MILAN R. MEHTA, MUMBAI V. I.T.O. 9(1)(4), MUMBAI

ITA 5446/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79559 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS AARTI VISANJI
• Keywords: Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , ! BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVA LAN, JM ' # I.T.A. NOS. 6479/MUM/2011 & 5446/MUM/2012 ( / ASSESSMENT YEARS: 2008-09 & 2009-10) MILAN R. MEHTA 351-A, JEEVAN VILLA, 2 ND FLOOR, NARAYAN DABHOKAR ROAD, NEPEANSEA ROAD, MUMBAI-400 006 # VS. ITO-9(1)(4), AAYAKAR BHAVAN, 2 ND FLOOR, ROOM NO. 262, CHURCHGATE, MUMBAI $ #'%' ./PAN/GIR NO. AACPM 4547 Q ( $& /APPELLANT ) : ( '($& / RESPONDENT ) $&)* / APPELLANT BY : MRS. AARTI VISANJI '($&)* / RESPONDENT BY : SHRI AMRITA SINGH + ,)- / DATE OF HEARING : 16.07.2014 ./0 )- / DATE OF PRONOUNCEMENT : 31.07.2014 '1# O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF TWO APPEALS BY THE ASSESSEE DIRECT ED AGAINST THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)-19, MUM BAI (CIT(A) FOR SHORT), PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEARS (A.Y.) 2008-09 & 2009-10. 2.1 THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS WITH REGARD TO THE DISALLOWANCE U/S.14A, HAVING BEEN CONFIRMED; RATHER, ENHANCED IN CERTAIN RESPECTS, BY THE LD. CIT(A), SO THAT THE ASSESSEE IS IN SECOND APPEAL. 2 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO 2.2 WE MAY, TO BEGIN WITH, CAPSULE THE STATUS OF TH E DISALLOWANCE AS IT HAS TRANSVERSE UPTO THE PRESENT STAGE: A.Y. 2008-09 (AMOUNT IN RS.) DISALLOWANCE U/S.14A READ WITH RULE 8D CLAIMED BY ASSESSEE IN RETURN DISALLOWED BY ASSESSING OFFICER DISALLOWED BY LD. CIT(A) A) INTEREST EXPENSES U/R. 8D(II) NIL 7,15,489/- 12,17,158/- B) INADMISSIBLE EXPENSES U/R. 8D(III) NIL 2,76,691/- 2,76,691/- A.Y. 2009-10 A) INTEREST EXPENSES U/R. 8D(II) 19,864/- 12,90,025/- TO BE REWORKED AS PER DIRECTION B) INADMISSIBLE EXPENSES U/R. 8D(III) 1,62,892/- 1,62,892/- DISALLOWANCE U/S.14A READ WITH RULE 8D THE ASSESSEES OBJECTIONS 3. THE ASSESSEES OBJECTIONS, AS MADE OUT BEFORE US , FURNISHING SYNOPSIS OF THE BALANCE-SHEETS AS AT THE YEAR-ENDING 31 ST MARCH, 2007 TO 2009 AND THE CORRESPONDING FUND FLOW, I.E., FOR FINANCIAL YEARS (F.YS.) 2007-08 & 2 008-09 (ANNEXURE A), DRAWN WITH REFERENCE THERETO, WAS ALONG THE FOLLOWING LINES: A) THE INTEREST EXPENDITURE INCURRED AND CLAIMED IS , APART FROM UNSECURED LOANS, ALSO ON CAR AND HOUSING LOANS, WHI CH THEREFORE WOULD REQUIRE BEING EXCLUDED WHILE APPLYING THE INTEREST EXPENDITURE FOR THE PURPOSE OF RULE 8D(2); B) INVESTMENT IN SHARES, WHICH HAS NOT RESULTED IN DIVIDEND INCOME OR INCOME BY WAY OF LONG TERM CAPITAL GAINS (LTCG), OU GHT TO BE EXCLUDED IN RECKONING THE AVERAGE INVESTMENT U/R. 8D(2); C) INTEREST ON BORROWED CAPITAL INVESTED IN ASSETS WHICH COULD YIELD TAXABLE INCOME, WOULD STAND TO BE ALLOWED U/S.57(II I), EVEN IF NO INCOME HAS ACTUALLY ARISEN THERE-FROM TO THE ASSESSEE FOR THE YEAR/S MADE WITH 3 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO REFERENCE TO THE DECISION IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC); AND D) THE DISALLOWANCE U/S.14A R/W R. 8D(2)(III) BE RE STRICTED IT TO THE AMOUNT ACTUALLY INCURRED, BEING AT RS.95,091/- AND RS.1,13,440/- FOR THE TWO CONSECUTIVE YEARS, I.E., MUCH BELOW THE DISALLO WANCE, AS EFFECTED AND CONFIRMED, FOR THE RELEVANT YEARS. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE ARGUMENT MADE BEFORE US, BEING WITH REFEREN CE TO THE BALANCE-SHEETS AND THE FUND FLOW STATEMENT AFORE-REFERRED (REPRODUCED BY W AY OF ANNEXURE A TO THIS ORDER), WHICH, THOUGH FLOWING FROM THE MATERIAL ON RECORD, HAS DEFINITELY NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW, THE MATTER WOULD NECESSARILY REQUIRE BEING RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.) FOR CONSIDERATION O F THE MATTER IN LIGHT THEREOF, I.E., AFTER VETTING THE FIGURES STATED THEREIN FOR BEING CORREC T AND CORRESPONDING WITH THE FINAL ACCOUNTS AS ON THE RECORD OF THE DEPARTMENT. 4.2 WE SHALL, ACCORDINGLY, ANSWER THE ISSUES ARISIN G BEFORE US IN TERMS OF THE BROAD PRINCIPLES, ISSUING STATEMENT WHERE CONSIDER NECESS ARY AND RELEVANT FOR BEING FOLLOWED/ADOPTED: A) THE FUND FLOW STATEMENTS, STATING THE COURSE OF THE FUND FLOW FOR THE RELEVANT YEARS, WOULD NEED TO BE EXAMINED TO IDENTI FY AND DETERMINE THE AVENUE OF THE VARIOUS SOURCES OF FUNDS, GIVING THE INITIAL FINANCIAL POSITION AS ON 31.03.2007; B) THE INTEREST PAID IS TO BE IDENTIFIED IN TERMS O F THE :- INVESTMENTS IN LOANS YIELDING INTEREST (AT RS.1.57 LACS AND RS.7.67 LACS RESPECTIVELY FOR THE TWO SUCCESSIVE YEARS IN A PPEAL); INVESTMENT IN NON-INTEREST BEARING LOANS; INVESTMENT IN OTHER ASSETS YIELDING INCOME NOT FORM ING PART OF THE TOTAL INCOME (IRRESPECTIVE OF WHETHER AND TO THE EX TENT ANY SUCH INCOME HAS NECESSARILY OR ACTUALLY MATERIALIZED DUR ING OR ARISEN FOR THE RELEVANT YEARS); AND 4 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO INVESTMENT IN OTHER ASSETS. THE ONUS TO IDENTIFY THE SAME WITH REFERENCE TO ITS ACCOUNTS IS ON THE ASSESSEE . C) ON THE BASIS OF THE FOREGOING, THE FOLLOWING ARE TO BE DETERMINED: I. INTEREST (DIRECT) ADMISSIBLE U/S.57(III); II. INTEREST (DIRECT) INADMISSIBLE U/S.57(III); III. INTEREST (DIRECT) INADMISSIBLE U/S.14A READ WITH RU LE 8D(2)(I); AND IV. INTEREST (INDIRECT) INADMISSIBLE U/S.14A READ WITH RULE 8D(2)(II). IT IS CLEAR THAT THE PROPORTIONATE FORMULA SHALL AP PLY ONLY IN RELATION TO THE BALANCE INTEREST, NOT FALLING UNDER CATEGORIES (I) TO (III). NEEDLESS TO ADD THAT IN-SO-FAR AS THE ASSETS WHOSE FINANCING (AND TO THE EXTENT IT IS) IS CONFIRMED, WOULD STAND EXCLUDED FROM BOTH - THE AVERAGE INVEST MENT AND THE TOTAL ASSETS, IN COMPUTING THE INTEREST ATTRIBUTABLE UNDE R RULE 8D(2)(II). AGAIN, WE MAY EMPHASIZE THAT THE PROPORTIONATE FORMULA IS ONL Y WITH REFERENCE TO THE COMMON (INTEREST) EXPENSE, I.E., TOWARD ACTIVITY/S OR ASSET/S YIELDING BOTH INCOME FORMING AND NOT FORMING PART OF THE TOTAL INCOME, OR TOWARD EXPENDITURE WHICH IS INCURRED NOT TOWARD ANY INCOME GENERATING ACTIVITY BUT AT THE ENTITY LEVEL, VIZ. CORPORATE EXPENSES, A UDIT EXPENSE, ETC. THE DECISION IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DY. CIT [2010] 328 ITR 81 (BOM), WHICH DEALS WITH THIS ASPECT OF T HE MATTER IN CONSIDERABLE DETAIL (REFER PARA 85, 86 AT PGS. 135- 136), WOULD HAVE TO BE BORNE IN MIND, PARTICULARLY WITH REGARD TO THE FUND POSITION AS OBTAINING AS AT THE BEGINNING OF THE YEAR. FURTHER, AS EXPLAINED BY THE TRIBUNAL IN THE CASE OF DY. CIT VS. DAMANI ESTATES AND FINANCE P. LTD . [2013] 25 ITR (TRIB) 683 (MUM.) AND PER THE THIRD MEMBER DECISION IN D. H. SECURITIES PVT. LTD . V. DY. CIT [2014] 146 ITD 1 (MUM), THE INTEREST ON INVESTMENT IN SHARES HELD AS STOCK-IN-TRADE, IN-AS-MUCH AS IT YIE LDS BOTH TAX-FREE (DIVIDEND) AND TAXABLE INCOME (SHARE TRADING PROFIT ), IS TO BE DISALLOWED U/S.14A AT THE RATE OF TWENTY PER CENT. (20%) OF SU CH INTEREST. D) THE ASSESSEE SHALL BE PROVIDED AN OPPORTUNITY TO ESTABLISH ITS CLAIM/S WITH REGARD TO THE INDIRECT, ADMINISTRATIVE EXPENDI TURE, FOR BEING AS STATED (REFER PARA 3(D) OF THIS ORDER). DIRECT EXPENSES, W HETHER TOWARD ACTIVITY YIELDING TAX EXEMPT OR TAXABLE INCOME ARE TO BE IN ANY CASE DISALLOWED OR ALLOWED ON THAT BASIS. WITHOUT DOUBT, THE DISALLOWA NCE, RECKONED W.R.T. R. 8D (2)(III) CANNOT EXCEED THE ACTUAL EXPENDITURE IN CURRED AND CLAIMED BY THE ASSESSEE PER ITS RETURN OF INCOME. 5 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO 4.3 TOWARD THE FOREGOING, WE MAY ALSO ADVERT TO THE DECISION IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) AND CHEMINVEST LTD. V. ITO [2009] 121 ITD 318 (DEL-SB). THE DISALLOWANCE, IT MAY BE APPRECIATED, IS OF THE EXPE NDITURE INCURRED, AND WHICH MAY NOT HAVE ANY DIRECT BEARING ON THE INCOME ARISING. FURT HER, WHERE AND TO THE EXTENT THE A.O. IS NOT IN AGREEMENT WITH THE ASSESSEES CLAIMS FO R WHICH THOUGH WE DO NOT SEE ANY REASON IN-AS-MUCH AS THE FINANCIAL POSITION, PROPER LY ANALYZED, SHOULD BE ABLE TO IDENTIFY THE FINANCING OF EACH ASSET, EITHER DIRECTLY WITH R EFERENCE TO A SOURCE OF FUNDS, OR FROM THE COMMON POOL OF FUNDS, HE SHALL STATE HIS REASONS. IT MAY BE APPEAR THAT WE HAVE, IN DECIDING THESE A PPEALS, TRANSGRESSED THE SCOPE OF THE APPEALS IN-AS-MUCH AS OUR PURVIEW, AS THE SECON D APPELLATE AUTHORITY, IS LIMITED TO ANSWER THE GROUNDS RAISED BEFORE US. THIS IS NOT SO , AS, FIRSTLY, THE IDENTIFICATION OF INTEREST ALLOWABLE, OR NOT SO, U/S. 57(III) IS NECE SSARILY REQUIRED TO IDENTIFY AND QUANTIFY THE INTEREST SUBJECT TO THE DISALLOWANCE U/S.14A. T HE SAID SECTION IS IN FACT A COMPLETE CODE IN ITSELF, WIDENING THE SCOPE OF APPORTIONMENT , AS EXPLAINED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA). REFERENCE IN THIS CONTEXT MAY ALSO BE MAD E TO THE DECISION IN THE CASE OF KAPURCHAND SHRIMAL V. CIT [1981] 131 ITR 451 (SC). 5. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOWE D FOR STATISTICAL PURPOSES. 20 -34 52-) 6 7)89:; < -) -=>! ORDER PRONOUNCED IN THE OPEN COURT ON JULY 31, 2014 SD/- SD/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + ?, MUMBAI; @ DATED : 31.07.2014 ENCL: ANNEXURE A, FORMING AN INTEGRAL PART OF THIS ORDER . # ROSHANI , SR. PS 6 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO ! ' #$%& ' &$ # COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT 3. '' + A- B C / THE CIT(A) 4. '' + A- / CIT CONCERNED 5. DE F'-G4 ' G40 + ?, / DR, ITAT, MUMBAI 6. F 5H , # GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , + ?, / ITAT, MUMBAI 7 ITA NOS. 6479/M/2011 & 5446/M/2012 (A.YS. 2008-09 & 09-10) MILAN R. MEHTA VS. ITO ANALYSIS OF BALANCE SHEET ANNEXURE A (AMOUNT IN RS.) 31.3.2007 31.3.2008 31.3.2009 31.3.2007 31.3.2008 31.3.2009 CAPITAL 49,135,833 44,862,063 48,638,323 FLAT, FURN ITURE & CARS 31,515,353 30,570,215 30,570,215 CAR & HOUSING LOAN 19,704,013 18,650,017 11,977,323 SHARES & MUTUAL FUNDS UNSECURED LOAN 15,988,500 29,856,420 29,507,870 PER SONAL INVESTMENTS 32,343,216 32,903,316 32,253,316 CURRENT LIABILITIES 14,045 13,788 FOR BUSINESS 2, 548,065 OTHER INVESTMENTS 6,298,548 6,978,456 CAPITAL WITH PARTNERSHIP 20,029,840 19,061,480 19,207,137 FIRMS OTHER ASSETS 939,937 2,000,921 1,128,180 TOTAL 84,828,346 93,382,545 90,137,304 TOTAL 84,828 ,346 93,382,545 90,137,304 INTEREST TO /FROM PARTIES INTEREST RECEIVED 126,740 157,370 766,783 INTEREST PAID 1,348,500 1,426,420 1,851,750 MOVEMENT IN FUNDS CHANGE IN CAPITAL (4,273,770) 3,776,260 CHANGE IN FLAT ETC. (945,138) CHANGE IN CAR AND (1,053,996) (6,672,694) CHANGE I N SHARES ETC. 560,100 (650,000) HOUSING LOAN CHANGE IN SHARES (BUSINESS) 2,548,065 (2,548,065) CHANGE IN UNSECURED LOAN 13,867,920 (348,550) CHAN GE IN OTHER INVESTMENT 6,298,548 679,908 CHANGE IN CREDITORS 14,045 (257) CHANGE IN CAPITAL WITH (968,360) 145,657 FIRMS CHANGE IN OTHER ASSETS 1,060,984 (872,741) 8,554,199 (3,245,241) 8,554,199 (3,245,241)