BIMAL JITENDRA DESAI, MUMBAI V. ITO 22(1)(1), NAVI MUMBAI

ITA 1364/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93222 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S L YOON
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

BIMAL JITENDRA DESAI ITA NO. 13 6 4 /M/20 13 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIA L MEMBERITA ITA NO. : 13 6 4 /MUM/20 1 3 (ASSESSMENT YEAR: 200 8 - 0 9 ) BIMAL JITENDRA DESAI , C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEERING BUILDING, 265, PRINCESS STREET, MUMBAI - 400 0 0 2 .: PAN : AAKPD 3160 A VS IT O - 22 ( 1 ) - 1 , NEW MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S L YOON RESPONDENT BY : SHRI YOGESH KAMAT /DATE OF HEARING : 11 - 05 - 2015 / DATE OF PRONOUNCEMENT : 17 - 07 - 2015 ORDER PER AMIT SHUKLA , J.M. : TH E AFORESAID APPEAL HA S BEEN FILED AGAINST ORDER DATED 2 1 . 0 1 .201 3 , PASSED BY CIT(A) - 33 , MUMBAI , FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 200 8 - 0 9 . THE ONLY ISSUE RAISED IN VARIO US GROUNDS OF APPEAL IS DISALLOWANCE OF RS. 8,17,920/ - MADE UNDER SECTION 14A R.W. RULE 8D. 2. THE FACTS IN BRIEF ARE THAT , THE ASSESSEE HAS CLAIMED LONG - TERM - CAPITAL - GAIN ARISING OUT OF SALE OF SHARES OF RS. 1,87,48,672/ - AND DIVIDEND INCOME OF RS. 25,10 3/ - AS EXEMPT . IN RESPONSE TO THE SHOW CAUSE NOTICE, AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE, THE ASSESSEE SUBMITTED THAT IT HAS PAID INTEREST OF RS. 34,74,732/ - AND HAS RE CE I V ED INTEREST OF RS. 15,51,549/ - . THUS NET INTEREST PAID BY HIM IS ONLY RS. 19,33,183/ - . FURTHER, THE BORROWED FUNDS WERE USED FOR THE PURPOSE OF ACTIVITIES LIKE , FUTURE & OPTIONS, THE INCOME OF WHICH HAVE BEEN SHOWN UNDER THE HEAD BIMAL JITENDRA DESAI ITA NO. 13 6 4 /M/20 13 2 BUSINESS INCOME. THE ASSESSEE HAD SUFFICIENT CAPITAL AND FUNDS FOR MAKING THE INVESTMENTS IN S HARES. HOWEVER, THE ASSESSING OFFICER HELD THAT DISALLOWANCE U/S 14A IS CALLED FOR AND ACCORDINGLY HE PROCEEDED TO MAKE DISALLOWANCE OF RS. 8,17,920/ - IN ACCORDANCE WITH RULE 8D. THIS HAS BEEN CONFIRMED BY THE LD. CIT(A) ALSO ON THE GROUND THAT THE ASSES S E E HAS NOT FILED ANY FUND FLOW STATEMENT TO SHOW THAT ASSES S EE HAS UTILIZED ITS OWN FUNDS FOR MAKING THE INVESTMENTS IN SHARES. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD O W N CAPITAL AND INTEREST FREE FUNDS OUT OF WHICH THE INVESTMENTS HAVE BEEN MADE IN THE SHARES. IN SUPPORT OF THIS PROPOSITION, HE RELIED UPON THE STATEMENT OF INVESTMENTS MADE FROM THE ASSESSMENT YEAR 2002 - 03 TO 2008 - 09 AND AVAILABILITY OF ASSESSEES OWN CAPITAL AND ALSO THE POSITION OF THE BORROWED FUNDS. T HUS, HE SUBMITTED THAT ALL THROUGHOUT, ASSESSEES OWN CAPITAL WAS FAR IN EXCESS THEN THE INVESTMENT MADE. IN SUCH A SITUATION, HE SUBMITTED THAT THE PRESUMPTION HAS TO B E EN DRAWN THAT ASSESSEE HAD UTILIZED ITS OWN FUNDS FOR MAKING THE INVESTMENT . IN SUPPOR T OF HIS PROPOSITION, HE STRONGLY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD. IN INCOME TAX APPEAL NO. 3304 OF 2012 , JUDGMENT DATED 23 RD JULY, 2014. HE FURTHER SUBMITTED THAT IN THE EARLIER YEAR S , NO DISALLOWA NCE U/S 14A WAS MADE BY THE ASSESSING OFFICER, EVEN THOUGH THE ASSESSMENTS WERE COMPL E TED U/S 143(3). 4. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF MATERIAL ON RECO RD, WE FIND THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEES INVESTMENTS STOOD AT RS. 1,83,07,021/ - WHEREAS, THE ASSESSEES OWN CAPITAL WAS RS. 4,37,33,763/ - . FROM THE SCHEDULE OF INVESTMENTS MADE IN VARIOUS ASSESSMENT YEARS, IT IS SE E N T HAT IN ALL THE YEARS THE ASSESSEES OWN CAPITAL FAR EXCEEDED THE INVESTMENTS MADE BY THE ASSESSEE. IN SUCH A CIRCUMSTANCE, BIMAL JITENDRA DESAI ITA NO. 13 6 4 /M/20 13 3 THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT DECISION IN HDFC BANK LTD ( SUPRA ) IS SQUARELY APPLICABLE, WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE HAS OWN CAPITAL AND INTEREST FREE FUNDS, WHICH ARE IN FAR EXCESS OF INVESTMENTS MADE BY THE ASSESSEE , THEN THE PRESUMPTION IS THAT , SUCH INVESTMENT S HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THIS PROPOSITION HAS A LSO BEEN REITERATED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS . HITACHI HOME AND LIFE SOLUTIONS (I) LTD. , REPORTED IN [2014] 41 TAXMAN.COM540. THUS, SO FAR AS DISALLOWANCE OF INTEREST IS CONCERNED, THE SAME STAND S DELETED. 6. HOWEVER, REGARD ING INDIRECT EXPENSES UNDER RULE 8D(2)(III) OF R S. 22,200/ - , WE FIND THAT THE ASSESSEE BEFORE THE ASSESSING OFFICER HAS NOT WORKED OUT ANY ALLOCATION OF INDIRECT EXPENDITURE, WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME. THUS, THE DISALLOWANCE OF INDIRECT EXPENSES AS WORKED OUT UNDER RULE 8D(2)(III) APPEARS TO BE CORRECT AND ACCORDINGLY, THE SAME IS CONFIRMED. THUS, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 17 TH JU LY , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 17 TH JU LY , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 33 , MUMBAI 4 ) THE CIT 22 , MUMBAI . BIMAL JITENDRA DESAI ITA NO. 13 6 4 /M/20 13 4 5 ) , , / THE D.R. B B ENCH , MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS