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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by Assessee against the order of CIT (Appeals)- 4, Pune dated 02.01.2015 for the assessment year 2010-11.
2 ITA No. 192/PUN/2015 A.Y.2010-11
Briefly stated relevant facts include that the assessee is a commission
agent and reported share income in the profit from firm. The assessee owns a
company named M/s.Tangent Furniture Pvt. Ltd. and filed return of income
declaring total income of Rs.43,97,033/-. In the assessment proceedings, the
Assessing Officer made addition on account of (i) disallowance of interest
u/s.57 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and
(ii) the disallowance u/s.14A of the Act. The Assessing Officer determined the
total income of assessee at Rs.66,99,454/- and disallowed interest
expenditure to the tune of Rs.16,91,198/- invoking the provisions of section
57(iii) of the Act. The Assessing Officer also disallowed interest expenditure
u/s.14A of the Act amounting to Rs.8,31,629/-.
Aggrieved with the said disallowances made by the Assessing Officer,
assessee filed appeal before the CIT(A), who confirmed the same. Therefore,
the assessee is in appeal before us by raising following grounds:
“1. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the addition of Rs.16,91,178/- made by the A.O. invoking the provision of S.57(iii) of the Act and computed addition of @ 17.58% being loans not utilized for giving loans/advances. The order of Ld. CIT(A) is contrary to the provisions of law. The additions sustained by Ld. CIT(A) be deleted. 2. On the facts and circumstances of the case and in law the Ld.CIT(A) was not justified in confirming the addition made by the A.O. of Rs.8,31,629/- u/s.14A of the Act not properly appreciating the judgment of the Hon'ble jurisdictional High Court in the case of HDFC (supra) and Supreme Court (supra) relied upon before CIT(A) and other judgments. The decision of the Ld.CIT(A) is contrary to the provisions of law and without appreciating properly the binding judicial precedents relied upon. The addition be deleted. 3. On the facts and circumstances of the case and in law the levy of interest u/s. 234A, 2348 and 234C is not justified. 4. The appellant craves to leave, add/amend or alter any of the above grounds of appeal.”
3 ITA No. 192/PUN/2015 A.Y.2010-11
Ground Nos. 3 and 4 are general in nature and consequential and
hence require no adjudication. Accordingly, ground Nos. 3 and 4 are
dismissed.
A. Ground No. 1 - Disallowance of interest expenditure u/s.57(iii) of the Act .
Ground No.1 relates to the disallowance of interest expenditure
amounting to Rs.16,91,178/- made u/s.57(iii) of the Act. The facts relating
to this addition include that the assessee reported in the Balance Sheet the
total “loan liabilities” of Rs.10,60,85,065/-. Further, assessee also reported
giving loans and advances to various parties for interest to the tune of
Rs.8,74,35,902/-. Now, the balance loan amount which was not used by the
assessee for given loans works out to the tune of Rs.1,86,49,163/- =
(Rs.10,60,85,065/--8,74,35,902/-). The sum of Rs.8,74,35,902/- works out
to 82.42% of the total loan liabilities of the assessee. The Assessing Officer
scrutinized the issue of the use of balance loan amount of Rs.1,86,49,163/-
equivalent of 17.58% =(100%-82.42%). At the end of the assessment
proceedings, after hearing objection of the assessee, the Assessing Officer
took an adverse view on the use of balance funds and held that the use is
not for business purpose i.e. for earning of the interest income within the
meaning of sub-section (iii) of section 57 of the Act. Eventually, the
Assessing Officer disallowed the sum of Rs.16,91,198/- on proportionate
basis u/s.57(iii) of the Act. Relevant lines of the assessment order are
extracted as under:
“The assessee vide letter dated 28.02.2013 filed an explanation stating that though he has utilized merely 82.42% of the loan amount received, for giving loan to various parties the disallowance is not proper because of the fact that the remaining amount of loan has been utilized for business related transactions. The AR argued in favour of assessee by emphasizing that the investments have either resulted in earning interest or carried application.
4 ITA No. 192/PUN/2015 A.Y.2010-11
The explanation forwarded by the AR has been carefully examined and considered. However, it is pertinent to stress upon that section 57(iii) specifies that expenditure which has been laid out or expended wholly and exclusively for the purpose of making or earning such income. Therefore, even if the explanation forwarded by the AR is considered logical, it is not allowed u/s.57 of the IT Act, 1961. Hence, the disallowance of interest expenditure is computed as under: Total amount of loan taken : Rs.10,60,85,065/- Total amount of loan given : Rs.8,74,35,902/- % loan (borrowed) utilized for giving loan/advance - 82.42% Rs.8,74,35,092/10,60,85,065*100 = 82.42 % % of loan (borrowed) not utilized for giving loan/advance : 17.58% Total interest expenditure claimed u/s.57 of the IT Act- Rs.96,20,013/-
Therefore, proportionate interest (17.58) expenditure
Disallowed u/s.57 of the IT Act - Rs. 16,91,198/-
During First Appellate proceedings before the CIT(A), Assessee could
not prove that the entire loans are used for money lending activity. The
CIT(A) examined the issue, relying various decisions on which Ld. AR has
placed reliance as seen in Para 3 & its sub-paras and eventually, rejected all
of them on the ground of distinguishable of the facts. The CIT(A) concluded
his findings against the assessee as per discussion given in para 3.3.3.4 of
the appellate order. The same reads as under :
“3.3.3.4 Considering the entire conspectus of the matter and the evidences on record, it is held that the Assessing Officer has come to the correct conclusion that the entire interest expenditure has not been laid out or expended wholly and exclusively for the purposes of earning interest income. Since the appellant has himself admitted that the entire loan has not been utilized for advancing loan to other parties and 17.58% of the loans have been utilized for other business purposes, but it is found that this statement of the appellant that 17.58% has not been utilized for any business purposes as per record, the Assessing Officer actions in disallowing 17.58% of the interest expenditure is upheld. Ground No. 1 stand dismissed.”
In the process, CIT(A) held that the assessee was not engaged in any
systematic and organized money lending business activity. Eventually, CIT(A)
5 ITA No. 192/PUN/2015 A.Y.2010-11
held that the assessee is only a commission agent deriving his income from
commission, share of profit of firm and interest income.
Aggrieved by the above decision of CIT(A), assessee raised the ground
No.1 as extracted above.
Before us, Ld. Counsel for the assessee filed the written submission
again relying on the various decisions which have already been considered
by the CIT(A). Accordingly to him, it is the case of the assessee that the
entire loan liabilities of Rs.10,60,85,065/- was utilized for the money lending
activities only. Further, he submitted that assessee is engaged in the money
lending business systematically and the orders of Assessing Officer and
CIT(A) do not constitute speaking order on this issue. Therefore, Ld. Counsel
submitted for remanding the issue back to the file of Assessing Officer for
one more round for fresh adjudication and for examining the facts in correct
perspective.
On the other hand, Ld. DR for the Revenue opposed the arguments of
the Ld. Counsel. It is the case of the Revenue that entire interest bearing
funds taken by the assessee was not put to use for business purpose.
Bringing our attention to the Balance Sheet of the assessee, Ld. DR
submitted that utilization of entire funds for business purpose was not
demonstrated completely. Referring to the cash /bank balance, Ld. DR
submitted that it is not the case of the assessee, balance amount of
Rs.1,86,49,163/- was utilized by the assessee for business purpose in the
subsequent year or if any. In these circumstances, it is the fit case for
disallowance as made by the Assessing Officer in the assessment order.
6 ITA No. 192/PUN/2015 A.Y.2010-11
We have heard both the parties on this issue of disallowance made
u/s.57(iii) of the Act and also have perused the orders of Authorities below
and written submissions made by the assessee. It is an undisputed fact that
assessee took loan at Rs.10,60,85,065/-. But out of the same, the amount
utilized for money lending business is only to the tune of Rs.8,74,35,902/-.
It is an undisputed fact that the assessee debited the expenditure of
Rs.96,20,013/- allegedly for servicing the loan of Rs.10,60,85,065/-. But the
question of use of balance funds of Rs.1,86,49,163/- for the money lending
business or any other personal activities is not clear. The Ld. AR for the
assessee could not demonstrate before us about the balance funds justifying
the payment of interest to the tune of Rs.96,20,013/-.
10.1 Therefore, for want of facts, we are of the opinion, this issue needs to
be remitted back to the file of Assessing Officer for one more round of
proceedings. The Assessing Officer is directed to examine the issue of using
entire funds in systematic manner and also scrutinize the involving sum
claimed by the assessee is fully justified or not. It is the duty of assessee to
demonstrate the using of the funds in money lending activities as per
discharge of onus and claim of deduction of expenditure had made onus on
the assessee to discharge the onus. Accordingly, we remit this issue back to
the file of Assessing Officer for fresh adjudication. The Assessing Officer shall
grant reasonable opportunity of being heard to the assessee in accordance
with set principles of nature justice. Thus, ground No.1 raised by assessee
is allowed for statistical purposes.
B. Ground No. 2- Disallowance u/s.14A of the Act.
Ground No. 2 relates to disallowance u/s.14A of the Act r.w.R.8D of
the IT Rules. During assessment proceedings, Assessing Officer disallowed
7 ITA No. 192/PUN/2015 A.Y.2010-11
the entire interest expenditure on proportionate basis to the tune of
Rs.7,88,671/- under clause (ii) of Rule 8D of the IT Rules, 1962. Further,
Assessing Officer also disallowed sum of Rs.42,958/- i.e. 0.50% of average
value of investments. As seen from contents of Para 4 of the assessment
order, there is no basic details relating to the extent of exempt income which
is the part of the total income.
The Ld. Counsel for the assessee submitted before us that this issue
needs revisit to the file of Assessing Officer for one more round for the
reasons that there is no detailed discussion of law on various aspects of law
and relevant rules.
The Ld. DR for the Revenue placed reliance on the order of Assessing
Officer and CIT(A) in this regard. He further stated that there is no need to
revisit of the issue to the file of Assessing Officer as there is nothing new in
the facts of the case.
On hearing both the sides on the issue of disallowance u/s.14A of the
Act, we are of the opinion that there is requirement of remanding this issue
back to the file of Assessing Officer for fresh adjudication. The Assessing
Officer shall not only examine the applicability of cited decisions in the case
of CIT v. Reliance Utilities & Power Ltd. reported as 313 ITR 340 and in
the case of CIT Vs. HDFC Bank Ltd. reported as 366 ITR 505 but also the
Assessing Officer needs to be aware of the fact of restricting the disallowance
to the extent of exempt income included in the total income of assessee. The
Assessing Officer shall grant reasonable opportunity of being heard to the
assessee in accordance with the set principles of natural justice. Accordingly,
8 ITA No. 192/PUN/2015 A.Y.2010-11
ground No.2 raised in appeal by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 24th day of October, 2018.
Sd/- Sd/- (�वकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
पुणे / Pune; �दनांक / Dated : 24th October, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-4, Pune. 4. The Pr. CIT/CIT-3, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy //
आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.