DCIT 1(3)(2), MUMBAI V. TIFCO HOLDINGS LTD, MUMBAI

ITA 7301/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2413 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN
• Keywords: Business income; Rule of consistency; Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRASAD,JUDICIAL MEMBER ./I.T.A./7301/MUM/2014 , /ASSESSMENT YEAR: 2011-12 DCIT-1(3)(2) 564, AAYAKAR BHAVAN , MK ROAD MUMBAI VS. TIFCO HOLDING LTD. MANDLIK HOUSE, MANDLIK RD., 3 RD FLOOR COLABA, MUMBAI-1 PAN:AAACT 4065 F ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI J. SARAVANAN -DR ASSESSEE BY: SHRI BHADRESH DOSHI / DATE OF HEARING: 07.07.2016 / DATE OF PRONOUNCEMENT: 22.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 27/08/2014,OF THE CIT ( A)-2,MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL. THE ASSESSEE IS A NON-BANKING FINANCE COMPANY.THE MAIN SOURCES OF INCOME ARE FROM INTEREST FROM BANKS AND INTER-CORPORATE DEPOSITS, DIVIDEND FROM COMPANIES AND RENTAL INCOME FROM LETTING OUT OF PRO PERTIES. IT FILED ITS RETURN OF INCOME ON 09/09/2011, DECLARING TOTAL INCOME OF RS. 4.08 CROR ES.THE AO COMPLETED THE ASSESSMENT ON 08/01/2014, U/S.143 (3)OF THE ACT,DETERMINING THE I NCOME OF THE ASSESSEE AT RS.4.78CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT TAXING THE INTEREST INCOME AS INCOME FROM BUSINESS/ PROFESSION.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD CREDITED AND AMOUNT OF RS. 38.90 LAKHS UNDER THE HEAD INTEREST-I NCOME. HE WAS OF THE OPINION THAT THE SAID INCOME HAD TO BE TAXED UNDER THE HEAD INCOME FROM B USINESS. HE HELD THAT THOUGH THE ASSESSEE WAS HOLDING NBFC LICENSE IT WAS NOT ENGAGE D IN BUSINESS OF GIVING LOANS AND ADVANCES, THAT IT HAD UTILISED IT SURPLUS FUNDS AVA ILABLE FOR MAKING INTER-CORPORATE DEPOSITS, THAT THE INTEREST EARNED BY THE ASSESSEE ON SUCH DE POSITS WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT WAS ARGUED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF GRANTING LOANS AND CHARGING INTEREST TH EREON, THAT THE INTEREST INCOME COMPRISED OF ABOUT 33% OF TOTAL INCOME, THAT GRANTING OF LOAN WAS ONE OF THE PRINCIPAL BUSINESS OF THE ASSESSEE,THAT GRANTING LOAN AND EARNING INTEREST O N THAT WAS NOT AN ISOLATED TRANSACTION AND THERE WAS A SERIES OF SIMILAR TRANSACTIONS,THAT THE ASSESSEE HAD SUBSTANTIAL TRANSACTION OF 7301/M/15-TIFCO 2 PLACING LOANS WITH VARIOUS ENTITIES, THAT AS PER TH E MEMORANDUM OF ASSOCIATION OF THE ASSESSEE THE OBJECT WAS TO ENGAGED IN THE BUSINESS OF GRANTING LOANS INCLUDING ACQUIRING DEBENTURE/BOUNDS, THAT THE AO HAD ALWAYS ASSESSED I NTEREST INCOME IS INCOME FROM BUSINESS TILL AY. 2009-10, THAT THERE WAS NO CHANGE IN THE F ACTS AND THEREFORE INTEREST INCOME WAS ASSESSABLE AS BUSINESS INCOME, THAT THE FAA, WHILE DECIDING THE APPEAL FOR THE AY. 2009-10 HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THA T THERE WAS NO CHANGE IN THE FACTS OF THE CASE OF THE YEAR UNDER CONSIDERATION VIS--VIS EARL IER YEARS. FOLLOWING THE RULE OF CONSISTENCY AND THE ORDER OF HIS PREDECESSOR FOR THE AY. 2009-1 0,HE HELD THAT INTEREST INCOME HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PR OFESSION. 2.2. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(A R) STATED THAT THE ORDER OF THE FAA FOR THE AY. 2009-10 HAD BECOME FINAL,THAT THE AO HAD NO T AGITATED THE ISSUE WITH REGARD TO TAXING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES BEFORE THE TRIBUNAL, WHILE FILING APPEAL. WE FIND THAT AO AS WELL AS THE ASSES SEE HAD FILED CROSS APPEALS BEFORE THE TRIBUNAL FOR AY. 2009-10 AND THE ONLY ISSUE CONTEST ED WAS ABOUT THE DISALLOWANCE MADE U/S.14 A OF THE ACT. THUS,THE ISSUE OF TAXING THE I NTEREST INCOME UNDER A PARTICULAR HEAD HAS ATTAINED FINALITY.OTHERWISE ALSO, WE HAVE NOT FOUND THE BASIS IN THE ORDER OF THE AO FOR NOT TAXING THE INTEREST INCOME UNDER THE HEAD BUSINESS. IN ALL THE EARLIER YEARS, THE INTEREST INCOME WAS NOT ASSESSEE UNDER THE HEAD INCOME FROM OTHER S OURCES.THEREFORE,THE AO HAD TO BRING ON RECORD THE REASONS FOR NOT FOLLOWING THE ORDERS OF THE EARLIER YEARS.CONSISTENCY IS ONE OF THE BASIC PRINCIPLES OF TAXATION JURISPRUDENCE.IN OUR O PINION, THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.THEREFORE, CONFIRMING IS O RDER WE DECIDE GROUND NUMBER ONE AGAINST THE AO. 3. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U/S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,FOR THE PURPOSE OF ARRIVING AT THE DISALLOWANCE U/S.14A,THE AO TOOK THE AVERAGE CONSIDERED THE VALUE OF INVESTMENT, INC OME FROM ITS DID NOT FORM PART OF THE TOTAL INCOME AND ARRIVED AT THE DISALLOWANCE OF RS.70,70, 115/-. 3.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA AND MADE ELABORATE SUBMISSIONS.AFTER CONSIDERING THE OR DER OF THE AO AND THE COMMISSION OF THE ASSESSEE,THE FAA HELD THAT IDENTICAL ISSUE HAD ARIS EN IN THE EARLIER AY.S, THAT HIS PREDECESSOR HAD DIRECTED THE AO IS TO DISALLOW EXPENDITURE WHIC H WAS PROPORTIONATE TO TAX EXEMPT INCOME, THAT THE ASSESSEE HAD INCURRED TOTAL ADMITT ED EXPENSES OF RS. 9.65 LAKHS DURING THE 7301/M/15-TIFCO 3 YEAR UNDER CONSIDERATION, THAT IT HAD DISALLOWED AN D AMOUNT OF RS.5.68 LAKHS ON ITS OWN HOLDING THAT THE SAID EXPENDITURE RELATED TO EARNIN G THESE RENT, THAT DISALLOWANCE MADE BY THE AO,U/S.14 A OF THE ACT,SHOULD NOT EXCEED THE TOTAL EXPENDITURE ITSELF, THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS FAR LESS THAN THE DISA LLOWANCE WORKED OUT BY THE APPLICATION OF RULE 8D(IIII),THAT THE ASSESSEE HAD INCURRED FAR LO WER EXPENDITURE THAN THE INDIRECT EXPENDI - TURE NOTIONALLY ARRIVED BY THE AO, THAT THE DISALLO WANCE HAD TO BE RESTRICTED TO A LOWER FIGURE ON A REASONABLE BASIS,THAT THE METHODOLOGY OF PROPO RTIONATE EXPENDITURE DIRECTED BY HIS PREDECESSOR IN RESPECT OF THE EARLIER YEARS HAD TO BE APPLIED SINCE THERE WERE NO SIGNIFICANT VARIATION IN THE FACTS AND CIRCUMSTANCES IN THE APP EALS FOR THE EARLIER YEAR AND APPEAL FOR THE YEAR UNDER CONSIDERATION.HE DIRECTED THE AO TO REST RICT THE DISALLOWANCE TWO RS. 2.52 LAKHS. 3.2. BEFORE US,THE DR STATED THAT MATTER WOULD BE DECIDE D ON MERITS. THE AR CONTENDED THAT ISSUE OF DISALLOWANCE TO BE MADE U/S.14 A OF THE AC T HAS BEEN DELIBERATED UPON BY THE TRIBUNAL,WHILE DECIDING THE APPEALS FOR THE EARLIER YEARS (ITA.S./84- 85/MUM/2013/AND ITA.S.164-165,AY.S.2008-09 AND 2009-10,DATED 22/05/ 2015, ITA.S/1798 & 2243/ MUM/ 2014, DATED 07/10/2015). WE FIND THAT THE ASSESSEE AND THE AO HAD FILED CROSS APPEALS FOR THE EARLIER THREE YEARS BEFORE THE TRIBUNAL CHALLENGING THE ORDER OF THE FAA WITH REGARD TO 14A DISALLOWANCE.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY.2010-11,THE TRIBUNAL HAS HELD AS UNDER: 5.1. WE HAVE GONE THROUGH THE CHART SHOWING THE EX PENDITURE INCURRED FURNISHED BY THE LD. COUNSEL, WHEREIN THE TOTAL EXPENDITURE DEBITED OR A T RS. 10, 27, 409/-, OUT OF ITS THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 5, 95, 293/- AND OUT OF THE BALANCE OF RS. 4, 32, 116/-THE LD. CIT (A) HAS DIRECTED TO RESTRICT THE DISALLOWANCE RS.2, 70,561/-. WE DO NOT FIND ANY ERROR OR OMISSION IN THIS FINDING OF THE LD. CIT (A) CALLING FOR AN INTERFERENCE. ACCORDINGLY, WE ABOUT THE FINDING OF THE LD. CIT (A) AND DISMISSED THE AP PEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE. WE FIND THAT EXCEPT FOR THE VARIATION IN THE AMOUNT OF DISALLOWANCE TO BE MADE THERE IS NO DIFFERENCE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE UNDER CONSIDERATION AS COMPARED TO THE FACTS OF THE EARLIER YEARS. THEREFORE, FOLLOWING TH E ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS, WE DECIDE THE SECOND GROUND OF APPEAL AGAINST THE A O. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY,2016. 22 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 22 .07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 7301/M/15-TIFCO 4 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.