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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 63/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 63/JP/2018 fu/kZkj.k o"kZ@Assessment Years : 2013-14 cuke M/s Rajputana Cloth Store, Income Tax Officer, Vs. Panch Batti, M. I. Road, Ward 2(2), Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFR2479Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri N. S. Vyas (CA) jktLo dh vksj ls@ Revenue by : Shri Anup Singh (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 13/08/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 21/08/2018 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jaipur dated 18.12.2017 for Assessment Year 2013-14 wherein the assessee has raised following grounds of appeal:-
“1. That the Authorities below have erred in disallowing u/s 14A of the IT Act, 1961 amounting to Rs. 3,75,805/-. 2. That the Authorities below have further erred in disallowing the telephone expenses and conveyance expenses out of 10% of total claim.”
2 ITA No. 63/JP/2018 M/s Rajputana Cloth Store, Jaipur vs. ITO, Jaipur
In Ground No. 1, the assessee has challenged the disallowance of Rs. 3,75,805/- u/s 14A of the IT Act, 1961.
The relevant facts and findings of the ld. CIT(A) are contained at para 3.1.2. which are reproduced as under:-
“(i) The brief facts of the case are that during the year under consideration, the appellant was engaged in the business of retail trading of clothes. It was observed by the AO that the appellant has made investment in mutual funds and shares to the tune of Rs. 55,84,485/- and has debited interest of Rs. 8,09,682/- in its profit and loss account, out of which a sum of Rs. 8,03,633/- was paid to the partners on their capital with the appellant firm. It was held by the AO in the assessment order that the appellant has invested partner’s capital in the mutual fund on which it has paid interest to partners and has earned the income which does not form part of its total income and consequently, the AO has invoked the provisions of section 14A of the Act and disallowed a sum of Rs. 3,75,805/- thereof.
(ii) During the appellate proceedings, it was submitted by the appellant that no expenditure was claimed by it for earning the income which does not form part of its total income and there was no direct link of funds invested in exempted assets and the investment in shares/mutual funds were made out of sale proceeds of the firm and no part of capital was invested thereon.
(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is noted from the profit and loss account of the appellant for the year under consideration that it has not shown any dividend/exempted income from investment in mutual funds/shares. However, on a perusal of the
3 ITA No. 63/JP/2018 M/s Rajputana Cloth Store, Jaipur vs. ITO, Jaipur
ledger accounts of the partners placed on record, it has been observed that the dividend income from mutual funds/shares have been transferred to capital accounts of the partners. The amount of dividend income transferred to the partners account are as under:-
Name of the partner Amount credited (in Rs. ) Shri Anuj Agrawal 2, 01,000.08/- Shri Manan Agrawal 1, 00,500.40/- Sangeeta Agrawal 1,00,500.40/- Gross total 4,02,000.87/-
(iv) It is to be noted that it was stated by the appellant before the AO that the investment in the mutual funds was made out of partners capital account and sundry creditors, whereas now it has been stated that these investments were made out of sale proceeds and no part of the capital was invested thereon. Thus, the appellant has changed its stand during the appellate proceedings. It is to be noted that the appellant has not stated anything why the dividend income on the mutual funds were transferred to the partner's capital account which clearly establish that the partner's capital was used for the purpose of making investment in mutual funds and shares. Further, the appellant has paid interest on the capital of the partners in the firm. Thus, there is a direct nexus between the income which does not form part of the total income of the appellant and the expenditure incurred thereon in the form of interest paid to partners on their capital in the firm. In fact, the above satisfaction is derived from the accounts of the appellant firm itself as discussed earlier and therefore, the ingredients for
4 ITA No. 63/JP/2018 M/s Rajputana Cloth Store, Jaipur vs. ITO, Jaipur
invoking the provisions of section 14A r.w. Rule 8D of the I.T. Rules are fully satisfied. Hence, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the AO was justified in making disallowance of Rs. 3,75,805/- u/s 14A of the Act for earning the dividend income of Rs. 4,02,000/- which does not form part of the total income of the appellant and thus, the same is hereby sustained.”
During the course of hearing, the ld. AR submitted that there is no unsecured loans or any short of loans on which interest was paid. It submitted that the investment in the exempted assets were out of capital employed by the partners and cash sales and it was submitted that the investment in tax free investment is Rs. 50,25,602/- against which the partners capital account is Rs. 84,80,211/- and Rs. 37,00,000/- is sundry creditors on which no interest is payable and it was submitted that the investment in tax free investment are there since AY 2009-10 and there has been no disallowance which has been made by the revenue. It was accordingly submitted that in absence of any interest expenditure. There should not be any disallowance u/s 14A as done by the Assessing Officer.
The ld. DR is heard who has relied on the order of the lower authorities.
We have heard the rival contentions and purused the material available on record. From the perusal of the assessee’s balance sheet of the assessee, it is noted that there is total investment amounting to Rs. 55,84,485/- which has been reflected as on 31st March 2013. Further on perusal of the investment schedule, it is noted that there is
5 ITA No. 63/JP/2018 M/s Rajputana Cloth Store, Jaipur vs. ITO, Jaipur
opening balance of Rs. 40,70,796/- of investment in mutual funds and there is a fresh investment of Rs. 9,54,805/- totaling to Rs. 50,25,602/-. Further, there is FDR placed with SBI amounting to Rs. 558,882/-. Therefore, the fresh investment which has been made in mutual funds during the year under consideration comes to Rs. 9,54,805/-. As far as investments made in the earlier years are concerned, it is an admitted position that there have been no disallowance made by the Assessing Officer u/s 14A in the earlier and therefore, the said investments cannot be considered for the purpose of disallowance for the year under consideration. The only limited issue is the source of investments of Rs Rs. 9,54,805/- which has been made during the year under consideration and whether the assessee has incurred any interest cost in relation thereto. As on 31st March, 2013, the partners capital account shows a balance of Rs. 84,80,211/- and there are internal accruals amounting to Rs. 229,519/-. At the same time, it is an admitted fact that the assessee has paid interest on the partners capital account and which has been claimed as an expenditure in the P & L Account. Further, the dividend income so received by the assessee has been credited directly to the Partner’s capital account. Therefore, going by the contentions of the ld AR that partner’s capital account has been used for making the investments, we agree with the findings of the ld CIT(A) that there is a direct nexus between the income which does not form part of the total income of the appellant and the expenditure incurred thereon in the form of interest paid to partners on their capital in the firm. Accordingly, the provisions of section 14A are attracted in the instant case. However, the quantum of disallowance shall be restricted on the interest paid on the amount which has been utilized in making fresh investments in mutual funds
6 ITA No. 63/JP/2018 M/s Rajputana Cloth Store, Jaipur vs. ITO, Jaipur during the year under consideration which has yielded tax free income. The matter is accordingly set aside to the file of the Assessing Officer to determine the quantum of disallowance u/s 14A in light of above directions. In the result, ground is allowed for statistical purposes.
In ground No. 2, the assessee has challenged the disallowance of telephone and convenience expenses. We have gone through the order of the ld CIT(A) and we donot see any infirmity therein. In the result, ground of appeal is dismissed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 21/08/2018.
Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 21/08/2018
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