ROSHAN SETHIA, MUMBAI V. ACIT 18(2) NOW 21(3), MUMBAI

ITA 6171/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0337 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 30-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JOTHI LAKSHMI NAYAK SR
• Keywords: Salary income; Proportionate interest; Notional interest; Capital Gains
• Section: 143(3); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBE R & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.6171/MUM/2018 ( ASSESSMENT YEAR :2012-13 ) ROSHAN SETHIA 601, MADHUKUNJ, SAYANI ROAD PRABHADEVI MUMBAI-400 025 VS. ACIT, CIRCLE-18(2) NOW 21(3) 2 ND FLOOR, I.T.OFFICE PIRAMAL CHAMBERS LALBAUG MUMBAI-400 012 PAN/GIR NO. A HBPS 1231K APPELLANT ) .. RESPONDENT ) REVENUE BY SMT. JOTHILAKSHMI NAYAK, SR.AR ( DR ) ASSESSEE BY NONE DATE OF HEARING 0 3 /12 /2019 DATE OF PRONOUNCEME NT 03 /12 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)48, MUMBAI, DATED 31/08/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1 THE LEARNED CIT (A)- 48 (HEREINAFTER REFERRED T O AS 'THE CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING ASSESSMENT OF TOT AL INCOME AT RS. 85,22,380/- AS AGAINST RS. 84,56,539/- RETURNED BY THE APPELLANT. 2. THE ORDER DT 31/08/18 PASSED BY LD. CIT(A) AS WELL AS ORDER DT. 26/03/15 U/S 143(3) PASSED BY LD.ACIT ARE BAD IN LA W AS THE SAME ARE NOT BASED ON FACTS AND BASED ON ASSUMPTIONS OR SURM ISES OR ERRONEOUS FINDINGS AND HAS NOT CONSIDERED SUBMISSIONS MADE BY APPELLANT. 3. THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN C ONFIRMING DISALLOWANCE OF LEGAL FEES OF RS, 4,500/- PAID TO CA M/S R. LODH A & ASSOCIATES VIDE PARA 7 OF LD. CIT (A) ORDER (PARAGRAPH 5.2 OF ASSES SMENT ORDER) TOTALLY ITA NO.6171/MUM/2018 ROSHAN SETHIA 2 IGNORING VARIOUS AUTHORITIES RELIED UPON BY THE APP ELLANT VIDE PARA 2 OF STATEMENT OF FACTS. 4.1 THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN CO NFIRMING DISALLOWANCE OF INTEREST OF RS.61,343/- U/S 57 (III) VIDE PARA 8 .2 OF LD. CIT (A) ORDER IN SPITE OF POSITIVE INTEREST INCOME OF RS. 14,96,197. 20 OFFERED TO TAX (PARAGRAPH 6.2 OF ASSESSMENT ORDER). 4.2 THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN NO T FOLLOWING PRINCIPLE OF RES-JUDICATA I,E, CONSISTENCY WHERE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE LD. CJT (A) HAS ALLOWED INTEREST PAID U/S 57(III) FOR A.Y. 2011- 12, FOR A.Y. 2007-08 AND FOR A.Y.20I3-14 AND HONBL E ITAT ALLOWED INTEREST PA/D U/S 57(III) FOR A.Y.2009-10 IN APPELL ANT OWN CASE. 5. THE LD. CIT (A) ERRED IN LAW IN NOT CONSIDERIN G ANY AUTHORITIES CITED BY THE APPELLANT IN SUPPORT OF HIS CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL, DERIVES INCOME FROM SALARY AS DIRECTOR OF A COMPANY, INCOME FROM HOUSE PROPERTY, INCOME FROM OTHER SOURC ES, INCOME FROM BUSINESS AND INCOME FROM CAPITAL GAINS. THE AS SESSEE HAS FAILED HIS RETURN OF INCOME FOR AY 2012-13 ON 28/06 /2012, DECLARING TOTAL INCOME OF RS.84,56,539/-. THE CASE WAS SELECT ED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LD. AO NOTICED THAT THE ASSESSEE HAS CLAIMED LEGAL AND PRO FESSIONAL FEES EXPENDITURE OF RS.4,500/-. THE LD. AO FURTHER NOTED THAT THE ASSESSEE HAS DERIVED INCOME FROM OTHER SOURCES BEIN G INTEREST ON LOANS ADVANCED TO M/S SIM DIA PVT. LTD, THEREFORE, HE CALLED UPON THE ASSESSEE TO FURNISH NECESSARY EVIDENCES TO JUST IFY PAYMENT OF PROFESSIONAL FEES AND DETAILS OF INTEREST INCOME EA RNED FROM LOANS AND ADVANCES. IN RESPONSE, THE ASSESEE HAS FILED D ETAILS, IN RESPECT OF LEGAL FEES OF RS.4,500/- AND CLAIMED THAT SAID AMOUNT HAS BEEN PAID TO M/S. R.LODHA & ASSOCIATES FOR FILING INCOME TAX RETURNS. SIMILARLY, THE ASSESSEE HAS FILED DETAILS OF LOANS AND ADVANCES TAKEN AND LOANS AND ADVANCES GIVEN TO VARIOUS PARTIES AND SUBMITTED THAT THE DIFFERENCE AMOUNT OF RS. 5,11,910/- HAS BEEN UT ILIZED IN MAKING INVESTMENTS IN SHARES OF CLOSELY HELD COMPANIES, WH ICH IS CAPABLE OF GENERATING TAXABLE INCOME. THE LD. AO AFTER CONSIDE RING RELEVANT ITA NO.6171/MUM/2018 ROSHAN SETHIA 3 SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELIED UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF ASSOCIA TED STONES LTD. VS CIT REPORTED IN 2002 123 TAXMANN.CO 643 DISALLOW ED LEGAL FEES OF RS.4,500/-, ON THE GROUND THAT LEGAL FEES PAID FOR FILING INCOME TAX RETURN IS IN THE NATURE OF PERSONAL EXPENDITURE, WH ICH CANNOT BE ALLOWED AS DEDUCTION. SIMILARLY, THE LD. AO HAS EST IMATED NOTIONAL INTEREST OF 12% ON LOAN TAKEN AMOUNTING TO RS.5,11, 910/-, ON THE GROUND THAT ALTHOUGH, THE ASSESSEE HAS PAID INTERES T OF SAID LOANS, BUT DIVERTED LOANS FOR NON BUSINESS PURPOSE WITHOU T CHARGING INTEREST. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS REITERATED HIS SUBMISSIONS MADE BEFORE THE LD. AO TO ARGUE THAT THE LD. AO WAS ERRED IN DISALLOWED LEGAL FEES OF RS . 4,500/- AND INTEREST DISALLOWANCES OF RS.61,343/- U/S 57(III) O F THE I.T.ACT, 1961. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION S HELD THAT LEGAL FEES PAID FOR FILING INCOME TAX RETURNS IS PERSONAL EXPENDITURE, WHICH CANNOT BE ALLOWED AS DEDUCTION. SIMILARLY, THE LD.C IT(A) FURTHER HELD THAT INSOFAR AS, INTEREST DISALLOWANCE, ALTHOU GH ASSESSE CLAIMS THAT IT HAS INVESTED BALANCE AMOUNT IN SHARES OF CL OSELY HELD COMPANIES, WHICH ARE CAPABLE OF EARNING TAXABLE INC OME, BUT COULD NOT PROVED THE EXPLANATION WITH NECESSARY EVIDENCES AND ACCORDINGLY, CONFIRMED ADDITIONS MADE BY THE LD.AO. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFO RE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3 OF ASSESSEE APPEAL IS DISALLOWANCE OF LEGAL FE ES PAID TO M/S. R. LODHA & ASSOCIATES, FOR CONSULTATION AND FILING INC OME TAX RETURN. ITA NO.6171/MUM/2018 ROSHAN SETHIA 4 THE LD. AO HAS DISALLOWED SAID EXPENDITURE, ON THE GROUND THAT IT IS IN THE NATURE OF PERSONAL EXPENSES. IT IS CLAIM OF THE ASSESEE BEFORE THE LD.AO THAT LEGAL FEES PAID TO M/S. R. LODHA & A SSOCIATES IS NOT ONLY FILING INCOME TAX RETURNS, BUT ALSO FOR REPRES ENTATION BEFORE THE I.T. AUTHORITIES IN SCRUTINY ASSESSMENT PROCEEDINGS . 6. HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND AL SO, MATERIALS AVAILABLE ON RECORD, WE FIND THAT WHEN, A SSESSEE IS INTO THE BUSINESS, RELEVANT PROFESSIONAL CHARGES PAID IN CON NECTION WITH PREPARATION OF FINANCIAL STATEMENTS AND REPRESENTAT ION BEFORE THE INCOME TAX AUTHORITIES COULD BE VERY WELL REGARDED AS EXPENDITURE INCURRED IN RELATION TO SAID BUSINESS ACTIVITY, EVE N THOUGH SAID PROFESSIONAL SERVICES RENDERED BY THE CONSULTANT I NVOLVES FILING OF INCOME TAX RETURNS. FURTHER, HAD IT BEEN A CASE OF THE LD. AO THAT THE ASSESSEE IS NOT INTO BUSINESS, BUT FILING INCOM E TAX RETURNS FOR OTHER INCOMES, THEN PROFESSIONAL FEES PAID FOR FILI NG INCOME TAX RETURN CANNOT BE ALLOWED AS DEDUCTION, BECAUSE IT I S IN THE NATURE OF PERSONAL EXPENSES. BUT, WHEN ASSESSEE IS INTO BUSIN ESS ACTIVITY, THEN ANY PROFESSIONAL CHARGES PAID IN CONNECTION WI TH PREPARATION OF FINANCIAL STATEMENTS AND REPRESENTATION BEFORE THE TAX AUTHORITIES IN CONNECTION WITH SCRUTINY ASSESSMENT PROCEEDINGS IS DEFINITELY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D. AO WAS ERRED IN DISALLOWED PROFESSIONAL CHARGES PAID TO M/S. R. LODHA & ASSOCIATES AND HENCE, WE DIRECT THE AO TO DELETE AD DITIONS MADE TOWARDS LEGAL FEES. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO. 4 OF ASSESSEE APPEAL IS ADDITIONS TOWARDS PROPO RTIONATE INTEREST ITA NO.6171/MUM/2018 ROSHAN SETHIA 5 PAID ON LOANS FOR UTILIZATION FUNDS TO NON BUSINESS PURPOSE. THE LD. AO HAS DISALLOWED PROPORTIONATE INTEREST @12% ON A SUM OF RS. 5,11,910/-, ON THE GROUND THAT SAID AMOUNT HAS NOT BEEN UTILIZED FOR BUSINESS PURPOSE. IT IS THE CLAIM OF THE ASSESEE BE FORE THE LD. AO IS THAT SAID AMOUNT HAS BEEN INVESTED IN SHARES OF CLO SELY HELD COMPANIES, WHICH IS CAPABLE OF GENERATING TAXABLE I NCOME. THEREFORE, INTEREST CANNOT BE DISALLOWED. 8. HAVING HEARD ARGUMENTS OF THE LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. AO HAS DISALLOWED PROPORTIONATE INTEREST PAID ON LOANS, ON THE GROUND THAT THE ASSESSE HAS NOT UTILIZED THE FUNDS TO EARN INTEREST INCOME, IGNORING THE FACT THAT THE ASSESSEE IS ALSO INTO THE BUSINESS OF SHAR E TRADING AND INVESTMENTS IN SHARES, WHICH IS CAPABLE OF EARNING TAXABLE INCOME. FURTHER, UNLESS OTHERWISE THE LD. AO MAKES OUT A PO INT THAT INTEREST BEARING FUNDS HAS BEEN UTILIZED FOR NON BUSINESS PU RPOSE, THEN CORRESPONDING INTEREST PAID ON LOANS CANNOT BE DISA LLOWED MERELY FOR THE REASONS THAT SAID AMOUNT HAS NOT BEEN USED FOR EARNING INTEREST INCOME, MORE PARTICULARLY, WHEN ASSESEE HAS UTILIZE D SAID FUNDS IN ITS BUSINESS ACTIVITY. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT THE LD. AO WAS ERRED IN MAKING PROPORTIONATE DISALL OWANCES OF INTEREST ON LOANS AND HENCE, WE DIRECT THE LD.AO TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCES OF INTEREST. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS : 03 /12 /2019 ITA NO.6171/MUM/2018 ROSHAN SETHIA 6 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDIC IAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED :03/12/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//