Milind Pralhad Bhandarkar, Pune V. Deputy Commissioner of Income-tax, Circle - 2, Pune

ITA 1559/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4352 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-10-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 21-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATHAMESH J LAWAND
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S.SYAL, V ICE P RESIDENT AND SHRI S.S. VISWANETHRA RAVI , J UDICIAL M EMBER . / I TA NO. 1559 /PUN/20 17 / ASSESSMENT YEAR : 2010 - 11 SHRI MILIND PRALHAD BHANDARKAR, 1717, ZENITH COMPLEX, SHIVAJINAGAR, OPP. KRISHI BHAVAN, PUNE - 411 005. PAN : AAVPB4583E ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2, PUNE. / RESPONDENT A SSESSEE BY : SHRI SARANG GUDHATE REVENUE BY : SHRI PRATHAMESH J. LAWAND / DATE OF HEARING : 23 . 10 .2020 / DATE OF PRONOUNCEMENT : 26 .10 .2020 / ORDER PER S.S. VISWANETHRA RAVI , JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30.11.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, PUNE [CIT(A)] FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO. 1559 /PUN/20 17 A.Y. 2010 - 11 2. THE ASSESSEE HAS RAISED TWO GROUNDS OF APPEAL AMONGST WHICH ONLY ISSUE EMANATES CHALLE NGING THE ACTION OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S.14A READ WITH RULE 8D (2) OF THE INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). 3. APART FROM THE MAIN GROUNDS OF APPEAL MENTIONED ABOVE, THE AS SESSEE HAS ALSO RAISED ADDITIONAL GROUND OF APPEAL POINTING OUT THAT THE ASSESSING OFFICER INSTEAD OF TAKING TOTAL INVESTMENT AS DENOMINATOR, TAKEN TOTAL ASSET IN COMPUTING DISALLOWANCE UNDER RULE 8D(2) OF THE RULES. 4 . HEARD BOTH SIDES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF RESALE OF EMT MACHINES AND WEIGHING SCALES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD INCREASED INTEREST EXPENSES AND ALSO SECURED LOAN IN THE OPENING BALANCE ON WHICH THE INTEREST WAS PAID. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE PROVISION UNDER RULE 8D(2) SHOULD NOT BE APPLIED. IT WAS EXPLAINED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE EARN ING EXEMPT INCOME AND THERE WAS NO DIRECT COSTS INVOLVED IN FUNDING THE INVESTMENT. THE ASSESSING OFFICER FOUND THE SUBMISSIONS OF THE ASSESSEE NOT ACCEPTABLE AND PROCEEDED TO INVOKE THE PROVISION OF RULE 8D(2) IN COMPUTING DISALLOWANCE FOR THE PURPOSE OF SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) . ACCORDINGLY, HE DISALLOWED RS.4,35,518/ - UNDER RULE 8D(2) (II) A ND RS.2,76,260/ - UNDER RULE 8D(2 ) (III) OF THE RULES VIDE ITS ORDER DATED 15.02.2013. 3 ITA NO. 1559 /PUN/20 17 A.Y. 2010 - 11 5 . WE NOTE THAT THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF DISALLOWANCE MADE U/S.14A BEFORE CIT(A) ON THE GROUND THAT WITHOUT RECORDING SATISFACTION IN RESPECT OF ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED EXPENDITURE FOR THE PURP OSE OF SECTION 14A OF THE ACT WHICH IS BAD IN LAW. T HE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 6 . BEFORE US, THE LD. AR REFERRED TO THE ADDITIONAL GROUND RAISED AND SUBMITTED THAT THE ASSESSING OFFICER BY MISTAKE CONSIDER ED TOTAL ASSET AS DENOMINATOR FOR COMPUTING EXPENDITURE UNDER RULE 8D(2) INSTEAD OF TOTAL INVESTMENT AND REFERRED TO A CHART ANNEXED THEREIN. ON PERUSAL OF THE SAME, WE NOTE THAT AS RIGHTLY POINTED OUT BY THE LD. AR, THE ASSESSING OFFICER HAS TAKEN THE TOTAL ASSET AS DENOMINATOR AND IT IS A MISTAKE APPARENT ON RECORD. FURTHER, THE LD. AR CONTENDED THAT TOTAL INVESTMENT AS ON 31.03.2009 AND 31.03.2010 ARE RS. 6,28,19,223 / - AND RS. 4,76,84,968/ - RESPECTIVELY WHICH ARE BE LOW THE TOTAL TAX FREE FUNDS OF ASSESSEE. WE NOTE THAT IN THE CHART SUPPLIED BY THE LD. AR , WHICH IS ON RECORD , THAT THE ASSESSEE S OWN FUNDS RS.7,37,05,514/ - AS ON 31.03.2009 AND RS.9,15,06,853/ - AS ON 31.03.2010 WHICH CLEARLY ESTABLISH ES THAT THE ASSESSEE S OWN SUFFICIENT FUNDS FOR MAKING INVESTMENT . THEREFORE, IN OUR OPINION, THE DISALLOWANCE OF INTEREST EXPENSES MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS LIABLE TO BE DELETED. 7 . THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. REPORTED IN 366 ITR 505 HELD THAT IT WOULD BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN THE PRESENT CASE AS 4 ITA NO. 1559 /PUN/20 17 A.Y. 2010 - 11 DISCUSSED ABOVE, THE AS SES S EES OWN FUNDS WERE MORE THAN THE INVESTMENT MADE. THEREFORE, BY APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY, THE DISALLOWANCE AS CONFIRMED BY THE CIT(A) UNDER RULE 8D(2) (II) IS DELETED. REGARDING THE DISALLOWANCE MADE UNDER RU LE 8D(2)(III), WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE CIT(A) AND THEREFORE, THE SAME IS CONFIRMED. THUS, GROUND NOS. 1 AND 2 ALONG WITH ADDITIONAL GROUND OF APPEAL ARE PARTLY ALLOWED. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRO NOUNCED ON 26 TH DAY OF OCTOB ER, 20 20 . SD/ - SD/ - R.S.SYAL S.S. VISWANETHRA RAVI VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 26 TH OCTOBER , 2020. SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 3, PUNE. 4. THE PR. CIT - 2, PUNE. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6 . / GUARD FILE. / BY ORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE . 5 ITA NO. 1559 /PUN/20 17 A.Y. 2010 - 11 DATE 1 DRAFT DICTATED ON 23 .10 .2020 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 23 .10 .2020 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER