MAGS FINVEST PRIVATE LIMITED, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX - 5, MUMBAI

ITA 2930/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8307 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJUNATH SWAMY
• Keywords: Capital asset; Revision of order; Depreciation; Revenue expenditure; Set aside
• Section: 143(3); 142(1); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI AMARJIT SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2930/MUM/2018 ASSESSMENT YEAR: 2013 - 14 MAGS FINVEST PVT. LTD. 11, SILVER ARCH, NEPEANSEA ROAD, MUMBAI - 400006. VS. PRINCIPAL COMMISSIONER OF INCOME TAX - 5 AAYAKAR BHAVAN, ROOM NO. 515, M.K. ROAD, MUMBAI - 400020. PAN NO. AADCM6820G APPELLANT RESPONDENT ASSESSEE BY : MR. MILIN DATTANI , AR REVENUE BY : MR. MANJUNATH SWAMY , CIT - DR DATE OF HEARING : 16/ 0 1 /201 9 DATE OF PRONOUNCEMENT : 08/04/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2013 - 14. THE APPEAL IS DIRECTED AGAINST THE ORDER U/S 263 OF THE INCOME TAX ACT 1961, (THE ACT) PASSED BY THE PR. COMMISSIONER OF INCOME TAX - 5 , MUMBAI [IN SHORT PR. CIT]. 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. A. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. PR. CIT ERRED IN INVOKING THE PROVISIONS OF SEC. 263 OF I.T. ACT, 1961 AND TREATING THE ASSESSMENT ORDER PASSED U/S 143(3) DATED 14.03.2016 AS ERRONEOUS/PREJUDICIAL TO THE INTEREST OF THE REVENUE. MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 2 B. THE LD. PR. CIT ERRED IN REJECTING THE OBJECTIONS OF THE APPELLANT FILED ON 27.02.2018 AND IGNORING THE EVIDENCE PLACED ON RECORD. C. THE LD. PR. CIT ERRED IN APPLYING THE PROVISIONS OF PROVISO TO SEC. 36(1)(III) IN RESPECT OF INTEREST PAID ON ACQUISIT ION OF ASSET NOT APPRECIATING THE FACT THAT UPTO AY 2015 - 16 THE PROVISO WAS APPLICABLE TO INTEREST PAID ON BORROWING FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION WHICH IS NOT THE POSITION IN APPELLANTS CASE. D. THE APPELLANT SUBMITS THAT SINCE THERE IS NO EXTENSION OF BUSINESS THE PROVISO HAS NO APPLICATION TO THE FACT AND CIRCUMSTANCES OF THE CASE AS SUCH THE ORDER U/S 263 NEED TO BE CANCELLED. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE - COMPANY PURCHASED CAPITAL ASSET, NAMELY SAMUDRA MAHAL F LAT DURING AY 2012 - 13 FOR RS.38,93,05,977/ - . THE BALANCE SHEET REFLECTED FRESH LOAN OF RS.5,00,00,000/ - FROM BARCLAYS BANK AND OUTSTANDING LOAN OF RS.14,32,13,207/ - FROM HDFC BANK. THE PR. CIT HAS OBSERVED THAT THE INTEREST ON LOAN AMOUNTING TO RS.1,88,14, 539/ - DEBITED BY THE ASSESSEE AS MENTIONED IN NOTE 18 UNDER THE HEAD OTHER EXPENSES SHOULD HAVE BEEN DISALLOWED IN VIEW OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT. AS PER HIM, THE FAILURE ON THE PART OF THE AO TO CONDUCT PROPER INQUIRY WITH A VIEW TO EXAMINE THE APPLICATION OF THE PROVISO TO SECTION 36(1)(III) IN THE PRESENT CASE RENDERED THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. HAVING GONE THROUGH THE RE PLY OF THE AS SESSEE TO THE SHOW CAUSE NOTICE, THE PR. CIT HELD THAT THE ISSUE OF ALLOWABILITY OF INTEREST EXPENSES VIS - A - VIS THE PROVISIONS CONTAINED IN SECTION36(1)(III) ARE REQUIRED TO BE INVESTIGATED, WHICH WAS NOT CARRIED OUT BY THE AO DURING THE ASSES SMENT. AS THE ASSESSMENT ORDER WAS PASSED WITHOUT MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 3 CONDUCTING INQUIRY, THE PR. CIT HELD THAT THE PROVISIONS CONTAINED IN CLAUSE (A) OF EXPLANATION 2 TO SECTION 263(1) ARE CLEARLY ATTRACTED IN THE PRESENT CASE. THEREFORE, INVOKING THE PROVISIONS OF SECTION 2 63 OF THE ACT, HE SET ASIDE THE ASSESSMENT ORDER DATED 14.03.2016 AND DIRECTED THE AO TO PASS A FRESH ORDER AFTER MAKING NECESSARY INQUIRY TO THE ISSUE AS OBSERVED BY HIM AND AFTER ALLOWING REASONABLE OPPORTUNITY TO THE ASSESSEE. 4. BEFORE US, THE LD. COU NSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) CONTAINING (I) COPY OF AUDITED ANNUAL ACCOUNTS FOR YEAR ENDED 31 ST MARCH 2013, (II) COPY OF COMPUTATION OF INCOME FOR AY 2013 - 14, (III) COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOME FOR AY 2013 - 14, (IV) COPY OF L ETTER DATED 21.09.2018 AND 28.09.2018 REQUESTING FOR HEARING SHEET, (V) COPY OF HEARING, (VI) COPY OF NOTICE DATED 13.07.2015 ISSUED U/S 143(2), (VII) COPY OF SUBMISSION LETTER MADE TO AO DATED 09.07.2015, (VIII) COPY OF NOTICE DATED 05.10.2015 ISSUED U/S 142(1) AND 143(2), (IX) COPY OF SUBMISSION LETTER MA D E TO AO DATED 16.10.2015, (X) COPY OF SUBMISSION LETTER MADE TO AO DATED 03.02.2016, (XI) COPY OF NOTICE DATED 05.02.2018 ISSUED U/S 263 (XII) COPY OF REPLY LETTER DATED 24.02.2018 MADE TO CIT AND (XIII) COPY OF ITAT ORDER DATED 14.07.2017 PASSED AGAINST 263 ORDER FOR AY 2012 - 13. THE LD. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE VIDE AGREEMENT DATED 31.03.2011 PURCHASED A FLAT AT SAMUDRA MAHAL FOR RS.38,93,05,977/ - . THE STAMP DUTY ON THE PURCHASE WAS PAID ON 31.03.2011. THE ASSESSEE TOOK THE POSSESSION OF THE FLAT AND PUT IT TO USE ON OR ABOUT IN THE MONTH OF APRIL 2011. THE ASSESSEE TOOK A LOAN OF MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 4 RS.20 CRORE FROM HDFC BANK LTD. AND DURING THE YEAR IT TOOK ADDITIONAL LOAN OF RS.5 CRORE FROM BARCLAYS BANK. THE INTEREST ON THE LOAN STARTED FROM APRIL 2011 IN RESPECT OF LOAN FROM HDFC BANK I.E. AFTER THE DATE ON WHICH THE ASSESSEE TOOK P OSSESSION OF THE FLAT. THE LEDGER ACCOUNT OF INTEREST PAID ON LOAN FOR THE YEAR UNDER CONSIDERATION WAS REFERRED TO. THUS IT WAS STATED THAT PROVISO TO SECTION 36(1)(III) HAS NO APPLICATION TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS SUCH THE ENTIRE INTEREST NEEDS TO BE ALLOWED AS A REVENUE EXPENDITURE. ALSO IT IS STATED THAT THE ASSESSEE HAD FILED ALL THE DETAILS ON THE ABOVE BEFORE THE AO AND THE ORDER U/S 263 IS NOT CALLED FOR AS THE AO HAS COMPLETED THE ASSESSMENT AFTER INQUIRY AND VERIFICATION A ND EXAMINATION OF ALL THE DETAILS. 5. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE PR. CIT HAS RIGHTLY PASSED THE ORDER U/S 263 AS THE ALLOWABILITY OF INTEREST EXPENSES VIS - A - VIS THE PROVISIONS CONTAINED IN SECTION 36(1)(III) HAS NOT BEEN EXAMINED BY TH E AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. DURING THE COURSE OF HEARING, WE ASKED THE LD. COUNSEL OF THE ASSESSEE TO CLARIFY WHETHER THE DETAILS AS CALLED FOR BY THE AO VIDE LETTER DATED 05.10.2015 ISSUED U/S 142(1) OF THE ACT (PAGE 24 - 25 OF THE P/B ) WAS FILED BY THE APPELLANT. IN RESPONSE TO IT, THE LD. COUNSEL REPLIES THAT PARTIAL DETAILS TO QUESTION NO. 5 COULD BE FILED BY THE ASSESSEE AND NO DETAILS WERE FI LED IN RESPONSE TO QUESTION NO. 7. MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 5 WE MAY MENTION HERE THAT QUESTION NO. 5 OF THE ANNEXURE TO NOTICE U/S 142(1) REFERS TO DETAILS OF EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER EXPENSES ABOVE RS.50,000/ - . QUESTION NO. 7 RELA TES TO THE COMPLETE DETAILS OF SAMUDRA MAHAL FLAT SHOWN IN THE FIXED ASSET SCHEDULE ALONG WITH COPY OF AGREEMENT; DETAILS IN RESPECT OF WIP ADDED DURING THE YEAR OF RS.64,55,699/ - AND DETAILS REGARDING THE DEPLOYMENT OF FUNDS FOR CARRYING OUT THE WORK. IN THE INSTANT CASE THE PR. CIT HAS PASSED AN ORDER U/S 263 RELATING TO THE APPLICATION OF PROVISO TO SECTION 36(1)(III) WHICH PERTAIN TO INTEREST ON LOAN AMOUNTING TO RS.1,88,14,539/ - ON PURCHASED CAPITAL ASSET NAMELY SAMUDRA MAHAL FLAT. AS MENTIONED ABOV E, THE ASSESSEE HAS FAILED TO FILE THE DETAILS REGARDING SAMUDRA MAHAL FLAT ASKED BY THE AO VIDE QUESTION NO. 7 OF THE ANNEXURE TO NOTICE U/S 142(1) DATED 05.10.2015. THEREFORE, THE ORDER PASSED BY THE PR. CIT IS NOT TO BE INTERFERED WITH. WE MAY MENTI ON HERE THAT A SAME ISSUE AROSE BEFORE THE ITAT B BENCH, MUMBAI IN ASSESSEES OWN CASE FOR AY 2012 - 13 IN ITA NO. 3034/MUM/2017. THE TRIBUNAL HELD AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. AT THIS STAGE, W ITHOUT DELVING MUCH DEEPER INTO THE MERITS OF THE ASSESSEES CLAIM, THE ONLY QUESTION TO BE DECIDED BY US IS WHETHER THE TWIN CONDITIONS OF THE QUANTUM ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE FULFILLED OR NOT SO AS TO JUSTI FY INVOCATION OF SECTION 263 ? MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 6 5. THE REASON CITED BY LD. CIT TO INVOKE THE SAME ARE THAT THE LD. AO FAILED TO MAKE THE INTEREST DISALLOWANCE U/S 36(1)(III) AS THE SAME WAS RELATABLE TO ACQUISITION OF THE PROPERTY NOT PUT TO USE DURING THE YEAR. PRIMA FAC IE, IT APPEARS THAT THE ASSESSEE HAS SUFFERED SIMILAR DISALLOWANCE U/S 36(1)(III) IN AY 2014 - 15 AND THE ASSESSMENT FOR THAT YEAR FORMS THE BASIS FOR INVOCATION OF SECTION 263 IN THE IMPUGNED AY. THE ASSESSEE CLAIMS THAT THE ASSET WAS PUT TO USE DURING APRI L, 2011 WHEN THE SAME WAS GIVEN TO THE DIRECTOR BUT A PERUSAL OF THE FINANCIAL STATEMENTS FOR IMPUGNED AY REVEALS THAT NO DEPRECIATION HAS BEEN CLAIMED AGAINST THE SAME. THE LD. AR HAS ALSO NOT EXPLAINED THE REASON FOR SIMILAR DISALLOWANCE IN AY 2014 - 15. 6. A PERUSAL OF THE DOCUMENTS PLACED IN THE PAPER BOOK REVEAL THAT ALTHOUGH THE LD. AO CALLED FOR THE DETAILS OF ACQUISITION OF PROPERTY, DETAILS OF LOANS OBTAINED, INTEREST THEREUPON ETC. BUT IT NOWHERE EXAMINED THE ISSUE THAT WHETHER THE ASSET WAS, IN FA CT, PUT TO USE DURING THE IMPUGNED AY AND WHETHER THERE WAS ANY EXTENSION OF EXISTING BUSINESS. WE FIND THAT THE ISSUE IS NOWHERE DISCUSSED IN THE ASSESSMENT ORDER. PRIMA FACIE, THE LD. AO HAS FAILED TO EXAMINE THE ISSUE FROM THIS PERSPECTIVE. MOREOVER, TH E ISSUE OF LOAN PROCESSING CHARGES WAS NEITHER INQUIRED IN ANY OF THE QUESTIONNAIRE NOR DELVED UPON BY LD. AO ANYWHERE. 7. PROCEEDING FURTHER, WE ALSO NOTE THE DEEMING FICTION CREATED BY NEWLY INSERTED EXPLANATION 2 TO SECTION 263 AS INSERTED BY FINANCE A CT, 2015 W.E.F. 01/06/2015. AS PER CLAUSE (A) OF EXPLANATION 2, THE ORDER OF LD. AO SHALL BE DEEMED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WHERE THE ORDER HAS BEEN PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BE EN MADE. IN THE INSTANT CASE, WE ALREADY NOTE THAT THE LD. AO HAS NOT MADE ANY INQUIRY SO AS TO FIND OUT WHETHER THE PROVISO TO SECTION 36(1)(III) WAS APPLICABLE TO THE ASSESSEE OR NOT AND THEREFORE, THE DEEMING FICTION OF LAW APPLIES TO THE INSTANT CASE. MAGS FINVEST PVT. LTD. ITA NO. 2930/MUM/2018 7 8. THE LD. AR HAS RELIED UPON THE RATIO OF JUDGMENT DELIVERED BY HONBLE BOMBAY HIGH COURT IN CIT VS. FINE JEWELLERY (INDIA) LTD. [372 ITR 303] BUT WE FIND THE SAME DISTINGUISHABLE ON FACTS SINCE IN THAT CASE RELEVANT QUERIES WERE PUT TO THE ASSESSEE DURI NG ASSESSMENT PROCEEDINGS AND LD. AO REACHED UPON A CONCLUSION AFTER DUE APPLICATION OF MIND WHICH WE FIND MISSING IN THE INSTANT CASE. 9. THEREFORE, FOR THE REASONS STATED HEREINABOVE AND ON THE FACTS AND CIRCUMSTANCE, WE ARE NOT INCLINED TO INTERFERE WI TH THE INVOCATION OF REVISIONAL JURISDICTION EXERCISED BY LD. CIT U/S 263 AT THIS STAGE. 10. RESULTANTLY, THE ASSESSEES APPEAL STANDS DISMISSED. 6.1 IN VIEW OF THE ABOVE REASONS, WE UPHOLD THE ORDER OF THE PR. CIT. 7. IN THE RESULT, THE APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/04/2019. SD/ - SD/ - ( AMARJIT SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 08/04/2019. 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// (SR. PRIVATE SECRETARY) ITAT, MUMBAI