BIPIN LILACHAND SHAH, MUMBAI V. ITO WD 32(1)(3), MUMBAI

ITA 2796/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0106 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 11-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: V G GINDE
• Keywords: Opportunity of being heard
• Section: 143(3); 142(1); 147; 148

Judgement Text

1 ITA 2796/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.2796/MUM /2015 (ASSESSMENT YEAR 2005-06 ) BIPIN LILACHAND SHAH 501, 5 TH FLOOR, GAYATRI APARTMENT, HARISHANKAR JOSHI MARG, DAHISAR (E), MUMBAI-68 PAN : ANOPS9944E VS ITO-32(1)(3), ERSTWHILE ITO-25(1)(1), MUMBAI-51. APPELLANT RESPONDENT APPELLANT BY SHRI V.G. GINDE RESPONDENT BY SHRI SUMAN KUMAR DATE OF HEARING 20-06-2017 DATE OF PRONOUNCEMENT 23- 06-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-44, MUMBAI DATED 12-02-2015 AND IT PERTAINS TO AY 2005- 06. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR AY 2005-06 DECLARING TOTAL INCOME OF RS.1,10,470. IN THIS CASE, WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2 007-08, THE ASSESSEE HAS ACCEPTED THE DISALLOWANCE OF INTEREST PAID TO HIS P ARENTS, LATE SHRI LILACHAND SHAH AND LATE SMT. LILAVATI L SHAH. THE ASSESSEE HAS FI LED APPEAL AGAINST THE ORDER, WHICH WAS SUBSEQUENTLY WITHDRAWN. THE AO BASED ON THE INFORMATION CAME TO THE CONCLUSION THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT ON ACCOUNT OF CLA IM OF INTEREST ON LOANS BORROWED FROM LATE SHRI LILACHAND SHAH AND LATE SMT. LILAVA TI L SHAH. THEREFORE, HE REOPENED THE ASSESSMENT AND ISSUED NOTICE U/S 148 DATED 28-3 -2012. IN RESPONSE TO THE 2 ITA 2796/MUM/2015 NOTICE, THE ASSESSEE, VIDE HIS LETTER DATED 20-4-20 12 STATED THAT THE RETURN FILED ON 29-3-2006 MAY BE TREATED AS RETURN FILED IN RESPONS E TO NOTICE U/S 148. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. THE AO, AFTER CONSIDERING THE INFORMATION AVAILABLE ON RECORD COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 ON 11-02-2013 AND DETERMINED TOTAL INCOME AT RS.3,47,868 INTERALIA MAKING ADDITION TOWARDS DISAL LOWANCE OF INTEREST PAID TO THE ESTATE OF DECEASED PARENTS OF THE ASSSSEE FOR RS.2, 37,402. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A). BEFORE CIT(A), ASSESSEE CONTENDED THAT THE LOAN OUT STANDING IN THE NAME OF ESTATE OF DECEASED PARENTS IS STILL NOT SETTLED BECAUSE FU NDS ARE NOT DISTRIBUTED AMONGST THE LEGAL HEIRS; HENCE INTEREST IS CREDITED TO THE PARE NTS LOAN ACCOUNT. THE ASSESSEE FURTHER SUBMITTED THAT IT ACT RECOGNISES ENTITIES O F DECEASED PERSONS BY VIRTUE OF SECTIONS 159(1) & 159(2) AS PER WHICH THE ASSESSMEN T OF LEGAL HEIRS CAN BE FRAMED ON THE ESTATE OF DECEASED PERSONS. IN SUPPORT OF H IS ARGUMENT, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CW T VS CHANDAR SINGH (1986) 58 CTR 15 (SC). THE CIT(A) AFTER CONSIDERING THE EXPL ANATIONS OF THE ASSESSEE OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT THE LO AN OUTSTANDING IN THE NAME OF ESTATE OF DECEASED PARENTS REMAINED UNDISTRIBUTED A MONGST LEGAL HEIRS, IS NOT SUBSTANTIATED WITH ANY EVIDENCE. AS REGARDS THE AR GUMENT THAT THE ESTATE OF DECEASED PERSONS CAN BE ASSESSED U/S 159(1) & 159(2 ), THERE IS NO MERITS IN THE CONTENTION OF THE ASSESSEE THAT IN THE SAID SECTION WHERE A PERSON DIES, A LEGAL REPRESENTATIVE IS LIABLE TO PAY THE SUM WHICH THE D ECEASED WOULD HAVE BEEN LIABLE TO PAY. THEREFORE, THE ASSESSEES CASE DOES NOT COVER UNDER THE PROVISIONS OF SECTIONS 159(1) & 159(2) OF THE ACT. THE ASSESSEE HAS FAILE D TO EXPLAIN AS TO HOW CREDITING THE INTEREST IN DECEASED PERSONS ACCOUNT CAN BE AC CEPTED FOR A PERIOD OF MORE THAN 10-20 YEARS AFTER THE DEATH OF THE PERSONS. WITH T HESE OBSERVATIONS, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO TOWARDS DISAL LOWANCE OF INTEREST. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL B EFORE US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN UPHOLDING THE DECISION OF THE AO IN RESPECT OF INTEREST PAYMENT T O ESTATE OF THE DECEASED PARENTS. THE LD.AR FURTHER SUBMITTED THAT THE AMOUNT STANDIN G TO THE CREDIT OF THE ESTATE OF THE DECEASED PARENTS IS NOT DISTRIBUTED AMONGST THE LEGAL HEIRS. AS SUCH, THE ASSESSEE CREDITED INTEREST ON THE TOTAL OUTSTANDING AMOUNT YEAR AFTER YEAR TILL 3 ITA 2796/MUM/2015 DISTRIBUTION OF SAID AMOUNT AMONGST THE LEGAL HEIRS OF THE DECEASED PARENTS. THE LD.AR FURTHER REFERRING TO THE DECISION OF ITAT, SM C BENCH, MUMBAI IN ITA NO.7362/MUM/2014 IN ASSESSEES OWN CASE FOR AY 2006 -07 SUBMITTED THAT THE ITAT UNDER SIMILAR FACTS AND CIRCUMSTANCES HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE OBSERVATION THAT DISALLOWANCE OF INTEREST IS TO BE CONSIDERED ONLY AFTER EXAMINING THE ISSUE AS TO WHETHER THERE IS CESSATIO N OF LIABILITY IN THE HANDS OF THE ASSESSEE REGARDING THE LOAN TOWARDS HIS DECEASED PA RENTS. SINCE THE FACTS ARE IDENTICAL IN THE PRESENT APPEAL, FOR SIMILAR REASON S, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 5. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE FACTS WITH REGARD TO THE PAYMENT OF INTEREST ON ESTATE OF THE DECEASED PARENTS OF THE ASSESSEE IS NOT DISPUTED. THE CONTENTION OF TH E ASSESSEE THAT THE LOANS STANDING TO THE CREDIT OF ESTATE OF THE DECEASED PA RENTS ACCOUNT IS NOT DISTRIBUTED AMONGST THE LEGAL HEIRS OF THE DECEASED, THEREFORE, TILL SUCH TIME THE AMOUNT IS DISTRIBUTED AMONGST THE LEGAL HEIRS, THE LIABILITY IS NOT CEASED TO EXIST; HENCE, HE HAS RIGHTLY CREDITED INTEREST ON THE OUTSTANDING AMOUNT . THE AO DISALLOWED INTEREST ON THE GROUND THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE REASONS FOR NOT DISTRIBUTING THE AMOUNT / ESTATE OF DECEASED PARENTS AMONGST LEGAL H EIRS EVEN AFTER MORE THAN 20 YEARS. WE DO NOT FIND ANY MERITS IN THE FINDINGS O F THE AO FOR THE REASON THAT AS LONG AS THE LIABILITY EXISTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE CAN CONTINUE TO PAY INTEREST ON THE ESTATE OF THE DECEA SED PARENTS. IN THIS CASE, THE AO FAILED TO GIVE ANY FINDINGS AS TO WHETHER THE LIABI LITY IS CEASED TO EXIST AS ON THE DATE OF THE BALANCE-SHEET. THE AO, WITHOUT VERIFYING TH E FACT AS TO WHETHER THE LIABILITY IS CEASED TO EXIST IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE, SIMPLY DISALLOWED THE INTEREST. WE FURTHER OBSERVE THAT THE CO-ORDINATE BENCH OF ITAT SMC BENCH, MUMBAI IN ITA NO.7362/MUM/2014 IN ASSESSEES OWN CA SE FOR THE AY 2006-07 HAS CONSIDERED THE ISSUE AND AFTER DELIBERATIONS ON THE FACTS OF THE CASE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO ASCERTAIN WHETHER TH ERE IS CESSATION OF LIABILITY IN THE HANDS OF THE ASSESSEE REGARDING THE LOAN TOWARDS HI S DECEASED PARENTS. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 7. I FIND THAT THE ISSUE IN THIS CASE IS THE AFLOWA BILITY OF INTEREST PAID BY THE ASSESSEE ON LOANS TAKEN FROM DECEASED PARENTS, WHO NAVE EXPIRED ON 09-09-1998 AND 13.08.1987 BY THE FATHER AND MOTHER 4 ITA 2796/MUM/2015 RESPECTIVELY, IT IS THE PLEA OF THE ASESSEE THAT HE IS LIABLE TO PAY INTEREST AS THE LIABILITY HAS REMAINED UNDISTRIBUTED AMONGST TH E LEGAL HEIRS OF THE DECEASED PARENTS. IT IS TRUE THAT THE LOAN FROM THE CREDITOR WOULD NOT AUTOMATICALLY CEASE TO EXIST MERELY UPON HIS DEATH IN THIS CASE, THE A.O. HAD DISALLOWED THE CLAIM OF INTEREST WITHOUT COMMENTING ANYTHING AS TO WHETHER THE UNSECURED LOAN TAKEN BY THE .ASSESSEE. FROM HIS PARENT IN SUBSISTING OR NOT. IF THERE IS NO CESSATION OF LIABILITY, IT CANN OT BE SAD THAT THE ASSESSEE IS NOT LIABLE TO PAY INTEREST ON THE LOAN. HOWEVER, THERE IS NO EXAMINATION BY THE A.O. ON THIS ASPECT. 8. THE HONBLE APEX COURT IN THE CASE OF KAPURCHAND SHRIMNAI VS CIT REPORTED IN (1981) 131 1TR 451 (SC) HAS EXPOUND ED THAT AN APPELLATE AUTHORITY HAS THE JURISDICTION AS WELL AS DUTY TO C ORRECT ALL ERRORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARV , APPROPRIATE DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRE SH UNLESS FORBIDDEN FROM DOING SO BY STATUTE. IN THE LIGHT OF THE AFORESAID HON'BLE APEX COURT'S DECISION, I AM OF THE CONSIDERED OPINION THAT THE D ISALLOWANCE OF INTEREST IS TO BE CONSIDERED ONLY AFTER EXAMINING THE ISSUE AS TO WHETHER THERE IS CESSATION OF LIABILITY IN THE HANDS OF THE ASSESSEE REGARDING THE LOAN TOWARDS HIS DECEASED PARENTS. HENCE, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER AND THE ASSESSING OFFICER EXAMINE AS TO WHETHER THE LOAN FROM THE PARENTS DULY EXISTS OR NOT AND THEREAFTER DECIDE THE ISSUE AS PER LAW. NEEDLESS TO ADD THAT T HAT THE ASSESSEE SHOULD BE GRANTED SUFFICIENT OPPORTUNITY OF BEING HEARD. 7. IN THIS VIEW OF THE MATTER AND ALSO CONSIDERING THE DECISION BY ITAT, MUMBAI IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT THE IS SUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE OBSERVATION OF THE ITAT REGA RDING CESSATION OF LIABILITY IN THE HANDS OF THE ASSESSEE PERTAINING TO THE LOAN TOWARD S HIS DECEASED PARENTS. IF THE LOAN CONTINUES TO EXIST IN THE HANDS OF THE ASSESSE E, THEN, NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST LIABILITY. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT THE AO TO EXAMINE THE ISSUE IN THE LIGHT OF THE ABOVE DISCUSSIONS WITH REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE, 2017. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 23 RD JUNE, 2017