SARVAMANGALA HOLDINGS P. LTD, MUMBAI v. DCIT 2(3), MUMBAI

ITA 7385/MUM/2011 | 2008-2009
Pronouncement Date: 11-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 738519914 RSA 2011
Assessee PAN AAACS7124G
Bench Mumbai
Appeal Number ITA 7385/MUM/2011
Duration Of Justice 1 year(s) 11 month(s) 7 day(s)
Appellant SARVAMANGALA HOLDINGS P. LTD, MUMBAI
Respondent DCIT 2(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 11-10-2013
Date Of Final Hearing 24-09-2013
Next Hearing Date 24-09-2013
Assessment Year 2008-2009
Appeal Filed On 03-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDI CIAL MEMBER / ITA NO. 7385 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 8 09 ) SARVAMANGALA HOLDINGS PVT. LTD. D 1 SINDHU HOUSE NANABHAI LANE FORT MUMBAI 400 001 .. / APP ELLANT V/S DY. COMMISS IONER OF INCOME TAX WARD 2(3) AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .... / RESPONDENT PERMANENT ACCOUNT NUMBER AAACS7124G / ASSESSEE BY : MR. GIRISH DAV E / REVENUE BY : MRS. R.M. MADHAVI / DATE OF HEARING 24.09.2013 / DATE OF ORDE R 11 - 10 - 2013 / ORDER / PER AMIT SHUKLA J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 15 TH SEPTEMBER 2011 PASSED BY THE LEARNED COMMISSIONER (APPEALS) VI MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (FOR SHORT 'THE ACT ') FOR SARVAMANGALA HOLDINGS PVT. LTD. 2 THE ASSESSMENT YEAR 20 08 09 VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1 21 058 UNDER SECTION 14A R/W RULE 8D. 2. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT DID NOT HAVE ANY NEXUS TO THE EXEMPT INCOME EARNED DURING THE YEAR. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF TAXING INTEREST OF RS. 1 19 170 ON FIXED DEPOSITS AND INTEREST OF RS. 42 13 423 ON LOANS AS INCOME FROM OTHER SOURCES. 4. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT WAS ENGAGED IN THE BUSIN ESS OF MAKING INVESTMENTS AND GRANTING LOANS AND ACCORDINGLY THE INTEREST INCOME OUGHT TO BE ASSESSED AS BUSINESS INCOME. 5. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT SPECIFICALLY DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 21 20 255 BEING GAINS ARISING ON REDEMPTION OF UNITS OF INDIA VALUE FUND. 2. AT THE OUT SET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE INSTRUCTIONS OF THE ASSESSEE HE DID NOT WISH TO PRESS GROUND NO.5 WHICH RELATES TO ADDITION ON ACCOUNT OF PRIOR PERIOD INCOME. CONSEQUENTLY THIS GROUND IS DISMISSED AS NOT PRESSED . 3. IN GROUND NO.1 AND 2 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 1 21 058 MADE UNDER SECTION 14A R/W RULE 8D. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVE STMENT AND TRADING IN FABRICS. THE ASSESSING OFFICER ON A PERUSAL OF THE PROFIT & LOSS ACCOUNT NOTED THAT DURING THE YEAR THE ASSESSEE HAS EARNED THE DIVIDEND INCOME OF RS. 53 50 986 ON LONG TERM INVESTMENT WHICH WAS CLAIMED AS EXEMPT. HE FURTHER NOTED T HAT THE ASSESSEES INVESTMENTS HAVE INCREASED TO RS. 2 54 11 077 IN THIS YEAR FROM RS. 2 29 70 852 A S COMPARED TO THE LAST YEAR. HE AFTER CALLING FOR THE ASSESSEES EXPLANATION MADE DISALLOWANCE OF SARVAMANGALA HOLDINGS PVT. LTD. 3 RS. 1 21 058 UNDER RULE 8D AS PER THE WORKING GIVEN AT PAGE 2 OF THE ASSESSMENT ORDER. 5. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE RELEVANT SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT THE FINANCIAL COST EXPENSES RELATING TO PERSONNEL SALARY PAID TO MANAGEMENT AND FINANCE MANAGERS TO TAKE THE DECISION ABOUT THE INVESTMENT CAN BE SAID TO BE EXPENSES WHICH CAN BE ATTRIBUTED FOR EARNING OF EXEMPT INCOME WHEREAS THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE ON THOSE EXPENSES ALSO . ACCORDINGLY HE UPHELD THE ASSESSING OFFICERS WORKING FOR DISALL OWANCE OF RS. 1 21 058 AS REASONABLE. 6. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MAJOR EXPENSES LIKE INTEREST ETC. DEBITED IN THE PROFIT & LOSS ACCOUNT D O NOT RELATE IN ANY MANNER FOR EARNING OF EXEMPT INCOME WHICH FACT HAS ALSO BEEN ACCEPTED BY THE ASSESSING OFFICER. HOWEVER HE HAS TREATED THE ENTIRE REMAINING EXPENSES FOR THE PURPOSE OF DISALLOWANCE WHICH CANNOT BE SAID TO BE WHOLLY ATTRIBUTABLE FOR THE EARNING OF DIVIDEND INCOME. THESE EXPENSES ARE AS UNDER: 1. FILING FEES RS. 5 500 2. AUDITORS REMUNERATION RS. 21 977 3. BANK CHARGES RS. 2 034 4. PRINTING STATIONERY RS. 25 378 5. INTEREST RS. 345 6. PROFESSIONAL TAX RS. 2 500 7. MISC. EXPENSES RS. 51 774 8. DEPRECIATION RS. 11 578 TH ESE AFORE S A ID EXPENSES CA NNOT BE IN ENTIRETY BE HELD TO BE ATTRIBUTABLE SOLELY FOR EARNING OF DIVIDEND INCOME AS THE ASSESSEE WAS HAVING OTHER BUSINESS ALSO. MOREOVER THE ASSESSING OFFICER HAS NOT COMMENTED UPON THE CORRECTNESS OF THE CLAIM OF EXPENSES MADE BY THE ASSESSEE A S P ER THE REQUIREMENT OF RULE 8D. HE SUBMITTED THAT THE MATTER SARVAMANGALA HOLDINGS PVT. LTD. 4 NEEDS TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO SEE THE CORRECTNESS OF THE EXPENSES AND THEN ONLY CAN BE PROCEED ED TO MAKE ANY DISALLOWANCE UNDER SECTION 14A. 7. THE LEARNED DEPARTMENTA L REPRESENTATIVE ON THE OTHER HAND RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTION PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENSES FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. THE ASSESSEES INVESTMENT FROM WHICH IT HAS EARNED THE EXEMPT INCOME IS MORE THAN RS. 2.54 CRORES HENCE IT CANNOT BE SAI D THAT NO EXPENDITURE CAN BE SAID TO BE ATTRIBUTABLE FOR MANAGEMENT OF SUCH AN INVESTMENT . HOWEVER WE EQUALLY AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT THE ASSESSING OFFICER HAS NOT PROPERLY EXAMINED THE CORRECTNESS OF THE CLAIM OF EXPENDITURE WHICH IS EVIDENT FROM THE FACT THAT MOST OF THE ITEMS ON WHICH THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER IS WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE WAS HAVING ITS OTHER BUSINESS ALSO FOR WHICH ASSESSEE HAD TO INCUR THESE EXPENSES . UND ER THESE CIRCUMSTANCES WE FEEL THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CORRECTNESS OF THE ACCOUNTS AND ALSO THE EXPENDITURE AND THEN ONLY ALLOCATE THE EXPENDITURE WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR EARNING OF EXEMPT INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A R/W RULE 8D. THUS GROUND NO.1 AND 2 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. IN GROUND NO.3 AND 4 THE ASSESSEE HAS CHALLENGED THE TREATMENT OF INTEREST RECEIVED BY THE A SSESSEE ON FIXED DEPOSITS AND LOANS AS INCOME FROM OTHER SOURCES. SARVAMANGALA HOLDINGS PVT. LTD. 5 10. THE ASSESSING OFFICER ON A PERUSAL OF THE AUDITED ACCOUNTS FOUND THAT THE ASSESSEE HAS CREDITED INTEREST OF RS. 1 19 710 ON FDRS WITH THE BANKS AND RS. 42 13 423 ON LOANS GIVEN TO SUBSID IARY OR SISTER CONCERN. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY THE SAID INTEREST INCOME SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES THE ASSESSEE SUBMITTED THAT IT IS MAINLY ENGAGED IN THE BUSINESS OF TRADING IN FABRICS AND MAKING INVESTMENT WHICH ALSO INCLUDED ADVANCING LOANS TO OTHER GROUP COMPANIES AND OUTSIDE PARTIES. SUCH AN ADVANCEMENT OF LOANS IS IN CONSONANCE AND IN ACCORDANCE WI TH THE OBJECT CLAUSE OF THE MOA OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HOWEVER REJECTED THE ASSES SEES SUBMISSION AND TREATED THE ENTIRE INTEREST INCOME TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 11. BEFORE THE LEARNED COMMISSIONER (APPEALS) THE ASSESSEE FURNISHED THE DETAILS OF LOAN GIVEN TO VARIOUS SISTER CONCE RNS AND SUBSIDIARY AND ALSO THE RATE OF INTEREST CHARGED FROM THEM. I N THE MEMORANDUM OF ARTICLE (MOA ) THE ASSESSEES MAIN OBJECT CLAUSE WAS EARNING OF INTEREST INCOME BY WAY OF ADVANCING LOANS. RELIANCE WAS ALSO PLACED ON SEVERAL DECISIONS WHICH HAS BEEN DEALT WITH THE LEARNED COMMISSIONER (APPEALS) FROM PAGES 2 TO 4 OF THE APPELLATE ORDER. THE LEARNED COMMISSIONER (APPEALS) REQUIRED THE ASSESSEE TO FURNISH VARIOUS DETAILS AS NOTED BY HIM IN PARA 2.3 WHICH WAS SUBMITTED BY THE ASSESSEE AS PER THE REQUIREM ENT OF THE ORDER SHEET ENTRY OF THE LEARNED COMMISSIONER (APPEALS). THE LEARNED COMMISSIONER (APPEALS) NOTED THAT THE ASSESSEES TURNOVER FROM CLOTH BUSINESS WAS RS. 23 09 966 AND THE MAIN ADVANCES HAS BEEN GIVEN TO THREE SISTER CONCERNS. ADVANCING OF LOA N TO THE SISTER CONCERNS AND EARNING INTEREST CANNOT BE TREATED AS BUSINESS INCOME AS THE SAME IS NEITHER TRADE NOR COMMERCE. ACCORDINGLY HE DISMISSED THE ASSESSEES CONTENTION ON THIS SCORE. 12. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES MAIN OBJECT CLAUSE PROVIDES FOR GIVING ADVANCES AND LOANS FOR THE SARVAMANGALA HOLDINGS PVT. LTD. 6 PURPOSE OF EARNING INTEREST. IN THE COURSE OF CARRYING ON SUCH ACTIVITIES IT HAS EARNED HUGE INTEREST INCOME OF RS. 42 13 423 AS COMPARED TO OTHER BUSINESS ACTIVITIES OF SAL E OF GOODS. IN THE EARLIER YEARS ALSO THE INTEREST INCOME RECEIVED FROM THE ADVANCES AND LO ANS GIVEN TO THE SISTER CONCERN AND THE INTEREST RECEIVED THEREFROM HAS BEEN ASSESSED AS BUSINESS INCOME. ONCE THAT IS SO IN THIS YEAR ALSO THE SAME INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. IN SUPPORT OF HIS CONTENTION HE DREW OUR ATTENTION TO THE RELEVANT OBJECTS GIVEN IN THE MOA AND RELEVANT AUDITED STATEMENTS OF THE EARLIER YEARS AND THE ASSESSMENT ORDERS PASSED UNDER SCRUTINY PROCEEDINGS PASSED U NDER SECTION 143(3). THUS HE PLEADED THAT IT CANNOT BE HELD THAT INTEREST EARNED DURING THE COURSE OF BUSINESS ACTIVITIES IN THIS YEAR IS INCOME FROM OTHER SOURCES. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED UPON THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS). 14. WE HAVE HEARD THE RIVAL CONTENTION PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. INSOFAR AS THE INTEREST INCOME RECEIVED ON LOANS AND ADVANCES GIVEN TO THE SISTER CONCE RNS AND THE SUBSIDIARY COMPANY IT IS SEEN THAT MOST OF THE LOANS HAVE BEEN GIVEN IN THE EARLIER YEARS AND ALSO IN THE CURRENT YEAR. FROM SUCH LOANS THE ASSESSEE IS CHARGING INTEREST @ 9%. AS PER THE MAIN OBJECT CLAUSE GIVEN IN THE MOA THE ASSESSEES MAI N ACTIVITIES IS THAT OF THE INVESTMENT COMPANY. IN PURSUANCE OF THIS OBJECT THE ASSESSEE HAS ADVANCED LOAN S FOR EARNING INCOME. THUS ANY INCOME FROM CARRYING OUT SUCH ACTIVITIES WHICH ARE IN CONSONANCE WITH ITS MAIN OBJECT CLAUSE THEN THE SAME HAS TO B E ASSESSED AS BUSINESS INCOME ONLY . IN THE EARLIER YEARS ALSO THE ASSESSEE HAS DISCLOSED THE INTEREST INCOME RECEIVED FROM THE LOANS AND ADVANCES GIVEN TO THE SISTER / GROUP COMPANIES AS BUSINESS INCOME WHICH HAS BEEN ACCEPTED BY THE REVENUE IN SCRUTINY PROCEEDINGS. IF THE SAME FACTS AND TREATMENT OF INCOME IS PERMEATING IN THIS YEAR ALSO THEN DIFFERENT VIEW CANNOT BE TAKEN WITHOUT SARVAMANGALA HOLDINGS PVT. LTD. 7 ANY CHANGE IN FACTS OR MATERIAL ON RECORD. THUS ON THE FACTS OF THE ASSESSEES CASE WE ARE OF THE OPINION THAT INSOFAR AS THE INTEREST INCOME RECEIVED FROM ADVANCEMENT OF LOANS GIVEN TO SISTER CONCERN IN GROUP COMPANIES IS TO BE ASSESSED AS BUSINESS INCOME. 15. HOWEVER REGARDING THE INTEREST RECEIVED FROM THE FDRS WITH THE BANK THE SAME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES BECAUSE IT IS NOT PART OF THE ASSESSEES BUSINESS ACTIVITIES. THUS TO THE EXTENT OF INTEREST INCOME OF RS. 1 19 710 THE SAME HAS RIGHTLY BEEN TREATED AS INCOME ASSESSABLE UNDER INCOME FROM OTHER SOURCES. THUS GROUND NO.3 AND 4 ARE TREATED AS PA RTLY ALLOWED. 16. 16. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11 - 10 - 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 11 - 10 - 2013 SD/ - SD/ - SD/ - D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI DATED : 11 - 10 - 2013 / COPY OF THE ORDER FORWARDE D TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) / THE CIT(A ) ; (4) / THE CIT MUMBAI CITY CONCERNED ; (5) / THE DR ITAT MUMBAI ; SARVAMANGALA HOLDINGS PVT. LTD. 8 (6) / GUARD FILE . / TRUE C OPY / BY ORDER / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI