Om Sweet (P) Ltd., New Delhi V. DCIT, Circle- 19(1) & (2), New Delhi

ITA 4139/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5095 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 22-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 64; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DLEHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 4139/DEL/2017 & 378/DEL/2018 ASSESSMENT YEAR: 2013-14 & 2014-15 M/S. OM SWEETS PVT. LTD., VS. DCIT, CIRCLE 19(1) & 2, GL-23, SHAHEED BHAGAT SINGH MARG, NEW DELHI. JAIL ROAD, HARI NAGAR, NEW DELHI. PAN : AAACO5022H (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. BHARTI SHARMA, ADVOCATE REVENUE BY : SH. VIPUL KASHYAP, SR. DR DATE OF HEARING: 11/08/2021 DATE OF ORDER : 28/09/2021 ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDERS DATED 28.04.2017 AND 16.10. 2017 PASSED BY THE COMMISSIONERS OF INCOME TAX (APPEALS) -7 AND 40, NEW DELHI ('LD. CIT(A)'), FOR THE ASSESSMENT YEAR 2013- 14 AND 2014-14, M/S. OM SWEETS PVT. LTD. (THE ASSESSEE) PREFERRED THES E APPEALS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF SWEETS, NAMKIN AND RUNNING RESTAURANTS. DURING THE SCRUTINY OF INCOME- TAX RETURN FILED BY 2 THE ASSESSEE FOR THE ASSESSMENT YEARS 2013-14 AND 2 014-15, LEARNED ASSESSING OFFICER FOUND THAT THE ASSESSEE CLAIMED A LOSS OF RS.2,57,000/- AND RS.90,000/- ON CHIT FUND FOR THESE TWO YEARS RE SPECTIVELY AND CLAIMED THAT THEY HAVE PARTICIPATED IN THE CHIT FUN DS FOR REQUIREMENT OF THE FUNDS FOR RUNNING OF THE COMPANY. LEARNED ASSES SING OFFICER DID NOT AGREE WITH THE ASSESSEE AND OBSERVED THAT THERE ARE NUMBER OF OPTIONS FOR REQUIREMENT OF FUNDS OTHER THAN CHIT FUNDS AND ON THIS PREMISE, LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE U/S. 37 OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). 3. ASSESSEE PREFERRED APPEALS BEFORE THE LEARNED CI T(A) AND THE LD. CIT(A) PLACED RELIANCE ON THE DECISION REPORTED IN SODA SILICATES AND CHEMICAL WORKS VS. CIT, 179 ITR 588 AND RETURNED A FINDING THAT THE MEMBER OF THE CHIT FUND COMPANY IS NOT ENTITLED TO ANY LOSS IN TRANSACTION AND SUCH A LOSS CANNOT BE ALLOWED U/S. 37 OF THE ACT. LEARNED CIT(A), ACCORDINGLY, UPHELD THE DISALLOWANC E MADE BY THE LD. ASSESSING OFFICER. 4. AGGRIEVED BY SUCH ORDERS OF THE AUTHORITIES BELO W, THE ASSESSEE PREFERRED THESE TWO APPEALS CONTENDING THAT INASMUC H AS THE ASSESSEE PARTICIPATED IN THE CHITS FOR RAISING THE FUNDS FOR RUNNING THE COMPANY AND UTILIZED THE FUNDS FOR THE PURPOSE OF BUSINESS. ANY LOSS INCURRED IN SUCH TRANSACTIONS IS ALLOWABLE UNDER LAW. RELIANCE IS PLACED ON THE DECISIONS REPORTED IN CIT VS. KOVUR TEXTILES & CO., (1982) 136 ITR 61 (AP HC), CIT V. KOTTAYAM CO-OPERATIVE BANK LTD. (1974) 96 ITR 181 (KER), DCIT V. P.U.R. POLYURETHENE PRODUCTS (P] [1999] 64 TTJ 507( DEL. TRIB), ITO V. SINGH RADIO CO. (INDIA] (P.] LTD. [1991] 59 TAXMAN 367( DEL. TRIB), ITO V. CHAWLA BROS [1990] 38 TTJ 402 ( DEL. TRIB.), ACIT V. K.S. SHETTY AND 3 CO., (2003) 263 ITR 71, (CHENNAI TRIB.), RAJEES VS INCOME-TAX OFFICER, 1997 63 ITD 330, (COCHIN TRIB.), M/S. S.G.R. CHEMIC ALS PVT. LTD. V. ITO, ITA NO. 932/HYD/2016, ORDER DT. 17.04.2018, HYD. TR IB., CHALUVADI ANJANEYULU (HUF] V. ITO, ITA NO. 248/VIZ/2014, ORDE R DT. 11.01.2019, (VIZ. TRIB.), M/S. INDUS STEELS AND ALLOYS LTD., V. DCIT, ITA NO. 2382 & 2383/BANG /2018, ORDER DT. 30.07.2019, BANG. TRIB., M/S. V. KAY TRANSLINES (P] LTD., V. ITO, ITA NO. 1562/MUM/2010, ORDER DT. 29.12.2010, (MUM. TRIB.). LEARNED AR FURTHER SUBMIT S THAT IN VIEW OF THE CONFLICT IN THE DECISIONS ON THIS ASPECT BETWEE N SODA SILICATES AND CHEMICAL WORKS (SUPRA) AND OTHERS, THE BENEFICIAL I NTERPRETATION HAS TO BE GIVEN ACCORDING TO THE DECISION OF HONBLE SUPRE ME COURT IN CIT V. VEGETABLE PRODUCTS LTD. [88 ITR 192]. 5. LEARNED DR, PER CONTRA, HEAVILY PLACES RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND JUSTIFIED THE IMPUGNED OR DER ON THE GROUND THAT INASMUCH AS THE LD. CIT(A) FOLLOWED THE DECISI ON OF HONBLE PUNJAB & HARYANA HIGH COURT IN SODA SILICATES AND CHEMICAL WORKS(SUPRA), SUCH AN ORDER CANNOT BE FOUND FAULT WITH. 6. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF SUBMISSIONS MADE ON EITHER SIDE. ONLY ISSUE INVOLVED IN THESE A PPEALS IS WHETHER OR NOT THE LOSS ARISING OUT OF CHIT FUND TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR THE PURPOSE OF RAISING THE FUNDS TO BE UTILIZED IN THE BUSINESS, IS AN ALLOWABLE DEDUCTION. THIS ISSUE IS NO LONGER RES INTEGRA BY A NUMBERS OF DECISIONS STATED (SUPRA). IN CIT VS . KOVUR TEXTILES & CO. (SUPRA), HONBLE ANDHRA PRADESH HIGH COURT HELD THA T WHEN THE ASSESSEE CONTRIBUTED TO THE CHIT FUNDS AND BID IT, THE DIFFERENCE BETWEEN THE CONTRIBUTED AMOUNT AND THE BID AMOUNT I S AN ALLOWABLE 4 DEDUCTION. SUBSEQUENTLY, IN DCIT V. P.U.R. POLYURET HENE PRODUCTS (SUPRA), ITO VS. SINGH RADIO CO. (SUPRA), CHAWLA BR OS. (SUPRA), K.S. SHETTY AND CO. (SUPRA), SGR CHEMICALS PVT. LTD.(SUPRA) AND MANY OTHER DECISIONS CITED ABOVE, IT WAS CONSISTENTLY HELD THA T THE LOSS ARISING DUE TO THE DIFFERENCE BETWEEN THE CONTRIBUTION TO THE C HIT AND THE BID AMOUNT IS ALLOWABLE DEDUCTION IF THE PURPOSE OF TRA NSACTION IN THE CHIT IS TO RAISE THE FUNDS FOR THE PURPOSE OF BUSINESS. IT IS SUBMITTED BY THE LD. AR THAT CBDT ISSUED INSTRUCTIONS TO ALL COMMISS IONERS OF INCOME-TAX VIDE LETTER DATED 25.03.1992 STATING THAT INSTRUCTI ON NO. 1175 HOLDS GOOD. IN INSTRUCTION NO. 1175 ISSUED BY THE CBDT AT PARAGRAPH NO. (B), IT WAS STATED THAT IN THE HANDS OF THE SUBSCRIBERS, A FEW WILL BE RECEIVING MORE THAN WHAT THEY HAVE SUBSCRIBED AND THIS EXTRA AMOUNT IS IN THE NATURE OF INTEREST AND AS SUCH, TAXABLE. IT IS FURT HER CLARIFIED THAT MEMBERS WHO TAKE THE MONEY EARLIER FROM THE CHIT WI LL NECESSARILY HAVE TO CONTRIBUTE MORE WHICH MEANS THAT THEY INCUR LOSS, WHICH IS NOTHING BUT INTEREST PAID FOR MONEYS TAKEN IN ADVAN CE AND THE CLAIM OF SUCH A LOSS WILL HAVE TO BE CONSIDERED FOR THE PURP OSE OF ALLOWANCE ACCORDING TO THE PROVISIONS OF THE ACT DEPENDING UP ON HOW THE MONEY WAS UTILISED BY THE SUBSCRIBER. ALL THE DECISIONS O F THE TRIBUNAL, NOTED ABOVE, ARE UNANIMOUS ON THE POINT THAT WHEN FOR THE PURPOSE OF RAISING THE FUNDS TO BE UTILIZED IN THE BUSINESS, THE ASSES SEE PARTICIPATED TO THE CHITS, THE LOSS ARISING ON ACCOUNT OF THE DIFFERENC E BETWEEN THE AMOUNT CONTRIBUTED AND THE BID AMOUNT IS AN ALLOWABLE DEDU CTION. 7. WHILE RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE CONSIDERED OPINION THAT IF THE PURPOSE OF ASSESSEES PARTICIPA TION IN THE CHIT IS FOR THE PURPOSE OF RAISING FUNDS, AND IF THE ASSESSEE U TILIZED THE SAID FUNDS 5 FOR THE PURPOSE OF BUSINESS, THEN THE DIFFERENCE IN THE SUBSCRIPTION PAID BY THE ASSESSEE AND THE PRIZE AMOUNT RECEIVED SHALL BE TREATED AS BUSINESS INCOME/LOSS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMAND THE ISSUE TO THE FILE OF LD. ASSESSING OFFIC ER FOR THE PURPOSE OF THIS FACT VERIFICATION. IF THE PURPOSE OF PARTICIPA TION IN THE CHIT AND UTILIZATION OF FUNDS IS FOR THE PURPOSE OF BUSINESS , LD. ASSESSING OFFICER WILL ALLOW THE DIFFERENCE BETWEEN THE SUBSCRIPTION AMOUNT PAID AND THE PRIZE MONEY RECEIVED, IF IT IS LOSS, AS BUSINESS LO SS. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER, 2021. SD/- SD/- (O.P. KANT ) (K. NARSIMHA CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28/09/2021 AKS