SANJAYKUNWAR RATHOD, MUMBAI V. ACIT 25(2), MUMBAI

ITA 4446/MUM/2012

• Counselvise Citation: 444619914 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 02-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HIRAL D SEJPAL
• Keywords: Earning of tax free income; Proportionate interest; Question of law
• Section: 14A

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NO. 4446 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2008-09) SMT. SANJAYKUNWAR R. RATHOD, 502, SUSHILA APARTMENTS, DEVIDAS LANE EXTN., BORIVALI (W), MUMBAI 400 103. ) ) ) ) / VS. THE ASSTT. COMMISSIONER OF INCOME TAX 25(2), ROOM NO.108, IST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. #+ !./ PAN : ADXPR6108G ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 ! / APPELLANT BY : MISS HIRAL D. SEJPAL -.+, / 0 ! / RESPONDENT BY : SHRI JAVED AKHTAR !)$ / / // / DATE OF HEARING : 05-08-2013 12* / / DATE OF PRONOUNCEMENT : 14-08-2013 '3 / O R D E R PER P.M. JAGTAP, A.M . : .. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) 35, MUMBAI DTD. 02-03-2012 AND THE SOLITA RY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OF RS. 1,59,114/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) U/S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. ITA 4446/MUM/2012 2 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDU AL WHO DERIVES INCOME FROM CONTRACT CHARGES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HER ON 2-4-2009 DECLARING TOTAL INCOME OF RS.12,13,314/. IN THE SAID RETURN, DIVIDEND INCOME OF RS. 66,628/- RECEIV ED BY THE ASSESSEE ON SHARES AND SECURITIES WAS CLAIMED TO BE EXEMPT FROM TAX. NO DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE EAR NING OF THE SAID EXEMPT INCOME, HOWEVER, WAS MADE BY THE ASSESSEE AS REQUIR ED BY PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961. IN THIS R EGARD, IT WAS NOTED BY THE A.O. THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDI TURE OF RS. 9,20,948/-. HE, THEREFORE, REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY PROPORTIONATE INTEREST ATTRIBUTABLE TO THE INVESTMENT MADE IN SHA RES AND SECURITIES SHOULD NOT BE DISALLOWED U/S 14A OF THE ACT AS PER THE MET HOD GIVEN IN RULE 8-D OF THE INCOME TAX RULES, 1962. THE ASSESSEE, HOWEVER, DID NOT OFFER ANY EXPLANATION IN THIS REGARD AND THE A.O. THEREFORE P ROCEEDED TO MAKE A DISALLOWANCE OF RS. 1,59,114/- U/S 14A OF THE ACT A FTER CALCULATING THE SAME AS PER RULE 8-D AS UNDER:- (A) TOTAL INTEREST CLAIMED : RS. 9,20,948/- (B) AVERAGE TOTAL OF BALANCE SHEET : TOTAL OF BALANCE SHEET 31.3.2008 31.3.2007 4,45,80,854 1,04,94,126 AVERAGE OF TOTAL BALANCE SHEET 2,75,37,490 (C) AVERAGE OF TAX FREE INVESTMENTS 31-3-2008 31-3-2006 SHARES & MUTUAL FUNDS 53,69,273 29,08,528 AVERAGE OF TAX FREE INVESTMENT 41,38,901/- INTEREST DISALLOWABLE U/S 14A = INTEREST CLAIMED X AVERAGE OF TAX FREE INVESTME NT AVERAGE OF TOTAL BALANCE SHEET = 9,20,948 X 41,38,901 2,75,37,490 = RS. 1,38,419 (D) ONE HALF PERCENT OF AVERAGE INVESTMENT =RS.41, 38,901/-=RS.20,695/- (C) = (D) = RS. 1,59,114/-. ITA 4446/MUM/2012 3 ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE A.O. U/S 14A READ WITH RULE 8-D RELYING INTER ALIA ON THE DE CISION OF SPECIAL BENCH OF ITAT IN THE CASE OF CHEMINVEST LTD. VS. ITO WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S 14A COULD BE MADE IF ANY EXPENDITU RE IS FOUND TO HAVE BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME EVEN THOUGH THERE WAS NO SUCH EXEMPT INCOME ACTUALLY EAR NED OR RECEIVED BY THE ASSESSEE IN THE RELEVANT YEAR. AGGRIEVED BY THE ORD ER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COU NSEL FOR THE ASSESSEE HAS CONTENDED BEFORE US THAT THE ENTIRE INVESTMENT IN T HE SHARES AND SECURITIES WAS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION OUT OF HER OWN FUNDS AND THERE BEING NO UTILIZATION OF BORROWED FU NDS FOR MAKING THE SAID INVESTMENT, DISALLOWANCE OF INTEREST U/S 14A OF THE ACT IS NOT WARRANTED. SHE HAS FURNISHED A FUND FLOW STATEMENT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS WELL AS FOR THE PRECEDING YEAR IN SUPPORT OF THIS CONTENTION. A PERUSAL OF THE SAME HOWEVER SHOWS THAT ALTHOUGH THE RE WAS INCREASE IN THE CAPITAL OF THE ASSESSEE BY RS. 37.58 LACS, INVESTME NT IN FIXED DEPOSITS WAS INCREASED BY RS. 29.61 LACS AND CASH & BANK BALANCE BY RS. 28.07 LACS IN ADDITION TO THE INCREASE IN INVESTMENT IN SHARES AN D SECURITIES BY RS. 24.60 LACS. THERE WAS ALSO A SUBSTANTIAL INCREASE OF RS. 299.82 LACS IN THE UNSECURED LOANS DURING THE YEAR UNDER CONSIDERATION WITH SIMULTANEOUS INCREASE OF RS. 257.08 LACS IN THE LOANS AND ADVANC ES GIVEN. THESE FACTS AND FIGURES REFLECTED IN THE FUND FLOW STATEMENT OF THE ASSESSEE CLEARLY SHOW THAT IT WAS A CASE OF MIXED FUNDS WHEREIN OWN CAPITAL AS WELL AS UNSECURED LOANS WERE UTILIZED FOR MAKING TAX FREE INVESTMENT AS WEL L AS OTHER INVESTMENT EARNING TAXABLE INCOME. IN OUR OPINION, IT WAS THU S A FIT CASE TO APPLY RULE 8- D IN ORDER TO WORK OUT THE INTEREST ATTRIBUTABLE TO THE INVESTMENT MADE IN SHARES AND SECURITIES FOR MAKING DISALLOWANCE U/S 1 4A OF THE ACT. ITA 4446/MUM/2012 4 4. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON CERTAIN CASE LAWS IN SUPPORT OF THE ASSESSEES CASE ON THE ISSUE UNDER C ONSIDERATION. THE SAME, HOWEVER, ARE FOUND TO BE DISTINGUISHABLE ON FACTS. FOR INSTANCE, IN THE CASE OF BALARAMPUR CHINI MILLS LTD. VS. DCIT, 140 TTJ 72 (K OL)(UO) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ENTIRE AMOUNT OF INVE STMENT YIELDING TAX FREE DIVIDEND INCOME WAS FOUND TO HAVE BEEN ACQUIRED BY THE ASSESSEE FROM ITS OWNED FUNDS AND SINCE NO PART OF BORROWED CAPITAL H AD BEEN USED FOR THE PURPOSE OF ACQUISITION OF INVESTMENTS AT ANY TIME D URING THE PREVIOUS YEAR, IT WAS HELD THAT NO DISALLOWANCE ON ACCOUNT OF INTERES T EXPENDITURE COULD BE MADE BY INVOKING RULE 8-D. IN THE CASE OF ACIT VS. CHAMPION COMMERCIAL CO. LTD. 139 ITD 108 (KOLKATA), IT WAS HELD BY THE KOLKATA BENCH OF THE TRIBUNAL THAT THE CORRECT APPLICATION OF FORMULA SE T OUT IN RULE 8D(2)(II) IS THAT INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAX EXEM PT INCOME AS ALSO DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME ARE REQUIRED TO BE E XCLUDED FROM COMPUTATION OF COMMON INTEREST EXPENSES TO BE ALLOCATED UNDER R ULE 8D(2)(II). AS ALREADY OBSERVED BY US, THE PRESENT CASE OF THE ASSESSEE WA S A CASE OF COMMON AND MIXED FUNDS WHERE IT WAS NOT POSSIBLE TO WORK OUT T HE INTEREST EXPENSES DIRECTLY ATTRIBUTABLE EITHER TO TAX EXEMPT INCOME O R TAXABLE INCOME AND THEREFORE, THE DISALLOWANCE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO TAX FREE INCOME WAS REQUIRED TO BE WORKED OUT BY APPLYING TH E FORMULA SET OUT IN RULE 8-D. IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENG INEERS (P.) LTD. (2013) 35 TAXMANN.COM 210 (DELHI) CITED BY THE LD. COUNSEL FO R THE ASSESSEE, THE DISALLOWANCE U/S 14A OF THE ACT WAS NOT MADE BY APP LYING RULE 8D ALTHOUGH THE YEAR INVOLVED WAS YEAR 2008-09 AND THE DISALLOW ANCE MADE BY THE A.O. WAS RESTRICTED BY THE CIT(A) TO 2% OF THE DIVIDEND INCOME AFTER HAVING FOUND THAT ONLY A PART OF INTEREST WAS PAID ON FUNDS THAT WERE UTILIZED FOR MAKING TAX FREE INVESTMENT. THE TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND THE APPEAL FILED BY THE DEPARTMENT WAS DI SMISSED BY THE DELHI HIGH COURT OBSERVING THAT THERE WAS NO QUESTION OF LAW I NVOLVED. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENTA L STRUCTURAL ENGINEERS (P.) ITA 4446/MUM/2012 5 LTD. (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSES SEE, THEREFORE, DOES NOT HELP THE ASSESSEE IN THE PRESENT CASE. 5. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE A S DISCUSSED ABOVE, WE ARE OF THE VIEW THAT IT IS A FIT CASE TO APPLY THE FORM ULA GIVEN IN RULE 8D TO WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT AND THE DIS ALLOWANCE MADE BY THE A.O. BY APPLYING RULE 8-D HAS BEEN RIGHTLY CONFIRME D BY THE LD. CIT(A). WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS THIS APPEA L FILED BY THE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMI SSED. 4 5 &) %4 / 4 / 67 ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. . '3 / 12* 8')5 14-08-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 8') DATED 14-08-2013 $.&).!./ RK , SR. PS '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. < () / THE CIT(A)- 35, MUMBAI 4. < / CIT 25, MUMBAI 5. :$? -&&) , , / DR, ITAT, MUMBAI E BENCH 6. @% A / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER, !.: -& //TRUE COPY// B B B B/ // /!6 !6 !6 !6 ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI