Shri Jivanlal Jadavjibhai Jagani, RAJKOT-GUJARAT V. The Asstt. Commr. Income Tax, Cen. Circle-1, RAJKOT-GUJARAT

ITA 131/RJT/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9048 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Salary income; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] JKTDKSV U;K;IHB] JKTDKSVA VK;DJ VIHYH; VF/KDJ.K] JKTDKSV U;K;IHB] JKTDKSVA VK;DJ VIHYH; VF/KDJ.K] JKTDKSV U;K;IHB] JKTDKSVA VK;DJ VIHYH; VF/KDJ.K] JKTDKSV U;K;IHB] JKTDKSVA IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI, MANISH BORAD, ACCOUNTANT MEMBER (I). I.T.A. NO.131/RJT/2015 FOR A.Y. 2007-08 (II). I.T.A. NO.132/RJT/2015 FOR A.Y. 2010-11 (III). I.T.A. NO.133/RJT/2015 FOR A.Y. 2012-13 SHRI JIVANLAL JADAVJIBHAI JAGANI 61-AMI APARTMENT, OPP GIRNAR CINEMA, RAJKOT. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -1, RAJKOT. ! PAN/GIR NO. : AAXPJ 8653 M ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI M.J. RANPURA, A.R. #'%$ / RESPONDENT BY : SHRI AVINASH KUMAR, SR. DR & '(%)* / DATE OF HEARING 16/05/2017 +,-.%)* / DATE OF PRONOUNCEMENT 23/05/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THESE THREE APPEALS HAVE BEEN TAKEN BY THE ASSES SEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, AHMEDABAD, DATED 26/03/2015 FOR THE ASSESSMENT YEAR (AY) 2007-08, ITA NO.131, 132 & 133/RJT/2015 SHRI JIVANLAL JADAVJIBHAI JAGANI VS. ACIT ASST.YEAR 2007-08, 2010-11 & 2012-13 RESPECTIVELY - 2 - 2010-11 AND 2012-13 RESPECTIVELY. THESE APPEALS HA VING COMMON GROUNDS ARE DISPOSED ALTOGETHER FOR THE SAKE OF CON VENIENCE. 2. GROUNDS OF APPEALS IN ITA NO. 131, 132 & 133/RJT /2015 ARE TAKEN BY THE ASSESSEE AS UNDER: (I) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II , AHMEDABAD ERRED ON FACTS AS ALSO IN LAW IN CONFIRMI NG THE DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF R S.7,69,171/- (FOR A.Y. 2007-08), RS.7,18,895/- (FOR A.Y. 2010-11 ) & RS. 12,06,187/- (FOR A.Y. 2012-13) U/S. 14A R.W. RULE 8 D OF THE ACT. THE DISALLOWANCE IS TOTALLY UNJUSTIFIED ON FACTS AS ALSO IN LAW AND MAY KINDLY BE DELETED. (II) YOUR HONORS APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL . 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ON VERIFICATION OF RETURN OF INCOME IT IS NOTICED T HAT THE ASSESSEE IS HAVING INCOME FROM SALARY, INCOME FROM HOUSE PROPER TY, INCOME FROM SHARE OF PROFIT FROM FIRM AND INCOME FROM CAPITAL G AIN & INCOME FROM OTHER SOURCES. DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS REQUESTED TO FURNISH VARIOUS DETAILS WERE CALLED FO R AND KEPT ON RECORDS. VARIOUS ISSUES WERE DISCUSSED AT LENGTH. ITA NO.131, 132 & 133/RJT/2015 SHRI JIVANLAL JADAVJIBHAI JAGANI VS. ACIT ASST.YEAR 2007-08, 2010-11 & 2012-13 RESPECTIVELY - 3 - 4. ON VERIFICATION OF THE RETURN OF INCOME, IT IS N OTICED THAT THE ASSESSEE WAS HAVING EXEMPT INCOME TO THE TUNE OF RS 13,65,085/-. AGAINST THIS, THE ASSESSEE HAD NOT CLAIMED ANY EXPE NDITURE. HOWEVER, HE HAD CLAIMED INTEREST OF RS 22,24,141/-. HENCE, THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN THIS CASE AS THE ASSESSEE HAD NOT SHOWN ANY EXPENDITURE AGAINST EXEMPTED INCOME. THE ASSESSEE W AS THEREFORE ASKED TO SHOW CAUSE AS TO WHY THE EXPENDITURE ATTRIBUTABL E TO EARNING OF EXEMPT INCOME SHOULD NOT BE DISALLOWED. IN REPLY, THE ASSE SSEE SUBMITTED THAT, HE HAD NOT INVESTED ANY INTEREST BEARING FUNDS FOR EAR NING THE EXEMPTED INCOME, AS IS APPARENT FROM THE BOOKS OF ACCOUNT. T HEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLIC ABLE. 4.1 THE REPLY OF THE ASSESSEE WAS NOT ACCEPTABLE T O THE LEARNED AO IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE I T AC T, IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE TO EARN EXEMPT INCOME. THE ASSESSEE ALSO FAILED TO ESTABLISH THAT NO EXPENDITURE WAS INCURRED TO EARN SUCH EXEMPT INCOME WHEN SHE WAS CL AIMING EXPENSES TO EARN INTEREST INCOME ON THE LOANS GIVEN TO HIS FAMI LY MEMBERS. HENCE, DISALLOWANCE OF EXPENSES U/S. 14A ON PROPORTIONATE BASIS IS REQUIRED TO BE MADE. INSTEAD OF MAKING ESTIMATION OF DISALLOWAN CE, IT WOULD BE MOST APPROPRIATE TO RELY ON THE FORMULA STIPULATED UNDER RULE 8D, ALTHOUGH IT WAS INTRODUCED SUBSEQUENTLY. ACCORDINGLY, THE TOTAL ASSESSED INCOME IS AS UNDER:- FOR ASSESSMENT YEAR 2007-08 RS. 14,11,031/- ITA NO.131, 132 & 133/RJT/2015 SHRI JIVANLAL JADAVJIBHAI JAGANI VS. ACIT ASST.YEAR 2007-08, 2010-11 & 2012-13 RESPECTIVELY - 4 - FOR ASSESSMENT YEAR 2010-11 RS. 25,93,715/- FOR ASSESSMENT YEAR 2012-13 RS.2,01,67,193/- 5. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LEARNED CIT(A). LEARNED CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD RIVAL SUBMISSION AND GONE THROUGH THE IMPUGNED ORDER PASSED BY THE AUTHORITY BELOW. THE LEARNED AR CITED SEVERAL JUDGMENTS OF HONBLE HIGH COURT OF GUJARAT ARE AS U NDER: CIT-III VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. [2013] 217 TAXMANN.COM 270 (GUJARAT): SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITU RE INCURRED IN RELATION TO EXEMPT INCOME [INTEREST] - ASSESSMENT Y EARS 2001-02 AND 2002-03 - ASSESSEE-COMPANY RECEIVED DIVIDEND ON UTI AND SHARES - ASSESSING OFFICER APPLYING PROVISIONS OF SECTION 14 A DISALLOWED INTEREST EXPENDITURE CLAIMED BY ASSESSEE - INVESTMENT IN UTI AND SHARES WAS MADE BY ASSESSEE IN EARLIER YEARS - DURING YEAR INT EREST FREE FUNDS AVAILABLE WITH ASSESSEE WERE MUCH LARGER AS COMPARE D TO INVESTMENT IN UTI AND SHARES - WHETHER ASSESSING OFFICER WAS WRON G IN DISALLOWING INTEREST EXPENDITURE UNDER SECTION 14A - HELD, YES [PARA 9][LN FAVOUR OF ASSESSEE] CIT-IV VS. SUZLON ENERGY LTD. [2013] 33 TAXMANN.COM 151 (GUJARAT) I. SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINE SS EXPENDITURE - ALLOWABILITY OF [SALES COMMISSION] - WHETHER, ITA NO.131, 132 & 133/RJT/2015 SHRI JIVANLAL JADAVJIBHAI JAGANI VS. ACIT ASST.YEAR 2007-08, 2010-11 & 2012-13 RESPECTIVELY - 5 - WHERE ASSESSEE HAD PAID SALES COMMISSION, ONLY SUCH PART WAS ALLOWABLE IN RESPECT OF WHICH THERE WAS SUFFICIENT EVIDENCE; WHICH WERE PAID THROUGH CHEQUES AND WERE ALSO REFLE CTED IN INCOME-TAX RETURN OF PAYEES -HELD, YES [PARA 2.5][L N FAVOUR OF ASSESSEE] II. SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITU RE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOM E [DIVIDENDS] - WHETHER WHERE INVESTMENT WAS MADE BY ASSESSEE IN FO REIGN SUBSIDIARIES, DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A WAS NOT JUSTIFIED SINCE DIVIDEND INCOME FROM FO REIGN SUBSIDIARIES, IS TAXABLE IN INDIA - HELD, YES - WHE THER WHERE ASSESSEE HAD OWN INTEREST FREE FUNDS MANY TIMES OVE R THE INVESTMENT MADE IN INDIAN SUBSIDIARIES AND FURTHER, THERE WAS NO DIRECT NEXUS BETWEEN INTEREST BEARING BORROWED FUND S AND SUCH INVESTMENT, NO DISALLOWANCE OF INTEREST EXPENDITURE COULD BE MADE UNDER SECTION 14A - HELD, YES [PARA 3.1] [IN F AVOUR OF ASSESSEE] III. SECTION 80-IB OF THE INCOME-TAX ACT, 1961 - DEDUCTI ONS - PROFIT AND GAINS FROM INDUSTRIAL UNDERTAKINGS OTHER THAN I NFRASTRUCTURE DEVELOPMENT UNDERTAKINGS [COMPUTATION OF DEDUCTION] - WHETHER, INTEREST EARNED ON LATE RECOVERY OF SALE P ROCEEDS FROM DEBTORS COULD BE INCLUDED IN CALCULATION OF DEDUCTI ON UNDER SECTION 80-IB - HELD, YES [PARAS 4 & 5] [IN FAVOUR OF ASSESSEE] 7. THE APPELLANT HAS NOT RAISED ANY BORROWED FUND D URING THE YEAR UNDER APPEALS FOR MAKING INVESTMENT WHICH GENERATES EXEMPTED INCOME. ALL THE INVESTMENTS WERE MADE FROM THE OWN CAPITAL THEREFORE, QUESTION OF DISALLOWANCE DOES NOT ARISE. 8. RESPECTFULLY, FOLLOWING THE JURISDICTIONAL HIGH COURTS JUDGMENTS WE ALLOW THE APPEALS OF THE ASSESSEE. ITA NO.131, 132 & 133/RJT/2015 SHRI JIVANLAL JADAVJIBHAI JAGANI VS. ACIT ASST.YEAR 2007-08, 2010-11 & 2012-13 RESPECTIVELY - 6 - 9. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/05/2017 SD/- SD/- EKUHK CKSJM EGKOHJ EKUHK CKSJM EGKOHJ EKUHK CKSJM EGKOHJ EKUHK CKSJM EGKOHJ IZLKN IZLKN IZLKN IZLKN YS[KK LNL; U;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; ( MANISH BORAD ) (MAHAVIR PRASA D) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23/05/2017 PRITI YADAV, SR. PS COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-II, AHMEDABAD. 5. 678 )'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 89:( GUARD FILE. / BY ORDER, #6) ) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !' #, / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 17/05/2017 (DICTATION-PAD 3 PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18/05/2017 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER