SHRI RAMESHCHANDRA S. KASAT,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(3)(4),, AHMEDABAD

The solitary ground of appeal of the assessee is against the decision of ld. CIT(A) in partially confirming the addition of Rs. 12,88,826/- out of addition of Rs. 40,30,354/- made u/s. 14A r.w. rule 8D of the IT Rule in respect of expenditure incurred for earning exempt income.

The fact in brief is that the assessee has filed return of income declaring income at Rs. 14,90,400/-. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) on 5th Sep, 2014. During the course of assessment proceedings, on verification of computation of income for the year under consideration, the assessing officer observed that assessee has received dividend income of Rs. 12,88,826/- which was claimed as exempt u/s. 10 of the act. Thereafter, the assessee was asked to furnish the detail along with supporting evidences in respect of exempt income along with working of disallowance u/s. 14A r.w. Rule 8D of the IT Act. The assessee responded that such income was dividend of Rs. 12,88,826/- which was claimed as exempt income. The assessee has also stated that they have been doing trading in shares, therefore, no income has been claimed as exempt except dividend income and no efforts were required to earn dividend income, therefore, section 14A was not applicable for earning dividend. The assessing officer has not accepted the contention of the assessee and stated that as per balance sheet as on 31st March, 2013 of the proprietary concern of the assessee M/s. Maheshwari Sales Corporation investment in share as trading in stock was made at Rs. 4,16,34,474/- .The liability side of the balance sheet was comprised capital of Rs. 2,10,84,667/- and un-secured loan of Rs. 83,23,872/- therefore, the assessing officer observed that the major source of investment of the assessee was loan. He has also stated that management and maintenance of such investment always required certain administrative expenditure. Consequently, he has worked out disallowance u/s. 14A as prescribed Rule 8D of the IT Rule to the amount of Rs. 40,30,354/- and added to the total income of the assessee.

Assessee preferred appeal before eh ld. CIT(A). The ld. CIT(A) has restricted the disallowance to the extent of exempt income holding that assessee has not established any nexus between the realization of interest free fund and investment.

During the course of appellant proceeding before us the learned counsel has contended that the learned Commissioner of income tax (A) has erred in conforming the addition to the extent of Rs.12,88,826 u/s 14A read with the rule 8D of the IT rules. He has also furnished the copies of profit and loss account for year ended 31st of March 2013 and balance sheet as on 31st of March 2013 of the proprietary concern of the assessee pertaining to the year under consideration. On the other hand the learned DR has placed reliance on the order of learned Commissioner of income tax appeal.

We have heard both the sides and perused the material on record carefully. During the course of assessment proceedings the assessing officer noticed that assessee has received dividend income of Rs.12,88,826 which was claimed as exempt under section 10 of the IT act. The assessee was asked to furnish the working of disallowance made under section 14A read with rule 8D of the IT Rule in respect of expenses incurred towards earning of exempt income. In this regard the assessee has explained that it has done trading in the shares therefore no efforts has been made to earn dividend income and it is also stated that section 14A of the act is not applicable to this case. The assessing officer has not accepted the contention of the assessee and stated that as per the balance sheet as on 31 March 2013 the assessee has made investment in shares to the amount of Rs.4,16,34,474 and as per the liabilities sides of the balance sheet the assessee was having capital of Rs. 21084667 and unsecured loan of Rs.85,23,872. From the above facts the assessing officer has concluded that assessee has utilized unsecured loan for making investment in the shares. The assessing officer has computed disallowance under section 14A to the amount of Rs.4,03,0354 as per rule 8D of the IT rule. We have gone through the profit and loss account for the year ended 31st of March 2013 and the balance sheet as on 31st of March 2013 filed by the ld Council and noticed that in the preceding assessment year the assessee has incurred interest expenses of Rs.67,66,434.12 and during the year under

In the result, the appeal of the assessee is dismissed.

Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद