Shri Dinesh Ishvarlal Gavarwala, Ahmedabad V. The ACIT, Circle-7, Ahmedabad

ITA 202/AHD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0561 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.202/AHD/2014 ( / ASSESSMENT YEAR : 2009-10) SHRI DINESH ISHVARLAL GAVARWALA 103, NAINDHARA APARTMENT NR.GNFC TOWER S.G. HIGHWAY BODAKDEV,AHMEDABAD-380015 / VS. THE ACIT CIRCLE-7 AHMEDABAD % ./ ./ PAN/GIR NO. : ABAPG 4018 P ( %( / APPELLANT ) .. ( )%( / RESPONDENT ) %(* / APPELLANT BY : MS. URVASHI SHODHAN, AR )%(+* / RESPONDENT BY : MR. PRASOON KABRA, SR.DR ,+ / DATE OF HEARING 07/09/2016 -./+ / DATE OF PRONOUNCEMENT 08/09/2016 / O R D E R PER SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XXI, AHMEDABAD, DATED 12/11/2013 PASSED FOR ASSESSMENT YEAR (AY) 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RE TURN OF INCOME FOR THE ITA NO.202/AHD/ 2014 SHRI DINESH ISHVARLAL GAVARWALA VS. ACIT ASST.YEAR 2009-10 - 2 - YEAR UNDER CONSIDERATION ON 25/09/2009 DECLARING TO TAL INCOME AT 2,27,94,510/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAS INTER-ALIA CLAIMED EXEMPT INCOME TO THE TUNE OF RS.2,72,100/-. HE ACC ORDINGLY INVOKED SECTION 14A OF THE ACT R.W.RULE 8D AND CALCULATED D ISALLOWANCES OF EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME TO THE TU NE OF 2,80,048/- AS AGAINST THE DISALLOWANCE COMPUTED AT 23,089/- BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO HOWEVER DECLINED TO INTERFERE WITH THE ORDER OF THE AO AND CONFIRMED TH E AFORESAID ACTION OF THE AO. 3. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE KNOCK ED THE DOOR OF THE TRIBUNAL FOR APPROPRIATE RELIEF AND HAS RAISED THE FOLLOWING GROUNDS IN HIS APPEAL: 1. LD.CIT(A) ERRED IN LAW AND IN FACTS CONFIRMING DISALLOWANCE MADE BY AO OF RS.2,80,048/- UNDER SECTION 14A OF THE ACT . LD.CIT(A) ERRED IN IGNORING THE FACT THAT THE APPELLANT HAVING HUGE INTEREST FREE FUNDS NEVER UTILIZED INTEREST BEARING FUNDS FOR MAKING IN VESTMENT. LD.CIT(A) OUGHT TO HAVE DELETED SUCH DISPROPORTIONATE DISALLO WANCE FOR EARNING MEAGRE EXEMPT INCOME. IT BE SO HELD NOW. 2. LD.CIT(A) ERRED IN LAW AND IN FACTS IN NOT APPR ECIATING SUBMISSIONS MADE BY THE APPELLANT THAT IN ABSENCE OF ANY FRESH INVESTMENT OTHER THAN CONTRIBUTION TO PROVIDENT FUND DURING THE YEAR THERE WAS NO JUSTIFICATION IN DISALLOWING INTEREST EXPENSES INVO KING SECTION 14A OF THE ACT. ITA NO.202/AHD/ 2014 SHRI DINESH ISHVARLAL GAVARWALA VS. ACIT ASST.YEAR 2009-10 - 3 - 3. LEVY OF INTEREST U/S.234B & 234C IS UNJUSTIFIED . 4. THE LD.AR FOR THE ASSESSEE MS. URVASHI SHODHAN, AT THE OUTSET, ADVERTED OUR ATTENTION TO THE BALANCE-SHEET AND PRO FIT & LOSS A/C. FOR THE FINANCIAL YEAR (FY) ENDING 31/03/2009 RELEVANT TO A Y 2009-10 AND THE BALANCE-SHEET FOR THE PRECEDING YEAR RELEVANT TO FY 2007-08 AND SUBMITTED THAT THERE IS HARDLY CHANGE IN THE QUANTU M OF INVESTMENT. THE INVESTMENT AS ON 31/03/2008 STOOD AT RS.45.70 LACS, WHEREAS THE INVESTMENT AT THE END OF THE FY 208-09 STANDS AT RS .48.10 LACS. THE LD.AR THEREAFTER SUBMITTED THAT THE ASSESSEE HAS SU BSTANTIAL OWN CAPITAL AT ITS DISPOSAL. THE OWN CAPITAL AS ON 31/03/2008 STA NDS AT RS.208.53 LACS AND SIMILARLY CAPITAL AS ON 31/03/2009 STANDS AT RS .387.41 CRORES. THE LD.AR CONTENDED THAT IN VIEW OF THE SUBSTANTIAL CAP ITAL WHICH FAR OUTWEIGHS THE CORRESPONDING INVESTMENT, THE ASSESSE E IS DEEMED TO HAVE INVESTED INTEREST-FREE FUNDS IN SHARES AND MUTUAL F UNDS, ETC. WHICH HAS GENERATED THE IMPUGNED INTEREST-FREE INCOME. THE L D.AR ACCORDINGLY CONTENDED THAT AO WAS NOT JUSTIFIED IN MAKING THE D ISALLOWANCE U/S.14A OF THE ACT IN VIEW OF THESE FACTS SUBSISTING IN TH E PRESENT CASE. FOR THE PROPOSITION THAT PROPORTIONATE OF DISALLOWANCE OF I NTEREST EXPENDITURE UNDER RULE 8D (2)(II) IS NOT PERMISSIBLE IN VIEW OF AVAILABILITY OF SURPLUS FUNDS, THE LD.AR RELIED UPON THE DECISION OF THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCO ME-TAX VS. INDIA ITA NO.202/AHD/ 2014 SHRI DINESH ISHVARLAL GAVARWALA VS. ACIT ASST.YEAR 2009-10 - 4 - GELATINE AND CHEMICALS LTD. REPORTED AT (2015) 376 ITR 553 (GUJ.). THE LD.AR ALSO POINTED THAT THE REVENUE HAS NOT MADE AN Y DISALLOWANCE IN THE EARLIER YEAR FOR SIMILAR INTEREST-FREE INCOME G ENERATED IN THAT YEAR. 4.1. THE LD.SR.DR, MR.PRASOON KABRA, ON THE OTHER H AND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT THE DISALLOWANCE HAS BEEN MADE AS PER THE STATUTORY FORMULA PRESCRIB ED UNDER RULE 8D AND, THEREFORE, NO INTERFERENCE WITH THE ORDER OF T HE CIT(A) IS CALLED FOR. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE ASSESSEE HAS AGITATED THE PROPORTIONATE OF DISALLOWANCE OF I NTEREST EXPENDITURE ON INVESTMENTS STANDING IN ITS HANDS AT THE END OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2008-09. IT IS UNDISPU TED FACT THAT THE OWN INTEREST-FREE FUNDS AVAILABLE AT THE DISPOSAL OF TH E ASSESSEE IS SUBSTANTIALLY HIGHER THAN THE CORRESPONDING INVESTMENT HELD BY TH E ASSESSEE. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF PR.CIT VS. INDIA GELATINE AND CHEMICALS LTD.(SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. WHEN THE OWN FUNDS ARE AVAILABLE IN EXCE SS OF THE INVESTMENTS MADE, A PRESUMPTION WOULD THUS ARISE THAT INVESTMEN T IS DEEMED TO BE OUT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER OF THE CIT(A) AN D TO DELETE THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AO WHILE ITA NO.202/AHD/ 2014 SHRI DINESH ISHVARLAL GAVARWALA VS. ACIT ASST.YEAR 2009-10 - 5 - COMPUTING THE DISALLOWANCE MADE UNDER RULE 8D OF TH E INCOME TAX RULES R.W.S.14A OF THE I.T.ACT. HOWEVER, WHILE QU ESTIONING THE ENTIRE AMOUNT OF DISALLOWANCE UNDER RULE8D, NO INFIRMITY W AS POINTED OUT BY THE LD.AR IN RESPECT OF DISALLOWANCE MADE TOWARDS A DMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) AND ACCORDINGLY WE D ECLINE TO INTERFERE THEREWITH. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 8/09/2016 SD/- SD/- .. () ( ) ( R.P. TOLANI ) ( PR ADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 8/ 09 /2016 3..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )%( / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-XXI, AHMEDABAD 5. 89:56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<, / GUARD FILE. / BY ORDER, )8 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD