Shri Kamal Kumar Jagdish Prasad Lath, Burhanpur V. THE JCIT, Khandwa

ITA 264/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6002 (ITAT-INDORE)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S S DESHPANDE
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO.264/IND/2016 A.Y.2010-11 KAMAL KUMAR JAGDISH PRASAD LATH BURHANPUR PAN ABAPL 6738R ::: APPELLANT VS JT.COMMR. OF INCOME TAX KHANDWA RANGE INDORE ::: RESPONDENT APPELLANT BY SHRI S.S. DESHPANDE RESPONDENT BY SHRI MOHD. JAVED DATE OF HEARING 20.6.2016 DATE OF PRONOUNCEMENT 21.6.2016 O R D E R THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINS T THE ORDER DATED 17.2.2016 OF LEARNED CIT(A)-22, NEW DELHI, HAVING CONCURRENT JURISDICTION OF CIT(A), INDORE-2. 2. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDI NG THE ADDITION OF RS.9,75,979/- U/S 14A OF THE ACT. KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HIMSELF MADE A DISALLOWANCE OF RS. 28,339/- AND THE DIVIDEND RECEIVED WAS RS.3,30,419/-. HOWEVER, T HE TOTAL INVESTMENTS WERE OF RS.3,66,77,904/-. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REVISE D ITS DISALLOWANCE FROM RS. 28,339/- TO RS. 55,839/- BEING % OF THE INVESTMENT MADE DURING THE YEAR. HOWEVER, RUL E 8D PROVIDES FOR A DISALLOWANCE AT % OF THE AVERAGE INVESTMENT DURING THE YEAR BESIDES A DISALLOWANCE OF INTEREST COMPUTED IN THE MANNER PROVIDED IN RULE 8D. THE ASSESSING OFFICER MADE THE DISALLOWANCE ACCORDINGLY. 4. BEING AGGRIEVED WITH THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE ASSESSEE APPROACHED THE LEARNED CIT(A) BUT IN VAIN. NOW THE ASSESSEE IS BEFORE THE TR IBUNAL. 5. I HAVE HEARD BOTH THE SIDES. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAS GRO SSLY ERRED IN CONFIRMING THE ILLEGAL ACTION OF THE ASSESSI NG KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 3 OFFICER WITHOUT SHOWING ANY REASONS THEREFOR. THE LEAR NED COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK; I N ITA NO. 330/2012 WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEES OWN FUND AND OTHER INTEREST BEARING FUNDS W ERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES, IT WOULD BE PRESUMED THAT THE INVESTMENT MADE WOULD BE O UT OF INTEREST FREE FUNDS. FURTHER RELIANCE WAS MADE TO T HE JUDGMENT OF VARIOUS TRIBUNALS IN THE CASE OF RAINY INVESTMENT PVT. LTD. VS. ACIT; ITA NO. 5491/MUM/201 1 AND THE CIT VS. TRADE APARTMENT IN ITA NO. 1277/KOL/2011, MORGAN STANLEY INDIA SECURITIES VS. AC IT; ITA NO. 5072/MUM/2015 AS ALSO THE DECISION IN THE CAS E OF ITO VS. KARNAWATI PETROCHEMICALS PVT. LTD.; ITA NO. 2228/AHD/2012 WHEREIN IT HAS BEEN HELD THAT NETTING O F INTEREST RECEIPTS AND PAYMENTS HAVE TO BE CONSIDERED. MOREOVER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 4 THAT ON THE SAME ISSUE, THE HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT; 372 ITR 694 (DELHI) HELD THAT THUS, SECTION 14A(2) OF THE ACT AND RULE 8D(1) IN UNISON AND AFFIRMATIVELY RECORD THAT THE COMPUTATION OR DISALLOWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INC OME MUST BE EXAMINED WITH REFERENCE TO THE ACCOUNTS, AN D ONLY AND WHEN THE EXPLANATION/CLAIM OF THE ASSESSEE IS N OT SATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RUL E 8D OF THE RULES IS TO BE MADE. THEREFORE, GO ON TO SUB RULE (2) TO RULE 8D OF THE RULES UNTIL AND UNLESS THE ASSESSING OFFICER HAS FIRST RECORDED THE SATISFACTION, WHICH IS MANDATED BY SUB SECTION (2) TO SECTION 14A OF THE ACT AND SUB RU LE (1) TO RULE 8D OF THE RULES. 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AS ALSO CBDT CIRCULAR NO. 5/2014 DATED 11.2.2014. KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 5 6. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SID ES. HON'BLE HIGH COURT OF DELHI IN THE CASE OF JOINT INV ESTMENT PVT. LTD. (SUPRA) HAS HELD AS UNDER :- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2,97, 440/-AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. T AIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AM OUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF A NY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE AP PEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO -AN ASPECT WH ICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, A ND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UN MINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,00 0/-, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARL Y 110% OF THAT SUM, I.E., RS.52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIR E TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOW ANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWI NG EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EX EMPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURE LY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 10. FOR THE ABOVE REASONS, THE IMPUGNED ORDER OF THE ITAT IS SET ASID E. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE. CONSEQUE NTLY, ORDER OF THE AO IS SET ASIDE. THE INITIATION OF PENALTY PROCEEDI NGS ALSO IS SET ASIDE. THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDER ATION IN ACCORDANCE WITH THE ABOVE DIRECTIONS. THE APPEAL IS PARTLY ALL OWED. I, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER TO CONS IDER THE KAMALKUMAR JAGDISHPRASAD LATH ITA NO. 264/IND/2016 6 ABOVE HIGH COURT JUDGMENTS CITED ABOVE AND DECIDE THE ISSUE IN VIEW THEREOF. I ORDER ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. PRONOUNCED IN OPEN COURT ON 21 ST JUNE, 2016 SD/- (D.T. GARASIA) JUDICIAL MEMBER 21 ST JUNE, 2016 DN/-