DCIT 15(3), MUMBAI v. BALAJI ENTERPRISES, MUMBAI

ITA 3979/MUM/2009 | 2006-2007
Pronouncement Date: 12-01-2011 | Result: Dismissed

Appeal Details

RSA Number 397919914 RSA 2009
Assessee PAN AAGFB4071N
Bench Mumbai
Appeal Number ITA 3979/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 18 day(s)
Appellant DCIT 15(3), MUMBAI
Respondent BALAJI ENTERPRISES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 12-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 12-01-2011
Date Of Final Hearing 08-11-2010
Next Hearing Date 08-11-2010
Assessment Year 2006-2007
Appeal Filed On 24-06-2009
Judgment Text
1 ITA 3979/MUM/09 M/S BALAJI ENTERPRISES IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI P.M. JA GTAP A.M. ITA NO. 3979/MUM/2009 ASSESSMENT YEAR 2006-07 D.C.I.T. 15(3) MATRU MANDIR IST FLOOR TARDEO ROAD MUMBAI 400 007. VS. M/S BALAJI ENTERPRISES 29 AMBICA DARSHAN IST FLOOR M.G. ROAD GHATKOPAR (EAST) MUMBAI . 400 077. PAN AAGFB 4071 N APPELLANT RESPONDENT APPELLANT BY SHRI SUMEET KUMAR RESPONDENT BY NONE ORDER PER P.M. JAGTAP A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) XV MUMBAI DATED 28 TH APRIL 2009 AND THE GRIEVANCE OF THE REVENUE AS PR OJECTED IN THE GROUNDS RAISED THEREIN IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 6 77 889/- MADE BY THE A.O. BY WAY OF DISALLOWANCE OF INTEREST U/S 40A(2)(B). 2. THE ASSESSEE IN THE PRESENT CASE IS A PA RTNERSHIP FIRM WHICH IS MAINLY ENGAGED IN THE BUSINESS OF LETTING OUT PROPERTIES ON LEASE. TH E RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 27.07.2006 DECLARI NG A LOSS OF ` 12 43 155/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE FIRM HAS PAID INTEREST @ 12% AND 15% ON THE CAPITAL BORROWED FROM THE FAMILY MEMBERS OF ITS PARTNERS. ACCORDING TO HIM INTEREST PAID BY THE AS SESSEE FIRM @ 15% TO THE RELATED PERSONS WAS EXCESSIVE AND UNREASONABLE AS COMPARED TO THE MARKET RATE OF INTEREST AND THE ASSESSEE THEREFORE WAS CALLED UPON BY HIM TO EX PLAIN WHY SUCH EXCESSIVE AND 2 ITA 3979/MUM/09 M/S BALAJI ENTERPRISES UNREASONABLE INTEREST SHOULD NOT BE DISALLOWED U/S 40A(2)(B). IN REPLY IT WAS SUBMITTED BY THE ASSESSEE THAT LOAN FUNDS REQUIRED FOR BUYING IMMOVABLE PROPERTY WERE AVAILABLE DURING THE YEAR UNDER CONSIDERATION @ 15% PER ANNUM AND SINCE INTEREST WAS PAID TO THE RELATED PERSON AND EVEN TAX AT SOURCE WAS ALSO DEDU CTED FROM SUCH PAYMENTS NO DISALLOWANCE U/S 40A(2)(B) OUT OF INTEREST WAS WARR ANTED. THIS EXPLANATION OF THE ASSESSEE HOWEVER WAS NOT FOUND ACCEPTABLE BY THE A.O. AND KEEPING IN VIEW THAT THE INTEREST WAS PAID BY THE ASSESSEE ON SOME OF THE LO ANS @ 12% HE HELD THAT INTEREST PAID BY THE ASSESSEE ON OTHER LOANS OVER AND ABOVE THE A NNUAL RATE OF 12% WAS EXCESSIVE AND UNREASONABLE. ACCORDINGLY HE QUANTIFIED SUCH EXCES SIVE AND UNREASONABLE INTEREST PAID BY THE ASSESSEE TO ` 6 77 889/- AND THE SAID AMOUNT WAS DISALLOWED BY H IM IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 13.10.2008. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) WHO AFTER CONSIDERI NG THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM AS WELL AS THE MATERIAL AVA ILABLE ON RECORD DELETED THE DISALLOWANCE OF ` 6 77 889/- MADE BY THE A.O. OUT OF INTEREST EXPEND ITURE U/S 40A(2)(B) FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3. 2OF HIS IMPUGNED ORDER:- I HAVE PERUSED THE DETAILS SUBMITTED BY THE APPELLA NT CONSIDERED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER A LSO CONSIDERED CAREFULLY THE OBJECTIONS RAISED BY THE ARS IN WRITTEN SUBMISSIONS . THE MAIN ISSUE OF FACTUAL MATRIX IN THIS CASE IS THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS UTILIZED FOR THE PROPERTIES LET OUT FOR EARNING RENT. THE LD. ASSESS ING OFFICER HAS NOT APPRECIATED PROPERLY THE APPLICABILITY OF LAW U/S 40A(2)(B) AS SAME IS APPLICABLE WITH REFERENCE TO THE HEADS OF INCOME I.E. PROFITS & GAINS OF BUS INESS OR PROFESSION WHEREAS THE ISSUE UNDER REFERENCE IS WITH REGARD TO INCOME FROM HOUSE PROPERTY BEING TAX U/S 22 & 23 AFTER GIVING DEDUCTION U/S 24 OF I.T. ACT. TH E SUB-CLAUSE (B) OF SEC. 24 PROVIDES NO RESTRICTIONS OF THE AMOUNT OF ANY INTER EST PAYABLE ON BORROWED CAPITAL WITH REFERENCE TO THE CALCULATION OF INCOME CHARGEA BLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS UNDISPUTED FACT THAT APPELL ANT HAS SHOWN INCOME FROM HOUSE PROPERTY WITH REFERENCE TO WHICH INTEREST EXPENDITU RE HAS BEEN DEDUCTED HENCE THERE IS NO PROPRIETARY ON THE PART OF LD. ASSESSIN G OFFICER TO CONSIDER THIS ISSUE IN RESPECT OF APPLICABILITY OF LAW U/S 40A(2)(B) OR SE C. 40(B)(IV) OR REFER TO SEC. 234A 234B & 234C OF THE I.T. ACT. FURTHER I SEE NO MER IT IN THE ARGUMENTS OF THE LD. ASSESSING OFFICER THAT LADY MEMBERS & HUF ARE ASSES SED TO TAX AT LOWER RATE BECAUSE IT CAN BE SEEN FROM THEIR RETURN OF INCOME THAT ALL THE LADIES MEMBERS ARE HAVING HIGHER SLAB OF INCOME. FOR EG. SMT. SARDABE N J PAREKH HAS SHOWN GROSS TOTAL 3 ITA 3979/MUM/09 M/S BALAJI ENTERPRISES INCOME OF ` 20 04 622/- AND AFTER VARIOUS STATUTORY DEDUCTIONS TAXABLE INCOME HAS BEEN SHOWN BY HER AT ` 17 85 572/-. SIMILARLY SMT. KIRANBEN K. PARIKH H AS SHOWN GROSS TOTAL INCOME OF ` 18 00 165/- AND AFTER DEDUCTIONS TAXABLE INCOME AT ` 17 70 312/-. FURTHER SMT. RUPAL A. PARIKH HAS SHO WN GROSS TOTAL INCOME AT ` 17 20 819/- AND TAXABLE INCOME AT ` 15 55 367/-. SIMILARLY SMT. DHARINI D. PARIKH HAS SHOWN GROSS TOTALINCOME AT ` 14 99 444/- AND AFTER DEDUCTION TAXABLE INCOME AT ` 13 26 210/-. SIMILAR IS THE POSITION IN THE CASE OF SMT. TEJAL A. PARIKH WHOSE GROSS TOTAL INCOME IS ` 24 16 016/- AND AFTER DEDUCTION TAXABLE INCOME HAS BEEN AT SHOWN AT ` 12 44 360/-. ALL THESE FACT PROVE THAT INCOME FRO M INTEREST ON LOAN ADVANCED BY THESE CREDITORS HAVE BEEN DULY SHOWN IN THE RETURN OF INCOME AND THEY ARE LIABLE AT HIGHER RATE OF TAX THEREFORE ASSESS ING OFFICER HAS NOT PROPERLY APPRECIATED THE FULL FACTS IN ITS TOTALITY. IT IS A LSO RELEVANT TO MENTION THAT ALLOWABLE DEDUCTION FROM INCOME FROM HOUSE PROPERTY IS TO BE CONSIDERED WITH REFERENCE TO PROVISION OF LAW U/S 24 OF THE I.T ACT AND NOT WITH REFERENCE TO ANY OTHER SECTIONS UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BU SINESS OR PROFESSION. THEREFORE CONSIDERING THE FULL FACTS AND LAW ON TH E ISSUE DISALLOWANCE OF INTEREST EXPENDITURE OF ` 6 77 889/- IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVEN UE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US NOBODY HAS PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE. THIS APPEAL OF THE REVENUE IS THEREFORE BEING DISPOSED OF ON MERITS EX PARTE THE RESPONDENT ASSESSEE AFTER HEARING THE ARGUMENTS OF THE LEARNED D.R. AND PERUSING THE RELEVANT MATERIAL ON RECORD. THE ONLY CONTENTION W HICH HAS BEEN RAISED BY THE LEARNED D.R. BEFORE US IS THAT THE DISALLOWANCE OF INTEREST MADE BY THE A.O. U/S 40A(2)(B) HAS BEEN DELETED BY THE LD. CIT(A) ON THE WRONG BASIS T HAT THE SAID PROVISION IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE WHEREIN RENTAL INCOME W AS SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND DEDUCTION ON ACCOUNT OF IN TEREST EXPENDITURE WAS ALSO CLAIMED UNDER THAT. AS POINTED OUT BY HIM THE ASSESSMENT ORDER ALSO SHOWS THAT RENTAL INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FRO M HOUSE PROPERTY WAS FINALLY ASSESSED BY THE A.O. AS BUSINESS INCOME OF THE ASSE SSEE AS CLEARLY INDICATED IN THE COMPUTATION OF TOTAL INCOME. NEVERTHLESS A PERUSAL OF THE RELEVANT PORTION OF THE IMPUGNED ORDER OF THE LD. CIT(A) WHICH HAS BEEN AL READY REPRODUCED ABOVE SHOWS THAT HE HAS NOT DELETED THE DISALLOWANCE OUT OF INTEREST MADE BY THE A.O. U/S 40A(2)(B) MERELY ON THE BASIS THAT DEDUCTION ON ACCOUNT OF IN TEREST WAS CLAIMED BY THE ASSESSEE 4 ITA 3979/MUM/09 M/S BALAJI ENTERPRISES UNDER THE HEAD INCOME FROM HOUSE PROPERTY BUT HE HAS DELETED THE SAID DISALLOWANCE ON MERITS ALSO. AS HELD BY HIM IN THIS REGARD THE RELATED PERSONS TO WHOM INTEREST AT HIGHER RATE WAS ALLEGEDLY PAID WERE ACTUALLY LIABL E TO TAX AT HIGHER RATE WHEREAS NO TAX WAS PAYABLE BY THE ASSESSEE SINCE ITS INCOME FINALL Y ASSESSED TO TAX WAS NEGATIVE I.E. LOSS. AS RIGHTLY HELD BY THE LD. CIT(A) THIS RELEVANT AS PECT OF THE MATTER HOWEVER WAS NOT APPRECIATED BY THE A.O. IN THE RIGHT PERSPECTIVE WH ILE TREATING THE INTEREST PAID TO THEM AS EXCESSIVE AND UNREASONABLE AND MAKING DISALLOWANCE THEREOF U/S 40A(2)(B). AS SUCH CONSIDERING ALL THE FACTS OF THE CASE WE FIND NO I NFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE MADE BY T HE A.O. OUT OF INTEREST EXPENDITURE AND UPHOLDING THE SAME WE DISMISS THIS APPEAL FILE D BY THE REVENUE. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 12 TH JANUARY 2011. SD/- SD/- (R.V. EASWAR) (P.M. JAGTAP) PRESIDENT A CCOUNTANT MEMBER MUMBAI DATED 12 TH JANUARY 2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 7 - MUMBAI 4. THE CIT- 3 MUMBAI 5. THE DR BENCH F 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 5 ITA 3979/MUM/09 M/S BALAJI ENTERPRISES DATE INITIALS 1 DRAFT DICTATED ON 4.1.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 5.1.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER