ROSHANI BEGUM,JAIPUR vs. ACIT, JHUNJHUNU

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh HkkxpUn] ys[kk lnL; ,o Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, J.M vk;dj vihy la-@ITA No. 43/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2012-13. cuke Smt. Roshani Begum, Tara The ACIT, Circle Vs. Nagar(Churu), Jhunjhunu Jhunjhunu. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABMPB8966D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : shri G.M. Mehta (C.A.) jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 23.03.2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/04/2017.

vkns'k@ ORDER PER SHRI KUL BHARAT, JM.

The appeal by the Assessee is directed against the order of ld. CIT (A)-

3, Jaipur dated 26.11.2005 pertaining to assessment year 2012-13. The

assessee has raised the following grounds of appeal :-

(1) “Ld. CIT(A) has erred in law in applying provisions of section 145(3) of IT Act for sustaining disallowance/additions whereas these provisions were not applied by ld. AO himself in order u/s 143(3) of IT Act for the reason that no defect or unvouched nature of expenses were found by him when produced with books of accounts audited u/ 44AB of IT Act; (2) Ld. CIT(A) was not justified in sustaining addition of Rs. 11,76,075/- calculated @ 12.91% on Rs. 91,09,804/-, as per formula adopted by ld.AO himself, treating the same as diversion of interest bearing loan to interest free advances for non-business purposes.

2 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

(3) Ld. CIT(A) has acted against the facts of the case in sustaining followings disallowances/additions: (i) Rs. 8,34,939/- under section 14A of IT Act when the assessee has earned nil exempt income. (ii) Rs. 2,00,000/- out of room rent discount ignoring the better results compared to earlier year.”

for scrutiny assessment and the assessment under section 143(3) of the IT

Act, 1961 (hereinafter referred to as the Act), was framed vide order dated

13/Jan/2015. The assessing officer while framing the assessment disallowed

interest expenditure of Rs. 32,77,827/- and added same to the income of the

assessee. The Assessing Officer further made disallowance u/s 14A and of

Rs. 8,34,939/- and also made addition on account of disallowance of room

rent discount/ expenses of Rs. 2 lakhs. Aggrieved by this, the assessee

preferred an appeal before ld. CIT(A) who after considering the submissions

partly allowed the appeal. While partly allowing the appeal the ld. CIT(A),

sustained the addition of Rs. 11,76,075/- out of addition of Rs. 32,77,827/-

made on account of disallowance of interest expenditure and sustained to

other additions made by invoking the provision of 14A of the Act and

disallowance of room rent and discount expenditure. Aggrieved by this order

the assessee is in further appeal before us.

hearing submitted that he does not wish to press ground no 1. The ld.

Departmental Representatives has no objection after considering the

3 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

statement for the ld. Counsel for the assessee, we hereby dismissed the

ground no. 1 as not pressed.

on account of disallowance of interest expenditure. The ld. Counsel for the

assessee reiterated the submissions as made in the written submissions. Ld.

Counsel submitted that interest free advances were more or less of the same

amount of the interest free funds available with the assessee. He Submitted

that assessment in respect of assessment year 2008-09, 2009-10 were

completed u/s 143(3) in which considering the availability of interest free

funds, no disallowance was made. He further submitted investment in

agricultural land and other assets being brought forward, balance of earlier

years are business assets and therefore, these cannot be categorized as

interest free advances as is done by the Assessing Officer and there is no

nexus between interest baring loans and interest free advances hence no

disallowance could be made. Reliance is placed on the judgment of the

Hon’ble Supreme Court rendered in the case of Hero Cycle Pvt. Ltd. vs. CIT

(2015) 379 ITR 347(SC).Ld. Counsel for the assessee drew our attention to

written submissions at page 3 to demonstrate the availability of funds. The

ld. Departmental Representative opposed the submissions and submitted that

the ld. CIT(A) as well as Assessing Officer has brought out the fact that the

assessee ha made interest free advances out of interest bearing funds.

4 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

4.1 We have heard the rival contentions and perused the material available

on record and gone through the order of the authorities below. The ld CIT(A)

has given finding in para 5.3 as under:-

“5.3 I have carefully considered the findings of the AO as also argument of

the ld. AR of the appellant. The assessee has interest free funds in the shape of his

own capital of Rs. 20401466/- and interest free loans of Rs. 19585861/- totaling to

Rs. 39987327/- which are available to him to make interest free advances/

investments. The AO at page 3 of his order has tabulate funds of Rs. 5569673/-,

which were advanced by the assessee to his sister concerns/ relatives on which no

interest was charged. The balance amount of Rs. 16709404/- (Rs. 55696731 -

39987327) was out of interest bearning funds. Since, the interest in shares of Rs.

75996000/- is dealt with separately in ground no. 2 where sec. 14A is applied, the

balance amount of Rs. 9109804/- being interest free advances to sister

concerns/relatives is made out of interest bearing funds. Therefore the provision of

sec. 36(i)(iii) are applicable on such advances of Rs. 9109804/-/

The Ao held the sum of Rs. 25389829/- as invested in non business asset/

advances as out of borrowed funds. Against this, I hold Rs. 9109804/- as made as

interest free advances out of interest bearing funds on which 12.91% as applied by

the AO is upheld. So the addition of Rs. 1176075/- is upheld as against AO’s

addition of Rs. 3277827/-. The appellant gets resultant relief.

However, the Assessing Officer has made addition of Rs. 32,77,827/- on

account of disallowance of interest. The contention of the ld. Counsel for the

assessee is that the, assessee was having sufficient interest free funds for

5 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

making such advances and the such advances have been made prior to the

assessment year 2010-11. The assessment under appeal is 2012-13. Under

these facts, we hereby set aside the order of the ld. CIT(A) and restore this

issue to the file of the Assessing Officer for decision afresh, after verifying the

claim of the assessee that these advances were made in earlier years out of

the interest free funds available. This ground of the assessee’s appeal is

allowed for statistical purposes.

“(3) Ld. CIT(A) has acted against the facts of the case in sustaining following disallowances/additions: (i) Rs. 8,34,939/- under section 14A of IT Act when the assessee has earned nil exempt income. (ii) Rs. 2,00,000/- out of room rent discount ignoring the better results compared to earlier years.”

5.1 Apropos to Ground No. 3(i), the ld. Counsel for the assessee reiterated

the submissions as made in the written submissions. He submitted that there

no exempt income has been earned as no dividend has been received on the

shares of M/s Metro Colonizers Ltd. In support of this contention ld. Counsel

for the assessee has relied upon the judgment of the Hon’ble Punjab and

Haryan High Court rendered in the case of CIT vs Lakhani Marketing

Industries (2014) 272 CTR (P & H) 265.

6 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

5.2 On the contrary, the ld. Departmental Representative opposed the

submissions. He supported the assessment order.

5.3 We have heard the rival contentions, perused the material available on

record and gone through the order of the authorities below. As per section

14A, the Assessing Officer is empowered to make disallowance in accordance

with the method prescribed therein. If there is expenditure incurred by the

assessee in relation to income which does not form part of the total income

under this Act. So, the first requirement is that the expenditure should relate

to the exempt income. Since no exempt income has been disclosed in the

written of income. Therefore, in view of the judgment of the Hon’ble Punjab

and Haryana High Court rendered in the case of CIT vs. Lakhani Marketing

Industries (supra). The Assessing Officer was not justified in making the

disallowance by invoking the provision of the section 14A of the Act. This

view is further supported by the judgment of the Hon’ble Delhi High Court in

the case of CIT vs. Holcim India Pvt. Ltd. (2014) 272 CTR (del) 282.We

therefore, direct the AO to delete the disallowance. Ground no. 3(i) of the

assessee’s appeal is allowed.

5.4 Apropos to Ground no. 3(ii), the ld. Counsel for the assessee reiterated

the submission as made in the written brief. He submitted that the assessee

was charging fixed rates for room rent. However as per the prevailing

practice in this line of business, in case of group booking or regular booking

7 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

by certain groups of companies, it has to allow discount on room rent, such

discount as per the established business practice. The Assessing Officer in

the unjustified manner, made ad hoc basis disallowance of Rs. 2 lakhs same

has been confirmed by the ld. CIT(A). However, the ld. CIT(A) confirmed

this, on the basis that the assessee failed to produced books/vouchers and

therefore 15% of the expenses is justifiable.

Since both authorities below have made on the basis of the ad hoc

disallowances, therefore under the facts of the present case we hereby direct

the AO to delete the addition. This ground of the assessee’s appeal is

allowed.

partly allowed for statistical purposes.

Order pronounced in the open court on Thursday, the day of 6th April 2017.

Sd/- Sd/- ¼ HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 06 /04/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

8 ITA No. 43/JP/2016 Smt. Roshani Begum, Tara Nagar.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत