SHRI SHOBHAGMAL BANKATLAL MALOO, Nagpur V. ACIT-CENTRAL-CIRCLE-1(2), Nagpur

ITA 57/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1697 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: HIMESH DEMBLE
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

1 ITA NO. 57/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.57/NAG/2014 ASSESSMENT YEAR : 2008 - 09. SHOBHAGMAL BANKATLAL MALOO, ASSTT. COMMISSIONER OF 101, JA I BHAWANI SOCIETY, VS. INCOME - TAX, CENTRAL CIR.1 - (2), WARDHAMAN NAGAR, C.A. ROAD, NAGPUR. NAGPUR. PA N ACGPM0656C. APPELLANT. RESPONDENT. APPELLANT BY : SHRI HIMESH DEMBLE. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 27 - 07 - 2015 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 201 5 O R D E R PER SHAMIM YAHYA, A.M. . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - III, NAGPUR DATED 27 - 11 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2008 - 09. THE GROUNDS OF APPEAL READ AS UNDER : 1. CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION OF ` .113757/ - DISALLOWANCE INTEREST. 2. IMPUGNED SHARE OF PROFIT FROM M/S NANDLAL ENTERPRISES 6110/ - . 2. AS REGARDS GROUND NO.2 ABOVE, LEARNED COUNSEL OF THE ASSESSEE STATED THAT HE SHALL NOT BE PRESSING FOR THE SAME. ACCORDINGLY THE SAID GROUND IS DISMISSED AS NOT PRESSED. 2 ITA NO. 57/NAG/2014 3. APROPOS GROUND NO.2 DISALLOWANCE OF INTEREST OF ` .1,13757/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAD DEBITED ` .1,13,757/ - BEING THE INTEREST P AID ON ACCOUNT OF LOAN TAKEN FROM MR. SHOBHAGMAL B. MALOO. HUF. THE ASSESSEE FAILED TO FURNISH ANY DETAILS IN SUPPORT OF THE SAME. THE AO OBSERVED THAT THE LOAN TAKEN HAD BEEN UTILIZED FOR PURCHASE OF NIT PLOT AND FURTHER THE AO MADE THE DISALLOWANCE OF AM OUNT OF ` .1,13,757/ - U/S 14A READ WITH RULE 8D(2)(I) OF THE I.T. RULES, 1962 AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CONFIRMED THE ADDITION HOLDING AS UNDER : THE ASSESSEES SU BMISSIONS ARE CONSIDERED AND I FOUND NO MERITS IN THE SAME. IN THIS CASE, IT IS OBSERVED THAT THE A.O. HAS ESTABLISHED THE NEXUS BETWEEN THE LOAN TAKEN BY THE APPELLANT AND AMOUNT UTILIZED. THE APPELLANT HAS USED THE MONEY TOWARDS PURCHASE OF THE LAND WHIC H IS FOR THE INVESTMENT PURPOSES. AS REGARDS THE DISALLOWANCE OF INTEREST MADE U/S 14A OF THE I.T. ACT, THE RECENT HONBLE BOMBAY HIGH /COURTS DECISION IN THE CASE OF G ODREJ BOYCE VS. DCIT 328 ITR 81 IS THE FINAL AUTHORITY NOW ON THIS ISSUE. THIS DECISION IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE, THIS BEING A.Y. 2008 - 09 AND THUS THE DISALLOWANCE AS PER RULE 8D U/S 14A IS CORRECTLY MADE BY THE A.O. AND NO INTERFERENCE IN THIS CONTEXT IS CALLED FOR. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE IN THIS REGARD SUMMARIZED AS UNDER : A) INTEREST EXPENDITURE OF ` .1,13 ,757/ - IS PAID TO ASSESSEES HUF, ON WHICH THE PAYEE HAS DULY PAID THE TAXES. B) BORROWED FUNDS HAVE BEEN UTILIZED FOR PROCUREMENT OF IMMOVABLE ASSET. 3 ITA NO. 57/NAG/2014 C) ROI DOES NOT ENCOMPASS ANY INCOME NOT INCLUDIBLE IN TOTAL INCOME. ASSESSEE PLACES RELIANCE UPON - CIT VS. HOLCIM INDIA PVT. LTD. (HC DEL). CIT VS. LAKHANI MARKETING (HC P&H). CIT VS. CORRTECH ENERGY PRIVATE LIMITED (HC GUJ). CIT VS. SHIVAM MOTORS PRIVATE LIMITED. D) HONBLE CIT(A) RELIED UPON GODREJ & BOYCE VS. DCIT 328 ITR 81, WHICH DEALS WITH THE CONSTITUTIONA L VALIDITY OF ENVISAGE OF THE SEC. 14A AS REGARDS TO DIVIDEND INCOME AS DIVIDEND DISTRIBUTION TAX (DDT) IS ALREADY PAID ON THE SAME. THE FACTS OF THE CASE UNDER CONSIDERATION ARE DISTINGUISHABLE. E) NO ASSETS FROM WHICH EXEMPT INCOME MAY BE DERIVED, HENCE, S EC. 14A IS NOT APPLICABLE TO THE CASE UNDER CONSIDERATION. F) ALTERNATIVELY, THE ASSESSEE HUMBLY PRAYS BEFORE YOUR HONOUR THAT THE SAME MAY BE ALLOWED TO BE CAPITALIZED BY THE ASSESSEE. 7. PER CONTRA, LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES B ELOW. 8. UPON CAREFUL CONSIDERATION, WE NOTE THAT THE AO HAS IN ASSESSMENT ORDER OBSERVED THAT THE LOAN FROM HUF TAKEN BY THE ASSESSEE WAS UTILIZED FOR INVESTMENT IN NIT PLOT. THUS IT IS UNDISPUTED THAT THE AMOUNT OF LOAN WAS UTILIZED FOR PURCHASE OF LAN D. ADMITTEDLY NO INCOME WAS EARNED BY THE ASSESSEE FROM THE SAME DURING THE YEAR. IN SUCH SITUATION, WHEN NO TAX FREE INCOME IS EARNED, DISALLOWANCE U/S 14A IS NOT CALLED FOR. THIS HAS BEEN SO HELD BY SEVERAL HIGH COURTS INCLUDING HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD. V IDE ORDER DATED 5 TH SEPT., 201 4 IN I NCOME TAX APPEAL NO. 486/2014. IN THIS DECISION HONBLE HIGH COURT HAS ALSO REFERRED TO THE DECISION OF HON BLE 4 ITA NO. 57/NAG/2014 ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 O F 2014 IN THE CASE OF CIT VS. M/S SHIVAM MOTORS (P) LTD. D ECIDED ON 05 - 05 - 2014 WHEREIN IT WAS HELD AS UNDER: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCT ION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE ACT.. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCO ME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE IN THE ABSENCE OF ANY TAX FREE INCOME, TH E CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF ` .2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER. 9. FROM THE ABOVE CASE LAW, IT IS EVIDENT THAT THE WHEN ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME OR OTHER TAX FREE INCOME FROM THE INVESTMENT IN LAND FOR WHICH THE LOAN HAS BEEN TAKEN NO DISALLOWANCE U/S 14A IS CALLED FOR . ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 28 TH AUGUST, 2015. 5 ITA NO. 57/NAG/2014 COPY OF ORDER FORWARDED TO : 1. THE ASS ESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR