Ther ACIT, Ahmedabad Circle- 2, Ahmedabad v. Shri Parikh Bhadrabahu Suryakant, Ahmedabad

ITA 254/AHD/2005 | 2001-2002
Pronouncement Date: 16-04-2010 | Result: Dismissed

Appeal Details

RSA Number 25420514 RSA 2005
Assessee PAN AETPP8908B
Bench Ahmedabad
Appeal Number ITA 254/AHD/2005
Duration Of Justice 5 year(s) 2 month(s) 20 day(s)
Appellant Ther ACIT, Ahmedabad Circle- 2, Ahmedabad
Respondent Shri Parikh Bhadrabahu Suryakant, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 16-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 16-04-2010
Date Of Final Hearing 25-03-2010
Next Hearing Date 25-03-2010
Assessment Year 2001-2002
Appeal Filed On 27-01-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA JUDICIAL MEMBER AND SHRI D.C.AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 25/03/2010 DRAFTED ON: 26/03/ 2010 ITA NO.254/AHD/2005 ASSESSMENT YEAR : 2001-02 THE ACIT CIR-2 AHMEDABAD VS. SHRI PARIKH BHADRABAHU SURYAKANT PROP.SAYA TRADERS 1002 CHANDANBALA OPP.SUVIDAH SHOPPING CENTRE PALDI RATANPOLE AHMEDABAD PAN/GIR NO. : AETPP 8908 B (APPELLANT) .. (RESPONDENT) AND CO NO.70/AHD/2005 (ARISING OUR OF ITA NO.254/AHD/2005) ASSESSMENT YEAR 2001-02 BHADRABAHU SURYAKANT PARIKH .. THE ACIT AHMEDABAD CIR-2 AHMEDABAD (CROSS OBJECTOR) VS. (RESPO NDENT) REVENUE BY: SHRI K.MADHUSUDHAN SR. DR ASSESSEE BY: SHRI S.N.SOPARKAR SR.ADV. O R D E R PER SHRI T.K.SHARMA JUDICIAL MEMBER :- THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE AGAINST THE ORDER DATED 04/10/2004 OF THE LEARNED CIT(APPEALS)-VI AHMEDABAD FOR ASSESSMENT YEAR 2 001-02. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS AP PEAL IS AS UNDER: ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 2 - THE LD. CIT(A)-VI ABAD HAS ERRED IN LAW AND ON TH E FACTS OF THE CASE IN DIRECTING TO RESTRICT THE SPECULATIVE LOSS TO RS.8 77 570/-. 2.1. IN CROSS OBJECTION THE ASSESSEE RAISED THE FO LLOWING GROUNDS:- 1. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCE S OF THE RESPONDENTS CASE THE LEARNED CIT(A) HAS GROSSLY ER RED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.21 98 158 WHEN HE OUGHT TO HAVE DELETED SUCH DISALLOWANCE PARTICULARL Y WHEN NOTHING HAS BEEN BROUGHT ON RECORD TO CONCLUSIVELY ESTABLIS H THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE NON-BUSIN ESS PURPOSES. THIS HON'BLE TRIBUNAL MAY THEREFORE BE PLEASED TO HOLD THAT THERE IS NO JUSTIFICATION FOR UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.21 98 158 AND DIRECT THE DELETION THEREOF. 2. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCE S OF THE RESPONDENTS CASE THE LEARNED CIT(A) HAS GROSSLY ER RED IN HOLDING THAT THE AMOUNT OF RS.8 77 570 REPRESENTS SPECULATI ON LOSS AND SHOULD BE ALLOWED TO BE CARRIED FORWARD AS SUCH WHE N HE OUGHT TO HAVE HELD THAT THE SAME IS BUSINESS LOSS. THIS HON'BLE TRIBUNAL MAY THEREFORE BE PLEASED TO HOLD THAT THERE IS NO JUSTIFICATION IN HOLDING THAT THE AMOUNT OF R S.8 77 570 REPRESENTS SPECULATION LOSS WHEN IT WAS A BUSINESS LOSS AND DIRECT THE ASSESSING OFFICER ACCORDINGLY. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN RE VENUES APPEAL AND GROUND NO.2 OF ASSESSEES CROSS OBJECTION ARE THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER BIFURCATED THE SHARE T RADING ACCOUNT INTO TWO PARTS AND TREATED RS.36 12 689/- AS BUSINESS PROFIT AND RS.76 00 351/- AS SPECULATIVE LOSS IN THE SHARE TRADING BUSINESS. ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 3 - 4. ON APPEAL BEFORE THE LEARNED CIT(APPEALS) ASSESS EE OBJECTED TO THE BIFURCATION OF TRANSACTIONS OF PURCHASE AND SAL E OF SHARES INTO SHARE TRADING BUSINESS AND SHARE SPECULATION BUSINESS. IT WAS SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN S HARES AND OTHER COMMODITIES BESIDES COMMISSION AGENCY BUSINESS. I N THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE INCURRED LOSS OF RS .39 87 661/- FROM TRADING IN SHARES WHICH WAS SHOWN IN THE RETURN. I N THE ASSESSMENT ORDER THE ASSESSING OFFICER BIFURCATED THE TRANSACTIONS O F PURCHASE AND SALE OF SHARES AND OTHER COMMODITIES INTO THREE CATEGORIES VIZ. TRADING IN OTHER COMMODITIES TRADING IN SHARES AND SHARE SPECULATIO N BUSINESS. HE CALCULATED LOSS FROM BUSINESS OF TRADING IN OTHER C OMMODITIES AT RS.36 22 830/-. THE ASSESSING OFFICER DETERMINED THE PROFIT FROM SHARE TRADING BUSINESS AT RS.36 12 689/- AND LOSS FROM SH ARE SPECULATION BUSINESS AT RS.76 00 351/-. THE ASSESSING OFFICER SET OFF THE LOSS INCURRED FROM TRADING IN OTHER COMMODITIES AGAINST THE INCOME FROM SHARE TRADING BUSINESS. THE RESULTANT LOSS FROM TH E BUSINESS OF TRADING IN OTHER COMMODITIES AND SHARES WAS DETERMINED AT RS.1 3 78 564/- AS AGAINST THE BUSINESS LOSS SHOWN IN THE RETURN AT RS .39 87 662/-. THE ASSESSING OFFICER DETERMINED THE INCOME FROM OTHER SOURCES AT RS.31 79 742/-. AFTER SETTING OFF OF LOSSES BRO UGHT FORWARD FROM THE ASSESSMENT YEARS 1998-99 AND 1999-2000 THE TOTAL I NCOME WAS DETERMINED AT RS.6 70 460/-. THE ASSESSING OFFICER ALSO ALLOWED TO BE CARRIED FORWARD THE LOSS OF RS.76 00 351/- DETERMIN ED BY HIM FROM SHARE SPECULATION BUSINESS FOR BEING SET OFF AGAINST THE SPECULATION PROFITS IN THE SUBSEQUENT ASSESSMENT YEARS AS PER PROVISIONS O F SECTION 73 OF THE I.T. ACT 1961. ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 4 - 5. BEFORE THE LEARNED CIT(APPEALS) ON BEHALF OF TH E ASSESSEE IT WAS ARGUED THAT THE ASSESSING OFFICER HAS NOT UNDERSTOO D THE PROVISIONS OF SECTION 43(5) OF THE I.T. ACT 1961 IN ITS PROPER P ERSPECTIVE AND FOR THIS REASON HE TREATED EVEN THOSE TRANSACTIONS IN SHARE S AS SPECULATIVE TRANSACTIONS WHICH WERE SPECIFICALLY EXCLUDED FROM THE PURVIEW OF SUCH TRANSACTIONS AS PER PROVISIONS OF CLAUSE (B) OF PRO VISO TO SUB-SECTION (5) OF SECTION 43 OF THE I.T. ACT 1961 BECAUSE ASSESSE E IS A DEALER IN SHARES. THE ASSESSING OFFICER DETERMINED THAT ASSESSEE HAD AN OPENING STOCK OF 15300 SHARES OF ADANI EXPORTS LTD. AND TRANSACTIONS CARRIED OUT IN PURSUANCE TO THE CONTRACTS ENTERED INTO BY HIM AS A DEALER IN SHARES FOR GUARDING AGAINST LOSS IN HIS HOLDINGS IN THESE SHAR ES COULD NOT BE TERMED AS SPECULATIVE TRANSACTIONS IN VIEW OF THE PROVISIO NS OF CLAUSE (B) OF PROVISO TO SUB-SECTION (5) OF SECTION 43 OF THE I.T . ACT 1961. BEFORE THE LEARNED CIT(APPEALS) IT WAS SUBMITTED THAT ALL THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN SHARES OF ADANI EXPORTS LTD. MAY BE TREATED AS REGULAR TRANSACTIONS OF HIS SHARE TRADING BUSINESS AND THE LOSS SHOWN FROM THESE TRANSACTIONS MAY BE ALLOWED AS BUSINESS LOSS. THE LEARNED CIT(APPEALS) CALLED THE COMMENTS OF ASSESSING OFFIC ER. THE ASSESSING OFFICER VIDE HIS LETTER DATED 30/08/2004 SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND OT HER COMMODITIES. IN THE REMAND REPORT THE ASSESSING OFFICER STATED THA T THE TRANSACTIONS IN SHARES EXCEPTING 17000 SHARES OF ADANI EXPORTS LTD. WERE CARRIED OUT WITHOUT TAKING OR GIVING THE DELIVERY OF SHARES AND THEREFORE ALL THE TRANSACTIONS IN THESE SHARES WERE RIGHTLY TREATED B Y HIS PREDECESSOR AS SPECULATIVE TRANSACTIONS IN VIEW OF PROVISIONS OF S ECTION 43(5) OF THE I.T. ACT 1961. THE ASSESSING OFFICER ACCORDINGLY REQUE STED THE BIFURCATION ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 5 - OF SHARE TRANSACTIONS INTO THE SHARE TRADING TRANSA CTIONS AND SHARE SPECULATIVE TRANSACTIONS AS MADE BY THE ASSESSING O FFICER IN THE ASSESSMENT ORDER BE UPHELD. IN THE COUNTER COMME NTS THE LD. COUNSEL FOR THE ASSESSEE VIDE LETTER DATED 18/09/2004 SUBMI TTED THAT SINCE THE ASSESSEE IS A DEALER IN SHARES THE HEDGING CONTRAC TS ENTERED INTO BY HIM TO GUARD AGAINST FUTURE LOSS IN HIS HOLDINGS DUE TO PRICE FLUCTUATIONS COULD NOT BE TREATED AS A SPECULATIVE TRANSACTIONS IN VIE W OF THE SPECIFIC EXCLUSION PROVIDED BY CLAUSE(B) OF PROVISO TO SUB-S ECTION (5) OF SECTION 43 OF THE I.T. ACT 1961 AND THEREFORE THE ARTIFI CIAL BIFURCATION MADE BY THE ASSESSING OFFICER OF SUCH TRANSACTIONS INTO THE SHARE TRADING TRANSACTIONS AND SHARE SPECULATIVE TRANSACTIONS MAY BE NEGATED AND THE LOSS SUFFERED BY THE ASSESSEE FROM TRADING IN SHARE S O ADANI EXPORT LTD. AS SHOWN IN THE RETURN MAY BE ACCEPTED. 6. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED CIT(APPEALS) HELD THAT LOSS TO T HE EXTENT OF RS.8 77 570/- INCURRED FORM TRANSACTIONS IN THESE S HARES WILL BE TREATED AS SPECULATION LOSS ELIGIBLE TO BE CARRIED FORWARD AND SET OFF AGAINST THE SPECULATION PROFITS IN THE SUBSEQUENT ASSESSMENT YE ARS AS PER PROVISIONS OF SECTION 73 AND THE BALANCE LOSS OF RS.31 10 092/ - WILL BE TREATED AS TRADING LOSS ELIGIBLE TO BE SET OFF AGAINST OTHER I NCOME OF THE YEAR UNDER CONSIDERATION AS PER PROVISIONS OF SECTIONS 70 & 71 AND BALANCE LOSS IF ANY WILL BE ELIGIBLE FOR BEING CARRIED FORWARD AND SET OFF AGAINST BUSINESS INCOME OF SUBSEQUENT ASSESSMENT YEARS AS PER PROVIS IONS OF SECTION 72 OF THE I.T. ACT 1961 AND THE LEARNED CIT(APPEALS) ACCORDINGLY MODIFIED THE FINDING OF ASSESSING OFFICER IN THIS REGARD GIV EN IN THE ASSESSMENT ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 6 - ORDER. THE REASON FOR THE SAME ARE CONTAINED IN PA RAGRAPH NO.5.2 OF THE OF THE ORDER OF THE LEARNED CIT(APPEALS) WHICH RE ADS AS UNDER:- 5.2. I HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSIONS OF THE LEARNED COUNSEL AS ALSO THE COMMENTS OF THE ASS ESSING OFFICER. I HAVE ALSO GONE THROUGH THE DETAILS ON RECORD. I T IS NOT IN DISPUTE THAT THE APPELLANT IS A DEALER IN SHARES. DURING THE YEAR UNDER CONSIDERATION HE CARRIED OUT TRANSACTIONS IN THE S HARES OF ADANI EXPORTS LTD. HE HAD OPENING STOCK OF 15300 SHARES OF ADANI EXPORTS LTD. AS ON 1.4.2000. HE CARRIED OUT THE FO LLOWING TRANSACTIONS IN THE SHARES OF ADANI EXPORTS LTD. DU RING THE PERIOD FROM 27.2.2001 TO 27.3.2001:- SR.NO. DATE PURCHASE OF SHARES SALES OF SHARES STOCK NO. AMOUNT(RS) NO. AMOUNT(RS) 1. 1.4.00 15300 4792877 15300 2. 27.2.01 15000 11747357 15000 10873846 15300 3. 6.3.01 15000 10930458 15000 8323350 15300 4. 13.3.01 1700 935000 17000 5. 13.3.01 15000 8370412 15000 5128250 17000 6. 13.3.01 17000 9340566 7. 20.3.01 15000 5168772 15000 4540350 8. 27.3.01 15000 4145248 15000 3896100 TOTAL 92000 46090124 92000 42102462 FROM AN ANALYSIS OF THE ABOVE TRANSACTIONS IN SHARE S OF ADANI EXPORTS LTD. IT IS SEEN THAT THE CONTRACTS FOR TRA NSACTIONS CARRIED OUT BY THE APPELLANT DURING THE PERIOD FROM 27.2.20 01 TO 13.3.2001 ARE IN THE NATURE OF HEDGING CONTRACTS ENTERED INTO FOR GUARDING AGAINST THE FUTURE LOSS IN HIS HOLDING OF 17000 SHA RES OF ADANI EXPORTS LTD. DUE TO PRICE FLUCTUATIONS AND THEREFO RE SUCH TRANSACTIONS EVEN THOUGH CARRIED OUT WITHOUT EFFEC TING ACTUAL DELIVERY OF SHARES SHALL COME OUTSIDE THE PURVIEW OF SPECULATIVE TRANSACTIONS IN VIEW OF THE EXPRESS PROVISIONS OF CLAUSE(B) OF PROVISO TO SUB-SECTION (5) OF SECTION 43 AND THERE FORE THE LOSS INCURRED ON ACCOUNT OF THESE TRANSACTIONS CANNOT BE TREATED AS SPECULATION LOSS. HOWEVER THE CONTRACTS FOR TRAN SACTIONS CARRIED OUT ON 20.3.2001 AND 27.3.2001 CANNOT BE TREATED IN THE NATURE OF ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 7 - HEDGING CONTRACTS COVERED BY THE CLAUSE (B) OF PROV ISO OF SUB- SECTION (5) OF SECTION 43 BECAUSE THE ENTIRE HOLDIN G OF 17000 SHARES OF ADANI EXPORTS LTD. WAS LIQUIDATED BY THE APPELLANT ON 13.3.2001 ITSELF AND THERE WAS NO STOCK OF THESE SH ARES LEFT WITH THE APPELLANT AFTER THAT DATE. THEREFORE THE LOSS OF RS.8 77 570/- (RS.6 28 422/- + RS.2 49 148/-) INCURRED BY THE APP ELLANT FROM THE TRANSACTIONS CARRIED OUT ON 20.3.2001 AND 27.3.2001 HAS TO BE TREATED AS SPECULATION LOSS AND IT CAN BE CARRIED F ORWARD AND SET OFF AGAINST THE SPECULATION PROFITS ONLY IN THE SUB SEQUENT YEARS AS PER PROVISIONS OF SECTION 73. IN VIEW OF THE ABOV E FACTS IT IS HELD THAT OUT OF THE TOTAL LOSS OF RS.39 87 662/- (RS.76 00 351/- (-) RS.36 12 689/-) INCURRED BY THE APPELLANT FROM THE TRANSACTIONS IN SHARES OF ADANI EXPORTS LTD. CARRIED OUT DURING THE YEAR UNDER CONSIDERATION THE LOSS TO THE EXTENT OF RS.8 77 57 0/- INCURRED FROM TRANSACTIONS IN THESE SHARES CARRIED OUT ON 20.3.20 01 AND 27.3.2001 WILL BE TREATED AS SPECULATION LOSS ELIGI BLE TO BE CARRIED FORWARD AND SET OFF AGAINST THE SPECULATION PROFITS IN THE SUBSEQUENT ASSESSMENT YEARS AS PER PROVISIONS OF SE CTION 73 AND THE BALANCE LOSS OF RS.31 10 092/- (RS.39 87 662/- (-) RS.8 77 570/- ) WILL BE TREATED AS TRADING LOSS ELIGIBLE TO BE SE T OFF AGAINST OTHER INCOME OF THE YEAR UNDER CONSIDERATION AS PER PROVI SIONS OF SECTIONS 70 & 71 AND BALANCE LOSS IF ANY WILL BE ELIGIBLE FOR BEING CARRIED FORWARD AND SET OFF AGAINST BUSINESS INCOME OF SUBSEQUENT ASSESSMENT YEARS AS PER PROVISIONS OF SECTION 72 AN D THE FINDINGS OF THE ASSESSING OFFICER IN THIS REGARD RECORDED IN THE IMPUGNED ASSESSMENT ORDER DATED 24.3.2004 U/S.14393) SHALL S TAND MODIFIED ACCORDINGLY. 7. AGGRIEVED BY THE ORDER OF THE LD.CIT(APPEALS) T HE REVENUE IS IN APPEAL AND ASSESSEE IS IN CROSS OBJECTION BEF ORE US. 8. AT THE TIME OF HEARING ON BEHALF OF REVENUE SH RI K.MADHUSUDHAN LEARNED DEPARTMENTAL REPRESENTATIVE RELYING ON THE REASON GIVEN IN THE ASSESSMENT ORDER AND CONTENDED THAT ASSESSING OFFICER HAS RIGHTLY BIFURCATED THE SHARE TRADING AC COUNT INTO TWO PARTS AND ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 8 - HELD THAT ASSESSEE HAS INCURRED RS.76 00 351/- AS SPECULATIVE LOSS IN SHARE TRADING BUSINESS. THE LEARNED CIT(APPEALS) ERRED IN RESTRICTING THE SAID SPECULATIVE LOSS TO RS.8 77 570/-. 9. ON THE OTHER HAND ON BEHALF OF THE ASSESSEE SH RI S.N.SOPARAKAR LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE A PPEARED VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT(APPEALS). HE FURTHER SUBMITTED THAT REMAINING LOSS ALSO SHOULD BE CONSIDERED. HE FURTHER SUBMITTED THAT EVEN THE LEARNED CIT(APPEALS) OUGHT TO HAVE HELD TH AT ENTIRE LOSS IS NON- SPECULATIVE LOSS. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE PROV ISIONS CONTAINED IN CLAUSE (B) OF PROVISO TO SUB-SECTION (5) OF SECTION 43 OF THE I.T. ACT 1961. THE ASSESSING OFFICER AFTER CALLING THE REM AND REPORT COMMENTS OF THE ASSESSEE THEREON RIGHTLY HELD THAT THE ASSESSEE IS A DEALER IN SHARES THE HEDGING CONTRACTS ENTERED INTO BY HI M TO GUARD AGAINST FUTURE LOSS IN HIS HOLDINGS DUE TO PRICE FLUCTUATIO NS COULD NOT BE TREATED AS A SPECULATIVE TRANSACTIONS IN VIEW OF THE SPECIFIC EXCLUSION PROVIDED BY CLAUSE(B) OF PROVISO TO SUB-SECTION (5) OF SECTION 43 OF THE I.T. ACT 1961. ON THIS BASIS HE RESTRICTED THE SPECULATION LOSS TO THE EXTENT OF RS.8 77 570/-. IN OUR CONSIDERED OPINION THE LEA RNED CIT(APPEALS) HAS GIVEN COGENT REASON. WE THEREFORE DECLINE TO IN TERFERE WITH THE ORDER OF THE LEARNED CIT(APPEALS). 11. IN THE RESULT THE APPEAL OF THE REVENUE AND GR OUND NO.2 RAISED BY THE ASSESSEE IN CROSS OBJECTION ARE DISMISSED. ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 9 - 12. THE FACTS RELATING TO CONTROVERSY INVOLVED IN G ROUND NO.1 OF ASSESSEES CROSS OBJECTION IS THAT IN THE ASSESSMEN T ORDER THE ASSESSING OFFICER DISALLOWED RS.21 98 158/- OUT OF INTEREST P AID TO M/S.BHANSALI INVESTMENT. THE REASON GIVEN BY THE ASSESSING OFFI CER FOR MAKING THIS DISALLOWANCE IS THAT THE ASSESSEE RECEIVED INTEREST 6% ON AN AMOUNT ADVANCED TO M/S.ADANI INVESMTENT WHEREAS IT HAS PA ID INTEREST @ 18% ON AMOUNT OF LOAN OF RS.1 83 17 986/- TAKEN FROM BH ANSALI INVESTMENT. SINCE BOTH THESE PERSONS ARE COVERED U/S.40A(2)(B) OF THE I.T. ACT 1961 THERE IS NO APPARENT REASON FOR PAYING HIGHER RATE OF INTEREST TO BHANSALI INVESTMENT EXCESS INTEREST @ 12% PAID TO BHASALI I NVESTMENT AMOUNTING TO RS.21 98 158/- DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 13. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED C IT(APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER FOR THE DETAILED REASON GIVEN IN HIS AT PARAGRAPH NO.4.2 WHICH READS AS UNDER:- 4.2. I HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSIONS OF THE APPELLANTS COUNSEL AS ALSO THE COMMENTS OF THE ASSESSING OFFICER. I HAVE ALSO PERUSED THE DECISIONS CITED BY THE LEARNED COUNSEL. I HAVE ALSO GONE THROUGH THE DETAILS O N RECORD. I AM AFRAID THE CONTENTIONS OF THE LEARNED COUNSEL ARE N OT CORRECT. IT IS NOT IN DISPUTE THAT THE APPELLANT DID NOT HAVE HIS OWN SUFFICIENT FUNDS TO RUN HIS BUSINESS AND HE HAD TO BORROW FUND S FROM THE MARKET AND DIFFERENT PERSONS TO MEET THE REQUIREMEN TS OF HIS BUSINESS. HE HAD PAID HUGE INTEREST ON THE FUNDS BORROWED BY HIM. IT IS NOT THE CASE OF THE APPELLANT THAT HE U TILIZED HIS OWN CAPITAL FOR ADVANCING LOANS TO M/S.ADANI INVESTMENT AND HE WAS CARRYING ON HIS BUSINESS OUT OF THE FUNDS BORROWED BY HIM ON WHICH INTEREST HAS BEEN PAID AT HIGHER RATE OF 18%. THE ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 10 - CONTENTION OF THE APPELLANT THAT HE HAD OUTSTANDING CURRENT LIABILITIES OF RS.5 49 29 774/- ON WHICH NO INTERES T WAS PAID AND THAT THE FUNDS TO THIS EXTENT WERE AVAILABLE WITH H IM FOR MAKING ADVANCES OF RS.4 08 08 021/- TO M/S.ADANI INVESTMEN T IS NOT TENABLE BECAUSE IF THERE WERE OUTSTANDING CURRENT L IABILITIES THERE WERE ALSO OUTSTANDING CURRENT ASSETS IN THE FORM OF ADVANCES MADE TO OTHER PERSONS ETC. ON WHICH NO INTEREST WAS CHAR GED. AS PER THE PRACTICE PREVALENT IN THE TRADE THE INTEREST IS NE ITHER PAID ON THE TRADE CREDITS NOR THE INTEREST IS CHARGED ON THE TR ADE DEBTS. THEREFORE THIS ARGUMENT OF THE LEARNED COUNSEL FAI LS. THE RATIO OF THE DECISIONS CITED BY THE LEARNED COUNSEL IS NOT A PPLICABLE TO THE FACTS OF THE APPELLANTS CASE. THE ONUS LAY ON TH E APPELLANT TO PROVE THAT THE FUNDS LENT TO M/S.ADANI INVESTMENT H AD COME OUT OF INTEREST FREE FUNDS AVAILABLE WITH HIM IF ANY AND THAT SUCH LOANS WERE NOT ADVANCED TO M/S.ADANI INVESTMENT OUT OF TH E FUNDS BORROWED AT HIGHER RATE OF INTEREST AT 18%. THE A PPELLANT HAS OBVIOUSLY NOT DISCHARGED THIS ONUS. ON SIMILAR FA CTS THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF INDIAN SHAVINGS PRODUCTS LTD. VS. CIT REPORTED IN 265 ITR 250 HELD THE DISALLOWAN CE OF INTEREST AS JUSTIFIED. CONSIDERING THE FACTS OF THE CASE A S ALSO THE RATIO OF THE DECISIONS OF THE HON'BLE RAJASTHAN HIGH COURT I N THE CASE OF INDIAN SHAVINGS PRODUCTS LTD (SUPRA) THE DISALLOWA NCE OF INTEREST OF RS.21 98 158/- OUT OF INTEREST PAID TO M/S.BHANS ALI INVESTMENT IS HELD JUSTIFIED AND THE SAME IS ACCORDINGLY CONFIR MED. 14. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEA LS) THE ASSESSEE IS IN CROSS OBJECTION BEFORE US. 15. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SHRI S.N.SOPARKAR LD. COUNSEL FOR THE ASSESSEE APPEARED AND CONTENDED THAT ASSESSEE HAS INTEREST-FREE CURRENT LIABILITIES OF RS.5 49 29 774 /- WHEREAS THE LOAN ADVANCE TO M/S.ADANI INVESTMENT WAS ONLY RS.4 08 08 021/- AND SAME WAS SQUARELY COVERED BY SUCH INTEREST-FREE FUNDS A VAILABLE WITH THE ASSESSEE. ON THE BASIS RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 11 - COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340(BOM) CONTENDED THAT IF THERE ARE FUNDS AVA ILABLE BOTH INTEREST- FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRES UMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST-FREE FUN DS GENERATED OR AVAILABLE WITH THE COMPANY PROVIDED SAID FUNDS ARE SUFFICIENT TO MEET INVESTMENTS. IN THE PRESENT CASE THE SAID PRESUM PTION HAS BEEN ESTABLISHED BY THE ASSESSEE THEREFORE THE DISALLO WANCE OUT OF INTEREST BE DELETED. 16. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE CONTENDED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION THEREFORE NECESSARY FACT TO APPLY THE RATIO OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD.(SUPRA) NEEDS VERIFICATION A T THE END OF ASSESSING OFFICER. 17. HAVING HEARD BOTH THE PARTIES WE HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS PERTIN ENT TO NOTE THAT THE ASSESSING OFFICER ISSUED A SHOW-CAUSE NOTICE DATED 10/03/2004 ASKING THE ASSESSEE TO SHOW-CAUSE WHY INTEREST COUL D NOT BE DISALLOWED BY HOLDING THE SAME AS UNREASONABLE EXC ESSIVE AND UNWARRANTED PAYMENT OF INTEREST. BEFORE THE ASSES SING OFFICER NO EXPLANATION WAS SUBMITTED. HOWEVER BEFORE THE LE ARNED CIT(APPEALS) FOR THE FIRST TIME THE PLEA WHICH IS T AKEN BEFORE US WAS TAKEN. WE THEREFORE SET ASIDE THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER T O THE FILE OF ITA NO.254/AHD/2005(BY REVENUE) & CO NO.70/AHD/2005 (BY ASSESSEE) ACIT VS. SHRI PARIKH BHADRABAHU SURYAKANT ASST.YEAR 2001-02 - 12 - ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSES SING OFFICER MAY VERIFY WHETHER THE ASSESSEE WAS HAVING INTEREST-FRE E FUNDS MORE THAT THE FUNDS ADVANCED TO RELATED PARTIES NAMELY M/S. ADANI INVESTMENT AND RE-ADJUDICATE THE DISALLOWANCE OF INTEREST AFR ESH KEEPING IN VIEW THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD.(SUPRA) AF TER PROVIDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 18. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 16/04/2010. SD/- SD/- ( D.C. AGRAWAL ) ( T.K.SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 16/ 04 /2010 T.C. NAIR SR.PS C OPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RES PONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT( APPEALS)-VI AHMEDABAD 5. THE DR AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD