M/s. Hemkunt Steel & Wires (P) Ltd., New Delhi V. DCIT (OSD), New Delhi

ITA 388/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65722 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 25-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: AJAY VOHRA SMT SHAILY GUPTAARS
• Keywords: Business income; Depreciation; Earning of tax free income; Deemed dividend; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI I.C. SUDHIR , JM & SHRI A.N. PAHUJA, AM ITA NO.388/DEL./2012 ASSESSMENT YEAR : 2008-09 HEMKUNT STEEL & WIRES (P) LTD., 207, GROUND FLOOR, 87, ZAMRUDPUR, GREATER KAILASH-I, NEW DELHI V/S . DCIT(OSD), CIT-IV, NEW DELHI [PAN :AAA CH 0006L] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI AJAY VOHRA,& SMT. SHAILY GUPTA,ARS REVENUE BY SHRI SATPAL SINGH,. DR DATE OF HEARING 02-08-2012 DATE OF PRONOUNCEMENT 19 -10-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 25.01.2012 BY THE ASSESSEE AGA INST AN ORDER DATED 14.11.2011 OF THE LEARNED CIT(A)-XV, NEW DELH I, RAISES THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER IS BASED UPON IRRELEVANT CONSIDERATI ONS, INCORRECT APPLICATION OF LAW, BAD IN LAW AND VOID AB INITIO. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING ADDITION OF ` .33,99,003 AS DEEMED DIVIDEND UNDER SECTION 2(22)(E ) OF THE INCOME TAX ACT, 1961 ('THE ACT') IN THE HANDS OF TH E APPELLANT. 2.1 THAT THE CIT(A) FAILED TO APPRECIATE THAT THE AMOUNT ADVANCED TO THE APPELLANT BY M/S. PSB INDUSTRIES (INDIA) (P) L IMITED WAS NOT COVERED WITHIN THE SCOPE AND AMBIT OF THE PROVISION S OF SECTION 2(22)(E) OF THE ACT. ITA NO.388/DEL./2012 2 2.2 THAT THE CIT(A) FAILED TO APPRECIATE THAT THE AMOUNT ADVANCED TO THE APPELLANT BY M/S. SKIPPER SALES PRIVATE LIMITED WAS NOT COVERED WITHIN THE SCOPE AND AMBIT OF THE PROVISION S OF SECTION 2(22)( E) OF THE ACT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING THE DISALLOWANCE OF INTEREST PAID AMOUNTING TO ` .6,67,910 CLAIMED AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT ON TH E GROUND THAT BORROWED FUNDS HAS BEEN ADVANCED INTEREST FREE FOR NON-BUSINESS PURPOSES. 3.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT INTEREST FREE LOANS WERE MADE OUT OF AVAILABLE INT EREST FREE FUNDS. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING DISALLOWANCE OF ` .2,50,495 UNDER SECTION L4A OF THE ACT. 4.1 THAT THE CIT(A) FAILED TO APPRECIATE THAT SINC E NO EXEMPT INCOME WAS EARNED BY THE APPELLANT, NO DISALLOWANCE UNDER SECTION L4A OF THE ACT WAS CALLED FOR. 4.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN S USTAINING THE DISALLOWANCE WITHOUT APPRECIATING THAT NO EXPENDITU RE WAS ACTUALLY INCURRED BY THE APPELLANT. 4.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT SHARES WERE PURCHASED FOR ACQUIRING CONTROLLING INT EREST AND NOT FOR EARNING INCOME. 4.4 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UP HOLDING THE DISALLOWANCE, IN ABSENCE OF PROPER SATISFACTION OF THE ASSESSING OFFICER AS TO INCORRECTNESS OF THE APPELLANT'S CLAI M, AS REQUIRED UNDER SECTION 14A(2) OF THE ACT. 4.5 WITHOUT PREJUDICE, THAT THE CIT(A) ERRED IN .N OT APPRECIATING THAT ON AFFIRMING THE ORDER OF THE ASSESSING OFFICER, THE A GGREGATE DISALLOWANCE UNDER VARIOUS SECTIONS EXCEED THE TOTA L EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. 5. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT SERVICE CHARGES EARNED BY THE APPELLANT AMOUNTING TO ` 16,56,000 FROM THE TENANT, WAS ASSESSABLE AS 'INCOME FROM HOUSE PROPER TY' AS AGAINST 'BUSINESS INCOME'. 5.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE AFORESAID POSITION OF THE APPELLANT HAS BEEN CO NSISTENTLY ITA NO.388/DEL./2012 3 ACCEPTED BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEARS. 5.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN C OMPUTING DISALLOWANCE OF EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, CLAIMED DEDUCTION AGAINST BUSINESS INCOME, CONSISTE NT WITH THE FINDING THAT INCOME BY WAY OF SERVICE CHARGES WAS A SSESSABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUPPLEMEN T, AMEND, VARY, WITHDRAW OR OTHERWISE MODIFY THE GROUND MENTIONED H EREIN ABOVE AT OR BEFORE THE TIME OF HEARING. 2. ADVERTING FIRST TO GROUND NOS. 2 TO 2.2 IN THE APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING TO TAL INCOME OF ` ` 22,30,200/- FILED ON 15.09.2008 BY THE ASSESSEE, WAS SELECTED FOR SCR UTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961, (HER EINAFTER REFERRED TO AS THE ACT), ISSUED ON 29.07.2009. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS OF ` ` 12,66,28,030/-,INCLUDING ` `3,96,15,000/- FROM M/S PSB INDUSTRIES INDIA PVT. LTD., AND ` 80,000 M/S SKIPPER SALES PVT. LTD., HEMKUNT CHAMBER S, 89, NEHRU PLACE, NEW DELHI . SINCE THE ASSESSEE HAD 6000 SHARES OUT OF TOTAL 12,800 SHARES OF M/S PSB INDUSTRIES (INDIA) PVT. LT D. AND 200 SHARES OUT 1000 SHARES OF M/S SKIPPER SALES PVT. LTD. AND THUS, WAS BENEFICIAL OWNER OF SHARES CARRYING 46.87% AND 20% RESPECTIVELY OF VOTING POWE R IN THESE TWO COMPANIES, THE AO SHOW CAUSED THE ASSESSEE AS TO WHY LOAN TAK EN FROM AFORESAID TWO COMPANIES BE NOT TREATED AS DEEMED DIVIDEND IN TER MS OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. IN RESPONSE, THE ASSESSEE REP LIED VIDE LETTER DATED 20.12.2010 THAT THESE LOANS WERE TAKEN FOR BUSINESS PURPOSES. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE O N THE GROUND THAT M/S PSB INDUSTRIES (INDIA) PVT. LTD. WAS HAVING RESERVES AN D SURPLUS TO THE EXTENT OF ` `3,39,99,003/- AS ON 31.03.2008 WHILE THE ASSESSEE DID NOT FURNISH DETAILS OF ACCUMULATED PROFIT OF M/S SKIPPER SALES PVT. LTD., THE AO ADDED THE AMOUNT OF ` ` 3,40,79,003/- IN TERMS OF PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT. ITA NO.388/DEL./2012 4 3. ON APPEAL, THE LEARNED CIT(A) WHILE REJECTING T HE CONTENTIONS OF THE ASSESSEE THAT FUNDS WERE RECEIVED ON TRUST WERE IN TEREST FREE, RESTRICTED THE ADDITION TO ` ` 33,99,003/- TO THE EXTENT OF RESERVES AND SURPLUS O F PSB INDUSTRIES LTD., AND IN THE CASE OF SKIPPER SALE (P) LTD. TH ERE BEING NO ACCUMULATED PROFITS, DELETED THE ADDITION. INTER ALIA, THE LD. CIT(A) RELIED UPON DECISION IN WALCHAND & COMPANY LTD. VS. CIT (1971)100 ITR 598(B OM.) 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT LOAN WAS ADVANCED IN THE ORDINARY COURSE OF BUSINESS AND NEITHER THE AO NOR THE LD. CIT(A) RECORDED ANY FINDINGS ON THAT ASPECT. ACCORDINGLY, THE LD. AR PLEADED TH AT MATTER MAY BE RESTORED BACK FOR READJUDICATION. ON THE OTHER HAND, THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS OF THE LD. AR. 5. WE HAVE BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY AND AS IS EVIDENT ON PERUSAL OF THE A SSESSMENT ORDER [PARA3.4.7], THE ASSESSEE PLEADED BEFORE THE AO THAT THE LOAN WA S TAKEN FROM M/S PSB INDUSTRIES INDIA PVT. LTD. & M/S SKIPPER SALES PVT. LTD IN THE ORDINARY COURSE OF BUSINESS. THOUGH THE AO REJECTED THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT UNSECURED LOANS CARRIED INTEREST AND OB LIGATION TO REPAY, THE LD. CIT(A) DID NOT RECORD ANY FINDINGS ON THIS ASPECT N OR IS KNOWN AS TO WHETHER OR NOT ANY SUCH PLEA AS TO WHETHER OR NOT FUNDS WERE R ECEIVED IN THE ORDINARY COURSE OF BUSINESS ,WAS TAKEN BEFORE THE LD. CIT(A) . IT IS WELL ESTABLISHED THAT TRADING ADVANCES ARE NOT COVERED WITHIN THE MISCHI EF OF SECTION 2(22)(E) OF THE ACT [CIT VS. CREATIVE DYEING AND PRINTING (P) LTD., 318 ITR 476(DEL.); CIT VS. ARVIND KUMAR JAIN IN I.T.A. NO.589/2011, DATED 30.9 .2011(DEL.); CIT V. RAJ KUMAR [2009] 318 ITR 462 (DELHI); CIT V. AMBASSADOR TRAVELS P. LTD. [2009] 318 ITR 376 (DELHI) AND NAGINDAS M. KAPADIA [1989] 177 ITR 393 (BOM)]. IN VIEW OF THE FOREGOING, WE CONSIDER IT FAIR AND APPROPRIA TE TO VACATE THE FINDINGS OF LEARNED CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE AFRESH IN ITA NO.388/DEL./2012 5 ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIA L PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE AND OF COURSE, AFTER ALLOWI NG SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETHER OR NOT LOANS WERE RECEIVED IN THE ORDINARY COURSE OF BUSIN ESS. WITH THESE OBSERVATIONS, GROUND NOS. 2 TO 2.2 IN THE APPEAL ARE DISPOSED OF. 6. GROUND NOS..3 TO 3.1 IN THE APPEAL RELATE TO DI SALLOWANCE OF INTEREST OF ` ` 6,67,910/- U/S 36(1)(III) OF THE ACT. THE AO NOTIC ED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD MADE I NTEREST FREE LOANS AND ADVANCES OF ` ` 13,58,36,280/-TO THE CONCERNS IN WHICH DIRECTORS WE RE INTERESTED. SINCE THE ASSESSEE DEBITED AN AMOUNT OF ` 8,15,176/- ON ACCOUNT OF INTEREST ON BORROWED FUNDS, THE AO ASKED THE ASSESSEE TO ESTABL ISH PURPOSE AND COMMERCIAL EXPEDIENCY OF ADVANCING THESE INTEREST F REE LOANS AND HOW THE FUNDS WERE UTILIZED BY THESE CONCERNS FOR THE BUSINESS OR BENEFIT OF THE ASSESSEE. IN RESPONSE, THE ASSESSEE REPLIED THAT BORROWED FUNDS WERE UTILIZED OUT OF COMPOSITE FUNDS AVAILABLE WITH THE COMPANY, INCLUDI NG FURTHER LOANS GIVEN FOR BUSINESS. HOWEVER, THE AO DID NOT ACCEPT THE SUBMI SSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT ESTABLISH COMM ERCIAL EXPEDIENCY OF ADVANCING INTEREST FREE LOANS TO THE CONCERNS UNDE R THE SAME MANAGEMENT NOR FURNISHED LOANWISE DETAILS ALONG WITH CORRESPONDING BUSINESS PURPOSES.. ACCORDINGLY ,WHILE REFERRING TO PROVISIONS OF SECTI ON 36(1)(III) OF THE ACT AND RELYING UPON DECISIONS IN CIT VS. AMRITABEN R. SHAH , 238 ITR 777(BOM.); SARABHAI SONS (P) LTD. VS. CIT,201 ITR 4659GUJ); CI T VS. SUJANI TEXTILES PVT. LTD.,151 ITR 653(MAD.); INDIAN METALS & FERRO ALLOY S LTD. VS. CIT,193 ITR 344(ORISSA); CIT VS. ABHISHEK INDUSTRIES LTD.,286 I TR 1(P&H); CIT VS. V.I. BABY AND CO. (2002), 254 ITR 248 (KERALA); CIT VS. MOTOR GENERAL FINANCE LTD. (2002) 254 ITR 449 (DELHI); CIT VS. H.R. SUGAR FACT ORY P. LTD. (1991) 187 ITR 363 (ALLAHABAD ); CIT VS. H.R. SUGAR FACTORY P. LTD . (1991) 190 ITR 643 (ALL); CIT VS. SARAYA SUGAR MILLS P. LTD. (1993) 201 ITR 1 81 (ALLAHABAD); AND ELMER ITA NO.388/DEL./2012 6 HAVELL ELECTRICS VS. CIT (2005) 277 ITR 549 (DELHI ) DISALLOWED AN AMOUNT OF ` 7,80,859/-OUT OF INTEREST OF ` 265.72 LACS IN RELATION TO INTEREST FREE ADVANCES O F ` 13,58,36,280/-, THE ASSESSEE HAVING NOT ESTABLISHED ANY DIRECT NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE WITH IT AND LOANS AD VANCED ON INTEREST FREE BASIS TO GROUP CONCERNS. 7. ON APPEAL, THE LD. CIT(A) REDUCED THE DISALLOWA NCE TO ` `6,69,190/- IN THE FOLLOWING TERMS:- 8. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APP ELLANT AND HAVE PERUSED THE ASSESSING OFFICERS ORDER AND FINANCIAL STATEMENTS OF THE APPELLANT. HOWEVER, I AGREE WITH THE ASSESSING OFFICER THAT THE APPELLANT HAS TAKEN BOTH INTEREST BEARING AND INTEREST FREE LOANS AND UTILIZED THEM IN GIVING THE SAME INTEREST FREE TO ENTITIES WITHOUT ANY COMMERCIAL EXPEDIENCY. BUT I AGREE WITH THE APPELLANT THAT IN WORKING OUT THE DISALLOWANCE, THE ASSESSING OFFICER SHOULD HAVE TAKEN THE FIGURE OF ONLY INTERE ST FREE LOAN AND NOT THE TOTAL LOANS AND ADVANCES SHOWN IN THE BALAN CE SHEET. ACCORDINGLY, I HOLD THAT THE DISALLOWANCE U/S 36(1 )(III) SHOULD BE RESTRICTED TO ` `6,67,910/-. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD.AR ON BEHALF OF T HE ASSESSEE ARGUED THAT THE ASSESSEE HAD SUBSTANTIAL INTEREST FREE FUNDS TO THE EXTENT OF ` 13,76,94,226/- WHILE INTEREST FREE ADVANCES HAD REDUCED TO ` 11,61,87,987/- IN THE YEAR UNDER CONSIDERATION AS AGAINST ` ` 13.66 CRORES IN THE PRECEDING YEAR. RELYING UPON T HE DECISIONS IN INDIAN EXPLOSIVES LIMITED VS. CIT ,147 ITR 392(CAL.); WOOLCOMBERS OF INDIA LIMITED VS. CIT,134 ITR 219(CAL.); ALKALI AND CHEMICAL CORPORATION OF INDIA LIMITED VS. CIT,161 ITR 820 (CAL) ;. EAST IND IA PHARMACEUTICAL WORKS LIMITED. VS,CIT,224 ITR 627 (SC); THE LD. AR CONTE NDED THAT SINCE THE INTEREST FREE ADVANCES WERE MADE OUT OF INTEREST FREE FUND S AVAILABLE WITH THEM, NO DISALLOWANCE OUT OF INTEREST COULD BE MADE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS IN THE IMPUGNED ORDER. ITA NO.388/DEL./2012 7 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY THE LD. A R.. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DISALLOWED INTEREST OF ` ` 7,80,859/- OUT OF INTEREST OF ` 8,15,176/- ON BORROWED FUNDS ON THE GROUND THAT THE ASSESSEE DID NOT ESTABLISH COMMERCIAL EXPEDIENCY OF ADVANCING INTEREST FREE LO ANS TO THE CONCERNS UNDER THE SAME MANAGEMENT NOR FURNISHED LOANWISE DETAILS ALONG WITH CORRESPONDING BUSINESS PURPOSES. ON APPEAL, THE LD. CIT(A) REDUCE D THE DISALLOWANCE TO ` 6,67,910 IN RELATION TO INTEREST FREE ADVANCES. NEI THER THE DATE OF ADVANCES NOR THE NEXUS BETWEEN LOANS OR ADVANCES AND FUNDS BORR OWED IS EVIDENT FROM THE IMPUGNED ORDER NOR THE LD. CIT(A) RECORDED ANY FIND INGS AS TO THE BUSINESS EXPEDIENCY OF INTEREST FREE ADVANCES OR ON THE NE XUS BETWEEN BORROWED FUNDS AND INTEREST FREE ADVANCES. THE LD. CIT(A) DID NOT ANALYSE THE ISSUE IN PROPER PERSPECTIVE NOR IT IS EVIDENT FROM THE IMPUGNED ORD ER AS TO ON WHICH DATE INTEREST FREE ADVANCE WAS GIVEN TO THE CONCERNS UNDER THE SA ME MANAGEMENT AND WHAT WAS THE PURPOSE AND FOR WHAT PURPOSE INTEREST BEARI NG FUNDS WERE BORROWED BY THE ASSESSEE. AS IS APPARENT FROM THE IMPUGNED ORDE R, BEFORE THE AO OR THE LD. CIT(A), THE ASSESSEE DID NOT PLACE ANY EVIDENCE AS TO HOW THE FUNDS BORROWED BY IT HAD BEEN UTILIZED AND WHAT WAS THE COMMERCIAL EXPEDIENCY IN SUCH BORROWINGS, EVEN WHEN THE AO RAISED A SPECIFIC QUER Y IN THAT REGARD. IN THIS CONNECTION, THE RELEVANT PROVISIONS OF SECTION 36(1 )(III) OF THE ACT PROVIDE FOR DEDUCTION OF INTEREST ON THE BORROWED FUNDS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION, THE ONUS IS ON THE ASSESSEE TO SATISFY THE AO THAT LOANS RAISED BY THE ASSESSEE WERE USE D FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF CLAIM FOR SUCH A DEDU CTION, IT TRANSPIRES THAT THE ASSESSEE HAD DIVERTED CERTAIN FUNDS TO ASSOCIATES W ITHOUT ANY INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO BE DI SCHARGED BEFORE THE AO TO THE EFFECT THAT IN SPITE OF PENDING LOANS ON WHICH THE ASSESSEE WAS INCURRING THE LIABILITY TO PAY INTEREST, STILL THERE WAS JUSTIFIC ATION FOR DIVERSION OF FUNDS TO ASSOCIATE OR SISTER CONCERNS FOR NON-BUSINESS PURPO SES . IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC) HONBLE SUPREME COURT OBSERVED THAT UNDER S. 10(2)(III) OF THE 1922 ACT( NOW SEC. 36(1)(III) OF THE 1961 ACT), THREE CONDITIONS ITA NO.388/DEL./2012 8 WERE REQUIRED TO BE SATISFIED IN ORDER TO ENABLE TH E ASSESSEE TO CLAIM A DEDUCTION IN RESPECT OF INTEREST ON BORROWED CAPITAL, NAMELY, (A) THAT MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE, (B) THAT IT MUS T HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS, AND (C) THAT THE ASSESSEE MUST HAVE PAID INTEREST ON THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. IT W AS ALSO HELD THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNI NG INCOME, PROFITS OR GAINS'. IN THE CASE UNDER CONSIDERATION, THERE IS NOTHING IN THE ORDER OF LOWER AUTHORITIES TO SUGGEST THAT THE ASSESSEE DISCHARGED THE ONUS L AID DOWN UPON THEM THAT BORROWED FUNDS HAD INDEED BEEN UTILIZED FOR THE PUR POSE OF ITS BUSINESS SO AS TO ENTITLE IT TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT DESPITE THE FACT THAT THE AO HAD RAISED SPECIFIC QUERY IN THIS RESPECT. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH, ACCORDING TO HIM, COULD NOT BE REPAID PREMATURELY TO ITS CREDITORS, STILL THE SAME WERE EITHER REQUIRED TO BE CIRCULATE D AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT THESE WERE DIVERTED TOWARDS ASSOCIATE OR SISTER CON CERNS FREE OF INTEREST . THIS WOULD RESULT IN NOT PRESENTING THE TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSES SEE, THE ASSOCIATE OR SISTER CONCERNS/PERSONS WOULD BE ENJOYING THE BENEFITS THE REOF. IT CANNOT BE HELD THAT THE FUNDS TO THE EXTENT DIVERTED TO ASSOCIATE PERSO NS/CONCERNS WITHOUT CHARGING ANY INTEREST, WERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. UN LESS THE INTEREST FREE LOAN GOES TO ADVANCE BUSINESS INTEREST OF THE ASSESSEE, THERE CANNOT BE ANY COMMERCIAL EXPEDIENCY. 9.1 IN THE INSTANT CASE, THE ASSESSEE FAILED TO ESTABLISH THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST FREE BORROWINGS OR OWN FUNDS NOR EVEN ESTABLISHED ANY COMMERCIAL EXPEDIENCY IN ADVANCING FUNDS WHILE NO CASH FLOW STATEMENT WAS PLACED BEFORE LOWER AUTHORITIES AND E VEN BEFORE US . IN PUNJAB STAINLESS STEEL INDUSTRIES VS. CIT [2011] 196 TAXMA N 404 (DELHI), HONBLE JURISDICTIONL HIGH COURT HELD AS UNDER: ITA NO.388/DEL./2012 9 IN THE INSTANT CASE, THERE WAS ABSOLUTELY NO FINDI NG RECORDED BY THE TRIBUNAL THAT THE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSE E TO SISTER CONCERN FOR ITS BUSINESS PURPOSES. THERE WAS NO SUCH FINDING BY THE TRIBUNAL EVEN WITH RESPECT TO THE ADVANCES EXTENDED IN THE PREVIOUS YEARS. IT WAS NOT THE CASE OF THE ASSESSEE THAT IT HAD SO MUCH SURPLUS CASH AVAILABLE WITH IT AT THE TIME OF EXTENDING THOSE ADVANCES THAT THE SAME COULD HAVE B EEN EXTENDED BY IT OUT OF THOSE SURPLUS FUNDS AVAILABLE TO IT. IN FACT, THE P AYMENTS MADE TO SISTER CONCERN FROM CASH CREDIT ACCOUNT INDICATED TO THE CONTRARY AND SHOWED THAT ADVANCES MADE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2001-02, WERE EXTENDED OUT OF BORROWED FUNDS AND NOT OUT OF ANY C REDIT BALANCE AVAILABLE WITH THE ASSESSEE-FIRM AT THAT TIME. 9.2 IN VIEW OF THE FOREGOING ,ESPECIALLY WHEN CO MPLETE FACTS ARE NOT AVAILABLE BEFORE US NOR THE LD. AR FURNISHED DATE(S) OF INTE REST FREE ADVANCES OR DATES OF BORROWINGS AND NOR FURNISHED ANY MATERIAL, ESTABLIS HING COMMERCIAL EXPEDIENCY IN ADVANCING AFORESAID FUNDS BEFORE THE LOWER AUTHO RITIES AND EVEN BEFORE US, NOR THE LD. CIT(A) RECORDED ANY FINDINGS ON THESE ASPEC TS, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE ISSUE RAISED IN THESE GROUNDS TO HIS FILE FOR DECIDING THE MATT ER AFRESH IN ACCORDANCE WITH LAW, IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND OF C OURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES AND KEEPING IN VIE W VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE. WITH THESE OBSERVATIONS, GROUND NOS.3 & 3.1 IN THE APPEAL ARE DISPOSED OF. 10. GROUND NOS. 4 TO 4.5 REGARDING DISALLOWANCE OF ` ` 2,50,495/- U/S 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTICED CERTAIN INVESTMENTS IN SHARES OUT OF FUNDS BORROWED OR FROM ITS OWN SOURCES. SINCE THE INCOME GENERATED FROM THE INVESTMENTS DI D NOT FORM PART OF TOTAL INCOME, THE AO ASKED THE ASSESSEE TO FURNISH THE AM OUNT OF DISALLOWANCE IN TERMS OF THE PROVISIONS OF SECTION 14A OF THE ACT R EAD WITH RULE 8D OF THE I.T. RULES,1962. IN RESPONSE, THE ASSESSEE MERELY REPLI ED THAT THEY DID NOT EARN ANY EXEMPT INCOME NOR FURNISHED DETAILS OF EXPENDITURE INCURRED IN MAINTAINING & SUPERVISING THE INVESTMENTS. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND ACCORDINGLY, WHILE REFERRING TO DECISION OF THE HONBLE HIGH ITA NO.388/DEL./2012 10 COURT OF BOMBAY IN THE CASE OF GODREJ BOYCE MANUFAC TURING CO. LTD. VS. DCIT IN (I.T.A. NO.626 AND WP 2010 AND DECISION OF SPECIAL BENCH IN THE CASE OF CHEM INVEST LIMITED VS. INCOME-TAX OFFICER, 317 ITR(AT) 86(DEL.); DISALLOWED AN AMOUNT OF ` ` 2,50,495/- AS COMPUTED IN PARA 5.6 OF THE IMPUGNED ORDER IN TERMS OF RULE 8D OF THE IT RULES,1962. 11. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO, HOLDING AS UNDER:- 10. I HAVE GONE THROUGH THE ABOVE SUBMISSION OF THE APPELLANT AND I DO NOT AGREE WITH THE APPELLANT S CONTENTION THAT SINCE DURING THE YEAR THEY DID NOT EARN THE EXEMPT INCOME HENCE NO DISALLOWANCE U/S 14A IS CALLED FOR. IN FACT, IN THE CASE OF CHEMIVEST LTD. VS. INCOME-TAX OFFICER WARD 3(3) (I. T.A. NO.87/D/2008) THE ITAT, DELHI SPECIAL BENCH HAS CLE ARLY HELD THAT DISALLOWANCE U/S 14A IS CALLED FOR IN A YEAR EVEN IF NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE APPELLANT . IN VIEW OF THE ABOVE, I UPHOLD THE ACTION OF ASSESSING OFFICER , ACCORDINGLY ADDITION OF ` ` 2,50,495/- IS CONFIRMED. 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE CONTENDED THAT NO FRESH INVESTMENTS WERE MADE DURING THE YEAR NOR THERE WAS ANY EVIDENCE THAT ANY EXPENDITURE WAS INCURRED FOR EARNING INTEREST F REE INCOME. SINCE THE ASSESSEE HAD MADE QUOTED INVESTMENTS OF ` 45,69,178 AND UNQUOTED INVESTMENTS OF ` 1,35,85,405/- WHILE THE INVESTMENTS HAD COME DOWN I N THE YEAR UNDER CONSIDERATION AND THE AO DID NOT RECORD HIS S ATISFACTION IN TERMS OF DECISION OF THE HONBLE DELHI HIGH COURT IN MAXOPP INVESTMENT LTD.,203 TAXMAN 364 (DELHI),THEREFORE, NO DISALLOWANCE COULD BE MAD E, THE LD. AR PLEADED. ON OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF TH E LD. CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE DID NOT FURNISH THE RELE VANT ACCOUNTS AND DETAILS RELATING TO EXPENDITURE INCURRED IN MAINTAINING AND SUPERVISING INVESTMENTS ITA NO.388/DEL./2012 11 REFLECTED IN SCHEDULE 6 OF THE BALANCESHEET AND INS TEAD SUBMITTED THAT NO SUCH EXPENDITURE HAD BEEN INCURRED NOR ANY EXEMPT INCOME WAS EARNED.. AS A RESULT, THE AO COMPUTED DISALLOWANCE `OF `2,50,495/- IN T ERMS OF RULE 8D OF THE IT RULES 1962 ;FOLLOWING THE DECISIONS IN GODREJ BOYCE MANUFACTURING CO. LTD.(SUPRA) AND CHEM INVEST LIMITED(SUPRA). ON APPE AL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO.I N FACT, SCHEDULE 6 TO THE BAL ANCESHEET REVEALS QUOTED INVESTMENTS OF `45,69,178 AS ON 31.2.2008 & 31.3.20 07 BESIDES UNQUOTED INVESTMENTS OF `1,35,85,405/- AS ON 31.3.2008 AS AG AINST `95,72,260/- AS ON 31.3.2007. . THE ASSESSEE CLAIMED THAT IT DID NOT EARN ANY EXEMPT INCOME AND DENIED INCURRING ANY EXPENDITURE FOR EARNING INCOME , WHICH DOES NOT FORM TOTAL INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS EVEN WHEN AFORESAID INVESTMENTS WERE MADE BY THE ASSESSEE IN SHARES IN THE PRECEDING YEARS. THERE IS NOTHING TO SUGGEST AS TO WHETHER ANY CASH FLOW S TATEMENT OR SOURCES OF THE INVESTMENTS IN THE VARIOUS SHARES HELD BY THE ASSE SSEE IN THE YEAR UNDER CONSIDERATION OR IN THE PRECEDING YEARS WAS PLACED BEFORE THE AO OR THE LD. CIT(A). IN ANY CASE, NO MATERIAL WAS PLACED BEFORE THE AO IN ORDER TO ENABLE HIM TO RECORD HIS SATISFACTION ENVISAGED IN MAXOPP INVESTMENT LTD.(SUPRA) . HONBLE APEX COURT IN KANTAMANI VENKATA NARAYANA AN D SONS V. FIRST ADDL. ITO [1967] 63 ITR 638 AND AGAIN IN MALEGAON ELECTRICIT Y CO. P. LTD. V. CIT [1970] 78 ITR 466 (SC) OBSERVED THAT IT IS THE DUTY OF THE AS SESSEE TO BRING TO THE NOTICE OF THE INCOME TAX OFFICER PARTICULAR ITEMS IN THE BOOK S OF ACCOUNT OR PORTIONS OF DOCUMENTS WHICH ARE RELEVANT. THE LAW CASTS A DUTY ON THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THAT YEAR. NOT EVEN A WHISPER HAS BEEN MADE BEFORE US AS TO WHETHE R OR NOT RELEVANT ACCOUNTS WERE PLACED BEFORE THE AO OR THE LD. CIT(A) IN ORDE R TO ENABLE THEM TO EXAMINE THE CLAIM OF THE ASSESSEE. THE OBJECT OR PURPOSE OF THE INVESTMENT AFFECTS OPERATION OF SECTION 14A OF THE ACT INASMUCH AS AN Y EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME IS NOT AN ALLOWABLE DEDUCTI ON BY VIRTUE OF OPERATION OF THE SAID SECTION, AS HELD IN CIT VS. STATE BANK OF TRAV ANCORE,16 TAXMANN.COM 289(KER). HONBLE SUPREME COURT IN THEIR DECISI ON DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD., 326 ITR 1, INTER ITA NO.388/DEL./2012 12 ALIA, OBSERVED THAT FOR ATTRACTING SECTION 14A OF T HE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. THE THEORY OF APPORTION MENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A, HONBLE APEX COURT CONCLUDED. IN CHEMI NVEST LTD. V. INCOME-TAX OFFICER,317ITR(AT)86(DEL.),SPECIAL BENCH HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF THE FACT WH ETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT AND THE PROVISIONS OF SEC. 14A OF THE ACT DO NOT ENVISAGE ANY SUCH EXCEPTION. IN TERMS OF THE AFORESAID DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD. VS. CIT,[2011] 15 TAXMANN.COM 390 (DELHI) , EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITUR E HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO IS REQUIRED TO VERIFY THE CORRECTNESS OF SUC H CLAIM. IN CASE , THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCUR RED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT, HONBLE HIGH COURT CONCLUDED . FOLLOWING THE VIEW TAKEN IN THIS DECISION, HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. MACHINO PLASTIC LTD IN THEIR DECISION DATED 28.2.2012 IN ITA NO. 92 OF 2011, RESTORED THE MATTER TO THE FILE OF THE AO, BEING HANDICAPPED BECAUSE OF FAILURE OF THE ASSESSEE TO FURNISH RELEV ANT DETAILS AND PARTICULARS .IN THE INSTANT CASE ALSO, THE AO WAS HANDICAPPED, BEC AUSE OF FAILURE OF THE ASSESSEE TO FURNISH RELEVANT DETAILS AND PARTICULAR S WHILE MAKING THE DISALLOWANCE. THERE IS NOTHING IN THE ASSESSMENT OR DER OR IMPUGNED ORDER AS TO WHETHER THE ASSESSEE EXPRESSED HIS WILLINGNESS TO FURNISH THE DETAILS DESIRED BY THE AO NOR THE AO OR THE LD. CIT(A) SEEMS TO HAVE UNDERTOOK ANY EXERCISE TO ASCERTAIN THE DETAILS OF EXPENDITURE OBJECTIVELY IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS IN SHARES. ITA NO.388/DEL./2012 13 13.1 HONBLE CALCUTTA HIGH COURT IN DHANUKA & S ONS VS. CIT,12 TAXMANN.COM 227(CAL.) HELD THAT AFTER HEARING THE LEARNED COUNSEL APPEARIN G FOR THE PARTIES AND AFTER GOING THROUGH THE MATERIALS ON RECORD AND THE DECISIONS C ITED BY MR. KHAITAN, WE FIND THAT THE SUPREME COURT IN THE CASES OF CIT V. MAHAR ASTRA SUGAR MILLS LTD. [1971] 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPN. V. CIT [200 0] 242 ITR 450 /109 TAXMAN 145 HAVING HELD THAT WHERE THERE IS ONE INDIVISIBLE BU SINESS GIVING RISE TO TAXABLE INCOME AS WELL AS EXEMPT INC OME, THE ENTIRE EXPENDITURE INCURRED IN RELATION TO THAT BUSINESS WOULD HAVE TO BE ALLOWED EVEN IF A PART OF THE INCOME EARNED FROM THE BUSINESS IS EXEMPT FROM TAX, SECTION 14A OF THE ACT WAS ENACTED TO OVERCOME THOSE JUDICIAL PRONOUNCEMENTS. THE OBJECT OF SECTION14A OF THE ACT IS TO DISALLOW THE DIRECT AND INDIRECT EXPE NDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . 8. IN THE CASE BEFORE US, THERE IS NO DISPUTE THAT PA RT OF THE INCOME OF THE ASSESSEE FROM ITS BUSINESS IS FROM DIVIDEND WHICH I S EXEMPT FROM TAX WHEREAS THE ASSESSEE WAS UNABLE TO PRODUCE ANY MATERIAL BEF ORE THE AUTHORITIES BELOW SHOWING THE SOURCE FROM WHICH SUCH SHARES WERE ACQU IRED. MR. KHAITAN STRENUOUSLY CONTENDED BEFORE US THAT FOR THE LAST F EW YEARS BEFORE THE RELEVANT PREVIOUS YEAR, NO NEW SHARE HAS BEEN ACQUIRED AND T HUS, THE LOAN THAT WAS TAKEN AND FOR WHICH THE INTEREST IS PAYABLE BY THE ASSESSEE WAS NOT FOR ACQUISITION OF THOSE OLD SHARES AND, THEREFORE, THE AUTHORITIES BELOW ERRED IN LAW IN GIVING BENEFIT OF PROPORTIONATE DEDUCTION. 9. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WER E OLD ONES AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSE SSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERI ALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF T HE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF AN Y LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN, EVEN FOR INSTANCE, FIVE OR TEN YEARS AGO, IT IS FOR THE ASSESSEE TO SHOW BY TH E PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LOANED AMOUNT HAD AL READY BEEN PAID BACK AND FOR THE RELEVANT ASSESSMENT YEAR, NO INTER EST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERIALS PLACED BY THE ASSESSEE, IN OUR OPINION, THE AUTHORI TIES BELOW RIGHTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE DISALLOWED HAVING RE GARD TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN THE ABSENCE O F ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHICH IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASO NABLE APPROACH IN ASSESSMENT. 13.2 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) OR THE AO DID NOT HAVE THE BENEFIT OF AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD.(SUPRA), WE CON SIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE ITA NO.388/DEL./2012 14 MATTER TO HIS FILE DECIDING THE ISSUE, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF AFORESAID JUDICIAL PRONOUNCEMENTS I NCLUDING IN MAXOPP INVESTMENT LTD.(SUPRA), AFTER ALLOWING SUFFICIENT O PPORTUNITY TO BOTH THE PARTIES. THE ASSESSEE IS ALSO DIRECTED TO FURNISH A LL THE RELEVANT DETAILS AND ACCOUNTS OF EXPENDITURE ACTUALLY INCURR ED IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS IN S HARES. WITH THESE OBSERVATIONS, GROUND NOS.4 TO 4.5 IN THE APPE AL ARE DISPOSED OF. 14. GROUND NOS. 5 TO 5.2 RELATE TO SERVICE CHARGES AMOUNTING TO ` ` 16,56,000/-,ASSESSED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCME. THE AO NOTICED ON PERUSAL OF RETURN OF INCOM E THAT THE ASSESSEE HAD SHOWN SERVICE RECEIPTS OF ` ` 16,56,000/- AND RENTAL INCOME OF ` 29,32,350/- ON ACCOUNT OF LETTING OUT OF ITS PROPERTY TO M/S BANK OF PUNJAB LTD.. THE RENTAL RECEIPTS WERE OFFERED FOR TAX UNDER THE HEAD INCOM E FROM HOUSE PROPERTY WHILE THE OTHER PART RELATING TO SERVICE CHARGES WAS SEPA RATED AND CLAIMED AS BUSINESS INCOME. THE AO WAS OF THE OPINION THAT SERVICE CHAR GES WERE PART OF RENTAL INCOME ALONE AND WHILE ASSESSING THE SERVICE CHARGE S UNDER THE HEAD INCOME FROM HOUSE PROPERTY, DISALLOWED THE CLAIM OF VARI OUS EXPENSES AND DEPRECIATION, AMOUNTING TO ` ` 10,71,36/-. 15. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO AS UNDER:- 12. I HAVE GONE THROUGH THE SUBMISSION OF THE APP ELLANT AND HAVE PERUSED THE ASSESSING OFFICERS ORDER AND THE SERVICE AGREEMENT. THE FACT OF THE MATTER IS THAT APPELLANT HAS LET OUT THE PROPERTY TO 'BANK OF PUNJAB' AND APART FROM CHARGING RENT, APPELLANT IN TERMS OF SEPARATE SO CALLED SERVICE AG REEMENT RECEIVED MONEY FOR PROVIDING ELECTRICITY, WATER, TELEPHONE E TC. FOR A FIXED SUM. IN MY HUMBLE VIEW, AO'S ACTION IS PERFECTLY RIGHT I N VIEW OF THE FINDINGS OF SUPREME COURT IN THE CASE OF SHAMBU INVESTMENT (P) LTD. VS. CLT (2003) (263 ITR143)(SC), WHEREIN I T HAS BEEN HELD ITA NO.388/DEL./2012 15 THAT 'WHERE PRIME OBJECT IS TO LET OUT THE PROPERTY ALONGWITH THE ADDITIONAL RIGHT OF USING FURNITURE AND FIXTURE, TH E INCOME IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPER TY. SINCE IN THE APPELLANT'S CASE ALSO THE PRIME OBJECT IS EARNING OF RENTAL INCOME AND PROVIDES OTHER SERVICES OF USE OF TELEPHONE ETC. FALLS IN THE CATEGORY OF FIXTURE ETC. HENCE I HOLD THAT THE ENTIRE INCOME (RENTAL AND SERVICE INCOME) SHOULD BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THEREFORE, I UPHOLD THE ASSESSING OFFICERS ACTION. 16. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).WHILE INVITING OUR ATTE NTION TO THE PAGE 46 & 50 OF PAPER BOOK , THE LD. AR CONTENDED THAT ALL ALONG T HEIR CLAIM HAD BEEN ACCEPTED. WHILE RELYING UPON DECISIONS IN RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 (SC),FOLLOWED IN COMMISSIONER OF INCOME-TAX V. GOEL BUILDERS ,331 ITR 344(ALL.), THE LD. AR ARGUED THAT SINCE THEIR CLAIM HAS BEEN A CCEPTED IN THE PRECEDING YEARS, THEIR CLAIM SHOULD BE ACCEPTED DURING THE YE AR UNDER CONSIDERATION ALSO, FOLLOWING THE PRINCIPLES OF CONSISTENCY. ON THE OT HER HAND, THE LD. DR MERELY SUPPORTED THE FINDINGS IN THE IMPUGNED ORDER. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE LEASED OUT ITS P REMISES HAVING AREA OF 2875 SQ. FT. AT GL2 & GL3,HEMKUNT CHAMBERS,89,NEHRU PLAC E ,NEW DELHI AT A MONTHLY RENT OF ` 2,01,250/- PM. IN TERMS OF LEASE AGREEMENT DATED 7. 1.2003 .THE RENT IS AGREED TO BE INCREASED BY 20% AFTER EVERY THREE YEARS .THE LEASE IS FOR A PERIOD OF 9 YEARS AND CAN BE RENEWED ON MUTUAL TERM S AND CONDITIONS. SIMULTANEOUSLY, ANOTHER AGREEMENT WAS EXECUTED ON 8 .1.2003 BETWEEN THE PARTIES ,WHICH IS TERMED AS AMENITIES & SERVICES A GREEMENT, WHEREUNDER, THE ASSESSEE AS CONTRACTOR AGREED TO PROVIDE TO THE LES SEE BANK FOLLOWING AMENITIES AND SERVICES: I) TO ENSURE CONTINUOUS SUPPLY OF POWER & WATER A T ALL TIMES DURING OFFICE HOURS UNLESS OBSTRUCTED DUE TO A REASON BEYOND CONTROL OF OWNER. TO PROVIDE SEPARATE METER FOR ELECTRICITY AND WATER CONNECTION AND TO A LLOW, AT ALL, TIMES, ACCESS TO THE ITA NO.388/DEL./2012 16 ELECTRICIANS AND OTHER PERSONS TO THE RESPECTIVE ME TERS FOR REPAIRS AND MAINTENANCE. II) TO ALLOW WITHIN THE SAID PREMISES FIXING OF JUN CTION BOX/CABLES FOR TELEPHONE LINES AND TO ALLOW ACCESS TO THE SAME FOR THE TELEP HONE COMPANYS EMPLOYEES/REPRESENTATIVES AT ALL TIMES. 17.1. FOR THE AFORESAID CONTINUOUS SUPPLY OF ELECT RICITY& WATER AS ALSO JUNCTION BOX/CABLES FOR TELEPHONE , BANK AGREED TO PAY TO TH E CONTRACTOR LESSOR @ ` 1,15,000/- PM DURING 1.1.2003 TO 31.12.2005 AND @ ` ` `1,38,000/-PM BETWEEN 1.1.2006 TO 31.12.2006. THIS AGREEMENT IS ALSO FOR A PERIOD OF 9 YEARS AND IS CO- EXTENSIVE AND COTERMINOUS WITH THE TENANCY AGREEMEN T OF EVEN DATE. 17.2 THE AO ASSESSED THE AFORESAID SERVICE CHARGES UNDER THE HEAD INCOME FROM HOUSE PROPERTY WHILE THE ASSESSEE CLAIMED THE SAME AS BUSINESS INCOME. THERE IS NOTHING TO SUGGEST THAT ENSURING CONTINUOU S SUPPLY OF ELECTRICITY, WATER OR JUNCTION BOX/CABLES FOR TELEPHONE TO THE TENANTS ,IS BUSINESS OF THE ASSESSEE NOR ANY MATERIAL HAS BEEN PLACED BEFORE US, SUGGEST ING AS TO WHETHER SIMILAR ISSUE WAS EXAMINED BY THE AO IN THE PRECEDING YEARS . THOUGH THE LD. AR CLAIMED BEFORE US THAT THEIR CLAIM HAD BEEN ACCEPTE D IN THE PRECEDING YEARS, NEITHER THE RELEVANT ORDERS NOR THE REPLY FILED BEF ORE THE AO ON THIS ISSUE IN THE PRECEDING YEARS HAVE BEEN PLACED BEFORE US. IT IS A PPARENT THAT FACILITIES ARE INSEPARABLE PART OF TENANCY SINCE ONE CAN NOT BE EN JOY THE FACILITIES WITHOUT THE TENANCY . THE PRIME OBJECT OF THE ASSESSEE UNDER THE TWO AGRE EMENTS WAS TO LET OUT THE PREMISES TO THE BANK WITH ADDITIONAL RIGHT OF CONTINUOUS SUPPLY OF ELECTRICITY AND WATER BESIDES FACILITIES FOR JUNCTI ON BOX/CABLES FOR TELEPHONE FOR WHICH RENT WAS BEING PAID MONTH BY MONTH. IN VIEW O F THE FOREGOING, ESPECIALLY WHEN THE LD. AR CLAIMED BEFORE US THAT T HEIR CLAIM HAD BEEN ACCEPTED IN THE PRECEDING YEARS WHILE THERE IS NO SUCH FINDING IN THE IMPUGNED ORDER NOR THE LD. AR PLACED BEFORE US ANY MATERIAL, SUGGESTING THAT ENSURING CONTINUOUS SUPPLY OF ELEC TRICITY, WATER OR FACILITIES FOR JUNCTION BOX/CABLES FOR TELEPHONE TO THE TENANTS ,I S BUSINESS OF THE ASSESSEE, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. ITA NO.388/DEL./2012 17 CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECI DING THE ISSUE, AFRESH IN ACCORDANCE WITH LAW , BRINGING OUT CLEARL Y AS TO WHETHER OR NOT ENSURING CONTINUOUS SUPPLY OF ELECTRICITY, WATE R OR FACILITIES FOR JUNCTION BOX/CABLES FOR TELEPHONE TO THE TENANTS ,IS BUSINES S OF THE ASSESSEE AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BO TH THE PARTIES. WITH THESE OBSERVATIONS, GROUND NOS.5 TO 5.2 IN THE AP PEAL ARE DISPOSED OF. 18.. GROUND NO.1 IN THE APPEAL ,BEING GENERAL IN N ATURE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US, DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEE N RAISED BEFORE US IN TERMS OF RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY THESE GROUNDS ARE DISMISSED. 19. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE U S. 20. IN THE RESULT ,APPEAL IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- (I.C. SUDHIR) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1 ASSESSEE 2. DCIT(OSD), CIT-IV,NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-XV, NEW DELHI 5.. DR, ITAT,C BENCH, NEW DELHI 6.. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT