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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI C.M. GARG & SHRI O.P.MEENA
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 1 of 8
आयकर अपील�य अ�धकरण, इंदौर �यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE �ी सी.एम.गग�,�या�यक सद�यतथा�ी ओ.पी.मीना,लेखा सद�यके सम� BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER
आ.अ.सं./ I.T.A. No.1035/Ind/2016 �नधा�रणवष� /Assessment Year: 2012-13
Shri Ashok Bajpai, Dy. Commissioner of 11-E, Ratlam Kothi, v. Income Tax 1(1), Indore Indore (M.P)
अपीलाथ� /Appellant ��यथ� /Respondent �था.ले.सं./PAN: ACFPB 4670 G
Shri Ram Gilda, Advocate अपीलाथ�क�ओरसे/Appellant by Shri Lalchand, CIT DR ��यथ�क�ओरसे/Respondent by
26.09.2017 सुनवाईक�तार�ख/Date of hearing 28.09.2017 उ�घोषणाक�तार�ख/Date of pronouncement ORDER PER O.P. MEENA, AM.
This appeal filed by the Assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)-I, Indore [in short referred to as the CIT (A)] dated 05.07.2016 pertaining to Assessment Year 2012-13.
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 2 of 8
The Ground No.1 & 2 relates to disallowance of expenditure
of Rs. 10,75,968/- u/s 14A of the Act, read with Rule 8D of I.T.
Rules.
Briefly stated the facts of the case are that the assessee has
made investment of Rs.97,00,000/- in the shares of M/s. Rajshree
Hospital Ltd, Indore and it was also noticed that the assessee has
taken loan of Rs.98.50 lakhs from HDFC Bank on which
substantial interest was paid and the above loan was utilized for
purchasing shares of above concern. It was contended that the
investment in the shares of the hospital was for the purpose for
obtaining professional income and hence no disallowances u/s 14A
was called for. However, the AO was of the view that the investment
in shares do not give any right to the assessee to earn professional
income and hence rejected the contention of the assessee. The
other argument of the assessee that no dividend income were
earned from the shares, hence no disallowances u/s 14A of the Act
was called for was also not found acceptable by the AO. The AO
has disallowed the interest amounting to Rs.10,75,968/- u/s 14A of
the Act read with rule 8D of the I.T. Rules.
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 3 of 8
Being aggrieved, the assessee filed an appeal before the CIT(A).
However the CIT(A) noted that the argument of the assessee that
the investment in shares was with a aim of earning professional
income is found to be without merit as no material or evidence has
been placed on record to establish that the investment in shares
was a pre-condition for allowing him to carry out on professional
consultancy in the hospital. The CIT(A) has also distinguished the
decision in the case of Nai Dunia News & Network Pvt. Ltd v ACIT
(2011)17 ITJ 289(MP) on the ground that the relief was allowed after
recording the factual finding that the appellant has sufficient
interest free fund for making the investment and that the interest
bearing funds were used for the business purposes, whereas in the
case of the assessee this was not established. Considering these
facts and after discussing on various case laws, the CIT(A) upheld
the disallowance made by the AO and also observed that the CBDT
Circular No.5/2014 dated 11.02.2014 also provides for the
disallowance of the expenditure even where the exempt income was
not earned.
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 4 of 8
Being aggrieved, the assessee filed this appeal before us. The
Ld. Counsel for the assessee submitted that the assessee is a
practicing Doctor and was Dean of MGM Medical College, Indore.
After 2010 he had taken VRS from MGM Medical College to devote
his full time in private practice. Accordingly he alongwith Dr.
Bhargav decided to start a well equipped hospital in the name of
Rajshree Hospital & Research Pvt. Ltd. The assessee had took a
loan of Rs.98.50 lakhs from HDFC Bank against the mortgage of his
residential house and invested the amount of Rs.97 lakhs in the
financial year 2010-11 and Rs.3.16 lakhs in the Assessment Year
2012-13 in the hospital in the form of share application money.
The assessee had earned professional income by making investment
for his private practice in a well equipped set up and had earned
professional receipt of Rs.11.44 lakhs during the year under
consideration and paid interest of Rs.10,42,595/- towards loan
and claimed the same in the return of income. It was further
submitted that apart from this investment no other income has
received till date and a dividend income of Rs.4208/- received from
shares of other company. The Ld. Counsel further submitted that
no rent or other charges paid by the assessee to practice in the
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 5 of 8
hospital and the 100% collection was received in the form of
professional receipts were accounted. Therefore it was submitted
that the investment in shares of Rajashree Hospital & Research
Centre Pvt. Ltd the assessee w`as made strategical investment for
earning the professional income. Hence the investment so made
was not related to any exempt income therefore no disallowance u/s
14A is called for. In support of this contention the Ld. Counsel
placed reliance on the following case laws;
(i) Naidunia News & Network Pvt. Ltd v ACIT (2011) 17 ITJ 289 (Indore) (ii) Kailash Rajani v DCIT (2011) 17 ITJ 59 (Indore) (iii) ITO v Sandeep Parikh (2010) 14 ITJ 230 (Indore) (iv) Sunil Satwani v ACIT (2011) 17 ITJ 67 (Indore) (v) ACIT v Trapti Trading (2012) 19 ITJ 28 (Indore) (vi) Narendra Narang v ACIT (2011) 18 ITJ 383 (Indore) (vii) ACIT v Swastik Coal Corp. P. Ltd (2013) 21 ITJ 775 (Indore) (viii) CIT v Nai Dunia News & Networking Pvt.Ltd (2013) 21 ITJ 284 (MP) (ix) Justice Sam P. Bharuch v Addl. CIT (2012) 24 Taxman.com (Mumbai Tri.) (x) DLF Ltd v CIT (2009) 27 SOT 22 (Del hi Tri.)
Considering these facts it was claimed that no disallowance u/s
14A read with rule 8D is called for. With regard to CBDT circular it was
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 6 of 8
submitted that the same is not applicable to the facts of the case.
Accordingly no disallowance is called for.
On the other hand the Ld. AO supported the orders of the authority
below and relied on the CBDT circular (supra) for the proposition.
We have heard the rival submissions and perused the material available on record. From the reading of section 14A of the Act it is clear that before making any disallowance, the following conditions are to be accepted (a) that there must be income taxable under the hand and (b) that this income must not part of total income under the act and (c) that there must be an expenditure incurred by the assessee and that the expenditure must have a relation to the income which does not form part of the total income under the Act. Therefore, unless and until there is receipt of exempted income for the concerned assessment year (dividend from shares), no disallowance under section 14A of the Act could be made. The provision of section 14A of the Act provides that AO is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure on exempted income he can determine the amount of expenditure which should be disallowed in accordance with the methodology prescribed. In the instant case we find that the assessee has taken a loan of Rs.98.50 lakhs which was invested towards share application money in Rajashree Hospital & Research Centre Pvt. Ltd. This investment has been made for the purpose of earning professional income for his private practice in a well equipped set up it is also seen that the assessee has not received any dividend income till date from such investment. It is further seen that the investment made in the
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 7 of 8
share application money in the Rajashree Hospital & Research Centre Pvt.Ltd has given a platform to the assessee to do practice thereon and received consultancy charges for attending the patients coming to the said hospital, thus the assessee has availed clinic space in the said hospital by way of making investment in the said hospital. We also note that the assessee has not paid any rent or other charges for availing the clinic space and other facilities of the hospital and the receipt of professional consultancy were offered for taxation fully. Therefore this is a strategic investment made by the assessee which enabled the assessee to earn taxable income, therefore, the interest expenditure incurred and claimed by the assessee has direct nexus with the professional income of the assessee. We also noted that the AO did not pin pointed out that certain expenditure was not incurred for earning the professional income but were incurred in relation to dividend income for such expenditure was incurred for was inseparable or in any individual activity comprising professional as well as the activities on which the exempt income was earned by the assessee. Then in the absence of any such express findings of the AO or any material to show that the expenditure incurred and claimed by the assessee for earning the taxable income is related to exempt income, the provision of section 14A cannot be applied. Reliance is placed in the case of CIT v Hero Cycles Ltd (2010) 323 ITR 518 (P&H) wherein it was held that no disallowance out of interest payment is taxable if AO does not establish nexus between the expenditure incurred and income generated. The Ld. Counsel for the assessee has placed reliance in the case of M/s Nai Dunia News & Network Pvt. Ltd v ACIT (2011) 17 ITJ 289 Indore Tribunal, ITO v Sandeep Parikh (2010) 14 ITJ 230 Indore Tribunal has also supports this case. Similarly the Hon’ble Punjab High Court in the case of CIT v
Shri Ashok Bajpai V DCIT-1(1), Indore ITA No.1035/Ind/2016 Assessment Year 2012-13 Page 8 of 8
Lekhani Marketing INCL. (2014) 111 ITR 0149 (P&H) held that where the assessee is not received any dividend income then the provisions of section 14A are not applicable. Similarly in the case of CIT v Shivam Motors (P) Ltd 2014 89 CCH 59 (Allahabad) held that any business of taxable income, corresponding expenditure cannot be worked out for disallowance u/s 14A of the IT Act, 1961. The Ld. Counsel for the assessee has placed reliance in the case of CIT v Winsome Textile India Ltd (2009) 77 CCH 0784 (P&H SC) and MSA Security Services Pvt. Ltd v CIT (2013) 22 ITR 0400 (Chennai) which also supports the point of view of the assessee. Therefore, in the light of above discussion, we are of the considered view that the investment made by the assessee out of borrowed funds was for the purpose of earning professional income and not to earn tax free income, therefore, the expenses incurred in relation to taxable income cannot be disallowed u/s 14A read with Rule 8D of the IT rules, therefore, the disallowance of interest of Rs.10,75,968/- made u/s 14A are deleted. Accordingly, the grounds No. 1 & 2 of the appeal are allowed. The order pronounced in the open court on 28.9.2017.
Sd/- Sd/-
( C.M. GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 28th September, 2017 Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore