DCIT, Vellore V. Shri B.Prakash Chand, Kancheepuram

ITA 26/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90722 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . , ! # $ , % ' BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.26/MDS/2013 ( / ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I. VELLORE-632 001. VS MR.B.PRAKASH CHAND, 137-B, NORTH RAJA STREET, KANCHEEPURAM-631 501. PAN:AHHPP1640D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR. B.NISCHAL, JCIT /RESPONDENT BY : MR. V.S.JAYAKUMAR, ADVOCATE /DATE OF HEARING : 28 TH MAY, 2015 /DATE OF PRONOUNCEMENT : 29 TH JULY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHENN AI DATED 21.09.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THE FIRST GROUND IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER UNDER SECTION 14A READ WITH RULE 8D. 2 ITA NO.26 /MDS/2013 3. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ASSESSI NG OFFICER WHILE COMPLETING THE ASSESSMENT BY INVOKING RULE 8D READ WITH SECTION 14A OF THE ACT DISALLOWED ` 11,37,980/- AS THE EXPENDITURE ATTRIBUTABLE FOR EARNING EXEMPT INC OME AS THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE TOWARDS EXPE NSES IN EARNING EXEMPT INCOME THOUGH THE ASSESSEE HAS IN VESTED IN SHARES. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ` 11,37,980/- CONSISTS OF DISALLOWANCE MADE UNDER RUL E 8D(2)(II) OF ` 9,66,920/- AND UNDER RULE 8D(2)(III) OF ` 1,71,060/-. DEPARTMENTAL REPRESENTATIVE SUBMITS THA T COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE EN TIRE DISALLOWANCE HOLDING THAT ASSESSING OFFICER HAS NOT ESTABLISHED THAT EXPENDITURE HAS BEEN INCURRED IN E ARNING EXEMPT INCOME. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN HOLDING SO BECAUSE ACCORDING TO REVENUE ASSESSEE H AD INCURRED EXPENDITURE AND SINCE NO EXPENDITURE WAS DISALLOWED IN EARNING EXEMPT INCOME, ASSESSING OFFI CER RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT. 3 ITA NO.26 /MDS/2013 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT BEFORE INV OKING PROVISIONS OF SECTION 14A OF THE ACT, ASSESSING OFF ICER HAS NOT RECORDED ANY SATISFACTION AS TO INCURRING OF EX PENSES IN EARNING EXEMPT INCOME BY THE ASSESSEE. COUNSEL FOR THE ASSESSEE SUBMITS THAT WHILE COMPUTING DISALLOWANCE UNDER RULE 8D ASSESSING OFFICER HAS TAKEN THE INVESTMENT S MADE IN AGRICULTURAL LANDS ALSO AND SINCE THE INCOME FRO M AGRICULTURAL LAND IS NOT ENTIRELY EXEMPT INCOME AS THE SAME IS SETTLED TO SOME EXTENT, SINCE SUCH INCOME IS INCLUD ED FOR AGGREGATE RATE PURPOSES, THERE IS NO JUSTIFICATION IN CONSIDERING INVESTMENTS IN LANDS FOR COMPUTING DISA LLOWANCE UNDER SECTION 14A OF THE ACT. COUNSEL FURTHER SUBM ITS THAT ASSESSEE HAS TAKEN LOAN OF ` 31,48,133/- FROM MR. SANTOSH BAI JAIN FOR WHICH NO INTEREST WAS PAID . COUNSEL F OR THE ASSESSEE SUBMITS THAT INTEREST ON UNSECURED LOANS D EBITED TO PROFIT AND LOSS ACCOUNT AT ` 18,03,629/- REPRESENTS LOANS TAKEN IN LAST YEAR AND DURING THE CURRENT YEAR FOR WHICH INTEREST WAS PAID. COUNSEL FOR THE ASSESSEE SUBMITS THAT MONIES RECEIVED FROM LENDERS WERE USED FOR ONLY BU SINESS PURPOSES AND ASSESSEE HAS HIS OWN FUNDS TO INVEST IN SHARES DURING THE YEAR. COUNSEL FOR THE ASSESSEE SU BMITS 4 ITA NO.26 /MDS/2013 THAT THERE IS NO SUCH DISALLOWANCE MADE UNDER SECTI ON 14A IN SUBSEQUENT YEARS ON SIMILAR SET OF FACTS. 5. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE R EVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 40A(2) (B) IN RESPECT OF COMMISSION PAID BY THE ASSESSEE TO HIS S ON AND DAUGHTER. 6. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ASSESSI NG OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THA T ASSESSEE HAS PAID COMMISSION OF ` 38,25,000/- TO HIS SON & DAUGHTER. THE ASSESSING OFFICER WAS OF THE VIEW THA T SON & DAUGHTER HAVE NOT RENDERED ANY SERVICES SO AS TO CL AIM SUCH HUGE COMMISSION, THEREFORE ASSESSING OFFICER RESTRI CTED THE COMMISSION ONLY TO 1% OF SALES TURNOVER AND BALANC E COMMISSION OF ` 29,02,329/-/- WAS DISALLOWED INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. DEPART MENTAL REPRESENTATIVE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE ACCEPTING THE CO NTENTION OF THE ASSESSEE THAT FAMILY MEMBERS ARE ENGAGED IN THE ASSESSEES BUSINESS. DEPARTMENTAL REPRESENTATIVE PL ACES 5 ITA NO.26 /MDS/2013 RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN D ISALLOWING COMMISSION PAID TO SON AND DAUGHTER BY THE ASSESSEE . 7. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE P AID COMMISSION TO HIS SON AND DAUGHTER DURING THIS ASSE SSMENT YEAR AS THEY HAVE INVOLVED IN IMPROVING SALES OF TH E ASSESSEE. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASS ESSING OFFICER HAS NOT ESTABLISHED THAT NO SERVICES WERE R ENDERED BY SON AND DAUGHTER IN THE BUSINESS OF THE ASSESSEE BU T THE ASSESSING OFFICER RESTRICTED THE COMMISSION PAID TO SON AND DAUGHTER TO THE EXTENT OF 1% OF SALES TURNOVER AS THE ASSESSING OFFICER WAS OF THE OPINION THAT COMMISSIO N PAID FOR THEIR SERVICES WAS EXCESSIVE. COUNSEL FOR THE ASSE SSEE SUBMITS THAT REFERRING TO PAGE 27 TO 32 OF THE PAPE R BOOK SUBMITS THAT DURING THE ASSESSMENT YEARS 2010-11 AN D 2012- 13 THIS ASPECT WAS EXAMINED THOROUGHLY BY THE ASSES SING OFFICER AND ACCEPTED THE COMMISSION PAYMENTS MADE TO SON AND DAUGHTER. THEREFORE, COUNSEL FOR THE ASSESSEE S UBMITS THAT THERE IS NO JUSTIFICATION IN NOT ACCEPTING COM MISSION PAID DURING THIS ASSESSMENT YEAR . ON A QUERY FROM THE B ENCH, COUNSEL SUBMITS THAT HE HAS NO OBJECTION FOR REMITT ING THE ISSUE BACK TO THE ASSESSING OFFICER FOR FURTHER VER IFICATION ON 6 ITA NO.26 /MDS/2013 THIS ASPECT. COUNSEL FURTHER SUBMITS THAT BOTH THE ISSUES MAY BE REMITTED BACK TO THE ASSESSING OFFICER FOR DE NO VO CONSIDERATION. 8. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE PAPER BOOK FILED BEFORE US. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED ` 11,37,980/- UNDER SECTION 14A READ WITH RULE 8D. WHILE COMPUTIN G THE DISALLOWANCE, ASSESSING OFFICER HAS MECHANICALLY FO LLOWED RULE 8D AND NO SATISFACTION AS TO WHETHER THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS I NCURRED HAS BEEN EXAMINED. FURTHER, WE NOTICE THAT ASSESSIN G OFFICER HAS MADE INVESTMENTS IN AGRICULTURAL LANDS, AGRICU LTURAL LAND ADVANCES, OTHER INVESTMENTS FOR THE PURPOSE OF COMP UTING DISALLOWANCE. ASSESSING OFFICER HAS NOT EXAMINED AS TO WHETHER INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT IS TAKEN INTO ACCOUNT OR INTEREST WAS PAID IN THE COURSE OF BUSINESS ON THE LOANS OBTAINED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS. THESE ASPECTS HAVE NOT BEEN EXAMINED. COM ING TO THE DISALLOWANCE OF COMMISSION PAID, IT IS APPARENT LY CLEAR THAT PAYMENT OF COMMISSION IN SUBSEQUENT ASSESSMENT YEARS I.E. 2010-11 AND 2012-13 HAVE BEEN ACCEPTED. WE ALS O SEE THAT SWORN STATEMENTS WERE RECORDED FROM THE SON AN D 7 ITA NO.26 /MDS/2013 DAUGHTER OF THE ASSESSEE TO WHOM COMMISSION SAID TO HAVE BEEN PAID, WHO HAVE ALSO CONFIRMED THAT THEY HAVE R ENDERED SERVICES IN THE BUSINESS OF THEIR FATHER, I.E. THE ASSESSEE BEFORE US. TAKING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES OF THE CASE INTO CONSIDERATION, WE ARE OF THE OPINI ON THAT MATTER SHOULD BE EXAMINED THOROUGHLY BY THE ASSESSI NG OFFICER ONCE AGAIN AFRESH. THUS THE ISSUES IN THE A PPEAL ARE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE SAME AFRESH AFTER PROVIDIN G ADEQUATE OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2015. SD/- SD/- ( . $ ) ( & () ) (D.KARUNAKARA RAO) (CHALLA NAGENDR A PRASAD ) + / ACCOUNTANT MEMBER ( + / JUDICIAL MEMBER ( /CHENNAI, - /DATED 29 TH JULY, 2015 SOMU /0 10 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .