ITO 9(1)(4), MUMBAI v. FACTS TRAELINK P. LTD, MUMBAI

ITA 1478/MUM/2010 | 2006-2007
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 147819914 RSA 2010
Assessee PAN AAACF7985Q
Bench Mumbai
Appeal Number ITA 1478/MUM/2010
Duration Of Justice 1 year(s) 7 month(s) 5 day(s)
Appellant ITO 9(1)(4), MUMBAI
Respondent FACTS TRAELINK P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 30-09-2011
Date Of Final Hearing 30-08-2011
Next Hearing Date 30-08-2011
Assessment Year 2006-2007
Appeal Filed On 23-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO.1478/MUM/2010 ASSESSMENT YEAR: 2006-2007 INCOME TAX OFFICER 9(1)(4) ROOM NO.224 AAYAKAR BHAVAN MUMBAI 400 020. VS. M/S . FACTS TRAELINK PVT. LTD. 206 GHANSHYAM TOWER 2 ND FLOOR BORIVALI (EAST) MUMBAI 400 066. PAN: AAACF7985Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHANTAM BOSE SR. A.R. RESPONDENT BY : SHRI VIJAY MEHTA DATE OF HEARING : 08-09-2011 DATE OF PRONOUNCEMENT : -09-2 011 O R D E R PER V. DURGA RAO J.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.12.2009 OF CIT (A)-XIX FOR THE ASSESSMENT YEAR 2 006-2007. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN DELETING THE ADDIT ION MADE U/S 68 OF THE I.T. ACT WITHOUT CONSIDERING THE FACT THAT EXCEPT MOU NO DETAILS WERE FILED BY THE ASSESSEE BE FORE THE ASSESSING OFFICER TO PROVE THE CREDITWORTHINESS & GENUINENESS OF THIS BUSINESS RECEIPT AND THEREFORE THE ASSESSEE HAD FAILED TO EXPLAIN THE NATURE AND SOURC E OF THE INCOME THEREOF AS ENVISAGED SEC. 68 OF THE I.T. ACT . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN DELETING THE DISAL LOWANCE OF INTEREST OF RS. 62 55 765/- MADE U/S 36(1)(III) WIT HOUT CONSIDERING THE FACT THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN FROM THE INTEREST BEARING FUNDS. 3. FACTS ARE IN BRIEF RELATING TO GR. NO.1 ARE THA T THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN DEALING IN SHARE S AND SECURITIES. IT ITA 1478/M/2010 M/S FACTS TRAELINK PVT. LTD. 2 HAS ALSO UNDERTAKEN BUSINESS IN FUTURE AND OPTION T HROUGH ANOTHER GROUP COMPANY VIZ. M/S RAJLAXMI SECURITIES PVT. LTD. SU BSEQUENTLY MERGED WITH M/S. RELIANCE LIFE SCIENCES PVT. LTD. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE AO HAD OBSERVED THAT AN AMOUNT OF R S. 51 15 806/- WAS CREDITED TO THE P & L ACCOUNT SHOWN BY THE ASSESSEE AS INCOME ON ACCOUNT OF FUTURE AND OPTION. THE AO HAD TREATED THE SAID INCOME AS UN-EXPLAINED CASH CREDIT FOR THE REASON THAT IN THE CONFIRMATION LETTER NO DETAILS WERE FILED WITH REGARD TO ABOVE TRANSACTION. IT WAS EXP LAINED BEFORE THE AO THAT THE COMPANY HAD ADVANCED THE FUNDS TO THE M/S RAJLA XMI SECURITIES PVT. LTD. WITH THE UNDERSTANDING THAT THE ASSESSEE COMPA NY WOULD GET SHARE IN PROFIT REALIZED ON THE TRANSACTIONS ENTERED ON THEI R BEHALF OR A FIXED ANNUAL RETURN ON THE FUNDS AS DEPLOYED. IT WAS ALSO SUBMI TTED BEFORE THE AO THAT FUNDS HAD BEEN GIVEN TO M/S RAJLAXMI SECURITIES PVT . LTD. SINCE THE SAID COMPANY HAD SUFFICIENT EXPERIENCE IN THE CAPITAL MA RKET ON THE UNDERSTANDING THAT THE SAID FUNDS AS ADVANCED WOULD BE DEPLOYED N THE CAPITAL MARKET ON BEHALF OF THE ASSESSEE. IT WAS F URTHER EXPLAINED BEFORE THE AO THAT THE AMOUNT OF RS. 51 15 806/- REPRESENT ED THE SHARE OF PROFIT FROM THE F & O ACTIVITY CARRIED ON BY M/S. RAJLAXMI SECURITIES PVT. LTD. HOWEVER THE AO HAD NOT CONVINCED WITH THE EXPLANAT ION OFFERED BY THE ASSESSEE AND SAME WAS REJECTED BY OBSERVING THAT TH E MOU WAS NOT ACCEPTABLE BECAUSE IT WAS A SIMPLE LETTER AND NOT A REGISTERED DOCUMENT. FURTHER IT WAS ALSO OBSERVED THAT M/S RAJLAXMI SEC URITIES PVT. LTD. IS NOT ENGAGED IN THE BUSINESS OF PORTFOLIO MANAGEMENT. T HE ASSESSEE HAD NOT FILED ANY DETAILS EXCEPT CONFIRMATION LETTER. IN VI EW OF THE ABOVE FINDINGS THE AO BROUGHT TO TAX THE AMOUNT OF RS. 51 15 806/- WHICH WAS CREDITED TO THE P&L A/C BY THE ASSESSEE BY TREATING THE SAM E AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED THE ASSESSEE CARRIED MATTER I N APPEAL BEFORE THE LD. CIT (A). 4. BEFORE THE CIT(A) THE LEARNED AR OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE COMPANY HAD ADVANCED FUNDS TO M/S RAJLAXMI SECURITIES PVT. LTD. TO INVEST ON BEHALF OF THE ASSESSEE IN THE CAPITAL MARKET AND HAD AGREED TO SHARE THE PROFITS AS PER THE MOU SIGNED BY BOTH THE PARTIES. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT (A) THAT THE ABOVE SAI D TRANSACTION BASED ON THE MOU WHICH IS A VALID DOCUMENT AND SINCE M/S RAJ LAXMI SECURITIES PVT. LTD. HAD FURNISHED THE CONFIRMATION TO THE AO CONFI RMING THAT RS. ITA 1478/M/2010 M/S FACTS TRAELINK PVT. LTD. 3 51 15 806/- IS EARNED OUT OF F & O. IT WAS CONTEND ED THAT THE AO IS NOT CORRECT IN TREATING THE ABOVE TRANSACTION AS UNEXP LAINED AND MADE ADDITION U/S 68 OF THE I.T. ACT. THE LD. CIT (A) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MA DE BY THE AO BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE REASONING OF THE AO AND THE G ROUNDS AS TAKEN BY THE APPELLANT. THERE IS A CREDIT OF RS . 51 15 806/- IN THE P & L ACCOUNT OF THE APPELLANT C OMPANY. THERE IS INDEED A MOU ENTERED INTO BY THE APPELLANT WITH M/S RAJLAXMI SECURITIES PVT. LTD. DATED 7.5.2005. THE AO HAS REFUSED TO TAKE THE COGNIZANCE OF THE SAID MOU FOR THE REASON THAT IT IS IN A SIMPLE LETTER FROM AND IS NO T REGISTERED. HOWEVER THE EXISTENCE OF THE SAID MOU IS NOT DOUBT ED NOR ITS GENUINENESS SUSPECTED. A MOU HAS CERTAINLY BEEN EN TERED INTO AND THOUGH IS NOT REGISTERED THE APPELLANT AN D THE OTHER COMPANY HAVE ACTED IN ACCORDANCE WITH THE TERMS OF THE MOU AS SIGNED BY TWO OF THEM. IN ACCORDANCE WITH THE T ERMS OF MOU MONEY HAS BEEN ADVANCED TO M/S. RAJLAXMI SECUR ITIES PVT LTD. FOR MAKING INVESTMENT IN THE FUTURES MARK ET IN CONSIDERATION FOR 15% P.A. ASSURED RETURN ON THE FU NDS DEPLOYED OR 3.25% SHARES IN THE PROFIT REALIZED WHI CHEVER IS HIGHER. THE SAID MOU WAS FURTHER AMENDED 20.4.2005 AND AS PER THE AMENDED MOU THE APPELLANT IS ENTITLED FO R 3.25% SHARES IN THE PROFIT REALIZED. IT IS EXPLAINED THA T THE AMOUNT OF RS. 51 15 806/- AS CREDITED REPRESENTS THE APPEL LANTS SHARE OF PROFITS IN THE FUNDS SO DEPLOYED. THE SAI D TRANSACTION HAD BEEN CONFIRMED BY M/S. RAJLAXMI SEC URITIES PVT. LTD. THE CONFIRMATION OF THE SAID TRANSACTION WAS FILED BEFORE THE AO. FROM THE ABOVE FACT IT IS CLER THA T THE IDENTITY OF THE CREDITOR AND CREDITWORTHINESS HAD BEEN ESTAB LISHED AND THE TRANSACTION HAS ALSO BEEN EXPLAINED. THUS THE SOURCE OF THE CREDIT STOOD EXPLAINED AND THUS THE B URDEN PLACED ON THE APPELLANT STOOD DISCHARGED. THEREFOR E IT CANNOT BE SAID THAT THE INCOME WAS DERIVED FROM UND ISCLOSED SOURCES. SINCE THE SOURCE HAD BEEN EXPLAINED WITH ADEQUATE MATERIAL IT IS HELD THAT ON THE FACTS AND CIRCUMST ANCES OF THIS CASE ADDITION UNDER SEC. 68 OF THE ACT IS NOT WARR ANTED. UNDER THE CIRCUMSTANCES THE ADDITION U/S 68 IS HER EBY DELETED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED DR HAS SUBMITTED THAT THE DETAILS OF THE TRANSACTIONS AS ENTERED IN BETWEEN THE ASSESSEE AND M/S. RAJLAXMI S ECURITIES PVT. LTD. SUBSEQUENTLY TAKEN BY THE RELIANCE LIFE SCIENCES PR IVATE LIMITED WERE NOT EXPLAINED BY THE ASSESSEE BEFORE THE REVENUE AUTHOR ITIES. IT IS FURTHER ITA 1478/M/2010 M/S FACTS TRAELINK PVT. LTD. 4 SUBMITTED THAT THERE IS NOTHING ON THE RECORD TO SH OW THAT M/S. RAJLAXMI SECURITIES PVT. LTD. HAS CARRIED ANY BUSINESS ON BE HALF OF THE ASSESSEE. 7. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE HAS SUBMITTED THAT THE AO HAS CALLED FOR THE INFORMATIO N U/S 136 AND IN RESPONSE TO THE SAME M/S. RELIANCE LIFE SCIENCES PV T. LTD. HAS CONFIRMED THE TRANSACTION AND FILED ALL THE DETAILS IN RESPE CT OF BUSINESS TRANSACTION AND A COPY OF THE LEDGER ACCOUNT RELATING TO FOR TH E PERIOD FROM 1.4.2005 TO 31.3.2006 HAS ALSO BEEN FILED. 8. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CA SE OF THE ASSESSEE IS THAT ASSESSEE HAS ADVANCED CERTAIN FUNDS TO M/S. RA JLAXMI SECURITIES PVT. LTD. AND SUBSEQUENTLY THE SAME COMPANY HAS BEEN MERGED WITH RELIANCE LIFE SCIENCES PVT. LTD. AS PER THE APPROV AL OF THE HONBLE BOMBAY HIGH COURT. THE RELIANCE LIFE SCIENCES PVT. LTD. HA S FILED THE CONFIRMATION LETTER TO THE AO BY CONFIRMING THAT AN AMOUNT OF RS . 51 15 806/- WAS PAID ON ACCOUNT OF SHARE OF PROFIT ON F & O TRANSACTIONS AND ALL THE RELEVANT DETAILS IN RESPECT OF THE ABOVE TRANSACTION WAS ALS O SUBMITTED BEFORE THE AO. THE SAME CONFIRMATION LETTER WHICH WAS FILED B EFORE THE AO WASL ALSO FILED BEFORE CIT (A) AND EVEN BEFORE US. THE LD. C IT (A) AFTER CONSIDERING THE CONFIRMATION LETTER FILED BY THE RELIANCE LIFE SCIENCES PVT. LTD. DELETED THE ADDITION MADE BY THE AO BY GIVING A CATEGORICAL FINDING THAT THE IDENTITY OF CREDITOR AND CREDITWORTHINESS HAD BEEN ESTABLISHED AND THE TRANSACTION WAS ALSO BEEN EXPLAINED THEREFORE THE ASSESSEE HAS DISCHARGED THE ONUS LIES ON HIM. IN VIEW OF THE AB OVE SPECIFIC FINDING GIVEN BY THE LD. CIT (A) AND AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE IN AGREEMENT WITH THE VIEW TAK EN BY THE LD. CIT (A) THAT THE ASSESSEE HAS DISCHARGED HIS BURDEN. WE T HEREFORE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) AND THE S AME IS HEREBY UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9. AS REGARDS GROUND NO. 2 REGARDING THE ACTION OF THE CIT (A) IN DELETING THE DISALLOWANCE OF INTEREST OF RS. 62 55 765/- MADE U/S 36(1)(III) BY THE AO IT IS OBSERVED THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO HAD OBSERVED THAT THE ASSESSEE HAD TAKEN UNSECURED LOAN OF RS. 50 CR. FROM M/S. RECRON INFO INVESTMENT LTD. AND PAID INTEREST THERE OF RS. 1 31 15 959/-. IT WAS NOTED THAT A PA RT OF THIS LOAN HAD BEEN ITA 1478/M/2010 M/S FACTS TRAELINK PVT. LTD. 5 ADVANCED TO M/S. RELIANCE LIFE SCIENCES PVT. LTD. W HEREIN THE ASSESSEE HAD NOT CHARGED ANY INTEREST. AS THE ASSESSEE HAD UTILIZED THE INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES PROPORTION ATE INTEREST OF RS. 62 55 765/- WAS DISALLOWED BY THE AO. 10. ON APPEAL IT WAS SUBMITTED BEFORE THE LD. CIT (A) THAT THE ASSESSEE HAD INVESTED A PART OF BARROWED FUNDS WITH M/S. RAJ LAXMI SECURITIES PVT. LTD. IN ACCORDANCE WITH THE MOU ENTERED BETWEEN THE PARTIES. THE BORROWED FUNDS HAD BEEN INVESTED FOR THE PURPOSES O F BUSINESS AND IT HAD BEEN UTILIZED FOR THE PURPOSES OF THE BUSINESS AND INTEREST ON THE BARROWINGS FULLY ALLOWABLE U/S 36(1)(III) OF THE AC T. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE GROUND RAISED BY THE ASSESSEE BY HOLDING AS UNDER:- I HAVE CONSIDERED THE SAID GROUND. THE ASSESSEE H AD DURING THE YEAR TAKEN UNSECURED LOAN OF RS. 50 CR. AND PAI D INTEREST THEREON OF RS. 1 31 15 919/-. A PART OF THE SAME W AS ADVANCED TO M/S. RAJLAXMI SECURITIES PVT. LTD. BY ADVANCEMENT OF SAID FUNDS TO M/S. RAJLAXMI SECURITI ES PVT LTD. IT HAD EARNED INCOME WHICH HAS BEEN CREDITED T O P & L ACCOUNT. THE ASSESSEE IS A DEALER IN SHARES AND IT HAD ADVANCED FUNDS TO RAJLAXMI SECURITIES FOR INVESTMEN T IN CAPITAL MARKET SO AS TO EARN INCOME FROM FUTURE AND OPTION. THE FUNDS SO ADVANCED HAS RESULTED IN AN INCOME OF RS. 51 15 806/- ON ACCOUNT OF F & O. HENCE THERE IS M ERIT IN THE CONTENTION OF THE ASSESSEE THAT A PART OF THE BORRO WED FUNDS HAD BEEN INVESTED WITH M/S. RAJLAXMI SECURITIES PVT LTD FOR EARNING INCOME AS A PART OF ITS BUSINESS ACTIVITY. HENCE IT HAS TO BE HELD THAT FUNDS HAVE BEEN UTILIZED FOR TH E PURPOSE OF BUSINESS AND THEREFORE NO INTEREST DISALLOWANC E IS CALLED FOR. UNDER THE CIRCUMSTANCES THE INTEREST DISALLOW ANCE OF RS. 62 55 765/- IS HEREBY DELETED. 11. THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON FUNDS DEPLOYED TO M/S. RAJLAXMI SECURIT IES PVT. LTD. THEREFORE THE AO HAD RIGHTLY DISALLOWED THE PROPORTIONATE IN TEREST AND SUPPORTED THE ORDER PASSED BY THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT BORROWED FUNDS HAS BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS WHICH IS FULLY ALLOWABLE U/S 36(1)(III) OF THE I.T. ACT. 12. WE HAVE HEARD BOTH THE PARTIES PERUSED THE REC ORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE A SSESSEE HAS TAKEN UNSECURED LOAN OF RS. 50 CR. AND PAID INTEREST THER EON RS. 1 31 15 959/-. ITA 1478/M/2010 M/S FACTS TRAELINK PVT. LTD. 6 A PART OF THE ABOVE AMOUNT WAS ADVANCED TO M/S. RAJ LAXMI SECURITIES PVT. LTD. AND IT HAD EARNED AN INCOME WHICH HAS BEEN CRE DITED TO P & L ACCOUNT. THE ASSESSEE IS A DEALER IN SHARES AND IT HAD ADVANCED FUNDS TO M/S. RAJLAXMI SECURITIES PVT. LTD. FOR INVESTMENT A ND EARNED INCOME OF RS. 51 15 806/-. THEREFORE THE ASSESSEE HAS UTILIZED PART OF THE BARROWED FUNDS FOR THE PURPOSE OF THE BUSINESS AND THE AO W AS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE TO THE TUNE O F RS. 62 55 765/-. THE LD. CIT (A) AFTER CONSIDERING ALL THE DETAILS DELET ED THE DISALLOWANCE OF RS. 62 55 765/- MADE BY THE AO U/S 36(1)(III). WE THE REFORE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) AND THE SAME IS HER EBY UPHELD. ACCORDINGLY THIS GROUND OF APPEAL OF THE REVENUE I S HEREBY DISMISSED. 14. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 30 TH SEPTEMBER 2011. OKK* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED 4. COMMISSIONER OF INCOME TAX CONCERNED 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI