Bhogal Sons (Regd.), Ludhiana V. ACIT, Ludhiana

ITA 567/CHANDI/2012

• Counselvise Citation: 56721514 RSA 2012
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: S R CHHBRA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 567/CHD/2012 (ASSESSMENT YEAR : 2008-09) BHOGAL SONS (REGD.), VS. THE A.C.I.T., 22-R, INDUSTRIAL AREA-B, CIRCLE V, LUDHIANA. LUDHIANA. PAN: AABFB3443K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.R.CHHBRA RESPONDENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 11.09.2012 DATE OF PRONOUNCEMENT : 14.09.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, LUDHIANA D ATED 14.03.2012 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-I HAS ERRED IN LAW AND ON THE FACTS IN : A) UPHOLDING THE DISALLOWANCES MADE BY THE ASSESSING OFFICER AT RS.558007/- OUT OF INTEREST EXPENDITURE OF RS.756445/- WITHOUT APPRECIATING THE ASSESSEES SUBMISSION IN THIS REGARD AND THE CASE LAW ON THE SUBJECT. B) UPHOLDING THE ADDITION OF RS.29128/- U/S 14A AGAIN WITHOUT APPRECIATING THE ASSESSEES 2 SUBMISSION IN THIS REGARD AND THE CASE LAW ON THE SUBJECT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM CONSTITUTED OF ABOUT 15 PARTNERS. THE ASSESSE E HAD CLAIMED INTEREST EXPENDITURE OF RS.7,56,445/-. THE ASSESSING OFFICE R NOTED THE ASSESSEE TO HAVE ADVANCED CERTAIN AMOUNTS TO ITS PARTNERS AN D ALSO TO ITS SISTER CONCERN. THE EXPLANATION OF THE ASSESSEE TO THE SH OW CAUSE NOTICE ISSUED WAS THAT CUMULATIVE BALANCE OF THE PARTNERS OF THE FIRM WAS POSITIVE BALANCE AND EVEN IN THE CASE OF THE NEGATI VE BALANCES OF CERTAIN PARTNERS, THERE WAS POSITIVE BALANCE FOR PART OF TH E YEAR AND NEGATIVE BALANCE AT THE CLOSE OF THE YEAR. IN RESPECT OF TH E MONEY ADVANCED TO M/S INDIA TURN-O-MAT INDUSTRIES, THE ASSESSEE EXPLA INED THAT IT WAS ADVANCED FOR THE PURCHASE OF LAND AND BUILDING, WHI CH WAS REGISTERED IN THE NAME OF THE ASSESSEE IN THE SUCCEEDING YEAR. T HE ASSESSING OFFICER FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES [286 ITR 1 (P& H)] TABULATED THE NUMBER OF DAYS FOR WHICH THE BALANCES WERE ADVANCED TO THE RESPECTIVE PARTNERS AND EVEN TO THE SISTER CONCERN AND COMPUTE D THE DISALLOWANCE OF INTEREST AT RS.5,58,007/-. THE SAID TABULATED DETA ILS ARE INCORPORATED AT PAGES 3 AND 4 OF THE ASSESSMENT ORDER. FURTHER THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT IN RESPECT OF THE DIVIDEND INCOME EARNED OF RS.61,125/- AND LONG TERM CAPITAL GAINS OF RS.6,74,532/-, WHICH WERE CLAIMED AS EXEMPT. THE A SSESSING OFFICER DISALLOWED RS.29,128/- IN VIEW OF RULE 8D OF INCOME TAX RULES AS PER THE COMPUTATION AT PAGE 10 OF THE ASSESSMENT ORDER. 4. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSESS ING OFFICER ON BOTH THE ACCOUNTS AND ASSESSEE IS IN APPEAL AGAINST THE SAME. 5. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT AS PER THE 3 DETAILS PLACED AT PAGE 9 OF THE PAPER BOOK CUMULATI VE NET BALANCE OF THE PARTNERS AS ON THE CLOSE OF THE YEAR WAS ABOUT RS.1 .64 CRORES I.E. THE NET RESULT OF THE POSITIVE BALANCE AFTER ADJUSTING NEGA TIVE BALANCE AS CREDIT BALANCE. IT WAS FURTHER POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT NO INTEREST HAD BEEN PAID ON THE CREDIT BALANC E OF ALL THE PARTNERS AND EVEN IN THE CASE OF THE PARTNERS REFLECTING DEB IT BALANCES, NO INTEREST WAS PAID FOR PART OF THE YEAR WHEN THE SAID PARTNER /S HAD CREDIT BALANCE. THE SUBMISSION OF THE LEARNED A.R. FOR THE ASSESSEE IN THIS REGARD WAS THAT THE SAID ASPECT HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER AND THE INTEREST HAS BEEN CHARGED ON THE DEBIT BALANCES OF THE SAID PARTNERS, THOUGH ADMITTEDLY ONLY IN RELATION TO THE NUMBER OF DAYS OF DEBIT BALANCE. THE LEARNED A.R. FOR THE ASSESSEE STRESSE D THAT NO BORROWED FUNDS WERE RAISED DURING THE YEAR BY WAY OF SECURED OR UNSECURED LOANS. OUR ATTENTION WAS DRAWN TO THE BALANCE SHEET PLACED AT PAGE 7 OF THE PAPER BOOK IN WHICH IT HAS BEEN REFLECTED THAT SECU RED LOANS WHICH WERE BROUGHT FORWARD FROM THE PRECEDING YEAR, HAD BEEN P AID OFF DURING THE YEAR. FURTHER UNSECURED LOANS THOUGH CAPITAL SHOWS AN INCREASE BUT THE SAID INCREASE WAS ON ACCOUNT OF TRANSFER OF BALANCE OF RS.43.44 LACS OF ONE OF THE PARTNERS, WHO DEMISED DURING THE YEAR AN D HIS BALANCE WAS TRANSFERRED TO THE UNSECURED LOAN ACCOUNT AT THE CL OSE OF THE YEAR. IN RESPECT OF THE SECOND ADVANCE OF RS.21 LACS TO M/S INDIA TURN-O- MAT INDUSTRIES, IT WAS POINTED OUT THAT THE SAME WAS FO R THE PURCHASE OF LAND AND BUILDING. THE LEARNED A.R. FOR THE ASSESSEE FU RTHER POINTED OUT THAT THE SAID LOAN WAS ADVANCED ON 29.1.2008 AS IS APPAR ENT FROM THE PERUSAL OF THE BANK STATEMENT PLACED AT PAGE 28 OF THE PAPE R BOOK AND NOT ON 19.1.2008, AS TABULATED BY THE ASSESSING OFFICER. 6. IN RESPECT OF THE SECOND ADDITION MADE UNDER SEC TION 14A OF THE ACT, THE LEARNED A.R. FOR THE ASSESSEE STRESSED THA T NO FRESH INVESTMENT 4 WAS MADE DURING THE YEAR AND ALL THE INVESTMENTS WE RE SOLD DURING THE YEAR. IT WAS STRESSED BY THE LEARNED A.R. FOR THE ASSESSEE THAT NO EXPENSES WERE INCURRED ON EARNING OF THE SAID EXEMP T INCOME. RELIANCE WAS PLACED IN CIT VS. HERO CYCLES LTD. [323 ITR 51 8 (P&H)] AND CIT VS. WINSOME TEXTILE INDUSTRIES LTD. [319 ITR 204 (P &H)]. 7. THE LEARNED D.R. FOR THE REVENUE PLACING RELIANC E ON THE ORDER OF THE ASSESSEE POINTED OUT THAT THE PERUSAL OF THE CA PITAL ACCOUNT OF SHRI MOHINDER SINGH BHOGAL PLACED AT PAGE 18 OF THE PAPE R BOOK REFLECT THAT UP TO 14 TH SEPTEMBER THERE WAS CREDIT BALANCE OF RS.22 LACS I N HIS CAPITAL ACCOUNT WITH THE FIRM AND THEREAFTER SIMULTANEOUSLY THREE CHEQUES WERE ISSUED ON 24.9.2007 I.E. FOR RS.25 LACS, RS.5 LACS AND RS.30 LACS AND THE BALANCE OF THE PARTNER OF THE ASSESSEE FIRM WAS DEB ITED AT THE CLOSE OF THE YEAR. SIMILAR ENTRIES WERE POINTED OUT IN THE CASE OF ANOTHER PARTNER AGAINST WHOM THERE WAS DEBIT BALANCE AT THE CLOSE O F THE YEAR. IN RESPECT OF THE DISALLOWANCE U/S 14A OF THE ACT, THE LEARNED D.R. FOR THE REVENUE POINTED OUT THAT THE PROVISIONS OF RULE 8D OF THE I NCOME TAX RULES HAD BEEN APPLIED TO COMPUTE THE SAID DISALLOWANCE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN TH E MANUFACTURE OF CYCLE PARTS. THE ASSESSEE FIRM CONSTITUTES OF 15 PARTNER S OUT OF WHICH DEMISE OF ONE PARTNER TOOK PLACE DURING THE YEAR UNDER CON SIDERATION. THE BREAK UP OF PARTNERS CAPITAL ACCOUNT AS ON 31.3.2008 IS E NCLOSED AT PAGE 9 OF THE PAPER BOOK. THE OPENING BALANCE OF ALL PARTNER S EXCEPT ONE I.E. SHRI SURINDER SINGH BHOGAL WAS POSITIVE BALANCE TOTALING RS.4.32 CRORES. AFTER ADDITIONS AND WITHDRAWALS MADE BY THE PARTNER DURING THE YEAR AND ALSO INCLUSION OF SHARE OF PROFITS FOR THE FINANCIA L YEAR, THERE WERE DEBIT BALANCES IN THE CASE OF FOUR OF THE PARTNERS I.E. S /SHRI DHANWANT SINGH BHOGAL, MOHINDER SINGH BHOGAL, PARDAMAN SINGH BHOGA L AND SURINDER 5 SINGH BHOGAL, ON THE CLOSE OF THE YEAR I.E. 31.3.20 08. IN THE CASE OF ALL OTHER PARTNERS THERE WERE CREDIT BALANCE AS ON THE CLOSE OF THE YEAR I.E. 31.3.2008 AND THE CUMULATIVE CLOSING BALANCE OF THE CAPITAL ACCOUNT OF THE PARTNERS WAS RS.1.65 CRORES. ADMITTEDLY, THE A SSESSEE HAS NOT PAID ANY INTEREST ON THE CAPITAL BALANCES OF THE PARTNER S. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD INCURRED INTEREST EXPENDITURE OF RS.7,56,445/-. THE ASSESSING OFFICER HAS COMPUTED THE INTEREST RELATABLE TO THE NUMBER OF DAYS ON WHICH THERE WAS DEBIT BALA NCE IN THE CAPITAL ACCOUNT OF FOUR OF THE PARTNERS AS MENTIONED ABOVE. THE PERUSAL OF THE DETAILS TABULATED AT PAGES 3 AND 4 REFLECT THE BREA K UP OF THE NUMBER OF DAYS RELATABLE TO IT. THE SAID INTEREST HAS BEEN C OMPUTED BY THE ASSESSING OFFICER. HOWEVER, NO CREDIT HAS BEEN ALL OWED ON ACCOUNT OF POSITIVE BALANCE AVAILABLE IN THE CAPITAL ACCOUNT O F THE SAID PARTNERS OR EVEN THE OVERALL CAPITAL BALANCE OF THE PARTNERS IN TOTALITY AVAILABLE WITH THE ASSESSEE. IN THE CASE OF PARTNERSHIP FIRM, I.E . THE ASSESSEE BEFORE US, ALL THE PARTNERS HAD MADE CONTRIBUTIONS BY WAY OF T HEIR CAPITAL ACCOUNTS AND CUMULATIVE OPENING BALANCES WAS RS.4.32 CRORES ALONGWITH ADDITIONS DURING THE YEAR OF RS.1.27 CRORES AND WITHDRAWALS O F RS.3.93 CRORES. AFTER INCLUSION OF THE SHARE OF PROFIT AT RS.41.94 LACS, THE NET CAPITAL BALANCE OF ALL THE PARTNERS I.E. POSITIVE MINUS NEG ATIVE CAPITAL BALANCES WAS RS.1.65 CRORES AT THE CLOSE OF THE YEAR I.E. 31 .3.2008. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES WHERE THE P ARTNERS THEMSELVES HAD CONTRIBUTED POSITIVE CAPITAL BALANCES ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE FIRM, WE FIND NO MERIT IN THE STAND OF THE AUTHORITIES BELOW IN CHARGING INTEREST ON THE NEGATIVE CAPITAL BALANCE OF SOME OF THE PARTNERS THAT ALSO FOR LIMITED NUMBER OF DAYS DURIN G THE YEAR. IN ANY CASE, THE SAID ACTION OF THE ASSESSING OFFICER IS M ISPLACED WHEN NO CREDIT HAS BEEN ALLOWED ON ACCOUNT OF POSITIVE CAPI TAL BALANCE AVAILABLE WITH THE ASSESSEE FIRM IN THE ACCOUNT OF THE AFORES AID PARTNERS, WHO HAD 6 CLOSING NEGATIVE BALANCE AS ON 31.3.2008. IN THE E NTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESS ING OFFICER TO DELETE THE AFORESAID ADDITION MADE ON ACCOUNT OF DEBIT BAL ANCES IN THE CAPITAL ACCOUNTS OF FOUR OF THE PARTNERS. 9. THE SECOND PART OF THE SAID ADDITION IS THE LOAN ADVANCED TO M/S INDIA TURN-O-MAT INDUSTRIES OF RS.21 LACS. THE ASS ESSEE HAD MADE THE SAID ADVANCE ON 29.1.2008 AS IS APPARENT FROM THE P ERUSAL OF THE BANK STATEMENT FOR THE YEAR UNDER CONSIDERATION. THE AS SESSING OFFICER HAD ADOPTED THE DATE OF ADVANCE AS 19.1.2008 AND COMPUT ED THE DISALLOWANCE OF RS.49,709/-. ADMITTEDLY THE SAID ADVANCE WAS MA DE FOR PURCHASE OF LAND, WHICH WAS REGISTERED IN THE SUCCEEDING YEAR. UPHOLDING THE SAID DISALLOWANCE, WE DIRECT THE ASSESSING OFFICER TO RE COMPUTE THE DISALLOWANCE FROM 29.1.2008 TO 31.3.2008. THUS GRO UND NO.1 A) RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 10. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL I S AGAINST THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ADMITTEDLY, THE PROVISIONS OF RULE 8D OF INCOME TAX RULES FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT ARE APPLICABLE W.E.F. ASSESSMENT YEAR 2008-09. UNDER THE PROVISIO NS OF SECTION 14A OF THE ACT IT IS PROVIDED THAT THE EXPENDITURE RELATAB LE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T WOULD NOT BE ALLOWED IN THE HANDS OF THE ASSESSEE FOR COMPUTING THE DISALLOWANCE AND THE AFORESAID EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME, THE METHOD PRESCRIBED IS UNDER RULE 8D OF INCOME TAX RU LES. THE TOTAL DIVIDEND INCOME RECEIVED DURING THE YEAR IS RS.61,1 25/-. THE ASSESSING OFFICER HAS ALSO CONSIDERED THE LONG TERM CAPITAL G AINS OF RS.6,74,532/- AS EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. HOW EVER, THE SAID LONG TERM CAPITAL GAIN WAS SUBJECTED TO STT TAX PAID ON THE SALE CONSIDERATION 7 OF THE SAID SHARES SOLD BY THE ASSESSEE. SO WHAT I S TO BE TAKEN INTO ACCOUNT IN RELATION TO THE EXEMPT INCOME IN THE HAN DS OF THE ASSESSEE IS ONLY DIVIDEND INCOME OF RS.61,125/- WHICH ACCORDING TO THE ASSESSEE IS OUT OF INVESTMENT MADE IN THE EARLIER YEAR, WHICH W ERE SOLD DURING THE YEAR UNDER CONSIDERATION AND THE LONG TERM CAPITAL GAIN ON THE SAID SALE WAS DECLARED. WE ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION 14A OF THE AC T KEEPING IN MIND THAT THE TOTAL DIVIDEND INCOME RECEIVED BY THE ASSE SSEE IS ONLY RS.61,125/-. THE GROUND NO.1B) RAISED BY THE ASSES SEE IS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 TH SEPTEMBER, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8