WARRIOR(INVESTMENT)LIMITED(SINCE AMALGAMTED WITH FORBES CAMPBELL FINANCE LIMITED), MUMBAI V. ITO 1(3)(4), MUMBAI

ITA 6559/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93272 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 06-07-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 08-11-2013
• Court: TRIBUNAL
• Department Lawyers: NEELIMA V NADKARNI
• Assessee Lawyers: MILIN THAKORE
• Keywords: Business income; Carry forward of business losses; Opportunity of being heard; Fair market value
• Section: 143(3); 14A; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO. 6559/M/2013 (AY:2001 - 20 02 ) WARRIOR (INVESTMENT) LTD, GROUND FLOOR, FORBES BUILDING, CHARANJIT RAI MARG, FORT, MUMBAI - 400 001. / VS. INCOME TAX OFFICER 1(3)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : A AACW0347B ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MILIN THAKORE / RESPONDENT BY : MS. NEELIMA V. NADKARNI, DR / DATE OF HEARING : 06 .07.2015 / DATE OF PRONOUNCEMENT : 22 .07.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 8.11.2013 IS AGAINST THE ORDER OF THE CIT (A) - 20, MUMBAI DATED 13.8.2013 FOR THE ASSESSMENT YEAR 2001 - 2002. 2. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE RAISED 10 GROUNDS IN THIS APPEAL, THE GROUND NOS. 1 TO 4 CONSTITUTES SIGNIFICANT AND ARE RELEVANT FOR ADJUDICATION. R EST OF THE GROUNDS (GROUND NOS. 5 TO 10) ARE EITHER CONSEQUE NTIAL OR GENERAL IN NATURE AND THEREFORE, THEY ARE DISMISSED AS SUCH . FURTHER, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE GROUND NOS. 1, 2 AND 3 RELATE TO THE TAXABILITY OF THE INTERE ST INCOME UNDER CORRECT HEAD OF INCOME . AS PER THE ASSESSEE, THE ASSESSEE WHICH IS A NBFC (NON - BANKING FINANCE COMPANY) AND THE INTEREST INCOME CONSTITUTES A BUSINESS INCOME. THIS IS THE AREA OF DISPUTE. WHILE THE SAID INCOME IS OFFERED AS THE BUSINESS INCOME OF THE ASSESSEE, THE ASSESSING OFFICER IS OF THE OPINION THA T THE INTEREST INCOME SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ISSUE RAISED IN GROUND NO.4 RELATES TO THE CARRY FORWARD OF BUSINESS LOSSES. THUS, GROUND NOS. 1 TO 4 ARE EXTRACTED AS UNDER: 2 1. THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE INCOME TAX OFFICER, 1(3)(4) IN ASSESSING THE INCOME OF THE APPELLANT AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CONSIDERED BY THE APPELLANT. 2. THE LD CIT (A) ERRED IN HOLDING THAT INVESTMENT MADE IS NOT BECAUSE OF BUSINESS A CTIVITY BUT BECAUSE OF INVESTMENT OF SURPLUS AND FOR HAVING SHARES OF SISTER CONCERNS. 3. THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT THE INCOME FROM INVESTMENT AND FINANCE ACTIVITIES CARRIED ON BY THE APPELLANT IS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. 4. THE LD CIT (A) ERRED IN NOT DIRECTING THE ITO TO QUANTIFY AND ALLOW THE CARRY FORWARD OF BUSINESS LOSSES DURING THE YEAR. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. NIL . THE SAID RETURN WAS ORIGINALLY SCRUTINIZED U/S 143(3) OF THE ACT AND THE TOTAL ASSESSED INCOME WAS DETERMINED AT RS. 11,35,270/ - . IN THE ASSESSMENT AO MADE CERTAIN ADDITIONS / DISALLOWANCE S AND THE MATTER TRAVELLED TO THE ITAT VIDE ITA NO.1889/M/2006 (AY 2004 - 05) AND THE TRIBUNAL RESTORED THE ISSUES TO THE FILE OF THE AO FOR REASSESSMENT VIDE ITS ORDER DATED 22.10.2010. FOR GIVING EFFECT TO THE SAID ORDER OF THE TRIBUNAL, THE ASSESSING OFF ICER PASSED AN ORDER DATED 3.11.201 1 U/S 143(3) READ WITH SECTION 2 54 OF THE ACT. IN THE SET ASIDE ASSESSMENT, AO MADE ADDITION U/S 14A AMOUNTING TO RS. 1,22,671/ - . FURTHER, ON FINDING FEW LIST OF INSTRUMENTS / DEPOSITS, AO TREATED THE BUSINESS INCOME AS INCOME FROM OTHER SOURCES. THE TOTAL INCOME WAS DETERMINED IN THE SET ASIDE ASSESSMENT AT RS. 8,85,720/ - . CARRY FORWARD BENEFIT OF BUSINESS LOSS WAS ALSO NOT ALLOWED. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) CONFIRMED T HE ORDER OF THE AO. AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. THUS, THIS IS THE SECOND ROUND OF PROCEEDINGS BEFORE THE TRIBUNAL. 4. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL , IN C ONNECTION WITH THE ISSUE RAISED IN GROUND NOS. 1 TO 3, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE IS A NBFC AND THE INTEREST INCOME EARNED FROM THE DEPOSITS AND CONSTITUTES BUSINESS INCOME OF THE ASSESSEE. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE PAPER BOOK PLACED IN THE RECORD AND MENTIONED THAT PAGES 22 TO 24 SUGGEST THE LIST OF INVESTMENTS AND THE SAME IS AS PER THE RBI GUIDELINES GIVEN TO THE NBFCS. FURTHER, LD COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF GIVING CORPORATE DEPOSITS AND THE FACT OF GETT ING DEPOSITS OF RS. 65,50,000/ - IS EVIDENT ON PAGE 25 OF THE PAPER BOOK. HE ALSO 3 SUBMITTED THAT ASSESSEE GAVE RS. 2 , 10 , 00 , 00 0/ - AS ANOTHER CORPORATE DEPOSIT IN THE PRECEDING ASSES SMENT YEAR. FURTHER, BRINGING MY ATTENTION TO PAGE 26 OF THE PAPER BOOK, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE INVESTMENTS WERE NOT VALUED AT PAR. THEY WERE VALUED AS PER THE FAIR MARKET VALUE, WHICH IS EVIDENT FROM THE SAID PAGE WITH WHICH I AGREE. THUS, BOOKS OF ACCOUNT OF THE ASSESSEE SUPPORTS THE BUSINESS NATURE OF THE RECEIPTS. THEREFORE, W HEN THE ASSESSEE IS ENGAGED IN GIVING DEPOSITS FOR EARNING INTEREST INCOME AND ALSO INVESTING IN SHARES AS PERMITTED BY THE RBI GUIDELINES FOR EARNIN G THE DIVIDEND INCOME, THE ASSESSING OFFICER SHOULD NOT HAVE DISTURBED THE CLAIM OF THE ASSESSEE IN THE RETURN OF INCOME. ASSESSING OFFICER UNFAIRLY APPLIED VARIOUS FACETS RELATING TO THE TRADING ACTIVITY OF THE SHARES SUCH AS VOLUME, TURNOVER, BORROWED C APITAL, FREQUENCY OF TRANSACTIONS ETC AND CAME TO THE WRONG CONCLUSION THAT FEW TRANSACTIONS, AS IN THE CASE OF THE ASSESSEE, IS THE CHARACTERISTIC FEATURE OF THE INVESTMENT ACTIVITY AND THE INTEREST INCOME SHOULD BE BROUGHT UNDER THE HEAD INCOME FROM OTH ER SOURCES. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF J.R. SHARMA HOLDINGS (P) LTD VS. DCIT [2007] 165 TAXAMN 69 (DELHI), DATED 30.11.2004 IN SUPPORT OF HIS CLAIM. MENTIONING THAT THE SAID RATIO IS DISTINGUISHABLE ON FACTS (THOSE ASSESSEES ARE NOT NBFCS), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES CASE IS PLACED MUCH BETTER FOOTING AS THE ASSESSEE IS A NBFC. HE ALSO SUBMITTED THAT THE REVENUE ACCEPTED THE ASSESSEES CLAIM IN THE EARLIER ASSESSMENT YEARS AS WELL AS LATER ASSESSMENT YEARS IN EXCEPTION OF THE ASSESSMENT YEAR 2004 - 05. 5. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE DISCUSSION GIVEN IN THE ORDER OF THE AO AND THE CIT (A) ON THIS ISSUE . HE REA D OUT THE RELEVANT PARAGRAPHS FROM THE ORDER OF THE AO AND THE CIT (A). 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED ON TO THE RECORD, I FIND THE ASSESSEE IS CONSISTENTLY REFLECTING THE INTEREST INCOME AS BUSINESS INCOME OF THE NBFC. ONLY FOR THE ASSESSMENT YEARS 2001 - 2002 AND 2004 - 2005, THE CLAIM OF THE ASSESSEE WAS DISTURBED AND THE REVENUE ACCEPTED THE SIMILAR CLAIM IN THE RES T OF THE ASSESSMENT YEARS. I CANNOT APPRECI ATE THE KIND OF PICK AND CHOOSE APPROACH OF THE AO IN DISTURBING THE CLAIM OF THE ASSESSEE IN FEW ASSESSMENT YEARS WHEN THE FACTS ARE IDENTICAL. FURTHER, I FIND THE AS S ESSEE IS ENGAGED IN GIVING CORPORATE DEPOSITS / 4 INVESTMENTS FOR EARNING THE INTEREST IN COME AND THE SAME IS DULY CREDITED TO THE PROFIT & LOSS ACCOUNT. FURTHER, THE ASSESSEE HAS INVESTED IN VARIOUS QUOTED AND UNQUOTED SHARES AS EVIDENT FROM PAGES 23 TO 24 OF THE PAPER BOOK. CONSIDERING THESE FACTS, I AM OF THE OPINION THAT THE CLAIM OF THE ASSESSEE THAT THE INTEREST INCOME CONSTITUTES A BUSINESS INCOME IS FAIR AND REASONABLE. THEREFORE, I DIRECT THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF THE ASSESSEE MADE IN THE RETURN OF INCOME. ACCORDINGLY, THE ORDERS OF THE AO AND THE CIT (A) ARE REQ UIRED TO BE REVERSED ON THIS ISSUE. I ORDER ACCORDINGLY. THUS, THE GROUND NOS.1, 2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED . 7. GROUND NO.4 RELATES TO THE CLAIM OF BROUGHT FORWARD OF BUSINESS LOSS OF EARLIER ASSESSMENT YEARS. IN THIS REGARD, BRINGING OU R ATTENTION TO THE ORDER OF THE CIT (A), LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE CIT (A) DID NOT ADJUDICATE THIS GROUND BY STATING THAT THE ISSUE DOES NOT ARISE FROM THE EARLIER ORDER OF THE TRIBUNAL. BRINGING OUR ATTENTION TO PARA 4 OF THE CIT (A) S ORDER, LD COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS TO GO TO THE ASSESSING OFFICER OR ADMINISTRATIVE AUTHORITIES FOR REDRESSAL OF GRIEVANCE ON THIS ISSUE. HE ALSO BROUGHT OUR ATTENTION TO THE TRIBUNALS ORDER IN THE FIRST ROUND, COPY OF W HICH IS PLACED AT PAGE 8 OF THE PAPER BOOK AND SUBMITTED THAT THE TRIBUNAL ADJUDICATED THE ISSUE IN A HOLISTIC MANNER WHICH INCLUDES THE ISSUE RAISED IN GROUND NO.4 OF THIS APPEAL. FOR THIS PROPOSITION, HE READ OUT THE RELEVANT LINES IN PARAS 18 AND 19 OF THE SAID TRIBUNALS ORDER DATED 22.10.2010. CONSIDERING THE VARI OUS ORDERS PASSED ON THIS ISSUE, I FIND IT IS NOT PROPER TO DISMISS THIS GROUND OF THE ASSESSEE ON FLIMSY GROUNDS. THEREFORE, I DIRECT THE CIT (A) TO ADJUDICATE THIS ISSUE AFTER GRANTING A R EASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FOR THIS, I RELY ON THE EARLIER ORDER OF THE TRIBUNAL AND THE RELEVANT GROUND NO.III RAISED BY ASSESSEE BEFORE THE TRIBUNAL IN THE FIRST ROUND. ACCORDINGLY, GROUND NO.4 IS ALLOWED FOR STATISTICAL PURP OSES . 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCE D IN THE OPEN COURT ON 22 ND JULY, 2015. SD/ - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER MUMBAI ; 22 .7 .2015 5 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI