ACIT 1(1), MUMBAI V. FGP LTD, MUMBAI

ITA 3792/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62663 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 04-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: ARVIND SONDE
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , . . , . . BEFORE SHRI R.S.SYAL, AM & SHRI AMIT SHUKLA, JM ./ ITA NO.3746/MUM/2009 ( / ASSESSMENT YEAR : 2005-2006 ) FGP LTD. NO.9 COMMERCIAL UNION HOUSE, WALLACE STREET, MUMBAI-400 001. VS. ACIT 1(1), MUMBAI-400 020. ./ ./PAN NO.AAACFT 1671 M ( /APPELLANT ) : ( / RESPONDENT ) AND ./ ITA NO.3792/MUM/2009 ( / ASSESSMENT YEAR : 2005-2006 ) ACIT 1(1), MUMBAI-400 020. VS. FGP LTD. NO.9 COMMERCIAL UNION HOUSE, WALLACE STREET, MUMBAI- 400 001. ./ ./PAN NO.AAACFT 1671 M ( /APPELLANT ) : ( / RESPONDENT ) /ASSESSEE BY : MR.ARVIND SONDE / REVENUE BY : MR. V.V.SHASTRI / DATE OF HEARING : 4 TH JULY 2012 / DATE OF PRONOUNCEMENT : 11 TH JULY, 2012 / O R D E R PER AMIT SHUKLA (J.M.) : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND DEPARTMENT AGAINST ORDER DATED 25-3-2009, PASSED BY THE CIT(A)-1, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) ITA NOS : 3746 &3792 /M/09 2 FOR THE ASSESSMENT YEAR 2005-2006. IN ASSESSEES APPEAL, FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN :- 1. THE COMMISSION OF INCOME-TAX (APPEALS) I, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING INTEREST INCOME OF ` .39,31,000/- AS INCOME FROM OTHER SOURCES. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING DIVIDEND INCOME OF ` .25,94,000 AS INCOME FROM OTHER SOURCES. 3. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING BUSINESS CENTRE INCOME OF ` .10,13,931 AS INCOME FROM OTHER SOURCES AS AGAINST THE APPELLANTS CLAIM THAT IT IS PROFITS & GAINS FROM BUSINESS OR PROFESSION. 4. THE CVIT(A) FAILED TO APPRECIATE AND/OR OVERLOOKED THAT THE BUSINESS OF THE ASSESSEE WAS NOT CLOSED NOR WAS IT DISCONTINUED. 5. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING A SUM OF ` .5,76,851 BEING RATES AND TAXES THEREBY NEITHER ALLOWING IT AGAINST BUSINESS INCOME NOR AGAINST CAPITAL GAINS. 6. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING A SUM OF ` .153,951 BEING VRS EXPENSES. 7. THE CIT(A) HAVING FOLLOWED THE APPELLATE ORDERS FOR THE ASSESSMENT YEAR 2003-2004 AND 2004-2005, ERRED IN CONFIRMING THE ACTION OF THE AO OF ALLOWING EXPENSES OF ` .1,01,393 ON AN ADHOC BASIS AT 10% OF BUSINESS CENTRE INCOME, FROM INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT THE ENTIRE EXPENSES SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING INCOME FR OM OTHER SOURCES. 8. THE CIT(A) HAVING FOLLOWED THE APPELLATE ORDERS FOR THE ASSESSMENT YEAR 2003-2004 AND 2004-2005, ERRED IN ITA NOS : 3746 &3792 /M/09 3 CONFIRMING THE ACTION OF THE AO OF DISALLOWING ADMINISTRATIVE EXPENSES OF ` .34,11,991. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT THE ENTIRE EXPENSES SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING INCOME FR OM OTHER SOURCES. 9. THE CIT(A) OUGHT TO HAVE ALLOWED PROFESSIONAL FEES OF ` .63,33,868 AS BUSINESS EXPENDITURE. 10. THE CIT(A) OUGHT TO HAVE ALLOWED EMPLOYEE COSTS OF ` .13,09,310 AS BUSINESS EXPENDITURE. 11. THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON PLANT AND MACHINERY OF ` .202,811 AS BUSINESS EXPENDITURE. 12. (A) THE CIT(A) ERRED IN APPL YING THE PROVISIONS PF SECTION OF 14A READ WITH RULE 8D IN COMPUTING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME. THE APPELLANTS SUBMIT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME. (B) THE CIT(A) OUGHT TO HAVE APPR ECIATED THAT THE PROVISIONS OF RULE 8D WHICH WERE INTRODUCED W.E.F. 24 TH MARCH, 2008 WERE NOT APPLICABLE TO THE ABOVE YEAR. (C) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT THE CIT(A) ERRED IN DIRECTING THE AO TO RE-COMPUTE THE DISALLOWANCE UNDER SECTION 14A IN ACCORDANCE WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE COMPUTED BY APPLYING THE PROVIS IONS OF RULE 8D IS HIGHER THAN THE DISALLOWANCE MADE BY THE AO. THEREFORE, THE CIT(A) ERRED IN NOT FOLLOWING THE PROCEDURE AS LAID DOWN IN SECTION 251(2) OF THE ACT BY NOT PROVIDING THE APPELLANTS A REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT. (D) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT THE CIT(A) OUGHT TO HAVE HELD THE AMOUNT OF DISALLOWANCE COMPUTED PER PROVISIONS OF SECTION 14A READ WITH RULE 8D ITA NOS : 3746 &3792 /M/09 4 SHOULD BE RESTRICTED TO THE LOWER OF THE AMOUNT COMPUTED BY THE AO BY APPLYING PROVISIONS OF RULE 8D OR ` .2,65,712 ALREADY DISALLOWED BY THE AO. ADDITIONAL GROUND OF APPEAL 13) THE RESPONDENTS SUBMIT THAT THEY OUGHT TO BE ALLOWED THE OTHER ADMINISTRATIVE EXPENSES OF ` .34,11,991/- AS BUSINESS EXPENDITURE IN COMPUTING THEIR BUSINESS INCOME. THE APPELLANTS CRAVE LEAVE TO ADD TO , AMEND, ALTER, VARY OMIT OR SUBSTITUTE THE AFORESAID GR OUNDS OF APPEAL OR ADD A NEW GROUND OR GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 2 . AT THE OUTSET BOTH THE PARTIES ADM ITTED THAT ALL THE ISSUES RAISED IN THE GROUNDS OF APPEAL STANDS COVER ED BY THE EARLIER DECISIONS OF THE TRIBUNAL RENDERED FOR THE ASSESSMENT YEAR 2003-2004 & 2004-2005. COPIES OF ORDERS OF THE TRIBUNAL FO R THE EARLIER YEARS WERE FILED. AFTER CAREFULLY CONSIDERING THE FINDINGS GIVEN IN THE IMPUGNED ORDERS AND ALSO ITATS ORDER FOR THE EARLIER YEAR S, WE FIND THAT ALL THE ISSUES WHICH HAVE BEEN RAISED, STANDS COVERED. 3 . GROUNDS NO.1&2 RELATE TO WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE INTEREST INCOME OF RS.39,31,000/- AND DIVIDEND INCOME OF RS.25,91,000/- AS INCOME FROM OTHER SOURCES. THE CIT(A) HAS FOLLOWED HIS EARLIER ORDERS FOR THE ASSESSMENT YEARS 2004- 52005(AY 2003-2004). THIS ISSUE HAS COME UP FOR CONSIDERATION IN THE ASSESSEES OWN APPEAL IN ITA NO .2653/M/2007 FOR THE ASSESSMENT YEAR 2003-2004, WHEREIN THIS ISSUE WAS DECIDED AGAINST BY OBSERVING AND HOLDING AS UNDER :- ITA NOS : 3746 &3792 /M/09 5 2.1.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF DIVIDEND AND INTEREST INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. THE DIVIDEND HAS BEEN SPECIFICALLY DEFINED AS INCOME FROM OTHER SOURCES IN SECTION 56(1). NO CASE HAS BEEN MADE OUT THAT DIVIDEND IN THIS CASE WAS INCIDENTAL TO ANY BUSINESS ACTIVITY. THEREFORE, WE CONFIRM THE ORDE R OF CIT(A) HOLDING THE DIVIDEND INCOME AS INCOME FROM OTHER SOURCES. AS REGARDS THE INTEREST INCOME, THE SAME HAD BEEN RECEIVED BY THE ASSESSEE FROM INTER- CORPORATE DEPOSITS, FIXED DEPOSITS AND DEPOSITS WITH MUTUAL FUNDS. THE CASE OF THE ASSESSEE IS THAT TEMPORARY SURPLUS FUNDS HAD BEEN INVESTED FROM WHICH INTEREST INCOME HAD BEEN RECEIVED AND THEREFORE IT SHOULD BE ASSESSED AS BUSINESS INCOME. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF CIT VS. PARAMOUNT PREMISES PVT. LTD.(SUPRA). WE HAVE GONE TH ROUGH THE SAID JUDGMENT AND IN OUR VIEW THE SAID CASE IS DISTINGUISHABLE. IN THAT CASE THE ASSESSEE WHO WAS IN THE REAL ESTATE BUSINESS HAD RECEIVED ADVANCE INSTALMENTS IN CONNECTION WITH BOOKING OF FLATS AND PENDING UTILIZATION IN THE CONSTRUCTION BUSINESS THERE DEPOSITS WERE TEMPORARILY PUT IN DEPOSITS AND LOANS. IT WAS THEREFORE HELD THAT INTEREST INCOME SPRANG FR OM BUSINESS ACTIVITIES. IN THE PRESENT CASE NO CASE HAS BEEN MADE OUT THAT ANY BUSINESS ADVANCES HAD BEEN TEMPORARILY PUT IN SHORT TERM DEPOSITS PENDING UTILIZATION IN THE BUSINESS. THE ASSESSEE HAD DEPOSITED THE SURPLUS FUNDS FROM WHICH INTEREST INCOME HAD BEEN RECEIVED. THEREFORE, IN OUR VIEW INTEREST INCOME HAS BEEN RIGHTLY ASSESSED AS INCOME FROM OTHER SOURCES. T HE ORDER OF CIT(A) IS CONFIRMED ON THIS POINT ALSO. THIS HAS BEEN FOLLOWED BY THE ITAT IN THE ASSESSMENT YEAR 2004- 2005 ALSO, IN ORDER DATED 21-10-2011 IN PARA 6 & 7. THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL IN THE ITA NOS : 3746 &3792 /M/09 6 EARLIER YEARS, GROUNDS OF APPEAL NO.1 & 2, IS DISMISSED AND IS DECIDED AGAINST THE ASSESSEE. 4 . GROUND NO.3 & 4 IS WITH REGARD TO TREATING OF BUSINESS INCOME OF RS.10,13,931/- AS INCOME FROM OTHER SOURCES AS AGAINST THE ASSESSEES CLAIM FOR BUSINESS INCO ME. THIS ISSUE HAS BEEN DECIDED BY THE CIT(A) AGAINST THE ASSESSEE FO LLOWING THE ORDERS OF THE EARLIER YEARS. WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN T HE ASSESSMENT YEAR 2003-2004 IN ITS ORDER DATED 15-12-2010 VIDE PARA 2.2.7, WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER :- 2.2.7 ON CAREFUL CONSIDERATION OF THE VARIOUS ASPECTS OF THE MATTER AS WELL AS THE VARIOUS JUDGMENTS PLACED ON RECORD WE ARE OF THE VIEW THAT RENTAL INCOME ON THE FACTS OF THE CASE HAS TO BE ASSESSED AS BUSINESS INCOME. IT IS NOT A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME. THE ASSESSEE HAS DEVELOPED THE PROPERTY AND ALSO MADE PROVISIONS FOR VARIOUS SERVICES AS MENTIONED EARLIER WITH A VIEW TO COMMERCIALLY EXPLOIT THE PROPERTY. THE PROPERTY HAS BEEN LET OUT WITH VARIOUS FACILITIES AND AMENITIES FOR CORPORATE CLIENTS SUCH AS BOARD ROOM FACILITIES, LETTERS RECEIPT/DISPATCH FACILITIES, COMPUTER WITH INTERNET FACILITIES, SECURITY ARRANGEMENTS IN ADDITION TO TELEPHONE AND ELECTRICITY AND WATER FACILITIES ETC. THE INCOME HAS THEREFORE HAS THEREFORE TO BE ASSESSED AS BUSINESS INCOME. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF THE HONBLE S UPREME COURT IN THE CASE OF S.G.MERCANTILE CORPORATION PVT. LTD. VS. CIT (83 ITR 700). IN THE SAID CASE ONE OF THE OBJECT OF THE ASSESSEE IN ITS MEMORANDUM OF ASSOCIATION WAS TO TAKE ON LEASE OR OTHERWISE ACQUIRE AND TO HOLD, IMPROVE, LEASE OR OTHERWI SE DISPOSE OF LAND, HOUSES AND ITA NOS : 3746 &3792 /M/09 7 OTHER REAL ESTATE AND PERSONAL PROPERTIES AND TO DEAL WITH THE SAME COMMERCIALLY. THE ASSE SSEE HAD TAKEN ONE PROPERTY WHICH WAS REMODELLED AND REPAIRED SO AS TO MAKE IT FIT FOR SUBLETTING AS SHOP, STALLS AND GROUND SPACE TO SHOPKEEPERS ETC. THE ISSUE WAS WHETHER RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. HONBL E SUPREME COURT OBSERVED THAT TAKING THE PROPERTY ON LEASE AND SUBLETTING PORTION THEREOF WAS PART OF BUSINESS OF THE ASSESSEE AND THEREFORE THE INCOME HAD TO BE ASSESSED AS BUSINESS INCOME SINCE THE ASSESSEE WAS NOT OWNER OF T HE PROPERTY. THE CASE OF THE ASSESSEE IS SIMILAR. THE DECISION OF THE TRIBUNAL IN CASE OF HARVINDERPAL MEHTA (HUF) VS. DCIT(122 TTJ 163) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN T HAT CASE ALSO THE ASSESSEE WAS RUNNING A BUSINESS CENTRE IN THE PREMISES WITH VARIOUS FACILITIES SUCH AS RECEPTIONIST, TELEPHONE OPERATOR, COMMON WAITING/GUEST ROOM, CENTRALIZED AIR CONDITIONING WITH OTHER SERVICES LIKE SWEEPER, TELEPHONE, FURNITURE, FAX MACHINES ETC. THE TRIBUNAL OBSERVED THAT THE OBJ ECT OF THE ASSESSEE WAS TO RUN THE BUSINESS CENTRE BY EXPLOI TING THE PROPERTY AND NOT MERE LETTING OUT THE SAME ON RENT. IT WAS ACCORDINGLY HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM BUSINESS. THE LEARNED DR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF GUJARAT IN CASE OF HARIKRISHNA FAMILY TRUST VS CIT (306 ITR 303) IN SUPPORT OF THE CASE OF THE DEPARTMENT. THE SAID CASE IN OUR VIEW IS DISTINGUISHABLE. THE ASSESSEE IN THAT CASE HAD TAKEN THE PROPERTY ON LEASE WHICH WAS INCOMPLETE AND AFTER COMPETING THE CONSTRUCTION THE A SSESSEE LET OUT THE PREMISES TO POSTS & TELEGRAPH DEPARTMEN T. THE PROPERTY HAD NOT BEEN DEVELOPED TO PROVIDE FOR ANY OTHER SERVICES. IT WAS A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME FROM A SINGLE TENANT. IT WAS UNDER THESE CIRCUMSTANCES THAT THE HIGH COURT HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS DIFFERENT AS POINTED ITA NOS : 3746 &3792 /M/09 8 OUT EARLIER AS IN THIS CASE THE PREMISES HAD BEEN DEVELOPED AS A BUSINESS CENTRE AND SUBLET TO CORPORATE ENTITIES ALONG WITH VARIOUS SERVICES AND FACILITIES. WE THEREFORE HOLD THAT THE RENTAL INCOME IN THIS CASE HAS TO BE ASSESSED AS BUSINESS INCOME. THE ORDER OF CIT(A) IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. THE AFORESAID ORDER HAS ALSO BEEN FOLLOWED BY THE ITAT IN THE ASSESSMENT YEAR 2004-2005 VIDE PAR A 9 & 10. THUS, RESPECTFULLY, FOLLOWING THE AFORESAID DECISION, GROUNDS NO.3 & 4 ARE ALLOWED AND ARE DECIDED IN FAVOUR OF THE ASSESSEE. 5 . GROUND NO.5, RELATES TO DISALLO WANCE OF SUM OF RS.5,26,851/- BEING RATES AND TAXES RELATING TO LAND AND NOT ALLOWING EITHER AGAINST BUSINESS INCOME OR AGAINST CAPITA L GAINS. THIS ISSUES HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN AY 2003-2004 VIDE PARA 2.6.3, WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER :- 2.6.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.10,90,837/- BEING RATES AND TAXES RELATING TO THE LAND WHICH ADMITTEDLY WAS NOT USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE SOLD THE LAND DURING THE YEAR AND EARNED LONG TERM CAPITAL GAIN OF RS.1,04,23,716/-. SINCE THE EXPENDITURE HAD BEEN INCURRED IN RELATION TO LAND WHICH WAS NOT USED FOR THE PURPOSE OF BUSINESS THE EXPENDITURE CANNOT BE ALLOWED WHILE COMPUTING THE INCOME FROM BUSINESS. AS REGARDS ALLOWABILITY OF CLAIM WHILE COMPUTING THE CAPITAL GAIN FROM SALE OF LAND THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND ON THIS ISSUE AND THEREFORE THIS ASPEC T WILL BE DEALT WITH WHILE DEALING THE ADDITIONAL GROUND LATTER. ITA NOS : 3746 &3792 /M/09 9 THIS DECISION HAS BEEN FOLLOWED BY TH E ITAT IN THE ASSESSMENT YEAR 2004-2005 VIDE PARA 18 & 19. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND GROUND NO.5 IS DISMISSED. 6. GROUND NO.6 RELATES TO DISALLOWANCE OF VRS EXPENSES OF RS.1,53,507/-. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN THE ASSESSM ENT YEAR 2003-2004 VIDE PARA 2.4.2, WHEREIN IT HAS BEEN HELD AS UNDER :- 2.4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE HAVE ALREADY HELD VIDE PARA 2.4.2 OF THIS ORDER THAT INCOME FROM BUSINESS CENTRE HAS TO ASSESSED AS BUSINESS INCOME AND THEREFORE, PROVISIONS OF SECTION 35DDA WILL BE APPLICABLE IN CASE OF THE ASSESS EE AS PER WHICH ANY EXPENDITURE IN CONNECTION WITH ANY VRS SCHEME HAS TO BE ALLOWED IN FIVE EQUAL INSTALMENTS STARTING WITH THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THE ASSESSING OFFICER THEREFORE DIRECTED TO ALLOW THE EXPENDITURE UNDER THE PROVISIONS OF SECTION 35DDA. IT HAS BEEN FOLLOWED BY THE ITAT IN THE ASSESSMENT YEAR 2004-2005 VIDE PARA 15 TO 16. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, GROUND NO.6 STANDS ALLOWED AND IS DECIDED IN FAVOUR OF THE ASSESSEE. 7 . GROUNDS NO.7 & 8 HAVE NOT BEEN PRESSED AS THE ISSUE HAS BEEN RECTIFIED BY THE CIT(A) VIDE ORDER DATED 2.6.2009, THEREF ORE, BOTH THESE GROUNDS BEING DISMISSED AS NOT PRESSED. ITA NOS : 3746 &3792 /M/09 10 8 . GROUND NO.9 RELATES TO ALLOWING OF PROFESSIONAL FEES OF RS.63,33,868/- AS BUSINESS EXPENDITU RE. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEMENT YEAR 2003-2004 VIDE PARA 2.7.3, WHEREIN IT HAS BEEN HELD AS UNDER :- 2.7.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUT E IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.32,56,724/-. THE DETAILS OF EXPENDITURE HAVE BEEN GIVEN IN PARA 2.7 EARLIER. THE AO HAS HELD THAT THE EXPENDITURE EITHER PERTAINED TO THE DISCONTINUED BUSINESS OR TO THE CAPITAL ASSET OF THE COMPANY AND THEREFORE, HE DISALLOWED THE CLAIM. CIT(A) HAS DIRECTED T HE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE SUCH EXPENSES WHICH RELATED TO THE CAPITAL ASSET OF THE COMPANY AND TO ALLOW THE PROFESSIONAL EXPENSES OF REVENUE IN NATUR E UNDER INCOME FROM OTHER SOURCES. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) DIRECTING THE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE ALL EXPENDITURE RELATED TO CAPITAL ASSET OF THE COMPANY. AS REGARDS THE DIRECTION OF CIT(A) TO ALLO W PROFESSIONAL EXPENSES OF REVENUE IN NATURE AGAINST INCOME FROM OT HER SOURCES, WE MODIFY THE DIRECTION AND HOLD THAT THESE EXPENSES WILL BE ALLOWED AGAINST THE BUSINESS INCOME SINCE WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME. WE DISPOSE OFF THE GROUND ACCORDINGLY. THIS HAS BEEN FOLLOWED BY THE ITAT IN ASSESSMENT YEAR 2003-2004 VIDE PARA 39. THUS, RESPECTFULLY FOLLO WING THE DECISION, THIS ISSUE IS ALLOWED AND DECIDED IN FA VOUR OF THE ASSESSEE. 9 . GROUND NO.10 RELATES TO ALLOWANCE OF EMPLOYEE COST OF RS.13,09,310/- AS BUSINESS EXPENDITU RE. THIS ISSUE HAS ALSO BEEN ITA NOS : 3746 &3792 /M/09 11 DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN THE ASSESSMENT YEAR 2003-2004 VIDE PARA 2.9.3, WHICH IS REPRODUCED HEREUNDER :- 2.9.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.11,70,000/- ON ITEMS SUCH AS INSURANCE, TELEPHONE, SECURITY, TRAVELLING, MOTOR VEHICLE ETC AND THE EXPENDITURE ON REMUNERATION TO THE MANAGER. CIT(A) HAS A LLOWED THE EXPENDITURE AGAINST INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS THAT EXPENDITURE SHOULD BE ALLOWED AGAINST BUSINESS INCOME. WE HAVE ALREADY HELD THAT THE INCOME FROM THE BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME AND THEREFORE WE HOLD THAT THE EXPENDITURE WILL BE ALLOWED WHILE COMPUTING THE INCOME FROM THE BUSINESS CENTRE. THIS HAS BEEN FOLLOWED BY THE ITAT IN THE ASSESSMENT YEAR 2004- 2005 IN PARA 13 OF ITS ORDER. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, GROUND NO.10 STA NDS ALLOWED IN FAVOUR OF THE ASSESSEE. 10 . IN GROUND NO.11, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF DEPRECIATION OF PLANT AND MACHIN ERY OF RS.202,811/- AS BUSINESS EXPENDITURE. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN PARA 2.8.1, WHICH IS AS UNDER :- 2.8.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY . THE DISPUTE IS REGARDING ALLOWABILITY OF DEPRECIATION OF RS.3,49,915/- ON PLANT AND MACHINERY. WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSEE AS BUSINESS INCOME. THEREFORE, DEPRECIATION ON ALL THE PLANTS AND MACHINERY INSTALLED IN THE BUSINESS CENTRE HAS TO BE ALLOWED. WE HOLD ACCORDINGLY. ITA NOS : 3746 &3792 /M/09 12 THIS HAS BEEN FOLLOWED BY THE TRI BUNAL IN AY 2004-2005 IN PARA 13. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, GROUND NO.11 IS ALLOWED IN THE FAVOUR OF THE ASSESSEE. 11 . GROUND NO.12, RELATES TO DISALLOWANCE OF ` .2,65,712/- MADE UNDER SECTION 14A READ WITH RULE 8D. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE AFTER FOLLOWING THE DECIS ION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (ITA NO.8057/MUM/2003, DATED 20-10-20 08). LEARNED COUNSEL SUBMITTED THAT THIS ISSUE HAS NOW STANDS COVERED BY THE DEC ISION IN THE CASE OF GODREJ BOYCE MAFG. LTD ., REPORTED IN 320 ITR 81 . 11.1 AFTER CAREFULLY CONSIDERING THE MATER, WE FIND THAT THE APPLICABILITY OF THE RULE 8D PRIOR TO ASSESSMENT YEAR 2008-2009, HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE THAT RULE 8D CANNOT BE APPLIED RETROSPECTIVELY FOR THE EARLIER YEARS AND, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO ADOPT SAME REASONABLE BASIS FOR MAKING THE DISALLOWANCE AFTER TAKING INTO CONS IDERATION THE NATURE OF EXEMPT INCOME AND THE EXPENDITURE ATTRIBUTABLE TO SUCH EARNING OF INCOME. THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IN ACCORDANCE WITH LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. LTD. (SUPRA) . ITA NOS : 3746 &3792 /M/09 13 12. IN THE ADDITIONAL GROUND, THE ASSESSEE HAS TAKEN A PLEA THAT ADMINISTRATIVE EXPENSES OF ` .34,11,991/- SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. LEARNED SENIOR COUNSEL SUBMITTED THAT WHEN THE GROUND NO.3 IS ALLOWED THEN TH IS GROUND WILL BE ACADEMIC. SINCE GROUND NO3 STANDS ALLOWED IN FAVOUR OF THE ASSESSEE, THIS ADDITIONAL GROUND IS TREATED AS ACADEMIC AND HENCE, THE SAID GROUND HAS BECOME INFRUCTUOUS. ITA NO.3792/MUM/2009 (AY 2005-2006)(BY THE DEPARTMENT) :- 13 . GROUND NO.1 RELATES TO ADDITION OF ` .1,36,141/- BEING SALES TAX WRITTEN BACK RELATING TO SALES IN EARLIER YEARS. THIS ISSUE HAS BEEN DECIDED AGAINST THE DEPARTMENT IN THE ASSESSMENT YEAR 2003-2004, WHEREIN AT PARA 3.1.1, IT HAS BEEN OBSERVED AND HELD AS UNDER :- 3.1.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY . THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF SALES TAX RELATING TO THE SALES IN THE EARLIER YEARS. THE AO HAD DISALLOWED THE CLAIM ON THE GROUND THAT THE BUSINESS OF THE ASSESSEE HAD CLOSED. CIT(A) HAS HOWEVER ALLOWED THE CLAIM ON THE GROUND THAT THE AO HAD ASSESSED INCOME ON ACCOUNT OF SUNDRY CREDITORS RELATING TO EARLIER YEAR UNDER SECTION 41(1) AND THEREFORE THE CLAIM WAS ALLOWABLE. IN OUR VIEW THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED AS WE HAVE ALREADY HELD THAT HE INCOME FROM THE BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME AND THUS THE BUSINESS HAS NOT CLOSED. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) ALLOWING THE CLAIM. ITA NOS : 3746 &3792 /M/09 14 THIS ORDER HAS BEEN FOLLOWED BY T HE ITAT IN THE ASSESSMENT YEAR 2004-2005 IN PARA 45 & 46. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, THIS GROUND IS DISMISSED AND IS DECIDED AGAINST THE DEPARTMENT. 14 . GROUND NO.2 RELATES TO VRS EXPENSES OF ` .1,53,517/-. THIS ISSUE HAS ALSO BEEN DECIDED AGAINST THE DEPARTMENT BY THE TRIBUNAL IN ASSESSMENT YEAR 2003-2004 VIDE PAR A 2.4.2. THIS ISSUE HAS BEEN DISCUSSED IN ASSESSEES APPEAL IN GROUND NO.6. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE EARLIER OR DERS OF THE TRIBUNAL, THIS ISSUE IS DECIDED AGAINST THE DEPARTMENT. 15 . GROUND NO.3 RELATES TO ALLOWING OF PROFESSIONAL FEES OF ` .63,33,868/- AGAINST INCOME FROM OTHER SOURCES. THIS ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL IN ASSESSMENT YEAR 2003-2004 VIDE PARA 3.2.1 AND IN ASSESSMENT YE AR 2004-2005 VIDE PARA 48 AND 49. THE RELEVANT OBSERVATION OF THE ITAT IN PARA 3.2.1 IS REPRODUCED HEREUNDER :- 3.2.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY . THE DISPUTE IS REGARDING ALLOWABILITY OF PERSONAL EXPENSES. THE CIT(A) HAS ALLOWED THE CLAIM AGAINST INCOME FROM OTHER SOURCES WITH WHICH THE REVENUE IS AGGRIEVED. WE HAVE ALREADY CONSIDERED THE ISSUE WHILE DEALING WITH THE APPEAL OF THE ASSESSEE AND HELD THAT THE CLAIM HAS TO BE ALLOWED AGAINST THE BUSINESS INCOME VIDE PARA 2.7.03 OF THIS ORDER AS WE HAVE HELD THAT INCOME FROM BUSINESS CENTRE ITA NOS : 3746 &3792 /M/09 15 HAS TO BE ASSESSED AS BUSINESS INCOME. THE EXPENDITURE WILL THEREFORE BE ALLOWED AGAINST THE BUSINESS INCOME AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. THUS, THIS GROUND IS DECIDED AGAINST THE DEPARTMENT AND IS DISMISSED. 16 . GROUND NO.4 RELATES TO DISALLOWANCE OF EMPLOYEE COST OF ` .13,09,310/- UNDER SECTION 57(III) AGAINST THE INCOME FROM OTHER SOURCES. THIS ISSUE HAS BEEN DECID E BY THE TRIBUNAL IN ASSESSMENT YEAR 2003-2004 VIDE PARA 3.3.1 AND ASSESSMENT YEAR 2004-2005 VIDE PARA 51 & 52. THE RELEVANT FINDI NG AND OBSERVATION IN ASSESSMENT YEAR 2003-2004 BY THE TRIBUNAL IS REPRODUCED HEREUNDER :- 3.3.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE EMPLOYEE COST HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT BUSINESS HAD CLOSED. CIT(A) ALLOWED IT AGAINST INCOME FROM OTHER SOURCES. SINCE WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS INCOME FROM BUSI NESS THE CLAIM WILL BE ALLOWED AGAINST BUSINESS INCOME. THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, THIS GROUND IS DISMISSED AND DECIDED AGAINST THE DEPARTMENT. 17 . GROUND NO.5 RELATES TO ALLOWING OF DEPRECIATION OF ` .2,02,811/- IN PLANT AND MACHINERY. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL VIDE PARA 2.8.1 IN THE ASSESSMENT YEAR 2003-2004 AND PARA 54 IN ASSESSMENT YEAR 2004-2005. THE RELEVANT FINDING HAS ALREADY BEEN REPRODUCED WHILE DEALING WITH THE ASSESSEES GROUND NO.11. THUS, ITA NOS : 3746 &3792 /M/09 16 RESPECTFULLY FOLLOWING THE AFORESAI D DECISION OF ITAT, THIS GROUND OF APPEAL IS DISMISSED. 18 . IN GROUND NO.6 THE DEPARTMENT HAS CHALLENGED THE ALLOWANCE OF SET OFF OF LONG TERM CAPITAL LOSS OF ` .22,18,310/- AGAINST THE CAPITAL GAIN FOR SALE OF DEVELOPMENT RIGHTS. T HE ASSESSING OFFICER HAS COMPUTED THE INCOME FROM SHORT TERM CAPITA L GAINS IN THE FOLLOWING MANNER :- INCOME FROM CAPITAL GAINS SHORT TERM CAPITAL GAIN (-) ` 50,596 LONG TERM CAPITAL GAIN (-) ` . 22,18,310 INCOME FROM SALE OF DEVELOPMENT RIGHTS (-) ` .3,59,43,549 ` 3,59,43,549/- TOTAL TAXABLE INCOME ` .3,98,60,862/- FROM THE SAID COMPUTATION, IT WA S CONTENDED BEFORE THE CIT(A) THAT THE ASSESSING OFFICER FAILED TO GIVE SET O FF OF LOSS OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AGGREGATING TO ` .22,18,310/-. THE CIT(A) DULLY APPRECIATED THE SAID CONTENT ION AND HELD THAT FIGURE SHOULD BE ADJUSTED AGAINST THE POSITIVE FIGURE UNDER THE HEAD CAPITAL GAINS. LEARNED SENIOR COUNSEL BEFORE US S UBMITTED THAT NOW THIS GROUND DOES NOT HAS ANY RELEVANCE AS THE AM OUNT OF CAPITAL GAIN ARISING OUT OF SALE OF TRANSFERABLE DEVELOPMENT RIGHTS OF ` .3,59,43,549/- HAS BEEN ALLOWED AS DEDUCTION UNDER SECTION 54EC WHICH IS NOT IN DISPUTE. HOWEVER, HE SUBMITTED THAT THE LO SS SHOULD BE ALLOWED TO BE CARRIED FORWARD AND TO BE ADJUSTED IN THE SUBSEQUENT YEARS. ITA NOS : 3746 &3792 /M/09 17 19 . AFTER CAREFULLY CONSIDERING THE RI VAL SUBMISSIONS, WE FIND THAT THE CIT(A) VIDE PARA 17.1, 17.2 & 17.3 HAS ALLOWED THE DEDUCTION UNDER SECTION 54EC ON THE GROUND THAT T HE ASSESSEE HAS INVESTED IN NABARD BOND ON THE CAPITAL GAINS ARISING OUT SALE TRANSFERABLE DEVELOPMENT RIGHTS OF ` .3,54,43,549/-, AND THIS DEDUCTION IS NOT IN DISPUTE. HENCE, THIS GROUND HAS BEEN RENDERED INFRUCTUOUS. HOWEVER, A SPRAYED BY LEARNED COUNSEL, LEARNED ASSESSING OFFICER IS DIRECTED THAT THE LOSS SHOWN UNDER THE HEAD S HORT TERM AND LONG TERM CAPITAL GAIN IS ALLOWED TO BE CARRIED FORWARD. 20 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS TREATED AS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2012 . 11 TH JULY, 2012 SD/- SD/- ( . . ) ( ) ( R.S.SYAL) ( AMIT SHUKLA) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED 11 / JULY /2012 . . / PKM. . ./PS ITA NOS : 3746 &3792 /M/09 18 / 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. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI