ACUITY HOLDINGS PVT.LTD., MUMBAI V. DCIT -12(1)(1), MUMBAI

ITA 4011/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 4634 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 01-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Depreciation; Opportunity of being heard; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO. 4011 / MUM . /201 7 ( ASSESSMENT YEAR : 2012 13 ) ACUITY HOLDINGS PVT. LTD. A.M. BHATKAL & ASSOCIATES, C.AS C 1/5, SARATHI CHS LTD. KHIRA NAGAR, S.V. ROAD SANTACRUZ (W), MUMBAI 400 054 PAN AAFCM3366D . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 12(1)(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI PRAKASH JOTWANI REVENUE BY : SHRI SATISH C HANDRA RAJORE DATE OF HEARING 28.08.2019 DATE OF ORDER 22.11.2019 O R D E R PER SAKTIJIT DEY. J.M. T HE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 28 TH FEBRUARY 2017, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 20, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2012 13. 2. IN G ROUND NO.1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RENTAL EXPENSES OF ` 65.25 LAKH. 2 ACUITY HOLDINGS PVT. LTD. 3. BRIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARE S, SECURITIES AND DERIVATIVES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 20 TH SEPTEMBER 2012, DECLARING TOTAL INCOME OF ` 57,47,631. SUBSEQUENTLY, THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 1 1 TH FEBRUARY 2014. DURING THE ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF ` 65.25 LAKH TOWARDS RENTAL EXPENSES CALLED FOR THE NECESSARY DETAILS AND ASKED THE ASSESSEE TO JUSTIFY SUCH CLAIM. IN RESPONSE, IT WAS SUBMITTED THAT THE PREMISES WAS TAKEN ON LEASE FOR SET TING UP A OFFICE TO FACILITATE THE DIRECTORS TO MEET POTENTIAL INVE STORS AND INVESTEES WITH A VIEW TO EXPLAIN THE BUSINESS ACTIVITIES. IN SUPPORT OF ITS CLAIM, THE ASSESSEE ALSO FURNISHED THE LE AVE AND LICENSE AGREEMENT , DETAILS OF RENT PAID AND TAX DEDUCTED AT SOURCE. AFTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE AND PARTICULARLY THE LEAVE AND LICENSE AGREEMENT , THE ASSESSING OFFICER FOUND THAT AS PER THE TERM S OF THE AGREEMENT, THE PREM ISE WAS TO BE USED FOR THE R ESIDENTIAL PURPOSE OF EMPLOYEES/ DIRECTORS AND THEIR FAMILY MEMBERS. THE ASSESSING OFFICER FURTHER OBSERVED , THE REASON MENTIONED BY THE ASSESSEE FOR ACQUIRING THE PROPERTY ON LEASE DOES NOT MA TCH WITH ITS BUSINESS ACTIVITY OF A INVESTOR IN SHARES WHICH HAS TO BE TRANSACTED IN RECOGNIZED STOCK EXCHANGE AND THERE IS NO NEED FOR THE MEETING OF INVESTORS AND INVESTEES. THUS, HE OBSERVED , THE RENTAL 3 ACUITY HOLDINGS PVT. LTD. EXPENSES FOR LEASE OF THE PREMISES NOT BEING FOR THE PURPOSE OF THE BUSINESS HAS TO BE DISALLOWED. 4. THE LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE WHILE DECIDING ASSESSEES APPEAL. 5. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE MAIN PURPOSE OF TAKING ON LEASE THE PREMISES IS TO FACILITATE THE MEETING WITH THE INVE STORS WHICH IS IN FURTHERANCE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. HE SUBMITTED , SINCE THE ASSESSEE IS IN THE BUSINESS OF INVESTING I N SHARES, DERIVATIVES ETC., IT NEE DS TO MEET WITH THE INVESTORS REGULARLY AND FREQUENTLY WHICH IS MOST NECESSARY FOR ITS BUSINESS ACTIVITIES. FURTHER, HE SUBMITTED , THE SUBJECT PREMISE IS ACTUALLY USED FOR THIS PURPOSE, HENCE, THE EXPENDITURE INCURRED HAS TO BE ALLOWED AS BUSINESS EXPENSE . WITHOUT PREJUDICE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , EVEN IF THE P REMISE TAKEN ON LEASE BY THE ASSESSEE IS USED BY THE DIRECTORS FOR THE PURPOSE OF THEIR RESIDEN CE, THE RENTAL EXPENDITURE CAN BE ALLOWED AS BUSINESS EXPENSE SINCE THE SAID PREMISE IS ALSO USED BY THE DIRECTORS FOR OFFICIAL WORK OF THE COMPANY. IN SUPPORT O F SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) ACIT V/S STUISH CAPITAL SERVICE PVT. LTD., ITA NO.5482/ MUM./2016, DATED 21 ST MAY 2018; AND II) ITA NO.5083/MUM./2018 &ORS., DATED 24.06.2019. 4 ACUITY HOLDINGS PVT. LTD. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE SUBJECT PREMISE IN RESPE CT OF WHICH THE ASSESSEE HAS CLAIMED THE RENTAL EXPENSES HA S BEEN TAKEN ON LEASE BY THE ASSESSEE. THOUGH, IN THE LEAVE AND LICENSE AGREEMENT, IT IS MENTIONED THAT IT HAS BEEN TAKEN ON LEASE FOR TH E USE OF RESIDENCE OF DIRECTORS/ EMPLOYE ES, HOWEVER, IT CANNO T BE SAID THA T IN COURSE OF SUCH USER , THE DIRECTORS ARE NOT DOING ANY OFFICIAL WORK , SUCH AS , MEETING THE INVESTORS, ETC. THEREFORE, MERELY BECAUSE AS PER THE TERMS OF THE LEAVE AND LICENSE AGREEMENT THE PREMISE IS TO BE USED FOR RESIDEN CE PURPOSE OF THE DIRECTORS, ASSESSEES CLAIM CANNOT BE REJECTED. THE TRIBUNAL IN STUISH CAPITAL SERVICES PVT. LTD. (SUPRA) WHILE CONSIDERING THE ALLOWABILI TY OF DEPRECIATION ON A PREMISE TAKEN ON LEASE FOR USE OF DIRECTORS RESIDENCE ALLOWED ASSESSEES CLAIM BY HOLDING THA T SINCE THE COMPANY IS ENGAGED IN SHARE TRADING , THE PREMISE IS USED BY DIRECTORS FOR OFFICIAL WORK ALSO , HENCE, AS PER CBDT CIRCULAR AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT V/S MODI INDUSTRIES LTD., [1994] 210 ITR 001 (DEL.), ASSESSEES CL AIM IS ALLOWABLE. THE RATIO LAID DOWN IN THE AFORESAID DECISION SQUARELY APPLIES TO ASSESSEES CASE. 5 ACUITY HOLDINGS PVT. LTD. ACCORDINGLY, WE ALLOW ASSESSEES CLAIM OF DEPRECIATION. THIS GROUND IS ALLOWED. 8. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGE DISALLOWANCE OF INTEREST EXPEND ITURE OF ` 1,00,07,470. 9. BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON THE BASIS OF AIR INFORMATION CALLED UPON THE ASSESSEE TO RECONCILE THE INTEREST INCOME EARNED BY IT DURING THE YEAR. FROM THE DETAILS FURNISHED, THE ASSES SING OFFICER FOUND THAT AS AGAINST INTEREST INCOME EARNED DURING THE YEAR AMOUNTING TO ` 1, 5 7,55,088. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON PRO RATA BASIS. ON FURTHER QUERY FROM THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT IT HAD INCURRED INTEREST EXPENDITURE OF ` 1,35,29,967, AGAINST LOAN TAKEN FROM INDIA INFOLINE INVESTMENTS SERVICES LT D. AND THE SAID LOAN AMOUNT WAS UTILIZED FOR TRADING IN DERIVATIVES AND NON CONVERTIBLE DEBENTURE (NCD). WHEREAS, IT HAS RECEIVED INTEREST INCOME ON NCDS AMOUNTING TO ` 1,57,55,088. IT WAS SUBMITTED , SINCE THE BORROWED FUND WAS UTILIZED FOR TRADING IN DERI VATIVE AND NCDS, THE INTEREST EXPENDITU RE ON SUCH LOAN HAS TO BE SET OFF AGAINST THE INTEREST INCOME EARNED ON NCDS. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HOLDING THAT THE ASSESSEE FAILED TO PROVIDE ANY JUST IFICATION FOR CLAIMING INTEREST EXPENDITURE ON PRO RATA BASIS, HE DISALLOWED INTEREST EXPENDITURE OF ` 1,00,07,470. THOUGH, 6 ACUITY HOLDINGS PVT. LTD. THE ASSESSEE CHALLENGED THE A FORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS), HOWEVER, HE ALSO UPHELD THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER ON THE REASONING THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST INCOME AND THE INTEREST EXPENDIT URE AS REQUIRED UNDER SECTION 57 (III) OF THE ACT. 10. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ENTIR E BORROWED FUND WAS UTILIZED FOR TRADING IN DERIVATIVE AND NCDS. HE SUBMITTED , THE ASSESSEE HAS EARNED INTEREST INCOME ON NCDS AT ` 1,57,55,101, WHEREAS , IT HAS INCURRED TOTAL INTEREST EXPENDITURE OF ` 1,35,29,967. HE SUBMITTED , SINCE PART OF THE BORROWE D FUND WAS UTILIZED IN NCDS, ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON PRO RATA BASIS ON THE INVESTMENT MADE IN NCDS. THUS, HE SUBMITTED , THERE BEING A NEXUS BETWEEN INTEREST EXPENDITURE AND INTEREST INCOME, IT SHOULD BE ALLOWED. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 12. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SHORT ISSUE ARISING FOR CONSIDERATION IS, WHETHER THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS IN RELATION TO INTEREST INCOME EARNED DURING THE YEAR SO AS TO ALLOW IT AS DEDUCTION UNDER 7 ACUITY HOLDINGS PVT. LTD. SECTION 57(III) OF THE ACT. IT IS THE SPECIFIC CONTENTION OF THE ASSESSEE THAT THE BORROWED FUNDS ON WHICH THE ASSESSEE H AS P AID INTEREST WAS UTILIZED FOR INVESTING IN DERIVATIVES AND NCDS. IT IS THE CLAIM OF THE ASSESSEE THAT IN THE YEAR UNDER CONSIDERATION, IT HAS EARNED INTEREST OF ` 1,57,55,101, ON THE NCDS. THEREFORE, A PART OF INTEREST EXPENDITURE IS RELATABLE TO IN TEREST EARNED ON NCDS, HENCE, HAS TO BE SET OFF AGAINST SUCH INCOME. IN OUR VIEW, IF THE BORROWED FUND OR PART OF IT HAS BEEN UTILIZED IN ACQUIRING THE NCDS, THEN THE INTEREST ON SUCH BORROWED FUND HAS TO BE SET OFF AGAINST THE INTEREST INCOME EARNED ON NCDS TO T HE EXTENT OF UTILIZATION OF BORROWED FUNDS IN NCDS. THE AFORESAID CLAIM OF THE ASSESSEE, THEREFORE, NEEDS FACTUAL VERIFICATION. IN CASE, IT IS FOUND THAT A PART OF THE BORROWED FUND WAS UTILIZED FOR IN VESTMENT IN NCDS, THEN THE INTEREST EXPENDITURE CORRESPONDING TO THE BORROWED FUND UTILIZED IN NCDS HAS TO BE SET OFF AGAINST THE INTEREST EARNED ON NCDS. WITH THE AFORESAID OBSERVATION, THE ISSUE IS RESTORED BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER VERIFICATION OF FACTS ON RECORD AND DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 22.11.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 22.11.2019 8 ACUITY HOLDINGS PVT. LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI