NIRMALA C THUMAR, NAVI MUMBAI V. D.C.I.T. CEN.CIR.39, MUMBAI

ITA 10/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4094 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 02-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: HIRAL D SEJPAL
• Keywords: Business income; Deemed dividend
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI .. , !,#$ # % BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NOS.04, 06 & 10/MUM/2012 ( ' ( )( ' ( )( ' ( )( ' ( )( / / / / ASSESSMENT YEARS: 2005-06, 2007-08 & 2009-10) NIRMALA C. THUMAR, PATHIK, PLOT NO.72, RING ROAD NO.3, SECTOR-21, NERUL, NAVI MUMBAI-400 614 ' ' ' ' / VS. DY. CIT, CENTRAL CIRCLE-39, ROOM NO.32(1), GROUND FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020 * #$ ./ + ./ PAN/GIR NO. ACUPT 0407 A ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / # / APPELLANT BY : MS. HIRAL D. SEJPAL -.*, 0 / # / RESPONDENT BY : SHRI O. P. SINGH ' 0 12$ / // / DATE OF HEARING : 24.07.2013 3 ) 0 12$ / DATE OF PRONOUNCEMENT : 31.07.2013 #4 / O R D E R PER SANJAY ARORA, A. M.: THESE ARE A SET OF THREE APPEALS BY THE ASSESSEE AR ISING OUT OF SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)-36, MUMBAI (CIT(A) FOR SHORT) OF EVEN DATE (13.10.2011), DISPOSING THE ASSESSEES APPEALS CONTESTING ITS ASSESSMENT U/S.143(3) R.W.S 153A OF THE INCOME TAX ACT, 1961 (THE ACT H EREINAFTER) FOR THREE ASSESSMENT YEARS, BEING AYS 2005-06, 2007-08 & 2009-10. THE A PPEALS RAISING COMMON ISSUES, WERE HEARD TOGETHER, AND ARE BEING DISPOSED OF VIDE A COMMON, CONSOLIDATED ORDER. 2 ITA NOS. 04, 06 & 10/MUM/2012 (A.YS. 05-06, 07-08 & 09-10) NIRMALA C. THUMAR VS. DY. CIT 2. THE FIRST GROUND IN ALL THE APPEALS IMPUGNS THE DISALLOWANCE OF INTEREST EXPENDITURE INCURRED ON UNSECURED LOANS, WHICH HAS BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION AGAINST INTEREST INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE REVENUE HAS DISMISSED THE ASSESSEES CLAIM ON T HE BASIS OF ABSENCE OF A NEXUS HAVING BEEN SHOWN BETWEEN THE BORROWED CAPITAL AND ITS UTILIZATION FOR EARNING INTEREST. EVEN AS THE FACTS FOR ALL THE YEARS ARE BROADLY SIM ILAR, THE SAME WOULD HAVE TO BE DEALT WITH SEPARATELY IN VIEW OF THE DIFFERENCES NEVERTHE LESS ATTENDING THE SAME. 3.1 FOR A.Y. 2005-06, THE INTEREST EXPENDITURE INCU RRED IS AT RS. 97,200, AS AGAINST THE INTEREST INCOME FROM UNSECURED LOANS AT RS.56,000/- . ON BEING ENQUIRED BY THE BENCH AS TO HOW THE ASSESSEE CLAIMS COMPLETE NEXUS AS WELL A S JUSTIFIES THE LOSS, THE LD. AR WOULD STATE THAT THE INTEREST ON THE LOANS GIVEN WAS LESS ER THAN THAT AT WHICH THE LOAN/S WAS SECURED, BEING AT THE PREVAILING MARKET RATE. THE S TATEMENT MADE IS WITHOUT REFERENCE TO AND SANS ANY EVIDENCE OR MATERIAL ON RECORD. EVEN SO, HOW O NE WONDERS BORROWING AT A HIGHER INTEREST RATE JUSTIFY INCURRING INTEREST EXP ENDITURE FOR EARNING INCOME, I.E., THE CONDITION FOR S. 57(III), AS INCOME WOULD ARISE ONL Y WHERE THE BORROWING IS AT A LOWER RATE, AND WHICH FACT IS KNOWN IN ADVANCE. AS IT APPEARS, NOT ONLY IS THE INTEREST ON THE LOAN/S GIVEN LOWER, BUT ALSO THE ENTIRE BORROWED CAPITAL H AS NOT BEEN UTILIZED FOR INTEREST BEARING LOANS. UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FIT AND PROPER TO CLOSE THIS MATTER BY ALLOWING THE CLAIM OF INTEREST TO THE EXTENT OF THE INCOME EARNED, I.E., AT RS.56,000/-, CONFIRMING THE DISALLOWANCE FOR THE BALANCE RS.41,2 00/-. THE SAME WOULD TAKE CARE OF BOTH THE DIFFERENTIAL IN THE INTEREST RATES AS ALSO THE SHORTFALL IN THE UTILIZATION OF BORROWED CAPITAL FOR INTEREST BEARING LOANS. 3.2 FOR A.Y. 2007-08, THE PICTURE IS EVEN MORE DISM ISSAL, THE INTEREST RECEIVED BEING AT A MERE RS.18,111/- , AS AGAINST THE INTEREST PAID AT RS.61,973/- . SO, HOWEVER, AS ALSO APPARENT FROM THE COMPUTATION OF THE TOTAL INCOME, FORMING PART OF THE RETURN, THE ASSESSEE HAS DISCLOSED BUSINESS INCOME BY WAY OF IN TEREST ON CAPITAL, TO THE EXTENT OF RS.1,81,256/- . APPARENTLY, THEREFORE, PART OF THE BORROWED CAPIT AL HAS BEEN UTILIZED FOR 3 ITA NOS. 04, 06 & 10/MUM/2012 (A.YS. 05-06, 07-08 & 09-10) NIRMALA C. THUMAR VS. DY. CIT INVESTMENT IN PARTNERSHIP FIRMS FOR EARNING INTERES T. THE SAME WOULD QUALIFY FOR DEDUCTION U/S. 36(1)(III); THE INTEREST INCOME BEIN G ASSESSABLE AS BUSINESS INCOME U/S.28. AS REGARDS THE PRESUMPTION WITH REGARD TO WHETHER I T IS THE BORROWED OR OWN FUNDS WHICH STANDS INVESTED IN THE PARTNERSHIP FIRMS, WE WOULD LIKE TO CLARIFY THAT THE WIDE VARIATION BETWEEN THE INTEREST RECEIVED AS WELL AS PAID WOULD ITSELF SHOW THAT THE FUNDS INVESTED ARE MUCH HIGHER THAN THAT BORROWED, FOR WHICH THE INTER EST IS PAID, SO THAT THE DIFFERENCE WOULD ONLY BE ON ACCOUNT OF INVESTMENT OF OWN CAPIT AL. ALSO, NO HARD AND FAST RULE IN THIS RESPECT COULD BE PRESCRIBED, AND IT IS WELL OPEN FO R THE ASSESSEE TO CLAIM THAT ALL THE BORROWED FUNDS HAVE BEEN INVESTED FOR BUSINESS PURP OSES. RELIANCE FOR THE PURPOSE IS PLACED ON THE DECISION BY THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. [2009] 313 ITR 340 (BOM.) ACCORDINGLY, THEREFORE, THE ASSESSEE WOULD BE LIABLE FOR DEDUCTION OF THE ENTIR E AMOUNT OF INTEREST PAID AT RS.0.62 LACS AGAINST THE TOTAL INTEREST INCOME OF RS.1.99 L ACS. 3.3 FOR A.Y. 2009-10, THE TOTAL INTEREST PAID FOR T HE CURRENT YEAR IS AT RS.50,503/-, AS AGAINST THE INTEREST RECEIVED ON LOANS (RS.30,057/- ) AND ON CAPITAL IN THREE PARTNERSHIP FIRMS, AS FOR THE PRECEDING YEAR, AT RS.3,44,372/-. FOR THE SAME REASONS AS FOUND FAVOR WITH US FOR A.Y. 2007-08, THE ASSESSEE WOULD BE ELI GIBLE FOR DEDUCTION FOR THE ENTIRE AMOUNT OF THE INTEREST PAID. WE DECIDE ACCORDINGLY. 4. THE SECOND GROUND OF APPEAL FOR ALL THE YEARS CO NCERNS THE DISALLOWANCE OF BANK CHARGES AND PROFESSIONAL CHARGES IN COMPUTING THE A SSESSEES INCOME U/S.56. ON BEING QUESTIONED AS TO HOW THE SAME COULD BE ALLOWED U/S. 57, THE LD. AR CONCEDED TO HAVING NO CASE AND, ACCORDINGLY, DECLINED TO PRESS THE SAID G ROUND FOR ALL THE YEARS, MAKING AN ENDORSEMENT TO THIS EFFECT ON THE APPEAL MEMO. THE SAID GROUND IS, THEREFORE, DISMISSED. 5.1 THE THIRD GROUND FOR A.Y. 2005-06 IS IN RESPECT OF DISALLOWANCE U/S.14A. THE LD. CIT(A), BEFORE WHOM THE MATTER WAS AGITATED BY THE ASSESSEE PER ITS GROUND NO. 4, HAS DECIDED THE SAME BY RESTORING THE MATTER BACK TO TH E FILE OF THE A.O., WHO HAD WORKED OUT 4 ITA NOS. 04, 06 & 10/MUM/2012 (A.YS. 05-06, 07-08 & 09-10) NIRMALA C. THUMAR VS. DY. CIT THE SAME IN TERMS OF RULE 8D , FOR WORKING OUT THE DISALLOWANCE ON A REASONABLE BASIS IN COMPLIANCE WITH THE DIRECTION BY THE HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DY. CIT [2010] 328 TR 81 (BOM). THE LD. AR, WHEN CONFRONTED WITH THE SAID DIRECTIONS BY THE FIRST APPELLATE AUTHORITIES, PER PARAS 21 & 22 OF HIS ORDER, COULD NOT POINT TO US ANY CAU SE OF GRIEVANCE TO THE ASSESSEE, EXCEPT FOR AN APPREHENSION THAT THE A.O. MAY NOT OBSERVE T HE DIRECTIONS OF THE FIRST APPELLATE AUTHORITY IN LETTER AND SPIRIT. WE FIND NO REASON T O INTERFERE WITH THE CLEAR DIRECTIONS IN THE MATTER BY THE LD. CIT(A); RATHER, WOULD CLARIFY THA T THE ONUS TO SUPPORT ITS CASE WITH FACTS AND FIGURES WOULD BE ON THE ASSESSEE. THE ASSESSING AUTHORITY, ON HIS PART, IS BOUND BY LAW BY THE DIRECTIONS OF A HIGHER APPELLATE AUTHORI TY AND, THUS, NO CASE FOR APPREHENSION EXISTS. WE DECIDE ACCORDINGLY, DISMISSING THE ASSES SEES GROUND NO.3. 5.2 THE SAME DIRECTIONS, I.E., AS FOR AY 2005-06, A LSO INFORM THE IMPUGNED ORDER FOR A.Y. 2007-08 AND, ACCORDINGLY, FOR THE SAME REASONS WE DECLINE TO INTERFERE THEREWITH. 5.3 FOR THE THIRD YEAR, I.E., A.Y. 2009-10, THOUGH THE LD. CIT(A) HAS GIVEN SIMILAR DIRECTIONS, RULE 8D WOULD APPLY WITH FULL FORCE. AC CORDINGLY, WE MAY FURTHER CLARIFY THAT THE A.O.S WORKING FOR THIS YEAR WOULD BE GUIDED BY THE SAID RULE, EVEN AS OUR SAID CLARIFICATION COULD BE SAID TO BE BROADLY IN CONSON ANCE WITH THE DIRECTION BY THE LD. CIT(A) INASMUCH AS HE HAS DIRECTED THE ASSESSING AU THORITY TO REWORK THE DISALLOWANCE IN COMPLIANCE WITH THE DIRECTIONS BY THE HONBLE COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). WE DECIDE ACCORDINGLY, DISMISSING THE ASS ESSEES SAID GROUND FOR THIS YEAR AS WELL. 6. GROUND NO. 4 FOR ALL THE YEARS IS IN RESPECT OF AN ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E). THE SAME, THOUGH RAISED BEF ORE THE LD. CIT(A), STANDS OMITTED TO BE ADJUDICATED BY HIM AND, ACCORDINGLY, DOES NOT AR ISE OUT OF THE IMPUGNED ORDERS. WE, THEREFORE, ARE CONSTRAINED NOT CONSIDER THE SAME ON MERITS, AND THE MATTER WOULD, 5 ITA NOS. 04, 06 & 10/MUM/2012 (A.YS. 05-06, 07-08 & 09-10) NIRMALA C. THUMAR VS. DY. CIT ACCORDINGLY, HAVE TO TRAVEL BACK TO HIS FILE FOR AD JUDICATION ON MERITS. WE DECIDE LIKEWISE. 7. IN THE RESULT, THE ASSESSEES APPEALS FOR ALL TH E YEARS ARE PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5 16 ' (51 0 4 71 8 90 :;#< 4 71 0 1 => ORDER PRONOUNCED IN THE OPEN COURT ON JULY 31, 2013 SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER MUMBAI; ?' DATED : 31.07.2013 .'../ ROSHANI , SR. PS #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT 3. B ( ) / THE CIT(A) 4. B / CIT - CONCERNED 5. @EF -1' , , / DR, ITAT, MUMBAI 6. FG( H / GUARD FILE #4' #4' #4' #4' / BY ORDER, : :: :/ // /= = = = (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI