Udayan Navinbhai Patel, Ahmedabad V. The ACIT, Circle-5(2), Ahmedabad

ITA 2178/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9885 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 29-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M ANAND KUMAR
• Keywords: Earning of tax free income; Set aside
• Section: 40(b); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER) ITA. NO: 2178/AHD/2017 (ASSESSMENT YEAR: 2014-15) UDAYAN NAVINBHAI PATEL B- 4, NIRMAL APARTMENTS, OPP. C P CHAMBERS, NAVRANGPURA, AHMEDABAD-380009 V/S THE A.C.I.T, CIRCLE-5(2), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAYPP4350N APPELLANT BY : SHRI ASHWIN SHAH & BHADRESH GANDHAKWALA RESPONDENT BY : SHRI M. ANAND KUMAR, SR. D.R . ( )/ ORDER DATE OF HEARING : 08 -05-201 9 DATE OF PRONOUNCEMENT : 13 -05-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-5, AHMEDABAD DATED 22.08.2017 PERTAINING TO A.Y. 2014-15 AND ASSESSEE HAS TAKEN SOLELY FOLLOWING GROUND: ITA NO. 2178 /AHD/2017 . A.Y. 2014-15 2 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING ADDIT ION OF ALLEGED EXPENDITURE OF RS. 4,98,699 INCURRED IN EARNING EXEMPT INCOME UNDE R SECTION 14A IN AS MUCH AS THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AS DED UCTION INCURRED IN EARNING EXEMPT INCOME AND THEREFORE THE QUESTION OF DISALLO WANCE DOES NOT ARISE. 2. FACTS OF THE CASE ARE THAT THE LEARNED AO HAS DISAL LOWED RS. 4,98,699/- UNDER SECTION 14A SINCE THE RF SHARE FROM THE PARTNERSHIP FIRM IS EXEMPT. IN THIS CONNECTION, IT MAY PLEASE BE NOTED THAT THE AO HAS WORKED OUT THE AVERAGE INVESTMENT ON THE FOLLOWING INVESTMENTS: PPF RS. 4,55,838 SHARES RS. 50,08,379 MUTUAL FUND RS. 79,67,342 CAPITAL INVESTED IN PARTNERSHIP FIRM RS. 6,06,03,3 35 TOTAL RS. 7,40,34,894 3. FROM THE ABOVE, IT MAY PLEASE BE SEEN THAT THE TOTA L INVESTMENT IS RS. 7,40,34,894 WHEREAS THE CAPITAL AS ON 31-03-2014 I S RS. 9.51.65,000 I.E. INTEREST FREE FUNDS. THE COPY OF BALANCE SHEET AND P & T ACC OUNT AS ON 31-03-2014 ENCLOSED. THE ENTIRE INVESTMENT IS OUT OF INTEREST FREE FUNDS AND THEREFORE THE QUESTION OF DISALLOWANCE OF INTEREST UNDER SECTION 14A DOES NOT ARISE SINCE THE ASSESSES HAS NOT INCURRED ANY EXPENDITURE IN EARNIN G EXEMPT INCOME, IT MAY PLEASE HE NOTED THAT THE INTEREST OF RS. 12,30.014 IS CLAIMED AS DEDUCTION OUT OF INTEREST EARNED ON THE CAPITAL FROM THE FIRM. SINCE THE ENTIRE INTEREST IS CLAIMED AS DEDUCTION FROM INTEREST FROM FIRM, THE QUESTION OF DISALLOWANCE UNDER SECTION 1.4 A DOES NOT ARISE. 4. THE LEARNED AO HAS STATED THAT THE INTEREST EXPENDI TURE IS INCURRED IN CLAIMING EXEMPT INCOME IN THE FORM OF RF SHARE [3 RD PARA ON PAGE NO. 3 OF THE ITA NO. 2178 /AHD/2017 . A.Y. 2014-15 3 ASSESSMENT ORDER]. THE LEARNED AO HAS MISAPPRECIATE D THE LAW. THE LEARNED AO HAS MISAPPRECIATED THE LAW. IT IS NOT NECESSARY TO INTRODUCE CAPITAL FOR THE PURPOSE OF EARNING RF SHARE. THE PARTNER IS ADMITTE D AS PARTNER WITHOUT ANY CAPITAL AND YET GETS RF SHARE WHICH IS EXEMPT. THE INTEREST RECEIVED ON CAPITAL FROM THE FIRM IS OUT OF CAPITAL INVESTED PART OF WH ICH IS MET OUT OF BORROWINGS AND THEREFORE THE INTEREST IS CLAIMED AS DEDUCTION FROM INTEREST. FURTHER, IT MAY PLEASE BE NOTED THAT RF SHARE IS EXEMPT SINCE THE F IRM HAS PAID THE TAX ON SUCH PROFIT AT THE MAXIMUM RATE. TAXING THE FIRM AND NOT TAXING THE PARTNER IN RESPECT OF PROFIT AND TAXING THE INTEREST AND REMUN ERATION TO THE PARTNER IS A PART OF SCHEME OF THE INCOME TAX ACT. 5. FURTHER SECTION 40(B) GRANTS DEDUCTION OF INTEREST TO PARTNERS ON FULFILLMENT OF CERTAIN CONDITIONS MENTIONED IN SECTION 40(B). FURT HER THE INTEREST SO PAID TO THE PARTNERS IS TAXABLE IN THE HANDS OF PARTNERS AN D THEREFORE IT IS SAID THAT IT IS APPROPRIATION OF PROFIT. THE PROFIT AFTER REMUNERAT ION IS SUBJECT TO TAX AND THAT THE REMUNERATION IS ALSO TAXABLE IN THE HAND OF PAR TNERS. AND FINALLY A.O. DISALLOWED AN AMOUNT OF RS. 4,98,699/- U/S 14A. 6. THEREAFTER ASSESSEE PREFERRED FIRST STATUTORY APPEA L BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF THE A.O. 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. LD. A.R SOLE GRIEVANCE WAS THAT LOWER AUTHORITIES HAVE NOT CONSI DERED PAPERS FILED BY THE ASSESSEE AND PARTICULARLY LETTER DATED 19.08.2016 T HAT IS REPLY TO NOTICE U/S. 142(1) FOR ASSESSMENT YEAR 2014-15 WHEREIN ASSESSEE ALLEGEDLY GIVEN ALL THE EXPLANATION WITH REGARD TO ABOVE SAID ADDITION AND ALSO SUBMITTED OTHER DOCUMENT IN SUPPORT OF ITS CONTENTION. ITA NO. 2178 /AHD/2017 . A.Y. 2014-15 4 8. IN THE INTEREST OF JUSTICE, WE SET ASIDE THE MATTER TO THE FILE OF THE A.O. TO DECIDE THIS MATTER AFRESH AFTER CONSIDERING THE DOC UMENTS TO BE PLACED BEFORE THE LD. A.O. AND THEREAFTER WILL PASS DETAILED AND REASONED ORDER AS PER PROVISIONS OF LAW AND AFTER CONSIDERING THE DOCUMEN TS TO BE FILED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 13- 05- 2019 SD/- SD/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 13/05/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD