GLOBAL FINTECH P. LTD, MUMBAI V. DCIT CIR 9(1), MUMBAI

ITA 5063/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8848 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 13-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: ARUN SATHE MS AARTI SATHE
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER. I.T.A. NO. 5063/MUM/2011. ASSESS MENT YEAR :2005-06. GLOBLE FINTECH PVT. LTD., DY. COMMISSIONER OF FLAT NO.102 & 103,1 ST FLOOR, VS . INCOME-TAX, ARIHANT BUILDING, OPP. DARA HOUSE, CIRCLE-9(1), KHAR, GULNAZ, CO-OP. HSG. SOCIETY, MUMBAI. 15 TH ROAD, BANDRA (WEST), MUMBAI 400 050. PAN AAACG1389B APPELLANT RESPONDENT. APPELLANT BY : SHRI ARUN SATHE. MS. AARTI SATHE. RESPONDENT BY : SHRI AMAR DEEP. DATE OF HEARING : 11-09-2012. DATE OF PRONOUNCEMENT : 26-09-2012. O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-19, MUMBAI DATED 28-03-2011. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUN T OF ASSESSEES CLAIM FOR LOSS OF RS.21,92,000/-. 2 ITA NO. 5063/MUM/2011 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES AND MA KING LONG TERM INVESTMENTS IN GROUP COMPANIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28-10-2005 DECLARING LOSS OF RS.32,52,699/ -. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.21,92 ,000/- WAS DEBITED BY THE ASSESSEE COMPANY ON ACCOUNT OF LOSS ON SALE OF FLAT S. THE CLAIM OF THE ASSESSEE FOR THE SAID LOSS WAS EXAMINED BY THE AO DURING THE COU RSE OF ASSESSMENT PROCEEDINGS AND ON SUCH EXAMINATION, HE HELD FOR THE REASONS GI VEN IN THE ASSESSMENT ORDER THAT THE RELEVANT TRANSACTIONS GIVING RISE TO THIS LOSS WERE ONLY A MAKE BELIEF EXERCISE AND BY RECOVERING LESSER AMOUNT AS VALUE OF THE RES OLD FLATS AND THAT TOO TO THE BUILDERS THEMSELVES, IT WAS NOT A CASE OF ANY PRUDE NTIAL BUSINESS TRANSACTION BUT A COLOURABLE DEVICE ADOPTED TO AVOID THE INSTANCE OF TAX. KEEPING IN VIEW THIS CONCLUSION ARRIVED AT BY HIM AS WELL AS THE ADVERSE VIEW TAKEN ON A SIMILAR ISSUE IN THE ASSESSMENT COMPLETED IN ASSESSEES OWN FOR ASSE SSMENT YEAR 2003-04, THE CLAIM OF THE ASSESSEE FOR LOSS ON SALE OF FLATS WA S DISALLOWED BY THE AO IN THE ASSESSMENT COMPLETED U/S 143(3) BY AN ORDER DATED 0 4-10-2007. 4. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND AF TER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM AS WELL A S THE RELEVANT MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(APPEALS) CONFIRMED THE I MPUGNED DISALLOWANCE MADE BY THE AO FOR THE FOLLOWING REASONS GIVEN IN PARAGR APH NO. 8 OF HIS IMPUGNED ORDER : I HAVE CONSIDERED FACTS OF THE CASE, DECISION OF THE AO AND SUBMISSIONS AS MADE BY THE APPELLANT COMPANY. I HAV E ALSO GONE THROUGH THE MATERIAL AS FURNISHED BY THE APPELLANT COMPANY DURI NG THE COURSE OF HEARING OF THE APPEAL. THE APPELLANT HAS FURNISHED COPIES O F ALLOTMENT LETTERS FOR FLATS, SO ALSO COPIES OF SURRENDER LETTERS. FROM A READING OF THE ALLOTMENT LETTERS IT IS SEEN THAT RECITALS, AS PER ALLOTMENT LETTERS FROM THE DEVELOPER OF 3 ITA NO. 5063/MUM/2011 THE APPELLANT COMPANY, DOES NOT ANY WHERE MENTION A NY DEBT OR LOAN OR BORROWING FROM THE APPELLANT COMPANY. AS PER ALLOTM ENT LETTERS, THE POSSESSION OF THE FLATS HAVE BEEN GIVEN IN RETURN F OR CONSIDERATION. SUBSEQUENTLY, THE APPELLANT COMPANY HAD SURRENDERED THE ALLOTMENT LETTERS SO ALSO ORIGINAL RECEIPTS. ON SURRENDER, THE APPELL ANT ASKED FOR THE RETURN OF MONEY ALREADY PAID. IT IS FURTHER SEEN THAT THE SAI D PROPERTIES AFTER SURRENDER HAVE BEEN SOLD BY THE DEVELOPER TO INDIVIDUAL PARTI ES FOR A CONSIDERATION LESS THAN THAT RECEIVED FROM THE COMPANY. FROM THE DETAI LS IT APPEARS THAT ENTIRE TRANSACTION SEEMS TO HAVE BEEN ARRANGED IN SUCH A M ANNER THAT THERE WAS NO POSSIBILITY OR REALITY OF THE DEBS / SALE OF FLATS TRANSFORMING INTO POSITIVE INCOME. THERE IS NO LOGIC OR SUBSTANCE OFFERED BY T HE APPELLANT COMPANY FOR ACCEPTING AMOUNTS WHICH ARE STATED TO BE MUCH LESS THEN THE AMOUNTS ADVANCED. THERE ARE NO DETAILS ON RECORD NOR HAS AN Y MATERIAL BEEN FURNISHED SO AS TO JUSTIFY OR TO ARRIVE AT THE BASIS FOR THE AMOUNTS AS FIXED. NO DETAILS HAVE ALSO BEEN FURNISHED SO AS TO ESTABLISH OR DRAW A NEXUS BETWEEN LOANS ADVANCED AND AMOUNTS FINALLY RECEIVED TOWARDS ADJUS TMENT OF THE ADVANCE FROM THE BORROWER. IT APPEARS TO BE A CONVOLUTED T RANSACTION WHEREBY IT IS STATED THAT POSSESSION WAS DELIVERED THROUGH MEANS OF THE ALLOTMENT LETTERS AND THAT POSSESSION WAS REDELIVERED ON RECEIPT OF T HE SALE PROCEEDS FROM THE BUILDER / BORROWER WHO COLLECTED THE SAME FROM THE ULTIMATE BUYER. ONE FAILS TO UNDERSTAND WHY APPELLANT COMPANY DID NOT ON ITS OWN VENTURE TO SELL THE FLATS AS ALLOTTED, IN THE OPEN MARKET SO AS TO BE A DJUSTED AGAINST BORROWING. THE SUBMISSION THAT BEING UNFAMILIAR WITH THE ESTA TE MARKET AND HENCE IT HAD TO OFFER FLATS TO THE BUILDER TO PUT THE SAME T O SALE, DOES NOT CARRY ANY CONVICTION. THE WHOLE COURSE OF THE APPELLANTS ACT APPEARS TO BE IN THE NATURE OF A COLOURABLE DEVICE TO ESCAPE TAX LIABILI TY. WITHOUT PREJUDICE TO THE SAID OBSERVATIONS, IT IS ALSO STATED THAT LOSS AS D ISCLOSED CANNOT BE TREATED OR HELD TO BE BUSINESS LOSS. THE APPELLANT WAS IN THE BUSINESS OF PROVIDING HOUSING FINANCE. IN THE COURSE OF BUSINESS OF PROVI DING HOUSING FINANCE, MONIES WERE ADVANCED TO CERTAIN BUILDERS. WHEN THE BUILDERS WERE UNABLE TO MAKE REPAYMENT, THE COMPANY IS STATED TO HAVE BEEN PROCURED ALLOTMENT LETTERS IN ORDER TO GAIN POSSESSION OF THE PROPERTI ES AS MENTIONED. THE SAID ACT CAN ONLY BE SEEN AS AN ATTEMPT TO HAVE SOME SEC URITY FOR THE MONIES ADVANCED. FURTHER NO ATTEMPT WERE MADE TO SALE IMPU GNED PROPERTIES IN THE OPEN MARKET BY THE APPELLANT COMPANY. THEREFORE THE CONTENTION THAT ALLOTMENT WAS IN SETTLEMENT OF THE MONEY LENT IN TH E COURSE OF FINANCING BUSINESS OF THE ASSESSEE FAILS. THE FACT IS THAT TH OUGH ALLOTMENT LETTERS WERE RECEIVED, THE APPELLANT NEVER MADE ANY ATTEMPT FOR EXECUTION OF FORMAL CONVEYANCE AND FOR THIS VERY REASON THE BONAFIDES O F THE LOSS SUFFERED AS CLAIMED IS DOUBTED. THERE IS ABSOLUTELY NO MATERIAL TO SUBSTANTIATE 4 ITA NO. 5063/MUM/2011 EXPLANATION OF THE APPELLANT THAT THE TRANSACTION A S ENTERED INTO WAS A SALVAGING ACT FOR FEAR OF THREAT OF LOSS OF THE ENT IRE SUMS AS LENT. FOR THESE REASONS, AND ALSO FOR THE REASON NO MATERIAL WAS PL ACED BEFORE AO TO SUBSTANTIATE THE CLAIM OF LOSS, IT IS HELD THAT CLA IM OF LOSS OF RS.21,92000/- IS NOT ALLOWABLE AS BUSINESS LOSS. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY TH E LEARNED COUNSEL FOR THE ASSESSEE, SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE O N THIS ISSUE FOR ASSESSMENT YEAR 2003-04, THE TRIBUNAL RESTORED THE SAME TO THE FILE OF THE AO VIDE ITS ORDER DATED 06-04-2010 PASSED IN ITA NO.2739/MUM/2007 AFTER REC ORDING THE OBSERVATIONS/FINDINGS IN PARAGRAPH NO. 11 TO 14 AS UNDER : 11. BRIEF FACTS APROPOS THIS ISSUE ARE TAT FROM SC HEDULE-14 OF THE P&L ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD CLAIM ED RS.19,42,462/- BEING LOSS ON SALE OF FLATS AS A BUSINESS EXPENSES IN THE P&L ACCOUNT. HE REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF THE SAID LOS S AND ITS ALLOWABILITY. THE ASSESSEES REPLY DATED 18.3.2006 HAS BEEN REPRODUCE D IN PARA 5 OF HIS ORDER, AFTER CONSIDERING WHICH, THE AO OBSERVED AS UNDER:- THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN DULY CO NSIDERED. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE COPIES OF THE PURCHASE AND SALE AGREEMENT OF FLATS. THERE ARE NO WRITTEN A GREEMENTS OF DOCUMENTARY EVIDENCES BETWEEN THE ASSESSEE COMPANY AND THE ABOVE REFERRED LOAN PARTIES REGARDING THE SAME. IN ABSENC E OF DOCUMENTARY EVIDENCES AND FOR THE REASONS DISCUSSED ABOVE, THE LOSS ON SALE OF FLAT CLAIMED BY THE ASSESSEE IS DISALLOWED AND RS.19,42, 462/- IS ADDED BACK TO THE TOTAL INCOME. 12. BEFORE LD CIT (A), IT WAS POINTED OUT THAT THE ACTUAL LOSS ON SALE OF FLATS AND PARKING SPACE WAS RS.33,05,746/- INSTEAD OF RS. 19,42,462/-. IT WAS FURTHER STATED THAT COMPLETE DETAILS AND PROOF OF A GREEMENT WERE PRODUCED BEFORE THE AO. HOWEVER, LD CIT (A) DISMISSED THE AS SESSEES APPEAL OBSERVING AS UNDER:- 5 ITA NO. 5063/MUM/2011 IT APPEARS THAT THERE IS SOME MISTAKE IN THE FIGURE OF DISALLOWANCE WHICH HAS BEEN TAKEN AT RS.19,42,462/- BY THE AO IN STEAD OF APPELLANTS CLAIM OF RS.33,05,746/-. HOWEVER, I FIN D THAT EVEN DURING THE APPELLATE PROCEEDINGS ALSO NO DETAILS HAVE BEEN FURNISHED FOR CLAIMING SUCH LOSS ON SALE OF SUCH FLATS. THE AO IS , THEREFORE, DIRECTED TO DISALLOW THE LOSS AMOUNTING TO RS.33,05,746/- IN STEAD OF RS.19,42,462/- AND THUS, THE INCOME SHOULD BE ENHAN CED BY RS.13,63,284/-. 13. LD COUNSEL FOR THE ASSESSEE REFERRED TO PARA 5. 3 OF THE ASSESSMENT ORDER AND POINTED OUT THAT IN THE REPLY DATED 21.3.2006, IT IS, INTER ALIA, STATED AS UNDER:- THE NECESSARY DETAILS OF THE SALE IS ENCLOSED FOR YOUR READY REFERENCE. THE NECESSARY PROOF IS ENCLOSED HEREWITH. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. AS IS EVIDENT FROM THE ABOVE NOTED OBSERVATIO NS OF THE AO AND LD CIT (A) THAT NECESSARY DETAILS WERE NOT AVAILABLE BEFO RE THE LOWER REVENUE AUTHORITIES FOR ARRIVING AT THE CORRECT CONCLUSION. THE ASSESSEE HAS MERELY STATED THAT DETAILS OF THE SALE WERE ENCLOSED FOR R EADY REFERENCE ALONGWITH NECESSARY PROOF. IN OUR OPINION, THE ENTIRE ISSUE N EEDS TO BE THOROUGHLY EXAMINED BEFORE ARRIVING AT ANY CONCLUSION AND FOR THIS PURPOSE ALL THE NECESSARY DOCUMENTS NEEDS TO BE FURNISHED BEFORE TH E AO. WE, THEREFORE, AS AGREED BY BOTH THE SIDES, RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE ISSUE DENOVO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6. IT IS ALSO OBSERVED THAT FOLLOWING ITS DECISION RENDERED IN ASSESSMENT YEAR 2003-04 AS ABOVE, THE TRIBUNAL HAS RESTORED A SIMIL AR ISSUE TO THE FILE OF THE AO IN ASSESSMENT YEAR 2004-05 VIDE ITS ORDER DATED 24-11- 2010 PASSED IN ITA NO. 1491/MUM/2008 FOR DECIDING THE SAME AFRESH AS PER T HE SAME DIRECTION AS GIVEN IN ASSESSMENT YEAR 2003-04. AS THE ISSUE INVOLVED IN T HE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSESSMENT YEARS 2003- 04 AND 2004-05, WE RESPECTFULLY FOLLOW THE ORDERS O F THE TRIBUNAL FOR THESE YEAS AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DE CIDING THE SAME AFRESH AS PER THE 6 ITA NO. 5063/MUM/2011 SAME DIRECTIONS AS GIVEN IN ASSESSMENT YEAR 2003-04 . GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. THE ISSUE RAISED IN GROUND NO.2 RELATES TO THE D ISALLOWANCE OF RS.3,13,414/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) U/S 14A. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED D IVIDEND INCOME OF RS.31,34,135/- AND THE SAME WAS CLAIMED AS EXEMPT U /S 10(35). NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO T HE EARNING OF THE SAID EXEMPT INCOME, HOWEVER, WAS MADE BY THE ASSESSEE AS REQUIR ED BY THE PROVISIONS OF SECTION 14A. THE AO, THEREFORE, TREATED THE EXPENSE S INCURRED BY THE ASSESSEE UNDER THE VARIOUS HEADS TO THE EXTENT OF 10% OF TH E DIVIDEND INCOME AS ATTRIBUTABLE TO THE EARNING OF THE SAID DIVIDEND IN COME AND DISALLOWANCE TO THE EXTENT OF RS.3,13,414/- WAS MADE BY HIM U/S 14A. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT THE EXPENSES INCURRED BY THE ASSESSEE UNDER THE VARIOUS HEADS WERE ATTRIB UTED BY THE AO TO THE EXTENT OF 10% OF THE DIVIDEND INCOME AS INCURRED IN RELATION TO THE EARNING OF THE SAID DIVIDEND INCOME AND DISALLOWANCE U/S 14A AMOUNTING TO RS.3,13,414/- WAS ACCORDINGLY MADE BY HIM. THE SAID DISALLOWANCE HAS CONFIRMED BY THE LEARNED CIT(APPEALS) AFTER HAVING FOUND THAT THE SAME IS FA IR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE TIME OF HEARI NG BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO RAISE ANY MAT ERIAL CONTENTION TO SHOW THAT THE DISALLOWANCE MADE BY THE AO U/S 14A TO THE EXTENT O F 10% OF THE EXEMPT DIVIDEND INCOME IS UNREASONABLE OR EXCESSIVE IN THE FACTS AN D CIRCUMSTANCES OF THE ASSESSEES CASE. WE, THEREFORE, FIND NO JUSTIFIABLE REASONS TO INTERFERE WITH THE 7 ITA NO. 5063/MUM/2011 IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRM ING THE DISALLOWANCE MADE BY THE AO U/S 14A AND UPHOLDING THE SAME ON THIS I SSUE, WE DISMISS GROUND NO. 2 OF THE ASSESSEES APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 26 TH DAY OF SEPT., 2012. SD/- (VIVEK VARMA) JUDICIAL MEMBER SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER DATED : 26 TH SEPT., 2012 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI