DCIT 1(1), MUMBAI V. THE BOMBAY GAS CO.LTD, MUMBAI

ITA 3173/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8310 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MANISH V SHAH
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , . / BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER / AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.T.A. NO. 3173/MUM/2011 ASSESSMENT YEAR 2007-08 DCIT-1(1), MUMBAI. JCIT (OSD)-1(1), ROOM NO. 533 & 579, AAYAKAR BHAVAN, MUMBAI-400 020. VS. M/S. BOMBAY GAS CO. LTD., EMPIRE HOUSE, A.K. NAIK MARG, FORT, MUMBAI 400 001. PAN: AAACB 5863 D (APPELLANT) ( RESPONDENT) C.O. NO. 139/MUM/2011 (ARISING OUT OF ITA NO. 3173/MUM/2011) ASSESSMENT YEAR 2007-08 M/S. BOMBAY GAS CO. LTD., EMPIRE HOUSE, A.K. NAIK MARG, FORT, MUMBAI 400 001. PAN: AAACB 5863 D VS. DCIT - 1(1), MUMBAI. JCIT (OSD)-1(1), ROOM NO. 533 & 579, AAYAKAR BHAVAN, MUMBAI-400 020. (CROSS-OBJECTOR) ( RESPONDENT) REVENUE BY : SHRI MOHIT JAIN ASSESSEE BY : SHRI MANISH V. SHAH !' / DATE OF HEARING : 27-09-2012 #$% !' / DATE OF PRONOUNCEMENT : 07-11-2012 & / O R D E R PER RAJENDRA, A.M. THE APPEAL BY THE REVENUE AND THE CROSS-OBJEC TION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 09.11.2010 PASSED BY THE CI T(A)-1, MUMBAI FOR THE ASSESSMENT YEAR 2007-08. BOTH THESE APPEALS ARE DIS POSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NO. 3173/MUM/2011 C.O. NO. 139/MUM/2011 M/S. BOMBAY GAS CO. LTD., 2 GROUNDS OF APPEAL FILED BY THE ASSESSING OFFICER (AO) READ AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING TO ASSESS THE RENT & SERVICE CHA RGES AS INCOME UNDER THE HEAD BUSINESS OR PROFESSION AGAINST INCOME FROM HOUSE PROPERTY TAXED BY A.O. 2. THE LD. CIT (A) FURTHER ERRED IN DIRECTING TO ALLOW MAINTENANCE EXPENSES OF RS.19,500/- DISALLOWED BY THE A.O. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) IS JUSTIFIED IN REJECTING THE A.O.S WORKING OF EXPENSES U/S. 14 A AS PER RULE 8D BY OBSERVING THAT JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOY CE MFG. CO. LTD. HAS DECIDED THIS ISSUE THAT RULE 8D WILL BE APPLICABLE ONLY FROM A.Y . 2008-09 ONWARDS. 3.1 THE DECISION OF THE HONBLE HIGH COURT IN TH E CASE OF GODREJ & BOYCE HAS NOT BEEN ACCEPTED & SLP HAS BEEN FILED AGAINST THE SAID DECI SION. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEN D OR WITHDRAW THE AFORESAID GROUND OF APPEAL. ASSESSEE HAS RAISED THE FOLLOWING CROSS-OBJECTIONS : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CROSS OBJECTOR PRAYS THAT THE DISALLOWANCE OF RS. 9,88,580/- BEING EXPEN SES INCURRED AS PORTFOLIO MANAGEMENT FEES BE ALLOWED AS A DEDUCTION. THE CROSS OBJECTOR CRAVES LEAVE TO ADD, TO ALTER AN D / OR AMEND ALL OR ANY OF THE FOREGOING CROSS OBJECTIONS STATED ABOVE. 2. ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF FINANC E AND INVESTMENT, FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCO ME AT RS. 97.15 LAKHS. ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER ( AO) U/S. 143(3) OF THE INCOME- TAX ACT, 1961(ACT) ON 09.12.2009. GROUND NOS.1 AND 2 ARE ABOUT THE RENTAL INCOME RECEIVED BY THE ASSESSEE. DURING THE ASSESSMENT PR OCEEDINGS AO FOUND THAT HAD SHOWN INCOME FROM RENT, COMPENSATION AND SERVICE CH ARGES OF RS.2.21CRORES UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. FOLL OWING THE EARLIER YEARS ORDER (AY 2003-04.2004-05,2005-06) HE HELD THAT THE ASSES SEE WAS DEEMED OWNER OF THE PREMISES RENTED TO STATE BANK OF INDORE, AS PER THE PROVISIONS OF SECTION 27(IIIB) R.W.S. 269 UA(F) OF THE ACT. ACCORDINGLY THE RENT AND SERVICE CHARGES OF RS.2.21 CRORES WERE TREATED AS INCOME FROM HOUSE PROPERTY. AFTER TREATING THE SAID SUM AS INCOME FROM HOUSE PROPERTY HE ALLOWED THE ASSESSEE DEDUCTION AS PER THE PROVISIONS OF SECTION 24A (@ 30%) OF THE ACT. ASSESSEE HAD CL AIMED RS. 19,500/- AS REPAIR AND MAINTENANCE EXPENSES. AO DISALLOWED THE CLAIM HOLD ING THAT AFTER ALLOWING THE DEDUCTION U/S.24A OF THE ACT, NO FURTHER DEDUCTION WAS ALLOWABLE. 3. ON APPEAL, FIRST APPELLATE AUTHORITY (FAA) DELETED THE ADDITION MADE BY THE AO. HE HELD THAT, LIKE EARLIER AY, INCOME FROM THE PROP ERTY-IN-QUESTION SHOULD BE ASSESSED AS BUSINESS-INCOME, THAT ASSESSEE WAS ENTI TLED TO CLAIM, MADE BY IT FOR THE REPAIR AND MAINTENANCE EXPENSES, AMOUNTING TO RS.19 ,500/-. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUPPORT ED THE ORDER OF THE AO. HE RELIED UPON THE ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR I.T.A. NO. 3173/MUM/2011 C.O. NO. 139/MUM/2011 M/S. BOMBAY GAS CO. LTD., 3 2003-04 (ITA NO.2465/ MUM/ 2007DATED 31.10.2011). AUTHORISED REPRESENTATIVE (AR) FAIRLY CONCEDED THAT THIS ISSUE STANDS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE ABOVE REFERRED ORDER OF THE TRIBUNAL. 5. AFTER HEARING RIVAL PARTIES AND PERUSAL OF THE MATE RIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TRIBUNAL, WHEREIN IT HAS BEEN HELD VIDE PARAGRAPH 10.1 OF THE ORDER OF THE TRIBUNAL AS UNDE R: 10.1 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE ASSESSEE AS DEEMED OWNER U/S 27(IIIB) O F THE ACT AND SUBSEQUENTLY TREATED THE RENTAL INCOME FROM STATE BANK OF INDORE AS INCO ME FROM HOUSE PROPERTY. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISS ED. IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECORD BY THE ASSESSEE, WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (S UPRA), DECLINE TO INTERFERE WITH THE ORDER PASSED BY THE FAA ON THIS ACCOUNT. AS THE IN COME FROM THE PROPERTY-IN- QUESTION HAS TO BE ASSESSED AS PER THE PROVISIONS O F THE SECTION 22 OF THE ACT AND AO HAS ALREADY ALLOWED DEDUCTION @30% U/S.24 OF THE AC T, SO, IN OUR OPINION, ASSESSEE IS NOT ENTITLED TO DEDUCTION CLAIMED BY IT FOR REPAIRS AND MAINTENANCE. ACCORDINGLY, GROUND NOS.1AND 2 RAISED BY THE AO ARE ALLOWED. 6. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U/ S.14A OF THE ACT FOR EXPENDITURE ATTRIBUTABLE TO THE EXEMPTED INCOME BY APPLYING RULE 8 D OF INCOME-TAX RULES,1962. DURING THE ASSESSMENT PROCEEDINGS AO F OUND THAT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME OF RS. 25.38 LAKHS AS EXEMP T INCOME U/S.10(34) OF THE ACT. ASSESSEE WAS ASKED TO FURNISH DETAILS OF EXPENSES R ELATABLE TO THESE EXEMPT INCOMES VIS--VIS PROVISIONS OF SECTION 14A OF THE ACT. AO WAS NOT SATISFIED WITH THE EXPLANATION FILED BY THE ASSESSEE IN THIS REGARD. HE MADE AN ADDITION OF RS.5.58 LAKHS TO THE TOTAL INCOME OF THE INCOME AS PER THE PROVIS IONS OF SEC.14A OF THE ACT R.W. RULE 8D. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. A FTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ORDER OF THE AO HE HELD THA T JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. HAS DECIDED THIS ISSUE THAT RULE 8D WOULD BE APPLICABLE ONLY FROM A.Y. 2008-09 ONWARDS, THAT NO DISALLOWANCE AS PER RULE 8D COULD BE MADE FOR THE AY UNDER CONSIDERATION. HE FU RTHER HELD THAT AS PER THE DIRECTIONS OF THE HONBLE JURISDICTIONAL HC REASONA BLE DISALLOWANCE COULD BE MADE BY AO. ACCORDINGLY, HE DIRECTED THE AO TO AFFORD REAS ONABLE OPPORTUNITY TO THE ASSESSEE AND DECIDE THE DISALLOWANCE AFRESH. 7. AT THE TIME OF HEARING, DR RELIED UPON THE ORDER OF THE AO. FAA RELIED UPON THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN COURT IN GODREJ & BOYCE LTD. MFG. CO. V/S DCIT (2010) 328 ITR 81. HE SUBMITTED THAT RULE 8D WAS NOT APPLICABLE FOR THE AY UNDER CONSIDERATION. WE ARE OF THE OPINION THAT THE ORDER OF THE FAA SHOULD BE ENDORSED. HE HAS RIGHTLY RESTORED THE MATTER TO THE FILE OF THE AO AND HAS DIRECTED HIM TO DECIDE THE QUANTUM OF DISALLOWANCE, AS PER THE A FORE-NOTED JUDGMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DO NOT WANT TO INTERFERE WITH THE ORDER OF THE FAA. GROUND NO.3 FI LED BY THE AO IS DECIDED AGAINST THE AO. APPEAL FILED BY THE AO STANDS PARTLY ALLOWED. I.T.A. NO. 3173/MUM/2011 C.O. NO. 139/MUM/2011 M/S. BOMBAY GAS CO. LTD., 4 CROSS-OBJECTIONS -(C.O. 139/M/11 AY 2007-08 ) 8. CROSS OBJECTIONS FILED BY THE ASSESSEE IS ABOUT DIS ALLOWANCE OF RS. 9,88,580/- BEING EXPENSES INCURRED AS PORTFOLIO MANAGEMENT FEES (PMF ). DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD PAID PMF TO KOTAK SECURITIES AND MERRYN LINES. HE HELD THAT THE EXPENDITURE COULD N OT BE ALLOWED, THAT ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF DEALING IN SHARES, THAT CLAIM OF THE ASSESSEE HAD TO REJECTED AS PER THE PROVISIONS OF SECTION 40A AND 112. ASSE SSEE-COMPANY PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT THE APPELLANTS INCOME AROSE FROM THE SHARE-TRANSACTION , THAT THERE WAS NO PROVISION FOR ALLOWING PMF UNDER THE HEAD CAPITAL GAINS. 8.1. BEFORE US, AR SUBMITTED THAT ISSUE WAS COVERED IN F AVOUR OF THE ASSESSEE AS PER THE DECISION OF A BENCH OF PUNE ITAT DELIVERED ON 2 5.07.2012 IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. DR SUBMITTED THAT MATT ER WAS DECIDED AGAINST THE ASSESEE AND IN FAVOUR OF THE REVENUE BY THE H BEN CH OF MUMBAI TRIBUNAL VIDE ITS ORDER DTD. 28. 09.2011 IN THE CASE OF HOMI K BHABH A (48SOT102). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE CASES CITED B EFORE US. 8.2. THE ISSUE OF DEDUCTIBILITY OF PMF IN COMPUTING INCO ME UNDER THE HEAD CAPITAL GAINS HAD BEEN SUBJECT OF CONTROVERSY. WE WOULD L IKE TO GIVE BRIEF HISTORY OF IT. THIS ISSUE HAD COME UP EARLIER BEFORE THE MUMBAI BE NCH OF ITAT IN THE CASE OF DEVENDRA MOTILAL KOTHARI (136TTJ188) WHEREIN THE SA ME WAS DECIDED AGAINST THE ASSESSEE. SIMILAR ISSUE THEREAFTER CAME BEFORE THE PUNE BENCH OF ITAT IN THE CASE OF KRA HOLDINGS AND TRADING P. LTD. (46 SOT 19) WHEREI N A DIFFERENT VIEW WAS TAKEN IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHAKUNTALA KANTILA L (190 ITR 56).IN THAT CASE IT WAS HELD THAT THE EXPRESSION USED IN SEC.48(1) IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND T HE SAME IS VIDE ENOUGH TO COVER ANY AMOUNT, THE PAYMENT OF WHICH WAS ABSOLUTELY NEC ESSARY TO EFFECT THE TRANSFER. WHEN THE DECISION OF THE KRA HOLDINGS AND TRADING P . LTD. DELIVERED BY THE PUNE BENCH WAS CITED ON BEHALF OF THE ASSESSEE BEFORE TH E MUMBAI BENCH OF ITAT IN THE CASE OF PRADEEP KUMAR HARLALKA (ITA/4051/MUM/2010 DATED 10.08. 2011)THE MUMBAI BENCH FOUND THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT. SHAKUNTALA KANTILAL (SUPRA); RELIED UPON BY THE PUNE BENCH TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE; HAD BEEN CONSIDERE D BY THE HONBLE BOMBAY HIGH COURT IN THE SUBSEQUENT DECISION RENDERED IN THE CA SE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (275 ITR 231).WHILE DECIDING THE C ASE OF ROSHANBABU HONBLE BOMBAY HIGH COURT TOOK NOTICE OF THE DECISIONS DELI VERED BY THE HONBLE SUPREME COURT IN THE CASES OF RM ARUNACHALAM (227ITR222)VSM R JAGADISHCHANDRAN (227 ITR 240) AND ATTILI N. RAO (252ITR280). AFTER CONS IDERING THE ABOVE JUDGMENTS HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE DEC ISION RENDERED EARLIER IN THE CASE OF SHAKUNTALAL KANTILAL (SUPRA) WAS NO MORE A GOOD LAW IN THE LIGHT OF THE SAID DECISIONS OF THE HONBLE APEX COURT RENDERED SUBSEQUENTLY. TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PRADEEP KUMAR HARLALKA (SUP RA) ACCORDINGLY FOLLOWED THE SUBSEQUENT DECISION OF THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA) AND DECIDED THE I SSUE AGAINST THE ASSESSEE. THEREAFTER, THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KRA HOLDING & TRADING P. LTD.(ITA NO. 356 & 240/PN/2011) AGAIN WAS REQUIRED TO CONSIDER THE SIMILAR ISSUE FOR THE SUBSEQUENT YEAR AND WHEN THE CONTRARY DECIS IONS OF THE MUMBAI BENCH AND I.T.A. NO. 3173/MUM/2011 C.O. NO. 139/MUM/2011 M/S. BOMBAY GAS CO. LTD., 5 PUNE BENCH WERE CITED BY THE TWO SIDES, PUNE BENCH FOLLOWED ITS DECISION RENDERED IN ASSESSEES OWN CASE FOR EARLIER YEAR TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE OBSERVING THAT WHEN TWO VIEWS ARE POSSIBLE ON THE S AME ISSUE, THE VIEW WHICH IS FAVORABLE TO THE ASSESSEE HAS TO BE FOLLOWED. 8.3. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE SUBS EQUENT YEAR PUNE BENCH OVERLOOKED THAT THE DECISION FOLLOWED BY IT; IN ASS ESSEES OWN CASE FOR THE EARLIER YEAR; WAS RENDERED RELYING ON THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF SHAKUNTALA KANTILAL (SUPRA) WHICH HAS BEEN SUBSEQUENTLY HELD TO BE NOT A GOOD LAW BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA).IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT IN THE CASE UNDER CONSIDERATION, IT WILL BE APPROPRIATE TO FOLLOW THE DECISIONS OF THE BOMBAY BENCHES DELIVERED IN THE CASES OF DEVENDRA MOTILAL KOTHARI (SUPRA), PRADEEP KUMAR HARLALKA (SUPRA) AND HOMI K BHABHA (SUPRA). RESPEC TFULLY FOLLOWING THE DECISIONS OF THE COORDINATING BENCHES WE DISMISS THE CROSS OBJEC TIONS FILED BY THE ASSESSEE- COMPANY. CROSS-OBJECTION FILED BY THE ASSESSEE STANDS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER, 2012. SD/- SD/- ( . . / B.R. MITTAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, ' DATE: 7 TH NOVEMBER, 2012 TNMM & & & & (!) (!) (!) (!) *)%! *)%! *)%! *)%! / COPY OF THE ORDER FORWARDED TO : 1. APP LIC ANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE +)! (! //TRUE COPY// & & & & / BY ORDER, , ,, , / - - - - DY./ASSTT. REGISTRAR , / ITAT, MUMBAI