S.P. FINANCE & TRADING LTD, MUMBAI V. ITO WD 7(2)(3), MUMBAI

ITA 2895/MUM/2010

• Counselvise Citation: 289519914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 06-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Source of fund
• Section: 263; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI RAJENDRA SI NGH (AM) ITA NO. 2895/M/2010 ASSESSMENT YEAR:2005-2006 M/S S.P. FINANCE & TRADING LTD 307, B WING TRADE WORLD, KAMALA CITY, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. PAN: AABCS9687F THE INCOME TAX OFFICER, WARD 7(2)(3), MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI SANJIV M SHAH, AR SHRI SATBIR SINGH, CIT-DR DATE OF HEARING: DATE OF PRONOUNCEMENT: 06-09-2011 -09-2011 O R D E R PER RAJENDRA SINGH (AM): 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15-3-2010 OF CIT (A) FOR THE ASSESSMENT YEAR 2005-06 U/S 263 OF THE INCOME TAX ACT. THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF CIT U/S 263 AS WELL AS THE MERIT OF DIRECTIONS ISSUED BY HIM TO THE AO. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED TOTAL INCOME OF RS. 87,89,583/- C ONSISTING OF DIVIDEND OF RS. 80,17,500/-, GROSS INTEREST OF RS. 11,01,085/-, GRO SS COMPENSATION OF RS. 2,62,800/- AND PROFIT ON SALE OF INVESTMENT OF RS. 2,15,576/-. THE ASSESSEE HAD TREATED THE INTEREST INCOME AS BUSINESS INCOME AND HAD SHOWN THE INCOME FROM BUSINESS OF RS. 7,77,317/- IN ADDITION TO INCOME FR OM CAPITAL GAIN, DIVIDEND, HOUSE ITA NO:2895/M/2010 M/S S.P. FINANCE & TRADING LIMITED 2 PROPERTY ETC. THE AO IN THE ASSESSMENT MADE U/S 14 3(3) HAD ACCEPTED THE INTEREST INCOME AS BUSINESS INCOME. SUBSEQUENTLY, CIT EXAMINED THE RECORDS AND NOTED THAT THE ASSESSEE HAD SEVERAL ASSOCIATE/GROUP ENTERPRISES OWNED BY THE DIRECTORS/SHAREHOLDERS. THE ASSESSEE HAD RECEIVED THE ENTIRE INTEREST FROM VARIOUS GROUP COMPANIES AND OTHER FAMILY MEMBERS WH O WERE DIRECTORS. THE INTEREST INCOME HAD BEEN RECEIVED FROM DEPLOYMENT O F SURPLUS FUNDS WITH THE GROUP CONCERNS AND THE FAMILY MEMBERS AND, THEREFOR E, IT SHOULD HAVE BEEN ASSESSED AS INCOME FROM OTHER SOURCES. CIT, THERE FORE, ISSUED SHOW CAUSE NOTICE U/S 263, ASKING THE ASSESSEE TO EXPLAIN AS TO WHY T HE ASSESSMENT ORDER SHOULD NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. THE ASSESSEE EXPLAINED THAT IT WAS A NBFC COMPANY, DULY REGISTER ED WITH RBI. THE COMPANY WAS IN FINANCIAL BUSINESS SINCE INCEPTION AND HAD C OMPLETED 24 YEARS. THE MAIN ACTIVITY OF THE ASSESSEE WAS THE LENDING AND, THERE FORE, INTEREST INCOME HAD BEEN OFFERED AS BUSINESS INCOME WHICH HAD BEEN ACCEPTED FOR THE LAST 23 YEARS. CIT, HOWEVER, DID NOT ACCEPT THE EXPLANATION. IT WAS OB SERVED BY HIM THAT MERELY BECAUSE THE COMPANY WAS REGISTERED WITH RBI COULD N OT AUTOMATICALLY LEAD TO THE CONCLUSION THAT IT WAS DOING MONEY LENDING BUSINESS . THE ASSESSEE WAS REQUIRED TO SHOW THAT IT WAS ACTUALLY DOING MONEY LENDING. IN THIS CASE, THE ASSESSEE HAD PARKED THE ENTIRE FUNDS WITH ASSOCIATE CONCERNS. I T WAS UNBELIEVABLE THAT A PERSON DOING MONEY LENDING BUSINESS COULD NOT LEND MONEY T O A SINGLE OUTSIDER. HE, THEREFORE, CONCLUDED THAT THE ASSESSEE WAS NOT DOIN G MONEY LENDING BUSINESS AND IT HAD ONLY INVESTED SURPLUS FUNDS WITH THE GROUP C ONCERNS, INCOME FROM WHICH WAS REQUIRED TO BE TREATED AS INCOME FROM OTHER SOU RCES. IT WAS ALSO OBSERVED BY HIM THAT THE ASSESSEE HAD CLAIMED HUGE EXPENSES AGA INST THE BUSINESS INCOME WHICH WERE NOT REQUIRED TO BE ALLOWED AS ONLY STATU TORY EXPENSES SUCH AS AUDIT FEES, MEMBERSHIP FEES ETC., WAS REQUIRED TO BE ALLO WED. HE, ACCORDINGLY, SET ASIDE THE ORDER OF AO AND DIRECTED HIM TO PASS A FRESH OR DER IN TERMS OF DIRECTIONS ITA NO:2895/M/2010 M/S S.P. FINANCE & TRADING LIMITED 3 ISSUED BY HIM. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE CIT THAT THE ASSESSEE WAS A NON-BANKING FINANCE COMPANY AND ITS MAIN ACTIVITY WAS MONEY LENDING AND INCOME FROM INTEREST OFFERED AS BUSINESS INCOME HAD BEEN ACCEPTED FOR THE LAST 23 YEARS. IN ASSESSM ENT YEAR 2004-05, THE AO IN THE ASSESSMENT ORDER U/S 143(3) CLEARLY MENTIONED T HAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCE. IN ASSESSMENT YEAR 2005-06 ALSO, THE INTEREST INCOME WAS ACCEPTED AS BUSINESS INCOME U/S 143(3). SUBSEQUENTLY, THE AO HAD ISSUED NOTICE U/S 154, BUT AFTER RECEIVING THE REPLY OF THE ASSESSEE HAD NOT PASSED ANY ORDER U/S 154. IT WAS FURTHER ARGUED THAT THERE WAS NO REQUIREMENT OF LAW THAT BUSINESS CANNOT BE D ONE WITH THE GROUP CONCERNS. IT WAS ALSO SUBMITTED THAT EVEN A SINGLE TRANSACTIO N COULD BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE INCOME FROM WHICH CAN BE ASSESSED AS BUSINESS INCOME. HE PLACED RELIANCE ON THE FOLLOWING JUDGME NTS IN SUPPORT OF THE PROPOSITION THAT EVEN A SINGLE TRANSACTION WITH A G ROUP CONCERN CAN BE CONSIDERED AS A BUSINESS TRANSACTION. (I). 65 ITR 432 (PATNA) IN CASE OF CIT VS. DALMIA J AIN & COMPANY LTD. AND OTHERS. (II). 113 ITR 483 (CAL) IN CASE OF CIT VS. CENTRAL KURKHAND COAL CO LTD (III). 140 ITR 740 (MUM) IN CASE OF ADDL. CIT VS. PUTO PVT. LTD. 3.1. THE LEARNED AR FOR THE ASSESSEE FURTHER SUBMIT TED THAT AO HAD TAKEN ONE OF THE POSSIBLE VIEWS HOLDING THE INTEREST AS A BUSINE SS INCOME WHICH WAS THE VIEW TAKEN IN THE EARLIER YEARS AND, THEREFORE, IN SUCH A CASE NO ACTION U/S 263 COULD BE TAKEN. RELIANCE WAS PLACED ON THE JUDGMENTS OF HON BLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO., (243 ITR 83). ITA NO:2895/M/2010 M/S S.P. FINANCE & TRADING LIMITED 4 3.2. LEARNED DR ON THE OTHER HAND ARGUED THAT ACTIO N U/S 263 CAN BE TAKEN IN CASE OF INCORRECT ASSESSMENT OF FACT OR FOR INCORRE CT APPLICATION OF LAW OR FOR NON- APPLICATION OF MIND. HE PLACED RELIANCE ON THE JUD GMENT OF HONBLE HIGH COURT OF HIMACHAL PRADESH IN CASE OF HP FINANCIAL CORPORATIO N (186 TAXMAN 105). IT WAS ALSO SUBMITTED THAT THERE WAS NO DISPUTE THAT BUSIN ESS COULD BE DONE WITH A SISTER CONCERN ALSO BUT THE REAL ISSUE WAS PARKING SURPLUS FUNDS WITH THE SISTER CONCERNS, INCOME FROM WHICH HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES. LEARNED DR ALSO ARGUED THAT EVEN ON DEBATABLE ISSUES, ACTION U /S 263 COULD BE TAKEN. REFERENCE WAS MADE BY HIM TO THE JUDGMENT OF HONBL E HIGH COURT OF PATNA IN CASE OF CIT VS. PUSHPADEVI (164 ITR 639) IN WHICH A SSESSMENT MADE WITHOUT MAKING ANY ENQUIRY REGARDING SOURCE OF FUNDS USED F OR THE BUSINESS WAS HELD ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED INC OME FROM HOUSE PROPERTY, CAPITAL GAIN, DIVIDEND AND INTEREST INCOME. THE GR OSS INTEREST OF RS. 11,01,085/- HAD BEEN DECLARED BY THE ASSESSEE AS INCOME FROM TH E BUSINESS. THE ASSESSMENT HAD BEEN COMPLETED BY THE AO U/S 143(3) AFTER SCRUT INY. THE AO HAD ISSUED A QUESTIONNAIRE IN WHICH HE HAD ESPECIALLY CALLED FOR A DETAILED NOTE ON BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY. THEREFORE, IT CANNOT BE SAID THAT AO HAD COMPLETED THE ASSESSMENT WITHOUT ANY EXAMINATION OR ANY APPLICATION OF MIND. THE JUDGMENT OF HONBLE HIGH COURT OF PATNA IN CASE OF PUSHPADEVI (SUPRA), RELIED UPON BY THE LEARNED DR, DOES NOT THEREFORE APPLY TO THE FACTS OF THE CASE AS IN THAT CASE THE AO HAD ACCEPTED THE SOURCE OF FOUNDS WITHOUT ANY EXAMINATION OR ENQUIRY. IN ANY CASE, EVEN THE CIT IN THE ORDER U/ S 263 HAS NOT ALLEGED THAT ASSESSMENT HAD BEEN COMPLETED BY THE AO WITHOUT ANY ENQUIRY/EXAMINATION AS HE HIMSELF MENTIONED IN THE ORDER U/S 263 THAT AO HAD CALLED A DETAILED NOTE ON BUSINESS ACTIVITY. IT IS, THUS, CLEAR THAT THE AO HAD EXAMINED THE NATURE OF INCOME ITA NO:2895/M/2010 M/S S.P. FINANCE & TRADING LIMITED 5 OF THE ASSESSEE. CIT HAS TAKEN THE VIEW THAT THE I NTEREST INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES ONLY ON THE G ROUND THAT THE MONEY HAD BEEN LENT ONLY TO GROUP CONCERNS AND FAMILY MEMBERS . THERE CANNOT BE ANY BAR ON BUSINESS TRANSACTIONS WITH GROUP CONCERNS/FAMILY MEMBERS WHICH HAS EVEN BEEN ACCEPTED BY THE LEARNED DR UNLESS THE TRANSACT IONS ARE COLOURABLE OR BOGUS TRANSACTIONS. THE VARIOUS JUDGMENTS RELIED UPON BY THE LEARNED DR AS MENTIONED IN THE PARA 3 SUPPORT TO THE ABOVE PROPOSITION. IN FACT, EVEN A SINGLE TRANSACTION, ON THE FACTS OF THE CASE TO BE CONSIDERED AS AN ADV ENTURE IN THE NATURE OF TRADE FROM WHICH INCOME HAS TO BE ASSESSED AS BUSINESS IN COME. THERE IS NO DISPUTE THAT THE ASSESSEE IS AN INVESTMENT AND FINANCE COMP ANY DULY REGISTERED WITH RBI. THE INTEREST INCOME RIGHT SINCE INCEPTION HAS BEEN ASSESSED BY THE DEPARTMENT AS BUSINESS INCOME. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE VIEW TAKEN BY THE AO IS DEFINITELY ONE OF THE P OSSIBLE VIEWS AND IN SUCH CASES NO ACTION CAN BE TAKEN U/S 263. THIS VIEW IS SUPPO RTED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL COMPANY (SUPRA). THE ARGUMENT OF THE LEARNED DR THAT ACTION U/S 263 CAN BE TAKEN EVEN ON DEBATABLE ISSUES IS CONTRARY TO THE JUDGMENT OF APEX COURT ME NTIONED ABOVE. THEREFORE, IN OUR VIEW, ACTION TAKEN BY CIT HOLDING THE ASSESSMEN T ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE CANNOT BE SUSTAINED. THE S AME IS, THEREFORE, SET ASIDE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 28 TH SEPTEMBER, 2011 SD/- SD/- (D.K. AGARWARL) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28-09-2011 AT :MUMBAI OKK ITA NO:2895/M/2010 M/S S.P. FINANCE & TRADING LIMITED 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR J BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI