M/s. J.Kishore Overseas, Amritsar. V. The Joint Commissioner of Income-tax, Amritsar.

ITA 656/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8793 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAM BAHL
• Keywords: Business expenditure; Earning of tax free income; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER [ I.T.A NO.656(ASR)/2014 ASSESSMENT YEAR: 2010-11 M/S J. KISHORE OVERSEES 75-BHANDARI BRIDGE, AMRITSAR. PAN:AACFJ6733B VS. JCIT, RANGE-III, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. PADAM BAHL (CA.) RESPONDENT BY: SH. TARSEM LAL (DR.) DATE OF HEARING: 15.03. 2016 DATE OF PRONO UNCEMENT: 18.03.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A) DATED 11.09.2014 FOR ASST. YEAR. 2010-11. 2. THE ONLY GROUND TAKEN BY ASSESSEE IS THE GRIEVAN CE OF ASSESSEE WITH THE ACTION OF LEARNED CIT(A) BY WHICH HE HAD C ONFIRMED THE ADDITION OF RS.2,08,601/- MADE BY ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT,1961. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD INVESTED A SIGNIFICANT A MOUNT IN MUTUAL ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 2 FUNDS. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSEE HAD BORROWED FUNDS FROM BANK AND ALSO FROM OTHER RELATI VES AND HAD PAID INTEREST OF BANK AND RELATIVES. THEREFORE, HE RELYI NG UPON THE PROVISIONS OF SECTION 14A, MADE A DISALLOWANCE OF RS.3,05,694/ -. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEARN ED CIT(A) AND LEARNED CIT(A) ALLOWED PART RELIEF TO ASSESSEE BY H OLDING AS UNDER: 6. THE ASSESSEE HAS FILED 2 GROUNDS OF APPEAL AND FIRST GROUND OF APPEAL IS REGARDING DISALLOWANCE OF INTEREST OF RS. 3,05,694/- ON ACCOUNT OF INVESTMENT MADE BY THE ASSESSEE IN MUTUAL FUNDS AND INTEREST FREE LOANS AND ADVANCES U/S14A OF INCOME TAX ACT, 1961 READ WI TH RULE 8D OF THE INCOME TAX ACT. DURING THE YEAR, ASSESSEE HAS INVES TED IN HDFC MUTUAL FUND AND HAVE EARNED TAX FREE INCOME, WHEREAS, DURI NG THE YEAR ASSESSEE WAS HAVING UNSECURED LOANS OF RS.1,47,30,054/- AND SECURED LOANS OF RS.3,09,64,264/-. THUS AO HAS DISALLOWED AS PER PRO VISIONS OF SECTION 14A/36(1)(III) OF THE INCOME TAX ACT, INTEREST AS L OAN FUNDS HAVE BEEN UTILIZED FOR NON-BUSINESS PURPOSES AND AS SUCH ARE NOT ALLOWABLE AS BUSINESS EXPENSES. IN THIS REGARD, ASSESSEE HAS SUB MITTED AND RELIED ON CASE-LAWS AS DISCUSSED ABOVE FOR ASSESSMENT YEAR 20 08-09. IN VIEW OF ABOVE DISCUSSION FOR A.Y.2008-09 AND APPLICABILITY OF ABHISHEK INDUSTRIES DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT AND FURTHER IN VIEW OF RULE 8D, DISALLOWANCE OF INTEREST U/S 144A/36(1)(II I) IS UP HELD AND ACTION OF THE AO IN THIS REGARD IS CONFIRMED. HOWEVER, DIS ALLOWANCE OF INTEREST HAD TO BE CALCULATED IN ACCORDANCE WITH NUMBER OF D AYS BASIS AND ON THAT BASIS DISALLOWANCE IS RESTRICTED TO RS.2,08,601/- I NSTEAD OF RS.3,05,694/-. THE AO HAS DISALLOWED A SUM OF RS.1,29,260/- BEING 1/5 TH OF TOTAL EXPENSES OF CONVEYANCE/ENTERTAINMENT/MOBILE/TELEPHO NE EXPENSES CONSIDERING THEM AS PERSONAL EXPENSES. IT IS FACT T HAT ASSESSEE WAS NOT ABLE TO PRODUCED ANY LOG BOOK OR DETAIL TO PROVE TH AT ALL THESE EXPENSES WERE WHOLEKY AND SOLELY INCURRED FOR THE PURPOSE OF BUSINESS AND THE ONUS TO PROVE THESE EXPENSES WERE ONLY FOR BUSINESS WAS NOT MET BY THE ASSESSEE. HOWEVER, THESE EXPENSES ARE RESTRICTED TO 1/8 TH OF TOTAL EXPENSES INSTEAD OF 1/5 TH BEING EXCESSIVE. 5. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, LEARNED AR SUBMITTED THAT ASSESSE E HAD SUFFICIENT FUNDS OF ITS OWN AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAPER ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 3 BOOK PAGE 3 TO 18 WHERE CAPITAL ACCOUNTS OF PARTNER S WAS PLACED. THE LEARNED AR SUBMITTED THAT AT PAGE 3 IS A CAPITAL AC COUNT OF SMT. NIRMAL RANI WHERE THE CAPITAL STOOD AT RS.69.52 LACS. SIMI LARLY, HE SUBMITTED THAT PAGE 8 IS A COPY OF ACCOUNT OF PARTNER SH. RAJ ESH KUMAR, IN WHOSE CAPITAL OUTSTANDING BALANCE WAS RS.288.337 LACS. SI MILARLY WE WERE TAKEN TO PAPER BOOK PAGE 14 WHERE COPY OF CAPITAL A CCOUNT OF SH. VIPIN KUMAR WITH A CAPITAL OF RS.86.72 LACS WAS PLACED. I N VIEW OF THE ABOVE FACTS THE LEARNED AR SUBMITTED THAT ASSESSEE HAD SU FFICIENT BALANCE OF FUNDS IN THE CAPITAL ACCOUNTS OUT OF WHICH INVESTME NT IN MUTUAL FUNDS WAS MADE ONLY TO THE EXTENT OF RS.3.75 CRORES. THE BENCH THEN ASKED LEARNED AR TO FILE BALANCE SHEET OF THE ASSESSEE TO ASCERTAIN AS TO WHETHER THESE FUNDS LAYING IN CAPITAL ACCOUNTS WERE STRUCK IN OTHER ASSETS OR NOT. ON OUR ASKING THE LEARNED AR FILED A COPY OF BALANCE SHEET AS ON31.3.2010. WHILE GOING THOROUGH THE BALANCE SH EET WE OBSERVED THAT FUNDS AMOUNTING TO RS.14.81 CRORES WERE STRUCK IN SUNDRY RECEIVABLES AND THEREFORE, THE LEARNED AR WAS CONFR ONTED REGARDING AVAILABILITY OF FUNDS OF PARTNERS. THE LEARNED AR S UBMITTED THAT THOUGH A SIGNIFICANT AMOUNT WAS STRUCK UP IN SUNDRY RECEIVAB LES YET THE FACT REMAIN THAT ASSESSEE HAD NOT INVESTED FUNDS AFTER B ORROWING FROM THE BANK AND AT THE TIME OF MAKING INVESTMENT THERE WER E VERY SMALL BANK BORROWINGS AND IN THIS RESPECT OUR ATTENTION WAS IN VITED TO PAPER BOOK PAGE 19 AND IT WAS SUBMITTED THAT ON THE DATE OF MA KING INVESTMENTS THERE WERE BORROWING TO THE TUNE OF APPROXIMATE RS. 55 LACS ONLY. HE ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 4 FURTHER SUBMITTED THAT DURING THE COURSE OF FINANCI AL YEAR THE ASSESSEE HAD EARNED A NET PROFIT OF RS.1.70 CORES AND THESE FUNDS WERE INVESTED IN MUTUAL FUNDS AND THEREFORE, HE ARGUED THAT NO NEXUS CAN BE ESTABLISHED BETWEEN BORROWED FUNDS AND INVESTMENTS. 7. ADVANCING AN ALTERNATIVE ARGUMENT THE LEARNED A R INVITED OUR ATTENTION TO AN ORDER OF ITAT, MUMBAI BENCHES DATED 1.1.2015 IN ITA NO. 5592/MUM/2012 AND SUBMITTED THAT HONBLE ITAT HAS H ELD THAT ADDITION U/S 14A IF ANY HAS TO BE RESTRICTED TO THE AMOUNT OF DIVIDEND INCOME AND DIVIDEND IN THIS YEAR WAS RECEIVED ONLY TO THE EXTENT OF RS.60015.81 AND IN THIS RESPECT WAS OUR ATTENTION W AS INVITED TO PAPER BOOK PAGE 1 WHERE THE DETAILS OF DIVIDEND RECEIPTS WAS PLACED. 8. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T ASSESSEE HAS NOT BEEN ABLE TO PROVE THE EXISTENCE OF SURPLUS FUN DS AS A MAJOR PART OF CAPITAL OF PARTNERS AND BANK AND UNSECURED LOANS WE RE STRUCK UP IN RECEIVABLES AND AS REGARDS THE ARGUMENT OF LEARNED AR THAT AT THE TIME OF MAKING INVESTMENTS NO SIGNIFICANCE BORROWING WERE T HERE, THE LEARNED DR SUBMITTED THAT THE FACT REMAINS THAT ASSESSEE HA D USED MIXED FUNDS FOR MAKING INVESTMENTS AND THEREFORE, LEARNED CIT(A ) HAS RIGHTLY UPHELD THE DISALLOWANCE. 9. AS REGARDS THE RELIANCE OF LEARNED AR ON THE CAS E LAW OF MUMBAI BENCHES IN ITA NO.5592/MUM/2012 REGARDING RESTRICTI ON OF DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME THE L EARNED DR SUBMITTED ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 5 THAT NO COGNIZANCE SHOULD BE TAKEN OF THIS DECISION OF MUMBAI BENCHES AS THE BASIC IDEA OF MAKING DISALLOWANCE U/S 14A IS DEFEATED IF THE ABOVE ORDER IS FOLLOWED BECAUSE HE SUBMITTED THAT IF AN A SSESSEE HAS INCURRED AN EXPENDITURE FOR EARNING EXEMPT INCOME AND DOES N OT RECEIVE DIVIDEND INCOME OR RECEIVES LESSER DIVIDEND INCOME THEN, IT DOES NOT MEAN THAT THE DISALLOWANCE WILL BE RESTRICTED TO THE AMOUNT OF DI VIDEND. 10. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE FIRST A RGUMENT OF LEARNED AR DO NOT CARRY ANY FORCE AS THE FIGURES IN THE BALANC E SHEET SUGGEST THAT THE ASSESSEE HAD NO SURPLUS FUNDS TO MAKE INVESTMEN T IN MUTUAL FUNDS. THE SECOND ARGUMENT OF THE LEARNED AR THAT AT THE T IME OF MAKING INVESTMENT THERE WERE LITTLE BORROWINGS ALSO DO NOT HOLD GROUND AS MONEY HAS NO COLOUR AND IN A RUNNING BUSINESS IT ROTATES AND BALANCE IN EACH ACCOUNT CHANGES FROM DAY TO DAY AND FURTHERMORE THE FACT REMAINS THAT IT IS A CASE OF USE OF MIXED FUNDS FOR MAKING INVES TMENTS THEREFORE, DISALLOWANCE U/S 14A WAS WARRANTED. HOWEVER THE LAS T ARGUMENT OF LEARNED AR THAT THE DISALLOWANCE BE RESTRICTED TO T HE AMOUNT OF DIVIDEND IS ACCEPTABLE AS THE COORDINATE BENCH IN THE CASE O F M/S DAGA GLOBAL CHEMICALS PVT. LTD. IN ITA NO. 5592/MUM/2012 VIDE O RDER DATED 1.1.2015 HAS HELD THAT THE DISALLOWANCE U/S 14 R. W RULE 8D CANNOT BE EXCEED THE EXEMPT INCOME. THE FINDINGS OF THE HONB LE TRIBUNAL ARE REPRODUCED BELOW. ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMI CALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME O F RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTE NDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMP T INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON AP PEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX(APPEALS) BROADLY THE STA ND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASS ESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE D IVIDEND WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY ME, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58,412/- BY INVOKING SECTION 14A R.W RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EX PLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YE ARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YE AR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MA KING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME. AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS.1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W RULE 8D CANNOT EX CEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF TRIBUNAL WE RESTRICT THE DISALLOWANCE U/S 14A TO RS.60016 ONLY. 11. IN VIEW OF THE ABOVE, THE APPEAL FILED BY ASSES SEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED:18.03.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: ITA NO.656 (ASR)/2014 ASST. YEAR:2010-11 7 (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.