S.Muthurajan, Salem V. DCIT, Salem

ITA 3442/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5934 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 22-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVANJCIT
• Assessee Lawyers: G BASKAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 3442/MDS/2016 / ASSESSMENT YEAR : 2012-13 S. MUTHURAJAN, 4/36, BHARATHI STREET, SWARNAPURI, SALEM 636 007. [PAN: ADEPM5569P] VS. DY. COMMISSIONER OF INCOME TAX CIRCLE -1, 3, GANDHI ROAD, SALEM 636 007. ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. G. BASKAR, ADVOCATE )*%& / RESPONDENT BY : SHRI. N. MADHAVAN, JCIT & /DATE OF HEARING : 14.08.2017 & /DATE OF PRONOUNCEMENT : 24.10.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM, IN ITA NO. 304/2014-1 5 DATED 28.11.2016. 2. IN THE ASSESSMENT MADE FOR THE ASSESSMENT YEAR 2 012-13, THE ASSESSING OFFICER FOUND, INTER ALIA, THAT THE ASSES SEE IS HAVING AN INVESTMENT OF RS. 4,82,43,319/- AS ON 01.04.2011 WHICH INCREA SED TO RS. 4,92,22,319/- :-2-: ITA NO. 3442/MDS/2016 AS ON 31.03.2012. THE ASSESSEE IS ALSO HAVING HUGE LOAN LIABILITY AS ON 01.04.2011 ON WHICH INTEREST HAS BEEN CHARGED/PAID AT RS. 1,01,92,948/-. HENCE, HE REQUIRED THE ASSESSEE TO CATEGORICALLY ES TABLISH THE FACT THAT NO INTEREST BEARING FUNDS WAS UTILISED TO MAKE THE INV ESTMENTS OF RS. 4,92,22,319/-. SINCE, THE ASSESSEE COULD NOT ESTAB LISH THAT THE INTEREST BEARING FUNDS WERE NOT UTILISED TO ACQUIRE THE INVE STMENTS, BASED ON THE CBDT CIRCULAR NO. 5/14 DATED 11.02.2014 AND ON THE INTERPRETATION OF SECTION 14A R.W.R. 8D, THE ASSESSING OFFICER DISALLOWED PRO PORTIONATE INTEREST AT RS. 35,46,865/- COMPRISING RS. 33,03,201/- UNDER RULE 8 D(II) & RS. 2,43,664/- UNDER THE RULE 8D(III). ON AN APPEAL, THE CIT (A) UPHELD THE DISALLOWANCES MADE BY THE AO. AGGRIEVED, THE ASSESSEE FILED TH IS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE ASSISTANT COMMISSIONER OF INCOME TAX AND CO MMISSIONER OF INCOME TAX (APPEALS) ARE NOT JUSTIFIED IN HOLDIN G THAT RS. 35,46,865/- IS DISALLOWABLE U/S. 14A IN THE CIRCUMSTANCES OF THE C ASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT WHERE MISSED COMMON POOL OF FUNDS WER E UTILISED FOR MAKING INVESTMENTS OF RS. 4.92 LAKHS IN ASSETS YIELDING EX EMPTION INCOME, IT SHOULD BE INFERRED IN ASSESSEES FAVOUR, THAT NON-INTEREST BEARING FUNDS OF RS. 11,31,18,912/- WERE AVAILABLE TO MAKE SUCH INVESTME NTS (141 DTR 322 @ 328 BANG.) 3. NO EXPENDITURE INCURRED HAD NEXUS NOR WAS ATTRI BUTABLE FOR EARNING EXEMPTED INCOME (288 CTR 378 AT 381 DEL HC, 269 CTR 76 P&H). 4. IT IS NOW WELL SETTLED PRINCIPLE THAT THE DISAL LOWANCE TOWARDS INTEREST IS NOT TENABLE IF THE INVESTMENTS ARE MADE OUT OF OWN FUNDS OR NON- INTEREST BEARING FUNDS AND IT IS NECESSARY TO ESTAB LISH A NEXUS BETWEEN THE INTEREST BEARING FUNDS IN INVESTMENTS MADE. (143 D TR 67 AT 72 KAR HC) :-3-: ITA NO. 3442/MDS/2016 5. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT COR RECT IN IGNORING TO CONSIDER THE ABOVE CITED DECISIONS, WHI CH HAVE INTERPRETED PROVISIONS OF SECTION 14A IN ASSESSEES FAVOUR. 4. THE AR FILED A PAPER BOOK AND SUBMITTED THAT THE ASSESSEE IS PROPRIETOR OF GPP TRANSPORT COMPANY, WHICH IS RUNNING LORRIES & TRAILORS FOR HIRE, GTP MARBLES AND GRANITES WHICH IS IN TRADING IN MARBLES AND SHRI S. MUTHURAJAN IS ALSO RUNNING BULK TRAILOR DIVISIONS AND WIND MI LLS DIVISION. FOR EACH OF THIS BUSINESS, HE IS HAVING A SEPARATE PROFIT AND L OSS ACCOUNT AND THE BALANCE SHEET APART FROM HAVING A CONSOLIDATED PROFIT AND L OSS ACCOUNT AND CONSOLIDATED BALANCE SHEET. INVITING OUR ATTENTION TO EACH OF THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEETS, THE AR SUBMITT ED THAT THE INTEREST ON THE SPECIFIC LOANS , IF ANY , OBTAINED AGAINST ANY BUSINESS ASSET IS CLAIMED AGAINST THE SPECIFIC SOURCE OF THE BUSINESS AND HEN CE SUCH INTEREST CLAIM IS NOT MADE FOR ANY OF THE IMPUGNED INVESTMENTS . THE AR SUBMITTED THAT THE ASSESSEE HAS TAKEN A LOAN; OF RS. 1.5 CRORES AND RS. 2.5 CRORES, BOTH AT THE RATE OF 11.75% INTEREST, FROM HDFC ON 30.12.2010, AND RS. 3 CRORES LOAN AT THE RATE OF 11.5% PER ANNUM FROM ICICI BANK AS ON 3 1.12.2010 TOWARDS WHICH HE CLAIMED INTEREST OF RS. 80,10,028/- IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT. THESE LOANS HAVE BEEN USED FOR ACQ UISITION OF LAND ETC. INVITING OUR ATTENTION TO THE BREAKUP OF THE INVEST MENTS IN SHARES, IN PAGE 16 OF THE PAPER BOOK, THE AR SUBMITTED THAT THE INVEST MENT AS ON 31.03.1992 WAS RS. 37,68,784/- AND THE INVESTMENT AS ON 31.03. 1993 WAS RS. :-4-: ITA NO. 3442/MDS/2016 2,67,08,784/-. THEREAFTER , THERE WERE ADDITIONS A ND DELETIONS IN THE INVESTMENTS IN VARIOUS YEARS AND THE INVESTMENTS A S ON 31.03.2012 IS AT 4,82,43,319/-, THE ADDITION TO THE INVESTMENT DURIN G THE YEAR WAS RS. 13,79,000/-, WHILE THE DELETION WAS RS. 4,00,000/ - RESULTING IN THE CLOSING BALANCE OF INVESTMENT AS ON 31.03.2013 AT RS. 4,92 ,22,319/-. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY IN TEREST ON THE IMPUGNED INVESTMENTS. THEREAFTER, HE ARGUED ON THE LINES OF THE GROUNDS OF THE APPEALS AND REQUESTED TO DELETE THE ADDITION. PE R CONTRA, THE DR SUPPORTED THE ORDERS OF THE AO AND THE CIT(A). 6. WE HEARD THE RIVAL CONTENTIONS, GONE THROUGH TH E ORDERS AND THE PAPER BOOK. IT IS SEEN FROM THE INDIVIDUAL PROFIT A ND LOSS ACCOUNT THAT THE INTEREST RELATED TO THE RESPECTIVE SOURCES ARE DEDU CTED. IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT, APART FROM THE INCOME AN D LOSS FROM VARIOUS BUSINESS SOURCES, THE ASSESSEE HAS ADMITTED RS. 48,07,257 /- UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH COMPRISES RS. 70,603/- DIVIDEND INCOME, WHICH IS ONLY CLAIMED AS EXEMPT INCOME. IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS CLAIMED RS. 80,10,028/- TOWARDS INTEREST ON MORTGAGE LOAN, RS. 20,000/- TOWARDS PRO FESSIONAL FEES AND RS. 27,000/- TOWARDS CHIT LOSS. THUS, IF AT ALL DISALLO WANCES, IF ANY, HAS TO BE MADE U/S 14A , IT COULD BE MADE ONLY FROM THE EXPE NDITURE CLAIMED IN THE CONSOLIDATED PROFIT AND LOSS ACCOUNT ONLY AS THE IM PUGNED INVESTMENTS MADE :-5-: ITA NO. 3442/MDS/2016 IN THE CURRENT YEAR HAS GONE FROM THE FUNDS ACCOUNT ED FOR IN THE CONSOLIDATED BALANCE SHEET THAT TOO AFTER DUE EXAMINATION. IT I S ALSO NOT KNOWN AS TO WHETHER THE INVESTMENTS MADE IN THE EARLIER YEARS SUFFERED INTEREST OR NOT. IT APPEARS FROM THE ASSESSMENT ORDER AND THE ORDER O F THE CIT (A) THAT THESE ASPECTS WERE NOT EXAMINED BY THEM DULY AND HENCE, WE DEEM IT FIT THAT IN THIS CASE THE RELEVANT FACTS REQUIRE RE-EXAMINATIO N. IN VIEW OF THAT WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTE TO THE ASSESSING OFFICER FOR RE-EXAMINATION AND TO DECIDE THE ISSUES , AFRES H, BY A SPEAKING ORDER AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 24 TH OCTOBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( . ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 24 TH OCTOBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF