The Gujarat Tea Depot Co.,, Ahmedabad v. The Dy.CIT.,Cent.Circle-2(1),, Ahmedabad

ITA 1396/AHD/2008 | 2004-2005
Pronouncement Date: 25-03-2011 | Result: Allowed

Appeal Details

RSA Number 139620514 RSA 2008
Assessee PAN AAAFT5356J
Bench Ahmedabad
Appeal Number ITA 1396/AHD/2008
Duration Of Justice 2 year(s) 11 month(s) 4 day(s)
Appellant The Gujarat Tea Depot Co.,, Ahmedabad
Respondent The Dy.CIT.,Cent.Circle-2(1),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 25-03-2011
Date Of Final Hearing 01-03-2011
Next Hearing Date 01-03-2011
Assessment Year 2004-2005
Appeal Filed On 21-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON' BLE SHRI A.N.PAHUJA A.M. ) I.T.A. NO. 1396/AHD./2008 ASSESSMENT YEAR : 2004-2005 GUJARAT TEA DEPOT CO. AHMEDABAD -VS- T HE D.C.I.T. CENTRAL CIRCLE AHMEDABAD (PAN : AAAFT 5356J) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJESH C. SHAH A.R. RESPONDENT BY : SHRI ANIL KUMAR SR.D.R O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 10.10.2007 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III A HMEDABAD FOR THE ASSESSMENT YEAR 2004- 2005. 2. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASS ESSEE IS AS UNDER: 1. THAT THE C.I.T. (A) ERRED IN CONFIRMING THE DISALL OWANCE OF A SUM OF RS.375000 OUT OF INTEREST BY INVOKING THE PROVISIONS OF SEC.14A OF THE I.T. ACT ON ACCOUNT OF THE INVESTMENT OF RS.1 80 00 000 IN THE UNITS OF INCOME FUNDS OF MUTUAL FUND CAPITAL GAINS FROM WHICH IS TAXABLE ALTHOUGH THE SAID INVESTMENT WAS NOT MA DE OUT OF ANY BORROWING FROM THE DEPOSITORS OR BANK BUT WAS MADE OUT OF THE SURPLUS FUND / PROFITS OF THE YEAR. IT IS SUBMITTED THAT IN VIEW OF THE FACTS MENTIONED IN T HE STATEMENTS OF FACTS NO DISALLOWANCE CAN BE MADE U/S14A AND THEREFORE THE SAME BE DEL ETED. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF RETAILING OF TEA THROUGH RETAIL OUTLETS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICES THAT THE ASSESSEE MADE FRESH INVESTMENT OF RS.1.8 CRORES IN UNITS OF MUTUAL FUNDS AS INVESTMENT. THE DIVIDEND INCOME FROM SUCH UNITS OF MUTUAL FUNDS IS EXEMPT FROM TAX UNDER THE INCOME TAX ACT 1961. TO A QUERY FROM THE ASSESSING OFFICER THE ASSESSEE STATED THAT NO DISALLOWANCE UNDER SECTION 14A SHOULD BE MADE OUT O F INTEREST EXPENDITURE. ON EXAMINATION OF BALANCE-SHEET THE ASSESSING OFFICER OBSERVED THAT SOURCES OF FUND AS ON 31.03.2004 INCLUDE THE FOLLOWING: 2 ITA NO. 1396-AHD-2008 I) PARTNERS CAPITAL : RS.6 57 61 434/- (INTER EST PAID @ 12% II) LOAN FROM BANKS : RS.39 09 463/- III) UNSECURED LOANS : RS.54 42 387/- (INTEREST PAID @10%) 3.1 THE ASSESSING OFFICER OBSERVED THAT THE INVESTM ENTS IN MUTUAL FUNDS WERE MADE FROM HDFC BANK CURRENT ACCOUNT. ON EXAMINATION OF THIS A CCOUNT THE ASSESSING OFFICER ALSO NOTICED THAT THE BALANCE IS MAINLY BUILT-UP BY WAY OF MATUR E / PREMATURE FIXED DEPOSITS. THE COMPANY WAS SHOWING INTEREST INCOME FROM THESE FDS AND THE SAME DECLINED FROM RS.44 07 310/- TO RS.23 11 747/- THIS YEAR. THE ASSESSING OFFICER FUR THER OBSERVED THAT NET WITHDRAWALS BY THE PARTNERS (RECEIPTS RS.1 31 55 000/- LESS WITHDRAWAL S RS.4 21 21 308/-) IS ABOUT RS.2.9 CRORES AND AVAILABLE CAPITAL HAS ALSO BEEN UTILIZED FOR FDS AN D LOANS/ADVANCES TOTALING RS.7 27 67 616/- (SCH. H+1). MOREOVER DURING THE YEAR FRESH LOAN OF RS.39 09 463/- FROM HDFC BANK HAS ALSO BEEN AWAITED. 3.2 ON THE BASIS OF ABOVE THE ASSESSING OFFICER RE JECTED THE CONTENTION OF THE ASSESSEE OBSERVING THAT INTEREST BEARING FUNDS HAVE BEEN USE D FOR MAKING INVESTMENT OF RS.1.80 CRORES IN MUTUAL FUNDS AS THE FIRM IS IN NEED OF FUNDS THROUG HOUT THE YEAR WHICH ARE PROCURED ON INTEREST. THE LOWEST INTEREST PAID IS THAT PAID TO DEPOSITORS I.E. @10%. THERE IS NO INTEREST FREE FUND. HE ACCORDINGLY OBSERVED THAT INTEREST BEARING FUND WAS UTILIZED FOR EARNING EXEMPT INCOME. THEREFORE AS PER SECTION 14A DISALLOWANCE IS REQU IRED TO BE MADE. THE ASSESSING OFFICER FINALLY WORKED OUT THE INTEREST ATTRIBUTABLE TO RS. 1.80 CRORES FOR TWO AND A HALF MONTHS (INVESTMENT MADE IN JANUARY 2004) @10% (LOWEST PAI D DURING THE YEAR). THE DISALLOWANCE WORKED OUT IS 3 75 000/- AS UNDER: 10% OF RS.1.80 CRORES = RS.18 LACS 12 = RS.1.5 LA CS X 2.5 = ADDITION OF RS.3 75 000/- 5. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) IT WAS CONTENDED THAT THE ASSESSEE HAS EARNED NET PROFIT OF RS.2.27 CRORES. IT HAD ALSO ENCASHED OLD FDRS OF THE AMOUNT OF RS.75 LAKHS AND RS.1.05 CRORES IN THE HD FC BANK ON 12 TH AND 19 TH OF JANUARY 2004 RESPECTIVELY. IT HAD SURPLUS FUNDS OF OVER RS.86 LA KHS IN THE BANK AS ON 14 TH JANUARY AND OF RS.1.09 CRORES AS ON 19 TH JANUARY AND HAD ACCORDINGLY INVESTED RS.75 LAKHS A ND RS.1.05 CRORES ON THE 14 TH AND 19 TH OF JANUARY 2004 IN MUTUAL FUNDS. NO AMOUNT HAD BE EN BORROWED FOR THIS 3 ITA NO. 1396-AHD-2008 INVESTMENT IN MUTUAL FUNDS AND SO NO INTEREST EXPEN DITURE WAS INCURRED IN RESPECT OF THIS INVESTED AMOUNT AND SO PROVISIONS OF SECTION 14A WE RE NOT ATTRACTED. 5.1 BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.23.11 LAKHS AS SHOWN IN SCHEDULE L. IT HAD PAID INTEREST TO DEPOSITORS/BANK OF OVER RS 5 LAKHS APA RT FROM THE INTEREST PAID TO THE PARTNERS. THE INTEREST PAID TO PARTNERS WAS ALLOWABLE AS PER SECT ION 40(B). THE NET PROFIT OF OVER RS.2.27 CRORES WAS ITSELF MORE THAN THE INVESTMENT OF RS.L.80 CROR ES IN THE MUTUAL FUNDS. THE WITHDRAWALS BY THE PARTNERS HAD NEVER RESULTED IN A NEGATIVE CAPITAL B ALANCE AND HAD ONLY REDUCED THE INTEREST LIABILITY PAYABLE TO THE PARTNERS. THE BORROWINGS O F APPROX. RS.39 LAKHS FROM THE HDFC BANK WERE ALSO UTILIZED FOR MAKING ADVANCE TO ITS SUPPLI ERS A BUSINESS PURPOSE. IT WAS POINTED OUT THAT MERE DECREASE IN INTEREST INCOME FROM FDRS. IN THE PREVIOUS YEARS CANNOT JUSTIFY THE DISALLOWANCE U/S. 14A. A COPY OF ACCOUNT IN HDFC BA NK WAS FILED IN SUPPORT OF THE AFORESAID CONTENTIONS. 5.2 AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) REJECTED THE AF ORESAID CONTENTIONS ON THE GROUND THAT SURPLUS FUNDS AVAILABLE FROM PROFITS DURING THE YEA R IS FLAWED SINCE PROFITS ARE DETERMINED / ASCERTAINABLE ONLY WHEN THE ACCOUNTS ARE MADE UP. T HIS WAS NOT THE CASE IN JANUARY 2004. FURTHER ON BORROWED FUNDS THERE WAS AN ASCERTAINE D LIABILITY OF INTEREST OF OVER RS.54.57 LAKHS. IN THESE CIRCUMSTANCES PROPORTIONATE DISALLOWANCE AMOUNTING TO RS.3.75 LAKHS WAS RIGHTLY MADE BY THE ASSESSING OFFICER. AGGRIEVED THE ASSESSEE I S IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE THE TRIBUNAL SHRI RAJESH C. SHAH A.R. APPEARED ON BEHALF OF THE ASSESSEE AND FILED PAPER BOOK CONTAINING 13 PAGES WHICH INTER ALIA INCLUDE THE WRITTEN SUBMISSIONS DATED 29-03-2007 FILED BEFORE THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) COPIES OF TWO BANK ACCOUNT NOS. 0062000009558 AND 0 062320006596 OF HDFC BANK FOR THE PERIOD 1/1/2004 TO 31/1/2004 AND 15/1/2004 TO 31/1/ 2004 COPY OF PARTNERS CURRENT CAPITAL ACCOUNT AND OTHER RELEVANT SCHEDULES. ON THE BASIS OF ABOVE HE SUBMITTED THAT ON THE DAY INVESTMENT MADE IN JANUARY 2004 SUFFICIENT SURPLU S FUNDS WERE AVAILABLE. IT WAS FURTHER SUBMITTED THAT BORROWED FUNDS WERE NOT UTILIZED IN MAKING INVESTMENT FOR EARNING TAX-FREE INCOME. THE RELIANCE WAS ALSO PLACED ON THE JUDGMEN T OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT-VS- MS. SUSHMA KAPOOR REPORTED IN 319 ITR 299 ( DELHI) WHEREIN IT WAS HELD THAT WHERE THE 4 ITA NO. 1396-AHD-2008 INTEREST-FREE ADVANCES WERE GIVEN BEFORE TAKING OF LOAN AND TRADE ADVANCES WERE NOT GIVEN OUT OF LOAN TAKEN BY THE ASSESSEE NO PART OF THE INTEREST CAN BE DISALLOWED UNDER SECTION 36(1)(III). ON THE STRENGTH OF THIS DECISION IT WAS CONTENDED THA T THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CLEARLY ERRED IN NOT CONSIDERING THE E NTIRE SUBMISSION AND UPHELD THE ORDER OF THE ASSESSING OFFICER MERELY ON THE GROUND THAT SURPLU S FUNDS WERE NOT AVAILABLE FROM THE PROFIT OF THE CURRENT YEAR BECAUSE SUCH PROFITS ARE DETERMINE D/ASCERTAINABLE ONLY WHEN THE ACCOUNTS ARE MADE UP. THIS WAS NOT THE CASE IN JANUARY 2004. TH EREFORE HE SUBMITTED THAT DISALLOWANCES MADE BE DELETED. 7. ON THE OTHER HAND SHRI ANIL KUMAR APPEARING ON BEHALF OF THE REVENUE POINTED OUT THAT NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE HAS FURNISHED THE CASH F LOW CHART INDICATING AVAILABILITY OF SURPLUS FUNDS ON 14/19 JANUARY 2004 WHEN INVESTMENT OF RS. 1.80 CRORES WAS MADE IN MUTUAL FUNDS THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) BE UPHELD. 8. HAVING HEARD FOR BOTH THE SIDES WE HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS MADE BEFORE T HE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS PERTINENT TO NOTE THAT THOUGH T HE ASSESSEE HAS FURNISHED VARIOUS DETAILS BUT IT HAS NOT FURNISHED CASH/FUND FLOW CHART INDICATING T HE AVAILABILITY OF RS.1.80 CRORES ON 14/19 JANUARY 2004 WHEN INVESTMENTS IN MUTUAL FUNDS WERE MADE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS MERELY CONSIDERED ONLY ONE CONTENTION I.E. AVAILABILITY OF CURRENT YEARS PROFIT. IN VIEW OF THIS WE SET ASIDE THE OR DERS OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHOULD FURNISH CASH/FUND FLOW CHART IN DICATING THE AVAILABILITY OF INTEREST-FREE FUNDS AVAILABLE ON 14/19 JANUARY 2004 WHEN INVESTMENT OF RS.1.80 CRORES IN MUTUAL FUNDS WAS MADE. THE ASSESSING OFFICER MAY EXAMINE THE SAME AND RE-A DJUDICATE THE CONTROVERSY INVOLVED IN THIS APPEAL AFRESH IN ACCORDANCE WITH LAW. 9. IN THE RESULT FOR STATISTICAL PURPOSES THE APP EAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 25.03.2011 . SD/- SD/- (A.N.PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25/03/2011 5 ITA NO. 1396-AHD-2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED 4) CIT CONCERNED 5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD TALUKDAR/SR.P.S.