The ITO-3(2), V. Shri Sandip Parekh,

ITA 519/IND/2002

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2419 (ITAT-INDORE)
• Duration Of Justice: 7 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-12-2009
• Assessment Year: 1997-1998
• Appeal Filed On: 05-08-2002
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: P M CHOWDHARY
• Keywords: Proportionate interest; Onus to prove; Capital expenditure
• Section: 201; 68

Judgement Text

PAGE 1 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : N.A. I.T.A.NO.519/IND/2002 A.Y. : 1997-98 INCOME-TAX OFFICER, SHRI SANDEEP PARIKH, 3(2), VS 4,SANGHI COLONY, INDORE. SHREYASDEEP BUILDING, A.B.ROAD, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.K.SINGH, CIT DR RESPONDENT BY : SHRI P.M.CHOWDHARY, ADV. DATE OF HEARING : 17/12/2009 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDE R OF THE LD. CIT(A)-II, INDORE, 31 ST MAY, 2002, FOR THE ASSESSMENT YEAR 1997-98. 2. THE DEPARTMENT RAISED ADDITIONAL GROUND VIDE ITS LE TTER DATED 21.9.2007, WHICH WERE DISMISSED VIDE ENTRY ON ORDER SHEET DATED 3 RD MARCH, 2008. HENCE, THE FOLLOWING GROUNDS RAISED BY THE REVENUE IN THE APPEAL ONLY REMAIN TO BE ADJUDICATED. PAGE 2 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), INDORE, ERRED IN DELETING ADDITIONS OF RS. 5,50,000/- OUT OF ADDITION OF RS. 6,00,000/- MADE U/S 68 AND CONSEQUENTIAL DISALLOWANCE OF INTEREST OF RS. 62,87 3/- AS ASSESSEE FAILED TO PRODUCE THE CREDITORS BEFORE A.O . FOR STATEMENT AS ASSESSEE WAS ASKED FOR IT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS OF RS. 1,95, 000/- PAID ON THE BORROWED AMOUNT, INVESTED FOR CONTROLLING TH E PROMOTED BY THE ASSESSEE AND THE FAMILY MEMBERS. 3. THE FACTS, RELATING TO GROUND NO. 1, ARE THAT THE A .O. MADE ADDITIONS WORTH RS. 6 LAKHS AS UNEXPLAINED CASH CRE DIT U/S 68 OF THE INCOME-TAX ACT, 1961, IN THE FOLLOWING ACCOUNTS :- S.NO. NAME OF THE LENDER LOAN AMOUNT RS. (I) SMT. SNEHLATA SATYA 25,000/- (II) SHRI RAM BAHADUR MISHRA 25,000/- (III) SHRI SURESH MAHESHWARI 40,000/- (IV) SHRI AJAY PORWAL 30,000/- (V) SMT. ARTI MUCHAL 10,000/- (VI) SHRI MANGILAL MUKATI 20,000/- (VII) SHRI MOTILAL RATHI 50,000/- (VIII) SMT. NISHA RASHIYANI 10,000/- (IX) SMT. SAROJ JAIN 20,000/- (X) SMT. P.H. MERCHANT 80,000/- (XI) SMT.PUSHPA GOYANKA 30,000/- (XII) SHRI KAILASH SETHI 75,000/- PAGE 3 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. (XUI) NITESH SINGHI 20,000/- (XIV) AVINASH JAIN 40,000/- (XV) SMT. SHAKUNTALA JAIN 20,000/- (XVI) SMT. KRISHNA BAHETI 30,000/- (XVII) SMT. SUCHITA BHONDEWA 75,000/- 6,00,000 /- 4. THE A.O. MADE THESE ADDITIONS MAINLY FOR THE REASON S THAT IN SOME CASES CONFIRMATIONS OF THE CREDITORS WERE NOT FILED. IN SOME CASES, THE LOAN CREDITORS WERE NOT PRODUCED BEFORE HIM, IN SOME CASES OF CREDITORS, WHO APPEARED BEFORE THE A.O., THEY WERE NOT IN THE CAPACITY TO ADVANCE SUCH LOANS AND IN SOME CASES CONFIRMATORY L ETTERS OF THE BROKERS ONLY WERE FILED. AGGRIEVED BY THIS, THE ASSESSEE CA RRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN THE DETAILED SUBMISSIONS WERE MADE IN RESPECT OF EACH OF SUCH PARTIES. IN SUM AND SUBSTANCE, IT WAS PLEADED THAT ALL THE INGREDIENTS OF SECTION 68 I.E. IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THESE CREDITORS WERE SATISF IED. THE ASSESSEE ALSO SUBMITTED DOCUMENTARY EVIDENCES SUCH AS DETAILS OF TAX RECORDS OF SUCH CREDITORS, BANK ACCOUNT, CONFIRMATORY LETTERS ETC. IN SUPPORT OF SUCH CLAIM. THE LD. CIT(A) ACCEPTED THE CLAIMS OF THE ASSESSEE IN RESPECT OF SUCH PARTIES EXCEPT TWO I.E. MR. ARTI MUCHAL FROM WHOM A LOAN OF RS. 10,000/- HAD BEEN TAKEN AND IN THE CASE OF SHRI AVINASH JAIN FROM WHOM A LOAN OF PAGE 4 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. RS. 40,000/- HAD BEEN TAKEN. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE NARRATED THE FA CTS AND PLACED STRONG RELIANCE ON THE ORDER OF THE A.O. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, PLACED RELIANCE ON THE SUBMISSIONS MADE BY HIM BEFORE THE LD. CIT(A) ON HIS FINDINGS. HE FURTHER SUBMITTED THAT IN RESPECT OF T WO CREDITORS IN WHOSE CASES THE ADDITIONS HAD BEEN CONFIRMED BY THE CIT(A ) WERE ALSO DELETED BY THE TRIBUNAL IN THE CROSS OBJECTION FILED BY TH E ASSESSEE, WHICH HAD BEEN DISPOSED OF BY THE TRIBUNAL VIDE ITS ORDER DA TED 22 ND JUNE, 2009, IN CROSS OBJECTION NO. 82/IND/2002 AND DREW OUR ATTENT ION TO PARA 8 OF THE SAID ORDER OF THE TRIBUNAL, WHEREIN THE TRIBUNAL HA D HELD THAT THE ASSESSEE HAD DISCHARGED INITIAL ONUS TO PROVE THE GENUINENES S OF THE CASH CREDIT AND PROVING OF SOURCE OF SOURCE COULD NOT BE MADE A MANDATORY CONDITION TO ACCEPT THE GENUINENESS OF THE CASH CRE DIT. 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. IT IS NOTED THAT THE ASSESSEE HAS RECEIVED LOANS FR OM VARIOUS PARTIES IN SMALL AMOUNTS AND THE RANGE OF SUCH LOAN IS RS. 10,000/- TO A MAXIMUM OF RS. 80,000/-. IT IS ALSO NOTED THAT VARI OUS DOCUMENTARY EVIDENCES HAVE BEEN FILED TO MEET THE REQUIREMENTS OF PROVISIONS OF PAGE 5 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. SECTION 68. IN OUR OPINION, THE A.O. MADE THESE ADD ITIONS MAINLY FOR THE REASON THAT HE WANTED THE ASSESSEE TO PROVE CLAIMS IN THE MANNER AS REQUIRED BY THE ASSESSING OFFICER, WHICH, IN OUR OP INION, CANNOT BE A CORRECT APPROACH AS THE ASSESSEE HAS MET THE REQUIR EMENTS OF LAW WHILE ADDUCING REQUIRED DOCUMENTARY EVIDENCES AND THE TRA NSACTIONS OF SUCH LOANS. WE FURTHER FIND THAT THE LD. CIT(A) HAS EXAM INED THE ISSUE BOTH ON FACTUAL AND LEGAL ASPECTS IN DETAILS IN GIVING RELI EF TO THE ASSESSEE AND THESE FINDINGS OF THE LD. CIT(A) HAVE REMAINED UNCO NTROVERTED. IN THIS VIEW OF THE MATTER, WE HOLD THAT THERE IS NO MERIT IN THIS GROUND OF THE REVENUE. THE SAME IS, THEREFORE, DISMISSED. 9. THE FACTS, RELATING TO GROUND NO.2, ARE THAT THE AS SESSEE HAS INVESTED A SUM OF RS. 10 LAKHS IN THE SHARES OF M/S . PARKSONS SECURITIES LIMITED IN ASSESSMENT YEAR 1996-97. 10. THE A.O. FOUND THAT THE ASSESSEE HAD CLAIMED INTERE ST PAID ON BORROWED CAPITAL AT RS. 18,32,661/- IN THE YEAR UND ER CONSIDERATION . HENCE, HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WH Y PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED. THE ASSESSEE SUB MITTED THAT IT HAD INVESTED THE IMPUGNED SUM OUT OF SURPLUS FUNDS, WHE REON NO INTEREST WAS PAYABLE. IT WAS ALSO SUBMITTED THAT THIS COMPANY HA D BEEN PROMOTED BY THE ASSESSEE ALONGWITH HIS FAMILY MEMBERS, HENCE, T HERE WAS NO QUESTION OF MAKING THIS INVESTMENT TO GET A CONTROLLING STOC K. HE ALSO RELIED ON THE PAGE 6 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. JUDICIAL DECISIONS IN SUPPORT OF HIS CLAIM THAT INT EREST ON BORROWED CAPITAL WAS ALLOWABLE U/S 36(1)(III) AS SUCH BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A.O., HOWE VER, HELD THAT THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN SUCH INV ESTMENT AND SURPLUS FUNDS. THE A.O. ALSO HELD THAT IT WAS NOT IMPORTANT THAT WHETHER SUCH INVESTMENT HAD BEEN MADE IN THE EARLIER YEAR OR IN THE YEAR UNDER CONSIDERATION FOR THE REASON THAT THE ASSESSEE WAS STILL PAYING INTEREST ON FUNDS UTILIZED FOR MAKING SUCH INVESTMENT. IT WAS A LSO HELD BY THE ASSESSING OFFICER THAT THE OBJECT OF SUCH INVESTMEN T WAS TO GAIN CONTROL OVER THIS COMPANY. HENCE, AS PER THE DECISION OF HO N'BLE BOMBAY HIGH COURT AS REPORTED IN 238 ITR 777, AND HON'BLE GUJAR AT HIGH COURT IN THE CASE AS REPORTED IN 201 ITR 464. A PROPORTIONATE DI SALLOWANCE WAS TO BE MADE. ACCORDINGLY, HE MADE A DISALLOWANCE OF RS.1,9 5,000/- OUT OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE. AGGRIEVE D BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A ), WHEREIN IT WAS CONTENDED THAT THE ASSESSEE HAD NOT PURCHASED SHARE S FROM ANY OUTSIDE PARTIES OR OPEN MARKET, HENCE THE JUDICIAL DECISION S RELIED ON BY THE ASSESSING OFFICER WERE NOT RELEVANT. HE FURTHER PLA CED ON VARIOUS JUDICIAL DECISIONS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. R.P. MODY, 115 ITR 519, WHEREIN IT HAD BEEN HELD THAT INTEREST ON MONEYS BORROWED FOR INVESTMENT IN SHARES, WHICH HAD NOT YIELDED IN PAGE 7 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. DIVIDEND WAS STILL ADMISSIBLE AS A DEDUCTION U/S 57 (III) OF THE ACT. THE LD. CIT(A) AFTER CONSIDERING THESE SUBMISSIONS OF THE A SSESSEE HELD THAT THE ASSESSEE HAD NOT INVESTED ADDITIONAL AMOUNT OF RS. 10 LAKHS TO REQUIRE CONTROLLING STAKE IN PARKSONS SECURITIES LIMITED, B UT THE SAID AMOUNT HAD BEEN INVESTED TO EARN THE DIVIDEND INCOME OR EXPAND ITS PRESENT BUSINESS. HENCE, HE DELETED THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 11. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 12. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 13. IT IS NOTED THAT IN THE YEAR UNDER CONSIDERATION DI VIDEND INCOME HAS CHARGEABLE TO TAX. HENCE, AS PER THE THEN PREVA LENT LAW NO SUCH NOTIONAL DISALLOWANCE COULD BE MADE EVEN IF THERE D ID NOT EXIST ANY ACTUAL DIVIDEND INCOME. WE FURTHER FIND THAT IT IS NOT A C ASE OF CAPITAL EXPENDITURE AS SUCH INVESTMENT HAD BEEN MADE TO EAR N DIVIDEND INCOME OR TO EXPAND THE BUSINESS ACTIVITIES OF THE ASSESSE E. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. PAGE 8 OF 8 I.T.A.NO. 519/IND/2002 SHRI SANDEEP PAREKH, INDORE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 ND DECEMBER, 2009. CPU* 171812