The ITO, Ward-6(2), Ahmedabad V. Smt. Mrudulaben Harshadbhai Patel, Ahmedabad

ITA 3532/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8315 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Capital asset; Business expenditure; Cost of acquisition; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ITO WARD - 3(3)(3), AHMEDABAD (APPELLANT) VS SMT. MRUDULABEN HARSHADBHAI PATEL, 100, SARTHI RAW HOUSE, GURUKUL ROAD, MEMNAGAR, AHMEDABAD PAN: ABNPP1841N (RESPONDENT) REVENUE BY : S H RI V.K. SINGH , SR. D . R. ASSESSEE BY: S H RI SUNIL TALATI , A.R. DATE OF HEARING : 28 - 09 - 2 017 DATE OF PRONOUNCEMENT : 09 - 10 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - T HIS REVENUE S APPEAL FOR A.Y. 2005 - 06 , AR IS ES FROM ORDER OF THE CIT(A) - 3, AHMEDABAD DATED 15 - 10 - 2015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 3532 / A HD/20 15 A S SESSMENT YEAR 200 7 - 08 I.T.A NO. 3532 /AHD/20 15 A.Y. 2007 - 08 PAGE NO ITO VS. SMT. MRUDULABEN HARSHADBHAI 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.46,91,410/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED AS COST OF ACQUISITION OF SHARES UNDER THE HEAD INCOME FROM CAPITAL GAIN'. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY RELYING ON THE DECISION OF HON'BLE ITAT IN THE CASE OF CIT VS SHRISTI SECURITIES (P) LTD. (183 TAXMAN 159) (BOM.); AS FACTS OF THE PRESENT CASE ARE DIFFERENT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISS IONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) MAY BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. IN THIS CASE, RE TURN OF INCOME DECLARING INCOME OF RS 150583/ - WAS FILED ON 5 TH AUGUST, 2008. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 1 ST OCTOBER, 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 46 , 91 , 410/ - AS PART OF COST OF ACQUISITION OF SHARE AS DEDUCTION FROM THE CAPITAL GAIN AROSE O N SALE OF SHARE. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF INTEREST EXPENDITURE . AGG RIEVED AGAINST THE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: - 3. DECISION: - I HAVE GONE THROUGH THE OBSERVATION OF THE A.O. IN ASSES SMENT ORDER AND THE FINDINGS OF THE CIT(A) AND ALSO THE WRITTEN SUBMISSION FILED BY THE APPELLANT. IT IS SEEN THAT THE HON'BLE IT AT HAS SET ASIDE THE ISSUE FOR DECISION DE NOVO AFTER VERIFYING THE FACTS AS HELD IN CASE OF CIT VS. SHRISTI SECURITIES (P) LT D., 183 TAXMAN 159 (BOM.) THAT IF FUNDS ARE BORROWED BY AN INVESTMENT COMPANY FOR MAKING INVESTMENT IN SHARES THEN INTEREST PAID ON SUCH BORROWED FUNDS WOULD BE DEDUCTIBLE U/S 36(1 )(III) OF IT ACT. THE APPELLANT HAS CLAIMED THE INTERE ST EXPENDITURE OF RS. 46,91,410/ - ON THE BORROWED FUNDS , WHICH WERE USED AND MANAGED BY THE BROKER ON BEHALF OF THE APPELLANT FOR MAKIN G AN INVESTMENT IN THE SHARES. T HE STATEMENT SHOWING THE COMPLETE DETAILS OF BORROWED FUNDS TAKEN AND USED FOR THE PURPOSE MAKING AN INVESTMEN T IN EQUITY SHARES SUCH AS NAME OF SHARES, DATE OF ALLOTMENT , ALLOTTED QUANTITY, ALLOTMENT RATE] INTEREST CHARGED BY BROKERS FOR THE USE OF FUNDS, TOTAL COST OF ACQUISITION ALONG WITH INTEREST, DETAILS OF SALE SUCH AS SALE DATE, QUANTITY, SALE RATE , SALE CONSIDERATION RECEIVED AND PROFIT / LOSS ON SALE ETC. HAS BEEN FILED. FURTHER THE COPIES OF LOAN ACCOUNT STATEMENT OBTAINED FROM THE BROKER SHOWING THE COMPLETE DETAILS AS MENTIONED IN THE CHART ALONG WITH BANK STATEMENT OF THE APPELLANT SHOWING THE REPAY MEN TS OF FUNDS MADE TO THE BROKER, DU RING THE YEAR ONLY ARE ALSO SUBMITTED IN SIX PAGES. ALSO I.T.A NO. 3532 /AHD/20 15 A.Y. 2007 - 08 PAGE NO ITO VS. SMT. MRUDULABEN HARSHADBHAI 3 THE COMPLETE DETAILS OF TOTAL CAPITAL GAIN / LOSS CLAIMED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION IS ALSO SUBMITTED IN ONE PAGE. THE APPELLANT BEING AN INVESTOR HAS INVESTED THE FUND IN THE SHARES OF VARIOUS COMPANIES IN ORDER TO EARN DIVID END. THE APPELLANT HAS BORROWED MONE Y AND IMMEDIATELY THEREAFTER INV ESTED SHARES THROUGH I.P.O., WHICH HAS BEEN VERIFIED. THE RECORD AVAILABLE CLEARLY ESTABLISHES THE NEXUS BETWEEN AMOUNT BORROWED AND INVESTMENT MADE IN SHARES IS CLEARLY PROVED BEYOND DOUBT AND T HUS THE PAYMENT OF INTEREST SHOULD BE TREATED AS COST OF SHARES BECAUSE THE BORROWED MONEY IS WHOLLY AND EXCLUSIVELY UTILIZED FOR THE PURPOSE OF INVESTMENT IN S HARES IN ORDER TO EARN DIVIDEND. THE INTEREST IS PAID TO THE LENDERS ONLY AND CLAIMED AS COST OF THE SHARES OF THE COMPANIES BY THE APPELLANT. THUS THE RATIO LAID DOWN IS CASE OF CIT VS. SHRISTI SECURITIES (P) LTD., 183 TAXMAN 159 (BOM.) IS CLEARLY APPLICA BLE TO THIS CASE HAVING IDENTICAL FACTS. I AGREE WITH THE APPELLANT ON CONTENTION THAT THE INTEREST IS NOT CLAIMED AS ANY OTHER EXPENDITURE BUT CLAIMED AS PART OF COST OF ACQUISITION SHARES. IN VIEW OF ABOVE FACTS AND IN COMPLIANCE TO ITAT'S DIRECTION, THE RATIO IN THE CASE OF CIT VS. SHRISTI SECURITIES (P) LTD., 183 TAXMAN 159 (BOM.) IS FOUND APPLICABLE IN APPELLANT'S CASE. THE ADDITION MADE BY A.O. OF RS.46,91,410/ - IS HEREBY DELETED. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE DEPA RTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL CONTENDED THAT ASSESSEE HAS BORROWED LOAN FOR MAKING INVESTMENT IN THE SHARE S ON WHICH IT HAS PAID INTEREST, THEREFORE, ON SALE OF SHARE, THE ASS ESS EE IS ENTITLED FOR DEDUCTION ON INTEREST PAYMENT AS PER THE RATIO LAID DOWN IN THE CASE OF THE CIT VS. SHRISTI SECURITIES PVT. LTD. 183 TAXMANN. 159 (BOMBAY). 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. T HE LD. CIT(A) HAS ALL OWED APPEAL OF THE ASSESSEE AFTER PLACING RELIANCE ON THE JUDICIAL PRONOUNCEMENT OF THE HON BLE HIGH COURT OF BOMBAY IN THE CASE OF SHRIS TI SECURITIES PVT. LTD. 183 TAXMANN 159 (BOMBAY). WE OBSERVED THAT IT IS UNDISPUTED FACT THAT ASSESSEE HAS INVESTED TH E BO RROWED FUND IN THE ACQUISITION O F SHARE SHOWN AS INVESTMENT. THE INTEREST WAS P AID ON THE AFORESAID BORROWED FUND WHICH WAS INVESTED IN THE SHARES . WE HAVE P ERUSED THE JUDICIAL PRONOUNCEMENT OF HON BLE BOMBAY HIGH COURT IN THE AFORESAID CASE IN WHI CH IT IS HELD THAT CAPITAL EXPENDITURE MAY NOT BE I.T.A NO. 3532 /AHD/20 15 A.Y. 2007 - 08 PAGE NO ITO VS. SMT. MRUDULABEN HARSHADBHAI 4 ALLOWED AS DEDUCTION U/S. 37 BUT THERE WAS NO BAR IN SECTION 36(1)(3) TO ALLOW INTEREST PAID IN RESPECT OF CAPITAL BORROWED WHICH HAS BEEN UTILIZED FOR PURCHASE OF CAPITAL ASSET. THE RELEVANT PART OF THE ABOVE JUDICIAL PRONOUNCEMENT IS REPRODUCED AS UNDER : - 8. WE MAY ALSO GAINFULLY REFER TO THE JUDGMENT OF THE CALCUTTA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RAJEEVA LOCHAN KANORIA, 208 ITR 616. THE LEARNED COURT WAS CONSIDERING SECTION 36(I)(III) AND WAS PLEASED TO OBSERVE AS UNDER : 'THE ONLY ENQUIRY THAT IS TO BE MADE IS WHETHER THE PAYMENT OF INTEREST WAS IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS OR PROFESSION. ( - 10 - ) THERE IS NO DISPUTE THAT THE CAPITAL WAS BORROWED IN THE INSTANT CASE AND INTEREST WAS PAID ON THE BORROWED CAPITAL. IT IS TO BE ESTABLISHED THAT THE AMOUNT WAS BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE AMOUNT BORROWED MAY BE UTILIZED FOR THE PURPOSE OF ACQUISITION OF STOCK IN TRADE OR FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS. BUT SO LONG AS THE MONEY IS UTILISED FOR BUSINESS PURPOSES THE INTEREST WILL HAVE TO BE ALLOWED AS DEDUCTION. IT IS WELL SETTLED THAT BUSINESS EXPENDITURE IS NOT CONFIRMED TO EXPENSES INCURRED ON REVENUE ACCOUN T. CAPITAL EXPENDITURE MAY NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 BECAUSE THE SECTION SPECIFICALLY BARS ANY DEDUCTION OF EXPENDITURE OF CAPITAL NATURE. BUT SECTION 36 IS DIFFERENTLY WORDED. THERE IS NO BAR IN SECTION 36(I)(III) TO ALLOWANCE OF INTE REST PAID IN RESPECT OF CAPITAL BORROWED WHICH HAS BEEN UTILISED FOR PURCHASE OF A CAPITAL ASSET. THE POSITION OF LAW IN THIS REGARD WAS EXPLAINED BY THE SUPREME COURT IN THE CASES OF INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 AND STATE OF MADRAS VS. G.J. COELHI (1964) 53 ITR 186.' ( - 11 - ) 9. CONSIDERING THESE JUDGMENTS AND THE TEST THAT THE OBJECT OF THE LOAN IS IRRELEVANT, THE INTEREST WHICH WAS DISALLOWED TO THE EXTENT OF INVESTMENT WILL HAVE TO BE ALLOWED AS HELD BY THE TRIBUNAL. 10. IN SO FAR AS QUESTI ON (D) IS CONCERNED, AS NOTED THE A.O. AND C.I.T. (A) PROCEEDED ON A WRONG ASSUMPTION OF FACTS, NAMELY THAT THE AMOUNTS CONTINUED TO BE SHOWN AS INVESTMENT, WITHOUT CONSIDERING THAT IN THE SUBSEQUENT BALANCE SHEETS, THE SHARES WERE SHOWN AS IN STOCK IN TRA DE. IN VIEW OF THE ABOVE FACTS AND LEGAL FINDINGS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF LD. CIT(A), THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ON OUNCED IN THE OPEN C OURT ON 09 - 10 - 201 7 SD/ - SD/ - ( S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 09 /10 /2017 I.T.A NO. 3532 /AHD/20 15 A.Y. 2007 - 08 PAGE NO ITO VS. SMT. MRUDULABEN HARSHADBHAI 5 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,