ASSTCIT 16(2), MUMBAI V. ARUNBHAI CHIMANLAL SHAH, MUMBAI

ITA 6197/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84512 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: A R AJGAONKAR
• Keywords: Opportunity of being heard
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI MANOK KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.6197/M/2014 ASSESSMENT YEAR: 2011-12 ASSISTANT COMMISSIONER OF INCOME TAX-16(2), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 VS. SHRI ARUNBHAI CHIMANLAL SHAH, FLAT NO.92, 9 TH FLOOR, URVASHI, 66, L JAGMOHANDAS MARG, MUMBAI 400 006 PAN: AAKPS 3101Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI A.R. AJGAONKAR, A.R. REVENUE BY : SHRI M.V. RAJGURU, D.R. DATE OF HEARING : 30.11.2016 DATE OF PRONOUNCEMENT : 15.12.2016 O R D E R PER C.N. PRASAD, JUDICIAL MEMBER: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-27, MUMBAI [HE REINAFTER REFERRED TO AS THE CIT(A)] DATED 28.07.2014 FOR THE ASSESSMENT YEAR 2011-12 ARISING OUT OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) O F THE ACT. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN THE LAW, THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING INTEREST PAID TO THE EXTENT OF RS.43,39,421/- AGAINST INTEREST INCOME OF RS. 1,19,24,203/- RECEIV ED FROM PARTNERSHIP FIRM, WHERE ASSESSEE IS A PARTNER AND THE ASSESSEE HAS BO RROWED FUNDS ONLY WITH A MOTIVE TO PROVIDE ADDITIONAL CAPITAL TO PARTNERSHIP FIRM AND THEREBY MAXIMIZING HIS TAX FREE PROFIT FROM THE FIRM? 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LD. CIT (A) ERRED IN DELETING DISALLOWANCE U/S. 14A WITHOUT APP RECIATING THE FACTS THAT APPLICABILITY OF SECTION 14A IS DEPENDENT UPON THE INCIDENCE OF TAX FREE INCOME EARNED BY THE ASSESSEE. IN THIS CASE TAX FREE PROFI T WAS EARNED BY THE ASSESSEE FROM THE PARTNERSHIP FIRM. ITA NO.6197/M/2014 SHRI ARUNBHAI CHIMANLAL SHAH 2 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT ID ENTICAL ISSUE HAS BEEN DECIDED IN ASSESSEES OWN CASE FOR THE ASSESSMENT Y EAR 2010-11 IN ITA NO.5999/M/2013 BY ORDER DATED 01.05.15 ALLOWING THE CLAIM OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS TH AT AN ORDER WAS ALSO PASSED BY THE ASSESSING OFFICER GIVING EFFECT TO THE TRIBU NALS ORDER DELETING THE DISALLOWANCE MADE. THE COPIES OF THE CO-ORDINATE B ENCH ORDER AND GIVING EFFECT ORDER HAVE BEEN PLACED AT PAGES 66 TO 72 OF THE PAPER BOOK. 4. THE LD. D.R. SUPPORTED THE ORDERS OF THE ASSESSI NG OFFICER. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF CO- ORDINATE BENCH THAT IDENTICAL GROUNDS HAVE BEEN RAI SED BY THE REVENUE FOR THE ASSESSMENT YEAR 2010-11 WHERE THE CO-ORDINATE BENCH HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE IMPUGNED ORDERS OF THE AO AS WELL AS CIT(A). FROM THE PERUSAL OF TH E ASSESSMENT ORDER, IT IS SEEN THAT THE BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR THE FIXED CAPITAL OF THE PARTNERSHIP FIRM, BUT, WAS GIVEN TO CURRENT ACCOUNT OF THE FIRM. THE ASSESSEE HAS PAID INTEREST OF RS.38,08,353/- ON THE FUNDS BORROW ED AND HAS EARNED INTEREST INCOME OF RS.1,03,49,056/- ON THE PARTNERS' CURRENT ACCOUNT BALANCE, FROM THE FIRM. HENCE, THERE IS A DIRECT NEXUS BETWEEN THE BO RROWINGS AND MONEY GIVEN TO THE FIRM'S CURRENT ACCOUNT AND EARNING OF INTEREST INCOME. THIS FACT HAS BEEN NOTED BY THE AO AT PAGE 2 IN PARA 4.2 OF THE ASSESS MENT ORDER. ONCE THE AMOUNT BORROWED IS NOT TOWARDS CAPITAL CONTRIBUTION THEN, IT CANNOT BE HELD THAT ANY DISALLOWANCE U/S 14A CAN BE MADE ON THE GROUND THAT SHARE PROFIT FROM THE FIRM IS EXEMPT IN THE HANDS OF THE ASSESSEE. IN THE ACCO UNT OF THE FIRM THERE IS A SEPARATE FIXED CAPITAL ACCOUNT AND CURRENT CAPITAL ACCOUNT. THE ASSESSEE'S SHARE IN THE PARTNERSHIP FIRM WAS 22% AND CAPITAL STANDIN G TO HIS CREDIT AS ON 31.03.2010 WAS RS.6,66,00,000/- IN THE FIXED CAPITA L AND RS.19,00,34,158/- IN THE CURRENT ACCOUNT. THE INTEREST WHICH HAS BEEN RECEIV ED BY THE ASSESSEE IS ON CURRENT CAPITAL ACCOUNT AGAINST WHICH THE ASSESSEE HAS CLAIMED DEDUCTION OF THE INTEREST PAID. HERE IN THIS CASE IT NEEDS TO BE EXA MINED, WHETHER OR NOT THE BORROWED FUNDS WHICH HAS BEEN GIVEN TO THE CURRENT CAPITAL ACCOUNT AND INTEREST EARNED THEREON HAS BEEN OFFERED AS TAXABLE INCOME OR NOT. IF THAT IS SO, THEN NO DISALLOWANCE U/S 14A CAN BE MADE. ACCORDING LY, FOR LIMITED PURPOSE, MATTER IS RESTORED TO THE FILE OF THE AO FOR VERIFI CATION AFTER GIVING OPPORTUNITY TO THE ASSESSEE. ITA NO.6197/M/2014 SHRI ARUNBHAI CHIMANLAL SHAH 3 6. FACTS AND CIRCUMSTANCES BEING IDENTICAL, FOLLOWI NG THE ORDER OF THE CO- ORDINATE BENCH WE DIRECT THE ASSESSING OFFICER TO F OLLOW THE ORDER OF THE CO- ORDINATE BENCH FOR THE ASSESSMENT YEAR 2010-11 AND TO CARRY OUT THE EXAMINATION/VERIFICATION AS WAS DIRECTED BY THE CO- ORDINATE BENCH FOR ASSESSMENT YEAR 2010-11 FOR THIS ASSESSMENT YEAR AL SO AND TO DECIDE ACCORDINGLY AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD. THUS FOR LIMITED PURPOSE, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AS OBSERVED ABOVE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 15.12.2016. SD/- SD/- (MANOK KUMAR AGGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15.12.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.