EWART INVESTMENTS LTD, MUMBAI V. DCIT 2(1), MUMBAI

ITA 414/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5550 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: GOLVALA A R SHRI AMEY WAGLE
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.414/M/2017 ASSESSMENT YEAR: 2011-12 M/S. EWART INVESTMENTS LTD., ELPHINSTONE BUILDING, 1 ST FLOOR, 10, VEER NARIMAN ROAD, MUMBAI 400 020 PAN: AAAEC2546C VS. DY. COMMISSIONER OF INCOME TAX-2(1), ROOM NO.561, 5 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI GOLVALA, A.R. SHRI AMEY WAGLE, A.R. REVENUE BY : SHRI V. JUSTIN, D.R. DATE OF HEARING : 21.06.2018 DATE OF PRONOUNCEMENT : 24.07.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 28.10.2016 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE APPELLANT SUBMITS THAT THE LEARNED COMMISSI ONER (APPEALS) ERRED IN NOT ALLOWING DEDUCTION AMOUNTING TO RS.2,5 2,543/ -, IN RESPECT OF EXPENSES INCURRED ON PROVIDING AMENITIES TO TENANTS, UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', FOLLOW ING EARLIER APPELLATE ORDERS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN GIVING A DIRECTION TO THE ASSESSING OFFICER TO OBTA IN NECESSARY ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 2 EVIDENCES, IN RESPECT OF GROUND NO. 1 ABOVE, WHEN T HE SAID EVIDENCES WERE ALREADY ON THE RECORD OF THE LOWER AUTHORITIES . 3. BOTH THE LOWER AUTHORITIES ERRED IN APPLYING SEC TION 14A IN RESPECT OF INVESTMENTS HELD BY THE APPELLANT, WHEN THE INCOME RECEIVED THEREON IS NOT TAX-FREE INCOME. 4. THE APPELLANT SUBMITS THE LEARNED COMMISSIONER ( APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.62,87,65 3/ - UNDER SECTION 14A READ WITH RULE 8D(2)(III). 5. THE APPELLANT SUBMITS THAT BOTH THE LOWER AUTHOR ITIES ERRED IN NOT EXCLUDING INVESTMENTS ON WHICH NO DIVIDEND W AS RECEIVED WHILE COMPUTING THE ABOVE DISALLOWANCE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO CONSIDER THAT THE MERE POSSIBILITY OF EARNING EXEMP T INCOME IN FUTURE IS NOT ADEQUATE FOR APPLICABILITY OF SECTION 14A. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.62,87,653/- WHILE COM PUTING BOOK PROFITS UNDER SECTION 1 15JB. 8. THE APPELLANT SUBMITS THAT WHILE COMPUTING ADDIT ION UNDER EXPLANATION 1(F) BELOW SECTION 115JB, THE ASSESSING OFFICER BE DIRECTED TO EXCLUDE THOSE INVESTMENTS ON WHICH NO DIVIDEND IS R ECEIVED. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALTER, MODIFY OR WITHDRAW ANY OR ALL THE GROUNDS OF APPEAL BEFORE OR AT THE T IME OF HEARING OF THE APPEAL, AS THEY MAY BE ADVISED FROM TIME TO TIME. 3. THE ISSUE RAISED IN GROUND NO.1 & 2 IS AGAINST TH E DECISION OF LD. CIT(A) NOT ALLOWING THE DEDUCTION OF RS.2,52,543/- IN RESPECT OF EXPENSES INCURRED ON PRO VIDING AMENITIES TO TENANTS, UNDER THE HEAD 'INCOME FROM H OUSE PROPERTY BY FOLLOWING EARLIER APPELLATE ORDER. 4. THE FACTS IN BRIEF ARE THAT DURING THE ASSESSMEN T PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAS RECEIV ED INCOME FROM HOUSE PROPERTY OF RS.1,52,52,888/- AND WHILE CAL CULATING THE INCOME FROM HOUSE PROPERTY, ASSESSEE HAS CLAIME D COMMON EXPENSES OF RS.16,11,999/-. THE AO OBSERVED THA T ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 3 THERE IS NO EXPRESS PROVISION IN THE INCOME TAX ACT TO ALLOW DEDUCTION OTHER THAN MUNICIPAL TAXES PAID AND STATU TORY DEDUCTION @ 30% FOR REPAIRS UNDER SECTION 24 OF THE ACT AND CONSEQUENTLY THE EXPENSES CLAIMED BY THE ASSESSEE W ERE DISALLOWED. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PARTL Y ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 3.2. I HAVE CONSIDERED THE FINDINGS OF THE ASSESSI NG OFFICER AS WELL AS RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. ACCO RDING TO THE CLARIFICATION OF THE ASSESSEE, IT HAS INCURRED ELECTRICITY CHARGES, SECURITY CHARGES, HOUSE KEEPING CHARGES AND SALARY TO THE SWEEPER AND EX-GR ATIA TO THE CONTRACTUAL STAFF TO THE EXTENT OF RS.8,12,870/- FO R ELPHINSTONE BLDG. AND RS.7,99,129/- FOR COLABA PROPERTY. IT IS PERTIN ENT TO MENTION THAT THIS ISSUE HAS BEEN DECIDED BY MY LD. PREDECESSOR IN THE APPELLANT'S OWN CASE IN A.Y.2009-10 WHICH IS AS UNDER :- '9. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS OF THE ASSESSEE. INCOME FROM HOUSE PROPERTY IS TAXABLE U/S. 23 OF LT. ACT AT THE ANNUAL VALUE. ANNUAL VALUE IS THE VA LUE AT WHICH THE PROPERTY CAN REASONABLY LET OUT IN THE OP EN MARKET OR THE RENT RECEIVED, WHICHEVER IS HIGHER. T HERE IS NO DISPUTE IN THIS REGARD IN THE CASE OF THE ASSESSEE AND THE RENT RECEIVED IS TAKEN AS THE ANNUAL VALUE. ANY DEDUCTIO N OTHER THAN WHAT IS ALLOWED U/S. 24 OF I.T. ACT CAN BE ALL OWED TO THE ASSESSEE ON ACCOUNT OF ANY OTHER FACILITY PROVI DED TO THE TENANTS ONLY IF EITHER IT IS PART OF THE RENT AGREE MENT OR THERE IS A SEPARATE AGREEMENT FOR PROVIDING SUCH SERVICES OR WHICH THE CHARGES ARE SEPARATELY RECEIVED. IF THERE IS NO SEPARATE AGREEMENT OR SEPARATE PROVISION FOR SUCH 8(:7'/IC(, 8 IN THE RENT AGREEMENT THEN IT IS MERELY A GRATUITOUS ACT O F THE LANDLORD FOR WHICH NO DEDUCTION IS ALLOWED. IN THE CASE OF PROPERTY AT COLABA OF THE ASSESSEE, THERE IS NEITHER ANY SEPARATE AGREEMENT FOR ANY COMMON SERVI CES NOR THE RENT AGREEMENT INCLUDES ANY PROVISION IN TH IS REGARD IN THE CASE OF PROPERTY, ASHLEY HOUSE AND SOMERSET HOUSE AT COLABA, AND, THEREFORE, THE CLAIM OF THE ASSESSEE F OR REDUCING THE RENT RECEIVED ON ACCOUNT OF COMMON SERVICES IS NOT ALLOWED FOR RS.15,19,701/-. REGARDING ELPHISTONE BUILDING ASSESSEE HAS PRODUCED TWO ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 4 AGREEMENTS, ONE WITH TENANT TATA REALTY AND INFRAST RUCTURE LTD. AND ANOTHER WITH INDIAN OVERSEAS BANK WHERE ASSESSEE /? AC ENTERED INTO SEPARATE AGREEMENT FOR PROVIDING CERTAIN SERVICE FO R WHICH SEPARATE PAYMENT IS MADE BY THE TENANTS, WHEREAS ASSESSEE HA S INCLUDED THIS PAYMENT FOR SERVICES ALSO IN THE RENT AND OFFERED T HE SOME AS RENT FOR TAXATION, THEREFORE, BEFORE ARRIVING AT ANNUAL VALU E THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF OTHER SERVIC ES IS TO BE EXCLUDED FROM THE RENT RECEIVED. BUT ASSESSEE HAS F URTHER TOLD THAT THE ENTIRE AMOUNT RECEIVED FROM THESE TENANTS ON AC COUNT OF OTHER SERVICES HAS NOT BEEN SPENT AND, THEREFORE, PROPORT IONATE AMOUNT SPENT FOR THESE TWO TENANTS OUT OF THE TOTAL CLAIM OF RS.1,60,239/- ONLY IS TO BE REDUCED AFTER CALCULATING THE SAME, F OR WHICH THE ASSESSEE WILL FURNISH THE DETAIL BEFORE THE A.O. IN RESULT, THE GROUND OF APPEAL IS PARTLY ALLOWED.' RESPECTFULLY FOLLOWING THE DECISION OF MY LD. PREDE CESSOR, THE ASSESSING OFFICER IS DIRECTED TO PROCEED IN THE MATTER ACCORDINGLY FOR OBTAINING NECESSARY EVIDENCES. 6. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE LD. CIT(A) HAS ERRED IN LAW IN NOT GIVING THE SIMILAR D IRECTIONS TO THE AO IN THE CURRENT YEAR AS WERE GIVEN IN THE EAR LIER YEAR. SO THE LD. A.R. REQUESTED BEFORE THE BENCH THAT THE AO BE DIRECTED TO ALLOW THE EXPENSES AS IN EARLIER YEAR S UBJECT TO CALCULATION. 7. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDE R OF LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AFTER HEARING B OTH THE PARTIES, WE FEEL THAT LD. CIT(A) HAS GIVEN A DIRECT ION TO THE AO TO PROCEED IN THE MATTER AFTER OBTAINING THE NECESS ARY EVIDENCES. IN OUR OPINION, THE DIRECTION GIVEN BY LD . CIT(A) IS VAGUE AND NOT CLEAR. WE ARE, THEREFORE, MODIFY DI RECTION GIVEN BY THE LD. CIT(A) TO AO TO ALLOW THE EXPENS ES AS IN THE EARLIER YEAR BY CALCULATING THE SAME BY TAKING THE CURRENT ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 5 YEARS FIGURE. THE AO IS DIRECTED ACCORDINGLY AND G ROUNDS 1 & 2 ARE ALLOWED. 9. GROUND NO.3 IS NOT PRESSED AT THE TIME OF HEARIN G AND THEREFORE WE DISMISS THE SAME AS NOT PRESSED. 10. THE ISSUE RAISED IN GROUND NOS.4, 5 & 6 IS IN RE SPECT OF CONFIRMATION OF DISALLOWANCE OF RS.62,87,653/- BY LD. CIT(A) AS MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D(2)(III) AND ALSO DISREGARDING THE FACT THAT THE INVESTMENTS WHICH DID NOT YIELD ANY DIVIDEND WERE NOT EXCLUDED WHILE CALC ULATING THE DISALLOWANCE. 11. THE FACTS IN BRIEF ARE THAT THE ASSESSEE RECEIV ED DIVIDEND INCOME TO THE TUNE OF RS.8,48,87,567/- AND MADE A S UO-MOTO DISALLOWANCE OF RS.12,79,280/-. THE AO OBSERVED THAT S INCE THE WORKING IS NOT IN ACCORDANCE WITH THE PROVISION OF SECTION 14A READ WITH RULE 8D AND ACCORDINGLY INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D DIRECTING THE ASSE SSEE TO FURNISH A WORKING OF DISALLOWANCE UNDER THESE PROVI SIONS. 12. THE ASSESSEE SUBMITTED BEFORE THE AO THAT DISAL LOWANCE BE RESTRICTED TO 20% OF EXPENSES WHICH COMES TO RS.12,79,280/- AND IS IN ACCORDANCE WITH THE DECISI ON OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2000-01 AND 2001-02. HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND HE CAL CULATED THE DISALLOWANCE AT RS.62,87,653/- UNDER RULE 8D(2)(III) BY TAKING 0.5% OF THE AVERAGE INVESTMENTS OF RS.125,75,30,533/- WHICH ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 6 ALSO INCLUDED THE INVESTMENTS WHICH DID NOT YIELD A NY DIVIDEND DURING THE YEAR. 13. THE LD. CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY HOLDING THAT THE ARGUMENTS OF THE ASSESSEE THAT NO DIVIDEND IS RECEIVED ON CERTAIN INVESTMENTS IS NOT TENABLE AS DIVIDEND MAY NOT BE RECEIVED DURING THE YEAR BUT SUCH INVESTMENTS ARE CAPABLE OF EARNING OF EXEMPT I NCOME AND MAY YIELD INCOME IN THE SUBSEQUENT YEARS AND TH US JUSTIFIED THE ORDER OF THE AO. 14. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE HAS SUO-MOTO DISALLOWED RS.12,79,280/- WHER EAS THE AO HAS CALCULATED THE DISALLOWANCE UNDER RULE 8 D(2(III) AT RS.62,87,653/- EVEN WITHOUT EXCLUDING THOSE INVESTM ENTS WHICH DID NOT YIELD EXEMPT INCOME DURING THE YEAR. THE ASSESSEE VEHEMENTLY SUBMITTED THAT WHILE CALCULATIN G THE DISALLOWANCE UNDER RULE 8D(2)(III), THE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR HAS TO BE EXCLUDED. THE LD. COUNSEL PLACED RELIANCE ON THE DE CISION OF DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET I NVESTMENTS PVT. LTD. 165 ITD 27 WHEREIN IT HAS BEEN HELD BY THE SPECIAL BENCH THAT INVESTMENTS NOT YIELDING ANY INCOME DURI NG THE YEAR HAS TO BE EXCLUDED WHILE CALCULATING THE AVERA GE INVESTMENTS AND ONLY THEN DISALLOWANCE HAS TO BE WO RKED OUT. THE LD. A.R. PRAYED BEFORE THE BENCH THAT THE AO BE DIRECTED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) B Y NOT TAKING INTO ACCOUNT THE INVESTMENTS WHICH YIELDED NO DIVIDEND ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 7 DURING THE YEAR THE DETAILS WHEREOF ARE GIVEN AT PA GE NO.64 OF THE PAPER BOOK. 15. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORD ER OF AUTHORITIES BELOW. 16. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIO NS OF BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE AO HAS INCLUDED THOSE INVESTMENTS WHICH YIELDED NO EXEMPT INCOME DURING THE YEAR FOR THE PURPOSE OF CA LCULATION OF DISALLOWANCE UNDER RULE 8D(2)(III) WHICH IN OUR OPINION IS WRONG AND AGAINST THE RATIO LAID DOWN BY THE DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENTS PV T. LTD. (SUPRA). IN THE SAID DECISION, THE SPECIAL BENCH H AS DECIDED THAT INVESTMENTS NOT YIELDING ANY INCOME DURING THE YEAR HAVE TO BE EXCLUDED FOR THE CALCULATION OF AVERAGE INVES TMENTS AND ONLY THEREAFTER THE 0.5% HAS TO BE APPLIED. WE, THER EFORE, RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION, D IRECT THE AO TO WORK OUT THE DISALLOWANCE BY EXCLUDING THE INVES TMENTS WHICH YIELDED NO EXEMPT INCOME DURING THE YEAR. TH E GROUND IS ALLOWED. 17. THE ISSUE RAISED IN GROUND NO.7 & 8 IS AGAINST THE DECISION OF LD. CIT(A) CONFIRMING THE ADDITION OF RS.62,87,653/- WHILE COMPUTING THE BOOK PROFIT UNDE R SECTION 115JB OF THE ACT AND ERRED IN NOT DIRECTING THE AO TO EXCLUDE THOSE INVESTMENTS WHICH YIELDED NO DIVIDEND DURING THE YEAR. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE STA NDS COVERED ITA NO.414/M/2017 M/S. EWART INVESTMENTS LTD. 8 BY THE SPECIAL BENCH, ITAT DELHI IN THE CASE OF ACI T VS. VIREET INVESTMENTS PVT. LTD. (SUPRA). THUS WE DIRECT THE AO TO FOLLOW THE DECISION OF THE HONBLE SPECIAL BENCH AND DECID E THE ISSUE ACCORDINGLY AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NOS.7 & 8 ARE ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.07.2018. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24.07.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.