MRS.CHANDERKALA GOENKA, MUMBAI V. DCIT CIRCLE-13(2), MUMBAI

ITA 2411/MUM/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9540 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 19-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SHANTESHWAR SWAMI
• Keywords: Capital asset; Business income; Commercial expediency
• Section: 143(3)

Judgement Text

I N THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C. SHARMA, AM & SHRI AMARJIT SINGH , JM ./ ITA NO.2411 /MUM/2018 ( / ASSESSMENT YEAR :201 1 - 1 2 ) MRS. CHANDERKALA GOENKA, 15, SHIRIN CHAMBERS, 348/50, SAMUEL STREET, VADGADI MUMBAI - 400003. VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 13(2), ROOM NO. 418, 4 TH FLOOR, AAYAKAR BHAVA, M.K. ROAD, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAJPG9512C ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI RENU KAPOOR /REVENUE BY : SHRI DR. SHANTESHWAR SWAMI / DATE OF HEARING : 15 .11.2018 / DATE OF PRONOUNCEMENT: 19/12/2018 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 5 5 MUMBAI, DATED 12.02.2014 , FOR THE ASSESSMENT YEAR 201 1 - 12 , IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T. ACT. 2. FOLLOWING THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER: 2 MRS. CHANDERKALA GOENKA 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER IN MAKING AN ADDITION OF RS.1,18,047/ - BEING THE DIFFERENCE BETWEEN THE INTEREST PAID ON THE AMOUNT BORROWED AND INTEREST CHARGED ON THE AMOUNT LENT TO THE FIRM. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER CAPITAL GAIN OF RS.5,75,250/ - DERIVED AGAINST SALE OF F LATS UNDER THE HEAD BUSINESS INCOME INSTEAD OF CAPITAL GAIN. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND HIS INCOME CONSISTS OF INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. DURING THE YEAR, THE ASSESSEE OBTAIN ED LOAN AND ADVANCED LOAN TO THE FIRM AND THE INTEREST EARNED THEREON AMOUNTING TO RS.1,18,047/ - HAS BEEN ADDED TO THE TOTAL INCOME BY THE AO. THE AO ALSO ASSESSED THE CAPITAL GAINS OF RS.5,75,250/ - DERIVED ON SALE OF FLATS UNDER THE HEAD BUSINESS INCOME. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH THE ASSESSEE FURTHER BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY LOWER AUTHORITIES BELOW. FROM THE RECORD WE FOUND THAT DURING SCRUTINY PROCEEDINGS AO OBSERVED THAT ASSESSEE HAS OBTAINED LOAN FROM SVC BANK OF RS.17,68,843/ - AND HAS PAID INTEREST OF RS.8,26,334/ - AT 14% ON THE ABOVE LOAN. THE SAID LOAN HAS BEEN ADVANCED TO THE FIRM RAMANAND KIDERNATH INTERNATIONAL AND THE INTEREST EARNED IS RS.7,00,058/ - AT 12%. THE AO HAS DISALLOWED DIFFERENCE OF 2% OUT OF INTEREST PAID AND ADDED TO 3 MRS. CHANDERKALA GOENKA THE TOTAL INCOME OF THE ASSESSEE . T HE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNER IN THE FIRM OF RAMANAND KIDERNATH INTERNATIONAL WHICH IS DEALING IN DYES AND CHEMICAL WITH OFFICES AT MUMBAI, AMRITSAR, LUDHIANA AND OTHER PLACES. THE BUSINESS OF THE FIRM FROM WHERE THE ASSESSEE HAS BEEN DERIVI NG SHARE OF PROFIT WHICH IS NON - TAXABLE AND INTEREST WHICH IS TAXABLE IS DECLARED UNDER THE HEAD BUSINESS INCOME. THE BUSINESS OF THE FIRM HAS BEEN INCREASING YEAR AFTER YEAR AND REQUIRED ADDITIONAL FUNDS TO BE INDUCTED AS CAPITAL. WITH A VIEW TO MEET THE REQUIREMENTS, THE ASSESSEE AND OTHER PARTNERS BORROWED FUNDS FROM SHAMRAO VITHAL CO - OP. BANK AND ADVANCED THE SAME TO THE PARTNERSHIP FIRM. AS PER THE PROVISIONS OF INCOME TAX ACT, THERE IS A LIMIT ON INTEREST PAYABLE TO PARTNERS @ 12% WHEREAS THE LOAN HAS BEEN RAISED FROM THE BANK @ 14%. THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE DIFFERENCE ON THE AMOUNT BORROWED AND INTEREST CHARGED AND LENT TO THE FIRM. 5. IT WAS ARGUED BY THE LD. AR THAT THE FIRM HAD LIMITATIONS IN BORROWING FROM THE BANK, HENCE, THE PARTNERS BORROWED MONEY FROM THE BANK AND ADVANCED THE FUNDS TO THE FIRM. THUS, THERE HAS BEEN COMMERCIAL EXPEDIENCY IN RESPECT OF BORROWINGS MADE BY THE PARTNER. FURTHER, THE FIRM HAS BEEN ABLE TO SHOW HIGHER PROFITS AS UNDER: 4 MRS. CHANDERKALA GOENKA ASSESSMEN T YEAR PROFIT 2008 - 09 16,68,289 2009 - 10 16,15,469 2010 - 11 18,42,385 2011 - 12 45,93,408 6. THE LD. AR RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. BOMBAY SAMACHAR LTD. 74 ITR 723 AND ALSO ON THE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT 288 ITR 1 AND CONTENDED THAT INTEREST PAID SHOULD BE ALLOWED AS DEDUCTION. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ASSESSEES CONTENTION TO THE EFFECT THAT ADVANCE WAS TAKEN FOR COMMERCIAL EXPEDIENCY HAS NOT BEEN CONSIDERED BY THE AO WHILE DISALLOWING THE INTEREST PAID TO THE BANK. KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE C ASE, WE RESTORE THIS MATTER BACK TO THE FILE OF AO FOR DECID ING AFRESH AS PER LAW. 8. GRIEVANCE OF ASSESSEE ALSO RELATE S TO TREATMENT OF INCOME ON SALE OF FLAT AS BUSINESS INCOME IN PLACE OF CAPITAL GAINS. 5 MRS. CHANDERKALA GOENKA 9. THE LD. AR PLACED ON RECORD THE ORDER OF THE AO IN THE CASE OF CO - OWNER WHEREIN THE AO HAS TREATED INCOME FROM SALE OF FLAT AS INCOME UNDER THE HEAD CAPITAL GAIN. 10. W E HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE PROPERTY AT 110 M.M. ROAD, AMRITSAR WAS PURCHASED BY MR. PURUSHO TTAM GOENKA IN THE YEAR 2000 - 2001 BY PURCHASE AGREEMENTS IN THE NAME OF THE ABOVE REFERRED FAMILY MEMBERS. GAURAV GOENKA AND MRS. SHEELA GOENKA. THE PROPERTY WAS DEVELOPED DURING ASSESSMENT YEAR 2005 - 06 WHEREBY 16 FLATS WERE CONSTRUCTED. THE PROPERTY WAS HELD AS INVESTMENT AND IS ALSO REFLECTED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT. FURTHER, THE MAIN INCOME OF THE ASSESSEE IS FROM RAMANAND KIDARNATH INTERNATIONAL WHERE SHE IS A PARTNER. THE PROPERTY WAS LET OUT TO DIFFERENT TENANTS AFTER THE CON STRUCTION HAVING BEEN COMPLETED. THE ASSESSEE HAS EXPLOITED THE CAPITAL ASSET BY LETTING OUT THE FACTS CONSTRUCTED TO DIFFERENT TENANTS AND THE RENTAL INCOME HAS BEEN ASSESSED TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CAPITAL ASSET HAS BEEN E XPLOITED TO EARN PROPERTY INCOME AND NOT AS STOCK IN TRADE. THE LAND HAS BEEN PURCHASED IN 2000 - 01 AND IT IS ONLY IN ASSESSMENT YEAR 2010 - 11 AND 2011 - 12, 3 FLATS HAVE BEEN SOLD. IN ASSESSMENT YEAR 2011 - 12, TWO FLATS HAVE BEEN SOLD AND OF THE CAPITAL GAIN HAS BEEN SHOWN UNDER THE HEAD CAPITAL GAIN IN THE CASE OF 6 MRS. CHANDERKALA GOENKA THE ASSESSEE AND OTHER CO - OWNERS. IN THE CASE OF THE CO - OWNER I.E. RAVI GOENKA HUF, HE HAD DECLARED THE GAIN AS LONG TERM CAPITAL GAIN AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. 11. IN VIEW OF ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LOWER AUTHORITIES FOR TREATING THE GAIN UNDER THE HEAD BUSINESS I NCOME. ACCORDINGLY, THE AO IS DIRECTED TO COMPUTE LONG TERM CAPITAL GAINS IN RESPECT OF FLAT SOLD DURING THE YEAR UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 12 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19/12/2018 SD/ - ( AMARJIT SINGH ) SD/ - (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED 19/12/2018 RAHUL SHARMA (SR. P.S.) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , 7 MRS. CHANDERKALA GOENKA / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//