Sh.Sandeep Goyal, Ludhiana V. Assistant Commissioner of Income Tax, Ludhiana

ITA 310/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9857 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: ADITYA KUMAR
• Keywords: General deduction
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 310/CHD/2016 ASSESSMENT YEAR: 2009-10 SHRI SANDEEP GOYAL, VS THE ACIT, 2517, PHASE-I, CIRCLE-VI, URBAN ESTATE, LUDHIANA. DUGRI, LUDHIANA. PAN: ACDPG0792N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR & SHRI ADITY A KUMAR RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 29.06.2016 DATE OF PRONOUNCEMENT : 30.06.2016 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-3, LUDHIANA DATED 28.01.2 016 FOR ASSESSMENT YEAR 2009-10. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. 3. ON GROUND NO. 1, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 2,53,710/- OUT OF INTEREST PAID UNDER SECTION 57(III) OF THE INCOME TAX ACT. AS PER ASSE SSMENT ORDER, FROM THE DETAILS PROVIDED BY THE ASSESSEE, I T WAS NOTICED THAT OUT OF LOAN RAISED FROM ICICI BANK, AN AMOUNT 2 OF RS. 14,41,000/- AND RS. 13,78,000/- WAS UTILIZED FOR NON INTEREST BEARING PURPOSES. ACCORDINGLY, ASSESSI NG OFFICER MADE DISALLOWANCE OF INTEREST OF RS. 2,53,7 10/- UNDER SECTION 57(III) OF THE INCOME TAX ACT. 4. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) T HAT ASSESSEE HAD AVAILED SEVERAL LOANS FROM ICICI BANK LTD. IN PAST. DURING THE YEAR UNDER CONSIDERATION I.E. ASS ESSMENT YEAR 2009-10, NO FRESH LOAN HAS BEEN AVAILED BY THE ASSESSEE AND THE ENTIRE INTEREST PAID ON THE LOAN T AKEN IN PAST FROM ICICI BANK LTD. WAS CLAIMED AS AN EXPENDI TURE UNDER SECTION 57 OF THE ACT AS AGAINST INTEREST REC EIVED FROM OTHERS TO WHOM THE ADVANCES WERE MADE IN THE P AST OUT OF THESE LOANS TAKEN. IT WAS SUBMITTED THAT TH E PURPOSE CO-RELATES TO THE ACTIVITY OF THE ASSESSEE IN EARNING INCOME BY ADVANCING LOANS TO OTHER PARTIES. THE SA ID PURPOSE HAS BEEN FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION UNDER SECTION 57(III) OF THE ACT. NEXUS HAS BEEN ESTABLISHED BETWEEN THE AMOUNTS OF INTEREST RECEIVED AND INTEREST PAID. THEREFORE, AS SESSEE IS ELIGIBLE FOR DEDUCTION. 5. THE LD. CIT(APPEALS) CALLED FOR THE COMMENTS OF THE ASSESSING OFFICER ON THE SUBMISSIONS OF THE ASSESSE E. THE ASSESSING OFFICER SUBMITTED THAT IT IS NOT WORTHY T HAT SECTION 57(III) OF THE ACT REGARDING AVAILABILITY O F THE EXPENDITURE WITH REFERENCE TO INCOME FROM OTHERS SO URCES DOES NOT ALLOW ANY GENERAL DEDUCTION. THE SCOPE OF THE DEDUCTION IS LIMITED TO THE EXTENT OF EXPENDITURE I NCURRED 3 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE CLAIM OF THE ASSESSEE IS NOT SATI SFYING THIS CONDITION. ACCORDINGLY, INTEREST PAID PERTAIN ING TO THESE BANKS IS NOT ALLOWABLE AS IT HAS NOT BEEN INC URRED TO EARN ANY TAXABLE INCOME WHICH MAKES IT INEVITABLE T HAT ASSESSEE HAS DERIVED INTEREST BEARING FUNDS FOR NON - INTEREST BEARING ACTIVITIES. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE LOAN AMOUNT WAS ACTUALLY USED FOR EARNING INCOME RATHER THE SUBMISSIONS OF THE ASSESSEE SHOW THAT INTEREST BEARING FUNDS HAVE BEEN USED FOR PURPOSES OTHER THAN INTEREST EARNING. THEREFORE, ASSESSEE IS NOT ENTITLED FOR DEDUCTION. 6. THE LD. CIT(APPEALS), HOWEVER, NOTED THAT THE AS SESSEE HAS NOT BROUGHT ON RECORD ANY FACTS TO CONTROVERT T HE FACTS MENTIONED BY THE ASSESSING OFFICER FOR MAKING DISAL LOWANCE UNDER SECTION 57(III) OF THE INCOME TAX ACT. THE O NLY PLEA OF THE ASSESSEE IS THAT IN PAST, WHOLE OF THE INTER EST WAS ALLOWED AS EXPENDITURE AGAINST THE INCOME RECEIVED FROM OTHERS TO WHOM LOANS WERE MADE IN PAST OUT OF THESE LOANS TAKEN. AS THE ASSESSING OFFICER HAS CLEARLY POINTE D OUT, FUNDS WERE INVESTED FOR EARNING OTHER THAN INTEREST INCOME THEREFORE, ASSESSEE IS NOT ENTITLED FOR DEDUCTION U NDER SECTION 53(III) OF THE INCOME TAX ACT. THIS GROUND WAS, ACCORDINGLY, DISMISSED. 7. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM NOT IN CLINED TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BEL OW. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE COMPUT ATION OF 4 INCOME AND SUBMITTED THAT ASSESSEE RECEIVED INTERES T OF RS. 15,88,543/- AND PAID THE INTEREST OF RS. 12,01,997/ -. NO FRESH LOANS HAVE BEEN TAKEN IN ASSESSMENT YEAR UNDE R APPEAL. HOWEVER, THE ASSESSING OFFICER HAS SPECIFI CALLY NOTED THAT OUT OF THE LOAN RAISED FROM ICICI BANK, AN AMOUNT OF RS. 14,41,000/- AND RS. 13,78,000/- WAS UTILIZED FOR NON INTEREST BEARING PURPOSES. THE LD . CIT(APPEALS) ALSO FOUND THAT FUNDS WERE INVESTED FO R EARNING OTHER THAN INTEREST INCOME. THE FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW HAVE NOT BEEN REB UTTED THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. SECTIO N 57(III) OF THE ACT REGARDING ALLOWABILITY OF THE EXPENDITUR E WITH REFERENCE TO INCOME FROM OTHER SOURCES DOES NOT ALL OW ANY GENERAL DEDUCTION. THE SCOPE OF DEDUCTION IS LIMIT ED TO THE EXTENT OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM OTHER SOURCES. SINCE CONDITION OF SECTION 57(III) HAVE N OT BEEN SATISFIED IN THIS CASE, THEREFORE, AUTHORITIES BELO W WERE JUSTIFIED IN MAKING AND CONFIRMING THE DISALLOWANCE . GROUND NO. 1 OF APPEAL OF THE ASSESSEE IS ACCORDING LY, DISMISSED. 8. ON GROUND NO. 2, ASSESSEE CHALLENGED THE UPHOLD ING OF THE DISALLOWANCE OF RS. 1,80,083/- AS AGAINST RS . 2,19,300/- MADE BY ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT. AS PER ASSESSMENT ORDER, THE ASSESSING OFFICER HAS APPLIED RULE 8D AND DETERMINE D DISALLOWANCE UNDER SECTION 14A, RS. 2,19,300/- AS T HE 5 ASSESSEE HAS MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS AND INCOME THEREFROM WHERE DIVIDEND OR LONG TERM CA PITAL GAIN ON SALE WAS EXEMPT. 9. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) T HAT NO PART OF THE BORROWED FUNDS ON WHICH INTEREST HAS BE EN PAID WERE UTILIZED IN MAKING INVESTMENTS IN SHARES. AS NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPTED DIVI DEND INCOME DURING THE YEAR UNDER CONSIDERATION, NO DISALLOWANCE IS WARRANTED UNDER SECTION 14A OF THE ACT. THE ASSESSEE RELIED UPON DECISION OF THE HON'BLE PU NJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 IN WHICH IT WAS HELD TH AT, WHERE ASSESSEE HAD INVESTED IN SHARES OUT OF ITS O WN FUNDS, NO DISALLOWANCE OF INTEREST ON BORROWED FUND S COULD BE MADE UNDER SECTION 14A MERELY BECAUSE ASSESSEE H AD ALSO TAKEN LOANS ON WHICH INTEREST HAS BEEN PAID. IT WAS ALSO SUBMITTED THAT ASSESSING OFFICER HAS IGNORED T HE FACT THAT INVESTMENT IN SHARES WAS MADE IN ASSESSMENT YE AR USING ITS OWN FUNDS. THUS, NO INTEREST EXPENDITURE WAS INCURRED IN THE YEAR UNDER CONSIDERATION SO AS TO M AKE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T. IT WAS ALSO SUBMITTED THAT ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 57(III) OF THE INCOME TA X ACT. 10. THE LD. CIT(APPEALS) NOTED THAT IN THE YEAR UND ER CONSIDERATION 2009-10, PROVISIONS OF RULE 8D ARE APPLICABLE FOR MAKING DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT WHEN THE ASSESSING OFFICER IS NO T 6 SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPE NDITURE MADE BY THE ASSESSEE. THE LD. CIT(APPEALS), HOWEVE R, REDUCED THE ADDITION OF RS. 2,53,710/- MADE UNDER S ECTION 57(III) OF THE ACT AND RESTRICTED THE DISALLOWANCE TO RS. 1,80,083/-. 11. AFTER HEARING RIVAL CONTENTIONS, I AM OF THE VI EW ADDITION IS WHOLLY UNJUSTIFIED. THE ASSESSEE SPECI FICALLY SUBMITTED BEFORE AUTHORITIES BELOW THAT IT HAS NOT CLAIMED ANY EXPENDITURE EXCEPT INTEREST. IT WAS ALSO SUBMI TTED THAT NO PART OF THE BORROWED FUNDS ON WHICH INTERES T HAS BEEN PAID WERE UTILIZED IN MAKING INVESTMENT IN SHA RES. IT WAS, THEREFORE, PLEADED THAT NO EXPENDITURE HAS BEE N INCURRED TO EARN EXEMPTED DIVIDEND INCOME DURING TH E ASSESSMENT YEAR UNDER APPEAL. THE ASSESSING OFFICE R, INSTEAD OF EXAMINING THE SUBMISSIONS OF THE ASSESSE E, APPLIED RULE 8D OF THE IT RULES AND MADE THE ABOVE DISALLOWANCE. THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. (SUPRA) CLEARLY APPLY TO THE CASE O F THE ASSESSEE BECAUSE ASSESSEE PLEADED THAT ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS OWN FUNDS AND NO BO RROWED FUNDS HAVE BEEN USED. 11(I) HON'BLE PUNJAB & HARYANA HIGH COURT IN TH E CASE OF ABHISHEK INDUSTRIES LTD. 380 ITR 652 HELD THAT ONUS IS ON THE ASSESSING OFFICER TO RECORD SATISFACTION THAT INTER EST BEARING FUNDS USED FOR INVESTMENT TO EARN TAX FREE INCOME . HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON A SSOCIATES 7 381 ITR 204 HELD THAT, ASSESSEE CLAIMED OLD INVESTMENTS OUT OF CAPITAL AND RESERVES. NO SEPARATE AMOUNT BORROWE D FOR MAKING INVESTMENTS THEREFORE, NO DISALLOWANCE COULD BE MADE UNDER SECTION 14A OF THE ACT. IN THE PRESENT CASE, THE ASSESSEE CLAIMED THAT NO BORROWED FUNDS HAVE BEEN U SED IN MAKING INVESTMENTS AND THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPTED DIVIDEND INCOME DURING TH E YEAR, THEREFORE, ASSESSING OFFICER SHOULD HAVE RECORDED S ATISFACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED FOR INVE STMENT TO EARN TAX FREE INCOME. IN THE ABSENCE OF ANY SATISF ACTION RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN THIS REGARD, DISALLOWANCE IS WHOLLY UNJUSTIFIED. I , ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELET E THE ADDITION OF RS. 1,80,083/-. GROUND NO. 02 OF THE A PPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 30 TH JUNE,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH