M/s Abhijit Trading Co. Ltd.,, Gurgaon v. ACIT, New Delhi

I.T.A. NO.3361 TO 3363 /DEL/09 1/7 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.3361 TO 3363 /DEL/2009 ASSESSMENT YEAR : 2001-02 TO 2003-04 M/S ABHIJIT TRADING CO. LTD. ACIT C/O VIPUL LTD. VIPUL TECH. SQUARE CIRCLE-2 GOLF COURSE ROAD SECTOR-43 NEW DELHI. GURGAON. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO.AACCA-5498-B APPELLANT BY : SHRI RAJESH ARORA C.A. RESPONDENT BY : SHRI BK GUPTA SR. DR. ORDER PER A.K. GARODIA AM: ALL THESE APPEALS ARE ASSESSEES APPEALS DIRECTED A GAINST COMBINED ORDER OF LD CIT(A)-III NEW DELHI DATED 26.5.2009 FOR ASS ESSMENT YEAR 2001-02 2002- 03 & 2003-04. SINCE IDENTICAL ISSUE IS INVOLVED IN ALL THE THREE YEARS ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE THE ISSUE INVOLVED IS IDENTICAL IN ALL THE THREE APPEALS WE REPRODUCE THE GROUND OF APPEAL FROM ASSESSMENT YEAR 2001-02 I .E. IN I.T.A. NO. 3361/DEL/2009. THE LD CIT(A) HAS ERRED IN LAW AND FACTS IOF THE C ASE IN TREATING INTEREST INCOME OF RS.3 28 153/- AS INCOME EARNED FROM OTHER SOURCES AND NOT AS . I.T.A. NO.3361 TO 3363/DEL/09 2/7 INCOME EARNED FROM BUSINESS AND PROFESSION WHICH IS UNJUSTIFIED UNCALLED FOR AND BAD IN LAW. 3. IN THE REMAINING TWO YEARS THE GROUND RAISED BY THE ASSESSEE ARE IDENTICAL EXCEPT THE DIFFERENCE IN AMOUNT. 4. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO.1 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 20 01-02 THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 3.12.1982. IT IS ALSO N OTED THAT THE ONLY SOURCE OF INCOME OF THE ASSESSEE COMPANY IS ON ACCOUNT OF INT EREST RECEIVED OF RS.3 66 653/-. IT IS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS TREATED THIS INTEREST INCOME AS INCOME FROM BUSINESS AND AF TER CLAIMING CERTAIN ADMINISTRATIVE AND FINANCIAL EXPENSES SHOWN INCOME OF RS.97 120/-. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT AS PER THE DETA ILS THE BUSINESS OF THE ASSESSEE IS STATED TO BE TRADING OF SHARES AND INVE STMENT. HOWEVER NO SUCH ACTIVITY HAS BEEN CARRIED OUT. IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT SINCE THE ASSESSEE HAS NOT DONE ANY BUSINESS AND THE BUSI NESS OF THE ASSESSEE IS NOT OF MONEY LENDING INTEREST INCOME EARNED IS TO BE T AXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREAFTER THE ASSESSING OFFIC ER HAS WORKED OUT THE INCOME BY REDUCING THE INTEREST PAYMENT FROM INTEREST RECE IVED AND THIS NET INTEREST INCOME WAS ASSESSED AS INCOME FROM OTHER SOURCES. B EING AGGRIEVED THE ASSESEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT( A). IT IS HELD BY THE LD CIT(A) ALSO THAT INTEREST INCOME IS ASSESSABLE UNDER THE H EAD INCOME FROM OTHER SOURCES ONLY. REGARDING EXPENSES CLAIMED BY THE AS SESSEE IT WAS HELD BY LD CIT(A) THAT ESSENTIAL EXPENSES WHICH ARE REQUIRED T O BE INCURRED FOR RETAINING THE STATUS OF THE COMPANY HAS TO BE ALLOWED AS EXPENDIT URE INCURRED FOR THE PURPOSE OF EARNING OF INTEREST INCOME AND HENCE SUCH EXPEND ITURE HAS TO BE ALLOWED AS DEDUCTION U/S 57(III) OF THE IT ACT. IN THIS REGAR D HE HAS PLACED RELIANCE ON THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED I N THE CASE OF CIT V. RAMAPUR TIMBER AND TURNERY CO. LTD. AS REPORTED IN 129 ITR 58 (ALLD.). HE HAS ALSO RELIED UPON THE JUDGMENT OF HON'BLE CALCUTTA H IGH COURT RENDERED IN THE . I.T.A. NO.3361 TO 3363/DEL/09 3/7 CASE OF CIT V. KARANPURA COLLIERIES LTD. AS REPORTE D IN 201 ITR 498 (CAL.) AND OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C HINAI & CO. LTD. V. CIT AS REPORTED IN 206 ITR 616 (BOM.). THE LD CIT(A) DIR ECTED THE ASSESSING OFFICER TO ALLOW EXPENSES INCURRED ON ACCOUNT OF AUDIT FEES F ILING FEES GENERAL CHARGES OFFICE MAINTENANCE POSTAGE AND TELEGRAM PRINTING AND STATIONERY AND PROFESSIONAL CHARGES IN ADDITION TO DEDUCTION ALREA DY ALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAYMENT. SUCH EXPEND ITURE ALLOWED BY THE LD CIT(A) WAS OF RS.28 626/- IN ASSESSMENT YEAR 2001- 02 RS.28 703/- IN ASSESSMENT YEAR 2002-03 AND RS.9450/- IN ASSESSMEN T YEAR 2003-04. NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. AS PER GRO UNDS RAISED BY THE ASSESSEE THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT INTERES T INCOME EARNED BY THE ASSESSEE SHOULD BE ASSESSED AS INCOME FROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SECOND GROUND RAISED BY THE ASSESSEE IS THAT THE DISALLOWANCE OF EXPENSES IS UNJUSTIFIED. 5. IT IS SUBMITTED BY LD AR OF THE ASSESSEE BEFORE US THAT THE COMPANY WAS ESTABLISHED IN THE YEAR 1982 AND HE DRAWN OUR ATTEN TION TO THE COPY OF MEMORANDUM AND ARTICLES OF ASSOCIATION APPEARING ON PAGES 1-13 OF THE PAPER BOOK. IT IS POINTED OUT THAT AS PER CLAUSE 2 OF TH E MAIN OBJECTS OF THE ASSESSEE COMPANY THE ASSESSEE CAN ACT AS A FINANCIER OF IND USTRIAL COMMERCIAL AND GENERAL FINANCIER. IT IS SUBMITTED BY HIM THAT IN VIEW OF THIS THE INTEREST INCOME OF THE ASSESSEE HAS TO BE ASSESSED AS BUSINESS INCOME. AT THIS JUNCTURE IT WAS ENQUIRED BY THE BENCH AS TO WHETHER THE ASSESSEE GO T REGISTRATION FROM RBI AS A NON BANKING FINANCIAL CO. (NBFC). IT WAS ALSO POIN TED OUT BY THE BENCH THAT A CLEAR FINDING IS GIVEN BY THE ASSESSING OFFICER THA T THE ASSESSEE COMPANY IS NOT ENGAGED IN MONEY LENDING BUSINESS AND IN REPLY NOTH ING COULD BE BROUGHT ON RECORD BY THE LD AR OF THE ASSESSEE TO SHOW THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF MONEY LENDING. IT WAS ALSO SUBMITTED TH AT THE ASSESSEE COMPANY IS NOT REGISTERED WITH RBI AS A NBFC. RELIANCE WAS PLA CED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS UNDER:- . I.T.A. NO.3361 TO 3363/DEL/09 4/7 A) CIT V. PARAMOUNT PREMISES (P) LTD. 190 ITR 259 ( BOM.). B) CIT V. KARNAL CO-OPERATIVE SUGAR MILLS LTD. 243 ITR 2 (SC). C) S.K. AR SOMASUNDARAM CHETTIAR V. CIT 47 ITR 336 (MAD.). D) GENERAL CORPORATION LTD. V CIT 3 ITR 350 (MAD.) . E) ITO V. DWARKA RAKHA CHIT FUNDS (P) LTD.20 ITD 43 9 (MAD.). F) KARANPURA COLLORIES LTD. V. ITO 30 TTJ CAL. 548 . 6. AS AGAINST THIS LD DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. REGARDING VARIOUS JUDGMENTS CITED BY LD AR OF TH E ASSESSEE IT WAS SUBMITTED THAT THESE JUDGMENTS ARE NOT APPLICABLE I N THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. ONE MORE CONTENTION WAS RA ISED BY THE LD AR OF THE ASSESSEE THAT IN EARLIER YEAR I.E. 1995-96 THE EXP ENSES CLAIMED BY THE ASSESSEE WERE ALLOWED AS BUSINESS EXPENSES IN ASSESSMENT ORD ER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE IT ACT 1961. I N REPLY TO THIS CONTENTION IT WAS SUBMITTED BY THE LD DR OF THE REVENUE THAT PRINCIP LE OF RES JUDICATA IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE COMP ANY IS NOT ENGAGED IN ANY BUSINESS AND AS PER THE BALANCE SHEET OF THE COMPAN Y AS ON 31.3.2001 APPEARING ON PAGES 12-19 OF THE PAPER BOOK THE EN TIRE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WERE DEPLOYED IN LOANS TO THE EXTE NT OF RS.26.52 LAKHS AS ON 31.3.2001. SINCE THE ASSESSEE IS NOT ENGAGED IN AN Y BUSINESS ACTIVITY AND ENTIRE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE CO MPANY HAS BEEN ADVANCED AS LOANS BY THE ASSESSEE COMPANY WE ARE OF THE CONSID ERED OPINION THAT INTEREST INCOME EARNED BY THE ASSESSEE COMPANY IS ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS. . I.T.A. NO.3361 TO 3363/DEL/09 5/7 9. REGARDING VARIOUS JUDGMENTS CITED BY LD AR OF TH E ASSESSEE WE FIND THAT THESE JUDGMENTS ARE NOT APPLICABLE IN THE PRESENT C ASE BECAUSE THE FACTS ARE DIFFERENT. IN THE CASE OF CIT V. PARAMOUNT PREMISES (PVT.) LTD (SUPRA) THE INTEREST INCOME WAS EARNED BY THE ASSESSEE IN THAT CASE ON DELAYED RECEIPTS OF INSTALLMENTS. IN THAT CASE SOME INTEREST WAS RECEIV ED ON IDLE FUNDS AND FIXED DEPOSITS ALSO BUT THE ASSESSEE WAS ENGAGED IN THAT CASE IN A BUSINESS OF BUILDERS AND IDLE AMOUNTS WERE DEPOSITED WITH BANKS AND GIVEN ON LOANS ON TEMPORARY BASIS AND UNDER THESE FACTS IT WAS HELD BY THE TRIBUNAL IN THAT CASE THAT THE ENTIRE INTEREST SPRANG FROM BUSINESS ACTIV ITY AND NOT OUT OF ANY INDEPENDENT ACTIVITY. IN THE PRESENT CASE THE INT EREST INCOME HAS BEEN EARNED BY THE ASSESSEE FROM INDEPENDENT ACTIVITY OF ADVANC ING OF LOANS AND IT DID NOT SPRANG FROM ANY BUSINESS ACTIVITY AND HENCE THIS JU DGMENT IS NOT APPLICABLE IN THE PRESENT CASE. 10. IN THE CASE OF CIT V. KARNAL COOPERATIVE SUGAR MILLS LTD. (SUPRA) THE FACTS ARE THAT LETTER OF CREDIT WAS OPENED FOR PURCHASE O F MACHINERY REQUIRED FOR SETTING UP OF A PLANT AND FOR THAT PURPOSE FD WAS MADE WIT H THE BANK AND UNDER THESE FACTS IT WAS HELD THAT DEPOSIT IS DIRECTLY LINKED FOR PURCHASE OF MACHINERY AND PLANT AND HENCE IT WAS HELD THAT INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO ACQUISITION OF ASSETS AND HAS TO BE CAPITALIZED AND CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. IT IS CLEAR THAT FACTS O F THIS CASE ARE DIFFERENT FROM THE FACTS OF THE CASE IN HAND BEFORE US AND HENCE THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. IN THE CASE OF SONA SUNDARAM CHETTIAR (SUPRA) ALSO THE FACTS ARE DIFFERENT. IN THAT CASE THE DI SPUTE WAS REGARDING INCOME ARISING ON SALE OF A PROPERTY AS TO WHETHER THE SAM E IS ASSESSABLE AS BUSINESS INCOME AND IN THAT CASE IT WAS FOUND THAT OBJECT O F PURCHASE WAS ONLY TO SALE SUBSEQUENTLY AT HIGHER PRICES AND HENCE IT WAS HEL D THAT THE TRANSACTION IS IN THE NATURE OF TRADE AND THEREFORE SURPLUS ON SALE IS T AXABLE AS BUSINESS INCOME. THE FACTS IN THE PRESENT CASE ARE DIFFERENT AND HENCE T HIS JUDGMENT IS OF NO HELP TO THE ASSESSEE. REGARDING ANOTHER JUDGMENT OF HON'BLE MADRAS HIGH COURT RENDERED IN THE GENERAL CORPORATION LTD (SUPRA) ALS O WE FIND THAT IN THIS CASE . I.T.A. NO.3361 TO 3363/DEL/09 6/7 ALSO THE FACTS ARE DIFFERENT. IN THAT CASE THE PR ODUCTION IN MINING BUSINESS OF THE ASSESSEE WAS STOPPED ON ACCOUNT OF CYCLONE AND THE ASSESSEE COMPANY DID SOME PROSPECTING WORK AND INCURRED EXPENDITURE WITH A VIEW TO RESUME PRODUCTION. UNDER THESE FACTS IT WAS HELD THAT THE BUSINESS HAS NOT STOPPED WHERE THE ASSESSEE STARTED PROSPECTING TO FIND OUT WHETHER THE BUSINESS COULD BE CARRIED ON AND INCURRED EXPENDITURE IN ORDER TO RESUME PRODUCTION. IN THE PRESENT CASE THE FACTS ARE DIFFERENT AND HENCE THI S JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE 11. NOW WE CONSIDER THE TRIBUNAL DECISION RENDERED IN THE CASE OF DWARKA RAKHA CHIT FUND PVT. LTD. (SUPRA). IN THIS CASE TH E ASSESSEE COMPANY WAS UNDER LIQUIDATION AND THE OFFICIAL LIQUIDATOR EARNE D INTEREST ON SURPLUS FUNDS KEPT INTO BANK DURING INTERVENING PERIOD AFTER REALIZATI ON FROM CUSTOMERS AND DEBTORS TILL THE SAME WAS PAID TO CREDITORS. IN THIS PROCE SS THE LIQUIDATOR EARNED SOME INTEREST INCOME AND ALSO INCURRED SOME EXPENDITURE AND IT WAS HELD THAT SUCH EXPENSES HAS TO BE ALLOWED AGAINST THE INTEREST INC OME WHICH IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE P RESENT CASE THE FACTS ARE DIFFERENT AND LD CIT(A) HAS ALREADY ALLOWED THE EXP ENSES WHICH ARE NECESSARY FOR RETAININGI THE STATUS OF THE COMPANY AND HENCE THIS JUDGMENT IS ALSO OF NO HELP TO THE ASSESSEE. REGARDING TRIBUNAL DECISION R ENDERED IN THE CASE OF KARANPURA COLLIERIES LTD. (SUPRA) WE FIND THAT THI S JUDGMENT IS REGARDING ALLOWABILITY OF EXPENSES NECESSARY FOR RETAINING TH E STATUS OF THE COMPANY UNDER THE COMPANIES ACT WHICH WAS HELD TO BE ALLOWABLE AS DEDUCTION U/S 57(III) OF THE ACT. IN THE PRESENT CASE THE LD CIT(A) HAS ALREADY ALLOWED DEDUCTION ON ACCOUNT OF RETAINING THE STATUS OF A COMPANY UNDER THE COMP ANIES ACT AND HENCE THIS TRIBUNAL DECISION ALSO DOES NOT HELP THE ASSESSEE I N THE PRESENT CASE. WE FIND THAT OUT OF VARIOUS EXPENSES DEBITED AS PER P&L A/C OF THE ASSESSEE COMPANY FOR ASSESSMENT YEAR 2001-02 AS APPEARING ON PAGE NO.17 OF THE PAPER BOOK THE LD CIT(A) HAS ALREADY ALLOWED DEDUCTION ON ACCO UNT OF VARIOUS EXPENSES WHICH ARE NECESSARY FOR RETAINING THE STATUS OF TH E COMPANY SUCH AS AUDIT FEES FILING FEES GENERAL CHARGES PROFESSIONAL CHARGES AND IN ADDITION TO THIS THE . I.T.A. NO.3361 TO 3363/DEL/09 7/7 ASSESSING OFFICER HAS ALREADY ALLOWED DEDUCTION ON ACCOUNT OF INTEREST EXPENSES AND FURTHER EXPENSES DEBITED BY THE ASSESSEE IN THE P&L A/C ARE ON ACCOUNT OF SALARY BONUS CONVEYANCE STAFF WELFARE AND SERVIC E TAX. NOW THE QUESTION IS WHETHER THESE EXPENSES CAN BE CONSIDERED AS EXPENSE S NECESSARY FOR RETAINING THE STATUS OF THE COMPANY. WE ARE OF THE CONSIDERED VIEW THAT THESE EXPENSES ARE NOT NECESSARY FOR RETAINING THE STATUS OF THE A SSESSEE COMPANY AND HENCE AS PER THIS TRIBUNAL DECISION CITED BY THE LD AR OF THE ASSESSEE DEDUCTION IS NOT ALLOWABLE ON ACCOUNT OF THESE EXPENSES WHILE EARNIN G INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 12. IN VIEW OF ABOVE DISCUSSION AND AFTER CONSIDERI NG THE JUDGMENTS CITED BY LD AR OF THE ASSESSEE AND ALSO AFTER CONSIDERING TH E FACTS OF THE PRESENT CASE WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD CIT(A) IN ALL THE THREE YEARS. WE THEREFORE CONFIRM THE SAME FOR ALL THE THREE Y EARS. 13. IN THE RESULT THE APPEALS OF THE ASSESSEE STAN D DISMISSED IN ALL THE THREE YEARS. 14. ORDER PRONOUNCED IN THE OPEN COURT ON 8TH JAN UARY 2010. SD/- SD/- (R.P. TOLANI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 8..1.2010. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DELHI. TRUE COPY. BY ORDER (ITAT NEW DELHI).