THE DY CIT 4(1), MUMBAI v. M/S. INFINITY. COM FINANCIAL SECURITIES LTD, MUMBAI

ITA 2460/MUM/2008 | 2004-2005
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 246019914 RSA 2008
Assessee PAN AADPM3669A
Bench Mumbai
Appeal Number ITA 2460/MUM/2008
Duration Of Justice 1 year(s) 9 month(s) 12 day(s)
Appellant THE DY CIT 4(1), MUMBAI
Respondent M/S. INFINITY. COM FINANCIAL SECURITIES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 04-01-2010
Date Of Final Hearing 10-11-2009
Next Hearing Date 10-11-2009
Assessment Year 2004-2005
Appeal Filed On 09-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 705/MUM/2008 ASSESSMENT YEAR-2004-05 SHRI ADITYA CHANDRAKANT MODY AMRUT NIWAS 1 ST FLOOR 14 SAROJINI ROAD SANTACRUZ(W) MUMBAI-400 054 PAN - AADPM3669A VS. THE ITO 2(1)(3) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.M. BANDI RESPONDENT BY: SHRI P. PERRYA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 17.1.2008 PASSED BY THE LD. CIT(A)-II MUMBAI F OR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE FILED HIS RETURN OF INCOME ON 9.8. 2004 DECLARING TOTAL INCOME AT RS. 16 21 664/- AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES WERE ISSUED. THE ASSESSMENT WAS COMPLETED UNDER 143(3) ON A TOTAL INCOME OF RS. 19 89 551/-. THE AS SESSING OFFICER HAS MADE THREE DISALLOWANCES IN HIS ORDER. 3. GROUND NO. 1 RELATES TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2 21 360/- BY TREATING IT AS NON BUSINESS EXPEND ITURE. 4. ON APPEAL BEFORE THE LD. CIT(A) THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NEITHER INCURRED PE RSONAL EXPENSES ON ITA NO. 705/M/08 2 WHICH INTEREST HAS BEEN PAID NOR MADE ANY INVESTMEN T OF WHICH INCOME IS EXEMPTED WHILE DISALLOWING THE INTEREST EXPENDIT URE OF RS. 2 21 360/-. THE ASSESSEE HAS ALSO FURNISHED THE CASH FLOW STATE MENT SHOWING HOW THE FUNDS HAVE BEEN UTILIZED IN THE BUSINESS AND TH EREBY SUBMITTED THAT THE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUS INESS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THE AO FAILED TO APPRECIATE THE FACTS THAT THE ENTIRE AMOUNT IS BORROWED FROM A KM GLOBAL TEXTILE PVT. LTD. ON WHICH INTEREST HAS BEEN PAID AND HAS B EEN REPAID AND NO AMOUNT IS OUTSTANDING. HE FURTHER STATED THAT THE AO FAILED TO APPRECIATE THE FACT THAT NOT ONLY THE ASSESSEE HAS UTILIZED THE FUNDS IN THE BUSINESS BUT ALSO REPAID THE ENTIRE BORROWINGS AND THEREFORE THE AO ERRED IN CONCLUDING THAT THE INTEREST EXPENSES IS A NON BUSINESS EXPENDITURE. 5. THE LD. COUNSEL FOR THE ASSESSEE RELIED IN THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF MADAV PRASAD JATIA VS. CIT (118ITR 200) CIT ANDHRA PRADESH VS DHANRAJ GIRIJI RAJA NARSIN GI RIJI (91 ITR 544) DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS RAJEEV LOCHAN KANORIA (208 ITR 616) AND SUBMITTED THAT IF THE MON EY IS BORROWED AND IT HAS BEEN SPENT FOR THE PURPOSE OF BUSINESS AND T HE ASSESSEE IF HAD PAID INTEREST ON THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTION THEN THERE IS NO REQUIREMENT OF THE PROVISION THAT THE A SSESSEE MUST FURTHER SHOW THAT THE BORROWING OF THE CAPITAL WAS NECESSAR Y FOR THE PURPOSE OF BUSINESS AND IF AT THE TIME OF BORROWING THE ASSESS EE HAD SUFFICIENT AMOUNT OF HIS OWN THE DEDUCTION COULD NOT BE ALLOW ED. 6. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE HEARD THE AR OF THE APPELLANT AND HAVE GONE THROUGH THE SUBMISSION FILED BY THE AR. I FIND THAT THE AO HAS CLEARLY DESCRIBED AT PAGE 2 OF THE ASSESSMENT ORDER THE ENT IRE ISSUE. AS PER THE AO THE APPELLANT HAS INTRODUCED A SUM OF RS. ITA NO. 705/M/08 3 20.27 LACS AS CAPITAL IN ITS PROPRIETARY CONCERN. FURTHER THE AMOUNT OF RS. 14.82 LACS HAS ALSO BEEN WITHDRAWN DU RING THE YEAR AND THE APPELLANT HAS PAID INTEREST OF RS. 2 2 1 360/- TO M/S. AKM GLOBAL TEXTILE PVT. LTD. WHEREIN THE APPEL LANT IS A DIRECTOR. WHEN THE AO QUESTIONED THAT THE APPELLAN T IS INVESTING THE SAID AMOUNT IN ITS PROPRIETARY BUSINE SS AND WHY THE SAME SHOULD NOT BE DISALLOWED THE APPELLANT ON LY SAID THAT IT HAS BEEN USED FOR THE PURPOSE OF BUSINESS. BUT THE AO HAS CATEGORICALLY FOUND THAT THE BORROWED FUNDS HAD BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN THE PROPR IETARY CONCERN AND HAS NOT BEEN INVESTED FOR THE PURPOSE O F BUSINESS. IN SUCH VIEW OF THE MATTER HE HAS MADE A DISALLOWANCE OF RS. 2 21 360/- AS NON-BUSINESS EXPE NDITURE. IN THE COURSE OF APPEAL HEARING ALSO THE AR OF THE APPELLANT HAS NOT BEEN ABLE TO FILE ANY EVIDENCE TO SHOW THAT IT HAS BEEN SPENT FOR THE PURPOSE OF BUSINESS. MERELY BY INTRO DUCING SOME AMOUNT IN THE CAPITAL ACCOUNT AND WITHDRAWING IT BY THE EQUAL AMOUNT IN THE END OF THE YEAR IT CANNOT BE S AID THAT THE APPELLANT HAS CONDUCTED A BUSINESS AND SPENT THE MO NEY FOR THE PURPOSE OF BUSINESS. IF ACTUALLY BUSINESS HAS BEEN DONE THAT SHOULD HAVE BEEN HIGHLIGHTED AND EACH AND EVER Y ENTRY SHOULD HAVE BEEN EXPLAINED TO THE AO OR TO THE CIT( A). NO DOUBT THE AR HAS FILED SEVERAL DECISIONS THERE ALS O THE AR OF THE APPELLANT HAS MISLED HIMSELF BY CITING VARIOUS CASE LAWS AND WITHOUT APPLYING THE SAME SET OF CASE LAWS TO T HE FACTS OF THE APPELLANTS CASE. IN SUCH VIEW OF THE MATTER I AM NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE AO . 7. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SHRI S.M. BANDI FILED A PAPER BOOK AND POINTED OUT AT PAGE 10 (PROPRIETORS CAPITAL ACCOUNT) OF THE PAPER BOOK THAT THE CAPITAL INTRODUCED WAS 2 02 7 600/- AND THE WITHDRAWAL WAS RS. 1 482 187/- AND THERE WAS A CLOS ING BALANCE OF RS. 659 341.07. THE LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THE BALANCE SHEET AS ON 31.3.2004 AT PAGE 8 OF THE PAPE R BOOK WHERE SOURCES OF FUNDS INCLUDE SECURED AND UNSECURED LOANS. HENC E THE INTEREST PAID IS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE THER EFORE THE ADDITION IS DELETED. 8. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED AS FOLLOWS: ITA NO. 705/M/08 4 THE LD. AO FAILED IN APPRECIATING THE FACT THAT AP PELLANT HAS NEITHER INCURRED ANY PERSONAL EXPENSES ON WHICH INT EREST HAS BEEN PAID NOR MADE ANY INVESTMENT OF WHICH THE INCO ME IS EXEMPTED WHILE DISALLOWING THE INTEREST EXPENDITURE OF RS. 2 21 360/-. THE APPELLANT ALSO FURNISHED THE CASH FLOW STATEMENT SHOWING HOW THE FUNDS HAVE BEEN UTILIZED IN THE BUSINESS AND THEREBY SUBMITTED THAT THE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. THE LD. AO O UGHT TO HAVE APPRECIATED THE FACT THAT THE ENTIRE AMOUNT BORROWE D FROM AKM GLOBAL TEXTILE PVT. LTD. ON WHICH INTEREST IS BEING PAID HAS BEEN REPAID DURING THE YEAR UNDER REFERENCE AND NO AMOUNT IS OUTSTANDING. MORE OVER THE LD. AO FURTHE R FAILED TO APPRECIATE THE FACT THAT NOT ONLY THE APPELLANT HAS INTRODUCED THE FUNDS IN THE BUSINESS BUT ALSO REPAID THE ENTIR E BORROWING AND THEREFORE THE LD. AO ERRED IN CONCLUDING THAT T HE INTEREST EXPENSES IS A NON BUSINESS EXPENDITURE. THE APPELL ANT STATES AND SUBMIT THAT THE INTEREST EXPENSES IS AN ALLOWAB LE EXPENSES AS THE SAME IS NOT INCURRED FOR ANY PERSON AL EXPENSES OR FOR ACQUIRING ANY INVESTMENT WHOSE INC OME ARE EXEMPT BUT THE SAME IS UTILIZED IN THE BUSINESS OF THE APPELLANT. 9. THE LD. COUNSEL FOR THE ASSESSEE RELIED IN THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF MADAV PRASAD JATIA VS. CIT (118ITR 200) CIT ANDHRA PRADESH VS DHANRAJ GIRIJI RAJA NARSIN GI RIJI (91 ITR 544) DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS RAJEEV LOCHAN KANORIA (208 ITR 616) EASTERN INVESTMENT CO. LTD. VS CIT 20 ITR 1 (SC) CIT VS. KANORIA INVESTMENTS PVT. LTD. 232 ITR 7 (C AL) CIT BOMBAY CITY II VS BOMBAY SAMACHAR LTD. (MUM) NEW CENTRAL JUTE MILLS LTD. VS CIT 136 ITR 742 (CAL). 10. WE FIND THAT THE INTEREST EXPENSES HAVE BEEN IN CURRED IN THE COURSE OF THE BUSINESS AND FOR THE PURPOSE OF BUSIN ESS AS HAS BEEN EXPLAINED BY THE ASSESSEE BY THE RELEVANT ENTRIES I N THE BALANCE SHEET AND THEREFORE IT IS TO BE DELETED. 11. THE SECOND GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: ITA NO. 705/M/08 5 ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LD. C IT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRM ING THE DISALLOWANCE MADE BY THE LD. AO IN MAKING A DISALL OWANCE OF PENAL INTEREST OF RS. 5 127/- BY TREATING THE SA ME AS PENALTY & FINE FOR INFRACTION OF LAW. 12. THE AO DISALLOWED PENAL INTEREST OF RS. 5127/- TREATING THE SAME AS PENALTY. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THIS INTEREST HAS BEEN CHARGED BY THE BANK AS THE ASSESSEE HAD NO T FURNISHED THE MONTHLY STOCK STATEMENTS TO THE PUNJAB NATIONAL BAN K AND THEREFORE THE ASSESSEE SUBMITS THAT THE SAME IS NOT IN NATURE OF PENALTY OR FINE FOR ANY INFRACTION OF LAW BUT INCURRED DUE TO BUSINESS NEED S AND EXIGENCIES AND THEREFORE IS AN ALLOWABLE EXPENDITURE. 13. WE ARE OF THE OPINION THAT THE PENAL INTEREST C HARGES FOR NON SUBMISSION OF MONTHLY STOCK STATEMENT TO THE BANK I S NOT IN THE NATURE OF PENALTY BUT IN THE COURSE OF BUSINESS WHICH IS U NAVOIDABLE EXPENDITURE WHILE RUNNING A BUSINESS BUT ALLOWABLE EXPENDITURE. 14. GROUND NO. 3 RAISED BY THE ASSESSEE READS AS FO LLOWS: A) ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LD . CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO IN MAKING ADDITION OF RS. 1 40 400/- ON ACCOUNT OF CLO SING STOCK WHICH WAS VALUED AT RS. NIL BASED ON THE CERTIFICATE OF A REGISTERED TEXTILE TESTING LABORAT ORY. B) WITHOUT PREJUDICE TO THE GROUND NO. 3(A) ABOVE T HE LD. CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN NOT GIVI NG THE DIRECTION TO THE LD. AO TO ADOPT THE SAME RATE FOR THE OPENING STOCK OF THE YEAR WHICH WAS VALUED AT RS. NIL & CONSEQUENTIALLY AT RS. NIL AT THE END OF THE YEAR . C) THE LD. CIT(A) FURTHER ERRED IN NOT DIRECTING TH E AO TO ADOPT THE SAME CLOSING STOCK AS OPENING STOCK OF TH E SUBSEQUENT YEAR. ITA NO. 705/M/08 6 15. THE AO MADE AN ADDITION OF RS. 1 40 400/- ON AC COUNT OF CLOSING STOCK. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE AO FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAD AN OPENING STOCK OF 461 KGS. OF SPANDEX YARN AND VALUE OF THE SAME AS ON BEGINNING OF THE YEAR WAS SHOWN AS RS. NIL. THE VA LUE WAS TAKEN AT RS. NIL AS ON 31.3.2003 (RELEVANT TO A.Y. 2003-04) AS T HE MATERIAL WAS OF SUBSTANDARD QUALITY. THE ENTIRE MATERIAL WAS LYING AS OPENING STOCK AS ON 1.4.2003 (RELEVANT TO A.Y. 2004-05 BEING THE YE AR UNDER CONSIDERATION) AND THE VALUE IN THE OPENING STOCK W AS TAKEN AT RS. NIL. DURING THE YEAR THE ASSESSEE WAS ABLE TO SELL SOME OF THE MATERIAL AND THE BALANCE MATERIAL WAS STILL LYING AS CLOSING STO CK WITH THE ASSESSEE AND AS THE SAME BEING SUBSTANDARD QUALITY AS WELL A S THE OPENING VALUE BEING TAKEN AT RS. NIL THE VALUE OF THE SAME AT TH E END OF THE YEAR WAS ALSO TAKEN AT RS. NIL. 16. THE LD. CIT(A) HELD AS FOLLOWS: I FIND NO INTERFERENCE IS NECESSARY BECAUSE THE FA CTS OVER WEIGHS THE CERTIFICATE. THE APPELLANT HIMSELF HAS SOLD THE SPANDEX YARN AT RS. 400/- PER KG IN THE SUBSEQUENT YEAR WHI CH ITSELF SUGGEST THAT THE SPANDEX YARN HAS SALEABLE VALUE IN THE MAR KET. UNDER SUCH CIRCUMSTANCES BY TAKING A CERTIFICATE THE APPE LLANT SHOULD NOT HAVE VALUED THE CLOSING STOCK AT NIL. SINCE THE AR HAS NOT BEEN ABLE TO EXPLAIN THE SAME PROPERLY THIS ADDITION ALSO ST ANDS CONFIRMED. 17. WE FIND THAT THE ASSESSEE BASED ON THE SAID CER TIFICATE OF TEST REPORT DT. 25.2.2003 OBTAINED FROM THE CEPZ TEXTILE TESTING LABORATORY- CUM-R&D CENTRE WHICH BEING A REGISTERED TEXTILE TE STING LABORATORY AND HAS CERTIFIED THAT THE SPANDEX YARN IS NOT ONLY OF SUB-STANDARD QUALITY BUT ALSO HAS VERY POOR STRENGTH PROPERTIES AND THEREFORE IT CANNOT BE USED IN TEXTILES. THE ASSESSEE HAD VALUED THE SA ID STOCK AS ON 31.3.2003 (RELEVANT TO F.Y. 2002-03 & A.Y. 2003-04) AT RS. NIL AND ACCORDINGLY THE SAME IS VALUED AT RS. NIL AS ON 1.4 .2003 I.E. AT THE ITA NO. 705/M/08 7 BEGINNING OF THE YEAR AS WELL AS ON 31.3.2004 I.E. AT THE END OF THE YEAR (RELEVANT TO A.Y. 2004-05 BEING THE YEAR UNDER CON SIDERATION) AT RS. NIL. THAT THE MATERIAL WHICH ARE CERTIFIED TO BE SUBSTAN DARD QUALITY AND WHICH CANNOT BE USED IN TEXTILES ARE OF LITTLE VALU E AND MOREOVER WHEN THE OPENING STOCK IS TO BE TREATED AT RS. NIL THE CLOSING STOCK IS ALSO TO BE TREATED AT RS. NIL. 18. ON APPEAL BEFORE US THE LD. COUNSEL FOR THE AS SESSEE POINTED OUT THAT THE VALUE OF THE CLOSING STOCK SHALL BE THE VA LUE OF OPENING STOCK IN THE IMMEDIATELY SUCCEEDING YEAR HAS BEEN HELD IN TH E CASE OF RAMSARUP BENGALIMAL VS CIT (U.P. & V.P. LUCKNOW-25 ITR 17 ( ALL.) THE LD. COUNSEL ALSO RELIED UPON THE DECISION IN THE CASE O F 15 ITD 564 (BOM) WHEREIN IT HAS BEEN HELD AS FOLLOWS: THAT WRITING OFF THE OBSOLETE STOCK OR GOODS OF IN FERIOR QUALITY OR VALUING INACTIVE STOCK BELOW COST DO NOT AMOUNT TO UNDERVALUATION 19. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF THE LD. CIT(A) (300 ITR 428). 20. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS DAY OF JANUARY 2010. SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI DATED 22 ND JANUARY 2010 RJ ITA NO. 705/M/08 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 705/M/08 9 DATE INITIALS 1 DRAFT DICTATED ON: 20.1.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21.1.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______