ACIT, UDAIPUR V. Shri Udai Lal Anjana, CHITTORGARH

ITA 63/JODH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70330 (ITAT-JODHPUR)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: G K GARGIEYA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.63/JODH/2013 ASSESSMENT YEAR: 2009-10 ASSTT. COMMISSIONER OF INCOME TAX, VS. SHRI U DAI LAL ANJANA, CIRCLE-1, UDAIPUR. VILLAGE KESUNDA, TEHSIL CHHOTISADRI, CHITTORGARH (PAN: ABNPA 4495 M). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.A. JOSHI, D.R. RESPONDENT BY : SHRI G.K. GARGIEYA & SHRI SARVESH BALDI DATE OF HEARING : 13.11.2013 DATE OF PRONOUNCEMENT : 29.11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009 -10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR DATED 05.11.2012. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL : ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) HAS ERRED IN 1.1 DELETING THE DISALLOWANCE OF RS.51,82,885/- MADE U/S 14A OF THE I.T. ACT IGNORING THE FACT THAT THE ASSESSEE HAS UT ILIZED INTEREST BEARING UNSECURED LOANS FOR INVESTMENT IN SHARES OF COMPANI ES/BANK. 2 ITA NO.63/JODH/2013 A.Y. 2009-10 1.2 IGNORING THE FACT THAT AS PER THE PROVISIONS OF SECTION 14A IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE IN RESPECT OF EXEMPTED INCOME, THAT HE HAS TO CALCULAT E THE DISALLOWANCES AS PER RULE AND IN THIS CASE THE AO HAS AMPLY DEMON STRATED THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM THAT NO INTEREST BEARING BORROWED FUNDS HAVE BEEN UTILIZED FOR INVESTMENT IN SHARES OF COMPANIES. 1.3 OBSERVING THAT THE AO SHOULD PROVE THE NEXUS BETWEEN INTEREST BEARING FUND AND TAX FREE INVESTMENT BEFORE INVOKIN G PROVISIONS OF SECTION 14A OF THE I.T. ACT. 1.4 IGNORING THE FACT THAT THE ASSESSEE, IN HIS LETTER DATED 29.11.2011 FILED BEFORE THE AO, HAS HIMSELF ADMITTED THAT RIGH T FROM A.Y. 2001-2002 ONWARDS WHATEVER FUNDS/LOANS HAVE BEEN TAKEN, THESE HAS BEEN UTILIZED SO AS TO INVEST IN PARTNERSHIP FIRM IN WHICH HE IS PARTNER AND THUS CAPITAL INVESTED IN ERSTWHILE FIRM M/S. CHETAK ENTERPRISES WOULD ADMITTEDLY OUT OF BORROWED FUND EITHER FULLY OR PARTLY AND THEREBY THE CONSEQUENT SHARES RECEIVED IN LIEU OF HIS CAPITAL IN THE FIRM HAS TO BE FROM BORROWED FUND. 1.5 IGNORING THE FACT THAT THE FRESH EQUITY SHAR ES HAVE ALSO BEEN PURCHASED DURING THE YEAR AND CONSIDERING THE INCRE ASE IN UNSECURED LOAN AS WELL AS INCREASE IN INTEREST EXPENDITURE, A O IS JUSTIFIED IN HOLDING THAT HE IS NOT SATISFIED ABOUT CORRECTNESS OF THE ASSESSEE'S CLAIM OF NO EXPENDITURE INCURRED. 2. DELETING THE DISALLOWANCE OF RS.15,56,362/- MADE BY THE AO ON ACCOUNT OF INTEREST EXPENSES IGNORING THE FACT THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING LOANS TO INTEREST FREE LO ANS AND ADVANCES OR ADVANCES ON LOWER RATE OF INTEREST. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DEL ETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TI ME OF HEARING. 3 ITA NO.63/JODH/2013 A.Y. 2009-10 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ENTIRE RECORD. THE ASSESSEE, AS INDIVIDUAL, DERIVED HIS INCOME FRO M INTEREST ON LOANS/ADVANCES, FIXED DEPOSITS, SECURITY DEPOSITS, INTEREST ON CAPI TAL CONTRIBUTION TO PARTNERSHIP FIRM AND SHARE OF PROFIT/LOSS FROM FIRMS. HE ALSO DERIV ED PROFIT/LOSS FROM HIS PROPRIETARY CONCERN M/S UDAI MINERASLS. HE WAS ALSO MAKING SAL E AND PURCHASE OF SHARES. THE ASSESSEE FILED HIS RETURN FOR A.Y. 2009-10 ON 1 7.11.2009 DECLARING TOTAL INCOME AT RS.18,00,000/-. ON PERUSAL OF THE COMPUT ATION OF TOTAL INCOME IT WAS NOTICED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INC OME OF RS.69,96,033/- WHICH HAS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. A PERUSAL OF THE BALANCE SHEET AS ON 31.03.2009 REVEALED THAT THE AS SESSEE HAD INVESTED RS.8,79,03,585/- AND HAD ADVANCED UNSECURED LOANS O F RS.14,60,20,685/-. THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.1,38,4 7,918/-. THE A.O. PROPOSED DISALLOWANCE, OUT OF EXPENSES CLAIMED, UNDER THE PR OVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES IN RESPECT OF DI VIDEND INCOME OF RS.69,96,033/- WHICH HAS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(3 4) OF THE ACT. HOWEVER, THE ASSESSEE OBJECTED TO THIS PROPOSAL BY MAKING THE FO LLOWING WRITTEN REPLY, WHICH READS AS UNDER :- DIVIDEND INCOME - RS.69,96,033/- CLAIMED EXEMPTED UNDER SECTION 10(34) OF THE IT ACT, SIR, WE ARE ENCLOSING HEREWITH A COPY OF LEDGER ACCOUNT UNDER THE TITLE DIVIDEND RECEIPT IN THE B OOK OF SHRI UDAI LAL JI ANJANA. ON PERUSAL OF THE SAME IT WOULD BE OBSERVED THAT THE TOTAL DIVIDEND OF RS.69,96,033/- MAINLY REPRESENT DIVIDEND OF RS.67,10, 000/- FROM CHETAK ENTERPRISES AND OTHER DIVIDEND EX CLUDING FIGURE OF 4 ITA NO.63/JODH/2013 A.Y. 2009-10 RS.57,000/- REPRESENT DIVIDEND FROM VARIOUS COMPANI ES AS IS EVIDENT FROM THE LEDGER ACCOUNT. SIR, SO FAR RS.57,000/- WH ICH REPRESENTS INSURANCE CLAIM RECEIVED WHICH BY MISTAKE CREDITED TO DIVIDEND ACCOUNT BY THE STAFF HENCE THE SAME HAS BEEN EXCLUDED AND R EQUIRED TO BE SET OFF FROM THE REMAINING LOSSES OF RS.5,83,220.47 AS PER SECOND PAGE OF COMPUTATION. SIR, A HAVING SUBSTANTIAL INVESTMEN T IN THE SHARE AND SECURITIES PLEASE REFER SCHEDULE 4 OF THE BALANCE S HEET BESIDES THE SHARE OF CHETAK ENTERPRISES AND SHARES OF VARIOUS OTHER C OMPANIES. THAT IN THE COMPUTATION OF TOTAL INCOME SHOWN AS DIVIDEND INCOME RS.69,96,033.42 AND CLAIMED EXEMPTED UNDER S ECTION 10(34) OF THE IT ACT. THIS ENTIRE DIVIDEND REPRESENT THE DIVI DEND RECEIVED ON THE HOLDING OF EQUITY SHARES OF M/S CHETAK ENTERPRISES LIMITED A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956, THAT AT T HE TIME OF CONVERSION OF PARTNERSHIP FIRM INTO COMPANY UNDER CHAPTER IX O F THE COMPANIES ACT IN LIEU OF CREDIT CAPITAL STANDING WITH THE FIRM M/ S CHETAK ENTERPRISES COMPANY ALLOTTED 6,10,000 EQUITY SHARE OF 10 EACH T HEREAFTER LATER ON IN THE YEAR 2005-06 COMPANY ALLOTTED BONUS SHARE 61.00 LAC SO BY THE END OF 31.03.2009 THE HOLDING OF EQUITY SHARE IS 6,71,0 00 ON THE SAID SHARE COMPANY PAID INTERIM DIVIDEND VIDE CHEQUE NO. 94415 8 DATED 31.03.2009. DURING THE COURSE OF HEARING OF THE CASE IT HAS B EEN ASKED WHY THE PAYMENT OF INTEREST ON THE ACQUISITION OF THESE SHARES IF THE SAME HAS BEEN ACQUIRED THROUGH THE BORROWED FUND MAY NOT BE DISALLOW/ADDED BACK TO THE TOTAL INCOME IN VIEW OF PROVISION OF SE CTION 14A INSERTED BY FINANCE ACT 2006 READ WITH RULES 8D OF THE IT ACT. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT NO BORROWED FUND OF WHA T SO EVER NATURE HAS BEEN UTILIZED FOR THE ACQUISITION OF THE EQUITY SHA RE OF SAID COMPANY ON WHICH DIVIDEND RECEIVED AND CLAIMED EXEMPTED AS STA TED HERE IN PRECEDING PARAGRAPH ORIGINAL SETS WERE ALLO TTED AT THE TIME OF CONVERSION OF PARTNERSHIP FIRM IN TO COMPANY AND LA TTER ON THE SAID COMPANY ON THE EXISTING SHARES ALLOTTED BONUS S HARE SO THEREFORE IT IS RESPECTFULLY SUBMITTED THAT PROVISIONS OF SECT ION 14A AND RELEVANT RULE 8D IS NOT APPLICABLE. SIR, FOR RECORD AND Y OUR HONOUR SATISFACTION WE OBTAINED A CERTIFICATE FROM THE SAID COMPANY WHI CH CLARIFY THE POSITION AS STATED IN THE PARAGRAPH. SIR, AS DESIRED WE ARE HOLDING A STATEMENT OF TRA NSACTION COME HOLDING OF EQUITY SHARE IN THE DEMATE ACCOUNT OF SH RI UDAI LAL JI ANJANA 5 ITA NO.63/JODH/2013 A.Y. 2009-10 WITH M/S ARIHANT CAPITAL MARKET LIMITED, F-L, AHINS A TOWER, 7, M.G. ROAD, INDORE, PH. NO.4271350-351 & FAX NO.4217360 O N PERUSAL OF THE SAME IT WOULD BE OBSERVED THAT DURING THE YEAR FRES H EQUITY SHARES WERE PURCHASE OF THE DIFFERENT COMPANY DULY BEEN REFLECT ED IN THE BOOKS OF ACCOUNTS, A IS HAVING OPENING BALANCE OF 3600 SHA RE VALUE OF WHICH IS OF RS.83,85,580/- APPEAR AT LEDGER FOLIO NO.93 AND SIMILARLY THE SUBSEQUENT PURCHASES AND LIKE WISE IN CASE OF LARS EN & TUROB LTD., SHARE DETAIL APPEAR AS FOLIO NO.103[SIC THIS REP LY IS FULL OF GRAMMATICAL MISTAKES] 4. THE A.O. WAS NOT SATISFIED EVEN AFTER CONSIDERIN G THE ABOVE WRITTEN REPLY. HE IS OF THE OPINION THAT SOME INTEREST EXPENSE IS ATTRIBUTABLE TO INVESTMENT MADE IN SHARES ON WHICH DIVIDEND INCOME HAS BEEN RECEIVE D WHICH IS TREATED S EXEMPT FROM TAX. HE WAS ALSO NOT SATISFIED THAT NO INTER EST BEARING FUNDS HAVE BEEN UTILIZED FOR INVESTMENT IN EQUITY SHARES. SINCE TH E EXEMPT INCOME DOES NOT FORM PART OF THE TOTAL INCOME, THE A.O. HAS RELIED ON TH E RECENTLY INCORPORATED RULE 8D (W.E.F. 24.03.2008) AND HAS MADE THE FOLLOWING DISA LLOWANCES UNDER SECTION 14A OF THE ACT: - I) A. AMOUNT OF INTEREST RS.13847918/- B. AVERAGE VALUE OF INVESTMENT INCOM E, FROM WHICH DOES NOT/SHALL NOT FORM PART OF THE TOTAL INCOME , OF RS.88924000/- (INVESTMENT AS ON 01.04.2008 RS.89944416/- AND INVESTMENT AS ON 31.03.2009 OF RS.87903585/-). C. AVERAGE OF THE TOTAL ASSET APPEARING IN THE B/S OF RS.2598867637- (TOTAL ASSET AS ON 01.0 4.2008 OF RS 243846814/- AND TOTAL ASSET AS ON 31.03.2009 OF RS.275926713/-). DISALLOWANCE U/S 14A AXB = 13847918 X 88924000 = RS.4738265- C 259886763 6 ITA NO.63/JODH/2013 A.Y. 2009-10 II) % OF AVERAGE OF INVESTMENT = % X 8892 4000 = RS.444620/- THE TOTAL AMOUNT OF THE DISALLOWANCE U/S 14A R.W.E RULE 8D OF I.T RULE COMES TO = (I+II) = RS.4738265 + RS.444620 = RS.518 2885/-. 5. AGGRIEVED, THE ASSESSEE WENT IN APPEAL AND THE L D. CIT(A) HAS ACCEPTED THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE AND HAS DELETED THE ABOVE ADDITION. AGAINST THIS DELETION, THE REVENUE HAS COME BEFORE THE SECOND APPELLATE AUTHORITY. 5.1 THE LD. DEPARTMENTAL REPRESENTATIVE, SHRI JOSHI , HAS SUBMITTED THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING UNSECURED LO ANS FOR INVESTMENT IN SHARES AND BECAUSE THE A.O. IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM THAT NO INTEREST BEARING BORROWED FUNDS WERE UTILIZED FOR INVESTMENT IN SHARES, THIS CLAIM OF THE ASSESSEE BECOMES DISALLOWABLE. HE HAS FURTHER ARGU ED THAT THE OBSERVATION OF THE LD. CIT(A) THAT THE DEPARTMENT IS REQUIRED TO PROVE NEXUS BETWEEN INTEREST-BEARING FUNDS AND TAX-FREE INVESTMENT FOR INVOKING SECTION 14A OF THE ACT IS UNCALLED FOR. HE HAS REPEATED OTHER REASONS GIVEN BY THE A.O. FOR MAKING THE IMPUGNED DISALLOWANCE THAT (I) THE ASSESSEE HAS HIMSELF ADMI TTED THAT RIGHT FROM A.Y. 2001- 02 HE HAS BEEN UTILIZING BORROWED FUNDS IN THE INVE STMENT IN THE PARTNERSHIP FIRM IN WHICH HE IS A PARTNER AND (II) THAT FRESH EQUITY SHARES HAVE BEEN PURCHASED DURING THIS YEAR ALTHOUGH THERE IS INCREASE IN UNSE CURED LOANS AND EXPENDITURE ON 7 ITA NO.63/JODH/2013 A.Y. 2009-10 INTEREST. IN THE LIGHT OF THE ABOVE REASONING, THE LD. DEPARTMENTAL REPRESENTATIVE HAS CANVASSED THAT THE IMPUGNED ADDITION DESERVES T O BE RESTORED. 5.2 PER CONTRA, LD. AUTHORIZED REPRESENTATIVE HAS R ELIED ON THE ORDER OF LD. CIT(A), HIS WRITTEN SUBMISSION AND THE PAPER-BOOK F ILED IN SUPPORT. 5.3 AFTER COGITATING THE ABOVE RIVAL STAND, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF LD. CIT(A), ON THIS ISSUE, DESERVES TO BE ENDORSED BY US. THERE IS NO DISPUTE REGARDING THE FACTS THAT THE ASSESSEE WAS A PARTNER IN THE PARTNERSHIP FIRM NAMELY M/S CHETAK ENTERPRISES AND THERE WAS CREDIT IN CAPITAL OF THE ASSESSEE. THIS FACT HAS RATHER BEEN REITERATED BY THE REVENUE IN ITS GROUND OF APPEAL (GROUND NO.1.4). THIS FIRM WAS CONVERTED INTO A LIMITED CO MPANY UNDER CHAPTER-IX OF THE COMPANIES ACT, 1956. ON CONVERSION, THE ASSESSEE W AS ALLOTTED 6,10,000 EQUITY SHARES OF THE FACE-VALUE OF RS.10/- EACH IN LIEU OF HIS CAPITAL-CREDIT. A COPY OF CERTIFICATE ISSUED BY THE COMPANY AND ENCLOSED IN T HE PAPER-BOOK IS SELF-EVIDENT OF THIS FACT. THE COMPANY HAD ALLOTTED 61 LAKHS BONUS SHARES TO THE ASSESSEE IN THE YEAR 2005-06 AND THE ASSESSEE POSSESSED 6,71,000 EQ UITY SHARES AT THE END OF THE F.Y. RELATING TO THE A.Y. UNDER CONSIDERATION. THE COMPANY HAS PAID INTERIM DIVIDEND BY CHEQUE NO.944158 DATED 31.03.2009. THE DIVIDEND INCOME DECLARED BY THIS COMPANY IS RS.69,96,033/-. IN FACT, THE A. O. HAS PROCEEDED ON AN INCORRECT 8 ITA NO.63/JODH/2013 A.Y. 2009-10 PREMISE THAT THE CAPITAL STANDING CREDITED IN THE A CCOUNT OF THE ASSESSEE IN THE PARTNERSHIP FIRM M/S CHETAK ENTERPRISES AT THE TIME OF ITS CONVERSION INTO A LIMITED COMPANY IS FROM THE INTEREST-BEARING UNSECURED LOAN . THIS FACT IS NOT FOUND SUPPORTED BY ANY EVIDENCE. IT IS ALSO AN UNDISPUTE D FACT THAT IN EARLIER YEARS ON IDENTICAL FACTS NO SUCH DISALLOWANCE HAD BEEN MADE. THE REASON, GIVEN BY THE A.O. THAT THERE HAD BEEN INCREASE IN THE UNSECURED LOANS AND INTEREST EXPENSES IN THE YEARS 2008-09 AND 2009-10, CANNOT BE MADE A BAS IS FOR MAKING THIS TYPE OF DISALLOWANCE OF INTEREST ON LOANS TAKEN IN THE EARL IER YEARS AND WHEN IN THOSE YEARS NO SUCH DISALLOWANCES WERE MADE. APART FROM THE AB OVE, THERE IS NO PROOF THAT THERE IS AN INCREASE IN UNSECURED LOAN AND INTEREST PAYMENT EXPENSES DURING THE YEAR UNDER APPEAL. THEREFORE, NO SUCH DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D CAN BE MADE IN THIS YEAR. THE LD . CIT(A) HAS CORRECTLY DELETED THE IMPUGNED DISALLOWANCE. ACCORDINGLY, GROUND NO. 1 (1.1, 1.2, 1.3, 1.4 & 1.5) OF THE REVENUES APPEAL STANDS DISMISSED. 6. THE FACTS OF THE SECOND GROUND OF THIS APPEAL AR E THAT THE A.O. VIDE PARAGRAPH NO.4 OF HIS ORDER HAS FOUND THAT THE ASSE SSEE HAS DIVERTED INTEREST- BEARING FUNDS TO INTEREST-FREE LOANS/ADVANCES. THE ASSESSEE HAS SHOWN INTEREST- RECEIPT TO THE TUNE OF RS.1,45,71,921/- AS AGAINST WHICH INTEREST PAYMENTS ARE SHOWN AT RS.1,38,20,038/-. THE A.O. HAS DISALLOWED A SUM OF RS.15,56,362/- 9 ITA NO.63/JODH/2013 A.Y. 2009-10 BEING THE INTEREST ON BORROWED FUNDS EITHER DIVERTE D AS INTEREST-FREE ADVANCE OR ON LOWER RATE OF INTEREST. THE LD. CIT(A) HAS DELETED THIS DISALLOWANCE. 7. AFTER HEARING BOTH THE SIDES, WE HAVE FROM THE R ECORDS FOUND THAT THE ASSESSEE HAS ALSO RAISED INTEREST-FREE LOAN OF RS.8 1,00,000/- AND ITS TOTAL INTEREST- RECEIPT IS RS.1,45,71,921/- AS AGAINST WHICH HE HAS PAID INTEREST AMOUNT OF RS.1,38,20,038/-. WHICH HAS RESULTED IN POSITIVE IN TEREST RECEIPT OF RS.31,89,883/-. THE ASSESSEE ALSO HAS AN OPENING CAPITAL OF RS.11,0 5,63,831/-. THUS, INTEREST-FREE ADVANCES ARE MUCH LESS, THEREFORE, NO SUCH DISALLOW ANCE CAN BE MADE. AS A RESULT, WE CONFIRM THE DELETION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.15,56,362/- AND DISMISS GROUND NO.2 OF REVENUES APPEAL 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH NOVEMBER, 2013 PBN/* 10 ITA NO.63/JODH/2013 A.Y. 2009-10 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR