Shri Rajpal Prahlad Mehta, Ahmedabad V. The Dy,CIT.,Circle-1, Ahmedabad

ITA 580/AHD/2013

• Counselvise Citation: 58020514 RSA 2013
• Duration Of Justice: 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: T H VASA A R
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' ! ' ! ' ! ' ITA NO. 580/AHD/2013 ASSESSMENT YEAR : 2009-10 SHRI RAJPAL PRAHLADBHAI MEHTA 15, NAVYUG SOCIETY, S. M. ROAD, AMBAWADI, AHMEDABAD V/S . DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, 3 RD FLOOR, A WING, PRATYAKSHAKAR BHAVAN, AMBAWADI, AHMADABAD- 380015. PAN NO. ABC PM1469Q (APPELLANT) .. (RESPONDENT) #$ % & BY APPELLANT SHRI T. H. VASA, A.R. '(#$ % & /BY RESPONDENT SHRI O. P. BATHEJA, SR. D.R. )* % /DATE OF HEARING 2 3 . 1 0.20 1 3 +,- % /DATE OF PRONOUNCEMENT 10.01.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF ASSESSEE WHICH H AS EMANATED FROM THE ORDER OF CIT(A)-VI, AHMEDABAD, DATED 18.12.2012 FOR ASSESSMENT YEAR 2009-10. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UN DER: 1. THE LD. CIT (APPEALS) HAS ERRED IN CONFIRMING T HE ADDITION OF RS.22,80,870/- APPLYING PROVISIONS OF SECTION 14A R .W. RULE 8D OF THE I. T. ACT, 1961 TO THE INCOME OF THE APPE LLANT. 2. THE APPELLANT HAD REQUESTED FOR ADJOURNMENT VIDE LETTER DATED 14/12/2012 AND IT WAS SAID THAT A NEW NOTICE WILL B E ISSUED, ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 2 HOWEVER, IN STEAD OF NEW NOTICE, AN EX-PARTE ORDER WAS PASSED. 3. THE APPELLANT CONTENDS THAT COMPUTATION MADE BY RULE 8D CONSIDERING ADDITION ON ACCOUNT OF INTEREST OF RS. 19,05,297/- AND ON ACCOUNT OF ADMINISTRATIVE EXPENSES OF RS.3,7 5,573/- @0.05% OF RS.7,51,14,617/- IS ERRONEOUS WRONGLY CAL CULATED AND IS AGAINST THE METHOD OF COMPUTATION PRESCRIBED IN RULE 8D OF THE ACT. 4. THE LD. DY. CIT, CIRCLE - 1, AHMEDABAD AND LD. C IT (APPEALS).VI, AHMEDABAD BOTH HAVE ERRED IN NOT CONS IDERING THAT THERE WAS NO DIRECT OR INDIRECT NEXUS BETWEEN BORROWINGS OF THE BUSINESS AND THE INVESTMENT, WHICH GIVES EXE MPT INCOME. 4.1 THE APPELLANT CONTENDS THAT THE WORKING OF RULE 8D MADE ON THE BASIS OF FIGURES OF PROPRIETARY CONCERN CAN NOT BE CONSIDERED SINCE INVESTMENT MADE OUT OF CAPITAL OF THE APPELLANT IN THE EARLIER YEARS, WHICH WAS NOT PART OF THE ACCOUNTS OF THE PROPRIETARY CONCERN. 5. THE APPELLANT FURTHER CONTENDS THAT THE COMPUTAT ION OF DISALLOWANCE OF INTEREST EXPENDITURE IS ERRONEOUSLY MADE BY TAKING FIGURE OF INTEREST INCOME OF THE APPELLANT. 6. THE APPELLANT FURTHER CONTENDS THAT THERE IS NO ADMINISTRATIVE EXPENSES OF THE PROPRIETARY CONCERN, WHICH IS DIREC TLY OR INDIRECTLY INCURRED BY THE PROPRIETARY CONCERN FOR EARNING APPELLANT'S EXEMPT INCOME. 7. THE APPELLANT CONTENDS THAT SINCE PROVISIONS OF SECTION I4A ARE NOT APPLICABLE, RULE 8D CAN NOT BE APPLIED. HEN CE, THE ADDITION IS ERRONEOUS AND BAD IN LAW. 8. THE APPELLANT CONTENDS THAT DECISIONS RELIED UPO N BY LD. A.O. IN HIS ORDER ARE NOT APPLICABLE TO THE FACT OF THE APPELLANT'S CASE. ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 3 9. THAT THE INTEREST CHARGED U/S, 234B OF RS.2,58,7 53/- AND U/S. 234C OF RS.88/- OF THE ACT, MAY PLEASE BE CANCELLED OR REDUCED. 10. IN VIEW OF THE ABOVE AND THAT MAY URGED AT THE TIME OF HEARING, IT IS PRAYED THAT: I) THAT ADDITION OF RS.22,80,870/- U/S.14A OF THE I T ACT R.W. RULE 8D OF THE I T RULES, 1962 MAY PLEASE BE DELETED II) THAT THE INTEREST CHARGED U/S. 234B OF RS.2,58, 753/- AND U/S. 234C OF RS.88/- OF THE ACT MAY BE CANCELLE D OR REDUCED. III) SUCH OTHER RELIEF OR REDUCTION AS THE FACTS AN D CIRCUMSTANCES OF THE CASE SO REQUIRE BE GRANTED. 2. THE ALL GROUNDS OF APPEAL ARE REVOLVING AROUND DISA LLOWANCE MADE U/S. 14A READ WITH RULE 8D OF THE I. T. ACT. THE LD. A.O . OBSERVED THAT THE ASSESSEE HAD EXEMPTED INCOME OF RS. 4,41,392/- AND INTEREST EXPENDITURE INCURRED IN M/S. ASTHA IMPACT OF RS. 55,26,896/- AS WELL AS ADMINISTRATIVE EXPENSES IN M/S. ASTHA IMPACT AT RS. 3,04,05,290/-. THE LD. A.O. GAVE THE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE WHICH WAS AVAILED BY THE ASSESSEE. AFTER CONSIDERING THE ASSESSEES REPLY AN D BY FOLLOWING THE ORDER OF HONBLE BOMBAY HIGH COURT DECISION IN CASE OF M/S. GODREJ BOYCE MANUFACTURER COMPANY LTD. VS. DCIT, HE APPLIED RULE 8D IN CASE OF THE ASSESSEE. THE APPELLANT ARGUED BEFORE THE LD. A.O. THAT HE NEITHER BORROWED ANY FUND NOR INCURRED ANY EXPENDITURE FOR MAKING IN VESTMENT, GIVING EXEMPTED INCOME. THESE INVESTMENTS WERE OUT OF ASSE SSEES OWN FUND, PROFIT ACCUMULATED OVER PAST FEW YEARS AS WELL AS PROFIT A CCUMULATED TO THE ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 4 ASSESSEE DURING THE YEAR. BUT, LD. A.O. HAD RELIED UPON THE ORDER OF THE SPECIAL BENCH DECISION IN CASE OF CHEM INVESTMENT L TD. VS. ITO, ITAT DELHI BENCH IN ITA NO. 87/DELHI/2008 AND CALCULATED THE D ISALLOWANCE U/S. 14A READ WITH RULE 8D AT RS. 22,80,817/- EVEN THERE IS NO EX PENDITURE INCURRED BY THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. A.O., TH E ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO HAD DISMISSED THE APPEAL IN ABSENCE OF ANY RESPONSE FROM THE ASSESSEE BEFORE HIM AND DECIDED T HE CASE ON MERITS AND FACTS GIVEN BY THE LD. A.O. 4. NOW, THE ASSESSEE IS BEFORE US AND THE LD. A.R F OR THE ASSESSEE SUBMITTED WRITTEN REPLY AS UNDER:- APPELLANT IS AN INDIVIDUAL-NO PERSONAL BOOKS OF AC COUNTS ARE MAINTAINED- CARRYING ON BUSINESS AS PROPRIETOR-BOOKS OF ACCOUNT S OF PROPRIETARY CONCERN ARE MAINTAINED- TAX AUDIT REPORT IS FILED IN RESPEC T OF BUSINESS OF THE APPELLANT. 1. APPELLANT EARNED EXEMPTED INCOME OF RS. 4,41,395 /- WHICH IS INCOME FROM DIVIDENDS AND MUTUAL FUNDS. PARA 2 PAGE-2 O F ASST. ORDER PAGE- 40-41 2. INVESTMENT IN SHARES AND MUTUAL FUNDS ARE NOT FR OM THE SOURCES OF PROPRIETARY BUSINESS ARE NOT PART OF INVESTMENTS IN THE BOOKS OF ACCOUNTS OF THE PROPRIETARY CONCERN. (PAGE 26). THE Y HAVE BEEN INVESTED BY APPELLANT FROM HIS CAPITAL AND EARNINGS IN EARLIER YEARS. THERE ARE NO BORROWING MADE FOR MAKING INVESTMENT I N SHARES AND MUTUAL FUNDS. 3. THE OPENING CAPITAL OF THE APPELLANT AS PER BUS INESS BOOKS IS RS. 3,55,18,114/- (ALL INVESTMENT IN SHARES AND MUTUAL FUNDS MADE IN EARLIER YEARS) AND AFTER THE PROFIT OF THE YEAR IT IS RS. 5,52,39,110/- ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 5 WHETHER,- WHERE ASSESSEE HAD SUFFICIENT INTEREST F REE FUNDS TO MEET ITS TAX FREE INVESTMENTS YIELDING EXEMPT INCOME, IT COULD BE PRESUMED THAT SUCH INVESTMENT WERE MADE FROM INTEREST FREE F UNDS AND NOT LOANED FUNDS AND, THUS NO DISALLOWANCE UNDER SECTIO N 14A BEING WARRANTED-HELD YES THE CASE IS COVERED BY CIT VS. UTI BANK LTD. (2013) TAXMAN 8 (MAG)(GUJ) (HC) AND ALSO CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) (HC) CIT VS. GUJARAT POWER CORPORATION LTD. (2013) 352 I TR 583 (GUJ) (HC) DIT VS. BNP PARIBAS SA (2013) 214 TAXMAN 548 (BOM)( HC) 4. AS PER THE ACCOUNTS OF THE PROPRIETARY CONCERN PROFIT AND LOSS ACCOUNT- INCOME (AT PAGE 28) BANK FDR INTEREST- IDBI 55,22,925 BANK OF BARODA ITEREST 3,971 55,26,896 INVESTMENT IN BOOKS OF THE FIRM ARE (PAGE 26) IDBI BANK FDR 9,37,11,788 BANK OF BARODA FDR 69,360 9,37,81,148 INTEREST INCOME FROM INVESTMENT IN BANK FDR IS TAXA BLE AND NOT EXEMPTED HENCE SHOULD BE EXCLUDED FROM THE COMPUTAT ION. RULE 8D(2)(II) 5. THE WORKING MADE BY AO AS PER RULE 8D IS ERRONEO US 1. A= EXPENDITURE BY WAY OF INTEREST OTHER THAN AMO UNT OF INTEREST INCLUDED IN (I) ABOVE AT PAGE 4 RS. 55,26,896 WHICH IS NOT INTEREST EXPENDITURE BUT INCOME SEE PAGE NO. 28 OF PROFIT AND LOSS ACCOUNT. DISALLOWANCE OF EXPENDITURE CANNOT BE MADE IF NO SA TISFACTION RECORDED.- LOANS FOR SPECIFIC BUSINESS PURPOSES CAN NOT BE INCLUDED UNDER RULE-8D (2)(II) EIMCO ELECON (INDIA)LTD. VS. ADDL. CIT (2013) 22 IT R 380/58 SOT 14 (URO) (AHD) (TRIB) BALARAMPUR CHINI MILLS LTD. VS DY. CIT (2011) 140 T TJ 73 (KOL)(TRIB) REI AGRO LTD. VS. DCIT (2013) 144 ITD 141 (KOL) (TR IB) ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 6 ACIT V BEST & CROMPTON ENG. LTD (CHENNAI) (TRIB) NET INTEREST EXPENDITURE TO BE CONSIDERED FOR RULE 8D ITO V KARNAVATI PETROCHEM PVT. LTD (AHD) (TRIB) 2. B= AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME TAKEN VALUE OF FIXED DEPOSITS WITH BANK WHICH IS TAXABLE PAGE 4 OF ORDER AND PAGE 26 OF PAPER BOOK. 3. EXPENSES= AS NARRATED BY THE LD. A.O. ARE NOT AT ALL INCURRED (PAGE 2 BOTTOM) ALL DIVIDEND INCOME IS BY ECS IN THE SAVING BANK ACCOUNT WITH IDBI BANK, SO NOT INVOLVEMENT OF ANY STAFF OR EMPLOYEE. ALL INVESTMENTS ARE MADE IN EARLIER YEARS AND NOT T HIS YEAR HENCE NO DISALLOWANCE OUT OF CURRENT YEAR EXPENSES. DISALLOWANCE OF EXPENDITURE-EXEMPT INCOME-EXPENDITU RE NOT CONNECTED WITH EXEMPT INCOME DISALLOWANCE CANNOT BE MADE- CIT VS ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. (201 3) 216 TAXMAN 92 (MAG) (DELHI) (HC) CIT VS. GLENMARK PHARMACEUTICAL LTD. (2013) 351 ITR 359 (BOM) (HC) 4.1 AT THE OUTSET, THE LD. SR. D.R. SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL ON RECORD. THE LD. CIT(A) HAS PASSED HIS ORDER IN ABSENCE OF A NY SUBMISSION BY THE ASSESSEE BEFORE HIM. THE LD. CIT(A) GIVEN 3 OPPORTU NITIES TO THE APPELLANT BUT FROM THE SIDE OF THE APPELLANT NO ONE WAS APPEARED AND NO WRITTEN REPLY WAS SUBMITTED. THE APPELLANT ONLY FILED ADJOURNMENT LET TERS. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE LD. CIT(A) TO GIVE ONE MORE CHANCE TO THE APPELLANT. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) SET ASIDE FOR DE NOVO. NEED NOT TO MENTION THAT THE PROPER OPPORTUNITY SH OULD BE GIVEN TO ITA NO. 580/AHD/2013, A.Y. 09-10 PAGE 7 THE ASSESSEE BEFORE PASSING ORDER. THE ASSESSEE IS ALSO DIRECTED TO APPEAR SUO MOTU BEFORE THE LD. CIT(A) WITHIN 30 DAYS FROM THE RECEIPT OF THIS ORDER. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 10.01.2014 SD/- SD/- ( MUKUL KR. SHRAWAT) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA . . . . % %% % '/ '/ '/ '/ 0/- 0/- 0/- 0/- / COPY OF ORDER FORWARDED TO:- 1. #$ / APPELLANT 2. '(#$ / RESPONDENT 3. 44 5 / CONCERNED CIT 4. 5- / CIT (A) 5. /9: ') , , / DR, ITAT, AHMEDABAD 6. :<= >? / GUARD FILE. BY ORDER/ . , @/ 4B , '