SHRI GOPALCHAND PRUTHVIRAJ MALI, Nashik V. DCIT, Malegaon

ITA 1083/PUN/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93724 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Earning of tax free income; Notional interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE: SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO . 1 082 /PN/201 2 ASSESSMENT YEAR : 20 0 6 - 07 SHRI GOPALCHAND PRUTHVIRAJ MALU, 139, TILAK ROAD, MALEGAON, DISTT.-NASHIK, PIN - 423203 VS. JOINT COMMISSIONER OF INCOME TAX, RANGE-3, NASHIK (APPELLANT) (RESPONDENT) PAN NO. AAUPM2687F ITA NO. 1083/PN/2012 ASSESSMENT YEAR : 2007 - 08 SHRI GOPALCHAND PRUTHVIRAJ MALU, 139, TILAK ROAD, MALEGAON, DISTT.-NASHIK, PIN - 423203 VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-3, MALEGAON (APPELLANT) (RESPONDENT) PAN NO. AAUPM2687F ASSESSEE BY: SHRI SUNIL GANOO REVENUE BY: SHRI B.C. MALAKAR DATE OF HEARING : 11-05-2015 DATE OF PRONOUNCEMENT : 15-05-2015 ORDER PER VIKAS AWASTHY, JM:- ITA NO. 1082/PN/2012 FOR THE ASSESSMENT YEAR 2006-07 AND ITA NO. 1083/PN/2012 FOR THE ASSESSMENT YEAR 2007-08 HAV E BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDERS OF COMMISSIONER OF INC OME TAX (APPEALS)-II, NASHIK. BOTH ORDERS ARE DATED 14-03-2012 . SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THE APPEA LS ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS ENGAGED IN TRADING OF SHARES AND SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-0 7 ON 28-09-2006, DECLARING TOTAL INCOME OF RS.22,19,960/- AND FOR THE ASSESSMENT YEAR 2007-08 ON 30-10-2007, DECLARING NET LO SS OF RS.(-)20,79,601/-. THE RETURNS OF THE ASSESSEE FOR BOTH T HE ASSESSMENT YEARS WERE SELECTED FOR SCRUTINY. IN THIS ASSESSMENT YEAR 2006-07 THE ASSESSING OFFICER INTER ALIA MADE ADDITION OF RS.98,124/- U/S. 1 4A R.W. RULE 8D. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME. NO SEPARATE ACCOUNTS FOR TRADING PORTFOLIO AND INVESTMENT PORTFOLIO ARE MAINTAINED. THE ASSESSEE HAS NOT FURNISHED DETAILS OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. IN THE ABSENCE OF SEPARATE ACCOUNTS, APPORTIONMENT OF DIVIDEND INCOME BETWEEN SHARES HELD AS INVESTMENT AND SHARES HELD AS S TOCK-IN-TRADE IS NOT POSSIBLE. THEREFORE, ADDITION U/S. 14A R.W. RULE 8D ON E NTIRE DIVIDEND INCOME RECEIVED BY THE ASSESSEE WAS MADE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 23-12-2008, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CO NTENTIONS OF THE ASSESSEE AND CONFIRMED THE FINDINGS OF THE ASSESSING O FFICER ON THE ISSUE. 3. IN ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS IMPUG NED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE FO LLOWING GROUNDS: 1). ADDITION MADE ON ACCOUNT OF CHARGING OF NOTIONAL INTEREST RS.1,23,389/-. 2). DISALLOWANCE MADE UNDER SECTION 14A AT RS.3,27,585/-. 3 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 3). WITHOUT PREJUDICE TO RELIEF CLAIMED AT ITEM NO. 2, RESTRICTING DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D TO RS.74,061/-. 4. IN ASSESSMENT YEAR 2007-08, THE ASSESSEE EARNED E XEMPT INCOME OF RS.3,27,585/- AND CLAIMED THE ENTIRE INCOME AS EXEMPT U/ S. 10(34) OF THE ACT. FOR THE REASONS STATED IN ASSESSMENT YEAR 2 006-07 THE ASSESSING OFFICER MADE ADDITION OF RS.3,27,585/- U/S. 14A R.W. RULE 8D. APART FROM THE ABOVE ADDITION, THE ASSESSING OFFICER MADE A NOTHER ADDITION OF RS.6,17,197/- BY DISALLOWING INTEREST EXPENDITUR E. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID TO TAL INTEREST OF RS.15,85,460/- ON LOAN AMOUNT OF RS.1,74,35,318/-. THE AVERAGE R ATE OF INTEREST PAID BY ASSESSEE IS 9.09%. PART OF INTEREST BE ARING FUNDS (RS.67,89,847/-) WERE UTILIZED BY THE ASSESSEE FOR NON-BUSIN ESS PURPOSES. ACCORDINGLY, THE ASSESSING OFFICER MADE PROPO RTIONATE DISALLOWANCE OF INTEREST ON FUNDS ALLEGEDLY DIVERTED FOR NON- BUSINESS PURPOSE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24-12-2009, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE AD DITION OF RS.3,27,585/- U/S. 14A R.W. RULE 8D. HOWEVER, WITH REGARD TO DISALLOWANCE OF INTEREST, THE COMMISSIONER OF INCOME TAX (AP PEALS) GRANTED PART RELIEF BY CONFIRMING ADDITION TO THE EXTENT OF RS.1,23,389/- ONLY. 5. AGAINST THE ORDERS OF FIRST APPELLATE AUTHORITY FOR THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE HAS COME IN SECOND AP PEAL BEFORE THE TRIBUNAL. 4 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 6. SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED, THAT THE ASSESSEE IS ENGAGED IN TRADING OF SHARES. THIS FACT HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE ASSESSEE HAS NOT HAVING ANY INVESTMENT PORTFOLIO. THE DIVIDEND INCOME RECEIVED BY THE A SSESSEE ON SHARE IS WITH RESPECT TO THE SHARE HELD BY THE ASSESSE E AS STOCK-IN-TRADE. SINCE, THE ASSESSEE IS NOT MAINTAINING ANY INVESTMENT PORT FOLIO THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE U/S. 14A. IN ORDER TO SUPPORT HIS SUBMISSIONS THE ASSESSEE PLACED RELIANCE ON THE DECIS ION OF CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. VISH WESHWAR SAHAKARI BANK LTD. IN ITA NO. 358/PN/2014 DECIDED ON 24-04-2015. WITH RESPECT TO DISALLOWANCE OF INTEREST IN ASSESSMENT YE AR 2007-08, THE LD. AR SUBMITTED THAT IN STATEMENT OF FACTS FILED ALONG WITH THE APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE HAD GIVEN DETAILED CALCULATION OF INTEREST PAID. THE COMMISSIO NER OF INCOME TAX (APPEALS) WITHOUT APPRECIATING THE SAME CONFIRM ED ADDITION TO THE EXTENT OF RS.1,23,389/-. THE ENTIRE ADDITION MADE B Y THE ASSESSING OFFICER HAS TO BE DELETED. SO FAR AS ADVANCES T O PRITHVI DEVELOPERS IS CONCERNED THE CO-ORDINATE BENCH OF THE TR IBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 800/PN/2009 FOR THE ASS ESSMENT YEAR 2005-06 DECIDED ON 13-04-2011 HAS UPHELD THE FINDINGS O F COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWA NCE OF INTEREST. 7. ON THE OTHER HAND SHRI B.C. MALAKAR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS). THE LD. DR SUBMITTED, THAT FROM THE PERUSAL OF RECORDS IT IS NOT CLEAR THAT THE DIVIDEND INCOME RECEIVED BY THE ASSES SEE IS FROM THE SHARES HELD UNDER INVESTMENT PORTFOLIO OR FOR TRADING PURPOSES. SO F AR AS DISALLOWANCE OF INTEREST IS CONCERNED, THE COMMISSIONER OF IN COME TAX 5 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CALCULATION OF INTEREST GIVEN IN STATEMENT OF FACTS GRANTED PARTIAL RELIEF TO THE ASSESSEE. THE LD. DR PRAYED FOR DISMISSING BOTH THE APPEALS OF THE ASSESSEE. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR HA S PLACED RELIANCE. THE COMMON ISSUE IN BOTH THE APPEALS IS ADDITION U/S. 14A R.W. RULE 8D IN RESPECT OF DIVIDEND INCOME RECEIVED BY THE ASSESSEE. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.2,21,782/- IN A SSESSMENT YEAR 2006-07 AND RS.3,27,585/- IN THE ASSESSMENT YEAR 2 007-08. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN TRAD ING OF SHARES AND SECURITIES. AS PER THE CONTENTIONS OF THE ASSESSEE THE DIVIDEND WAS RECEIVED ON SHARES HELD AS STOCK-IN-TRADE. THE ASSESSE E IS NOT MAINTAINING ANY INVESTMENT PORTFOLIO. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE SUBMISSIONS OF THE ASSESSEE. THE REVENU E HAS NOT BEEN ABLE TO SHOW EITHER FROM BOOKS OF ACCOUNT OR FROM ANY OT HER DOCUMENT THAT THE ASSESSEE WAS HOLDING SHARES AS INVESTMENT. T HE ASSESSEE HAD NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME. THE DIVIDEND INCOME EARNED BY ASSESSEE IS INCIDENTAL TO HIS BUS INESS OF TRADING IN SHARES AND SECURITIES. IN ABSENCE OF ANY INVES TMENT PORTFOLIO, DISALLOWANCE U/S. 14A CANNOT BE MADE OUT. MOREOVER, IN V IEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE C ASE OF GODREJ & BOYCE MFG. CO. LTD. VS. CIT REPORTED AS 328 ITR 81 (BOM .) THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE IN THE IMPUGNED ASS ESSMENT YEARS. THE HON'BLE HIGH COURT HAS HELD THAT THE PROVISIO NS OF RULE 8D SHALL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09. 6 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 9. IN THE PRESENT CASE, SINCE THE SHARES WERE NOT HELD AS INVESTMENT AND DIVIDEND WAS RECEIVED BY THE ASSESSEE ON THE SHARE S HELD AS STOCK-IN-TRADE IN THE COURSE OF BUSINESS, THERE IS NO QUE STION OF MAKING DISALLOWANCE U/S. 14A OF THE ACT. SIMILAR VIEW HAS BEEN TA KEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF VISHWESH WAR SAHAKARI BANK LTD. (SUPRA). ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IN BOTH THE ASSESSMENT YEARS IS ALLOWED. 10. IN ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS ALSO RAISED ISSUE WITH RESPECT TO DISALLOWANCE OF INTEREST. THE ASSESSEE HA S PAID TOTAL INTEREST OF RS.15,85,460/- ON BORROWED FUNDS. THE ASSESSIN G OFFICER DISALLOWED INTEREST EXPENDITURE TO THE EXTENT OF RS.6,17,197 /- BEING LOANS/ADVANCES GIVEN FROM INTEREST BEARING FUNDS TO CERTA IN PERSONS FOR NON-BUSINESS PURPOSES. BEFORE, THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE GAVE DETAILED CALCULATION WITH RESPE CT TO TOTAL INTEREST PAID, UTILIZATION OF INTEREST BEARING FUNDS AND THE R ATE OF INTEREST. THE COMMISSIONER OF INCOME TAX (APPEALS) PARTLY ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND REDUCED THE DISALLOWANCE OF INTEREST TO RS.1,23,389/-. THE COMMISSIONER OF INCOME TAX (APPEALS) AL SO ACCEPTED THE RATE OF INTEREST ADMITTED BY THE ASSESSEE @ 7.58%. THE GRIEVANCE OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APP EALS) HAS NOT PROPERLY APPRECIATED THE DETAILED INTEREST CALCULATIONS. W E OBSERVE THAT THE DETAILED COMPUTATION OF INTEREST WHICH WAS FILED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT AV AILABLE BEFORE THE ASSESSING OFFICER. IN OUR CONSIDERED OPINION THIS ISSUE NEEDS A REVISIT TO THE ASSESSING OFFICER. ACCORDINGLY, THE FILE IS RE MITTED BACK TO ASSESSING OFFICER WITH A DIRECTION TO DECIDE THIS ISSUE AFRES H AFTER TAKING INTO CONSIDERATION THE INTEREST COMPUTATION FILED BY THE AS SESSEE AND 7 ITA NOS. 1082 & 1083/PN/2012, A.YS. 2006-07 & 2007- 08 INFORMATION AVAILABLE IN THE BOOKS OF ACCOUNT. THIS GROUND O F APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSE. 11. IN THE RESULT, ITA NO. 1082/PN/2012 FOR THE ASSESSM ENT YEAR 2006-07 IS ALLOWED AND ITA NO. 1083/PN/2012 FOR THE ASSE SSMENT YEAR 2007-08 IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 15 TH DAY OF MAY, 2015 AT PUNE SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 15 TH MAY, 2015 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - II, NASHIK 4 THE CIT - I , NA SHIK 5 6 THE DR, ITAT, B BENCH, PUNE. GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PUNE