JTCIT RG 11(2), MUMBAI V. C.C. CHOKSHI & CO., MUMBAI

ITA 1984/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93122 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 19-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J
• Assessee Lawyers: K K VED; M A PATADE
• Keywords: Business expenditure; Diversion of income; Earning of tax free income; Tax effect
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI G.S. PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1984 / MUM / 2011 ASSESSMENT Y EAR : 2007 - 08 DCIT - 11(2) ROOM NO. 479, 4 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020 VS. M/S. C.C. CHOSKHI & CO. 264/265, VASWANI CHAMBERS, DR. ANNIE BESANT ROAD, WORLI MUMBAI PAN: AAAFC 0866 E (APPELLANT) (RESPONDENT) ITA NO. 1602/MUM/2011 ASSESSMENT YEAR : 2007 - 08 M/S. C.C. CHOSKHI & CO. 264/265, VASWANI CHAMBERS, DR. ANNIE BESANT ROAD, WORLI MUMBAI PAN: AAAFC 0866 E VS. A CIT RANGE - 11(2) 4 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.K. VED & SHRI M.A. PATADE REVENUE BY : SHRI PERMANAND J. DATE OF HEARING : 17.06.2015 DATE OF ORDER : 30.06.2015 PER G.S. PANNU , A M : THE CAPTIONED CROSS APPEALS ARE DIRECT AGAINST THE ORDER OF THE C OMMISSIONER OF I NCOME T AX (A PPEALS ) [HEREINAFTER REFERRED TO AS THE ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 2 CIT(A)] DATED 01.12.2010 WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY ASSESSING OFFICER DATED 31.12.2009, UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, [HEREINAFTER REFERRED TO AS THE ACT] FOR ASSESSMENT YEAR 2007 - 08. 2. IN THE APPEAL OF THE REVENUE, THE FOLLOWING GROUND OF APPEAL HAS BEEN RAISED: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) - 3, MUMBAI HA S ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS.85,37,147/ - ON ACCOUNT OF PAYMENT TO EX - PARTNERS OR SPOUSES OF DECEASED PARTNERS WITHOUT APPRECIATING THE FACT THAT THE AFORESAID PAYMENT IS NOTHING BUT DIVERSION OF INCOME BY OVERRIDING TITLE. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM OF CHARTERED ACCOUNTANT S . THE ASSESSING OFFICER NOTED THAT ASSESSEE FIRM HAS PAID AN AMOUNT OF RS.85,37,142/ - TO THE EX - PARTNERS OR SPOUSES OF DECEASED PARTNERS IN PURSUANCE TO CLAUSE 22 OF THE PARTNERSHIP DEED. THE ASSESSEE HAD CLAIMED DEDUCTION OF THE AFORESAID AMOUNT BY REDUCING IT FROM THE GROSS RECEIPTS CREDITED IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER SHOW - CAUSED THE ASSESSEE AS TO WHY SUC H PAYMENT BE NOT DISALLOWED, WHILE COMPUTING TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION. 4. THE PLEA OF THE ASSESSEE WAS THAT, THE AMOUNT OF RS.85,37,142/ - WAS A PRIOR AND OVERRIDING CHARGE ON THE RECEIPTS OF THE FIRM IN TERMS OF THE PARTNERSHIP DEED A ND THE ACTUAL INCOME CAN BE ARRIVED AT ONLY AFTER REDUCING THE IMPUGNED PAYMENTS FROM THE GROSS RECEIPTS OF THE YEAR. ALTERNATIVELY, IT WAS CANVASSED THAT THE EXPENDITURE OF RS.85,37,142/ - H AS BEEN INCURRED FOR CARRYING ON THE PROFESSION OF THE FIRM AND ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 3 T HEREFORE IT WAS ALLOWABLE AS AN EXPENDITURE UNDER SECTION 37(1) OF THE ACT. ASSESSEE ALSO ASSERTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1995 - 96 TO 1997 - 98 VIDE ORDER DATED 24.04.2006 HELD THAT THE PAYMENT TO RETIRED PARTNERS OR SPO USES OF DECEASED PARTNERS UNDER THE TERMS OF THE PARTNERSHIP DEED IS DIV ERSION BY OVERRIDING TITLE. FURTHER, ASSESSEE HAS POINTED OUT THAT THE DEPARTMENT FILED APPEALS BEFORE THE HIGH COURT AGAINST THE TRIBUNAL ORDER FOR ASSESSMENT YEARS 1995 - 96 TO 1997 - 98 , WHICH WERE DISMISSED BY THE HONBLE HIGH COURT VIDE ITS ORDER DATED 15.07.2008 FOR ASSESSMENT YEAR 1995 - 96 AND BY ORDER DATED 25.07.2008 FOR ASSESSMENT YEARS 1996 - 97 AND 1997 - 98. 5. THE ASSESSING OFFICER DISAGREED WITH THE ASSESSEE AND DISALLOWED THE CL AIM ON BOTH GROUNDS. WITH REGARD TO THE ORDERS OF THE HONBLE HIGH COURT FOR ASSESSMENT YEARS 1995 - 96 TO 1997 - 98, IT WAS NOTED THAT THE DEPARTMENT HAD FILED A MISCELLANEOUS APPLICATION FOR RESTORATION OF APPEAL FOR ASSESSMENT YEAR 1995 - 96 AND AS REGARDS A SSESSMENT YEARS 1996 - 97 AND 1997 - 98 THE DEPARTMENT DID NOT FILE SLP TO HONBLE SUPREME COURT ON THE GROUND OF SMALLNESS OF TAX EFFECT. ACCORDING TO THE ASSESSING OFFICER, THE DEPARTMENT HAD NOT ACCEPTED THE JUDGMENT OF THE HONBLE HIGH COURT IN PRINCIPLE. 6. BEFORE THE CIT(A), ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. APART FROM THAT, ASSESSEE ALSO POINTED OUT THA T SIMILAR DISPUTE FOR ASSESSMENT YEARS 2000 - 01, 2001 - 02 AND 2003 - 04 WAS DECIDED BY THE TRIBUNAL VIDE ORDER DATED 21. 05.2010 IN FAVOUR OF THE ASSESSEE. THE CIT(A) NOTED THAT THERE WAS NO MATERIAL CHANGE IN THE RELEVANT CLAUSE OF THE PARTNERSHIP DEED WHEN COMPARED TO YEAR WHICH WERE BEFORE THE TRIBUNAL. THEREFORE, FOLLOWING THE PRECEDENTS, HE ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 4 ALLOWED THE CLAIM OF THE ASSE SSEE THAT THE IMPUGNED PAYMENT TO RETIRED PARTNERS OR SPOUSES OF THE DECEASED PARTNERS UNDER THE TERMS OF THE PARTNERSHIP DEED IS DIVERTED BY OVERRIDING TITLE. AGAINST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 7. BEFORE US, IT WAS A C OMMON GROUND BETWEEN THE PARTIES THAT THE PRECEDENTS RELIED UPON BY THE CIT(A) TO DELETE THE IMPUGNED ADDITION CONTINUE TO HOLD THE FIELD, AND THE SAME HAVE NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. AS A CONSEQUENCE, THE ORDER OF THE CIT(A) IS HEREBY AFFIR MED, AND THE REVENUE FAILS IN ITS APPEAL. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 9. IN SO FAR AS THE APPEAL OF THE ASSESSEE IS CONCERNED, THE GROUNDS OF APPEAL RAISED READ AS UNDER: - 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN DIRECTI NG THE ASSESSING OFFICER TO DISALLOW UNDER SECTION 14A, INTEREST EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME FROM THE PREFERENCE SHARES. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW UNDER SECTION 14A, EX PENSES INCURRED FOR EARNING DIVIDEND INCOME FROM THE PREFERENCE SHARES. 3. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WAS MADE BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT O RDER FOR THE AFORESAID EXPENSES. 4. THE LEARNED COMMISSIONER (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW UNDER SECTION 14A, EXPENSES INCURRED FOR EARNING DIVIDEND INCOME FROM THE PREFERENCE SHARES WITHOUT PROVIDING OPPORTUNITY TO THE A PPELLANT. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 5 DISALLOWANCE UNDER SECTION 14A FOR EXPENSES INCURRED FOR EARNING DIVIDEND INCOME IN ACCORDANCE WITH RULE 8D. INTERE ST EXPENSES FOR EARNING SHARE OF PROFIT 6. THE LEARNED COMMISSIONER (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW UNDER SECTION L4A, INTEREST EXPENDITURE INCURRED FOR EARNING SHARE OF PROFIT FROM THE OTHER PARTNERSHIP FIRMS. 7. THE LEA RNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WAS MADE BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE AFORESAID INTEREST EXPENDITURE. 8. THE LEARNED COMMISSIONER (APPEALS ) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW UNDER SECTION 14A, INTEREST EXPENDITURE INCURRED FOR EARNING SHARE OF PROFIT FROM THE OTHER PARTNERSHIP FIRMS WITHOUT PROVIDING OPPORTUNITY TO THE APPELLANT. 9. WITHOUT PREJUDICE TO THE ABOVE, THE LE ARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT INTEREST EARNED ON CAPITAL ACCOUNT FROM OTHER PARTNERSHIP FIRMS WOULD NOT BE IN THE NATURE OF EXEMPT INCOME, HENCE PROFIT EARNED FROM OTHER PARTNERSHIP FIRMS IS NOT REQUIRED TO BE CONSIDERED WHILE CALCULATING DISALLOWANCE UNDER SECTION 14A. 10. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT DISALLOWANCE UNDER SECTION 14A FOR INTEREST EXPENDITURE FOR EARNING SHARE OF PROF IT COMPUTED IN ACCORDANCE WITH RULE 80. EXPENSES FOR EARNING SHARE OF PROFIT 11. THE LEARNED COMMISSIONER (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW UNDER SECTION 14A, EXPENSES INCURRED FOR EARNING SHARE OF PROFIT FROM THE OTHER PAR TNERSHIP FIRMS. 12. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT INTEREST EARNED ON CAPITAL ACCOUNT FROM OTHER PARTNERSHIP FIRMS WOULD NOT BE IN THE NATURE OF EXEMPT INCOME, HENCE PROFIT EARNED FROM OT HER ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 6 PARTNERSHIP FIRMS IS NOT REQUIRED TO BE CONSIDERED WHILE CALCULATING DISALLOWANCE UNDER SECTION 14A. 13. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT DISALLOWANCE UNDER SE CTION 14A FOR EXPENSES COMPUTED IN ACCORDANCE WITH RULE 8D. PAYMENT UNDER CLAUSE 22 OF THE PARTNERSHIP DEED 14. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT DECIDING THE FOLLOWING GROUNDS IN THE APPEAL: '3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARN ED JOINT COMMISSIONER OUGHT TO HAVE ALLOWED DEDUCTION FOR THE AMOUNT OF RS.85,3 7,142 UNDER SECTION 3 7( I) OF THE ACT. 4. THE LEARNED JOINT COMMISSIONER ERRED IN HOLDING THAT THE PAYMENT OF RS.85,37, 142 TO EX - PARTNERS OR SPOUSES OF DECEASED PARTNERS IS NOT IN THE NATURE OF BUSINESS EXPENDITURE.' 15. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE HELD THAT THE PAYMENT OF RS.85,37,142/ - UNDER CLAUSE 22 OF THE PARTNERSHIP DEED IS ALTERNATIVELY ELIGIBLE AS A DEDUCTION UNDER SECTION 37(1) OF THE INCOME - T AX ACT. BY WAY OF GROUND OF APPEAL NOS. 1 TO 13, ASSESSEE HAS CHALLENGED THE ADDITION OF RS.4,65,023/ - MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962 (IN SHORT THE RULES). THE ASSESSEE F IRM WAS FOUND TO HAVE EARNED EXEMPT INCOME IN THE FORM OF SHARE OF PROFIT FROM OTHER PARTNERSHIP FIRMS AND DIVIDEND ON PREFERENCE SHARES. THE ASSESSEE FIRM CLAIMED BEFORE THE ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED FOR EARNING SUCH INCOME AND TH AT THE INVESTMENT WAS NOT OUT OF BORROWED FUNDS. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE, AND HE DISALLOWED A SUM OF RS.4,65,023/ - AS AN EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME U/S 14A OF THE ACT ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 7 BY AP PLYING RULE 8D OF THE RULES. AGAINST THE AFORESAID, ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). 10. THE CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER IN PRINCIPLE, BUT HE HAS DIRECTED TO RECOMPUTE THE DISALLOWANCE OF INTEREST AND EXPENSES MADE U/S 14A OF THE ACT IN ACCORDANCE WITH THE DECISION OF THE HONBBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD 328 ITR 8 1 . 11. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE APPELLANT ASSESSEE DOES NOT HAVE ANY SUBSTANT IVE GRIEVANCE INASMUCH THE MATTER HAS BEEN SET - ASIDE BY THE CIT(A) FOR APPLYING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY. IN VIEW OF THE ABOVE, THE ULTIMATE CONCLUSION OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S 14A OF THE ACT IN ACCORDANCE WITH THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) IS HEREBY AFFIRMED; ACCORDINGLY, THE GROUND OF APPEAL NOS. 1 TO 13 ARE DISMISSED. 12. BY WAY OF GROUNDS OF APPEAL NOS. 14 TO 1 5, ASSESSEE HAS AGITATED THAT THE AMOUNT OF RS.85,37,142/ - PAID TO EX - PARTNERS AND SPOUSES OF THE DECEASED PARTNERS WAS ALLOWABLE AS A BUSINESS EXPENDITURE AND THE CIT(A) ERRED IN NOT ALLOWING THE DEDUCTION FOR THE SAME U/S 37(1) OF THE ACT. 13. THE AFORE SAID IS AN ALT ` ERNATIVE PLEA THAT WAS RAISED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THE SUBSTANTIVE PLEA FOR DEDUCTION OF THE AMOUNT OF RS.85,37,142/ - ON THE GROUND OF DIVERSION BY OVERRIDING TITLE WAS ALLOWED BY THE CIT(A), AND IT HAS BEEN FURTHER AFFIRMED BY US WHILE DEALING WITH THE APPEAL OF REVENUE IN THE EARLIER ITA NOS.1458, 1459 & 1460/MUM/2013 ASSESSMENT YEAR : 2006 - 07 8 PARAS OF THIS ORDER. AS A CONSEQUENCE, THE AFORESTATED ALTERNATIVE PLEA OF THE ASSESSEE IS ACADEMIC IN NATURE, AND THE SAME WAS NOT PRESSED BEFORE US. IN THE RESULT, THE AFORESTATED G ROUNDS OF APPEAL ARE TREATED AS INFRUCTUOUS AND DISMISSED. 14. RESULTANTLY, THE CAPTIONED APPEALS ARE DISMISSED, AS ABOVE. ORDER PRONO UNCED IN THE OPEN COURT ON THIS 30 TH DAY JUNE , 2015 . SD/ - SD/ - ( AMIT SHUKLA ) ( G.S. PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 .06.2015 * SKS COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH // TRUE COPY // BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.