VIJAY INDUSTRIES, Alwar V. ACIT, Alwar

ITA 778/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9668 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 29-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R C VERMA
• Keywords: Business income; Earning of tax free income; Proportionate interest
• 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 DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 778/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-2013 M/S VIJAY INDUSTRIES, CINEMA ROAD, KHAIRTHAL (ALWAR)- 301404 CUKE VS. ACIT, CIRCLE-1 ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAFV 7282R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI R.C.VERMA (ADDL. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 09/03/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 17/03/2017 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), ALWAR DATED 12.07.2016 FOR THE A.Y. 2012-2 013. THE ASSESSEE HAS TAKEN THE FOLLOWING TWO GROUNDS OF APPEAL:- 1.0 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN MA KING A DISALLOWANCE OUT OF INTEREST AND OTHER EXPENSES OF RUPEES ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 2 11,26,190.00 WITHIN THE MEANING OF SECTION 14A OF T HE INCOME TAX ACT, 1961 AND LD CIT (A), ALWAR HAS ERRED IN S USTAINING A SUM OF RS. 2,53,417.00 OUT OF SAME. THIS ISSUE IS A COVERED ISSUE BY THE ORDER OF ITAT IN THE ASSESSEES OWN C ASE FOR THE AY 2006-07 VIDE APPELLATE ORDER NO. 673/JP/2015 DT. 17 .06.2016, THEREFORE, THE SAME DESERVES TO BE DELETED. 2.0 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN MAKIN G A DISALLOWANCE OF RUPEES 4,70,926.00 OUT OF THE REMU NERATION PAID TO THE PARTNERS, AND LD CIT (A) HAS ERRED IN S USTAINING A SUM OF RS. 120000.00 OUT OF THE SAME. 2. REGARDING THE GROUND NO. 1, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE U/S 14A CAME UP B EFORE THE HONBLE ITAT, JAIPUR BENCH JAIPUR IN ASSESSS OWN CASE FOR A.Y. 06-07. THE AO FOR THIS YEAR BY HOLDING THAT THE ASSESSEE HAS SIMP LY STATED THAT INTEREST FREE FUNDS OF RS. 19,43,629/- WAS AVAILABLE WITH IT AGAINST WHICH IT HAS INVESTED RS. 18,77,160/- IN SHARES BUT SPECIFIC DE TAILS REGARDING DATE OF INVESTMENT IN SHARES AND AVAILABILITY OF CASH AS O N THAT DATE HAS NOT BEEN FURNISHED BY THE ASSESSEE, DISALLAWED THE INTE REST ON UNSECURED LOAN ON PROPORTIONATE BASIS AS PER SEC. 14A R.W.R. 8D. THE LD. CIT (A) CONFIRMED THE DISALLOWANCE. 3. THE LD AR SUBMITTED THAT THE HONBLE ITAT VIDE O RDER DT. 17.06.2016 IN ITA NO. 673/JP/15 FOR AY 2006-07 DELE TED THE SUBJECT DISALLOWANCE. IT WAS SUBMITTED THAT THE FACTS FOR THE YEAR UNDER ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 3 CONSIDERATION IS SAME AS THAT OF A.Y 06-07 IN AS MU CH AS THE INVESTMENT IN SHARES REMAINS AT RS. 18.77 LACS. FURTHER, THE ASSESSEE HAS ALSO NOT RECEIVED ANY DIVIDEND INCOME AND THUS NO DISALLOWAN CE U/S 14A CAN BE MADE IN VIEW OF THE DECISION OF DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. ITO 378 ITR 33 DT. 02.09.2015. HENCE, IN VIEW OF THE DECISION OF HONBLE ITAT FOR A.Y. 06-07, THE DISALLOWANCE MADE U/S 14A BE DIRECTED TO BE DELETED. 4. IT IS FURTHER SUBMITTED THAT FOR A.Y. 09-10 TO A .Y. 11-12, THE HONBLE ITAT VIDE ORDER DT. 21.10.2016 RESTORED THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT TO THE FILE OF THE AO TO VERIFY THE NEXUS BETWEEN THE EXEMPT INCOME AND THE EXPENSES BASED ON ITS DECISION FOR A.Y. 07-08 AND 08-09 DATED 04-12-2014. HOWEVER, IT IS SUBMITTED THAT WHILE PASSING THE ORDER FOR A.Y. 09-10 TO A.Y. 11-1 2, THE HONBLE ITAT HAS NOT CONSIDERED ITS OWN DECISION FOR A.Y. 06-07 WHERE IT WAS HELD THAT THERE IS SUFFICIENT INTEREST FREE FUNDS FOR MA KING INVESTMENT IN SHARES. THUS, THE FACTS BEING SAME AND THERE IS NO FRESH INVESTMENT BETWEEN A.Y. 07-08 TO 11-12, NO PART OF INTEREST CA N BE DISALLOWED. IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY THE LD . CIT(A) BE DELETED. 5. THE RELEVANT FINDING OF THE LD. CIT(A) ARE CONTA INED AS UNDER:- 4.4 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT AN ADDITION OF RS.11,26,190( ON TOTAL INVESTMENT OF RS. 83,42,160) HAD BEEN MADE BY THE AO U/S 14A OF THE IT ACT ON THE GROUND THAT BORROWED F UNDS HAVE BEEN USED FOR MAKING INVESTMENTS. THEREFORE, PROPOR TIONATE ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 4 EXPENSES HAVE TO BE ALLOCATED AGAINST THE INCOME EA RNED ON SUCH INVESTMENT. AO HAD CONSIDERED FOR THIS PURPOSE THE INVESTMENT OF RS. 64,65,000/- MADE IN BUILDING AT HANUMAN NAGAR, JAIPUR AND IN SHARES OF RS. 18,77,160 BY THE APPELLANT FOR WOR KING OUT DISALLOWANCE U/S 14A OF THE IT ACT. 4.4 THE APPELLANT HAS CONTENDED BEFORE THE AO THAT INVESTMENT MADE IN THE BUILDING MAY NOT BE CONSIDERED FOR THE PURPOSE OF MAKING A DISALLOWANCE U/S 14 OF THE IT ACT, AS THIS ISSUE HAD BEEN CONSIDERED BY THE HONBLE ITAT JAIPUR A BENC H IN THE CASE OF THE APPELLANT IN ITA NO. 902/JP/2010 AND HAS GIV EN THE FOLLOWING FINDINGS, IN THEIR ORDER DATED 23-09-2011 :- PARA 4.8 OF THE ORDER WE HAVE HEARD BOTH THE PARTIES. THE ASSE SSEE HAS SHOWN THE RENTAL INCOME FROM BUILDING PURCHASED AT HANUMAN NAGAR, JAIPUR. SECTION 14A IS APPLICABLE IN RESPECT OF DEDUCTION RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THEREFORE, INVESTMENT MADE IN PROPERTY AT HANUMAN N AGAR CANNOT BE CONSIDERED FOR THE PURPOSE OF ASCERTAININ G THE DISALLOWANCE U/S 14 OF THE ACT. IF THE ASSESSEE HAS MADE INVESTMENT IN SHARES AND THE ASSESSEEIS NOT TRADER IN SHARES THEN ASSESSEE WHICH EARNS THE INCOME FROM SHARES IS ONLY DIVIDEND AND SINCE THE DIVIDEND IS EXEMPT THEREFORE, SECTION 14A IS APPLICABLE. RELIANCE IS PLACED ON THE DECISION OF T HE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEELA RAMCHANDARAN 2010-TIOL-541-HC-KERALA. THE HONBLE P UNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V/S HERO CYCL ES LTD. 323 ITR 518 HELD THE AO SHOULD RECORD THE FINDING THAT EXPENDITURE HAS BEEN INCURRED IN EARNING THE EXEMPT INCOME. WIT HOUT RECORDING SUCH A FINDING, DISALLOWANCE CANNOT BE MA DE. IN THE INSTANT CASE, THE AO HAS DISALLOWED ONLY INTEREST A ND HAS NOT CONSIDERED EXPENDITURE TO BE DISALLOWED ONLY INTERE ST AND HAS NOT ESTABLISHED THE NEXUS BETWEEN BORROWED FUNDS AND IN VESTMENT IN SHARES AND WILL ACCORDINGLY DISALLOW THE INTEREST. ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 5 4.5 AO HAS OBSERVED THAT THERE WERE NO INTEREST FRE E FUNDS AVAILABLE WITH THE APPELLANT AND THE INVESTMENT IN SHARES HAVE BEEN MADE OUT OF THE INTEREST BEARING FUNDS. HOWEVE R, AO HAS NOT GIVEN ANY CREDIT FOR THE INVESTMENT MADE IN THE BUILDING AND HAS MADE DISALLOWANCE U/S 14A OF THE IT ACT ON THE TOTAL AMOUNT OF RS.83,42,160 AND WHICH COMES TO RS.11,26,190. AO HAS ACCORDINGLY WORKED OUT THE DISALLOWANCE OF RS. 11,2 6,190 (RS.83,42,160 X 13.5%) ON INVESTMENT MADE BY THE AP PELLANT IN SHARES U/S 14A OF THE IT ACT VIDE ORDER DATED 25-03 -2015, AGAINST WHICH THE PRESENT APPEAL HAS BEEN FILED. 4.6 I FIND THAT THIS ISSUE OF WORKING OUT THE QUANT UM OF DISALLOWANCE HAS ALREADY BEEN CONSIDERED BY THE UND ERSIGNED IN THE CASE OF THE APPELLANT FOR AY 2011-12 IN APPEAL NO. 452/2013- 14 VIDE ORDER DATED 30-12-2015, WHEREIN THE PROPORT IONATE INTEREST EXPENDITURE DISALLOWED BY THE AO RELATING TO INVESTMENT IN SHARES U/S 14A OF THE IT ACT WAS UPHELD, IN THE LIGHT OF THE FINDINGS GIVEN EARLIER BY THE HONBLE ITAT, JAIPUR BENCH IN THAT YEAR. THEREFORE, INVESTMENT OF RS.64,65,000 MADE IN THE BUILDING AT HANUMAN NAGAR HAS TO BE EXCLUDED FOR WORKING OUT DISALLOWANCE U/S 14A OF THE IT ACT. 4.7 CONSIDERING THE FACTS STATED ABOVE, AND AS THER E IS NO CHANGE IN THE FACTS OF THE CASE IN THIS YEAR, I CON FIRM THE DISALLOWANCE OF THE PROPORTIONATE INTEREST EXPENDIT URE OF RS.2,53,417 (RS.11,26,190/83,42,160 X18,77,160) REL ATING TO INVESTMENT OF RS.2,53,417 OUT OF THE TOTAL DISALLOW ANCE OF RS.11,26,190 MADE BY THE AO UNDER THIS HEAD IS CONF IRMED. 6. RESPECTFULLY FOLLOWING THE LATER DECISION OF THE COORDINATE BENCH DT. 21.10.2016, WE HEREBY RESTORE THE ISSUE OF DISA LLOWANCE U/S 14A OF THE ACT TO THE FILE OF THE AO TO VERIFY THE NEXUS B ETWEEN THE EXEMPT ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 6 INCOME AND THE EXPENSES. IN THE RESULT, GROUND TAK EN BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. REGARDING THE GROUND NO. 2, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE CONFIRMED BY THE LD . CIT(A) IS ON ACCOUNT OF NOT CONSIDERING THE INCOME FROM LEASE RE NT OF CAR AS INCOME DERIVED FROM THE BUSINESS ACTIVITIES. IT IS TO BE NOTED THAT THE RATIO LAID DOWN BY THE HONBLE ITAT, JAIPUR BENCH, JAIPUR IN A SSESSEES OWN CASE FOR A.Y. 08-09 WHILE ALLOWING REMUNERATION TO PARTN ERS WITH REFERENCE TO THE INSURANCE RECEIPT IS ALSO APPLICABLE TO INCOME OF LEASE RENT ON CAR WHICH IS ALSO ARISING IN THE COURSE OF THE BUSINESS . HENCE, THE AO BE DIRECTED TO ALLOW REMUNERATION TO PARTNERS ON THIS RECEIPT ALSO AND THE DISALLOWANCE MADE BY AO BE DIRECTED TO BE DELETED. 8. THE RELEVANT FINDINGS OF THE LD CIT(A) ARE AS UN DER: 5.3 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT A D ISALLOWANCE OF RS.4,70,926 HAS BEEN MADE BY THE AO ON ACCOUNT O F PARTNERS REMUNERATION ON THE GROUND THAT INCOME FROM LEASE R ENT ON CAR AND INSURANCE RECEIPTS CANNOT BE CONSIDERED AS PAR T OF BUSINESS INCOME FOR COMPUTING BOOK PROFIT U/S 40(B)(V) OF TH E IT ACT. AO HAS THEREFORE DISALLOWED THE REMUNERATION AFTER EXC LUDING THESE RECEIPTS FROM THE BOOK PROFIT. 5.4 THE APPELLANT HAS STATED THAT THESE RECEIPTS AR E VERY MUCH PART OF THE BUSINESS AND DO NOT HAVE ITS INDEPENDEN T EXISTENCE AND THEREFORE MAY BE ALLOWED AS DEDUCTION FOR PARTN ERS REMUNERATION. THE APPELLANT HAS ALSO PLACED RELIANC E ON THE ORDERS PASSED BY THE CIT(A), ALWAR FOR AY 2009-10 I N THE CASE OF THE APPELLANT FOR TREATMENT OF INSURANCE RECEIPTS A S PART OF ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 7 BUSINESS INCOME FOR THE PURPOSES OF COMPUTATION OF BOOK PROFITS AND PARTNERS REMUNERATION. 5.5 I FIND THAT THIS ISSUE HAS ALREADY BEEN CONSIDE RED IN THE CASE OF THE APPELLANT BY THE UNDERSIGNED IN THE PRE CEDING YEAR IN APPEAL NO. 452/13-14 VIDE ORDER DATED 30-12-2015 FO R A.Y. 2011- 12 AND THERE IS NO CHANGE IN THE FACTS OF THE CASE IN THIS YEAR. FOLLOWING THE REASONING GIVEN IN THAT ORDER, I HOLD THAT INSURANCE RECEIPTS HAVE TO BE TREATED AS PART OF BUSINESS INC OME AND LEASE RENT ON CAR OF RS.1,20,000/- HAVE BEEN RIGHTLY TRE ATED BY THE AO AS NOT FORMING PART OF THE BUSINESS INCOME FOR COMP UTING BOOK PROFIT U/S 40(B)(V) OF THE IT ACT. HENCE, DISALLOWA NCE OF PARTNERS REMUNERATION TO THE EXTENT OF RS.1,20,000/- IS CONF IRMED OUT OF THE TOTAL DISALLOWANCE OF RS.4,70,926 MADE BY THE A O UNDER THIS HEAD. 9. THE COORDINATE BENCH FOR AY 2011-12 VIDE ITS OR DER DATED 21.10.2016 HAS ALLOWED THE NECESSARY RELIEF TO THE ASSESSEE. FOLLOWING THE SAME REASONING, THE GROUND TAKEN BY THE ASSESSE E IS ALLOWED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17/03/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 17/03/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: ITA NO. 778/JP/2016 M/S VIJAY INDUSTRIES VS. ACIT, CIRCLE-1, ALWAR 8 1. VIHYKFKHZ@ THE APPELLANT- M/S VIJAY INDUSTRIES, CINEMA ROAD, KHAIRTHAL, ALWAR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1 ALWAR. 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. 778/JP/2016} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR