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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Sandeep Gosain & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2014-15, arises from order of the CIT(A)-11, Ahmedabad dated 10-05-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
Page No 2 Shri Dhimantbhai Hiralal Turakhia vs. ACIT
The solitary ground of appeal
is filed against the decision of ld. CIT(A) in confirming the disallowance u/s. 14A to the amount of Rs. 5,95,314/- made by the assessing officer vide order u/s. 143(3) of the act.
3. The fact in brief is that return of income declaring income of Rs.39,24,572/- was filed on 8th Sep, 2014. The case was subject to security assessment and notice u/s. 143(2) of the act was issued on 3rd Sep, 2015. During the course of assessment proceedings, the assessing officer has noticed that assessee has made investment in shares on various dates to the amount of Rs. 80,17,133/- and shown dividend income to the amount of Rs. 10,11,736/- in the P & L account during the year under consideration. On perusal of the aforesaid information, the assessing officer observed that assessee has not shown any expenditure incurred towards earning exempt income. On query, the assessee has submitted that dividend income was received from investment made long back out of own fund therefore provision of section 14A of the act was not applicable. The assessing officer had not agreed with the submission of the assessee and stated that during the year under consideration, the assessee was having negative balance of Rs. 3,95,99,067/- in the capital account and also there was a negative balance of Rs. 5,04,41,568/- in the preceding finance year. The assessing officer has also stated that during the year under consideration the assessee has made fresh investment to the amount of Rs. 78,66,326/-. Conseqeuntly, the assessing officer has applied provision of section 14A of the Act r.w.r. 8D of the I.T. Rule and computed the disallowance to the amount for Rs. 5,95,314/- and added to the total income of the assessee.
Page No 3 Shri Dhimantbhai Hiralal Turakhia vs. ACIT
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. Relevant part of the decision of ld. CIT(A) is as under:- “DECISION 5. Facts of the case, submission of the appellant and assessment order have been carefully considered. The First ground of appeal
is of general nature, hence, does not need adjudication, thus, dismissed. The Second ground of appeal is against the additions of Rs.5,95,314/- made by the AO u/s.14A r.w. Rule 8D, as the appellant had dividend income of Rs.10,11,736/- and same was claimed as exempt. The AO made the additions stating that the appellant had negative capital balance of Rs.5.07 crore in the beginning of the year, which was of Rs.3.95 crore at the end of the year. It clearly established that the appellant made investment from the borrowed funds and thus disallowed interest of Rs.5,39,294/- and Rs.56,020/- by taking 0.5% average investment. The appellant contended that all these investments are very ' old and the borrowed funds have not been utilized to invest in these assets. But the appellant could not explain satisfactorily the huge negative capital balance, which clearly prove that interest bearing fund have been utilized for earning exempt income. The AO is justified in making additions u/s. 14A r.w.Rule 8D. the case laws cited upon by the appellant have distinguishable facts, hence, not being relied upon, hence, the additions made by the AO are confirmed. This ground of appeal is dismissed.”
5. During the course of appellate proceedings before us, the ld. counsel has contended that assessee has earned dividend income of Rs. 10,11,736/- out of which Rs. 8,80,000/- pertains to dividend earned on the shares of Turakhia Overseas Pvt. Ltd. and investment in the share of the said company was pertained to financial year 1998-99 and 2000-2001 and 2002-03 and 2007-08 respectively. The ld. counsel has further submitted that assessee has made investment from his own fund in the shares of Turakhia Overseas Pvt. Ltd., therefore, no disallowance for interest u/s. 14A should be made in the case of the assessee. The ld. counsel has also referred the decision of Hon’ble Gujarat High Court in the case of Pr. CIT vs. India Gelatine & Chemical (2016) 66 taxman.com 356 (Guj). On the other hand, the departmental representative has contended that the similar submission was also made before the ld. CIT(A), however, the assessee has failed to demonstrate that investment was made out of the interest free fund in these shares from which the exempt income was earned. The ld. Departmental Page No 4 Shri Dhimantbhai Hiralal Turakhia vs. ACIT representative has also submitted that assessee was having negative capital as on 31st March, 2014 to the amount of Rs. 3,95,99,067/- and also having negative capital to the amount of Rs. 5,07,41,658/- as on 31st March, 2013. Therefore, the ld. CIT(A) has rightly sustained the disallowance made by the assessing officer in respect of expenditure incurred for earning exempt income.
We have heard the rival contention and perused the material on record. The assessment u/s. 143(3) of the act was completed on 24th October, 2016. During the course of assessment on verification, the assessing officer noticed that assessee has shown exempt income u/s. 10(34) of the act in the form of dividend to the amount of Rs. 10,11,736/-. On further verification, the assessing officer noticed that assessee has not shown any expenses incurred towards earning the aforesaid exempt income u/s. 14A of the act. During the course of assessment, the assessee could not substantiate with relevant evidences that investment in the shares of various companies was made out of interest free funds, therefore, the assessing officer has disallowed an amount of Rs. 5,95,314/- u/s. 14A r.w.r. 8D of the I.T. Rule as computed on page 3 of the assessment order. After perusal of the material on record, it is noticed that assessee was having negative capital balance of Rs.5.07 crores in the beginning of the year and it was also negative balance to the amount of Rs. 3.95 crore at the end of financial year relevant to assessment year under consideration. During the course of appellate proceedings before ld. CIT(A) the assessee has contended that all his investments were very old and was made out of the interest free funds, however, the assessee could not substantiate his contention with relevant supporting material. Even during Page No 5 Shri Dhimantbhai Hiralal Turakhia vs. ACIT the course of appellate proceedings before us, the assessee has made similar contention which was made before the lower authorities. We have gone through the paper book submitted by the assessee. In the paper book, the assessing officer has enclosed copy of P & L Account and balance sheet pertaining to F.Y. 2013-14. It is noticed that as on 31st March, 2014 the assessee was having negative capital balance of Rs. 3,95,55,067/- and as on 31st March, 2013, the assessee has also having negative capital balance to the amount of Rs. 3,07,41,658/-. Apart from this it is noticed that assessee was not having any interest free funds as per the documents placed in the paper book. It is noticed that there was unsecured loan to the amount of Rs. 4,93,32,000/- as on 31st March, 2014 and same was to the amount of Rs. 8,16,72,700/- as on 31st March, 2013. On page 20 of the paper book, the assessee has placed copy of notes forming part of account in the year ended on 31st March, 2014 showing total investment to the amount of Rs. 11,168,093/- out of which investment in the listed shares was to the amount of Rs. 8,017,133/-. However, the assessee has not provided any relevant supporting document which demonstrate that assesseeee has made investment in the shares in the earlier year out of interest free funds. On page no. 36 of the paper book, the assessee has simply claimed that investment in the shares of Torakhia Overseas Pvt. Ltd. were made in the earlier years out of the interest free funds, however, asseessee has failed to demonstrate with relevant supporting evidences to substantiate his claim that investment was made out of interest free funds. In the light of the above facts and circumstances, we do not find any reason to interfere in the finding of ld. CIT(A), therefore, this ground of appeal is dismissed.
Page No 6 Shri Dhimantbhai Hiralal Turakhia vs. ACIT
Ground No. 3 of the assessee is pertained to initiation of penalty proceedings u/s. 271(1)(c). This ground of appeal is immature at this stage, therefore, the same stands dismissed.