M/S. MULCHANDBHAI & SONS,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(2)(4), AHMEDABAD

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ITA 2371/AHD/2016Status: DisposedITAT Ahmedabad31 October 2017AY 2012-133 pages
AI SummaryAllowed

What did the Tribunal hold?

The tribunal deleted the disallowance under Section 14A as there was no exempt income. It also deleted the disallowance under Section 40(a)(ia) as Section 194A does not apply to interest paid by a firm to its partners.

What were the facts?

The assessee appealed against the disallowance of Rs. 18,175/- under Section 14A and Rs. 5,96,466/- under Section 40(a)(ia). The first disallowance was for expenses related to exempt income, and the second was for non-deduction of TDS on interest paid to partners.

What were the issues?

Whether disallowance under Section 14A is applicable without exempt income, and whether TDS is required on interest paid by a firm to its partners.

Which sections of the Income-tax Act were involved?

Section 14A,Section 40(a)(ia),Section 194A

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Income Tax Appellate Tribunal, “SMC/D” BENCH, AHMEDABAD

Before: SHRI S.S. GODARA & SHRI MANISH BORAD

For Appellant: Shri Aseem Thakkar, AR
Hearing: 26/10/2017Pronounced: 31/10/2017

आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ ‘SMC/D’ अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC/D” BENCH, AHMEDABAD BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 2371/Ahd/2016 िनधा�रण वष�/Assessment Year: 2012-13 M/s. Mulchandbhai & Sons, Vs. Income-tax Officer, B-507, Ganesh Plaza, Ward-3(2)(4), Opp. Navrangpura Bus Stand, Ahmedabad Navrangpura, Ahmedabad PAN : AACFM 7364 F [ अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent) Assessee by : Shri Aseem Thakkar, AR Revenue by : Shri Prasoon Kabra, Sr DR सुनवाई क� तारीख/Date of Hearing : 26/10/2017 घोषणा क� तारीख /Date of Pronouncement: 31/10/2017 आदेश/O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of the Learned Commissioner of Income-Tax (Appeals)-3, Ahmedabad dated 13.07.2016 for Assessment Year 2012-13.

2.

The grievances raised by the assessee are as follows:-

“1. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.18,175/- made by the Assessing Officer u/s 14A of the I.T. Act, 1961 r.w.r. 8D of the I.T. Rules, 1962. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.5,96,466/- made by the Assessing Officer u/s 40(a)(ia) of the I.T. Act, 1961.” 3. The first issue raised by the assessee is against the disallowance under Section 14A of the Act of Rs.18,175/-.

ITA No. 2371/Ahd/2016 M/s. Mulchandbhai & Sons vs. ITO AY : 2012-13 - 2 –

4.

The ld. Counsel for the assessee, at the outset, relied upon the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Corrtech Energy Pvt Ltd, reported in [2015] 372 ITR 097 (Guj), wherein it was held that where there is no exempt income, the provision of section 14A could not be made applicable. This view is further fortified by the Hon’ble Delhi High Court judgment in the case of Joint Investments Pvt Ltd vs. CIT, reported in [2015] 372 ITR 0694 (Delhi). There is nothing on record on behalf of the Revenue to suggest that the assessee has earned any exempt income for the year under consideration. We, therefore, respectfully the aforesaid judgments of the Hon’ble High Courts, delete the disallowance made by the Assessing Officer under Section 14A of the Act of Rs.18,175/-. Accordingly, this ground of appeal is allowed.

5.

Second issue relates to the disallowance of Rs.5,96,466/- made by the Assessing Officer under Section 40a(ia) of the Act for non-deduction of TDS on the payment of interest to the partners.

6.

The brief facts relating to the issue are the partners of the assessee-firm were having a capital account in the books along with the loans and advance account. The assessee firm paid interest to partners on the loans taken from partners. The short controversy is whether the assessee is liable to deduct tax at source under Section 194A on the payment of interest to the partners. The ld. CIT(A) has confirmed the action taken by the Assessing Officer. Section 194A(3)(iv) of the Act, however, contemplates that it will not apply to income credited or paid by a firm to a partner of the firm. There is no mention as to whether this provision will apply to the interest paid on the credit balance held by the partners in the form of capital or loan given to the firm. We are, therefore, of the view that Section 194A will not be applicable on the income

ITA No. 2371/Ahd/2016 M/s. Mulchandbhai & Sons vs. ITO AY : 2012-13 - 3 – credited or paid by a firm to the partners and therefore, no disallowance was called for under Section 40(a)(ia) of the Act for the interest payment of Rs.5,96,466/-. Thus, this ground of appeal of the assessee is also allowed.

7.

In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 31st October 2017 at Ahmedabad.

Sd/- Sd/- (S.S. GODARA) (MANISH BORAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 31/10/2017 आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु� अपील / The CIT(A)- ( ) 5. िवभागीय �ितिनिध अिधकरण अपीलीय आयकर राजोकट/DR,ITAT, Ahmedabad, , , 6. गाड� फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt.Registrar) आयकर अपीलीय अिधकरण ITAT, Ahmedabad

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