ITO, Ward-3(3), Malegaon, Malegaon V. Sh. Gopalchand Prithviraj Malu, Malegaon

ITA 800/PUN/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6826 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 06-07-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H C LEUVA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 800/PN/09 (ASSTT. YEAR: 2005-06) INCOME-TAX OFFICER, .. APPELLANT WARD 3(3), MALEGAON VS. SHRI GOPALCHAND P. MALU, .. RESPONDENT 139 TILAK ROAD, MALEGAON PAN AAUPM2687F APPELLANT BY: SHRI H C LEUVA RESPONDENT BY: SHRI SUNIL GANOO ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, NAS HIK DATED 06.04.2010 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED24.12.2007 PASSED BY THE ASSESSING OFFICER UN DER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHOR T THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE ISSUE RAISED IN THIS APPEAL RELATES TO AN AD DITION OF RS 10,96,266/- MADE BY THE ASSESSING OFFICER OUT OF THE INTEREST PAYMENTS. THE FACTS, IN BRIEF, ARE THAT D URING THE ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 2 COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE AVAILED UNSECURED LOANS F ROM VARIOUS PARTIES AND CLAIMED INTEREST ON ACCOUNT OF THESE LOANS. IT WAS ALSO NOTICED THAT THE ASSESSEE HAD ADVANCED LOANS TO PRITHVI DEVELOPERS OF RS 82,82,810/- AND TO SUBHADR ADEVI MALU OF RS 6,94,850/-. THE ASSESSEE HAD NOT SHOWN A NY INTEREST RECEIPTS OUT OF THE ABOVE LOANS, BUT WAS C LAIMING INTEREST PAYMENTS ON VARIOUS LOANS. ACCORDING TO T HE ASSESSING OFFICER, THEREFORE, THE ASSESSEE WAS ACTI NG AS PER HIS CONVENIENCE AND THIS WAS PREJUDICIAL TO THE INTERES T OF REVENUE AND IN THIS VIEW OF THE MATTER, HE DISALLOW ED INTEREST PAYMENT OF RS 10,96,266/- BY WORKING OUT INTEREST @ 12% PER ANNUM. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFF ICER, THE ASSESSEE CHALLENGED THE ADDITION IN APPEAL BEFORE T HE COMMISSIONER OF INCOME-TAX (APPEALS). 3. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS, WHICH HE HAS EXTRACTED IN HIS APPELLATE ORDER. IN SUM AND SUBSTA NCE, IT WAS STATED THAT INTEREST-BEARING LOANS WERE INVESTED I N THE PARTNERSHIP FIRM M/S PRITHVI DEVELOPERS FOR EARNING INCOME BY WAY OF INTEREST AND REMUNERATION AS CONTEMPLATED UN DER SECTION 28(V) OF THE ACT. THEREFORE, IT WAS ARGUED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT AT THE TI ME OF ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 3 INVESTMENT OF THE FUNDS THERE WAS INTENTION TO EARN THE INCOME AND SUBSEQUENT EVENTS I.E. RETIREMENT FROM T HE PARTNERSHIP FIRM AND CONVERSION OF THE CAPITAL SO C ONTRIBUTED INTO UNSECURED LOAN WOULD NOT ALTER THE CHARACTER O F THE INVESTMENT, I.E. BOTH EARNING OF THE INCOME AS WELL AS EXPENDITURE FOR EARNING THE INCOME. HENCE, THE ASSE SSEE REQUESTED THAT THE INTEREST ON LOAN TAKEN FOR INVES TMENT IN THE SAID FIRM WAS INCURRED AND ALLOWABLE AS PER THE PRO VISIONS OF SECTION 57(III) OF THE ACT. THE ASSESSEE FILED COPI ES OF RETURNS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 STATIN G THAT THE FIRM WAS NOT DOING WELL AND JUSTIFIED THE NON-R ECEIPT OF INTEREST ON THE INVESTMENT CONVERTED AS UNSECURED L OANS. IT WAS ALSO SUBMITTED THAT DEDUCTION OF EXPENDITURE CO ULD NOT BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING O F INCOME. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE INTERE ST OF RS 10,93M754/- IN RESPECT OF THE INVESTMENT MADE BY TH E ASSESSEE TO M/S PRITHVI DEVELOPERS. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO DELETE THE SAID DISALLOWAN CE. BEING NOT SATISFIED WITH THE ACTION OF THE COMMISSIONER OF IN COME-TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 4 4. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE, APPEARING FOR THE REVENUE, STRONGLY SUPPORTED THE O RDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN THE FACTS A ND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WA S JUSTIFIED IN MAKING THE DISALLOWANCE ON ACCOUNT OF INTEREST. HE FURTHER CONTENDED THAT THE COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER WITHOUT ANY JUSTIFIABLE REASONS. HE, THEREF ORE, SUBMITTED THAT THE ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS) MAY BE SET ASIDE AND THE ORDER OF THE ASS ESSING OFFICER BE UPHELD. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPE ALS) HAS PASSED A WELL-REASONED AND DETAILED ORDER AND HE WA S PERFECTLY JUSTIFIED IN DELETING THE DISALLOWANCE MA DE ON ACCOUNT OF INTEREST. WHILE SUPPORTING THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), HE PLEADED TH AT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE COMM ISSIONER OF INCOME-TAX (APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND HAVE ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS PASSED A WELL-REASONED ORDER DISCUSSING THE VARIOUS ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 5 CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE AND TH E REPORT SUBMITTED BY THE ASSESSING OFFICER IN SUPPORT OF RE VENUES CASE. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE A RE OF THE OPINION THAT IT WOULD BE SUFFICIENT IF WE EXTRACT T HE RELEVANT PORTION FROM PARA 9 OF THE COMMISSIONER OF INCOME-T AX (A)S ORDER, WHICH IS AS FOLLOWS: IN VIEW OF THE DETAILED DISCUSSION ABOVE, THE TWO ISSUES ARE CLEAR: I. THE INVESTMENT IN THE FIRM BY THE APPELLANT WAS COVERED AS UNSECURED LOAN AFTER THE RETIREMENT OF THE APPELLANT. II. NON-RECEIPT OF ANY INTEREST BY THE APPELLANT DURING THE PERIOD RELEVANT TO THE AY 2005-06. NOW THE QUESTION TO BE DECIDED IS AS TO WHETHER THE AO WAS JUSTIFIED IN DISALLOWING THE INTEREST PAYMENTS CLAIMED BY THE APPELLANT ON THE ROUND THAT NO INTER EST INCOME WAS RECEIVED OUT OF THE SAID INVESTMENTS. IT IS ALSO CLEAR FROM THE SUBMISSIONS THAT THE ENTIRE INT EREST PAYMENT CANNOT BE ATTRIBUTED TO THE INVESTMENT IN T HE SAID FIRM. AS PER THE WORKINGS GIVEN BY THE APPELLA NT, THE INTEREST WHICH CAN BE ATTRIBUTED FOR THE INVESTMENT IS ONLY RS 6,86,700/- AS AGAINST RS 10,93,754/- ESTIMA TED BY THE AO. FROM THE FACTS OF THE CASE IT IS VERY CL EAR THAT THE INVESTMENT OF THE FUNDS WAS MADE BY THE APPELLA NT WITH AN INTENTION TO EARN INCOME. BUT BECAUSE THE APPELLANT RETIRED FROM THE PARTNERSHIP FIRM, THE INVESTMENT WAS CONVERTED INTO UNSECURED LOANS AND T HE APPELLANT WAS ENTITLED TO INTEREST ONLY WHEN THE SA ID FIRM WAS DOING WELL. THE APPELLANT FILED THE COPIES OF T HE RETURNS FOR THE AYS 2004-05 AND 2005-06 WHICH WERE FORWARDED TO THE AO. THOUGH THE AO HAS NOT COMMENTE D ANYTHING ON THESE STATEMENTS, BUT IT CAN BE SEEN TH AT THERE WAS A LOSS OF RS 4,14,993/- FOR THE AY 2004-0 5 AND THERE WAS A PROFIT OF RS 4,90,594/- FOR THE AY 2005 -06. IT ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 6 IS ALSO CLEAR THAT THE APPELLANT DID NOT RECEIVE AN Y INTEREST FOR THE PERIOD UNDER CONSIDERATION, AS ALR EADY STATED. SINCE IT IS ALREADY MENTIONED THAT THE INVE STMENT WAS MADE WITH AN INTENTION TO EARN INCOME AND THE EXPENDITURE FOR EARNING THE SAID INCOME IS ALLOWABL E IRRESPECTIVE OF THE FACT WHETHER THE APPELLANT RECE IVED INCOME OR NOT. IN THE INSTANT CASE, THE APPELLANT D ID NOT RECEIVE ANY INTEREST AND THE AO CANNOT DISALLOW THE INTEREST ON THIS GROUND. IN FACT, THE APPELLANT REC EIVED AN AMOUNT OF RS 7,47,000/- AS INTEREST ON THE SAID INVESTMENT DURING THE AY 2003-04 AND THE SAME WAS ASSESSED AS INCOME FROM OTHER SOURCES. NO INTERE ST WAS RECEIVED THEREAFTER AND THE SAME WAS ACCEPTED BY TH E AO AND NO DISALLOWANCE WAS MADE DURING THE AY 2004-05. THEREFORE, I AM OF THE CONSIDERED OPINION THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE INTEREST OF RS 10, 93,754/- IN RESPECT OF THE INVESTMENT MADE BY THE APPELLANT IN M/S PRITHVI DEVELOPERS. THEREFORE, THE AO IS DIRECT ED TO DELETE THE DISALLOWANCE. WE ARE IN FULL AGREEMENT WITH THE ABOVE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND FIND NO IN FIRMITY IN HIS ORDER IN DELETING THE DISALLOWANCE OF INTEREST OF RS 10,93,754/-. ACCORDINGLY, WE UPHOLD THE ORDER OF TH E COMMISSIONER OF INCOME-TAX (APPEALS) AND REJECT THE GROUND OF APPEAL TAKEN BY THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF APRIL 2011. SD/- SD/- G.S. PANNU SHAILENDRA KUMAR YADAV ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE: DATED: 13 TH APRIL, 2011 B ITA NO 800/PN/09 GOPALCHAND P MAL U, MALEGAON 7 COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT-II, NASIK 4. THE CIT(A)-II NASIK 5. THE D.R, B BENCH, PUNE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE