Basant Sukhwani, Pune V. Deputy Commissioner of Income-tax, Central Circle -2 (3), Pune

ITSSA 15/PUN/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8556 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 13-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 13-11-2022
• Assessment Year: misc
• Appeal Filed On: 14-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Earning of tax free income; Rule 8D
• Section: 143(3); 153A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / IT(SS)A Nos.14 & 15/PUN/2019 िनधाᭅरण वषᭅ / Assessment Years : 2014-15 & 2015-16 Basant Sukhwani, 208/2A, Sukhwani House, Station Road, Pimpri, Pune-411018. PAN : AKEPS6919C Vs. DCIT, Central Circle- 2(3), Pune. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: These are the appeals filed by the assessee directed against the common order of ld. Commissioner of Income Tax (Appeals)- 12, Pune [‘the CIT(A)’] dated 31.12.2018 for the assessment years 2014-15 and 2015-16 respectively. 2. Since the identical facts and common issues are involved in both the above captioned appeals, we proceed to dispose of the same by this common order. 3. For the sake of convenience and clarity, the facts relevant to the appeal in IT(SS)A No.14/PUN/2019 for the assessment year 2014-15 are stated herein. Assessee by : Shri Ravikant Pathak Revenue by : Shri Keyur Patel Date of hearing : 14.11.2022 Date of pronouncement : 14.11.2022 IT(SS)A Nos.14 & 15/PUN/2019 2 IT(SS)A No.14/PUN/2019, A.Y. 2014-15 : 4. Briefly, the facts of the case are that the appellant is an individual engaged in the business of real estate and property development. The return of income for the assessment year 2014-15 was filed on 31.07.2014 declaring total income of Rs.27,99,500/-. Subsequently, search and seizure operations were conducted in the business/residential premises of the appellant on 09.05.2015. Against the said Return of Income, the assessment was completed by The Deputy Commissioner of Income Tax, Central Circle-2(3), Pune (‘the Assessing Officer’) vide order dated 27.12.2016 passed u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.35,83,900/-. While doing so, the Assessing Officer made addition of Rs.7,84,401/- u/s 14A of the Act r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962 (‘the Rules’). 5. Being aggrieved by the above order of assessment, an appeal was filed before the ld. CIT(A) who vide impugned order enhanced the addition making disallowance of interest u/s 14A r.w. Rule 8D(2)(ii) of Rs.16,35,235/- rejecting the contention of the appellant that no disallowance of interest is warranted in view of the fact that the assessee’s own funds far exceeds the investments which yielded IT(SS)A Nos.14 & 15/PUN/2019 3 the exempt income. The ld. CIT(A) also confirmed the disallowance u/s 14A r.w. Rule 8D(2)((iii) made by Assessing Officer. 6. Being aggrieved by the decision of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 7. It is contended before us taking through the Balance Sheet that the share capital of the appellant stood at Rs.25.85 crores as on 31.03.2014, whereas, investments in shares and partnership firm is less than own capital, placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. HDFC Bank Ltd., 366 ITR 505 (Bom.), he submits that no disallowance is warranted. As regards to the disallowance u/s 14A r.w. Rule 8D(2)(iii), he submits that only those investments which yielded the exempt income alone has to be considered by placing reliance on the decision of the Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT, 374 ITR 108 (Delhi) and the decision of the Co- ordinate Bench of this Tribunal in the case of Janata Sahakari Bank Limited vs. DCIT, ITA No.2400/PUN/2017 and others order dated 10.05.2022. 8. On the other hand, ld. CIT-DR placing reliance on the order of the ld. CIT(A) submits that no interference is required as the IT(SS)A Nos.14 & 15/PUN/2019 4 assessee has failed to substantiate that own funds are far exceeds to the investments and shares in the partnership firm. 9. We have heard the rival submissions and perused the material on record. The issue in the present appeal relates to the disallowance of expenditure u/s 14A r.w. Rule 8D(2)(ii) and (iii) of the Rules. The disallowance under the provisions of section 14A r.w. Rule 8D(2)(ii) was made by the ld. CIT(A), of course, after affording opportunity of hearing to the appellant. The submission made before the ld. CIT(A) by the appellant that interest free funds far exceeds the investments made in equity shares and partnership firm was not dealt with by ld. CIT(A). He simply rejected the submission of the appellant by holding that the ratio of the decision relied upon by the appellant have no application to the facts of the present case. We have carefully gone through the financial statements relevant for the period under consideration, wherein, it is evident that as on 31.03.2014 interest free funds in the form of share capital is Rs.25.85 crores whereas the investment in equity shares and partnership firm reflected as loans and advances in the Balance Sheet is much below the own funds. It is settled position of law that once own funds far exceeds the investments which yielded exempt income, then the question of disallowance of expenditure does not IT(SS)A Nos.14 & 15/PUN/2019 5 arise in view of the settled position of law by the Hon’ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT, 438 ITR 1 (SC) and the Jurisdictional High Court’s decision in the case of HDFC Bank Ltd. vs. DCIT, 383 ITR 529 (Bom.) and CIT vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom.), Hon’ble Gujarat High Court in the case of CIT vs. Suzlon Energy Ltd., 354 ITR 630 (Guj.) and Hon’ble Punjab & Haryana High Court in the case of CIT vs. Max India Ltd., 388 ITR 81 (P&H). However, since the ld. CIT(A) had failed to verify this factual position, we remand this issue to the file of the Assessing Officer for due examination of the facts whether or not own funds far exceeds the cost of investments which yielded the exempt income, if so, not to make any disallowance of interest in view of the legal position stated supra. As regards to the disallowance of sub-rule (iii) of Rule 8D(2), it is settled position of law for the purpose of computing the average value of investments as envisaged under Rule 8D(2)(iii), the value of only those investments which yielded the exempt income alone has to be considered in view of the decision of the Hon’ble Delhi High Court in the case of in the case of Joint Investments Pvt. Ltd. vs. CIT, 374 ITR 694 (Delhi), the decisions of Hon’ble Madras High Court in the cases of ACB India Ltd. Vs. Assistant IT(SS)A Nos.14 & 15/PUN/2019 6 Commissioner of Income Tax, Marg Ltd. Vs. CIT, 318 CTR (Mad.) 148 and CIT Vs. Shriram Ownership Trust 318 CTR (Mad.) 233 and also by the Hon’ble Karnataka High Court in the case of Pragathi Krishna Gramin Bank Vs. Jt.CIT, 95 Taxman.com 41 (Kar.). Therefore, we remand the issue of computation of disallowance under Rule 8D(2)(iii) to the file of the Assessing Officer with the direction to compute the value of those investments which yielded the exempt income alone for the purpose of computing the average value of investments. Thus, this ground of appeal raised by the assessee stands partly allowed for statistical purposes. 10. In the result, the appeal filed by the assessee in IT(SS)A No.14/PUN/2019 for A.Y. 2014-15 stands partly allowed for statistical purposes. IT(SS)A No.15/PUN/2019, A.Y. 2015-16 : 11. Since the facts and issues involved in the above appeal in IT(SS)A No.15/PUN/2019 for A.Y. 2015-16 are identical, therefore, our decision in IT(SS)A No.14/PUN/2019 for A.Y. 2014-15 shall apply mutatis mutandis to the appeal of the assessee in IT(SS)A No.15/PUN/2019 for A.Y. 2015-16 respectively. Accordingly, the IT(SS)A Nos.14 & 15/PUN/2019 7 appeal of the assessee in IT(SS)A No.15/PUN/2019 for A.Y. 2015-16 stands partly allowed for statistical purposes. 12. To sum up, both the appeals of the assessee stands partly allowed for statistical purposes. Order pronounced on this 14 th day of November, 2022. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 14 th November, 2022. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-12, Pune. 4. The Pr. CIT Central, Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.