HARSHADBHAI S PATEL, MUMBAI V. DCIT 14(2), MUMBAI

ITA 7446/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8234 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 22-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIEK A PERAMPURNA
• Assessee Lawyers: MAYUR R MAKADIA
• Keywords: Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI SANJAY GARG, J M ITA NO. 7446 / MUM/20 1 2 ( ASSESSMENT YEAR : 200 9 - 10 ) SHREE HARSHADBHAI S. PATEL, 301/303, KALBADEVI ROAD, MUMBAI - 400 002 VS. DCIT - 14(2), MUMBAI - 21 PAN/GIR NO. : A A DPP 1213 H ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI MAYUR R. MAKADIA /REVENUE BY : SHRI VIEK A. PERAMPURNA DATE OF HEARING : 22 ND SEPT , 201 4 DATE OF PRONOUNCEMENT : 31 ST OCT , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A ) , DATED 25 - 9 - 2012 FOR THE ASSESSMENT YEAR 200 9 - 10 , IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) OF TH E I.T. ACT . , WHEREIN THE ASS ESSEE HAS TAKEN FOLLOWING GROUNDS : - 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE ADDITION OF RS. 19,25,300/ - ON ACCOUNT OF DISALLOWANCE SUFFERED BY THE FIRM U/S.14A IN RESPECT OF INTEREST PAID. 2. ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE ADDITION OF RS. 57,500 U/S.68 WHICH WAS RECEIVED FROM THE ESTATE OF HIS LATE FATHER SHRI S.V.PATEL AS UNDISCLOSED INCOME. 2 . WE HAVE CONSIDERED RIVAL CONTENTI ONS AND PERUSED THE RECORD. THE ASSESSEE DECLARED THE INTEREST ON M/S VENUS STEEL PRODUCTS AT RS.1 0,36,700/ - WHEREAS IN THE INCOME AND EXPENDITURE ACCOUNT IT HAS ITA NO. 7446 /1 2 2 BEEN SHOWN AT RS. 29,62,001/ - . THE ASSESSEE, VIDE OFFICE LETTER DATED 3/10/2011, WAS INTIMATED THE ABOVE FACTS AND WAS ASKED TO EXPLAIN AS TO WHY THE EXCESS INTEREST OF RS.1 9,25 ,361/ - (2 9,62,001 - 10,36 - 700) SHOULD NOT BE TREATED AS SUPPRESSED INCOME AND WHY THE SAME SHOULD NOT BE A DDED TO HIS TOTAL INCOME. IN REPLY TO IT , THE AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE VIDE ITS LETTER DATED 21/11/2011, STATED THAT THE FIRM IN WHICH THE ASSESSEE IS PARTNER, HAS DISALLOWED THE INTEREST OF RS. 3 7, 83,738/ - U/ S 14A AND AS THE FIRM HAS PAID THE TAX ON THE DISALLOWED INTEREST, THE INTEREST OF INCOME OF RS. 19,25,361/ - SHOULD NOT BE ADDED TO THE ASSESSEE'S TOTAL INCOME. THE AO DID NOT CONVINCE WITH THE EXPLANATION OFFERED BY THE ASSESSEE. ACCORDING TO THE AO, THE FIRM IS D IFFERENT ENTITY. THE INTEREST IS PAID TO THE PARTNERS AND THEIR CREDIT BALANCE AS PER T HE PROVISION MADE IN THE PARTNERSHIP DEED THE INTEREST AND REMUNERATION PAID TO THE PARTNERS. THE FIRM DOES NOT PAY TAX ON THE INTEREST AND REMUNERATION P AID TO THE PARTNERS. THE PARTNERS PAY THE TAX ON THE INTEREST AND REMUNERATION RECEIVED FROM FIRM. THE INTEREST PAID TO THE PARTNERS IS NOT TAKEN INTO ACCOUNT AT THE TIME OF DISALLOWANCE U/S 14A IN THE CASE OF THE FIRM. THE DISALLOWANCE MADE U/S 14A IN THE HANDS OF THE FIRM H AS NO RELEVANCE WITH THE INTEREST PAID TO THE PARTNER. THEREFORE THE EXPLANATION O FFERED BY THE ASSESSEE'S A.R IS REJECTED AND THE EXCESS INTEREST OF RS. 1925,361/ - RECEIVED FROM THE FIRM IS TREATED AS SUPPRESSED INCOME AND IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 . BY THE IMPUGNED ORDER, THE CIT(A) UPHELD THE ACTION OF THE AO AF TER RECORDING THE FOLLOWING FINDINGS : - ON CAREFUL CONSIDERATION OF ARGUMENTS OF ID.AR AS WELL AS FACTS AND REASONING DISCUSSED BY THE AO, IT IMMENSELY ITA NO. 7446 /1 2 3 TRANSPIRES THAT THE CONTENTION OF THE ASSESSEE IS DEVOID OF MERIT. THE DISALLOWANCE U/S 14A IS BASED ON DIFFERENT FACTS AND DIFFERENT REASONS. IN OTHER WORDS DISALLOWANCE U/S 14A RELATES TO EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. I N CONTRAST THEREOF INTEREST PAID TO PARTNER IS ALLOWABLE U/S 40(B)(IV) OF THE ACT. AS AN ABUNDANT PRECAUTIONARY MEASURE I HAD PERUSED THE COMPUTATION OF INCOME OF THE FIRM FROM WHICH ASSESSEE HAD RECEIVED INTEREST INCOME. IN THE COMPUTATION, THE FIRM HAD DISALLOWED SUEMOTO 'INTEREST PAID U/S 14A' AMOUNTING TO RS. 37,87,738/ - . SIMULTANEOUSLY, THE FIRM HAD CLAIMED INTEREST AL LOWED TO PARTNERS AT RS. 58,85,042/ - . THE SAID INTEREST INCLUDES INTEREST PAID TO THE ASSES SEE AMOUNTING TO RS. 29,62,000/ - THUS, THERE IS DIFFERENT TREATMENT OF BOTH TYPES OF INTEREST PAYMENTS. THE ASSESSEE HAD RECEIVED INTEREST OF RS. 29,62,000/- FROM THE F IRM AND CREDITED IN THIS INCOME EXPENDITURE ACCOUNT. HOWEVER, IN RETURN OF INCOME HE HAD DISCLOSED AND OFFERED FOR TAXATION INTEREST OF RS. 10,36,700/ - ONLY. THUS THE ASSESSEE HAD CONCEALED BALANCE AMOUNT OF INTEREST RECEIVED FOR TAXATION UNDER THE GUISE O F U/S 14A DISALLOWANCE IN THE CASE OF FIRM, WHICH IS IN FACT SEPARATE ITEM. IT IS WORTH TO NOTE THAT DISALLOWANCE U/S 14A WAS MADE BY THE FIRM SUEMOTO. IN THE COMPUTATION OF INCOME IN THE CASE OF FIRM, IT IS SPECIFICALLY MENTIONED AS INTEREST PAID U/ S 1 4 A'. THE IMPUGNED INTEREST NOT DISCLOSED BY THE ASSESSEE AND NOT OFFERED FOR TAXATION IS ALSO PAID BY THE FIRM TO THE ASSESSEE. THUS CONTENTION OF THE ASSESSEE IS NOT TENABLE IN THE EYES OF LAW ON FACE OF IT. IT IS AN ENDEAVOR TO CONCEAL INCOME TO THE EXTEN T OF DIFFERENCE BETWEEN AMOUNT RECEIVED FROM THE FIRM AND AMOUNT DISCLOSED AND OFFERED FOR TAXATION IN THE RETURN OF INCOME. ACCORDINGLY, ADDITION OF RS. 19,25,300/ - IS UPHELD AND RELEVANT GROUND OF APPEAL IS REJECTED. 4 . THE AO ALSO MADE ADDITION OF RS . 57,500/ - U/S. 68 OF THE ACT WHICH WAS RECEIVED FROM THE ESTATE OF ASSESSEES LATE FATHER SHRI S.V. PATEL AS UNDISCLOSED INCOME. THE CIT(A) ALSO UPHELD THE ADDITION MADE BY THE AO. 5 . IN REGARD TO ADDITION OF INTEREST INCOME OF RS. 19,25,300/ - RECEIVED BY T HE ASSESSEE AS INTEREST ON CAPITAL FROM VENUS STEEL PRODUCTS, A PARTNERSHIP FIRM WHERE HE IS A PARTNER, WE FOUND THAT THE VENUS STEEL PRODUCTS HAS PAID A SUM OF RS. 58,85,042/ - BY WAY OF INTEREST ON CAPITAL TO ITS PARTNERS. OUT OF THE SAME, A SUM OF RS. 29 ,62,000/ - IS PAID TO THE ITA NO. 7446 /1 2 4 ASSESSEE. THE SAID INTEREST ON CAPITAL OF RS. 58,85,042/ - ALONG WITH CERTAIN OTHER INTEREST OF RS. 2,63,689/ - PAID BY VSP WAS SUBJECT TO A SUO MOTU DISALLOWANCE U/S. 14A R.W.R.8D IN THE HANDS OF THE FIRM. ACCORDINGLY, A SUM OF RS. 37,8 3,738/ - WAS DISALLOWED IN THE HANDS OF THE FIRM. OUT OF THE TOTAL INTEREST OF RS. 29,62,000 RECEIVED BY THE ASSESSEE FROM VSP, A SUM OF RS. 10,36,700/ - WAS OFFERED TO TAX BY HIM IN HIS ITR. THE BALANCE AMOUNT OF RS. 19,25,300/ - WAS NOT OFFERED TO TAX ON THE GROUNDS THAT THE SAME HAS ALREADY SUFFERED DISALLOWANCE IN THE HANDS OF THE FIRM AND THE SAME CANNOT BE ONCE AGAIN TAXED IN THE HANDS OF THE ASSESSEE. T HE AO OBSERVED THAT INTEREST PAID BY THE FIRM TO ITS PARTNERS HAS NOT BEEN TAKEN INTO ACCOUNT FOR COMPU TING DISALLOWANCE U/S 14A , THEREFORE, MADE AN ADDITION OF RS.19,25,300/ - TO THE INCOME OF THE ASSESSEE. THE DISALLOWANCE OF THE INTEREST U/S. 14A WAS MADE ON THE PLEA THAT INTEREST EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. IT IS NOT IN DISPUTE THA T ASSESSEE FIRM HAS CLAIMED TOTAL INTEREST OF RS. 58,85,042/ - IN ITS PROFIT AND LOSS ACCOUNT. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE HAS BEEN PAID TOTAL INTEREST OF RS. 29,62,000/ - FROM THE FIRM. MERELY BECAUSE ASSESSEES CLAIM OF INTEREST OF FIRM WAS DECLI NED U/S.14A, DOES NOT MEAN THAT ASSESSEE HAS NOT BEEN PAID ANY INTEREST. THE DISALLOWANCE OF INTEREST ON THE PLEA OF SAME BEING INCURRED FOR EARNING EXEMPT INCOME IS A SEPARATE ISSUE WHICH HAS TO BE CONSIDERED WHILE FRAMING ASSESSMENT IN THE HAND OF THE FI RM. SUCH INTEREST INCOME EVEN IF DISALLOWED IN THE HANDS OF THE FIRM U/S.14A CANNOT BE MADE THE REASON FOR NOT TAXING SUCH INTEREST INCOME IN THE HANDS OF THE ASSESSEE PARTNER WH O HAS RECEIVED ITA NO. 7446 /1 2 5 SUCH INTEREST INCOME AND ALSO CREDITED THE SAME IN HIS PROFIT AND LOSS ACCOUNT. 6 . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES FOR TAXING THE INTEREST INCOME OF RS. 19,25,300/ - NOT OFFERED FOR TAX BY THE ASSESSEE PARTNER. 7 . SO FAR AS ADDITION OF RS.57,500/ - , IS CONCERNED, WE FOUND THAT THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE FROM THE BANK ACCOUNT OF ASSESSEES LATE FATHER SHRI S.V. PATEL . THUS, THE SOURCE OF FUND IS CLEARLY ESTABLISHED. WE, THEREFORE, DELETE THE ADDITION MADE BY THE AO AND CONFIRM ED BY THE CIT(A). 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART , IN TERMS INDICATED HEREINABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31/10 / 201 4 . 31/10 / 2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 31/10 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / I TAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//