DCIT 7(2), MUMBAI V. SAVILLE ESTATES P.LTD, MUMBAI

ITA 5441/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84506 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 08-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBEY
• Assessee Lawyers: NATASHA MANGAT
• Keywords: Business income; Opportunity of being heard; Bonafide belief; Initiation of penalty proceedings
• Section: 143(3)

Judgement Text

, , ,, , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI , .. , ! BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER . / ITA NO.5441/MUM/2013 ' ' ' ' #' #' #' #' / ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME-TAX-7(2), ROOM NO.624, M.K.ROAD, MUMBAI-400020 VS. M/S SAVILLE ESTATES PVT. LTD. SQUARE ONE, 1 ST FLOOR, ABOVE MARCCAIL, JVPD, GULMOHSAR ROAD, VILE PARLE(W), MUMBA-400049 ( $ / REVENUE) ( %&'( / RESPONDENT ) P.A. NUMBER : AAGCS7058H $ ) * / REVENUE BY: SHRI SACHIDANAND DUBEY %&'( ) * / RESPONDENT BY : MS. NATASHA MANGAT ) +, / DATE OF HEARING : 11/12/2014 -.# ) +, / DATE OF PRONOUNCEMENT : 15/12/2014 O R D E R PER JOGINDER SINGH, JM: THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 13/05/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MUM BAI, CHALLENGING DELETION OF PENALTY IMPOSED U/S 271(1)(C) OF THE IN COME TAX ACT, 1961(HEREINAFTER THE ACT) HOLDING THAT THE ASSESSEE WAS UNDER A 2 M/S SAVILLE ESTATES PVT. LTD. BONAFIDE BELIEF THAT THE PROFIT AND GAINS FROM INDUSTRIAL PA RK WAS ASSESSABLE AS BUSINESS INCOME WITHOUT APPRECIATING THE FACTS BY FURTHER HOLDING THAT THE ASSESSEE HAS SATISFACTORIL Y EXPLAINED THE INTEREST DETAILS. 2. AT THE TIME OF HEARING, BEFORE US, THE LD. DR, S HRI SACHIDANAND DUBEY, ADVANCED HIS ARGUMENTS IDENTICAL TO THE GROU ND RAISED BY SUBMITTING THAT THE TRIBUNAL REMANDED THE PART ADDI TION/QUANTUM ADDITION TO THE FILE OF THE ASSESSING OFFICER AS NE CESSARY DETAILS WERE NOT FILED BY THE ASSESSEE. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, MS. NATASHA MANGAT, DEFENDED THE CONCLUSI ON DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON A TOTAL INCOME OF RS.1,64,56,218/- ON 30/10/2009 AS AGAINST THE RETUR NED INCOME OF RS.53,66,547/-. IT WAS OBSERVED BY THE ASSESSING O FFICER THAT THE ASSESSEE RECEIVED RENTAL INCOME OF RS.3,94,49,424/- FROM LEASING OUT OF MIT MARATHON INDUSTRIAL PARK TO AXA BUSINESS SER VICES PVT. LTD. AND TREATED THE SAME AS BUSINESS INCOME. THE LD. ASSES SING OFFICER WHILE PLACING RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMEN TS TREATED THE SAME AS INCOME FROM HOUSE PROPERTY AND DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE SUCH AS INTEREST ON CAR LOA N, MOTOR CAR EXPENSE, REPAIR AND MAINTENANCE EXPENSES, CAR INSUR ANCE PREMIUM, ETC. IT WAS ALSO NOTICED THAT THE ASSESSEE PAID TOT AL SUM OF RS.1,71,71,136/- AS INTEREST ON LOAN TAKEN FROM HDFC BANK. THE ASSESSING OFFICER COMPUTED THE AMOUNT OF INTEREST, ATTRIBUTABLE TO THE LOAN FOR HOUSE PROPERTY AND THUS INTEREST AMOUNTING TO RS. 74,05,016/- WAS NOT ALLOWED FOR DEDUCTION AGAINST I NCOME FROM HOUSE PROPERTY. PENALTY PROCEEDINGS WERE INITIATED. THE RE IS CATEGORICAL 3 M/S SAVILLE ESTATES PVT. LTD. FINDING IN THE PENALTY ORDER THAT BUT THE ASSESSEE NEITHER APPEARED BEFORE THE UNDERSIGNED NOR SUBMITTED ANY DETAILS RE GARDING THE INITIATION OF PENALTY PROCEEDINGS. SO IT IS INFERRE D THAT THE ASSESSEE COMPANY HAS NOTHING TO SAY REGARDING THE INITIATION OF PENALTY PROCEEDINGS. 3.1. WE NOTE THAT ON QUANTUM ADDITION, THE MATTER T RAVELLED TO THE TRIBUNAL, WHEREIN VIDE ORDER DATED 10/07/2013, THE BENCH POINTED OUT TO THE LD. COUNSEL FOR THE ASSESSEE THAT SOME O F THE ISSUES WERE NOT CONSIDERED BY THE ASSESSING OFFICER AT ASSESSME NT STAGE. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THIS FACTU AL ASPECT. THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED FOR STATI STICAL PURPOSES. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS RE PRODUCED HEREUNDER FOR READY REFERENCE: 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED INCOME OF RS.3,94,49,424/- ARISING FROM L EASING OUT OF MIT MARATHON INDUSTRIAL PARK TO AXA BUSINESS SERVICES PVT. LTD. THE ASSESSEE HAD SHOWN THIS UNDER THE HEAD BUSINESS INCOME. THE AO WAS OF THE FIRM BELIEF THAT THIS RENT INCOME SHOULD BE CHARGED UNDER THE HEAD INCO ME FROM HOUSE PROPERTY. AFTER GIVING A REASONABLE OPP ORTUNITY TO EXPLAIN ITS CASE, THE AO FINALLY CONCLUDED THAT TH E RENTAL INCOME OF RS. 3,94,49,424/- EARNED FROM LEASING OUT OF MIT MARATHON INDUSTRIAL PARK TO AXA BUSINESS SERVICES PV T. LTD. IS TO BE TAXED AS INCOME FROM HOUSE PROPERTY. THE A O ALLOWED THE CREDIT FOR THE MUNICIPAL TAXES PAID AT RS . 21,41,132/-. THEREAFTER, THE AO WENT ON TO DISCUSS THE CLAIM OF INTEREST OF RS. 1,80,99,746/-. IT WAS EXPL AINED THAT 4 M/S SAVILLE ESTATES PVT. LTD. THE TERM LOAN HAS BEEN TAKEN FOR THE ACQUISITION OF THE PREMISES, THEREFORE, THE INTEREST PAYMENT SHOULD BE ALLOWED AS DEDUCTION U/S. 24(B) OF THE ACT. HOWEVER, THE AO OBSERVED THAT THE TERM LOAN ON WHICH THE ASSESSEE IS PAYING INTEREST HAS BEEN TAKEN AGAINST THE MORTGAGE OF THE LET OUT PROPERTY. THE AO WAS OF THE OPINION THAT THE INTERE ST ON TERM LOAN IS NOT DIRECTLY ATTRIBUTABLE TO THE CAPIT AL/LOAN USED IN THE ACQUISITION OF THE PREMISES RENTED OUT , THE ASSESSEE WAS SHOW CAUSED VIDE ORDER SHEET ENTRY DT. 25.8.2009 AS TO HOW MUCH OF THE INTEREST PAID CLAIMED IS ATTRIBUTABLE TO THE CAPITAL /LOAN USED IN THE ACQUISITION OF THE PREMIS ES RENT OUT. 3.1. THE ASSESSEE DID NOT FILE ANY DETAILS/EXPLANATIO N. THE ASSESSING OFFICER PROCEEDED WITH THE MATERIAL AVAILA BLE ON RECORD AND NOTED THAT THE ASSESSEE HAS COMPLETED THE CONSTRUCTION OF THE PREMISES IN THE FINANCIAL YEAR 2004-05 AND IN THE SAME YEAR, THE PREMISES WERE LET OUT. TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD A SEC URED LOAN LIABILITY OF RS. 13,63,08,806/- TAKEN FROM JEE VAN SAHGAKARI BANK LTD AND INDUSIND BANK LTD AND UNSECURED LOANS OF RS. 4,52,70,284/- IN THE FINANCIAL YEAR 20 04-05. THE ASSESSEE HAS ALSO ADVANCED A LOAN OF RS. 1,34,78,984/-. THUS, ACCORDING TO THE AO, THE ASSES SEE HAD TAKEN A TOTAL LOAN OF RS. 16,81,00,106/- FOR THE PU RCHASE AND CONSTRUCTION OF THE PROPERTY. THE AO FURTHER NOT ED THAT THE SECURED LOANS WERE INTEREST BEARING AND THE UNSEC URED LOANS WERE NONINTEREST BEARING. THE AO FURTHER NOTE D THAT SUBSEQUENTLY, IN FINANCIAL YEAR 2005-06, THE ASSESS EE REPAID THE SECURED LOANS TAKEN FROM JEEVAN SAHAKARI BANK 5 M/S SAVILLE ESTATES PVT. LTD. LTD. AND INDUSIND BANK LTD. BY TAKING ANOTHER LOAN OF RS. 24 CRORES FROM HDFC BANK LTD. THE AO FURTHER OBSERVE D THAT THE ASSESSEE HAD REPAID A TOTAL AMOUNT OF RS. 12,29,93,257/-, THEREFORE, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF INTEREST ONLY IN RESPECT OF THIS AMOUNT. ON THE BASIS OF THESE OBSERVATIONS, THE AO WENT ON TO CALCULATE THE INTEREST ON LOAN ATTRIBUTABLE TO HOUSE PROPERTY AND COMPUTED S UCH INTEREST AT RS. 97,66,120/- AND DISALLOWED THE BALAN CE AMOUNT. 4. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. C IT(A) AND EXPLAINED THE NATURE OF TRANSACTION AND THE BORRO WINGS. IT WAS THE CLAIM OF THE ASSESSEE THAT IT HAS PAID A TOTAL AMOUNT OF RS. 1,77,71,136/- AS INTEREST ON THE LOAN TAKEN FROM HDFC BANK. DURING THE APPELLATE PROCEEDINGS, T HE ASSESSEE SUBMITTED A CHART OF BORROWINGS, THE SAME I S EXHIBITED AT PAGE-4 OF CIT(A)S ORDER. IT WAS EXPLAIN ED THAT THE AO HAS ERRONEOUSLY TAKEN A FIGURE OF BORROWINGS WHICH HAVE BEEN REPAID AT RS.1319.93 LAKHS, THE SAME SHOUL D HAVE BEEN AT RS. 1661.58 LAKHS. THE LD. CIT(A) WENT ON TO COMPUTE ON HIS OWN THE ALLOWABLE INTEREST AS PER TH E WORKING GIVEN AT PAGE-6 OF HIS ORDER AND COMPUTED THE ALLOWABLE INTEREST AT RS. 71,04,376/- AS AGAINST RS . 97,66,120/- COMPUTED BY THE AO AND DIRECTED THE AO TO RESTRICT THE ALLOWANCE OF INTEREST AT RS. 71,04,376 /-, IN OTHER WORDS, THE LD. CIT(A) ENHANCED THE INCOME. 5. AGGRIEVED BY THIS FINDING OF THE LD. CIT(A), ASSESS EE IS BEFORE US. BEFORE US, THE LD. COUNSEL FOR THE ASSESS EE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT WHILE 6 M/S SAVILLE ESTATES PVT. LTD. COMPUTING THE ALLOWABLE INTEREST, THE LD. CIT(A) HA S PROCEEDED WITH THE BELIEF THAT THE ASSESSEE MUST HAV E UTILIZED ITS OWN FUNDS AMOUNTING TO RS. 419.91 LACS F OR THE REPAYMENT OF LOANS. IT IS THE SAY OF THE LD. COUNSEL THAT ONCE MONIES ARE AVAILABLE, IT IS FOR THE ASSESSEE T O TAKE A BUSINESS DECISION FOR APPLICATION OF FUNDS. WHERE TH ERE ARE BOTH BORROWED FUNDS AS ALSO INTEREST FREE FUNDS, THE DISCRETION LIES IN THE HANDS OF THE ASSESSEE FOR THE UTILIZATION OF THOSE FUNDS. THEREFORE, THE LD. CIT(A) GROSSLY ERR ED IN PRESUMING THAT THE ASSESSEE MUST HAVE UTILIZED ITS O WN FUNDS FOR REPAYING THE LOAN. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS ALSO ERRE D IN MISCALCULATING THE AMOUNT OF LOANS REPAID. THE CORRE CT FIGURE IS RS. 16,61,58,000/- WHEREAS THE AO HAS TAKEN RS. 13,19,93,257/-. IT IS THE SAY OF THE LD. COUNSEL THA T EVEN THE INTEREST FIGURE HAS BEEN WRONGLY TAKEN AT RS. 17,77,11,136/- WHEREAS THE CORRECT FIGURE IS RS. 1,80,99,746/-. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON TH E FINDINGS OF THE AO. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREF ULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE UND ISPUTED FACTS EMERGING OUT OF THE ORDER OF THE LOWER AUTHOR ITIES ARE THAT THE ASSESSEE HAD BORROWINGS IN EARLIER YEARS T OWARDS THE CONSTRUCTION OF THE RENTED PREMISES. IT IS ALSO AN UNDISPUTED FACT THAT DURING THE YEAR, THE ASSESSEE HA D BORROWED MONEY FROM HDFC BANK FOR THE REPAYMENT OF OUTSTANDING LOANS. THE ENTIRE DISPUTE RELATE TO THE AMOUNT OF LOAN REPAID AS CLAIMED BY THE ASSESSEE AND HAS COMPUTE D 7 M/S SAVILLE ESTATES PVT. LTD. BY THE AO AND ALSO THE INTEREST PAID ON SUCH BORROWI NGS. IN OUR CONSIDERATE VIEW, THIS ISSUE DESERVES TO BE REV ISITED AT THE ASSESSMENT STAGE. WE, ACCORDINGLY, RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO V ERIFY THE ACTUAL AMOUNT OF LOAN REPAID DURING THE YEAR , WHETHE R SECURED OR UNSECURED. THE AO IS FURTHER DIRECTED TO VERIFY THE ACTUAL AMOUNT OF INTEREST PAID. THE ASSESSEE IS DIRECTED TO SUBMIT THE INTEREST CERTIFICATE FROM THE CONCERN ED BANK TO SUBSTANTIATE ITS CLAIM. THE AO IS FURTHER DIRECTED TO RECOMPUTE THE ALLOWABLE INTEREST U/S. 24[B] OF THE A CT AFTER DETERMINING THE ACTUAL REPAYMENT OF LOAN LIABILITY A S MENTIONED HEREINABOVE AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSE SSEE IS ALSO DIRECTED TO SUBMIT NECESSARY DETAILS BEFORE TH E AO. GROUND NO.1 & 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 3 RELATES TO THE CLAIM OF DEDUCTION OF EXPENSES LIKE AUDIT FEES, FILING FEES AND PRELIMINAR Y EXPENSES U/S. 35D OF THE ACT. 9. AT THE VERY OUTSET, THE BENCH POINTED OUT TO THE LD. COUNSEL THAT THESE ISSUES HAVE NOT AT ALL BEEN CONS IDERED BY THE AO AT THE ASSESSMENT STAGE. THE LD. COUNSEL F OR THE ASSESSEE FAIRLY CONCEDED THAT THESE ISSUES DO NOT ARIS E FROM THE ASSESSMENT ORDER, ACCORDINGLY GROUND NO. 3 IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 3.2. FROM THE AFORESAID ORDER OF THE TRIBUNAL, ONE F ACT IS OOZING OUT THAT THE APPEAL OF THE ASSESSEE IS ON QUANTUM ADDIT ION WAS PARTLY 8 M/S SAVILLE ESTATES PVT. LTD. ALLOWED AND REMANDED BACK TO THE FILE OF THE ASSESS ING OFFICER. THE PENALTY PROCEEDINGS ARE ALSO BORNE OUT OF ASSESSMEN T ORDER. IT IS ALSO NOTED THAT THE ASSESSEE DID NOT FILE THE NECESSARY DETAILS BEFORE THE ASSESSING OFFICER TO SUBSTANTIATE ITS CLAIM, THEREF ORE, IN VIEW OF THE AFORESAID ORDER OF THE TRIBUNAL AND ALSO TO SAFEGU ARD THE INTEREST OF BOTH SIDES, THIS PENALTY APPEAL IS ALSO SET ASIDE T O THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECT ED TO EXAMINE IMPOSITION OF PENALTY ON THE BASIS OF OUTCOME OF TH E QUANTUM ADDITION, IF ANY, AND DECIDE AFRESH ACCORDINGLY. T HE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. FINALLY, APPEAL OF THE REVENUE IS ALLOWED FOR STATIS TICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION O F THE HEARING ON 11/12/2014. SD/- SD/- (B.R. BASKARAN) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED - 15/12/2014 F{X~{T? P.S/. . . / / / / ) )) ) %+0 %+0 %+0 %+0 10#+ 10#+ 10#+ 10#+ / COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. %&'( / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- 4. 2 / CIT 5. 03 %+ , , / DR, ITAT, MUMBAI 6. 34' 5 / GUARD FILE. / / / / / BY ORDER, &0+ %+ //TRUE COPY// 6 66 6 / 7 7 7 7 $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI