Income Tax Appellate Tribunal - Ahmedabad
Shri Bharatbhai Jayantilal Kapadia,, ... vs The Income Tax Officer, Ward-1(3)(1),, ... on 30 April, 2019
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'D'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 65/Ahd/2017
नधा रण वष /Assessment Year: 2012-13
Bharatbhai Jayantilal Kapadia ITO, Ward-1(3)(1)
Prop: M/s.Kantilal & Co. Vs Ahmedabad.
G-25, Ratnam Complex
Nr. National Handloom
C.G. Road
Ahmedabad 380 006.
PAN : ABQPK 0611 G
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri D.R. Thakkar, AR
Revenue by : Shri Kamlesh Makwana, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 11/03/2019
घोषणा क तार ख /Date of Pronouncement : 30/04/2019
ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is in appeal
before the Tribunal against the order of the ld.CIT(A)-10, Ahmedabad dated 4.10.2016 passed for the Asstt.Year 2012-13.
2. Assessee has taken three grounds of appeal which contained sub- grounds. Out of these grounds, ground no.3 is general ground which does not call for recording of any finding, hence rejected.
3. In ground no.1.01 to 1.03, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.1,20,824/- which ITA No.65 /Ahd/2017 -2- was added by the AO aid of section 14A r.w. Rule 8D of the Income Tax Rules.
4. Brief facts of the case are that the assessee has filed his return of income electronically on 29/09/2012 declaring total income at Rs.5,26,655/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The ld.AO has observed that the assessee has made investment of Rs.21,15,621/-and earned exempt income to the tune of Rs.1,46,229/-. He further observed that the assessee has not debited any expenditure under section 14A of the Income Tax Act. Therefore, he directed the assessee to explain why expenditure relatable to earning tax free income be not disallowed. In response to the query of the AO, it was contended by the assessee that he has not made any investment in earning tax free income. He has made investment in the PPF account. The total amount noticed by the AO at Rs.21,15,621/- is concerned, it is a carry forward from earlier years, and this year only Rs.1.00 lakh has been invested. This one lakh has been invested from his own source of funds and for that purpose, the assessee contended capital balance of Rs.50.63 lakhs is available with the assessee. Similarly, he has Rs.25,70,500/- as deposits/unsecured loans on which no interest expenditure has been incurred. The ld.AO was not satisfied with the explanation of the assessee. He has not assigned any reasons as to why he was not satisfied. But straightway, proceed to disallow the expenditure with the help of Rule 8D. He disallowed a sum of Rs.1,20,824/-. The AO has also discussed that the assessee has earned dividend income of Rs.960/-, but submitted that this dividend income is ITA No.65 /Ahd/2017 -3- taxable, cannot be a factor for working a disallowance. The ld.CIT(A) has accepted this argument as far as Rs.960/- is concerned, but confirmed the disallowance made by the AO under Section 14A r.w. rule 68D of the Income Tax Rules.
4. With the assistance of ld.representatives, we have gone through the record carefully. We find that the ld.CIT(A) has while concurring with the AO has recorded a finding that the AO was not satisfied with the accounting treatment given by the assessee for not showing any expenditure relatable to earning tax free income. He further observed that the AO has rightly recorded a finding that the assessee has not disallowed any amount under section 14A r.w. rule 8D. On due consideration of the above facts, we are of the view that a perusal of Section 14A would indicate that it talks of any expenditure relatable to earning of tax free income. The first question is, there should be expenditure which has been incurred by the assessee for earning tax free income. This expenditure should have been claimed by the assessee. Now, in the present case, the assessee has not incurred any expenditure. He is an individual. He has made investment in PPF and more than 95% of such investment was carried over from earlier years. The investment in this year is only rupees one lakh. On this investment no interest expenditure has been claimed by the assessee. Therefore, there could not be any computation of interest expenditure. Similarly, for making investment in PPF administrative expenses are not to be worked out. The assessee has not debited any salary for carrying out this activity. He himself might have taken care of. Therefore, considering the above facts and circumstances, we are of the view that ld.Revenue authorities are ITA No.65 /Ahd/2017 -4- not justified any making addition of Rs.1,20,824/-. We allow this ground of appeal and delete the addition.
5. In ground no.2.01 to 3.00, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of interest at the rate of 14% on Rs.63,87,500/-.
6. A perusal of the record would indicate that the assessee has withdrawn Rs.93,95,072/- from HDFC Bank overdraft account and repaid housing loan. The ld.CIT(A) confirmed the disallowance to the extent the amount was used for repayment of housing loan. The discussion made by the ld.CIT(A) reads as under:
"Ground No. 2.01 to 2.03 - Disallowance out of interest expense of Rs.6,.73,871/-.
During the course of appeal proceedings, it was observed by the AO that assessee has withdrawn Rs.93,95,072/- from HDFC overdraft account and repaid the housing loan. Therefore, by applying the provision of Section 36(1)(iii), the AO disallowed @14% on Rs. 93,95,072/-. The disallowance has been worked out at Rs.6,73,871/-.
During the course of appeal proceedings, the appellant has filed a paper book in his submissions. In this paper book, a copy of bank account maintained with Union Bank of India for the period from 06.06.2010 to 15.06.2010 has been given. A perusal of this bank statement clearly shows that an amount of Rs. 30,66,843/- has been transferred to this account on 12-06-2010 which has reduced the overdraft of the appellant. This clearly shows that an amount of Rs. 30,66,843/- has been utilized by the appellant in the business of the appellant and therefore the disallowance made u/s. 36(1)(iii) of the act by the AO is not sustainable to this extent.
The appellant has also filed a ledger copy of the account of Safal Param Flat No. 901 for the period 01.04.2010 to 31.03.2012. A perusal of this account shows that the appellant has made an investment of Rs. 71.79.200/- in this flat out of which, Rs.63,87,500/- has been invested by procuring a housing loan from Reliance Home Finance Ltd. The balance amount taken as an overdraft from HDFC Bank has been utilized for paying this housing loan. Since the overdraft has been utilized to repay the housing loan taken for buying the residential ITA No.65 /Ahd/2017 -5- property (flat), the AO rightly disallowed the interest component at least to this extent u/s. 36(1)(iii) of the Income Tax Act.
In view of the above, the addition made by the AO u/s. 36(1)(iii) of the act is confirmed on an amount of Rs.63,87,500/- which has been used for repaying the housing loan and deleted on the balance amount which has been utilized by the appellant for reducing the overdraft account in Union Bank of India as discussed above.
In view of the above, the addition is confirmed on an amount of Rs.63,87,500/-. The AO is therefore directed to compute the disallowance of interest on an amount of Rs. 63,87,500/- @14% which stands confirmed. The balance disallowance made by the AO is deleted. The ground of appeal taken by the appellant is therefore partly allowed."
7. Interest expenditure incurred on overdraft account could be allowed to the assessee, if such borrowed fund is being used for the purpose of business. The assessee has diverted this fund for repayment of housing loan. Hence, it was not used for the purpose of business. Interest expenditure to the above extent cannot be allowed. The ld.CIT(A) has rightly confirmed the disallowance to the extent funds were diverted for non-business purpose. We do not find any merit in this ground. It is rejected.
8. In the result, appeal of the assessee is partly allowed.
Pronounced in the Open Court on 30th April, 2019.
Sd/- Sd/- (PRADIP KUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 30/04/2019