Pavankumar M. Sanghvi, Vadodara V. The Income Tax Officer, Ward-3(1)(2), Vadodara

ITA 2076/AHD/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1776 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 05-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 22

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , SMC BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS . MADHUMITA ROY , JUDICIAL MEMBER ./ ITA NO. 2076/AHD/2018 / ASSTT. YEAR: 2013 - 2014 PAVANKUMAR M. SANGHVI , C/O. LAXMI METAL DISTRIBUTORS , NARSINGH ESTATE , WADI YAMUNA MILL ROAD , PRATAPNAGAR, VADODARA . PAN : AGIPS3322F VS. INCOME TAX OFFICER , WARD 3(1)(1) , VADODARA . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI HITESH SHAH , A.R REVENUE BY : SHRI S.S. SHUKLA , SR .D. R / DATE OF HEARING : 0 5 / 01 / 2021 / DATE OF PRONOUNCEMENT: 22 / 02 /2021 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE A GAINST THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - 3, VADODARA , DATED 05/07/2018 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2013 - 20 14 . ITA NO.2076/AHD/2018 ASSTT. YEAR 2013 - 14 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUND I ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 3, VADODARA (HEREINAFTER REFERRED TO AS THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE U/S. 14A R.W.R. 8D TO THE EXTE NT OF RS.4,31,184/ - AS AGAINST THE AMOUNT WORKED OUT BY THE APPELLANT TO THE EXTENT OF RS.42,079/ - THE APPELLANT BEING AGGRIEVED, PRAYS THAT THE DISALLOWANCE OF INTEREST MADE U/S.14A R.W.R 8D TO THE EXTENT OF RS.4,31,184/ - BEING UNJUSTIFIED, UNWARRANTED, BAD IN LAW AND ILLEGAL BE REDUCED TO RS.42,079/ - GROUND II THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND OR DELETE THE GROUNDS OF APPEAL. 3 . THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE ''LD.CIT (A)'' ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO FOR RS. 4,31,184/ - ONLY UNDER THE PROVISION OF SECTION 14A R.W. R. 8D OF INCOME TAX RULE . 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF T RADING IN IRON & STEEL & NON - FERROUS METALS UNDER THE NAME AND STYLE OF M/S RAVI STEEL. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SHOWN DIVIDEND INCOME OF R S.19,85,507/ - WHICH WAS CLAIMED HAS EXEMPTED U/S 10(34) OF THE ACT. T HE ASSESSEE IN HIS PROFI T AND LOSS ACCOUNT HAS ALSO C LAIM INTEREST EXPENSES AMOUNTING TO RS. 42 , 88 , 582/ - ONLY. ACCORDINGLY THE AO WAS OF THE VIEW THE BORROWED FUND HAS BEEN UTILIZED BY THE ASSESSEE IN THE EARNING OF EXEMPTED INCOME. 4.1 ACCORDINGLY , THE INTEREST EXPENSES INCURRED IN CONNECTION WITH SUCH EXE MPTED INCOME NEEDS TO BE DISALLOWED BUT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF THE EXPENSES INCURRED IN CONNECTION WITH SUCH EXEMPTED INCOME. THUS, THE AO INVOKED THE PROVISION S OF SECTION 14A R.W.R . 8D OF THE RULES AND MADE THE DISALLOWANCE OF EXPE NSES AS DETAILED UNDER: SR.NO. PARTICULAR AMOUNT 1. DIRECT EXPENSES NIL ITA NO.2076/AHD/2018 ASSTT. YEAR 2013 - 14 3 2. INTEREST EXPENSES 389105 3. ADMINISTRATIVE EXPENSES 42 079 4.2 IN VIEW OF ABOVE, THE AO DISALLOWED THE EXPENSES OF RS. 4 , 3 3 , 184/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE ''LD.CIT (A)'' WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 6.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER OF THE AO AND WRITTEN SUBMISSIONS OF THE APPELLANT. SINCE THE APPELLANT HAD EAR NED EXEMPT INCOME (TAX FREE) / O F DIVIDEND FROM SHARES OF COMPANIES TO THE EXTENT OF RS. 19,85,5077 - DURING THE YEAR, / DISALLOWANCE FOR THE EXPENDITURE INCURRED TO EARN SUCH TAX EXEMPT INCOME NEEDS TO BE MADE AS CONTEMPLATED IN SECTION 14A R.W.R. 8D OF TH E INCOME TAX RULES. THE APPELLANT HAD VOLUNTARILY NOT MADE ANY DISALLOWANCE U/S 14A WHILE FURNISHING THE INCOME TAX RETURN SINCE THE APPELLANT HAD NOT INCURRED ANY SUCH EXPENDITURE AND THEREFORE A SHOW CAUSE NOTICE WAS ISSUED TO THE APPELLANT AS TO WHY THE INTEREST EXPENDITURE OF RS. 42,88,582/ - APPEARING IN THE PROFIT & LOSS ACCOUNT OF M/S. RAVI STEEL A PROPRIETARY TRADING CONCERN SHOULD NOT BE DISALLOWED AS PER THE METHOD OF RULE 8D. THE APPELLANT HAD EXPLAINED THAT THE SAID EXPENDITURE PERTAINS TO HIS TR ADING COMPANY AND THE MONEY BORROWED WAS FOR THE WORKING CAPITAL REQUIREMENTS OF THE SAID FIRM I.E. M/S. RAVI STEEL AND IT HAS NOT BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. DIVIDEND IS DERIVED FROM THE INVESTMENT MADE IN SHARES SINCE MORE THAN 10 YEAR S AND, THEREFORE, DISALLOWANCE MAY BE MADE AS PER CLAUSE (III) OF THE RULE 8D ONLY WHICH IS 0.5 % OF THE AVERAGE BALANCE OF THE INVESTMENT IN SHARES & SECURITIES APPEARS IN THE PERSONAL BALANCE SHEET OF THE APPELLANT. 6.2 FROM THE FACTS OF THE CASE, IT IS SEEN THAT THE APPELLANT HAS NOT BEEN ABLE TO DEMONSTRATE THAT HE HAD SUFFICIENT INTEREST FREE FUNDS IN THE YEAR OF THE INVESTMENT COMPLETE DETAILS WERE NEITHER FILED BEFORE THE ASSESSING OFFICER NOR DURING THE APPEAL PROCEEDINGS. IN VIEW OF THE ABOVE, THE ACTION OF THE ASSESSING OFFICER IS UPHELD. THUS, THE GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 6. BEING AGGRIEVED BY THE ORDER OF THE ''LD.CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 16 AND SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AMOUNTING TO RS. 4 , 17 , 04 , 670 / - WHICH EXCEEDS THE AMOUNT OF INVESTMENTS . T HEREFORE , THERE CANNOT BE ANY DISALLOWANCE O F THE INTEREST EXPENSES UNDER TH E PROVISION OF SECTION 14A R.W. RULE 8D OF RULES . ITA NO.2076/AHD/2018 ASSTT. YEAR 2013 - 14 4 7.1 REGARDING THE ADMINISTRATIVE EXPENSES THE LD. AR SUBMITTED THAT THE ASSESSEE IS MAINTAINING PERSONAL BOOKS OF ACCOUNTS WHEREIN THE EXEMPTED INCOME HAS BEEN SHOWN. THE ASSESSEE IN HIS PERSONAL INCOME AND EXPENDITURE ACCOUNT HAS ALREAD Y SHOWN THE EXPENSE OF RS. 2 , 728 / - AND THEREFORE THERE CANNOT BE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 8. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT SHOWN IN THE BALANCE SHEET AS ON 31/03/2013. THEREFORE A N INFERENCE CAN BE DRA WN THAT THE ASSESSEE HAD NOT UTILIZED BORROWED FUN D IN MAKING SUCH INVESTMENT . T HUS THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES AS PROVIDED UNDER RULE 8D OF RULES. 9.1 IN HOLDING SO WE DRAW SUPPORT A ND GUIDANCE FROM THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 9.2 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: - WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14 A. ITA NO.2076/AHD/2018 ASSTT. YEAR 2013 - 14 5 9.3 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A . 9.4 IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF INVESTMENTS AS DISCUSSED ABOVE. 9. 5 REGARDING THE ADMINISTRATIVE EXPENSES WE FIND THAT THE ASSESSEE HAS CLAIM TO HAVE MAINTAIN ED SEPARATE BOO KS OF ACCOUNTS AND ACCORDINGLY THE ASSESSEE HAS PREPARED SEPARATE INCOME AND EXPENDITURE ACCOUNT WHICH IS PLACED AT PAGE 7 OF THE PAPER BOOK. 9 . 6 ON PERUSAL OF THE INCOME AND EXPENDITURE ACCOUNT S WE FIND THAT THE ASSESSEE HAS CLAIM ONLY BANK CHARGES AND DEMAT CHARGES AMOUNTING TO RS. 2728.91 / - ONLY . A S SUCH WE FIND THAT THE ASSESSEE HAS NOT DEBITED ANY OTHER EXPENSES IN ITS PERSONAL INCOME AND EXPENDITURE ACCOUNT WHICH THE ASSESSEE MIGHT HAVE INCU RRED IN EARNING SUCH DIVIDEND INCOME . S UCH ADMINISTRATIVE EXPENSES MAY INCLUDE ACCOUNTANCY EXPENSES, ELECTRICITY EXPENSES, TRAVELING EXPENSES, STATIONARY EXPENSES, SALARY EXPENSES ETC. 9.7 ON A SPECIFIC QUESTION TO THE LD. A R FOR THE ASSESSEE ABOUT THE N ON - DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENDITURE , THE ASSESSEE CANNOT MAKE ANY SATISFACTORY REPLY RATHER HE AGREE S TO CONFIRM T HE DISALLOWANCE MADE BY THE AUTHORITIES BELOW QUA THE ADMINISTRATIVE EXPENSES. HENCE WE CONFIRMED THE FINDINGS OF THE AUTHORIT IES BELOW FOR THE DISALLOWANCE OF RS. 42 , 079/ - UNDER TH E PROVISION OF SECTION 14A R.W. RULE 8D OF RULES . THUS THE GROUNDS OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.2076/AHD/2018 ASSTT. YEAR 2013 - 14 6 10. IN THE RESULT, THE APPEAL FILED ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 22 /02 / 2021 AT AHMEDABAD. SD/ - SD / - (MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 22 / 02 /2021 M ANISH