RAMESH R. CHHEDA, MUMBAI V. ASST CIT CIR 13(3), MUMBAI

ITA 1167/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71171 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 20-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Assessee Lawyers: BEHARILAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . , ! ! ! ! '#$% '#$% '#$% '#$% , # # # # &' &' &' &' BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ITA NO.1167/MUM/2012 , ( ( ( ( / ASSESSMENT YEAR-2008-09 RAMESH R. CHHEDA PREM BHAVAN, 234/36, BHAT BAZAR, NARSEE NATHA STREET, MUMBAI-400009 VS. ASST. CIT CIR 13(3) AAYAKAR BHAVAN MUMBAI-400020 PAN: AAAPC6008J ( )* / APPELLANT) ( +,)* / RESPONDENT) )* )* )* )* - - - - # ## # / APPELLANT BY :SHRI BEHARILAL +,)* . - # / RESPONDENT BY :SHRI HARIGOVIND SINGH . .. . / / / / / DATE OF HEARING :05/09/2013 0( . / / DATE OF PRONOUNCEMENT :18/09/2013 , 1961 . .. . 254(1) # ## # $/1/ $/1/ $/1/ $/1/     ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DATED OF THE CIT(A)-24, MUMBA I ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (CIT(A) MUMBAI ERRED IN LAW AS WELL AS ON FACTS IN CONFORMING THE ADDITION OF RS. 1,63,544/- UNDER SEC TION 14A OF THE ACT. 1.2.THE CIT(A) FAILED TO APPRECIATE THAT WHEN BOTH, INTEREST -FREE AND INTEREST-BEARING FUNDS ARE AVAI LABLE AND THE PRESUMPTION WOULD ARISE THAT INTEREST FREE FUNDS ARE UTILIZED FOR INVESTMENT AND NO DISALLOWAN CE OF INTEREST COULD BE MADE UNDER SECTION 14A. 1.3.THE CIT(A) ERRED IN DRAWING INCORRECT INFERENCE , BY WRONGLY INTERPRETING THE FACTS AND REASONS ASSIGNED ARE WRONG & INCORRECT. 1.4.THE PROVISIONS OF SECTION 14A ARE WRONGLY CONST RUED 2.THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUN D AT THE TIME OF HEARING OR BEFORE THAT. ASSESSEE,AN INDIVIDUAL,FILED HIS RETURN OF INCOME ON 22.10.2008 DECLARING TOTAL INCOME OF RS. 36,31,511/-.ASSESSING OFFICER(AO)FINALISED THE ASSE SSMENT ORDER U/S.143(3) OF THE INCOME-TAX ACT, 1961(ACT),ON30.11.2010,DETERMINING THE TOTAL I NCOME AT RS.38.46 LACS. 2. EFFECTIVE GROUND OF APPEAL PERTAINS TO CONFORMATION OF THE ADDITION AMOUNTING TO RS.1,63, 544/- 2 ITA NO. 1167/MUM/2012 RAMESH R. CHHEDA UNDER SECTION (U/S.)14A OF THE ACT.DURING THE ASSES SMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE WAS EARNING EXEMPT INCOME THROUGH LONG TERM CAPITAL GAIN, THAT HE HAD NOT SHOWN ANY EXPENSES ATTRIBUTABLE TO EARNING OF SAID INCOME.HE DIRECTED THE ASSESSEE,VIDE ORDER SHEET ENTRY DATED18/11/2010,TO EXPLAIN AS TO WHY SECTION 14A R. W.RULE 8D OF THE INCOME-TAX RULES,1962 (RULES)SHOULD NOT BE APPLIED TO CALCULATE THE EXPEN SES ATTRIBUTABLE TO THE EXEMPT INCOME.HE AS FILED HIS REPLY ON 30/11/2010 IN RESPECT OF QUERY R AISED.AO,AFTER CONSIDERING THE SAME,HELD THAT ALTHOUGH NO DIRECT EXPENDITURE HAD BEEN CLAIMED TO BE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME,BUT THERE WAS ALWAYS A COST INVOLVED WHEN AS SESSEE WAS INVESTING FUNDS AND EARNING INCOME WHICH AROSE OUT OF THESE INVESTMENTS THAT P ROPORTIONATE EXPENDITURE FOR EARNING THE EXEMPT INCOME HAS TO COMPUTED U/S.14A,IN TERMS OF S TEPS PRESCRIBED UNDER RULE-8D (2). FOLLOWING THE PROCEDURE OF COMPUTATION LAID DOWN UN DER RULE-8D,HE DETERMINED THE PROPORTION - ATE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INC OME AT RS.2,24,547/-(RS.1,63, 544/-+ RS. 61, 003/-) AND SAME WAS DISALLOWED AS PER SECTION 14A O F THE 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE BANK ACCOUNT OF THE ASSESSEE CONTAINED TRANSACTIONS RELATING TO BOTH TRANSACTIONS RELATING TO GIVING AND TAKING OF LOANS ON WHICH INTEREST HAS BEEN RECE IVED/PAID AS WELL AS INVESTMENTS IN SHARES,THAT OUT OF THE INCOME EARNED OF BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E. RS. 37,44,788/, INCOME OF RS.8,67,805/,REPRESENTED INCOME ON ACCOUN T OF SHARE OF PROFIT FROM FIRMS, THAT USUALLY, SHARES FROM THE FIRM WOULD GET CREDITED TO THE CAPI TAL ACCOUNT OF THE PARTNERS,THAT THE ASSESSEE HAD NOT SHOWN THAT HE HAD RECEIVED SHARE OF PROFITS FRO M THE FIRMS IN CASH/ CHEQUE WHICH WAS IN TURN INVESTED IN THE ACQUISITION OF NEW SHARES DURING TH E YEAR,THAT AS PER THE PROFIT AND LOSS ACCOUNT FILED BY HIM PROFIT OF RS.18.86 LAKHS WAS SHOWN AS SHARE OF PROFIT FROM FIRM, THAT SHARE OF PROFIT FROM A.O.P. WAS SHOWN AT RS.4,65,772/-,THAT AVAILAB ILITY OF THE SALARY/ REMUNERATION FROM COMPANY AND FIRMS FOR MAKING INVESTMENTS IN THE SHA RES WAS NOT PROVED BY THE ASSESSEE,THAT SIMILAR IS THE CASE WITH REGARD TO INTEREST RECEIVE D SHOWN AT RS.21,67, 872/-,THAT HE HAD NOT BEEN ABLE TO SUBSTANTIATE COMPLETELY THAT THE NEW ACQUIS ITIONS OF THE SHARES HAD BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH HIM,THAT THE BAN K ACCOUNT STATEMENT SUBMITTED BY THE ASSESSEE CONTAINED TRANSACTIONS OF TWO TYPES.CITING SOME EXA MPLES OF INVESTMENT MADE BY HIM,FAA HELD THE BORROWED FUNDS HAD NO PROXIMATE CONNECTION WITH THE INVESTMENTS IN SHARES, THAT USE OF BORROWED FUNDS FOR INVESTMENTS IN SHARES COULD NOT BE COMPLETELY RULED OUT,THAT THE ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF LOANS TAKEN AND R EDUCED THE SAME FROM THE INTEREST RECEIVED PROPORTIONATE DISALLOWANCE OF SUCH INTEREST INCOME WAS REQUIRED TO BE MADE IN VIEW OF SEC.14A.UPHOLDING THE WORKING MADE BY THE AO AS PE R RULE 8D(2)(II)OF THE RULES, FAA HELD THAT THE AO WAS JUSTIFIED IN MAKING DISALLOWANCE OF RS.1, 63,544/-. AS FAR AS THE DISALLOWANCE OF RS.61,003/-UNDER RULE 8D(2)(III)OF THE RULES IS CONCERNED,HE HELD THAT THE ASSESSEE HAD NOT DEBITED/REDUCED ANY EXPEN DITURE ON ACCOUNT OF ANY ADMINISTRATIVE EXPENSES FOR WORKING OUT HIS TOTAL INCOME,THAT IF N O EXPENDITURE ITSELF HAS BEEN CLAIMED, QUESTION OF ANY DISALLOWANCE OUT OF THE SAME DID NOT ARISE,T HAT DISALLOWANCE OF EXPENDITURE OF RS.61,003/- WORKED OUT BY THE METHOD PRESCRIBED UNDER RULE BD(2 )(III) WAS NOT JUSTIFIED. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT BALANCE AVAILABLE WITH THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS. 5.24 CRORE S,THAT HE HAD MADE INVESTMENT OF RS.1.24 CRORES ONLY,THAT PROFIT FOR THE CURRENT YEAR,AMOUNT ING TO RS. 58.63 LACS,WAS ALSO AVAILABLE TO THE ASSESSEE,THAT THERE WERE SUFFICIENT FUND WITH HIM T O MAKE INVESTMENT,THAT WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE FAA HAD NOT CONSIDERED THE REL EVANT FACTS, THAT THE ASSESSEE HAD TWO BANK ACCOUNTS,THAT IF THE BALANCES AVAILABLE WITH THE HD FC BANK AND THE CORPORATION BANK WERE TAKEN TOGETHER AS ON 1.11.07 OF THE ACCOUNTING YEAR IT WO ULD HAVE PROVED THAT ASSESSEE DID NOT USE BORROWED FUNDS FOR MAKING INVESTMENT.HE REFERRED TO PAGE NO. 37 OF THE PAPER BOOK (PB).HE RELIED UPON THE CASES OF RELIANCE UTILITIES AND POW ER LTD.(313 ITR 340-BOM HIGH COURT),BUNGE AGRIBUSINESS (INDIA) (P) LTD.(64 DTR-MUM (TRI.)201) ,RELIANCE INDUSTRIES LTD.(79 DTR MUM (TRI.)315).DEPARTMENTAL REPRESENTATIVE (DR) SUPPORT ED THE ORDER OF THE FAA. 3 ITA NO. 1167/MUM/2012 RAMESH R. CHHEDA 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE UPHOLDING THE ORDER OF THE AO,FAA HAS HELD THAT ASS ESSEE HAD MADE INVESTMENT OF RS. 22.58 LACS FOR PURCHASING SHARES OF BARAK VALLEY CHEENTS LTD. AND RELIANCE ENTERPRISES LTD.WE FURTHER FIND THAT HE HAD TAKEN INTO CONSIDERATION THE STATEMENT OF CORPORATION BANK OF INDIA. PAGE NO. 37 OF THE PB IS THE BANK STATEMENT OF HDFC BANK.IT IS SEE N THAT ON 1.11.2007 CLOSING BALANCE OF THE HDFC BANK ACCOUNT WAS RS. 12.9 LACS.IF THE SAID AMO UNT IS CONSIDERED ALONG WITH THE BALANCE AVAILABLE WITH THE CORPORATION BANK IT CAN BE SAFEL Y HELD THAT ASSESSEE HAD HIS OWN FUNDS TO MAKE INVESTMENT IN THE SHARES PURCHASED.IN OUR OPINION,I F BORROWED FUNDS HAVE NO PROXIMATE CONNECTION WITH THE INVESTMENT IN SHARES PROPORTION ATE DISALLOWANCE SHOULD NOT HAVE BEEN MADE. PROVISIONS OF RULE 8D (2)(II) OF THE RULES HAVE TO BE INVOKED IN CERTAIN EVENTUALITIES ONLY.WE FIND THAT AO/FAA HAS NOT MENTIONED SUCH EVENTUALITIES.IF THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING EXEMPT INCOME,IT CANNOT ALW AYS BE HELD THAT THERE WERE ALWAYS A COST INVOLVED.WE FIND THAT IN THE CASE OF HERO CYCLES LT D.,HONBLE PUNJAB & HARYANA HIGH COURT (323ITR518)HAS HELD AS UNDER: THE CONTENTION OF THE REVENUE THAT DIRECTLY OR IND IRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME W HICH MAY NULLIFY THE MANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNOT STAND. IN THESE CIRCUMSTANCES, WITHOUT BRINGING SOME FACTS OF INVESTMENT MADE BY THE ASSESSEE OF BORROWED FUNDS FOR PURCHASING SHARES ADDITION SHOUL D NOT HAVE BEEN MADE. CASES RELIED UPON BY THE AR OF THE ASSESSEE ALSO SUPPORT OTHER VIEWS.RES PECTFULLY FOLLOWING THE ABOVE MENTIONED CASES,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN F AVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. 3 '4 3/ 5 &6 2 '7/ . '/ 8 . ORDER PRONOUNCED IN THE O PEN COURT ON 18 TH SEPTEMBER, 2013  . 0( # $ 9 :& 18, / 2013 . 1 ; SD/- SD/- ( . / D. MANMOHAN ) ( '#$% '#$% '#$% '#$% / RAJENDRA) / VICE-PRESIDENT # # # # &' &' &' &' /ACCOUNTANT MEMBER / MUMBAI, :& /DATE: 18.09 .2013 SK     . .. . +/< +/< +/< +/< =#<(/ =#<(/ =#<(/ =#<(/ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / )* 2. RESPONDENT / +,)* 3. THE CONCERNED CIT(A)/ > ? , 4. THE CONCERNED CIT / > ? 4 ITA NO. 1167/MUM/2012 RAMESH R. CHHEDA 5. DR D BENCH, ITAT, MUMBAI / <@1 +/ . , . . $ . 6. GUARD FILE/ 1 A ,