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Income Tax Appellate Tribunal, ‘D’ BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
Shri S.S. Viswanethra Ravi, JM :-
This appeal by the Assessee is against the order dt: 20- 03-2015 passed by the Commissioner of Income Tax (Appeals), 3, Kolkata for the assessment year 2011-12.
In this appeal the assessee has raised the following grounds of appeal:- 1. The orders passed by the lower authorities are arbitrary, erroneous, without proper reasonings, invalid and bad in law, to the extent to which they are prejudicial to the interests of the appellant. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in sustaining the disallowance of loss of Rs.2,70,000/- from speculation business. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in sustaining the order of the A.O in rejecting the claim of the appellant for treatment of interest income as business income and in confirming the treatment of the same as income from other sources.
ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
The appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.
Ground no.1 raised by the assessee is general in nature. Therefore, it needs no adjudication.
Ground no.2 is relating to sustenance of disallowance of loss of Rs.2,70,00,000/- from speculation business.
The facts relating to this issue are that the assessee on receiving invitation from the promoters, M/s. GCS Chemicals Pvt. Ltd to invest in the realty business was allotted 6,00,000/- shares, which was purchased at a premium of Rs.40/- per share being face value of Rs.10/- per share on 27/3, 29/3 and 30/03/2010. Due to some reason said GCS Chemicals abandoned the venturing into the real estate and immediately decided to sell off the shares. Accordingly, the assessee sold the said 6,00,000 shares to three group companies of M/s. GCS Chemicals P.Ltd, M/s. Sudhir Credit Pvt. Ltd, Navnita Tradefin Pvt. Ltd and M/s. Ridhima Holdings Pvt. Ltd at a total consideration of Rs.30,00,000/-. Thereby according to assessee that it had suffered loss to the tune of Rs.2,70,00,000/- and carried forward the same to succeeding assessment year for the purpose of setting off the same against speculation profit. The AO disallowed the same alleging the same to be bogus and to that effect an order u/s. 143(3) of the Act was passed on 27- 01-2014.
The CIT-A confirmed the view of the AO in denying the claim of carry forward the loss by the assessee.
ITA No. 724/Kol/15 M/s. Sudera Services Pvt.Ltd
Before us the ld.AR submits as under:-
The Ld.AR submits that both the purchase and sale of shares of M/s. GCS Chemicals Pvt. Ltd. are duly supported by adequate documentary evidences and drew our attention to the copy of relevant bank statement of the assessee company for the relevant period as enclosed at page nos. 1-9 of the Paper book which evidences the fact that both the purchase and sale of shares of M/s. GCS Chemicals Pvt. Ltd. has been effected through account payee cheques. Further In support of the genuineness of the aforesaid transactions of purchase and sale of shares our attention is further invited to relevant copies of Share Application Form, Allotment letter and copies of sale bill as enclosed at page nos. 10-16 of the Paper book and argued that there is no restriction in the Income Tax Act that sale of shares cannot be effected with a group company or that in every case where sale of shares has been made to group companies.
In this regard, the Ld.AR placed reliance on a decision of the Hon'ble Gujarat High Court in the case of Biraj Investment Pvt. Ltd., Tax Appeal No. 260 of 2000. The Hon 'ble High Court held as under:
"17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company....... ... ... ... ... ... Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares.... ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
In the case of Commissioner of Income Tax v. Sakarlal Balabhai, 69ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift in come from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of the decision in the case of Me Do well & Company Ltd (supra)."
The LD.AR argued that it is evident that assessee's case is on an even better footing since sale has not been made to assessee's group company. In the instant case, GCS Chemicals Pvt. Ltd. and its group companies are not related to the assessee and hence, it cannot be said that the assessee derived any benefit from the said transactions and Further, submitted that even the CIT-A has accepted the above contention. The Ld.AR argues that it is apparent that the observation of the CIT-A is itself contradictory. On one hand he is accepting the assessee's contention that shares may be sold to any person and that too at a loss at the will of the holder of shares, yet, on the other hand he is holding that the transaction of purchase and sale of shares of M/s. GCS Chemicals Pvt. Ltd. leading to loss is bogus. Further, that the assessee by entering into the above transaction of purchase and sale of shares has not derived any tax benefit neither in the relevant assessment year nor in subsequent assessment years.
Our attention is invited to the Schedule of "Details of Losses to be carried forward to future years" as contained in the Income Tax return for the relevant A.Y.2011-12, copy of ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
which is enclosed at page nos. 56-86 of the Paper book and that speculation loss to the tune of Rs.2,70,00,000/- belonging to the current year has been carried forward to succeeding assessment year for the purpose of setting off the same against speculation income. Again, in the succeeding assessment year, the assessee has not claimed any set off of the above-said loss owing to the fact that there was no profit from speculation business in that year. Reference is invited to copy of Income Tax Return for the succeeding A.Y.2012-13, copy of which is enclosed at page nos. 88-132 of the Paper book. The Ld.AR submits that the perusal of the relevant schedule depicting the details of carry forward of losses to future years reveals that the above claim of speculation loss which has been carried forward from relevant assessment year has been further carried forward to next assessment year i.e. A.Y. 2013-14.
The Ld.AR submits that the assessee company was amalgamated with M/s. ABL International Ltd. (presently known as Sudera Realty Pvt. Ltd.) w.e.f. 01/04/2012. In the scheme of amalgamation, the said loss was not carried forward and as a result the same got lapsed. Copy of the scheme of amalgamation of the assessee company with Mls.ABL International Ltd. enclosed at page nos. 195-219 of the Paper book. The Ld.AR argued that there was no ulterior motive behind entering into the alleged transaction of purchase and sale of shares of M/s. GCS Chemicals Pvt. Ltd., as claimed by the AO and the CIT-A and submits that it cannot be inferred that the claim of speculation loss as a result of the aforesaid transactions of purchase and sale of shares is bogus.
ITA No. 724/Kol/15 M/s. Sudera Services Pvt.Ltd
In this regard placed reliance on the decision of the Hon’ble High Court of Calcutta in the case of CIT v. Lakshmangarh Estate & Trading Co. Ltd. reported in (2014) 220 Taxman 122 (Mag.)(Cal.)(HC). “In the said case, the assessee had purchased shares of Hindustan Development Corporation Ltd. from two sellers, one of them was a seam tainted company. The assessee sold the shares at a loss of Rs. 4,50,04,414 to one of its group companies. The aforesaid loss was sought to be set off against the long term capital gains. The AO disallowed the claim of setting off. On appeal, the CIT(A) held that the purchase of the shares was genuine, but the sale was a colourable transaction considering the fact that the assessee purchased the same scrip after sometime and the sale to the group company was financed by the assessee himself. He therefore upheld the order of the AD. On second appeal, the Tribunal had given the findings of fact that the transaction of purchase and sale was supported by contract notes and bills. Both the sale and purchase took place at the prevalent market rate and payments were made by account payee cheques. These transactions were duly confirmed not only by the brokers, but also by the Inspector appointed by the AÓ. Furthermore, the alleged financing by the seller for purchase of the shares was an insignificant part of the total purchase price. The total purchase price was Rs. 18.99 crore, whereas the financing was restricted to Rs. 2.60 crore on interest on commercial rates. The Tribunal held that both the sale and purchase of shares were genuine transactions. The High Court held that basis of suspicion, howsoever strong, it is not possible to record any finding of fact. As a matter of fact, suspicion can never take the place of proof The finding arrived at by the Tribunal that both the sale and purchase were genuine transactions was not even alleged by the revenue to have not been based on evidence. Since the finding of the Tribunal was factually correct, the Tribunal had no option but to direct the AO to give the benefit of the losses suffered by the assessee, which he had disallowed. The appeal did not raise any question of law and was therefore not to be admitted. (A Y. 1995-96). “
The Ld.AR argued that in view of the fact both the AO as well the CIT-A have failed to bring on record any conclusive motive behind the acquisition and sale of shares of M/s. GCS Chemicals Pvt. Ltd., it is abundantly clear that there is no infirmity in the claim of the assessee of the resultant loss arising from the said transactions. In the instant case, the assessee has neither adjusted the alleged loss in the relevant assessment nor in the succeeding A.Y. 2012-13 and finally pursuant to the amalgamation of the assessee company with M/s. ABL International Ltd. (presently known as Sudera Realty
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M/s. Sudera Services Pvt.Ltd
Pvt. Ltd.) w.e.f. 01/04/2012, the same got lapsed. Therefore, it is clear that there was no ulterior motive of the assessee behind entering into the above transaction of purchase and sale of shares of G.C.S Chemicals. The Ld.AR urged that the assessee having established the genuineness of the aforesaid transaction of purchase and sale of shares and both the AO and the CIT-A having failed utterly in proving their stand, the assessee's claim for carry forward of speculation loss to the tune of Rs.2,70,00,000/- may kindly be allowed and the addition made in this regard may be deleted.
The ld.DR submits that the CIT-A has given valid reasons in upholding the order of the AO and argued that the purchase of 6,00,000 shares in the month of March, 2010 and selling the same on very next month i.e April 2010 for Rs.5/- per share to those companies belonging to M/s. GCS Chemicals to show the loss and to avoid taxes thereon. He referred to pages 22-29 of the paper book and argued that all the better things about the business were shown. The ld.DR relied on the orders of the authorities. He also pointed out that the assessee could not show any transaction or negotiation said to have been held in abandoning the idea of real estate business.
We have heard the rival submissions and perused the material on record. The main issue in the present appeal is with respect to the loss on sale of shares of GCS Chemicals Private limited. It is an undisputed fact that the assessee had sold the shares of a Private Limited and is not listed on the stock exchange. The AO doubted the transaction for the sale & purchase of shares by observing that the assessee held the shares for a short time and these were sold to the associated parties. Commissioner of Income-tax (Appeals) also confirmed the same. However on perusal of ITA No. 724/Kol/15 M/s. Sudera Services Pvt.Ltd
records we find that the lower authorities have not pointed out any defect in the documents for the purchase & sale of shares. The shares were sold to other companies which are separate legal entities and the consideration of the same was received by the assessee from the seller through banking channels. The lower authorities have denied the claim of the assessee for the impugned loss on the ground that no prudent business man will indulge in the impugned loss. However we find that in the similar facts & circumstances the Hon'ble apex court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) held that the transaction of sale of shares in the present case cannot be considered as a sham or a device to void tax.
“An act which is otherwise valid in law cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests; not only is the principle in Duke of Westminster alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell.”
Further, The Hon’ble High Court of Gujarat in the case of Astt. CIT (Appeals) Vs. Biraj Investment Pvt. Ltd reported in Tax Appeal No. 260 of 200 dated 07-08-2012, relevant paras of finding are reproduced herein below:- 17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to lDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms, As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDB[ is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of Commissioner of lncome Tax v. Sakarlal Balabhai, 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 18. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bacbao Andolan (supra)and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell & Company Ltd (supra).
We also find pertinent to note that the assessee in the instant case was amalgamated in the subsequent year w.e.f. 1.4.2012 and in the scheme of amalgamation the impugned loss was not carried forward. Thus the impugned loss got lapsed and in these facts & circumstances it cannot be inferred that the assessee had mala-fide intention to escape from the tax liability by incurring the impugned loss. In holding so we find support from the judgment of Hon’ble Delhi High Court in the case of CIT Vs. Gillette Diversified Operations Private Ltd. reported in 324 ITR 226 wherein it was held as under :
“As noted by the CIT(A) as well as by the Tribunal, shares in question were held by the assessee company for more than three years before they were sold. The assessee company was very much entitled in law to sell the shares held by it at any time, which it considered to be appropriate for such sale. It is for the holder of the shares and not for the Revenue to decide, when to sell the shares held by it. The CIT(A) was of the view that there was no necessity to sell the shares as the assessee itself had received back share application money or advance for shares from GGIPL/WISL/GDOPL and the sale proceeds were used to reduce liabilities prior to amalgamation of assessee with GDOPL. He was also influenced by the fact that the sale proceeds were used to repay outstanding liability of GGIPL which was a group company. If the sale of shares was not illegal, it could have been made to any one, including a group company. It is immaterial that the purpose of sale of shares was to reduce the outstanding liabilities of the assessee company. There was nothing illegal in the assessee company selling shares held by it, for the purpose of reducing its liabilities. It is also absolutely immaterial that the liabilities of the assessee company were towards group companies. Similarly, it is also immaterial that the shares sold by the assessee company were of another group company. It is also immaterial as to who the purchaser of the shares was, so long as the shares are not sold at a price which was higher or lower than their fair price and there was no restriction on sale of such shares to a group company. All these factors could have been relevant had the Tribunal found that the transactions undertaken by the assessee company were a colourable device with a view to cause a loss to the Revenue. As noted by the Tribunal, neither the assessee company nor the amalgamated company ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
adjusted the capital loss on account of sale of these shares against any long-term capital gain even till the asst. yr. 2002-03. No tax benefit was, therefore, obtained by the assessee company for at least two years after the capital loss was booked by it. Hence, it cannot be said that the transactions in question were a colourable device, meant to gain some unfair tax advantage.”
The Hon’ble Calcutta High Court in the similar facts & circumstances has decided the issue in favour of assessee in the case of CIT Vs. Lakshmangarh & Trading Co. Ltd. reported in 220 taxman 122 wherein it was held as under :
“6. On the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact, suspicion can never take the place of proof. What were the individual facts and circumstances in the case of other investors indicated in the chart appearing at Page-51 of the paper book are not known to us. In so far as the assessee is concerned, the facts and circumstances are before us which we have also tabulated. The finding arrived at by the Tribunal indicated above was not even alleged by Mr. Dutta to have not been based on evidence. In the teeth of the aforesaid findings made by the Tribunal on the basis of evidence, it is difficult, if not impossible, to hold that the transaction of buying and selling of shares of Hindustan Development Corporation Ltd. was a colourable transaction or was resorted to with any ulterior motive of reducing the tax payable for long term capital gain. The first ground of appeal is regarding perversity of the judgment of the learned Tribunal. Mr. Dutta did not cite one example to show that the judgment of the learned Tribunal is not based on evidence.”
Before us, the learned Departmental representative could not controvert the arguments of the ld. Commissioner of Income-tax (Appeals) by bringing any contrary material on record. In view of the aforesaid facts, we reverse the order of lower authorities. Thus this ground of the Assessee is allowed.
Ground no.3 is relating to confirmation of disallowance made by the AO on account of interest income under the head ‘income from other sources’.
During the course of assessment proceedings the AO found that the assessee earned interest income of Rs.45,02,913/- and incurred expenditure of Rs.38,72,441/- in earning such interest and claimed the said interest expenditure under the head ‘business income’. According to AO, the assessee mentioned it as business as trader in shares as investment in the tax audit report. Basing on which, the finding of assessee is not the ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
business of granting of loans and advances and treated the interest income as earned as business income and treated the same as income from other sources and disallowed the same.
The CIT-A upheld the finding of the AO.
Before us the ld.AR of the assessee submits as under:-
“3.4 In regard to the above, the assessee would like to first submit that in the tax audit report only the name of the principal business of the company is mentioned, which is trading in shares and investment in case of the assessee concerned. Apart from the primary business activity no other business activities are mentioned in the tax audit report and hence, that cannot be a determinative factor for considering whether the granting of loans and advances, which is mentioned in the Memorandum of Association of the assessee company, is one of the business activities of the assessee or not. 3.5. Further, the allegation of the AO as well as the Ld.CIT CA) that granting of loans and advances not being included in the main objects of the memorandum of the assessee company, the interest income earned and interest expenditure incurred during the relevant year from such activity cannot be treated under the head "Income from Business", is totally illogical and unjustified. The fact that granting of loans and advances is mentioned under "incidental or ancillary objects" as contained in the Memorandum of Association, has nothing to do with the assessee's contention that it is also engaged in the business of granting of loans and advances in addition to trading in shares and debentures. It is a common fact that as per the Companies Act, 1956, an assessee is entitled to carry on any business whic h is either mentioned in the main objects or in the ancillary objects, as contained in the Memorandum of Association of the company. 3.6. However, even otherwise, it is relevant to note here that the fact that granting of loans and advances is one of the business activities of the assessee, is also mentioned in the main objects of the Memorandum of Association of the assessee company. Attention here is invited to relevant clause 7 of the main objects, as contained in the Memorandum, copy of which is enclosed at page nos. 169- 194 of the P/b. The said clause reads as under: "7. To invest and deal with the moneys of the company in such manner as may be determined from time to time and to borrow or raise money with or without security and/or by the issue or sale of any bonds, mortgages, debentures or debenture-stock of the company, whether perpetual or otherwise, and to devote any money so raised to any of the objects of the Company and to provide finance whether by making loans or otherwise upon such terms as may be arranged. " Thus, perusal of the above clause clearly affirms the said fact. 3.7. Having stated as above, the assessee would further like to invite attention to the fact that similar treatment of interest income has been adopted by the assessee in the preceding assessment year 2010-11 and the same has also been accepted by the Department in that year.
Reference here is invited to the computation of total income along with copy of accounts of the assessee-company for the A.Y. 2010-11, as enclosed at page nos. 151-162 of the P/b. Further, copy of IT Acknowledgement for the A. Y. 2010-11 and copy of intimation u/s.143(1) for the same year are also enclosed in this regard at page nos. 163-167 of the P/b. ITA No. 724/Kol/15
M/s. Sudera Services Pvt.Ltd
Perusal of the aforementioned documents affirm the fact that similar treatment of interest income earned from the business of granting loans and advances was accepted as such in the preceding Assessment year 2010-11.
3.8. Therefore, different treatment of interest income in the current assessment year is not called for when there is no change in the facts of the present case in comparison to the earlier year, as far as this issue is concerned. 3.9. Reliance here is placed on the decision of the Apex Court in the case of Radhasoami Satsang v. Commissioner of Income-tax reported in 193 ITR 0321.
In the said case the Hon'ble Apex Court held as under:
"That in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assesseeappellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year "
3.10. Further, reliance is placed on the decision of the Hon 'ble Apex Court in the case of Commissioner of Income Tax vs. J.K. Charitable Trust reported in 15 DTR (SC) 41 wherein it was held that "Revenue having not filed any appeal in other assessment years, it is precluded from filing appeals in the relevant assessment years involving identical fact situation. In this case, it is accepted by the counsel for the Revenue that the fact situation in all the assessment years is same. According to him, if the fact situation changes then the Revenue can certainly prefer an appeal notwithstanding the fact that for some years no appeal was preferred. "
3.11. Again, in the case of Bharat Sanchar Nigam Ltd. v. Union of India reported in 201 CTR 346, the Hon 'ble Supreme Court pronounced the judgment that where the facts and law in a subsequent assessment year are the same no authority whether quasi judicial or judicial can generally be permitted to take a different view.
It was held that "Res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or precedential value of the earlier pronouncement. Where the facts and law in a subsequent assessment year are the same, no authority whether quasi- judicial or judicial can generally be permitted to take a different view. "
3.12. Thus, what appears from above is that even though res judicata does not apply to income-tax proceedings, but, each assessment year being a unit, where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and partie s have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or precedential value of the earlier pronouncement. Therefore, where the facts and law in a subsequent ITA No. 724/Kol/15
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assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. 3.13. Finally, in view of the above, it is concluded that the assessee has produced sufficient materials establishing the fact that granting of loans and advances is one of the business activities of the assessee and as such, the interest income earned from such activity is rightfully taxable as "business income". In this regard, it is to be noted that the fact that during the relevant year the assessee earned interest income from two parties and that the loans were squared up during the relevant financial year itself, will not have any adverse effect in the treatment of the interest income as business income. It is already stated above that the Department has accepted similar treatment of interest income in the preceding Assessment year 2010-11 and as such, on identical set of facts and law, the AD cannot take a different view to the view already taken.
On the other hand, the ld. DR relied on the orders of the authorities below.
We have heard the rival submissions and perused the material on record. The main issue in the present appeal is with respect to the treatment of interest income as income from other sources. The AO has treated the interest income which was shown by the assessee from the source business as income from other sources which was subsequently confirmed by the ld. CIT-A. However on perusal of the memorandum of association of the assessee we find that the financing activity is covered in 7 of the main object which reads as under :
"7. To invest and deal with the moneys of the company in such manner as may be determined from time to time and to borrow or raise money with or without security and/or by the issue or sale of any bonds, mortgages, debentures or debenture-stock of the company, whether perpetual or otherwise, and to devote any money so raised to any of the objects of the Company and to provide finance whether by making loans or otherwise upon such terms as may be arranged. "
Besides the above we also find that in the immediate preceding assessment year 2010-11 Revenue has accepted interest income as income from the source of the business. Therefore it cannot be inferred from the tax audit report that the assessee is not engaged in the business of granting of loans. We also observe that there is no change in the facts and circumstances in the business of the assessee with that of the earlier AY 2010-11, thus the instant issue of the assessee is squarely goes in favour of assessee. In this connection we find support from the judgment ITA No. 724/Kol/15
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of the Honourable Supreme Court in the case of Radhasoami Satsang Vs. CIT reported in 193 ITR 321 where in it was held as under :
"That in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year "
In view of above we are inclined to conclude that the assessee is engaged in the business of granting of loans and advances apart from other activities. Therefore the income of interest from such activity is eligible for the taxation purposes under the head as Business Income. The character of interest income cannot be changed even the loans on which interest income was earned were squared up in the year under consideration. In view of the aforesaid facts, we reverse the order of lower authorities. Thus this ground of the Assessee is allowed.
In the result, the appeal of the assessee is allowed. ORDER PRONOUNCED IN OPEN COURT ON 19-04-2017
Sd/- Sd/- Waseem Ahmed S.S. Viswanethra Ravi Accountant Member Judicial Member Dated 19 -04-2017
“
*PP/SPS: Copy of the order forwarded to:
ITA No. 724/Kol/15
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The Appellant/Assessee:M/s. Sudera Services Pvt. Ltd 1 Shakespeare Sarani, Kolkata-700 071. 2 The Respondent/Department: The ITO W 8(4), Kolkata
3 The CIT(A) The CIT 4. DR, Kolkata Bench 5.
Guard file. By Order, Asstt. Registrar
ITA No. 724/Kol/15 M/s. Sudera Services Pvt.Ltd