Himanshu C. Mehta, Mumbai vs Assessee

Himanshu C. Mehta Asst. CIT-16(3), 1301, Benhur Apartment, बनाम/ Matru Mandir, 32 N. D. Road, Mumbai-400 006 Vs. Mumbai

थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. (अपीलाथ$ /Appellant) : (%&यथ$ / Respondent)

अपीलाथ$ क' ओर से / Appellant by : Shri M. V. Subramanina

%&यथ$ क' ओर से/Respondent by : Shri Jeetendra Kumar

सनु वाई क' तार.ख / : 09.03.2015 Date of Hearing घोषणा क' तार.ख / : 18.03.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-27, Mumbai ('CIT(A)' for short) dated 06.08.2013, dismissing the Assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 31.10.2011.

2.1 The brief facts of the case are that the assessee, an individual, return of income of Rs.51,35,620/- for the year, detailed as under:

2 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

(Amount in Rs.) Capital gains 6,97,900/-

Income from other sources 45,56,718/- Gross Total Income 52,54,618/-

Less: Chapter VI-A deductions 1,19,000/- Total Income: 51,35,618/- Rounded off to: 51,35,620/-

The 'income from other sources' was computed after claiming the deduction of Rs.16,02,448/- from the gross income of Rs.61,59,166/-, comprised of the following incomes :

Other source:

Interest on bonds and debentures 7,04,731 Bank Interest 1,44,932 Interest on KVP 53,00,000 S. B. Interest 9,503 Taxable income 61,59,166

The issue in the present appeal concerns the deductibility of law of this expenditure of Rs.16.02 lacs, the detail of which is as under: (Amt. in Rs.)

1. Interest paid 15,66,861/-

2. Legal expenses to CA 14,607/-

3. Bank charges 11,200/-

4. Professional Tax 2,500/- 28,307

5. Demat Charges 7,280 16,02,448 The assessee's case is that he has, besides the foregoing incomes offered to taxation, also incurred the loss as well as earned profit from two partnership firms in which he is a partner, as under:

Loss from M/s. A. Himanshu & Co.: Rs.96,45,311/-

Profit from M/s. Navkar: Rs.4,65,142/-

2.2 The interest expenditure was incurred on the capital borrowed for making the

investment in the firm, M/s. A Himanshu & Co., from which the assessee is earning income by way of share of profit (loss). The said profit suffers tax at the maximum rate in the hands of the firm. As such, even though the assessee is not entitled to any income 3 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

assessable u/s.28 of the Act from the said firm, i.e., either by way of remuneration or interest, it could not be said that no tax was payable on the income arising to the assessee by way of share in the profits (or losses) of the said firm, or that the same income was tax exempt income. Accordingly, he be allowed his claim for interest expenditure of Rs.15.67 lacs (refer 'statement of facts' before the Appellate Tribunal). The same being denied by the Revenue, as well as that for other expenses amounting to Rs.35,587/-, also claimed along with, the assessee is in second appeal.

3. Before us, the ld. Authorized Representative (AR), the assessee's counsel, pleaded the assessee's case with reference to the order by the tribunal in his case for the immediately preceding year, i.e., A.Y. 2008-09 (in ITA No. 393/Mum/2013 dated 24.09.2014), placing a copy of the same on record. Similar issue had arisen in the assessee's case for the said year as well, and which was allowed by the tribunal.

Accordingly, the assessee's case stands squarely covered in his favour, taking us to the relevant part, i.e., paras 6 and 7, thereof.

The ld. Departmental Representative (DR), on the other hand, would rely on the orders of the authorities below, stating that the order by the tribunal does not address the issue/s arising for consideration in the instant case.

4. We have heard the parties, and perused the material on record. 4.1 The first issue before us is, therefore, whether the issue arising for adjudication could be said to be covered by the order by the tribunal in the assessee's own case for A.Y. 2008-09. Para 6 and 7 which is the operative part of the order are as under:

'6. We have considered the rival submissions. On going through the reports, we find that the interest income of the assessee during the year was Rs.57,58,333/- and only a sum of Rs.10,12,500/- was invested in the business of partnership firm. The assessee had his own sufficient funds during the year. Under such circumstances, it cannot be presumed that the borrowed funds were invested in the partnership firm. The Hon'ble Bombay High Court in the case of 'CIT vs. Reliance Utilities and Power Ltd.' (2009) 313 ITR 340 (Bom) has held that if there are funds available to the assessee, both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the assessee, if the interest free funds 4 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

were sufficient to meet the investments. Hence, in our view, the disallowance of the interest expenditure by the lower authorities was not justified and the same is hereby ordered to be deleted.

7. So far the remaining expenses are concerned, we find that the assessee has claimed only a sum of Rs.6,738/- towards legal expenditure, Rs.10,469/towards bank charges and Rs.1,825/- as miscellaneous expenses.

A perusal of the report further reveals that the assessee has invested sufficient amount in FDRs, bonds and debentures etc. Though the assessee could not prove before the AO the one to one relation between the income and the expenditure, however, considering the quantum of interest income and in view of the fact that the expenses claimed by the assessee are very meager and can reasonably be expected towards the nature of income earned, we do not find any justification on the part of lower authorities in disallowing the said claim of the assessee. Accordingly, the disallowance on account of other expenses is also hereby ordered to be deleted.'

As afore-stated, the same were read during the course of hearing. However, on an enquiry by the Bench as to how the decision by the hon'ble jurisdictional high court in the case of CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom), relied upon by the tribunal, assists the assessee in the admitted facts and circumstances of its case, he could not furnish any satisfactory answer. Rather, as observed by the Bench during hearing, again to no rebuttal or reply by the ld. AR, the ratio of the decision in the case of Reliance Utilities & Power Ltd. (supra), which is that in the case of adequacy of capital, the presumption would be that the investments are made out of own capital, goes against the assessee in-as-much as interest is claimed on borrowed capital, while the investments yielding income from other sources, being interest, is out of own capital. The only import of the decision in the case of Reliance Utilities & Power Ltd. (supra), which is binding on us, is that where the assessee has adequate capital, which is and would always be a finding of fact, the presumption in law would be that the assessee's investment is funded out of its' own capital. This is in fact precisely what the assessee states in the present case, both before the authorities below as well as before us (through the 'statement of facts' filed along with the memo of appeal), so that it represents his consistent stand in the matter. Reference for the purpose may be made to the paras 3.2 to 3.4 and 2.4.3 to 2.4.4 of the assessment and the impugned order respectively, delineating 5 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

the respective cases of both the parties. Rather, in the admitted facts of the case, in our opinion, we do not need to draw any presumption in-as-much as the assessee has clarified, and it is an admitted position, that the borrowed capital, on which the interest stands borne and, therefore, claimed, stands invested by the assessee, in the main, in the partnership firm M/s. A. Himanshu & Co. Though the relevant figures have not been stated, as it would appear to us, i.e., on perusing the record (also refer para 2 of this order), that a part of the borrowed capital is also invested in the other partnership firm, M/s. Navkar, and M/s. Tiger Jewellery Pvt. Ltd. (TJPL). The investment of the borrowed capital, thus, is in the partnership firms as well as a private limited company. We shall take up the two separately.

4.2 As regards the investment in the partnership firms, it is completely incorrect to say that the assessee's share of income there-from is taxable or assessable in the assessee's hands, which is what is relevant, and for which one may refer to the computation of total income at para 2.2 of this order. The same is a Chapter III income, exempt u/s.10(2A), and, therefore, does not enter the computation of the taxable or total income under the Act. Accordingly, any interest on the corresponding capital would stand to be disallowed u/s.14A, and which is what the assessee objects to (refer statement of facts before the first appellate authority). Whether for the relevant year the share of income is at a profit or loss, which (the latter) is only a negative income, is irrelevant. The only implication of a loss (i.e., a share of loss) would be that the assessee's net loss from the said investment is even higher. The assessee's second argument qua the said investment/s is that as the same stands taxed, albeit in the hands of the partnership firm, the said income cannot be said to be tax-exempt, so as to attract section 14A. The rationale behind the argument is that taxing the same in the hands of the partner would amount to a double tax. The argument, appealing at first blush, is misconceived in law in-as-much as the partner and the partnership are legally distinct taxable entities, liable to be assessed independently on income/s accruing or arising to or received by them during a previous year. The said argument, in the context of dividend income, was also raised before the hon'ble jurisdictional high court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 6 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

328 ITR 81 (Bom), averring that the dividend being taxed u/s.115-O on distribution, the same cannot be said to be exempt qua the shareholder receiving the same. The hon'ble high court, after referring to various decisions by the hon'ble apex court, clarified that tax u/s.115-O on the declaration, distribution or payment of dividend, is not a tax paid for or on behalf of the shareholder. The argument was in that case rather better placed in-as- much as the dividend income was on its distribution subject to tax. That is, it was not a case of distribution of profit as dividend being claimed as not tax-exempt as the profit had already suffered tax in the hands of the paying company, so that what was being distributed was only the after-tax profit. The argument, thus, is misplaced; the partner and the partnership being separate legal entities or persons under the Act.

Coming to the investment in the private limited company (TJPL), in which the assessee is a director, the nature of the investment, i.e., whether as share capital or as a loan, is not clear. Even if in the form of a loan, the related primary facts, viz. whether it is interest bearing or not; the period and purpose of the loan, etc., are completely missing. The finding by the Revenue authorities, rendered upon examination of the materials before them, and which has not been controverted by the assessee, is that the same is toward purchase of gold. The facts have not been specified by the assessee at any stage, including before us, even as this is the second year in the running for which this issue had arisen in its' case. The burden to prove its return, and the claims preferred thereby, is only on the assessee (refer: CIT vs. Calcutta Agency Limited [1951] 19 ITR 191 (SC)). Even otherwise, non-adducing the relevant evidence would only attract the statutory presumption of section 114(g) of the Evidence Act. The assessee's claim under the circumstances is a bald claim, liable for rejection. We, accordingly, endorse the decision by the Revenue doing so.

4.3 With regard to the assessee's claim for other expenses, at an aggregate of Rs. 35,587/-, he has not furnished the relevant details or even explained the purpose for which the said expenses were incurred. Only the said purpose, it may be appreciated, and which may further require being verification, would determine whether the same has been incurred for the purpose of earning, even broadly construed, which is the primary 7 ITA No. 6161/Mum/2013 (A.Y. 2009-10) Himanshu C. Mehta vs. Asst. CIT

condition for deductibility u/s. 57(iii). This also forms the basis of the disallowance by the Revenue. In fact, as it would appear to us, the expenditure on bank charges, Demat charges and professional tax, has no relation with the interest income. On all this being communicated during hearing, the ld. AR could not furnish any reply. The onus, as afore- stated, to prove its' claims is only on the assessee. Under the circumstances, we do not find any merit in the assessee's case. The tribunal for A.Y. 2008-09 has allowed relief to the assessee only by extending it a benefit of doubt, which cannot be claimed as a legal right. No precedence value thus would flow there-from. We decide accordingly.

5. In the result, the assessee's appeal is dismissed.

प3रणामतः नधा63रती क' अपील खा3रज क' जाती है ।

Order pronounced in the open court on March 18, 2015

Sd/- Sd/- (Joginder Singh) (Sanjay Arora)

या यक सद य / Judicial Member लेखा सद य / Accountant Member मुंबई Mumbai; 9दनांक Dated : 18 .03.2015 व. न.स./Roshani, Sr. PS

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ$ / The Appellant

2. %&यथ$ / The Respondent

3. आयकर आयु:त(अपील) / The CIT(A)

4. आयकर आयु:त / CIT - concerned

5. =वभागीय % त न ध, आयकर अपील.य अ धकरण, मुंबई / DR, ITAT, Mumbai

6. गाड6 फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai