GOLDEN CHEMICALS P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 7175/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8656 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 7175/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S GOLDEN CHEMICALS PVT. LTD., 502, JAI KRISHNA COMPLEX, NEW LINK ROAD, FUN REPUBLIC THEATRE LANE, ANDHERI (W), MUMBAI - 400 053 PAN: AAACG1738J VS DY. COMMISSIONER OF INCOME-TAX - 8(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DILIP THAKKAR RESPONDENT BY : SHRI AMAR DEEP DATE OF HEARING: 27-09-2012 DATE OF PRONOUNCEMENT: 10-10-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL EMANATES FROM THE ORDER OF THE CIT(A) 16, MUMB AI, DATED 19.09.2011, WHEREIN, THE SOLITARY ISSUE IS WITH REGARD TO TREATING RS. 12,23,619 ON INCOME FROM OTHER SOURCES. 2. THE FACTS AS SUBMITTED BY THE AR ARE THAT THE ASSE SSEE COMPANY IS IN BIFR, AFTER ERODING ITS CAPITAL BASE WITH LOSSES. AS THE ASSESSEE IS DOING ITS DAY TO DAY BUSINESS, IT HAD TO PARK CERTAIN FUND S WITH THE BANK TO AVAIL LCS, AS PER BANK REQUIREMENTS. FOR THIS PU RPOSE, THE ASSESSEE PLACED FUNDS IN FIXED DEPOSITS ON WHICH IT GENERA TED INTEREST INCOME AT RS. 12,23,619. M/S. GOLDEN CHEMICALS PVT. LTD. ITA NO. 7175/MUM/2011 2 3. THE AR SUBMITTED THAT THE COMPANY WAS BEFORE THE B IFR AND REELING IN LOSSES, AS EVIDENT FROM BALANCE SHEET PLACED IN TH E APB THAT THE ENTIRE CAPITAL OF RS. 2.70 CRORES HAS BEEN ERODED BY LOSSES OF RS. 6.32 CRORES. IT WAS EXPLAINED BY THE AR THAT IT HAD TAKE N UNSECURED LOANS OF RS. 7.99 CRORES. THE CASH AND BANK BALANCES OF RS . 3.69 CRORES, SHOWN IN THE BALANCE SHEET WERE OUT OF THE UNSE CURED LOANS. THE AR FURTHER SUBMITTED THAT THE OBSERVATIONS OF THE R EVENUE AUTHORITIES THAT THE ASSESSEE HAD PLACED ITS OWN FUNDS T O AVAIL BANK FACILITIES IS MORE OF AN APPREHENSION BASED ON CONJECTURES AND WITHOUT ANY BASIS. 4. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5. WE HAVE HEARD ARGUMENTS AND PERUSED THE MATERIAL O N RECORD, WE FIND FROM THE BALANCE SHEET THAT THE ASSESSEE HAD N ET CASH LOSSES, WHICH HAD ERODED ITS CAPITAL AND BECAUSE OF WHICH IT WAS B EFORE BIFR. WE ARE ALSO IN AGREEMENT WITH THE ASSESSEE THAT THERE CANNOT BE ANY OWN FUNDS WITH THE ASSESSEE, WHICH COULD BE PARKED WITH THE BANK TO RECEIVE INTEREST. WE ALSO FIND FROM THE BALANCE SHEET THAT THE ASSESSEE HAD RAISED UNSECURED LOANS AND THERE WAS NO SECURED LO AN. ALL THIS GO TO SHOW THAT THE ASSESSEE WAS NECKDEEP IN FINANCIAL CRISIS AND BECA USE OF WHICH, IT HAD APPROACHED THE BIFR. WE ALSO CANNOT COMPREHEND ANY OTHER EXPLANATION WITH REGARD TO THE FUNDS PUT IN THE BA NK FOR THE PURPOSES OF AVAILING CERTAIN FACILITIES, WHICH INCIDENTALLY WERE ALSO FR OM THE UNSECURED LOANS. 6. AS THE INTEREST HAS BEEN EARNED BY THE ASSESSEE P ERTAINED ONLY FROM THE FUNDS LYING IN THE BANK TO AVAIL BANK/BUSINESS FAC ILITY, THE CHARACTER OF THIS INTEREST CAN ONLY BE THAT OF BUSINESS AND NOT OTHER SOURCES, AS CONTEMPLATED BY THE REVENUE AUTHORITIES. THIS PROPOSITION HAS BEEN ACCEPTED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. GOLDEN CHEMICALS PVT. LTD. ITA NO. 7175/MUM/2011 3 CIT VS CHINNA NACHIMUTHU CONSTRUCTIONS, REPORTED IN 279 ITR 70, WHEREIN THE HONBLE KARNATKA HIGH COURT OBSERVES, HAVING HEARD COUNSEL FOR BOTH SIDES, WE HAVE NOTIC ED THAT INVESTMENT OF AMOUNT IN FIXED DEPOSITS BY THE ASSESSEE WAS ONL Y TO SECURE A BANK GUARANTEE TO BE OFFERED TO M/S KPTCL IN ORDER TO AC QUIRE A CONTRACT WORK. THEREFORE, IT CANNOT BE TREATED AS AN INCOME FROM OTHER SOURCES AND INTEREST ACCRUED ON SUCH FIXED DEPOSITS HAS TO BE TREATED AS BUSINESS INCOME ONLY. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V GOVINDA CHAU DHURY AND SONS REPORTED IN (1993) 203 ITR 881. IN THE RESULT THE APPEAL IS DISMISSED. THE QUESTION OF LAW IS ANSWERED AGAINST THE REVENUE. 7. RESPECTFULLY FOLLOWING THE DECISION, WE SET ASIDE THE ORDE R OF CIT(A) ON THIS ISSUE AND DIRECT THE AO TO TREAT THE INCOM E AS BUSINESS INCOME AND ALLOW THE SET OFF ACCORDINGLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10/10/2012. SD/- (P.M. JAGTAP) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 10/10/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-16, MUMBAI. 4) THE CIT -8, MUMBAI, 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN