Income Tax Appellate Tribunal - Kolkata
Bharat Jain, Kolkata vs Department Of Income Tax on 11 September, 2015
I . T. A . N o. 2 36 / KOL ./ 20 1 3
A s se ssm e nt y e ar : 2006 - 20 0 7
Page 1 of 6
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri Maha vir Singh, Judicial Member and
Shri M . Ba la ganesh, Accountant M ember
I.T .A. No . 236 /KOL/ 2 0 13
Assess ment year : 2006 -2 00 7
Income Ta x Office r,........ .............................. ........ ............. ...Ap p ella nt
Wa rd -8(1), Kolka ta,
A a ya ka r Bha wa n,
P-7, C howring hee Squa re, 5 t h Floor,
Kol ka ta -700 069
-Vs.-
Bha ra t Ja in,......................................... ........ ........ .............Re sp ond en t
C/o. Ba n sila l Fa rm Pvt. Limite d ,
25, Ca ma c S treet,
Kol ka ta -700 016
[PA N : A CV PJ 6636 Q]
Appeara nces by :
Shri Sanj ay Mukherj ee, JCIT, Sr. D. R., f or the Depar tment
Shri So umitra Chowdhury, Advoca te, for th e assessee
Dat e of concluding t he hearin g : August 26, 2 015
Dat e of pr onouncing th e order : S ept emb er 1 1, 2015
O R D E R
Per Shri M. Balaga nesh, A.M.:
This appeal of the Revenu e ari ses out of o rde r of ld. Commissione r of Income T ax (Ap p eal s)-XXXII, Kolkata in App eal No. 42/XXXII/11 -12- 8(1)/R &T/Ko l dated 07.11.2012 for the a ss ess ment year 2006-07, which is again st th e ord er of ass ess men t f ramed under sect ion 143(3 ) of th e Incom e Tax Act, 1961 (herei nafter referred to a s "the Act").
2. The only issue to be decided in th e ap peal of the R evenue i s as to wheth er the ld. CIT(App eal s) i s co rre ct in deleti ng the addition m ade towa rd s disallo wan ce of int erest o n borrowed capital to the tune of Rs. 22,07,854/- in the facts and ci rcumst ances of thi s ca se.
I . T. A . N o. 2 36 / KOL ./ 20 1 3 A s se ssm e nt y e ar : 2006 - 20 0 7 Page 2 of 6
3. Brief facts o f this issue are that th e assess ee is a p rop rieto r o f 'B en z Trad ers' eng aged in the busine ss of trading in G.C. Sheet s. The asse ss ee had brought fo rward loan outstandin g from th e earlie r yea rs, which he had borro wed in th e earlier years and utilized the same fo r advan cin g interest be arin g loan to c ertain p arti es and inv ested the b alanc e mo ney in the shares of va rious co mpani es for ob tain in g 'con trolling int erest' in the said Co mpani es. Admitt edly, the asses see also becam e the Di rector in the said Comp anies in o rder to hav e an eye on his busin ess invest ment and to ge t into o peratio n of its various activities. In the year, in which borro wings were mad e, interest paid o n such loan was duly allowed a s ded uction by th e Assess ing Offic er. The assessee debited a su m of Rs. 47,33,613/- towa rd s int erest p aid on borrowed capital, received interest in com e on loan s and adv ance s to th e tu ne of Rs.25,25, 759/- and acco rdingly debited net interest of Rs.2 2,07,854/- in its Profit & L oss A/c and clai med as d eduction. The A ssessi ng Off icer d isallowed th is su m on the pretext that the loan s were not utilised for th e purpos e of business. Aggri eved, th e asses see ch allenged th e issu e befo re the ld. CIT(App eals ), who delet ed this ad dition bas ed on the app ellate o rder fo r assessmen t year 20 07-0 8 and Hon'ble Jurisdic tio nal High Court's deci sion. Agg rieved, the Rev enu e is in app eal befo re u s on th e fo llo win g g round s:-
(1) Tha t, on th e facts and in circums tances of th e cas e and in law, the ld. CIT(Appeals) has erred in deleting the add ition o f Rs.22 ,07,854/- mad e by th e AO on accoun t of disallowance of int er est claimed.
(2) Tha t, on th e facts and in circums tances of th e cas e and in law, the ld. CIT(App eals) has failed to co nsider the provision a s laid down in section 37(1) of the I.T. Act, 1 961.
(3) Tha t, on th e facts and in circums tances of th e cas e and in law, the ld. CIT(Appeals) has failed to take not e of the fact tha t the ass es s ee did not utiliz e an a mount of Rs.1,33,74,770/- out of the to tal amount of loan of Rs.2,62,16,418/- for which ded uction of interest paid was claimed by th e assess ee.
I . T. A . N o. 2 36 / KOL ./ 20 1 3 A s se ssm e nt y e ar : 2006 - 20 0 7 Page 3 of 6 3.1. Sh ri Sanjay Mukherjee, JCIT, S r. D.R., argued on behalf of the Revenue and Shri Soumitra Chowdhury, Advocate, the ld. A. R., argued on beh alf of the assessee.
3.2. Ld. D.R. v ehemen tly supp orted th e ord e r of the A sses sin g Of fice r. In respo nse to this, ld . A.R. argued that thi s is sue is squ arely cov ered by the decision dated 2 1.11.2013 in ITA No. 397 /KOL/2012 of this Tribu nal for the as sessm ent year 2007-08 on the sa me s et o f facts. H e furth er argued that the borrowin gs were made in ea rlier y ears and utilisation of the same we re also mad e in ea rlier y ears and in te rest p aid on borrowin gs were duly allowed as d eductio n by the Assessin g Of ficer in the earlier years. Th e inv est ments mad e in the variou s co mpanie s by the a ssess ee only for obtaining 'cont ro lling inte rest' in th e said comp anies and not fo r the purpose of dividend and acco rdi ngly prayed for confirmation of the order of th e ld. CIT(Appeals ) o n th is iss ue.
3.3. We h ave h eard th e riv al sub missions and perused the materi al av ailable o n reco rd. It is se en f rom th e fact s th at the assessee had borro wed loan in the earli er years an d utilized the same fo r advancin g interest bea rin g loans an d fo r i nvest ment in sh ares of various co mpani es in order to obtain co ntrollin g int ere st in the said co mpanies and he was also off ered di recto rship in th e s aid c oncern s. It i s also seen that the as se sse e was in the receipt o f Di recto r's remu neration f ro m o ne of the co mpani e s thereon. It i s observed th at the borro win gs were made in ea rlier years and inte res t p aid th ereon was duly allowed as d eduction in the e arlier year by the A sses sin g Office r. It is also seen that this i ssue was subject matter of di spute in assess ment year 2 007-08 befo re this Trib unal in ITA No. 397/KOL /2012 dated 21.11 .2013, wherein a findin g was giv en that the borro wed funds we re u tilized only for interest bearin g adv ance s and acco rdin gly confirmed the deletion o f in te rest p aid made by the ld. CIT(App eal s). It i s seen that the a sse ss ee had received interest inco me on its advances to th e tune of R s. 25,25,759/- from v arious parties and o ffe red the same for t ax ation. It is not in dispute that thes e adv ances I . T. A . N o. 2 36 / KOL ./ 20 1 3 A s se ssm e nt y e ar : 2006 - 20 0 7 Page 4 of 6 were mad e out of borro wed funds only. It is al so not in dispute that the as se sse e h ad invested the borro wed fun ds fo r investin g in sh are s of various co mpani es for o btain ing con trolling int erest of the said co mpani e s. We hold th at the busines s purp ose of the said invest ment is proved bey ond doubt by the assessee. It i s al so no t in d isput e th at the as se sse e wa s offered di re ctorship in the said co mpani es in order to have an eye on th e p roceedings of th e sa id comp ani es and to asses s it s perform ance thereby pro tectin g his in vestments in the said co mpanie s and for fu rtherin g his busine ss interest s. We find lot of force in the reli ance plac ed by the ld. A.R. on the d ecision of th e Hon'ble Calcutta Hi gh Court in th e case of CIT -v s.- Rajeeva L o chan Kanori a repo rt ed in 20 8 ITR 616 (Cal.), wherei n it was h eld a s und er:-
"Qu estio ns of law under section 2 56(1 ) of the In come Tax Act, 1961 :-
(1) Whether, on the facts and in th e cir cumstances of th e case, th e Tribun al was ju stified in holding that inter est paymen t could not be disallo wed fo r investmen t in shares a s per provisions of section 36 (1)(iii) of the Inco me Tax A ct, 19 61, when such sha res were no t us ed as stock-in-t rade but were acquir ed simply for the purpose of acq uiring controlling inter es t in th e compan ies con cern ed?
(2) W h eth er , on the facts and circumsta nces o f the cas e, the T ribunal was justified in holding that invest ment in shares was th e a dmitted busines s for the ass essee wh en the a ctivity in su ch inv estm en t was o nly to purchase shares for acquisitio n o f controlling inter est of compan ies and ha d not earned any income (ex cep t director's f ees ) by su ch vocation"?
"20. A businessman like th e assess ee in this case d oes not purch ase shares of different compan ies for a cquirin g controlling interest ther ein only fo r earnin g dividends. Acq uiring controlling inter es t in comp anies and managing, administering, financing and rehabilitating compa nies under con trol a re for busin ess and/ or prof essio nal purpose. Th e Sup reme Co urt in the case of P. Krishn a Menon -vs.- CIT h eld that in order th at an activity might be called a vo cation, it was not n ecessary to show th at i t was in dulged with a motive of makin g pro fits".
I . T. A . N o. 2 36 / KOL ./ 20 1 3 A s se ssm e nt y e ar : 2006 - 20 0 7 Page 5 of 6
21. In view of th e above an d in view of the facts , as discuss ed above, we answ er both the questions in the affirmative a nd in favour of th e assessee".
We hold that once the borro win gs we re utilized for busine ss purpo ses and int erest p aid th e reo n is allowed as deduction in the ea rlier yea r, the same canno t be disturbed by the Assessin g Officer in the subs equent years on the opening balan ce of loans as held by the Hon 'ble Karnataka High Court in the cas e of CIT -v s.- Sridev Enterp rises rep ort ed in 19 2 ITR 165(Karnataka). The relevant operativ e portion of the said ju dgmen t is rep ro duced belo w:-
"5. The R evenue is aggr ieved b y the l im ited q ues tion r em and ed; accor di ng to the R evenue, the r em and shoul d com pris e the q ues tion per taining to t he opening b al ance ad vanced to Nal anda because the s aid sum was al s o advanced out of borr owed am ou nts.
6. We are in ag reem ent with t he view ex pre s sed by the Appel l ate Tr ibunal . The s tatus of the amount outstandi ng f r om Nal anda o n the f irs t day of t he acc ounti ng ye ar is the am ou nt that s to od outs tanding on the l ast day of the previo us accounting year and, theref or e, its natur e and status cannot be d if f er ent on t he f ir s t day of the c urr ent accountin g year f r om its natur e and s tatus as on the l as t day of the previous accounting ye ar . R egar ding the pas t years , the as s es s ee's cl aims f or d ed uction wer e al l owed in res pect of the s um s ad vanced during thos e year s ; this coul d be onl y on the as s um ption that those ad vances wer e not out of bor r owed f unds of the as ses see. This finding durin g the pr evious year s is the ver y b as is of the ded uctions p er mitted during the pas t year s , whether a s pecif ic f inding was re cord ed or not. A depar tur e f rom that finding in r es pect of the s aid amounts ad vanced d ur ing the previous year w oul d r es ul t in a contr adictor y f inding; it wil l not be eq uitab l e to per mit the R evenue to t ake a d if f er ent s tand now in respect of the am ou nts which wer e the s ubj ect-m atter of previous year s' as s es s ments; consis tency and def initenes s of appr oach b y t he R evenue is neces sary in the m atter of r ecognis ing the nat ur e of an account maintained by t he as ses see s o that t he b as is of a concl ude d as s es s ment wo ul d not b e ignore d without actual l y r eopeni ng the as s es s ment. The pr incipl e is sim il ar to the cases where it has been h el d that a debt which had b ee n treated by the R even ue as a g ood d ebt in a particul ar year cannot s ubs eque ntl y b e hel d by it have become bad pr ior to that year .
Accord ingl y, we accept t he q ues tions r ef er red to us in the af f ir mative and agains t the R evenue".
I . T. A . N o. 2 36 / KOL ./ 20 1 3 A s se ssm e nt y e ar : 2006 - 20 0 7 Page 6 of 6
4. In any event, the issue i s cove red by the deci sion d ated 21. 11.2013 of this Tribunal in as se ss ee's o wn case in ITA No.397/KOL/2012 for the as se ssm ent yea r 2007-08. Hen ce, in v iew of the afo res aid facts and circu mstanc es and resp ect fu lly fo llo wing the d eci sion of th is T ribun al fo r as se ssm ent year 2007-08 and o ther judicial preced ents relied upon as stated sup ra, we are not inclined to interfere with the d eci sion of the ld. CIT(App eals) in thi s re gard. Accordi ngly, the grounds rai s ed by the Revenue a re dis mis sed.
5. In the result, the appeal of the Revenue is dismisse d.
Orde r p ronounced in th e open Co urt on 11 t h Sept embe r, 20 15.
Sd/- Sd/-
Mahav ir Singh M . Ba la ganesh
(Judi cial Member) (A ccounta nt M ember)
Kolkata, th e 11 t h day of Septemb er, 2015
Co pies to : (1) Income Ta x Office r,
Wa rd -8(1), Kolka ta,
A a ya ka r Bha wa n,
P-7, C howring hee Squa re, 5 t h Floor,
Kol ka ta -700 069
(2) Bha ra t Ja in,
C/o. Ba n sila l Fa rm Pvt. Limite d ,
25, Ca ma c S treet,
Kol ka ta -700 016
(3) Comm iss ioner of Income-tax (Appeal s)-XXX II, Kol kata (4) Com mis sioner of Incom e Tax, Kol kat a (5) The Depar tmental R epr es entative (6) Guard Fil e B y order Assistant Registrar Income Tax Appellate Tribunal Kolkata Ben ch es, Kolkata Laha/Sr. P.S.