Income Tax Appellate Tribunal - Jaipur
Shri Sumit Gupta, Jaipur vs Assistant Commissioner Of Income Tax, ... on 29 July, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCH 'A', JAIPUR
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Before : Shri Vijay Pal Rao, JM & Shri Vikram Singh Yadav, AM
vk;dj vihy la-@ITA No. 194, 195,196, & 197/JP/2019
fu/kZkj.k o"kZ@Assessment Year : 2011-12 to 2014-15
Shri Sumit Gupta cuke The ACIT
504, Apex Mall Tonk Road, Jaipur Vs. Circle-6,Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABPPG 3787 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 293/JP/2019
fu/kZkj.k o"kZ@Assessment Year : 2011-12
The DCIT cuke Shri Sumit Gupta
Circle-6,Jaipur Vs. 504, Apex Mall Tonk Road, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABPPG 3787 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by :Shri Rohan Sogani, CA and
Shri Rajeev Sogani, CA
jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph, JCIT-DR
lquokbZ dh rkjh[k@ Date of Hearing : 17/07/2019
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29 /07/2019
vkns'k@ ORDER
PER BENCH These four appeals by the assessee for the Assessment Year 2011- 12 to 2014-15 are directed against the respective orders of the ld. CIT(A) 2 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur dated 24-12-2018 and 9-01-2019. The Revenue has filed the cross appeal for the Assessment Year 2011-12. First , we take up the cross appeals for the Assessment Year 2011-12 wherein the assessee and Revenue has raised the following grounds of appeal.
ITA No.194/JP /2019 -A.Y. 2011-12 (Assessee) ''1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of AO in making disallowance of Rs. 4,75,262/- u/s 14A of the I.T. Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the disallowance made by the AO and confirmed by the ld. CIT(A).
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of AO in making disallowance of Rs. 5,59,482/- i.e. Rs. 2,95,724/- on account of interest expenses and Rs. 2,63,758/- on account of brokerage expenses. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the disallowance made by the AO and confirmed by the ld. CIT(A).
3. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of AO in making addition of Rs. 2,87,233/-under the head Income from other sources on account of alleged excess claim of brokerage expenses. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the disallowance made by the AO and confirmed by the ld. CIT(A).'' ITA No.293/JP /2019 -A.Y. 2011-12 (Revenue) ''1. Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is correct in deleting the addition of Rs. 3,60,000/- made on account of rental income earned by the assessee despite the fact that firm is a separate entity than individual and rent receivable from the 3 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur firm in which the assessee is a partner is to be considered under the head income from house property.
2. Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is correct in reducing the disallowance of expenditure from Rs. 73,50,936/- to Rs. 68,75,674/-u/s 14A read with rule 8D(2)(ii) without appreciating the fact that as per departmental circular No. 05/2014 dated 11-02-2014 it is not necessary for exempt income to have been included in the income of particular year for disallowance u/s 14A.'' 2.1 The ground No. 1 of the assessee's appeal as well as Ground No. 2 of the Revenue's appeal are common regarding disallowance of Rs. 4,75,262/- made by the AO u/s 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules which was restricted by the ld. CIT(A) to the extent of exempt income earned by the assessee.
2.2 The assessee is an individual and partner in M/s. Universal Granites which is engaged in the business of export of tiles/granites. During the course of assessment proceeding, the AO noted that the assessee has not made any disallowance u/s 14A of the Act in spite of the fact that the assessee has earned exempt income of Rs. 4,75,262/- on account of dividend from shares as well as profit from partnership firm M/s. Universal Granites. The AO noted that the assessee has taken loan on which interest was paid at the average rate of 14.4% whereas the 4 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur assessee has earned interest on capital from partnership firm @ 12%. The assessee objected to the disallowance proposed by the AO u/s 14A of the Act and submitted that assessee's owned interest free fund is more than the investment made in the Mutual funds as well as shares in the company. Further the capital introduced in the partnership firm and interest on the same is a business income. Therefore, the interest expenditure incurred in respect of the said amount cannot be disallowed. The assessee has also given details of proportionate interest expenditure allocable to the investment made in the partnership firm as well as shares of the company and Mutual Funds and thus contended that when assessee has itself made suo motu disallowance of Rs. 39.04 lacs on account of interest and brokerage expenses then no further disallowance is called for. The AO did not accept the contention of the assessee and made disallowance of Rs.59,27,485/- on account of interest expenditure calculated as per rule 8D(2)(ii) of the Income Tax Rules and Rs. 14,23,451/- on account of indirect and administrative expenses under rule 8D(2)(iii) of Income Tax Rules. Thus the AO has made total disallowance of Rs. 73,50,936/- . The assessee challenged the action of 5 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur the AO before the ld. CIT(A) and contended that the assessee has already made disallowance of Rs. 39.04 lacs on its own on account of interest and brokerage expenses. Therefore, having regard to the funds used for investment, no further disallowance is called for on account of interest expenditure. The assessee also claimed that apart from interest expenditure, no further indirect administrative expenditure has been claimed by the assessee against the taxable income. The ld. CIT(A) restricted the disallowance made by the AO u/s 14 of the Act to the extent of exempt income of Rs. 4,75,262/-. Thus both assessee and Revenue are aggrieved by the order of the ld. CIT(A) qua this issue and raised the above grounds.
2.3 Before us, the ld.AR of the assessee has submitted that AO as well as the ld. CIT(A) have not considered the suo motu disallowance made by the assessee of Rs. 39.04 lacs on account of interest and brokerage expenses not pertaining to taxable income. He has referred to the total interest and brokerage expenses of Rs. 1,49,10,361/- whereas the assessee has claimed only a sum of Rs. 1,09,97,000/-. Therefore, the assessee himself has disallowed a sum of Rs. 39.04 lacs on account of interest and 6 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur brokerage expenses treating the same as not pertaining to taxable income. The ld.AR has then referred to assessee's own funds and submitted that for the Assessment Year 2011-12, the assessee was having its own fund of Rs. 33.95 crores. Similarly for subsequent Assessment Year, the assessee was having sufficient funds which were more than the investments made in the shares of company and Mutual Funds. He has also pointed out that there was no further investment in the shares in the year under consideration and in all subsequent years initial investment was made in the shares of the company in the Assessment Year 2006-07 and after 2007-08, there was no fresh investment. As regards the investment in partnership firm, the ld.AR has submitted for the Assessment Year 2011-12, the assessee has made investment of Rs. 1.44 crores and in all subsequent years the said investment was gradually reduced to Rs. 41.56 lacs in Assessment Year 2014-15. Hence, the ld.AR has submitted that when the assessee is having more than about Rs. 35.00 creores in the year under consideration and investment made in the partnership firm is only Rs. 1.44 crore the no disallowance is called for on account of interest income . He has also referred to the details of 7 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur assessee's capital account and income statement and submitted that apart from interest and brokerage expenses which is also in respect of taking the loan. The assessee has not claimed any other indirect expenditure which can be apportioned to the income. Thus the disallowance restricted by the ld. CIT(A) to the extent of exempt income is also not justified. 2.4 On the other hand, the ld. DR submitted that the assessee has taken loan and paid interest at the average rate of 14.4%. Further the assessee has also incurred in respect of brokerage expenses to the tune of Rs. 16,11,929/- for taking the loan. Hence, the assessee has incurred the interest and brokerage expenses for taking the loan and at the same time the assessee has made investment in the partnership firm as well as investment in the Mutual Funds apart from in the shares of the company in which the assessee is a director. The assessee has earned tax free income during the year under consideration on account of dividend from Mutual Fund and shares of the partnership firm. Therefore, the provisions of section 14A read with Rule 8D of Income Tax Rules are applicable in the case of the assessee. The ld. DR has relied upon the order of the AO and submitted that the AO has computed the 8 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur disallowance strictly as per formula provided under Rule 8D of Income Tax Rules.
2.5 We have considered the rival submissions as well as the relevant material on record. The AO has taken the interest expenditure of Rs. 96,30,358/- for apportionment of the same in respect of exempt income. The AO thereafter took the average value of the investment made in the shares, Mutual Funds and partnership firm at Rs. 28,46,90,237/-. Accordingly, the AO computed the allocable interest expenditure by taking the average investment and total assets of the assessee. We find that the amount of interest taken by the assessee for the purpose of computing the disallowance u/s 14A is not based on the correct facts as the total interest expenses and brokerage expenses for the year under consideration is Rs. 1,49,10,361/- whereas the assessee has claimed the interest expenditure of Rs. 1,09,97,000/-. Therefore, the assessee made suo motu disallowance of Rs. 39.04 lacs on account of interest and brokerage expenses. This suo motu disallowance made by the assessee was not considered by the AO while taking the figure of allocable interest expenditure. Further, we note that during the year under consideration 9 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur there is no fresh investment in the shares of the company i.e. M/s. Tab India Granite Pvt. Ltd. Therefore, there is no question of utilizing any borrowed funds in the year under consideration so far as investment in the shares of the company. This fact is further supported by interest income received by the assessee of Rs. 1,12,98,637/- as against interest expenditure claimed at Rs. 1,09,97,000/-. Thus the interest income of the assessee is more than the interest expenditure claimed. The assessee's own fund is also around 35 crores which is much more than the investment made by the assessee in the shares, Mutual Funds and capital in the partnership firm. Accordingly, having regard to the facts that assessee's owns fund is more than the investment in question and suo motu disallowance of Rs. 39.04 lacs is made by the assessee on account of interest and brokerage, no further disallowance is called for u/s 14A of the Act.
2.5.1 As regards indirect and administrative expenditure disallowed by the AO under rule 8D(2)(iii) of Income Tax Rules, we find that the assessee has claimed the expenditure on account of interest and brokerage and no other expenditure has been claimed which can be attributed in 10 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur respect of earning of exempt income. This fact is clear from the Annexure 1 being capital account of the assessee as well as details of the expenditure. Thus when the assessee has not claimed any expenditure on account of indirect administrative expenditure then the disallowance under Rule 8D (2)(iii) of Income Tax Rules is not called for. The provisions of section 14A and Rule 8D can be invoked only when the assessee has claimed some expenditure which can be attributed for earning exempt income. Where assessee has not claimed any expenditure on account of administrative expenditure then no disallowance can be made u/s 14A read with Rule 8D(2)(iii) of the rules. Therefore, the disallowance sustained by the ld. CIT(A) to the extent of exempt income is not justified and the same is deleted. Thus Ground No. 1 of the assessee is allowed and Ground No. 2 of the Revenue is dismissed. 3.1 The Ground No.2 of the assessee's appeal is regarding disallowance of interest expenses and brokerage expenses on the ground that the assessee has paid interest @ 14.4% whereas the assessee has received interest @ 12% from the partnership firm.
11 ITA No. 194/JP/2019
Shri Sumit Gupta vs ACIT, Circle-6, Jaipur 3.2 We have heard the ld.AR and ld. DR and considered the relevant material on record. As far as the interest paid by the assessee @ 14.4% and received interest from the partnership firm @ 12% is not in dispute. However, the overall interest income of the assessee is more than the interest expenditure claimed. The sole basis of the disallowance made by the AO is also that the assessee has wrongly allocated the interest expenditure against business income. However, once the interest received from the partnership firm is treated as business income of the assessee then interest expenditure in respect of earning business income cannot be disallowed on the basis of less income earned by the assessee. The AO has not doubted the interest payment and interest receipt of the assessee. However, it was observed that the investment made by the assessee in the firm during the year under consideration is over and above the fixed capital introduced by the assessee in the partnership firm and therefore, receiving the interest at the rate less than the interest payment by the assessee has led the AO to make the disallowance. The ld.AR of the assessee relied on the decision of Mumbai Bench of the Tribunal in the case of Delite Enterprises (P) Ltd. vs ITO, Ward- 3(1)(2) [2008] 22 SOT 12 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur 245 (Mumbai) and submitted that the Tribunal has considered the identical issue and held that no disallowance can be made u/s 36(1)(iii) of the Act on the ground that investment made by the assessee in the partnership firm has earned less income than the interest expenditure. As we have already discussed in the foregoing part of this order that once interest income is treated as business income of the assessee then the corresponding expenditure cannot be disallowed on the ground of less income earned by the assessee. The Mumbai Bench of the Tribunal in the case of Delite Enterprises (P) Ltd. vs ITO (supra) has dealt with this issue in para 7.1. and 7.2 as under:-
''7.1 The assessee in this case, in pursuance of the objects of carrying on of business of dealing in commodities and business of dealing in shares and securities, etc. has investment in the partnership firm. Clause 8 of the partnership firm clearly states that the assessee shall be entitled to interest at the rate of 12 per cent on the capital introduced. The earning of interest is capped at the maximum amount of profit earned. In other words, the interest on capital/loans, should not exceed the aggregate amount of profit earned by the firm in the year. Sec. 28(v) of the Act merely states that the interest earned on a partnership firm is taxable. For the asst. yr. 2001-02 the assessee had in fact earned interest of Rs. 99,01,000 and the AO has brought it to tax. The first appellate authority has rightly held that this receipt is taxable under the head "Profits and gains of business or profession" under s. 28(v) of the Act. There is no exemption claimed under s. 10(2A) of the Act by the assessee. Sec. 10(14) clearly states that expenditure incurred by the assessee in relation to income which does not form part of total income under the Act will not be allowed. In this case, for both the assessment years, there is no income earned by the assessee which does not form part of the total income under the Act. Under these circumstances we do not see any reason why the claim of the assessee is 13 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur not allowable under s. 36(1)(iii). Coming to the argument of the learned Departmental Representative that the judgment of the Hon'ble apex Court in the case of Rajendra Prasad Moody (supra) is not applicable to this case, we find that the Hon'ble Madras High Court in the case of M. Ethurajan (supra) has held that the propositions laid down in Rajendra Prasad Moody's case (supra) for allowability under s. 57(iii), are equally applicable for deductions claimed under s. 36(1)(iii) or s. 37. Thus this argument of the Revenue is without any merit.
7.2 In view of the above discussion we are of the considered opinion that the first appellate authority at para 4.3 p. 15 of the order for the asst. yr. 2001-02 has rightly come to a conclusion that the claim of the assessee for the deduction under s. 36(1)(iii) has to be allowed.'' Accordingly, no disallowance is called for in respect of interest expenditure on the ground that corresponding income earned by the assessee from partnership firm is less than the interest expenditure. Thus the disallowance made by the AO and sustained by the ld. CIT(A) is deleted. Thus Ground No. 2 of the assessee is allowed. 4.1 The Ground No. 3 of the assessee is regarding the disallowance made by the AO on account of brokerage expenditure against the income from other sources.
4.2 We have heard the ld.AR as well as ld. DR and considered the relevant material on record. The AO has made disallowance on the ground that the assessee has taken incorrect and improper criteria for allocating brokerage expenses towards the income earned by the assessee 14 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur from advance given to the company and interest income earned from partnership firm as well as other investment made by the assessee. Though the allocation of the brokerage expenses as well as interest expenses ought to have been based on the quantum of the borrowed funds used for respective investments yielding interest income u/s 56 of the I.T. Act, 1961 as well as interest income u/s 28 of the I.T. Act, 1961. However, when the overall interest income earned by the assessee is more than the corresponding interest expenditure then such a technical disallowance of Rs. 2,87,233/- by recomputing the allocation of brokerage expenditure is not justified. Even the AO has also not taken the correct amount into consideration while computing the disallowance. The allocation of brokerage expenses ought to have been based on the quantum of borrowed funds used for various investments. We find that if the brokerage expenses is attributed on the basis of quantum of borrowed funds used for the advances made to the company then no disallowance is called for. Accordingly, having considered the facts and circumstances of the case when the quantum of the borrowed funds used for making the advances to the company is taken into consideration and corresponding 15 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur interest income earned by the assessee then there will be no addition in the total income of the assessee even by reallocating brokerage expenses amounts to different categories of investments and income earned from the same. Accordingly, such disallowance on account of brokerage expenses is deleted. Thus Ground No. 3 of the assessee is allowed. 5.1 The Ground No. 1 of the Revenue's appeal regarding the addition made by the AO being rental income of the flat used by the firm, was deleted by the ld. CIT(A) by treating the same as property was used for business purposes of the assessee.
5.2 The ld. DR has submitted that the assessee owns a flat bearing no 308, Third Floor, ''Scion Aloevera'', Kodhihalli Main Road, Varthu Hobli, Bangalore. However, the assessee has not declared any income from house property. The AO asked the assessee as to why rental income of the said property should not be assessed as income from house property. The assessee in its reply claimed that the said property is being used by the partnership firm M/s. Universal Granites and therefore, it is used for business of the assessee and consequently cannot be assessd u/s 22/23 of the I.T. Act, 1961. The ld. DR submitted that assessee did not 16 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur produce any documentary evidence regarding the said property and even any proof to show that the said property was used by the partnership firm for carrying out its business. Therefore, in the absence of necessary details, the AO has determined the fair rateable value of the property in question by taking reasonable rent @ Rs. 34,000/- per month and made addition of Rs. 2,52,000/- on account of income from house property. The ld. CIT(A) deleted said addition by considering the said flat having been used for the business of the firm in which assessee is a partner and therefore, the same cannot be assessed to tax under the head income from house property. The ld. DR has pointed out that the assessee has failed to produce the relevant records and documentary evidences to prove that the flat was being used for carrying out business by the partnership firm. Thus the order of the ld. CIT(A) is based only on presumption and submissions of the assessee without verifying the facts relevant for the purpose of assessment of income from the house property. 5.3 On the other hand, the ld.AR submitted that the AO has not disputed the fact that flat owned by the assessee was used by the partnership firm in which assessee is a partner and therefore, the said flat 17 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur is being used for carrying out its business. He has relied on various decisions on the point wherein flat owned by the partner but used by the partnership firm was held as used for business purposes and thereby not liable to assess the tax under the head income from house property. The decisions relied on by the ld.AR are as under:
(1) CIT vs Mustafa Khan [2005] 276 ITR 601 (All.) (2) CIT vs H.S. Singhal & Sons [2002] 253 ITR 653 (Del.) (3) CIT vs Syed Anwar Hussain [1990] 186 ITR 749 (Patna) 5.4 We have considered the rival submissions as well as relevant material on record. There is no quarrel on the point that if a property is used by the partnership firm for the purpose of carrying out its business then the property owned by the partner of the said firm cannot be assessed to tax under the head income from house property being used for business purposes. However, in the case in hand, it is not the case that such flat owned by the assessee was given to the partnership firm by the assessee for carrying out its business from the said premises but the flat appears to have been purchased by the assessee recently, though the assessee has not filed any title document to give the exact date of acquisition of said flat.18 ITA No. 194/JP/2019
Shri Sumit Gupta vs ACIT, Circle-6, Jaipur Further the assessee has also not produced any documentary evidence to show that said flat was given to the partnership firm for the purpose of carrying out the business. Therefore, in the absence of any material to support the claim that flat is being used by the partnership firm for the purpose of its business, the claim of the assessee cannot be accepted on mere submissions . The decisions relied on by the ld.AR of the assessee are on the point when the fact of giving the flat to the partnership firm and used for business purposes of the partnership firm was not in dispute. The exact nature of use of the flat in question is not ascertainable in the absence of the relevant material and record. Even the assessee has not established this fact from the accounts of the partnership firm. Accordingly, we do not find any substance in the claim of the assessee as the assessee has failed to establish that said flat was being used by the partnership firm for the purpose of its business.
5.4.1 As regards the determination of Annual Letting Value (for short ALV) of the flat in question, the AO has not followed the procedure as prescribed u/s 23(1)(a) of the Act. The assessee has furnished the fair market rent of Rs. 20,000/- per month which was enhanced by the AO to 19 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur Rs. 30,000/- per month on the ground that flat was used for commercial purposes. However, in absence of any record, the said enhancement made by the AO from Rs. 20,000/- per month to Rs. 30,000/- per month is without any basis. Even the AO has not conducted any enquiry to ascertain the fair market ALV of the flat in question in terms of section 23(1) of I.T. Act, 1961. Accordingly, in the facts and circumstances of the case, we restrict the addition on account of income from house property to the extent of fair market annual letting value at Rs. 2.40 lacs. The AO is directed to recompute the income from house property. Accordingly, Ground No. 1 of the Revenue is partly allowed.
6.1 The assessee in ITA No. 195/JP/2019 for the Assessment Year 2012-13 has raised the following grounds:-
''1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs. 20,39,894/- out of interest and brokerage expenses claimed under the head of business and profession. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A).
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs. 1,03,892/- u/s 14A of the I.T. Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A).'' 20 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur
7.1 The Ground No. 1 of the assessee is regarding disallowance of interest and brokerage expenses on the ground that the assessee has incurred interest expenditure on the borrowed funds whereas no income was earned by the assessee from the partnership firm. 7.2 We have heard the ld.AR as well as ld. DR . This ground is common to the ground No. 1 of the assessee's appeal for the Assessment Year 2011-12. However, only difference is regarding the fact that for the year under consideration the assessee has not received any interest from partnership firm whereas in the Assessment Year 2011-12 the assessee received interest @ 12% from the partnership firm. In principle, we hold that once the interest income from partnership firm is treated as business income then even if the business income is not earned by the assessee the corresponding expenditure cannot be disallowed. What is to be considered for the purpose of allowing interest expenditure is whether the said expenditure is laid out for the purpose of the business of the assessee. When the corresponding income is treated as business income then due to the reasons that the partnership firm has incurred losses. Consequently, no interest is paid to the partner the corresponding interest expenditure of 21 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur the assessee cannot be disallowed. Hence, in view of our findings given for the Assessment Year 2011-12 (supra), the disallowance made by the AO is deleted. Thus Ground No. 1 of the assessee is allowed. 8.1 Ground No. 2 of the assessee is regarding disallowance of Rs. 1,03,892/- made by the AO u/s 14A of the I.T. Act, 1961. 8.2 At the time of hearing, the ld.AR of the assessee has stated at Bar that the assessee does not want to press this Ground due to smallness of the addition.
8.3 On the other hand, ld. DR has not raised any objection if the Ground No. 2 of the assessee is dismissed.
8.4 Accordingly, the Ground No. 2 of the assessee is dismissed being not pressed.
9.1 The assessee in ITA No. 196/JP/2019 for the Assessment Year 2013-14 has raised the following grounds:-
''1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs.18,20,426/- out of interest and brokerage expenses claimed under the head of business and profession. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A).22 ITA No. 194/JP/2019
Shri Sumit Gupta vs ACIT, Circle-6, Jaipur
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs. 96,275/- u/s 14A of the I.T. Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A).''
10.1 The Ground No. 1 of the assessee is regarding disallowance of interest and brokerage expenses for want of interest income received from the partnership firm.
10.2 We have heard the ld.AR as well as ld. DR and considered the relevant material on record. This ground is identical and common to the ground no. 1 of the assessee for the Assessment Year 2012-13. In view of our findings given for the Assessment Year 2012-13 (supra), this ground of appeal of the assessee stands allowed and disallowance made by the AO is deleted. Thus Ground No. 1 of the assessee is allowed. 11.1 The Ground No. 2 of the assessee is regarding disallowance of Rs. 96,275/- made by the AO u/s 14A of the I.T. Act, 1961. 11.2 During the course of hearing, the ld.AR of the assessee has not pressed the Ground No. 2 for which the ld.DR has no objection. Hence, the Ground No. 2 of the assessee is dismissed being not pressed. 23 ITA No. 194/JP/2019
Shri Sumit Gupta vs ACIT, Circle-6, Jaipur 12.1 The assessee in ITA No. 197/JP/2019 for the Assessment Year 2014-15 has raised the following grounds:-
''1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs. 80,057/- u/s 14A of the I.T. Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A).
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in disallowing a sum of Rs. 22,56,379/- out of interest expenses claimed under the head of Business and Profession.
The action of the AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said disallowance made by the AO and confirmed by the ld. CIT(A). 13.1 The Ground No. 1 of the assessee is regarding disallowance of Rs. 80,057/- made by the AO u/s 14A of the I.T. Act, 1961. 13.2 During the course of hearing, the ld.AR of the assessee has not pressed the Ground No. 1 for which the ld.DR has no objection. Hence, the Ground No. 1 of the assessee is dismissed being not pressed. 14.1 The Ground No. 2 of the assessee is regarding disallowance of interest expenses on the ground that the assessee has not earned any interest income from partnership firm.
14.2 We have heard the ld.AR as well as the ld. DR and considered the relevant material on record. The AO has made disallowance of interest 24 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur expenses on the ground that the assessee has not received any interest income from partnership firm whereas the assessee has incurred interest expenses on the loan used for making investment in the partnership firm. The ld.AR has pointed out that total interest expenses incurred by the assessee during the year under consideration is Rs. 85,75,566/- whereas the assessee has claimed interest expenses to the tune of Rs. 22,56,379/- only. Thus the assessee has suo motu disallowed a sum of Rs. 63,19,187/- .The ld.AR then contended that disallowance made by the assessee is more than the disallowance made by the AO which is Rs. 29,30,373/-. Based on these facts, the ld.AR has submitted that the AO as well as the ld. CIT(A) has not considered the correct facts on this issue, particularly suo motu disallowance of interest expenses to the tune of Rs. 63,19,187/- by the assessee .
14.3 On the other hand, the ld. DR relied on the orders of the authorities below.
14.4 Having considered the rival submissions as well as relevant material on record, we note that the AO has made disallowance on proportionate interest expenditure by considering the average investment 25 ITA No. 194/JP/2019 Shri Sumit Gupta vs ACIT, Circle-6, Jaipur made in the partnership firm out of borrowed funds. However, we find that out of total expenditure of Rs. 85,75,566/-, the assessee has claimed interest expenses of Rs. 22,56,379/- against interest earned from the company. We further note that interest expenditure allocable to the advance given to the company comes to Rs. 29,30,373/-. However, the assessee has claimed interest expenditure only Rs. 22,56,379/- to the extent of interest income earned from the company irrespective of the actual interest expenses pertaining to the loan given to Tab India Granite Pvt. Ltd. (for short ''TIGPL'') Therefore, prima facie, it appears that once assessee himself has not claimed interest expenditure of Rs. 63,19,187/- then interest expenditure to the extent of interest income is justified. However, for the sake of completing the exercise of verification of facts, we direct the AO to verify all these facts regarding suo motu disallowance made by the assessee as to claim of interest only to the extent of interest income and thus allow the claim of the assessee if the facts as claimed by the assessee are found correct. Thus Ground No. 2 of the assessee is partly allowed for Statistical purposes. 26 ITA No. 194/JP/2019
Shri Sumit Gupta vs ACIT, Circle-6, Jaipur 15.0 In the result, the appeals of the assessee in ITA No 194/JP/2019 is allowed, ITA No. 195/JP/2019 is partly allowed ITA No. 196/JP/2019 is partly allowed ITA No. 197/JP/2019 is partly allowed for Statistical purposes and Revenue's appeal in ITA No.293/JP/2019 is dismissed. Order pronounced in the open court on 29 /07/2019.
Sd/- Sd/- ¼ foØe flag ;kno ½ ¼fot; iky jko½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 29 /07/ 2019 *Mishra
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Sumit Gupta, Jaipur
2. izR;FkhZ@ The Respondent- The ACIT /DCIT, Circle-6, Jaipur
3. vk;dj vk;qDr¼vihy ) @ CIT(A),
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.194 to 197 & 293/JP/2019) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar