SHREE MANGAL ASSOCIATIES, MUMBAI V. JCIT RG 17(3),

ITA 2341/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9380 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business income; Business expenditure; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO.2341/MUM/2017 ASSESSMENT YEAR: 201 2 - 1 3 & ITA NO.2342/MUM/2017 ASSESSMENT YEAR: 2013 - 14 SHRI MANGAL ASSOCIATES 802 GRANDE PALLADIUM 175 CST ROAD, KALINA SANTACRUZ (E) MUMBAI - 400098 VS. JCIT - 17(3) MUMBAI. APPELLANT RESPONDENT PAN NO. ABIFS0355B ASSESSEE BY: MR. MADHUR AGGARWAL , AR REVENUE BY : MR. V. JUSTIN, D R DATE OF HEARING : 12/07 /2017 DATE OF PRONOUNCEMENT: 27/09/2017 ORDER PER N.K. PRADHAN, A.M . THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 28 , MUMBAI AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE IN COME TAX ACT ITA NO. 2341 & 2342/MUM/2017 2 1961, (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER (AO) IN MAKING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.15,16,635/ - IN AY 2012 - 13 AND RS.46,42,924/ - IN AY 201 3 - 14 UNDER THE HEAD INCOME FROM OTHER SOURCES . 3. WE BEGIN WITH THE AY 2012 - 13. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD CLAIMED INTEREST EXPENSES OF RS.15,16,635/ - . THE ASSESSEE HAD ALSO EARNED INTEREST INCOME OF RS.84,76,966/ - ON DEPLOYMENT OF LOANS AN D ADVANCES OF RS.11,02,21,462/ - . THE AO OBSERVED THAT THE ASSESSEE FAILED TO COGENTLY DEMONSTRATE THE NEXUS BETWEEN THE INTEREST EXPENDITURE AN D INTEREST INCOME. THEREFORE, HE DISALLOWED THE ASSESSEES CLAIM OF INTE REST EXPENDITURE U/S 36(1)(III) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. V.P. GOPIN ATHAN (2001) 248 ITR 449 (SC) AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.47,04,842/ - . IN THE RETURN OF INCOME, THE SAID INCOME WAS NOT TREATED AS BUSINESS INCOME AND WAS OFFERED TO TAX UNDER THE HEAD INCOME FROM ITA NO. 2341 & 2342/MUM/2017 3 OTHER SOURCES . FURTHER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INCURRED INTE REST EXPENSES AMOUNTING TO RS.15,16,635/ - FOR EARNING THE INTEREST INCOME. THEREFORE, THE INTEREST EXPENSES WERE CLAIMED AS DEDUCTION FROM INTEREST INCOME. ACCORDINGLY, THE NET INTEREST INCOME AMOUNTING TO RS.31,93,563/ - (RS.47,04,842 / - MINUS RS.15,16,635 / - ) WAS OFFERED TO TAX UNDER TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SUBMIT THE NEXUS BETWEEN THE INTEREST EXPENSES AND THE INTEREST INCOME EARNED DURING THE YEAR. IT WAS SUBMITTED DUR ING THE ASSESSMENT PROCEEDINGS THAT THE INTEREST WAS PAID TOWARDS THE LOAN TAKEN FROM BOMBAY MERCANTILE CO - OPERATIVE BANK LT. (BMC BAN K ). THE FUNDS RECEIVED FROM BMC BANK WERE USED FOR THE PURPOSE OF PARKING THE FUNDS IN SHORT TERM FIXED DEPOSITS MAINTAI NED WITH BANKS AND FOR GIV ING LOANS TO ITS S ISTER C ONCERNS. THEREFORE, THE INTEREST PAID TO BMC BANK WAS ADJUSTED AGAINST THE INTEREST INCOME EARNED DURING THE YEAR. THE LD. COUNSEL SUBMITS THAT IF THE SAID EXCESS FUNDS WERE INVESTED IN EARNING INTEREST INCOME THEN THE EXPENSES PERTAINING TO EARNING THE INTEREST INCOME HAS TO BE ADJUSTED AGAINST THE INTEREST INCOME. ACCORDINGLY, THE INTEREST EXPENSES HAVE TO BE ADJUSTED AGAINST THE INTEREST INCOME TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES . 6. PER C ONTRA THE LD. DR RELIES ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN V.P. GOPINATHAN (SUPRA) AND DECISION OF THE HONBLE ITA NO. 2341 & 2342/MUM/2017 4 BOMBAY HIGH COURT IN CIT VS. AMRITABEN R. SHAH (1999) 238 ITR 777 (BOM). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. WE BEGIN WITH THE DECISION IN THE CASE OF V.P. GOPINATHAN (SUPRA). IN THAT CASE THE ASSESSEE HAD PUT MONEYS INTO FIXED DEPOSIT WITH A BANK AND HAD EARNED IN THE ASSESSMENT YEAR IN QUESTION INTEREST IN THE SUM OF RS.1,17,444/ - THEREON. ON THE SECURITY OF THE AMOUNT SO DEPOSITED, THE ASSESSEE TOOK A LOAN FROM THE BANK AND PAID IN RESPECT OF THE LOAN INTEREST TO THE BANK IN THE SUM OF RS.90,410/ - . THE ASSESSEE CLAIMED THAT HE COULD BE TAXED ONLY ON THE DIFFERENTIAL AMOUNT OF RS.27,034/ - . HIS CONTENTION WAS REJECTED BY THE AO AND IN FIRST APPEAL. THE TRIBUNAL TOOK A CONTRARY VIEW. THE HIGH COURT ANSWERED THE QUESTION ON THE BASIS THAT THE SITUATION WAS ONE OF MUTUALITY. IN APPEAL, THE HONBLE SUPREME COURT HELD THAT IT WAS NOT DISPUTED, AS IT COULD NOT BE, THAT IF THE ASSESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAID INTEREST THEREON HIS REAL INCOME WOULD NOT DIMINISH TO THE EXTEN T THEREOF. THE ONLY QUESTION THEN IS: DOES IT MAKE ANY DIFFERENCE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THERE IS NO DIFFERENCE IN THE EYE OF THE LAW. THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK WAS INC OME IN HIS HANDS. IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THERE IS NONE, AND, THEREFORE, THE AMOUNT PAID BY THE ASSESSEE AS INTEREST ON THE LOAN THAT HE TOOK FROM THE BANK DID NOT REDUCE HIS INCOME BY W AY OF INTEREST ON THE FIXED DEPOSIT PLACED BY HIM IN THE BANK. ITA NO. 2341 & 2342/MUM/2017 5 7.1 IN THE CASE OF AMRITABEN R. SHAH (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT (I ) SECTION 57 (III) PROVIDES FOR DEDUCTION ONLY OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME, (II) IN ORDER THAT AN EXPENDITURE MAY BE ADMISSIBLE U/S 57(III) IT IS NECESSARY THAT THE PRIMARY MOTIVE OF INC URRING IT IS DIRECTLY TO EARN INCOME FALLING UNDER THE HEAD INCOME FROM OTHER SOURCES AND (III) U/S 57(III), DEDUCTION WILL NOT BE ALLOWED IF THE EXPENDITURE IS NOT INCURRED FOR THE PURPOSE OF EARNING INCOME FALLING UNDER THE HEAD INCOME FROM OTHER SOUC ES. 7.2 WE ARE OF THE CONSIDERED VIEW T HAT THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. SHAH (SUPRA) SQUARELY APPLIES TO THE PRESENT CASE. WE FIND THAT NEITHER THE AO NOR THE LD. CIT(A) HAS EXAMINED THE CONTENTIOUS ISS UE IN THE LIGHT OF THE ABOVE DECISION. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT KEEPING IN MIND THE RATIO LAID DOWN IN AMRITABEN R. SHAH (SUPRA). WE DIRECT THE ASSESSEE TO F ILE THE EVIDENCE BEFORE THE AO. NEEDLESS TO SAY THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FOR THE AY 2012 - 13 IS ALLOWED FOR STATISTICAL PURPOSES. 9. NOW WE MOVE TO THE AY 2013 - 14. THE ORDER OF T HE AO AND THAT OF THE LD. CIT(A) AND THE ARGUMENTS OF THE LD. DR FOR THE AY 2013 - 14 ARE IDENTICAL TO THE AY 2012 - 13. WE NEED NOT REPEAT THE SAME. ITA NO. 2341 & 2342/MUM/2017 6 10. THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE AO HAS DISALLOWED THE INTEREST EXPENSES AMOUNTING TO RS. 46,42,924/ - UNDER THE HEAD INCOME FROM OTHER SOURCES CLAIMING THE SAME DISALLOWABLE AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. HOWEVER, THE INTEREST EXPENSES WERE NEVER CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES. THESE EXPENSES WERE CLAIMED UNDER THE HEAD BUSINESS INCOME . 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED IN THE COMPUTATION OF INCOME THE BUSINESS EXPENSES UNDER THE HEAD BUSINESS INCOME. THIS ASPECT HAS NOT BEEN EXAMINED EITHER BY THE AO OR THE LD. CIT(A). THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO TO EXAMINE (I) WHETHER THE INTEREST EXPENSES CLAIMED IN AY 2013 - 14 IS SIMI LAR IN NATURE TO THE ONE CLAIMED IN AY 2012 - 13 AND (II) WHETHER THE INTEREST EXPENSES CLAIMED IN AY 2013 - 14 FALL IN THE REALM OF BUSINESS INCOME. IF THE INTEREST EXPENSES CLAIMED IN THE AY 2013 - 14 IS SIMILAR IN NATURE TO THE ONE CLAIMED IN AY 2012 - 13 THEN THE AO WOULD EXAMINE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. SHAH (SUPRA). IF THE IN TEREST EXPENSES CLAIMED IN THE AY 2013 - 14 FALL IN THE REALM OF BUSINESS INCOME, THEN THE AO IS DIRECTED TO ALLOW IT. THUS WE DIRECT THE AO TO PASS AN ORDER AFRESH KEEPING IN MIND OUR OBSERVATION HEREINBEFORE. THE AO WOULD GIVE REASONABLE OPPORTUNITY OF ITA NO. 2341 & 2342/MUM/2017 7 BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ASSESSMENT ORDER. WE ALSO DIRECT THE ASSESSEE TO FILE EVIDENCE BEFORE THE AO. 12. IN THE RESULT, THE APPEAL FOR THE AY 2013 - 14 IS ALLOWED FOR STATISTICAL PURPOSES. 13. TO SUM UP , THE APPEAL S FOR THE AY 2 012 - 13 AND AY 2013 - 14 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 27/09/2017. SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/09/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI