MANOJ MOOLCHAND SHAH, MUMBAI v. CIT(A)-XV, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY(A.M) ITA NO.5718/MUM/2008(A.Y. 2003-04) MANOJ MOOLCHAND SHAH CRESENT CHAMBERS GR. FLOOR HOMI MODI CROSS STREET FORT MUMBAI 400 001 PAN:AAFPS 9212F (APPELLANT) VS. THE INCOME TAX OFFICER WARD 4(3)(2) MUMBAI. (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI HARI GOVIND SINGH ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 7/7/2008 OF CIT(A) XV MUMBAI RELATING TO A.Y 2003-04. THE GRO UNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN TREATING THE INTEREST INCOME EARNED DURING THE YEAR AMOUNTING TO RS. 17 51 363/- AS INCOME FROM OTHER SOURCES WITHOUT APPRECIATING T HE FACT THAT THE APPELLANT HAD CLAIMED THE SAME AS INCOME FROM BUSIN ESS AND WAS DOING THE BUSINESS OF MONEY LENDING AND CONDUCTING THE ACTIVITY OF MONEY LENDING IN A VERY ORGANIZED MANNER. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN PASSING AN ORDER WITHOUT DECIDING THE GROUND NO.4 A ND 5 OF THE APPEAL MEMORANDUM DESPITE THE APPELLANT MAKING SUBMISSIONS IN WRITING VIDE LETTER DT. 2/7/2008. 2. THE ASSESSEE IS AN INDIVIDUAL. HE IS ENGAGED IN THE BUSINESS OF SHARE BROKING. THE ASSESSEE LENT MONIES TO HIS SISTER C ONCERN FOR EARNING INTEREST INCOME. THE INTEREST OF RS. 17 51 363/- SO EARNED WAS CREDITED TO THE P&L ITA NO.5718/MUM/2008(A.Y. 2003-04) 2 ACCOUNT AND THE SAME WAS DECLARED UNDER THE HEAD BUSINESS INCOME. THE A.O CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WH Y THIS INCOME MAY NOT BE TAXED UNDER THE HEAD OTHER SOURCES. AFTER CON SIDERING THE SUBMISSION OF THE ASSESSEE THE A.O HELD THAT THE CLAIM OF THE ASSESSEE WAS NOT IN CONSONANCE WITH THE FOLLOWING DECISIONS. 1. PANDIAN CHEMICAL 262 ITR 278 (SC) 2. NANJI TOPANBHAI & CO. 243 ITR 192 3. C.I.T VS. NIGAM & CO. 259 ITR 244. THEREFORE THE INTEREST OF RS.17 51 363/- WAS TAXE D UNDER THE HEAD INCOME FROM OTHER SORUCES. 3. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT HE HAD EXPLAINED VIDE LETTER DATED 15/11/2006 THAT HE WAS CARRYING ON TH E BUSINESS OF JOBBING AND TRADING IN SHARES AND LENDING MONEY ON INTEREST SINCE 1989. THE ACTIVITY OF GIVING ADVANCES AND LOANS HAS BEEN REGU LARLY CARRIED OUT BY THE ASSESSEE SINCE 1989 AND WAS STILL BEING CONTINUED. THE ASSESSEE POINTED OUT THAT ALL ALONG HE HAD CLAIMED THE SAID RECEIPT OF I NTEREST ON LOANS & ADVANCES AS BUSINESS INCOME AND THE DEPARTMENT HAS SINCE 1989 ACCEPTED THE ASSESSEES CONTENTION. THE CASE OF THE ASSESSE E HAD BEEN SELECTED FOR SCRUTINY AT LEAST 8 TO 10 TIMES AND AT NO POINT OF TIME HAS THE INTEREST INCOME BEEN TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE FURTHER POINTED OUT THAT HE DOES NOT GIVE OUT ANY SURPLUS M ONEY LYING WITH HIM. WHAT HAS BEEN LENT IS HIS OWN CAPITAL CREATED FROM THE ABOVE TWO BUSINESSES OVER A PERIOD OF TIME SINCE 1989. THIS IS AN ACTIV ITY BEING CARRIED OUT BY THE ASSESSEE REGULARLY AND EVEN THE VOLUME WILL INDICAT E THAT IT IS A BUSINESS ACTIVITY. THE ASSESSEE POINTED OUT THAT HE HAS BEE N DERIVING LARGE AMOUNT OF INCOME FROM THE LENDING ACTIVITY WHICH WOULD BE IND ICATED BY THE AMOUNT OF INTEREST EARNED DURING THE YEAR WHICH IS RS.17 55 1 18/-. THE ASSESSEE SUBMITTED THAT HE HAD DURING THE YEAR ENDED 2001 EA RNED INTEREST INCOME OF RS.2365303/- AND ADVANCED MONEY TOTALING TO RS.3534 5000/- TO 6 PARTIES. ITA NO.5718/MUM/2008(A.Y. 2003-04) 3 IN THE YEAR 2004 THE TOTAL AMOUNT INVOLVED IN THE A CTIVITY WAS RS. 2 17 17000/- EVEN IN THE CURRENT YEAR THAT IS YEAR ENDED 2003 THE AMOUNT INVOLVED WAS RS. 29871000/-. ACCORDING TO THE ASSE SSEE THE VOLUME OF THE TRANSACTION AND THE REGULARITY OF THE TRANSACTION C LEARLY INDICATED THAT THE ASSESSEE IS DOING THE BUSINESS OF LENDING WITH A PR OFIT MOTIVE AND IT IS NOT THE EXCESS SURPLUS FUNDS THAT ARE BEING DEPLOYED. 4. THE ASSESSEE FURTHER SUBMITTED THAT THE QUESTIO N AS TO WHETHER A PARTICULAR SOURCE OF INCOME IS BUSINESS INCOME OR N OT MUST BE DECIDED ACCORDING TO ORDINARY NOTIONS OF WHAT A BUSINESS IS . THE ACTIVITY FROM WHICH THE INCOME IS DERIVED MUST HAVE A SET PURPOSE. THE MOTIVE FOR THE ACTIVITY MUST BE PROFIT AND NOT SPORT OR PLEASURE. EVEN A S INGLE OR ISOLATED TRANSACTION CAN CONSTITUTE BUSINESS IF IT BEARS CLE AR INDICIA OF TRADE ALTHOUGH THE ACTIVITY WOULD NORMALLY BE SYSTEMATIC AND ORGANIZED CHARACTERIZED BY A COURSE OF DEALINGS WHICH ARE FR EQUENT REGULAR AND CONTINUOUS. 5. THE CIT(A) HOWEVER DID NOT AGREE WITH THE SUBMIS SIONS OF THE ASSESSEE AND HE HELD AS FOLLOWS: 4.3 I HAVE CONSIDERED THE ARGUMENT OF THE APPELLA NT. I FIND THAT THERE IS NOTHING ON RECORD TO SHOW THAT APPELLANT HAS IN FACT BEEN DOING ANY MONEY LENDING BUSINESS AS SUCH. THE APPELLANT DID NOT HAVE ANY MONEY LENDING LICENCE TO LEND MONEY. FURTHER I A LSO FIND THAT LENDING MONEY TO SOME OF THE COMPANIES DOES NOT INVOLVE ANY ORGANIZED BUSINESS ACTIVITY TO COME WITHIN THE PREVIEW OF SEC .2(13) WHICH MAY INCLUDE ANY TRADE COMMERCE MANUFACTURE OR ANY AD VENTURE OR CONCERN IN THE NATURE OF TRADE COMMERCE OR MANUFA CTURE. IN FACT THE APPELLANT HAS NOT AT ALL PRODUCED ANY MATERIAL EVIDENCE TO SUPPORT HIS CLAIM THAT HE WAS DOING MONEY LENDING OR ANY OT HER ORGANIZED ACTIVITY. IT IS A SIMPLE CASE OF INVESTMENT IN SOM E COMPANIES OUT OF SURPLUS FUND TO EARN INTEREST INCOME. IT IS TO BE ONLY TREATED AS INCOME FROM OTHER SOURCE AS HE DID NOT INVOLVE AN Y ACTIVITY OF BUSINESS. RELIANCE MAY BE PLACED ON THE FOLLOWING DECISIONS: A) TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172(SC) ITA NO.5718/MUM/2008(A.Y. 2003-04) 4 B) PANDIAN CHEMICAL 262 ITR 278 (SC) HENCE I CONFIRM THE FINDING OF THE AO DISMISSING T HE APPEAL ON THIS POINT. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. CO UNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE FACT THAT RIGHT FROM ASSE SSMENT YEAR 1999-2000 TO 2002-03 THE INTEREST INCOME RECEIVED BY THE ASSESSE E HAD BEEN BROUGHT TO TAX AS BUSINESS INCOME. IN THIS REGARD HE DREW OUR ATTENTION TO THE RETURNS OF INCOME BALANCE SHEET P&L ACCOUNT AND ORDERS OF ASSESSMENT FOR A.Y 1999-2000 TO 2002 -03. IT WAS SUBMITTED BY HIM THA T ONE OF THE REASONS GIVEN BY THE CIT(A) WAS THAT THE ASSESSEE DID NOT H AVE MONEY LENDING BUSINESS LICENCE. HE RELIED ON THE FOLLOWING DECIS IONS WHEREIN IT WAS HELD THAT ABSENCE OF MONEY LENDING LICENCE IS NOT FATAL TO A CLAIM THAT INTEREST INCOME WAS DERIVED FROM BUSINESS OF MONEY LENDING. 1. D.N.KHANDELWAL 16 SOT 343 (MUM) 2. SMT. GULAB SUNDARI BAFNA 79 ITR 425 (DEL) 8. THE LD. D.R SUBMITTED THAT A SYSTEMATIC AND ORGA NIZED ACTIVITY INVOLVING TIME AND MIND HAS TO BE ESTABLISHED BEFOR E IT CAN BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MONEY LENDI NG. IN THIS REGARD HE DREW OUR ATTENTION TO THE DETAILS OF THE LOAN AS FO UND IN THE VARIOUS BALANCE SHEET FOR ASSESSMENT YEAR 1999-2000 TO 2002-03. HE SUBMITTED THAT THE FUNDS HAVE BEEN LENT TO THE SISTER CONCERNS AND INT EREST INCOME HAS BEEN EARNED. ACCORDING TO HIM IT CANNOT BE SAID THAT TH E ASSESSEE INDULGED IN ANY SYSTEMATIC ACTIVITY. IT WAS SUBMITTED BY HIM THAT IN THE EARLIER ASSESSMENT YEARS THE ASSESSING OFFICER HAS NOT APPLIED HIS MIN D TO THIS ASPECT WHETHER INTEREST INCOME SHOULD BE TREATED AS INCOME FROM BU SINESS OR INCOME FROM ITA NO.5718/MUM/2008(A.Y. 2003-04) 5 OTHER SOURCES AND THEREFORE THOSE ASSESSMENT CANN OT BE RELIED UPON BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE PRINCIPLE OF RES-JUDICATA IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE PERUSED THE PROFIT AND LOSS ACCOUNT BALANCE SHEET AS WELL AS COMPUTAT ION OF TOTAL INCOME FOR A.Y 1999-2000 TO 2002-03. IN ALL THESE YEARS IT IS SEEN THAT THE ASSESSEE HAD GIVEN LOANS TO THE FOLLOWING PARTIES AND EARNED INTEREST INCOME WHICH WAS DECLARED AS INCOME FROM BUSINESS : S.NO. NAME A.Y. 99-00 A.Y 2001-02 A.Y.2002-03 1. MRS. HEENA M. SHAH 36 70 000 7 45 000 15 36 000 2. MR. MANOJ M. SHAH HUF 40 000 - - 3. DEWANG M. SHAH 7 000 - - 4. MR. ARVIND M. SHAH(BILL) 1 35 00 000 - - 5. AMU PROPERTIES & FINANCE P.LTD. 29 45 000 74 65 000 72 50 000 6. AIR COMMAND INDIA LTD. 40 00 000 40 00 000 40 00 000 7. AMU INVESTMENT & FINANCE PVT. LTD. 24 20 000 50 00 000 50 00 000 8. AMU SHARES & SECURITIES LTD. 57 50 000 1 80 88 000 1 84 01 529.21 9. MR. AMAN M. SHAH - 47 000 - IT IS FURTHER SEEN THAT THE ASSESSMENT FOR A.Y 2002 -03 AS WELL AS 2001-02 WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND T HE INTEREST INCOME HAD BEEN CONSIDERED AS BUSINESS INCOME. IN OUR VIEW TH E ASSESSEE HAS ESTABLISHED THAT HE HAS BEEN GIVING ADVANCES AND LO ANS ON A REGULAR BASIS. IT IS THE CLAIM OF THE ASSESSEE THAT SINCE 1989 HE HAS DECLARED INTEREST INCOME AS INCOME FROM BUSINESS AND IN THE PAST IN 8 -10 YEARS IN SCRUTINY ASSESSMENT INTEREST INCOME HAS BEEN TREATED AS BUSI NESS INCOME. THE ASSESSEE HAS ALSO CLAIMED THAT THE LOANS AND ADVANC ES WERE GIVEN OUT OF CAPITAL NOT OUT OF SURPLUS FUNDS. IN THESE CIRCUMS TANCES WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE THAT INTEREST INCOME IS BUSINESS INCOME HAS TO BE ACCEPTED. BESIDES THE ABOVE WE ARE ALSO OF THE VIEW THAT APPLYING THE PRINCIPLE OF CONSISTENCY THE CLAIM OF THE ASSESSEE WHICH WAS ACCEPTED IN THE ITA NO.5718/MUM/2008(A.Y. 2003-04) 6 PAST SHOULD BE ACCEPTED IN THE PRESENT ASSESSMENT Y EAR ALSO. FOR THE REASONS GIVEN ABOVE WE DIRECT THAT THE INTEREST INC OME IN QUESTION BE ASSESSED AS INCOME FROM BUSINESS. APPEAL OF THE AS SESSEE IS ALLOWED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (J.SUDHAKAR REDDY) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT. 25 TH FEB.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.5718/MUM/2008(A.Y. 2003-04) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22/2/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 23/2/11 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 THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER