JAGDISH KUMAR GOVINDA PILLAI, MUMBAI V. ACIT CIR 26(1), MUMBAI

ITA 4115/MUM/2008

• Counselvise Citation: 411519914 RSA 2008
• Duration Of Justice: 3 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 26-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 09-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER
• Assessee Lawyers: PORUS F KAKA
• Keywords: Salary income; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4115/MUM/2008 (ASSESSMENT YEAR: 2003-04) JAGDISH KUMAR GOVINDA PILLAI, C/O. BMR & ASSOCIATES, 3RD FLOOR, CONTRACTOR BUILDING, 41, R KAMANI MARG, BALLARD ESTATE, MUMBAI ....... APPELLANT VS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 26(1), K G MITTAL HOSPITAL BUILDING, 6TH FLOOR, CHARNI ROAD, MUMBAI -400 022 ..... RESPONDENT PAN : AEEPG 1491 H APPELLANT BY : SHRI PORUS F. KAKA RESPONDENT BY : SHRI D.S. SUNDER DATE OF HEARING : 26. 09.2011 DATE OF PRONOUNCEMENT: 30.09.201 1 O R D E R PER R.S. PADVEKAR, JM: IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-29 MUMBAI DATED 28.03.2008 FOR T HE A.Y. 2003-04. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XXIX, MUMBAI [CIT(A)] HAS IN THE APPELL ATE ORDER, PASSED UNDER SECTION 250 OF THE INCOME-TAX ACT, 196 1 (ACT), ERRED ITA 4115/M/2008 JAGDISH KUMAR GOVINDA PILLAI 2 ON THE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO THE OTHER: 1. IN DISALLOWING THE CLAIM FOR DEDUCTION OF THE INTER EST UNDER SECTION 57(III) OF THE ACT. YOUR APPELLANT SUBMITS THAT THE INTEREST COST BE ALLOWED AS A DEDUCTION AND THE TOT AL INCOME RETURNED BY THE APPELLANT BE RESTORED. 2. IN DISREGARDING THAT THE APPELLANT HAS CLAIMED A SE T-OFF OF LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES AGAINST OTHER INCOME UNDER SECTION 71 OF THE ACT AND THE DISALLOW ING THE SET- OFF YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS ERRONEOUS AND THE SET-OFF OUGHT TO BE ALLOWED. 3. THE FINDING OF THE CIT (A) THAT THE APPELLANT HAS N OT SUBMITTED THE DETAILS REQUESTED FOR DURING THE COURSE OF THE REASSESSMENT TO THE ASSESSING OFFICER (AO) IS PER VERSE AND CONTRARY TO THE RECORD. YOUR APPELLANT SUBMITS THA T THIS FINDING IS ERRONEOUS, CONTRARY TO THE RECORD AND OU GHT TO BE DELETED. 4. WITHOUT PREJUDICE TO ABOVE GROUNDS, IN CONFIRMING T HE ACTION OF THE AO IN REJECTING THE ALTERNATIVE CLAIM OF THE AP PELLANT TO TREAT THE INTEREST EXPENSE INCURRED FOR ACQUISITION OF SHARES AS A PART OF COST OF ACQUISITION OF SHARES. THE APPEL LANT SUBMITS THAT THE OBSERVATION OF THE ASSESSING OFFICER IS ER RONEOUS AND THE ALTERNATIVE CLAIM OUGHT TO BE CONSIDERED ALLOWA BLE. 2. THE FACTS ARE IN NARROW COMPASS. THE ASSESSEE H AS TAKEN A LOAN OF ` 5 CRORE FROM DEUTSCHE BANK FOR THE PURCHASE OF SHA RES IN SPACE TV PVT. LTD. ON THE SAID LOAN AMOUNT THE ASS ESSEE PAID THE INTEREST OF ` 21,38,457/-. THE ASSESSEE CLAIMED INTEREST AS A DEDUCTION U/S.53(III) OF THE ACT. ALTERNATIVELY, H E PLEADED BEFORE THE ITA 4115/M/2008 JAGDISH KUMAR GOVINDA PILLAI 3 A.O. THAT THE SAID INTEREST SHOULD BE TREATED AS COST OF ACQUISITION OF THE SHARES. THE A.O. REJECTED THE CLAIM OF THE ASS ESSEE FOR ALLOWING THE DEDUCTION U/S.57(III) OF THE I.T. ACT. THE A.O . ALSO REJECTED THE ALTERNATE PLEA OF THE ASSESSEE WITH THE INTEREST PA ID TO DEUTSCHE BANK IS TO BE TREATED AS COST OF ACQUISITION OF THE SHAR ES. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BUT WITHOU T ANY SUCCESS AS ORDER OF THE A.O. WAS CONFIRMED, REJECTING THE MAIN PLEA AS WELL AS ALTERNATE PLEA OF THE ASSESSEE. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL SUBMITS THAT THE IDENTICAL ISSUE HAS BEEN A DJUDICATED BY THE HONBLE TRIBUNAL IN THE CASE OF MR. AJAY K. SHARMA VS. ASSTT. CIT, CIRCLE 26(1), MUMBAI IN ITA NO.4138/MUM/08 DATED 29 .9.2009. HE FURTHER SUBMITS THAT IN THE PRESENT CASE, GROUND NO .1 & 4 ARE THE EFFECTIVE GROUNDS AND ONLY THOSE GROUNDS ARE TO BE ADJUDICATED. HE FURTHER SUBMITS THAT IN THE CASE OF MR. AJAY K. SHA RMA (SUPRA) THE TRIBUNAL HAS ACCEPTED THE ALTERNATE PLEA OF THE SAI D ASSESSEE, MORE PARTICULARLY, GROUND NO.4 WHICH IS IDENTICAL AS IN THE PRESENT APPEAL. HE, THEREFORE, PLEADED THAT IN THE BACKDROP OF THE DECISION OF THE TRIBUNAL IN THE CASE OF MR. AJAY K. SHARMA (SUPRA) THE ASSESSEES APPEAL MAY BE DISPOSED OFF ALLOWING THE ALTERNATE P LEA IN THE FORM OF GROUND NO.4. WE HAVE ALSO HEARD THE LD. D.R. 4. WE FIND THAT IN THE CASE OF MR. AJAY K. SHARMA ( SUPRA), ON THE IDENTICAL SET OF FACTS, THE SAID ASSESSEE HAD CLAIM ED THE DEDUCTION IN RESPECT OF INTEREST PAID TO DEUTSCHE BANK ON THE LO AN BORROWED OF ` 5 CRORE WHICH WAS INVESTED FOR BUYING THE SHARES OF S PACE TV P. LTD. (NOW IT IS TATA SKY). ALTERNATIVELY, IT IS PLEAD ED THAT INTEREST PAID TO DEUTSCHE BANK MAY BE TREATED AS COST OF ACQUISITION OF THE SHARES. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL, THE TR IBUNAL HAS HELD AS UNDER:- ITA 4115/M/2008 JAGDISH KUMAR GOVINDA PILLAI 4 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT (A0 AND THE PAPER BOOK FILED ON BEHALF OF T HE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT T HAT THE ASSESSEE INVESTED AN AMOUNT OF ` 5 CRORES IN THE SHARE CAPITAL OF M/S. SPACE TV (P) LTD. FOR WHICH HE HAS OBTAINED A LOAN OF ` 5 CRORES FROM DEUTSCHE BANK ON WHICH INTEREST AMOUNTING TO ` 31,38,457/- HAS BEEN PAID. ACCORDING TO THE ASSESSEE SUCH INTEREST IS ALLOWABLE AS DEDUCTIO N U/S.57(III) OF THE ACT FROM THE INTEREST INCOME SHO WN BY HIM AND THE BALANCE LOSS HAS TO BE SET OFF AGAINST THE SALARY INCOME OF THE ASSESSEE. IT IS THE SUBMISSION OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HA S SET UP A BUSINESS, THEREFORE, WHETHER THERE IS INCOME OR N O INCOME THE EXPENDITURE HAS TO BE ALLOWED. ALTERNATIVELY, IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SUCH INTEREST EXPENDITURE SHOULD GO TO ADD TO THE C OST OF SHARES. HOWEVER, ACCORDING TO THE REVENUE SINCE TH E AMOUNT HAS BEEN BORROWED TOWARDS INVESTMENT IN SHAR E CAPITAL OF A COMPANY VIZ. SPACE TV PVT. LTD., THERE FORE, THERE IS NO DIRECT OR PROXIMATE NEXUS BETWEEN THE INVESTMENT AND EARNING OF ANY INCOME. THE INVESTME NT IN SHARE CAPITAL OF A COMPANY ONLY CREATES REMOTE POSS IBILITY OF EARNING ANY INCOME. FURTHER THE EXPENDITURE WAS INCURRED ONLY TO FACILITATE THE CARRYING ON OF AN A CTIVITY WHICH MIGHT HAVE BEEN A SOURCE OF INCOME. 12. IN OUR OPINION, THE INTEREST CAN BE ALLOWED AS A DEDUCTION IF THE ASSESSEE IS A DEALER / TRADER IN SHARES. IN TH E INSTANT CASE HE IS NOT DOING ANY SHARE TRADING BUSINESS. THEREFORE, SUCH INTEREST EXPENDITURE CANNOT BE ALLO WED. FURTHER WE ALSO DO NOT FIND MUCH FORCE IN THE SUBMI SSION OF ITA 4115/M/2008 JAGDISH KUMAR GOVINDA PILLAI 5 THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE INTER EST SHOULD BE ALLOWED AS A DEDUCTION SINCE THE ASSESSEE HAS SET UP A BUSINESS, THEREFORE, WHETHER THERE IS INCO ME OR NO INCOME, THE INTEREST SHOULD BE ALLOWED. HOWEVER, W E FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE INTEREST EXPENDITURE SHOULD BE CONSIDERED AS PART OF THE COST OF ACQUISITION AS AD MITTEDLY THE ASSESSEE HAS BORROWED MONEY AND INVESTED IN THE SHARES. WE, THEREFORE, ALLOW THE ALTERNATE CLAIM O F THE ASSESSEE AS PER GROUNDS OF APPEAL NO.4. 5. IN THE PRESENT CASE, SO FAR AS THE MAIN PLEA OF THE ASSESSEE IS CONCERNED, THE SAME IS REJECTED I.E. ALLOWING THE D EDUCTION U/S.57(III) OF THE ACT ON THE INTEREST PAID TO THE DEUTSCHE BAN K AND GR. NO 1 IS DISMISSED. 6. SO FAR AS GROUND NO.4 WHICH IS AN ALTERNATE CLAI M THE SAME IS ALLOWED FOLLOWING THE DECISION IN THE CASE OF CO-OR DINATE BENCH OF THE ITAT MUMBAI IN THE CASE OF MR. AJAY K. SHARMA (SUPR A). 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH SEPTEMBER 2011. SD/- SD/- ( R.S. SYAL ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATED: 30TH SEPTEMBER 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -29, MUMBAI. 4) THE CIT- 26, MUMBAI. 5) THE D.R. J BENCH, MUMBAI. BY ORDER ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 4115/M/2008 JAGDISH KUMAR GOVINDA PILLAI 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 26.09.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 27.09.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER