ASHITA PAREKH, MUMBAI V. ACIT, CIRCLE 12(1), MUMBAI

ITA 1562/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8342 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 19-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: IN TH E CIRCUMSTANCES OF CASE
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO. 1562/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2006-07 MRS ASHITA PAREKH 608, DALAMAL HOUSE, NARIMAN POINT MUMBAI 400 020. VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(3), AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020. PAN:- AITPP7834J APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20.12.2010 OF CIT (APPEALS) FOR THE A.Y. 2006-07. THE ASSESSEE HA S RAISED FOLLOWING GROUNDS IN THIS APPEAL:- THE FOLLOWING GROUNDS OF APPEAL ARE INDEPENDENT OF , AND WITHOUT PREJUDICE TO, ONE ANOTHER: THE COMMISSIONER OF INCOME-TAX (APPEALS) - 23, MUMB AI (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN UPHOLDING THE ACTION OF THE AS SISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 12(3), MUMBAI (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) IN INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT A ND DIRECTING HIM TO RECOMPUTED THE DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED FOR EA RNING DIVIDEND INCOME. THE APPELLANT CONTENDS THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THERE IS NO EXPENDITURE CLAIMED AS A DEDUCTION AND AS SUCH, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI NEELKANTH KHANDELWAL REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI MANOJ MISHRA DATE OF HEARING 20.08.2014 DATE OF PRONOUNCEMENT 22.08.2014 MRS ASHITA PAREKH 2 | P A G E 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST OF RS 5,82,330 AND RS 16,629 UNDER SECTION S 2348 AND 234C OF THE ACT, RESPECTIVELY. THE APPELLANT CONTENDS THAT THE ASSESSING OFFICER O UGHT NOT TO HAVE CHARGED INTEREST UNDER SECTIONS 2348 AND 234C INASMUCH AS - (A) THE ASSESSING OFFICER HAS NOT GIVEN AN OPPORTUN ITY TO THE APPELLANTS BEFORE CHARGING THE SAID INTEREST AS REQUIRED BY THE PRINC IPLES OF NATURE JUSTICE, (B) THE CHARGING OF INTEREST IS NOT IN ACCORDANCE W ITH LAW. GROUND NO. 1 IS REGARDING DISALLOWANCE U/S 14A. 2. THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AND NO EXPENSE HAS BEEN CLAIMED TO HAVE BEEN INCURRED FOR THE PURP OSE OF EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER COMPUTED THE EXPENSE S ATTRIBUTABLE FOR EARNING THE TAX FREE INCOME BY APPLYING RULE 8D AND ACCORDINGLY DISALLOWED A SUM OF RS.34,91,022/- COMPRISING OF RS 28,72,821/- ON ACCO UNT OF INTEREST EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME AND RS. 6,18,201/ - ON ACCOUNT OF OTHER ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EXEMPT INCO ME. 3. ON APPEAL, CIT(A) HAS NOTED THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO LTD. (328 ITR 81). HOWEVE R, THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE EXPENSES INCURR ED ON DECISION MAKING FOR SUCH INVESTMENT, OVERSEEING AND MANAGING THE INVESTMENTS . THE ASSESSEE IS AGGRIEVED BY THE FINDING OF CIT(A) THAT THE PROVISIONS OF SEC TION 14A ARE APPLILCABLE AND COMPOSITE EXPENDITURE INCURRED TOWARDS THE TAX FREE INCOME HAS TO BE DISALLOWED. 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE I NCURRED FOR THE TAX FREE INCOME. HE HAS REFERRED THE DETAILS OF THE EXPENDITURE AND SUBMITTED THAT THE ASSESSEE ITSELF MRS ASHITA PAREKH 3 | P A G E HAS DISALLOWED THE EXPENSES REGARDING TRANSACTION C HARGES, DEMAT CHARGES, BANK CHARGES, INTEREST ON LOAN AND STT WHICH HAS BEEN DE BITED DIRECTLY TO THE CAPITAL ACCOUNT OF THE ASSESSEE. THE LD. AUTHORIZED REPRESE NTATIVE HAS FURTHER SUBMITTED THAT THE ASSESSEES OWN CAPITAL IS MORE THAN THE IN VESTMENT IN SHARES AND MUTUAL FUNDS AND, THEREFORE NO BORROWED FUNDS HAVE BEEN UT ILIZED FOR THE PURPOSE OF INVESTMENT RESULTING TAX FREE INCOME. THE LD. AUTHO RIZED REPRESENTATIVE HAS POINTED OUT THAT THE INTEREST PAID ON THE OVERDRAFT FACILIT Y FROM THE HDFC AND KOTAK MAHINDRA BANK IS TOWARDS THE LOAN ADVANCED BY THE ASSESSEE T O THE COMPANY NAMELY INVESTRICK SECURITIES ON WHICH THE ASSESSEE HAS REC EIVED THE INTEREST INCOME. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THA T THE BORROWED FUNDS HAVE BEEN USED FOR ADVANCING LOAN TO THE COMPANY AND IT WAS N OT USED FOR INVESTMENT PURPOSE. HE HAS REFERRED THE BALANCE-SHEET FOR LAST THREE YE ARS AND SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS AS BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE IS MORE THAN THE INVESTMENT IN SHARES AND MUTUAL FUNDS, THEREFORE, NO INTEREST EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE FOR EARNING THE TAX FREE INCOME. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 25.07.2012 IN THE CASE OF JUSTICE SAM P. BHAR UCHA VS. ADDL. CIT ( 25 TAXMANN.COM 381)(MUM) AS WELL AS THE DECISION OF HO NBLE JURISDICTIONAL HIGH COURT DATED 23 RD JULY 2014 IN THE CASE OF CIT VS. HDFC BANK LTD IN INCOME TAX APPEAL NO. 330 OF 2012 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS CONSIDERED THE FINDING OF THE TRIBUNAL ON THE POINT THAT THE ASSES SEES OWN FUNDS WERE MORE THAN THE INVESTMENT IN TAX FREE SECURITIES THEN NO DISAL LOWANCE OF INTEREST IS JUSTIFIED U/S 14A. 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY RECORD TO SHOW THAT THE BORROWED FUNDS WAS EXCLUSIVELY USED FOR ADVANCING THE LOAN TO THE COMPANY AS CLAIMED BY THE ASSESSEE, THEREFORE, IN THE CASE OF CONSOLIDATED FUND THE AVERAGE COST OF FUND HAS TO BE ATTRIBUTED FOR EARNING THE TAX FREE INCOME. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. MRS ASHITA PAREKH 4 | P A G E 6. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS AN INDIVIDUAL A ND SHOWN THE INCOME FROM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. WE NOTE THAT T HE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN RESPECT OF TRANSACTION CHARGES, DEMAT CHARGES, STT ETC., WHICH ARE DIRECTLY RELATED TO THE EARNING OF TAX FREE INC OME, THEREFORE WHEN THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE WHICH COULD BE RELA TABLE TO THE TAX FREE INCOME THEN NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF GEN ERAL ADMINISTRATIVE EXPENSES ON THE GROUND THAT THE EXPENSES HAVE BEEN INCURRED ON DECISION MAKING FOR SUCH INVESTMENT, OVERSEEING AND MANAGING THE INVESTMENT. WHEN THE ASSESSEE IS AN INDIVIDUAL AND THERE IS NO INSTANCE OF USING ANY SE RVICE AND INCURRING ANY EXPENSES IN THIS REGARD THEN EVEN IF THE ASSESSEE IS TAKING THE DECISION FOR MAKING SUCH INVESTMENT ON ITS OWN THEN NO DISALLOWANCE U/S 14A CAN BE MADE ON ACCOUNT OF TAKING THE DECISION AND MANAGING INVESTMENT. THE AS SESSEE HAS NOT CLAIMED ANY EXPENDITURE IN RESPECT OF THESE ACTIVITIES, THEREFO RE, THE FINDING OF THE CIT(A) THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON ACCOUNT OF TAK ING DECISION FOR INVESTMENT AND MANAGING THE INVESTMENT ARE CONTRARY TO THE FACTS. ACCORDINGLY WE HOLD THAT WHEN THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE WHICH CAN BE ATTRIBUTED FOR EARNING THE TAX FREE INCOME THEN NO DISALLOWANCE ON GENERAL ADMINISTRATIVE EXPENSES CAN BE MADE U/S 14A OF THE INCOME TAX ACT. 7. AS REGARDS DISALLOWANCE OF INTEREST EXPENDITURE, THE ASSESSEE HAS CLAIMED THAT ITS OWN FUND IS MORE THAN SUFFICIENT FOR MAKIN G THE INVESTMENT IN THE SHARES AND MUTUAL FUNDS AND THE OVERDRAFT FACILITY HAS BEEN US ED BY THE ASSESSEE FOR ADVANCING LOAN TO A COMPANY IN WHICH THE ASSESSEE IS A DIRECT OR. THIS PLEA HAS BEEN TAKEN BY THE ASSESSEE FIRST TIME BEFORE US AND THIS FACT THA T THE ASSESSEE HAS USED ONLY ITS OWN FUND AND THE BORROWED FUND HAS BEEN USED FOR AD VANCING LOAN TO THE COMPANY HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW. THE RE IS NO QUARREL ON THE POINT THAT IF THE ASSESSEES OWN FUND IS SUFFICIENT FOR M AKING THE INVESTMENT THEN IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. HDFC BANK (SUPRA) AS RELIED UPON BY THE ASSESSEE NO DISALLOWA NCE OF INTEREST EXPENDITURE CAN BE MADE U/S 14A. SINCE THIS FACT OF USING THE BORRO WED FUNDS ONLY FOR ADVANCING MRS ASHITA PAREKH 5 | P A G E LOAN AND ASSESSEES OWN FUND HAS BEEN USED FOR INVE STMENT IN SHARES AND MUTUAL FUNDS REQUIRES VERIFICATION AND EXAMINATION, THEREF ORE, THE SAME IS REMITTED TO THE RECORD OF ASSESSING OFFICER TO VERIFY AND EXAMINE T HIS ISSUE AND THEN DECIDE AS PER LAW AND IN THE LIGHT OF DECISIONS RELIED UPON BY TH E ASSESSEE. 8. GROUND NO. 2 IS REGARDING LEVY OF INTEREST U/S 234B AND 234C . 9. THE LEVY OF INTEREST U/S 234B AND 234C IS CONSEQ UENTIAL IN NATURE AND NO SPECIFIC FINDING IS REQUIRED. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF AUGUST 2014. SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 22-8 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI