Assistant Commissioner of Income-tax, V. M/s. The Gujarat Tea Traders Pvt. Ltd., Jalna

ITA 90/PUN/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8548 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income
• Section: 143(3); 50C; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.90/PN/2014 (ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1, AURANGABAD. . APPELLANT VS. M/S THE GUJARAT TEA TRADERS PVT. LTD., BHAISHREE CHAMBERS, VEER SAWARKAR CHOWK, SINDHI BAZAR, JALNA. PAN : AABCT2821L . RESPONDENT DEPARTMENT BY : SHRI RAJESH DAMOR ASSESSEE BY : SHRI NIKHIL PATHAK DATE OF HEARING : 17-12-2014 DATE OF PRONOUNCEMENT : 29-12-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGA INST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), AURANGABA D DATED 25.10.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 11.1 1.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), AURANGABAD ERRED IN DELETING TH E ADDITION OF RS.1,23,600/- MADE BY APPLYING PROVISIONS OF SECTION 50C OF THE I .T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F RS.15,21,946/- MADE ON ACCOUNT OF INTEREST ON ADVANCES FOR NON-BUSINESS PU RPOSES. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF DEALING IN ALL TYPES OF TEA LEAFS, TEA POWDER AND SUGAR, ETC.. ITA NO.90/PN/2014 FOR THE ASSESSMENT YEAR 2009-10, IT FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.13,00,32,140/- WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. IN THE SCRUTINY ASSESSMENT FINALIZED U/S 143(3) OF THE ACT DATED 11.11.2011 THE TOTAL INCOME WAS DETERMINED AT RS.12,21,77,686/- AF TER MAKING CERTAIN ADDITIONS/DISALLOWANCES. IN APPEAL BEFORE THE CIT( A), ASSESSEE HAD CHALLENGED SOME OF THE ADDITIONS WHICH HAVE SINCE B EEN DELETED BY THE CIT(A). AGAINST SUCH AN ACTION OF THE CIT(A), REVE NUE IS IN APPEAL BEFORE US BY WAY OF AFORESTATED GROUNDS OF APPEAL. 4. IN SO FAR AS THE FIRST GROUND IN RELATION TO DEL ETION OF RS.1,23,600/- IS CONCERNED, THE RELEVANT FACTS ARE AS FOLLOWS. THE RESPONDENT-ASSESSEE HAD UNDERTAKEN CONSTRUCTION OF THREE STOREYED COMPLEX A T JALNA. A PART OF THE PREMISES I.E. A SHOP CONSTRUCTED ON THE GROUND FLOO R ADMEASURING 45.63 SQ.MTRS. WAS SOLD BY THE ASSESSEE DURING THE YEAR F OR A TOTAL CONSIDERATION OF RS.12,00,000/-. THE ASSESSEE DECLARED A GAIN OF RS .9,55,080/- ON THE SALE OF SUCH SHOP AS BUSINESS INCOME. THE ASSESSING OFFICE R HELD THAT SALE OF A PORTION OF THE BUILDING WOULD AMOUNT TO SALE OF A C APITAL ASSET AND NOT SALE OF A STOCK-IN-TRADE OR CURRENT ASSET AS CLAIMED BY THE A SSESSEE. THE ASSESSING OFFICER ALSO HELD THAT CONSTRUCTION WAS NOT THE BUS INESS OF THE ASSESSEE AND THEREFORE THE GAIN ON THE SALE OF SHOP AMOUNTS TO S ALE OF A CAPITAL ASSET. THE ASSESSING OFFICER NOTED THAT THE VALUE OF THE SAID PREMISES FOR THE PURPOSES OF PAYMENT OF STAMP DUTY WAS RS.13,23,600/- AND THEREF ORE BY APPLYING THAT PROVISION OF SECTION 50C OF THE ACT HE BROUGHT TO T AX THE DIFFERENCE OF RS.1,23,600/- (I.E. RS.13,23,600/- MINUS RS.12,00,000/-). 5. THE CIT(A) NOTED THAT ASSESSEE HAD DECLARED A BU SINESS INCOME OF RS.9,55,080/- WITH RESPECT TO THE IMPUGNED TRANSACT ION AND SUCH INCOME WAS OFFERED TO TAX BY THE ASSESSEE @ 30% AS IT WAS A RE GULAR INCOME. THE CIT(A) FURTHER NOTED THAT IF THE INCOME ON SALE OF SHOPS W AS TO BE TREATED AS A CAPITAL GAIN, ASSESSEE WOULD REQUIRE TO PAY LESSER TAX I.E. @ 20%. FURTHER, THE ITA NO.90/PN/2014 CIT(A) NOTED THAT IF THE SAID SHOP WAS TO BE TREATE D AS A CAPITAL ASSET THEN THE SAME WAS TO BE TREATED AS A LONG TERM CAPITAL ASSET AND ASSESSEE WAS TO BE ENTITLED TO THE BENEFIT OF INDEXATION WHILE COMPUTI NG THE LONG TERM CAPITAL GAIN. FOR ALL THE ABOVE REASONS, CIT(A) NOTED THAT IF THE ASSESSEE WAS MADE LIABLE TO PAY TAX ON THE IMPUGNED TRANSACTION AS IF IT WAS A CAPITAL GAIN, IT WOULD RESULT IN LOWER TAX LIABILITY THAN THE AMOUNT PAID BY THE ASSESSEE BY CONSIDERING IT AS BUSINESS INCOME. THEREFORE HE FO UND NO REASONS TO UPHOLD THE ADDITION OF RS.1,23,600/- MADE BY THE ASSESSING OFFICER. AGAINST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT CONT ROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE CIT(A), AND THEREFORE WE ARE UNABLE TO FIND ANY FAULT IN APPROACH OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION. OSTENSIBLY, THE ASSESSING OFFICER DISREGARDED THE STAND OF THE ASSE SSEE THAT THE TRANSACTION OF SALE OF SHOP IN THE BUILDING COMPLEX AT JALNA WA S ASSESSABLE AS BUSINESS INCOME. INSTEAD, THE ASSESSING OFFICER PROCEEDED O N THE BASIS THAT THE SAME WAS LIABLE TO BE TAXED AS CAPITAL GAIN AS ACCORDING TO HIM THE TRANSACTION WAS SALE OF A CAPITAL ASSET. SO HOWEVER, WHILE HOLDING THAT THE TRANSACTION WAS SALE OF A CAPITAL ASSET, THE ASSESSING OFFICER DID NOT APPLY THE RELEVANT PROVISIONS TO CALCULATE THE ASSESSABLE CAPITAL GAIN S INCOME. INSTEAD, HE PICKED UP THE SOLITARY PROVISION OF SECTION 50C OF THE ACT AND TINKERED WITH TOTAL CONSIDERATION ON THE GROUND THAT THE STAMP DU TY VALUATION WAS HIGHER THAN THE STATED CONSIDERATION BY A SUM OF RS.1,23,6 00/-. THE DISCUSSION MADE BY THE CIT(A) DEMONSTRATES THAT IF THE PROVISI ONS OF THE CHAPTER IV-E RELATING TO THE TAXABILITY OF INCOME FROM CAPITAL G AINS ARE APPLIED TO THE PRESENT CASE, THE RESULTANT TAX PAYABLE WOULD BE LOWER THAN WHAT HAS BEEN RETURNED BY THE ASSESSEE. THE AFORESAID FACTUAL MATRIX HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US AND THEREFORE, WE AFFIRM THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,23,600/- MADE BY THE ASSESSING OFFICER. THUS, ON THIS ASPECT REVENUE FAILS. ITA NO.90/PN/2014 7. THE SECOND ISSUE RELATES TO AN ADDITION OF RS.15 ,21,946/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENDITUR E. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER NOTED THAT ASS ESSEE HAD GIVEN INTEREST- FREE ADVANCES OF RS.1,34,00,000/- TO THE FOUR PARTI ES. THE ASSESSING OFFICER FURTHER NOTICED THAT ASSESSEE WAS PAYING INTEREST O N LOANS RAISED, ESPECIALLY ON THE CASH CREDIT ACCOUNT AVAILED FROM THE HDFC BA NK. THE ASSESSING OFFICER NOTED THAT ASSESSEE WAS PAYING INTEREST TO HDFC ON THE CASH CREDIT ACCOUNT @ 11.75% AND THE TOTAL INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT WAS RS.15,21,946/-. THE SAID AMOUNT WAS DISALLOWED WHILE COMPUTING TOTAL INCOME. 8. THE CIT(A) HAS DELETED THE SAID ADDITION BY FOLL OWING THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 (BOM) ON THE GROUND THAT ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS SO AS TO C OVER THE AFORESAID INTEREST- FREE ADVANCES. THE RELEVANT DISCUSSION OF THE CIT( A) IS REPRODUCED HEREINAFTER :- 7.2.1 THE DISALLOWANCE U/S 36(1)(III) OF THE ACT IS NOT JUSTIFIED IN THE CASE OF THE APPELLANT AS THE SAID ALLEGED INVESTMEN T FOR NON-BUSINESS PURPOSE IS RS.134 LAKHS WHEREAS AS ON 31/03/2008 AND 31/03/ 2009, THE INTEREST FREE RESERVE/ACCUMULATED PROFIT AVAILABLE WITH THE COMPA NY IS RS.1134.22 LAKHS AND RS.1398.43 LAKHS RESPECTIVELY. THEREFORE, THE A LLEGED INVESTMENT FOR NON-BUSINESS PURPOSE IS COVERED BY THE INTEREST FRE E RESERVES AND ACCUMULATED PROFITS AVAILABLE WITH THE APPELLANT CO MPANY. THE ABOVE PROPOSITION OF LAW IS SUPPORTED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER L TD. (2009) 313 ITR 340 (BOM) WHEREIN IT HAS BEEN LAID DOWN THAT IF THE ASS ESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR APART FROM SUBSTANTIAL SHARE HOLDERS FUND, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN THE CASE UNDER AP PEAL, THE INCOME RETURNED BY THE APPELLANT COMPANY FOR THE YEAR UNDER APPEAL IS RS.13,00,32,140/- AND THE INTEREST FREE FUNDS AVAILABLE ON ACCOUNT OF RES ERVES/ACCUMULATED PROFIT AS ON 31/03/2009 WERE RS.1398.43 LAKHS. IN VIEW OF THE ABOVE FACTS AND THE RATIO LAID DOWN BY THE DECISION OF HON'BLE BOMBAY H IGH COURT AND ALSO THE DECISIONS RELIED ON BY THE APPELLANT, NO DISALLOWAN CE OF INTEREST IS JUSTIFIED U/S 36(1)(III) OF THE ACT. ITA NO.90/PN/2014 9. AGAINST THE AFORESAID, REVENUE IS IN APPEAL BEFO RE US. BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY POINTED OUT THAT ASSESSEE HAS DIVERTED FUND TO THE TUNE OF RS.1,34,00,000/- TO TH E FOUR PARTIES FOR NON- BUSINESS PURPOSES AND THEREFORE INTEREST EXPENDITUR E ELIGIBLE TO SUCH ADVANCES WAS RIGHTLY DISALLOWED BY THE ASSESSING OF FICER. 10. HAVING CONSIDERED THE AFORESAID OBJECTION OF TH E LD. DEPARTMENTAL REPRESENTATIVE, WE FIND NO REASON TO INTERFERE WITH THE CONCLUSION DRAWN BY THE CIT(A). THE FINDING OF THE CIT(A) IS THAT ASSE SSEE WAS POSSESSING SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN, WHICH WE RE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR APART FROM THE SUBSTANTIAL SHARE-HOLDER FUNDS WHICH COVERED THE IMPUGNED INTEREST-FREE ADVANCES AND THE REFORE A PRESUMPTION HAS TO BE DRAWN THAT SUCH INTEREST-FREE ADVANCES HAVE B EEN MADE OUT OF INTEREST- FREE FUNDS AVAILABLE WITH THE ASSESSEE. FACTUALLY SPEAKING, THE AFORESAID FINDING OF THE CIT(A) HAS NOT BEEN ASSAILED BEFORE US ON THE BASIS OF ANY COGENT MATERIAL OR EVIDENCE. SINCE THE AFORESAID F INDING IS NOT IN DISPUTE, THEN THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) IS CLEARLY ATTRACTED AND THE DISALLOWANCE OF RS.15,21,946/- MADE BY THE ASSESSING OFFICER HAS BEEN RIGHTLY DELETED BY THE CIT(A). 11. BEFORE PARTING, WE MAY ALSO REFER TO ANOTHER AS PECT OF THE CONTROVERSY WHICH HAS BEEN DEALT WITH BY THE CIT(A). THE SAID ASPECT IS IN RELATION TO A REFERENCE MADE BY THE ASSESSING OFFICER TO SECTION 14A OF THE ACT. ON THIS ASPECT, THE CIT(A) NOTED THAT THOUGH THE ASSESSING OFFICER HAS REFERRED TO SECTION 14A OF THE ACT IN THE DISCUSSION, YET NO DI SALLOWANCE HAS BEEN DETERMINED BY INVOKING SECTION 14A OF THE ACT AND I NSTEAD THE DISALLOWANCE HAS BEEN DETERMINED BY MAKING RECOURSE TO SECTION 3 6(1)(III) OF THE ACT. HOWEVER, THE CIT(A) HELD THAT EVEN IN TERMS OF SECT ION 14A OF THE ACT, NO ITA NO.90/PN/2014 DISALLOWANCE WAS MERITED. IN THIS CONTEXT, THE CIT (A) HAS MADE THE FOLLOWING DISCUSSION :- 7.2.2 THE DISALLOWANCE U/S 14A IS ALSO NOT JUSTIFI ED AS THE APPELLANT IS ALSO ENGAGED IN THE BUSINESS OF TRADING IN SHARE S AND HAS DECLARED PROFIT FROM SHARE TRADING AS UNDER A.Y. AMOUNT OF PROFIT FROM SHARE TRADING 07-08 RS. 4,88,587/- (SCH. 13) 08-09 RS. 6,42,352/- (SCH. 13) 09-10 RS. (9,00,474/-) (SCH. 13) THE APPELLANT ACCORDINGLY CLAIMED THAT THE SHARES O F COMPANIES HAVE BEEN PURCHASED FOR THE PURPOSE OF SHARE TRADING BUS INESS AND HENCE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. THIS PROPOSITION OF LAW IS SUPPORTED BY THE FOLLOWING DECISIONS - (1) ETHIO PLASTICS PVT. LTD. VS. DCIT (2012) 34 CCH 100 (AHD.) A.Y.2008- 09 (2) MSA SECURITIES SERVICES (P) LTD. VS ACIT (2013) 22 ITR 400 (CHENNAI TRIB.) 34 CCH 386 (CHENNAI TRIB.) A.Y.2008-09 (3) DCIT VS. GULSHAN INVESTMENT CO. LTD. (2013) 35 CCH 142, 86 DTR 262 (KOL. TRIB.) A.Y.2008-09 FURTHER, IN VIEW OF THE RATIO LAID DOWN BY THE DECI SION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE U TILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) AND ALSO THE DECISIONS REL IED ON BY THE APPELLANT IT IS TO BE PRESUMED THAT THE INVESTMENT IN NON-INTERE ST BEARING ADVANCES/SHARES HAS BEEN MADE OUT OF OWN FUNDS AND HENCE THE DISALLOWANCE U/S 14A IS NOT JUSTIFIED. THIS PROPOSI TION OF LAW IS SUPPORTED BY THE FOLLOWING DECISIONS - (1) RESVICK APPARELS PVT. LTD. VS. ACIT [36 CCH 26 (AH D)] (2) CANTON LABORATORIES PVT. LTD. VS. DCIT [35 CCH 353 (AHD)] (3) BHARAT SHANTILAL KADAMIA VS. ITO [35 CCH 352 (AHD) ] (4) BALARAMPUR CHINI MILLS LTD. VS. DCIT [140 TTJ 73 ( KOL) (5) REI AGRO [KOL] (ITAT ONLINE. ORG) (6) BUNGE AGRIBUSINESS (INDIA) (P) LTD. VS. DCIT [132 ITD 549 (MUM)] (7) DHIRAJLAL MORARJI VS. ACIT [50 SOT 496 (MUM)] (8) DCIT VS. WARTSILA INDIA LTD. [34 CCH 471 (MUM)] (9) JINDAL WORLDWIDE LTD. VS. DCIT [35 CCH 380 (AHD)] ITA NO.90/PN/2014 12. ON THIS ASPECT, NO SPECIFIC GRIEVANCE HAS BEEN RAISED BY THE REVENUE AT THE TIME OF HEARING AND THEREFORE, WE HEREBY AFF IRM THE ORDER OF THE CIT(A) ON THIS ASPECT ALSO. THUS, REVENUE FAILS ON THIS A SPECT ALSO. 13. RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 29 TH DECEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), AURANGABAD; 4) THE CIT, AURANGABAD; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE