Sheetal V Bhat Legal Heir of Late Suresh Bapalal Mehta, CHENNAI V. ACIT, CHENNAI

ITA 3336/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4862 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 01-02-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 09-12-2016
• Court: TRIBUNAL
• Department Lawyers: R DURAI
• Assessee Lawyers: D ANAND
• Keywords: Commercial expediency
• Section: 143(3); 142(1); 14A; 12A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 3 33 6 /MDS/2016 / ASSESSMENT YEAR :20 1 3 - 1 4 MRS. SHEETAL V. BHAT, L/H OF SURESH BAPALAL MEHTA, 37 (OLD NO. 24), CATHEDRAL ROAD, GOPALAPURAM , CHENNAI 600 0 3 4. [PAN: A A DPM1835C ] VS. THE ASSISTANT COMMISS IONER OF INCOME TAX, NON CORPORATE WARD 3, CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI D. ANAND, ADVOCATE / RESPONDENT BY : SHRI R. DURAI PANDIAN , J CIT / DATE OF HEARING : 0 1 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 19 . 0 4 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 4 , C HENNAI DATED 15 . 0 9 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 1 3 - 1 4 . THE EFFECTIVE GROUND S RAISED IN THE APPEAL OF THE ASSESSEE ARE THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE MADE UNDER SECTION 1 4 A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] R.W. RULE 8D OF IT RULES AND THE ASSESSEE HAS NOT DISCHARGED THE I.T.A. NO . 3 336 /M/ 1 6 2 BURDEN CAST UPON HIM TO PROVE THAT NO PART OF THE BORROWINGS MADE HAS BEEN USED FOR INVESTMENTS IN TAX FREE INVESTMENT . 2. BRIEF FACTS OF THE CASE ARE THAT THE DECEASED ASSESSE E HAS FILED THE RETURN OF INCOME ON 17 . 1 0.201 3 ADMITTING TOTAL INCOME OF . 7,12,42,440 / - . THE RETURN FILED BY THE ASSESSEE WAS INITIALLY PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UN DER SECTION 143(2) OF THE ACT WAS ISSUED ON 02 .0 9 .201 4 . SUBSEQUENTLY , NOTICE UNDER SECTION 142(1) OF THE ACT WAS ISSUED ON 1 2.0 5.2015 . IN RESPONSE THERETO, THE ASSESSEE S AR FURNISHED ALL DETAILS. AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE AND C ONSIDERING THE CASE OF THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ASSESSING TOTAL INCOME OF THE ASSESSEE AT . 7,21,10,555 / - BY MAKING DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D . 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PRIMARY REASON FOR THE DISALLOWANCE WAS DUE TO FACT THAT THE ASSESSING OFFICER FELT THAT WAS OP PORTUNITY COST WHICH RESULTED IN INVOKING THE PROVISIONS OF SECTION 12A R.W. I.T.A. NO . 3 336 /M/ 1 6 3 RULE 8D(2)(I) AND NOT ON THE MERITS OF THE CASE. ONCE THE ASSESSING OFFICER HAS ACCEPTED THAT THE ENTIRE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT RELATES ONLY TO THE BUSINESS O F THE ASSESSEE, THE ASSESSING OFFICER CANNOT TAKE A DIFFERENT STAND. UNTIL AND UNLESS, THE INTEREST BEARING FUNDS ARE UTILIZED FOR INVESTMENT PURPOSES, THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE DISALLOWED. WITHOUT RECORDING SATISFACTION T HAT THE ASSESSEE HAS UTILIZED INTEREST BEARING ADVANCES FOR INVESTMENT PURPOSES, THE ASSESSING OFFICER CANNOT DISALLOW THE SAME AND PRAYED THAT THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D(2)(I) SHOULD BE DELETED. 5. ON THE OTHER HAND, THE LD. D R SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON VERIFICATION OF THE BOOKS OF ACCOUNTS OF THE INDIVIDUAL, THERE WAS NO DEBIT OF EXPEN DITURE AND ALSO PAYMENT TOWARDS INTEREST IN THE PROFIT AND LOSS ACCOUNT. ON EXAMINATION OF THE PROPRIETARY CONCERN M/S. BAPALAL & CO. JEWELLERS, THE ASSESSING OFFICER HAS NOTICED THAT THE ENTIRE EXPENDITURE OF .1.24 CRORES RELATES TO THE JEWELLERY BUSINESS UNDERTAKEN BY THE ASSESSEE AND NO PORTION OF IT COULD BE PRESUMED TO REMAIN ATTRIBUTABLE TO THE TAX FREE INVESTMENTS. THEREFORE, THE ASSESSING OFFICER HELD THAT IN COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE VALUE AS PER RULE 8D(2)(III) CANNOT BE APPLIED SINCE NO PART OF I.T.A. NO . 3 336 /M/ 1 6 4 THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT CAN BE TERMED AS MANAGERIAL OR ADMINISTRATIVE EXPENDITURE. HOWEVER, FROM THE BALANCE SHEET, THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAS AVAILED UNSECURED LOANS OF .3,33,14,176/ - FOR WHICH AN INTEREST EXPENDITURE OF .8,68,115/ - WAS INCURRED AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. IF THE ASSESSEE HAD DIVERTED THE FUNDS MADE IN TAX FREE INVESTMENTS TO REPAY THE UNSECURED LOAN, THERE WOULD NOT BE ANY NECESSITY TO PAY INTEREST. THIS OPPORTUNITY COST RESULTS IN INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2)(I). SINCE, IF THE DIVERSION OF FUNDS TOWARDS MUTUAL FUND INVESTMENTS WERE AVOIDED, THE ASSESSEE WOULD NOT HAVE INCURRED INTEREST EXPENDITURE . THEREFORE, T HE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST COST UNDER SECTION 14A OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE, WHICH WAS CONFIRMED BY THE LD. CIT(A). WHILE CONFIRMING THE ASSESSMENT, THE LD. CIT(A) HAS HELD THAT ONUS CAST UPON THE ASS ESSEE TO PROVE THAT NO PART OF THE BORROWINGS WERE UTILIZED FOR INVESTMENT PURPOSES. THE ASSESSING OFFICER HAS EXAMINED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS WELL AS ASSESSEE S FIRM. ON EXAMINATION OF THE ASSESSEE S PROPRIETARY CONCERN M/S. BAPALAL & CO . JEWELLERS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ENTIRE EXPENDITURE RELATES TO THE JEWELLERY BUSINESS UNDERTAKEN BY THE ASSESSEE AND NO PORTION OF IT COULD BE PRESUMED TO REMAIN ATTRIBUTABLE TO THE TAX FREE INVESTMENTS. ONCE THE ASSESSING OFFICER H AS NOT DISPUTED THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR INVESTMENT PURPOSES, THE LD. CIT(A) CANNOT HELD THAT I.T.A. NO . 3 336 /M/ 1 6 5 ONUS CAST UPON THE ASSESSEE TO PROVE THAT NO PART OF THE BORROWINGS WERE UTILIZED FOR INVESTMENT PURPOSES. 6.1 IN THIS CASE, THE ASSESSE E HAS MADE VARIOUS INVESTMENTS OUT OF HIS OWN FUNDS AND INTEREST FREE FUNDS AND MOREOVER, THE ASSESSEE HAS NOT UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS AND THE ASSESSING OFFICER ALSO NOT DISPUTED THESE FACTS. IF THE ASSESSEE UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS, THE N THE ASSESSING OFFICER CAN VERY WELL DISALLOW THE INTEREST EXPENDITURE INCURRED ON THE BORROWED FUNDS. BUT, THE CASE OF THE DEPARTMENT WA S THAT WHEN THE ASSESSEE HAS UNSECURED LOANS AND UT ILIZED THE SAME FOR HIS BUSINESS PURPOSES AND INTEREST EXPENDITURE INCURRED SHOULD HAVE BEEN AVOIDED IF THE ASSESSEE HAS NOT MADE ANY INVESTMENT OUT OF HIS OWN FUNDS. THE ASSESSING OFFICER IS NOT EMPOWERED TO DICTATE THE ASSESSEE AS TO HOW HE SHOULD RUN HI S BUSINESS. WE ARE OF THE CONSIDERED OPINION THAT THE COMMERCIAL EXPEDIENCY MUST BE DECIDED FROM BUSINESS MAN'S POINT OF VIEW. IN THE CASE OF CIT VS. SALES MAGNESITE PVT. LTD.[1995] 214 ITR PAGE 1 (BOMBAY), HON'BLE BOMBAY HIGH COURT HELD AS UNDER : - 'THE QUESTION WHETHER IT WAS NECESSARY COMMERCIALLY EXPEDIENT OR NOT IS A QUESTION THAT HAS TO BE DECIDED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT BY THE SUBJECTIVE STANDARD OF REASONABLENESS OF THE REVENUE.' 6.2 FURTHER, IN THE CASE OF CIT V . TIN BO X COMPANY (2003) 260 ITR 637 (DEL.) , THE HON'BLE DELHI HIGH COURT HAS HELD THAT WHEN THE ASSESSEE HAD SUFFICIENT FUNDS AND NON - INTEREST FUNDS WERE ADVANCED TO SISTER CONCERN, NO I.T.A. NO . 3 336 /M/ 1 6 6 DISALLOWANCE WAS JUSTIFIED. MOREOVER, B Y RELYING ON THE DECISION OF HON'BLE AP EX COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V . CIT (1997) 224 ITR 624 (SC) , IN THE CASE OF CIT V . RELIANCE UTILITIES AND POWER LTD. (2009 ) 313 ITR 340 (BOM.) THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT WHEN S UFFICIENT NON - INTEREST FUNDS W ERE AVAILABLE FOR INVESTMENT , THEN NO DISALLOWANCE OF INTEREST SHOULD BE MADE. 6.3 ADMITTEDLY, THE ASSESSEE HAS OWN AND INTEREST FREE FUNDS FOR MAKING INVESTMENTS AND THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FO R INVESTMENTS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE DECISIONS, THE ADDITION MADE ON ACCOUNT OF INTEREST EXPENDITURE STANDS DELETED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 19 TH A PRIL, 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 19 . 0 4 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / C IT(A) , 4. / CIT , 5. / DR & 6. / GF.