SH RAMESH KUMAR DUDANI,MOHALI vs. DCIT, CIRCLE -6(1), MOHALI

आदेश/Order

Per Sudhanshu Srivastava, Judicial Member This appeal is filed by the assessee against order dated 28.03.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Chandigarh (hereinafter called CIT(A)) for assessment year 2015-16.

2 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali 2.0 The brief facts of the case are that the assessee is a proprietor

of M/s Technical Products Corporation which manufactures

furniture components and fasteners and building material. The

return for the captioned assessment year was filed declaring taxable

income of Rs.1,08,47,660/- which was initially processed under

section 143(1) of the Income Tax Act, 1961 (hereinafter called ‘the

Act’) and, subsequently, the case was selected for scrutiny.

2.1 During the course of assessment proceedings, the Assessing

Officer (hereinafter called ‘AO’) noted that the assessee had invested

an amount of Rs. 6,99,00,000/- in securities and shares and the

same had yielded exempt income and on the other hand the

assessee had incurred huge interest expenses on loans borrowed

from the bank and other financial institutions. The assessee was

required by the AO to show cause as to why disallowance under

section 14A of the Act r.w.s. rule 8D of the Income Tax Rules, 1962

(hereinafter called ‘the Rules’) may not be made as the assessee had

not made any suo moto disallowance. It was the AO’s view that the

investments had been made from common funds available to the

assessee and there was no demarcation between borrowed funds

and surplus funds and that further the assessee had not been able

3 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali to give any proof of any account which was maintained separately

for keeping personal funds. Accordingly, the AO proceeded to make

a disallowance of Rs.15,21,161/- towards finance expenses in

terms of section 14A of the Act read with Rule 8D of the Rules.

2.2 During the course assessment proceedings, it had also been

observed by the AO that the assessee had debited an amount of Rs.

3,72,000/- in the Profit and Loss account under the head

administrative expenses on account of Mumbai Office. The assessee

was asked to produce documentary evidence related to this

expenditure and it was the submission of the assessee before the

AO that since majority of the raw material used in executing export

orders were imported through the Mumbai Office, maintenance of

office at Mumbai was a necessity. However, the AO did not accept

the assessee’s contentions as the assessee did not file any

documentary evidence and proceeded to make an addition

3,72,000/- to the income of the assessee. The assessment was

competed at an income of 13,0,56,034/-.

2.3 Aggrieved, the assessee approached the Ld. First Appellate

Authority who confirmed both the disallowances.

4 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali 2.4 Now, the assessee has approached this Tribunal challenging

the order of the Ld. CIT (A) by raising the following Grounds of

appeal:

3.0 The Ld. Authorized Representative (hereinafter called ‘AR’)

submitted that as far as the issue of disallowance under section

14A of the Act was concerned, the AO had proceeded on an entirely

5 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali wrong appreciation of facts in as much as the assessee had not

shown any investments in the books of account the business. He

referred to the Balance Sheet of the proprietorship concern placed

at Page 36 of the Paper-Book and demonstrated that no investment

of any sort was appearing in this Balance Sheet. It was submitted

that, therefore, the invocation of Rule 8D of the Rules by the AO

was bad in law. He also referred to Pages 72 to 79 of the Paper-

Book and submitted that in fact all the investments made by the

assessee had been made from the savings bank account of the

assessee with Citibank, a copy of which was enclosed in these

pages. It was further submitted that the entries which have been

highlighted in the said pages pertained to the investments made by

the assessee during the year but the same had been made from the

personal funds of the assessee and no part of borrowed funds of the

proprietorship concern had been utilized for the purpose of making

the investments. The Ld. AR further submitted that prior to

assessment year 2011-12, the investments used to be shown in the

books of account but since A.Y. 2012-13 these investments had

been taken out from the books of accounts of the assessee and

further drawing attention to the assessment order for assessment

6 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali year 2012-13 placed at pages 106 to 111 of the Paper-Book, it was

submitted that subsequent to the investments being taken out from

the books, no disallowance under section 14A of the Act had been

made. He also referred to the Balance Sheet as at 31.03.2012 in

respect of the proprietorship firm and submitted that no

investments were with reflected in the said Balance Sheet.

3.1 The Ld. AR also referred to Page 87 of the Paper-Book which

contained a certificate from the bankers of the assessee M/s Canara

Bank wherein it had been certified by the Bank that the credit

facilities availed by the proprietorship concern had been utilized

towards 100% export of goods and that the said credit facilities had

not been used for any other purpose except for the purpose of

executing export orders. The Ld. AR submitted that, therefore, on

facts, the disallowance under section 14A of the Act deserved to be

deleted.

3.2 Coming to Ground No. 2 of the appeal, the Ld. AR submitted

that identical issue had come up before the Tribunal in Assessment

Year 2013-14 also and the issue had been remanded back to the

AO for the purpose of fresh consideration with opportunity to be

7 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali given to the assessee to furnish the relevant details in support of

the claim. It was further submitted that subsequent to the remand

by the Tribunal, the AO had accepted the claim of the assessee and

it was submitted that, therefore, the issue had finally been

adjudicated and settled in the favour of the assessee in A.Y. 2013-

14 and, therefore, on identical facts, the assessee should be granted

relief in this year also.

4.0 Per Contra, the Ld. Sr. DR, while supporting the orders of the

lower authorities, submitted that as far as the issue of disallowance

under section 14A of the Act was concerned, the fact remained that

the bank accounts had been utilized for mixed purposes i.e. both

for the purpose of running business as well for the purpose of

making investments. The Ld. Sr. DR argued that the assessee had

not been able to demonstrate that the borrowed funds had not been

diverted for personal use and or that such borrowed funds had not

been withdrawn for making investments.

4.1 On the issue of branch office expenses, it was submitted that

the fact remained that the address of Mumbai office was that of a

residential area and the personal use by the family members of the

8 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali assessee cannot be ruled out. It was also submitted that the

assessee had not furnished any details regarding the expenses

incurred towards the maintenance of office at Mumbai and,

therefore, the disallowance had been rightly made.

5.0 We have heard the rival submissions and have also perused

the material on record. As far as the issue of disallowance under

section 14A of the Act is concerned, it is seen that the assessee has

demonstrated with evidence before us that the investments were

not forming part of the regular books of account of the assessee’s

business i.e. proprietary concern M/s Technical Products

Corporation. We have perused the Balance Sheet of the said

proprietorship concern placed at page 36 of the Paper-book and a

perusal of the same shows that no investments are appearing in the

said Balance Sheet. This Balance sheet as on 31.03.2015 also

shows three Secured Loans outstanding as on the closing date of

the financial year out of which one is Automobile loan from HDFC

Bank and two loans are from Canara Bank which are loans in

respect of export related activity. The certificate from Canara Bank

also supports the contention of the assessee that funds from these

loans were utilized only for the purpose of export and that no part

9 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali of the said loan funds had been diverted towards personal use.

Apart from this, the assessee has also demonstrated with evidence

before us that all the investments made by the assessee during the

year were sourced from the personal Saving Bank account of the

assessee which was being maintained with the Citi Bank. Further, a

perusal of the Balance Sheet would also show that apart from the

three secured loans, the assessee does not have any cash credit

account nor any overdraft facility with the bank from which it could

be inferred that the assessee had withdrawn amounts for the

purposes making investments. The assessee has demonstrated that

in A.Y. 2012-13, under identical circumstances, no disallowance

had been under section 14A of the Act. Therefore, on an overall view

of the facts of the case, we are of the concerned view that the AO

could not have validly made any disallowance in terms of Rule 8D of

the Rules towards financial charges when the assessee had

demonstrated with ample evidence that no interest bearing funds

have been utilised by the assessee for the purpose of making

investments. Therefore, we are unable to concur with the action of

the lower authorities in making and confirming the impugned

disallowance under section 14A of the Act and, therefore, while

10 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali setting aside the order of the Ld. CIT (A) on the issue, we direct the

deletion of the disallowance under section 14A of the Act.

5.2 As far as the issue of allowability of administrative expenses

vis-à-vis Mumbai office is concerned, it is seen that Chandigarh

Bench of the Tribunal in assessee’s own case for the assessment

year 2013-14 in ITA No.588/Chd/2019, vide order dated

26.02.2020, had observed that there was no bar to run the

business from the residential area to claim the expenditure and the

only criteria was that the expenses should be incurred for the

business purpose. Therefore, the first objection of the AO that the

address of the Mumbai Office was that of a residential area does not

hold good. However, the AO has also observed that no details had

been furnished before him in respect of the expenditure incurred

and the claim on this account. This issue of non submission of

relevant details was before the ITAT in assessment year 2013-14

also and the Tribunal had remanded the issue back to the file of the

AO for the purposes of considering the issue afresh after giving an

opportunity to the assessee to furnish the relevant evidence and

documents. Likewise, in this year also, since no details have been

furnished by the assessee, in the interest of substantial justice, we

11 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali deem it appropriate to restore this issue to the file of AO with a direction to reconsider the issue and pass an order on the same in accordance with law after giving the assessee an opportunity to furnish details and the documents of support of his claim. Thus, Ground No 2 stands allowed for statistical purposes.

5.3 Ground No. 3 is general in nature and does not require any separate adjudication.

6.0 In the final result, the appeal of the assessee stands allowed.

Order pronounced on 22.08.2022.

Sd/- Sd/- ( N.K. SAINI) (SUDHANSHU SRIVASTAVA) Judicial Member Vice President Dated : 22.08.2022 “आर.के.” आदेश क� ��त+ल,प अ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु.त/ CIT 4. आयकर आयु.त (अपील)/ The CIT(A) 5. ,वभागीय ��त�न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

12 589-c-2019 (A.Y. 2015-16) – Ramesh Dudani, Mohali आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Regist