JT. CIT (OSD) CENT. CIR. 4(1) CENT. RG. 4, MUMBAI V. BIJESH THAKKAR, MUMBAI

ITA 2787/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0865 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Double taxation relief; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 2787 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 201 1 - 12 ) JT. COMMISSIONER OF INCOME TAX, (OSD), CENTRAL CIRCLE 4(1), CENTRA L RAN GE - 4, R.NO. 1916, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 / VS. SHRI BIJESH THAKKER PROP, THAKKER & THAKKER 601, EMBASSY CENTRE, NARIMAN POINT, MUMBAI 400021 ./ ./ PAN/GIR NO. : AAAPT 7758 G ( / AP PELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 26.10 .2017 / DATE OF PRONOUNCEMENT : 15.01 . 20 18 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 01 .0 1 .20 16 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY.20 11 - 12 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE U/S.14A R.W. RULE REVENUE BY: S HRI SAURABH DESHPANDE (DR ) ASSESSEE BY : SHRI SANJIV M. SHAH ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 2 8D DESPITE THE AO MAKING OUT A CASE FOR PROXIMATE CAUSE OF EXPEN SES INCURRED AGAINST EARNING EXEMPT INCOME. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN IGNORING THE PROVISIONS OF SECTION 14A(3) WHEREIN SECTION 14A CAN BE INVOKED EVEN IN CASES WHERE AN ASSESSEE CLAIMS THAT N O EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT SECTION 14A IS APPLICABLE IN A CASE WHERE EXPENDITURE IN RELATION TO EXEMPT INCOME IS CLAIMED IN CAPITAL ACCOUNT AND NOT IN PROFIT AND LOSS ACCOUNT AND THEREBY PROVIDING PROOF OF INCURRING EXPENDITURE TOWARDS EARNING EXEMPT INCOME. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADD ITION MADE U/S,40(A)(IA) OF THE IT ACT BY RELYING ON THE ITAT SPECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS ADDL. C1T 136 ITD 23 (SB) VISHAKAPATNAM WITHOUT CONSIDERING THE FACT THAT THE OPERATION OF THE SAID DECISION HAS BEEN STAY ED BY THE HON'BLE HIGH COURT OF ANDHRA PRADESH. 3 . THE BRIEF FACTS OF THE CASE , ARE THAT THE ASSESSE E F ILED HIS R ETURN OF INCOME ON 16.09.2011 DECLARING TOTAL INCOME T O THE TUNE OF RS.5,41,38,530 / - . THE RETURN WAS PROCESSED U/S 143(1) . T HE CASE WAS SELEC TED FOR SCRUTINY UNDER CASS. THEREAFTER, THE NOTICE U/S 143(2) DATED 02.08.2012 AND NOTICE U/S 142(1) OF THE ACT, DATED 18.02.2013 WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS PROPRIETOR OF M/S. THAKKER & THAKKER, SOLICITORS AND ADVOCATES. TH E ASSESSEE S SOURCE OF INCOME CONSISTS OF INCOME FROM HOUSE PROPERTY, INCOME FROM PROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. ON VERIFICATION , IT WAS FOUND THAT THE ASSESSEE PAID ASSOCIATION SHIP FEES TO THE TUNE OF RS.10,48,590/ - TO MR. C.Z. SHAH AT LONDON WITHOUT DEDUCTING ANY TDS. THE NOTICE WAS GIVEN AND AFTER FILING THE REPLY , ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 3 THE ASSESSING OFFICER WAS OF THE VIEW THAT PAYMENT WAS OF THE VIOLATION OF SECTION195 OF THE I.T. ACT. THEREFORE, THE SAID AMOUNT WAS DISALLOWED U/S 40 A(IA) OF THE I .T. ACT, AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE ALSO RECEIVED THE EXEMPT INCOME, THEREFORE, THE ASSESSING OFFICER APPLIED PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT AND ASSESSED THE EXPENDITURE TO INCUR THE EXEMPT INCOME TO THE TUNE O F RS. 3,216,994.01/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.5,90,98,530/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO 1 & 3 : - 4. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT TO THE TUNE OF RS. 32,16,994/ - WHICH WAS RESTRICTED TO THE EXTENT OF 1,00,000/ - . BEFORE GOING FURTHER, IT IS NECESS ARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - IN GROUND NO. 1 APPELLANT CHALLENGES DISALLOWANCE OF EXPENDITURE U/S 14A OF THE I.T. ACT FOR RS.32,16,994/ - . AO HAD FOUND OUT THAT APPELLANT HAD INVESTED IN SHARES, MUTUAL FUNDS AND GOVERNMENT SECURITI ES TO THE EXTENT OF RS.1,40,91,10,380/ - AS APPELLANT HAS INVESTED IN INVESTMENT WHERE THERE IS A SCOPE OF EARNING EXEMPT INCOME, AO HAD DEBITED RULE 8D(2)(III) I.E. 0.5% OF AVERAGE INVESTMENT DISALLOWED RS.32,16,994/ - 3. ON EXAMINING THIS CASE IT APPEARS T HAT THIS IS A RECURRENT ISSUE IN CASE OF APPELLANT SAME HAS BEEN DECIDED BY CIT(A) IN 2009 - 10 ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 4 WHEREIN CIT HAD CONSIDERED ALL THE ARGUMENTS AND ALTERNATE PLEA OF THE APPELLANT AND UPHELD THE DISALLOWANCE AT RS.1,00,000/ - . 4. SINCE THE FACTS OF THE CASE ARE IDENTICAL FOR THE YEAR UNDER CONSIDERATION, IN VIEW OF THE DECISION OF CIT(A), EARLIER DISALLOWANCE U/S 14A IS ALLOWED AT RS.1,00,000/ - FOR THIS YEAR TOO. GROUNDS OF APPEAL IS PARTLY ALLOWED. 6 . ON APPRAI SAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE CIT(A) HAS DECIDED THE ISSUE ON THE BASIS OF FINDING OF THE CIT(A) IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2009 - 10 . A T THE TIME OF ARGUMENT , T HE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE ORDER PASSED BY THE HONBLE ITAT I N THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 IN ITA. NO. 4694/M/2012 DATED 26.04.2017 . THE FINDING HAS BEEN GIVEN IN PARA NO. 5 OF THE SAID CASE WHICH IS HEREBY REPRODUCED BELOW AS UNDER: - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT NEITHER THE AO NOR CIT(A) HAS RECORDED ANY SATISFACTION IN APPLYING RULE 8D (2) (III) DESPITE THE FACT THAT THE ASSESSEE HIMSELF OFFERED A SUM OF RS. 1 LAC TOWARDS DISALLOWANCE UNDER SECTION 14A OF THE ACT. THER E IS NO BASIS GIVEN BY AO WHILE MAKING THIS DISALLOWANCE OR HOW HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ACCOUNT OF THE ASSESSEE. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) H AS EMPHASIZED ON SATISFACTION AS UNDER: - .WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRES CRIBED METHOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOV ER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB - SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE ITA NO.4694/MUM/2012 BIJEHSH THAKKAR ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 5 PROP,THAKKER & THAK KER; A.Y:08 - 09 PAGE 4 OF 5 METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSE SSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTI VE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRAN T FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. SUB - SECTION (3) OF SECTION 14A PROVIDES FOR THE APPLICATION OF SUB - SECTION (2) ALSO TO A SITUATION WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT 6. FROM THE ABOVE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT AND THE FACTS OF THE CASE THAT THE AO HAS NOT RECORDED SATISFACTION QUA THE INCORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE, WE DELETE THE DISALLOWANCE AND ALLOW THE APPEAL OF THE ASSESSEE. 7. THE FACTS OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS OF THE CASE AS MENTIONED IN ITA. NO. 4694/M/2012 DATED 26.04.2017 . THE CASE OF THE ASSESSEE SQUARELY COVERED BY THE SAID ORDER . I N VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE RATIO OF THE SAID JUDGMENT IS QUITE APPLICABLE TO THE FACTS OF THE CASE, HENCE, THE FINDING OF THE CIT(A) DOESNT WARRANT ANY INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO 4: - ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 6 8. UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION RAISED U/S 40 A(IA) OF THE I.T. ACT, 1961. THIS MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY CIT(A) IN THE CASE OF ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10 BY VIRTUE OF ORDER DATED 23.10.2012 . T HE FINDING OF THE CASE IS HEREBY REPRODUCED B ELOW AS UNDER: - 3 I HAVE CONSIDERED THE FACTS AND FOUND THAT SHRI C.Z. SHAH HAS RENDERED SERVICES TO THE APPELLANT IN THE FIELD OF IDENTIFYING PROSPECTIVE CLIENTS, ARRANGING ME ETINGS, CO - ORDINATION FURTHER FOLLOW UP AND INTERACTION TO OBTAIN LEGAL ASSI GNMENTS FOR THE APPELLANT. THEREFORE, THE SERVICES REND ERED BY SHRI C.Z. SHAH ARE IN THE NATURE OF MANAGERIAL SERVICES AS DEFINED UNDER EXPLANATION 2 TO SECTION 9(L)(VII) OF THE I.T. ACT, THEREFORE, SHR I C.Z. SHAH HAS NOT PROVIDING A NY PROFESSIONAL SERVICE S AND NET PERFORMING INDEPENDENT 'ACTIVITY SIMILAR TO PROFESSIONAL SERVICES WITHIN THE MEANING OF ARTICLE 15 OF INDIA - UK. DOUBLE TAXATION AVO IDANCE AGREEMENT. THEREFORE, 'FEES PAID TO SHRI C.I. SHAH BY THE ASSESSES FALLS U/S.9(L)[VII)(B) AND THEREBY SUCH I NCOME IN HANDS OF SHRI C.Z. SHAH IS DEEMED TO ARISE IN INDIA N U/S.9 OF THE ACT WHICH ARE TAXABLE U/S,5[2) OF THE ACT. ALTHOUGH SUCH SERVICES ARE ALSO COVERED BY PROVISIONS OF ARTICLE 13 OF INDIA - UX. DTAA BUT SHRI C.I, SHAH HAVE RE NDERED 'SUCH SERVICES WHI CH DE NOT MAKE AVAILABLE TO THE APPELLANT. THEREFORE, SUCH SERVICES RENDERED BY SHRI C.Z. SHAH ARE OUTSIDE THE PURVIEW OF ARTICLE 13 OF INDIA - UK. DTAA WHICH HAVE OVERRIDING EFFECT OVER THE I.T. ACT. FURTHER, IT IS ALSO NOTICED THAT A SUM PAID TO SHRI C.Z. SHAH WAS NOT OUTSTANDING AND PAYABLE AT THE END OF THE ACCOUNTING YEAR AS THE SAME STANDS ALREADY PAID BEFORE THE END OF THE PREVIOUS YEAR. THEREFORE, SAME IS NOT LIABLE FOR DISALLOWANCE U/S.40(A)(IA) OF THE ACT AS LAID DOWN BY THE HON'BLE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING VS. AC1T 16 ITR 1 (VISH) (SB). THE SAID DECISION IS ALSO FOLLOWED BY HON'BLE MUMBAI ITAT IN THE CASE OF E MKAY SHARE BROKERS LTD VS. ADDL CIT IN ITA NO.6479/MUM/2009 DATED 20.06.2012 AND ALSO IN THE CASE OF HINDUSTAN THOMSON VS . ACIT IN ITA NO.6184/M/2011 DATED ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 7 25.05.2012. THEREFORE, RESPECTIVELY FOLLOWING THE AFORESAID DECISIONS OF HONBLE JURISDICTIONAL TRIBUNAL, DISALLOWANCE OF RS.3,20,920/ - MADE U/S 40(A)(IA) IS DELETED. 9. THE FINDING OF THE CIT(A) HAS NOT BEEN CHALLENGED BY REVENUE. THE MATTER OF CONTROVERSY HAS BEEN DECIDED BY CIT(A) ON THE BASIS OF SAID FINDING WHICH IS HEREBY REPRODUCED BELOW AS UNDER: - ON EXAMINING THE CASE, IT APPEARS THAT THIS IS A RECURRENT OF ISSUE IN THE CASE OF THE APPELLANT AND THE SAME IS DECIDED BY CIT(A) IN A.Y. 2009 - 10 THE CIT HAS CONSIDERED ALL THE ARGUMENTS AND DECIDED THE ISSUE IN THE FAVOUR OF THE APPELLANT. SINCE THE FACTS OF THE CASE ARE IDENTICAL FOR YEAR UNDER CONSIDERATION OF THE EARLIER DECISION OF CIT(A) THE DISALLOWANCE MADE U/S 40(A)(IA) IS DELETED FOR THIS YEAR. GROUND OF APPEAL IS ALLOWED. 10. THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY CIT(A) ON THE BASIS OF THE ITA. NO. 4694/M/2012 DATED 26.04.2017 . T HEREFORE, WE ARE OF THE VIEW, THE CIT (A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE AT THIS APPELLATE STAGE. 11 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HERE BY ORDERED TO BE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 15.01. 2018 . SD/ - SD/ - ( RAJENDRA ) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 15.01. 2018 V.P. SINGH ITA. NO. 2787 /M/20 16 A.Y. 2011 - 12 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESP ONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI