LEH HOLDINGS P. LTD, AHEMEDABAD V. ITO 3(2)(1), MUMBAI

ITA 3655/MUM/2009

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2859 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-09-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 04-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.3655/MUM/2009 AND 3656/MUM/2009 / ASSTT. YEAR: 2004-05 AND 2005-06 LEH HOLDINGS P.LTD. NIRMA HOUSE ASHRAM ROAD AHMEDABAD. VS. DCIT, CIR.3(2) MUMBAI. ITA NO.3657/MUM/2009 AND 3658/MUM/2009 / ASSTT. YEAR: 2004-05 AND 2005-06 KARGIL HOLDINGS P.LTD. NIRMA HOUSE ASHRAM ROAD AHMEDABAD. VS. DCIT, CIR.3(2) MUMBAI. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI HIMANSHU SHAH, AR REVENUE BY : SHRI LALIT P.JAIN, SR.DR / DATE OF HEARING : 18/10/2018 / DATE OF PRONOUNCEMENT: 01 /11/2018 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT TWO SETS OF APPEALS ARE FILED BY THE ABOVE TWO ASSESSEES AGAINST ORDERS OF THE LD.CIT(A)-III, MUMBAI DATED 16.3.2009 AND 5.3.2007 FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.3655 TO 3658/MUM/2009 2 2. IN THESE APPEALS ISSUES INVOLVED ARE COMMON, THA T IS TO SAY, BOTH THE ASSESSEE ARE CHALLENGING DISALLOWANCE OF INTEREST E XPENSES AND ALLOWANCE EXPENSES UNDER SECTION 14A OF THE INCOME TAX ACT, 1 961 IN BOTH THE ASSESSMENT YEARS. 3. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.COUNSEL FOR THE ASSESSEE HAS COMPILED DETAILS SHOWING THE ASSESSED INCOME AND EXPENDITURE CLAIMED BY THE ASSESSEE IN THESE TWO YEARS. BEFORE ADVERTING TO THE SPECIFIC GRIEVANCE OF THE ASSESSEE IN THESE APPEALS, WE WOULD LIKE TO NOTE ALL THE DETAIL S. THEY READ AS UNDER: LEH HOLDINGS P.LTD. (ASSTT.YEAR 2004-05) DETAILS OF ASSESSED INCOME SR. NO. PARTICULARS AS PER PROFIT & LOSS ACCT. AS PER RETURN AS PER ASST ORDER 1 INTEREST INCOME 5,45,966 5,45,966 5,45,967 2 DIVIDEND INCOME 85,84,444 - 3 AGRICULTURAL INCOME 8,20,344 3 OTHER INCOME 256 256 256 5 INCREASE / (DECREASE) IN STOCK (4,87,824) TOTAL 94,63,186 5,46,222 5,46,223 EXPENDITURE 1 SALARY AND ALLOWANCES 1,18,994 1,18,994 1,18,994 2 AGRICULTURAL EXPENSES 7,08,172 - - 3 OTHER EXPENSES 2,12,143 2,12,143 2,12,143 SUB TOTAL 10,39,309 3,31,137 3,31,137 LESS: DISALLOWED IN RETURN OF INCOME - 261+759 1,020 1,020 ITA NO.3655 TO 3658/MUM/2009 3 EXPENSES OTHER THAN INTEREST 3,30,117 3,30,117 LESS ALLOWED IN ASST ORDER 50,000 2,80,117 ERROR- 1020 1,020 NET EXPENSES 2,81,137 (B) DISALLOWANCE U/S.14A OF I.T. ACT FOR EXPE NSES OTHER THAN INTEREST BY CIT(A) RS.2,97,375/- ASSTT.YEAR (2005-06) DETAILS OF ASSESSED INCOME SR. NO. PARTICULARS AS PER PROFIT & LOSS ACCT. AS PER RETURN AS PER A.O 1 INTEREST INCOME 13,20,721 13,20,721 13,20,721 2 DIVIDEND INCOME 85,84,444 - - 3 PROFIT ON SALE OF SECURITY 9,06,395 - - 3 AGRICULTURAL INCOME 8,96,117 - - 5 INCREASE IN STOCK 1,93,870 - - TOTAL 1,19,01,547 13,20,721 13,20,721 EXPENDITURE 1 SALARY AND ALLOWANCES 2,57,664 2,57,664 2,57,664 2 AGRICULTURAL 8,23,012 - - ITA NO.3655 TO 3658/MUM/2009 4 EXPENSES 3 OTHER EXPENSES 2,23,689 2,23,689 2,23,689 13,04,365 4,81,353 4,81,353 LESS: DISALLOWED IN RETURN OF INCOME - 257+425+71768 72,450 72,450 EXP OTHER THAN INTEREST 4,08,903 4,08,903 ADD: DISALLOWED IN A.O. -PRIOR PERIOD EXPENSES 3,893 NET EXPENSES 4,12,796 (B) DISALLOWANCE U/S.14A OF I.T. ACT FOR EXPE NSES OTHER THAN INTEREST BY CIT(A). RS. 2,75,265 KARGIL HOLDINGS P.LTD. (ASSTT.YEAR 2004-05) DETAILS OF ASSESSED INCOME SR. NO. PARTICULARS AS PER PROFIT & LOSS ACCT. AS PER RETURN AS PER A.O 1 INTEREST INCOME 10,99,998 10,99,998 10,99,998 2 DIVIDEND INCOME 86,27,725 - - 3 AGRICULTURAL INCOME 6,69,005 - - 4 OTHER INCOME 4 4 4 5 DECREASE IN (3,25,550) - - ITA NO.3655 TO 3658/MUM/2009 5 STOCK TOTAL 1,00,71,182 11,00,002 11,00,002 EXPENDITURE 1 PAYMENTS TO AND PROVISION FOR EMPLOYEES 3,23,504 3,23,504 3,23,504 2 AGRICULTURAL EXPENSES 7,14,661 - - 3 ADMINISTRATIVE AND OTHER EXPENSES 5,97,560 5,97,560 5,97,560 16,35,725 9,21,064 9,21,064 LESS: DISALLOWED IN RETURN 1,122 EXP OTHER THAN INTEREST 9,19,942 9,21,064 LESS ALLOWED IN ASST ORDER 1,00,000 NET EXPENSES 8,21,064 (B) DISALLOWANCE U/S.14A OF I.T. ACT FOR EXPE NSES OTHER THAN INTEREST BY CIT(A) - 0.5%. 2,00,639 ASSTT.YEAR : 2004-05 A) DETAILS OF ASSESSED INCOME SR. NO. PARTICULARS AS PER PROFIT & LOSS ACCT. AS PER RETURN AS PER A.O 1 INTEREST INCOME 11,41,963 11,41,963 11,41,963 2 DIVIDEND INCOME 90,15,546 - - ITA NO.3655 TO 3658/MUM/2009 6 3 AGRICULTURAL INCOME 5,34,279 - - 4 OTHER INCOME 10,679 10,679 10,679 5 INCREASE IN STOCK 3,13,197 - - TOTAL 1,10,15,664 11,52,642 11,52,642 EXPENDITURE 1 PAYMENTS TO AND PROVISION FOR EMPLOYEES 1,55,800 1,63,282 1,63,282 2 AGRICULTURAL EXPENSES 6,48,567 - - 3 ADMINISTRATIVE AND OTHER EXPENSES 2,34,496 2,34,236 2,34,236 10,38,86 3 3,97,518 3,97,518 LESS: DISALLOWED IN RETUTN OF INCOME - 260+1429-8911- 19612 (26,834) (26,834) EXP OTHER THAN INTEREST 3,70,684 3,70,684 ADD: DISALLOWED IN A.O. -PRIOR PERIOD EXPENSES/ LEAVE ECASHMENT- 8911+1902 10,813 ERROR-260+1429 1,689 NET EXPENSES 3,79,808 ITA NO.3655 TO 3658/MUM/2009 7 (B) DISALLOWANCE U/S.14A OF IT. ACT FOR EXPEN SES OTHER THAN INTEREST BY CIT(A) - 2,15,622 4. FIRST GRIEVANCE OF BOTH THE ASSESSEES IS THAT LD .AO HAS DISALLOWED EXPENDITURE VIZ. RS.2,81,137/- AND RS.4,12,796/- IN THE CASE OF LEH HOLDINGS P.LTD., FOR THE ASSTT.YEARS 2004-05 AND 2005-06 RES PECTIVELY. SIMILARLY, IN THE CASE OF KARGIL HOLDINGS P.LTD. SUCH EXPENSES HA VE BEEN DISALLOWED AT RS.8,21,064/- AND RS.3,79,808/-. THESE EXPENDITURE HAVE BEEN DISALLOWED ON THE GROUND THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY. IT HAS INTEREST INCOME, DIVIDEND INCOME AND AGRICULTURE IN COME. ACCORDING TO THE LD.AO INTEREST INCOME DESERVES TO BE ASSESSED AS IN COME FROM OTHER SOURCES AND EXPENDITURE ARE NOT BE ALLOWED TO THE ASSESSEE AND THE EXPENDITURE IN THE NATURE OF ADMINISTRATIVE ARE NOT ALLOWABLE TO THE A SSESSEE. THE STAND OF THE ASSESSEE IS THAT BOTH THE AUTHORITIES HAVE FAILED T O APPRECIATE TRUE NATURE OF ASSESSEES BUSINESS. THE LD.COUNSEL FOR THE ASSESS EE DREW OUR ATTENTION TOWARDS COPY OF REGISTRATION CERTIFICATE GRANTED BY THE RBI. THE ASSESSEE HAS BEEN GRANTED A CERTIFICATE FOR CARRYING ON BUSINESS OF NON-BANKING FINANCIAL INSTITUTION. SUCH CERTIFICATES HAVE BEEN PLACED ON PAGE NO.50 AND 87 OF THE PAPER BOOK. ACCORDING TO THE LD.CCOUNSEL FOR THE A SSESSEE, IF IT IS CARRYING ON THE BUSINESS OF NON-BANKING FINANCIAL INSTITUTION, THEN INTEREST INCOME IS TO BE ASSESSED AS BUSINESS INCOME. THE LD.DR WAS UNABLE TO CONTROVERT THIS CONTENTION. 5. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT BEING NON-FINANCIAL INSTITUTION, ITS INTEREST INCOME IS T O BE ASSESSED AS BUSINESS INCOME. IF INTEREST INCOME IS TO BE ASSESSED AS BU SINESS INCOME, THEN ALL ADMINISTRATIVE EXPENSES, SALARY EXPENDITURE ARE TO BE ALLOWED TO THE ASSESSEE. THEREFORE, WE ALLOW FIRST FOLD OF GRIEVANCE OF BOTH THE ASSESSEES AND DELETE DISALLOWANCE OF RS.2,81,137/- AND RS.4,12,796/- IN THE CASE OF LEH HOLDINGS ITA NO.3655 TO 3658/MUM/2009 8 PVT.LTD., AND RS.8,21,064/- AND RS.3,79,808/- IN TH E CASE OF KARGIL HOLDINGS P.LTD. IN THE ASSTT.YEAR 2004-05 AND 2005-06 RESPEC TIVELY. 6. IN THE NEXT FOLD OF GRIEVANCE, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE UNDE R SECTION 14A OF THE INCOME TAX ACT, AT RS.2,00,639/- AND RS.2,15, 622/- IN THE CASE OF KARGIL HOLDINGS P.LTD. AND RS.2,97,375/- AND RS.2,75,265/- IN THE CASE OF LEH HOLDINGS P.LTD. IN THE ASSTT.YEAR 2004-05 AND 2005- 06 RESPECTIVELY. WE FIND THAT THE ASSESSEE HAS SUBSTANTIAL DIVIDEND INCOME, THUS EXPENDITURE ATTRIBUTABLE TO EARNING OF TAX FREE INCOME DESERVES TO BE DISALLOWED TO THE ASSESSEE. THE DISALLOWANCE HAS BEEN MADE AT HALF P ERCENT OF THE AVERAGE INVESTMENT. IT DOES NOT INCLUDE INTEREST EXPENDITU RE. SINCE, THE ASSESSEE HAS ITS INDEPENDENT SOURCE OF INVESTMENT THEREFORE, THE AUTHORITIES BELOW HAVE NOT WORKED OUT INTEREST EXPENDITURE. THEY HAVE CONFIN ED THEMSELVES TO THE ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF TAX FREE INCOME. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDERS OF THE REVENUE AUTHORITIES. THIS FOLD OF GRIEVANCE IS REJECTED. DISALLOWANCES MADE BY THE AO IN THE CASE OF BOTH THE ASSESSEES IN BOTH THE YEARS ARE CONFIRMED. 7. IN THE RESULT APPEALS OF THE ASSESSEES ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE COURT ON 1 ST NOVEMBER, 2018 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/11/2018