Rajesh Natvarlal Akhani, Ahmedabad V. The Dy. CIT, Circle-1, Ahmedabad

ITA 621/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8953 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: DEEPAK RAJANI
• Keywords: Business income; Earning of tax free income
• Section: 80C; 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO.621/AHD/2014 / ASSTT. YEAR: 2009-2010 RAJESH NATVARLAL AKHANI 7, YOGI COMPLEX OPP: DRIVE-IN-CINEMA THALTEJ AHMEDABAD 380 054. VS. DCIT, CIR.1 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI DEEPAK RAJANI, AR REVENUE BY : MS. SONIA KUMAR, SR.DR ! / DATE OF HEARING : 22/03/2017 '#$ ! / DATE OF PRONOUNCEMENT: 23 /03/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT-III, AHMEDABAD DATED 10.12.2013 PASSED FOR T HE ASSTT.YEAR 2009-10. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1,41,670/- MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL ES, 1962. ITA NO.621/AHD/2014 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 30.7.2009 DECLARING TOTAL INCOME OF RS.9, 57,261/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED UPO N THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, THE LD.AO HARBOURED A BEL IEF THAT EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME DESERVES TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. HE OBSERVED THAT THE ASSESS EE HAS CLAIMED EXEMPT INCOME OF RS.29,702/-. HE FURTHER OBSERVED THAT INVESTMENT MADE BY THE ASSESSEE STOOD AT RS.49,52,554/-. HE H AS MADE BORROWING OF RS.29,15,002/- AND INCURRED EXPENDITUR E OF RS.3,27,835/-. HE WAS OF THE OPINION THAT FUNDS OF THE ASSESSEE AR E MIXED FUNDS, AND THEREFORE, WITH THE HELP OF RULE 8D, HE CALCULATED DISALLOWANCE REQUIRED TO BE MADE AT RS.1,41,670/-. APPEAL TO THE CIT(A) DID NOT GIVE ANY RELIEF TO THE ASSESSEE. 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD. ON PERUSAL OF THE RECORD WE FI ND THAT THE LD.CIT(A) HAS MISERABLY FAILED TO APPRECIATE TRUE FACTS AVAIL ABLE ON RECORD. THE ASSESSEE HAS FILED COMPUTATION OF INCOME. EXEMPT I NCOME CLAIMED BY THE ASSESSEE READS AS UNDER: EXEMPTED INCOME: DIVIDENDS RS. 4286 PPF INTEREST RS.21666 LIC MONEY BACK RS. 3750 TOTAL RS.29702 5. THE EXPLANATION OF THE ASSESSEE WITH REGARD TO I NTEREST EXPENDITURE WAS THAT HE HAS EARNED THAT INTEREST IN COME OF RS.6,06,626/- AND BORROWED WERE FUNDS UTILIZED FOR THE PURPOSE OF EARNING INTEREST INCOME. INTEREST EXPENDITURE INCU RRED AT RS.3,27,835/- IS FAR LESS THAN THE INTEREST INCOME OFFERED BY THE ASSESSEE. APART FROM ITA NO.621/AHD/2014 3 THE ABOVE, THE ASSESSEE HAS DEMONSTRATED BEFORE THE LD.CIT(A) THAT HE HAS NOT MADE ANY INVESTMENT OUT OF BORROWED FUNDS. INVESTMENT WAS MADE IN FINANCIAL YEAR 2005-06. IN THE CURRENT YE AR NO FRESH INVESTMENT WAS MADE. DIVIDEND INCOME IS ONLY AN IN COME OF RS.4,286/-. OTHER INCOMES ARE OUT OF INTEREST ON P FF AND LIC MONEY BACK. THESE WERE TAX SAVING SCHEME. IT IS PERTINE NT TO TAKE NOTE OF THE EXPLANATION GIVEN BY THE ASSESSEE. IT READS AS UND ER: HERE THE LD. OFFICER HAS ERRED ON FACTS AND IN THE CIRCUMSTANCES AS FOLLOWS: 1. HE FAILED TO CONCLUSIVELY AND FACTUALLY ESTABL ISH THAT THE INTEREST EXPENSE OF RS.327835/- IS A COMMON EXPEND ITURE INCURRED FOR BOTH INCOMES - TAXABLE AND NON-TAXABLE . 2. HE CONSIDERED RS.4852554/- AS CLOSING INVESTME NTS, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THIS FIGURE INCLUDE RS.594969/- BEING LIE PREMIUMS PAID, PPF BA LANCES AND NSC WHICH ARE TAX SAVING INVESTMENTS CLAIMED UNDER SECTION 80C OVER THE YEARS. ALL THESE ARE ACCUMULATED FIGURES. THE BALANCE FIGURE IS RS.3113060/-REPRESENTING THE SHARE INVEST MENTS. 3. SIMILARLY HE CONSIDERED RS.4814523/- AS OPENIN G INVESTMENTS INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL I NCOME. THIS FIGURE INCLUDE RS.456938/- BEING LIE PREMIUMS PAID, PPF BALANCES AND NSC WHICH ARE TAX SAVING INVESTMENTS CLAIMED UN DER SECTION 80C OVER THE YEARS. ALL THESE ARE ACCUMULATED FIGUR ES. THE BALANCE FIGURE IS RS.3088060/-REPRESENTING THE SHAR E INVESTMENTS. 4. THEREBY THE LEARNED ASSESSING OFFICER CONSIDER ED TAX SAVING 80C INVESTMENTS AS THE INVESTMENTS, THE INCOME FROM WHICH DOES NOT PART OF THE TOTAL INCOME. IF THIS IS THE LAW, T HEN IN EVERY SMALL OR BIG CASE OF AN ASSESSEE WHERE THERE IS A DIVIDEN D INCOME OF RE.1, HE WILL INCUR DISALLOWANCE UNDER THIS SECTION R.W.RULE 8D(2)(III) AT 0.50% ON AVERAGE TAX SAVING 80C INVES TMENTS. NO ONE WITH DIVIDEND INCOME OF RE.L WILL BE SPARED, IF HE HAS SAVINGS U/S 80C. ITA NO.621/AHD/2014 4 5. HE HELD RS.29702/- AS THE INCOME NOT FORMING P ART OF THE TOTAL INCOME WHICH CONSISTS OF INTEREST ON PPF RS.2 1666/-, SHARE DIVIDEND RS.4286/- AND LIC MONEY BACK RS.3750/-. (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE A VERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PAN OF THE TOTAL INCOME, AS APPEARING IN THE B ALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. - HERE THE LEARNED ASSESSING OFFICER HAS COMPUTE D AND DISALLOWED RS.24418/- BEING 0.50% OF RS.4883539/- B EING AVERAGE INVESTMENTS INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. - THE EXPENDITURE DISALLOWED MAY BE COMPRISING O THER NON- CLAIMED EXPENSES BESIDES INTEREST EXPENSE. HE ALSO THE ABOVE MENTIONED ERRORS AT 3&4 ARE THERE. IT IS OBSERVED FROM THE ASSESSMENT ORDER IN 1ST PAR A OF ITEM 2 ON PAGE 2 THAT '....FURTHER, THE ASSESSEE HAS MADE INV ESTMENTS AMOUNTING TO RS.4952554/- THAT RESULT IN EXEMPT INC OME BY WAY OF DIVIDEND OR PROFITS FROM THE PARTNERSHIP FIRMS.. .' HOWEVER, THE ASSESSEE HAS NOT MADE ANY INVESTMENTS IN ANY PARTNE RSHIP FIRMS. THE INVESTMENTS ARE MAINLY IN TAX SAVING SCHEMES LI KE LIC PREMIUMS, PPF AND SHARES. THE ASSESSEE FURTHER CONTENDS THAT HE HAS NOT INCUR RED ANY MAJOR EXPENSES EXCEPT INTEREST EXPENSE AND HAS NOT CLAIME D ALL THE EXPENSES INCURRED AND DEBITED TO PROFIT & LOSS ACCO UNT. THE LEARNED ASSESSING OFFICER HAS STATED IN THE LAST LI NE OF THE FIRST PARA OF ITEM-2 'IN ADDITION TO THE ABOVE THE ASSESS EE HAS INCURRED SUBSTANTIAL EXPENSES TOWARDS ADMINISTRATION AND OFF ICE EXPENSES.' THIS IS NOT SO. ONLY EXPENSE THAT IS OF THIS KIND I S RS.36656/- ELECTRICAL EXPENSES AND RS.288/- BANK CHARGES WHICH THE ASSESSEE HAS NOT CLAIMED AS AN EXPENSE. THIS IS BECAUSE THE ASSESSEE HAS NO BUSINESS INCOME. THE ASSESSMENT ORDER TRIES TO S HOW THAT THE ASSESSEE CARRIES ON MORE THAN ONE BUSINESS. BUT IT IS NOT SO. THE LATTER HALF OF THE LAST PARA ON PAGE 3 OF THE A SSESSMENT ORDER, IT IS STATED THAT 'IT IS PERTINENT TO NOTE HERE THA T THE NET PROFIT OF RS.1089731/- EARNED BY THE ASSESSEE DURING THE YEAR INCLUDED......' HERE THE ASSESSEE COUNTERS THAT HE HAS NOT EARNED ANY PROFITS AS HE DOES NOT CARRY ON ANY BUSINESS. T HE ASSESSMENT ORDER FURTHER READS AS ' IN VIEW OF THE FACT THAT T HE ASSESSEE HAS A COMPOSITE BUSINESS AND THERE EXISTS A PROXIMATE R ELATIONSHIP ITA NO.621/AHD/2014 5 BETWEEN THE EXEMPT INCOME AND THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT OF THE ASSESSEE...' AGAIN THE ASSE SSEE COUNTERS THAT THIS OBSERVATION IS ABSOLUTELY WRONG AS HE DID NOT CARRY ON ANY BUSINESS OR ANY COMPOSITE BUSINESS. THE WRONG C ONCLUSIONS ARE DRAWN ON THE BASIS OF WHICH THE DISALLOWANCE OF RS.141670/- HAS BEEN MADE TO THE TOTAL INCOME OF THE ASSESSEE. THE ONLY MAJOR EXPENSES SHOWN IN THE STATEMENT OF I NCOME & EXPENDITURE ARE RS.327835/- BEING INTEREST PAID RS. 327835/- IS INCURRED IN PURELY RELATION TO THE INTEREST INCOME. THE INTEREST INCOME IS RS.606626/-. THE INTEREST INCOME IS FAR L ARGER THAN THE INTEREST EXPENSE BECAUSE THE FUNDS ADVANCED IS MORE THAN FUNDS BORROWED AND BECAUSE THE ASSESSEE HAS ALSO ADVANCED HIS OWN EARNED FUNDS INTO INTEREST-BEARING ADVANCES. THE FO LLOWING CHART SHOWS THAT THE ASSESSEE HAS EARNED INCOMES AND CAPI TAL GAINS DURING ONLY PAST FOUR YEARS WHICH ARE FAR MORE THAN THE OUTSTANDING INVESTMENTS THE INCOME FROM WHICH DOES NOT FOR PART OF THE TOTAL INCOME. FINANCIAL YEAR GROSS TOTAL INCOME FRESH INVESTMENT IN SHARES ONLY INVESTMENTS PROCEEDS REMARKS 2005-2006 1075055 2609237 1027976 PAST INCOMES & SAVINGS 2006-2007 2307854 0 2000000 PAST INCOMES, GAINS & SAVINGS 2007-2008 937808 67310 0 PAST INCOMES, GAINS & SAVINGS 2008-2009 1068785 0 0 PAST INCOMES, GAINS & SAVINGS TOTAL 5389502 2676547 3027976 ITA NO.621/AHD/2014 6 6. THIS EXPLANATION WOULD SHOW THAT THE ASSESSEE HA S NOT INCURRED ANY EXPENDITURE FOR EARNING TAX FREE INCOME. THE LD .REVENUE AUTHORITIES ARE NOT JUSTIFIED TO TAKE HELP OF RULE 8D TO WORK O UT THE DISALLOWANCE. THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE ADDIT ION IS DELETED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 22 ND MARCH, 2017. SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 22/03/2017