PARESH B. SHAH, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 7436/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2128 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 06-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2013
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAR
• Assessee Lawyers: M M GOLWALA
• Keywords: Opportunity of being heard; Tax effect
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 7 4 36 /MUM/ 2013 (ASSESSMENT YEAR 20 1 0 - 11 ) MR. PARESH B HAGWANDAS SHAH C/O. KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 3 RD FLOOR, 148, M G. ROAD FORT, MUMBAI - 400 001. VS. ACIT 4(2) ROOM NO. 642 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 15/MUM/2014 (ASSESSMENT YEAR 2010 - 11) ACIT 4(2) ROOM NO. 642 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. MR. PARESH B HAGWANDAS SHAH C/O. KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 3 RD FLOOR, 148, MG. ROAD FORT, MUMBAI - 400 001. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAGPS6604N ASSESSEE BY SHRI M.M. GOLWALA DEPARTMENT BY SHRI C.W. ANGOLKAR DATE OF HEARING 9 .1 1 . 201 6 DATE OF PRONOUNCEMENT 9 . 11 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 17.10.2013 PASSED BY THE LEARNED CIT(A) - 8, MUMBAI AND THEY RELATE TO A.Y. 2010 - 11. 2. AT THE TIM E OF HEARING LEARNED AR SUBMITTED THAT THE TAX EFFECT INVOLVED IN THE APPEAL FILED BY THE REVENUE IS LESS THAN 10 LAKHS. LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE SAME. ACCORDINGLY, IN PURSUANCE OF THE CIRCULAR NO. 21/2015 DATED 10.12.2015, THE REVENUE IS PRECLUDED FROM PURSUING THIS APPEAL. ACCORDINGLY, WE DISMISS THE APPEAL FILED BY THE REVENUE. 3. IN THE APPEAL FILED BY THE ASSESSEE, FOLLOWING ISSUES ARE BEING CONTESTED : PARESH BHAGWANDAS SHAH 2 (A) DISALLOWANCE MADE U/S. 14A OF THE ACT (B) DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE (C) DISALLOWANCE ON INTEREST PAID ON HOUSING LOAN 4. AT THE TIME OF HEARING LEARNED AR DID NOT PRESS GROUND S RELATING TO DISALLOWANCE MADE U/S. 14A IN VIEW OF THE SMALLNESS OF THE AMOUNT . HE NCE WE DISMISS THE GROUND S RELATING TO THE SAME. 5. NEX T ISSUE RELAT ES TO DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF ` 23.56 LAKHS UNDER HEAD INTEREST ON BANK OVERDRAFT . THE ASSESSEE HAD ALSO CLAIMED A SUM OF ` 7,04, 563/ - AS INTEREST PAID TO OTHER PARTIES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS WITHDRAWN A SUM OF ` 1.70 CRORES FROM OVERDRAFT ACCOUNT TOWARDS HIS PERSONAL PURPOSES. HENCE THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST CLAIM AGGREGATING TO ` 30,61,146/ - , REFERRED ABOVE. THE L EARNED CIT(A) DELETED THE INTEREST OF ` 7,04,563/ - PAID TO OTHER PARTIES. WITH REGARD TO INTEREST ON BANK OVERDRAFT, THE LEARNED CIT(A) NOTICED THAT THE BANK OVERDRAFT WAS AVAILED BY THE ASSESSEE BY PLED G ING FIXED DEPOSITS MADE WITH THE BANK. FURTHER WITHD RAWALS MADE BY THE ASSESSEE FOR PERSONAL PURPOSES WERE ONLY A FRACTION OF THE TOTAL AMOUNT WITHDRAWN FROM THE BANK OVERDRAFT ACCOUNT. ACCORDINGLY, HE RESTRICTED THE ADDITION TO ` 99,329/ - AND DELETED REMAINING AMOUNT OF ADDITION. 6. LEARNED AR SUBMITTED THAT THE ASSESSEE IS PO SSES SING SUFFICIENT AMOUNT OF CAPITAL AND HENCE THE ABOVE SAID WITHDRAWALS OF ` 1.70 CRORES SHOULD BE CONSIDERED AS WITHDRAWN FROM THE CAPITAL ACCOUNT. ACCORDINGLY HE SUBMITTED THAT THERE IS NO NECESSITY TO DISALLOW A PORTION OF EXPE NDITURE ALSO. IN SUPPORT OF HIS CONTENTION LEARNED AR PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER PVT. LTD. (313 ITR 340). ON THE CONTRARY LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDER PASSED BY THE LEARNED CIT(A). 7. HAVING HEARD THE RIVAL CONTENTION, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. A PERUSAL OF THE B ALANC E S HEET FURNISHED BY THE ASSESSEE WOULD SHOW THAT THE ASSESSEE IS HAVING CAPITA L BALANCE OF ` 12.46 CRORES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS WITHDRAWN A SUM OF ` 1.70 CRORES ONLY FROM OUT OF THE BANK OVERDRAFT ACCOUNT. IN THE CASE OF RELIANCE UTILITIES & POWER PVT. LTD (SUPRA) , THE HON'BLE BOMBAY HIGH COURT HAS H ELD THAT THE DISALLOWANCE OUT OF PARESH BHAGWANDAS SHAH 3 INTEREST EXPENDITURE IS NOT CALLED FOR WH EN THE ASSESSEE HAS GOT SUFFICIENT OWN FUNDS. FURTHER IT WAS HELD THAT WHERE THE ASSESSEE HAS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE THAT ADVANCES GIVEN FOR N ON BUSINESS PURPOSES HAVE BEEN MADE OUT OF OWN FUNDS. IN OUR VIEW , THE PRINCIPLES LAID DOWN BY HON'BLE BOMBAY HIGH COURT IN THE ABOVE SAID CASE CAN BE CONVENIENTLY APPLIED IN THE INSTA NT CASE ALSO. ACCORDINGLY, WE HO LD THAT WITHDRAWAL OF ` 1.70 CRORES MADE BY THE ASSESSEE SHOULD BE CONSIDERED AS HAVING BEEN MADE OUT OF CAPITAL ONLY. IN THAT VIEW OF THE MATTER, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. ACCORDINGLY, WE SE T ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION CONFIRMED BY LD CIT(A) OUT OF INTEREST PAID ON BANK OVERDRAFT ACCOUNT. 8. NEXT ISSUE RELATES TO NON - GRANTING OF DEDUCTION OF INTEREST PAID ON HOUSING LOAN. THE ASSESSEE HAD HELD THREE HOUSE PROPERTIES NAMELY PRITHVI FLAT AT MUMBAI, GOREGAON FLAT AND LONAVALA FLAT. THE ASSESSEE DECLARED GOREGAON FLAT AS HIS SELF OCCUPIED PROPERTY. GOREGAON FLAT WAS PURCHASED BY THE ASSESSEE BY AVAILING LOAN F ROM STATE BANK OF INDIA. DURING THE YEAR UNDER CONSIDERATION TOTAL INTEREST PAID ON HOUSING LOAN WAS ` 21.68 LAKH. HOWEVER, THE ASSESSEE RESTRICTED THE SAME TO ` 1.50 LAKHS AS PER SECTION 24(B) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, TREATED THE PRITHV I FLAT AS SELF OCCUPIED PROPERTY. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE ANNUAL LETTING VALUE OF THE GOREGAON AND LONAVALA FLATS TREATING THE SAME AS DEEMED TO BE LET OUT. THE ASSESSING OFFICER DETERMINED THE ANNUAL LETTING VALUE AT 7% OF THE INVE STMENT MADE IN PURCHASE OF FLAT S . THE ASSESSEE ACCEPTED THAT THE SELF OCCUPIED PROPERTY AS PRITHVI FLAT AND DID NOT CONTEST THE SAME BEFORE LD CIT(A). HOWEVER, THE ASSESSEE CONTESTED THE ANNUAL LETTING VALUE DETERMINED BY THE AO IN RESPECT OF OTHER TWO FLATS. 9. THE LEARNED CIT(A) DID NOT AGREE WITH THE ANNUAL LETTING VALUE DETERMINED BY THE ASSESSING OFFICER. THE LEARNED CIT(A), BY FOLLOWING THE DECISION RENDERED BY THE ITAT IN THE CASE OF SMT. MUNIRA CHUDASAMA (ITA NO. 3027/MUM/2011), HELD THAT THE MUNICIPAL RATEABLE VALUE SHOULD BE TAKEN AS CRITERIA FOR DETERMINING THE ANNUAL LETTING VALUE. 10. BEFORE THE LEARNED CIT(A), THE ASSESSEE ALSO CLAIMED THAT ENTIRE INTEREST EXPENDITURE PAID ON PURCHASE OF GOREGAON FLAT SHOULD BE ALLOWED AS DEDUCTION U/S. PARESH BHAGWANDAS SHAH 4 24(B) OF THE ACT SINCE THE SAID FLAT HAS BEEN TREATED AS DEEMED TO BE LET OUT. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD TREATED THE GOREGAON FLAT AS HIS SELF OCCUPIED PROPERTY AND ACCORDINGLY RESTRICTED THE DEDUCTION TOWARDS INTEREST EXPENDITURE AT R S.1,50,000/ - U/S 24(B) OF THE ACT. THE LEARNED CIT(A) NOTICED THAT THE ASSESSEE HAD SUBMITTED IN ITS EXPLANATION THAT HE HAD RECEIVED GOREGAON FLAT ON BARE SHELL BASIS WITH NO TILES AND INTERIOR WORK. ACCORDINGLY, THE LEARNED CIT(A) TOOK THE VIEW THAT THE SAID FLAT WAS NOT WORTH FOR GIVING ON RENT. THEREFORE NO DEEMED RENT U/S. 23 OF THE ACT WAS REQUIRED TO BE ASSESSED. ACCORDINGLY, HE TOOK THE VIEW THAT DEDUCTION PRESCRIBED U/S. 24 OF THE ACT CANNOT ALSO BE GIVEN. 11. LEARNED AR SUBMITTED THAT THE LEAR NED CIT(A) HAS TAKEN A CONTRADICT STAND IN AS MUCH AS HE HAS DIRECTED THE ASSESSING OFFICER TO DETERMINE THE ANNUAL LETTING VALUE BY TREATING THE SAME AS DEEMED TO BE LET OUT. HOWEVER, WHILE ADJUDICATING THE CLAIM OF DEDUCTION FOR ENTIRE INTEREST EXPENDITU RE, THE LEARNED CIT(A) HAS TAKEN THE VIEW THAT THERE IS NO REQUIREMENT TO DETERMINE DEEMED RENT U/S. 23 OF THE ACT. LEARNED AR SUBMITTED THAT THE ASSESSEE SHOULD BE ALLOWED DEDUCTION FOR ENTIRE INTEREST EXPENDITURE , SIN C E THE GOREGAON FLAT HAS BEEN ACCEPTE D AS DEEMED TO BE LET OUT. 12. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HIMSELF HAS ADMITTED THAT GOREGAON FLAT WAS NOT FIT FOR OCCUPATION, ACCORDINGLY, HE SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN REJECTIN G THE CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE. 13. HAVING HEARD THE RIVAL CONTENTION, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER , SINCE THE ASSESSING OFFICER HIMSELF HAS CHANGED THE CHARACTER OF THE GOREGAON FLAT, I.E. AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE GOREGAON FLAT IS SELF OCCUPIED PROPERTY, THE ASSESSING OFFICER HA S TREATED THE PRITHVI FLAT AS SELF OCCUPIED PROPERTY. NOW, THE LEARNED CIT(A) , HAVING DIRECTED THE AO TO TREAT THE GOREGA ON FLAT AS DEEMED TO BE LET OUT, HAS GIVEN A FINDING THAT THE GOREGAON FLAT IS NOT FIT FOR OCCUPATION. HENCE THERE IS CONTRADICTION IN THE ORDER GIVEN BY THE LD CIT(A). DUE TO CHANGE IN THE CHARACTER OF GOREGAON FLAT, THE DEDUCTION ALLOWABLE U/S 24(B) RE QUIRES RECONSIDERATION , SINCE THE ASSESSEE IS ALSO PUTTING FORTH CLAIM FOR DEDUCTION OF ENTIRE AMOUNT OF INTEREST EXPENDITURE . UNDER THESE SET OF FACTS, THE DETERMINATION OF ANNUAL LETTING VALUE, IF THE GOREGAON FLAT IS PARESH BHAGWANDAS SHAH 5 ACCEPTED AS DEEMED TO BE LET OUT, I S REQUIRED TO BE MADE. IF IT IS HELD THAT THE SAID FLAT IS NOT FIT FOR RENTING OUT, THEN THERE IS NO REQUIREMENT TO TREAT THE SAME AS DEEMED TO BE LET OUT. SINCE THERE IS CONFUSION ABOUT THE CHARACTER OF FLAT, WE ARE OF THE VIEW THAT THESE ISSUES REQUIRE FRESH EXAMINATION. ACCORDINGLY WE SET ASIDE THE ORDER PAS SED BY THE LEARNED CIT(A) ON THE S E ISSUE S AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE SE ISSUE S AFRESH IN ACCORDANCE WITH THE LAW AFTER AFFORDING ADEQ UATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 9 .1 1 .2016 SD/ - SD/ - (PAWAN SINGH) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 9 / 1 1 / 20 1 6 COPY OF THE O RDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS