DCIT, Coimbatore V. M/s. Paragon Steels Pvt. Ltd., Coimbatore

ITA 59/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1127 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G BHASHAYAM
• Assessee Lawyers: S RAMACHANDRAN
• Keywords: Business income; Business expenditure; Additional evidence
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER] I.T.A.NO.59/MDS/2013 ASSESSMENT YEAR : 2009-10. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), COIMBATORE VS M/S. PARAGON STEELS P. LTD, NO.100, AVARAMPALAYAM ROAD, GANAPATHY, COIMBATORE 641 006. [PAN AABCP 3039J] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. G. BHASHAYAM, JCIT RESPONDENT BY : SHRI. S. RAMACHANDRAN, C.A DATE OF HEARING : 18-03-2013 DATE OF PRONOUNCEMENT : 21-03-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE RE VENUE AGAINST THE ORDER OF THE LD. CIT(A)-I, COIMBATORE, DATED 19.10.2012. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS) IS AGAINST FACTS AND CIRC UMSTANCES OF THE CASE. I.T.A.NO.59/13 :- 2 -: 2. THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXP ENDITURE, CLAIMED ON INTEREST PAID ON ADDITIONAL FUNDS DIVERT ED ON INVESTMENTS FOR PURCHASE OF PROPERTIES} ALTHOUGH NO INCOME HAS BEEN ADMITTED FROM THESE PROPERTIES NOR HAVE BE EN THEY UTILIZED FOR THE PURPOSE OF BUSINESS. 3. THE LEARNED CIT(A) FAILED TO OBSERVE ON PERUSAL OF RECORDS THAT THE ASSESSEE BORROWED SECURED LOAN DURING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSMENT Y EAR 2009-10 AND THE INTEREST ON BORROWED LOAN IS HIGHER AS COMPARED TO THE FINANCIAL YEAR 2007-08 THEREBY PROV ING THAT THE ASSETS WERE PURCHASED OUT OF THE BORROWED LOANS AND NOT FROM THE EXISTING FUNDS AS HELD BY THE CIT(A). 4. THE LEARNED CIT(A) FAILED IN CONSIDERING TO OFF ER AN OPPORTUNITY TO THE ASSESSING OFFICER AS PER RULE 46 A(3) TO CALL FOR AND EXAMINE THE ADDITIONAL EVIDENCES AND TO DET ERMINE WHETHER THE PROPERTIES INVESTED IN BY THE ASSESSEE WERE USED FOR BUSINESS PURPOSE OR NOT. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING} THE ORDER OF THE CIT(APPEALS) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER RESTORE D. 3. AT THE OUTSET, IT WAS NOTICED THAT THE APPEAL FILED BY THE REVENUE WAS TIME BARRED BY 6 DAYS. THE REVENUE HAS FILED A PETITION EXPLAINING THE REASONS FOR THE DELAY IN FILING THE APPEAL. THE LD. A.R OF THE ASSESSEE HAD NO OBJECTION TO CONDONING THE DEL AY AND HEARING THE APPEAL ON MERITS. HENCE, THE DELAY WAS CONDONED AN D THE APPEAL WAS ADMITTED FOR HEARING AND THE PARTIES WERE ALLOWED TO MAKE THEIR SUBMISSIONS THEREON. 4. THE SOLE ISSUE INVOLVED IN THE PRESENT APPEAL IS T HAT THE CIT(A) ERRED IN ALLOWING THE EXPENDITURE CLAIMED ON INTEREST PAID ON I.T.A.NO.59/13 :- 3 -: ADDITIONAL FUNDS DIVERTED ON INVESTMENTS FOR PURCHA SE OF PROPERTIES, ALTHOUGH NO INCOME HAS BEEN ADMITTED FROM THESE PRO PERTIES NOR HAVE THEY BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PURCHASED PROPERTIES DURING THIS YEAR THROUGH AUCTION FROM DEBT RECOVERY TRIBUNAL AND ALS O MADE DIRECT PURCHASE THROUGH THIRD PARTIES. THESE PROPERTIES W ERE NOT UTILIZED FOR THE PURPOSE OF THE BUSINESS BUT ARE HELD AS INVESTM ENT ONLY. NO INCOME HAS BEEN ADMITTED FROM THESE PROPERTIES. TH E INTEREST PAID ON ADDITIONAL FUNDS DIVERTED ON INVESTMENT FOR PURCHAS E OF THESE PROPERTIES WAS COMPUTED AT RS.25,80,280/- AND THE S AME WAS DISALLOWED IN THE ASSESSMENT OF THE ASSESSEES INC OME AS NOT RELATING TO THE BUSINESS OF THE ASSESSEE-COMPANY. 6. BEING AGGRIEVED AGAINST THE SAID ORDER, THE ASSESS EE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS V ACATED THE DISALLOWANCE BY OBSERVING THAT ONE OF THE PROPERTY PURCHASED WAS A VACANT LAND CLOSE TO THE FACTORY IN KERALA. HE OBS ERVED THAT THE RAW MATERIALS ARE PROCURED IN LORRY LOADS AND LARGE SP ACE WAS REQUIRED TO STORE THE MATERIALS. THIS PROPERTY WAS PURCHASED F OR STORING THE RAW I.T.A.NO.59/13 :- 4 -: MATERIALS AND FINISHED GOODS I.E TO BE USED AS A ST OCK YARD. HE FURTHER OBSERVED THAT THE ASSESSEE MANUFACTURE GOOD S AT KERALA TO BE SOLD IN COIMBATORE. THE PROPERTY PURCHASED ON PATEL ROAD AT COIMBATORE WAS A COMMERCIAL PROPERTY AT THE HUB OF IRON AND STEEL TRADE. THE PROPERTY WAS USED AS A SELLING POINT. TH E ASSESSING OFFICER CONCLUDED THAT THE PROPERTY WAS PURCHASED AS AN INV ESTMENT BY THE ASSESSEE BUT HE HAS NOT BROUGHT ANY MATERIAL ON RE CORD TO SHOW THAT THE ASSESSEE PURCHASED THESE PROPERTIES FOR INVESTM ENT PURPOSE. THE ASSESSEE HAS SUBMITTED THAT NO SPECIFIC LOAN WAS TA KEN FOR PURCHASE OF ANY OF THE PROPERTIES. THE ASSESSEE FURNISHED THE LEDGER EXTRACTS OF CASH BOOK AND BANK ACCOUNT DETAILS FROM WHICH IT IS SEEN THAT THE PROPERTIES WERE PURCHASED FROM THE AVAILABLE FUNDS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS BROUGHT NO EVIDE NCE ON RECORD TO SHOW THE BORROWED FUNDS WERE UTILIZED FOR PURCHASE OF THESE PROPERTIES. 7. THE LD. DR SUBMITTED THAT THE LD. CIT(A) FAILED TO OBSERVE THAT THE ASSESSEE BORROWED SECURED LOANS DURING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSMENT YEAR 2009-10 AND THE INTEREST ON BORROWED LOAN WAS HIGHER AS COMPARED TO THE FINANCI AL YEAR 2007-08 WHICH PROVED THAT THE ASSETS WERE PURCHASED OUT O F THE BORROWED LOANS AND NOT FROM THE EXISTING FUNDS AS HELD BY TH E LD. CIT(A). THE I.T.A.NO.59/13 :- 5 -: LD. CIT(A) HAS ALSO FAILED IN CONSIDERING TO OFFER AN OPPORTUNITY TO THE ASSESSING OFFICER AS PER RULE 46A(3) OF THE INCOME- TAX RULES TO CALL FOR AND EXAMINE THE ADDITIONAL EVIDENCE AND TO DETERMI NE WHETHER THE PROPERTIES INVESTED IN BY THE ASSESSEE WERE USED FO R BUSINESS PURPOSE OR NOT. HENCE IT WAS HIS PRAYER THAT THE MATTER MAY BE RESORTED BACK TO THE FILE OF THE ASSESSING OFFICE FOR ADJUDICATIN G THE ISSUE AFRESH. 8. ON THE OTHER HAND, THE LD. A.R OF THE ASSESSEE SUPP ORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE LD . CIT(A), AFTER GOING THROUGH THE NOTES ON ACCOUNTS AND THE BALANCE SHEET, HAS GIVEN A FINDING OF FACT THAT THE PROPERTIES WERE PU RCHASED FROM OUT OF THE OWN FUNDS OF THE ASSESSEE AND THAT NO BORRO WED FUNDS WERE UTILIZED FOR THE SAME. HE FURTHER SUBMITTED THAT T HE PROPERTIES WERE USED FOR STORING THE RAW MATERIALS AND FINISHED GOO DS OF THE ASSESSEE-COMPANY AND EVEN IF IT IS HELD THAT BORROW ED FUNDS WERE UTILIZED IN THEIR PURCHASE, THEN ALSO THE PROPERTIE S WERE USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE AND INTEREST EXPE NDITURE IS ALLOWABLE AS DEDUCTION FROM THE BUSINESS INCOME OF THE ASSESSEE. HE, THEREFORE, SUBMITTED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD AND THE APPEAL OF THE REVENUE SHOULD BE DISM ISSED. I.T.A.NO.59/13 :- 6 -: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE PURCHASED THREE PRO PERTIES AT A TOTAL COST OF ` 3.36 CRORES, WHICH ARE, A VACANT LAND CLOSE TO THE FACTORY OF THE ASSESSEE IN KERALA, A COMMERCIAL PROPERTY AT THE HUB OF IRON AND STEEL TRADE AT PATEL ROAD, COIMBATORE, AND PROPERT Y AT SUNGAM, COIMBATORE. THE ASSESSING OFFICER OBSERVED THAT TH ESE PROPERTIES WERE PURCHASED BY THE ASSESSEE AS INVESTMENT AND W ERE NOT UTILIZED IN THE BUSINESS OF THE ASSESSEE. NO INCOME WAS AL SO ADMITTED FROM THESE PROPERTIES. HE ALSO HELD THAT ADDITIONAL FUN DS WERE BORROWED FOR THE PURCHASE OF THESE PROPERTIES AND THAT INTEREST PAYMENT ON THESE ADDITIONAL BORROWING WAS ` 25,80,280/-. HE, ACCORDINGLY DISALLOWED THE INTEREST EXPENDITURE OF ` 25,80,280/- IN THE ASSESSMENT MADE. 10. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWANCE. 11. THE LD. A.R OF THE ASSESSEE HAS ARGUED THAT NO BORR OWED FUNDS WERE UTILIZED IN THE PURCHASE OF THESE PROPER TIES AS CAN BE SEEN FROM THE BALANCE SHEET OF THE ASSESSEE-COMPANY AS O N 31.3.2009. WHEN QUESTIONED FROM THE BENCH THAT IN ORDER TO COM E TO A FINDING WHETHER THE BORROWED FUNDS WERE UTILIZED IN THE PUR CHASE OF THESE PROPERTIES, IT HAS TO BE SEEN THAT ON THE DATE OF M AKING OF THE I.T.A.NO.59/13 :- 7 -: PAYMENT WHETHER THE CHEQUES WERE CLEARED FROM THE A CCOUNT OF THE ASSESSEE WHEN THE ASSESSEE WAS HAVING FAVOURABLE B ALANCE WITH THE BANK OR WHEN THE ASSESSEE WAS HAVING UNFAVOURBLE B ALANCE WITH THE BANK. TO THIS, THE LD. A.R OF THE ASSESSEE SUBMITT ED THAT THE PAYMENTS FOR THESE PROPERTIES WERE MADE THROUGH THE CASH CRE DIT ACCOUNT OF THE ASSESSEE AND THAT WHEN THESE CHEQUES WERE CLEARED T HROUGH THE BANK ACCOUNT OF THE ASSESSEE THE BALANCE WITH THE BANK WAS AN OVERDRAWN BALANCE. THUS, FROM THIS SUBMISSION OF THE ASSESS EE, IT IS CLEAR THAT IN THE PURCHASE OF THESE PROPERTIES, THE BORROWED FUND S FROM THE BANK WERE UTILIZED, HENCE, THE LD. CIT(A) WAS NOT JUSTIF IED IN HOLDING THAT NO BORROWED FUNDS WERE UTILIZED IN THE PURCHASE OF THE SE PROPERTIES. HOWEVER, THE LD. A.R OF THE ASSESSEE HAS ARGUED THA T THE PROPERTY AT KERALA WAS A VACANT LAND CLOSE TO THE FACTORY OF T HE ASSESSEE AND THE SAME WAS UTILIZED FOR STORING OF RAW MATERIALS. FU RTHER, THE OTHER PROPERTY ACQUIRED BY THE ASSESSEE ON PATEL ROAD, C OIMBATORE, WAS A COMMERCIAL PROPERTY AND THAT THE ASSESSEE MANUFACT URES GOODS AT KERALA TO BE SOLD IN COIMBATORE AND THAT THE PROPER TY IN COIMBATORE WAS USED FOR STORAGE OF FINISHED GOODS BEFORE THEIR SALE. THUS, IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE PROPERTIES WERE UTILIZED FOR THE BUSINESS OF THE ASSESSEE. WE ARE OF THE CONSI DERED VIEW THAT IF THE PROPERTIES PURCHASED ARE USED IN THE BUSINESS O F THE ASSESSEE I.T.A.NO.59/13 :- 8 -: THEN INTEREST EXPENDITURE INCURRED IN THE PURCHASE OF THOSE PROPERTIES IS ALLOWABLE TO THE ASSESSEE AS DEDUCTION U/S 37( 1) OF THE ACT. HOWEVER, WE FIND THAT THE LD. CIT(A) HAS VACATED TH E DISALLOWANCE FOR THIS REASON ALSO, BUT THE ASSESSING OFFICER HAS GIV EN A FINDING THAT THESE PROPERTIES WERE NOT USED IN THE BUSINESS OF T HE ASSESSEE. WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE BROUGHT N O MATERIAL ON RECORD TO HOLD THAT THE PROPERTIES WERE NOT USED FOR THE B USINESS OF THE ASSESSEE OR THAT THEY WERE SO USED. IN ORDER TO DE TERMINE THIS, FURTHER VERIFICATION IS REQUIRED. THEREFORE, IT W OULD BE JUST AND FAIR AND IN THE INTEREST OF JUSTICE, TO RESTORE THIS ISS UE BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH AFTER VER IFICATION AND BRINGING MATERIALS ON RECORD WHETHER THE PROPERTIES IN QUEST ION WERE UTILIZED IN THE BUSINESS OF THE ASSESSEE OR NOT. IF IT IS FOU ND THAT THE PROPERTIES WERE UTILIZED IN THE BUSINESS OF THE ASSESSEE THEN INTEREST EXPENDITURE ON LOANS UTILIZED IN THE PURCHASE OF THESE PROPERTI ES SHOULD BE ALLOWED AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT, OTH ERWISE NOT. WE ORDER ACCORDINGLY. THUS, THE GROUNDS OF APPEAL OF T HE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO.59/13 :- 9 -: 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 21 ST OF MARCH, 2013, AT CHENNAI. SD/- SD/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 21 ST MARCH, 2013, RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR