Tropicana Exports Private Limited, Kolkata V. I.T.O.,Ward-12(3), Kolkata

ITA 2430/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7301 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 11-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Commercial expediency; TDS
• Section: 143(3); 201; 20

Judgement Text

1 ITA NO. 2430/KOL/19 AY 2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B (SMC) BENCH, KOLKATA BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER I.T.A. NO. 24 30 /KOL/20 1 9 ASSESSMENT YEAR: 20 1 5 - 20 1 6 TROPICANAEXPORTSPRIVATE LIMITED, .... ... ....... ..... .. .. ... ...... ... .. APPELLANT 23, SARAT BOSE ROAD, 3 RD FLOOR, FLAT NO. 31, KOLKATA 700020 [PAN:AAACT9574H VS. INCOME TAX OFFICER,..................... . RESPONDENT WARD 12(3), KOLKATA, AAYAKAR BHAWAN, P 7, CHOWRINGHEE SQUARE, KOLKATA 700069 APPEARANCES BY: SHRI S IM RAN SAKUNIA, ADVOCATE , FOR THE APPELLANT SMT. RANU BISWAS, ADDL. CIT, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 2 8 , 20 20 DATE OF PRONOUNCING THE ORDER : JANUARY 3 1 , 20 20 O R D E R 1. THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 201 5 - 16 ARISES AGAINST THE CIT(A), 17 , KOLKATAS ORDER DATED 12 - 0 9 - 2019 PASSED IN CASE NO. 2 71 /CIT(A) - 17/KOL/17 - 18 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME - TAX ACT, 1961 ( IN SHORT ACT). HEARD BOTH THE LEARNED PARTIES. CASE FILE PERUSE D. 2. THE ASSESSEE S SOLE SUBSTANTIVE GRIEVANCE RAISE D IN THE INSTANT APPEAL CHALLENGES THE CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DISALLOWING INTEREST CLAIM OF RS. 30,02,821/ - IN THE COURSE OF 2 ITA NO. 2430/KOL/19 AY 2015 2 ASSESSMENT AS WELL AS IN THE LOWER APPELLATE PRO CEEDINGS. THE LEARNED CIT(A) S DETAILED DISCUSSION READS AS UNDER: - DECISION 4.1 THERE AR E TWO GROUND S OF ' APPEAL IN THIS CASE. THE LD. A.O. H: DI 'ALL WED THE INT E REST OF R.30,02,821/ AFTER CONSIDERING RELEVANT CASE LAWS AND OTHER FACTS AS PER THE ASSESSMENT ORDER AS UNDER: THUS, FOR ALLOWANCE OF A CLAIM FOR DEDUCTION OF INTEREST UNDER THIS PROVISION FOLLOWING THREE CONDITIONS ARE THERE: (I) THE MONEY, T HAT IS CAPITAL, MUST HAVE BEEN BORROWED BY THE ASSESSEE. (II) IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS. (III) THE ASSESSEE MUST HAVE PAID INTEREST ON THE BORROWED AMOUNT I. E . HE HAS SHOWN THE SAME AS AN ITEM OF EXPENDITURE. THE ABOVE MENT IONED THREE CONDITIONS HAVE BEEN ESTABLISHED LEGALLY BY SUPREME COURT JUDGEMENT IN THE CASE OF MADHAV PRASAD JATIA VS. C1T, (1979) 118 1TR 200(SC). THE PRIMARY CONDITION FOR ALLOWING DEDUCTION OF INTEREST IN THE COMPUTATION OF BUSINESS INCOME IS THAT THE INTEREST WAS PAID ON CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OF PROFESSION. IF THE BORROWED CAPITAL IS UTILIZED NOT IN THE BUSINESS WHOSE INCOME IS ASSESSABLE, BUT IN EARNING SOME NON ASSESSABLE OR EXEMPT INCOME, THE INTEREST PAID TH E REON, IS NOT AN ALLOWABLE DEDUCTION UNDER THESE PROVISIONS. HENCE, EXPENDITURE WHICH IS INCUR RED TO EARN EXEMPT INCOME SHOULD NOT BE CONSIDERED IN THE COMPUTATION OF TOTAL INCOME. THIS WOULD RESULT IN DOUBLE ADVANTAGE TO THE ASSESSEE.' DURING APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED AS UNDER: 'BACKGROUND: 3 ITA NO. 2430/KOL/19 AY 2015 3 THE ASSESSEE/APPELLANT HAS BEEN IN VARIOUS COMMERCIAL ACTIVITIES FOR A LONG TIME. IN THE INITIAL P ART OF THE BUSINESS, THE ASSESSEE/APPELLANT WAS AN EXPORTER OF LIVE DECORATIVE FISHES FOR THE PURPOSE OF AQUARIUMS. HOWEVER, DUE TO ADVERSE MARKET CONDITION AND DELAY IN TRANSPORTING THE FI S HE S TO I TS RESPECTIVE DESTINATION, THE A S SESSEE/APPELLANT HAD TO INCUR HUGE LOSSES AND CLO S ED DOWN THE BU S INE SS . MEANWHILE, THE ASSESSEE/APPELLA NT STARTED BUSINESS OF EXPORT OF PAPER AND PAPER PRODUCTS AS WELL AS TRADING 0 F7J.'ER IN THE LOCAL MARK T. THE ASSESS E HAS B EE N CONTINU I NG WITH THE B USINESS AND FOR T HE AS SESSMENT 2015 16, TH E ASSESSEE/APPELLANT H A S MADE A SIZABLE TURNOVER OUT OF T HE BU S INESS OF THE PAPER. THE ASSESSEE/APPELLANT HAS ALSO ENTERED INTO AN A RRANGEMENT TO RUN AND OPERATE A HOTEL IN THE JAIPUR B Y THE NAME OF SIRSI HAVELI'. THE PROPERTY HAS BEEN TAKEN ON LEASE AND THE ASSESSEE/APPELLANT HAS MADE A SIZABLE INVESTMENT IN THE SAID PROPERTY IN ORDER TO OPERATE THE SAID PROPERTY AS A HERIT A GE PROPERLY. THE ASSESSEE/APPELLANT HAS ALSO ENTERED INTO AN AGREEMENT WITH THE 'WELCOME HERITAGE' AN UNIT OF THE IT C LTD. FOR BRANDING AND MARKETING OF THE AID PROPERTY. UNFORTUNATELY, THE HOTEL BUSINESS HAS A LONGER GESTATION PERIOD TO START MAKING PROFITS. THEREFORE, IT IS COMPLETELY WRONG ON PART OF THE A. O . TO STATE THAT THE ASSESSEE/APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ANY COMMERCIAL EXPEDIENCY OF INCURRING HUGE INTEREST EXPENSES. THE ASSESSEE/APPELLANT HAS BORROWED MONEY FOR ITS VARIOUS BUSINESS INTERESTS WHICH ARE BEING DULY LOOKED AFTER AND AS STATED ABOVE, THE BUSINES S OF RUNNING AND OPERATING HOTEL HAS A MUCH LONGER GESTATION PERIOD. MOREOVER, IN THE PREVIOUS YEAR ALSO, THE ASSESSEE HAS PAID INTEREST OVER SUCH AMOUNT BORROWED AND WHICH HAS BEEN ALLOWED BY THE A. O AFTER SCRUTINIZING THE RECORDS. THEREFORE, THIS TRAN SACTION IS NOTHING NEW TO THE FINANCIAL ACCOUNTS OF THE ASSESSEE/APPELLANT AND THEREFORE, THE A. O . SHOULD NOT HAVE DISALLOWED SUCH EXPENSE TOWARDS INTEREST. 4 ITA NO. 2430/KOL/19 AY 2015 4 THE A.O. DURING THE COURSE OF THE HEARING, DID NOT RAISE ANY OBJECTIONS TO SUCH INTEREST AMOUNT C LAIMED AS AN EXPENSES IN THE BOOKS OF THE ASSESSEE/APPELLANT AND NOR DID HE CALL FOR ANY PAPERS FROM THE ASSESSEE/APPELLANT IN THIS REGARD. THEREFORE, IT IS CLEAR THAT THE INTEREST AMOUNT AS DISALLOWED BY THE A. O . IS SUO MOTU AND ARBITRARY AND WITHOUT ANY BASIS. THE ASSESSEE/APPELLANT HAS BEEN REGULARLY DEDUCTING TDS ON THE INTEREST BEING PAID TO THE LENDER. THEREFORE, IT IS CLEAR AND APPARENT THAT THE LENDER HAS BEEN RECORDING SUCH INTEREST AS AN INCOME IN ITS BOOKS AND PAYING NECESSARY TAXES ON IT. A CO PY OF THE CONFIRMATION OF ACCOUNTS OF THE LENDER IS ALSO ENCLOSED HEREWITH AND MARKED AS ANNEXURE A. THEREFORE, UNDER NO CIRCUMSTANCES, THE INTEREST AMOUNT BE DISALLOWED AS AN EXPENSE IN THE INCOME TAX RETURNS OF THE ASSESSEE/APPELLANT. THE JUDGEMENTS A S RELIED UPON BY THE A. O ARE ALL IN FAVOUR OF THE ASSESSEE/APPELLANT AND IT IS VERY CLEAR THAT THE A.O. WITHOUT ANY APPLICATION OF MIND AND JUST FOR THE SAKE OF DISALLOWING CERTAIN EXPENSES HAS DISALLOWED THE INTEREST OF RS. 30, 02, 211 .' 3. LEARNED COUNSEL VEHEMENTLY CONTENDED DURING THE COURSE OF HEARING THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AS WELL AS ON FACTS IN DISALLOWING THE IMPUGNED INTEREST CLAIM. 4. THE REVENUES CASE ON THE OTHER HAND IS THAT SINCE THE ASSESSEE COULD NOT PROVE A NY COMMERCIAL EXPEDIENCY QUA THE PAYMENT OF INTEREST IN CASE OF GROUP ENTITY M/S. PADRONE MARKETING PVT. LTD . , IT INTEREST SUM HAS BEEN RIGHTLY DISALLOWED BY BOTH THE LOWER PROCEEDINGS . C ASE RECORDS SUGGEST THAT THE ASSESSEE HAS NOT BEEN ABLE TO PIN POINT AND PROVE THE CORRESPONDING COMMERCIAL EXPEDIENCY INVOLVED IN PAYMENT OF THE IMPUGNED INTEREST ON CAPITAL 5 ITA NO. 2430/KOL/19 AY 2015 5 BORROWED FOR THE PURPOSE OF ITS BUSINESS. I, THEREFORE, DEEM IT APPROPRIATE IN THE LARGER INTEREST OF JUSTICE THAT ASSESSING OFFICER NEEDS TO EXAMI NE THE INSTANT SOLE ISSUE AS PER LAW AFRESH WITHIN THREE EFFECTIVE OPPORTUNIT IES OF HEARING AFFORDED TO THE TAXPAYER TO PROVE THE COMMERCIAL EXPEDIENCY INVOLVED . 5 . THIS ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE IN ABOVE TERMS. ORDER PRONOUNCED IN THE COURT ON 3 1 - 01 - 2020 S D / - ( SATBEER SINGH GODARA ) JUDICIAL MEMBER KOLKATA, THE 3 1 S T DAY OF JANUARY , 20 20 COPIES TO : (1) TROPICANA EXPORTS PRIVATE LIMITED, 23, SARAT BOSE ROAD, 3 RD FLOOR, FLAT NO. 31, KOLKATA 700020 (2) INCOME TAX OFFICER, WARD 12(3), KOLKATA, AAYAKAR BHAWAN, P 7, CHOWRINGHEE SQUARE, KOLKATA 700069 ( 3 ) COMMISSIONER OF INCOME TAX (APPEALS) 17, KOLKATA ; (4) COMMISSIONER OF INCOME TAX , KOLKATA ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA * PP /SR. P.S.