Indian Chronicle Ltd., Ahmedabad V. The Income tax Officer,Ward-4(3), Ahmedabad

ITA 4000/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6224 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S SURYBANSHI SRDR
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Business income; Business expenditure; Capital expenditure
• Section: 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI D.K.TYAGI, HONBLE JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, HONBLE ACCOUNTANT MEMBER ITA NO.4000/AHD/2007 ASSESSMENT YEAR:2004-05 DATE OF HEARING:14.6.11 DRAFTED:21.6.11 INDIAN CHRONICLE LTD. GUJARAT SAMACHAR BHAVAN, KHANPUR, AHMEDABAD PAN NO.AACI0793H V/S . INCOME TAX OFFICER, WARD-4(3), AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S.N.SOPARKAR, SR-AR RESPONDENT BY:- SHRI G.S. SURYBANSHI, SR-DR O R D E R PER D.K.TYAGI, JUDICIAL MEMBER:- THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF COM MISSIONER OF INCOME- TAX(APPEALS)-VIII, AHMEDABAD IN APPEAL NO. CIT(A)-V III/ITO/4(3) /222/06-07 FOR THE ASSESSMENT YEAR 2004-05. 2. FIRST GROUND TAKEN BY ASSESSEE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN NOT ACCEPTING THE ASSESSEES CLAIM THAT THE EXPENDITURE OF RS.45,69,333 FOR INTEREST AND SERVICE CHARGES IN REGARD TO THE EQUIT Y SHARES WAS AN ALLOWABLE DEDUCTION IN COMPUTATION OF BUSINESS INCOME. 3. THE ASSESSING OFFICER DURING THE ASSESSMENT PROC EEDINGS FOUND THAT INTEREST AND SERVICE CHARGES AGGREGATING TO RS.45,69,333/- W ERE PAID BY THE ASSESSEE TO KOTAK MAHINDRA INVESTMENT LTD. THE ASSESSEE CLAIMED SERVICE CHARGES OF ITA NO.4000/AHD/2007 A.Y. 2004-05 INDIAN CHRONICLE LTD. V. ITO WD-4(3) ABD PAGE 2 RS.10,85,398/- AND INTEREST OF RS.34,83,935/- IN PR OFIT AND LOSS ACCOUNT AND THIS HAS BEEN PAID FOR PROVIDING SERVICES AND FUNDS TO THE A SSESSEE-COMPANY FOR THE VARIOUS PUBLIC ISSUES OF SHARES IN WHICH THE ASSESSEE HAS M ADE APPLICATIONS. THE ASSESSING OFFICER HAS HELD THAT IT WAS NOT AN ALLOWABLE EXPEN DITURE AS THE ASSESSEE HAS NOT DONE SHARE TRADING BUSINESS AS THE ASSESSEE HAS SHO WN SHARE AS INVESTMENT AND THE BORROWED AMOUNTS WERE INVESTED IN GETTING ALLOT MENT IN VARIOUS PUBLIC ISSUE OF SHARES. 4. BEFORE LD. CIT(APPEALS) IT WAS ARGUED ON BEHALF OF ASSESSEE THAT ASSESSING OFFICER WAS FULLY SATISFIED ABOUT THE DEDUCTIBILITY OF THE EXPENDITURE IN QUESTION BUT HAS REFUSED TO GRANT DEDUCTION ON THE GROUND THAT T HE SHARES WHICH WERE ALLOTTED TO THE ASSESSEE WERE NOT SOLD DURING THE YEAR UNDER AP PEAL. LD. CIT(APPEALS) HOWEVER, CONFIRMED THE ACTION OF ASSESSING OFFICER BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED C OUNSEL. I FIND THAT THE BORROWED FUNDS HAVE BEEN INCURRED FOR ACQUISITION O F SHARES OF VARIOUS COMPANIES IN PUBLIC ISSUES. SO THE EXPENDITURE INCU RRED BY THE APPELLANT AS ABOVE SHOULD BE DIRECTLY ADDED TO THE COST OF SHARE S FOR COMPUTATION OF CAPITAL GAIN. THE SAME IS NOT A BUSINESS EXPENDITURE, AS TH E BUSINESS OF THE APPELLANT IS NOT OF TRADING IN SHARES. THEREFORE, T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. 5. FURTHER, AGGRIEVED NOW ASSESSEE IS IN APPEAL BEF ORE US. 6. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE DID NOT DISPUTE THE FINDING OF ASSESSING OFFICER THAT THIS EXPENDITURE WAS INCU RRED BY THE ASSESSEE FOR GETTING SERVICES AND FUNDS TO MAKE INVESTMENT IN VARIOUS PU BLIC ISSUES OF SHARES. BUT HE ARGUED PLACING RELIANCE ON THE DETAILS FILED IN THE PAPER BOOK THAT APPLIED NO. OF SHARES WERE NOT ALLOTTED TO THE ASSESSEE AND THEREF ORE ENTIRE EXPENDITURE INCURRED CANNOT BE SAID TO HAVE BEEN INCURRED FOR GETTING TH E SHARES BY WAY OF APPLYING IN THE PUBLIC ISSUES OF SHARES. SINCE ASSESSEES INCOME UN DER THE HEAD PROFIT & GAIN OF BUSINESS OF PROFESSION HAS BEEN ASSESSED AT RS.62,7 8,130/-, THE PROPORTIONAL EXPENSES ARE DEDUCTIBLE AS BUSINESS EXPENSES U/S.37 (1) OF THE INCOME-TAX ACT, 1961. HE ALSO TOOK AN ALTERNATIVE PLEA THAT THESE A RE ALLOWABLE EXPENSES U/S.57(III) FOR EARNING INCOME FROM OTHER SOURCE. ITA NO.4000/AHD/2007 A.Y. 2004-05 INDIAN CHRONICLE LTD. V. ITO WD-4(3) ABD PAGE 3 7. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED ON THE ORDERS OF LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THESE EXPENSES ARE NOT ALLOWABLE U/S.57(III) OF THE ACT ALSO AS DURING THE YEAR UNDE R APPEAL ASSESSEE HAS NOT EARNED ANY INCOME FROM OTHER SOURCE. HE THEREFORE PRAYED T HAT ORDER PASSED BY LD. CIT(APPEALS) MAY BE CONFIRMED. 8. HEARD BOTH THE PARTIES AND PERUSING THE RECORD W E FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT DURING THE YEAR UNDER APPEAL AS SESSEE HAS NO BUSINESS INCOME. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE IS NOT ENGA GED IN THE BUSINESS OF TRADING OF SHARE AND EXPENDITURE HAS BEEN INCURRED BY ASSESSEE TO GET THE SHARES BY APPLYING IN THE PUBLIC ISSUE OF THE SHARES. THEREFORE, THIS EXPENSE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AS PER PROVISION OF SECTION 37 (1) OF THE ACT WHICH READS AS UNDER:- 37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36] AND NOT BEING IN THE NATURE OF C APITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION IT IS CLEAR FROM THE ABOVE THAT ONLY EXPENDITURE WH ICH IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ARE ALL OWABLE. AS DURING THE YEAR UNDER APPEAL NO BUSINESS HAS BEEN DONE BY THE ASSESSEE NO EXPENDITURE IS ALLOWABLE U/S.37(1) OF THE ACT. 9. NOW COMING TO ALLOWABILITY OF THIS EXPENDITURE U /S 57(III) OF THE ACT, IT WILL BE PROPER TO EXAMINE THE PROVISION OF THE SECTION, WHI CH READ AS UNDER:- 57 THE INCOME CHARGEABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY:- (I) (II) (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATUR E OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING SUCH INCOME. ITA NO.4000/AHD/2007 A.Y. 2004-05 INDIAN CHRONICLE LTD. V. ITO WD-4(3) ABD PAGE 4 IT IS CLEAR FROM THE ABOVE THAT FROM THE INCOME FRO M OTHER SOURCE ONLY THOSE EXPENSES CAN BE DEDUCTED WHICH ARE LAID OUT OR EXPE NDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. SINCE THERE IS NO SUCH CO-RELATION IN THIS CASE, THE EXPENSE OF RS.45,69,333/- CANNOT BE ALLOWED UNDER THIS SECTION ALSO. THE ASSESSEE HAS SHOWN DIVIDEND INCOME WHICH BEING EXEMPT NO DEDUCTION FOR EXPENSES INCURRED TO EARN THIS INCOME IS ALLOWABLE AS PER PROVISION OF SECTION 14A OF THE ACT. IN VIEW OF THIS DISCUSSION, THE ORDER PASS ED BY LD. CIT(A) IS HEREBY CONFIRMED. THIS GROUND OF ASSESSEES APPEAL IS DISM ISSED. 10. THE SECOND GROUND TAKEN BY ASSESSEE IS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.26,08,112 FOR BUS INESS PROMOTION CHARGES. 11. THE ASSESSING OFFICER HAS DEALT WITH THIS ISSU E AS UNDER:- BUSINESS PROMOTION CHARGES DURING THE COURSE OF ASSESSMENT, IT IS OBSERVED THA T THE ASSESSEE HAS CLAIMED BUSINESS PROMOTION EXPENSES OF RS.26,08,112 /- IN P & L ACCOUNT. THE ASSESSEE WAS ASKED TO PRODUCE DETAILS OF BUSINE SS PROMOTION EXPENSES AND BILLS AND EXPLAIN FOR WHAT PURPOSE THE EXPENSES WAS INCURRED. THE DETAILS PRODUCED BY ASSESSEE REVEALS THAT THE EXPENDITURE W AS CLAIMED BY SHOWING FOLLOWING DETAILS. 30-04-2003 PRABHABEN PRAVINCHANDRA SHAH BEING AMOUNT DEBITED FOR BUSINESS PROMOTION DURING THE MONTH APRIL, 2003 RS.1,40,587 30-04-2003 PRAVINBHAI TILAKCHAND SHAH BEING BUSINESS PROMOTION PAID FOR THE MONTH APRIL, 2003 RS.1,58,787 SIMILAR ENTRIES ARE MENTIONED IN THE ACCOUNT IN VAR IOUS MONTHS. THE ASSESSEE WAS ASKED VIDE ORDER SHEET DATED 17.10.2006 TO EXPL AIN THE PURPOSE OF BUSINESS PROMOTION EXPENSES. THE ORDER SHEET IS REP RODUCED BELOW. HE IS ASKED TO PROVIDE DETAILS OF BUSINESS PROMOTI ON EXPENSES CLAIMED OF RS.26.08 LACS AND ALSO THE PURPOSE FOR W HICH IT IS CLAIMED. SINCE THE DETAILS WERE NOT PRODUCED ASSESSEE WAS ON CE AGAIN ASKED TO PRODUCE THE DETAILS VIDE LETTER DATED 30-10-2006. T HE ASSESSEE FILED ONLY THE COPY OF BUSINESS PROMOTION CHARGES AND NO FURTHER D ETAILS WERE PROVIDED THOUGH CALLED FOR. THE EXPENDITURE CLAIMED BY ASSESSEE ON BUSINESS PRO MOTION IS THUS NOT JUSTIFIED. THE ASSESSEE IS NOT DOING ANY BUSINESS F OR WHICH BUSINESS PROMOTION EXPENSES IS REQUIRED. ITA NO.4000/AHD/2007 A.Y. 2004-05 INDIAN CHRONICLE LTD. V. ITO WD-4(3) ABD PAGE 5 THE ASSESSEE HAS SHOWN FOLLOWING INCOME IN P & L AC COUNT. COMMISSION/BROKERAGE 1,23,190 OFFICE RENT 48,44,087 SHORT TERM PROFIT ON SHARES/MUTUAL FUND 76,99,846 LONG TERM PROFIT ON SHARES/MUTUAL FUND 1,26,22,770 SHARE DIVIDEND 13,48,123 INTEREST 27,67,687 PROFIT ON SALE OF ASSETS 66,000 2,94,71,703 INCOME-TAX REFUND 1,74,855 PROV. OF INCOME TAX WRITE OFF 40,000 TOTAL 2,96,86,558 NO INCOME IS THERE ON ADVERTISEMENT COMMISSION. FRO M THE ABOVE, IT IS CLEAR THAT THERE WERE NO BUSINESS FOR WHICH BUSINESS PROM OTION EXPENSES WERE REQUIRED. SINCE 37(1) PROVIDES THAT ONLY THOUGH EXPENDITURE W HICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS IS ALLOWABLE AS DEDUCT ION. SINCE THERE IS NO BUSINESS FOR WHICH THE EXPENDITURE CAN BE INCURRED THE SAME IS NOT ALLOWABLE U/.S37(1) OF THE ACT. THE MAIN INCOME IS FROM PURCH ASE AND SALE OF SHARES AND MUTUAL FUND WHICH IS NOT BUSINESS INCOME BUT IS AN INCOME FROM CAPITAL GAIN. IN VIEW OF THE ABOVE AND IN VIEW OF THE FACT THAT A SSESSEE COULD NOT PROVE THAT FOR WHAT PURPOSE THE BUSINESS PROMOTION EXPENSES AR E INCURRED THE EXPENDITURE CLAIMED BY ASSESSEE OF RS.26.08 LACS AS BUSINESS PROMOTION EXPENSES IS DISALLOWED. THIS ACTION OF ASSESSING OFFICER WAS CONFIRMED BY L D. CIT(APPEALS). 12. FURTHER AGGRIEVED NOW ASSESSEE IS IN APPEAL BEF ORE US 13. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT ASSESSING OFFICER HAS COMPUTED THE INCOME OF THE ASSESSEE UND ER THE HEAD PROFIT AND GAIN OF BUSINESS AND PROFESSION AND THEREFORE HE SHOULD HAV E ALLOWED THESE EXPENSES WHICH ARE INCURRED FOR PROMOTING THE BUSINESS OF AS SESSEE. 14. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED ON THE ORDER OF LOWER AUTHORITIES. ITA NO.4000/AHD/2007 A.Y. 2004-05 INDIAN CHRONICLE LTD. V. ITO WD-4(3) ABD PAGE 6 15. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME DURING THE YEAR U NDER APPEAL. THE MAIN INCOME OF THE ASSESSEE IS FROM PURCHASE AND SALE OF SHARE AND MUTUAL FUND WHICH HAS BEEN SHOWN BY THE ASSESSEE UNDER HEAD INCOME FROM CAPITA L GAIN. THE ASSESSEE HAS FAILED TO PROVE AS TO FOR WHAT PURPOSE THE BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.26,08,112/- WERE INCURRED BY HIM. THEREFORE W E FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(APPEALS) AND THE SAME I S HEREBY UPHELD. THIS GROUND OF ASSESSEES APPEAL IS DISMISSED. 16. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30/06/2011 SD/- SD/- (D.C.AGRAWAL) (D. K. TYAGI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-VIII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD