Shri Vijay Gandhi, Indore v. The ACIT, Indore

ITA 298/IND/2009 | 2003-2004
Pronouncement Date: 27-07-2010 | Result: Dismissed

Appeal Details

RSA Number 29822714 RSA 2009
Assessee PAN AANPG9397F
Bench Indore
Appeal Number ITA 298/IND/2009
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant Shri Vijay Gandhi, Indore
Respondent The ACIT, Indore
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 27-07-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2003-2004
Appeal Filed On 08-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI B.R.KAUSHIK ACCOUNTANT MEMBER PAN NO. : AANPG9397F I.T.A.NO. 298/IND/2009 A.Y. : 2003-04 SHRI VIJAY GANDHI ACIT PROP. MCCOY PALS VS 5(1) INDORE. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI H.P.VERMA AND SHRI ASHISH GOYAL ADVOCATES RESPONDENT BY : SHRI MANOJ KUMAR SR. DR O R D E R PER B. R. KAUSHIK A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 27 TH MARCH 2009 OF THE LD.CIT(A). 2. THE REVISED GROUNDS OF APPEAL FILED BY THE ASSESSE E ARE REPRODUCED BELOW :- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD.CIT(A)-II ERRED IN HOLDING THAT INCOME FROM HOUS E PROPERTY AND INTEREST INCOME IS NOT BUSINESS INCOME IGNORING THE FACT THAT THE REVENUE HAD ON EARLIER O CCASIONS - 2 - 2 ACCEPTED THE POSITION AS FACT OF THE CASE AND EXPEN DITURES CLAIMED AGAINST THE ABOVE SOURCES OF INCOME WERE HE LD TO BE ADMISSIBLE EVEN AT IST APPELLATE STAGE. 2. THAT THE OBJECTS OF THE COY WERE CLEARLY SPECIFIED IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION AND THEY HAV E BEEN GIVEN DUE WEIGHT WHILE CONDUCTING BUSINESS ACTIVITY TREATING THE SOURCES OF INCOMES AS BUSINESS INCOME. 3. THAT THE LD.CIT(A) ERRED IN IGNORING THE FACT THAT THE APPELLANT COY WAS REQUIRED TO SUPERVISE AGRICULTURA L OPERATIONS SUCH AS NINDAI/GUDAI ETC. AS ALSO PAYMEN TS TO LABOURERS AND THAT IT IS THE NET INCOME THAT IS TO BE QUANTIFIED FOR TAXATION PURPOSE. 3. THE FIRST GROUND OF APPEAL IS AGAINST THE DECISION OF THE LD.CIT(A) IN SUSTAINING THE DISALLOWANCE OF INTERES T. THE SECOND AND THIRD GROUNDS ARE IN SUPPORT OF THE FIRST GROUND IN SO F AR AS IT HAS BEEN CLAIMED THAT THE FACTS OF THE CASE AND SUBMISSIONS OF THE A SSESSEE HAVE NOT BEEN PROPERLY APPRECIATED BY THE LD. CIT(A) AND THE LD.C IT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED R ETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 DECLARING INCOME OF RS. 14 03 180/- ON 29.11.2001 FROM ITS PROPRIETORY BUSINESS OF M/S. MC COY PALS. THE AO - 3 - 3 OBSERVED THAT THERE WAS A DEBIT BALANCE OF RS. 36 9 8 056/- ON THE LAST DAY OF THE PREVIOUS YEAR IN THE CAPITAL ACCOUNT OF THE ASSESSEE. HE ALSO OBSERVED THAT AN AMOUNT OF RS. 4 81 817/- HAVE BEEN DIVERTED TO THE SISTER CONCERNS NAMELY M/S. N.M. GANDHI & SONS AN D O. T. GANDHI FAMILY TRUST. THE AO THEREFORE REDUCED LOSS OF RS . 12 89 351/- INCURRED BY THE ASSESSEE IN EARLIER YEARS AND ARRIVED AT AN AMOUNT OF RS. 28 90 522/- WHICH HE CONSIDERED AS INTEREST BEARIN G FUNDS NOT UTILIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE TH EREFORE CONSIDERED THAT AN EXPENDITURE ON INTEREST OF RS. 3 90 220/- BEING INTEREST @ 13.5 % ON THE AFORESTATED AMOUNT OF RS. 28 90 522/- WAS NOT A DMISSIBLE AS BUSINESS EXPENDITURE AND MADE THE ADDITION OF THIS AMOUNT TO THE DECLARED RETURNED INCOME. THE LD.CIT(A) AFTER CONSIDERING THE WRITTEN SUBMISSIONS OF THE ASSESSEE FILED BEFORE HIM AND THE COMMENTS OF THE A O ON THE WRITTEN SUBMISSIONS HELD THAT AN AMOUNT OF RS. 8 63 313/- BEING THE LOSS FOR ASSESSMENT YEAR 2001-02 WAS NOT CONSIDERED BY THE A SSESSING OFFICER FOR WORKING OUT THE DEBIT BALANCES IN THE CAPITAL ACCOU NT AND ON THE BALANCE AMOUNT CLAIM OF EXPENDITURE ON INTEREST WAS LIABLE TO BE DISALLOWED. HE THEREFORE PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. 5. DURING THE COURSE OF HEARING OF THE APPEAL THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE WORKING G IVEN IN THE PAPER BOOK AND OTHER SUCH MATERIAL FILED THEREIN. IT WAS REITE RATED THAT THE ACTION OF - 4 - 4 THE AO WAS NOT CORRECT AND THE LD.CIT(A) HAD WRONGL Y CONFIRMED THE DISALLOWANCE OF INTEREST IN VIEW OF THE DECISION IN THE CASE OF CIT VS. TIN BOX COMPANY (2003) 260 ITR 637 ( DEL). IT WAS CLAI MED THAT AS PER DETAILS GIVEN AT PAGES 41 TO 43 OF THE PAPER BOOK I .E. COPY OF WRITTEN SUBMISSIONS FILED BEFORE THE LD.CIT(A) ON 16 TH MARCH 2007 IT COULD BE SEEN THAT THE BALANCE SHEET WAS SPLIT UP IN TWO PAR TS I.E. BUSINESS ACTIVITIES AND NON-BUSINESS ACTIVITIES. IT WAS FURTHER CONTEND ED THAT THE SOURCES OF FUNDS AND APPLICATION THEREOF WERE SEPARATELY SHOWN FOR BUSINESS ACTIVITIES AND NON-BUSINESS ACTIVITIES. ACCORDING T O THE LD. COUNSEL THE ASSESSEE HAD DECLARED RS. 52 71 862/- FOR NON-BUSIN ESS ACTIVITIES AS PER THE DETAILS GIVEN AT PAGE 43 OF THE PAPER BOOK WHI CH INCLUDED DEBIT BALANCE OF CAPITAL ACCOUNT AT RS. 36 98 056/-. 6. THE LD. COUNSEL FURTHER SUBMITTED THAT AS AGAINST R S. 52 71 862/- DEPLOYED FOR NON-BUSINESS PURPOSES THE ASSESSEE HA D TAKEN LOANS OF RS. 66 17 890/- AND RS. 42 00 439/- FROM HIS MINOR CHIL DREN KU. SUPAL GANDHI AND MASTER VIBHOR GANDHI RESPECTIVELY. THE L D. COUNSEL SUBMITTED THAT THE INTEREST WAS PAID ON THE LOANS T AKEN FROM THE ABOVE STATED MINOR CHILDREN BUT THE INTEREST WAS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE U/S 64 OF THE INCOME-TAX ACT 1961 AS COULD BE SEEN FROM THE DETAILS GIVEN AT PAGE 4 OF THE PAPER BOOK WHEREIN INCOME OF RS. 9 65 658/- AND RS.10 38 082/- ON ACCOUNT OF KU. SUP AL GANDHI AND - 5 - 5 MASTER VIBHOR GANDHI HAVE BEEN ADDED TO THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 64 OF THE INCOME-TAX ACT 1961. THUS ACCORDING TO THE LD. COUNSEL THE INTEREST PAID ON THE LOANS OF AFORESTATED MINORS WERE ADDED TO THE INCOME OF THE ASSESSEE AND SINCE THE FUNDS UTILIZED FOR NON-BUSINESS PURPOSES WERE FAR LESS TH AN THE AMOUNTS OF LOAN INTEREST ON WHICH HAVE BEEN CLUBBED WITH THE INCOME OF THE ASSESSEE U/S 64 OF THE INCOME-TAX ACT 1961 NO FURTHER DISALLOWA NCE WAS REQUIRED TO BE MADE BECAUSE THE FUNDS UTILIZED FOR NON-BUSINES S PURPOSES WERE MORE IN THE NATURE OF INTEREST FREE FUNDS IN SO FAR AS I NTEREST THEREON HAS BEEN TAXED IN THE HANDS OF THE ASSESSEE. 7. THE LD. SENIOR D.R. IN REPLY TO THE SUBMISSIONS OF THE LD. COUNSEL RELIED ON THE ORDERS OF THE AUTHORITIES BE LOW AND POINTED OUT THAT THE COMPLETE DETAILS WERE NOT GIVEN BEFORE THE AO. HE ALSO POINTED OUT THAT THE INTEREST PAID TO THE MINORS WAS CLUBBED WI TH THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 64 OF THE INCOME-TAX ACT 1961 AND IT CANNOT BE CONSIDERED AS A DISALLOWANCE OF IN TEREST ON FUNDS NOT UTILIZED FOR THE PURPOSE OF BUSINESS AND THEREFORE THE SUBMISSIONS OF THE ASSESSEE THAT THE FUNDS UTILIZED FOR NON-BUSINESS P URPOSES WERE LESS THAN THE FUNDS BORROWED FROM THE MINOR CHILDREN HENCE NO DISALLOWANCE U/S 36 WAS REQUIRED TO BE MADE CANNOT BE CONSIDERED CO RRECT. HE ALSO INVITED ATTENTION TO THE PARA 2.3 & 2.5 AT PAGES 7 TO 11 OF THE IMPUGNED ORDER OF - 6 - 6 THE LD.CIT(A) AND SUBMITTED THAT IN VIEW OF THE DEC ISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED (2006) 286 ITR 1 ( P & H ) THE RELEVANT PORTION OF WHICH HAVE BEEN REPRODUCED BY T HE LD.CIT(A) THE ACTION OF THE AO AND CONFIRMATION THEREOF BY THE LD . CIT(A) WAS JUSTIFIED. HE ALSO SUBMITTED THAT THE AO IN ALL FAI RNESS HAD ACCEPTED IN HIS REPORT SUBMITTED BEFORE THE LD.CIT(A) ON 25 TH JANUARY 2007 THAT THE LOSS OF RS. 8 63 313/- FOR THE ASSESSMENT YEAR 2001-02 W AS REQUIRED TO BE REDUCED FOR ARRIVING AT THE CORRECT FIGURE OF INTER EST BEARING FUNDS UTILIZED FOR THE PURPOSES OTHER THAN THE BUSINESS AND THE LD .CIT(A) HAS ALSO DIRECTED THE AO TO REDUCE THE AMOUNT OF RS. 8 63 31 3/- BEING THE LOSSES OF ASSESSMENT YEAR 2001-02 WHILE WORKING OUT THE IN ADMISSIBLE INTEREST AND THEREFORE NO FURTHER RELIEF WAS CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE ISSUE IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW MATERIALS PLACED ON RECORD A ND RIVAL SUBMISSIONS. 9. IN OUR CONSIDERED OPINION WITH DUE RESPECT FACTS OF THE CASES OF CIT VS. TIN BOX COMPANY (SUPRA) CIT VS. ABHISHEK I NDUSTRIES LIMITED (SUPRA) AND S.A. BUILDERS VS. CIT AND ANOTHER (200 7) 288 ITR 1 ( S.C.) ARE NOT SIMILAR TO THE FACTS OF THE CASE BEFORE US BECAUSE IN THE CASE OF THE ASSESSEE IT HAS BEEN ADMITTED THAT THE FUNDS TO TH E EXTENT OF RS. 52 71 862/- INCLUDING THE DEBIT BALANCE OF RS. 36 9 8 056/- IN THE CAPITAL ACCOUNT OF THE ASSESSEE WERE NOT UTILIZED FOR BUSIN ESS PURPOSES. THE - 7 - 7 ASSESSEE HAS ALSO ACCEPTED THAT THE INTEREST HAS BE EN PAID BY HIM ON THE LOANS OF RS. 66 17 890/- AND RS. 42 00 439/- TAKEN FROM THE MINOR CHILDREN. THUS IT IS NOT A CASE WHERE THE FUNDS UT ILIZED FOR PURPOSES OTHER THAN THE BUSINESS WERE OUT OF INTEREST FREE FUNDS A VAILABLE TO THE ASSESSEE BECAUSE INTEREST OF RS. 9 65 658/- AND RS. 10 38 08 2/- HAVE BEEN ADMITTEDLY PAID BY THE ASSESSEE TO THE MINOR DAUGHT ER KU. SUPAL GANDHI AND MINOR SON MASTER VIBHOR GANDHI. 10. THE ASSESSEE HAS HOWEVER CONTENDED THAT SINCE INC OME OF RS. 20 03 740/- BEING INTEREST PAID ON THE DEPOSITS OF THE LOANS BORROWED FROM HIS MINOR CHILDREN AFTER DEDUCTION OF RS. 3 00 0/- U/S 10(32) OF THE INCOME-TAX ACT 1961 HAS BEEN CLUBBED WITH THE INCO ME OF THE ASSESSEE U/S 64 OF THE INCOME-TAX ACT 1961 AND THUS THE INTEREST ON THE FUNDS BORROWED FROM THE MINOR CHILDREN HAVE BEEN TAXED IN THE HANDS OF THE ASSESSEE THE FUNDS UTILIZED FOR NON-BUSINESS PURPO SES BEING LESS THAN THE LOANS TAKEN FROM THE MINOR CHILDREN FURTHER DISALL OWANCE OF INTEREST IS NOT WARRANTED. 11. THE DEBIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASS ESSEE UNDISPUTEDLY INCLUDED LOSSES OF RS. 5 78 587/- RS. 7 10 764/- AND RS. 8 63 313/- FOR FINANCIAL YEARS 2002-03 2001-02 AND 2000-01. THUS IN ALL DEBIT BALANCES OF RS. 36 98 056/- INCLUDED LOSS OF RS. 21 52 665/- WHICH HAD ALREADY BEEN REDUCED BY THE ASSESSING OFFICER A ND THE LD.CIT(A) - 8 - 8 WHILE CONSIDERING THE DIVERSION OF FUNDS FOR NON-BU SINESS PURPOSES. THE AO HAS DISALLOWED INTEREST @ 13.5 % ON AN AMOUNT OF RS. 28 90 522/- WHICH WERE CONSIDERED BY HIM AS FUNDS NOT UTILIZED FOR NON-BUSINESS PURPOSES. THE LD.CIT(A) HAS FURTHER DIRECTED THAT T HE LOSSES OF RS. 8 63 313/- FOR FINANCIAL YEAR 2002-01 RELEVANT TO A SSESSMENT YEAR 2001-02 WAS FURTHER REQUIRED TO BE REDUCED. THUS THE AMOUN T CONSIDERED AS UTILIZED FOR NON-BUSINESS PURPOSES HAS BEEN FINALLY WORKED OUT BY THE LOWER AUTHORITIES TO RS. 20 27 209/- WHICH HAS BEE N CONSIDERED FOR DISALLOWANCE OF INTEREST @ 13.5 %. 12. IT IS OBSERVED THAT THE ASSESSEE HAS ADMITTED AS P ER DETAILS GIVEN AT PAGE 43 OF THE PAPER BOOK THAT THE DEBIT BALANCE OF RS. 36 98 055/- IN THE CAPITAL WAS PART OF THE AMOUNT OF RS. 52 71 862 /- WHICH WAS NOT UTILIZED FOR BUSINESS PURPOSE. IT HAS ALSO BEEN ADM ITTED THAT THE AMOUNT OF RS. 5 48 417/- SHOWN AS ADVANCES TO OTHERS IS ALS O FOR NON-BUSINESS ACTIVITY. IN FACT IT IS CLEAR FROM THE DETAILS GI VEN AT PAGE 43 THAT EVEN IF THE BUSINESS LOSSES AMOUNTING TO RS. 21 52 665/- IS REDUCED FROM THE TOTAL FUNDS OF RS. 52 71 862/- SHOWN FOR NON BUSINESS ACT IVITY THE BALANCE AMOUNT UTILIZED FOR NON BUSINESS ACTIVITY WORKS OUT TO RS. 31 19 197/- AS AGAINST THE AMOUNT OF RS. 20 27 209/- ON WHICH INTE REST @ 13.5 % HAS BEEN DIRECTED TO BE DISALLOWED BY THE LD. CIT(A). - 9 - 9 13. THE PLEA OF THE ASSESSEE THAT AMOUNT WAS AVAILAB LE FROM THE LOANS TAKEN FROM THE MINORS THE INTEREST OF WHICH WAS ADDED TO HIS INCOME AND THEREFORE NO DISALLOWANCE SHOULD BE CO NSIDERED NECESSARY CANNOT BE ACCEPTED BECAUSE THE INCOME OF THE MINOR S ON ACCOUNT OF AFORESTATED INTEREST HAS BEEN CLUBBED WITH THE INCO ME OF THE ASSESSEE BUT THE MINORS ARE SEPARATE ENTITIES THAN THE ASSESSEE AND THE AMOUNT OF INTEREST HAS BEEN CONSIDERED AS HIS INCOME BY VIRTU E OF LEGAL FICTION U/S 64 OF THE INCOME-TAX ACT 1961 WHICH PROVIDES FOR TAGG ING OF THE INCOME OF THE MINOR CHILDREN WITH THE INCOME OF THE PARENTS AND THERE IS NO MERGER OF IDENTITIES OF THE ASSESSEE WITH THE IDENTITY OF THE CHILDREN. THE INTEREST HAS BEEN PAID BY THE ASSESSEE AND THE FUNDS BORROWE D FROM THE MINOR CHILDREN ARE UNDISPUTEDLY INTEREST BEARING FUNDS. T HE EXPENDITURE INCURRED ON INTEREST IS LIABLE TO BE DEBITED AGAINS T THE BUSINESS INCOME OF THE PROPRIETORY CONCERN OF THE ASSESSEE AND NOT AGA INST THE INTEREST INCOME EARNED BY THE AFORESTATED MINOR CHILDREN OF THE ASSESSEE ON THE FUNDS DEPOSITED OR GIVEN AS LOAN TO THE ASSESSEE. T HE SUBMISSION OF THE ASSESSEE THAT THE FUNDS UTILIZED FOR NON-BUSINESS ACTIVITY SHOULD BE CONSIDERED OUT OF INTEREST FREE FUNDS FOR THE REASO N THAT THE INTEREST ON AMOUNTS BORROWED FROM HIS MINOR CHILDREN HAS BEEN C LUBBED WITH HIS INCOME CANNOT BE CONSIDERED CORRECT. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A) WHICH IS CONFIRMED. - 10 - 10 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMIS SED. 15. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT O N 27 TH JULY 2010. SD/- SD/- (JOGINDER SINGH) (B. R. KAUSHIK) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH JULY 2010. CPU* 20227