Shri Ashok Bhurmal Kothari, Ahmedabad V. The Income Tax Officer, Ward-3(1)(4), Ahmedabad

ITA 2867/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6119 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Assessment record; Capital expenditure
• Section: 14A

Judgement Text

, *,L *,L*,L *,L- -- -,E ,E,E ,E- -- -LH LHLH LH* ** * IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I.T.A. NO.2867/AHD/2015 ( / ASSESSMENT YEAR : 2012-13) SHRI ASHOK BHURMAL KOTHARI, 403-404, FLORENCE, OPP. ASHRAM ROAD POST OFFICE, ASHRAM ROAD, AHMEDABAD 380 009. VS. ITO, WARD 3(1)(4), AHMEDABAD. ! PAN/GIR NO. : ACFPK 3374 E ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI HARDIK VORA, A.R. #'%$ / RESPONDENT BY : SHRI JAMES KURIAN, SR. D.R & ' (%) * / DATE OF HEARING 24/01/2018 +,-. %) * / DATE OF PRONOUNCEMENT 12/02/2018 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE RELATING TO ASSESSMEN T YEAR 2012-13 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-9, AHMEDABAD DATED 10.07.2015 WHICH IS AR ISING OUT OF ORDER U/S.143(3) OF THE INCOME TAX ACT, 1961, VIDE APPEAL NO.CIT(A)- 9/598/ITO, WD-3(1)(4)/14-15. 2. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN CONFIR MING THE ORDER ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 2 - OF ASSESSING OFFICER MAKING DISALLOWANCE OF INTERES T CLAIMED OF RS.12,23,035/-. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN CONFIR MING THE ORDER OF ASSESSING OFFICER OBSERVING THAT S. 14A WILL BE APPLICABLE ON THE FACTS OF THE CASE. 3. IT IS PRAYED THAT ABOVE ADDITION/DISALLOW ANCE MADE BY ASSESSING OFFICER AND CONFIRMED BY COMMISSIONER OF INCOME-TAX (APPEALS) MAY PLEASE BE DELETED. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE ASSESSEE IS DIRECTOR IN TWO COMPANIES NAMELY M /S. OSCAR CHEMICALS AND M/S. OLIVE PETROCHEM PVT. LTD. HE HAS ALSO A PARTNER IN A PARTNERSHIP FIRMS NAMELY M/S. AADI CORPORATION. IN THE STATEMENT OF TOTAL INCOME FORMING PART OF THE RETURN OF INCOME, THE AS SESSEE HAS SHOWN TOTAL INTEREST RECEIPT OF RS.29,46,388/- AGAINST WHICH HE HAS CLAIMED INTEREST EXPENSE OF RS.19,98,151/-. IT IS APPARENT FROM THE DETAILS THAT MOST OF THE FUNDS ON WHICH THE INTEREST EXPENSE WAS CLAIMED, HA D NO NEXUS WITH THE DEPOSITS/INVESTMENTS FROM WHICH INTEREST WAS EARNED . A SHOW-CAUSE NOTICE WAS ISSUED AND SAME IS REPRODUCED AS UNDER: IN THE STATEMENT OF TOTAL INCOME, IT IS SEEN THAT YOU HAVE RECEIVED INTEREST INCOME FROM THE FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT OF INTEREST SHOWN AS INCOME 1. OSCAR CHEMICALS PVT.LTD. 1,25,545/ - 2. AKSHAR DEVELOPERS 4,142/- 3. ADVANCE ORGANIZERS PVT LTD. 13,06,084/- 4. SIDDHARTH KOTHARI 11,09,160/ - 5. SIDDHARTH S. KOTHARI HUF 3,78,957/- 6. MANTRA TECHNOLOGIES 22,500/- TOTAL 29,46,388/- ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 3 - 3. OUT OF THE INTEREST INCOME OF RS.29,46,388/- AS DETAILED ABOVE, YOU HAVE CLAIMED INTEREST EXPENSE OF RS.19,9 8,151/- WHICH INCLUDES INTEREST EXPENSE OF RS.12,30,380/- C LAIMED UNDER THE HEAD OF AS PER INTEREST A/C. OF KUNAL CONSTRUC TION 4. ON PERUSAL OF THE BALANCE SHEET OF YOUR PROPR IETARY CONCERN KUNAL CONSTRUCTION, IT IS SEEN THAT YOU HA VE TAKEN UNSECURED LOAN OF RS.1,76,03,176/- (APPARENTLY ON W HICH THE INTEREST EXPENSE OF RS.12,30,380/- CLAIMED IN THE S TATEMENT OF TOTAL INCOME WAS PAID). IT IS HOWEVER SEEN THIS UNS ECURED LOAN HAS BEEN USED FOR MAKING INVESTMENT IN SHARES OF CO MPANIES, ADVANCING DEPOSITS AND ALSO TO MEET THE ACCUMULATED LOSS OF THE PROPRIETOR AS SORTED OUT HEREUNDER: SR. NO. NAME OF THE PARTY AMOUNT ADVANCED AS LOAN/DEPOSIT 1. OSCAR CHEMICALS PVT. LTD. SHARES 24,27,800/- 2. SARVAYA EXPORTS LTD. 36,00,000/- 3. SHELTER HOTELS LTD. 30,00,000/- 4. YUNUS DAHEJ 44,29,000/- 5. LOANS AND ADVANCES (ASSET) 16,41,158/- 6. ACCUMULATED LOSS 31,32,488/- 5. IT CAN BE SEEN THAT THE BORROWED FUND'S RS.1,76, 03,176/-) APPLICATION IS TOWARDS INVESTMENT IN SHARES, ACCUMU LATED LOSS, DEBIT BALANCE OF CAPITAL. EXCEPT FOR THE LOAN AND A DVANCES OF RS.16,41,158/- THE ENTIRE BORROWED FUND'S UTILITY H AS NO NEXUS WITH THE INTEREST INCOME OF RS.29,46,388/-. ALSO CO NSIDERING THAT MOST OF THE FUNDS HAVE BEEN UTILIZED IN EQUITY SHAR ES WHICH HAVE POTENTIAL TO EARN EXEMPTED INCOME, DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY YOU IS ALSO CALLED FOR U/S.14A O F THE ACT. 6. SINCE THE DEDUCTION OF INTEREST EXPENSE OF RS.12 ,30 ; 380/- HAS BEEN CLAIMED FROM THE INTEREST INCOME SHOWN UNDER T HE HEAD OF INCOME FROM OTHER SOURCES, IT IS DEEMED TO HAVE BEE N CLAIMED U/S.57 OF THE ACT. IN THIS REGARD, IT WOULD PERTINE NT TO MENTION THAT AMONG CLAUSE (I) TO (IV) OF SECTION 57, THE DE DUCTION CLAIMED ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 4 - BY YOU FALLS (IF ELIGIBLE) UNDER CLAUSE (III) OF SE CTION 57 WHICH READS AS FOLLOWS:- '(III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATU RE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME' 7. HERE, 'EARNING SUCH INCOME' MEANS THE INCOME SHO WN UNDER HEAD OF INCOME FROM OTHER SOURCES. AS ALREADY POINTED OUT, THE EXPENSES OF RS.12,30,380/- HAS NO DIRECT N EXUS WITH THE INTEREST INCOME OF RS.29,46,388/- DETAILED IN THE T ABLE ABOVE. YOU ARE, THEREFORE, REQUESTED TO SHOW CAUSE AS TO WHY T HE INTEREST EXPENSES OF RS. 12,30,380/- CLAIMED IN THE STATEMEN T TOTAL INCOME UNDER HEAD OF 'AS PER INTEREST ACCOUNT OF KUNAL CON STRUCTION' SHOULD NOT BE DISALLOWED. 8. THE BALANCE SHEET OF KUNAL CONSTRUCTION IS AVAIL ABLE IN THE ASSESSMENT RECORD THEREFORE IT COULD BE ESTABLISHED THAT THERE IS NO NEXUS BETWEEN INTEREST PAID UNDER, THIS ACCOUNT AND INCOME SHOWN UNDER HEAD OF INCOME FROM OTHER SOURCE. HOWEV ER, IN SUPPORT OF YOUR CLAIM OF THE OTHER INTEREST EXPENSE S OF RS.7,67,771/- CLAIMED IN THE STATEMENT OF TOTAL INC OME, YOU ARE REQUESTED TO PROVE A DIRECT PARTY/ENTITY WISE NEXUS BETWEEN THE BORROWED FUNDS (RELATED TO INTEREST PAYMENT OF RS.7 ,67,771/-) AND INTEREST INCOME OF RS.29,46,388/- OR SHOW CAUSE AS TO WHY THE INTEREST EXPENSES OF RS.7,67,771/- SHOULD NOT B E DISALLOWED. 4. THEREAFTER, ASSESSEE SUBMITTED HIS REPLY AND SAM E IS REPRODUCED AS UNDER: 1) WHY DISALLOWANCE OF INTEREST EXPENSES U/S.14A OF TH E ACT SHOULD NOT BE MADE KINDLY NOTE OUR REPLY IN BELOW PARAS. IN THE TABLE REPRODUCED ON PARAGRAPH 4 OF SHOW CAUS E NOTICE, ONLY ITEM AT SERIAL NUMBER ONE IS INVESTMEN T IN SHARES. ALL OTHER ITEMS MENTIONED IN THE TABLE ARE FOR THE PURP OSE OF BUSINESS ONLY. WE ARE ATTACHING HERE WITH DOCUMENT IN SUPPOR T OF OUR CONTENTION THAT ITEM AND SERIAL NUMBER 2 TO 4 ARE I N FACT BUSINESS ASSETS AND NOT SHARES. HENCE OUT OF TOTAL INVESTMEN T, ONLY ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 5 - RS.24,27,800/- IS INVESTED IN SHARES. ALSO IT IS PE RTINENT TO MENTION HERE THAT OUT OF LOAN FUNDS OF RS.1,76,03,1 76/-, RS.30,00,000/- IS RECEIVED WITHOUT PAYING INTEREST THEREON. HENCE NO INTEREST BEARING FUND IS INVESTED IN THE ASSETS WHICH HAVE POTENTIAL TO EARN EXEMPTED INCOME. ACCORDINGLY NO D ISALLOWANCE UNDER SECTION 14A IS CALLED FOR. 2) WHY THE INTEREST EXPENSES OF RS.12,30,380/- SHO ULD NOT BE DISALLOWED PLEASE NOTE THAT FOR ADMINISTRATIVE CONVENIENCE ASS ESSEE HAS BIFURCATED HIS ACCOUNTS UNDER THE NAME OF PROPRIETA RY CONCERN AND UNDER HIS INDIVIDUAL NAME. HOWEVER FOR THE PURP OSE OF INCOME TAX, PROPRIETARY CONCERN AND PROPRIETOR THER EOF HOLDS A SINGLE PERMANENT ACCOUNT NUMBER. IN OTHER WORDS PRO PRIETARY CONCERN AND PROPRIETOR BOTH IS THE SAME PERSON AND ASSESSED UNDER SINGLE PAN NO. DURING THE YEAR UNDER CONSIDER ATION ASSESSEE HAS RECEIVED IN TOTAL INTEREST INCOME OF R S.29,46,388/- AND INCURRED INTEREST EXPENSE OF RS.19,98,151/-. HE NCE NET EFFECT OF THE INTEREST ACCOUNT IS NET INTEREST INCOME OF R S.9,48,237/-. UNDER THE CIRCUMSTANCES WHILE ASSESSEE HAS OFFERED FOR TAX NET INTEREST INCOME, THERE IS NO QUESTION OF DISALLOWAN CE OF INTEREST EXPENSES BY CONSIDERING PROPRIETARY CONCERN AND PRO PRIETOR AS 2 DIFFERENT PERSONS. WITHOUT PREJUDICE TO AFORESAID FACTUAL POSITION PLE ASE NOTE THAT IN CASE INTEREST EXPENSE OF RS.12,30,380/- (RECEIVE D 73,442 AND PAID 13,03,822/-) WILL NOT BE ALLOWED UNDER S.57 OF THE ACT, THE SAME WILL RESULT IN BUSINESS LOSS. THE LOSS UNDER T HE HEAD BUSINESS AND PROFESSION INCOME WILL BE ALLOWED TO B E SET OFF AGAINST THE INCOME OF OTHER SOURCE FOR THE SAME YEA R. HENCE RS.12,30,380/- MUST BE ALLOWED EITHER AS EXPENSE AG AINST THE INTEREST INCOME OFFERED OR AS SET OFF OF LOSS. 3) WHY THE INTEREST EXPENSES OF RS.7,67,771/- SHOUL D NOT BE DISALLOWED: IT IS FUNDAMENTAL PRINCIPLE OF ACCOUNT THAT WHEN A PERSON IS PAYING INTEREST ON ONE SIDE AND RECEIVING INTEREST ON OTHER SIDE, HE USED TO OFFERS THE INCOME ARE EXPENSE ON ACCOUNT OF INTEREST HEAD AFTER NETTING OF THE TWO. IN THE CASE UNDER CO NSIDERATION ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 6 - ASSESSEE HAS RECEIVED INTEREST OF RS.29,46,388/-. A S AGAINST THAT INTEREST PAYMENT OF RS.7,67,771/- IS CLAIMED AS EXP ENDITURE. THUS INTEREST EXPENSE SHOULD BE ALLOWED TO ASSESSEE IF T HERE IS NO FINDING THAT INTEREST-BEARING FUND IS DIVERTED TO I NVESTMENT HAVING POTENTIAL TO EARN EXEMPT INCOME. ACCORDINGLY , INTEREST EXPENSE OF RS. 7,67,771/- SHOULD BE ALLOWED AS EXPE NSE AGAINST INTEREST INCOME OF RS.29,46,388/-. 5. LD. AO WAS NOT SATISFIED WITH THE CONTENTION OF THE APPELLANT. HENCE, HE MADE AN ADDITION OF RS.12,23,035/-. 6. AGAINST THE SAID ADDITION ASSESSEE PREFERRED FIR ST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO DISMISSED THE APPEAL OF T HE APPELLANT. 7. NOW MATTER IS BEFORE US. 8 WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPU GNED ORDER. THE APPELLANT HAS INVESTED RS.24,27,800/- IN SHARES AND OUT OF LOAN FUNDS OF RS.1,76,03,176/-, RS.30,00,000/- RECEIVED WITHOU T PAYING INTEREST THEREON. MEANING THEREBY NO INTEREST BEARING FUND I S INVESTED IN ASSESSMENT WHICH HAVE POTENTIAL TO EARN EXEMPTED IN COME AND FOR ADMINISTRATIVE CONVENIENCE APPELLANT HAS BIFURCATED HIS ACCOUNTS UNDER THE NAME OF PROPRIETARY CONCERN AND UNDER HIS INDIV IDUAL NAME. HOWEVER, FOR THE PURPOSE OF INCOME TAX, PROPRIETARY CONCERN AND PROPRIETARY THEREOF HOLDS A SINGLY PERMANENT ACCOUN T NUMBER. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS RECEIVED IN TOTAL INTEREST INCOME OF RS.29,46,388/- AND INCURRED INTEREST EXPENSE OF RS. 19,98,151/-. HENCE, NET EFFECT OF THE INTEREST ACCOUNT IS NET INTEREST INCOME OF RS.9,48,237/-. ITA NO.2867/AHD /2015 SHRI ASHOK BHURMAL KOTHARI VS. ITO ASST.YEAR 2012-13. - 7 - ASSESSEE HAS OFFERED FOR TAX NET INTEREST INCOME, T HERE IS NO QUESTION OF DISALLOWANCE OF INTEREST EXPENSES BY CONSIDERING PR OPRIETARY CONCERN AND PROPRIETOR AS TWO DIFFERENT PERSONS. PROPRIETOR CON CERN AND PROPRIETOR THEY ARE HOLDING SINGLE PERMANENT ACCOUNT NUMBER. T HEREFORE, IN THESE CIRCUMSTANCES DISALLOWANCE U/S.14A R.W.S. SECTION 8 D CANNOT BE ALLOWED. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 12/02/2018 SD/- SD/- IZEKSN IZEKSN IZEKSN IZEKSN DQEKJ DQEKJ DQEKJ DQEKJ EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 12/02/2018 PRITI YADAV, SR.PS !'# $#! COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-9, AHMEDABAD. 5. 67 8)'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 8 9: ( GUARD FILE. % & / BY ORDER, # 6)) //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD