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TMI Blog2010 (5) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled up to appellate stage and the question involve in the present assessment year is the same as of those years now it is not open for this court to enter into illegality committed by the appellate authority or Tribunal and the appeal is not maintainable ?" Facts 2. The dispute relates to the assessment year 1996-97. The assessee filed her return of income on August 13, 1996, disclosing net loss of Rs. 17,38,311. Notice under section 143(2) of the Income-tax Act, 1961, (in short "the Act') was issued on October 8, 1996. Notice under section 142(1) of the Act was issued on October 31, 1996. These notices were served upon the respondent assessee on October 10, 1996 and October 11, 1996 respectively. 3. After service of notice aforesaid, the assessee filed a revised return on March 31, 1998, reducing the loss to the tune of Rs. 30,56,670. In consequence thereof, notice under section 143(1)(a) was sent for service on September 23, 1998, followed by a notice dated September 26, 1996 under section 142(1) of the Act which was served on the assessee on October 30, 1998. 4. The respondent-assessee claims to be an employee of M/s. Sahara India, a firm of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken from Sahara India Mutual Benefit Co. Limited (in short, SIMBCL). The assessee has taken the following loan from SIMBCL : 1-4-1995 Opening balance Rs. 20,712,923.47 9-8-1995 Amount paid Rs.1,150,000.00 4-12-1995 Amount paid Rs. 3,520,000.00 9-12-1995 Amount paid Rs. 499,000.00 22-12-1995 Amount paid Rs. 20,000,000.00 31-3-1996 Interest Rs. 8,446,885.00 Rs. 54,328,808.47 The assessee invested the amount received aforesaid as under : 9-8-1995 Rs. 11,50,000 Investment in Chhabi Advertising (Firm) 4-12-1995 Rs. 35,20,000 Investment in Sahara India Marketing (Firm) 9-12-1995 Rs. 4,99,000 Investment in Shares of Sahara India Electrical Limited 22-12-1995 Rs. 1,00,00,000 Investment in shares of Sahara India Housing Limited 23-12-1995 Rs. 1,00,00,000 Investment in share of Sahara India International Corpn. Ltd. 9. Before the Assessing Officer, the assessee claimed interest on the aforesaid loan pertaining to the respective year. The Assessing Officer has observed that the figure for the claim of loan substantially vary between the original return filed and the revised return which according to the Assessing Officer is as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company of the firm, the repayment of loan has been left at the sweet will of the loanee, i.e. the assessee Smt. Swapna Roy. There appears to be no specific pinpointed stipulation in the terms and conditions of the loan requiring to pay the same in specified period. The sanction letter obtained in the case of Ishtiaq Ahmad, one of the recipients of such loan vaguely mentions that the loan shall be repayable in five years. Apart from the above, it has been noted by the Assessing Officer that the total amount of debt of the assessee at the face value much exceeds the value of assets. If the amount of interest accrued on the loan is included in the amount of debt, the total liability to repay the interest is not supported by any commensurate asset or income. 14. The Assessing Officer has noted that the companies in whose shares the loan has been invested are the companies belonging to the Sahara group and they have never declared any dividend nor is there any possibility of their declaring any dividend in future. The Assessing Officer observed that many of the companies have already closed their activities and many like Sahara India Limited would have more liabilities than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of any dividend in future and not even a penny has ever been earned by the assessee from the shares held in the past so far, the amount in question cannot be treated as expense towards interest on loan was allowed or expended wholly and exclusively for the purpose of making or earning income for dividend in view of the provisions contained in section 57(iii) of the Act. The Assessing Officer observed that the reference of making and earning income under section 57(iii) of the Act should be construed as reference to real and feasible income. The Assessing Officer observed that the expenses incurred for the purpose of earning imaginary or hypothetical dividend in future is not substantiated by placing any material on record. Hence not allowable under section 57(iii) of the Act. It has been observed that to attract section 57(iii) of the Act, it is necessary that the possibility of income coming from investment. The possibility should be real and not hypothetical. The word "expended" wholly and exclusively for the purpose of making or earning such income used in section 57(iii) should be construed in strict sense and not liberally to give a way to the assessee to abuse the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not apply. Disallowance of the appellant's claim amounting to Rs. 21,30,827 in respect of interest paid on borrowed capital for the purposes of investment in the share of companies was set aside by the Commissioner of Income- tax (Appeals) and allowed under section 57(iii) of the Act. 22. The Revenue as well as the assessee preferred an appeal before the Tribunal. Before the Tribunal, the Revenue raised the plea that the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of Rs. 21,30,827. However, the Tribunal also relying upon its order dated March 12, 2004 for the assessment year 1994-95 had dismissed the appeal of the Revenue as well as the cross-objections. 23. Feeling aggrieved, the Revenue preferred the present appeal with the submission that the whole purpose of taking loans from a company of the Sahara group and investing the same in the shares of the closely held companies of the same group was to create an artificial interest liability in the case of the assessee in order to set off the existing and future income of the assessee and thereby to avoid incidence of taxation through this colourable device. It has been stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reproduced as under : Assessment year Returned income (Rs.) Assessed income (Rs.) 1994-95 (-) 9,89,630 (-)9,89,630 1995-96 (-) 1,46,181 (-)99,930 1996-97 (-) 41,42,284 (-)40,07,280 1997-98 (-) 67,99,970 (-) 83,10,164 (Original) (Revised) (-)71,83,640 1998-99 (-) 4,11,35,025 (-) 8,60,80,825 (Original) (Revised) (-) 2,81,10,450 Name of the company-Ms. Chabbi Advertising Assessment year Returned income (Rs.) Assessed income (Rs.) 1992-93 1,780 20,930 1993-94 5980 1,71,947 1994-95 5,274 2,83,220 1995-96 6,280 3,87,660 1996-97 6,670 20,41,090 1997-98 4,75,380 4,75,380 1998-99 2,46,637 3,76,261 Name of the company-M/s. Sahara India Housing Corporation Ltd. Assessment year Returned income (Rs.) Assessed income (Rs.) 1993-94 1,37,940 (Original) 9,03,200 (Revised) 2,69,449 (u/s 144) 10,34,710 (u/s 143(3)/148) 1994-95 1,06,090 22,94,860 1995-96 14,32,700 1,79,61,860 1996-97 36,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal without discussing the controversy involved. 30. It has also been stated that the observation of the assessing authority at least with regard to two companies, namely Sahara India Limited and Sahara India Mask Communication is based on unfounded facts as no investment was done by the assessee in these two firms. Consistency 31. Learned counsel for the respondent has vehemently argued that the Tribunal has rightly not interfered with the order of the appellate authority to maintain the consistency. It has not been disputed that every assessment year is independent and assessment can be made on the basis of the material on record. However, relying upon the various pronouncements of the High Court and the hon'ble Supreme Court, it has been submitted that the consistency should be maintained and there is no material to depart from the earlier practice. The Tribunal's judgment should be affirmed. 32. In C. K. Gangadharan v. CIT [2008] 304 ITR 61 (SC) ; [2008] 8 SCC 739, their Lordships of the hon'ble Supreme Court held that where the Revenue has not assailed the correctness of the order in one case, it would normally not be permissible to do s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case reported in Radhasoami Satsang v. CIT [1992] 193 ITR 321 their Lordships of the hon'ble Supreme Court while dealing with the principle of consistency and the principle of res judicata observed that unless there is a material change justifying the Revenue to take a different view of the matter, it shall not be proper for the Revenue to reopen and take contrary view. To reproduce the relevant portion from the judgment of Radhasoami Satsang [1992] 193 ITR 321, to quote (page 329) : " We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but 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. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter and if there was not change it was in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amalga- mated Coalfields Ltd. v. Janapada Sabha, Chhindwara [1963] Supp 1 SCR 172, Devilal Modi v. STO [1965] 16 STC 303 ; [1965] 1 SCR 686, Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416 (SC) ; [1967] 1 SCR 913, M. M. Ipoh v. CIT [1968] 67 ITR 106 (SC) ; [1968] 1 SCR 65, Kapurchand Shrimal v. TRO [1969] 72 ITR 623 (SC) ; [1969] 1 SCR 691, CIT v. Durga Prasad More [1971] 82 ITR 540 ; AIR 1971 SC 2439, Radhasoami Satsang [1992] 193 ITR 321 ; [1992] 1 SCC 659 ; AIR 1992 SC 377, Society of Medical Officers of Health v. Hope (Valuation Officer) [1960] AC 55 and Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council [1925] All ER 675 ; [1926] AC 94 ; 95 LJPC 33 ; Turner on Res Judicata, 2nd Edn., para 219, page 193]. 39. In the same judgment (supra), the hon'ble Supreme Court further proceeded to observe that, to quote (page 696) : "A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income-tax Officer of the same facts on which a decision in respect of an earlier year was arrived at." 40. The hon'ble Supreme Court fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year varies. The gap between the original return and the revised return coupled with the subsequent statement filed by the assessee is enormous (supra). This fact shows that the assessee has not acted bona fidely in submitting a revised return. The revised statement filed by the assessee is an incident of changing of stand with regard to income. 45. In case an assessee changes his or her stand repeatedly and does not come with the clean hands, then it shall be sufficient to depart from the earlier practice and the principle of consistency shall not come in the way to assess the income on the basis of the material on record. 46. Substantial amount has been invested by the assessee as is evident from the chart (supra) in the sister concern which are running in loss. Nothing has been brought on record by the assessee as to why she has invested such a huge amount in the firm running in loss since years. Neither the appellate authority nor has the Tribunal tried to discuss this issue keeping in view the reasoning of the assessing authority. 47. There is no stipulation in the sanction letter of loan with regard to manner of repayment of principal amount and inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to pass a reasoned order while exercising statutory jurisdiction. 51. The aforesaid view to pass a reasoned order by the authorities which includes quasi-judicial authorities is consistently reiterated by the hon'ble Supreme Court in earlier judgments. It has been held by their Lordships that the authorities have to record reasons, otherwise it may become a tool for harassment vide K. R. Deb v. Collector of Central Excise, AIR 1971 SC 1447 ; State of Assam v. J. N. Roy Biswas, AIR 1975 SC 2277 ; State of Punjab v. Kashmir Singh [1997] SCC [L&S] 88 ; Union of India v. P. Thayagarajan, AIR 1999 SC 449 and Union of India v. K. D. Pandey [2002] 10 SCC 471. 52. In view of the above, the Tribunal should have dealt with the facts and circumstances and the question of law involved and raised by the authorities, may be in precise instead of dismissing the appeal merely on the ground of consistency. Non-consideration of grounds assigned by the assessing authority by the appellate authority or the Tribunal renders the order passed by them unjust, illegal and violative of article 14 of the Constitution of India. 53. The hon'ble Supreme Court in a case reported in U. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in Madhukar v. Sangram, AIR 2001 SC 2171. 59. In an earlier judgment, reported in Punjab National Bank v. Kunj Behari Misra, AIR 1998 SC 2713, the hon'ble Supreme Court after considering a catena of earlier judgments held that in case the disciplinary authority disagrees with the conclusion reached by the enquiry officer, then while recording his own finding, it shall be obligatory to deal with the reason given by the enquiry officer. On the same analogy, in case the appellate authority differs with the finding recorded by the Assessing Officer, then each and every issue, grounds and circumstances dealt with by the Assessing Officer must be considered and difference of opinion must be supported by a reasoned order. 60. Hence also, the appeal cannot be thrown out merely on the ground to maintain consistency with previous years. Binding precedent 61. Reliance placed by the learned counsel for the assessee to the dismissal of the appeal in limine by the Delhi High Court or the Supreme Court seems to be not sustainable. A perusal of the order passed by the Delhi High Court and the hon'ble Supreme Court shows that the appeal has been dismissed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to and in context with a particular statutory provisions interpreted by the court, as the court has to examine as to what principle of law has been decided and the decision cannot be relied upon in support of a proposition that it did not decide (vide H. H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India, AIR 1971 SC 530, Amar Nath Om Parkash v. State of Punjab, AIR 1985 SC 218, Rajpur Ruda Meha v. State of Gujarat, AIR 1980 SC 1707, CIT v. Sun Engineering Works P. Limited [1992] 198 ITR 297 (SC), Sarva Shramik Sangh, Bombay v. Indian Hume Pipe Co. Limited [1993] 2 SCC 386 and Makhija Construction and Enggr. Pvt. Limited v. Indore Development Authority, AIR 2005 SC 2499. 66. In Jawahar Lal Sazawal v. State of Jammu and Kashmir, AIR 2002 SC 1187 their Lordships of the hon'ble Supreme Court held that a judgment may not be followed in a given case if it has some distinguishing features. 67. In Bhavnagar University v. Palitana Sugar Mill P. Ltd., AIR 2003 SC 511, the hon'ble Supreme Court held that a decision is an authority for which it is decided and not what can logically be deduced therefrom. A little difference in facts or additional fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. It is also not necessary to show that the expenditure was profitable one or that, in fact, any profit was earned. 74. Their Lordships held that merely because there is no profit the assessee's right to claim the benefit under section 57(iii) of the Act may not be thrown out. However, a close reading of the judgment of Rajendra Prasad Moody [1978] 115 ITR 519 shows that the hon'ble Supreme court observed that the expenditure should be proper and bona fide. It shall be appropriate to reproduce the relevant portion of the judgment of Rajendra Prasad Moody [1978] 115 ITR 519, 523 : "We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income." The hon'ble Supreme Court further observed (page 523) : "It is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society, the evasion of tax by dishonest taxpayers should be dealt with firmly and proper way to construe a taxing statute while considering a device to avoid tax is to be construed literally and strictly to preserve and check the tax avoidance. To reproduce the relevant portion (page 160): "We think that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantal loss of much needed public revenue, particularly in a welfare State like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is 'the large hidden loss' to the community (as pointed out by Master Sheatcroft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful advisers on the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing interest in the company and not for earning dividend. That being so, the expenditure incurred by way of interest on the loan taken by the assessee for the said purpose cannot be held to be an expenditure incurred wholly and exclusively for the purpose of earning income by way of dividends. From the nature of transaction, it is clear that the expenditure was not for the purpose of earning income by way of dividends but for the purpose of acquiring controlling interest in the company and, therefore, it would not be allowable as a deduction under section 57(iii) of the Act. 81. In another case reported in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, the hon'ble Supreme Court held that the expression "for the purpose of business" is narrower than the expression "for the purpose of making or earning profit" and the same view has been followed in CIT v. Birla Cotton Spinning and Weaving Mills Limited [1971] 82 ITR 166 (SC). 82. In Sarabhai Sons P. Limited v. CIT [1993] 201 ITR 464 (Guj), a Division Bench of the Gujarat High Court held that income, in fact, should have been earned as a result of expenditure. However, the purpose of making or earning such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at she has not acted bona fide and tried to avail of the benefit of section 57(iii) of the Act by changing her stand. Neither the appellate authority nor the Tribunal has considered this aspect of the matter with regard to bona fide of the assessee. 87. Though it is not unfair to borrow money or take loan from one concern and invest the same in other concern for the purpose of profit or income but while doing so, the assessee must act bona fide with primary motive to earn profit. The amount taken on loan from one concern and investment in other concern running in loss having fragile financial status cannot be treated as bona fide act on the part of the assessee. The action of the asses- see suffers from lack of bona fide and seems to be a device to help sister concerns. 88. Some of the companies where the assessee has made investments are not listed in the stock exchange and not likely to fetch any resale value. The Assessing Officer may exaggerate the factual position but things as they stand reveal that no person shall make investment in companies which lack financial soundness and where there is remote chance of profit or to earn income. The expenditure towards interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 94. In Karnataka State Financial Corporation v. N. Narasimahaiah [2008] 143 Comp Cas 176 ; AIR 2008 SC 1797, the hon' ble Supreme Court held that while construing a statute it cannot be extended to a situation not contemplated thereby. The entire statute must be first read as a whole then section by section, phrase by phrase and word by word. While discharging statutory obligation with regard to take action against a person in a particular manner that should be done in the same manner. Interpretation of a statute should not depend upon contingency but it should be interpreted from its own words and language used. 95. In K. V. Shivakumar v. Appropriate Authority [2000] 242 ITR 597 (SC) ; [2000] 3 SCC 485, the hon' ble Supreme Court has held that equity or hardship are not relevant consideration for interpretation for taxing law. 96. In State of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298 ; [2004] 10 SCC 201, the hon' ble Supreme Court held that a taxing statute should be construed strictly. If a person sought to be taxed comes within the letter of law, he must be taxed. However, in case, he does not fall in the taxing category, tax cannot be imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct of the promoters. Where dummy companies were incorporated by a promoter and his family members to conceal profits and avoid tax liability, the separate entity of the company has been ignored by looking through the veil and identifying those individuals who have deviced such method for their own benefits. 103. In Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) ; AIR 1969 SC 932 ; [1969] (1) SCR 988 it was found that three brothers who were partners in the assessee-firm were carrying on the managing agency in a dominant capacity in the guise of a limited company. The court held that the corporate entity has to be disregarded if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. 104. In CIT v. Associated Clothiers Ltd., AIR 1963 Cal 629 there was a sale by a company to another having some shareholders and the former company owning all shares in the latter. It was held that it would not escape the liability of tax under the Income-tax Act by taking recourse to the concept of separate legal entity. 105. In view of the above, the assessing authority has rightly tried to find out the dominant purpose with regard to investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .47 107. It is strange that the salary of Ishtiaq Ahmad and U. K. Bose is of few lakhs, loan sanctioned without any guarantee and chance of return is remote and the investment of substantial amount is made in such sister firms which lacks financial backbone with remote chance to earn income. 108. From the discussion hereinabove and keeping in view the fact that the assessee in question collectively along with other employees borrowed the fund from sister concerns and invested in other sister concerns majority of which lacks financial viability and running in loss since several years there appears to be no doubt that the assessee and her associates (connected appeals) had not invested wholly and exclusively for the purpose of earning income. The material on record reveals that purpose was not to earn profit but it was a colourable device to utilise the fund of one firm in other sister concerns for the purpose of trade or business. 109. In view of the above, the questions are answered as under : (i) The appellate court and the Tribunal had committed substantial illegality by deleting addition with regard to interest on loan taken from company of the Sahara gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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