MANJI K. PATEL, MUMBAI V. ITO WD 5(2)(3), MUMBAI

ITA 1784/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3521 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N O N E
• Keywords: Salary income
• Section: 5(2); 14A

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 1 784 / MUM/ 20 1 3 ( ASSESSMENT YEAR : 200 9 - 20 10 ) SHRI MANJI K. PATEL, 2/A, BANAJI STREET, FORT, MUMBAI - 400 001 VS. ITO WD 5(2) ( 3 ) , MUMBAI PAN/GIR NO. : A A BPP 0130 D ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : N ONE /REVENUE BY : SHRI ARUN KUMAR DATE OF HEARING : 2 2 ND MAY , 201 3 DATE OF PRONOUNCEMENT : 12 TH JUNE , 2013 O R D E R TH IS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 30 - 1 - 2013 OF CIT(A) - 9 , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 9 - 2010 . 2 . THE ASSESSEE IN ITS APPEAL HAS RAISED 12 GROUNDS, WHICH ARE ARGUMENTATIVE IN NATURE, HOWEVER, THE ISSUE RELATES TO DISALLOWANCE OF RS. 10,22,562/ - UNDER SEC TION 14A OUT OF INTEREST PAID ON BORROWED FUNDS. 3 . FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY, INCOME FROM BUSINESS AND PROFESSION AND ALSO INCOME FROM OTHER SOURCES. THE ASSESSEE FIL ED ITA NO. 1784 /20 1 3 2 RETURN DECLARING TOTAL INCOME OF RS.2,45,000/ - . THE ASSESSEE HAS CLAIMED BUSINESS LOSS AT RS. 22,14,318/ - . DURING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS INVESTED CERTAIN AMOUNT IN SHARES OUT OF BORROWED FUNDS. THE AO ALSO NOTED THAT THE ASSESSEE HAS SHOWN INTEREST OF RS. 47,74,120/ - ON BORROWED CAPITAL AND SHARE FROM THE FIRM HAS BEEN SHOWN AT RS. 44,15,404/ - , WHICH IS EXEMPT, THEREFORE, THE AO NOTED THAT IN VIEW OF THE PROVISION OF SECTION 14A, CERTAIN DISALLOWANCE ON ACCOUNT OF I NTEREST HAS TO BE MADE . THE AO NOTED THAT THE TOTAL INTEREST PAID BY THE ASSESSEE IS RS. 71,70 ,421/ - OUT OF WHICH THE ASSESSEE HAS OFFERED INTEREST OF RS.23,96,301/ - FOR DISALLOWANCE UNDER SECTION 14A . THE AO NOTED THAT THERE WAS UNSECURED LOAN OF RS.8,76,9 4,776/ - AND INTEREST ON BORROWED FUNDS OF RS. 71,7 0 ,421/ - HAS BEEN PAID. AFTER APPLYING RULE 8D IN VIEW OF THE DECISION OF THE HON BLE BOMBAY HIGH C O URT IN THE CASE OF GODREJ BOYCE MFG. CO., REPORTED IN 328 ITR 81 (BOM) , THE AO WORKED OUT FURTHER DISALLOWAN CE OF RS. 10,22,562/ - UNDER SECTION 14A. 4 . ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) . DETAILED SUBMISSIONS WERE FILED BEFORE THE CIT(A) , WHICH HAS BEEN DISCUSSED BY THE LEARNED CIT(A) AT PAGES 5 TO 21. WHATEVER, THE WRITTEN SUBMISSIONS WERE FILED, THEY HAVE BEEN REPRODUCED IN THE ABOVE PAGES. VARIOUS CASE LAWS WERE RELIED UPON. THE RATIO OF THE SAME HAS ALSO BEEN DISCUSSED. THEREAFTER LEARNED CIT(A) HELD THAT THE ASSESSEE HAS EARNED PROFIT WHICH IS EXEMPT OF RS. 44,15,404/ - IN THE FORM OF SHARE PROFITS OF THE FIRM NAMELY, FROM M/S TRISHUL ENTERPRISES, M/S TRISHUL CORPORATION AND M/S TRISHUL REALTERS. IN ITA NO. 1784 /20 1 3 3 HIS VIEW, THE SHARE PROFIT FROM THE FIRM IS EXEMPT AND, THEREFORE, PROVISION OF SECTION 14A ARE APPLICABLE. HE FURTHER PLACED RELIANCE IN THE CASE OF DAGA CAPITAL MANAGEMENT, REPORTED IN (2008) 26 SOT 603 (MUM) AND HELD THAT THE PROVISION S OF RULE 8D(2) ARE APPLICABLE AND ACCORDINGLY, HE CONFIRMED THE ORDER OF AO. 5 . NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 6 . LEARNED DR PLACED RELIANCE ON THE ORDER OF AO AND CIT(A). 7 . ON THE OTHER HAND, NONE APPEARED ON BEHALF OF THE ASSESSEE, THOUGH NOTICE WAS SERVED THROUGH REGISTERED AD POST, COPY OF WHICH IS PLACED ON RECORD. 8 . THIS APPEAL IS DISPOSED OF AFTER CONSIDERING THE ORDER OF THE AO AND C IT(A) AND TAKING INTO CONSIDERATION THE VARIOUS GROUNDS OF APPEAL WHICH ARE ARGUMENTATIVE IN NATURE. 9 . AFTER CONSIDERING THE ORDER OF AO AND CIT(A), I FOUND THAT THE ASSESSEE HAS FILED WRITTEN SUBMISSION BEFORE THE CIT(A) . RELIANCE WAS PLACED ON VARIOUS CASE LAWS. THE WRITTEN SUBMISSIONS OF THE ASSESSEE HAVE ALSO BEEN REPRODUCED BY THE CIT(A) IN PARA 5 TO 21 OF HIS ORDER. I NOTED THAT THE CIT(A) HAS NOT CONSIDERED THE DECISION OF THE TRIBUNAL AND THE HON BLE SUPREME COURT, WHEREBY IT HAS BEEN STATED THAT THE SHARE FROM THE FIRM IS NOT EXEMPT BECAUSE THE SHARE PROFIT HAS ALREADY BEEN TAXED IN THE HANDS OF THE FIRM AND, THEREFORE, IN THE HANDS OF THE PARTNER IS NOT TAXABLE, OTHERWISE, IT WILL TANTAMOUNT TO DOUBLE TAXATION. ACCORDINGLY, THE PROVISIONS OF SEC TION 14A ARE NOT APPLICABLE IN RESPECT OF SHARE ON ITA NO. 1784 /20 1 3 4 PROFIT. THIS HAS BEEN HELD BY THE TRIBUNAL IN THE CASE OF SUDHIR DATTARAM PATIL VS. DCIT, REPORTED IN 2 SOT 678 (MUM) . THIS ISSUE HAS ALSO BEEN EXAMINED BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. R.M.CHIDAMBARAM PILLAI, REPORTED IN 106 ITR 292 . IT HAS BEEN OBSERVED IN THIS ORDER THAT THE ASSESSEES PARTNER GETS ITS SHARE OF PROFIT FROM THE FIRM AFTER THE FIRM HAS BEEN SUBJECTED TO TAX IN ITS HANDS. THEREFORE, IT IS NOT POSSIBLE TO HOLD THE VIEW THA T THE SHARE IS TAX SUFFERED INCOME IN THE HANDS OF THE FIRM. HENCE, SECTION 14A IS NOT APPLICABLE IN THAT CASE. SIMILAR ISSUE HAS BEEN DECIDED IN THE CASE OF SHRI BHARAT S. ROUT, DECIDED IN ITA NO. 9212/MUM/2004, VIDE ORDER DATED 25 - 6 - 2008 . THE ASSESSEE HAS RECEIVED REMUNERATION AND EARNING OF SHARE OF PROFIT BEING INCIDENTAL TO EARNING OF TAXABLE INCOME WHICH INCOME HAS SUFFERED TAX IN THE HANDS OF THE FIRM, AND, THEREFORE, INTEREST CANNOT BE DISALLOWED UNDER SECTION 14A. IN THE CASE OF ACIT VS. DELITE ENT ERPRISE (P) LTD., REPORTED IN 128 ITD 146 , THE TRIBUNAL HAS HELD THAT THE NO DISALLOWANCE CAN BE MADE IN RESPECT OF THE FIRM IN WHICH THE ASSESSEE HAS RECEIVED INTEREST ON ENTIRE EXPENDITURE AND REMUNERATION. 10 . IN VIEW OF THE AFORESAID FACTS AND CIRCUMS TANCES, I HOLD THAT ON ACCOUNT OF SHARE PROFIT RECEIPT, PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. I FURTHER NOTED THAT THE ASSESSEE HAS ITS OWN CAPITAL, INTEREST FREE LOAN AND NON - INTEREST BEARING DEPOSIT WHICH COMES TO RS.1,54,82,722/ - . THE BENEFIT OF THE AMOUNT AVAILABLE WITH THE ASSESSEE HAS NOT BEEN GIVEN EITHER BY THE AO OR BY THE CIT(A) BY OBSERVING THAT THE ASSESSEE COULD NOT PROVE THE NEXUS. IT IS NOT A QUESTION TO PROVE THE ITA NO. 1784 /20 1 3 5 NEXUS BUT IT HAS TO BE SEEN THAT THE ASSESSEE HAS INTEREST FREE LOANS O R NOT, THEREFORE THE BENEFIT OF THE AMOUNT AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF OWN CAPITAL OR INTEREST FREE LOAN OR NON - INTEREST BEARING DEPOSIT HAS TO BE GIVEN. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LIMITED, DECID ED IN ITA NO. 1398 OF 2008, VIDE ORDER DATED 9 - 1 - 2009 , HAS HELD THAT IF THE INTEREST FREE FUND IS AVAILABLE WITH THE ASSESSEE SUFFICIENT TO MEET INVESTMENT IN SHARE AND AT THE SAME TIME ASSESSEE HAS RAISED LOAN IT CAN BE PRESUMED THAT INVESTMENT IN SHARE IS MADE OUT OF INTEREST FREE FUND WHILE CONSIDERING THE DISALLOWANCE UNDER SECTION 14A. ACCORDINGLY, I DIRECT THE AO TO ALLOW THE BENEFIT OF OWN CAPITAL, INTEREST FREE LOAN OR NON INTEREST BEARING DEPOSIT TO THE ASSESSEE WHILE RECALCULATING THE DISALLOWANCE UNDER SECTION 14A. FURTHER I NOTED THAT INVESTMENT HAS BEEN MADE IN THE PARTNERSHIP FIRM . O N THAT AMOUNT ALSO NO INTEREST CAN BE DISALLOWED AS THE PROFIT OF THE FIRM IS TAXABLE. AS PER THE DETAIL PROVIDED BY THE ASSESSEE BEFORE THE CIT(A) , WHICH IS MENTION ED AT PAGE 16 ONWARDS, THE ASSESSEE HAS INVESTED ABOUT 5 CRORE OR ODD IN THE PARTNERSHIP FIRM, THEREFORE, ON THESE AMOUNTS ALSO NO DISALLOWANCE CAN BE MADE. THE ASSESSEE HAS MADE INVESTMENT IN SHARES AT RS. 1,50,52,500/ - , WHEREAS ITS OWN CAPITAL OF RS. 1,54 ,82,722/ - ON ACCOUNT OF OWN CAPITAL, INTEREST FREE LOAN AND NON INTEREST BEARING DEPOSIT. THEREFORE, WHILE RECALCULATING THE DISALLOWANCE, THE AO HAS TO CONSIDER THIS AMOUNT AVAILABLE WITH THE ASSESSEE. 11 . THE ASSESSEE HAS ALSO EARNED INTEREST INCOME W HICH HAS TO BE NETTED OFF FROM THE TOTAL INCOME BY THE ASSESSEE AS HELD BY THE HON BLE ITA NO. 1784 /20 1 3 6 SUPREME COURT IN THE CASE OF KESHAVJI RAVJI AND CO. VS . CIT , REPORTED IN (1990) 183 ITR 1 . ACCORDINGLY, I DIRECT THE AO TO RECALCULATE DISALLOWANCE OF THE INTEREST TAKIN G NET INTEREST EXPENDITURE . THE AO SHALL ALSO TAKE INTO CONSIDERATION THE DISALLOWANCE OF RS .23,96,301/ - , WHICH THE ASSESSEE HAS ALREADY OFFERED FOR TAXATION UNDER SECTION 14A. 1 2 . ACCORDINGLY, I SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE AO TO RECALCULATE THE INTEREST AFTER TAKING INTO CONSIDERATION MY ABOVE OBSERVATIONS AND FINDINGS AFTER AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE. I ORDER ACCORDINGLY. 1 3 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JUNE 2013 201 3 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI; DATED : 12/06 /2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE R ESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI