The DCIT, Circle-3(1)(1), Ahmedabad V. M/s. Priyal International Pvt. Ltd., Ahmedabad

ITA 2683/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4340 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K PATEL
• Section: 143(3); 14A; 201; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHRI AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER THE DCIT, CIRCLE - 3(1)(1), AHMEDABAD (APPELLANT) VS M/S. PRIYAL INTERNATIONAL PVT. LTD. A/93 - 97, PARISEEMA BUILDING, OPP. IFCI BHAVAN, C.G. ROAD, AHMEDABAD PAN: AAECP4640A (RESPONDENT) REVENUE BY : S H RI MUDIT NAGPAL , SR. D . R. ASSESSEE BY: SHRI MEHUL K. PATEL, A.R. DATE OF HEARING : 08 - 03 - 2 019 DATE OF PRONOUNCEMENT : 14 - 03 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) - 9 AHMEDABAD DATED 13 TH SEP, 2017. THE REVENUE HAS RAISED TWO GROUNDS OF APPEAL DELETING THE ADDITION OF RS. 25 , 81 ,192/ - MADE U/S. 14A AND DELETING THE ADDITION MADE U/S. 36(1)(III ) OF RS. 68 , 06 , 226/ - I.E. INTEREST OF ADVANCE GIVEN FOR PURCHASE OF IMMOVABLE PROPERTY. I T A NO . 2683 / A HD/20 17 A SS ESSMENT YEAR 2013 - 14 I.T.A NO. 2683 /AHD/20 17 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. PRIYAL INTERNATIONAL PVT. LTD. 2 2 . THE BRIEF FACT OF THE CASE IS THAT ASSESSEE HAS FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 13 TH SEP, 2013 DECLARING TOTAL IN COME AT RS. 72 , 17 , 841/ - AND BOOK PROFIT AT RS. 2 , 61 , 51 , 722/ - . SUBSEQUENTLY, THE CASE W A S SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT. DURING THE COURSE OF ASSES SMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS INVESTED AMOUNTING TO RS. 6 ,6 1 , 73 , 13 8/ - WHICH MAY YIELD TAX FREE INCOME. THE ASSESSING OFFICER HAS ASKED T HE ASSESSEE TO EXPLAIN DISALLOWANCE OF INTEREST EXPENSES AS PER THE PROV ISIONS OF SECTION 14A OF THE AC T R.W.S. 8D OF THE I T RULES, 1962. THE ASSESSEE EXPLAINED THAT IT HAS M AINLY MADE INVESTMENT IN PARTNERSHIP FIRM, THEREFORE, SECTION 14A WAS NOT APPLICABLE IN ITS CASE AND FURTHER DURING THE YEAR ASSESSEE HAS OFFERED INTEREST INCOME FROM FIRMS FOR TAXATION, THEREFORE, NO DISALLOWANCE U/S. 14A WAS WARRANTED. HOWEVER, THE ASSE SSING OFFICER HAS NOT AGREED WITH THE EXPLANATION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE AS PER PROVISION OF SECTION 14A R.W.S. 8D TO THE AMOUNT OF RS. 25 , 81 , 192/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. REGARDING THE ISS UE CONTESTED IN THE SECOND GROUND OF APPEAL, THE BRIEF FACT IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO M/S. APPLE WOOD ES TATE PVT. LTD. , A HMEDABAD AND M/S. OVEROI ES TATE PV T. LTD. M UMBAI FOR PURCHASE OF IMMOVABLE PROPERTIES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY INTEREST EXPENSES SHOULD NOT BE DISALLOWED SINCE IT HAS NOT OBTAINED POSSESSION OF THE PROPERTIES . THE ASSESSING OFFICER HAS EXPLAINED THAT THE PROPERTIES WERE BEING ACQUIRED FOR THE PURP O SE OF BUSINESS, THEREFORE , NO AMOUNT SHOULD BE DISALLOWED. THE ASSESSING OFFICER I.T.A NO. 2683 /AHD/20 17 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. PRIYAL INTERNATIONAL PVT. LTD. 3 HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT ASSESSEE S COST OF RUNNING THE BUSINESS DEPENDS ON THE RATIO OF INTEREST FR EE AND INTEREST BEARING FUNDS AVAILABLE WITH IT. AFTER GIVING THE BENEFIT OF INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE, THE RATIO OF INTEREST EXPENSES CLAIMED TO THE TOTAL FUNDS AVAILABLE WITH THE ASSESSEE WAS WORKED OUT AS PER PARA 3.2 OF THE ASSESSM ENT ORDER. ACCORDINGLY, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 68 , 06 , 226/ - OUT OF TOTAL INTEREST EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL THE LD. CIT(A). T HE LD. CIT(A) HAS ALLOWED BOTH T HE GROUNDS OF APPEAL OF THE ASSESSEE. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. THE LD. COUNSEL HAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE ON SIMILAR FAC TS HAVE BEEN DECIDED BY THE CO - ORDINATE HENCH OF THE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2012 - 13 AND FOR ASSESSMENT YEAR 2011 - 12. WE HAVE GONE THROUGH THE ORDER OF THE ITAT VIDE ITA NO. 3115/AHD/2015 IN THE CASE OF ADD. CIT VS. M/S. PRIYA L INTERNATIONAL PVT. LTD. DATED 15 - 02 - 2019 AND IT IS NOTICED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS BEEN ADJUDICATED BY THE CO - ORDINATE BENCH OF THE ITAT IN FAVOUR OF THE ASSE S SEE. THE RELEVANT PART OF T HE DECISION OF THE CO - ORDINATE B ENCH OF THE ITAT IS REPRODUCED AS UNDER: - 6. GROUND NO. 3 CONCERNS DISALLOWANCE OF RS. 2,07,682/ - UNDER SECTION 14A OF THE ACT. THE CIT(A) GRANTED RELIEF TO THE ASSESSEE FROM SUCH DISALLOWANCE ON THE GROUND THAT THE INTEREST FREE FUNDS AT THE DISPOSAL OF THE ASSESSEE IS IN EXCESS OF THE CORRESPONDING INVESTMENTS YIELDING TAX FREE INCOME. ON SUCH FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE AFORESAID FINDINGS IN VIEW OF THE DECISION OF THE HON BLE GUJARAT HIGH COURT I.T.A NO. 2683 /AHD/20 17 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. PRIYAL INTERNATIONAL PVT. LTD. 4 IN CIT VS SUZLON ENERGY LTD.215 TAXMAN 272 (GUJ .) AND CIT VS GIDC 218 TAXMAN 142 (GUJ.) AND OTHER JUDICIAL PRECEDENTS. 7. GROUND NO.4 CONCERNS DISALLOWANCE OF INTEREST ON ADVANCE GIVEN FOR PURCHASE OF IMMOVABLE PROPERTY AMOUNTING TO RS. 4,83,675/ - . THE PERUSAL OF THE ORDER OF THE CIT(A) SHOWS THAT THE ASSESSEE HAD DEMONSTRATED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ADVANCES GIVEN FOR PURCHASES OF IMMOVABLE PROPERTY IS FAR IN EXCESS OF THE INTEREST FREE FUNDS. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER FOR READY REFERENCE: - DECISION 9. WITH RESPECT TO GROUND NO. 4 RELATING TO DISALLOWANCE OF RS. 4,83,675/ - VIS - - VIS THE ADVANCES GIVEN FOR PURCHASES OF IMMOVABLE PROPERTY, THE APPELLANT HAS SUBMITTED A SIMILAR ARGUMENT THAT SUFFICIENT INTEREST FREE FUND S WERE AVAILABLE, AS WAS OBSERVED BY THE AO HIMSELF. THE APPELLANT ALSO RELIED ON THE FOLLOWING JUDGMENT BY THE HON BLE GUJARAT HIGH COURT NAMELY (A) CIT VS GSFC LTD. 358 ITR 0323(GUJ) (B) CIT VS GUJARAT NARMADA VALLEY FERTILIZERS COL. LTD. 221 TAXMAN 479 (C) CIT VS RAGHUVIR SYNTHETICS 354 ITR 222. (D) CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340 9.1 THE FUNDAMENTAL PRINCIPLE HIGHLIGHTED IN THESE JUDGMENTS, AS POINTED OUT BY APPELLANT, IS THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND OVERDRAFT OR LOA NS, THEN THE PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MAKE SUCH INVESTMENTS. FURTHER IT IS NOT EVIDENT FROM THE ORDER U/S. 143(3) THAT SUCH INVESTMENT IN TWO HOUSE PROPERTIES IS OUT OF THE INTEREST BEARING FUNDS. SINCE SUBSTANTIAL INTEREST FREE FUNDS WERE AVAILABLE AS POINTED OUT ABOVE AND ALSO ON PAGE - 13 OF THE AOS ORDER, I AM OF THE VIEW THAT THE DISALLOWANCE OF INTEREST AT THE RATE OF 1.2 27%, WORKED OUT BY THE A.O. IS NOT TENABLE. THE A.O. IS THEREFORE DIRECTED TO DELETE THE ADDITION OF RS. 4,83,675/ - . THIS GROUND OF APPEAL IS ALLOWED. 7.1. IN VIEW OF THE FACTS NARRATED BY THE CIT(A) TOWARDS AVAILABILITY OF INTEREST FREE FUNDS IN EXCE SS OF INTEREST BEARING LOANS FOR TOWARDS ADVANCES IMMOVABLE PROPERTY, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS SYNC WITH THE JUDICIAL PRECEDENCE PREVAILING IN THIS REGARD. 7.2. WE THUS DECLINE TO INTERFERE. IN THE LI GHT OF THE ABOVE FACTS, AFTER RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT AS CITED ABOVE ON SIMILAR ISSUE AND IDENTICAL FACTS IN THE CASE OF THE ASSESSEE ITSELF, WE DO NOT FIND ANY MERIT IN I.T.A NO. 2683 /AHD/20 17 A.Y. 2013 - 14 PAGE NO D CIT VS. M/S. PRIYAL INTERNATIONAL PVT. LTD. 5 THE APPEAL OF THE REVENUE, THEREFORE , BOTH THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 14 - 03 - 201 9 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 14 /03 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,