GAUTAM MEHTA, MUMBAI V. ACIT 5(3), MUMBAI

ITA 7162/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1900 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 05-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRITAM SINGH

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 7162 / MUM/ 20 1 1 ( ASSESSMEN T YEAR : 200 8 - 20 0 9 ) MR. GAUTAM MEHTA, 5 TH FLOOR, 52 MARBEL ARCH, DR. G.D.DESHMUKH MARG, PEDDAR ROAD, MUMBAI - 400 026 VS. ACIT 5(3), MUMBAI PAN/GIR NO. : A AEPM 7736 G ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. BHUPENDRA SHAH /REVENUE BY : MR. PRITAM SINGH DATE OF HEARING : 7 TH JAN . , 201 3 DATE OF PRONOUNCEMENT : 1 ST FEB . , 201 3 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LEANED CIT(A ) , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 8 - 0 9 . 2 . THE ASSESSEE IS OBJECTING THE CONFIRMATION OF THE DISALLOWANCE OF RS. 70,36,686/ - OUT OF INTEREST PAID AND ALLOWED CARR Y FORWARD LOS S OF RS. 73,10,410 - . THE ASSESSEE IS ALSO OBJECTING THE CONFIRMATION OF ADDITION OF RS. 25,342/ - IN RESPECT OF INTEREST ON FDR. 3 . THE ASSESSMENT IN THIS CASE WAS COMPLETED AT AN INCOME OF RS. 1,82,500/ - AGAINST RETURN OF INCOME AT RS. 1,73,375/ - , THEREBY ITA NO. 7162 /20 1 1 2 MAK ING AN ADDITION OF RS. 9,125/ - . DURING THE ASSESSMENT PROCEEDING, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF INTEREST PAID OF RS. 70,36,686/ - . THE AO FURTHER NOTED THAT NO BUSINESS ACTIVITY OF DIAMOND BUSINESS WAS CARRIED OUT DURING T HE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS DEALING IN DIAMOND BUSINESS. THE AO FURTHER NOTED THAT THE ENTIRE A CTIVITIES HAS BEEN DONE ON SHARE TRADING AND BOOKED HEAVY LOSSES. IN VIEW OF THE AO, THE ASSESSEE DIVERTED THE ENTIRE FUNDS TO THE SHARE TRADIN G AND ARRIVED AT A LOSS. ACCORDINGLY, THE AO WAS OF THE VIEW THAT SINCE THERE WAS NO BUSINESS ACTIVITY, THEREFORE, INTEREST PAID ON BORROWINGS WHICH WAS BORROWED FOR THE PURPOSE OF THE DIAMOND BUSINESS IS NOT ALLOWABLE. ACCORDINGLY, HE DISALLOWED THE ENTIR E INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. THEREFORE, THE CARRY FORWARD LOSS WAS ALSO REDUCED BY THE MOUNT ON INTEREST WHICH WAS DISALLOWED BY THE AO . THE AO ALSO MADE AN ADDITION OF RS. 25,342/ - AFTER VERIFYING THE BANK STATEMENT OF INDIAN OVERSEAS BA NK. THE AO NOTICED THAT THE ASSESSEE HAD RECEIVED INTEREST OF RS. 25,342/ - WHICH HAVE NOT BEEN OFFERED FOR TAXATION. ACCORDINGLY, THE SAME WAS ADDED. 4. LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO ON ACCOUNT OF BOTH THE ADDITIONS AND DISALLOWANCE. IN R ESPECT TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 70,36,686/ - , LEARNED CIT(A) OBSERVED THAT THE ASSESSEES MAIN BUSINESS WAS JEWELLERY EXPORT AND THE FUNDS WERE BORROWED FOR BUSINESS PURPOSES. HOWEVER, NO BUSINESS OF DIAMOND ITA NO. 7162 /20 1 1 3 AND JEWELLERY WAS DONE DURIN G THE YEAR AT ALL AND THE ENTIRE BORROWED FUNDS WERE DIVERTED FOR INVESTMENT IN SHARES WHICH IS NOT REGULAR AND SYSTEMATIC BUSINESS OF THE ASSESSEE. THE ASSESSEE DIVERTED THE ENTIRE FUNDS IN SHARE TRANSACTION FOR PERSONAL INTEREST WHICH CANNOT BE BURDENED ON THE BUSINESS. ACCORDINGLY, HE CONFIRMED THE ORDER OF THE AO. SIMILAR LY ADDITION OF RS. 25,342/ - WAS ALSO CONFIRMED . AS PER THE ORDER OF THE CIT(A) , NO EXPLANATION WHATSOEVER WAS BROUGHT BEFORE THE AO AND IN THE APPELLATE PROCEEDING ALSO. HENCE, AGGRIEVED T HEREBY THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL . 5. LEARNED COUNSEL OF THE ASSESSEE REITERATED THE CONTENTIONS WHICH WERE RAISED BEFORE THE LOWER AUTHORITIES. ON THE OTHER HAND, LEARNED DR STRONGLY PLACED RELIANCE ON THE ORDER OF THE AO AS WELL AS LEARNED CIT(A) . 6 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, I FOUND THAT THE ASSESSEE DESERVES TO SUCCEED ON THE FIRST ISSUE. BOTH THE AUTHORITIES BELOW I.E. AO AS WELL AS CIT(A) WERE OF THE VIEW THAT THE ASSESSEE HAS DIVER TED ITS FUNDS FOR PERSONAL INTEREST IN THE BUSINESS OF SHARE TRADING. IT IS NOT UNDERSTANDABLE AS TO WHAT WAS THE PERSONAL INTEREST OF THE ASSESSEE IN DIVERTING THE FUNDS TO SHARE TRADING. THIS IS A BUSINESS MAN, WHO KNOWS HOW TO RUN HIS BUSINESS ACTIVITY. IN STEAD OF DOING DIAMOND AND JEWELLERY EXPORT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE TRANSFERRED ITS ENTIRE FUNDS IN SHARE TRADING BUSINESS. THIS IS LUCK OF THE ASSESSEE THAT HE SUFFERED A HEAVY ITA NO. 7162 /20 1 1 4 LOSS IN SHARE TRANSACTIONS. IT WAS EXPLAINED BEF ORE THE CIT(A) THAT DURING THE YEAR THE LOSS IN FUTURE AND OPTIONS AT ( - ) RS.1.53 CRORES. THE ASSESSEE HAS INVESTED FAIRLY LARGE AMOUNT WITH THE INTENTION TO TAKE MAXIMUM ADVANTAGE OF FLUCTUATION IN THE SHARE MARKET AND MAKE PROFIT. ALL OF SUDDEN, CRISIS D EVELOPED AND THE PRICES CRASHED SHARPLY LEAVING NO SCOPE FOR RECOVERY. IT WAS ALSO STATED THAT THE STRATEGY FAILED AND IT HAD TO BOOK HEAVY LOSSES TO THE TUNE OF RS. 1.53 CRORES. 7 . IT WAS ALSO SUBMITTED THAT THE ASSESSEE MAINLY LOST RS. 34.00 LACS THROUGH MOTILAL OSWAL SECURITIES AND RS.124.94 LACS THROUGH EDLEWEISS SECURITIES LTD., LEHMAN BROTHERS CASE IS WELL KNOWN TO EVIDENCE THE SAME. MEANWHILE, INTERNATIONAL MARKET WITNESSED WORST EVERY CRISIS. IT EFFECTS CONTINUES TILL DATE EVEN AFTER. THIS SU BMISSION OF THE ASSESSEE NEITHER FOUND WRONG NOR COULD BE CONTROVERTED BY ANY OF THE LOWER AUTHORITIES. BY CHANCE, IF THE SHARE MARKET CRASHED AND THE ASSESSEE SUFFERED LOSSES, THEN IF THE LOSS IS GENUINE, THAT HAS TO BE ALLOWED. AS STATED ABOVE, THIS IS A BUSINESS MAN, WHO KNOWS HOW TO RUN AND MANAGE AND HOW TO DO HIS BUSINESS ACTIVITY. THE ASSESSEE THOUGHT PROPER THAT INSTEAD OF DIAMOND AND JEWELLERY BUSINESS, HE CAN EARN HEAVY PROFITS IN SHARE TRADING BUSINESS AS THERE WAS A BIG FLUCTUATION IN SHARE TRADING BUSINESS. HOWEVER, LUCK DID NOT FAVOUR TO THE ASSESSEE AND, THEREFORE, HE SUFFERED A HEAVY LOSSES. IT CANNOT BE SAID THAT THE ASSESSEE HAS DIVERTED ITS BUSINESS FUNDS TO SOME PRIVATE PARTIES FROM WHOM NO INTEREST HAS BEEN CHARGED. THE ASSESSEE BOR ROWED FUNDS FOR ITA NO. 7162 /20 1 1 5 DIAMOND AND JEWELLERY BUSINESS, HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE TRANSFERRED ALL ITS BUSINESS FUNDS TO THE SHARE TRADING BUSINESS. THIS FACT IS ADMITTED BY BOTH THE AUTHORITIES I.E. THE AO AND THE CIT(A) . THE OBSER VATION OF THE LEARNED CIT(A) THAT THE ASSESSEE HAS DIVE RTED THE ENTIRE FUNDS IN SHARE TRANSACTION FOR PERSONAL INTEREST WHICH CANNOT BE BURDENED ON THE B U SIN E SS , THIS OBSERVATION S OF THE LEARNED CIT(A), IN MY CONSIDERED VIEW, ARE NOT CORRECT BECAUSE THE A SSESSEE HAS DIVERTED HIS OWN FUNDS, WHICH WERE BURROWED FOR DIAMOND AND JEWELLERY BUSINESS TO THE SHARE TRADING BUSINESS. THE DIAMOND AND JEWELLERY BUSINESS WAS ALSO PERSONAL BUSINESS OF THE ASSESSEE AND SHARE TRADING IS ALSO PERSONAL BUSINESS OF THE ASSES SEE. THEREFORE, THIS IS ASSESSEES WISH WHERE THE BUSINESS FUNDS ARE TO BE UTILIZED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE LOSS SUFFERED BY THE ASSESSEE IS ALLOWABLE , H OWEVER, THE GENUINENESS OF T HE LOSS CAN BE VERIFIED BY THE AO. I ORDER ACCORDINGLY. 8 . REGARDING THE ADDITION OF RS. 25,342/ - MADE BY THE AO ON ACCOUNT OF INTEREST RECEIVED ON FD 0 R HAS NOT BEEN OFFERED FOR TAXATION. IF THERE WAS INTEREST INCOME AND THE SAME WAS NOT OFFERED FOR TAXATION THEN OF COURSE THE AO WAS RIGHT IN MAKING THE ADDITION AND ACCORDINGLY, LEARNED CIT(A) WAS ALSO RIGHT IN CONFIRMING THE ADDITION . HOWEVER, IF THE ASSESSEE HAD ACCOUNTED THIS INCOME IN ITS PROFIT AND LOSS ACCOUNT, THEN ITA NO. 7162 /20 1 1 6 OF COURSE NO SEPARATE ADDITIO N IS WARRANTED. THIS FACT HAS TO BE VERIFIED AT THE END OF THE AO. I ORDER ACCORDINGLY. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF FEB . 201 3 . 201 3 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI ; DATED : 01 / 0 2 / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGIST RAR) / ITAT, MUMBAI