K.C. Khanna & Co., CAs, New Delhi V. ACIT, New Delhi

ITA 3020/DEL/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6859 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-01-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 27-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: D P SACHDEVA
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO.3020/DEL/2016 ASSESSMENT YEAR : 2012-13 K. C. KHANNA & CO., CAS, GOBIND MANSION, H-96, CONNAUGHT CIRCUS, NEW DELHI. VS. ACIT, CIRCLE- 61(1), NEW DELHI. PAN : AAAFK 2984 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D. P. SACHDEVA, FCA RESPONDENT BY : SHRI S. K. JAIN, SR.DR DATE OF HEARING : 25-01-2017 DATE OF PRONOUNCEMENT : 31-01-2017 O R D E R PER S.V. MEHROTRA, A.M : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 26.04.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-20, NEW DELHI, U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT) RELATING TO ASSESSMENT YEAR 2012-13. 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM WAS ENGAGED IN THE PROFESSION OF CHAR TERED ACCOUNTANCY. IT FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME A T RS.39,99,843/-. THE ASSESSEE DERIVED INCOME FROM PROFESSION AND INCOME FROM CAPITAL GAIN. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD EAR NED EXEMPT INCOME OF RS.1,16,552/- ON ACCOUNT OF DIVIDEND FROM MUTUAL FU NDS. HE, THEREFORE, 2 ITA NO.3020/DEL/2016 REQUIRED THE ASSESSEE TO EXPLAIN WHY EXPENSES RELAT ING TO EXEMPT INCOME SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SECTI ON 14A. THE ASSESSEE, INTER-ALIA, SUBMITTED THAT NO EXPENDITURE WAS INCURRED FOR EARN ING DIVIDEND INCOME AND FURNISHED THE DETAILS OF MUTUAL FUNDS FR OM WHERE DIVIDEND INCOME WAS RECEIVED, WHICH ARE AS UNDER :- AMOUNT (RS.) 1. CANARA ROBECO EQUITY DIVERSIFIED - DIVIDEND PLAN (RECEIVED VIDE CHEQUE NO.722050 DATED 08.11.2011 DRAWN ON HDFC BANK) 23,390.31 2. MIRAE ASSET INDIA OPPORTUNITY FUND REGULAR DIVIDEND (RECEIVED VIDE CHEQUE NO.123393 DATED 29.03.2012 DRAWN ON CITI BANK. 93,161.92 3. THE ASSESSEE ALSO POINTED OUT THAT NO BORROWINGS WERE MADE FOR MAKING INVESTMENTS IN MUTUAL FUNDS. THE ASSESSEE F URTHER POINTED OUT THAT ONLY TIME SPENT BY A PARTNER FOR INVESTMENT IN MUTU AL FUNDS, WAS IN SIGNING A CHEQUE IN FAVOUR OF RELEVANT MUTUAL FUNDS. THE D IVIDEND INCOME WAS RECEIVED ONLY ON TWO DATES WHICH HAD BEEN DEPOSITED IN THE BANK. MUTUAL FUNDS WERE BEING MANAGED BY THE TRUSTEES OF THAT RE LEVANT MUTUAL FUND. THEREFORE, ASSESSEE HAD NOT INCURRED ANY EXPENDITUR E IN RELATION TO EXEMPT INCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE A SSESSEES CONTENTIONS AND, INTER-ALIA, OBSERVED AS UNDER :- THE ASSESSEE HAS NOT PROVIDED ANY SEPARATE ACCOUNT FOR EARNING OF EXEMPT INCOME. THE ASSESSEE HAS MADE INVESTMENTS FOR EARN ING EXEMPT INCOME AND MANAGING SUCH A LARGE PORTFOLIO ENTAIL EXPENSES RIG HT FROM DIVERSION OF MANPOWER/STAFF FOR INDULGING IN INVESTMENT ACTIVITI ES TO VARIOUS ACTIVITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE O F INTERNET IF PORTFOLIO 3 ITA NO.3020/DEL/2016 MANAGEMENT IS WEB BASED, COST OF COMPUTER & ITS DEP RECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PRE MISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOLIO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMELY SALE/PURCHASE OF INVESTMENTS. 4. HE, THEREFORE, MADE A DISALLOWANCE OF RS.24,148/ -. LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER ON THIS I SSUE. 5. LD. COUNSEL REITERATED THE SUBMISSIONS ADVANCED BEFORE THE LOWER REVENUE AUTHORITIES AND IN THE ALTERNATIVE POINTED OUT THAT THE DIVIDEND OF RS.1,16,552.23 WAS RECEIVED ON INVESTMENTS OF RS.15 ,80,879.54 IN TWO MUTUAL FUNDS AND, THEREFORE, LD. CIT(A) WAS WRONG I N UPHOLDING THE ACTION OF ASSESSING OFFICER IN CONSIDERING THE TOTAL INVES TMENTS IN MUTUAL FUND OF RS.50,79,630/- AS ON 31.03.2012 AND RS.45,79,630/- AS ON 31.03.2011 FOR AVERAGING THE INVESTMENT FOR THE PURPOSES OF RULE 8 D(2)(III) OF THE INCOME TAX RULES, 1962 ONLY ON ACCOUNT OF ADMINISTRATIVE C OST INCURRED FOR EARNING OF EXEMPT INCOME. 6. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE PLEA OF LD. CO UNSEL THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF NEGLIGIBLE INVOLVEMENT OF MANAGEMENT CANNOT BE ACCEPTED IN VIEW OF CLEAR MANDATE OF LAW. HOWEVER, THE PLEA OF LD. COUNSEL FOR THE ASSESSEE THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR AVERAGING PURPOSES WHICH YIELDED DIVIDEND, IS TO BE ACCEPTED, IN VIEW OF VARIOUS PRONOUNCEMENTS IN THIS REGARD INCLUDING THE DECISION OF ITAT, 4 ITA NO.3020/DEL/2016 AHMEDABAD BENCH, IN THE CASE OF SARABHAI HOLDING PV T. LTD. VS. ACIT IN ITA NO.2328/AHD/2012 DECIDED ON 11.04.2014, WHEREIN , IT HAS BEEN, INTER- ALIA, HELD AS UNDER :- 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE INTEREST HAS BEEN WRONGLY TAKEN AS THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS AVAILABLE, HENCE THE ADDITION MADE ON ACCOUNT OF INTEREST AMOUNTING TO R S.1,37,060/- IS HEREBY DIRECTED TO BE DELETED. IN RESPECT OF THE DISALLOWA NCE TOWARDS ADMINISTRATIVE EXPENSES, SINCE BOTH THE AUTHORITIES BELOW HAVE NOT GIVEN FINDING AS TO WHETHER THE % OF AVERAGE INVESTMENT IS OF THOSE INVESTMENT S WHEREFROM THE ASSESSEE HAS EARNED EXEMPT INCOME. AS PER THE PROVISION OF RULE 8D, IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME H AS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF TOTAL INCOME THAT IS TO BE CONSIDERED. THUS, IT IS NOT THE TOTAL INVESTMENT AT THE BEGINNING OF THE YEAR AND A T THE END OF YEAR WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF TH E INVESTMENT WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME IS TO BE CONSIDERED. HENCE, THE ISSUE IS RESTORED BACK TO THE FILE OF AO TO VERIFY AS TO HOW MUCH INVESTMENT WAS MADE DURING THE YEAR ON WHICH THE AS SESSEE HAS EARNED EXEMPT INCOME AND, ACCORDINGLY, RE-COMPUTE THE DISALLOWANC E UNDER RULE 8D OF THE INCOME TAX RULES, 1962. AS A RESULT, THIS GROUND OF ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSING O FFICER IS DIRECTED TO RE-COMPUTE THE IMPUGNED DISALLOWANCE IN TERMS OF AF OREMENTIONED DIRECTIONS. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2017. SD/- (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED : 31-01-2017. SUJEET 5 ITA NO.3020/DEL/2016 COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A)- 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI