Income Tax Appellate Tribunal - Jaipur
Income Tax Officer vs Manohar Das Agarwal [Alongwith Ita No. ... on 28 February, 2006
Equivalent citations: (2006)102TTJ(JP)636
ORDER
I.C. Sudhir, J.M. ITA Nos. 820 and 821/Jp/2003:
1. The Revenue has impugned the first appellate orders on the common grounds that the learned CIT(A) has erred in:
(i) not appreciating that the facts of the case are distinguishable from the facts of the case of CIT v. Rajendra Prasad Moody inasmuch as sole purpose of investment in shares of Jaipur Syntex Ltd., was not only to earn dividend income therefrom but also to acquire control over the said company wherein the assessee was a director and (ii) not holding that the disallowance of interest of Rs. 6,62,591 in the case of Sh. Manohar Das Agarwal and Rs. 6,60,299 in the case of Sh. Rajiv Agarwal was rightly made by the AO in view of Hon'ble Gujarat High Court's decision in the case of Smt Padmavati Jaykrishna v. CIT and affirmed by the Hon'ble Supreme Court Smt. Padmavati Jaikrishna v. Addl. CIT .
2. The facts in brief are that the assessees Sh. Manohar Das Agarwal paid interest of Rs. 6,62,591 and Sh. Rajiv Agarwal paid interest of Rs. 6,60,299. The claim of the assessees remained that these interest were paid to Eurasia Finance Co. (P) Ltd. on loan of Rs. 25,00,000 each taken for the purpose of investment in purchase of shares of Rs. 25,00,000 of M/s Jaipur Syntex Ltd. The assessees had received crossed account payee cheques from Eurasia Finance Co. (P) Ltd. on 28th Nov., 1994 which they had deposited in their bank accounts with SBI, Sanganeri Gate, Jaipur and on the same day issued cheques for the same amount of Rs. 25,00,000 each in favour of Jaipur Syntex Ltd. for purchase of shares. The assessees before the AO also submitted confirmations about purchase of shares and about taking on loan from the concerned party. The claim of deduction of interest by the assessees was denied by the AO on the basis that copy of bank account of the above companies in support of withdrawals or investment and copy of accounts of assessee in the books of companies, proof of investment in shares, allotment of shares with share No. (s) and nexus between loan utilized for purchase of shares has not been furnished. The AO also observed that similar claim for asst. yr. 1997-98 was disallowed by holding that interest paid (c)25 per cent to company from whom loan was obtained was exorbitant. The AO also observed that CIT(A), Mumbai in appeal for 1997-98 deleted the disallowance made by AO but assessees presented wrong facts before him that such claim stand allowed in asst. yr. 1996-97 while there was reassessment proceedings on the same ground for that year. The learned AO. also tried to distinguish the Supreme Court judgment in case of CIT v. Rajendra Prasad Moody relied by CIT(A), Mumbai while deciding appeal for asst. yr: 1997-98 by stating that facts are not identical as in that case no dividend income was received while the appellant during the year had received dividend income. The learned CIT(A) has however deleted the additions, which have been questioned before us by the Department.
3. In support of the grounds, the learned Departmental Representative places reliance on the assessment orders and cites decision of Hon'ble Bombay High Court in the case of CIT v. Amritaben R. Shah , wherein it was held that in order to get deduction under Section 57(iii) of the Act, the expenditure should be incurred wholly and exclusively for the purpose "of making or earning the income from other sources". The learned Departmental Representative submits that the Hon'ble Court held further that the assessee would not be entitled to claim deductions where shares have been purchased with a view to acquiring controlling interest in company, since object was not to earn dividend. The assessees became directors of the company whose shares were purchased by them. He places reliance on the decision of Hon'ble Gujarat High Court in the case of Smt Padmavati Jaykrishna v. CIT which has been affirmed by the Hon'ble Supreme Court vide Smt. Padmavati Jaikiishna v. Addl. CIT .
4. The learned Authorised Representative on the other hand justifies the first appellate orders with the submission that in the subsequent asst. yr. 1997-98, the learned CIT(A)-XXXV, Mumbai, on the identical issue, following the judgment the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody (supra) had found the additions made to be unjustified and therefore, he had deleted the total addition of Rs. 7,88,730 for interest paid for purchase of shares in the preceding year, treating the same as allowable under Section 57(iii) of IT Act. He refers page Nos. 8 to 10 of the paper book, i.e., copies of assessment order and first appellate order for the asst. yr. 1997-98 in support. Against this order of the first appellate authority, the Department did not prefer second appeal. He places reliance on the decision of Hon'ble Supreme Court in the case of CIT v. Shivsagar Estate , wherein the civil appeal and SLP were dismissed by the Hon'ble Court having regard to the fact that no appeal was filed against the orders of identical assessment for the previous year. The AO has tried to distinguish the facts for the asst. yr. 1996-97 for the reason that after purchase of shares of M/s Jaipur Syntex Ltd. the assessees have become directors in the said company and therefore the deduction is not allowable. The learned Authorised Representative submits that becoming a director is consequential effect of purchasing shares and on becoming director, a new source of income in the form of salary was also generated.
4.1. He submits further that the facts of the judgment of the Hon'ble Gujarat High Court in the case of Smt. Padmawati Jaikrishna v. CIT (supra) confirmed by the Hon'ble Supreme Court relied on by the AO are different than the facts of the case of the assessees. The Hon'ble Gujarat High Court has held that interest on loan taken to pay income-tax, wealth-tax and annuity deposit is not wholly and exclusively to earn income and, therefore, not allowable deduction under Section 57(iii) of the Act. In assessees' case, the loan was taken for purchasing the shares. After purchase of equity shares, the assessee had earned dividend, which was disclosed in their IT returns for the asst. yr. 1996-97. In the relevant period, the dividend, bank and NSC interest were exempt only upto extent of Rs. 13,000 under Section 80L of the IT. Act and remaining amount was taxable. However the Hon'ble Supreme Court has held in the case of CIT v. Rajendra Prasad Moody (supra) that even if no dividend is received, the interest paid on loan for investment in shares is allowable deduction under Section 57(iii) of IT. Act. The learned Authorised Representative, regarding the observation of the AO that the learned CIT(A), Mumbai, in appeal for asst, yr. 1997-98 had deleted the disallowance on the basis of wrong representation of facts by the assessee before him that such claim stood allowed in asst. yr. 1996-97, reiterates the submissions made before the learned CIT(A) that till 2nd May. 2001 assessee had not received reassessment notice and claim was allowed by accepting return under Section 143(1)(a). The reassessment notice was served on assessee on 7th March, 2002 for the first time and thus at the time of hearing of appeal, no wrong facts were stated.
5. We have considered the arguments advanced by the parties in view of orders of the lower authorities and the judgment cited by the parties. The learned Departmental Representative has placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Amritaben R. Shah (supra), wherein it was held that in order to get deduction under Section 57(iii) of the IT Act. 1961, the expenditure should be incurred wholly and exclusively for the purpose of making or earning the income from other sources. In order that an expenditure may be admissible under Section 57(iii) of the Act, it is necessary that the primary motive of incurring is directly related to earn income falling under the head "Income from other sources". Where, admittedly, shares in a company were purchased by the assessee for the purpose of acquiring controlling interest in the company and not for earning dividend, held the Hon'ble Court, that the expenditure incurred by way of interest on the loan taken by the assessee for the said purpose could not be held to be expenditure incurred wholly and exclusively for the purpose of earning income by way of dividends. In that case before the Hon'ble Court, the assessee had purchased shares in Raval Tiles and Marbles (P) Ltd. for Rs. 2.07 lakhs at par after January, 1972. Her husband also purchased shares in the said company during the same period at par of face value of Rs. 1,77,500 and her father-in-law, Korshi Hirji Shah, purchased shares during the same period of Rs. 34,500. Thus the entire shareholding of Rs. 4.19 lakhs in the said company was purchased by the assessee, her husband and her father-in-law in a couple of months after January, 1972. In her assessment for the asst. yrs. 1976-77, 1977-78 and 1978-79, the assessee claimed deduction under Section 57(iii) of the IT Act, 1961 ("the Act"), of the interest paid by her on the loan obtained for acquiring the shares in the above company. The ITO disallowed the claim of the assessee as, according to him, the loan taken by the assessee for the purchase of shares was for the purpose of acquiring controlling interest in the company.
5.1. No such facts are there on record in the present case before us to suggest that the prime motive of incurring investment in shares to earn income on the part of assessees was not there and the investment was made with an object to acquire controlling interest in the company. Becoming directors of the company, shares of which were purchased by them might be inconsequential effect of purchasing shares, Likewise the facts in the case of Smt. Padmawati Jaykrishna v. CIT (supra) before the Hon'ble Gujarat High Court, relied on by the learned Departmental Representative are distinguishable, since in that case the amount was borrowed for payment of income-tax, wealth-tax and annuity deposit under Section 57(iii) on the ground that if she had not borrowed the money, she would have had to liquidate her shareholdings and thus would have lost one of her source of income and in any case the annuity deposit would earn interest. It was held that even if it were conceded that the assessee was required to take loans with a view to save her investment in shares it could not be said that the interest in question was expenditure incurred "wholly and exclusively" for the purpose of earning income from investments. The immediate purpose of taking the loan on interest was to pay taxes, etc. The Hon'ble Supreme Court was pleased to affirm this decision of the Hon'ble High Court. Having different facts, this decision is also not helpful to the Revenue in the present case. Under these facts and circumstances of the case, it appears that the primary motive of incurring investment in purchasing of shares on the part of the assessees was directly to earn income from other sources and thus the learned CIT(A)had rightly come to the conclusion that the assessees were entitled to claim deduction on interest paid by them on borrowed funds for the purpose under Section 57(iii) of the Act, especially when the Department has not questioned the first appellate order in the asst. yr. 1997-98 allowing the similar claim to the assessees. The ratio laid down by the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody (supra), as discussed above in the submission of the learned Authorised Representative is clearly applicable in the facts of the present case. We, thus, uphold the findings of the learned CIT(A) in this regard.
6. In the result, ground Nos. 1 and 2 of the appeals as well as the appeals are rejected.
7. CO. Nos. 7 and 8/Jp/2004:
The first appellate orders have been objected by the assessees on the following common grounds that the learned CIT(A) has erred in:
(i) not accepting the plea of the appellant that the learned AO is wrong, unjust and has erred in law in initiating proceedings for reassessment and in issuing notice under Section 148 of IT Act, 1961 and
(ii) rejecting plea of the appellant that the learned ITO Ward-6(1), Jaipur has wrongly assumed jurisdiction over the case of appellant and on this account the entire assessment proceedings and assessment completed by him is wrong and bad in law.8. Objection No. 1
8.1. In support of this objection, the learned Authorised Representative submits that notice under Section 148 of the act issued by the AO, Mumbai remained unserved, for the reason that same addition was made in assessee's case for the asst. yr. 1997-98, but the addition was deleted by the learned CIT(A), Mumbai vide his order dt. 10th May, 2001. The AO at Jaipur once dropped the reassessment proceedings under Section 147 but restarted the reassessment proceedings on the same reason by issue of another notice under Section 148.
8.2. The learned Departmental Representative on the other hand justifies the first appellate order on the issue.
8.3. After having gone through the orders of the lower authorities in view of the arguments advanced by the parties, we are not inclined to interfere with the first appellate order as the learned CIT(A) vide para No. 6 of his order has rightly validated the initiation of the proceedings under Section 148 of the Act. For a ready reference para No. 6 of the first appellate order is being reproduced hereunder:
6, As regards to ground No. (1) raised by assessee objecting to the initiation of proceedings for reassessment and issuing notice under Section 148 of IT Act, 1961 by ITO Ward-6(1), Jaipur. As the ground of assessee challenging jurisdiction of ITO, Ward-6(1), Jaipur has already been dismissed the ITO, Ward-6(1), Jaipur was fully competent to issue notice under Section 148, It appears that ITO, Bombay issued notice under Section 148 soon after completing assessment for asst. yr. 1997-98 where he had prima facie reasons to believe escapement of income. The ITO, Ward-6(1), Jaipur after finding that there is no service of notice on record which was issued by AO of Bombay dropped the earlier proceedings and issued fresh notice under Section 148 in continuity. The ITO, Ward-6(1), Jaipur had no information till he issued notice under Section 148 that CIT(A), Bombay deleted the disallowance of claim of interest and modified assessment order on other of CIT(A), Bombay. Thus on the basis of material available with him there were prima facie reasons to issue notice under Section 148 to the assessee. Thus there had been a link between material on record and formation of belief by AO. It is not necessary at initial stage of issue of notice to look into sufficiency or correctness of material but only some prima facie material is required to form belief. The judicial decision of Supreme Court in case of Raymond Woollen Mills Ltd. v. ITO upholds the above legal position. In view of this the ITO, Ward-6(1), Jaipur has correctly and validly initiated proceedings under Section 148 and, therefore, the ground No. (1) of assessee is accordingly dismissed.
We thus reject the objection No. 1 .9. Objection No. 2
9.1. In support of this objection, the learned Authorised Representative submits that only case and record for single assessment (for the asst. yr. 1996-97) was transferred from Mumbai to Jaipur for which the assessee had raised strong objections. The assessment records of other years are still available at Mumbai and are assessed at Mumbai. The AO, therefore, has no jurisdiction to assess the income of the assessee for one year when the remaining years are assessed at Mumbai. The learned CIT(A) was therefore not correct in holding that the AO had the jurisdiction to assess the income of the assessee and, therefore, notice issued under Section 148 by the AO is not valid notice. He places reliance on the decision of Hon'ble High Court of Kerala in the case of P.A. Ahammed v. Chief CIT (2006) 200 CTR (Ker) 378.
9.2. The learned Departmental Representative, on the other hand banks upon first appellate order on the issue.
9.3. After considering the arguments advanced by the parties in view of the orders of the lower authorities as well as the decision relied on by the learned Authorised Representative, we do not find infirmity in the first appellate order. Relevant para No. 5 thereof is being reproduced for a ready reference:
5. I have considered the above said submissions of learned Authorised Representative as well as perused assessment records. It is noticed that the assessee is permanently residing at 144-A, Vijay Path, Tilak Nagar, Jaipur and this address is mentioned in agreements which assessee executed on Bank statement and on letter, etc., filed by assessee or issued by Department duly served on him. The salary certificate filed along with the return also shows the above address of assessee. The registered office of the company appears to be at Alwar and a branch office of the company is shown at above address of assessee. However on the return an address of Mumbai, i.e., B-37, Nandi Bhawan, Ahakali Caves Road, Andhere (E), Mumbai has been given where neither the assessee resides permanently nor it is the principal place of business of assessee or company. Thus it appears that assessee is filing his returns of income wrongly at Mumbai and his main income from salary and dividend accruing, arising and being received by him within the area where ITO, Ward-6(1), Jaipur exercises jurisdiction by virtue of orders/directions under Section 120(1) or (2) of IT Act, 1961. In this view of the matter the case of assessee squarely falls under Section 124(5) of IT Act, 1961. No assessee can claim a basic right of being assessed by one officer rather than another. The earmarking of the jurisdiction to officers vis-a-vis assessees has two principal objects; One, that of causing least inconvenience and harassment to the assessee; and secondly, maximum organizational advantage and convenience to the officer of the Revenue to effectively discharge his statutory functions. So, in a case where the assessee has suffered no real hardship, an objection as to jurisdiction should not be allowed to prevail on the basis of some lacuna, error or omission in the passing of appropriate orders of allotment or jurisdiction. That is how Sub-section (5) of Section 124 comes into the picture as an overriding clause, which brushes away all the technicalities of the earlier Sub-section (1) to (4) in the eventuality contemplated by it. The non obstante clause at the beginning of Sub-section (5) is very wide and makes it clear that it is intended as a saving provision against the technical objections and disputes that may be raised in view of the other Sub-sections. The judicial decision in case of Kanji Mal & Sons v. CIT upholds above legal view. The ITO, Ward-6(1) had valid jurisdiction over the assessee and has correctly assumed it. Therefore the ground No. (2) of appellant-assessees fails and is accordingly dismissed.
We thus, affirm the first appellate order in this regard. In result, objection No. (2) is disallowed.
10. The cross-objections are thus rejected.