM THE INTEREST RECEIVED ON THE FDR WITH THE SAME BANK. THE FACTS SHOW THAT THE EARNING OF INTEREST PRECEDES THE EXPENDITURE ON INTEREST. THE APPELLANT HAS NOT PAID INTERST ON BORROWED MONEY AND EARNED INTEREST OUT OF THAT BORROWED MONEY BY MA KING THE FIXED DEPOSITS. THE FIXED DEPOSITS WERE FIRST MADE AND SUBSEQUENTLY THE OVERDRAFT FACILITY WAS TAKEN FROM THE BANK ON WHICH INTEREST WAS AID BY THE APPELLANT. THEREFORE, THE A.O. HAS RIGHTLY DISALLOWED THE INTEREST EXPENDITURE BY FOLLOWING THE D ECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF SMT.VEERMATI RAMAKRISHNA (131 ITR 659] AND THE JUDGMENT ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 7 - OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. V.P. GOPINATHAN (248 ITR 449]. I HAVE ALSO PERUSED THE APPELLATE ORDER FOR A.Y. 2008 - 09 IN WHICH SI MILAR DEDUCTION WAS ALLOWED. HOWEVER IT IS NOTED THAT THE EXPENDITURE WAS ALLOWED AS A RESULT OF INCORRECT APPRECIATION OF FACT WHILE DECIDING THE APPEAL. ON THE BASIS OF CORRECT APPRECIATION OF THE FACTS, THE CLAIM OF THE APPELLANT IS NOT ALLOWABLE. TH EREFORE, THE APPEAL ORDER FOR A.Y. 2008 - 09 IS NOT FOLLOWED. 7.1. DURING THE COURSE OF HEARING, A QUERY WAS RAISED BY THE BENCH TO THE LD.COUNSEL FOR THE ASSESSEE AS TO WHEN FDR WAS MADE AND WHEN THE OD FACILITIES FROM SBI WAS TAKEN BY THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE COULD NOT GIVE ANY EXPLANATION AS TO WHETHER THE AMOUNT PAID TO SBI WAS TOWARDS THE AMOUNT TAKEN AS LOAN FOR MAKING THE FDR. IN THE ABSENCE OF SUCH MATERIAL, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT( A), SAME IS HEREBY UPHELD. THEREFORE, THIS GROUND OF ASSESSEE S APPEAL IS REJECTED AND APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN THE COMBINED RESULT, REVENUE S APPEAL IN ITA NO.2082/AHD/2011 FOR AY 2008 - 09 IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS AS SESSEE S APPEAL IN ITA NO.1829/AHD/2012 FOR AY 2009 - 10 IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HEREINABOVE AT CAPTION PAGE SD / - SD/ - ( . . ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26 / 09 /20 1 4 . . , . . ./ T.C. NAIR, SR. PS ITA NO.2082/AHD/2011 (BY REVENUE) - AY 2008 - 09 AND ITA NO.1829/AHD/2012 (BY ASSESSEE) - A.Y. 2009 - 10 ITO VS. SHRI KAUSHKBHAI R.PATEL - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - XIV, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, A HMEDABAD 1. DATE OF DICTATION .. 18.9.14 (DICTATION - PAD 12 - PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 19 /23 .9.14 OTHER MEMBER... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 26.9.14 6. DATE ON WHICH THE FILE GO ES TO THE BENCH CLERK 26.9.14 7. DATE ON WHICH THE FILE GOES TO T HE HEAD CLERK ... 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER .. 9 . DATE OF DESPATCH OF THE ORDER