Virgo Marketing (P) Ltd.,, v. ITO, Ward-17(4),,

ITA 644/DEL/2004 | 2000-2001
Pronouncement Date: 31-07-2015 | Result: Allowed

Appeal Details

RSA Number 64420114 RSA 2004
Assessee PAN AAACV3850A
Bench Delhi
Appeal Number ITA 644/DEL/2004
Duration Of Justice 11 year(s) 5 month(s) 20 day(s)
Appellant Virgo Marketing (P) Ltd.,,
Respondent ITO, Ward-17(4),,
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 31-07-2015
Date Of Final Hearing 14-07-2015
Next Hearing Date 14-07-2015
Assessment Year 2000-2001
Appeal Filed On 10-02-2004
Judgment Text
ITA NO S . 644&645/ DEL/ 2004 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI N.K. SAINI ACCOUNTANT MEMBER AND SHRI H.S. SIDHU JUDICIAL MEMBER I.T.A. NO S. 644 & 645 /DEL/20 0 4 A.Y RS . : 2000 - 01 & 2001 - 02 M/S VIRGO MARKETING (P) LTD. A - 9 GULMOHAR PARK NEW DELHI (PAN: AAACV3850A) VS. INCOME TAX OFFICER WARD 1 7 ( 4 ) NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN ADV. SH. PRANZAL SRIVASTAVA ADV. & SH. AASISH GOYAL CA DEPARTMENT BY : SH. J.P. CHANDREKAR SR. DR DATE OF HEARING : 15 - 7 - 201 5 DATE OF ORDER : 3 1 - 7 - 201 5 ORDER PER H.S. SIDHU : J M TH ESE APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XX NEW DELHI DATED 11 . 11. 20 03 P ERTAINING TO ASSESSMENT YEAR S 200 0 - 01 & 2001 - 02 . SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON WE ARE THEREFORE PROCEEDING TO DISPOSE O F THEM BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE BY DEALING WITH I TA NO. 644/DEL/2014 (AY 2000 - 01). 2. THE GROUNDS RAISED IN ITA NO. 644/DEL/2004 READ AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND UNDER THE PROVISIONS OF LAW THE CIT HAS ERRED IN ITA NO S . 644&645/ DEL/ 2004 2 SUSTAINING THE DISALLOWANCE OF RS. 20 00 000/ - OU T OF INTEREST LAID OUT WHOLLY FOR THE BUSINESS PURPOSES. 2. ANY OTHER GROUND THAT MAY BE RAISED WITH DUE PERMISSION AT THE TIME OF HEARING OF THE APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 645/DEL/2004 READ AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE AND UNDER THE PROVISIONS OF LAW THE CIT HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 20 00 000/ - OUT OF INTEREST LAID OUT WHOLLY FOR THE BUSINESS PURPOSES. 2. ANY OTHER GROUND THAT MAY BE RAISED WITH DUE PERMISSION AT THE TIME OF HEARING OF THE APPEAL. 4. THE FACTS NARRATED BY THE REVENUE AUTHORITIES ARE NOT DISPUTED BY BOTH THE PARTIES HENCE THEY ARE NOT BEING REPEATED HERE FOR THE SAKE OF CONVENIENCE. 5. AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE STATED THAT THE ISSUE IN DISPUTE REQUIRE THOROUGH EXAMINATION AT THE LEVEL OF THE AO AND MAY BE SET ASIDE TO THE AO TO EXAMINE THE SAME AND COMPLETE THE ASSESSMENT AS PER LAW. HE HAS ALSO FILED THE SYNOPSIS IN WHICH HE HAS NARRATED THE FACTS ON THE ISSUE IN DISPUTE AND SUBS TANTIATED THE CLAIM OF THE ASSESSEE WITH THE SUPPORT OF VARIOUS CASE LAWS. FOR THE SAKE OF CONVENIENCE WE ARE REPRODUCING HEREUNDER THE SYNOPSIS. 1. THE ASSESSEE HAS FILED 4 APPEALS AGAINST THE COMMON ORDER PASSED BY THE CIT(A) NEW DELHI DATED 11.11.2003 FOR AY. 1999 - 2000 AY. 2000 - 01 AY. 2001 - 02 AND AY. 2002 - 03. THE ISSUE INVOLVED IN ALL THE FOUR ITA NO S . 644&645/ DEL/ 2004 3 APPEALS WAS COMMON I.E. DISALLOWANCE OF THE EXPENDITURE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 2. ALL THE FOUR APPEALS WERE HEARD TOGETHER BY THE HON'BLE ITAT AND A COMMON ORDER DATED10.03.2006 WAS PASSED IN RESPECT OF THE F OLLOWING APPEALS: - AY. 1999 - 2000 : ITA NO.643/DEI2004 AY. 2000 - 2001 : ITA NO.644/DEI/2004 AY. 2001 - 2002 : ITA NO.645/DEL/2 004 AY. 2002 - 2003 : ITA NO.646/DEI/2004 3. FOR THE AY. 1999 - 2000 THE APPEAL WAS ALLOWED ON THE GROUND THAT THE PROVISION OF SECTION 14A CANNOT BE APPLIED FOR AY. 1999 - 2000 UNDER SECTION 147 IN VIEW OF THE SPECIFIC PROVISO TO SECTION 14A OF THE ACT AS C LARIFIED BY THE BOARD CIRCULAR DATED 27.08.2002 (PARA 19 PAGE 10 OF THE ITAT ORDER DATED10.03.2006). 4. THE DISALLOWANCE MADE IN THE OTHER THREE YEARS I.E. AY. 2000 - 01 AY. 2001 - 02 AND AY. 2002 - 03 WAS DELETED ON MERIT. 5. AGGRIEVED BY THE ORDER OF THE HON'BLE ITAT THE REVENUE CAME IN APPEAL BEFORE THE HON'BLE HIGH COURT FOR ALL THE FOUR ASSESSMENT YEARS AND THE RELEVANT ITA NO. FOR EACH OF THE YEAR ARE AS UNDER: - AY. ITAT APPEAL NO HIGH COURT APPEAL NO. 1999 - 2000 ITA NO.643/ D EI/2004 ITA NO. 1468/ 2006 2000 - 01 ITA NO.644/ D EI/2004 ITA NO. 1453/2006 2001 - 02 ITA NO.645/ D EI/2004 ITA NO. 1467/2006 2002 - 03 ITA NO.646/ D EI/2004 ITA NO. 14.54/2006 ITA NO S . 644&645/ DEL/ 2004 4 6. APPEAL FOR THE AY. 1999 - 2000 I.E. ITA NO. 1468/2006 WAS DISPOSED OF BY THE HON'BLE HIGH COURT VI DE ORDER DATED 01.08.2013. THE APPEAL FILED BY THE REVENUE WAS DISMISSED UPHOLDING THE ORDER OF THE ITAT ON THE GROUND THAT PROVISION OF SECTION 14A CANNOT BE INVOKED BY REOPENING OF THE ASSESSMENT UNDER SECTION 147 IN VIEW OF THE BOARD CIRCULAR NO.8/2002. 7. APPEAL FOR AY. 2002 - 03 BEING ITA NO.1454/2006 WAS DISMISSED ON THE GROUND OF TAX EFFECT VIDE ORDER DATED 3RD MAY 2011. 8. THEREAFTER APPEAL FOR THE AY. 2001 - 02 WAS DISPOSED OF BY THE HON'BLE HIGH COURT VIDE ORDER DATED 05.12.2013 WHERE THE HON'BLE H IGH COURT HAS REMANDED THE MATTER FOR FRESH DECISION BY THE TRIBUNAL. 9. APPEAL FOR THE AY. 2 000 - 01 BEING ITA NO. 145 3 /2006 WAS FIXED FOR 24.01.2014. THIS APPEAL WAS DISPOSED OF FOLLOWING THE ORDER FOR THE AY 2001 - 02. 10. THUS APPEALS FOR THE AY. 2000 - 01 AND 2001 - 02 BEING ITA NO.644/0EI/2004 AND 645/ D E1/2004 GOT RESTORED TO THE FILE OF THE ITAT CONSEQUENT TO THE ABOVE ORDERS OF THE HIGH COURT AND ACCORDINGLY BOTH THESE APPEALS ARE LISTED BEFORE THE HON'BLE ITAT. 11. IN ITA NO. 643/DEL / 2004 FOR A.Y.19 99 - 2000 AND ITA NO. 646/DEI/20 04 FOR ASSESSMENT YEAR 2002 - 03 ORDER PASSED BY THE ITAT HAS NOT BEEN DISTURBED AND AS SUCH THAT ORDER HAS BECOME FINAL. ITA NO S . 644&645/ DEL/ 2004 5 5.1 LD. COUNSEL OF THE ASSESSEE AT THE TIME OF HEARING FILED ANOTHER COPY OF SYNOPSIS WITH RESPECT TO ITA NO. 644/DEL/2004 (2000 - 01) . FOR THE SAKE OF CONVENIENCE THE SAME IS REPRO DUCED HEREUNDER : - AO S ORDER GROUND NO.1 : DISALLOWANCE OUT OF INTEREST OF RS.20 00 000 A.O'S ORDER LAST PAGE PARA 8 DISALLOWED ON THE ASSUMPTION THAT THE ASSESSEE DID NOT HAVE ITS OWN FUNDS AND THE DIVIDEND INCOME HAS BEE N EARNED OUT OF INVESTMENTS MADE BY THE ASSESSEE ON BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID. BY INVOKING SECTION 14A OF THE ACT A.O DISALLOWED THE SAID INTEREST. CIT(A)' ORDER PAGE 6 IN THE MI DDLE OF THE PAGE. CIT(A) UPHELD THE ACTION OF THE A.O ON THE BASIS THAT SINCE INTEREST HAD BEEN PAID ON LOANS ADVANCED FOR ACQUISITION OF SHARES THE DIVIDEND ON WHICH WERE CLAIMED AS EXEMPT THE INTEREST SO PAID COULD NOT BE ALLOWED AS DEDUCTION IN THE INCOME TAX. REMARKS INVESTMENTS WERE MADE MUCH BEFORE THE BORROWED FUNDS WERE OBTAINED AND AS SUCH THE INTEREST PAID ON BORROWED FUNDS CANNOT BE ALLOCATED TOWARDS EARNING DIVIDEND INCOME. THE FUNDS WERE BORROWED ON THE FOLLOWING DATES. 03.04.1997 RS . 1 73 27 166 03.05.1997 RS. 3 22 134 ITA NO S . 644&645/ DEL/ 2004 6 RS. 14 50 750 RS. 1 91 00 000 LESS: REPAID ON 30.04.97 RS. 25 00 000 BALANCE RS. 1 66 00 000 THE INVESTMENT IN SHARES OF TELECOM FINANCE INDIA LTD. WERE ACQUIRED MUCH BEFORE THE AMOUNT WAS BORROWED. INVESTMENT IN SHARES WERE MADE ON FOLLOWING DATES: 23.05.1995 RS. 25 00 000 26.12.1995 RS. 1 00 00 000 27.12.1995 RS. 87 00 000 RS. 2 12 00 000 - THE INTEREST PAID ON THE LOAN CAN UNDER NO CIRCUMSTANCES BE ALLOCATED OR APPROPRIATE TOWARDS INVESTMENT IN SHARES. - THE FUNDS WHICH WERE BORROWED CANNOT BE SAID TO HAVE BEEN UTILIZED FOR PURPOSES OF INVESTMENT IN SHARES OF TELECOM FINANCE INDIA LTD. ON WHICH DIVIDEND HAS BEEN RECEIVED. - THE INVESTMENTS HAVE TAKEN PLACE IN 1995 WHEREAS LOAN HAVE BEEN TAKEN IN 1997. - THE A.O CANNOT READ THE LAW IN A MANNER IGNORING THE EXPRESS PROVISIONS OF THE ACT. ITA NO S . 644&645/ DEL/ 2004 7 - IN THE FOLLOWING JUDGMENTS IT HAS BEEN HELD THAT IT IS THE PROXIMATE CAUSE WHICH HAS TO BE SEEN NOT ANYTHING ELSE. IF THE PROXIMATE CAUSE IS BORROWING AND DIVERSION TO NON - BUSINESS THEN THE INTEREST ON SUCH LOAN CAN BE DISALLOWED. HOWEVER IF THE PROXIMATE CAUSE OF BORROWING IS FOR BUSIN ESS NO DISALLOWANCE CAN BE DISALLOWED. HOWEVER IF THE PROXIMATE CAUSE OF BORROWING IS FOR BUSINESS NO DISALLOWANCE CAN BE MADE. (I) IN THE CASE OF REGAL THEATRE VS CIT 225 ITR 205 (MAD) THE HIGH COURT HAS HELD THAT IT IS NOT THE REQUIREMENT OF THE LA W THAT THE ASSESSEE MUST SHOW THAT THE BORROWING OF CAPITAL WAS NECESSARY FOR BUSINESS OR THE ASSESSEE HAD ALTERNATIVE SOURCES WHICH WERE NOT UTILIZED. (II) MADHAV PRASAD JATIA VS CIT 118 ITR 200(SC) : APPLICATION OF BORROWED FUNDS IS IMPORTANT. IF THE B ORROWED FUNDS HAVE BEEN USED FOR BUSINESS PURPOSES UNDER NO CIRCUMSTANCES THE INTEREST PAID ON SUCH BORROWED FUNDS CAN BE DISALLOWED. SIMILARLY IF BORROWED FUNDS HAVE BEEN USED FOR NON BUSINESS PURPOSES THE INTEREST PAID ON SUCH BORROWED FUNDS CAN NOT B E ALLOWED DESPITE THE FACT THAT THERE WAS LARGE CAPITAL OR NOR INTEREST BEARIN G FUNDS AVAILABLE WITH THE ASSESSEE. IT IS THE DIRECT AND THE PROXIMATE NEXUS. CIT VS M.S.VENKATESWARAN 222 ITR 163 (CHENNAI) ANNA BAI HAJUEE ISSA VS CIT 51 ITR 835(MAD) (III) IN THE CASE OF CIT VS BOMBAY SAMACHAR LTD. 74 ITR 723 IT HAS BEEN HELD THAT THE ASSESSEE COULD HAVE ITA NO S . 644&645/ DEL/ 2004 8 DECREASED THE EXTENT OF ITS BORROWING BY COLLECTING ITS OUTSTANDING AND THEREFORE COULD NOT BE ENTITLED TO THE INTEREST CLAIMED BY IT ON BORROWED CAPITAL IS NOT BEING SUSTAINED. (IV) IT IS EQUALLY A SETTLED LAW THAT IN SUCH A SITUATION ALL THAT THE ASSESSEE HAS TO SHOW IS THAT THE CAPITAL WHICH IT HAS BORROWED WAS USED FOR THE PURPOSE OF BUSINESS. WHAT DID BEFORE THAT IS AN IRRELEVANT CONSIDERATION AS HA S BEEN HELD IN THE CASE OF BIRLA GWALIOR (P) LTD. VS CIT 44 ITR 847 (M.P) AND S.RAMANATHAN CHETTIAR VS CIT 72 ITR 534(MAD). (V) FURTHER IN THE CASE OF BANARSIDAS GUPTA VS CIT 106 ITR 559 THE ALLAHABAD HIGH COURT HAS HELD THAT CAPITAL BORROWED TO PAY OF F A DEBT IS CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. (VI) CIT VS SRIDEV ENTERPRISES 192 ITR 165 (KARNATAKA) : DISALLOWANCE WITH REFERENCE TO THE INTEREST FREE LOANS GIVEN HAD TO BE CONFINED TO THE INTEREST FREE LOANS GIVEN DURING THE RELEVANT ACCOU NTING YEAR ITSELF. THE STATUS OF THE AMOUNT OUTSTANDING ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND THEREFORE ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FROM ITS NATURE AND STATUS AS ON LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. AFFIRMED IN SALEEM CHAWLA VS ITO 96 TT J 656 (JODHPUR) - THERE ARE A NUMBER OF JUDGMENTS WHICH HAVE GONE TO THE EXTENT OF UPHOLDING THAT A DEBIT IN AN OVERDRAFT ACCOUNT FOR NON BUSINESS PURPOSE AND THE INTEREST ON OD ITA NO S . 644&645/ DEL/ 2004 9 ACCOUNT T O THAT EXTENT SHALL NOT BE AN ALLOWABLE EXPENDITURE. - THE BORROWINGS ON WHICH INTEREST HAS BEEN PAID HAVE BEEN USED DIRECTLY SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND AS SUCH THE INTEREST EXPENDITURE CANNOT BE ALLOCATED TO THE DIVIDEND INC OME AS THE INVESTMENT IN SHARES WERE MADE MUCH BEFORE THE B O RROWING S WERE MADE BY THE COMPANY. - COPY OF ACCOUNT OF CUSTOMER TO SHOW THE SOURCE OF MONEY FOR INVESTMENT IN SHARE OF TELECOM FINANCE INDIA LTD. ON WHICH NO INTEREST HAS BEEN PAID AT P B PAGE 79. 6. ON THE CONTRARY LD. DR RELIED UPON THE ORDER PASSED BY THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS ESPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES ALONGWITH WRITTEN SYNOPSIS . WE ARE OF TH E VIEW THAT HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSESSEE I.E. COMMISSIONER OF INCOME TAX VS. M/S VIRGO MARKETING (P) LTD. IN ITA NO. 1882 OF 2010 VIDE ORDER DATED 24.1.2014 HAS HELD AS UNDER: - IT IS AGREED BY LEARNED COUNSEL FOR THE PARTIES THAT IN IDENTICAL CIRCUMSTANCES WHERE THE ISSUE THAT AROSE WAS SIMILAR PERTAINING TO THE ALLOWANCE OF DEDUCTION OF INTEREST UNDER SECTION 36(1) CLAUSE 3 OF THE I.T. ACT IN THE CONTEXT OF DEFENDANT S EXAMIN ATION CLAIMED UNDER SECTION 10(33) FOR THE SUCCEEDING YEAR 2001 - 02 THIS COURT HAS DIRECTED REMAND AND EXAMINATION DE NOVO BY ITA NO S . 644&645/ DEL/ 2004 10 THE TRIBUNAL. LEARNED COUNSEL AGREED THAT THE COURSE OF ACTION ADOPTED IN THE SAID CASE ITA NO. 1467/2006 BE ALSO FOLLOWED IN THE PRESENT CASE ALONGWITH SUBSTANTIVE CONNECTED APPEALS I.E. ITA 1453/2006. IN THESE CIRCUMSTANCES THIS COURT HEREBY DIRECTS A REMAND FOR FRESH DECISION BY THE TRIBUNAL WHICH WOULD EXAMINE THE FACTS AND CIRCUMSTANCES OF THE CASE DE NOVO UNINFLUENCED B Y THE EARLIER ORDER. ITA 1453/2006 IS CALLED FOR AND HEREBY TAKEN ON RECORD. WITH CONSENT ITA 1882/2010 AND ITA 1453/2006 ARE DISPOSED OFF IN THE ABOVE TERMS. 7.1 AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS AVAILABLE ON RECORD ESPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES WRITTEN SYNOPSIS FILED BY THE ASSESSEE AND THE ORDER OF THE HON BLE JURISDICTIONAL HIGH COURT DATED 24.1.2014 AS AFORESA ID WE ARE OF THE VIEW THAT THE HON BLE JURISDICTIONAL HIGH COURT HAS REMANDED THE MATTER TO THE TRIBUNAL FOR EXAMINATION DE NOVO UNINFLUENCED BY THE EARLIER ORDER. KEEPING IN VIEW OF THE ARGUMENTS ADVANCED BY THE LD. COUNSEL OF THE ASSESSEE AND THE OBSERVATIONS OF THE REVENUE AUTHORIT IES ON THE ISSUE IN DISPUTE WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IN DISPUTE REQUIRE EXAMINATION DE NOVO AT THE LEVEL OF THE ASSESSING OFFICER. THEREFORE WE REMAND BACK THE ISSUES IN DISPUTE TO THE FILE OF TH E ASSESSING OFFICER FOR ITA NO S . 644&645/ DEL/ 2004 11 EXAMINATION DE NOVO AND ALSO CONSIDER THE A VERMENTS MADE IN ASSESSEE S SYNOPSIS AS R EPRODUCED IN P ARA S 5 & 5.1 AT PAGE NO. 2 TO 9 OF THIS ORDER AND DECIDE ACCORDINGLY UNDER THE LAW AFTER GIVING FULL OPPORTUNITY TO THE ASSESSEE . 8. IN THE RESULT BOTH THE APPEAL S FILED BY THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN C OURT ON 3 1 / 7 /20 1 5 . S D / - S D / - [ N.K. SAINI ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 3 1 / 7 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES