Avinash Ramchandra Phadnis, Pune V. Income tax Officer,

ITA 2958/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3027 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Opportunity of being heard; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO. 2958/PUN/2016 ! ! / ASSESSMENT YEAR : 2013-14 AVINASH RAMCHANDRA PHADNIS, 1205/01/10, SHREE SHIVAJI NAGAR, PUNE 411 004 PAN : ABQPP4715L ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD- 11(2), PUNE / RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI PANKAJ GARG / DATE OF HEARING : 16.05.2018 / DATE OF PRONOUNCEMENT : 25.05.2018 / ORDER PER D. KARUNAKARA RAO, AM THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER O F CIT(A)-1, PUNE, DATED 26-09-2016 FOR THE A.Y. 2013-14. 2. THE ABRIDGED GROUNDS RAISED BY THE ASSESSEE ARE EX TRACTED AS UNDER : 1. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.16,01,364/- U/S. 14A R.W.R. 8D. 2. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INDIRECT EXPENDITURE OF RS.1,51,918/- U/S.14A R.W.R. 8D. 2 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS 3. WITHOUT PREJUDICE, THE ASSESSEE THAT IF AT ALL, ANY DISALLOWANCE IS WARRANTED U/S.14A, THE SAME SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED OF RS.11,347/-. 4. THE LD.CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.68,053/- ON ACCOUNT OF INTEREST INCOME WITHOUT APPRECIATING THA T NO SUCH ADDITION WAS WARRANTED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS AN INDIVIDUAL AND IS A DOCTOR (GYNAECOLOGIST) BY PROFESSION. ASSESSEE FILED THE RETURN OF INCOME ON 30-09-2013 DECLARING TOTAL INCOME OF RS.9,27,183/-. AO NOTICE THAT ASSESSEE RECEIVED INTEREST FROM COSMOS COOPERATIVE BANK AMOUNTING TO RS.68,053/- AND DID NOT O FFER THE SAME FOR TAXATION. ON PERUSAL OF THE BALANCE SHEET, AO N OTICED THAT ASSESSEE MADE INVESTMENT IN SHARES WORTH OF RS.2,93,39,573 /- OUT OF TOTAL INTEREST FREE FUNDS OF RS.3,06,43,617/-. ASSESSEE FURTH ER DEBITED A SUM OF RS.73,14,801/- TO THE PROFIT AND LOSS ACCOUNT TOW ARDS INTEREST ON CAPITAL. EVENTUALLY, AT THE END OF ASSESSMEN T U/S.143(3) OF THE ACT, AO MADE COUPLE OF ADDITIONS, I.E. (1) ADDITION ON ACCO UNT OF INVESTMENT U/S.14A OF THE ACT AMOUNTING TO RS.17,53,282/- ; AND (2) ADDITION ON ACCOUNT OF INTEREST RECEIVED FROM COSMOS COOP ERATIVE BANK AMOUNTING TO RS.68,053/-. 4. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CONTEST ED THESE ADDITIONS BEFORE THE FIRST APPELLATE AUTHORITY. REGARDING T HE DISALLOWANCE OF RS.17,53,282/- MADE BY THE AO U/S.14A OF THE ACT, THE CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER : 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS THE REPLY OF THE APPELLANT. IN THIS CASE, THE APPELLAN T CLAIMED THAT SHARES OF OYESTER & PEARL HOSPITALS PVT. LTD. (ONP) WAS PURCH ASED FOR 3 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS RS.75,52,950/- FROM PHADNIS CLINIC PVT. LTD. (PCPL) OUT OF LOAN OF RS.8 CRORES FROM SARASWAT COOP. BANK LTD. IN F.Y. 2011-1 2 PERTAINING TO A.Y. 2012-13. AS THE SAME WAS PURCHASED OUT OF BUS INESS NEEDS, SECTION 14A IS NOT APPLICABLE. THIS SUBMISSION OF THE APPELLANT IS DIFFICULT TO BE APPRECIATED AS THE APPELLANT IS A P ROFESSIONAL HAVING PROFESSIONAL INCOME. HE MIGHT BE HAVING INTEREST I N ONE OR TWO COMPANIES BUT THAT IN ITSELF CANNOT PROVE COMMERCIA L EXPEDIENCY AS HIS PROFESSIONAL INTEREST CANNOT BE TREATED LIKE HOLDIN G COMPANY REQUIRED TO MAINTAIN CONTROLLING INTEREST IN GROUP COMPANIES. AS FAR AS APPELLANTS CONTENTION THAT DISALLOWANCE SHOULD BE RESTRICTED T O DIVIDEND INCOME EARNED, I DO NOT FIND ANY MERIT IN THE SUBMISSION A S THERE IS NO PROVISION TO RESTRICT THE DISALLOWANCE U/S.14A IN T HE ABOVE MANNER. ACCORDINGLY, ACTION OF THE AO IN DISALLOWING RS.17, 53,282/- IS UPHELD AND THE GROUND IS DISMISSED. 5. REGARDING THE INTEREST AMOUNT OF RS.68,053/- EARNED BY THE ASSESSEE FROM COSMOS COOPERATIVE BANK, THE CIT(A) DISMISSE D THE GROUND RAISED BY THE ASSESSEE BY HOLDING AS UNDER : 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. THE APPELLANT CLAIMS THAT FD PER TAINED TO M/S. PHADNIS CLINIC PVT. LTD., HOWEVER, THE BANK ERRONEO USLY PUT THE NAME OF THE APPELLANT AND CREDITED THE INTEREST IN THE APPE LLANTS NAME. THE APPELLANT HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE SAID F.D. HAS BEEN REFLECTED IN THE BOOKS OF THE SAID COMPANY AND INTE REST ON THE FIXED DEPOSIT HAS ALSO BEEN OFFERED IN THE RETURN OF THE SAID COMPANY WITH EVIDENCE. UNLESS THE SAME IS DEMONSTRATED WITH EVI DENCE, THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. TH EREFORE, THE SUBMISSION OF THE APPELLANT IS REJECTED BEING DEVOI D OF MERIT AND THE GROUND IS DISMISSED. 6. AGGRIEVED WITH THE ORDER OF CIT(A) CONFIRMING BOTH THE A DDITIONS, THE ASSESSEE CHALLENGED THE SAME BEFORE THE TRIBUNAL WIT H THE AFORESAID GROUNDS ABOVE. 7. BEFORE ME, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSE E BROUGHT MY ATTENTION TO GROUND NO.4 AND SUBMITTED THAT THE SAID GROUND IS NOT PRESSED CONSIDERING THE SMALLNESS OF THE ISSUE. ON HE ARING BOTH THE PARTIES, GROUND NOS. 4 IS DISMISSED AS NOT PRESSED AN D GROUND NO.5 IS DISMISSED AS GENERAL IN NATURE. 4 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS 8. THAT LEAVES GROUND NOS. 1 AND 3 FOR ADJUDICATION AND THEY RELATE TO THE DISALLOWANCE U/S.14A R.W.R 8D OF THE ACT. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT CONSID ERATION VARIOUS DECISIONS ON THE SUBJECT, THE DISALLOWANCE MAY BE RESTRICTED TO THE EXEMPT INCOME INCLUDED IN THE TOTAL INCOME OF THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION. MENTIONING THAT ONLY RS.11,347/ - IS THE EXEMPT INCOME EARNED BY THE ASSESSEE, MAKING DISALLOWANCE OF RS.17,53,282/- U/S.14A R.W.R. 8D OF THE ACT IS NOT SUSTAINABLE LEGALLY. 9. I HEARD BOTH THE PARTIES ON THIS ISSUE. IT IS AN UNDISP UTED FACT THAT THE EXEMPT INCOME IS ONLY RS.11,347/- WHEREAS THE DISALLOWANCE MADE BY THE AO IS TO THE TUNE OF RS.17,53,282/-. ON THE FACES OF IT AND CONSIDERING THE SETTLED LEGAL PROPOSITIONS, I FIND THE DIS ALLOWANCE MADE BY THE AO IS NOT LEGALLY SUSTAINABLE. VARIOUS DECISIO NS ARE IN EXISTENCE FOR THE PROPOSITION THAT DISALLOWANCE IF ANY U/S.1 4A OF THE ACT SHOULD NOT EXCEED THE EXEMPT INCOME WHICH FORMED PA RT OF THE TOTAL INCOME OF THE YEAR UNDER CONSIDERATION. CONSIDERING THESE FACTS AND RELYING ON THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), JUDGMENT IN THE CASE OF CIT VS. HDFC BANK LTD., 366 ITR 505 AND THE JUDGMENT OF THE HO NBLE DELHI HIGH COURT IN THE SAID CASE CHEMINVEST LIMITED VS. CIT 347 ITR 272 (DEL.), I FIND IT IS OBVIOUS INFERENCE THAT ASSESSEE HAS ADEQUA TE INTEREST FREE FUNDS AND ASSESSEE ALSO EARNED PROFITS IN TH E CURRENT YEAR. ALL THESE INTEREST FREE FUNDS ARE SUFFICIENT ENOUGH TO TAKE CARE OF THE EXEMPT INCOME YIELDING INVESTMENTS CONSIDERING THE PRI NCIPLE OF PRESUMPTION LAID DOWN BY THE VARIOUS COURTS. 5 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS 10. FURTHER, I FIND THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF M/S. PEST CONTROL INDIA PVT. LTD., VS. DCIT AND VICE VERSA IN ITA NOS. 5048 & ITA NO.5608/MUM/2016, DATED 31-10-2017 HAS RES TRICTED THE DISALLOWANCE TO THE EXEMPT INCOME EARNED BY THE ASS ESSEE. THE SAID FINDING OF THE TRIBUNAL GIVEN IN PARA NOS. 7 TO 11 IS EXT RACTED HERE AS UNDER : 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED UPON. TH E ASSESSING OFFICER COMPUTED THE DISALLOWANCE U/S. 14A R.W. RULE 8D AT .38,43,918/- AND THE LD.CIT(A) RECOMPUTED THE DISALLOWANCE AT .5,10,601/- WHICH COMPRISES OF .3,42,870/- UNDER RULE 8D(2)(II) AND 1,67,731/- UNDER RULE 8D(2)(III). THIS CALCULATION OF THE LD.CIT(A) APPEARS TO BE PROPER AND JUSTIFIED. 8. FURTHER, IT HAS BEEN HELD IN VARIOUS CASES THAT THE DISALLOWANCE U/S. 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. T HE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PRINCI PAL COMMISSIONER OF INCOME TAX-I V. M/S EMPIRE PACKAGE PVT. LTD IN I TA.NO. 415 OF 2015 DATED 12.01.2016, DISMISSED THE APPEAL OF THE REVEN UE HOLDING THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW ARISE IN TH E APPEAL ON THE FOLLOWING QUESTION RAISED BY THE REVENUE: - 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE HON'BLE ITAT IS JUSTIFIED IN LAW TO HOLD THAT THE DISALLOWA NCE MADE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED T HE EXEMPT INCOME, IN THE ABSENCE OF ANY SUCH RESTRICTION BEIN G THERE IN THE RELEVANT SECTION OR RULE?' THE HON'BLE HIGH COURT AFFIRMED THE ORDER OF THE IT AT IN HOLDING THAT THE DISALLOWANCE U/S. 14A R.W. RULE 8D AS WORKED OU T BY THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW FOR THE REASON THAT ASSESSING OFFICER HAS DISALLOWED ENTIRE TAX EXEMPT INCOME AND THIS IS NOT PERMISSIBLE IN VIEW OF THE JUDGMENT OF THE HON' BLE DELHI HIGH COURT. 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF JOIN T INVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 HELD THA T BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRET ED SO AS TO MEAN THAT ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. 10. FURTHER, WE FIND THAT CONSIDERING THE ABOVE TWO DECISIONS THE COORDINATE BENCH IN THE CASE OF SANGHAVI EXPORTS IN TERNATIONAL P. LTD V. ACIT IN ITA.NO.3405/MUM/2015 DATED 10.07.2017 HE LD THAT DISALLOWANCE SHOULD NOT BE MORE THAN THE DIVIDEND I NCOME BY OBSERVING AS UNDER: 6 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS 4. WE HAVE PERUSED THE ASSESSMENT ORDER AND FIND TH AT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 1,70,000/- ONL Y DURING THIS ASSESSMENT YEAR AND THE ASSESSING OFFICER BY I NVOKING THE PROVISION OF SECTION 14A MADE DISALLOWANCE AT RS.54 ,66,813/-. THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT I NVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 H ELD THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RUL E 8D BE INTERPRETED SO AS TO MEAN THAT ENTIRE TAX EXEMPT IN COME IS TO BE DISALLOWED. SIMILARLY, PUNJAB AND HARYANA HIGH COUR T IN THE CASE OF PCIT V. EMPIRE PACKAGE PRIVATE LIMITED IN I TA.NO. 415/2015 HELD THAT DISALLOWANCE SHOULD NOT EXCEED E XEMPT INCOME. IN THE CASE ON HAND SINCE THE ASSESSEE RECE IVED DIVIDEND INCOME OF RS.1,70,000/- AS RECORDED IN THE ASSESSMENT ORDER THE DISALLOWANCE SHOULD NOT BE MOR E THAN RS.1,70,000/-. THUS WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME I.E. RS.1,70,000/- AND DELETE THE BALANCE AMOUNT AN D COMPUTE THE INCOMES ACCORDINGLY. 11. THUS, RESPECTIVELY FOLLOWING THE SAID DECISIONS , WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A R.W. RULE 8D TO THE EXTENT OF DIVIDEND INCOME OF .1,83,000/- RECEIVED FOR THE ASSESSMENT YEAR 2012-13 AND COMPUTE THE INCOME ACCO RDINGLY. CONSIDERING THE ABOVE, IN MY VIEW, THE ORDER OF THE CIT(A) O N THIS ISSUE REQUIRES REVERSAL ON THIS ISSUE. ACCORDINGLY, I DIRECT THE AO TO RE-COMPUTE THE DISALLOWANCE MADE BY THE AO AFTER GRA NTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FURTHER, THE AO SHALL CONSIDER THE ABOVE CITED LEGAL PROPOSITION IN THE SET-ASIDE PROCEEDINGS. THUS, THE GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 25 TH DAY OF MAY, 2018. SD/- ( . /D. KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; / DATED : 25TH MAY, 2018. SATISH 7 ITA NO.2958/PUN/2016 AVINASH R. PHADNIS % ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-1, PUNE 4. THE CIT-1, PUNE 5. , , - ' , / DR, ITAT, SMC BENCH, PUNE. 6. % / GUARD FILE. / BY ORDER, ( % //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE