TARA DEVI CHOUDHARY,NAGAUR V. DCIT CC-1 JAIPUR, JAIPUR

ITA 845/JPR/2025

AI Insights

Tara Devi Choudhary, the appellant, challenged the order of the Additional Joint Commissioner of Income Tax, Chandigarh, which confirmed the additions made by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The dispute primarily revolved around the disallowance of interest and indirect expenses related to exempt income under section 14A read with Rule 8D of the Income Tax Rules. The AO had disallowed interest expenses of Rs. 13,11,530 and indirect expenses of Rs. 4,69,010, asserting that these were incurred in relation to earning exempt income from a partnership firm. The CIT(A) upheld the AO's decision, leading to the appeal before the Income Tax Appellate Tribunal, Jaipur.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784125 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 22-05-2025
• Other Referred Cases: ACIT v. Novel Enterprises, Aditya Birla Finance Limited v. ACIT, Smartchem Technologies Ltd. v. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV AWASTHI
• Assessee Lawyers: RUSHABH MEHTA; THRO
• Keywords: Set aside; Opportunity of being heard; Proportionate interest; Earning of tax free income; Rule 8D
• Section: 143(3); 142(1); 14A

Judgement Text

" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 845/JP/2025 fu/kZkj.k o\"kZ@Assessment Year : 2017-18 Tara Devi Choudhary M/s Kadwa Khad Beej Bhandar Sikar Road, Post-Kuchaman City, Nagaur cuke Vs. DCIT, Central Circle-01, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABGPC6784J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Rushabh Mehta, CA (Thro. VC) and Sh. Ankit Bubna, CA jktLo dh vksj ls@ Revenue by : Sh. Gaurav Awasthi, JCIT lquokbZ dh rkjh[k@ Date of Hearing : 07/10/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 10/11/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of a present appeal, the assessee – appellant challenges the order of the Addl. Jt. Commissioner of Income Tax, (A)-2 Chandigarh [ for short ‘CIT(A)’] dated 04.03.2025 for the assessment year 2017-18. The said order of the ld. CIT(A) arises as against the order dated 10.12.2019 passed under section 143(3) of the Income Tax Act, 1961 [ for short Act ] by ACIT, Circle, Nagour [ for short AO]. Printed from counselvise.com 2 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT 2. In this appeal, the assessee has raised following grounds: - (1) The Id. Additional/Joint Commissioner of Income Tax (Appeals)-2, Chandigarh (ld. CIT(A)\") erred in facts and law in confirming the additions made by the id. Assessing Officer on his own surmises and conjectures, without considering the facts of the case. (2) (a) The id CIT(A) erred in facts and law in confirming the disallowance of proportionate interest u/s 14A of the Act of Rs 13,11,530/-, without considering the fact that interest expenditure was incurred solely for earning taxable interest income from partnership firm Ms. HRG JV and not for earning any exempt income (b) The Id. CIT(A) erred in facts and law in not considering the fact that interest income earned from partnership firm Ms. HRG JV is based on the capital introduced and not the exempt profit earned from the said partnership firm (3) The Id CIT(A) erred in facts and law in confirming the disallowance of indirect expenses u/s 14A read with Rule 8D of Rs. 4,69,010/-, without proving any nexus of expenses incurred towards earning exempt income from partnership firm M/s. HRG JV (4) That the appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing or thereafter. 3. Succinctly, the fact as culled out from the records is that in this case, return of income for the A.Y.2017-18 was electronically furnished on 26.10.2017 vide acknowledgement no. 259158941261017 declaring a total income of Rs. 70,59,360/-. The case was accordingly processed u/s 143(1) accepting the returned income. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Income Tax Act, 1961 was issued on 13.08.2018 by the ACIT, Circle Nagour, which was duly served upon the Printed from counselvise.com 3 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT assessee in time through Income Tax Business Application (ITBA) platform duly served on the assessee's email address [e-mail] through e-proceedings. Subsequently Notice U/s 142(1) along with a questionnaire dated 05.07.2019, 16.07.2019, 30.07.2019, 21.08.2019, 14.09.2019, 23.10.2019 and 08.11.2019 were issued and served on the assessee by ACIT, Circle Nagour. In response to these notices the assessee replies and submitted response through E-filling portal on 11.09.2018, 11.07.2019, 24.07.2019, 06.08.2019, 26.08.2019, 19.09.2019, 23.09.2019, 20.10.2019 and 04.11.2019. Assessee provided the required details and other explanations which are placed on record. The assessee is proprietor of M/s Kadwa Khad Beej Bhandar and doing the wholesale business of fertilizers, seeds and pesticides etc. Assessee is also partner in firm M/s Hari Ram Godara JV. Assessee has earned income from business and profession income. On perusal of the computation filed by the assessee, it was noticed by the ld. AO that assessee is receiving interest income from partnership firm M/s Hariram Godara JV and has also claimed exempt income of Rs. 99,87,078/-, It was noticed that she had claimed an expenses of Rs. 20,38,422/- paid to some parties out of interest income from M/s Hariram Godara JV. A query was raised regarding the same. The assessee has submitted that she has received Rs. 2,32,00,000/- as loan Printed from counselvise.com 4 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT from 8 parties and forwarded the same to M/s Hariram Godara JV as her capital contribution. It was further noticed that the assessee has infused Rs. 7,07,00,000/- as capital addition in M/s Hariram Godara JV, out of it Rs. 2,32,00,000/- was claimed to be out of the unsecured loan while Rs. 4,75,00,000/- was found to be from the bank account maintained by the proprietorship. It was noticed that the same was current account No. 671705600002 on which overdraft facility taken by her. She has claimed Rs. 18,71,512/- as interest expense from bank in the proprietorship firm. It has been noticed that the bank account is of M/s Kadwa Khad Beej Bhandar. In all transactions of the amount transfer made to M/s Hariram Godara JV is out of the negative cash balance of the account i.e. overdraft facility has been utilized for the same for which assessee's has claimed bank interest of Rs. 18,71,512/-. It is clear from above discussion that the bank A/c 671705600002 has not only being utilized for business of the assessee but also for making investment in the firm M/s Hariram Godara JV. So the bank account has also been utilized for generation of exempt income so proportionate disallowance was applicable. As the investment in the firm M/s Hariram Godara JV is not only giving taxable income but also exempt income so provision of section 14A r.w.d 8D is applicable in the Printed from counselvise.com 5 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT case of the assessee. Based on the detailed finding recorded in the ordre of the ld. AO concluded as under : 15. In view of the above facts and discussion, as per the provisions of section 14A of the Income Tax Act and rule 8D(2)(i) of the Income Tax Rules, the interest expenses of Rs. 13,11,530/- paid against the unsecured loans are disallowed as direct expenditure relating to income which does not form part of total income of the assessee and Rs. 4,69,010/- is the indirect expense related to the exempt income as it is clear that the assessee has utilized the bank facility of overdraft for which she has claimed interest expense in her books 4. Aggrieved from the order of the ld. AO assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: 7. I have gone through the assessment order wherein the AO has observed as under:- Printed from counselvise.com 6 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT Printed from counselvise.com 7 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT Printed from counselvise.com 8 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT 7.1 During the course of appeal proceedings, no reply on grounds of appeal has been filed by the appellant in spite of sufficient opportunities provided as detailed above. 7.2 Held:-During the course of appeal proceedings, no reply has been filed by the appellant with regard to the grounds of appeal taken by him at the time of filing of appeal. I have perused the order of the Assessing Officer and considered the facts of the case. The Assessing Officer has passed a speaking order with detailed discussion on the issue involved therein. The appellant has not made any submission with regard to the grounds of appeal. No details, documents or submissions have been provided by the appellant substantiating its grounds of appeal. Moreover, mere facts mentioned in Form No. 35 cannot be considered in the absence of any supporting documentary evidence and submissions. The AO has passed a reasoned and speaking order considering all the facts and the circumstances of the case. Also, the appellant has failed to bring anything on record to support its grounds of appeal and to counter the additions made by the AO. Therefore, there is no reason to interfere with the order passed by the AO. Accordingly, the grounds of appeal is dismissed. 8. In result, the appeal is dismissed. Printed from counselvise.com 9 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT 5. Feeling dissatisfied with the finding so recorded in the order of the ld. CIT(A), the assessee is in appeal before this tribunal on the grounds as stated in para 2 above. To support the various grounds so raised by the assessee, ld. AR of the assessee, has filed the following written submissions which is reproduced herein below: 1. Return of Income: Rs. 70,59,360/-(26.10.2017) 2. The appellant is a proprietor of M/s. Kadwa Khad Beej Bhandar, which is engaged in wholesale business of fertilizers, seeds and pesticides, etc. The appellant is also partner in a firm named M/s. Hari Ram Godara JV, from which the following income / expenses were carned / incurred: Interest Income: Rs. 55,35,161/- Less: Interest Expenses: Rs. 20,38,422/- Net Interest Income: Rs. 34,96,739/- Share of Profit: Rs. 99,87,078/- (Exempt u/s. 10(2A)) 1. Assessing Officer's Contention: 1. The assessee has taken loan from 8 lenders amounting to Rs. 2.32 crores and invested the same as capital in the partnership firm M/s. Hari Ram Godara JV, on which interest expenses of Rs. 20,38,422/- has been claimed. The investment has a direct nexus with two forms of income: a. Interest on capital paid by partnership firm, taxable u/s. 28(v). b. Share of profit of partnership firm, tax exempt u/s. 10(2A). 2. Out of total capital invested in partnership firm of Rs. 7.07 crores, Rs. 2.32 crores were out of unsecured loans and the remaining amount of Rs. 4.75 crores were from the bank account maintained by the proprietorship concern. The amount invested from the bank account of the proprietorship concern were out of the negative cash balance i.e. overdraft facility, on which interest of Rs. 18,71,512/ has been claimed. Thus, the bank account of the proprietorship concern has not only being utilised for business but also for making investment in the partnership firm. 3. As the investment in the partnership firm is not only giving taxable income but also exempt income, so provision of section 14A r.w.r. 8D is applicable. 4. The capital invested by a partner in a partnership firm has a direct relation with both the share of profit of the firm and interest paid by the firm. Hence, the interest expenses incurred for borrowing the capital, further invested in the partnership firm, is in direct relation to the exempt income. Therefore, section 14A of the Act can be invoked. 5. The interest expenses of Rs. 20,38,422/ paid to 8 lenders are in direct relation to the share of profit from the partnership firm and interest received on capital Printed from counselvise.com 10 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT invested in the firm. Accordingly, interest expenditure can be apportioned in relation to the share of profit from firm and interest received from firm, on proportionate basis. Thus, interest amount of Rs. 13,11,530/-(Rs. 20,38,422 99,87,078/ (99,87,078 55,35,161)) is disallowed. 6. The assessee has invested in partnership firm out of the negative balance in bank of the proprietorship concern, for which bank charges and interest charges were paid. Thus, an amount of Rs. 4,69,010/ is disallowed, being 1% of the annual average of monthly average of investment in the partnership firm II. Decision of the Id. CIT(A): [Para 7.2, page 10] The AO has passed a reasoned and speaking order considering all the facts and circumstances of the case. Also, the appellant has failed to bring anything on record to support its grounds of appeal and to counter the additions made by the AO. Therefore, there is no reason to interfere with the order passed by the AO. Accordingly, the grounds of appeal are dismissed. III. Appellant's Submission 1. The appellant is entitled to interest on capital contributed to the extent of 12% p.a. as per the partnership deed (Page No. 26 to 33 of Paper Book). However, the share of profit or loss received by the appellant is anyway not connected to the capital contribution made by the appellant and is to be received irrespective of the same. In other words, the share of profit or loss is not fixed in line with the capital contributions made by each partner. 2. Thus, the averment of the Id. Assessing Officer at Point No. 3 and 5 above is not valid, as share of profit is not dependent on the capital invested by the partner. 3. It would be appreciated that the capital contribution made by the partners is clearly backed by the interest payment by the firms at the rate of 12% p.a. Thus, the interest expenditure is directly attributed to the interest income earned by the appellant, which is a taxable income and hence, allowable as deduction. 4. Since, there is a proximate and live nexus of interest expenses being attributable to the interest income (taxable income), the provisions of section 14A shall not be applicable in the present facts of the case. 5. In this regard, reliance is placed on the decision of ACIT v. Novel Enterprises (22 taxmann.com 116) (Mum.) (Copy enclosed as Annexure 'A'), wherein it has been held that where sharing of profit of a firm was not dependant on contribution of funds by partners, interest paid by a partner on capital borrowed and given as loan to firm, could not be disallowed u/s 14A. Hence, interest expense ought not to have been disallowed u/s. 14A. 6. Further, even 1% of the annual average of monthly average of investment should not have been disallowed u/s. 14A merely because loans or bank overdraft facility was used for investment in partnership firm as that is already generating taxable interest income to the appellant. As regards other expenses, the Id. Assessing Officer has not made any assertion in the assessment order that those expenses were also incurred for earning share of profit from the partnership firm. In fact, that is not the case cither of the Id. Assessing Officer or of the Hon'ble CIT(A) as well. Printed from counselvise.com 11 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT 7. Moreover, before invoking the provisions of Rule 8D, the Id. Assessing Officer ought to have recorded dissatisfaction with proper justification as to why the claim of the appellant that no expense is incurred towards earning of exempt income is not acceptable. The dissatisfaction recorded with a reason merely that of utilisation of interest-bearing borrowed funds for investment in the partnership firm is totally uncalled for as that under any circumstance does not generate share of profit or exempt income from the partnership firm as alleged. In fact, that has generated taxable interest income to the appellant. Thus, such a general or unwarranted dissatisfaction recorded is not in accordance with the mandate of section 144(2) of the Act. In this regard, reliance is placed on the decision of Aditya Birla Finance Limited v. ACIT (2017) 83 taxmann.com 85 (Mum.) wherein it has been held as under: 3.26 So far as, the expression \"satisfaction\" is concerned, it postulates a bona fide belief about the incorrectness of the claim of the assessee and existence of objective reason for such belief. Further, this expression also does not mean a purely subjective satisfaction of the Assessing Officer or pretence based on suspicion and conjuncture but must be a belief held in good faith and founded on material that is not irrelevant or arbitrary, In the light of the discussion, we are of the view, the Ld. Assessing Officer cannot reject the claim of the assessee merely because it is not as per Rule SD. To invoke Rule-8D, the Assessing Officer should provide a justifiable reason for not accepting the claim of the assess that no expenditure had been incurred for earning the tax free dundend income Also, reliance is placed on the decision of Smartchem Technologies Ltd. v. ACIT (2017) 85 taxmann.com 43 (Mum.) wherein it has been held as under: 10. We have perused the relevant discussion in the assessment order, which is quite sketchy. There is no reference to any of the fact- situation or any credible reasoning or material by the Assessing Officer before rejecting the plea of the assessee and proceeding to determine the disallowance by applying the formula contained in Rule SD of the Rules. In fact, the phraseologu of Sec. 14A of the Act itself specifies that the satisfaction contemplated is required to be arrived at having regard to the accounts, an approach which is conspicuous by its absence in the present case. Therefore, in view of such an inadequacy in the action of the Assessing Officer, it has to be held that the satisfaction contemplated u/s 14A(2) of the Act has not been recorded by the Assessing Officer and thus, he has failed to comply with the condition precedent before embarking on applying the formula contained in Rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act.” 8. In view of the aforesaid submission, we request Your Honour to kindly delete the disallowance of Rs. 17,80,540/ made u/s. 14A of the Act. 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions: Printed from counselvise.com 12 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT Sr. No. Particulars Whether available Pg. No. AO CIT(A) 1 Copy of Acknowledgement of Return of Income for A.Y 2017-18 YES NO 1 2 Copy of Computation of Total Income for A.Y 2017-18 YES NO 2-4 3 Copy of Financials for F.Y 2016-17 YES NO 5-11 4 Copy of Tax Audit Report form A.Y 2017-18 YES NO 12-25 5 Copy of partnership deed of M/s Hari Ram Godara JV YES NO 26-33 7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee the assessee could not explain the issue of disallowance to the ld. AO and the order of the ld. CIT(A) passed without giving proper opportunity as exparte and therefore, he prayed that the matter be remanded back to the ld. AO. 8. The ld. DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the lower authorities. But at the same time he did not raised any objection to the prayer of the ld. AR of the assessee. 9. We have heard the rival contentions and perused the material placed on record. At the time of hearing apropos to all the grounds so raised by the Printed from counselvise.com 13 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT assessee he submitted that ld. AO has not properly appreciated the facts while making disallowance of interest as per provision of section 14A of the Act. When the matter challenged before the ld. CIT(A) out of 4 notice the assessee sought adjournment on two occasion and thereby deprived of proper opportunity of being heard. Considering that aspect of the matter ld. AR of the assessee fairly admitted that the assessee be given one chance to represent the facts of the case again before the ld. AO in the interest of justice. Against that prayer of the assessee ld. DR did not object. The bench noted that the lis between the parties has to be decided on merits of the dispute and thereby nobody’s rights could be scuttled down without providing opportunity of being heard to the assessee. Hence, the matter is restored to the file of the ld. AO to decide the issue of disallowance u/s. 14A of the Act afresh by providing an opportunity of hearing, however, the assessee will not seek any adjournment on frivolous ground and remain cooperative during the course of set aside proceedings. Thus the appeal of the assessee is allowed for statistical purposes. 9.1 Before parting, we may make it clear that our decision to restore the matter back to the file of the AO shall in no way be construed as having any Printed from counselvise.com 14 ITA No. 845/JP/2025 Tara Devi Choudhary vs. DCIT reflection or expression on the merits of the dispute, which shall be adjudicated by AO independently in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 10/11/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10/11/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Tara Devi Choudhary, Nagaur 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-01, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 845/JP/2025) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar Printed from counselvise.com "