The DCIT, 1(1), Indore V. Shri Mahesh Chandra S. Mittal, Indore

ITA 252/IND/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91838 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Valuation report
• Section: 143(3); 14A; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNA L INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER ITA NO. 282/IND/2013 A.Y. 2005-06 SHRI MAHESH CHANDRA S.MITTAL INDORE PAN AFJPM7451D `` ::: APPELLANT VS DCIT 1(1) INDORE ::: RESPONDENT ITA NO. 252/IND/2013 A.Y. 2005-06 DCIT 1(1) INDORE ::: APPELLANT VS SHRI MAHESH CHANDRA S.MITTAL INDORE ::: RESPONDENT 2 ASSESSEE BY SHRI GIRISH AGRAWAL & SHRI SUBHASH JAIN DEPTT. BY SHRI R.A. VERMA DATE OF HEARING 15.7.2015 DATE OF PRONOUNCEMENT 2 9 .7.2015 O R D E R PER SHRI B.C. MEENA, AM BOTH THESE APPEALS FILED BY THE ASSESSEEE AND THE REVENUE EMANATE FROM THE ORDER OF THE LEARNED CIT(A)- I, INDORE, DATED 8.1.2013. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER :- (I) THAT THE IMPUGNED ORDER PASSED BY THE LEARNED C IT(A) IS BAD IN LAW AS WELL AS ON THE FACTS AND IT IS BAS ED ON INCORRECT INTERPRETATION OF LAW AND THE FACTS HAVE ALSO BEEN INCORRECTLY CONSTRUED. (II) THAT THE LEARNED CIT(A) HAS ERRED IN TAKING TH E INVESTMENT OF EXEMPTED INCOME BEARING INVESTMENT IN INDIAN COMPANY SHARE AND OTHERS RS.51506462/- IN 3 PLACE OF RS.45684950/- (AFTER CONSIDERING TO APPROV AL OF DETERMINATION OF INVESTMENT IN PENTAGON LABS LTD.) AND ACCORDINGLY INCORRECTLY TAKEN THE UTILIZED BORROWED FUND RS.21834157/- IN PLACE OF 16012645/- THUS INTEREST U/S 14A RELATED TO BORROWED CAPITAL UTILIZED FOR EA RNING EXEMPTED INCOME EXCESSIVELY DISALLOWED ON PROPORTIONATE BASIS AFTER TAKING INTERST CHARGES AM OUNT RS. 1574347/- IN PLACE OF RS.1547350/-. 4. THAT THE LEARNED CIT(A) HAS ERRED IN NOT GIVING HIS FINDING AS WELL AS NOT DECIDING TO THE GROUND OF LU MP SUM DISALLOWANCE RS.20000/- OUT OF TELEPHONE EXPENSES, CONVEYANCE EXPENSES AND CAR DEPRECIATION WHICH HAS BEEN INCURRED FOR BUSINESS PURPOSE. 4 2. THE GROUND OF APPEAL TAKEN BY THE REVENUE READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-I, INDORE HAS ERRED IN DIRECTING TO DELETE THE SHORT TERM CAPITAL GAIN OF RS.34,55,564/- ON SALE OF DIAMONDS ON THE GROUND THAT THE DIAMONDS WERE TAKEN OUT FROM THE WHITE MENTAL AS DECLARED IN THE VDIS 1997 WITHOUT APPRECIATING THE FACT THAT NO MATERIAL EVIDENCE WAS AVAILABLE ON RECORD TO SUBSTANTIATE THAT THE DIAMONDS SOLD WERE THE SAME AS DECLARED IN THE VDIOS 1997. 3. GROUND NOS. 1 AND 5 OF THE ASSESSEES APPEAL ARE GENERAL IN NATURE. 4. GROUND NOS.2 AND 3 ARE WITH REGARD TO SUSTAINING THE DISALLOWANCE MADE U/S 14A OF THE ACT WHEREIN INTEREST 5 RELATING TO BORROWED CAPITAL WAS DISALLOWED AT RS.15,47,350/-. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS ARRIVED AT THE FIGURE OF TOT AL INVESTMENTS OF THE ASSESSEE AT RS.5,65,59,126/-. AFT ER CONSIDERING THE ASSESSEES OWN CAPITAL OF RS.2,96,72,3 05/- THE BALANCE AMOUNT WAS TREATED AS UNSECURED LOAN OF RS.3,75,83,314/- AND BASED ON THAT INTEREST OF RS.15,47,350/- WAS DISALLOWED BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. THE INCOME OF THE ASSESSEE DECLARED UNDER THE HEAD PROFIT AND GAINS WAS ACCEPTED WHERE THE ASSESSEE HAS DECLARED PROFIT ON THE TRADING I N SHARES OF INDIAN COMPANIES AT RS. 6928/-. THE LEARNED CIT(A) TREATED THE INVESTMENT WITH PENTAGON LAB. LTD. FOR BUSINESS PURPOSES AND RECOMPUTED THE DISALLOWANCE AT RS.12,46,228/- ON PROPORTIONATE BASIS. 6 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DECLARED PROFIT ON TRADING IN SHARES OF INDIAN COMPANIES WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2004-05. THERE WAS NO CHANGE IN THE NATURE OF BUSINESS AS THE ASSESSEE WAS ALSO DOING TRADING IN SHARES. THE DOMINANT OBJECT OF THE ASSESSEE WAS TO EARN BUSINESS INCOME AND NOT DIVIDEND O N THE HOLDING OF SHARES. THE DIVIDEND ON SHARES WAS INCIDENTAL TO THE MAIN OBJECT OF THE ASSESSEE WHO WAS TRADING IN SHARES. THIS FACTUAL ASPECT HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE ASSESSEE HAS HELD THE SHARES FOR TRADING PURPOSES ONLY. THE LEARNED COUN SEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LIMITED IN ITA NO. 1131 OF 2013 ORDER DAT ED 17.3.2015. HE ALSO RELIED UPON THE JUDGMENT OF THE 7 HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT (2012) 206 TAXMAN 563 WHEREIN IT HAS BEEN HELD T HAT NO DISALLOWANCE COULD BE MADE U/S 14A IN RESPECT OF DIVIDEND INCOME RECEIVED FROM THE SHARES HELD AS TRADI NG STOCK. HE SUBMITTED A CORRECT DATA WORKING WHICH IS REPRODUCED AS UNDER :- S.NO. PARTICULARS AS PER APPELLANTS SUBMISSION (RS.) AS TAKEN BY LD. A.O. FROM THE AUDITED BALANCE SHEET 1 INVESTMENT IN PARTNERSHUIP FIRM 7,12,059 7,12,058 2 SHARES OF MITTAL WAREHOUSING & CARGO SERVICES PVT. LTD. 14,900 - 3 PPF ACCOUNT 5,00,780 - 4 GOI 9% RELIEF BOND 50,00,000 - 5 SHARES OF AJAY FINANCE 1,33,000 - 6 GOI 8% RELIEF BOND 6,00,000 - 7 SHARES & DEBENTURES A/C 4,25,02,892 4,25,02,892 8 SHARES OF PENTAGON LABS LTD. 2,50,000 2,50,000 9 SECURITY DEPOSIT TO PENGAGON LABS LTD. - 1,25,00,000 10 SECURITY DEPOSIT WITH - 2,00,000 8 ARIHANT FINCAP LTD. 11 SHARES OF INCOME EXEMPTED U/S 20(2A) - 3,94,176 12 TOTAL 4,97,13,631 5,65,59,127 13 LESS: SHARES & DEBENTURES ACCOUNT HELD FOR TRADING -4,25,02,892 14 INVESTMENTS YIELDING EXEMPT INCOME 72,10,739 15 OWN CAPITAL WHICH IS MUCH MORE THAN INVESTMENTS YIELDING EXEMPT INCOME, HENCE FUNDED FROM OWN CAPITAL 2,99,68,827 16 ACCORDINGLY, NO DISALLOWANCE CALLED FOR U/S 14A TOWARDS INTEREST EXPENSES FOR INVESTMENTS IN ASSETS YIELDING EXEMPT INCOME HE ALSO PLEADED THAT RULE 8D IS NOT APPLICABLE AS THIS I S THE ASSESSMENT YEAR 2005-06 AND IN VIEW OF THE DECISION O F THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BO YCE MFG. CO. LTD.; (2010) 328 ITR 81 THE PROVISIONS OF RULE 8D SHALL BE APPLICABLE ONLY WITH EFFECT FROM ASSESSMENT YE AR 2008-09. HE ALSO PLEADED THAT SINCE THE ASSESSEE WAS 9 CARRYING ON COMPOSITE INDIVISIBLE BUSINESS WHICH INC LUDES TRADING IN SHARES, THE SHARES WERE HELD AS STOCK IN TRAD E AND THERE WAS NO NEXUS ESTABLISHED BETWEEN THE BORROWE D FUNDS AND THE INVESTMENT AND ACQUISITION OF SHARES. HE ALSO RELIED ON THE DECISION OF THE HON'BLE M.P. HIGH COURT IN THE CASE OF D&H SECHERON ELECTRODES PVT. LTD.; 13 TAXMAN 372. HE ALSO PLACED RELIANCE ON THE DECISION I N THE CASE OF KEDAR JUTE MFG. CO. LTD.; 82ITR 363 FOR THE PROPOSITION THAT ENTRIES MADE IN THE BAS ARE NOT DETERMINATIVE OF THE NATURE OF TRANSACTION AND PLEADED TH AT NO DISALLOWANCE NEEDS TO BE MADE BY INVOKING PROVISION S OF SECTION 14A. 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. IN OUR CONSIDERED VIEW, THE ASSESSEE SUBMITTED DATAS, AS REPRODUCED ABOVE, WHICH NEEDS TO BE VERIFIED FROM RE CORD. THEREFORE, FOR PURPOSE OF VERIFICATION OF THESE DATAS , WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER. IF 10 THESE DATAS ARE FOUND TO BE IN ORDER THEN NO DISALLOWANC E OF INTEREST IS CALLED FOR BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. ISSUE RESTORED TO THE ASSESSING OFF ICER FOR VERIFICATION. 8. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 9. IN GROUND NO. 4 THE ISSUE INVOLVED IS ABOUT SUSTAI NING THE LUMP SUM DISALLOWANCE OF RS.20,000/- OUT OF VARIOU S EXPENSES INCLUDING TELEPHONE, CONVEYANCE AND CAR DEPRECIATION. 10. WE HAVE HEARD BOTH THE SIDES. THIS DISALLOWANCE HAS BEEN MADE PURELY ON AD HOC BASIS. THERE IS NO SPECIFIC FINDING FOR THIS DISALLOWANCE. THEREFORE, WE FIND NO MERIT IN SUCH AD HOC DISALLOWANCE AND DIRECT THE ASSESSING OFFI CER TO DELETE THE SAME. 11 11. IN THE REVENUES APPEAL, THE ONLY ISSUE IS ABOUT DELETION OF ADDITION OF RS.34,55,564/- MADE ON ACCOUN T OF SALE OF DIAMONDS. 12. WE HAVE HEARD BOTH THE SIDES. THE LEARNED CIT(A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF APPELLANTS AR. THE APPELLANTS SUBMISSION THAT DIAMONDS THAT EMBEDDED IN WHITE METAL ARE ALWAYS CUT AND POLISHED IS CORRECT. SUCH CUT AND POLISHED DIAMOND EMBEDDED IN WHITE METAL CAN ALWAYS BE TAKEN OUT AND SOLD AS SUCH AS HAS BEEN DONE BY THE APPELLANT. IN EARLIER YEARS ALSO SUCH DIAMONDS WERE TAKEN OUT OF WHITE METAL BY THE APPELLANT AND SOLD IN MARKET WHICH HAS BEEN ACCEPTE D BY THE DEPARTMENT. THE APPELLANT HAS ALSO PAID WEAL TH TAX ON SUCH DIAMONDS. THE CARAT OF DIAMOND SOLD IN THE SAME AS HAS BEEN REMAINING WITH THE APPELLANT AFTER 12 SALE OF SUCH DIAMONDS SOLD IN THE SAME AS HAS BEEN REMAINING WITH THE APPELLANT AFTER SALE OF SUCH DIAMONDS IN EARLIER YEARS. IN THE COMPUTATION OF TA XABLE WEALTH AS ON 31.03.2004, 93.52 CARAT DIAMOND VALUED AT RS. 19,65,543/- AS ON 31.03.2003. SIMILARLY, AS ON 31.03.2004, 93.52 CARAT OF DIAMOND VALUED ASSESSMEN T RS. 20,59,350/- HAVE BEEN SHOWN IN THE WEALTH TAX RETURN. HENCE THE ADDITION MADE BY THE A.O. BY HOLD ING THAT THE DIAMOND SOLD ARE NOT THE SAME DIAMONDS AS DISCLOSED IN VDIS IS NOT CORRECT. HENCE THE A.O. IS DIRECTED TO ACCEPT THE COMPUTATION OF CAPITAL GAIN MADE BY THE APPELLANT AND THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 13. AFTER HEARING BOTH THE SIDES, WE HOLD THAT THE AS SESSEE HAS DECLARED DIAMOND AND GOLD JEWELLERY UNDER VDIS, 199 7 VALUED AT RS.28,66,004/-. THIS DECLARATION WAS SUPPORTE D BY THE VALUATION REPORT OF THE GOVERNMENT APPROVED 13 VALUER. THIS DECLARATION WAS ACCEPTED BY THE LEARNED CIT( A) AND THE NECESSARY CERTIFICATE WAS ISSUED. THE ASSESSEE H AS SOLD DIAMONDS STARTING FROM 1998. THE TOTAL DIAMONDS DECLARED UNDER VDIC WERE 601.90 CARATS. THE SALE OF DIAMOND SINCE 1998 HAS BEEN SHOWN AS UNDER :- I) CUT & POLISHED DIAMOND 45.60 CT SOLD ON 23.02. 98 RS.45600 II) CUT & POLISHED DIAMOND 60.45 CT SOLD ON 26.03. 00 RS.1209000 III) CUT & POLISHED DIAMOND120.26CT SOLD ON 04.01.0 1 RS.2405200 IV)CUT & POLISHED DIAMOND 109.24CT SOLD ON 16.01.01 RS.2184800 V) CUT & POLISHED DIAMOND 88.37CT SOLD ON 28.01.01 R S. 1767400 VI) CUT & POLISHED DIAMOND 84.46 CT SOLD ON 06.02.0 1 RS.1689200 ALL THESE SALES HAVE BEEN ACCEPTED BY THE REVENUE IN T HE PAST YEARS. THE REMAINING DIAMONDS WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE REMAINING DIAMONDS WERE ALSO DECLARED IN THE WEALTH-TAX. THE REVENUES CONTEN TION THAT THE DIAMONDS SOLD WERE NOT THE SAME DIAMONDS, 14 WHICH WERE DISCLOSED UNDER VDIS, WAS COMPLETELY BASED ON FLIMSY GROUNDS. 14. BEFORE US, THE REVENUE HAS FAILED TO CONTROVERT T HE FINDINGS RECORDED BY THE LEARNED CIT(A) AS REPRODUCED ABOVE. THEREFORE, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 15. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVENUE STANDS DISMISSED. PRONOUNCED IN OPEN COURT ON 29 TH JULY, 2015 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 29 TH JULY, 2015 DN/-