Gopalji Agarwal, CHENNAI V. DCIT, CHENNAI

ITA 438/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8085 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 17-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: V JAGADISAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !.. # $% , & '( ) [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO.438/MDS/2016 / ASSESSMENT YEAR : 2011-12 SHRI GOPALJI AGARWAL NO.17, RAJA RATHINAM STREET KILPAUK CHENNAI 600 010 VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE XIII CHENNAI [PAN AACPA 7183 Q] ( *+ / APPELLANT) ( ,-*+ /RESPONDENT) / APPELLANT BY : SHRI V. JAGADISAN, CA /RESPONDENT BY : SHRI SUPRI Y OPAL, JCIT / DATE OF HEARING : 17 - 10 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 11 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-12, CHENN AI, DATED 7.12.2015 FOR ASSESSMENT YEAR 2011-12. 2. GROUND NO. 1 & 7 ARE GENERAL IN NATURE REQUIRING NO SPECIFIC ADJUDICATION. ITA NO. 438/16 :- 2 -: 3. GROUND NOS. 2,3 & 4 ARE RELATED TO THE ADDITION OF ` 14,000/- INTEREST PAID TO SMT. MITHLESH BANSAL. 3.1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER FOUND THAT A SUM OF ` 1,68,000/- WAS PAID AS INTEREST TO SMT. MITHLESH BANSAL. HOWEVER, NO TDS WAS MADE ON THE PAYMENT OF ` 14,000/- AND SMT. MITHLESH BANSAL HAS OFFERED ONLY ` 1,54,000/- AS INTEREST RECEIVED FROM THE ASSESSEE. SINCE THE ASSESSEE FA ILED TO DEDUCT TAX AT SOURCE, THE ASSESSING OFFICER MADE THE ADDITION OF ` 14,000/- FOR NON- DEDUCTION OF TAX AT SOURCE. THE ASSESSEE FILED A PPEAL BEFORE THE CIT(A) AND THE CIT(A) HAS CONFIRMED THE ADDITION. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. BEFORE US, THE LD. AR ARGUED THAT THE ASSESSEE HAS PAID THE AMOUNT OF ` 1,68,000/- AND CLAIMED AS EXPENDITURE IN HIS HAND S. HOWEVER, THE RECIPIENT HAS OFFERED THE INCOME AS PER THE SYSTEM OF ACCOUNTING FOLLOWED BY HER. FURTHER, THE LD. AR SUBMITTED THA T THE ASSESSEE HAS FILED A DECLARATION IN FORM 15G AND 15H FOR NON-DED UCTION OF TAX AT SOURCE AND THE SAME WAS FURNISHED BEFORE THE ITO, T DS ON 1.4.2011. THEREFORE, IT WAS ARGUED BY THE LD. AR THAT THE AS SESSEE NEED NOT TO DEDUCT TAX AT SOURCE AND THE CIT(A) HAS INCORRECTLY CONFIRMED THE ADDITION. ITA NO. 438/16 :- 3 -: 5. GROUND NO.5 IS RELATED TO THE ADDITION OF ` 2,69,322/- INTEREST PAID TO VARIOUS PARTIES AS PER THE DETAILS GIVEN BELOW: NAVIN KUMAR MOHATTA HUF ` 8, 322/ - SHREE KANTA MOHATTA ` 11,096/ - DAMODAS SHARMA ` 75,000/ - HEMLATHA S. PAREKH ` 75,000/ - KAMAL SHARMA ` 75,000 - REMI AGARWAL ` 24,904/ - ` 2,69,322/ - 6. THE ASSESSING OFFICER DISALLOWED THE AMOUNT FOR NON - DEDUCTION OF TAX AT SOURCE U/S 40(A)(IA) OF THE ACT . AGGRIEVED BY THE ORDER OF THE A.O THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS OBTAINED FORM 15G/ H FROM THE RECIPIENTS AS REQUIRED UNDER RULE 29C AND WERE FI LED BEFORE THE ITO, TDS AND HENCE, NO TDS IS REQUIRED TO BE MADE HAVIN G OBTAINED FORM 15H/G. THE FIRST APPELLATE AUTHORITY DID NOT ACCEPT THE ARGUMENT OF THE ASSESSEE THAT FORM 15H/G WERE OBTAINED AND FIL ED BEFORE THE ITO,TDS. HE OBSERVED THAT IF THE ASSESSEE HAD DE POSITED THE FORMS BEFORE THE ITO HE WOULD HAVE PRESENTED THE SAME FAC TS BEFORE THE A.O,SINCE THE ASSEMENT ORDER WAS PASSED BY THE A.O ON 26/03/2014 MUCH LATER DATE OF DEPOSITING THE FORMS. SINCE THE ASSESSEE HAS NOT ITA NO. 438/16 :- 4 -: BROUGHT THIS FACT TO THE NOTICE OF THE A.O THE LD. CIT(A) WAS OF THE OPINION THAT THIS WAS AN AFTERTHOUGHT AND REJECTED THE ASSESSS ARGUMENT AND CONFIRMED THE ADDITION MADE BY THE ASS ESSING OFFICER. 7. BEFORE US, THE ASSESSEE REITERATED THE SUBMISSIO NS MADE BEFORE THE CIT(A) AND FURNISHED THE COPIES OF FORM1 5G/H IN THE PAPER BOOK ALONG WITH THE COPY OF FORWARDING LETTER ADDR ESSED TO THE ITO,TDS WHICH WAS DULY ACKNOWLEDGED BY THE TDS RANG E-1,CHENNAI ON 01/14/2011.ON THE OTHER HAND, THE LD. DR SUPPOR TED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS FURNISHED THE EV IDENCE REGARDING THE DECLARATIONS OF THE RECIPIENTS IN THE PAPER BOO K IN THE PRESCRIBED FORM 15H/G. THE ASSESSEE ALSO FURNISHED THE SAME BE FORE ITO,TDS CIRCLE 1(4), CHENNAI, WHICH WAS DULY ACKNOWLEDGED B Y TDS, RANGE-I, CHENNAI. HAVING OBTAINED THE DECLARATIONS FROM THE PAYEES THE ASSESSEE IS NOT ALLOWED TO DEDUCT THE TDS AS PER SE CTION 197A OF INCOME TAX ACT AND THE CIT(A) MERELY DISMISSED THE ASSESSEES APPEAL ON A SUSPICIOUS OBSERVATION THAT, HAD THE ASSESSEE COLLECTED THE FORM NO.15G/H HE WOULD HAVE SUBMITTED THE SAME BEFORE TH E AO. THUS THE CIT(A) DOUBTED THE GENUINENESS OF THE FORM-15H/G AN D CONFIRMED THE ADDITION. IT IS SEEN FROM THE PAPER BOOK THAT THE A SSESSEE HAS ITA NO. 438/16 :- 5 -: OBTAINED THE FORM-15G/H FROM THE BENEFICIARIES AND SUBMITTED THE SAME BEFORE THE ITO,TDS CIRCLE-1(4) CHENNAI ON 01/0 4/2011.THE OFFICE COPY DULY STAMPED BY THE TAPAL SECTION OF TD S, RANGE- 1,CHENNAI. LD. CIT(A) HAVING RECEIVED THE ADDITIONA L EVIDENCE, HE WOULD HAVE SENT TO THE AO FOR NECESSARY VERIFICATIO N AND CALLED FOR THE REMAND REPORT OR HE WOULD HAVE CAUSED FURTHER VERI FICATION INSTEAD OF DISMISSING THE APPEAL ON MERE SUSPICION. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS FURTHER VE RIFICATION REGARDING THE GENUINENESS AND CORRECTNESS OF FORM15H/G TO DEC IDE THE ISSUE. THEREFORE WE REMIT THE MATTER BACK TO THE FILE OF C IT(A) TO MAKE FURTHER ENQUIRIES AND READJUDICATE THE ISSUE AFTER CALLING FOR THE REMAND REPORT FROM THE A.O. AND GIVING OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AN D GROUND NO.2 TO 5 ARE ALLOWED FOR STATISTICAL PURPOSES . 9. GROUND NO.6 IS RELATED TO THE DISALLOWANCE MADE U/ S 14A R.W. RULE 8D. 10. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER FOUND THAT THE ASSESSEE HAS INVESTED BORROWED FUND S IN SHARES AND MUTUAL FUNDS AND EARNED DIVIDEND INCOME AND CAPITAL GAINS ON SALE OF SHARES. THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.1,63,145/- BY INVOKING SEC. 14A R.W.RULE 8D(2)(II) OF I.T.RULE S. BEING AGGRIEVED ITA NO. 438/16 :- 6 -: BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED THE ADDI TION RELYING ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GO DREJ AND BOYCE MFG. COL. LTD, REPORTED IN 328 ITR 81 AND DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HDFC BANK LTD VS DEPUTY CIT, [2015] 61 TAXMANN.COM 361. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. AR ARGUED THAT THE ASSESSING OFFICER HAS WR ONGLY APPLIED THE PROVISIONS OF RULE 8D IN THE CASE OF TH E ASSESSEE AND THERE IS NO CASE FOR DISALLOWANCE U/S 14A. HE FUR THER ARGUED THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHICH ARE INVESTE D IN MUTUAL FUNDS AND SHARES. AGAINST THE OWN FUNDS OF ` 5.09 CROERES THE INVESTMENT WERE ONLY ` 20.45 LAKHS HENCE, THE INVESTMENTS IN MUTUAL FUN DS AND SHARES SHOULD BE CONSIDERED AS MADE OUT OF HIS OWN FUNDS AND CONTENDED THAT NO DISALLOWANCE IS REQUIRED TO BE M ADE U/S 14A R.W.R 8D. FURTHER THE A.R SUBMITTED THAT THE A.O WORKED OUT THE INVESTMENT IN MUTUAL FUNDS AND SHARES AS ON 31/03/2011 AT ` .38,51,448/- BUT THE CORRECT FIGURE ACCORDING TO HIM WORKS OUT TO ` .14,10,700/- AND FURNISHED THE DETAILS ASUNDER: ITA NO. 438/16 :- 7 -: HDFC EQUITY FUNDS 5,73,508 HDFC TOP 200 5,76,727 RELIANCE GROWTH FUND 2,00,000 RELIANCE INCOME FUND 53,665 RELIANCE POWER LTD 6,800 TOTAL 14,10,700 THE A.R FURTHER SUBMITTED THAT INVESTMENTS WHERE TH ERE WAS NO INCOME U/S 14A WAS ` .21,01,000/- AND INVESTMENT NOT COMING U/S 14A WAS ` 3,39,747/-.SIMILARLY THE AR POINTED OUT THE DIFFERE NCE IN OPENING AND CLOSING BALANCES OF INVESTMENTS IN MU TUAL FUNDS FOR WORKING AVERAGE INVESTMENT. ACCORDING TO THE ASSESS EE IT WAS ` .12,60,466/, WHERE AS THE A.O WORKED OUT AT ` .29,22,151/-.THUS THE DISALLOWANCE ACCORDING TO THE A.R. WORKS OUT TO ` .71,700/- THEREFORE THE A.R SUBMITTED TO REMIT THE MATTER BACK TO THE A .O FOR CORRECT AMOUNT OF DISALLOWANCE. 13. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE A SSESSEE HAS BORROWED THE FUNDS AND MADE INVESTMENT IN MUTUA L FUNDS AND SHARES WHICH YIELDED DIVIDEND INCOME. THE ASSESSE E HAS NOT PROVED THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS BY DEMONSTRATING THAT OWN FUNDS ARE USED FOR MAKING INVESTMENTS AND SUPPORTED THE LOWER AUTHORITIES ORDERS. 14. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. THE ASSESSEE HAS BORROWED THE F UNDS AND MADE ITA NO. 438/16 :- 8 -: THE INVESTMENTS IN MUTUAL FUNDS AND SHARES WHICH YI ELDED DIVIDEND INCOME. THIS TRIBUNAL IS CONSISTENTLY FOLLOWING A D ECISION THAT IF THE INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS, T HE DISALLOWANCE U/S RULE 8D(2)(II) ATTRACTS. HON'BLE ITAT A BENC H, CHENNAI IN THE CASE OF M/S TRACTORS AND FARM EQUIPMENT LTD IN ITA NO.1505/MDS/2016 DATED 30 TH SEPT 2016 ON THE SAME ISSUE OF RULE 8D(2)HELD AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS O N EITHER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT WHEN TH E ASSESSEE INVESTED ITS OWN FUNDS, RULE 8D2(II) OF THE INCOME-TAX RULES, 19 62 IS NOT APPLICABLE AT ALL. IN THE CASE BEFORE US, ADMITTEDLY, THE ASSE SSEE BORROWED LOAN FOR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO PAID INT EREST ON THE BORROWED LOAN. THE INTEREST EXPENDITURE INCURRED BY THE ASSE SSEE DOES NOT RELATE TO ANY PARTICULAR INCOME. IN OTHER WORDS, WHEN THE BOR ROWED FUNDS MIXED WITH THE ASSESSEES OWN FUNDS, IT CANNOT BE IDENTIF IED FROM WHICH PART OF FUNDS THE INVESTMENT WAS MADE. IN OTHER WORDS, WHEN THE INTEREST PAID BY THE ASSESSEE ON THE FUNDS BORROWED FOR BUSINESS IS NOT RELATABLE TO ANY PARTICULAR ITEM OF INCOME, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SECOND LIMB OF RULE 8D(2) WOULD COME INTO OPERA TION. IN OTHER WORDS, THE DISALLOWANCE HAS TO BE COMPUTED UNDER RU LE 8D(2)(II) OF INCOME-TAX RULES, 1962. IN THE ASSESSEES CASE ALSO, SINCE THE ASSESSEE H AS MADE INVESTMENTS FROM THE COMMON POOL OF FUNDS AND THE FACTS ARE IDE NTICAL, WE HOLD THAT THE ASSESSING OFFICER HAS RIGHTLY MADE THE DI SALLOWANCE U/S 14A R.W. RULE 8D(2)(II) AND THE ASSESSEES APPEAL ON TH IS GROUND IS DISMISSED. 15. THE ASSESSEE ALTERNATIVELY SUBMITTED TO EXCLUDE T HE INVESTMENTS NOT YIELDED THE DIVIDEND INCOME FROM TH E DISALLOWANCE U/S ITA NO. 438/16 :- 9 -: 14A R.W. RULE 8D(2)(II). THE ASSESSEE HAS MADE INV ESTMENTS FROM THE COMMON POOL OF FUNDS WHICH INCLUDE THE INTEREST BEA RING FUNDS AND EARNED THE DIVIDEND INCOME, THE DIVIDEND INCOME IS EXEMPT U/S10(34) OF INCOME TAX ACT. IN A PARTICULAR YEAR EVEN IF TH E INVESTMENT DOES NOT YIELD RETURN IT DOES NOT CHANGE THE CHARACTER OF IN VESTMENT MADE FROM BORROWED FUNDS. WHETHER INVESTMENT YIELDS RETURN OR NOT THE ASSESSEE CONTINUES TO PAY THE INTEREST TILL SUCH TIME THE BO RROWED FUNDS ARE PAID COMPLETELY. THE ASSESSEE COULD NOT DEMONSTRATE TH AT THE NON INTEREST BEARING FUNDS WERE INVESTED IN SHARES AND INVESTMEN TS. MERELY BECAUSE NO INCOME HAS BEEN DERIVED, THE SAME CANNOT BE EXCLUDED BECAUSE WHETHER THE IN INVESTMENT YIELDS INCOME OR NOT COST OF FUNDS REMAIN THE SAME. HENCE THE ASSESSEES CONTENTION I S NOT TENABLE ACCORDINGLY REJECTED. THE ENTIRE INVESTMENTS MADE B Y THE ASSESSEE IN THE FORM OF MUTUAL FUNDS AND SHARES REQUIRED TO BE CONSIDERED FOR DISALLOWANCE U/S RULE 8D(2)(II) . HOWEVER AT PAGE 4 OF THE PAPER BOOK, THE ASSESSEE SUBMITTED THAT THE AMOUNT OF ` 3,39,747/- WERE NOT INVESTMENTS BUT ONLY DEPOSITS AND ADVANCES WHIC H REQUIRED TO BE EXCLUDED. THIS FACT WAS NOT BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. THEREFORE, WE REMIT THE MATTER BACK TO TH E FILE OF THE ASSESSING OFFICER TO EXCLUDE THE AMOUNT OF ` 3,39,747/- FROM THE TOTAL INVESTMENT AND RECOMPUTE THE DISALLOWANCE U/S 14A R.W.RULE 8D(2)(II) AS PER THE DIRECTIONS GIVEN ABOVE. ITA NO. 438/16 :- 10 -: 16. THE A.O MADE DISALLOWANCE OF ` .20,462/- UNDER RULE 8D(2)(III) ACCORDING TO THE A.R THE CORRECT AMOUNT WAS ` 10,386/-.THE ASSESSING OFFICER HAS NOT DISCUSSED THE FACTS CLEA RLY IN THE ASSESSMENT ORDER AND THE LD. CIT(A) HAS NOT BROUGHT THE COMPLE TE FACTS IN THE CIT(A)S ORDER. THEREFORE, WE REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER ON THIS ISSUE ALSO TO RECOMPUTE THE DISALLOWANCE U/S RULE 8D(2)(III) AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE. AS A RESULT, GROUND NO.6 IS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . . # $% ) (D.S. SUNDER SINGH) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH NOVEMBER, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF