Shri Mahesh Kantilal Jhaveri, Ahmedabad V. The Income tax Officer,Ward-10(3), Ahmedabad

ITA 541/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0518 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2003-2004
• Appeal Filed On: 17-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Assessee Lawyers: MRS URVASHI SHODHAN
• Section: 143(3); 56

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND A. MOHAN ALANKAMON Y, AM) ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI, 1-A-B, CENTER POINT, PANCHVATI, AHMEDABAD P. A. NO. AAPPJ 8349 G VS THE INCOME TAX OFFICER, WARD -10(3), AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY MRS. URVASHI SHODHAN, AR RESPONDENT BY SHRI T. SANKAR, SR. DR DATE OF HEARING: 23-01-2013 DATE OF PRONOUNCEMENT: 15-03-2013 O R D E R PER A. MOHAN ALANKAMONY: ALL THESE FOUR APPEALS ARE PREFERRED BY THE ASSESSEE AGGRIEVED BY THE COMMON O RDER OF THE LEARNED CIT(A)- XVI, AHMEDABAD DATED 16-11-2009, IN APPEAL NOS. CIT(A)XVI/ITO.WD.10(3)/152 TO 155/2009-10, FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 PASSED U/S 250 READ WITH S ECTION 143(3) AND 147 OF THE IT ACT. ALL THE CASES WERE HEARD TOG ETHER AND THE SAME ARE DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED SIX COMMON GROUNDS IN A LL THE ABOVE APPEALS HAVING IDENTICAL ISSUES WITH VARIANCE IN FI GURES, WHEREIN GROUND NO.1 FOR ALL THE ASSESSMENT YEARS HAS NOT BE EN PRESSED AND ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI VS ITO, W-10(3), AHMED ABAD 2 THE SAME IS DISMISSED AS SUCH. GROUND NO.4 FOR ALL THE ASSESSMENT YEARS IS GENERAL IN NATURE AND DO NOT SURVIVE FOR A DJUDICATION. GROUND NO.5 FOR ALL THE ASSESSMENT YEARS RELATING TO LEVY OF INTEREST U/S 234B, 234C AND 234D OF THE ACT IS CONSEQUENTIAL AND GROUN D NO.6 FOR ALL THE ASSESSMENT YEARS BEING INITIATION OF PENALTY U/ S 271(1) OF THE ACT IS PREMATURE AT THIS STAGE. THEREFORE, BOTH THESE G ROUNDS NOS. 5 AND 6 ARE DISMISSED. THE SURVIVING GROUNDS NO. 2 AND 3 OF THE APPEAL ARE REPRODUCED HEREIN UNDER FOR OUR CONSIDERATION:- 2. THE CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE BY CONFIRMING THE ACTION OF THE LEARNED AO IN HOLDI NG THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO INTERE ST FREE FUNDS SIC. LOAN. 3. THE CIT (A) HAS ACCORDINGLY ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE LD. AO FOR THE:- ASSESSMENT YEAR TO DISALLOW INTEREST OF RS. BY ADOPTING THE FOLLOWING RATE WITHOUT ANY BASIS 2002-03 5,88,489 15% 2003-04 4,90,407 12.5% 2004-05 4,70,791 12% 2005-06 4,70,791 12% 3. THE ASSESSEE IS AN INDIVIDUAL EARNING SALARY INC OME, REMUNERATION AND INTEREST FROM PARTNERSHIP FIRM, LO NG TERM CAPITAL GAINS, DIVIDEND AND INTEREST INCOME, FILED HIS RETU RN OF INCOME FOR ALL THE FOUR ASSESSMENT YEARS WHICH WERE INITIALLY PROC ESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY REOPENED AND SCRUTINY A SSESSMENT WAS MADE AND ORDER PASSED ON 26-12-2008 U/S 143(3) READ WITH SECTION ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI VS ITO, W-10(3), AHMED ABAD 3 147 OF THE ACT FOR ALL THE FOUR ASSESSMENT YEARS. S INCE THE ISSUES ARE IDENTICAL AND COMMON FOR ALL THE FOUR ASSESSMENT YE ARS, THE CASES WERE HEARD TOGETHER AND ADJUDICATED BY PASSING THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 4. GROUND NO.2:- REVENUES STAND THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO INTEREST FREE LOAN: - THE LEARNED AO HAD DISALLOWED THE INTEREST EXPENSES CITED SUPRA, SINCE THE INTEREST BEARING FUNDS OF THE ASSESSEE WERE ADVANCED TO M/S. MARC WALKER OPTICAL LTD., IN WHICH COMPANY THE ASSESSEE HAD SUB STANTIAL EQUITY SHARE HOLDINGS. THE ASSESSEE HAD STATED BEFORE THE LEARNED AO THAT, THOUGH LOAN WAS ADVANCED TO THE COMPANY FOR WHICH I NTEREST WAS RECEIVABLE, HE DID NOT RECEIVE THE SAME BECAUSE THE COMPANY WAS CONSISTENTLY INCURRING LOSSES AND IT WAS NOT IN A P OSITION TO MEET OUT ITS INTEREST LIABILITY. AFTER ELABORATELY CONSIDERI NG THE ISSUE, THE LEARNED CIT (A) HELD THAT THE ASSESSEE HAD UTILIZED 73.23% OF THE INTEREST BEARING BORROWED FUNDS FOR INVESTMENTS IN SHARES/LOANS AND SINCE THE INVESTMENTS DID NOT YIELD ANY INCOME, THE INTEREST EXPENSES FOR INVESTMENTS IN SUCH FUNDS WERE DISALLOWED. 5. THE LEARNED AR ARGUED BEFORE US STATING THAT THE ASSESSEE WAS ONE OF THE MAJOR SHAREHOLDERS IN THE COMPANY M/S. M ARC WALKER OPTICAL LTD., AND IN ORDER TO BOOST THE COMPANYS B USINESS THE ASSESSEE HAD BORROWED MONEY AND LENT THE SAME TO TH E COMPANY FOR INTEREST. HOWEVER, THE BUSINESS OF THE COMPANY DID NOT TAKE OFF WELL AND THE COMPANY SUFFERED LOSS CONSISTENTLY. DUE TO THESE REASONS, THE COMPANY WAS NEITHER IN A POSITION TO REPAY THE DEBTS NOR TO PAY ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI VS ITO, W-10(3), AHMED ABAD 4 THE INTEREST TO THE ASSESSEE. THEREFORE, IT WAS PRA YED THAT THE ADDITION MADE BY THE LEARNED AO MAY BE DELETED. 6. THE LEARNED DR SUPPORTED THE ORDERS OF THE REVEN UE AND HAS SUBMITTED A WRITTEN SUBMISSION OF THREE PAGES RELYI NG ON THE ORDER OF THE LEARNED CIT (A). THE LEARNED DR FURTHER RELIED ON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE CIT VS SMT. SWAPNA ROY, 192 TAXMAN 105. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BLOW AND CAREFULLY CONSIDERED BOTH THE PAPER BOOKS FILED BY THE ASSESSEE RUNNING TO PAGES 1 TO 62 AND 1 TO 8 6 PAGES. IT IS APPARENT FROM THE FACTS OF THE CASE THAT THE ASSESS EE HAD ADVANCED LOAN TO THE COMPANY BECAUSE HE HAD SUBSTANTIAL INTE REST IN THE COMPANY AND IN ORDER TO DEVELOP THE BUSINESS OF THE COMPANY THE ASSESSEE HAD BORROWED FUNDS AND ADVANCED THE SAME T O THE COMPANY AND HAD ALSO CHARGED INTEREST ON IT. THESE FACTS ARE NOT DISPUTED. IT IS OBVIOUS THAT IN SUCH SITUATION, THE INTEREST RECEIVABLE/RECEIVED FROM THE COMPANY WILL BE CHARGE D TO INCOME OF THE ASSESSEE U/S 56 OF THE ACT AFTER DULY GIVING D EDUCTION FOR THE INTEREST EXPENDITURE INCURRED BY HIM ON SUCH INTERE ST BEARING FUNDS. UNFORTUNATELY, IN ASSESSEES CASE THE COMPANY RAN I NTO ROUGH WEATHER AND INCURRED LOSSES CONSISTENTLY AND, THERE FORE, WAS NOT IN A POSITION TO PAY INTEREST TO THE ASSESSEE. THE COMPA NYS MISFORTUNE IS SUPPORTED BY THE DOCUMENTATION PLACED IN THE PAPER BOOK VIZ. EXTRACTS FROM THE MINUTES OF THE BOARD MEETING OF T HE COMPANY DATED ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI VS ITO, W-10(3), AHMED ABAD 5 20-06-2001 [PAPER BOOK 1 PAGE 38], LETTER DATED 0 4-10-2002 INTIMATING THE ASSESSEE FOR REFERRING THE COMPANY T O BIFR [PAPER BOOK 1 - PAGE 40] AND ORDER OF BIFR DATED 20-09-200 2 [PAPER BOOK 1 PAGE 42 TO 46]. THUS, THE PRECARIOUS SITUATION OF THE ASSESSEE WAS THAT ON ONE HAND THE ASSESSEE WAS INCURRING INTERES T EXPENDITURE AND ON THE OTHER HAND DEBTS HAVE BECOME BAD. CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS OBVIOUS THAT WHERE INTEREST INCOME IS EARNED BY BORROWING FUNDS AND LENDING THE SAME, TAX WILL BE CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56 O F THE ACT, KEEPING IN VIEW OF THE PROVISIONS OF SET OFF OF LO SSES FROM ONE HEAD AGAINST INCOME FROM OTHER SOURCE U/S SECTION 71 OF THE ACT, WHICH THE REVENUE HAD MISSED OUT. FURTHER THE SECOND PAPE R BOOK CONTAINING 1 TO 86 PAGES WERE NOT BEFORE THE AO. TH E SAME WERE PRODUCED BEFORE THE LEARNED CIT (A), BASED ON WHICH ELABORATE FINDS WERE RECORDED BY HIM IN HIS ORDER WITHOUT OBTAINING REMAND REPORT FROM THE LEARNED AO. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED VIEW THAT IT WOULD BE APPROPRIATE TO REMIT BACK ALL THE FOUR APPEALS ON THIS ISSUE TO THE FILE OF THE LEARN ED AO TO CONSIDER THE MATTER AFRESH KEEPING IN VIEW OF OUR OBSERVATIONS M ENTIONED HEREINABOVE AND THE PAPER BOOKS FILED BY THE ASSESS EE BEFORE THE LEARNED CIT (A) AND PASS APPROPRIATE ORDER IN ACCOR DANCE WITH LAW AND MERIT. IT IS ORDERED ACCORDINGLY. 8. GROUND NO.3: DISALLOWANCE OF INTEREST BY ADOPTING INAPPROPRIATE RATE OF INTEREST: - SINCE THIS ISSUE IS RELATED TO GROUND NO.2, THE SAME IS ALSO REMITTED BACK TO THE FILE OF THE LEARNED AO WITH SIMILAR DIRECTION, SUPRA. ITA NO.540 TO 543/AHD/2010 (AY: 2002-03 TO 2005-06) SHRI MAHESH KANTILAL JHAVERI VS ITO, W-10(3), AHMED ABAD 6 9. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 18-03-2013 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION- DIRECT ON COMPUTER 11-03-213/ 13-03-13 2 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 3 DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S.: 6 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER 9 DATE OF DESPATCH OF THE ORDER: