CLIMAX INVESTMENT & TRADING CO.P. LTD, MUMBAI V. ITO WD 2(1)(2), MUMBAI

ITA 5518/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3660 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 01-09-2014
• Court: TRIBUNAL
• Department Lawyers: SUDHA RAMCHANDRAN DR
• Keywords: Business income; Commercial expediency
• Section: 143(3); 133(6)

Judgement Text

, , C, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5518/MUM/2014 ASSESSMENT YEAR: 2010-11 CLIMAX INVESTMENT & TRADING CO. P. LTD. NOW CINEMAX WINTRADE P. LTD. FRIENDSHIP CENTRE, OPP. YMCA GARDEN, MUMBAI CENTRAL, EAST, MUMBAI-400011 / VS. ITO WD 2(1)(2) AAYAKAR BHAVAN, M.K. RD MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AABCC1364M !' / ASSESSEE BY SHRI DHARMESH SHAH (AR) / REVENUE BY MS. SUDHA RAMCHANDRAN (DR) # $ % & / DATE OF HEARING : 02/05/2016 % & / DATE OF ORDER: 20/05/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-4 CLIMAX INVESTMENT & TRADING CO. 2 {(IN SHORT CIT(A)}, DATED 27.06.2014 PASSED AGAIN ST ASSESSMENT ORDER U/S 143(3) DATED 27.12.2012 FOR TH E ASSESSMENT YEAR 2010-11. 1A) THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF INTEREST PAID OF RS.10,40,961/- MADE BY THE ASSESSI NG OFFICER. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT INTERES T WAS PAID ON BORROWINGS WHICH WERE USED FOR THE PURPOSE OF BUSINESS. 2A) THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF PURCHASES MADE OF RS.48,34,250/- MADE BY THE ASSESS ING OFFICER. B) THE LD. CIT(A) FAILED TO APPRECIATE THE EVIDENCE FILED SUCH AS PURCHASE BILLS, QUANTIFY TALLY, PAYMENTS BY RTGS ETC IN SUPPORT OF THE PURCHASES. 3. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.15,167/- BEING DEBIT BALANCES WRITTEN OFF. 4. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF LONG TERM CAPITAL LOSS OF RS.2,67,452/- OUT OF LOSS OF RS.9,49,401/- DISALLOWED BY THE ASSESSING OFFICER. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI DHARMESH SHAH, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY MS. SUDHA RAMCHANDRAN , DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE R EVENUE. 3. GROUND NO.1: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN MAKING DISALLOWA NCE OUT OF INTEREST PAID OF RS.10,40,961/-. 3.1. THE BRIEF FACTS AS NOTED IN DETAIL IN THE ORDERS O F LOWER AUTHORITIES ARE THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, IT WAS NOTED BY THE AO THAT ASSESSEE H AD TAKEN CLIMAX INVESTMENT & TRADING CO. 3 INTEREST FREE LOAN FROM M/S. SHREE RANISATI ENTERPR ISES WHICH WAS USED TO REPAY THE LOAN TAKEN FORM M/S. HALAN FI NANCE. IT WAS FURTHER NOTED THAT ORIGINALLY THE LOAN TAKEN FR OM THE M/S. HALAN FINANCE WAS USED TO GIVE LOAN TO M/S. PRERNA SYNTEX, AND IT WAS FURTHER OBSERVED BY THE AO THAT NO INTER EST WAS RECEIVED BY THE ASSESSEE FROM M/S PRERNA SYNTEX DUR ING THE YEAR UNDER CONSIDERATION. IT WAS THUS, CONCLUDED BY THE AO THAT INTEREST BEARING LOANS WERE USED FOR GIVING IN TEREST FREE LOANS, AND THUS, INTEREST PAID BY THE ASSESSEE WAS NOT UTILIZED FOR THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAME WAS DISALLOWED. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN NO RELIEF WAS GIVEN AND DISALLOW ANCE BY THE AO WAS CONFIRMED. 3.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE TRIBUNAL. 3.4. DURING THE COURSE OF HEARING BEFORE US, IT WAS SUB MITTED BY THE LD. COUNSEL THAT COMPLETE FACTS HAVE NOT BEE N TAKEN INTO ACCOUNT BY THE LD. CIT(A) AND THE OBSERVATIONS MADE BY THE AO AS WELL AS LD. CIT(A) ARE NOT BASED UPON FUL L APPRECIATION OF FACTS. 3.5. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDE RS OF THE AO AS WELL AS CIT(A). CLIMAX INVESTMENT & TRADING CO. 4 3.6. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES, SUBMISSIONS MADE BY BOTH THE PARTIES BEFORE US AS W ELL AS EVIDENCES SHOWN TO US. IT HAS BEEN BROUGHT TO OUR N OTICE BY THE LD. COUNSEL THAT ASSESSEE HAS BEEN REGULARLY RE CEIVING INTEREST FROM THE SAID PARTY NAMELY M/S. PRERNA SYN TEX, AND IN ALL THE PRECEDING AS WELL AS SUBSEQUENT YEARS, T HE INTEREST INCOME HAS ALWAYS BEEN CONSIDERED AS PART OF BUSINE SS ACTIVITIES OF THE ASSESSEE. IT IS ONLY IN THE IMPUG NED YEAR WHEN DUE TO EXTREMELY ADVERSE CIRCUMSTANCES FACED BY M/S . PRERNA SYNTEX, AN AGREEMENT WAS MADE BETWEEN THE ASSESSEE AND THE SAID PARTY THAT NO INTEREST SHALL BE PAID BY THE SA ID PARTY TO THE ASSESSEE. THE AMOUNT OF LOAN TO THE SAID PARTY WAS GIVEN FROM THE LOAN RECEIVED FROM THE M/S. HALAN FINANCE ON WHICH NO INTEREST WAS EVER PAID BY THE ASSESSEE. DUE TO A DVERSE FINANCIAL POSITION OF M/S. HALAN FINANCE AND PRESSU RE FOR RECOVERY FROM M/S HALAN, THE ASSESSEE HAD TO TAKE I NTEREST BEARING LOAN FROM M/S. SHREE RANISATI ENTERPRISES W HICH WAS USED TO REPAY THE LOAN TAKEN EARLIER FROM M/S. HALA N FINANCE. IT WAS THUS, SHOWN TO US THAT ALL THE TRANSACTIONS WERE PART OF ASSESSEES BUSINESS ACTIVITIES AND WERE DONE AS A M ATTER OF COMMERCIAL EXPEDIENCY AND RELIANCE IN THIS REGARD H AS BEEN PLACED UPON JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF S.A. BUILDERS LTD. V. CIT 288 ITR 1 (SC), FOR THE P ROPOSITION THAT ONCE IT WAS ESTABLISHED THAT THERE WAS NEXUS B ETWEEN THE EXPENDITURE AND PURPOSE OF BUSINESS, THEN REVENUE C ANNOT JUSTIFIABLY CLAIM TO PUT ITSELF ONTO THE ARM CHAIR OF THE BUSINESSMAN TO DECIDE WHAT EXPENDITURE IS TO BE INC URRED AND TO WHAT EXTENT. WITH THE ASSISTANCE OF THE PARTIES, IT HAS BEEN CLIMAX INVESTMENT & TRADING CO. 5 FURTHER NOTED BY US THAT INTEREST INCOME HAS BEEN R ECEIVED FROM M/S. PRERNA SYNTEX, IN PREVIOUS AS WELL AS SUB SEQUENT YEARS. IT WAS MENTIONED BY THE AO IN THE ASSESSMENT ORDER PASSED U/S 143(3) FOR A.Y. 2006-07 THAT THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF TRADING IN TEXTILES, COM MISSION AND EARNING OF INTEREST INCOME. THUS, THE REVENUE ITSEL F HAS ACCEPTED THE FACTUM OF INTEREST INCOME BEING PART O F BUSINESS ACTIVITIES OF THE ASSESSEE. UNDER THESE CIRCUMSTANC ES, EVEN IF INTEREST INCOME (I.E. BUSINESS INCOME) IS NOT RECEI VED IN A PARTICULAR YEAR, THEN THAT ITSELF IT WILL NOT LEAD TO A SITUATION EQUIVALENT TO CLOSURE OF BUSINESS. UNDER THESE CIRC UMSTANCES INTEREST PAID ON A LOAN TO REPAY THE EARLIER LOAN W HICH WAS ORIGINALLY UTILIZED TO GIVE LOAN FROM WHICH INTERES T INCOME HAS BEEN EARNED ON EARLIER OCCASIONS CANNOT BE DISALLOW ED MERELY ON THE GROUND THAT NO INCOME WAS EARNED IN THE IMPU GNED YEAR. THEREFORE, TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF JUDGMENT O F HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA), WE FIND THAT THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIF IED AND THEREFORE, SAME IS DIRECTED TO BE DELETED. 4. GROUND NO.2: THIS GROUND DEALS WITH DISALLOWANCE OF PURCHASE OF RS.48,34,250/-. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT PURCHASES MADE BY THE ASSESSEE AGGREGATING TO RS.48,34,250/- FROM THR EE PARTIES NAMELY M/S. RAJ TRADERS, M/S P.K. TRADING CO. & M/S . N.B. ENTERPRISES COULD NOT BE SUBSTANTIATED BY THE ASSES SEE. IT WAS NOTED BY HIM THAT NOTICES WERE SENT U/S 133(6) WHIC H CLIMAX INVESTMENT & TRADING CO. 6 REMAINED UN-SERVED. IT WAS FURTHER NOTED THAT PAN N UMBERS GIVEN BY THE ASSESSEE WERE OF THE DIFFERENT PERSONS . THE ASSESSEE TRIED TO EXPLAIN THE PURCHASES WITH THE HE LP OF BILL AND COPY OF BANK STATEMENT SHOWING THAT PAYMENT WAS MADE BY THE CHEQUE BUT AO WAS NOT SATISFIED AND HE DISAL LOWED ENTIRE AMOUNT OF PURCHASE FORM THREE PARTIES HOLDIN G THE SAME TO BE NON-GENUINE. THE LD. CIT(A) CONFIRMED THE ORD ER OF THE AO. 4.1. DURING THE COURSE OF HEARING BEFORE US, IT WAS STA TED BY THE LD. COUNSEL THAT IT WAS SUBMITTED TO THE AO THA T THESE THREE PARTIES ARE PROPRIETORSHIP UNITS OF THREE DIF FERENT PROPRIETORS AND THE PAN NOS. WERE ISSUED IN THE IND IVIDUAL NAME OF THESE PROPRIETORS AND NOT IN THE NAME OF TH EIR UNITS, WHICH LEAD TO TOTAL CONFUSION IN THE MIND OF THE AO . IT WAS FURTHER SUBMITTED THAT PAYMENT WAS MADE BY CHEQUE A ND AO COULD HAVE EASILY VERIFIED THESE PARTIES THROUGH RE SPECTIVE BANKERS OF ALL THESE PERSONS. IT WAS ALTERNATIVELY ARGUED THAT QUANTITATIVE RECONCILIATION IS AVAILABLE SHOWING TH AT ITEMS PURCHASED WERE SOLD. THE SALES HAVE BEEN ACCEPTED B Y THE AO, AND THEREFORE, EVEN IF PURCHASES WERE HELD AS BOGUS , THE ENTIRE AMOUNT COULD NOT HAVE BEEN DISALLOWED. ON THE OTHER HAND, LD. DR SUBMITTED THAT ANOTHER OPPORTUNITY MAY BE GI VEN TO AO AS WELL AS THE ASSESSEE TO MAKE PROPER VERIFICAT ION OF FACTS AND FIGURES SO AS TO ENABLE THE AO TO EXAMINE AS TO HOW MUCH AMOUNT OF PURCHASE CAN BE ALLOWED AS PER PREVAILING MARKET RATES. CLIMAX INVESTMENT & TRADING CO. 7 4.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND DOCUMENTARY EVIDENCES SHOWN BEFORE US. IT IS NO TED THAT PAN NOS. WERE ISSUED IN THE NAME OF THREE INDIVIDUA LS. IT WAS CLAIMED BY THE LD. COUNSEL OF THE ASSESSEE BEFORE U S THAT THESE THREE PERSONS NAMELY YUSUF DAGINAWALA, FRANCI S PASCAL FERNANDES & ASHOK GOKULADAS LAKHANI ARE PROPRIETORS OF THREE PROPRIETORSHIP UNITS NAMELY M/S. RAJ TRADERS, P.K. TRADING CO. & N.B. ENTERPRISES RESPECTIVELY. BUT, N O EVIDENCES WERE SHOWN BY THE LD. COUNSEL TO PROVE THAT THESE T HREE PERSONS WERE PROPRIETORS OF THESE THREE UNITS. ON T HE CONFIRMATIONS ALSO, SIGNATURES HAVE BEEN DONE BY SO ME DIFFERENT PERSONS. HOWEVER, IT HAS BEEN SHOWN BY TH E LD. COUNSEL THAT BANK STATEMENTS WERE SUBMITTED BEFORE LOWER AUTHORITIES SHOWING THAT PAYMENTS WERE MADE BY ACCO UNT PAYEE CHEQUES. IT WAS FURTHER SUBMITTED THAT THESE SUPPLIERS WERE NOT IN TOTAL CONTROL OF THE ASSESSEE. UNDER TH ESE CIRCUMSTANCES, WE FIND IT APPROPRIATE TO SEND THIS GROUND BACK TO THE FILE OF THE AO WITH THE DIRECTION THAT THE A O SHALL EXERCISE HIS POWERS UNDER THE LAW TO EXAMINE THESE PERSONS THROUGH RESPECTIVE BANK OF THESE PERSONS. THE AO SH OULD ALSO VERIFY THE COPIES OF INCOME TAX RETURNS OF ALL THES E PARTIES WHICH WOULD SHOW PROPER FACTS REGARDING NAMES AND O THER PARTICULARS OF PROPRIETORS OF THE IMPUGNED PARTIES. THE AO IS ALSO FREE TO USE ANY OTHER CHANNEL TO MAKE REQUISIT E EXAMINATION. WE DIRECT THE ASSESSEE TO EXTEND ALL R EQUISITE COOPERATION BY SUBMITTING ALL THE EVIDENCES AS ARE EXPECTED TO BE IN THE POSSESSION OF THE ASSESSEE WITH REGARD TO THESE PURCHASES NAMELY BILLS, INVOICES, BANK STATEMENT, CLIMAX INVESTMENT & TRADING CO. 8 CONFIRMATIONS, COPIES OF LEDGER ACCOUNTS, DELIVERY PROOF, TRANSPORTATION PROOF ETC. OR ANY OTHER EVIDENCES AS MAY BE REQUIRED BY THE AO AS PER LAW AND FACTS. IT IS FURT HER DIRECTED THAT IN CASE THE AO FINDS THAT THESE PURCHASES ARE NOT STILL SUBSTANTIATED BY THE ASSESSEE DESPITE THE EFFORTS M ADE BY THE AO TO MAKE DIRECT INQUIRIES WITH THE AFORESAID CHAN NELS, THEN THE AO SHALL ALSO CONSIDER ALTERNATIVE SUBMISSIONS MADE BY THE ASSESSEE BEFORE US WHEREIN THE ASSESSEE HAS SUB MITTED BEFORE US QUANTITATIVE RECONCILIATION TO SHOW THAT PURCHASE DONE FROM THESE PARTIES HAVE BEEN SOLD TO M/S. MIDL AND ANIMAL NUTRITION PVT. LTD. THE ASSESSEE SHALL ALSO PRESENT REQUISITE QUANTITATIVE RECORDS IN SUPPORT OF THE QU ANTITATIVE RECONCILIATION STATEMENT SUBMITTED BEFORE US. IN CA SE THE QUANTITATIVE RECONCILIATION IS FOUND TO BE CORRECT AS PER FACTS, THEN TOTAL AMOUNT OF PURCHASE CANNOT BE DISALLOWED IN OUR VIEW. IN THAT EVENTUALITY, THE AO SHALL WORK OUT AP PROPRIATE AMOUNT OF PURCHASE THAT CAN BE ALLOWED TO THE ASSES SEE KEEPING IN VIEW MARKET RATES AND ALSO KEEPING IN VI EW PAST HISTORY AND GROSS PROFITS RATES OF THE INDUSTRY. TH E AO SHALL GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE TO JUSTIF Y ITS CLAIM BEFORE TAKING FRESH DECISION ON THIS ISSUE. THE ASS ESSEE SHALL EXTEND ALL REQUISITE COOPERATION IN THIS REGARD. TH US, WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FI LE OF THE AO WITH THE DIRECTION AS GIVEN ABOVE. THESE GROUNDS MA Y BE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 3: THIS GROUND WAS NOT PRESSED AND THE SAME IS THEREFORE, DISMISSED. CLIMAX INVESTMENT & TRADING CO. 9 6. GROUND NO. 4: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN MAKING DISALLOWA NCE OF LONG TERM CAPITAL LOSS OF RS.2,67,452/-. 6.1. THE BRIEF FACTS ARE THAT THE ASSESSEE INCURRED LOS S ON SALE OF SHARES OF TWO COMPANIES NAMELY MAHENDERA CEMENT LTD. & SUPPLEMENTARY FOODS (I) LTD. TO MS. SANGEETA JATIA. IT WAS NOTED BY THE AO THAT THIS TRANSACTION WAS AN OFF M ARKET TRANSACTIONS WITHOUT INVOKING ANY PROGRAMME. THE TRANSACTION WAS DONE IN CASH AND NO EVIDENCES OF SA LE OF SHARES OR HOLDING OF SHARES WAS SUBMITTED BY THE AS SESSEE EXCEPT A DEBIT NOTE ISSUED IN THE NAME OF MS. SANGE ETA JATIA. 6.2. LD. DR SUBMITTED THAT THIS ISSUE SHOULD ALSO GO BA CK FOR PROPER VERIFICATION OF FACTS. LD. COUNSEL ALSO AGRE ED THAT IF ONE MORE OPPORTUNITY IS GIVEN THEN PROPER EVIDENCES CAN BE BROUGHT ON RECORD. 6.3. WE HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS NOTED THAT ASSESSEE SUBMITTED MERELY A DEBIT NOTED ISSUE IN THE NAME OF MS. SANGEETA JATIA CONTAINING NAME & ADDRES S OF THE BUYERS. ALTHOUGH NO OTHER EVIDENCE WAS SUBMITTED BY THE ASSESSEE BUT BEFORE REJECTING THE SAID TRANSACTIONS IT WAS MANDATORY UPON THE PART OF THE AO TO MAKE DIRECT VE RIFICATION WITH M/S. SANGEETA JATIA BEFORE DISBELIEVING THE TR ANSACTIONS AT THE VERY THRESHOLD. THEREFORE, WE SEND THIS ISSU E BACK TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO SUBMIT ALL THE EVIDENCES PERTAINING TO ACQUISITION, HOLDING AND SA LE OF CLIMAX INVESTMENT & TRADING CO. 10 IMPUGNED SHARES. THE AO IS DIRECTED TO MAKE VERIFIC ATION ON THE BASIS OF WHATSOEVER EVIDENCES ARE SUBMITTED BY THE ASSESSEE BEFORE DISBELIEVING THE TRANSACTIONS. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSE E. THE ASSESSEE IS DIRECTED TO EXTEND REQUISITE COOPERATIO N TO THE AO BY SUBMITTING DETAILS AND EVIDENCES TO JUSTIFY ITS CLAIM. THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PU RPOSES. 7. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE M AY BE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016. SD/- (JOGINDER SINGH) SD/- (ASHWANI TANEJA) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER # $ MUMBAI; ( DATED: 20/05/2016 CTX? P.S/. . . %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0 ( * ) / THE CIT, MUMBAI. 4. / / # 0 / CIT(A)- , MUMBAI 5. 34 - , / *& 5 , # $ / DR, ITAT, MUMBAI 6. 6! 7$ / GUARD FILE. / BY ORDER, .3* - //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI