Dy. CIT, Cir.-3 Pune, Pune V. Shri Gautam M. Gelada, Pune

ITA 366/PUN/2012

• Counselvise Citation: 36624514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: N O N E
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI R . S . PA DVEKAR , JUDICIAL MEMBER AND SHRI R. K . PA NDA , ACCOUNTANT MEMBER ITA NO. 366 / P N/ 20 12 ASSESSMENT YEAR : 2008 - 09 DY. COMMISSIONER OF INCOME - TAX, CIRC LE 3, PUNE VS. SHRI GAUTAM M. GELADA, 1464, SADASHIV PETH, PUNE (APPELLANT) (RESPONDENT) PAN NO. AGRPG6752A APPELLANT BY: MS. ANN KAPTHUAMA RESPONDENT BY: N O N E DATE OF HEARING : 25 - 06 - 2013 DATE OF PRONOUNCEMENT : 28 - 06 - 2013 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 29 - 11 - 2011 FOR THE A.Y. 2008 - 09. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APP EALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE INTEREST DISALLOWANCE OF RS.30,49,085/ - MADE IN THE ASSESSMENT WITH REFERENCE TO THE INTEREST PAID BY T HE ASSESSEE ON LOANS TAKEN FOR NON - BUSINESS PURPOSES. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE DISALLOWANCE OF INTEREST OF RS.30,49,085/ - SOLELY BY REFERRING TO SEC. 14A WHICH HAD BEEN MENTIONED BY THE ASSESSING OFFIC ER ONLY IN PASSING AND IN DISREGARD OF THE MAIN THRUST OF THE ASSESSING OFFICERS ORDER THAT MAJOR PART OF THE INTEREST CLAIM DID NOT PERTAIN TO BUSINESS. 4. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN NOT CONSIDERING THE ASSESSING OFFI CERS ACTION BY APPLYING THE PROVISIONS OF SEC. 37(1) OF THE INCOME - TAX ACT, 1961. 5. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE AS SESSING OFFICER BE RESTORED. 2. THE LD. DR FOR THE REVENUE WAS PRESENT; NONE WAS PRESENT FOR THE ASSESSEE. ON VERIFICATION OF THE RECORD , IT IS SEEN THAT NOTICE OF 2 ITA NO. 366/PN/2012, SHRI GAUTAM M. GELADA, PUNE HEARING HAS BEEN SERVED ON THE ASSESSEE VIDE ACKNOWLEDGEMENT DATED 28 - 05 - 2013. THE ASSESS EE WAS ALSO SENT ANOTHER NOTICE INTIMATING THE DATE OF HEARING THAT THE APPEAL IS FIXED ON 25 - 06 - 2013. THE ASSESSEE PREFERRED NOT TO REMAIN PRESENT NO R MOVED ANY APPLICATION FOR ADJOURNMENT FOR BEST REASONS KNOWN TO HIM. WE , THEREFORE , DISPOSE OF THIS AP PEAL AFTER HEARING THE LD. DR. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS AS PRINTING CONTRACTORS AND ALSO TR ADING IN PAPER UNDER THE NAME AND STYLE AS M/S. KALYANI CORPORATION. THE RETURN FILED BY THE ASSESSEE FOR THE A.Y. 2008 - 09 WAS SELECTED FOR SCR UTINY. THE ASSESSEE HAD CLAIMED THE INTEREST ON THE BANK LOANS I.E. CC/OD TO THE EXTENT OF RS.7,99,939/ - WHICH WAS ALLOWED BY THE ASSESSING OFFICER U/S. 36(1)(III) OF THE INCOME - TAX ACT. IN RESPECT OF THE INTEREST PAID ON THE UNSECURED LOAN S AND SECURED LOAN S WHICH IS AGGREGATING TO RS.43,16,984/ - , TH E ASSESSING OFFICER EXAMINED THE BALANCE SHEET FILED BY THE ASSESSEE . T HE ASSESSING OFFICER HAS OBSERVED THAT IN THE BALANCE SHEET THE FIXED ASSETS ARE TO THE EXTENT OF RS.1,98,27,821/ - AND INVESTMENTS ARE R S.4,76,67,179/ - . AS NOTED BY THE ASSESSING OFFICER AS PER DETAILS FILED BY THE ASSESSEE IN THE INVESTMENTS THERE ARE RESIDENTIAL FLATS, OPEN PLOTS, BANK FDRS, ETC. THE ASSESSING OFFICER IS THEREFORE OF VIEW THAT U/S. 14A IS APPLICABLE AND DISALLOWED THE INTEREST ON PRO - RATA BASIS OF THE TOTAL INVESTMENTS WHICH IS WORKED OUT AT 70.63% AND APPLYING THE SAID PERCENTAGE TO THE TOTAL INTEREST PAID ON THE SECURED , UNSECURED AND OTHER LOANS OF RS.43,16,984/ - AND MADE THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 30,49,085/ - . THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) AND THE LD. CIT(A) DELETED THE ENTIRE DISALLOWANCE. THE OPERATIVE PART OF THE FINDINGS OF THE LD. CIT(A) IS AS UNDER: 5.1. THEREFORE, THE SECTION EFFECTIVELY PROVIDES THAT WHERE ANY E XPENDITURE IS INCURRED FOR EARNING INCOME THAT IS NOT LIABLE TO TAX OR IS EXEMPTION TAX, THEN EXPENDITURE IN RELATING TO EARNING OF SUCH INCOME SHALL BE LIABLE FOR DISALLOWANCE. THEREFORE, SECTION 14A APPLIES TO INCOME NOT FORMING PART OF TOTAL INCOME . MERELY 3 ITA NO. 366/PN/2012, SHRI GAUTAM M. GELADA, PUNE BECAUSE SECTION 14A OF THE ACT REQUIRES DISALLOWANCE OF EXEMPT INCOME, THERE CAN BE NO ADHOC DISALLOWANCE, UNLESS THEY ARE IDENTIFIED AS MEANT FOR EARNING THE EXEMPT INCOME AND THAT SUCH EXPENSES ARE PROXIMATE CAUSE FOR EARNING THE INCOME. IN THE PRESENT CASE THE A.O. HAS IN A GENERAL PRESUMPTION INFERRED THAT MERELY 70% OF THE BORROWINGS WERE NOT UTILIZED FOR THE PURPOSES OF BUSINESS AND NO SPECIFIC FINDING OF THE NEXUS OF THE EXPENDITURE WITH THAT OF EARNING THE INCOME HAS BEEN BROUGHT ON RECORD TO JUSTIFY APPLICATION OF SECTION 14A AND THE SUBSEQUENT DISALLOWANCE MADE. IN THE CASE OF CIT VS HERO CYCLES LTD. (2010). 323 ITR 578 (P&H) IT HAS BEEN HELD THAT DISALLOWANCE U/S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE; WHERE IT IS FOUND THAT FOR EARNING EXEMPT INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S 14A CANNOT STAND. THE A.O. HAS NOT SPECIFIED THE INCOME WHICH IS 'EXEMPT' OR WHICH IS NOT LIABLE TO TAX. MOREOVER, EVEN IF THE A.O. WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAI M OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, THEN THE A.O. HAD TO DETERMINE THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH METHOD AS PRESCRIBED UNDER RULE 8D, WHICH PROVIDE S A BASIS FOR APPORTIONING SUCH EXPENDITURE. THIS RULE IS APPLICABLE W.E.F. A.Y. 2008 - 09 AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT (2010) 328 ITR 81 (BOM). THE A.O. HAS ON THE OTHER HAND WITHOUT BRINGING O N RECORD ANY DETAILS OF SUCH EXEMPT INCOME AND OF ANY EXPENDITURE RELATING TO IT AND ALSO WITHOUT THE APPLICATION OF RULE 8D HAS DISALLOWED THE INTEREST ON AN ADHOC BASIS, WHICH IS NOT PERMISSIBLE. 5.2. IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKER PVT. LTD. (2009) 310 ITR 421 (BOM.), WHICH WAS AFFIRMED BY THE HON'BLE SUPREME COURT WHILE DECIDING THE CASE REPORTED IN (2010) 326 ITR 1 (SC) IN WHICH IT WAS HELD THAT FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH I S ON RELATIONSHIP WITH THE TAX EXEMPT INCOME PAY - BACK OR RETURN OF INVESTMENT IS NOT SUCH PROXIMATE CAUSE HENCE, IS NOT APPLICABLE. THUS, IN THE ABSENCE OF SUCH PROXIMATE CAUSE OF DISALLOWANCE SECTION 14A CANNOT BE INVOKED. 4. NOW THE REVENUE IS IN APPEA L BEFORE US. WE HAVE HEARD THE LD. DR. AS PER THE FACTS ON RECORD , IT IS SEEN THAT THE ASSESSEE MADE THE INVESTMENTS IN THE LANDS, BUILDINGS AND BANK DEPOSITS ETC. AT THE SAME TIME WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE NOT AT ALL BROUGHT ON RECOR D THE DETAILS OF THE INVESTMENTS . T HE LD. CIT(A) HAS OBSERVED THAT RULE 8D ACT IS APPLICABLE FROM THE A.Y. 2008 - 09 AS HELD BY THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 (BOM) . W E CONSIDER IT FIT TO RE STORE THIS ISSUE TO FILE BY THE ASSESSING OFFICER FOR DECIDING THE SAME DE NOVO I N THE LIGHT OF THE DECISION OF THE HIGH COURT OF BOMBAY IN THE 4 ITA NO. 366/PN/2012, SHRI GAUTAM M. GELADA, PUNE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA) AS WELL AS THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. WALFORT SHARE & STOCK BROKER PVT. LTD. 310 ITR 421 (SC). NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHOULD GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE PRINCIPLES OF NATURAL JUSTICE AND TO BRING ON RECORD A LL THE DETAILS OF THE INVESTMENTS MADE BY THE ASSESSEE TO DECIDE WHETHER ANY DISALLOWANCE CAN BE MADE U/S. 14A. 5. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 28 - 06 - 20 1 3 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 28 TH JUNE, 20 1 3 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - II, PUNE 4 THE C CIT , PUNE 5 THE DR, ITAT, A, BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE