JINDAL COMBINE P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 424/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0352 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 26-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 16-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR SINGH
• Keywords: Earning of tax free income; Cost of acquisition; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 424 / MUM/20 1 5 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. JINDAL COMBINE PVT. LTD., 1101, GIRNAR BUILDING, 69, TARDEO ROAD, OPP. FILM CENTRE, MUMBAI 400 034 VS. DCIT 5(2), MUMBAI 400 020 PAN/GIR NO. AABCJ0861E APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI PRADEEP KUMAR SINGH DATE OF HEARING 1 9 / 0 5 /201 7 DATE OF PRONOUNCEME NT 16 / 06 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 10, MUMBAI DATED 25/11/2014 FOR THE A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE FOLLOWING GR OUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - THE COMMISSIONER OF INCOME TAX (APPEALS) - 10, MUMBAI, HEREINAFTER REFERRED TO AS THE CIT(A), ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES MADE BY THE DEPUTY COMMISSIONER OF INCOME TAX 5(2)(THE AO) OF RS.77,49,660/ - WHICH WAS CLAIMED BY THE APPELLANT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS A COMPANY HAVING INCOME FROM LETTING OUT THE PROPERTY. IT FURNISHED ITS RETURN OF INCOME FOR ASSESSMENT ITA NO. 424/MUM/2015 M/S.JINDAL COMBINE PVT. LTD., 2 YEAR 2011 - 12 ON 29.09.2011 DISCLOSING TOTAL INCOME OF RS. 1,28,99,521/ - . THE LAO COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS.2,10,98,100/ - ON 20.02.2014. I T WAS NOTICED BY LAO THAT THE ASSESSEE HAS CLAIMED IN TEREST OF RS.4,55,86,236/ - ON ACCOUNT OF HOUSE PROPERTY. ACCORDINGLY, THE ASSESSEE WAS ASKED WHY NOT INTEREST CLAIMED AS EXPENDITURE U/S 24(B) SHOULD BE DISALLOWED. IT WAS OBSERVED BY AO FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT ENTIRE LOAN TAKEN WAS NOT USED FOR ACQUISITION/CONSTRUCTION OF HOUSE PROPERTY. BY OBSERVING THAT ASSESSEE ITSELF HAD ADMITTED THAT INTEREST AMOUNT OF RS.77,49,660/ - WAS NOT ATTRIBUTABLE TOWARDS THE HOUSE PROPERTY ACQUISITION OR CONSTRUCTION, AMOUNT OF RS.77,49,660/ - WAS DISALL OWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO. 6. IT WAS CONTENDED BY LEARNED AR THAT INTEREST NOT ALLOWED AS REVENUE EXPENDITURE DURING THE YEAR SHOULD BE ALLOWED TO BE CAPITALIZED. HE PLACED ON RECORD THE DECISION OF THE CO - ORDINATE BENCH IN THE FOLLOWING CASES WHEREIN INTEREST WAS ALLOWED TO BE CAPITALIZED. SR. NO. PARTICULARS DATE 1. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF DCIT V. SHRI FRITZ D SILVA BEING ITA NO: 236/MUM/2010 FOR A .Y. 2005 - 06 08.05.2015 2. DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. TRISHUL INVESTMENTS LTD. (305 ITR 434). 3. SLP DISMISSED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. TRISHUL INVESTMENTS LTD. [306 ITR 4(ST)] 11.07.2008 4. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF S. BALAN ALIAS SHANMUGAN BALKRISHNAN CHETTIAR V DY.CIT [308 ITR (AT) 151(PUNE)] 31.01.2008 ITA NO. 424/MUM/2015 M/S.JINDAL COMBINE PVT. LTD., 3 5. ORDER OF HON'BLE TRIBUNAL IN THE CASE ACIT V. MR. VISHNU KANT INANI BEING ITA NO: 1787/HYD/2013 FOR A.Y. 2008 - 09 13.08. 2014 6. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF KALYANJI TANNA (DEED) V ITO BEING ITA NO: 3137/MUM/2010 FOR A.Y. 2004 - 05 29.03.2011 7. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF ITO V. M/S GLOBAL ASSETS HOLDING CORPORATION PVT. LTD. BEING ITA NO: 4738/MU M/2010 FOR A.Y. 2004 - 05 27.07.2011 8. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF DCIT 2(1) V. M/S FINAV SECURITIES PVT. LTD. BEING ITA NO: 1010/MUM/2011 FOR A.Y. 2004 - 05 03.04.2013 9. ORDER OF HON'BLE TRIBUNAL IN THE CASE OF ACIT V SHRI MADHUKAR C. SHETH B EING ITA NO: 7396/MUM/2010 FOR A.Y. 2006 - 07 09.01.2013 10. DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT V MAITHREYI PAI (152 ITR 247) 15.11.1983 11. DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF CIT V. MITHLESH KUMARI (92 ITR 9) 05.0 2.1973 ___________ 12. DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT IN CASE OF ADD.CIT V K.S. GUPTA (119 ITR 372) 25.08.1976/ 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ISSUE UNDER C ONSIDERATION IS COVERED BY THE DECISION OF CO - ORDINATE BENCH IN CASE OF SHRI FRITZ D.SILVA IN ITA NO.236/MUM/2010 VIDE ORDER DATED 08/05/2015 WHEREIN AFTER RELYING ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD., THE BENCH HELD AS UNDER: - 3. WE HAVE CONSIDERED THE RIVAL STANDS. THE CONTROVERSY BEFORE US IS AS TO WHETHER THE INTEREST PAID BY THE ASSESSEE ON LOANS TAKEN FOR ACQUIRING THE SHARES IN THE PAST CAN BE ALLOWED AS A DEDUCTION U/S 48 AS COST OF ACQUISITION WHILE COMP UTING CAPITAL GAIN ON SALE OF SUCH SHARES. ON THIS ASPECT, THE LD. REPRESENTATIVE FOR THE RESPONDENT ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. 305 ITR 434(MADRAS) WHICH IS DIRECTLY ON THE POINT. IN THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, THE ASSESSEE WAS CARRYING ON THE BUSINESS OF INVESTMENT IN SHARES/SECURITIES AND THE PROFIT DERIVED FROM SALE OF SHARES ITA NO. 424/MUM/2015 M/S.JINDAL COMBINE PVT. LTD., 4 WAS HELD SUBJECT TO CAPITAL GAINS. APART FROM OTHER ISSUES, THE REVENUE HAD CONTESTED THE ORDER OF THE TRIBUNAL WHEREIN THE ASSESSEE WAS ALLOWED THE INTEREST LIABILITY INCURRED ON BORROWINGS UTILIZED TO ACQUIRE THE SHARES, WHILE DETERMINING THE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF COMPUTING CAPITAL GAIN. AS PER THE HONBLE HIGH COURT, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE OF THE CHARACTER OF COST OF SHARES AND, THEREFORE, THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COST OF ACQUISITION OF SHARES. THE HONBLE HIGH COU RT AFFIRMED THE DECISION OF THIS TRIBUNAL THAT THE INTEREST PAYABLE ON MONEYS BORROWED FOR ACQUISITION OF SHARES SHOULD BE ADDED TO THE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. THE AFORESAID LEGAL POSITION PROPOUNDED BY THE HONBLE MADRAS HIGH COURT FULLY COVERS THE CONCLUSION DRAWN BY THE CIT(A) IN THE PRESENT CASE. NOTABLY, IT IS NOT DISPUTED BY THE REVENUE THAT THE INTEREST COSTS IN QUESTION WERE INCURRED ON THE FUNDS UTILIZED FOR ACQUISITION OF SHARES IN THE PAST. IN FAC T, AS PER THE STATEMENT OF FACTS FILED BEFORE THE CIT(A), THE ASSESSEE HAD TABULATED THE AMOUNT OF INTEREST CAPITALIZED ALONG WITH THE COST OF SHARES, WHICH WERE PURCHASED IN THE PAST. THE ASSESSEE HAD ALSO ASSERTED BEFORE THE CIT(A) WITHOUT REBUTTAL, THAT THE INTEREST COST SO INCURRED IN THE PAST WAS NOT CLAIMED AS A DEDUCTION AGAINST ANY OTHER INCOME. BE THAT AS IT MAY, IN SO FAR AS THE FACTUAL POSITION IS CONCERNED, THERE IS NO DENIAL BY THE REVENUE THAT MONIES BORROWED HAVE BEEN UTILIZED FOR ACQUISITION OF SHARES IN QUESTION. THEREFORE, HAVING REGARD TO THE FACTUAL FINDINGS OF THE CIT(A), IN OUR VIEW, THE LEGAL POSITION AS PROPOUNDED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE THAT INT EREST PAID FOR ACQUISITION OF THE SHARES WOULD PARTAKE THE CHARACTER OF COST OF SHARES AND, THEREFORE, ASSESSEE HAD RIGHTLY CAPITALIZED THE INTEREST ALONG WITH THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. THE CONCLUSION OF THE CIT(A) THUS DESERVES TO BE AFFIRMED. 4. BEFORE US, THE LD. DR HOWEVER REFERRED TO THE DECISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED VS. ADDITIONAL COMMISSIONER OF INCOME TAX (2007) 12 SOT 324. THE QUESTION BEFORE THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA) WAS AS TO WHETHER INTEREST EXPENSES INCURRED FOR HOLDING SHARES AS INVESTMENT CAN BE ADDED TO THE COST OF INVESTMENT. THE TRIBUNAL NOTED THE FACTUAL MATRIX OF THE CASE BEFORE IT AND FOUND TH AT THE ASSESSEE THEREIN WAS EARNING DIVIDEND INCOME FROM THE INVESTMENT IN SHARES AND IT OBSERVED THAT IT WAS A SETTLED POSITION THAT THE INTEREST WAS ALLOWABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE TRIBUNAL DID NOT DEEM IT FIT TO ALLOW THE INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES BECAUSE OF SECTION 14A, UNDER WHICH ANY EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME CANNOT BE CLAIMED AS DEDUCTION. THE TRIBUNAL ITA NO. 424/MUM/2015 M/S.JINDAL COMBINE PVT. LTD., 5 DECIDED TO DENY THE CLAIM OF ASSESSEE ON THE GROUND THAT INTEREST EXPENDITURE WAS AN ALLOWABLE EXPENDITURE ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT THE SAME CANNOT BE ALLOWED TO BE ADDED TO THE COST OF INVESTMENT ONLY BECAUSE IN THE YEAR BEFORE THE TRIBUNAL NO DEDUCTION COULD BE ALLOWED TO THE ASSESSEE W ITH RESPECT TO INTEREST BECAUSE THE DIVIDEND INCOME WAS EXEMPT FROM TAX. AS PER THE TRIBUNAL IT WOULD RESULT INTO DOUBLE DEDUCTION. IN FACT, WE FIND THAT THE QUESTION WHICH IS PRESENTLY BEFORE US, AROSE FOR CONSIDERATION DIRECTLY BEFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA). OSTENSIBLY, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA), DID NOT HAVE THE BENEFIT OF THE JUDGMENT OF HONBLE MADRAS HIGH COURT BECAUSE THE JUDGMENT OF HONBLE MADRAS HIGH COURT WAS RENDERED ON 12.07.2007, WHEREAS, THE DECISION IN THE CASE OF MACINTOSH FINANCE ESTATES LIMITED (SUPRA), WAS RENDERED BY THE TRIBUNAL ON AN EARLIER DATE I.E. ON 27.02.2006. THEREFORE, THE JUDGMENT OF HONBLE MADRAS HIGH COURT BEING DIRECTLY ON THE POINT, WE PREFER TO FOLLOW THE SAME. 5. THE NEXT DECISION WHICH HAS BEEN RELIED UPON BY THE LD. DR BEFORE US, IS THE DECISION OF AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT VS. ITO [91 ITD 311]. THE SAID DE CISION OF AHMADABAD BENCH OF THE TRIBUNAL IS NOT RELEVANT IN THE PRESENT CONTEXT BECAUSE THE ISSUE THEREIN WAS NOT RELATING TO THE TREATMENT OF INTEREST PAID AS COST OF ACQUISITION BUT IT WAS A CASE WHERE INTEREST PAID WAS CLAIMED AS A REVENUE EXPENDITURE AGAINST DIVIDEND INCOME WHICH WAS NOT TAXABLE IN THE RELEVANT ASSESSMENT YEAR. THE TRIBUNAL OPINED THAT SINCE THE DIVIDEND WAS THE EXEMPT FROM TAX, THE INTEREST EXPENDITURE COULD NOT BE CLAIMED AS A DEDUCTION THEREOF. QUITE CLEARLY, THE CONTROVERSY IN THE PRESENT CASE STANDS ON A DIFFERENT FOOTING THAN IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA) WE ALSO FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. MR. VISHNU KANT INANI [ITA NO. 1787/HYD/2013] DATED 13.08.2014, IN SIMILAR CIRCUMS TANCES AS ARE BEFORE US, DISTINGUISHED THE DECISION OF AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA), AND APPLIED THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA). THEREFORE, THE DE CISION OF THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA) DOES NOT HELP THE REVENUE IN THE PRESENT CASE. THE THIRD DECISION RELIED UPON BY THE LD. DR WAS IN THE CASE OF MOHANLAL M. SHAH. VS. DCIT [105 ITD 669(MUM)] WHICH IS ALSO INAPPLICABLE IN THE PRESENT SITUATION IN AS MUCH AS THE SAME IS MERELY A REITERATION OF THE DECISION OF AHMADABAD BENCH OF TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHATT (SUPRA), WHICH WE HAVE FOUND TO BE INAPPLICABLE IN THE FACTS OF THE PRESENT CAS E. THEREFORE, THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF MOHANLAL M. SHAH (SUPRA) ALSO DOES NOT HELP THE CASE OF ITA NO. 424/MUM/2015 M/S.JINDAL COMBINE PVT. LTD., 6 REVENUE IN THE PRESENT APPEAL. 6. IN VIEW OF THE ABOVE DISCUSSION AND HAVING REGARD TO THE JUDGMENT RENDERED BY THE HONBLE MA DRAS HIGH COURT IN THE CASE OF TRISHUL INVESTMENTS LTD. (SUPRA), WE FIND NO ERROR IN THE CONCLUSION DRAWN BY THE CIT(A), WHICH WE HEREBY AFFIRM. 8 . AS THE FACTS AND CIRC UMSTANCES OF THE INSTANT CASE ARE PARA - MATERIA, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO TO ALLOW CAPITALISATION OF THE INTEREST. HOWEVER, CAPITALISATION OF INTEREST IS PERMISSIBLE ONLY IF LOAN IS USED FOR ACQUISITION AND / OR CONSTRUCTION OF HOUSE PROPERTY. THEREFORE, AO IS TO VERIFY THE ACTUAL USE OF BORROWED FUNDS FOR CONSTRUCTION OF HOUSE PROPERTY, BEFORE ALLOWING CAPITALISATION OF INTEREST. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 16 / 06 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 16 / 06 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//