Sanjay Madhukar Pendse, Pune V. Deputy Commissioner of Income-tax, Circle - 3, Pune

ITA 527/PUN/2018

AI Insights

The case involves Mr. Sanjay Madhukar Pendse, the appellant, contesting the disallowance of interest income against interest paid on unsecured loans under Section 14A of the Income Tax Act, 1961, for the assessment year 2012-13. The primary contention was whether the interest income of Rs.25,74,144 should be netted against the interest expenses while calculating the disallowance under Section 14A. The CIT(A)-3, Pune, upheld the Assessing Officer's decision, which did not allow such netting. The Tribunal, after considering the arguments and the judicial precedents, restored the issue to the Assessing Officer to determine the nature of the interest expenditure and apply the netting method if it pertains to proportionate interest expenditure.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 137028 (ITAT-PUNE)
• Duration Of Justice: 18 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowedPartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 04-12-2022
• Assessment Year: misc
• Appeal Filed On: 25-05-2004
• Other Referred Cases: CIT vs. Jagat Enterprises Pvt. Ltd., [2019] 416 ITR 58 (Bom.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A” : PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA.No.527/PUN./2018 Assessment Year 2012-13 Mr. Sanjay Madhukar Pendse, 2, Commerce Centre, 16-Rambaug Col. Paud Road, Kothrud, Pune. PIN 411 038. Maharashtra PAN AAUPP2851N vs., The DCIT, Circle-3, PMT Building, Shankarset Road, Swargate, Pune – 411 037 Maharashtra. (Appellant) (Respondent) For Assessee : Shri Suhas P. Bora For Revenue : Shri Ramnath P. Murkunde Date of Hearing : 05.12.2022 Date of Pronouncement : 13.12.2022 ORDER PER SATBEER SINGH GODARA, J.M. This Assessee’s appeal for assessment year 2012-13, arises against the CIT(A)-3, Pune’s order dated 04.01.2018, passed in case No.PN/CIT(A)-3/Cir.3,Pn/166/2015-16, involving proceedings under Section 143(3) of the Income Tax Act, 1961 (in short “the Act”). 2. The assessee has pleaded the following substantive grounds 1. “On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals-3), Pune has erred in not allowing deduction of interest income 2 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. of Rs.25,74,144/- against the interest paid on unsecured loans, while calculating disallowance u/s 14A of the Income Tax Act, 1961, without appreciating the fact that the learned Dy. Commissioner of Income Tax Circle 3, Pune had allowed the same in the assessment made u/s 143(3) of the Income Tax Act, 1961. 2. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals-3), Pune has erred in not considering net interest expenditure (i.e. deduction of interest income from interest expenses) for calculating disallowance u/s 14A of the Income Tax Act, 1961. 3. The appellant craves leave to add/modify/amend/alter all or any of the grounds of appeal.” 3. Both the learned representatives next invited our attention to the CIT(A)'s detailed discussion affirming Assessing Officer’s action invoking sec.14A r.w. Rule 8D disallowance of Rs.18,22,335/- as follows : 3 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. 4 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. 5 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. 6 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. 3.1. Learned counsel’s sole substantive argument during the course of hearing is that both the lower authorities ought to have followed netting method for the purpose of computing the impugned disallowance as it has come on record that this assessee has also received interest income totalling to Rs.48,87,664/- from M/s. Kishore Paranjape Pendse Associates and interest from banks, involving varying sums. Mr. Vora further quoted CIT vs., Jagat Enterprises Pvt. Ltd., [2019] 416 ITR 58 (Bom.) that such an interest ought to be disallowed on netting formula only, as held by various learned coordinate benches decisions. 4. The Revenue has strongly supported the impugned disallowance made by both the lower authorities. 5. We have given our thought consideration to rival stands. It is noted during the course of hearing from perusal of the foregoing judicial precedents that the issue therein was that of proportionate interest expenditure u/s. 8D(2)(ii) of the Act. Both the authorities are unable to throw any light on the assessment discussion as to whether the Assessing Officer has disallowed direct or proportionate interest expenditure, as the case may be. Faced with the situation, we deem it appropriate to restore the instant sole issue of computation of impugned disallowance u/s.14A r.w.Rule 8D(2)(ii) to the Assessing Officer with a clearcut direction that in case it is found that assessee had incurred any direct expenditure, it would not be entitled for any netting, but, if it emerges in 7 ITA.No.527/PUN./2018 Mr. Sanjay Madhukar Pendse, Pune. consequential proceedings that proportionate interest expenditure deserves to be disallowed, he shall follow netting method in view of hon’ble jurisdictional high court decision (supra) in consequential proceedings as per law. Ordered accordingly. 6. This assessee’s appeal is partly allowed for statistical purposes in above terms. Order pronounced in the open Court on 13.12.2022. Sd/- Sd/- [DR. DIPAK P. RIPOTE] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 13 th December, 2022 VBP/- Copy to 1. The appellant 2. The respondent 3. The Ld. CIT(A) concerned. 4. The CIT concerned 5. D.R. ITAT, Pune “A” Bench, Pune 6. Guard File. //By Order// Assistant Registrar, ITAT, Pune Benches Pune.