Shri Atul Singal, Ludhiana V. ACIT, C-1, Ludhiana

ITA 1005/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6509 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 14-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business income; Proportionate interest
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1005/CHD/2017 ASSESSMENT YEAR: 2010-11 SHRI ATUL SINGAL, VS. THE ACIT, CIRCLE-1, C/O M/S EASTMAN INTERNATIONAL, LUDHIANA B-XXX-2185/C-203/1, PHASE VII, FOCAL POINT, LUDHIANA PAN NO. AJOPS4202K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 28.12.2017 DATE OF PRONOUNCEMENT : 28.12.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX, [HEREINAFT ER REFERRED TO AS CIT(A) ]-2, LUDHIANA DATED 24.05.2017. 2. THE SOLE GROUND TAKEN BY THE ASSESSEE IN THIS AP PEAL IS REGARDING DISALLOWANCE OF RS. 10,37,589/- MADE BY THE ASSESSI NG OFFICER AND FURTHER CONFIRMED BY THE CIT(A) U/S 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNER IN DIFFERENT PARTNERSHIP FIRMS FROM WHICH HE IS EARNING SHARE OF PROFIT AS WELL AS INTEREST INCOME. THE ASSESSEE HAD BORROWED CERTAIN FUNDS WHICH WERE UTILIZED FOR INVESTMENTS IN THE SAID PARTNERSHIP FI RMS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED AN INTER EST EXPENDITURE OF RS. 35,65,982/- ON THE BORROWED FUNDS WHICH WERE FURTHE R INVESTED IN THE PARTNERSHIP FIRM. THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST AMOUNTING TO RS. 10,37,589/- BY INVOKING THE PROVIS IONS OF SECTION 14A OF THE ACT, WHICH HAS BEEN FURTHER CONFIRMED BY THE C IT(A). 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE INCURRED THE ABOVE SAID AMOUNT OF RS. 35,65,982/- T OWARDS INTEREST EXPENDITURE WHICH WAS FURTHER INVESTED IN THE FIRMS . SINCE THE SHARE FROM THE PROFIT OF FIRM WAS EXEMPT IN THE HANDS OF THE A SSESSEE, HENCE, THE ASSESSING OFFICER HAD MADE DISALLOWANCE U/S 14 OF T HE ACT. FURTHER, THE ASSESSING OFFICER HAS IGNORED THAT THE ASSESSEE ALS O EARNED INTEREST INCOME OF RS. 8.32 CRORES ON THE CAPITAL INVESTED IN THE F IRMS IN WHICH THE ASSESSEE IS / WAS A PARTNER. HE HAS FURTHER SUBMITTED THAT T HE AFORESAID INTEREST INCOME IS DEEMED BUSINESS INCOME OF THE ASSESSEE AN D HAS BEEN ASSESSED AS SUCH. FURTHER, THE ASSESSEE IS NOT A SLEEPING PART NER BUT AN ACTIVE PARTNER IN THE FIRM. HE, THEREFORE, HAS SUBMITTED THAT THE SHARE OF PROFIT OF THE ASSESSEE FROM THE ABOVE FUNDS CANNOT BE ATTRIBUTED SOLELY TO THE AFORESAID INVESTMENT AND THAT NO DISALLOWANCE U/S 14A OF THE ACT WAS ATTRACTED IN THIS CASE. 5. THE LD. DR ON THE OTHER HAND, HAS RELIED UPON TH E FINDINGS OF THE LOWER AUTHORITIES. 3 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMIT TEDLY THE ASSESSEE HAS INCURRED ONLY OF AN AMOUNT OF RS. 35 LACS AS IN TEREST EXPENDITURE ON THE INVESTMENT MADE TOWARDS CAPITAL IN THE FIRMS WHEREA S THE ASSESSEE HAS RECEIVED INTEREST INCOME OF RS. 8.32 CRORES ON THE CAPITAL INVESTED IN THE AFORESAID FIRMS, WHICH HAS ALSO BEEN ASSESSED AS BU SINESS INCOME OF THE ASSESSEE. FURTHER, WE ALSO FIND FORCE IN THE CONT ENTION OF THE ASSESSEE THAT THE BUSINESS SHARE OF PROFIT FROM THE FIRM CANNOT B E SOLELY ATTRIBUTED TO THE INVESTMENT MADE BY THE ASSESSEE FROM THE BORROWED F UNDS. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES FOR FURTHER MAKING ANY DISALLOWANCE U/S 14A OF THE ACT AND THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES ON THIS ISSUE IS, THEREFORE, ORDERED TO BE DELETED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28.12.2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR