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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 482/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 482/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke M/s Shantikripa Industries Limited, The ITO, Vs. Parasrampuria Chamber, Ward- 4(3), Opp. Road No. 1, VKI Area, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 6656 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Shri Anoop Singh (ACIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/02/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/02/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 15.03.2018 of the ld. CIT (A), Jaipur for A.Y. 2012-13. The assessee has raised the following grounds:- “
1. In the facts and circumstances of the case the learned CIT(Appeals), Jaipur has erred in confirming the additions of Rs. 36,06,057/- on account of interest received from the parties by not considering the submissions of the assessee.
2. In the facts and circumstances of the case the learned CIT(Appeals), Jaipur has erred in confirming the additions of Rs. 11,55,243/- by way of disallowing interest expenditure incurred M/S Shantikripa Industries Ltd. vs. ITO for earning of the interest income on whims and surmises and ignoring the details of expenses submitted by the assessee. 3. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”
2. Ground no. 1 is regarding the addition on account of interest from M/s Neelkamal Graini Marmo Pvt. Ltd. During course of assessment proceedings, the AO noted in form 26AS details that assessee has received interest income of Rs. 51,62,866/- from various parties which including Rs. 36,06,057/- from M/s Neelkamal Graini Marmo Pvt. Ltd. Accordingly, the AO proposed to make the addition of the said interest income to the total income of the assessee. In response, the assessee submitted that the alleged interest was not received by the assessee during the year and even the assessee was suspecting the receipt of any interest as well as repayment of loan was also doubtful from this party. The assessee contended that since this party did not pay interest during the year under consideration and also not deposited TDS till the date of filing of the return of income, therefore, the assessee did not consider this amount in the total income of the assessee. The AO did not accept this contention and made the addition of the said amount to the total income of the assessee being interest income accrued during the year under consideration. On 2 M/S Shantikripa Industries Ltd. vs. ITO appeal, the assessee has reiterated its contention that the income has to be assessed to tax only when it is real income and not the paper income. The ld. CIT(A) did not accept this contention and confirmed the addition made by the AO.
3. Before us, the ld. AR of the assessee has submitted that the assessee filed its return of income on 29.09.2012 and till that date the other party has neither paid interest nor deposited the TDS and therefore, it was also not reflected in the form 26AS as on the date of filing of the return of income. Since, the assessee was suspecting the default of payment of interest as well as of loan amount from this party, therefore, the assessee did not consider this amount of interest as income for the year under consideration. The ld. AR has referred to in form 26AS statement and submitted that the TDS deducted by this party is reflected only on 01.10.2012 whereas the assessee filed its return of income on 29.09.2012 therefore, as on the date of filing of return there was no such entry in form 26AS. He has further pointed out that the assessee has offered the said interest amount for the assessment year i.e. 2013-14 and also paid the tax. Hence, it is a case of double taxation of the same income once, for the year under consideration and then it was offered to tax in the subsequent M/S Shantikripa Industries Ltd. vs. ITO assessment year. The ld. AR has referred loan account of this party and submitted that the assessee able to recover the back some loan amount from this party and therefore, the non in conclusion of the interest is a prudent business decision of the assessee. Even otherwise there is no Revenue effect when the assessee has offered this amount to tax in the subsequent year. The ld. AR has pointed that since this TDS was reflected in form 26AS after filing of the return of income, therefore, the assessee has not claimed credit of the TDS deducted by the other parties. Thus, the ld. AR has submitted that the addition made by the AO may be deleted.
On the other hand, ld. DR has submitted that the assessee is undisputedly following the mercantile system of accounting and therefore, the interest income has to be assessed to tax on accrual basis and not receipt basis. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The grievance of the assessee is that the AO has assessed the interest income of Rs. 36,06,057/- for the year under consideration whereas the assessee has already offered this income in the subsequent year after the said amount was knowledge by the other M/S Shantikripa Industries Ltd. vs. ITO parties by depositing in the TDS on 01.10.2012. We find that as per 26AS statement the TDS of Rs. 3,60,606/- was booked by M/s Neelkamal Graini Marmo Pvt. Ltd. on 01.10.2012 whereas the assessee filed its return of income on 29.09.2012. If the TDS would have been booked by the other party prior to the filing of the return of income then the said amount of interest would have been necessarily be part of the income of the assessee. The assessee had furnished the explanation for not considering this amount in the total income and we find that the explanation of the assessee is correct that during the year under consideration the assessee has not received the said amount of Rs. 36,06,057/- from M/s Neelkamal Graini Marmo Pvt. Ltd. Even the TDS was booked as per 26AS only on 01.10.2012 after the date of filing the return of income by the assessee. Therefore, all these facts and circumstances of the case lead to a bonafide belief on the part of the assessee that the other party might default in making the interest as well as refund of loan amount. After the said TDS deposited by the other party the assessee has claimed to have offered the same to tax for the assessment year 2013-14 and also claimed that the assessee has paid the tax on the said income at the maximum marginal rate. It is pertinent to note that the return of income for the assessment year M/S Shantikripa Industries Ltd. vs. ITO 2013-14 was filed much prior to the scrutiny assessment taken up for year under consideration therefore, it cannot be said that the offering of the income in the subsequent year is an afterthought or device to avoid tax. Once, the assessee has paid the tax on the same income in the subsequent year and then it will be a double tax when the Assessing Officer has also taxed the same income for the year under consideration. Since, the assessment year 2013-14 was not taken up for scrutiny therefore, to avoid the double tax on the same income we direct the AO to verify the fact whether this income was offered to tax in the subsequent assessment year i.e. 2013-14 and if found correct then the same income cannot be tax twice. Consequently in case the income is already offered to tax in the subsequent year then the addition made by the AO is liable to be deleted. The issue is set aside to the record of the AO for limited purposes of verifying the fact whether this income is offer to tax.
Ground no. 2 is regarding disallowance of interest paid on share application money received by the assessee. During the year under consideration, the assessee company claim interest expenses of Rs. 11,55,243/-. The AO noted that no unsecured loans have been shown by the assessee in the balance sheet but the interest was paid on the M/S Shantikripa Industries Ltd. vs. ITO share application money received by the assessee. Accordingly, the AO made disallowance of the claim of interest expenses of Rs. 11,55,243/- as not allowable being business expenditure. On appeal, the assessee contended that this was received by the assessee as deposited as the company is not permitted to keep the share application money in its account but has to deposit the same in the Escrow Account. Further, once the share application money was used for the business purpose and was earned the income which has been disclosed in the return of income then, the interest expenditure on such money is an allowable claim. The ld. CIT(A) did not accept the contention of the assessee and held that interest paid on share application money is not allowed U/s 36(1)(iii) as well as U/s 37(1) of the Act.
Before us, the ld. AR of the assessee has submitted that the assessee has paid interest on the share application money till the date of allotment of shares. The said money was utilized by the assessee for business purpose and earned income including interest income. Further, once, the assessee has utilized the share application money for business purpose being working capital then the interest paid on such money is allowable claim. In support his contentions, he has relied upon the decision of Delhi Benches of the Tribunal in case of ITO vs. M/s M/S Shantikripa Industries Ltd. vs. ITO Panchkula Finvest Pvt. Ltd. dated 17.10.2017 in ITA No. 2709/DEL/2017. Thus, the ld. AR submitted that once the said share application money was used by the assessee for the business purposes then the interest paid on the same is an allowable deduction.
On the other hand, ld. DR has submitted that there is no dispute that the assessee has paid interest on the share application money which is not allowable U/s 36(1)(iii) or U/s 37(1) of the Act. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute that the share application money received by the assessee does not belong to the assessee till the shares are allotted against the same. Therefore, any interest paid on the share application money will be part of the cost of the share capital received by the assessee at the time of final allotment of share.
However the assessee has claimed that the share application money was used by the assessee for business purposes and particularly used as work capital of the assessee and also earned income which was offered to tax during the year under consideration. Therefore, in case the said share application money was used by the assessee for earning the income then, to the extent of the income earned by the assessee, M/S Shantikripa Industries Ltd. vs. ITO the same can be set off against the interest paid by the assessee on the said amount. We further note that the assessee earned interest income during the year under consideration but in case the said share application money was also used for granting loan for earning interest then the interest expenditure can be set off against interest income earned on the said amount of share application money. The Delhi Benches of the Tribuanl in case of ITO vs. M/s Panchkula Finvest Pvt. Ltd.(supra) has considered this issue in para 12 to 16 reproduced as under:-
“c) On merit,s it is observed that assessee is an investor company and making investment and receiving interest is the main business of the assessee Company. From Page No-19 and 20 of the PB, it is observed that the assessee has received total interest of Rs 1.58 Crore during the year under consideration and the same has been taxed under the head business income. And an amount of Rs 73,95,209/- is attributed to the investment received from M/s Conquer. Therefore, the purpose of receiving share application money and payment of interest is apparent from the financial and audited account of the assessee, which was very much before the AO. CIT(A) has categorically recorded that the interest has been paid on the basis of clause 4 of the agreement dated 25.05.2010, which fact is not refuted by the ld. DR. d) It is further observed that in the case of Core health reported in 298 ITR 194(SC) Hon’ble Supreme Court has categorically held that interest paid on borrowed capital is allowable under section 36(1)(iii) of the Act and it does not make any difference as to whether the expenses has been incurred in capital filed or revenue filed. It is also a settled position of law that it is 9 M/S Shantikripa Industries Ltd. vs. ITO prerogative of a businessman to conduct his business in his own way and the revenue authorities cannot sit in the arm chair of an assessee as held in S.A. Builder 288 ITR 1(SC). e) Further, the case of the assessee is squarely covered by the judgment of Global Capital reported in 117 ITD 251(Del) wherein the coordinate Bench observed as under:- “On a careful consideration of the matter, we are of the view that the assessee is entitled to succeed and the disallowance of the interest is to be deleted. There is no dispute that the assessee is engaged in the business of purchase and sale of shares and securities, inter alia. In fact, during the year the assessee has purchased shares for Rs. 7,23,09,110 and sold shares for Rs. 51,47,445 as shown in the P&L a/c at p. 67 of the paper book. Similar figures for the earlier year amount to Rs. 81,51,447 and Rs. 77,00,000 respectively. In addition to these figures, the assessee has also separately credited profit of Rs. 10,15,144 on trading of shares in the P&L a/c for the year. In the course of the assessment proceedings, the assessee wrote a letter on 20th Feb., 2002 to the AO stating that the source of investment in Strong was the debenture monies received from Apollo amounting to Rs. 10 crores. The photocopy of the ledger account of Union Bank of India in the assessee’s books was also filed along with the letter and the entry made therein has already been extracted earlier. The entry constitutes contemporaneous evidence of the fact that the amount of Rs. 10 crores was invested in Strong as share application monies for purchase of 12 per cent non-cumulative redeemable preference shares. In the light of the contemporaneous entry made in the books of account maintained by the assessee in the regular course, which have not been rejected by the AO, it is not possible to hold that the advancement of the monies to Strong was not for the purpose of assessee’s business. The letter dt. 15th March, 2002 written by the assessee to the AO shows that there was a condition that if the shares were not allotted, the monies will be returned by Strong together with interest at 12 per cent. The AO has not 10 M/S Shantikripa Industries Ltd. vs. ITO questioned this statement of the assessee made in writing. In fact, it does appears to us reasonable to infer that since the shares were to be issued with a dividend rate of 12 per cent as shown by the entry in the assessee’s books of account, the return of the monies if the shares are not allotted would also have been agreed to by the parties to bear interest at the same rate. The assessee has actually credited the interest of Rs. 38,79,452 in its books of account. We are, therefore of the view that all the three conditions prescribed in s. 36(1)(iii) have been satisfied in the present case and, therefore, the interest paid by the assessee has to be allowed in full without any disallowance. We are unable to uphold the view taken by the Departmental authorities that the assessee and Strong had entered into a tax avoidance agreement to facilitate the assessee to reduce or avoid its tax liability by booking a notional loss. We, therefore, delete the disallowance of Rs. 3,26,027 and allow the ground. f) When the facts of the assessee’s case are read in juxtaposition with the facts of Global (Supra) then it is implicit that the issue involved in the case of the assessee squarely covered by the judgment of Global and hence no different view is permissible. Ld DR has relied on the judgment of Dignity reported in 96 ITD 296, it is observed that in that case the Mumbai Bench of the ITAT has observed that there was no agreement between the investor and the recipient Company and in this back drop the Mumbai Bench has disallowed the claim of the assessee in that case. Otherwise that case also supports the case of the assessee.”
Accordingly, the claim of the assessee depends on the facts whether the share application money was actually used by the assessee for the business purpose for earning interest then, the claim of interest is allowable to the extent of the income earned by the assessee by using M/S Shantikripa Industries Ltd. vs. ITO the said money. Hence, we set aside this issue to the record of the AO for proper verification of the relevant facts regarding utilization of share application money by the assessee for the business and earning of any income thereof. The AO after verification of the relevant facts shall decide the claim in light of the above observation. Needless to say the assessee be given an appropriate opportunity of hearing before passing the fresh order on this issue.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 26/02/2019. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 26/02/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Shantikripa Industries limited, Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-4(3), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 482/JP/2018} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत 12