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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is against the order dated 16.02.2017 passed by the Commissioner of Income Tax (Appeals)-2, Vadodara under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) arising out of the order dated 31.12.2015 passed by the Dy. Commissioner of Income Tax, Circle – 1(2), Baroda for the Assessment Year 2013-14.
The assessee, having business of real estate development and investment in land filed its return of income on 12.09.2013 declaring total income at Rs.1,22,41,720/- for A.Y. 2013-14. Under scrutiny notice dated 03.09.2014 u/s 143(2) was served upon the assessee. It appears from the record that the assessee has shown Capital Gains at
- 2 - ITA No.1075/Ahd/2017 Chhotalal Premjibhai patel vs. DCIT Asst.Year – 2013-14 Rs.46,47,759/- on sale of land. Interest income has been shown at Rs.73,384/-. Total income has been shown at Rs.1,22,41,720/- after claiming deduction of Rs.1,21,045/- under Chapter – VIA of the Act. Agricultural income to the tune of Rs.95,000/- was also shown by the assessee. A show-cause dated 18.12.2015 was served upon the assessee as to why disallowance u/s 14A should not be made in reply whereof the assessee submitted that he has not claimed income exempt from tax in his return of income, and therefore, no disallowance under section 14A of the Act can be made. Further that, the assessee is having sufficient interest free funds out of which he has made investments for earning exempt income. The assessee is also relied upon certain judgments passed by different court of law in support of his contention. However, the assessee submitted revised calculation of disallowance at Rs.17,48,368/- u/s 14A of the Act taking into account of his investments in M/s. Shreeji Darshan Associates and M/s. Shri Mahalaxmi Enterprise.
The assessment proceeding was finalized upon applying section 14A read with Rule 8D of the Income Tax Rule, 1962 and ultimately disallowance to the tune of Rs.17,48,368/- was made and added to the total income of the assessee. In appeal, the Learned CIT(A) restricted the disallowance to the exempt income claimed by the assessee to the tune of Rs.95,000/- only. Hence, the instant appeal filed before us.
At the time of hearing of the instant appeal, the Learned Advocate appearing for the assessee submitted that the case was covered by the judgment passed by the Jurisdictional High Court in the case of CIT-vs-Corrtech Energy Pvt. Ltd. reported in 372 ITR 92 (Gujarat) where it has been held that where there is no exempt income, no disallowance is permissible. On the other hand, Learned DR relied upon the order passed by the Learned AO.
- 3 - ITA No.1075/Ahd/2017 Chhotalal Premjibhai patel vs. DCIT Asst.Year – 2013-14 4. We have heard the rival contentions made by the respective parties, perused the relevant materials available on record we find in appeal, the Learned CIT(A) considered the following aspects: i. The appellant claimed that agriculture income of Rs.95,000/- as exempt in his return of income. ii. No other income by way of share of profit, interest on capital or remuneration was received from any other firm by the assessee in the year under consideration. iii. Apart from the agriculture income of Rs.95,000/-, the assessee did not have any other exempt income at all. iv. The Learned AO has erred in law in making disallowance u/s 14A exceeding exempt income itself. v. The assessee is having interest free funds at the beginning and end of financial year 2012-13 more than the investment made in assets from which exempt income was earned; total interest free funds on 31.03.2013 was Rs.7,48,04,892/- as against the investment made of Rs.5,95,49,725/- was made.
Thus the assessee had ample interest free funds from which investment could be made and no parts of borrowings were used for making such investments inter alia following the judgment relied upon by the assessee in support of his contention was also taken into consideration by the Learned CIT(A). A ratio laid down by the Hon’ble Jurisdictional High Court in the case of PCIT-vs-India Gelatine and Chemicals Ltd. [2015] 376 ITR 553 (Guj.) wherein it was held that where the assessee has sufficient interest free funds out of which concerned investment had been made disallowance u/s 14A was not justified. The judgment passed by the Hon’ble Bombay High Court in the case of CIT-vs-Reliance Utilities & Power Ltd. [2009] 179 Taxman 135 where it was held that if there are funds available, both, interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of interest free funds generated or available with company, provided said funds are sufficient to meet
- 4 - ITA No.1075/Ahd/2017 Chhotalal Premjibhai patel vs. DCIT Asst.Year – 2013-14 investments. Further that, the contention of the assessee that when the Assessing Officer is not satisfied with the claim made by the assessee that no expenditure has been incurred for earning income which is not chargeable to tax, only then he can apply the provision of Rule 8D for working out the amount of expenditure attributable to earning of such income or that the satisfaction must be recorded by specific findings or that there must be reasonable evidence to such that some expense in relation to exempt income has been incurred which is absent in this particular case on hand before us. The assessee’s further contention that there is nothing to show that money borrowed for use of making these investment in partnership firm and thereby earning exempt income when mainly investments were made out of interest free funds, which is available with the assessee was also carefully considered by the Learned CIT(A). Finally, when the exempt income totaling to Rs.95,000/-, the disallowance cannot be more than that as has been done by the Learned AO to the tune of Rs.17,48,368/- passed by the different High Courts. The judgment passed in the matter of Jivraj Tea Ltd. Surat-vs-DCIT, Surat in ITA No.866/Ahd/2012 (Ahmedabad) was considered by the Learned CIT(A) and finally the Learned CIT(A) directed the Learned AO to restrict the disallowance to the tune of Rs.95,000/- only particularly taking into consideration the Hon’ble ITAT in the case Jivraj Tea Ltd. Surat (surat) with the following observation : “4. I have careful considered the facts on record and submission of the Ld. AR. The only ground raised by the appellant pertains to disallowance of Rs. 17,48,368/- - u/s 14A r.w. Rule 8D. It is noticed that the appellant has invested a sum of Rs.7.75 crores in Agricultural land, Jakaranda Flats and Partnership firms. A sum of Rs. 95,000/- has been claimed as income exempt from tax. Accordingly, the AO invoked provisions of section 14A r.w. Rule 8D and disallowed Rs.14,55,619/- out of interest and Rs.2,92,749/- on account of administrative cost being 0.5% of average value of investment. The ld. ARs have vehemently argued that the appellant has its own interest free capital at Rs.7.48 crores as on 31.03.2013 and hence no disallowance out of interest should be made. Since the ld. ARs have not furnished documentary evidences to prove that own interest free funds were invested in assets resulting in exempt income, this argument cannot be accepted. Alternatively, it has been argued that the disallowance u/s 14A cannot exceed the amount of exempt income as held by various Tribunals. I find that the Hon'ble Jurisdictional ITAT in the case of M/s K. Ratanchand & Co. Vs ITO, vide order dated 24.09.2015 contained in ITA No.2660/Ahd/2011 (A.Y. 2008-09) has held that disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt dividend income. Similar
- 5 - ITA No.1075/Ahd/2017 Chhotalal Premjibhai patel vs. DCIT Asst.Year – 2013-14
view has been expressed by the Hon'ble Jurisdictional ITAT in the case of Jivan Tea Ltd Vs DCIT contained in ITA No.866/Ahd/2012 (A.Y. 2008-09), order dated 28.08.2014. Respectfully, following orders of Hon’ble Jurisdictional ITAT, which are binding on me, I hold that disallowance u/s 14A r.w. Rule 8D cannot exceed the amount of exempt income claimed by the appellant. Accordingly, the AO is directed to restrict the disallowance to Rs.95,000/- only. Thus appellant succeeds partly on this account.”
It appears that the Learned CIT(A) failed to consider that the agricultural income is not a business income. Neither any expenditure has been claimed by the assessee in this regard. Hence, when there is no exempt income the disallowance is not permissible as the ratio laid down in the judgment passed by the Hon’ble Jurisdictional High Court in the matter of Corrtech Energy Pvt. Ltd. is thus applicable to the instant case. Thus we are of the considered view to delete the addition made by the Learned AO. The appeal is, therefore, allowed.
In the result, assessee’s appeal is allowed. 5. This Order pronounced in Open Court on 17/05/2019
Sd/- Sd/- ( PRADIP KUMAR KEDIA ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 17/05/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Vadodara. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad