ACIT-16(2), MUMBAI V. ANKIT ARUNBHAI SHAH, MUMBAI

ITA 6540/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3892 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SINGH
• Assessee Lawyers: RAHUL R SARDA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.S.PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 THE ACIT - 16(2), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI- 400 007. VS. ANKIT ARUNBHAI SHAH FLAT NO. 92, 9 TH FLOOR, URVASHI, 66L, JAGMOHANDAS MARG, NEPEANSEA ROAD, MUMBAI- 400 026. PAN:- AAKPS3102P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. S.R.SINGH RESPONDENT BY : SHRI. RAHUL R. SARDA DATE OF HEARING: 0 6/05/2016 DATE OF PRONOUNCEMENT: 05/08/20 16 O R D E R PER RAM LAL NEGI, JM THESE TWO APPEALS HAVE BEEN PREFERRED BY THE REVENU E AGAINST A COMMON ORDER PASSED BY THE LD. CIT(APPEALS)-27, MUM BAI, DATED 14/08/2013 FOR THE ASST. YEARS 2009-10 & 2010-11. SINCE BOTH T HE APPEALS PERTAIN TO THE SAME ASSESSEE FOR TWO ASSESSMENT YEARS, THE SAME WE RE CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6539/MUM/2013 A.Y. 2009-10 2. SINCE THE ISSUES INVOLVED IN BOTH THE CASES ARE COMMON, WE TAKE BRIEF FACTS OF THE CASE PERTAINING TO THE ASSESSMENT YEAR 2009- 10. THE APPELLANT AN 2 ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 INDIVIDUAL AND ALSO A PARTNER IN PARTNERSHIP FIRMS M/S. ARYAN, M/S. ANKIT GEMS AND M/S. AVANI GEMS, FILED ITS RETURN OF INCOM E FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 29/09/2010 DECLARING THE TOT AL INCOME OF RS. 39,92,870/-. ASSESSMENT U/S 143(3) WAS COMPLETED ON 05/02/2013 AND THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT R S. 61,11,150/- AFTER MAKING ADDITION OF RS. 21,18,279/ TOWARDS INTEREST PAID FOR EARNING EXEMPT INCOME. 3. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEF ORE THE CIT(A). THE LD. CIT(A) AFTER HEARING THE ASSESSEE ALLOWED THE APPEA L OF THE ASSESSEE HOLDING AS UNDER:- AS THE FACTS OF THE IMPUGNED ASSESSMENT ORDER ARE IN PARI MATERIAL WITH THOSE OF THE CASE OF ARUNHHAI C. SHAH, ANOTHER PARTNER, FOR THE ASSESSMENT YEAR 2009-10 (SUPRA), AND RESPECTFULLY F OLLOWING THE DECISION OF HONBLE BENCH OF MUMBAI ITAT IN THE CAS E OF NOVEL ENTERPRISES (SUPRA) AND THAT OF MY LEARNED PREDECES SOR, GROUND NO 1&2 ARE TO BE ALLOWED IN FAVOUR OF THE ASSESSEE 4. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER PA SSED BY THE LD.CIT(A) ON THE FOLLOWING EFFECTIVE GROUNDS:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING INTEREST PAID TO THE EXTEN T OF RS. 21,18,279/- AGAINST INTEREST EARNING OF RS. 1,68,85,213/- 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 FUND THEREBY MAXIMIZING HIS TAX FREE PROFIT FROM THE FIR M. 3 ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE U/S 14A WITH OUT APPRECIATING THE FACT THAT APPLICABILITY OF SEC. U/S 14A IS UPON THE INCIDENCE OF TAX FREE INCOME IN THE HANDS OF THE ASSESSEE, AS IN THI S CASE OF TAX FREE PROFIT FROM PARTNERSHIP FIRM. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEES CASE IS COVERED BY THE DECISION DATED 01.5.2015 OF ITAT, MUMBAI IN ASSESSEES FATHER CASE, ITA NO. 5999/MUM/2013, ACIT VS. SHRI. ARUNBHAI CHIM ANLAL SHAH, FOR THE A.Y. 2010-11, IN WHICH THE TRIBUNAL HAS DECIDED THE IDENTICAL ISS UE IN FAVOUR OF THE ASSESSEE. 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRE SENTATIVE HEAVILY RELYING UPON THE FINDINGS OF THE ASSESSING OFFICER SUBMITTE D THE LD. CIT(A) HAS PASSED THE IMPUGNED ORDER WITHOUT PROPER APPRECIATION OF L AW IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO GON E THROUGH THE MATERIAL PLACED BEFORE US. THE ISSUES INVOLVED IN THIS CASE ARE IDENTICAL TO THE CASE ACIT VS. SHRI. ARUNBHAI CHIMANLAL SHAH AFORESAID AND THE COORDINATE BENCH OF ITAT HAS DECIDED THE SAME HOLDING AS UNDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE IMPUGNED ORDERS OF THE A.O AS WELL AS CIT(A). FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR THE FIXED CAPITAL OF THE PARTNERS HIP FIRM, BUT, WAS GIVEN TO CURRENT ACCOUNT OF THE FIRM. THE ASSESSEE HAS PAID INTEREST OF RS. 38,08,353/- ON THE FUNDS BORROWED AND HAS EA RNED INTEST INCOME OF RS. 1,03,49,056/- ON THE PARTNERS CURRENT ACCOUNT 4 ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 BALANCE, FROM THE FIRM. HENCE, THERE IS A DIRECT NE XUS BETWEEN THE BORROWINGS AND MONEY GIVEN TO THE FIRMS CURRENT AC COUNT AND EARNING OF INTEREST INCOME. THIS FACT HAS BEEN NOTE D BY THE AO AT PAGE 2 IN PARA 4.2 OF THE ASSESSMENT ORDER. ONCE TH E AMOUNT BORROWED IS NOT TOWARDS CAPITAL CONTRIBUTION THEN, IT CANNOT BE HELD THAT ANY DISALLOWANCE U/S 14A CAN BE MADE ON THE GR OUND THAT SHARE PROFIT FROM THE FIRM IS EXEMPT IN THE HANDS O F THE ASSESSEE. IN THE ACCOUNT OF THE FIRM THERE IS A SEPARATE FIXED C APITAL ACCOUNT AND CURRENT CAPITAL ACCOUNT. THE ASSESSEES SHARE IN TH E PARTNERSHIP FIRM WAS 22% AND CAPITAL STANDING TO HIS CREDIT AS ON 31 .03.2010 WAS RS. 6,66,00,000/- IN THE FIXED CAPITAL AND RS. 19,0 0,34,158/- IN THE CURRENT ACCOUNT. THE INTEREST WHICH HAS BEEN RECEIV ED BY THE ASSESSEE IS ON CURRENT CAPITAL ACCOUNT AGAINST WHIC H THE ASSESSEE HAS CLAIMED DEDUCTION OF THE INTEREST PAID. HERE IN THIS CASE IT NEEDS TO BE EXAMINED, WHETHER OR NOT THE BORROWED FUNDS W HICH HAS BEEN GIVEN TO THE CURRENT CAPITAL ACCOUNT AND INTEREST E ARNED THEREON HAS BEEN OFFERED AS TAXABLE INCOME OR NOT. IF THAT IS S O, THEN NO DISALLOWANCE U/S 14A CAN BE MADE. ACCORDINGLY, FOR LIMITED PURPOSE, MATTER IS RESTORED TO THE FILE OF THE A.O FOR VERIFICATION AFTER GIVING OPPORTUNITY TO THE ASSESSEE. 8. WE NOTICE THAT THE CO-ORDINATE BENCH WHILE DECID ING THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE, RESTORED THE MATTER TO THE FILE OF THE A.O FOR A LIMITED PURPOSE OF VERIFICATION AS TO WHETHER THE BORROWED FUNDS WHICH HAVE BEEN GIVEN TO THE CURRENT CAPITAL ACCOUNT AND INTEREST E ARNED THEREON HAS BEEN OFFERED AS TAXABLE INCOME OR NOT. HOWEVER, IN THE P RESENT CASE, WE FIND THAT THE ASSESSEE HAS OFFERED TO TAX AN AMOUNT OF RS. 482850 2/- AS INTEREST INCOME EARNED DURING THE A.Y. UNDER CONSIDERATION FROM THE PARTNERSHIP FIRM. HENCE, 5 ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 IN THE PRESENT CASE THERE IS NO NEED TO RESTORE BAC K THE ISSUE TO THE FILE OF THE A.O. FOR VERIFICATION. 9. HENCE, IN OUR CONSIDERED OPINION THE IMPUGNED O RDER PASSED BY THE LD. CIT(A) IS IN ACCORDANCE WITH THE DECISION OF THE CO -ORDINATE BENCH RENDERED IN ASSESSEES FATHER CASE AFORESAID. IN VIEW OF THE FA CTS THAT THE CO-ORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE AS SESSEE, WE, UPHOLD THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ITA NO. 6540/MUM/2013 A.Y. 2010-11 THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER FOR T HE ASSESSMENT YEAR ON THE FOLLOWING EFFECTIVE GROUNDS:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING INTEREST PAID TO THE EXTEN T OF RS. 6,04,445/- AGAINST INTEREST EARNING OF RS. 32,42,404/- FROM PA RTNERSHIP FIRM WHERE ASSESSEE IS A PARTNER AND THE ASSESSEE HAS BO RROWED FUNDS ONLY WITH A MOTIVE TO PROVIDE ADDITIONAL CAPITAL TO PARTNERSHIP FUND THEREBY MAXIMIZING HIS TAX FREE PROFIT FROM THE FIR M. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE U/S 14A WITH OUT APPRECIATING THE FACT THAT APPLICABILITY OF SEC. U/S 14A IS UPON THE INCIDENCE OF TAX FREE INCOME IN THE HANDS OF THE ASSESSEE, AS IN THI S CASE OF TAX FREE PROFIT FROM PARTNERSHIP FIRM. 2. SINCE, THE FACTS OF THE PRESENT APPEAL (EXCEPT THE AMOUNT INVOLVED) AND ISSUES INVOLVED ARE IDENTICAL TO THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 6 ITA NO. 6539 & 6540/MUM/2013 ASSESSMENT YEAR: 2009-10 & 2010-11 YEAR 2009-10 AND SINCE WE HAVE DECIDED THE IDENTICA L GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEAR 2009-10 AFORESAID, WE ALLOW THIS APPEAL OF THE ASSESSEE ON THE SAME REASONING. ACCORDINGLY THE FINDING OF THE LD. CIT(A) ARE UPHEL D AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 3. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE FOR THE A.YS 2009-10 & 2010-11 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT 5 TH AUGUST, 2016. SD/- SD/- ( G.S.PANNU ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 05/08/2016 / 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 PRAMILA