The ACIT- 2(1), Bhopal V. Shri Navneet Kumar Sancheti, Ashta

ITA 346/IND/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4864 (ITAT-INDORE)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: A K RINWA
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ACNPS5570J I.T.A.NO. 346 /IND/201 3 A.Y. : 2008-09 ACIT, 2(1), BHOPAL VS. SHRI NAVNEET KUMAR SANCHETI, BADA BAZAR, ASHTA APPELLANT RESPONDENT DEPARTMENT BY : SHRI R.A.VERMA, SR. DR ASSESSEE BY : SHRI A.K. RINWA, ADV. DATE OF HEARING : 26 . 0 8 .201 3 DATE OF PRONOUNCEMENT : 30 . 0 8 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 31.12.2012 FOR THE ASSE SSMENT YEAR 2008-09 IN THE MATTER OF ORDER PASSED U/S 143( 3) OF THE INCOME-TAX ACT, 1961. -: 2: - 2 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE DEPARTMENT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN :- 1. DELETING THE DISALLOWANCE OF RS. 50,979/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION AND EXPENSES ON TRACTOR. 2. DELETING THE DISALLOWANCE OF RS. 18,18,750/- MADE B TO ON ACCOUNT OF INTEREST EXPENSES. 3. DELETING THE ADDITION OF RS. 18,16,662/- MADE BY THE ASSESSING OFFICER BY TREATING SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INCOME. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF GRAINS, PULSES AND OIL SEEDS. DURING TH E COURSE OF ASSESSMENT, THE ASSESSING OFFICER DISALLOWED ASSESS EES CLAIM -: 3: - 3 OF DEPRECIATION OF RS. 50,797/- IN RESPECT OF TRACT OR USED BY HIM IN HIS BUSINESS. THE ASSESSING OFFICER HAS STAT ED THAT THE ASSESSEE OWNS A TRACTOR BUT COULD NOT ESTABLISH ITS BUSINESS USE, HENCE CONSIDERING THE TRACTOR EXPENSES OF RS. 39,114/- AND DEPRECIATION OF RS. 11,805/- THEREON (TOTAL RS. 50,979/-) AS NON-BUSINESS EXPENSES, THE SAME IS BEING DISALLO WED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATION S :- I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE APPELLANT HAS SATISFACTORILY EXPLAINED THE BUSINESS USE OF THE TRACTOR. I DO FIND FORCE IN THE SUBMISSION OF THE APPELLANT THAT NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT OF THE PRECEDING YEAR. THE AMOUNT OF EXPENDITURE CLAIMED BY THE APPELLANT IS ALSO IN TUNE WITH THE INCREASE IN TURNOVER AND THERE IS NO DISPROPORTIONATE INCREASE IN THE AMOUNT OF EXPENDITURE -: 4: - 4 CLAIMED. I AM OF THE CONSIDERED OPINION THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT ANY BASIS, HENCE, THE DISALLOWANCE CANNOT BE SUSTAINED. THE DISALLOWANCE IS, THEREFORE, DELETED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE WAS MANAGING TRACTOR FOR ITS BUSINESS PURPOSES. THE TRACTOR WAS EXCLUSIVELY USED FOR HIS BUSINESS AND THE SAME WAS SATISFACTORILY EXPLAINED. AFTER RECORDING A FINDING TO THE EFFECT THAT EXPENDITURE SO CLAIMED WAS IN TUNE OF THE INCREASE IN TURNOVER AND THERE W AS NO DISPROPORTIONATE INCREASE IN THE AMOUNT OF EXPENDIT URE. THE LD. CIT(A) DELETED THE DISALLOWANCE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) 6. THE ASSESSING OFFICER HAS ALSO DISALLOWED INTEREST EXPENDITURE OF RS. 18,18,750/-. THE ASSESSING OFFIC ER HAS STATED THAT THE ASSESSEE IN HIS BOOKS OF ACCOUNT HA S DEBITED A SUM OF RS. 18,18,750/- ON ACCOUNT OF INTEREST PAID ON UNSECURED LOAN TAKEN FROM THE PERSONS COVERED UNDER THE PROVISIONS OF SECTION 40A(2)(B); THAT THE RATE OF I NTEREST ON -: 5: - 5 SUCH LOAN IS 18 % PER ANNUM; THAT ON PERUSAL OF BAL ANCE SHEET OF THE ASSESSEE IT WAS FOUND THAT THE FUNDS HAVE NO T BEEN USED FOR BUSINESS PURPOSES, RATHER IT WAS PARKED IN CURR ENT ACCOUNT OF THE ASSESSEE, THAT SINCE THE USE OF THE BORROWED MONEY WAS NOT ESTABLISHED BY THE ASSESSEE, HENCE THE AMOUNT O F INTEREST OF RS. 18,18,750/- PAID IS DISALLOWED. 7. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATION S :- I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. I FIND THAT THE ASSESSING OFFICER FAILED TO DEMONSTRATE THAT TH E BORROWED FUNDS WERE PARKED BY THE APPELLANT CONSISTENTLY THROUGHOUT THE YEAR IN THE CURRENT ACCOUNT. THE ASSESSING OFFICER HAS NOT RE BUTTED THE SUBMISSION OF THE APPELLANT THAT AT MANY TIMES DURING THE YEAR THE CURRENT ACCOUNT BALANCE WAS NEGATIVE. THE SUBMISSION OF THE APPELLANT THAT IT HAPPENS IN THE APPELLANTS LINE OF BUSINESS THAT WHEN PURCHASES ARE MADE IN THE MANDI, THE ENTIRE FUNDS AVAILABLE WITH THE APPELLANT GET EXHAUSTED -: 6: - 6 AND WHEN PAYMENTS ARE REALIZED FROM DEBTORS, THE BANK BALANCE GET INCREASED CANNOT BE RULED OUT. I DO FIND FORCE IN THE SUBMISSIONS OF THE APPELLANT THAT IF THE FUNDS ARE IDLE, THE PRUDENT BUSINESSMAN WILL INVEST IN FIXED DEPOSITS OR AT LEAST KEEP THE FUNDS IN SAVING BANK ACCOUNTS SO AS TO EARN INTEREST THEREON. I FIND THAT THE SAME RATE OF INTE REST OF 18 % WAS PAID BY THE APPELLANT IN THE LAST YEAR AND NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN HER ASSESSMENT ORDER U/S 143(3) DATED 31.12.2009, THUS, THERE IS NO REASON TO HOLD THAT THE INTEREST RATE OF 18 % IS TOO HIGH DURING THE YEAR UNDER CONSIDERATION. I AM OF THE CONSIDERED OPINION THAT THE RATE OF INTEREST ON SECURED LOANS FROM THE BANKS CANNOT BE COMPARED WITH THE RATE OF INTEREST ON UNSECURED LOANS. THE CASE OF THE APPELLANT CERTAINLY FINDS STRENGTH FROM THE DECISION IN ITO VS. CHAMBAMAL ROOPCHAND,(2001) 70 TTJ (ASR) 43 AND SETH -: 7: - 7 FAQUIRCHAND KARWA & SONS VS. CIT, (1996) 135 TAXMAN 126 (CHD. TRIB.). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE HAS BORROWED FUNDS FO R THE PURPOSE OF BUSINESS. MERELY BECAUSE OF SOME OF THE OCCASION, THERE WERE CREDIT BALANCE IN THE CURRENT ACCOUNTS, WILL NOT DISENTITLE ASSESSEES CLAIM OF INTEREST ON THE FUND BORROWED FOR THE PURPOSE OF BUSINESS. THE RATE OF INTEREST ON T HE UNSECURED LOAN TAKEN FROM THE RELATIVES CANNOT BE COMPARED TO THE RATE OF INTEREST ON THE FUNDS BORROWED FROM BANKS, IN SO FA R AS BORROWINGS FROM BANKS ARE ALWAYS SECURED LOAN PROVI DED AFTER TAKING COLLATERAL AND OTHER SECURITIES BANK ALSO MO RTGAGE THE IMMOVABLE PROPERTY OF ASSESSEE AGAINST THE LOAN. HO WEVER, LOAN FROM FRIENDS ARE RELATIVES ARE GENERALLY UNSEC URED, THEREFORE, TERMS AND CONDITIONS VIS--VIS RATE OF I NTEREST ON SECURED LOANS AND UNSECURED LOANS ARE ALWAYS DIFFER ENT. IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSING OFFICER H AS ALLOWED 18% INTEREST ON SOME BORROWINGS WHILE FRAMING ASSES SMENT U/S 143(3). ACCORDINGLY, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF IN TEREST. -: 8: - 8 9. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFI CER FOUND THAT THE ASSESSEE WAS TRADING IN SHARES, WHER EIN HE HAS EARNED PROFIT OF RS. 18,16,662/-, WHICH WAS CLAIMED AS SHORT TERM CAPITAL GAIN. LOOKING TO THE VOLUME OF TRANSAC TIONS ENTERED BY THE ASSESSEE, THE ASSESSING OFFICER TREA TED SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. BY THE IMPUGN ED ORDER, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO TR EAT THE SAME AS CAPITAL GAIN AFTER HAVING THE FOLLOWING OBSERVAT IONS :- 15. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. IT IS NOT IN DISPUTE THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF GRAINS, PULSES AND OILSEEDS. THE INVESTMENT IN SHARES HAS BEEN HELD AS INVESTMENT RATHER THAN AS STOCK IN TRADE. I AM O F THE CONSIDERED OPINION THAT THE VOLUME OF TRANSACTION ALONE CANNOT LEAD TO IRREBUTABLE PRESUMPTION THAT THE GAIN WOULD BE ASSESSABLE AS BUSINESS INCOME. THE INTENTION OF THE APPELLANT IS CLEARLY DISCERNIBLE FROM THE FACT THAT THE GAIN WAS CREDITED TO CAPITAL ACCOUNT AND NOT TO PROFIT AND -: 9: - 9 LOSS ACCOUNT. I AM CONVINCED THAT THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSING OFFICER THAT THE GAIN IS ASSESSABLE AS BUSINESS INCOME. HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE HAD SHOWN INVESTMENT IN SHARES NOT AS STOCK IN TRADE, BUT AS INVESTMENT. WHEN THE ASSESSEE ENTERS INTO TRANSACTION OF PURCHASE AND SALE OF SHA RES, ITS INTENTION IS TO BE SEEN ALONGWITH FREQUENCY OF TRAN SACTION. THE ACCOUNTING ENTRY MADE IN THE BOOKS OF ACCOUNTS IS A LSO RELEVANT FOR DETERMINING THE NATURE OF INCOME EARNE D ON SHARES. IF SHARES ARE SHOWN AS INVESTMENT AND NOT A S STOCK-IN- TRADE, PROFIT ARRIVING FROM SUCH SHARES WILL BE CAP ITAL GAIN AND NOT BUSINESS PROFIT. BUT IT IS ONLY ONE OF THE FACT ORS FOR DECIDING THE NATURE OF INCOME ARISING ON SUCH TRANS ACTIONS. THERE ARE SO MANY OTHER FACTORS WHICH ARE REQUIRED TO BE CONSIDERED WHILE DECIDING THE NATURE OF INCOME EARN ED ON SUCH SHARES LIKE VOLUME AND FREQUENCY OF TRANSACTIO N, PERIOD OF HOLDING, PAST TRACK RECORD OF ASSESSEE ETC. . TH E LD. CIT(A) HAS DELETED THE ADDITION BY OBSERVING THAT VOLUME O F -: 10: - 10 TRANSACTION ALONE CANNOT LEAD TO PRESUMPTION THAT G AIN WOULD BE ASSESSABLE AS BUSINESS INCOME. THE LD. CIT(A) WA S NOT JUSTIFIED IN IGNORING THE VOLUME AND FREQUENCY OF T RANSACTION, WHILE DECIDING THE NATURE OF INCOME EARNED ON SALE OF SHARES AND SECURITIES, WHICH WERE HELD AS INVESTMENT. IN T HE INTEREST OF JUSTICE, THE MATTER IS RESTORED BACK TO THE FILE OF A.O. FOR DECIDING AFRESH. WE DIRECT ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH AUGUST, 2013. CPU* 2729