I.T.O Wd - 8(1),kolkata., Kolkata V. Bharat Jain, Kolkata

ITA 236/KOL/2013

• Counselvise Citation: 23623514 RSA 2013
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY MUKHERJEE
• Assessee Lawyers: SOUMITRA CHOWDHURY ASSESSE
• Section: 37(1)

Judgement Text

I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI M. BALAGANESH , ACCOUNTANT MEMBER I.T.A. NO. 23 6 / KOL / 20 13 ASSESSMENT YEAR : 200 6 - 20 0 7 INCOME TAX OFFICER,.......................... .. ....... .......... . . APPELLANT WARD - 8(1), KOLKATA, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, 5 TH FLOOR, KOLKATA - 700 069 - VS. - BHARAT JAIN,...................................................... ..... .... ..... . . RESPONDENT C/O. BANSILAL FARM PVT. LIMITED, 25, CAMAC STREET, KOLKATA - 700 016 [PAN : ACVPJ 6636 Q] APPEARANCES BY: SHRI SANJAY MUKHERJEE, JCIT, SR. D.R., FOR THE DEPARTMENT SHRI SOUMITRA CHOWDHURY, ADVOCATE , FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : AUGUST 2 6 , 2 01 5 DATE OF PRONOUNCIN G THE ORDER : SEPTEMBER 11 , 201 5 O R D E R PER SHRI M. BALAGANESH, A.M .: TH IS APPEAL OF THE REVENU E ARISES OUT OF ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) - XXXI I, KOLKATA IN APPEAL NO. 4 2 / XXXI I/ 11 - 12 - 8(1)/R&T/KOL D ATED 07 . 11 .20 12 FOR THE ASSESS MENT YEAR 200 6 - 0 7 , WHICH IS AGAINST THE ORDER OF ASSESSMENT FRAMED UNDER SECTION 143 ( 3 ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) . 2. THE ONLY ISSUE TO BE DECIDED IN TH E APPEAL OF THE REVENU E IS AS TO WHETHER THE LD. CIT(APPEALS) IS CORRECT IN DELETING THE ADDITION MADE TOWARDS DISALLOWANCE OF INTEREST ON BORROWED CAPITAL TO THE TUNE OF RS.22,07,854/ - IN THE FACTS AND CIRCUMSTANCES OF THIS CASE. I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 2 OF 6 3 . BRIEF FACTS OF TH IS ISSUE ARE THAT THE ASSESSEE IS A PROPRIETOR OF BENZ TRADERS E NGAGED IN TH E BUSINESS OF TRADING IN G.C. SHEETS. THE ASSE S SEE HAD BROUGHT FORWARD LOAN OUTSTANDING FROM THE EARLIER YEAR S , WHICH HE HAD BORROWED IN THE EARLIER YEARS AND UTILIZED THE SAME FOR ADVANCING INTEREST BEARING LOAN TO CERTAIN PARTIES AND INVESTED THE BALANCE MONEY IN THE SHARES OF VARIOUS COMPANIES FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANIES. ADMITTEDLY, THE ASSESSEE ALSO BECAME THE DIRECTOR IN THE SAID COMPANIES IN ORDER TO HAVE AN EYE ON HIS BUSINESS INVESTMENT AND TO GET INTO OPE RATION OF ITS VARIOUS ACTIVITIES. IN THE YEAR, IN WHICH BORROWINGS WERE MADE, INTEREST PAID ON SUCH LOAN WAS DULY ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER. THE ASSESSEE DEBITED A SUM OF RS.47,33,613/ - TOWARDS INTEREST PAID ON BORROWED CAPITAL, RECEIVE D INTEREST INCOME ON LOANS AND ADVANCES TO THE TUNE OF RS.25,25,759/ - AND ACCORDINGLY DEBITED NET INTEREST OF RS.22,07,854/ - IN ITS PROFIT & LOSS A/C AND CLAIMED AS DEDUCTION. THE ASSESSING OFFICER DISALLOWED THIS SUM ON THE PRETEXT THAT THE LOANS WERE NOT UTILISED FOR THE PURPOSE OF BUSINESS. AGGRIEVED, THE ASSESSEE CHALLENGED THE ISSUE BEFORE THE LD. CIT(APPEALS), WHO DELETED THIS ADDITION BASED ON THE APPELLATE ORDER FOR ASSESSMENT YEAR 2007 - 08 AND HON BLE JURISDICTIONAL HIGH COURT S DECISION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: - (1) THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.22,07,854/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTERE ST CLAIMED. (2) THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS FAILED TO CONSIDER THE PROVISION AS LAID DOWN IN SECTION 37(1) OF THE I.T. ACT, 1961. (3) THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS FAILED TO TAKE NOTE OF THE FACT THAT THE ASSESSEE DID NOT UTILIZE AN AMOUNT OF RS.1,33,74,770/ - OUT OF THE TOTAL AMOUNT OF LOAN OF RS.2,62,16,418/ - FOR WHICH DEDUCTION OF INTEREST PAID WAS CLAIMED BY THE ASSESSEE. I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 3 OF 6 3.1. SHRI S ANJAY MUKHERJEE, JCIT, SR. D.R., ARGUED ON BEHALF OF THE REVENUE AND SHRI SOUMITRA CHOWDHURY, ADVOCATE, THE LD. A.R. , ARGUED ON BEHALF OF THE ASSESSEE. 3.2. LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. IN RESPONSE TO THIS, LD. A.R. AR GUED THAT TH IS ISSUE IS SQUARELY COVERED BY THE DECISION DATED 21.11.2013 IN ITA NO. 397/KOL/2012 OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2007 - 08 ON THE SAME SET OF FACTS. HE FURTHER ARGUED THAT THE BORROWINGS WERE MADE IN EARLIER YEARS AND UTILISATION OF THE SAME WERE ALSO MADE IN EARLIER YEARS AND INTEREST PAID ON BORROWINGS WERE DULY ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER IN THE EARLIER YEAR S . THE INVESTMENT S MADE IN THE VARIOUS COMPANIES BY THE ASSESSEE ONLY FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANIES AND NOT FOR THE PURPOSE OF DIVIDEND AND ACCORDINGLY PRAYED FOR CONFIRMATION OF THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN FROM TH E FACTS THAT THE ASSESSEE HAD BORROWED LOAN IN THE EARLIER YEARS AND UTILIZED THE SAME FOR ADVANCING INTEREST BEARING LOANS AND FOR INVESTMENT IN SHARES OF VARIOUS COMPANIES IN ORDER TO OBTAIN CONTROLLING INTEREST IN THE SAID COMPANIES AND HE WAS ALSO OFFE RED DIRECT ORSHIP IN THE SAID CONCERN S . IT IS ALSO SEEN THAT THE ASSESSEE WAS IN THE RECEIPT OF DIRECTOR S REMUNERATION FROM ONE OF THE COMPANIES THEREON. IT IS OBSERVED THAT THE BORROWINGS WERE MADE IN EARLIER YEARS AND INTEREST PAID THEREON WAS DULY ALLOW ED AS DEDUCTION IN THE EARLIER YEAR BY THE ASSESSING OFFICER. IT IS ALSO SEEN THAT THIS ISSUE WAS SUBJECT MATTER OF DISPUTE IN ASSESSMENT YEAR 2007 - 08 BEFORE THIS TRIBUNAL IN ITA NO. 397/KOL/2012 DATED 21.11.2013, WHEREIN A FINDING WAS GIVEN THAT THE BORRO WED FUNDS WERE UTILIZED ONLY FOR INTEREST BEARING ADVANCES AND ACCORDINGLY CONFIRM ED THE DELETION OF INTEREST PAID MADE BY THE LD. CIT(APPEALS). IT IS SEEN THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME ON ITS ADVANCES TO THE TUNE OF RS.25,25,759/ - FROM VA RIOUS PARTIES AND OFFERED THE SAME FOR TAXATION. IT IS NOT IN DISPUTE THAT THESE ADVANCES I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 4 OF 6 WERE MADE OUT OF BORROWED FUNDS ONLY. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAD INVESTED THE BORROWED FUNDS FOR INVESTING IN SHARES OF VARIOUS COMPANIES FOR OBT AINING CONTROLLING INTEREST OF THE SAID COMPANIES. WE HOLD THAT THE BUSINESS PURPOSE OF THE SAID INVESTMENT IS PROVED BEYOND DOUBT BY THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE WAS OFFERED DIRECT ORSHIP IN THE SAID COMPANIES IN ORDER TO HAVE AN EYE O N THE PROCEEDINGS OF THE SAID COMPANIES AND TO ASSESS I T S P ERFORMANCE TH EREBY PROTECTING HIS INVESTMENT S IN THE SAID COMPANIES AND FOR FURTHERING HIS BUSINESS INTEREST S . WE FIND L OT OF FORCE IN THE RELIANCE PLACED BY THE LD. A.R. ON THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. - RAJEEVA LOCHAN KANORIA REPORTED IN 208 ITR 616 (CAL.), WHEREIN IT WAS HELD AS UNDER: - QUESTIONS OF LAW UNDER SECTION 256(1) OF THE INCOME TAX ACT, 1961: - (1) WHETHER, ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT INTEREST PAYMENT COULD NOT BE DISALLOWED FOR INVESTMENT IN SHARES AS PER PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961, WHEN SUCH SHARES WERE NOT USED AS STOCK - IN - TRADE BUT WERE ACQUIRED SIMPLY FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST IN THE COMPANIES CONCERNED? (2) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT INVESTMENT IN SHARES WAS THE ADMITTED BUSINESS FOR THE ASSES SEE WHEN THE ACTIVITY IN SUCH INVESTMENT WAS ONLY TO PURCHASE SHARES FOR ACQUISITION OF CONTROLLING INTEREST OF COMPANIES AND HAD NOT EARNED ANY INCOME (EXCEPT DIRECTOR S FEES) BY SUCH VOCATION ? 20. A BUSINESSMAN LIKE THE ASSESSEE IN THIS CASE DOES NOT PURCHASE SHARES OF DIFFERENT COMPANIES FOR ACQUIRING CONTROLLING INTEREST THEREIN ONLY FOR EARNING DIVIDENDS. ACQUIRING CONTROLLING INTEREST IN COMPANIES AND MANAGING, ADMINISTERING, FINANCING AND REHABILITATING COMPANIES UNDER CONTROL ARE FOR BUSINESS AND / OR PROFESSIONAL PURPOSE. THE SUPREME COURT IN THE CASE OF P. KRISHNA MENON VS. - CIT HELD THAT IN ORDER THAT AN ACTIVITY MIGHT BE CALLED A VOCATION, IT WAS NOT NECESSARY TO SHOW THAT IT WAS INDULGED WITH A MOTIVE OF MAKING PROFITS . I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 5 OF 6 21. IN VIEW OF THE A BOVE AND IN VIEW OF THE FACTS, AS DISCUSSED ABOVE, WE ANSWER BOTH THE QUESTIONS IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE . WE HOLD THAT ONCE THE BORROWINGS WERE UTILIZED FOR BUSINESS PURPOSES AND INTEREST PAID THEREON IS ALLOWED AS DEDUCTION IN THE EARLIER YEAR, THE SAME CANNOT BE DISTURBED BY THE ASSESSING OFFICER IN THE SUBSEQUENT YEARS ON THE OPENING BALANCE OF LOANS AS HELD BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. - SRID E V ENTERPRISE S REPORTED IN 192 ITR 165(KARNATAKA). THE RELEVANT OPERATIVE PORTION OF THE SAID JUDGMENT IS REPRODUCED BELOW: - 5. THE REVENUE IS AGGRIEVED BY THE LIMITED QUESTION REMANDED; ACCORDING TO THE REVENUE, THE REMAND SHOULD COMPRISE THE QUESTION PERTAINING TO THE OPENING BALANCE ADVANCED TO NALANDA BEC AUSE THE SAID SUM WAS ALSO ADVANCED OUT OF BORROWED AMOUNTS. 6. WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY THE APPELLATE TRIBUNAL. THE STATUS OF THE AMOUNT OUTSTANDING FROM NALANDA ON THE FIRST DAY OF THE ACCOUNTING YEAR IS THE AMOUNT THAT STOOD OUT STANDING ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FROM ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS, THE ASSESSEE'S CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOSE YEARS; THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS, WHETHER A SPECIFIC FINDING WAS RECORDED OR NOT. A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING; IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT - MATTER OF PREVIOUS YEARS' ASSESSMENTS; CONSISTENCY AND DEFINITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNI SING THE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF A CONCLUDED ASSESSMENT WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASSESSMENT. THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT A DEBT WHICH HAD BEEN TRE ATED BY THE REVENUE AS A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENTLY BE HELD BY IT HAVE BECOME BAD PRIOR TO THAT YEAR. ACCORDINGLY, WE ACCEPT THE QUESTIONS REFERRED TO US IN THE AFFIRMATIVE AND AGAINST THE REVENUE . I.T.A. NO . 23 6 / KOL ./20 13 ASSESSMENT YEAR: 200 6 - 20 0 7 PAGE 6 OF 6 4. IN ANY EVENT, THE ISSUE IS COVERED BY THE DECISION DATED 21.11.2013 OF THIS TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO.397/KOL/2012 FOR THE ASSESSMENT YEAR 2007 - 08. HENCE, IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2007 - 08 AND OTHER JUDICIAL PRECEDEN TS RELIED UPON AS STATED SUPRA, WE ARE NOT INCLINED TO INTERFERE WITH THE DECISION OF THE LD. CIT(APPEALS) IN THIS REGARD. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER , 201 5 . SD/ - SD/ - MAHAVIR SINGH M. BALAGANESH (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, THE 11 TH D AY OF SEPT EMBER , 201 5 COPIES TO : (1) INCOME TAX OFFICER, WARD - 8(1), KOLKATA, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, 5 TH FLOOR, KOLKATA - 700 069 (2) BHARAT JAIN, C/O. BANSILAL FARM PVT. LIMITED, 25, CAMAC STREET, KOLKATA - 700 016 (3) COMMISSIONER OF INC OME - TAX (APPEALS) - XXXI I, KOLKATA (4) COMMISSIONER OF INCOME TAX , KOLKATA ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCO ME TAX APPELLATE TRIBUNAL KOLKATA B ENCHES, KOLKATA LAHA/SR. P.S .