DCIT, Circle - 5, Kolkata, Kolkata v. M/s. MKJ Developers Ltd., Kolkata

ITA 592/KOL/2011 | 2003-2004
Pronouncement Date: 29-07-2011

Appeal Details

RSA Number 59223514 RSA 2011
Assessee PAN AABCM7076L
Bench Kolkata
Appeal Number ITA 592/KOL/2011
Duration Of Justice 3 month(s) 16 day(s)
Appellant DCIT, Circle - 5, Kolkata, Kolkata
Respondent M/s. MKJ Developers Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 29-07-2011
Assessment Year 2003-2004
Appeal Filed On 13-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A KOLKATA [ () . .. . ! ! ! !. .. . '# ] ]] ] [BEFORE HONBLE SRI MAHAVIR SINGH JM & HONBLE S RI C. D. RAO AM] % % % % /ITA NO.592/KOL/2011 &' ()/ ASSESSMENT YEAR : 2003-04 (+ / APPELLANT ) - & - ( ./+ /RESPONDENT) D.C.I.T. CIRCLE-5 KOLKATA -VERSUS- M/S.MKJ DEVE LOPERS LTD. (PAN:AABCM 7076 L) + 0 1 '/ FOR THE APPELLANT: SHRI A.K.PRAMANIK ./+ 0 1 '/ FOR THE RESPONDENT: SHRI S.K.TULSIYAN '2 / ORDER ( (( ( . .. . ! ! ! !. .. . ) )) ) '# PER SHRI C.D.RAO AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 21.01.2011 OF THE CIT(A)-VI KOLKATA PERTAINING TO A.YR. 2003-04. 2. THE ONLY ISSUE RAISED BY THE REVENUE IN THI S APPEAL IS RELATING TO DELETION OF DISALLOWANCE OF INTEREST EXPENSE OF RS.62 36 194/-. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE AO WHILE DOING THE SCRUTINY ASSESSMENT HAS DISALLOWED AN AMOUNT OF RS.62 36 194/- ON ACCOU NT OF INTEREST EXPENSE BY OBSERVING AS UNDER :- ON PERUSAL OF P&L A/C IT IS FOUND THAT THE ASSESSE ES INCOME WAS AS FOLLOWS :- I) PROFIT ON SHARE TRADING RS.1 14 31 998/- II) INTEREST RECEIVED RS. 37 66 726/- III) LOSS ON SALE OF LAND RS. 68 670/- IV) CAR HIRE CHARGES RS. 1 28 000/- V) INTT. ON DEBENTURE RS. 2 40 943/- VI) DIVIDEND RS. 22 834/- VII) CAPITAL GAINS RS. 74 04 470/- THE EXPENSES INCURRED ARE AS BELOW :- I) INTEREST PAID RS.2 11 71 522/- 2 II) ADMN. EXPENSES RS. 9 59 813/- III) DEPRECIATION RS. 40 254/- IV) SHARE ISSUE EXPENSES RS. 5 500/- TOTAL RS.2 21 77 089/- THE ASSESSEE VIDE THIS OFFICE LETTER DT.13/03/06 WA S ASKED TO EXPLAIN WHY INTEREST ATTRIBUTABLE TO LOAN USED FOR MAKING INVES TMENT SHOULD NOT BE DISALLOWED. IN REPLY THE ASSESSEE VIDE HIS LETTER D T.23/03/06 STATED THAT THE OWN FUNDS WERE USED TO FINANCE THE INVESTMENTS AND IN S UPPORT HE TRIED TO BRING ATTENTION TO THE SHAREHOLDERS FUND I.E. TOTAL OWN F UNDS OF RS.13 16 08 505/- ASSESSEES MAIN BUSINESS IS OF REAL ESTATE AND TRAD ING IN SHARES AND MONEY LENDING. IT IS OBVIOUS THAT THE OWN FUNDS SHOULD HA VE BEEN USED FIRST IN HIS BUSINESS ACTIVITIES WHERE THE TOTAL FUNDS ARE FOUND AS APPEARED IN BALANCE SHEET TO HAVE BEEN UTILIZED FOR AN AMOUNT OF (219326498 + 96111971) = RS.31 54 38 469/- WHICH IS MORE THAN THAT OF THE WO N FUND AS MENTIONED BY THE ASSESSEE. A PRUDENT BUSINESS MAN DOES NOT TAKE ANY VENTURE OF INVESTMENT WITHOUT ESTABLISHING HIS BUSINESS FOR EARNING PROFI T. THE SURPLUS OF OWN FUND IF ANY MAY BE UTILIZED FOR INVESTMENT. IN THIS INSTAN T CASE OWN FUND IS FOUND OF RS.13 16 08 505/- WHICH IS MUCH BELOW THE ACTUAL FU ND INVESTED IN BUSINESS. HENCE IT IS OBVIOUS THAT INVESTMENTS WERE MADE NOT OUT OF OWN FUNDS BUT FROM LOAN FUNDS AS AND WHEN NECESSARY. CONSIDERING THE FACTS THE PROPORTIONATE INTEREST TO WARDS INVESTMENT IS CALCULATED AS BELOW :- 53583385 X 21171522 18182526 = RS.62 36 19 4/- 3.1. ON APPEAL THE LD. CIT(A) HAS DELETED THE SAME BY OBSERVING AS UNDER :- I HAVE CAREFULLY CONSIDERED ALL THE FACTS OF THIS ISSUE. FROM THE BALANCE SHEET AS ON 31/03/2003 IT IS SEEN THAT THE SHARE CAPITAL IS RS.1.99 CR. AND RESERVES AND SURPLUS ARE RS.11.16 CR. THE INVESTMENTS AS ON 31.03.2003 ARE 5.35 CR. ON THE BASIS OF THIS DATA I AM OF THE OPINION THAT I T CAN BE ACCEPTED THAT THE OWN FUNDS OF THE ASSESSEE WERE USED IN MAKING THE INVES TMENT. IT IS WRONG TO PRESUME THAT THE ASSESSEE WOULD ALWAYS INVEST ITS O WN FUNDS IN BUSINESS ASSETS AND NOT IN INVESTMENTS. SPECIALLY IN THIS CASE IT CAN BE SEEN THAT THE RESERVE AND SURPLUS ARE 11.16 CR. WHICH CONSISTS OF SHARE PREMI UM AND GENERAL RESERVE AND ALSO EXCESS OF P & L A/C. GENERALLY RESERVE AND SUR PLUS ARE EXCESS FUNDS WHICH THE ASSESSEE MAY LIKE TO USE IN CERTAIN INVESTMENTS TO KEEP THEM SAFE FOR FUTURE REQUIREMENTS. HERE THE RESERVE AND SURPLUS ARE FAR MORE THAN THE INVESTMENTS AND THEREFORE IT CAN BE SAID THAT INVESTMENTS ARE MADE OUT OF THE INTEREST FREE OWN FUNDS OF THE ASSESSEE. IN VIEW OF THE ABOVE DIS CUSSION I HOLD THAT BORROWED FUNDS HAVE NOT BEEN USED FOR MAKING INVESTMENTS AND THEREFORE THE INTERESTS EXPENSES CLAIMED ARE BUSINESS EXPENSES AND THE INTE REST OF RS.62 36 194/- HAS BEEN WRONGLY DISALLOWED BY THE AO. HENCE I DELETE T HIS DISALLOWANCE. 3.2. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE US. 3 4. THE LD. DR APPEARING ON BEHALF OF THE REVEN UE HAS REITERATED THE OBSERVATIONS MADE BY THE AO AND FURTHER CONTENDED THAT THIS IS A COMMON PRACTICE THAT THE ASSESSEE SHOULD HAVE UTILIZED ITS OWN FUNDS FIRST IN HIS BU SINESS ACTIVITY AND THE LEFT OVER IN THE INVESTMENTS. THEREFORE THE PROPORTIONATE DISALLOWAN CE OF INTEREST MADE BY THE AO IS JUSTIFIED. 5. THE LD. COUNSEL APPEARING ON BEHALF OF THE A SSESSEE HAS SUBMITTED THAT THE ASSESSEE IS HAVING GENERAL RESERVES AND SHARE PREMI UM TO THE EXTENT OF RS.11.16 CRORE. THIS ASPECT HAS NOT BEEN CONSIDERED BY THE AO HE HA S TAKEN ONLY THE SHARE CAPITAL AND HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS UT ILIZED THE LOAN FOR THE PURPOSE OF INVESTMENTS WHICH IS FACTUALLY INCORRECT AND THE LD . CIT(A) HAS PROPERLY ANALYSED THE FACTS OF THE ISSUE AND GAVE RELIEF. THEREFORE HE RE QUESTED TO UPHOLD THE SAME. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF MATERIALS ON RECORD INCLUDING THE OBSERVATIONS MADE BY THE LD. AO AS WE LL AS THE LD. CIT(A) IT IS OBSERVED THAT THE ASSESSEE IS HAVING OWN FUNDS SUFFICIENT IN MAKING THE INVESTMENT APART FROM THE LOAN AS APPARENT FROM THE OBSERVATIONS OF THE L D. CIT(A). KEEPING IN VIEW OF THE FACT THAT THE LD. DR COULD NOT CONTRADICT THE OBSER VATIONS MADE BY THE LD. CIT(A) WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) T O BE INTERFERED WITH. THEREFORE WE CONFIRM THE ACTION OF THE LD. CIT(A). 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.07.2011. SD/- SD/- [ ] [ . !. '# ] [ MAHAVIR SINGH ] [ C. D. RAO ] JUDICIAL MEMBER ACCOUNTANT MEMBER ( (( (!# !# !# !#) )) ) DATE: 29.07.2011. R.G.(.P.S.) 4 '2 0 .3 4'3(5- COPY OF THE ORDER FORWARDED TO: 1. M/S. MKJ DEVELOPERS LTD. SAGAR ESTATE UNIT-I 2 CLIVE GHAT STREET KOLKATA-700001. 2 THE DCIT CIRCLE-5 KOLKATA. 3. THE CIT 4. THE CIT(A)-VI KOLKATA 5. DR KOLKATA BENCHES KOLKATA /3 ./ TRUE COPY '2&:/ BY ORDER DEPUTY /ASST. REGISTRAR ITAT KOLKATA BENCHES