DCIT 1(3), MUMBAI V. SUKARMA INVESTMENTS P. LTD, MUMBAI

ITA 1909/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6958 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 20-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: URVI MEHTAAR
• Keywords: Business income; Business expenditure; Earning of tax free income; Additional evidence
• Section: 143(3); 14A

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL EBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEM BER & PAWAN SINGH, JUDICIAL MEMBER ./I.T.A./1909/MUM/2014, /ASSESSMENT YEAR: 2007-08 DY. CIT 1-(3) 564, 5 TH FLOOR,AAYAKAR BHAVAN, M.K. ROAD,MUMBAI 400 020. VS. M/S. SUKARMA INVESTMENTS PVT.LTD. 4 TH FLOOR, MAFATLAL HOUSE H.T. PAREKH MARG,MUMBAI-400 020. PAN:AADCS 8988 D ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI V. JUSTIN-DR ASSESSEE BY: MS. URVI MEHTA-AR / DATE OF HEARING: 09.04.2018 / DATE OF PRONOUNCEMENT: 23.05.2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , - PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 16/12/2013 OF THE CIT(A )-7,MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE- COMPANY,ENGA GED IN THE BUSINESS OF INVESTMENT AND LEASING PROPERTY,FILED ITS RETURN OF INCOME ON 20/1 0/2007,DECLARING TOTAL INCOME NIL. ASSESSMENT WAS COMPLETED, U/S. 143(3) OF THE ACT,ON 23/12/200,DETERMINING ITS TOTAL INCOME AT RS.20.46 LAKHS. 2. FIRST GROUND OF APPEAL IS WITH REGARD TO DELETING T HE DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED U/S.36(1)(III) OF THE ACT. DURING THE ASSES SMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD MADE CERTAIN ADJUSTMENT TO THE NET LOS S AS PER THE P&L ACCOUNT, THAT IT WAS IN RECEIPT OF DIVIDEND INCOME, RENTAL INCOME AND SHAR E OF PROFIT FROM PARTNERSHIP FIRM, THAT THE LOSS ON SALE OF INVESTMENT WAS GIVEN A SEPARATE TRE ATMENT UNDER THE HEAD CAPITAL LOSS. HE OBSERVED THAT ASSESSEE WAS NOT CARRYING OUT ANY BUS INESS .VIDE HIS ORDER SHEET ENTRY DATED 17/12/2009,HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES CLAIMED IN THE P&L ACCOUNT SHOULD NOT BE DISALLOWED IN ABSENCE OF BUSI NESS ACTIVITIES CARRIED OUT BY IT. AS PER THE AO,THE ASSESSEE DID NOT FILE ANY SATISFACTORY REPLY IN THAT REGARD.ACCORDINGLY,HE HELD THAT THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITY , THAT ALL THE EXPENSES CLAIMED BY IT IN P&L ACCOUNT WERE TO BE DISALLOWED. 1909/M/14-M/S. SUKARMA INVESTMENTS PVT.LTD. 2 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREF ERRED AND APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND FILED DETAILED SUBMIS SIONS. IT WAS ARGUED THAT AS PER THE TAX AUDIT REPORT NATURE OF BUSINESS WAS INVESTMENTS AND LEASING OF PROPERTY, THAT IT HAD INCURRED TOTAL EXPENDITURE OF RS.1.85 CRORES,THAT RS.1.72 CR ORES WERE PAID AS INTEREST AND FINANCE CHARGES ON LOANS BORROWED FOR THE BUSINESS, THAT TH E INTEREST EXPENDITURE IN QUESTION WAS ALLOWABLE AS PER THE PROVISIONS OF SECTION 36(1)(II I) OF THE ACT UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION, THAT A PERIOD O F LULL IN BUSINESS COULD NOT BE TURNED AS CLOSURE OF BUSINESS.HE RELIED UPON THE CASES OF HAR ISH CHANDER JAGGANATH PRASAD (43ITR231) AND CHANDRA CORPN. LTD.(3 ITR350).AFTER CONSIDERING THE AVAILABLE MATERIAL AND RELYING UPON THE CASES REFERRED TO BY THE ASSESSEE,THE FAA DELETED THE DISALLOWANCE MADE BY THE AO. 2.2. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT THERE WAS NO JU STIFICATION FOR ALLOWING THE EXPENDITURE WHEN THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION, THAT IT WAS NOT PROVED THAT INTEREST WAS PAID FOR THE BU SINESS OF THE ASSESSEE. THE AUTHORISED REPRESENTATIVE (AR) SUPPORTED THE ORDER OF THE FAA AND STATED THAT WHILE COMPUTING THE INCOME FOR AY.2009-10 THE AO HAD COMPUTED THE INCO ME OF THE ASSESSEE UNDER THE HEAD BUSINESS INCOME, THAT THERE WAS TEMPORARY LULL IN T HE BUSINESS. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E AO HAS DISALLOWED ALL THE EXPENSES, AMOUNTING TO RS.1.72 CRORES,WHILE COMPLETING THE AS SESSMENT,HE HAD HELD THAT ASSESSEE DID NOT CARRY OUT ANY BUSINESS,THAT HE HAD NOT MADE ANY ENQUIRY ABOUT INTEREST PAID DURING THE YEAR UNDER CONSIDERATION.WE FURTHER FIND THAT IN TH E VERY NEXT YEAR THE AO , WHILE COMPUTING THE INCOME OF THE ASSESSEE HAD HELD THAT ASSESSEE WAS DERIVING INCOME FROM BUSINESS.IN OUR OPINION,THE FAAWAS JUSTIFIED IN HOLDING THAT LULL I N BUSINESS FOR THE YEAR UNDER CONSIDERATION WOULD NOT DISENTITLE THE ASSESSEE TO CLAIM EXPENDI TURE.IT IS ALSO A FACT THAT IT IS A CORPORATE ENTITY AND ASSESSEE HAS TO INCUR CERTAIN EXPENDITU RE TO MAINTAIN ITS CORPORATE EXISTENCE.AS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE FAA , ESPECIALLY IN THE LIGHT OF THE JUDGMENTS RELIED UPON BY HIM,SO,CONFIRMING THE SAME WE DECIDE THE FIRST GROUND OF APPEAL AGAINST THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT DELETING THE DISALLO WANCE OF SHORT TERM CAPITAL LOSS (STCL). DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED STCL OF RS. 1.54 CRORES ON SALE OF SHARES OF MAFATLAL DENIM LTD . (MDL), THAT IT HAD PURCHASED RS.29.57 LAKHS SHARES ON 28/3/2006 AT RS.19.40 PER SHARE,THA T ON 10.7.2006 IT SOLD ALL THE SHARES AT RS.14.16 PER SHARE.HE DIRECTED THE ASSESSEE TO FIL E NECESSARY DETAILS ALONGWITH THE SUPPORTING 1909/M/14-M/S. SUKARMA INVESTMENTS PVT.LTD. 3 DOCUMENTARY EVIDENCES FOR CLAIMING STCL. HE HELD TH AT THE SHARES WERE NOT LISTED IN ANY OF THE RECOGNIZED STOCK EXCHANGES,THAT THE GENUINENESS OF THE TRANSACTIONS WAS NOT PROVED BY THE ASSESSEE.HE HELD THAT THE ARTIFICIAL LTCL HAD T O BE IGNORED. 3.1. DURING THE APPELLATE PROCEEDINGS,BEFORE FAA THE ASS ESSEE FILED ADDITIONAL EVIDENCES. HE CALLED FOR A REMAND REPORT FROM AO IN THAT REGARD.A FTER EXAMINING THE ADDITIONAL EVIDENCE AND DOCUMENTS SUBMITTED BY THE ASSESSEE,THE AO HELD THAT THE FACTS OF THE CASE UNDER CONSIDERATION ARE SIMILAR TO THE FACTS OF A SISTER CONCERN NAMELY M/S. SUREMI TRADING PVT.LTD. (STPL),THAT IN CASE OF STPL THE THEN FAA HAD ACCEPT ED THE CLAIM MADE BY THE ASSESSEE, THAT THE STCL COULD BE ALLOWED. 3.2. BEFORE US, THE DR STATED THAT MATTER COULD BE DECI DED ON MERITS. THE AR REFERRED TO THE ORDER OF THE FAA FOR THE AY 2007-08. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT WHILE ADJUDICATING THE APPEAL ,FOR THE AY.2007-08,IN THE CASE STPL THE FAA HAS DEALT WITH THE IDENTICAL ISSUE AND HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE.CONSIDERING THE ABOVE,WE DECIDE GROUND NO. 2 AGAINST THE AO. 4. LAST GROUND OF APPEAL IS ABOUT 14A DISALLOWANCE.DUR ING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED EXEMPT INC OME OF RS. 300/- AGAINST WHICH IT HAD NOT ADDED BACK ANY AMOUNT AS EXPENDITURE ATTRIBUTABLE T O EARNING EXEMPT INCOME.REFERRING TO THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE INCOM E TAX RULES, 1962,HE MADE AN ADDITION OF RS.1.64 CRORES.SINCE THE ENTIRE BUSINESS EXPENSES C LAIMED BY THE ASSESSEE HAD BEEN DISALLOWED BY HIM, SO,NO SEPARATE DISALLOWANCE WAS MADE U/S.14A. 4.1. WE FIND THAT IN THE CASE OF STPL THE TRIBUNAL HAS DEALT WITH THE IDENTICAL ISSUE (ITA.S/ 6007 AND 5313/MUM/AY.S. 2007-08,2008- 09, DTD.17.09 /2013)AS FOLLOWS: 2. ISSUE OF DISALLOWANCE UNDER SECTION 14A: ASSESSE E RAISED GROUNDS ON THIS ISSUE IN BOTH THE ASSESSMENT YEARS. ASSESSING OFFICER INVOKED RULE-8D AND DISALLOWED THE AMOUNTS ACCORDINGLY. LD. CIT(A) WHILE CONFIRMING THE DISALLOWANCE IN A.Y 2008-09 FOLLOWING THE DECISION OF HIGH BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . COMPANY LTD., 328 ITR 81, DELETED THE DISALLOWANCE ON THE BASIS OF RULE 8D WHILE ESTIMATI NG THE DISALLOWANCE AT 5% OF THE DIVIDEND EARNED, AS ATTRIBUTABLE TO EARNING THE EXEMPT INCOM E. 2.1 ASSESSEE WITHDREW THE GROUND IN A.Y 2008-09 WHEREAS IT WAS CONTESTING THE SAME IN A.Y 2 007-08 ON THE REASON THAT 5% OF DIVIDEND INCOME IS ARBITRARY AND IN THE ALTERNATE EXCESSIVE, CONSIDERING THE EXPENDITURE OF BUSINESS. REVENUE IS AGGRIEVED ON RESTRICTING THE SAME TO 5% OF THE DIVIDEND INCOME BY LD. CIT(A). WE HAVE HEARD THE RIVAL CONTENTIONS IN DETAIL. 2.2 IT WAS THE CONTENTION OF THE LD. COUNSEL THAT A SSESSEES EXPENDITURE IS VERY REASONABLE IN THE BUSINESS AND RESTRICTING THE SAME TO 5% IS NOT WARR ANTED. EVEN OTHERWISE HE SUBMITTED THAT THE DISALLOWANCE AT 5% IS EXCESSIVE. LD. DR RELIED ON T HE ORDER OF THE AO. 2.3 WE HAVE EXAMINED THE CONTENTIONS. IN A.Y 2008-0 9 ASSESSEE EARNED DIVIDEND OF RS.1,16,23,602/- AND INVOKING RULE 8D THE AO MADE D ISALLOWANCE OF RS. 17,38,739/-, WHICH WAS ACCEPTED BY ASSESSEE AS THE GROUND PERTAINING TO TH AT WAS WITHDRAWN. IN A.Y 2007-08, ASSESSEE EARNED DIVIDEND OF RS.1,75,91,591/-. AO DISALLOWED AMOUNT OF RS. 2,62,92,591/- INCLUDING 1909/M/14-M/S. SUKARMA INVESTMENTS PVT.LTD. 4 INTEREST EXPENDITURE. LD. CIT(A) RESTRICTED TO 5% O F THE DIVIDEND TO AN EXTENT OF RS.8,79,579/-. THIS AMOUNT IS REASONABLE WHEN COMPARED TO THE DIVI DEND EARNED AND DISALLOWANCE MADE IN A.Y 2008-09. THE ASSESSEE ALSO DISALLOWED INTEREST IN A .Y 2008-09 WHICH WAS NOT DONE IN A.Y 2007- 08. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFER E WITH THE ORDER OF LD. CIT(A), WHICH IS VERY REASONABLE ON THE FACTS OF THE CASE. CONSEQUENTLY, ASSESSEES GROUND NO.1 IS REJECTED. SINCE RULE 8D IS NOT APPLICABLE FOR A.Y 2007-08, REVENUES GRO UND IS ALSO REJECTED. RESPECTFULLY FOLLOWING THE ABOVE,WE DIRECT THE AO T O RESTRICT THE DISALLOWANCE TO 5% OF THE DIVIDEND INCOME.THIRD GROUND OF APPEAL IS DECIDED A GAINST THE AO,AS WE DO NOT WANT TO DISTURB THE ORDER OF THE FAA. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D . ORDER PRONOUNCED I N THE OPEN COURT ON 23 RD MAY, 2018. 23 , 2018 SD/- SD/- ( ( ( ( !' /PAWAN SINGH) ( #$% / RAJENDRA) $ '& / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 23 .05.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.