Govind Prasad Chandak, Hyd, Hyderabad V. ITO, Ward-6(4), Hyd, Hyderabad

ITA 349/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6046 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 349/HYD/2016 ASSESSMENT YEAR: 2008-09 GOVIND PRASAD CHANDAK, HYDERABAD. PAN ABFPC 6739 E VS. INCOME-TAX OFFICER, WARD 6(4), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI K.J. RAO DATE OF HEARING : 23-02-2017 DATE OF PRONOUNCEMENT : 24-03-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 6, HYDE RABAD, DATED 21/12/2015 FOR AY 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT A SSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM GIRVI AND FERTILIZERS BUSINESS , HOUSE PROPERTY AND CAPITAL GAIN. THE ASSESSEE MAINLY DEALS IN RETA IL TRADE OF FERTILIZERS AND ALSO CARRIED ON GIRVI BUSINESS. FOR THE AY 2008-09, HE FILED THE RETURN OF INCOME ON 30/09/2008 ADMITTING AN INCOME OF RS. 39,71,480/-. THE CASE WAS CONVERTED TO SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED ON 17/08/2009 AND NOTICE U/S 142(1) WAS ALSO ISSUED ON 04/08/2010. IN RESPONSE TO THE SAID NOTICES, THE AS SESSEE FURNISHED ALL THE NECESSARY DETAILS. THE AO COMPLETED THE ASS ESSMENT U/S 143(3) DETERMINING THE TOTAL INCOME AT RS. 43,26,41 6/- BY MAKING THE FOLLOWING ADDITIONS: 2 ITA NO. 349/H/16 GOVIND PRASAD CHANDAK, HYD. 1. ADDITION OF RS. 2,08,250/- BEING INTEREST PAID T O DEBTORS FOR NON-DEDUCTION OF TDS BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 2. ADDITION OF RS. 1,46,686/- U/S 14A OF THE ACT. 3. ON APPEAL BEFORE THE CIT(A), THE CIT(A) DELETED THE ADDITION MADE U/S 40(A)(IA) OF THE ACT AND SUSTAINED THE ADD ITION MADE U/S 14A OF THE ACT. THEREFORE, THE ASSESSEE IS IN APPE AL BEFORE US AGAINST THE ADDITION MADE U/S 14A OF THE ACT BY THE REVENUE AUTHORITIES. 4. BRIEFLY THE FACTS RELATING TO THE GROUND U/S 14 A ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO OBSERVE D THAT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAINS ON SALE OF SHARES AND DIVIDEND INCOME AMOUNTING TO RS. 23,56,484/- AND RS . 2,85,442/- RESPECTIVELY. HOWEVER, NO EXPENDITURE WAS CLAIMED T OWARDS THE SAME AND THE TOTAL EXPENDITURE INCLUDING INTEREST WAS CL AIMED TOWARDS TAXABLE INCOMES. THE AO WAS OF THE VIEW THAT THERE IS POSSIBILITY OF SOME OF THE INTEREST AND OTHER EXPENDITURES BEING INCURRED FOR EARNING OF THE EXEMPT INCOMES. HE, THEREFORE, COMPU TED THE DISALLOWANCE OF INTEREST EXPENDITURE INVOKING THE P ROVISIONS OF SECTION 14A RWS RULE 8D, WHICH IS RS. 1,46,686/-. 5. ON APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED TH AT THE INCOME FROM SHARE TRANSACTIONS HAD BEEN ADMITTED AS BUSINE SS INCOME AND THEREFORE THE SAME SHOULD NOT BE CONSIDERED AS TAX FREE INCOME. SEPARATE ACCOUNTS HAD BEEN DRAWN AND THE PROFIT & L OSS FOR EACH ACTIVITY WAS ARRIVED AT SEPARATELY, THEREFORE, THE AO WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 14A OF THE AC T. 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 04.2 THE SUBMISSION OF THE APPELLANT AND THE FACTS OF THE CASE HAVE BEEN CAREFULLY CONSIDERED. THE APPELLANT HAS S HOWN A TOTAL INVESTMENT OF RS.1,63,60,027/- IN SHARES AND HAS SH OWN LONG 3 ITA NO. 349/H/16 GOVIND PRASAD CHANDAK, HYD. TERM CAPITAL GAINS OF RS.23,56,484/- AND DIVIDEND I NCOME OF RS.2,85,422/- WHICH ARE EXEMPT FROM TAX. HE HAS SHO WN AN AMOUNT OF RS. 1,80,605/- ON ACCOUNT OF INTEREST PA YMENT AND HAS CLAIMED CERTAIN OTHER EXPENDITURES. THE ASSESSE E'S SUBMISSIONS THAT THE PROFIT ON SALE OF SHARES WAS S HOWN AS BUSINESS INCOME IS NOT EVIDENCED BY HIS COMPUTATION OF INCOME, WHERE THE PROFITS ON SALE OF SHARES HAVE BEEN SHOWN UNDER THE HEAD 'INCOME FROM CAPITAL GAINS' ONLY. THE FACT IS THAT THE DIVIDEND INCOME, INCOME FROM SALE OF SHARES CONSTI TUTE EXEMPT INCOME AND AS PER SEC 14A OF THE I.T. ACT, ANY EXPE NDITURE INCURRED IN RELATION TO SUCH INCOME WOULD NOT BE AL LOWABLE AS DEDUCTION. THEREFORE, WHETHER BORROWED FUNDS WERE U SED FOR MAKING SUCH INVESTMENTS IS TO BE SEEN. THE BALANCE SHEET OF THE APPELLANT SHOWS THAT HE HAD INTEREST BEARING FUNDS AND AS THE FUNDS ARE MIXED UP, IT CANNOT BE CATEGORICALLY STAT ED THAT INTEREST-FREE FUNDS WERE ONLY UTILIZED TOWARDS INVE STMENTS, INCOME FROM WHICH WAS EXEMPT. IT IS NOT THE APPELLA NT'S CASE THAT DURING THE FINANCIAL YEAR UNDER CONSIDERATION, HE H AD NOT EARNED INCOME THAT WAS NOT INCLUDABLE IN THE TOTAL INCOME. A PERUSAL OF HIS PROFIT & LOSS A/C SHOWS THAT THESE INCOMES FORM ED PART OF HIS PROFIT & LOSS A/C AND NOTHING WAS GIVEN TO THE ASSE SSING OFFICER OR BEFORE THE UNDERSIGNED WITH RESPECT TO EXPENDITU RE IN RELATION TO SUCH INCOME. THE ASSESSING OFFICER THEREFORE DET ERMINED THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME IN ACCORDANCE WITH RULE 8D OF THE I.T. RULES. IN VIEW OF IT, THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE PRO VISIONS OF SEC 14A IS UPHELD TO BE CORRECT AND THE ADDITION IS CON FIRMED. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. IT IS NOTICED THAT ASSESSEE HAS EXEMPT I NCOME OF DIVIDEND TO THE EXTENT OF RS. 2,85,422/- AND THE ASSESSEE H AS INCURRED INTEREST EXPENDITURE OF RS. 1,80,605/-. ON CAREFUL ANALYSIS OF THE BALANCE SHEET, WE FIND THAT THE ASSESSEE HAS LOANS AND ADVANCES OF RS. 10,80,288/-, THE DETAILS OF OUTSTANDING LOANS A RE GIVEN IN SCHEDULE NO. 1, AS PER WHICH, RS. 1,18,000/- RELATE S TO THE SHARE BUSINESS AND OTHERS LOANS, THE PURPOSE IS NOT CLEAR , WHICH ALSO INCLUDES CAR LOAN. IT IS NOT CLEAR FROM THE BOOKS O F THE ASSESSEE THAT WHAT PORTION OF INTEREST PERTAINS TO THE SHARE BUSI NESS. IN THE ABSENCE OF SUCH DETAILS AND FOR THE SAKE OF JUSTICE, WE REM IT THIS ISSUE TO THE FILE OF THE AO TO DETERMINE THE PROPER INTEREST WHI CH IS RELATING TO THE SHARE BUSINESS AND DETERMINE THE DISALLOWANCE AS PE R RULE 8D(II) . WITH REGARD TO RULE 8D(III), THE AO HAS TO CALCULAT E THE DISALLOWANCE 4 ITA NO. 349/H/16 GOVIND PRASAD CHANDAK, HYD. FOR ADMINISTRATION CHARGES OF 0.5% ON THE VALUE OF INVESTMENT WHICH HAD ACTUALLY EARNED EXEMPT INCOME. THE AO CANNOT AD OPT THE TOTAL VALUE OF INVESTMENT TO CALCULATE THE DISALLOWANCE. ACCORDINGLY, WE DIRECT THE AO TO DETERMINE THE 14A DISALLOWANCE AS PER THE ABOVE DIRECTION. ASSESSEE IS DIRECTED TO SUBMIT THE RELEV ANT INFORMATION TO AO TO DETERMINE THE DISALLOWANCE AS PER RULE 8D. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 24 TH MARCH, 2017. KV COPY TO:- 1) SHRI GOVIND PRASAD CHANDAK, C/O SRI S. RAMA RAO, ADVOCATE FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029 2) ITO, CIRCLE 6(4), INCOME-TAX TOWERS, AC GUA RDS, HYD. 3) CIT(A) - 6, HYDERABAD 4 PR. CIT 6, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE