DAMOS TRADING COMPANY P. LTD, MUMBAI V. DCIT 6(2), MUMBAI

ITA 1205/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0906 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN SHENOY
• Keywords: Business income; Opportunity of being heard; Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1205/MUM/2015 ASSESSMENT YEAR: 2010-11 M/S. DAMOS TRADING COMPANY P. LTD. VS. DCIT 6(2) 51-B, MAKER CHAMBERS IV, R. NO. 504, 5 TH FLOOR, NARIMAN POINT AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400021 MUMBAI - 400020 PAN NO. AAACI1018D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. GOPAL, AR REVENUE BY: SHRI ARUN SHENOY, DR DATE OF HEARING : 06/0 2/2017 DATE OF PRONOUNCEMENT: 19/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2010-11. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 12, MUMBAI AND ARISES OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: I. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIR MING THE ORDER OF AO IN DISALLOWING THE EXPENSES OF RS. 15,56,592/- IGNO RING THE WRITTEN SUBMISSION WITHOUT GIVING ANY REASONS. II. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN UPHOLD ING THAT THESE EXPENSES ARE ATTRIBUTABLE TO EXEMPT INCOME OR INCOM E FROM HOUSE ITA NO. 1205/MUM/2015 2 PROPERTY AND NOT TO INTEREST INCOME. HE OUGHT TO HA VE ALLOWED EXPENSES AGAINST INTEREST INCOME. THE LD. CIT(A) HA S FAILED TO APPRECIATE THAT INTEREST INCOME IS BUSINESS INCOME. III. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN OBSERV ING THAT THESE EXPENSES MAY BE SHAM OR RELATED TO OTHER EARNING AC TIVITIES CARRIED ON BY THE APPELLANT OR OTHERS WITHOUT BASIS AND WITHOU T GIVING ANY EVIDENCE. IT IS APPARENT THAT APPELLANT HAS NOT CAR RIED ON ANY OTHER ACTIVITY AS ENVISAGED BY LD. CIT(A). 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y. 2010-11 ON 09.10.2010 DECLARING TOTAL INCOME AT RS.2,35,87,146/-. THE NATURE OF BUSINESS OF THE ASS ESSEE IS TRADING IN SHARES. ON PERUSAL OF THE P&L ACCOUNT OF THE ASSESS EE, THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAS OFFERED RS .4,83,58,212/- AS OTHER INCOME. IT CONSISTS OF RS.47,00,725/- EARNED AS LONG TERM CAPLITAL GAINS(LTCG) ON SHARES WHICH HAS BEEN CLAIM ED AS EXEMPT U/S 10(38); RS.39,64,181/- BEING INTEREST RECEIVED FROM AUTO SWEEP TERM DEPOSIT WITH KOTAK MAHINDRA BANK, FIXED DEPOSI T WITH AXIS BANK, ELECTRICITY DEPOSIT WITH BEST AND DEBENTURES OF L & T FINANCE; DIVIDEND INCOME OF RS.74,87,707/- CLAIMED AS EXEMPT U/S 10(34) AND LEASE RENTALS OF RS.3,22,05,600/- RECEIVED FROM LET TING OUT COMMERCIAL PREMISES AT MAKER CHAMBERS. 3.1 THE AO HELD INTEREST INCOME OF RS.39,64,181/- A S INCOME FROM OTHER SOURCES. HE FOUND THAT THE ASSESSEE HAS DEBIT ED EXPENSES OF RS.80,35,828/- AGAINST THIS INCOME. OUT OF THESE EX PENSES, THE ASSESSEE HAS ALREADY DISALLOWED RS.65,82,531/- IN I TS COMPUTATION OF INCOME. THE AO DISALLOWED RS.15,56,592/- ON THE GRO UND THAT THE AMOUNT EFFECTIVELY CLAIMED AS EXPENSES AGAINST INTE REST INCOME IS ELECTRICITY, POSTAGE AND TELEPHONE, OFFICE RENT, TR AVELLING, INSURANCE, PRINTING AND STATIONARY, VEHICLE MAINTENANCE, LEGAL AND PROFESSIONAL FEES REPAIRS AND MAINTENANCE. THE ASSESSEE IS EARNI NG INTEREST ITA NO. 1205/MUM/2015 3 INCOME FOR VARIOUS INVESTMENTS. THE CHARACTER OF TH IS INCOME BEING PASSIVE, THAT IS ASSESSEE NEED NOT CARRY ANY ORGANI ZED ACTIVITY TO EARN THEM, NO EXPENSES ARE ALLOWED U/S 57 OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) RELIED OF THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION LTD. VS. CIT (2000) 163 CTR 617 AND HELD THAT THE INTEREST INCOME IS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. CIT(A) UPHELD THE DISALLOWA NCE OF EXPENSES OF RS.15,56,592/- MADE BY THE AO AS IT WAS NOT ATTRIB UTABLE TO EARNING INTEREST INCOME FROM FIXED DEPOSITS ETC. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED IN PAPER BOOK CONTAINING A COPY OF THE SUBMISSION MADE BEFORE THE AO AND THE LD. CIT(A). HE ALSO FILED A COPY OF THE ORDER OF THE IT AT A BENCH, MUMBAI IN THE CASE OF M/S KALPANA TRADING CORPORATION VS. ITO (ITA NO. 6024 & 6025/MUM/2010). 6. THE LD. D.R. RELIED ON THE ORDER OF THE LD. CIT( A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE ORDER IN THE CASE OF M/S KALPANA TRADING CORPORATION (SUPRA) RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. IN THAT CASE THE GRIEVANCE OF THE ASS ESSEE WAS AGAINST THE ACTION OF THE INCOME-TAX AUTHORITIES IN HOLDING THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE, THEREBY D ENYING THE CLAIM OF LOSS DETERMINED ON ACCOUNT OF EXPENSES CLAIMED IN T HE PROFIT AND LOSS ACCOUNT. THE INCOME UNDER THE HEAD HOUSE PROP ERTY DETERMINED AT RS.17,36,714/- WAS SET OFF AGAINST BU SINESS LOSS DETERMINED AT RS.24,35,949/- THEREBY RESULTING IN N ET LOSS OF ITA NO. 1205/MUM/2015 4 RS.6,99,235/-. IN THE ENSUING ASSESSMENT, THE AO NO TED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD NOT SHOWN ANY ACTIVITY OF PURCHASE AND SALE. THE AO ALSO NOTED THAT EVEN THE ACTIVITY OF TRADING IN SHARES HAS NOT BEEN CARRIED OUT BY THE ASSESSEE FOR THE PAST SEVERAL YEARS. AS A CONSEQUENCE, THE AO DETERMINED THE TAXA BLE INCOME AT RS.17,36,714/- WHICH WAS THE INCOME DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE TRIBUNAL OBSERVED THAT THE FACTUAL MATRIX OF THE CASE SUPPORTS THE PLEA OF THE ASSESSEE THAT IT IS NOT A CASE OF DISCONTINUATION OR CLOSURE OF BUSINES S, BUT TEMPORARY LULL IN ACTIVITY. THE TRIBUNAL ALLOWED THE PLEA OF THE ASSESSEE. 7.1 WE FIND THAT A SIMILAR ISSUE AROSE BEFORE THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIAN SHIPPING CORPORATION LTD. (SUPRA) , RELIED ON BY THE LEARNED CIT(A). IN THAT CASE, TH E ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN SHIPPING BUSINESS . FOR THE ASSESSMENT YEAR 1976-77, IT REPORTED AN INCOME OF R S.1,75,79,871/- UNDER THE HEAD BUSINESS (SHIPPING) INCOME. OF THA T SUM, A SUM OF RS.87,51,231/- WAS STATED TO BE INCOME BY WAY OF IN TEREST RECEIVED ON SHORT TERM BANK DEPOSITS. THE INCOME-TAX OFFICER TREATED THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF INTEREST ON BANK DEPOSITS AS BEING TAXABLE UNDER THE HEAD OTHER SOURCES. TH E INTEREST PAID BY THE ASSESSEE ON OVERDRAFTS OBTAINED BY IT WERE TREA TED BY HIM AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AN D WAS GIVEN DEDUCTION UNDER THAT HEAD ACCORDINGLY. IN APPEAL, T HE TREATMENT SO ACCORDED TO THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF INTEREST WAS AFFIRMED BY THE COMMISSIONER. THE COMMISSIONER ALSO AFFIRMED THE VIEW OF THE INCOME-TAX OFFICER THAT THE INTERES T PAID ON OVERDRAFTS IS ONLY TO BE TREATED AS EXPENDITURE FOR THE PURPOS E OF BUSINESS. THE REVENUE AND THE ASSESSEE HAVING CARRIED THE MATTER IN APPEAL TO THE TRIBUNAL, THE TRIBUNAL HELD THAT THE INTEREST RECEI VED ON BANK ITA NO. 1205/MUM/2015 5 DEPOSITS, IS TO BE TREATED AS INCOME FROM OTHER SOU RCES AND NOT AS INCOME FROM BUSINESS. IN APPEAL, THE HON'BLE HIGH C OURT HELD (I) UNDER THE INCOME-TAX ACT, 1961, THE DISTINCT HEADS UNDER WHICH THE INCOME OF ASSESSEE ARE TO BE CLASSIFIED ARE SET OUT IN SECTION 14 OF THE INCOME-TAX ACT, 1961. THE INCOME RECEIVED BY AN ASS ESSEE HAS TO BE FITTED UNDER ONE OR OTHER HEAD HAVING REGARD TO THE SOURCE FROM WHICH THAT INCOME IS DERIVED. THE FACT THAT A PERSO N CARRIED ON BUSINESS DOES NOT LEAD TO THE INFERENCE THAT ALL IN COME RECEIVED BY SUCH A PERSON IS BUSINESS INCOME. THE SAME ASSESSEE CAN HAVE INCOME WHICH MAY REQUIRE TO BE CLASSIFIED UNDER MOR E THAN ONE HEAD. IT IS THE MANNER IN WHICH THE INCOME IS DERIVED THA T IS RELEVANT AND NOT MERELY THE FACT THAT THE PERSON IS ENGAGED IN A BUSINESS OR IN A PROFESSION. INTEREST RECEIVED BY A COMPANY WHICH CA RRIES ON BUSINESS, FROM BANK DEPOSITS AND LOANS COULD ONLY BE TAXABLE AS BUSINESS INCOME. (II) INTEREST PAID ON OVERDRAFT OBTAINED F OR THE PURPOSE OF BUSINESS CANNOT BE DEDUCTED FROM THE INTEREST EARNE D ON MONIES KEPT IN FIXED DEPOSITS AS SUCH INCOME DERIVED BY WAY OF INTEREST ON FIXED DEPOSITS HAS TO TAXED UNDER THE HEAD INCOME FROM O THER SOURCES. (III) HOWEVER, THOUGH THE ASSESSEE MAY NOT BE ENTIT LED TO HAVE INTEREST PAID BY IT ON THE OVERDRAFT TO THE BANK, D EDUCTED FROM THE INTEREST RECEIVED BY IT ON THE SHORT TERM FIXED DEP OSITS, THE ASSESSEE IS ENTITLED TO DEDUCTION OF THE SAME FROM ITS BUSINESS INCOME. 7.2 FACTS BEING SIMILAR, WE FOLLOW THE RATIO LAID D OWN IN THE ABOVE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT AND HOLD THAT THE AO HAS RIGHTLY BROUGHT TO TAX INTEREST INCOME OF RS.39,64, 181/- UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE AO I S DIRECTED TO ALLOW THE CLAIM OF EXPENSES OF RS 15,56,592/- FROM THE BUSINESS INCOME OF THE ASSESSEE, AFTER VERIFICATION. NEEDLES S TO SAY THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 1205/MUM/2015 6 8. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/04/2017 SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 19/04/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI