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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL “E” Bench, Mumbai Before Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
I.T.A. No. 6829/Mum/2019 (Assessment Year 2016-17)
Savatex Pvt.Ltd. Vs. ACIT,Circle-2(3)(2) 79/91, 4th Floor Room No.552, 5th Floor Mehta House Aaykar Bhawan Samachar Marg, Fort M.K.Road Mumbai-400 001 Mumbai-400 020
PAN : AAACS0729B (Appellant) (Respondent) Shri Prakash Jothwani Assessee by Department by Shri Vijay Kumar Menon Date of Hearing 15.07.2021 Date of Pronouncement 06.10.2021
O R D E R Per Shamim Yahya (AM) :-
This appeal by the Assessee is directed against the order of learned CIT(A)-6 dated 25.10.2019 and pertains to Assessment Year 2016-17.
The grounds of appeal read as under :
The Ld. CIT (Appeals) failed to consider that the Appellant went for the said hearing on 09.08.2019 and due to the non-availability of the CIT (A) the Appellant seeked for adjournment and was told that fresh notice will be issued for hearings. 2. [A] The Ld. CIT (Appeals) erred in confirming the disallowance of Rs 82,41,0067- for interest expenditure incurred without considering the orders of the earlier years of the A.O, Where the claim has been allowed and also not considered the Tribunal Order for A. Y 2010-11 in Appellant own case where the interest expenditure had been set aside by ITAT.
[B] The Ld. CIT (Appeals) erred in upholding the disallowance by merely relying on the Predecessor decision of earlier year i.e. 2012-13 and without considering the submission filed by the Appellant.
3.
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[A] The Ld. CIT (Appeals) has failed to consider the fact that there is an apparent mistake where disallowance on interest expenditure was computed double in the assessment order which has to be rectified u/s 154 of the l.T Act which was pointed out to A.O during the proceedings and which fact was not considered by the CIT (A). [B] The Ld. CIT (Appeals) further has also failed to consider the fact that A.O did not respond to the application of rectification made by Appellant. Which is bad in law. 4. The Ld. CIT (Appeals) erred in confirming the disallowance of Indexation benefit without considering the vary fact that sale consideration of Shop No. 1 was shown under profit from business income and at the same time this transaction has also been shown as capital gains in the Computation of Income. 5. The Ld. CIT (Appeals) erred stating that there was absence of complete facts whereas have failed to consider the documents filed in the Paper Book which clearly showed the facts.
Brief facts of the case are that assessee company is engaged in the business of investments in securities and real estate. It e-filed its return of income for A.Y.2016- 17 on 17.09.2016 declaring total income at Rs.64,48,309/-. The return was processed u/s.143(1) of the Act. Subsequently, the case was manually selected for scrutiny under compulsory selection criteria. Accordingly, statutory notices u/s. 143(2) and 142(1) were issued and duly served on the assessee through ITBA portal. In response to the aforesaid notices, the assessee made submissions from time to time. The AO completed the assessment u/s. 143(3) of the Act on 22.12.2018 determining total income at Rs. 1,71,66,1807- under normal provisions of the Act and book profit of (-) Rs. 1,06,44,015/- U/S.115JB of the Act. In the assessment so completed, the AO disallowed Rs.82,41,006/- on account of interest expenditure u/s.36(1)(ii) of the Act .and Rs.24,76,860/- being indexation benefit claimed on declared business income.
Apropos, issue of disallowances of interest expenditure:- The AO in the assessment order has observed that assessee had incurred interest expenditure of Rs. 82,41, 006/- on loans availed during the year. In contrast to interest expenditure claimed, assessee had declared income from operations amounting to Rs. 15,47, 887/- which included Dividend Income of Rs.4,19,867/-,
3 ITA No.6829/Mum/2019 Interest Income of Rs. 10,72, 125/- and Income from Undivided Trust Property of Rs.55,895/-. The assessee had also declared other income of Rs.1, 29,49, 135/- under the head Income from Business and Profession, which included profit on sale of investment of Rs.5,24,135/-and profit on sale of intangible assets of Rs.1,24,25,000/-. Further, other expenses of meager amount of Rs.2,96,358/-. On verification of the profit & loss account, AO opined that assessee had incurred abnormally high interest expenditure as compared to income declared. Moreover, in A.Y.2010-11, 2012-13, 2013-14 and 2014-15, assessee had similar interest expenditure with regard to loans taken from related parties and M/s.Citicorp Finance India Ltd. wherein the AOs disallowed the entire expenditure in the previous year relevant to A.Y.2010-11, 2011- 12, 2012-13, 2013-14 and 2014-15 on account of which assessee had failed to illustrate or prove the nexus between interest expenditure incurred and income earned, The assessee did not accept the stand of the Assessing Officer and preferred appeal before Ld. CIT(A). Ld. CIT(A) dismissed the assessee's appeal for A.Y.2010- 11 and 2012-13 and upheld the additions made by the Ld. AOs. During the course of assessment proceedings, the AO asked the assessee to justify the nexus between interest paid and income earned as there was no business activity during the year. The AO therefore asked the assessee to show cause and explain why the entire interest payment should not be disallowed and added to the total income since assessee had failed to prove the nexus. Since the facts of the case were similar to the facts for the year under consideration were similar to the facts, circumstances and events of the case of A.Y.2010-11, 2011-12, 2012-13, 2013-14 and 2014-15, Ld. CIT(A) upheld the additions made by the AO in A.Y.2010-11 and 2012-13 and since assessee had not made any cogent or convincing explanation, hence the AO disallowed the amount of interest paid to these parties of Rs.82,41,006/- and added it to the total income of the assessee.
Upon assessee’s appeal Ld.CIT(A) noted the assessee submissions as under:-
4 ITA No.6829/Mum/2019 "Disallowance u/s.36(1)(ii) of interest expenditure Rs.82,41,006/- i)The Ld. AO has failed to consider that the Appellant had incurred an expenditure on account of interest on various loans. The AO has also failed to observe that the assessee had made advance loans to the directors and sister concern company which were for business purpose and out of that advances they have earned interest income. The Appellant has also borrowed loan advances from other sources from which they have incurred interest expenditure. Therefore, the Appellant has provided all accounts details annexured in the Paper Book which explain the nexus between interest paid and income earned. Drawing your attention to the decision of Mumbai Tribunal in assessee's own case for A.Y.2010-11 in ITA No.1030/ Mum/2016 decided on 21.06.2019 which says the issue involved with regard to eligibility of interest paid on loans taken by the assessee. The paper book filed by the assessee containing various details wherein it goes to prove that the loans were taken by the assessee In earlier years and accepted as genuine and interest paid on such loans were also allowed by revenue till A.Y.2009-10. The Appeal for AY.2010-11 has been filed and has been remanded in CIT(A). Pending decisions of subsequent previous years cannot deny that the nexus between Interest paid and Income earned was not genuine which has been a/ready accepted by A.O. and proved in earlier years to be genuine. Therefore, the disallowance made by A.O. is bad in law and must be deleted. Rectification u/s.154: (ii) Here, it is submitted that the Appellant, at time of hearing before the A.O. has pointed out the mistake in the assessment order which has to be rectified u/s.154 of the I.T. Act. The Appellant has written letter for the rectification of the mistake where the disallowance on interest expenditure was wrongly computed. There was no response or action by A.O. on the rectification of the error in Assessment Order. The A.O. cannot be justified in rejecting the Application of the Assessee made u/s.154 for rectification of the apparent mistake. (iii) Reliance is placed on following:
• AC/T Vs Rupam Impex (ITAT Ahmedabad) "CIT(A) reversed the order of AO. It was held that the AO has completely erred by not rectifying such mistakes which were clearly apparent very well from records in appellant's case. The mistakes were so glaring that the AO was not even required to look or verify any other document. If such kind of typographical or clerical mistakes are not rectified, the provisions of Sect/on 154 would become redundant. Considering the totality of facts and the above discussion, the AO is not correct in refusing the rectification of the appellant."
"ITAT held that in the figures set out in the assessment order are admittedly incorrect. Clearly, the Assessing Officer did not even apply his mind to the material on record. He did a simple cut and paste job from the statement of taxable income filed by the assessee. The starting point of his computation of income was incorrect, he accepts it but still fights shy of giving effect to the natural corollaries of discovering this mistake, if there is a mistake, it is to be rectified. There cannot be any justification of Assessing Officer's inertia in this respect. The same is the position with respect to the depreciation figure, and the same is the stand of the Assessing Officer."
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However, Ld.CIT(A) did not deal with the submission and held as under:-
“ I have carefully considered the facts of the case, discussion of the AO in the assessment order, written submission of the appellant and material available on record. An identical issue had come up for consideration in appellant’s own case in AY 2012-13 and the same has been decided by my learned predecessor CIT(A) vide order bearing No.CIT(A)-6/IT-62/2015-16 dated 29.07.2016 by observing as under: "4. I have carefully considered the facts of the case, the appellant has not made any submissions despite adequate opportunities granted to it. As stated by the AO, similar disallowance made in A.Y.2010-11 was accepted by the assessee and no appeal was preferred on the issue. I further find that similar issue had come up for consideration before the undersigned in appellant's own case in appeal no.CIT(A)-6/IT-92/2012-13. After considering the subject of the appellant, it was held that the AO had rightly considered that the assessee did not carry out any business activity and there was no annexure between the income and expenses incurred including the interest expenditure. Accordingly, the disallowance was interest expenditure was upheld. In this year also the appellant has not been able to establish annexure between interest expenditure and income earned by it. Hence, the claim of the expenses towards interest has been rightly disallowed by the AO. The ground is accordingly dismissed." Since the facts are similar including complete non-participation of the appellant in these proceedings despite grant of adequate opportunities as has been mentioned at para 4 above, and issue being identical, I have no reason to deviate from the findings of my learned predecessor. Hence, following the rule of consistency, this ground of appeal is treated as dismissed.”
Apropos, issue of capital gain:- Brief facts of the issue are that the AO has observed that assessee in their Income Tax Return filed for A.Y.2016-17 had shown sale of asset of Shop No.1 under the head Profit from Business Income and at the same time also claimed such transaction as part of their business operations. For such business transaction, the assessee had claimed indexation benefit on sale of tenanted premises of Shop No.1 amounting to Rs.24,76,860/-. At the same time, assessee intended to claim the same as capital gains income in their computation of income and accordingly indexation benefits on the said transaction. Hence, the AO disallowed the claim of indexation benefit of Rs.24,76,860/- and added it to the total income of the assessee. In this
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regard, the AO placed reliance on the decision of Hon'ble Apex Court in the case of Goetze (India) Limited Vs CIT (284 ITR 323) wherein it has been held that it is necessary for an assessee to revise its return of income for using any new claim which is not raised in the original return of income.
Upon assessee’s appeal Ld.CIT(A) confirmed as under:-
“ I have carefully considered the facts of the case, discussion of the AO in the assessment order, written submission of the appellant and material available on record. The appellant in this case seeks to claim benefit of indexation on a property sold during the year. It claims the sale taken place to be that of the tenancy right in the Shop No.1. The AO .n the assessment order has clearly mentioned that the sale of asset and consideration thereof of Shop No.1 has been shown by the assessee in the income-tax return filed under the head "Profit from Business Income". If the sale consideration is part of the assessee's business income there cannot be any case of taking such consideration to have been generated from the sale of assets held as investment by the assessee. Further thereto, no facts or any further details have been mentioned or submitted during the course of appellate proceedings but for the submission which has been reproduced at para 7.2 above. The opportunities granted and the response thereto of the assessee has been clearly mentioned at para 4 of this order and for reasons best known to the assessee, the adequate compliance bringing out complete facts regarding the case have not been submitted. It is further observed that the AO has also placed reliance on the decision of Hon'ble Apex Court in the case of Goetze (India) Limited Vs CIT (284 ITR 323) to support that for any fresh claim, assessee has to file its revised return of income and the new claim cannot be made before him without recourse to filing of the revised return. From the details available on record, it also cannot be ascertained that assessee actually has made any new claim which has been sought to be admitted during the instant proceedings. In the absence of complete facts, the claim of the assessee that benefit of indexation should be granted to it on sale of the asset of Shop No.1 is not found to be acceptable and is accordingly, rejected. This ground of appeal is accordingly, dismissed.”
Against the above order, assessee is in appeal before us.
We have heard both the parties and perused the record. Ld. Counsel of the assessee has submitted his submission as under:-
Disallowance u/s 36 (1) (ii) of interest expenditure Rs 82,41,006/-
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i) The Ld A.O has failed to consider that the Appellant had incurred an expenditure on the account of interest on various loans. The A.O has also failed to observe that the assesee had made advance loans to the directors and sister concern company which were for business purpose and out of that advances they have earned interest income. The Appellant has also borrowed loan advances from other sources from which they have incurred interest expenditure. Therefore, the Appellant has provided all accounts details annexured in the Paper book which explain the nexus between interests paid and income earned. Drawing your attention to the decision of Mumbai tribunal in assesee's own case for A.Y 2010-11 in ITA No.l030/Mum/2016 decided on 21.06.2019 which says the issue involved with regard to eligibility of interest paid on loans taken by the assessee. The paper book filed by the assessee containing various details wherein it goes to prove that the loans were taken by the assessee in earlier years and accepted as genuine and interest paid on such loans were also allowed by revenue till A.Y 2009-10, The Appeal for A.Y 2010-11 has been filed and has been remanded to CIT (A). Pending decisions of subsequent previous years cannot deny that the nexus between interest paid and income earned was not genuine. Which has been already accepted by A.O and proved in earlier years to be genuine. Therefore, the disallowance made by A.O is bad in law and must be deleted.
Rectification u/s'154 ii) Here, It is submitted that the Appellant, at time of hearing before the A.O has pointed Out the mistake in the assessment order which has to be rectified u/s 154 of the I.T Act. The Appellant has written letter for the rectification of the mistake where the disallowance on interest expenditure was wrongly computated. There was no response or action by A.O on the rectification of the error in assessment Order. The A.O cannot be justified in rejecting the Application of the Assessee made u/s 154 for rectification of the apparent mistake.
iii) Reliance is placed on following : • ACIT Vs Rupam Impex (ITAT Ahemdabad)
"CIT (A) reversed the order of AO. It was held that the AO has completely erred by not rectifying such mistakes which were clearly apparent very well from records in appellant's case. The mistakes were so glaring that the AO was not even required to look or verify any other document. If such kind of typographical or clerical mistakes are not rectified, the provisions of Section 154 would become redundant. Considering the totality of facts and the above discussion, the AO is not correct in refusing the rectification of the appellant.
"ITAT held that in the figures set out in the assessment order are admittedly incorrect. Clearly the Assessing Officer did not even apply his mind to the material on record. He did a simple cut and paste job from the statement of taxable income filed by the assessee. The starting point of his computation of income -was incorrect,
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he accepts it but still fights shy of giving effect to the natural corollaries of discovering this mistake. If there is a mistake, it is to be rectified. There cannot be any justification of Assessing Officer's inertia in this respect. The same is the position with respect to the depreciation figure, and the same is the stand of the Assessing Officer. "
Ground No: 2
Disallowance of Indexation benefit claimed Rs 24,76,860/-
iv) The Ld. A.O failed to understand the transaction and computation of the capital gain. The Appellant has sold property wroth Rs 1, 5000, OOO/- and has claimed indexation u/s 48. The property sold by the Appellant was not an inherited property, it was a tenancy right which was purchased by the Appellant and hence it was Intangible Capital assets for the Appellant. In books of account the property was shown as an Intangible assets and there was no claims of depreciation on the property as it was Intangible assets and it was not used for business needs or purpose. Here, the property is considered as non business long term assets because it does not fulfill the business needs, it's separate. Therefore, non business long assets can claim the benefit of Indexation on the cost of acquisition and cost of improvement under section 48. Placing Reliance on the following : • Bharat Enterprises, Mumbai Vs Department of Income Tai (1TAT Mumbai)
"From the definition of capital asset it is evident that a business asset also comes within the category of capital asset like any non business investment asset. Unlike in the holding of non business investment asset, there are advantages or benefits accrued to in the holding of a business asset. The foremost is the depreciation allowance that can be claimed from the business income as a deduction. There are also other deductions .from the business income available to business assets like expenses on maintenance current repairs. Insurance, and interest on borrowed capital utilized for acquisition of the asset etc., as provided*™ section 30 to 43D in the computation of the business income. The benefits to business assets are also available throughout its holding period. For non business investment asset no such deductions are available from income to which it has been applied. But for non business investment long term assets. The benefits of indexation on cost of acquisition and cost of improvement are provided in section 48."
v) Here, According to section 50 if the assets has been held for a period of more than 36 months. The benefit of indexation and benefit of lower rate applicable to the long term capital gain will be available. Hence, the Appellant has held the Assets beyond time limit and is eligible for the benefit of indexation on cost of acquisition. Hence, this Addition is bad in law and against the principle of natural justice. Reliance placed on following:
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• Prabodh Investment & Trading Company Vs Assesee (31 January 2007) (ITAT Mumbai) "In the present case there is also no dispute that the flat under consideration was purchased by the assessee in the year 1987. It was thus held for a period of more than thirty six months and therefore a long term capital asset. Accordingly the capital gains is directed to be assessed as long term capital gains after allowing the benefit of cost indexation as claimed by the assessee " In view of the above submissions, the Appellant, submits that the Ld. A.O was not at all justified in making addition of Rs82,41,006/- for interest expenditure and Rs 24,76,860 against indexation benefit to the total income and hence, the same must be deleted.
Per contra Ld. DR relied upon the order of authorities below.
As regards, the issue of disallowance of interest expenditure, we note that the assessee’s contention is that authorities below have not applied their mind on this issue. It has been pleaded that AO has failed to consider that assessee has incurred expenditure on account of interest on various loans that assessee has made advance loans to directors and sister concerns received for business purpose and out of that advances they have earned interest income. That assessee has also borrowed loan advances from other sources from which they have incurred interest expenditure. The assessee has provided all the account details annexured in the paper book, which explained the nexus between interest paid and income earned. The assessee has also referred to the ITAT decision in assessee’s own case for AY 2010-11 in which ITAT has categorically held that assessee’s counsel has filed a paper book containing various details, wherein it goes to prove that the loans were taken by the assesse in the earlier years and accepted as genuine and interest paid on such loans were also on such loans were also allowed by revenue in the AY 2009-10 and preceding assessment year. After noting these facts, ITAT had remanded the matter to the Ld.CIT(A) for denovo adjudication.
10 ITA No.6829/Mum/2019 13. Now in the present case, we note that AO in the assessment order has opined that assessee has incurred abnormally high expenditure as compared to income declared. This is an abstract observation without any figures given for comparison. Further, it has been mentioned that similar interest on loans taken from the parties were disallowed in earlier years as assessee has failed to prove the nexus between interest expenditure incurred and income earned. Further AO observed that assessee failed to justify the nexus of interest paid and income earned as there was no business activity during the year. This again is an abstract observation in contrast to the earlier observation that there was income declared by the assessee. AO further mentioned that assessee was asked to explain as to why the entire interest payment should not be disallowed and added. After putting this issue in the order sheet that question was issued to the assessee, there is no mentioned as to whatsoever was the reply of the assessee. The AO simply says that in earlier years the disallowance was done and assessee had not made cogent or convincing explanation, hence the AO disallowed the amount of interest paid to these parties amounting to Rs. 82,41,006/-.
Upon assessee’s appeal, Ld.CIT(A) passed even a further laconic order showing complete absence of application of mind as above. He mentions that AO had made a similar disallowances in AY 2010-11 and assessee has accepted and no appeal was preferred on the issue. However, as noted in the facts hereinabove matter for AY 2010-11 had travelled to the ITAT and ITAT firstly favorably observed that assessee has given all the details proving the nexus and that up to earlier year, no disallowances was made in this regard. Hence, the above shows that without any application of mind, the authorities below are passing orders year after year for reason best known to them when assessee has given the necessary details and no disallowance was done in earlier years as noted by the Tribunal. Without any change in facts and circumstances and without any application of mind, the revenue authorities are going on making the additions in abstract manner without bringing
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on record, cogent material. Such a relinquishment of statutory duties cannot be rewarded by remitting the matter for fresh inning every time. In this view of the matter, in our considered opinion, the orders of the authorities below shows complete lack of application of mind and in the background of aforesaid discussions, we are inclined to set aside the order of the authorities below and decide the issue in favour of the assessee.
As regards, the issue of capital gain, authorities below have declined to accept the fresh claim of the assessee on the touchstone of Hon’ble Supreme Court in the case Goetz( India) Ltd vs CIT 284 ITR 323. We note that in the case of Goetz( India) Ltd (supra). Hon’ble Supreme Court has held that their decision in that case will not impinge upon the ITAT power in admitting fresh claims otherwise that by revised return. Accordingly, we remit the issue to the file of AO and direct him to examine the factual veracity of assessee’s claim and decide the same after giving due opportunities of being heard to the assessee.
In the result, appeal by the assessee stands partly allowed.
Pronounced in the open court on 06.10.2021.
Sd/- Sd/- (PAVAN KUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 06/10/2021 Thirumalesh, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File.
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BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai