Gujarat Steel & Pipes, Ahmedabad V. The ACIT.,Circle-10, Ahmedabad

ITA 2804/AHD/2011

• Counselvise Citation: 280420514 RSA 2011
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIRAV J SHAH
• Keywords: Business income
• Section: 56

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.L.GEHLOT, ACCOUNTANT MEMBER ./ I.T.A. NO.2804/AHD/2011 ( / / / / ASSESSMENT YEAR : 2008-09) GUJARAT STEEL & PIPES 1 ST FLOOR, MRIDUL TOWERS NR.H.K.HOUSE ASHRAM ROAD AHMEDABAD / VS. ASST.CIT CIRCLE-10 AHMEDABAD ! ./'# ./ PAN/GIR NO. : AAABFG 7077 N ( $ / // / APPELLANT ) .. ( %&$ / RESPONDENT ) $ ' / APPELLANT BY : SHRI NIRAV J.SHAH %&$ ( ' / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. )* ( +,! / / / / DATE OF HEARING : 12/01/2012 -. ( +,! / DATE OF PRONOUNCEMENT : 31/1/2012 / / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XVI , AHMEDABAD DATED 23/09/2011. GROUNDS RAISED ARE REPRODUCED BELOW:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN CONFIRMING ADDITIONS MADE BY ASST.CIT, BY DISREG ARDING THE DETAILED SUBMISSION AND REASONS GIVEN BY ASSESS EE FOR CONSIDERING FINANCIAL CHARGE RECEIPTS AS BUSINESS I NCOME. ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 2 - 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. C IT(A) ERRED IN LAW IN CONFIRMING FINANCIAL CHARGE RECEIPTS OF RS.45,52,483/- AS INCOME FROM INCOME FROM OTHER SOU RCES. 3. LD. CIT(A) ERRED IN LAW IN CONFIRMING ADDITION S OF RS.18,17,932/- ON ACCOUNT OF EXCESS REMUNERATION CL AIMED. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT DATED 23.12.2010 WERE THAT THE ASSESSEE- FIRM IS TRADING IN IRON & STEEL. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD SHOWN FINANCIAL CHARGES OF RS.45,52,483/-. AS PER AO THOSE FINANCIAL CHARGES WERE TREATED BY THE ASSESSEE AS BUSINESS INCOME. WHILE CLAIMING THE REMUNERATION TO PARTNERS THE SAI D INCOME WAS CONSIDERED. FACTS HAVE REVEALED THAT A SUM OF RS.5 ,00,08,000/- WERE ADVANCED TO DEV ARCADE PVT.LTD. IT HAS ALSO BEEN F OUND THAT AN IDENTICAL AMOUNT WAS ADVANCED TO AN ANOTHER CONCERN; NAMELY, DEV DEEP BUILDERS PVT.LTD. ON THE SAID ADVANCE AS PER AO, ASSESSEE H AD EARNED INTEREST OF RS.45,52,483/-. ON ENQUIRY, ASSESSEE HAS FURNISHED SUBMISSIONS, RELEVANT PORTION REPRODUCED BELOW:- .. AT THE OUTSET WE HAVE TO SAY THAT IT WAS RIG HTLY SHOWN AS TRADING RECEIPTS AND THEREFORE REMUNERATION TO PART NERS SHOULD BE CALCULATED AS CLAIMED IN IT RETURN. ONCE AGAIN WE REPEAT THAT WE HAD RECEIVED AN ADVANC E OF RS.10,00,16,000/- FROM M/S.DEV DEEP MALL & DEVELOPE RS PVT.LTD. VIDE BANKERS CHEQUE NO.044271 DATED 21/07/2007 ON CENTRAL BANK OF INDIA (XEROX COPY ENCLOSED MARKED ANEXURE-1 ) AGAINST SUPPLY ORDER OF IRON & STEEL MATERIALS AS PER PROFO RMA INVOICE NO.01 DTD. 17/09/07 (COPY ENCLOSED MARKED ANNEXURE- 2). ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 3 - SUBSEQUENTLY, RS.5,00,08,000/- EACH HAD BEEN GIVEN TO M/S.DEV DEEP BUILDERS PVT.LTD. & DEV ARCADE PVT.LTD. AS AGR EED WITH SAID M/S.DEV DEEP MALL & DEVELOPERS PVT.LTD. WHICH CAN B E SEEN FROM LETTER DATED 21/09/07 (COPY ENCLOSED MARKED ANNEXUR E-3) WE ALSO SUBMIT HEREWITH COPY OF ACCOUNT OF SAID M/S .DEV DEEP BUILDERS PVT. LTD. & DEV ARCADE PVT.LTD. WHICH SHOW S ADVANCES GIVEN AND INTEREST CHARGED BY US [ANNEXURE-4]. AS AGAINST ADVANCE OF RS.10,00,16,000/- A SUPPLY OF RS.1,06,70,783/- AND BEEN MADE UPTO 31/03/2008 WHIC H CAN BE SEEN FROM COPY OF ACCOUNT ENCLOSED [ANNEXURE-5]. INTEREST EARNED FROM M/S.DEV DEEP BUILDERS PVT.LTD. & DEV ARCADE PVT.LTD. IS OUT OF ABOVE SAID BUSINESS RELAT ED TRANSACTIONS AND THEREFORE THE SAME WAS RIGHTLY SHOWN AS TRADING RECEIPT. YOU ARE THEREFORE REQUESTED TO ALLOW REMUNERATION T O PARTNERS AS CLAIMED IN I.TAX RETURN & OBLIGE. 3. THE AO WAS NOT CONVINCED AND HELD THAT THE FINAN CIAL CHARGES ARE EARNED AS PER THE PROVISIONS OF SECTION 56 OF I.T. ACT. THE AO HAS CONCLUDED THAT THE ASSESSEE WAS NOT ENTITLED TO INC LUDE SUCH INTEREST RECEIPTS WHILE WORKING THE AMOUNT OF REMUNERATION T O PARTNERS U/S.40(B) OF IT ACT. THE AO HAS RE-WORKED OUT THE REMUNERATION AVAILABLE TO PARTNERS AT RS.4,82,068/- AS AGAINST THE CLAIM OF RS.23 LACS, HENCE BALANCE OF RS.18,17,932/- DISALLOWED AS EXCES S CLAIM OF REMUNERATION. THE MATTER WAS CHALLENGED. 4. LD. CIT(A) HAS DISCUSSED THE DEFINITION OF BUSI NESS AND THEREAFTER REFERRED THE CASES; NAMELY, MURLI INVEST MENT CO.VS. CIT 167 ITR 368 (RAJ.), CIT VS. VENAD CONDUCTORS (P) LTD. 326 ITR 513 (KER.), ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 4 - T.O.ABRAHAM & COMPANY VS. DY.CIT 325 ITR 201(KER.), SHANTA LAL CHOPRA VS. CIT 214 CTR (HP) 420, FERRO CONCRETE CON STRUCTION (INDIA) (P) LTD. VS. CIT 290 ITR 713 (MP) AND CIT VS. MON ARK TOOLS (P) LTD. 260 ITR 258 (MAD.) AND CIT VS. SHRI RAM HONDA POWE R EQUIP. (DELHI) 289 ITR 475(DELHI). FOLLOWING THESE DECISIONS THE ACTION OF THE AO WAS CONFIRMED. 5. FROM THE SIDE OF THE APPELLANT, LD.A.R. MR. NI RAV J.SHAH APPEARED AND AT THE OUTSET, REFERRED ONE OF THE LETTER RECEI VED FROM M/S.DEV DEEP MALL AND DEVELOPERS PVT.LTD. IN WHICH IT WAS DIRECT ED TO GIVE ADVANCE TO ASSOCIATE CONCERNS, M/S.DEV DEEP BUILDERS PVT.LTD. AND DEV ARCADE PVT.LTD. LD. AR HAS THEREFORE CONTESTED THAT THE T RANSACTION WAS PURELY A BUSINESS RELATED TRANSACTION. THE ASSESSEE HAS REC EIVED A SUPPLY ORDER OF RS.10 CRORES FROM M/S. DEV DEEP MALL AND DEVELOPERS PVT.LTD. THE ASSESSEE HAS ALSO RECEIVED AN ADVANCE OF RS.10 CROR ES FROM THE SAID CONCERN WITH THE CONDITION THAT THE ASSESSEE-FIRM W OULD ADVANCE THE SAME AMOUNT AS A LOAN WITH A REASONABLE RATE OF INT EREST TO THEIR AFOREMENTIONED TWO ASSOCIATE CONCERNS. AN ANOTHE R ARGUMENT HAS ALSO BEEN RAISED THAT AS AGAINST THE INTEREST RECEIPT, S IMULTANEOUSLY THE ASSESSEE HAD TO PAY INTEREST ON THE SAID BORROWINGS . LD. AR HAS MENTIONED THAT THE ASSESSEE-FIRM HAD PAID TOTAL INTEREST OF RS.84,81,568/- AS AGAINST THAT INTEREST RECEIVED WA S ONLY RS.54,03,578/- . IN THE INTEREST ACCOUNT, THUS, THERE WAS A DEFIC IT OF INTEREST OF RS.30,77,990/-. HE HAS THEREFORE SUBM ITTED THAT THERE WAS NO OCCASION ON THE PART OF THE AO TO HOLD THAT FINANCI AL CHARGES RECEIVED AS INTEREST WERE OF RS.45,52,583/- FOR THE PURPOSE OF REDUCTION OUT OF THE ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 5 - BOOK PROFIT. IT WAS NOT THE CORRECT POSITION AS PER THE ACCOUNTS BECAUSE UNDER THAT ACCOUNT THERE WAS A DEFICIT AS PER BOOKS . HE HAS THEREFORE PLEADED THAT THE DISALLOWANCE WAS WRONGLY MADE AND PLACED RELIANCE ON SP EQUIPMENT & SERVICES VS. ACIT, ITA NO.464/JP/0 7 ORDER DATED 30/09/2009. 6. FROM THE SIDE OF THE REVENUE, LD.DR HAS ARGUED T HAT THE ASSESSEE IS NOT IN A MONEY LENDING BUSINESS, THEREFORE THE I MPUGNED INTEREST INCOME WAS NOTHING BUT INCOME FROM OTHER SOURCES. HE HAS ALSO PLEADED THAT THE DEPOSIT WAS NOT CONNECTED WITH THE TRADE DEBTS, THEREFORE INTEREST THEREON CANNOT BE TREATED AS BUSINESS INCO ME. BY PLACING RELIANCE ON THE FINDINGS OF THE LD.CIT(A) HE HAS PL EADED TO AFFIRM THOSE FINDINGS. 7. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED T HE ORDERS OF AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION F ILED. THE ADMITTED FACTUAL POSITION IS THAT UNDER THE INSTRUCTIONS OF DEVDIP MALLS DEVELOPERS PVT.LTD. THE ASSESSEE HAD GIVEN ADVANCE TO TWO CONCERNS; VIZ. M/S.DEV DEEP BUILDERS PVT.LTD. & M/S.DEV ARCADE PV T.LTD. IN LIEU THEREOF, THE ASSESSEE HAD RECEIVED A SUPPLY ORDER O F RS.10 CRORES FROM M/S.DEVDIP MALLS DEVELOPERS PVT.LTD. THE ASSESSEE IS IN THE BUSINESS OF TRADING OF IRON & STEELS AND THEREFORE THE SAID ORDER FROM A BUILDER WAS BENEFICIAL FOR THE BUSINESS OF THE ASSESSEE. T HEREFORE, THE ARGUMENT BEFORE US IS THAT A COMMERCIAL DECISION WAS TAKEN T O ADVANCE THE SAID AMOUNT FOR THE BENEFIT OF THE BUSINESS. HENCE, IT IS VEHEMENTLY CONTESTED THAT THE TRANSACTION WAS PURELY RELATED T O THE BUSINESS OF THE ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 6 - ASSESSEE, THEREFORE THE NATURE OF INCOME WAS NOTHIN G BUT BUSINESS INCOME. AS FAR AS THE CASE LAWS CITED BY THE LD. CIT(A) ARE CONCERNED, THE SAME ARE DISTINGUISHABLE ON FACTS AS ALSO ON LE GAL PROPOSITION LAID DOWN THEREIN. NEITHER THIS IS A CASE WHERE SURPL US FUNDS HAVE BEEN INVESTED NOR IT IS CASE OF SHORT TERM DEPOSIT SO AS TO TREAT THE INTEREST INCOME UNDER THE HEAD OTHER SOURCES. UNDISPUTE DLY, IT IS CORRECT THAT THE ASSESSEE IS NOT IN A MONEY LENDING BUSINESS BUT THE TRANSACTION WAS NOTHING BUT DOVE-TAILED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. WE HAVE COME ACROSS A DECISION OF ITAT RAJKOT BENCH PR ONOUNCED IN THE CASE OF ACIT VS. SHETH BROTHERS [2006]99 TTJ 189(R AJ.), WHEREIN THE RESPECTED CO-ORDINATE BENCH HAS EXPRESSED THAT THE INCOME WHICH IS EMBEDDED IN THE NET PROFIT AND SHOWN AS INCOME IN T HE PROFIT AND LOSS ACCOUNT OF THE FIRM CAN BE TAKEN INTO CONSIDERATION FOR ALLOWING DEDUCTION OF REMUNERATION TO PARTNERS U/S.40(B) OF I.T. ACT WITHOUT EXCLUDING THE INTEREST INCOME AND THAT THE PROFITS SO CALCULATED SHALL FORM PART OF THE BOOK PROFIT. WE THEREFORE REVERSE T HE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO ALLOW THE CLAIM. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. SD/- SD /- ( A.L. GEHLOT ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31/ 01 /2012 0,.., .../ T.C. NAIR, SR. PS ITA NO.2804/AHD /2011 GUJARAT STEEL & PIPES VS. ASST.CIT ASST.YEAR - 2008-09 - 7 - / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+/ COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. + )3 / CONCERNED CIT 4. )3() / THE CIT(A)-XVI, AHMEDABAD 5. 167 %+ , , / DR, ITAT, AHMEDABAD 6. 78 9* / GUARD FILE. / / / /) ) ) ) / BY ORDER, &1+ %+ //TRUE COPY// : :: :/ // / ' ' ' ' ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..16.1.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17.1.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S31.1.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.1.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER