THE DCIT CIR 1(1), MUMBAI V. M/S. B.E. BILLIMORIA & CO. LTD, MUMBAI

ITA 6517/MUM/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1002 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 13-07-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 04-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAV
• Assessee Lawyers: F V IRANI
• Keywords: Business income; Business expenditure; Bonafide belief; Set aside
• Section: 271(1)(c); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, AM AND SHRI V. DURG A RAO, JM I.T.A.NO. 6517/MUM/2006 ASSESSMENT YEAR : 2001-02 THE DY.COMMISSIONER OF INCOME-TAX, CIR.1(1), MUMBAI. VS. M/S. B.E. BILLIMORIA & CO. LTD., SHIV SAGAR ESTATE A BLOCK, DR. A.B. ROAD, WORLI, MUMBAI 400 018 PAN: AAACB 1542 P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.S. SRIVASTAV RESPONDENT BY : SHRI F.V. IRANI O R D E R PER J. SUDHAKAR REDDY, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST IDENTICAL ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I, MUMBAI, 26 .09.2006, WHEREIN PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE I.T. ACT, 196 1 WAS CANCELLED. 2. WE HAVE HEARD SHRI R.S. SRIVASTAV, LEARNED DEPAR TMENTAL REPRESENTATIVE AND SHRI F.V. IRANI, LEARNED COUNSEL FOR THE ASSESS EE. 3. ON CAREFUL CONSIDERATION OF HE FACTS AND CIRCUMS TANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF THE A UTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS: 4. PENALTY IN THIS CASE WAS LEVIED BY THE ASSESSING OFFICER ON TWO ISSUES, I.E. DISALLOWANCE OF INTEREST ON LOANS OF RS. 2,24,00,00 0/- CONSISTING OF (A) COMPONENT OF INTEREST RELATING TO INVESTMENT IN PROPERTIES AN D (B) COMPONENT OF INTEREST RELATING TO INVESTMENT IN SHARES ON WHICH, THE ASSE SSEE HAD EARNED DIVIDEND INCOME OF RS.32.92 LAKHS WHICH IS EXEMPT U/S.10(33) OF THE ACT. AS FAR AS THE COMPONENT OF INTEREST INCOME RELATABLE TO INVESTMEN T IN PROPERTIES, THE DISALLOWANCE WAS DELETED BY THE CIT(A) AND THIS DEC ISION WAS CONFIRMED BY THE TRIBUNAL IN ITA NOS. 1240, 5287 & 5288/MUM/2005 FOR THE ASSESSMENT YEARS ITA NO. 6517/MUM/2006 M/S. B.E. BILLIMORIA & CO.LTD. 2 2001-02, 2002-03 AND 2003-04, ORDER DATED 12.01.200 9 WHEREIN THE TRIBUNAL IN PARA 4 HELD AS FOLLOWS: THE ASSESSEE HAS CLAIMED AB INITIO THAT THE PROPER TIES PURCHASED BY IT IN THE YEAR IN QUESTION WERE FOR THE BUSINESS PURPOSE AS IT WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. THIS CONTENTION WAS ALSO MADE BEFORE THE LD.CIT(A), WHICH WAS ACCEPTED AND THERE IS NO C ONTRADICTION ON THIS ASPECT BY THE LD. DR. FURTHER, IS SEEN FROM THE ANN UAL ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH, 2004 THAT THE SALE OF PROPERTY IN QUESTION TO THE TUNE OF RS.23 CRORES HAS BEEN SHOWN AS BUSINESS INC OME. COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05 HAS BE EN PLACED ON RECORD IN WHICH THE INCOME FROM SUCH SALE OF PROPER TY AHS BEEN ACCEPTED AS BUSINESS INCOME ONLY. IF THAT IS THE POSITION T HEN NO PART OF THE INTEREST RELATABLE TO THE BORROWINGS FOR INVESTMENT IN PROPERTIES CAN BE HELD TO BE DISALLOWABLE FOR THE REASON THAT THE PUR POSE OF MAKING INVESTMENT IN THE PROPERTIES IS BUSINESS AND BUSINE SS ALONE. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LEARNED CI T(A) TO THE EXTENT. 5. THUS, THE DELETION OF PENALTY LEVIED BY THE FIRS T APPELLATE AUTHORITY IN CONNECTION WITH DISALLOWANCE OF INTEREST RELATABLE TO INVESTMENT IN PROPERTIES IS TO BE UPHELD. 6. THE SECOND DISALLOWANCE ON WHICH THE PENALTY WAS LEVIED RELATES TO DISALLOWANCE OF INTEREST EXPENDITURE ON BORROWINGS UTILIZED FOR INVESTMENT IN SHARES, WHEREFROM THE ASSESSEE EARNED DIVIDEND, WHI CH IS EXEMPT U/S.10(33) OF THE ACT. THE FIRST APPELLATE AUTHORITY GRANTED THE RELIEF BY OBSERVING AS FOLLOWS: I HAVE CONSIDERED THE FACTS AS DISCUSSED BY THE AO IN THE ASSESSMENT ORDER FOR MAKING DISALLOWANCE OF INTEREST AND ALSO THE FACTS AS SUBMITTED BY THE APPELLANT AT THE TIME OF HEARING OF THIS APP EAL TO EXPLAIN THE POSITION OF FUNDS AND THEIR INVESTMENTS. ON CONSIDE RATION OF THE SAME, IT IS CLEARLY FOUND THAT THE APPELLANT WAS HAVING SUFF ICIENT OWN FUNDS AND THE INVESTMENTS HAVE BEEN MADE IN SHARES, BONDS ETC . OUT OF ITS OWN FUNDS ON WHICH DIVIDEND INCOME HAS BEEN EARNED. THE LOANS TAKEN BY THE APPELLANT HAVE BEEN USED FOR THE BUSINESS OF CO NSTRUCTION FROM WHICH PROFITS HAVE BEEN SHOWN. THEREFORE, AFTER CONSIDER ING THE POTION OF OWN FUNDS AND BORROWED FUNDS. IT IS FOUND THAT THE APPE LLANT HAS SUFFICIENT OWN FUNDS WHICH HAVE BEEN USED FOR THE INVESTMENT I N BUSINESS ASSETS AS WELL AS INVESTMENTS OF SHARES, BONDS AND MUTUAL FUNDS ETC. THEREFORE, IT IS NOT PROPER ON THE PART OF THE AO TO HOLD THAT THE BORROWED FUNDS HAVE BEEN USED FOR INVESTMENT IN SHARES ETC. AND HE IS NOT JUSTIFIED IN HOLDING THAT THE BORROWED FUNDS HAVE BEEN USED FOR NON-BUSINESS PURPOSES. THEREFORE, I DO NOT FIND ANY MERIT IN TH E FINDINGS OF THE LEARNED AO GIVEN IN SUPPORT OF THE DISALLOWANCE OF RS. 2.24 CRORES OUT OF INTEREST PAYMENT. THIS DISALLOWANCE DOES NOT SURVIV E AND IT IS NOT TENABLE IN VIEW OF THE FACTS AS DISCUSSED ABOVE. I AM, THE REFORE, FULLY CONVINCED WITH THE ARGUMENTS OF THE APPELLANT THAT APPELLANT WAS HAVING SUFFICIENT OWN FUNDS WHICH HAVE BEEN USED FOR INVESTMENTS IN S HARES, BONDS AND MUTUAL FUNDS AND BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF CONSTRUCTION BUSINESS AND, THEREFORE, IT IS ENTITLE D FOR THE CLAIM OF INTEREST AS BUSINESS EXPENDITURE AND, THUS, INTEREST CANNOT BE ATTRIBUTED TOWARDS ITA NO. 6517/MUM/2006 M/S. B.E. BILLIMORIA & CO.LTD. 3 THE FUNDS WHICH HAVE BEEN USED FOR INVESTMENT IN SH ARES ETC., BECAUSE SUCH INVESTMENTS HAVE BEEN MADE BY THE APPELLANT OU T OF ITS OWN FUNDS AND NOT FROM THE BORROWED FUNDS AND HENCE THIS ADDI TION IS NOT FOUND JUSTIFIED AND IT IS, THEREFORE, DELETED. IN THE RES ULT, THE ABOVE GROUNDS ARE ALLOWED. 7. ON PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE DISA LLOWANCE IN QUESTION WAS A DEBATABLE ISSUE. THE ISSUE OF QUANTIFICATION OF DISALLOWANCE U/S.14A WAS A SUBJECT MATTER OF DEBATE AND IT LED TO THE CONSTITU TION OF THE SPECIAL BENCH OF THE TRIBUNAL AND THE DECISION IN THE CASE OF CIT V. DA GA CAPITAL MANAGEMENT PVT. LTD. (2008) 119 TTJ (MUM)(SB) 289 WAS DELIVERED MUCH LAT ER DATE. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OR THE STAND T AKEN BY THE ASSESSEE AS FAR AS DISALLOWANCE U/S.14A IS CONCERNED IS A POSSIBLE ST AND. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS P.LTD. , 322 ITR 158(SC) ON SIMILAR CIRCUMSTANCES HELD AS FOLLOWS: PENALTY CONCEALMENT OF PARTICULARS OF INCOME N O INFORMATION GIVEN IN RETURN FOUND TO BE INCORRECT MAKING INCO RRECT CLAIM DOES NOT AMOUNT TO CONCEALMENT OF PARTICULARS I NCOME-TAX ACT, 1961 S. 271(1)(C). 8. THIS BENCH OF THE TRIBUNAL IN THE CASE OF LAADKI TR ADING AND INVESTMENTS (P) LTD. V. DCIT (ITA NO. 6640/M/2006) ORDER DATED 12.11.2008, AT PARA 8 HELD AS FOLLOWS: IN THE LIGHT OF GIVEN FACTS, WE ARE OF THE VIEW TH AT BEFORE THE AMENDMENT, IT WAS DEBATABLE ISSUE AS TO HOW THE LOS S UNDER ONE SUB- HEAD IS SET OFF AGAINST THE OTHER SUB-HEAD UNDER T HE HEAD CAPITAL GAIN. SINCE THE ASSESSEE HAS CALCULATED ITS CAPITAL GAIN UNDER A BONAFIDE BELIEF, HE CANNOT BE HELD RESPONSIBLE FOR THE CONCEALMENT O F INCOME OR FURNISHING OF INACCURATE PARTICULARS AND AS SUCH, T HE PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED AGAINST THE ASSE SSEE. SO FACT AS DISALLOWANCE UNDER SECTION 14A IS CONCERNED, IT IS STILL DEBATABLE ISSUE AS DIFFERENT BENCHES HAVE TAKEN A DIFFERENT VIEW IN TH IS REGARD, AS SUCH, THE PENALTY UNDER SECTION 271(1)(C) CANNOT BE INITIATED FOR THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. WE ACCORDINGLY D O NOT FIND ANY MERIT IN THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF TH E ACT AND WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE PENALTY. ITA NO. 6517/MUM/2006 M/S. B.E. BILLIMORIA & CO.LTD. 4 9. RESPECTFULLY APPLYING THESE PROPOSITIONS TO THE FACTS OF THE CASE, WE HAVE TO NECESSARILY UPHOLD THE ORDER OF THE FIRST APPELL ATE AUTHORITY AND DISMISS THE APPEAL OF THE REVENUE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23RD DA Y OF JULY, 2010. SD. SD. (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 23 RD JULY, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT -I, MUMBAI. 4. THE CIT(A)-I, MUMBAI 5. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI