SANJIV N PAREKH, MUMBAI V. ADDL CIT RG 20(3), MUMBAI

ITA 4199/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2426 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 24-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAM PURAM
• Keywords: Business income; Earning of tax free income
• Section: 143(3)

Judgement Text

MR SANJIV N PAREKH ITA NO . 4199 /MUM/20 1 0 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER ITA NO. : 4199 /MUM/20 1 0 ( ASSESSMENT YEAR: 200 5 - 0 6 ) MR SANJIV N PAREKH , 701, HERITAGE PLAZA, OPP. INDIA OIL NAGAR, J P ROAD, ANDHERI (WEST), MUMBAI - 400 053 .: PAN: A A I PP 7 191 B VS A DDL. COMMISSIONER OF INCOME TAX - RANGE 20(3), MUM BAI (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI VIVEK A PERAM PURAM /DATE OF HEARING : 19 - 08 - 201 5 / DATE OF PRONOUNCEMENT : 16 - 11 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 0 1 .0 2 .201 0 PASSED BY CIT(A) - 3 1 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) , FOR THE AS SESSMENT YEAR 2005 - 06, ON THE FOLLOWING GROUNDS : - THE COMMISSIONER OF INCOME - TAX (APPEALS) - 31, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE 20(3), MUMBAI (HEREINAFTER RE FERRED TO AS ASSESSING OFFICER) IN DISALLOWING INTEREST OF RS. 16,80,000/ - PAID ON UNSECURED LOANS AND RS. 96,011/ - PAID TO BANKS ON THE GROUND THAT THE APPELLANT HAS MADE INVESTMENT IN SHARES OF COMPANIES, BONDS AND PPF. 2. IN THIS CASE, DESPITE SEV ERAL OPPORTUNITIES, NONE APPEARED ON BEHALF OF THE ASSESSEE. EVEN ON THE EARLIER DATE OF HEARING THE CASE WAS ADJOURNED AT THE REQUEST OF THE ASSESSEE. ON 7 TH JULY, 2015 , AT MR SANJIV N PAREKH ITA NO . 4199 /MUM/20 1 0 2 THE REQUEST OF ASSESSEE HEARING WAS AGAIN ADJOURNED FOR 19.08.2015, HOWEVER, ON TH E DATE OF HEARING NONE APPEARED AND NO ADJOURNMENT APPLICATION WAS FILED , THEREFORE, THE APPEAL IS BEING HEARD ON THE BASIS OF MATERIAL ON RECORD AND AFTER HEARING THE LD. DR. 3. THE MAIN ISSUE INVOLVED IN THIS CASE IS DISALLOWANCE OF INTEREST OF RS. 16,8 0,000/ - WHICH WAS PAID ON UNSECURED LOANS AND RS. 96,011/ - PAID TO THE BANKS. 4. THE BRIEF FACTS ARE THAT, ASSESSEE HAS TAKEN A LOAN OF RS. 1.63 CRORES WHICH INCLUDED MARGIN FUNDING AND BANK LOANS ON WHICH HE HAS PAID INTEREST OF RS. 53.63 LAKHS AS UNDER : - I) INTEREST ON MARGIN FUNDING 35.87 LAKHS II) INTEREST ON BANK LOANS 16.80 LAKHS III) INTEREST ON BANK OVER DRAFT 0.96 LAKHS TOTAL 53.63 LAKHS APART FROM THAT, THE AO H AS FURTHER NOTED THAT THE ASS ESSEE HAS INVESTED A SUM OF RS. 1.93 CRORES IN UNQUOTED EQUITY SHARES OF HIS GROUP COMPANY NAMELY, M/S ALDAN INVESTMENTS PVT . LTD, FROM WHICH NO INCOME WAS RECEIVED DURING THE RELEVANT ASSESSMENT YEAR. A CCORDING TO THE AO, THE ENTIRE INVESTMENT IN THE GR OUP CONCERN HAS BEEN MADE OUT OF INTEREST BEARING FUNDS WITHOUT CHARGING INTEREST OR ANY INCOME BEING RECEIVED . BESIDES THIS, THE ASSESSEE HAS ALSO INVESTED RS. 17 LAKHS IN OTHER SHARES AND RS. 32.52 LAKHS IN INTEREST FREE BONDS AND PPF. THUS, AO HELD THAT , ASSESSEE HAS INVESTED BORROWED FUNDS ON THE ASSETS ON WHICH NO INTEREST IS CHARGED OR THE DIVIDEND RECEIVED OR RECEIVABLE IS EXEMPT. THE ASSESSEE HAD CLAIMED INTEREST EXPENSE EVEN ON INVESTMENTS WHICH ARE OR CAPABLE OF RESULTING IN TO EXEMPT INCOME . AO FU RTHER OBSERVED THAT THE ASSESSEE COULD NOT PROVIDE THE NEXUS TO ESTABLISH HIS CONTENTION THAT BORROWED FUNDS HAVE BEEN UTILIZED PURELY FOR BUSINESS PURPOSE, ACCORDINGLY , THE AO DISALLOWED THE ENTIRE INTEREST EXPENDITURE OF RS. 53.63 LAKHS. MR SANJIV N PAREKH ITA NO . 4199 /MUM/20 1 0 3 5. THE LD. CIT (A) REDUCED THE DISALLOWANCE TO RS. 17.76 LAKHS AND BALANCE AMOUNT OF RS. 35.87 LAKHS WHICH IS INTEREST PAID TOWARDS MARGIN FUNDING WAS DELETED. THE RELEVANT OBSERVATION AND FINDING OF THE CIT(A) ARE AS UNDER : - 2.3 I HAVE CONSIDERED THE ASSESSMENT ORDE R AND THE SUBMISSIONS OF THE AR AS DISCUSSED ABOVE. FROM THE SAME, AS I FIND THE APPELLANT HAS NOT DISPUTED THE FACT REGARDING THE UNSECURED LOANS RAISED AND INVESTMENT MADE BY THE APPELLANT IN UNQUOTED EQUITY SHARES IN HIS DIFFERENT GROUP COMPANIES IN WHI CH THE APPELLANT IS HAVING SUBSTANTIAL SHAREHOLDING. OUT OF THE TOTAL INTEREST PAID OF RS. 53.63 LAKHS, A SUM OF RS. 35.87 LAKHS IS PAID TOWARDS MARGIN FUNDING ON PURCHASE OF SHARES TO VARIOUS SHARE BROKERS. THEREFORE, TO THIS EXTENT I FIND THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE APPELLANT, SINCE, THERE IS DIRECT NEXUS BETWEEN THE INTEREST PAID AND THE UTILIZATION OF BORROWED FUNDS FOR HIS BUSINESS PURPOSES. THE ENTIRE INCOME EARNED BY THE APPELLANT OUT OF HIS SHARE TRADING BUSINESS IS ASSESSED AS HIS BUSINESS INCOME. HOWEVER, THE APPELLANT COULD NOT ABLE TO SATISFACTORILY EXPLAIN HIS CONTENTION THAT THE INVESTMENTS MADE IN HIS ASSOCIATE CONCERNS AND ACQUISITION OF OTHER ASSETS ARE NOT OUT OF BORROWED FUNDS FOR WHICH INTEREST IS PAID AND CLAIMED AS EXPENDITURE DURING THE RELEVANT ASSESSMENT YEAR. THE APPELLANT FAILED TO FURNISH ANY CORRELATION OR DIRECT NEXUS BY FURNISHING ANY EVIDENCE IN SUPPORT OF HIS CONTENTION THAT THE INVESTMENTS MADE FOR THIS PURPOSE ARE NOT OUT OF HIS BORROWED FUND S ON WHICH INTEREST IS PAID. ON THE OTHER HAND, THE AO HAS DULY ESTABLISHED THAT THE APPELLANT IS HAVING A COMMON POOL ACCOUNT IN WHICH HIS BORROWED FUNDS AS WELL AS SELF OWNED FUNDS ARE MIXED AND THEREFORE, IT IS NOT ASCERTAINABLE THAT THE INVESTMENTS MAD E BY THE APPELLANT IN HIS OWN ASSOCIATE CONCERNS AND OTHER INVESTMENTS ARE OUT OF HIS OWN SELF GENERATED FUNDS. BESIDES, AS PER THE DETAILS FURNISHED BY THE AR AS DISCUSSED ABOVE, IT IS NOTICED THAT DURING THE RELEVANT ASSESSMENT YEAR THE APPELLANT HAS MAD E CASH BORROWINGS AS WELL AS FRESH INVESTMENTS. THEREFORE, IN VIEW OF THESE SPECIFIC FACTS AND CIRCUMSTANCES AVAILABLE IN THE CASE OF THE APPELLANT, I FIND THAT THE AO IS FULLY JUSTIFIED IN DISALLOWING THE INTEREST PAID ON LOAN RAISED FROM BANKS AMOUNTING TO RS. 17.76 LAKHS (I.E. 16.80 + 0.96), AS DISCUSSED. ACCORDINGLY, THE DISALLOWANCE MADE TO THIS EXTENT IS CONFIRMED AND THE BALANCE DISALLOWANCE MADE AMOUNTING TO RS. 35.87 LAKHS AS INTEREST PAID ON MARGIN FUNDING IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 6. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND ARGUMENTS MADE BY THE LD. DR, WE FIND THAT THE LD. CIT(A) HAS EXAMINED THE ENTIRE ISSUE IN DETAIL AND GAVE A MR SANJIV N PAREKH ITA NO . 4199 /MUM/20 1 0 4 CATEGORICAL FINDING OF FACT THAT, IN SO FAR AS THERE WAS A DIRECT AND PROXIMATE NEXUS BETWEEN INTEREST PAID AND UTILIZATION OF THE BORROWED FUNDS FOR THE BUSINESS PURPOSE OF THE ASSESSEE, HE HAS ALLOWED THE CLAIM OF THE INTEREST , HOWEVER WHERE THE ASSESSEE HAS COULD NOT SATISFACTORIL Y EXPLAIN THAT THE INVESTMENTS HAD A DIRECT AND PROXIMATE NEXUS FOR THE BUSINESS PURPOSE , HE HAS CONFIRM THE DISALLOWANCE . EVEN BEFORE US , WITHOUT THERE BEING ANY REBUTTAL ON RECORD OF SUCH A FINDING OF CIT(A), WE DO NOT FIND ANY REASON TO DEVIATE FROM THE CONCLUSION DRAWN BY THE CIT(A) AND ACCORDINGLY, SAME IS CONFIRMED . THUS, GROUND RAISED BY THE ASSESSEE IS DISMISSED . 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER , 2015. SD/ - SD/ - ( ) ( ) (RAMIT KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 16 TH NOVEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 3 1 , MUMBAI. 4 ) THE CIT 20 , MUMBAI. 5 ) , , / THE D.R. G BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *C HAVAN, SR.PS