DCIT Circle-10(1) Hyderabad, Hyderabad V. Sri Gautam Chand Jain, Secunderabad

ITA 1295/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6039 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Earning of tax free income; Commercial expediency; Set aside; CHAPTER IV
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1295/HYD/2016 ASSESSMENT YEAR: 2012-13 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 10(1), HYDERABAD. VS. GAUTAM CHAND JAIN, SECUNDERABAD. PAN AABHG 7699 J (APPELLANT) (RESPONDENT) REVENUE BY : SMT. SUMAN MALIK ASSESSEE BY : SHRI K.A. SAI PRASAD DATE OF HEARING : 27-02-2017 DATE OF PRONOUNCEMENT : 24 -03-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A) - 6, HYDERABAD, DATED 22/07/2016 FOR AY 2 012-13 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE LEARNED CIT(A) ERRED BOTH ON FACTS AND IN L AW. 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE MADE UNDER SECTION 14A OF I.T. ACT HOLDING THAT THE ASSE SSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT ASSESS MENT YEAR. 3. A SIMILAR ISSUE FOR THE A.Y. 2011-12 IS PENDING BEFORE THE HON'BLE ITAT AND THE SAME HAS NOT REACHED FINALITY. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, AN HUF, DERIVED INCOME FROM TRADING IN SHARES AND HAD FILED ITS RETURN OF INCOME DELCARING A TOTAL INCOME OF RS.50,68,154/-. THE ASSESSEE HAD CLAIMED A DEDUCTION OF INTEREST OF RS. 1,20,04,439/ - PAID TOWARDS LOANS TAKEN, AGAINST INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. ACCORDING TO THE ASSESSEE, THE LOAN WAS B ORROWED AND 2 ITA NO. 1295/H/16 GAUTAM CHAND JAIN, SECBAD INVESTED AS SHARE APPLICATION MONEY IN THE COMPANY, M/S. AUTOFIN LTD., SECUNDERABAD, IN WHICH HE WAS THE MANAGING DI RECTOR AND THAT THE FUNDS WERE INVESTED DUE TO LIQUIDITY CRUNCH IN THAT COMPANY. ON BEING ASKED ABOUT THE APPLICABILITY OF PROVISIONS O F SECTION 14A, IT WAS SUBMITTED THAT THE INVESTMENT WERE MADE PURELY ON ACCOUNT OF COMMERCIAL NECESSITY AND AS NO EXEMPT INCOME WAS EA RNED FROM THE INVESTMENT SO MADE, THE PROVISIONS OF SECTION 14A W ERE NOT APPLICABLE. THE ASSESSING OFFICER, ON THE OTHER HAN D OBSERVED THAT THE ASSESSEE HAD CLAIMED THE INTEREST EXPENDITURE A GAINST THE 'INCOME FROM OTHER SOURCES' AND NOT 'BUSINESS INCOM E', THEREFORE, THE CLAIM OF 'COMMERCIAL EXPEDIENCY' BY THE ASSESSEE WA S OF NO RELEVANCE AS SECTION 36(I)(III) WAS NOT APPLICABLE TO THE PRESENT CASE. MOREOVER, THE ASSESSEE WAS IN THE BUSINESS OF TRADI NG IN SHARES/DERIVATIVES AND IT WAS NOT THE CASE OF THE A SSESSEE THAT THE LOAN BORROWED WAS INVESTED IN SHARES RELATING TO HI S BUSINESS. ACCORDING TO THE ASSESSING OFFICER, THE LOANS BORRO WED WERE INVESTED IN SHARE APPLICATION MONEY OF M/S. AUTOFIN LTD AND THOUGH NO DIVIDENDS WERE STATED TO HAVE BEEN DECLARED BY THE COMPANY, THE SHARE APPLICATION, WHEN CONVERTED TO SHARE CAPITAL WOULD EARN DIVIDENDS, WHICH WAS EXEMPT FROM TAXATION. THAT BEI NG THE CASE, ANY EXPENDITURE INCURRED BY WAY OF INTEREST IN SHARE CA PITAL/SHARE APPLICATION MONEY WOULD ATTRACT THE MISCHIEF OF SEC TION 14A. THE ASSESSING OFFICER HELD THAT THE CLAIM OF THE ASSESS EE THAT INVESTMENT WAS NOT MADE TO EARN DIVIDEND HAD NO MERIT AND AS T HE INVESTMENT WAS MADE TOWARDS SHARE APPLICATION MONEY, THE INCOM E FROM WHICH DID NOT FORM PART OF TOTAL INCOME, THE CLAIM OF DED UCTION OF INTEREST EXPENDITURE WAS NOT ALLOWABLE U/S. 14A OF THE ACT. HE, ACCORDINGLY, DISALLOWED THE ENTIRE INTEREST EXPENDITURE OF RS. 1 ,20,04,439/- CLAIMED AS EXPENDITURE AS THE BORROWED MONEY WAS IN VESTED IN SHARE APPLICATION MONEY AND THE ENTIRE INTEREST HAD BEEN CLAIMED AS DEDUCTION. 3 ITA NO. 1295/H/16 GAUTAM CHAND JAIN, SECBAD 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE FUNDS HAD BEEN BORROWED PURELY ON ACCOUNT OF COMMERCIAL EXPEDIENCY AS THE C OMPANY HAD INCURRED HUGE LOSSES AND ITS TOTAL ACCUMULATED LOSS ES AS ON 31/03/2012 HAD BECOME RS.13.94 CRORE, AS A RESULT O F WHICH ITS ENTIRE NET WORTH WAS WIPED OUT. IN SUCH A SITUATION OF CAS H CRUNCH, INFUSION OF LIQUIDITY WAS MADE GOOD IN THE FORM OF SHARE APP LICATION MONEY AND IF THAT WAS NOT DONE, THE COMPANY WOULD HAVE CEASED TO OPERATE AND TOTAL INVESTMENT OF THE FAMILY MEMBERS AND ITSELF W OULD HAVE BEEN WIPED OFF, SINCE THE COMPANY'S BANKERS WHO HAD LENT A SUM OF RS. 17.64 CRORE HAD THREATENED TO RECALL THE LOAN AMOUN T. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) RELYING ON THE DECISION OF THE CIT(A) 7, HYDERABA D IN ASSESSEES OWN CASE FOR AY 2011-12, DELETED THE DISALLOWANCE M ADE BY THE AO U/S 14A OF THE ACT. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. LD. AR OF THE ASSESSEE RELIED ON VARIOUS CASE LAWS INCLUDING THE DECISION OF ITAT, HYDERABAD IN ITA NO . 1302/HYD/2015 FOR AY 2011-12, ORDER DATED 29/04/2016 (WHERE JM WA S ONE OF THE SIGNATORY) WHEREIN THE BENCH HAS HELD AS UNDER: 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SECTION 14A CLEARLY STIPULATES THAT THE EXPENDITURE INCURRED FOR EARNING OF ANY INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ALONE CAN BE DISALLOWED. IN THE CASE BEFORE US, WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INC OME, THERE CAN BE NO DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE HONBLE DELHI HIG H COURT IN THE CASE OF CHEMINVEST LTD., REPORTED IN (2015) 378 ITR 33 (DEL.) HAS HELD THAT SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING T HE RELEVANT ASSESSMENT YEAR. IN VIEW OF THE SAME, ASSESSEES APPEAL ON THIS GROUND IS AL LOWED. 6.1 IN THE CASE OF MADHUCON INFRA LTD. (ITA NO. 410 /HYD/2015, ORDER DATED 20/05/2016 WHERE BOTH THE MEMBERS ARE SIGNATORIES), THE COORDINATE BENCH HAS HELD AS UNDER: 4 ITA NO. 1295/H/16 GAUTAM CHAND JAIN, SECBAD 10. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. WE HAVE ALSO GONE THROUGH THE CASES CITED BY THE LD. AR. IN THE CASE OF M/S ALLIANCE INFRAST RUCTURE PROJECTS PVT. LTD., (SUPRA), THE COORDINATE BENCH OF ITAT BA NGALORE HAS HELD AS UNDER: 14. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS, WE ARE O F THE VIEW, SECTION 14A OF THE ACT CANNOT BE INVOKED. IN THIS A PPEAL, THE REVENUE HAS NOT DISPELLED THE CONTENTION OF THE ASS ESSEE BEFORE AO THAT IT WAS NOT IN RECEIPT OF ANY EXEMPT INCOME. LEARNED CIT(A), HAS MISCONSTRUED THE DECISION OF DELHI BENC H OF THIS TRIBUNAL IN THE CASE OF M/S TECHNOPAK ADVISORS (P) LTD., AS THAT OF THE HON' DELHI HIGH COURT, WITHOUT RECOGNIZING T HAT AFTER THE SAID DECISION, THERE HAS BEEN A CATENA OF JUDGMENTS FROM VARIOUS HIGH COURTS, GOING IN FAVOUR OF THE ASSESSEE. HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ERRED IN INVOKING SEC TION 14A OF THE ACT. 10.1 IN THE CASE OF ACIT VS. M/S MISHRA DHATU NIGAM LTD., (SUPRA), THE COORDINATE BENCH OF ITAT, HYDERABAD HA S HELD AS UNDER: 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. THOUGH, LD. DR REL YING UPON THE DECISION OF ITAT DELHI SPECIAL BENCH IN CASE OF CHE MINVEST LTD. VS. ITO (SUPRA), ATTEMPTED TO JUSTIFY THE DISALLOWA NCE MADE U/S 14A, HOWEVER, ON CAREFUL ANALYSIS OF THE DECISIONS CITED BY ASSESSEE INCLUDING THE DECISION OF THE HONBLE P&H HIGH COURT IN CASE OF CIT VS. M/S LAKHANI MARKETING INC. IN ITA N O. 970 OF 2008 DATED 02/04/2014, WE FIND THAT THE PRINCIPLE L AID DOWN BY DIFFERENT HIGH COURTS ARE TO THE EFFECT THAT UNLES S ASSESSEE HAS EARNED EXEMPT INCOME IN A PARTICULAR FY, PROVISIONS OF SECTION 14A WILL NOT APPLY. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE DEPARTMENT. ACCOR DINGLY, WE DISMISS THE SAME BY UPHOLDING THE ORDER OF LD. CIT( A) ON THIS ISSUE. 10.3 IN THE CASE OF CIT VS. CORRTECH ENERGY (P) LTD ., (SUPRA), THE HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER: 4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE ASSE SSING OFFICER AS WELL AS CIT (APPEALS) HAD APPLIED FORMULA OF RUL E 8D OF THE INCOME TAX RULES, SINCE THIS CASE AROSE AFTER THE A SSESSMENT YEAR 2009-2010. SINCE IN THE PRESENT CASE, WE ARE C ONCERNED WITH THE ASSESSMENT YEAR 2009-2010, SUCH FORMULA WA S CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER, NOTICE THAT SUB -SECTION(1) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COM PUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN 5 ITA NO. 1295/H/16 GAUTAM CHAND JAIN, SECBAD RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE PRESENT CASE, THE TRIBUNAL HA S RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDE R SECTION 14A OF THE ACT COULD NOT BE MADE. IN THE PROCESS TRIBUN AL RELIED ON THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYAN A HIGH COURT IN CASE OF CIT V WINSOME TEXTILE INDUSTRIES LTD. [2 009] 319 ITR 204 IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER: '7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. T HE JUDGEMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 28 6 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCT ION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PU RPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOU T HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS MADE THEREIN HA VE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTED LY THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SIT UATION SECTION 14A COULD HAVE NO APPLICATION.' 10.3 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE GROUND NOS. 3 & 4 RAISED BY THE ASSESSEE. 6.2 IN THE CASE UNDER CONSIDERATION, WE FIND THAT T HE INVESTMENTS WERE MADE PURELY ON ACCOUNT OF COMMERCIAL NECESSITY AND AS NO EXEMPT INCOME WAS EARNED FROM THE INVESTMENT SO MAD E, THE PROVISIONS OF SECTION 14A WILL NOT APPLICABLE TO TH E CASE OF ASSESSEE. THEREFORE, FOLLOWING THE SAID DECISIONS OF THE COOR DINATE BENCH, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND AC CORDINGLY WE UPHOLD THE SAME AND DISMISS THE GROUNDS RAISED BY THE REVE NUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 24 TH MARCH, 2017 KV 6 ITA NO. 1295/H/16 GAUTAM CHAND JAIN, SECBAD COPY TO:- 1) DCIT, CIRCLE 10(1), 5 TH FLOOR, A BLOCK , IT TOWERS, AC GUARDS, HYDERABAD. 2) SRI GAUTAM CHAND JAIN, 10-3-56, EAST MARREDPALL Y, SECUNDERABAD 500 026. 3) CIT(A) 6, HYDERABAD. 4) PR. CIT 6 , HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE