GEETANJALI WOOLLENS PVT.LTD., MUMBAI V. THE DY.C.I.T. RANGE1(1), MUMBAI

ITA 2739/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2394 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN SATHE
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & V.DURGA RAO,JM I.T.A. NO.2739/MUM/2007 ASSESSMENT YEAR: 2003-04 I.T.A. NO.1978/MUM/2009 ASSESSMENT YEAR: 2003-04 GLOBAL FINTECH P.LTD., V. THE ACIT RANGE 9(1), FLAT NOS.102 & 103, 1 ST FLOOR, ARIHANT BLDG, MUMBAI. OPP. DARA HOUSE, KHAR GULNAZ CO. OP.HSG. SOCIETY, 15 TH ROAD, BANDRA (W), MUMBAI-50. PA NO.AAACG 1389 B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ARUN SATHE RESPONDENT BY : SHRI MOHD USMAN O R D E R PER S.V.MEHROTRA, AM I.T.A. NO.2739/MUM/2007 THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 31.1.2007 OF LD CIT (A)-IX, MUMBAI FOR THE ASSESSMENT YEAR 2003 -04. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE, A HOUSING FINANCE COMPANY, FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.1,23,28,710/-. THE ASSESSEE, INTER ALIA , CLAIMED DEDUCTION U/S.36(1)(VIII) ON INCOME DERIVED FROM PR OVIDING LONG TERM FINANCE AND HAD ALSO HAD CLAIMED RS.19,42,462/- BEING LOSS ON SALE OF FLATS AS BUSINESS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. THE AO DENIED BOTH THE CL AIMS OF THE ASSESSEE. LD CIT (A) 2 CONFIRMED THE AOS ACTION IN RESPECT OF BOTH THE IS SUES. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT L D CIT (A) ERRED IN CONCLUDING THAT THE FEES RECEIVED AMOUNTING TO RS.8,79,595/- WAS NO T ELIGIBLE FOR DEDUCTION U/S.36(1)(VIII). 4. BRIEF FACTS APROPOS THIS ISSUE ARE THAT DURING T HE YEAR, THE ASSESSEE HAD ASSIGNED ITS LOAN PORTFOLIO TO ICICI BANK LTD., AND HAD RECEIVED PREMIUM IN TERMS OF AGREEMENT ENTERED INTO WITH ICICI BANK LTD. THE ASSESSEE HAD ALSO RECEIVED RS.8,79,595/- AS FEES FOR PROCESSING APPLICATION FOR GRANTING OF LOAN. T HE AO OBSERVED THAT FOR THE ASSESSMENT YEAR 2001-02, SIMILAR DEDUCTIONS WERE CLAIMED U/S.3 6(1)(VIII) IN RESPECT OF PROCESSING FEES AND PREMIUM OF ASSIGNMENT OF LOAN WHICH WERE R EJECTED BY THE DEPARTMENT AND CONFIRMED BY LD CIT (A). THE FACTS BEING SIMILAR D URING THE YEAR, HE DENIED THE ASSESSEES CLAIM, INTER ALIA, OBSERVING THAT THE PR OCESSING FEES WAS A PAYMENT RECEIVED FROM THE LOAN SEEKER TOWARDS ADMINISTRATIVE COST OF PROCESSING THE LOAN APPLICATION AND NOT AN INCOME ON ACCOUNT OF BUSINESS OF LONG TERM H OUSING FINANCE. THUS, HE HELD THAT IT WAS NOT DERIVED FROM BUSINESS OF PROVIDING LONG TER M FINANCE. AS REGARDS PREMIUM RECEIVED ON ASSIGNMENT OF HOUSING LOAN TO ICICI BAN K LTD., THE AO OBSERVED THAT SINCE THE PREMIUM ON THE SALE OF PORTFOLIO WAS RECEIVED F ROM ICICI BANK LTD., THEREFORE, IT COULD NOT HAVE HELD THAT THE ASSESSEE HAD GIVEN LON G TERM FINANCE TO ICICI BANK LTD. HE OBSERVED THAT THIS RECEIPT AROSE ON ACCOUNT OF SALE OF ASSESSEES SUNDRY DEBTORS AND, THEREFORE, IT CANNOT BE HELD TO BE ARISING OUT OF I NCOME ON ACCOUNT OF PROVIDING LONG TERM FINANCE. 5. LD CIT (A) FOLLOWING THE DECISION OF HIS PREDECE SSOR, DISMISSED THE ASSESSEES APPEAL. 6. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSES SEE FILED BEFORE US A COPY OF ITAT ORDER DATED 12.9.2008 IN ITA NO.190/M/2005 FOR THE ASSESSMENT YEAR 2001-02 IN THE CASE 3 OF M/S. GLOBAL HOUSING FINANCE CORPORATION LTD. V. ACIT AND CONTENDED THAT THIS ISSUE IS COVERED BY THE SAID DECISION. 7. LD D.R. SUBMITTED THAT THIS AMOUNT HAS BEEN RECE IVED IN LIEU OF SALE OF ONE PART OF BUSINESS BY THE ASSESSEE COMPANY FROM ICICI BANK AN D THIS COMES UNDER THE HEAD SECURITILISATION OF LOANS AND, THEREFORE, THIS CA NNOT BE HELD TO BE THE PROFIT DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD V CI T, 317 ITR 218(SC). HE SUBMITTED THAT DEDUCTION U/S.36(1)(VIII) IS ALLOWABLE FOR EXI STING HOUSING LOAN. AS REGARDS PROCESSING FEES, HE SUBMITTED THAT THE SAME ALSO CA NNOT BE TREATED AS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. IT IS NOT DISPUTED THAT THE FACTS ARE IDENTICAL IN THE P RESENT YEAR AS OBTAINING IN A.Y. 2001-02. BOTH THE AO AND LD CIT (A) FOLLOWED THE DECISION O F THEIR PREDECESSORS. LD D.R. HAS REFERRED TO THE DECISION IN THE CASE OF LIBERTY IND IA (SUPRA), WHICH IS RENDERED IN THE CONTEXT OF SECTION 80-IB, WHEREIN, THE PHRASE USED IS PROFITS AND GAINS DERIVED FROM ANY BUSINESS AS USED UNDER SECTION 36(1)(VIII). THER EFORE, WE HAVE TO SEE WHETHER BOTH THE IMPUGNED ITEMS ARE DERIVED FROM PROFITS AND GAINS O F BUSINESS OR NOT. WE FIND THAT THE TRIBUNAL IN PARA 6, 6.1, 6.2 HAS HELD AS UNDER: 6. WE HAVE HERD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FOUND THAT ASSESSEE DESERVES TO SUCCEED IN THESE GROUNDS. THERE IS NO DISPUTE THAT ASSESSEE IS DOING BUSINESS OF FINANCE. THE ASSESSE E ADVANCES VARIOUS LOANS TO VARIOUS PARTIES ON LONG TERM BASIS. TERMS OF INTER EST IS AGREED BETWEEN THE PARTIES AFTER TAKING INTO CONSIDERATION ALL OTHER T ERM INCLUDING PROCESSING FEES ETC. PROCESSING FEES IS CHARGED BETWEEN 1% TO 2% O N APPLICATION RECEIVED FOR GRANTING LOANS. THIS PROCESSING FEE SHOWN AS BUSIN ESS RECEIPT AND THE SAME HAS BEEN ACCEPTED BY THE AO YEAR AFTER YEAR. DEDUCTION U/S.36(1)(VIII) IS ALSO ALLOWED BY THE ITO IN PAST. THEREFORE, WE ARE OF T HE VIEW THAT THERE IS NOTHING ON RECORD THAT WHY THE DEDUCTION CLAIMED BY ASSESSEE I S NOT ALLOWED DURING THE YEAR UNDER CONSIDERATION. THERE IS NO CHANGE IN FACTS I N THE YEAR UNDER CONSIDERATION AND IN EARLIER YEARS WHEN DEDUCTION CLAIMED U/S.36( 1)(VIII) WAS ALLOWED. PROVISION OF SECTION 36(1)(VIII) DURING THE RELEVAN T TIME READ AS UNDER: 4 (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED A ND MAINTAINED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURE DEVELOPMENT OR DEVELOPMEN T OF INFRASTRUCTURE FACILITY IN INDIA OR BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN I NDIA FOR RESIDENTIAL PURPOSES, AN AMOUNT NOT EXCEEDING FORTY PERCENT OF THE PROFITS DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE ( COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERV E ACCOUNT. 6.1 PROVISION OF SECTION 36(1)(VIII) IS VERY CLEAR BY WHICH IT IS PROVIDED THAT DEDUCTION IS ELIGIBLE ON THE BUSINESS PROFIT OF THE COMPANY WHO DEALS IN GIVING LOANS ON TERM BASIS FOR PURCHASE OF HOUSE ETC. THE RE IS NO DISPUTE THAT PROCESSING FEES RECEIVED BY ASSESSEE IS SHOWN AS A BUSINESS RECEIPT AND HAS ASSESSED AS BUSINESS RECEIPT. THEREFORE, WE SEE NO REASON TO DISALLOW THE CLAIM OF THE ASSESSEE BY THE AO AND CIT (A). ACCORDINGLY, W E DIRECT THE AO TO ALLOW THE DEDUCTION ON THE AMOUNT OF THE PROCESSING FEES OF R S.43,57,581/-. 6.2 SIMILARLY, WE FOUND THAT THE AMOUNT OF PREMIUM REC EIVED ON TRANSFER OF HOUSING LOANS IS SHOWN AS BUSINESS RECEIPT AND SAME HAS BEE N ASSESSED AS BUSINESS RECEIPT OF THE ASSESSEE COMPANY. THIS AMOUNT IS NOTHING BUT R ECEIPT OF INTEREST OF THE FUTURE YEARS RECEIVED IN THE YEAR UNDER CONSIDERATION AS P ER AGREEMENT ENTERED BETWEEN THE ASSESSEE AND HDFC. THE ASSESSEE HAS SOLD ITS INDIV IDUAL PORTFOLIO TO HDFC FOR RS.22 CRORES OR SO ADVANCED BY ASSESSEE TO VARIOUS INDIVIDUALS ON LONG TERM BASIS AGAINST PURCHASE OF HOUSE ETC. THE ASSESSEE WAS TO RECEIVE INTEREST IN VARIOUS YEARS FROM THE RESPECTIVE INDIVIDUALS TO WHOM THE VARIOUS LOANS WERE ADVANCED. THE ASSESSEE ENTERED INTO THE AGREEMENT WITH HDFC AND S OLD ITS HOUSE LOAN PORTFOLIO TO HDFC. AS PER THE AGREEMENT, A SUM OF RS.52,13,930/ - WAS RECEIVED AS PREMIUM. THE SAME HAS BEEN OFFERED FOR TAXATION AND DEDUCTIO N U/S.36(1)(VIII) HAS BEEN CLAIMED ON THIS AMOUNT ALONGWITH OTHER AMOUNT OF IN TEREST AS WELL AS PROCESSING FEES AS DISCUSSED ABOVE. AGAIN WE DID NOT SEE ANY REASO N THAT WHY DEDUCTION U/S.36(1)(VIII) HAS NOT BEEN ALLOWED BY THE AO AND BY THE CIT(A). THERE IS NO CHANGE IN FACTS OF THE YEAR UNDER CONSIDERATION OR THE FAC TS OF EARLIER YEARS WHERE ON THE RECEIPTS OF INTEREST, THE DEDUCTION U/S.36(1)(VIII) WAS HELD AS ALLOWABLE. THE PREMIUM RECEIPT IS NOTHING BUT BUSINESS RECEIPT WHICH IS IN LIEU OF FUTURE INTEREST RECEIVABLE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ASSES SEE IS ENTITLED FOR DEDUCTION IN THIS AMOUNT ALSO. ACCORDINGLY, WE DIRECT THE AO TO ALLOW THE DEDUCTION U/S.36(1)(VIII) ON THIS AMOUNT. 9. FROM THE ABOVE FINDINGS, IT IS EVIDENT THAT THE TRIBUNAL HAS HELD THAT BOTH THE IMPUGNED ITEMS HAVE ALL ALONG BEEN TREATED AS BUSIN ESS INCOME. THE PROCESSING FEES HAD BEEN RECEIVED FOR PROCESSING THE LOAN APPLICATIONS RECEIVED BY ASSESSEE AND, THEREFORE, DERIVED FROM BUSINESS OF LONG TERM FINANCE. AS FAR AS PREMIUM RECEIVED ON ASSIGNMENT OF LOAN TO ICICI IS CONCERNED, THE SAME HAS BEEN HE LD BY THE TRIBUNAL AS RECEIPT OF 5 INTEREST OF FUTURE YEARS RECEIVED IN THE YEAR UNDER CONSIDERATION AS PER AGREEMENT. THEREFORE, IT IS ALSO DERIVED FROM BUSINESS OF LONG TERM FINANCE. THEREFORE, WE DO NOT FIND ANY REASON TO TAKE ANY CONTRARY VIEW UNDER SAM E SET OF FACTS. RESPECTFULLY FOLLOWING THE DECISION, THIS GROUND IS ALLOWED. 10. THE SECOND ISSUE IS REGARDING LOSS CLAIMED BY T HE ASSESSEE ON ACCOUNT OF SALE OF FLATS AND PARKING SPACE. 11. BRIEF FACTS APROPOS THIS ISSUE ARE TAT FROM SCH EDULE-14 OF THE P&L ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED RS.19,42,4 62/- BEING LOSS ON SALE OF FLATS AS A BUSINESS EXPENSES IN THE P&L ACCOUNT. HE REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF THE SAID LOSS AND ITS ALLOWABILITY. THE ASSESSEES REPLY DATED 18.3.2006 HAS BEEN REPRODUCED IN PARA 5 OF HIS ORDER, AFTER CONSIDERIN G WHICH, THE AO OBSERVED AS UNDER:- THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN DULY CO NSIDERED. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE COPIES OF THE PURCHA SE AND SALE AGREEMENT OF FLATS. THERE ARE NO WRITTEN AGREEMENTS OF DOCUMENTARY EVI DENCES BETWEEN THE ASSESSEE COMPANY AND THE ABOVE REFERRED LOAN PARTIES REGARDI NG THE SAME. IN ABSENCE OF DOCUMENTARY EVIDENCES AND FOR THE REA SONS DISCUSSED ABOVE, THE LOSS ON SALE OF FLAT CLAIMED BY THE ASSESSEE IS DIS ALLOWED AND RS.19,42,462/- IS ADDED BACK TO THE TOTAL INCOME. 12. BEFORE LD CIT (A), IT WAS POINTED OUT THAT THE ACTUAL LOSS ON SALE OF FLATS AND PARKING SPACE WAS RS.33,05,746/- INSTEAD OF RS.19,4 2,462/-. IT WAS FURTHER STATED THAT COMPLETE DETAILS AND PROOF OF AGREEMENT WERE PRODUC ED BEFORE THE AO. HOWEVER, LD CIT (A) DISMISSED THE ASSESSEES APPEAL OBSERVING AS UN DER:- IT APPEARS THAT THERE IS SOME MISTAKE IN THE FIGURE OF DISALLOWANCE WHICH HAS BEEN TAKEN AT RS.19,42,462/- BY THE AO INSTEAD OF A PPELLANTS CLAIM OF RS.33,05,746/-. HOWEVER, I FIND THT EVEN DURING TH E APPELLATE PROCEEDINGS ALSO NO DETAILS HAVE BEEN FURNISHED FOR CLAIMING SUCH LOSS ON SALE OF SUCH FLATS. THE AO IS, THEREFORE, DIRECTED TO DISALLOW THE LOSS AMOUNT ING TO RS.33,05,746/- INSTEAD OF RS.19,42,462/- AND THUS, THE INCOME SHOULD BE ENHAN CED BY RS.13,63,284/-. 13. LD COUNSEL FOR THE ASSESSEE REFERRED TO PARA 5. 3 OF THE ASSESSMENT ORDER AND POINTED OUT THAT IN THE REPLY DATED 21.3.2006, IT I S, INTER ALIA, STATED AS UNDER:- THE NECESSARY DETAILS OF THE SALE IS ENCLOSED FOR YOUR READY REFERENCE. THE NECESSARY PROOF IS ENCLOSED HEREWITH. 6 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. AS IS EVIDENT FROM THE ABOVE NOTED OBSERVATIONS OF THE AO AND LD CIT (A) THAT NECESSARY DETAILS WERE NOT AVAILABLE BEFORE THE LOWER REVENUE AUTHORITIES FOR ARRIVING AT THE CORRECT CONCLUSION. THE ASSESSEE HAS MERELY STATED THAT DE TAILS OF THE SALE WERE ENCLOSED FOR READY REFERENCE ALONGWITH NECESSARY PROOF. IN OUR OPINION, THE ENTIRE ISSUE NEEDS TO BE THOROUGHLY EXAMINED BEFORE ARRIVING AT ANY CONCLUSI ON AND FOR THIS PURPOSE ALL THE NECESSARY DOCUMENTS NEEDS TO BE FURNISHED BEFORE TH E AO. WE, THEREFORE, AS AGREED BY BOTH THE SIDES, RESTORE THIS ISSUE TO THE FILE OF T HE AO FOR EXAMINING THE ISSUE DENOVO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 15 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ITA NO.1978/MUM/2009 16. IN THIS CASE, THE AO HAD LEVIED THE PENALTY U/S .271(1)(C) OF RS.11,12,520/-, INTER ALIA, OBSERVING AS UNDER:- THE AO HAD MADE ADJUSTMENTS TO THE ASSESSED INCOME BY SCALING DOWN THE ALLOWANCE U/S.36(1)(VIII) BY RS.10,06,927/-, BY DISALLOWING THE LOSS ON SALE OF FLATS RS.19,42,462/- AND MISC. EXPENSES OF RS.77,876/- RESULTING IN THE ENHANCED TAXABLE INCOME AS PER THE ORDER UNDER SECTION 143(3). DURING THE ASSESSMENT PROCEEDINGS, THE AO HAD ALSO INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) ON ACCOUNT OF THE ABOVE ADDITIONS/DISALLOWANCES. SINCE THESE ADDITIONS WERE CONFIRMED BY LD CIT (A), THEREFORE, HE LEVIED THE PENALTY. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SINC E WE HAVE DELETED THE ADDITION AS FAR AS DISALLOWANCE U/S.36(1)(VIII) IS CONCERNED, T HEREFORE, PENALTY APROPOS THAT ADDITION DOES NOT SURVIVE. AS FAR AS PENALTY WITH REGARD TO ASSESSEES CLAIM ON ACCOUNT OF SALE OF FLAT IS CONCERNED, WE HAVE RESTORED THE MATTER TO T HE FILE OF THE AO IN QUANTUM APPEAL. THEREFORE, WE SET ASIDE THE ORDER OF LD CIT (A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO TO DECIDE THE ISSUE REGARDI NG LEVY OF PENALTY APROPOS THIS ADDITION IN ACCORDANCE WITH LAW AFTER THE DECIDING THE QUANT UM PROCEEDINGS ON THIS ISSUE ON MERITS. 7 18. IN THE RESULT, THIS APPEAL IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED ON 6 TH APRIL, 2010 SD/- (V. DURGA RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 6 TH APRIL , 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 8 DATE INITIALS 1. DRAFT DICTATED ON 1.4.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 1.4.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER 9