Gagan Goyal, New Delhi V. JCIT, New Delhi

ITA 1514/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7526 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 12-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SREENIVASA RAO
• Assessee Lawyers: ANKIT JAIN
• Keywords: Business income; Depreciation; Business expenditure; Salary income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-3, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 1514/DEL/2015 A.Y. : 2011-12 SH. GAGAN GOYAL, 1291-C, POCKET-I, VASANT VIHAR, NEW DELHI 110 070 (PAN: AANPG5365M) VS. JCIT, RANGE-24, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN, ADV. & SH. ANKIT JAIN, CA DEPARTMENT BY : SH. A. SREENIVASA RAO, SR. DR DATE OF HEARING : 12-07-2016 DATE OF ORDER : 02-08-2016 ORDER PER H.S. SIDHU : JM ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 24.2.2014 PASSED BY THE LD. CIT(A)-11, NEW DELHI R ELEVANT TO ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY THE LD. CIT(A) IS BAD, BOTH IN THE YE OF LAW AND ON THE FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE DISALLOWANCE OF AN AMOUNT OF RS. 1,41,991/- MADE BY AO BY ITA NO.1514/DEL/2015 2 INVOKING THE PROVISIONS OF RULE 8D READ WITH SECTIO N 14A OF THE ACT. (II) THAT THE ABOVE-SAID DISALLOWANCE HAS BEEN CONF IRMED REJECTING THE EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. 3(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE ACTION OF AO IN DISALLOWING AN AMOUNT OF RS. 1,50,7 63/- BEING 1/6 TH OF THE FOLLOWING EXPENSES. PARTICULARS AMOUNT (RS.) CAR REPAIRS AND MAINTENANCE 3,13,549/- INTEREST ON CAR LOAN 49,014/- INSURANCE ON CAR 18,952/- TELEPHONE EXPENSES 1,52,613/- TRAVELLING EXPENSES 3,22,571/- ENTERTAINMENT/ STAFF WELFARE EXPENSES 47,875/- TOTAL 9,04,574/- (II) THAT THE ABOVE DISALLOWANCE HAS BEEN CONFIRMED REJECTING THE CONTENTION OF THE ASSESSEE THAT THE E XPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. ITA NO.1514/DEL/2015 3 (III) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DES PITE THE SAME HAVING BEEN MADE MOST ARBITRARILY AT THE RATE OF 1/6 TH WITHOUT THERE BEING ANY BASIS FOR THE SAME. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA D FILED THE RETURN DECLARING INCOME OF RS. 16,22,870/- ON 14.9.2011 WH ICH WAS LATER SELECTED FOR SCRUTINY. ACCORDINGLY, THE AO ISSUED NOTICES U/S. 143(2) O THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT). DURING THE YEAR ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADIN G IN YARN AND BOPP AND MANUFACTURING AND TRADING OF CLOTH. APART FROM BUSINESS INCOME, INCOME FROM SALARY, SHORT TERM CAPITAL GAIN AND INC OME FROM OTHER SOURCE WAS ALSO DECLARED BY THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION. THE AOS OBSERVATION WAS THAT ASSESSEE DEBITED A S UM OF RS. 4,91,293/- IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD INTER EST ON UNSECURED LOANS (RS. 632306/-) ON BANK LOANS (RS. 383713), OTHER IN TEREST (RS. 475274). THE ASSESSEE HAD ALSO MADE SUBSTANTIAL INVESTMENT I N VARIOUS MUTUAL FUNDS DURING THE YEAR UNDER CONSIDERATION AND A DI VIDEND AMOUNT OF RS. 64,689/- WAS REFLECTED IN THE CAPITAL ACCOUNT OF T HE ASSESSEE. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOW ANCE U/S. 14A MAY NOT BE MADE. ASSESSEE REPLIED VIDE HIS LETTER ON 19 .12.2013, WHICH WAS NOT ACCEPTABLE TO THE AO IN ACCORDANCE WITH THE PRO VISIONS OF SECTION 14A. AO HELD THAT ASSESSEE HAS DIVERTED ITS FUND F OR NON-BUSINESS ITA NO.1514/DEL/2015 4 PURPOSES CLAIMING THAT THE IDLE FUNDS WERE UTILIZED FOR EARNING INCOMES AND ON THE OTHER SIDE, ASSESSEE WAS INCURRING INTER EST EXPENSES AND CLAIM WAS MADE THAT THESE WERE BUSINESS EXPENSES. THEREFO RE, THE AO CALCULATED THE DISALLOWANCE AS PER THE PROVISIONS O F RULE 8D OF THE I.T. RULES AND MADE THE DISALLOWANCE OF RS. 1,41,991/- AND ALSO MADE ADHOC DISALLOWANCE OF RS. 1,77,892/- BEING 1/6 TH OF TOTAL EXPENSES OF RS. 10,67,353/- ON ACCOUNT OF VEHICLE RUNNING AND MAINT ENANCE EXPENSES, TELEPHONE EXPENSES, TRAVELLING EXPENSES AND ENTERTA INMENT / STAFF WELFARE EXPENSES BY COMPUTING THE TOTAL TAXABLE INCOME OF T HE ASSESSEE AT RS. 21,20,580/- AS AGAINST THE RETURN INCOME OF RS. 16, 22,870/- VIDE HIS ORDER DATED 26.12.2014 PASSED U/S. 143(3) OF THE I. T. ACT, 1961. 3. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 26.12. 2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 30.1.2015 HAS PARTLY ALLOWED THE APPEAL, BUT SUSTAINED SOME OF THE ADDITIONS. 4. AGAINST THE IMPUGNED ORDER DATED 30.1.2015, AS SESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE WITH REGARD TO DISALLOWANCE MADE U/S. 14A HAS STATED THAT AS PER THE BALANCE SHEET IT IS EVIDENT THAT OWN FUNDS HELD BY THE ASSESSEE WERE MORE THAN THE INVESTMENT MADE AND ACCORDINGLY NO DISALLOWANCE UND ER SECTION 14A CAN BE MADE. TO SUPPORT HIS CONTENTION, HE RELIED UPON THE FOLLOWING CASE ITA NO.1514/DEL/2015 5 LAWS AND STATED THAT THE ISSUE IN DISPUTE IS SQUARE LY COVERED BY THE SAID DECISIONS. - CIT VS. TAIKISHA ENGINEERING LTD. (DELHI HIGH COU RT) ITA NO. 115/2014 & 119/2014 DATED 25.11.2014. - CIT, MUMBAI VERSUS HDFC BANK LTD. (BOMBAY HIGH COURT) ITA NO. 330 OF 2012 DATED 23.7.2014. - CIT VS. SUZLON ENERGY LTD. (GUJARAT HIGH COURT) ( 2013) 354 ITR 630. - CIT VS. WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 2 04 (P&H HIGH COURT). 5.1 AS REGARDS DISALLOWING AN AMOUNT OF RS. 1,50,7 63/- BEING 1/6 TH OF THE FOLLOWING EXPENSES : PARTICULARS AMOUNT (RS.) CAR REPAIRS AND MAINTENANCE 3,13,549/- INTEREST ON CAR LOAN 49,014/- INSURANCE ON CAR 18,952/- TELEPHONE EXPENSES 1,52,613/- TRAVELLING EXPENSES 3,22,571/- ENTERTAINMENT/ STAFF WELFARE EXPENSES 47,875/- TOTAL 9,04,574/- ITA NO.1514/DEL/2015 6 THE LD. COUNSEL OF THE ASSESSEE STATED THAT THE ABO VE DISALLOWANCES HAS BEEN MADE WITHOUT ANY BASIS. THESE DISALLOWANC E HAVE BEEN MADE DESPITE THE FACT THAT THESE EXPENSES HAVE BEEN INCU RRED FOR THE PURPOSE OF BUSINESS AND PROFESSION. TO SUPPORT HIS CONTENTI ON, HE RELIED UPON THE FOLLOWING CASE LAWS AND STATED THAT THE ISSUE IN DI SPUTE IS SQUARELY COVERED BY THE SAID DECISIONS. - ACIT VS. AMTEK AUTO LTD. 112 TTJ 455 - DCIT VS. YASH B. JOHAR, ITA NO. 2612/MUM/2008 AY 20 04- 05 DATED 5.2.2010. - DEVJI NENSHI PALANI VS. ITO ITA NO. 6519/MUM/2009 A Y 2006-07 DATED 29.10.2010. - NITIN SALES CORPN. 212 TAXATION 49 DEL. ITA NO. 1809/DEL/2005 DATED 11.7.2008. IN VIEW OF THE ABOVE, HE REQUESTED THAT THE BOTH T HE ADDITIONS IN DISPUTE MAY BE DELETED AND THE APPEAL OF THE ASSESS EE MAY BE ALLOWED. 6. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND STATED THAT SINCE THE ASSESSEE HAS DIVERT ED ITS FUNDS FOR NON- BUSINESS PURPOSES SAYING THAT IDLE FUNDS WERE UTILI ZED FOR EARNING INCOME AND ON THE OTHER SIDE AND HE IS INCURRING INTEREST EXPENSES AND CLAIMING THE SAME AS BUSINESS EXPENSES, HENCE, THE DISALLOWA NCE OF RS. 1,41,991/- WAS RIGHTLY MADE AND NEEDS TO BE AFFIRMED. LD. DR F URTHER STATED ON THE DISALLOWANCE OF RS. 1,50,763/ ON ACCOUNT OF VARIOU S EXPENSES, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO PROVE TH AT THESE EXPENSES ITA NO.1514/DEL/2015 7 WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. HE FURTHER STATED THAT THEREFORE, THE AO HAS RIGHTLY MADE THE AFORESAID DISALLOWANCE WHICH NEEDS TO BE AFFIRMED AND APPEAL OF THE ASSESSEE MAY BE DISMISSED ACCORDINGLY. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS AVAILABLE WITH ME ESPECIALLY THE ORDERS OF THE REVENUE AUTHOR ITIES. I HAVE ALSO PERUSED THE BALANCE SHEET OF THE ASSESSEE PLACED AT PAGE NO. 5 OF THE PAPER BOOK AND FOUND THAT ASSESSEE WAS HAVING OWN F UNDS WHICH WERE MORE THAN THE INVESTMENT MADE AND THEREFORE, NO DIS ALLOWANCE UNDER SECTION 14A IS SUSTAINABLE IN THE EYES OF LAW. MY VIEW IS FORTIFIED BY THE FOLLOWING DECISIONS:- CIT VS TAIKISHA ENGINEERING INDIA LTD. (DELHI HIGH COURT) ITA 115/2014 & 119/2014 DATED 25-11-2014 DISALLOWANCE OF EXPENSES ON EXEMPT INCOME ULS 14A R .W RULE 80 - INVESTMENTS IN SHARES AND MUTUAL FUNDS - HELD THAT:- IN MAXOPP INVESTMENT LTD. VS. COMMISSIONER O F INCOME TAX [2011 (11) TMI 267 - DELHI HIGH COURT] I T HAS BEEN HELD THAT IT IS ONLY WHEN THE AO IS NOT SA TISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATUR E DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCR IBED - THE FINDINGS RECORDED BY THE CIT(A) AND THE TRIBU NAL ARE APPROPRIATE AND RELEVANT - THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS - THE SELF OR VOLUNTARY DEDUCTIONS MAD E BY THE ASSESSEE WERE NOT REJECTED AND HELD TO BE UNSATISFACTORY, ON EXAMINATION OF ACCOUNTS - THE RU LE IN ITA NO.1514/DEL/2015 8 SUB RULE (2) SPECIFICALLY PRESCRIBES THE MODE AND METHOD FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT - UNDER CLAUSE (II) TO RULE 80(2) OF THE RULES, THE AO IS REQUIRED TO EXAMINE WHETHER THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTERES T IN THE PREVIOUS YEAR AND SECONDLY WHETHER THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME OR RECEIPT - THE AMOUNT TO BE DISALLOWED AS EXPENDITUR E RELATABLE TO EXEMPT INCOME, UNDER SUB RULE (2) IS T HE AGGREGATE OF THE AMOUNT UNDER CLAUSE (I), CLAUSE (I I) AND CLAUSE (III) - CLAUSE (I) RELATES TO DIRECT EXP ENDITURE RELATING TO INCOME FORMING PART OF THE TOTAL INCOME AND UNDER CLAUSE (III) AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE AMOUNT OF VALUE OF INVESTMENT, APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF THE ASSESSEE HAS TO BE DISALLOWED - THUS, THE ORDER OF THE TRIBUNAL IS UPHELD - DECIDED AGAINST REVENUE. DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT V S SUZLON ENERGY LTD. (2013) 354 IT 630: IN THIS CASE THE HIGH COURT EXPLICITLY APPROVED THE DECISION OF ITAT HOLDING THAT DISALLOWANCE U/S 14A IS NOT JUSTI FIED WHERE THE ASSESSEE'S OWN FUNDS FAR EXCEEDS THE INVESTMENT MADE. 7.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID, THE DISALL OWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS DELETED AND TH E ISSUE IN DISPUTE RAISED BY THE ASSESSEE IS ALLOWED. 8. WITH REGARD TO SECOND ADDITION IN RESPECT OF ADHOC DISALLOWANCE MADE BY THE AO IN RESPECT OF 1/6 TH OF THE AFORESAID EXPENSES AS ITA NO.1514/DEL/2015 9 MENTIONED IN A TABULATION FORM IN PARA 5.1 OF THI S ORDER IS CONCERNED, I FIND THAT LD. CIT(A) WHILE RECORDING HIS FINDING H AS POINTED OUT THAT AO HAD MADE THE DISALLOWANCE WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS. DESPITE THAT HE ONLY ALLOWED THE CLAIM OF DEPRECIATION ON VEHICLE AND REST OF THE DISALLOWANCE AFFIRMED, WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW AND AGAINST THE WELL SETTLED LAW . IN THIS REGARD, I DRAW SUPPORT FROM THE ITAT DECISION IN THE CASE OF ACIT VS. AMTEK AUTO LTD. 112 TTJ 455 WHEREIN IT HAS BEEN HELD AS UNDER:- '19 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS , AND FIND THAT THE GROUND PREFERRED BY THE REVENUE IS LACKING IN SUBST ANCE , INASMUCH AS , THE CIT(A) HAS CORRECTLY CONCLUDED THAT THE ADDITION HAS BEEN MADE BY THE AO WITHOUT ANY BASIS. EVIDENTLY , THE AO HAS NOT POINTED OUT ANY PARTICULAR VOUCHER OR EXPENDITURE , WHICH WAS UNRELATED TO THE BUS I NESS OF THE ASSESSEE . THERE IS NO INSTANCE NOTICED BY THE AO , WHICH SHOWED THAT T HE EXPENDITURE WAS INCURRED FOR PERSONAL PURPOSE. MORE OVER , THE ACCOUNTS OF THE ASSESSEE , AS NOTED BY US EARLIER , ARE STAT U TORILY REQU I RED T O BE AUDITED AND HAVE BEEN SO DONE . THERE IS ALSO NO ADVERSE OBSERVATION BY THE AUDITORS IN THIS REGARD. THE DISALLOWANCE, THEREFORE, WAS MADE BY THE AO ON MERE SURMISES AND CONJECTURES. THEREFORE , THE CIT(A) APPROPRIATELY DELETED THE ADDITION. WE HEREBY AFFIR M THE ORDER OF THE CIT(A) AND , THEREFORE , THE REVENUE FAILS ON THIS GROUND . ' 8.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORESAID, THE DISALLO WANCE MADE BY THE AO ITA NO.1514/DEL/2015 10 AND CONFIRMED BY THE LD. CIT(A) IS DELETED AND TH E ISSUE IN DISPUTE RAISED BY THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/08/2016. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE 02/08/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES