The DCIT, Circle-4, Ahmedabad V. Lahar Tradaing & Inv. Pvt. Ltd., Ahmedabad

ITA 2143/AHD/2006

• Counselvise Citation: 214320514 RSA 2006
• Duration Of Justice: 5 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 09-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Keywords: Business income; Business expenditure; Speculation loss
• Section: 37(1)

Judgement Text

ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 1 IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH, A HMEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI A. K. GAROD IA A.M.) SR.NO. APPEAL NO. ASSESSMENT YEAR 1 I.T.A. NO.2143/AHD/2006 2002-03 2 I.T.A. NO.2647/AHD/2006 2003-04 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, AHMEDABAD . (APPELLANT) VS. LAHAR TRADING & INVESTMENT PRIVATE LIMITED, 100,ASHIMA HOUSE, NR. M.J. LIBRARY, KAVI NANALAL MARG, AHMEDABAD. (RESPONDENT) PAN: AAACL 3469P APPELLANT BY : SHRI KARTAR SINGH, CIT (DR) RESPONDENT BY : SHRI S.N. SOPARKLAR, SR. ADV W ITH SHRI P.M. MEHTA. ( )/ ORDER DATE OF HEARING : 08 02 2012 DATE OF PRONOUNCEMENT : 13 04 2012. PER: SHRI A.K. GARODIA, ACCOUNTANT MEMBER. BOTH THESE APPEALS ARE FILED BY THE REVENUE WHICH ARE DIRECTED AGAINST 2 SEPARATE ORDERS OF LD. CIT (A)-VIII, AHME DABAD DATED 25-7- 2006 FOR THE ASSESSMENT YEAR 2002-03 AND DATED 25-9 -2006 FOR ASSESSMENT YEAR 2003-04. BOTH THESE APPEALS ARE DIS POSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2002-03 I.E. ITA NO.2143/AHD/2006. ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 2 3. IT WAS SUBMITTED THAT GROUND NO.1 AND GROUND NO. 3 ARE INTER CONNECTED WHICH ARE AS UNDER:- GROUND NO.1. 1. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT GIVING ANY CLEAR-CUT FINDING REGARDING BUSINESS LOSS OF RS.3,48,47,603/- TREATED AS SPECULATION LOSS BY TH E ASSESSING OFFICER. GROUND NO.3. 3. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONSIDERING A SUM OF RS.90,00,000/- OUT OF TOTAL IN TEREST OF RS.2,75,44,694/- AND LOSS DUE TO FOREIGN EXCHANGE F LUCTUATION OF RS.80,82,157/- AS SPECULATION LOSS RELATED TO SHAR E TRADING ACTIVITY AND BALANCE OF RS.2,66,26,851/- TO BE ALLOWED U/S.3 6(1)(III) AS RELATABLE TO BUSINESS EXPENDITURE. 4. BRIEF FACTS ARE NOTED BY THE A.O. IN PARAGRAPH 3 .4 AND 4 OF THE ASSESSMENT ORDER WHICH ARE REPRODUCED BELOW:- 3.4. THE ASSESSEE COMPANY HAS CLAIMED INTEREST EXP ENSES TO THE TUNE OF RS.2,75,44,694/-. IT HAS ALSO CLAIMED LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS. 80,82 ,157/-FOR THE LOAN FROM AMERICAN EXPRESS BANK. OUT OF TOTAL INTER EST EXPENSES OF RS.2,75,44,694/-, INTEREST PAID TO AMERICAN EXPR ESS BANK LTD., IS RS.26,91,580/-.THE REMAINING INTEREST HAS BEEN P AID ON THE UNSECURED LOANS TAKEN FROM VARIOUS PARTIES INCLUDI NG THE MANSAROVAR FINCAP PVT.LTD.,VAIKUNTH INVESTMENT PVT. LTD., AMOSHA HOLDING PVT. LTD. ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS MADE PURCHASE OF SHARES TO THE TUNE OF RS.70,891/- ONLY AND SALES OF SHARES AMOUNT TO R S.77,021/-ONLY. DURING A.Y. 2001-02 THE SALES AND PURCHASES AMOUNTE D TO ONLY RS.1,22,387/- AND RS.86,031/- RESPECTIVELY. THUS, I T IS EVIDENT THAT THE FUNDS BLOCKED IN SHARES ARE OLD ONE. IT IS ALSO NOTED THAT THE BALANCE OF THE UNSECURED LOANS FROM VARIOUS PARTIE S (EXCLUDING THE AMERICAN EXPRESS BANK LTD.) KEPT ON CHANGING FR OM TIME TO TIME DURING THE YEAR I.E. THERE IS CONTINUOUS FLOW OF FUNDS IN FORM OF UNSECURED LOAN. IN FACT DURING THE YEAR UNDER CONSI DERATION ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 3 UNSECURED LOANS HAS DECREASED FROM RS.27,53,02,250/ - TO RS.10,32,64,519/- WHEREAS SUNDRY CREDITORS FOR GOOD S HAS INCREASED FROM NIL TO RS.22,19,37,488/-..THUS IT CA N BE SAID THAT THE UNSECURED LOANS HAVE BEEN USED BASICALLY FOR TH E PURPOSE OF FINANCING ACTIVITY ONLY. SO FAR AS LOAN TAKEN FROM AMERICAN EXPRESS BANK LTD. IS CONCERNED, VIDE SUBMISSION DATED 1-3-2 005 THE ASSESSEE COMPANY ITSELF HAS MENTIONED THAT THE LOAN WAS TAKEN ON 28-3-2000 AND WAS USED TO DISCHARGE UNSECURED LO AN AMOUNTING TO RS.7,69,50,000/- TAKEN FROM AMOSHA HOL DING PVT. LTD. THUS THE INTEREST PAID TO AMERICAN EXPRESS BAN K LTD A LOSS CLAIMED DUE TO FOREIGN EXCHANGE FLUCTUATION ON SUCH LOAN ARE ALSO RELATED TO FINANCE ACTIVITY ONLY. IN VIEW OF DISCUS SION MADE, IT CAN BE SAID THAT THE UNSECURED LOANS TAKEN FROM VARIOUS PARTIES HAVE NOT BEEN USED FOR MAKING INVESTMENT IN SHARES AND S UCH LOANS ARE BASICALLY BEING USED FOR MAKING FINANCING ACTIVITY, WHICH IS NOT THE BUSINESS OF THE ASSESSEE COMPANY IN LIGHT OF RBI RE GULATIONS. THE INTEREST EXPENSES AND LOSS/EXPENSES DUE TO FOREIGN EXCHANGE FLUCTUATION CANNOT BE ALLOWED AS EXPENDITURE DUE TO FOLLOWING REASONS. I) THE FINANCING ACTIVITY BEING CARRIED OUT BY THE ASSESSEE COMPANY IS IN VIOLATION OF THE PROVISIONS OF RBI ACT, IT IS BECAUSE THE ASSESSEE COMPANY IS NOT REGISTERED WITH RBI AS NBFC. THEREFORE, IT IS NOT ENTITLED TO RAISE FUNDS FROM OUTSIDE SOURCES AND LE ND IT TO OTHERS. THE ACTIVITIES OF THE ASSESSEE COMPANY A RE CLEARLY IN VIOLATION OF THE RBI NORMS REGARDING FIN ANCE COMPANIES. IT DEFEATS THE OBJECTIVE FOR WHICH RBI I S STRIVING FOR IN THIS ERA OF OPEN ECONOMY. THUS, THE INTEREST PAID OR THE LOSS CLAIMED DUE TO FLUCTUATIO N IN FOREIGN EXCHANGE BY THE ASSESSEE COMPANY FOR CARRYING OUT SUCH ACTIVITY WOULD NOT BE ALLOWABLE I N VIEW OF EXPLANATION TO SECTION 37(1) OF INCOME TAX ACT, 1961. II) WITHOUT PREJUDICE TO THE APPLICABILITY OF EXPLA NATION TO SECTION 37(1) OF THE COST OF REPEATING AGAIN IT IS MENTIONED THAT THE ASSESSEE COMPANY IS NOT ENGAGE D IN THE BUSINESS OF FINANCE AND INCOME FROM FINANCIN G ACTIVITY HAS BEEN TREATED UNDER THE HEAD INCOME FR OM OTHER SOURCES. THEREFORE EVEN WITHOUT THE APPLICATI ON OF SECTION 37(1) THE ASSESSEE COMPANY IS NOT ELIGIB LE ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 4 FOR DEDUCTION OF INTEREST EXPENSES/LOSS DUE TO FORE IGN EXCHANGE FLUCTUATION BECAUSE, SUCH EXPENDITURE CANNOT BE SAID TO BE EXPENDED FOR EARNING INCOME FR OM OTHER SOURCES. THEREFORE, THE INTEREST PAID BY THE ASSESSEE COMPA NY AND LOSS CLAIMED DUE TO FOREIGN EXCHANGE FLUCTUATION AR E HEREBY DISALLOWED. IT LEADS TO DISALLOWANCE OF RS.3,56,26, 851/-. 4. SPECULATION LOSS: 4.1. THE LOSS AMOUNTING TO RS.3,24,44,013/- ON ACCO UNT OF SALES AND PURCHASE OF SHARES WOULD BE COVERED UNDER EXPLANATION TO SECTION 73 OF INCOME TAX ACT,1961. T HEREFORE, SUCH LOSS WOULD QUALIFY AS S[PECULATION LOSS. AS PE R DISCUSSION MADE IN ABOVE PARAS, THE INTEREST EXPENS ES ON THE UNSECURED LOANS AND EXPENDITURE DUE TO FOREIGN EXCHANGE FLUCTUATION ON LOAN TAKEN FROM AMERICAN EX PRESS BANK LTD. HAVE BEEN HELD NON ALLOWABLE AS PER EXPL ANATION TO SECTION 37(1). WITHOUT PREJUDICE TO THIS ARGUMEN T, IF IT IS HELD AT SUBSEQUENT STAGE THAT INTEREST EXPENSES ARE ALLOWABLE AGAINST THE SHARE TRADING INCOME THEN SUC H EXPENSES WOULD ONLY INCREASE THE SPECULATION LOSS. 5. BEING AGGRIEVED BY THE ABOVE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT (A). LD. CIT (A) HAS HELD THAT OUT OF TOTAL INTEREST EXPENSES CL AIMED BY THE ASSESSEE OF RS.3,56,26,851/-, A SUM OF RS. 90 LAKHS REPRESEN TING INTEREST LIABILITY SHOULD BE TAKEN AS RELATABLE TO SHARE TRADING ACTIV ITY AND SHOULD BE CONSIDERED AS SPECULATION LOSS AND THE BALANCE AMOU NT OF RS.2,66,26,851/- SHOULD BE ALLOWED U/S. 36(1)(III). REGARDING THE FINDING OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER TH AT THE LOSS OF RS.324.44 LAKHS IS TO BE CARRIED FORWARD AS SPECULA TION LOSS, THERE IS NO DISPUTE BUT FOR THE GROUND NO. 1 OF APPEAL RAISED B Y THE ASSESSEE BEFORE LD. CIT (A), IT IS THE GROUND RAISED BEFORE US BY THE REVENUE THAT ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 5 NO CLEAR FINDING IS GIVEN BY LEARNED CIT (A). NOW T HE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR SUPPORTED THE ASSESSMENT ORDER. WHERE AS THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT (A) . HE ALSO SUBMITTED THAT PAGE NO.51 AND 52 OF THE PAPER BOOK ARE REGARDING PURCHASE AND SALES OF COTTON FABRIC AND PAGE NO.62 OF THE PAPER BOOK IS THE COPY OF DIRECTORS REPORT NARRATING THAT THE TU RNOVER OF TRADING IN COTTON FABRICS HAD INCREASED BY RS.1574.46 LACS TO RS.2800.36 LACS. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE 62 OF THE PAPE R BOOK WHICH CONTAINS PROFIT AND LOSS ACCOUNT IN THE PRESENT YEA R AND IT WAS SUBMITTED THAT DURING THE YEAR, THERE IS LOSS OF RS.6,72,27,7 46/-. HE ALSO SUBMITTED THAT THE COTTON FABRICS WAS DIRECTLY SUPPLIED BY TH E VENDORS TO THE CUSTOMERS. OUR ATTENTION WAS DRAWN TO PAGE 3 OF THE STATEMENT OF FACTS FILED BEFORE THE LD. CIT(A) WHEREIN IT HAS BEEN STA TED BY THE ASSESSEE THAT AS PER SALES OF GOODS ACT 1930, TRANSFER OF TH E PROPERTY IN THE GOODS AMOUNTS TO SALE AND HENCE, EVEN IF ASSESSEE H AS NOT TAKEN PERSONAL DELIVERY BUT MATERIAL WAS DELIVERED TO THE BUYERS, BY THE VENDORS, THE TRANSACTION IS THAT OF SALE AND THERE IS CONSTRUCTIVE DELIVERY TO THE ASSESSEE BY ITS SUPPLIER AND BY THE ASSESSEE TO ITS CUSTOMERS. HE SUBMITTED THAT UNDER THESE FACTS, THE LOSS IN RESPE CT OF TRADING IN QUESTION IS BUSINESS LOSS AND NOT SPECULATION LOSS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH ORDERS OF THE AUTHO RITIES BELOW. WE FIND THAT COPY OF COMPUTATION OF INCOME FILED BY TH E ASSESSEE ALONG WITH RETURN OF INCOME IS AVAILABLE ON PAGE 56 AND 57 OF THE PAPER BOOK. IN THIS COMPUTATION, THE ASSESSEE HAS SHOWN BUSINESS L OSS AT RS.6,72,27,746/- AS PER THE PROFIT AND LOSS ACCOUNT . VARIOUS ADJUSTMENTS ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 6 ARE MADE BY THE ASSESSEE INCLUDING THE ADJUSTMENT O F LOSS ON ACCOUNT OF TRADING OF SHARE TO THE EXTENT OF RS.3,24,44,013 /-. THE ASSESSEE HAS WORKED OUT THE BUSINESS LOSS AT RS.3,48,47,603/-. L OSS ON ACCOUNT OF TRADING IN SHARES IS WORKED OUT AT RS.3,24,44,013/- . WE FIND THAT THERE IS NO DISPUTE ABOUT THIS SPECULATION LOSS OF RS. 324.4 4 LACS BECAUSE CARRY FORWARD OF SPECULATION LOSS HAD BEEN CLAIMED BY THE ASSESSEE AND ALLOWED BY THE A. O. ALSO IN THE ASSESSMENT ORDER. REGARDING THE BUSINESS LOSS WORKED OUT BY THE ASSESSEE AT RS.3,48 ,47,603/-, WE FIND THAT THE SAME WAS NOT ALLOWED BY THE A.O. MAINLY ON THIS BASIS THAT HE HAS DISALLOWED EXPENDITURE ON ACCOUNT OF INTEREST A ND FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.3,56,26,851/- AND ONCE THE A .O. HAS DISALLOWED THIS EXPENDITURE, THEN THERE WILL BE NO BUSINESS LO SS. AGAINST THIS ACTION OF THE A.O. , GROUND WAS TAKEN BY THE ASSESSEE BEFO RE THE LD. CIT (A) AS PER GROUND NO.1 AND NO SPECIFIC FINDING WAS GIVE N BY LEARNED CIT (A) ON THIS ASPECT BUT ONCE WE DECIDE THE SECOND ASPECT ABOUT ALLOWABILITY OF INTEREST EXPENDITURE AND LOSS ON ACCOUNT OF FORE IGN EXCHANGE FLUCTUATION LOSS OF RS. 356.27 LACS, WHICH IS DECID ED BY LEARNED CIT (A) AND AGAINST WHICH ALSO GROUND NO. 3 IS RAISED BY TH E REVENUE BEFORE US, WE FEEL THAT THE FIRST ASPECT CAN ALSO BE DECIDED B Y US. 8. WE FIRST DECIDE GROUND NO. 3 RAISED BY THE REVE NUE. REGARDING THIS GROUND, WE FIND THAT OUT OF TOTAL INTEREST EXP ENDITURE AND LOSS ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE DIS ALLOWED BY THE A.O. AT RS.3,56,26,851/-, IT WAS HELD BY LD. CIT (A) THAT O NLY RS.90 LAKHS CAN BE ATTRIBUTED TOWARDS INTEREST EXPENDITURE IN RESPECT OF TRADING IN SHARES AND THE BALANCE AMOUNT OF INTEREST RS.2,66,26,851/- SHOULD BE ALLOWED U/S. 36(1)(III). WE FIND THAT THIS ASPECT WAS DECID ED BY LEARNED CIT (A) AS PER PARA NO. 3 OF HIS ORDER, WHICH IS REPRODUCED HE REIN BELOW:- ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 7 3. I HAVE CAREFULLY EXAMINED THE ARGUMENT PUT FOR TH BY THE LEARNED COUNSEL FOR THE APPELLANT AND THE WRITTEN S UBMISSIONS IN THIS REGARD. I HAVE ALSO GONE THROUGH THE ASSESSMEN T ORDER. FROM THE WRITTEN SUBMISSIONS AND THE DISCUSSIONS IN THE ASSESSMENT ORDER, IT IS CLEAR THAT THE INTEREST OUTGO WAS ON A CCOUNT OF LOAN FROM AMERICAN EXPRESS BANK AND HENCE THE GENUINENESS OF THE INTEREST EXPENDITURE IS NOT IN DOUBT. IT IS ALSO MADE CLEAR BY THE APPELLANT THAT THE SAID LOAN WAS UTILIZED TO PAY OFF EARLIER LOAN TAKEN OF HIGHER RATE OF INTEREST. THE UTILIZATION OF THE EARLIER LO AN AS TO THE BUSINESS OF THE APPELLANT WAS ALSO NOT IN DISPUTE. SUCH EXPE NSES WERE ALLOWED IN EARLIER YEARS AS BUSINESS EXPENDITURE AN D NOT DISALLOWED U/S 37. IN SO FAR AS SHARE TRADING ACTIVITY IS CONC ERNED, THE LOSS SHOWN BY THE APPELLANT HAS BEEN TAKEN WITHOUT ANY M ODIFICATION. HOWEVER, THE A. O. VIDE PARA 4.1 OF HIS ORDER HAS M ENTIONED THAT IF AT THE SUBSEQUENT STAGE, THE INTEREST EXPENSES ARE HELD AS ALLOWABLE AGAINST SHARE TRADING INCOME, THEN SUCH E XPENSES WOULD ONLY INCREASE THE SPECULATION LOSS BUT IN MAKING TH E ABOVE OBSERVATION, HASNT BROUGHT ON RECORD ANYTHING TO S HOW THAT ENTIRE BORROWINGS FROM AMERICAN EXPRESS BANK WAS UTILIZED ONLY FOR SHARE TRADING. IF THAT WERE SO, HE SHOULD NOT HAVE HELD THE TRANSACTION AS A FINANCIAL ONE. THERE IS ALSO NO BI FURCATION OF UTILIZATION OF LOAN FOR DIFFERENT BUSINESS PURPOSES BY THE A.O. THUS, THE OBSERVATION IS ONLY SUPERFLUOUS AND DOES NOT LE AD TO ANY AFFIRMATION BUT THE FACT REMAINS THAT THE LOAN TAKE N WAS TO REPAY THE EARLIER UNSECURED LOAN TAKEN FOR THE BUSINESS PURPO SE OF THE APPELLANT. HENCE, NO FIRM VIEW COULD BE TAKEN AS TO WHAT PERCENTAGE OF LOAN WAS UTILIZED TO SHARE TRADING AC TIVITY. HOWEVER, TAKING A CLUE FROM THE NOTE NO. 8 FORMING PART OF R ETURN OF INCOME REPRODUCED IN THE WRITTEN SUBMISSIONS, PART UTILIZA TION OF THE SAME ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 8 FOR SHARE TRADING ACTIVITY CANNOT BE RULED OUT AND HENCE THE ALTERNATE CLAIM OF THE APPELLANT THAT THE EXCHANGE FLUCTUATION BE ALLOWED AS SPECULATION LOSS NEEDS ATTENTION. ACCORD INGLY, OUT OF TOTAL INTEREST CLAIM OF RS. 356,26,851/- (RS. 275,4 4,694/- + RS. 80, 82, 157/-), A SUM OF RS. 90,00,000/- REPRESENTING ABOUT 25% OF INTEREST LIABILITY COULD BE CONSIDERED AS SPECULATION LOSS A ND THE BALANCE OF RS. 266,26,851/- SHALL BE ALLOWED U/S 36 (1) (III) AS RIGHTLY CLAIMED BY THE APPELLANT RELATABLE TO BUSINESS EXPENDITURE. 9. FROM THE ABOVE PARA OF THE ORDER OF LEARNED CIT (A), WE FIND THAT THIS ASPECT REGARDING ALLOWABILITY OF INTEREST EXPE NDITURE AND FOREIGN EXCHANGE FLUCTUATION LOSS HAS BEEN DECIDED BY THE L EARNED CIT (A) AFTER CONSIDERING ALL ASPECTS. HE HAS GIVEN A CLEAR FINDI NG THAT LOAN TAKEN FROM AMERICAN EXPRESS BANK WAS MAINLY USED FOR REPAYING OLD UNSECURED LOANS TAKEN AT HIGHER RATE OF INTEREST AND IN EARLI ER YEARS, INTEREST EXPENSES ON SUCH UNSECURED LOANS WAS ALLOWED AS BUS INESS EXPENDITURE. THIS FINDING OF FACT COULD NOT BE CONT ROVERTED BY THE LEARNED DR OF THE REVENUE. AFTER GIVING THIS FINDING ALSO, LEARNED CIT (A) HAS HELD THAT RS. 90 LACS ABOUT 25% OF TOTAL SUCH EXPEN DITURE SHOULD BE CONSIDERED AS RELATABLE TO SHARE TRADING BUSINESS B ECAUSE THE A.O. HAS NOT BROUGHT ON RECORD ANY BIFURCATION OF UTILIZATIO N OF LOAN FOR DIFFERENT BUSINESS PURPOSES. IT IS ALSO STATED BY HIM THAT NO MATERIAL WAS BROUGHT TO SHOW THAT ENTIRE BORROWED FUNDS WERE USED FOR SH ARE TRADING BUSINESS. LEARNED DR OF THE REVENUE COULD NOT CONTR OVERT THESE FINDINGS OF THE LEARNED CIT (A) ALSO. HENCE, WE FEEL THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LEARNED CIT (A) ON THIS ASPECT OF THE ISSUE. HENCE, GROUND NO. 3 IS REJECTED. ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 9 10. REGARDING GROUND NO. 1 OF THE REVENUES APPEAL, WE FIND THAT ADMITTEDLY, NO SPECIFIC FINDING IS GIVEN BY THE LEA RNED CIT (A) ABOUT BUSINESS LOSS BUT THIS FINDING IS GIVEN BY HIM THAT 75% OF EXPENDITURE ON ACCOUNT OF INTEREST AND FOREIGN EXCHANGE FLUCTUA TION LOSS OF RS. 266,26,851/- SHALL BE ALLOWED U/S 36 (1) (III) AS R IGHTLY CLAIMED BY THE APPELLANT TO BUSINESS EXPENDITURE. HE HAS ALSO STAT ED IN THIS PARA NO. 3 OF HIS ORDER REPRODUCED ABOVE THAT THE A.O. SHOULD NOT HAVE HELD THAT THE TRANSACTION IS A FINANCIAL ONE. IN THE LIGHT OF THESE TWO FINDINGS OF LEARNED CIT (A), WE FEEL THAT ALTHOUGH LEARNED CIT (A) HAS APPROVED THE TEXTILE TRADING BUSINESS DISPROVING THE SAME AS FIN ANCIAL TRANSACTION ONLY AS ALLEGED BY THE A.O. AND HAS ALSO HELD THAT 75 % OF INTEREST ETC. IS TO BE ALLOWED U/S 36 (1) (III), THERE IS NO REAL CONFU SION ABOUT HIS DECISION ON THIS ASPECT ALSO WHICH IS RAISED BY THE REVENUE AS PER GROUND NO.1 AND THIS ASPECT CAN BE DECIDED HERE WITHOUT RESTORI NG IT BACK TO LEARNED CIT (A) PARTICULARLY WHEN WE ARE IN THE YEAR 2012 A ND THE ASSESSMENT YEAR INVOLVED IS A. Y. 2002 03. THE BUSINESS LOSS REMAINS OF RS. 258,47,603/- ONLY AS AGAINST CLAIMED BY THE ASSESSE E OF RS. 348,47,603/- BECAUSE RS. 90 LACS OF THIS LOSS HAS B EEN HELD BY LEARNED CIT (A) AS SPECULATION LOSS BEING INTEREST ETC. REL ATABLE TO SHARE TRADING BUSINESS. THE DEDUCTION ULTIMATELY ALLOWED U/S 36 ( 1) (III) BY THE LEARNED CIT (A) IS OF RS. 266,26,851/-, WHICH IS MORE THAT THE ULTIMATE BUSINESS LOSS OF RS. 258.48 LACS. HENCE EVEN IF THE TEXTILE BUSINESS OF THE CURRENT YEAR IS TREATED AS FINANCIAL TRANSACTION ONLY, THER E IS PROFIT BEFORE CONSIDERING THIS EXPENDITURE OF RS. 266.27 LACS ALL OWED BY LEARNED CIT (A) U/S 36 (1) (III). DEDUCTION OF THIS INTEREST ET C. HAS BEEN ALLOWED BY LEARNED CIT (A) ON THIS BASIS THAT IT IS ON FUNDS B ORROWED FROM AMERICAN EXPRESS BANK WHICH WAS USED TO REPAY OLD UNSECURED LOANS BORROWED AT HIGH RATE OF INTEREST AND WAS USED FOR BUSINESS IN EARLIER YEARS AND INTEREST EXPENDITURE WAS ALLOWED IN EARLIER YEARS. THIS FINDING COULD NOT ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 10 BE CONTROVERTED BY THE LEARNED DR OF THE REVENUE AN D HENCE EVEN IF IT IS ACCEPTED IN THE PRESENT YEAR THAT TEXTILE TRADING B USINESS IS ONLY FINANCIAL TRANSACTION, THERE IS PROFIT IN THAT BUSINESS BEFOR E THIS INTEREST EXPENDITURE AND INTEREST EXPENDITURE IS ALLOWABLE B ECAUSE IT IS ON FUNDS USED TO REPAY OLD BUSINESS LOANS. HENCE THE LOSS AF TER INTEREST IS CLEARLY ALLOWABLE AS BUSINESS LOSS ALTHOUGH TO THE EXTENT O F RS. 258,47,603/- ONLY AS AGAINST CLAIMED BY THE ASSESSEE OF RS. 348, 47,603/- 11. GROUND NO.1 AND 3 OF THE REVENUES APPEAL ARE R EJECTED. 12. GROUND NO.2 OF THE REVENUE APPEAL IS AS UND ER:- 2. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS O F THE CASE IN GIVING ALLOWANCE OF EXPENDITURE U/S. 57 WHEN THE IN COME IS TAXED UNDER THE HEADINCOME FROM OTHER SOURCES. 13. IT IS SUBMITTED BY THE LD. D.R. OF THE REVENUE THAT THE SECTION IS WRONGLY MENTIONED IN GROUND NO.2 AND IT SHOULD BE READ AS SECTION 36(1) (III) AND NOT 57. HE ALSO SUBMITTED THAT THE LD. CIT (A) IS NOT JUSTIFIED IN ALLOWING DEDUCTION ON ACCOUNT OF INTER EST PAYMENT U/S 36 (1) (III) WHEN THE INCOME ASSESSED BY THE A.O. UNDER TH E HEAD INCOME FROM OTHER SOURCE. HE ALSO SUBMITTED THAT THE ORDER OF L D. CIT(A) SHOULD BE REVERSED AND THAT OF THE A.O. BE RESTORED. LEARNED COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT (A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND THAT IN PARA NO. 5, IT IS HELD BY LEARNED CIT (A) THAT THE TOTAL INCOME OF RS. 894,929/- COMPUTED UNDER THE HEAD INCOME FR OM OTHER SOURCES SHALL UNDERGO MODIFICATION IN VIEW OF DIRECTIONS GI VEN BY HIM PRIOR TO THIS ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 11 PARA. IN PARA NO. 3 OF HIS ORDER REPRODUCED ABOVE, LEARNED CIT (A) HAS HELD THAT THE A.O. SHOULD NOT HAVE HELD THAT THE TR ANSACTION IS A FINANCIAL ONE. . IT IS ALSO STATED BY HIM THAT NO MATERIAL WA S BROUGHT TO SHOW THAT ENTIRE BORROWED FUNDS WERE USED FOR SHARE TRADING B USINESS. LEARNED DR OF THE REVENUE COULD NOT CONTROVERT THESE FINDIN GS OF THE LEARNED CIT (A) ALSO. HENCE, IT IS SEEN THAT IN THIS PARA I.E. PARA 5, IT IS HELD BY THE LEARNED CIT (A) THAT THE HEAD OF INCOME ADOPTED BY THE A.O. TO TAX RS. 894,929/- IS TO BE MODIFIED. NO GROUND IS RAISED BY THE REVENUE AGAINST THIS FINDING OF LEARNED CIT (A) AND HENCE THIS GROU ND NO. 2 IS LIABLE TO BE REJECTED. THEREFORE, THIS GROUND OF THE REVENUE IS ALSO REJECTED. 15. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. 16. ITA NO.2647/AHD/2006 . GROUND NO.1 IS AS UNDER:- 1. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.9,87,152/- BEING TH E INTEREST PAID TO AMERICAN EXPRESS BANK. 17. BOTH SIDES AGREED THAT THIS ISSUE IS IDENTICAL TO GROUND NO.3 IN A.Y. 2002-03 AND THE SAME CAN BE DECIDED ON THE SAME L INE. WE FIND THAT FOR THAT YEAR , THIS ISSUE IS DECIDED BY US IN FAVO UR OF THE ASSESSEE. ACCORDINGLY, IN THE PRESENT YEAR ALSO, WE DECLINE T O INTERFERE IN THE ORDER OF THE LD. CIT (A). THIS GROUND IS REJECTED. 18. GROUND NO.2 IS AS UNDER: - THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN D IRECTING TO TREAT INCOME OF RS.39,786/- SHOWN FROM, TRADING OF COTTON AS BUSINESS INCOME. 19. LD. D.R. OF THE REVENUE SUPPORTED THE ORDER OF THE A.O. WHEREAS THE LD. A R. SUPPORTED THE ORDER OF THE CIT (A). ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 12 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IN A. Y. 2002 03 ALSO, IT WAS HELD BY LEARNED CIT (A) THAT HEAD OF INCOME IS TO BE MODIFIED FROM INCOME FROM OTHER SOURCES IN VIEW OF OTHER DIRECTIO NS GIVEN BY HIM IN THAT YEAR. IN THAT YEAR, NO GROUND WAS RAISED BY TH E REVENUE AS IN THE PRESENT YEAR BUT THIS GRIEVANCE WAS RAISED AS PER G ROUND NO. 2 IN THAT YEAR THAT HE WAS NOT JUSTIFIED IN ALLOWING DEDUCTIO N U/S 36 (1) (III) WHEN THE INCOME IS ASSESSED UNDER THE HEAD INCOME FROM O THER SOURCES. IN THAT YEAR, THIS ISSUE WAS DECIDED BY US IN FAVOUR O F THE ASSESSEE. HENCE, IN THE PRESENT YEAR ALSO, WE DECLINE TO INTE RFERE IN THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE BECAUSE THE ORDER OF LEARNED CIT (A) IN THE PRESENT YEAR IS IN LINE WITH HIS ORDER IN THE E ARLIER, WHICH WAS ACCEPTED BY THE REVENUE IN THAT YEAR. HENCE, WE REJ ECT THIS GROUND OF APPEAL. 21. IN THE RESULT, THIS APPEAL OF THE REVENUE IS AL SO DISMISSED. 22. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 04 - 2012. SD./- SD./- (MUKUL KUMAR SHRAWAT) (A. K.GARODIA) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. ITA NO.2143 & 2647/AHD/2006 A.YRS. 2002 -03 & 2003-04. 13 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-VIII, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 15 - 3 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 27 / 3 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 13. 04-2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 13- 04 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13 - 04-2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..