GIC HOUSING FINANCE LTD, MUMBAI V. ASST CIT RG (2)(1), MUMBAI

ITA 6795/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88277 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 19-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 06-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Earning of tax free income; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , ,, , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 6795/MUM/2012 (ASSESSMENT YEAR: 2004-05) ITA NO. : 6796/MUM/2012 (ASSESSMENT YEAR: 2005-06) ITA NO. : 6797/MUM/2012 (ASSESSMENT YEAR: 2009-10) M/S GIC HOUSING FINANCE LTD, UNIVERSAL INSURANCE BLDG, 3 RD FLOOR, SIR P M ROAD, FORT, MUMBAI -400 001 .: PAN: AAACG 2755 R VS ASST. COMMISSIONER OF INCOME TAX,(OSD) RANGE 2(1), ROOM NO. 545, 5 TH FLOOR, AAYAKAR BHAVAN, NEW MARINE LINES, MUMBAI -400 020 (APPELLANT) ! (RESPONDENT) ' # APPELLANT BY : SHRI NITESH JOSHI ! ' # RESPONDENT BY : SHRI PAVAN KUMAR BEERLA $% & '( /DATE OF HEARING : 19-11-2014 )*+ & '( / DATE OF PRONOUNCEMENT : 13-02-2015 ORDER PER VIVEK VARMA, JM: THE APPEALS HAVE BEEN FILED AGAINST THE ORDERS OF CIT(A)- 4, MUMBAI, DATED 18.09.2012. 2. SINCE THE ISSUES RAISED IN THE APPEALS ARE COMMON, WE ARE DISPOSING OFF THE APPEALS THROUGH THIS COMMON & CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 2 ITA NO. 6795/MUM/2012 : ASST YEAR 2004-05 : 3. THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME TAX - APPEALS-4 MUMBAI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN THE RE-OPENING OF THE ASSESSMENT THOUGH NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD. 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX - APPEAL -4 MUMBAI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R EOPENING OF THE ASSESSMENT, BEYOND 4 YEARS BUT WITHIN 6 YEAR S AFTER THE ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 WAS COMPLETED ON THE ISSUE WHI CH WAS ALREADY DEALT WITH IN THE PROPER MANNER IN THE ORIGINAL ASSESSMENT. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME TAX, APPEAL-4 MUMBAI ERRED I N CONFIRMING THE ADDITIONS MADE ON ACCOUNT OF INTERES T ON THE NON PERFORMING ASSETS AMOUNTING TO RS.27,41,505 /- UNDER THE PROVISIONS CONTAINED IN SECTION 43D OF TH E INCOME TAX ACT, 1961 READ WITH RULE 6EB OF THE INCO ME TAX RULES 1962. 1.3 YOUR APPELLANT CRAVES LEAVE TO ADD, TO MODIFY OR DELETE ALL OR ANY OF THE ABOVE GROUNDS. 4. THE FACTS ARE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF PROVIDING LONG TERM HOSING FINANCE AND ALSO MAINTAINING INVESTMENT PORTFOLIO. THE REGULAR ASSESSMENT WAS FRAMED U/ S 143(3) VIDE ORDER DATED 12.10.2006. THE AO WHILE PROCESSING THE ASSESSMENT FOR ASSESSMENT YEAR 2008-09, REOPENED THE ASSESSMENT FOR THE CURRENT YEAR BY THE ISSUE OF NOTICE U/S 148 ON 02.03.2011, WHICH WAS RECEIVED BY THE ASSESSEE ON 09.03.2011. THE REASONS AS RECORDED BY THE AO ARE, REASONS FOR RE-OPENING THE ASSESSMENT IN THE CASE OF M/S GIC HOUSING FINANCE LIMITED ASSESSMENT YEAR: 2004-05 DURING THE COURSE OF ASSESSEE FOR AY 2008-09 IT IS SEEN THAT THE ASSESSEE HAS BEEN OFFERING INCOME IN RESPECT OF NON-PERFORMING ASSETS ON RECEIPT BASIS CONSIDERING, THE PERIOD PRESCRIBED UNDER RULE 6EB A S SIX -MONTHS WHEREAS THE RULE PROVIDES THAT IN CASE OF NON-PERFORMING ASSETS, THE INCOME UP IN TWO YEARS H AS TO BE TAKEN ON ACCRUAL BASIS AND BEYOND TWO YEARS O N RECEIPT BASIS. THE CASE OF THE ASSESSEE FOR AY 2004-05 WAS M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 3 SCRUTINIZED U/S.N3(3) OF THE T. T ACT AND ON PERUSA L OF THE RECORD, IT IS SEEN THAT ASSESSEE HAS WRONGLY WO RKED OUT THE INCOME TAXABLE UNDER RULE 6EB WHICH IS ACTUALLY PERTAINING TO PERIOD OF SIX MONTHS. THUS APPARENTLY, THE INCOME OF SUCH NON-PERFORMING ASSET S FOR FURTHER ONE AND HALT YEARS HAS NOT BEEN CONSIDERED BY THE ASSESSEE IN ITS DETAILS FILED UNDER RULE 6EB. THEREFORE, THE INCOME ESCAPED IS IN EXCESS OF RS. 1 .00 LAC FOR RELEVANT ASSESSMENT YEAR. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR AY. 2004-05 BY REASON OF THE FAILURE ON PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR ASSESSMENT AND ALSO BY THE REASON OF UNDERSTATEMENT OF INCOME. HENCE, NECESSARY PERMISSION TO ISSUE NOTICE U/S 148 PER PROVISION OF SECTION 151(2) IS SOUGHT TO ISSUE NOTI CE U/S 148 OF THE I.T. ACT, FOR AY 2004-05 IN THE ABOVE ME NTIONED CASE. X DCIT 2 (1), MUMBAI 5. THE ASSESSEE INFORMED THE AO THAT THE ISSUE WAS CALLE D FOR BY THE AO IN THE QUESTIONNAIRE DATED 31.07.2006, VIDE PT. N O. 7, WHICH READ, 7. DETAILED NOTE ON ACCOUNTING POLICIES CLEARLY IN DICATING THE METHODS OF REVENUE RECOGNITION AND BOOKING OF EXPENSES IF ANY SPECIFIC METHOD OF ACCOUNTING POLIC Y IS BEING FOLLOWED, FURNISH A DETAILED NOTE. 6. PRIOR TO THIS, ASSESSEES DETAILED NOTE WAS GIVEN TO T HE AO, THE ASSESSEE CORRESPONDINGLY GAVE APPROPRIATE REPLY V IDE LETTER DATED 05.10.2005 AND A NOTE EXPLAINING THE TREATMENT OF NPAS. 7. THE AO CONSIDERED THE NOTE EXPLAINING THE ASSESSEE POSITION ON THE ISSUE DECIDED NOT TO INTERFERE WITH THE W ORKING AS SHOWN BY THE ASSESSEE. 8. THE AO CONSIDERED THE NOTE EXPLAINING THE ASSESSEE S POSITION ON THE ISSUE, DECIDED NOT TO INTERFERE WITH THE WO RKING AS SHOWN BY THE ASSESSEE. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 4 9. THE AO, WHILE DECIDING THE ISSUE IN ASST. YEAR 2008-09, TOOK IT UP AS A REASON FOR REOPENING THE ASSESSMENT, AS MENTIONED EARLIER, AFTER FOUR YEARS. 10. THE AR SUBMITTED THAT SINCE THE REASON AS RECORDE D AND COMMUNICATED TO THE ASSESSEE, FELL WITHIN THE PROVISO TO SE CTION 147. THE AR SUBMITTED THAT SINCE THE ISSUE WAS CONSIDER ED BY THE AO IN REGULAR ASSESSMENT PROCEEDING OF THE ASSESSME NT WAS BAD IN LAW. 11. THE AR, THEREFORE SUBMITTED THAT THE REVENUE AUTHO RITIES ERRED IN PROCEEDING TO REOPEN THE ASSESSMENT FRAMED U/S 143(3). 12. THE DR PRIMARILY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 13. WE HAVE HEARD THE ARGUMENTS AND HAVE PURSUED TH E PAPERS FILED BY THE ASSESSEE DURING THE COURSE OF REGULAR ASSESSMENT PROCEEDINGS AS WELL AS IN THE CURRENT PROCEEDINGS. 14. IT IS UNDENIABLE FACT THAT THE ISSUE WAS RAISED BY THE AO IN THE ORIGINAL/REGULAR ASSESSMENT PROCEEDINGS AND WAS DEA LT WITH BY THE AO. 15. THIS IS EVIDENT FROM THE NOTE AS FILED BY THE ASSESSEE AS WELL AS THE SPECIFIC QUERY RAISED BY THE AO IN THE QUESTIONNAIRE. 16. IN THIS CIRCUMSTANCE, THE FACT THAT THE CURRENT AO PROCEEDED TO REOPEN THE ASSESSMENT ON THE ISSUE ALREA DY DEALT WITH BY THE AO IN REGULAR ASSESSMENT, CLEARLY FALLS WITHIN TH E EXPRESSION, CHANGE OF OPINION , WHICH WAS DEALT WITH BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA IN 256 ITR 1 (DELHI-FB), AND ACCEPTED BY THE HONBLE SUPR EME COURT IN 320 ITR 561(SC). M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 5 17. NOWHERE IN THE REASONS DO WE FIND THAT IN THE REOPE NED PROCEEDINGS, THE AO HAD UNEARTHED ANYTHING WHICH WAS MATERIALLY CONCEALED BY THE ASSESSEE. THE GROUND FOR RE OPENING AFTER FOUR YEARS AND AFTER COMPLETION OF REGULAR ASSESSMEN T U/S 143(3), THE DEPARTMENT HAS TO PROVE THAT IN THE INTERVEN ING PERIOD, THEY WERE ABLE TO GENERATE SOMETHING, WHICH WAS N OT DESCRIBED BY THE ASSESSEE EITHER IN ITS RETURN OR EXPLAN ATION. THIS FACT HAS NOT BEEN BROKEN BY THE REVENUE AUTHORITIE S. HONBLE BOMBAY HIGH COURT IN THE CASE OF SITARA DRAMOND PVT LTD VS ITO, REPORTED IN 358 ITR 429, HELD THAT THE DEPA RTMENT HAS TO BRING OUT SOMETHING TO PROVE THAT ANY PARTICULAR OF INCOME WAS CONCEALED. 18. IN FACT, WE FIND THAT EVEN IN THE ACCOUNTS, AS SUBMITT ED ALONG WITH THE ROI, ALL DETAILS HAD BEEN DISCLOSED. 19. IN SUCH A CIRCUMSTANCE, WE ARE OF THE OPINION THAT T HE REASSESSMENT PROCEEDINGS ARE BAD IN LAW. WE, THEREFORE, CA NCEL THE NOTICE U/S 148 DATED 02.03.2011 AND AS A CONSEQUEN CE, ALL CONSEQUENTIAL PROCEEDING ARE ANNULLED. 20. GROUND NO. 1 & 1.1 ARE ALLOWED. 21. GROUND NO. 1.2 BECOMES ACADEMIC. 22. AS A RESULT, THE APPEAL FOR ASSESSMENT YEAR 2004-05 IS ALLOWED. ITA NO. 6796/MUM/2012 : ASST YEAR 2005-06 : 23. THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME TAX - APPEALS-4 MUMBAI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN THE RE-OPENING OF THE ASSESSMENT THOUGH NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 6 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX - APPEAL -4 MUM BAI ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN REOPENING OF THE ASSESSMENT, BEYOND 4 YEARS BUT WIT HIN 6 YEARS AFTER THE ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 WAS COMPLETED ON THE ISSUE WHICH WAS ALREADY DEALT WITH IN THE PROPER MA NNER IN THE ORIGINAL ASSESSMENT. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME TAX, APPEAL-4 MUMBAI ERRED IN CONFIRMING THE ADDITIONS MADE ON ACCOUNT O F INTEREST ON THE NON PERFORMING ASSETS AMOUNTING TO RS. 1,52,25,856/- UNDER THE PROVISIONS CONTAINED IN SEC TION 43D OF THE INCOME TAX ACT, 1961 READ WITH RULE 6EB OF THE INCOME TAX RULES 1962. 1.3 YOUR APPELLANT CRAVES LEAVE TO ADD, TO MODIFY OR DELETE ALL OR ANY OF THE ABOVE GROUNDS. 24. WE FIND THAT THE REOPENING HAS BEEN DONE ON IDENTICAL FACTS AS IN ASSESSMENT YEAR 2004-05, WHEREIN WE HAVE C ANCELLED THE NOTICE U/S 148, THEREBY ANNULLING ALL CONSEQUENTIAL PROCEEDINGS. 25. SINCE THE ISSUE, REASONS ARE THE SAME AND ACTION U/S 148 IS TAKEN AFTER FOUR YEARS AND AFTER REGULAR ASSESSMENT PROCEEDINGS U/S 143(3), THE REASSESSMENT PROCEEDINGS HAV E BEEN HELD TO BE BAD IN LAW. WE, THEREFORE, FOLLOWING OUR ORDER IN ASSESSMENT YEAR 2004-05, CANCEL THE NOTICE U/S 148 AND AS A CONSEQUENCE ALL THE PROCEEDINGS ARE ANNULLED. 26. GROUND NO. 1 & 1.1 ARE ALLOWED. 27. GROUND NO. 1.2 BECOMES ACADEMIC. ITA NO. 6797/MUM/2012 : ASST YEAR 2009-10 : 28. THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX, APPEAL -4 MUMBAI ERRED IN CONFIRMING THE ADDITIONS MADE THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE INCURRE D BY WAY OF INTEREST UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 1,13,18,201/- IN RELATION TO EXEMPT INCOME, WITHOUT APPRECIATING THE FACTS AND T HE SUBMISSION MADE DURING THE COURSE OF THE M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 7 ASSESSMENT/APPEAL PROCEEDINGS. 1.1 THE APPELLANT CRAVES TO LEAVE, TO ADD, TO MODIF Y OR DELETE THE ABOVE GROUND OF APPEAL. 29. THE FACTS ARE THAT THE ROI, THE ASSESSEE DECLARED D IVIDEND INCOME OF RS. 47,96,265/-, WHICH WAS CLAIMED AS EXEMPT. 30. THE AO IN THE ASSESSMENT ORDER U/S 143(3), MADE A DISALLOWANCE OF RS. 1,13,18,201/- AS COMPUTED UNDER RULE 8D. 31. THE ASSESSEE APPROACHED THE CIT(A) BEFORE WHOM THE SUBMISSIONS WERE REITERATED AND IT WAS FURTHER SUBMITTED THAT, AS ALREADY MENTIONED, THE MAIN ACTIVITY OF THE APP ELLANT IS TO CARRY ON THE BUSINESS OF PROVIDING LONG TERM HOUSING FINANCE. INVESTMENT ACTIVITY IS AN ANCILLARY ACTIVI TY WHICH IS UNDERTAKEN BY THE APPELLANT AS ANCILLARY TO THE MAIN BUSINESS IN TERMS OF WHICH THE SURPLUS FUNDS ARISIN G FROM THE PRINCIPAL BUSINESS ACTIVITY ARE INVESTED. THE INVESTMENTS STATED ABOVE WERE NOT MADE DURING THE PREVIOUS YEAR ENDED 31.03.2009 NOR WERE ANY BORROWE D FUNDS OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR UNDER APPEAL WERE UTILIZED FOR THE PURPOSE OF MAKING THE INVESTMENTS. THE APPELLANT ALSO SUBMITS THAT NO SPECIFIC EXPENDI TURE HAS BEEN INCURRED WHICH CAN BE DIRECTLY OR INDIRECT LY ATTRIBUTABLE FOR EARNING SUCH INCOME. (A) EXPENSES ATTRIBUTABLE TO EXEMPT INCOME AGGREGAT ING TO RS 1,13,18,2011-: TO JUSTIFY THAT SECTION 14A OF THE ACT SHOULD NOT B E ENFORCED IN THE APPELLANTS CASE, WE WOULD LIKE TO D RAW YOUR ATTENTION TO SUB SECTION (1) OF SECTION 14/1 O FT HO ACT FOR YOUR REFERENCE. 'FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO IN CORN E, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UND ER THIS ACT'. YOU WILL APPRECIATE THAT IT IS ONLY THE EXPENDITURE WHICH IS INCURRED IN RELATION TO THE INCOME WHICH IS EXEM PT THAT CAN BE BROUGHT WITHIN THE AMBIT OF SECTION 14A OF T HE ACT. THE WORD FIN RELATION TO' SIGNIFIES THAT THERE HAS TO BE A DIRECT NEXUS/RELATION BETWEEN THE EXPENDITURE AND T HE INCOME, WHICH IS EXEMPT. UNLESS THE EXPENDITURE WHI CH HAS BEEN INCURRED, CAN BE CORRELATED WITH THE EXEMP T INCOME, THE EXPENDITURE CANNOT BE DISALLOWED. THIS PRINCIPAL IS ALSO BROUGHT OUT BY THE 'NOTES ON CLAU SE 11' TO THE FINANCE BILL 2001 AND THE MEMORANDUM EXPLAIN ING THE PROVISIONS IN THE FINANCE BILL 2001, WHICH IS W HEN THE SAID SECTION 1424 WAS INTRODUCED IN THE ACT. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 8 THE SAME ARE REPRODUCED HEREUNDER FOR YOUR READY REFERENCE. NOTES ON CLA USES 'CLAUSE 11 SEEKS TO INSERT A NEW SECTION 14.4 IN TH E INCOME TAX ACT RELATING TO EXPENDITURE INCURRED IN RELATION TO IN CORN E NOT INCLUDIBLE IN THE TOTAL INCOME. TH E NEW SECTION SEEKS TO PROVIDE THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THIS AMENDMENT WILL TAKE EFFE CT RETROSPECTIVELY FROM 1ST APRIL, 1962 AND WILL, ACCO RDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1962-63 AN D SUBSEQUENT YEARS'. MEMORANDUM EXPLAINING THE PRO VISION OF SECTION 14A OF THE INCOME TAX ACT NO DEDUCTION FOR EXPENDITURE INCURRED IN RESPECT OF EXEMPT IN CORN E AGAINST TAXABLE INCOME. 'CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME, AS THESE ARE EXEMPT UNDER VARIOUS PROVISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXE MPT INCOME. THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF' INCO ME IS BEING USED TO REDUCE ALSO THE TAX PAYABLE ON THE NO N- EXEMPT INCOME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC PRINCIPLES OF TAXATION WHEREBY ON LY THE NET INCOME I.E. GROSS INCOME MINUS THE EXPENDITURE IS TAXED. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO I N RESPECT OF THE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO TH E EARNING OF TAXABLE INCOME. IT IS PROPOSED TO INSERT A NEW SECTION 14A SO AS TO CLARIFY THE INTENTION OF THE LEGISLATURE SINCE THE INCEPTIO N OF THE INCOME TAX ACT, 1961 THAT NO DEDUCTION SHALL BE MAD E IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. THE PROPOSED AMENDMENT WILL TAKE EFFECT RETROSPECTI VELY FROM 1ST APRIL 1962 AND WILL ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1962-63 AND SUBSEQUENT ASSESSMENT YEARS'. PROVISO TO SECTION 14A OF THE ACT STATES, 'PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIA BILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSME NT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2 001. (INSERTED BY THE FINANCE ACT, 200 W.R.E.F. 11.5.20 01). THE APPELLANT SUBMITS THAT THE PRO VISIONS OF SECTI ON 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ('T HE RULES) HAVE TO BE APPLIED IN ACCORDANCE WITH THE FA CTS AND CIRCUMSTANCES OF THE CASE AND NOT IN A STRAIGHT JACKETED FORMULA DRIVEN MANNER. THE DISALLOWANCE UN DER SECTION 14A OF THE ACT, MUST BE COMPUTED IN EACH CA SE ACCORDING TO THE STATED FACTS. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 9 THE APPELLANT REQUESTS YOU TO PERUSE THE FINDINGS O F THE ASSESSING OFFICER, WHICH ARE AT PARA 4.1 TO PARA 4. 4. OF THE ASSESSMENT ORDER WHICH IS IN APPEAL BEFORE YOU. SPECIFICALLY AT PARA 4.3 THERE WAS NO CATEGORICAL F INDINGS AS TO HOW THE SUBMISSION MADE BY THE APPELLANT IS INCORRECT. THE ASSESSING OFFICER, EVEN FAILED TO CO RRELATE THE FACTS WITH REGARD TO BORROWED FUNDS OF THE PREV IOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN APPEAL, TH AT ANY OF SUCH BORROWED FUNDS WERE USED FOR THE PURPOSE OF MAKING INVESTMENTS IN THE PREVIOUS YEAR AND ALSO TO ARRIVE ABOUT THE INTEREST IF ANY PAID ON SUCH FUNDS WHICH WERE USED FOR MAKING THE INVESTMENTS. THE APPELLANT SUBMITS THAT, THEY HAVE UTILIZED COMP LETELY THE BORROWED FUNDS FOR PROVIDING LOANS TO THEN' CUS TOMERS FOR HOUSE BUILDING ACTIVITIES AND LEFT WITH NO FUND S FOR USING THE SAME FOR MAKING ANY IN VESTMENTS DURING T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN AP PEAL. FURTHER, LENDERS ALWAYS PUT A STIFF CONDITIONS IN T HEIR SANCTION MEMO THAT THE END USE OF THE FUNDS BORROWE D IS FOR THE PURPOSE OF BUSINESS ONLY AND NOT FOR ANY NO N BUSINESS PURPOSES. FURTHER, THE APPELLANT SUBMITS THAT, ON THE REVIEW OF THE FINANCIALS FOR THE SAID YEAR, IT WILL BE ABUNDANTLY CLEAR THAT THERE WERE NO NEW INVESTMENTS MADE DURING THE PREVIOUS YEAR AND THAT INVESTMENTS SHOWN AS PER THE AUDITED ACCOUNTS WERE ALL MADE DURING THE EARLIER PERIODS; THE INCOME IF ANY EARNED FROM SUCH INVESTM ENTS WERE ALSO OFFERED TO TAX, IN THOSE PERIODS WHEN THE Y WERE LIABLE TO TAX. ALSO, THE PROVISIONS OF SECTION 14A OF THE ACT HAVE TO BE APPLIED ON YEAR TO YEAR BASIS FOR THE EXPENDITURE IF ANY INCURRED AND THE SAME READ WITH RULE 8D COULD NOT BE CONSIDERED ON AN ASSUMPTION BASIS. THE ABOVE PRINCIPLES HAVE BEEN WELL SETTLED IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS AUCHTEL PRODUCTS LTD., VS. ACIT (2012) 22 TAXMANN.C OM 99 (ITAT MUMBAI) BALARAMPUR CHINI MILLS LTD, VS. DCIT (2012) TAXMANN.COM 117 (ITAT KOL) ACIT VS. PUNJAB STATE CO-OP MARKETING (ITAT HANDIG ARH) AS THE APPELLANT, HAS NOT UTILIZED ANY BORROWED FUN DS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, NO PART OF THE INTEREST PAID ON BURRO WED FUNDS, WHICH WERE USED ONLY FOR THE PURPOSE OF BUSI NESS, WOULD FORM PART OF THE CALCULATIONS AS PER THE PROV ISIONS CONTAINED IN RULE 8D OF THE RULES 1962. IN VIEW OF THE FACTS, STATED ABOVE THE APPELLANT RE QUESTS YOU TO DELETE THE ADDITIONS MADE ON ACCOUNT OF INTE REST CONSIDERED BY THE ASSESSING OFFICER, WHILE COMPUTIN G THE EXPENDITURES INCURRED IN RELATION TO THE EXEMPT INC OME. THE APPELLANT REQUESTS YOU TO CONSIDER THE ABOVE FA CTS, BEFORE YOU FRAME THE APPELLATE ORDER.' 32. THE CIT(A), AFTER CONSIDERING THE ABOVE FACTS, HELD, M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 10 6. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. HON'BLE BOMBAY HIGH CO URT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD . VS. CIT 328 ITR 81 THAT RULE 8D IS APPLICABLE FROM A.Y. 08-09 AND, THEREFORE, A.O. HAS CORRECTLY APPLIED RULE 8D BECAUSE CERTAIN PORTION OF EXPENSES RELATES TO THE EXEMPT INCOME WHICH NEEDS TO BE APPORTIONED. ASSESSEE HAS CLAIMED THAT IT HAS SURPLUS FUNDS WHICH HAVE BEEN INVESTED AND NO BORROWED FUNDS HAVE BEEN USED FOR INVESTMENT FROM WHICH EXEMPT INCOME IS RECEIVED. IT IS ALSO CLAIMED THAT THE INVESTMENTS ARE VERY OLD AND AT THAT TIME ALSO THERE WAS SURPLUS FUNDS AVAILABLE WITH TH E ASSESSEE AND THEREFORE, NO INTEREST IS DISALLOWABLE UNDER RULE 8D. THE ASSESSEE HAS NOT SHOWN ANY DIRECT NEXU S BETWEEN ITS OWN FUNDS AND THE INVESTMENT, IN SUCH ASSETS, FROM WHICH EXEMPT INCOME IS GENERATED, WHER EAS, A.O. HAS ALSO NOT SHOWN ANY NEXUS BETWEEN BORROWED FUNDS AND EXEMPT INCOME GENERATING INVESTMENT, BUT ASSESSEE HAS USED A SINGLE ACCOUNT IN WHICH OLD FUN DS AND BORROWED FUNDS ARE DEPOSITED AND ALL EXPENSES A ND INVESTMENTS ARE MADE FROM THE SAME ACCOUNT AND, THEREFORE, NO CO-RELATION COULD BE SHOWN BY THE ASS ESSEE OR THE A.O., BUT THE CLAIM OF THE ASSESSEE IS ON OV ERALL AVAILABILITY OF FUNDS AND INVESTMENT MADE. THEREFOR E, IN SUCH A SITUATION RULE 8D WILL APPLY FOR DISALLOWANC E ON ACCOUNT OF INTEREST ALSO BECAUSE IT IS PRESUMED THA T PROPORTIONATE BORROWED FUNDS HAVE BEEN USED FOR INVESTMENT FROM WHICH EXEMPT INCOME IS GENERATED AN D, THEREFORE, THE DISALLOWANCE IS CONFIRMED AND THE GR OUND OF APPEAL IS REJECTED. 33. THE CIT(A), THEREFORE, REJECTED THE APPEAL AS FILED BY TH E ASSESSEE. 34. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS NOW BEFORE THE ITAT. 36. BEFORE US, THE AR SUBMITTED THAT THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO TO ASCERTAIN THE FACT, AS TO WHEN THE INVESTMENTS WERE MADE AND WHETHER ANY INVESTMENTS, GIVIN G TAX FREE INCOME IN ASSESSMENT YEAR 2008-09. 35. THE AR SUBMITTED THAT FOR THE SAKE OF CONSISTENCY, TH E ISSUE BE RESTORED TO THE AO IN THE CURRENT YEAR AS WELL. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 11 36. THE DR DID NOT OBJECT TO THE SUBMISSION MADE BY THE AR, KEEPING IN VIEW THE DECISION TAKEN BY THE COORDINATE BENC H IN THE ASSESSMENT YEAR 2008-09. 37. AFTER HEARING THE PARTIES AND ON GOING THROUGH THE O RDER OF THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE IN PRE CEDING YEAR, WE ARE OF THE OPINION, THAT A CONSISTENT VIEW TAKEN BY THE REVENUE AUTHORITIES ON THE SUBMISSIONS MADE BY THE ASSE SSEE INVOLVING THE FACTUAL ASPECTS. 40. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND R ESTORE THE ISSUE TO THE AO WITH A DIRECTION TO VERIFY AND EXAMIN E THE NECESSARY FACTS. 41. AS A RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. TO SUM-UP: ASSESSEES APPEAL IN ITA 6795 OF 2012 STANDS ALLOWED ASSESSEES APPEAL IN ITA 6796 OF 2012 STANDS ALLOWED ASSESSEES APPEAL IN ITA 6797OF 2012 STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH FEBRUARY, 2015. SD/- SD/- ( ) ( ) / / / / / / / / (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 13 TH FEBRUARY, 2015 '/ COPY TO:- 1) / THE APPELLANT. M/S GIC HOUSING FINANCE LTD ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 12 2) ! / THE RESPONDENT. 3) THE CIT(A)-4, MUMBAI. 4) THE CIT CONCERNED_____, MUMBAI. 5) 0%12 '$ , , / THE D.R. G BENCH, MUMBAI. 6) 234 5 COPY TO GUARD FILE. /6$ / BY ORDER / / TRUE COPY / / 7 / 8 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * *CHAVAN, SR.PS