Shri Ashokbhai Shankerlal Shah, Ahmedabad V. The Income Tax Officer, Ward-10(2), Ahmedabad

ITA 526/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9148 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Earning of tax free income
• Section: 143(3); 234B; 14A

Judgement Text

ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO. 526 /AHD/201 4 ASSESSMENT Y EAR : 200 9 - 10 ASHOKBHAI SHANKERLAL SHAH ..... .......... .APPELLANT I, 7 TH FLOOR, SUMERU CENTER, NEAR PARIMAL CROSSING C.G. ROAD, AHMEDBAD 380 007. [PAN: ADZPS 9515 J] VS. I NCOME TAX OFFICER, WARD 10(2) , AHMEDABAD. .. ......... RESPONDENT APPEARANCES BY: S.N. DIVATIA , FOR THE APPELLANT KAILASH DAN RATNOO , FOR THE RESPONDENT D ATE OF CONCLUDING T HE HEARING : 28 .02. 201 7 DATE OF PRONOUNCING THE ORDER : 28 . 0 2 .2017 O R D E R 1. THIS APPEAL , FILED BY THE ASSESSEE, IS DIRECTED AGAINST LEARNED CIT(A) S ORDER DATED 4 TH DECEMBER, 2013, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEA R 200 9 - 10. 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS : - 1. T HE LEARNED CIT( A ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF INTEREST U/S.14A OF RS.3,18,974/ - INSPITE OF APPELLANT S ARGU MENTS FOR NOT ATTRACTING THE PROVISION OF SECTION 14A BECAUSE THE INVESTMENT MADE IN SHARES OF TRADING NATURE OUT OF HIS OWN CAPITAL AND PROFIT. 2. T HE LEARNED CIT(A) HAS ERRED IN DISALLOWING THE EXPENDITURE OF RS. 3,18,974/ - U/S.14A BECAUSE OF WANT OF AC CURACY IN APPELLANT S CALCULATION OF RS.1,60,000/ - ALTERNATIVELY OFFERED FOR DISALLOWANCE. 3. THE LEARNED CIT(A) OUGHT TO HAVE TO DELETE THE ADDITION OF RS.3,18,974/ - ON THE MERITS OF THE FACTS. ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 2 OF 6 4. THE LEVY OF INTEREST U/S. 234A, 234B & 234C OF THE ACT I S NOT JUSTIFIED. 3. TO ADJUDICATE ON THESE GRIEVANCES, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.5,18,260/ - IN RES PECT OF INTEREST ON BORROWINGS AND THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE INVESTMENTS WHICH YIELD TAX EXEMPT INCOMES. THE ASSESSEE, HOWEVER , EXPLAINED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS, AND, THEREFORE, THE INTEREST PAID BY THE AS SESSEE COULD BE DISALLOWED UNDER SECTION 14A. W ITHOUT PREJUDICE TO THIS ARGUMENT, THE ASSESSEE FILED WORKING OF DISALLOWANCE UNDER SECTION 14A AS FOLLOWS : - DEMATE CHARGES RS.4948 INTEREST RS.5,18,260 INVESTMENTS 3 1/03/2009 89,72,235 31/03/2008 57,56,278 147,28,513 A VERAGE 73,64,256 TOTAL ASSETS 31/032009 162,88,861 31/03/2008 112,47,619 275,36,230 AVERAGE 137,68,115 5 18260 X 7364256 = RS.2,77,205 13768115 EXPENSES 0.05% OF AVERAGE RS. 36,821 TOTAL DISALLOWA B LE U/S.14A RS.3,18,974 4. THE ASSESSING O FFICER, HOWEVER, PROCEEDED TO REJECT THE ABOVE AND PROCEEDED TO OBSERVE AS FOLLOWS : - FROM THE ABOVE, IT IS A FACT THAT INDIRECTLY THE ASSESSEE HAD ADMITTED THAT THERE IS ELEMENTS OF INTEREST PAYMENT TOWARDS FOR THE TRANSACTIONS OR BUSINESS FOR EXEMPTED/TAX FREE INCOME. THE ASSESSEE'S ABOVE WORKING IS NOT ACCEPTABLE BECAUSE, FROM THE BELOW GIVEN DETAILS IT CAN CLEARLY ESTABLISHES THAT THE ASSESSEE GRADUALLY INCREASES THE BORROWINGS FOR ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 3 OF 6 INVESTMENTS PURPOSES AND THE INTEREST BURDEN IS ALSO INCREASED ACCORDINGLY. A.Y 2007 - 08 AY 2008 - 09 AY 2009 - 10 CAPITAL 63,66,545 56,87,270 90,36,520 FIXED ASSETS 9,51,669 9,21,596 9,14,387 CUR RENT ASSETS 8,03,278 37,44,54 9 51,57,077 UNSECURED LOAN 21,66,481 54,66,951 72,51,720 INVESTMENTS 68,63,523 64,88,075 102,26,114 INTEREST EXPENSES 2,69,041 4,28,894 5,18,260 THE DETAILS OF RETURNED INCOME SHOWS THAT FOR THE A.Y. 2007 - 08 THE RETURNED INCOME WAS 1,45,430/ - ; FOR A.Y.2008 - 09 LOSS DECLARED AT RS.( - ) 3074,529/ - AND FOR THE CURRENT YEAR I.E. AY 2009 - 10 THE INCOME DISCLOSED IS RS.63,230/ - DESPITE OF HANDSOME INCREASES IN CAPITAL. THE LOAN INCREASED FROM RS.21.66 LAKHS TO RS.7 2.51 LAKHS AND THE INVESTMENTS ARE ALSO INCREASED FROM RS.68.63 LAKHS TO 102.26 LAKHS. WITHOUT UTILIZATION OF THE BORROWED FUND, NO SUCH INVESTMENT CAN BE INCREASED TO THIS EXTENT AND BUILT UP THE CAPITAL TO THAT EXTENT. THEREFORE, THE INTEREST PAYMENTS AR E CLOSELY RELATED TO THE INVESTMENTS AND OTHER CURRENT ASSETS FROM WHERE EXEMPTED/TAX FREE INCOMES ARE GENERATED. THEREFORE, THERE IS NO JUSTIFICATION FOR THE CLAIM OF TOTAL INTEREST EXPENSES OF RS.5,18,260/ - U/S.37 OF THE I.T. ACT. THEREFORE, THOUGH THE A SSESSEE HAS WOR KED OUT POSSIBLE DISALLOWANCE U/S.14A TO THE EXTENT OF RS.3,18,974/ - , THE TOTAL INTEREST PAYMENT IS HELD AS NOT FOR WHOLLY & EXCLUSIVELY FOR BUSINESS PURPOSES, AND HENCE THE INTEREST CLAIMED AND REDUCED THE PROFIT AT RS.5,18,260/ - IS DISALL OWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT ( A ) WHO CONFIRMED THE STAND OF THE ASSESSING O FFICE R . WHILE DOING SO, HE OBSERVED AS FOLLOWS : - 4.2 I HAVE CAREFULLY CONSI DERED THE FACTS OF THE CASE IN THE LIGHT OF SUBMISSIONS MADE BY THE APPELLANT AND THE ARGUMENTS TAKEN BY THE ASSESSING OFFICER. IT IS THE CASE OF THE APPELLANT THAT MAJORITY OF ITS FUNDS UTILISED FOR INVESTMENT ARE FROM OWN FUNDS COMPRISING WITHDRAWAL FROM CAPITAL ACCOUNT OF PAYAL INDUSTRIES ETC. AND THEREFORE NO ADDITION UNDER RULE 14A IS REQUIRED TO BE MADE . IT HAS BEEN ARGUED THAT IS OWN FUNDS ARE UTILISED TOWARDS INSTRUMENTS BUILDING EXEMPT INCOME THAN NO ADDITION UNDER RULE 14A IS REQUIRED TO BE MADE IN SUPPORT OF HIS CONTENTIONS THE APPELLANT HAS RELIED UPON DECISIONS GIVEN BY HONOURABLE KERALA HIGH COURT (339 ITR 296), HONOURABLE KARNATAKA HIGH COURT (250 CTR 291) AND HONOURABLE MURNBAI TRIBUNAL WHERE IN IT HAS BEEN HELD THAT PROVISIONS OF RULE 14 A W OULD NOT BE APPLICABLE IN THE CASES DELIBERATED THEREUPON..IT HAS BEEN NOTED THAT THE RELIANCE OF THE APPELLANT UPON THE IMPUGNED CASES IS MISPLACED AS THE FACTS OF THE CASE ARE CLEARLY DISTINGUISHED. ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 4 OF 6 THE APPELLANT HAS ALTERNATIVELY ARGUED THAT DURING THE YEAR UNDER CONSIDERATION THERE IS INCREASE IN HIS CAPITAL BY RS.33.49 LAKHS AND IN INVESTMENTS BY RS.37.38 LAKHS. T HE APPELLANT HAS SUBMITTED THAT 65% OF THE INVESTMENTS HAVE BEEN MADE FROM OWN CAPITAL WHICH IS NON - INTEREST - BEARING AND THEREFORE 65% OF T HE TOTAL INVESTMENTS THAT IS RS. 24 LAKHS ( 65 % OF 37.38 LAKHS ) REPRESENTS INVESTMENTS BY OWN FUNDS. IT HAS BEEN ARGUED THAT EVEN IF ANY DISALLOWANCE IS TO BE MADE IT CAN ONLY BE MADE UPON THE AMOUNT OF RS . 13.38 LAKHS. ACCORDING TO THE APPELLANT IS ASSUMIN G INTEREST AT THE RATE OF 12% THE RESULTANT FIGURE WOULD BE RS.1, 60.000/ - . IT HAS BEEN SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER MAY THEREFORE BE RESTRICTED TO THE SAID AMOUNT. IT HAS ALSO BEEN ARGUED THAT THE APPELLANT HAD NOT GIVEN AN Y UNDERTAKING TO A O FOR MAKING ADDITION UNDER RULE 14A OF RS.3,18,974/ - . AS FAR AS ISSUE OF ADMISSIBILITY OR OTHERWISE OF RULE 14 A IS CONCERNED, IT HAS BEEN HELD BY HONOURABLE HIGH COURT AND TRIBUNAL IN A LARGE NUMBER OF CASES THAT IF THE APPELLANT WAS H AVING SUFFICIENT OWN FUNDS THEN IT SHALL BE THE NORMAL PRESUMPTION THAT THE INVESTMENT IN INSTRUMENTS YIELDING EXEMPT INCOME WAS MADE FROM SUCH OWN FUNDS AND THEREFORE PROVISIONS OF RULE 14 A WOULD NOT APPLY. IT IS PERTINENT TO NOTE THAT IN THE INSTANT CAS E THE APPELLANT HAS ITSELF ADMITTED THAT ONLY 65% OF THE INVESTMENTS WERE MADE FROM OWN FUNDS WHICH GOES ON TO INDICATE THAT 35% OF THE INVESTMENTS WERE MADE FROM' INTEREST - BEARING FUNDS. CONSEQUENTLY PROVISIONS OF RULE 14 A WOULD DEFINITELY APPLY IN THE P RESENT CASE. AS REGARDING THE QUANTUM OF ADDITION TO BE MADE IT IS SEEN THAT THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER OF RS . 5,18,260 / - , WHILE RELYING UPON THE PROPOSITION PROVIDED IN RULE 14 A, IS ERRONEOUS AND BAD IN LAW SIMPLY BECAUSE THE SAME REPRESENTS THE ENTIRE CLAIM OF INTEREST MADE BY THE APPELLANT. THE FUNDAMENTAL LOGIC OF RULE 14 A IS PART DISALLOWANCE OF THE CLAIM AND NOT THE WHOLE CLAIM.LT IS HOWEVER SEEN THAT BEFORE THE A O, THE APPELLANT HAD, EVEN IF UNDER PROTEST, GIVEN A WORKING OF INADMISSIBLE INTEREST UNDER RULE 14A OF RS . 3,18,974/ - WHEREAS N O W BY APPLYING DIFFERENT YARDSTICKS AND PARA METERS THE APPELLANT IS AGREEING FOR ADDITION OF RS. 1,60,0007 - ONLY. THE SAME CANNOT BE ALLOWED AS IT RAISES QUESTIONS ON THE ACCURACY OF APPELLANT S CALCULATIONS. AS THE APPELLANT HAS NOT BEEN ABLE TO DEMONSTRATE WITH ANY COGENT EVIDENCE AS TO HOW ITS OWN CALCULATION OF INADMISSIBLE INTEREST UNDER RULE 14A OF RS 3,18,974/ - PROVIDED TO BE ASSESSING OFFICER IS INCORRECT, THE ADDITION MADE BY THE A O IS RESTRIC TED TO RS. 3,18,974/ - AND THE BALANCE IS DELETED. GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 6. NOT SATISFIED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE ME. 7. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERE D FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 5 OF 6 8. I FIND THAT IT IS BY NOW A SETTLED LEGAL POSITION THAT TO THE EXTENT THE INVESTMENTS DO NOT EXCEED INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE, THE PRESUMPTION TO BE TAKEN IS THAT SUCH IN VESTMENTS ARE OUT OF INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE. SO FAR AS THIS PRESUMPTION IS CONCERNED, IT DOES NOT DEPEND ON ONE TO ONE LINKAGE OF T HE FUNDS AVAILABLE AND INVESTMENTS. IN THE PRESENT CASE, CAPITAL OF THE ASSESSEE IS RS.90,36,520/ - W HILE SUCH INVESTMENTS ARE OF RS.1,02,26,114/ - . THEREFORE, THE INTEREST ATTRIBUTABLE TO TAX EXEMPT INCOME IS ONLY SUCH INTEREST AS MAY BE ATTRIBUTED TO RS.11,89,594/ - . THIS AMOUNT, COMPUTED ON THE BASIS OF INTEREST @14% , AS TAKEN BY THE ASSESSEE HIMSELF, WORKS OUT TO RS.1,66,545/ - . THE ADMISSIBLE DISALLOWANCE UNDER SECTION 14A THUS IS COMPUTED AS FOLLOWS : - ( I ) DIRECT EXPENSES (I.E. DEMAT CHARGES) RS. 4,948/ - ( II ) INTEREST CHARGES RELATABLE TO INVESTMENTS IN INVESTMENTS YIELDING TAX EXEMPT INCOME RS.1,66,54 5/ - ( III ) 0.5% OF TAX INVESTMENTS YIELDING TAX EXEMPT INCOME RS. 36,821/ - ------------------ RS.2,08,314/ - ------------------- 9. IN MY CONSIDERED VIEW, THEREFORE, THE ADMISSIBLE DISALLOWANCE UNDER SECTION 14A AMOUNTS TO RS.2,08,3 14/ - . 10. FOR THE REASONS SET OUT ABOVE, I UPHOLD THE GRIEVANCE OF THE ASSESSEE TO THE EXTENT THAT DISALLOWANCE UNDER SECTION 14A SHOULD HAVE BEEN RESTRICTED TO RS.2,08,314/ - . THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS PART LY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2017 . SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: THE 28 TH DA Y OF FEBRUARY , 2017 . PBN/* ITA NO. 526 AHD 201 4 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 6 OF 6 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD