Shri Kishore Kumar Tayal, Indore V. THE DCIT 5(1), Indore

ITA 351/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5694 (ITAT-INDORE)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: GIRISH AGRAWAL
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest; Question of law; Cost of acquisition; Tangible material
• Section: 14A

Judgement Text

KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, INDORE BEFORE SHRI D.T. GARASIA, HON'BLE JUDICIAL MEMBER ITA NO. 351/IND/2016 A.Y.2011-12 KISHORE KUMAR TAYAL INDORE PAN AATPT 3580H ::: APPELLANT VS DY. COMMR. OF INCOME TAX INDORE ::: RESPONDENT APPELLANT BY SHRI GIRISH AGRAWAL RESPONDENT BY SHRI MOHD. JAVED DATE OF HEARING 30.7.2016 DATE OF PRONOUNCEMENT 2 5 .7.2016 O R D E R THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A)-22, NEW DELHI, HOLDING CONCURRENT JURISDICTION OVER CIT(A), INDORE-2, DATE D 16.2.2016. KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 2 2. GROUND NO. 1 OF THE ASSESSEES APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTEREST AND EXPENSES U/S 14A OF THE A CT. 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN PROPRIETARY BUSINESS OF GINNING AND PRESSIN G HAVING HIS FACTORY SITUATED AT DIST. BEED, MAHARASHTRA, IN THE NAME AND STYLE OF KUNAL COTTON INDUSTRIES. THE ASSESSEE IS ALSO A PARTNER WITH A SHARE OF 11.25% PROFIT IN THE FIRM M/S. SHRI KEDARESHWAR KHANDSARI UDYOG SITUATED AT DIST. SURAT, GUJARAT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FROM THE PERUSAL OF BALANCE SHEET IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME U/S 10(2A) OF RS.4,68,538/-. THE ASSESSING OFFICER, THEREFORE, ASK ED THE ASSESSEE TO GIVE DETAILS OF THE EXPENDITURE AND TO EXP LAIN AS TO WHY DISALLOWANCE U/S 14A R.W.R. 8D WAS NOT MADE. IN KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 3 REPLY THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF S ECTION 14A ARE NOT APPLICABLE AS NEITHER ANY EXEMPT INCOME HAS BEEN EARNED BY WAY OF DIVIDEND NOR ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND HENCE RULE 8D IS NOT APPLICABLE. THE ASSESSING OFFICER FEELING NOT SATISFI ED WITH THIS EXPLANATION OF THE ASSESSEE COMPUTED THE DISALLOWAN CE AND ACCORDINGLY DISALLOWED RS.4,48,242/- U/S 14A READ WITH RULE 8D. ON APPEAL, THE LEARNED CIT(A) HELD AS UND ER :- 7.5 THE A.O. WILL, THEREFORE, CONSIDER THE ABOVE F IGURE AS THE OPENING AND CLOSING VALUES OF INVESTMENTS, INCOME F ROM WHICH IS EXEMPT FOR COMPUTING DISALLOWANCE U/S 14A. AT THE C OST OF REPETIION, IT IS REITERATED THAT THE INVESTMENTS IN FD, NSC, P PF, LIC AND DEPOSITS WITH MUNICIPAL CORPORATION, INDORE VIKAS P RADHIKARAN, MSEB, SALES TAX DEPARTMENT, ASSISTANT COMMISSIONER PROVIDENT KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 4 FUND, COTTON CORPORATION OF INDIA, ETC. CANNOT BE C ONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 14A. 7.6 THE INVESTMENT IN LAND AND HOUSE HAS ALSO BEEN EXCLUDED AS THE INCOME FROM THE SAME IS NOT EXEMPT, SO SECTION 14A CANNOT BE INVOKED. HOWEVER, INVESTMENT IN LAND AND HOUSE PROP ERTY IS NOT BUSINESS INVESTMENT. SO THE DISALLOWANCE OF THE INT EREST WOULD BE UNDER U/S 36(1)III. THE SAME SHOULD BE CALCULATED O N PRORATA BASIS IN A MANNER SIMILAR TO RULE 8D(2)(II). IT IS CLARIFIED THAT RULE 8D(2)(II) IS NOT BEEN INVOKED. ONLY THE PRORATA COMPUTATION OF D ISALLOWANCE U/S 36(1)III IS BEING DONE IN THAT MANNER. 7.7 THE A.O. SHOULD THEREFORE SUBSTITUTE THE ADDITI ON U/S 14A WITH RECOMPUTED ADDITION U/S 14A AS PER PARA 7.2 & 7.4 A ND ADDITION U/S 36(1)((III) AS PER PARA 7.6. 4. BEING AGGRIEVED WITH THE ABOVE DIRECTION OF THE L EARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE ME THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FINDING OF THE LEARNED CIT(A) ARE KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 5 BASELESS, WITHOUT CONSIDERING THE CORRECT FACTUAL POS ITION ON RECORD, ARBITRARY AND NOT IN COMPLIANCE WITH THE DUE PROCESS OF LAW AS ENVISAGED U/S 251(2) WHERE ENHANCEME NT IS MADE. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREF ORE, SUBMITTED THAT CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE APPLICABLE LAW, DIREC TION GIVEN BY LD. CIT(A) TO THE AO TO MAKE AN ADDITION U/ S 36(1)(III) IN TERMS OF PARA 7.6 DESERVES TO BE SET ASI DE AND THE CLAIM OF THE ASSESSEE BE ALLOWED. THE LEARNED COUNS EL FOR THE ASSESSEE ALSO SUBMITTED WRITTEN SUBMISSIONS AS UNDER :- 1. ASSESSEE IS ENGAGED IN HIS PROPRIETORY BUSINESS OF GINNING AND PRESSING HAVING HIS FACTORY SITUATED AT DIST. BEED, MAHARASH TRA, IN THE NAME AND STYLE OF KUNAL COTTON INDUSTRIES. 2. ASSESSEE IS ALSO A PARTNER WITH A SHARE OF 11.25% P ROFIT IN THE FIRM M/S. SHRI KEDARESHWAR KHANDSARI UDYOG SITUATED AT DIST. SURAT , GUJARAT. 3. AT PARA 4.1 OF THE ASSESSMENT ORDER, LD. AO NOTED DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, FROM THE PERUSAL OF BALANCE SHEET IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME U/S 10(2A) OF RS. 4,68,538/-. KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 6 4. IT WAS SUBMITTED BEFORE THE LD. AO THAT THIS OBSERV ATION THAT THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME U/S 10(2A) OR RS. 4, 68,538/- IS INCORRECT. THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME N OR HAS INCURRED ANY EXPENDITURE FOR EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. [REFER PB 42] 5. THE ABOVE CONTENTION WAS ASSERTED BEFORE LD. CIT(A) ALSO. [REFER PB 45 - 46] 6. THE SATISFACTION WHICH IS MANDATED IN TERMS OF SECT ION 14A(2) MUST BE BASED ON REASONS AND ON RELEVANT CONSIDERATION. IN OTHER WORDS, INVOKING OF RULE 8D IN ORDER TO COMPUTE DISALLOWANCE U/S 14A IS TO B E UNDERSTOOD AS BEING CONDITIONAL ON RECORDING OF AN OBJECTIVE SATISFACTI ON BY THE LD. AO WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASS ESSEE IN RESPECT OF EXPENDITURE IN RELATION TO THE EXEMPT INCOME, HAVIN G REGARD TO THE ACCOUNTS OF THE ASSESSEE. 7. IN PARA 4.5 , LD. AO STATED DURING THE COURSE OF DISCUSSION THE ASSESSEE HAS SHOWN NOMINAL EXPENDITURE FOR EARNING OF EXEMPT ED INCOME. THE SAME IS MERELY A BALD ASSERTION, DEVOID OF ANY OBJECTIVE ANALYSIS OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE, A MANDATORY RE QUIREMENT OF SUB-SECTION (2) OF SECTION 14A. THEREFORE, IN THE ABSENCE OF AD HERENCE TO THE REQUIREMENTS OF SECTION 14A(2), THE LD. AO COULD NO T HAVE PROCEEDED TO INVOKE RULE 8D AND SUBJECT THE IMPUGNED INTEREST EX PENDITURE FOR DISALLOWANCE AS PER CLAUSE(II) AND (III) OF RULE 8D . 8. THE PHRASEOLOGY OF SECTION 14A(2) ITSELF BRINGS OUT THAT THE POWER OF AO TO INVOKE RULE 8D IS SUBJECT TO THE CONDITION THAT THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, I.E., EXEMPT INCOME. IT IS NO LONGER RES INTEGRA THAT INVOKING OF RULE 8D IN ORDE R TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A IS NEITHER AUTOMATIC AND NOR IS DEPENDENT MERELY ON THE EXISTENCE OF AN EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. 9. RULE 8D WOULD APPLY ONLY IF THE LD. AO, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE, WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 7 10. MADE BY THE ASSESSEE. ACCORDING TO THE ASSESSEE, TH ERE WAS NO SUCH RECORDING OF SATISFACTION TO JUSTIFY THE INVOKING O F RULE 8D BY LD. AO. 11. LD. AO WITHOUT EXAMINING THE ACCOUNTS OF THE APPELL ANT STRAIGHTAWAY EMBARKED ON THE COMPUTATION OF DISALLOWANCE U/S 14A RWR 8D IN PARA 4.5 OF THE ORDER. 12. MERELY BECAUSE THE ASSESSEE HAS INCURRED INTEREST E XPENDITURE ON FUNDS BORROWED IN HIS PROPRIETORY BUSINESS, IT WOULD NOT IPSO FACTO INVITE THE DISALLOWANCE U/S 14A, UNLESS THERE IS EVIDENCE TO S HOW THAT SUCH INTEREST BEARING FUNDS HAVE BEEN INVESTED IN THE INVESTMENTS WHICH HAVE GENERATED THE TAX EXEMPT INCOME. THERE IS NO NEXUS ESTABLIS HED BY THE LD. AO IN THIS REGARD AND THEREFORE, ON A MERE PRESUMPTION, THE PR OVISIONS OF SECTION 14A CANNOT BE APPLIED. 13. THE ABOVE CONTENTION ON RECORDING OF SATISFACTION B Y THE LD. AO IS FORTIFIED BY THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES LTD. [2015] 56 TAXMANN.COM 391 (P&H) HEAD NOTE: SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8A OF THE INCOME-TAX RULES, 1962 - - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (INTEREST) - ASSESSING O FFICER DISALLOWED AN AMOUNT UNDER SECTION 14A BY HOLDING THAT INTEREST BEARING FUNDS HAD BEEN USED TO EARN TAX FREE DIVIDEND, ETC. - WHETHER SECTION 14A REQUIRES ASSESSING OFFICER TO RECORD SATISFACTION THAT INTEREST BEARING FUNDS HAV E BEEN USED TO EARN TAX FREE INCOME BASED UPON CREDIBLE AND RELEVANT EVIDENCE - HELD, YES - WHETHER SINCE THERE WAS NO TANGIBLE MATERIAL THAT COULD HAVE ENAB LED ASSESSING OFFICER TO RECORD SATISFACTION IN TERMS OF SECTION 14A, DISALLOWANCE MADE WAS UNJUSTIFIED - HELD, YES [PARA 10][IN FAVOUR OF ASSESSEE] 14. ASSESSEE HAS A CAPITAL BALANCE IN THE PARTNERSHIP F IRM WHICH WAS INITIALLY MADE OUT OF HIS OWN FUNDS. THERE IS NO FRESH INVEST MENT OF CAPITAL IN THE SAID PARTNERSHIP FIRM. THE BALANCE HAS INCREASED BY THE INTERNAL ACCRUALS OF SHARE IN PROFIT OF THE FIRM, INTEREST EARNED ON THE SAID CAPITAL AND PARTNERS REMUNERATION FROM THE FIRM. CAPITAL ACCOUNT OF THE ASSESSEE AS A PARTNER IN THE SAID FIRM FOR THREE YEARS REFLECTS THIS FACT. [REFER PB 5 6 7] 15. INVESTMENT OF CAPITAL IN A PARTNERSHIP FIRM YIELDED FOLLOWING INCOMES TO THE ASSESSEE PARTNER [REFER PB 2] KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 8 A. INTEREST - TAXABLE IN THE HANDS OF A PARTNER RS. 4,22,115 B. REMUNERATION - TAXABLE IN THE HANDS OF A PARTNER RS. 2,81,250 C. SHARE IN PROFIT - EXEMPT IN THE HANDS OF A PARTNER RS. 4,68,538 16. WITHOUT PREJUDICE TO ABOVE, LD. AO MADE COMPUTATION AL ERRORS IN CALCULATING THE IMPUGNED DISALLOWANCE. LD. CIT(A) G AVE HIS FINDINGS TO RECTIFY THE ERRORS. [REFER CIT(A) ORDER PARA 7.2, 7.4 AND 7.5] 17. WITHOUT PREJUDICE AND STRICTLY IN THE ALTERNATE, IT IS SUBMITTED THAT THE INSTANT CASE ON SIMILAR FACTS IS SQUARELY COVERED BY THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT OF MADHYA PRADESH IN THE CASE OF SWASTIK COAL CORPORATION PVT. LTD. [2014] 23 ITJ 59 (MP) DATED 09.12.2013. PARA 6 AND 7 OF THIS ORDER READS AS UNDER 6. THE CIT(A) AND THE TRIBUNAL AFTER CONSIDERING T HE FACTS OF THE CASE FOUND THAT IN THE PRESENT MATTER THERE IS NO EARNING OF A NY DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. THE TRIBUNAL HAS FOUND THAT DURING THE CURRENT YEAR THE ASSESSEE HAS NEITHER EARNED ANY DIVIDEND I NCOME NOR ANY FINDING HAS BEEN RECORDED BY ASSESSING OFFICER EXCEPT BY CA SUALLY MENTIONING THE SAME. THE TRIBUNAL OBSERVED THAT THE ONLY CONTROVER SY REVOLVES AROUND INCOME EARNED FROM PARTNERSHIP FIRM WHEREIN INTERES T BEING FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE. THE TRIBUNAL NOTICED THE UNDISPUTED FACT THAT THE ASSESSEE HAS EARNED INTEREST INCOME ON SUCH INVESTM ENT AMOUNT OF RS. 52,54,432/- ON WHICH DUE TAXES HAVE BEEN PAID BY TH E ASSESSEE. IN ADDITION TO IT, THE ASSESSEE WAS ALSO HAVING SHARE OF PROFIT FR OM HIS PARTNERSHIP FIRM AMOUNTING TO RS. 1,66,023/-. HAVING HELD SO, THE TR IBUNAL FOUND THAT WHILE COMPUTING THE AMOUNT OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D, THE CIT(A) HAS CORRECTLY APPORTIONED THE EXPENDITURE IN THE RATIO OF EXEMPT INCOME AND TAXABLE INCOME AND HAS RIGHTLY REDUCED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 7. HAVING CONSIDERED THE SUBMISSIONS MADE ......... .........................., WE ARE OF THE VIEW THAT NO CASE FOR INTERFERENCE IN THE IMPUG NED ORDERS IS MADE OUT . NO KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 9 QUESTION OF LAW ARISES FOR CONSIDERATION. THE APPEA L FAILS AND IS HEREBY DISMISSED. [EMPHASIS SUPPLIED] 18. IN THE INSTANT CASE BEFORE YOUR HONOUR, CONSIDERING THE FINDINGS GIVEN BY LD. CIT(A) AT PARA 7.2, 7.4 AND 7.5 AND APPLYING THE DECISION OF SWASTIK COAL CORPORATION PVT LTD (SUPRA), THE COMPUTATION OF DISALLOWANCE U/S 14A IS TABULATED AS UNDER - RULE 8 D PARTICULARS VALUES DISALLOWABLE 2(I) EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME 0 0 2(II) A INTEREST PAID 28,82,2 68 A * B / C 2,41, 67 2 INVESTMENT ON FIRST DAY [AS PER CIT(A) PAGE 6] 79,80,4 88 INVESTMENT ON LAST DAY [AS PER CIT(A) PAGE 6] 65,93,2 86 B AVERAGE OF INVESTMENT 72,86,8 87 TOTAL ASSETS ON FIRST DAY [AS PER CIT(A) PARA 7.2] 8,17,47, 648 TOTAL ASSETS ON LAST DAY [AS PER CIT(A) PARA 7.2] 9,20,64, 811 C AVERAGE OF TOTAL ASSETS 8,69,06, 230 2(III) B AVERAGE OF INVESTMENT 72,86,8 0.5% OF B 36,4 KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 10 87 34 D TOTAL 2,78, 10 6 E EXEMPT INCOME SHARE OF PROFIT IN FIRM 4,68,53 