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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-Asansol dated 18.02.2013. Assessment was framed by DCIT, Circle-3, Asansol u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2010 for assessment year 2008-09. Shri Prabal Choudhury, Ld. Sr. Departmental Representative appeared on behalf of Revenue and Shri U. Dasgupta, Ld. advocate appeared on behalf of assessee.
At the outset, it is noticed that Revenue’s appeal is barred by limitation for 28 days and condonation petition has been filed explaining the reasons for condonation of
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 2 delay. Ld. AR of the assessee did not object for condoning the delay. Hence, we condone the delay and admit the Revenue’s appeal for hearing.
First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for Rs.1,35,417/- u/s 14A on account of share of profit earned from the partnership firm u/s 10(2A) of the Act.
The facts in brief are that assessee, an individual, is engaged in the proprietary business of trading of scrap, grocery & vegetables etc. The assessee was also partners in two partnership firms. During the year has received share of profit from two partnership firms – M/s D.H. Bilmoria & Sons for Rs.96,072/- and S.H. & C Bilmoria for Rs.1,01,553/- which was claimed as exempted income u/s 10(2A) of the Act. The assessee has not disallowed any expense in respect of the aforesaid earned income by virtue of provision of Sec. 14A r.w.s Rule 8D of the IT Rules, 1962. The AO during the course of assessment proceedings found that the balance sheet of assessee shown the loan liability of Rs.1,24,00,978/- on which interest expense of Rs.5,41,800/- was claimed in the profit and loss a/c of assessee. The AO further observed that assessee has made investment in the above stated partnership firm for Rs.40,98,266/- and Rs.12,54,147/- respectively. Accordingly, AO was of view that borrowed fund has been invested in the partnership firms which are generating tax free income in the hands of assessee. Therefore the provision of u/s. 14A r.w.s Rule 8D of the IT Rule are applicable to the assessee but no expenses has been disallowed. Accordingly, the AO disallowed the expense in terms of Rule 8D of the IT Rule as under:- Rule 8D(2)(i) Nil Rule 8D(2)(ii) Rs.1,08,655 Rs. 8D(2)(iii) Rs. 26,762 Rs.1,35,417
Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that no expenditure for earning the share of profit has been incurred by assessee. Therefore, no such disallowance is warranted. The Ld. CIT(A) called for remand report from the AO wherein it was stated that assessee has not given any flow
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 3 chart showing that the investment in the firm has not been made out of borrowed fund. In the absence of any clear-cut information, the provision of Sec. 14A r.w.s Rule 8D of the IT Rule are applicable to the assessee. However, Ld. CIT(A) deleted the addition made by AO by observing as under:- “5. Examining the matter, it is noted that the focus of Act of Assessing Officer is disallowance of interest on account of diversion of funds. Interest is allowed as a deduction u/s. 36(1)(iii). The settle judicial position on the matter is that if commercial expediency is not established then disallowance can be made out of interest claimed u/s 36(1)(iii). The point that was to be examined is whether the funds were diverted for purposes which are not commercial expedient. In absence of such a finding no disallowance can be made. The decision reported in SA Builders vs. CIT(Appeal ) & AIR [2007] 288 ITR 1 is relied upon to arrive at in this decision. Decision like JCIT vs. ITC Ltd. [2008] 299 ITR (AT) 341 (Kol (SB) also support the view.
Looking through another angle it is to be considered that exemption u/s. 10(2A) in hands of partner is an income taxed in the hands of firm. Therefore the funds diverted is to earn income in hands of firm. The firm has earned income and paid tax. Therefore applying section 14A in this case is not correct. The addition of Rs.1,35,417/- is deleted and the ground is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us Ld. DR vehemently supported the order of Assessing Officer whereas Ld. AR relied on the order of Ld. CIT(A). Ld. AR before us submitted paper book which is running pages from 1 to 45 and submitted that AO has invoked the provision of Sec. 14A of the Act without recording the satisfaction. He also submitted that there was no fresh investment made during the year therefore no disallowance u/s. 14A of the Act is required. Further, Ld. AR stated that in support of assessee’s claim has submitted its investment schedule which is placed on pages 34 of the paper book and the interest income earned during the year under consideration is exceeding the interest expense. Therefore, no disallowance is required to be made.
We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that AO has made the disallowance u/s 14A of the Act on the presumption is that borrowed fund has been utilized in the investment made by the assessee in the partnership firm. However, Ld. CIT(A)
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 4 deleted the addition made by AO by observing that AO has not brought any finding on record that the borrowed fund has been diverted for the purpose which are not commercial expedient. However, from the submission of Ld. AR we find that the assessee has failed to give any working at the time of assessment to show that no expenditure has been incurred in the earning of share of profit from the partnership firm. Therefore the AO had no option but to make the disallowance as per Rule 8D of the IT Rule. It is also observed that the AO derived his satisfaction by observing as under:- “Examination of audited account, computation sheet and detail filed in course of hearing shows that the assessee being partner has received share profit from M/s D. H. Bilmoria 7 Sons for Rs.96,072/- and from M/s S.H C. Bilmoria for Rs.1,01,553/ and claimed the same as exempted income. The assessee has not disallowed any expenditure in this respect. The assessee was asked to explain as to why necessary disallowance u/s. 14A read with Rule 8D should not be made. The assessee submitted “reply on 08/10/2010 stating “Sec. 14A does not apply for the assessee…. …”
From the above, in rejoinder Ld. AR of assessee argued that the AO has not recorded satisfaction is not correct. However, from the perusing the financial statement of assessee we find that interest expense claimed by assessee are less than the interest income. Therefore, in such cases the disallowance is required to be made with regard to net interest expense claimed by assessee. In this connection, we rely in the order of ITAT Ahmedabad Benches in the case of Karnavati Petrochem Pvt. Ltd. vs. DCIT in ITA No.2228/Ahd/2012 for AY 2008-09 dated 05.07.2013, the relevant operative portion of the said order is reproduced below:- “Therefore, in light of the above discussion, I am of the opinion that there was no nexus that could be established with the amounts incurred by the assessee for earning the tax free income. The appellant is also having net positive interest income which cannot be part for the disallowance in view of the basis of the decisions of Kolkata Bench of ITAT in case of Trade Apartment Ltd and the decision of Mumbai Tribunal in case of Morgan Stanley India Securities Private Limited. At the same time, the appellant is incurring administrative expenses to maintain the above investments. In view of the above, the amount of Rs.47940/- which is 0.5% of average Investment of Rs.94,45,400/- is taken as the disallowance u/s. 14A. in view of the facts of the case and the decision in the cases (supra) and following the decision of my predecessors, the disallowance made by the A.O us/s 14A of the IT Act, 1961 cannot be fully sustained. In these circumstances, the A.O is directed to delete the
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 5 disallowance made by him of Rs.15,08,803/- and Rs.7140/- on amount of interest under section 14A of the Act……”
However, Ld. AR of assessee has not advanced any argument regarding the disallowance of Rule 8D(2)(iii) of the IT Rule for Rs.26,762/-, therefore same is confirmed. Hence, this ground of Revenue’s appeal is partly allowed.
Next issue in this appeal of Revenue is as regards that Ld. CIT(A) erred in deleting the addition made by AO for Rs.52 lakh on account of unexplained nature of source of deposit u/s. 68 of the Act.
During the course of assessment proceedings, AO found that certain amount of money was deposited in the bank a/c of assessee and AO treated the same as unexplained cash credit us. 68 of the Act, which was deleted by Ld. CIT(A).
At the outset, we find that the remand report of the AO has confirmed that the various loans were given by the assessee on different dates to certain parties as detailed below:- “Third Ground – Addition of Rs.52,00,000/- on A/c of cash credit u/s. 68 of the IT Act 1961 – In response this office letter No. ACIT/Cir- 3/Asl/ADAPB9422E/2012-13/1103 dated 08.10.2012, the assessee has submitted a written submission on 1710.2013, wherein the assessee has deposed that all the transactions are made through A/c payee cheques and reflected in his books of A/c as well as bank statement. The Assessing Officer has made an addition of Rs.52,00,000/- on account of cash credit considering the information available on record. The Assessing Officer in the body of the order has mentioned that the assessee was asked to submit details of unsecured loan including squared up loans with name, address, PAN, Assessing Officer jurisdiction, date, amount, cheque No. No. Bank address, date of credit and purpose and how utilized the loan amount to prove the genuineness, creditworthiness and identification of loan creditor. The Assessing Officer has discussed in the body of the letter that the assessee was failed to provide the basic information, like, identification and creditworthiness of the loan creditors during the assessment proceedings.
However based on the information viz. loan confirmations and bank statements, received from your office along with the letter under reference, i.e.
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 6 submission made by the assessee before your honour, it is evident that assessee has given short-term advances to 3 (three) parties as per table below:- Sl. Name of the Date of Cheque Amount Date of Cheque Amount No party advance No. & repayment No. & bank bank 1 Vishnu Iron 01.10.07 147194 Rs.9 lac 17.10.07 316043 Rs 9 lac & SteelCo. SBI, OBC, City Burnpur Centre Br. 2 -do- 03.10.07 147195 Rs.15.50 17.10.07 316042 Rs.15.50 SBI, lac OBC, City lac Burnpur Centre Br. 3 Subhasish 16.11.08 147198 Rs.3 lac 04.03.08 Mode of Rs.3,50 Acharyya SBI, payment lac Burnpur not verifiable 4 -do- 22.01.08 478392, Rs.50,000 SBI, Burnpur 5 Johal & Co. 24.04.07 8001, Rs.25 lac 24.06.07 184848, Rs.15 lac (Wine Sales) BOI, Axis Bank, Pvt. Ltd. Burnpur Asansol 24.06.07 184848 Rs.10 lac Axis Bank, Asansol
As per the above table, it is evident that in case of Sl. No. 3 & 4, mode of payment is not verifiable. On going through the assessment order and information available on record, it is evident that the Assessing Officer has passed the assessment order based on information available on record.”
From the above, it is clear that the amount of loan given by assessee to certain parties were returned within same financial year from those parties. As such the provisions of Sec. 68 of the Act are not applicable in the instant case. Hence, we find no reason to interfere with the findings arrived by the Ld. CIT(A). Under the circumstances, this issue of Revenue’s appeal is dismissed.
In the result, Revenue’s appeal stands partly allowed. 11. Order pronounced in open court on 28/09/2016
Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member
*Dkp �दनांकः- 28/09/2016 कोलकाता / Kolkata
ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 7 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ACIT, Circle-3, “Parmar Buildig”, 54, G.T Road, (West ) Asansol-713304 2. ��यथ�/Respondent-Riten Basak, Rambandh, PO Burnpur, Dist. Burdwan 3. संबं�धत आयकर आयु�त / Concerned CIT Asansol 4. आयकर आयु�त- अपील / CIT (A) Asansol 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file.
By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता