Suryanagari Finlease Ltd., Ahmedabad V. The Income tax Officer, Com.Ward-8(2), Ahmedabad

ITA 781/AHD/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50921 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-03-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.781 / AHD/2006 (ASSESSMENT YEAR 2003-04) M/S. SURYANAGRI FINLEASE LTD., SARTHI ANNEXE, 2 ND FLOOR, FUN REPUBLIC, ISCON CIRCLE, AHMEDABAD VS. ITO, WARD 8(2), AHMEDABAD PAN/GIR NO. : AADCS0465P (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI DHIREN SHAH, AR RESPONDENT BY: SHRI K MADHUSUDAN, SR. DR DATE OF HEARING: 02.11.2011 DATE OF PRONOUNCEMENT: 11.11.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A) XIV, AHMEDABAD DATED 07.02.2006 FOR THE ASSE SSMENT YEAR 2003- 04. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDE R: 1) LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE DISALLOWANCE OF INTEREST OF /RS.20,44,267/- OUT OF INTEREST CLAIMED FOR RS.38,15,994/- ON THE FINDINGS THAT THE APPELLA NTS CONTENTION THAT IN THIS YEAR NO DIVIDEND WAS RECEIVED IS NOT G OING TO HELP THE APPELLANT, AS THE FACT REMAINS THAT THIS EXPENDITUR E HAS BEEN INCURRED NOT FOR EARNING ANY TAXABLE INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED INTE REST EXPENDITURE OF RS.38,15,994/- IN P & L ACCOUNT. THE A.O. FURTHER NOTED THAT IT WAS I.T.A.NO.781 /AHD/2006 2 EXAMINED AS TO HOW INTEREST BEARING FUNDS OF THE AS SESSEE WERE USED. HE FURTHER NOTED THAT AS DISCUSSED IN DETAIL IN THE AS SESSMENT ORDER FOR THE ASSESSMENT YEAR 2002-03, THE ASSESSEE HAD ACCUMULAT ED LOSSES AT RS.351.45 LACS AS AGAINST ASSESSEES OWN CAPITAL OF RS.336.45 LACS. ASSESSEE DOES NOT HAVE ANY RESERVES AND THEREFORE, OWN FUNDS OF THE ASSESSEE HAVE ALREADY BEEN ERODED IN THE PROCESS. THE A.O. FURTHER NOTED THAT ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS. 38,15,994/- ON UNSECURED LOANS OF RS.3,74,67,405/-. THE A.O. HAS NOTED THAT EVEN IF IT IS PRESUMED THAT ENTIRE ASSETS OF THE ASSESSEE ARE FRO M BORROWED FUNDS, THE SAME IS ONLY 1,88,83,156/- AND THEREFORE, THE BALAN CE AMOUNT OF LOAN OF RS.1,85,84,249/- HAS REMAINED INVESTED IN THE INVES TMENTS MADE BY THE ASSESSEE IN FOUR COMPANIES WHICH INCLUDE RS.25 LACS IN SURYANAGARI SECURITY & INVESTMENT LTD., RS.135 LACS IN SUJASH M EMBERS ASSO. LTD., RS.25 LACS IN GUAJRAT INVESTA LTD AND RS.12,55,717/ - IN JAL TARANG LTD. THE A.O. CAME TO THE CONCLUSION THAT SINCE INTEREST BEARING FUNDS REMAINED INVESTED IN THOSE INVESTMENTS, DEDUCTION C ANNOT BE ALLOWED ON ACCOUNT OF SUCH INTEREST. HE INVOKED THE PROVISION S OF SECTION 14A AND WORKED OUT THE DISALLOWANCE AT RS.20,44,267/- BEING 11% OF SUCH INVESTMENT OUT OF BORROWED FUNDS OF RS.1,85,84,249/ . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD . CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. IT WAS SUBMITTED BY THE LD. A.R. THAT THIS MATTE R SHOULD BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION I N THE LIGHT OF THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. VS DCIT (MUMBAI) 194 TAXMAN 203. IT WAS ALSO HIS SUBMISSION THAT ALTHOUGH THE OTHER THREE I NVESTMENTS ARE INVESTMENTS IN SHARES BUT THE MAJOR AMOUNT OF RS.13 5 LACS GIVEN TO M/S. SUJASH MEMBERS ASSO. LTD. IS NOT THE INVESTMENT IN SHARES AND, THEREFORE, I.T.A.NO.781 /AHD/2006 3 THIS AMOUNT CANNOT BE CONSIDERED FOR DISALLOWANCE U /S 14A. AN INQUIRY WAS RAISED AS TO WHETHER SUCH FACT HAS BEEN BROUGHT TO THE NOTICE OF LD. CIT(A) BY WAY OF GIVING DETAILS IN STATEMENT OF FAC TS FILED BEFORE HIM, HE COULD NOT SHOW ANY SUCH CONTENTION RAISED IN THE ST ATEMENT OF FACTS FILED BEFORE LD. CIT(A). IN THE IMPUGNED ORDER OF LD. CI T(A) ALSO, WE DO NOT FIND THAT ANY SUCH CONTENTION WAS RAISED BEFORE HIM BY THE LD. A.R. OF THE ASSESSEE. IT WAS ALSO SUBMITTED BY HIM THAT IN THE ASSESSMENT YEAR 2005-06, IN ASSESSEES OWN CASE, SIMILAR MATTER WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF THE A.O. FOR A FRESH DECISI ON IN I.T.A.NO. 3880/AHD/2008 DATED 05.06.2009. IT WAS HIS SUBMISSI ON THAT ON THE SAME LINES, IN THE PRESENT YEAR ALSO, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. 4. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R . OF THE REVENUE THAT THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUA RELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TR IBUNAL RENDERED IN THE CASE OF CHEMINVEST LTD. VS ITO AS REPORTED IN 121 I TD 318 WHEREIN IT WAS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL THAT EVEN IF THERE IS NO EXEMPT INCOME IN THE RELEVANT YEAR BUT THE EXPENDIT URE IN QUESTION IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECT IVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT. IT IS SUBMITTED BY HIM THAT IN THE PRESENT CASE, THE FACTS ARE NOT IN DISPUTE T HAT THE ASSESSEE HAS NO OWN FUNDS AND THEREFORE, ENTIRE INVESTMENT IN SHARE S IS OUT OF THE INTEREST BEARING BORROWED FUNDS AND THEREFORE, THERE IS NO P URPOSE OF RESTORING THE MATTER BACK TO THE FILE OF THE A.O. OR LD. CIT(A) A ND THE MATTER SHOULD BE DECIDED HERE ONLY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE I.T.A.NO.781 /AHD/2006 4 JUDGEMENTS CITED BY BOTH THE SIDES. FIRST, WE DIS CUSS THE TRIBUNAL DECISION IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2005-06. AS PER THIS TRIBUNAL DECISION, THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ITO VS DAGA CAPITAL MANAGEM ENT P. LTD. AS REPORTED IN 117 ITD 169 (SB) (MUM.) / 26 SOT 603 WA S FOLLOWED AND THE MATTER WAS RESTORED BACK TO THE FILE OF THE A.O . FOR A FRESH DECISION IN THE LIGHT OF THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL. THE FACTS OF THIS CASE ARE NOT AVAILABLE BEFORE US TO SEE AS TO WHETHER IN THAT YEAR ALSO, THERE WAS CLARITY ABOUT FACTS THAT NO OWN FUNDS WER E AVAILABLE WITH THE ASSESSEE FOR MAKING INVESTMENT IN SHARES BUT IN THE PRESENT YEAR, A CLEAR FINDING IS GIVEN BY THE AUTHORITIES BELOW THAT NO O WN FUNDS ARE AVAILABLE WITH THE ASSESSEE FOR MAKING INVESTMENT IN THE SHAR ES AND THIS FINDING OF AUTHORITIES BELOW COULD NOT BE CONTROVERTED BY THE LD. A.R. ONLY ONE ARGUMENT WAS MADE THAT ENTIRE INVESTMENTS IS NOT IN THE PRESENT YEAR AND INVESTMENT WAS MADE IN PAST YEARS ALSO BUT NO EVIDE NCE HAS BEEN BROUGHT OUT ON RECORD IN SUPPORT OF THIS CONTENTION ALSO BU T EVEN IF WE ACCEPT THIS CONTENTION, IT DOES NOT MAKE ANY DIFFERENCE BECAUSE THE INTEREST PAYMENT OF THIS YEAR TO THE EXTENT OF INTEREST BEARING LOAN WAS UTILIZED FOR INVESTMENT IN SHARES, DISALLOWANCE HAS TO BE MADE U /S 14A FOR THE INTEREST EXPENDITURE TO THE EXTENT OF INVESTMENT IN SHARES B ECAUSE INTEREST EXPENDITURE TO THAT EXTENT OF THE PRESENT YEAR IS N OT FOR ANY BUSINESS PURPOSE. 6. REGARDING THE 2 ND CONTENTION OF LD. A.R. OF THE ASSESSEE THAT THE AMOUNT GIVEN TO M/S. SUJASH MEMBERS ASSO. LTD. OF RS.135 LACS IS NOT ON ACCOUNT OF INVESTMENT IN SHARES, WE FIND THAT ON LY THIS ORAL CONTENTION HAS BEEN RAISED BY THE LD. A.R. BEFORE US WITHOUT B RINGING ANY EVIDENCE IN SUPPORT OF THE SAME BEFORE THE AUTHORITIES BELOW AND EVEN SUCH CONTENTION WAS NOT RAISED BEFORE THEM AND THEREFORE , ON THE BASIS OF THIS I.T.A.NO.781 /AHD/2006 5 ORAL CONTENTION OF THE LD. A.R. WITHOUT ANY SUPPORT ING EVIDENCE, THIS REQUEST OF THE ASSESSEE IS NOT ACCEPTABLE THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE, WE FIND THAT NO USEFUL PURPOSE WI LL BE SERVED BY RESTORING BACK THE MATTER TO THE FILE OF THE A.O. O R LD. CIT(A) BECAUSE DIRECT NEXUS OF INTEREST BEARING BORROWED FUNDS AND INVESTMENT IN SHARES HAS BEEN ESTABLISHED BY THE A.O. IN THE ASSESSMENT ORDER AND THE SAME COULD NOT BE CONTROVERTED BY THE LD. A.R. BY BRING ING NAY COGENT MATERIAL BEFORE LD. CIT(A) OR BEFORE US AND HENCE, IN OUR CONSIDERED OPINION, RESTORING BACK OF THE MATTER AS REQUESTED BY THE LD. A.R. IS NOT REQUIRED IN THE PRESENT CASE. IN VIEW OF THE CLA RITY OF THE FACTS REGARDING NEXUS OF INTEREST BEARING BORROWED FUNDS AND INVEST MENT IN SHARES, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS C ALLED FOR IN THE ORDER OF LD. CIT(A). WE DECLINE TO INTERFERE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DIS MISSED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOV., 2011. SD./- SD./- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 11 TH NOV., 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO.781 /AHD/2006 6 1. DATE OF DICTATION 2/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 2/11.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 09/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 11/11/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.11/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11/1 1/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..