M/s. Sawhney Brothers, New Delhi V. ACIT, New Delhi

ITA 2864/DEL/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6361 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHOUDHARI
• Assessee Lawyers: R K MEHRA
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC , NEW DELHI BEFORE SH. N. K. SAINI, A CCOUNTANT M EMBER ITA NO. 2864/DEL/2015 : ASSTT. YEAR : 2007 - 08 SAWHNEY BROTHERS, D - 924, NEW FRIENDS COLONY, NEW DELHI - 110065 VS ACIT, CIRCLE - 52(4), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABFS7303M ASSESSEE BY : SH. R. K. MEHRA, CA REVENUE BY : MS. BEDOBANI CHOUDHARI , SR. DR DATE OF HEARING : 15 .03 .201 7 DATE OF PRONOUNCEMENT : 22 .03 .201 7 ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 10.03.2015 OF LD. CIT(A) - 18 , NEW DELHI . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE CIR CUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE SUBMISSIONS MADE BY THE PETITIONER WHICH WERE IN TURN BASED ON THE LEGAL INTERPRETATION OF THE SUBJECT LAW CONTAINED IN SECTION 1 4A OF THE ACT WHILE HOLDING THAT THE RULE 8D OF THE INCOME TAX RULES, 1962, ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR 2007 - 08 WHICH RULE IS APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09 FOR THE FIRST TIME, THUS FAILING TO FOLLOW T HE MANDATE OF LAW AS LAID DOWN BY THE COURTS , 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 2 FACTS IN NOT FOLLOWING HER OWN APPELLATE ORDER PA SSED ON 16 - 11 - 2010 IN APPEAL NO. 295/08 - 09, FOR THE ASSESSMENT YEAR 2006 - 07 IN THE PETITIONER'S OWN CASE, EVEN THOUGH THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES AND GIVING CATEGORICAL FINDINGS TO THE FACT THAT THE INVESTMENTS HAD BEEN MADE BY THE PETITIONER IN EARNING TAX FREE INCOME, OUT OF ITS OWN INTEREST FREE FUNDS ALREADY AVAILABLE WITH THE PETITIONER FIRM. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DE LHI ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSES HAS NOT SHOWN ANY EXPENDITURE ATTRIBUTABLE TO ITS EXEMPTED INCOMES AGGREGATED TO RS.60,08,969, HOWEVER IN CONTRARY TO THAT, THE LEARNED CIT(A) HAS HERSELF MENTIONED IN THE SAME PARAGRAPH, THAT THE 'ASSESSES HAS ITSELF ADDED BACK RS.9,39,077/ - THEREFORE ONLY AMOUNT OF RS. 24,70,653/ - IS DISALLOWED FROM BUSINESS EXPENSES CLAIM BY THE ASSESSES AS PER THE PROVISION OF SECTION 14A READ WITH RULE 8D(2)(I)'. FURTHERMORE, THE LEARNED CIT (A) ERRED IN LAW IN FAILING TO DIRECT THE LEARNED ASSESSING OFFICER IN DELETING THE DISALLOWANCE OF RS. 939077 WHICH HAD BEEN MADE TWICE OVER, IN COMPUTING THE TOTAL INCOME OF THE PETITIONER FOR THE ASSESSMENT YEAR 2007 - 08. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON FACTS IN DISALLOWING SUM OF RS,999500 OUT OF CLAIM OF INTEREST PAID ON LOANS RAISED FOR BUSINESS PURPOSES, ALLEGEDLY AND BY WRONGLY APPLYING THE P ROVISIONS CONTAINED IN SECTION 14A OF THE ACT READ WITH RULE 8(II) OF THE INCOME TAX RULES, 1962 WHICH SUB RULE 8(II) BECAME APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09 ONWARDS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONE R OF ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 3 INCOME TAX (APPEALS) 18, NE W DELHI ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.225831 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(III) OF THE INCOME TAX RULES, 1962 WHICH SUB RULE 8(III) BECAME APPLICABLE FR OM THE ASSESSMENT YEAR 2008 - 09 ONWARDS. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON FACTS IN UPHOLDING THE ARBITRARY AND ADHOC DISALLOWANCE S OF, (A) RS. 240025 BEING 20% OF EXPENDITURE ON VEHICLE RUNNING AND MAINTENANCE EXPENSES OF RS. 1200126, (B) RS.100679 BEING 20% OF DEPRECIATION ON VEHICLES OF RS.503395 AND (C) RS. 12615 BEING 20% OF INTEREST ON LOAN OF RS. 63074, ALL UNDER SECTION 37(1) OF THE ACT WITHOUT APPRECIATING INTER ALIA THAT THE AMOUNT OF DEPRECIATION ON VEHICLES AND INTEREST ON VEHICLES CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 37(1) OF THE ACT. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S C ASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THAT THERE WAS NO LONG TERM CAPITAL GAINS OF RS.394998 ARISING TO THE PETITIONER ON THE REDEMPTION OF CERTAIN MUTUAL FUNDS DURING THE YEAR, INS TEAD THERE WAS LONG TERM CAPITAL LOSS OF RS.75466 (AFTER INDEXATION) IN TERMS OF SECTION 112 OF THE INCOME TAX ACT, 1961. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONER FIRM'S CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 18, NEW DELHI ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS. 25387 UNDER SECTION 40(A)(IA) OF THE INCOME TAX, 1961. 9. THAT THE ASSESSMENT ORDER MADE IS BAD IN LAW. ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 4 3. VIDE GROUND NOS. 1 TO 5, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTE NANCE OF ADDITION MADE BY THE AO U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) READ WITH RULE 8D(III) OF THE INCOME TAX RULES, 1962. 4 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 21.11.2007 DE CLARING A LOSS OF RS.19,15,353/ - WHICH WAS PROCESSED U/S 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE EARNED INCOME ON THE REDEMPTION OF MUTUAL FUND AS LONG T ERM CAPITAL GAINS CLAIMED AS EXEMPT U/S 10(38) OF THE ACT AMOUNTING TO RS.35,77,604/ - AND THE DIVIDEND INCOME OF THE UNITS OF MUTUAL FUNDS OF RS.24,31,365/ - EXEMPT U/S 10(34) OF THE ACT BUT HAD NOT SHOWN ANY EXPENDITURE RELATED TO THE EXEMPT INCOME OF RS.6 0,08,969/ - (RS.35,77,604/ - + RS.24,31,365/ - ) . THE AO ALSO OBSERVED THAT THE ASSESSEE HAD TAKEN LOAN OF RS.3,67,84,674/ - FOR THE PURPOSE OF PURCHASE OF UNITS OF TEMPLETON MUTUAL FUND FROM THE AMERICAN EXPRESS B ANK. THE AO ASKED THE ASSESSEE TO SUBMIT THE DE TAILS OF INTEREST PAID ON LOAN. IN RESPONSE, T HE SUBMISSIONS OF THE ASSESSEE WAS THAT THE PROPORTIONATE INTEREST AMOUNTING TO RS.9, 39,077/ - HAS ALREADY BEEN ADDED BACK. THE AO OBSERVED THAT THE INTEREST AMOUNTING TO RS.34,09,730/ - HAS BEEN SPECIFICALLY PAI D FOR THE PURCHASE OF MUTUAL FUND . HE, THEREFORE, ADDED THE REMAINING AMOUNT OF RS.24,70,653/ - BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D(2)(I) OF THE INCOME TAX ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 5 RULES, 1962. THE AO ALSO DISALLOWED RS.2,25 , 831/ - BEING ONE - HALF PERCENT OF THE AVERAGE OF VALUE O F THE INVESTMENT. THE AO DISALLOWED 20% OF THE EXPENSES INCURRED ON VEHICLE RUNNING & MAINTENANCE , DEPRECIATION AND LOAN FOR VEHICLE PURCHASE D AND A CCORDINGLY, RS.3,53,319/ - WAS ADDED TO THE INCOME OF THE ASSESSEE . THE AO O BSERVED THAT APART FROM THE INTEREST OF RS.34,09,730/ - PAID ON THE PURCHASE OF MUTUAL FUND, THE ASSESSEE HAD ALSO PAID INTEREST OF RS.4 6,96,760/ - ON THE VARIOUS LOANS. H E CALCULATED INTEREST OF RS.9,99,500/ - BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D(II) OF THE INCOME TAX RULES, 1962 , THE SAME WAS DISALLOWED FROM INTEREST EXPENDITURE AND ADDED BACK TO THE INCOME OF THE ASSESSEE AS INCOME FROM BUSINESS . THE AO ALSO OBSERVED THAT THE ASSESSEE HAD PAID A SUM OF RS.25,387/ - AS PROF ESSIONAL CHARGES ON WHICH NO TDS WAS DEDUCTED. HE, THEREFORE, DISALLOWED THE SAID AMOUNT U/S 40(A)(IA) OF THE ACT. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO SUSTAINED THE ADDITION S MADE BY THE AO. 6. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MAIN ADDITION S WERE MADE BY THE AO BY APPLYING THE PROVISIONS CONTAINED IN RULE 8D OF THE INCOME TAX RULES, 1962 WHICH IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION BECAUSE IT WAS OPERATED F OR THE ASSESSMENT YEAR 2008 - 09. THE RELIANCE WAS PLACED ON THE ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 6 JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT REPORTED IN (2012) 347 ITR 272. IT WAS ALSO SUBMITTED THAT OTHER ADDITIONS WERE ALSO MADE BY THE A O AND SUSTAINED BY THE LD. CIT(A) WITHOUT ANY BASIS. 7. IN HER RIVAL SUBMISSIONS THE LD. SENIOR DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATION MADE BY THEM IN THEIR RESPECTIVE ORDERS. 8 . I HAVE CONSIDERED THE SUB MISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE AO WHILE MAKING THE DISALLOWANCE U/S 14A OF THE ACT INVOKED THE PROVISIONS CONTAINED IN RULE 8D OF THE INCOME TAX RULES, 1962, WHICH IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS THE SAME IS APPLICABLE FOR THE ASSESSMENT YEAR 2008 - 09 ONWARD. IN THIS REGARD, IT IS RELEVANT TO POINT OUT THAT THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS DCIT REPORTED IN (2010) 328 ITR 81 HELD THAT RULES 8D OF THE INCOME TAX RULES, 1962 INSERTED ON 24.03.2008 IS APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09 PROSPECTIVELY WHICH CANNOT BE APPLIED RETROSPECTIVELY. THE SAME VIEW HAD BEEN EXPRESSED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT REPORTED IN (2012) 347 ITR 272 (SUPRA). IT IS ALSO NOTICED THAT THE AO WHILE MAKING THE DISALLOWANCE OUT OF THE EXPENSES HAS NOT GIVEN ANY BASIS FOR MAKING ITA NO . 2864 /DEL /201 5 SAWHNEY BROTHERS 7 THE DISALLOWA NCE @ 20%. I, THEREFORE, CONSIDERING THE RATIO LAID DOWN IN THE AFORESAID REFERRED TO DECISIONS OF THE HON BLE BOMBAY HIGH COURT AND THE HON BLE DELHI HIGH COURT, DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER AND REMAND THE CASE BACK TO THE FILE OF T HE AO TO BE ADJUDICATED AFRESH DE NOVO IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AO SHOULD ALSO DECIDE THE ANOTHER ISSUES WHICH HAVE BEEN AGITATED BY THE ASSESSEE IN ITS APPEAL ALONGWITH THE M AIN ISSUES RELATING TO THE DISALLOWANCES OF INTEREST U/S 14A OF THE ACT AND THE EXPENSES WHILE FRAMING THE DE NOVO ASSESSMENT . 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. (O RDER PRONOUNCED IN THE COURT ON 22 /03 /2017 ) SD/ - (N. K. SAINI) ACCOUNTANT MEMBER DAT ED: 22 /03 /2017 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RES PONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR