ASSISTANT COMMISSIONER OF INCOME TAX, KOTA V. SHRI ANKUSH GUPTA, KOTA

ITA 924/JPR/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6174 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Earning of tax free income
• 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 FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 924/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2014-15 ASSTT. COMMISSIONER OF INCOME- TAX CIRCLE-1, KOTA CUKE VS. SHRI ANKUSH GUPTA D-28, NEW COLONY GUMANPURA, KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AKFPG4060R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI SIDDHARTH RANKA(ADVOCATE) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 19/04/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 24/04/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A), KOTA DATED 11.09.2017 FOR ASSESSMENT YE AR 2014-15 WHEREIN THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,45,075/- MA DE BY THE AO U/S 14A R.W.S RULE 8D. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASES, THE CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 39,79,257 /- MADE BY THE AO U/S 36(1) (III) OF THE INCOME TAX ACT, 19 61. ITA NO. 924/JP/2017 ACIT, KOTA VS. SHRI ANKUSH GUPTA, KOTA 2 2. REGARDING GROUND NO. 1, THE FACTS OF THE CASE AR E THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 1,45,07,464/- I N SHARES AND MUTUAL FUNDS, INCOME OF RESPECT OF WHICH IS NOT INC LUDIBLE WHILE COMPUTING THE TOTAL INCOME. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS NOT DISALLOWED ANY EXPENSES U/S 14A OF THE ACT AND THEREAFTER SEEKING THE RESPONSE FROM THE ASSESSEE, THE AO PROCEEDED AND MADE A DISALLOWA NCE OF RS. 1,45,07,464/- APPLYING RULE 8D AS AMENDED BY INCOME TAX (13 TH AMENDMENT) RULES, 2016 VIDE NOTIFICATION NO. 43/16 W.E.F. 02.06.2016. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A). THE LD. CIT(A) PALCING RELIANCE ON T HE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD VS. CIT REPORTED IN 61 TAXMANN.COM 118 AND OF THE SPECIAL BENCH OF THE TRI BUNAL IN CASE OF ACIT VS. VIREET INVESTMENT DATED 22 ND JUNE, 2017 HAS DELETED THE DISALLOWANCE FOR THE REASON THAT NO EXEMPT INCOME H AS BEEN EARNED BY THE ASSESSEE DURING THE YEAR WHICH WILL WARRANT ANY DISALLOWANCE AS PER PROVISIONS LAID DOWN U/S 14A READ WITH RULE 8D. 4. HEARD BOTH THE PARTIES. FIRSTLY, IT IS NOTED THA T AMENDED RULE 8D HAS BEEN INVOKED BY THE AO. THESE AMENDED RULES AR E APPLICABLE W.E.F. 02.06.2016 AND THE SAME THEREFORE, CANNOT BE APPLIED FOR THE IMPUGNED ASSESSMENT YEAR 2014-15 AS THE SAME HAVE T O BE READ PROSPECTIVELY. SECONDLY, WE DO NOT SEE ANY INFIRMIT Y IN THE FINDINGS IN THE LD. CIT(A) WHERE HE HAS FOLLOWED THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT AND THE SPECIAL BENCH. UNDISPUTED LY, THERE IS NO INCOME WHICH HAS BEEN EARNED ON THE SUBJECT INVESTM ENT AND WHICH HAS BEEN CLAIMED EXEMPT WHILE DETERMINING THE TOTAL INCOME FOR THE IMPUNGED ASSESSMENT YEAR. IN ABSENCE OF ANY INCOME BEING EARNED ITA NO. 924/JP/2017 ACIT, KOTA VS. SHRI ANKUSH GUPTA, KOTA 3 AND CLAIMED EXEMPT DURING THE YEAR, NO DISALLOWANCE IS WARRANTED UNDER PROVISIONS OF SECTION 14A. IN THE RESULT, GR OUND TAKEN BY THE REVENUE IS DISMISSED. 5. REGARDING GROUND NO. 2, THE FACTS OF THE CASE A RE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERV ED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS AND ADVANCES AMOUNTING TO RS. 9,65,70,894/- AND THE ASSESSEE HAS DEBITED INTEREST EXPENSES TO THE TUNE OF RS. 39,79,257/- IN THE PROFIT & LOSS ACCOUN T. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY DISALLO WANCE SHOULD NOT BE MADE AS NO INTEREST HAS BEEN CHARGED ON THE LOANS A ND ADVANCES GIVEN BY HIM AND THAT TOO FOR NON-BUSINESS PURPOSES AND A T THE SAME TIME INTEREST EXPENSES HAVE BEEN CLAIMED ON THE BORROWED FUND. NO RESPONSE WAS HOWEVER RECEIVED FROM THE ASSESSEE. TH E AO OBSERVED THAT THE ASSESSEE IS HAVING OWN FUNDS AS WELL AS BO RROWED FUNDS AND NEXUS BETWEEN LOANS/ADVANCES AND OWN/BORROWED FUNDS IS NOT ASCERTAINABLE AND THE AO THEREAFTER COMPUTED DISALL OWANCE U/S 36(1)(III) OF THE I.T. ACT BY APPLYING 12% RATE OF INTEREST WHICH WAS DETERMINED AT RS 71,30,408/- AND RESTRICTED TO ACTU AL INTEREST DEBITED IN THE PROFIT/LOSS ACCOUNT OF RS. 39,79,257/-. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROC EEDINGS, THE ASSESSEE SUBMITTED THAT THE INTEREST FREE ADVANCES WERE GIVE N OUT OF ITS OWN SOURCES AND OUT OF INTEREST FREE FUNDS AVAILABLE WI TH THE ASSESSEE. IT WAS SUBMITTED THAT AS AGAINST THE INTEREST FREE ADV ANCES OF RS. 9,65,70,894/-, THE ASSESSEE IS HAVING OWN FUNDS TO THE TUNE OF RS. 5,67,22,709/-, INTEREST FREE BORROWED FUNDS OF RS. 3,21,66,928/- AND ITA NO. 924/JP/2017 ACIT, KOTA VS. SHRI ANKUSH GUPTA, KOTA 4 INTEREST FREE CREDIT BALANCE OF RS. 20,67,14,023/-. IT WAS FURTHER SUBMITTED THAT THERE IS NO DIRECT NEXUS BETWEEN THE AMOUNT BORROWED BY THE ASSESSEE FROM THE BANK AND THE LOANS/ADVANCE S DURING THE YEAR. IT WAS FURTHER SUBMITTED THAT THE FUNDS HAVE BEEN A DVANCED FOR BUSINESS PURPOSES AND IT IS A MATTER OF BUSINESS PR UDENCE AND ITS ENTIRELY UPTO THE ASSESSEE AS TO HOW HE UTILIZED TH E FUNDS IN THE INTEREST OF HIS BUSINESS. 7. THE LD. CIT(A) HAS RETURNED A FINDING THAT THE A SSESSEE HAS SUBSTANTIAL INTEREST FREE BORROWING AS SEEN FROM TH E ABOVE EXPLANATION GIVEN DURING THE COURSE OF APPELLATE PROCEEDINGS AN D HIS OWN FUNDS AS WELL. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSE SSEE HAS HUGE CREDIT BALANCE WHICH IS INTEREST FREE AND EXCEED INTEREST FREE ADVANCES BY ALMOST DOUBLE THE AMOUNT. IT WAS FURTHER OBSERVED B Y LD. CIT(A) THAT THE ADVANCES RECEIVED AND GIVEN ARE NECESSITATED BY BUSINESS CONSIDERATIONS AND ARE NOT FOR PERSONAL OR FOR NON- BUSINESS USE AS THE AO HAS NOT BEEN ABLE TO ESTABLISH THIS FACT DURING THE ASSESSMENT PROCEEDINGS. IT WAS FURTHER OBSERVED BY THE LD CIT (A) THAT THE AO HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN BORROW ED FUNDS DIRECTED TO THE INTEREST FREE ADVANCES FOR NON BUSINESS CONS IDERATIONS. FURTHER, THE LD. CIT(A) REFERRED TO HIS DECISION IN AY 2013- 14 WHEREIN IT WAS HELD THAT WHETHER THE ASSESSEE IS HAVING MIXED FUNDS, TH E STAND OF THE COURTS IS VERY CLEAR THAT THE AO HAS TO ESTABLISH N EXUS BETWEEN THE BORROWED FUNDS AND ADVANCES GIVEN FREE INTEREST. I T WAS ACCORDINGLY HELD BY THE LD. CIT(A) THAT NOT ONLY DID ASSESSEE U SED BORROWED FUNDS FOR THE BUSINESS PURPOSES BUT ALSO HAVE SUFFICIENT OTHER INTEREST FREE FUNDS AVAILABLE FOR INVESTMENT CARRIED OUT FOR LONG TERM BUSINESS PROSPECTS. IT WAS ALSO HELD BY THE LD CIT(A) THAT T HE AO HAS NOT BEEN ITA NO. 924/JP/2017 ACIT, KOTA VS. SHRI ANKUSH GUPTA, KOTA 5 ABLE TO PROVE ANYTHING CONTRARY BY BIFURCATING INTE REST BEARING AND FREE FUND AND THEIR RESPECTIVE USAGE ADVERSE TO THE BUSI NESS CONSIDERATION. 8. DURING THE COURSE OF HEARING, THE LD AR REITERA TED THE FACTUAL AND LEGAL POSITION AS TAKEN BEFORE THE LD CIT(A) AND RE LIED ON THE FINDINGS OF THE LD CIT(A). PER CONTRA, THE LD DR RELIED ON THE AOS ORDER. 9. HEARD BOTH THE PARTIES AND ALSO PURUSED THE MAT ERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE AO IN THE ASSESSMENT ORD ER STATES THAT THE ASSESSEE IS HAVING OWN FUNDS AS WELL AS BORROWED FU NDS AND NEXUS BETWEEN LOANS/ADVANCES AND OWN/BORROWED FUNDS IS NO T ASCERTAINABLE. IN SUCH A SCENARIO, WHERE OWN FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN BORROWED FUNDS, AS ARE THE FACTS IN THE I NSTANT CASE, THE PRESUMPTION THAT ARISES IS THAT LOANS AND ADVANCES HAVE BEEN MADE OUT FROM OWN FUNDS. THE SAID PRESUMPTION IS HOWEVER RE BUTTABLE AND THE ONUS LIES ON THE REVENUE TO REBUT SUCH PRESUMPTION. THE LD CIT(A) HAS RETURNED A FINDING THAT THE AO HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN BORROWED FUNDS DIRECTED TO THE INTEREST FRE E ADVANCES FOR NON BUSINESS CONSIDERATIONS. THE SAID FINDINGS OF THE LD. CIT(A) REMAINED UNCONTROVERTED BEFORE US. IN LIGHT OF THE SAME, WE DONOT SEE ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) WHICH A RE HEREBY CONFIRMED. THE GROUND TAKEN BY THE REVENUE IS THUS DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/04/2018. ITA NO. 924/JP/2017 ACIT, KOTA VS. SHRI ANKUSH GUPTA, KOTA 6 SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/04/2018 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ACIT, CIRCLE-1, KOTA 2. IZR;FKHZ@ THE RESPONDENT- SHRI ANKUSH GUPTA, KOTA 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. 924/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR