NAYANT MANEKLAL SAVANI, MUMBAI V. ITO WD 7(2)(2), MUMBAI

ITA 2338/MUM/2012

• Counselvise Citation: 233819914 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 10-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: G P MEHTA
• Keywords: Business income
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 233 8/M/2012 ASSESSMENT YEAR: 2008 - 09 MR. NAYANT MANEKLAL SAVANI FLAT NO.210, JAYALAXMI, KINGSWAY, SI ON (EAST), MUMBAI 400 022 PAN: AABPS 9346 J VS. ITO, WARD 7(2)(2), AAYAKAR BHAVAN, ROOM NO.619, 6 TH FLOOR, M.K. MARG , NEW MARINE LINES, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHR I G.P. MEHTA REVENUE BY : SHRI PITAMBAR DAS DATE OF HEARING : 11.03 .201 4 DATE OF PRONOUNCEMENT : 09.04.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 29.11.11. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER ASSESSING THE AMOUNT OF RS . 1.25 CRORES DISCLOSED DURING THE COURSE OF SURVEY PROCEEDINGS UNDER SECTION 133A AS 'INCOME FROM OTHER SOURCES'. IT IS SUBMITTED THAT THE APPELLANT DURING THE COURSE OF SURVEY PROCEEDINGS HAD SURRENDERED A SUM OF RS . 1.25 CRORES AS REFERRAL AND COMMI SSION INCOME AND AS SUCH, THERE IS NO REASON FOR THE ASSESSING OFFICER TO TAX THE SAME AS 'INCOME FROM OTHER SOURCES'. THE CONCLUSION REACHED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE ASSESSING OFFICER IS BASED ON PRESUMPTIONS AND SURMISES AND IS CONTRARY TO THE FACTS ON RECORD. ITA NO. 2338/M/2012 MR. NAYANT MANEK LAL SAVANI 2 2 . THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN UPHOLDING THE DISALLOWANCE O F INTEREST OF RS. 37.79 LACS PAID BY THE APPELLANT TO THE FIRM IN WHICH HE IS A PARTNER. IT IS SUBMITTED THAT THE APPELLANT HAD PAID IN TEREST ON DEBIT BALANCES WITH THE FIRM. IT IS FURTHER SUBMITTED THAT THE SAID DEBIT BALANCES HAD ARISEN DUE TO THE LOSSES INCURRED BY THE FIRM IN THE EARLIER. 3 . THE APPELLANT RESERVES THE RIGHT TO ADD TO, ALTER OR AMEND THE GROUNDS OF APPEAL. GROUND NO.1 2. VIDE THIS GROUND , THE ASSESSEE HAS AGITATED THE TREATMENT OF INCOME OF RS.1.25 CRORES DECLARED BY THE ASSESSEE DURING THE SURVEY PROCEEDINGS UNDER SECTION 133A OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME CLAIMED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND PARTNER IN M/S. SAVANI TRANSPORT LTD. A SURVEY ACTION UNDER SECTION 133A OF THE AC T WAS CONDUCTED IN THE CASE OF M/S. S AVANI TRANSPORT LTD. D URING THE COURSE OF SURVEY , TWO ROUGH SHEETS WERE IMPOUNDED AND CERTAIN QUESTIONS WERE PUT TO THE ASSESSEE. THE ASSESSEE DECLARED AN INCOME OF RS.1.25 CRORES IN HIS OWN CASE AND RS.75 LAKHS IN THE CASE OF HIS BROTHER/OTHER PARTNER OF THE FIRM NAMELY MR. HANSAT MANEKLAL SAVANI . THEREAFTER THE ASSESSEE OFFERED THE SAID DECLARED AMOUNT OF RS.1.25 CRORES AS BUSINESS INCOME. HOWEVER, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) O F THE ACT TREATED THE SAID INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE GROUND THAT DURING HIS STATEMENT MADE/SURVEY ACTION THE ASSESSEE HAD FAILED TO DESCRIBE THE EXACT NATURE OF BUSINESS IN WHICH HE WAS ENGAGED. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO IN TREATING THE INCOME SO DECLARED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES. AGGRIEVED FROM THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 2338/M/2012 MR. NAYANT MANEK LAL SAVANI 3 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. AT THE OUTSET THE LD. A.R. OF THE ASSESSEE HAS CONTENDED THAT IN CASE OF MR. HANSAT MANEKLAL SAVANI , THE OTHER PARTNER OF THE FIRM IN QUESTION I.E. M/S. SAVANI TRANSPORT LTD. , THE MATTER ON THE IDENTICAL ISSUE HAS ALREADY BEEN ADJ UDICATED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL VIDE ORDER DATED 20.12.13 PASSED IN ITA NO.2339/M/2012. THE TRIBUNAL, IN THE CASE OF THE OTHER PARTNER , WHO INCIDENTALLY IS THE BROTHER OF THE ASSESSEE, HAS ALLOWED HIS CLAIM IN RESPECT OF THE INCOME DECL ARED DURING THE SURVEY ACTION IN QUESTION AS BUSINESS INCOME. 5. WE HAVE GONE THROUGH THE SAID ORDER OF THE TRIBUNAL. THE RELEVANT FINDINGS IN RESPECT OF THE OTHER PARTNER OF THE FIRM RELATING TO THE IDENTICAL ISSUE GIVEN BY THE TRIBUNAL ARE REPRODUCED AS UNDER: 2.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THE STATEMENT OF SHRI NAYANT SAVANI RECORDED ON 09.10.2007 DURING THE SURVEY ACTION IN RESPONSE TO QUERY NO 25 AS TO THE NATURE OF TRANSACT ION AND THE SOURCE OF TRANSACTIONS ON THE FIGURES CONTAINED IN THE IMPOUNDED ROUGH SHEETS IS EXTRACTED HEREUNDER: - 'DUE TO BUSINESS EXIGENCIES, I AM NOT IN A POSITION TO EXPLAIN THE SOURCE AND NATURE OF THE TRANSACTION AS APPEARING IN ANNEXURE A1 AND ANNEX URE2. HOWEVER, TO AVOID LITIGATION AND BUY PEACE, I OFFER THE TOTAL SUM OF RS. 2 CRORES (RS.1.25 CRORES + 0.75 CRORES) AS ADDITIONAL SOURCE OF THE CURRENT FINANCIAL YEAR I.E. F.Y. 2007 - 08. I SHALL BE PAYING THE CORRESPONDING ADVANCE TAX ON THE DUE DATE I.E . 15TH DECEMBER AND 15TH MARCH 2008. IT IS REQUIRED THAT THE TAXES ON THE SAID ADDITIONAL INCOME MAY ALSO BE ADJUSTED AGAINST THE REFUND DUE IN THE CASE OF M/S. SAVANI TRANSPORT PVT. LTD.' HOWEVER, DURING THE ASSESSMENT PROCEEDINGS FRAMED UNDER SECTION 143 (3), IN RESPONSE TO THE NOTICE OF THE AO, THE ASSESSEE HAS STATED THAT THE BUSINESS INCOME DECLARED PURSUANT TO THE SURVEY PROCEEDINGS HAVE BEEN DULY ACCEPTED BY THE DEPARTMENT AND DUE TO THE BUSINESS EXIGENCIES, THE NATURE OF TRANSACTION COULD NOT BE DISC LOSED AT THE TIME OF THE SURVEY. IT IS ALSO OBSERVED THAT THE ASSESSEE HAS FILED AN AFFIDAVIT STATING THAT WITH THE CONSENT OF THE INVESTIGATING OFFICER, HE HAS DECLARED AND OFFERED IN HIS PERSONAL CAPACITY AN AMOUNT OF RS. 75 LAKHS AS BUSINESS INCOME. IT IS RELEVANT TO STATE THAT THE PERUSAL OF THE AFOREMENTIONED STATEMENT OF SHRI NAYANT SAVANI RECORDED DURING THE SURVEY DOES NOT PROVIDE ANY RATIONAL BASIS FOR TREATING THE IMPUGNED INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCE' AS THE SAID STATEMENT DOES NOT SUGGEST FOR THE SAME. MOREOVER, ACCORDING TO THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2008] 300 ITR 157 (MAD.), WHICH HAS BEEN CONFIRMED BY THE APEX COURT AS REPORTED IN [2013] 352 ITR ITA NO. 2338/M/2012 MR. NAYANT MANEK LAL SAVANI 4 480 (SC), WHATEVER STATEMEN T IS RECORDED UNDER SECTION 133A, THE SAME IS NOT GIVEN ANY EVIDENTIARY VALUE AND THE STATEMENT OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPON THE ASSESSEE. THEREFORE, EVEN ASSUMING THAT THERE IS A STATEMENT TO THE EFFECT OF ADMISSION BY THE ASSESSEE MADE DURING THE SURVEY, THE SAME CANNOT BE THE SOLE BASIS FOR TAKING A DECISION BY THE REVENUE AUTHORITIES DURING THE ASSESSMENT PROCEEDINGS. HAVING NOTED THE LEGAL POSITION, WE DO NOT FIND ANY REASON FOR THE AUTHORITIES BELOW TO DISBELIEVE THE A SSESSEE'S CLAIM THAT IS AVERRED IN THE AFFIDAVIT FILED DURING THE ASSESSMENT PROCEEDINGS. FURTHER, MERELY NOT COMPLYING THE PROVISION OF SECTION 44AB OF THE ACT CANNOT PRECLUDE THE ASSESSEE FROM CLAIMING/DISCLOSING AN INCOME UNDER THE HEAD 'BUSINESS'. 2.3. 1 IT APPEARS THAT THE ACTION OF THE AO AND THE REASONING OF THE LD.CIT(A) FOR CONFIRMING THE SAID ACTION HAS BEEN ONLY FOR THE PURPOSE OF PLACING THE ASSESSEE IN A POSITION OF DENYING THE BENEFIT OF ACCUMULATED LOSSES OF EARLIER YEARS TO BE SET OF AGAINST THE BUSINESS INCOME. IT IS PERTINENT TO MENTION THAT WHILE DECIDING THE ISSUE REGARDING THE RELEVANT HEAD OF INCOME, WHETHER THE ASSESSEE WOULD GET ANY OTHER CONSEQUENTIAL BENEFIT CANNOT BE THE GUIDING FACTOR/TEST FOR DECIDING THE RELEVANT HEAD OF INCOME, WHICH IN OUR VIEW IS A CONSEQUENTIAL AND LATER EFFECT WHICH FOLLOWS AFTER DETERMINING THE RELEVANT HEAD OF THE INCOME. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE REASONING OF THE LD.CIT(A) THAT THE CLAIM OF THE ASSESSEE IS AN ATTEMPT TO COVER THE INCOME UNDER HEAD 'BUSINESS' TO AVAIL THE BENEFIT OF ACCUMULATED LOSSES OF EARLIER YEARS SO THAT TAXABILITY GETS SUBSTANTIALLY REDUCED. 2.3.2 FURTHER, THE DECISIONS RELIED BY THE ASSESSEE IN THE CASES OF J.C. THAKKAR VS. CIT AND H.C. KOTHARI AND OTHERS VS. CIT (S UPRA) SUPPORT THE PROPOSITION THAT IF AN INCOME FALLS UNDER MORE THAN ONE HEAD, THE ASSESSEE HAS THE OPTION OF CHOOSING FOR THE PURPOSE OF INCOME TAX, SUCH HEAD WHICH MAKES THE BURDEN ON HIS SHOULDERS LIGHTER. APPLYING THE SAID RATIO TO THE FACTS OF THE AS SESSEE, IN THE ABSENCE OF ANY EVIDENCE BROUGHT BY THE AUTHORITIES BELOW TO DISPROVE/DISBELIEVE THE CLAIM OF THE ASSESSEE TREATING THE IMPUGNED RECEIPT UNDER THE HEAD 'BUSINESS INCOME', THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE SAME UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IN VIEW OF THE AFOREMENTIONED DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE SAID INCOME OF 75 LACKS DECLARED BY THE ASSESSEE DURING THE COURSE OF THE SURVEY HAS NECESSARILY TO BE TREATED UNDER THE HEAD 'BUSINESS INCO ME' AS CLAIMED BY THE ASSESSEE. WE DIRECT AND ORDER ACCORDINGLY. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED. 6. THE LD. D.R. COULD NOT BRING BEFORE US ANY CONTRARY FACT OR CASE LAW WHICH MAY JUSTIFY DEPARTURE FROM THE ABOVE FINDING OF THE TRIBUNAL GIV EN IN THE CASE OF OTHER PARTNER OF THE FIRM NAMELY MR. HANSAT MANEKLAL SAVANI. SO RESPECTFULLY FOLLOWING THE SAME , FOR THE SAKE OF CONSISTENCY , THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE AND THE INCOME DECLARED BY THE ASSESSEE DURING THE COURSE OF SU RVEY IS DIRECTED TO BE TREATED UNDER THE HEAD BUSINESS INCOME AS HAS BEEN CLAIMED BY THE ASSESSEE. ITA NO. 2338/M/2012 MR. NAYANT MANEK LAL SAVANI 5 GROUND NO.2 7. VIDE GROUND NO.2 , THE ASSESSEE HAS AGITATED THE CONFIRMATION OF THE DISALLOWANCE OF INTEREST OF RS.37.79 LAKHS PAID BY THE ASSESSEE TO TH E FIRM IN WHICH HE HAS BEEN A PARTNER. DURING THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE IN THE COMPUTATION OF INCOME HAD REDUCED AN AMOUNT OF RS.37,79,266/ - WHILE COMPUTING THE BUSINESS INCOME ON ACCOUNT OF INTEREST PAID TO M/S. MSN EN TERPRISES OF WHICH THE ASSESSEE HAS BEEN A PARTNER. THE AO REJECTED THE CLAIM OF THE ASSESSEE OBSERVING THAT THE ASSESSEE HAD PAID INTEREST ON DEBIT BALANCES WITH THE FIRM AND FURTHER THAT THE SAID DEBIT BALANCES HAD ARISEN DUE TO LOSSES INCURRED BY THE FI RM IN THE EARLIER YEARS. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST ON DEBIT BALANCE. THE ASSESSEE IS THUS IN APPEAL BEFORE US ON THIS ISSUE. 8. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS CONTENDED THAT THIS ISSUE IS ALSO SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 20.12.13 PASSED IN ITA NO.2339/M/2012 IN THE CASE OF MR. HANSAT MANEKLAL SAVANI WHO IS THE BROTHER AS WELL AS THE OTHER PARTNER OF THE FIRM M/S. MSN ENTERPRISES. 9. WE HAVE GONE THROUGH THE ORDER OF THE CO - OR DINATE BENCH OF THE TRIBUNAL. THE RELEVANT FINDING S OF THE TRIBUNAL GIVEN ON THE ISSUE ARE REPRODUCED AS UNDER: 3. IN GROUND NO. 2, THE ASSESSEE HAS AGITATED THE ACTION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.16.85 LACKS MADE B Y THE AO ON ACCOUNT OF THE INTEREST PAID BY THE ASSESSEE TO THE FIRM IN WHICH HE IS A PARTNER. 3.1 BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT IS A PARTNER IN THE FIRM M/S. MSN ENTERPRISES. THE ASSESSEE CAPITAL ACCOUNT IN THE FIRM IS SHOWN AS UNDER: - O PENING BALANCE 01.04.2007 ADDITIONS DURING THE YEAR INTEREST FROM PARTNER SHARE OF LOSS WITHDRAWALS DURING THE YEAR BALANCE ON 31.03.2008 NIL 64,54,000 (20,71,376) (6,41,315) 1,98,78,088 (1,60,45,779) ITA NO. 2338/M/2012 MR. NAYANT MANEK LAL SAVANI 6 THE ASSESSEE PAID RS.20.71 LACS AS INTEREST ON OVER DRAWN BALANCE IN HIS CAPITAL ACCOUNT WITH THE FIRM AND IN COMPUTATION OF INCOME (PAPER BOOK PAGE 2) THE ASSESSEE HAD CLAIMED THIS INTEREST PAYMENT AS BUSINESS LOSS AND AFTER SETTING OFF THIS LOSS, NET INCOME IS SHOWN AT RS.54.71 LACS. THE AO ALLOWED THIS L OSS OF 20.71 LACS. THE LD.CIT(A) HAD GIVEN CALCULATIONS OF INTEREST DISALLOWANCE AND WORKED OUT THE DISALLOWANCE AT RS. 16.85 LACS WITHOUT GIVING ANY REASONING THEREOF. 3.2 DURING THE COURSE OF THE PROCEEDINGS IN RESPONSE TO THE QUERY RAISED BY US ON THE C ONTENTS OF THE RELEVANT PARTNERSHIP DEED, THE LEARNED AR HAS POINTED OUT THAT VIDE CLAUSE 12 OF THE PARTNERSHIP DEED, THE PARTNERS ARE ENTITLED TO INTEREST ON THE CREDIT BALANCE IN THE CAPITAL ACCOUNT, AS PRESCRIBED U/S 40(B)(IV) OF THE I.T. ACT 1961 @ 12% . THE PARTNERS ARE ALSO LIABLE TO PAY INTEREST ON THE DEBIT BALANCE IN CAPITAL ACCOUNT ON SIMILAR BASIS. IT IS FURTHER SUBMITTED THAT THE LIABILITY TO PAY INTEREST ARISES OUT OF CONTRACTUAL OBLIGATION. THE PERUSAL OF THE COPY OF THE FIRM'S ASSESSMENT ORDER FOR ASST. YEAR 2008 - 09 AVAILABLE AT PAPER BOOK PAGE 30 REVEALS THAT IN THE CASE OF THE FIRM M/S. MSN ENTERPRISES THE SAID INTEREST HAS BEEN ASSESSED AS INCOME OF THE FIRM. HAVING CONSIDERED THE RIVAL SUBMISSIONS, REASONING OF THE LOWER AUTHORITIES AND MAT ERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE IS EMANATING OUT OF CONTRACTUAL OBLIGATION AND IS IN CONSONANCE WITH THE PROVISIONS OF LAW. WE THEREFORE, SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ASSESSEE SUCCEEDS ON TH IS GROUND OF APPEAL. 10. THE LD. D.R. COULD NOT BRING BEFORE US ANY CONTRARY FACT OR CASE LAW WHICH MAY JUSTIFY DEPARTURE FROM THE ABOVE FINDING OF THE TRIBUNAL GIVEN IN THE CASE OF OTHER PARTNER OF THE FIRM NAMELY MR. HANSAT MANEKLAL SAVANI. SO RESPECT FULLY FOLLOWING THE SAME , FOR THE SAKE OF CONSISTENCY , THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.4.2014 . SD SD ( P.M. JAGTAP ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 9.4. 201 4 . * KISHORE 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.