Shri Madhusudan Nyati, DHamnod V. Pr. CIT-I Indore, Indore

ITA 646/Ind/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0732 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-02-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 28-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S MANTRI
• Assessee Lawyers: PREETI PATWA CAS
• Keywords: Business expenditure; Earning of tax free income; Proportionate interest; Rule 8D; Set aside
• Section: 40A(3); 143(3); 142(1); 14A; 143(2); 43; 72; 13; 263; 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE KUL BHARAT, JUDICIAL MEMBER AND HONBLE MANISH BORAD, ACCOUNTANT MEMBER ITA.NO.646/IND/2019 ASSESSMENT YEAR 2014-15 SHRI MADHUSUDAN NYATI, 4, NYATI NIWAS, MANDI ROAD, DHAMNOD PAN : AAPPN8275P : APPELLANT V/S PR. CIT-I INDORE : REVENUE ASSESSEE BY SHRI MAN EESH VAI D YA & MS. PREETI PATWA, CAS REVENUE BY S HRI S.S. MANTRI, CIT DATE OF HEARING 09.02.2021 DATE OF PRONOUNCEMENT 17 .02.2021 O R D E R PER MANISH BORAD, A.M BY T HE ABOVE CAPTIONED APPEAL ASSESSEE HAS CHALLENGED T HE JURISDICTION ASSUMED BY THE LD. PR. COMMISSIONER OF INCOME TAX-I (IN SHORT LD. PCIT], INDORE U/S 263 OF THE ACT VID E ORDER DATED 27.03.2019 RAISING FOLLOWING GROUNDS OF APPEAL:- MADHUSUDAN NYATI ITA NO.646/IND/2019 2 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE LEARNED PR. CIT ERRED IN PASSING THE ORDER U/S 263(1) HOLDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW , THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) WAS NEITHER ERRONE OUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE AS THE SAME WAS PASSED AFTE R MAKING REQUIRED EXAMINATION / INVESTIGATIONS AND AFTER PROPER APPLI CATION OF MIND AND THEREFORE THE ORDER NOW PASSED U/S 263 IS UNWARRANT ED, INVALID AND BAD- IN-LAW. IT IS PRAYED THAT THE PROCEEDINGS AND THE S UBSEQUENT ORDER PASSED U/S 263, WHICH IS MERELY AN EXTENSION OF AN ASSESSM ENT ORDER WHICH WAS VOID AB INITIO MAY VERY KINDLY BE QUASHED. 2.THE APPELLANT CRAVES LEAVE TO ADD ANY NEW GROUND OF APPEAL OR ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS THE PROPRIETOR OF SHIV SHAKTI INDUS TRIES WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FUEL OI L. APART FROM IT, HE HAS DERIVED INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES DURING THE YEAR. THE ASSESSEE FILED E-RETUR N ON 04.L1.2014 DECLARING TOTAL INCOME OF RS.11,97,260/- APART FROM AGRICULTURAL INCOME OF RS.89,500/-. THIS RETURN WAS SELECTED FOR LIMITED SCRUTINY THROUGH CASS AND NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 DATED 18.09.2015 WAS ISSUED. IN SPITE OF A LIMITED SCRUTINY MADHUSUDAN NYATI ITA NO.646/IND/2019 3 ASSESSMENT THE LD. AO ISSUED A 21 POINT QUESTIONNAI RE ON 27.04.2016 AND ANOTHER QUERY LETTER DATED 27.05.201 6. THE REASON FOR SCRUTINY WAS 'LARGE INTEREST EXPENSES RELATABLE TO EXEMPT INCOME U/S 14A' . THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 28.06.2016 BY MAKING THE FOLLOWING ADDITIONS: INCOME RETURNED RS. L1 ,97,260 ADD: DISALLOWANCE - 1. U/S 40A(3) 22,813 2. U/S 14A 79,019 INCOME ASSESSED ROUNDED OFF TO RS. 12,99,090 AGRICULTURAL INCOME RS. 89,500 4. THE PR. CIT-I, INDORE THEN ISSUED A SHOW CAUSE NOTICE U/S 263 OF THE I.T. ACT ON 15.02.2019 AS HE OBSERVED THAT T HE ASSESSMENT ORDER PASSED U/S 143(3) ON 28.06.2016 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE. WRIT TEN SUBMISSIONS WERE FILED BEFORE THE LD. PR. CIT-I, INDORE ON 25.0 2.2019 AND ON 28.02.2019. AN ORDER U/S 263 WAS PASSED ON 27.03.20 19 BY THE PR. CIT-I, INDORE SETTING ASIDE THE ASSESSMENT ORDER DA TED 28.06.2016 PASSED BY THE AO U/S 143(3) TO THE FILE OF THE LD. AO DIRECTING HIM TO EXAMINE THE ISSUE OF DISALLOWANCE U/ S 14A R.W.R 8D AFTER ASCERTAINING ALL FACTS AND GIVING A PROPER OPPORTUN ITY TO THE MADHUSUDAN NYATI ITA NO.646/IND/2019 4 ASSESSEE AND TAKE DECISION AS PER LAW. 5. AGGRIEVED BY THE SAID ORDER OF THE PR. CIT-I, IN DORE THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 6. LD. COUNSEL FOR THE ASSESSEE APART FROM RELYING ON THE WRITTEN SUBMISSION PLACED ON RECORD, JUDGMENTS PLACED IN PA PER BOOK OF CASE LAWS (20 DECISIONS) AND THE PAPER BOOK RUNNING FROM PAGE 1 TO 72 FILED ON 16.12.2020 SUBMITTED THAT THE ISSUE RAI SED IN THE SHOW CAUSE NOTICE ISSUED BY LD. PCIT IS WITH REGARD TO C OMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT. THIS ISSUE HAS B EEN EXAMINED THOROUGHLY BY THE LD. A.O AFTER TAKING NECESSARY IN FORMATION FROM THE ASSESSEE AND MAKING DISALLOWANCE OF RS.79,019/- U/S 14A OF THE ACT. 7. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED SUPPORTING THE ORDER OF LD. PCIT SUBMITTED T HAT WITH REGARD TO HUGE INTEREST EXPENSES WHICH HAVE NOT BEEN EXAMI NED BY LD. A.O AND IN SUCH CIRCUMSTANCES LD. PCIT HAS RIGHTLY DIRE CTED THE LD. A.O TO EXAMINE THE ISSUE OF DISALLOWANCE U/S 14A READ W ITH RULE 8D OF THE ACT. MADHUSUDAN NYATI ITA NO.646/IND/2019 5 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUD GMENTS REFERRED AND RELIED BY THE LD. COUNSEL FOR THE ASSESSEE. TH E SOLE GRIEVANCE RAISED IN THIS APPEAL BY THE ASSESSEE IS CHALLENGIN G THE ORDER OF LD. PCIT U/S 263 OF THE ACT CONTENDING IT TO BE WITHOUT JURISDICTION, UNWARRANTED, INVALID AND BAD IN LAW. 9. WE OBSERVE THAT LD. PCIT ISSUED FOLLOWING SH OW CAUSE NOTICE TO THE ASSESSEE:- THE RELEVANT PORTION OF THE SHOW CAUSE NOTICE U/S 263 IS REPRODUCED AS UNDER:- 4.1 ON PERUSAL OF THE CASE RECORD FOR THE AY 2014-15 IT IS FOUND THAT YOU HAVE CLAIMED HUGE INTEREST EXPENSES AGAINST THE BUS INESS INCOME WHEREAS A LARGE PART OF FUND WAS LOCKED IN ASSETS S UCH AS AGRICULTURE LAND AND SHARES INCOME FROM WHICH WAS CLAIMED AS EX EMPT. HOWEVER, THE AO WITHOUT DOING INDEPENDENT VERIFICATION AT HIS EN D, ACCEPTED THE CALCULATION SUBMITTED BY YOUR SIDE FOR MAKING DISAL LOWANCE U/S 14A. 4.2 WHILE CALCULATING THE AVERAGE VALUE OF INVESTME NT WHILE MAKING CALCULATION (AS PER SECTION 14A READ WITH RULE 8D, YOU HAVE DEDUCTE D AVERAGE VALUE OF THE CAPITAL, THEREBY REDUCING THE AMOUNT OF DISALLOWANC E TO BE DONE U/S 14A. THEN, THERE ARE INVESTMENTS IN ASSETS, WHICH ARE PERSONAL IN NATURE AND ACCORDINGLY HAVE NO BUSINESS EXPEDIENCY FOR CLAIMING INTEREST. 4.3 11 IS ALSO NOTICED THAT YOU HAD NOT SUBMITTED ANY DETA ILS AS REGARD UNSECURED LOAN O] RS. J 3,82, J 79/. SHOWN AS PAID IN THE BOOKS OF SHIVSHAKTI MADHUSUDAN NYATI ITA NO.646/IND/2019 6 STATED EXCLUSIVELY FOR BUSINESS. 4.4 GIVEN THE ABOVE, THE AO HAS NOT MADE PROPER ENQ UIRY AND INVESTIGATION IN TO THE ISSUE OF DISALLOWANCE TO BE MADE U/S 14A. 10. IN THE ABOVE STATED SHOW CAUSE NOTICE LD. PCIT HAS INDICATED ONLY TO THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT. D URING THE PROCEEDINGS U/S 263 OF THE ACT ASSESSEE MADE FOLLOWING SUBMISSI ONS:- SUBMISSION DATED 25.02.2019 1. THE FIRST REASON AS RECORDED IS NOT SUSTAINABLE AS THE CALCULATION OF DISALLOWANCE U/S 14A (ANNEX 10- 12) HAS STRICTLY BEEN MADE IN ACCORDANCE OF LAW AS WELL RULINGS OF VARIOUS JUDICIARIES IN THE MATTER AS DETAILED IN PARA 21 OF SUBMISSION DATED 11106/2016 (ANNEX 6-9). DURING THE COURSE OF HEARING THE MATTER WAS DULY SU BSTANTIATED TO THE LD. AO. AND UPON SUBSTANTIATION HE POINTED OUT CERTAIN ANOMALIES AND FURTHER REQUIRED JUS TIFICATION VIDE PARA 11 OF ENQUI RY LETTER U/S 142(1) DATED 27/05/2016 (ANNEX 13-14 4) & THE ASSESSEE VIDE SUBMISSION DATED 1010612016 (ANNEX 15- 17) DULY CLARIFIED THE MATTER AND SUBMITTED REVISED CALCULATION OF DISALLOWANCE U/S 14A (ANNEX IB-20) AND THE SAME WAS DULY VERIFIED AND ACCEPTED BY THE LD. AO. WITH HIS FULL WISDOM AS OBLIGED UPON HIM UNDER SECTION 14A(2). FURTHER THE APPLICABILITY OF RULE SB IS NOT MECHANICAL BUT IT IS REQUIRED TO BE APPLIED WITH SATISFACTION OF THE AO. AS OBLIGED BY SECTION 14A (2). IT MAY ALSO BE NOTED THAT APPLICABILITY OF THE SECTION 14A IS RESTRICTED TO THE INVESTMENTS OF WHICH INCOME IS EXPRESSLY EXEMPT FROM THE TAX. IT IS EVIDENT FROM ABOVE THAT THE LD. A O . HAS NOT SIMPLY ACCEPTED THE SUBMISSION OF THE ASSES SEE BUT MADE DISALLOWANCE STRICTLY AFTER SATISFACTION AS OBLIGED UPON HIM U/S 14A(2) USING HIS FULL WISDOM AND CONSIDERING FACTS AS WELL AS LAW AS RULED BY MADHUSUDAN NYATI ITA NO.646/IND/2019 7 THE JUDICIARIES. 2. ANOTHER REASON NOTED THAT THE ASSESSEE HAS NOT SUB MITTED ANY DETAILS OF UNSECURED LOAN OF RS.13,82, 1791SHOWN A S PAID IN THE BOOKS OF SHIVSHAKTI. IN THE MATTER IT IS 'STATED T HAT THE ASSESSEE HAS NOT PAID ANY SUCH LOAN AND IT HAS FURNISHED DETAIL S OF ALL THE LOANS DURING THE PREVIOUS YEAR AS PER PARA 13 OF HIS SUBMISSION DATED 11/0612016 VIDE ANNEXURE 275-283 THERETO. SUBMISSION DATED 28.02.2019 7. KIND ATTENTION OF YOUR HONOUR IS ALSO INVITED TO CL AUSE (A) & (B) TO EXPLANATION 2 TO. SECTION163(J) WHICH READS AS 'EXPLANATION 2. -FOR THE PURPOSES OF THIS SECTION, IT. IS HEREBY DECLARED TH AT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS I N SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER ,- (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE;' . (B) THE ORDER IS PASSED ALLOWING ANY RELIEFWITHOUT INQUIRING INTO THE CLAIM; PLEASE NOTE THAT IT IS EVIDENT FROM OUR SUBMISSION DATED 2510212019 THAT THE LD. A.O. HAS PASSED THE ORDER AND ALLOWED THE RELIEF ONLY AF TER DULY MAKING INQUIRIES AND VERIFICATION WHICH SHOULD HAVE BEEN MADE AND ACCORDING TO AFORESAID EXPLANATION THE ORDER SO PAS SED COULD NOT BE DEEMED TO BE ERRONEOUS WITHIN THE MEANING OF SEC. 2 63 AND THEREFORE PROVISIONS OF SECTION 263 COULD NOT BE INVOKED. 8. AS REGARDS NON ACCEPTABILITY OF THE DECISION OF HON OURABLE HIGH COURT OF DELHI GIVEN IN CASE OF CIT VS. DD INDUSTRIES LTD. ( 2015) 92 CCH 0125 AS THE SAID HIGH COURT IS NOT THE JURISDICTIONAL COURT . WE SUBMIT THAT THE AFORE MADHUSUDAN NYATI ITA NO.646/IND/2019 8 SAID DECISION HAS DULY BEEN AFFIRMED BY THE HONOURA BLE SUPREME COURT OF INDIA IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT IN CIVIL APPEAL NO. 7020 OF 2011 ORDER PASSED ON MAY 8, 2017 (ANNEX 2-13) AND ACCORDINGLY THE 'CALCULATION OF AMOUNT OF EXPENDITU RE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (REVISED)' AS SUBMIT TED BY THE ASSESSEE NEED NOT REQUIRED TO BE RECALCULATED. 9. AS REGARDS EXPLANATION REGARDING CALCULATION OF AMO UNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME W E SUBMIT THAT IT HAS STRICTLY MADE IN THE MANNER LAID DOWN IN CLAUSE (II ) OF SUB RULE (2) OF RULE 8D WHICH READS AS UNDER '(II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRE CTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: B A X ------- C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; THE ABOVE SUBMISSION CLEARLY RENDERS THAT THE PROVI SIONS OF SEC. 263 COULD NEITHER BE INVOKED OB LAW NOR ON FACTS AND IT IS TH EREFORE HUMBLY MADHUSUDAN NYATI ITA NO.646/IND/2019 9 REQUESTED TO DROP THE FURTHER PROCEEDING & OBLIGE. 10. LD. PCIT DULY CONSIDERED THE ABOVE SUBMISSIONS B UT WAS NOT SATISFIED AND HELD THE ORDER OF LD. A.O U/S 143(3) OF THE ACT DATED 28.6.2016 AS ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF REVENUE AND DIRECTED THE LD. A.O TO EXAMINE THE ISSUE OF DISALL OWANCE U/S 14A READ WITH RULE 8D OF THE ACT. 11. WE FIND THAT HONBLE APEX COURT IN THE CASE OF CIT V/S MAX INDIA LTD 295 ITR 282 AFTER DISCUSSING THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD V/S CIT CIT (SC) (2000) 243 ITR 083 HELD AS FOLLOWS:- 'THE PHRASE 'PREJUDICIAL TO THE INTEREST OF THE REV ENUE' IN SECTION 263 OF THE INCOME- TAX ACT, 1961 HAS TO BE READ IN CONJUNC TION WITH THE EXPRESSION 'ERRONEOUS' ORDER PASSED BY THE ASSESSIN G OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSE SSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PER MISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORD ER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFF ICER IS UNSUSTAINABLE IN LAW. ' 12. `HONBLE HIGH COURT IN THE CASE OF CIT V/S VIKAS POLYMERS 263 ITR 475 (DEL) HELD THAT IF A QUERY IS RAISED DURING THE COURSE OF SCRUTINY BY THE MADHUSUDAN NYATI ITA NO.646/IND/2019 10 AO, WHICH WAS ANSWERED TO THE SATISFACTION OF THE A O, BUT NEITHER THE QUERY NOR THE ANSWER WAS REFLECTED IN THE ASSESSMEN T ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE AO CALLED FOR INTERFERENCE AND REVISION. 13. SIMILAR VIEW WAS ALSO TAKEN BY HONBLE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS. GANPAT RAI BISHNOI 296 ITR 292 (RAJ) HOLDING THAT ONCE ENQUIRY IN FACT HAS BEEN CONDUCTED AND THE AO HAS R EACHED A PARTICULAR CONCLUSION, THOUGH REFERENCE TO SUCH ENQUIRIES HAS NOT BEEN MADE IN THE ORDER OF THE ASSESSMENT, THE INVOCATION OF JURISDIC TION BY CIT IS NOT SUSTAINABLE AND SAME IS LIABLE TO BE SET ASIDE. 14. THIS TRIBUNAL IN THE CASE OF NAROTTAM MISHRA (2015) 25 ITJ 206 HELD THAT :- 'EVEN THIS IS NOT THE CASE OF THE LD. CIT THAT CERT AIN EVIDENCES WERE OVERLOOKED WHICH WERE VERY MUCH ON RECORD OR IN THE KNOWLEDGE OF THE AO. EVEN THIS IS NOT THE CASE OF LD. CIT THAT CERTAIN N EW FACTS OR EVIDENCES WERE BROUGHT TO THE NOTICE OF THE REVENUE DEPARTMEN T WHICH WERE HAVING A DIRECT IMPACT ON THE INCOME ASSESSED BY THE AO. N EITHER THERE WAS AN ESCAPEMENT OF EVIDENCE NOR THERE WAS ANY EVIDENCE N OW BROUGHT TO THE NOTICE OF THE REVENUE DEPARTMENT, THEREFORE IF THAT WAS NOT THE POSITION, THEN WE ARE NOT INCLINED TO GIVE OUR APPROVAL TO SU CH DIRECTIONS. ' 'IT IS WELL SETTLED THAT IF THE SAME INQUIRY BY THE ASSESSING OFFICER IN ALL ORIGINAL PROCEEDINGS EVEN IF IT INADEQUATE THAT CAN NOT FLOUT THE MADHUSUDAN NYATI ITA NO.646/IND/2019 11 COMMISSIONER WITH JURISDICTION U/S 263 MERELY BECAUSE HE CAN FORM ANOTHER OPINION.' [EMPHASIS SUPPLIED] 15. NOW LET US EXAMINE THE FACT OF THE INSTANT CASE IN LIGHT OF ABOVE JUDICIAL PRONOUNCEMENTS AND THE RATIOS LAID THEREI N. WE FIND THAT THE ASSESSEES CASE IS SELECTED FOR LIMITED SCRUTINY FO LLOWED BY ISSUE OF DETAILED QUESTIONNAIRE ON 27.4.2015 SEEKING VARIOUS INFORMATION PLACED AT PAGE 32 OF THE PAPER BOOK. TO THIS DETAILED REP LY WAS FILED ON 11.6.2016 WHICH IS PLACED AT PAPER BOOK PAGE 33 TO 36. IN THIS REPLY ASSESSEE MADE FOLLOWING SUBMISSIONS ANSWERING TO QU ESTION NO.21 ASKED BY THE LD. A.O WITH REGARD TO DISALLOWANCE U/S 14A OF THE ACT SINCE THERE WERE INVESTMENT IN EQUITY SHARES AS PER THE BALANCE SHEET AND HUGE INTEREST EXPENDITURE:- 21. DISALLOWANCE U/S 14A: THERE IS NO SUCH DISALLOWANCE IN ACCORDANCE WITH T HE MANDATORY REQUIREMENTS AND CONDITIONS OF SEC, 14A. PLEASE NOT E THAT THE APPLICATION OF RULE 80D IS NOT AUTOMATIC & MECHANICAL BUT THE SAME HAS BE APPLIED IN TERMS OF SUCH MANDATORY REQUIREMENTS AND CONDITIONS LAID DOWN IN SECTION 14 A, THE VARIOUS HONOURABLE HIGH COURTS AND TRIBUNALS HAS DULY CLARIFIED THE PROVISIONS OF SEC 14A FROM TIME TO TIME IN THEIR PRONOUNCEMENTS, ACCORDINGLY FOLLOWING CONDITI6NS MU ST BE SATISFIED BEFORE INVOKING THE 'SEC 14A I.. THERE SHOULD BE DIRECT NEXUS BETWEEN ANY BORRO WING INVESTMENT MADE BY THE ASSESSEE AS SUCH PORTION OF INTEREST ON BORROWINGS COULD NOT ON LY BE DISALLOWED WHICH HAS DIRECT NEXUS WITH THE INVESTMENTS. *DCIT VS. COSMOS INTERNATIONAL LTD ( 2014) 41 CCH 032 DEL TRIB MADHUSUDAN NYATI ITA NO.646/IND/2019 12 *ACIT VS. DHAMPUR SUGAR MILL PVT. LTD (2 015) 370 ITR 0194 (ALL) * HDFC BANK LTD VS. DCIT (2014) 41 CCH 0286 MUM TRIB * U.P. ELECTRONICS CORPORATION LTD VS.DCIT (2015 ) 43 CCH 0068 LUCKNOW TRIB * JOINT INVESTMENTS PVT LTD VS. CIT (2015) 92 CCH 0088 DEL HC * CIT-I VS ABHISHEK INDUSTRIES LTD (2015) 92 CCH 0193 PHHC * RAMTECH SOFTWARE SOLUTIONS PVT LTD VS ACIT (20 15)44 CCH 0502 CHD TRIB II. ANY INTEREST AND/OR EXPENDITURE MUST HAVE BEEN INCURRED FOR INVESTMENTS, INCOME RECEIVED FROM WHICH HAD BEEN CLAIMED EXEMPT. BRIGADE ENTERPRISES LTD VS. ACIT (2015) 44 CCH 0313 BANG TRIB CIT VS. NAIDUNIA NEWS & NETWORKING(P)LTD (2012) 82 CCH 0320 MPHC III. THERE MUST HAVE RECEIVED ANY INCOME AND THE S AME MUST HAVE BEEN CLAIMED EXEMPT: CIT-V VS. HOLCIM INDIA P. LTD (2014) 90 CCH 0081 DEL HC HEMA ENGINEERING INDUSTRIES LTD VS. ACIT (2015) 45 CCH 0140 DEL TRIB CIT VS. I.P. SUPPORT SERVICES INDIA(P) LTD (2015) 9 4 CCH 0037 DEL HC IV. INVESTMENT MADE MUST HAVE BEEN INTENDED TO EARN EXEMPT INCOME AND THE SAME SHOULD HAVE NOT BEEN STRATEGIC INVESTMENT. RAPID DIAGNOSTIC PVT. LTD VS. ITO (2014) 40 CCH 05 97 DEL TRIB ACIT VS. BHARAT HOTELS LTD (2014) 42 CCH 0074 DE L TRIB V. THE VALUE OF THE INVESTMENTS MUST EXCEED THE OWN FUNDS AS THE OWN FUNDS ARE SUPPOSE TO BE UTILISED FIRST FOR INVESTME NT. MADHUSUDAN NYATI ITA NO.646/IND/2019 13 * CIT VS. DD INSUSTRIES LTD (2015) 9 2 CCH 0125 DEL HC IN THE PRESENT CASE THE ABOVE CONDITIONS ARE GENERA LLY NOT PRESENT AS THE ASSESSEE HAS (I) NOT BORROWED ANY FUND AT THE TIME OF MAKING INVESTM ENTS AND THESE WERE MADE OUT OF TAXABLE INCOMES OF THE RELEV ANT YEARS. (II) ONLY FEW INVESTMENT OF WHICH INCOME RECEIVED HAS BE EN CLAIMED EXEMPT (III) CERTAIN INVESTMENT ARE NOT INTENDED TO EARN EXEMPT INCOME AND THE SAME OR STRATEGIC INVESTMENT AND (IV) THE VALUE OF INVESTMENTS DOES NOT EXCEEDS THE CAPIT AL OF THE ASSESSEE WHICH IS MORE THAN 4 TIMES OF THE INVESTME NTS THE ASSESSEE. FURTHER TO ABOVE THE ASSESSEE IS A SELF EMPLOYED PE RSON AND HENCE HE WILL NOT BE RECEIVING ANY LUMPSUM RETIREMENT BENEFI T LIKE A SALARIED PERSON AND THEREFORE HE HAS REGULARLY INVESTED A PA RT OF THE SURPLUS FROM TAX PAID INCOMES TO HAVE A SELF CREATED SAY SUPERAN NUATION MONEY TO SECURE HIS FUTURE AND TO MITIGATE UNFORESEEN CONTIN GENCIES AND IT HAS NEITHER INTENDED TO EARN EXEMPT INCOME NOR INVESTED OUT OF BORROWED FUND. THIS MAY BE VERIFIED FROM THE ANNEXURE AND A NNEXURE II TO CALCULATION SHEET AS PER RULE 8A. AND ACCORDINGLY NO SUBSTANCE IS PRESENT TO INVOKE SECTION 14A IN THE PRESENT CASE. TO MORE SPECIFICALLY CLARIFY THE ABO VE, CALCULATION UNDER RULE 8D IN ACCORDANCE WITH THE ABOVE MANDATORY COND ITIONS IS ATTACHED WHICH REVEALS NO DISALLOWANCE IS WARRANTED. 16. ALONG WITH THIS REPLY ASSESSEE ALSO ANNEXED CO MPUTATION OF DISALLOWANCE U/S 14A OF THE ACT AND SUBMITTED THAT NO DISALLOWANCE W AS CALLED FOR. ASSESSEES THIS MADHUSUDAN NYATI ITA NO.646/IND/2019 14 CLAIM WAS BASED ON THE DETAILS PLACED BEFORE LD. A. O WHICH INCLUDED BREAK UP OF VALUE OF STRATEGIC INVESTMENT VALUE AND VALUE OF INVESTME NTS OF WHICH INCOME IS TAXABLE AND THE VALUE OF INVESTMENT OF WHICH INCOME IS CLAIMED AS EXEMPT. 17. THERE WAS ANOTHER QUERY LETTER ISSUED BY LD. A. O DATED 27.5.2016 CONTAINING 11 QUESTIONS IN WHICH QUESTION NO.1 WAS SPECIFICALLY W ITH REGARD TO INTEREST EXPENSES AND THE SAME READS AS FOLLOWS:- 1. ON PERUSAL OF BALANCE SHEET IT IS SEEN THAT YOU HAV E MADE LONG TERM INVESTMENT IN PROPERTIES AT RS. 2,02,05,807/-, LONG TERM UNLISTED EQUITY SHARES AT RS. 6,76,000/-, LONG TERM LISTED . EQUITY SHARES AT RS. 47.78,427/- AND HAVE MADE NONE BUSINESS PURPOSE AND CAPITAL ADVANCE OF RS. 25,72,952/- TO DIFFERENT PARTIES AS SUCH PLEASE SNOW CAUSE AS T O WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED KEE PING IN VIEW THE RELEVANT PROVISIONS OF THE ACT. 18. THE ASSESSEE MADE SUBMISSION ON 10.3.2016 RE PLYING TO ALL THE QUESTIONNAIRES RAISED BY THE LD. A.O AND THE REPLY GIVEN FOR QUEST ION NO.1 REGARDING INTEREST EXPENSES READS AS FOLLOWS:- 1. REGARDING DISALLOWANCE OF INTEREST : THE INVESTMENTS HAVE BEEN CATEGORISED INTO PERSONAL ASSETS (I.E. RS.50,26,502/-), INVESTMENT ASSETS (I. E. RS.1,28,65,119/-) AND REST OF THE ASSETS ARE BUSINESS ASSETS. THE ASSESSEE HAS MAINT AINED ALL ITS PERSONAL ASSETS IN ITS BOOKS OF ACCOUNTS WHICH COULD HAVE BEEN DEBITED TO CAPITAL ACCOUNT OF THE ASSESSEE IN THE YEAR OF PURCHASE. AND ACCORDINGLY FOR THE PURPOSE O F ALL CALCULATIONS HEREINAFTER WE HAVE RECALCULATED THE CAPITAL EMPLOYED AND TOTAL ASSETS. IN VIEW OF THE INVESTMENT IN THE PERSONAL ASSETS AS IT HAS BEEN MADE OUT OF CAPITAL NO DISALLOWANCE IS WARRANTED. MADHUSUDAN NYATI ITA NO.646/IND/2019 15 19. IN THE VERY SAME LETTER DATED 25.7.2016 QUES TION NO.11 RELATED TO DISALLOWANCE U/S 14A OF THE ACT SEEKING FOLLOWING INFORMATION FROM THE ASSESSEE:- PLEASE, JUSTIFY IN THE 'LIGHT OF ASSETS SHOWN 10 THE BALANCE SHEET- FIXED ASSETS RS. 1,87,16.897/-, L ONG TERM INVESTMENT IN PROPERTIES RS. 2,02,05,807/-, CLOSING STOCK RS. 26.74.427/-, SUNDRY DEBTORS RS.. 4,84,346/-. DEPOSIT LOANS AND ADVANCES RS. 2,31,866/-CASH IN HA ND RS, 4.90,496/-, LOANS AND' ADVANCES RS. 25,72,952/~, MISS. EXPENSES RS. 1,86,366/- AND' OTHER CU RRENT ASSETS RS. 4,51,005/- ALL TOTALLING TO RS, 4;71,02,750/-- YOU HAVE NOT UTILIZED THE INTEREST BEARING FUNDS FOR MA KING THE, INVESTMENT IN SHARES WHILE YOU HAVE OWN CAPITAL ONLY AT RS. 1.55,69,136/. AND SUNDRY CREDITORS, PROVISIONS AND OTHER PAYABLES AT RS. 6,38,957/- (1,11,752 + 4,64,920 + 62,285) AND ALL OTHER FUNDS BEING INTEREST BEARIN G FUNDS. 20. IN REPLY THE ASSESSEE THROUGH ITS LETTER DATE D 10.6.2016 SUBMITTED THE DETAILS OF THE APPLICATION OF CAPITAL AND AFTER GIV ING REFERENCE TO THE EARLIER SUBMISSIONS MENTIONED THAT THERE WERE INADVERTENT E RRORS IN CALCULATION OF DISALLOWANCE U/S 14A AND THE DISALLOWANCE WAS RECAL CULATED AT RS.79,019/- AND VOLUNTARILY DISCLOSED FOR DISALLOWANCE. 21. THE LD. A.O AFTER CONSIDERING ABOVE STATED RE PLIES GIVEN BY THE ASSESSEE TO THE SPECIFIC QUERIES RAISED BY THE LD. A.O WITH REGA RD TO CLAIM OF HUGE INTEREST EXPENSES AND DISALLOWANCE U/S 14A OF THE ACT MADE S PECIFIC OBSERVATION AT PARA 4 OF THE ASSESSMENT ORDER U/S 143(3) OF THE ACT DAT ED 28.6.2016 AND ALSO MADHUSUDAN NYATI ITA NO.646/IND/2019 16 REPRODUCED THE CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT AT RS.79,019/- AND CONFIRMED THE DISALLOWANCE AND ADDED TO THE INC OME OF THE ASSESSEE. 22. IN LIGHT OF ABOVE STATED FACTS THERE IS NO DO UBT THAT THE LD. A.O HAS RAISED SPECIFIC QUERY WITH REGARD TO HUGE INTEREST EXPENDI TURE AS TO WHETHER THEY WERE ALLOWABLE AS BUSINESS EXPENDITURE AND SECONDLY ISSU E OF DISALLOWANCE U/S 14A OF THE ACT AND TO THESE SPECIFIC QUERIES DETAILED REPL IES WERE FILED BY THE ASSESSEE WHICH ARE STATED ABOVE AND DULY CONSIDERED BY LD. A .O AND HE AFTER DISCUSSING THE ISSUE IN DETAIL IN THE ASSESSMENT ORDER HAS CON FIRMED THE DISALLOWANCE U/S 14A OF THE ACT. IT THUS SHOWS THAT THE PRESENT CAS E IS NEITHER OF NO ENQUIRY OR INCOMPLETE ENQUIRY AT THE END OF THE LD. A.O NOR TH E ORDER U/S 143(3) OF THE ACT CAN BE SAID TO BE ERRONEOUS SO FAR AS PREJUDICIAL T O THE INTEREST OF REVENUE AS THE LD. A.O HAS TAKEN ONE OF THE POSSIBLE VIEWS PROVIDED UNDER THE LAW AND THE APPLICATION OF MIND BY THE LD. A.O IS CLEARLY DISCER NABLE FROM RECORDS AS WELL AS THE ASSESSMENT ORDER. 23. IN THESE GIVEN FACTS AND CIRCUMSTANCES THERE WAS NO ROOM LEFT FOR LD. PCIT TO HAVE ASSUMED HIS JURISDICTION U/S 263 OF THE ACT ON THE ISSUES RAISED IN THE SHOW CAUSE NOTICE. WE ACCORDINGLY QUASH THE IMPUGN ED ORDER PASSED U/S 263 OF THE ACT AND RESTORE THE ASSESSMENT ORDER U/S 143 (3) OF THE ACT DATED 28.8.2016. THE SOLE GROUND RAISED BY THE ASSESSEE IS ALLOWED. MADHUSUDAN NYATI ITA NO.646/IND/2019 17 24. IN THE RESULT THE APPEAL OF THE ASSESSEE STAN DS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17.02.20 21 SD/- SD/- ( KUL BHARAT) (MANI SH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 17 FEBRUARY, 2021 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE