SURESH CHUNNILAL SHARMA,,PARBHANI vs. INCOME-TAX OFFICER, WARD - PARBHANI,, PARBHANI

Both the rival sides have relied on certain decisions fortifying their respective points of view. Por una parte, certain High Courts including the Hon’ble Gujarat High Court in Anupam Tele Services Vs. ITO (2014)

366 ITR 122 (Guj.) and the Hon’ble Rajasthan High Court in Harshila Chordia Vs. ITO (2008) 298 ITR 349 (Raj.) have deleted the disallowance in the cases of genuine business transactions, por otra parte, certain other High Courts including the Hon’ble Bombay High Court in Madhav Govind Dulshete Vs. ITO (2018) 259 Taxman 949 (Bom.), the Hon’ble Madras High Court in Vaduganathan Talkies and others Vs. ITO (2020) 428 ITR 224 (Mad.), the Hon’ble Karnataka High Court in Nam Estates Pvt. Ltd. Vs. ITO (2020)

Let me consider the judgment of the Hon’ble jurisdictional High Court in Madhav Govind Dulshete (supra) a little more elaborately. The assessee therein was engaged in the business of sale of Kerosene which was purchased from notified dealers. The assessee made purchases of Kerosene from certain companies. Some of the payments were made in cash while others were in cheque. The AO made disallowance by invoking section 40A(3) in respect of cash payments exceeding the limit by noticing that both the assessee and seller had banking facilities. The CIT(A) affirmed the assessment order. The Tribunal echoed the AO’s view by finding that both the buyer and sellers had bank accounts. The Hon’ble High Court countenanced the view of the Tribunal sustaining the disallowance thereby repelling the assessee’s contention of a genuine business transaction as a ground for not making disallowance u/s 40A(3) of the Act.

Turning to the facts of the instant case, it is found as an admitted position that the assessee as well as the seller of the plots had bank accounts at the material time and still the transaction was carried out in violation of section 40A(3) without bringing the case in any of the specific clauses of Rule 6DD.

On an overview of the view canvassed by various Hon’ble High Courts on the point - some deleting the disallowance on the basis of the genuineness of the transactions while others sustaining the disallowance - what matters for the Tribunal is to follow the binding precedent, being, the judgment of Hon’ble jurisdictional High Court. That being the position, the Pune Tribunal is bound by the judgment of the Hon’ble jurisdictional High Court in Madhav Govind Dulshete (supra) sustaining the disallowance in case of cash payments exceeding the stipulated limit notwithstanding the fact that the transactions were genuine and the parties were identifiable. Respectfully following the judgment, I uphold the disallowance sustained in the first appeal. This ground fails.

The only other ground in this appeal is against the confirmation of disallowance of Rs.7,36,934/- made u/s.14A read with Rule 8D.

The factual matrix of the ground is that the assessee earned exempt income of Rs.9,23,194/- as his share of profit from various firms and also dividend of Rs.69,179/- which was claimed as exempt u/s.10(2A) and 10(34) respectively. In the absence of the assessee offering any disallowance u/s.14A, the AO called for the reasons. The assessee furnished explanation.

I have heard the rival submissions and gone through the relevant material on record. The only issue raised by the ld. AR is qua the interest disallowance of Rs.6,45,536/-and not the other part. The ld. AR contended that the assessee had sufficient interest free capital for the purpose of making investment in the firms and companies yielding exempt income and hence, no disallowance should be made. In support of such contention, he invited my attention towards page 28 of the paper book on which some calculation has been made showing interest bearing funds and interest free funds available with the assessee. It is observed that the authorities below did not accept the contention, in principle, by opining that interest free funds available with the assessee could not be deemed to have been utilised for making investments in sources yielding exempt income. In this regard, it is noticed that the Hon’ble Supreme Court in CIT (LTU) Vs. Reliance Industries Limited (2019) 410 ITR 466 (SC) has approved the view that where interest free funds available with the assessee were sufficient to meet its investment and at the same time loan was raised, it can be presumed that the investments were made from interest free funds and hence, no disallowance of interest should be made to that extent. In view of the above decision, I deem it appropriate to send the matter back to the file of AO for examining the assessee’s contention about the availability of interest free funds available with him and then decide the amount of interest disallowable u/s.14A. Insofar as the remaining amount of Rs.91,398/-, being, one half percent of average value of investment is concerned, the same is held to be properly disallowed.

In the result, the appeal is partly allowed for statistical purposes.