DCIT 5(2), MUMBAI V. M. SURESH COMPANY P.LTD, MUMBAI

ITA 6708/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2793 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6708/MUM/2013 ASSESSMENT YEAR 2009-10 DY. COMMISSIONER OF INCOME TAX-5(2), ROOM NO.571, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400020 / VS. M/S M. SURESH COMPANY PVT. LTD. 419 PAREKH MARKET, OPERA HOUSE, MUMBAI-400004 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO. AAECM0931D / REVENUE BY SHRI SAMIR TEKRIWAL-DR !'# $ / ASSESSEE BY SHRI B.V. JHAVERI % & $ ' / DATE OF HEARING : 14/10/2015 & $ ' / DATE OF ORDER: 05/11/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 07/09/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED IN THIS APPEAL PERTAINS TO D ELETING THE PENALTY OF RS.25,48,706/-, IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), IGNORIN G THE FACT M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 2 THAT THERE WAS NO NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENT MADE BY THE ASSESSEE AND FURTHER HUGE IN TEREST EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE, MEANING THEREBY, THE SAME WAS ACCEPTED BY THE ASSESSEE. 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI SAMIR TEKRIWAL, ADVANCED ARGUMENTS WHICH ARE IDENTI CAL TO THE GROUND RAISED. THE CRUX OF ARGUMENT IS THAT ONU S WAS UPON THE ASSESSEE TO SHOW THAT THE ADVANCES FOR ACQ UIRING THE FIXED ASSET WAS OUT OF OWN FUNDS MORE SPECIFICA LLY WHEN THE FUNDS WERE MIXED UP. ON THE OTHER HAND, THE LD . COUNSEL FOR THE ASSESSEE, SHRI B.V. JHAVERI, CONTENDED THAT IT MAY BE A GOOD CASE FOR QUANTUM BUT NOT OF PENALTY AND EVEN THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION , DURING ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS EITHER CONCEALED THE INCOME OR FURNISHED INACCURATE PARTIC ULARS OF SUCH INCOME. RELIANCE WAS PLACED UPON THE DECISION IN THE CASE OF SHRI HAFEEZ S. CONTRACTOR VS ACIT (ITA NO.6 222 AND 6223/MUM/2013) ORDER DATED 02/09/2015, M/S SHEETAL MANUFACTURING COMPANY VS JCIT (ITA NO.7107/MUM/2011 ) ORDER DATED 28/09/2012, MEHTA BROTHERS GEMS PVT. LT D. VS ACIT (ITA NO.6245/MUM/2010) ORDER DATED 25/01/2012 THE DECISION FROM HONBLE BOMBAY HIGH COURT IN CIT VS R ELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM.). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUS INESS OF M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 3 CUT AND POLISHED DIAMONDS, DECLARED INCOME OF RS.5,12,99,150/- IN IT RETURN FILED ON 29/09/2009. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY, THEREFOR E, REQUISITE NOTICES U/S 143(2) AND 142(1) WERE SERVED UPON THE ASSESSEE. ON VERIFICATION OF THE BALANCE SHEET, THE PROFIT AN D LOSS ACCOUNT AND COMPUTATION OF INCOME STATEMENT, FILED ALONG WITH THE RETURN, IT WAS NOTICED THAT THE ASSESSEE M ADE INVESTMENT IN SHARES OF SUBSIDIARY COMPANY AND MUTU AL FUNDS TO THE TUNE OF RS.21,81,03,600/-. THE ASSESSE E EARNED INCOME OF RS.3,18,500/- AND CLAIMED THE SAME AS EXE MPT U/S 10(34) OF THE ACT ALONG WITH INCOME FROM MUTUAL FUNDS OF RS.41,59,586/-. THE ASSESSEE WAS ASKED TO PIN POINT WITH RESPECT TO EXPENSES RELATING TO VARIOUS SOURCE OF I NCOME, SOURCE OF INVESTMENT MADE IN SHARES AS THE EXPENSES WERE INCURRED OUT OF COMMON POOL FUNDS AND FURTHER THE A SSESSEE HAS MAINTAINED COMPOSITE BOOKS OF ACCOUNTS FOR TAXA BLE AS WELL AS EXEMPT INCOME. IT WAS ALSO FOUND THAT THE A SSESSEE PAID INTEREST OF RS.27,80,056/- ON OVERDRAFT ACCOUN T AND RS.13,89,28,290/- ON WORKING CAPITAL AVAILED FROM B ANK. IN VIEW OF THESE FACTS, THE ASSESSEE WAS ASKED TO PROV IDE COMPUTATION OF DEDUCTION U/S 14A READ WITH RULE 8D OF THE RULES. IN REPLY, THE ASSESSEE CLAIMED EXEMPTION IN RESPECT OF INCOME FROM UNITS OF VARIOUS MUTUAL FUNDS OF RS.41, 59,586/- AND DIVIDEND INCOME OF RS.3,18,500/- U/S 10(34) OF THE ACT. IT WAS ALSO NOTICED THAT THE ASSESSEE PAID INTEREST OF RS.13,89,28,290/- ON EXPORT/IMPORT WORKING CAPITAL AVAILED FROM THE BANK. THE STAND OF THE REVENUE IS THAT THE ASSESSEE CANNOT USE SUCH WORKING CAPITAL FUNDS FOR THE PURPO SES OF M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 4 MAKING INVESTMENT TO GENERATE TAX FREE INCOME. THE ASSESSING OFFICER COMPUTED THE TAXABLE INCOME AT RS.6,00,65,950/- AGAINST THE INCOME OF RS.5,12,99,1 50/-. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSES SEE ADVANCED RS.12.18 CRORES FOR THE PROPERTY IN BHARAT DIAMONDS BOURSE AND RS.25 CRORE FOR THE PROPERTY IN OSHIWARA, MUMBAI. THE AMOUNT OF RS.25 CRORES WAS ADVANCED FROM 09/07/2008 TO 26/08/2008. AS PER THE AGREEMENT WITH THE DEVELOPER, IN CASE, IF TIMELY PO SSESSION OF THE PROPERTY IS NOT GIVEN, THE DEVELOPER SHALL PAY INTEREST AT THE RATE OF 36% PER ANNUM ON THE ADVANCED MADE BY T HE ASSESSEE. THE ASSESSEE DID NOT GATHER POSSESSION OF THE PROPERTY AND CLAIMED REFUND OF THE ADVANCES. AS PER THE REVENUE, THE ASSESSEE WAS NOT PROVIDED THE INTEREST , SO ACCRUED FROM SUCH ADVANCES AND DID NOT OFFER FOR TA XATION. SINCE, THE ASSESSEE HAS BORROWED SUBSTANTIAL AMOUNT FROM BANKS AND PAID HUGE INTEREST OF RS.14.17 CRORES TO THE BANK, THEREFORE, THE ASSESSEE HAS TO PROVE THE NEXUS OF F UNDS ADVANCED TOWARDS PURCHASE OF PROPERTY AND FURTHER T O EXPLAIN THE POSITION OF OWN AND BORROWED FUNDS. DUR ING ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO P ROVE THE NEXUS OF FUNDS TOWARDS PURCHASE OF PROPERTY, WHICH AS PER THE REVENUE, COULD NOT BE PROVED. SINCE, THE FUNDS WERE MIXED UP (OWN AND BORROWED FUNDS) IN THE SAME BASKE T AND WERE DIVERTED FOR NON-BUSINESS PURPOSES, THEREFORE, PENALTY WAS IMPOSED U/S 271(1)(C) FOR CONCEALING THE INCOME/FURNISHING INACCURATE PARTICULARS OF SUCH IN COME. M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 5 ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME T AX (APPEALS), THE PENALTY WAS DELETED AGAINST WHICH TH E REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER/PENALTY ORDER, LEADING TO ADDITION MADE TO TH E TOTAL INCOME/IMPOSITION OF PENALTY, CONCLUSION DRAWN IN T HE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSER TIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXT APOSITION AND ANALYZED, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS TAKEN HUGE BORROWED FUNDS ON WHICH SUBSTANTIAL AMOUNT OF INTEREST OF RS.14.17 CRORES WAS PAID TO T HE BANK. IT IS ALSO NOTED THAT THE ASSESSEE RIGHT FROM ASSES SMENT STAGE NEVER PROVED THE NEXUS OF FUNDS ADVANCED TOWARDS PU RCHASE OF PROPERTY WHETHER THE INVESTMENT WAS MADE OUT OF OWN FUNDS OR BORROWED FUNDS. IT IS ALSO NOTED THAT THE LD. ASSESSING OFFICER SPECIFICALLY ASKED THE ASSESSEE T O PROVE THE NEXUS OF FUNDS ADVANCE TOWARDS PURCHASE OF PROPERTY WHICH WAS NOT PROVED. IT IS ALSO UNDISPUTED FACT THAT OWN FUNDS AND BORROWED FUNDS WERE KEPT IN THE SAME BASKET AND AT ANY STAGE, THE ASSESSEE DID NOT PROVE THAT THE FUNDS AD VANCED TOWARDS PURCHASE OF PROPERTY WAS OUT OF OWN FUNDS A ND NOT FROM THE BORROWED FUNDS. IT IS NOTEWORTHY THAT NO A PPEAL WAS FILED BY THE ASSESSEE AGAINST THE QUANTUM ADDITION KNOWING FULLY WELL THAT THE ASSESSEE HAS NOT MADE THE INVES TMENT WITHIN THE PARAMETERS OF THE PROVISIONS OF LAW. EVE N, BEFORE US, THE ASSESSEE HAS MERELY RELIED UPON THE DECISIO N FROM THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 6 RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM. ). HOWEVER, IN THAT CASE, THE ASSESSING OFFICER HIMSEL F RECORDED A FINDING THAT A SUM OF RS.213 CRORE WAS INVESTED O UT OF OWN FUNDS AND RS.147 CRORES WAS INVESTED OUT OF BORROWE D FUNDS, WHEREAS, IN THE PRESENT APPEAL, NO SEPARATE ACCOUNT S ARE MAINTAINED BY THE ASSESSEE AND THE SAME ARE MIXED U P IN THE SAME BASKET. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOWHERE CONTRADICTED THE FINDING OF T HE ASSESSING OFFICER WITH RESPECT TO NEXUS OF FUNDS AN D RATHER ONUS WAS SHIFTED ON THE ASSESSING OFFICER THAT NOTH ING WAS MENTIONED WITH RESPECT TO DIVERSION OF FUNDS WHICH CAN BE DIRECTLY LINKED WITH THE INVESTMENT OF PROPERTY. T HE FACTS ARE CLEARLY INDICATE THAT IN SPITE OF SPECIFICALLY ASKI NG BY THE ASSESSING OFFICER, THE ASSESSEE NEVER PROVED THE NE XUS, THEREFORE, WE FIND MERIT IN THE CONTENTION OF THE L D. DR. EVEN OTHERWISE, AS PER SECTION 36(1)(III) OF THE ACT, LE GISLATIVE AMENDMENT WAS MADE BY THE FINANCE ACT, 2003 BY ADDI NG A NEW PROVISO INSERTED W.E.F. 01/04/2004 TO PROVIDE T HAT THE AMOUNT OF INTEREST, PAID IN RESPECT OF CAPITAL BORR OWED FOR THE PURPOSES OF BUSINESS OR PROFESSION, IT HAS BEEN SPE CIFICALLY PROVIDED THAT ANY AMOUNT OF INTEREST PAID, IN RESPE CT OF CAPITAL BORROWED FOR ACQUISITION OF ASSET FOR EXTEN SION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZE D IN THE BOOKS OF ACCOUNTS OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR THE ACQU ISITION OF ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST P UT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. SECTION 36(1)(I II) HAS TO BE READ ON ITS OWN TERMS AS IT IS A CODE BY ITSELF. AL L THAT SECTION M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 7 REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL F OR BUSINESS PURPOSES, CARRIED OUT BY THE ASSESSEE IN T HE YEAR OF ACCOUNT. UNLIKE SECTION 37, WHICH EXPRESSLY EXCLUDE S AN EXPENSE OF CAPITAL NATURE, SECTION 36(1)(III) EMPHA SIZES THE USER OF THE CAPITAL AND NOT THE USER OF THE ASSET W HICH COMES INTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL. WHERE THE MONEY BORROWED HAD BEEN UTILIZED FOR THE BUSINESS P URPOSES AS ALSO EARNING INCOME UNDER THE RESIDUARY HEAD IN COME FROM OTHER SOURCES THE INTEREST PAID ON THE MONEY SO BORROWED SHOULD BE BIFURCATED PROPORTIONATELY BETWE EN THE BUSINESS INCOME AND OTHER SOURCE OF INCOME H.K (INVESTMENT) COMPANY PVT. LTD. VS CIT 211 ITR 511, 514 (GUJ). THE TOTALITY OF FACTS CLEARLY INDICATES THAT THE ASSESSEE DID NOT ESTABLISH THE NEXUS BETWEEN THE BORROWED FU NDS AND THE INVESTMENT SO MADE WITH A CLEAR INTENTION TO CO NCEAL THE INCOME BY FURNISHING INACCURATE PARTICULARS OF SUCH INCOME, THEREFORE, IN OUR VIEW, PENALTY WAS RIGHTLY IMPOSED BY THE ASSESSING OFFICER. THE STAND OF THE REVENUE IS FURT HER FORTIFIED BY THE FACT THAT EVEN THE ASSESSEE DID NO T FILE APPEAL AGAINST THE DISALLOWANCE OF HUGE INTEREST EXPENDITU RE WHILE DECIDING THE QUANTUM ADDITION AND ACCEPTED THE SAME . THUS, THE APPEAL OF THE REVENUE IS ALLOWED. FINALLY, THE APPEAL OF THE REVENUE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 05/11/2015. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER M/S M. SURESH COMPANY PVT. LTD. ITA NO.6708/MUM/2013 8 % MUMBAI; ( DATED : 05/11/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 1$ ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1$ / CIT(A)- , MUMBAI 5. 34 .$ ! , 0 *+' *! 5 , % / DR, ITAT, MUMBAI 6. 6' 7% / GUARD FILE. / BY ORDER, /3+$ .$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI.