Income Tax Appellate Tribunal - Mumbai
Tabook Finance & Investments P. Ltd, ... vs Department Of Income Tax
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IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E", MUMBAI
BEFORE SHRI D.K. AGARWAL (J.M.)
AND
AND SHRI. R.K. PANDA (A.M.)
I.T.A. No.1017/MUM/2009
Assessment Year : 2003-2004
Income Tax Officer 1(3) (3) Tabook Finance & Investments Pvt.
R.No.528/564, 5th Floor, Ltd.
Aayakar Bhavan, M.K. Road, C/o. Atlanta Finance & Investments
Mumbai - 400 020 Vs. Pvt. Ltd,
Nicholas Piramal Tower,
Ganpatrao Kadam Marg, Lower Parel,
Mumbai-400 013
P.A. No: AAACT55520
(Appellant) (Respondent)
Appellant by: Shri. Sumeet Kumar
Responded by : Shri. M.D. Inamdar
ORDER
PER D.K. AGARWAL, J.M.
This appeal preferred by the revenue is directed against the order dated 29.11.2008 passed by the ld. CIT(A) for the Assessment Year 2003-04.
2. Briefly stated facts of the case are that the assessee company is engaged in dealing in finance and shares, filed return declaring a loss of Rs.3,74,89,840/- The Assessing Officer after processing the return u/s.143(1) of the Income Tax Act, 1961 (the Act) on 24.11.2003 initiated proceeding u/s.147 of the Act. During the course of re-assessment proceeding it was interalia observed by the Assessing Officer that the assessee company has claimed Rs.4,11,11,186/- as business expenses including interest payment of Rs.4,10,41,963/- on unsecured loan against which the assessee has shown dividend income of Rs.36,58,120/-. This shows that the assessee has not carried out any business activity and earned dividend income only. The assessee was asked to show as to why the expenses claimed should not be disallowed as no business activities have been carried out. In response the assessee submitted as under:-
2"Over the years the assessee has taken loans and paid interest on them. These loans have been partly utilized for the purpose of investments. During the year the company has received dividend on such investments and same has been offered for tax under the head Income from Other Sources. Thus even if proportionate interest paid is allocated towards the earning of dividend income the net result in the computation of Total income remains the same. It may also be noted that the assessee company has disclosed the Current/ Net total income as "NIL" and not carried forward any loss to the subsequent year(s)."
The assessee was again asked to file details of investment and company wise investment in shares. In the absence of any response, the Assessing Officer disallowed the assessee's claim of business loss Rs.4,11,47,961/- and treated the dividend income of Rs.36,58,120/- as income from other sources and completed the asstt. at an income of Rs.36,58,120/- vide order dated 04.08.2006 passed u/s.143(3) r.w.s. 147 of the Act. On appeal, before the ld. CIT(A), it was contended by the assessee that only in the year under consideration the dividend income is taxable. It was further contended that interest expenses be allowed u/s.57 (iii) of the Act. The ld. CIT(A) on analysis of balance sheet of the company observed that the company has total share capital and reserves and surplus of Rs.25,55,000/-. On the other hand, the total investment which has yielded dividend income in question is Rs.21,10,47,495/-. This clearly establishes that the investments in dividend earning instrument have been made primarily out of borrowed capital. The dividend yield is normally much lower than the interest rate prevailing in the market and accordingly he held that there was no reason for the Assessing Officer not to allow such interest to the extent of dividend income u/s.57(iii) of the Act and directed the Assessing Officer to assess the income at Rs. Nil and not to allow carry forward of any loss. The ld. CIT(A) also directed to delete the levy of interest u/s.234D Rs.60,004/- and accordingly partly allowed the appeal
3. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us.
4. Ground No.1 is against the deletion of disallowance of interest expenditure.
5. At the time of hearing the ld. DR submits that for the reasons as mentioned in the assessment order the ld. CIT(A) was not justified in directing the Assessing Officer to assess the income at Rs.Nil.
36. On the other hand, the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) also filed copy of balance sheet, P&L account and details of investments and shares to show that the investment in shares was made out of interest bearing funds. He therefore, submits that the order passed by the ld. CIT(A) allowing the interest be upheld.
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that investment in shares was made by the assessee out of interest bearing funds. It is also not in dispute that for the year under consideration the dividend income was taxable. It is settled law that interest is allowable against the dividend income u/s.57(iii) of the Act. In the absence of any material placed on record by the revenue to show that interest bearing funds have been diverted by the assessee for personal purposes and not for investment in shares, we are of the view that the ld. CIT(A) was fully justified in allowing such interest out of dividend income and in directing the Assessing Officer to assess the income at Nil and not to allow carry forward of any loss. The ground taken by the revenue is, therefore, rejected.
8. Ground No.2 is against the deletion of interest u/s.234D.
9. At the time of hearing the ld. DR submits that the ld. CIT(A) has erred in deleting the interest u/s.234D of the IT Act ignoring the decision of ITAT Bangalore reported in 104 ITD 95 (Bang).
10. On the other hand the ld. Counsel for the assessee submits that the issue is squarely covered in favour of the assessee by the decision of Special Bench of the Tribunal in Ekta Promoters P. Ltd. and recently by Hon'ble Jurisdictional High Court in CIT vs. Bajaj Hindustan Ltd. in Income tax Appeal No.198 of 2009 dated 15.4.2009. He also placed on record the copy of the said decision of the Hon'ble Jurisdictional High Court .
11. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the issue of levy of interest u/s.234D of the Act is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in ITO vs. Ekta Promoters P. Ltd. (2008) 305 ITR (AT) 1(Del.)(SB) wherein it has been held (page-33 ):
4"In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from the Assessment Year 2004-05 and it could not be charged for earlier years even though regular assessment for these years are framed after June 1, 2003, or the refund was granted for those years after the said date."
12. In Bajaj Hindustan supra, it has been held vide para-5 of the judgment as under:-
"So far as the last question is concerned, it is seen that the subject provision came on Statute book w.e.f. 1/6/2003. If that be so, the said provision does not have retrospective effect. In this view of the matter, we do not see appeal giving rise to any substantial question of law. Appeal is, therefore, dismissed in limini with no order as to costs."
13. Applying the binding ratio of the decision of Special Bench of this Tribunal and Hon'ble Jurisdictional High Court to the facts of the present case we find that the assessment order was passed on 4.8.2006 i.e. after June 1, 2003 for the Assessment Year under consideration i.e. 2003-04. The interest u/s.234D is not chargeable as the same is chargeable for Assessment Year 2004-05 and accordingly the ground taken by the revenue is rejected.
14. In the result revenue's appeal stands dismissed.
Order pronounced in the open court on 22.10.2010.
Sd/- Sd/-
( R.K. PANDA ) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 22.10.2010.
Jv./R
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " E " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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