VARSHA R TAURANI, MUMBAI v. ACIT 19(1), MUMBAI

ITA 3505/MUM/2012 | 2008-2009
Pronouncement Date: 30-10-2013 | Result: Dismissed

Appeal Details

RSA Number 350519914 RSA 2012
Assessee PAN ABZPT8120C
Bench Mumbai
Appeal Number ITA 3505/MUM/2012
Duration Of Justice 1 year(s) 5 month(s) 13 day(s)
Appellant VARSHA R TAURANI, MUMBAI
Respondent ACIT 19(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 30-10-2013
Date Of Final Hearing 28-10-2013
Next Hearing Date 28-10-2013
Assessment Year 2008-2009
Appeal Filed On 17-05-2012
Judgment Text
MRS. VARSHA R. TAURANI - 1 - VK;DJ VIHYH; VF/KDJ.K Q U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUM BAI JH JKTSUNZ FLAG YS[KK LNL; OA JH FOOSD OEKZ] U;KF; D LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH ACCOUNTANT MEMBER AND SH RI VIVEK VARMA JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 3505/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 MRS. VARSHA R. TAURANI 101 MUKTA APARTMENTS 10 TH ROAD KHAR ROAD MUMBAI 400052. CUKE@ VS. ACIT 19(1) MUMBAI. AAYAKAR BHAVAN MUMBAI 400 020. PAN:-ABZPT8120C VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASESSEE BY SHRI DEEPAK TRALSHAWALLA JKTLO DH VKSJ LS @ REVENUE BY SHRI O.P. KANT VKNS' VKNS' VKNS' VKNS'K@ K@K@ K@ ORDER PER RAJENDRA SINGH AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.2.2012 OF CIT (A) FOR THE ASSESSMENT YEAR 2008-0 9. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING ALLOWABILITY OF INTEREST OF RS. 3 95 268/- WHILE COMPUTING THE TOTAL INCOME. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS DERIVING INCOME FROM HOUSE PROPERTY AND INTEREST INCOME HAD ADVANCE D MONEY TO M/S TIPS INDUSTRIES LTD ON WHICH IT HAD EARNED INTEREST INCOME OF RS. LQUOKBZ DH RKJH[K @ DATE OF HEARING 28-10-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 30-10-2013 MRS. VARSHA R. TAURANI - 2 - 3 95 268/- DURING THE YEAR. THE ASSESSEE HAD ALSO B ORROWED A SUM OF RS. 1.75 CRORE FROM M/S PRACHAR COMMUNICATIONS LTD. ON WHICH IT HAD PAID INTEREST OF RS. 17 50 000/- DURING THE YEAR. THE E NTIRE MONEY BORROWED FROM M/S PRACHAR COMMUNICATION LTD. HAS BEEN UTILI ZED FOR THE PURPOSE OF MAKING PAYMENTS FOR ACQUIRING PREFERENTIAL ALLOT MENT OF SHARES OF M/S TIPS INDUSTRIES LTD. THE DIVIDEND INCOME RECEIVABLE IF ANY FROM THE SHARES OF M/S TIPS INDUSTRIES LTD. IS NOT CHARGEAB LE TO TAX. HOWEVER DURING THE YEAR THE ASSESSEE HAD NOT RECEIVED ANY D IVIDEND INCOME. THE ASSESSEE SET OFF THE INTEREST PAID ON BORROWINGS FR OM M/S PRACHAR COMMUNICATION LTD. AGAINST THE INTEREST INCOME EAR NED FROM M/S TIPS INDUSTRIES LTD . THE AO FURTHER OBSERVED THAT THE B ORROWINGS HAD NOT BEEN ADVANCED AS LOAN TO M/S TIPS INDUSTRIES LTD FR OM WHICH INTEREST INCOME WAS EARNED AND THEREFORE THERE WAS NO NEXU S BETWEEN THE INTEREST EXPENDITURE AND THE INTEREST INCOME EARNED . HE REFERRED TO PROVISIONS OF SECTION 57(III) AS PER WHICH ONLY THE EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF INCOME FROM OTHER SOURCES COULD BE ALLOWED AS DEDUC TION. HE THEREFORE DISALLOWED THE CLAIM OF DEDUCTION OF RS. 3 95 268/- ON ACCOUNT OF INTEREST EXPENDITURE. 3. IN APPEAL CIT (A) AGREED WITH THE AO THAT UNDER THE PROVISIONS OF SECTION 57(III) THERE MUST BE CLEAR NEXUS BETWEEN T HE EXPENDITURE INCURRED AND INCOME SOUGHT TO BE EARNED FOR ALLOWIN G THE CLAIM OF EXPENDITURE. HE DID NOT ACCEPT THE ARGUMENTS OF THE ASSESSEE THAT THE TRANSACTIONS WERE CORRELATED AND THERE WAS INDIRECT NEXUS BETWEEN THE INTEREST INCOME AND THE INTEREST EXPENDITURE INCURR ED. HE ACCORDINGLY UPHELD THE VIEW OF THE AO THAT THE INTEREST EXPENDI TURE WAS NOT ALLOWABLE AS DEDUCTION U/S 57(III) OF THE IT ACT. A GGRIEVED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNA L. MRS. VARSHA R. TAURANI - 3 - 4. BEFORE US THE LEARNED FOR THE ASSESSEE SUBMITTE D THAT WHILE CONSIDERING THE ALLOWABILITY OF EXPENDITURE U/S 57( III) THE ENTIRE INCOME FROM OTHER SOURCE AS A WHOLE HAS TO BE CONSIDERED A ND IT WAS NOT NECESSARY TO CORRELATE A PARTICULAR EXPENDITURE TO A PARTICULAR ITEM OF INCOME FROM OTHER SOURCE. IT WAS ARGUED THAT THE BO RROWINGS HAD BEEN USED FOR ACQUISITION OF HARES INCOME FROM WHICH WAS ASSESSABLE AS INCOME FROM OTHER SOURCE AND THEREFORE INTEREST E XPENDITURE INCURRED HAD TO BE ALLOWED AGAINST THE INTEREST INCOME ON AD VANCES GIVEN TO M/S TIPS INDUSTRIES LTD. IT WAS ALSO SUBMITTED THAT THO UGH NO DIVIDEND INCOME HAD BEEN RECEIVED EARNING OF INCOME WAS NOT NECESS ARY FOR ALLOWABILITY OF EXPENDITURE AS HELD BY HONBLE SUPREME COURT IN CASE OF CIT VS. RAJENDRA PRASAD MOODY ( 115 ITR 519). HONBLE SUPRE ME COURT IN THE SAID CASE HELD THAT IN CASE THE EXPENDITURE HAD BEEN INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME THE DEDUCTION HAS TO BE ALLOWED EVEN IF NO INCOME WAS ACTUALLY EARNED UNDER THE HEAD INCOME FROM OTHER SOURCES. RELIANCE WAS ALSO PLACED ON TH E DECISION OF DELHI BENCH OF TRIBUNAL DATED 15.3.1980 IN CASE OF KRISHN A BAI VS. ITO (10 TTJ 354). IT WAS ACCORDINGLY URGED THAT THE CLAIM OF IN TEREST EXPENDITURE MADE BY THE ASSESSEE SHOULD BE ALLOWED. 4.1 THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE BORROWINGS HAD BEEN UTILISED FOR ACQUISITION OF SHARES INCOME FROM WHICH WAS NOT TAXABLE AND THEREFORE THE CORRESPONDING INTEREST EXPENDITURE COULD NOT BE ALLOWED AS DEDUCTION AGAINST THE INTEREST INCOME EARNED FROM OTHER SOURCES. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITUR E ON ACCOUNT OF INTEREST PAID AGAINST INTEREST INCOME EARNED. THE A SSESSEE HAD BORROWINGS OF RS. 1.75 CRORE FROM M/S PRACHAR COMMU NIATION LTD. WHICH HAD BEEN UTILISED FOR ACQUIRING PREFERENTIAL SHARES OF M/S TIPS INDUSTRIES MRS. VARSHA R. TAURANI - 4 - LTD. THE ASSESSEE HAD PAID INTEREST OF RS. 17 50 00 0/- ON THE SAID BORROWINGS. THE ASSESSEE HAD ALSO ADVANCED LOAN TO M/S TIPS INDUSTRIES LTD. ON WHICH INTEREST INCOME OF RS. 395268/- HAD B EEN MADE. THE DISPUTE IS WHETHER THE INTEREST PAID BY THE ASSESSE E TO M/S PRACHAR COMMUNICATION LTD CAN BE SET OFF AGAINST INTEREST I NCOME ON LOAN GIVEN TO M/S TIPS INDUSTRIES LTD. THE CASE OF THE ASSESSE E IS THAT WHILE CONSIDERING ALLOWABILITY OF EXPENDITURE AGAINST INC OME FROM OTHER SOURCES THE ENTIRE INCOME HAS TO BE CONSIDERED AS A WHOLE AND WAS NOT NECESSARY TO CORRELATE EACH ITEM OF EXPENDITURE TO INCOME EARNED. THEREFORE IF THE EXPENDITURE HAD BEEN INCURRED FOR EARNING INCOME FROM OTHER SOURCE AND THERE IS NO ACTUAL EARNING OF INCO ME SUCH EXPENDITURE CAN BE ALLOWED AGAINST ANY OTHER ITEM OF INCOME FRO M OTHER SOURCE. IN OUR VIEW THE ARGUMENTS ADVANCED ARE NOT RELEVANT T O THE FACTUAL MATRIX OF THE PRESENT CASE. IN THIS CASE BORROWINGS HAD B EEN UTILISED FOR ACQUISITION OF SHARES INCOME FROM WHICH IS EXEMPT FROM TAX. THOUGH NO INCOME FROM DIVIDEND HAD BEEN ACTUALLY EARNED DURIN G THE YEAR THE DIVIDEND INCOME EVEN IF EARNED IS NOT TAXABLE. THER EFORE IN VIEW OF THE PROVISIONS OF SECTION 14A INTEREST EXPENDITURE WHIC H RELATES TO TAX FREE INCOME IS NOT ALLOWABLE AS DEDUCTION AGAINST ANY OT HER SOURCE OF INCOME. 5.1 IT HAS BEEN POINTED OUT THAT THERE WAS NO ACTUA L DIVIDEND INCOME RECEIVED AND THEREFORE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. WE ARE UNABLE TO ACCEPT THE ARGUMENTS ADVANCED. THE MA RGINAL NOTE TO SECTION 14A CLEARLY STATES THAT EXPENDITURE INCURRE D IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME WHICH MEANS THAT I F THE INCOME IS NOT INCLUDIBLE IN TOTAL INCOME WHETHER IT IS ACTUALLY E ARNED OR NOT THE CORRESPONDING EXPENDITURE HAS TO BE DISALLOWED. THI S ASPECT HAD ALSO BEEN EXAMINED BY DELHI BENCH OF TRIBUNAL IN CASE OF EVER PLUS SECURITIES & FINANCE LTD . ( 101 ITD 151) IN WHICH IT WAS HELD THAT SECTION 14A WAS APPLICABLE EVEN IF NO DIVIDEND INCOME WAS ACTUALLY EARNED. THE SAID DECISION OF TRIBUNAL HAS BEEN UPHELD BY THE SPECIAL BENCH OF TRIBUNAL IN MRS. VARSHA R. TAURANI - 5 - CASE OF M/S CHEM INVEST LTD. VS. INCOME-TAX OFFICER ( 317 ITR (AT) 86). THUS THE INTEREST EXPENDITURE IN THIS CASE WHICH W AS INCURRED INDISPUTABLY IN RELATION TO ACQUISITION OF SHARES I NCOME FROM WHICH IS NOT TAXABLE CANNOT BE ALLOWED AS DEDUCTION WHILE COMPU TING THE INCOME FROM ANY OTHER SOURCE. 5.2 AS REGARDS THE ARGUMENT OF LD. AR THAT WHILE CO NSIDERING THE ALLOWABILITY OF EXPENDITURE UNDER THE HEAD INCOME FROM OTHER SOURCES ALL THE ITEMS OF INCOME HAVE TO BE CONSIDERED AS A WHOLE. WE FIND THAT SECTION 56 DEFINES THE INCOME FALLING UNDER THE HEA D INCOME FROM OTHER SOURCE EVERY KIND OF INCOME WHICH IS NOT TO BE EXC LUDED FROM TOTAL INCOME AND WHICH IS NOT CHARGEABLE UNDER ANY SPECIF IC HEAD UNDER SECTION 14. THEREFORE IT IS CLEAR THAT IF A PARTIC ULAR INCOME IS TO BE EXCLUDED FROM TOTAL INCOME THIS HAS NOT TO BE CONS IDERED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE INC OME FROM SHARES WHICH IS IN THE FORM OF DIVIDEND HAS TO BE EXCLUDED FROM TOTAL INCOME WHETHER EARNED OR NOT AND THEREFORE SUCH INCOME C ANNOT BE CONSIDERED AS INCOME FROM OTHER SOURCES. THEREFORE THE EXPEND ITURE INCURRED ON BORROWINGS INVESTED IN SHARES CANNOT BE CONSIDERED WHILE COMPUTING THE INCOME FROM OTHER SOURCES. 5.3 THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF RAJENDRA PRASAD MOODY (SUPRA) RELIED UPON BY THE LEARNED AR IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . IN THE SAID CASE IT WAS HELD BY THE APEX COURT THAT IF THE EXPENDITURE HAD NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING I NCOME FROM OTHER SOURCES THE CORRESPONDING EXPENDITURE HAD TO BE AL LOWED EVEN IF NO INCOME WAS ACTUALLY EARNED. THE ISSUE IN THE PRESEN T CASE IS NOT WHETHER INCOME HAS BEEN EARNED OR NOT. THE ISSUE IS WHETHER THE EXPENDITURE CAN BE ALLOWED IF THE INCOME EVEN IF EARNED IS NOT TAXA BLE. MOREOVER THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF RAJEND RA PRASAD MOODY MRS. VARSHA R. TAURANI - 6 - (SUPRA) HAD BEEN RENDERED WHEN THE PROVISIONS OF SE CTION 14A WERE NOT ON THE STATUTE. SIMILARLY THE DECISION OF DELHI BEN CH OF TRIBUNAL IN CASE OF KRISHNA BAI VS. ITO (SUPRA) IS ALSO NOT APPLICAB LE. THE TRIBUNAL IN THE SAID CASE FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF RAJENDRA PRASAD MOODY (SUPRA) HELD THAT INTEREST EX PENDITURE INCURRED ON BORROWED MONEY INVESTED IN SHARES HAD TO BE ALLO WED EVEN IF THERE WAS NO INCOME EARNED FROM INVESTMENTS IN SHARES. TH E JUDGMENT IS RELEVANT ONLY TO THE PERIOD PRIOR TO INSERTION OF S ECTION 14A AS PER WHICH NO EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME CAN BE ALLOWED. THEREFORE IN OUR VIEW THE DISALLOWANCE OF EXPENDITURE BY THE AUTHORITIES BELOW ON THE FACTS OF THE CASE IS J USTIFIED. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A). 6. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSE D. ORDER PRONOUNCED ON 30 -10-2013 SD/- SD/- (VIVEK VARMA) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S MUMBAI DATED 30-10-2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR I BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI