KALIMATI INVESTMENT CO. LTD, MUMBAI V. ITO 2(2)(2), MUMBAI

ITA 6687/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62361 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: USHA NAIR
• Keywords: Business income; Wholly owned subsidiary
• Section: 143(3); 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI S.S.GODARA, JM ITA NO.6687/MUM/2010 : ASST. YEAR 2006-2007 M/S.KALIMATI INVESTMENT COMPANY LTD. BOMBAY HOUSE, 24 HOMI MODY STREET FORT, MUMBAI 400 001. PAN : AAACK4330N. THE INCOME TAX OFFICER WARD 2(2)(2) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI RAJAN R.VORA RESPONDENT BY : SMT.USHA NAIR DATE OF HEARING : 24.04.2012 DATE OF PRONOUNCEMENT : 30.04.2012 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX U/S 263 ON 22.07.2010 IN RELATION TO THE ASSESSMENT YEAR 2006-2007. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) ON 22.12.2008. ON GOING THROUG H THE RECORDS OF THE CASE IT WAS NOTICED BY THE LEARNED CIT THAT THE ASSESSEE HA D CREDITED AN AMOUNT OF ` 1,14,51,000 AS INTEREST ON LONG TERM INVESTMENT WHI CH WAS TREATED BY IT AS INCOME FROM BUSINESS AND SET OFF THE SAME AGAINST T HE BROUGHT FORWARD LOSS OF EARLIER YEARS. IN THE OPINION OF THE LEARNED CIT, T HE INTEREST OF ` 1.14 CRORE EARNED BY THE ASSESSEE ON INVESTMENT IN CAPITAL BON DS WAS LIABLE TO BE CONSIDERED UNDER THE HEAD `INCOME FROM OTHER SOURCE S U/S 56 OF THE ACT AND NOT AS BUSINESS INCOME. HE, THEREFORE, HELD THE ASS ESSMENT ORDER PASSED BY THE A.O. TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE. THE SAME WAS SET ASIDE AND THE MATTER RESTORED TO THE FILE OF A. O. WITH THE DIRECTION TO REDO THE ASSESSMENT AS PER LAW. ITA NO.6687/MUM/2010 M/S.KALIMATI INVESTMENT COMPANY LIMITED. 2 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS A NON-BANKING FINANCE COMPA NY AND WHOLLY OWNED SUBSIDIARY OF TATA STEEL LIMITED. IT DECLARED INCOM E FROM BUSINESS, CAPITAL GAIN AND INCOME FROM HOUSE PROPERTY APART FROM INCOME FR OM OTHER SOURCES SUCH AS DIVIDEND ETC. CAPITAL GAIN BONDS WORTH ` 22 CRORE WERE ACQUIRED BY THE ASSESSEE IN PREVIOUS YEAR ENDING 31 ST MARCH, 2005. THE ASSESSEE HAD INVESTMENTS AT ` 215,69,01,360 AT THE END OF THE YEAR RELEVANT TO TH E ASSESSMENT YEAR UNDER CONSIDERATION. SUCH INVESTMENTS CONSISTED MAINLY OF EQUITY SHARES OF VARIOUS COMPANIES, UNITS OF MUTUAL FUNDS, INVESTMENT IN SUB SIDIARY COMPANIES, DEBENTURES / BONDS AND THE CAPITAL BONDS UNDER CONS IDERATION WORTH ` 22 CRORE. CORRESPONDING FIGURE OF INVESTMENT IN THE PRECEDING YEAR STOOD AT ` 188.58 CRORE. APART FROM SUCH INVESTMENTS THE ASSESSEE HAD STOCK IN TRADE OF SHARES OF ` 1,79,44,147 AT THE END OF THE YEAR IN QUESTION AS A GAINST LAST YEARS FIGURE OF ` 1,67,55,220. THESE FIGURES HAVE BEEN TAKEN FROM THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR IN QUESTION WHICH CONTAINS TH E FIGURES FOR THE EARLIER YEAR AS WELL. THE INTEREST INCOME OF ` 1.14 CRORE WHICH IS SUBJECT MATTER OF THE ORDER U/S 263 HAS RESULTED FROM CAPITAL GAIN BOND WHICH W ERE ACQUIRED BY THE ASSESSEE IN THE PRECEDING YEAR AND CONTINUED TO BE HELD IN THE CURRENT YEAR AS WELL. THIS INTEREST INCOME OF ` 1.14 CRORE WAS DECLARED BY THE ASSESSEE AS BUSINESS INCOME WHICH IN THE OPINION OF THE LEARNED CIT OUGHT TO HAVE BEEN CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES . INTEREST ON SUCH CAPITAL GAIN BOND WORTH ` 22 CRORE AROSE TO THE ASSESSEE IN THE PRECEDING YEA R AT ` 43,19,070 WHICH WAS ALSO OFFERED BY IT TO TAX AS `B USINESS INCOME. THE SAME WAS ACCEPTED AS SUCH BY THE ASSESSING OFFICER IN TH E ASSESSMENT ORDER PASSED U/S 143(3) ON 27.12.2007. COPY OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005- 2006 IS AVAILABLE ON PAGE 74 OF THE PAPER BOOK. FRO M THIS ORDER IT CAN BE SEEN THAT THE A.O. DID NOT DISTURB THE TREATMENT OF INTE REST INCOME ON CAPITAL GAIN BONDS SHOWN BY THE ASSESSEE AS BUSINESS INCOME. T HE LEARNED COUNSEL FOR ITA NO.6687/MUM/2010 M/S.KALIMATI INVESTMENT COMPANY LIMITED. 3 THE ASSESSEE SUBMITTED THAT IN THE EARLIER YEARS AL SO THE REVENUE HAS ALWAYS ACCEPTED THE CONTENTION OF THE ASSESSEE TREATING SI MILAR INTEREST INCOME AS BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FR OM OTHER SOURCES. COPY OF ASSESSMENT ORDER FOR THE A.Y. 2004-05 PASSED BY THE AO U/S 143(3) HAS ALSO BEEN PLACED ON RECORD. SIMILARLY FOR THE SUCCEEDIN G YEAR I.E. A.Y. 2007-08 ALSO THE INTEREST ON CAPITAL GAIN BONDS WAS OFFERED AS ` BUSINESS INCOME AND ACCEPTED BY THE REVENUE AS SUCH IN THE ASSESSMENT M ADE U/S 143(3), COPY OF WHICH ORDER IS AVAILABLE ON RECORD. 4. SECTION 263 EMPOWERS THE COMMISSIONER TO REVISE AN ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. WHERE TWO POSSIBLE VIEWS EXIST ON A POINT AND THE ASSESSING OFFICER TA KES ONE, THEN THE LEARNED CIT CANNOT TREAT SUCH ORDER TO BE ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE SO AS TO HOLD THE VIEW OF THE ASSESSING OFF ICER AS UNSUSTAINABLE. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. MAX INDIA LTD. [(2007) 295 ITR 282 (SC)] HAS LAID DOWN THAT IF TWO VIEWS ARE INHERENTLY POS SIBLE THEN THE ACTION U/S 263 CANNOT BE SUSTAINED. IN AN EARLIER CASE, T HE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. V. CIT [(2000) 243 ITR 83 (SC)] HAS HELD THAT THE PHRASE PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH THE ERRONEOUS ORDER PASSED BY THE A.O. THE HON BLE SUPREME COURT HELD THAT : EVERY LOSS OF REVENUE AS A CONSEQUENCE OF A N ORDER OF A.O. CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE, FOR EXAMPLE, WHEN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE IT O HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS ERRONEOUS ORDER TO THE PREJUDICIAL TO THE INTEREST OF THE REVENUE. FROM THE RATIO DECIDENDI OF THE ABOVE JUDGMENTS IT BECOMES VIVID THAT THE DEBATABLE POINTS, THAT IS, ON WHICH TWO VIEWS ARE POSSIBLE, ARE OUTSIDE THE AMBIT OF RE VISION U/S 263. ITA NO.6687/MUM/2010 M/S.KALIMATI INVESTMENT COMPANY LIMITED. 4 5. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS OBSERVED THAT IN THE IMMEDIATELY PRECEDING YEAR THE ASSESSEE OFFERED SUC H INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION WHICH WAS ACCEPTED BY THE DEPARTMENT. SIMILARLY FOR THE SUCCEEDING YEAR ALSO, THE REVENUE HAS ACCEPTED THE INTEREST ON CAPITAL GAIN BONDS AS `BUSINESS INC OME. THE LEARNED AR HAS STATED THAT NEITHER ANY REASSESSMENT HAS BEEN DONE NOR ANY REVISION HAS BEEN CARRIED OUT IN RESPECT OF SUCH EARLIER YEAR OR LATE R YEAR, SO AS TO DISTURB THE FINALITY OF THE ASSESSMENTS ACCEPTING THE ASSESSEE S TREATMENT OF INTEREST AS `BUSINESS INCOME. THIS CONTENTION HAS REMAINED UN CONTROVERTED BY THE LD. DR. HERE IS NOT A CASE IN WHICH THE AO TOOK THIS VIEW F OR THE FIRST TIME IN THIS YEAR BY ACCEPTING INTEREST AS `BUSINESS INCOME. RATHER IT IS AMPLY BORNE OUT THAT THE SAME TREATMENT HAS BEEN GIVEN BY THE REVENUE TO SU CH INTEREST INCOME IN THE EARLIER AS WELL AS THE SUCCEEDING YEARS. AT THIS JU NCTURE WE WANT TO MAKE IT CLEAR THAT WE ARE NOT ON THE MERITS OF THE CASE AS TO WHE THER SUCH INTEREST INCOME IS PRECISELY THE `BUSINESS INCOME OR FALLS UNDER TH E HEAD `INCOME FROM OTHER SOURCES. SUFFICE TO SAY THAT THE AO HAS CONSISTENT LY ACCEPTED SUCH INTEREST AS BUSINESS INCOME. WHEN THE DEPARTMENT HAS TAKEN A PA RTICULAR STAND, THEN IT CANNOT BE SAID, BY ANY STANDARD, THAT THE AO DID N OT TAKE A POSSIBLE VIEW IN THE CURRENT YEAR BY ACCEPTING THE INTEREST AS `BUSINESS INCOME. AGAIN THE VIEW CANVASSED BY THE LD. CIT MAY BE A POSSIBLE VIEW. BU T THE SCOPE OF SECTION 263 DOES NOT EMPOWER THE LD. CIT TO DECIDE A DEBATABLE ISSUE. AS THE DEPARTMENT HAS ACCEPTED SUCH INTEREST INCOME AS BUSINESS INCOM E IN THE OTHER YEARS, IN OUR CONSIDERED OPINION, THE REQUIREMENT OF SECTION 263 IS NOT FULFILLED INASMUCH AS THE QUESTION AS TO WHETHER SUCH INTEREST SHOULD BE HELD AS `BUSINESS INCOME OR `INCOME FROM OTHER SOURCES IS CERTAINLY DEBATABLE. WE, THEREFORE, HOLD THAT THE LEARNED CIT WAS NOT EMPOWERED TO EXERCISE HIS JURIS DICTION U/S 263 IN THE EXTANT FACTS AND CIRCUMSTANCES. AS SUCH THE IMPUGNED ORDER IS SET ASIDE. ITA NO.6687/MUM/2010 M/S.KALIMATI INVESTMENT COMPANY LIMITED. 5 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL, 2012. SD/- SD/- (S.S.GODARA) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 30 TH APRIL, 2012. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT, MUMBAI 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.