M/s. Shree Venkatesh Associates, Pune V. Deputy Commissioner of Income-tax, Circle - 14, Pune

CO 05/PUN/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0368 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Loose papers; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / CO NO.05/PUN/2020 / ASSESSMENT YEAR : 2011 - 12 M/S. SHREE VENKATESH ASSOCIATES, S. NO. 227 MATRU SMRUTI, GADITAL, HADAPSAR, PUNE 411028 PAN : ABHFS2539Q ...... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 14, PUNE / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 10 - 03 - 2021 / DATE OF PRONOUNCEMENT : 15 - 03 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER DATED 03 - 07 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 7, PUNE [CIT(A)] FOR ASSESSMENT YEAR 20 11 - 12. 2 CO NO. 05/PUN/2020, A.Y. 2011 - 12 2. THE ONLY ISSUE IS TO BE DECIDED IS AS TO WHETHER THE CIT(A) JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT , A CCORDING TO THE AO THE ASSESSEE MADE SUBSTANTIAL INVESTMENT IN SHARES, MUTUAL FUNDS ETC. FOR AN AMOUNT OF RS.10,22,48,048/ - AND CLAIMED INTEREST EXPENSES OF RS.1,03,433/ - . THE AO ASKED THE ASSESSEE TO SHOW CAUSE WHY APPROPRIATE DISA LLOWANCE SHOULD NOT BE MADE U/S. 14A R.W. RULE 8D. IN RESPONSE TO WHICH , IT WAS EXPLAINED NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AS IT HAS SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF CAPITAL. THE AO FOUND THE SUBMISS IONS OF ASSESSEE AS NOT ACCEPTABLE AND DISALLOWED INTEREST EXPENDITURE OF RS.29,942/ - AND INDIRECT EXPENDITURE OF RS.4,57,373/ - UNDER RULE 8D(2)(II) AND 8D(2)(III), RESPECTIVELY TOTALING TO RS.4,87,315/ - VIDE ITS ORDER DATED 27 - 03 - 2014 U/S. 143(3) OF THE A CT. BEFORE THE CIT(A), IT WAS CONTENDED THAT ONCE THERE IS SUFFICIENT CAPITAL RESERVES THE PRESUMPTION SHOULD BE INVOKED THAT THE ASSESSEE MADE INVESTMENTS FROM ITS OWN FUNDS AND PLACED RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD. VS. DY. CIT REPORTED IN 383 ITR 529 (BOM). THE CIT(A) OBSERVED THAT THE ASSESSEE COULD NOT DEMONSTRATE THE YEAR OF THE INVESTMENTS WHICH YIELD ED EXEMPT INCOME SO AS TO APPLY PRESUMPTION MENTIONED IN THE CASE OF HDFC BANK LTD. (SUPRA) AND IN THE ABSENCE OF SUCH DEMONSTRATION, HE HELD THE RATIO OF THE HONBLE HIGH COURT OF BOMBAY CANNOT BE APPLIED AND CONFIRMED THE ORDER OF AO. 3 CO NO. 05/PUN/2020, A.Y. 2011 - 12 4. BEFORE US THE LD. AR , SHRI SUNIL GANOO FILED PAPER BOOK CONTAINING PAGES 1 TO 77 AND LOOSE PAPERS CONTAINING STATEMENT OF TOTAL INCOME, BALANCE SHEET, CAPITAL ACCOUNT ETC. THE LD. AR SUBMITS THAT THE AO OUGHT NOT TO HAVE DISALLOWED INTEREST EXPENDITURE UNDER RULE 8D(2) (II) AS THE ASSESSEE HAS SUFFICIENT CAPITAL RESERVES AS ON 31 - 03 - 2011 AND REFERRED TO PAGE 71 O F THE PAPER BOOK. HE ALSO REFERRED TO PAGE 69 AND SUBMITTED THAT THE ASSESSEE INCURRED INTEREST ON BANK LOAN TO AN EXTENT OF RS.1,03,433/ - . HE ARGUED THE ASSESSEE MADE INVESTMENTS TO AN EXTENT OF RS.13,90,28,048/ - AND SUFFICIENT CAPITAL RESERVES TO AN EX TENT OF RS. 21,56,53,578/ - WHICH IS MORE THAN THE INVESTMENTS , THE DISALLOWANCE MADE UNDER THE HEAD INTEREST EXPENDITURE INVOLVING THE EXEMPT INCOME IS BAD UNDER LAW. HE PLACED ON RECORD THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD. (SUPRA) AND PRAYED TO DELETE THE DISALLOWANCE MADE BY THE AO AS CONFIRMED BY THE CIT(A) IN THE IMPUGNED ORDER. 5. THE LD. DR, SHRI SUDHENDU DAS SUBMITS THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT THERE IS NO MIX USE OF FUND AND INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME. THERE IS MIX USE OF FUNDS WHICH WARRANTS INVOCATION OF RULE 8D(2)(II) AND ADVERSE INFERENCE HAS TO BE DRAWN AGAINST THE ASSESSEE FOR NON PRODUCTION OF NECESSARY EVIDENCES. FURTHER, HE SUBMITS THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT INTEREST PAID OF RS.1,03,433/ - IS ACTUALLY UTILIZED FOR THAT PURPOSE OF THE BUSINESS YIELDING TAXABLE INCOME AND THERE IS NO DIVERSION OF THE FUND THROUGH BANK ACCOUNT. HE SU PPORTED THE ORDER OF CIT(A) IN HOLDING THAT THERE WAS NO DEMONSTRATION BY THE ASSESSEE REGARDING INVESTMENTS YIELD ED EXEMPT INCOME SO AS TO A PPLY PRESUMPTION MENTIONED IN THE DECISION OF HONBLE 4 CO NO. 05/PUN/2020, A.Y. 2011 - 12 HIGH COURT OF BOMBAY. HE ARGUED THAT MERELY MENTION OF THE AMOUNT APPEARING IN THE BALANCE SHEET DOES NOT MEAN THAT THE FUNDS ARE AVAILABLE FOR INVESTMENT. HE ARGUED THAT THE ASSESSEE COULD NOT DEMONS TRATE HOW THE PRESUMPTION ENUNCIATED BY THE HONBLE HIGH COURT IS APPLICABLE TO THE ISSUE ON HAND AND PRAYED TO DISMISS THE GROUNDS RAISED IN THIS REGARD. 6. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT FROM THE STA TEMENT OF ACCOUNT AS ON 31 - 03 - 2011 WHICH IS PLACED AT PAGE 69 OF THE PAPER BOOK THAT THE ASSESSEE INCURRED INTEREST EXPENDITURE ON BANK LOAN TO AN EXTENT OF RS.1,03,433/ - . FROM THE BALANCE SHEET AT PAGE 71 THE CAPITAL RESERVES OF THE ASSESSEE IS AT RS.21, 56,53,578/ - AND MADE INVESTMENT AT RS.13,90,28,048/ - AS ON 31 - 03 - 2011. THE AO ALSO MENTIONED THAT THE ASSESSEE INCURRED TOTAL INTEREST EXPENDITURE OF RS.1,03,433/ - AND DISALLOWED INTEREST EXPENDITURE DIRECTLY RELAT ING TO EARNING EXEMPT INCOME AT RS. 29,94 2/ - AND IN THIS REGARD NO DISPUTE FROM THE LD. AR. THE ONLY CONTENTION OF LD. AR IS THAT WHEN THERE ARE SUFFICIENT CAPITAL RESERVES WHICH ARE MORE THAN THE INVESTMENTS MADE AND THE DISALLOWANCE UNDER RULE 8D (2)(II) IS NOT WARRANTED. THE HONBLE HIGH COUR T OF BOMBAY IN THE CASE OF HDFC BANK LTD. (SUPRA) HELD THAT WHEN THERE ARE SUFFICIENT CAPITAL RESERVES WHICH ARE MORE THAN THE INVESTMENTS MADE , THERE SHALL BE INFERENCE THAT THE INVESTMENTS MADE FROM OWN FUNDS BUT NOT FROM BORROWED FUNDS AND DISALLOWANCE SAID TO HAVE BEEN MADE UNDER RULE 8D(2) (II) UNDER INTEREST EXPENDITURE IS NOT WARRANTED. AS DISCUSSED ABOVE FROM THE STATEMENT OF ACCOUNTS AND IN THE BALANCE SHEET THE ASSESSEE HAS ABLE TO DEMONSTRATE THAT IT HAS AMPLE CAPITAL RESERVES WHICH ARE MORE THAN THE INVESTMENTS MADE, THEREFORE, IN OUR OPINION, THE DISALLOWANCE MADE BY THE AO UNDER 5 CO NO. 05/PUN/2020, A.Y. 2011 - 12 RULE 8D(2) (II) TO AN EXTENT OF RS.29,942/ - AND AS CONFIRMED BY THE CIT(A) IN THE IMPUGNED ORDER IS NOT WARRANTED AND IS DELETED. THE DISALLOWANCE MADE UNDER RULE 8D(2) (I I I) OF RS.4,57,373/ - (RS.4,87,315/ - - RS.29,942/ - ) IS STANDS CONFIRMED AND GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 15 TH MARCH, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 7, PUNE 4. THE PR. CIT - 6, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE