Himesh R. Shah, Jamnagar. V. The Assistant Commissioner of Income Tax, Circle-3, Jamnagar.

ITA 298/RJT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0196 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 12-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Capital Gains
• Section: 143(3); 14A

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, राजकोट 瀈यायपीठ 瀈यायपीठ瀈यायपीठ 瀈यायपीठ, , , , राजकोट IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R.SENTHIL KUMAR, JUDICIAL MEMBER ITA No.298/RJT/2018 Assessment Year : 2014-15 Himesh R. Shah Parikh & Co. Ranjit Road Jamnagar 361 001. Vs. ACIT, Cir.3 Jamnagar. अपीलाथ / (Appellant) यथ /(Respondent) Assessee by : Shri D.S. Varia, AR Revenue by : Shri Shramdeep Sinha, Ld.CIT(DR) स ु नवाई क तार ख/Date of Hearing : 11/10/2022 घोषणा क तार ख /Date of Pronouncement: 19/10/2022 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld. Commissioner of Income-Tax(Appeals), Ahmedabad [hereinafter referred to as “Ld.CIT(A)” under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) dated 25.1.2019 pertaining to the Asst.Year 2014-15. 2. The assessee has raised the following grounds: “1. That the learned CIT(Appeals) Jamnagar ought to have deleted the addition of Rs. 6,30,455 made to total income by invoking the provisions of section 14A of the IT Act read with rule 8D of Income-Tax Rules made by the assessing officer on the facts and circumstances of the case. 2. That the learned CIT(Appeals) Jamnagar erred and was not justified in ignoring and not considering the facts and evidences submitted before the assessing officer and also not following the appellate order in appellant own case on the similar facts of AY 2013-14 in CIT(A)/Jam/36/16-17/133 dated 02-05-2017 and thereby ITA No.298/RJT/2018 2 confirming the addition of Rs. . 6,30,455 made to total income by invoking the provisions of section 14A of the IT Act read with rule 8D of Income-Tax Rules made by the assessing officer on the facts and circumstances of the case. 3. That the learned CIT(Appeals) Jamnagar ought to have follow the judgments of Hon. IT AT, Ahmedabad Bench's order in the case of Canton Laboratories (2013) 35 CCH 353 Ahd-Trib, and also Hon'ble Gujarat High Court decision in CIT v Gujarat Industrial Development Corporation Ltd (2013) 84 CCH 087 GujHC and CIT vs. Gujarat Power Corporation Ltd. (2013) 352 ITR 583 (Guj), as relied upon by the then CIT(A) in appellant own case and ought to have deleted to the addition of Rs.6,30,455 made to total income by invoking the provisions of section 14A of the IT Act read with rule 8D of Income-Tax Rules made by the assessing officer on the facts and circumstances of the case. 4. That the learned CIT(Appeals) Jamnagar ought to have held that the facts and evidences produce before the assessing officers are also a part of facts and evidences before him and ought not to have ignored the same and after considering the same ought to have deleted to the addition of Rs.. 6,30,455 made to total income by invoking the provisions of section 14A of the IT Act read with rule 8D of Income-Tax Rules made by the assessing officer on the facts and circumstances of the case. 5. That the appellant craves leave to and/or to amend to and/or to alter and/or to substitute to all or any of the grounds of appeal up to the hearing of the appeal.” 3. Solitary issue, as stated by the ld.counsel for the assessee, relates to disallowance of expenditure made by the AO by invoking provisions of section 14A read with Rule 8D of the Income Tax Rules,1962, amounting to Rs.6,30,455/-. 4. At the outset itself, the ld.counsel for the assessee stated that disallowance was highly unjustified since the investment earning exempt income had not been made out of the business funds of the assessee, but out of his own personal funds. He therefore contended that the interest expenses claimed by the assessee can be safely attributed to relating to his business and having nothing to do with his investments earning exempt income. He contended that identical disallowance made in the preceding Asst.Year, i.e A.Y 2013-14, had been deleted by the ld.CIT(A) by confirming the facts as pleaded by the assessee that the investment had been made from personal funds and not business funds of the assessee. In this regard he first pointed out that the exempt income earned by the assessee related to the following: ITA No.298/RJT/2018 3 i) Dividend income Rs.54,425/- ii) PPF Interest Rs.1,50,348/- iii) Long term capital gains on shares On which STT paid Rs.26,088/- Total tax free exempt income Rs.2,22,333/- 5. He thereafter pointed out that he maintained two sets of books of accounts; one relating to his personal set of books, and other relating to his proprietary-concern in which he carried on business in the name of M/s.Sonil Builders. The ld.counsel for the assessee pointed out that in the personal set of books, there was interest payment of Rs.2,95,009/- and in books of accounts of his business, there was payment of Rs.29,50,804/-. Thereafter, he dew our attention to the financial statements of the business of the assessee, more particularly the profit & loss account for the impugned year (placed at PB Page No.28) pointing out therefrom that the assessee had booked income only on account of the sales made therein and no other income, and had claimed interest expenses of Rs.29,50,804/- against the same. He drew our attention thereafter to the balance sheet of the business firm (placed at PB Page No.46) pointing out therefrom that no investment of any sort was made in the business of the assessee. He thereafter took us to the balance sheet of the assessee, which was consolidated balance sheet of his personal and business transactions and which separately reflected the two sets of transactions(placed PB Page Nos.22 to 24) pointing out therefrom that all investments made in PFF and shares from which dividend income and tax free capital gain had been earned was reflected as his personal assets acquired from his personal funds. The ld.counsel for the assessee stated that these submissions had been made by him before the ld.CIT(A) also reproduced at page no.4 of his order to which our attention drawn as under: ITA No.298/RJT/2018 4 “1. In a proprietary business account the appellant M/s. Son// Builders there is no tax free income. However in personal books of accounts the appellant has earned dividend income of 52425, interest on PPF account Rs. 150348 and long term capital gain on shares STT paid Rs. 26088, thus total above tax free income of Rs. 2,22,333/-. 2. In the personal set of books there is a interest payment of Rs. 2,95,009/- in M/s. Son/7 Builders there is interest payment of Rs. 29,50,804/- thus total interest payment comes to Rs. 32,45,813/-. But there is no investments from which the appellant can get any tax free income in a proprietary concern appellant diverting the same from M/s. Son/7 Builders and also no borrowed fund ever has been used by the accounts and invested in a assets from which the appellant can get any tax free income. So question of any disallowance out of interest paid in Ms. Son/7 Builders of Rs. 29,50,804 does not arise. 3. In a personal set of books of account in the personal set of books there is a interest payment of Rs. 2,95,009/-. But at the same time are receipt of interest being capital interest from firms Rs.9136, plus interest form parites Rs. 1,85,566/- and other sources of head of income at Rs. 108215, thus total taxable interest in personal set of books comes to only Rs. 7,908/- [3,02,917 (9136 + 185566 + 108215) less paid Rs. 295009]. 4. Whereas direct expenses relating to tax free income Rs. 600+443 Rs. 1043 already disallowed by the appellant. 5. In the personal set of books of accounts opening capital is at Rs. 2,03,60,982/- and capital at the end of the year is at Rs. 1,74,92,733/- after current year loss at Rs. 24,34 f 348/-. Whereas investments in shares/PPF/ Insurance policies etc. Are as on 1 st day of accounting year as on 01/04/2013 is at Rs. 97 / 23 / 493/-. Thus there is a decrease in such investment during the year by 10,96,700/-. Ail such investments are very old and the same is out of capital of the assessee. 6. Detailed facts have been mentioned in statement of facts and also detailed submissions have been made during the assessment proceedings and we rely on the same. Even otherwise the working of disallowance u/s. 14A of the Act is not proper and if at all there is any disallowance to be made then the same will be very negligible. 7. However, in the appellant own case in AY 2013-14there was a addition of Rs.37,53,707/- u/s. 14A of the Act read with rule 8D of the rules. In a appeal Honrable CIT(A), Jamnagar as per appellate order in appeal No . CIT(A)/Jam/36/16-17/133, dated 02/05/2017 has deleted the total addition relying on the Hon.ble IT AT, Ahmedabad Bench Court decision in CIT v Gujarat Corporation ltd. We rely on the submission made in appellate proceedings for AY 2013-14. Please consider the same also. 8. Under the circumstances it is hereby requested your honour to please delete the total addition made at Rs.6 f 30,455/- by invoking the provisions of section 14A of the Act read with rule 8d of the Rules and oblige.” 6. The ld.counsel for the assessee thereafter pointed out that the ld.CIT(A) dismissed the contentions of the assessee stating that the assessee had not furnished documentary evidences in support of his contentions. He thereafter contended that documentary evidences being financial statement of the assessee’s business and his personal finance statement, all of them were filed along with return of income and formed part of the assessment record itself, which ITA No.298/RJT/2018 5 was evidenced from the order of the AO, wherein he had noted the facts of earning exempt income and claiming expenses from the records before him. He drew our attention to para-3 of the assessment order, wherein the AO has mentioned the fact of noting that borrowed funds have been utilized for making investment which earned exempt income. The ld.counsel for the assessee contented therefore that this finding of the ld.CIT(A) that the assessee failed to substantiate his explanation, was incorrect on facts. He thereafter drew our attention to order of the ld.CIT(A) in Asst.Year 2013-14 (placed at PB Page No.36 to 43) pointing out therefrom that identical disallowance under section 14A amounting to Rs.37,53,707/- had been made on account of income earned by the assessee by way of dividend interest of PPF and long term capital gain which was all deleted by the ld.CIT(A) noting that all these investments had been made in the personal accounts of the assessee not from his business accounts, where expenses had been claimed. He drew our attention to para-6 of the order of the ld.CIT(A) in this regard as under: “6. I have duly considered the submission of the appellant and also gone through the discussion made by the AO in assessment order. So far as addition/disallowance u/s 14A of Rs. 37,53,707/- is concerned on going through the facts for the year under consideration most of the interest payment is in proprietary concerns of the appellant viz. M/s Sonil Ventil Fabric and M/s Sonil Builder. M/s Sonil Builders has just: started in A.Y. 2011-12. Whereas, total exempt income is in personal books.of the appellant. The AO has not pointed out any instance that the appellant has diverted his interest bearing fund front his proprietary concerns for investment in personal account from which exempt income has been earned and, appellant's own capital is much more in excess than such investments. Appellant has also pointed out with evidence that increase in public limited snares during the year at Rs. 32,66,281/- is out of sale proceeds of public limited shares. The issue is squarely covered by Hon. ITAT, Ahmedabad Bench's order in the case of Canton Laboratories and also Hon'ble Gujarat High Court decision in CIT v Gujarat Industrial Development Corporation Ltd and GIT vs. Gujarat Power Corporation Ltd. Hence, this disallowance/addition of Rs. 37,53,707/- made u/s 14A of the Act is hereby deleted and the ground of appeal is allowed.” ITA No.298/RJT/2018 6 7. The ld.counsel for the assessee therefore contended that disallowance made under section 14A having been made on identical set of facts as Asst.Year 2013-14, which addition was deleted by the ld.CIT(A), the same needs to be deleted in the present case also. 8. The ld.DR relied on the order of the ld.CIT(A) at para 5.1 as under: “5.1 All the facts as stated by the AR of the appellant in his submission as discussed in just preceding paragraph of this appeal order are not supported by any documentary evidences and records. These are the mere submission of AR of the appellant. The AR of the appellant has not submitted balance sheets and other relevant records and evidences of the year under consideration and also of earlier years in the personal case of the appellant and also in the case of proprietary concern i.e. M/s. Sonil Builders so as to establish that there was no investment in the proprietary concern from which the exempted income was earned and also to prove that no borrowed funds were used by the appellant diverting the same from M/s. Sonil Builders to personal set of accounts. The AO in the assessment order u/s. 143(3) has very specifically mentioned that the appellant had borrowed funds from and Bank and Private Parties and had incurred interest expenses of Rs. 32,45,813/-. As per the AO part of these borrowed funds were utilized by the appellant from such investments income from which were exempted. The AO in the assessment order u/s. 143(3) has further specifically mentioned that the appellant was requested to correlate one to one such tax free investment made and sources thereof and also the use of borrowed funds for the purpose of business. As per the AO the appellant failed to explain the same. As per the AO the appellant failed to justify utilization of these borrowed funds exclusively for the purpose of business. In view of these facts, it was held by the AO that since the share of profit from firm, PPF interest, long term capital gain and dividend income from such investment was not forming part of total income and therefore, the expenditure incurred in relation to such tax free income was not an allowable expenses as per provisions of section 14A of the Act r.w.r. 8D of the IT Rule. The AO has further mentioned in the assessment order that during the course of assessment proceedings, the did not furnish details of interest expenses directly related to exempted income. All these specific findings of the AO as given in the assessment order have not been rebutted or disputed by the AR of the appellant in his written submission as reproduced in earlier paragraphs of this appeal order. The AR of the appellant as per para 6 of his written submission has stated that detailed submission have been made during the assessment proceedings. However, there is no any evidence or proof to show that any detailed written submission along with proper records and evidences were ever submitted by the appellant to the AO during the course of assessment proceedings. Thus the AR of the appellant has merely submitted that detailed submission was made during the course of assessment proceedings which is not supported by any evidences. Considering all these facts it is held that the AO has correctly made addition of Rs. 6,30,455/- to the total income of the ITA No.298/RJT/2018 7 appellant by invoking the provisions of section 14A of the Act r.w.r. 8D of the IT Rule and therefore, such addition of Rs. 6,30,455/- is hereby confirmed. Thus the ground of appeal no.1 of the appellant is dismissed.” 9. We have considered the rival contentions; perused orders of the authorities below and gone through the documents referred to before us. The issue to be adjudicated relates to disallowance of expenditure made under section 14A of the Act on account of having been incurred purportedly for earning exempt income. We find that the assessee had consistently pleaded that all the investments which had earned exempt income were made from his personal funds and not his business accounts where he claimed various expenses, and therefore, there was no question of any disallowance of any expenditure which was claimed in his business. The ld.CIT(A) did not appreciate this contention of the assessee stating that the assessee failed to substantiate the same, but as pointed out by the ld.counsel for the assessee, financial statements, both his personal and that relating his business were filed along with return of income and the AO had noted all facts relating to the assessee earning exempt income, and claiming expenses from this financial statements. Moreover, we have noted from the financial statements of the assessee produced before us that these investments are clearly not reflected in his business statements but in his personal financial statements. Even the Ld.CIT(A) gave an identical finding of fact in this regard in A,Y 2013-14, while dealing with identical issue of disallowance u/s 14A of the Act on identical investments in PPF and shares made by the assessee. 10. In view of the above, the assessee having reasonably demonstrated that investment which had earned exempt income were made out of his personal funds which fact has been recorded even by the ld.CIT(A) in preceding year for the same investment, We ITA No.298/RJT/2018 8 see no reasons to uphold the disallowance of expenses made under section 14A of the Act in the impugned year. The disallowance made therefore of Rs.6,30,455/- is directed to be deleted. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 19 th October, 2022 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 19/10/2022 TRUE COPY vk* आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ! / The Appellant 2. "यथ! / The Respondent. 3. संबं&धत आयकर आय ु (त / Concerned CIT 4. आयकर आय ु (त)अपील (/ The CIT(A)- 5. वभागीय त न&ध ,आयकर अपील य अ&धकरण,राजोकट/DR,ITAT, Ahmedabad, 6. गाड1 फाईल /Guard file. आदेशान ु सार/ BY ORDER, सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ&धकरण, ITAT, Ahmedabad 1. Date of dictation : 11-10-2022 2. Date on which the typed draft is placed before the Dictating Member. : 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 7. Date on which the file goes to the Bench Clerk. : 19.10.2022 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order :