SARVANKUMAR BHANWARLAL KOTHARI, MUMBAI v. ASST CIT RG 4(2), MUMBAI

ITA 7502/MUM/2014 | 2010-2011
Pronouncement Date: 18-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 750219914 RSA 2014
Assessee PAN AACPK3500H
Bench Mumbai
Appeal Number ITA 7502/MUM/2014
Duration Of Justice 1 year(s) 10 month(s) 2 day(s)
Appellant SARVANKUMAR BHANWARLAL KOTHARI, MUMBAI
Respondent ASST CIT RG 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 18-10-2016
Assessment Year 2010-2011
Appeal Filed On 16-12-2014
Judgment Text
INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI . . BEFORE S/SHRI RAJENDRA ACCOUNTANT MEMBER AND C. N. PRASAD JUDICIAL MEMBER ./ITA/7502/MUM/2014 /ASSESSMENT YEARS: 2010-11 SHRI SARVAN KUMAR BHANWARLAL 50/52 RAMWADI KALBADEVI RD. MUMBAI-400 002. PAN:AACPK 3500 H VS. ACIT-RANGE-4(2) AAYAKAR BHAVAN ROOM NO.649 6 TH FLR. MUMBAI-20. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI SATHAY MOORTHY-DR ASSESSEE B Y: SHRI PARAG K. SHAH / DATE OF HEARING: 19.07.2016 / DATE OF PRONOUNCEMENT: 18.10.2016 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT 1961(ACT) PER RAJENDRA AM - CHALLENGING THE ORDER DATED 17/10/2014 OF THE CIT ( A)-8 MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE AN INDIVIDUAL FILED HIS R ETURN OF INCOME ON 26/07/2010 DECLARING TOTAL INCOME AT RS. 65.02 LAKHS. THE AO COMPLETED T HE ASSESSMENT UNDER SECTION 143 (3) ON 28/ 02/ 2013 DETERMINING HIS INCOME AT RS. 70.85 LA KHS. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 2.7 LAKHS UNDER SECTION 14 A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD EARNED TAX-FREE DIVIDEND INCOME OF RS.88.53 LAKHS THAT HE HAD CLAI MED THE SAME AS EXEMPT THAT HE HAD NOT ADOPTED ANY EXPENDITURE INCURRED FOR EARNING THE TA X-FREE INCOME. IN THAT REGARD THE ASSESSEE EXPLAINED THE HE HAD NOT INCURRED ANY EXPENDITURE T O EARN THE EXEMPT INCOME. HOWEVER THE AO HELD THAT A CERTAIN PERCENT OF THE EXPENSES CLAI MED BY THE ASSESSEE WOULD BE ATTRIBUTABLE TO TAX-FREE INCOME.REFERRING TO THE PROVISIONS OF R ULE 8D OF THE INCOME TAX RULES 1962 (RULES) HE MADE A DISALLOWANCE OF RS. 2 71 393/- (AMOUNT EQUAL TO % OF THE AVERAGE VALUE OF INVESTMENT + RS. 1.52 LAKHS UNDER THE HEAD INTER EST EXPENDITURE). 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM IT WAS ARGUED THAT HE HAD NOT INCURRED OR CLAIMED ANY EXPENDITURE AGAINST TAXABLE INCOME OR EXEMPT INCOME THAT NO DISALLOWANCE WAS MADE UNDER SECTION 14 A OF THE ACT FOR THE ASSESSMENT YEARS 20 08 09 AND 2009 10 WHEREIN THE ASSESSMENTS WERE PASSED UNDER SECTION 143 (3) THAT THE AO HAD WRONGLY CONSIDERED INTEREST PAID TO A PARTNERSHIP FIRM FOR DISALLOWANCE UNDER S ECTION 14 A THAT THE INTEREST WAS PAID ON ACCOUNT OF EXCESS WITHDRAWAL FROM THE FIRM AGAINST CAPITAL BALANCE THAT THE AO HAD WRONGLY CALCULATED THE AVERAGE VALUE OF INVESTMENT.AFTER CO NSIDERING THE SUBMISSION OF THE ASSESSEE ITA/7502/M/14-SARVAN KUMAR BHANWARLAL 2 AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD RIGHTFULLY MADE THE DISALLOWANCE. HE REFERRED TO THE CASE OF GODREJ AND BOYCE MANUFACTUR ING COMPANY LTD. (ITA 626 OF 2010 DATED 12 EIGHT 2010). 4. BEFORE US THE AUTHORISED REPRESENTATIVE (AR) ARGUED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME THAT NO DISALLOWANCE COULD BE MADE APPLYING THE PROVISIONS OF RULE 8D OF THE RULES THAT INTEREST P AID BY HIM WAS NOT FOR EARNING EXEMPT INCOME.HE RELIED UPON THE CASES OF HIS BROTHERS THA T WERE DECIDED BY THE TRIBUNAL AND WHEREIN THE ISSUE OF 14A WAS ADJUDICATED IN THEIR FAVOUR. T HE DEPARTMENTAL REPRESENTATIVE(DR) LEFT ISSUE TO THE DISCRETION OF THE BENCH. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST TH E EXEMPT INCOME. THE AO/FAA HAVE ALSO NOT ALLEGED THAT ASSESSEE HAD INCURRED ANY EXPENDIT URE. THEREFORE IN OUR OPINION THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTIO N 14 A READ WITH RULE 8D OF THE RULES. BOTH THE AUTHORITIES HAVE NOT CONSIDERED THE FACT THAT I NTEREST WAS NOT PAID BY THE ASSESSEE FOR EARNING TAX-FREE INCOME. CONSIDERING THE FACTS OF T HE CASE WE ARE OF THE OPINION THAT THE FAA WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE AO . THEREFORE REVERSING HIS ORDER WE ARE DECIDING THE FIRST GROUND OF APPEAL IN FAVOUR OF TH E ASSESSEE. 6. SECOND GROUND OF APPEAL IS ABOUT ADDITION OF RS. 1. 58 LAKHS AS ANNUAL LETTING VALUE (ALV) UNDER THE HEAD INCOME FROM HOUSE PROPERTY. DU RING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAD THREE PROPERTIES IT HAD SELF OCCUPIED PROPERTY AT PALI AND LET OUT PROPERTY AT BHIWANDI AS PER THE COMPETITION OF THE INCOME. HE REFERRED TO THE PROVISIONS OF SECTION 23 (4) OF THE ACT AND HELD THAT FAIR RETURN ON INVESTMENT HAD TO BE DETERMINED FOR THE DEEMED LET OUT PROPERTY. REFERRING TO THE WEALTH TA X RETURN OF THE ASSESSEE WHERE VALUE OF THE PROPERTY AT PALI WAS SHOWN AT RS. 32.39 LAKHS THE AO DETERMINED THE GROSS ANNUAL LETTING VALUE OF THE PROPERTY AT RS. 2.26 LAKHS. AFTER ALLO WING STATED A DEDUCTION AT THE RATE OF 30% FOR REPAIRS AND MAINTENANCE THE AO MADE AN ADDITIO N OF RS. 1 58 744/-TO THE TOTAL INCOME OF THE ASSESSEE. 7. IN THE APPELLATE PROCEEDINGS THE FAA CONFIRMED OF O RDER OF THE AO HOLDING THAT AS PER THE PROVISIONS SECTION 23 OF THE ACT THE AO WAS ENTITL ED TO DETERMINE THE ALV OF THE PROPERTY. 8. DURING THE COURSE OF HEARING BEFORE US THE AR ARGUE D THAT ASSESSEE WAS NOT GIVEN AN OPTION AS PER THE PROVISIONS OF SECTION 23 (4)OF THE ACT THAT THE MAXIMUM ADDITION THAT COULD BE MADE WAS RS. 8 738/- THAT THE CALCULATION GIVEN BY THE ASSESSEE WAS NOT CONSIDERED BY EITHER OF THE AUTHORITIES. THE DR SUPPORTED THE ORDER OF T HE FAA. ITA/7502/M/14-SARVAN KUMAR BHANWARLAL 3 9. WE FIND THAT THE ASSESSEE WAS NOT GIVEN OPTION OF O PTING THE SELF OCCUPIED PROPERTY AS PER THE PROVISIONS OF SECTION 23 (4) THAT THE AO/FAA H AD NOT CONSIDER THE EXPLANATION FILED BY THE ASSESSEE FOR CONSIDERING THE LOWER ANNUAL LETTI NG VALUE OF THE PROPERTY OWNED BY THE ASSESSEE. THEREFORE IN OUR OPINION THE MATTER SHOUL D BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH AND DEDICATION. HE IS DIRECTED TO AFFORD REAS ONABLE PERSON OF HEARING TO THE ASSESSEE. SECOND GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. 10. LAST GROUND OF APPEAL DEALS WITH DISALLOWANCE OF IN TEREST OF RS. 1.52 LAKHS PAID TO KOTHARI FABRIC.DURING THE ASSESSMENT PROCEEDINGS THE AO FOU ND THAT THE ASSESSEE HAD INCLUDED INTEREST PAID TO FIRM AND CLAIM THE SAME AS LOSS UN DER THE HEAD SHARE PROFIT OF THE FIRM THAT THE PROFIT FROM PARTNERSHIP FIRM WAS FULLY EXEMPT U NDER SECTION 10 (2A) OF THE ACT THAT THERE COULD NOT BE ANY LOSS UNDER THE HEAD INCOME FROM BU SINESS AND PROFESSION THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT ALLOWABLE. 11. IN THE APPELLATE PROCEEDINGS THE ASSESSEE ARGUED T HAT HE WAS A PARTNER OF KOTHARI FABRICS THAT THE INTEREST RECEIVED FROM THE FIRM ON CAPITAL ACCOUNT WAS TAXABLE THAT INTEREST PAID WAS ALLOWABLE AS DEDUCTION THAT THE AO HAD NOT CONSIDE RED THE TRUE NATURE OF THE AMOUNT.THE FAA UPHELD THE ORDER OF THE AO. 12. BEFORE US THE AR ARGUED THAT THE SHARE OF LOSS FRO M FIRM WAS DIFFERENT FROM THE INTEREST PAID BY THE PARTNER THAT BOTH THE AUTHORITIES HAD NOT CONSIDERED THE SUBMISSIONS MADE BY IT ALONG WITH THE LEDGER OF THE FIRM. HE REFERRED TO T HE ACCOUNT CONFIRMATION LETTER SIGNED BY THE ASSESSEE AND THE PARTNERSHIP FIRM. AFTER HEARING TH E RIVAL SUBMISSIONS WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. HE IS DIRECTED TO CONSIDER THE EXPLANATION FILED BY THE ASSESSEE A LONG WITH THE LEDGER ACCOUNT FILED.GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH OCTOBER 2016. 18 2016 SD/- SD/- SD/- SD/ ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 18.10.2016. JV.SR.PS. ITA/7502/M/14-SARVAN KUMAR BHANWARLAL 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ 4. THE CONCERNED CIT / 5. DR E BENCH ITAT MUMBAI / . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER / DY./ASST. REGISTRAR /ITAT MUMBAI.