Shri Bharatbhai Jayantilal Kapadia, Ahmedabad V. The Income Tax Officer, Ward-1(3)(1), Ahmedabad

ITA 65/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6533 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 09-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D R THAKKAR
• Keywords: Earning of tax free income; Source of fund; Rule 8D
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO. 65/AHD/2017 / ASSESSMENT YEAR: 2012-13 BHARATBHAI JAYANTILAL KAPADIA PROP: M/S.KANTILAL & CO. G-25, RATNAM COMPLEX NR. NATIONAL HANDLOOM C.G. ROAD AHMEDABAD 380 006. PAN : ABQPK 0611 G VS ITO, WARD-1(3)(1) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI D.R. THAKKAR, AR REVENUE BY : SHRI KAMLESH MAKWANA, SR.DR / DATE OF HEARING : 11/03/2019 /DATE OF PRONOUNCEMENT : 30/04/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE LD.CIT (A)-10, AHMEDABAD DATED 4.10.2016 PASSED FOR THE ASSTT.YEAR 2012-13. 2. ASSESSEE HAS TAKEN THREE GROUNDS OF APPEAL WHICH CONTAINED SUB- GROUNDS. OUT OF THESE GROUNDS, GROUND NO.3 IS GENE RAL GROUND WHICH DOES NOT CALL FOR RECORDING OF ANY FINDING, HENCE R EJECTED. 3. IN GROUND NO.1.01 TO 1.03, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.1,20,824/- WHICH ITA NO.65 /AHD/2017 - 2 - WAS ADDED BY THE AO AID OF SECTION 14A R.W. RULE 8D OF THE INCOME TAX RULES. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ELECTRONICALLY ON 29/09/2012 DECLARING TOTAL INCOME AT RS.5,26,655/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSU ED AND SERVED UPON THE ASSESSEE. THE LD.AO HAS OBSERVED THAT THE ASSE SSEE HAS MADE INVESTMENT OF RS.21,15,621/-AND EARNED EXEMPT INCOM E TO THE TUNE OF RS.1,46,229/-. HE FURTHER OBSERVED THAT THE ASSESS EE HAS NOT DEBITED ANY EXPENDITURE UNDER SECTION 14A OF THE INCOME TAX ACT . THEREFORE, HE DIRECTED THE ASSESSEE TO EXPLAIN WHY EXPENDITURE RE LATABLE TO EARNING TAX FREE INCOME BE NOT DISALLOWED. IN RESPONSE TO THE QUERY OF THE AO, IT WAS CONTENDED BY THE ASSESSEE THAT HE HAS NOT MADE ANY INVESTMENT IN EARNING TAX FREE INCOME. HE HAS MADE INVESTMENT IN THE PPF ACCOUNT. THE TOTAL AMOUNT NOTICED BY THE AO AT RS.21,15,621/ - IS CONCERNED, IT IS A CARRY FORWARD FROM EARLIER YEARS, AND THIS YEAR ONL Y RS.1.00 LAKH HAS BEEN INVESTED. THIS ONE LAKH HAS BEEN INVESTED FRO M HIS OWN SOURCE OF FUNDS AND FOR THAT PURPOSE, THE ASSESSEE CONTENDED CAPITAL BALANCE OF RS.50.63 LAKHS IS AVAILABLE WITH THE ASSESSEE. SIM ILARLY, HE HAS RS.25,70,500/- AS DEPOSITS/UNSECURED LOANS ON WHICH NO INTEREST EXPENDITURE HAS BEEN INCURRED. THE LD.AO WAS NOT S ATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE HAS NOT ASSIGNED A NY REASONS AS TO WHY HE WAS NOT SATISFIED. BUT STRAIGHTWAY, PROCEED TO DISALLOW THE EXPENDITURE WITH THE HELP OF RULE 8D. HE DISALLOWE D A SUM OF RS.1,20,824/-. THE AO HAS ALSO DISCUSSED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.960/-, BUT SUBMITTED THAT THI S DIVIDEND INCOME IS ITA NO.65 /AHD/2017 - 3 - TAXABLE, CANNOT BE A FACTOR FOR WORKING A DISALLOWA NCE. THE LD.CIT(A) HAS ACCEPTED THIS ARGUMENT AS FAR AS RS.960/- IS CO NCERNED, BUT CONFIRMED THE DISALLOWANCE MADE BY THE AO UNDER SEC TION 14A R.W. RULE 68D OF THE INCOME TAX RULES. 4. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE HA VE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT THE LD.CIT(A) H AS WHILE CONCURRING WITH THE AO HAS RECORDED A FINDING THAT THE AO WAS NOT SATISFIED WITH THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE FOR NOT SHOWING ANY EXPENDITURE RELATABLE TO EARNING TAX FREE INCOME. HE FURTHER OBSERVED THAT THE AO HAS RIGHTLY RECORDED A FINDING THAT THE ASSESSEE HAS NOT DISALLOWED ANY AMOUNT UNDER SECTION 14A R.W. RULE 8 D. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIE W THAT A PERUSAL OF SECTION 14A WOULD INDICATE THAT IT TALKS OF ANY EXP ENDITURE RELATABLE TO EARNING OF TAX FREE INCOME. THE FIRST QUESTION IS, THERE SHOULD BE EXPENDITURE WHICH HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME. THIS EXPENDITURE SHOULD HAVE BEEN CLAIMED BY THE ASSESSEE. NOW, IN THE PRESENT CASE, THE ASSESSEE HAS NOT INCU RRED ANY EXPENDITURE. HE IS AN INDIVIDUAL. HE HAS MADE INVESTMENT IN PPF AND MORE THAN 95% OF SUCH INVESTMENT WAS CARRIED OVER FROM EARLIER YE ARS. THE INVESTMENT IN THIS YEAR IS ONLY RUPEES ONE LAKH. ON THIS INVE STMENT NO INTEREST EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE. THE REFORE, THERE COULD NOT BE ANY COMPUTATION OF INTEREST EXPENDITURE. SI MILARLY, FOR MAKING INVESTMENT IN PPF ADMINISTRATIVE EXPENSES ARE NOT T O BE WORKED OUT. THE ASSESSEE HAS NOT DEBITED ANY SALARY FOR CARRYIN G OUT THIS ACTIVITY. HE HIMSELF MIGHT HAVE TAKEN CARE OF. THEREFORE, CONSI DERING THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD.REVEN UE AUTHORITIES ARE ITA NO.65 /AHD/2017 - 4 - NOT JUSTIFIED ANY MAKING ADDITION OF RS.1,20,824/-. WE ALLOW THIS GROUND OF APPEAL AND DELETE THE ADDITION. 5. IN GROUND NO.2.01 TO 3.00, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AT THE RATE OF 14% ON RS.63,87,500/-. 6. A PERUSAL OF THE RECORD WOULD INDICATE THAT THE ASSESSEE HAS WITHDRAWN RS.93,95,072/- FROM HDFC BANK OVERDRAFT A CCOUNT AND REPAID HOUSING LOAN. THE LD.CIT(A) CONFIRMED THE D ISALLOWANCE TO THE EXTENT THE AMOUNT WAS USED FOR REPAYMENT OF HOUSING LOAN. THE DISCUSSION MADE BY THE LD.CIT(A) READS AS UNDER: GROUND NO. 2.01 TO 2.03 - DISALLOWANCE OUT OF INTE REST EXPENSE OF RS.6,.73,871/-. DURING THE COURSE OF APPEAL PROCEEDINGS, IT WAS OBS ERVED BY THE AO THAT ASSESSEE HAS WITHDRAWN RS.93,95,072/- FROM HDFC OVE RDRAFT ACCOUNT AND REPAID THE HOUSING LOAN. THEREFORE, BY APPLYING THE PROVISION OF SECTION 36(1)(III), THE AO DISALLOWED @14% ON RS. 93,95,072/- . THE DISALLOWANCE HAS BEEN WORKED OUT AT RS.6,73,871/-. DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELL ANT HAS FILED A PAPER BOOK IN HIS SUBMISSIONS. IN THIS PAPER BOOK, A COPY OF BANK ACCOUNT MAINTAINED WITH UNION BANK OF INDIA FOR THE PERIOD FROM 06.06.2010 TO 15.06.2010 HAS BEEN GIVEN. A PERUSAL OF THIS BANK STATEMENT CLEARLY SHOW S THAT AN AMOUNT OF RS. 30,66,843/- HAS BEEN TRANSFERRED TO THIS ACCOUNT ON 12-06-2010 WHICH HAS REDUCED THE OVERDRAFT OF THE APPELLANT. THIS CLEARL Y SHOWS THAT AN AMOUNT OF RS. 30,66,843/- HAS BEEN UTILIZED BY THE APPELLANT IN T HE BUSINESS OF THE APPELLANT AND THEREFORE THE DISALLOWANCE MADE U/S. 36(1)(III) O F THE ACT BY THE AO IS NOT SUSTAINABLE TO THIS EXTENT. THE APPELLANT HAS ALSO FILED A LEDGER COPY OF THE A CCOUNT OF SAFAL PARAM FLAT NO. 901 FOR THE PERIOD 01.04.2010 TO 31.03.2012. A PERUS AL OF THIS ACCOUNT SHOWS THAT THE APPELLANT HAS MADE AN INVESTMENT OF RS. 71 .79.200/- IN THIS FLAT OUT OF WHICH, RS.63,87,500/- HAS BEEN INVESTED BY PROCURIN G A HOUSING LOAN FROM RELIANCE HOME FINANCE LTD. THE BALANCE AMOUNT TAKEN AS AN OVERDRAFT FROM HDFC BANK HAS BEEN UTILIZED FOR PAYING THIS HOUSING LOAN. SINCE THE OVERDRAFT HAS BEEN UTILIZED TO REPAY THE HOUSING LOAN TAKEN F OR BUYING THE RESIDENTIAL ITA NO.65 /AHD/2017 - 5 - PROPERTY (FLAT), THE AO RIGHTLY DISALLOWED THE INTE REST COMPONENT AT LEAST TO THIS EXTENT U/S. 36(1)(III) OF THE INCOME TAX ACT. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO U/ S. 36(1)(III) OF THE ACT IS CONFIRMED ON AN AMOUNT OF RS.63,87,500/- WHICH HAS BEEN USED FOR REPAYING THE HOUSING LOAN AND DELETED ON THE BALANCE AMOUNT WHICH HAS BEEN UTILIZED BY THE APPELLANT FOR REDUCING THE OVERDRAFT ACCOUNT IN UNION BANK OF INDIA AS DISCUSSED ABOVE. IN VIEW OF THE ABOVE, THE ADDITION IS CONFIRMED ON AN AMOUNT OF RS.63,87,500/-. THE AO IS THEREFORE DIRECTED TO COMPUTE THE DISALLOW ANCE OF INTEREST ON AN AMOUNT OF RS. 63,87,500/- @14% WHICH STANDS CONFIRM ED. THE BALANCE DISALLOWANCE MADE BY THE AO IS DELETED. THE GROUND O F APPEAL TAKEN BY THE APPELLANT IS THEREFORE PARTLY ALLOWED. 7. INTEREST EXPENDITURE INCURRED ON OVERDRAFT ACCOU NT COULD BE ALLOWED TO THE ASSESSEE, IF SUCH BORROWED FUND IS B EING USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS DIVERTED THI S FUND FOR REPAYMENT OF HOUSING LOAN. HENCE, IT WAS NOT USED FOR THE PU RPOSE OF BUSINESS. INTEREST EXPENDITURE TO THE ABOVE EXTENT CANNOT BE ALLOWED. THE LD.CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE TO THE EXTENT FUNDS WERE DIVERTED FOR NON-BUSINESS PURPOSE. WE DO NOT FIND ANY MERIT IN THIS GROUND. IT IS REJECTED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2019. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 30/04/2019