THE DCIT 22(3), NAVI MUMBAI v. M/S. GALAXY CHEMICALS, NAVI MUMBAI

ITA 5788/MUM/2008 | 2005-2006
Pronouncement Date: 31-03-2011 | Result: Allowed

Appeal Details

RSA Number 578819914 RSA 2008
Bench Mumbai
Appeal Number ITA 5788/MUM/2008
Duration Of Justice 2 year(s) 6 month(s) 13 day(s)
Appellant THE DCIT 22(3), NAVI MUMBAI
Respondent M/S. GALAXY CHEMICALS, NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted G
Tribunal Order Date 31-03-2011
Date Of Final Hearing 24-02-2011
Next Hearing Date 24-02-2011
Assessment Year 2005-2006
Appeal Filed On 17-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI RAJENDRA SINGH A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 5788/MUM/2008 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME-TAX-22(3) APPELLANT 3 RD FLOOR TOWER NO. 6 VASHI RLY STATION COMPLEX VASHI NAVI MUMBAI VS. M/S GALAXY CHEMICALS RESPONDENT C-49/2 TTC INDUSTRIAL AREA PAWNE NAVI MUMBAI 400 703 APPELLANT BY : MR. A.K. NAYAK RESPONDENT BY : NONE . ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- XXII MUMBAI PASSED ON 22/07/2008 FOR THE ASSESSMENT YEAR 2005-06 WHEREIN THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF R S. 10 29 602/- MADE BY THE ASSESSING OFFICER U/S 14A. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSES SEE WAS NOT ABLE TO PROVE THAT NO INTEREST BEARING FUNDS HAVE B EEN DIVERTED FOR THE PURCHASE OF SHARES OF THE SISTER CONCERN. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS REVERSED THAT OF THE ASSESSING OFFICER BE R ESTORED. ITA NO. 5788/MUM/09 M/S GALAXY CHEMICALS 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF 4 PARTNERS. RETURN OF INCOME WAS FILED ON 09/08/05 ALONG WITH TAX AUDIT REPORT COMPUTATION OF TOTAL I NCOME PROFIT & LOSS ACCOUNT BALANCE SHEET AND ANNEXURES. THE ASSESSING OFFICER HAD DETERMINED THE TOTAL INCOME AT RS. 1 52 44 658/- AS AGAINST RS. 1 42 00 056/- RETURNED. THE ASSESSING OFFICER DISAL LOWED RS. 10 29 602/- BEING THE ENTIRE INTEREST PAID ON FIXED DEPOSITS BORROWED FOR THE PURPOSE OF THE BUSINESS BY HOLDING AS UNDE R:- I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE SAME NATURE OF SUBMISSIONS WAS MADE BY THE ASSESSEE BEFO RE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS FOR AY 04-05. THE SUBMISSIONS OF THE ASSESSEE HIMSELF MAKE IT CLE AR THAT ASSESSEE ADMITS TO HAVING DEVISED SCHEME BY WHICH E XPENDITURE IS DEBITED IN THE ACCOUNT OF THE ASSESSEE AND THE F UNDS ON WHICH THE SAID EXPENDITURE OF INTEREST IS CLAIMED IN ACCO UNTS OF ASSESSEE ARE ENJOYED BY ANOTHER CONCERN WHICH IN RE TURN PROVIDES DIVIDEND TO THE ASSESSEE WHICH DOES NOT FO RM PART OF THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEES CONTEN TION THAT THE ENTIRE SCHEME IS TO REMAIN CONTROL IN THE COMPANY T AKES THE SAID EXPENDITURE OUT OF SCOPE OF SECTION 36 (1)(III). TH E PROVISION MENTIONS INTEREST ON CAPITAL BORROWED FOR THE PURPO SE OF THE BUSINESS OR PROFESSION. THE PURPOSE HAS TO BE THE P URPOSE FOR ITS OWN BUSINESS AND NOT FOR THE BUSINESS OF SOMEBODY E LSE. MOREOVER THE SAME LINE OF DEFENSE WAS PUT FORTH BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2004-05. FOR THAT AY THE ASSESSING OFFICER HAD REJECTED THE CLAIM OF THE ASSESSEE. SINCE THE FACTS ARE SIMILAR AND THE ASSES SEE HAS FAILED TO CONCLUSIVELY ESTABLISH THAT THE BORROWED FUNDS W ERE UTILIZED FOR THE BUSINESS OF THE ASSESSEE HIMSELF AND WHATEV ER INCOME IT EARNED BY UTILIZING THE BORROWED FUNDS WAS OFFERED FOR TAXATION I.E. IT FORMED PART OF THE TOTAL TAXABLE INCOME OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. I DISALLOW THE CLAIM OF INTEREST OF RS. 10 29 602/-. THE SAME IS ADDED TO THE TOTAL INC OME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEF ORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD DISPUTED T HE DISALLOWANCE OF INTEREST IN APPEAL AGAINST THE ORDER ASSESSMENT FOR AY 2001-02 AND THE CIT(A) FOUND MERIT IN OUR SUBMISSIONS AND A LLOWED THE APPEAL. THE ITAT CONFIRMED THE ORDER OF CIT(A) IN A Y 2001-02. THE ITA NO. 5788/MUM/09 M/S GALAXY CHEMICALS 3 FINDINGS OF THE ITAT IN AY 2001-02 WAS EXTRACTED IN CIT(A)S ORDER AT PAGE 2 & 3. IT WAS SUBMITTED THAT THE DISALLOWANCE WAS ALSO DELETED BY THE CIT(A) IN AY 2004-05. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) HELD AS UNDER:- 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT ORDER OF THE ASSESSING OFFICER AND ALSO GONE THROUGH THE APP ELLATE ORDER PASSED BY LDCIT(A) FOR AY 2001-02 IN THE APPELLANT S OWN CASE WHICH WAS CONFIRMED BY THE HONBLE ITAT. I HAVE ALS O GONE THROUGH THE ORDER OF CIT(A) IN THE APPELLANTS OWN CASE FOR AY 2004-05 WHO HAS FOLLOWED THE ORDER PASSED BY THE L EARNED CIT(A) FOR AY 2001-02 AND THE ORDER OF HONBLE ITAT . KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES IT IS CONCLUD ED THAT THERE IS NO CHANGE IN FACTS OF THE CASE THEREFORE FOR THE SAME REASONS AS DISCUSSED IN THE ABOVE STATED ORDERS THE CLAIM OF THE APPELLANT FOR RS. 10 29 602/- IS ALLOWABLE EXPENDITURE U/S 36 (1)(III) OF THE ACT AND THUS ALLOWED ACCORDINGLY. HENCE THE ADDITI ON MADE BY THE ASSESSING OFFICER IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E IS IN APPEAL BEFORE US. 5. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSESS EE. THE LEARNED DEPARTMENTAL REPRESENTATIVE BESIDES RELYING UPON THE ORDER OF ASSESSING OFFICER RELIED UPON THE DECISION OF TH E ITAT IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT P. LTD. [2008] 119 TTJ(MUM)(SB) 289(2008) 26 SOT 603(MUM)(SB). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE OF INTEREST FOLLOWING DECISION OF THE TRIBUNAL IN AY 2001- 02 AND 2004-05 IN ASSESSEES OWN CASE IN WHICH IT WAS HELD THAT INTEREST HAS TO BE ALLOWED AS DEDUCTION U/S 36(I)(I II) AS THE LOANS WERE FOR THE PURPOSE OF BUSINESS AND THE PROVISIONS OF SECTION 14A OF THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE. WE FIND THAT WHILE DECIDING THE ISSUE THE TRIBUNAL HAD NOT CONSIDERED THE SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). THE ITA NO. 5788/MUM/09 M/S GALAXY CHEMICALS 4 PROVISIONS OF SECTION 14A WOULD APPLY TO THE EXEMPT DIVIDEND INCOME IRRESPECTIVE OF THE FACT THAT WHETHER THE SHARES WE RE HELD IN INVESTMENT ACCOUNT OR IN TRADING ACCOUNT. THEREFORE IN VIEW OF THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF D AGA CAPITAL MANAGEMENT P. LTD. (SUPRA) WE REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AND DECIDE THE SAME AFRESH IN ACCORDANCE WITH THE SPECIAL BENCH DE CISION OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (SUP RA). ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 7. IN THE RESULT APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH 2011. SD/- SD/- (RAJENDRA SINGH) (V. DURGA R AO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 31 ST MARCH 2011. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV ITA NO. 5788/MUM/09 M/S GALAXY CHEMICALS 5