Mr. Raj Chopra, New Delhi V. DCIT, New Delhi

ITA 141/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3774 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 11-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJEEV KWATRA
• Keywords: Earning of tax free income; Revised return
• Section: 14A

Judgement Text

IN THE INCOME - TAX APPELLATE TRIBUNAL, DELHI BENCH E , NEW DELHI BEFORE : SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 141/DEL/2016 ASSESSMENT YEAR: 2011 - 12 RAJ CHOPRA, J - 11, GREEN PARK, NEW DELHI (PAN: AAFPC8188A) (APPELLANT) VS. D.C.I.T., CIRCLE 3(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. SANJEEV KWATRA, C.A. RESPONDENT BY MS. RAKHI VIMAL, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - II, NEW DELHI DATED 23.10.2015 FOR THE ASSESSMENT YEAR 2011 - 12 ON THE FOLLOWING GROUNDS : 1. THAT THE ORDER PASSED BY HON BLE COMMISSIONER OF INCOME TAX (A) - 2 IS CONTRARY TO THE F ACTS AND BAD IN LAW. 2. THAT THE HON BLE CIT(A) WAS NOT JUSTIFIED IN PASSING AN EX - PARTE ORDER, IN SPITE OF THE FACT THAT HEARING ON THE APPOINTED DATE COULD NOT TAKE PLACE DUE TO STRIKE BY EMPLOYEES OF INCOME TAX DEPARTMENT. 3. THAT THE HON BLE CIT(A) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN CONFIRMING THE ADDITION OF RS.7,58,626/ - MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ALLEGING THAT THE APPELLANT HAD INCURRED INDIRECT EXPENSE S TO EARN TAX FREE INCOME THOUGH THE APPELLANT HAD NOT INCURRED ANY EXPENSES TO EARN SUCH TAX FREE INCOME. DATE OF HEARING 27.09.2017 DATE OF PRONOUNCEMENT 31 .10.2017 ITA NO. 141/DEL./2016 2 2. GROUND NO. 1 & 2 ARE NOT PRESSED ON BEHALF OF THE ASSESSEE. THE SAME ARE, THEREFORE, DISMISSED AS SUCH. 3. THE BRIEF FACTS RELATING TO GROUND NO. 3 ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2011 DECLARING AN INCOME OF RS.6,43,70,489/ - . A REVISED RETURN WAS ALSO FILED DECLARING THE SAME INCOME AS DECLARED IN THE ORIGINAL RETURN. THE APPELLANT DERIVES INCOME FROM RENT, CONSTRUCTION ACTIVITY, FILM DISTRIBUTION , AMBULANCE FABRICATION UNIT , INCOME FROM OTHER SOURCES AND SHORT TERM CAPITAL GAINS. IN THE SCRUTINY PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.1,28,09,196/ - AND CLAIMED AS EXEMPT INCOME U/S. 10(34) OF THE IT ACT. THE AO OBSERVED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.2,47,348/ - WHICH WERE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULARS OF INCOME. THE ASSESSEE WAS ISSUED SHOW CAUSE NOTICE. IN RESPONSE, THE ASSESSEE FILED DETAI LED SUBMISSIONS. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CALCULATING THE DISALLOWANCE OF RS.7,58,626/ - U/S. 14A READ WITH RULE 8D. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE APPELLANT APPEALED BEFORE THE FIRST APP ELLATE AUTHORITY, WHO AFTER CONSIDERING THE OBSERVATIONS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE ASSESSEE AND RELYING ON SOME CASE LAWS, CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL. 4. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENT IN SHARES AND SECURITIES. NO ANY FURTHER LOAN HAS BEEN TAKEN FOR THE PURPOSE OF INVESTMENT IN SHARES. THE AO HAS WRONGLY APPLIED THE CASE LA W, WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). NO ANY ADMINISTRATIVE EXPENSES WERE INCURRED BY THE ASSESSEE TOWARDS EARNING THE EXEMPT INCOME. ITA NO. 141/DEL./2016 3 THE AO OF THE ASSESSEE PRODUCED A FINANCIAL STATEMENT AT PB PAGE 1 TO 142 BEFORE US. THE ASSESSEE HAS INVESTED ON LY IN TWO COMPANIES SUM OF RS.5,31,000/ - AND RS.99,900/ - RESPECTIVELY ON EQUITY SHARES ONLY AND THE ASSESSEE HAS SOLD PREFERENCE SHARES OF A COMPANY VALUING RS.1.40 CRORES. EXCEPT THIS, THERE WAS NO ANY PURCHASE OR SALE OF SHARES BY THE ASSESSEE. ADMITTEDL Y, THE ASSESSEE HAS EARNED DIVIDEND INCOME, WHICH IS EXEMPT U/S. 10(34) OF THE IT ACT ON OLD INVESTMENTS. THEREFORE, NO ANY ATTRIBUTABLE ADMINISTRATIVE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE. THEREFORE, APPLICATION OF SECTION 14A READ WITH RULE 8D IS NOT JUSTIFIED. 5. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A). SECTION 14A READ WITH RULE 8D IS MANDATORY IF THE ASSESSEE HAS RECEIVED EXEMPTED IN COME DURING THE YEAR. SOME ADMINISTRATIVE EXPENSES CANNOT BE DENIED TOWARDS EARNING OF EXEMPTED INCOME. 6. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE OBSERVE THAT THE ASSESSEE IS EARNING INCOME UNDER DIFFERENT HEADS, AS MENTIONED ABOVE. DURING THE YEAR, THE ASSESSEE HAS ALSO CLAIMED EXEMPT INCOME OF RS.1,28,09,196/ - , BUT THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. THE AO HAS APPLIED SECTION 14A READ WITH RULE 8D AND DISALLOWED THE EXP ENDITURE AS PER FORMULA PROVIDED UNDER RULE 8D . ON PERUSAL OF THE FINANCIAL STATEMENT OF ASSESSEE, IT APPEARS THAT THE INVESTMENTS IN SHARES AND SECURITIES OF RS.6,31,900/ - MADE DURING THE YEAR UNDER CONSIDERATION IS VERY L O W AS COMPARED TO THE TOTAL INCOM E FROM DIFFERENT HEADS. IN SCHEDULE 5, THERE ARE ALSO SOME CHANGES IN THE OTHER INVESTMENTS. THEREFORE, IT CAN BE ASSUMED THAT THE ASSESSEE HAD SUFFICIENT ITA NO. 141/DEL./2016 4 FUNDS TO MAKE THIS INVESTMENT. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL THAT THE ASSESSEE H AS PURCHASED THE SHARES OUT OF INTEREST BEARING BORROWED FUNDS. THE AO FURTHER DID NOT BRING ANY MATERIAL ON RECORD TO SHOW ANY NEXUS BETWEEN THE INTEREST EXPENDITURE INCURRED AND THE EXEMPT DIVIDEND INCOME EARNED. THEREFORE, THE INTEREST EXPENDITURE TAKEN BY THE ASSESSING OFFICER FOR THE PURPOSE OF CALCULATING THE DISALLOWANCE AS PER RULE 8D(2)(II) ARE LIABLE TO BE EXCLUDED. 7. AS FAR AS THE THIRD LIMB OF RULE 8D(2)(III) IS CONCERNED, THE LEARNED AR HAS SUBMITTED THE DETAILS OF INVESTMENTS FORMING PART OF THE BALANCE SHEET AT PAGES 1 0 & 1 1 OF THE PAPER BOOK. WE HAVE EXAMINED THESE DETAILS OF INVESTMENTS SHOWN BY THE ASSESSEE IN BALANCE SHEET AND WE FIND THAT THE AO APPEARS TO HAVE CALCULATED THE AVERAGE OF TOTAL INVESTMENTS MADE BY THE ASSESSEE FOR THE PURPOSE OF CALCULATING THE DISALLOWANCE WHICH, IN OUR CONSIDERED OPINION, IS NOT JUSTIFIED. AS IS CLEAR FROM THE RULE ITSELF, THE AVERAGE OF ONLY SUCH INVESTMENTS HAVE TO BE TAKEN INTO ACCOUNT, WHICH YIELDED THE INCOME NOT FORMING PART OF THE TOTAL INCOME. THEREFORE, THE AO WAS REQUIRED TO WORK OUT THE AVERAGE OF SUCH INVESTMENT, THE INCOME FROM WHICH DID NOT FORM PART OF THE TOTAL INCOME INSTEAD OF TOTAL VALUE OF INVESTMENT. FOR THIS VIEW, WE STAND FORTIFIED BY THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT ( P) LTD., (2017) 82 TAXMAN.COM 415 (DELHI TRIB.)(SB) . NONE OF THE PARTIES BEFORE US, HOWEVER, HAVE LAID ANY DETAILS TO EXAMINE AS TO WHICH OF THE INVESTMENTS HA VE YIELDED SUCH INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME. WE, THEREFORE, RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR CALCULATING THE DISALLOWANCE U/S. 14A READ WITH RULE 8D AFRESH, IN THE LIGHT OF OBSERVATIONS MADE IN THE BODY OF THIS ORDER ABOVE. ITA NO. 141/DEL./2016 5 ACCORDINGLY, GROUND NO. 3 RAISED BY T HE ASSESSEE DESERVES TO BE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2017 . SD/ - SD/ - ( BHAVNESH SAINI ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31.10.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI