Income Tax Appellate Tribunal - Kolkata
Sudha Devi Rampuria vs Income-Tax Officer on 6 December, 1985
Equivalent citations: [1986]15ITD744(KOL)
ORDER
Y. Upadhyay, Vice President
1. The assessee is in appeal against the order of the Commissioner (Appeals) under Section 263 of the Income-tax Act, 1961 ('the Act'). The fact is that Shri Pradip Kr. Rampuria was doing business. He was a member of his HUF. Shri Rampuria took a loan of Rs. 6 lakhs and odd from Hazareemull Heeralal of 148, Cotton Street, Calcutta carrying interest. The said loan was taken by Shri Rampuria who joined the association of B.C. Kochar on the basis of an agreement dated 2-12-1974 for the construction of multistoreyed flats for sale. Shri Rampuria died on 15-5-1977 leaving his wife Smt. Sudha Devi Rampuria and mother Smt. Gulab Devi Rampuria. Smt. Sudha Devi Rampuria, the wife of the deceased, was co-opted in the association of B.C. Kochar by an agreement dated 11-1-1978. Shri Rampuria was making payment of interest to Hazareemull Heeralal and he was also getting interest on the amount advanced to the association of B.C. Kochar. The interest, however, has not been earned during the assessment year 1978-79 from B.C. Cochar whereas interest was payable to Hazareemull Heeralal and, accordingly, a sum of Rs. 63,801.81 was claimed as interest paid or payable to Hazareemull Heeralal. It was stated in course of the argument that some flats were sold in the earlier years but no flat was sold during the year under appeal and the financial position of the association of B.C. Kochar was such that they did not pay interest to the lady.
2. It was also claimed that a partition took place between the widow Smt. Sudha Devi Rampuria and her mother-in-law Smt. Gulab Devi Rampuria and the liability pertaining to Hazareemull Heeralal was assigned to Smt. Sudha Devi Rampuria.
3. Smt. Sudha Devi Rampuria filed her return for the assessment year 1978-79 showing the following income:
Rs. Rs. Rs. 1. Income from House Property 1. Gross rent received from premises No. 86, Biplabi Rash Behari Basu Rd., Cal. 1,47,394.51 Less: Corporation tax 33,296.00 Multistoreyed property tax 1,752.00 Service charges 504.00 Surcharge on corporation tax 16,648.00 55,955.57 BAV 91,438.97 Less: One-sixth for repair 19,016.00 6 per cent collection charges 6,845.00 25,861.00 65,577.97 2. Business Income/Loss One-fourth share of profit from Hazareemull Heeralal 148, Cotton St., Cal. (subject to completion of Firm's assessment) 10,745.26 Interest income from the above 11,474.53 22,219.79 Less: Expenses 1. One-fourth share of loss of Pradip Pratishthan, 4, Meredith St., Cal. (subject to completion of Firm's assessment) 4,255.37 2. Interest payable to Hazareemull Heeralal in respect of loan of Shri Rampuria 63,801.81 3. Printing & stationery 911.36 4. Postage, Telegram & Telephone 360.20 5. General charges 717.21 6. Conveyance charges 53.35 7. Legal charges 315.00 8. Staff welfare 1,681.12 9. Salary paid to-- R.K. Sethia 7,000 K.L. Bothra 2,670 (-) 81,765.42 (-) 59,545.63 Total Income 6,032.34 Less admissible deductions under Section 80C 1,810.00 4,222.34 Rounded off to Rs. 4,220
The return was filed on 30-3-1981 and the assessment was completed by the ITO under Section 143(1) of the Act on the total income of Rs. 4,220 on 2-9-1981.
4. The Commissioner took action on perusal of the record under Section 263 on the ground that the assessee should not have been allowed interest of Rs. 63,801.81. The ITO did not properly investigate into the facts and as he completed the assessment under Section 143(1), the order passed by him was erroneous and prejudicial to the interests of the revenue. He issued a show-cause notice to the assessee and the assessee from time to time appeared as well as submitted written submissions through her letters dated 4-4-1983 and 12-4-1983. The Commissioner did not accept the arguments of the assessee and he set aside the assessment by observing as follows:
I have carefully gone through the submission of the assessee and find myself unable to agree with the same. The circumstances under which the loan liability of the deceased husband devolved on the widow, how the loan money was actually utilised by the deceased husband, how the widow could be forced to agree to forego the interest on the advances made to the joint venture when the agreement clearly stipulated payment of interest on such advances, have all got to be examined before any final decision can be taken about the nature and character of the interest expenditure of Rs. 63,802 and its claim for admissibility as a deductible business expenditure. This brings us to the next point. The assessee claimed the deduction in computing her business income, which is as it should be, because, assuming that all the claims in the assessee's story are correct, interest paid on the loan taken by the husband from the firm for utilising in the joint venture, which was an adventure in the nature of trade, should correctly be treated as only business expenditure as interest paid on capital borrowed for the purpose of business. The reference to its admissibility under the head 'Other source', as made out in the submission in course of the proceedings under Section 263, appears to be an afterthought and not at all tenable. In the instant case, as per paragraph 10 of the joint venture agreement, the profit will be ascertained and divided only on completion of the entire project and the profit of the joint venture was ascertained only on 31-3-1982. The expenditure incurred on interest paid on capital borrowed for the purpose of this joint venture will be deductible only against the profit of this joint venture, as and when it is determined and divided among the members. Before that, the question of allowing such expenditure should not arise. On this ground alone, the assessment deserves to be set aside under Section 263. Even otherwise, since the assessment was completed in a summary manner when the facts of the case demanded proper scrutiny, the assessment deserved to be set aside for being made afresh. The assessment is accordingly set aside and the ITO is directed to redo the same in the light of the above discussion.
5. Dr. Pal who appeared along with Shri S.P. Choudhury on behalf of the assessee, attacked the order of the Commissioner and urged that the Commission er was not justified in passing the order under Section 263 when the ITO completed the assessment under the summary scheme. He referred particularly to the show-cause notice issued by the Commissioner dated 25-1-1981 and urged that the Commissioner was not justified to set aside the assessment on other grounds than the grounds indicated in the show-cause notice. The assessment cannot be set aside simply because it was made under Section 143(1). No other ground has been taken by the Commissioner and, therefore, he stated that in view of the Calcutta High Court decision in Laxmi Devi Chowkhani v. CWT 1983 Tax. LR 843 (Gauhati), the order of the Commissioner may be set aside. Dr. Pal further stated that on merits the case of the assessee is very strong. Once the amount has been borrowed for the joint venture and the assessee has been co-opted as a member of the association of B.C. Kochar, the interest paid by her was an allowable expenditure. He placed reliance in Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC). Dr. Pal even otherwise urged that the Commissioner was not justified in taking action under Section 263 and, therefore, the order passed by him may be set aside.
6. Shri Chaliha, the senior departmental representative, on the other hand very strongly supported the order of the Commissioner and urged that the order passed by the ITO was erroneous as well as prejudicial to the interests of the revenue and, therefore, the Commissioner was perfectly justified in taking action under Section 263. He placed reliance in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi). He further urged that it is not necessary to issue a notice to the assessee. The assessee has been allowed proper opportunity of being heard. He relied in CIT v. Electro House [1971] 82 ITR 824 (SC). He further urged that once proper jurisdiction has been assumed by the Commissioner, the Commissioner passed necessary order under Section 263. He relied on Kanhaiyalal v. CIT [1982] 136 ITR 243 (Raj.), Electro House's case (supra), Luxmi Devi Chowkhani's case (supra) and Gee Vee Enterprise's case (supra). Lastly, Shri Chaliha urged that even if there is any lacuna in the show-cause notice of the Commissioner, the same shall be covered by the provisions of Section 297(B) of the Act. He urged that the assessee did not file any paper to justify the allowance of interest and, therefore, the Commissioner was justified in passing the order under Section 263.
7. The facts relating to the issue in dispute have been given earlier. Shri Rampuria was doing business independently. He was a member of the HUF. Shri Rampuria took a loan of Rs. 6 lakhs and odd from Hazareemull Heeralal in 1974 on the basis of an agreement. The loan carried interest. The loan was invested in the association of B.C. Kochar who jointly took the venture of constructing flats for the purposes of sale. Shri Rampuria died on 15-5-1977 and his wife Smt. Sudha Devi Rampuria was co-opted as a member of the association on the basis of the agreement dated 11-1-1978. The computation of income filed by the assessee as given on page 7 of the paper book has been reproduced above. Shri Choudhury, the counsel of the assessee, in answer to the specific question indicated that along with the return the assessee filed the profit and loss account, balance sheet and the computation of total income. The assessee in the computation of total income apart from other things claimed the interest payment of Rs. 63,801.81 paid or payable to Hazareemull Heeralal. This did not relate to the existing business of the assessee. The assessee succeeded to the business left by her husband. A copy of the agreement indicating the partition among the family has been filed. The same is appearing on page 17 of the paper book. This agreement has been concluded on 15-8-1982. On the basis of this agreement it has been claimed that the loan pertaining to Hazareemull Heeralal was assigned to the assessee. The surprising fact is that the return was filed in the present case on 30-3-1981. The assessment was completed on 2-9-1981. The assessee's counsel has made a statement that only profit and loss account, balance sheet and computation of income were filed along with the return. Therefore, the claim of the assignment which was made on the basis of the agreement of 1982 cannot be made in 1981 unless the memorandum of partition must have been prepared much earlier and it was only reduced in writing in 1982. This point was not very clear even though a specific query was put before the counsels. The summary assessment requires the satisfaction of the ITO on the production of all necessary papers and evidences. This is very clear in the CBDT's Circular No. 201 dated 5-7-1976 [see Taxmann's Direct Taxes Circulars, Vol. I, 1985 edn., p. 876]. The ITO could not have the satisfaction without the production of any paper for the allowance of interest of Rs. 63,801.81 to Hazareemull Heeralal. The assessee did not file any agreement with Shri Rampuria when the assessee was co-opted as a member of the association. The assessee has also not filed the gist of the memorandum of partition when it was reduced in writing on the basis on which the loan was assigned to the assessee and the assessee became interested in the joint venture and, accordingly, claimed deduction for interest. No paper was filed indicating the joint venture of B.C. Kochar who were paying interest to Shri Rampuria who stopped payment of interest on some ground or other. If all these facts are taken, it is clear that the order passed by the ITO was erroneous and prejudicial to the interests of the revenue and the ITO without following the guideline given for the summary assessment by the CBDT, completed the assessment and did not look into where he should have looked into. If the assessing officer does not investigate into the facts which he should have done, the order passed under the said situation is erroneous and prejudicial to the interests of the revenue. Dr. Pal has laid much emphasis on the show-cause notice issued by the Commissioner dated 25-1-1983 and his case is that on the basis of the decision in Luxmi Devi Chowkhani's case (supra) the order passed by the Commissioner is bad in law. If the notice is read properly, the Commissioner has taken a point that the ITO did not look into properly as to why interest claimed for Hazareemull Heeralal should be allowed. Incidentally, he has mentioned that this has happened because the ITO made the assessment under Section 143(1). Therefore, the facts which have been highlighted by Dr. Pal and got supported by the decision in Luxmi Devi ChowkhanVs case (supra) are not correct. The Commissioner has pointed out through the show-cause notice that the ITO has not investigated properly into the facts before he completed the assessment under Section 143(1).
8. The other ground of Dr. Pal was that in view of the decision in Madhav Prasad Jatia's case (supra) on merit the interest claimed by the assessee for Hazareemull Heeralal was an allowable expenditure and, therefore, on merit the order passed by the ITO could not be said to be erroneous and prejudicial to the interests of the revenue. The argument made by Dr. Pal may not be correct. The ITO has not been given the agreement between Shri Rampuria and B.C. Kochar, the agreement between the assessee and B.C. Kocriar, the letters indicating the inability of B.C. Kochar to pay interest, and the memorandum of alleged partition of 1982 by which the loan was assigned to the lady. If these were not before the ITO and unless these facts are looked into and proper investigation is done, it would be difficult to accept the argument of Dr. Pal that the interest claimed by the assessee was an allowable expenditure. Under the said circumstances, after considering the arguments of both the sides, the case laws and the paper book filed by the assessee, it is concluded that the finding recorded by the Commissioner is correct, that the order passed by the ITO was erroneous and prejudicial to the interests of the revenue and, accordingly, the finding of the Commissioner in setting aside the order of the ITO is maintained.
9. In the result, the appeal is dismissed.