Ms. Pratibha Paliwal, Panipat V. ITO, Panipat

ITA 2414/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2982 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-07-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 25-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F , NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO.2 413 /DEL/201 3 AY: 2006 - 07 SH. VED PRAKASH PALIWAL (HUF) PALIWAL NAGAR GT ROAD PANIPAT PAN: AABHV 2132 V VS . ITO, WARD 1 PANIPAT AND ITA NO.2414/DEL/2013 AY: 2006 - 07 SMT. PRATIBHA PALIWAL (HUF) PALIWAL NAGAR GT ROAD PANIPAT PAN: AFHPP7321M VS . ITO, WARD 1 PANIPAT (APPELLANT) (RESPONDENT) APPELLANT B Y: SH. ROHIT JAIN, ADV. & MS.TEJASVI JAIN, CA RESPONDENT BY : SH. ATIQ AHMED, SR.D.R. DATE OF HEARING : 15.02.2018 DATE OF PRONOUNCEMENT : 14.03.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER T HE PRESENT APPEAL S HA VE BEEN FILED BY RESPECTIVE ASSESSEE S AGAINST ORDER DATED 09/01/13 PASSED BY LD. CIT (A), KARNAL, FOR ASSESSMENT YEAR 2006 - 07 ON FOLLO WING GROUNDS OF APPEAL: ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 2 ITA NO. 2413 /DEL/201 3 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING SET OFF OF RS.8,77,500/ - BEING INTEREST EARNED ON FIXED DEPOSIT OF RS.1.35 CRORES AGAINST THE INTEREST OF RS.11,79,921/ - PAID BY THE APPELLANT ON BANK OVERDRAFT. 1 . 1 . THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT ABOVE FIXED DEPOSIT WAS MADE BY THE APPELLANT OUT OF BANK OVERDRAFT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR V ARY FROM THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA NO. 2414 /DEL/201 3 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING SET OFF OF RS.8,77,500/ - BEING INTEREST EARNED ON FIXED DEPOSIT OF RS.1.35 CRORES AGAINST THE INTEREST OF RS.893290/ - PAID BY THE APPELLANT ON BANK OVERDRAFT. 1 . 2 . THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT ABOVE FIXED DEPOSIT WAS MADE BY THE APPELLANT OUT OF BANK OVERDRAFT. THE APPELLA NT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2 . BRIEF FACTS OF THE CASE ARE AS UNDER: IT IS OBSERVED THAT THE FACTS AND ISSUES RAISED IN CASE OF BOTH ASSESSEES ARE SIMILAR AND IDENTICAL PE RTAINING TO SAME ASSESSMENT YEAR, THEREFORE FOR THE SAKE OF CONVENIENCE, BOTH THE APPEALS ARE DISPOSED OF BY WAY OF A COMMON ORDER. FOR ANALYSING THE ISSUE, WE TAKE - UP THE FACTS AS NARRATED IN ITA NO. 1413/ DEL/ 2013. ASSESSEE FOR YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DECLARING RS.9,17,821/ - AND AGRICULTURAL INCOME OF RS.50,000/ - ON 3 1/07/06. IT WAS OBSERVED BY LD. AO THAT AGAINST INTEREST INCOME EARNED FROM FDRS, ASSESS EE CLAIMED DEDUCTION OF RS.80, 15,393/ - ON ACCOUNT OF INTEREST PAID TO BANK O N OVERDRAFT LIMIT TAKEN BY ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 3 ASSESSEE FOR DEALING IN SALE AND PURCHASES OF SHARES. LD. AO V IDE SHOW CAUSE NOTICE , A SKED ASSESSEE TO SHOW CAUSE AS TO WHY INTEREST PAID TO THE EXTENT OF RS.18,15,393/ - ON OVERDRAFT LIMIT AVAILABLE AGAINST FDRS SHOULD NOT BE DISALLOWED IN VIEW OF THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT V S. DR . V . P . GOPINATH AN REPORTED IN (2001) 248 ITR 449 , WHEREIN IT WAS HELD THAT, GROSS INTEREST INCOME IS TO BE ASSESSED AND NO DEDUCTION ON ACCOUNT OF INTEREST PAID ON OVERDRA FT LIMIT IS TO BE ALLOWED OUT OF INTEREST INCOME EARNED FROM FDRS. IT WAS ALSO HELD THAT THE INTEREST PAID CAN ONLY BE ALLOWED AS DEDUCTION OUT OF THE BUSINESS INCOME EARNED FROM DEALING IN SHARES. 2. 1 . LD. AO THUS HELD THAT INTEREST PAID ON OVERDRAFT LIMIT AGAINST SHORT - TERM/LONG TERM CAPITAL GAIN AND CANNOT BE ALLOWED AS ASSESSEE HAS NOT DECLARED ANY BUSINESS INCOME FROM DEALING IN SALE AND PURCHASE OF SHARES. ON APPEAL BEFORE LD. CIT (A) THE ADDITION M ADE BY LD. AO WAS CONFIRMED, AGAINST WHICH ASSESSEE PREFERRED APPEAL BEFORE THIS T RIBUNAL. 2. 2 . THIS T RIBUNAL IN ITA NO. 4193/ D EL/2009 V IDE ORDER DATED 30/04/10 OBSERVED AS UNDER: WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED UPON THE CASE LAW CITED BY LEARNED AR AND LEARNED DR AND ALSO REFERRED TO BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS, IN THE CONTEXT OF FACTUAL MATRIX OF THE INSTANT CASE. FROM THE RECORD, WE FOUND THA T ASSESSE WAS HAVING INTEREST INCOME OUT OF FDRS. AGAINST THESE FDRS, THE ASSESSEE HAS ALSO TAKEN OVERDRAFT LIMIT WHICH HE HAS UTILISED FOR SHARES AND SECURITIES. THE INTEREST PAID ON THE OVERDRAFT LIMIT HAS BEEN CLAIMED BY THE ASSESSEE OUT OF INTEREST EA RNED ON THE FDRS. ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 4 THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT EXPENDITURE ON ACCOUNT OF INTEREST CAN BE ALLOWED ONLY AGAINST THE SOURCE OF INCOME OR EARNING OF WHICH THE BORROWED FUNDS HAVE BEEN UTILISED. MERELY BECAUSE OVERDRAFT HAS BEEN TAKEN AGAINST THE FDRS, THE INTEREST EXPENDITURE ON OVERDRAFT CANNOT BE ALLOWED TO BE SET OFF AGAINST THE INTEREST EARNED ON FDRS WHICH IS LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. WHILE BRINGING TO TAX ANY INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES ONLY THE EXPENDITURE WHICH IS INCURRED FOR EARNING SUCH INCOME CAN BE ALLOWED. IN THE INSTANT CASE, IF THE ASSESSEE HAS TAKEN OVERDRAFT FOR MAKING THE FDRS, THEN ONLY THE INTEREST EXPENDITURE ON OVERDRAFT COU LD HAVE BEEN CLAIMED AGAINST THE INTEREST EARNED ON FDRS. BUT SINCE THE ASSESSEE HAS NOT TAKEN THE OVERDRAFT FOR MAKING FDRS, THERE IS NO REASON FOR ALLOWING SETTING OFF INTEREST EXPENDITURE ON OVERDRAFT AGAINST THE INTEREST INCOME EARNED ON FDRS. IN THE INSTANT CASE, THE ASSESSEE HAS ADMITTEDLY UTILISED THE BORROWED FUNDS FOR MAKING INVESTMENT IN SHARES AND SECURITIES, PROFIT OF WHICH WAS OFFERED TO TAX UNDER LONG TERM CAPITAL GAIN (LTCG) AS WELL AS SHORT TERM CAPITAL GAIN (STCG). LTCG HAS BEEN CLAI MED AS EXEMPT, THEREFORE, IN VIEW OF PROVISIONS OF SEC.14A, NO EXPENDITURE IS TO BE ALLOWED OUT OF EXEMPT INCOME. NOW, WE ARE LEFT WITH THE STCG OF RS.4,31,725/ - OFFERED BY ASSESSEE AND WHICH HAS BEEN BROUGHT TO TAX NET BY AO. FOR CLAIM OF INTEREST EXPEN DITURE AGAINST THIS INCOME, ASSESSEE HAS TO SHOW THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENT IN SECURITIES OUT OF WHICH STCG HAS BEEN EARNED. WE THEREFORE RESTORE THE ISSUE RELATING TO ALLOWABILITY OF INTEREST EXPENDITURE TO THE FILE OF A O WITH A DIRECTION TO AO TO VERIFY UTILIZATION OF BORROWED FUNDS IN ACQUISITION OF SECURITIES OUT OF WHICH ASSESSEE HAS EARNED STCG, AND TO ALLOW INTEREST ATTRIBUTABLE TO SUCH BORROWED FUNDS, OUT OF INCOME OFFERED UNDER STCG . WE DIRECT ACCORDINGLY . 2. 3 . ACCORDINGLY ON REMAND, L D. AO ISSUED QUESTIONNAIRE ON 03/10/11 FIXING THE CASE FOR HEARING ON 14/10/11, AS PER THE DIRECTIONS OF THIS TRIBUNAL. FROM THE ORDER PASSED BY LD.AO IN THE ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 5 2 ND ROUND OF PROCEEDINGS IT IS OBSERVED THAT LD.AO, AS PER THE DIRECTIONS OF THIS TRIBUNAL, HAS ALLOWED A SUM OF RS.35,904/ - AS ALLOWABLE EXPENDITURE TO EARN THE SHORT TERM CAPITAL GAIN AS UNDER: 9. NOW AS PER DIRECTION OF HON BLE ITAT, NEW DELHI AS WELL A S HON BLE P&H HIGH COURT THE ALLOWABILITY OF INTEREST EXPENDITURE FOR UTILISATION OF BORROWED FUND IN ACQUISITION OF SECURITIES OUT OF WHICH ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN (STCG) WHICH IS COMPUTED AS UNDER. STCG (AS PER CHART FILED BY ASSESSEE DURING THE ASSESSMENT PROCEEDINGS) BY IPO PURCHASE OF SHARES DURING THE YEAR FOR STCG: SL. NO. PURCHASE DATE SETTLE NO. PARTICULARS QTY OF SHARES PURCHASE AMOUNT (RS.) I. 22.02.05 IPO DENA BANK 35071 9,46,917/ - SALE OF SHARES DURING THE YEAR FOR STCG SL. NO. SALE DATE PARTICULARS QTY OF SHARES SALE AMOUNT (RS.) PROFIT (RS.) I. 14.09.05 DENA BANK 35071 1326959 3,80,042/ - IPO DENA BANK: THE ASSESSEE HAS ALSO INVESTED RS.9,46,917/ - REGARDING PURCHASE OF IPO OF DENA BANK DATED 22.2.2005 AND SOLD THE SAME ON 14.9.2005. THEREFORE INTEREST FOR SEVEN MONTHS ON RS.9,46,977/ - @ 6.5% WHICH WAS INCURRED BY ASSESSEE TO EARN THE STCG COMES TO RS.35,904/ - . HENCE TOTAL INTEREST PAID TO EARN THE STCG ON RS.9,46,917 FOR IPO OF DENA BANK COMES TO RS.35 ,904/ - IS ALLOWED AS EXPENDITURE TO EARN THE STCG . 2. 4 . AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) ON THE SAME ISSUE REGARDING DISALLOWANCE OF INTEREST PAID ON LOAN AGAINST FDR. ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 6 2. 5 . LD. CIT (A) AGAIN DECIDED THE ISSUE AGAINST ASSESSEE BY FOLLOWING THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. DR V.P. GOPINATHAN (SUPRA) . 3. AGAINST THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 3.1. LD.COUNSEL RE ITERATED THE SAME ARGUMENTS AS HAS BEEN RECORDED BY THIS T RIBUNAL IN THE FIRST ROUND OF PROCEEDINGS IN ITA NO. 4193/DEL/2009 VIDE ORDER DATED 30/04/10. IN FACT SAME GROUND HAS BEEN ONCE AGAIN RAISED BEFORE US, WHICH HAS ALREADY BEEN DECIDED BY CO - ORDINATE BENCH OF THIS TRIBUNAL IN FIRST ROUND. 3.2. ON CAREFUL PERUSAL OF FINDINGS RECORDED BY THIS TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS, WE OBSERVE THAT A CATEGORICAL FINDING REGARDING ISSUE OF INTEREST EXPENDITURE ON OVERDRAFT AGAINST INTEREST EARNED ON FDRS H AS BEEN GIVEN. IT HAS BEEN HELD BY THIS T RIBUNAL AS UNDER: 10 ..IN THE INSTANT CASE, IF ASSESSEE HAS TAKEN OVERDRAFT FOR MAKING THE FDRS, THEN ONLY THE INTEREST EXPENDITURE ON OVERDRAFT COULD HAVE BEEN CLAIMED AGAINST THE INTEREST EARNED ON THE FDRS. BUT SINCE THE ASSESSEE HAS NOT TAKEN THE OVERDRAFT FOR MAKING THE FDRS, THERE IS NO REASON FOR ALLOWING SETTING OF INTEREST EXPENDITURE ON OVERDRAFT AGAINST THE INTEREST INCOME EARNED ON FDRS. 3.3. TH E ABOVE FINDING BY THIS T RIBUNAL HAS ATTAINED FIN ALITY, AS IT HAS NOT BEEN CHALLENGED BEFORE HON BLE HIGH COURT BY ASSESSEE . THE ONLY ISSUE THAT WAS CHALLENGED AND DECIDED BY HON BLE HIGH COURT V IDE ITS ORDER DATED 30/05/11 FOR THE YEAR UNDER CONSIDERATION IN ASSESSEE S OWN CASE WAS IN RESPECT OF APPLI CABILITY ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 7 OF SECTION 14 A ON THE EXEMPT INCOME EARNED BY WAY OF DIVIDEND AGAINST THE SHARES THAT HAS BEEN SHOWN AS LONG TERM CAPITAL GAIN UNDER SECTION 10 (33) AND 10 (34). 3.4. WE ARE THUS OF THE CONSIDERED OPINION THAT THIS T RIBUNAL IN THE FIRST ROUND O F APPEAL HAS RIGHTLY OBSERVED THAT AS OVERDRAFT FACILITY HAS BEEN UTILISED FOR PURCHASE OF SHARES, ANY INTEREST EXPENDITURE AGAINST SUCH OVERDRAFT ACCOUNT COULD BE ADJUSTED ONLY AGAINST THE INCOME EARNED FROM SALE OF SUCH SHARES. FURTHER LD.AO IN THE RE MAND PROCEEDINGS HAS VERIFIED THE UTILISATION OF FUNDS OBTAINED BY ASSESSEE FROM OVERDRAFT A CCOUNT AND HAS ALLOWED CLAIM OF ASSESSEE AS PER LAW , AGAINST WHICH NO GROUND HAS BEEN RAISED BY ASSESSEE BEFORE US . 3.5. SIMILAR IS THE SITUATION AND THE GROUNDS RAISED IN ITA NO.2414/DEL/2013. 3. 6 . WE THUS REJECT THE GROUNDS RAISED BY ASSESSEE IN BOTH THE APPEALS BEFORE US. 4. IN THE RESULT BOTH THE APPEALS FILED BY ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 4 . 0 3 . 2 0 1 8 . S D / - S D / - (R .K.PANDA ) (BEENA A PILLAI) ACCOUNTANTMEMBER JUDICIAL MEMBER DT. 1 4 . 0 3 . 2018 M V ITA 2413/DEL/2013 SH. VED PRAKASH PALIWAL (HUF) AND ITA 2414/DEL/2013 SMT. PRATIBHA PALIWAL (HUF) A.Y. 2006 - 07 8 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES