ITO 9(2)(3), MUMBAI V. NARENDRA EXIM P. LTD, MUMBAI

ITA 8314/MUM/2010

• Counselvise Citation: 831419914 RSA 2010
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO . 8314/M/2010 ASSESSMENT YEAR: 2007 - 08 I.T.O. 9(2)(3), ROOM NO.225, AAYAKAR BHAVAN, M.K. ROAD, MUMB AI 400020 VS. M/S. NARENDRA EXIM PVT. LTD. 3, VAKIL INDL. ESTATE ROAD, GOREGAON (E), MUMBAI 63. PAN: AACCN0430C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBHASH S. SHETTY, A.R. REVENUE BY : SHRI RAVI PRAKASH, D.R. DATE OF HEARING : 11.03 .201 4 DATE OF PRONOUNCEMENT : 16.05.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 22.09.10. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS OF THE CASE AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT INTEREST INCOME OF RS.40,29,664/ - IS TAXABLE AS INCOME FROM BUSINESS AND NOT AS INCOME FROM OTHER SOURCES AS HELD BY THE ASSESSING OFFICER, OVERLOOKING THE FACT THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR AND MONEY LENDING IS NOT INCIDENTAL TO THE MA IN BUSINESS OF THE ASSESSEE NAMELY EXPORT - IMPORT OF GOODS . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT EXPENSES TO THE EXTENT OF RS.18,37,957/ - DISALLOWED BY THE ASSESSING OFFICER SHOULD BE ALLOW ED AS DEDUCTION FROM ITA NO. 8314/M/2010 M/S. NARENDRA EXIM PVT. LTD. 2 THE INTEREST INCOME OF RS.40,34,664/ - DESPITE EVIDENCE ON RECORD INDICATING THAT THE ABOVE EXPENSES ARE NOT ALLOWABLE AS THEY HAVE NOT BEEN SHOWN TO BE INCURRED TO EARN THE AFORESAID INCOME. 3. THE APPELLANT PRAYS THAT THE ORDER OF T HE CIT(A) ON THE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICE BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT THE ONLY INCOME CREDITED T O THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE WAS INTEREST OF RS.40,29,664/ - WHICH WAS SHOWN AS BUSINESS INCOME. THE ASSESSEE CLAIMED DEDUCTION OF EXPENDITURE OF RS.20,60,202/ - OUT OF THE SAID INCOME AND THUS DECLARED THE NET INCOME OF RS.19,69,461/ - . TH E AO OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORT - IMPORT OF GENERAL MERCHANDISE BUT HAD NOT SHOWN ANY INCOME FROM THE SAID BUSINESS DURING THE YEAR. THE INTEREST INCOME RECEIVED FROM LOANS AND ADVANCES WAS NOT THE BUSINESS INCOME OF TH E ASSESSEE AND WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HE FURTHER OBSERVED THAT THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT COULD NOT BE SAID TO HAVE BEEN INCURRED TO EARN THE INTEREST INCOME. HE, HOWEVER, IDENTIFIED EXPENSE S TOTALING RS.1,66,392/ - AS ALLOWABLE FOR DEDUCTION UNDER SECTION 57(III) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) AND DISALLOWED THE BALANCE EXPENSES OF RS.18,37,957/ - AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. 3. IN THE F IRST APPEAL, HOWEVER, THE LD. CIT(A) DELETED THE SAID ADDITION MADE BY THE AO OBSERVING THAT THE INTEREST INCOME WAS PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO ITS EXPORT - IMPORT BUSINESS WAS AL LOWABLE TO BE DEDUCTED OUT OF THE SAID INCOME. AGGRIEVED AGAINST THE ORDER OF THE LD. CIT(A) THE REVENUE HAS THUS COME INTO APPEAL BEFORE US. ITA NO. 8314/M/2010 M/S. NARENDRA EXIM PVT. LTD. 3 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE LD. A .R. OF THE ASSESSEE HAS SUBMITTED THAT THOUGH NO ACTIVITY RELATING TO EXPORT - IMPORT BUSINESS OF THE ASSESSEE WAS MADE DURING THE YEAR , HOWEVER, MONEY WAS LENT TO THE SISTER CONCERN OUT OF THE BUSINESS EXPEDIENCY. ONE OF THE OBJECTS OF THE COMPANY WAS ALSO TO LEND THE MONEY. HE HAS FURTHER SUBMITTED THAT THE EXPENDITURE WAS RELATING TO DIRECTOR S REMUNERATION WHICH WAS INCURRED FOR SURVIVAL OF THE COMPANY. HE HAS FURTHER SUBMITTED THAT DURING THE EARLIER ASSESSMENT YEARS , SUCH A CLAIM WAS ALLOWED BY THE A O. ON THE OTHER HAND, THE D.R. HAS RELIED UPON THE FINDING OF THE AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. A PERUSAL OF THE IMPUGNED ORDER OF THE LD. CIT(A) REVEALS THAT THE LD. CIT(A), WHILE ALLOWIN G THE CLAIM OF THE ASSESSEE, HAS OBSERVED THAT AMONG OTHER OBJECTS AS PER THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE ASSESSEE COMPANY , ONE OF THE OBJECTS WAS TO LEND AND ADVANCE OR TO GIVE MONEY ON CREDIT TO SUCH PERSONS OR COMPANIES O N SUCH TERMS AN D CONDITIONS AS MAY SEEM EXPEDIENT. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER: 4 I HAVE CONSIDERED THE ISSUE. THERE IS NO DISPUTE THAT THE APPELLANT HAS NOT COMMENCED SO FAR ITS MAIN OBJECT BUSINESS IN EXPORT - IMPORT OF GENERAL MER CHANDISE. HOWEVER, AS PER OBJECT CLAUSE 39 OF ITS MEMORANDUM & ARTICLE OF ASSOCIATION IT IS AUTHORIZED TO CONDUCT BUSINESS OF LENDING MONEY. IT HAS BEEN DOING SO SINCE THE ASSESSMENT YEAR 2005 - 06 AND OFFERING INTEREST INCOME AS BUSINESS INCOME. THE AO H AS ALSO BEEN ASSESSING INTEREST INCOME AS BUSINESS INCOME. THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE IN THE CURRENT YEAR. THE AO HAS, THEREFORE, NO REASON TO HOLD DIFFERENTLY IN THE CURRENT YEAR. I, THEREFORE, DIRECT THE AO TO ASSESS INT EREST INCOME AS BUSINESS INCOME AND ALLOW THE IMPUGNED EXPENSES. THIS WILL RESULT IN RE - COMPUTATION OF TOTAL INCOME AT THE TOTAL INCOME RETURNED BY THE APPELLANT . 6. THE LD. CIT(A), AFTER DETAILED DISCUSSION OF THE MATTER, HAS CATEGORICALLY HELD THAT O NE OF THE OBJECTS OF THE COMPANY WAS ALSO TO LEND THE MONEY AND ITA NO. 8314/M/2010 M/S. NARENDRA EXIM PVT. LTD. 4 THAT THE CLAIM OF THE ASSESSEE HAS BEEN CONSISTENTLY ALLOWED BY THE AO IN THE EARLIER YEARS AND FOR THIS YEAR THERE WAS NO CHANGE OF FACTS AND CIRCUMSTANCES IN THE CASE IN HAND. WE DO NOT FIN D ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE LD. CIT(A). 7. SO FAR THE RELIANCE ON THE AUTHORITY OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF INDIAN VACCI N ES CORPORATION LTD. IN ITA NO.4401/DEL/07 PRODUCED ON FILE BY LD. D.R. IS CONC ERNED, IT IS AN UNDATED AND UNSIGNED PHOTOCOPY OF THE ORDER, H ENCE, AUTHENTICATION OF THE SAME IS DOUBTFUL. HOWEVER, A PERUSAL OF THE SAID ORDER REVEALS THAT IN THE SAID CASE , THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING. IT WAS THEREFORE HELD T HAT SINCE THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING, HENCE INTEREST INCOME WAS NOT ASSESSABLE AS BUSINESS INCOME. HOWEVER, THE FACTS OF THE PRESENT CASE ARE QUITE DISTINGUISHABLE. IT HAS BEEN CATEGORICALLY OBSERVED BY THE LD. CIT(A) THAT ONE OF THE OBJECTS OF THE ASSESSEE COMPANY WAS ALSO MONEY LENDING. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.05. 201 4 . SD/ - S D/ - ( P.M. JAGTAP ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.05. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MU MBAI THE CIT ( A) CONCERNED, MUMBAI ITA NO. 8314/M/2010 M/S. NARENDRA EXIM PVT. LTD. 5 THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.