Hemal Punamchand Turakhia, Ahmedabad V. The DCIT, Central Circle 1(1), Ahmedabad

ITA 1675/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0772 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 17-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 143(3); 14A; 201; 13; 22; 20

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, AHMEDABAD BEFORE , JUSTICE SHR I P.P. BHATT, PRESIDENT AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ ITA NO.1675/AHD/2018 / ASSTT . YEAR : 2015 - 2016 HEMAL PUNAMCHAND TURAKHI A , B - 203 , PUSHPAVAN APARTMENTS, NR. RUCHIR BUNGLOWS , BODAKDEV, AHMEDABAD - 380 054 . PAN: AAHPT2969A VS . D.C.I.T , CENTRAL CIRCLE 1(1 ) , AHMEDABAD (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : MS URVASHI SHODHAN , A.R REVENUE BY : SHRI MUDIT NAGPAL , SR . DR / DATE OF HEARING : 09 / 09 / 201 9 / DATE OF PRONOUNCEMENT: 06 /12 /2 01 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE AS SESSEE AGAINST THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) - 11 , AHMEDABAD [ LD. CIT (A) IN SHORT] , DATED 10 / 10 / 2018 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 10 / 08 / 201 7 RELEVANT TO ASSESSMENT YEAR (A . Y) 2015 - 16 . ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FRAMING APPELLATE ORDER U/S.250 OF THE I.T. ACT FORT A.Y. 2015 - 16 ON 10.05.2018. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 11 HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S.14A OF THE I.T ACT TO THE EXTENT OF RS.249493/ - INSTEAD OF RS.720113/ - IN TOTO. 3. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, OMIT ALL OR ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD AND DECIDED. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE IN PART F OR 2,49,493.00 UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. 3. THE FACTS IN BRIE F ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF SHARE TRADING. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS DECLARED EXEMPTED INCOME OF 32,71,432.00 AS DETAILED UNDER: I. DIVIDEND INCOME FROM NON - LISTED COMPA NY 25,12,000.00 II. DIVIDEND INCOME FROM LISTED COMPANY 3,07,529.00 III. PROFIT ON SALE OF SHARES(LTCG) 3,70,685.00 IV. INTEREST ON THE PPF 81,216.00 TOTAL 32,71,432.00 4. ON QUESTION BY THE AO ABOUT THE DISALLOWANCES OF TH E EXPENSES AGAINST THE EXEMPTED INCOME AS DISCUSSED ABOVE, THE ASSESSEE CLAIMED THAT HE HAS NOT UTILIZED ANY BORROWED FUND IN THE INVESTMENT OF SECURITIES WHICH ARE GENERATING EXEMPTED INCOME. 4.1 HOWEVER, THE AO OBSERVED CERTAIN FACTS AS FOLLOWS: ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 3 I. THERE IS NEGATIVE BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE AS ON 31 - 3 - 2015 F OR 1 , 66 , 235 .00 II. THE ASSESSEE HAS UNSECURED LOAN OF 78,85,216.00 III. T HERE WAS THE LARGE INVESTMENT MADE DURING THE YEAR. IN VIEW OF THE ABOVE, THE AO CONCLUDED THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING FUND IN THE INVESTMENTS GENERATING EXEMPTED INCOME. ACCORDINGLY HE INVOKED THE PROVISIONS OF SECTION 14 A READ WITH RULE 8 D OF I NCOME T AX R ULE AND MADE THE DISALLOWANCES OF 7,20, 113.00 BEING 1% OF AVE RAGE INVESTMENTS AS PER RULE 8D (2)(II) OF I NCOME TAX RULE. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 5. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT HE HAS NOT BORROWED ANY LOAN IN THE YEAR UNDER CONSIDERATION. RATHER HE HAS RE - PAID THE UNSECURED LOAN OF 1.99 CRORES IN THE YEAR UNDER CONSIDERATION. THUS THE QUESTION OF UTILIZING THE BORROWED FUND FOR THE INVESTMENT MADE IN THE YEAR UNDER CONSIDERATION DOES NOT ARISE. AS SUCH THE ASSESSEE CL AIMED THAT HE HAS MADE INVESTMENTS DURING THE YEAR IN SHARES AND SECURITIES FOR 4.78 CRORES OUT OF THE FOLLOWING SOURCES: I. R ECEIVED BACK THE ADVANCES GIVEN BY HIM FOR 0.35 LACS TO DEEPA TURAKHIA IN THE EARLIER PERIOD. II. R ECEIVED BACK THE ADVANCES GIVE N BY HIM FOR 2.00 CRORES FROM TURAKHIA ENTERPRISES IN THE EARLIER PERIOD. III. A DVANCES RECEIVED FOR 4.39 CRORES AGAINST THE AGREEMENT TO SALE OF LAND. 5.1 THE ASSESSEE FURTHER SUBMITTED THAT DIVIDEND OF 25,12,000 WAS RECEIVED FROM THE NON - LISTED COMPANY N AMELY M/S TURAKHIA OVERSEAS PRIVATE ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 4 LTD AGAINST THE INVESTMENT MADE BY HIM IN THE EARLIER YEARS WHEN THERE WAS OWNED SUFFICIENT FUND AVAILABLE WITH HIM. ACCORDINGLY THE ASSESSEE CLAIMED THAT NO BORROWED FUND WAS INVESTED IN THE SHARES OF M/S TURAKHIA OVERS EAS PRIVATE LTD AN D THEREFORE, NO DISALLOWANCE OF INTEREST EXPENSE IS WARRANTED. THE ASSESSEE IN SUPPORT OF HIS CONTENTION ALSO SUBMITTED THAT THE LEARNED CIT (A) IN THE OWN CASE OF THE ASSESS EE FOR THE ASSESSMENT YEAR 20 14 - 15 DIRECTED THE AO TO MAKE THE D ISALLOWANCE UNDER SECTION 14A OF THE ACT BY CONSIDERING THE INVESTMENT MADE DURING THE RELEVANT YEAR I.E. A . Y 2014 - 15. 5.2 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE CLAIMED THAT THERE IS A MISTAKE IN THE CALCULATION OF THE AO FOR WORKING OUT THE MONTH LY AVERAGE BALANCE OF THE INVESTMENTS IN PURSUANCE TO THE PROVISIONS OF R ULE 8D OF INCOME TAX RULE. ACCORDINGLY, THE AO WORKED OUT THE DISALLOWANCE AT 2,49,493.00 ONLY. 6. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE CONFIRMED THE ORDER OF THE AO IN PART BY OBSERVING AS UNDER: THE SECOND GROUND OF APPEAL IS AGAINST THE ADDITIONS OF RS.7,20,1137 - MADE BY THE AO U/S..14A R.W. RULE 8D, AS THE APPELLANT HAD DIVIDEND INCOME OF RS.28,19,529/ - AND SAME WAS CLAIMED AS EXEMPT. THE AO STATED THAT THE APPELLANT HAD N EGATIVE CAPITAL BALANCE AND CALCULATED DISALLOWANCE BY TAKING 1% OF THE AVERAGE INVESTMENT. THE APPELLANT CONTENDED THAT THE AO HAD TAKEN AVE RAGE INVESTMENT WRONGLY AND CORRECT AVERAGE INVESTMENT IS AS UNDER: - (AMOUNT IN RS.) INVESTMENT AVG. MONTLY INVESTMENTS OF FY 13 - 14 AVG. MONTLY INVESTMENTS OF FY 14 - 15 AVERAGE LISTED SECURITIES 11257531 37884092 ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 5 NON LISTED SECURITIES 378450 378450 11635981 38262542 24949262 B) 1 PERCENTAGE OF AVERAGE INVESTMENT AS PER RULE 8D (2) (II) 249493 ON GOING THROUGH THE FACTS OF THE CASE, ADDITIO NS TO THE EXTENT OF RS.2,49,493/ - ARE CONFIRMED AND REMAINING ADDITIONS OF RS.4,70,6207 - ARE DELETED . THIS GROUND OF APPEAL IS PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AR BEFORE US SUBMITTED THAT THERE CANNOT BE ANY DISAL LOWANCE WITH RESPECT TO THE D IVIDEND INCOME OF 25, 12,000 .00 AS IT WAS GENERATED AG AINST THE INVESTMENT MADE IN THE EARLIER YEARS WHEN THERE WAS SUFFICIENT OWNED FUND AVAILABLE WITH THE ASSESSEE. 7.1 THE LEARNED AR FURTHER AGREED TO MAKE THE DISALLOWANCE AGAINST THE DIVIDEND INCOME FROM THE LIST ED SHARES, PROFIT ON SALE OF SHARES (LTCG) AND INTEREST FROM THE PPF BUT CLAIMED THAT THE DISALLOWANCE OF 2 , 49 , 493 .00 AGAINST SUCH INCOME IS VERY HIGH. ACCORDINGLY, HE PRAYED FOR THE DISALLOWANCE ON LUMP SUM BASIS . 8. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THERE IS NEGATIVE BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE AND THUS IT IS INFERRED THAT THE INTEREST - BEARING FUND HAS BEEN UTILIZED FOR THE PURPOSE OF THE INVESTMENTS. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 6 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DISALLOWANCE IN THE PRESENT CASE HAS BEEN MADE BY THE LEARNED CIT (A) IN PURSUANCE TO THE PROVISIO NS OF RULE 8D OF I NCOME T AX R ULE. THE APPL ICATION OF RULE 8D OF I NCOME T AX R ULE HAS NOT BEEN DISPUTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, WE FIND IMPERATIVE TO REFER TO THE REL EVANT PROVISIONS OF RULE 8D OF I NCOME T AX R ULE WHICH READS AS UNDER: 22 [ (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELAT ING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; AND (II) AN AMOUNT EQUAL TO ONE PER CENT OF THE ANNUAL AVERAGE OF THE MONTHLY AVERAGE OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME : 9.1 O N PERUSAL OF THE ABOVE PROVISIONS OF RULE 8D , WE NOTE THAT THERE IS NO MENTION ABOUT THE SOURCE OF INVESTMENTS IN THE SHARES OF SECURITIES AND THE DISALLOWANCE OF THE INTEREST ON THE BORROWED FUND USED FOR SUCH INVESTMENT WHIC H ARE GENERATING THE EXEMPTED INCOME. THEREFORE, THE ARGUMENT OF THE LEARNED AR FOR THE ASSESSEE THAT THE BORROWED FUND HAS NOT BEEN USED IN THE IMPUGNED INVESTMENTS DOES NOT HOLD GOOD. ACCORDINGLY WE ARE OF THE VIEW THAT ONCE THE APPLICABILITY OF THE PROV ISIONS OF RULE 8D OF INCOME TAX RULE HAS NOT BEEN DISPUTED AND THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE AGAINST THE EXEMPTED INCOME, THEN THE AO HAS NO OPTION EXCEPT TO FOLLOW THE PRESCRIBED RULE (8D OF INCOME TAX RULES) FOR THE PURPOSE OF THE DISALLOWAN CE. 9.2 INDEED, THE LEARNED CIT (A) IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2014 - 15 HAS DIRECTED THE AO TO CONSIDER ONLY THOSE INVESTMENTS MADE IN ITA NO.1675/AHD/2018 ASSTT . YEAR 2015 - 16 7 THE YEAR UNDER CONSIDERATION. BUT THE FINDING OF THE LEARNED CIT (A) HAS NOT REACHED TO ITS FINALITY AS THE LEARNED AR FOR THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THERE WAS NO APPEAL PREFERRED BY THE REVENUE AGAINST S UCH ORDER (THE LEARNED CIT (A) FOR THE A . Y 2014 - 15 ) . ACCORDINGLY WE ARE NOT CONVINCED WITH THE ARGUMENT OF THE LEARNED C OUNSE L OF THE ASSESSEE . 9.3 WE ARE ALSO CONSCIOUS TO THE FACT THAT THE DISALLOWANCE OF 2,49, 493 .00 APPEARS TO BE HIGH AS ALLEGED BY THE LEARNED COUNSEL FOR THE ASSESSEE BUT HE HAS NOT BROUGHT ANYTHING ON RECORD PROPOSING THE AMOUNT OF DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8 D BASED ON SOME DOCUMENTARY EVIDENCE/BOOKS OF ACCOUNTS OF THE ASSESSEE. HOWEVER, AT THE SAME TIME IF WE CALCULATE THE AMOUNT OF DISALLOWANCE OF 2 , 49 , 493 .00 AGAINST THE TOTAL EXEMPTED INCOME OF 32 , 71 , 432 .00 IT COMES OUT AT 7.63% WHICH A PPEARS QUITE REASONABLE. THUS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A). HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. O RDER PRONOUNCED IN THE COURT ON 06 /12 / 2019 AT AHMEDABAD. - SD - - SD - (JUSTICE P.P. BHATT ) (WASEEM AHMED) PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 06 / 1 2 /2019 M ANISH