BHUPATI INVESTMENTS & FINANCE PVT. LTD., MUMBAI V. DCIT - 5(1), MUMBAI

ITA 5167/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1010 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGHSEN LD
• Assessee Lawyers: ARATI VISSANJI LD
• Keywords: Business income; Depreciation; Business expenditure; Rule of consistency; Earning of tax free income; Unabsorbed depreciation
• Section: 143(3); 14A; 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI .. , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 5167/MUM/2016 ( ASSESSMENT YEAR: 2005-06) BHUPATI INVESTMENTS & FINANCE PRIVATE LIMITED B-34/35, 3 RD FLOOR PARAGON CONDOMINIUM P.B.MARG WORLI MUMBAI 400 018 / VS. DEPUTY COMMISSIONER OF INCOME TAX-5(1) AAYAKAR BHAVAN M.K.ROAD MUMBAI 400 020 $% '/ & '/ PAN/GIR NO. AAACB-0441-P ( ! %' / APPELLANT ) : ( ()%'# RESPONDENT ) ! %'* # APPELLANT BY : MS. ARATI VISSANJI, LD. AR ()%'* / RESPONDENT BY : SHRI M.C.OMI NINGHSEN, LD. DR / DATE OF HEARING : 10/04/2017 / DATE OF PRONOUNCEMENT : 24 /04/2017 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2005-06 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S)-10 [CIT(A)], MUMBAI DATED 20/05/2016 QUA CONFIRMING THE ACTION OF LD. ASSESSING OFFICER [AO] IN TREATING INTEREST INCOME EARNED BY THE ASSESSEE UNDER THE HE AD INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME CLAIMED BY THE ASSESSEE AND CONSEQUENTIAL DISALLOWA NCE OF BUSINESS EXPENSES. THIS IS SECOND ROUND OF APPEAL B EFORE US. 2. BRIEFLY STATED, THE ASSESSEE, BEING RESIDENT COR PORATE ASSESSEE, WAS SUBJECTED TO AN ASSESSMENT U/S 143(3) READ WITH SECTION 254 OF THE INCOME TAX ACT, 1961 VIDE ASSESSING OFFICER ORDER DATED 29/11/2013 WHEREIN TH E TOTAL INCOME OF THE ASSESSEE WAS DETERMINED AT NIL UNDER NORMAL PROVISIONS AFTER SETTING-OFF OF BROUGH T FORWARD UNABSORBED DEPRECIATION OF RS.8,50,674/-. THE BOOK PROFITS U/S 115JB WERE DETERMINED AT RS.6,52,930/-. DURING ORIGINAL APPELL ATE PROCEEDINGS BEFORE LD. CIT(A), THE ASSESSEE SUFFERED ENHANCED DISALLOWANCE OF RS.26,31,070/- U/S 14A READ WITH RULE 8D AND DISALLOWANCE OF ENTIRE BUSINESS EXPENDITURE OF RS.55,41,029/- AS THE INTEREST INCOME OF RS.53,97,992/- EARNED BY THE ASS ESSEE WAS TREATED UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME CLAIMED BY HIM . THE ORDER OF LD. CIT(A) WAS CONTESTED BEFORE TRIBUNAL VIDE ITA NO. 1145/MUM/2010 ORDER DATED 04/07/2012 WHERE THE TRIBUNAL SET ASIDE THE ORDER OF LD. CIT( A) ON VARIOUS ISSUES AND REMITTED THE MATTER BACK TO THE FILE OF AO FOR FRESH RECONSIDERATION OF CERTAIN MATTERS. IN THE SAID TRIBUNAL ORDER, THE DI SALLOWANCE U/S 14A WAS RESTRICTED TO 2%. 3. PURSUANT TO THE SAID DIRECTIONS, THE LD. AO, VID E ITS ORDER DATED 29/11/2013, AFTER CONSIDERING THE DECISION OF LD. CIT(A) IN ASS ESSEES OWN CASE FOR AY 2001-02, CAME TO THE CONCLUSION THAT INTEREST INCOME EARNED BY THE ASSESSEE WAS CHARGEABLE AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME CLAIMED BY HIM AND 3 CONSEQUENTLY DISALLOWED ENTIRE BUSINESS EXPENSES OF RS.55,41,029/- AGAINST THE SAME. THE ALTERNATIVE SUBMISSION MADE BY THE ASSESSEE TO ALLOW THE BUSINESS EXPENDITURE U/S 57 WAS ALSO TURNED DOWN AFTER NOTING THAT THE ASSES SEE FAILED TO SUBSTANTIATE ITS CLAIM IN THIS REGARD. THEREAFTER, THE LD. AO COMPUTED DIS ALLOWANCE U/S 14A @2% ON EXEMPT DIVIDEND INCOME OF RS.1,62,31,442/- AS PER T HE DIRECTIONS OF THE TRIBUNAL WHICH CAME TO RS.3,24,629/- AND AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.7,726/- MADE BY THE ASSESSEE, THE NET ADDITION THUS WORKED OUT WAS RS.3,32,355/-. AGAIN AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN SECON D ROUND BEFORE LD. CIT(A) VIDE ORDER DATED 20/05/2016 AND CONTENDED THAT SIMILAR I NCOME IN OTHER ASSESSMENT YEARS HAS BEEN TREATED UNDER THE HEAD BUSINESS INCOME. HOWEVER, LD. CIT(A) REJECTED THE ASSESSEES STAND ON THE PREMISES THAT AMOUNTS WERE ADVANCED TO SISTER CONCERNS WHICH DO NOT CONSTITUTE A BUSINESS ACTIVITY. AGGRIEVED BY THE SAME, THE ASSESSEE IS IN SECOND ROUND OF APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE [AR], ARATI VISSANJI , WHILE DRAWING OUR ATTENTION TO VARIOUS DOCUMENTS PLACED IN THE PAPER-BOOK, CONTENDED THAT THE ASSESSEE IS A REGISTERED NON- BANKING FINANCIAL COMPANY [NBFC] WITH RBI SINCE THE YEAR 2002 AND ENGAGED IN THE BUSINESS OF ACCEPTING / GRANTING LOANS, INVESTMENTS, DEPOSITS ETC. IN TERMS OF THE REGISTRATION GRANTED TO IT BY THE S TATUTORY BODY. ACCORDINGLY, THE ASSESSEE EARNS INCOME FROM THESE LOANS / INVESTMENT S / DEPOSITS ETC. WHICH CONSTITUTE BUSINESS INCOME / ACTIVITY OF THE ASSESSEE. THE REV ENUE HAS REJECTED THE STAND OF THE ASSESSEE ONLY ON THE PREMISES THAT THE INVESTMENTS / DEPOSITS HAVE BEEN MADE TO SISTER CONCERNS. HOWEVER, UNDERTAKING THESE ACTIVITIES PER SE WITH SISTER CONCERNS DO NOT ALTER THE CHARACTER OF INCOME EARNED BY THE ASSESSE E IN ANY MANNER AND THERE IS NOTHING IN LAW WHICH PROHIBITS THE UNDERTAKING OF S UCH TRANSACTIONS. FURTHER, THE REVENUE IN ALL THE PRECEDING AND SUCCEEDING YEARS A CCEPTED SIMILAR INCOME EARNED BY ASSESSEE AS BUSINESS INCOME IN VARIOUS ASSESSMENTS U/S 143(1) / 143(3) AND THEREFORE, PRECLUDED TO TAKE A DIFFERENT STAND WITH OUT THERE BEING ANY CHANGE IN THE FACTS AND THE ASSESSEE DESERVES BENEFIT OF RULE OF CONSISTENCY PARTICULARLY WHEN IT IS IN 4 THE SAME LINE OF BUSINESS SINCE PAST MANY YEARS. EV EN ALTERNATIVELY, PRESUMING THAT THE INCOME WAS CHARGEABLE AS INCOME FROM OTHER SOURCES , THE ASSESSEE WAS STILL ENTITLED TO CLAIM THESE EXPENSES U/S 57. RELIANCE H AS BEEN PLACED ON VARIOUS JUDICIAL PRONOUNCEMENTS FOR RULE OF CONSISTENCY AS WELL AS A SSESSEES ALTERNATIVE CLAIM U/S 57. 5. PER CONTRA, LD. DR SUPPORTED THE STAND TAKEN BY LOWER AUTHORITI ES AND CONTENDED THAT THE ASSESSEE DID NOT CARRY OUT ANY B USINESS ACTIVITY DURING THE YEAR AND MERELY ADVANCED LOANS TO SISTER CONCERN AND MOREOVE R, PRINCIPLES OF RES JUDICATA COULD NOT BE APPLIED TO INCOME TAX PROCEEDINGS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAWS. FIRST OF ALL, IT IS NOTE D THAT THE ASSESSEE IS A DULY REGISTERED NBFC ENTITY VIDE CERTIFICATE OF REGISTRATION NUMBER B-13 01151 DATED 28/01/2002 GRANTED BY RBI, AS PLACED IN THE PAPER BOOK . FURTHER, THE ASSESSEES MAIN OBJECT INCLUDED MONEY LENDING BUSINESS AS PER ITS MEMORANDUM OF ASSOCIATION AS NOTED BY HONBLE BENCH OF THE TRIBUNAL IN THE FIRST ROUND OF APPEAL. FURTHER, A PERUSAL OF VARIOUS ASSESSMENT ORDERS PASSED U/S 143(3) IN ASSE SSEES CASE FOR AY 2003-04, 2008- 09, 2009-10, 2011-12, 2012-13 & 2013-14 PLACED IN T HE PAPER BOOK REVEALS THAT SIMILAR INCOME EARNED BY ASSESSEE HAS BEEN TREATED UNDER THE HEAD BUSINESS INCOME . ALTHOUGH WE ARE CONSCIOUS OF THE FACT THAT THE PRIN CIPLES OF RES JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS, YET RULE OF CONSISTENCY DEMANDS THAT SIMILAR VIEW IS TAKEN IN SIMILAR CIRCUMSTANCES AS UPHELD BY APEX COURT IN CIT VS. EXCEL INDUSTRIES LTD. / MAFATLAL INDUSTRIES PVT. LTD. 358 ITR 295 JUDGMENT DATED 08/10/2013 AND ALSO BY JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN CIT VS. GOPAL PUROHIT 336 ITR 287 JUDGMENT DATED 06/01/2010. FURTHER, ADVANCING OF MONEY TO SISTER CONCERN PER SE DOES NOT ALTER THE CHARACTER OF INCOME IN THE HANDS OF T HE ASSESSEE PARTICULARLY WHEN THE ASSESSEE WAS SUBJECTED TO TERMS AND CONDITIONS IMPO SED BY THE RBI FOR NBFC COMPANIES. ALL THESE OBSERVATIONS / FACTORS LEAD US TO CONCLUDE THAT THE INCOME EARNED BY THE ASSESSEE WAS CHARGEABLE UNDER THE HEAD BUSINESS INCOME . WE DIRECT SO AND THEREFORE, GROUND NO.1 OF ASSESSEES APPEAL STANDS ALLOWED. 5 7. GROUND NUMBER 2 IS RELATED WITH ALLOWANCE OF BUS INESS EXPENDITURE AGAINST THE BUSINESS INCOME. SINCE WE HAVE ALREADY ALLOWED GROU ND NO. 1 OF ASSESSEES APPEAL, AS A NATURAL COROLLARY, LEGITIMATE BUSINESS EXPENSE S INCURRED BY THE ASSESSEE AGAINST THE SAME SHALL BE ALLOWABLE AS PER LAW. PRIMA FACIE, THE BUSINESS EXPENSES CLAIMED BY THE ASSESSEE HAS NOT BEEN EXAMINED BY THE LD. AO DU RING ANY ORIGINAL AS WELL AS SET ASIDE PROCEEDINGS AND THEREFORE, WE REMIT THE ISSUE OF VERIFICATION OF THESE EXPENSES TO THE FILE OF LD. AO WITH A DIRECTION TO ALLOW THE SA ME AS PER LAW AFTER DUE VERIFICATION. THE ASSESSEE IS ALSO DIRECTED TO SUBSTANTIATE HIS C LAIM FORTHWITH IN THIS REGARD FAILING WHICH THE LD. AO SHALL BE AT LIBERTY TO DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. RESULTANTLY, THIS GROUND OF AS SESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. TO SUM UP, THE INTEREST INCOME EARNED BY ASSESSE E SHALL BE TREATED AS BUSINESS INCOME AGAINST WHICH ADMISSIBLE BUSINESS EXPENSES SHALL B E ALLOWED BY AO AFTER DUE VERIFICATION. THE ASSESSE SHALL SUFFER DISALLOWANCE OF 2% OF EXEMPT INCOME U/S 14A AS DIRECTED BY THE TRIBUNAL IN FIRST ROUND. THE AO SHA LL RE-COMPUTE CARRY-FORWARD / SET- OFF OF BUSINESS LOSSES / UNABSORBED DEPRECIATION, I F ANY AND ALSO RE-COMPUTE BOOK PROFITS U/S 115JB AFTER GIVING EFFECT TO OUR ABOVE DIRECTI ONS. 9. IN NUTSHELL, THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 24.04.2017 SR.PS:- THIRUMALESH 6 !'! / COPY OF THE ORDER FORWARDED TO : 1. ! %' / THE APPELLANT 2. ()%' / THE RESPONDENT 3. 45!6 / THE CIT(A) 4. 4 / CIT CONCERNED 5. 7 ( , 8 , ! 8 , / DR, ITAT, MUMBAI 6. 9: / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI