DIVINE HOLDINGS P.LTD, V. DCIT CEN CIR 31,

MA 23/MUM/2015

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3506 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA , AM . / MA NO. 23/MUM/2015 (ARISING OUT OF ITA NO. 8199/MUM/2010 ) ( / ASSESSMENT YEARS: 2007 - 08 ) DIVINE HOLDINGS PVT. LTD. 32, MADHULI, 3 RD FLOOR, DR. ANNIE BESANT ROAD, NEHRU CENTRE, WORLI, MUMBAI - 400 018 / VS. DY. CIT, CENTRAL CIRCLE 31, RO OM NO. 409, 4 TH FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI 400 020 ./ ./ PAN/GIR NO. AAACD 4959 J ( APPLICANT ) : ( RESPONDENT ) APPLICANT BY : SHRI DHARMESH SHAH RESPONDENT BY : DR. P. DANIEL / DATE OF HEA RING : 0 7 .0 8 .2015 / DATE OF PRONOUNCEMENT : 28 .0 8 .2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS A MISCELLANEOUS PETITION BY THE ASSESSEE AGAINST THE ORDER U/S. 254( 1 ) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE TRIBUNAL DATED 10.03.2014 IN ITS CASE FOR ASSESSMENT YEAR (A.Y.) 2007 - 08 , DECIDING THE CAPTIONED APPEAL . 2. VIDE ITS INSTANT APPLICATION, THE ASSESSE E - APPL ICANT IMPUGNS THE APPELLATE ORDER U/S. 254(1) SUPRA FOR THE VARIOUS OBSERVATIONS MADE THEREIN BY TH E TRIBUNAL WHILE DECIDING THE ASSESSEES G ROUND OF THE A PPEAL N O. 4 , AS UNDER, I.E., VIDE PARA 3.3 OF ITS ORDER: 2 M A NO. 23/MUM/2015 (A.Y. 2007 - 08) DIVINE HOLDINGS PVT. LTD. VS. DY. CIT 4. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN LAW AND IN FACTS IN NOT GRANTING RELIEF OF LIABILITY AMOUNTING TO RS.8,09,700 / - , TOWARDS INTEREST EXPENDITURE CLAIMED BY THE APPELLANT. THE GROUND RAISES THE ISSUE OF THE DEDUCTIBILITY OF INTEREST U/S. 57(III). THE BACKGROUND FACTS OF THE CASE STAND LISTED AT PARA 2 OF THE IMPUGNED ORDER, WHICH ALSO DELINEATES THE RESPECTIVE CASE S OF BOTH THE SIDES. THE LD. CIT(A) DISALLOWED INTEREST ON THE GROUND THAT THE MATTER BEING SUBJUDICE, THE LIABILITY QUA THE SAME CANNOT BE SAID TO BE AN ASCERTAINED LIABILITY. THE DEDUCTIBILITY OF INTEREST WAS , ACCORDINGLY , LINKED BY HIM TO THE DECISION O F THE SPECIAL COURT HEARING THE MATTER, I.E., TO THE OUTCOME OF THE DECISION IN THE CASE BEFORE IT (IN MP NO. 41 OF 1999) . THE TRIBUNALS DISCUSSION IN THE MATTER IS AT PARA 3.1 TO PARA 3.3 OF ITS ORDER; IT DECIDING THE SAME THUS (PARA 3.3, PAGE 5) : 3.3 IN THE FACTS OF THE INSTANT CASE, A PART OF THE MONEY.. IN THIS VIEW OF THE MATTER, THE LD. CIT(A) IN OUR OPINION HAS CORRECTLY APPRECIATED THE FACTS AND THE LAW TO HOLD THAT THE MATTER OF GRANT OF INTEREST BEING SUB - JUDICE BEFORE THE SPECIAL COURT, THE SAME MAY BE ALLOWED WHERE SO GRANTED FOR THE RELEVANT YEAR. WE CONFIRM HIS DIRECTION, SUBJECT TO A MODIFICATION THAT THE INTEREST TO BE ALLOWED, IN - AS - MUCH AS THE SAME IS TO BE BY WAY OF DEDUCTION AGAINST INTEREST INCOME, ASSESSABLE AS INCOME FROM OTHER SO URCES, CANNOT EXCEED THE RATE AT WHICH THE INTEREST ON DEPOSIT/S STANDS EARNED BY THE ASSESSEE, ON AN AVERAGE, FOR THE RELEVANT PERIOD. WE STATE SO AS ONLY THE EXPENSE INCURRED FOR THE PURPOSE OF EARNING THE INTEREST INCOME IS TO BE ALLOWED U/S. 57 OF THE ACT. PAYMENT OF INTEREST AT A HIGHER RATE IMPLIES A GROSS LOSS, WITH NO CONTRACTUAL OBLIGATION TO PAY INTEREST HAVING BEEN ESTABLISHED, SO THAT THE PAYMENT OF INTEREST AT A HIGHER RATE CANNOT EITHER CONCEIVABLY, I.E., UNDER THE CIRCUMSTANCES, OR IN TERMS, BE SAID TO BE FOR THE PURPOSE OF EARNING INTEREST. WE DECIDE ACCORDINGLY. THE ASSESSEE HAS NOW MOVED THE TRIBUNAL U/S. 254(2) , STATING THAT IT HAS THEREBY RAISED ISSUES WHICH WERE NOT BEFORE IT , OR INCORRECTLY STAT ED THE FACTS. 3.1 WE ARE , TO BEGIN WI TH , AT A LOSS TO UNDERSTAND AS TO HOW THE ASSESSEE IS PREJUDICE D ; THE TRIBUNAL ONLY CONFIRMING THE ORDER/DIRECTION BY THE LD. CIT(A), FURTHER MOD IFYING IT TO HOLD THA T THE INTEREST COULD NOT BE ALLOWED AT A RATE IN EXCESS OF THE 3 M A NO. 23/MUM/2015 (A.Y. 2007 - 08) DIVINE HOLDINGS PVT. LTD. VS. DY. CIT INTEREST (RATE) FETCHED ON THE TERM DEPOSIT WHEREIN THE BORROWED FUNDS STAND INVESTED. IN OTHER WORDS, THE IMPUGNED OBSERVATIONS BY THE TRIBUNAL DO NOT , IN ANY MANNER , DIST URB OR PERC O L ATES ITS FINDING OR DECISION , WHICH IS IN CONFORMITY WITH THE REVENUES STAND OF THE LIABILITY BEI NG UNASCERTAINED, SO THAT NO RIGHT HAS ARISEN IN FAVOUR OF THE CREDITOR. THIS IS ALSO PRECISELY THE REVENUES CASE AS PROJECTED DURING HEARING AS WELL, WITH THE TRIBUNAL DESCRIBING THE LIABILITY AS INCHOATE (REFER PARA 2). WHAT ALL THE TRIBUNAL HAS DONE IS TO CONFIRM THE DEDUCTIBILITY OF INTEREST SUBJECT TO THE VALIDATION BY THE SPECIAL COURT BEFORE WHOM IT WAS SUBJUDICE. THE ASSESSEE HAS NOW INFORMED THE TRIBUNAL , VIDE PARA 7 OF ITS A PPLICATION, TH AT THE ISSUE OF INTEREST H AS NOT BEEN DECIDED BY THE SPECIA L COURT IN - AS - MUCH AS IT HAS BECOME REDUNDANT. THE TRIBUNAL CLEARLY STATES, AT PARA 3.3 OF ITS ORDER, THAT THE ONLY PAGES OF THE (139 PAGE) ORDER DATED 30.04.2010 BY THE SPECIAL COURT PLACED ON RECORD ARE 6 IN NUMBER ( AT PGS. 30 35 OF THE PAPER - BOOK) , WH ICH DO NOT BEAR ANY MENTION OF OR ANY STIPULATION AS TO INTEREST , MUCH LESS INTEREST BEING PAID OR ALLOWED TO THE NOTIFIED PARTY. CLEARLY, IN ITS VIEW, THE PAGES RELATING TO THE CLAIM OF INTEREST HAVE NOT BEEN ADDUCED BEFORE IT BY THE ASSESSEE . I F , AS BEIN G STATED (AT PARA 7 OF THE APPLICATION) , THAT THE SAME WAS ONLY AN ALTERNATE CLAIM, AND THAT BOTH THE ASSESSEE BORROWER AND THE CUSTODIAN (REPRESENT ING THE LENDERS), HAV E BEEN REGARDED AS A GROUP, SO THAT THE ASSESSEES ASSETS STAND TO BE REALIZED AGAINST LIQUIDATION OF THE LIABILITIES OF THE ENTIRE GROUP, THERE IS CLEARLY NO QUESTION OF THE CLAIM OF ANY INTEREST AND, CONSEQUENTLY, OF ITS ALLOWANCE. THE ASSESSEE STATES OF THE LD. CIT(A) OBSERVING AN INTENTION TO PAY INTEREST (AT PARA 7.5 OF H IS ORD ER) . THE IMPUGNED ORDER STATING OF THERE BEING NOTHING ON RECORD TO EXHIBIT THE SAME, OR OF INTEREST HAVING ACCRUED, IS ASSAILED ON THAT BASIS. HOW, WE WONDER ? THE ASSESSEE DOES NOT SPECIFY THE MATERIAL OR THE BASIS FOR THE SAID OBSERVATION BY THE LD. CIT( A). RATHER, THE LD. CIT(A) HIMSELF AT PARA 7.7 OF HIS ORDER, STATES THAT REGARDLESS OF THE I NTENTION , THE DECISION OF THE HONBLE SPECIAL COURT WOULD BE THE RELEVANT FACTOR IN DETERMINING THE LIABILITY TO INTEREST. THAT IS, HE HIMSELF CHOOSES TO IGNORE THE SAME, AND PROCEEDS TO HOLD THE ISSUE OF ACCRUAL OF INTEREST AS DISPUTED AND, 4 M A NO. 23/MUM/2015 (A.Y. 2007 - 08) DIVINE HOLDINGS PVT. LTD. VS. DY. CIT THEREFORE, UNCERTAIN. THE MATTER BEING SUBJUDICE, HE, HOWEVER, CONSIDERS IT FIT AND APPROPRIATE UNDER THE CIRCUMSTANCES TO HARMONIZE AND BRING ABOUT A PARITY BETWEEN THE CIVIL RIGHTS PROCEEDINGS AND THE PROCEEDINGS UNDER THE ACT, SO THAT THE DECISION OF THE S PECIAL C OURT SHALL OBTAIN FOR THE PURPOSE OF TAX PROCEEDINGS AS WELL, AND IN CASE IT IS HELD THAT THE ASSESSEE IS LIABLE FOR INTEREST, IT SHALL BE ALLOWED A DEDUCTION QUA T HE SAID LIABILITY. IT IS THIS DECISION BY THE LD. CIT(A) WHICH STANDS UPHELD BY THE TRIBUNAL. HIS EARLIER OBSERVATION REGARDING INTEREST GETS IN FACT SUBSUMED BY HIS LATER OBSERVATION, AND IS THUS RENDERED OF NO MOMENT. THE SAID OBSERVATION BY THE LD. CIT( A), WHICH DID NOT SURVIVE HIS ORDER, OR IN FACT EVEN HIS DECISION, IS EVEN OTHERWISE NOT BINDING ON THE TRIBUNAL. TO THEREFORE CONTEND, ON ITS BASIS, OF THE IMPUGNED ORDER AS MISTAKEN, IS ITSELF GROSSLY MISTAKEN; THE ASSESSEE BEING UNABLE TO EVEN SHOW OF THE SAME BEING ERRONEOUS, MUCH LESS MISTAKEN. 3.2 AT THIS STAGE, THE BENCH MAKING ITS VIEW KNOWN, THE LD. AR WOULD SUBMIT THAT IN - AS - MUCH AS THE JUDGMENT BY THE SPECIAL COURT DATED 30/4/2010 DOES NOT BEAR ANY DECISION QUA INTEREST, THE ORDER BY THE TRI BUNAL, WHICH CONFIRMS THE ORDER BY THE LD. CIT(A) TO DECIDE THIS ISSUE AS PER THE DECISION OF THE SPECIAL COURT, BECOMES DYSFUNCTIONAL. THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE FIRST APPELLATE AUTHORITY TO DECIDE THE SAME ANEW, I.E., DE HORS AND INDEPENDENT OF THE FACT OF IT HAVING BEEN SUBJUDICE, WHICH IT NO LONGER IS. THE LD. DR WOULD OBJECT, STATING THAT THE ASSESSEE DID NOT AT ANY STAGE PLEAD OF THE DECISION BY THE SPECIAL COURT AS NOT BEARING ANY DECISION QUA INTEREST, I.E., EXCEPT FOR THE FI RST TIME IN THE RECTIFICATION PROCEEDINGS. WE AGREE. THIS IS EVEN OTHERWISE APPARENT FROM THE ORDER OF THE LD. CIT(A), WHICH ITSELF IS OF LATER DATE (10.09.2010), AND STOOD SUBSEQUENTLY CONFIRMED BY THE TRIBUNAL. HAD THE ASSESSEE CLARIFIED THIS FACT, THE RE WAS NO QUESTION OF THE FIRST APPELLATE AUTHORITY ALIGNING HIS DECISION TO THAT BY THE SPECIAL COURT, WHICH ALSO FOUND FAVOUR WITH THE TRIBUNAL. IN FACT, THE ASSESSEE BEFORE THE TRIBUNAL DID NOT EVEN REFER TO THE ORDER BY THE SPECIAL COURT, PLACING ON TH E SIX PAGES THEREOF ON THE FILE (PB PGS .30 - 35), AS NOTED BY THE TRIBUNAL AT PARA 3.3 O F THE IMPUGNED ORDER. NEVERTHELESS, IN OUR VIEW, A PREJUDICE STAND CAUSED TO 5 M A NO. 23/MUM/2015 (A.Y. 2007 - 08) DIVINE HOLDINGS PVT. LTD. VS. DY. CIT THE ASSESSEE. TRUE, THE ASSESSEE IS RESPONSIBLE IN - AS - MUCH AS IT DID NOT FURNISH THE FULL FAC TS AT THE FIRST AND THE SECOND APPELLATE STAGE, EVEN AS THE DECISION BY THE SPECIAL COURT WAS AVAILABLE AT THE RELEVANT TIME. HOWEVER, WE CONSIDER THE TRIBUNAL TO BE EQUAL, IF NOT MORE, RESPONSIBLE FOR THE SAME. IT, INSTEAD OF ASSUMING THAT THE UNFURNISHED PART OF THE ORDER BY THE S PECIAL C OURT WOULD CONTAIN ITS DECISION QUA INTEREST, OUGHT TO HAVE CLARIFIED THAT ASPECT THROUGH ENQUIRY DURING HEARING, BEING THE FINAL FACT FINDING AUTHORITY. ITS ORDER RESTS ON AN ASSUMPTION THAT THE ISSUE QUA INTEREST IS SUB JUDICE, AND STANDS TO BE DECIDED EITHER WAY , WHILE IN FACT IT SURVIVES NO LONGER, AND WAS THUS NOT DECIDED UPON BY THE SPECIAL COURT, EVEN AS CONCEDED TO BY THE LD. AR BEFORE US. THE PARTIES BEING CONVEYED OUR INTENTION TO ADDRESS ANY G RIEVANCE OR PR EJUDICE WHICH MAY HAVE BEEN CAUSED BY THE TRIBUNAL, EVEN IF ACTING IN GOOD FAITH, MADE THE SUBMISSION NOTED ABOVE. THE APEX COURT IN HONDA SIEL POWER PRODUCTS LTD. V. CIT [2005] 295 ITR 466 ( SC ) H AS LAID DOWN PREJUDICE TEST FOR INVOKING JURISDICTION U/S. 254(2). IT FLOWS FROM THE LEGAL AXIOM THAT NO COURT OR TRIBUNAL CAN, BY ITS ACTION OR NON - ACTION, CAUSE PREJUDICE TO ANY PARTY BEFORE IT. 3.3 THE IMPUGNED ORDER WOULD, THUS, REQUIRE BEING MODIFIED IN - AS - MUCH AS, IN LIGHT OF THE FACTS THAT HAVE NOW COME T O NOTICE, THE EARLIER DECISION BY THE TRIBUNAL BECOMES INOPERABLE. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. IN OUR VIEW, NO CLAIM FOR INTEREST SURVIVES. THIS IS NOT FOR THE REASON THAT NO INTEREST WAS CONTEMPLATED OR AGREED UPON AT THE TIME T HE DEBT CAME INTO EXISTENCE OR DURING THE RELEVANT YEARS, AS NOTED BY THE TRIBUNAL EARLIER. THIS IS ALSO NOT FOR THE REASON THAT NO INTEREST WAS AGREED UPON FOR SUBSEQUENTLY, I.E., DURING AND UP TO THE RELEVANT YEAR, BOTH OF WHICH ARE REASONS, B Y ITS ELF SU FFICIENT TO DENY THE ASSESSEES CLAIM FOR INTEREST ON GROUND OF NO LIABILITY IN ITS RESPECT ACCRUING OR ARISING. T HE SPECIAL COURT HOLDS THE SUM/S PAYABLE BY A TO B AS BEING LIABLE TO BE ADJUSTED AGAINST THE LIABILITY OF B, OR OF A, OR EVEN OF C FOR THAT M ATTER, IN - AS - MUCH AS A, B, C (AND OTHERS) FORM ONE GROUP, SO THAT THESE CAN BE UTILIZED FOR DISCHARGE OF THEIR LIABILITIES TO THIRD PARTIES. IN OTHER WORDS, A IS EQUALLY LIABLE FOR THE LIABILITY OF B, AND SO ON. THE LIABILITIES, ACCORDINGLY, ONLY REPRESENT INTER 6 M A NO. 23/MUM/2015 (A.Y. 2007 - 08) DIVINE HOLDINGS PVT. LTD. VS. DY. CIT SE BALANCES HELD IN ACCOUNT, NOT LEADING TO ANY SUBSTANTIVE RIGHT OR LIABILITY PER SE . WHERE, WE WONDER, THEN, IS THE QUESTION OF INTEREST ARISING ON SUCH INTER - PERSONAL BALANCES ? WE HAVE IN FACT ALREADY OBSERVED, AND WHICH IS IN KEEPING WITH THE OBS ERVATIONS MADE IN THE IMPUGNED ORDER, OF THERE BEING NOTHING ON RECORD TO SHOW OF ACCRUAL OF ANY LIABILITY QUA INTEREST, WHICH WE CONFIRM. WE, ACCORDINGLY, FIND LITTLE MERIT IN THE ASSESSEES CLAIM FOR INTEREST. THAT IT (INTEREST) MAY HAVE BEEN PAID BY ONE NOTIFIED PARTY TO ANOTHER, FOR ANY SUBSEQUENT YEAR, SHALL NOT IN ANY MANNER ALTER OUR DECISION. THIS ORDER, TO THE EXTENT IN CONFLICT, SUPERSEDES OUR ORDER U/S. 254(1) DATED 10 .0 3 . 2014, AND IS TO BE READ IN CONJUNCTION THEREWITH. 3.4 WE DECIDE ACCORDINGLY. 4 . IN THE RESULT, THE ASSESSEES MA IS ALLOWED ON THE AFORE - SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 28 , 201 5 SD/ - SD/ - ( JOGINDER SINGH) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 28 . 0 8 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APP LIC ANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI