Harsh Mahendra Shah, Surat V. The Income Tax Officer, Ward-1(2)(2), Surat

ITA 459/SRT/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5356 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 28-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Earning of tax free income; Commercial expediency; Rule 8D
• Section: 14A

Judgement Text

(IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA NO.459/SRT/2018 (AY 2014-15) (H EARING IN VIRTUAL COURT) HARSH MAHENDRA SHAH, 91, KHATODARA, GIDC, BEHIND SUB JAIL, RING ROAD, SURAT. PAN: BMDPS 4031 H VS. THE INCOME TAX OFFICER, WARD-1(2)(2), SURAT. APPELLANT /ASSESSEE RESPONDENT ASSESSEE BY SHRI MEHUL SHAH CA REVENUE BY MS. ANUPAMA SINGLA SR.DR DATE OF HEARING 09.09.2021 DATE OF PRONOUNCEMENT 09.09.2021 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, SURAT DATED 22.05.2018, FOR THE ASSESSMENT YEAR (AY) 2014-15. THE SOLE GROUND OF APPEAL RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE UNDER SECTION 14A OF RS. 15,92,494/-. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING INCOME OF RS. 518100/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME, HOWEVER, NO SUO-MOTO DISALLOWANCE WAS MADE BY THE ASSESSEE UNDER SECTION 14A. THE ASSESSING OFFICER (AO) WHILE PASSING THE ASSESSMENT ORDER MADE DISALLOWANCE UNDER SECTION 14A OF RS. 15,92,494/-. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF AO ITA NO.24/SRT/2019(AY 2009-10) SEVAN EAGLE PRODUCTION, SURAT. 2 WAS UPHELD. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED APPEAL BEFORE THIS TRIBUNAL. 3. AT THE OUTSET, THE HEARING OF THE LD. AUTHORISED REPRESENTATIVE (LD.AR) OF THE ASSESSEE SUBMITS THAT GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2013-14 IN ITA NO.3400/AHD/2016 WHEREIN ON IDENTICAL SET OF FACTS, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS RESTRICTED TO THE AMOUNT OF EXEMPT INCOME. THE LD.AR FOR THE ASSESSEE FURTHER SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED EXEMPT INCOME OF RS.67,479/-, WHICH CONSIST OF DIVIDEND INCOME OF RS.44,375/- AND PPF INTEREST OF RS.23,104/-. THE DETAILS OF EXEMPT INCOME ARE PROVIDED AND PAGE NO.26 OF THE PAPER BOOK. THE LD AR FOR THE ASSESSEE FINALLY SUBMITS THAT NOW IT IS SETTLED LAW THAT DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE EXEMPT INCOME. 4. ON THE OTHER HAND, THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE (LD. SR. DR) FOR THE REVENUE RELIED UPON THE ORDER OF LD. CIT(A). 5. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTIES AND WE NOTE THAT SIMILAR SET OF FACTS THE CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2013-14 WHILE CONSIDERING THE SIMILAR DISALLOWANCE, RESTRICTED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME BY PASSING THE FOLLOWING ORDER: ITA NO.24/SRT/2019(AY 2009-10) SEVAN EAGLE PRODUCTION, SURAT. 3 6.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE AO HAS DISALLOWED THE INTEREST OF RS.20,49,011/- AS INTEREST INCOME ON THE GROUND THAT THE BORROWING HAS BEEN USED FOR REPAYING THE OLD BORROWINGS AND FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY. WE FIND THAT THE ASSESSEE HAS OBTAINED LOAN OF RS.1.41 CRORES WHICH HAVE BEEN USED FOR REPAYING OF OLD BORROWING AS WELL AS FOR ADVANCING NEW LOANS TO THE VARIOUS PARTIES ON WHICH INTEREST INCOME HAS BEEN EARNED BY THE ASSESSEE AT RS.2,77,325/-. THUS, THERE IS AN APPARENT NEXUS BETWEEN THE BORROWINGS AND INTEREST INCOME EARNED WHICH HAS NOT BEEN DISPUTED BY THE AO AS THE AO HAS TREATED THE INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS. THE CHART SHOWING NEXUS BETWEEN THE ACCEPTANCE OF LOAN AND UTILIZATION THEREON PLACED ANNEXURE-A TO THE PAPER BOOK 1 MANIFEST THESE FACTS. WE FURTHER FIND THAT THE ASSESSEE HAS SHOWN INCOME FROM BUSINESS AS MENTIONED IN THE ASSESSMENT ORDER. THEREFORE, THE CONTENTION OF THE AO THAT ORIGINAL BORROWINGS WE USED BY THE ASSESSEE FOR OTHER THAN BUSINESS PURPOSE HAS NOT BEEN CORROBORATED BY ANY EVIDENCE, THEREFORE, INTEREST PAID BY THE ASSESSEE ON BORROWING WERE UTILISED BY REPAYING THE OLD BUSINESS BORROWINGS IS SQUARELY AS DEDUCTION AS HELD BY THE HON'BLE CO-ORDINATE BENCH KOLKATA IN THE CASE OF KAMAL BHANDARI (SUPRA). WE FURTHER FIND THAT THE AO HAS WORKED OUT DISALLOWANCE OF INTEREST EXPENSES OF RS.17,77,227/- U/S.14A ALTHOUGH THE SAME HAS NOT BEEN ADDED AS THE TELESCOPING WAS ALLOWED AGAINST THE DISALLOWANCE OF INTEREST OF RS.20,49,011/-. HOWEVER, WE FIND THAT THE ASSESSEE HAS EARNED EXEMPT INCOME ONLY OF RS.94,877/- WHICH DOES NOT FORM PART OF TOTAL INCOME. THEREFORE, THE LD.COUNSEL HAS CONTENDED THAT THE DISALLOWANCE IF ANY U/S.14A R.W. RULE 8D OF THE EXCEED THE ACTUAL AMOUNT OF SUCH EXEMPT INCOME RECEIVED. WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD.COUNSEL FOR THE ASSESSEE. IT HAS BEEN HELD IN VARIOUS DECISIONS CITED BY THE LD. COUNSEL AS IN THE CASE OF PUNJAB INFORMATION AND COMMUNICATION TECHNOLOGY CORPORATION (SUPRA) M.K. OVERSEAS PVT. LTD. AND CORROTECH ENERGY PVT. LTD. AND JOINT INVESTMENT PVT. LTD. (SUPRA). WE THEREFORE HOLD THAT DISALLOWANCE U/S.14A IN THE INSTANT CASE CANNOT EXCEED RS.94,877/-. SINCE THE LOANS WERE OBTAINED BY THE ASSESSEE FOR REPAYING OLD LOANS AS WELL AS FOR ADVANCING NEW LOAN ON WHICH INTEREST INCOME HAS BEEN EARNED THEREFORE DISALLOWANCE OF RS.20,49,011/- MADE BY THE AO IS ACCORDINGLY DELETED AS AGAINST DISALLOWANCE OF RS.17,77,227/- THE DISALLOWANCE U/S.14A THE DISALLOWANCE ARE RESTRICTED TO RS.94,877/-. ITA NO.24/SRT/2019(AY 2009-10) SEVAN EAGLE PRODUCTION, SURAT. 4 6. IN VIEW OF THE DECISION OF COORDINATE BENCH ON SIMILAR SET OF FACTS IN ASSESSEES OWN CASE IN ITA NO. 3400/AHD/2016 FOR THE A.Y. 2013-14 (SUPRA), WE FIND THAT THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS COVERED IN FAVOUR OF THE ASSESSEE. HENCE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF EXEMPT INCOME OF RS.67,479/-. IN THE RESULT THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER ANNOUNCED ON 9 TH SEPTEMBER, 2021 AT THE TIME OF HEARING IN VIRTUAL COURT HEARING. SD/- SD/- (DR ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER SURAT DATED: 09 /09/2021 / SGR* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR 6. GUARD FILE BY ORDER / / TRUE COPY / / SR.PVT. SECRETARY, ITAT, SURAT