THACKER AND COMPANY LTD,MUMBAI vs. ITO 2(3)(3), MUMBAI

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ITA 3381/MUM/2019Status: DisposedITAT Mumbai17 August 2020AY 2013-146 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that as the assessee is a registered NBFC and its business is advancing loans, the interest income should be treated as business income. The Tribunal also noted the consistency in treating such income as business income in other years.

What were the facts?

The assessee, a registered NBFC, treated its net interest income as business income and claimed related expenses. The AO treated the net interest income as income from other sources and disallowed business expenses. The CIT(A) upheld the AO's action.

What were the issues?

Whether net interest income earned by an NBFC should be treated as business income, and consequently, whether related expenses are allowable. The issue of disallowance under Section 14A was also to be re-adjudicated.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: HON’BLE SHRI MAHAVIR SINGH, VP & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Shri Dharmesh Shah, Ld. AR
For Respondent: Shri Amit Pratap Singh, Ld. DR

Thacker and Company Limited Assessment Year: 2013-14 आयकर अपीलीय अिधकरण “ ई ” "ायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI माननीय "ी महावीर िसंह, उपा"" एवं माननीय "ी मनोज कुमार अ"वाल ,लेखा सद" के सम"। BEFORE HON’BLE SHRI MAHAVIR SINGH, VP AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM (Hearing Through Video Conferencing Mode) आयकर अपील सं./ (िनधा"रण वष" / Assessment Year: 2013-14) Thacker and Company Limited Income Tax Officer-Ward 2(3)(3) बनाम/ Room No.555, 5th Floor, 60, Jatia Chambers Dr. V.B. Gandhi Marg Aaykar Bhavan, MK Road, Vs. Fort, Mumbai 400 001 Mumbai 400 020 "थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACT-3200-A (अपीलाथ"/Appellant) (""थ" / Respondent) : Assessee by : Shri Dharmesh Shah, Ld. AR Revenue by : Shri Amit Pratap Singh, Ld. DR सुनवाई की तारीख/ : 05/08/2020 Date of Hearing घोषणा की तारीख / : 17/08/2020 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

1.

Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2013-14 contest the order of Ld. Commissioner of Income-Tax (Appeals)-6, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT-6/IT-39/2016-17 dated 26/04/2019 on following grounds of appeal: - Thacker and Company Limited Assessment Year: 2013-14

1. On the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the action of the A.O (Assessing Officer) in considering net interest income of Rs.14,29,539/- as income from other sources ignoring the fact that appellant was a registered NBFC Company since 1998 and for various preceding and subsequent assessment years had been offering the interest income as business income which was accepted as such by the Revenue in all the assessments completed u/s 143(3) of the Act.

2. On the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the action of the AO of not allowing the business expenditure of Rs.27,75,500/- in view of the fact that AO treated the net interest income as income from other sources though the appellant is a Non-banking financial company(NBFC) and widely held Public Ltd. Company which needed to incur such basic administrative expenses for statutory compliances and business purposes. 2.1 Without prejudice and on the facts and circumstances of the case, the Ld.CIT(A) erred in not allowing the administrative expenditure of Rs.27,75,500/- incurred statutorily which was to be allowed in the hands of a listed public company as business expenditure. 3. Without prejudice and in the alternative, on the facts and circumstances of the case and on merits the Ld. CIT(A) erred in not deleting the disallowance u/s 14A r.w.r. 8D of the Act of Rs.9,15,011/-. As evident, the sole subject matter of instant appeal is treatment of interest income earned by the assessee and disallowance u/s 14A. 2. We have carefully heard the arguments advanced by both the sides. We have also perused relevant material on record including documents placed in the paper-book. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 3.1 The material on record would show that an assessment was framed against the assessee for the year under consideration u/s 143(3) on 22/03/2016 wherein the returned income of Rs.36.96 Lacs was assessed at Rs.80.11 Lacs. It was primarily due to disallowance u/s 14A for Rs.12.11 Lacs and in view of the fact that interest income earned by the assessee was assessed under the head Income from other Sources Thacker and Company Limited Assessment Year: 2013-14 as against Business Income offered by the assessee and no expenditure was allowed against the same. 3.2 The assessee is stated to be a resident corporate entity and a non- banking financial company (NBFC). It holds certificate of Registration as NBFC since 09/03/1998 from RBI, a copy of which is placed on record. During the course of assessment proceedings, it transpired that the assessee earned interest income of Rs.60.56 Lacs and incurred finance cost of Rs.46.27 Lacs. The Ld. AO opined that since the assessee did not have any business other than Income from House Property and the assessee has been allowed deduction u/s 24 which would cover all deductions, the net interest income of Rs.14.29 Lacs was to be assessed under the head Income from Other Sources as against Business income offered by the assessee. Consequently, other business expenses claimed by the assessee were not allowed in toto. 3.3 The second issue pertains to disallowance u/s 14A since assessee earned exempt dividend income of Rs.12.91 Lacs. During the course of assessment proceedings, the assessee computed disallowance at Rs.2.95 Lacs and submitted that no fresh investments were made during the year and no expenditure was incurred to earn the exempt income. However, not satisfied, Ld. AO applying Rule 8D, worked out aggregate disallowance of Rs.12.11 Lacs and added the same to total income of the assessee. The said disallowance comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.10.46 Lacs and expense disallowance u/r 8D(2)(iii) for Rs.1.65 Lacs.

Thacker and Company Limited Assessment Year: 2013-14 3.4 Although the assessee preferred further appeal before Ld. CIT(A), however it failed to make effective representation on various dates. The assessee could file only written submissions vide reply dated 18/04/2019 which were duly considered while framing the appellate order. The assessee’s explanations could not convince Ld. CIT(A) who upheld the action of Ld. AO in treating the interest income as Income from other sources. The administrative expenses aggregating to Rs.27.75 Lacs as claimed by the assessee as Business Expenditure was also not allowed. Consequently, separate disallowance u/s 14A as made by Ld. AO would not be justified and therefore, the same was deleted. Aggrieved the assessee is in further appeal before us.

4.

Before us, Ld. AR, drawing our attention to assessee’s financial statements, urged that the assessee was registered NBFC since 1998 and it was in the business of advancing loans and therefore, the interest income would constitute Business Income for the assessee. It has been submitted that in all the preceding as well as in succeeding years, the interest income was always been reflected as Business Income and the said treatment was never disturbed by the revenue. In support, Computation of Income for AYs 2011-12 & 2012-13 has been placed on record. The Ld. AR further urged that consequently all expenditure incurred by the assessee during the course of its business would be an allowable expenditure. The Ld. DR submitted that the assessee remained negligent in attending the appellate proceedings and the adjudication was done on the basis of assessment order and material on Thacker and Company Limited Assessment Year: 2013-14 record and therefore, the same would not require any interference on our part.

5.

Upon careful consideration, we concur with Ld. AR’s submissions that the assessee was registered as NBFC with RBI and would earn interest income by advancing loans. The activity of advancing loans, in such a case, would become assessee’s business and naturally, the interest earned thereupon would constitute Business Income for the assessee. In fact, it is the plea of Ld. AR that such income was always offered to tax as Business Income and the said treatment was never disturbed. The rule of consistency would demand that their being no change in facts or circumstances, the accepted position should not be disturbed. Since the assessee failed to make effective representation before Ld. first appellate authority, we deem it fit to remit the matter back to the file of Ld. CIT(A) for re-adjudication in the light of arguments put forth by Ld. AR before us. If the interest income has been accepted to be the Business Income in all the other years, the said treatment should not be disturbed in this year. Consequently, the assessee would be eligible to claim the deduction of business expenditure, if otherwise found in order. Since the matter of disallowance u/s 14A was not adjudicated by Ld. CIT(A) in view of the fact that entire business expenditure was disallowed as well as confirmed, the same may also be re-adjudicated in the set aside proceedings.

Thacker and Company Limited Assessment Year: 2013-14 6. Resultantly, the appeal stands allowed for statistical purposes.

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