M/S RAJPUTANA CLOTH STORE, JAIPUR V. INCOME TAX OFFICER, JAIPUR

ITA 63/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3174 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 18-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N S VYAS
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 63/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 M/S RAJPUTANA CLOTH STORE, PANCH BATTI, M. I. ROAD, JAIPUR CUKE VS. INCOME TAX OFFICER, WARD 2(2), JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACFR2479Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI N. S. VYAS (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI ANUP SINGH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/08/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 21/08/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-1, JAIPUR DATED 18.12.2017 FOR ASSESSMEN T YEAR 2013-14 WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS O F APPEAL:- 1. THAT THE AUTHORITIES BELOW HAVE ERRED IN DISALL OWING U/S 14A OF THE IT ACT, 1961 AMOUNTING TO RS. 3,75,805/- . 2. THAT THE AUTHORITIES BELOW HAVE FURTHER ERRED IN DISALLOWING THE TELEPHONE EXPENSES AND CONVEYANCE EXPENSES OUT OF 10% OF TOTAL CLAIM. ITA NO. 63/JP/2018 M/S RAJPUTANA CLOTH STORE, JAIPUR VS. ITO, JAIPU R 2 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 3,75,805/- U/S 14A OF THE IT ACT, 1961. 3. THE RELEVANT FACTS AND FINDINGS OF THE LD. CIT( A) ARE CONTAINED AT PARA 3.1.2. WHICH ARE REPRODUCED AS UNDER:- (I) THE BRIEF FACTS OF THE CASE ARE THAT DURING TH E YEAR UNDER CONSIDERATION, THE APPELLANT WAS ENGAGED IN THE BUS INESS OF RETAIL TRADING OF CLOTHES. IT WAS OBSERVED BY THE AO THAT THE APPELLANT HAS MADE INVESTMENT IN MUTUAL FUNDS AND SHARES TO THE T UNE OF RS. 55,84,485/- AND HAS DEBITED INTEREST OF RS. 8,0 9,682/- IN ITS PROFIT AND LOSS ACCOUNT, OUT OF WHICH A SUM OF RS. 8,03,63 3/- WAS PAID TO THE PARTNERS ON THEIR CAPITAL WITH THE APPELLANT FIRM. IT WAS HELD BY THE AO IN THE ASSESSMENT ORDER THAT THE APPELLANT HAS INVE STED PARTNERS CAPITAL IN THE MUTUAL FUND ON WHICH IT HAS PAID INTEREST TO PARTNERS AND HAS EARNED THE INCOME WHICH DOES NOT FORM PART OF ITS T OTAL INCOME AND CONSEQUENTLY, THE AO HAS INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND DISALLOWED A SUM OF RS. 3,75,805/- THEREOF. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS SUBM ITTED BY THE APPELLANT THAT NO EXPENDITURE WAS CLAIMED BY IT FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF ITS TOTAL INCOME AND TH ERE WAS NO DIRECT LINK OF FUNDS INVESTED IN EXEMPTED ASSETS AND THE INVEST MENT IN SHARES/MUTUAL FUNDS WERE MADE OUT OF SALE PROCEEDS OF THE FIRM AND NO PART OF CAPITAL WAS INVESTED THEREON. (III) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS NOTED FROM THE PROFIT AND LOSS ACCOUNT OF THE APPELLANT FOR TH E YEAR UNDER CONSIDERATION THAT IT HAS NOT SHOWN ANY DIVIDEND/EX EMPTED INCOME FROM INVESTMENT IN MUTUAL FUNDS/SHARES. HOWEVER, ON A PERUSAL OF THE ITA NO. 63/JP/2018 M/S RAJPUTANA CLOTH STORE, JAIPUR VS. ITO, JAIPU R 3 LEDGER ACCOUNTS OF THE PARTNERS PLACED ON RECORD, I T HAS BEEN OBSERVED THAT THE DIVIDEND INCOME FROM MUTUAL FUNDS/SHARES H AVE BEEN TRANSFERRED TO CAPITAL ACCOUNTS OF THE PARTNERS. TH E AMOUNT OF DIVIDEND INCOME TRANSFERRED TO THE PARTNERS ACCOUNT ARE AS U NDER:- NAME OF THE PARTNER AMOUNT CREDITED (IN RS. ) SHRI ANUJ AGRAWAL 2, 01,000.08/- SHRI MANAN AGRAWAL 1, 00,500.40/- SANGEETA AGRAWAL 1,00,500.40/- GROSS TOTAL 4,02,000.87/- (IV) IT IS TO BE NOTED THAT IT WAS STATED BY THE APPELLA NT BEFORE THE AO THAT THE INVESTMENT IN THE MUTUAL FUNDS WAS MADE OUT OF PARTNERS CAPITAL ACCOUNT AND SUNDRY CREDITORS, WHER EAS NOW IT HAS BEEN STATED THAT THESE INVESTMENTS WERE MADE OU T OF SALE PROCEEDS AND NO PART OF THE CAPITAL WAS INVESTED TH EREON. THUS, THE APPELLANT HAS CHANGED ITS STAND DURING THE APPE LLATE PROCEEDINGS. IT IS TO BE NOTED THAT THE APPELLANT H AS NOT STATED ANYTHING WHY THE DIVIDEND INCOME ON THE MUTUAL FUND S WERE TRANSFERRED TO THE PARTNER'S CAPITAL ACCOUNT WHICH CLEARLY ESTABLISH THAT THE PARTNER'S CAPITAL WAS USED FOR T HE PURPOSE OF MAKING INVESTMENT IN MUTUAL FUNDS AND SHARES. FURTH ER, THE APPELLANT HAS PAID INTEREST ON THE CAPITAL OF THE P ARTNERS IN THE FIRM. THUS, THERE IS A DIRECT NEXUS BETWEEN THE INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE APPEL LANT AND THE EXPENDITURE INCURRED THEREON IN THE FORM OF INTERES T PAID TO PARTNERS ON THEIR CAPITAL IN THE FIRM. IN FACT, THE ABOVE SATISFACTION IS DERIVED FROM THE ACCOUNTS OF THE AP PELLANT FIRM ITSELF AS DISCUSSED EARLIER AND THEREFORE, THE INGR EDIENTS FOR ITA NO. 63/JP/2018 M/S RAJPUTANA CLOTH STORE, JAIPUR VS. ITO, JAIPU R 4 INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE I.T. RULES ARE FULLY SATISFIED. HENCE, IN VIEW OF THE AB OVE DISCUSSION AND LOOKING TO THE TOTALITY OF FACTS AND CIRCUMSTAN CES OF THE CASE, IT IS HELD THAT THE AO WAS JUSTIFIED IN MAKIN G DISALLOWANCE OF RS. 3,75,805/- U/S 14A OF THE ACT FOR EARNING TH E DIVIDEND INCOME OF RS. 4,02,000/- WHICH DOES NOT FORM PART O F THE TOTAL INCOME OF THE APPELLANT AND THUS, THE SAME IS HEREB Y SUSTAINED. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THERE IS NO UNSECURED LOANS OR ANY SHORT OF LOANS ON WHICH I NTEREST WAS PAID. IT SUBMITTED THAT THE INVESTMENT IN THE EXEMPTED ASSET S WERE OUT OF CAPITAL EMPLOYED BY THE PARTNERS AND CASH SALES AND IT WAS SUBMITTED THAT THE INVESTMENT IN TAX FREE INVESTMENT IS RS. 5 0,25,602/- AGAINST WHICH THE PARTNERS CAPITAL ACCOUNT IS RS. 84,80,211 /- AND RS. 37,00,000/- IS SUNDRY CREDITORS ON WHICH NO INTERES T IS PAYABLE AND IT WAS SUBMITTED THAT THE INVESTMENT IN TAX FREE INVES TMENT ARE THERE SINCE AY 2009-10 AND THERE HAS BEEN NO DISALLOWANCE WHICH HAS BEEN MADE BY THE REVENUE. IT WAS ACCORDINGLY SUBMITTED T HAT IN ABSENCE OF ANY INTEREST EXPENDITURE. THERE SHOULD NOT BE ANY D ISALLOWANCE U/S 14A AS DONE BY THE ASSESSING OFFICER. 5. THE LD. DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ASSES SEES BALANCE SHEET OF THE ASSESSEE, IT IS NOTED THAT THERE IS TOTAL IN VESTMENT AMOUNTING TO RS. 55,84,485/- WHICH HAS BEEN REFLECTED AS ON 31 ST MARCH 2013. FURTHER ON PERUSAL OF THE INVESTMENT SCHEDULE, IT I S NOTED THAT THERE IS ITA NO. 63/JP/2018 M/S RAJPUTANA CLOTH STORE, JAIPUR VS. ITO, JAIPU R 5 OPENING BALANCE OF RS. 40,70,796/- OF INVESTMENT IN MUTUAL FUNDS AND THERE IS A FRESH INVESTMENT OF RS. 9,54,805/- TOTAL ING TO RS. 50,25,602/-. FURTHER, THERE IS FDR PLACED WITH SBI AMOUNTING TO RS. 558,882/-. THEREFORE, THE FRESH INVESTMENT WHICH HAS BEEN MADE IN MUTUAL FUNDS DURING THE YEAR UNDER CONSIDERATION COMES TO RS. 9, 54,805/-. AS FAR AS INVESTMENTS MADE IN THE EARLIER YEARS ARE CONCERNED , IT IS AN ADMITTED POSITION THAT THERE HAVE BEEN NO DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A IN THE EARLIER AND THEREFORE, THE S AID INVESTMENTS CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE FOR T HE YEAR UNDER CONSIDERATION. THE ONLY LIMITED ISSUE IS THE SOURCE OF INVESTMENTS OF RS RS. 9,54,805/- WHICH HAS BEEN MADE DURING THE YEAR UNDER CONSIDERATION AND WHETHER THE ASSESSEE HAS INCURRED ANY INTEREST COST IN RELATION THERETO. AS ON 31 ST MARCH, 2013, THE PARTNERS CAPITAL ACCOUNT SHOWS A BALANCE OF RS. 84,80,211/- AND THERE ARE IN TERNAL ACCRUALS AMOUNTING TO RS. 229,519/-. AT THE SAME TIME, IT I S AN ADMITTED FACT THAT THE ASSESSEE HAS PAID INTEREST ON THE PARTNERS CAPITAL ACCOUNT AND WHICH HAS BEEN CLAIMED AS AN EXPENDITURE IN THE P & L ACCOUNT. FURTHER, THE DIVIDEND INCOME SO RECEIVED BY THE ASS ESSEE HAS BEEN CREDITED DIRECTLY TO THE PARTNERS CAPITAL ACCOUNT. THEREFORE, GOING BY THE CONTENTIONS OF THE LD AR THAT PARTNERS CAPITAL ACCOUNT HAS BEEN USED FOR MAKING THE INVESTMENTS, WE AGREE WITH THE FINDINGS OF THE LD CIT(A) THAT THERE IS A DIRECT NEXUS BETWEEN THE INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE APPEL LANT AND THE EXPENDITURE INCURRED THEREON IN THE FORM OF INTERES T PAID TO PARTNERS ON THEIR CAPITAL IN THE FIRM. ACCORDINGLY, THE PROVISIONS OF SECTION 14A ARE ATTRACTED IN THE INSTANT CASE. HOWE VER, THE QUANTUM OF DISALLOWANCE SHALL BE RESTRICTED ON THE INTEREST PA ID ON THE AMOUNT WHICH HAS BEEN UTILIZED IN MAKING FRESH INVESTMENTS IN MUTUAL FUNDS ITA NO. 63/JP/2018 M/S RAJPUTANA CLOTH STORE, JAIPUR VS. ITO, JAIPU R 6 DURING THE YEAR UNDER CONSIDERATION WHICH HAS YIELD ED TAX FREE INCOME. THE MATTER IS ACCORDINGLY SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE QUANTUM OF DISALLOWANCE U/S 14A IN LI GHT OF ABOVE DIRECTIONS. IN THE RESULT, GROUND IS ALLOWED FOR ST ATISTICAL PURPOSES. 7. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF TELEPHONE AND CONVENIENCE EXPENSES. WE HAVE GONE THROUGH THE ORDER OF THE LD CIT(A) AND WE DONOT SEE ANY INFIRMI TY THEREIN. IN THE RESULT, GROUND OF APPEAL IS DISMISSED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/08/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21/08/2018 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RAJPUTANA CLOTH STORE, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD 2(2), JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 63/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR