ACIT (OSD) 2(1), MUMBAI V. GLOBAL ASSET HOLDING CORPORATION P. LTD, MUMBAI

ITA 4309/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9215 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Assessee Lawyers: K SHIVARAM SHRI PARAS SAVLA
• Keywords: Revised return; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 4309/MUM/2010 ASSESSMENT YEAR : 2003-04 ACIT 2(1), AAYAKAR BHAVAN, R.NO.561, 5 TH FLOOR, M.K. ROAD, MUMBAI-400 020 VS. M/S. GLOBAL ASSET HOLDING CORPORATION (P) LTD. 201A, JANMABHOOMI CHAMBERS, 2 ND FLOOR, WALCHAND HIRACHAND MARG, BALLARD ESTATE, MUMBAI - 1 PAN NO. AAACN 8301 L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAVIN KUMAR RESPONDENT BY : SHRI K. SHIVARAM SHRI PARAS SAVLA DATE OF HEARING : 11.12.2012 DATE OF PRONOUNCEMENT : 19.12.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 23.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING DISALLOWANCE O F EXPENDITURE ON ACCOUNT OF INTEREST. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY WHICH IS AN INVESTMENT COMPANY HAD FOR THE ASSESSMENT YEAR 2003-04 FI LED RETURN ITA NO.4309/M/10 A.Y. 03-04 2 OF INCOME ON 30.10.2003 DECLARING TOTAL INCOME OF RS.93 ,46,868/-. THE RETURN OF INCOME WAS SUBSEQUENTLY REVISED ON 13.9.20 04 IN WHICH LOSS OF RS.1,00,79,382/- WAS DECLARED. THE LOSS WAS BECAUSE OF THE CLAIM OF INTEREST EXPENDITURE OF RS.2,01,26,250/- WHICH THE ASSESSEE HAD NOT CLAIMED IN THE ORIGINAL RETURN. THE AO THERE FORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY CLAIM OF INTEREST SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT IT HAD BORROWED F UNDS FOR INVESTMENT IN SHARES AND INTEREST HAD EARLIER BEEN CAPIT ALIZED AS IN THE OPINION OF THE MANAGEMENT, SUCH ACCOUNTING TREATMENT WAS PROPER. THE ASSESSEE IN THE ORIGINAL RETURN HAD THEREFORE DECLAR ED GROSS DIVIDEND INCOME. HOWEVER, SUBSEQUENTLY ON REALIZING TH E ERROR, THE ASSESSEE REVISED THE RETURN OF INCOME AND CLAIMED INTEREST EXPENDITURE. IT WAS ACCORDINGLY URGED THAT THE CLAIM SH OULD BE ALLOWED. THE AO HOWEVER WAS NOT SATISFIED BY THE EXPL ANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD NOT DECLARED INCO ME AS PER ACCOUNTING METHOD REGULARLY EMPLOYED. THE ASSESSEE I N THE BOOKS OF ACCOUNT HAD BEEN CAPITALIZING INTEREST AND, THEREFOR E, THE SAME COULD NOT BE CLAIMED AS EXPENDITURE. THE AO FURTHER OB SERVED THAT ANY VARIATION IN THE TREATMENT OF ACCOUNT IN THE BOOKS OF ACCOUNT HAS TO BE PROPERLY EXPLAINED. IN THIS CASE THE ASSESSEE DISREGARDED THE METHOD FOLLOWED TO CLAIM INTEREST INCOME ONLY ON THE GROUND T HAT DIVIDEND INCOME WAS TAXABLE THIS YEAR. THE ASSESSEE IS NOT PERMITTED FOLLOW ITA NO.4309/M/10 A.Y. 03-04 3 PIECE MEAL METHOD OF ACCOUNTING. HE, THEREFORE REJECTED THE CLAIM OF EXPENDITURE. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED B EFORE CIT(A) THAT THE AO WAS NOT CORRECT IN STATING THAT THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING. THE ASSESSEE WAS FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING CONSISTENTLY. THE VARIOUS JUDGMENTS REFERRED TO BY THE AO WERE IN RELATION TO CASES WHERE THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING WHICH WAS NOT SO IN THE PRESENT CASE. THE ASSESSEE HAD EARLIER TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE BUT IN CASE THE INTEREST UNDER LAW IS FOUN D TO BE ALLOWABLE, THERE IS NO BAR ON THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE COMPUTATION OF INCOME. THE ASSESSEE HAD MADE INVESTMENTS IN SHARES FROM BORROWED FUNDS AND INVESTMENT HAD YIELDED DIVIDE ND INCOME WHICH IS INCOME FROM OTHER SOURCES. THEREFORE, INTEREST EX PENDITURE WAS ALLOWABLE UNDER SECTION 57 OF THE ACT. CIT(A) WAS SAT ISFIED BY THE EXPLANATION GIVEN AND OBSERVED THAT THE CLAIM OF EXPE NDITURE COULD NOT BE DISALLOWED ONLY ON THE GROUND THAT SAME WAS CAPI TALIZED IN THE BOOKS OF ACCOUNT. INTEREST EXPENDITURE WAS ALLOWABLE UND ER SECTION 57 OF THE ACT. CIT(A) THEREFORE, DIRECTED THE AO TO ALLO W THE CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. ITA NO.4309/M/10 A.Y. 03-04 4 4. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE A SSAILED THE ORDER OF CIT(A). IT WAS SUBMITTED THAT THE ASSESSEE HAD CA PITALIZED INTEREST IN THE PRIOR YEAR I.E. ASSESSMENT YEAR 2002-03 AND IN THE NEXT YEAR I.E. 2004-05, THE CAPITALIZATION OF INTEREST WAS UPHELD BY THE TRIBUNAL IN ITA NO.4738/M/2009. IT WAS POINTED OUT T HAT THE ASSESSEE COULD REVISE RETURN ONLY IF THERE IS SOME BONAFIDE OMISSI ON. IN THIS CASE, THERE WAS NO OMISSION AS THE ASSESSEE HAD NOT CLAIMED I NTEREST IN THE ORIGINAL RETURN AS PER THE STAND CONSISTENTLY TA KEN. IT WAS THEREFORE URGED THAT THE ORDER OF CIT(A) SHOULD BE SE T ASIDE AND CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. THE LD. AR ON THE OTH ER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHO RITIES THAT DIVIDEND INCOME EARNED BY THE ASSESSEE WAS TAXABLE THIS YE AR. THEREFORE, EXPENSES INCURRED FOR EARNING DIVIDEND HAS TO BE ALLOWED U/S. 57 OF THE ACT. THE CLAIM MADE UNDER THE PROVISIONS OF LAW COULD NOT BE REJECTED . IT WAS ACCORDINGLY SUBMITTED THAT THE ORDER OF CIT(A) SHOULD BE UPHELD. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DE DUCTION ON ACCOUNT OF INTEREST AGAINST DIVIDEND INCOME WHICH WAS TAXABLE I N THE RELEVANT YEAR. THERE IS NO DISPUTE THAT THE ASSESSEE HAD BORROWED FUNDS FOR MAKING INVESTMENT IN SHARES. THEREFORE, INTEREST EXPEND ITURE HAD BEEN INCURRED FOR EARNING OF DIVIDEND INCOME. IN THIS CASE, THE ITA NO.4309/M/10 A.Y. 03-04 5 ASSESSEE IN THE ORIGINAL RETURN DID NOT CLAIM DEDUCTION O N ACCOUNT OF INTEREST WHICH HAD BEEN CAPITALIZED AS IN THE EARLIER YEAR. HOWEVER, SUBSEQUENTLY ON REALIZATION OF THE MISTAKE, THE ASSESSEE FILED REVISED RETURN IN WHICH INTEREST EXPENDITURE OF RS.2,01,26,250 /- WAS CLAIMED. THE AO REJECTED THE CLAIM ON THE GROUND THAT THE ASSESSE E WAS REGULARLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. T HEREFORE, ANY DEVIATION FROM THE SAME COULD NOT BE ALLOWED. IN APPE AL, CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT IT HAD NOT CHANGE D THE MERCANTILE SYSTEM OF ACCOUNTING IT WAS REGULARLY FOLLOWIN G. THE ASSESSEE HAD ONLY CHANGED THE STAND REGARDING TREATMENT O F INTEREST EXPENDITURE WHICH IN THIS YEAR WAS ALLOWABLE. THE REVE NUE HAS APPEALED AGAINST THE SAID DECISION. 5.1 ON CAREFUL CONSIDERATION OF ALL ASPECTS OF THE MATT ER, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A). THE INTEREST ON BO RROWED FUNDS FOR MAKING INVESTMENT IN SHARES WILL ADD TO THE COST OF INVE STMENT PROVIDED THE SAME IS NOT CLAIMED AS DEDUCTION UNDER ANY OTHER PROVISIONS OF THE ACT . IN ASSESSMENT YEAR 2002-03, THE A SSESSEE HAD CAPITALIZED THE INTEREST AS THE SAME WAS NOT ALLOWABLE A S DEDUCTION UNDER THE PROVISIONS OF THE ACT BECAUSE DIVIDEND INCOME W AS NOT EXEMPT. IN ASSESSMENT YEAR 2004-05 ALSO WHEN DIVIDEND I NCOME WAS EXEMPT, CAPITALIZATION OF INTEREST HAS BEEN UPHELD BY THE TRIBUNAL. IN ASSESSMENT YEAR 2003-04 WHICH IS UNDER CONSIDERATION, THE A SSESSEE ITA NO.4309/M/10 A.Y. 03-04 6 HAD EARLIER CAPITALIZED THE INTEREST BUT SUBSEQUENTLY R EALIZED THAT INTEREST WAS ALLOWABLE AS DEDUCTION AGAINST DIVIDEND WH ICH WAS NOT EXEMPT. THE ASSESSEE THUS REVISED THE RETURN AND CLAIMED D EDUCTION. IN OUR VIEW THE REVISION OF RETURN HAS TO BE CONSIDERE D AS BONAFIDE AND CLAIM OF DEDUCTION ON ACCOUNT OF INTEREST HAS TO BE ALL OWED UNDER SECTION 57 OF THE ACT. HOWEVER, WE MAKE IT CLEAR THAT O NCE INTEREST IS ALLOWED AS DEDUCTION, THE SAME CAN NOT BE ADDED TO COST O F INVESTMENT IN THIS YEAR. WITH THE ABOVE OBSERVATIONS WE CONFIRM TH E ORDER OF CIT(A) ALLOWING THE CLAIM OF INTEREST. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012. SD/- SD/- ( VIVEK VARMA ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 19.12. 2012. JV. ITA NO.4309/M/10 A.Y. 03-04 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.