ITO 3(1)(2), MUMBAI V. BAJAJ CAPITAL VENTURES P.LTD, MUMBAI

ITA 789/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0888 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 02-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: V MOHAN
• Keywords: Business income; Opportunity of being heard; Earning of tax free income; Commercial expediency; Revised return
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.1257/MUM/2015 (AY. 2011-12) BAJAJ CAPITAL VENTURES PVT. LTD., 106/107, 10 TH FLOOR, BAJAJ BHAVAN, JAMNALAL BAJAJ MARG, 226 NARIMAN POINT, MUMBAI 400 021 PAN: AAACA 3565F ...... APPELLANT VS. DY.CIT 3(1)(1), AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.789/MUM/2015 (AY. 2011-12) DY.CIT 3(1)(1), AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020 .... APPELLANT VS. BAJAJ CAPITAL VENTURES PVT. LTD., 106/107, 10 TH FLOOR, BAJAJ BHAVAN, JAMNALAL BAJAJ MARG, 226 NARIMAN POINT, MUMBAI 400 021 PAN: AAACA 3565F ..... RESPO NDENT ASSESSEE BY : SHRI V. MOHAN REVENUE BY : MS. ANUPAMA SINGLA DATE OF HEARING : 02/03/2017 DATE OF PRONOUNCEMENT : 26/04/2017 2 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) ORDER PER G.S.PANNU,A.M: THE CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-5, MUMBAI DATED 14/11/2014, WHICH IN TURN, A RISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143( 3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 14/02/2014. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESS EE WHEREIN FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED:- 1. INCOME TAX (APPEALS) ERRED IN CONFIRMING LEASIN G INCOME FROM COMMERCIAL PREMISES OF RS.50,32,440/-( 70% OF 71,89,200/-) AS 'INCOME FROM HOUSE PROPERTY' AS AGAINST' PROFITS & GAINS FROM BUSINESS /PROFESSI ON' AS CONTENDED BY THE APPELLANT AS LEASING INCOME ARISING ON LEASE OF THE COMMERCIAL PREMISES IS ONE OF THE MAJOR BUSINESS ACTIVITY OF THE COMPANY. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING BY NOT ALLOWING C/F OF LONG TERM CAPITAL LOSS ARISING ON SALE OF PREFERENC E SHARES BY WRONGLY TREATING THE SAME AS EQUITY SHARES AND THUS APPLYING PROVISIONS OF SEC 10(38) OF THE INCOME TAX ACT, 1961 3. IN SO FAR THE GROUND OF APPEAL NO.1 IS CONCERNE D, THE RELEVANT FACTS ARE THAT ARE THAT THE ASSESSEE COMPANY IS THE OWNER OF AN OFFICE PREMISES AT 106- 107, BAJAJ BHAVAN, NARIMAN POINT, MUMBAI, WHICH WAS GIVEN ON LEASE TO ONE OF ITS GROUP CONCERN, M/S. BAJAJ HINDUSTAN LTD FOR A PERIOD OF 60 MONTHS FROM APRIL 2009 TO MARCH 2014. DURING THE YEAR UNDER CO NSIDERATION, ASSESSEE EARNED RENTAL INCOME OF RS.71,89,200/- FROM THE LEA SE OF OFFICE PREMISES. IT TRANSPIRES FROM THE RECORD THAT IN THE RETURN OF IN COME ORIGINALLY FILED ON 30/09/2011, SUCH RENTAL INCOME WAS OFFERED TO TAX U NDER THE HEAD INCOME FROM HOUSE PROPERTY WHILE IN THE REVISED RETURN OF INCOME FILED ON 3 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) 28/03/2013, ASSESSEE CLAIMED THE ASSESSABILITY OF S UCH RENTAL INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS. IN THE ASSESSMENT PROCEEDINGS, ASSESSEE JUSTIFIED THE STAND TAKEN IN THE REVISED R ETURN ON THE GROUND THAT THE PREMISE WAS A BUSINESS CENTRE AND, THEREFOR E, THE RENTAL INCOME THEREUPON WAS ASSESSABLE AS BUSINESS INCOME. TH E ASSESSING OFFICER HAS DIFFERED WITH THE ASSESSEE AND HAS ASSESSED THE REN TAL INCOME AS AN INCOME ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPER TY. IN COMING TO SUCH CONCLUSION, THE ASSESSING OFFICER HAS RELIED ON THE LEASE AGREEMENT AND CONCLUDED THAT IT WAS A NORMAL RENT AGREEMENT FOR L ETTING OUT OF PROPERTIES AND THE INGREDIENTS OF A BUSINESS CENTRE AGREEMENT WERE MISSING. THE ASSESSING OFFICER HAS ALSO NOTED THAT ASSESSEE WAS ASKED TO SPECIFY THE NATURE OF SERVICES PROVIDED SO AS TO JUSTIFY THE LE ASING OF THE BUSINESS CENTRE. IN THIS CONTEXT, THE ASSESSING OFFICER HAS NOTED TH AT THE ASSESSEE HAD FAILED TO PROVIDE THE DETAILS OF EXPENSES WHICH WERE REQUIRED TO BE INCURRED FOR PROVIDING BUSINESS CENTRE SERVICES. IN THIS BACKGR OUND, THE ASSESSING OFFICER PROCEEDED TO ASSESS THE RENTAL INCOME UNDER THE HEA D INCOME FROM HOUSE PROPERTY. 3.1 IN APPEAL BEFORE THE CIT(A), ASSESSEE CONTENDED THAT THE LEASE INCOME OF BUSINESS CENTRE WAS ASSESSABLE AS BUSINESS INCOM E AND THAT LEASING OF COMMERCIAL PREMISES WAS ONE OF THE MAJOR ACTIVITIES OF THE ASSESSEE COMPANY. THE ASSESSEE ALSO CANVASSED BEFORE THE CI T(A) THAT THE IMPUGNED COMMERCIAL PREMISE WAS ACQUIRED OUT OF SURPLUS FUN DS AVAILABLE WITH THE ASSESSEE COMPANY WITH THE INTENTION OF EARNING LEAS E INCOME. IT WAS ALSO CANVASSED THAT IN THE PRECEDING ASSESSMENT YEAR OF 2010-11, THE INCOME FROM LEASE HAS BEEN ASSESSED AS BUSINESS INCOME. T HE CIT(A) HAS CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE ASSESSEE. THE CIT (A) NOTED THAT THE 4 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) ASSESSEE COMPANY HAD FAILED TO FURNISH THE NATURE O F SERVICES RENDERED AND, THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN N OT TREATING THE IMPUGNED PREMISES TO BE A BUSINESS CENTRE AND TAXING THE R ENTAL INCOME AS INCOME FROM HOUSE PROPERTY. IN COMING TO SUCH A DECISION , THE CIT(A) NOTED THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE FOL LOWING JUDGMENTS:- 1. SHAMBHU INVESTMENTS PVT. LTD. VS. CIT, 263 ITR 1 43(SC), 2. ATMARAM PROPERTIES P. LTD., 85 ITD 86(DEL) 3. RANI PALIWAL VS. CIT, 268 ITR 220 (P&H) 3.2 AGAINST SUCH A DECISION OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. BEFORE US, THE LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT LEASING OF PROPERTY WAS ONE OF THE OBJECTIVES OF THE ASSESSEE COMPANY AND IN THIS REGARD DREW OUR ATTENTION TO CLAUSE (9) OF THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF MAIN OBJECTS CONT AINED IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY. THE LD. RE PRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO THE BALANCE SHEET AND P&L ACCOUNT FOR THE YEAR UNDER CONSIDERATION TO POINT OUT THAT THE RENTAL IN COME OF RS.71,89,200/- WAS ALMOST ONE THIRD OF THE TOTAL INCOME WITH THE B ALANCE INCOMES BEING BY WAY OF DIVIDEND, INTEREST ON LOAN AND FIXED DEPOSIT S, ETC. IT HAS ALSO BEEN POINTED OUT THAT THE FUNDS DEPLOYED FOR THE LOAN PO RTFOLIO WERE COMPARABLE TO THE COST OF THE PREMISES, WHICH HAVE BEEN LEASED OUT IN ORDER TO JUSTIFY THAT LEASING OF PROPERTY WAS A MAJOR ACTIVITY. AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE JUD GMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PRIVATE LTD. VS. ACIT, 386 ITR 500 AND IN THE CASE OF CHENNAI PROPERTIES & IN VESTMENTS LTD., 373 ITR 673 IN SUPPORT OF THE PLEA THAT THE RENTAL INCOMES IS ASSESSABLE AS BUSINESS INCOME. 5 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) 3.3 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE HAS REITERATED THE STAND OF THE ASSESSING OFFICER IN SUPPORT OF TH E CASE OF THE REVENUE. APART THEREFROM, THE LD. DEPARTMENTAL REPRESENTATIV E EMPHASIZED THAT THERE WAS NO SPECIFIC AMENITIES OR SERVICES PROVIDE D BY THE ASSESSEE SO AS TO SAY THAT THE LEASE AGREEMENT WAS IN THE NATURE OF A BUSINESS ACTIVITY. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO EMPHASIZED THA T IN THE RETURN OF INCOME ORIGINALLY FILED , ASSESSEE HAD DECLARED SUC H INCOME AS INCOME FROM HOUSE PROPERTY AND THAT IT IS ONLY IN THE REVISE D RETURN OF INCOME THAT INCOME WAS CLAIMED TO BE ASSESSABLE AS BUSINESS IN COME. 3.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ASSESSEE BEFORE US IS A PRIVATE LIMITED COMPANY, WHICH OWNS A COMMERCIAL PREMISE, WHICH HAS BEEN RENTED TO A GROUP CONCERN AND IT IS DERIVING RENTAL INCOME THEREFROM. THE POINT OF DISPUTE IS WHETHER THE INC OME SO RECEIVED IS TO BE TAXED UNDER THE HEAD HOUSE PROPERTY OR PROFITS A ND GAINS OF BUSINESS OR PROFESSION. AS THE RELEVANT DISCUSSION IN THE ORD ERS OF AUTHORITIES BELOW REVEAL, THE STAND OF THE ASSESSEE WAS THAT THE INCO ME OUGHT TO BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. THE PRIMARY REASON ADVANCED WAS THAT THE LEASED PREMISES WAS A BUSINESS CENTRE AND, THEREFORE, EARNINGS FROM SUCH A PREMISE WERE LIABLE TO BE CONSIDERED AS BUSINESS INCOME. FACTUALLY SPEAKING, THE ASSESSI NG OFFICER AS WELL AS THE CIT(A) HAVE RENDERED A CONCURRENT FINDING TO THE EF FECT THAT ASSESSEE COULD NOT PROVE AS TO WHAT SERVICES OF THE NATURE OF BUSI NESS CENTRE WERE BEING PROVIDED BY IT. ON THIS ASPECT, EVEN BEFORE US, TH E LD. REPRESENTATIVE FOR THE ASSESSEE HAS NOT LEAD ANY MATERIAL OR EVIDENCE, WHI CH WOULD ENABLE US TO INTERFERE WITH THE AFORESAID FACTUAL FINDING OF THE LOWER AUTHORITIES. THEREFORE, IN SO FAR AS THE PLEA OF THE ASSESSEE T HAT THE PREMISE IN QUESTION 6 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) WAS PROVIDING BUSINESS CENTRE SERVICES IS CONCERNED ,, THE STAND OF THE INCOME TAX AUTHORITIES IS HEREBY AFFIRMED. 3.5 BEFORE US, THE LD.REPRESENTATIVE FOR THE ASSESS EE HAS SOUGHT TO JUSTIFY THE TREATMENT OF THE IMPUGNED INCOME AS BUSINESS I NCOME ON THE GROUND THAT THE ACTIVITY OF LEASING OUT PROPERTIES WAS A PART OF THE OBJECTS OF THE ASSESSEE COMPANY AND ALSO THE FACT THAT THE RENTAL INCOME WAS A SUBSTANTIAL PART OF THE TOTAL EARNINGS OF THE ASSESSEE COMPANY. IN THIS CONTEXT, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THE HON'BLE SUPR EME COURT IN THE CASE OF CHENNAI PROPERTIES INVESTMENTS LTD.(SUPRA). 3.6 WE HAVE ALSO CAREFULLY EXAMINED THE PLEA SET-U P BY THE ASSESSEE BASED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENT LTD.(SUPRA). BEFORE WE PRO CEED FURTHER, WE MAY REFER TO THE FOLLOWING DISCUSSION IN THE JUDGMENT, WHICH SUMS UP THE FEATURES OF THE CASE BEFORE THE HONBLE SUPREME COURT:- THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT-CO MPANY WHICH IS PLACED ON RECORD MENTIONS MAIN OBJECTS AS WELL AS INCIDENTAL OR ANCILLARY OBJECTIONS IN CLAUSE III,(A) AND (B) RESPECTIVELY. THE MAIN OBJECT OF T HE APPELLANT COMPANY IS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS CHENNAI HOUSE AN D FIRHAVIN ESTATE BOTH IN CHENNAI AND TO LET OUT THOSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECURITY OF LANDS AND BUILDING OR OTHER PROPERTIES OR ANY IN TEREST THEREIN. WHAT WE EMPHASIZE IS THAT HOLDING THE AFORESAID PROPERTIES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE C OMPANY. IT MAY FURTHER BE RECORDED THAT IN THE RETURN THAT WAS FILED, ENTIRE INCOME WHICH ACCRUED AND WAS ASSESSED IN THE SAID RETURN WAS FROM LETTING OUT OF THESE PROPERTIES. IT IS SO RECORDED AND ACCEPTED BY THE ASSESSING OFFICER HIMS ELF IN HIS ORDER. NOTABLY, THE HON'BLE SUPREME COURT NOTED THAT THE M AIN OBJECT OF THE COMPANY WAS TO ACQUIRE AND HOLD THE PROPERTIES IN Q UESTION BEFORE IT AND LETTING OUT THE SAME. THE HON'BLE SUPREME COURT EM PHASIZED THAT ACQUIRING 7 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) AND HOLDING OF THE TWO SPECIFIED PROPERTIES, AND LETTING OUT THEM WAS THE MAIN OBJECT OF THE COMPANY. IN THE PRESENT CASE, I T IS NOT THE MAIN OBJECT OF THE COMPANY TO ACQUIRE AND HOLD THE IMPUGNED PROPE RTY AND TO LET OUT THE SAME. WE MAY ADD HERE THAT IT IS ONLY THE ANCILLAR Y OR INCIDENTAL OBJECT OF THE ASSESSEE TO INTER-ALIA, LEASE PROPERTIES AND NOT THE MAIN OBJECTIVE WHICH WAS THE FEATURE IN THE CASE BEFORE THE HON'BLE SUP REME COURT. SECONDLY, HON'BLE SUPREME COURT ALSO NOTICED THAT THE ENTIRE INCOME WHICH WAS ASSESSED WAS EARNED FROM LETTING OUT OF THE PROPERT IES, WHICH OSTENSIBLY IS NOT THE CASE HERE. IN THE PRESENT CASE, THE INCOME FROM RENTAL OF THE PREMISES IS NOT THE ONLY SOURCE OF INCOME OF THE AS SESSEE COMPANY. THEREFORE, IN OUR CONSIDERED OPINION, THE FACTUAL M ATRIX IN THE INSTANT CASE IS DIFFERENT AND THUS CANNOT BE GOVERNED BY THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPER TIES INVESTMENTS LTD.(SUPRA). AT THIS POINT, WE MAY REFER TO THE R ATIO APPROVED BY THE HON'BLE SUPREME COURT TO THE EFFECT THAT IT IS NOT THE OW NERSHIP OF PROPERTY BUT THE NATURE OF ACTIVITY OF THE ASSESSEE AND NATURE OF OP ERATIONS IN RELATION TO THE PROPERTY, WHICH WOULD BE DECISIVE TO CONCLUDE AS TO WHETHER A PARTICULAR INCOME IS TO BE TREATED AS INCOME FROM BUSINESS OR INCOME FROM HOUSE PROPERTY. THE FACTUAL MATRIX IN THE PRESENT CASE, WHICH LIES CONCLUDED BY THE CONCURRENT FINDING OF THE LOWER AUTHORITIES, IS TO THE EFFECT THAT ASSESSEE HAS FAILED TO ESTABLISH AS TO WHAT SERVICES OF A BU SINESS CENTRE WERE BEING PROVIDED SO AS TO JUSTIFY ITS CLAIM FOR TAXING THE LEASE RENTAL AS BUSINESS INCOME. THEREFORE, IN OUR VIEW, THE FACT-SITUATIO N IN THE PRESENT CASE, STANDS ON A DIFFERENT FOOTING THAN WHAT WAS BEFORE THE HON 'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES INVESTMENTS LTD.(SUP RA). 8 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) 3.7 FURTHER, THE RELIANCE PLACED ON THE JUDGMENT O F THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PRIVATE LIM ITED(SUPRA) ALSO DOES NOT HELP THE CASE OF THE ASSESSEE. THE FACT-SITUATION IN THE CASE OF RAYALA CORPORATION PRIVATE LIMITED(SUPRA) WAS THAT THE A SSESSEE THEREIN HAD ONLY ONE BUSINESS AND THAT WAS OF LEASING ITS PROPERTY A ND EARNING RENT THEREFROM. THIS IS NOT THE SITUATION IN THE CASE BEFORE US. N O DOUBT, HON'BLE SUPREME COURT NOTED THAT LETTING OUT OF SHOPS AND PROPERTIE S WAS NOT THE MAIN BUSINESS OF THE ASSESSEE AS PER THE MEMORANDUM OF A SSOCIATION, BUT SIGNIFICANTLY IT NOTED THAT IT WAS THE ONLY BUSINES S AND, THEREFORE, IT PROCEEDED TO APPLY THE LAW LAID DOWN IN THE CASE OF CHENNAI PROPERTIES INVESTMENTS LTD.(SUPRA), AND UPHELD ASSESSMENT OF R ENTAL INCOME AS BUSINESS INCOME. THE FACT-SITUATION IN THE PRESE NT CASE IS QUITE DIFFERENT INASMUCH AS IT IS NOBODYS CASE THAT LEASING OF PRO PERTY IS THE ONLY BUSINESS OF THE ASSESSEE-COMPANY OR THAT IT IS THE ONLY ACTIVIT Y UNDERTAKEN BY THE ASSESSEE-COMPANY. AT THE TIME OF HEARING, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT ASSESSEE HAD EARNED INTEREST INCOM E FROM LENDING ACTIVITIES, WHICH HAS BEEN DECLARED AS BUSINESS INCOME BY THE A SSESSEE-COMPANY AS ALSO ACCEPTED BY THE TRIBUNAL IN THE PAST. THUS, T HE FACT-SITUATION IN THE INSTANT CASE IS QUALITATIVELY DISTINCT AND, THEREFO RE, THE RATIO OF THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PRI VATE LIMITED(SUPRA) IS NOT APPLICABLE. 3.8 ANOTHER ASPECT CANVASSED BY THE ASSESSEE WAS TH AT IN ASSESSMENT YEAR 2010-11, THE INCOME FROM LEASE HAS BEEN ASSESSED AS BUSINESS INCOME. UNDER NORMAL CIRCUMSTANCES, THE AFORESAID PLEA WOUL D HAVE BEEN POTENT IN SUPPORT OF THE PLEA THAT IN THE INSTANT YEAR ALSO S UCH INCOME BE TAXED AS BUSINESS INCOME. HOWEVER, A PERUSAL OF THE ASSESSM ENT ORDER DATED 9 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) 24/12/2012 PASSED UNDER SECTION 143(3) FOR ASSESSME NT YEAR 2010-11 DOES NOT REVEAL ANY DISCUSSION ON THIS ASPECT. ON THE C ONTRARY, THE DISCUSSION IN THE ASSESSMENT ORDER IN THE INSTANT YEAR IS QUITE D ETAILED AND IS, IN-FACT BASED ON A FACTUAL VERIFICATION OF THE NATURE OF THE LEAS E ARRANGEMENT CARRIED OUT BY THE ASSESSING OFFICER AND, THEREFORE, THE ISSUE HAS TO BE DECIDED IN THE LIGHT OF THE APPLICABLE FACTUAL AND LEGAL POSITION AND CA NNOT BE GOVERNED BY DEFAULT BASED ON THE ASSESSMENT ORDER FOR ASSESSMEN T YEAR 2010-11, WHICH IS CONSPICUOUS BY ITS SILENCE ON THE RELEVANT FACTS OR THE APPLICABLE LEGAL POSITION. THEREFORE, ON THIS ASPECT ALSO WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE TO TREAT THE RENTAL INCOME AS BUSI NESS INCOME. IN THE FINAL ANALYSIS, THEREFORE, HAVING REGARD TO THE NATURE OF ACTIVITY OF THE ASSESSEE AND THE NATURE OF OPERATIONS IN RELATION TO THE IMPUGNE D PROPERTY, THE RENTAL INCOME IS LIABLE TO BE ASSESSED AS INCOME FROM HOU SE PROPERTY AND NOT AS BUSINESS INCOME. THUS, ON THIS ASPECT, ASSESSEE FAILS. 4. IN THE LAST GROUND, ASSESSEE IS AGGRIEVED WITH T HE ACTION OF THE CIT(A) IN NOT DIRECTING THE ASSESSING OFFICER TO DETERMINE AN D ALLOW THE LONG TERM CAPITAL LOSS TO BE CARRIED FORWARD TO SUBSEQUENT YEARS. 4.1 IN THIS CONTEXT, LD. REPRESENTATIVE FOR THE ASS ESSEE POINTED OUT THAT ASSESSEE HAS SUFFERED LONG TERM CAPITAL LOSS ON SAL E OF PREFERENCE SHARES, WHICH WAS SOUGHT TO BE CARRIED FORWARD. IT HAS BEE N EXPLAINED THAT THERE WAS NO DETERMINATION BY THE ASSESSING OFFICER ON TH IS ASPECT AND WHEN THE ISSUE WAS TAKEN UP BEFORE THE CIT(A), HE HAS ALSO D ENIED THE SAME ON A MISCONCEPTION THAT THE LOSS WAS ON ACCOUNT OF SALE OF EQUITY SHARES. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AS SESSEE COMPANY WOULD BE SATISFIED IF THE MATTER IS RESTORED BACK TO THE FIL E OF ASSESSING OFFICER IN ORDER 10 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) TO APPRECIATE THE CORRECT POSITION AND DETERMINE TH E LONG TERM CAPITAL LOSS ON SALE OF PREFERENCE SHARES. 4.2 THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT OP POSED THE PLEA OF THE ASSESSEE TO SET-ASIDE THE ISSUE BACK TO THE FILE O F ASSESSING OFFICER. 4.3 IN THE ABOVE BACKGROUND, WE RESTORE THE ISSUE B ACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL REVISIT THE ISSUE ON TH E BASIS OF THE SUBMISSIONS OF THE ASSESSEE AND DECIDE AFRESH IN ACCORDANCE WITH L AW. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER, PASS AN ORDER, ON THE SAID LI MITED ASPECT, IN ACCORDANCE WITH LAW. 4.3 THUS, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS ABOVE. 5. NOW, WE MAY TAKE UP THE APPEAL OF THE REVENUE I N ITA NO.789/MUM/2015. THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL:- 1.'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.78,99,196/- MADE UNDER SECTION 14A READ WITH RULE 8D(2)(I) OF I.T.RULES-19 62 WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAD NEITHER PROVED THE NEXUS THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT NOR FU RNISHED THE UTILIZATION OF THE BORROWED FUNDS.' 2. 'WITHOUT PREJUDICE TO THE GROUND NO.1 OF ABOVE, IF THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D(2)(I) IS NOT ACCEPTED , AS WORKED OUT IN THE ASSESSMENT ORDER, THE DISALLOWANCE UNDER RULE 8D(2) (II) SHALL BE TAKEN AT RS.34,45,372/-.' 3 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DISALLO WANCE OUT OF ADMINISTRATIVE EXPENSES BE RESTRICTED TO RS.4,08,033/- AS AGAINST RS.25,45,561J- MADE UNDER SECTION 14A READ WITH RULE 8D(2)(III) WITHOUT APPRE CIATING THE FACT THAT DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES WAS MAD E BY THE AO AFTER CRITICAL 11 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) ANALYSIS OF THE EXPENSES CLAIMED IN RESPECT OF BUSI NESS OPERATION OF THE ASSESSEE ON WHICH NO FINDING IS GIVEN BY THE ID.CIT(A).' 4. 'WITHOUT PREJUDICE TO THE GROUND NOS.1 TO 3 OF ABOVE, IF RELIEF J PART RELIEF IS GIVEN IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D IS GIVEN TO THE ASSESSEE, THEN AS WORKED OUT IN THE ASSESSME NT ORDER, THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE I.T.ACT-1961 SHALL BE TAKEN AT RS.14,79,794/-. ' 5. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(A) WAS JUSTIFIED IN TREATING THE INTEREST EA RNED ON MONEY LENDING OPERATION OF 2,48,56,400/- UNDER THE HEAD 'PROFITS AND GAINS FRO M BUSINESS AND PROFESSION' INSTEAD OF 'INCOME FROM OTHER SOURCES' TREATED BY T HE AO WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT AN NBFC AND HENCE GI VING LOANS AND ADVANCES TO OTHER PARTIES CANNOT BE CONSIDERED AS BUSINESS ACTIVITY. 6. IN SO FAR AS GROUNDS OF APPEAL NO.1 TO 3 ARE CO NCERNED, THE SAME ARISE FROM THE ACTION OF THE ASSESSING OFFICER IN DISALLO WING THE INTEREST AND OTHER EXPENSES UNDER SECTION 14A OF THE ACT. 6.1 IN THIS CONTEXT, THE BRIEF FACTS ARE THAT THE D URING THE YEAR UNDER CONSIDERATION ASSESSEE WAS FOUND TO HAVE EARNED EX EMPT INCOME OF RS.35,000/- AND NOTICING THAT ASSESSEE HAD NOT DISA LLOWED ANY AMOUNT TOWARDS EXPENDITURE UNDER SECTION 14A OF THE ACT, T HE ASSESSING OFFICER SHOW-CAUSED THE ASSESSEE. THE CLAIM OF THE ASSESS EE WAS THAT NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER NOTED THAT THE ENTIRE INTEREST EXPENDITURE OF RS.78,99,196/- WAS RELATABLE TO THE BORROWED FUNDS UTILIZED FOR MAKING INVESTMENTS, THEREFORE, THE SAME WAS DISALLOWABLE UNDER SECTION. 14A OF THE ACT . ALTERNATIVELY, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OUT O F INTEREST EXPENDITURE IN TERMS OF RULE 8D(2)(II) OF THE RULES OF RS.34,45,37 2/-. THE DISALLOWANCE WITH RESPECT TO THE EXPENSES INCURRED FOR EARNING EXEMPT INCOME WAS MADE AT RS.25,45,561/- BY APPLYING RULE 8D(2)(III) OF THE R ULES. ACCORDINGLY, IN THE FINAL ASSESSMENT THE ASSESSING OFFICER RESTRICTED T HE DISALLOWANCE TO RS.91,38,871/- UNDER SECTION 14A OF THE ACT INSTEAD OF THE AMOUNT OF 12 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) RS.1,04,44,942/- COMPUTED IN TERMS OF RULE 8D OF TH E RULES BECAUSE THE TOTAL EXPENDITURE DEBITED IN P&L ACCOUNT WAS ONLY RS.91,3 8,871/-. 6.2 THE CIT(A) DID NOT AGREE WITH THE ASSESSING OFF ICER WITH REGARD TO THE DISALLOWANCE OUT OF INTEREST EXPENDITURE, AS ACCORD ING TO HIM, THE INTEREST EXPENDITURE ON BORROWED FUNDS COULD NOT BE ALLOCAT ED TOWARDS EQUITY SHARES AND, THEREFORE, HE DELETED THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER. WITH REGARD TO THE DISALLOWANCE OUT OF EXPENSES, THE CIT(A) OBSERVED THAT DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER UNDER RULES 8D(2)(III) OF THE RULES AT RS.24,45,561/- COU LD NOT EXCEED THE EXPENSES DEBITED IN THE P&L ACCOUNT AND ACCORDINGLY HE LIMIT ED THE DISALLOWANCE TORS.4,08,033/-. IN SUM-AND-SUBSTANCE, OUT OF THE TOTAL DISALLOWANCE OF RS.91,38,871/-, THE CIT(A) RESTRICTED THE DISALLOWA NCE TO THE EXTENT OF RS.4,08,033/- AND DELETED THE BALANCE DISALLOWANCE. THE AFORESAID ACTION OF THE CIT(A) HAS BEEN CHALLENGED BY THE REVENUE BY WA Y OF GROUND OF APPEAL NO.1 TO 3. 6.3 IN SO FAR AS THE FINDING OF THE CIT(A) THAT THE INTEREST ON BORROWED FUNDS WERE UTILIZED TOWARDS INVESTMENT IN EQUITY S HARES ARE CONCERNED, THE SAME HAS NOT BEEN NEGATED BEFORE US BY THE REVENUE. THEREFORE, THE SAME IS HEREBY AFFIRMED. EVEN OTHERWISE, WE FIND THAT EVEN WITH RESPECT TO THE QUANTUM OF DISALLOWANCE OUT OF OTHER EXPENSES IS CO NCERNED, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A), WHICH IS HERE BY AFFIRMED. THUS, IN SO FAR AS GROUNDS OF APPEAL NO.1 TO 3 OF THE GROUNDS OF AP PEAL, THE REVENUE HAS FAILED TO PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CL AIM, THEREFORE, THE SAME ARE DISMISSED. 13 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) 7. THE ISSUE RAISED BY THE REVENUE IN GROUNDS OF AP PEAL NO.4 IS WITH REGARD TO A DISALLOWANCE OF RS.14,79,794/- MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. THOUGH THE ASSESSING OFFICER HAD QUANTIFIED THE SAID DISALLOWA NCE BUT NO SEPARATE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT HA S BEEN MADE SINCE THE ENTIRE EXPENDITURE WAS OTHERWISE DISALLOWED UNDER S ECTION 14A OF THE ACT. THE CIT(A) HAS SET ASIDE THE AFORESAID ACTION OF TH E ASSESSING OFFICER BY MAKING THE FOLLOWING DISCUSSION:- 4.3.1 THE ISSUE IS CONSIDERED. THE WRITTEN SUBMISSI ON ON THE ISSUE FINDS PLACE IN PARA 3 OF THIS ORDER. IN MY CONSIDERED VIEW IT HAS TO BE ACCEPTED THAT THE ASSESSEE HAD DEEP INTEREST IN ITS SUBSIDIARIES AND THEREFORE , IT HAD ADVANCED BORROWED FUNDS TO THOSE SUBSIDIARIES EVEN AT LESSER INTEREST RATE, IT CANNOT BE SAID THAT WAS NOT DONE FOR BUSINESS PURPOSES AS ADMITTEDLY BOTH THE S UBSIDIARIES ARE ENGAGED IN CONSTRUCTION ACTIVITY WHICH HAS A LONG GESTATION PE RIOD AND REQUIRE HUGE CAPITAL. IT IS ALSO NOTED THAT BY THE YEAR END, THE ASSESSEE CO MPANY HAD REPAID ITS ENTIRE BORROWED FUND; AND ADVANCES GIVEN TO ITS SUBSIDIAR IES WERE BY WAY OF RUNNING ACCOUNTS, DEPENDING UPON THE REQUIREMENT AND AS SUC H THE INTER-TRANSFER OF THE FUND FROM ONE SUBSIDIARY [BIDCO] TO THE OTHER [BIRP L] DUE TO BUSINESS EXPEDIENCY COULD NOT BE TAKEN A GROUND FOR DISALLOWANCE OF INT EREST U/S 36(1)(III). IT IS ALSO NOTEWORTHY THAT OVER-ALL INTEREST INCOME FROM LOANS & ADVANCES SO MADE TO ITS SUBSIDIARIES AND OTHER CORPORATE BODIES AMOUNTED TO RS 2,48,56,400/- WHEREAS THE INTEREST EXPENSE HAS BEEN RELATIVELY LESSER [RS 78, 99,196/-] AND THEREFORE FROM THAT POINT OF VIEW [I.E. CONCEPT OF NETTING OF INTEREST] ALSO DISALLOWANCE U/S 36(1)(III) WAS NOT CALLED FOR. ACCORDINGLY, THE DISALLOWANCE, IF A NY, U/S 36(1)(III) ALSO CANNOT BE UPHELD. 7.1 IN THIS CONTEXT, THE RELEVANT FACTS ARE AS FOLL OWS. IN PARA 5 OF HIS ORDER, THE ASSESSING OFFICER HAS NOTED THAT ASSESSE E HAD RAISED UNSECURED LOAN ON WHICH INTEREST WAS PAID @10% PER ANNUM, WHE REAS ASSESSEE HAD ADVANCED MONIES TO BAJAJ INTERNATIONAL REALTY PVT. LTD. AND BAJAJ INFRASTRUCTURE DEVELOPMENT CO. LTD., WHICH WERE ITS SUBSIDIARY AND STEP- DOWN SUBSIDIARY RESPECTIVELY AT A LOWER INTEREST RA TE OF 7.50%. ON BEING ASKED TO JUSTIFY, THE ASSESSEE CONTENDED THAT THE A DVANCING OF MONIES TO ITS 14 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) SUBSIDIARIES WAS ON GROUNDS OF COMMERCIAL EXPEDIENC Y AND THAT THE FUNDS WERE ADVANCED FOR UTILIZATION BY THE SUBSIDIARIES I N THEIR BUSINESS OF CONSTRUCTION ACTIVITY. THE ASSESSEE COMPANY RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A BUILDERS V S. CIT, 288 ITR 1(SC) TO JUSTIFY THE ADVANCING OF LOAN TO THE SUBSIDIARIES A ND SUBMITTED THAT NO PART OF INTEREST BE DISALLOWED. THE ASSESSING OFFICER NOTE D THAT THERE WAS NO MATERIAL FURNISHED BY THE ASSESSEE TO SHOW THAT AS TO WHETHER THE AMOUNTS ADVANCED BY THE ASSESSEE WERE ACTUALLY UTILIZED BY THE SUBSIDIARIES IN THEIR BUSINESSES. THE ASSESSING OFFICER ALSO HELD THAT A SSESSEE WAS NOT ABLE TO PROVE ANY COMMERCIAL EXPEDIENCY FOR ADVANCING FUNDS TO THE SUBSIDIARIES AT A RATE LOWER THAN THE RATE OF INTEREST PAID ON BORROW INGS. THEREFORE, HE DISALLOWED THE INTEREST EXPENDITURE OF RS.14,79,794 /- UNDER SECTION 36(1)(III) OF THE ACT, BEING THE DIFFERENTIAL OF INTEREST PAID ON BORROWINGS IN EXCESS OF THE RATE CHARGED FROM THE SUBSIDIARIES. THE CIT(A) HAS SINCE SET-ASIDE THE ACTION OF THE ASSESSING OFFICER. 7.2 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS VEHEMENTLY POINTED OUT THAT CIT(A) HAS SET-ASIDE THE ACTION OF THE ASSESSING OFFICER WITHOUT COUNTERING ANY OF THE OBJECTIONS RAISED BY THE ASSESSING OFFICER. 7.3 ON THE OTHER HAND, THE LD. REPRESENTATIVE FOR T HE ASSESSEE HAS PLACED RELIANCE ON THE DISCUSSION MADE BY THE CIT(A) IN AS SAILING THE GROUNDS RAISED BY THE REVENUE. 7.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THE CONTEXT OF THE PRESENT CONTROVERSY, THE CASE OF THE ASSESSEE B EFORE THE CIT(A) WAS BASED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS (SUPRA). THE POINT CANVASSED BY THE A SSESSEE WAS THAT THE 15 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) MONIES ADVANCED TO THE SUBSIDIARIES WERE BASED COMM ERCIAL EXPEDIENCY, INASMUCH AS, ASSESSEE HAD DEEP INTEREST IN THE SUBS IDIARIES AS AMOUNTS WERE UTILIZED BY THE SUBSIDIARIES IN THEIR ACTIVITY OF T HE CONSTRUCTION BUSINESS. IN PRINCIPLE, NO FAULT CAN BE FOUND IN THE PLEA SET-UP BY THE ASSESSEE, SO HOWEVER, IT WAS ESSENTIAL FOR THE CIT(A) TO TAKE IN TO CONSIDERATION THE SPECIFIED OBSERVATION OF THE ASSESSING OFFICER TO T HE EFFECT THAT THE ASSESSEE HAD FAILED TO PROVE THE UTILIZATION OF SUCH FUNDS B Y THE SUBSIDIARIES. EVEN AT THE TIME OF HEARING BEFORE US, WHEN THIS WAS PUT AC ROSS TO THE PARTIES, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WOULD BE IN A POSITION TO DEMONSTRATE THE UTILIZATION OF SUCH FUN DS BY THE SUBSIDIARIES FOR THEIR BUSINESS PURPOSES AND FOR THAT PURPOSE THE MA TTER MAY BE SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER. THEREFORE, UNDE R THESE CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS THAT THE SAID ASP ECT, BEING A FACTUAL ASPECT, IS APPROPRIATELY PUT TO VERIFICATION BY THE ASSESSI NG OFFICER. THE ASSESSEE SHALL SUBMIT APPROPRIATE EVIDENCE IN SUPPORT OF ITS PLEA THAT THE FUNDS HAVE BEEN UTILIZED BY THE SUBSIDIARIES FOR THE PURPOSES OF THEIR BUSINESS AND THE ASSESSING OFFICER SHALL CONSIDER THE SAME AND, THER EAFTER PASS AN APPROPRIATE FRESH ORDER ON THIS ASPECT AS PER LAW. THUS, FOR S TATISTICAL PURPOSES, THE GROUNDS OF APPEAL NO.4 RAISED BY THE REVENUE IS CON SIDERED AS ALLOWED. 8. IN SO FAR AS GROUNDS APPEAL NO.5 IS CONCERNED, T HE SAME RELATES TO THE TAXING OF INTEREST EARNED ON MONEY LENDING OPERATIO NS OF RS.2,48,56,400/-. THE ASSESSING OFFICER TAXED THE INTEREST EARNED ON LOANS AND ADVANCES AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS I NCOME. THE CIT(A) NOTED THAT IT WAS A RECURRING ISSUE AND FOLLOWING THE ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 AND ALSO HIS OWN DECISION IN ASSESSMENT YEAR 2010-11, DIRECTED THE ASSESSING OFFICER TO TAX THE INTEREST 16 ITA NO.1257& 789/MUM/2015 (AY. 2011-12) INCOME OF RS.2,48,56,400/- EARNED ON LOANS AND ADVA NCES UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION.. 8.1 AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ORDER OF THE CIT(A) FOR ASSESSMENT YEA R 2010-11 HAS ALSO BEEN AFFIRMED BY THE TRIBUNAL IN ITA NO.2326/MUM/2014 VI DE ORDER DATED 29/09/2015, THEREFORE, THE ORDER OF THE CIT(A) DESE RVES TO BE AFFIRMED. 8.2 THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT DIS PUTED THE AFORESAID FACTUAL MATRIX. CONSIDERING THE PRECEDENTS IN ASSE SSEES OWN CASE, WE FIND THAT SIMILAR INCOME BY WAY OF INTEREST ON MONEY LEN DING OPERATIONS HAS TO BE ASSESSED AS BUSINESS INCOME. THEREFORE, THE ORDE R OF THE CIT(A) ON THIS ASPECT IS AFFIRMED AND ACCORDINGLY REVENUE FAILS ON THIS ISSUE. 8.3 RESULTANTLY, APPEAL OF THE REVENUE IS PARTLY AL LOWED, AS ABOVE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL AS REVENUE ARE PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 26/04/ 2017 SD/- SD/- (RAM LAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 26/04/2017 VM , SR. PS