ITO 14(1)-4, MUMBAI V. SHAKTI GEMS & JWELLERY, MUMBAI

ITA 5167/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2701 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-10-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 13-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADEENATH MISHRA
• Keywords: Business income
• Section: 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V DURGA RAO, JUDICIAL MEMBER ITA NOS 5166 AND 5167 /MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06 ) INCOME TAX OFFICER14(1)-4, 205, 2ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI -400 021 VS M/S SHAKTI GEMS & JEWELLERY, 82/84, 2ND FLOOR, SHEIKH MEMON STREET, ZAVERI BAZAAR, MUMBAI 400 002 PAN: AAOFS 6589 E APPELLANT RESPONDENT APPELLANT BY: SHRI ANADEE NATH MISHRA RESPONDENT BY: NONE ORDER PER V DURGA RAO, JUDICIAL MEMBER THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE ORDERS OF THE CIT (A) XIV MUMBAI DATED 17TH JUNE 2008 FOR THE AS SESSMENT YEARS 2004-05 AND & 18TH JUNE 2008 FOR ASSESSMENT YEAR 2005-06. AS COM MON ISSUES ARE INVOLVED IN BOTH THESE APPEALS THEY WERE HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER FOR SAKE OF CONVENIENCE. 2. THE CASE WAS POSTED FOR HEARING ON 24-8-2009 AND AT THE REQUEST OF THE ASSESSEE IT WAS ADJOURNED TO 21-10-2009. AGAIN ON 21-10-2009 ASSESSEE SOUGHT FOR ADJOURNMENT AND ACCORDINGLY THE CASE WAS POSTED FOR HEARING ON 29-10-2009. ON 29-10-2009 ALSO THE ASSESSEE SOUGHT FOR ADJOURNMENT , WHICH WE HAVE REJECTED AND THE CASE WAS HEARD. LEARNED DEPARTMENTAL REPRESENTA TIVE WAS PRESENT ON BEHALF OF THE RESPONDENT-REVENUE. COMMON GROUNDS ARE RAISED IN BOTH THE APPEALS. GROU NDS OF APPEAL FOR AY 2004-05, ARE AS UNDER: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO THE LAW AND FACTS OF THE CASE. 2. THE CIT (A) ERRED IN DIRECTING THE AO TO TREAT T HE INTEREST INCOME OF RS 20,08,279/- (RS 4,11,42,170/- FOR AY 2005-06) EARNE D FROM FIXED DEPOSITS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURC ES AS ASSESSED BY AO. ITAS 5166 AND 5167 /M/2008 M/S SHAKTI GEMS & JEWELLERY 2 3. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT T HAT THE ASSESSEE HAS NOT PRODUCED ANY PROOF WITH REGARD TO THE CONDITION S IMPOSED BY MMTC THAT UNLESS THE FIXED DEPOSITS IN THE BANK WAS MADE, STA NDARD GOLD TO THE CUSTOMERS SHALL NOT BE SUPPLIED, IT WAS NOT A MANDA TORY REQUIREMENT OF MMTC THAT IT WOULD SUPPLY GOODS ONLY AGAINST L/C AND THA T THE CASE LAWS CITED BY THE AO ARE DIRECTLY ON THE POINT AND THEREFORE, THE INT EREST FROM FIXED DEPOSITS IN THIS CASE IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF THE CIT (A) BE QUASH ED AND THAT OF THE AO RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. FACTS IN BRIEF ARE THAT, THE ASSESSEE-COMPANY IS MAINLY IN THE BUSINESS OF CARRYING ON TRADE IN BULLION BY BUYING STANDARD GOL D FROM MMTC AND SELLING IT IN THE LOCAL MARKET. THE ASSESSEE FILED RETURN OF INCOME ON 29.10.2004 DECLARING TOTAL LOSS OF RS 1,06,96,910/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT. LATER ON THE CASE WAS SELECTED FOR SCRUTINY BY ISSU E OF NOTICE U/S 143(2) OF THE ACT. THE ASSESSEE FIRM HAS SHOWN INTEREST INCOME ON FD A S BUSINESS INCOME. THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY INTEREST ON FIXE D DEPOSITS SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. IN REPLY THE LEARNED AR STATED THAT ASSESSEE HAS RECEIVED INTEREST ON FIXED DEPOSIT AG AINST L.C. OF RS 20,08,279/- AS PER CREDIT NOTE RECEIVED FROM MMTC L TD. THE SAID DEPOSIT IS KEPT AS MARGIN MONEY FOR PERFORMANCE OF PAYMENT OBLIGATION TO MMTC LTD. IT IS A MANDATORY REQUIREMENT OF BUSINESS TRA NSACTION OF THE FIRM. THE SAME IS KEPT OUT OF RECEIVED FROM DEBTORS AGAIN ST SALE OF GOLD BARS NOT WITH INTENTION TO INVESTMENT WITH SURPLUS FUND OF FIRM. HENCE IT IS PURELY A BUSINESS INCOME AND CANNOT BE CONSIDERED A S OTHER SOURCES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA D NOT PRODUCED ANY PROOF WITH REGARD TO THE CONDITIONS IMPOSED BY MMTC. THE ASSES SING OFFICER WAS OF THE VIEW THAT IT WAS NOT A MANDATORY REQUIREMENT OF MMTC THA T IT WOULD SUPPLY GOODS ONLY AGAINST LC. THE INTEREST EARNED FROM FIXED DEPOSIT S WAS IN THE NATURE OF INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. THE ASSESSI NG OFFICER RELIED ON THE JUDGMENT ITAS 5166 AND 5167 /M/2008 M/S SHAKTI GEMS & JEWELLERY 3 OF MADRAS HIGH COURT IN THE CASE OF CIT VS A S NIZA R AHMED & CO (259 ITR 244), APEX COURT JUDGMENT IN THE CASE OF CIT VS DR V P G OPINATHAN (248 ITR 449) AND KERALA HIGH COURT DECISION IN THE CASE OF K RAVINDR ANATHAN NAIR VS DCIT (263 ITR 669). THE ASSESSING OFFICER CONCLUDED THAT RS 20 ,08,279/- IS INCOME FROM OTHER SOURCES AND NOT BUSINESS. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT (A). THE CIT (A) WHILE ALLOWING THE GROUND HELD AS UNDER IN PARA 7 OF HIS ORDER: I HAVE CONSIDERED THE FACTS AND SUBMISSIONS AND FI ND MERIT IN THE ARS CONTENTION. THE APPELLANT HAD DEPOSITED THE MONEY IN THE BANK FIXED DEPOSITS FOR MEETING THE REQUIREMENT OF MMTC AND THE FUNDS W ERE INVESTED OUT OF THE WORKING CAPITAL FUNDS. THUS, THE DEPOSITS WERE MAD E AS PER THE REQUIREMENT OF THE MMTC AND THEREFORE WERE CONNECTED WITH THE B USINESS NEEDS OF THE ASSESSEE. ACCORDINGLY, THE INTEREST EARNED ON BANK FIXED DEPOSITS DESERVES TO BE ASSESSED AS BUSINESS INCOME ONLY. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE INTEREST INCOME FROM FIXED DE POSITS AS BUSINESS INCOME. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE TH IS TRIBUNAL. 4. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE WAS ENGAGED IN PURCHASE OF BULLION MAINLY FROM MMTC, WHICH IS A GO VERNMENT OF INDIA UNDERTAKING. AS PER THE BUSINESS PROCEDURE OF THE MMTC, EVERY CU STOMER HAS TO MAKE THEIR INDENT, THEY ARE REQUIRED TO FURNISH CREDIT GUARANT EE FROM THEIR RESPECTIVE BANKS, WHICH WERE ISSUED AGAINST THE DEPOSITS. THE MONEY DEPOSITED BY THE ASSESSEE IN THE SAID BANK FOR MEETING THE NEEDS OF MMTC WAS OUT OF WORKING CAPITAL BUSINESS FUNDS AND THE ACTIVITY RELATING TO DEPOSITING THE BANK WA S INTEGRAL PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, THE DEPOSITS WERE MADE BY THE ASSESSEE FOR THE BUSINESS PURPOSE, THE INTEREST RECEIVED FROM THE DE POSITS WERE TREATED AS BUSINESS INCOME. HE RELIED ON THE JUDGMENT OF CIT KARNAL CO -OP SUGAR MILLS LTD (2000) 243 ITR 2 (SC), CIT VS DALMIA PROMOTERS DEVELOPERS (P) LTD (2006) 281 IR 346 (DEL) 281 ITR 346(DEL). ON THE OTHER HAND, THE LEARNED D EPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER . ITAS 5166 AND 5167 /M/2008 M/S SHAKTI GEMS & JEWELLERY 4 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE FO R CONSIDERATION BEFORE US IS WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE IS INCOM E FROM BUSINESS OR INCOME FROM OTHER SOURCES? THE LEARNED CIT (APPEALS) GAVE A CA TEGORICAL FINDING THAT ASSESSEE HAS DEPOSITED MONEY IN BANK FOR MEETING THE REQUIRE MENT OF MMTC AND THE FUNDS WERE INVESTED OUT OF THE WORKING CAPITAL FUNDS AND ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. THERE IS NO MATERIAL ON RECORD TO SHO W THAT THE FUNDS INVESTED WERE NOT OUT OF THE WORKING CAPITAL. WHEN THE ASSESSEE INVESTED FUNDS FROM WORKING CAPITAL AS SECURITY TO MEET THE NEEDS OF THE BUSINE SS, IT CANNOT BE SAID THAT THE DEPOSITS WERE MADE NOT FOR THE BUSINESS PURPOSE. W E, THEREFORE, FIND NO INFIRMITY IN THE ORDER PASSED BY CIT (APPEALS). WE UPHOLD THE OR DER PASSED BY THE CIT (APPEALS) ON THIS ISSUE. THE GROUNDS RAISED BY THE REVENUE I N BOTH THE APPEALS ARE REJECTED. 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED ON 29 TH DAY OF DECEMBER 2009. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (V DURGA RAO) JUDICIAL MEMBER MUMBAI, DATE: 29 TH DECEMBER 2009 TRUE COPY COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -XIV, MUMBAI. 4) THE CIT-14, MUMBAI. 5) THE D.R. E BENCH, ITAT, MUMBAI BY ORDER ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI