Kailash Motors Finance Pvt. Ltd., Kanpur V. Income Tax Officer-6(1), Kanpur

ITA 207/LKW/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4394 (ITAT-LUCKNOW)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ITA NO.207/LKW/2016 ASSESSMENT YEAR 2009-10 DY. ITO-6(1), KANPUR VS KAILASH MOTORS FINANCE PVT. LTD 84/105, G.T.ROAD, KANPUR PAN AAACK 5547 R (RESPONDENT) (APPELLANT) SHRI S.N. MISHRA & SHRI SUBHASH BAJPAI APPELLANT BY SHRI AMIT NIGAM, DR RESPONDENT BY 23 /0 5 /2016 DATE OF HEARING 27.06.2016 DATE OF PRONOUNCEMENT O R D E R PER MAHAVIR PRASAD, JM. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD. CIT (A)-II, KANPUR DATED 13.01.2016 FOR THE ASSESSMENT YEAR 200 9-10 2. THE GROUNDS RAISED BY THE ASSESSEE IS AS UNDER: 01. BECAUSE THE LEARNED CIT(A) HAS ERRED IN LAW A ND ON FACTS IN CONFIRMING THE ADDITION OF RS. 31,390/- BEING DISAL LOWANCE U/S. 14A OF THE INCOME-TAX ACT READ WITH RULE 8D (2)(III ) OF INCOME-TAX RULES, PARTICULARLY WHEN THE APPELLANT I S NOT IN RECEIPT OF EXEMPT INCOME DURING THE YEAR. 02. BECAUSE THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT THAT ORDERS OF HON'BLE HIGH COURT AND SUPREME COURT HAVE OVERRIDING-EFFECT OVER THE CIRCULARS/INSTRUCTIONS I SSUED BY THE CBDT IRRESPECTIVE OF THE FACT WHETHER THE PARTICULA R CIRCULAR/INSTRUCTION IS ADJUDICATED UPON OR NOT AND THE APPELLANT CASE IS SQUARELY COVERED BY THE DECISION OF 2 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SH IVAM MOTORS PVT. LIMITED IN ITA NO.88/2014 DATED 05.05.2014. 3. BECAUSE ON A PROPER APPRECIATION OF FACTS AND CI RCUMSTANCES OF THE CASE, THE PROVISIONS OF SECTION 14A OF THE ACT, READ WITH RULE 8D OF THE I.T.RULES IS NOT APPLICABLE TO THE A SSESSEE'S CASE, AND AS SUCH, THE ADDITION OF RS. 31,390/- BEI NG BAD IN LAW BE DELETED. 4. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ENTIRE INVESTMENTS MADE IN TAX EXEMPT INSTRUMENTS, ARE ALL OLD AND OUT OF THE INTEREST FREE FUNDS AVAILABLE, THE PROVI SIONS OF SECTION 14A READ WITH RULE 8D OF THE I.T.RULES IS N OT APPLICABLE, AND HAS THEREBY ERRED IN MAKING THE SAID ADDITION. 05. THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF THE APPEAL GIVEN ABOVE AND OR ADD ANY FRESH GROUNDS AS AND WHEN IT IS CONSIDERED TO DO SO. 3. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF THE BALANCE SHEET SHOWS THAT THE ASSESSEE HAS DISCLOSED INVESTMENTS O F RS.1,25,28,000/- IN THE QUOTED AND UNQUOTED SHARES OF DIFFERENT COMPANI ES AS AGAINST RS.28,000/-. THE ASSESSEE WAS REQUIRED TO JUSTIFY A PPLICABILITY OF SECTION 14A R.W. RULE 8D(2) ON THE INVESTMENTS DISCLOSED BU T THE REPLY OF THE ASSESSEE WAS NOT ACCEPTABLE. IT WAS CLEAR THAT ALL THE EXPENSES CONNECTED THE EXEMPT INCOME HAVE TO BE DISALLOWED W HETHER THEY ARE DIRECT OR INDIRECT, FIXED OR VARIABLE, MANAGERIAL O R FINANCIAL IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER WAS OF THE VIEW THA T THE ASSESSEE WAS NOT CLAIMED ANY AMOUNT AS INTEREST EXPENSES FOR THE YEAR, THEREFORE, PROVISIONS OF RULE 8D(2)(II) ARE NOT APPLICABLE. TH EREFORE THE TOTAL DISALLOWANCE UNDER THIS HEAD COMES TO RS.31,390/-. 4. AGAINST THE SAID DISALLOWANCE OF RS.31,390/-, AS SESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT T HE ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THERE IS NO EXEMPT IN COME EARNED DURING THE YEAR ON THE INVESTMENT OF RS.1,25,28,000/-. HE HAS APPLIED RULE 3 8D(2)(III) AND MADE ADDITION OF RS.31,390/- @ 0.5%. LD. CIT(A) HAS UPHOLD THE ORDER OF THE ASSESSING OFFICER AND SUSTA IN THE ADDITION MADE U/S 14A OF THE ACT EVEN THOUGH NO TAX FREE INCOME H AS BEEN EARNED BY ASSESSEE DURING THE YEAR. THEREFORE, THE ASSESSEE F AILS TO JUSTIFY BEFORE THE CIT(A) WHO HAS CONFIRMED THE ADDITION OF RS.31, 390/-. 5. LD. AR OF THE ASSESSEE SUBMITTED THAT A SUM OF R S.31,390/- HAS BEEN DISALLOWED BY THE LEARNED AO BY APPLYING THE P ROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT. THIS ISSUE HAS BEEN DISC USSED BY THE ASSESSING OFFICER IN PARA 4 OF THE ASSESSMENT ORDER AT PAGE 1 & 2. THE ASSESSING OFFICER HAS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE INVESTMENTS IN QUOTED AND UNQ UOTED SHARES OF DIFFERENT COMPANIES AMOUNTING TO RS.1,25,28,0007- A S AGAINST THE INVESTMENT OF RS.28,000/- IN THE IMMEDIATELY PRECED ING YEAR. THE ASSESSING OFFICER HAS HELD THAT THE INCOME FROM QUO TED AND UNQUOTED SHARES OF DIFFERENT COMPANIES, I.E., THE DIVIDEND I S TAX EXEMPT. THE EXPENDITURE INCURRED FOR THE PURPOSES OF MAKING THE INVESTMENT AND EARNING THE DIVIDEND INCOME, IS SUBJECT TO TAX TREA TMENT U/S 14A. THE ASSESSING OFFICER HAS APPLIED THE PROVISIONS OF SEC TION 14A R.W. RULE 8D AND HE HAS MADE A DISALLOWANCE OF RS.31,390/-. WE F URTHER NOTED THAT SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOS E OF COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME. THE ASSESSING OFFICER SHALL DETER MINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS M AY BE PRESCRIBED ON THE CONDITION THAT THE ASSESSING OFFICER HAVING REG ARD TO ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF T HE INCOME OF THE 4 ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. LD. AR OF THE ASSES SEE RELIED UPON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S SHIVAM MOTORS (P) LTD. IN ITA NO. 88 OF 2014 AND TH E ORDER OF THE ITAT LUCKNOW BENCH IN THE CASE OF ACIT VS. M/S COMMERCIA L ENGINEERS & BODY BUILDERS CO. PVT. LTD. IN ITA NOS. 371 TO 374/ LKW/2012. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE RECORD IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT, WE FIND THAT AS PER THE PROVISIONS OF SECTION 14A, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. MEANING THEREBY THE BASIC CONDITION PRECEDENT FOR INVOKING THE PROVISIONS OF SECTION 14A IS THAT THERE SHOULD BE INCOME, WHICH D OES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THUS, WHEREVER THE ASSESSEE EARNED THE INTEREST FREE INCOME, THE CORRESPONDING EXPENDITURE INCURRED IN EARNING THAT INCOME IS TO BE DISALLOWED. IN THE ABSENCE OF ANY INTEREST FREE INCOME, THERE CANNOT BE ANY DISALLOWANCE AS NO CORR ESPONDING EXPENDITURES WERE INCURRED TO EARN A PARTICULAR TAX FREE INCOME. FOR THE SAKE OF REFERENCE, WE EXTRACT THE PROVISIONS OF SEC TION 14A OF THE ACT AND RULE 8D OF THE INCOME TAX RULES ARE AS UNDER: 14A. [(1)] FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.] [(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE 5 PRESCRIBED , IF THE ASSESSING OFFICER, HAVING REGAR D TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD T O THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATI ON TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). 22 [ (2) THE EXPENDITURE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; AND (II) AN AMOUNT EQUAL TO ONE PER CENT OF THE ANNUAL AVERAGE OF THE MONTHLY AVERAGE OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME : PROVIDED THAT THE AMOUNT REFERRED TO IN CLAUSE (I) AND CLAUSE (II) SHALL NOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE.] 6 7. HAVING CAREFULLY EXAMINED VARIOUS JUDICIAL PRONO UNCEMENTS, WE FIND THAT THE CIT(A) HAS CONFIRMED THE ADDITION OF RS.31,390/- BEING DISALLOWANCE U/S/ 14A OF THE ACT R.W. RULE 8D(2)(II I)OF THE INCOME TAX RULES, PARTICULARLY WHEN THE ASSESSEE IS NOT IN REC EIPT OF EXEMPT INCOME DURING THE YEAR. KEEPING IN VIEW THE JUDGMENT OF TH E HONBLE HIGH COURT IN THE CASE AS PER CENTRAL BOARD OF DIRECT TAXES CL ARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISAL LOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEA R HAS NOT EARNED ANY EXEMPT INCOME IN CIRCULAR NO. 5/2014 DATED 11.02.20 14. IN VIEW OF THE AFORESAID CIRCULAR, IT IS CLEARED THAT CBDT CIRCULA R WAS ISSUED IN THE MONTH OF FEBRUARY, 2014 AND ASSESSING OFFICER HAS P ASSED THE ORDER ON 30.06.2011 BEFORE ISSUING THE CBDT CIRCULAR BUT THE LD. CIT(A) HAS PASSED THE ORDER ON 13.01.2016 AFTER ISSUING THE CB DT ABOVE CIRCULAR WHICH WAS NOT APPLIED BY THE CIT(A). ACCORDINGLY, W E SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED ON THE CAPTION PAGE) SD/- SD/- (P.K. BANSAL) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27.06.2016 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR