Sh. Vivek Jain, New Delhi V. ACIT, New Delhi

ITA 1038/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65446 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 10-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MEETA SINGH SENIOR
• Assessee Lawyers: DR AJAI KUMAR AREN
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) SHRI RAJPAL YADAV, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1038/DEL./2012 (ASSESSMENT YEAR : 2008-09) SHRI VIVEK JAIN, VS. ACIT, CIRCLE 30 (1), 4299/3, 2 ND FLOOR, ANSARI ROAD, NEW DELHI. DARYAGANJ, NEW DELHI 110 002. (PAN : ACRPJ4322R) (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. AJAI KUMAR AREN, ADVOCATE REVENUE BY : MRS. MEETA SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF CIT (APPEALS)-XXV, NEW DELHI DATED 28.12.2011 FOR THE A SSESSMENT YEAR 2008- 09. 2. THE ASSESSEE IS AN INDIVIDUAL. THE RETURN OF IN COME DECLARING LOSS OF RS.40,95,577/- WAS FILED. THE ASSESSING OFFICER MA DE A DISALLOWANCE OF RS.2,72,837/- U/S 14A OF THE INCOME-TAX ACT, 1961 B Y APPLYING THE RULE 8D OF THE INCOME-TAX RULES. THE ASSESSEE IS HAVING FO LLOWED EXEMPTED INCOME:- (A) SHARE INCOME FROM FIRM M/S VAISHALI PHARMACEUT ICAL RS.30005.69 U/S 10(2A); ITA NO.1038/DEL./2012 2 (B) INTEREST FROM PPF RS.29,716.00 (C) INTEREST ON TAX FREE BONDS RS.18,850.00 (D) DIVIDEND ON SHARES OF INDIAN COMPANIES RS.5,59 2.00 THE ASSESSEE CLAIMED THAT THERE IS NO EXPENSE INCUR RED DIRECTLY OR INDIRECTLY FOR EARNING THE EXEMPTED INCOME. THE ASSESSEE HAS ALSO CLAIMED THAT INVESTMENT ON WHICH THE EXEMPTED INCOME HAS BEEN EA RNED WERE MADE OUT OF OWN CAPITAL, HENCE THERE IS NO ELEMENT OF INTEREST COST IN EARNING THE SAME. IT IS ALSO CLAIMED THAT SHARE FROM THE FIRM, INTEREST ON PPF AND BONDS DID NOT CALL FOR ANY EXPENDITURE OR EXTRA EFFORTS IN EARNIN G THE SAME. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE BEFORE US READ AS UNDE R :- 1. BOTH THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISALLOWING THE FOLLOWING EXEMPTED INCOME U/S 14A OF THE INCOME-TAX ACT, 1961 A) SHARE INCOME FROM FIRM M/S VAISHALI PHARMACEUTIC ALS RS.30005.69 U/S 10(2A); (B) INTEREST FROM PPF RS.29,716/- (C) INTEREST ON TAX FREE BONDS RS.18,850/- (D) DIVIDEND ON SHARES OF INDIAN COMPANIES RS.5,59 2/- 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND ON FACTS IN DISALLOWING RS.272837/- U/S 14A OF THE I.T. ACT 196 1. WHEREAS THE TOTAL EXEMPTED INCOME COMES TO RS.84163/-. 3. THE EXEMPTED INCOME IS RECEIVED IN HIS INDIVIDUA L CAPACITY AND THIS EXEMPTED INCOME HAS NO RELATION WITH THE FIRM M/S. VAISHALI EXPORT INTERWORLD WHERE HE IS PROPRIETOR. 4. IT IS PRAYED TO ALLOW THE WHOLE DISALLOWANCE AND OBLIGE. 3. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. AFT ER HEARING BOTH THE SIDES, WE FIND THAT THE ASSESSMENT YEAR UNDER CONSI DERATION IS 2008-09. THEREFORE, THE PROVISIONS OF RULE 8D ARE APPLICABLE AS HAS BEEN HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. ITA NO.1038/DEL./2012 3 VS. DCIT (2010) 328 ITR 81 (BOM.). HOWEVER, THE RECENT DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENT LTD. VS. CIT [2011] 203 TAXMANN 364 (DELHI) WHEREIN THE HON'BLE HIGH COURT IN PARAS 41 & 42 HAS HELD AS UNDER :- 41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEE N, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDAN CE WITH SUCH METHOD AS MAY BE PRESCRIBED. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTIO N 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A COND ITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINI NG SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN P RIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) & (3) WOULD REQUIR E THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH R EJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN TH AT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY TH E ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INT RODUCED BY VIRTUE OF SUB-SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCE PTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SECTI ONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPE CTIVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE A SSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITU RE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS A ND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAI MED BY THE ITA NO.1038/DEL./2012 4 ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMIN E THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AN D ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO TH E FOLLOWING EFFECT:- THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A.' SO, EVEN FOR THE PRE-RULE8D PERIOD, WHENEVER THE IS SUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF T HE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY T HE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING O FFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGAR D TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFIC ER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSES SING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTE R GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVIN G DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AM OUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METH OD OF APPORTIONMENT. IN THIS CASE, THE ASSESSEE CLAIMS THAT NO EXPENDITU RE HAS BEEN MADE TO EARN THE EXEMPTED INCOME. IN SUCH A SITUATION, ASSESSING OF FICER HAS TO VERIFY THE CORRECTNESS OF THE CLAIM AND IF NOT FOUND IN ORDER THEN APPLY THE RULE 8D. NO ITA NO.1038/DEL./2012 5 SUCH EXERCISE HAS BEEN DONE. IN VIEW OF THESE FACT S AND CIRCUMSTANCES, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER TO DECIDE IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, CITE D SUPRA. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 14 TH DAY OF SEPTEMBER, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.