SHRI RAKESH GUPTA,LUDHIANA vs. ACIT, C-1, LUDHIANA

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ITA 1004/CHANDI/2017Status: DisposedITAT Chandigarh27 March 2018AY 2013-143 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found the facts to be similar to a previous case where it was held that business profits from a firm cannot be solely attributed to borrowed funds. Therefore, the disallowance made by the Assessing Officer was deleted.

What were the facts?

The assessee claimed interest expenses of Rs. 5,30,598/- and earned interest income of Rs. 1,31,32,862/- from a partnership firm. The Assessing Officer disallowed a portion of the interest expenses under Section 14A, which was upheld by the CIT(A).

What were the issues?

Whether interest expenditure incurred by the assessee is disallowable under Section 14A when it is linked to earning interest income and business profits from a partnership firm.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DIVISION BENCH’B’, CHANDIGARH

Before: SMT. DIVA SINGH & SHRI B.R.R. KUMAR

Hearing: 22/03/2018Pronounced: 27/03/2018

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’B’, CHANDIGARH

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER

ITA No.1004/Chd/2017 Assessment Year: 2013-14

Shri Rakesh Gupta Vs. The Asst. CIT C/o M/s Eatman International Circle-1 B-XXX-2185/C-203/1 Ludhiana Phase VII, Focal Point Ludhiana

PAN No. ACZPG7190A

(Appellant) (Respondent)

Assessee By : Sh. Sudhir Sehgal Revenue By : Sh. Manjit Singh

Date of hearing : 22/03/2018 Date of Pronouncement : 27/03/2018

ORDER PER B.R.R. KUMAR A.M.

The present appeal has been filed by the Assessee against the order of the Ld. CIT(A)-2, Ludhiana dt. 30/05/2017.

2.

The Assessee has raised the following grounds of appeal:

1.

That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in making addition of Rs. 4,91,933/- by making disallowance Under section 14A of the Income Tax Act, 1961 as per Para 3.11 of his order. 2. That the Ld. CIT(A) has erred in not considering that the amount borrowed by the Appellant had been invested by him in partnership firms towards his capital and on which interest income was earned. And, as such, interest expenditure is directly linked with the earning of interest income and as such no disallowance can be made of interest expenditure under section 14A of the Income Tax Act, 1961. The above view is directly supported by the Judgment of Hon’ble Chandigarh Bench in the case of ACIT Vs. Vivek Goyal (2011) in ITA No. 7/CHD/2011 as per our submissions at Sub-Para 4 and Page 3 of the order of the CIT(A). 3. That the Ld. CIT(A) has further erred in not considering that the said issue was already accepted and covered in favour of the Assessee by the order of Ld. CIT(A) in the earlier years for the AY 2010-11 and 2011-2012.

As mentioned in Para 1.5 of our submissions as reproduced at Page 4 of the order of the Ld. CIT(A). 4. That the Ld. CIT(A) has also erred in not considering our reply filed during the course of hearing before her properly. 5. That notwithstanding of our above said submissions it is submitted that even otherwise disallowance amounting to Rs. 4,91,933/- made by the Assessing Officer and also upheld by the Ld. CIT(A) under section 14A of the Act is excessive.

3.

Brief facts of the case are that the assessee has claimed an amount of Rs. 5,30,598/- towards the expenses of interest paid. The assessee has also earned taxable income of interest on capital amounting to Rs. 1,31,32,862/- from M/s Eastman International.

4.

The Assessing Officer held that the assessee has earned both interest income and profits by incurring this interest expenditure and hence this expenditure need to be apportioned in the ratio of taxable and exempt income.

5.

The Ld. CIT(A) held that the assessee is a partner in different partnership firm from where he is earning profit as well as interest income. The assessee borrowed funds which are invested in two firms namely M/s Eastman International and M/s Ramesh Steels. The Ld. CIT(A) relied on the decision of Hon’ble High Court of Punjab & Haryana in case of Punjab Tractors Vs. CIT , 78 Taxman 65 on the proposition that there is no ambiguity that the assessee has earned tax free dividend income and Assessing Officer he justified in presuming that he had incurred expenditure towards administrative activities necessary to earn said income.

6.

Before us Ld. AR submitted that the order of the Coordinate Bench of Chandigarh in ITA No. 1005/CHD/2017 in the case of Atul Singhal Vs. ACIT dt. 28/12/2017 wherein the assessee has received interest income from M/s Eastman International, it was held that the business share of profits from the firm cannot be solely attributed to the investment made by the assessee from the borrowed funds. In the instant case also the assessee has earned a share of profit of Rs. 16.70 crores. It was also argued that the assessee is an active partner in the business of the firm too.

7.

Ld. DR relied on the order of the Ld.CIT(A).

8.

We find that the facts of both case are similar and hence we hereby delete the disallowance made by the Assessing Officer as there is no justification to make any further disallowance under section 14A.

9.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court.

Sd/- Sd/- (DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 27/03/2018 AG Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR

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