ROSHANI BEGUM, Jaipur V. ACIT, JHUNJHUNU

ITA 43/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2191 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 23-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 11-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: G M MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,O JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, J.M VK;DJ VIHY LA-@ ITA NO. 43/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 . SMT. ROSHANI BEGUM, TARA NAGAR(CHURU), CUKE VS. THE ACIT, CIRCLE JHUNJHUNU JHUNJHUNU. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ABMPB8966D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.M. MEHTA (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.03.2017 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 06/04/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)- 3, JAIPUR DATED 26.11.2005 PERTAINING TO ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- (1) LD. CIT(A) HAS ERRED IN LAW IN APPLYING PROVISIONS OF SECTION 145(3) OF IT ACT FOR SUSTAINING DISALLOWANCE/ADDITI ONS WHEREAS THESE PROVISIONS WERE NOT APPLIED BY LD. AO HIMSELF IN ORDER U/S 143(3) OF IT ACT FOR THE REASON THAT NO DEFECT OR U NVOUCHED NATURE OF EXPENSES WERE FOUND BY HIM WHEN PRODUCED WITH BOOKS OF ACCOUNTS AUDITED U/ 44AB OF IT ACT; (2) LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING ADDITION OF RS. 11,76,075/- CALCULATED @ 12.91% ON RS. 91,09,804/-, AS PER FORMULA ADOPTED BY LD.AO HIMSELF, TREATING THE SAME AS DIVERSION OF INTEREST BEARING LOAN TO INTEREST FREE ADVANCES FOR NON-BUSINESS PURPOSES. 2 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. (3) LD. CIT(A) HAS ACTED AGAINST THE FACTS OF THE CASE IN SUSTAINING FOLLOWINGS DISALLOWANCES/ADDITIONS: (I) RS. 8,34,939/- UNDER SECTION 14A OF IT ACT WHEN THE ASSESSEE HAS EARNED NIL EXEMPT INCOME. (II) RS. 2,00,000/- OUT OF ROOM RENT DISCOUNT IGNORING T HE BETTER RESULTS COMPARED TO EARLIER YEAR. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT UNDER SE CTION 143(3) OF THE IT ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), WAS FRAMED VIDE ORDER DATED 13/JAN/2015. THE ASSESSING OFFICER WHILE FRAMING T HE ASSESSMENT DISALLOWED INTEREST EXPENDITURE OF RS. 32,77,827/- AND ADDED S AME TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER MADE DISAL LOWANCE U/S 14A AND OF RS. 8,34,939/- AND ALSO MADE ADDITION ON ACCOUNT O F DISALLOWANCE OF ROOM RENT DISCOUNT/ EXPENSES OF RS. 2 LAKHS. AGGRIEVED BY THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO AFTER CON SIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING T HE APPEAL THE LD. CIT(A), SUSTAINED THE ADDITION OF RS. 11,76,075/- OUT OF AD DITION OF RS. 32,77,827/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDI TURE AND SUSTAINED TO OTHER ADDITIONS MADE BY INVOKING THE PROVISION OF 1 4A OF THE ACT AND DISALLOWANCE OF ROOM RENT AND DISCOUNT EXPENDITURE. AGGRIEVED BY THIS ORDER THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. APROPOS TO GROUND NO. 1, LD. COUNSEL FOR THE ASS ESSEE AT THE TIME OF HEARING SUBMITTED THAT HE DOES NOT WISH TO PRESS GR OUND NO 1. THE LD. DEPARTMENTAL REPRESENTATIVES HAS NO OBJECTION AFTER CONSIDERING THE 3 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. STATEMENT FOR THE LD. COUNSEL FOR THE ASSESSEE, WE HEREBY DISMISSED THE GROUND NO. 1 AS NOT PRESSED. 4. GROUND NO. 2 IS AGAINST SUSTAINING OF ADDITION O F RS. 11,76,075/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. LD. COUNSEL SUBMITTED THAT INTEREST FREE ADVANCES WERE MORE OR LESS OF THE SAME AMOUNT OF THE INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE. HE SUBMITTED THAT ASSESSMENT IN RESPECT OF ASSESSMENT YEAR 2008- 09, 2009-10 WERE COMPLETED U/S 143(3) IN WHICH CONSIDERING THE AVAIL ABILITY OF INTEREST FREE FUNDS, NO DISALLOWANCE WAS MADE. HE FURTHER SUBMIT TED INVESTMENT IN AGRICULTURAL LAND AND OTHER ASSETS BEING BROUGHT FO RWARD, BALANCE OF EARLIER YEARS ARE BUSINESS ASSETS AND THEREFORE, THESE CANN OT BE CATEGORIZED AS INTEREST FREE ADVANCES AS IS DONE BY THE ASSESSING OFFICER AND THERE IS NO NEXUS BETWEEN INTEREST BARING LOANS AND INTEREST FR EE ADVANCES HENCE NO DISALLOWANCE COULD BE MADE. RELIANCE IS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF HERO CYCLE PVT. LTD. VS. CIT (2015) 379 ITR 347(SC).LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO WRITTEN SUBMISSIONS AT PAGE 3 TO DEMONSTRATE THE AV AILABILITY OF FUNDS. THE LD. DEPARTMENTAL REPRESENTATIVE OPPOSED THE SUBMISS IONS AND SUBMITTED THAT THE LD. CIT(A) AS WELL AS ASSESSING OFFICER HAS BRO UGHT OUT THE FACT THAT THE ASSESSEE HA MADE INTEREST FREE ADVANCES OUT OF INTE REST BEARING FUNDS. 4 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. 4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORI TIES BELOW. THE LD CIT(A) HAS GIVEN FINDING IN PARA 5.3 AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO ARGUMENT OF THE LD. AR OF THE APPELLANT. THE ASSESSEE HAS INTE REST FREE FUNDS IN THE SHAPE OF HIS OWN CAPITAL OF RS. 20401466/- AND INTEREST FREE LOA NS OF RS. 19585861/- TOTALING TO RS. 39987327/- WHICH ARE AVAILABLE TO HIM TO MAKE I NTEREST FREE ADVANCES/ INVESTMENTS. THE AO AT PAGE 3 OF HIS ORDER HAS TAB ULATE FUNDS OF RS. 5569673/-, WHICH WERE ADVANCED BY THE ASSESSEE TO HIS SISTER C ONCERNS/ RELATIVES ON WHICH NO INTEREST WAS CHARGED. THE BALANCE AMOUNT OF RS. 16 709404/- (RS. 55696731 - 39987327) WAS OUT OF INTEREST BEARNING FUNDS. SIN CE, THE INTEREST IN SHARES OF RS. 75996000/- IS DEALT WITH SEPARATELY IN GROUND NO. 2 WHERE SEC. 14A IS APPLIED, THE BALANCE AMOUNT OF RS. 9109804/- BEING INTEREST FREE ADVANCES TO SISTER CONCERNS/RELATIVES IS MADE OUT OF INTEREST BEARING FUNDS. THEREFORE THE PROVISION OF SEC. 36(I)(III) ARE APPLICABLE ON SUCH ADVANCES OF RS. 9109804/-/ THE AO HELD THE SUM OF RS. 25389829/- AS INVESTED I N NON BUSINESS ASSET/ ADVANCES AS OUT OF BORROWED FUNDS. AGAINST THIS, I HOLD RS. 9109804/- AS MADE AS INTEREST FREE ADVANCES OUT OF INTEREST BEARING FUND S ON WHICH 12.91% AS APPLIED BY THE AO IS UPHELD. SO THE ADDITION OF RS. 1176075/- IS UPHELD AS AGAINST AOS ADDITION OF RS. 3277827/-. THE APPELLANT GETS RESU LTANT RELIEF. HOWEVER, THE ASSESSING OFFICER HAS MADE ADDITION OF RS. 32,77,827/- ON ACCOUNT OF DISALLOWANCE OF INTEREST. THE CONTENTIO N OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE, ASSESSEE WAS HAVING SUFFICIE NT INTEREST FREE FUNDS FOR 5 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. MAKING SUCH ADVANCES AND THE SUCH ADVANCES HAVE BEE N MADE PRIOR TO THE ASSESSMENT YEAR 2010-11. THE ASSESSMENT UNDER APPE AL IS 2012-13. UNDER THESE FACTS, WE HEREBY SET ASIDE THE ORDER OF THE L D. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECI SION AFRESH, AFTER VERIFYING THE CLAIM OF THE ASSESSEE THAT THESE ADVANCES WERE MADE IN EARLIER YEARS OUT OF THE INTEREST FREE FUNDS AVAILABLE. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 3 OF THE ASSESSEES APPEAL READS AS U NDER:- (3) LD. CIT(A) HAS ACTED AGAINST THE FACTS OF THE CASE IN SUSTAINING FOLLOWING DISALLOWANCES/ADDITIONS: (I) RS. 8,34,939/- UNDER SECTION 14A OF IT ACT WHEN THE ASSESSEE HAS EARNED NIL EXEMPT INCOME. (II) RS. 2,00,000/- OUT OF ROOM RENT DISCOUNT IGNORING T HE BETTER RESULTS COMPARED TO EARLIER YEARS. 5.1 APROPOS TO GROUND NO. 3(I), THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. HE SUBMITTED THAT THERE NO EXEMPT INCOME HAS BEEN EARNED AS NO DIVIDEND HAS BEEN RECEIVED ON THE SHARES OF M/S METRO COLONIZERS LTD. IN SUPPORT OF T HIS CONTENTION LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF TH E HONBLE PUNJAB AND HARYAN HIGH COURT RENDERED IN THE CASE OF CIT VS LA KHANI MARKETING INDUSTRIES (2014) 272 CTR (P & H) 265. 6 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. 5.2 ON THE CONTRARY, THE LD. DEPARTMENTAL REPRES ENTATIVE OPPOSED THE SUBMISSIONS. HE SUPPORTED THE ASSESSMENT ORDER. 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIE S BELOW. AS PER SECTION 14A, THE ASSESSING OFFICER IS EMPOWERED TO MAKE DIS ALLOWANCE IN ACCORDANCE WITH THE METHOD PRESCRIBED THEREIN. IF THERE IS E XPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SO, THE FIRST REQUIREMENT IS THAT THE EXPENDITURE SHOULD RELATE TO THE EXEMPT INCOME. SINCE NO EXEMPT INCOME HAS B EEN DISCLOSED IN THE WRITTEN OF INCOME. THEREFORE, IN VIEW OF THE JUDGM ENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. LAKHANI MARKETING INDUSTRIES (SUPRA). THE ASSESSING OFFICER WAS NOT J USTIFIED IN MAKING THE DISALLOWANCE BY INVOKING THE PROVISION OF THE SECTI ON 14A OF THE ACT. THIS VIEW IS FURTHER SUPPORTED BY THE JUDGMENT OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD. (2014) 2 72 CTR (DEL) 282.WE THEREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE . GROUND NO. 3(I) OF THE ASSESSEES APPEAL IS ALLOWED. 5.4 APROPOS TO GROUND NO. 3(II), THE LD. COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSION AS MADE IN THE WRITTEN BRIEF. HE SU BMITTED THAT THE ASSESSEE WAS CHARGING FIXED RATES FOR ROOM RENT. HOWEVER AS PER THE PREVAILING PRACTICE IN THIS LINE OF BUSINESS, IN CASE OF GROUP BOOKING OR REGULAR BOOKING 7 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. BY CERTAIN GROUPS OF COMPANIES, IT HAS TO ALLOW DIS COUNT ON ROOM RENT, SUCH DISCOUNT AS PER THE ESTABLISHED BUSINESS PRACTICE. THE ASSESSING OFFICER IN THE UNJUSTIFIED MANNER, MADE AD HOC BASIS DISALLOWA NCE OF RS. 2 LAKHS SAME HAS BEEN CONFIRMED BY THE LD. CIT(A). HOWEVER, THE LD. CIT(A) CONFIRMED THIS, ON THE BASIS THAT THE ASSESSEE FAILED TO PROD UCED BOOKS/VOUCHERS AND THEREFORE 15% OF THE EXPENSES IS JUSTIFIABLE. SINCE BOTH AUTHORITIES BELOW HAVE MADE ON THE BASIS OF THE AD HOC DISALLOWANCES, THEREFORE UNDER THE FACTS OF THE PRE SENT CASE WE HEREBY DIRECT THE AO TO DELETE THE ADDITION. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 6. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IN ITA NO. 43/JP/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE DAY OF 6 TH APRIL 2017 . SD/- SD/- HKKXPUN ( DQY HKKJR ) ( BHAGCHAND ) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 06 /04/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SMT. ROSHANI BEGUM, TARA NAGAR (CHURU). 2. THE RESPONDENT- ACIT, CIRCLE JHUNJHUNU JHUNJHUN U. 8 ITA NO. 43/JP/2016 SMT. ROSHANI BEGUM, TARA NAGAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 43/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR