ACIT 4(2), MUMBAI V. STAR SHARE & STOCK BROKERS LTD, MUMBAI

ITA 7161/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71892 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI . . , , , ! ' BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY AROR A, AM ./ I.T.A. NO. 7161/MUM/2010 ( # # # # $ $ $ $ / ASSESSMENT YEAR : 2007-08 THE ACIT 4(2), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. STAR SHARE & STOCK BROKERS LTD., 22, SAI KRUPA CHAWL, SANJAY NAGAR, MEGHAWADI, JOGESHWARI (E), MUMBAI-400 060 % ! ./ & ./PAN/GIR NO. :AAACS 9106Q ( %' /APPELLANT ) .. ( ()%' / RESPONDENT ) %' * / APPELLANT BY : ` SHRI M.L. PERUMAL ()%' + * /RESPONDENT BY : NONE # + ,-! / DATE OF HEARING :10.12.2013 .$ + ,-! / DATE OF PRONOUNCEMENT :10.12.2013 / / O R D E R PER I.P BANSAL, JM: THIS APPEAL IS FILED BY THE BY THE REVENUE. IT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-8, MUMBAI DT.5.8.20 10 FOR A.Y. 2007- 08. 2. ON THE FIXED DATE OF HEARING, NONE WAS PRESENT O N BEHALF OF THE ASSESSEE. EARLIER ALSO, THE NOTICE WAS SENT TO ASS ESSEE HAVE BEEN RECEIVED ITA NO.7161/M/10 2 BACK BY THE APPELLATE AUTHORITIES, THEREFORE WE PRO CEED TO DECIDE THE PRESENT APPEAL EX- PARTE QUA THE ASSESSEE ON MERIT. 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PENALTY OF RS.3,23,151/- ON VIOLATION OF THE BYE- LAWS OF THE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPOSED UNDER SEBI [PROCEDURE FOR HOLDING INQUIR Y AND IMPOSING PENALTY BY ADJUDICATING OFFICER] RULES 199 5 WHICH HAS A BINDING CHARACTER. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT NON- ADHERENCE TO STATUTORY PROVISIONS IS NOT AN ALLOWAB LE EXPENDITURE IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THAT IT W AS NOT ENOUGH THAT THE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT WAS ALSO FOR THE LAWFUL PURPOSE OF TRADE . V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE FRAMEWORK OF LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST OF RS.8,30,156/- WITH OUT APPRECIATING THE FACT THAT THE ASSESSEE PAID INTERE ST ON BORROWED FUNDS AND DIVERTED SUCH INTEREST BEARING F UNDS TO NON INTEREST BEARING ADVANCES FOR WHICH NO EXPLANAT ION WAS OFFERED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITA NO.7161/M/10 3 IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. SO FAR AS IT RELATE TO ISSUE RAISED IN GROUND NO . 1, IT WAS FOUND THAT THE SAID RELIEF HAS BEEN GIVEN BY LD. CIT(A) FOLLOW ING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 5-06 IN ITA NO. 5187/M/08 WHEREIN IT WAS HELD THAT PAYMENTS MADE TO STOCK EXCHANGE ON SHORT DELIVERY CHARGES, FAILURE TO RAISE REQUISITE MARGIN MONEY AND NON TIMELY DEPOSIT OF MARGIN MONEY WAS NOT IN THE NATUR E OF ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS OF FENCE OR WHICH IS PROHIBITED BY LAW SO AS TO HIT BY EXPLANATION TO SE C. 37(1). ACCORDINGLY, AFTER HEARING LD. DR, AS THE ISSUE HAS BEEN DECIDE D BY LD. CIT(A), FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE, WE DECLINE TO INTERFERE. GROUND NO. 1 OF THE REVENUE IS DISMISSED. 4. SO FAR AS IT RELATE TO ISSUE RAISED IN GROUND NO . 2; DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY TH E AO THAT ASSESSEE HAD ADVANCED INTEREST FREE LOANS OF RS. 50 LAKHS EACH T O SHRI PAVITAR SINGH AND COASTAL DEVELOPER. THE AO ALSO NOTICED THAT AS SESSEE HAD CLAIMED INTEREST EXPENDITURE TO THE TUNE OF RS. 13,30,414/- . THE AO CALCULATED THE DISALLOWANCE OF INTEREST AFTER GIVING THE WEIGHTAGE TO DISALLOWANCE U/S. 14A OF THE ACT. DISALLOWANCE WAS CALCULATED AT RS. 8,30,156/-. 5. THE DISALLOWANCE WAS AGITATED IN AN APPEAL FILED BEFORE THE LD. CIT(A). IT WAS CLAIMED THAT ASSESSEE HAD FILED ALL THE DETAILS. THE AO WRONGLY ASSUMED THAT BORROWED FUNDS WERE DIVERTED T O MAKE INTEREST FROM ADVANCES. IT WAS SUBMITTED THAT ASSESSEE HAS INCURRED INTEREST EXPENDITURE ONLY FOR THE PURPOSE OF BUSINESS AND IN TEREST FREE ADVANCES OF RS. 1,00,00,000/- WAS SOURCED FROM INTEREST FREE BU SINESS FUND. CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) HAS RECORDED A ITA NO.7161/M/10 4 FINDING THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE MERELY FOR THE REASON THAT CERTAIN INTEREST BEARING BORROW ED FUNDS WERE DIVERTED TO NON-INTEREST BEARING ADVANCES WITHOUT THERE BEIN G ANY FINDING THAT SUCH ADVANCES ON WHICH NO INTEREST WAS CHARGED WERE GIVE N FOR THE PURPOSE OF BUSINESS. THE LD. CIT(A) FURTHER OBSERVED THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL OR EVIDENCES WHICH COULD LEA D LEGITIMATELY TO INFER THAT THE INTEREST FREE ADVANCES WERE PROVIDED BY TH E ASSESSEE FOR CONSIDERATION OTHER THAN OF ITS BUSINESS. IN ABSE NCE OF SUCH MATERIAL NO DISALLOWANCE OF INTEREST COULD BE MADE. IT IS IN T HESE CIRCUMSTANCES, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE. 6. THE REVENUE IS AGGRIEVED AND HENCE HAS RAISED AF OREMENTIONED GROUNDS. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E. WE HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY LD. CIT(A). THOUGH LD. CIT(A) OBSERVED THAT CER TAIN INTEREST BEARING BORROWED FUNDS HAVE BEEN DIVERTED TO NON-INTEREST BEARING FUNDS BUT HE HAS HELD THAT EVEN IF IT IS SO THEN ALSO IN ABSENCE OF FINDING THAT SUCH ADVANCES ON WHICH NO INTEREST WAS CHARGED WERE GIV EN FOR NON BUSINESS, THE DISALLOWANCE CANNOT BE MADE. IN OTHER WORDS, T HE FINDING OF THE LD. CIT(A) IS THAT NON INTEREST ADVANCES BY THE ASSESSE E WERE FOR THE PURPOSE OF BUSINESS. HOWEVER, LD. CIT(A) HAS NOT SPELLED OU T THAT WHAT BUSINESS PURPOSE WAS BEHIND ADVANCING THOSE INTEREST FREE AD VANCES. AS AGAINST THAT THERE IS NO MATERIAL IN THE ASSESSMENT ORDER W HICH INDICATE THAT THOSE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSEE FO R THE PURPOSE OF BUSINESS. THERE IS CONTRADICTION IN THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY LD. CIT(A). THEREFORE, THE MATTER REQUIR ES TO BE READJUDICATED. THE ASSESSEE HAS TO PROVE THAT THE INTEREST WHICH I S PAID ON BORROWED FUNDS WERE ONLY UTILIZED FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE. IF ITA NO.7161/M/10 5 ASSESSEE FAILS TO PROVE THAT INTEREST BEARING BORRO WED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS THEN ASSESSEE IS NOT EN TITLED TO CLAIM THE SAME. THEREFORE, WE CONSIDER IT JUST AND PROPER TO RESTOR E THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO READJUDICATE THIS ISSUE AS PER PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. FOR STATISTICAL PURPOSES, THIS GROUND OF THE REVENUE IS CONSIDERED TO BE ALLOWED IN THE MANNER AFORESAID. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.12.2013 . / + $ ! 0 1#2 10.12.2013 + 3 SD/- SD/- (SANJAY ARORA) (I.P. BANSAL ) ! / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1# DATED 10 /12 /2013 . # . ./ RJ , SR. PS / / / / + ++ + (,4 (,4 (,4 (,4 5 4$, 5 4$, 5 4$, 5 4$, / COPY OF THE ORDER FORWARDED TO : 1. %' / THE APPELLANT 2. ()%' / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 (,# , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /# /# /# /# / BY ORDER, )4, (, //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI