Income Tax Appellate Tribunal - Ahmedabad
Shri Ashok Bhurmal Kothari,, Ahmedabad vs The Income Tax Officer, Ward-3(1)(4),, ... on 12 February, 2018
*,l-
*,l-,e-
,e-lh*
lh* अहमदाबाद ।
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
" SMC " BENCH, AHMEDABAD
सव ी izeksn dqekj, लेखा सद
य एवं महावीर साद, या यक सद
य के सम ।
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.
No.2867/Ahd/2015
( नधा रण वष / Assessment Year : 2012-13)
Shri Ashok Bhurmal Kothari, बनाम/ ITO,
403-404, Florence, Vs. Ward - 3(1)(4),
Opp. Ashram Road Post Ahmedabad.
Office,
Ashram Road,
Ahmedabad - 380 009.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : ACFPK 3374 E
(अपीलाथ" /Appellant) .. ( #यथ" / Respondent)
अपीलाथ" ओर से /Appellant by : Shri Hardik Vora, A.R.
#यथ" क% ओर से/Respondent by : Shri James Kurian, Sr. D.R
ु वाई क% तार*ख /
सन Date of Hearing 24/01/2018
घोषणा क% तार*ख /Date of Pronounce ment 12/02/2018
आदे श / O R D E R
PER MAHAVIR PRASAD, JUDICIAL MEMBER :
This appeal of the assessee relating to assessment year 2012-13 is directed against the order of Learned Commissioner of Income Tax (Appeals)-9, Ahmedabad dated 10.07.2015 which is arising out of order u/s.143(3) of the Income Tax Act, 1961, vide appeal no.CIT(A)- 9/598/ITO, Wd-3(1)(4)/14-15.
2. Assessee has taken following Grounds of appeal:
"1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the order ITA No.2867/Ahd/2015 Shri Ashok Bhurmal Kothari vs. ITO Asst.Year -2012-13.-2-
of Assessing officer making disallowance of interest claimed of Rs.12,23,035/-.
2. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the order of Assessing officer observing that s. 14A will be applicable on the facts of the case.
3. It is prayed that above addition/disallowance made by Assessing Officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted."
3. The relevant facts as culled out from the materials on record are as under:-
The assessee is director in two companies namely M/s. Oscar Chemicals and M/s. Olive Petrochem Pvt. Ltd. he has also a partner in a partnership firms namely M/s. Aadi Corporation. In the statement of total income forming part of the return of income, the assessee has shown total interest receipt of Rs.29,46,388/- against which he has claimed interest expense of Rs.19,98,151/-. It is apparent from the details that most of the funds on which the interest expense was claimed, had no nexus with the deposits/investments from which interest was earned. A show-cause notice was issued and same is reproduced as under:
"In the statement of total income, it is seen that you have received interest income from the following parties:
Sr. Name of the party Amount of
No. interest shown
as income
1. Oscar Chemicals Pvt.Ltd. 1,25,545/-
2. Akshar Developers 4,142/-
3. Advance Organizers Pvt Ltd. 13,06,084/-
4. Siddharth Kothari 11,09,160/-
5. Siddharth S. Kothari HUF 3,78,957/-
6. Mantra Technologies 22,500/-
Total 29,46,388/-
ITA No.2867/Ahd/2015
Shri Ashok Bhurmal Kothari vs. ITO
Asst.Year -2012-13.
-3-
3. Out of the interest income of Rs.29,46,388/- as detailed above, you have claimed interest expense of Rs.19,98,151/- which includes interest expense of Rs.12,30,380/- claimed under the head of "As per interest A/c. of Kunal Construction"
4. On perusal of the balance sheet of your proprietary concern Kunal Construction, it is seen that you have taken unsecured loan of Rs.1,76,03,176/- (apparently on which the interest expense of Rs.12,30,380/- claimed in the statement of total income was paid). It is however seen this unsecured loan has been used for making investment in shares of companies, advancing deposits and also to meet the accumulated loss of the proprietor as sorted out hereunder:
Sr. Name of the party Amount
No. advanced as
loan/deposit
1. Oscar Chemicals Pvt. Ltd. 24,27,800/-
shares
2. Sarvaya Exports Ltd. 36,00,000/-
3. Shelter Hotels Ltd. 30,00,000/-
4. Yunus Dahej 44,29,000/-
5. Loans and advances (Asset) 16,41,158/-
6. Accumulated loss 31,32,488/-
5. It can be seen that the borrowed fund's Rs.1,76,03,176/-) application is towards investment in shares, accumulated loss, debit balance of capital. Except for the loan and advances of Rs.16,41,158/- the entire borrowed fund's utility has no nexus with the interest income of Rs.29,46,388/-. Also considering that most of the funds have been utilized in equity shares which have potential to earn exempted income, disallowance of interest expense claimed by you is also called for u/s.14A of the Act.
6. Since the deduction of interest expense of Rs.12,30;380/- has been claimed from the interest income shown under the head of income from other sources, it is deemed to have been claimed u/s.57 of the Act. In this regard, it would pertinent to mention that among clause (i) to (iv) of section 57, the deduction claimed ITA No.2867/Ahd/2015 Shri Ashok Bhurmal Kothari vs. ITO Asst.Year -2012-13.
-4-by you falls (if eligible) under clause (iii) of section 57 which reads as follows:-
"(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income"
7. Here, "earning such income" means the income shown under head of income from other sources. As already pointed out, the expenses of Rs.12,30,380/- has no direct nexus with the interest income of Rs.29,46,388/- detailed in the table above. You are, therefore, requested to show cause as to why the interest expenses of Rs. 12,30,380/- claimed in the statement total income under head of "as per interest account of Kunal construction"
should not be disallowed.
8. The balance sheet of Kunal Construction is available in the assessment record therefore it could be established that there is no nexus between interest paid under, this account and income shown under head of income from other source. However, in support of your claim of the other interest expenses of Rs.7,67,771/- claimed in the statement of total income, you are requested to prove a direct party/entity wise nexus between the borrowed funds (related to interest payment of Rs.7,67,771/-) and interest income of Rs.29,46,388/- or show cause as to why the interest expenses of Rs.7,67,771/- should not be disallowed."
4. Thereafter, assessee submitted his reply and same is reproduced as under:
"1) Why disallowance of interest expenses u/s.14A of the Act should not be made Kindly note our reply in below paras.
In the table reproduced on paragraph 4 of show cause notice, only item at serial number one is investment in shares. All other items mentioned in the table are for the purpose of business only. We are attaching here with document in support of our contention that item and serial number 2 to 4 are in fact business assets and not Shares. Hence out of total investment, only ITA No.2867/Ahd/2015 Shri Ashok Bhurmal Kothari vs. ITO Asst.Year -2012-13.
-5-Rs.24,27,800/- is invested in shares. Also it is pertinent to mention here that out of loan funds of Rs.1,76,03,176/-, Rs.30,00,000/- is received without paying interest thereon. Hence no interest bearing fund is invested in the assets which have potential to earn exempted income. Accordingly no disallowance under section 14A is called for.
2) Why the interest expenses of Rs.12,30,380/- should not be disallowed Please note that for administrative convenience assessee has bifurcated his accounts under the name of proprietary concern and under his individual name. However for the purpose of income tax, proprietary concern and proprietor thereof holds a single permanent account number. In other words proprietary concern and proprietor both is the same person and assessed under single pan no. During the year under consideration assessee has received in total interest income of Rs.29,46,388/- and incurred interest expense of Rs.19,98,151/-. Hence net effect of the interest account is net interest income of Rs.9,48,237/-. Under the circumstances while assessee has offered for tax net interest income, there is no question of disallowance of interest expenses by considering proprietary concern and proprietor as 2 different persons.
Without prejudice to aforesaid factual position please note that in case interest expense of Rs.12,30,380/- (Received 73,442 and Paid 13,03,822/-) will not be allowed under s.57 of the act, the same will result in business loss. The loss under the head business and profession income will be allowed to be set off against the income of other source for the same year. Hence Rs.12,30,380/- must be allowed either as expense against the interest income offered or as set off of loss.
3) Why the interest expenses of Rs.7,67,771/- should not be disallowed:
It is fundamental principle of account that when a person is paying interest on one side and receiving interest on other side, he used to offers the income are expense on account of interest head after netting of the two. In the case under consideration ITA No.2867/Ahd/2015 Shri Ashok Bhurmal Kothari vs. ITO Asst.Year -2012-13.-6-
assessee has received interest of Rs.29,46,388/-. As against that interest payment of Rs.7,67,771/- is claimed as expenditure. Thus interest expense should be allowed to assessee if there is no finding that interest-bearing fund is diverted to investment having potential to earn exempt income. Accordingly, interest expense of Rs. 7,67,771/- should be allowed as expense against interest income of Rs.29,46,388/-."
5. Ld. AO was not satisfied with the contention of the appellant. Hence, he made an addition of Rs.12,23,035/-.
6. Against the said addition assessee preferred first statutory appeal before the ld. CIT(A) who dismissed the appeal of the appellant.
7. Now matter is before us.
8 We have gone through the relevant record and impugned order. The appellant has invested Rs.24,27,800/- in shares and out of loan funds of Rs.1,76,03,176/-, Rs.30,00,000/- received without paying interest thereon. Meaning thereby no interest bearing fund is invested in assessment which have potential to earn exempted income and for administrative convenience appellant has bifurcated his accounts under the name of proprietary concern and under his individual name. However, for the purpose of income tax, proprietary concern and proprietary thereof holds a singly permanent account number. During the year under consideration, assessee has received in total interest income of Rs.29,46,388/- and incurred interest expense of Rs.19,98,151/-. Hence, net effect of the interest account is net interest income of Rs.9,48,237/-.
ITA No.2867/Ahd/2015Shri Ashok Bhurmal Kothari vs. ITO Asst.Year -2012-13.
-7-Assessee has offered for tax net interest income, there is no question of disallowance of interest expenses by considering proprietary concern and proprietor as two different persons. Proprietor concern and proprietor they are holding single permanent account number. Therefore, in these circumstances disallowance u/s.14A r.w.s. section 8D cannot be allowed.
9. In the result, appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 12/02/2018
Sd/- Sd/-
¼izeksn dqekj½
kj½ ¼egkohj izlkn½
kn½
Yks[kk lnL;
lnL; U;kf;d lnL;
(PRAMOD KUMAR) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 12/02/2018
Priti Yadav, Sr.PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ" / The Appellant
2. #यथ" / The Respondent.
3. संबं1धत आयकर आयु3त / Concerned CIT
4. आयकर आयु3त(अपील) / The CIT(A)-9, Ahmedabad.
5. 6वभागीय त न1ध, आयकर अपील*य अ1धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स#या6पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad