Govind Prasad Chandak, Hyd, Hanamkonda V. ACIT, Circle-6(1), Hyderabad, Hyderabad

ITA 1687/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2241 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B SMC : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NO. 1687/HYD/2016 ASSESSMENT YEAR : 2009 - 2010 GOVIND PRASAD CHANDAK, HYDERABAD. PAN: ABFPC6739 E VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 6(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI S. RAMA RAO FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 21.12.2017 DATE OF PRONOUNCEMENT : 21.12.2017 ORDER PER D. MANMOHAN , VP. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) - 6, HYDERABAD AND IT PERTAINS TO A.Y. 2009 - 2010. THE ONLY GROUND URGED BY THE ASSESSEE READS UNDER: - THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,87,498/ - BY APPLYING THE PROVISIONS OF SECTION 14A OF THE I.T. ACT. 2. FOR THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009 - 10, ASSESSEE DECLARED TOTAL INCOME OF RS. 25,46,310/ - . THOUGH THE RETURN WAS ORIGINALLY PROCESSED U/S 143(1) OF THE ACT, IT WAS LATER ON TAKEN UP FOR SCRUTINY WHEREIN IT WAS NOTICED THAT THE ASSESSEE DERIVED DIVIDEND INCOME OF RS. 2,39,329/ - AND CAPITAL GAINS ON SHARES , WHICH ARE EXEMPT INCOMES. SINCE NO EXPENDITURE WAS CLAIMED FROM NON - TAXABLE INCOMES, THE A.O. DISALLOWED EX PENDITURE INCURRED IN THE FORM OF INTEREST ETC., SINCE HE WAS OF THE OPINION THAT IN ORDER TO EARN EXEMPT INCOME, ASSESSEE MIGHT HAVE INCURRED CERTAIN EXPENDITURE AND ACCORDINGLY 2 INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND BY APPLYING RULE 8D AMOU NT DISALLOWABLE U/S 14A WAS WORKED OUT TO RS. 1,87,498/ - . 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT HE HAD OBTAINED LOANS FROM FRIENDS, RELATIVES AND OTHERS FOR MONEY LENDING BUSINESS AND NO EXPENDITURE WAS INCURRED ON PURCHASE OF SHARES OR FOR EARNING DIVIDEND INCOME AND THUS PROVISIONS OF SECTION 14A OF THE ACT OUGHT NOT TO HAVE BEEN APPLIED BY THE A.O. 4. LD. CIT(A) OBSERVED THAT THE ASSESSEE INVESTED A SUM OF RS. 1.71 CRS IN SHARES AND DERIVED LONG TERM CAPITAL GAINS OF RS. 12,64,118/ - APART FROM DIVIDEND INCOME OF RS. 2,39,329/ - WHICH ARE EXEMPT FROM TAX. HE FURTHER OBSERVED THAT THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS. 1,54,225/ - . SINCE INTEREST BEARING FUNDS AND OTHER FUNDS ARE MIXED UP , IT IS DIFFICULT TO CATEGORISE AS TO WHETHER THE INTEREST FREE FUNDS WERE UTILISED ONLY TOWARDS INVESTMENTS. SUCH BEING THE CASE, THE PROVISIONS OF SECTION 14A COME INTO PLAY. IT WAS ALSO OBSERVED THAT THOUGH THE ASSESSEE CLAIMED THAT PROFIT ON SALE OF SHARES WAS SHOWN AS BUSINESS INCOME , T HE CLAIM IS NOT SUPPORTED BY EVIDENCE AND AS PER THE COMPUTATION OF INCOME, THE PROFIT ON SALE OF SHARES WAS DECLARED UNDER THE HEAD INCOME FROM CAPITAL GAINS. LD. CIT(A) FURTHER OBSERVED THAT NO EXPENDITURE WAS CLAIMED TO HAVE BEEN INCURRED IN RELATION TO THE EXEMPT INCOME WHEREAS TO EARN SUCH HUGE INCOME THERE WOULD HAVE BEEN SOME EXPENDITURE. THUS, THE DISALL OWANCE MADE BY THE A.O. WAS CONFIRMED BY THE LD. CIT(A). 5. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONLY INTEREST FREE FUNDS WERE UTILISED FOR MAKING INVESTMENT IN PURCHASE OF SHARES. IT WAS ALSO SUBMITTED THAT THERE IS NO OTHER EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING DIVIDEND INCOME OR INCOME FROM CAPITAL GAINS. LD COUN SEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE INVESTMENTS WERE MADE IN THE EARLIER YEARS AND THEREFORE, IN THE YEAR UNDER CONSIDERATION EXPENDITURE, 3 IF ANY, INCURRED IN THE FORM OF PAYMENT OF INTEREST CANNOT BE ATTRIBUTED TO PURCHASE OF SHARES. 7. ON THE OT HER HAND, LD DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES AND SUBMITTED THAT THE INTEREST BEARING AND INTEREST FREE FUNDS HAVING BEEN MIXED UP IT CANNOT BE CATEGORICALLY SAID THAT ONLY INTEREST FREE FUNDS W ERE UTILISED TOWARDS INVESTMENTS AND THUS THE INVOCATION OF RULE 8D IS JUSTIFIED IN THESE CIRCUMSTANCES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN ORDER TO CLAIM DEDUCTION OF ANY EXPENDITURE, EITHER IN THE FORM OF INTEREST OR THE DAY - TO - DAY EXPENDITURE, UNDER THE HEAD BUSINESS , THE BURDEN IS UPON THE ASSESSEE TO PROVE THAT NO PART OF THE EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. WHEN THE FUNDS A RE MIXED UP, IT IS A DUTY OF THE ASSESSEE TO PROVE THAT ONLY INTEREST FREE FUNDS WERE UTILISED FOR MAKING INVESTMENT TO EARN EXEMPT INCOME. THOUGH THE LD COUNSEL FOR THE ASSESSEE CLAIMED THAT INVESTMENTS WERE MADE IN THE EARLIER YEARS, WHEN CALL ED UPON TO PRODUCE EVIDENCE TOWARDS PURCHASE OF SHARES AND THE SOURCES THEREOF, NO EVIDENCE COULD BE FURNISHED. THERE IS A POSSIBILITY OF SOME EXPENDITURE INCURRED TO EARN EXEMPT INCOME. IN FACT , THE LEGISLATURE, IN ITS WISDOM, REALISED THE DIFFICULTY ON THE PART OF THE ASSESSING OFFICER TO MAKE A DETAILED ENQUIRY IN THIS REGARD AND THUS INTRODUCED THE PROVISIONS OF SECTION 14A OF THE ACT, WHICH IS A DEEMING PROVISION WHEREBY DISALLOWANCE CAN BE MADE UNDER RULE 8D BY ADOPTING A FORMULA. SINCE THE BURDEN IS HEAVILY PLACED UPON THE ASSESSEE TO PROVE THAT NO EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME, IN THE ABSENCE OF PRODUCING SUFFICIENT MATERIAL IN THAT REGARD, THE A.O. AS WELL AS LD. CIT(A) WERE JUSTIFIED IN INVOKING THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. SINCE THE DISALLOWANCE IS LESS THAN THE 4 EXEMPT INCOME, THE DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER IS HEREBY CONFIRMED. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOU NCED IN THE OPEN COURT ON 21 ST DECEMBER, 2017. SD/ - SD/ - (B. RAMAKOTAIAH) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 21 ST DECEMBER , 2017 OKK, SR.PS COPY TO 1. SHRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO.9, HIMAYAT NAGAR, HYDERABAD - 500029. 2. ACIT, CIRCLE - 6(1), INCOME TAX TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT (A) - 6, HYDERABAD. 4. PR. CIT - 6, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE