DCIT 1(3)(2), MUMBAI vs. TIFCO HOLDINGS LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order,dated 27/08/2014,of the CIT (A)-2,Mumbai, the Assessing Officer (AO) has filed the present appeal. The assessee is a non-banking finance company.The main sources of income are from interest from banks and inter-corporate deposits, dividend from companies and rental income from letting out of properties. It filed its return of income on 09/09/2011, declaring total income of Rs. 4.08 crores.The AO completed the assessment on 08/01/2014, u/s.143 (3)of the Act,determining the income of the assessee at Rs.4.78crores. 2.First ground of appeal is about taxing the interest income as income from business/ profession.During the assessment proceedings,the AO found that assessee had credited and amount of Rs. 38.90 lakhs under the head interest-income. He was of the opinion that the said income had to be taxed under the head income from business. He held that though the assessee was holding NBFC license it was not engaged in business of giving loans and advances, that it had utilised it surplus funds available for making inter-corporate deposits, that the interest earned by the assessee on such deposits was taxable under the head income from other sources. 2.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, it was argued that the assessee was engaged in the business of granting loans and charging interest thereon, that the interest income comprised of about 33% of total income, that granting of loan was one of the principal business of the assessee,that granting loan and earning interest on that was not an isolated transaction and there was a series of similar transactions,that the assessee had substantial transaction of 1 7301/M/15-TIFCO placing loans with various entities, that as per the Memorandum of Association of the assessee the object was to engaged in the business of granting loans including acquiring debenture/bounds, that the AO had always assessed interest income is income from business till AY. 2009-10, that there was no change in the facts and therefore interest income was assessable as business income, that the FAA, while deciding the appeal for the AY. 2009-10 had decided the issue in favour of the assessee. After considering the submission of the assessee and the assessment order, the FAA held that there was no change in the facts of the case of the year under consideration vis-à-vis earlier years. Following the rule of consistency and the order of his predecessor for the AY. 2009-10,he held that interest income had to be assessed under the head income from business and profession. 2.2.During the course of hearing before us,the Departmental Representative(DR) supported the order of the AO.The Authorised Representative(AR) stated that the order of the FAA for the AY. 2009-10 had become final,that the AO had not agitated the issue with regard to taxing the interest income under the head income from other sources before the Tribunal, while filing appeal. We find that AO as well as the assessee had filed cross appeals before the Tribunal for AY. 2009-10 and the only issue contested was about the disallowance made u/s.14 A of the Act. Thus,the issue of taxing the interest income under a particular head has attained finality.Otherwise also, we have not found the basis in the order of the AO for not taxing the interest income under the head business. In all the earlier years, the interest income was not assessee under the head income from other sources.Therefore,the AO had to bring on record the reasons for not following the orders of the earlier years.Consistency is one of the basic principles of taxation jurisprudence.In our opinion, the order of the FAA does not suffer from any legal infirmity.Therefore, confirming is order we decide ground number one against the AO.

3.Second ground of appeal is about disallowance made u/s.14A of the Act.During the assessment proceedings,for the purpose of arriving at the disallowance u/s.14A,the AO took the average considered the value of investment, income from its did not form part of the total income and arrived at the disallowance of Rs.70,70,115/-. 3.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA and made elaborate submissions.After considering the order of the AO and the commission of the assessee,the FAA held that identical issue had arisen in the earlier AY.s, that his predecessor had directed the AO is to disallow expenditure which was proportionate to tax exempt income, that the assessee had incurred total admitted expenses of Rs. 9.65 lakhs during the 7301/M/15-TIFCO year under consideration, that it had disallowed and amount of Rs.5.68 lakhs on its own holding that the said expenditure related to earning these rent, that disallowance made by the AO,u/s.14 A of the Act,should not exceed the total expenditure itself, that the expenditure incurred by the assessee was far less than the disallowance worked out by the application of Rule 8D(iiii),that the assessee had incurred far lower expenditure than the indirect expendi - ture notionally arrived by the AO, that the disallowance had to be restricted to a lower figure on a reasonable basis,that the methodology of proportionate expenditure directed by his predecessor in respect of the earlier years had to be applied since there were no significant variation in the facts and circumstances in the appeals for the earlier year and appeal for the year under consideration.He directed the AO to restrict the disallowance two Rs. 2.52 lakhs. 3.2.Before us,the DR stated that matter would be decided on merits. The AR contended that issue of disallowance to be made u/s.14 A of the Act has been deliberated upon by the Tribunal,while deciding the appeals for the earlier years (ITA.s./84- 85/MUM/2013/and ITA.s.164-165,AY.s.2008-09 and 2009-10,dated 22/05/2015, ITA.s/1798 & 2243/ MUM/ 2014, dated 07/10/2015). We find that the assessee and the AO had filed cross appeals for the earlier three years before the Tribunal challenging the order of the FAA with regard to 14A disallowance.We find that while deciding the appeal for the AY.2010-11,the Tribunal has held as under: “5.1. We have gone through the chart showing the expenditure incurred furnished by the Ld. Counsel, wherein the total expenditure debited or at Rs. 10, 27, 409/-, out of its the assessee has suo moto disallowed Rs. 5, 95, 293/- and out of the balance of Rs. 4, 32, 116/-the Ld. CIT (A) has directed to restrict the disallowance Rs.2,70,561/-. We do not find any error or omission in this finding of the Ld. CIT (A) calling for an interference. Accordingly, we about the finding of the Ld. CIT (A) and dismissed the appeals filed by the assessee as well as the Revenue.” We find that except for the variation in the amount of disallowance to be made there is no difference in the facts and circumstances of the case under consideration as compared to the facts of the earlier years. Therefore, following the order of the tribunal for the earlier years, we decide the second ground of appeal against the AO. As a result, appeal filed by the AO stands dismissed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 22nd July,2016. आदेश क� घोषणा खुले �यायालय म� �दनांक 22 जुलाई, 2016 को क� गई । Sd/- Sd/- (सी. एन. �साद / C.N. Prasad ) (राजे� / Rajendra) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांकDated : 22 .07.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 3