B P RATURI, NEW DELHI V. DCIT, CIRCLE- I, NEW DELHI

ITA 5837/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3768 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 12-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMPOORANANAND
• Keywords: Business expenditure; Earning of tax free income; Proportionate interest; Question of law
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 5837/DEL/2017 A.Y. : 2013-14 M/S B P RATURI, D-223, SECTOR-10, NOIDA UTTAR PRADESH 201 301 (PAN: AAHFB6580B) VS. DCIT, CIRCLE-I, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. OM PRAKASH, CA DEPARTMENT BY : SH. SAMPOORANANAND, SR. DR ORDER ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 30.6.2017 PASSED BY THE LD. CIT(A)-I, NOIDA RELEVA NT TO ASSESSMENT YEAR 2013-14 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN DISALLOWING THE PROPORTIONATE INTEREST OF RS. 4,72,309/- AND CREATING ARTIFICIAL DEMAND OF RS. 1,76,880/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. AO IS BAD IN LAW IN DISALLOWING ADDITIONAL INTEREST OF RS. 4,72,309/- IGNORING THE FACT THAT AN AMOUNT OF RS. 4,84,000/- WAS ALREADY DISALLOWED ITSELF BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO IS BAD IN LAW IN DISALLOWING THE PROPORTIONATE INTEREST OF RS. 4,72,309/- IGNORING THE FACT THAT THERE IS NO FINANCIAL INVESTMENT AND 2 NO EXEMPT INCOME IS RECEIVED BY THE ASSESSEE DURING THE YEAR. 4. THE APPELLANT CRAVES TO LEAVE TO ADD, ALTER OR WITHOUT ANY OF THE GROUNDS WHENEVER CONSIDERED NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA D FILED E-RETURN DECLARING TAXABLE INCOME OF RS. 14,95,820/- ON 27.9 .2013. LATER ON THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY THRO UGH CASS WITH THE REASON OF LARGE INTEREST EXPENSES RELATABLE TO EXEM PT INVESTMENT U/S. 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED A S THE ACT) AND HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN IN COMPARED TO THE INCOME TAX RETURN. ACCORDINGLY, NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 03.9.2014 AND SERVED UPON THE ASSESSEE. SUBSEQUENT LY, NOTICES U/S. 143(2) AND 142(1) OF THE ACT DATED 23.12.2014 ALONG WITH QUESTIONNAIRE WERE ALSO ISSUED REQUIRING THE ASSESSEE TO FURNISH CERTAIN DETAILS / INFORMATION. IN RESPONSE TO THE SAME, THE ACCOUNTA NT OF THE ASSESSEES FIRM ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FURNISHED DETAILS AND REPLIES TO THE QUERIES RAISED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF CATERIN G SERVICES AND HAS SHOWN GROSS TURNOVER OF RS. 3,68,00,901/-, GROSS PR OFIT OF 58,15,484/- AND NET PROFIT AT RS. 14,95,822/-. THE BOOKS OF AC COUNTS WERE AUDITED U/S. 44AB OF THE I.T. ACT AND COPY OF AUDIT REPORT WAS ALSO FURNISHED. THE ASSESSEE HAS ALSO FURNISHED A COPY OF SALES TAX RET URN AND VARIOUS OTHER DETAILS IN SUPPORT OF ITS INCOME AS CALLED FOR DURI NG VARIOUS HEARINGS AND 3 PRODUCED COMPLETE BOOKS OF ACCOUNTS ALONGWITH BILLS AND VOUCHERS, WHICH WERE VERIFIED ON TEST CHECK BASIS. ON THE ISSUE OF LARGE INTEREST EXPENSES RELATABLE TO EXEMPT INCOME U/S. 14A, ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST EXPENSES AGAINST THE EXEMPT INC OME. ASSESSEE HAS FILED HIS REPLY ON 8.2.2016 STATING THAT ASSESSEES FIRM HAS ACQUIRED 100% SHARES OF M/S SPECTACLE METAL PRIVATE LIMITED AMOU NTING TO RS.2.20 CRORES. THE ASSESSEE HAS INVESTED RS. 1,38,60,000/- FROM SALE OF PLOT AND RS.31,50,000/- UNSECURED LOAN FROM BANK, THE REST O F INVESTMENT WAS MADE BY NON-INTEREST BEARING FUNDS FROM FRIENDS AND RELATIVES. FURTHER, ASSESSEE HAS ALSO STATED THAT SECTION 14A READ WIT H RULE 8D OF I.T. RULES HAS NO APPLICABILITY UNLESS EXEMPT INCOME IS RECEIV ED BY THE ASSESSEE DURING THE YEAR. THE REPLY OF THE ASSESSEE HAS BE EN PERUSED AND FOUND THAT IN PROFIT AND LOSS ACCOUNT, ASSESSEE HAS DEBIT ED INTEREST EXPENSES AMOUNTING TO RS. 10,22,705/- BUT DURING THE YEAR UN DER CONSIDERATION ASSESSEE HAS MADE INVESTMENT OF RS. 2.20 CRORES FOR PURCHASE OF SHARES OF M/S SPECTACLE METAL PRIVATE LIMITED. SINCE, DIVI DEND INCOME RECEIVED FROM DOMESTIC COMPANIES IS EXEMPTED FROM THE TAX, T HE INTEREST PAID BY THE ASSESSEE WAS TO BE DISALLOWED PROPORTIONATELY A S ASSESSEE HAS MADE INVESTMENT WHOSE INCOME IS EXEMPTED FROM TAX. THERE FORE THE PROPORTIONATE INTEREST BY TAKING AVERAGE VALUE OF O PENING AND CLOSING OF INVESTMENT AND TOTAL ASSETS (DISALLOWANCE OF INTERE ST = 1022705 X 11002040/23823065) WHICH COMES TO RS. 4,72,309/- WA S DISALLOWED UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX R ULE, 1962 VIDE ORDER 4 DATED 23.2.2016 PASSED U/S. 143(3) OF THE ACT BY ASSESSING THE INCOME OF THE ASSESSEE AT RS. 19,68,129/-. 3. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 23.2.2 016, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 30.6.2017 HAS DISMISSED THE APPEAL OF THE ASS ESSEE BY CONFIRMING THE ORDER OF THE AO. 4. AGAINST THE IMPUGNED ORDER DATED 30.6.2017, ASS ESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. A.R. OF THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING PAGES 1 TO 22 ENCLOSING THEREWITH T HE COPY OF WRITTEN SUBMISSION MADE BEFORE THE LD. CIT(A); COPY OF LEDG ER INTEREST CHARGES ACCOUNT; COPY OF LOAN ACCOUNT; COPY OF PROF IT AND LOSS ACCOUNT AND BALANCE SHEET AS ON 31.3.2013 AND COPY OF BALAN CE SHEET OF M/S SPECTEC METAL PROCESSORS (P) LTD. LD. A.R. OF THE A SSESSEE BY REFERRING THE INTEREST LEDGER ACCOUNT AND LOAN ACCOUNT STATED TH AT ASSESSEE HAS DISALLOWED RS. 4,84,000/- OUT OF TOTAL INTEREST OF RS. 15,06,705/- AND DEBITED TO PARTNERS CAPITAL ACCOUNT, WHICH IS MORE THAN THE AMOUNT OF RS. 4,72,309/- AS DISALLOWED BY THE AO. HE FURTHER STATED THAT AO HAS NOT EXAMINED THE ACCOUNTS SUBMITTED BY THE ASSESSEE AND IGNORING THE SUBMISSIONS OF THE ASSESSEE DIRECTLY EMBARKED UPON RULE 8(2)(II) AND ACTED MECHANICALLY IN DISALLOWING THE PROPORTIONATE NET INTEREST OF RS. 10,22,705/- (RS. 15,06,705/- MINUS RS. 4,84,000 /-) DEBITED TO THE P&L ACCOUNT THAT AMOUNT OF RS.4,84,000/- WAS ALREAD Y DISALLOWED ITSELF 5 BY THE ASSESSEE. HE FURTHER STATED THAT AO HAS MAD E THE ADDITION OF RS. 4,72,309/- BY IGNORING THE FACT THAT THERE IS NO FINANCIAL INVESTMENT AND NO EXEMPT INCOME IS RECEIVED BY THE ASSESSEE DU RING THE YEAR, WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW. TO SUPPORT HIS CONTENTION, HE RELIED UPON THE CASE LAW OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHIVAM MOTORS (P) LTD. (2015) 230 TAXMAN 63, ITA 88 /2014 DATED 05.05.2014 AND THE DECISION OF THE HONBLE DELHI H IGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT [2015] 378 ITR 33 (DEL.) . 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS ESPECIALLY THE IMPUGNED ORDER AS WELL AS THE PAPER BOOK FILED BY T HE LD. AR OF THE ASSESSEE. I FIND THAT IN THIS APPEAL ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 4,72,309/- MADE U/S. 14 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. ON PERUSING THE INTEREST LEDGER ACCO UNT AND LOAN ACCOUNT IT SHOWS THAT ASSESSEE HAS DISALLOWED RS. 4,84,000/ - OUT OF TOTAL INTEREST OF RS. 15,06,705/- AND DEBITED TO PARTNERS CAPITAL ACCOUNT, WHICH IS MORE THAN THE AMOUNT OF RS. 4,72,309/-. I FURTHER FIND T HAT AO HAS NOT EXAMINED THE ACCOUNTS SUBMITTED BY THE ASSESSEE AND IGNORING THE SUBMISSIONS OF THE ASSESSEE DIRECTLY EMBARKED UPON RULE 8(2)(II) AND ACTED MECHANICALLY IN DISALLOWING THE PROPORTIONATE NET INTEREST OF RS. 10,22,705/- (RS. 15,06,705/- MINUS RS. 4,84,000 /-) DEBITED TO THE P&L ACCOUNT THAT AMOUNT OF RS.4,84,000/- WAS ALREAD Y DISALLOWED ITSELF BY THE ASSESSEE. I FURTHER NOTE THAT AO HAS MADE T HE ADDITION OF RS. 4,72,309/- BY IGNORING THE FACT THAT THERE IS NO FINANCIAL INVESTMENT AND NO EXEMPT INCOME IS RECEIVED BY THE ASSESSEE DU RING THE YEAR, WHICH IS NOT TENABLE UNDER THE PROVISIONS OF LAW. MOREO VER, I FIND CONSIDERABLE 6 COGENCY IN THE ASSESSEES CLAIM RELATING TO INTERES T EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WAS ADM ISSIBLE AS BUSINESS EXPENDITURE OF THE ASSESSEE, HENCE, IN VIEW OF THE ABOVE, I DELETE THE ADDITION IN DISPUTE BY RESPECTFULLY FOLLOWING THE F OLLOWING DECISIONS:- - JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHIVAM MOTORS (P) LTD. (2015) 230 TAXMAN 63, ITA 88/2014 DATED 05.05.2014 WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER:- 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT 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 INCOME 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, THE 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 RS.2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER. 7 NO SUBSTANTIAL QUESTION OF LAW WOULD HENCE ARISE. FOR THESE REASONS, WE ARE OF THE VIEW THAT THE APPEAL BY THE REVENUE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THE APPEAL SHALL, ACCORDINGLY, STAND DISMISSED.' - THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT [2015] 378 ITR 33 (DEL.) HAS HELD THAT SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED IN THE AFORESAID MANNER. ORDER PRONOUNCED ON 07/02/2018. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE 07/02/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES