DCIT, BK Circle, Palanpur V. Sh. Kamlesh B. Shah, Mumbai

ITA 2050/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3781 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 12-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.2050/AHD/2017 / ASSTT. YEAR: 2014-15 DCIT, BK CIRCLE PALANPUR. VS. SHRI KAMLESH B. SHAH 430, PROP. KB EXPORTS PANCHRATNA OPERA HOUSE MUMBAI 400 004. PAN : AFXPS 4908 R / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI S.K. DEV, SR.DR ASSESSEE BY : NONE ! / DATE OF HEARING : 18/02/2019 '#$ ! / DATE OF PRONOUNCEMENT: 19/02/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-4, AHMEDABAD DATED 19.6.2017 PASSED FOR T HE ASSTT.YEAR 2014-15. 2. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LD .CIT(A) HAS ERRED IN DELETING ADDITION OF RS.85,50,703/- WHICH WAS ADDED BY THE AO WITH HELP OF SECTION 14A R.W. RULE 8D OF THE INCOME TAX ACT. ITA NO.2050/AHD/2017 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ELECTRONICALLY DECLARING TOTAL INC OME AT NIL, AFTER CLAIMING CURRENT YEARS LOSS OF RS.1,51,18,894/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESS EE HAS EARNED DIVIDEND INCOME OF RS.27,52,13/- WHICH WAS CLAIMED AS EXEMPT. IT WAS NOTICED THAT THE ASSESSEE HAS MADE INVESTMEN T OF RS.24.85 CRORES. THE LD.AO FURTHER OBSERVED THAT THE ASSESS EE HAS CLAIMED INTEREST EXPENSES OF RS.1,55,03,927/-. THE AO HAS WORKED OUT THE DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX R ULES, 1962. HE MADE ADDITION OF RS.85,50,703/-. ON APPEAL, THE LD.CIT(A) DELETED THIS DISALLOWANCE BY OBSERVING THAT THE ASS ESSEE HAS SUFFICIENT INTEREST FREE FUNDS WHICH CAN TAKE CARE OF INTEREST EXPENDITURE. THE LD.CIT(A) CONFIRMED THE ADDITION QUA ADMINISTRATIVE EXPENDITURE. THE DISCUSSION MADE BY THE LD.CIT(A), READS AS UNDER: 5. THE SUBMISSION OF THE ASSESSEE AND THE ASSESSME NT ORDER HAS BEEN CAREFULLY CONSIDERED. THE ONLY EFFEC TIVE GROUND OF APPEAL IS AGAINST THE ADDITIONS OF RS.85, 50,703/- MADE BY THE ASSESSING OFFICER BY APPLYING PROVISION S OF SECTION 14A READ WITH RULE 8D OF THE ACT. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FO UND THAT THE APPELLANT HAS INCURRED INTEREST EXPENDITURE OF RS.1,55,03,927/- AND AT THE SAME TIME HAD DIVIDEND INCOME WHICH CLAIMED AS EXEMPT INCOME. THEREFORE, THE ASSE SSING OFFICER APPLIED FORMULA GIVEN UNDER RULE 8D AND CAL CULATED DISALLOWANCE IN PARA 2 OF THE ASSESSMENT ORDER TO T HE EXTENT OF RS.85,50,703/- AND MADE THE ADDITIONS OF THE SAM E. THE APPELLANT CONTENDED THAT HIS PROPRIETARY CONCERN, M /S K. B. EXPORTS IS ENGAGED WITH THE BUSINESS OF TRADING IN SHARES AND HAS REGULAR RUNNING ACCOUNT WITH SHAREKHAN FINANCIAL SERVICES PVT LTD., A RENOWNED STOCK BROKER WITH BSE/NSE. DURING THE YEAR, DIVIDEND INCOME OF RS.27,52,413/- EARNED WHICH HAVE BEEN CLAIMED AS EX EMPT ITA NO.2050/AHD/2017 3 AS PER THE PROVISIONS OF THE ACT. THE APPELLANT FUR THER CONTENDED THAT HE HAS INTEREST FREE LOAN OF RS.45,64,49,000/-WHEREAS INVESTMENT IS ONLY RS.24,85,03,406/-, THUS IT IS CLEAR THAT INTEREST F REE FUNDS ARE FAR MORE THAN THE INVESTMENT IN THE VARIOUS ASS ETS. THE APPELLANT SUBMITTED THAT THE DIVIDEND INCOME IS INC IDENTAL TO HIS MAIN BUSINESS ACTIVITIES AND DOES NOT REQUIRE A NY EXPENDITURE TO EARN THIS INCOME. THE APPELLANT CITE D SEVERAL CASE LAWS, IN WHICH IT HAS BEEN HELD THAT DISALLOWA NCE U/S.14A CANNOT BE MADE, IF THE ASSESSEE HAD MORE IN TEREST FREE FUNDS THAN INVESTMENT MADE. APPELLANT ALSO CON TENDED THAT THE ASSESSING OFFICER DID NOT RECORD SATISFACT ION BEFORE MAKING THE DISALLOWANCE, AS HELD IN THE CASE OF GOD REJ AND BOYCE MANUFACTURING CO. LTD. VS. DCIT(2017) 81 TAXMAN.COM 111 SC. FOR THESE REASONS, THE APPELLANT CONTENDED THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE NOT JUSTIFIED, HENCE MAY BE DELETED. THE SUBM ISSION OF THE APPELLANT AND THE ASSESSMENT ORDER HAS BEEN G ONE THROUGH CAREFULLY. THE A.O. DID NOT MENTION ANY REA SON FOR MAKING ADDITIONS & MECHANICALLY CALCULATED THE DISA LLOWANCE AS PER RULE 8D OF THE ACT. IT IS FACT THAT THE APP ELLANT IS HAVING MORE INTEREST FREE FUNDS AVAILABLE THAN INVE STMENT OF THE APPELLANT. THEREFORE, DISALLOWANCE ON ACCOUNT O F INTEREST EXPENDITURE IS NOT FOUND JUSTIFIED IN THIS CASE. TH E HON'BLE HIGH COURT OF GUJARAT, AHMEDABAD IN THE CASE OF PR. COMMISSIONER OF INCOME TAX-1 VS. UTI BANK LIMITED VID E ORDER DATED 13TH JUNE, 2016 HELD THAT IF THE ASSESS EE HAD SUFFICIENT INTEREST FREE FUNDS IN EXCESS OF INTERES T FREE INVESTMENTS, THE TRIBUNAL IS RIGHT IN DELETING THE ADDITIONS MADE BY THE A.O.U/S.14A OF THE ACT. KEEPING IN VIEW THE ABOVE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH C OURT OF GUJARAT, AHMEDABAD, ADDITIONS OF RS.73,08,186/- MAD E ON ACCOUNT OF PAYMENT OF INTEREST ARE DELETED. THIS GR OUND OF APPEAL IS DELETED. 5.1 REGARDING DISALLOWANCE EQUAL TO 0.5% OF AVERAGE INVESTMENT AMOUNTING TO RS.12,42,517/- , IT IS FOUN D THAT THE A.O. HAS CORRECTLY CALCULATED THE DISALLOWANCE AS PER RULE 8D. THEREFORE, ADDITIONS TO THIS EXTENT ARE CONFIRM ED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO.2050/AHD/2017 4 4. IN RESPONSE TO THE NOTICE OF HEARING, NONE HAS C OME PRESENT ON BEHALF OF THE ASSESSEE. WITH THE ASSISTANCE OF THE LD.DR, WE HAVE GONE THROUGH THE RECORD CAREFULLY. BASICALLY D EPARTMENT HAS CONTENDED THAT IT HAS NOT ACCEPTED DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. UTI BANK LTD. I T HAS ALREADY FILED AN APPEAL BEFORE THE HONBLE SUPREME COURT. IT IS PERTINENT TO NOTE THAT DISALLOWANCE ON ACCOUNT OF INTEREST EX PENDITURE COULD ONLY BE WORKED OUT IF THERE IS AN INTEREST EXPENDIT URE ATTRIBUTABLE TO MAKE INVESTMENT, WHICH COULD RESULT IN TAX FREE INCOME. THE LD.CIT(A) HAS APPRECIATED THAT THE ASSESSEE HAS MOR E INTEREST FREE FUNDS, OUT OF WHICH INVESTMENT COULD BE MADE. HENC E, THE INTEREST EXPENDITURE CANNOT BE ATTRIBUTED TOWARDS E ARNING OF EXEMPT INCOME. THE LD.CIT(A) HAS MADE A LUCID ENUN CIATION OF THE POSITION OF LAW ON THIS POINT, AND WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). ACCORDINGLY, THE AP PEAL OF THE REVENUE IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 19 TH FEBRUARY, 2019. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 19/02/2019 P