Sh. Shiv Parshad Aggarwal, Ludhiana V. ACIT, Ludhiana

ITA 927/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73540 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Salary income
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.927/CHD/2012 ASSESSMENT YEAR : 2009-10 SHRI SHIV PARSHAD AGARWAL, VS THE A.C.I.T., C/O SALIGRAM SHIV PARSHAD, RANGE V, G.T.ROAD, LUDHIANA. MILLER GANJ, LUDHIANA. PAN : ABKPA7653E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI J.S.NAGAR DATE OF HEARING : 03.03.2014 DATE OF PRONOUNCEMENT : 27.03.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-II, LUDHIANA DATED 23.08 .2012 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL : 1. THAT THE LEARNED CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.39,80,707/- U/S 14A OF THE INCOM E TAX ACT R.W. RULE 8D OF THE INCOME TAX RULES. 2. THAT THE LEARNED CITA(A)- II HAS IGNORED THE FACT T HAT NO DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2008-0 9 & THE DISALLOWANCE MADE ON THE SAME FACTS IN THE ASSESSM ENT YEAR 2007-08 STOOD DELETED BY THE CIT(A) & THE HON'BLE T RIBUNAL. 3. THAT IT HAS BEEN IGNORED THAT ALL THE INVESTMENTS I N THE SHARES & MUTUAL FUNDS WERE OLD ONES AND OUT OF OWN FUNDS AND THERE WAS ONLY A MEAGER INVESTMENTS OF RS. 1,35,749 /- DURING THE YEAR OUT OF APPELLANT'S OWN INCOME OF RS. 3,15, 39,490/-. 2 4. THAT IN ANY CASE THE DISALLOWANCE UPHELD IS AGAINST THE LAW AND FACTS OF THE CASE. 5. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE CHARGING OF INTEREST U/S 234B. 3. THE ISSUE RAISED VIDE GROUND NOS. 1 TO 4 IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME T AX ACT AT RS. 39,80,707/-. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IN HIS BALANCE-SHEET HAD SHOWN INVESTM ENT OF RS. 13.44 CR AS ON 31.3.2008 AND RS. 13.56 CR AS ON 31.3.2009, I NCOME FROM WHICH WAS EXEMPT. AS THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION HAD INCURRED AND CLAIMED INTEREST EXPENDITURE OF RS. 77 ,72,910/-, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY DISALLOWANC E UNDER SECTION 14A OF THE ACT IN RELATION TO THE SAID INVESTMENT S HOULD NOT BE MADE. THE ASSESSING OFFICER, IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES COMPUTED THE DISALLOWANCE UNDER RULE 8D(II) AT RS. 33,08,071/- AND UNDER RULE 8D(II I) AT RS. 6,72,635/- AS THE ASSESSEE HAD BORROWED FUNDS ON WHICH INTERES T WAS BEING MADE AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN INV ESTED IN EARNING TAX FREE DIVIDEND INCOME. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE INVESTMENT IN SHARES HAD BEEN MADE BY THE ASSESSEE IN THE EARLIER YEARS AND THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE FOR MAKING SUCH INVESTMENT BUT AS THE ASSE SSEE HAD FAILED TO FURNISH ANY EVIDENCE THAT THE INVESTMENTS WERE ACTU ALLY MADE OUT OF SUCH INTEREST FREE FUNDS, THE PLEA OF THE ASSESSEE WAS T O BE VERIFIED FROM THE BANK ACCOUNTS. THE COMMISSIONER OF INCOME TAX (APP EALS) VIDE PARA 3.7 HELD THAT, THE FUND FLOW PATTERN WHICH EMERGES FROM THE COPY O F THE 3 ACCOUNTS IS THAT THE VARIOUS LOANS RAISED BY THE AP PELLANT ARE DEPOSITED WITH AARTI STEELS LIMITED ON WHICH INTEREST IS CHAR GED. WHENEVER ANY INVESTMENTS HAVE TO BE MADE BY THE APPELLANT THE FU NDS ARE WITHDRAWN' FROM AARTI STEELS LIMITED AND THEN INVESTED INTO SH ARES OR MUTUAL FUNDS. THEREFORE, IT IS APPARENT FROM THE COPY OF THE BANK ACCOUNT THAT IT IS ESSENTIALLY THE BORROWED FUNDS WHICH ARE USED FOR M AKING INVESTMENTS IN SHARES AND MUTUAL FUNDS. THESE BORROWED FUNDS ARE B EING KEPT WITH AARTI STEELS LIMITED AND WHENEVER REQUIRED THE SAME ARE WITHDRAWN AND USED FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FU NDS. THE BORROWED FUNDS ARE THEREFORE BEING ROUTED THROUGH AARTI STEE LS LIMITED INTO SHARES AND MUTUAL FUNDS. IN VIEW OF THE MIXED FUNDS AVAILABLE WITH THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF IT RULES WAS SQUARELY APPLICABLE AND THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER WAS UPHELD IN THE HANDS OF THE ASSESSEE. THE ASSES SEE IS IN APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 6. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE AS SESSEE WAS CARRYING ON THE BUSINESS AS CONSIGNMENT AGENT OF TA TA STEELS LTD. AS SOLE PROPRIETOR OF M/S SALIGRAM SHIV PARSHAD. THE LD. A R FOR THE ASSESSEE FURTHER POINTED OUT THAT NO INTEREST HAD BEEN PAID TO THE BANK. HOWEVER, INTEREST OF RS. 77,72,910/- WAS PAID TO FAMILY MEMB ERS FOR THE SPECIFIC PURPOSE OF ADVANCING LOANS TO M/S AARTI STEELS LTD. TO EARN HIGHER RATE OF INTEREST. DURING THE YEAR UNDER CONSIDERATION, T HE INVESTMENT WITH M/S AARTI STEELS LTD. AS ON 31.3.2009 WAS RS.11.33 CR W HILE THE BORROWING WAS RS. 7.63 CR MEANING THEREBY THAT ADDITIONAL AMO UNT OF RS. 3.69 CR WAS OUT OF THE OWN CAPITAL OF THE ASSESSEE. IT WAS FURTHER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE INVESTMENTS IN THE TAX EXEMPT SECURITIES WAS MADE IN THE EARLIER YEARS AND DURING THE YEAR UNDER CONSIDERATION, ONLY INVESTMENT OF RS. 35,749/- WAS MADE. THE 4 INVESTMENT MADE IN THE SHARES AND MUTUAL FUNDS WAS RS. 13.45 CR AS AGAINST THE CAPITAL AVAILABLE WITH THE ASSESSEE OF RS. 25.02 CR. THE LAST PLEA OF THE ASSESSEE WAS THAT DURING THE YEAR UNDER CONSIDERATION, IT HAD RECEIVED INTEREST OF RS. 1,19,32,128/- AGAINST WHIC H THE INTEREST EXPENDITURE OF RS. 77,72,910/- WAS DEBITED AND AFTE R NETTING OFF, THE NET INTEREST WAS DECLARED AS INCOME FROM OTHER SOURCES AND NO INTEREST BURDEN COULD BE CONSIDERED FOR THE AFORESAID DISALL OWANCE UNDER SECTION 14A OF THE ACT. 7. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON THE O RDERS OF THE AUTHORITIES BELOW AND POINTED OUT THAT IN VIEW OF T HE PROVISIONS OF SECTION 14A OF THE ACT, THE DISALLOWANCE WAS WARRAN TED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS THE SOLE PROPRIETOR OF M/S SALIGRAM SHI V PARSHAD AND IS CARRYING ON THE BUSINESS OF CONSIGNMENT AGENT OF M/ S TATA STEELS LTD. IN ADDITION TO THE BUSINESS INCOME DECLARED BY THE ASS ESSEE AT RS.2.13 CR, THE ASSESSEE HAS DECLARED SALARY INCOME FROM M/S AA RTI STEELS AT RS. 61,69,515/-. THE ASSESSEE HAS ALSO DECLARED INTERE ST INCOME EARNED FROM M/S AARTI STEELS LTD. AT RS. 118,29,523/- AGAINST W HICH IT HAS CLAIMED THE EXPENDITURE OF INTEREST AT RS. 77,72,910/-. TH E SAID INTEREST INCOME AND INTEREST EXPENDITURE HAS BEEN DECLARED UNDER TH E HEAD INCOME FROM OTHER SOURCES IN THE COMPUTATION OF INCOME FILED FO R THE YEAR UNDER CONSIDERATION PLACED AT PAGES 8 TO 10 OF THE PAPER BOOK. ON THE OTHER HAND, THE ASSESSEE HAD SHOWN INVESTMENT OF RS. 13.4 5 CR IN THE SHARES AND MUTUAL FUNDS, WHICH THE ASSESSEE CLAIMS TO HAVE MADE OUT OF ITS OWN FUNDS I.E. ITS CAPITAL OF RS. 25.02 CR. THE SAID I NVESTMENT IN SHARES AND MUTUAL FUNDS, INCOME FROM WHICH IS EXEMPT WAS MADE IN THE PRECEDING YEARS AND DURING THE YEAR UNDER CONSIDERATION, ONLY INVESTMENT OF RS. 35,749/- WAS MADE. 5 9. IN THE TOTALITY OF THE ABOVESAID FACTS AND CIRCUMST ANCES, WHERE THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE WHICH IS SET-OFF AGAINST THE INTEREST INCOME OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES AND WHERE NO INTEREST EXPENDITURE IS REMAINING TO BE SE T OFF, THERE IS NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN MAK ING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN LINE WITH RULE 8D(I I) OF THE IT RULES. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HA D EARNED DIVIDEND INCOME OF RS. 305,730/- AGAINST WHICH DISALLOWANCE OF RS. 39,80,707/- WAS MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. WE DELETE THE ADDITION MADE UNDER SECTION 14A READ WIT H RULE 8D(II) AT RS. 33,08,071/-. HOWEVER, IN VIEW OF THE ASSESSEE HAVIN G INCURRED VARIOUS EXPENDITURES, THE DISALLOWANCE WARRANTED UNDER RULE 8D(III) AT % OF THE AVERAGE OF THE VALUE OF INVESTMENT AT RS. 672,6 35/- IS UPHELD. THE GROUNDS OF APPEAL NO. 1 TO 4 RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 10. THE ISSUE IN GROUND NO. 5 RAISED BY THE ASSESSEE IS AGAINST CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AND HENCE, THE SAME IS DISM ISSED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH MARCH,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITA T,CHD.