NAMAN ESTATES P.LTD, MUMBAI V. ITO 7(1)(4), MUMBAI

ITA 4114/MUM/2010

• Counselvise Citation: 411419914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 10-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 20-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Business expenditure; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4114/MUM/2010 (ASSESSMENT YEAR: 2004-05) ITA NO.4115/MUM/2010 (ASSESSMENT YEAR: 2005-06) NAMAN ESTATES PVT. LTD., MAHINDRA TOWERS, P.K. KURNE, DR. G.M. BHOSALE MARG, WORLI, MUMBAI -400 018 ....... APPELLANT VS ITO -7(1(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ..... RESPONDENT PAN: AAACN 1980 F APPELLANT BY: NONE RESPONDENT BY: SHRI V. V. SHASTRI DATE OF HEARING: 10.08.2011 DATE OF PRONOUNCEMENT: 19.08.2011 O R D E R PER R.S. PADVEKAR, JM IN THESE TWO APPEALS THE ASSESSEE HAS CHALLENGED TH E IMPUGNED ORDERS OF THE LD. CIT (A) MUMBAI FOR THE A.Y. 2004- 05 AND 2005-06. WHEN THIS CASE WAS CALLED FOR HEARING, LD. DR FOR R EVENUE IS PRESENT AND NON PRESENT FOR ASSESSEE. WE FIND THAT DUE NOTI CE OF HEARING IS SERVED ON THE ASSESSEE. WE ACCORDINGLY PROCEED TO D ECIDE THIS APPEAL ON MERIT ON THE BASIS OF FACTS ON RECORD AFTER HEAR ING LD. DR. THE COMMON ISSUE IN CONTROVERSY IS DISALLOWANCE OF THE INTEREST EXPENDITURE U/S.14A OF THE ACT IS AS UNDER AND A.Y. 2004-05, THE ASSESSEE HAS TAKEN FOLLOWING EFFECTIVE GROUNDS: ITA 4114/MUM/2010 ITA 4115/MUM/2010 NAMAN ESTATES PVT. LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (A) ERRED IN CONCLUDING THAT THE COMPAN Y HAD NOT COMMENCED AND FURTHER ERRED IN CONFIRMING DISALLOWANCE OF INTEREST EXPENDITURE OF ` 47,93,763 AS NON- BUSINESS EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (A) FURTHER ERRED IN CONFIRMING DISALLO WANCE OF ` 47,93,763/- U/S.14A BY ATTRIBUTING IT TO EARNING OF EXEMPT INCOME. 2. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2004-05 WHICH WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143(3). THE ASSESSEE-COMPANY DECLARED THE INCOM E FROM BUSINESS, CAPITAL GAINS AND OTHER SOURCES OF ` 141.08 LAKHS. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE TO THE EX TENT OF ` 47.94 LAKHS ON THE BORROWINGS. AS NOTED BY THE A.O. THE ASSESSEE-COMPANY HAS NOT CARRIED ON ANY BUSINESS ACTIVITY IN THE A.Y . 2004-05. THE A.O., THEREFORE, SOUGHT THE EXPLANATION OF THE ASSE SSEE WHY THE INTEREST EXPENDITURE CLAIM SHOULD NOT BE DISALLOWED . THE ASSESSEE FILED THE EXPLANATION STATING THAT IT HAS BENEFIT I N CARRYING OUT CONSTRUCTION BUSINESS AND THERE WAS A LULL AND SLOW ED DOWN IN THE SAID BUSINESS AND THE COMPANY HAS TO PLAN ITS BUSI NESS ACTIVITY OPTING VARIOUS ALTERNATE FOR ACHIEVEMENT OF ITS MA IN OBJECT ETC. IT WAS CLAIMED BY THE ASSESSEE THAT THE ENTIRE INTEREST EX PENDITURE IS ALLOWABLE U/S.36(1)(III). THE A.O. DID NOT AGREE T O THE EXPLANATION OF THE ASSESSEE AND PROCEEDED TO MAKE THE DISALLOWANCE ON THE REASON THAT THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY IN THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2004-05 AND THE ASSESSEE HAD TO PAY INTEREST ON THE BORROWINGS, WHICH WERE UTILIZED FOR INVESTMENT IN THE SHARES OF THE GROUP COMPANIES, ON WHICH THE DIV IDEND IS EARNED AND AS THE DIVIDEND IS EXEMPT U/S.10(34) OF THE ACT , OTHERWISE ALSO ITA 4114/MUM/2010 ITA 4115/MUM/2010 NAMAN ESTATES PVT. LTD. 3 THE INTEREST EXPENDITURE IS NOT ALLOWABLE U/S.14A O F THE ACT. THE A.O., THEREFORE, MADE THE DISALLOWANCE OF ` 47,97,763/- TOWARDS THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. 3. SO FAR AS A.Y. 2005-06 IS CONCERNED, THE A.O. AG AIN MADE THE DISALLOWANCE OF ` 29,75,347/- BY INVOKING THE PROVISION OF SEC. 14A OF THE I.T. ACT ON THE SAME REASONS AGAIN REJECTING TH E ASSESSE EXPLANATION. 4. THE ASSESSEE HAS CHALLENGED THE ACTION OF THE A. O. BEFORE THE LD. CIT (A) BY TAKING THE PLEA THAT :- (I) THE ASSESSEES ACTIVITY AMOUNTS TO THE BUSINESS AND HENCE THE ENTIRE INTEREST EXPENDITURE IS ALLOWABLE U/S.36 (1)(III); AND (II) NO DISALLOWANCE OF THE INTEREST / EXPENDITURE CAN BE MADE U/S.14A OF THE ACT. 5. THE LD. CIT (A) CONFIRMED BOTH THE GROUNDS OF TH E ASSESSEE ON DISALLOWANCE MADE BY THE A.O.. NOW BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN THE BOTH THE ASSESSMENT YEAR S. 6. SO FAR AS THE FIRST GROUND OF THE ASSESSEE THAT THE ENTIRE INTEREST INCOME IS TOWARDS THE BUSINESS, WE FIND THAT THE ID ENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN THE ASSESSES OWN CASE FOR THE A.Y. 2001-02 BY THE TRIBUNAL WHICH REFERENCE IS GIV EN BY THE LD. CIT(A) IN HIS ORDER. SO FAR AS GROUND NO.2, ON DISA LLOWANCE MADE U/S.14A, IN OUR OPINION, THIS ISSUE HAS TO GO BACK TO THE A.O. TO DECIDE THE SAME AFRESH AFTER CONSIDERING THE PRINCI PLES LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81(BOM) AND WE ACCORDINGLY SE T ASIDE THE ORDER OF THE LD. CIT(A) ON IS GROUND AND RESTORE SAME TO THE FILE OF THE A.O. ITA 4114/MUM/2010 ITA 4115/MUM/2010 NAMAN ESTATES PVT. LTD. 4 FOR FRESH ADJUDICATION DE NOVO . NEEDLESS TO SAY THAT THE A.O. IS DIRECTED TO GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9TH AUGUST 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 19TH AUGUST 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)13, MUMBAI. 4) THE CIT-7, MUMBAI. 5) THE D.R. E BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 4114/MUM/2010 ITA 4115/MUM/2010 NAMAN ESTATES PVT. LTD. 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 08.06.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 11.06.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER