Shri Somnath Roy Chowdhury, Kolkata V. Ad J.C.I.T Range - 30,kolkata, Kolkata

ITA 615/KOL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3392 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN JCITSRDR
• Keywords: Business income; Depreciation; Source of fund; Speculation loss
• Section: 143(3); 14A; 194C; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 615 / KOL / 2013 ASSESSMENT YEAR :2009-10 SRI SHOMENATH ROY CHOWDHURY 15B, MANDEVILE GARDENS, KOLKATA 700 019 [ PAN NO.ADJPR 7223 E ] V/S . ADDL.JCIT, RANGE-30, AAYKAR BHAWAN (DAKSHIN), 2 GARIAHAT ROAD, KOLKATA 700 068 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SUNIL SURANA, FCA /BY RESPONDENT MD. GHAYAS UDDIN, JCIT-SR-DR /DATE OF HEARING 11-12-2015 /DATE OF PRONOUNCEMENT 20-01-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-XIV, KOLKATA IN APPEAL NO.730. CTTA-XIV/11-12 DATED 15.02.2013. ASSESSMENT WAS FRAMED BY JCIT, RA NGE-30, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 07.12.2011 FOR ASSESSMENT YEAR 2009 -10. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. FOR THAT THE ORDER OF THE LD. ITO IS ARBITRARY, ILLEGAL, EXCESSIVE, PERVERSE AND BAD IN LAW. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 2 2. FOR THAT THE LD. AO ERRED IN NOT TELESCOPING THE INTEREST EXPENDITURE OF RS.43,10,083/- WITH THE INTEREST EARNED OF FIXED DEPOSITED ON PRESUMPTIONS IGNORING THE FACT THAT THE PAYMENT OF INTEREST HAD DIRECT NEXUS WITH THE INCOME EARNED BY WAY OF INTEREST TO THE EXTENT OF RECEIPT OF INTEREST INCOME AND THE REMAINING INTEREST HAD N EXUS WITH THE INVESTMENT ACTIVITIES. THE LD. AO FURTHER ERRED IN TREATING THE INTEREST INCOME OF RS.19,144/- AS BUSINESS INCOME. 3. FOR THAT THE LD AO ERRED IN DISALLOWING RS.30,67 ,213/- FROM INTEREST AND RS.5,71,648/- FROM EXPENSES U/S 14A READ WITH R ULE 8D WHEN NO SUCH EXPENDITURE WERE INCURRED OR CLAIMED AND FURTH ER EVEN OTHERWISE THE DISALLOWANCE OF ANY EXPENDITURE UNDER RULE 8D W AS NOT CALLED FOR. 4. FOR THAT THE LD AO SHOULD HAVE ALLOWED DEDUCTION OF RS.31,290/- AND RS.34,604/- BEING ACTUAL EXPENDITURE INCURRED FOR E ARNING THE SHORT TERM CAPITAL GAIN. 5. FOR THAT THE LD AO ERRED IN TREATING THE RECEIPT OF RS.4,40,730/- AS INCOME FROM OTHER SOURCES AND ALSO WAS NOT JUSTIFIE D IN DISALLOWING THE DEPRECIATION OF RS.55,000/- CLAIMED IN ACCORDANCE W ITH LAW. 6. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD AO ERRED IN TREATING THE INCOME OF RS.25,25,508/- AS INCOME FROM OTHER SOURCES AND FURTHER ERRED IN DISALLOWING THE EXPENSES CLAIM ED FOR EARNING SUCH INCOME. 7. FOR THAT THE LD AO ERRED IN DISALLOWING RS.12,00 ,000/- BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) WHICH WAS NOT A PPLICABLE. 8. FOR THAT THE LD AO ERRED IN NOT ALLOWING THE SET OFF OF THE F & O LOSS OF RS.3,29,661/- BEING BUSINESS LOSS WITH THE SPECU LATION INCOME WHICH WAS CLAIMED IN ACCORDANCE WITH LAW AND WAS ALLOWABL E AS SUCH. 2. AT THE TIME OF HEARING LD. AR FOR THE ASSESSEE H AS NOT PRESSED THE GROUND NO. 4 HENCE, THE SAME IS DISMISSED AS NOT PR ESSED. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT LD CIT(A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER BY DISALLOWING THE INTEREST EXPENDITURE OF RS.43,10,083/- AGAINST THE INTEREST INCOME OF RS. 26,59,463/-. OVER AND ABOVE, ASSESSEE HAS RAISED THE ISSUE THAT LD. CIT(A) ERRED IN TREATING THE INTEREST INCOME OF RS.19,144/- AS BUS INESS INCOME. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 3 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN I NDIVIDUAL AND ENGAGED IN THE BUSINESS OF INVESTING IN SHARES AND MANAGING PR OPERTIES. DURING THE YEAR THE ASSESSEE HAS DECLARED INCOME UNDER THE HEAD SAL ARY, BUSINESS & PROFESSION AND INCOME FROM OTHER SOURCES. THE ASSES SEE DURING THE YEAR HAS MADE FIXED DEPOSIT FOR AN AMOUNT OF RS. 5 CRORES FO R 181 DAYS BEGINNING FROM 13.10.2008 AND EARNED INTEREST INCOME OF RS. 26,59, 277/- WHICH WAS SHOWN AS INCOME FROM OTHER SOURCES. THE ASSESSEE HAS ALSO THE LOAN LIABILITY ON WHICH THE INTEREST WAS PAID FOR AN AMOUNT OF RS. 43 ,10,083/-. THE ASSESSEE HAS ADJUSTED THIS INTEREST EXPENSES AGAINST THE INT EREST INCOME. HOWEVER THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE BORROWED FUND IS COMING FROM THE EARLIER YEAR WHICH WAS USED FOR THE INVESTMENT IN SHARES AND MUTUAL FUNDS. IN THE IMMEDIATE PRECEDING YEAR THE I NTEREST ON SUCH BORROWED FUND HAS BEEN CLAIMED FOR AN AMOUNT OF RS. 45,73,14 6/- AS AN EXPENDITURE AGAINST THE INCOME FROM CAPITAL GAINS. THIS BORROWE D FUND WAS NOT REPAID BY THE ASSESSEE DURING THE YEAR. THEREFORE THE AO OBS ERVED THAT THE BORROWED FUND WAS UTILIZED IN INVESTMENT IN SHARES AND MUTUA L FUNDS. THERE WAS ALSO NO EVIDENCE THAT THE BORROWED FUND WAS UTILIZED FOR TH E INVESTMENT IN FIXED DEPOSIT. SO AFTER COMPARISON OF THE OLD ACCOUNTS WI TH THE CURRENT YEAR THE AO OPINED THAT PRIMA FACIE THE ASSESSEE BORROWED FUND WAS MAKING THE INVESTMENT IN SHARES AND MUTUAL FUNDS. SO THERE IS NO NEXUS BETWEEN THE BORROWED FUND AND INVESTMENT IN FIXED DEPOSIT. THE AO ALSO OBSERVED THAT INTEREST EXPENSE ON BORROWED FUND WAS CLAIMED AGAIN ST THE CAPITAL GAIN INCOME IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. IN THE RELEVANT YEAR UNDER CONSIDERATION THERE WAS LOSS TO THE ASSESSEE FROM THE TRADING OF THE SHARES THEREFORE THE ASSESSEE HAS CLAIMED THE SAME AGAINST THE INTEREST INCOME TO ESCAPE FROM THE TAX LIABILITY. BESIDES TH E ABOVE THE ASSESSEE HAS SHOWN INCOME FROM INTEREST FOR RS. 19144.00 ONLY AS INCOME FROM OTHER SOURCES WHICH THE AO HELD AS INCOME FROM THE BUSINE SS. ACCORDINGLY THE AO DISALLOWED THE INTEREST OF RS. 43,10,083/- WHICH WA S CLAIMED AS AN EXPENDITURE AGAINST THE INCOME FROM THE OTHER SOURC ES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 4 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO HAS UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- HAVING CONSIDERED THE FINDING BY THE ASSESSING OF FICER AND SUBMISSION OF THE APPELLANT I AM OF THE CONSIDERED VIEW THAT THE APPELLANT CONVENIENTLY MAKES ADJUSTMENT OF INTEREST EXPENDITURE AGAINST CAPITAL GAIN OR INTEREST INCOME OR BUSINESS INCOME AS PER HIS OWN REQUIREMENTS AND IN THE TOTAL DISREGARD OF THE PROVISION OF LAW. IN A YEAR IF THERE ARE PROFITS UNDER THE HEAD INCOME FRO M CAPITAL GAIN, THE INTEREST EXPENDITURE IS ADJUSTED AGAINST THE HEAD, WHICH HAS BEEN THE CASE IN THE IMMEDIATE PREVIOUS YEAR I.E. 2008-09. D URING THE PRESENT ASSESSMENT YEAR THE ASSESSEE HAD INCOME UNDER THE H EAD INCOME FROM INTEREST, THEREFORE THE ASSESSEE ADJUSTED THE INTEREST EXPENDITURE AGAINST THE HEAD INCOME FROM OTHER SOURCE. I AGREE WITH THE VIEW OF THE ASSESSING OFFICER THAT SUCH ADJUSTMENT IS CONVENIEN CE BASED AND IT IS AIMED OF AVOIDING THE TAXES. AFTER EXAMINING THE AC COUNTS OF THE APPELLANT IT IS FOUND THAT THE ASSESSEE HAS BORROWE D FUND AND UTILIZED THE SAME FOR INVESTMENT IN SHARE AND MUTUAL FUND. I N THE IMMEDIATE PREVIOUS YEAR THE ASSESSEE HAD TREATED THE INTEREST PAID ON UNSECURED LOAN (RS.45,73,146/-) AS EXPENSES INCURRED FOR EARN ING CAPITAL GAIN. HOWEVER, DURING THIS YEAR THE INTEREST PAID ON SECU RED LOAN OF RS.43,10,083/- HAS BEEN TREATED BY THE APPELLANT AS INTEREST EXPENDIT9URE AGAINST THE INTEREST INCOME FOR THE CU RRENT YEAR. THE PERUSAL OF EARLIERS YEAR ACCOUNT SHOWS THAT THE AS SESSEE HAS BORROWED FUND AND HAS UTILIZED THEM IN HIS SHARE TRADING ACT IVITIES. THE SAME TREND HAS CONTINUED DURING THIS YEAR. THE AO HAS AL SO GIVEN FINDINGS THAT THE ASSESSEE HAS NOT REPAID ANY LOAN BUT AS TH E SAME BORROWED FUND AND IT HAS BEEN INVESTED IN SHARE AND MUTUAL F UND. I AGREE WITH THE VIEW OF THE ASSESSING OFFICER THAT THERE IS NO EVID ENCE TO SHOW THAT INVESTMENT IN FIXED DEPOSIT WAS OUT OF LOAN/BORROWE D FUND. THE COMPARISON OF ACCOUNTS OF EARLIER YEAR AND CURRENT YEAR REVEALS THAT THE ASSESSEE HAS BORROWED FUND FOR MAKING INVESTMENT IN SHARES. I AGREE WITH THE VIEW OF THE ASSESSING OFFICER THAT THE INT EREST PAYABLE ON SUCH BORROWED FUND ARE NOT ALLOWABLE AS DEDUCTION ON ACC OUNT OF ANY INCOME BY WAY OF CAPITAL GAIN. SINCE THE INTEREST EXPENDIT URE CLAIMED BY THE APPELLANT IS NOT ALLOWABLE AS DEDUCTION AGAINST THE CAPITAL GAIN, THE ACTION OF THE ASSESSING OFFICER IS CONFIRMED ON THI S GROUND. BESIDES, SINCE THE BORROWED FUNDS ARE NOT DIRECTLY LINKED TO THE FIXED DEPOSIT MADE BY THE APPELLANT, THE INTEREST EXPENDITURE CLA IMED BY THE APPELLANT CANNOT BE TELESCOPED WITH THE INTEREST EARNED ON FI XED DEPOSITS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I HOLD THAT TH E ASSESSING OFFICER WAS RIGHT IN LAW AND ON FACTS IN HOLDING THAT THERE WAS NO DIRECT NEXUS BETWEEN THE INTEREST EXPENDITURE CLAIMED AND THE IN TEREST INCOME EARNED ON THE FIXED DEPOSITS. ACCORDINGLY, I FIND T HAT THE ACTION OF THE AO IS STRICTLY IN ACCORDANCE WITH LAW. THEREFORE, T HE ACTION OF THE AO IS CONFIRMED AND GROUND NO.2 OF THE APPEAL IS DISMISSE D. BESIDES, THE ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 5 ACTION OF THE ASSESSING OFFICER IN TREATING THE INT EREST INCOME OF RS.19,144/- AS INCOME FROM BUSINESS IS ALSO CONFIRM ED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. SHRI SUNIL SURANA, LD. AUTHORIZED REPRESENTATIVE AP PEARING ON BEHALF OF ASSESSEE AND MD. GHAYAS UDDIN LD. DEPARTMENTAL REPR ESENTATIVE APPEARING ON BEHALF OF REVENUE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR HAS FILED A PAPER BOOK WHICH IS RUNNING INTO PAGES FROM 1 TO 51. BEFORE US THE LD. AR SUBMITTED THAT THE INVESTMENT WAS MADE OUT OF THE BORROWED FUND ONLY. IN THE EARLIER YEAR THE SAME BORROWED FUND WAS USED IN THE SHARES TRADING BUSINESS SO THE DEDUCTION WAS CLAIMED AGAINST THE CAPITAL GAIN INCOME ACCORDINGLY. HOWEVE R THIS YEAR THE BORROWED FUND WAS USED IN FIXED DEPOSIT AFTER THE SALE OF TH E INVESTMENT I.E. REDEMPTION OF MUTUAL FUNDS AND REFUND OF UNSECURED LOAN. THE L D. AR DREW OUR ATTENTION ON PAGE 20 OF THE PAPER BOOK WHERE COMPARATIVE BALA NCE SHEET FOR THE YEAR ENDING MARCH 2008 AND MARCH 2009 WERE FURNISHED. IT IS CLEAR FROM THE SAME THE FD OF RS. 5 CRORES WAS NOT THERE IN THE IMMEDIA TE PRECEDING YEAR BUT IT WAS MADE IN THE YEAR UNDER CONSIDERATION OUT OF FUN DS REALIZED FROM THE REDEMPTION OF MUTUAL FUNDS AND RECOVERY OF UNSECURE D FUND. THE SOURCE OF INVESTMENT WAS DULY EXPLAINED WHICH IS PLACED ON PA GE 20A OF THE PAPER BOOK, DEPICTING THE VALUE OF REDEMPTION OF MUTUAL F UNDS AND RECOVERY OF UNSECURED LOANS. 5.1 FROM THE AFORESAID DISCUSSIONS WE FIND THAT THE ASSESSEE HAS CLAIMED THE INTEREST EXPENSES ON THE BORROWED FUND AGAINST THE INCOME OF OTHER SOURCES. THE AO FOUND THAT THE SAME BORROWED FUND W AS UTILIZED IN THE EARLIER YEAR FOR THE INCOME UNDER THE HEAD CAPITAL GAIN AND THE ASSESSEE CLAIMED THE INTEREST EXPENSES ACCORDINGLY AGAINST THE CAPITAL G AIN INCOME. BUT IN THE YEAR OF CONSIDERATION THE ASSESSEE INCURRED LOSS UNDER T HE HEAD CAPITAL GAIN SO THE INTEREST EXPENSE ON THE BORROWED FUND WAS CLAIMED A GAINST THE INCOME FROM ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 6 OTHER SOURCES TO AVOID FROM THE TAX LIABILITY. THE AO ALSO OBSERVED THAT THE SAME BORROWED FUND WAS FOR THE SHARE INVESTMENT BUS INESS AND THERE WAS NO EVIDENCE TO SHOW THAT THE SAME BORROWED FUND WAS UT ILIZED IN THE MAKING THE FD OF RS. 5.00 CRORES. HOWEVER WE FIND FROM THE SUB MISSION AND RECORDS THAT THE FD WAS MADE FROM THE REDEMPTION OF THE MUTUAL F UNDS AND RECOVERY OF THE LOANS AS PER THE DETAILS GIVEN BELOW:- STATEMENT OF FIXED DEPOSIT DATE FIXED DEPOSIT AMOUNT SOURCE OF FUND AMOUNT 10.10.08 STATE BANK OF INDIA, BALLYGUNGE BR. 5,00,00,000 REDEMPTION OF MUTUAL FUND FOR 181 DAYS (10.10.08 TO 13.04.09) RELIANCE MEDIUM TERM FUND 2,55,40,057 HSBC FIXED TERM SERIES 58 1,21,56,840 REFUND OF UNSECURED LOAN ADITDYA VIKRAM ROY CHOWDHURY 1,11,90,000 SONALI ROY CHOWDHURY 33,00,000 5,00,00,000 5,23,86,897 THE LD. DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE SUBMISSION OF THE ASSESSEE. WE ALSO OBSERVE THAT THE ASSESSEE IS AT L IBERTY TO UTILIZE THE BORROWED FUND IN THE BEST POSSIBLE MANNER. THERE IS NOBODY WHO CAN INTERFERE IN THE WORKING OF THE ASSESSEE. THE FUND UTILIZED I N THE EARLIER YEAR FOR INVESTMENT IN SECURITIES CAN BE USED FOR DIFFERENT ACTIVITY LIKE INVESTMENT IN FD. THERE IS NO BAR AS SUCH REGARDING THE UTILIZATION O F FUND. SO IN THE INSTANT CASE THE PLEA OF THE AO THAT FUND BORROWED FOR INVESTMEN T IN SECURITIES WAS NOT UTILIZED FOR THE FD DO NOT HOLD GOOD. AS REGARDS TH E INTEREST INCOME OF THE ASSESSEE ON THE LOAN GIVEN TO A PARTY FOR AN AMOUNT OF 19,144/- WE DEEM IT TO CLASSIFY SUCH INCOME FROM OTHER SOURCES AS THE ASSE SSEE IS NOT INTO THE MONEY LENDING BUSINESS. IN VIEW OF ABOVE, WE REVERS E THE ORDER OF LOWER AUTHORITIES. THIS GROUND OF ASSESSEES APPEAL IS AL LOWED. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 7 6. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 30,67,213/- AND RS. 5,71,648/- ON ACCOUNT OF INTEREST EXPENSES AND OTHE R EXPENSES U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES 1962 . 6.1 DURING THE YEAR UNDER CONSIDERATION ASSESSEE HA S DECLARED DIVIDEND INCOME OF RS. 15,22,890/- BEING EXEMPTED INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 10(34) & 10(35) OF THE ACT BUT THE ASSES SEE DID NOT MAKE ANY DISALLOWANCE OF THE EXPENSES AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE IT RULES. DURING THE ASSESSMENT PROC EEDINGS IT WAS ALSO SEEN THAT THE ASSESSEE HAS INVESTED BORROWED FUND IN SHA RES AND MUTUAL FUNDS WHICH HAS GIVEN EXEMPTED INCOME. THE AO CALLED UPON THE ASSESSEE FOR THE JUSTIFICATION FOR NOT DISALLOWANCE THE EXPENSES IN TERMS OF THE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE EXPLAINED THAT THE BORROWED FUND HAS BEEN INVESTED IN THE FIXED DEPOSIT AND SHARES MARKE T FOR EARNING INTEREST AND SHORT TERM CAPITAL GAIN. SO QUESTION OF DISALLOWANC E UNDER SECTION 14A OF THE ACT DOES NOT ARISE. BESIDES THE ABOVE, THE ASSESSEE FURTHER SUBMITTED THAT THE RATE OF INTEREST PAID ON THE BORROWED FUND WAS LESS THAN THE RATE OF INCOME FROM INTEREST AND SHARE MARKET. THE ASSESSEE ALSO S UBMITTED THAT THE BORROWED FUND WAS INVESTED FOR THE RELEVANT YEAR IN FD, EQUITY SHARES, MUTUAL FUND AND SPECULATION PROFIT. THUS THE APPLICATION O F SECTION 14A OF THE ACT IS NOT APPLICABLE. 6.2 THE AO CONCLUDED FROM THE FACTS AND THE SUBMISS ION OF THE ASSESSEE THAT THE BORROWED FUND HAS BEEN INVESTED IN THE SHA RE MARKET WHICH HAS GIVEN RISE TO CAPITAL GAIN INCOME AND OTHER INCOME. SO TH E PROVISIONS OF SECTION 14A ARE VERY MUCH ATTRACTING TO THE ASSESSEE FOR THE RE LEVANT YEAR. ACCORDINGLY THE AO APPLIED RULE 8D OF INCOME TAX RULES AND WORKED O UT THE DISALLOWANCE AS UNDER : I) EXPENSES DIRECTLY RELATABLE RS. 31,290.00 II) INTEREST EXPENSES ON BORROWED FUND RS. 30 ,67,213.00 ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 8 III) % OF AVERAGE VALUE OF INVESTMENT RS. 5,71, 648.00 TOTAL DISALLOWANCE RS. 36,70,151.00 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- 5.1 AS PER FINDINGS GIVEN IN THE GROUND NO.1 OF TH E APPEAL IT HAS BEEN HELD THAT THE INTEREST EXPENDITURE HAD NO DIRECT NE XUS WITH THE INTEREST INCOME EARNED ON FD. THEREFORE, THE SUBMISSION OF T HE APPELLANT THAT THE INTEREST EXPENDITURE OF RS.26,59,463/- HAD DIRE CT NEXUS THAT THE FD INTEREST IS NOT ACCEPTABLE. THEREFORE, THE APPELLAN TS SUBMISSION THAT THE BALANCE INTEREST EXPENDITURE OF RS.16.5 LAKHS ONLY IS AVAILABLE ON WHICH SECTION 14A CAN BE APPLIED IS NOT ACCEPTABLE. HAVIN G CONSIDERED THE FACTS OF THE CASE AND AS DISCUSSED IN GROUND NO.2 O F THE APPEAL THE INTEREST EXPENDITURE OF RS.43,10,083/- IS REQUIRED TO BE CONSIDERED WHILE APPLYING RULE 8D READ WITH SECTION 14A OF THE IT AC T, 1961. THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE AO O F MAKING DISALLOWANCE OF RS.30,67,213/- WHICH HAS BEEN WORKED OUT BY THE ASSESSING OFFICER IN ACCORDANCE WITH RULE 8D OF THE I.T RULE, 1962. H ENCE, THE ACTION OF THE AO ON THIS ISSUE IS CONFIRMED, BESIDES THIS, TH E ADDITION OF RS.5,71,648/- HAS ALSO BEEN MADE BY THE AO ON THE B ASIS OF 0.5% OF AVERAGE VALUE OF INVESTMENT IN ACCORDANCE WITH RULE 8D OF THE IT RULE, 1961. THEREFORE, IT IS HELD THAT THERE IS NO MERIT IN THE SUBMISSION OF THE LD. A/R OF THE APPELLANT AND THE ACTION OF THE ASSE SSING OFFICER IS CONFIRMED. HENCE, GROUND NO.3 OF THE APPEAL IS DISM ISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. 8. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US THE LD. AR SUB MITTED THAT THE BORROWED FUND WAS UTILIZED FOR PART OF THE YEAR IN THE SHARE INVESTMENT BUSINESS. BUT THE AO HAS CONSIDERED THE ENTIRE INTEREST EXPENSES OF R S. 43.10 LACS FOR THE CALCULATION OF DISALLOWANCE UNDER RULE 8D(II) OF IN COME TAX RULES 1962. THE LD. AR SUBMITTED THAT THE INTEREST PERTAINING TO THE PE RIOD AFTER THE CREATION OF FD SHOULD NOT BE TAKEN FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(II) OF INCOME TAX RULES 1962. ACCORDINGLY THE AO SUBMITTED THAT THE INTEREST EXPENSES OF RS. 26.78 LACS HAS THE DIRECT NEXUS WIT H THE INTEREST INCOME FROM ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 9 THE BANK ON FD FOR RS. 26.59 LACS AND 0.19 LACS BEI NG OTHER INTEREST EARNED ON UNSECURED LOAN. THEREFORE THE AO SHOULD HAVE TAK EN AN AMOUNT RS. 16.31 LACS (43.10 LACS -26.78 LACS) FOR WORKING OUT THE D ISALLOWANCE IN TERMS OF THE PROVISION SPECIFIED UNDER RULE 8D(II) OF INCOME TAX RULES 1962. ACCORDINGLY THE LD. AR OFFERED THE DISALLOWANCE OF RS. 11.74 LACS ( 16.31 LACS X11.43 CRORES / 16.06 CRORES). AS REGARDS THE DISALLOWANCE UNDER RU LE 8D(III) OF INCOME TAX RULES 1962, THE LD. AR SUBMITTED THAT THE TOTAL EXP ENSES CLAIMED BY THE ASSESSEE ARE OF RS. 1.06 LACS AND OUT OF THIS A SUM OF RS. 0.31 LACS TOWARDS DEMAT CHARGES HAS ALREADY BEEN DISALLOWED. FOR THE BALANCE EXPENSES THE LD. AR SUBMITTED THAT THESE ARE BASIC ESTABLISHMENT & MAINTENANCE EXPENSES AND SHOULD BE ALLOWED. HOWEVER THE LD. AR OFFERED A NOTHER EXPENSE OF RS. 1597.00 TOWARDS THE BANK CHARGES FOR THE DISALLOWAN CE UNDER RULE 8D(III) OF INCOME TAX RULES 1962. 8.1 FORM THE AFORESAID DISCUSSION WE FIND THAT THE AO HAS APPLIED THE PROVISIONS OF RULE 8D OF INCOME TAX RULES 1962 IN T ERMS OF THE PROVISIONS SPECIFIED UNDER SECTION 14A OF THE ACT. HOWEVER WE FIND THAT WHILE APPLYING THE PROVISIONS OF RULE 8D(II), THE AO HAS TAKEN ENT IRE AMOUNT OF INTEREST EXPENDITURE THOUGH THE PART OF THE BORROWED FUND WA S UTILIZED TO GENERATE THE INCOME FROM OTHER SOURCES. SO IN OUR VIEW ONLY THE NET INTEREST SHOULD BE CONSIDERED WHILE MAKING THE DISALLOWANCE UNDER RULE 8D(II) OF INCOME TAX RULES 1962. REGARDING THE DISALLOWANCES UNDER RULE 8D(III) OF INCOME TAX RULES 1962, WE FIND THAT THE ASSESSEE INCURRED A SU M OF RS. 1.06 LACS BUT THE AO HAS DISALLOWED A SUM RS. 5,71,648.00 THOUGH THE ACTUAL EXPENSES IN TOTAL CLAIMED IN THE PROFIT & LOSS ACCOUNT ARE VERY LESS I.E. 1.06 LACS ONLY. THUS THE EXPENSE WORKED OUT AS PER THE PROVISIONS OF RULE 8D (III) EXCEEDS THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE WHICH DOES NOT HOL D ANY MERIT IN THE INSTANT CASE. WE ARE ALSO RELYING THE ORDER OF THIS TRIBUNAL A BENCH DATED 30.03.2012 IN THE CASE OF DCIT VS. M.S. TRADE APARTMENT LIMITED IN ITA 1227/KOL/2011 FOR THE A.Y 2008-09 THE EXTRACTED PARA-4 IS REPROD UCED BELOW:- ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 10 4. AS LEARNED CIT(A) HAS RIGHTLY OBSERVED, ONCE TH ERE IS NO NET INTEREST EXPENDITURE, AS IS THE CASE BEFORE US UPON SETTIN G OFF INTEREST CREDITED TO PROFIT AND LOSS ACCOUNT, NO PART OF INTEREST DEB ITED CAN BE DISALLOWED AS ATTRIBUTABLE TO EARNING TAX FREE DIVIDEND. THE C IT(A) WAS THUS QUITE JUSTIFIED IN DELETING THE INTEREST DISALLOWANCE. W E HAVE ALSO NOTED THAT ENTIRE EXPENSES INCURRED BY THE ASSESSEE HAVE BEEN OFFERED FOR DISALLOWANCE, AND ONCE THAT HAPPEN, NOTHING REMAINS FOR FURTHER DISALLOWANCE U/S. 114A. THE DISALLOWANCE UNDER SECT ION 14A CAN COME INTO PLAY ONLY OUT OF EXPENSES CLAIMED FOR DEDUCTIO N AND EXPENSES HAVE BEEN CLAIMED FOR DEDUCTION, THERE CANNOT BE ANY DIS ALLOWANCE EITHER. THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ARE, THERE FORE, CORRECT AND ADMIT NO INTERFERENCE BY US. WE, APPROVE AND CONFIR M THE ORDER OF THE CIT(A). TAKING A CONSISTENT VIEW IN THE CASE OF M/S TRADE APARTMENT LTD. (SUPRA) WE RESTORE THIS FILE TO THE AO FOR FRESH ADJUDICATION AS PER LAW WITH THE DIRECTION THAT :- I) REGARDING THE DISALLOWANCE AS PER RULE 8D(II), T HE NET FIGURES OF INTEREST SHOULD BE TAKEN INTO CONSIDERATION. II) REGARDING THE DISALLOWANCE AS PER RULE 8D(III), THE DISALLOWANCE SHOULD NOT EXCEED THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE. HENCE, IN TERMS OF ABOVE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. THE NEXT ISSUE RAISED BY THE ASSESSEE IN THIS AP PEAL IS THAT LD CIT(A) ERRED IN TREATING THE RECEIPT OF RS. 4,40,730/- AS INCOME FROM OTHER SOURCES AND FURTHER ERRED IN DISALLOWING THE DEPRECIATION O F RS. 55,000/-. 10. THE RELEVANT DETAILS OF THE CASE ARE THAT THE A SSESSEE PURCHASED TRADE MARK FOR A VALUE OF RS. 2 LACS ON DATED 09.03.2007 FROM M/S SAF FERMION LTD. THE ASSESSEE ALSO INCURRED AN EXPENSE OF RS. 20,000 /- TOWARDS GOVERNMENT CHARGES FOR GETTING IT TRANSFERRED IN HIS NAME. THE ASSESSEE HAD NO BUSINESS ACTIVITY WHERE THE TRADE MARK CAN BE UTILIZED. HOWE VER THE ASSESSEE HAS GIVEN BACK THE TRADE FOR USE TO M/S FERMION LTD. AND RECE IVED CONSIDERATION FOR AN AMOUNT OF RS. 4,40,730/- DURING THE YEAR. THE ASSES SEE HAS DECLARED SUCH ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 11 RECEIPT AS BUSINESS INCOME. BESIDES THIS ASSESSEE C LAIMED DEPRECIATION ON THE PURCHASE OF TRADE MARK FOR AN AMOUNT OF RS. 55, 000/- AGAINST THE ABOVE BUSINESS INCOME. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE DID NOT GIVE ANY SPECIFIC REPLY TO THE QUERY RAISED BY THE AO FO R NOT ALLOWING THE DEPRECIATION, BUT SUBMITTED THE AGREEMENT COPY FOR THE ASSIGNMENT OF TRADE MARK AND COPIES OF THE PROVISION CONTAINED UNDER SE CTION 32 OF THE ACT. THE AO DISREGARDED THE CLAIM OF THE ASSESSEE BY OBSERVI NG AS UNDER : 1) THERE WAS NO BUSINESS ACTIVITY OF THE ASSESSEE W HERE THE TRADE MARK CAN BE USED. 2) AS PER THE PROVISIONS OF SECTION 32 OF THE ACT, DEPRECIATION IS ALLOWED ON THE ASSETS IF IT IS USED FOR THE BUSINESS CARRIED O N BY THE ASSESSEE. 3) AS SUCH THE TRADE MARK HAS BEEN USED BY M/S SAF FERMION LTD. IN ITS BUSINESS ACTIVITY. 4) THE ASSESSEE IN THE INSTANT CASE IS ALSO A PROMO TER DIRECTOR IN THE COMPANY- SAF FERMION LTD. 5) THE WHOLE TRANSACTION OF BUYING THE TRADE MARK A ND RENTING OUT TO THE SAME COMPANY IS A COLLUSIVE DEAL. SO IT CANNOT BE R EGARDED AS BUSINESS INCOME BUT INCOME FROM OTHER SOURCES. 6) IN THE INSTANT CASE THE ASSESSEE HAS SIMPLY LET OUT THE ASSETS, THIS ACTIVITY CANNOT BE REGARDED AS BUSINESS SO INCOME I S CHARGEABLE ONLY UNDER THE HEAD INCOME FROM THE OTHER SOURCES. 7) THE TRADE MARK WAS DEVELOPED BY THE COMPANY M/ S SAF FERMION LTD. AND ITS STAKE WAS CONTROLLED BY THE ASSESSEE BEING A PROMOTER DIRECTOR AND SHAREHOLDER OF THE COMPANY. ON THE BASIS OF ABOVE THE AO TREATED THE RECEIPT OF RS.4,40,730/- AS INCOME FROM OTHER SOURCES AND THE DEPRECIATION FOR AN AMOU NT OF RS.55,000/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 11. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 12 7.1 HAVING CONSIDERED ALL THE FACTS OF THE CASE, I FIND THAT THE ASSESSING OFFICER HAS GIVEN THE FINDINGS THAT BY VI RTUE OF BEING PROMOTER/DIRECTOR OF THE COMPANY, M/S SAF FERMION L TD. THE ASSESSEE BECAME THE UNDUE BENEFICIARY OF THE TRADE MARK DEVE LOPED BY THE COMPANY. THE SAME TRADE MARK WAS LET OUT TO THE SAM E COMPANY AND THE ASSESSEE RECEIVED PAYMENT FOR USE BY THE COMPAN Y. AS SUCH THE TRADE MARK HAS BEEN USED IN THE BUSINESS OF THE COM PANY AND NOT THE ASSESSEES BUSINESS. THE AO DISALLOWED THE DEPRECIA TION ON THIS GROUND AND HELD THAT THE WHOLE DEAL IS A COLLUSIVE DEAL AIMED AT DEFRAUDING THE REVENUE AND UNDULY ENRICHING THE ASS ESSEE. THE ASSESSEE IS BENEFICIARY OF THE COLLUSIVE DEAL WITHO UT DOING ANY ACTIVITY ON HIS OWN. IN LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE CONSIDERED VIEW THAT SUCH INCOME RECEIVED BY WA Y OF COLLUSIVE DEAL HAS RIGHTLY BEEN TAXED UNDER THE HEAD INCOME FROM O THER SOURCE AND THE DEPRECIATION HAS RIGHTLY BEEN DISALLOWED BY THE ASSESSING OFFICER. ACCORDINGLY THE ACTION OF THE AO ON THIS ISSUE IS C ONFIRMED. HENCE, GROUND NO.5 OF THE APPEAL IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. 12. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR SUBMITTED THAT THE ASSESSEE HAS GENUINELY PURCHASED THE TRADE MARKS FO R THE CONSIDERATION. IN SUPPORT OF HIS CLAIM THE LD. AR DREW OUR ATTENTION TO PAGE NOS. 44 TO 51 OF THE PAPER BOOK WHERE THE DEED OF ASSIGNMENT OF TRADE MA RK WAS PLACED. THE SAME TRADE MARKS WERE ALLOWED FOR USE TO M/S SAF FE RMION LTD. FOR THE CONSIDERATION IN TERMS OF AGREEMENT TO USE WHICH IS PLACED ON PAGE 40 TO 42 OF THE PAPER BOOK. THE LD. AR ALSO SUBMITTED THAT T HE CONFIRMATION FROM THE PARTY FOR CHARGING THE FEES FOR THE USE OF TRADEMA RKS WHICH IS PLACED ON PAGE 34 OF THE PAPER BOOK. FINALLY THE AR PRAYED TO TREAT THE INCOME CHARGED FROM M/S FERMION LTD. FOR THE USE OF THE TRADEMARKS AS BUSINESS INCOME AND ALSO PRAYED FOR THE ALLOWANCE OF DEPRECIATION ON THE TRA DEMARKS. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE AO HAS TREAT ED THE RECEIPT FOR ALLOWING THE USE OF TRADEMARKS AS INCOME FROM OTHER SOURCES AS THE ASSESSEE HAD NO BUSINESS ACTIVITY AND CONSEQUENTIALLY THE DEPRECIAT ION WAS DISALLOWED. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 13 12.1 HOWEVER, WE FIND THAT THE ASSESSEE HAS PRODUCE D NECESSARY DOCUMENTS FOR THE PURCHASE OF TRADE MARK AND DETAIL S OF THE FEES CHARGED FROM THE PARTY FOR THE USE OF THE TRADEMARKS. THE A SSESSEE HAS TREATED SUCH RECEIPTS AS BUSINESS RECEIPTS AND CLAIMED DEPRECIAT ION ON THE PURCHASE OF TRADEMARKS. NOW IN THE INSTANT CASE THE ACTIVITY OF LETTING OUT THE USE OF THE TRADEMARK IS TO BE SEEN WHETHER IT IS BUSINESS OF T HE ASSESSEE OR NOT. THERE IS NO BAR UNDER THE ACT THAT IF THE COMMERCIAL ASSET I S USED BY THE THIRD PARTY THEN THE INCOME WILL NOT BE TREATED AS BUSINESS IN COME. IN THE INSTANT CASE, THE COMMERCIAL ASSETS IS BEING EXPLOITED BY THE THIRD PARTY AND THE RECEIPT ARISING FROM THE EXPLOITATION OF THE COMMERCIAL ASS ETS HAS BEEN REGARDED AS BUSINESS RECEIPTS. BESIDES THIS, EVEN OTHERWISE T HE INCOME FROM THE EXPLOITATION OF COMMERCIAL ASSETS IS SHOWN AS INCOM E FROM OTHER SOURCES THEN ALSO THE ASSESSEE IS ALSO ENTITLED FOR DEPRECIATION ON THE TRADEMARKS BEING INTANGIBLE ASSETS. IN VIEW OF ABOVE, WE ARE INCLINE D TO TREAT THE INCOME ARISING FROM THE EXPLOITATION OF COMMERCIAL ASSETS AS BUSIN ESS INCOME. ACCORDINGLY, WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND ALLO W THIS GROUND RAISED BY ASSESSEE. 13. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE RECE IPT OF RS. 25,25,508/- AS INCOME FROM OTHER SOURCES AND FURTHER ERRED IN DISA LLOWING EXPENSES INCURRED FOR EARNING SUCH INCOME. 14. BEFORE COMING TO THE SPECIFIC ISSUE, LET US UND ERSTAND THE BRIEF HISTORY OF THE CASE. THERE ARE TWO PVT. COMPANIES NAMELY M/S S NR CONSTRUCTIONS PVT. LTD. AND M/S SNR BUILDERS PVT. LTD. BOTH THE COMPAN IES OWN A PREMISE IN BALLYGUNGE A.C. MARKET, KOLKATA. THE SAID PREMISE W AS LET OUT TO M/S INDIA BULL SECURITY LTD. AND M/S OM KOTAK MAHINDRA LIFE I NSURANCE IN THE YEAR 2003. THERE WAS ALSO AN AGREEMENT FOR THE MAINTENAN CE OF THE LET OUT PROPERTY WITH M/S ESSAR FERMION PVT. LTD WHICH IS A NOTHER GROUP COMPANY OF THE ASSESSEE. SO THE TENANTS ENTERED INTO AGREEMENT WITH THE COMPANY M/S ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 14 ESSAR FERMION PVT. LTD. FOR THE MAINTENANCE SERVICE S. THE MAINTENANCE CONTRACT WAS FURTHER SUBLET OUT BY M/S ESSAR FERMIO N PVT. LTD. TO THE ASSESSEE IN HIS PROPRIETORSHIP CONCERN. THE ASSESSEE FURTHER SUBLET THIS CONTRACT TO M/S S.R. DATA SERVICES PVT. LTD. WHICH IS ACTUALLY PROV IDING MAINTENANCE SERVICES TO THE TENANTS. DURING THE YEAR THE ASSESSEE RECEIP TS SERVICE CHARGES FROM THE TENANTS FOR AN AMOUNT OF RS.25,25,508/-. THE AO OBS ERVED THAT THE ASSESSEE HAS NOT RENDERED ANY SERVICES FOR RECEIVING THE INC OME. SO THE AO HELD SUCH INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 15. BESIDES THE ABOVE, ASSESSEE CLAIMS SEVERAL EXPE NDITURE AGAINST THE ABOVE STATED INCOME. SINCE THE AO HAS HELD THAT THE ASSESSEE IS IN RECEIPT OF SERVICE CHARGES WITHOUT DOING ANY ACTIVITY, SO ALL THE EXPENSES CLAIMED BY THE ASSESSEE ARE DISALLOWED EXCEPT THE EXPENSES OF RS. 12 LAKH PAID TO M/S S.R. DATA SERVICES PVT. LTD. AND AO ADDED THE FOLLOWING EXPENSES TO THE TOTAL INCOME OF THE ASSESSEE AS FOLLOWS:- SL NO. HEAD OF EXPENDITURE AMOUNT (RS) 1 TRAVELLING AND CONVEYANCE 424/- 2 AUDIT FEES 18,000/- 3 BUSINESS PROMOTION EXPENSES 2,94,001/- 4 GENERATOR MAINTENANCE CHARGES 8,999/- 5 LIFT MAINTENANCE CHARGES 36,000/- 6 MAINTENANCE CHARGES 36,390/- 7 SALARY 1,89,000/- 8 REPAIRS & MAINTENANCE 33,000/- 9 TRADE LICENCE 1,375/- 10 BONUS 3,000/- 11 TELEPHONE CHARGES 2,020/- 16. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 15 8.1 THUS, THE ASSESSEE BY VIRTUE OF HAVING CONTROL LING STAKE OF VARIOUS COMPANIES EARNED MONEY FOR DOING NOTHING BUT ENTERI NG INTO A NUMBER OF AGREEMENTS WITH VARIOUS COMPANIES. AS THE AFORES AID INCOME HAS BEEN RECEIVED BY THE APPELLANT FOR DOING NOTHING EX CEPT FOR ENTERING IN A NUMBER OF AGREEMENT WITH THE GROUP COMPANIES, I AM OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY TAXED T HE AFORESAID INCOME OF RS.25,25,508/- UNDER THE HEAD INCOME FROM OTHER SOU RCE. HENCE, THE ACTION OF THE AO ON THIS ISSUE IS CONFIRMED. IN ADD ITION TO THIS THE APPELLANT CLAIMED EXPENDITURE ON ACCOUNT OF SERVICE CHARGES, WHICH HAS NOT BEEN SUBSTANTIATED BY ANY EVIDENCE. HENCE, IT I S HELD THAT THE ASSESSING OFFICER WAS RIGHT IN LAW IN DISALLOWING T HE SAME HOLDING THAT THE APPELLANT HAD NOT RENDERED AY SERVICE FOR RECEI VING THE AFORESAID INCOME. ACCORDINGLY, ON THIS GROUND THE ACTION OF T HE AO IS CONFIRMED. HENCE, GROUND NO.6 OF THE APPEAL IS DISMISSED BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. 17. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR SUBMITTED THAT THE AO FOR THE IMMEDIATE PRECEDING ASSESSMENT YEAR HAS CHARGED THE SAME INCO ME FROM THE SOURCE OF BUSINESS, SO THE QUESTION OF CHARGING THE SAME INCO ME OF THE SUBSEQUENT YEAR UNDER THE HEAD OF INCOME FROM OTHER SOURCES DO ES NOT ARISE. IN SUPPORT OF HIS CLAIM THE LD. AR SUBMITTED THE ASSESSMENT OR DER OF THE IMMEDIATE PRECEDING YEAR. HOWEVER FOR THE DISALLOWANCE OF THE EXPENSES THE LD. AR SUBMITTED THAT IN THE LAST ASSESSMENT YEAR SOME OF THE EXPENSES WERE DISALLOWED AND PRAYED TO DISALLOW THE EXPENSES IN T HE SAME MANNER. 18.1 FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE DECLARED BUSINESS INCOME FROM THE MAINTENANCE ACTIVITY. BUT THE AO TREATED THE SAME AS INCOME FROM INCOME FROM OTHER SOURCES ON THE GRO UND THAT THE ASSESSEE HAS OUTSOURCED THE ENTIRE ACTIVITY TO A THIRD PARTY . IT MEANS THAT THE ASSESSEE IN THE INSTANT CASE WAS NOT ACTUALLY PERFORMING ANY WORK OF MAINTENANCE. THE ASSESSEE DURING THE YEAR HAS CLAIMED AN EXPENSE OF RS.18.34 LACS TOWARDS THE MAINTENANCE ACTIVITY. THE ABOVE SAID EXPENSES W ERE INCLUSIVE OF RS.12 LACS WHICH WERE PAID TO THE THIRD PARTY TO WHOM THE MAINTENANCE WORK WAS ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 16 OUTSOURCED. THE AO DISALLOWED ALL THE EXPENSES EXCE PT RS.12 LACS. SINCE THE SAME INCOME HAS BEEN HELD AS BUSINESS INCOME OF THE ASSESSEE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR, WE ARE NOT INC LINED TO TREAT THE SAME AS INCOME FROM OTHER SOURCES. THEREFORE TO MAINTAIN THE CONSISTENCY WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND TREA T THE SAME AS INCOME FROM BUSINESS. REGARDING THE DISALLOWANCE OF THE EXPENSE S WE FIND THAT IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR, THE AO HAS DIS ALLOWED THE EXPENSES TO THE TUNE OF RS. 3,16,752.00 ONLY. NOW TO MAINTAI N THE CONSISTENCY IN THE ORDER OF LOWER AUTHORITIES, WE ARE INCLINED TO REST ORE THIS FILE TO THE AO WITH THE DIRECTION TO WORK OUT THE DISALLOWANCE OF THE EXPEN SES IN THE LIGHT OF ASSESSMENT ORDER OF THE EARLIER YEAR. HENCE THIS GR OUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 19. THE NEXT GROUND RAISED BY ASSESSEE IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY DISALLOWING AN EX PENSE OF RS. 12 LAKH ON ACCOUNT OF VIOLATION OF THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT. ASSESSEE HAS CLAIMED AN EXPENSE FOR AN AMOUNT OF RS . 12 LACS BUT FAILED TO DEDUCT THE TDS UNDER SECTION 194C OF THE ACT. THERE FORE THE AO DISALLOWED THE SAME AND ADDED TO THE INCOME OF THE ASSESSEE. 20. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- 9. GROUND NO. 7 OF THE APPEAL HAS BEEN DIRECTED AG AINST DISALLOWANCE OF SERVICE CHARGES OF RS.12,00,000/- U/S 40(A)(IA) OF THE I.T ACT, 1961. IN THIS REGARD THE LD. A/R OF THE APPELLANT HAS STATED THAT NO AMOUNT WAS OUTSTANDING AT THE END OF THE YEAR. HENCE NO DISALL OWANCE U/S 40(A)(IA) CALLED FOR, IN VIEW OF THE RATIO LAID DOWN BY SPECI AL BENCH OF THE HON'BLE ITAT, VISHAKAPATTANAM IN THE CASE OF MRILYN SHIPPING & TRANSPORTS WHEREIN IT WAS HELD THAT TDS DISALLOWANCE APPLIES O NLY TO AMOUNTS PAYABLE AS AT 31 ST MARCH AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. HOWEVER, THE LD. A/R OF THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE TO JUSTIFY HIS SUBMISSIONS THAT THE AMOUNT OF RS.12,00,000/- HAD BEEN PAID IN THE RELEVANT PREVIOUS YEAR. BESIDE S, THE HON'BLE SPECIAL BENCH DECISION RELIED UPON BY THE LD. A/R H AS BEEN ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 17 STAYED/SUSPENDED BY THE HON'BLE HIGH COURT OF ANDHR A PRADESH IN TIR NO. 304 OF 2012. IN VIEW OF THE SUSPENSION/STAY OF THE ORDER OF THE SPECIAL BENCH BY HON'BLE HIGH COURT OF ANDHRA PRADE SH AND ALSO IN VIEW OF THE FACTS THAT THE LD. A/R OF THE APPELLANT HAS FAILED TO PRODUCE ANY COGENT EVIDENCE TO SHOW THAT THE AMOUNT HAD ALR EADY BEEN PAID DURING THE YEAR, I HOLD THAT THE ADDITION MADE BY T HE AO OF RS.12,00,000/- U/S 40(A)(IA) IS JUSTIFIED IN LAW AN D ON FACTS OF THE CASE. ACCORDINGLY, GROUND NO. 7 OF THE APPEAL IS DISMISSE D. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. 21. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR SUBMITTED THAT RS. 12 LACS WER E PAID TO M/S S.R. DATA SERVICES PVT. LTD. FOR THE MAINTENANCE SERVICES. TH E PARTY HAS DULY DISCLOSED THE INCOME IN ITS RETURN OF INCOME TAX. IN SUPPORT OF HIS CLAIM THE ASSESSEE HAS SUBMITTED THE COPY OF PROFIT & LOSS ACCOUNT, COMPUT ATION OF INCOME, ITR ACKNOWLEDGMENT, INTIMATION UNDER SECTION 143(1) OF THE ACT OF THE PARTY WHICH ARE PLACED AT PAGES- 28, 26, 25 & 24 OF THE PAPER B OOK. WE FIND FROM THE AFORESAID DISCUSSION THAT THE ASSESSEE FAILED TO DE DUCT TDS ON THE MAINTENANCE EXPENSES AND THEREFORE, THE AO DISALLOW ED THE SAME AND ADDED TO THE INCOME OF THE ASSESSEE IN TERMS OF THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT. HOWEVER WE FIND THAT THE PARTY TO WHOM THE MAINTENANCE CHARGES WERE PAID, HAVE DULY DISCLOSED THE RECEIPT IN ITS R ETURN OF INCOME AND PAID THE DUE TAXES ON IT. NOW AS PER THE AMENDED PROVISIONS OF THE FINANCE ACT 2012, THE ASSESSEE SHALL NOT BE TREATED AS ASSESSEE IN DE FAULT IF THE RECIPIENT OF THE INCOME HAS DULY SHOWN IN ITS RETURN OF INCOME. ACCO RDINGLY WE REVERSE THE ORDER OF THE LOWER AUTHORITIES, HENCE, GROUND RAISE D BY ASSESSEE IS ALLOWED. 22. THE LAST GROUND RAISED BY ASSESSEE IS THAT LD. CIT(A) ERRED IN ALLOWING THE LOSS OF FUTURE & OPTIONS FOR RS.3,29,661/- AGAI NST THE SPECULATION INCOME. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 18 CLAIMED THE SET OFF OF THE BROUGHT FORWARD LOSS ARI SING FROM INTRADAY TRADING OF SHARES FOR RS.3,29,661/- AGAINST THE INCOME OF SPEC ULATIVE TRANSACTIONS. HOWEVER THERE WAS SPECULATION PROFIT IN THE IMMEDIA TE PRECEDING YEAR FOR AN AMOUNT OF RS.40,51,405/- BUT THEN THE LOSS WAS NOT SET OFF IN THAT YEAR BY THE ASSESSEE. ACCORDINGLY THE AO HELD THAT SUCH BROUGHT FORWARD LOSS WHICH COULD HAVE BEEN SET OFF IN THE IMMEDIATE PRECEDING, WILL NOT SET OFF AGAINST THE CURRENT YEAR SPECULATIVE INCOME. SO THE LOSS FOR AN AMOUNT OF RS.3,29,661/- WAS NOT ALLOWED FOR SET OFF AGAINST THE CURRENT YEA R INCOME. 23. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO UPHELD THE ACTION OF AO BY OBSERVING AS UNDER:- FROM THE ABOVE FINDINGS OF THE ASSESSING OFFICER, IT APPEARS THAT THE LOSS OF RS.3,29,661/- PERTAINS TO THE EARLIER YEAR. THEREFORE, SUCH LOSS OUGHT TO HAVE BEEN CLAIMED AND SET OFF IN THE IMMED IATE PRECEDING YEAR. HOWEVER, THE AO HAS STATED THAT THE ASSESSEE DID NOT SET IT OFF IN THAT YEAR. THIS FINDING OF THE ASSESSING OFFICER HAS NOT BEEN CONTROVERTED BY THE ASSESSEE BY BRINGING ANY FACT O N RECORD. THE LD. A/R HAS NOT BEEN ABLE TO JUSTIFY WHY SPECULATION LO SS OF RS.32,96,61/- WAS NOT SET OFF WITH THE SPECULATION PROFIT OF EARL IER YEAR. THE LD. A/R HAS FILED ADDITIONAL EXPLANATION WHEREIN HE HAS CLA IMED IT TO BE FUTURE AND OPTION LOSS WITHOUT BRINGING ON RECORD ANY EVID ENCE IN SUPPORT THEREOF. BESIDES, THE LD. A/R HAS TRIED TO CHANGE T HE COLOUR, NATURE, CHARACTER AND SUBSTANCE OF THE TRANSACTION BY CLAIM ING SPECULATION AS FUTURE AND OPTION LOSS. FOR WANT OF ANY EVIDENCE, I AM CONSTRAINED TO REJECT THE EXPLANTING FIELD BY THE LD. A/R. HENCE, THE GROUND NO. 8 OF THE APPEAL IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. THE LD. AR BEFORE US SUBMITTED THAT THER E WAS NO SPECULATION PROFIT AVAILABLE TO THE ASSESSEE IN THE IMMEDIATE PRECEDIN G ASSESSMENT YEAR. IN SUPPORT OF HIS CLAIM THE ASSESSEE SUBMITTED THE AO ORDER UNDER SECTION 143(3). ON THE OTHER HAND THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 24. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ITA NO.615/KOL/2013 A.Y. 2009-10 SH SHOMENATH ROY CHOWDHURY V. ADDL.JCIT, RNG- 30 KOL. PAGE 19 FROM THE AFORESAID DISCUSSION, WE FIND THAT THE BRO UGHT FORWARD SPECULATION LOSS WAS NOT ALLOWED FOR SET OFF AGAINST THE CURREN T YEAR SPECULATION INCOME ON THE GROUND THAT THE ASSESSEE FAILED TO SET OFF THE SAME IN THE IMMEDIATE PRECEDING YEAR. HOWEVER FROM THE SUBMISSION OF THE LD.AR WE FIND THAT THERE WAS NO SPECULATION PROFIT FOR SET OFF IN THE IMMEDI ATE ASSESSMENT YEAR. WE ALSO OBSERVE FROM THE ORDER OF AO THAT IN THE IMMED IATE PRECEDING ASSESSMENT YEAR THAT THERE WAS NO SPECULATION PROFI T. IN VIEW OF ABOVE, WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 25. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 20/ 01/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 20 / 0 1/201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-SRI SHOMENATH ROY CHOWDHURY, 15B, MANDEV ILLE GARDENS, KOL-19 2. /RESPONDENT-ADDL.JCIT, RANGE-30, AAYKAR BHAWAN (DAK SHIN), 2 GARIAHAT ROAD, KOLKATA-700 068 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,