Ajay Goyal, New Delhi V. ACIT, New Delhi

ITA 4881/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52805 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Keywords: Business income; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 4881(DEL)/2010 ASSESSMENT YEAR: 2006-07 SHRI AJAY GOYAL, ASSISTANT COMMISSIONER OF PROP. M/S GOYAL APPARELS, VS. INC OME-TAX, CIRCLE 33(1), 6111, BLOCK NO. 1, DEV NAGAR, NE W DELHI. KAROL BAGH, NEW DELHI. PAN: AASPG7491B (APPELLANT) (RESPON DENT) APPELLANT BY : SHRI SATYAN SETHI, ADVOCATE & RESPONDENT BY: MRS. ANUSHA KHURANA, SR. DR DATE OF HEARING : 28.09.2011 DATE OF PRONOUNCEMENT : 07.10.2011. ORDER PER K.G. BANSAL : AM THE GROUNDS TAKEN UP BY THE ASSESSEE IN THIS APP EAL ARE TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN NOT ALLOWING T HE LOSS OF RS. 1,98,390/- UNDER THE HEAD INCOME FROM OTHER SOURCES ON ACCO UNT OF INTEREST PAID ON BORROWED CAPITAL UTILIZED FOR THE PURPOSE OF BUS INESS. 2. THE ASSESSEE HAS FILED THE STATEMENT OF FACT S THAT THE ASSESSEE IS AN INDIVIDUAL AND HE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE AND SALE OF ITA NO. 4881(DEL)/2010 2 GARMENTS AND TRADING IN CLOTH. HE BORROWED FUNDS FROM CITI BANK IN HIS PERSONAL CAPACITY FOR MEETING WORKING CAPITAL REQ UIREMENT OF M/S FEVER INDIA LTD., A COMPANY IN WHICH HE, HIS WIFE AN D FATHER ARE DIRECTORS. NO INTEREST HAS BEEN CHARGED FROM FEVER INDIA L TD. HOWEVER, WHEN THE MONEY WAS NOT PARTLY OR WHOLLY REQUIRED BY FE VER INDIA LTD., THE AMOUNT WAS LENT TO SULABH INTERNATIONAL FROM WH ICH INTEREST OF RS. 1,78,948/- HAS BEEN CHARGED. THE DIFFERENCE BETWEE N THE INTEREST PAID TO CITI BANK AND INTEREST CHARGED FROM SULABH INTER NATIONAL, AMOUNTING TO RS. 1,98,390/-, HAS NOT BEEN ALLOWED IN COMPUTATI ON OF INCOME ON THE GROUND THAT THIS AMOUNT HAS NOT BEEN LAID OUT O R EXPENDED WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME. TH E LD. CIT(APPEALS) ALSO UPHELD THE DECISION OF THE AO BY HOLDING THAT T HE IMPUGNED AMOUNT WAS NOT LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING THE INTEREST INCOME. ON THESE FACTS, THE ASSESSE E HAS FILED APPEAL BEFORE THE TRIBUNAL FOR SEEKING JUSTICE SO THAT THE AM OUNT OF RS. 1,98,390/- MAY BE DEDUCTED FROM HIS INCOME. 3. BEFORE US, THE LD. COUNSEL ARGUED THE CASE A ND RELIED ON THE PROVISION CONTAINED IN SECTIONS 36(1)(III) AND 5 7(III). IT IS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS IN ORDER TO ITA NO. 4881(DEL)/2010 3 PROVIDE WORKING CAPITAL REQUIREMENT OF THE CLOSELY HELD COMPANY, M/S FEVER INDIA LTD. THEREFORE, THE EXPENDITURE HAS BEEN INCURRED AS A MATTER OF COMMERCIAL EXPEDIENCY. IN THE ALTERNATIVE, THE BORROWED MONEY HAD BEEN USED FOR EARNING INTEREST FROM SULABH INTE RNATIONAL AND, THEREFORE, THE INTEREST EXPENDITURE HAS BEEN LAID OUT AND EXPENDED FOR EARNING THE INTEREST INCOME. IN REPLY, THE LD. SENIOR DR RE LIED ON THE ORDER OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS MADE BEFORE US. FROM THE STATEMENT OF FACTS, IT IS CLEAR THAT THE ASSESSEE HAD BORROWED THE MONEY FOR MEETING WORKING CAPITAL R EQUIREMENT OF FEVER INDIA LTD.. IT WAS NOT BORROWED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE OF MANUFACTURE AND SALE OF GARMENTS OR D EALING IN CLOTH. THEREFORE, THE BORROWED MONEY HAS NO NEXUS WITH THE FUNDS OF THE BUSINESS AS THEY WERE KEPT APART FOR MEETING THE REQUIREMENT OF FEVER INDIA LTD. ACCORDINGLY, THE PROVISION CONTAINED I N SECTION 36(1)(III), DEALING WITH COMPUTATION OF BUSINESS INCOME, HAS N O APPLICATION TO THE FACTS OF THE CASE. FURTHER, THE MONEY WAS NOT BORR OWED FOR LENDING IT TO SULABH INTERNATIONAL, RATHER IT WAS BORROWED TO MEET THE REQUIREMENTS OF FEVER INDIA LTD. THEREFORE, IT CANNOT BE SAID THA T THE MONEY WAS BORROWED ITA NO. 4881(DEL)/2010 4 FOR THE PURPOSE OF EARNING INTEREST INCOME AS IT W AS THE INTENTION FROM THE INCEPTION THAT THE MONEY WILL BE USED FOR THE B USINESS OF FEVER INDIA LTD. IN THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT I NTEREST EXPENDITURE WAS LAID OUT OR EXPENDED FOR EARNING THE INTEREST INCOME. ACCORDINGLY, THE FINDING OF THE LOWER AUTHORITIES IS CORRECT ON FACTS A ND IN LAW. 5. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- SHRI AJAY GOYAL, NEW DELHI. ACIT, CIRCLE 33(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.