ACIT CIR 22(1), MUMBAI V. NEEL CONTROLS, MUMBAI

ITA 824/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2359 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KR SINGH
• Assessee Lawyers: B V LAKHANI
• Keywords: Tax effect
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.824/MUM/2013 (ASSESSMENT YEAR 2009-10) THE DCIT,CIRCLE 22(1), ROOM NO.411, 4 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ...... APPEL LANT VS. M/S.NEEL CONTROLS, 403 4 TH FLOOR, SAPPHIRE ARCADE, 42M G ROAD, RAJAWADI, GHATKOPAR (E), MUMBAI 400 077. PAN: AAAFN0627J .... RESPONDEN T ITA NO.695/MUM/2013 (ASSESSMENT YEAR 2009-10) M/S.NEEL CONTROLS, 403 4 TH FLOOR, SAPPHIRE ARCADE, 42M G ROAD, RAJAWADI, GHATKOPAR (E), MUMBAI 400 077. PAN: AAAFN0627J .... APPELLANT VS. THE JCIT, RANGE 22(1), ROOM NO.410, TOWER NO.6, VASHI RLY. ST. COMPLEX, NAVI MUMBAI 400 703 REVENUE BY : SHRI PRADEEP KR. SINGH ASSESSEE BY : SHRI B.V.LAKHANI DATE OF HEARING : 17/10/2016 DATE OF PRONOUNCEMENT : 19/10/2016 2 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) ORDER PER G.S.PANNU,A.M: THE CAPTIONED CROSS-APPEALS FILED BY THE REVEN UE AND ASSESSEE PERTAINING TO A.Y. 2009-10 ARE DIRECTED AGAINST TH E ORDER OF CIT(A)-33, MUMBAI WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT) DATED 23/11/2011. 2. FIRST, WE TAKE UP THE APPEAL OF THE REVENUE IN I TA NO. 824/MUM/2013. AT THE OUTSET, IT IS NOTICED THAT THE TAX EFFECT IN VOLVED IN THIS APPEAL IS LESS THAN RS.10.00 LACS. THE CBDT VIDE CIRCULAR NO.21/ 2015 DATED 10/12/2015 HAS REVISED THE MONETARY LIMITS FOR FILING OF APPEALS B Y THE DEPARTMENT BEFORE THE TRIBUNAL RETROSPECTIVELY. SINCE THE TAX EFFECT IN DISPUTE IN THE CAPTIONED APPEAL IS STATED TO BE BELOW THE MONETARY LIMIT OF RS.10.0 0 LACS SPECIFIED IN THE CBDT CIRCULAR DATED 10/12/2015 (SUPRA), THE SAME IS DISM ISSED AS NOT MAINTAINABLE. 3. NOW WE MAY TAKE UP THE ASSESSEES APPEAL IN ITA NO.695/MUM/2013, WHEREIN THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN R AISED BY THE ASSESSEE:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DI SALLOWANCE THE SUM OF RS.2,40,246/ UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY LEARNED COMMR. OF INCOME TAX (APPEALS) AMOUNTING TO RS.2,40,246/ IS NOT JUSTIFIED AND BE DELETED. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN GRANTING THE DEDU CTION OF INTEREST ONLY TO THE EXTENT OF RS.852,619/. THE APPELLANT PRAYS THAT THEY ARE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) AMOU NTING TO RS.22,77,904/ AND THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND 3 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) CONFIRMED BY LEARNED COMMR. OF INCOME TAX (APPEALS) AMOUNTING TO RS.8,52,619/ MAY BE DELETED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT DEALT WITH THE ISSUE REGARDING LEVY OF INTEREST UNDER SECTION 234B. THE APPELLANT DENIES THE LIABILITY FOR PAYMENT OF INTEREST U/S 23 4B AND PRAYS THAT THE INTEREST LEVY AT RS.2,37,374/ MAY BE DELETED. 4. THE ASSESSEE COMPANY HAD EARNED DIVIDEND INCOME OF RS.6,05,843/-, WHICH WAS EXEMPT FROM TAX. IN THE RETURN OF INCOME FILED, ASSESSEE HAD SUO- MOTO MADE A DISALLOWANCE UNDER SECTION 14A OF THE A CT OF RS.22,974/-. THE ASSESSING OFFICER NOTED THAT THE DISALLOWANCE MADE BY THE ASSESSEE PERTAINED TO THE ELEMENT OF EXPENSES COVERED BY SUB-CLAUSE (I II) OF CLAUSE(2) OF RULE 8D OF THE INCOME TAX RULES, 1962 ( IN SHORT THE RULE S) AND ASSESSEE HAD NOT DISALLOWED ANY PORTION OF INTEREST EXPENDITURE WHIC H WAS RELATABLE TO THE INVESTMENTS. ACCORDINGLY, THE ASSESSING OFFICER DI SALLOWED A SUM OF RS.2,40,246/- ON ACCOUNT OF INTEREST EXPENDITURE CA LCULATED IN THE MANNER PRESCRIBED IN RULE 8D(2)(II) OF THE RULES. THIS A DDITION HAS BEEN FURTHER AFFIRMED BY THE CIT(A), AGAINST WHICH ASSESSEE IS I N FURTHER APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE VEHEMENTLY POINTED OUT THAT THERE WAS NO JUSTIFICATION TO DISALLOW THE INTEREST EXPENDITURE IN THE INSTANT YEAR. IT IS POINTED OUT THAT NO INVESTMENT S HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION. BY REFERRING TO THE BALA NCE SHEET, IT IS POINTED OUT THAT AS ON 01/04/2008, THE AGGREGATE INVESTMENT WAS RS.1,11,87,777/- COMPRISING OF MUTUAL FUNDS - RS.1,11,85,776/- AND S HARES IN TWO CO-OPERATIVE HOUSING SOCIETIES OF RS.2,001/-. IT WAS POINTED OUT THAT IN THE INSTANT YEAR INVESTMENT IN MUTUAL FUNDS HAVE BEEN SOLD AND NO FR ESH INVESTMENTS HAVE BEEN MADE AND THE CLOSING BALANCE OF THE INVESTMENT S SHOWN IN THE BALANCE 4 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) SHEET AS ON 31/03/2009 IS RS.2,001/-, WHICH IS THE INVESTMENT IN THE TWO CO- OPERATIVE HOUSING SOCIETIES LTD. ON THIS BASIS, IT WAS POINTED OUT THAT AS NO FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS DUR ING THE YEAR, THE INTEREST DEBITED TO P&L ACCOUNT CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION14A OF THE ACT. IT HAS BEEN FURTHER P OINTED OUT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2008-09, T HE DISALLOWANCE OF INTEREST EXPENDITURE RELATABLE TO THE INVESTMENTS W AS DELETED BY THE CIT(A) ON THE GROUND THAT THE SAME WAS MADE OUT OF OWN FUNDS OF THE ASSESSEE. IT WAS POINTED OUT THAT THE ORDER OF THE CIT(A) DATED 01/1 1/2012 FOR ASSESSMENT YEAR 2008-09 HAS SINCE BECOME FINAL AND, THEREFORE, UNDE R THESE CIRCUMSTANCES THE DISALLOWANCE OF INTEREST EXPENDITURE WAS NOT MERITE D IN THE INSTANT YEAR. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS DEFENDED THE ORDERS OF THE LOWER AUTHORITIES BY RELYING ON THE SAME. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE FACTUAL MATRIX BROUGHT OUT BY THE ASSESSEE CLEARLY REVEAL THAT IN THE INSTANT YEAR ASSESSEE HAS NOT MADE ANY FRESH INVESTMENT IN MUTUAL FUNDS AND F URTHER IN THE PAST YEAR ALSO NO INTEREST HAS BEEN FOUND TO BE ATTRIBUTABLE TO SUCH INVESTMENTS. RATHER, IN THE YEAR UNDER CONSIDERATION, ASSESSEE H AS SOLD INVESTMENTS IN MUTUAL FUNDS. THE ONLY INVESTMENT REMAINING IN THI S YEAR OUT OF THE PAST INVESTMENTS IS A SUM OF RS.2,001/- IN THE SHARES OF TWO CO-OPERATIVE HOUSING SOCIETIES LTD. UNDER THESE CIRCUMSTANCES, IT WILL BE APPROPRIATE TO HOLD THAT THE INTEREST DEBITED IN THE P&L ACCOUNT IS NOT DIRE CTLY ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE SO AS TO FALL FOR CONSIDER ATION FOR DISALLOWANCE AS PER THE FORMULA CONTAINED IN RULE 8D(2)(II) OF THE RU LES. ACCORDINGLY, THE DISALLOWANCE OF RS. 2,40,246/- MADE BY THE ASSESSIN G OFFICER OUT OF INTEREST 5 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) EXPENDITURE UNDER SECTION 14A OF THE ACT IS DIRECTE D TO BE DELETED. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 8. THE SECOND GROUND RAISED BY THE ASSESSEE IS WIT H RESPECT TO A DISALLOWANCE OF RS.22,07,904/- MADE BY THE ASSESSI NG OFFICER OUT OF INTEREST EXPENDITURE BY INVOKING THE PROVISIONS OF THE PROVI SO TO SECTION 36(1)(III) OF THE ACT. IN THIS CONTEXT, BRIEF FACTS ARE THAT THE ASS ESSEE WAS UNDERTAKING CONSTRUCTION OF BUILDING. THE TOTAL COST OF THE BU ILDING UNDER CONSTRUCTION AT THE END OF THE YEAR STOOD RS.2,49,40,337/-. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD MADE ADDITIONS TO THE E XTENT OF RS.1,63,52,088/- AND THE BALANCE OF RS.85,88,248/- WAS THE OPENING B ALANCE BROUGHT FORWARD FROM EARLIER YEARS. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD DEBITED EXPENDITURE ON ACCOUNT OF INTEREST IN THE P&L ACCOU NT AMOUNTING TO RS.46,68,746/- TOWARDS INTEREST PAID TO PARTNERS ON THEIR CREDIT BALANCE IN THE CAPITAL ACCOUNT. ACCORDING TO THE ASSESSING OFFICE R A PORTION OF INTEREST PAID TO PARTNERS RELATING TO THE OUTLAY OF RS.2,49,40,337 /- TOWARDS THE BUILDING UNDER CONSTRUCTION WAS NOT ELIGIBLE FOR DEDUCTION. FOR THE SAID REASON THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.22,77,904 /- ON THE GROUND THAT SUCH INTEREST EXPENDITURE WAS IN RESPECT OF CAPITAL BORR OWED FOR ACQUISITION OF AN ASSET WHICH WAS NOT PUT TO USE. IN THIS REGARD, TH E ASSESSING OFFICER HAS ALSO REFERRED TO PROVISO TO SECTION 36(1)(III) OF THE ACT. THE CIT(A) HAS ALSO AFFIRMED THE DISALLOWANCE, AGAINST WHICH ASSESSEE I S IN FURTHER APPEAL BEFORE THE TRIBUNAL. 8.1 THOUGH THE LD. REPRESENTATIVE FOR THE ASSESSEE DID NOT DISPUTE THAT THE ASSET IN QUESTION I.E. BUILDING IS STILL UNDER CONS TRUCTION AND IS NOT PUT TO USE FOR BUSINESS, YET ACCORDING TO HIM NO DISALLOWANCE IS REQUIRED TO BE MADE OUT 6 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) OF INTEREST EXPENDITURE IN TERMS OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT BECAUSE ON FACTS THERE IS NO INTEREST EXPENDITURE, WHICH IS RELATABLE TO FUNDS INVESTED TOWARDS THE BUILDING UNDER CONSTRUCTION. 8.2 IN ORDER TO APPRECIATE THE AFORESAID PLEA OF TH E ASSESSEE, THE FOLLOWING FACTUAL ASPECTS ARE RELEVANT. NOTABLY, THE OPENING BALANCE IN THE BUILDING CONSTRUCTION WAS RS.85,88,248/- AND ADDITIONS DURIN G THE YEAR ARE TO THE TUNE OF RS.1,63,52,088/-, WHICH TOTALS TO RS.2,49,40,337 /-. IN THIS CONTEXT, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AS SESSEE HAS NOT RAISED ANY BORROWINGS EXCEPT TO THE EXTENT OF A SPECIFIC LOAN OF RS.1,91,246/- RAISED FOR ACQUISITION OF CAR, AND IN THIS REGARD HE HAS REFE RRED TO PAGE -5 OF THE PAPER BOOK, WHEREIN IS PLACED BALANCE SHEET AS ON 31/3/20 09. THEREFORE, THE FIRST AND THE FOREMOST PLEA OF THE ASSESSEE IS THAT IN TH E ABSENCE OF ANY BORROWINGS, NO INTEREST CAN BE ATTRIBUTABLE TO THE INVESTMENT MADE IN THE CONSTRUCTION OF THE BUILDING. THE LD. REPRESENTATI VE FOR THE ASSESSEE HAS REFERRED TO PAGE-22 OF THE PAPER BOOK, WHEREIN IS P LACED THE DETAILS OF THE INTEREST DEBITED TO THE P&L ACCOUNT OF RS.46,68,746 /-, WHICH REPRESENTS INTEREST PAID TO PARTNERS ON THE CREDIT BALANCE IN THE CAPITAL ACCOUNTS. APART THEREFROM, THE DETAILS OF BANK & FINANCIAL CHARGES OF RS.3,64,469/-, PLACED ON PAGE 15 OF THE PAPER BOOK, SHOWS THAT IT COMPRISES OF BANK CHARGES, BANK GUARANTEE COMMISSION, INTEREST ON CAR LOAN, PROCE SSING FEE, AND INTEREST ON BANK OVERDRAFT, WHICH IS A SMALL FIGURE OF RS.4,142 /-. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ASSESSEE DOES NOT HAVE ANY OVERDRAFT FACILITY WITH THE BANK AND THAT THE INTEREST ON BANK OVERDRA FT OF RS.4,142/- IS ON ACCOUNT OF CERTAIN TEMPORARY OVERDRAWING THAT WOU LD HAVE OCCURRED PENDING CHEQUE REALIZATION. IT WAS EXPLAINED THAT OUT OF T HE ADDITION OF RS.1,63,52,088/- MADE IN THE BUILDING CONSTRUCTION ACCOUNT DURING THE YEAR, 7 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) ACTUAL DEPLOYMENT/PHYSICAL OUTFLOW OF FUNDS WAS ONL Y TO THE TUNE OF RS.1,55,58,782/- AND AT PAGE 19 OF THE PAPER BOOK, A CHART SHOWING THE SOURCE OF SUCH PAYMENTS HAS BEEN PLACED. AS PER THE SAME, IT IS SEEN THAT THE PAYMENTS HAVE BEEN MADE OUT OF CURRENT BANK ACCOUNT S MAINTAINED BY THE ASSESSEE, WHICH DO NOT CARRY ANY INTEREST BURDEN. BE THAT AS IT MAY, IT IS QUITE CLEAR THAT IT IS ONLY INTEREST PAID TO THE PARTNER S OF RS.46,68,746/-, WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AS RELATAB LE TO THE FUNDS INVESTED IN THE BUILDING CONSTRUCTION. IN THIS CONTEXT, LD. RE PRESENTATIVE FOR THE ASSESSEE HAS PLACED A CHART ANALYSING THE DETAILS OF THE CAP ITAL ACCOUNT OF PARTNERS, WHICH IS PLACED AT PAGES 23 OF THE PAPER BOOK. AS PER THE P&L ACCOUNT AS WELL AS THE BALANCE SHEET OF THE ASSESSEE, IT IS QUITE E VIDENT THAT THE CREDIT BALANCE OF THE PARTNERS AT THE END OF THE YEAR STOOD AT RS .4,88,11,203/- AND CASH FLOW FOR THE YEAR STOOD AT RS.3,05,43,543/-. IT IS QUITE CLEAR THAT THE CASH PROFITS GENERATED BY THE ASSESSEE DURING THE YEAR ARE SUFFI CIENT TO COVER THE INVESTMENTS MADE IN THE CONSTRUCTION OF BUILDING DU RING THE YEAR OF RS.1,63,52,088/-(MORE SO, IF ACTUAL VALUE OF OUT-FL OW AT RS.1,55,58,782/- IS CONSIDERED). APART THEREFROM, WE FIND THAT OUT OF THE TOTAL INVESTMENT OF RS.2,49,40,337/- IS CONCERNED, A SUM OF RS.85,80,24 8/- HAS BEEN MADE IN THE PRECEDING YEAR. IN THE PRECEDING YEAR, THE LD. REP RESENTATIVE FOR THE ASSESSEE, POINTED OUT THAT NO SUCH DISALLOWANCE WAS MADE AND REFERRED TO THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) FOR TH E ASSESSMENT YEAR 2008- 09 DATED 16/12/2010, A COPY OF WHICH HAS BEEN PLACE D AT PAGES 36 TO 39 OF THE PAPER BOOK. 8.3 THE AFORESAID FACTUAL MATRIX IS CLEARLY BORNE OUT OF THE RECORD AND AT THE TIME OF HEARING, THE SAME HAS NOT BEEN REPUDIAT ED BY THE LD. DEPARTMENTAL REPRESENTATIVE. CONSIDERING THE ABOVE MATRIX, IN OUR VIEW, 8 ITA NO.824& 695/MUM/2013 (ASSESSMENT YEAR 2009-10) THERE IS NO MATERIAL TO SUGGEST THAT ANY INTEREST C AN BE ATTRIBUTABLE TO THE FUNDS INVESTED BY THE ASSESSEE IN THE BUILDING UNDE R CONSTRUCTION AND, THEREFORE, THE ASSESSING OFFICER HAS WRONGLY INVOKE D THE PROVISO TO SECTION 36(1)(III) OF THE ACT TO DISALLOW A SUM OF RS. 22, 77,904/- OUT OF INTEREST EXPENDITURE. ACCORDINGLY, ON THIS ASPECT ASSESSEE SUCCEEDS. 9. THE LAST GROUND IN THE APPEAL OF THE ASSESSEE RE LATES TO CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT , WHICH IS C ONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 10. IN THE RESULT, WHEREAS APPEAL OF THE REVENUE I S DISMISSED, THAT OF ASSESSEE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19/10/2016 SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 19/10/2016 VM , SR. PS COPY OF THE ORDER 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