ESSAR PROPERTIES PRIVATE LIMITED, MUMBAI V. ACIT 6(2)(2), MUMBAI

ITA 3747/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1290 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 30-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR ANUPAMA SINGLA LD
• Assessee Lawyers: VIJAY MEHTALD
• Keywords: Business income; Depreciation; Business expenditure; Unabsorbed depreciation
• Section: 143(3); 14A; 32

Judgement Text

ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 2650/MUM/2015 ( / ASSESSMENT YEAR: 2010-2011) DEPUTY COMMISSIONER OF INCOME TAX 6(2)(2) ROOM NO. 563 AAYKAR BHAVAN M.K.ROAD,CHURCHGATE MUMBAI 400 020 / VS. ESSAR PROPERTIES LIMITED ESSAR HOUSE 11, KESHAVRAO KHADYE MARG MAHALAXMI MUMBAI 400 034 ./ ./PAN/GIR NO. AAACE-0893-Q ( !%& /APPELLANT ) : ( '( %& / RESPONDENT ) & ! ./ I.T.A. NO. 3747/MUM/2015 ( / ASSESSMENT YEAR: 2010-2011) ESSAR PROPERTIES LIMITED ESSAR HOUSE 11, KESHAVRAO KHADYE MARG MAHALAXMI MUMBAI 400 034 / VS. DEPUTY COMMISSIONER OF INCOME TAX 6(2)(2) ROOM NO. 563 AAYKAR BHAVAN M.K.ROAD,CHURCHGATE MUMBAI 400 020 ./ ./PAN/GIR NO. AAACE0893Q ( !%& /APPELLANT ) : ( ' ( %& / RESPONDENT ) ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 2 ASSESSEE BY : SHRI VIJAY MEHTA, LD. AR REVENUE BY : DR. ANUPAMA SINGLA, LD. DR )*+ / DATE OF HEARING : 17/04/2017 ,-.*+ / DATE OF PRONOUNCEMENT : 17/04/2017 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE TWO APPEALS EACH BY ASSESSEE AS WELL AS REVENUE FOR ASSESSMENT YEAR [AY] 2010-11 WHICH ASSAILS THE ORDER OF LD. COMMISS IONER OF INCOME TAX (APPEALS)-10 [CIT(A)], MUMBAI DATED 24/02/2015 ON DIFFERENT GROUN DS OF APPEAL. SINCE, THE APPEALS ARISES OUT OF COMMON SET OF FACTS, WE DISPOSE-OFF B OTH THE APPEALS BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE TAKE UP REVENUES APPEAL ITA NO. 2650/MUM/2015 WHERE THE REVENUE HAS ASSAILED THE DE CISION OF LD. CIT(A) QUA TREATMENT OF CERTAIN LEASE INCOME UNDER THE HEAD BUSINESS INCOME AS AGAINST INCOME FROM HOUSE PROPERTY AND CONSEQUENTIAL ALLOWANCE OF RENTAL EXPENDITURE / DEPRECIATION THERE-FROM AND ALLOWING SET-OFF OF UNABSORBED DEPRECIATION OF AY 1995-96 BEYOND EIGHT YEARS. 2. BRIEFLY STATED, THE ASSESSEE, BEING RESIDENT COR PORATE ASSESSEE, WAS SUBJECTED TO AN ASSESSMENT U/S 143(3) VIDE ASSESSING OFFICER [AO] O RDER DATED 12/03/2013 WHEREIN THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED AT RS.3 ,22,73,480/- AFTER CERTAIN ADJUSTMENTS AND DISALLOWANCES AS AGAINST RETURNED INCOME OF RS. NIL FILED BY THE ASSESSEE ON 14/10/2010. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING BUSINESS CENTER FACILITIES, LEASING OF PROPERTIES / PLANT & MACHINE RY AND INVESTMENT IN SHARES/PROPERTIES/SECURITIES DURING IMPUGNED AY. DU RING ASSESSMENT PROCEEDINGS, AO NOTED THAT THE ASSESSEE EARNED RENTAL INCOME OF RS. 533.16 LACS WHICH WAS REFLECTED UNDER THE HEAD BUSINESS INCOME, WHICH IN THE OPINION OF AO, WAS TAXABLE UNDER THE ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 3 HEAD INCOME FROM HOUSE PROPERTY. AFTER HEARING ASSESSEES CONTENTION AND PLACING RELIANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS AND STA TUS OF ASSESSMENT IN EARLIER YEARS, AO TREATED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST WHICH THE ASSESSEE WAS ENTITLED FOR STATUTORY DEDUCTION OF 30 % AND PROPERTY TAX ONLY. FURTHER, THE ASSESSEES CLAIM OF SET-OFF OF UNABSORBED DEPRECIAT ION FOR AY 1995-96 WAS REJECTED ON THE PREMISES THAT THE SAME WAS NOT AVAILABLE BEYOND A PERIOD OF EIGHT YEARS AS PER THE LAW PREVAILING AT THE RELEVANT TIME. AGGRIEVED, THE ASSESSEE SUCCESSFULLY CARRIED BOTH THE MATTERS BEFORE FIRST APPELLATE AUTHORITY VIDE ORDER DATED 24/02/2015 WHERE THE LD. CIT(A) PLACING RELIANCE ON THE DECISION OF ITS PREDE CESSOR AND TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS ACCEPTED THE STAND OF ASSESSEE IN TREATING RENTAL INCOME UNDER THE HEAD BUSINESS INCOME AND ALSO DIRECTED AO TO ALLOW SET-OFF OF DEPRECIATION AS PER LAW AFTER VERIFYING EARLIER YEA RS RECORD. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3. AT THE OUTSET, LD. COUNSEL FOR ASSESSEE [AR], SHRI VIJAY MEHTA , DREW OUT ATTENTION TO VARIOUS ORDERS OF TRIBUNAL IN ASSESSEE S OWN CASE FROM AY 2005-06 TO 2009- 10 TO CONTEND THAT THE ISSUE OF TAXABILITY OF RENTA L INCOME UNDER THE HEAD BUSINESS INCOME AS PER THE CONTENTIONS OF THE ASSESSEE HAS BEEN ACC EPTED BY THE TRIBUNAL IN ALL THESE YEARS. FURTHER, THE REVENUES APPEAL AGAINST TRIBUNAL ORDER FOR AY 2005-06 WAS DISMISSED BY HONBLE BOMBAY HIGH COURT IN ITA NO.143 2 OF 2011 JUDGMENT DATED 28/02/2012 ON THE PREMISES THAT NO SUBSTANTIAL QUES TION OF LAW AROSE. THE COPIES OF RELEVANT JUDICIAL PRONOUNCEMENTS HAVE BEEN PLACED I N THE PAPER-BOOK . THE LD. DR CONCEDED THE SETTLED POSITION AND FAIRLY STATED THA T THE ISSUE STOOD COVERED IN ASSESSEES FAVOR IN THE WAKE OF ALL THESE JUDICIAL PRONOUNCEME NTS. THIS BEING THE SETTLED POSITION, WE DISMISS GROUND NO. 1 OF REVENUES APPEAL. CONSEQ UENTLY, THE ASSESSEE BECOMES ENTITLED TO CLAIM THE BUSINESS EXPENDITURE AS PER L AW AGAINST THE SAME, WHICH RESULTS INTO DISMISSAL OF GROUND NO.2 OF REVENUES APPEAL. REGAR DING THE SET-OFF OF UNABSORBED DEPRECIATION OF AY 1995-96, THE LD. AR HAS PLACED R ELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA P. LTD. VS DCIT [354 ITR 244 ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 4 23/08/2012] TO CONTEND THAT THE SET-OFF OF UNABSORBED DEPRECIAT ION HAS BEEN ALLOWED BY THE GUJARAT HIGH COURT AFTER CONSIDERING THE RELEVA NT STATUTORY PROVISIONS OF SECTION 32 AS AMENDED BY THE FINANCE ACT, 2001 AND CBDT CIRCULA R NO. 14 OF 2001 AND MOREOVER, SPECIAL LEAVE PETITION [SLP] FILED BY THE REVENUE AGA INST THE SAID JUDGMENT HAS BEEN DISMISSED BY THE APEX COURT. THE REVENUE COULD NEIT HER CONTROVERT THE SAME NOR WAS ABLE TO BRING ANY CONTRARY JUDGMENT ON RECORD. THERE FORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENTS, WE HOLD THAT THE SET-OFF OF THE UN ABSORBED DEPRECIATION WAS AVAILABLE TO THE ASSESSEE DURING THE IMPUGNED AY AND ACCORDIN GLY, DISMISS GROUND NO. 3. IN NUTSHELL, THE REVENUES APPEAL STANDS DISMISSED. 4. NOW WE TAKE UP ASSESSEES APPEAL ITA NO. 3747/MU M/2015 WHERE THE ASSESSEE HAS RAISED SOLE GROUND OF DISALLOWANCE U/S 14A READ WITH RULE 8D FOR RS.77,00,191/-. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS FOU ND TO HAVE EARNED EXEMPT DIVIDEND INCOME OF RS.10,12,650/- WHICH CALLED FOR A DISALLO WANCE U/S 14A. THE ASSESSEE CONTENDED THAT THERE WAS NO GENERAL INTEREST EXPEND ITURE SO AS TO ATTRACT ANY SUCH DISALLOWANCE. HOWEVER, NOT CONVINCED WITH ASSESSEE S ARGUMENTS AND AFTER PERUSING VARIOUS JUDICIAL PRONOUNCEMENTS, AO APPLIED RULE 8D AND WORKED OUT DISALLOWANCE FOR ADMINISTRATIVE EXPENSES U/R 8D(2)(III) @0.5% OF AVE RAGE VALUE OF INVESTMENTS WHICH CAME TO RS.97,38,266/-. THE SAID DISALLOWANCE WAS FI NALLY RESTRICTED TO RS.77,00,191/- BEING THE EXPENSES PROPORTIONED BY THE AO TOWARDS B USINESS EXPENSE EXCLUDING INTEREST EXPENDITURE. AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER BEFORE LD. FIRST APPELLATE AUTHORITY WITHOUT ANY SUCCESS VIDE ORDER DATED 24/0 2/2015, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR, WHILE DRAWING OUR ATTENTION TO THE FI NANCIAL STATEMENTS OF THE ASSESSEE, CONTENDED THAT THE ASSESSEE INCURRED ADMI NISTRATIVE EXPENDITURE UNDER VARIOUS HEADS, THE MAJORITY OF WHICH WERE DIRECTLY RELATABL E TO THE LEASING BUSINESS CARRIED ON BY THE ASSESSEE AND NOTHING TO DO WITH INVESTMENT OR E ARNING OF EXEMPT DIVIDEND INCOME. THEREFORE, SUCH HEAVY DISALLOWANCE WAS NOT WARRANTED IN THE CIRCUMSTANCES AND THE DISALLOWANCE, AT THE MOST, BE RESTRICTED TO THE EXT ENT OF RS.10,12,650/- BEING EXEMPT ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 5 INCOME EARNED BY THE ASSESSEE. PER CONTRA, LD. DR OPPOSED THE SAME ON THE PREMISES THAT THE ASSESSEE COULD NOT BRING ON RECORD ANY MAT ERIAL TO SUBSTANTIATE HIS CONTENTION THAT MAJORITY OF THE EXPENSES WERE INCURRED FOR LEA SING ACTIVITIES AND NOT FOR INVESTMENTS AND THEREFORE, RIGHTLY SUFFERED THE SAID DISALLOWAN CE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE FINANCIAL STATEMENTS OF THE ASSESSEE AND ITS NATURE OF BUSINESS. SO FAR AS THE APPLICABILITY OF RULE 8D IS CONCERNED, WE FIND THAT THE SAME IS NOWHERE IN DISPUTE. THE ONLY DISPUTE IS WITH REGARD TO QUANTUM OF DISALLOWA NCE. WE NOTICE THAT THE ASSESSEE HAS SUFFERED DISALLOWANCE U/R 8D(2)(III) TOWARDS ADMINI STRATIVE EXPENDITURE @0.5% AND NO DISALLOWANCE U/R 8D(2)(II) HAS BEEN MADE BY THE AO AS HE HAD TREATED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. A PERUSAL OF BALANCE SHEET REVEALS THAT THE ASSESSEES SHARE CAPITAL & RESERVES STOOD AT RS .23.21 CRORES, LOAN FUNDS STOOD AT RS.46.16 CRORES WHEREAS INVESTMENTS STOOD AT RS.42. 45 CRORES. THE ASSESSEE HAS DEBITED FINANCE CHARGES OF RS.4.68 CRORES IN THE PROFIT & LO SS ACCOUNT. PRIMA FACIE, THE ASSESSEE HAS USED MIXED FUNDS TO MAKE THE INVESTMEN TS WHICH RESULTS INTO TRIGGERING OF RULE 8D(2)(II). IN THE REVENUES APPEAL, WE HAVE AL READY SETTLED THAT THE RENTAL INCOME EARNED BY THE ASSESSEE SHALL BE CHARGEABLE UNDER TH E HEAD BUSINESS INCOME. THEREFORE, WITHOUT DELVING MUCH DEEPER INTO THE ISSUE, WE ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE COMPUTED BY AO UNDER RULE 8D REQUIRE R E-APPRECIATION / RE-WORKING IN THE LIGHT OF OUR DECISION IN REVENUES APPEAL. THEREFOR E, WE DEEM IT FIT TO RESTORE THIS MATTER BACK TO THE FILE OF AO FOR RE-APPRECIATION / RE-WOR KING OF DISALLOWANCE U/S 14A READ WITH RULE 8D. WE ACCORDINGLY DIRECT SO. TO REITERATE, THE RENTAL INCOME EARNED BY ASSESSEE SHALL BE ASSESSED AS BUSINESS INCOME AGAINST WHICH BUSINESS EXPENDITURE AS PER LAW SHALL BE ALLOWABLE. THE DISALLOWANCE U/S 14A READ WITH RULE 8D SHALL BE COMPUTED DE- NOVO. THE ASSESSEE SHALL BE ALLOWED SET-OFF OF UNABSORBED DEPRECIATION IN TERMS OF OUR ABOVE ORDER. THE SET-OFF / CARRIED FORWARD OF BUSINE SS LOSSES / DEPRECIATION, IF ANY, SHALL ALSO BE REWORKED. THE ASSESSEES APPEAL STANDS ALLOW ED FOR STATISTICAL PURPOSES. ITA NO.2650 & 3747/MUM/2015 ESSAR PROPERTIES LIMITED ASSESSMENT YEAR 2010-11 6 7. IN NUTSHELL, THE REVENUES APPEAL STANDS DISMISS ED WHEREAS THE ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH APRIL, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ) MUMBAI; 0 DATED : 17 .04.2017 SR.PS:- THIRUMALESH ' #$%& '&$ / COPY OF THE ORDER FORWARDED TO : 1. !%& / THE APPELLANT 2. '( %& / THE RESPONDENT 3. 1+ ( ! ) / THE CIT(A) 4. 1+ / CIT CONCERNED 5. 45 ' + 67 , ! 67. , ) / DR, ITAT, MUMBAI 6. 89) / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , ) / ITAT, MUMBAI