Shri Anil Bhikhabhai Virani, Bhavnagar V. The ACIT.,Circle-1, Bhavnagar

ITA 2157/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9122 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 08-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGGARWAL
• Assessee Lawyers: A J PAREKH
• Keywords: Onus to prove; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K. SHARMA, JUDICIAL MEMBER & SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER ITA NO. 2157/AHD/2009 ASSESSMENT YEAR : 2006-07 SHRI ANIL BHIKHABHAI VIRANI VS THE ACIT, CIRCLE- 1, BHAVNAGAR BHAVNAGAR PAN NO./GIR NO. AAWPV1515F (APPELLANT) (RESPONDENT) APPELLANT BY : SH A.J.PAREKH, ADV RESPONDENT BY : SH RAJEEV AGGARWAL, DR ORDER PER T.K.SHARMA , J.M. THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER DA TED 15.5.2009 OF CIT(A)-XX, AHMEDABAD FOR THE ASSESSMENT YEAR 2006-0 7. THE ONLY GROUND RAISED IN THIS APPEAL IS THAT LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF LEARNED ACIT, CIR-1 (AO) PASSED MAKING ADDITION OF RS. 5,95,029/- U/S 14A OF I.T. ACT READ WITH RULE 8-D OF I.T. RULES, 1962T WI THOUT CONSIDERING THE FACTS OF THE CASE AND ORDER IS BAD IN LAW. 2. AT THE TIME OF HEARING ON BEHALF OF THE ASSESSEE SHRI A.J.PAREKH APPEARED AND CONTENDED THAT NO DISALLOWANCE U/S 14A READ WITH RULE 8-D OF I.T. RULES, 1962 IS CALLED FOR BECAUSE NO INVESTMEN T HAS BEEN MADE OUT OF FUNDS BORROWED ON INTEREST. THE COUNSEL OF THE ASS ESSEE FURTHER SUBMITTED THAT ITAT SPECIAL BENCH IN THE CASE OF ITO VS GAGA CAPITAL MANAGEMENT (P) LTD IN ITA NO. 8057/MUM/03 DATED 20.10.2008 ON LAST PAGE IN PARA 21 OF THE 2 JUDGMENT HELD THAT EXPRESSION IN RELATION TO IN S ECTION 14A MUST BE UNDERSTOOD IN THE SAME SENSE IN WHICH THE APEX COUR T HAS UNDERSTOOD IT IN THE CASE OF H.H. MAHARAJADHIRAJAA MADHAV RAO JIVAJI RAO SCINDIA BAHADUR OF GWALIOR (26 SOT 603 AT PAGE 613). ACCORDINGLY, THE EXPRESSION IN RELATION TO WOULD MEAN DOMINANT AND IMMEDIATE CONNECTION. THAT MEANS THAT DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A CAN B E MADE ONLY WHEN THERE IS DOMINANT IMMEDIATE CONNECTION BETWEEN THE EXPEND ITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. AS A NECESSARY COROLLARY, IT WOULD MEAN THAT DISALLOWANCE CANNOT BE MADE IF THE CONNECTION IS NOT DOMINANT AND IMMEDIATE BUT IS MERELY AN INCIDENTAL, ANCILLARY OR REMOTE ONE. THE CONTENTION OF THE REVENUE THAT THE EXPRESSION IN RELATION TO WOULD MEAN ANY AND EVERY RELATION EXCEPT REMOTE WAS, THEREFORE , TO BE REJECTED. 3. THE COUNSEL OF THE ASSESSEE FURTHER SUBMITTED TH AT ASSESSEE IS NOT HOLDING THE SHARE AS STOCK IN TRADE. IN SUPPORT OF THE CONTENTION THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENT IN SHARE, THE ASSESSEE FILED A CERTIFICATE DATED 4.8.2009 FROM SHRI NARESH S. SHAH AND ASSOCIATES, A FORM OF CHARTERED ACCOUNTANT. HE SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFF ICER TO ASCERTAIN WHETHER ANY BORROWED FUNDS ARE USED BY THE ASSESSEE IN MAKING I NVESTMENT IN SHARE FORM WHICH DIVIDEND ID EXEMPT U/S 10(34) OF THE INCOME T AX ACT, 1961. 4. ON THE OTHER HAND, SHRI RAJEEV AGGARWAL, LEARN ED DR FOR THE REVENUE CONTENDED THAT CONTENTION WHICH IS NOW RAIS ED AND CERTIFICATE NOW FILED WAS NOT FILED BEFORE ANY OF THE AUTHORITIES B ELOW. THE LEARNED DR SUBMITTED THAT U/S 14A DISALLOWANCE CAN BE MADE NOT ONLY IN RESPECT OF 3 INTEREST BUT IN RESPECT OF OTHER EXPENSES ALSO IF T HE BORROWED FUNDS ARE USED OR MIXED FUNDS ARE USED FOR MAKING INVESTMENT IN SH ARES. THE LEARNED DR FURTHER SUBMITTED THAT ONCE THE PROVISIONS OF SECT ION 14A ARE ATTRACTED, THE ASSESSING OFFICER HAS NO OBJECTION BUT TO COMPUTE T HE DISALLOWANCE AS PROVIDED IN RULE 8-D OF I.T. RULES. IN VIEW OF THI S, HE SUBMITTED THAT EITHER THE ORDER OF LEARNED CIT(A) BE UPHELD. IN CASE THE MAT TER IS REMANDED TO THE ASSESSING OFFICER IN THAT EVENT IT MAY BE CLEARLY S TATED THAT ONUS IS ON THE ASSESSEE TO PROVE THAT NO BORROWED WERE USED IN MAK ING INVESTMENT IN SHARES ON WHICH THE ASSESSEE HAS EARNED DIVIDEND, EXEMPT FROM TAX U/S 10(34) OF THE INCOME TAX ACT.. 5. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. ADMITTEDLY, THE C ERTIFICATE ISSUE FROM SHRI NARESH S. SHAH & ASSOCIATES, A FIRM OF CHARTERED AC COUNTANT WAS NOT FILED BEFORE ANY OF THE AUTHORITIES BELOW. AS PER THE J UDGMENT OF SPECIAL BENCH MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) L TD (SUPRA), DISALLOWANCE U/S 14A CAN BE MADE IN BOTH THE CASES I.E. IN THE CASE OF HOLDING OF SHARES AS INVESTMENT AND STOCK IN TRADE. HOWEVER, NO DISALLOWANCE OUT OF INTEREST CAN BE MADE IN CASE TH E ASSESSEE PROVE THAT NO AMOUNT OF BORROWED FUNDS WERE USED FOR MAKING THE INVESTMENT IN SHARES. ONUS TO PROVE THIS IS ON THE ASSESSEE. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE IMP UGNED ORDER OF LEARNED CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF T HE ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHALL FURNISH THE COMPL ETE DETAILS. THE ASSESSING OFFICER WILL EXAMINE THE SAME. IN CASE THE ASSESSEE IS ABLE TO PROVE THAT NO BORROWED FUNDS ARE USED FOR MAKING INVESTMENT IN SH ARES, IN THAT EVENT, THE 4 ASSESSING OFFICER WILL NOT MAKE ANY DISALLOWANCE U/ S 14A OUT OF INTEREST PAID. IN CASE THE INVESTMENT IS MADE OUT OF MIXED FUNDS, ASSESSING OFFICER WILL WORK OUT THE DISALLOWANCE U/S 14A KEEPING IN VIEW T HE METHOD PROVIDED IN RULE 8-D OF I.T. RULES 1962. THE ASSESSING OFFICER IS ALSO AT LIBERTY TO CONSIDER ANY JUDGMENT OF HIGH COURT ON THE ISSUE IN VOLVED, IF AVAILABLE, AT THE TIME OF PASSING THE FRESH ORDER. NEEDLESS TO ADD T HAT ASSESSING OFFICER WILL PASS ORDER AFRFESH BY GIVING PROPER OPPORTUNITY OF BEING HEARING TO THE ASSESSEE. IN THE RESULT, FOR STATISTICAL PURPOSES, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.9.2009 SD/- SD/- (D.C.AGRAWAL) (T.K.SHARMA) ACCOUNTNT MEMBER JUDICIAL MEMBER DATED: 11 TH SEPT 2009 RKK COPY FORWARDED TO :- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A). 4. THE CIT 5. DR 6. GUARD FILE BY ORDER TRUE COPY DY./ASSTT. REGISTRAR, ITAT, AHMEDABAD.