SUNILKUMAR MANGILAL BACHHAWAT, MUMBAI V. ITO 4(1)(2), MUMBAI

ITA 3647/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75727 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 11-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: GAJENDRA GOLCHHA
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 3647/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) SUNILKUMAR MANGILAL BACHHAWAT JIVRAJ JOGRAJ, 102, VITHALWADI, 2 ND FLOOR, KALBADEVI ROAD, MUMBAI-400 002 / VS. INCOME TAX OFFICER-4(1)(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ./ ./PAN/GIR NO. AABPB 7526 P ( /APPELLANT ) : ( !' / RESPONDENT ) # / APPELLANT BY : SHRI GAJENDRA GOLCHHA !' $ # / RESPONDENT BY : SHRI GIRIJA DAYAL % &'( $ )* / DATE OF HEARING : 11.12.2013 +,- $ )* / DATE OF PRONOUNCEMENT : 07.03.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-8, MUMBAI (CIT(A) FOR SHO RT) DATED 26.03.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 04.11.2010. 2 ITA NO. 3647/MUM/2012 (A.Y. 2008-09) SUNILKUMAR MANGILAL BACHHAWAT VS. ITO 2. THE APPEAL RAISES A SINGLE ISSUE, I.E., THE ADDI TIONAL DISALLOWANCE IN THE SUM OF RS.6,24,238/- U/S.14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES HEREINAFTER). THE FACTS IN BRIEF ARE THAT IN THE VERIFICATION PROCEEDINGS OF THE ASSESSEES RETURN FOR THE RELEVANT YEAR, FILED ON 2 6.09.2008 AT A LOSS OF RS.17.48 LACS, HE WAS TO FOUND TO HAVE MAINTAINED AN AVERAGE INVESTME NT IN SHARES, I.E., RECKONED AT THE SIMPLE AVERAGE OF THE OPENING AND THE CLOSING VALUE THEREOF, AT RS.90.74 LACS FOR THE RELEVANT YEAR. THE ASSESSEE HAVING EARNED INCOME BY WAY OF DIVIDEND AND LONG-TERM CAPITAL GAINS (LTCG) IN THE SUM OF RS.2.61 LACS AND RS.7.49 LACS RESPECTIVELY, AND WHICH WERE CLAIMED EXEMPT U/SS.10(34) AND 10(36) OF THE A CT RESPECTIVELY, THE PROVISION OF SECTION 14A WOULD STAND ATTRACTED. THE ASSESSEE HAD CLAIMED EXPENDITURE BY WAY OF INTEREST IN THE SUM OF RS.6,78,334/-. WORKING OUT T HE SAME PROPORTIONATELY, I.E., ON THE BASIS OF THE AVERAGE INVESTMENT IN SHARES TO THE AV ERAGE TOTAL ASSETS OF THE ASSESSEE, THE PROPORTIONATE INTEREST WAS WORKED TO RS.5,70,275/- UNDER RULE 8D(2)(II). TAKING ANOTHER ONE HALF PERCENT OF THE AVERAGE INVESTMENT, I.E., R S.53,963/-, TOWARD INDIRECT EXPENDITURE OTHER THAN INTEREST, A DISALLOWANCE U/S.14A READ WI TH RULE 8D WAS EFFECTED AT THE IMPUGNED SUM OF RS.6,24,238/-. THE SAME BEING CONFI RMED IN APPEAL, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 3. BEFORE THE REVENUE AUTHORITIES THE ASSESSEE TOOK SEVERAL PLEAS, VIZ. THAT NO EXPENDITURE HAS BEEN INCURRED TOWARD TAX-EXEMPT INC OME IN-AS-MUCH AS THERE IS NO NEXUS BETWEEN THE TWO. FURTHER, THE ENTIRE BORROWINGS ARE FOR ITS BUSINESS PURPOSES; THE ASSESSEE BEING IN THE BUSINESS OF TRADING IN SHARES AND SECU RITIES, DERIVATIVES; BEING A SUB-BROKER IN THE SAID MARKET AS WELL AS A MEMBER OF THE MULTI CO MMODITY EXCHANGE (MCX), WHICH IS CARRIED ON IN HIS PROPRIETARY FIRM BY THE NAME M/S. SUNIL INVESTMENT, SEPARATE BOOKS FOR WHICH ARE MAINTAINED, WITH THE ENTIRE INTEREST BEAR ING LOANS BEING ASSUMED THEREIN. THIS SUMS UP THE ASSESSEES CASE, AND WHICH CONTINUES TO BE THE SAME EVEN BEFORE US. 4. WE HAVE PERUSED THE MATERIAL ON RECORD, AND GIVE N OUR CAREFUL CONSIDERATION TO THE MATTER. IN OUR CONSIDERED VIEW, THE DISALLOWANCE AS MADE IS NOT WITHOUT MERIT. NO DOUBT THE LOANS (AT RS.169.59 LACS AS ON 31.03.2008) HAVE BEEN ASSUMED BY THE ASSESSEE IN HIS 3 ITA NO. 3647/MUM/2012 (A.Y. 2008-09) SUNILKUMAR MANGILAL BACHHAWAT VS. ITO PROPRIETARY CONCERN, M/S. SUNIL INVESTMENT (PB PG.2 1), THE ASSESSEE HAS A NEGATIVE CAPITAL IN THE SAID CONCERN (AT (-) RS.32.61 LACS AS ON 31. 03.2008), IMPLYING A DIVERSION OF BORROWED FUNDS TO THAT EXTENT FOR HIS PERSONAL PURP OSES. WE STATE SO AS THE ONLY OTHER SOURCE OF CREDIT IN THE ASSESSEES BALANCE-SHEET OF HIS BUSINESS, I.E., SUNDRY CREDITORS (OUTSTANDING AT RS.17.28 LACS), IS IN THE FORM OF A NON-FUND CREDIT, SO THAT THE SAME STANDS RETAINED IN BUSINESS, I.E., AS BY WAY OF SUNDRY REC EIVABLES, OUTSTANDING AT RS.148.58 LACS (AS ON 31.03.2008). THE ASSESSEE HAS INCURRED A TOT AL INTEREST LIABILITY AT RS.16.94 LACS FOR THE YEAR (PB PG.20). WE HAVE ALREADY FOUND HIM TO H AVE DIVERTED ABOUT 20% OF THE BORROWED CAPITAL TOWARD PERSONAL PURPOSES. THE INTE REST EXPENDITURE RELATABLE TO THE PERSONAL INVESTMENTS WOULD BE TO THE TUNE OF RS.3.3 9 LACS. A SUITABLE PROPORTION OF THE INVESTMENT IN ASSETS YIELDING TAX-EXEMPT INCOME, I. E., INCOME NOT FORMING PART OF THE TOTAL INCOME, TO THE TOTAL PERSONAL ASSETS, WOULD H AVE TO BE RECKONED TO DETERMINE THE EXPENDITURE ON INTEREST INCURRED IN RELATION TO SUC H INVESTMENT. AS REGARDS INDIRECT EXPENDITURE, I.E., OTHER THAN INTEREST, DISALLOWANC E IN RESPECT OF WHICH HAS BEEN ESTIMATED AT 0.5% OF THE AVERAGE INVESTMENT IN TERMS OF R. 8D , MANDATORY FOR THE CURRENT YEAR, THE SAME CANNOT AGAIN BE ESCHEWED MERELY BY BOOKING THE EXPENDITURE IN THE BOOKS OF THE BUSINESS. TIME AND RESOURCES ARE INTRINSIC TO INVES TMENT DECISIONS, AND THE ASSESSEES CLAIM OF HAVING INCURRED NO SUCH EXPENDITURE FALLS FLAT IN THE FACE OF BEING IN THE RELEVANT BUSINESS HIMSELF, SO THAT THE DECISIONS (I.E., AS T O HOLD, DISPOSE OF AND/OR FURTHER INVESTMENT) IN RESPECT OF HIS PERSONAL INVESTMENTS WOULD NORMALLY ONLY BE TAKEN AND EXECUTED IN THE REGULAR COURSE OF HIS BUSINESS, WHI CH, AS WE HAVE SEEN, FUNDS HIS PERSONAL INVESTMENTS TOO. A REASONABLE PROPORTION OF THE BUS INESS EXPENDITURE CAN THUS READILY BE INFERRED AS HAVING BEEN INCURRED TOWARD SUCH INVEST MENT ACTIVITY. TO CONCLUDE, WE APPROVE OF THE DISALLOWANCE U/S.14 A READ WITH RULE 8D, I.E., IN PRINCIPLE. HOWEVER, THE DISALLOWANCE AS COMPUTED LE AVES MUCH TO BE DESIRED. WHILE THE DISALLOWANCE QUA THE ADMINISTRATION EXPENDITURE AT RS.53, 963/- , BEING IN TERMS OF RULE 8D(2)(III), WITH WE HAVING FOUND THE ASSESSEE TO HA VE INCURRED THE EXPENDITURE, SHALL OBTAIN, THAT IN RESPECT OF INTEREST WOULD STAND SCA LED DOWN SUBSTANTIALLY. THE BASIS OF THE ASSESSING OFFICERS WORKING, TAKING THE TOTAL INTER EST INCURRED AT RS.6.78 LACS, IS NOT CLEAR. 4 ITA NO. 3647/MUM/2012 (A.Y. 2008-09) SUNILKUMAR MANGILAL BACHHAWAT VS. ITO WE HAVE OBSERVED THE SAME TO HAVE BEEN INCURRED TOW ARD TAX-EXEMPT INCOME IN A PROPORTION OF RS. 3.39 LACS, WHILE THE DISALLOWANCE MADE IS AT RS. 5.70 LACS. OUR WORKING IS, HOWEVER, FIRSTLY, PROXIMATE AND, TWO, WOULD RE QUIRE BEING MODIFIED IN-AS-MUCH AS THE SAME IS BY ADOPTING THE YEAR-END BALANCES, WHILE IT HAS TO BE WORKED OUT ON AN AVERAGE BASIS, I.E., BOTH QUA THE DIVERSION OF FUNDS AS WELL AS THE AVERAGE INVES TMENT, IN TERMS OF RULE 8D(2)(II). THE SAME STOOD MADE BY US ONLY TO E XHIBIT THE APPARENT INCONSISTENCIES OBSERVED IN THE DISALLOWANCE AS EFFECTED. WE ACCORDINGLY SET ASIDE THE MATTER WITH REGARD TO THE COMPUTATION OF DISALLOWANCE OF INTEREST U/S.14A R/W R. 8D(2)(II) A FTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE FILE OF THE A.O., WHO SHALL DO SO PER A SPEAKING ORDER. WE DIRECT ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. /-)0 &12/) $ 3. ' 4 ) $ ) 56 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 07, 201 4 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; 7& DATED : 07.03.2014 '.&../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % 8) ( ) / THE CIT(A) 4. % 8) / CIT - CONCERNED 5. ;'<= !)&>1 , * >1- , % ( / DR, ITAT, MUMBAI 6. =?2 @( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI