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IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI
, ,
BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM
./I.T.A. No. 6161/Mum/2013
( / Assessment Year: 2009-10)
Himanshu C. Mehta Asst. CIT-16(3),
1301, Benhur Apartment, / Matru Mandir,
32 N. D. Road, Mumbai-400 006 Vs. Mumbai
. / . /PAN/GIR No.
( /Appellant) : ( / Respondent)
/ Appellant by : Shri M. V. Subramanina
/Respondent by : Shri Jeetendra Kumar
/ : 09.03.2015
Date of Hearing
/
: 18.03.2015
Date of Pronouncement
/ 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:
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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
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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
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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
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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]
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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
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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.
Order pronounced in the open court on March 18, 2015
Sd/- Sd/-
(Joginder Singh) (Sanjay Arora)
/ Judicial Member / Accountant Member
Mumbai; Dated : 18 .03.2015
. ../Roshani, Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent
3. () / The CIT(A)
4. / CIT - concerned
5. , , / DR, ITAT, Mumbai
6. / Guard File
/ BY ORDER,
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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