Shri Rakesh Gupta, Ludhiana V. ACIT, C-1, Ludhiana

ITA 1004/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5077 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-03-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 14-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHB, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1004/CHD/2017 ASSESSMENT YEAR: 2013-14 SHRI RAKESH GUPTA VS. THE ASST. CIT C/O M/S EATMAN INTERNATIONAL CIRCLE-1 B-XXX-2185/C-203/1 LUDHIANA PHASE VII, FOCAL POINT LUDHIANA PAN NO. ACZPG7190A (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SUDHIR SEHGAL REVENUE BY : SH. MANJIT SINGH DATE OF HEARING : 22/03/2018 DATE OF PRONOUNCEMENT : 27/03/2018 ORDER PER B.R.R. KUMAR A.M. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LD. CIT(A)-2, LUDHIANA DT. 30/05/2017. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS. 4,91,933/- BY MAK ING DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 AS PER PARA 3.11 OF HIS ORDER. 2. THAT THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING TH AT THE AMOUNT BORROWED BY THE APPELLANT HAD BEEN INVESTED BY HIM IN PARTNE RSHIP FIRMS TOWARDS HIS CAPITAL AND ON WHICH INTEREST INCOME WAS EARNED. AN D, AS SUCH, INTEREST EXPENDITURE IS DIRECTLY LINKED WITH THE EARNING OF INTEREST INCOME AND AS SUCH NO DISALLOWANCE CAN BE MADE OF INTEREST EXPENDITURE UN DER SECTION 14A OF THE INCOME TAX ACT, 1961. THE ABOVE VIEW IS DIRECTLY SU PPORTED BY THE JUDGMENT OF HONBLE CHANDIGARH BENCH IN THE CASE OF ACIT VS. VI VEK GOYAL (2011) IN ITA NO. 7/CHD/2011 AS PER OUR SUBMISSIONS AT SUB-PARA 4 AND PAGE 3 OF THE ORDER OF THE CIT(A). 3. THAT THE LD. CIT(A) HAS FURTHER ERRED IN NOT CONSID ERING THAT THE SAID ISSUE WAS ALREADY ACCEPTED AND COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF LD. CIT(A) IN THE EARLIER YEARS FOR THE AY 2010-11 AND 2011-2012. 2 AS MENTIONED IN PARA 1.5 OF OUR SUBMISSIONS AS REPR ODUCED AT PAGE 4 OF THE ORDER OF THE LD. CIT(A). 4. THAT THE LD. CIT(A) HAS ALSO ERRED IN NOT CONSIDERI NG OUR REPLY FILED DURING THE COURSE OF HEARING BEFORE HER PROPERLY. 5. THAT NOTWITHSTANDING OF OUR ABOVE SAID SUBMISSIONS IT IS SUBMITTED THAT EVEN OTHERWISE DISALLOWANCE AMOUNTING TO RS. 4,91,9 33/- MADE BY THE ASSESSING OFFICER AND ALSO UPHELD BY THE LD. CIT(A) UNDER SEC TION 14A OF THE ACT IS EXCESSIVE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S CLAIMED AN AMOUNT OF RS. 5,30,598/- TOWARDS THE EXPENSES OF INTEREST PAID. T HE ASSESSEE HAS ALSO EARNED TAXABLE INCOME OF INTEREST ON CAPITAL AMOUNTING TO RS. 1,31,32,862/- FROM M/S EASTMAN INTERNATIONAL. 4. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS EARNED BOTH INTEREST INCOME AND PROFITS BY INCURRING THIS INTEREST EXPEN DITURE AND HENCE THIS EXPENDITURE NEED TO BE APPORTIONED IN THE RATIO OF TAXABLE AND EXEMPT INCOME. 5. THE LD. CIT(A) HELD THAT THE ASSESSEE IS A PARTN ER IN DIFFERENT PARTNERSHIP FIRM FROM WHERE HE IS EARNING PROFIT AS WELL AS INT EREST INCOME. THE ASSESSEE BORROWED FUNDS WHICH ARE INVESTED IN TWO FIRMS NAME LY M/S EASTMAN INTERNATIONAL AND M/S RAMESH STEELS. THE LD. CIT(A) RELIED ON THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF P UNJAB TRACTORS VS. CIT , 78 TAXMAN 65 ON THE PROPOSITION THAT THERE IS NO AMBIG UITY THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME AND ASSESSING OFFIC ER HE JUSTIFIED IN PRESUMING THAT HE HAD INCURRED EXPENDITURE TOWARDS ADMINISTRA TIVE ACTIVITIES NECESSARY TO EARN SAID INCOME. 6. BEFORE US LD. AR SUBMITTED THAT THE ORDER OF THE COORDINATE BENCH OF CHANDIGARH IN ITA NO. 1005/CHD/2017 IN THE CASE OF ATUL SINGHAL VS. ACIT DT. 28/12/2017 WHEREIN THE ASSESSEE HAS RECEIVED INTERE ST INCOME FROM M/S EASTMAN INTERNATIONAL, IT WAS HELD THAT THE BUSINES S SHARE OF PROFITS FROM THE FIRM CANNOT BE SOLELY ATTRIBUTED TO THE INVESTMENT MADE BY THE ASSESSEE FROM THE BORROWED FUNDS. IN THE INSTANT CASE ALSO THE ASSESS EE HAS EARNED A SHARE OF PROFIT OF RS. 16.70 CRORES. IT WAS ALSO ARGUED THAT THE ASSESSEE IS AN ACTIVE PARTNER IN THE BUSINESS OF THE FIRM TOO. 7. LD. DR RELIED ON THE ORDER OF THE LD.CIT(A). 3 8. WE FIND THAT THE FACTS OF BOTH CASE ARE SIMILAR AND HENCE WE HEREBY DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER AS THERE IS NO JUSTIFICATION TO MAKE ANY FURTHER DISALLOWANCE UNDER SECTION 14A . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (B.R.R.KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27/03/2018 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR