ASST CIT 16(3), MUMBAI V. NISHITH M. DESAI, MUMBAI

ITA 5698/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9692 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 07-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABIRAMA KARTHIKEYAN LD
• Assessee Lawyers: F B ANDHYARUJINA LD
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3); 80G

Judgement Text

ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5698/MUM/2017 ( / ASSESSMENT YEAR: 2011-12) & ./ I.T.A. NO.5699/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) ASST. COMMISSIONER OF INCOME TAX -16(3) ROOM NO.446, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD,MUMBAI-400 020. / VS. NISHITH DESAI [PROP. -NISHITH DESAI ASSOCIATES] 94-B, MITTAL COURT NARIMAN POINT MUMBAI-400 021. ! ./ ./PAN/GIR NO. AAAPD-8418-K ( !# /APPELLANT ) : ( $!# / RESPONDENT ) ASSESSE E BY : F.B. ANDHYARUJINA- LD. AR REVENUE BY : ABIRAMA KARTHIKEYAN - LD.DR / DATE OF HEARING : 06/12/2018 / DATE OF PRONOUNCEMENT : 14/12/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY REVENUE CONTEST SEPARATE OR DERS OF FIRST APPELLATE AUTHORITY. SINCE, COMMON ISSUES ARE INVOL VED WE PROCEED TO DISPOSE THE SAME BY WAY OF THIS COMMON ORDER FOR TH E SAKE OF ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 2 CONVENIENCE & BREVITY. FIRST, WE TAKE UP ITA NO. 56 98/MUM/2017 FOR AY 2011-12 WHICH CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-7, MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-7/IT-34/85/2014-15 DATED 01/06/2017 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL : - 1. THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND ALSO IN LAW, ERRED IN ALLOWING DEDUCTION OF RS.69,58,923 /- BEING INTEREST PAID TO HDFC LTD. SINCE THE PURPOSE OF INVESTMENT WAS TO AC QUIRE CONTROL OVER THE RESIDENTIAL FLAT NO. 51, AT MCPL APARTMENTS MUMBAI AND NOT TO EARN ANY INTEREST INCOME. EVEN IF DEDUCTION U/S 24(B) HAD BE EN ALLOWED TO ASSESSEE THEN ALSO THE MAXIMUM ALLOWABLE INTEREST EXPENDITUR E WOULD HAVE BEEN A MAXIMUM OF RS. 1.5 LACS ONLY. 2. THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND ALSO IN LAW, ERRED IN ALLOWING PAYMENTS OF RS.12,07,960/- & RS. 4,45,400/- TOTALING TO RS, 16,53,360/- OUT OF BUSINESS PROMOTION EXPENSES; BEING PAYMENTS MADE TO AMERICAN INDIA FOUNDATION (AIF) TREATING THE SAI D EXPENSES AS BUSINESS EXPENDITURE. 3. THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND ALSO IN LAW, ERRED IN TREATING PAYMENT OF RS. 13,00,108 /- MADE TO INTERNATIONAL FISCAL ASSOCIATION (IFA) AS REVENUE EXPENDITURE' AS ADVOCA TE ACT 1961 SEC 7(L)(B) R.W.S 49(L)(I) AUTHORIZES BAR COUNCIL OF INDIA TO M AKE RULES FOR THE PROFESSIONAL CONDUCT OF ADVOCATES/LAWYERS AND RULE 36 OF BAR COU NCIL OF INDIA DISALLOWS ADVERTISEMENT. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. JT. COMMISSIONER OF INCOME TAX-11(3), MUMBAI [AO] IN SCRUTINY ASSESSMENT U/S. 143(3) ON 31/03/2014 WHEREIN THE INCOME OF THE ASSESSEE WAS D ETERMINED AT RS.14.24 CRORES AFTER CERTAIN ADDITIONS/ADJUSTMENTS AS AGAINST RETURNED INCOME OF RS.12.77 CRORES E-FILED BY THE ASSESSEE ON 30/09/2011. THE ASSESSEE IS A LEGAL AND TAX CONSULTANT AND EARNED INCOME FROM HOUSE PROPERTY, PROFESSION & INCOME FROM OTHER SOURCES. 2.1 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE CLAIMED DEDUCTION OF INTEREST FOR RS.69.58 LACS U/S 57, BEING INTEREST PAID TO HDFC LIMITED AGAINST LOAN OF RS.7 CRORES. IT WAS EXPLAINED THAT THE LOAN WAS TAKEN TO PURCHASE DEBENTURES TO THE TU NE OF RS.7.20 CRORES OF TWO ENTITIES NAMELY MAKRUPA CHEMICALS PVT LTD. [MAKRUPA] & TV ZINE ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 3 INDIA.COM PVT. LTD. [TV ZINE]. HOWEVER, IT WAS NOTED THAT THE LOAN WAS TAKEN AGAINST FLAT NO. 51, NCPA APARTMENT, MUMBAI WHICH WAS OWNED BY MAKRUPA CHEMICALS PRIVATE LIMITED. NOTICING THAT THE LOAN WAS GIVEN FOR HOUSING PURPOSES, THE DEDUCTION OF INTEREST, IN THE OPINION OF LD. AO, WAS NOT ALLOWABLE TO THE ASSESSEE U/S 57. THE SAME WAS SOUGHT TO BE BOLSTERED BY THE FACT THAT THE ASSESSEE FAILED TO F ILE REQUISITE DOCUMENTARY EVIDENCES WITH RESPECT TO LOAN OBTAINED FROM HDFC LTD. 2.2 THE LD. AO, IN THE ALTERNATIVE, NOTED THAT THE ASSESSEE WAS A SUBSTANTIAL SHAREHOLDER IN THE SAID ENTITIES. IT WA S ALSO NOTED THAT THE FLAT NO. 51, NCPA PURCHASED IN THE YEAR 1991 WAS THE ONLY IMMOVEABLE PROPERTY OWNED BY MAKRUPA WHO HAD RENTED OUT THE SAME IN EARLIER YEARS TO SWISS BANK CORPORATION AND EARNED RENTAL INCOME AND NO OTHER ACTIVITY WAS BEING CARRIED OUT BY THE SAID ENTITY. THE FLAT WAS SUBSEQUENTLY GIVEN WITHOUT ANY RENT TO WIFE OF THE ASSESSEE WHO WAS STATED TO BE AN EMPLOYEE OF MAKRUPA. THE PERUSAL OF FINANCIALS OF MAKRUPA REVEALED THAT IT WAS CONSISTENT LOSS-MAKING COMPANY . THIS ENTITY WAS SUBSEQUENTLY TAKEN OVER BY TV ZINE BY WA Y OF ACQUISITION OF SHARES AT HUGE PREMIUM. THE ACQUISITION WAS SOURCED FROM THE DEBENTURES ISSUED TO THE ASSESSEE, WHICH WAS, IN TU RN, WAS FUNDED OUT OF LOAN OBTAINED FROM HDFC LTD . THE PERUSAL OF FINANCIALS OF TV ZINE REVEALED THAT IT WAS ALSO NOT DOING ANY BUSINESS. I N NUTSHELL, IT TRANSPIRED THAT THE BOTH THE ENTITIES WERE JUST PAPER COMPANIE S AND HAD NOT DONE ANY BUSINESS. IT WAS ALSO NOTED THAT THE DEBENTURES WERE ISSUED AT NEGLIGIBLE RATE OF INTEREST OF 0.05%. THE OVERALL F ACTUAL MATRIX LED THE LD. AO TO CONCLUDE THAT THE SOLE AIM OF THE AFORESAID T RANSACTIONS WAS TO ACQUIRE THE PROPERTY SITUATED AT FLAT NO. 51, NCPA APARTMENTS AND THE ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 4 OBJECTIVE WAS TO CLAIM TAX DEDUCTION WHICH WAS NORM ALLY NOT AVAILABLE TO THE ASSESSEE. UNDER THE CIRCUMSTANCES, LD. AO OPINE D THAT THE DEDUCTION OF INTEREST AS CLAIMED U/S 57 WAS NOT ALL OWABLE TO THE ASSESSEE SINCE THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING ANY INCOME AND WAS ONLY A COLORABLE DEVICE. 2.3 THE ROOT OF SECOND ADDITION OF RS.16.53 LACS PA ID TO AMERICA INDIA FOUNDATION [AIF] STEM FROM THE FACT THAT THE ASSESSEE, IN THE OPINIO N OF LD. AO, COULD NOT PROPERLY EXPLAIN HOW THE AFORESAI D PAYMENT WAS CONNECTED TO THE BUSINESS CARRIED OUT BY THE ASSESS EE. RELIANCE WAS PLACED ON THE STAND TAKEN BY FIRST APPELLATE AUTHOR ITY IN ANOTHER AY. 2.4 ALTHOUGH THE REVENUE, BY WAY OF GROUND NUMBER-3 , HAS CONTESTED THE STAND OF FIRST APPELLATE AUTHORITY IN TREATING THE PAYMENT OF RS.13 LACS PAID BY THE ASSESSEE TO INTERNATIONAL FISCAL ASSOCIATION [IFA] AS REVENUE EXPENDITURE, HOWEVER, IT IS NOTED THAT NO S UCH ADJUSTMENT HAS BEEN MADE BY LD. AO IN THE QUANTUM ASSESSMENT ORDER . APPARENTLY, THIS ISSUE HAS BEEN TAKEN UP FOR THE FIRST TIME DURING A PPELLATE PROCEEDINGS. WE SHALL DEAL WITH THE SAME IN SUCCEEDING PARAGRAPH S. 3.1 AGGRIEVED, THE ASSESSEE CONTESTED THE ADDITIONS WITH SUCCESS BEFORE LD. CIT(A) VID IMPUGNED ORDER DATED 01/06/20 17 WHEREIN BOTH THE ADDITIONS AS DISCUSSED IN PRECEDING PARAGRAPHS WERE DELETED BY FIRST APPELLATE AUTHORITY BY RELYING UPON THE ORDER OF TH IS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 2005-06 & 2009-10 IN ITA NOS. 2562/MUM/2015, 4852/MUM/2015 & 2439/MUM/2013 ORDER DATED 28/04/2017, THE OPERATIVE PORTION OF WHICH HAS ALRE ADY BEEN EXTRACTED IN THE IMPUGNED ORDER. ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 5 3.2 GROUND NUMBER-3 IS IN RESPECT TO CONTRIBUTION O F RS.25.50 LACS MADE BY THE ASSESSEE TO AN ENTITY NAMELY INTERNATIONAL FISCAL ASSOCIATION [IFA] WHICH COMPRISED-OFF OF TAX PROFESSIONALS FROM ALL O VER THE WORLD. THE AMOUNT OF RS.12.50 LACS WAS PAID ON 30/03/2009 WHEREAS THE BALANCE AMOUNT OF RS.13 LACS WAS PAID O N 23/07/2010. THE SAID EXPENDITURE WAS STATE TO BE INCURRED FOR P ROMOTING THE PROFESSIONAL ACTIVITY OF THE ASSESSEE. DURING IMPUG NED AY, THE SAID AMOUNT OF RS.13 LACS WAS STATED TO BE DEBITED UNDER THE HEAD DONATIONS AND DEDUCTION OF THE SAME TO THE EXTENT O F 50% U/S 80G WAS CLAIMED. BEFORE FIRST APPELLATE AUTHORITY, IT WAS S UBMITTED THAT THE EXPENDITURE WAS REVENUE IN NATURE AND ALLOWABLE AS BUSINESS EXPENDITURE IN TERMS OF THE DECISION OF THIS TRIBUN AL FOR AY 2009-10. THE LD. CIT(A), FOLLOWING THE SAME, AGREED WITH ASSESSE ES SUBMISSIONS AND DIRECTED LD. AO TO RECOMPUTE THE ALLOWABLE EXPENDIT URE AFTER CONSIDERING THE DEDUCTION OF RS.6.25 LACS ALREADY C LAIMED BY THE ASSESSEE IN COMPUTATION OF INCOME. 3.3 AGGRIEVED BY THE STAND OF LD. FIRST APPELLATE A UTHORITY, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. SR. COUNSEL APPEARING FOR ASSESSEE, AT T HE OUTSET, SUBMITTED THAT THE ISSUES WERE ALREADY DEALT WITH B Y THIS TRIBUNAL IN EARLIER AY AND FIRST APPELLATE AUTHORITY HAS FOLLOW ED THE SAME AND THEREFORE, THE MATTER WAS COVERED ONE. THE LD. DR, ALTHOUGH SUPPORTED THE STAND OF LD. AO, HOWEVER, COULD NOT CONTROVERT THE SAME. 5. UPON DUE CONSIDERATION OF CITED ORDER OF THE TRI BUNAL, WE CONCUR WITH THE SUBMISSIONS THAT THE ISSUES HAVE ALREADY B EEN DEALT WITH BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2005-06 & 20 09-10 AND THE FIRST ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 6 APPELLATE AUTHORITY HAS FOLLOWED THE SAME. NO DISTI NGUISHING FEATURE COULD BE BROUGHT ON RECORD IN THIS AY. NOTHING ON R ECORD SUGGEST THAT THE AFORESAID DECISION OF THE TRIBUNAL HAS EVEN BEE N OVER-RULED BY THE DECISION OF ANY HIGHER JUDICIAL AUTHORITY OR THE SA ME HAS NO APPLICATION IN THIS AY. FACTS AND CIRCUMSTANCES BEING PARI-MATERIA THE SAME, WE DISMISS THE REVENUES APPEAL. ITA NO. 5699/MUM/2017, AY 2012-13 6. SIMILAR ARE THE FACTS AND CIRCUMSTANCES IN AY 20 12-13 WHEREIN THE ASSESSEE WAS SADDLED WITH INTEREST DISALLOWANCE OF RS.74.40 LACS AND BUSINESS PROMOTION EXPENSE DISALLOWANCE OF RS.22.37 LACS. THE LD. CIT(A) HAS PROVIDED RELIEF TO THE ASSESSEE BY FOLLO WING THE CITED ORDER OF THE TRIBUNAL AGAINST WHICH THE REVENUE IS BEFORE US WITH IDENTICAL WORDED GROUNDS OF APPEAL. FACTUAL MATRIX BEING THE SAME, O UR OBSERVATIONS, CONCLUSIONS ETC. MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISSED. CONCLUSION 7. BOTH THE APPEALS STAND DISMISSED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER, 2018. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14/12/2018 SR.PS, JAISY VARGHESE ITA NO.5698 & 5699/MUM/2017 NISHITH M. DESAI ASSESSMENT YEARS :2011-12 & 2012-13 7 ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. - &. , . , / DR, ITAT, MUMBAI 6. -/01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.