HAMZA E. ARSIWALA, MUMBAI v. DCIT 9(3),

ITA 4691/MUM/2010 | 2003-2004
Pronouncement Date: 09-09-2011 | Result: Allowed

Appeal Details

RSA Number 469119914 RSA 2010
Assessee PAN AAGPA6159C
Bench Mumbai
Appeal Number ITA 4691/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 1 day(s)
Appellant HAMZA E. ARSIWALA, MUMBAI
Respondent DCIT 9(3),
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 09-09-2011
Date Of Final Hearing 06-09-2011
Next Hearing Date 06-09-2011
Assessment Year 2003-2004
Appeal Filed On 07-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI P.M. JAGTAP ACCOUNTANT MEMBER I.T.A. NO. 4691/MUM/2010. ASSESSMENT YEAR : 2003-04. HAMZA E. ARSIWALA DY. COMMISSIONER OF INCOME-TAX SEA QUEEN A.H.K. BHABHA ROAD VS. 9(3) MUMBAI. BANDRA WEST MUMBAI 400 050. PAN AAAGPA 6159C. APPELLANT. RESPONDENT. APPELLANT BY : SHRI PRAMOD KUMAR PARIDA & SHRI SANJUKTA CHOWDHARY. RESPONDENT BY : SHRI V.V. SHASTRI.. DATE OF HEARING : 06-09-2011 DATE OF PRONOUNCEMENT : O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-20 MUMBAI DATED 17-03-2010. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE ADDITION OF RS.83 134/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF DIFFERENCE IN COMMISSION. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 28-11-20 03 DECLARING TOTAL INCOME OF 2 ITA NO. 4691/MUM/2010 ASSESSMENT YEAR : 2003-04. RS.16 14 410/-. AFTER COMPLETING THE ASSESSMENT ORI GINALLY U/S 143(3) A NOTICE U/S 148 SUBSEQUENTLY WAS ISSUED BY THE AO ON 31-03-2008 REOPENING THE SAID ASSESSMENT. DURING THE COURSE OF REASSESSMENT PROCE EDINGS THE AO NOTICED THAT THE COMMISSION RECEIPTS DECLARED BY THE ASSESSEE IN HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WERE TO THE TUNE OF RS.94 02 866/- WHEREAS AS PER THE TDS CERTIFICATES FILED BY THE ASSESSEE ALONG WITH H IS RETURN OF INCOME TOTAL COMMISSION OF RS.94 86 000/- WAS RECEIVED BY THE AS SESSEE FROM M/S SIEMENS METERING LTD. SINCE NO EXPLANATION TO THE SATISFACT ION OF THE AO COULD BE OFFERED ON BEHALF OF THE ASSESSEE IN RESPECT OF DIFFERENCE THE AMOUNT OF RS.83 134/- WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE . BEFORE THE LEARNED CIT(APPEALS) IT WAS SUBMITTED ON BEHALF OF THE ASS ESSEE THAT THE DIFFERENCE IN COMMISSION RECEIPTS HAD ARISEN ONLY ON ACCOUNT OF T HE METHOD OF BOOKING THE INCOME FOLLOWED BY THE ASSESSEE AND THE AMOUNT OF R S.83 134/- BEING THE DIFFERENCE IN COMMISSION RECEIPTS WAS ACTUALLY OFFE RED BY THE ASSESSEE IN THE IMMEDIATELY SUCCEEDING YEAR I.E. ASSESSMENT YEAR 20 04-05 TO TAX. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LEA RNED CIT(APPEALS). ACCORDING TO HIM THERE WAS A DIFFERENCE IN THE COMMISSION RE CEIPTS AS DECLARED BY THE ASSESSEE AND AS REFLECTED IN THE RELEVANT TDS CERTI FICATES. HE ALSO HELD THAT AS PER THE PROVISIONS OF SECTION 155(14) THE ASSESSEE SHO ULD HAVE DECLARED THE COMMISSION AMOUNT OF RS.83 134/- IN THE YEAR UNDER CONSIDERATION SINCE CREDIT FOR TAX DEDUCTED AT SOURCE FROM THE SAID AMOUNT WAS CLA IMED BY HIM IN THAT YEAR. HE THEREFORE CONFIRMED THE ADDITION MADE BY THE AO ON THIS ISSUE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS EXPLAINED ON BEHALF OF THE A SSESSEE BEFORE THE LEARNED CIT(APPEALS) AS WELL AS BEFORE US INCOME ON ACCOUN T OF COMMISSION WAS BEING BOOKED BY THE ASSESSEE ON THE BASIS OF BILLS RAISED BY HIM AND AS PER THIS METHOD 3 ITA NO. 4691/MUM/2010 ASSESSMENT YEAR : 2003-04. CONSISTENTLY FOLLOWED THE AMOUNT OF RS.83 134/- W AS OFFERED TO TAX BY THE ASSESSEE IN THE IMMEDIATELY SUCCEEDING YEAR I.E. AS SESSMENT YEAR 2003-04. ACCORDING TO THE ASSESSEE THE DIFFERENCE IN COMMIS SION RECEIPTS AS DECLARED BY HIM AND AS REFLECTED IN THE RELEVANT TDS CERTIFICAT ES THUS WAS DUE TO THIS METHOD FOLLOWED BY HIM. IT APPEARS THAT NEITHER THE AO NOR THE LEARNED CIT(APPEALS) HAVE APPRECIATED THIS EXPLANATION OF THE ASSESSEE IN RES PECT OF DIFFERENCE IN COMMISSION RECEIPTS IN THE RIGHT PERSPECTIVE AND THE SAME HAS BEEN REJECTED BY THEM ON THE GROUNDS WHICH IN OUR OPINION ARE TOTALLY IRRELEVA NT. FOR INSTANCE THE LEARNED CIT(APPEALS) HAS PLACED RELIANCE ON THE PROVISIONS OF SECTION 155(14) TO CONFIRM THE ADDITION MADE BY THE AO ON THIS ISSUE WHICH IN OUR OPINION WAS CLEARLY MISPLACED. THE SAID PROVISIONS DEAL WITH THE AMENDM ENT LIABLE TO BE MADE TO THE ORDER PASSED BY THE AO AND STIPULATE THAT IN ORDER TO CLAIM CREDIT FOR TDS BY WAY OF RECTIFICATION THE INCOME FROM WHICH TAX HAS BEE N DEDUCTED SHOULD BE DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME FILED FOR T HE RELEVANT ASSESSMENT YEAR. IN THE PRESENT CASE THE ISSUE IS NOT RELATING TO ASSESSEE S CLAIM FOR CREDIT ON ACCOUNT OF TAX DEDUCTED AT SOURCE BUT THE SAME IS RELATING TO THE DIFFERENCE IN THE COMMISSION RECEIPTS WHICH THE ASSESSEE HAS EXPLAINED AS DUE TO A SPECIFIC METHOD FOLLOWED BY HIM TO ACCOUNT FOR THE COMMISSION RECEIPTS. AS EXPL AINED BY THE ASSESSEE THE AMOUNT OF SUCH DIFFERENCE HAS BEEN DULY OFFERED BY HIM TO TAX IN THE IMMEDIATELY SUCCEEDING YEAR AS PER THE SAID METHOD AND IF THE S AME AMOUNT IS AGAIN ADDED IN THE YEAR UNDER CONSIDERATION IT WILL RESULT IN TAX ING THE SAME AMOUNT TWICE. SINCE THIS EXPLANATION OF THE ASSESSEE HAS NOT BEEN VERIF IED EITHER BY THE AO OR BY THE LEARNED CIT(APPEALS) WE DEEM IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH A FTER VERIFYING THE EXPLANATION OF THE ASSESSEE FROM THE RELEVANT RECORD. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 4 ITA NO. 4691/MUM/2010 ASSESSMENT YEAR : 2003-04. 5. THE ISSUE RAISED IN GROUND NO.2 RELATES TO THE D ISALLOWANCE OF RS.11 99 794/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF INTEREST. 6. IN HIS RETURN OF INCOME THE ASSESSEE HAD SHOWN TOTAL RECEIPTS OF RS.1 56 971/- COMPRISING FROM INTEREST FROM BANK R ENT AND DIVIDEND UNDER THE HEAD INCOME FROM OTHER SOURCES. AGAINST THESE REC EIPTS DEDUCTION OF RS.11 99 794/- WAS CLAIMED BY THE ASSESSEE ON ACCOU NT OF INTEREST PAID AND A NET LOSS OF RS.10 42 823/- WAS SHOWN UNDER THE HEAD IN COME FROM OTHER SOURCES. ACCORDING TO THE AO THE INTEREST BEARING BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR MAKING INVESTMENT IN THE CAPITAL OF PA RTNERSHIP FIRMS WHERE HE WAS A PARTNER. HE HELD THAT INTEREST PAID ON THE SAID BOR ROWED FUNDS THUS WAS NOT THE EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF EARNING INCOME FROM BANK INTEREST RENT AND DIVIDEND AND TH E ASSESSEE THEREFORE WAS NOT ENTITLED FOR DEDUCTION ON ACCOUNT OF INTEREST PAID AS THE SAME WAS NOT COVERED BY THE PROVISIONS OF SECTION 57(III). HE THEREFORE D ISALLOWED THE INTEREST EXPENDITURE OF RS.11 99 794/- CLAIMED BY THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. BEFORE THE LEARNED CIT(APPEALS) IT WAS S UBMITTED BY THE ASSESSEE THAT THE BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTM ENT IN CAPITAL OF FIVE PARTNERSHIP FIRMS IN WHICH THE ASSESSEE WAS A PARTN ER AND FROM WHICH HE WAS GETTING REMUNERATION. IT WAS CONTENDED THAT SINCE T HE REMUNERATION RECEIVED BY THE ASSESSEE FROM THE PARTNERSHIP FIRMS WAS CHARGEABLE TO TAX AS BUSINESS INCOME U/S 28(V) HE WAS ELIGIBLE TO CLAIM DEDUCTION ON ACCOUN T OF INTEREST PAID ON THE BORROWED FUNDS AGAINST THE INCOME RECEIVED IN THE F ORM OF REMUNERATION PAID BY THE PARTNERSHIP FIRMS UNDER THE HEAD PROFITS & GAI NS OF BUSINESS OR PROFESSION. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LEARNED CIT(APPEALS). ACCORDING TO HIM INTEREST ONLY TO THE EXTENT PAID ON BORROWED CAPITAL INVESTED IN 5 ITA NO. 4691/MUM/2010 ASSESSMENT YEAR : 2003-04. THE PARTNERSHIP FIRM FROM WHICH REMUNERATION WAS RE CEIVED BY THE ASSESSEE COULD BE ALLOWED AS DEDUCTION. HE HELD THAT THE ASSESSEE HAD RECEIVED REMUNERATION ONLY FROM ONE PARTNERSHIP FIRM NAMELY M/S HAMES INDUST RIES AND SINCE THERE WAS NO MATERIAL PLACED BEFORE HIM BY THE ASSESSEE TO SHOW THAT THE AMOUNT OF BORROWED FUNDS HAD BEEN INVESTED AS CAPITAL IN THE SAID FIRM HE CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THIS ISSUE IS SQUARELY COVERED INTER ALIA BY THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF SUDHIR DATTARAM PATIL VS. DCIT 2 SOT 678 WHEREIN IT WAS HELD THAT SINCE THE SALARY RECEIVED BY A PARTNER FROM THE FIRM IS ASSESSED AS PROFIT OF BUSINESS U/S 28(V) ON THE FOOTING THAT IT IS NOTHING BUT RETURN OF PROFITS THE PARTNER WOULD BE ENTITLED TO THE DEDUCTION OF INTEREST PAID BY HIM IN RESPECT OF MONEYS BORROWED FOR THE PURPOSE OF THE FIRMS BUSINESS. TO THE SIMILAR EFFECT IS THE DECISION OF MUMBAI SMC BENCH OF THE TRIBUNAL IN THE CASE OF SANTOSH KUMAR AGARWAL VS. A CIT 78 ITD 394 WHEREIN IT WAS HELD THAT WHEN THE STATUTE HAS BY FICTION PRO VIDED THAT THE REMUNERATION RECEIVED BY THE PARTNER FROM THE FIRM IS TO BE ASSE SSED UNDER THE HEAD BUSINESS ANY INTEREST PAID BY THE PARTNER FOR THE PURPOSE OF EARNING THE REMUNERATION MUST ALSO BE DEDUCTED. RESPECTFULLY FOLLOWING THESE DECI SIONS OF THE TRIBUNAL WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS ) ON THIS ISSUE AND DIRECT THE AO TO ALLOW INTEREST PAID BY THE ASSESSEE FOR THE P URPOSE OF EARNING THE REMUNERATION AS DEDUCTION UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION AFTER VERIFYING THE RELEVANT FACTS FRO M RECORD. GROUND NO.2 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED . 6 ITA NO. 4691/MUM/2010 ASSESSMENT YEAR : 2003-04. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 9 TH DAY OF SEPT. 2011. SD/- SD/- (R.V. EASWAR) (P.M. J AGTAP) PRESIDENT. ACC OUNTANT MEMBER MUMBAI DATED: 9 TH SEPT. 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR H-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI. WAKODE