JYOTI GORDHAN TANWANI, MUMBAI V. ACIT 19(3), MUMBAI

ITA 7660/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4448 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Assessee Lawyers: R C JAIN
• Keywords: Earning of tax free income; Source of fund; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI BEFORE SHRI AMIT SHUKLA, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 7660/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) MRS. JYOTI GORDHAN TANWANI 71, SONA VILLA PERRY CROSS ROAD, BANDRA (WEST), MUMBAI-400 050. / VS. ACIT CIR 19(3), 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012. ./ ./PAN/GIR NO. AALPT 2354E ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI R.C. JAIN / RESPONDENT BY : SHRI NAVEEN GUPTA / DATE OF HEARING : 03/09/2015 !'# / DATE OF PRONOUNCEMENT : 06/01/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 26.11.2013 OF COMMISSIONER OF INCOME TAX (APPEALS)-29, MUMBAI (HE REINAFTER CALLED AS THE CIT(A) ) FOR ASSESSMENT YEAR 2009-10.THE ASSESSEE H AS RAISED FOLLOWING GROUNDS OF APPEAL: 2 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT 1. THE LD. CIT(APPEALS) ERRED IN NOT ALLOWING PROPORT IONATE INTEREST PAID ON OVERDRAFT UTILIZED IN PURCHASE OF FLAT PURCHASED DU RING THE YEAR AS CLAIMED BEFORE HIM UNDER THE PROVISIONS OF THE ACT. 1.1.1 THE LD. CIT(APPEALS) DID NOT APPRECIATE THAT THE PU RCHASE OF FLAT IN QUESTION IS NOT DISPUTED AS THE AO HIMSELF ASSESSED THE INCOME FROM FLAT AS IF THE SAME WAS LET OUT. 1.1.2 THE LD. CIT(APPEALS) IN DOING SO DID NOT APPRECIATE THAT HIS PREDECESSOR IN OFFICE HAD CALLED FOR A REPORT FROM THE AO BASED ON THE CLAIM MADE BEFORE HIM HAVING REGARD TO THE MATERIAL PLACED BEFORE HIM. 1.1.3 THE LD. CIT(APPEALS) ALSO ERRED IN HOLDING THAT INT EREST U/S 24(B) COULD NOT BE ALLOWED AS ACCORDING TO HIM THE APPELLANT WAS NOT T HE OWNER OF THE FLAT AGAINST WHICH DEDUCTION FOR PROPORTIONATE INTEREST COULD BE ALLOWED. 2. THE LD. CIT(APPEALS) IN DISPOSING THE GROUND NO.2 B ASED ON REVISED CLAIM DID NOT GIVE ANY OPPORTUNITY LET ALONE REASONABLE OPPOR TUNITY TO ADDUCE FURTHER EVIDENCE IGNORING THE MATERIAL ALREADY ON RECORD IN CLUDING THE ASST. ORDER, GROUNDS ON WHICH REMAND REPORT WAS CALLED FOR AOS REMAND REPORT AND REJOINDER THERETO. 3. IN SO DOING THE LD. CIT (APPEALS) DID NOT APPRECIAT E THAT WITHOUT SATISFYING THE CONDITIONS U/S 14A(1) OF THE ACT, RULE 8D OF THE IT RULES COULD NOT HAVE BEEN APPLIED. 2. THE ISSUE RAISED IN THE GROUND NO.1 & 2 IS AGAINST THE CIT (A) NOT ALLOWING THE PROPORTIONATE INTEREST PAID ON OVERDRAFT WHIC H WAS UTILIZED FOR THE PURCHASE OF FLAT DURING THE YEAR BY HOLDING THAT THE ASSESSEE WAS NOT THE OWNER OF FLAT IN 3 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT COMPLETE DISREGARD OF THE FINDING OF FACTS BY T HE AO WHO ASSESSED THE SAME FLAT ON NOTIONAL BASIS UNDER THE HEAD HOUSE PROPERTY B Y TAKING RS. 1,00,000/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED HIS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL INCOME OF RS.35,65,915/- . THE ASSESSEE HAD AN FDR AMOUNTING TO RS.3,91,46,993/- ON WHICH THE SHE EARN ED AN INTEREST OF RS.38,65,523/-. THE ASSESSEE DURING THE YEAR HAD TA KEN A OVERDRAFT FACILITY AGAINST THE ABOVE FDR ON WHICH AN INTEREST ON RS.20,82,858 /- WAS PAID. THE PART OF THE OVERDRAFT FACILITY WAS USED FOR PURCHASE OF FLAT AT ANAND BHUVAN. THE ASSESSEE REDUCED THE INTEREST PAID ON OD FACILITY FROM THE I NTEREST INCOME EARNED ON FDR AND OFFERED NET INTEREST OF RS.15,86,665/- FOR TA XATION. 4. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTI NY AND THE AO DURING THE COURSE OF SCRUTINY PROCEEDINGS FOUND THE ASSESSEE TO BE OWNER OF TWO FLATS OUT. ONE AT SONAVILLA, BANDRA WHICH WAS CLAIMED SELF O CCUPIED AND WAS PURCHASED IN THE EARLIER YEAR AND ANOTHER AT ANAND BHUVAN WHICH WAS PURCHASED DURING THE YEAR AND WAS NOT IN A HABITABLE CONDITION. THE AO ASSESSED THE SAID FLAT AT A NOTIONAL INCOME OF RS. 1,00,000/- NET OF ALL THE DE DUCTIONS U/S 24 OF THE ACT AND BROUGHT TO TAX THE SAME AS INCOME FROM HOUSE PROPE RTY. THE LD. AO ALSO 4 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT DISALLOWED THE CLAIM OF INTEREST ON OD FACILITY U/S 57(III) OF THE ACT OF RS. 20,82,858/- BY REJECTING THE CONTENTION OF THE ASS ESSEE THAT THE SAID INTEREST WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE EAR NING INTEREST ON THE FDR . THE AO ALSO MADE ADDITIONS OF RS. 1,27,116 U/S 14A R.W. R. 8D OF THE ACT AND THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT AT RS. 58,80,320/- VIDE ORDER DATED 19.12.2011. 5. AGGRIEVED BY THE ORDER OF THE AO AN APPEAL WAS PREFERRED BEFORE THE CIT(A). THE LD. CIT(A) DELETED THE NOTIONAL ADDITIO N OF RS.1,00,000/- IN RESPECT OF THE FLAT AT ANAND BHUVAN AND ALSO HELD THAT IN CONS EQUENCE NO DEDUCTION U/S 24 WOULD BE ALLOWED BY DISMISSING THE APPEAL OF THE AS SESSEE ON THIS ISSUE. THE LD. CIT(A) ALSO REJECTED THE CLAIM OF THE ASSESEE U/S 5 7(III) OF THE ACT IN RESPECT OF RS.20,22,878/- BEING INTEREST ON OD FACILITY. THE CIT(A) ALSO REJECTED SUBMISSION BEFORE CIT(A) U/S 250(4) OF THE ACT TO ENTERTAIN THE CLAIM OF THE ASSESSEE U/S 24B OF THE ACT OF RS.9,71,245/- BEI NG THE PROPORTIONATE INTEREST ON OD FACILITY UTILIZED FOR THE PURCHASE OF THE FLAT IN ANAND BHUVAN BY HOLDING THAT THE APPELLANT HAD NOT PLACED ANY PROOF ON RECORD RE GARDING PURCHASE OF FLAT AT ANAND BHUVAN AND IN ABSENCE OF THE SAME, THE ASSESS EE HAS NOT PROVED THE 5 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT OWNERSHIP OF THE PROPERTY AND THEREFORE THE CLAIM O F THE ASSESSEE FOR ALLOWANCE OF PROPORTIONATE DEDUCTION U/S 24 (B) CANNOT BE CONSID ERED AND BY OBSERVING AS UNDER. THE BARE READING OF THE PROVISIONS OF SECTION MAKE S IT CLEAR THAT THE DEDUCTION OF INTEREST ON BORROWED CAPITAL UNDER SEC TION 24 (B) IS AGAINST THE INCOME EARNED FROM THE HOUSE PROPERTY DURING THAT P ERIOD. ACCORDINGLY, WHERE THERE IS NO INCOME FROM A HOUSE PROPERTY, THERE IS NO QUESTION OF ALLOWING ANY EXPENDITURE AGAINST SUCH INCOME. FROM THE PERUSAL O F THE COMPUTATION OF INCOME FILED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERA TION, IT CAN BE OBSERVED THAT THE ONLY SOURCES OF INCOME SHOWN ARE (I) THE INCOME FRO M PROFITS/GAINS FROM BUSINESS/PROFESSION AND (II) INCOME FROM OTHER SOUR CES. NO INCOME HAS BEEN SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SINCE TH ERE IS NO INCOME FROM THE HOUSE PROPERTY OF THE APPELLANT AT ANAND BHUVAN, TH ERE IS NO QUESTION OF ALLOWING ANY PROPORTIONATE DEDUCTION ON ACCOUNT OF INTEREST ON OWNED CAPITAL ON THE SAME PROPERTY. THIS GROUND OF APPEAL IS DISMISSED. 6. THE LD. AR SUBMITTED BEFORE US THAT THE CIT(A) H AS NOT APPRECIATED THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE BY HOLDING TH AT THE ASSESSEE DID NOT FILE ANY PROOF OF OWNERSHIP OF THE FLAT WHEREAS THE AO HAD CLEARLY RECORDED HIS FINDINGS OF THE FLAT HAVING BEEN PURCHASED AT ANAND BHAVAN B Y THE ASSESSEE WHICH WERE 6 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT GIVEN IN PARA 6 OF THE ASSESSMENT ORDER VIZ. THAT ASSESSEE HAD 2 FLATS ONE AT SONA BILLA WHICH WAS SELF OCCUPIED AND ANOTHER HOUSE AT ANAND BHAVAN WHICH WAS BOUGHT DURING THE YEAR AND BROUGHT TO TAX ON THE NO TIONAL BASIS AT RS.1,00,00/- PER ANNUM. THE LD. COUNSEL FURTHER SUBMITTED THAT THE F INDINGS OF THE CIT(A) WERE TOTALLY WRONG AND HE GROSSLY ERRED IN NOT ALLOWING THE PROPORTIONATE CLAIM OF INTEREST ON OD FACILITY WHICH WAS UTILIZED FOR THE PURPOSE OF PURCHASE OF FLAT AT ANNAD BHAVAN U/S 24(B) OF THE ACT ON THE PLEA THAT THE ASSESSEE DID NOT FILE ANY PROOF OF OWNERSHIP OF FLAT AT ANAND BHAVAN. THE LD . COUNSEL PLACED BEFORE THE BENCH THE COPY OF THE DEED OF TRANSFER DATED 03.07 .2008 QUA PURCHASE OF FLAT AT ANAND BHUVAN AND PRAYED THAT SINCE THE ASESSEE USED THE PART OF THE OD FACILITY FOR THE PURCHASE OF FLAT AT ANAND BHUVAN, THE PROPO RTIONATE INTEREST OF RS. 9,71,245/- BE ALLOWED AS DEDUCTION U/S 24(B) OF TH E ACT . THE LD. DR ON THE OTHER HAND RELIED ON THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE FIND FROM THE DEED OF TRANSFER DATED 03 .07.2008 THAT THE ASSESSEE PURCHASED A FLAT (2 ND FLOOR OF ANAND BHUVAN))FROM SMT KIRAN RAGHUNATH GA DRE HAVING ADDRESS AT 9, SATYADEEP BUILDING, SAMBHAJI P ATH, VISHNU NAGAR, NAUPADA, THANE (WEST) AND OTHER CO-OWNERS FOR CONSIDERATIO N OF 1,50,00,000/-. WE ALSO 7 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT NOTE FROM THE PG. NO.5 OF THE PAPER BOOK THAT THE A SSESSEE UTILIZED THE PART OF THE OD FACILITY FOR THE PURCHASE OF FLAT AT ANAND BHAVA N AND THE LD AR ALSO FILED THE COMPUTATION OF PROPORTIONATE INTEREST PAID ON OD FA CILITY OF RS. 9,71,245/- AT PAGE 13 OF THE PAPER BOOK WHICH RELATED TO PURCHASE OF F LATS AT ANAND BHUVAN. WE NOTE THAT THE LD. CIT(A) ALSO CALLED UPON THE AO TO SEN T THE REMAND REPORT ON THE SAID ISSUE VIDE LETTER DATED 29.11.12 AND THE AO SENT T HE REMAND REPORT DATED 12.08.2013 . FROM THE ABOVE IT IS CLEAR THAT THE C IT(A) DESPITE CALLING A REMAND REPORT FROM THE AO DID NOT CONSIDER THE ISSUE OF IN TEREST ON PURCHASE OF HOUSE PROPERTY U/S 24 B ON THE GROUND THAT ASSESSEE DID N OT FILE ANY PROOF OF OWNERSHIP OF THE FLAT AT ANAND BHUVAN WHEREAS FINDING OF THE FA CTS WAS GIVEN BY THE AO IN HIS ASSESSMENT ORDER IN PARA 6. IN VIEW OF THESE FACTS WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE DESERVED TO BE ALLOWED, THE DEDUC TION U/S 24B IN RESPECT OF THE PROPERTY PURCHASED AT ANAND BHUVAN. WE THEREFORE AL LOW THE APPEAL OF THE ASSESSEE BY REVERSING THE ORDER OF CIT(A) ON THIS POINT BY DIRECTING THE AO TO ALLOWTHE DEDUCTION U/S 24 B OF THE ACT IN RESPECT OF THE SAID INTEREST OF RS. 9,71,245/-. THE AO IS DIRECTED ACCORDINGLY 8. THE ISSUE RAISED IN THE GROUND NO.3 IS AGAINST T HE CONFIRMATION OF THE DISALLOWANCE U/S 14 A OF THE ACT WITHOUT SATISFYING THE CONDITION U/S 14A OF THE 8 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT ACT R.W.R. RULE 8D(III). THE BRIEF FACTS OF THE CAS E ARE THAT THE ASSESSEE EARNED EXEMPT DIVIDEND AMOUNTING TO RS.3,18,415/- AND INV ESTMENT IN SHARES AS ON 31.03.2009 WERE RS.2,61,79,938/-. THE AO ASKED THE ASSESSEE TO FURNISH THE WORKING OF DISALLOWANCE U/S 14 A R.W.R RULE 8 D WHICH WAS REPLIED BY THE ASSESSE AS UNDER. AS REGARDS THE DISALLOWANCE U/S 14A R.W. RULE 8D(2) (III), WE HAVE TO STATE AS UNDER: EVEN THOUGH THE ASSESSEE HAS EARNED DIVIDEND INCOME ON MUTUAL FUND AND SHARES, THERE IS NO DIRECT EXPENDITURE OF ANY NATUR E INCURRED TO EARN SUCH INCOME. MOREOVER, THE MUTUAL FUNDS, WHO ARE DISTRIB UTING SUCH DIVIDEND INCOME, DO SO AFTER PAYMENT OF TAXES AND ALSO AFTER PAYMENT OF DIVIDEND DISTRIBUTION TAX. IF ANY FURTHER ADDITION IS MADE U /S 14A R.W.S RULE 8D THE SAME WOULD AMOUNT TO DOUBLE TAXATION. THE ADDITION U/S 14A WOULD ONLY BE WARRANTED ONLY W HEN IT IS FOUND THAT REAL EXPENDITURE HAS BEEN INCURRED TO EARN SUCH INCOME. MASOPP INV LTD VS CIT (DELHI HIGH COURT) IF NO EXPENDITURE IS INCURRED IN RELATION TO EXEMPT INCOME WITHOUT RECORDING A FINDING AS TO THE CORRECTNESS O F EXPENDITURE, NO DISALLOWANCE CAN BE MADE (HERO CYCLES LTD 323 ITR 5 18 REFERRED). IN VIEW OF THE ABOVE FACTS, WE REQUEST YOUR HONOUR THAT NO DIS ALLOWANCE U/S 14A MAY BE MADE. 9 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT 9. THE AO DISALLOWED RS.1,27,116/- U/S 14A R.W.S RULE 8 D THE CALCULATION OF WHICH WAS INCORPORATED IN PARA 4.13 OF THE ASSESSME NT ORDER DATED 19.1.11. BY REJECTING THE CONTENTION OF THE ASSESSEE. THE LD. C IT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY DIRECTING THE AO T O COMPUTE THE DISALLOWANCE BY APPLYING 0.5% ON THE AVERAGE INVESTMENT BY TAKING I NTO ACCOUNT ONLY THOSE INVESTMENT WHICH YIELDED EXEMPT INCOME AND NOT THE ENTIRE INVESTMENT. 10. THE LD. AR SUBMITTED BEFORE US BY DRAWING OUR A TTENTION TO PAGE NO.35 & 36 OF THE PAPER BOOK THAT ALL THE EXPENSES RELATING TO EXEMPT INCOME WERE DEBITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE AND THEREFORE T HE PROVISIONS OF SECTION 14A R.W.R. RULE 8D HAD NO APPLICATION . PER CONTRA, TH E LD. AR RELIED ON THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND FROM THE ORDER OF THE CIT(A) THAT T HE DISALLOWANCE WAS RESTRICTED TO THOSE INVESTMENTS WHICH YIELDED THE EXEMPT INCOM E. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THE ISSUE O F DISALLOWANCE U/S 14A R.W.R RULE 8 D AS THE CIT(A) RESTRICTED THE DISALLOWANCE ONLY IN RESPECT OF THOSE INVESTMENTS WHICH YIELDED DIVIDEND TAX FREE DIVIDEND WHICH IS F AIR AND REASONABLE AND . WE THEREFORE, DISMISS THE GROUND OF THE ASSESSEE. 10 ITA NO.7660/MUM/2013 MRS. JYOTI GORDHAN TANWANI VS. ACIT IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06TH JANUARY, 2016 SD/- SD/- (AMIT SHUKLA ) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED :06.01.2016 PS. ASHWINI GAJAKOSH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI