Manilal malashibhal Gada, Pune V. Assistant eputy Commissioner of Income-tax,

ITA 192/PUN/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4838 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-10-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHAI
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , ! , ' # BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO.192/PUN/2015 '% & '& / ASSESSMENT YEAR : 2010-11 SHRI MANILAL MALASIBHAI GADA, 29, SWAYAMBHU, 12, MUKUND NAGAR, SUJAY GARDEN, PUNE-411 037. PAN : ACVPG0240M .... / APPELLANT (% / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, PUNE. .. / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI SANJEEV GHAI / DATE OF HEARING : 16.10.2018 / DATE OF PRONOUNCEMENT : 24.10.2018 ) / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY ASSESSEE AGAINST THE ORDER O F CIT (APPEALS)- 4, PUNE DATED 02.01.2015 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO. 192/PUN/2015 A.Y.2010-11 2. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS A COMMISSION AGENT AND REPORTED SHARE INCOME IN THE PROFIT FROM FIRM. THE AS SESSEE OWNS A COMPANY NAMED M/S.TANGENT FURNITURE PVT. LTD. AND FILED R ETURN OF INCOME DECLARING TOTAL INCOME OF RS.43,97,033/-. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF (I) DISALLOWANCE O F INTEREST U/S.57 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) AND (II) THE DISALLOWANCE U/S.14A OF THE ACT. THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME OF ASSESSEE AT RS.66,99,454/- AND DISALLOWED IN TEREST EXPENDITURE TO THE TUNE OF RS.16,91,198/- INVOKING THE PRO VISIONS OF SECTION 57(III) OF THE ACT. THE ASSESSING OFFICER ALSO DISALLOWED INTEREST EXPENDITURE U/S.14A OF THE ACT AMOUNTING TO RS.8,31,629/-. 3. AGGRIEVED WITH THE SAID DISALLOWANCES MADE BY THE ASSE SSING OFFICER, ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE S AME. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 16,91,178/- MADE BY THE A.O. INVOKING THE PROVISION OF S.57(III) OF THE ACT AND COMPUTED ADDITION OF @ 17.58% BEING LOANS NOT UTILIZED FOR G IVING LOANS/ADVANCES. THE ORDER OF LD. CIT(A) IS CONTRARY TO THE PROVISIO NS OF LAW. THE ADDITIONS SUSTAINED BY LD. CIT(A) BE DELETED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE B Y THE A.O. OF RS.8,31,629/- U/S.14A OF THE ACT NOT PROPERLY APPRE CIATING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF HDFC (SUPRA) AND SUPREME COURT (SUPRA) RELIED UPON BEFORE CIT(A) AND OTHER JUDGMENTS. THE DECISION OF THE LD.CIT(A) IS CONTRARY TO THE PR OVISIONS OF LAW AND WITHOUT APPRECIATING PROPERLY THE BINDING JUDICIAL PRECEDENTS RELIED UPON. THE ADDITION BE DELETED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEVY OF INTEREST U/S. 234A, 2348 AND 234C IS NOT JUSTIFIED. 4. THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 3 ITA NO. 192/PUN/2015 A.Y.2010-11 4. GROUND NOS. 3 AND 4 ARE GENERAL IN NATURE AND CONSE QUENTIAL AND HENCE REQUIRE NO ADJUDICATION. ACCORDINGLY, GROUND NOS. 3 AND 4 ARE DISMISSED . A. GROUND NO. 1 - DISALLOWANCE OF INTEREST EXPENDI TURE U/S.57(III) OF THE ACT . 5. GROUND NO.1 RELATES TO THE DISALLOWANCE OF INTEREST EXP ENDITURE AMOUNTING TO RS.16,91,178/- MADE U/S.57(III) OF THE ACT. THE FAC TS RELATING TO THIS ADDITION INCLUDE THAT THE ASSESSEE REPORTED IN T HE BALANCE SHEET THE TOTAL LOAN LIABILITIES OF RS.10,60,85,065/-. FURTHER, ASSESSEE A LSO REPORTED GIVING LOANS AND ADVANCES TO VARIOUS PARTIES FOR INTEREST TO THE TUNE OF RS.8,74,35,902/-. NOW, THE BALANCE LOAN AMOUNT WHICH WAS NOT USED BY THE ASSESSEE FOR GIVEN LOANS WORKS OUT TO THE TUNE OF RS.1,8 6,49,163/- = (RS.10,60,85,065/--8,74,35,902/-). THE SUM OF RS.8,74,35,902/- WOR KS OUT TO 82.42% OF THE TOTAL LOAN LIABILITIES OF THE ASSESSEE. THE AS SESSING OFFICER SCRUTINIZED THE ISSUE OF THE USE OF BALANCE LOAN AMOUNT O F RS.1,86,49,163/- EQUIVALENT OF 17.58% =(100%-82.42%). AT THE END OF THE ASSES SMENT PROCEEDINGS, AFTER HEARING OBJECTION OF THE ASSESSEE, THE ASSESSING OFFICER TOOK AN ADVERSE VIEW ON THE USE OF BALANCE FUNDS AND H ELD THAT THE USE IS NOT FOR BUSINESS PURPOSE I.E. FOR EARNING OF THE INTEREST INC OME WITHIN THE MEANING OF SUB-SECTION (III) OF SECTION 57 OF THE ACT. EVENTUA LLY, THE ASSESSING OFFICER DISALLOWED THE SUM OF RS.16,91,198/- ON PROP ORTIONATE BASIS U/S.57(III) OF THE ACT. RELEVANT LINES OF THE ASSESSMENT O RDER ARE EXTRACTED AS UNDER: THE ASSESSEE VIDE LETTER DATED 28.02.2013 FILED AN EXPLANATION STATING THAT THOUGH HE HAS UTILIZED MERELY 82.42% OF THE LO AN AMOUNT RECEIVED, FOR GIVING LOAN TO VARIOUS PARTIES THE DISALLOWANCE IS NOT PROPER BECAUSE OF THE FACT THAT THE REMAINING AMOUNT OF LOAN HAS B EEN UTILIZED FOR BUSINESS RELATED TRANSACTIONS. THE AR ARGUED IN FAV OUR OF ASSESSEE BY EMPHASIZING THAT THE INVESTMENTS HAVE EITHER RESULT ED IN EARNING INTEREST OR CARRIED APPLICATION. 4 ITA NO. 192/PUN/2015 A.Y.2010-11 THE EXPLANATION FORWARDED BY THE AR HAS BEEN CAREFU LLY EXAMINED AND CONSIDERED. HOWEVER, IT IS PERTINENT TO STRESS UPON THAT SECTION 57(III) SPECIFIES THAT EXPENDITURE WHICH HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNIN G SUCH INCOME. THEREFORE, EVEN IF THE EXPLANATION FORWARDED BY THE AR IS CONSIDERED LOGICAL, IT IS NOT ALLOWED U/S.57 OF THE IT ACT, 19 61. HENCE, THE DISALLOWANCE OF INTEREST EXPENDITURE IS COMPUTED AS UNDER: TOTAL AMOUNT OF LOAN TAKEN : RS.10,60,85,065/- TOTAL AMOUNT OF LOAN GIVEN : RS.8,74,35,902/- % LOAN (BORROWED) UTILIZED FOR GIVING LOAN/ADVANCE - 82.42% RS.8,74,35,092/10,60,85,065*100 = 82.42 % % OF LOAN (BORROWED) NOT UTILIZED FOR GIVING LOAN/A DVANCE : 17.58% TOTAL INTEREST EXPENDITURE CLAIMED U/S.57 OF THE IT ACT- RS.96,20,013/- THEREFORE, PROPORTIONATE INTEREST (17.58) EXPENDITU RE DISALLOWED U/S.57 OF THE IT ACT - RS. 16,91,198/- 6. DURING FIRST APPELLATE PROCEEDINGS BEFORE THE CIT(A), ASS ESSEE COULD NOT PROVE THAT THE ENTIRE LOANS ARE USED FOR MONEY LEND ING ACTIVITY. THE CIT(A) EXAMINED THE ISSUE, RELYING VARIOUS DECISIONS ON WHICH LD. AR HAS PLACED RELIANCE AS SEEN IN PARA 3 & ITS SUB-PARAS AND EV ENTUALLY, REJECTED ALL OF THEM ON THE GROUND OF DISTINGUISHABLE OF THE FACTS. TH E CIT(A) CONCLUDED HIS FINDINGS AGAINST THE ASSESSEE AS PER DISCUSSION GIVEN IN PARA 3.3.3.4 OF THE APPELLATE ORDER. THE SAME READS AS UNDER : 3.3.3.4 CONSIDERING THE ENTIRE CONSPECTUS OF THE MA TTER AND THE EVIDENCES ON RECORD, IT IS HELD THAT THE ASSESSING OFFICER HAS COME TO THE CORRECT CONCLUSION THAT THE ENTIRE INTEREST EXPENDI TURE HAS NOT BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF EARNING INTEREST INCOME. SINCE THE APPELLANT HAS HIMSELF AD MITTED THAT THE ENTIRE LOAN HAS NOT BEEN UTILIZED FOR ADVANCING LOAN TO OT HER PARTIES AND 17.58% OF THE LOANS HAVE BEEN UTILIZED FOR OTHER BU SINESS PURPOSES, BUT IT IS FOUND THAT THIS STATEMENT OF THE APPELLANT TH AT 17.58% HAS NOT BEEN UTILIZED FOR ANY BUSINESS PURPOSES AS PER RECORD, T HE ASSESSING OFFICER ACTIONS IN DISALLOWING 17.58% OF THE INTEREST EXPEN DITURE IS UPHELD. GROUND NO. 1 STAND DISMISSED. IN THE PROCESS, CIT(A) HELD THAT THE ASSESSEE WAS NOT ENGAGED IN ANY SYSTEMATIC AND ORGANIZED MONEY LENDING BUSINESS ACTIVITY. E VENTUALLY, CIT(A) 5 ITA NO. 192/PUN/2015 A.Y.2010-11 HELD THAT THE ASSESSEE IS ONLY A COMMISSION AGENT DERIVIN G HIS INCOME FROM COMMISSION, SHARE OF PROFIT OF FIRM AND INTEREST INCOME. 7. AGGRIEVED BY THE ABOVE DECISION OF CIT(A), ASSESSEE RA ISED THE GROUND NO.1 AS EXTRACTED ABOVE. 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED THE WRITTEN SUBMISSION AGAIN RELYING ON THE VARIOUS DECISIONS WHICH HAVE ALREADY BEEN CONSIDERED BY THE CIT(A). ACCORDINGLY TO HIM, IT IS THE CASE OF THE AS SESSEE THAT THE ENTIRE LOAN LIABILITIES OF RS.10,60,85,065/- WAS UTILIZED FOR THE MO NEY LENDING ACTIVITIES ONLY. FURTHER, HE SUBMITTED THAT ASSESSEE IS E NGAGED IN THE MONEY LENDING BUSINESS SYSTEMATICALLY AND THE ORDERS OF ASSESSIN G OFFICER AND CIT(A) DO NOT CONSTITUTE SPEAKING ORDER ON THIS ISSUE. THE REFORE, LD. COUNSEL SUBMITTED FOR REMANDING THE ISSUE BACK TO THE FILE OF ASSES SING OFFICER FOR ONE MORE ROUND FOR FRESH ADJUDICATION AND FOR EXAMINING TH E FACTS IN CORRECT PERSPECTIVE. 9. ON THE OTHER HAND, LD. DR FOR THE REVENUE OPPOSED T HE ARGUMENTS OF THE LD. COUNSEL. IT IS THE CASE OF THE REVENUE THAT ENTIR E INTEREST BEARING FUNDS TAKEN BY THE ASSESSEE WAS NOT PUT TO USE FOR BU SINESS PURPOSE. BRINGING OUR ATTENTION TO THE BALANCE SHEET OF THE ASSES SEE, LD. DR SUBMITTED THAT UTILIZATION OF ENTIRE FUNDS FOR BUSINESS PURPO SE WAS NOT DEMONSTRATED COMPLETELY. REFERRING TO THE CASH /BANK BA LANCE, LD. DR SUBMITTED THAT IT IS NOT THE CASE OF THE ASSESSEE, BAL ANCE AMOUNT OF RS.1,86,49,163/- WAS UTILIZED BY THE ASSESSEE FOR BUSINESS P URPOSE IN THE SUBSEQUENT YEAR OR IF ANY. IN THESE CIRCUMSTANCES, IT IS THE FIT CASE FOR DISALLOWANCE AS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER . 6 ITA NO. 192/PUN/2015 A.Y.2010-11 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF DIS ALLOWANCE MADE U/S.57(III) OF THE ACT AND ALSO HAVE PERUSED THE ORDERS OF A UTHORITIES BELOW AND WRITTEN SUBMISSIONS MADE BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT ASSESSEE TOOK LOAN AT RS.10,60,85,065/-. BUT OUT OF THE SA ME, THE AMOUNT UTILIZED FOR MONEY LENDING BUSINESS IS ONLY TO THE TUNE OF RS.8,74,35,902/-. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE DEBITED THE EXPENDITURE OF RS.96,20,013/- ALLEGEDLY FOR SERVICING THE LOAN OF RS.10,60,85,06 5/-. BUT THE QUESTION OF USE OF BALANCE FUNDS OF RS.1,86,49,163/- FOR THE MONEY LENDING BUSINESS OR ANY OTHER PERSONAL ACTIVITIES IS NOT CLEAR. T HE LD. AR FOR THE ASSESSEE COULD NOT DEMONSTRATE BEFORE US ABOUT THE BA LANCE FUNDS JUSTIFYING THE PAYMENT OF INTEREST TO THE TUNE OF RS.96,20,013/-. 10.1 THEREFORE, FOR WANT OF FACTS, WE ARE OF THE OPINION, THIS ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR ONE MO RE ROUND OF PROCEEDINGS. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE TH E ISSUE OF USING ENTIRE FUNDS IN SYSTEMATIC MANNER AND ALSO SCRUTINIZE THE INVOLVING SUM CLAIMED BY THE ASSESSEE IS FULLY JUSTIFIED OR NOT. IT IS THE DUTY OF ASSESSEE TO DEMONSTRATE THE USING OF THE FUNDS IN MONEY LENDING ACTIVIT IES AS PER DISCHARGE OF ONUS AND CLAIM OF DEDUCTION OF EXPENDITURE HAD MADE ONUS ON THE ASSESSEE TO DISCHARGE THE ONUS. ACCORDINGLY, WE RE MIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION. THE ASSESS ING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE IN ACCORDANCE WITH SET PRINCIPLES OF NATURE JUSTICE. THUS, GROUND NO.1 RAISED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . B. GROUND NO. 2- DISALLOWANCE U/S.14A OF THE ACT. 11. GROUND NO. 2 RELATES TO DISALLOWANCE U/S.14A OF THE AC T R.W.R.8D OF THE IT RULES. DURING ASSESSMENT PROCEEDINGS, ASSESSING OFFIC ER DISALLOWED 7 ITA NO. 192/PUN/2015 A.Y.2010-11 THE ENTIRE INTEREST EXPENDITURE ON PROPORTIONATE BASIS T O THE TUNE OF RS.7,88,671/- UNDER CLAUSE (II) OF RULE 8D OF THE IT RULES, 196 2. FURTHER, ASSESSING OFFICER ALSO DISALLOWED SUM OF RS.42,958/- I.E. 0.50% OF AVERAGE VALUE OF INVESTMENTS. AS SEEN FROM CONTENTS OF PARA 4 OF THE ASSESSMENT ORDER, THERE IS NO BASIC DETAILS RELATING TO THE EXTENT OF EXEMPT INCOME WHICH IS THE PART OF THE TOTAL INCOME. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE U S THAT THIS ISSUE NEEDS REVISIT TO THE FILE OF ASSESSING OFFICER FOR ONE MORE RO UND FOR THE REASONS THAT THERE IS NO DETAILED DISCUSSION OF LAW ON VAR IOUS ASPECTS OF LAW AND RELEVANT RULES. 13. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON THE O RDER OF ASSESSING OFFICER AND CIT(A) IN THIS REGARD. HE FURTHER STATED THAT TH ERE IS NO NEED TO REVISIT OF THE ISSUE TO THE FILE OF ASSESSING OFFICER AS THERE IS NOTHING NEW IN THE FACTS OF THE CASE. 14. ON HEARING BOTH THE SIDES ON THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT, WE ARE OF THE OPINION THAT THERE IS REQUIREMENT OF RE MANDING THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION. TH E ASSESSING OFFICER SHALL NOT ONLY EXAMINE THE APPLICABILITY OF CITED DECIS IONS IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. REPORTED AS 313 ITR 340 AND IN THE CASE OF CIT VS. HDFC BANK LTD. REPORTED AS 366 ITR 505 BUT ALSO THE ASSESSING OFFICER NEEDS TO BE AWARE OF THE FACT OF RESTRICT ING THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME INCLUDED IN THE TOTAL INCOM E OF ASSESSEE. THE ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL JUSTICE. A CCORDINGLY, 8 ITA NO. 192/PUN/2015 A.Y.2010-11 GROUND NO.2 RAISED IN APPEAL BY THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES . 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 24 TH DAY OF OCTOBER, 2018. SD/- SD/- ( ! /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; !' / DATED : 24 TH OCTOBER, 2018. SB ) * +',- . ', / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-4, PUNE. 4. THE PR. CIT/CIT-3, PUNE. 5. %&' () , * () , +,- , / DR, ITAT, A BENCH, PUNE. 6. './ 01 / GUARD FILE. // TRUE COPY // * 2 / BY ORDER, 3 (- /PRIVATE SECRETARY * () , / ITAT, PUNE.