ACIT 1(1), MUMBAI V. FGP LTD, MUMBAI

ITA 6872/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9505 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 20-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Revised return
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.6872/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR :2008-09 THE ACIT-1(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. FGP LTD., COMMERCIAL UNION HOUSE, 9, WALLACE STREET, FORT, MUMBAI-400 001 C.O. NO. 177/MUM/2012 (ARISING OUT OF/I.T.A. NO.6872/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR :2008-09 M/S. FGP LTD., COMMERCIAL UNION HOUSE, 9, WALLACE STREET, FORT, MUMBAI-400 001 / VS. THE ACIT-1(1), AAYAKAR BHAVAN, MUMBAI-400 020 ') % ./ * + ./PAN/GIR NO. : AAACF 1671M ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY: SHRI MANJUNATH KARKIHALLI -.), 0 / / RESPONDENT BY : SHRI GIRISH DAVE 0 12% / DATE OF HEARING : 20.11.2012 34( 0 12% / DATE OF PRONOUNCEMENT : 27.11.2012 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL AND THE CROSS OBJECTION BY THE REVENUE AND ASSESSEE RESPECTIVELY, ARE DIRECTED AGAINST THE VERY SAME OR DER OF THE LD. CIT(A)-I, ITA NO.6872/MUM/2011 2 MUMBAI DT.29.7.2011 PERTAINING TO A.Y. 2008-09. AS BOTH , APPEAL AND THE CROSS OBJECTION , WERE HEARD TOGETHER, THEY ARE DISPOSE OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVI TY. ITA NO. 6872/M/2011 REVENUES APPEAL 2. REVENUE HAS RAISED FIVE GROUNDS OF APPEAL. THE SUM AND SUBSTANCE OF THE REVENUES GRIEVANCE IS THAT THE LD. CIT(A) O UGHT NOT HAVE TREATED RENTAL INCOME FROM BUSINESS CENTRE AS BUSINESS INCO ME AND HOLDING SUCH LD. CIT(A) OUGHT NOT HAVE ALLOWED EMPLOYEE COST , D EPRECIATION AND ADMINISTRATIVE EXPENSES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT FO R THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS. NIL ON 29.9.2008. THE SAID RETURN WAS REVIS ED ON 31.3.2010 AND IN THE REVISED RETURN, THE ASSESSEE DECLARED LOSS OF R S. 12,12,065/-. THE RETURN WAS REVISED TO MAKE TO THE EFFECT OF THE MAT WORKING AND DISALLOWANCE U/S. 14A. IN THE REVISED RETURN, THE ASSESSEE INCLUDED INCOME FROM BUSINESS CENTRE UNDER THE HEAD INCOME F ROM OTHER SOURCES . THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED CERTAIN EXPENSES AND CHARGED THE SAME TO THE RENTAL INCOME RECEIVED FROM BUSINESS CENTRE. T HE AO ALSO OBSERVED THAT THE ASSESSEE HAS ALSO CLAIMED DEPRECIATION AND CHARGED THE SAME TO RENTAL INCOME SHOWN UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE AO ALSO OBSERVED THAT IN THE PRECEDING ASSESSMENT Y EAR, THESE EXPENSES WERE NOT ALLOWED BY HIS PREDECESSOR IN OFFICE. TAK ING A LEAF OUT OF THE ITA NO.6872/MUM/2011 3 PAST HISTORY OF THE ASSESSEE, THE AO DISALLOWED EMP LOYEE COST AT RS. 11,91,228/-, DEPRECIATION AT RS. 65,939/- AND ADMIN ISTRATIVE EXPENSES AT RS. 56,81,282/-. 5. THE ASSESSEE AGITATED THESE ADDITIONS BEFORE THE LD. CIT(A). THE LD. CIT(A) HAD THE BENEFIT OF THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE IN ITA NO. 2653/MUM/2007 PERTAINING TO ASSESSM ENT YEAR 2003-04. THE LD. CIT(A) RESPECTFULLY FOLLOWED THE FINDINGS O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 AND DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AS BUSINESS INCOME AND NOT IN COME FROM OTHER SOURCES. THE LD. CIT(A) ALSO DIRECTED THE AO TO ALL OW ALL THE EXPENSES AS CLAIMED BY THE ASSESSEE WHICH HAVE BEEN DISALLOWED BY THE AO. 6. AGGRIEVED BY THE FINDING OF THE LD. CIT(A) REVEN UE IS BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CON TENDED THAT FINDINGS OF THE AO ARE BASED ON FACTS OF THE CASE A ND THEREFORE DESERVE TO BE CONFIRMED. 8. PER CONTRA, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THE PRECEDING ASSESSMENT YEARS STARTING FROM A.Y. 2003 -04 TO 2007-08, THIS DISPUTE HAS BEEN SETTLED BY THE DECISIONS OF THE TR IBUNAL IN THE RESPECTIVE ASSESSMENT YEARS MENTIONED HEREINABOVE. THE COUNSE L PLEADED THAT THE SAME VIEW SHOULD BE ADOPTED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO THE BENEFIT OF THE ORDERS OF THE TRIBUNAL STARTING FROM AY 2003-04 TO AY 2007-08. T HE DISPUTE FIRST AROSE IN ASSESSMENT YEAR 2003-04 AND TRIBUNAL IN IT A NO. 2653/M/07 ITA NO.6872/MUM/2011 4 HAS DISCUSSED THE ISSUE RELATING TO THE RENTAL INCO ME FROM BUSINESS CENTRE AT PAGE-4, PARAS 2.2 TO 2.2.4. THE TRIBUNAL HAS G IVEN ITS FINDING ON PAGE- 9 PARA 2.2.7 AS UNDER: ON CAREFUL CONSIDERATION OF THE VARIOUS ASPECTS OF THE MATTER AS WELL AS THE VARIOUS JUDGMENTS PLACED ON R ECORD, WE ARE OF THE VIEW THAT RENTAL INCOME ON THE FACTS OF THE CASE HAS TO BE ASSESSED AS BUSINESS INCOME. THEN AT PAGE-10 THE TRIBUNAL CONCLUDED AS WE THEREFORE HOLD THAT THE RENTAL INCOME IN THIS CASE HAS TO BE ASSE SSED AS BUSINESS INCOME. THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 10. AS NO NEW FACTS HAVE BEEN BROUGHT ON RECORD BY THE REVENUE, WE HAVE NO HESITATION IN FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 2653/M/07 PERTAINING TO A.Y. 2 003-04. FINDING OF THE LD. CIT(A) ARE THUS CONFIRMED. APPEAL OF THE R EVENUE ON THIS GROUND IS DISMISSED. 11. THE NEXT GRIEVANCE OF THE REVENUE IS THAT THE C LAIM OF EMPLOYEE COST OF RS. 11,91,228/- OUGHT TO HAVE BEEN DISALLOW ED BY THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS BASED HIS FINDING FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 2003-04. WE FIND THAT THIS I SSUE IS DISCUSSED BY THE TRIBUNAL AT PAGE-20 PARA 2.9 ONWARDS. THE TRIBUNAL HAS GIVEN ITS FINDING ON PAGE-21 PARA 2.9.3 WHEREIN THE TRIBUNAL HELD THA T WE HAVE ALREADY HELD THAT THE INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME AND THEREFORE WE HOLD THAT THE EXPENDITURE W ILL BE ALLOWED WHILE COMPUTING THE INCOME FROM THE BUSINESS CENTRE. ITA NO.6872/MUM/2011 5 12. THE FACTS AND CIRCUMSTANCES BEING THE SAME, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDING OF THE LD. CIT(A) WHICH WE CONFIRM.. REVENUES APPEAL ON THIS GROUND IS DISMISSED. 13. THE NEXT GRIEVANCE RELATES TO DEPRECIATION AT R S. 65,939/-. THIS ISSUE FINDS PLACE AT PAGE-19 PARA 2.8 OF THE TRIBUN ALS ORDER FOR A.Y. 2003-04. AT PARA 2.8.1, THE TRIBUNAL HELD THAT SINCE INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME, THERE FORE DEPRECIATION ON ALL THE PLANTS AND MACHINERY INSTALLED IN THE BUSIN ESS CENTRE HAS TO BE ALLOWED. WE HOLD ACCORDINGLY. REVENUES APPEAL ON THIS GROUND IS DISMISSED. 14. THE LAST GRIEVANCE RELATES TO ADMINISTRATIVE EX PENSES OF RS. 56,81,282/-. AS WE HAVE FOLLOWED THE FINDING OF TH E TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEARS AND AS WE HAVE ALREADY HELD THAT RENTAL INCOME FROM BUSINESS CENTRE HAS TO BE TREATED AS BUSINESS INCOME, WE HAVE NO HESITATION IN DIRECTING THE AO TO ALLOW ADMINISTRATIVE EXPENSES OF RS. 56,81,282/- AS DIREC TED BY THE LD. CIT(A). FINDINGS OF THE LD. CIT(A) ARE ACCORDINGLY CONFIRM ED. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 177/MUM/2012 16. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE AN AMOUNT OF RS. 96,3 40/- U/S. 14A R.W. RULE 8D OF THE ACT. ITA NO.6872/MUM/2011 6 17. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO OBSERVED THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INC OME AT RS. 8,90,728/- AND INTEREST ON UTI AT RS. 63,362/-, HOWEVER, THE AO FOUND THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENSE INCURRED FOR EARNING OF SUCH TAX FREE INCOME. INVOKING THE PROVISIONS OF SEC. 14A R .W. RULE 8D, THE AO WENT ON TO CALCULATE THE DISALLOWABLE EXPENSES AT T HE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENTS. 18. WHEN THIS MATTER WAS AGITATED BEFORE THE LD. CI T(A), CIT(A) CONFIRMED THE FINDINGS OF THE AO. 19. THE ASSESSEE IS AGGRIEVED BY THE FINDINGS OF LD . CIT(A) AND IS BEFORE US. 20. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUB MITTED THAT AS THE ASSESSEE HAS NOT BORROWED FUNDS AND AS ASSESSEE HAS INCURRED NO FINANCE COST, THERE IS NO ROOM FOR ANY DISALLOWANCE OF EXPE NSES ON EARNING EXEMPT INCOME. 21. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO THE AUDITED STATE MENT OF ACCOUNTS SUBMITTED BY THE LD. COUNSEL. A PERUSAL OF THESE F INANCIAL STATEMENT SHOW THAT THE ASSESSEE DOES NOT HAVE ANY BORROWED F UND AND HAS NOT INCURRED ANY FINANCE COST. TO THIS EXTENT, WE AGRE E WITH THE SUBMISSION OF THE LD. COUNSEL. HOWEVER, AT THE SAME TIME IT C ANNOT BE SAID THAT NO EXPENDITURE HAS BEEN INCURRED IN EARNING TAX FREE I NCOME. THEREFORE, WE PROPOSED TO RESTRICT THE DISALLOWANCE TO 0.5% OF TH E TOTAL EXPENDITURE ITA NO.6872/MUM/2011 7 CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCO UNT TO WHICH THE LD. COUNSEL FOR THE ASSESSEE PROMPTLY AGREED. THEREFOR E, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 0.5% OF THE EXPENSES C LAIMED BY THE ASSESSEE.CO OF THE ASSESSEE IS PARTLY ALLOWED. 23. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE C.O. FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2012 . &5 0 4( % 6 7&8 27.11.2012 4 0 9 SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA) /PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; 7& DATED 27.11.2012 . . ./ RJ , SR. PS &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! :!(1 :!(1 :!(1 :!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. !<9 -1 , , / DR, ITAT, MUMBAI 6. 9= / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// > >> > / ? ? ? ? * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI