Paranjay Mercantile Ltd., Ahmedabad V. The ACIT., Cent.Circle-1(3), Ahmedabad

ITA 84/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0439 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-11-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 07-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Business income; Depreciation; Search and seizure; Speculation loss; Notional interest; Revised return; Set aside
• Section: 234B; 250; 80HH; 192; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 18-11-2009 DRAFTED ON: 18-11- 2009 ITA NO.84/AHD/2005& ITA NO.85/AHD/2005 ASSESSMENT YEAR : 2000-2001, 2001-2002 PARANJAY MERCANTILE LTD. H.N.HOUSE, NR.OLD HIGH COURT RLY. CROSSING, NAVRANGPURA, AHMEDABAD. VS. ACIT, CENTRAL CIRCLE-1(3), 3 RD FLOOR, AAYKAR BHAVAN, ASHRAM ROAD, AHMEDABAD. PAN/GIR NO. : AACCP 6579J (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI P.M.MEHTA A.R. RESPONDENT BY: SHRI SAMIR TEKRIWAL SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE CONSOLIDATED ORDER OF THE LD.CIT(APPEALS)-I, AHMEDABAD, DATED 20 .10.2004 PASSED IN ASSESSMENT YEAR 2000-01 AND 2001-02 IN APPEAL NO.CI T[A]- I/CC.1[3]/14&13/04-05. 2. THE GROUNDS OF THE APPEAL OF ASSESSEE READ AS UN DER:- ASSESSMENT YEAR 2000-01 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE A SSESSING OFFICER'S ACTION OF INVOKING THE EXPLANATION BELOW SECTION 73 OF THE I. T. ACT, 1961 AND BASED THEREON, OF DEEMING THE SHARE TRADING LOSS OF RS.10,35,384 DEBITED TO THE APPELLANT'S PRO FIT AND LOSS ACCOUNT AS LOSS IN SPECULATION BUSINESS AND OF DISA LLOWING ITS SET OFF AGAINST THE OTHER INCOME SUBJECTED TO TAX IN THE AP PELLANT'S HANDS. 1.2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN FAILING TO APPRECIATE THAT EVEN IF IT WERE ASSUMED THAT THE INTEREST INCOME OF RS.13,48,350 COULD BE ASSESSED U NDER THE HEAD ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 2 - 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', THAT HAD GOT TO BE ON THE BASIS THAT THE APPELLANT WAS ENGAGED IN A BUSIN ESS YIELDING BUSINESS INCOME IN THE FORM OF INTEREST AND IT BEIN G THE ADMITTED POSITION THAT THE INTEREST INCOME OF RS.13,48,350 I N QUESTION HAD BEEN RECEIVED FROM A PARTY TO WHOM THE APPELLANT HA D MADE ADVANCES, IT NECESSARILY FOLLOWED THAT THE APPELLANT WAS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES AND FOR THAT REASON AS WELL, IT COULD NOT BE OPEN TO THE DEPARTMENT TO INVOKE TH E PROVISIONS OF THE EXPLANATION BELOW SECTION 73. THE LEARNED CI T(A) HAS FURTHER GROSSLY ERRED IN ARRIVING AT THE FOLLOWING CONCLUSI ON IN THE IMPUGNED ORDER (ON PAGE 11) IN JUSTIFICATION OF UPHOLDING TH E ASSESSING OFFICER'S ACTION OF INVOKING THE EXPLANATION BELOW SECTION 73. 'IT IS ALSO SEEN THAT FOR BOTH THE ASSESSMENT YEARS I.E. A.Y. 2000-01 & 2001-02, THE INTEREST EARNED IS FROM A SI NGLE PARTY NAMELY ABHIJAY SERVICES P. LTD. FOR A.Y. 2000 -01 AND DINDAYAL ASSOCIATES IN A.Y. 2001-02. THE ACCOUNT OF ABHIJAY CAPITAL SERVICES CONTINUED IN THE SUBSEQUENT YEAR W HERE AMOUNT IS OUTSTANDING BUT NO INTEREST IS SHOWN AS EARNED ON THE BALANCE OUTSTANDING. THUS AS ON 1/4/2000 (RELEVANT TO A.Y. 2001-02), THE OPENING BALANCE IN ACCOUNT OF AB HIJAY SERVICES PVT. LTD. WAS RS.13,48,350/- WHICH IS SET OFF FINALLY ON 13.1.2001 BY JOURNAL ENTRY BUT NO INTEREST IS RE CEIVED FROM IT. THEREFORE, THERE IS NO BASIS TO HOLD THAT THESE WER E LOANS AND ADVANCES GIVEN ON INTEREST..........' 2.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE ENHANCEMENT OF THE APPELLANT'S INCOME BY RS.69,230 ORDERED BY THE LEARNED CIT(A) IS ILLEGAL AND DESERVES TO BE DELETED. ASSESSMENT YEAR 2001-02 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE A SSESSING OFFICER'S ACTION OF INVOKING THE EXPLANATION BELOW SECTION 73 OF THE I. T. ACT, 1961 AND BASED THEREON, OF DEEMING THE SHARE TRADING LOSS OF RS.6,90,562 DEBITED TO THE APPELLANT'S PROF IT AND LOSS ACCOUNT AS LOSS IN SPECULATION BUSINESS AND OF DISA LLOWING ITS SET OFF AGAINST THE OTHER INCOME SUBJECTED TO TAX IN THE AP PELLANT'S HANDS. 1.2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN FAILING TO APPRECIATE THAT EVEN IF IT WERE ASSUMED THAT THE INTEREST INCOME OF RS.6,60,765 COULD BE ASSESSED UN DER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', THAT HAD GOT TO BE ON THE BASIS THAT THE APPELLANT WAS ENGAGED IN A BUSIN ESS YIELDING BUSINESS INCOME IN THE FORM OF INTEREST AND IT BEIN G THE ADMITTED POSITION THAT THE INTEREST INCOME OF RS.6,60,765 IN QUESTION HAD BEEN RECEIVED FROM A PARTY TO WHOM THE APPELLANT HAD MAD E ADVANCES, IT NECESSARILY FOLLOWED THAT THE APPELLANT WAS ENGAGED IN THE BUSI NESS OF GRANTING OF LOANS AND ADVANCES AND FOR THAT REAS ON AS WELL, IT COULD NOT BE OPEN TO THE DEPARTMENT TO INVOKE THE P ROVISIONS OF THE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 3 - EXPLANATION BELOW SECTION 73. THE LEARNED CIT(A) HA S FURTHER GROSSLY ERRED IN ARRIVING AT THE FOLLOWING CONCLUSI ON IN THE IMPUGNED ORDER (ON PAGE 11) IN JUSTIFICATION OF UPHOLDING TH E ASSESSING OFFICER'S ACTION OF INVOKING THE EXPLANATION BELOW SECTION 73. 'IT IS ALSO SEEN THAT FOR BOTH THE ASSESSMENT YEARS I.E. A.Y. 2000-01 & 2001-02, THE INTEREST EARNED IS FROM A SI NGLE PARTY NAMELY ABHIJAY SERVICES P. LTD. FOR A.Y. 2000 -01 AND DINDAYAL ASSOCIATES IN A.Y. 2001-02. THE ACCOUNT OF ABHIJAY CAPITAL SERVICES CONTINUED IN THE SUBSEQUENT YEAR W HERE AMOUNT IS OUTSTANDING BUT NO INTEREST IS SHOWN AS EARNED ON THE BALANCE OUTSTANDING. THUS AS ON 1/4/2000 (RELEVANT TO A.Y. 2001-02), THE OPENING BALANCE IN ACCOUNT OF AB HIJAY SERVICES PVT. LTD. WAS RS.13,48,350/- WHICH IS SET OFF FINALLY ON 13.1.2001 BY JOURNAL ENTRY BUT NO INTEREST IS RE CEIVED FROM IT. THEREFORE, THERE IS NO BASIS TO HOLD THAT THESE WER E LOANS AND ADVANCES GIVEN ON INTEREST..........' 2.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE ENHANCEMENT OF THE APPELLANT'S INCOME BY RS.24,35,6 90 ORDERED BY THE LEARNED CIT(A) IS ILLEGAL AND DESERVES TO BE DELETED. 3. SINCE, THE FACTS AND ISSUE INVOLVED IN THE ABOVE GROUNDS ARE COMMON, THEY ARE BEING CONSIDERED AND DECIDED AS UNDER: 4. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 7 3 OF THE ACT HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR SET OFF OF LOSSES IN S ALE AND PURCHASE OF SHARES OF RS.10,35,384/- IN A.Y. 2000-01 AND RS.6,90,562/- IN A.Y. 2000-02. 5. THE LEARNED ASSESSING OFFICER HAD DISCUSSED THE MATTER AT LENGTH IN THE ASSESSMENT ORDERS WHERE PROVISIONS OF EXPLANATI ON TO SECTION 73 HAVE BEEN REPRODUCED. IT IS THE FINDING OF THE LEARNED A SSESSING OFFICER THAT THE ASSESSEE IS A COMPANY WHICH IS DEALING IN SHARE TRA DING BUSINESS BESIDES BROKING IN SHARES AND SECURITIES. THE ASSESSEE COMP ANY IS HELD TO BE NOT COVERED BY BANKING OR MONEY LENDING EXEMPTION AND T HEREFORE, THE ENTIRE TRADING IN SHARES WAS TO BE TREATED AS SPECULATIVE IN NATURE AS PER SECTION 73. AS SUCH SPECULATIVE LOSSES CLAIMED IN BOTH THE YEAR AT RS.10,35,384/- IN A.Y.2000-01 AND RS.6,90,582/- IN A.Y.2001-02 WERE N OT TO BE SET OFF AGAINST INCOME EARNED IN BOTH THESE YEARS BUT ONLY TO BE CA RRIED FORWARD FOR SET OFF ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 4 - AGAINST PROFITS IN SPECULATION BUSINESS. THE LEARNE D ASSESSING OFFICER HAS PLACED RELIANCE ON VARIOUS JUDICIAL DECISIONS INCLU DING THOSE IN THE CASE OF CIT VS. ARVIND INVESTMENTS LTD. REPORTED IN 192 ITR PAGE 365 (CAL.), AND CIT VS.K.L.JHUNJHUNWALA (1983) REPORTED IN 139 ITR PAGE 371 (CAL), AND CIT VS.JAGANNATH MAHADEO PRASAD (SC) REPORTED IN 71 ITR 296, AND CIT VS. J.P.KANODIA & CO. REPORTED IN 77 ITR PAGE 515 (SC), AND CIT VS. GUPTA BROTHERS PVT. LTD. 83 ITR PAGE 433 (SC) AND ALSO CI T VS. MOHANLAL KEDARNATH REPORTED IN 88 ITR PAGE 420 (SC). THE LEA RNED ASSESSING OFFICER CONCLUDED THAT SECTION 73 CONTEMPLATED COMPLETED SE GREGATION OF SPECULATIVE LOSSES WHICH COULD NOT BE MIXED WITH ANY OTHER INCO ME BUT STOOD ALOOF FOR SET OFF PURPOSES WITH ONLY SPECULATION BUSINESS ONLY. THE LEARNED ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE THAT THE INCOME TAX ACT, 1961 CONSIDERED ONLY PART OF BUSIN ESS OF A CO. CONSISTING IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES W HEREAS THE ASSESSEES ENTIRE BUSINESS WAS IN REGARD TO SUCH TRADING SO TH AT EXPLANATION TO SECTION 73 WAS NOT AT ALL APPLICABLE AS A PART DOES NOT INC LUDE WHOLE. DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE THE CIT(A), THE APPELLANT DENIED GIVING OF THIS EXPLANATION AT ALL. IT WAS SU BMITTED IN THE STATEMENT OF FACTS GIVEN FOR BOTH THE YEARS THAT IT MAY BE PERUSED FROM THE ASSESSMENT ORDER THAT THE LEARNED ASSESSING OFFICER IN PARA.1. 1 OF THE ASSESSMENT ORDER HAS REPRODUCED THE SUBMISSION PURPORTED TO HAVE BEE N GIVEN BY THE ASSESSEE. BUT THE ASSESSEE DENIES TO HAVE GIVEN ANY SUCH EXPL ANATION TO THE LEARNED ASSESSING OFFICER . BEFORE THE CIT(A) THE ASSESSEE CLAIMED THAT IT WAS EXPLAINED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE ASSES SEE IS NOT HIT BY THE PROVISIONS OF SECTION 73 AND EXPLANATION THERETO. A PLAIN READING OF PROVISIONS OF EXPLANATION TO SECTION 73 WOULD MAKE IT CLEAR THAT THE ASSESSEE WOULD NOT BE HIT BY THE SAID PROVISIONS IF THE GROS S TOTAL INCOME OF THE ASSESSEE CONSISTS MAINLY OF INCOME WHICH IS CHARGEA BLE UNDER THE INCOME FROM OTHER SOURCES, INTEREST IN SECURITIES, INCOME FROM HOUSE PROPERTY AND ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 5 - CAPITAL GAIN. IN THE PRESENT CASE, A PERUSAL OF PRO FIT & LOSS ACCOUNT OF THE YEAR ENDING 31/03/2000 WOULD SHOW THAT THE ASSESSEE GROSS TOTAL INCOME INCLUDE INCOME FROM INTEREST AMOUNTING TO RS.13,48, 350/- WHEREAS THE TRADING LOSS IN SHARES IS ONLY RS.10,35,384/-. THUS, THE MA IN INCOME OF THE ASSESSEE IS FROM INCOME FROM OTHER SOURCES. THEREFORE, THE AS SESSEE COMPANY WOULD NOT BE HIT BY THE SAID PROVISIONS OF SECTION 73 OF THE INCOME TAX ACT. SIMILARLY FOR A.Y.2001-02, THE FACTS GIVEN BEFORE T HE CIT(A) WERE AS UNDER: IN THE PRESENT CASE, A PERUSAL OF PROFIT & LOSS AC COUNT OF THE YEAR ENDING 31/03/2001WOULD SHOW THAT THE ASSESSEES GROSS TOTA L INCOME INCLUDED INCOME FROM INTEREST AND OTHER INCOME AGGREGATING T O RS.7,03,169/- WHEREAS THE TRADING LOSS IN SHARES IS ONLY RS.6,90,562/-. T HUS, THE MAIN INCOME OF THE ASSESSEE IS FROM INCOME FROM OTHER SOURCES . SUBSEQUENTLY VIDE LETTER DATED 24/05/2004 TO THE CI T(A), IT IS ADDITIONALLY MENTIONED THAT IN THIS CONNECTION, IT MAY BE POINT ED OUT THAT THOUGH THE INTEREST INCOME OF RS.13,48,350/- WAS SHOWN AS BUSI NESS INCOME IN THE RETURN OF INCOME, THE SAME IS INCOME FROM OTHER SOURCES. T HE INTEREST INCOME IS EARNED UNDER TRANSACTIONS OF ADVANCE TO ABHIJAY CAP ITAL SERVICES AND THERE ARE NO OTHER ADVANCES. THEREFORE, ACTIVITY OF EARNI NG INTEREST CANNOT BE HELD AS BUSINESS ACTIVITY BECAUSE IT WAS NOT AN ORGANIZED A CTIVITY OF ASSESSEE TO EARN SUCH INTEREST INCOME. INTEREST INCOME CAN BE BUSINE SS INCOME ONLY IF IT INVOLVED ORGANIZED BUSINESS ACTIVITY. IN THIS REGAR D RELIANCE IS PLACED ON THE MADRAS HIGH COURT DECISION IN THE CASE OF CIT VS. A MALGAMATIONS LTD. (1998) 232 ITR 608. THUS, INCOME FROM INTEREST IS N OT BUSINESS INCOME BUT INCOME FROM OTHER SOURCES. FOR A.Y. 2001-02, THE SAME ARGUMENTS HAVE BEEN GIVEN REGARDING INCOME AGGREGATING RS.7,03,169 /-. AGAIN VIDE LETTER DATED 27/08/2004 WRITTEN TO THE C IT(A), IT WAS FURTHER SUBMITTED ON THE SAME SUBJECT AS UNDER:- DURING THE COURSE OF HEARING, A QUESTION WAS RAISE D THAT INCOME INTEREST IS SHOWN AS BUSINESS INCOME BY THE ASSESSEE AND FURTHE R ABHIJAV CAPITAL ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 6 - SERVICES IS GIVEN FUNDS OR FUNDS ARE TAKEN FROM THE M OUT OF BUSINESS NECESSITY AND HENCE HOW THE INCOME IS TO BE CONSIDERED AS INC OME FROM OTHER SOURCES. IN THIS CONNECTION, IT MAY BE STATED THAT AS EXPLAI NED EARLIER, THE APPELLANT HAS EARNED INTEREST INCOME WHICH THE ONLY SOURCE OF INC OME AND THAT TOO FROM ONLY ONE SOURCE. THUS, IT IS AN INCOME FROM BUSINES S OF GRANTING LOANS AND ADVANCES, WHICH IS AS SUCH TAXED AS BUSINESS INCOME . THEREFORE, IT FALLS IN EXCEPTION PROVIDED IN SAID EXPLANATION THE PROFIT A ND LOSS ON SALE OF SHARES MAY NOT BE CONSIDERED AS SPECULATION LOSS. THE NATU RE OF BUSINESS OF ABHIJAY CAPITAL SERVICES MAY NOT BE CONSIDERED TO HAVE EFFE CT IN DECIDING THIS ISSUE. 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER- 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE. I HAVE ALSO GONE THROUGH THE ASSE SSMENT RECORDS FOR BOTH THE YEARS. I AM UNABLE TO ACCEPT OBJECT OF THE ARGUMENTS GIVEN AND AS REPRODUCED IN PARAS 3.2, 3.2.1, 3.2.2. AND 3 .2.3 FOR THE FOLLOWING REASONS: (A) I FIND THAT THE QUOTATION GIVEN BY THE LEARNED ASSESSING OFFICER IN PARA 1.1 OF THE ASSESSMENT ORDER HAS BEEN RIGHTL Y INFERRED FROM THE SUBMISSIONS MADE DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, WHERE IT IS SUBMITTED THAT IN THIS MATTER YOU WILL APPRE CIATE, WE ARE TRADING IN SHARES, SECURITIES ETC., AND THE LOSS WHICH HAS BEEN REFLECTED IN OUR PROFIT & LOSS ACCOUNT IS WITH REFERENCE TO THE SAID BUSINESS. ACCORDINGLY, YOU WILL APPRECIATE THAT SECTION 73 IS NOT APPLICABLE TO OUT CASE. IT IS THUS SOUGHT TO BE STRESSED THAT AP PELLANTS ENTIRE BUSINESS WAS OF THE SALE OF SHARES AND SO SECTION 7 3 WAS NOT APPLICABLE. 3.3.1 ON MERITS ALSO, THE CLAIM THAT THE PROVISIONS OF SECTION 73 WOULD ONLY APPLY IF THE BUSINESS OF THE APPELLANT O F DEALING IN SHARES AND SECURITIES FORMED ONLY A PART OF WHOLE BUSINESS , IS NOT ACCEPTABLE BECAUSE THE WORDING OF INCOME TAX ACT, DOES NOT LEA D TO INTERPRETATION WHICH IS BEING PUT ON IT BY THE APPELLANT. IT IS VE RY CLEAR FROM THE PROVISIONS OF ACT THAT EVEN A PORTION OF THE BUSINE SS OF A COMPANY IF CONSISTING OF PURCHASE AND SALE OF SHARES, WOULD BE DEEMED TO BE SPECULATIVE BUSINESS TO THE EXTENT IT CONSISTED OF SUCH PURCHASE AND SALE. APPARENTLY IF THE WHOLE BUSINESS WAS OF PURCH ASE AND SALE OF SHARES, THE ENTIRE BUSINESS WOULD BE DEEMED TO BE A SPECULATION BUSINESS AS PER PROVISION OF EXPLANATION TO SECTION 73 OF THE I.T.ACT, 1961. ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 7 - 3.3.2 THE APPELLANTS CLAIM THAT THE MAIN INCOME FO R THE YEAR IS FROM INCOME FROM OTHER SOURCES IS ALSO NOT AN ACCEPTA BLE ARGUMENTS FOR THE REASON THAT THE APPELLANT HAS IN THESE 2 YEARS DECLARED THE INCOME IN THE PROFIT & LOSS ACCOUNT AS BEING INCOME FROM BUSINESS. SIMILARLY, THE RETURN OF INCOME SHOWS THE DECLARED INCOME UNDER THE HEARD INCOME FROM BUSINESS & PROFESSION. FURTHER AS PER THE MEMORANDUM & ARTICLES OF ASSOCIATION WHICH WERE CAL LED FOR SPECIFICALLY VIDE MY NOTICE DATED 30.08.2004 UNDER SECTION 250 OF THE INCOME TAX ACT, 1961, THERE IS NO SPECIFIC OBJECT G IVEN IN THE MAIN OBJECT OF THE CO. TO BE PURSUED BY THE CO. ON ITS I NCORPORATION WHICH CAN BE INTERPRETED AT ALL IN A MANNER SO AS TO CONS IDER THE CLAIM THAT THE COMPANY IS DEALING IN GIVING OF LOANS AND ADVAN CES AND TO INTERPRET THEM IN FAVOUR OF THE COMPANY IN ORDER TO EXCLUDE IT BY TREATING IT AS A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES. DURING THE APPEAL PROCEEDINGS, IT HAS BEEN POINTED OUT BY THE COUNSEL OF THE APPELLANT THAT THE ANCILLARY OBJECTS NOS.9 & 23 AND OTHER OBJECTS NOS.8 & 27 COULD BE INTERPRETED IN FAVOUR O F THE APPELLANT. THESE OBJECTS ARE REPRODUCED AS HEREUNDER AND ARE F OUND BY ME TO BE OBVIOUSLY NOT CAPABLE OF SUCH INTERPRETATION. ANCILLARY OBJECTS 9. TO LEND MONEY TO SUCH PERSONS OR COMPANIES AND ON SUCH TERMS AS MAY SEEM EXPEDIENT AND IN PARTICULAR TO CUSTOMER S AND OTHERS HAVING DEALING WITH THE COMPANY AND TO GUARANTEE TH E PERFORMANCE OF CONTRACTS BY AND OBLIGATIONS OF ANY PERSONS OR COMP ANIES AND TO GIVE ALL KINDS OF INDEMNITIES. 23. TO INVEST AND DEAL WITH THE MONEY OF THE COMPAN Y IN SUCH MANNER AS MAY FROM TIME TO TIME BE DETERMINED. OTHER OBJECTS 8. TO CARRY ON THE BUSINESS OF AND TO ACT AS ADVISO RS, CONSULTANTS, MARKET SURVEYORS, REGISTRARS, AND A RENDER TECHNICA L KNOW-HOW, MANAGEMENT, LEGAL FINANCIAL SERVICES TO ANY INDIVID UAL, FIRM, COMPANY, BODY CORPORATE, UNDERTAKING, INSTITUTION, ASSOCIATI ON, DEPARTMENTS AND SERVICES OF THE GOVERNMENT, PUBLIC OR LOCAL AUTHORI TIES, TRUSTS AND SCIENTIFIC RESEARCH AND DEVELOPMENT CENTERS IN INDI A OR ABROAD AND TO PREPARE, UNDERTAKE, AID, PROMOTE, CO-ORDINATE PROJE CT STUDIES, ARRANGE FOREIGN COLLABORATION, PREPARE SCHEMES, PROJECT REP ORTS, MARKET RESEARCH AND STUDIES, ARRANGE TECHNICAL, FINANCIAL, LEGAL AND MANAGEMENT AGREEMENTS AND ARRANGEMENTS, PROVIDE MAN AGEMENT PERSONNEL, SUPERVISE AND SET UP PRODUCTION TECHNIQU ES, PROMOTE TECHNICAL TRAINING SCHEMES AND GENERALLY TO ACT AS TURN-KEY JOBS, IN INDIA AND ABROAD AND GIVE TO NEW ENTREPRENEURS OF I NDUSTRY AS WELL AS TO THOSE WHO ARE ALREADY ESTABLISHED IN INDUSTRIES OF VARIOUS KINDS, ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 8 - SUGGESTIONS FOR IMPROVING TECHNIQUES AND METHODS OF PRODUCTION, UTILIZATION OF PLANT AND MACHINERIES TO THE BEST AD VANTAGE, COSTING METHODS AND PROCEDURES AND STORES AND MANAGEMENT AC COUNTING SCHEME AND SYSTEMS. 27. TO CARRY ON BUSINESS AS ADVISORS AND/OR CONSULT ANTS ON MATTERS AND PROBLEMS RELATING TO THE INDUSTRIES, ADMINISTRA TION, MANAGEMENT ORGANIZATION, ACCOUNTANCY, COSTING, FINANCIAL, MARK ETING, COMPUTER SOFTWARE AND HARDWARE, IMPORT, EXPORT, COMMERCIAL O R ECONOMIC ACTIVITIES, LABOURS STATISTICAL, ORGANIZATION, METH ODS, QUALITY CONTROL AND DATE PROCESSING, TECHNICAL KNOW-HOW OPERATION, MANUFACTURE, PRODUCTION, STORAGE, DISTRIBUTION, SALE AND PURCHAS E OF GOODS, PROPERTIES, OF AND IN RELATION TO ANY BUSINESS TRAD E, COMMERCE INDUSTRY, MINE, AGRICULTURE, HOUSING OR REAL ESTAT E AND UPON THE MEANS, METHODS AND PROCEDURES FOR THE ESTABLISHMENT , CONSTRUCTION, DEVELOPMENT, IMPROVEMENT AND EXPANSION OF BUSINESS, TRADE, COMMERCE, INDUSTRY, AGRICULTURE, BUILDINGS, REAL ES TATE PLANTS OR MACHINERIES AND ALL SYSTEMS, METHODS, TECHNIQUES, P ROCESSES, PRINCIPLES IN RELATION TO THE FOREGOING AND TO CARR Y ON BUSINESS OF RENDERING SERVICES ON ANY ONE OR MORE OF AFORESAID MATTERS. THE PLAIN READING OF THE ABOVE OBJECTS WOULD SHOW T HAT THE COMPANY CANNOT BE TREATED AS COVERED UNDER THE EXCLUSION GI VEN IN EXPLANATION TO SECTION 73 AS A COMPANY THE PRINCIPAL BUSINESS O F WHICH IS THE BUSINESS OF BANKING GRANTING OF LOANS AND ADVANCES. IT IS ALSO SEEN THAT THE REPLIES FILED BEFORE LEARN ED ASSESSING OFFICER CLAIMED THAT THE BUSINESS CARRIED ON DURING THE YEA R WAS OF SALE AND PURCHASE OF SHARES. THEREFORE,, IT CANNOT BE NOW CL AIMED THAT INCOME WAS NOT FROM BUSINESS BUT WAS FROM OTHER SOURCES. I N MY VIEW, AFTER THE LAST DATE FOR FILING OF REVISED RETURN IN BOT H THESE YEARS IS PAST, IT IS NOT OPEN TO THE APPELLANT TO COME FORWARD WITH A NEW CLAIM. ALL ACTIONS ON PART OF ASSESSEE HAVE VALIDITY ONLY IF T HEY ARE EXECUTED WITHIN THE TIME LIMITATIONS SET OUT AS PER LAW. TH E CLAIM NOW MADE IS BARRED BY LIMITATION AND IS NOT ADMISSIBLE AS PER L AW. 3.3.3 COMING TO THE APPELLANTS CLAIM THAT ACTIVITY OF EARNING INTEREST COULD NOT BE HELD AS BUSINESS ACTIVITY BECAUSE IT WAS NOT AN ORGANIZED ACTIVITY OF THE ASSESSEE TO EARN SUCH INTEREST INCO ME, IS ALSO NOT AN ACCEPTABLE ARGUMENT. FIRSTLY IT CONTRADICTS THE CLA IM MADE THAT THE COMPANY IS ONE THE PRINCIPAL BUSINESS OF WHICH IS T HE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. ALSO THE ASSESSEE ITSELF DECLARED ITS ACTIVITIES AS A BUSINESS ACTIVITY, AND THE COPIES OF DIFFERENT ACCOUNTS SUBMITTED SHOW SIMILAR TRANSACTIONS RELATI NG TO PURCHASE AND SALE OF SHARES BEING MADE IN DIFFERENT ACCOUNTS WHE RE MONEY IS EITHER GIVEN AS ADVANCE OR RECEIVED IN ADVANCES FOR SUCH P URCHASE AND SALE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 9 - OF SHARES BEING MADE IN DIFFERENT ACCOUNTS WHERE MO NEY IS EITHER GIVEN AS ADVANCE OR RECEIVED IN ADVANCES FOR SUCH PURCHAS E AND SALE OF SHARES. AS SUCH RELIANCE PLACED ON THE DECISION OF MADRAS HIGH COURT REPORTED IN 232 ITR PAGE 608 BEING THE CASE OF THE CIT VS. AMALGAMATION LTD. (1998) IS THEREFORE, FOUND TO BE NOT RELEVANT. IT IS ALSO SEEN THAT FOR BOTH THE ASSESSMENT YEARS I.E. A.Y. 2000-01 & 2001-02, THE INTEREST EARNED IS FROM A SINGLE PARTY NAMELY ABHIJAY SERVICES P. LTD. FOR A.Y. 2000-01 AND DINDAYAL ASSO CIATES IN A.Y. 2001-02. THE ACCOUNT OF ABHIJAY CAPITAL SERVICES CO NTINUED IN THE SUBSEQUENT YEAR WHERE AMOUNT IS OUTSTANDING BUT NO INTEREST IS SHOWN AS EARNED ON THE BALANCE OUTSTANDING. THUS, AS ON 1/4/2000 (RELEVANT TO A.Y.2001-02), THE OPENING BALANCE IN ACCOUNT OF ABHIJAY SERVICES PVT. LTD. WAS RS. 13,48,350/- WHICH IS SET OFF FINA LLY ON 13.1.2001 BY JOURNAL ENTRY BUT NO INTEREST IS RECEIVED FROM IT. THEREFORE, THERE IS NO BASIS TO HOLD THAT THESE WERE LOANS AND ADVANCES GI VEN ON INTEREST. THE APPELLANT HAS IN LETTER DATED 5/10/2004 EXPRESSED I NABILITY TO GIVE ANY DOCUMENTS PERTAINING TO AGREEMENT BETWEEN THE PARTI ES FROM WHOM SUCH INTEREST IS SHOWN AS EARNED DESPITE SPECIFIC Q UERY RAISED IN MY LETTER DATED 30/08/2004. 7. IN VIEW OF MY ABOVE OBSERVATIONS, I AM OF THE CO NSIDERED OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY TREATED THE LOSSE S OF RS.10,35,384/- AND RS. 6,90,562/- AS LOSSES EARNED IN SPECULATION BUSINESS AS PER PROVISIONS OF EXPLANATION TO SECTION 73. THEREFORE, THE SAID EXPL ANATION TO SECTION 73 HAS RIGHTLY BEEN INVOKED TO DISALLOW THE SET OFF OF SUC H LOSSES AGAINST THE INCOME FOR THE YEAR. THESE GROUNDS OF APPEAL ARE THEREFORE , REJECTED. 8. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE HAS FILED WRITTEN SUBMISSION WHICH ARE AS FOLLOWS: 2. AS PER THE GROUNDS OF APPEAL RAISED BY THE APPE LLANT, THE FIRST COMMON ISSUE PERTAINS TO APPLICABILITY OF THE EXPLA NATION U/S. 73 OF THE INCOME-TAX ACT BY THE ASSESSING OFFICER WHICH H AS BEEN CONFIRMED BY THE LEARNED CIT(A)BE RELEVANT FACTUAL POSITION, STATED BRIEFLY, IS THAT FOR THE ASSESSMENT YEAR 2000-01 THE APPELLANT COMPA NY COMPUTED ITS TOTAL INCOME IN THE RETURN OF INCOME AS UNDER: (P&L A/C ON P.26 OF PB) RS. RS. INTEREST INCOME 13,48,350 OTHER INCOME ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 10 - GROSS INCOME 13,48,350 LESS: EXPENDITURE: SHARE TRADING LOSS 10,35,384 ADMINISTRATIVE EXPENSES 1,47,247 DEPRECIATION 19,452 PRELIMINARY EXPENSES WRITTEN OFF 500 TOTAL EXPENDITURE 12.02.583 PROFIT FOR THE YEAR 1.45.767 3. SIMILARLY, IN RESPECT OF THE ASSESSMENT YE AR 2001-02 THE TOTAL INCOME WAS COMPUTED IN THE FOLLOWING MANNER: (P&L A /C ON P.46 OF PB) RS. RS. INTEREST INCOME 6,60,765 OTHER INCOME 42.404 GROSS INCOME 7,03,169 LESS: EXPENDITURE: SHARE TRADING LOSS 6,90,562 ADMINISTRATIVE EXPENSES 87,972 PRELIMINARY EXPENSES WRITTEN OFF 4.000 TOTAL EXPENDITURE 7.82.534 LOSS FOR THE YEAR 79,365 4. FROM THE AFORESAID FACTS IT IS APPARENT THAT FOR BOTH THE ASSESSMENT YEARS THE APPELLANT'S INCOME FROM INTEREST TOGETHER WITH OTHER INCOME WHICH IS RIGHTLY ASSESSABLE AS INCOME FROM OTHER SO URCES IS MORE THAN THE LOSS INCURRED BY THE APPELLANT COMPANY IN SHARE TRA DING. THERE IS NO DISPUTE REGARDING THE FACT THAT THE INTEREST INCOME FOR BOTH THE ASSESSMENT YEARS WAS RECEIVED BY THE APPELLANT FROM ONE SINGLE PARTY ON THE DEPOSITS MADE BY THE APPELLANT COMPANY BY WAY OF INVESTMENT OF SURPLUS FUNDS. NO BORROWED FUNDS WERE USED IN MAKING THESE INVESTM ENTS. THIS FACT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AS ALSO BY THE LEARNED CIT(A). IN THIS FACTUAL SCENARIO, THE INESCAPABLE C ONCLUSION IS THAT THE SAID INCOME IS CORRECTLY ASSESSABLE AS INCOME FROM OTHER SOURCES. AT THIS STAGE THE RELEVANT EXPLANATION U/S. 73 MAY BE REPRODUCED BELOW FOR READY REFERENCE: ' LOSSES IN SPECULATION BUSINESS. 73.............. EXPLANATION.WHERE ANY PART OF THE BUSINESS OF A CO MPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONS ISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD S 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPI TAL GAINS' AND 'INCOME FROM OTHER SOURCES', OR A COMPANY THE P RINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SA LE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PUR POSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULA TION ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 11 - BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF THE PURCHASE AND SALE OF SUCH SHARES.' 5. A PLAIN READING OF THE EXPLANATION SHOWS TH AT CERTAIN EXCEPTIONS HAVE BEEN PROVIDED IN RESPECT OF COMPANIES WHOSE GR OSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ETC. AGAIN A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS BANKING OR GRANTING OF LOANS AND ADVANCES HAS BEEN EXCLUDED FROM THE RIGOUR OF THE EXPLANATION. IN THE PRESENT CASE, THE MAIN SOURCE OF ASSESSEE'S INCOME FOR BOTH THE YEARS IS I NCOME FROM OTHER SOURCES AND THEREFORE, THE EXPLANATION IS NOT APPLI CABLE TO THE CASE OF THE APPELLANT COMPANY. THESE FACTS AND THE LEGAL PO SITION WAS EMPHATICALLY PLACED BEFORE THE LEARNED CIT(A) BUT S HE NEGATIVED THE SUBMISSIONS MADE SOLELY ON THE GROUND THAT THE INCO ME CLAIMED TO BE INCOME FROM OTHER SOURCES HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT AND IN THE RETURN OF INCOME THE SAME WAS SH OWN BY THE APPELLANT AS PART OF THE INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION'. 6. IT IS RESPECTFULLY SUBMITTED THAT THE INCO ME-TAX AUTHORITIES, AND MORE PARTICULARLY THE APPELLATE AUTHORITIES, ARE SU PPOSED TO ASSESS A PARTICULAR INCOME UNDER THE CORRECT HEAD EVEN IF TH E ASSESSEE UNDER ANY MISCONCEPTION HAS SHOWN SUCH INCOME UNDER INCOR RECT HEAD. THE INCOME-TAX AUTHORITIES ARE UNDER A LEGAL OBLIGATION TO DETERMINE THE TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF T HE INCOME-TAX ACT AND NOT ON THE BASIS OF ANY MISTAKE COMMITTED BY AN ASSESSEE IN THE RETURN OF INCOME. THE LEARNED CIT(A) HAS REPRODUCED THE RELEVANT OBJECTS OF THE APPELLANT COMPANY AT PAGES 8 AND 9 O F HER ORDER WHICH INCLUDE ANCILLARY OBJECTS NO. 9 AND 23 WHICH ARE AS UNDER: '9. TO LEND MONEY TO SUCH PERSONS OR COMPANIES AND ON SUCH TERMS AS MAY SEEM EXPEDIENT AND IN PARTICULAR TO CU STOMERS AND OTHERS HAVING DEALING WITH THE COMPANY AND TO G UARANTEE THE PERFORMANCE OF THE CONTRACTS BY AND OBLIGATIONS OF ANY PERSONS OR COMPANIES AND TO GIVE ALL KINDS OF INDEM NITIES .............. 23. TO INVEST AND DEAL WITH THE MONEY OF THE COMPAN Y IN SUCH MANNER AS MAY FROM TIME TO TIME BE DETERMINED.' 7. FROM THE ABOVE IT MAY BE APPRECIATED THAT THE OBJECTS OF THE APPELLANT COMPANY INCLUDE LENDING OF MONEY AS ALSO TO INVESTMENT OF MONEY. DURING THE TWO ASSESSMENT YEARS UNDER APPEAL THE APPELLANT COMPANY HAS INVESTED SURPLUS FUNDS WITH ONE SINGLE PARTY AND, THEREFORE, THE INTEREST INCOME IS CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. MERELY BECAUSE THE APP ELLANT COMPANY ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 12 - WRONGLY DECLARED SUCH INCOME AS INCOME FROM BUSINES S, THE DEPARTMENT IS WHOLLY UNJUSTIFIED IN TAKING ADVANTAG E OF A MISTAKE COMMITTED BY THE APPELLANT COMPANY WITH A VIEW TO A PPLY THE EXPLANATION U/S. 73. 8. IT IS RESPECTFULLY SUBMITTED THAT ACCOUNTI NG ENTRIES PASSED BY THE ASSESSEE ARE NOT DETERMINATIVE OF THE NATURE AND TH E CHARACTER OF THE EXPENDITURE OR INCOME AND THE TOTAL INCOME CHARGEAB LE TO TAX HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF TH E IT. ACT. THIS PRINCIPLE WAS LAID DOWN BY THE HON'BLE SUPREME COUR T AS EARLY AS IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT - 82 ITR 363 AND THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE REPRODUCED FROM PAGE 367 OF THE REPORT: 'THE MAIN CONTENTION OF THE LEARNED SOLICITOR-GENER AL IS THAT THE ASSESSEE FAILED TO DEBIT THE LIABILITY IN ITS B OOKS OF ACCOUNTS AND, THEREFORE, IT WAS DEBARRED FROM CLAIMING THE S AME AS DEDUCTION EITHER UNDER SECTION 10(1) OR UNDER SECTI ON 10(2)(XV) OF THE ACT. WE ARE WHOLLY UNABLE TO APPRECIATE THE SUGGESTION THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR M ISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND ALTHOU GH, UNDER THE LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOME- TAX OFFICER, THE ASSESSEE WILL LOSE THE RIGHT OF CLAIMING OR WIL L BE DEBARRED FROM BEING ALLOWED THAT DEDUCTION. WHETHER THE ASSE SSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPE ND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VI EW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXIST ENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECIS IVE OR CONCLUSIVE IN THE MATTER....' 9. THE SAME PRINCIPLE HAS BEEN REITERATED BY THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT-227 ITR 172 WHEREIN IT WAS HELD THAT PRINCIPLES OF ACCOUNTANCY DO NOT OVERRIDE PROVISIONS OF TAX STATUTES. 10. IN A RECENT CASE OF CIT VS. HITASHI ESTATES LTD. - 313 ITR 393 THE HON'BLE DELHI HIGH COURT, REFERRING TO THE HON'BLE SUPREME COURT DECISION IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD . (SUPRA) HELD THAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE OF THE NAT URE OF A TRANSACTION. 11. SIMILAR VIEW HAS BEEN TAKEN BY THE MADRAS H IGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD. - 265 ITR 40 4. THE RELEVANT PART OF THE RATIO OF THIS CASE IS REPRODUCED BELOW FROM THE HEADNOTE : 'DURING THE ACCOUNTING YEAR ENDED ON MARCH 31, 1984 , THE ASSESSEE PAID A SUM OF RS. 26,729 OUT OF WHICH A SU M OF RS. 22,034 HAS BEEN PAID TOWARDS POSTAGE, TELEGRAM, TEL EPHONE, ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 13 - ETC., AND A SUM OF RS. 4,695 HAD BEEN PAID AS RATES AND TAXES. THE ASSESSEE-COMPANY IN ITS ACCOUNTS TREATED THE SU MS AS PREPAID AND SHOWED THEM AS AN ASSET IN ITS BALANCE- SHEET. HOWEVER, THE PAYMENTS WERE MADE IN PURSUANCE OF DEM ANDS RAISED BY THE POSTAL, TELEPHONE AND TELEGRAPH DEPAR TMENTS AND WERE CLAIMED AS A DEDUCTION. THE ASSESSING OFFICER REJECTED THE CLAIM AND THIS WAS UPHELD BY THE TRIBUNAL. ON A REF ERENCE : HELD, THAT THE ACTUAL EXPENDITURE INCURRED HAD TO B E ALLOWED NOTWITHSTANDING THE METHOD OF ACCOUNTING THE ASSESS EE FOLLOWED.' 12. FROM THE AFORESAID LEGAL POSITION IT IS OBV IOUS THAT THE TREATMENT GIVEN BY THE ASSESSEE TO ANY INCOME OR EXPENDITURE IN ITS BOOKS OF ACCOUNT HAVE NO CONSEQUENCE AND THE TRUE CHARACTER OF THE TRANSACTION HAS TO BE DETERMINED BY THE INCOME-TAX AUTHORITIES ON THE BASIS OF THE FACTS AND THE PROVISIONS OF THE INCOME-TAX ACT. 13. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER AND THE APPELLATE AUTHORITIES HAVE TO DETERMINE THE TOTAL I NCOME OF THE ASSESSEE SO AS TO LEVY CORRECT TAX AND THEY ARE DUT Y BOUND TO ALLOW DEDUCTIONS AND EXEMPTIONS AVAILABLE TO THE ASSESSEE IN ACCORDANCE WITH LAW EVEN THOUGH NO CLAIM WAS MADE BY THE ASSES SEE IN THE RETURN OF INCOME. IN THIS CONNECTION, THE APPELLANT STRONG LY RELIES ON THE DECISION OF THE HON'BLE ITAT COCHIN BENCH IN THE CA SE OF THOMAS KURIAN VS. ASSISTANT COMMISSIONER OF INCOME-TAX [30 3 ITR (AT.) 110]. THE RELEVANT RATIO OF THE HON'BLE TRIBUNAL IS REPRODUCED BELOW FROM THE HEAD NOTES: 'HELD, (I) THAT THOUGH THE ASSESSING OFFICER IS AN EXECUTIVE OFFICER IN THE ADMINISTRATION OF THE ACT, THE FUNCT ION OF THE ASSESSING OFFICER IS FUNDAMENTALLY QUASI-JUDICIAL. THE TAXING AUTHORITIES SHOULD EXERCISE QUASI-JUDICIAL POWERS, AND IN DOING SO THEY MUST ACT IN A FAIR AND NOT IN A PARTISAN MA NNER. BEING A QUASI-JUDICIAL AUTHORITY, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE CORRECT TAX PAYABLE BY THE ASSESSEE. IN ARRIVING AT SUCH CORRECT TAX, THE ASSESSING OFFICER IS DUTY BOUND TO ALLOW THE DEDUCTIONS AND EXEMPTIONS AVAILABLE TO THE ASSE SSEE IN ACCORDANCE WITH LAW. WHEN THE FACTS WERE AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER AND PARTICULARLY WHEN HE HAD ALSO OBSERVED THAT THE ASSESSEE WAS IN THE EXPORT BUSINE SS OF SEA FOODS AND ALSO NOTED THE TURNOVER AND NET PROFIT FR OM SUCH BUSINESS, THE ASSESSING OFFICER WAS DUTY BOUND TO H AVE ASKED THE ASSESSEE WHY HE HAD NOT CLAIMED THE DEDUCTION U NDER SECTION 80HHC. THE ORDER OF THE COMMISSIONER (APPEA LS) NOT ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 14 - ADMITTING THE CLAIM OF DEDUCTION UNDER SECTION 80HH C MADE FOR THE FIRST TIME BEFORE HIM WAS NOT REASONABLE. A LTHOUGH HE MIGHT NOT HAVE HAD THE POWER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, AT THE RELEVANT POIN T OF TIME, HE SHOULD HAVE ADMITTED THE CLAIM, CALLED FOR A REMAND REPORT AND THEN DECIDED ACCORDING TO LAW INSTEAD OF REJECTING ALTOGETHER THE CLAIM OF THE ASSESSEE, MORE PARTICULARLY WHEN T HE FACTS RELATING TO EXPORT BUSINESS AND RELEVANT TURNOVER A ND PROFITS WERE AVAILABLE IN THE ASSESSMENT ORDER ITSELF.' RELIANCE IS ALSO PLACED ON THE HON'BLE KOLKATA ITAT DECISION IN THE CASE OF KANOI INDUSTRIES (P.) LTD. VS. DCIT (100 IT D 462). KIND ATTENTION IS INVITED TO THE FOLLOWING OBSERVATIONS MADE BY THE HON'BLE TRIBUNAL AT PAGE 470 OF THE REPORT: '6.1 THUS, THE SETTLED LEGAL POSITION, WHICH EMERGES FRO M THE AFORESAID JUDICIAL PRONOUNCEMENTS, IS THAT THE PURP OSE OF ASSESSMENT PROCEEDING IS TO TAX/ASSESS THE TAXABLE LIABILITY/INCOME OF THE ASSESSEE CORRECTLY IN ACCOR DANCE WITH LAW AND IF THE ASSESSEE IS ENTITLED TO CERTAIN RELI EF, DEDUCTION OR BENEFIT, THE ASSESSEE SHOULD NOT BE DENIED OR DEPRI VED OF IT, EVEN IF THE CLAIM PERTAINING TO THE SAME IS MADE FO R THE FIRST TIME BEFORE THE TRIBUNAL DURING PENDENCY OF APPEAL BEFORE IT....' 14. IT IS FORCEFULLY SUBMITTED THAT THE LEARNED CIT(A) HAS ARBITRARILY AND WITHOUT ANY JUSTIFICATION REJECTED THE APPELLAN T'S CLAIM THAT THE RELEVANT INCOME IS CORRECTLY ASSESSABLE AS INCOME F ROM OTHER SOURCES SOLELY BECAUSE THE ASSESSEE MAY HAVE MADE SOME MIST AKE WHILE FILING THE RETURN OF INCOME. THE INCOME FROM OTHER SOURCES IS MORE THAN THE LOSS IN SHARE TRADING INCURRED BY THE ASSESSEE AND, THEREFORE, THE EXPLANATION U/S. 73 CANNOT BE APPLIED. 15. IT IS FURTHER SUBMITTED THAT THE EXPLANATIO N U/S. 73 BEING A DEEMING PROVISION, THE SAME HAS TO BE STRICTLY CONS TRUED. KIND ATTENTION IS INVITED TO THE HON'BLE ITAT KOLKATA, S PECIAL BENCH DECISION IN THE CASE OF DY. CIT VS. VENKATESWAR INV ESTMENT & FINANCE (P.) LTD. (93 ITD 166). THE RELEVANT PART OF THE RA TIO OF THIS CASE IS REPRODUCED BELOW FROM THE HEAD NOTES: 'THE EXPLANATION TO SECTION 73 IS IN THE NATURE OF DEEMING PROVISIONS AND AS SUCH HAS TO BE STRICTLY CONSTRUED AND THE ONUS WAS ON THE REVENUE TO SHOW THAT THE CASE OF THE ASS ESSEE FELL WITHIN THE FOUR CORNERS OF THE DEEMING PROVISIONS O F LAW.' 16. WITHOUT PREJUDICE TO THE FOREGOING SUBMISSIO NS, EVEN IF IT IS ASSUMED THAT THE INTEREST INCOME IS IN THE NATURE O F BUSINESS INCOME, ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 15 - SUCH INCOME HAS ARISEN FROM THE BUSINESS OF GRANTIN G OF LOANS AND ADVANCES AND ACCORDINGLY, THE ASSESSEE COMPANY WOUL D STILL FALL IN THE EXCEPTION UNDER THE SAID EXPLANATION. LENDING OF MO NEY IS ALSO ONE OF THE OBJECTS OF THE ASSESSEE COMPANY AND, THEREFORE, LOOKED FROM ANY ANGLE, IT IS CLEAR THAT THE SAID EXPLANATION HAS NO APPLICABILITY IN THE CASE OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY ALSO RELIES ON THE HON'BLE ITAT AHMEDABAD, 'A BENCH DECISION DATED 31 ST JULY, 2009 IN THE CASE OF DEEP CAPITAL SERVICES LTD. IN ITA NO. 4 62/AHD/2003 FOR A.Y. 1998-99, A COPY OF WHICH IS ENCLOSED FOR READY REFERENCE. PARA 8 OF THIS ORDER MAY KINDLY BE REFERRED TO IN PARTICUL AR. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE FOR ASSESSMENT YEAR 2000-01, THE ASSESSEE EARNED INTERE ST INCOME OF RS.13,48,350/- AND CLAIMED SET OFF OF LOSS FROM SHA RE TRADING BUSINESS OF RS.10,35,384/-. SIMILARLY, IN THE ASSESSMENT YEAR 2 001-02, THE ASSESSEE DECLARED INTEREST INCOME OF RS. 6,60,765/- AND OTHE R INCOME OF RS.42,404/- AGGREGATING TO RS.7,03,169/- AND CLAIM SET OFF OF S HARE TREADING LOSS OF RS.6,90,582/- THERE AGAINST. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DISCLOSED INTEREST INCOME AS BUSINESS INCOME AND THE INVESTMENT OF THE ASSESSEE COMPANY IN SHARE BUSINESS WAS MORE THAN THE INVESTMENT MADE FOR EARNING INTEREST INCOME OPINED THAT EXPL ANATION TO SECTION 73 WAS ATTRACTED IN THE CASE OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, HE TREATED THE SHARE TRADING LOSS OF THE ASSESSEE AS SPECULATI ON LOSS AND NOT ALLOWED SET OFF FOR BOTH THE YEARS UNDER APPEAL. THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ABOVE ACTION OF THE LEAR NED ASSESSING OFFICER. WE FIND FROM PAGE 37 OF THE PAPER BOOK WHERE COPY O F LEDGER ACCOUNT OF ABHIJAY CAPITAL SERVICES THAT DURING THE ASSESSMENT YEAR 2000-01, THE ASSESSEE HAS ADVANCED LOAN OF RS.3,13,48,350/- TO T HE SAID CONCERN AND EARNED INTEREST OF RS.13,48,350/-. THUS, IT IS OBSERVED TH AT THE ENTIRE INTEREST OF RS.13,48,350/- WAS EARNED BY THE ASSESSEE FROM ADVA NCING LOAN FROM ONE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 16 - PARTY ONLY DURING THE ASSESSMENT YEAR 2000-01. FURT HER, ON PAGE 64 OF THE PAPER BOOK CONTAINS LEDGER ACCOUNT OF DINDAYAL ASSO CIATES FOR THE ASSESSMENT YEAR 2001-02 AND WE FIND THERE FROM THAT INTEREST INCOME OF RS.6,60,765/- EARNED DURING THE YEAR. THUS, AGAIN I T IS OBSERVED THAT ENTIRE INTEREST INCOME OF ASSESSMENT YEAR 2001-02 WAS ALSO EARNED FROM ONE PARTY. THE ASSESSEE HAS ALSO FILED AT PAGE 54 OF THE PAPER BOOK DETAILS OF OTHER INCOME WHICH COMPRISES OF PROFIT ON SALE OF COMPUTE R ON RS.38,904/- AND OTHER INCOME OF RS.3,500/- AGGREGATING RS. 42,404/- . THUS, THE TOTAL INCOME FROM OTHER SOURCES AND CAPITAL GAIN DURING THE YEAR EARNED BY THE ASSESSEE WAS RS.7,03,169/-. IT WAS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS NOT ENGAGED IN ANY ORGANIZED AND SYSTE MATIC ACTIVITY OF ADVANCING LOANS AND THEREFORE, SUCH INTEREST INCOME EARNED FROM ADVANCING LOAN TO ONE PARTY ALONE CANNOT BE CONSIDERED A BUSI NESS INCOME OF THE ASSESSEE MERELY BECAUSE THE ASSESSEE MISTAKENLY CLA SSIFIED IT AS ITS BUSINESS INCOME IN THE RETURN OF INCOME. IN OUR CONSIDERED O PINION, INCOME ARE TO BE ASSESSED UNDER DIFFERENT HEADS ENUMERATED IN SECTIO N 14 AS PER THE TRUE NATURE AND CHARACTER OF THE INCOME AND NOT MERELY ON THE B ASIS OF CLASSIFICATION GIVEN TO BY THE ASSESSEE EITHER MISTAKENLY OR DUE T O ANY OTHER REASON. IN THE INSTANT CASE, WE FIND THAT THE LOWER AUTHORITIES HA VE NOT TRIED TO ANALYSE THE FACTS AND ACTIVITIES OF THE ASSESSEE PROPERLY TO AP PRECIATE THE TRUE NATURE OF THE INTEREST INCOME SO AS TO ASSESS SUCH INCOME UNDER THE PROPER HEAD OF INCOME. FROM THE LEDGER ACCOUNTS OF THE PARTIES AS DISCUSSE D ABOVE, WE FIND THAT DURING BOTH THE YEAR UNDER CONSIDERATION, THE ASSES SEE HAS ADVANCED LOAN TO ONE PARTY ONLY DURING THE YEAR ON WHICH INTEREST WA S EARNED BY IT. IN OUR CONSIDERED OPINION, MERELY BECAUSE OF ADVANCING OF LOAN TO ONE PARTY ALONE DURING THE WHOLE YEAR ON WHICH WAS EARNED, IT CANNO T BE HELD THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF ADVANCING OF LOAN FO R EARNING INTEREST INCOME. THUS, IN OUR CONSIDERED OPINION, THE INTEREST INCOM E EARNED BY THE ASSESSEE IN BOTH THE YEAR UNDER APPEAL ARE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 17 - SOURCES. WE FURTHER OBSERVE THAT INCOME ASSESSABLE UNDER THE HEAD OTHER SOURCE AND CAPITAL GAIN EARNED BY THE ASSESSEE IN B OTH THE YEARS UNDER CONSIDERATION IS MORE THAN THE AMOUNT OF SHARE TRAD ING LOSS SUFFERED IN EACH OF THE YEAR. EXPLANATION TO SECTION 73 AS IS RELEVANT FOR THE PRESENT APPEAL DOES NOT APPLY IN A CASE WHERE GROSS TOTAL INCOME MAINLY CONSISTS OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOUR CES AND CAPITAL GAIN. THUS, WE FIND THAT IN BOTH THE YEARS THE GROSS TOTA L INCOME MAINLY CONSISTS OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES AND CAPITAL GAIN, THEREFORE, IN OUR CONSIDERED VIEW THE PROVISION OF EXPLANATION TO SECTION 73 IS NOT ATTRACTED IN THE CASE OF THE ASSE SSEE IN BOTH THE YEARS UNDER APPEALS. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES FOR BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE LEARNED AS SESSING OFFICER TO RE- COMPUTE THE INCOME OF THE ASSESSEE IN THE LIGHT OF THE OBSERVATIONS MADE HEREINABOVE. THUS, THE GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED FOR BOTH THE YEAR UNDER CONSIDERATION. 11. THE GROUND NO.2.2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- ASSESSMENT YEAR 2000-01 2.2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AN D IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN ORDERING FOR THE ENHANCEMENT OF THE APPELL ANT'S INCOME BY RS.69,230 ON THE ASSUMPTION THAT THE APPELLANT MUST HAVE EARNED THAT AMOUNT BY WAY OF INTEREST (ON THE SUM OF RS.3, 00,00,000 LENT BY IT TO SHRI DHIREN H. VORA ON 23.03.2000) BUT KEPT OUTSIDE THE BOOKS OF ACCOUNT, ON THE MERE CIRCUMSTANCE THAT THE SAID DEBIT BALANCE OF RS.3,00,00,000 IN THE ACCOUNT OF SHRI DHIREN H. VOR A HAD BEEN SHOWN IN THE APPELLANTS BALANCE SHEET UNDER THE SA ME HEAD VIZ., OTHER LOANS UNDER THE BROADER HEAD LOANS AND ADV ANCES IN SCHEDULE-7 FORMING PART OF THE BALANCE SHEET AS AT 31-3-2000. ASSESSMENT YEAR 2001-02 2.2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AN D IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN ORDERING FOR THE ENHANCEMENT OF THE APPELL ANT'S INCOME BY RS. 24,35,690 (RS. 1,28,000 + RS.23,07,690) ON THE ASSUMPTION THAT THE APPELLANT MUST HAVE EARNED BUT KEPT OUTSIDE THE BOOKS OF ACCOUNT. ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 18 - 12. SINCE, THE FACTS AND ISSUE INVOLVED IN THE ABOV E GROUNDS ARE COMMON, THEY ARE BEING CONSIDERED AND DECIDED AS UNDER: 13. THE BRIEF FACTS OF THE CASE ARE THAT DURING T HE COURSE OF APPEAL PROCEEDINGS CIT(A) OBSERVED THAT, THE APPELLANT HAD IN ASSESSMENT YEAR 2000-01 SHOWN IN THE BALANCE SHEET OTHER LOANS TOTA LLING TO RS.3,13,43,350/- WHICH WERE AS UNDER:- OTHER LOANS: 1. DHIREN H. VORA RS.3,00,00,000/- 2. ABHIJAY CAPITAL SERVICES LTD. RS. 13,48,360/- THE DETAILS OF ACCOUNT OF DHIREN H. VORA WAS SUBMIT TED ON REQUISITION WHICH DETAILS ARE AS UNDER: DATE VOUCHER PARTICULARS DEBIT CREDIT BALANCE 30.09.99 J000237 BY JOURNAL NO.237 6050 RS.500 3025000.00 3025000.00 CR. 23.03.00 R000290 TO SHREENATH CO. OP. BANK LTD.-1 209743/SHREENATH BANK 30000000.00 26975000.00DR 27.03.00 R000314 TO SHREENATH CO. OP. BANK LTD.-1 209756/SHREENATH BANK 3025000.00 30000000.00DR 31.03.00 TOTALS 33025000.00 3025000.00 30000000.00DR SINCE, THE APPELLANT HAD SHOWN RECEIPT OF INTEREST OF RS.13,48,350/- FROM ABHIJAY CAPITAL SERVICES LTD., IT WAS QUERIED AS TO WHY INTEREST WAS NOT CHARGED IN THE ACCOUNT OF DHIREN H.VORA WHOSE NAME WAS ALSO INCLUDED UNDER THE BROAD HEAD OF LOANS & ADVANCES FOR A.Y. 2000-01. SPECIFIC QUERY WAS MADE VIDE LETTER DATED 30/08/2004 UNDER SECTIO N 250(4) OF INCOME TAX ACT, 1961 AS UNDER: II) YOU HAVE CLAIMED THAT YOU HAVE WRONGLY SHOWN INTEREST INCOME UNDER THE HEAD BUSINESS INCOME AND THAT IT BEING NOT AN ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 19 - ORGANIZED ACTIVITY, IT SHOULD BE TAKEN THAT YOUR MA JOR SOURCE OF INCOME IS INCOME FROM OTHER SOURCES (WRITTEN SUBMISSIONS MADE VIDE LETTER DATED 24 TH MAY 2004). IN ORDER TO EXAMINE YOUR CLAIM, IT IS N ECESSARY THAT YOU SUBMIT THE CHART OF THE INTEREST INCOME AN D OTHER BUSINESS. THE DETAILS OF OTHER INCOMES EARNED IN VARIOUS YEAR S MAY BE INDICATED. SIMULTANEOUSLY, THE COPIES OF AGREEMENTS ENTERED IN TO WITH THE PARTIES FROM WHOM INTEREST HAS BEEN SHOWN AS EARNED OVER TH E YEARS MAY ALSO BE GIVEN. V) IN ASSESSMENT YEAR 2000-01, IT IS SEEN THAT SEV ERAL ACCOUNTS ARE REFLECTED UNDER THE HEAD UNSECURED LOANS, S UNDRY DEBTORS, LOANS & ADVANCES & OTHER LOANS. INTEREST IS HOW EVER, SHOWN TO BE EARNED ONLY FROM ONE PARTY I.E. ABHIJAY CAPITAL SERVICES. PLEASE EXPLAIN THE REASON FOR DIFFERENT TREATMENT OF OTHER PARTIES ALSO REFLECTED UNDER SIMILAR HEAD OF OTHER LOANS & ADVANCES RECO VERABLE IN CASH, SUNDRY DEBTORS AND UNSECURED. VI) FOR ASSESSMENT YEAR 2001-02, ALTHOUGH THE BA LANCE UNDER THESE VARIOUS HEADS OF LOANS AND ADVANCES ETC. ARE AT NIL AT THE CLOSE OF THE YEAR, DURING HE ACCOUNTING PERIOD, SOME OF THES E BALANCES WERE YET OUTSTANDING FOR PAYMENTS. PLEASE EXPLAIN THE REASON WHY SO INTEREST INCOME HAS BEEN SHOWN AS CHARGED/EARNED IN THESE AC COUNTS. IN RESPONSE TO THIS APPELLANT FILED REPLY DATED 8/9 /2004 AS UNDER: A QUESTION HAS BEEN RAISED FOR A.Y.2000-01 THAT IN TEREST IN EARNED ONLY FROM ABHIJAY CAPITAL SERVICES AND THE APPELLANT IS ASKED TO GIVE REASONS FOR DIFFERENT TREATMENT REGARDING INTEREST EARNING FROM OTHER PARTIES UNDER THE HEAD LOANS AND ADVANCES. IN THIS CONNECTION, THE APPELLANT MAY STATE THAT WI TH ABHIJAY CAPITAL SERVICES, THE TRANSACTIONS WERE ONLY FOR THE FUNDS GIVEN TO T HEM OR FUNDS TAKEN FROM THEM DURING THE RELEVANT YEAR. WHEREAS IN THE CASE OF THE OTHER PARTY VIZ. SHRI DHIREN H. VORA, THE APPELLANT HAD PURCHASED SHARES FROM THEM OF RS.30.25 LACS WHICH WAS OUTSTANDING. THE AMOUNT WAS GIVEN TO THEM AT THE END OF THE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 20 - YEAR. THE AMOUNT OF RS.3 CRORES WAS ALSO GIVEN TO T HEM TO END OF THE ASSESSMENT YEAR. AS SUCH, NO INTEREST WAS CHARGED A S PER THE UNDERSTANDING BETWEEN THE PARTIES. IT MAY BE NOTED THAT THESE ARE ONLY TWO BALANCE UNDER THE HEAD LOANS AND ADVANCES AS ON 31.03.2000. SO FAR AS ASSESSMENT YEAR 2001-02 IS CONCERNED IN R ESPECT OF THE LOANS AND ADVANCES , IT MAY BE STATED THAT EH AMOUNT OF RS.,1 3.48 LACS IN THE ACCOUNT OF ABHIJAY ARE REPRESENTED INTEREST DEBITED INTO THEIR ACCOUNT ON 31.03.2000.. SO FAR AS THE OTHER ACCOUNT IS CONCERNED, THE EXPLANAT ION REFERRED TO EARLIER MAY BE CONSIDERED. IN VIEW OF THE FACT THAT THE APPELLANT HAD NOT SUBM ITTED COPIES OF THE AGREEMENTS ENTERED INTO WITH THE PARTIES FROM WHO I NTEREST WAS SHOWN AS EARNED AND BOTH THE ABOVE ACCOUNTS OF DHIREN H. VOR A AND ABHIJAY CAPITAL SERVICES WERE PLACED IN THE SAME GROUP OF LOAN AND ADVANCES, A NOTICE OF ENHANCEMENT WAS ISSUED ON 20 TH SEPTEMBER, 2004 AS UNDER: PLEASE REFER TO MY EARLIER LETTER DATED 30/08/2004 WHEREIN SPECIFIC ISSUES HAD BEEN RAISED IN PARA-(V)(VI). ALSO PLEASE REFER TO Y OUR REPLY THERETO FILED ON 8.09.2004. I PURPOSE TO ENHANCE THE ASSESSED INCOME WITH REFE RENCE TO ISSUES RAISED BY ME IN PARA NO.(V)&(VI) OF EARLIER NOTICE DATED 30.08.2004 AND TO INCLUDE IN YOUR HANDS ADDITIONAL INCOME ON ACCOUNT OF SUNDRY DEBTORS, LOANS AND ADVANCES AND OTHER LOANS ON WHICH INTEREST HAS NOT BEEN CHARGED BY YOU. PLEASE GIVE YOUR ARGUMENTS AS TO WHY THE ABOVE ADDI TIONS SHOULD NOT BE MADE. IT MAY BE POINTED OUT HERE THAT AS PER THE AB OVE REFERRED LETTER DATED 30/08/2004 PARA (II) THEREIN, COPIES OF THE AGREEME NTS ENTERED INTO WITH PARTIES FROM WHOM INTEREST HAS BEEN SHOWN AS EARNED OVER TH E TWO PREVIOUS YEARS RELEVANT TO A.YRS.2000-01 AND 2004-02 WERE ALSO REQ UIRED TO BE GIVEN, WHICH ARE YET TO BE FILED AND WHICH MAY NOW BE FILED. YOU R REPLY MAY BE SUBMITTED TO THIS OFFICE BY 24.09.2004 WHICH IS THE DATE OF N EXT HEARING AS PER ADJOURNMENT SOUGHT BY YOU TO-DAY. ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 21 - IN RESPONSE TO ABOVE, VIDE REPLY DATED 24 TH SEPTEMBER 2004, IT WAS OBJECTED THAT NOTICE IS BROADLY STATED AND DOES NOT GIVE DET AILS ON WHICH ENHANCEMENT IS PROPOSED OR THE ACCOUNTS OF PARTICULAR PARTIES O N WHICH ENHANCEMENT IS PROPOSED TO BE MADE. IT IS CLAIMED THAT IT IS NOT AS IF YOUR HONOUR THINKS THAT INTEREST INCOME HAD ACTUALLY BEEN EARNED BUT THE SA ME HAS NOT BEEN ACCOUNTED FOR; THE ISSUE THAT HAS BEEN RAID IS AS TO WHY IT I S THAT INTEREST WAS NOT CHARGED FROM THE PARTIES COVERED BY THE AFORESAID MAJOR HEA DS AS PER THE BALANCE SHEET EVEN THOUGH THERE WERE DEBIT BALANCES THEREIN . THEREFORE, IT WAS CLAIMED THAT THE APPELLANT IS FAC ING LIMITATIONS WHILE TENDERING SUBMISSIONS AND THAT THERE COULD BE NO BA SIS OF ENHANCEMENT FOR THE FOLLOWING REASONS: (A) THAT WE HAVE ACCOUNTED FOR ALL THAT INTEREST I NCOME WHICH WAS RECEIVABLE BY US; THAT WHEREAS THERE WAS AN OPENING BALANCE OF RS.13,48,350/- IN THE ACCOUNT OF ABHIJAY SERVICES AS FAR AS A.Y.20 01-02 IS CONCERNED, THAT WAS ENTIRELY AN ACCOUNT OF INTEREST DEBITED IN THE PREVIOUS YEAR CORRESPONDING TO A.Y.2000-01. SINCE, AS PER OUT UNDERSTANDING WIT H THEM, INTEREST ON INTEREST WAS NOT TO BE CHARGED, NO INTEREST WAS REC EIVABLE FROM THEM FROM ASSESSMENT YEAR 2001-02. (B) THAT EVEN AS OUT PROFIT & LOSS ACCOUNT FOR BOTH THE ASSESSMENT YEAR HAVE BEEN CREDITED WITH INTEREST INCOME, THEY DO NO T INCLUDE ANY DEBIT ON ACCOUNT OF INTEREST EXPENDITURE; THAT THIS IS FOR T HE SIMPLY REASON THAT NO INTEREST EXPENDITURE WAS INCURRED IN EITHER OF THE TWO ASSESSMENT YEARS. (C) THAT IT IS VERY WELL SETTLED THAT AN ASSESSEE C ANNOT BE COMPELLED TO EARN ANY INCOME AND THEREFORE, IF BY VIRTUE OF OUT UNDER STANDING WITH VARIOUS PARTIES INCLUDED IN THE BRAD GROUP OF SUNDRY DEBTOR S, LOANS & ADVANCES, WE DID NOT CHARGE ANY INTEREST ON THEIR DEBIT BALANCES IN OUR BOOKS OF ACCOUNT, IT CANNOT BE OPEN TO THE DEPARTMENT EITHER TO COMPEL U S TO CHARGE IT OR TO ASSESS IN OUT HANDS ANY NOTIONAL INCOME IN THAT BEHALF. RELIANCE IS PLACED ON THE DECISION OF HON'BLE SUPRE ME COURT REPORTED IN CIT GUJARAT VS. A. RAMAN & CO. 67 ITR PAGE 11 WERE IT H AD BEEN HELD THAT THE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 22 - LAW DOES NOT OBLIGE A TRADER TO MAKE THE MAXIMUM PR OFIT THAT HE CAN OUT OF HIS TRADING TRANSACTIONS. INCOME WHICH ACCRUES TO A TRA DER IS TAXABLE IN HIS HANDS , INCOME WHICH HE COULD HAVE BUT HAS NOT EARNED, IS N OT MADE TAXABLE AS INCOME ACCRUED TO HIM. APPELLANT ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZA DI BACHAO ANDOLAN REPORTED IN 263 ITR 706. SUBSEQUENTLY VIDE REPLY SUBMITTED ON 5 TH OCT. 2004, IT HAS BEEN OBJECTED THAT EXCEPT FOR COPIES OF AGREEMENTS REFERRED TO THEREIN , EVERYTHING AS REQUIRED HAS BEEN SUBMITTED AND THAT IT WAS BECAUSE NO FORMAL AG REEMENTS WERE ENTERED INTO WITH THE PARTIES THAT THE SAME HAD NOT BEEN FU RNISHED. 14. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER: I FIND THAT SINCE IN THE ACCOUNT OF ABHIJAY CAPITA L SERVICES, THE APPELLANT WAS OBVIOUSLY OF THE UNDERSTANDING THAT I NTEREST WAS LIABLE TO BE EARNED, THERE IS NO REASON WHATSOEVER FOR NOT SHOWING SAID INTEREST EARNING FOR THE ASST. YEAR 2001-02 WHEREIN A BALANCE OF RS.13,48,350/- REMAINED OUTSTANDING FOR SEVERAL MON THS AND UPTO 13.01.2001 WHEN IT IS OFF SET BY A JOURNAL ENTRY RE ADING BY JOURNAL NO.17 INTO TRADING PROFIT AND LOSS RS.6,50,000/-.TH E DETAILS OF ACCOUNT SHOW CHANGE OF INTEREST AT 12% P.A. CALCULATED ON 3 1.03.2000. INTEREST UPTO 13.01.2001 WOULD THEREFORE, CALCULATE AT APPRO X. RS.1,28,000/- FOR NINE AND HALF MONTHS ON THIS AMOUNT OF RS.13,48 ,350/-. FURTHERMORE IN THE ACCOUNT OF DHIREN H. VORA WHICH IS UNDER THE SAME BRAD HEAD OF LOANS & ADVANCES A SUM OF RS.3 ,00,00,000/- WAS OUTSTANDING FROM 23 RD MARCH 2000 AND UPTO 22/8/2000. INTEREST ON THESE B ALANCE IN BOTH THE YEARS WAS CHARGEABLE AT LEAST RATE APPLICABLE T O BALANCE OUTSTANDING IN ABHIJAY CAPITAL SERVICES. THE SAME W OULD COMPUTE AT RS.69,230/- FOR 1 WEEK RELEVANT TO A.Y.2000-01 AND AT RS.23,07,690/- FOR 7 MONTHS AND 3WEEKS IN NEXT YEAR. THERE CAN BE NO REASON FOR NON INCLUSION OF THESE AMOUNTS IN THE INCOMES FOR THESE TWO YEARS WHEN INTEREST IS DUE ON LOANS AND ADVANCES AND SO IT IS CONCLUDED THAT APPELLANT HAS KEPT THIS INCOME OUTSIDE ITS BOOKS OF ACCOUNTS. I DO NOT FIND SUBSTANCE IN THE CLAIM OF THE APPELLA NT THAT NOTICE FOR ENHANCEMENT IS NOT SPECIFIC OR VERY BROADLY STATED. IT HAS BEEN CLEARLY IDENTIFIED THAT ISSUES RAISED IN PARAS (V) & (VI) O F EARLIER NOTICE DATED ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 23 - 30 TH AUG. 2004 WOULD BE THE SUBJECT OF ENHANCEMENT. THE SAME PORTION OF THE NOTICE HAS BEEN QUOTED ON PAGE 14 OF THE APP ELLANTS ORDER. 6.3.3. IT IS OBVIOUS FROM THE PERUSAL OF THOSE PAR AS THAT THERE IS NO AMBIGUITY CONTAINED IN THE NOTICE. AS REGARDS THE C LAIM THAT INTEREST HAS NOT ACTUALLY BEEN EARNED, THE SAME ARGUMENT IS NOT ACCEPTABLE BECAUSE THESE ARE ACCOUNTS UNDER A BROAD GROUP OF L OANS & ADVANCES, ONE OF WHICH HAS BEEN REFLECTED AS EARNIN G INCOME OF RS.13,48,350/-. THEREFORE, OBVIOUSLY INTEREST HAD B EEN EARNED ON THE BALANCE OUTSTANDING IN THIS ACCOUNT AND THE OTHER B ALANCE OF DHIREN H. VORA BOTH OF WHICH CONTINUED AS OUTSTANDING FOR SEVERAL MONTHS IN THE SUBSEQUENT ASSESSMENT YEAR. ALSO THERE IS NO BA SIS FOR THE APPELLANTS CLAIM THAT AS PER THE UNDERSTANDING OF THESE PARTIES INTEREST WAS NOT TO BE CHARGED ON ACCRUED INTEREST IN ACCOUNT OF ABHIJAY CAPITAL SERVICES LTD.. THERE IS NO WRITTEN AGREEMENT TO THIS EFFECT. IT IS NOT THAT THE APPELLANT IS COMPELLED T O CHARGE INTEREST BUT THAT THE SIMILAR TREATMENT TO SIMILAR ACCOUNTS IS O BVIOUSLY TO BE EXPECTED. THE ONLY REASONABLE CONCLUSION IS THAT TH ESE EARNED INCOME HAVE BEEN KEPT OUTSIDE THE BOOKS OF ACCOUNTS. THE I NCOME FOR A.Y. 2000-01 IS THEREFORE, ENHANCED BY SUM OF RS.69,230/ - BEING INTEREST EARNED ON BALANCE OF RS.3 CRORES LENT TO DHIREN H. VORA FOR 1 WEEK THIS YEAR. ALSO INCOME FOR A.Y. 2001-02 IS ENHANCED BY SUM OF RS.1,28,000/- BEING INTEREST EARNED ON BALANCE OUTS TANDING IN ACCOUNT OF ABHIJAY CAPITAL SERVICES LTD. AND A FURTHER RS. 23,07,690/- BEING INTEREST EARNED ON BALANCE LENT TO DHIREN H. VORA U PTO 22.08.2000, WHICH ALL AMOUNTS HAVE BEEN KEPT OUTSIDE THE BOOKS OF ACCOUNTS. 15. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE HAS FILED WRITTEN SUBMISSION WHICH ARE AS FOLLOWS: 17. THE SECOND ISSUE WHICH IS ALSO COMMON FOR BOTH THE ASSESSMENT YEARS PERTAINS TO THE ENHANCEMENT MADE B Y THE LEARNED CIT(A) BY DIRECTING THE ASSESSING OFFICER TO MAKE T HE FOLLOWING ADDITIONS BY WAY OF INTEREST INCOME EARNED BY THE A SSESSEE: ASSTT. YEAR RS. 2000-01 69,230 2001-02 (A) 1,28,000 BEING INTEREST EARNED ON BALANCE OUTSTANDING IN THE ACCOUNT OF ABHIJAY CAPITAL SERVICES LTD. (B) 23,07,690 BEING INTEREST EARNED ON TH E AMOUNT LENT TO DHIREN H. VORA THE RELEVANT FACTS ARE THAT FOR A.Y. 2000-01, TOWAR DS THE END OF THE ACCOUNTING YEAR ON 20 TH MARCH, 2000 THE ASSESSEE PURCHASED SHARES FROM DHIREN H. VORA FOR A CONSIDERATION OF RS.30,25 ,000. THE SAID AMOUNT WAS CREDITED TO THE ACCOUNT OF SHRI DHIREN H . VORA. ON 23 RD ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 24 - MARCH THE ASSESSEE ADVANCED A SUM OF RS. 3 CRORE TO THE SAME PARTY AND THIS AMOUNT WAS DEBITED TO HIS ACCOUNT (COPIES OF ACCOUNT COMPILED AT PAGES 35 - 36 OF THE PAPER BOOK). THE A FORESAID SUM OF RS. 3 CRORE WAS ADVANCED BY THE ASSESSEE FROM OUT O F SURPLUS FUNDS AND NO BORROWED FUNDS WERE UTILIZED WHICH IS PROVED FROM THE FACT THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED BY THE AP PELLANT COMPANY DURING THE TWO ASSESSMENT YEARS UNDER APPEAL. THE A CCOUNT WAS ULTIMATELY SQUARED UP ON 22 ND AUGUST, 2000. AS PER MUTUAL UNDERSTANDING NO INTEREST WAS CHARGEABLE AND, THERE FORE, THE APPELLANT COMPANY DID NOT CHARGE ANY INTEREST AND, THEREFORE, DID NOT EARN ANY INTEREST INCOME IN THIS ACCOUNT. IT IS AN ESTABLISH ED LEGAL POSITION THAT AN ASSESSEE IS FREE TO UTILIZE ITS SURPLUS FUNDS AS IT WISHES AND THE DEPARTMENT CANNOT COMPEL AN ASSESSEE TO CHARGE INTE REST ON ANY MONEY ADVANCED. AT THE MOST, IF ANY BORROWED FUNDS HAD BEEN DIVERTED FOR MAKING INTEREST FREE ADVANCES, THE INTEREST EXP ENDITURE INCURRED ON SUCH BORROWED FUNDS CAN BE DISALLOWED BY THE ASSESS ING OFFICER AS PER PROVISIONS OF SECTION 36(III) OF THE INCOME-TAX ACT . IN THE PRESENT CASE, NO BORROWED FUNDS HAVE BEEN UTILIZED AND, THEREFORE , THE APPELLANT COMPANY WAS FREE TO MAKE ANY ADVANCE WITHOUT CHARGI NG ANY INTEREST ON MUTUAL UNDERSTANDING. THE DEPARTMENT CANNOT COMP EL THE ASSESSEE TO EARN INCOME AND TO BRING TO THE CHARGE OF TAX AN Y NOTIONAL INCOME WHICH IS NOT ACTUALLY EARNED. 18. REGARDING A.Y. 2001-02, THE FACTS ARE THAT DURING THE FINANCIAL YEAR 1999-2000 THE ASSESSEE MADE SEVERAL ADVANCES T O ABHIJAY CAPITAL SERVICES LTD. ON 31 ST MARCH, 2000 THE ACCOUNT WAS SQUARED UP. ON THE SAME DATE BY PASSING A JOURNAL ENTRY THE ASSESSEE CHARGED INTEREST @ 12% P. A. AND ACCORDINGLY, DEBITED THE S AID ACCOUNT BY A SUM OF RS. 13,48,350. THIS OUTSTANDING INTEREST IN THE ACCOUNT WAS CARRIED FORWARD AS ON 1 ST APRIL, 2000 AND SINCE IT WAS ONLY INTEREST OUTSTANDING AND NOT AN ADVANCE MADE BY THE ASSESSEE , AS PER MUTUAL UNDERSTANDING THE ASSESSEE COMPANY DID NOT CHARGE A NY INTEREST ON SUCH OUTSTANDING INTEREST (COPY OF ACCOUNT COMPILED AT PAGES 37 TO 39 OF THE PAPER BOOK). 19. DURING THE COURSE OF THE APPELLATE PROCEEDI NGS THE LEARNED CIT(A) ISSUED A LETTER DATED 30 TH AUGUST, 2004 ASKING THE ASSESSEE TO FURNISH DETAILS OF ADVANCES MADE AND INTEREST CHARG ED. THE APPELLANT COMPANY RESPONDED BY FILING A LETTER DATED 8 TH SEPTEMBER, 2004. THEREAFTER, THE LEARNED CIT(A) ISSUED A NOTICE FOR ENHANCEMENT DATED 20 TH SEPTEMBER, 2004 WHICH WAS RECEIVED BY THE ASSESSEE ON 22 ND SEPTEMBER, 2004, CALLING UPON THE ASSESSEE TO EXPLA IN WHY ENHANCEMENT BE NOT MADE BY WAY OF NOTIONAL INTEREST ON THE AFORESAID TWO ACCOUNTS WHICH WAS NEVER EARNED BY THE ASSESSEE AND THE ASSESSEE WAS ASKED A REPLY BY 24 TH SEPTEMBER, 2004 THEREBY ALLOWING A COUPLE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 25 - OF DAYS TO THE ASSESSEE FOR SUBMITTING REPLY. ACCOR DINGLY, THE ASSESSEE DULY FILED A REPLY ON 24 TH SEPTEMBER, 2004 WHEREIN THE ENTIRE FACTS WERE PROPERLY EXPLAINED AND WAS SUBMITTED THAT NO A DDITION CAN BE MADE IN RESPECT OF ANY NOTIONAL INCOME WHICH HAS NO T ACCRUED TO THE ASSESSEE OR WHICH HAS NOT BEEN EARNED. THE LEARNED CIT(A) ARBITRARILY REJECTED THE SUBMISSIONS MADE BEFORE HER. AT PARA 6 .3.1 OF HER ORDER THE LEARNED CIT(A) CONCLUDED THAT THE APPELLANT HAS KEPT THE INTEREST INCOME OUTSIDE ITS BOOKS OF ACCOUNT. AT PARA 6.3.3 THE LEARNED CIT(A) AGAIN OBSERVED THAT 'THERE WAS NO WRITTEN AGREEMENT FOR NOT CHARGING INTEREST'. SHE AGAIN REITERATED THAT 'THE ONLY REAS ONABLE CONCLUSION IS THAT THESE EARNED INCOME HAVE BEEN KEPT OUTSIDE THE BOOKS OF ACCOUNT'. IN THE RESULT, THE LEARNED CIT(A) ORDERED THE IMPUG NED ENHANCEMENTS FOR BOTH THE ASSESSMENT YEARS. 20. IT IS RESPECTFULLY SUBMITTED THAT THE LEARN ED CIT(A) HAS FAILED TO BRING ANY EVIDENCE OR MATERIAL ON RECORD TO EVEN RE MOTELY SUGGEST THAT THE APPELLANT COMPANY EARNED AND RECEIVED INTEREST INCOME WHICH WAS NOT ACCOUNTED IN THE BOOKS OF ACCOUNT . THERE IS NO EVIDENCE THAT THE TWO PARTIES ACTUALLY PAID INTEREST TO THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT AND THE SAID INCOME WAS ALSO KEPT BY THE AS SESSEE OUTSIDE THE BOOKS OF ACCOUNT. FURTHER, THERE IS NO LEGAL REQUIR EMENT THAT THERE HAS TO BE A WRITTEN AGREEMENT FOR NOT CHARGING INTEREST . THE CONCLUSIONS DRAWN BY THE LEARNED CIT(A) ARE TOTALLY ARBITRARY A ND UNJUSTIFIED AND ARE BASED ON MERE CONJECTURES, ASSUMPTIONS AND SURM ISES WHICH IS NOT PERMISSIBLE AS HELD IN THE FOLLOWING CASES: I) VINAYKUMAR MODI VS. CIT, 27 2 ITR 91 (DEL.) II) DCIT VS. ADINATH INDUSTRIES, 252 ITR 476 (GUJ.) III) UNION OF INDIA VS. PLAYWORLD ELECTRONICS PVT. LTD., 184 ITR 308 (SC). 21. IT IS RESPECTFULLY SUBMITTED THAT THE ENHANCEME NT DIRECTED BY THE LEARNED CIT(A) FOR THE TWO ASSESSMENT YEARS UNDER A PPEAL ARE WITHOUT ANY BASIS AND THE SAME MAY KINDLY BE DIRECTED TO BE DELETED. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPOR TED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ENHANCE D THE ASSESSMENT MADE BY THE LEARNED ASSESSING OFFICER BY INCLUDING RS.69,230/- IN THE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 26 - INCOME OF THE ASSESSMENT YEAR 2000-01 AND RS.24,35, 690/- IN ASSESSMENT YEAR 2001-02 BEING INTEREST ON ADVANCES GIVEN BY TH E ASSESSEE IN RESPECT OF WHICH NO INTEREST INCOME WAS DISCLOSED BY THE ASSES SEE. THE SUBMISSION OF THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) THAT NO ACTUAL INTEREST INCOME WAS EAREND BY THE ASSESSE E ON ADVANCES IN QUESTION WAS REJCTED BY THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) BY OBSERVING THAT THE INTEREST INCOME ARE KEPT OUTSIDE THE BOOKS OF ACCOUNT. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECRDO BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO SHOW THAT AN Y REAL INTEREST INCOME ACCRUED TO THE ASSESSEE IN RESPECT OF ADVANCES IN Q UESTION IN ANY OF THE YEAR UNDER APPEAL. THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) HAS NOT BROUGHT ANY MATERIAL ON RECORD AFTER VERIFICATION F ROM THE PARTIES TO WHOM ADVANCES WERE GIVEN TO SHOW THAT THE INTEREST INCOM E ACCRUED TO THE ASSESSEE OR RECIVED BY THE ASSESSEE WERE KEPT OUTSIDE THE BO OKS OF ACCOUNT. IN ABSENCE OOF ANY SUCH MATERIAL, IN OUR CONSIDERED OPINION, T HE ADDITION WAS MADE ONLY ON THE BASIS OF SURMISES, CONJECTURES, SUSPICIOUS A ND PRESUMPTION. SUCH ADDITION IS CLEARLY UNSUSTAINABLE IN LAW. WE THEREF ORE, DELETE THE ADDITION OF RS.69,230/- MADE IN ASSESSMENT YEAR 2000-01 AND RS. 24,35,690/- IN THE ASSESSMENT YEAR 2001-02. THUS, THIS GROUND OF APPEA L OF THE ASSESSEE IS ALLOWED FOR BOTH THE YEAR UNDER CONSIDERATION. 18. THE COMMON GROUND NO.3 OF THE APPEAL TAKEN IN A SSESSMENT YEAR 2000-01 AND 2001-2002 IS AS UNDER: 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING THE A PPELLANT'S GROUND URGING UPON HER TO CONSIDER THE PECULIAR FACTS AND CIRCUMSTANCE CASE AND TO ORDER FOR THE CANCELLATION OF LEVY OF INTERE ST U/S. 234A AND 234B. 19. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT OBJECTS TO LEVYING OF INTEREST OF RS.2,41,162/- UNDER SECTION 234B AND RS .4,862/- UNDER SECTION 234A FOR A.Y. 2000-01 CLAIMING THAT NO SUCH INTERES T IS LEVIABLE AND THAT THE ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 27 - LEVY OF INTEREST IS LEFT BY THE A.O. TO DISCRETION OF THE OFFICE TO CALCULATE THE SAME AND THEREFORE, INTEREST CHARGED BY OFFICE DESE RVES TO BE DELETED. SIMILARLY OBJECTIONS WERE MADE FOR LEVYING OF INTER EST OF RS.1,20,018/- UNDER SECTION 234B OF THE ACT FOR A.Y.2001-02 ON THE SAME GROUNDS. IN THE STATEMENT OF FACTS FILED BEFORE THE CIT(A) F OR BOTH THE ASSESSMENT YEARS, IT IS FURTHER CLAIMED THAT THERE ARE MISTAKE S IN CALCULATION OF INTEREST AND THAT THE A.O. HAS NOT AT ALL APPLIED HIS MIND TO TH E LEVY. SUBSEQUENTLY, VIDE WRITTEN SUBMISSIONS DATED 24 TH MAY, 2004, THE SAME ARGUMENTS HAVE BEEN ADVANCED. HOWEVER, DURING THE COURSE OF APPEAL PROCEEDINGS BE FORE CIT(A), WHEN SPECIFIC QUERY WAS MADE VIDE MY LETTER DATED 30/08/ 2004 UNDER SECTION 250(4) OF THE I.T.ACT, 1961 TO SUBSTANTIATE THE CLA IM MADE, APPELLANT WROTE VIDE LETTER DATED 3 RD SEPT., 2004 SUBMITTED ON 8 TH SEPT., 2004 THAT THE CORRECT WORKING WOULD BE SHORTLY SUBMITTED BUT NONE WAS AT ALL GIVEN AND IT WAS ADMITTED THAT THE CALCULATION OF CHARGE OF INTEREST WAS CORRECT. 20. THE CIT(A) CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE AND FOUND THAT SINCE THE CHARGING OF INTEREST IS CO NSEQUENTIAL TO THE DETERMINATION OF TOTAL INCOME, THE APPELLANT WAS LI ABLE FOR THE SAME AND THE A.O. HAS THEREFORE, RIGHTLY DIRECTED THE OFFICE TO CALCULATE THE CHARGE THE INTEREST. THE CALCULATION OF CHARGE BEING FOUND TO BE CORRECT, THE SAME IS THEREFORE, UPHELD AND THIS GROUND OF APPEAL IS REJE CTED. 21. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE HAS FILED WRITTEN SUBMISSION WHICH ARE AS FOLLOWS: THE LAST ISSUE WHICH IS ALSO COMMON FOR BOTH THE AS SESSMENT YEARS PERTAINS TO LEVY OF INTEREST U/S. 234A AND 234B OF THE INCOME-TAX ACT. IT IS SUBMITTED THAT THE GROUNDS RAISED BY THE APPELLA NT IN THIS BEHALF ARE CONSEQUENTIAL AND, THEREFORE, THE ASSESSING OFFICER MAY KINDLY BE DIRECTED TO RECALCULATE THE CORRECT INTEREST CHARGE ABLE WHILE GIVING EFFECT TO THE ORDER OF THE HON'BLE TRIBUNAL. ITA NO.8 4 & 85/AHD/2005 M/S.PARANJAY MERCANTILE LTD. ASST.YEAR -2000-01, 2001-02 - 28 - 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 23. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ASSESSEE HAS IN THE WRITTEN SUBMISSIONS STATED THAT GROUNDS OF APPEAL R ELATING TO CHARGING OF INTEREST UNDER SECTION 234A AND 234B OF THE ACT IS CONSEQUENTIAL IN BOTH THE YEARS. THE GROUNDS BEING CONSEQUENTIAL IN NATURE RE QUIRES NO SEPARATE ADJUDICATION BY US. THEREFORE THE SAME ARE DISMISSE D. 24. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS ABOVE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 20/11/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 20/11/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD