J.K. INVESTORS (BOMBAY) LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 5051/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75605 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-02-2014
• Assessment Year: misc
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Earning of tax free income
• Section: 14A; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./I.T.A. NO.5051/M/2010 ( AY: 2007 - 2008 ) J.K. INVESTORS (BOMBAY) LIMITED, NEW HIND HOUSE, 3, N.M. MARG, BALLARD ESTATE, MUMBAI 400 001. / VS. ADDL. CIT, RANGE 2(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACJ 2089 D ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.5682/M/2010 ( AY: 2007 - 2008 ) ADDL. CIT, RANGE 2(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. J.K. INVESTORS (BOMBAY) LIMITED, NEW HIND HOUSE, 3, N.M. MARG, BALLARD ESTATE, MUMBAI 400 001. ./ PAN : AAACJ 2089 D ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI NITESH JOSHI / REVENUE BY : SHRI O.P. SINGH, DR / DATE OF HEARING :19.2.2014 / DATE OF PRONOUNCEMENT :19.2.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. APPEAL ITA NO.5051/M/2010 IS FILED BY THE ASSESSEE AND ITA NO.5682/M/2010 IS FILED BY THE REVENUE. SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIV EN IN THE SUCCEEDING PARAGRAPHS. 2 2. FIRSTLY, WE SHALL TAKE UP THE APPEAL ITA NO.5051/M/2010 FILE D BY THE ASSESSEE ON 17.6.2010 AGAINST THE ORDER OF THE CIT (A) - II, MUMBAI DATED 25.7.2003. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1) A) THE LD CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING THE EXPENSES OF RS. 78,48,684/ - UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ON THE GROUND THAT THE SAME ARE RELATABLE TO EARNING OF THE DIVIDEND INCOM E. B) THE APPELLANT SUBMITS TH A T THE LD CIT (A) OUGHT TO HAVE HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING ADDITIONAL EXPENSES UNDER SECTION 14A WHERE THE APPELLANT HAD ALREADY DISALLOWED INTEREST EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN ADDITION TO THIS, IT HAD ALSO DISALLOWED DEMAT CHARGES . FURTHER, A DISALLOWANCE OF RS. 10,000/ - HAS BEEN MADE OUT OF OTHER EXPENSES FOR A REMOTE POSSIBILITY THAT S UCH EXPENSES TO A CERTAIN EXTENT MAY HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. C) THE APPELLANT SUBMITS THAT HAVING MADE THE AFORESAID DISALLOWANCE, SECTION 14A(3) WILL NOT HAVE ANY APPLICATION. D) THE APPELLANT SUBMITS THAT SECTION 14 A(2) AND 14A(3) WERE INTRODUCED BY THE FINANCE ACT, 2007 WITH EFFECT FROM 1.4.2007 AND RULE 8D WAS INTRODUCED VIDE NOTIFICATION DATED 24.3.2008 AND CANNOT BE APPLIED IN DETERMINING THE TAXABLE INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL. E) THE APPELLANT S UBMITS THAT THE LD CIT (A) OUGHT TO HAVE HELD THAT THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF RULE 8D TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IS VOID AB INITIO AS THE ASSESSING OFFICER HAS FAILED TO RECORD ANY DISSATISFACTION WITH REGARD TO THE CLAIM THAT DISALLOWANCE MADE BY THE APPELLANT IN PROPER AND SCIENTIFIC, WHICH IS A CONDITION PRECEDENT TO INVOKE THE PROVISIONS OF RULE 8D AND AS PER THE PROVISIONS OF SECTION 14A(2) AND 14A(3) OF THE ACT. 2. THE APPELLANT SUBMITS THAT THE AO BE DIRECTED TO DELETE THE DISALLOWANCE OF RS. 78,48,684/ - UNDER SECTION 14A OF THE ACT AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 3. EACH OF THE ABOVE GROUNDS OF APPEALS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 3. AT THE OUTSET, SHRI NITESH JOSHI, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ONLY ISSUE RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO THE APPLICABILITY OF PROVISIONS OF RULE 8D FOR THE AY 2007 - 2008. IN THIS REGARD, LD COUNSEL MENTIONED THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 7.92 CRS (ROUNDED OF) AND THE ASSESSEE MADE DISALLOWANCE OF EXPENDITURE TOWARDS EARNING OF THE EXEMPT INCOME TO THE TUNE OF RS. 58,26,697/ - . WITH THE SE BACKGROUND OF THE FACTS, LD COUNSEL ARGUED THAT THE AO INVOKED THE PROVISIONS OF RULE 8D AND DISALLOWED THE SUM OF RS. 78,48,684/ - IN CONTRAVENTION TO THE BINDING JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . FURTHER, HE MENTIONED THAT THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTU WORKS OUT TO MORE THAN 7.35%, WHICH IS EXCEEDED FAR ABOVE THE LIMIT OF 2% OF THE EXEMPT INCOME DECIDED BY THE HONBLE 3 BOMBAY HIGH COURT ALS O IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 . FURTHER, IT IS MENTIONED THAT THE DIFFERENCE BETWEEN THE REVENUE OFFICERS AND THE ASSESSEE IS MAINLY ON ACCOUNT OF INTEREST EXPENDITURE. MATTER TRAVE LLED TO THE FIRST APPELLATE AUTHORITY. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) QUANTIFIED THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE ON PROPORTIONATE BASIS WITHO UT REJECTING THE ASSESSEES BASIS HAVING REGARD TO THE ENTRIES IN THE BOOKS OF ACCOUNTS. 4. ON THE OTHER HAND, LD DR HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT (A). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE DECISION OF THE CIT (A), BEING ANOTHER BASIS ADOPTED BY HIM WHICH CONSTITUTE AN AD - HOC BASIS AND NOT SUPPORTED BY THE BOOKS OF ACCOUNTS OF THE ASSESSEE. FURTHER, IN OUR OPINION THE DISALLOWANCE MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, WHICH EXCEEDED THE LIMIT SET BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET (SUPRA), IS FAIR AND REASONABLE AND THE ORDER OF THE CIT (A) , CONFIRMING THE ADDITIONS MADE BY THE AO, IS REQUIRED TO BE REVERSED. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASS ESSEE IS ALLOWED. ITA NO.5682/M/2010 (AY 2007 - 2008) (BY REVENUE) 7. THIS APPEAL FILED BY THE REVENUE ON 13.7.2010 IS AGAINST THE ORDER OF THE CIT (A) - 5, MUMBAI DATED 7.5.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 8. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO ASSESS THE COMPENSATION RECEIVED FOR U SE OF AMENITIES AND FACILITIES AMOUNTING TO RS. 1,23,18,240/ - IN RESPECT OF LET OUT PROPERTY AT MAHINDRA TOWERS AS INCOME FROM HOUSE PROPERTY U/S 22 OF THE ACT INSTEAD OF INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. 4 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) FAILED TO APPRECIATE THAT COMPENSATION RECEIVED IN RESPECT OF AMENITIES AND FACILITIES PROVIDED BY THE ASSESSEE TO THE TENANT IS NOT AN INCOME DERIVED FROM HOUSE PROPERTY, HENCE NO FURTHER APPEAL IS RECOMMENDED NOT A SSESSABLE U/S 22 OF THE ACT. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 9. IN THIS APPEAL, REVENUE THE GROUNDS RAISED BY THE REVENUE REVOLVE AROUND THE ISSUE OF THE TAXABILITY OF THE SUMS RECEIVED TOWARDS USE OF AMENITIES AND FACILITIES UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS THE CASE OF THE ASSESSEE THAT THE RENTAL AGREEMENT AS WELL AS AGREEMENT FOR RENDERING OF SERVICES AND AMENITIES ARE INT ER CONNECTED AND THEREFORE, WHOLE OF THE RECEIPTS SHOULD BE SUBJECTED TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HOWEVER, THE AO TAXED THE AMOUNT OF RS. 1,23,18,240/ - RECEIVED TOWARDS THE SERVICES AND THE AMENITIES UNDER THE HEAD INCOME FROM OTH ER SOURCES. IN THIS REGARD, AT THE VERY OUTSET, LD COU NSEL MENTIONED THAT AN IDENTICAL ISSUE CAME UP FOR ADJUDICATION IN THE EARLIER YEARS AND THE MATTER WENT UP TO THE HONBLE HIGH COURT OF BOMBAY FOR THE AY 2004 - 2005, WHEREIN THE HIGH COURT HAS HELD AS UNDER: WHERE IN RESPECT OF TENANCY, SERVICES WERE NOT SEPARATELY PROVIDED BUT WENT ALONG WITH OCCUPATION OF PROPERTY, SERVICE CHARGES WOULD BE PART OF RENT TAXABLE UNDER HEAD INCOME FROM HOUSE PROPERTY. 10. CONSIDERING THE ABOVE SETTLED NATURE OF THE I SSUE ON THE IDENTICAL FACTS, WE ARE OF THE OPINION THAT THE DECISION OF THE CIT (A) ON THIS ISSUE VIDE PARA 3 OF HIS ORDER IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2014 . S D / - S D / - (VIVEK VARMA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 19 .2 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 5 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI