The DCIT, Circle-5,, RAJKOT-GUJARAT v. M/s Premji Valji & Sons,, RAJKOT-GUJARAT

ITA 909/RJT/2010 | 2002-2003
Pronouncement Date: 25-11-2011 | Result: Dismissed

Appeal Details

RSA Number 90924914 RSA 2010
Assessee PAN AACFP7696K
Bench Rajkot
Appeal Number ITA 909/RJT/2010
Duration Of Justice 1 year(s) 6 month(s) 21 day(s)
Appellant The DCIT, Circle-5,, RAJKOT-GUJARAT
Respondent M/s Premji Valji & Sons,, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 25-11-2011
Date Of Final Hearing 22-09-2011
Next Hearing Date 22-09-2011
Assessment Year 2002-2003
Appeal Filed On 04-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.909/RJT/2010 (ASSESSMENT YEAR 2002-03) ACIT CIR.5 VS M/S PREMJI VALJI & SONS RAJKOT KUNVERJIBHAI TOWERS PALACE ROAD RAJKOT PAN : AACFP7696K (APPELLANT) (RESPONDENT) C.O. NO.41/RJT/2010 (ARISING OUT OF I.T.A. NO.909/RJT/2010) (ASSESSMENT YEAR 2002-03) M/S PREMJI VALJI & SONS VS ACIT CIR.5 RAJKOT RAJKOT (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING : 22-11-2011 DATE OF PRONOUNCEMENT : 25-11-2011 REVENUE BY : SHRI CJ MANIAR ASSESSEE BY : SHRI R.D LALCHANDANI O R D E R PER T.K. SHARMA (JM) THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE AGAINST THE ORDER DATED 17-02-2010 PASSED BY THE CI T(A)-IV RAJKOT FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL READS AS FOLLOWS: ITA NO.909/RJT/2010 CO 41/RJT/2010 2 THE LD.CIT(A)-IV RAJKOT HAS ERRED IN LAW AND ON F ACT IN DELETING ADDITION MADE BY THE AO OF RS.9 98 197/- BY DISALLO WANCE OF INTEREST ON INVESTMENTS. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN DEALING IN GOLD ORNAMENTS. FOR THE ASSESSMENT YEA UNDER AP PEAL IT FILED THE RETURN OF INCOME DECLARING INCOME OF RS. 57 74 840 ALONG WITH COPIES OF TRADING ACCOUNT PROFIT & LOSS ACCOUNT BALANCE-SHEET AND AUDIT REPO RT IN FORM 3CD. THE GROSS PROFIT DECLARED IN THE ASSESSMENT YEAR UNDER APPEAL IS 13.97% AS AGAINST 13.36% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2001-02. THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3) N 16-12-2004 WHEREIN HE ASSESSED TOTAL INCOME SHOWN IN THE RETURNED INCOME AT RS. 57 74 840. SUBSEQUENTLY THIS ASSESSMENT WAS REOPENED BY ISSUI NG NOTICE U/S 148. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS ON VERIFIC ATION OF RECORDS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT SHOWN INTEREST / DIVIDEND INCOME FROM FOLLOWING THREE PARTIES THOUGH IT WAS P AYING INTEREST OF RS. 26 21 938 RANGING FROM 14% TO 18% ON LOANS BORROWED FROM RELATIVES BANKS AND OTHERS: PREVAS JEWELS IND. NEW YORK RS. 69 46 814 NAGRIK SAHAKARI BANK RAJKOT RS. 25 010 SBS RAJKOT DEPOSIT RS. 1 58 153 RS. 71 29 977 ITA NO.909/RJT/2010 CO 41/RJT/2010 3 THE ASSESSING OFFICER DISALLOWED INTEREST OF RS. 9 98 197 I.E. PROPORTIONATE INTEREST @14% CHARGEABLE ON ABOVE INVESTMENT AND AD DED TO THE TOTAL INCOME OF THE ASSESSING OFFICER. 4. ON APPEAL BEFORE LD.CIT(A) ASSESSEE CONTENDED TH AT M/S PREVAS JEWELS INC. NEW YORK IS A WHOLLY OWNED SUBSIDIARY AND THE INVESTMENT HAS BEEN MADE FOR THE PURPOSE OF BUSINESS THERE IS NO QUESTION O F CHARGING OF INTEREST ON THE ABOVE. THEREFORE THIS IS A BUSINESS INVESTMENT. IN RESPECT OF RAJKOT NAGRIK SAHAKARI BANK THE ASSESSEE SUBMITTED THAT THE AMOU NT IS THE INVESTMENT MADE IN THE SHARES OF THE BANK THE SHARES HAVE BEEN BOU GHT IN THE LATE 80S AND EARLY 90S. THERE IS NO INVESTMENT DURING THE YEAR. THE SHARES WERE PURCHASED AS WE HAD OPENED AN ACCOUNT WITH THE BANK IN THOSE YEARS AND IT IS COMPULSORY THAT THE SHARES ARE PURCHASED IF WANTED AN ACCOUNT IN TH E SAID BANK. IN RESPECT OF SBS RAJKOT DEPOSIT THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICE HAS CHARGED NOTIONAL INTEREST ON THE DEPOSITS. FURTHER THE ASSESSEE SUBMITTED THAT THERE IS NO DISPUTE THAT THE MONIES BORROWED HAVE B EEN BORROWED FOR THE PURPOSE OF BUSINESS. THE INTEREST PAYMENT THEREON IS ALLOWABLE AS THEY HAVE FULFILLED ALL THE CRITERIA REQUIRED FOR THE APPLICA BILITY OF SECTION 36(1)(III) OF THE ACT. THE ASSESSEE HAD ALSO RELIED ON VARIOUS CASE-LAWS. 5. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LD.CIT(A) DELETED THE DISALLOWANCE OF INTEREST OF R S. 9 98 197 FOR THE DETAILED REASONS GIVEN AT PARAGRAPH 4.2 TO 4.4 WHICH READS A S FOLLOWS: ITA NO.909/RJT/2010 CO 41/RJT/2010 4 4.2 I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSION OF THE AR OF T HE APPELLANT. THE ASSESSING OFFICER CONSIDERED THE FOLLOWING INVE STMENT ON WHICH NO INTEREST OR DIVIDEND INCOME HAS BEEN SHOWN . PREVAS JEWELS IND. NEW YORK RS. 6946814/- NAGRIK SAHAKARI BANK RAJKOT RS. 25010/- SBS RAJKOT DEPOSIT RS. 158153/- AND THEREFORE THE ASSESSING OFFICER FORMED AN OPIN ION THAT INTEREST PAID AND DEBITED IN P&L ACCOUNTS AMOUNTING TO RS.26 21938/- CANNOT BE FULLY ALLOWED. HOWEVER THE ASSESSING OF FICER HAS NOT GIVEN ANY FINDING THAT INTEREST BEARING FUNDS OR BO RROWINGS WERE USED TO MAKE INVESTMENTS IN ABOVE 3 ACCOUNTS. AS P ER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT THE IN TEREST PAID ON BORROWINGS FR BUSINESS ARE ALLOWABLE DEDUCTION. IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BU ILDERS LTD 2388 ITR 1 (SC) ALSO THAT US3E OF FUNDS IF MADE FOR COMM ERCIAL EXPEDIENCY THEN ALSO THE INTEREST IS ALLOWABLE U/S 36(1)(III) OF THE ACT. THE ASSESSING OFFICER HAS NOT PROVED ANY SUCH NEXUS TO SHOW THAT MONEY BORROWED HAS NOT BEEN USED FOR BUSINESS PURPOSE HENCE HIS WHOLE CASE IS DEVOID OF ANY MERIT. THE A SSESSING OFFICER HAS ALSO NOT EXAMINED THE NATURE OF 3 INVESTMENTS. AS FAR AS THE DEPOSIT WITH SBS RAJKOT IS CONCERNED THE APPELLAN T HAS CLEARLY SHOWN INTEREST OF RS.10428/- RECEIVED ON ABOVE DEPO SIT IN P&L ACCOUNTS AND THEREFORE THE ASSESSING OFFICERS FI NDINGS IN THIS REGARD ARE WRONG THAT NO INTEREST HAS BEEN ACCOUNTE D FOR ON ABOVE DEPOSIT. 4.3 FURTHER IN THE CASE OF NAGAIK SAHAKARI BANK RA JKOT IT IS A BUSINESS DEPOSIT AS APPELLANT WAS HAVING ACCOUNT WI TH THE BANK AND IT WAS A MANDATORY REQUIREMENT T TAKE SHARES OF THE BANKS. THE SAID BANK ACCOUNT WAS OPENED TO CARRY OUT BUSINESS ACTIVITIES. AS FAR AS THE RETURN IS CONCERNED IT IS STATED BY THE AR OF THE APPELLANT CUMULATIVE DIVIDEND HAS NOW DECLARED BY THE BANK. IN THE CIRCUMSTANCES ABOVE INVESTMENT IS ALSO CONSIDERED AS BUSINESS EXPEDIENCY AND NO ADVERSE VIEW IS REQUIRED TO BE TA KEN. 4.4 AS IN THE CASE OF PREVAS JEWELS IND. NEW YORK IT WAS EXPLAINED THAT ABOVE COMPANY IS A WHOLLY OWNED SUBS IDIARY OF THE APPELLANT AND INVESTMENT HAS BEEN MADE AS PER GUIDE LINES OF THE R.B.I. MOREOVER ON ABOVE INVESTMENTS THE APPELLA NT IS GETTING PROFIT IN THE BOOKS OF ACCOUNTS WHICH IS BEING EAR NED BY M/S PREVAS JEWELS IND. NEW YORK. THEREFORE IT CANNOT BE SAID THAT THE ITA NO.909/RJT/2010 CO 41/RJT/2010 5 ABOVE INVESTMENTS ARE WITHOUT RETURN. FURTHER THE INVESTMENT HAS BEEN MADE KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY AS UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BU ILDERS LTD 288 ITR 1 (SC). ALL ABOVE FACTS CLEARLY ESTABLISHED TH AT THE ASSESSING OFFICERS FINDING REGARDING ABOVE 3 INVESTMENTS ARE ERRONEOUS AND THEREFORE SAME ARE REQUIRED TO BE HELD INVALID. K EEPING IN VIEW OF ABOVE FACTS IT IS HELD THAT THE NATURE OF INVESTME NTS AND THE RETURN ON THE SAME HAS BEEN PROPERLY EXPLAINED BY THE APPE LLANT AND ALSO THAT INTEREST DEBITED IN THE P&L ACCOUNTS OF RS.262 1938/- IS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS E AND AS SUCH ALLOWABLE UNDER PROVISIONS OF SECTION 36(1)(III) OF THE ACT NO DISALLOWANCE OF INTEREST IS CALLED FOR. THEREFORE THE ADDITION OF RS.998197/- MADE BY THE ASSESSING OFFICER BY DISALL OWING PART OF INTEREST DEBITED IN P&L ACCOUNTS IS HEREBY ORDERED TO BE DELETED. THIS GROUND F APPEAL IS ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US ON BEHALF OF TH E REVENUE SHRI CJ MANIAR APPEARED AND POINTED OUT THAT THE DISALLOWANCE OF P ROPORTIONATE INTEREST OF RS. 9 98 197 WAS RIGHTLY MADE BY THE ASSESSING OFFICER AS THE ASSESSEE HAS GIVEN INTEREST FREE DEPOSIT TO THE THREE PARTIES OUT F IN TEREST BEARING FUNDS. AS AGAINST THIS THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THE NATURE F INVESTMENT AND RETURN ON THE INVESTMENTS HAVE BEEN PROPERLY EXPLAI NED. THE INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT AMOUNTING TO RS.26 21 938 IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS THEREFORE THE SAME IS ALLOWABLE U/S 36(1)(III) OF THE I.T. ACT 1961. IN THE IMPUGNED ORDER THE LD CIT(A) HAS CORRECTLY APPRECIATED THE FACTS THAT THE RATIO OF JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD 288 ITR 1 (SC) IS APPLI CABLE AS THE FUNDS BORROWED ON INTEREST WERE GIVEN TO ALL THE AFORESAID THREE P ARTIES FOR COMMERCIAL EXPEDIENCY. ITA NO.909/RJT/2010 CO 41/RJT/2010 6 7. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER THE LD.CIT(A) HAS DISCUSSED THE COMMERCIAL NECESSITY OF MAKING IN VESTMENT WITH THE AFORESAID THREE PARTIES. IT APPEARS THAT THE ASSESSING OFFIC ER HAS DISALLOWED THE PROPORTIONATE INTEREST OF RS. 9 98 197 O N DOUBTS A ND SUSPICION AND THE LD.CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT TH E INVESTMENTS WERE MADE KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY AS UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS 288 ITR 1 (SC). IN THIS VI EW OF THE MATTER WE ARE INCLINED TO UPHOLD THE ORDER OF LD.CIT(A). 8. THE GROUNDS RAISED IN THE CROSS OBJECTION ARE AS UNDER: 1] THE LEARNED COMMISSIONER OF INCOME TAX [A] ERRE D IN CONFIRMING THE REOPENING THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT. NO INCOME HAS ESCAPED ASSESSMENT AND HENC E REOPENING OF THE ASSESSMENT IS NEITHER JUSTIFIED ON FACTS NOR JUSTIFIED IN LAW. 2] WITHOUT PREJUDICE TO GROUND NO.1 THE ASSESSMENT IS BAD IN LAW IN AS MUCH AS THE ASSESSING OFFICER DID NOT MEE T WITH THE OBJECTIONS RAISED BY LETTER DATED 08/03/2006 AND DI D NOT PASS SPEAKING ORDER (VIDE DECISION F SUPREME COURT IN TH E CASE OF G.K.N. DRIVE SHAFTS (INDIA) LTD V/S ITO [2003] 259 ITR 19 AND THE DECISION OF DELHI HIGH COURT IN THE CASE OF SMT KAMLESH SHAR MA V/S B.L. MEENA ITO [2006] 287 ITR 337. AT THE TIME OF HEARING THE AFORESAID GROUNDS OF CR OSS OBJECTIONS WERE NOT PRESSED. THEREFORE THESE ARE DISMISSED. ITA NO.909/RJT/2010 CO 41/RJT/2010 7 9. RESULTANTLY THE APPEAL OF THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED ON THE DATE AS MENTI ONED ABOVE. SD/- SD/- (A.L. GEHLOT) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT DT : 25 TH NOVEMBER 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-XXI RAJKOT 4. THE CIT-III RAJKOT 5. THE DR I.T.A.T. RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT