The ITO, Ward-1(1), Baroda V. Aquasoil Canadian Feeds Ltd., Baroda

ITA 4051/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8728 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-02-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 06-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Keywords: Business income; Business expenditure; Revenue expenditure
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : A HMEDABAD (BEFORE HONBLE SHRI G.D. AGRAWAL, VICE-PRESIDENT(A Z) & HONBLE SHRI T.K. SHARMA, J.M.) I.T.A. NO. 4051/AHD./2007 ASSESSMENT YEAR : 1997-1998 INCOME TAX OFFICER, WARD-1(1), BARODA -VS.- AQU ASOIL CANADIAN FEEDS LTD., BARODA (PAN : AABCA 9328 B) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GOVIND SINGHAL, SR. D.R. RESPONDENT BY : SHRI BANDESH SOPARKAR, C.A. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 30.08.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, BARODA FOR T HE ASSESSMENT YEAR 1997-98. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 30.11.1997 DECLARING LOSS OF RS.5,56,340/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143( 30 OF THE INCOME TAX ACT ON TOTAL INCOME OF RS.2,43,930/- TREATING THE INTEREST INCOME EARNE D BY THE COMPANY DURING THE FINANCIAL YEAR 1996-97 AS INCOME FROM OTHER SOURCES AS PROVIDED UN DER SECTION 56 OF THE INCOME TAX ACT, 1961. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEA L BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III, BARODA, WHO DISMISSED THE APPEAL OF THE ASSESSEE. AGAINST THE SAID DECISION, THE ASSESSEE PREFERRED AN APPEAL BEFORE T HE TRIBUNAL. ITAT, C BENCH VIDE ORDER DATED 24.01.2005 IN ITA NO. 390/A/2001 RESTORED THE MATTE R TO THE FILE OF ASSESSING OFFICER FOR THE DETAILED REASONS GIVEN IN PARA 4 OF THE SAID ORDER, WHICH READS AS UNDER :- 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSE E-COMPANY HAS INCORPORATED ON 06.09.1994 WITH MAIN OBJECTS OF MAN UFACTURING, GROWING, PROCESSING, ETC. OR OTHERWISE DEALING IN A LL OR ANY TYPES OF FEEDS AS WELL AS THE RAW MATERIALS ETC. THE COMPANY START ED MANUFACTURING ACTIVITIES AND DID NOT START BUSINESS BECAUSE OF UN FAVOURABLE MARKET CONDITIONS. IN THE MEANTIME, THE COMPANY HAS ADVANC ED THE AFORESAID 2 ITA NO. 4051/AHD/2007 AMOUNT TO ANOTHER COMPANY, I.E. JAGRUTI SECURITIES LTD. AND EARNED INTEREST. ON 17.01.1996, THE COMPANY HAS PASSED A S PECIAL RESOLUTION IN EXTRAORDINARY GENERAL MEETING FOR CHANGE OF BUSINES S. THE ASSESSEE COMPANYS MAIN BUSINESS WAS TRANSFERRED TO FINANCE COMPANY. THEREFORE, THE ASSESSEE COMPANY HAS CLAIMED THAT INTEREST INCO ME EARNED BY THE COMPANY MUST BE TREATED AS INCOME FROM THE BUSINESS . WE ARE OF THE VIEW THAT IF THE COMPANY CHANGED ITS OBJECT AND IF THE M ANUFACTURING COMPANY WAS CONVERTED INTO A FINANCE COMPANY, THEN INTEREST INCOME WOULD BE ASSESSED AS BUSINESS INCOME AND EXPENSES CLAIMED BY THE ASSESSEE WOULD BE ALLOWED AS BUSINESS EXPENDITURE FOR THE ASSESSME NT YEAR UNDER APPEAL. BUT WE ARE OF THE VIEW THAT IT IS THE DUTY ON THE P ART OF THE ASSESSEE TO PROVE THAT THE ASSESSEE COMPANY HAS STARTED ITS BUS INESS AS FINANCE COMPANY AND THE FUND WAS UTILIZED BY THE COMPANY FO R THE FINANCING BUSINESS. DURING THE COURSE OF HEARING, ONLY EVIDEN CE PRODUCED BEFORE US WAS THAT THE COMPANY HAS PASSED A RESOLUTION DATED 17.01.1996 FOR CHANGE OF BUSINESS. THERE IS NO EVIDENCE IN RESPECT OF PERMISSION FOR CHANGE TO SHOW THAT THE ASSESSEE COMPANY HAS ACTUAL LY STARTED ITS FINANCIAL ACTIVITIES WITH THE PERMISSION OF THE GOV ERNMENT. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR VERI FICATION WHETHER THE COMPANY HAS STARTED ITS BUSINESS OF FINANCING FROM THE DATE OF RESOLUTION ONWARDS. IF THE ASSESSEE PRODUCES SUFFICIENT EVIDEN CE, THEN THE INTEREST INCOME SHOULD BE TREATED AS BUSINESS INCOME. THE A. O. IS DIRECTED TO DECIDE THIS ISSUE AS PER THE LAW AFTER PROVIDING RE ASONABLE OPPORTUNITY TO THE ASSESSEE IN THE MATTER. 3. IN PURSUANCE OF AFORESAID DECISION DATED 24.01.2 005 OF TRIBUNAL, THE ASSESSING OFFICER REFRAMED THE ASSESSMENT UNDER SECTION 143(3) READ W ITH SECTION 254 OF THE INCOME TAX ACT AND AGAIN RECOMPUTED THE INCOME AS ORIGINALLY ASSESSED AT RS.2,43,930/-. THE DETAILED REASONS GIVEN BY ASSESSING OFFICER AS CONTAINED IN PARAS 3 TO 9 O F THE ORDER DATED 17.03.2006 UNDER SECTION 143(3) READ WITH SECTION 254 OF THE INCOME TAX ACT, 1961 ARE REPRODUCED HEREUNDER :- 3. IN RESPONSE TO THE ABOVE S/SHRI VENUGOPAL SHAS TRI, CA, ALONG WITH DEEPAK JANI, DULY AUTHORIZED ATTENDED IHE PROCEEDINGS AND SUBMITTED DETAILS SUCH AS COPY OF DIRECTOR'S REPORT, COPY OF SPECIAL RESOLUTION PA SSED ON 17 TH JANUARY 1996. COPY OF FORM NO. 20-A, UNDER THE COMPANIES ACT, 1956, CO PY OF FORM NO. 5, PRESCRIBED UNDER THE COMPANIES ACT, REGARDING INCREASE IN SHAR E CAPITAL AND COPY OF LETTER DATED 15.02.1996. ADDRESSED TO THE REGISTRAR OF COM PANIES, AHEMEDABAD. IT HAS FURTHER SUBMITTED THAT AS PER SECTION 149(2A) ASSES SEE IS REQUIRED TO PASS A SPECIAL RESOLUTION AT ITS EXTRA ORDINARY GENERAL MEETING, H ELD ON 17.01.1996 AND FILED THE REQUIRED FORM NO, 20A WITH THE REGISTRAR OF COMPANI ES, GUJARAT IT HAS FURTHER OBTAINED A CERTIFIED TRUE COPY FROM ROC IN SUPPORT OF HAVING FILED THE COPY OF RESOLUTION AT THE RELEVANT TIME WITH THE ROC. IT HA S FURTHER CONTENDED THAT BEYOND FILING A COPY OF THE RESOLUTION TO TAKE UP ANY OTHE R OBJECT, A LIMITED COMPANY HAS TO DO NOTHING ELSE. THEREFORE, THE ASSESSEE WAS OF THE VIEW THAT 11 HAS COMPILED TO THE 3 ITA NO. 4051/AHD/2007 LEGAL REQUIREMENT TO TAKE UP THE NEW BUSINESS OF IN VESTMENT COMPANY AND REQUESTED FOR ALLOWANCE OF THE EXPENSES BY THE COMP ANY AS CLAIMED. IT HAS FURTHER SUBMITTED A CERTIFICATE FROM M/S DINESH MEHTA & CO. , PRACTICING COMPANY SECRETARIES TO THE EFFECT THAT THE FOLLOWING ARE THE LEGAL PROC EDURES TO BE FOLLOWED BY A COMPANY TO COMMENCE A NEW BUSINESS:- \ '(1) TO PASS A SPECIAL RESOLUTION TO COMMENCE TH E NEW BUSINESS AS MENTIONED IN THE OTHER OBJECT CLAUSE OF THE MEMORAN DUM AT ASSOCIATION OF THE COMPANY AT GENERAL MEETING OF THE COMPANY. (2) TO FILE FORM NO. 23 ALONG WITH A CERTIFIED TRUE COPY OF SPECIAL RESOLUTION ALONG WITH EXPLANATORY STATEMENT DULY CE RTIFIED BY ANY ONE OF THE DIRECTORS OF THE COMPANY AND FORM NO. 20A WITH THE REGISTRAR OF COMPANIES, WITHIN 30 DAYS FROM THE DATE OF PASSING THE SPECIAL RESOLUTION, (3) THE COMPANY CAN COMMENCE NEW BUSINESS OFFER PASSING THE SPECIAL RESOLUTION, (4) THE REGISTRAR OF COMPANIES IS NOT REQUIRED TO ISSUE ANY CERTIFICATE OR LETTER REGARDING ACCEPTANCE OF THE SPECIE! RESOL UTION. FURTHER THE REGISTRAR OF COMPANIES HAS NO POWER TO REJECT SPECI AL RESOLUTION PASSED BY THE COMPANY.' 4. THE ABOVE INGREDIENTS CANNOT OVERSHADOW FACTS OF THE CASE WHICH ARE MORE RELEVANT IN DECIDING THIS CASE. THE FACTS REMAIN SAME EVEN T HROUGHOUT ITS JOURNEY TO THE ITAT AS WELL AS DURING ITS RETURN TO THE A.O. THE COMPAN Y WAS INCORPORATED ON 06.09.1994 WITH THE MAIN OBJECT OF MANUFACTURING, GROWING AND PROCESSING VARIOUS TYPES OF FEEDS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSES HA S EARNED INTEREST OF RS.2,41,885/- AGAINST WHICH ASSESSES HAS DEBITED VARIOUS EXPENSES SUCH AS FOREIGN TRAVEL TO THE TUNE OF RS.4,31,250/-, SALARY AND REMUNERATION OF RS.84, 000/- ETC, AND DECLARED LOSS OF RS.5,56,340/-. THE INTENTION OF STARTING THE BUSINE SS WAS TO CARRY ON IN INDIA OR ELSEWHERE, WITH OR WITHOUT COLLABORATION, THE B USINESS OF MANUFACTURING, GROWING, PROCESSING, REPROCESSING, FORMULATING, R EFINING, PREPARING, PRESERVING, CURING, FREEZING, PACKING, TRADING, EXPORTING, IMPO RTING, INDENTING, MARKETING OR OTHERWISE DEALING IN ALL OR ANY TYPES OF FEEDS AS W ELL AS THE RAW MATERIALS USED AND NEEDED IN THE MANUFACTURING AND PROCESSING OF FEEDS SUCH AS AQUATIC FEED, CATTLE FEED, POULTRY FEED, BIRD TEED, DOG FEED, CAT FEED, GRASS FEED, BONE MEAL AND UNDERTAKE ALL PROCESSING WORK TO MANUFACTURE SUCH FEEDS. 5. THE COMPANY HAD COLLECTED RS.2,81,000/- THROUGH SHARE CAPITA! AND RS.14,36,561/- AS UNSECURED LOANS FROM DIRECTORS AND SHAREHOLDERS FOR THE ABOVEMENTIONED PROJECT SINCE IT COULD NOT START ITS PROJECT, IT HAS ADVANC ED THIS AMOUNT TO ANOTHER COMPANY I.E. JAGRUTI SECURITIES LTD. AND EARNED INTEREST OF RS.2,41,885/- IN THE F.Y. 1996-97. THIS WAS THE SUBJECT MATTER OF DISPUTE. THE REASON FOR DISPUTE WAS BASED ON THE PLEA THAT IT HAS PASSED A SPECIAL RESOLUTION FN THE EXTR A ORDINARY GENERAL MEETING ON 17.01.1996 FOR CHANGE OF BUSINESS, AFTER THIS CHANG E FINANCING HAS BECOME ITS MAIN BUSINESS, HENCE INTEREST INCOME, EARNED DURING THE RELEVANT PREVIOUS YEAR IS ON ACCOUNT OF FINANCE ACTIVITY ONLY, ACCORDING TO ASSE SSEE. THUS ASSESSEE WANTED TO ASSESS ITS INCOME UNDER THE HEAD BUSINESS INCOME. THE RESO LUTION PASSED BY THE ASSESSEE COMPANY MENTIONS ABOUT BUSINESS OF INVESTMENT, LEND ING, INVESTMENT IN SHARES, DEBENTURES, BONDS, ETC. ETC., AS PER RESOLUTION DAT ED 17.01.1996 ON ONE SIDE ASSESSEE IS 4 ITA NO. 4051/AHD/2007 CLAIMING THAT FINANCING SHOULD BE CONSIDERED AS ITS BUSINESS ACTIVITY AND INTEREST INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FRO M BUSINESS ON THE OTHER HAND ASSESSEE IS DEBITING RS.4,31,250/- AS FOREIGN TRAVE L WHICH IS RELATED TO ITS ABANDONED BUSINESS. EVEN ACCORDING TO ASSESSEE VIDE LETTER DA TED 22.12.1999 THE PURPOSE OF FOREIGN TRIP WAS TO RAISE FUNDS FOR THE PROJECT FRO M NRIS END OCBS AND THERE WERE SEVERAL MEETINGS WITH THEM TO ATTRACT INVESTMENT AT VARIOUS PLACES IN CANADA WHERE THE DIRECTOR HAD VISITED. EVEN THE ANNUAL REPORT OF THE THE DIRECTOR STATES THAT THE COMPANY HAS NOT COMMENCED ITS MANUFACTURING ACTIVIT IES DURING THE PERIOD UNDER REVIEW. THE COMPANY IS CONSIDERING VARIOUS ALTERN ATIVE PROJECTS FOR IMPLEMENTATION TOTING IN TO ACCOUNT ITS VIABILITY AND FUTURE PROJE CTIONS. DIRECTORS, IT IS STATED, ARE WORKING HARD IN DECIDING THE MODALITIES OF IMPLEMEN TATION OF THE PROJECT. THE ANNUAL REPORT ALSO MENTIONS FURTHER THAT TILL ONE PROJECT IS DECIDED AND IMPLEMENTED TO MAKE PROPER USE OF THE FUNDS. THEY HAVE TAKEN UP BUSINES S OF FINANCIAL ACTIVITIES AS LISTED IN OTHER OBJECTS OF THE COMPANY. 6. FROM THE ABOVE ACTIONS AND ACTIVITIES IT IS OBVI OUS THAT THERE IS NO CONCLUDING EVIDENCE TO SHOW THAT THE ORIGINAL PROJECT HAS BEEN STOPPED. ALSO IT IS PERTINENT TO NOTE THAT ASSESSEE HAS ADVANCED MONEY TO ONLY ONE COMPAN Y I.E. JAGRUTI SECURITIES AND EARNED INTEREST. THIS ONLY SHOWS THAT IT IS AN ISOL ATED CASE OF ADVANCING SURPLUS FUNDS TO A COMPANY AND NOT ITS REGULAR BUSINESS OF ENGAGI NG IN FINANCIAL ACTIVITIES. THEREFORE, IT CAN BE CONSIDERED THAT THE INTEREST E ARNED ON DEPOSITS OF SURPLUS FUNDS DURING THE RECOMMENCEMENT PERIOD OF BUSINESS. ASSES SEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE ITS CONTENTION THAT FOREIGN TRIP WAS UNDERTAKEN TO INQUIRE ABOUT THE POSSIBILITY OF INVESTMENT IN SOME OTHER PROJECT. 7. THE ASSESSEE WAS ASKEA 1 TO GIVE DETAILS DURING THE ASSESSMENT PROCEEDINGS BUT INSTEAD OF GIVING DETAILS TO SHOW EVIDENCE REGARDIN G COMMENCEMENT OF BUSINESS IT HAS ONLY FILED COPY OF RESOLUTION. THERE IS NO EVIDENCE ON THE ACTUAL CONDUCT OF MONEY LENDING ACTIVITY, IN FACT FROM THE DIRECTORS REPORT IT WILL APPEAR THAT COMPANY IS CONSIDERING ALTERNATIVES FOR MANUFACTURING BUSINESS AND FINANCING ONLY AN INTERMEDIATE ACT OF PARKING ITS AVAILABLE FUNDS. DU RING THE YEAR COMPANY HAS ADVANCED MONEY ONLY TO ONE SINGLE PARTY WHICH CAN H ARDLY BE CONCEIVED AS BUSINESS ACTIVITY. FURTHER ASSESSEE HAS CLAIMED FOREIGN TRAV EL EXPENSE OF RS.4,31,250/- WHICH CAN HARDLY BE CONSIDERED AS HAVING SPENT FOR EARNIN G BUSINESS INCOME FROM SINGLE LOAN. NO FURTHER CLARIFICATION HAS BEEN PUT FORTH D URING THE COURSE OF FRESH ASSESSMENT PROCEEDINGS. THIS TOO WAS THE POSITION DURING ITS A PPELLATE JOURNEY UPTO THE INCOME TAX APPELLATE TRIBUNAL WHICH TURNED OUT TO BE FUTIL E ATTEMPT ON THE PART OF THE ASSESSEE, AS IT COULD NOT ESTABLISH OR SATISFY WITH SUFFICIENT EVIDENCE THAT THE COMPANY HAS CARRIED OUT BUSINESS ACTIVITY OF FINANCING AND THEREBY EARNED INTEREST INCOME. 8. IT IS NOT OUT OF PLACE TO MENTION THAT THE ASSES SEE HAS MADE ALL OUT EFFORTS TO ESTABLISH THAT IT HAS STARTED A NEW BUSINESS ACTIVI TY OF FINANCE BUT FAILED MISERABLY TO ESTABLISH BEYOND DOUBT TO JUSTIFY THE INCOME EARNED IS UNDER THE HEAD BUSINESS. I HAVE GONE THROUGH THE PLEA THAT THE ASSESSEE HAS COMPLIE D TO THE LEGAL REQUIREMENTS BUT AT THE SAME TIME LEGAL FORMALITIES IS NOT ADEQUATE TO ESTABLISH THE REAL NATURE OF BUSINESS CARRIED OUT UNLESS IT IS ESTABLISHED SATISFACTORILY . 9. IN VIEW OF THE ABOVE THE INCOME EARNED BY WAY OF INTEREST FROM THE ONLY ADVANCE DURING THE YEAR IS CONSIDERED AS INCOME FROM OTHER SOURCE AND TAXED ACCORDINGLY. TOTAL INCOME AS PER ORIGINAL ORDER U/S. 143(3) DATED 27.12.1999 RS. 2,43,930/-. 5 ITA NO. 4051/AHD/2007 4. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWING THE EXPENSES OF RS. 7,75,5 67/-, INCLUDING TRAVELLING EXPENSES OF RS.4,31,250/- ADMITTEDLY INCURRED ON RA ISING OF FUNDS FOR THE BUSINESS OF MANUFACTURING FEEDS ( WHICH WAS NEVER U NDERTAKEN), AGAINST THE INTEREST INCOME OF RS 2,43,930/- EARNED ON THE SURP LUS FUNDS DEPOSITED WITH A SINGLE CONCERN IN THE FINANCIAL YEAR 1995-96 WHEN T HE SAID BUSINESS WAS NOT YET SET UP, BY TREATING THIS INCOME AS BUSINESS INC OME MERELY ON THE BASIS OF A RESOLUTION PASSED ON 17-01-1996 FOR CARRYING ON FIN ANCING BUSINESS. 2. THE CIT(A) FAILED TO APPRECIATE THE MANDA TE OF THE TRIBUNAL'S ORDER DATED 24-01-2005 SETTING ASIDE THE EARLIER ORDERS O F THE ASSESSING OFFICER AND THE ADDL. CIT, WITH A SPECIFIC FINDING THAT THERE W AS NO EVIDENCE OF THE ASSESSEE HAVING ACTUALLY STARTED FINANCING ACTIVITIES, AND D IRECTING TO VERIFY WHETHER THE BUSINESS OF FINANCING HAD ACTUALLY STARTED FROM THE DALE OF RESOLUTION ONWARDS, WHEN HE INFERRED IN FAVOUR OF STARTING OF SUCH BUSI NESS JUST ON THE BASIS OF THE MONEY DEPOSITED WITH ONE CONCERN PRIOR TO THE DATE OF THE SAID RESOLUTION. 3 WITHOUT PREJUDICE, THE CIT(A) FAILED TO A PPRECIATE THAT THE IMPUGNED EXPENSES HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVE LY FOR CARRYING ON FINANCING BUSINESS (IF ANY) AND CONTRAVENED THE PRI NCIPLE OF LAW THAT THE EXPENSES INCURRED FOR SETTING UP A BUSINESS, WHICH IS ABANDONED, CANNOT BE ALLOWED AS REVENUE EXPENDITURE AGAINST THE INCOME O F SOME OTHER BUSINESS, AS SETTLED IN THE CASE OF CIT-VS.- SHRI DIGVIJAY CEMEN T LTD. 159 ITR 253 (GUJ) AND CIT VS.- AMBIKA MILLS LTD. 236 ITR 929 (GUJ). 4 THE APPELLANT CRAVES LEAVE TO ADD TO AMEN D OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE, SHRI GOVIND SINGHAL, DR APPEARED AND CONTENDED THAT THE MANDATE OF TRIBUNAL IN ORDER DATED 24/01/2005 SETTING ASIDE THE EARLIER ORDER FOR ASSESSMENT YEAR WAS TO VERIFY WHE THER THE BUSINESS OF FINANCING HAD ACTUALLY STARTED FROM THE DATE OF REGULATION. HE POINTED OU T THAT THE DATE OF THE RESOLUTION IS 17/01/1996. THE ASSESSING OFFICER IN THE ASSESSME NT ORDER U/S.143(3) OF THE ACT, R.W.S. 254 OF THE IT ACT, 1961, IN PARAGRAPH NO.7 HAS CLEARLY M ENTIONED THAT THERE IS NO EVIDENCE THAT ASSESSEE HAS STARTED ACTUAL BUSINESS ON MONEY LEN DING ACTIVITY. THE MONEY COLLECTED AS SHARE CAPITAL OF RS.2,81,000/- AND UNSECURED LOANS FORM S HARE-HOLDER AMOUNTING TO RS.14,36,561/- WERE ADVANCED TO ONLY ONE COMPANY, NAMELY JAGRUTI S ECURITIES LTD. THIS MONEY WAS ADVANCED 6 ITA NO. 4051/AHD/2007 IN THE EARLIER ASSESSMENT YEAR. NO INVESTMENT IN SHARE HAS BEEN MADE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL IS MADE. AS ON 31/03/1996, THE ASSESSEE WAS HOLDING SHARE IN FOUR COMPANIES AS INVESTMENT NON-TRADE(Q UOTED) AND THERE IS NO CHANGE IN HOLDING OF SHARES AS ON 31/03/1997. THE ASSESSING OFFICER HAS ALSO POINTED OUT THAT AS PER RESOLUTION PASSED BY THE ASSESSEE-COMPANY ON 17/01/1996 ON THE ONE SIDE, ASSESSEE CLAIMING FINANCE SHOULD BE CONSIDERED AS ITS BUSINESS ACTIVITY AND INTEREST INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FORM BUSINESS ON THE OTHER HAND ASSESSEE H AS DEBITED RS.4,31,250/- AS FOREIGN TRAVEL WHICH IS RELATED TO ITS ABANDONED BUSINESS. THE L D.DR POINTED OUT THAT EVEN IN THE CLAIM OF ARGUMENTS IT IS CONSIDERED THAT ASSESSEE HAS START ED NEW BUSINESS IN THAT EVENT OF FOREIGN TRAVELLING WHICH IS INCURRED FOR ITS ABANDONED BUSI NESS CANNOT BE ALLOWED. THE DR FINALLY CONCLUDED THAT ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE REVERED AND VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) THAT ASSESSEE-COMPANY HAS NOT ACTUALLY STARTED ANY FINANCING BUSINESS AS PER RESO LUTION DATED 17/01/1996 IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR BE UPHELD. 6. ON THE OTHER HAND, SHRI BANDESH SOPARKAR, C.A. APPEARED ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE CIT(APPEALS). THE COUNSEL FOR THE ASSESSEE PRODUCED THE COPY OF BALANCE-SHEET AND PROFIT AND LOSS ACCOUNT O F THE SUBSEQUENT ASSESSMENT YEAR AND CONTENDED THAT EVEN IN SUBSEQUENT ASSESSMENT YEAR, THE INVESTMENT IN SHARES WERE MADE, ACTUAL BUSINESS OF FINANCING AND SHARE IS DONE, THEREFORE, IT MAY BE HELD THAT ASSESSEE-COMPANY HAS ACTUALLY STARTED THE BUSINESS OF MONEY LENDING, IN VESTMENT IN SHARES, DEBENTURES, BONDS, ETC. ETC. AS PER RESOLUTION DATED 17/01/1996 IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GON E THROUGH THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE DIRECTION OF THE TRIBUNA L CONTAINED IN EARLIER ORDER IN ITA NO.390/AHD/2001 DATED 24/01/2005. IT IS PERTINENT TO NOTE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAS FAIRLY ADMITTED THAT ITS ORIGINAL BUSINESS HAS NOT COMMENCED. WHATEVER MONEY SHOWN AS ADVANCES, IT WAS GIVEN IN E ARLIER YEARS TO ONLY ONE COMPANY, I.E. 7 ITA NO. 4051/AHD/2007 JAGRUTI SECURITIES LTD. AND ASSESS HAS EARNED INTER EST. NO INVESTMENT WHATSOEVER HAS BEEN MADE IN SHARE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR UNDER APPEAL WHICH IS EVIDENT FROM THE HOLDING OF SHARE SHOWN BY THE ASSESSEE IN SCHEDULE- E TO THE BALANCE-SHEET. NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) OR EVEN BEFORE US, THE ASSESSEE HAS PRODUCED AN IOTA OF EVIDENC E IN SUPPORT OF THE CLAIM THAT ASSESSEE HAS ACTUALLY STATED THE BUSINESS OF MONEY LENDING, INVE STMENT IN SHARES, DEBENTURES, BONDS, ETC. ETC. AS PER RESOLUTION DATED 17/01/1996. THE ASSESSEE, IN ERLIER YEAR PARKED THE SURPLUS MONEY TO ONLY ONE COMPANY, I.E. JAGRUTI SECURITIES LTD. AND EARNED INTEREST. ALL FACTS ARE SAME AS WERE IN THE LAST YEAR EXCEPT PASSING OF RESOLUTION ON 17/01 /1996 THEREFORE, IN OUR OPINION, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CLEARLY ERRED IN HOLDING THAT THE ASSESSEE- COMPANY HAS ACTUALLY STARTED ITS BUSINESS OF MONEY LENDING, INVESTMENT IN SHARES, DEBENTURES, BONDS, ETC. ETC. IN TERMS OF RESOLUTION DATED 17/01 /1996. WE ALSO FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE LD.DR THAT FOREIGN TRAVELLIN G EXPENSES INCURRED RS.4,31,250/- WAS FOR THE PURPOSE OF RAISING FUND FOR PROJECTS FROM NRI AND O CB. THIS WAS SUBMITTED BY THE ASSESSEE IN WRITTEN SUBMISSIONS DATED 22/12/1999 DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND THE SAME READS AS UNDER:- THE PURPOSE OF THE TRIP WAS TO RAISE FUNDS FOR THE PROJECTS FORM NRIS & OCBS AND THERE WERE SEVERAL MEETINGS WITH THEM TO ATTRACT TH EM FOR INVESTMENT AT VARIOUS PLACES IN CANADA, WHERE THE DIRECTOR HAD VISITED. 8. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE-COMPANY HAS NOT STA RTED ITS BUSINESS OF MONEY LENDING, INVESTMENT IN SHARES, DEBENTURES, BONDS, ETC. ETC. IN TERMS OF RESOLUTION DATED 17/01/1996. WE, THEREFORE, REVERSE THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) AND HOLD THAT INTEREST INCOME IS RIGHTLY ASSESSED U/S.57 OF THE I T ACT, 1961 UNDER THE HEAD INCOME FROM OTHER SOURCES. 9. BEFORE PARTING WITH WE MAY OBSERVE THAT OUR AF ORESAID FINDING IS BASED ON FINDING OF FACT RECORDED BY THE ASSESSING OFFICER IN THE ORDER DATED 17/03/2006 U/S.143(3) R.W.S. 254 OF THE 8 ITA NO. 4051/AHD/2007 IT ACT, 1961. IN SUBSEQUENT ASSESSMENT YEAR, IN C ASE, THE ASSESSEE HAS ACTUALLY STARTED ITS BUSINESS OF MONEY LENDING, INVESTMENT IN SHARES, DE BENTURES, BONDS, ETC. ETC. AS PER RESOLUTION DATED 17/01/1996, THE DEPARTMENTAL AUTHORITIES BELO W ARE AT LIBERTY TO TAKE A DIFFERENT VIEW THAN THE VIEW TAKEN BY US HEREINABOVE. 10. RESULTANTLY, THE APPEAL OF THE REVENUE IS ALLOW ED. THE ORDER WAS PRONOUNCED IN THE COURT ON 31 .03.2010 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 31/ 03 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S./TC NAIR