ACIT, Ludhiana V. Sh. Rajeev Singal, Ludhiana

ITA 288/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5322 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL: A BENCH: CH ANDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 288/CHANDI/2011 ASSESSMENT YEAR: 2007-08 A.C.I.T. C-V, LUDHIANA V. RAJEEV SINGAL PROP M/S EASTMAN IMPEX INDL AREA C SUA ROAD, DHANDARI KALAN LUDHIANA PAN: ARSPS 8301 D APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: SHRI ASHWANI KUMAR ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) ON 14.1.2011, ON THE FOLLOWING GROUNDS: 1 THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON F ACTS IN RESTRICTING THE DISALLOWANCES OF RS. 16,00,000/- TO RS. 2,49,15 3/- MADE BY THE AO U/S 14A OF THE INCOME-TAX ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1961. 2 THAT THE ORDER OF THE LD. CIT(A)-II BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED HIS RETURN OF INCOME ON 29.10.2007 RETURNING TOTAL INCOME AT R S. 62,49,040/- FROM SHARE IN THE INCOME OF PARTNERSHIP FIRM, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE RETURN WAS TAKEN UP FOR SCRUTINY. DURING THE C OURSE OF SCRUTINY THE AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST AMOUNTI NG TO RS. 16,61,025/-. HE ALSO NOTICED THAT THE ASSESSEE HAD MADE SUBSTANTIAL INVESTMENT BY WAY OF CAPITAL CONTRIBUTION IN FIRM (RS. 89,12,148/-) AND INVESTMENT IN SHARES (RS. 5,28,85,680/- + RS. 8,85,213/-). THE AO NOTED THAT INCOME BY WAY OF PARTNERSHIP FIRM AS ALSO DIVIDEND INCOME WERE EXEMP T FROM INCOME-TAX. HE THEREFORE INVITED OUR ATTENTION TO RULE 8D READ WIT H SEC 14A AND WORKED OUT THE INTEREST AT RS. 16.00 LAKHS WHICH WAS LIKELY TO BE DISALLOWED. HE THEREFORE DISALLOWED THE SAME. ACIT VS SH. RAJEEV SINGAL ITA NO. 288/CHANDI/2011 2 3. ON APPEAL, THE LD. CIT(A) HAS RESTRICTED THE DIS ALLOWANCES TO 15% OF INTEREST PAID WITH THE FOLLOWING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE ASS ESSEE HAS CONTESTED THAT RULE 8D IS NOT APPLICABLE FOR THE AY 2007-08. I AGREE WITH THE VIEW OF LD. COUNSEL ON THIS ISSUE. FURTHER THE VIEW OF LD. LD. COUNSEL REGARDING THE AVAILABILITY OF SUBSTANTIAL PORTION O F ASSESSEES OWN CAPITAL WHICH IS FREE FROM ANY INTEREST BURDEN IS ALSO CORR ECT AND AS PER THE AVAILABLE FACTS. IT IS ALSO FACT THAT THE ASSESSEE HAS EARNED EXEMPTED INCOME U/S 10(2A) AND 10(34) OF THE ACT, HENCE THE AMOUNT OF USE OF BORROWED FUND IN RELATION TO EXEMPTED INCOME CANNOT BE RULED OUT. UNDER THE SITUATION I RESTRICT DISALLOWANCES OF RS. 16 LACS TO RS. 2,49,153/- BEING 15% OF INTEREST PAID AMOUNT OF RS. 16,61,025/- TO COVER UP INTEREST EXPENDITURE AND OTHER EXPENDITURE RELATABLE TO EXEMPT INCOME. 4. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF APPEAL, IT WAS SUBMITTED THAT THE LD. CIT(A) HAS GIVEN NO BASIS FOR RESTRICTING THE DISAL LOWANCES TO 15% OF INTEREST PAID AND THEREFORE THE ORDER PASSED BY THE LD. CIT( A) SHOULD BE VACATED AND ALTERNATIVELY RESTORED TO HIS FILE FOR FRESH DECISI ON IN CONFORMITY WITH LAW AND MORE PARTICULARLY THE DECISION OF HON'BLE JURISDICT IONAL HIGH COURT IN CIT V. WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 (P&H), CIT V. HERO CYCLES LTD., 323 ITR 518 (P&H) AND IN GODREJ AND BOYCE MFG CO. L TD. V. D.C.I.T. AND ANOTHER 328 ITR 81 (BOMBAY). 5. IN REPLY THE LD. AUTHORISED REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE PROVISIONS OF RULE 18 WERE NOT APPLICABLE IN THE YEAR UNDER APPEAL AND THEREFORE THE AO WAS NOT JUSTIFIED IN INVOKING RULE 18 AND THEREBY IN MAKING DISALLOWANCES. HE SUBMITTED THAT THE LD. CIT(A) OU GHT TO HAVE DELETED THE ENTIRE DISALLOWANCES IN RESPECT OF RESTRICTING IT TO 15% OF INTEREST PAID. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSIONS THAT RULE 18 WAS NOT IN FORMATION IN AY UNDER APPEAL AND THEREFORE THE AO WAS NOT JUSTIFIED IN MAKING DISALL OWANCES UNDER RULE 18. HOWEVER IT CANNOT BE SAID THAT THE ASSESSEE WOULD N OT HAVE INCURRED ANY ACIT VS SH. RAJEEV SINGAL ITA NO. 288/CHANDI/2011 3 EXPENDITURE FOR EARNING DIVIDEND. BESIDES THE ASSE SSEE IS ALSO NOT IN APPEAL AGAINST THE ORDER OF LD. CIT(A) RESTRICTING THE DIS ALLOWANCES TO 15% ON INTEREST PAID. IN OUR VIEW THE DISALLOWANCES OF RS. 2,49,15 3/- SST BY THE LD. CIT(A) IS REASONABLE ON THE FACTS OF THE CASE. IN THIS VIEW OF THE MATTER, THE APPEAL FIELD BY THE DEPARTMENT IS DISMISSED. 7. APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON 27 JULY 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH: THE JULY 2011 SURESH COPY TO: 1. THE APPELLANT, ACIT, C-V, LUDHIANA 2. THE RESPONDENT, RAJEEV SINGAL, 3. THE CIT(A), LUDHIANA 4. THE LD. CIT, LUDHIANA 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH