HIMANSHU C. MEHTA, MUMBAI V. ASST CIT 16(3), MUMBAI

ITA 6161/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88626 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 21-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M V SUBRAMANINA
• Keywords: Earning of tax free income; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 6161/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) HIMANSHU C. MEHTA 1301, BENHUR APARTMENT, 32 N. D. ROAD, MUMBAI-400 006 / VS. ASST. CIT-16(3), MATRU MANDIR, MUMBAI ' ./# ./PAN/GIR NO. ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI M. V. SUBRAMANINA %&'$ ' ( / RESPONDENT BY : SHRI JEETENDRA KUMAR ) *+, ' - . / DATE OF HEARING : 09.03.2015 /01 ' - . / DATE OF PRONOUNCEMENT : 18.03.2015 2 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-27, MUMBAI (CIT(A) FOR SH ORT) DATED 06.08.2013, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2009-10 VIDE ORDER DATED 31.10.2011. 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE, AN INDIVIDUAL, RETURN OF INCOME OF RS.51,35,620/- FOR THE YEAR, DETAILED AS UNDER: 2 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT (AMOUNT IN RS. ) CAPITAL GAINS 6,97,900/- INCOME FROM OTHER SOURCES 45,56,718/- GROSS TOTAL INCOME 52,54,618/- LESS: CHAPTER VI-A DEDUCTIONS 1,19,000/- TOTAL INCOME: 51,35,618/- ROUNDED OFF TO : 51,35,620/- THE INCOME FROM OTHER SOURCES WAS COMPUTED AFTER CLAIMING THE DEDUCTION OF RS.16,02,448/- FROM THE GROSS INCOME OF RS.61,59,16 6/-, COMPRISED OF THE FOLLOWING INCOMES : OTHER SOURCE: INTEREST ON BONDS AND DEBENTURES 7,04,731 BANK INTEREST 1,44,932 INTEREST ON KVP 53,00,000 S. B. INTEREST 9,503 TAXABLE INCOME 61,59,166 THE ISSUE IN THE PRESENT APPEAL CONCERNS THE DEDUCT IBILITY OF LAW OF THIS EXPENDITURE OF RS.16.02 LACS, THE DETAIL OF WHICH I S AS UNDER: (AMT. IN RS. ) 1. INTEREST PAID 15,66,861/- 2. LEGAL EXPENSES TO CA 14,607/- 3. BANK CHARGES 11,200/- 4. PROFESSIONAL TAX 2,500/- 28,307 5. DEMAT CHARGES 7,280 16,02,448 THE ASSESSEES CASE IS THAT HE HAS, BESIDES THE FOR EGOING INCOMES OFFERED TO TAXATION, ALSO INCURRED THE LOSS AS WELL AS EARNED PROFIT FROM TWO PARTNERSHIP FIRMS IN WHICH HE IS A PARTNER, AS UNDER: LOSS FROM M/S. A. HIMANSHU & CO.: RS.96,45,311/- PROFIT FROM M/S. NAVKAR: RS.4, 65,142/- 2.2 THE INTEREST EXPENDITURE WAS INCURRED ON THE CA PITAL BORROWED FOR MAKING THE INVESTMENT IN THE FIRM, M/S. A HIMANSHU & CO., FROM WHICH THE ASSESSEE IS EARNING INCOME BY WAY OF SHARE OF PROFIT (LOSS). THE SAID P ROFIT SUFFERS TAX AT THE MAXIMUM RATE IN THE HANDS OF THE FIRM. AS SUCH, EVEN THOUGH THE ASS ESSEE IS NOT ENTITLED TO ANY INCOME 3 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT ASSESSABLE U/S.28 OF THE ACT FROM THE SAID FIRM, I. E., EITHER BY WAY OF REMUNERATION OR INTEREST, IT COULD NOT BE SAID THAT NO TAX WAS PAYA BLE ON THE INCOME ARISING TO THE ASSESSEE BY WAY OF SHARE IN THE PROFITS (OR LOSSES) OF THE S AID FIRM, OR THAT THE SAME INCOME WAS TAX EXEMPT INCOME. ACCORDINGLY, HE BE ALLOWED HIS CLAIM FOR INTEREST EXPENDITURE OF RS.15.67 LACS (REFER STATEMENT OF FACTS BEFORE TH E APPELLATE TRIBUNAL). THE SAME BEING DENIED BY THE REVENUE, AS WELL AS THAT FOR OTHER EX PENSES AMOUNTING TO RS.35,587/-, ALSO CLAIMED ALONG WITH, THE ASSESSEE IS IN SECOND APPEA L. 3. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE (AR ), THE ASSESSEES COUNSEL, PLEADED THE ASSESSEES CASE WITH REFERENCE TO THE ORDER BY THE TRIBUNAL IN HIS CASE FOR THE IMMEDIATELY PRECEDING YEAR, I.E., A.Y. 2008-09 (IN ITA NO. 393/MUM/2013 DATED 24.09.2014), PLACING A COPY OF THE SAME ON RECORD. SIMILAR ISSUE HAD ARISEN IN THE ASSESSEES CASE FOR THE SAID YEAR AS WELL, AND WHIC H WAS ALLOWED BY THE TRIBUNAL. ACCORDINGLY, THE ASSESSEES CASE STANDS SQUARELY CO VERED IN HIS FAVOUR, TAKING US TO THE RELEVANT PART, I.E., PARAS 6 AND 7, THEREOF. THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON THE OT HER HAND, WOULD RELY ON THE ORDERS OF THE AUTHORITIES BELOW, STATING THAT THE O RDER BY THE TRIBUNAL DOES NOT ADDRESS THE ISSUE/S ARISING FOR CONSIDERATION IN THE INSTANT CA SE. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE FIRST ISSUE BEFORE US IS, THEREFORE, WHETHE R THE ISSUE ARISING FOR ADJUDICATION COULD BE SAID TO BE COVERED BY THE ORDER BY THE TRI BUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2008-09. PARA 6 AND 7 WHICH IS THE OPERATIVE P ART OF THE ORDER ARE AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON G OING THROUGH THE REPORTS, WE FIND THAT THE INTEREST INCOME OF THE AS SESSEE DURING THE YEAR WAS RS.57,58,333/- AND ONLY A SUM OF RS.10,12,500/- WAS INVESTED IN THE BUSINESS OF PARTNERSHIP FIRM. THE ASSESSEE HAD HIS OWN SUFFICIENT FUNDS DURING THE YEAR. UNDER SUCH CIRCUMSTANCES, IT CANNO T BE PRESUMED THAT THE BORROWED FUNDS WERE INVESTED IN THE PARTNERSHIP FIR M. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD THAT IF THE RE ARE FUNDS AVAILABLE TO THE ASSESSEE, BOTH INTEREST FREE AND OVERDRAFT AND/ OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE, IF THE INTEREST FREE FUNDS 4 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT WERE SUFFICIENT TO MEET THE INVESTMENTS. HENCE, IN OUR VIEW, THE DISALLOWANCE OF THE INTEREST EXPENDITURE BY THE LOW ER AUTHORITIES WAS NOT JUSTIFIED AND THE SAME IS HEREBY ORDERED TO BE DELE TED. 7. SO FAR THE REMAINING EXPENSES ARE CONCERNED, WE FIND THAT THE ASSESSEE HAS CLAIMED ONLY A SUM OF RS.6,738/- TOWAR DS LEGAL EXPENDITURE, RS.10,469/TOWARDS BANK CHARGES AND RS.1,825/- AS MI SCELLANEOUS EXPENSES. A PERUSAL OF THE REPORT FURTHER REVEALS THAT THE AS SESSEE HAS INVESTED SUFFICIENT AMOUNT IN FDRS, BONDS AND DEBENTURES ETC . THOUGH THE ASSESSEE COULD NOT PROVE BEFORE THE AO THE ONE TO ONE RELATI ON BETWEEN THE INCOME AND THE EXPENDITURE, HOWEVER, CONSIDERING THE QUANT UM OF INTEREST INCOME AND IN VIEW OF THE FACT THAT THE EXPENSES CLAIMED B Y THE ASSESSEE ARE VERY MEAGER AND CAN REASONABLY BE EXPECTED TOWARDS THE N ATURE OF INCOME EARNED, WE DO NOT FIND ANY JUSTIFICATION ON THE PAR T OF LOWER AUTHORITIES IN DISALLOWING THE SAID CLAIM OF THE ASSESSEE. ACCORDI NGLY, THE DISALLOWANCE ON ACCOUNT OF OTHER EXPENSES IS ALSO HEREBY ORDERED TO BE DELETED. AS AFORE-STATED, THE SAME WERE READ DURING THE COUR SE OF HEARING. HOWEVER, ON AN ENQUIRY BY THE BENCH AS TO HOW THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD . [2009] 313 ITR 340 (BOM), RELIED UPON BY THE TRIBUNAL, ASSISTS THE ASSESSEE IN THE A DMITTED FACTS AND CIRCUMSTANCES OF ITS CASE, HE COULD NOT FURNISH ANY SATISFACTORY ANSWER. RATHER, AS OBSERVED BY THE BENCH DURING HEARING, AGAIN TO NO REBUTTAL OR REPLY BY TH E LD. AR, THE RATIO OF THE DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD . (SUPRA), WHICH IS THAT IN THE CASE OF ADEQUACY OF CAPITAL, THE PRESUMPTION WOULD BE THAT THE INVESTME NTS ARE MADE OUT OF OWN CAPITAL, GOES AGAINST THE ASSESSEE IN-AS-MUCH AS INTEREST IS CLAI MED ON BORROWED CAPITAL, WHILE THE INVESTMENTS YIELDING INCOME FROM OTHER SOURCES, BEI NG INTEREST, IS OUT OF OWN CAPITAL. THE ONLY IMPORT OF THE DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD . (SUPRA), WHICH IS BINDING ON US, IS THAT WHERE THE ASSESSEE HAS AD EQUATE CAPITAL, WHICH IS AND WOULD ALWAYS BE A FINDING OF FACT, THE PRESUMPTION IN LAW WOULD BE THAT THE ASSESSEES INVESTMENT IS FUNDED OUT OF ITS OWN CAPITAL. THIS IS IN FACT PRECISELY WHAT THE ASSESSEE STATES IN THE PRESENT CASE, BOTH BEFORE THE AUTHORI TIES BELOW AS WELL AS BEFORE US (THROUGH THE STATEMENT OF FACTS FILED ALONG WITH THE MEMO OF APPEAL), SO THAT IT REPRESENTS HIS CONSISTENT STAND IN THE MATTER. REFERENCE FOR THE P URPOSE MAY BE MADE TO THE PARAS 3.2 TO 3.4 AND 2.4.3 TO 2.4.4 OF THE ASSESSMENT AND THE IM PUGNED ORDER RESPECTIVELY, DELINEATING 5 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT THE RESPECTIVE CASES OF BOTH THE PARTIES. RATHER, I N THE ADMITTED FACTS OF THE CASE, IN OUR OPINION, WE DO NOT NEED TO DRAW ANY PRESUMPTION IN- AS-MUCH AS THE ASSESSEE HAS CLARIFIED, AND IT IS AN ADMITTED POSITION, THAT THE BORROWED CAPITAL, ON WHICH THE INTEREST STANDS BORNE AND, THEREFORE, CLAIMED, STANDS INVEST ED BY THE ASSESSEE, IN THE MAIN, IN THE PARTNERSHIP FIRM M/S. A. HIMANSHU & CO. THOUGH THE RELEVANT FIGURES HAVE NOT BEEN STATED, AS IT WOULD APPEAR TO US, I.E., ON PERUSING THE RECORD (ALSO REFER PARA 2 OF THIS ORDER), THAT A PART OF THE BORROWED CAPITAL IS ALSO INVESTED IN THE OTHER PARTNERSHIP FIRM, M/S. NAVKAR, AND M/S. TIGER JEWELLERY PVT. LTD. (TJ PL). THE INVESTMENT OF THE BORROWED CAPITAL, THUS, IS IN THE PARTNERSHIP FIRMS AS WELL AS A PRIVATE LIMITED COMPANY. WE SHALL TAKE UP THE TWO SEPARATELY. 4.2 AS REGARDS THE INVESTMENT IN THE PARTNERSHIP FI RMS, IT IS COMPLETELY INCORRECT TO SAY THAT THE ASSESSEES SHARE OF INCOME THERE-FROM IS T AXABLE OR ASSESSABLE IN THE ASSESSEES HANDS, WHICH IS WHAT IS RELEVANT, AND FOR WHICH ONE MAY REFER TO THE COMPUTATION OF TOTAL INCOME AT PARA 2.2 OF THIS ORDER. THE SAME IS A CHA PTER III INCOME, EXEMPT U/S.10(2A), AND, THEREFORE, DOES NOT ENTER THE COMPUTATION OF T HE TAXABLE OR TOTAL INCOME UNDER THE ACT. ACCORDINGLY, ANY INTEREST ON THE CORRESPONDING CAPITAL WOULD STAND TO BE DISALLOWED U/S.14A, AND WHICH IS WHAT THE ASSESSEE OBJECTS TO (REFER STATEMENT OF FACTS BEFORE THE FIRST APPELLATE AUTHORITY). WHETHER FOR THE RELEVANT YEAR THE SHARE OF INCOME IS AT A PROFIT OR LOSS, WHICH (THE LATTER) IS ONLY A NEGATIVE INCOME, IS IRRELEVANT. THE ONLY IMPLICATION OF A LOSS (I.E., A SHARE OF LOSS) WOULD BE THAT THE ASSE SSEES NET LOSS FROM THE SAID INVESTMENT IS EVEN HIGHER. THE ASSESSEES SECOND ARGUMENT QUA THE SAID INVESTMENT/S IS THAT AS THE SAME STANDS TAXED, ALBEIT IN THE HANDS OF THE PARTNERSHI P FIRM, THE SAID INCOME CANNOT BE SAID TO BE TAX-EXEMPT, SO AS TO ATTRACT SECTION 14A. THE RA TIONALE BEHIND THE ARGUMENT IS THAT TAXING THE SAME IN THE HANDS OF THE PARTNER WOULD A MOUNT TO A DOUBLE TAX. THE ARGUMENT, APPEALING AT FIRST BLUSH, IS MISCONCEIVED IN LAW IN -AS-MUCH AS THE PARTNER AND THE PARTNERSHIP ARE LEGALLY DISTINCT TAXABLE ENTITIES, LIABLE TO BE ASSESSED INDEPENDENTLY ON INCOME/S ACCRUING OR ARISING TO OR RECEIVED BY THEM DURING A PREVIOUS YEAR. THE SAID ARGUMENT, IN THE CONTEXT OF DIVIDEND INCOME, WAS AL SO RAISED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 6 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT 328 ITR 81 (BOM), AVERRING THAT THE DIVIDEND BEING TAXED U/S.115-O ON DISTRIBUTION, THE SAME CANNOT BE SAID TO BE EXEMPT QUA THE SHAREHOLDE R RECEIVING THE SAME. THE HONBLE HIGH COURT, AFTER REFERRING TO VARIOUS DECISIONS BY THE HONBLE APEX COURT, CLARIFIED THAT TAX U/S.115-O ON THE DECLARATION, DISTRIBUTION OR PAYME NT OF DIVIDEND, IS NOT A TAX PAID FOR OR ON BEHALF OF THE SHAREHOLDER. THE ARGUMENT WAS IN T HAT CASE RATHER BETTER PLACED IN-AS- MUCH AS THE DIVIDEND INCOME WAS ON ITS DISTRIBUTION SUBJECT TO TAX. THAT IS, IT WAS NOT A CASE OF DISTRIBUTION OF PROFIT AS DIVIDEND BEING CL AIMED AS NOT TAX-EXEMPT AS THE PROFIT HAD ALREADY SUFFERED TAX IN THE HANDS OF THE PAYING COMPANY, SO THAT WHAT WAS BEING DISTRIBUTED WAS ONLY THE AFTER-TAX PROFIT. THE ARGU MENT, THUS, IS MISPLACED; THE PARTNER AND THE PARTNERSHIP BEING SEPARATE LEGAL ENTITIES OR PE RSONS UNDER THE ACT. COMING TO THE INVESTMENT IN THE PRIVATE LIMITED COM PANY (TJPL), IN WHICH THE ASSESSEE IS A DIRECTOR, THE NATURE OF THE INVESTMEN T, I.E., WHETHER AS SHARE CAPITAL OR AS A LOAN, IS NOT CLEAR. EVEN IF IN THE FORM OF A LOAN, THE RELATED PRIMARY FACTS, VIZ. WHETHER IT IS INTEREST BEARING OR NOT; THE PERIOD AND PURPOSE OF THE LOAN, ETC., ARE COMPLETELY MISSING. THE FINDING BY THE REVENUE AUTHORITIES, RENDERED UP ON EXAMINATION OF THE MATERIALS BEFORE THEM, AND WHICH HAS NOT BEEN CONTROVERTED BY THE ASSESSEE, IS THAT THE SAME IS TOWARD PURCHASE OF GOLD. THE FACTS HAVE NOT BEEN SP ECIFIED BY THE ASSESSEE AT ANY STAGE, INCLUDING BEFORE US, EVEN AS THIS IS THE SECOND YEA R IN THE RUNNING FOR WHICH THIS ISSUE HAD ARISEN IN ITS CASE. THE BURDEN TO PROVE ITS RETURN , AND THE CLAIMS PREFERRED THEREBY, IS ONLY ON THE ASSESSEE (REFER: CIT VS. CALCUTTA AGENCY LIMITED [1951] 19 ITR 191 (SC)). EVEN OTHERWISE, NON-ADDUCING THE RELEVANT EVIDENCE WOULD ONLY ATTRACT THE STATUTORY PRESUMPTION OF SECTION 114(G) OF THE EVIDENCE ACT. THE ASSESSEES CLAIM UNDER THE CIRCUMSTANCES IS A BALD CLAIM, LIABLE FOR REJECTION . WE, ACCORDINGLY, ENDORSE THE DECISION BY THE REVENUE DOING SO. 4.3 WITH REGARD TO THE ASSESSEES CLAIM FOR OTHER E XPENSES, AT AN AGGREGATE OF RS. 35,587/-, HE HAS NOT FURNISHED THE RELEVANT DETAILS OR EVEN EXPLAINED THE PURPOSE FOR WHICH THE SAID EXPENSES WERE INCURRED. ONLY THE SAI D PURPOSE, IT MAY BE APPRECIATED, AND WHICH MAY FURTHER REQUIRE BEING VERIFICATION, WOULD DETERMINE WHETHER THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF EARNING, EVEN BROA DLY CONSTRUED, WHICH IS THE PRIMARY 7 ITA NO. 6161/MUM/2013 (A.Y. 2009-10) HIMANSHU C. MEHTA VS. ASST. CIT CONDITION FOR DEDUCTIBILITY U/S. 57(III). THIS ALSO FORMS THE BASIS OF THE DISALLOWANCE BY THE REVENUE. IN FACT, AS IT WOULD APPEAR TO US, THE EXPENDITURE ON BANK CHARGES, DEMAT CHARGES AND PROFESSIONAL TAX, HAS NO RELATION WITH THE INTEREST INCOME. ON ALL THIS BEING COMMUNICATED DURING HEARING, THE LD. AR COULD NOT F URNISH ANY REPLY. THE ONUS, AS AFORE- STATED, TO PROVE ITS CLAIMS IS ONLY ON THE ASSESSE E. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE ASSESSEES CASE. THE TRIBUNAL FOR A.Y. 2008-09 HAS ALLOWED RELIEF TO THE ASSESSEE ONLY BY EXTENDING IT A BENEFIT OF DOUB T, WHICH CANNOT BE CLAIMED AS A LEGAL RIGHT. NO PRECEDENCE VALUE THUS WOULD FLOW THERE-FR OM. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. 3 1-4 *563 - ' 3 ' - 7 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 18, 201 5 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ) 8, MUMBAI; 9 * DATED : 18 .03.2015 +.*../ ROSHANI, SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ) :- ( ) / THE CIT(A) 4. ) :- / CIT - CONCERNED 5. =+> %-*5 , . 5 1 , ) 8, / DR, ITAT, MUMBAI 6. @6 A, / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ) 8, / ITAT, MUMBAI