8 F TOTAL TAXABLE INCOME 28,20,5 33 G RATIO OF EXEMPT INCOME TO TOTAL INCOME (E / F)* 100 16.6 1 % H PROPORTIONATE DISALLOWANCE BY APPLYING DECISION OF HONBLE MP HC DECISION OF SWASTIK COAL CORP. (SUPRA) D * G 46,1 98 CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF TH E CASE AND THE APPLICABLE LAWS, THE DISALLOWANCE U/S 14A OUGHT TO BE DELETED. IN THE ALTERNATE, AS TABULATED IN PARA 16 ABOVE, AT BEST RS. 46,198 MAY BE SUSTAINED OUT OF THE DISALLOWANCE U/S 14A MADE BY THE LD. AO. 6. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A). 7. THIS BENCH OF THE TRIBUNAL HAD AN OCCASION TO CONSIDER THE IDENTICAL ISSUE IN THE CASE OF KAMAL KUMAR JAGDISH PRASAD LATH IN ITA NO.264/IND/2016 AND VI DE KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 11 ORDER DATED 21 ST JUNE, 2016 THE TRIBUNAL HAS HELD AS UNDER :- 6. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES. HON'BLE HIGH COURT OF DELHI IN THE CASE OF J OINT INVESTMENT PVT. LTD. (SUPRA) HAS HELD AS UNDER :- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2,97, 440/-AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. T AIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AM OUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF A NY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO -AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. T HE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE C ANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.48,90,000/-, THE DISALLOWANCE ULTIMATELY DIRECTE D WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY N O STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRET ED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOW ED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE I N RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPP ENED IN THIS CASE. 10. FOR THE ABOVE REASONS, THE IMPUGNED O RDER OF THE ITAT IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, ORDER OF THE AO IS SET ASIDE. THE INI TIATION OF PENALTY PROCEEDINGS ALSO IS SET ASIDE. THE MATTER IS REMITT ED TO THE AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH THE ABOVE DI RECTIONS. THE APPEAL IS PARTLY ALLOWED. KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 12 I, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER T O CONSIDER THE ABOVE HIGH COURT JUDGMENTS CITED ABOVE AND DECIDE THE ISSUE IN VIEW THEREOF. I ORDER ACCORDINGLY. 8. AFTER CONSIDERING THE FACTS OF THE CASE IN THE W AKE OF THE SUBMISSIONS OF THE PARTIES, IN MY OPINION, IT WO ULD BE APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH THE DIRECTION TO DECIDE THE SAME AFTER VERIFYING THE COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT AS TABULATED IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE WHICH IS REPRODUCED HEREINABOVE, IN THE LIGH T OF THE ABOVE ORDER OF THE TRIBUNAL, AFTER PROVIDING REASON ABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. 9. GROUND NO. 2 RELATES TO THE DIRECTION OF THE LEARN ED CIT(A) TO THE EFFECT THAT PROPORTIONATE INTEREST MAY BE CONSIDERED FOR DISALLOWANCE OF INTEREST ON VALUE OF INVESTMENT IN LAND AND HOUSE. KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 13 10. BEFORE ME, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED I N DIRECTING THE ASSESSING OFFICER THAT PROPORTIONATE IN TEREST MAY BE CONSIDERED FOR DISALLOWANCE OF INTEREST ON VALU E OF INVESTMENT IN LAND AND HOUSE. IN SUPPORT OF HIS SUBMISSIONS, HE HAS FILED FOLLOWING WRITTEN SUBMISSI ONS BEFORE ME :- GROUND NO. 02 OF APPEAL RELATES TO DIRECTION GIVEN BY LD. CIT(A) FOR DISALLOWANCE OF INTEREST ON VALUE OF LAND AND HOUSE PROPERTY RESULTING INTO ENHANCEMENT. 19. FOLLOWING PROPERTIES WERE DISCLOSED BY THE ASSESSEE IN AUDITED SCHEDULE OF SUNDRY DEPOSITS AND INVESTMENT AS ON 31.03.2011 [REFER PB 23] A) HOUSE AT 393 CIDCO AURANGABAD - RS. 16,51,000 ACQUI RED IN FY 2006- 07 B) LAND AT RAJPAL COLONY - RS. 2,92,154 ACQUIRED ON 12.02.1998 C) LAND AT SYAMDAS COLONY - RS. 3,10,000 ACQUIRED BEFORE 01.04.2006 TOTAL - RS. 22,53,154 THE ABOVE PROPERTIES ALSO APPEAR IN THE BALANCE SHE ET AS ON 31.03.2010, PRECEDING PREVIOUS YEAR [REFER PB 28]. DETAILS OF THESE PROPERTIES WERE SUBMITTED BEFORE THE LD. AO [REFER PB 29] . 20. THESE FACTUAL DETAILS WERE NEVER CONTROVERTED OR DI SPUTED BY THE LD. AO AND THE LD. CIT(A). KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 14 21. LD. CIT(A) GAVE A FINDING IN PARA 7.6 BY DIRECTING THE LD. AO TO MAKE A PRORATE DISALLOWANCE U/S 36(1)(III) TOWARDS INTERES T BY HOLDING THAT INVESTMENT IN LAND AND HOUSE PROPERTY IS NOT BUSINE SS INVESTMENT. 22. IMPUGNED LAND AND HOUSE PROPERTY HAVE BEEN ACQUIRED MUCH PRIOR TO THE YEAR UNDER APPEAL BY OWN FUNDS. THERE IS NO INVESTM ENT IN THESE PROPERTIES IN THE IMPUGNED YEAR. THEIR COST OF ACQUISITIONS HAS B EEN BROUGHT FORWARD FROM THE PRECEDING YEAR AS SUCH, DULY DISCLOSED IN THE B ALANCE SHEET. 23. INTEREST PAID DURING THE YEAR DOES NOT IN ANY WAY R ELATE TO INVESTMENT MADE IN LAND AND HOUSE PROPERTY. 24. THE FINDING GIVEN BY LD. CIT(A) ARE BASELESS, WITHO UT CONSIDERING THE CORRECT FACTUAL POSITION ON RECORD, ARBITRARY AND N OT IN COMPLIANCE WITH THE DUE PROCESS OF LAW AS ENVISAGED U/S 251(2) WHERE EN HANCEMENT IS MADE. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF TH E CASE AND THE APPLICABLE LAW, DIRECTION GIVEN BY LD. CIT(A) TO THE AO TO MAK E AN ADDITION U/S 36(1)(III) IN TERMS OF PARA 7.6 OUGHT TO BE VACATED . 11. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A). 12. I HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES. SINCE I HAVE ALREADY SET ASIDE THE ORDERS OF THE AUTHORITIES B ELOW ON THE ISSUE OF SECTION 14A OF THE ACT, I ISSUE SIM ILAR DIRECTION TO THE ASSESSING OFFICER TO DECIDE THIS I SSUE ALSO AFTER CONSIDERING THE DATE OF ACQUISITION OF LAND AND HOU SE KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 15 AS TABULATED IN THE ABOVE WRITTEN SUBMISSIONS OF THE ASSESSEE AS ALSO VERIFY THE YEAR OF INVESTMENT IN THESE PROPERTIES AND DECIDE THE ISSUE ACCORDINGLY, AFTER PRO VIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN OPEN COURT ON 25 TH JULY, 2016 SD/- (D.T. GARASIA) ACCOUNTANT MEMBER 25 TH JULY, 2016 DN/- KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 16 KISHORE KUMAR TAYAL ITA NO. 351/IND/2016 17