Income-tax Officer, V. Shri Bipin Vidyadhar Chobhe, Pune

ITA 210/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0870 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAZHAR AKROM
• Keywords: Business income; Salary income
• Section: 133(6); 148; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . . , , , BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA NO. 21 0 /PN/201 4 (ASSESSMENT YEAR : 2006 - 07) THE INCOME TAX OFFICER, WARD 7(4), PUNE. APPELLANT VS. SHRI BIPIN VIDYADHAR CHOBHE, 1087/B, MODEL COLONY, HARE KRISHNA MANDIR ROAD, PUNE 411016 RESPONDENT PAN: AAACC7557P PAN: AAACC7557P CO NO. 0 2 /PN/201 5 (ASSESSMENT YEAR : 2006 - 07) SHRI BIPIN VIDYADHAR CHOBHE, 1087/B, MODEL COLONY, HARE KRISHNA MANDIR ROAD, PUNE 411016 CROSS OBJECTOR PAN: AAACC7557P VS. THE INCOME TAX OFFICER, WARD 7(4), PUNE RESPONDENT 2 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE ASSESSEE BY : SHRI S.N. PURANIK REVENUE BY : SHRI MAZHAR AKROM / DATE OF HEARING : 10 - 11 - 2015 / DATE OF PRONOUNCEMENT : 13 - 1 1 - 2015 / ORDER PER R.K. PANDA, A.M : THE APPEAL FILED BY THE REVENUE AND THE CO FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 19 . 11 .201 3 OF THE CIT(A) - III, PUNE RELATING TO A.Y. 200 6 - 0 7 . FOR THE SAKE OF CONVENIENCE, THE APPEAL AS WELL AS THE CO WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.210/PN/2014 (REVENUE) 2 . FACTS OF THE CASE , IN BRIEF , ARE THAT T HE ASSESSEE IS AN INDIVIDUAL AND EX - DIRECTOR IN THE PRIVATE LIMITED COMPANY M/S. C.C. ENGINEERS PVT. LTD. THE COMPANY HAD AVAILED CASH CREDIT LOAN OF RS.2. 8 5 CRORES AND BA NK GUARANTEE AND L.C. LIMIT OF RS.2.50 CRORES FROM THE RUPEE COOPERATIVE BANK LTD. DURING THE FINANCIAL YEAR 1999 - 2000. THE ASSESSEE WAS A GUARANTOR TO THE ABOVE STATED LOAN IN HIS CAPACITY AS DIRECTOR AND INDIVIDUAL. THE COMPANY DEFAULTED IN REPAYMENT OF THE SAID CASH CREDIT AND PACKING CREDIT LIMIT, THE OUTSTANDING OF WHICH STOOD AT RS.6.07 CRORES AS ON 31.03.2005 . VIDE TRIPARTITE AGREEMENT 3 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE DATED 09.06.2005 BETWEEN THE RUPEE COOPERATIVE BANK LTD., C.C. ENGINEERS PVT. LTD., AND THE ASSESSEE (IN HIS CAPACITY AS GUARANTOR AND EX - DIRECTOR) , THE ASSESSEE AND OTHER GUARANTORS UNDERTOOK TO PAY AN AMOUNT OF RS.4.15 CRORES AS FULL AND FINAL SETTLEMENT TO THE BANK ALONG WITH SIMPLE INTEREST @ 14% FROM 01.04.2005 . AS A RESULT OF THIS AGREEMENT, THE BANK RELEASED THE COMPANY FROM THE LIABILITY OF REPAYMENT OF AFORESAID LOAN. IN HIS RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE SHOWED INTEREST INCOME OF RS.24,86,232/ - WHICH INCLU DED INTEREST OF R S. 23,04,932/ - RECEIVED FROM C.C. ENGINEERS (P) LTD. THE ASSESSEE CLAIMED THE DEDUCTION OF INTEREST PAID TO THE RUPEE COOPERATIVE BANK OF RS. 34,67,212/ - DURING THE YEAR U/S. 57(III) OF THE INCOME - TAX ACT. THE ASSESSING DURING THE YEAR U/S. 57(III) OF THE INCOME - TAX ACT. THE ASSESSING OFFICER REOPENED THE ASSESSMENT U/S. 148 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS WRONGLY CLAIMED INTEREST LIABILITY WHICH AROSE IN THE HANDS OF THE ASSESSEE AGAINST HIS INCOME FROM OTHER SOURCES U/S. 57 OF THE ACT. THE ASSESSING OFFICER OBTAINED INFORMATION U/S. 133(6) OF THE ACT FROM THE RUPEE COOPERATIVE BANK LTD. THE BANK CLARIFIED VIDE LETTER DATED 09.02.2010 THAT NO LOAN WAS DISBURSED TO THE ASSESSEE DURING THE FINANCIAL YEAR S 2004 - 05 TO 2009 - 10 . HOWEVER, IT WAS CLARIFIED THAT AS PER ONE TI ME SETTLEMENT AGREEMENT DATED 09.06.2005, THE ASSESSEE HAS TAKEN OVER THE LIABILITY OF THE COMPANY AND HAD UNDERTAKEN TO REPAY THE BANK DUES. THE ASSESSEE 4 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE STATED BEFORE THE ASSESSING OFFICER THAT HE HAD NO OTHER OPTION IN VIEW OF THE PREVAILING CIRCUMSTAN CES, BUT TO TAKE OVER THE LIABILITY OF THE RUPEE COOPERATIVE BANK LTD. IN HIS INDIVIDUAL CAPACITY IN ORDER TO RELIEVE HIS COMPANY FROM THE DEBTS, SO THAT THE COMPANY COULD RAISE FINANCE FROM ELSEWHERE AND RESTORE ITS BUSINESS. IT WAS ALSO CLAIMED BEFORE THE ASSESSING OFFICER THAT THE PROVISION OF SECTION 71(2A) OF THE ACT WAS NEITHER APPLICABLE NOR CLAIMED BY THE ASSESSEE SINCE THAT SECTION SEEKS TO RESTRICT THE SET OFF OF BUSINESS LOSS ONLY AGAINST BUSINESS INCOME. SINCE THE ASSESSEE HAD CLAIMED THE LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES, THE SAME COULD BE SET OFF AGAINST THE INCOME FROM SALARY AND OTHER SOURCES. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND DISALLOWED THE DEDUCTION OF INTEREST CLAIMED ON THE GROUND THAT NEITHER ANY INCOME U/S. 56 OF THE ACT HAD ACCRUED TO THE ASSESSEE NOR THE INTEREST LIABILITY AROSE IN HIS INDIVIDUAL HAND , S INCE IT HAS BEEN INCURRED IN THE CAPACITY OF THE DIRECTOR. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 34,07,212/ - 3 . BEFORE THE CIT(A) , THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS ALONG WITH VARIOUS D ECISIONS. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 5 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE 3.3 I HAVE CONSIDERED THE SUBMISSIONS MADE. THE FACTS THAT ARE UNDISPUTED ARE THAT THE APPELLANT WHO WAS THE DIRECTOR OF THE COMPANY C.C. EN G INEERS PVT. L TD. A T THE LIME WHEN THE CASH CREDIT LOAN WAS BORROWED FROM THE RUPEE COOPERATIVE BAN K PVT. L T D. HAD GUARANTEED THE SAID LOAN NOT ON BEHALF OF THE APPELLANT COMPANY BUT IN HIS CAPACITY AS DIRECTOR AND INDIVI DUAL, FOR WHICH HIS OWN PROPERTY BEARING CTS NO.1087 , MODEL COLONY, PUNE STOOD MORTGAGED TO THE BANK. DUE TO THE DEFAULT ON THE PART OF THE COMPANY TO REPAY THE LOAN, THE APPELLANT AND OTHER GUARANTORS REQUEST E D THE BANK TO RELEASE THE COMPANY FROM THE LOAN LIABILITY AND ALLOW THEM TO TAKE OVER THE SAID LIABILITY PERSONALLY, SUBJECT TO THE PAYMENT OF CERTAIN SETTLEMENT AMOUNT AND SIMPLE INTEREST THEREON. VIDE CLAUSE 12 OF THE MOU DATED 09.06.2005 , THE COMPANY WAS RELEASED FROM THE LIABILITY OF REPAYMENT OF AFORESAID LOANS AND THE APPELLANT AND OTHER EX - DIRECTORS BECAME JOINTLY AND INDIVIDUALLY LIABLE TO REPAY THE SAID LOANS TO THE BANK. IN OTHER WORDS, THE APPELLANT BECAME THE CREDITOR IN THE BOOKS OF THE COMPANY AND RECEIVED INTEREST AMOUNTING TO RS.23 ,04,932/ - FROM THE COMPANY. IT IS FURTHER SEEN THAT ALTHOUGH THE ASSESSING OFFICER HAS MENTIONED THAT NO INCOME HAS ACCRUED TO THE ASSESSEE U/S 56 OF THE IT ACT, IN THE COMPUTATION OF INCOME HE HAS TAXED THE INTEREST INCOME AMOUNTING TO RS.23,04,932/ - REC EIVED FROM THE COMPANY AS INCOME FROM OTHER SOURCES. THE INTEREST INCOME THAT HAS BEEN RECEIVED C.C. ENGINEER PVT. LTD. IS PART AND PARCEL OF THE ENTIRE TRANSACTION AND THEREFORE THE LIABILITY TO PAY INTEREST TO THE RUPEE COOPERATIVE BANK PVT. LTD. IS ALS O TO BE ALLOWED TO THE APPELLANT UNDER THE CLEAR PROVISION OF SEC.57(III). THE EXPENDITURE THEREFORE INCURRED BY THE APPELLANT BY WAY OF THE INTEREST PAID TO THE RUPEE COOPERATIVE BANK PVT. LTD. OF RS.34,67,712/ - IS HELD TO BE EXPENDITURE, WHICH HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF EARNING WHICH HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF EARNING INTEREST INCOME IN TERMS OF SEC.57(III). GROUND NOS.1 AND 2 ARE THEREFORE ALLOWED. 4 . AGGRIEVED WITH SUCH ORDER OF LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : - 1. ON THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT INTEREST PAID BY THE ASSESSEE TO THE BANK IS ALLOWING U/S 57(III) AS THE FACT ON RECORD DO NOT ESTABLISH THAT THE ASSESSEE HAD PAID INTEREST TO THE BANK FOR THE PURPOSE OF EARNING INTEREST INCOME FROM THE COMPANY. 2. ON THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN IGNORING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN (2001) 248 ITR 449 (SC). 6 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE O RDER OF ASSESSING OFFICER. REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN REPORTED IN (2001) 248 ITR 449 (SC) , HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISIONS, HAS HELD THAT INTEREST ON LOAN TAKEN BY THE ASSESSEE FROM THE BANK ON THE SECURITY OF FIXED DEPOSITS COULD NOT BE REDUCED FROM HIS INCOME BY WAY OF INTEREST ON FIXED DEPOSITS PLACED BY HI M IN THE BANK. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF LD. CIT(A) BE REVERSED AND THAT OF ASSESSING OFFICER BE RESTORED. 6 . THE COUNSEL FOR THE ASSESSEE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF LD. CIT(A) SUBMITTED THAT THE DECISION RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE STOOD AS A GUARANTOR IN HIS CAPACITY AS DIRECTOR AND INDIVIDUAL FOR WHICH, HIS OWN PROPERT Y WAS MORTGAGED TO THE BANK AGAINST THE LOAN OBTAINED BY THE COMPANY FROM THE BANK. SINCE THE COMPANY HAD DEFAULTED IN REPAYING THE LOAN , THE ASSESSEE PAID THE AMOUNT TO THE BANK AND THE COMPANY WAS RELEASED FROM THE LIABILITY OF REPAYMENT OF AFORESAID LO ANS. SINCE THE ASSESSEE RECEIVED INTEREST FROM THE COMPANY, THEREFORE, THE INTEREST PAID TO THE BANK BY THE ASSESSEE IS AN ALLOWABLE EXPENDITURE ON ACCOUNT OF THE SAID LOAN U/S. 57(III) OF THE ACT. HE ACCORDINGLY, 7 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE SUBMITTED THAT THE ORDER OF LD. CIT(A) BEING IN ACCORDANCE WITH LAW BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE BE DISMISSED. 7 . WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BOTH BY THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND LD.CIT (A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE T O THE FACT THAT THE ASSESSEE WHO WAS A DIRECTOR OF THE COMPANY C.C. ENGINEERS PVT. LTD. STOOD AS A GUARANTOR IN HIS C APACITY AS A DIRECTOR AND AN INDIVIDUAL WHEN THE CASH CREDIT LOAN WAS OBTAINED FROM THE RUPEE COOPERATIVE BANK LTD. HE HAD GUARANTEED THE SAID LOAN NOT ON BEHALF OF THE ASSESSEE COMPANY , BUT IN HIS CAPACITY AS DIRECTOR AND INDIVIDUAL FOR WHICH, HIS OWN PROPERTY WAS MORTGAGED TO THE BANK. SINCE THE COMPANY DEFAULTED IN MAKING THE PAYMENT, THE ASSESSEE AND OTHER GUARANTORS REQUESTED THE BANK TO RELEASE THE COMPANY FROM LOAN LIABILITY AND ALLOW THEM TO TAKE OVER THE SAID LIABILITY PERSONALLY , SUBJECT TO PAYMENT OF CERTAIN SETTLEMENT AMOUNT AND SIMPLE INTEREST THEREON. THUS, AFTER TAKING OVER THE LOAN OF THE COMPANY, THE ASSESSEE BECAME LIABLE TO THE BANK FOR WHICH, THE ASSESSEE HAD PAID IN TEREST TO THE BANK. SIMULTANEOUSLY, THE ASSESSEE HAS RECEIVED INTEREST FROM THE COMPANY ON THE AMOUNT OF LOAN THAT HAS BEEN TRANSFERRED FROM THE COMPANY TO THE ASSESSEE . THEREFORE, THERE IS A DIRECTOR NEXUS BETWEEN THE INTEREST EARNED FROM 8 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE THE COMPANY AN D THE INTEREST PAID TO THE BANK. UNDER THESE CIRCUMSTANCES, THE INTEREST EXPENDITURE , IN OUR OPINION, WAS RIGHTLY ALLOWED BY THE LD. CIT(A) U/S. 57(III) OF THE ACT. THE DECISION RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND IS DISTINGUISHABLE. IN THAT CASE, THE ASSESSEE HAD EARNED INTEREST ON FIXED DEPOSITS AND HAS PAID INTEREST ON LOAN TAKEN ON THE SECURITY OF FIXED DEPOSITS. THE ASSESSEE CLAIMED THE INTEREST ON SUCH L OAN ON FIXED DEPOSITS AS EXPENDITURE OUT OF INTEREST INCOME. UNDER THESE CIRCUMSTANCES, IT WAS HELD THAT INTEREST ON LOAN TAKEN BY THE ASSESSEE FROM THE BANK ON THE SECURITY OF FIXED DEPOSITS COULD NOT BE REDUCED FROM HIS INCOME BY WAY OF INTEREST ON FIXE D DEPOSITS PLACED BY HIM IN THE BANK. THEREFORE, THE INTEREST ON FIXE D DEPOSITS PLACED BY HIM IN THE BANK. THEREFORE, THE ABOVE DECISION, IN OUR OPINION, IS CLEARLY DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD. CIT(A) , WE FIND NO INFIRMITY IN HIS ORDER. THE SAME IS THEREFORE, CONFIRMED. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY , DISMISSED. CO NO.02/PN/2015 (ASSESSEE) 8 . AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT CROSS OBJECTION FILED BY THE ASSESSEE IS MERELY IN SUPPORT OF THE ORDER OF LD. CIT(A) AND HE IS NOT PRESSING FOR THE 9 ITA NO. 21 0/PN/2014 CO NO.02/PN/2015 SHRI BIPIN VIDYADHAR CHOBHE SAME. ACCORDINGLY, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND THE SAME IS ACCORDINGLY, DISMISSED. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED ON 1 3 T H NOVEMBER, 201 5 . SD/ - SD/ - ( / VIKAS AWASTHY) ( . . / R.K. PANDA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 1 3 T H NOVEM BER, 2015 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - III, PUNE 4. / THE CIT - I V , PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE