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

ITA 29/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2109 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-03-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 02-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Rule 8D; Set aside
• Section: 14A; 143(1); 201; 143(2); 72; 154

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.29/AHD/2018 [ / ASSTT.YEAR : 2014-15] DCIT, CIR.3(1)(1) AHMEDABAD. VS. M/S.PRIYAL INTERNATIONAL P.LTD. A/93-97, PARISEEMA BLDG. OPP: IFCI BHAVAN C.G.ROAD, AHMEDABAD 380006. PAN : AAECP 4640 A ( APPLICANT ) ( RESPONENT ) REVENUE BY : SHRI VINOD TANWANI, SR.DR ASSESSEE BY : SHRI M.K. PATEL, AR / DATE OF HEARING : 09/10/2020 ! / DATE OF PRONOUNCEMENT: 03/12/2020 !/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT PRESENT APPEAL IS FILED AT THE INSTANCE OF THE REVE NUE AGAINST ORDER OF LD.CIT(A)-7, AHMEDABAD DATED 3.10.2017 PASSED FOR THE ASSTT.YEARS 2014- 15. 2. IN THE GROUNDS OF APPEAL, REVENUE HAS RAISED MAI NLY TWO ISSUES, VIZ. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,19,90,822/- OF INTEREST ON ADVANCE GIVEN FO R PURCHASE OF IMMOVABLE PROPERTY UNDER SECTION 36(1)(III) AND (II ) IN DELETING DISALLOWANCE OF RS.2,88,48,738/-. ITA NO.29/AHD/2018 2 3. IT IS TO BE NOTED THAT IN THE GROUNDS OF APPEAL REVENUE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.1,19,90,822/- WHICH WAS ADDED BY THE AO BY MAKING DISALLOWANCE UN DER SECTION 36(1)(III) OF THE ACT. IT APPEARS THAT THIS FIGURE HAS WRONGLY BEEN MENTIONED BY THE REVENUE. A PERUSAL OF THE ORDER O F THE CIT(A), IN PARA 4.2 REVEALS THAT THE ASSESSEE HAS SUBSEQUENTLY FILE D A RECTIFICATION APPLICATION BEFORE THE AO UNDER SECTION 154 OF THE ACT, AND THE ORDER FOR RECTIFICATION WAS PASSED ON 17.2.2017. THE AO WORK ED OUT THE DISALLOWANCE AFTER RECTIFICATION AT RS.51,84,596/-. THUS, THE LD.CIT(A) TREATED THE SUBJECT MATTER OF APPEAL TO THE EXTENT OF AMOUNT OF RS.51,84,596/- DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. THE REVENUE HAS ERRED IN MENTIONING THE FIGURE OF RS.1, 19,90,822/- IN ITS GROUNDS MENTIONED ABOVE. TAKING NOTE OF THE ABOVE FACTS, WE PROCEED TO DECIDE THE ISSUE ON MERIT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN TRADING IN BULLION, COMMODITIES, SHARES AND SECURITIES ETC. A ND ALSO ENGAGED IN IMPORT AND EXPORT THROUGH SEZ UNIT. IT HAS FILED IT S RETURN OF INCOME DECLARING TOTAL INCOME AT RS.1,21,54,668/-, WHICH W AS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUING AND SER VING NOTICE UNDER SECTION 143(2) ON 3.9.2015. DURING THE COURSE OF A SSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSES SEE HAS GIVEN INTEREST FREE ADVANCES TO M/S.APPLEWOOD ESTATE P.LTD., AHMED ABAD AND M/S.OBERO ESTATE PVT.LTD., MUMBAI OF RS.10,15,03,18 8/- AND RS.1,96,32,248 RESPECTIVELY FOR PURCHASE OF IMMOVAB LE PROPERTY. THE ASSESSEE WAS SHOW CAUSED AS TO WHY INTEREST EXPENSE S SHOULD NOT BE ITA NO.29/AHD/2018 3 DISALLOWED, AS THE POSSESSION OF THE PROPERTY WAS N OT GIVEN TO THE ASSESSEE. SINCE REPLY OF THE ASSESSEE WAS NOT SATI SFACTORY, THE AO CALCULATED RATIO OF INTEREST EXPENSES CLAIMED TO TH E TOTAL FUND AVAILABLE WITH THE ASSESSEE AND WORKED OUT PROPORTIONATE DISA LLOWANCE OF INTEREST OF RS.4,83,675/-, 18,30,579/-, 44,91,972/- AND RS.5 1,84,596 AT THE RATE OF 1.227% , 5.04%, 3.76% AND 4.28% OF ADVANCE GIVEN FO R THE ASSTT.YEAR 2011-12 TO 2014-15 AND THUS MADE A CUMULATIVE ADDIT ION OF RS.1,19,90,822/- TO THE TOTAL INCOME OF THE ASSESSE E. HOWEVER, AS STATED IN THE FOREGOING PARAGRAPH OF THIS ORDER, AFTER A R ECTIFICATION APPLICATION THE FIGURE OF DISALLOWANCE WAS RESTRICTED TO RS.51, 84,596/-. AGGRIEVED BY THE DISALLOWANCE MADE BY THE AO, THE ASSESSEE WE NT IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY, WHO BY FOLLOWING VARIOUS JUDGMENTS OF JURISDICTIONAL HIGH COURT, AND ALSO CONSIDERING THE FACT THAT SIMILAR DISALLOWANCE WAS DELETED IN ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2011-12, 2012-13 AND 2013-14, DELETED THE DISALLOWA NCE OF RS.51,84,596/- FOR THE YEAR UNDER CONSIDERATION. A GGRIEVED BY THE ACTION OF THE CIT(A), REVENUE IS NOW BEFORE THE TRI BUNAL. 5. BEFORE US, THE LD.SR.DR SUPPORTED THE ORDER OF T HE AO AND REITERATED THAT SINCE THE ASSESSEE HAS NOT ESTABLIS HED NEXUS BETWEEN THE AMOUNT ADVANCED TO THE SOURCES OF INTEREST FREE FUN DS, THE LD.AO HAS JUSTIFIED IN WORKING OUT RATE OF INTEREST EXPENSES CLAIMED TO THE TOTAL FUND AVAILABLE WITH THE ASSESSEE, AND THEREFORE, HI S ORDER ON THIS ISSUE BE CONFIRMED AND THAT OF THE CIT(A) BE SET ASIDE. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER O F THE CIT(A), AND SUBMITTED THAT SIMILAR DISALLOWANCES WERE DELETED F OR THE ASSTT.YEARS 2011-12, 2012-13 AND 2013-14 BY THE TRIBUNAL AND DI SMISSED THE ITA NO.29/AHD/2018 4 APPEALS OF THE REVENUE. THE LD.COUNSEL FOR THE ASS ESSEE HAS PLACED ON RECORD COPIES OF ORDERS OF THE TRIBUNAL PASSED IN I TA NO.2683/AHD/2017 AND 3115/AHD/2015. THEREFORE, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPEAL OF THE REVEN UE IN THE PRESENT YEAR ALSO TO BE DISMISSED ON THE SAME FOOTING. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. WE DO NOT NEED TO DELVE INTO IT, AS TH E ISSUE IS NO MORE NEW OR UNTOUCHED. AS RECORDED BY THE LD.CIT(A) AND ARG UED BY THE LD.COUNSEL FOR THE ASSESSEE BEFORE US THAT, THE SIM ILAR ISSUE OF ISSUANCE HAS BEEN RAISED IN EARLIER YEARS ALSO I.E. FROM 201 1-12 TO 2012-13. IN ALL THESE YEARS, SUCH DISALLOWANCES WERE DELETED AND CL AIM OF THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL. WE HAVE GONE THROUGH THE ORDERS OF THE CIT(A) AND THE TRIBUNAL ON THIS ISSUE. WE DO NOT F IND ANY DISSIMILARITY OF FACTS OF THIS YEAR WITH THAT OF EARLIER YEARS. AS NOTED IN THE ASSESSMENT ORDER ITSELF THAT THE ASSESSEE HAS SUFFICIENT INTER EST FREE AND OWN FUNDS SO AS TO MAKE INVESTMENT/ADVANCES. IN NUMBER OF AUTHO RITATIVE JUDGMENTS IT IS HELD THAT WHEN THERE ARE SUBSTANTIAL INTEREST FREE AND OWN FUNDS, PRESUMPTION WOULD BE THAT THE INVESTMENT AND/OR ADV ANCES WERE MADE OUT OF SUCH FUNDS. WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LD.CIT(A) ON THIS ISSUE. ACCORDINGLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR THE EARLIER YE ARS, CITED (SUPRA), WE UPHOLD THE ACTION OF THE LD.CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. NOW WE DEAL WITH SECOND ISSUE OF THE REVENUE REG ARDING DISALLOWANCE OF RS.2,88,48,738 UNDER SECTION 14A OF THE ACT. ITA NO.29/AHD/2018 5 8. DURING THE ASSESSMENT PROCEEDINGS, THE LD.AO NOT ICED THAT THE ASSESSEE HAS INVESTMENT AMOUNTING TO RS.70,00,48,03 2/- WHICH WOULD YIELD TAX FREE INCOME. THE LD.AO ASKED THE ASSESSE E TO FURNISH EXPLANATION IN RESPECT OF DISALLOWANCE OF INTEREST AS PER THE PROVISIONS CONTAINED IN SECTION 14A READ WITH RULE 8D OF THE I NCOME TAX RULES. IT WAS EXPLAINED BY THE ASSESSEE THAT THE INVESTMENT W AS MADE OUT OF OWN FUNDS, AND IN FACT THE ASSESSEE HAS EARNED INTEREST INCOME, AND THERE WAS A POSITIVE INTEREST INCOME, AND THEREFORE, DISALLOW ANCES UNDER SECTION 14A WAS NOT APPLICABLE. EXPLANATION OF THE ASSESSE E COULD NOT SATISFY THE AO, WHO HELD THAT SINCE ASSESSEE WAS NOT MAINTA INING ANY SEPARATE BOOKS ABOUT UTILIZATION OF FUNDS, NEXUS BETWEEN THE INTEREST FREE FUNDS, BORROWING FUNDS AND THAT OF INVESTMENTS COULD NOT B E ESTABLISHED. THEREFORE, THE LD.AO APPLIED FORMULA GIVEN IN RULE 8D R.W.S. 14A OF THE ACT AND WORKED OUT ESTIMATED DISALLOWANCES AT RS.2, 88,48,738/-. AGGRIEVED BY THE ACTION OF THE AO, THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. IT WAS EXPLAINED BEFORE THE LD.CIT(A), THE ASSESSEE COMPANY WAS HAVING INTEREST FREE FUNDS BY WAY OF NET WORTH AND INTEREST FREE UNSECURED LOAN, AND THEREFORE, NO INTEREST BEARING FUND WAS UTILIZED FOR INVESTMENT. IT WAS F URTHER SUBMITTED THAT INTEREST PAID OF RS.3,76,78,050/-, THE ASSESSEE HAS EARNED INTEREST AGGREGATING TO RS.5,96,88,365/- AND ACCORDINGLY THE RE WAS POSITIVE NET INTEREST INCOME EARNED CAME TO RS.2,20,10,315/-, AN D THEREFORE, INTEREST EXPENDITURE COULD NOT BE CONSIDERED FOR DISALLOWANC ES UNDER SECTION 14A. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, AND RATIO LAID DOWN HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUZLON ENERGY LTD. AS ALSO THE DECISION OF ITAT IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2011-12 TO 2013-14 ON IDENTICAL ISSUES, ALLOWED THE CLAIM OF ITA NO.29/AHD/2018 6 THE ASSESSEE, AND DELETED THE IMPUGNED DISALLOWANCE . NOW, THE REVENUE IS CHALLENGING THE ACTION OF THE LD.CIT(A) IN DELETING DISALLOWANCE MADE UNDER SECTION 14A. 9. BEFORE US, BOTH THE PARTIES SUPPORTED ORDERS OF RESPECTIVE AUTHORITIES. THE LD.COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) ALSO RELIED U PON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR .CIT VS. NIRMA CREDIT & CAPITAL P.LTD., 85 TAXMANN.COM 72 (GUJ) FO R PROPOSITION THAT WHERE ASSESSEE PAYS INTEREST ON BORROWINGS AS ALSO EARNS TAXABLE INTEREST ON INVESTMENT, FOR PURPOSE OF APPLYING PROVISION OF RULE 8D OF INCOME TAX RULES, AMOUNT OF EXPENDITURE BY WAY OF INTEREST WOULD BE INTEREST PAID BY ASSESSEE ON BORROWINGS MINUS TAXABLE INTERE ST EARNED DURING THE FINANCIAL YEAR. FURTHER, THE AO HAS NOT RECORDED A NY SATISFACTION AS TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. THE ISSUE BEFORE US IS, WHETHER INTEREST INCOME WAS MORE THAN THE INTEREST EXPENSES, AND THUS THE ASSESSEE WAS HA VING NET POSITIVE INCOME, THEREFORE, THE SAME CAN BE CONSIDERED FOR D ISALLOWANCE. WE FIND THAT THE ASSESSEE HAS DEMONSTRATED THAT INTERE ST FREE FUNDS AVAILABLE TO THE ASSESSEE FOR MAKING INVESTMENT IS MORE THAN INTEREST BEARING FUNDS UTILIZED FOR INVESTMENT IN EARNING TAX FREE INCOME. THE LD.CIT(A) HAS ALSO RECORDED THAT ASSESSEE HAS INTEREST PAID OF RS .3,76,78,050/-, AND AGAINST THAT THE ASSESSEE HAS EARNED INTEREST AGGRE GATING TO RS.5,96,88,365/-, AND ACCORDINGLY THERE WAS POSITIV E NET INTEREST INCOME EARNED CAME TO RS.2,20,10,315/-. HONBLE JURISDIC TIONAL HIGH COURT IN ITA NO.29/AHD/2018 7 THE CASE OF NIRMA CREDIT & CAPITAL P.LTD. (SUPRA) H AS HELD THAT FOR APPLICATION OF RULE 8D(2), DISALLOWANCE OF EXPENDIT URE TO BE CONSIDERED SHOULD BE NET OF INTEREST I.E. INTEREST PAID MINUS INTEREST RECEIVED. IN THE PRESENT CASE, THE ASSESSEE HAS EARNED HIGHER INTERE ST INCOME THAN THE INTEREST PAID ON THE BORROWED FUNDS. WE FIND THAT FACT THE PRESENT CASE IS SIMILAR TO THE ISSUE IN THE CASE OF NIRMA CREDIT & CAPITAL (SUPRA), AND THEREFORE, IN OUR VIEW THIS CASE LAW SUPPORTS THE C ASE OF THE ASSESSEE. MOREOVER, ITAT IN THE ASSESSEES OWN CASE FOR EARLI ER YEARS ALSO ALLOWED SIMILAR CLAIM OF THE ASSESSEE. THE FACTS I N THE PRESENT YEAR IS ALSO SIMILAR TO THE FACTS OF EARLIER YEARS, AND THE REFORE, FOLLOWING THE CONSISTENCY WITH THE EARLIER ORDERS, WE ALLOW THE C LAIM OF THE ASSESSEE, AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 3 RD DECEMBER, 2020 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) VICE-PRESIDENT