Mr. Satish Gujral, New Delhi V. DCIT, New Delhi

ITA 1080/DEL/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0942 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-10-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’ : NEW DELHI) BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.1080/Del/2017 (Assessment Year : 2012-13) Mr. Satish Gujral 16, Feroz Gandhi Road, Lajpat Nagar III New Delhi - 110024 PAN : AAJPG8028R Vs. A.C.I.T. Circle 54[1], New Delhi Appellant Respondent Assessee by Sh. M.P.Rastogi, Adv. Revenue by Shri Abhishek Kumar, Sr.DR Date of hearing: 03.10.2022 Date of Pronouncement: 13.10.2022 ORDER Per Anubhav Sharma, JM : The appeal has been filed by the Assessee against order dated 11.11.2016 in appeal no. 77/15-16, New Delhi for the assessment year 2012- ITA No.1080/Del/2017 Satish Gujral 2 13 passed by Commissioner of Income Tax (Appeals)-18, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 19/03/2015 u/s 143(3) of the Income Tax Act, 1961 passed by assessing officer ACIT, New Delhi (hereinafter referred to as the Assessing Officer or ‘AO’). 2. The facts in brief are that assessee/appellant Mr. Satish Gujral left for his heavenly abode on 26 th March 2020, and his spouse Mrs. Kiran Gujral has now been substituted as his legal heir and amended appeal Memo in F No. 36 is field. The appellant Mr. Satish Gujral was an individual assessee who was a reputed artist, preparing paintings, murals and sculptures of wood, clay, and metals. As per the Ld. AR the only issue involved in this appeal is disallowance under section 14 A of the Income tax Act 1961 at Rs 13,10,900 as per Rule 8 D made by the Ld. AO by holding it as mandatory ignoring the Suo-moto disallowance of Rs 6,52,285 (with detailed workings in support) made by the appellant. Therefore the only effective ground raised is: ‘‘The learned CIT (A) has erred in confirming the disallowance of Rs. 13,10,900 as per clause (iii) of Rule 8D r.w.s., 14A of the Act and ignoring the Suo-motto workings for disallowance u/s 14A of the appellant without recording an objective reason for rejection as mandated by l aw and judgments of the jurisdictional High Court” 3. Heard and perused the record. 4. It was submitted by Ld AR that Section 14A of the Act read with Rule 8D provides for working of disallowance on the basis of average ITA No.1080/Del/2017 Satish Gujral 3 investments held for earning tax exempt income. In other words, investments which result in taxable incomes need not be considered. It was submitted that bonds and debentures which earn taxable interest and shares of foreign companies, the income from which is taxable in India are not to be taken into consideration. It was submitted that assessee had following investments: Investments As on 31-3-2012 31-3-2011 Amount Rs. Amount Rs. a)Investments for tax free Incomes 209,081,494 239,886,407 b)Investments yielding taxable incomes 52,122,791 23,269,326 c) Total 261,204,285 263,155,733 4.1 It was submitted that the learned AO made disallowance by taking an average of total investments, yielding both tax free and taxable incomes, of Rs. 262,180,009 ([261,204,285 + 263,155,733]/2) at 0.5% =13,10,900. However, the average investments held to yield tax free incomes are Rs. 224,483,950 ([209,081,494 + 239,886,407]/2)) and 0.5% comes to Rs 11,22,420 only. 4.2 Ld AR relied the Hon’ble Bombay High Court judgment in the case of Godrej & Boyce Mfg. Co. Ltd., Vs DCIT-328 ITR 81 (Bom) and the jurisdictional High Court of Delhi in the case of Maxoop Investments Ltd Vs CIT 347 ITR 272 (Del on the interpretation of the issues relating to Section 14A of the Act and Rule 8D of Income Tax Rules 1962. He submitted that The Hon’ble Supreme Court has also decided Maxoop Investments Ltd Vs CIT 402 ITR 640 (SC) making it mandatory to consider the suo moto disallowances and give reasoned finding for not accepting the ITA No.1080/Del/2017 Satish Gujral 4 same. He relied the decision of Hon’ble Punjab & Haryana High Court in CIT Vs Deepak Mittal 361 ITR 131 that the AO in terms of sub-section (2) of section 14A had to proceed further to collect such material or evidence to determine the expenditure, if any, incurred by the assessee. 4.3 It is submitted that the appellant made a Suo motto d isallowance u/s 14A at Rs 6,52,285 with detailed workings in support in the computation being made available at Page 1 of paper book. It was submitted that the appellant has made the following disallowances in the accounts itself; a) Telephone expenses 20% b) Car running & Maintenance 20% c) Electricity 85 water 60% d) Security -Watch & Ward 50% 4.4 This above got reduced from expenses thus they were not shown separately in the computation. There were certain other expenses of Rs 5,78,990/- which in the opinion of his Chartered Accountant were not directly related to his profession and thus not allowable. This is shown separately at page 1 PB of the PB in the computation as they did not get reduced from expenses. 4.5 It was also submitted that the assessee, vide letter dated 16-3-2015 (pages 4 to 7 PB) brought to the kind notice of the learned AO that an arithmetical error in the suo- motto working in which the allocated Personnel expenses aggregating to Rs 5,77,142 and Operational & Admin. Expenses to Rs506,748 got added to Rs 21,67,780 instead of Rs 10,83,890 i.e. twice the total - apparently due to a formula error, and submitted a corrected working of the disallowance u/s 14A available at Page 8 of the paper book. Thus, the ITA No.1080/Del/2017 Satish Gujral 5 disallowance u/s 14A now claimed comes to Rs 3,26,143 only instead of Rs. Rs 6,52,285 made in the computation. 4.6 It was thus submitted that the disallowance of the administrative overheads for the purposes of earning tax free incomes be reduced to Rs 3,26,143 from Rs 14.19 lakhs made by the learned AO. 5. On the other hand, Ld. DR. submitted that there is no error in the findings of Ld. CIT(A) and apparently reason were cited by the Ld. AO that disallowance is not as per the law. It was submitted that even otherwise Ld. CIT(A) has directed AO to re-consider the disallowance and has not confirmed the disallowance. 6. Giving thoughtful consideration to the matter on record, it can be observed that while filing return the assessee had made a suo moto disallowance of Rs. 6,52,285/- and during assessment he has submitted a fresh calculation reducing the same to Rs. 3,26,143/-. However, Ld. AO or Ld. CIT(A) have both not taken cognizance of this revised claim rather Ld. CIT(A) observed that : “5.1.4 In the backdrop of no deviation from the factual scenario for that year, I find no warrant to depart from my findings for that year. But simultaneously I would deal with the further submissions in this regard appropriate to the case at hand. (a) That it was brought to my notice that there was arithmetical error in the computation of the appellant while working out the disallowance. And the computation by the appellant should have been revised to Rs. 3,26,143/- only. However, in view of my findings that the computation has to be in accordance with rule 8D, the final figure is determinable in accordance with ITA No.1080/Del/2017 Satish Gujral 6 that provision and that should substitute the figure, disallowed by the appellant if any. Therefore, the objection would be of academic interest.” 7. This bench is of considered opinion that without first arriving and accepting the correct figure of suo moto disallowance the Ld. Tax Authorities below could not have actually the formed an opinion if the same is in accordance with law or if in the light of judgment of Hon’ble Supreme Court of India judgment Maxopp Investment Ltd. Case there were reasons to not accept that suo moto disallowance. Thus, there is an apparent error in the findings of Ld. Tax Authorities below in not following the mandate of recording reasons to not accept the suo moto disallowance made by the assessee by first determining the correct suo moto disallowance. 8. Accordingly, the ground is decided for statistical purposes in favour of the assessee. The appeal is also allowed for statistical purposes and the issue is restored to the files of ld. AO to take into consideration the revised disallowance at Rs. 3,26,143/- and then pass afresh order. Order pronounced in the open court on 13 th October, 2022. Sd/- Sd/- (ANIL CHATURVEDI) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 13 th .10.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI