, B , IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.2324 & 2415/Kol/2017 Assessment Year :2013-14 ACIT, Circle-36, V/s. Shri Raghvendra Mohta Aayakar Bhawan, Calcutta Stock Poorva, 8th Floor, 110, exchange, Room-4C, 2nd Shantipally, Kolkatk-107 Floor, 7, Lyons Range, Kokata-700001 Raghvendra Mohta ACIT, Circle-36 Calcutta Stock Aaykar Bhawan, Poorva, Exchange Building, 8th Floor, E.M. Bye Room No.43, 2nd Floor, V/s. Pass, Kolkata-1077, Lyons Range, Kolkata-700001 [PAN No. AHTM3146P] Appellant Respondent By Assessee Shri P.J. Bhide, FCA By Revenue Shri Rabin Chowdhury, CIT-DR Date of Hearing 24-07-2019 Date of Pronouncement 28-08-2019 ORDER PER S.S.Godara, Judicial Member:- Revenue and assessee have filed their cross-appeal for assessment year 2013-14 arise against Commissioner of Income Tax (Appeals)-10, Kolkata s common order dated 11.08.2017 passed in case No.39/CIT(A)-10/Cir-36/16-17/Kol, proceedings u/s 143(3) of Income Tax Act, 1961; in short Act . ITA No.2324 & 2415/Kol/2017 A.Y. 2013-14 ACIT, Cir-36 Kol. Vs. Sh. Raghvendra Mohta Page 2 Heard both learned representatives. Case file(s) perused. 2. It appears at outset that assessee s cross-appeal ITA 2415/Kol/2017 suffers from one day s delay. He has referred his condonation petition dated 07.12.2017 to this effect stating reasons thereof to wrong calculation of limitation. learned departmental representative is fair enough in not dispute same. We therefore condone impugned one day delay of instant appeal. case is now taken up for adjudication on merits. 3. We notice from Revenue s former substantive appeal in ITA No.2324/Kol/2017 that it seeks to revive proportionate interest expenditure disallowance of 70,395/- made by Assessing Officer and deleted in lower appellate order as under:- 04. Ground no 1. relates to action of Ld.AO in disallowing amount of Rs.70,395/- on account of proportionate amount of interest expenditure on personal drawings. impugned matter has been dealt by Ld. A.O as under: assessee, Shri Raghevendra Mohta furnished his return of income for assessment year 2013-14 on 27.09.2013 disclosing total Loss of (-)Rs.1,56,960/- . case has selected for scrutiny and notices u/s 143(2) and Section 142(1) were issued and duly served to assessee. 2. In response to notices, Sri Jagdish Maheshwari, Authorized Representative of assessee appeared time to time and produced Information, c:iarlfications, details, supporting evidence as requisitioned. With reference to material produced, AR argued case in support of return filed. submissions and claims of assessee were duly perused, evidence produced inspected and verified on test check basis, and case was discussed. 3. assessee derives her Income from Share dealing. 4. Disallowance of Interest Exp. Attributable to negative, Capital: It is seen from Balance sheet as on 31.03.2013 that assessee was maintaining negative capital balance for Rs.3,05,78,043.11/- Further, It Is seen that assessee has Interest expense of Rs. 3,05,50,005.46 In his Profit & Loss A/c. Balance Sheet revealed unsecured Loan of Rs.2,30,424,795.68 as on 31.03.2013. As assessee has withdrawn amount of Rs.3,05, 78,043.11 over his capital in his Balance Sheet as on 31.03.2013 which was including his personal drawings of Rs.5,86,629/-, authorized representative was asked why amount of Interest expense on said amount of personal drawings, by applying rate of Interest expense computed on his loans, should not be disallowed In light of that assessee was claiming interest expense on his unsecured loans. In response, authorized representative failed to furnish his explanation with supporting evidence. Therefore, 12% of amount of drawings of Rs.5,86,629/-, i.e. amount by which assessee has withdrawn excess over his capital In form his ITA No.2324 & 2415/Kol/2017 A.Y. 2013-14 ACIT, Cir-36 Kol. Vs. Sh. Raghvendra Mohta Page 3 personal drawings in his Balance Sheet, which comes to Rs.70,395/- Is disallowed out of total interest expense claimed in Profit & Loss A/c. [Addition. Rs.70,395/-] 05. During course of appeal, appellant / Ld. A.R for appellant- Individual have submitted as follows: Ground No. 1 That on facts and circumstances of Case, Assessing Officer erred in adding back sum of Rs.70,395/- on account of proportionate amount of interest expenditure on personal drawings, aggregating to Rs.5,86,639/-. To this, we submit that in books of accounts of Raghvendra Mohta, Opening Balance of capital Account for Previous Year 2011-12, relating to Assessment Year 2012-13, was Rs.3,49,86,015.52. During that year, Appellant incurred business loss of Rs.6,79,08,129.73 . Due to this loss, Opening Balance of Capital Account in Previous Year 2012-13, is negative. During year 2012-13, total amount of Fresh Capital introduced by Appellant is Rs.47,57,602/-, against which his personal Drawings amounted to Rs.5,89,629/-. At close of Financial Year 2012-13, Closing Balance of Capital Account still has negative balance of Rs.3,05,78,043.11. During Financial Year 2012-13, Appellant borrowed money as Unsecured Loan and same was used for business purpose. borrowed money has been solely utilized to earn business income and no money has ever been withdrawn from these Funds for personal use of Appellant. - Hence, Assessing Officer is not justified in making above addition as personal drawing is made by Appellant out of his own fund and not from borrowed fund. 06.DECISION: 1. I have carefully considered action of Ld. AO in making impugned disallowance of Rs.70,395/-. Ld. AO observed from Balance sheet of assessee, that as on 31.03.2013 that assessee was maintaining negative capital balance for Rs.3,OS,78,043.11/-, and that further assessee-individual has claimed interest expense of Rs.3,05,50,005/- in his Profit & Loss A/c. In findings of Ld.AO, Balance Sheet further revealed unsecured Loan of has withdrawn excess amount of Rs.3,05,78,043/- over his capital in his Balance Sheet as on 31.03.2013, and that this amount included his personal drawings of Rs.5,86,629/-. Ld.AO has recorded that A.R for assessee-individual was required to explain as to why amount of interest expense on said amount of personal drawings was not to disallowed by applying rate of interest expense computed on his loans, as assessee was claiming interest expense on his unsecured loans. Ld. AO has recorded that no explanation or supporting evidence was offered/ furnished in matter, and therefore Ld.AO calculated 12% of amount of drawings of Rs.5,86,629/-, i.e. amount by which assessee has withdrawn excess over his capital in form his personal drawings in his Balance Sheet, which comes to Rs.70,395/, and disallowed same. 2. On contrary, in appeal, it has been pleaded by appellant that drawings were made out of own funds and no borrowed funds were utilized in matter. It was explained that that in books of accounts of Shri Raghvendra Mohta, Opening Balance of Capital Account for Previous Year 2011-12, relating to Assessment Year 2012-13, was Rs.3,49,86,015.52/-, and that during that year, assessee had incurred business loss of Rs.6,79,08,129.73. It was further explained ITA No.2324 & 2415/Kol/2017 A.Y. 2013-14 ACIT, Cir-36 Kol. Vs. Sh. Raghvendra Mohta Page 4 that due to such loss Opening Balance of Capital Account in Previous Year 2012-13, is negative, and that during year 2012-13, total amount of Fresh Capital introduced by Appellant is Rs.47,57,602/-, against which his personal Drawings amounted to Rs.5,89,629/-. At close of Financial Year 2012-13, Closing Balance of Capital Account still has negative balance of Rs.3,05,78,043.11. It was also submitted by appellant that during Financial Year 2012-13, Appellant borrowed money as Unsecured Loan and same was used for business purpose, and that borrowed money has been solely utilized to earn business income and no money has ever been withdrawn from these Funds for personal use of Appellant. 3. After examining matter, in my considered view from figures available, benefit of doubt has to be given to appellant, as there has been introduction of fresh capital in accounts, which has not been disputed by Ld. AO. withdrawal of money for purpose of drawings was far less than fresh capital introduced, and therefore generally it has to be favorably considered that borrowed funds were utilized for purpose of business only, as has been claimed by appellant. With such view of matter, I find that disallowance by Ld. AO of certain amount claimed as interest expense is unsustainable, and therefore is ordered to be deleted. ground of appeal is allowed in favour of appellant. 4. It is clear from perusal of case file that CIT(A) has examined assessee s opening balance of capital account for relevant previous year, corresponding opening balance as well as his drawing come to conclusion that he had introduced fresh capital in account which has nowhere been disputed during assessment. We conclude in these facts that fresh capital introduced formed source of assessee s withdrawal and therefore, CIT(A) has rightly deleted impugned proportionate interest disallowance of 70,395/-.The Revenue s instant former grievance fails accordingly. 5. Next common issue raised in these cross-appeals of sec. 14A r.w.s. 8D disallowance amounting to 2,70,45,296/- in relation to assessee s exempt income of 28,84,079/-. Mr. Bhide is fair enough in pin-pointing at outset that taxpayer s stand that strategic investments recorded in books stock- in-trade in not exigible u/s 14A disallowance no more holds water in view of hon'ble apex court s recent judgment settling law in Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC). We thus uphold Assessing Officer s action invoking impugned disallowance in principle. 5. Next comes equally important aspect of appropriate computation of impugned disallowance. Hon'ble Delhi high court s judgment in Joint ITA No.2324 & 2415/Kol/2017 A.Y. 2013-14 ACIT, Cir-36 Kol. Vs. Sh. Raghvendra Mohta Page 5 Investment Ltd. vs. CIT 372 ITR 694 (Del) dated 25.02.2015 holds that such disallowance cannot exceed amount of exempt income itself. We therefore direct Assessing Officer to restrict impugned disallowance to extent of assessee s exempt income only. Necessary computation to follow. Revenue s instant latter substantive ground as well as main Appeal ITA 2324/Kol/2013 is rejected whereas assessee s cross-appeal ITA 2415/Kol/2017 pleading instant sole issue is partly allowed for statistical purposed in above terms. Ordered accordingly. 6. Revenue s appeal ITA No.2324/Kol/2017 is dismissed whereas assessee s cross-appeal ITA No.2415/Kol/017 is partly allowed for statistical purposes. Order pronounced in open court 28/08/2019 Sd/- Sd/- A.L.Saini) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp ) - 28/08/2019 Copy of Order Forwarded to:- 1. Assessee-Shri Raghvendra Mohta, Calcutta Stock Exchange, R.No.4C, 2nd Floor, 7, Lyons Range, Kolkata-001 2. Revenue-ACIT, Cir-36, Aayakar Bhawan Poorva 8th Fl, 110Shantipally, Kol-107 3. 4 5 Concerned CIT Kolkata 4. 5 CIT (A) Kolkata 5. 8 ( ( 4 , 4 , DR, ITAT, Kolkata 6. = Guard file. By order//True Copy/ 4 ACIT, Circle-36, Kolkata v. Raghvendra Mohta