ADDL CIT 12(1), MUMBAI V. BHAIDAS CURSONDAS & CO, MUMBAI

ITA 5021/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9300 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Earning of tax free income
• Section: 50C; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 5019/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) BHAIDAS CURSONDAS AND COMPANY 6, VITHALDAS CHAMBERS, MUMBAI SAMACHAR MARG, MUMBAI-400 001 VS. ADDL. CIT, RANGE-12(1), AAYAKAR BHAVAN, M. K. MARG, MUMBAI-400 020 ! ./PAN/GIR NO. AAAFB 4428 P ( '#$%& ASSESSEE ) : ( ' /REVENUE ) & I.T.A. NO. 5021/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) ADDL. CIT, RANGE 12(1), AAYAKAR BHAVAN, M. K. MARG, MUMBAI-400 020 VS. BHAIDAS CURSONDAS AND COMPANY 6, VITHALDAS CHAMBERS, MUMBAI SAMACHAR MARG, MUMBAI-400 001 ! ./PAN/GIR NO. AAAFB 4428 P ( ' /REVENUE ) : ( '#$%& ASSESSEE ) '#$%&() / ASSESSEE BY : SHRI VIPUL JOSHI '() / REVENUE BY : SHRI LOVE KUMAR * '+(&, / DATE OF HEARING : 03.02.2015 -./(&, / DATE OF PRONOUNCEMENT : 11.03.2015 01 O R D E R PER SANJAY ARORA, A. M.: THESE ARE CROSS APPEALS, I.E., BY THE ASSESSEE AND THE REVENUE, AGITATING THE PART ALLOWANCE OF THE ASSESSEES APPEAL CONTESTING ITS A SSESSMENT U/S.143(3) OF THE INCOME TAX 2 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2009-10 VIDE ORDER DATED 20.12.2011 BY THE COMMISSIONER OF INCOME TAX (APPEA LS)-23, MUMBAI (CIT(A) FOR SHORT) VIDE HIS ORDER DATED 10.05.2012. ASSESSEES APPEAL (IN ITA NO. 5019/MUM/2012) 2. THE SAME RAISES A SINGLE GROUND, READING AS UNDE R: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(APPEALS) HAS ERRED IN NOT DELETING THE ENTIRE ADDITION OF RS.98, 66,326/- MADE U/S.14A AND INSTEAD IN RESTRICTING THE DISALLOWANCE TO RS.45,63 ,028/- U/S.14A READ WITH RULE 8D(2)(II) AND RULE 8D(2)(III). 3. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT THE DISALLOWANCE U/S.14A, MADE SUO MOTU BY THE ASSESSEE BY ESTIMATING THE IMPUGNED EXPENDITURE AT 5% OF THE TA X EXEMPT INCOME IN THE FORM OF DIVIDEND, I.E., AT RS.7,51,999/-, STOOD WORKED BY T HE ASSESSING OFFICER (A.O.) AT RS.1,06,18,325/-, AND AGAINST WHICH PART RELIEF HAS BEEN ALLOWED BY THE LD. CIT(A), RESULTING IN BOTH THE PARTIES BEING IN APPEAL. THE ASSESSEE, HOWEVER, DOES NOT WISH TO CONTEST ITS APPEAL AND, ACCORDINGLY, DOES NOT PRESS ITS GROUND, WHICH CONCERNS, AS APPARENT, DEDUCTION U/S.14A MADE WITH REFERENCE TO RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962. IN VIEW OF THE FOREGOING, SUBJECT TO OUR OBSERVATIO NS, IF ANY, WITH REGARD TO THE REVENUES APPEAL, IN-AS-MUCH AS THE SAME ALSO CONCE RNS, IN THE MAIN, DISALLOWANCE U/S.14A R/W RULE 8D, WE DISMISS THE ASSESSEES APPE AL IN LIMINE AS NOT PRESSED. REVENUES APPEAL (IN ITA NO. 5021/MUM/2012) 4. VIDE THE FIRST TWO GROUNDS OF ITS APPEAL, THE RE VENUE AGITATES THE DELETION OF THE DISALLOWANCE U/S.14A R/W RULE 8D(2)(I), WHICH IS IN RESPECT OF DIRECT EXPENDITURE, INCLUDING BY WAY OF INTEREST ON BORROWINGS, IN RELA TION TO INCOME/S NOT FORMING PART OF THE TOTAL INCOME. THE ASSESSEE IS A COTTON MERCHANT , WHOSE BUSINESS IS, THEREFORE, SEASONAL. THE A.O., ANALYZING THE ASSESSEES ACTIVI TY IN THE FORM OF PURCHASE AND SALE OF COTTON YARN FOR THE DIFFERENT MONTHS OF THE YEAR, F OUND NO PURCHASES OF YARN FOR THE 3 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY MONTHS OF JULY TO OCTOBER, 2008, WHILE THAT FOR THE MONTHS OF JUNE AND NOVEMBER, 2008 WERE ALSO, AT A LITTLE OVER 2% OF THE TOTAL PURCHAS ES FOR THE YEAR, MINIMAL. ON THE CREDIT SIDE, THERE WAS AGAIN NO SALE FOR THE MONTHS OF AUG UST TO OCTOBER, 2008, WITH MINIMAL SALES BEING OBSERVED FOR THE MONTHS OF JUNE, JULY, NOVEMBER AND DECEMBER, 2008. THERE WAS, THUS, CORRESPONDINGLY NO BUSINESS ACTIVITY, SO AS TO ENTAIL DEPLOYMENT OF CAPITAL, FOR FOUR TO SIX MONTHS DURING THE YEAR. HE, ACCORDINGLY , ATTRIBUTED 1/3 RD OF THE TOTAL INTEREST FOR THE YEAR (AT RS.204.52 LACS) TOWARDS INVESTMENT IN SHARES, YIELDING OR LIABLE TO YIELD THE TAX-EXEMPT DIVIDEND INCOME, WORKING THE DISALLO WANCE UNDER RULE 8D(2)(I) AT RS.68,17,444/-. THE BALANCE INTEREST CLAIM OF RS.13 6.35 LACS, BEING THE DIFFERENCE OF THE TOTAL CLAIM OF RS.204.52 LACS AND THAT DISALLOWED A S DIRECT EXPENDITURE (RS.68.17 LACS), WAS CONSIDERED FOR DISALLOWANCE UNDER R. 8D(2)(II) ON A PROPORTIONATE BASIS, I.E., IN THE RATIO OF THE AVERAGE INVESTMENT IN SHARES TO THE TO TAL ASSETS AS PER THE ASSESSEES BALANCE- SHEET. IN APPEAL, IT WAS ARGUED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE CALCULATION BY THE A.O. IS BASED ON A FAULTY ASSUMPTION OF THE FUN DS RELEASED ON THE LIQUIDATION OF THE INVENTORIES OF COTTON YARN DURING THE LEAN SEASON B EING UTILIZED TOWARD INVESTMENT IN TAX EXEMPT INSTRUMENTS. NO DIRECT NEXUS BETWEEN THE TWO , HOWEVER, HAD BEEN SHOWN BY THE A.O. THE FUNDS HAD IN FACT CONTINUED TO BE DEPLOYED IN THE ASSESSEES BUSINESS. THE DISALLOWANCE U/S.14A R/W R. 8D(2)(I) WAS, ACCORDING LY, DIRECTED FOR DELETION BY THE LD. CIT(A), EVEN AS HE, RELYING ON THE DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), UPHELD THE DISALLOWANCE U /S.14A MADE WITH REFERENCE TO RULES 8D(2)(II) AND 8D(2)(III), SO THA T, AGGRIEVED, THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD THE PARTIES, WHO RAISED SIMILAR CO NTENTIONS BEFORE US, AS ALSO PERUSED THE MATERIAL ON RECORD. NO DOUBT, THE A.O. HAS ESTABLISHED RELEASE OF NO IN SUBSTANTIAL FUNDS FROM ITS REGULAR BUSINESS ACTIVITIES OF TRADING IN COTTON YA RN BY THE ASSESSEE DURING NON-SEASONAL MONTHS. SO, HOWEVER, UNLESS HE IS ABLE TO EXHIBIT T HE INVESTMENT OF THOSE FUNDS IN TAX- EXEMPT INSTRUMENTS, I.E., WHICH YIELD OR ARE LIABLE TO YIELD TAX-EXEMPT INCOME, IT CANNOT 4 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY BE SAID THAT THE INTEREST ON THE SAID FUNDS FOR THE CORRESPONDING PERIOD IS LIABLE FOR DISALLOWANCE U/S.14A(1). THE LD. AR WOULD IN FACT, WITH REFERENCE TO THE ASSESSEES ANNUAL ACCOUNTS FOR THE CURRENT YEAR, SHOW THAT THE RE HAS BEEN RATHER A DECLINE IN THE INVESTMENT IN MUTUAL FUNDS, I.E., THE RELEVANT INVE STMENT, DURING THE YEAR, I.E., FROM RS.3090.24 LACS AS AT THE BEGINNING OF THE YEAR TO RS.973.45 LACS AT ITS END. THOUGH THE FUND POSITION AS AT THE YEAR-END, WOULD NOT, IN OUR VIEW EXHIBIT WHETHER THE SURPLUS FUNDS OF THE BUSINESS WERE OR WERE NOT UTILIZED IN WHOLE OR IN PART TOWARD THE TAX EXEMPT INVESTMENT DURING THE NON-SEASONAL MONTHS, THE SAME IS A MATTER OF FACT AND, ACCORDINGLY, REQUIRED TO BE ESTABLISHED AS SO. IT IS ONLY THE AS SESSEES BALANCE-SHEET AS AT THE END OF THE RELEVANT MONTHS, OR THE FUND FLOW STATEMENT FOR THE SAME, OR THE RELEVANT PERIOD, THAT WOULD SHOW THE AVENUE OF THE FUNDS RELEASED FROM TH E INVENTORY OF YARN MAINTAINED DURING THE SEASONAL MONTHS. THE REVENUES CASE IS A S SUCH NOT BASED ON PROVEN FACTS, BUT PRESUMPTUOUS. WE, ACCORDINGLY, ARE IN AGREEMENT WIT H THE LD. CIT(A) THAT NO DISALLOWANCE U/S.14A(1) R/W R. 8D(2)(I) QUA THE INTEREST EXPENDITURE, AS MADE, IS CALLED FOR, SO THAT ITS DELETION BY HIM IS CONFIRMED. AT THE SAME TIME, HOWEVER, THE INTEREST EXPENDITURE LIABLE FOR ALLOCATION UNDER RULE 8D(2)(II), DISALLOWANCE QUA WHICH HAS BEEN IN FACT CONCEDED TO BY THE ASSESSEE, WOULD STAND TO BE CORRESPONDINGLY INCREASED. THIS IS AS T HE ALLOCATION OF THE INTEREST, AS A INDIRECT COST, TO BE MADE ON A PROPORTIONATE BASIS, WOULD HAVE TO BE WITH REFERENCE TO THE INTEREST COST FOR THE WHOLE YEAR, AS AGAINST 2/3 RD THEREOF, AS MADE BY THE A.O. THE SAME FOLLOWS AS A NATURAL INCONSEQUENCE OF THE HOLDING O F NO PART OF THE TOTAL INTEREST, ASSESSED BY THE A.O. AT 1/3 RD THEREOF, AS FORMING PART OF DIRECT EXPENDITURE, SO THAT THERE COULD BE NO REDUCTION IN ITS RESPECT FOR DETERMINING THE INT EREST LIABLE FOR ALLOCATION AS AN INDIRECT COST, I.E., ON A PRO RATA BASIS. BOTH THE INTEREST COST BEING ALLOCATED, I.E ., AS BETWEEN THE INCOMES FORMING AND NOT FORMING ANY PART OF THE TOT AL INCOME, AS WELL AS THE SAID INCOMES THEMSELVES, IT NEEDS TO BE NOTED, ARE FOR T HE WHOLE YEAR. THIS, EVEN OTHERWISE PATENT, BECOMES INEVITABLE IN THE INSTANT CASE AS T HE ASSESSEE NEITHER BEFORE US NOR BEFORE THE FIRST APPELLATE AUTHORITY HAS MADE OUT ANY CASE AGAINST THE DISALLOWANCE OF INTEREST U/S.14A(1) R/W R. 8D(2)(II). WE, ACCORDINGLY, CONSI DER IT A SERIOUS LAPSE ON THE PART OF THE 5 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY LD. CIT(A) IN NOT SO DIRECTING THE A.O. SO MUCH SO, IN OUR VIEW, THE PARTIES THEMSELVES SHOULD HAVE POINTED OUT THIS DURING HEARING, WHICH EXHIBITS OR REFLECTS SMUGNESS ON THE PART OF THE ASSESSEE AND A LACK OF PREPARATION ON T HE PART OF THE LD. DEPARTMENTAL REPRESENTATIVE (DR). WE DIRECT ACCORDINGLY, SO THAT THE DISALLOWANCE OF INTEREST U/S.14A R/W RULE 8D(2)(II) SHALL BE WITH REFERENCE TO THE I NTEREST COST FOR THE ENTIRE YEAR, I.E., RS.204.52 LACS, AND NOT RS.136.35 LACS. AS REGARDS OUR COMPETENCE TO SO DIRECT, WE RATHER CONSIDER IT OUR BOUND AND DUTY TO DO SO. THE CASE L AW ON THE POWERS OF THE TRIBUNAL IS LEGION, AND FOR WHICH WE MAY, FOR READY REFERENCE, REFER TO THE DECISIONS INTER ALIA IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT [1981] 131 ITR 451 (SC) AND AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [1993] 199 ITR 351 (BOM). WE MAY THOUGH CLARIFY THA T IT IS NOT BE A CASE OF ENHANCEMENT, BUT ONLY OF AN INTER- CLAUSE ADJUSTMENT OF THE CLAUSES OF RULE 8D(2) UNDER WHICH THE DISALLOWANCE U/S. 14A IS REQU IRED TO BE MORE APPROPRIATELY MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE; TAKING INTO ACCOUNT THE POSITION OF LAW IN THE MATTER. REFERENCE THOUGH MAY ALSO BE MADE TO THE DE CISIONS BY THE APEX COURT INTER ALIA IN MARTIN BURN LTD. VS. CIT [1993] 199 ITR 606 (SC); CIT VS. ASSAM TRAVELS SHIPPING SERVICE [1993] 199 ITR 1 (SC) AND CIT VS. S. NELLIAPPAN [1967] 66 ITR 722 (SC). WE DECIDE ACCORDINGLY. 6. GROUNDS # 3 AND 4 OF THE REVENUES APPEAL RELATE TO THE DISALLOWANCE OF DEPRECATION. THE A.O. DURING THE COURSE OF ASSESSME NT PROCEEDINGS OBSERVED THE ASSESSEE TO HAVE SOLD A PART OF THE ASSETS FORMING PART OF T HE BLOCK OF ASSETS BUILDING ON 25.03.2008, I.E., DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2008-09, THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, AT RS.1,50,000/-. THE SA ME ATTRACTS SECTION 50C. THE VALUE ADOPTED BY THE STAMP VALUE AUTHORITY WAS AT RS.2,30 ,000/-. HE, ACCORDINGLY, RECOMPUTED THE OPENING WDV OF THE RELEVANT BLOCK OF ASSETS BY REDUCING THE SAID SUM, AS MONEYS PAYABLE, AND ALLOWED THE DEPRECIATION FOR THE CURR ENT YEAR ACCORDINGLY, WORKING THE SAME TO RS.2,78,970/-, I.E., AT RS.5,700/- LESS THAN THA T CLAIMED BY THE ASSESSEE. IN APPEAL, THE ASSESSEE FOUND FAVOUR WITH THE LD. CIT(A) IN-AS-MUC H AS SECTION 50C ONLY APPLIES FOR COMPUTING CAPITAL GAINS ARISING TO THE ASSESSEE O N THE TRANSFER OF CAPITAL ASSETS SPECIFIED 6 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY THEREIN, SO THAT THE SAME WOULD HAVE NO IMPLICATION TOWARD COMPUTING THE WDV OF THE RELEVANT BLOCK OF ASSETS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE REVENUE BASES ITS CLAIM ON THE DECISION BY THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF ITO VS. UNITED MARINE ACADEMY [2011] 130 ITD 113 (MUM)(SB). EVEN AS NOTED BY THE LD. CIT(A), THE SAID DECISION, IN RATIO, ONLY HOLDS THAT SECTION 50 C SHALL APPLY EQUALLY IN RESPECT OF DEPRECIABLE ASSETS; IT BEING THE ASSESSEES CLAIM I N THAT CASE THAT IMMOVABLE PROPERTY, THE ASSET CLASS SPECIFIED IN SECTION 50C, WOULD YET NOT APPLY IN-AS-MUCH AS THE SAME IS A DEPRECIABLE ASSET BEING USED FOR THE PURPOSES OF IT S BUSINESS BY THE ASSESSEE. WE ARE IN COMPLETE AGREEMENT WITH THE LD. CIT(A). THE DEEMING OF SECTION 50C IS FOR THE LIMITED PURPOSE FOR COMPUTING THE CAPITAL GAINS U/S.45 R/W S. 48 ON THE ASSETS SPECIFIED UNDER THE SAID SECTION. THE ONLY PURPORT OF SECTION 50C IS TH E EXTENT OF THE MATTER SPECIFIED THEREIN, PROVIDING (TO THAT EXTENT) AN ALTERNATE BASIS TO TH AT SPECIFIED U/S.48, FOR COMPUTING THE CAPITAL GAINS CHARGEABLE U/S.45. THE WDV WOULD HAVE TO BE NECESSARILY COMPUTED IN TERMS OF SECTION 43(6), AND FOR WHICH SECTION 50C H AS NO APPLICATION. THE DECISION IN THE CASE OF UNITED MARINE ACADEMY (SUPRA) SHALL, THEREFORE, HAVE NO APPLICATION IN T HE FACTS OF THE CASE, EVEN AS CLARIFIED BY THE LD. CIT(A), W HOSE DECISION IS ACCORDINGLY UPHELD. IN FACT, HOW WE WONDER THE OPENING WDV COULD BE ALTERE D WITHOUT FIRST CHANGING THE DEPRECIATION FOR THE IMMEDIATELY PRECEDING YEAR AND , CONCOMITANTLY, THE WDV AT THE CLOSE OF THAT YEAR. THE REVENUES CASE IS WHOLLY UN TENABLE IN LAW. WE DECIDE ACCORDINGLY, DISMISSING THE RELEVANT GROUNDS. 8. IN THE RESULT, WE DISMISS THE REVENUES APPEAL A ND DISPOSE THE ASSESSEES APPEAL ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 11, 201 5 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT 0 / ACCOUNTANT MEMBER * 2+ MUMBAI; 30 DATED : 11.03.2015 7 ITA NOS. 5019/M/12 & 5021/M/12 (A.Y. 2009-10) BHAIDAS CURSONDAS AND COMPANY '' ROSHANI , SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. 4 / THE APPELLANT 2. 56 4 / THE RESPONDENT 3. * 7& 8 9 / THE CIT(A) 4. * 7& / CIT - CONCERNED 5. :';<5'&'=# ,=#/ * 2+ / DR, ITAT, MUMBAI 6. <$>+ GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , * 2+ / ITAT, MUMBAI