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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri S. S. Godara & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This Revenue’s appeal for A.Y. 2005-06, arises from order of the CIT(A)-3, Ahmedabad dated 15-10-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
I.T.A No. 3532 /Ahd/2015 A.Y. 2007-08 Page No 2 ITO vs. Smt. Mrudulaben Harshadbhai
The revenue has raised following grounds of appeal:- “1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.46,91,410/- made on account of disallowance of interest expenditure claimed as cost of acquisition of shares under the head Income from Capital Gain'. 2. The Ld. CIT(A) has erred in law and on facts by relying on the decision of Hon'ble ITAT in the case of CIT vs Shristi Securities (P) Ltd. (183 Taxman 159) (Bom.); as facts of the present case are different. 3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.”
In this case, return of income declaring income of Rs 150583/- was filed on 5th August, 2008. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 1st October, 2009. During the course of assessment proceedings, the assessing officer noticed that assessee has claimed interest expenses of Rs. 46,91,410/- as part of cost of acquisition of share as deduction from the capital gain arose on sale of share. The assessing officer has disallowed the claim of interest expenditure. Aggrieved against the decision of the assessing officer, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has allowed the claim of the assessee by observing as under:- “3. Decision:- I have gone through the observation of the A.O. in assessment order and the findings of the CIT(A) and also the written submission filed by the appellant. It is seen that the Hon'ble IT AT has set aside the issue for decision de novo after verifying the facts as held in case of CIT Vs. Shristi Securities (P) Ltd., 183 Taxman 159 (Bom.) that if funds are borrowed by an investment company for making investment in shares then interest paid on such borrowed funds would be deductible u/s 36(1)(iii) of IT Act. The Appellant has claimed the interest expenditure of Rs. 46,91,410/- on the borrowed funds, which were used and managed by the broker on behalf of the Appellant for making an investment in the shares. The statement showing the complete details of borrowed funds taken and used for the purpose making an investment in equity shares such as Name of Shares, date of allotment , Allotted quantity, Allotment rate] Interest charged by brokers for the use of funds, Total Cost of acquisition along with interest, Details of sale such as sale date, quantity, sale rate, sale consideration received and Profit / Loss on sale etc. has been filed. Further the copies of Loan Account statement obtained from the broker showing the complete details as mentioned in the chart along with bank statement of the appellant showing the repayments of funds made to the broker, during the year only are also submitted in six pages. Also
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the complete details of total Capital Gain / Loss claimed by the Appellant for the year under consideration is also submitted in one page. The appellant being an investor has invested the fund in the shares of various Companies in order to earn dividend. The appellant has borrowed money and immediately thereafter invested shares through I.P.O., which has been verified. The record available clearly establishes the nexus between amount borrowed and investment made in shares is clearly proved beyond doubt and thus the payment of interest should be treated as cost of shares because the borrowed money is wholly and exclusively utilized for the purpose of investment in shares in order to earn dividend. The interest is paid to the lenders only and claimed as cost of the shares of the Companies by the appellant. Thus the ratio laid down is case of CIT Vs. Shristi Securities (P) Ltd., 183 Taxman 159 (Bom.) is clearly applicable to this case having identical facts. I agree with the appellant on contention that the interest is not claimed as any other expenditure but claimed as part of cost of acquisition shares. In view of above facts and in compliance to ITAT's direction, the ratio in the case of CIT Vs. Shristi Securities (P) Ltd., 183 Taxman 159 (Bom.) is found applicable in appellant's case. The addition made by A.O. of Rs.46,91,410/- is hereby deleted.” 4. During the course of appellate proceedings before us, the departmental representative has supported the order of the assessing officer. On the other hand, the ld. counsel contended that assessee has borrowed loan for making investment in the shares on which it has paid interest, therefore, on sale of share, the assessee is entitled for deduction on interest payment as per the ratio laid down in the case of the CIT vs. Shristi Securities Pvt. Ltd. 183 taxmann. 159 (Bombay).
We have heard both the sides and perused the material on record. The ld. CIT(A) has allowed appeal of the assessee after placing reliance on the judicial pronouncement of the Hon’ble High Court of Bombay in the case of Shristi Securities Pvt. Ltd. 183 taxmann 159 (Bombay). We observed that it is undisputed fact that assessee has invested the borrowed fund in the acquisition of share shown as investment. The interest was paid on the aforesaid borrowed fund which was invested in the shares . We have perused the judicial pronouncement of Hon’ble Bombay High Court in the aforesaid case in which it is held that capital expenditure may not be
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allowed as deduction u/s. 37 but there was no bar in section 36(1)(3) to allow interest paid in respect of capital borrowed which has been utilized for purchase of capital asset. The relevant part of the above judicial pronouncement is reproduced as under:- “8. We may also gainfully refer to the judgment of the Calcutta High Court in Commissioner of Income Tax Vs. Rajeeva Lochan Kanoria, 208 ITR 616. The learned Court was considering section 36(i)(iii) and was pleased to observe as under : "The only enquiry that is to be made is whether the payment of interest was in respect of capital borrowed for the purpose of the assessee's business or profession. (-10-) There is no dispute that the capital was borrowed in the instant case and interest was paid on the borrowed capital. It is to be established that the amount was borrowed for the purpose of business or profession. The amount borrowed may be utilized for the purpose of acquisition of stock in trade or for the purpose of acquisition of capital assets. But so long as the money is utilised for business purposes the interest will have to be allowed as deduction. It is well settled that business expenditure is not confirmed to expenses incurred on revenue account. Capital expenditure may not be allowed as a deduction under section 37 because the section specifically bars any deduction of expenditure of capital nature. But section 36 is differently worded. There is no bar in section 36(i)(iii) to allowance of interest paid in respect of capital borrowed which has been utilised for purchase of a capital asset. The position of law in this regard was explained by the Supreme Court in the cases of India Cements Ltd. Vs. CIT (1966) 60 ITR 52 and State of Madras Vs. G.J. Coelhi (1964) 53 ITR 186." (-11-) 9. Considering these judgments and the test that the object of the loan is irrelevant, the interest which was disallowed to the extent of investment will have to be allowed as held by the Tribunal. 10. In so far as question (d) is concerned, as noted the A.O. and C.I.T. (A) proceeded on a wrong assumption of facts, namely that the amounts continued to be shown as investment, without considering that in the subsequent balance sheets, the shares were shown as in stock in trade.” In view of the above facts and legal findings, we do not find any reason to interfere in the decision of ld. CIT(A), therefore, the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 09-10-2017
Sd/- Sd/- (S.S. GODARA) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 09/10/2017
I.T.A No. 3532 /Ahd/2015 A.Y. 2007-08 Page No 5 ITO vs. Smt. Mrudulaben Harshadbhai
आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद