Sh. Abhinandan Jain, Agra V. Dy.C.I.T., Circle-4(1), Agra

ITA 329/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0563 (ITAT-AGRA)
• Duration Of Justice: 6 year(s) 9 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.329/AGR/2012 ASSESSMENT YEAR: 2008-09 SHRI ABHINANDAN JAIN, VS. DY. COMMISSIONER OF I NCOME TAX, D-23, KAMLA NAGAR, AGRA. CIRCLE-4(1), AGRA. (PAN: ADUPJ 2691 P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPENDRA MOHAN, C.A. RESPONDENT BY : SHRI K.K. MISHRA, JR. D.R. DATE OF HEARING : 13.12.2012 DATE OF PRONOUNCEMENT OF ORDER : 04.01.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 01.03.2012 PASSED BY THE LD. CIT(A)-II, AGRA FOR THE ASSESSMEN T YEAR 2008-09. 2. THE EFFECTIVE GROUND RAISED BY THE ASSESSEE IN T HE APPEAL PERTAINS TO ADDITION OF RS.1,96,834/- UNDER SECTION 14A OF THE INCOME TA X ACT, 1961 (THE ACT HEREINAFTER) READ WITH RULE 8D OF THE INCOME TAX RU LES, 1962. ITA NO.329/AGR/2012 A.Y. 2008-09 2 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAS INVESTED RS.25,6 3,936/- IN VARIOUS SHARES TO EARN EXEMPT INCOME. HOWEVER, THE ASSESSEE DID NOT DEBIT ANY EXPENSES ON ACCOUNT OF EARNING OF EXEMPT INCOME. THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSION AND CALCULATED THE AMOUNT OF DISALLOWANCE BY INVOKING S ECTION 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES AND MADE ADDITION OF RS.1,96,834/-. 4. THE CIT(A) CONFIRMED THE ORDER OF A.O. OBSERVING THAT THE CLOSING BALANCE AND LOAN AS ON 31.01.2007 WAS RS.97,39,760/-. THE CIT(A) DID NOT ACCEPT THE ASSESSEES CONTENTION THAT THE INVESTMENT IN SHARES WERE MADE OUT OF OWN CAPITAL. 5. THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN CAPITAL OF RS.44,77,265/- AS ON 31.03.2008. THE IN VESTMENT IN SHARES OF RS.24,24,500/- WAS MADE OUT OF OWN CAPITAL. THE TO TAL INVESTMENT IN SHARES WAS RS.25,63,936/- WHICH INCLUDES INVESTMENT IN INTERES T BEARING SECURITIES OF RS.1,63,650/-. THE LD. AUTHORISED REPRESENTATIVE S UBMITTED THAT THE ASSESSEE MAINTAINED SEPARATE SET OF BOOKS OF ACCOUNT FOR PRO PRIETARY AS WELL AS PERSONAL BUSINESS, COPIES OF WHICH HAVE BEEN PLACED AT PAGE NOS.1 & 5 OF PAPER BOOK. ON THE BASIS OF BALANCE SHEET, THE LD. AUTHORISED REPR ESENTATIVE DEMONSTRATED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN CAPITAL AS STATE D ABOVE. THE LD. AUTHORISED REPRESENTATIVE RELIED UPON VARIOUS DECISION INCLUDI NG DECISION OF I.T.A.T. AGRA ITA NO.329/AGR/2012 A.Y. 2008-09 3 BENCH IN THE CASE OF M/S. LALA RAM FINANCE & INVEST MENT CO. (P) LTD. VS. DCIT, ITA NO.260 & 261/AGR/2011, ORDER DATED 08.06.2012, PEE CEE SOAP & CHEMICALS (P) LTD. VS. ACIT, ITA NO.236/AGR/2011, ORDER DATED 20.04.2012 AND BHOLE BABA MILK FOOD INDUSTRIES LIMITED VS. DCIT, ITA NOS.42 & 58/AGR/2012, ORDER DATED 20.07.2012. 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, RELIED UPON THE ORDER OF CIT(A). 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. ON PERUSAL OF VARIOUS ORDERS CITED BY THE LD. AUTHO RISED REPRESENTATIVE, WE FIND THAT IN THOSE DECISIONS IT HAS BEEN HELD THAT IF TH E ASSESSEE WAS HAVING SUFFICIENT OWN INTEREST FREE FUND TO COVER UP THE INVESTMENT M ADE IN SHARES, NO DISALLOWANCE UNDER SECTION 14A IS WARRANTED. THE RELEVANT FINDI NG OF THE I.T.A.T., AGRA BENCH IN THE CASE OF M/S. LALA RAM FINANCE & INVESTMENT CO. (P) LTD. VS. DCIT (SUPRA) IS REPRODUCED AS UNDER :- (PAGE NOS.27 & 28 OF P.B. ) 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE FIND THAT THE CASE OF ASSESSIN G OFFICER IS DISALLOWANCE OF INTEREST. THE INTEREST EXPENSES IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. SUCH DISALLOWANCE C ANNOT BE MADE IN CASE WHERE THE ASSESSEE IS HAVING SUFFICIENT INTERE ST FREE FUNDS AS HELD BY THE I.T.A.T., AGRA BENCH IN THE CASE CITED ABOVE . THIS VIEW IS ALSO FORTIFIED BY THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN THE ITA NO.329/AGR/2012 A.Y. 2008-09 4 CASE OF CIT VS. RELIANCE UTILITY AND POER LIMITED, 313 ITR 340 (BOMBAY). IN THE CASE UNDER CONSIDERATION IT IS AD MITTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO COVER THE INVESTMENT MADE IN SHARES OF WHICH INCOME IS EXEMPT UNDER SECTION 10 OF THE ACT. IN CASE OF CIT VS. HERO CYCLES LIMI TED, 323 ITR 518 (P&H) WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UN DER SECTION 14A IS NOT PERMISSIBLE WHERE NO NEXUS BETWEEN THE EXPEN DITURE INCURRED AND INCOME GENERATED HAS BEEN ESTABLISHED. HONBL E HIGH COURT OF BOMBAY IN THE CASE OF INCOME TAX APPEAL NO.1260 OF 2009 IN CASE OF CIT VS. K. RAHEJA CORPORATION P. LTD. JUDGEMENT DAT ED 08.08.2011 WHILE CONFIRMING THE ORDER OF I.T.A.T. HELD THAT IF THE INVESTMENT IS MADE OUT OF THE ASSESSEES OWN INTEREST FREE FUNDS, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. SECTION 14A IS NOT A CHARGING SECTION BUT ONLY DISALLOWANCE OF EXPENDITU RE FOR A FAIR ASCERTAINING OF ALLOWING COMMON EXPENSES BETWEEN TA XABLE AND NON- TAXABLE INCOME. RULE 8D CAN BE APPLICABLE ONLY WHE RE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL WARRANT FOR EXPENSE S OUT OF SUCH BORROWED CAPITAL WITH THE AMOUNT RELATING TO INVEST MENT IN SHARES AND SEARCH AND NOT ASCERTAINABLE. IN THE LIGHT OF THE ABOVE JUDGEMENT OF BOMBAY HIGH COURT AND OTHERS (SUPRA), THE DISALLOWA NCE OF INTEREST IS NOT WARRANTED UNDER THE CIRCUMSTANCES. THEREFORE, THERE IS NO QUESTION OF INVOKING RULE 8D OF THE RULES. IN THE L IGHT OF THE ABOVE DISCUSSIONS AND AFTER CONSIDERING THE ADMITTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN INTEREST FREE FUND TO COV ER THE INVESTMENT MADE IN SHARES, WE, THEREFORE, ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. WE, THER EFORE, DELETE THE ADDITIONS OF RS.15,00,000/- MADE BY THE ASSESSING O FFICER AND SUSTAINED BY THE CIT(A) FOR EACH ASSESSMENT YEAR I. E. 2007-08 & 2006-07. 8. IN THE LIGHT OF ABOVE ORDER OF I.T.A.T., AGRA BE NCH, IF WE CONSIDER THE FACTS OF THE CASE, WE FIND ON THE BASIS OF SUBMISSIONS MA DE BEFORE US AND BEFORE THE CIT(A) THAT THE ASSESSEE WAS HAVING OWN CAPITAL OF RS.44,77,265/- WHICH COVERS THE INVESTMENT IN SHARES OF RS.25,63,936/-. HOWEVE R, AT THE TIME OF HEARING, THE LD. AUTHORISED REPRESENTATIVE TRIED TO DEMONSTRATE THAT THE ASSESSEE WAS HAVING ITA NO.329/AGR/2012 A.Y. 2008-09 5 SUFFICIENT OWN CAPITAL OF RS.44,77,265/-. THE ABOV E CONTENTION OF THE ASSESSEE IS SUBJECT TO VERIFICATION AS NEITHER THE A.O. NOR THE CIT(A) HAS GIVEN THEIR FINDING AFTER VERIFICATION THAT THE ASSESSEE WAS HAVING OWN CAPITAL OF RS.44,77,265/-. THE PROPRIETARY BUSINESS AND PERSONAL BALANCE SHEET POI NTED OUT AT THE TIME OF HEARING ALSO REQUIRE VERIFICATION THAT WHETHER THE INVESTME NT IN SHARES WERE MADE OUT OF OWN CAPITAL. IN THE LIGHT OF THE FACT, WE ARE SEND ING BACK THE MATTER FOR A LIMITED PURPOSE TO THE FILE OF A.O. WITH THE DIRECTION TO V ERIFY THAT WHETHER ASSESSEE WAS HAVING OWN CAPITAL OF RS.44,77,265/- AND THE INVEST MENT IN SHARES WERE MADE OUT OF THE CAPITAL AS PER DISCUSSIONS MADE IN THE ORDER MENTIONED ABOVE OF I.T.A.T., AGRA BENCH.. IF THE A.O. FINDS THAT THE ASSESSEE W AS HAVING SUFFICIENT OWN CAPITAL TO COVER UP THE INVESTMENT IN SHARES, NO DISALLOWAN CE IS WARRANTED. THE A.O. SHALL DECIDE THE ISSUE AFTER PROVIDING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSE, AS INDICATED ABOVE. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* ITA NO.329/AGR/2012 A.Y. 2008-09 6 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY