Dinesh Kumar Bagrodia, Bhilwara V. ACIT, Circle, Bhilwara

ITA 136/JODH/2019

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9706 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 11-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A.S. YADAV LD.
• Assessee Lawyers: P.C. PARWAL LD
• Keywords: Business income; Rule 8D
• Section: 143(3); 14A

Judgement Text

1 ITA NO.136/JODH/2019 SH. DINESH KUMAR BAGRODIA ASSESSMENT YEAR: 2016-17 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR , , BEFORE HONBLE SHRI SANDEEP GOSAIN, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.136/JODH/2019 ( / ASSESSMENT YEAR: 2016-17) SH. DINESH KUMAR BAGRODIA KALANI & CO.(CA) 5 TH FLOOR, MILESTONE BUILDING, GANDHINAGAR TURN, TONK ROAD JAIPUR, RAJASTHAN-302 015. / VS. A CIT CIRCLE BHILWARA ITO-WARD-4(1), JAIPUR RAJASTHAN. ./ ./PAN/GIR NO. AEZPB-0297-B ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI P.C. PARWAL (CA)- LD. AR REVENUE B Y : SHRI A.S. YADAV - LD. SR. DR / DATE OF HEARING : 02/11/2020 / DATE OF PRONOUNCEMENT : 21/12/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2016-17 CONTEST THE ORDER OF L D. COMMISSIONER OF INCOME-TAX(APPEALS), AJMER, [IN SHORT REFERRED T O AS CIT(A)], 2 ITA NO.136/JODH/2019 SH. DINESH KUMAR BAGRODIA ASSESSMENT YEAR: 2016-17 APPEAL NO.281/2018-19 DATED 20/02/2019 ON FOLLOWING EFFECTIVE GROUNDS:- 1. THE ID. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.30,86,067/- U/S. 14A READ WITH RULE 8D. HE HA S FURTHER ERRED IN CONFIRMING THE DISALLOWANCE IGNORING THAT INCOME CL AIMED EXEMPT IS RS.16,66,224/- AND AGAINST THE INTEREST EXPENDITURE OF RS.36,48,638/-, ASSESSEE HAS DECLARED INTEREST /REMUNERATION FROM P ARTNERSHIP FIRM. AS EVIDENT, THE ASSESSEE IS AGGRIEVED BY CONFIRMATI ON OF DISALLOWANCE U/S 14A FOR RS.30.86 LACS. 2. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING WRITTEN SUBMI SSIONS AND DOCUMENTS PLACED IN THE PAPER BOOK. THE JUDICIAL PR ECEDENTS AS RELIED UPON DURING THE COURSE OF HEARING HAVE DULY BEEN DELIBERATED UPON. OUR ADJUDICATION TO THE SUBJECT MATTER WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 3.1 THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING RESIDENT INDIVIDUAL WAS ASSESSED U/S 143(3) ON 10/12/2018 WH EREIN IT WAS SADDLED WITH IMPUGNED DISALLOWANCE U/S 14A FOR RS.3 0.86 LACS. THE SAME WOULD STEM FROM THE FACT THAT THE ASSESSEE CLAIMED INTEREST EXPENSE OF RS.36.48 LACS AGAINST REMUNERAT ION AND INTEREST INCOME EARNED FROM TWO PARTNERSHIP FIRMS ( M/S MANGLAM YARN AGENCIES & M/S MANGLAM FABRICS) WHICH WOULD FA LL FOR TAXATION UNDER THE HEAD BUSINESS INCOME . THE ASSESSEE CLAIMED OTHER INTEREST OF RS.25.58 LACS AGAINST INTEREST IN COME OF RS.26.71 LACS RECEIVED FROM OTHER PARTIES. THE SAME WOULD FA LL UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, LD. AO, GOING BY THE FACTUAL MATRIX, OPINED THAT THE INTEREST EXPENSES C OULD NOT BE HELD 3 ITA NO.136/JODH/2019 SH. DINESH KUMAR BAGRODIA ASSESSMENT YEAR: 2016-17 TO BE EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF MAKING OR EARNING SUCH INTEREST INCOME UNDER THE HEAD BUSINESS INCOME. 3.2 IT WAS NOTED THAT THE ASSESSEE EARNED EXEMPT IN COME OF RS.16.66 LACS INCLUDING SHARE OF PROFITS FROM TWO F IRMS. SINCE THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS.36.48 L ACS, LD.AO FURTHER OPINED THAT DISALLOWANCE U/S 14A WOULD APPL Y. THE ASSESSEE SUBMITTED THAT INTEREST EXPENDITURE OF RS. 36.48 LACS HAD DIRECT NEXUS WITH INTEREST INCOME FROM PARTNERSHIP FIRM AND HENCE, ALLOWABLE. IT WAS SUBMITTED THAT THE ASSESSEE WOULD NOT BE ABLE TO EARN MORE THAN 12% FROM THE FIRM WHEREAS LOANS WERE OBTAINED FROM MARKET AT HIGHER RATES TO MAKE INVESTMENT IN T HE FIRM. 3.3 HOWEVER, REJECTING THE SUBMISSIONS, LD. AO COMP UTED AGGREGATE DISALLOWANCE OF RS.30.86 LACS U/S 14A REA D WITH RULE 8D WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.28.99 LACS AND ADMINISTRATIVE EXPENSE DISALLOWAN CE U/R 8D(2)(III) FOR RS.1.86 LACS. IN THE ABSENCE OF ANY SATISFACTORY REPLY, AS WELL AS DOCUMENTARY EVIDENCES FORTHCOMING FROM T HE ASSESSEE, THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSE SSEE. 3.4 IT IS EVIDENT FROM APPELLATE ORDER THAT LD. CIT (A) MERELY CHOSE TO CONFIRM THE STAND OF LD. AO WITHOUT GOING INTO F ACTUAL ASPECT AS SUBMITTED BY ASSESSEE DURING APPELLATE PROCEEDINGS. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. AT THE OUTSET, IT IS NOTED THAT THE ASSESSEE HAS MERELY CLAIMED INTEREST EXPENDITURE AGAINST INTEREST EARNED FROM P ARTNERSHIP FIRMS AND DID NOT CLAIM ANY OTHER EXPENDITURE. THEREFORE, THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE U/R 8D(2 )(III), COULD NOT 4 ITA NO.136/JODH/2019 SH. DINESH KUMAR BAGRODIA ASSESSMENT YEAR: 2016-17 BE, BY ANY STRETCH OF IMAGINATION, BE ADDED BACK TO THE INCOME OF THE ASSESSEE. 5. PROCEEDING FURTHER, THE INTEREST INCOME EARNED F ROM PARTNERSHIP FIRMS WOULD BE ASSESSABLE AS BUSINESS INCOME AND THE EXPENDITURE HAVING DIRECT NEXUS WITH EARNING OF THE SAID INCOME WOULD BE AN ALLOWABLE EXPENDITURE. THE ONLY THING T HAT WAS TO BE VERIFIED WAS THE FACT THAT WHETHER THE BORROWED CAP ITAL ON WHICH INTEREST EXPENSE OF RS.36.48 LACS WAS PAID, HAD DIR ECT NEXUS WITH INVESTMENTS IN THE TWO PARTNERSHIP FIRMS OR NOT. IF SO, THE INTEREST EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION. 6. THE PERUSAL OF PAGE NOS. 8-9 OF THE PAPER-BOOKS WOULD REVEAL THAT THE ASSESSEE HAS IDENTIFIED AS WELL AS TABULAT ED EACH AND EVERY LOAN OBTAINED DURING THE YEAR. THE ASSESSEE H AS PAID INTEREST OF RS.25.58 LACS AGAINST LOANS HAVING CLOSING BALAN CE OF RS.202.23. THIS EXPENDITURE HAS BEEN CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE OTHER HAND, HAS PAID INTEREST OF RS.36.48 LACS AGAINST LOANS HAVING CLOSING BALANCE OF RS.258.43 LACS. THE SAME HAS BEEN CLAIMED UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE HAS MUCH HIGHER OPENING AS WELL AS CLO SING CAPITAL BALANCES IN THE TWO PARTNERSHIP FIRMS. IT I S EVIDENT THAT THE ASSESSEE HAS PAID HIGHER RATE OF 15% AS AGAINST EAR NED RATE OF 12% WHICH HAS RESULTED INTO INTEREST EXPENDITURE BE ING HIGHER THAN THE INTEREST EARNING FROM PARTNERSHIP FIRMS. NEVERT HELESS, THE UNSECURED LOANS TAKEN BY THE ASSESSEE HAS DIRECT NE XUS WITH THE INVESTMENTS MADE IN THE PARTNERSHIP FIRMS SINCE THE CAPITAL BALANCES IN THE FIRMS ARE MORE THAN UNSECURED LOANS . 5 ITA NO.136/JODH/2019 SH. DINESH KUMAR BAGRODIA ASSESSMENT YEAR: 2016-17 THEREFORE, ON THE FACTS AND CIRCUMSTANCES WE ARE IN CLINED TO DELETE THE IMPUGNED ADDITIONS AS MADE BY LD. AO. 7. THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED U/R 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. SD/- SD/- (SANDEEP GOSAIN) (MAN OJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21/12/2020 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$' / THE RESPONDENT 3. % ( ) / THE CIT(A) 4. % / CIT CONCERNED 5. &'#( ) , ) , ) / DR, ITAT, JODHPUR 6. '+,-! / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, JODHPUR.