Rajkumar P. Shewani, Pune V. Deputy Commissioner of Income-tax,

ITA 2120/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88892 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 04-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Earning of tax free income; Deemed to accrue or arise in india
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2120 /PN/201 3 ASSESSMENT YEAR : 20 10 - 11 SHRI RAJKUMAR P. SHEWANI, 619, BAJI RAO ROAD, SADASHIV PETH, PUNE - 411030 VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE (APPELLANT) (RESPONDENT) PAN NO. ADLPS5227R ITA NO . 2209 /PN/20 1 3 ASSESSMENT YEAR : 20 10 - 11 DY. COMMISSIONER OF INCOME TAX, CIRCLE 3 , PUNE VS. SHRI RAJK UMAR P. SHEWANI, 619, BAJIRAO ROAD, SADASHIV PETH, PUNE - 411030 (APPELLANT) (RESPONDENT) PAN NO. ADLPS5227R REVENUE BY: SHRI RAJESH DAMOR ASSESSEE BY: SHRI SUNIL PATHAK DATE OF HEARING : 31 - 10 - 2014 DATE OF PRONOUNCEMENT : 23 - 01 - 2015 ORDER PER R.S . PADVEKAR , JM : - THESE TWO APPEALS , ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE , ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 30 - 08 - 2013 FOR THE A.Y . 20 10 - 11. WE FIRST TAKE THE ASSESSEES APPEAL BEING ITA NO. 2120/ PN/2013. 2. THE FIRST ISSUE IS IN RESPECT OF ADDITION OF RS.7,69,457/ - ON ACCOUNT OF DEEMED INCOME FROM THE HOUSE PROPERTY. THE FACTS WHICH REVEALED FROM THE RECORDS ARE AS UNDER. THE ASSESSEE IS HAVING FIVE OFFICES AND TWO SHOPS AT MAYANAGARI SOCIETY, 6/19, SADASHIV PETH, 2 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE PUNE - 30 , APART FROM HIS SELF - OCCUPIED RESIDENCE. THOSE PROPERTIES ARE USED BY THE FIRM IN WHICH THE ASSESSEE IS A PARTNER. IT IS CLAIMED BY THE ASSESSEE THAT HE IS NOT RECEIVING RENT FROM THE FIRM BUT HE HAS DECLARED THE ANNUAL VALU E AS PER PROVISIONS OF SEC. 23(1)(A) OF THE INCOME - TAX ACT OF RS.15,208/ - . THE ASSESSING OFFICER HAS A RESERVATION FOR ACCEPTING THE ANNUAL VALUE DECLARED BY THE ASSESSEE U/S. 2 3( 1 )(A) OF THE INCOME - TAX ACT. THE ASSESSING OFFICER TOOK THE HELP OF THE PORT AL ON THE WEBSITE NAMELY MAGICBRICKS.COM AND ACCORDINGLY WORKED OUT THE ALV OF 5 - 6 PROPERTIES WHICH ARE GIVEN IN PARA NO. 6.4 OF THE ASSESSMENT ORDER. AS PER THE WORKING MADE BY THE ASSESSING OFFICER THE DEEMED INCOME OF THOSE PROPERTIES WERE TO THE EXTEN T OF RS.7,84,665/ - . THE ASSESSING OFFICER GAVE THE SET OFF OF THE ALV DECLARED BY THE ASSESSEE OF RS.15,208/ - AND MADE THE ADDITION OF RS.7,69,457/ - . THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITS THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THOSE PROPERTIES ARE USED BY THE FIRM IN WHICH THE ASSESSEE IS A PARTNER. HE SUBMITS THAT THE ISSUE OF ANNUAL VALUE OF THOSE PROPERTIES HAD COME FOR THE CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE A.YS. 2003 - 04, 2004 - 05 AND 2005 - 06 (ITA NOS. 1135, 1136 & 1138/PN/2007) AND THE HON'BLE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO WORK OUT THE ANNUAL VALUE AS PER THE M UNICIPAL VALUATION. THE LD. COUNSEL REFERRED TO COPY OF THE TRIBUNAL ORDER IN ITA NOS. 1135, 1136 & 1138/PN/2007 DATED 30 - 05 - 2008 AND SUBMITTED THAT THERE IS NO JUSTIFICATION TO DETERMINE THE ANNUAL VALUE BASED ON THE RENT GIV EN IN THE WEBSITE WHICH ARE USED BY THE ASSESSING OFFICER. HE SUBMITS THAT ON PRINCIPLE , THE ISSUE HAS BEEN DECIDED BY THE HON'BLE TRIBUNAL AND HENCE, THE SAME DIRECTION S MAY BE GIVEN TO THE ASSESSING OFFICER. PER CONTRA, 3 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE THE LD. DR SUBMITS THAT THE PROP ERTIES IN QUESTION ARE DIFFERENT THAN THOSE WHICH WERE BEFORE THE TRIBUNAL IN THE A.YS. 2003 - 04 TO 2005 - 06. THE LD. DR SUPPORTED THE ORDER OF THE CIT(A). IN REJOINDER THE LD. COUNSEL POINTED OUT THAT THE LD. CIT(A) HAS MADE THE WRONG OBSERVATION IN PARA NO. 3.4 THAT THE PROPERTIES IN THIS YEAR I.E. A.Y. 2010 - 11 IN QUESTION ARE DIFFERENT THAN THOSE WHICH WERE BEFORE THE HON'BLE TRIBUNAL IN THE A.YS. 2003 - 04 TO 2005 - 06. HE REFERRED TO PARA NO. 2 OF THE TRIBUNAL ORDER (PAGE NO. 16 OF THE COMPILATION) WHERE THE DESCRIPTION OF THE PROPERTY IS GIVEN. 4. THE ISSUE BEFORE US IS IN A NARROW COMPASS. BOTH THE AUTHORITIES BELOW HAVE NOT DISPUTED THAT THE ASSESSEE HAS LET NOT O UT THOSE PROPERTIES TO THE FIRM. I F THE PROPERTY IS LET OUT THAN THE RENT OR FAIR MARKET RENT OF THOSE PROPERTIES WHICH IS HIGHER IS TO BE CONSIDERED. AS PER THE PROVISIONS OF SEC. 23(1)(A) IF THE PROPERTY IS NOT LET OUT TH E N THE NOTIONAL ANNUAL VALUE IS TO BE CONSIDERED AS AN INCOME OF THAT PROPERTIES. WE FIND THAT IN THE A.YS. 2003 - 04 TO 2005 - 06 THE ISSUE IN RESPECT OF THE NOTIONAL ANNUAL VALUE U/S. 23(1)(A) OF THE ACT HAS BEEN CONSIDERED BY THE TRIBUNAL AND OPERATIVE PART OF THE RELEVANT POINT OF THE DECISION IS AS UNDER: 2. TO DECIDE THESE APPEALS, ONLY A FEW MATERIAL FACTS NEED TO BE TA KEN NOTE OF . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT, WHILE COMPUTING INCOME FROM HOUSE PROPERTY, THE ASSESSEE HAS TAKEN GROSS ANNUAL VALUE OF PROPERTY AT '619 SADASHIV PET H AT RS. 21,725, WHEREAS IN THE INCOME SHOWN IN THE PRECEDING YEARS WAS RS. 1,51,020. IT WAS CLARIFIED BY THE ASSESSEE THAT THE ASSESSEE WAS A PARTNER IN THE BUSINESS FIRM WHICH WAS USING THE SAID PREMISES AND THAT NO RENT WAS CHARGED. IT WAS ALSO POINTED OUT THAT THE RENT CHARGED WOULD HAVE BEEN ALLOWE D AS A DEDUCTION IN COMPUTING OF FIRM'S INCOME ANYWAY, AND THAT NON CHARGING OF INTEREST IS REVENUE NEUTRAL. THE ASSESSING OFFICER WAS NOT IMPRESSED WITH THESE SUBMISSIONS. HE PROCEEDED TO 4 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE COMPUTE THE INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' BY A DOPTING THE RENT RECEIVED LAST YEAR AS ' THE SUM ON WHICH PROPERTY CAN BE REASONABLY BE EXPECTED TO BE LET OUT FROM YEAR TO YEAR'. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. THE CIT(A) OBSERVED THAT THE FACT OF THE MATTER IS THAT PROPERTY IS LET OUT AND THAT 'RENT RECEIVABLE WAS FOREGONE BECAUSE OF SOME UNDERSTANDING BETWEEN THE BROTHERS WHICH WAS NEVER BROUGHT ON RECORD' AND THAT 'THE FACT THAT NO RENT WAS RECEIVED BY THE APPELLANT BECAUSE OF SOME UNDERSTANDING BETWEEN BROTHE RS IS OF NO RELEVANCE FOR DECIDING THE ANNUAL VALUE OF THE PROPERTY'. THE ACTION OF THE ASSESSING OFFICER WAS THUS CONFIRMED. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS , PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. IN OUR CONSIDERED VIEW, THERE IS NO DISPUTE ABOUT THE ELEMENTARY POSITION THAT NEITHER ANY RENT WAS RECEIVED IN THE RELEVANT PREVIOUS YEARS, NO IS ANYTHING ON RECORD TO SUGGEST THAT RENT WAS FIRST PAYABLE AND THEN FOREGONE. THE ASSESSEE HAD USED THE PREMISES FOR THE PURPOSES OF THE BUSINESS IN WHICH HE WAS A PARTNER. IN THESE CIRCUMSTANCES, THE ANNUAL VALUE IS TO BE DETERMINED AS PER TH E PROVISIONS OF SECTION 23(1)(A) BEING APPLICABLE FOR SELF - OCCUPIED PROPERTY, IN ANY CASE, RENT RECEIVED IN PRECEDING CARS ANYWAY HAS NO DIRECT RELEVANCE IN COMPUTATION OF ANNUAL VALUE THE EXPRESSION 'THE SUM FOR WHICH THE PROPERTY MIGHT BE EXPECTED TO BE LET OUT FROM YEAR TO YEAR', AS IS JUDICIALLY WELL SETTLED DOES NOT MEAN THE RENT R ECEIVED IN PRECEDING YEARS BUT THE RENT RECEIVABLE IN THE PERFECT MARKET CONDITIONS WHICH IS BEST INDICATED BY THE MUNICIPAL VALUATION. THE ACTION OF THE AUTHORITIES BELOW, A S THE APPELLANT PLEADS, IS INDEED UNSUSTAINABLE IN LAW. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS AND COMPUTE THE INCOME FROM HOUSE PROPERTY UNDER SECTION 23(1)(A) OF THE ACT. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 5. EVEN IF THE LD. DR ARGUED THAT THE PROPERTY IS IN QUESTION WAS DIFFERENT IN A.YS. 2003 - 04 TO 2005 - 06 BUT AS PER THE TRIBUNALS ORDER 5 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE DESCRIPTION OF THE PROPERTY IS THE SAME AS MENTION ED BY THE ASSESSING OFFICER. MOREOVER THE TRIBUNAL HAS , ON PRINCIPLE , D ECIDED THIS ISSUE BY DIRECTING THE ASSESSING OFFICER THAT THE MUNICIPAL RATABLE VALUATION MAY BE ADOPTED. WE, ACCORDINGLY, REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE TO WORK OUT THE ANNUAL VALUE OF THE PROPERTY U/S. 23(1) (A) AS PER THE MUNICIPAL VALUATION SUBMITTED BY THE ASSESSEE. ACCORDINGLY, THE ASSESSEE SUCCEEDS ON GROUND NOS. 1 AND 2. 6. THE NEXT ISSUE IS THE DISALLOWANCE CONFIRMED BY THE CIT(A) U/S. 14A OF RS.5,23,074/ - WHICH COMPRISES , THE PROFESSIONAL FEES OF RS. 22,613/ - AND INTEREST OF RS.5,00,461/ - . WE MAY MENTION HERE THAT THE ONLY ISSUE IN THE REVENUES APPEAL ALSO IS THE RELIEF GIVEN BY THE LD. CIT(A) TO THE ASSESSEE IN RESPECT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SEC. 14A R.W. RULE 8D. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS.3480/ - AS DIVIDEND, RS.53,757/ - AS AGRICULTURAL INCOME AND RS.25,00,90,415/ - AS SHARE OF PROFIT FROM FI RMS IN WHICH THE ASSESSEE WAS A PARTNER. HOWEVER, NO EXPENDITURE WAS CLAIMED TO HAVE BEEN INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DID NOT FORM PART OF TOTAL INCOME. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAD CLAIMED EXPENDITUR E ON ACCOUNT OF PROFESSIONAL FEES OF RS.22,613/ - AND ALSO INCURRED INTEREST EXPENSES OF RS.5,00,461/ - ON AN O/D ACCOUNT IN HDFC BANK. THE EXPLANATION SOUGHT BY THE ASSESSING OFFICER REMAINED UNANSWERED BY THE ASSESSEE WITH RESPECT TO THE UTILIZATION OF THE O/D FUNDS AND ALSO THE DETAIL OF SOURCES OF FUND FOR ALL INVESTMENT, CAPITAL CONTRIBUTION TO FIRMS ETC. WAS ALSO NOT FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER . T HE ASSESSING OFFICER THUS WORKED OUT THE DISALLOWANCE AS PER THE PROVISION OF RU LE 8D(2) AT RS.16,67,798/ - WHICH WAS ADDED TO THE 6 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE TOTAL INCOME. THE ASSESSING OFFICER HAD DISCUSSED THE ISSUE IN PARA NO. 7 OF THE ORDER. 7. IN SUM AND SUBSTANCE THE ASSESSING OFFICER MADE THE TOTAL DISALLOWANCE OF RS .16,67,798/ - . THE ASSESSEE CHALLENGED THE SAID ADDITION MADE BY THE ASSESSING OFFICER BEFORE THE LD. CIT(A) AND LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT DISALLOWANCE CANNOT BE MADE MORE THAN EXPENDITURE CLAIMED BY THE ASSESSEE. THE OPERATIVE PART OF THE FINDINGS OF THE LD. CIT(A) AR E AS UNDER: 4.2 I HAVE DULY CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE ASSESSING - OFFICER AND ALSO PERUSED MATERIAL ON RECORD. THE APPELLANT IS IN RECEIPT OF INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME IN THE FORM OF DIVIDEND, AGRICULTURAL INCOME AND SHARE OF PROFIT FROM FIRMS WHERE HE IS A PARTNER THE INCOME EARNED FROM THEM HAS BEEN CLAIMED EXEMPT. THE ASSESSING OFFICER HAS EXAMINED THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE IN RELATION TO EXEMPT INCOME HAS BEEN INCURRED AND, THEREFORE, AFTER RECORDING ITS OPINION ON THE CORRECTNESS OF THE APPELLANTS CLAIM HAS PROCEEDED WITH THE DISALLOWANCE U/S 14A R.W RULE 8D. HENCE THE CONTENTION OF THE APPELLANT IN PLACING RELIANCE OF THE DECISIONS OF THE CASE OF MUMBAI ITAT IN THE CASE OF AUCHTEL PROCUCT VS. ACIT (SUPRA) IS MISPLACED AS IN THAT CASE THE ASSESSING OFFICER HAD NOT EXAMINED THE CLAIM OF THE APPELLANT AND HAD PROCEEDED WITH THE DISALLOWANCE. THERE CANNOT BE ANY INCOME WITHOUT ANY KIND OF EXPENSES, HOWEVER, SMALL IT MAY BE, HENCE THE ASSESSING OFFICER WAS JUSTIFIED IN CALCULATING THE DISALLOWANCE ON THE EXEMPTED INCOME. THE APPELLANT HAS UNDISPUTEDLY EARNED EXEMPT INCOME HENCE THE SEC 14A IS APPLICABLE WHERE IT PROVIDES THAT NO DEDUCTION IN RESPECT OF EXPENDITURE I NCURRED BY THE ASSESSEE IN RELATION TO EXEMPTED INCOME WILL BE ALLOWED. THERE ARE EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME AS WELL AS EARNING OF OTHER INCOMES. THE EXEMPT INCOME DOES 'INVOLVE DIRECT AS WELL AS INDIRECT EXPENSES AS IS EVIDENT FROM T HE MATERIAL ON RECORD. THE SEC 14A DOES NOT TAKE CARE OF ONLY DIRECT EXPENSES BUT INDIRECT EXPENSES ARE ALSO TO BE ALLOCATED TO THE EXEMPTED INCOME. THE ASSESSING OFFICER HAS SPECIFICALLY POINTED OUT TO THE EXPENSES 7 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE DIRECTLY AS WELL AS INDIRECTLY INCURRED FOR EARNING EXEMPT INCOME AND THE APPELLANT HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE ASSESSING OFFICER OR HAS BROUGHT ANY SUCH MATERIAL WHICH IS CONTRARY TO THE FINDING OF THE ASSESSING OFFICER. IN THE CASE OF ACIT VS CHAMPION COMMERCIAL CO LTD (2012) 139 ITD 108 (KOL) IT WAS HELD THAT A DISALLOWANCE U/S 14A CAN ALSO BE MADE IN A CASE IN WHICH THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING TAX EXEMPT INCOME. THEREFORE, WHEN THE ASSESSEE DOES NOT OFFER ANY DISALLOWANCES U/S 14A ON HIS OWN, THE PROVISIONS OF SEC 14A (2) READ WITH RULE 80 CAN BE INVOKED WITHOUT THERE BEING ANY NEED TO EXPRESS SATISFACTION AND INCORRECTNESS OF SUCH A CLAIM. THAT APART, IN THE .PRESENT CASE THE APPELLANT IS PAYING PROFESSIONAL FEES AND INTEREST O N O/D ACCOUNT AND NOT ABLE TO JUSTIFY THE UTILIZATION AND ALSO NOT FURNISHED THE DETAILS OF SUMS OF FUND FOR ALL INVESTMENT, CAPITAL CONTRIBUTION TO FIRMS, IN SUCH A SITUATION DISALLOWANCES U/S 14A CAN INDEED BE MADE. THE EARNING OF DIVIDEND INCOME HAS EMA NATED FROM THE INVESTMENTS MADE BY THE APPELLANT AND SO IS THE CASE WITH THE EARNING OF AGRICULTURAL INCOME. FURTHER PROVISION OF SEC 14A APPLY TO DISALLOW EXPENDITURE INCURRED ON EARNING SHARE INCOME OF A PARTNERSHIP FIRM AS WAS HELD BY THE SPECIAL BENC H OF AHEMDABAD ITAT IN THE CASE OF VISHNU ANANT MAHAJAN VS ACIT (2012) 16 ITR (TRIB) 621 (AHD) 147 TTJ 142 (AHD) SB. 4.3 AT THIS JUNCTURE I CONSIDER IT APPROPRIATE TO REPRODUCE RULE 8D OF THE IT RULES WHICH IS AS FOLLOWS: (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO 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 INC OMER WHICH DOES NOT FORM PART OF THE 'FATAL INCOME* UNDER THE ACT FOR SUCH PREVIOUS YEAR, HA SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISION OF SUB - RULE (2). 8 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE (2) THE EXPENDITURE IN RELATION TO INCOME W HICH 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; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY - A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN TH E AMOUNT OF INTEREST INCLUDED THE CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (HO AN AMOUNT EQUAL TO ONE HALF PERCENT OF THE AVERAGE OF THE VALUE OF INV ESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. A PLAIN READING OF THE ABOVE RULE SHOWS THAT 8D(2) CAN BE APPLIED IN THE PRESENT CASE. HOWEVER, THE CONTENTION RAISED BY THE APPELLANT THAT WHILE MAKING DISALLOWANCE UNDER RULE 8D(2)(III) % OF THE AVERAGE VALUE OF INVESTMENT AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR IS TO BE CONSIDERED AS AGAINST THE CLOSING ASSET TAKEN BY THE ASSESSING OFFICER. THE APPELLANT HOWEVER, HAS NOT FURNISHED ANY SUCH DETAILS IN THIS REGARD NOR FILED THE COPY OF THE BALANCE SHEET FROM WHICH THE TRUE FIGURES & FACTS COULD BE 9 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE ASCERTAINED . IN THE CIRCUMSTANCES, THE ASSESSING OFFICER MAY EXAMINE AND VERIFY THE AFORESAID FACT AND ACCORDINGLY WORK OUT THE DISALLOWANCE. IN ANY CASE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A R.W. RULE 8D IS UPHELD SUBJECT TO THE ABOVE REMARKS. FURT HER THE APPELLANT HAS BROUGHT TO MY NOTICE THE DECISION IN THE CASE OF GILLETE GROUP INDIA P LTD VS ACIT CITED SUPRA WHEREIN THE DELHI ITAT HAS HELD THAT THE DISALLOWANCE U/S 14A CANNOT EXCEED THE EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE. THE TRIBUNAL HELD AS UNDER: 'DISALLOWANCE, FOR THE EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME CAN BE MADE UNDER SUB - SECTION (1) OF S. 14A. IN THE CASE UNDER APPEAL, FROM THE PERUSAL OF THE ASSESSEE'S PROFIT & LOSS ACCOUNT, IT IS EVIDENT THAT THE TOTAL EXPENDITUR E INCURRED WAS RS.49,04,028/ - ONLY. THUS, THE ASSESSEE CLAIMED THE DEDUCTION FOR THE EXPENDITURE OF RS.49,04,028/ - WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT THE DISALLOWANCE CANNOT EXCEED THE EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE CIT(A) IN EXCESS OF TOTAL EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT WAS UNJUSTIFIED................... 4.4 IN VIEW OF THE RATIO OF THE ABOVE DECISION THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE WHICH IS RS.22,613/ - ON ACCOUNT OF PROFESSIONAL FEES AT RS.5,00,461/ - AS INTEREST EXPENDITURE TOTALING TO RS.5,23,074/ - . NOW, THE ASSESSEE HAS RAISED THE GRIEVANCE AGAINST THE DIS ALLOWANCE SUSTAINED BY THE LD. CIT(A). 8. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. AS PER THE COMPUTATION STATEMENT FILED BY THE ASSESSEE IN THE A.Y. 2010 - 11 (PAGE NO. 12 OF THE COMPILATION) THE ASSESSEE HAS CLAIMED THE DEDUCTION TOWARDS INTER EST PAID OF RS. 500,461/ - AGAINST THE INTEREST RECEIVED OF RS.7,863,257/ - . THE ARGUMENT OF THE LD. COUNSEL IS THAT THE FUNDS 10 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE BORROWED FROM THE HDFC BANK WERE UTILIZED FOR MAKING ADVANCES ON WHICH INTEREST IS EARNED . WE FIND THAT THE SAID EXPENDITURE IS CL AIMED BY THE ASSESSEE AGAINST THE TAXABLE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . WE FAIL TO UNDERSTAND IF ANY EXPENDITURE IS CLAIMED AGAINST THE TAXABLE INCOME HOW THE SAME CAN BE DISALLOWED BY INVOKING THE PROVISIONS OF SEC. 14A. ADMITTEDLY, THE ASSESSEE HAS DECLARED THE INTEREST INCOME TO THE EXTENT OF RS.7,863,257/ - . IN FACT THE ASSESSING OFFICER COULD HAVE VERIFIED THE SAID CLAIMED U/S. 57( III ) AND NOT U/S. 14A. THE ASSESSEE HAS ALSO FILED THE CERTIFICATE THAT THE INTEREST BEARING LOANS TAKEN BY HIM WERE NOT UTILIZED FOR INVESTMENT IN ANY OF THE FIRM S, BUT USED FOR INVESTMENT IN THE HOUSE PROPERTY AND ADVANCE S OF THE LOANS TO OTHERS. THE ISSUE OF COMPUTATION OF THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IS NOT BEFORE US. WE, THEREFORE, HOLD THAT THERE IS NO JUSTIFICATION FOR THE LD. CIT(A) TO SUSTAIN THE DISALLOWANCE U/S. 14A IN RESPECT OF INTEREST EXPENDITURE OF RS.500,461/ - AND ACCORDINGLY SAME IS DELETED . SO FAR AS PROFESSIONAL FEES PAID BY THE ASSESSEE IS CONCERNED NOTHI NG HAS BEEN PLACED BEFORE US TO VERIFY THE NATURE. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT(A) ON SAID AMOUNT . IN THE RESULT, THE GROUND NOS. 3 AND 4 ARE PARTLY ALLOWED. SO FAR AS GROUND NOS. 5 AND 6 ARE CONCERNED WHICH ARE GENERAL IN NATURE. 9. NOW, WE TAKE UP THE REVENUES APPEAL BEING ITA NO. 2209/PN/2013. THE REVENUE HAS TAKEN THE FOLLOWING TWO GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A R.W. RULE 8D TO THE EXTENT OF EXPENDITUR E ACTUALLY CLAIMED BY THE ASSESSEE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAD WORKED OUT THE DISALLOWANCE AS PER THE PROVISIONS OF RULE 8D S PER WHICH IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART 11 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE OF THE TOTAL INCOME UNDER THE ACT, HE CAN DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF S UB RULE (2) OF RULE 8D. 10. WE HAVE ALREADY NARRATED THE FACTS HERE - IN - ABOVE. WE FIND THAT THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENDITURE IN HIS COMPUTATION: I. PROFESSIONAL FEES RS.22,613/ - II. INTEREST PAID RS.5,00,461/ - IN RESPECT OF INTEREST PAID W HILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES , WE HAVE ALLOWED THE SAME BUT CONFIRM ED THE PROFESSIONAL FEES OF RS.22,613/ - . NO OTHER EXPENDITURE IS CLAIMED BY THE ASSESSEE. THE SCOPE OF SEC. 14A HAS COME FOR THE CONSIDERATION BEFO RE ITAT, DELHI IN THE CASE OF GILLETTE GROUP INDIA (P) LTD. VS. ACIT, 16 ITR (TRIB) 57 AND IT IS HELD AS UNDER : 6. FROM THE ABOVE, IT IS EVIDENT THAT AS PER SUB - SECTION (1) OF SECTION 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. SUB - SECTION (2) OF SECTION 14A PROVIDES THE PROCEDURE FOR DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER. THE BOARD HAS ALSO PRESCRIBED RULE 8D FOR DETERMINING THE EX PENDITURE INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT INCOME. THUS, THE DISALLOWANCE CAN BE MADE UNDER SUB - SECTION (1) FOR THE EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME. IN THE CASE UNDER APPEAL BEFORE US, FROM THE PERUSAL OF THE ASSESSEES PRO FIT & LOSS ACCOUNT, IT IS EVIDENT THAT THE TOTAL EXPENDITURE INCURRED WAS RS. 49,04,028/ - ONLY. THUS, THE ASSESSEE CLAIMED THE DEDUCTION FOR THE EXPENDITURE OF RS. 49,04,028/ - WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE DISALLOWANCE CANNOT EXCEED THE EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE. WE, THEREFORE, ACCEPT THE ASSESSEES CONTENTION THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) IN EXCESS OF TOTAL EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT WAS UNJUST IFIED. ACCORDINGLY, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXPENDITURE ACTUALLY CLAIMED BY THE ASSESSEE I.E. RS. 49,04,028/ - . 12 ITA NO S. 2120 & 2209/PN/2013, SHRI RAJKUMAR P. SHEWANI, PUNE 11. THE PRINCIPLES LAID DOWN IN THE CASE OF GILLETTE GROUP INDIA (P) LTD. (SUPRA) ARE SQUARELY APPLICABLE TO THE ASSESSEES CASE. WE, THEREFORE, CONFIRM THE ORDER OF THE LD. CIT(A) BY HOLDING THAT DISALLOWANCE U/S. 14A R.W. RULE 8D CANNOT BE MORE THAN THE EXPENDITURE CLAIMED BY THE ASSESSEE. ACCORDINGLY, GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 12. IN THE RESULT, THE A SSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23 - 01 - 201 5 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DAT ED : 23 RD JANUARY, 2015 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - II, PUNE 4 THE CIT - II, PUNE 5 6 THE DR, ITAT, A BENCH, PUNE. GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR , INCOME TAX APPELLATE TRIBUNAL , PUNE