MANJU GUPTA, MUMBAI V. ASST CIT CIR 16(1), MUMBAI

ITA 6206/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93220 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P PUROHIT
• Keywords: Salary income; Earning of tax free income; Source of fund
• Section: 143(3); 14A

Judgement Text

MRS MANJU GUPTA ITA NO. 6 2 06 /M/201 2 1 0 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICI AL MEMBERITA ITA NO. : 6 2 06 /MUM/20 1 2 (ASSESSMENT YEAR: 200 7 - 0 8 ) MRS MANJU GUPTA , 2 ND FLOOR, SWASTIK INDL ESTATE, 178 CST ROAD, SANTACRUZ (WEST), MUMBAI - 400 098 .: PAN : A A BP G 9928 L VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1 6 ( 1 ), MATRUM ANDIR, 2 ND FLOOR, TARDEO ROAD, MUMBAI - 400 036 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J P PUROHIT RESPONDENT BY : SHRI YOGESH KAMAT /DATE OF HEARING : 14 - 05 - 201 5 / DATE OF PRONOUNCEMENT : 17 - 07 - 2015 ORDER PER AMIT SHUKLA , J.M. : TH E AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 1 1 . 0 7 .201 2, PASSED BY CIT(A) - I , MUMBAI FOR THE QUANTUM OF THE ASSESSMENT PASSE D UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 200 7 - 0 8 . THE ONLY ISSUE RAISED BY THE ASSESSEE IS DISALLOWANCE OF RS. 4,52,000/ - ON ACCOUNT OF INTEREST MADE UNDER SECTION 14A R.W. RULE 8D. 2. THE B RIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE HAS INCOME FR OM FOLLOWING SOURCES: - I ) INCOME FROM SALARY ; II ) INCO M E FROM HOUSE PROPERTY ; III ) INCOME FROM SHORT TERM CAPITAL GAIN ; AND IV ) INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 20, 2 9,222/ - FROM VARIOUS LOANS GIVEN BY THE MRS MANJU GUPTA ITA NO. 6 2 06 /M/201 2 2 ASSESSEE AND HAS ALSO PAID INTEREST OF RS. 11,81,175/ - FOR WHICH IT HAS CLAIMED DEDUCTION OF INTEREST AGAINST THE INTEREST INCOME OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER NOTED THE FOLLOWING FACTUAL POSITION WI TH REGARD LOANS RECEIVED, LOANS GIVEN AND INVESTMENTS IN SHARES FOR THE ASSESSMENT YEARS 2006 - 07 & 2007 - 08 : - ASSESSMENT YEAR LOANS RECEIVED LOANS GIVEN INVESTMENT IN SHARES 2006 - 2007 32,07,615 69,57,956 78,14,286 2007 - 2008 1,49,05,210 1,33,73,960 1 ,31,83,229 3 . THE ASSESSEE HAD CLAIMED DIVIDEND INCOME AND LONG TERM CAPITAL ON SALE OF SHARES AS EXEMPT ARISING OUT OF INVESTMENT MADE IN SHARES. THE ASSESSING OFFICER HELD THAT EVEN THOUGH THE ASSESSEE HAS CLAIMED INTEREST PAID AS DEDUCTION UNDER THE H EAD INCOME FROM OTHER SOURCES, HOWEVER, NO DISALLOWANCE OF INTEREST HAS BEEN OFFERED U/S 14A. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE BORROWED FUNDS WERE USED ONLY FOR ADVANCING OF LOANS AND THERE WAS POSITIVE INTEREST INCOM E, WHICH HAS BEEN OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE ASSESSING OFFICER HELD THAT DISALLOWANCE U/S 14A IS CALLED FOR AND WORKED OUT THE DISALLOWANCE OF RS. 5,35,445/ - IN ACCORDANCE WITH THE RULE 8D. 4 . THE LD. CIT(A), THOUGH H ELD THAT RULE 8D IS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007 - 08, HOWEVER, HE HELD THAT SOME REASONABLE BASIS FOR COMPUTING THE DISALLOWANCE HAS TO BE MADE . HE HELD THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AND OTHER CHARGES AT RS. 11,81,175/ - AN D HAS ALSO EARNED EXEMPT LONG - TERM - CAPITAL - GAIN AT RS. 12,36,980/ - AND DIVIDEND INCOME OF RS. 3,69,485/ - . OUT OF THE TOTAL FUNDS AVAILABLE FROM THE BALANCE SHEET AT RS. 3.45 CRORES , RS. 1.32 CRORES WERE INVESTED IN TAX EXEMPT INSTRUMENT, ACCORDINGLY, PROPO RTIONATE DISALLOWANCE OF RS. 4.25 LAKHS WAS MADE AS PER THE WORKING GIVEN IN PARA 3.3 OF THE IMPUGNED ORDER . MRS MANJU GUPTA ITA NO. 6 2 06 /M/201 2 3 5 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THE DETAILS OF LOAN AND ITS UTILIZATION FOR EARNING OF INTEREST INCOME. H E SUBMITTED THAT THE LOANS TAKEN DURING THE YEAR WERE NOT UTILIZED FOR MAKING THE INVESTMENT IN THE SHARES OR MUTUAL FUNDS WHICH HAVE YIELDED EXEMPT INCOME. HE ALSO DREW OUR ATTENTION TO SCHEDULE OF INVESTMENTS AND THE YEAR S IN WHICH THE INVESTMENTS WERE MADE. FURTHER , TH E ASSESSEE HAS NET INTEREST INCOME IF OVERALL FACTUAL POSITION OF INTEREST PAID AND INTEREST RECEIVED IS TAKEN INTO CONSIDERATION . THUS, IT CANNOT BE HELD THAT DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A. IN SUPPORT OF HIS PROPOSITION , HE RELIED UPON THE DECISION OF ITAT, AHMADABAD BENCH , IN THE CASE OF ITO VS KAR N A V A TI PETROCHEM LTD., ITA NO. 2228/AHD/2012 , ORDER DATED 05.07.2013. 6 . ON THE OTHER HAND, LD. DR SUBMITTED THAT THE A SSESSING O FFICER HAD CLEARLY BROUGHT OUT THAT ASSESSEE HAS MADE HUGE INVESTM ENTS, WHICH HAS YIELDED EXEMPT INCOME AND THE FUNDS AVAILABLE WITH THE ASSESSEE IN THE BALANCE SHEET ARE MAINLY FROM LOANS RECEIVED. THE LOANS HAVE BEEN NOT ONLY UTILIZED FOR GIVING THE LOANS FOR EARNING OF INTEREST BUT ALSO MAKING THE INVESTMENT, THEREFOR E, PROPORTIONATE DISALLOWANCE MADE BY THE CIT(A) IS CORRECT. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIALS PLACED ON RECORD. THE ASSESSEES EXEMPT INCOME IS FROM LONG - TERM - CAPITAL - GAIN OF R S. 12,36,480/ - AND DIVIDEND INCOM E OF RS. 3,69,485/ - . F OR EARNING OF SUCH ON EXEMPT INCOME, THE ASSE S SEE HAS NOT APPORTIONED ANY AMOUNT FOR DISALLOWANCE. THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST IS UNDER THE HEAD INCOME FROM OTHER SOURCES, WHEREIN , THE ASSESSEE HA S GIVEN LOANS TO THE PARTIES FOR EARNING OF THE INTEREST INCOME. FROM THE PERUSAL OF THE BALANCE SHEET, IT IS SEEN THAT THE TOTAL AVAILABLE CAPITAL IS RS. 3,45,00,248/ - , WHEREAS, THE INVESTMENT IN SHARES/ MUTUAL FUNDS YIELDING EXEMPT INCOME IS RS. 1,31,83,229/ - . THOUGH THE ASSE S SEE HAD SUBMITTED UTILIZATION OF LO A NS RECEIVED DURING THE YEAR, HOWEVER THE FACT THAT THE ENTIRE SECURED & UNSECURED LOANS COMING MRS MANJU GUPTA ITA NO. 6 2 06 /M/201 2 4 OUT OF OPENING BALANCE AND DURING THE YEAR HAVE BEEN FULLY UTILIZED FOR GIVING THE LOANS ON WHICH THE ASSESSEE HAS EARNE D INTEREST INCOME IS NOT FULLY VERIFIABLE. THERE ARE NO SURPLUS FUNDS, WHICH CAN BE SAID TO HAVE BEEN INVESTED IN SHARES AND MUTUAL FUNDS, THEREFORE, PROPORTIONATE DISALLOWANCE OF INTEREST HAS TO BE MADE FOR THE PURPOSE OF DISALLOWANCE U/S 14A. HOWEVER, THE FORMULA IN WHICH THE CIT(A) HAS MADE THE DISALLOWANCE IS NOT CORRECT, AS HE H AS NOT TAKEN INTO ACCOUNT THE AMOUNT OF LOAN, WHICH HAS BEEN SHOWN TO HAVE BEEN FULLY UTILIZED FOR EARNING OF INTEREST INCOME. SINCE THE SOURCE OF FUNDS ARE MIXED - UP AND ENTI RE ONE - TO - ONE UTILIZATION OF LOAN CANNOT BE RECONCILED , SPECIFICALLY, ON THE OPENING BALANCE AND ALSO THE FACT THAT THERE IS AN INCREASE IN LOAN RECEIVED BY RS. 1.17 CRORES AND INCREASE IN SHARES INVESTED AT RS. 53.68 LAKHS, THEREFORE, SOME DISALLOWANCE ON ACCOUNT OF INTEREST IS DEFINITELY CALLED FOR . WE ARE OF THE OPINION THAT DISALLOWANCE OF INTEREST OF RS. 2 LAKHS FOR THE PURPOSE OF DISALLOWANCE U/S 14A WILL MEET THE ENDS OF THE JUSTICE. THUS, THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 8 . IN T HE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JU LY , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 17 TH JU LY , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 1 , MUMBAI 4 ) THE CIT 16 , MUMBAI . MRS MANJU GUPTA ITA NO. 6 2 06 /M/201 2 5 5 ) , , / THE D.R. B BENCH, MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS