D.C.I.T.3(1), MUMBAI V. ASHISH ESTATES & PROPERTIES PVT. LTD., MUMBAI

ITA 5992/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3322 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G N MAKWANA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 5767/MUM/2012 (ASSESSMENT YEAR : 2009-10) ASHISH ESTATES & PROPERTIES PVT. LTD. 115, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI 400 021 PAN:AAACA4555D ... APPELLANT VS. THE DCIT 3(1), AAYKAR BHAVAN, GROUND FLOOR, M.K.ROAD, MUMBAI. .... RESPONDENT ITA NO. 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) THE DCIT-3(1), MUMBAI. ...... APPELLANT VS. ASHISH ESTATES & PROPERTIES PVT. LTD. 115, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI 400 021 PAN:AAACA4555D ....RESPONDENT ASSESSEE BY : SHRI JITENDRA JAIN RESPONDENT BY : SHRI G.N.MAKWANA DATE OF HEARING : 04/02/2016 DATE OF PRONOUNCEMENT : 16/03/2016 2 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) ORDER PER G.S. PANNU,AM: THE CAPTIONED CROSS-APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO A.Y. 2009-10 ARE DIRECTED AGAINST AN ORDER PASSED BY LD. CIT(A)-5, MUMBAI DATED 17/07/2012, WHICH IN TURN AR ISES OUT OF AN ORDER PASSED BY AO UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961 (THE ACT) DATED 07/12/2011. GROUNDS OF APPEALS RA ISED BY THE ASSESSEE AS WELL AS REVENUE READ AS UNDER:- GROUNDS OF ASSESSEES APPEAL:- 1) THE COMMISSIONER OF INCOME TAX (APPEALS)-5 MUMBAI [ HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN INVOKING THE PROVISIONS OF S ECTION 14A R.W.R.8D TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND CONFIRMING THE DISALLOWANCE OF RS.58,10,586/- THE CIT (A) HAS NOT APPRECIATED THE FACT THAT THE AO HAS FAILED TO DISCHARGE THE ONUS CAST ON HIM UNDER SUB SECTION (2) OF SECTION 14A BEFORE INVOKING THE PROVISIONS OF RULE 8D. WITHOUT PREJUDICE TO ABOVE, THE AO HAS ERRED IN CON SIDERING THE AMOUNTS INVESTED IN THE AOP AND WITH THE PARTNERSHIP FIRM A S INVESTMENT, INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IN COMPUTI NG THE DISALLOWANCE UNDER CLAUSE (II) TO SUB RULE (2) OF RULE 8D. WITHOUT PREJUDICE TO ABOVE, THE CIT (A) ERRED IN N OT APPRECIATING THE FACT THE INCOME EARNED FROM AOP IS TAXABLE UNDER SECTION 115 JB AND THEREFORE SHOULD NOT BE CONSIDERED IN COMPUTING THE DISALLOWANCE UND ER SECTION 14A R.W.S RULE 8D. GROUNDS OF REVENUES APPEAL:- 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.62 ,27,800/- MADE ON ACCOUNT OF INTEREST EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE INVESTMENTS REFLECTED IN THE BALANCE SHEET GIVE RISE TO EITHER CAPITAL GAIN OR EXEMPT INCOME'. 3 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT (A) WAS JUSTIFIED IN HOLDING THAT INTEREST PAID ON ANY FUND USED FOR INVESTMENT CANNOT BE AN ALLOWABLE DEDUCTION UNDER THE HEAD 'BU SINESS INCOME'.' 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (A) WAS JUSTIFIED IN HOLDING THAT INTEREST A TTRIBUTABLE TO UTILIZATION TOWARDS LOANS/ ADVANCES GIVEN TO AOP /FIRM, IS ALLO WABLE DEDUCTION, NOTWITHSTANDING THE FINDINGS OF THE AO THAT INCOME OF AOPS & FIRMS ARE OFFERED FOR TAX AND SAME IS EXEMPT FROM TAX IN THE HANDS OF THE ASSESSEE COMPANY'. 4. 'WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT (A) WAS JUSTIFIED IN HOLDING THAT IN THE COM PUTATION FILED BEFORE THE LD.CIT(A) AND WHICH FORMS A PART OF THE APPELLATE O RDER AS ANNEXURE-A, THE BALANCE WITH THE PANCHVATI ASSOCIATES (RS.5,42,33,1 57/ - AS ON 31.03.2009 AND RS.2,72,40,596/ - A ON 31.03.2008 BOTH FIGURES BEING NEGATIVE BALANCE) AND CONWOOD ASHISH (RS.1,35,50,158/ - AS ON 31.03.2 009 BEING NEGATIVE BALANCE AND RS.5,52,62,521/ - AS ON 31.03.2008) HAV E BEEN ALLOWED TO BE REDUCED FROM THE AMOUNT OF INVESTMENTS WHICH IS NOT IN ACCORDANCE WITH SECTION 14 OF THE ACT AS SUCH NEGATIVE BALANCES DO NOT GIVE RISE TO ANY EXEMPT INCOME AND CONSEQUENTLY THE DISALLOWANCE U/S .1-:1:A DESERVED TO BE ENHANCED'. 5. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT( A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED'. 2. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT THE ISSUES RAISED IN THE RESPECTIVE A PPEALS ARE SIMILAR TO THE ISSUES WHICH CAME UP BEFORE THE TRIBUNAL IN A SSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR OF 2008-09 VIDE ITA NOS. 3769, 4006/MUM/2012 DATED 23/06/2015. THE TRIBUNAL HAS D ECIDED THE ISSUES RAISED IN THE REVENUES APPEAL IN RELATION T O THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT IN FAVOUR OF T HE ASSESSEE AND THE ISSUES RAISED IN THE ASSESSEES APPEAL RELATING TO DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS BEEN PARTLY ALLOWED. 3. IN THIS BACKGROUND, THE BRIEF FACTS RELEVANT FOR THE YEAR UNDER CONSIDERATION ARE AS FOLLOWS. THE ASSESSEE IS A C OMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, 4 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) ENGAGED IN THE BUSINESS OF DEVELOPING/CONSTRUCTION OF BUILDINGS AND PROPERTIES. THE RETURN OF INCOME FILED BY THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION DECLARING A LOSS OF RS.1,84,96, 412/- WAS SUBJECT TO SCRUTINY ASSESSMENT, WHEREIN THE LOSS WAS ASSESSED AT RS.1,22,68,612/-. THE LOSS WAS REDUCED BY A SUM OF RS.62,27,800/- ON THE GROUND THAT INTEREST EXPENDITURE TO THE ABOVE EXTENT WAS INCU RRED ON LOANS WHICH WERE NOT USED FOR THE PURPOSE OF BUSINESS OF THE A SSESSEE. SUCH DISALLOWANCE WAS WORKED OUT BY INVOKING THE PROVISI ONS OF SECTION 36(1)(III) OF THE ACT. SIMULTANEOUSLY, THE ASSESSI NG OFFICER ALSO NOTED THAT CERTAIN INTEREST BEARING FUNDS WERE UTILIZED F OR MAKING INVESTMENTS, WHICH GIVE RISE TO EXEMPT INCOME AND, THEREFORE, PART OF INTEREST EXPENSES RELATABLE TO SUCH INVESTMENT WAS ALSO DISALLOWABLE UNDER SECTION 14A OF THE ACT. HOWEVER, THE ASSESS ING OFFICER MADE NO DISALLOWANCE UNDER SECTION 14A OF THE ACT, FOR THE REASON THAT INTEREST EXPENDITURE WAS ALREADY DISALLOWED UNDER SECTION 3 6(1)(III) OF THE ACT. THE ASSESSING OFFICER FURTHER NOTED THAT IN CASE, ASSESSEE GOT A RELIEF IN RESPECT OF THE DISALLOWANCE UNDER SECTION36(1)(I II) OF THE ACT DURING THE APPELLATE PROCEEDINGS AND/OR THE DISALLOWANCE S USTAINED UNDER SECTION 36(1)(III) BECOMES LESSER THAN THE AMOUNT D ISALLOWABLE UNDER SECTION 14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES ), THEN THE ASSESSEE WOULD SUFFER DISALLOWAN CE UNDER SECTION 14A OF THE ACT COMPUTED IN TERMS OF RULE 8D OF THE RULE S. 4. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT T HE AFORESAID APPROACH OF THE ASSESSING OFFICER IS IDENTICAL TO T HAT IN ASSESSMENT YEAR 2008-09 (SUPRA). IN THIS BACKGROUND, ASSESSEE CARR IED THE MATTER BEFORE CIT(APPEALS), WHO FOLLOWING HIS ORDER FOR PRECEDING ASSESSMENT YEAR 5 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) 2008-09, DELETED THE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, HE DELETED THE ADDITION OF RS.62,27,800/- MADE BY THE ASSESSING OFFICER, A GAINST WHICH REVENUE IS IN APPEAL BEFORE US AS PER THE ABOVE STA TED GROUNDS OF APPEAL. SIMULTANEOUSLY, THE CIT(APPEALS) PARTLY A GREED WITH THE ASSESSING OFFICER ON THE ISSUE OF APPLICATION OF S ECTION 14A OF THE ACT AND SUSTAINED A DISALLOWANCE OF RS.58,10,586/- UN DER SECTION 14A OF THE ACT COMPUTED AS PER RULE 8D OF THE RULES. AGAINST SUCH ACTION OF THE CIT(APPEALS), THE ASSESSEE IS IN FURTHER APPEA L BEFORE US. 5. IN THIS BACK GROUND, IT WAS A COMMON POINT BETW EEN THE PARTIES BEFORE US THAT SIMILAR POSITION PREVAILED BEFORE TH E TRIBUNAL IN ASSESSMENT YEAR 2008-09 ALSO. SO, HOWEVER, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WITH REGARD TO THE DI SALLOWANCE SUSTAINED IN THE EARLIER ASSESSMENT YEAR OF 2008-09 UNDER SEC TION 14A OF THE ACT, ONE OF THE POINTS RAISED BY THE ASSESSEE WAS THAT T HE ENTIRE INVESTMENT SUBJECTED TO THE DISALLOWANCE UNDER SECTION 14A R. W.R 8D OF THE RULES WAS IN THE NATURE OF STRATEGIC INVESTMENT ON WHICH NO DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS CALLED FOR. THE LD . REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTEDLY THAT THOUGH THE T RIBUNAL IN PARA 6 OF ITS ORDER DATED 23/06/2015(SUPRA) HAS NOTED SUCH AR GUMENT, BUT THERE IS NO SPECIFIC FINDING ON THIS ASPECT. IN THIS CON TEXT, WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL DATED 23/06/2015 (SUPRA) AND FIND THAT WHILE EVALUATING THE WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE MANNER PRESCRIBED U/R.8D OF THE RULE S, THE TRIBUNAL DIRECTED PARTIAL RELIEF, IN AS MUCH AS, IT WAS DI RECTED THAT WHILE CALCULATING THE AMOUNT OF INVESTMENT FROM WHICH EX EMPT INCOME IS 6 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) EARNED, THE INVESTMENT MADE IN THE AOP PODDAR AS HISH DEVELOPERS IS LIABLE TO BE EXCLUDED. THE ARGUMENTS RELATING TO THE STRATEGIC INVESTMENTS IN RELATION TO THE DISALLOWANCE UNDER S ECTION 14A OF THE ACT HAS ALSO BEEN NOTED BY THE TRIBUNAL IN PARA 6 OF TH E ORDER. SO, HOWEVER, WE ARE UNABLE TO ACQUIESCE WITH THE PLEA OF THE LD. REPRESENTATIVE FOR THE ASSESSEE THAT THE SAID PLEA HAS NOT BEEN DECIDED SPECIFICALLY AND THEREFORE, IT IS OPEN FOR THE S UCCEEDING BENCH I.E. THE INSTANT BENCH, TO TAKE A VIEW ON THE MATTER. IN OU R CONSIDERED OPINION, AFTER NOTING RESPECTIVE PLEAS ON THE DISALLOWANCE U NDER SECTION 14A R.W. RULE 8D OF THE RULES, THE TRIBUNAL HAS MADE AN ELA BORATE DISCUSSION AND THE PLEA REGARDING STRATEGIC INVESTMENT IS DEE MED TO HAVE BEEN REJECTED IN THE ABSENCE OF ANY RELIEF ON THAT COUNT . IT HAS TO BE UNDERSTOOD AS HAVING BEEN OVER-RULED IN SUB-SILENTI O. THEREFORE, IT WOULD ONLY BE APPROPRIATE FOR US TO DECIDE THE MATT ER IN LINE WITH THE PRECEDENT IN ASSESSEES OWN CASE FOR THE SAKE OF CO NSISTENCY. THUS, WE DIRECT THE ASSESSING OFFICER TO REWORK THE DISALLO WANCE UNDER SECTION 14A R.W. RULE 8D OF THE RULES IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE DATED 23/06/2015(SUPRA) FOR THE SAKE OF CONSISTENCY, ESPECIALLY WHEN NO CHANGE IN FACTS AND CIRCUMSTANCES HAVE BEEN BROUGHT OUT BY EITHER SIDE. 6. AS A CONSEQUENCE, THEREFORE, WE DISMISS THE APPE AL OF THE REVENUE AS SIMILAR ISSUE HAS BEEN DECIDED IN THE AS SESSEES OWN CASE FOR EARLIER YEAR BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE. IN SO FAR AS ASSESSEES APPEAL IS CONCERNED, THE SAME IS ALSO LI ABLE TO BE DECIDED IN TERMS OF THE DIRECTIONS OF THE TRIBUNAL IN ASSESSEE S OWN CASE AND FOR THAT MATTER THE ASSESSING OFFICER IS DIRECTED TO RE WORK THE DISALLOWANCE 7 ITA NO. 5767& 5992/MUM/2012 (ASSESSMENT YEAR : 2009-10) UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF THE RU LES FOLLOWING THE SAID PRECEDENT. 7. IN THE RESULT, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED, THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTI CAL PURPOSES FOLLOWING THE PRECEDENT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008- 09(SUPRA). ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH, 2016. SD/- SD/- (JOGINDER SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 16/03/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI