KAVITA MARKETING P. LTD, MUMBAI V. ITO WD 6(2)(4), MUMBAI

ITA 6022/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7880 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Business income; Business expenditure; Proportionate interest; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI D.T.GARASIA (JM) AND SHRI RAMIT KOCHAR (AM) ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 M/S. KAVITA MARKETING PVT. LTD. C/O SHRI. PRAKASH JHUNJHUNWALA 5, JOLLY BHAWAN NO. 2, GR. FLOOR, 7, NEW MARINE LINES, CHURCHGATE, MUMBAI- 400 020. PAN: AAACK2103P VS. THE ITO WD. - 6(2)(4), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. PRAKASH JHUNJHUNWALA RESPONDENT BY : SHRI. RAJESH KUMAR YADAV DATE OF HEARING: 2 3/03/2017 DATE OF PRONOUNCEMENT: 31/03/20 17 O R D E R PER D.T.GARASIA, AM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. CIT(A)-12 MUMBAI, DATED 29/07/2013 FOR THE ASST. YEAR 2008-09 ARISING OUT OF ORDER OF ITO-6(2)(4) MUMBAI DATED 27/12/2010 PASSED U/S 143( 3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). 2. THE ONLY GROUND I.E. GROUND NO. 1 RAISED IN THIS APPEAL READS AS UNDER:- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) ERRED IN CONFIRMING THE FURTHER DISALLOWANCE OF INT EREST OF RS. 48,89,648/- ON RESTRICTING THE INTEREST EXPENSE TO THE EXTENT O F INTEREST INCOME, STATED AS UNDER:- 2 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 INTEREST PAID AS PER P&L A/C RS. 1,15,82,972/- LESS:- VOLUNTARILY DISALLOWED IN ROI RS. (35,45,901) --------------------------- INTEREST CLAIMED BY THE APPELLANT RS . 80,37,071/- LESS:- INTEREST INCOME RS. 31,47,423/- ----------------------------- FURTHER INTEREST DISALLOWED IN ASSESSMENT RS. 48, 89,648/- =============== 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING GROUND NO. 2 & 3, HENCE, WE DISMISS GROUND NO. 2 & 3 AS NOT PRESSED. 4. THE SHORT FACTS OF THE CASE ARE AS UNDER:- THE ASSESSEE IS IN THE BUSINESS OF TRADING IN PROP ERTIES AND MARKETING IN GOODS. FROM THE PERUSAL OF THE RETURN OF INCOME FILED, IT WAS FOUND THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS. 31,47, 423/-. THE ASSESSEE HAD OFFERED THE INTEREST RECEIVED UNDER THE HEAD OF BUS INESS & PROFESSION AND NOT UNDER THE HEAD OF INCOME FROM OTHER SOURCES. IN RE SPONSE TO THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE, THE ASSESSEE HAD FUR THER SUBMITTED THAT THE INTEREST INCOME IS TAXABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES WHEN THERE WAS PARKING OF SHORT TERM PARKING OF SURPLUS FUND, WHEN IT IS DIRECT OUTCOME OF BUSINESS, IT SHOULD BE TAXED UNDER THE U NDER THE INCOME FROM BUSINESS & PROFESSION. THE ASSESSEE FURTHER STATED THAT THE BORROWED FUNDS WERE USED TO GENERATE INTEREST EARNING LOANS AND AD VANCES WHICH ESTABLISHES DIRECT NEXUS HENCE INTEREST EXPENSES AND INCOME I S TO BE RIGHTLY SET OFF. THE ASSESSEE IS IN THE BUSINESS OF TRADING IN PROPERTIE S AND MARKETING OF GOODS AND NOT IN THE BUSINESS OF MONEY LENDING. THE ASSE SSEES CONTENTION WAS THAT 3 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 THE SURPLUS FUNDS WAS PARKED FOR EARNING THE INTERE ST WAS NOT DENIED BUT THE INTEREST EARNED WAS TO BE TAXED UNDER THE HEAD OF I NCOME FROM OTHER SOURCES. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, DISMISS ED THE APPEAL FILED BY THE ASSESSEE. 5. DURING THE COURSE OF HEARING THE LD. AR SUBMITTE D THAT THE SAID INTEREST EXPENSES HAS TO BE ALLOWED AS BUSINESS EXPENDITURE AND THE TRIBUNAL HAS BIFURCATED AN AVERAGE INTEREST WORKED OUT AND THE R ELIEF WAS GRANTED TO THE ASSESSEE. THE SAME LOAN IS CARRIED FORWARD FROM THE ASST. YEAR 2007-08 THEREFORE, IT MAY BE ALLOWED. 6. ON THE OTHER HAND THE LD. DR OBJECTED TO IT ON T HE GROUND THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD RECEIVED INTE REST INCOME OF RS. 31,47,423/-. NO OTHER INCOME IN THE NATURE OF BUSIN ESS IS OFFERED TO TAX BY THE ASSESSEE IN ITS RETURN OF INCOME. DURING THE YEAR T HE ASSESSEE HAD ENGAGED IN THE BUSINESS OF MONEY LENDING AND MARKETING ACTIVIT IES. NO INCOME WAS SHOWN BY THE ASSESSEE FROM MARKETING ACTIVITIES AND NO EV IDENCE HAS BEEN SUBMITTED BY THE ASSESSEE. THE ASSESSEE WAS ALSO ASKED TO FUR NISH THE EVIDENCE LIKE LICENCE UNDER THE PROVISIONS TO SHOW MONEY LENDING, THE ASSESSEE COULD NOT PRODUCE THE SAME. IN THE ABSENCE OF THE SAME, THE A SSESSEE DISCLOSED INTEREST INCOME AS INCOME FROM BUSINESS FOR CARRYING ON MONE Y LENDING BUSINESS. THEREFORE, AS PER THE TAX AUDITOR REPORT, NO MONEY LENDING BUSINESS WAS CARRIED OUT BY THE ASSESSEE AND, THEREFORE, AS PER THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SHIPPI NG CORPORATION LTD. VS. CIT (2000) 163 CTR 617, SUBMITTED THAT THE FACT THA T A PERSON CARRIES ON BUSINESS DOES NOT LEAD TO THE INFERENCE THAT ALL IN COME RECEIVED BY SUCH A PERSON IS BUSINESS INCOME. THE MANNER IN WHICH THE INCOME IS ARRIVED HAS TO BE CONSIDERED, THEREFORE, THE MATTER MAY BE DECIDED ON MERITS ACCORDINGLY. 4 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES DURING THE COURSE OF HEARING AND ALSO PERUSED THE MATERIAL AVA ILABLE ON RECORD. WE FIND THAT THE TRIBUNAL HAS DECIDED THIS ISSUE BY CONSIDE RING THE VARIOUS JUDGMENTS INCLUDING THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MODI, 115 ITR 519 WHEREBY THE TRIBUNAL HAS V ERIFIED AND WORKED OUT THE CAPITAL EXPENDITURE OF THE ASSESSEE AND CALCULA TED INTEREST BEARING FUNDS AND NON-INTEREST BEARING FUND. WE, RESPECTFULLY FOL LOWING THE SAME, ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR PART RELIEF. FOR REFERENCE, WE REPRODUCE HEREUNDER THE DECISION OF MUMBAI BENCH OF THIS TRIB UNAL IN ITA NO. 7638/M/2012 FOR ASST. YEAR 2007-08 IN THE CASE OF K AVITA MARKETING PRIVATE LTD. WHICH READS AS UNDER :- 3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED MATE RIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON BY AR. AS THE ISSUE OF CHANGE OF HEAD OF INTEREST INCOME HAS NOT BEEN PRESSED, OUR FINDINGS IN THE ISSUE SHALL BE RESTRICTED ONLY TO DETERMINE THE AMOUNT OF INTEREST DISALLOWANCE QUA INTEREST INCOME OFFERED UNDER THE HEAD INCOME FROM OTHER SO URCES. AT THE OUTSET, IT WOULD BE PRUDENT TO REPRODUCE RELEVANT STATUTORY PR OVISION AS CONTAINED IN SECTION 57 WHICH READS AS FOLLOWS: 57. THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCT IONS, NAMELY: (I) .. .. (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NAT URE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME; 5 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 FROM A PLAIN READING OF THE SAME, IT CAN BE CONCLUD ED THAT FOLLOWING ARE THE REQUIREMENTS TO CLAIM AN EXPENDITURE U/S 57(III):- I) THE EXPENDITURE SHOULD BE INCURRED SOLELY FOR EARNING SUCH INCOME. II) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXP ENDITURE III) IT SHOULD NOT BE IN THE NATURE OF PERSONA L EXPENSE. IV) IT SHOULD BE INCURRED IN THE RELEVANT ACCO UNTING YEAR. IF ALL THE ABOVE CONDITIONS ARE FULFILLED, THE ASSE SSEE IS ELIGIBLE TO CLAIM THE EXPENDITURE IRRESPECTIVE OF THE AMOUNT OF EXPENDITU RE INVOLVED. OUR VIEW IS FORTIFIED BY JUDGMENT OF APEX COURT RENDERED IN CIT VS. RAJENDRA PRASAD MOODY (SUPRA) WHERE THE APEX COURT HELD THAT LEGITI MATE EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF EARNING OF INCOME AR E ALLOWABLE NOTWITHSTANDING THE FACT THAT WHETHER THAT PURPOSE HAS BEEN FULFILLED OR NOT. THERE IS NO REQUIREMENT THAT THE PURPOSE SHOULD FRU CTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME SO AS TO CLAIM THE EXPENDITURE. IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. THE DEDUCTION OF THE EXPENDITURE CANNO T BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOM E. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT LEGITIMATE EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF EARNING INCOME ARE ALLOWABLE U/S 57( III) NOTWITHSTANDING THE AMOUNT OF ACTUAL INCOME EARNED BY THE ASSESSEE. HAV ING SAID SO, WE PROCEED TO COMPUTE THE INTEREST DISALLOWANCE ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE. FOR THIS, IT WOULD BE NE CESSARY TO APPRECIATE THE CAPITAL STRUCTURE OF THE COMPANY AS ON THE LAST DAT E OF THE IMPUGNED FINANCIAL YEAR WHICH IS EXTRACTED BELOW:- 6 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 CAPITAL STRUCTURE AS ON 31/03/2007 LIABILITIES LACS ASSETS LACS OWNER'S EQUITY & NON INTEREST BEARING FUNDS -SHARE CAPITAL 5.00 INTEREST BEARING LOANS & ADVANC ES 872.36 -RESERVES & SURPLUS 4.09 FIXED ASSETS & NET CURRENT ASSETS 13.97 -EZRA TRADING & FINANCE CO. LTD 7.00 ACCUMULATED LO SSES 199.62 -SECURITY DEPOSIT 110.00 126.09 TDS & SECURITY 24.13 1110.08 INTEREST BEARING LOANS NON INTEREST BEARING LOANS & 544.26 -SECURED LOAN FROM HDFC BANK 1585.76 SHARE APPLICAT ION MONEY -UNSECURED LOAN FROM SHUBH SHANTI 15.00 SHARES INVE STMENTS 83.76 628.02 -INTEREST DUE ON UNSECURED LOAN 11.25 1612.01 TOTAL 1738.10 TOTAL 1738.10 THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS .176.62 LACS ON INTEREST BEARING FUNDS OBTAINED AMOUNTING TO RS.1600.76 LACS (EXCLUDING INTEREST DUE) ON WHICH AVERAGE INTEREST RATE WORKS OUT TO BE RS.11.03%. AGAINST THOSE FUNDS, NON INTEREST BEARING FUNDS / SHARE APP LICATION MONEY ADVANCED BY ASSESSEE AMOUNTS TO RS.628.02 LACS. APPLYING AVE RAGE INTEREST RATE OF 11.03% ON THIS AMOUNT, PROPORTIONATE INTEREST DISAL LOWANCE COMES TO BE RS. 69.27 LACS OUT OF WHICH THE ASSESSEE HAS MADE SUO-M OTO DISALLOWANCE OF RS.59.29 LACS THEREBY LEAVING A BALANCE OF RS.9.98 LACS. THEREFORE, AS AGAINST THE CLAIM OF THE ASSESSEE FOR RS.117.33 LAC S, AO HAD RESTRICTED THE SAME TO RS.74.46 LACS, THEREBY DISALLOWING RS.42.87 LACS. AGAINST RS.42.87 LACS, THE ASSESSEE SHALL SUFFER DISALLOWANCE FOR RS .9.98 LACS AS HELD BY US AND ACCORDINGLY, THE REMAINING CLAIM FOR RS.32.89 L ACS SHALL BE ALLOWED TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH, WE PARTLY ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASST. YEAR 2008-09 IS PARTLY ALLOWED AS INDICATED ABOVE. 7 ITA NO. 6022/MUM/2013 ASSESSMENT YEAR: 2008-09 JUDGMENT PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2017. SD/- SD/- ( RAMIT KOCHAR ) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 31/03/2017 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA