DCIT CIR 15(3), MUMBAI v. ANKIT VIJAY MITHANI, MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.3179/M/2009 ASSESSMENT YEAR 2006-07 THE DCIT CIRCLE 15(3) SHRI ANKIT VIJAY MITHANI MATRU MANDIR 1 ST FLOOR 201 TRIMURTI ARCADE TARDEO ROAD MUMBAI 400 007. LBS MARG GHATKOPAR ( WEST) MUMBAI 400 086. PAN : AIYPM 7738 H APPELLANT RESPONDENT REVENUE BY : SHRI PARADEEP HEDAOO ASSESSEE BY : NONE O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORD ER DATED 2.3.09 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE DISPUTE RAISED IS REGARDING DISALLOWANCE OF INTEREST OF RS.9 27 745/-. 2. AT THE TIME OF HEARING OF THE APPEAL NO ONE APPE ARED ON BEHALF OF THE ASSESSEE THOUGH ON THE PREVIOUS OCCASION THE CASE H AD BEEN ADJOURNED AT THE REQUEST OF THE ASSESSEE. IT IS NOTED THAT ON EARLIE R ALSO THE APPEAL HAD BEEN ADJOURNED AT THE REQUEST OF THE ASSESSEE ON QUITE A FEW OCCASIONS. THIS TIME THE ASSESSEE HAS AGAIN REQUESTED FOR ADJOURNMENT ON THE SAME GROUND OF PREPARATION OF PAPER BOOK. THE ADJOURNMENT REQUEST WAS NOT FOUND REASONABLE 2 BY THE BENCH AND WAS REJECTED. WE THEREFORE PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LEARNED DR WHO PLACED RELIANCE ON THE ORDER OF THE AO. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED INTEREST DEDUCTION OF RS.9 27 745/- ON LOANS TAKEN FROM VARI OUS PERSONS DURING A.Y.2005-06. THE AO ON EXAMINATION OF RECORDS NOTED THAT THE ASSESSEE HAD TAKEN LOANS OF RS.77.62 LACS IN A.Y.2005-06 WHICH H AD BEEN UTILIZED FOR INVESTMENT IN SHARES TO THE TUNE OF RS.90.12 LACS. THE AO THEREFORE HELD THAT INTEREST COULD NOT BE ALLOWED AS DEDUCTION AGAINST THE BUSINESS INCOME. AO ALSO OBSERVED THAT BORROWED FUNDS HAVE BEEN UTILIZE D FOR MAKING INTEREST FREE ADVANCES OF RS.25.43 LACS TO SISTER CONCERN. IT WAS ALSO OBSERVED BY HIM THAT DIVIDEND INCOME FROM INVESTMENTS WAS EXEMPT AND THE REFORE THE INTEREST COULD NOT ALLOW AGAINST THE DIVIDEND INCOME. IN APPEAL CI T(A) AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE OBSERVED THAT THE INV ESTMENT IN SHARES WERE MADE PRIOR TO THE BORROWINGS OF FUNDS. IT WAS ALSO OBSER VED BY HIM THAT THE ASSESSEE HAD OWNED CAPITAL WHICH WAS MUCH MORE THAN THE INTE REST FREE ADVANCES OF RS.25.43 LACS GIVEN TO THE ANKIT ACID PVT. LTD. CIT (A) ACCORDINGLY HELD THAT LOANS HAD BEEN UTILIZED FOR SHARE TRANSACTIONS UNDE RTAKEN FOR THE PURPOSE OF BUSINESS. HE THEREFORE ALLOWED THE CLAIM OF INTERES T AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LEARNED DR FOR THE REVENUE SUBMITT ED THAT CIT(A) HAD GIVEN THE FINDING THAT INVESTMENT IN SHARES HAD BEE N MADE PRIOR TO OCTOBER 2004 BASED ON FRESH MATERIAL WHICH HAD NOT BEEN CON FRONTED TO THE AO. A SPECIFIC GROUND HAS ALSO BEEN RAISED BY THE REVENUE . IT WAS POINTED OUT THAT 3 CIT(A) FAILED TO CONSIDER THE PROVISIONS OF SECTION 14A AS WELL AS THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN CASE OF DAGA CAPIT AL MANAGEMENT (119 TTJ 289). CIT(A) HAS ALSO FAILED TO EXAMINE WHETHER THE INTEREST FREE ADVANCES TO M/S. ANKIT ACID PVT. LTD. HAD BEEN GIVEN FROM BORRO WED FUNDS. ACCORDINGLY IT WAS URGED THAT THE ORDER OF CIT(A) SHOULD BE SET AS IDE. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF INTEREST OF RS .9 27 745/- CLAIMED AS BUSINESS EXPENDITURE. THE AO GAVE A CLEAR FINDING T HAT THE LOANS TAKEN BY THE ASSESSEE OF RS.77.63 LACS HAD BEEN UTILIZED IN MAKI NG INVESTMENT IN SHARES. CIT(A) HOWEVER HAS GIVEN A FINDING THAT INVESTMENT HAD BEEN MADE PRIOR TO THE LOANS TAKEN BUT HE HAS NOT GIVEN BASIS OF SUCH FIND ING NOR DETAILS IN THIS REGARD HAVE BEEN GIVEN. CIT(A) HAS HELD THAT INTEREST FREE ADVANCES OF RS.25.43 LACS TO M/S. ANKIT ACID PVT. LTD. HAD BEEN GIVEN FROM OW N FUND WITHOUT PLACING ANY MATERIAL ON RECORD TO SHOW THAT ON THE DATE OF MAKI NG INTEREST FREE ADVANCES THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS OF ITS OWN. FURTHER CIT(A) HAS NOT TAKEN INTO ACCOUNT THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT (SUPRA) IN WHICH IT HAS BEEN HEL D THAT PROVISIONS OF SECTION 14A WOULD APPLY IRRESPECTIVE OF THE FACT WHETHER TH E DIVIDEND INCOME HAS BEEN RECEIVED FROM INVESTMENTS IN SHARES OR FROM TRADING SHARES. IT HAS ALSO NOT BEEN EXAMINED WHETHER ANY DIVIDEND INCOME HAD BEEN RECEIVED FROM TRADING SHARES. CIT(A) HAS ALSO NOT GIVEN A FINDING THAT ON THE DATES OF MAKING INVESTMENT IN SHARES THE ASSESSEE WAS HAVING SUFFIC IENT FUNDS OF ITS OWN. IN OUR VIEW THE ENTIRE MATTER REQUIRES DETAILED EXAMINATIO N AND FRESH ORDER IS REQUIRED TO BE PASSED AFTER TAKING INTO ACCOUNT THE DECISION OF THE SPECIAL BENCH IN CASE OF DAGA CAPITAL MANAGEMENT (SUPRA) AND ALSO THE JUD GMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF GODREJ & BOYCE MANUFACTU RING CO. LTD. (328 ITR 81) 4 IN WHICH IT HAS BEEN HELD THAT RULE 8D WOULD APPLY ONLY FROM A.Y.2008-09 AND THAT FOR THE EARLIER YEARS DISALLOWANCE OF EXPENSES BOTH DIRECT AND INDIRECT UNDER SECTION 14A HAS TO BE CONSIDERED ON REASONABL E BASIS AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. WE THEREFOR E SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSE. 7. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 28.02.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK