L.K. Jain (HUF), Pune V. Income-tax Officer, Ward - 7(1), Pune

ITA 1623/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4938 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 23-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Keywords: Depreciation; Earning of tax free income
• Section: 144

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM ./ ITA NO.1623/PUN/2017 / ASSESSMENT YEAR : 2012-13 L.K. JAIN (HUF), 10 TH FLOOR, KUMAR BUSINESS CENTRE, CTS 29, BUND GARDEN ROAD, CAMP, PUNE-411 001 PAN : AABHJ0041H ....... / APPELLANT ! / V/S. THE INCOME TAX OFFICER, WARD 7(1), PUNE. / RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI M.K. VERMA / DATE OF HEARING : 08.10.2018 / DATE OF PRONOUNCEMENT : 22.10.2018 ' / ORDER PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS), PUNE-5, PUNE DATED 10.03.2017 RELATING TO ASSESSMENT YEAR 2012-13 AGAINST ORDER PASSED UNDER SECTION 144 OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 2 ITA NO.1623/PUN/2017 A.Y.2012-13 ON FACTS AND IN LAW- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF ENTIRE AMOUNT OF INTEREST EXPENDITURE OF RS.26,96,118/- U/ S.14A R.W.R.8D. FOR THIS AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE CIT(APPEALS) AND THE ASSE SSING OFFICER MAY BE VACATED AND THE APPELLANTS CLAIM MAY BE ALLOWED OR ANY SUITABLE DIRECTIONS ISSUED. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE DISALLOWANCE MADE U/S.14A R.W.R.8D OF THE I.T. RULES, 1962. 4. BRIEFLY IN THE FACTS OF THE CASE, THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF CONSTRUCTION ACTIVITIES. THE ASSESSEE HAD FURNIS HED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL. THE CASE OF THE ASSESSEE W AS PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION OF RS .18,41,609/- AND ALSO DISALLOWED INTEREST EXPENDITURE OF RS.26,96,118/- S INCE, IT RELATED TO EXEMPT INVESTMENT. THE SAID DISALLOWANCE WAS MADE U/S.14A OF THE ACT. 5. THE CIT(A) UPHELD THE DISALLOWANCE OF INTEREST S INCE THE ASSESSEE FAILED TO ESTABLISH THAT THE BORROWED FUNDS HAVE BEEN UTILIZE D FOR THE PURPOSE OF BUSINESS AND NOT FOR THE INVESTMENT IN FUNDS FROM WHICH TAX FREE INCOME WAS BEING GENERATED. WITH REGARD TO THE CLAIM OF DEPRECIATIO N, THE SAME WAS ALLOWED BY THE CIT(A). 6. THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWAN CE OF ENTIRE AMOUNT OF INTEREST EXPENDITURE OF RS.26,96,118/-. 7. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT NO PART OF INTEREST EXPENDITURE IS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE. HE REFERRED TO THE BALANCE SHEET PLACED AT PAGE 5 OF THE PAPER BOOK WH EREIN THE ASSESSEE HAD NEGATIVE CAPITAL ACCOUNT OF RS.1.56 CRORES AND HAD UNSECURED LOAN OF RS.27.98 3 ITA NO.1623/PUN/2017 A.Y.2012-13 CRORES AGAINST WHICH INVESTMENT TOTALED TO RS.20.53 CRORES. HE REFERRED TO THE BIFURCATION OF THE INVESTMENT AT PAGE 7 OF THE PAPE R BOOK WHICH REVEALS THAT THE INVESTMENT OF RS.20.53 CRORES WAS THE NET INVESTMEN T AFTER DEBITING THE NEGATIVE CAPITAL ACCOUNT OF RS.1.20 CRORES. THE LD. AR FURTH ER REFERRED TO PAGE 13 OF THE PAPER BOOK IN WHICH DETAILS OF UNSECURED LOANS OF R S.27.98 CRORES ARE PLACED AND POINTED OUT ONLY TWO LOANS OF RS.7,00,000/- AND RS. 51,000/- WERE INTEREST BEARING FUNDS AND REST OF THE FUNDS WERE INTEREST FREE FUND S. HE POINTED OUT THAT INTEREST OF RS.26,96,118/- DEBITED TO P & L ACCOUNT WAS ON ACCO UNT OF INTEREST PAID TO CONCERN IN WHICH THE ASSESSEE HAD NEGATIVE CAPITAL BALANCE. HE, THUS, POINTED OUT THAT SINCE THE INTEREST WAS PAID ON THE DEBIT BALAN CE IN THE PARTNERSHIP FIRM AND NO INTEREST WAS RELATABLE TO THE INTEREST FREE FUNDS A VAILABLE WITH THE ASSESSEE, THERE IS NO MERIT IN THE DISALLOWANCE MADE IN THE HANDS O F ASSESSEE. 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE PLACIN G RELIANCE ON THE ORDER OF CIT(A) POINTED OUT THAT THE ASSESSEE HAD FAILED TO ESTABLISH NEXUS AND HENCE, THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE. 9. ON PERUSAL OF THE RECORD AND AFTER HEARING BOTH THE AUTHORIZED REPRESENTATIVES, THE ISSUE WHICH NEEDS TO BE ADJUDI CATED IN THE PRESENT APPEAL IS DISALLOWANCE U/S.14A OF THE ACT. THE SAID PROVISION S OF SECTION PROVIDE THAT WHERE THE ASSESSEE HAD MADE INVESTMENT IN FUNDS, INCOME F ROM WHICH IS EXEMPT FROM TAX AND ON THE OTHER HAND, THE ASSESSEE HAD UTILIZE D INTEREST BEARING FUNDS FOR MAKING THE AFORESAID INVESTMENTS, THEN SUITABLE DIS ALLOWANCE AS PER PROVISIONS OF SECTION 8D OF THE IT RULES ARE TO BE WORKED OUT IN THE HANDS OF ASSESSEE. IN THE FACTS OF THE PRESENT CASE BEFORE ME, ADMITTEDLY THE ASSESSEE HAS MADE INVESTMENT TO THE EXTENT OF RS.20.53 CRORES NET AND GROSS RS.21.73 CRORES, THE INCOME ARISING ON WHICH WAS EXEMPT INCOME FROM TAX. FURTHER, THE ASSESSEE HAD NEGATIVE CAPITAL ACCOUNT OF RS.1.56 CRORES, IN OTHE R WORDS, INTEREST FREE FUNDS UTILIZED WERE TO THE EXTENT OF RS.23.30 CRORES. 4 ITA NO.1623/PUN/2017 A.Y.2012-13 10. ON THE OTHER HAND, ASSESSEE CLAIMS TO HAVE RAIS ED UNSECURED LOANS FROM PARTIES TO THE EXTENT OF RS.27.98 CRORES, OUT OF WH ICH INTEREST IS BEING PAID ONLY ON LOANS AMOUNTING TO RS.7,51,000/-. IN SUCH CIRCUMSTA NCES, THE PLEA OF THE ASSESSEE IS THAT IT HAD SUFFICIENT INTEREST FREE FU NDS AVAILABLE WITH IT TO PARK THE SAME IN FUNDS, INCOME FROM WHICH WAS EXEMPT FROM TA X. IT HAD ALSO POINTED OUT THAT THE TOTAL INTEREST DEBITED DURING THE YEAR OF RS.26,96,118/- RELATED TO THE DEBIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE AND HAD NO RELATION TO THE INVESTMENT MADE, INCOME FROM WHICH IS EXEMPT FROM T AX. THE LD. AR FOR THE ASSESSEE IN THIS REGARD HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI GAJENDRA D. PAWAR VS. DCIT, ITA NOS.1009 TO 1012/PUN/2015, FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 DATED 31.10.2017 WHEREIN IT HAS BEEN HELD THAT THE AVAILA BILITY OF FUNDS ARE TO BE SEEN AS ON THE DATE OF BALANCE SHEET. THE SAID PROPOSIT ION HAS BEEN LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES & POWER LTD. REPORTED AS 313 ITR 340 (BOM.) WHICH HAS BEEN APPLI ED BY THE PUNE BENCH OF THE TRIBUNAL. AS FAR AS AVAILABILITY OF INTEREST F REE FUNDS WITH THE ASSESSEE ARE COVERED AND THE INVESTMENT MADE BY THE ASSESSEE, I NCOME FROM WHICH IS EXEMPT FROM TAX, THEN NO DISALLOWANCE MERITS TO BE MADE IN THE HANDS OF THE ASSESSEE U/S.14A OF THE ACT. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO DELETE ADDITION OF RS.26,96,118/-. THUS, THE SOLITARY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 22 ND DAY OF OCTOBER, 2018. SD/- (SUSHMA CHOWLA) /JUDICIAL MEMBER / PUNE; / DATED : 22 ND OCTOBER, 2018. SB 5 ITA NO.1623/PUN/2017 A.Y.2012-13 ' # $%&' ('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS), PUNE-5, PUNE. 4. THE PR. CIT-4, PUNE. 5. !'# $% , & $% , - '() , / DR, ITAT, SMC BENCH, PUNE. 6. #*+ ,- / GUARD FILE. // TRUE COPY // &. / BY ORDER, / $) /PRIVATE SECRETARY & $% , / ITAT, PUNE.