ARTI R. KATHOTIA, MUMBAI V. ITO WD 2(1)(4), MUMBAI

ITA 3357/MUM/2010

• Counselvise Citation: 335719914 RSA 2010
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK PER R K
• Assessee Lawyers: R C JAIN
• Keywords: Business income; Business expenditure; Opportunity of being heard
• Section: 14A

Judgement Text

1 ITA NO. 3357/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI G GG G BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI D MANMOHAN, VP & D MANMOHAN, VP & D MANMOHAN, VP & D MANMOHAN, VP &SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM ITA NO. ITA NO. ITA NO. ITA NO. 3357/MUM/2010 3357/MUM/2010 3357/MUM/2010 3357/MUM/2010 (ASST YEAR 2006-07) SMT ARTI R KATHOTIA THE INTERNATIONAL HOUSE 4 TH FLOOR NEW MARINE LIENS CROSS ROAD NO.1 NEAR AMERICAN CENTRE NO. 16 K M K ROAD, CHURCHGATE MUMBAI 400 020 VS THE INCOME TAX OFFICER WARD 2(1)(4) MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AGSPK0722H A SSESSEE BY SHRI R C JAIN REVENUE BY SHRI A K NAYAK PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26.2.2010 OF THE CIT(A)-23, MUMBAI RELATING TO ASSE SSMENT YEAR 2006-07. 2 THE ASSESSEE, IN ITS GROUNDS OF APPEAL HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 18,41, 873/ MADE BY THE ASSESSING OFFICER U/S 36(1)(III) OF THE I T ACT AND ALTERNAT IVELY UNDER RULE 8D OF THE I T RULES R.W.S 14A OF THE I T ACT. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES AND SE CURITIES. IN THE P&L ACCOUNT FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD SHOWN TOTAL SALE OF SHARES AND SECURITIES AT RS. 2,30,95,121/-. BESIDES, THE A SSESSEE HAS ALSO CREDITED 2 ITA NO. 3357/MUM/2010 DIVIDEND OF RS. 6,720/-, LONG TERM CAPITAL GAIN OF RS. 90,34,194/-, SHORT TERM CAPITAL GAIN OF RS. 1,63,503/-, INTEREST ON SB ACCO UNT AMOUNTING TO RS. 13,636/-, INTEREST ON FDR AMOUNTING TO RS. 137/-, INTEREST ON PPF ACCOUNT AMOUNTING TO RS. 29,320/- AND INTEREST ON RBI RELIEF BONDS AMOUN TING TO RS. 19,431/-. THE ASSESSEE HAS SHOWN THE NET PROFIT OF RS. 92,60,018/ -. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED INTEREST RS. 18 ,41,873/- ON LOANS. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE ASSE SSING OFFICER NOTED THAT THE SAME HAS BEEN PAID ON ACCOUNT OF LOANS OBTAINED FRO M M/S KHAZANA TRADELINKS LTD. THE ASSESSING OFFICER NOTED THAT THE LOAN OB TAINED FROM M/S KHAZANA TRADELINKS LTD HAS GONE FOR INVESTMENT IN RESIDENTI AL FLAT AND OTHER INVESTMENTS, WHICH ARE NOT RELEVANT TO HER BUSINESS. HOWEVER, T HE ASSESSEE HAS CLAIMED SUCH INTEREST ON THE LOANS BORROWED FOR HER PERSONAL IN VESTMENT AS BUSINESS RELATED AND DEBITED THE INTEREST PAID THEREIN AS BUSINESS EXPENDITURE WITH A VIEW TO REDUCE HER BUSINESS INCOME AND THEREBY REDUCING HER TAX LIABILITY. HE, THEREFORE, DISALLOWED THE CLAIM OF INTEREST AMOUNTING TO RS. 1 8,41,873/-. EVEN OTHERWISE ALSO, THE ASSESSING OFFICER HELD THE SAME AS NOT AL LOWABLE IN VIEW OF THE PROVISIONS OF SEC. 14A OF THE I T ACT R.W.R 8D OF THE I T RULES. 2.3 IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE FOR THE APP ELLANT AND THE ASSESSMENT ORDER THE AO HAS CLEARLY BROUGHT OUT THE BASIS ON WHICH THE ADDITION HAS BEEN MADE. IN F ACT, THE APPELLANT HAS HIMSELF ADMITTED BEFORE THE AO VIDE L ETTER DATED 24.12.2008 THAT MOST PAYMENTS VIZ. PURCHASE O F FLAT, INVESTMENT IN SHARE APPLICATION MONEY, PURCHASE OF JEWELLERY AND PURCHASE OF SHARES HAVE BEEN PAID OUT OF FUNDS RECEIVED FROM M/S KHAZANA TRADELINKS P LTD . IN VIEW OF THE FACT OF SUCH ADMISSION, THE QUESTION OF PRES UMPTION 3 ITA NO. 3357/MUM/2010 THAT INTEREST FREE FUNDS HAVE BEEN USED FOR INVESTM ENT AND BORROWED FUNDS HAVE BEEN USED FOR BUSINESS WOULD NO T APPLY. THUS THE ADDITION MADE BY THE AO IS CONFIRME D. 3 AGGRIEVED BY SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL HERE BEFORE US. 4 THE LD COUNSEL FOR THE ASSESSEE, REFERRING TO THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) SUBMITTED THAT A DETAILED FUND FL OW STATEMENT WAS GIVEN BEFORE THE CIT(A) GIVING THE DETAILS OF INFLOW AND OUTFLO W OF FUNDS. HE SUBMITTED THAT SINCE PART OF THE LOAN HAS BEEN UTILIZED FOR PURCHA SE OF RESIDENTIAL FLAT; THEREFORE, INTEREST U/S 24(B) OF THE IT ACT, 1961 AMOUNTING TO RS. 6,21,759/-, WHICH SHOULD HAVE BEEN ALLOWED HAS NOT BEEN ALLOWED TO THE ASSES SEE. HE SUBMITTED THAT ON THE BASIS OF THE BORROWED FUNDS UTILIZED FOR OWN BU SINESS PURPOSE AND AFTER ALLOWING DEDUCTION U/S 24(B) FOR RS. 6,21,786/-, T HE NET DISALLOWANCE COMES TO RS. 7,59,551/- ONLY. 4.1 IN HIS ALTERNATE SUBMISSION, HE SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER OR CIT(A) FOR FRESH ADJUDICATION SINCE THE LOWER AUTHORITIES HAVE NOT CONSIDERED THE AVAILABILITY OF THE FUNDS FOR NON-BUSINESS PURPOSE SINCE ONLY A PART OF THE BORROWED FUND HAS BEEN UTILIZED FOR NON BUSINESS PURPOSES AND MAJOR BORROWED FUNDS HAVE BEEN UTILIZE D FOR BUSINESS PURPOSES. 4.2 THE LD DR WHILE SUPPORTING THE ORDERS OF THE AU THORITIES BELOW, SUBMITTED THAT HE HAS NO OBJECTION, IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 4 ITA NO. 3357/MUM/2010 5 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE PARTIES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND MERIT IN THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE MATTER SHOULD BE SET ASID E TO THE FILE OF THE ASSESSING OFFICER SINCE ONLY A PART OF THE BORROWED FUNDS H AS BEEN UTILIZED FOR NON BUSINESS PURPOSES, WHICH ATTRACTS DISALLOWANCE OF I NTEREST U/S 36(1)(III) OF THE I T ACT. FURTHER, THE CLAIM OF THE ASSESSEE THAT INTERE ST PAID ON LOANS UTILIZED FOR THE PURPOSE OF PURCHASE OF RESIDENTIAL FLAT, WHICH IS S ELF OCCUPIED AND ALLOWABLE U/S 24(B) OF THE I T ACT, HAS NOT BEEN CONSIDERED BY EI THER OF THE AUTHORITIES BELOW. IN OUR OPINION, INTEREST U/S 36(1)(III) HAS TO BE D ISALLOWED ONLY ON THAT PART OF THE BORROWED FUNDS, WHICH HAS BEEN UTILIZED FOR NON BUS INESS PURPOSES. THE ENTIRE INTEREST CANNOT BE DISALLOWED, IN CASE THE ASSESSEE IS ABLE TO PROVE THE NEXUS BETWEEN THE UTILIZATION OF THE BORROWED FUNDS FOR B USINESS PURPOSES AND NON- BUSINESS PURPOSES. HOWEVER, IN THE INSTANT CASE, IT APPEARS THAT THE SAME HAS NOT BEEN EXAMINED PROPERLY AND THE ASSESSING OFFICE R HAS DISALLOWED THE ENTIRE INTEREST OF RS. 18,41,873/-. UNDER THESE FACTS AND CIRCUMSTANCES AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE T HE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO GIVE ONE MO RE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION O F THE ASSESSING OFFICER THE NEXUS OF BORROWED FUNDS UTILIZED FOR BUSINESS AND N ON BUSINESS PURPOSES. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 5 ITA NO. 3357/MUM/2010 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 20 TH , DAY OF APRIL 2011 SD/- SD/- ( (( ( D MANMOHAN D MANMOHAN D MANMOHAN D MANMOHAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 20 TH , APRIL 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI