PARAMJIT SINGH SETHI, MUMBAI V. ITO 19(2)(4), MUMBAI

ITA 353/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48450 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Assessee Lawyers: MILIND KOTHARI
• Keywords: Business income; Cost of acquisition

Judgement Text

1 ITA NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. MR. PARAMJIT SINGH SETH, THE INCOME-TAX OFFICER, 3 RD FLOOR, SAGAR DARSHAN40, VS. 19(2)(4), NORTH AVENUE ROAD, MUMBAI. MUMBAI 400 054. PAN AAJPS2891L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MILIND KOTHARI. RESPONDENT BY: S HRI HARI GOVIND SINGH. O R D E R PER J. SUDHAKAR REDDY : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-30 DATED 25-11-2009 ON THE FOLLOWING G ROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING THAT BORROWED FUNDS WERE UTILIZ ED FOR INVESTMENT IN SHARES AND THAT THE INTEREST OF RS.2,00,151 ON THE BORROWE D FUNDS IS ALLOWABLE AS COST UNDER THE HEAD LONG TERM CAPITAL GAIN AS AGAINST BUSINESS INCOME AS CLAIMED BY THE APPELLANT. 2 ITA NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. 2. WITHOUT PREJUDICE TO GROUND 1, ON THE FACTS AND CIR CUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING THE AOS CONTENTION IN NOT ALLOWING THE INTEREST ON BORROWED FUNDS AGAINST SHO RT TERM CAPITAL GAIN. 2. THE ASSESSEE IS AN INDIVIDUAL AND HAS INCOME FRO M SALARY, PROFITS FROM BUSINESS AND INCOME FROM CAPITAL GAINS AS WELL AS I NCOME FROM OTHER SOURCES. DURING THE YEAR THE ASSESSEE CLAIMED EXPENSES INCUR RED ON BANK CHARGES AND BANK INTEREST AT RS.1,88,214/- AND INTEREST PAID OF RS. 11,937/-. THE INTEREST PAID OF RS.2,00,151/- WAS CLAIMED AS EXPENDITURE FROM INTER EST RECEIVED AND PROFITS EARNED ON DERIVATIVES. THE AO OBSERVED THAT THE ASSESSEE H AD DISCLOSED LONG TERM CAPITAL GAIN WHICH IS EXEMPT U/S 10(38). THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS NOT PROVED THE NEXUS BETWEEN INTEREST BEARING FUNDS AND DEPOSITS WITH PRIVATE LIMITED COMPANIES. HE HELD THAT THE INTEREST BEARIN G FUNDS WERE UTILIZED FOR INVESTMENT IN SHARES. HE HELD THAT THE INTEREST IN QUESTION WOULD BE CONSIDERED AS COST OF ACQUISITION ON LONG TERM CAPITAL GAINS COM PUTED ACCORDINGLY. THE FIRST APPELLATE AUTHORITY CONFIRMED THE SAME BY OBSERVING AS FOLLOWS: 3.4 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDER, SUBMISSION MADE ON BEHALF OF THE APPELLANT AND THE FACTS OF THE CAS E. THE CASE OF THE APPELLANT IS THAT THE INTEREST OF RS.200151/- SHOULD BE ALLOW ED AGAINST BUSINESS INCOME INSTEAD OF AGAINST LONG TERM CAPITAL GAINS ON SALE OF SHARES. IT IS ALSO SUBMITTED THAT THE APPELLANT HAD TAKEN OVERDRAFT FR OM BANK TO ADVANCE LOANS TO CONCERNS BELONGING TO FAMILY MEMBERS FROM WHICH HE HAS RECEIVED INTEREST DURING THE YEAR. ON THE OTHER HAND, THE AO IS OF THE OPINION THAT THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN INTEREST BEARING FUND AND ITS USE FOR DEPOSITING MONEY WITH THE PVT. LTD. COMPANY IN WHICH THE APPELLANT IS DIRECTOR. THE AO HAS HELD THAT BOR ROWED FUNDS HAVE BEEN UTILIZED FOR INVESTMENT IN SHARES AND HENCE INTERES T SHOULD BE ALLOWED AGAINST LONG TERM CAPITAL GAIN ON SALE OF SHARES. F ROM THE SUBMISSION MADE BY THE APPELLANT, I FIND THAT HE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS WHICH THE AO FOUND WAS NOT ESTABLISHED. UNDER THE CIRCUMS TANCES, I DO NOT FIND 3 ITA NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. ANYTHING WRONG IN THE ACTION OF THE AO OF TREATING INTEREST OF RS.2,00,151/- ATTRIBUTABLE TO INVESTMENT IN SHARES. THEREFORE, TH E ADDITION MADE BY THE AO IS CONFIRMED. 3. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE, MR. MILIND KOTHARI, SUBMITTED THAT THE ASSESSEE HAD INTEREST FREE FUNDS AND THE PRESUMPTION IS THAT INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR NON INTE REST BEARING ADVANCES OR IN INVESTMENTS, THE INCOME OF WHICH IS EXEMPT FROM TAX . HE RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIAN CE UTILITIES & POWER LTD. ITA NO. 1398 OF 2008 ORDER DATED 9-1-2009. FURTHER THE LEARNED COUNSEL FILED TWO PAPER BOOKS RUNNING INTO 66 PAGES AND 42 PAGES AND DEMONSTRATED THAT THE SHARES ON WHICH LONG TERM CAPITAL GAINS WERE EARNED, WERE PURCHASED LONG BACK I.E. FROM THE YEAR 1985 ONWARDS AND HENCE THE AO AS WELL AS T HE CIT(APPEALS) WERE FACTUALLY INCORRECT IN COMING TO A CONCLUSION THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING BORROWED FUNDS FOR PURCHASE OF THESE SHARES . ON THIS SOLE GROUND HE SUBMITS THAT THE ORDER OF THE CIT(APPEALS) HAS TO B E VACATED. 4. THE LEARNED DR, SHRI HARI GOVIND SINGH, ON THE O THER HAND, WHILE AGREEING THAT THE SHARES WHICH WERE SOLD, WERE PURCHASED MUC H EARLIER TO THE BORROWING OF FUNDS, POINTED OUT FROM THE PAPER BOOK PAGE NO.1 TH AT THERE WAS INCREASE IN THE INVESTMENT OF SHARES DURING THE CURRENT YEAR. HE SU BMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICAT ION IN LINE WITH THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD. (SUPRA). 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, W E HOLD AS FOLLOWS. 4 ITA NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. 6. AT PAGE 33 OF THE ASSESSEES PAPER BOOK, THE DAT ES OF PURCHASE OF SHARES, WHICH WERE SOLD DURING THE YEAR AND ON WHICH LONG T ERM CAPITAL GAINS HAVE BEEN DECLARED, WERE IN FACT PURCHASED FROM THE YEAR 1985 ONWARDS. THE FINDING OF THE AO THAT THE BORROWINGS OF THE CURRENT YEAR HAVE BEE N UTILIZED FOR THE PURCHASE OF SHARES, WHICH ARE NOW SOLD AND ON WHICH LONG TERM C APITAL GAIN HAS BEEN DECLARED IS FACTUALLY INCORRECT. THUS THE BASIS ON WHICH THE AO COMPUTED THE LONG TERM CAPITAL GAIN IS BAD IN LAW. EVEN OTHERWISE INTEREST PAID ON BORROWED FUNDS CANNOT BE CONSIDERED AS COST OF ACQUISITION. 7. COMING TO THE SUBMISSION OF THE ASSESSEE THAT IT HAD SUFFICIENT FUNDS AND NON INTEREST BEARING FUNDS, WHICH IT CLAIMS TO HAVE INV ESTED IN SHARES, THE INCOME FROM WHICH IS EXEMPT FROM TAX, WE ARE OF THE OPINION THA T THE ISSUE REQUIRES FRESH EXAMINATION BY THE AO. THUS WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN LINE WITH THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA). 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 8 TH DAY OF APRIL, 2011. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR RED DY) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI, DATED: 8 TH APRIL, 2011. WAKODE 5 ITA NO. 353/MUM/2010 ASSESSMENT YEAR : 2006-07. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, C-BENCH (TRUE COPY) BY ORDE R ASSTT. REGIST RAR, ITAT, MUMBAI BEN CHES