PEEJAY SILK MILLS, MUMBAI V. ITO WD 20(2)(1), MUMBAI

ITA 4912/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0348 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 26-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV K GUBGOTRA LD DR
• Assessee Lawyers: R K BOTHRA LD
• Keywords: Business income; Depreciation; Revised return
• Section: 143(3); 14A; 2

Judgement Text

ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.4912/MUM/2016 ( ASSESSMENT YEAR: 2011-12) PEEJAY SILK MILLS 3/37 TARDEO A.C. MARKET MUMBAI-400 034 VS. INCOME TAX OFFICER - 20(2)(1) PIRAMAL CHAMBERS LOWER PAREL MUMBAI-400 013 ! ' PAN/GIR NO. AAAFP-6034-H ( !# APPELLANT ) : ( $%!# RESPONDENT ) A SSESSEE BY : R.K.BOTHRA , LD.AR RE VENUE BY : RAJEEV K. GUBGOTRA, LD. DR & DATE OF HEARING : 07/08/2018 '() / DATE OF PRONOUNCEMENT : 12/09/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2011-12 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-36 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-225/ITO-20(2)(1)/14-15 DATED 13/06/2016 QUA CONFIRMATION OF CERTAIN ADDITIONS. THE ASSESSMENT F OR IMPUGNED AY WAS FRAMED BY LD. INCOME TAX OFFICER-20(2)(1), MUMBAI ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 2 [AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 28/03/2014 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.55.5 3 LACS AFTER CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURN ED INCOME OF RS.14.53 LACS FILED BY THE ASSESSEE ON 31/03/2012 WHICH WAS LATER REVI SED AT RS.4.76 LACS ON 28/06/2012. IN THE REVISED RETURN O F INCOME, THE ASSESSEE HAS CLAIMED SET-OFF OF LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES AT HIGHER FIGURE OF RS.15.92 LACS AS AGAINST RS.6.1 5 LACS CLAIMED IN THE ORIGINAL RETURN OF INCOME. THE EFFEC TIVE GROUNDS RAISED IN THE APPEAL READS AS HEREUNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE ACTION OF A.O. OF DIS-A LLOWING OF RS.10,15,727/- OUT OF VARIOUS ADMINISTRATIVE EXPENSES INSTEAD OF RS.7, 40,995/- PROPOSED BY THE APPELLANT. 2. ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE DETE RMINATION OF DEEMED SHORT TERM CAPITAL GAIN AT RS.7,51,743/- INSTEAD OF ACTUA L LONG TERM CAPITAL GAIN OF RS.4,19,366/- AND FURTHER DENYING THE APPELLANT THE BENEFIT OF INDEXATION AND APPLICABILITY OF RATE OF TAX APPLICABLE TO LONG TER M CAPITAL GAIN. 3. ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE CASE WHETHER THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE ACTION OF TH E A.O OF DIS-ALLOWING A SUM OF RS.9,76,839/- PAID AS INTEREST ON HOUSING LOAN W HILE DETERMINING INCOME FROM HOUSE PROPERTY AND RS.8,82,697/- OUT OF BUSINE SS INCOME/OTHER SOURCES. 2.1 BRIEF FACTS ARE THAT THE ASSESSEE BEING RESIDENT FIRM ENGAGED IN THE BUSINESS OF TRADING OF FABRIC WAS SADDLED WITH FOLLOWING ADDITIONS IN QUANTUM ASSESSMENT WHICH ARE THE SUBJECT MATTER OF PRESENT APPEAL:- 2.2 FACTS QUA THE ADDITIONS ARE THAT DURING ASSESSMENT PROCEEDING S, IT WAS NOTED THAT THE ASSESSEE REFLECTED INTEREST INCOME OF RS.2.66 LACS IN PROFIT & LOSS ACCOUNT AND DEBITED INTEREST EXPENDIT URE OF RS.18.59 LACS. NO. NATURE OF ADDITION AMOUNT (RS.) 1. EXPENSES DISALLOWANCE FROM BUSINESS INCOME 10,15 ,727/- 2. SHORT TERM CAPITAL GAINS 7,51,743/- 3. DISALLOWANCE FROM INCOME FROM OTHER SOURCES 18,5 9,536/- ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 3 BOTH THESE ITEMS, IN COMPUTATION OF INCOME, WERE RE FLECTED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE PERUSAL OF BALANCE SHEET AT YEAR- END REVEALED THAT THE ASSESSEE HAD LOANS LIABILITIE S AGGREGATING TO RS.203.95 LACS AGAINST WHICH THE AFORESAID INTEREST WAS DEBITED. AS AGAINST THIS, THE ASSESSEE HAD ADVANCED LOANS OF RS .147.95 LACS & RS.15.12 LACS, AGAINST WHICH MEAGER INTEREST INCOME OF RS.2.66 LACS WAS REFLECTED. THE FURTHER INSIGHT INTO THE LOANS G RANTED BY THE ASSESSEE REVEALED THAT THE ASSESSEE, BESIDES BEING SHAREHOLD ER IN THREE CONCERNS, ALSO ADVANCED INTEREST FREE LOANS AGGREGA TING TO RS.79.29 LACS TO THESE THREE CONCERNS. THE ABOVE FACTORS LED TO INTEREST DISALLOWANCE OF RS.18.59 LACS UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY THE INTEREST INCOME WAS ASSESSED A S INCOME FROM OTHER SOURCES AT RS.21.26 LACS. 2.3 THE LD. AO, IN THE ALTERNATIVE, OPINED THAT STA TED INVESTMENTS IN THE SHAPE OF SHARE CAPITAL ALSO ATTRACTED THE DISALLOWANCE U/S 14A AND SINCE THE ENTIRE INTEREST WAS ALREADY DISALLOWED, N O FURTHER DISALLOWANCE WAS COMPUTED FOR BY LD. AO IN THE QUANTUM ASSESSMEN T ORDER. 2.4 UPON PERUSAL OF PROFIT & LOSS ACCOUNT , IT WAS FOUND THAT THE ASSESSEE CREDITED CERTAIN INCOMES BY WAY OF RENTAL INCOME, COMPUTER SERVICE CHARGES AND SALE OF FINISHED GOODS OUT OF WHICH ONLY THE ACTIVITIES IN THE SHAPE OF SALE OF FINISHED GOODS & COMPUTER SERVICE CHARGES, IN THE OPINION OF LD. AO, CONSTITUTED THE BUSINESS ACTIVITY FOR THE ASSESSEE AND THEREFORE, THE EXPENDITURE INCURRE D IN RELATION THERETO ONLY COULD BE ALLOWED TO THE ASSESSEE. THE SALE & P URCHASES OF FINISHED GOODS WAS REFLECTED AS RS.5.14 LACS & RS.4.02 LACS, AGAINST WHICH AGGREGATE ADMINISTRATIVE EXPENDITURE OF RS.13.33 LACS WAS CLAIMED ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 4 WHICH INTER-ALIA, CONSISTED OF LOAN PROCESSING CHARGES, REPAIRS & MAINTENANCE, RENT RATES & TAXES, LEGAL & PROFESSION AL CHARGES ETC . BESIDES THIS, THE ASSESSEE HAD CLAIMED BANK CHARGES OF RS.20,996/- ALSO. FINDING NO RELATION OF THE EXPENSES WITH BUSI NESS ACTIVITY OF THE ASSESSEE, LD. AO DISALLOWED 75% OF THESE AGGREGATE EXPENSES OF RS.13.54 LACS WHICH RESULTED INTO IMPUGNED DISALLOW ANCE OF RS.10.15 LACS IN THE HANDS OF THE ASSESSEE AND ACCORDINGLY T HE BUSINESS LOSS OF RS.6.22 LACS WAS ASSESSED AT BUSINESS INCOME OF RS.3.93 LACS. 2.5 THE THIRD ADDITION PERTAINS TO INCOME UNDER THE HEAD CAPITAL GAINS. THE ASSESSEE HAD DECLARED SHORT TERM CAPITAL GAINS ON SALE OF A BUSINESS ASSET WHICH WAS DEPRECIABLE ASSET. THE BUS INESS ASSET WAS IN THE SHAPE OF A FLAT AND A ROW HOUSE AT BOISER , THE SALE CONSIDERATION OF WHICH EXCEEDED THE BLOCK OF ASSETS TITLED AS FLAT AND ACCORDINGLY GAVE RISE TO SHORT TERM CAPITAL GAINS [STCG] . AGAINST THE ROW HOUSE, THE ASSESSEE CLAIMED DEDUCTION OF OTHER CHARGES OF RS.2 .47 LACS, FOR WHICH NO DETAILS COULD BE FILED AND THEREFORE THE DEDUCTI ON OF THE SAME WAS NOT ALLOWED. FINALLY, THE STCG WAS COMPUTED AS RS.7.51 LACS AS AGAINST RS.4.09 LACS COMPUTED BY THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT MUCH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATE D 13/06/2016 WHEREIN THE ADDITIONS LISTED AT SERIAL NUMBERS 1 & 2 WERE CONFIRMED. REGARDING INTEREST DISALLOWANCE, LD. CIT(A) OPINED THAT THE INTEREST EXPENSES COULD NOT EXCEED THE INTEREST INCOME EARNE D BY THE ASSESSEE AND THEREFORE, HE RESTRICTED THE EXPENSES TO RS.2.6 6 LACS AND ACCORDINGLY, GRANTED PART RELIEF TO THE ASSESSEE. A GGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 5 4. THE LD. AUTHORIZED REPRESENTATIVE [AR], SHRI R.K.BOTHRA, BY DRAWING OUR ATTENTION TO THE PAPER-BOOK AGITATED THE ADDITIONS AS SUSTAINED BY LD. FIRST APPELLATE AUTHORITY WHICH HA S BEEN CONTROVERTED BY LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI RAJEEV GUBGOTRA. 5.1 WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING CITED JUDICIA L PRONOUNCEMENTS. SO FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.10.15 LACS IS CONCERNED, UPON PERUSAL OF FINANCIAL STATEMENTS AS PLACED ON RECORD, IT IS NOTED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY MAJOR BUSINESS ACTIVITY DURING THE IMPUGNED AY. BESIDES COMPUTER SERVICE CHARGES OF RS.4.80 LACS, THE ASSESSEE HAS REFLECTED SALE & PUR CHASE OF FINISHED GOODS FOR RS. 5.14 LACS AND RS.4.02 LACS AGAINST WH ICH HUGE ADMINISTRATIVE EXPENSES OF RS.13.33 LACS HAVE BEEN CLAIMED WHICH MOSTLY CONSIST OF PAYMENT TO EMPLOYEES, RENT RATES & TAXES, REPAIRS A ND MAINTENANCE EXPENSES, WATER CHARGES, LOAN PROCESSIN G FEES, LEGAL & PROFESSIONAL CHARGES ETC. NOTHING ON RECORD DEMONSTRATE CLEAR NEXUS OF THESE EXPENSES WITH THE BUSINESS ACTIVITIES BEING C ARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY AND FURTHER MOST OF THE SE EXPENSES, PRIME FACIE , ARE DIRECTED TOWARDS EARNING OF RENTAL INCOME AND INTEREST INCOME , WHICH HAS BEEN ASSESSED UNDER OTHER HEADS OF INCO ME. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF LOW ER AUTHORITIES IN THIS REGARD AND THEREFORE, DISMISS GROUND NO.1 AS RAISED BEFORE US. 5.2 SO FAR AS THE COMPUTATIONS UNDER THE HEAD CAPITAL GAINS IS CONCERNED, LD. AR HAS CONTENDED THAT THE SAME WAS I N THE NATURE OF LONG TERM CAPITAL GAINS SINCE NO DEPRECIATION WAS ALLOWED TO THE ASSESSEE AGAINST THE BLOCK OF ASSETS DURING PAST SE VERAL YEARS. RELIANCE ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 6 HAS BEEN PLACED ON THE DECISION OF THIS TRIBUNAL RE NDERED IN PRABODH INVESTMENT & TRADING CO. PVT. LTD. VS. ITO [ITA NO. 6557/MUM/2008 DATED 28/02/2011]. HOWEVER, WE FIND NO FORCE IN THE ARGUMENT OF LD. AR SINCE THE ASSESSEE HAS REFLECTED ADDITIONS OF RS.43 .27 LACS WITH RESPECT TO THESE TWO PROPERTIES DURING IMPUGNED AY IN FIXED ASSETS SCHEDULE E AS ATTACHED WITH THE FINANCIAL STATEMENTS. THE SAME REVEAL THAT THE PROPERTIES HAS BEEN PURCHASED AND SOLD IN THE SAME AY AND CLEARLY HELD BY THE ASSESSEE FOR LESS THAN 36 MONTHS. THIS BEING THE CASE, LOOKING FROM ANY ANGLE, THE SAME GAVE RISE TO SHORT TERM CAPITAL GAINS ONLY. EVEN OTHERWISE ASSUMING THAT THE SAME WERE BUSINESS ASSETS FOR THE ASSESSEE, THE EXPRESS STATUTORY PROVISIONS OF SECTI ON 50 CREATES A DEEMING FICTION TO TREAT THE RESULTANT GAINS AS SHORT TERM CAPITAL GAINS ONLY. THEREFORE, THIS GROUND OF APPEAL STAND DISMIS SED. 5.3 SO FAR AS INTEREST DISALLOWANCE UNDER THE HEAD INCOME FROM OTHER SOURCES IS CONCERNED, WE FIND THAT INTEREST EXPENDITURE AS CLAIMED BY THE ASSESSEE HAS TWO COMPONENTS I.E. INTEREST ON HO USING LOAN TO BANK RS.9.76 LACS & OTHER INTEREST RS.8.82 LACS. SO FAR AS THE DISALLOWANCE OF RS.8.82 LACS IS CONCERNED, WE FIND THAT THE SAME STOOD SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF THIS T RIBUNAL FOR IMMEDIATELY PRECEDING AY 2010-11 [ITA NUMBER 1814/MUM/2010 DATED 04/08/2017]. THE COMPLETE ONUS TO ESTABLISH THE NEXUS BETWEEN I NTEREST INCOME EARNED BY THE ASSESSEE AND INTEREST PAID BY THE ASSESSEE SQUARELY LIED ON THE ASSESSEE WHICH HE HAS FAILED T O PROVE . THEREFORE, THE DEDUCTION OF THE SAME COULD NOT BE ALLOWED TO T HE ASSESSEE, IN ANY MANNER. WITH RESPECT TO INTEREST ON HOUSING LOAN BO RROWED FROM CITIBANK , WE FIND THAT THE ASSESSEE HAS OBTAINED TWO LOANS VIDE ACCOUNT ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 7 NOS. 2211395 & 219658 OUT OF WHICH ONE LOAN WAS OBT AINED IN THE NAME OF THE ASSESSEE WHEREAS THE OTHER LOAN WAS OBTAINED IN THE NAME OF ANOTHER ENTITY NAMELY JESSICA IMPEX. THE TRIBUNAL, IN AY 2010-11, HAS CONFIRMED THE DISALLOWANCE OF INTEREST PAID AGAINST LOAN OBTAINED IN THE NAME OF JESSICA IMPEX. RESPECTFULLY FOLLOWING THE SAME, WE DISALLOW THE ASSESSEES CLAIM TO THAT EXTENT. THE LOAN OBTAINED IN THE NAME OF THE ASSESSEE IS STATED TO BE HOUSING LOAN AND THE SAME, AS PER SUBMISSIONS, IS ADMISSIBLE TO THE ASSESSEE. SINCE T HE ADMISSIBILITY OF THE SAME, UNDER THE HEAD INCOME FROM HOUSE PROPERTY , HAS NOT BEEN EXAMINED BY LD. AO, THE SAME STAND REMITTED BACK TO THE FILE OF LD. AO FOR RE-ADJUDICATION IN THE LIGHT OF SUBMISSIONS MAD E BY THE LD. AR. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE THE SAME. HAVING HELD SO, THE INTEREST INCOME OF RS.2.66 LACS AS REFLECTED BY THE ASSESSEE SHALL BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AGAINST WHICH NO DEDUCTION SHALL BE ADMISSIBLE TO THE ASSESSEE. T HIS GROUND STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. IN NUTSHELL, THE APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2018. SD/- SD/- (SAKTIJITDEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER *& MUMBAI; DATED : 12.09.2018 SR.PS:-THIRUMALESH ITA NO.4912/MUM/2016 PEEJAY SILK MILLS ASSESSMENT YEAR-2011-12 8 ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - -) *& / DR, ITAT, MUMBAI 6. , ./0 & GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) *& / ITAT, MUMBAI