BAIJNATH MANIRAM, MUMBAI V. ADDL.C.I.T. 14(3), MUMBAI

ITA 7584/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3501 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 09-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANDHIR GUPTA
• Keywords: Business income; Business expenditure; Earning of tax free income; Additional evidence; Bad and doubtful debts; Onus to prove
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I .T.A. NO. 7584/MUM/2011 ( / ASSESSMENT YEAR: 2008 - 09 ) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. 51 - 53, MITTAL COURT, A WING, NAIRMAN POINT, MUMBAI - 400 021 / VS. ADDL. CIT, RANGE - 14(3), MUMBAI ./ ./ PAN/GIR NO. AAEFB 8365 P ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAKESH JOSHI / RESPONDENT BY : SHRI RANDHIR GUPTA / DATE OF HEARING : 25.02.2016 / DA TE OF PRONOUNCEMENT : 25 .05.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 25 , MUMBAI (CIT(A) FOR SHORT) DATED 19.10.2011 , DISMISSING THE A SSESSEE S APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2008 - 09 VIDE ORDER DATED 16.12.2010. 2. THE APPEAL RAISES THE FOLLOWING G ROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM: 2 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT 1. TH E LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/ S. 143(3) OF THE INCOME - TAX ACT, 1961. 2. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN APPROVING THE ASSESSMENT OF THE TOTAL INCOME OF THE APPELLANT AT RS. 1,56,29,010/ - AS AGAINST THE RETURNED INCOME OF RS. 1,11,77,272/ - . 3. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT DISPOSING OFF THE APPEAL IN CONFORMITY WITH THE PROVISIONS OF S .250(6) OF THE INCOME - TAX ACT, 1961. 4. WITHO UT PREJUDICE TO THE ABOVE, THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS: (I) IN SUSTAINING THE ASSESSMENT OF A SUM OF RS. 44,38,618/ - DECLARED AS SHORT - TERM CAPITAL GAIN AS BUSINESS INCOME; (II) IN DISALLOWING THE CLAIM FOR BAD DEBTS AMOUNTING TO RS . 2,63,740/ - ; AND (III) IN CONCURRING WITH THE DISALLOWANCE OF THE AMOUNT OF RS.41,88,000/ - MADE BY THE ASSESSING OFFICER U/ S. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME - TAX ACT RULE, 1963. 5. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE LEVY OF INTEREST U/S. 234A, 234B AND 234C OF THE INCOME - TAX ACT. 3. GROUNDS # 1 AND 2 ARE GENERAL IN NATURE , WARRANT ING NO ADJUDICATION ON MERITS. GROUND N O. 3 ASSAILS THE IMPUGNED ORDER FOR WANT OF SATISFACTION OF THE MANDATE OF SECTION 250(6) OF THE ACT, WHICH READS AS UNDER: PROCEDURE IN APPEAL. 250. (1) . (2) .. (6) THE ORDER OF THE COMMISSIONER (APPEALS) DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASO N FOR THE DECISION. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT THE LD. CIT(A) OUGHT TO HAVE PASSED A SPEAKING ORDER , WHICH HE HAS FAILED TO, SO THAT HIS ORDER IS PER SE BAD IN LAW , AND WOULD THEREFORE MERIT BEING SET ASIDE. THE ARGUMENT 3 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT IS MISPLACED. THE LD. CIT(A) , AS NOTED BY THE BENCH , GRANTED AS MANY AS EIGHT OPPORTUNITIES OF HEARING TO THE ASSESSEE TO PRESENT IT S CASE BEFORE HIM, WITH THE ASSESSEE SEEKING ADJOURNMENT EACH TIME. THE RELEVANT DATES AND THE C OU RSE OF EVENTS HAS BEEN STATED B Y THE LD. CIT(A) AT PARA 3 OF H IS ORDER, WITH IN F ACT THE ADJOURNMENT OF HEARING ON THE LAST FOUR DATES BEING GRANTED BY HIM BY WAY OF LAST OPPORTUNITY . THE FIRST APPELLATE AUTHORITY HAS IN OUR VIEW GRANTED INDULGENCE TO TH E ASSESSEE IN TH E MATTER OF EXTENSION OF PROPER OPPORTUNITY , SO THAT HE CANNOT BE SAID TO BE AT FAULT IN PROCEEDING TO HEAR AND DECIDE THE APPEAL BEFORE HIM EX PARTE QUA THE ASSESSEE. A GAIN, AT PARA 4 , REFERENCE IS MADE BY HIM TO S ECTION 114 ( G ) OF THE INDI AN EVIDENCE ACT, 1872 , WHICH L AYS A PRESUMPTION THAT E VIDENCE WHICH COULD BE , BUT IS N O T PRODUCED, WOULD, I F PRODUCED, BE UN FAVOURABLE TO THE PERSON WHO WITHHOLDS IT. THE BURDEN OF PROOF IN THE APPELLATE PROCEEDINGS IS , IN ANY CASE , ON THE ASSESSEE , WHO HA S CLEARLY FAILED TO IMPROVE HIS CASE IN ANY MANNER BEFORE HIM. FURTHER STILL, RELIANCE IS PLACED BY HIM ON THE DECISION BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CHEMIPOL VS. UNION OF INDIA (DATED DECEMBER 12, 2009), WHEREIN , RELYING ON THE DECISIONS BY THE A PEX C OURT, IT HAS BEEN HELD THAT THE COURT O R THE TRIBUNAL HEARING AN APPEAL H AS AN INHERENT POWER TO DECIDE IT EITHER ON MERITS OR CAN DISMISS IT ON ACCOUNT OF NON - PROSECUTION, WHICH POWER MUST B E EXERCISE D JUDICIAL LY , TAKING INTO CONSIDERATION ALL T HE FACTS AND CIRCUMSTANCES OF THE CASE, REPRODUCING THE RELEVANT PART OF THE SAID DECISION IN HIS ORDER (AT PARA 4). AT PARA 5 OF H IS ORDER, T HE LD. CIT(A) NOTES THAT THE ASSESSEES APPEAL REQUI R ES TO BE REJECTED ON MERITS AS WELL. THE A.O. HAD DISCUSSED T HE MATTER AT LENGTH QUA EACH OF THE THREE ISSUES AT PARAS 3 TO 5 (PGS. 2 TO 13) OF HIS ORDER, AND WHICH HAD BEEN CARE FU LLY PERUSED. THE REASONS OF THE A.O. WERE SELF EXPLANATORY AND NO INFIRMITY THEREIN WAS OBSERVED BY HIM . THIS SURELY IS AN ORDER ON MERIT S, AND IT IS NOT NECESSARY THAT AN APPELLANT AUTHORITY MUST NECESSARILY, I.E., MANDATORILY, RECORD ITS SEPARATE REASONS, EVEN WHERE THE REASONS CITED IN THE ORDER APPE A L AGAINST ARE DETAILED AND THE APPELLATE AUTHORITY IS IN COMPLETE AGREEMENT THEREWITH ( REFER : CIT VS. 4 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT K. Y. PILLIAH AND SONS [ 1967 ] 63 ITR 411 (SC)). WE, ACCORDINGLY, FIND NO MERIT IN THE ASSESSEES G ROUND # 3. 4. COMING TO G ROUND 4, RAISED BY THE ASSESSEE WITHOUT PREJUDICE TO ITS EARLIER G ROUNDS, CHALLENG ES THE CONCURRENT DECISION OF THE R EVENUE ON MERITS . T HE LD. AR WAS LIKEWISE REQUIRED BY THE BENCH TO SHOW ANY INFIRMITY ATTENDING THE SAME. HE COULD NOT POINT OUT ANY SUCH WITH REGARD TO G ROUND S 4(I) AND 4(II). TOWARD THE FORMER, THE A.O. HAS IN FACT TRANSVERSED THE ASSESSEES REPORTING OF ITS ACTIVITY RELATING TO PURCHASE AND SALE OF SHARES A.Y. 2004 - 05 ONWARDS (UP TO A.Y. 2009 - 10), TO FIND NO CONSISTENCY AND , RATHER, INCOHERENCE THEREIN. THE ACTIVITY, WHICH WAS REPORTED AS A TRADING ACTIVITY FOR A.Y. 2004 - 05 (BY WAY OF SHARE TRADING ACC OUNT) WAS, WITHOUT ANY CHANGE IN THE UNDERLYING FACTS, OR WITHOUT REFERENCE THERETO, CHANGED TO SHARE TRADING AS WELL AS SHARE INVESTMENT ACTIVITY. THE INTENTION WITH WHICH THE SHARES ARE ACQUIRED BEING PARAMOUNT (FOR DETERMINING THEIR CHARACTER AS EITHER AN INVESTMENT OR A TRADING ASSET), THOUGH THE ASSESSEE COULD NO DOUBT BEGIN ITS INVESTMENT ACTIVITY AT ANY TIME, THE SHARE INVESTMENT ACCOUNT (FOR A.Y. 2006 - 07) DISCLOSED AN OPENING STOCK OF RS.1369.06 LACS, I.E., AT THE SAME AMOUNT OF THE CLOSING STOCK (OF STOCK - IN - TRADE) FOR THE IMMEDIATELY PRECEDING YEAR (I.E., AS AT 31.3.2005). NOT ONLY IS THIS INEXPLICABLE AS THE S TOCK - IN - TRADE COULD BE CONVERTED, IF AT ALL, INTO AN INVESTMENT ONLY FROM A PARTICULAR DATE, POST 31.3.2005, THERE WAS, CONSEQUENTIALLY, NO OPENING STOCK (IN TRADE) IN THE SHARE TRADING ACCOUNT (FOR A.Y. 2006 - 07). THE VARIABILITY CONTINUES FROM YEAR TO YEAR, NARRATED YEAR - WISE, ALONG WITH THE RELEVANT INCIDENTS, IN THE ASSESSMENT ORDER, WITH THE ASSESSEE DISCLOSING THE ENTIRE SHARE ACTIVITY AS, AGAIN, SHARE TRADING ACTIVITY FOR A.Y. 2009 - 10. THE LD. AR WOULD, IN FACT, BEFORE US ADMIT TO HAVING NO CASE WITH REGARD TO ANY PART OF ITS SHARE ACTIVITY AS BEING REGARDED AS AN INVESTMENT. AS REGARDS GD. 4(II) , HE WOULD THOUGH DRAW OUR ATTENTIO N TO COPIES OF THE LEDGER ACCOUNTS OF THE TWO PARTIES , WHOSE BALANCES STAND WRITTEN OFF AS IRRECOVERABLE AND CLAIMED AS BA D DEBTS, THE SAME BEING ADMITTEDLY NEITHER BEFORE THE ASSESSING N OR THE 5 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT FIRST APPELLATE AUTHORITY . EVEN BEFORE US THE ASSESSEE HAS NOT FURNISH ED ANY APPLICATION FOR AD MISSION OF ADDITIONAL EVIDENCE, I.E., WITH REFERENCE TO RULE 2 9 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. MERELY STATING THAT THE ISSUE GOES TO THE ROOT OF THE MATTER, OR THAT THE TRIBUNAL IS THE FINAL FACT FINDIN G AUTHORITY (AS THE ASSESSEE DOES PER ITS COVERING LETTER ADDRESSED TO THE TRIBUNAL), WOULD BE BY ITSELF OF LITTLE CONSEQUENCE. THIS IS PARTICULARLY SO IN THE FACTS OF THE PRESENT CASE, I.E., BEING NOT SUPPORTED BY ANY PRIMARY EVIDENCE AND, FURTHER, GIVEN THE BACK - DROP OF THE ASSESSEE FAILING TO E VIDENCE ITS CLAIM /S BEFORE THE REVENUE AUTHORITIES DESPITE BEING SPECIFICALLY CALLED FOR TO DO SO , AND GRANT OF ABUNDANT OPPORTUNITY , BY THEM. FURTHER, IN FACT, OF THE TOTAL CLAIM OF RS.2.63 LACS, THAT FOR RS.1,7 1,695/ - , I.E., IN RESPECT OF CENTURY CONSULTAN TS LTD. , IS ADMITTEDLY NOT AGAINST SALES SO AS TO BE CONSIDERED AS TOWARD DEBT WITHIN THE CONTEMPLATION OF SECTION 36(1)(VII) R/W S. 36(2), BUT ONLY LOSS ON ACCOUNT OF BAD DELIVER Y AGAINST PURCHASES MADE DURI NG F.Y. 2000 - 01, I.E., RELEVANT TO ASSESSMENT YEAR 2001 - 02. THE SAME WOULD, THEREFORE, AMOUNT TO LOSS OF STOCK ON ACCOUNT OF BAD DELIVERY, A BUSINESS LOSS, WHICH IS, ASSUMING SO, ADMISSIBLE FOR THE YEAR FOR WHICH IT IS INCURRED AND NOT IN THE YEAR OF ITS WRITE OFF AS BAD DEBT IN THE BOOKS OF ACCOUNT. WE, ACCORDINGLY, FIND NO REASON TO ADMIT THE SAME AT THIS STAGE. REFERENCE IN THIS REGARD MAY ALSO BE MADE TO THE DECISION BY THE HON'BLE JURISDICTIONAL HIGH COURT IN VELJI DEORAJ & CO. VS. CIT [1968] 68 ITR 7 08 (BOM). WITH REGARD TO THE THIRD LIMB , I.E., PER G ROUND 4(III), THE SAME IS IN RESPECT OF DISALLOWANCE U/S. 14A. T HE A.O. HAS ADMITTEDLY APPLIED R ULE 8D, MANDAT ORY FOR THE CURRENT YEAR, THE RELEVANT WORKING OF WHICH (BREAK UP HERE - IN - BELOW) APPEARS AT PA RA 5.4 OF HIS ORDER : BREAK - UP OF DISALLOWANCE AS PER RULE 8D AMOUNT (RS.) A) DIRECT EXPENSES 3,40,145 B) I NTEREST EXPENSE 20,31,911 C) INDIRECT EXPENSES 18,15,451 TOTAL 41,87,507 6 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT THE ASSESSEES CONTENTION BEFORE US WAS WITH R EGARD TO THE THIRD LIMB OF THE TOTAL DISALLOWANCE OF RS.41,87,507/ - , I.E., QUA THE INDIRECT ADMINISTRATIVE EXPENDITURE, DISALLOWED AT RS.18.545 LACS, WORKING THE SAME AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT. ADVERTING TO THE DETAILS OF THE TOTAL IND IRECT EXPENSES (INCLUDING INTEREST) CLAIMED BY THE ASSESSEE, THE SAME THUS WORKS TO RS.63,01,807/ - (PB PG. 32), AS UNDER, OF WHICH RS.17,28,421/ - BEING ON ACCOUNT OF STT, STAND SUO MOTU DISALLOWED BY THE ASSESSEE PER ITS RETURN OF INCOME: DETAILS OF TOTAL EXPENSES DEBITED IN PROFIT & LOSS A/C. PARTICULARS AMOUNT (RS.) AUDIT FEES 10,000 BANK INTEREST 18,772 BAD DEBTS 2,63,739 SERVICE TAX 4,95,641 OTHER CHARGES SHARE TRADING 9,13,342 INTEREST 23,44,072 SALARY & BONUS EXP 1,86,425 PRINTING & STATIONARY 1,248 SIT 17,28,421 DEMAT CHARGES 3,40,145 TOTAL EXPE NSES DEBITED IN PROFIT & LOSS A/ C 63,01,807 LESS: DISALLOWED IN COMPUTATION OF TOTAL INCOME (SIT) (17,28,421 ) BA D DEBTS (2,63,739) INTEREST CONSIDERED SEPARATELY (23,44,072) TOTAL 19,65,574 THE INTER E ST COMPONENT (RS.23.44 LACS) HAS BEEN SEPARATELY CONSIDERED , WHILE THE CLAIM FOR B AD DEBT (RS.2.64) HAS BEEN DISALLOW ED, LEAVING THE BALANCE OF R S.19.66 LACS, OF WHICH RS.18.15 STANDS DISALLOWED , AND WHICH IS CLEARLY ON THE HIGHER SIDE. WE AGREE , THE TOTAL OF RS.19.66 LACS IS IN FACT INCLUSIVE OF D EMAT CHARGES ( RS.3.40 LACS ) , SEPARATELY DISALLOWED AS DIRECT EXPENSES , SO THAT THE INDIRECT ADMINISTR ATIVE EXPENDITURE CLAIMED BY THE ASSESSEE WORKS TO RS.16.26 LACS (RS.19.66 LACS RS.3.40 LACS). THE ASSESSEES SHARE TRADING INCOME HAS ALREADY BEEN CONSIDERED AS ITS BUSINESS 7 ITA NO. 7584/MUM/2011 (A.Y. 2008 - 09) BAIJNATH MANIRAM HOLDING & FINANCE CO. PVT. LTD. VS. ADDL. CIT INCOME. I N OUR VIEW, THEREFORE, THE ASSESSEE I S JUSTIFIED , WITH REFERENCE TO IT S ACCOUNT S, TO CONTEND THAT THE ENTIRE EXPENDITURE CLAIMED BY IT (RS.16.26 LACS) COULD NOT BE REGARDED AS WHOLLY IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME. WE CONSIDER THE RATIO OF THE 20% AS FA I R AND , ACCORDINGLY , DIRECT 20% OF THE SAID EXPENDITURE (RS.16.26 LAC S) , BESIDES INTEREST EXPENDITURE OF RS.23.44 LACS, AGAIN AT 20% , AS TOWARD SUCH TAX - EXEMPT INCOME AND , THUS, LIABLE TO BE DISALLOWED U/S. 14A. T HE BALANCE 80%, FORMING PART OF THE REGULAR BUSINESS EXPENDITURE, IS LIABLE TO BE TAKEN IN TO ACCOUNT IN COMPUTI NG THE ASSESSEES BUSINESS INCOME FROM SHARE TRADING INCOME . WE DIRECT ACCORDINGLY , AND THE ASSESSEES GETS PART RELIEF. 5. GROUND # 5 IS IN RESPECT OF L EVY OF INTEREST U/S. 234A/B/C . T HE SAME BEING MANDATORY WOULD IMPACT CONSEQUENTIALLY . THE GROUND IS A CCORDINGLY DISMISSED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 25 , 201 6 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 25 . 0 5 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI