ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, Jaipur V. SHRI KAPIL TANEJA, Jaipur

ITA 711/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9363 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 23-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C PARWAL CA DHK
• Assessee Lawyers: KARNI DAN SINGH JT
• Keywords: Salary income; Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH B, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 711/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR. CUKE VS. SHRI KAPIL TANEJA, 58, COSMO COLONY, VAISHALI NAGAR, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ACRPT 2364 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI KARNI DAN SINGH (JT. CIT) JKTLO DH VKSJ LS@ REVENUE BY : SHRI PC PARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 30.05.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 02/07/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 8 TH FEBRUARY, 2018 OF LD. CIT (A), KOTA FOR THE ASSESSMENT YEAR 2 014-15. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) WAS JUSTIFIED IN DELETING DISALLOWA NCE OF RS. 42,46,087/- BEING RELATABLE INTEREST EXPENSES UNDER SECTION 14A R.W.R. 8D WITHOUT APPRECIATING THE FACT THAT SO CAL LED STRATEGIC INVESTMENTS MADE IN CLOSELY HELD COMPANIES OR FIRMS ARE FRUITFIED IN THE FORM OF DIVIDEND, STCG/LTCG ON SAL E OF INVESTMENT, SALARY, REMUNERATION ETC. FROM ANY FIRM OR COMPANY ARE RECEIVED FOR THE SERVICES RENDERED IN PERSONAL CAPACITY AND NOT FOR MERE INVESTMENTS ? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A) WAS JUSTIFIED IN DELETING DISALLOWA NCE OF RS. 65,28,895/- BEING INTEREST INCURRED ON INVESTMENT I N NON- 2 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. BUSINESS PERSONAL ASSETS AND LOANS AND ADVANCES ON WHICH NO INTEREST HAS BEEN CHARGED WITHOUT APPRECIATING POSI TION OF LAW THAT IF THE ASSESSEE SELLS ASSETS THE INCOME FROM W HICH IS CHARGEABLE TO CAPITAL GAIN TAX, THE ASSESSEE GETS B ENEFIT OF THE ALL THE MONEYS PAID FOR ACQUIRING SUCH ASSETS INCLU DING ANCILLARY EXPENSES WHATSOEVER, IN COMPUTATION OF CAPITAL GAIN WHICH IS TAXED AT SPECIAL RATES ALSO, SAY 20% IN THE CASE OF LONG TERM CAPITAL GAINS AND THUS, STRATEGIC INVESTMENT IN ACQ UIRING ASSETS AS ABOVE CANNOT BE SAID FOR THE BUSINESS PURPOSES A ND RELATABLE INTEREST CANNOT BE ALLOWED TREATING THE SAME AS BUS INESS EXPENSES ? GROUND NO. 1 IS REGARDING DISALLOWANCE OF RS. 42,46 ,087/- MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D WAS REST RICTED BY THE LD. CIT (A) TO RS. 2,76,768/-. 2. THE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM SALARY, HOUSE PROPERTY, TRADING IN SHARES AND COMMODITY, CAPITAL GAIN AND I NTEREST. THE ASSESSEE FILED HIS RETURN OF INCOME ON 28 TH NOVEMBER, 2014 DECLARING TOTAL INCOME OF RS. 22,00 ,000/- AFTER CLAIMING THE EXEMPT INCOME BY WAY OF CAPITAL GAIN AND DIVIDEND FROM SHARES TOTAL AMOUNTING TO RS. 19,09,954/-. THE AO NOTED T HAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS. 1,32,95,215/- AND ALSO HAVING EXEMPT INCOME OF RS. 19,09,954/- AGAINST WHICH ATTRIBUTABLE INVESTMENT I S RS. 82,65,002/-. THE AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RUL E 8D(II) & (III) AND MADE THE DISALLOWANCE OF RS. 42,46,082/-. THUS THE AO HAS DI SALLOWED THE INTEREST EXPENDITURE IN PROPORTION TO THE TOTAL ASSET AND IN VESTMENT IN SHARES AND SECURITIES AS WELL AS INDIRECT ADMINISTRATIVE EXPENSES BEING 0 .5% OF THE AVERAGE INVESTMENT. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) AND POINTED OUT THAT THE AO HAS COMMITTED MISTAKE IN CALCULATING TH E DISALLOWANCE AS PER RULE 8D(III) BEING 0.5%. THE SAID MISTAKE WAS SUBSEQUENTLY RECTI FIED BY THE AO WHILE GIVING 3 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. EFFECT TO THE ORDER OF THE LD. CIT (A). FURTHER IT WAS POINTED OUT THAT EVEN AFTER MAKING THE RECTIFICATION IN CALCULATION, THE DISALL OWANCE WOULD GET REDUCED TO RS. 25,82,190/- WHICH IS STILL MORE THAN THE EXEMPT INC OME EARNED BY THE ASSESSEE. THE LD. CIT (A) ALLOWED RELIEF TO THE ASSESSEE BY M ODIFYING THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D(II) AND 8D(III) OF THE I T RULES. THUS THE LD. CIT (A) HAS RESTRICTED THE TOTAL DISALLOWANCE UNDER SECTION 14A AT RS. 2,76,768/-. 3. BEFORE US, THE LD. D/R HAS SUBMITTED THAT THE AO HAS COMPUTED THE DISALLOWANCE STRICTLY AS PER RULE 8D OF IT RULES. T HEREFORE, EXCLUDING THE INVESTMENT MADE BY THE ASSESSEE, THE DISALLOWANCE RESTRICTED B Y THE LD. CIT (A) IS NOT AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. T HE LD. D/R HAS FURTHER CONTENDED THAT THE ASSESSEE HAS ALSO GIVEN THE INTEREST FREE FUNDS TO THE GROUP CONCERNS AND FURTHER USED THE FUNDS FOR PURCHASE OF FIXED ASSETS BUT NO BUSINESS WAS DONE DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE AO HA S RIGHTLY DISALLOWED THE INTEREST EXPENDITURE TO THE EXTENT OF RS. 23,97,313/-. SIMI LARLY, THE AO HAS COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) BEING 0.5% OF TH E AVERAGE INVESTMENT WHICH WAS REDUCED BY THE LD. CIT (A). HE HAS RELIED ON THE O RDER OF THE AO. 4. ON THE OTHER HAND, THE LD. A/R HAS SUBMITTED THA T THERE IS APPARENT MISTAKE IN CALCULATING THE DISALLOWANCE UNDER RULE 8D(2)(II I) WHILE THE AO HAS TAKEN THE AMOUNT AT RS. 18,48,774/- AS AGAINST RS. 1,84,877/- . FURTHER, AS REGARDS THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE, TH E AO HAS NOT CONSIDERED THE INTEREST RECEIVED BY THE ASSESSEE OF RS. 65,87,152/ - AND THE DISALLOWANCE SHOULD HAVE BEEN MADE ONLY AGAINST THE NET INTEREST PAYMEN T INSTEAD OF GROSS INTEREST. THUS THE AO HAS AGAIN COMMITTED A MISTAKE BY TAKING THE GROSS INTEREST EXPENDITURE INSTEAD OF THE NET INTEREST EXPENDITURE. THE LD. A /R HAS FURTHER POINTED OUT THAT THE 4 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. ATTRIBUTABLE INVESTMENT YIELDING THE INTEREST INCOM E IS ONLY RS. 57,81,500/-. THEREFORE, THE PROPORTIONATE DISALLOWANCE OF INTERE ST NEEDS TO BE COMPUTED WITH REFERENCE TO ONLY THAT INVESTMENT FROM WHICH THE EX EMPT INCOME IS EARNED. HE HAS SUPPORTED THE ORDER OF THE LD. CIT (A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III), WE FIND THAT THERE IS A CALCULATION MISTAKE WHILE ARRIVING AT THE AMOUNT OF DISALLOWANCE BY THE AO OF RS. 18,48,774/- WHEREAS THE CORRECT AMOUN T IS RS. 1,84,877/-. WE FURTHER NOTE THAT THE LD. CIT (A) HAS FURTHER REDUCED THIS DISALLOWANCE BY TAKING THE AVERAGE INVESTMENT WHICH HAS YIELDED THE EXEMPT INCOME. THU S TO THAT EXTENT WE DO NOT FIND ANY ERROR IN RESTRICTING THE DISALLOWANCE UNDER RUL E 8D(2)(III) TO RS. 36,694/-. AS REGARDS THE DISALLOWANCE UNDER RULE 8D(2)(II), THE LD. CIT (A) HAS COMPUTED THE DISALLOWANCE BY TAKING THE PERCENTAGE OF THE INVEST MENT YIELDING INVESTMENT INCOME TO THE TOTAL ASSET WHICH COMES TO 3.58%. ACCORDING LY, THE LD. CIT (A) AFTER TAKING THE NET INTEREST PAYMENT AND THE RATIO OF 3.58% OF THE SAME HAS MADE THE DISALLOWANCE AS ATTRIBUTABLE TO THE EARNING OF EXEM PT INCOME. THE RELEVANT FINDING OF THE LD. CIT (A) ON THIS ISSUE IS AS UNDER :- THE A.O. HAS NOT WORKED OUT A NEXUS BETWEEN THE INT EREST BEARING & OWN FUNDS OR THE INVESTMENTS WHICH DID NOT HAVE ANY EXEMPTED INCOMES LINKED TO THEM. THE A.0 HAS ALSO NOT ANALYSED THE O WN FUNDS AVAILABLE TO THE ASSESSEE FOR MAKING SUCH INVESTMENTS. IF HE WAS SUR E THAT THE WORKING OF THE APPELLANT WAS WRONG, HE SHOULD HAVE RECORDED HIS SA TISFACTION BEFORE RESORTING TO THE DISALLOWANCE AS PER RULE 8D, HOWEV ER, THESE ELEMENTS ARE MISSING FROM THE ASSESSMENT ORDER. 5 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. THE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMEN TS (P.) LTD. VS. CIT [2015]372 ITR 694/233 TAXMAN 117/59 TAXMANN.COM 295 HELD THAT- BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RUL E 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A , AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSE E IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. IT IS ALSO NOTICED THAT WHILE CALCULATING THE DISAL LOWANCE AS PER RULE 8D (III) BEING 0.5% OF RS. 3,69,75,480/- IN HIS ORD ER, THE A.O HAS WRONGLY CALCULATED THE FIGURE AT RS. 18,48,774/- (@5% INSTE AD OF 0.5%). THIS AMOUNT COMES TO RS. 1, 84,877/-. THIS REDUCES THE A DDITION BY RS.16, 63,897/- WHICH THE A.O SHOULD RECTIFY WHILE GIVING EFFECT TO THIS ORDER. IF THIS AMOUNT IS REDUCED, THE DISALLOWANCE WOULD GET REDUCED TO RS. 25, 82,190/-(RS.42, 46,087-16, 63,897) WHICH IS MORE TH AN THE EXEMPT INCOME EARNED. THUS THE WORKING ITSELF GIVES UNREAL RESULTS BASED ON THE ABOVE CALCULATIONS. THUS SUBJECT TO THE CALCULATION DONE BELOW BASED ON THE DOCUMENTS AVAILABLE, THE DISALLOWANCE IS REWORK ED AS UNDER- PARTICULARS AMOUNT INTEREST PAID 1,32,95,215 LESS: INTEREST RECEIVED 65,87,152 NET INTEREST PAID 67,08,063 INVESTMENT ATTRIBUTABLE TO EXEMPT INCOME 73,38,933 TOTAL ASSETS 20,50,61,628 PROPORTION OF RATIO OF INVESTMENT TO THE TOTAL ASSETS 3.58% DISALLOWANCE UNDER RULE 8D(II) 2,40,074 DISALLOWANCE UNDER RULE 8D(III) (.5% OF 73,38,933) 36,694 TOTAL DISALLOWANCE 276768 6 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. THUS DISALLOWANCE OF RS. 2,76,768/- IS UPHELD. THE BALANCE DISALLOWANCE OF RS. 39,69,319/- (INCLUSIVE OF THE C ALCULATION MISTAKE AMOUNTING TO RS. 16,63,897/- DISCUSSED ABOVE) IS TO BE DELETED. THIS GROUND IS PARTLY ALLOWED. FROM THE FACTS AND DETAILS AS CONSIDERED BY THE LD. CIT (A), WE FIND THAT THE REVENUE HAS NOT POINTED OUT ANY ERROR AS REGARDS THE CORREC TNESS OF THE DETAILS CONSIDERED BY THE LD. CIT (A). ACCORDINGLY, WHEN THE CORRECT AMO UNT OF INVESTMENT AND INTEREST PAID DURING THE YEAR UNDER CONSIDERATION WAS CONSID ERED BY THE LD. CIT (A) FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A, THEN THE RE IS NO REASON TO INTERFERE WITH THE SAID FINDINGS OF THE LD. CIT (A) QUA THIS ISSUE . HENCE THE ORDER OF THE LD. CIT (A) IS UPHELD. GROUND NO. 2 IS REGARDING DISALLOWANCE OF INTEREST BEING INCURRED ON THE INVESTMENT IN NON-BUSINESS ASSET AND LOAN AND A DVANCES WITHOUT INTEREST. 6. THE AO NOTED THAT THE ASSEESSEE HAS INCURRED INT EREST EXPENDITURE OF RS. 1.65 CRORE ON THE BORROWED FUND OF RS. 17.22 CRORES AND ARRIVED TO THE RATE OF INTEREST EXPENDITURE AT 9.6%. THE AO FURTHER NOTED THAT THE ASSESSEE HAS MADE CERTAIN LOANS AND ADVANCES TO RELATIVES ON WHICH NO INTEREST WAS CHARGED AND ALSO MADE INVESTMENT IN THE PROPERTIES WHICH ARE NON-BUS INESS ASSETS. ACCORDINGLY, THE AO HAS APPLIED THE SAID AVERAGE RATE OF 9.6% ON THE SE INVESTMENTS AND LOAN & ADVANCES AND WORKED OUT THE PROPORTIONATE INTEREST OF RS. 65,28,895/-. THE AO, HOWEVER, ALLOWED THE INTEREST INCOME RECEIVED BY TH E ASSESSEE DURING THE YEAR WHILE COMPUTING THE DISALLOWANCE ON THIS ACCOUNT. THE LD . CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO BY CONSIDERING THE FACT THAT THE ASSESSEES OWN CAPITAL 7 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. IS RS. 2,25,84,374/- WHICH IS MORE THAN THE INVESTM ENT AND LOAN & ADVANCES GIVEN BY THE ASSESSEE TO THE RELATIVES. 7. BEFORE US, THE LD. D/R HAS SUBMITTED THAT THERE IS NO DIRECT NEXUS THAT THE ASSESSEES OWN FUND IS USED BY THE ASSESSEE FOR GIV ING LOANS AND ADVANCES TO THE RELATIVES AND MAKING INVESTMENT IN THE NON-BUSINESS ASSETS/PERSONAL ASSETS. THE AO HAS CONSIDERED THE NET INTEREST EXPENDITURE WHILE M AKING THIS DISALLOWANCE AND, THEREFORE, THE DISALLOWANCE MADE BY THE AO IS REASO NABLE AND PROPER. HE HAS RELIED ON THE ORDER OF THE AO. 8. ON THE OTHER HAND, THE LD. A/R HAS SUBMITTED THA T THE AO HAS IGNORED ASSESSEES CURRENT LIABILITY OF RS. 3.56 CRORES ON WHICH NO INTEREST IS PAID AND FURTHER THE ASSESSEE HAS OWN CAPITAL OF RS. 2,25,84,374/-. WHEN THE ASSESSEES OWN FUND AND INTEREST FREE FUND IS MORE THAN THE NET INVESTM ENT IN NON-BUSINESS ASSET, THEN NO DISALLOWANCE IS CALLED FOR ON THIS ACCOUNT. HE HAS SUPPORTED THE ORDER OF LD. CIT (A). THE LD. A/R HAS FURTHER SUBMITTED THAT APART FROM THE INTEREST INCOME OF RS. 65,87,152/-, THE ASSESSEE HAS ALSO RECEIVED RENTAL INCOME OF RS. 29,38,242/- WHICH IS MORE THAN THE INTEREST WORKED OUT BY THE AO ON S UCH NON-BUSINESS ASSETS. HENCE, THE LD. A/R HAS SUBMITTED THAT BY CONSIDERING ALL T HESE FACTS NO DISALLOWANCE IS CALLED FOR. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT RECORD. THE AO HAS MADE THE DISALLOWANCE ON ACCOUNT OF INTEREST BY CONSIDERING THE NON- BUSINESS ASSETS OF THE ASSESSEE AT RS. 13.66 CRORES AND THEN APPLYING THE AVERAGE RATE OF INTEREST EXPENDITURE AT 9.6% HAS WORKED OUT THE DISALLOWANCE AT RS. 75,25,859/-. THE LD. CIT (A) HAS CONSIDERED THIS I SSUE AS UNDER :- 8 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. 9 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. 10 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. 11 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. 12 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR. WE FIND THAT THE LD. CIT (A) HAS RIGHTLY CONSIDERED THE ASSESSEES OWN CAPITAL AT RS. 2.25 CRORES. FURTHER, THE REVENUE HAS NOT DISPUTED THE CURRENT LIABILITY OF THE ASSESSEE AT RS. 3.56 CRORES ON WHICH NO INTEREST IS PAYABLE. THUS CONSIDERING THE INTEREST FREE FUND AS WELL AS THE RENTAL INCOME AND INTEREST INCOME OF THE ASSESSEE WHICH ALONE IS MORE THAN THE AMOUNT OF INTEREST DIS ALLOWED BY THE AO, THE LD. CIT (A) DELETED THE DISALLOWANCE. ACCORDINGLY ONCE THE RENTAL INCOME AND INTEREST INCOME OF THE ASSESSEE IS RS.95,25,394/- EARNED ON THE ALLEGED NON-BUSINESS ASSETS THEN THE DISALLOWANCE WORKED OUT BY THE AO ON ACCOU NT OF INTEREST OF RS. 75,25,859/- IS LESS THAN THE SAID INCOME, HENCE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT (A). 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 02/07/ 2019. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 02/07/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-3, JAIPUR. 2. THE RESPONDENT SHRI KAPIL TANEJA, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 711/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 13 ITA NO. 711/JP/2018 SHRI KAPIL TANEJA, JAIPUR.