Income Tax Appellate Tribunal - PuneSanjay Amlokchand Muthiyan , Principal ... vs Principal Commissioner Of Income Tax , ... on 24 August, 2022IN THE INCOME TAX APPELLATE TRIBUNAL\n               PUNE BENCH, 'B' PUNE\n       BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND\n     SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER\n\n            आयकर अपील सं. / ITA No.120/PUN/2021\n              नधारण वष / Assessment Year : 2015-16\n\n     Sanjay Amlokchand Muthiyan,             Vs.   Pr.CIT,\n     H-5-25/95, Deep Nagar Project,                Nashik\n     New Vijay Colony, Ajab Nagar,\n     Khokadpura, Aurangabad 431 001\n     Maharashtra\n     PAN : AAXPM9246R\n                  Appellant                          Respondent\n\n     Assessee by                Shri Ashish Bhalgat\n     Revenue by                 Shri Sardar Singh Meena\n\n     Date of hearing            24-08-2022\n     Date of pronouncement      24-08-2022\n\n                          आदे श / ORDERPER R.S. SYAL, VP :This appeal by the assessee is directed against the order\n\ndated 04-03-2021 passed by the Pr.CIT, Nashiku/s.263of the\n\nIncome-tax Act, 1961 (hereinafter also called 'the Act') in\n\nrelation to the assessment year 2015-16.2.    Briefly stated, the facts of the case are that the assessee is an\n\nindividual, who furnished his return declaring total income of\n\nRs.97,53,630/-. The case was selected for limited scrutiny under\n\nComputer Aided Scrutiny Selection (CASS), inter alia, on the2ITA No.120/PUN/2021Sanjay Amlokchand Muthiyan\n\n\n\n\nground of high interest expenditure relatable to exempt income\n\nu/s.14A of the Act. The Assessing Officer (AO) finalized the\n\nassessment at the returned income. The ld. Pr.CIT, invoking his\n\njurisdictionu/s.263of the Act, found that the assessee earned\n\nexempt income totaling to Rs.77.93 lakh inclusive of share of\n\nincome from firms/AOP/BOI etc. at Rs.76,25,867/- and dividend\n\nincome of Rs.1.68 lakh. He observed from the assessee's balance\n\nsheet that at the end of the preceding year, that there was balance\n\nof `Other liabilities' at Rs.1.16 crore, which at the end of the year\n\nunder consideration, grew up to Rs.9.93 crore, with a new entry of\n\ninvestment - firms credit balance of Yash Muthiyan Developers\n\namounting to Rs.8.43 crore. He further noted that the assessee\n\nhad paid interest of Rs.33.03 lakh to Yash Muthiyan Developers.\n\nHe also noticed that the assessee's investment in the firm\n\nincreased from Rs.2.64 crore in the preceding year to Rs.11.92\n\ncrore in the current year, which comprised of new investment of\n\nRs.9.93 crore in the firm Yash Muthiyan Infrastructure. Since the\n\nassessee had withdrawn money from Yash Muthiyan Developers\n\nand invested the same into another firm Muthiyan Infrastructure,\n\nthe ld. Pr.CIT held that money invested in Muthiyan3ITA No.120/PUN/2021Sanjay Amlokchand Muthiyan\n\n\n\n\nInfrastructure was not interest free and hencesection 14Awas\n\napplicable. As the AO had not examined the issue, he set-aside\n\nthe assessment order by declaring it to be erroneous and\n\nprejudicial to the interest of the Revenue and remitted the matter\n\nto the file of the AO. Aggrieved thereby, the assessee has come\n\nup in appeal before the Tribunal.3.   We have heard the rival submissions and perused the\n\nrelevant material on record.            The ld. Pr.CIT has held the\n\nassessment order to be erroneous and prejudicial to the interest of\n\nthe Revenue only on the ground that the assessee withdrew\n\ncertain money from one firm in which he was partner and\n\ninvested the same in another firm in which he was partner. On\n\nthe withdrawal, the assessee had paid interest. In his opinion, the\n\nassessee's share in profits from the partnership firms, being\n\nexempt from tax, should have warranted disallowance of interest\n\nu/s.14A of the Actat the hands of the AO. We have examined the\n\nProfit and loss account of the assessee, copy placed at page 33 of\n\nthe paper book, from which it can be seen that though the assessee\n\npaid interest totalling to Rs.42.63 lakh, simultaneously the\n\nassessee also earned interest of Rs.66.77 lakh. The ld. Pr. CIT has4ITA No.120/PUN/2021Sanjay Amlokchand Muthiyan\n\n\n\n\nexamined only the interest on 'expenditure side' and not the\n\ninterest on 'income side', which shows the corresponding income\n\nmuch higher than the interest expenditure.4.   Be that as it may, it is seen from the assessee's balance sheet,\n\ncopy placed at page 35 of the paper book, that his capital balance\n\nstands at Rs.17.37 crore.      The ld. Pr.CIT has disputed the\n\nwithdrawal of amount of Rs.8.43 crore from Yash Muthiyan\n\nDevelopers on which interest was paid.         As against that, the\n\nassessee's own capital (which is interest free, being an individual)\n\nis much more than the amount withdrawn from the partnership\n\nfirm.5.      The Hon'ble Bombay High Court inCIT vs. Reliance\n\nUtilities and Power Ltd.(2009) 313 ITR 340 (Bom), has held that\n\nwhere an assessee possessed sufficient interest free funds of its\n\nown which were generated in the course of relevant financial\n\nyear, apart from substantial shareholders' funds, presumption gets\n\nestablished that the investments in sister concerns were made by\n\nthe assessee out of interest free funds and, therefore, no part of\n\ninterest on borrowings can be disallowed on the basis that the\n\ninvestments were made out of interest bearing funds.In reaching5ITA No.120/PUN/2021Sanjay Amlokchand Muthiyan\n\n\n\n\nthis conclusion, the Hon'ble High Court relied on the judgment\n\nof the Hon'ble Supreme Court in the case ofEast India\n\nPharmaceutical Works Ltd. Vs. CIT(1997) 224 ITR 627 (SC).More recently, the Hon'ble Supreme Court inCIT(LTU) VS.\n\nReliance Industries Ltd.(2019) 410 ITR 466 (SC) has reiterated\n\nthe same view.6.    When we examine the amount of Investments at Rs.8.43\n\ncrore as against the availability of assessee's share capital at\n\nRs.17.37 crore, it becomes evident that the amount of such\n\nInvestments is much less than the amount of assessee's own\n\ncapital. In such circumstances, it has to be inferred that the fresh\n\ninvestment came out of the assessee's own interest free capital\n\nand not from any borrowed funds. In view of the foregoing\n\ndiscussion, we are satisfied that the order passed by the ld. Pr.CIT\n\nu/s.263 cannot be sustained. We, therefore, overturn the same.7.    In the result, the appeal is allowed.Order pronounced in the Open Court on 24th August, 2022.Sd/-                               Sd/-\n(S.S. VISWANETHRA RAVI)                           (R.S.SYAL)\n     JUDICIAL MEMBER                           VICE PRESIDENTपुणे Pune; िदनां क Dated : 24th August, 2022\nसतीश6ITA No.120/PUN/2021Sanjay Amlokchand Muthiyan\n\n\n\n\nआदे श की ितिलिप अ े िषत/Copy of the Order is forwarded to:1.   अपीलाथ / The Appellant;2.      थ / The Respondent3.   The Pr.CIT-1, Nashik4.   DR, ITAT, 'B' Bench, Pune5.   गाड फाईल / Guard file.आदे शानुसार/ BY ORDER,\n\n\n// True Copy //\n                                        Senior Private Secretary\n                                आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune\n\n\n\n\n                                                Date1.    Draft dictated on                     24-08-2022    Sr.PS2.    Draft placed before author            24-08-2022    Sr.PS3.    Draft proposed & placed before                      JM\n           the second member4.    Draft discussed/approved by                         JM\n           Second Member.5.    Approved Draft comes to the                         Sr.PS\n           Sr.PS/PS6.    Kept for pronouncement on                           Sr.PS7.    Date of uploading order                             Sr.PS8.    File sent to the Bench Clerk                        Sr.PS9.    Date on which file goes to the\n           Head Clerk10.   Date on which file goes to the\n           A.R.11.   Date of dispatch of Order.*