Shri Ashok Bajpai, Indore V. THE DCIT 1(1), Indore

ITA 1035/IND/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2184 (ITAT-INDORE)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 06-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI LALCHAND
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 1 OF 8 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .. , ..!,#$ # % BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER SHRI ASHOK BAJPAI, 11-E, RATLAM KOTHI, INDORE (M.P) V. DY. COMMISSIONER OF INCOME TAX 1(1), INDORE & / APPELLANT ()& / RESPONDENT . # . ./ PAN: ACFPB 4670 G * !+,-$ / DATE OF HEARING 26.09.2017 ./012 -$ / DATE OF PRONOUNCEMENT 28.09.2017 ORDER PER O.P. MEENA, AM. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, INDORE [IN SHORT REFERRED TO AS THE CIT (A)] DATED 05.07.2016 PERTAINING TO ASSE SSMENT YEAR 2012-13. . . ./ I.T.A. NO.1035/IND/2016 ! +2 / ASSESSMENT YEAR: 2012-13 &- # / APPELLANT BY SHRI RAM GILDA, ADVOCATE ()&- # / RESPONDENT BY SHRI LALCHAND, CIT DR SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 2 OF 8 2. THE GROUND NO.1 & 2 RELATES TO DISALLOWANCE OF EXPENDITURE OF RS. 10,75,968/- U/S 14A OF THE ACT, READ WITH RU LE 8D OF I.T. RULES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.97,00,000/- IN THE SHARES OF M/S. RAJSHREE HOSPITAL LTD, INDORE AND IT WAS ALSO NOTICED THAT T HE ASSESSEE HAS TAKEN LOAN OF RS.98.50 LAKHS FROM HDFC BANK ON WHIC H SUBSTANTIAL INTEREST WAS PAID AND THE ABOVE LOAN WA S UTILIZED FOR PURCHASING SHARES OF ABOVE CONCERN. IT WAS CONTEND ED THAT THE INVESTMENT IN THE SHARES OF THE HOSPITAL WAS FOR TH E PURPOSE FOR OBTAINING PROFESSIONAL INCOME AND HENCE NO DISALLOW ANCES U/S 14A WAS CALLED FOR. HOWEVER, THE AO WAS OF THE VIEW TH AT THE INVESTMENT IN SHARES DO NOT GIVE ANY RIGHT TO THE ASSESSEE TO EARN PROFESSIONAL INCOME AND HENCE REJECTED THE CONTENTION OF THE ASS ESSEE. THE OTHER ARGUMENT OF THE ASSESSEE THAT NO DIVIDEND IN COME WERE EARNED FROM THE SHARES, HENCE NO DISALLOWANCES U/S 14A OF THE ACT WAS CALLED FOR WAS ALSO NOT FOUND ACCEPTABLE BY THE AO. THE AO HAS DISALLOWED THE INTEREST AMOUNTING TO RS.10,75,9 68/- U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES. SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 3 OF 8 4 . BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEF ORE THE CIT(A). HOWEVER THE CIT(A) NOTED THAT THE ARGUMENT OF THE A SSESSEE THAT THE INVESTMENT IN SHARES WAS WITH A AIM OF EARNING PROFESSIONAL INCOME IS FOUND TO BE WITHOUT MERIT AS NO MATERIAL OR EVIDENCE HAS BEEN PLACED ON RECORD TO ESTABLISH THAT THE INVESTM ENT IN SHARES WAS A PRE-CONDITION FOR ALLOWING HIM TO CARRY OUT O N PROFESSIONAL CONSULTANCY IN THE HOSPITAL. THE CIT(A) HAS ALSO D ISTINGUISHED THE DECISION IN THE CASE OF NAI DUNIA NEWS & NETWORK PV T. LTD V ACIT (2011)17 ITJ 289(MP) ON THE GROUND THAT THE RELIEF WAS ALLOWED AFTER RECORDING THE FACTUAL FINDING THAT THE APPELLANT HA S SUFFICIENT INTEREST FREE FUND FOR MAKING THE INVESTMENT AND TH AT THE INTEREST BEARING FUNDS WERE USED FOR THE BUSINESS PURPOSES, WHEREAS IN THE CASE OF THE ASSESSEE THIS WAS NOT ESTABLISHED. CON SIDERING THESE FACTS AND AFTER DISCUSSING ON VARIOUS CASE LAWS, TH E CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO AND ALSO OBSERVED T HAT THE CBDT CIRCULAR NO.5/2014 DATED 11.02.2014 ALSO PROVIDES F OR THE DISALLOWANCE OF THE EXPENDITURE EVEN WHERE THE EXEM PT INCOME WAS NOT EARNED. SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 4 OF 8 5. BEING AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BE FORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASS ESSEE IS A PRACTICING DOCTOR AND WAS DEAN OF MGM MEDICAL COLLE GE, INDORE. AFTER 2010 HE HAD TAKEN VRS FROM MGM MEDICAL COLLEG E TO DEVOTE HIS FULL TIME IN PRIVATE PRACTICE. ACCORDINGLY HE ALONGWITH DR. BHARGAV DECIDED TO START A WELL EQUIPPED HOSPITAL IN THE NAME OF RAJSHREE HOSPITAL & RESEARCH PVT. LTD. THE ASSESS EE HAD TOOK A LOAN OF RS.98.50 LAKHS FROM HDFC BANK AGAINST THE M ORTGAGE OF HIS RESIDENTIAL HOUSE AND INVESTED THE AMOUNT OF RS.97 LAKHS IN THE FINANCIAL YEAR 2010-11 AND RS.3.16 LAKHS IN THE ASS ESSMENT YEAR 2012-13 IN THE HOSPITAL IN THE FORM OF SHARE APPLIC ATION MONEY. THE ASSESSEE HAD EARNED PROFESSIONAL INCOME BY MAKI NG INVESTMENT FOR HIS PRIVATE PRACTICE IN A WELL EQUIPPED SET UP AND HAD EARNED PROFESSIONAL RECEIPT OF RS.11.44 LAKHS DURING THE Y EAR UNDER CONSIDERATION AND PAID INTEREST OF RS.10,42,595/- TOWARDS LOAN AND CLAIMED THE SAME IN THE RETURN OF INCOME. IT WA S FURTHER SUBMITTED THAT APART FROM THIS INVESTMENT NO OTHER INCOME HAS RECEIVED TILL DATE AND A DIVIDEND INCOME OF RS.4208 /- RECEIVED FROM SHARES OF OTHER COMPANY. THE LD. COUNSEL FURTHER S UBMITTED THAT NO RENT OR OTHER CHARGES PAID BY THE ASSESSEE TO P RACTICE IN THE SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 5 OF 8 HOSPITAL AND THE 100% COLLECTION WAS RECEIVED IN T HE FORM OF PROFESSIONAL RECEIPTS WERE ACCOUNTED. THEREFORE IT WAS SUBMITTED THAT THE INVESTMENT IN SHARES OF RAJASHREE HOSPITAL & RESEARCH CENTRE PVT. LTD THE ASSESSEE W`AS MADE STRATEGICAL INVESTMENT FOR EARNING THE PROFESSIONAL INCOME. HENCE THE INVESTM ENT SO MADE WAS NOT RELATED TO ANY EXEMPT INCOME THEREFORE NO D ISALLOWANCE U/S 14A IS CALLED FOR. IN SUPPORT OF THIS CONTENTION T HE LD. COUNSEL PLACED RELIANCE ON THE FOLLOWING CASE LAWS; (I) NAIDUNIA NEWS & NETWORK PVT. LTD V ACIT (2011) 17 ITJ 289 (INDORE) (II) KAILASH RAJANI V DCIT (2011) 17 ITJ 59 (INDORE ) (III) ITO V SANDEEP PARIKH (2010) 14 ITJ 230 (INDOR E) (IV) SUNIL SATWANI V ACIT (2011) 17 ITJ 67 (INDORE) (V) ACIT V TRAPTI TRADING (2012) 19 ITJ 28 (INDORE) (VI) NARENDRA NARANG V ACIT (2011) 18 ITJ 383 (INDO RE) (VII) ACIT V SWASTIK COAL CORP. P. LTD (2013) 21 IT J 775 (INDORE) (VIII) CIT V NAI DUNIA NEWS & NETWORKING PVT.LTD (2 013) 21 ITJ 284 (MP) (IX) JUSTICE SAM P. BHARUCH V ADDL. CIT (2012) 24 T AXMAN.COM (MUMBAI TRI.) (X) DLF LTD V CIT (2009) 27 SOT 22 (DEL HI TRI.) 6. CONSIDERING THESE FACTS IT WAS CLAIMED THAT NO DIS ALLOWANCE U/S 14A READ WITH RULE 8D IS CALLED FOR. WITH REGARD T O CBDT CIRCULAR IT WAS SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 6 OF 8 SUBMITTED THAT THE SAME IS NOT APPLICABLE TO THE FA CTS OF THE CASE. ACCORDINGLY NO DISALLOWANCE IS CALLED FOR. 7. ON THE OTHER HAND THE LD. AO SUPPORTED THE ORDER S OF THE AUTHORITY BELOW AND RELIED ON THE CBDT CIRCULAR (SUPRA) FOR T HE PROPOSITION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. FROM THE READING OF SECTION 1 4A OF THE ACT IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE, THE FOLLOWING CONDITIONS ARE TO BE ACCEPTED (A) THAT THERE MUST BE INCOME TAXABLE UNDE R THE HAND AND (B) THAT THIS INCOME MUST NOT PART OF TOTAL INCOME UNDE R THE ACT AND (C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESS EE AND THAT THE EXPENDITURE MUST HAVE A RELATION TO THE INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREFORE, UNLES S AND UNTIL THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESS MENT YEAR (DIVIDEND FROM SHARES), NO DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD BE MADE. THE PROVISION OF SECTION 14A OF THE ACT PROV IDES THAT AO IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AN D ONLY WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE ON EXEMPTED INCOME HE CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANC E WITH THE METHODOLOGY PRESCRIBED. IN THE INSTANT CASE WE FIN D THAT THE ASSESSEE HAS TAKEN A LOAN OF RS.98.50 LAKHS WHICH WAS INVEST ED TOWARDS SHARE APPLICATION MONEY IN RAJASHREE HOSPITAL & RESEARCH CENTRE PVT. LTD. THIS INVESTMENT HAS BEEN MADE FOR THE PURPOSE OF EA RNING PROFESSIONAL INCOME FOR HIS PRIVATE PRACTICE IN A WELL EQUIPPED SET UP IT IS ALSO SEEN THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INC OME TILL DATE FROM SUCH INVESTMENT. IT IS FURTHER SEEN THAT THE INVES TMENT MADE IN THE SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 7 OF 8 SHARE APPLICATION MONEY IN THE RAJASHREE HOSPITAL & RESEARCH CENTRE PVT.LTD HAS GIVEN A PLATFORM TO THE ASSESSEE TO DO PRACTICE THEREON AND RECEIVED CONSULTANCY CHARGES FOR ATTENDING THE PATI ENTS COMING TO THE SAID HOSPITAL, THUS THE ASSESSEE HAS AVAILED CLINIC SPACE IN THE SAID HOSPITAL BY WAY OF MAKING INVESTMENT IN THE SAID HO SPITAL. WE ALSO NOTE THAT THE ASSESSEE HAS NOT PAID ANY RENT OR OTHER CH ARGES FOR AVAILING THE CLINIC SPACE AND OTHER FACILITIES OF THE HOSPITAL A ND THE RECEIPT OF PROFESSIONAL CONSULTANCY WERE OFFERED FOR TAXATION FULLY. THEREFORE THIS IS A STRATEGIC INVESTMENT MADE BY THE ASSESSEE WHICH E NABLED THE ASSESSEE TO EARN TAXABLE INCOME, THEREFORE, THE INTEREST EXP ENDITURE INCURRED AND CLAIMED BY THE ASSESSEE HAS DIRECT NEXUS WITH THE P ROFESSIONAL INCOME OF THE ASSESSEE. WE ALSO NOTED THAT THE AO DID NOT PI N POINTED OUT THAT CERTAIN EXPENDITURE WAS NOT INCURRED FOR EARNING TH E PROFESSIONAL INCOME BUT WERE INCURRED IN RELATION TO DIVIDEND INCOME F OR SUCH EXPENDITURE WAS INCURRED FOR WAS INSEPARABLE OR IN ANY INDI VIDUAL ACTIVITY COMPRISING PROFESSIONAL AS WELL AS THE ACTIVITIES O N WHICH THE EXEMPT INCOME WAS EARNED BY THE ASSESSEE. THEN IN THE ABSE NCE OF ANY SUCH EXPRESS FINDINGS OF THE AO OR ANY MATERIAL TO SHOW THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE FOR EARNING T HE TAXABLE INCOME IS RELATED TO EXEMPT INCOME, THE PROVISION OF SECTION 14A CANNOT BE APPLIED. RELIANCE IS PLACED IN THE CASE OF CIT V HERO CYCLES LTD (2010) 323 ITR 518 (P&H) WHEREIN IT WAS HELD THAT NO DISALLOWANCE OUT OF INTEREST PAYMENT IS TAXABLE IF AO DOES NOT ESTABLISH NEXUS BETWEEN THE EXPENDITURE INCURRED AND INCOME GENERATED. THE LD . COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE IN THE CASE OF M/S NAI DUNIA NEWS & NETWORK PVT. LTD V ACIT (2011) 17 ITJ 289 INDORE T RIBUNAL, ITO V SANDEEP PARIKH (2010) 14 ITJ 230 INDORE TRIBUNAL H AS ALSO SUPPORTS THIS CASE. SIMILARLY THE HONBLE PUNJAB HIGH COURT IN THE CASE OF CIT V SHRI ASHOK BAJPAI V DCIT-1(1), INDORE ITA NO.1035/I ND/2016 ASSESSMENT YEAR 2012-13 PAGE 8 OF 8 LEKHANI MARKETING INCL. (2014) 111 ITR 0149 (P&H) HELD THAT WHERE THE ASSESSEE IS NOT RECEIVED ANY DIVIDEND INCOME THEN T HE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. SIMILARLY IN THE CA SE OF CIT V SHIVAM MOTORS (P) LTD 2014 89 CCH 59 (ALLAHABAD) HELD THAT ANY BUSINESS OF TAXABLE INCOME, CORRESPONDING EXPENDITURE CANNOT BE WORKED OUT FOR DISALLOWANCE U/S 14A OF THE IT ACT, 1961. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE IN THE CASE OF CIT V W INSOME TEXTILE INDIA LTD (2009) 77 CCH 0784 (P&H SC) AND MSA SECURITY SE RVICES PVT. LTD V CIT (2013) 22 ITR 0400 (CHENNAI) WHICH ALSO SUPPORT S THE POINT OF VIEW OF THE ASSESSEE. THEREFORE, IN THE LIGHT OF ABOVE DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE INVESTMENT MADE BY THE ASS ESSEE OUT OF BORROWED FUNDS WAS FOR THE PURPOSE OF EARNING PROFE SSIONAL INCOME AND NOT TO EARN TAX FREE INCOME, THEREFORE, THE EXPENSE S INCURRED IN RELATION TO TAXABLE INCOME CANNOT BE DISALLOWED U/S 14A READ WITH RULE 8D OF THE IT RULES, THEREFORE, THE DISALLOWANCE OF INTEREST O F RS.10,75,968/- MADE U/S 14A ARE DELETED. ACCORDINGLY, THE GROUNDS NO. 1 & 2 OF THE APPEAL ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.9.2017 . SD/- SD/- ( C.M. GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 28 TH SEPTEMBER, 2017 COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUA RD FILE. BY ORDER ASSISTANT REGISTRAR, INDORE