IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member ITA No.1745/Kol/2013 Assessment Years:2008-09 ACIT, Circle-3, Parmar Riten Basak Building , 54, G.T. Road, Rambandh, P.O. Burnpur, V/s. (West), Asansol-713304 Dist. Burdwan PAN No. ADAPB9422E Appellant .. Respondent By Appellant Shri Prabal Choudhury, JCIT,SR-DR By Respondent Shri U.Dasgupta, Advocate Date of Hearing 21-09-2016 Date of Pronouncement 28-09-2016 ORDER PER Waseem Ahmed, Accountant Member:- This appeal by Revenue is against order of Commissioner of Income Tax (Appeals)-Asansol dated 18.02.2013. Assessment was framed by DCIT, Circle-3, Asansol u/s 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 31.12.2010 for assessment year 2008-09. Shri Prabal Choudhury, Ld. Sr. Departmental Representative appeared on behalf of Revenue and Shri U. Dasgupta, Ld. advocate appeared on behalf of assessee. 2. At outset, it is noticed that Revenue s appeal is barred by limitation for 28 days and condonation petition has been filed explaining reasons for condonation of ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 2 delay. Ld. AR of assessee did not object for condoning delay. Hence, we condone delay and admit Revenue s appeal for hearing. 3. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting addition made by Assessing Officer for Rs.1,35,417/- u/s 14A on account of share of profit earned from partnership firm u/s 10(2A) of Act. 4. facts in brief are that assessee, individual, is engaged in proprietary business of trading of scrap, grocery & vegetables etc. assessee was also partners in two partnership firms. During year has received share of profit from two partnership firms M/s D.H. Bilmoria & Sons for Rs.96,072/- and S.H. & C Bilmoria for Rs.1,01,553/- which was claimed as exempted income u/s 10(2A) of Act. assessee has not disallowed any expense in respect of aforesaid earned income by virtue of provision of Sec. 14A r.w.s Rule 8D of IT Rules, 1962. AO during course of assessment proceedings found that balance sheet of assessee shown loan liability of Rs.1,24,00,978/- on which interest expense of Rs.5,41,800/- was claimed in profit and loss a/c of assessee. AO further observed that assessee has made investment in above stated partnership firm for Rs.40,98,266/- and Rs.12,54,147/- respectively. Accordingly, AO was of view that borrowed fund has been invested in partnership firms which are generating tax free income in hands of assessee. Therefore provision of u/s. 14A r.w.s Rule 8D of IT Rule are applicable to assessee but no expenses has been disallowed. Accordingly, AO disallowed expense in terms of Rule 8D of IT Rule as under:- Rule 8D(2)(i) Nil Rule 8D(2)(ii) Rs.1,08,655 Rs. 8D(2)(iii) Rs. 26,762 Rs.1,35,417 5. Aggrieved, assessee preferred appeal before Ld. CIT(A) whereas assessee submitted that no expenditure for earning share of profit has been incurred by assessee. Therefore, no such disallowance is warranted. Ld. CIT(A) called for remand report from AO wherein it was stated that assessee has not given any flow ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 3 chart showing that investment in firm has not been made out of borrowed fund. In absence of any clear-cut information, provision of Sec. 14A r.w.s Rule 8D of IT Rule are applicable to assessee. However, Ld. CIT(A) deleted addition made by AO by observing as under:- 5. Examining matter, it is noted that focus of Act of Assessing Officer is disallowance of interest on account of diversion of funds. Interest is allowed as deduction u/s. 36(1)(iii). settle judicial position on matter is that if commercial expediency is not established then disallowance can be made out of interest claimed u/s 36(1)(iii). point that was to be examined is whether funds were diverted for purposes which are not commercial expedient. In absence of such finding no disallowance can be made. decision reported in SA Builders vs. CIT(Appeal ) & AIR [2007] 288 ITR 1 is relied upon to arrive at in this decision. Decision like JCIT vs. ITC Ltd. [2008] 299 ITR (AT) 341 (Kol (SB) also support view. 6. Looking through another angle it is to be considered that exemption u/s. 10(2A) in hands of partner is income taxed in hands of firm. Therefore funds diverted is to earn income in hands of firm. firm has earned income and paid tax. Therefore applying section 14A in this case is not correct. addition of Rs.1,35,417/- is deleted and ground is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 6. Before us Ld. DR vehemently supported order of Assessing Officer whereas Ld. AR relied on order of Ld. CIT(A). Ld. AR before us submitted paper book which is running pages from 1 to 45 and submitted that AO has invoked provision of Sec. 14A of Act without recording satisfaction. He also submitted that there was no fresh investment made during year therefore no disallowance u/s. 14A of Act is required. Further, Ld. AR stated that in support of assessee s claim has submitted its investment schedule which is placed on pages 34 of paper book and interest income earned during year under consideration is exceeding interest expense. Therefore, no disallowance is required to be made. 7. We have heard rival contentions and perused materials available on record. From foregoing discussion, we find that AO has made disallowance u/s 14A of Act on presumption is that borrowed fund has been utilized in investment made by assessee in partnership firm. However, Ld. CIT(A) ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 4 deleted addition made by AO by observing that AO has not brought any finding on record that borrowed fund has been diverted for purpose which are not commercial expedient. However, from submission of Ld. AR we find that assessee has failed to give any working at time of assessment to show that no expenditure has been incurred in earning of share of profit from partnership firm. Therefore AO had no option but to make disallowance as per Rule 8D of IT Rule. It is also observed that AO derived his satisfaction by observing as under:- Examination of audited account, computation sheet and detail filed in course of hearing shows that assessee being partner has received share profit from M/s D. H. Bilmoria 7 Sons for Rs.96,072/- and from M/s S.H C. Bilmoria for Rs.1,01,553/ and claimed same as exempted income. assessee has not disallowed any expenditure in this respect. assessee was asked to explain as to why necessary disallowance u/s. 14A read with Rule 8D should not be made. assessee submitted reply on 08/10/2010 stating Sec. 14A does not apply for assessee . From above, in rejoinder Ld. AR of assessee argued that AO has not recorded satisfaction is not correct. However, from perusing financial statement of assessee we find that interest expense claimed by assessee are less than interest income. Therefore, in such cases disallowance is required to be made with regard to net interest expense claimed by assessee. In this connection, we rely in order of ITAT Ahmedabad Benches in case of Karnavati Petrochem Pvt. Ltd. vs. DCIT in ITA No.2228/Ahd/2012 for AY 2008-09 dated 05.07.2013, relevant operative portion of said order is reproduced below:- Therefore, in light of above discussion, I am of opinion that there was no nexus that could be established with amounts incurred by assessee for earning tax free income. appellant is also having net positive interest income which cannot be part for disallowance in view of basis of decisions of Kolkata Bench of ITAT in case of Trade Apartment Ltd and decision of Mumbai Tribunal in case of Morgan Stanley India Securities Private Limited. At same time, appellant is incurring administrative expenses to maintain above investments. In view of above, amount of Rs.47940/- which is 0.5% of average Investment of Rs.94,45,400/- is taken as disallowance u/s. 14A. in view of facts of case and decision in cases (supra) and following decision of my predecessors, disallowance made by A.O us/s 14A of IT Act, 1961 cannot be fully sustained. In these circumstances, A.O is directed to delete ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 5 disallowance made by him of Rs.15,08,803/- and Rs.7140/- on amount of interest under section 14A of Act However, Ld. AR of assessee has not advanced any argument regarding disallowance of Rule 8D(2)(iii) of IT Rule for Rs.26,762/-, therefore same is confirmed. Hence, this ground of Revenue s appeal is partly allowed. 8. Next issue in this appeal of Revenue is as regards that Ld. CIT(A) erred in deleting addition made by AO for Rs.52 lakh on account of unexplained nature of source of deposit u/s. 68 of Act. 9. During course of assessment proceedings, AO found that certain amount of money was deposited in bank a/c of assessee and AO treated same as unexplained cash credit us. 68 of Act, which was deleted by Ld. CIT(A). 10. At outset, we find that remand report of AO has confirmed that various loans were given by assessee on different dates to certain parties as detailed below:- Third Ground Addition of Rs.52,00,000/- on A/c of cash credit u/s. 68 of IT Act 1961 In response this office letter No. ACIT/Cir- 3/Asl/ADAPB9422E/2012-13/1103 dated 08.10.2012, assessee has submitted written submission on 1710.2013, wherein assessee has deposed that all transactions are made through A/c payee cheques and reflected in his books of A/c as well as bank statement. Assessing Officer has made addition of Rs.52,00,000/- on account of cash credit considering information available on record. Assessing Officer in body of order has mentioned that assessee was asked to submit details of unsecured loan including squared up loans with name, address, PAN, Assessing Officer jurisdiction, date, amount, cheque No. No. Bank address, date of credit and purpose and how utilized loan amount to prove genuineness, creditworthiness and identification of loan creditor. Assessing Officer has discussed in body of letter that assessee was failed to provide basic information, like, identification and creditworthiness of loan creditors during assessment proceedings. However based on information viz. loan confirmations and bank statements, received from your office along with letter under reference, i.e. ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 6 submission made by assessee before your honour, it is evident that assessee has given short-term advances to 3 (three) parties as per table below:- Sl. Name of Date of Cheque Amount Date of Cheque Amount No party advance No. & repayment No. & bank bank 1 Vishnu Iron 01.10.07 147194 Rs.9 lac 17.10.07 316043 Rs 9 lac & SteelCo. SBI, OBC, City Burnpur Centre Br. 2 -do- 03.10.07 147195 Rs.15.50 17.10.07 316042 Rs.15.50 SBI, lac OBC, City lac Burnpur Centre Br. 3 Subhasish 16.11.08 147198 Rs.3 lac 04.03.08 Mode of Rs.3,50 Acharyya SBI, payment lac Burnpur not verifiable 4 -do- 22.01.08 478392, Rs.50,000 SBI, Burnpur 5 Johal & Co. 24.04.07 8001, Rs.25 lac 24.06.07 184848, Rs.15 lac (Wine Sales) BOI, Axis Bank, Pvt. Ltd. Burnpur Asansol 24.06.07 184848 Rs.10 lac Axis Bank, Asansol As per above table, it is evident that in case of Sl. No. 3 & 4, mode of payment is not verifiable. On going through assessment order and information available on record, it is evident that Assessing Officer has passed assessment order based on information available on record. From above, it is clear that amount of loan given by assessee to certain parties were returned within same financial year from those parties. As such provisions of Sec. 68 of Act are not applicable in instant case. Hence, we find no reason to interfere with findings arrived by Ld. CIT(A). Under circumstances, this issue of Revenue s appeal is dismissed. 11. In result, Revenue s appeal stands partly allowed. Order pronounced in open court on 28/09/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp - 28/09/2016 Kolkata ITA No.1745/Kol/2013 A.Y. 2008-09 ACIT Cir-3, Asl vs. Riten Basak Page 7 Copy of Order Forwarded to:- 1. Appellant-ACIT, Circle-3, Parmar Buildig , 54, G.T Road, (West ) Asansol-713304 2. Respondent-Riten Basak, Rambandh, PO Burnpur, Dist. Burdwan 3. Concerned CIT Asansol 4. - CIT (A) Asansol 5. , DR, ITAT, Kolkata 6. Guard file. By order/ /True Copy/ ACIT, Circle-3, Asansol v. Riten Basak