E-CITY ENTERTAINMENT (I) P.LTD, MUMBAI V. ASST CIT RG 11(1), MUMBAI

ITA 1586/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2490 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 27-05-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 06-03-2012
• Court: TRIBUNAL
• Department Lawyers: KAMAL MANGAL
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. NO.1586/M/2012 (ASSESSMENT YEAR: 2001 - 2002 ) E - CITY ENTERTAINMENT (INDIA) PVT LTD, LEVEL 4, FUND REPUBLIC, PLOT NO.844/4, SHAH INDUSTRIAL ESTATE, OFF NEW LINK ROAD, ANDHERI (W), MUMBAI 53. / VS. ACIT, RANGE - 11(1), AAYAKAR BHAVAN, MUMBAI 20. ./ PAN : AAACE5215A ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENT BY : SHRI KAMAL MANGAL, DR / DATE OF HEARING : 28.04.2016 / DATE OF PRONOUNCEMENT : 20 .07.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 6.3.2012 IS AGAINST THE ORDER OF THE CIT (A) - 16, MUMBAI DATED 18.1.2016 FOR THE ASSESSMENT YEAR 2001 - 2002. 2. IN THIS APPEAL, ASSESSEE RAISED THREE MAIN GROUNDS WHICH REVOLVE AROUND A COUPLE OF ISSUES IE (I) TAXATION OF INTEREST INCOME OF RS. 39,26,828/ - WITHOUT GIVING THE SET OFF AGAINST THE INTEREST EXPENDITURE WHEN THERE IS A NEXUS OF THE LOANS TAKEN WITH INTEREST YIELDING FUNDS AND (II) UPHOLDING OF THE ADDITION OF RS. 50 L AKHS CLAIMED BY THE ASSESSEE AS BROKERAGE EXPENSES. IN THE FIRST ROUND, CIT (A) CONFIRMED THE SAME AND THIS IS THE SECOND ROUND OF PROCEEDINGS. 3. WE SHALL TAKE UP THE FIRST ISSUE RELATING TO THE TAXATION OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTH ER SOURCES. ON THIS ISSUE, BEFORE US LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE FIRST FOUND OF PROCEEDINGS, THE TRIBUNAL REMANDED THE ISSUE TO THE FILE OF THE AO WITH THE FOLLOWING DIRECTIONS: - 2 3.2.........THERE IS NO DISPUTE ABOUT THE FACT THAT THE INTEREST EXPENDITURE CAPITALIZED OF RS. 3,71,76,974/ - IS NET OF THE INTEREST INCOME OF RS. 39,26,827/ - WHICH WAS EARNED ON THE FUNDS INVESTED TEMPORARILY. IF THE INTEREST INCOME IS TAXED SEPARATELY, THEN TO THAT EXTENT, INTEREST EXPENSES WHICH ARE CAP ITALIZED TO THE CONST OF CONSTRUCTION SHOULD ALSO BE INCREASED. WE THEREFORE, DIRECT THE AO ALSO TO CONSIDER THE ALTERNATE PLEA OF THE ASSESSEE AFTER DECIDING THE FIRST PART OF THE ISSUE. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) ON THIS ISSUE AN D REMAND THE SAME TO THE FILE OF THE AO. ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 4. DURING THE SET ASIDE PROCEEDINGS, AO WAS NOT PLEASED WITH THE SUBMISSIONS MADE BY THE ASSESSEE. IT APPEARS, THERE IS A FAILURE TO FURNISH THE DETAI LS OF EVIDENCES DESPITE THE REPEATED OPPORTUNITIES (PARA 10 OF THE ASSESSMENT ORDER ARE RELEVANT). AO CONFIRMED THE SAME VIDE PARA 11 OF THE ASSESSMENT ORDER THAT READS AS UNDER: - 11. AFTER DISCUSSION AND CONSIDERING THE DETAILS SUBMITTED, THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UNDER: - INCOME FROM OTHER SOURCES AS PER THE ORDER DATED 26.3.2004 - RS. 39,26,830/ - 5. DURING THE FIRST APPELLATE PROCEEDINGS IN THE SECOND ROUND, CIT (A) CAME TO THE CONCLUSION THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE SHORT TERM LOAN TAKEN AND THE LOAN GIVEN DURING THE YEAR. PARA 3.3.1 OF THE CIT (A)S IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER: - 3.3.1. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT COMPANY A S WELL AS CAREFULLKY GONE THROUGH THE AVAILABLE DOCUMENTS ON RECORD. THE LD AO FOUND THAT NO EXPENDITURE IS ALLOWABLE U/S 57 OF THE ACT EARNING INTEREST INCOME WHICH IS NOTHING BUT THE INVESTMENT OF THE BORROWED FUNDS AND THE SHARE APPLICATION MONEY. THE APPELLANT BEFORE ME SUBMITTED THAT THERE IS A DIRECT NEXUS BETWEEN THE LOAN TAKEN AND GIVEN, THEREFORE, THE INTEREST INCOME IS TO BE CHARGED ON NET BASIS. HOWEVER, STATING IN GENERALITY, THE LD AR OF THE APPELLANT DID NOT PRODUCE ANY EVIDENCE EITHER BEFOR E ME OR BEFORE THE LD AO TO SUBSTANTIATE HIS CLAIM. THEREFORE, THE ADDITION MADE BY THE LD AO IS ACCORDINGLY CONFIRMED AND I AM OF THE VIEW THAT THE DEDUCTION U/S 57 IS NOT ALLOWABLE TO THE APPELLANT HAVING FAILED TO IDENTIFIED THE DIRECT EXPENDITURE ATT RIBUTABLE TO EARNING OF THE INCOME. THIS GROUND OF APPEAL IS THUS DISMISSED. 6. BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PAGES 11 TO 14 OF THE PAPER BOOK AND SUBMITTED THAT THE PAGE 11 SPEAKS ABOUT THE SOURCES OF FU NDS IE RABO INDIA FINANCE CO. LTD AND PAGE 14 CONFIRMS THE DEPOSIT OF THE SAME IN THE BANK ACCOUNT. HE ALSO BROUGHT OUR ATTENTION TO PAGES 3 TO 10 OF THE PAPER BOOK AND SUBMITTED THAT IT IS NOT CORRECT TO PRESUME THAT THE DETAILS WERE NOT FURNISHED. 7. AFTER HEARING BOTH THE PARTIES, WE FIND THE CONTENTS OF OPERATIONAL PARA 3.3.1 OF THE CIT (A) ON THIS ISSUE SHOULD NOT BE CONSIDERED AS A SPEAKING ORDER AS THERE IS 3 NO REFERENCE TO THE SUBMISSIONS MADE BY THE ASSESSEE AND THE DETAILS MENTIONED ABOVE IE PAGES NO. 3 TO 14 . CONSIDERING THE SAME, WE REMAND THIS ISSUE TO THE FILE OF THE CIT (A) FOR WANT OF A SPEAKING ORDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 250(6) OF THE ACT AND THE SAME SHOULD BE FINALIZED IN A TIME BOUND MANNER CONSIDERING THE FACT THAT THE ISSUE UNDER CONSIDERATION IS REPEATEDLY REMANDED. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHOULD BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTICE. THUS, THIS ISSUE IS ALLOWED FOR STATISTICAL PUR POSES. 8. THE SECOND ISSUE RELATES TO THE ADDITION OF RS. 50 LAKHS ON ACCOUNT OF BROKERAGE CHARGES DISALLOWED BY THE AO. ON FACT, WE FIND THE ASSESSEE FURNISHED THE BANK DETAILS; CONFIRMATION LETTERS; ASSESSMENT PARTICULARS OF THE RECIPIENT OF THE BROKERA GE CHARGES. THIS IS THE CASE, WHERE THE ASSESSEE IS ENGAGED IN THE PURCHASE OF LEASE HOLD LAND. ASSESSEE PAID A SUM OF RS. 50 LAKHS AS BROKERAGE TO A BROKER NAMED M/S. M.V. MARKETING PVT LTD. ASSESSEE FURNISHED ACKNOWLEDGEMENT OF RETURN OF INCOME FOR AY 2003 - 2004; SHOWING THE CONFIRMATION OF RECEIPT OF THE BROKERAGE AND AFFIDAVIT DATED 27.3.2004 (PAGE 23 TO 25 OF THE PB) IN SUPPORT OF THE GENUINENESS OF THE CLAIM. THE SAID AFFIDAVIT PROVIDES DATES; CHEQUE NOS AND THE AMOUNTS PAID BY THE ASSESSEE TO THE BROKER. FURTHER, IN THE FIRST ROUND, THE TRIBUNAL REMANDED THIS ISSUE WITH THE FOLLOWING DIRECTIONS: - 12......AT THE SAME TIME, WE FIND THAT THE REJECTION OF THE CLAIM OF THE ASSESSEE IS ONLY ON SOME HYPOTHETICAL OPINION IS ALSO NOT CORRECT. IN OUR OPINI ON, THIS ISSUE NEEDS RE - CONSIDERATION BY THE AO. WE, THEREFORE, RESTORE THIS ISSUE FOR FRESH ADJUDICATION TO THE FILE OF THE AO AND SET ASIDE THE ORDER OF THE LD CIT (A) ON THIS ISSUE. THE AO HAS TO TAKE INTO CONSIDERATION THE FACT THAT THE PAYMENT OF TH E COMMISSION IS MADE BY THE BANK CHEQUES / DEMAND DRAFTS WHICH IS SUPPORTED BY THE AFFIDAVIT. THE AO IS DIRECTED TO GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSES. 9. DESPITE THE FACT THAT THE TRANSACTIONS ARE EFFECTED THROUGH THE BANKING CHANNEL AND THE BROKER IS ASSESSED TO TAX, THE TRIBUNAL FOUND IT RELEVANT TO RESTORE THE MATTER TO THE FILE OF THE AO IN THE FIRST ROUND FOR RECONSIDERATION BY THE AO. DURING THE SET ASIDE PR OCEEDINGS, AO ISSUED SUMMONS TO M/S. M.V. MARKETING PVT LTD (BROKER). THE BROKER REPLIED QUESTIONING THE AOS ATTEMPT TO DIRECTLY SUMMON IT, WHICH IS A DELHI BASED COMPANY (PAGE 18 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD). SUBSEQUENTLY, AO PUT THE I NVESTIGATION WING OF DELHI INTO SERVICE , WHO 4 REPORTED ADVERSELY ON THE GENUINENESS OF THE TRANSACTIONS. FURTHER, THERE IS A REMAND REPORT ON THE AFFIDAVITS AND OTHER PARTICULARS SPECIFIED ABOVE WHEREIN THE AO SUBMITTED THE REMAND REPORT DATED 14.3.2006 VI DE PAGE 48 OF THE PAPER BOOK. ON PERUSAL OF THE SAME, WE FIND IT RELEVANT TO EXTRACT THE RELEVANT PORTIONS FROM THE SAID REMANDED WHICH IS AS FOLLOWS: - .......IT IS CONFIRMED IN THE AFFIDAVIT THAT THIS AMOUNT HAS BEEN DULY ACCOUNTED FOR IN THE BOOKS AND THEY ARE ASSESSED AT RANGE - 6(1), NEW DELHI. HOWEVER, IT MAY BE NOTED THAT THE DISALLOWANCE WAS MADE ON ENQUIRIES MADE THROUGH DDIT (INV.), UNIT VI(2), NEW DELHI FROM WHOM AN ADVERSE REPORT WAS RECEIVED REGARDING THE GENUINENESS OF THE TRANSACTION. MOREOV ER, IT IS OBSERVED FROM RECORDS THAT THERE IS AN ENVELOPE ADDRESSED TO ITO6(2)(3), APPARENTLY IN WHICH THE AFFIDAVIT AND LETTER WOULD HAVE BEEN ENCLOSED. HOWEVER, THE AFFIDAVIT AND LETTER APPEARS TO BE PERFECTLY WRINKLE FREE AND HENCE, APPEARS TO BE SENT DIRECTLY BY THE PARTY CONCERNED. NEITHER THE ENVELOP BEARS ANY MARKS OF POSTAL DEPARTMENT / COURIER COMPANY. 10. IN THE BACKGROUND OF THESE FACTS, THE CIT (A) IN THE SECOND ROUND DISPROVED THE CLAIM OF THE ASSESSE AND GAVE AN ADVERSE FINDING BY CONFIRMIN G THE DECISION OF THE AO. PARA 2.2.3 OF THE CIT (A)S ORDER IS RELEVANT IN THIS REGARD WHICH READS AS UNDER: - 2.2.3. IN THIS CASE, IN THE ASSESSMENT PROCEEDINGS U/S 143(3), THE LD AO HAD DISALLOWED THE BROKERAGE PAYMENT MADE TO M.B. MARKETING P. LTD ON G ROUND THAT NOTICE U/S 133(6) WAS SENT TO THE ABOVE PARTY AT THE ADDRESS M.B. MARKETING P LTD, A - 32, TAGORE GARDEN, NEW DELHI BUT THERE WAS NO RESPONSE FROM THE SAID PARTY AND THE MATTER WAS ALSO REFERRED TO THE INVESTIGATION WING, NEW DELHI WHO VIDE THEIR REPORT DATED 12/2.2004 STATED THAT THERE IS NO PARTY BY THE ABOVE NAME AT THE GIVEN ADDRESS NOT IT WAS THERE AT ANY TIME AT THE GIVEN ADDRESS. IN THE ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S 254 THE LD AO HELD THAT THERE HAS BEEN NO RESPONSE TO THE NOTICE U/S 133(6) SENT TO THE ABOVE WHICH AGAIN LEADS TO THE AFFIRMATION OF THE STAND TAKEN BY THE AO WAS AFTER DETAILED INQUIRY HELD THE PART Y TO BE BOGUS. THE LD AO FURTHER HELD THAT THE ABOVE PARTY WAS NEVER PRODUCED AT ANY STAGE OF THE PROCEEDINGS WHICH AGAIN VETS THE STAND OF THE LD AO. THE AO, THEREFORE, REDUCED BROKERAGE PAYMENT OF RS. 50,00,000/ - FROM ADDITION TO FIXED ASSETS TOWARDS LEASE HO LD LAND. 11. AFTER HEARING BOTH THE PARTIES, WE FIND THE SAID CONTENTS OF PARA 2.2.3 FOUND DEFICIENT ON MANY ISSUES SUCH AS GENUINENESS OF THE AFFIDAVIT; CONTENTS OF REMAND REPORT ETC. WE DO NOT HAVE ACCESS TO THE FACT THAT WHETHER THE REMAND REPORT IS MADE AVAILABLE TO THE ASSESSEE FOR COMMENTS, IF ANY. THE CIT (A) ORDER DOES NOT SPEAK ABOUT THE CORRECTNESS OF THE AMOUNT OF RS. 50 LAKHS IF THE SAME IS TAXED DULY IN THE HANDS OF THE BROKER. IT IS THE RESPONSIBILITY OF THE ASSESSING OFFICER TO PROVE THA T THE SUBMISSIONS MADE BY THE ASSESSEE IN THE AFFIDAVIT ARE NOT GENUINE. FURNISHING OF PARTY BEFORE THE ASSESSING OFFICER IS NOT A CONCLUSIVE EVIDENCE WHEN OTHER INFORMATION ARE NOT FOUND FALSE BY THE AO. IT IS THE CASE WHERE THE ASSESSEE 5 FURNISHED THE L EDGER EXTRACTS; RETURN OF INCOME OF THE BROKERAGE; CONFIRMATION LETTER; AFFIDAVITS; SUPPORTIVE BANKING TRANSACTIONS ETC. MERELY DISBELIEVING IS NOT THE GROUND FOR CONFIRMING THE ADDITION OF RS. 50 LAKHS MADE BY THE AO. IN ALL FAIRNESS, WE FIND IT RELEVAN T TO REMAND THIS ISSUE ALSO TO THE FILE OF THE CIT (A) FOR WANT OF A SPEAKING ORDER ADDRESSING EACH OF THE EVIDENCES FURNISHED BY THE ASSESSEE IN ITS PAPER BOOK. ASSESSEE SHALL BE GRANTED A REASONABLE OPPORTUNITY OF BEING HEARD AS PER THE SET PRINCIPLES O F NATURAL JUSTICE. ACCORDINGLY, THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUN CED IN THE OPEN COURT ON 20 TH JULY, 2016. SD/ - SD/ - ( AMARJIT SINGH ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 20 .07.2016 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI