Income Tax Officer-2(1), Kanpur V. M/s Commercial Auto Centre, Kanpur

ITA 375/LKW/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4870 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.375/LKW/2014 ASSESSMENT YEAR:2008-09 INCOME TAX OFFICER - 2(1), KANPUR. VS. M/S COMMERCIAL AUTO CENTRE, 84/105, G. T. ROAD, KANPUR. PAN:AABFC3003C (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMIT NIGAM, D. R. RESPONDENT BY SHRI RAKESH GARG, ADVOCATE DATE OF HEARING 04/01/2016 DATE OF PRONOUNCEMENT 12/01/2016 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORD ER OF LEARNED CIT(A)-I, DEHRADUN HOLDING CONCURRENT CHARGE OF CIT (A)-II, KANPUR, CAMP AT KANPUR DATED 18/02/2014 FOR THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: 1. LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, DEH RADUN HOLDING CONCURRENT CHARGE OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS.44,85,441/-, MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INT EREST BY IGNORING THE FACT THAT THERE WAS NO BUSINESS EXPEDIENCY BETWEEN THE ASSESSEE AND ITS SISTER CONC ERNS WHOSE SHARES WERE PURCHASED BY THE ASSESSEE. 2. LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, DEHR ADUN HOLDING CONCURRENT CHARGE OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS.44,85,441/-, MADE BY TH E ASSESSING OFFICER, WITHOUT BRING OUT ANY FACTUAL FI NDINGS WITH REGARDS TO AS TO HOW THE ASSESSEE DERIVED THE IMPUGNED SHARES OF ITS SISTER CONCERNS FROM EXISTIN G CAPITAL AND PROFITS AVAILABLE AT THAT POINT OF TIME . 2 3. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, DEHRADUN HOLDING CONCURRENT CHARGE OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR DAT ED 18.02.2014, BE QUASHED AND THE ORDER DATED 01.07.20 10 PASSED BY THE ASSESSING OFFICER BE RESTORED. 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPO RTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT IN THE PRES ENT CASE, THE RETURNED INCOME IS AT A LOSS AND THE ASSESSED INCOME IS ALSO AT LOSS AND THEREFORE, THIS APPEAL OF THE REVENUE IS HAVING NO TAX EFFECT AND IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF ACIT VS. THE INDIAN HOTELS COMPANY LTD. IN I.T.A. N O.7135/M/2010 DATED 27/02/2014. HE SUBMITTED COPY OF THIS TRIBUNAL ORD ER. 4. REGARDING MERIT OF THE ISSUE IN DISPUTE, HE SUBM ITTED THAT THERE IS NO NEW BORROWED FUND AND NO NEW INVESTMENT AND IN SUPP ORT OF THIS CONTENTION, HE SUBMITTED THAT THE INVESTMENT POSITI ON AS ON 31/03/2007 AND 31/03/2008 IS REPRODUCED BY THE ASSESSING OFFIC ER ON PAGE NO. 3 AND FROM THE SAME, IT CAN BE SEEN THAT ALL THE INVESTME NTS AS ON 31/03/2008 ARE OLD INVESTMENTS AND THEREFORE, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS JUSTIFIED IN THE FACTS OF THE PRESEN T CASE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGAR DING THIS CONTENTION OF THE ASSESSEE THAT THE TAX EFFECT IS BELOW RS.10 LAC AND REGARDING THE APPLICABILITY OF THE TRIBUNAL ORDER CITED BY HIM HA VING BEEN RENDERED IN THE CASE OF ACIT VS. THE INDIAN HOTELS COMPANY LTD. (SU PRA), WE FIND THAT IN THAT CASE, IT IS NOTED BY THE TRIBUNAL THAT THE RET URNED INCOME AS WELL AS THE ASSESSED INCOME ARE NEGATIVE. IN THE PRESENT C ASE, THE RETURNED INCOME IS NET LOSS OF RS.31,29,628/- BUT THE ASSESS ED INCOME IS POSITIVE INCOME OF RS.13,71,636/-. WE ALSO FIND THAT ALTHOU GH THE ASSESSING OFFICER SAYS THAT NET ASSESSED LOSS OF THE ASSESSEE COMES T O RS.13,71,636/- BUT 3 THE ASSESSED INCOME IN FACT IS POSITIVE INCOME BECA USE IN THE COMPUTATION, THE ASSESSING OFFICER SAYS THAT THERE IS NET LOSS A S PER PROFIT & LOSS ACCOUNT OF RS.49,36,406/- AND FROM THIS, HE MADE DEDUCTION OF RS.63,07,439/- ON ACCOUNT OF VARIOUS DISALLOWANCES. WHEN VARIOUS DIS ALLOWANCES OF RS.63.07 LACS ARE DEDUCTED FROM THE NET LOSS AS PER PROFIT & LOSS ACCOUNT OF RS.49.36 LAC, THE RESULTANT FIGURE IS POSITIVE INCOME OF RS. 13.71 LAC AND NOT A NEGATIVE INCOME OF RS.13.71 LAC. HENCE, IN THE PRE SENT CASE, THERE IS NO ASSESSED LOSS AND THEREFORE, THIS TRIBUNAL ORDER IS NOT APPLICABLE IN THE PRESENT CASE. 6. REGARDING THE MERIT OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST OF RS.44,85,441/-, W E FIND THAT ON PAGE 4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS MAD E A CHART OF YEAR-WISE INVESTMENT AND AVAILABILITY OF OWN FUND AND COMPULS ORY UTILIZATION OF BORROWED FUND FOR MAKING INVESTMENT. AS PER THE SA ME, WE FIND THAT IN THE YEAR 2002-03, INVESTMENT OF RS.350.60 LAC WAS M ADE AND THE AVAILABILITY OF OWN FUND WAS ONLY RS.69.63 LAC AND THEREFORE, THE BALANCE AMOUNT OF RS.280.86 LAC WAS OUT OF BORROWED FUNDS O NLY. SIMILARLY, IN THE YEAR 2003-04, INVESTMENT OF RS.312.88 LAC WAS MADE BUT AVAILABILITY OF OWN FUND WAS RS.145.21 LAC AND THEREFORE, THE BALAN CE AMOUNT OF RS.167.67 LAC INVESTMENT WAS OUT OF BORROWED FUNDS. HENCE, UNDER THESE FACTS, IT IS CLEAR THAT PART OF THE INVESTMENT IS O UT OF INTEREST BEARING BORROWED FUND AND THIS IS IMMATERIAL AS TO WHETHER SUCH INVESTMENT, OUT OF INTEREST BEARING BORROWED FUND, WAS MADE IN THE PRE SENT YEAR OR IN EARLIER YEARS. THE FACT REMAINS THAT PART OF BORROWED FUND WAS UTILIZED IN EARLIER YEARS IN INVESTMENT IN SHARES AND THIS REMAINED UTI LIZED IN THE PRESENT YEAR ALSO IN INVESTMENT IN SHARES AND HENCE, DEDUCTION O N ACCOUNT OF INTEREST IS NOT ALLOWABLE TO THE ASSESSEE BECAUSE AFTER THE CHA NGE IN THE TAXATION PROVISIONS AS PER WHICH DIVIDEND INCOME IS EXEMPT, UTILIZATION OF INTEREST BEARING BORROWED FUND FOR MAKING INVESTMENT IN SHAR ES, CANNOT BE CONSIDERED AS AN EXPENDITURE INCURRED FOR EARNING I NCOME FROM OTHER 4 SOURCES AND THEREFORE, DEDUCTION ON ACCOUNT OF THAT PORTION OF INTEREST IS NOT ALLOWABLE U/S 57(III). THIS IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS DEALER IN THE SHARE AND THEREFORE, DEDU CTION ON ACCOUNT OF SUCH INTEREST IS NOT ALLOWABLE U/S 36(1)(III) ALSO. HEN CE, IN OUR CONSIDERED OPINION, SUCH INTEREST EXPENDITURE IS NOT ALLOWABLE AS DEDUCTION UNDER ANY PROVISION OF I.T. ACT AND THEREFORE, FOR MAKING THI S DISALLOWANCE OF INTEREST EXPENDITURE IN RESPECT OF INTEREST BEARING BORROWED FUND USED FOR MAKING INVESTMENT IN SHARE, INVOCATION OF PROVISIONS OF SE CTION 14A IS NOT REQUIRED BECAUSE, IN OUR CONSIDERED OPINION, SECTION 14A HAS TO BE INVOKED FOR MAKING DISALLOWANCE ONLY WHEN THE EXPENSES CONCERNE D ARE OTHERWISE ALLOWABLE UNDER SOME PROVISIONS OF I.T. ACT. WHEN THE EXPENDITURE IN DISPUTE, BEING INTEREST EXPENDITURE IN THE PRESENT CASE IS NOT ALLOWABLE AS DEDUCTION UNDER ANY PROVISION OF THE ACT, THE SAME IS SIMPLY NOT AN ALLOWABLE EXPENDITURE AND THEREFORE, THERE IS NO NE ED TO INVOKE THE PROVISIONS OF SECTION 14A FOR MAKING THE DISALLOWAN CE FOR AN EXPENDITURE WHICH IS NOT ALLOWABLE UNDER ANY PROVISION OF THE A CT. HENCE, ON THIS ISSUE, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF CIT(A) IS NOT SUSTAINABLE. WE, THEREFORE, REVERSE THE ORDER OF C IT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED:12/01/2016 SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT . REGISTRAR