Shri.Mahendra Kumar Saraogi, Bangalore V. Asst. Commissioner of Income Tax, Bangalore

ITA 186/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7679 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: MALLAH A RAO K
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL SMC-B BENCH : BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNANT MEMBER ITA NO.186 (BANG) 2017 (ASSESSMENT YEAR : 2012 13) SHRI MAHENDRA KUMAR SARAOGI, APPELLANT NO. 12, 1 ST FLOOR, PAPANNA LANE, K. R. SETTYPET, BENGALURU - 560002 PAN. ADOPS6428D VS THE ACIT, CIRCLE 2 (3) (1), BENGALURU RESPONDENT ASSESSEE BY : SHRI MALLAHARAO. K., ADVOCATE REVENUE BY : SMT. PADMAMEENAKSHI, JCIT DATE OF HEARING : 23-08-2017 DATE OF PRONOUNCEMENT : 24-08-2017 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ORDER OF CIT (A) 5, BANGALORE DATED 28.10.2016 FOR A. Y . 2012 13. 2. THE ASSESSEE HAS RAISED AS MANY AS 5 GROUNDS BUT THE ONLY GRIEVANCE OF THE ASSESSEE IS ABOUT THE DISALLOWANCE OF RS. 35 6,652/- MADE BY THE A.O. U/S 14A RWR 8D AND CONFIRMED BY THE CIT (A). 3. LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE BA LANCE SHEET OF THE ASSESSEE FOR THE PRESENT YEAR IS AVAILABLE ON PAGE 136 OF THE PAPER BOOK. MY ATTENTION WAS DRAWN TO THE SAME AND IT WAS POINTED OUT THAT AS PER THIS ITA NO. 186(BANG)2017 2 BALANCE SHEET, THE CAPITAL IS RS. 152.97 LACS AND I NVESTMENT IS ONLY RS. 66.19 LACS AND THEREFORE, IT SHOULD BE PRESUMED THA T THE ENTIRE INVESTMENT IS OUT OF INTEREST FREE FUND AND THEREFORE, NO DISA LLOWANCE OUT OF INTEREST EXPENSES IS CALLED FOR U/S 14A. HIS SECOND CONTENTI ON WAS THAT AS AGAINST UNSECURED LOAN OF RS. 215.26 LACS AS PER THIS BALAN CE SHEET, CASH & BANK BALANCES ARE OF RS. 379.44 LACS AND THEREFORE, IT S HALL BE PRESUMED THAT THE ENTIRE LOAN FUND IS LYING IN THE FORM OF CASH AND B ANK BALANCES AND THEREFORE, IT CANNOT BE SAID THAT LOAN FUND WAS USE D FOR INVESTMENT AND HENCE, FOR THIS REASON ALSO, NO DISALLOWANCE OUT OF INTEREST EXPENSES IS CALLED FOR U/S 14A. LEARNED DR OF THE REVENUE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. SHE PLACED RELIANCE ON A JUDGMEN T OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF BHARATH BEEDI WO RKS (P) LTD. VS. ADDL. CIT S REPORTED IN 242 TAXMAN 492. 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THAT THIS IS THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE THAT I NTEREST FREE FUND AVAILABLE ON 31.03.2012 IN THE FORM OF CAPITAL IS RS. 152.97 LAC S AS AGAINST INVESTMENT ON THAT DATE OF RS. 66.19 LACS AND THEREFORE, NO DISAL LOWANCE OUT OF INTEREST IS CALLED FOR U/S 14A. IN THIS REGARD, I FIND THAT AS PER RUL E 8D, IN THE CASE OF MIXED FUNDS AS IN THE PRESENT CASE, IF THE ASSESSEE ESTABLISHES THAT INVESTMENT IS HAVING DIRECT NEXUS WITH INTEREST FREE FUNDS THAN TO THE EXTENT O F SUCH INVESTMENT, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR. SIMILARLY, IF THE ASSESSEE ESTABLISHES DIRECT NEXUS BETWEEN INTEREST BEARING F UND AND ITS USE FOR EARNING ITA NO. 186(BANG)2017 3 TAXABLE INCOME THAN ALSO, INTEREST ON SUCH BORROWIN GS IS TO BE DISREGARDED FOR PROPORTIONATE DISALLOWANCE OUT OF INTEREST EXPENDIT URE. FOR THIS PURPOSE, THE CLAIM OF THE LEARNED AR OF THE ASSESSEE WAS THIS TH AT AS AGAINST UNSECURED LOAN OF RS. 215.26 LACS AS PER THE BALANCE SHEET, C ASH & BANK BALANCES ARE OF RS. 379.44 LACS AND THEREFORE, IT SHALL BE PRESU MED THAT THE ENTIRE LOAN FUND IS LYING IN THE FORM OF CASH AND BANK BALANCES AND THEREFORE, IT CANNOT BE SAID THAT LOAN FUND WAS USED FOR INVESTMENT BUT IN MY CONSIDERED OPINION, THERE IS NO MERIT IN THIS CLAIM BECAUSE NO DIRECT NEXUS HAS BEEN ESTABLISHED BY THE ASSESSEE BETWEEN UNSECURED LOAN AND CASH & BANK BALANCES AND THEREFORE, NO SUCH CONCLUSION CAN BE D RAWN. SIMILARLY, IF THE AO ESTABLISHES DIRECT NEXUS BETWEEN INTEREST BEARIN G BORROWED FUNDS AND INVESTMENT THAN TO THAT EXTENT, ENTIRE INTEREST EXP ENDITURE IS TO BE DISALLOWED AND NOT PROPORTIONATE INTEREST. BUT IN RESPECT OF THE I NTEREST BEARING BORROWED FUNDS, FOR WHICH DIRECT NEXUS IS NOT ESTABLISHED BY THE AO WITH INVESTMENT OR BY ASSESSEE WITH TAXABLE INCOME, PROPORTIONATE DISALLO WANCE HAS TO BE MADE AS PER RULE 8D. IN THE PRESENT CASE, NO SIDE HAS ESTABLISH ED ANY DIRECT NEXUS AND THEREFORE, PROPORTIONATE DISALLOWANCE MADE BY THE A O AS PER RULE 8D IS JUSTIFIED AND NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT (A). REGARDING THE JUDGMENT CITED BY THE LEARNED DR OF THE REVENUE, I FIND THAT IN THAT CASE, THIS WAS THE CLAIM OF THE ASSESSEE THAT INTEREST FREE FU NDS FAR EXCEEDS THE VALUE OF INVESTMENT AND THEREFORE, THE DISALLOWANCE U/S 14A MADE BY THE ASSESSEE OF RS. 4 LACS SHOULD BE ACCEPTED AND IT SHOULD NOT BE RS. 14,00,530/- AS COMPUTED BY ITA NO. 186(BANG)2017 4 THE A. O. AS PER RULE 8D. IN THAT CASE, HONBLE KAR NATAKA HIGH COURT CONFIRMED THE DISALLOWANCE AT RS. 14,00,530/- BY OBSERVING TH AT THE BURDEN WAS ON THE ASSESSEE TO SHOW AND PROVE THAT INTEREST FREE FUND FAR EXCEEDS THE VALUE OF INVESTMENT AND THEREAFTER, TO JUSTIFY THE QUANTIFIC ATION OF AMOUNT OF RS. 4 LACS TOWARDS DISALLOWANCE FOR THE EXEMPTED INCOME. HENCE , IT IS SEEN THAT EVEN AFTER ESTABLISHING THAT THE INTEREST FREE FUNDS EXCEEDS T HE INVESTMENT, THE ASSESSEE HAS FURTHER BURDEN TO JUSTIFY THE QUANTIFICATION OF INT EREST DISALLOWANCE AT A FIGURE BELOW THE AMOUNT TO BE DISALLOWED AS PER RULE 8D AN D THIS PRESUMPTION CANNOT BE DRAWN THAT IF THE INTEREST FREE FUNDS EXCEEDS TH E INVESTMENT THAN ENTIRE INVESTMENT IS OUT OF INTEREST FREE FUNDS AND NO DIS ALLOWANCE IS CALLED FOR OUT OF INTEREST EXPENDITURE U/S 14A. THEREFORE, THE VIEW T AKEN ABOVE IS FORTIFIED BY THIS JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE: D A T E D : 24.08.2017 *REDDY GP ITA NO. 186(BANG)2017 5 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.