M/s. Anand Palace (P) Ltd., Darjeeling v. ACIT, Circle - 3, Siliguri

ITA 1949/KOL/2009 | 2004-2005
Pronouncement Date: 09-07-2010

Appeal Details

RSA Number 194923514 RSA 2009
Assessee PAN AAECA9500C
Bench Kolkata
Appeal Number ITA 1949/KOL/2009
Duration Of Justice 7 month(s) 21 day(s)
Appellant M/s. Anand Palace (P) Ltd., Darjeeling
Respondent ACIT, Circle - 3, Siliguri
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Assessee
Bench Allotted SMC
Tribunal Order Date 09-07-2010
Date Of Final Hearing 29-06-2010
Next Hearing Date 29-06-2010
Assessment Year 2004-2005
Appeal Filed On 18-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : SMC BENC H : KOLKATA [BEFORE HONBLE SMT. DIVA SINGH JM] I.T. A. NOS. 1949 & 1950/KOL/2009 ASSESSMENT YEARS :2004-05 & 2005-06 M/S.ANAND PALACE (P) LTD. -VS- A.C.I.T. CIRCLE- 3 SILIGUIR PAN AAECA 9500 C SILIGURI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBASH AGARWAL RESPONDENT BY : SHRI R.K.PAL SR.DR O R D E R THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE A GAINST THE CONSOLIDATED ORDERS DATED 17.09.2009 OF THE CIT(A)-SILIGURI PERT AINING TO A.YRS.2004-05 & 2005- 06. THE SOLE ISSUE AGITATED BY THE ASSESSEE IN BOTH THESE YEARS READ AS UNDER :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.2 55 150/- MADE BY THE AO ON ACCOUNT OF INTEREST PAID TO THE SHARE APPLICA NTS. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASS ESSEE IS A CLOSELY HELD PRIVATE COMPANY. AS PER PARA 4.1 OF THE ASSESSMENT ORDER OF 2004-05 THE ASSESSEE FILED THE CERTIFICATE OF INCORPORATION ISSUED BY THE DEPUTY R EGISTRAR OF COMPANIES WEST BENGAL ALONG WITH MEMORANDUM AND ARTICLES OF ASSOCI ATION VERIFYING THAT THE COMPANY WAS INCORPORATED ON 22.4.2003. BEFORE THE A O IT WAS STATED THAT THE MAIN OBJECTIVE OF THE ASSESSEE COMPANY WAS RUNNING HOTEL BUSINESS AS SUCH IT RECEIVED SHARE APPLICATION MONEY TO THE TUNE OF RS.64 20 000/- FRO M ELEVEN PARTIES OUT OF WHICH RS.4 50 000/- WAS REFUNDED AND RS.59 70 000/- WAS R ETAINED. THE ASSESSEE COMPANY FILED ITS FIRST RETURN ON 22.06.2005 AND WAS SUBJEC TED TO SURVEY U/S 133A ON 3.9.2005. THE ASSESSMENT ORDER FOR A.YR.2004-05 WAS PASSED ON 22.12.2006 MAKING A DISALLOWANCE OF RS.2 55 150/- FOR THE FOLLOWING REA SONS :- 2 4.2. THE ASSESSEE IS A CLOSELY HELD PVT. LTD. COM PANY AND HAD FILED ITS FIRST RETURN ON 22.06.2005. THE DIRECTORS OF THE COMPANY WERE SHRI ASHOK GUPTA AND SHRI VIVEK GUPTA EACH WITH A SHARE HOLDING OF F IVE THOUSAND SHARES OF THE VALUE OF RS.10/- PER SHARE. THE AUTHORIZED SHARE CA PITAL OF THE ASSESSEE COMPANY WAS RS.5 00 000/- AND THE PAID UP CAPITAL W AS RS.1 00 000/-. DURING THE F.Y. 2003-04 THE ASSESSEE COMPANY RECEIVED SHA RE APPLICATION MONEY TO THE TUNE OF RS.64 20 000/- FROM ELEVEN PERSON WHO W ERE ALL RELATIVES OF THE TWO DIRECTORS. HOWEVER RS.4 50 000/- WAS REFUNDED. THE BALANCE RS.59 70 000/- WAS KEPT IN FIXED DEPOSIT ACCOUNT MAINTAINED WITH U NION BANK DARJEELING. THE INTEREST EARNED ON THE FIXED DEPOSIT WAS RS.2 56 97 2/- WHICH WAS DULY DISCLOSED BY THE ASSESSEE AS ITS INCOME. AS THE ASSESSEE WAS YET TO COMMENCE HIS HOTEL BUSINESS THE INTEREST EARNED ON THE FIXED DEPOSIT WAS DISCLOSED AS ITS INCOME FROM OTHER SOURCES FROM WHICH THE INTEREST CREDITED TO SHARE APPLICANTS ON THEIR SHARE APPLICATION MONEY WAS DEDUCTED. THE SHARE APP LICATION MONEY RECEIVED BY THE ASSESSEE WAS INVESTED IN FIXED DEPOSIT AND T HE ASSESSEE EARNED INTEREST ON IT. INTEREST WAS GIVEN ON SHARE APPLICATION MONEY R ETAINED WITHOUT ALLOTMENT. SHARE APPLICATION MONEY WAS NOT TAKEN FOR THE PURPO SE OF INVESTING IN FIXED DEPOSIT BUT FOR THE PURPOSE OF PURCHASING A HOTEL. HOWEVER THE ASSESSEE DID NOT PURCHASE ANY HOTEL DURING THE ACCOUNTING YEAR. THEREFORE THE EXPENSES ON ACCOUNT OF INTEREST PAID ON SHARE APPLICATION MONEY RETAINED CAN NOT BE SAID TO BE INCIDENTAL TO THE EARNING OF INTEREST ON FIXED D EPOSIT. HENCE THE DEDUCTION OF RS.2 55 150/- IS DISALLOWED AND ADDED BACK TO THE I NCOME OF THE ASSESSEE. 2.1. SIMILARLY IN A.YR. 2005-06 THE AO MADE A DISAL LOWANCE OF RS.2 21 400/- HOLDING AS UNDER :- 4. THE ASSESSEE HAS DISCLOSED INTEREST ON FIXED D EPOSITS AMOUNTING TO RS.2 21 400/- AND AGAINST THE INTEREST SO RECEIVED THE ASSESSEE HAS DEBITED EXPENDITURE ON VARIOUS HEADS AMOUNTING TO RS.2 31 2 08/- AND THEREAFTER ARRIVED AT NET LOSS OF RS.9 808/-. THE AMOUNT OF INTEREST O N FIXED DEPOSIT WAS RECEIVED FROM THE INVESTMENT MADE OUT OF SHARE APPLICATION M ONEY RECEIVED. SHARE APPLICATION MONEY WAS NOT TAKEN FOR THE PURPOSE OF INVESTING IN FIXED DEPOSIT BUT FOR THE PURPOSE OF PURCHASING A HOTEL. HOWEVER THE ASSESSEE DID NOT PURCHASE ANY HOTEL DURING THE ACCOUNTING YEAR. THER EFORE THE EXPENSES ON ACCOUNT OF INTEREST PAID ON SHARE APPLICATION MONEY RETAINED CANNOT BE SAID TO BE INCIDENTAL TO EARNING OF INTEREST ON FIXED DEPOS IT. HENCE DEDUCTION CLAIMED BY THE ASSESSEE AT RS.2 31 208/- IS DISALLOWED AND ADDED BACK IN THE TOTAL INCOME. PENALTY PROCEEDING U/S 271 (1) (C) IS INITI ATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS.2 31 208/ -. SUBJECT TO THE ABOVE DISCUSSION TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UNDER :- INCOME AS PER RETURN : RS.NIL ADD : AS PER DISCUSSION VIDE PARA 4 : RS.2 31 208/- 3 TOTAL ASSESSED INCOME RS.2 31 208/- ROUNDED OFF RS.2 31 210/- TAX RS.80 924/- ADD:TAX SURCHARGE AND E.C. RS. 3 682/- RS.84 606/- ADD:INTEREST U/S 234A RS.4 230/- ADD:INTEREST U/S 234B RS.27 918/- NET TAX INTEREST PAYABLE RS.1 16 754/- ASSESSED U/S 143(3)(II) OF I.T.ACT 1961 ON A TOTAL INCOME OF RS.2 31 210/- CHARGED INTEREST AS PER LAW CREDIT OF PREPAID TAX GIVEN. ISSUE DNC AND A COPY OF THE ORDER TO THE ASSESSEE. PENALTY PROCEEDING U/ S 271(1)(C) HAS BEEN INITIATED SEPARATELY. 2.2. AGGRIEVED BY THIS THE ASSESSEE CAME IN APPEAL BEFORE THE CIT(A) CONTENDING THAT THE ASSESSEE RAISED SHARE APPLICATION MONEY FO R PURCHASE OF A HOTEL PROPERTY AT DARJEELING FORM WBIDC KOLKATA BUT NEGOTIATIONS TOO K TIME FOR REASONS BEYOND THE CONTROL OF THE ASSESSEE AS SUCH THE SHARE APPLICATI ON MONEY WAS KEPT IN THE BANK FOR INTEREST FOR THE TIME BEING. HOWEVER THE ASSESSEE P AID INTEREST TO PACIFY THE SHARE HOLDERS AS THEY PROTESTED OVER THE DELAY IN STARTIN G THE HOTEL BUSINESS. IT WAS ARGUED THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF EARNING INCOME AND AS SUCH FOR COMPUTING TAXABLE INCOME UND ER THE HEAD INCOME FROM OTHER SOURCES THE ASSESSEE IS ENTITLED TO DEDUCT REVENU E EXPENDITURE SUBJECT TO THE CONDITION THAT IT HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSES OF BUSINESS. RELIANCE WAS PLACED UPON 1. CIT VS- DHANRAJGIRIJI NARSINGHJI 91 ITR 544 (SC) 2. R.DALMIA VS- CIT 110 ITR 644 9SC) 3. TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. VS- CIT 227 ITR 172 (SC) 4. CIT VS- MAHARASHTRA ELECTROSMELT LTD. 214 ITR 489 (BOM) 5. CIT -VS- NAGARJUNA STEELS LTD. 171 ITR 663 (AP) 6. SMT. VIRMATI RAMKRISHNA VS- CIT 4 2.3. HOWEVER NOT CONVINCED BY THE ARGUMENTS ADVANC ED ON BEHALF OF THE ASSESSEE THE CIT(A) DISMISSED THE APPEALS HOLDING AS UNDER : - I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. AR AND ALSO PERUSED THE ASSESSMENT ORDER. THE DECISION IN CASE OF CIT VS DH ANRAJGIRIJI IS NOT RELEVANT TO THE FACT OF THE CASE. THE DECISION IN THE CASE OF S MT. VIRMATI RAMKRISHNA VS CIT AND CIT VS NAGARJUNA STEELS LTD ALSO RELATE TO BUSINESS INCOME THEREFORE THE PRINCIPLE LAID DOWN IN THAT DECISION IS NOT APP LICABLE TO THE FACT OF THE CASE. IT IS ADMITTED THAT THE INTEREST EARNED BY THE ASSE SSEE WAS NOTHING BUT INCOME FROM OTHER SOURCES AS HELD BY DIFFERENT COURTS. ONL Y QUESTION ARISES OUT OF THE FACT WHETHER THE INTEREST PAID TO THE SHARE APPLICA NTS IS AN ALLOWABLE EXPENDITURE. UNDER THE COMPANIES ACT NO SUCH INTER EST IS PAYABLE TO THE SHARE HOLDERS OR SHARE APPLICANTS. IF ANY INTEREST IS PA ID THE INVESTMENT BY THE SHARE APPLICANTS CHANGED ITS CHARACTER TO DEPOSITS AND A PRIVATE LIMITED COMPANY CANNOT TAKE DEPOSITS UNDER THE COMPANIES ACT. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE TH E TRIBUNAL. 3. ADDRESSING THE IMPUGNED ORDER IT WAS SUBMITTED BY THE LD. AR THAT THE CIT(A) WHILE DECIDING THE ISSUE HAS CONCLUDED THAT IF ANY INTEREST IS PAID TO THE SHARE APPLICANTS AS THEN THE INVESTMENT BY THE SHARE APPL ICANTS WOULD CHANGE ITS CHARACTER TO DEPOSIT AND A PRIVATE LIMITED COMPANY CANNOT TAKE D EPOSITS UNDER THE COMPANIES ACT. IT WAS HIS SUBMISSION THAT THE ISSUE HAS BEEN DECIDED WITHOUT LOOKING AT THE RELEVANT PROVISIONS OF THE RESPECTIVE ACTS OF PARLI AMENT WHICH NEED CONSIDERATION. IT WAS HIS SUBMISSION THAT FOR THE SAID PURPOSE IT IS FIRST RELEVANT TO TAKE INTO CONSIDERATION SECTION 58A OF THE COMPANIES ACT 1956 . INVITING ATTENTION TO EXPLANATION APPENDED TO SUB SECTION (10) OF SECTION 58A OF THE SAID ACT IT WAS HIS ARGUMENT THAT RELEVANT PROVISIONS OF THE RESERVE BA NK OF INDIA ACT 1934 ALSO NEED CONSIDERATION AS THE SAID EXPLANATION MAKES A REFER ENCE TO THE RESERVE BANK ACT. ACCORDINGLY IT WAS THE SUBMISSION THAT BEFORE COMIN G TO THE CONCLUSION OF ANY VIOLATION OF AN ACT IT WAS NECESSARY FOR THE CIT(A) TO LOOK INTO THE RBI ACT. THE RELEVANT SECTION FOR THE PURPOSE OF THE PRESENT PRO CEEDINGS IT WAS STATED WAS SECTION 45(1) OF SUB-SECTION (BB) WHICH DEFINES DEPOSIT. TH E SAME IS REPRODUCED HEREUNDER :- 5 45-I DEFINITIONS (BB)DEPOSIT INCLUDES AND SHALL BE DEEMED ALWAYS T O HAVE INCLUDED ANY RECEIPT OF MONEY BY WAY OF DEPOSIT OR LOAN OR IN AN Y OTHER FORM BUT DOES NOT INCLUDE (I) AMOUNTS RAISED BY WAY OF SHARE CAPITAL; (II). (III).. (IV) (V). (VI) (VII).. 3.1. INVITING ATTENTION TO PAPER BOOK PAGE 4 TO 6 W HICH CONTAINS NON-BANKING FINANCIAL COMPANIES OF PUBLIC DEPOSITS (RESERVE BA NK) DIRECTIONS 1998 ISSUED BY RESERVE BANK OF INDIA VIDE NOTIFICATION NO.DFC.118/ DG(SPT)/98 DATED THE JANUARY 31 1998. IT WAS HIS SUBMISSION THAT UNDER CLAUSE ( 2) (XII) BEFORE COMING TO THE CONCLUSION THAT THE ACTION OF THE ASSESSEE WAS IN V IOLATION OF THE COMPANIES ACT IT IS IMPERATIVE FOR THE CIT(A) TO TAKE INTO CONSIDERATIO N THE RELEVANT PROVISIONS WHICH HAS NOT BEEN DONE. ACCORDINGLY IT WAS ARGUED THAT THE CLAIM OF THE ASSESSEE ON FACTS AND IN LAW DESERVES TO BE ALLOWED. IT IS ALSO THE SUBMISSI ON THAT THE CONCLUSION HAS BEEN ARRIVED AT NAMELY THAT THERE WAS A VIOLATION OF THE PROVISIONS OF THE COMPANIES ACT AGAINST THE ASSESSEE WITHOUT AFFORDING ANY SPECIFIC OPPORTUNITY TO THE ASSESSEE TO ADDRESS THIS ISSUE. IT WAS THE SUBMISSION THAT FOR BOTH THE YEARS THE ARGUMENTS ON THE ADMITTED FACTS ARE THE SAME AND THE CONSOLIDATED FI NDING ARRIVED IN BOTH THE YEARS IS IDENTICAL AS SUCH THE SUBMISSION IN BOTH THE YEARS ON BEHALF OF THE ASSESSEE ARE IDENTICAL. 4. THE LD. DR ON THE OTHER HAND PLACED HEAVY RELI ANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD IT IS SEEN THAT ADMITTEDLY BEFORE COMING TO THE CONCLUSION AGAINST THE ASSESSEE 6 LD. CIT(A) DID NOT AS PER RECORD SPECIFICALLY CONFR ONT THE ASSESSEE QUA THE RELEVANT PROVISIONS OF THE COMPANIES ACT. ACCORDINGLY IN THE INTERESTS OF JUSTICE IT IS CONSIDERED APPROPRIATE TO RESTORE THE ISSUE FOR BOT H THE YEARS BACK TO THE FILE OF THE CIT(A) WITH THE DIRECTION TO DECIDE THE SAME IN ACC ORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AFTER AFFORDING THE ASSESSEE A REAS ONABLE OPPORTUNITY OF BEING HEARD ON THE SPECIFIC CASE MADE OUT BY THE CIT(A). 6. IN THE RESULT BOTH THE APPEALS ARE ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 09.07.2010. SD/- (DIVA SINGH) JUDICIAL MEMBER DATED : 09.07.2010. COPY OF THE ORDER IS FORWARDED TO :- 1) M/S. ANAND PALACE (P) LTD H.L.GHOSH ROAD DARJEELI NG. 2) A.C.I.T. CIRCLE-3 SILIGURI 3) CIT (A)-SILIGURI (4) CIT - KOLKATA. 5) D. R. I.T.A.T. KOLKATA. (TRUE COPY) BY ORDER ASSISTANT REGISTRAR (RG) I.T.A.T. KOLKATA.