SHRI RUSTOM PESI KERAWALLA, MUMBAI V. ACIT-17(3), MUMBAI

ITA 2112/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4947 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Depreciation; Set aside
• Section: 142(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NOS.2112, 3315 & 1220/M/2018 ASSESSMENT YEARS: 2011-12, 2012-13 & 2013-14 SHRI RUSTOM PESI KERAWALLA, 4 TH FLOOR, KERAWALLA CHAMBERS, 25, P.J. RAMCHANDANI MARG, APPOLLOW BUNDER, COLABA, MUMBAI 400 039 PAN: AJPPK1919K VS. ACIT-17(3), 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI SATISH R. MODY, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 03.06.2019 DATE OF PRONOUNCEMENT : 13.08.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY TH E ASSESSEE AGAINST THE ORDERS DATED 19.01.2018, 09.03 .2018 & 18.12.2017 OF THE COMMISSIONER OF INCOME TAX (APPE ALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEARS 2011-12, 2012-13 & 2013-14 RESPECTIVELY. ITA NO.2112/M/2012 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (A)-28, MUMBAI, HAS ERRED IN NOT ALLOWING INTEREST OF RS. 10,06,000/- WHICH WAS PAID FOR THE BORROWINGS MADE AND USED FOR PROVIDING FINANCE TO KARE EDUMIN PVT. LTD. , HOTEL KARL RESIDENCY AND OTHERS ON WHICH INTEREST OF RS. 11,10,096/- WAS EARNED AND SET OFF AGAINST THE SAID BORROWINGS. ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 2 2) THE LEARNED COMMISSIONER OF INCOME-TAX (A)-28, MUMBAI, HAS ERRED IN ENHANCING THE INTEREST OF RS. 10,60,242/- ON THE GR OUND THAT THE INTEREST PAID AND INTEREST RECEIVED FROM THE KARE EDUMIN PVT. LTD. AN D HOTEL KARL RESIDENCY IS A SEPARATE AND INDEPENDENT TRANSACTIONS. 3) THE LEARNED COMMISSIONER OF INCOME-TAX (A)-28, M UMBAI, HAS ERRED IN NOT ALLOWING EXPENDITURE OF RS.49,8547- INCURRED IN EAR NING INCOME AGAINST THE INCOME EARNED. 4) THE APPELLANT RESERVES RIGHT TO ADD, AMEND OR AL TER ANY GROUNDS OF APPEAL. 3. THE FACTS IN BRIEF ARE THAT ASSESSEE FILED THE R ETURN OF INCOME ON 23.09.2011 DECLARING A TOTAL INCOME OF RS.39,40,990/-. THE CASE OF THE ASSESSEE WAS SELEC TED UNDER CASS FOR SCRUTINY AND THE NOTICES UNDER SECTION 143 (2) AND 142(1) WERE DULY ISSUED AND SERVED UPON THE ASSESSE E. DURING THE YEAR, THE ASSESSEE DERIVED INCOME BY WAY OF SAL ARY, REMUNERATION, PROFIT FROM PARTNERSHIP, INTEREST FRO M BANKS, CAR RENTAL INCOME AND ALSO BY WAY OF RENT FROM VARIOUS MOBILE COMPANIES FOR TOWER INSTALLED ON HIS PREMISES. DURI NG THE YEAR ASSESSEE RECEIVED INCOME FROM OTHER SOURCES OF RS.2 0,34,043/- COMPRISING INTEREST FROM BANKS AND OTHER DEPOSITS O F RS.11,80,043/-, CAR RENTAL CHARGES OF RS.1,44,000/- AND TOWER RENT OF RS.7,10,000/-. AGAINST THE SAID RECEIPT, T HE ASSESSEE CLAIMED EXPENSES OF RS.22,87,858/- AS PER DETAILS B ELOW: ACCOUNTING CHARGES RS. 12,000/- DEPRECIATION ON CAR RS. 64,700/- BANK CHARGES RS. 2,305/- PROFESSIONAL CHARGES RS. 37,854/- INTEREST PAID RS.21,70,999/- TOTAL RS.22,87,858/- THE AO ,AFTER OBSERVING THE SAME ,CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM OF THE SAID EXPENDITU RE WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 30.10.201 2 SUBMITTING THEREIN THAT INTEREST HAS BEEN PAID ON BORROWINGS W HICH WAS ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 3 USED AND UTILISED IN LENDING FINANCE TO KARE EDUMI N PVT. LTD. AND HOTEL KARL RESIDENCY AND OTHER COMPANIES. IT W AS ALSO STATED THAT INTEREST RECEIPTS FROM THESE COMPANIES HAS BEEN OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SO URCES. THE ASSESSEE ALSO FILED THE BREAK UP OF MOVEMENT OF FUN DS BEFORE THE AO. THE ASSESSEE SUBMITTED THAT THE FUNDS WERE PRO VIDED TO THESE COMPANIES TO PROMOTE EDUCATIONAL ACTIVITIES I N WHICH THE ASSESSEE WAS HAVING SUBSTANTIAL INTEREST. THE ASSE SSEE ALSO SUBMITTED THAT THOUGH THE INTEREST WAS OFFERED TO T AX UNDER THE HEAD INCOME FROM OTHER SOURCES, IT IS A BUSINESS OF THE ASSESSEE TO PROMOTE EDUCATION AND THEREFORE INTERES T PAID IS DEDUCTABLE EVEN FROM THE INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IF THE SAID E XPENSE IS NOT ALLOWED UNDER SECTION 57(III), THE SAME MAY KINDLY BE TREATED AS BUSINESS OF THE ASSESSEE AND EXPENSES MAY BE ALLOWE D UNDER SECTION 37 OF THE ACT. SIMILARLY, OTHER EXPENSES I NCURRED BY THE ASSESSEE WERE ALSO AGAINST THE INCOME FROM BUSINESS , CAPITAL GAIN AND OTHER SOURCES. THE AO, HOWEVER, NOT SATIS FIED WITH THE CONTENTIONS OF THE ASSESSEE, CAME TO THE CONCLUSION THAT THESE EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY INCURRED F OR THE PURPOSE OF EARNING THE SAID INCOME AND THEREFORE NO T ADMISSIBLE UNDER SECTION 57(III) AND THUS DISALLOWED A SUM OF RS.11,10,757/- WHICH WAS CALCULATED BY SUBTRACTING THE INTEREST PAID OF RS.21,70,999/-, PROFESSIONAL CHARGES OF RS. 37,854/- AND ACCOUNTING CHARGES OF RS.12,000/-. SIMILARLY, THE AO ALSO DISALLOWED RS.4,344/- AS EXPENSES CLAIMED FROM SALA RY AND INTEREST RECEIVED FROM PARTNERSHIP FIRM. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) BES IDES DISMISSING THE APPEAL OF THE ASSESSEE ENHANCED THE INCOME OF THE ASSESSEE BY RS.11,10,096/- WHICH REPRESENTED TH E INTEREST ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 4 ALLOWED BY THE AO TO THE EXTENT OF RS.11,10,096/- O UT OF THE INTEREST RECEIVED ON THE GROUND THAT CLAIM IS NOT A DMISSIBLE UNDER SECTION 57(III) OF THE ACT AND THUS JUSTIFIED THE ENHANCEMENT. NOW THE ASSESSEE IS BEFORE US CHALLEN GING THE ORDER OF LD. CIT(A). 5. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT DUR ING THE YEAR THE ASSESSEE WAS DERIVING INCOME FROM VARIOUS SOURCES AS STATED HEREINABOVE. THE PRIMARY BUSINESS OF THE AS SESSEE WAS TAKING AND ADVANCING OF LOANS. THE LD. A.R. FILED BEFORE THE BENCH AT THE TIME OF HEARING A STATEMENT SHOWING TH E DETAILS OF LOANS RECEIVED FROM VARIOUS PARTIES TO THE EXTENT O F RS.2,60,00,000/- ON WHICH AN INTEREST OF RS.21,70,9 99/- WAS PAID. THE ASSESSEE HAS ALSO FILED DETAILS OF LOANS GIVEN TO THREE PARTIES TO THE TUNE OF RS.2,44,80,000/- ON WHICH IT EARNED INTEREST ON RS.11,80,042/-. THE LD. A.R. SUBMITTED THAT THE AO HAS ALLOWED INTEREST ONLY TO THE EXTENT OF INTEREST RECEIVED AND DISALLOWED THE REMAINING AMOUNT OF INTEREST PAID ON THE GROUND THAT THE SAID INTEREST WAS NOT WHOLLY AND EXCLUSIVE LY EXPENDED FOR THE PURPOSE OF EARNING THE SAID INCOME AND THER EFORE CONCLUDED THAT THE SAME TO BE NOT ALLOWABLE AND AD MISSIBLE UNDER SECTION 57(III) OF THE ACT. THE LD. A.R. TRI ED TO JUSTIFY AND PROVE THE NEXUS BETWEEN THE FUNDS BORROWED AND ADVA NCED BY THE ASSESSEE FROM THE COMPARATIVE STATEMENT PRODUC ED BEFORE US. THE LD. A.R. THEREFORE SUBMITTED THAT THE SAID INTEREST IS FULLY ADMISSIBLE AS EXPENSE UNDER SECTION 57(III) O F THE ACT. THE LD. A.R. ALSO ARGUED THAT THE SAID LOANS WERE ADVAN CED TO KARE EDUMIN PVT. LTD., HOTEL KARL RESIDENCY AND HOTEL PA RK VIEW IN WHICH THE ASSESSEE HAS SUBSTANTIAL BUSINESS INTERES T. ALTERNATIVELY THE LD AR ARGUED THAT IT CAN BE TREAT ED AS BUSINESS ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 5 OF THE ASSESSEE ALSO AND THE EXPENDITURE MAY BE ALL OWED UNDER SECTION 37 OF THE ACT. FURTHER, THE LD. A.R. SUBMI TTED THAT THE ACTION OF THE LD. CIT(A) IS FALLACIOUS AND AGAINST THE PROVISIONS OF THE ACT AS THE INTEREST INCURRED WHICH HAS DIRECT N EXUS WITH THE INTEREST INCOME EARNED THOUGH THE INTEREST RECEIPT WAS LESSER THAN THE INTEREST PAID ON THESE LOANS. THEREFORE, THE LD. CIT(A) HAS GROSSLY ERRED IN ENHANCING THE INCOME OF THE AS SESSEE WHICH MAY KINDLY BE SET ASIDE. AS REGARDS, THE REMAINING EXPENSES, THE LD. A.R. SUBMITTED THAT THE SAME WERE INCURRED FOR THE PURPOSE OF EARNING INCOME AND THEREFORE MAY BE ALLO WED AS BEING INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING T HE SAID INCOME. FINALLY, THE LD. A.R. PRAYED BEFORE THE BE NCH THAT THE ORDER OF LD. CIT(A) MAY BE REVERSED AND AO MAY BE D IRECTED TO ALLOW THESE EXPENSES AS CLAIMED. 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDER OF LD. CIT(A) HEAVILY AND REQUESTED THE BENCH TO AFFIRM TH E SAME. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE HAS CLAIMED EX PENSES TO THE TUNE OF RS.22,87,878/- OUT OF WHICH THE MAJOR A MOUNT IS ON ACCOUNT OF INTEREST PAID OF RS.21,70,999/-. THE RE MAINING EXPENSES WERE IN THE NATURE OF ACCOUNTING CHARGES, DEPRECIATION ON CAR, BANK CHARGES, PROFESSIONAL CHARGES ETC. TH E SAID EXPENSES HAVE BEEN CLAIMED FROM OTHER INCOME SOURCE S OF RS.20,34,043/- WHICH COMPRISED OF INTEREST FROM BAN KS AND OTHER DEPOSITS OF RS.11,80,043/-, CAR RENTAL CHARGE S OF RS.1,44,000/- AND TOWER RENT OF RS.7,10,000/- AGGRE GATING TO RS.20,34,043/-. WE ARE QUITE CONVINCED WITH THE AR GUMENTS OF THE LD. A.R. THAT THERE IS A NEXUS BETWEEN THE INCO ME AND ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 6 EXPENDITURE INCURRED BY THE ASSESSEE. WE HAVE ALSO EXAMINED THE COMPARATIVE STATEMENT PRODUCED OF VARIOUS LOANS TAKEN AND GIVEN ALONG WITH DETAILS OF INTEREST PAID AND RECEI VED AND ARE OF THE VIEW THAT THERE EXISTED A DIRECT NEXUS BETWEEN THE TWO. SIMILARLY, THE OTHER EXPENSES CLAIMED BY THE ASSESS EE WERE ALSO INCURRED FOR THE PURPOSE OF EARNING THE SAID INCOME AS ASSESSEE WAS RECEIVING INCOME IN THE NATURE OF CAR RENTAL CH ARGES AND TOWER RENTS ETC. ALTERNATIVELY, THE SAID CAN BE CO NSIDERED AS BUSINESS OF THE ASSESSEE AND AGAINST WHICH ALL THE EXPENSES COULD BE ALLOWED UNDER SECTION 37 OF THE ACT ALSO. WE ARE THEREFORE NOT IN AGREEMENT WITH THE CONCLUSION DRAW N BY THE LD. CIT(A) ON THE ISSUE THAT THE EXPENSES WERE NOT ALLO WABLE UNDER SECTION 57(III) OF THE ACT AND ACCORDINGLY BY SETTI NG ASIDE THE ORDER OF LD. CIT(A), WE DIRECT THE AO TO DELETE THE ADDITION. ITA NOS.3315 & 1220/M/2018 A.YS. 2012-13 & 2013-14 8. THE ISSUE INVOLVED IN THESE TWO APPEALS IS IDENT ICAL TO THE ONE AS DECIDED BY US IN ITA NO.2112/M/2018 FOR A.Y . 2011-12 ABOVE. THEREFORE, OUR FINDING IN ITA NO.2112/M/201 8 FOR A.Y. 2011-12 WOULD , MUTATIS MUTANDIS, APPLY TO THESE AP PEALS AS WELL. ACCORDINGLY THE APPEALS OF THE REVENUE ARE DI SMISSED. 9. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.08.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 13.08.2019. * KISHORE, SR. P.S. ITA NO.1220/M/2018 SHRI RUSTOM PESI KERAWALLA 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.