DCIT 10(2), MUMBAI V. JAGJIT SINGH SAYAL -L/H SHRI GURBHAJAN SINGH SAYAL, MUMBAI

ITA 2274/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1941 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Bench Allotted: J
• Next Hearing Date: 01-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-04-2014
• Court: TRIBUNAL
• Keywords: Additional evidence
• Section: 143(3); 14A

Judgement Text

, , J, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2274/MUM/2014 ASSESSMENT YEAR: 2010-11 D CIT 10(2), R.NO.432/474, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. RD. MUMBAI-400020 / VS. JAG J IT SINGH SAYAL - L/H SHRI GURBHAJAN SINGH SAYAL, 19-B, ZARINA PARK, OPP ANUSHKTI NAGAR, MANKHURD, MUMBAI- 400058 (REVENUE) (RESPONDENT) P.A. NO. AADPS7967B C.O. NO.168/MUM/2015 (ARISING ITA NO2274/MUM/2014) ASSESSMENT YEAR: 2010-11 JAG J IT SINGH SAYAL - L/H SHRI GURBHAJAN SINGH SAYAL, 19-B, ZARINA PARK, OPP ANUSHKTI NAGAR, MANKHURD, MUMBAI- 400058 / VS. DCIT 10(2), R.NO.432/474, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. RD. MUMBAI-400020 ( ASSESSEE ) ( REVENUE ) P.A. NO.AADPS7967B REVENUE BY SHRI VINOD KUMAR (DR) RESPONDENT BY SHRI RAHUL SARD A (AR) JAGNIT SINGH SAYAL 2 / DATE OF HEARING : 3/12/2015 / DATE OF ORDER: 18/12/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AN D CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-21, MUMBAI {(I N SHORT CIT(A)}, DATED 24.01.2014 FOR THE ASSESSMENT YEAR 2010-11, DECIDED AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. WE FIRST TAKE UP REVENUE APPEAL ITA NO.2274/MUM/2014: THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEALS : 1. IN HOLDING THAT THE DISALLOWANCE U/S. 14A AS WOR KED OUT BY THE AO (ASSESSING OFFICER) UNDER RULE 8D IS NOT APPLICABLE IN THE INSTANT CASE. 1.1 IN HOLDING THAT THE INTEREST COST IS TO BE EXCL UDED FOR THE PURPOSE OF WORKING UNDER RULE 8D OF THE INCOME TAX RULES THEREBY IGNORING THAT THE ASSESSEE HAD THE INTEREST-COST IS INTER-LACING AND INTER-MIXING IN N ATURE. 1.2 IN NOT APPRECIATING THAT THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN THE FUNDS INVESTED WITH HIS NATUR E OF ACTIVITY. 1.3 WITHOUT PREJUDICE TO THE ABOVE, ERRED IN IGNORI NG THE APPLICABILITY OF DECISION OF THE HON'BLE SUPREME CO URT IN CONSOLIDATED COFFEE LTD [248 ITR 432(SC)]. 2. IN HOLDING THAT THE RECEIPTS FROM- (I) HOARDING (II) MOBILE TOWER (III) DISPLAY OF ADVERTISING HOARDING FROM SU BLET HOTEL JAGNIT SINGH SAYAL 3 PREMISES ARE TO BE TREATED AS 'INCOME FROM HOUSE PR OPERTY' AND NOT 'INCOME FROM OTHER SOURCES'. 3. IN DELETING THE DISALLOWANCE U/S.40(A)(IA) OF TH E I.T. ACT AMOUNTING TO RS.4 1 10,056/- BY ADMITTING ADDITIONAL EVIDENCE. 3.1 IN IGNORING THE FACT THAT THE ASSESSEE HIMSELF HAD AGREED THAT THE TDS ON SAID INTEREST PAYMENT WAS NO T DEDUCTED DURING RELEVANT FINANCIAL YEAR RATHER DEDUCTED IN THE NEXT F.Y. 11-12 RELEVANT TO A.Y. 2 012-13. 3.3 IN NOT APPRECIATING THAT THE PRINCIPLE RES JUDI CATA IS NOT APPLICABLE IN THE INCOME TAX PROCEEDINGS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI RAHUL SARDA, AUTHORISED REPRESENTATIVE (AR) ON BEHA LF OF THE ASSESSEE AND BY SHRI VINOD KUMAR, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. IN THE FIRST GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST COST U/S 14A OF THE ACT. 3.1. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD MADE INVESTMENT IN THE TAX FREE INVESTMENT AND ASSE SSEE HAS INCURRED EXPENDITURE ON ACCOUNT OF INTEREST, AND TH EREFORE, HE INVOKED PROVISIONS OF RULE 8D AND MADE DISALLOWANCE ON ACCOUNT OF INTEREST U/S 14A. JAGNIT SINGH SAYAL 4 3.2. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE MATTER BEFORE THE LD. CIT(A), WHEREIN THE DISALLOWANCE MADE BY TH E AO ON ACCOUNT OF INTEREST HAS BEEN DELETED. 3.3. BEING AGGRIEVED THE REVENUE HAS CONTESTED THE APPE AL BEFORE THE TRIBUNAL. 3.4. DURING THE COURSE OF HEARING LD. DR HAS SUBMITTED THAT FUNDS OF THE ASSESSEE WERE MIXED, AND THEREFORE PRO PORTIONATE DISALLOWANCE WAS CALLED FOR, AS HAS BEEN STATED IN THE GROUNDS RAISED BY THE REVENUE, RELYING UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CONSOLIDATED COFFEE LT D. [248 ITR 432 (SC)]. 3.5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LT D. 313 ITR 314, FOR THE PROPOSITION THAT IF OWN FUNDS OF THE A SSESSEE ARE MORE THAN THE INVESTMENTS MADE INTO TAX-FREE SECURI TIES, THEN NO DISALLOWANCE U/S 14A IS CALLED FOR. HE HAS TAKEN US TO THE BALANCE SHEET OF THE ASSESSEE TO SHOW THAT THE ASSE SSEE HAS OWN FUNDS, IN FAR EXCESS OF THE AMOUNT OF INVESTMEN TS MADE INTO TAX-FREE SECURITIES. HE SUBMITTED THAT DISALLO WANCE HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A), AND THEREFO RE, HIS ORDER SHOULD BE CONFIRMED. 3.5. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITI ES, SUBMISSIONS MADE AND JUDGMENTS RELIED BY BOTH THE P ARTIES JAGNIT SINGH SAYAL 5 AND MATERIAL PLACED BEFORE US FOR OUR CONSIDERATION . IT IS NOTED THAT LD. CIT(A) HAS GIVEN DETAILED FINDINGS WHILE D ELETING THE DISALLOWANCE. RELEVANT PORTION OF THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: 3.3 THE AO DISALLOWED RS.1,64,383/- UNDER SEC. 14A OF THE ACT FOR THE PURPOSE OF INTEREST EXPENDITURE ADMINISTRATIVE AND MANAGERIAL EXPENSES INCURRED BY THE APPELLANT HAD RESERVES AND SURPLUS I.E. RS.3,97,84,293/- WHICH IS MORE THAN THE INVESTMENT IN APPELLANT'S INVESTMENTS IN MUTUAL FUND AND SHARE S AND AS PER BOMBAY HIGH COURT'S DECISION OF CIT VS RELIANCE UTILITY AND POWER LIMITED 313 ITR314 IT IS HELD THAT IF THE OWN FUNDS ARE MORE THAN INVESTMENT S, THEN IT IS TO BE CONSIDERED THAT APPELLANT HAD MADE INVESTMENT FROM HIS OWN FUNDS AND NO INTEREST HAS T O BE DISALLOWED. FOLLOWING THE ABOVE DECISION, INTEREST DISALLOWANCE MADE BY THE AO IS DELETED. HOWEVER, AO IS DIRECTED TO COMPUTE 0.5% OF AVERAGE INVESTMENTS FOR MANAGERIAL INVESTMENTS AND ADMINISTRATIVE PURPOSES. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 3.6. IT IS NOTED BY US FROM THE BALANCE SHEET OF THE AS SESSEE THAT OWN FUNDS OF THE ASSESSEE ARE MORE THAN RS.3.9 7 CRORES WHEREAS INVESTMENT MADE IN TAX FREE SECURITIES IS N OT MORE THAN RS.33.65 LAKHS. THUS, ORDER OF LD. CIT(A) IS F ACTUALLY AND LEGALLY CORRECT ON THIS ISSUE. WE TAKE SUPPORT FROM THE ORDER OF THE JURISDICTIONAL HIGH COURT AS HAS BEEN RELIED UP ON BY THE LD. CIT(A). IT IS FURTHER NOTED FROM THE FACTS BROU GHT BEFORE US THAT LOANS WERE TAKEN BY THE ASSESSEE IN EARLIER YE ARS. IT IS INFORMED THAT NO DISALLOWANCE WAS MADE IN EARLIER Y EARS ON ACCOUNT OF INTEREST. THUS, IMPLIEDLY, IT CAN BE SAI D THAT NO BORROWED FUNDS HAVE BEEN USED IN ACQUIRING TAX-FREE JAGNIT SINGH SAYAL 6 INVESTMENT DURING THE YEAR. IT IS FURTHER NOTED THA T ONUS IS UPON THE AO TO PROVE THAT INTEREST BEARING FUNDS WE RE USED FOR EARNING TAX FREE INCOME. RELIANCE IS PLACED IN THIS REGARD ON THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF CIT VS. HERO CYCLES LTD. 323 ITR 518, CIT VS. WINSOME TEXTILES 319 ITR 204 AND CIT VS. DEEPAK MIT TAL 361 ITR 131. THUS, VIEWED FROM ANY ANGLE, THE DISALLOWA NCE MADE BY THE AO WAS CONTRARY TO LAW AND FACTS AND THEREFO RE, THE SAME HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A). NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A), AND, THEREFORE THE SAME IS UPHELD, THUS GROUND NO.1 OF R EVENUES APPEAL IS DISMISSED. 4. GROUND NO.2: IN THIS GROUND, REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN TREATING THE INCOME EARNED BY THE ASSESSEE FROM HOARDING, MOBILE TOWER, DISPLAY OF AD VERTISING HOARDING FROM SUBLETTING HOTEL PREMISES AS INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FROM OTHER SOUR CES. 4.1. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE UNDISPUTED FACTS AS BROUGHT BEFORE US UNANIMOUSLY B Y BOTH THE PARTIES ARE THAT DURING THE YEAR, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING LODGING FACILITIES IN HIS HOTEL KNOWN AS HOTEL NEEL KAMAL SITUATED AT CHEMBUR, MUMB AI. DURING THE YEAR, THE ASSESSEE EARNED INCOME FOR MAK ING AVAILABLE AT ITS HOTEL PREMISES FOR ERECTING ADVERT ISEMENT HOARDINGS AND FOR PLACEMENT OF EQUIPMENTS IN THE FO RM OF MOBILE TOWERS AT TERRACE, ROOF-TOP AND OTHER PLACES IN THE HOTEL JAGNIT SINGH SAYAL 7 NEEL KAMALS BUILDING. THE FURTHER UNDISPUTED FACTS ARE THAT HOTEL BUILDING IS A COMMERCIAL ASSET EXPLOITED FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE. IN THE GIVEN FACTS, IT IS CLEAR THAT THE AFORESAID INCOME HAS BEEN RECEIVED BY THE ASSE SSEE FROM EXPLOITATION OF THE BUSINESS ASSET OF THE ASSESSEE. UNDER THESE PECULIAR FACTS AND CIRCUMSTANCES INCOME RECEIVED FR OM EXPLOITATION OF A BUSINESS ASSET SHOULD BE TREATED, AS PER LAW, AS INCOME UNDER THE HEAD BUSINESS. THE ASSESSEE H AS CARRIED OUT AFORESAID ACTIVITY IN SYSTEMATIC AND ORGANIZED MANNER. PROPER AGREEMENTS HAVE BEEN ENTERED INTO WITH THE C ONCERNED PARTIES FROM WHOM AFORESAID INCOME HAS BEEN RECEIVE D BY THE ASSESSEE. 4.2. IT IS NOTED THAT THE ASSESSEE HAS CREDITED INCOME FROM HOTEL BUSINESS IN ITS PROFIT AND LOSS ACCOUNT AND D EBITED EXPENSES WITH RESPECT TO RUNNING OF HOTEL AND MAINT ENANCE OF THE HOTEL PREMISES IN THE P & L ACCOUNT. IN THESE F ACTS, THE INCOME RECEIVED FROM EXPLOITATION FROM THE HOTEL PR EMISES IN ANY MANNER SHOULD ALSO BE CREDITED IN THE PROFIT AN D LOSS ACCOUNT. THE ASSESSEE HAS ALREADY DEBITED THE EXPEN SES WITH RESPECT TO MAINTENANCE OF THE HOTEL PREMISES. IT IS CLARIFIED THAT THE ASSESSEE IS ALSO ELIGIBLE TO CLAIM OF EXPE NSES INCURRED FOR EARNING THE AFORESAID INCOME. 4.3. THUS, KEEPING IN VIEW THE PECULIAR FACTS OF THIS C ASE FOR THE YEAR UNDER CONSIDERATION, THE AFORESAID INCOME IS DIRECTED TO BE TREATED AS INCOME FROM BUSINESS. THE AO IS DIRECTED TO JAGNIT SINGH SAYAL 8 GIVE EFFECT TO OUR ORDER, ACCORDINGLY. THUS, GROUND NO.2 IS PARTLY ALLOWED. 5. GROUND NO.3: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING DISALLOWANCE U /S 40(A)(IA) OF THE ACT AMOUNTING TO RS.4,10,056/- 5.1. IN THIS REGARD, THE BRIEF FACTS ARE THAT THE ASSES SEE HAS PAID INTEREST AMOUNTING TO RS.4,10,056/- TO VARIOUS PARTIES WHO WERE INDIVIDUALS, AS THEY HAD SUBMITTED CERTIFI CATES FOR NIL DEDUCTION OF TAX AS PER RULE 15H. THE AO DISA LLOWED THE INTEREST PAYMENT ON THE GROUND THAT ASSESSEE FAILED TO DEDUCT TAX AT SOURCES ON THE SAID INTEREST PAYMENTS. LD. C IT(A) HAS DELETED THIS DISALLOWANCE ON THE GROUND THAT THESE PERSONS INCLUDED THE INTEREST INCOME IN THE RETURN AND ALSO PAID THE TAXES, RELYING, UPON THE JUDGMENT OF HONBLE SUPREM E COURT IN THE CASE OF HINDUSTAN COCO COLA BEVERAGE P. LTD. V. CIT 293 ITR 226 (SC), WHEREIN IT WAS HELD AS UNDER: WHETHER, WHERE DEDUCTEE, RECIPIENT OF INCOME, HAS ALREADY PAID TAXES ON AMOUNT RECEIVED FROM DEDUCTOR , DEPARTMENT ONCE AGAIN CANNOT RECOVER TAX FROM DEDUC TOR ON SAME INCOME BY TREATING DEDUCTOR TO THE ASSESSEE -IN- DEFAULT FOR SHORTFALL IN ITS AMOUNT OF TAX DEDUCTED AT SOURCE-HELD- YES . 5.2. IT IS FURTHER NOTED BY US THAT THIS ISSUE HAS BEEN FURTHER SETTLED BY HONBLE DELHI HIGH COURT IN A RECENT JUD GMENT PASSED IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNS HIP PVT. JAGNIT SINGH SAYAL 9 LTD. (ITA NO.160/MUM/2015) DATED 26 TH AUGUST, 2015, WHEREIN HONBLE HIGH COURT HAS APPROVED THE JUDGMEN T OF AGRA BENCH OF ITAT IN ITA NO.337/AGRA/2013 IN THE C ASE OF RAJIV KUMAR AGRAWAL VS. ACIT, WHEREIN IT HAS BEEN H ELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARAT ORY AND CURATIVE IN NATURE, AND SHOULD BE GIVEN RETROSPECTI VE EFFECT FROM THE 1 ST APRIL 2005. THUS, THE POSITION OF LAW ON THIS ISSU E IS NOW VERY CLEAR. THE OTHER GRIEVANCE OF THE REVEN UE IS THAT EVIDENCES WITH REGARD TO PAYMENT OF TAXES BY THE PA YEES WERE NOT REFERRED BY THE LD. CIT(A) TO THE AO AND THUS, ADDITIONAL EVIDENCES WERE ADMITTED BY HIM IN VIOLATION OF RULE 46A. THUS, ACCEPTING THE GRIEVANCE OF THE REVENUE IN THIS REGA RD, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO FOR THE LIMIT ED PURPOSE OF VERIFICATION OF THE FACTS WITH REGARD INCLUSION OF INCOME BY THE PAYEES IN THEIR RESPECTIVE RETURNS, AND IF THE CLAI M OF THE ASSESSEE IN THIS REGARD IS FOUND TO BE FACTUALLY CO RRECT, IN THAT CASE NO DISALLOWANCE SHALL BE MADE WITH REGARD TO I MPUGNED PAYMENT OF INTEREST. THUS, THIS GROUND IS ALLOWED F OR STATISTICAL PURPOSES. NOW, WE TAKE UP CROSS OBJECTIONS NO.168/MUM/2015: 6. GROUND NOS. 1 TO 4: THESE GROUNDS OF CROSS OBJECTION ARE NOT PRESSED BY THE ASSESSEE AND THEREFORE DISMISSED . 7. GROUND NO.5: THIS GROUND IS WITH REGARD TO DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) ON THE PAYMENT OF INTE REST. THIS JAGNIT SINGH SAYAL 10 GROUND HAS ALREADY BEEN DECIDED BY US WHILE DECIDIN G GROUND NO.3 OF REVENUES APPEAL, AND THEREFORE, AO IS DIRE CTED TO FOLLOW THE SAME. THUS, GROUND NO. 5 OF C.O. IS ALLO WED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; ' DATED :18/12/2015 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. $ %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. * ( $ ) / THE CIT, MUMBAI. 4. * / CIT(A)- , MUMBAI 5. -. ' /0 , $ /01 , / DR, ITAT, MUMBAI 6. 2 3 / GUARD FILE. / BY ORDER, ( -$ ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI