RAKESH PRAVIN GANDHI, MUMBAI V. ACIT 13(1), MUMBAI

ITA 503/MUM/2012

• Counselvise Citation: 50319914 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.503/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) RAKESH PRAVIN GANDHI 89, RAMESH BHUVAN, NAKHODA STREET TAMBAKANTA (PYDHONIE), MUMBAI-400003 / VS. ASSISTANT COMMISSIONER OF INCOME TAX, 13(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AACPG3033B !' & / APPELLANT BY : SHRI R AJIV KHANDELWAL #$!' ' & /RESPONDENT BY : SHRI DURGA DUTT ( ) ' *+ / DATE OF HEARING : 18.6.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 25.6.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 13.12.2011 PASSED BY LD CIT(A)-24, MUMBAI AND IT RELATES TO TH E ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION TA KEN BY LD CIT(A) IN RESPECT OF FOLLOWING ISSUES : A) DISALLOWANCE OF RS.1,71,891/- MADE U/S 14A OF THE I NCOME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RUL ES, 1962 (THE RULES); B) ASSESSMENT OF RS.40,663/- AS UNDISCLOSED INCOME. 3. THE FACTS RELATING TO THE ISSUES CITED ABOVE ARE DISCUSSED IN BRIEF. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED HIS RE TURN OF INCOME DECLARING TOTAL INCOME I.T.A. NO.503/MUM/2012 2 OF RS.20,16,527/- AND THE INCOME WERE DECLARED UNDE R THE HEADS INCOME FROM BUSINESS AND INCOME FROM OTHER SOURCES. THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED TAX FREE INCOMES LIKE DIVIDEN D ON SHARES, INTEREST ON PPF, INTEREST ON NSS AND LONG TERM CAPITAL GAINS (LTCG). HE NOTI CED THAT THE ASSESSEE DID NOT DISALLOW ANY EXPENDITURE RELATABLE TO THE TAX FREE INCOME AS PER THE REQUIREMENT OF SEC. 14A OF THE ACT. HENCE, THE AO WORKED OUT THE DISAL LOWANCE U/S 14A OF THE ACT AND ACCORDINGLY DISALLOWED INTEREST EXPENDITURE TO THE TUNE OF RS.1,71,891/- AND ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.13,295/- . THE AO FURTHER NOTICED THAT THE INTEREST INCOME DECLARED BY THE ASSESSEE DID NOT MA TCH WITH THE ITS DETAILS FILED BY THE ASSESSEE I.E. INTEREST INCOME FROM TWO PARTIES VIZ; M/S HARKISHAN TEXTILE MILLS PVT.LTD AND M/S CHARANJITSINGH UDHAMSINGH GORA WAS NOT FULL Y ACCOUNTED FOR BY THE ASSESSEE. THE DIFFERENCE BETWEEN THE INTEREST INCOME SHOWN IN THE ITS DETAILS AND THAT ACCOUNTED BY THE ASSESSEE WAS RS.40,663/-. THE ASSESSEE SUBM ITTED THAT THE ABOVE SAID TWO PARTIES HAVE STOPPED PAYING INTEREST AND HAVE ALSO NOT RETURNED BACK THE PRINCIPAL AMOUNT AND HENCE IN VIEW OF THE NON-RECEIPT OF INTE REST INCOME CITED ABOVE, IT WAS NOT DECLARED IN THE RETURN OF INCOME. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE AND ACCORDINGLY ASSESSED THE ABOVE SAID DIFFERENCE AS THE UNDISCLOSED INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) CONFIRMED THE ADDITION RELATING TO DISALLOWANCE OF INTEREST MADE U/S 14A OF THE ACT AND ALSO ASSESSMENT OF THE DIFFERENCE AMOUNT OF INTERES T INCOME. HOWEVER, THE LD. CIT(A) DELETED THE DISALLOWANCE RELATING TO ADMINISTRATIVE EXPENDITURE MADE U/S 14A OF THE ACT. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFOR E US. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF I NTEREST EXPENDITURE U/S 14A OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAS MADE THE IMPUGNED INVESTMENT IN A COMPANY NAMED M/S RAJVIR I NDUSTRIES LTD DURING THE FINANCIAL YEAR 2006-07. HE FURTHER SUBMITTED THAT THE ABOVE SAID INVESTMENT WAS MADE BY WITHDRAWING FUNDS FROM HIS CAPITAL ACCOUNT IN A PAR TNERSHIP CONCERN NAMED M/S NATHLAL I.T.A. NO.503/MUM/2012 3 SHIVLAL, IN WHICH THE ASSESSEE IS A PARTNER. INVI TING OUR ATTENTION TO PAGES 47 TO 64 OF THE PAPER BOOK, WHICH CONTAINS THE BANK ACCOUNT COP Y OF THE PARTNERSHIP CONCERN CITED ABOVE AND ALSO HIS CAPITAL ACCOUNT COPY, THE LD. CO UNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THESE FACTUAL ASPECTS BE FORE THE LD. CIT(A) BY FILING RELEVANT DOCUMENTS AND CONTENDED BEFORE HIM THAT THE IMPUGNE D INVESTMENT WAS MADE OUT OF OWN FUNDS. THE LD A.R CONTENDED THAT THE LD CIT(A ) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESEE THAT HE DID NOT MAKE USE OF AN Y BORROWED INTEREST BEARING FUNDS FOR MAKING THE ABOVE SAID INVESTMENT AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF PART OF INTEREST EXP ENDITURE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE AO MADE DISALLOWED INTEREST EXPE NDITURE FOR IDENTICAL REASONS IN THE SUCCEEDING ASSESSMENT YEAR I.E., IN ASSESSMENT YEAR 2009-10, BUT THE FIRST APPELLATE AUTHORITY HAS DELETED THE SAME BY GIVING A FINDING THAT THE IMPUGNED INVESTMENT WAS MADE OUT OF OWN FUNDS. IN SUPPORT OF THE ABOVE SA ID CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF ORDER DATED 2.7.2013 PASSED BY CIT(A)-24 IN THE ASSESSEES HAND IN APPEAL NO.CIT(A)-24/JCIT(OSD ) 13(1)/158/11-12. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED THE ORDER PASSED BY THE LD. CIT(A) BY NOT PREFERRING THE APPE AL BEFORE THE TRIBUNAL AND HENCE THE FINDING OF THE FACT GIVEN BY THE LD. CIT(A) IN THE ASSESSMENT YEAR 2009-10 HAS REACHED FINALITY. ACCORDINGLY, HE SUBMITTED THAT INTEREST AMOUNT DISALLOWED BY THE AO IS LIABLE TO BE DELETED. 5. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE D EPARTMENT DID NOT FILE THE APPEAL AGAINST THE ORDER PASSED BY THE LD. CIT(A) FOR ASSE SSMENT YEAR 2009-10 DUE TO LOW TAX EFFECT AND ACCORDINGLY HE SUBMITTED THAT THE FINDIN G OF FACT GIVEN BY THE LD. CIT(A) CANNOT BE CONSIDERED AS HAVING REACHED FINALITY. T HE LD. DR FURTHER SUBMITTED THAT THE BALANCE SHEET FURNISHED BY THE ASSESSEE SHOWS THAT THE ASSESSEE HAS BORROWED FUNDS AND PAID INTEREST THEREON. ACCORDINGLY HE SUBMITTE D THAT THE CONTENTION OF THE ASSESSEE REQUIRES EXAMINATION AT THE END OF THE ASSESSING OF FICER. BY PLACING RELIANCE ON THE I.T.A. NO.503/MUM/2012 4 DECISION OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD (2010)(328 ITR 81), THE LD D.R SUBMITT ED THAT THE DISALLOWANCE PRESCRIBED U/S 14A IS MANDATORY AND HENCE THE LD CIT(A) WAS JU STIFIED IN SUSTAINING THIS DISALLOWANCE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. IT IS A FACT THAT THE LD CIT(A), IN THE SUCCEEDING YEAR, HAS ACCEPTED THE FACT THAT THE INVESTMENT CITED ABOVE WAS MADE IN THE EARLIER YEARS OUT OF OWN FUNDS. THE LD A.R ALSO CARRIED US THROUGH THE BANK ACCOUNT COPIES OF THE PARTNERSHIP FIRM CITED ABOVE AND ALSO HIS CAPITAL ACCOUNT COPY IN THE SAID PARTNERSHIP CONCERN. A PERUSAL OF THE CAPI TAL ACCOUNT COPY SHOWS THAT THE CAPITAL ACCOUNT OF THE ASSESSEE HAS BEEN DEBITED WI TH THE FOLLOWING AMOUNTS:- FINANCIAL YEAR DESCRIPTION AMOUNT 1.4.05 TO 31.3.06 SHARES BUSINESS TRANSA CTION 17,62,077.72 1.4.06 TO 31.3.07 SHARES INVESTMENT A/C RAJVIR IND. LTD 94458 8, 96,959.26 THE AGGREGATE OF BOTH THE AMOUNTS SHOWN ABOVE WORKS OUT TO RS.26,59,036.98. THE ASSESSEE HAS ALSO ATTACHED COPIES OF BANK ACCOUNT O F THE PARTNERSHIP FIRM TO SHOW THAT THE ABOVE SAID WITHDRAWALS HAVE BEEN MADE FROM THE BANK ACCOUNT OF THE PARTNERSHIP CONCERN. ACCORDING TO THE ASSESSEE, THE ABOVE SAID INVESTMENT HAS BEEN MADE IN THE SHARE CAPITAL OF THE COMPANY NAMED M/S RAJVIR INDUS TRIES LTD AND THE SAID INVESTMENT HAS BEEN SHOWN IN THE BOOKS OF M/S SHREEJI TEXTILES LTD. 7. ON A PERUSAL OF THE ORDER PASSED BY LD CIT(A ) IN THE SUCCEEDING ASSESSMENT YEAR, WE FIND THAT THERE IS NO DISCUSSION ABOUT THE EXAMI NATION OF THE DETAILS FURNISHED BY THE ASSESSEE, PARTICULARLY THE CAPITAL ACCOUNT COPY OF THE ASSESSEE IN THE FIRM M/S NATHALAL SHIVLAL ON WHICH THE RELIANCE IS PLACED BY THE ASSE SSEE, HAS NOT BEEN EXAMINED BY LD CIT(A). ON A PERUSAL OF THE CAPITAL ACCOUNTS, WE N OTICE THAT THERE IS ALSO TRANSFER OF FUNDS TO THE PARTNERSHIP CONCERN FROM M/S SHREEJI T EXTILES. HENCE, IN OUR VIEW, THE CONTENTION OF THE ASSESSEE REQUIRES CRITICAL EXAMIN ATION. IN OUR VIEW, ONE CAN ACCEPT I.T.A. NO.503/MUM/2012 5 THE CLAIM OF THE ASSESSEE THAT THE INVESTMENT HAS B EEN MADE OUT OF OWN FUNDS ONLY AFTER EXAMINATION OF THE RELEVANT MONEY TRANSACTION S. A PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THAT THE ASSESSING OFFICER HAS MAD E THE IMPUGNED DISALLOWANCE WITHOUT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE . ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE E ND OF THE ASSESSING OFFICER BY DULY CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY DULY CONSIDERING THE CO NTENTIONS OF THE ASSESSEE WITH REGARD TO THE USAGE OF OWN FUNDS AND TAKE APPROPRIA TE DECISION IN ACCORDANCE WITH THE LAW. 8. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF INT EREST INCOME. ACCORDING TO THE ASSESSEE, THE TWO DEBTORS REFERRED EARLIER HAVE PAI D INTEREST UP TO AUGUST 2007 AND THE SAME HAS BEEN DULY DECLARED BY THE ASSESSEE. HOWEV ER, THE SAID PARTIES HAVE STOPPED PAYING INTEREST THEREAFTER AND HENCE THE ASSESSEE D ID NOT ACCOUNT FOR THE SAME. IT WAS ALSO SUBMITTED THAT THE DEBTORS HAVE NOT PAID BACK THE PRINCIPAL AMOUNT ALSO TILL DATE. HOWEVER, BOTH THE DEBTORS HAVE ACCOUNTED FOR THE IN TEREST PAYABLE TO THE ASSESSEE FOR THE PERIOD FROM SEP., 2007 AND FURTHER THEY HAVE AL SO DEDUCTED TDS FROM THE SAME. HENCE THE ITS DETAILS INCLUDED THE DETAILS OF ACCRU ED INTEREST. UNDER THESE SET OF FACTS, THE ASSESSEE DID NOT ACCOUNT FOR THE ACCURED INTERE ST, SINCE HE DID NOT ACTUALLY RECEIVE INTEREST AMOUNTS AND THE POSSIBILITY OF THE RECEIPT ALSO APPEARED REMOTE. HENCE THERE WAS A DIFFERENCE OF RS.40,663/- IN THE INTEREST FIG URE BETWEEN THE RETURN OF INCOME AND ITS DETAILS. 9. THE LD A.R SUBMITTED THAT, THOUGH THE ASSESS EE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, YET HE DID NOT ACCOUNT FOR THE RECEI VABLE, SINCE POSSIBILITY OF RECOVERY BECAME REMOTE FOR THE REASON THAT THE TWO PARTIES R EFERRED EARLIER HAVE STOPPED PAYING INTEREST AND THE PRINCIPAL AMOUNT WAS ALSO NOT RECE IVED TILL DATE. HE FURTHER SUBMITTED I.T.A. NO.503/MUM/2012 6 THAT THE ASSESSEE SHOULD NOT BE PENALIZED SIMPLY BE CAUSE THE DEBTORS HAVE DEDUCTED TDS ON THE ACCRUED INTEREST, DESPITE THE FACT THAT THEY HAVE STOPPED PAYING INTEREST. 10. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE INTEREST ACCRUED SHOULD HAVE BEEN DECLARED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE H AS AGREED TO THE ASSESSMENT OF THE DIFFERENT AMOUNT OF INTEREST ON A CONDITIONAL BASIS . ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN ASSESSING THE DIFFERENCE AM OUNT OF INTEREST. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS OBSERVED THAT THE DIFFERENT AMOUNT OF INTEREST NEEDS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE, SINCE THE ASSESSEE IS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSMENT ORDER ALSO SHOWS THAT THE ASSESSEE I S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. WE ALSO NOTICE THAT THE ASSESSEE, DURI NG THE COURSE OF ASSESSMENT PROCEEDING, HAS ACCEPTED FOR THE ASSESSMENT OF DIFF ERENCE AMOUNT OF INTEREST ON THE CONDITION THAT NO PENALTY SHOULD BE LEVIED FOR CONC EALMENT. THERE SHOULD NOT BE ANY DISPUTE THAT THE ASSESSMENT OF INCOME UNDER THE INC OME TAX ACT IS NOT DEPENDENT UPON THE ACCEPTANCE OR OTHERWISE OF THE ASSESSEE. ANY I NCOME ASSESSABLE IN THE HANDS OF AN ASSESSEE IS LIABLE TO BE SO ASSESSED, EVEN IF THE A SSESSEE OBJECTS TO THE SAME. SIMILARLY, ANY INCOME WHICH DOES NOT BELONG TO THE ASSESSEE OR WHICH CANNOT BE ASSESSED IN HIS HANDS, CANNOT BE ASSESSED EVEN IF THE ASSESSEE ACCE PTS FOR ASSESSMENT. HENCE, ONE HAS TO EXAMINE AS TO WHETHER THE INCOME CAN BE RIGH TLY ASSESSED IN THE HANDS OF AN ASSESSEE. 12. IN THE INSTANT CASE, THERE IS NO DISPUTE TH AT THE ASSESSEE HAS ADVANCED FUNDS TO THE TWO PARTIES CITED EARLIER AND HAS OFFERED THE I NTEREST GIVEN BY THEM UP TO AUGUST, 2007. IN RESPECT OF THE REMAINING MONTHS FALLING D URING THE YEAR UNDER CONSIDERATION, THE ABOVE SAID DEBTORS HAVE ACCOUNTED FOR THE INTER EST PAYABLE AND HAVE ALSO DEDUCTED TDS FROM THEM. THE ASSESSEE HAS FAILED TO ACCOUNT THE INTEREST RECEIVABLE AMOUNT ON I.T.A. NO.503/MUM/2012 7 THE REASONING THAT THEY HAVE DEFAULTED PAYMENT OF I NTEREST SUBSEQUENT TO AUGUST, 2007. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THOUGH THE ASSESSEE CONTENDS THAT HE HAS NOT RECEIV ED THE INTEREST AMOUNT TILL DATE, IN OUR VIEW, THE CIRCUMSTANCES THAT PREVAILED ON 31.3. 2008 NEEDS TO BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT YEAR 2008-09. IN OUR VIEW, T HE ASSESSEE COULD NOT HAVE COME TO A CONCLUSION BY 31.3.2008 THAT THE INTEREST AMOUNT WILL NOT BE RECEIVED AT ALL. BEFORE US ALSO, THE ASSESSEE DID NOT PRODUCE ANY DOCUMENT TO SHOW THAT THERE EXISTED THE CIRCUMSTANCES AT LEAST BY THE DUE DATE FOR FILING R ETURN OF INCOME, WHICH HAS LEAD HIM TO COME TO THE BELIEF THAT HE WILL NOT RECEIVE INTERES T ANY MORE. AS RIGHTLY POINTED OUT BY LD CIT(A), THE NON-RECEIPT OF INTEREST ALONE CANNOT BE A CRITERIA FOR NOT OFFERING THE SAME AS THE INCOME OF THE ASSESSEE, SINCE THE SAME HAS ACCRUED TO HIM AND THE SAID ACCRUAL HAS ALSO BEEN ACKNOWLEDGED BY THE DEBTORS. HENCE, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ASSESSMENT OF DIFFE RENCE AMOUNT OF INTEREST. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25TH JUNE, 2014. ,- ( ./ 0 1 25TH JUNE, 2014 - ' ) 2 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER . ( ) MUMBAI: 25 TH JUNE,2014. . . ./ SRL , SR. PS I.T.A. NO.503/MUM/2012 8 ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 5 #* 6 , + 6 , . ( ) / DR, ITAT, MUMBAI CONCERNED 6. 7) / GUARD FILE. 8 ( / BY ORDER, TRUE COPY 9 (ASSTT. REGISTRAR) + 6 , . ( ) /ITAT, MUMBAI