PEEJAY SILK MILLS,MUMBAI vs. ITO WD 20(2)(1), MUMBAI

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

in the appeal reads as hereunder: -

1. On the facts and circumstances of the case, whether the learned CIT(A) was justified in confirming the action of A.O. of dis-allowing of Rs.10,15,727/- out of various administrative expenses instead of Rs.7,40,995/- proposed by the appellant.

2. On the facts, in law and in the circumstances of the case, whether the Learned CIT(A) was justified in confirming the determination of deemed short term capital gain at Rs.7,51,743/- instead of actual long term capital gain of Rs.4,19,366/- and further denying the appellant the benefit of indexation and applicability of rate of tax applicable to long term capital gain.

3. On the facts, in law and in the circumstances of the case whether the learned CIT(A) was justified in confirming the action of the A.O of dis-allowing a sum of Rs.9,76,839/- paid as interest on housing loan while determining income from house property and Rs.8,82,697/- out of business income/other sources.

2.1 Brief facts are that the assessee being resident firm engaged in the business of trading of fabric was saddled with following additions in quantum assessment which are the subject matter of present appeal:-

No. Nature of Addition Amount (Rs.) 1. Expenses disallowance from business income 10,15,727/- 2. Short Term Capital Gains 7,51,743/- 3. Disallowance from Income from other sources 18,59,536/- 2.2 Facts qua the additions are that during assessment proceedings, it was noted that the assessee reflected interest income of Rs.2.66 Lacs in Profit & Loss Account and debited interest expenditure of Rs.18.59 Lacs.

Peejay Silk Mills Assessment Year-2011-12 Both these items, in computation of income, were reflected under the head Income from Other Sources. The perusal of Balance Sheet at year- end revealed that the assessee had loans liabilities aggregating to Rs.203.95 Lacs against which the aforesaid interest was debited. As against this, the assessee had advanced loans of Rs.147.95 Lacs & Rs.15.12 Lacs, against which meager interest income of Rs.2.66 Lacs was reflected. The further insight into the loans granted by the assessee revealed that the assessee, besides being shareholder in three concerns, also advanced interest free loans aggregating to Rs.79.29 Lacs to these three concerns. The above factors led to interest disallowance of Rs.18.59 Lacs under the head Income from other sources and accordingly the interest income was assessed as Income from other sources at Rs.21.26 Lacs. 2.3 The Ld. AO, in the alternative, opined that stated investments in the shape of Share Capital also attracted the disallowance u/s 14A and since the entire interest was already disallowed, no further disallowance was computed for by Ld. AO in the quantum assessment order. 2.4 Upon perusal of Profit & Loss Account, it was found that the assessee credited certain incomes by way of rental income, computer service charges and sale of finished goods out of which only the activities in the shape of sale of finished goods & computer service charges, in the opinion of Ld. AO, constituted the business activity for the assessee and therefore, the expenditure incurred in relation thereto only could be allowed to the assessee. The sale & purchases of finished goods was reflected as Rs.5.14 Lacs & Rs.4.02 Lacs, against which aggregate Administrative Expenditure of Rs.13.33 Lacs was claimed Peejay Silk Mills Assessment Year-2011-12 which inter-alia, consisted of Loan Processing Charges, Repairs & Maintenance, Rent Rates & taxes, Legal & Professional Charges etc. Besides this, the assessee had claimed Bank Charges of Rs.20,996/- also. Finding no relation of the expenses with business activity of the assessee, Ld. AO disallowed 75% of these aggregate expenses of Rs.13.54 Lacs which resulted into impugned disallowance of Rs.10.15 Lacs in the hands of the assessee and accordingly the Business Loss of Rs.6.22 Lacs was assessed at Business Income of Rs.3.93 Lacs. 2.5 The third addition pertains to income under the head Capital Gains. The assessee had declared Short Term Capital Gains on sale of a business asset which was depreciable asset. The business asset was in the shape of a flat and a row house at Boiser, the sale consideration of which exceeded the Block of Assets titled as Flat and accordingly gave rise to Short Term Capital Gains [STCG]. Against the row house, the assessee claimed deduction of other charges of Rs.2.47 Lacs, for which no details could be filed and therefore the deduction of the same was not allowed. Finally, the STCG was computed as Rs.7.51 Lacs as against Rs.4.09 Lacs computed by the assessee.

Peejay Silk Mills Assessment Year-2011-12 4. The Ld. Authorized Representative [AR], Shri R.K.Bothra, by drawing our attention to the paper-book agitated the additions as sustained by Ld. first appellate authority which has been controverted by Ld. Departmental Representative [DR], Shri Rajeev Gubgotra. 5.1 We have carefully heard the rival submissions and perused relevant material on record including cited judicial pronouncements. So far as the disallowance of administrative expenses of Rs.10.15 Lacs is concerned, upon perusal of financial statements as placed on record, it is noted that the assessee has not carried out any major business activity during the impugned AY. Besides Computer service charges of Rs.4.80 Lacs, the assessee has reflected sale & purchase of finished goods for Rs. 5.14 Lacs and Rs.4.02 Lacs against which huge administrative expenses of Rs.13.33 Lacs have been claimed which mostly consist of payment to employees, rent rates & taxes, repairs and maintenance expenses, water charges, loan processing fees, legal & professional charges etc. Nothing on record demonstrate clear nexus of these expenses with the business activities being carried out by the assessee during impugned AY and further most of these expenses, prime facie, are directed towards earning of Rental income and Interest income, which has been assessed under other heads of income. Therefore, we find no infirmity in the order of lower authorities in this regard and therefore, dismiss Ground No.1 as raised before us. 5.2 So far as the computations under the head capital gains is concerned, Ld. AR has contended that the same was in the nature of Long Term Capital Gains since no depreciation was allowed to the assessee against the block of assets during past several years. Reliance Peejay Silk Mills Assessment Year-2011-12 has been placed on the decision of this Tribunal rendered in Prabodh Investment & Trading Co. Pvt. Ltd. Vs. ITO [ITA No. 6557/Mum/2008 dated 28/02/2011]. However, we find no force in the argument of Ld. AR since the assessee has reflected additions of Rs.43.27 Lacs with respect to these two properties during impugned AY in Fixed Assets Schedule E as attached with the financial statements. The same reveal that the properties has been purchased and sold in the same AY and clearly held by the assessee for less than 36 months. This being the case, looking from any angle, the same gave rise to Short Term Capital Gains only. Even otherwise assuming that the same were business assets for the assessee, the express statutory provisions of Section 50 creates a deeming fiction to treat the resultant gains as Short Term Capital Gains only. Therefore, this ground of appeal stand dismissed. 5.3 So far as interest disallowance under the head income from other sources is concerned, we find that interest expenditure as claimed by the assessee has two components i.e. interest on housing loan to bank Rs.9.76 Lacs & other interest Rs.8.82 Lacs. So far as the disallowance of Rs.8.82 Lacs is concerned, we find that the same stood squarely covered against the assessee by the order of this Tribunal for immediately preceding AY 2010-11 [ITA number 1814/Mum/2010 dated 04/08/2017]. The complete onus to establish the nexus between interest income earned by the assessee and interest paid by the assessee squarely lied on the assessee which he has failed to prove. Therefore, the deduction of the same could not be allowed to the assessee, in any manner. With respect to interest on housing loan borrowed from Citibank, we find that the assessee has obtained two loans vide account Peejay Silk Mills Assessment Year-2011-12 Nos. 2211395 & 219658 out of which one loan was obtained in the name of the assessee whereas the other loan was obtained in the name of another entity namely Jessica Impex. The Tribunal, in AY 2010-11, has confirmed the disallowance of interest paid against loan obtained in the name of Jessica Impex. Respectfully following the same, we disallow the assessee’s claim to that extent. The loan obtained in the name of the assessee is stated to be housing loan and the same, as per submissions, is admissible to the assessee. Since the admissibility of the same, under the head Income from house property, has not been examined by Ld. AO, the same stand remitted back to the file of Ld. AO for re-adjudication in the light of submissions made by the Ld. AR. The assessee, in turn, is directed to substantiate the same. Having held so, the interest income of Rs.2.66 Lacs as reflected by the assessee shall be assessed under the head Income from other Sources against which no deduction shall be admissible to the assessee. This ground stand partly allowed for statistical purposes.