Shri Mahendra R.Patel, Baroda V. The Income tax Officer,Ward-2(3), Baroda

ITA 410/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60626 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 14-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR SRDR
• Assessee Lawyers: S N DIVATIA
• Keywords: Business income; Revenue expenditure
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.410/AHD/2012 ASSESSMENT YEAR:2001-02 MAHENDRA R PATEL HEMA CHEMICAL INDUSTRIES, 4/3 GORWA INDUSTRIAL ESATE, GORWA, BARODA -390 016 PAN NO.AAQPP6518H V/S . INCOME TAX OFFICER, WARD-2(3), BARODA (APPELLANT) .. (RESPONDENT) /BY APPELLANT SHRI S.N.DIVATIA, AR /BY RESPONDENT SHRI RAHUL KUMAR, SR-DR /DATE OF HEARING 14-06-2012 /DATE OF PRONOUNCEMENT 20-07-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS PRESENT APPEAL OF THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-III, BARODA DA TED 08-11-2011 PERTAINS TO ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEAERNED COMMISSIONER OF INCOME TAX, BARODA HAVE ERRED THE ASSESSEE BY NOT TREATING THE INTEREST EARNED ON FDR AS BUSINESS INCOME AND HAVE TREATED THE SAME AS INCOME FROM OTH ER SOURCES U/S 56 OF THE INCOME TAX ACT AND DISALLOWED THE INTERES T EXPENSES OF RS.796385 U/S 57 OF THE INCOME TAX ACT BY APPLYING DECISION OF SOUTH INDIA SHIPPING CORPORATION V/S CIT ( PAGE NO.5 OF ITO ORDER DTD. 13/12/2006 ) WHICH WAS NETTED OUT BY THE ASSESSEE FILING THE R ETURN OF ITA NO.410/AHD/2012 A.Y. 2001-02 MAHENDRA R PATEL V. ITO WD-2(3) BRD PAGE 2 INCOME. THE DISALLOWANCE OF INTEREST EXPENSE OF RS. 796385 AS A RESULT OF TREATMENT OF EXPENSES AS AN EXPENSE NOT INCURRED FOR EARNING THE FDR INTEREST INCOME U/S 57 OF THE INCOME TAX ACT WH ICH IS NOT LEGAL AND UNJUSTIFIED. 2. THE HONORABLE COMMISSIONER OF INCOME TAX HAVE FA ILED TO APPRECIATE THE CONTENTIONS OF THEE APPELLANT THAT: (A) THE ASSESSEE IS ENGAGED TIN THE BUSINESS OF CHE MICAL MANUFACTURING. HE IS THE PROPRIETOR OF THE CONCERN HEMA CHEMICALS. THE ASSESSEE WAS HAVING FDR WITH THE BAN K. AS AND WHEN NEEDS ARISES THE AWE USED TO OBTAIN OVERDRAFT FROM THE BANK AND THE MONEY WAS USED FOR THE PURPOSE OF THE BUSINESS. (B) ON THE OVERDRAFT, THE BANK WAS CHARGING EXTRA I NTEREST OF 1% COMPARE TO INTEREST PAYABLE ON FDR BY THE BANK. THE ASSESSEE WHILE PRESENTING THE ACCOUNT HAD SHO WN NET INTEREST INCOME AFTER DEDUCTING THE INTEREST EXPENS ES WHICH WAS PAID BY THE ASSESSEE TO THE BANK ON OVERDRAFT. (D) THE HONORABLE COMMISSIONER OF INCOME TAX HAVE F AILED TO APPRECIATE THAT THE INTEREST PAID TO THE BANK WAS F OR MONEY USED FOR THE PURPOSE OF THE BUSINESS ONLY IS OTHERWISE A LLOWABLE EXPENDITURE IF THE SAME WOULD HAVE BORROWED FROM OT HER PARTIES OR THE ASSESSEE WOULD HAVE OBTAINED THE LOAN ON THE SECURITY OF THIS FDRS. (E) THE HONORALE COMMISSIONER OF INCOME TAX HAVE FA ILED TO APPRECIATE THAT THE ASSESSEE WANTED TO KEPT THE FDR INTACT AS ITS GET FULL INTEREST AND THEIR LIABILITY FOR INTEREST ON OVERDRAFT WAS TO THE EXTENT AND FOR THE PERIOD THE MONEY WAS USED IN THE BUSINESS. AS A RESULT THE INTEREST EXPENSES ARE CURTAILED. (F) THE HONORABLE COMMISSIONER OF INCOME TAX HAVE F AILED TO APPRECIATE THAT THE FDR WERE MADE BY THE BUSINESS O NLY AS THE ASSESSEE IS HAVING NEGATIVE CAPITAL ONLY SO THE DEP OSITS WERE SOURCED FROM THE BUSINESS ONLY. IF THE BALANCE IN T HE CAPITAL ACCOUNT WAS IN CREDIT IN EXCESS OF THE FDRS THEN T HE TREATMENT COULD HAVE BEEN DIFFERENT. (G) THE HONORABLE COMMISSIONER OF INCOME TAX HAVE F AILED TO APPRECIATE THAT UNDER SECTION 36(I)(III) AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION IS ALLOWABLE AS A REVENUE EXPENDITURE. ITA NO.410/AHD/2012 A.Y. 2001-02 MAHENDRA R PATEL V. ITO WD-2(3) BRD PAGE 3 (H) THE HONORABLE COMMISSIONER OF INCOME TAX WHILE DISALLOWING THE ASSESSEES CLAIM HAS TREATED THE INTEREST ON BA NK FDR AS INCOME FROM OTHER SOURCES. AND AS THE INTEREST INCO ME TREATED AS INCOME FROM OTHER SOURCES, THE INTEREST WHICH THE A SSESSEE HAS PAID FOR BORROWING THE MONEY TO BANK ON FDR WHICH W AS NETTED PUT BY THE ASSESSEE WHILE PRESENTING THE ACCOUNT AM OUNTING TO RS.796385 IS DISALLOWED BY CONSIDERING THE HONORABL E SUPREME COURT JUDGMENT IN THE CASE OF DEPARTMENTAL REPRESEN TATIVE. V P GOPINATHAN 116 TAXMAN 489 (SC) WHEREIN IT IS STATED THAT ONCE THE INTEREST INCOME IS TAXED U/S 56 THEN ANY EXPEND ITURE WHICH HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR EARNIN G THIS INTEREST INCOME CAN ONLY BE ALLOWED AS A DEDUCTION. HERE THE HONORABLE COMMISSIONER OF INCOME TAX HAVE FAILED TO APPRECIATE THAT THE FDR WHICH WERE KEPT WITH THE BA NK WAS SOURCED FROM THE BUSINESS ONLY AS THE ASSESSEE WAS HAVING THE NEGATIVE CAPITAL. SO THE FUND OF THE BUSINESS WAS U SED IN PARKING THE FUND AS FDR WITH THE BANK. THE COST OF THE INTE REST IS WHAT BANK HAS CHARGED TO THE ASSESSEE. HENCE, EVEN IF IT IS CONSIDERED OTHER WAY ROUND THEN ALSO THE INTEREST EXPENSES IS ALLOWABLE AS EXPENDITURE. THE DISALLOWANCE MADE BY THE HONORABLE COMMISSIONER OF INCOME TAX IS ILLEGAL AND SAME BE DELETED AND PENAL PROCEEDING INITIATED IF ANY UNDER SECTION 271(1)(C) BE DROPPE D. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CHEMICALS UNDER THE NAME AND STYLE OF HEMA CHEMICAL S. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY AND THE ASSESSM ENT WAS FINALIZED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) WHILE DETERMINING THE INCOME OF THE ASSESSEE. THE ASSESSI NG OFFICER TREATED RS.7,96,385/- RECEIVED AS INTEREST FROM FDR AS INC OME FROM OTHER SOURCES. THE ASSESSEE FEELING AGGRIEVED BY THE ORDER OF ASSE SSING OFFICER PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE DISMISSED THE APPEAL. 3. NOW, ASSESSEE FEELING AGGRIEVED BY THIS ORDER OF LD. CIT(A) FILED SECOND APPEAL BEFORE US. ITA NO.410/AHD/2012 A.Y. 2001-02 MAHENDRA R PATEL V. ITO WD-2(3) BRD PAGE 4 4. THE ONLY EFFECTIVE GROUND IS AGAINST NOT TREATIN G THE INTEREST EARNED ON FDR AS BUSINESS INCOME. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HAVING FDR WITH THE BANK AND AS AND WH EN NEED AROSE. THE ASSESSEE USED TO OBTAIN OVERDRAFT FROM THE BANK AND THE MONEY WAS USED FOR THE PURPOSE OF ITS BUSINESS ON THE OVERDRAFT, THE B ANK WAS CHARGING EXTRA INTEREST OF 1% COMPARED TO INTEREST PAYABLE ON FDR. HE SUBMITTED THAT THE MONEY WAS USED FOR THE PURPOSES OF BUSINESS AND INV ESTMENT IN FDR WAS ALSO FOR THE PURPOSE OF BUSINESS. THEREFORE, THE AU THORITIES BELOW OUGHT TO HAVE TREATED THE SAME AS INCOME FROM BUSINESS BUT N OT FROM THE INCOME FROM OTHER SOURCES. 5. ON THE CONTRARY, LD. DR OF THE REVENUE SUBMITTED THAT THE ORDERS PASSED BY AUTHORITIES BELOW ARE JUSTIFIED AS THE IN VESTMENT MADE IN THE BANK IN THE FORM OF FDR AND INTEREST EARNED THEREFROM CE RTAINLY FALL UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AFTER CONSIDERING ALL ASPECTS OF THE MATTER, THIS MATTER IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO C OMPUTE THE BUSINESS INCOME PROPERLY IN VIEW OF THE INTEREST INCOME ADDED AS I NCOME FROM OTHER SOURCES. HENCE, THIS APPEAL OF ASSESSEE IS ALLOWED FOR STATI STICAL PURPOSES. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 20/07/2012 '() * ITA NO.410/AHD/2012 A.Y. 2001-02 MAHENDRA R PATEL V. ITO WD-2(3) BRD PAGE 5 +, +, +, +, --. --. --. --. /. /. /. /. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. )-2 + +3 / CONCERNED CIT 4. + +3- / CIT (A) 5. .67 ---2, + -2 , '() / DR, ITAT, AHMEDABAD 6. 7:; <= / GUARD FILE. BY ORDER/ +, , /TRUE COPY/ >/ ' ? + -2 , '() * STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 16/07 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 17/07, 17/07 4) DATE OF CORRECTION 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 17/07 7) ORDER UPLOADED ON 20/07 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 20/07