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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
PER C.N. PRASAD (JM) 1. The cross appeals are filed by the assessee and Revenue for the Assessment Year 2011-12 and appeal by the assessee is for the Assessment Year 2012-13.
We first take up the appeals for the Assessment Year 2011-12 and the only issue in the appeal of the assessee is in respect of confirming the disallowance of ₹.22,94,152/- made u/s. 14A r.w. Rule 8D of the I.T. Rules.
The Assessing Officer while completing the assessment invoking the provisions of Rule 8D2(iii) r.w.s. 14A of the Act disallowed ₹.38,04,497/-. On appeal Ld.CIT(A) deleted the interest disallowance made under Rule 8D2(ii) but sustained the disallowance made under Rule 8D2(iii). The only argument of the Ld. Counsel for the assessee is that, only the dividend yielding investments shall be considered for the purpose of computing the average investments and disallowance under Rule 8D2(iii) and non-dividend yielding investments shall be excluded for computing the disallowance, in view of the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27].
Ld. DR vehemently supported the orders of the Assessing Officer.
3 ITA.No. 1513, 1514 & 1578/MUM/2016 Shri Bharat Jayantilal Patel 5. On hearing both the sides and in view of the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited (supra), we direct the Assessing Officer to recompute the disallowance under Rule 8D2(iii) keeping in view the decision of the Special Bench wherein it has been held that only dividend yielding investments shall be considered for the purpose of computing the disallowance under Rule 8D2(iii). This ground is partly allowed.
Coming to the Revenue’s appeal, the only issue is whether the interest income received by the assessee should be assessed as business income or income from other sources.
The assessee is an individual also a member of Mumbai stock exchange and doing business of investments and share broking. During the Assessment Year under consideration the assessee received interest on loans given and also paid interest on loans taken by him. In the course of the said business the assessee obtained loans and also given loans to various parties and received interest and also paid interest. The Assessing Officer treated interest received by the assessee as income under the head income from other sources. Whereas the assessee has shown the interest received as income from business.
4 ITA.No. 1513, 1514 & 1578/MUM/2016 Shri Bharat Jayantilal Patel 8. On appeal the Ld.CIT(A) held that the interest received by the assessee is assessable under the head income from business and not under the head income from other sources. While holding so he observed that in the Assessment Years 2007-08, 2008-09 and 2010-11 the interest received by the assessee was assessed as business income in the assessments completed u/s. 143(3) and therefore principle of consistence is required to be followed in tax matters when facts are identical. With these observations and also referring to the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Smt Padma S. Bora [54 taxmann.com 319] he concluded that money lending licence is not precondition for having business income from money lending activity and therefore the interest received by the assessee is assessable under the head income from business.
Before us, Ld. DR vehemently supported the orders of the Assessing Officer. On the other hand, Ld. Counsel for the assessee strongly placed reliance on the orders of the Ld.CIT(A).
This aspect of the matter has been considered by the Ld.CIT(A) with reference to the submissions and averments of the Assessing Officer and taking note of the fact that the interest income received by the assessee was assessed under the head income of business in the past Assessment Years i.e. 2007-08, 2008-09 and 2010-11, the Ld.CIT(A) concluded that 5 ITA.No. 1513, 1514 & 1578/MUM/2016 Shri Bharat Jayantilal Patel the interest income received by the assessee is assessable under the head income of business following the principle of consistence, observing as under:
“7.3 I have carefully considered the facts of the case, the AO'& stand and the appellant's submissions. 1 find that in A.Y. 2007-08, A.Y.2008-09 and AY. 2010-11 the interest received was assessed as business income in assessment orders u/s 143(3). The principle of consistency is required to be followed in tax matters when facts are identical. The AO has observed that in the earlier years there was no substantial interest income as compared to the year under consideration. But quantum of income cannot be the test to decide under which head it should be assessed. Facts cannot be distinguished on the basis of quantum of income. If at all only quantum of income is to be seen, then manifold increase in the interest income would support the appellant's case for business income rather than AO's Case. In Smt. Padma Bora's case (supra), the Hon'ble Bombay High Court held that when the assessee is engaged in the business of money lending, her claim for deduction of bad debt could not be denied merely because she did not have licence to conduct that business- The relevant part of the decision of Hon'ble jurisdictional High Court of Mumbai in the case of Smt Padma Bora v. CIT-II, Pune as reported in 54 taxmann.com 319 (Bom) (2015) is reproduced here as under: - “5. Having perused this paragraph carefully, we find that the Tribunal may have committed a mistake in erroneous reproduction of the Commissioner’s findings, but that does not mean that the Appeal would raise any substantial question of law. The allowability of bad debts was a claim considered in depth by the Commissioner and eventually granted in favour of the Assessee. the assessee is engaged in the business of money lending. Merely because the assessee does not have license to conduct this business, does not mean that the claim of bad debts should be denied. The Commissioner has in relation this claim held in his order at Paragraph 4.2 that the Tribunal’s order in the case of B.N. Khandelwal v. ITO [2007] 16 SOT 343 (Mum). Would assist the assessee inasmuch as the amount is lent in ordinary course of money lending business. It was written off after making efforts to recover. The effort was unsuccessful. In such circumstances, the Tribunal did of the Act commit any error in reaffirming the conclusion of the commissioner of Income Tax (appeals) and which is to be found in paragraph o. 4.2 of the Commissioner’s order. The present appeal also is continuation of the attempt by the Revenue to question such findings. The findings being purely of fact, the same do not raise any substantial question of law. The appeal is therefore dismissed. Thus, it follows that having money lending licence is not a precondition for having business income from money lending activity. Respectfully following this decision, I hold that merely because there is no money lending licence, interest income cannot be treated as income from other sources. Nothing much would turn on that fact in deciding this issue. Following the principle of consistency, 1 hold that interest of Rs.25,26,58,443/ received by the appellant on loans and advances given to various persons is business income. The fact that there was no mention of money lending activity as business in Form 3CD also cannot be a ground to hold otherwise when interest income was assessed as business income in the past. Ground No.5 is allowed.”
6 ITA.No. 1513, 1514 & 1578/MUM/2016 Shri Bharat Jayantilal Patel 11. On a careful perusal of the observations of the Ld.CIT(A), we do not find any valid reason to interfere with the decision of the Ld.CIT(A). Hence the same is sustained. Grounds raised by the Revenue are dismissed.
Coming to the appeal of the assessee for the Assessment Year 2012-13. This ground is similar to the ground raised by the assessee in its appeal for the Assessment Year 2011-12 against disallowance under Rule 8D2(iii) and the only argument advanced by the Ld. Counsel for the assessee is that, only the dividend yielding investments have to be considered for computing the disallowance under Rule 8D2(iii) of the I.T. Rules following the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27]. The decision given by us for the Assessment Year 2011-12 applies mutatis mutandis to the appeal for the Assessment Year 2012-13. Hence this ground is partly allowed.
In the result, appeals of the assessee are partly allowed and appeal of the Revenue is dismissed.
Order pronounced in the open court on the 23rd April, 2018.