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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI D.T. GARASIA, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by assessee for Assessment Year [AY] 2005-06 assails the order of Ld. Commissioner of Income Tax (Appeals)-10 [CIT(A)], Mumbai dated 20/05/2016 qua confirming the action of Ld. Assessing Officer [AO] in treating interest income earned by the assessee under the head ‘Income from other sources’ as against ‘Business Income’ claimed by the assessee and consequential disallowance of business expenses. This is second round of appeal before us. 2. Briefly stated, the assessee, being resident corporate assessee, was subjected to an assessment u/s 143(3) read with section 254 of the Income Tax Act, 1961 vide Assessing Officer order dated 29/11/2013 wherein the total income of the assessee was determined at ‘Nil’ under normal provisions after setting-off of brought forward unabsorbed depreciation of Rs.8,50,674/-. The Book Profits u/s 115JB were determined at Rs.6,52,930/-. During original appellate proceedings before Ld. CIT(A), the assessee suffered enhanced disallowance of Rs.26,31,070/- u/s 14A read with rule 8D and disallowance of entire business expenditure of Rs.55,41,029/- as the interest income of Rs.53,97,992/- earned by the assessee was treated under the head ‘Income from other sources’ as against ‘Business Income’ claimed by him. The order of Ld. CIT(A) was contested before Tribunal vide order dated 04/07/2012 where the Tribunal set aside the order of Ld. CIT(A) on various issues and remitted the matter back to the file of AO for fresh reconsideration of certain matters. In the said Tribunal order, the disallowance u/s 14A was restricted to 2%. 3. Pursuant to the said directions, the Ld. AO, vide its order dated 29/11/2013, after considering the decision of Ld. CIT(A) in assessee’s own case for AY 2001-02, came to the conclusion that interest income earned by the assessee was chargeable as ‘Income from other sources’ as against ‘Business Income’ claimed by him and consequently disallowed entire business expenses of Rs.55,41,029/- against the same. The alternative submission made by the assessee to allow the business expenditure u/s 57 was also turned down after noting that the assessee failed to substantiate its claim in this regard. Thereafter, the Ld. AO computed disallowance u/s 14A @2% on exempt dividend income of Rs.1,62,31,442/- as per the directions of the Tribunal which came to Rs.3,24,629/- and after adjusting suo-moto disallowance of Rs.7,726/- made by the assessee, the net addition thus worked out was Rs.3,32,355/-. Again aggrieved, the assessee carried the matter in second round before Ld. CIT(A) vide order dated 20/05/2016 and contended that similar income in other Assessment Years has been treated under the head ‘Business Income’. However, Ld. CIT(A) rejected the assessee’s stand on the premises that amounts were advanced to sister concerns which do not constitute a business activity. Aggrieved by the same, the assessee is in second round of appeal before us.
The Ld. Counsel for assessee [AR], Arati Vissanji, while drawing our attention to various documents placed in the paper-book, contended that the assessee is a Registered Non- Banking Financial Company [NBFC] with RBI since the year 2002 and engaged in the business of accepting / granting Loans, investments, deposits etc. in terms of the registration granted to it by the statutory body. Accordingly, the assessee earns income from these loans / investments / deposits etc. which constitute business income / activity of the assessee. The revenue has rejected the stand of the assessee only on the premises that the investments / deposits have been made to sister concerns. However, undertaking these activities per se with sister concerns do not alter the character of income earned by the assessee in any manner and there is nothing in law which prohibits the undertaking of such transactions. Further, the revenue in all the preceding and succeeding years accepted similar income earned by assessee as ‘Business income’ in various assessments u/s 143(1) / 143(3) and therefore, precluded to take a different stand without there being any change in the facts and the assessee deserves benefit of rule of consistency particularly when it is in the same line of business since past many years. Even alternatively, presuming that the income was chargeable as ‘Income from other sources’, the assessee was still entitled to claim these expenses u/s 57. Reliance has been placed on various judicial pronouncements for rule of consistency as well as assessee’s alternative claim u/s 57.
Per contra, Ld. DR supported the stand taken by lower authorities and contended that the assessee did not carry out any business activity during the year and merely advanced loans to sister concern and moreover, principles of res judicata could not be applied to Income Tax Proceedings.
We have heard the rival contentions and perused the relevant material on record including cited case laws. First of all, it is noted that the assessee is a duly registered NBFC entity vide certificate of registration number B-1301151 dated 28/01/2002 granted by RBI, as placed in the paper book. Further, the assessee’s main object included money lending business as per its Memorandum of Association as noted by Hon’ble bench of the Tribunal in the first round of appeal. Further, a perusal of various assessment orders passed u/s 143(3) in assessee’s case for AY 2003-04, 2008- 09, 2009-10, 2011-12, 2012-13 & 2013-14 placed in the paper book reveals that similar income earned by assessee has been treated under the head ‘Business Income’. Although we are conscious of the fact that the principles of res judicata do not apply to Income Tax proceedings, yet rule of consistency demands that similar view is taken in similar circumstances as upheld by Apex court in CIT Vs. Excel Industries Ltd. / Mafatlal Industries Pvt. Ltd. 358 ITR 295 judgment dated 08/10/2013 and also by jurisdictional Hon’ble Bombay High Court in CIT Vs. Gopal Purohit 336 ITR 287 judgment dated 06/01/2010. Further, advancing of money to sister concern per se does not alter the character of income in the hands of the assessee particularly when the assessee was subjected to terms and conditions imposed by the RBI for NBFC companies. All these observations / factors lead us to conclude that the income earned by the assessee was chargeable under the head ‘Business Income’. We direct so and therefore, Ground No.1 of assessee’s appeal stands allowed.
Ground Number 2 is related with allowance of business expenditure against the business income. Since we have already allowed Ground No. 1 of assessee’s appeal, as a natural corollary, legitimate business expenses incurred by the assessee against the same shall be allowable as per law. Prima facie, the business expenses claimed by the assessee has not been examined by the Ld. AO during any original as well as set aside proceedings and therefore, we remit the issue of verification of these expenses to the file of Ld. AO with a direction to allow the same as per law after due verification. The assessee is also directed to substantiate his claim forthwith in this regard failing which the Ld. AO shall be at liberty to decide the matter on the basis of material available on record. Resultantly, this Ground of assessee’s appeal stands allowed for statistical purposes.
To sum up, the interest income earned by assessee shall be treated as ‘Business income’ against which admissible business expenses shall be allowed by AO after due verification. The assesse shall suffer disallowance of 2% of exempt income u/s 14A as directed by the Tribunal in first round. The AO shall re-compute carry-forward / set- off of business losses / unabsorbed depreciation, if any and also re-compute Book Profits u/s 115JB after giving effect to our above directions.
In nutshell, the assessee’s appeal stands partly allowed.
Order pronounced in the open court on 24th April, 2017.