BLUE STAR, MUMBAI V. JT CIT RG 16(3), MUMBAI

ITA 2510/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3232 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D P REDDY
• Keywords: Business income; Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.2510/MUM/2013 ASSESSMENT YEAR: 2008-09 M/S BLUE STAR, 312 A, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI-400004. PAN: AAAFB1196N VS. JT. CIT RANGE-16(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NISHIT GANDH I (AR) REVENUE BY : SHRI D.P. REDDY (DR ) DATE OF HEARING : 17.03.2016 DATE OF PRONOUNCEMENT : 27.05.2016 O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-27, MUMBAI, DATED 10.01.2013 FOR AY 2008-09. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: (A) CONFIRMATION OF DISALLOWANCE OF RS. 71,43,249/- U/S . 14A READ WITH RULE 8D OF THE ACT. (B) TREATING THE INCOME FROM BUSINESS SERVICES CENTRE U NDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF PROFIT & GAINS OF BUSI NESS OR PROFESSION. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RETURN OF INCOME ON 28 TH SEPTEMBER 2008 DECLARING TOTAL INCOME AT RS. 11,35,79,790/-. THE CASE WAS SELECTED FOR SCRUTINY. 2 ITA NO. 2510/M/2013 M/S BLUE STAR THE AO MADE CERTAIN ADDITION/DISALLOWANCE INCLUDING DISALLOWANCE UNDER SECTION 14A OF THE ACT AND FURTHER TREATED INCOME FROM BUSINES S SERVICE CENTRE AS INCOME IN THE HEAD OF INCOME FROM HOUSE PROPERTY IN ITS ORDER D ATED 30/12/2011. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A), BUT WIT HOUT ANY SUCCESS. AGAINST THE ORDER OF CIT(A), THE PRESENT APPEAL IS FILED BEFORE US.WE HAVE HEARD AR FOR ASSESSEE AND DR FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. 3. FIRST WE SHALL TAKE UP THE GROUND NO.1. THE LD. AR OF THE ASSESSEE ARGUED THAT ASSESSEE EARNED EXEMPTED INCOME OF RS. 10,20,838/- AND AO DISALLOWED A SUM OF RS. 71,43,249/- U/S. 14A OF THE ACT. THE ASSESSEE INVES TED AN AMOUNT OF RS. 42.94 CRORE IN THE SHARES OF BOMBAY STOCK EXCHANGE AND RECEIVED DI VIDEND INCOME OF RS. 10,20,838/- . THE AMOUNT OF EXEMPT INCOME WAS RECEIVED THROUGH ECS. AR FOR ASSESSEE FURTHER ARGUED THAT THE ASSESSEE WAS HAVING SUFFICIENT FUND S. ASSESSEE HAS NOT PAID ANY INTEREST ON THE AMOUNT INVESTED TO EARN EXEMPT INCOME. ASSES SEE HAD INVESTED OUT OF ADVANCE AMOUNT OF RS. 44,44,65,000/-RECEIVED FROM ONE OF IT S OVERSEAS BUYER ON 16 TH OF APRIL 2007. LD. AR FURTHER ARGUED THAT THE ASSESSEE HAS C APITAL RESERVE OF RS. 187 CRORE (APROX). AR FURTHER ARGUED THAT THERE WAS NO QUESTI ON OF DISALLOWANCE OF ANY EXPENSES UNDER SECTION 14A OF THE ACT. THE LD AR FOR ASSESS EE RELIED UPON THE CASE OF CANARA BANK VS ACIT (2014) 99 DTR (KAR) 36. THE LD DR FOR THE REVENUE RELIED UPON THE ORDER OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED TO HAVE EARNED EXEMPT INCOME OF RS. 10,20,838/- BUT NO DISALLOWANCE WAS M ADE VOLUNTARILY. THE AO WHILE CONSIDERING THE DISALLOWANCE UNDER SECTION 14A APPL IED THE PROVISION OF SUB-SECTION (2) OF SECTION 14A OF THE ACT, AND DETERMINED THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN ACCORDANCE WITH THE ME THOD UNDER RULE 8D OF INCOME TAX RULES AND CALCULATED THE SAME AT RS. 71,43,249/ -. LD. CIT(A) WHILE DEALING WITH THIS GROUND HAD CONCLUDED THAT AT THE BEGINNING OF FINANCIAL YEAR UNDER CONSIDERATION THERE WAS NO FUNDS AVAILABLE TO THE ASSESSEE TO INV EST IN THE SHARES. THE ASSESSEE EARNED PROFIT AFTER TAX OF RS. 8.7 CRORE AND ON ADDING BAC K THE AMOUNTS PROVIDED TOWARD BAD DEBTS, WRITTEN OFF RS. 12.33 CRORES AND APPRECIATIO N OF RS. 6.46 CRORE AND CASH PROFIT AVAILABLE DURING THE YEAR WORKS OUT TO RS. 27.53 CR ORE. THE INVESTMENT WAS MADE TO THE 3 ITA NO. 2510/M/2013 M/S BLUE STAR TUNE OF RS. 42.94 CRORE THUS; AT THE FIRST INSTANCE ASSESSEE HAS NO INTEREST-FREE FUNDS AVAILABLE ON THE DATE OF INVESTMENT. SECONDLY EVEN IF THE PROFIT DURING THE YEAR WAS CONSIDERED TO HAVE BEEN INVESTED IN SHARES, THE SAM E IS NOT SUFFICIENT ENOUGH TO COVER THE INVESTMENT MADE. AND FINALLY CONCLUDED THAT SIN CE THE ASSESSEE FAILED TO DISALLOW AND SUCH EXPENSES ON HIS OWN, THUS THE PROVISION OF SECTION 14 A READ WITH RULE 8D WERE ATTRACTED. AND CONFIRMED THE DISALLOWANCE MADE BY AO. 5. WE HAVE SEEN THE PROFIT AND LOSS ACCOUNT OF ASSESSE E FOR THE RELEVANT YEAR THE ASSESSEE HAS CAPITAL AMOUNT OF RS. 153,41,25,608-. THE ASSES SEE INVESTED RS. 42,94,34,878/- AND EARNED EXEMPT INCOME OF RS. 10,20,838/- BUT NO VOLU NTARY DISALLOWANCE WAS MADE IN RETURN OF INCOME. THUS THE CASE OF ASSESSEE FALLS U NDER RULE 8 D(1)(B). THUS BY CONSIDERING THE FACT AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENT MADE TO EARN EXEMPT INCOME. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLO WED. THE FACT OF CASE OF CANARA BANK VS ACIT (2014) 99 DTR (KAR) 36 RELIED BY LD AR FOR ASSESSEE IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS RULE 8D IS APPL ICABLE W.E.F. ASSESSMENT YEAR 2008- 09. 6. NEXT GROUND FOR OUR CONSIDERATION IS TREATING THE I NCOME FROM BUSINESS SERVICE CENTRE UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF PROFIT & GAIN OF BUSINESS OR PROFESSION. LD. AR OF THE ASSESSEE ARGUED THAT AO H AS NOT CONSIDERED THE FACT PROPERTY PLACED BEFORE HIM DURING THE ASSESSMENT PROCEEDING. THE ASSESSEE IS IN FACT OPERATING THE BUSINESS SERVICE CENTRE AND PROVIDED VARIOUS FA CILITIES TO ITS CLIENT FOR SMOOTH FUNCTIONING OF BUSINESS ACTIVITIES WHICH INCLUDES F URNITURE, TELEPHONE, FAX AND PHOTOCOPY MACHINE, REGULAR CLEANING FACILITIES ETC. DR FOR REVENUE ARGUED THAT ALL THE FURNITURE PROVIDED TO THE TENANT WAS EARLIER USED B Y THE ASSESSEE AND NO SUCH SERVICE IS PROVIDED BY THE ASSESSEE. ASSESSEE NOT CLAIMED ANY EXPENSES FOR MAKING ANY MODIFICATION IN THE PREMISES OR ON ACCOUNT OF PROVI DING EXTRA INFRASTRUCTURE. 7. PERUSAL OF ASSESSMENT REVELS THAT DURING, THE AO OB SERVED THAT ASSESSEE LET OUT PREMISES NO. 312A, PRASAD CHAMBER, OPERA HOUSE AND RECEIVED AMOUNT OF RS. 13,48,080/- FROM M/S DIASDUA INDIA PVT. LTD.(DIPL) ON ACCOUNT OF COM PENSATION AND PAID SERVICE CHARGE OF RS. 1,48,080/- AND NET AMOUNT OF RS. 12,00,000/- HAS BEEN OFFERED AS A BUSINESS INCOME, THE ASSESSEE WAS ASKED TO PROVIDE COPY OF A GREEMENT AND TO EXPLAIN AS TO WHY 4 ITA NO. 2510/M/2013 M/S BLUE STAR THE AMOUNT RECEIVED FROM DIPL BE NOT CONSIDERED UND ER THE HEAD INCOME FROM HOUSE PROPERTY AS THE WHOLE PREMISES HAS BEEN GIVEN TO U SE BY THE COMPANY. IT WAS CONTENDED THAT ON BEHALF OF ASSESSEE COMPANY THAT I T IS OPERATING BUSINESS CENTRE AND THEREFORE, WITH THE PREMISES IT HAD PROVIDED VARIOU S FACILITY TO ITS CLIENT LIKE TO USE FURNITURE, PROVISION OF TWO TELEPHONE LINES, FACSIM ILE MACHINE AND USE OF PHOTOCOPY MACHINE. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTE D BY THE AO. THE AO CONCLUDED THAT THE PROPERTY UNDER CONSIDERATION WAS EARLIER U SED BY ASSESSEE. ASSESSEE HAS NOT CLAIMED ANY MODIFICATION IN THE PREMISES FOR PROVID ING EXTRA INFRASTRUCTURE WHICH WAS NOT AVAILABLE EARLIER FOR THE PURPOSE OF GIVING THI S PREMISE TO THE OTHER PERSON. MOREOVER, THE WHOLE PROPERTY WHICH WAS CLAIMED TO B E USED BY ASSESSEE TILL 31.03.2006 FOR ITS BUSINESS PURPOSE AND DEPRECIATION WAS CLAIM ED HAS BEEN GIVEN TO DIPL FROM 01.04.2006 ITSELF. DIPL IS THE ONLY PARTY TO USE TH E PROPERTY AND WHICH HAS BEEN GIVEN FOR INITIAL USE FOR TWO YEARS. THE ASSESSEE IS NOT PROVIDING OF ANY OTHER SERVICES AS IT HAS NEITHER GIVEN ANY EVIDENCE NOR CLAIMED ANY EXPENSES OF SUCH SERVICES. LD. CIT(A) WHILE CONSIDERING THIS GROUND CONCLUDED THAT SO-CAL LED BUSINESS CENTRE IS NOTHING BUT AN OFFICE PREMISES WHICH WERE BEING USED BY THE ASS ESSEE FOR HIS BUSINESS AND IT HAS NO SPECIAL FEATURE TO BE QUALIFY AS SOMETHING MORE THA N THE ORDINARY HOUSE PROPERTY, THE ASSESSEE ALLOWED TO USE TABLE CHAIR, CABINETS TO TW O TELEPHONE LINES AND A FIXED LINE AND MAKING SERVICE TO PEON, IF REQUIRED. THE SECURITIES SERVICE ARE COMMON FOR ALL INMATES FOR PRASAD CHAMBERS, ITS BUSINESS OF DIAMOND TRADER S AND NO SPECIAL SERVICE ARE PROVIDED TO THE EXCLUSIVE USE OF THE PERSON USING T HE SAID PREMISES. AND THESE SERVICES DOES NOT MATERIALLY CHANGED THE AGREEMENT FOR GIVIN G PREMISES ON HIRE AND THE NATURE OF INCOME FROM RENTAL INCOME TO THE BUSINESS INCOME AND UPHELD THE FINDING OF AO. 8. WE HAVE SEEN THAT ASSESSEE HAS PLACED ON RECORD THE PAPER BOOK CONSISTING OF 60 PAGES. THE ASSESSEE HAS NEITHER PLACED ON RECORD TH E COPY OF AGREEMENT OF TENANCY/LETTING OFF THE PROPERTY TO THE TENANT, SHO WING THE TERM AND CONDITIONS OF THE TENANCY. NO COPY OF MEMORANDUM AND ARTICLE OF ASSOC IATION OF ASSESSEE-COMPANY IS PLACED ON RECORD. THERE IS NO COGENT MATERIAL BEFOR E US WHICH MAY SUGGEST THAT OBJECT OF ASSESSEE WAS TO ACQUIRE AND HOLD AND TO EARN REN TAL INCOME. THE HONBLE APEX COURT IN A RECENT JUDGMENT IN CHENNAI PROPERTIES AND INVE STMENT LTD. VS. CIT REPORTED VIZ. (2015) 373 ITR 673 (SC) HELD AS UNDER: 5 ITA NO. 2510/M/2013 M/S BLUE STAR IF MAIN OBJECT AS WELL AS INCIDENTAL AND ANCILLARY OBJECT IS TO ACQUIRE WHOLE OF THE PROPERTY AND TO LET OUT THOSE PROPERTY AS WELL AS M AKE ADVANCES UPON THE SECURITY OF LAND AND BUILDING ON ALL OTHER PROPERTY OR ANY I NTEREST THEREIN AND EARNING INCOME BY LETTING OUT OF THOSE PROPERTY TO BE TREAT ED AS INCOME FROM BUSINESS. 9. THE ASSESSEE IS A COMPANY AND MUST BE INCORPORATED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT 1956. THE COMPANY HAS TO UND ERTAKE ITS BUSINESS IN ACCORDANCE WITH ITS ARTICLE AND MEMORANDUM OF ASSOC IATION, WHICH ARE NOT BROUGHT BEFORE US FOR OUR PERUSAL. THE SAID ARTICLE AND MEM ORANDUM MAY THROW LIGHT ON THE MAIN OR ANCILLARY OBJECT OF THE ASSESSEE. HENCE WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND OF APPEAL TO THE FILE OF AO TO EXAMINE THE C ASE AFRESH IN ACCORDANCE WITH THE JUDGEMENT OF HONBLE APEX COURT IN CHENNAI PROPERTI ES AND INVESTMENT LTD. VS. CIT (SUPRA) AND PASS THE ORDER IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIRECTED TO PROVIDE ALL NECESSARY ASSISTANCE AND DOCUMENT TO THE AO. HENCE THIS GROUND OF APPEAL IS ALLOWED FOR STATICAL PURPOSE. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN CO URT ON THIS 27 TH MAY, 2016. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 27/05/2016 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/