ITO, NCW - 12 (2), CHENNAI V. Rakesh Sarin and Sons (HUF), CHENNAI

ITA 3111/CHNY/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4154 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K RAVI
• Keywords: Earning of tax free income; Block assessment; Tax effect; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A. NOS. 3110 & 3111/CHNY/2019 / ASSESSMENT YEARS: 2010-11 & 2009-10 THE INCOME TAX OFFICER, NON CORPORATE WARD 12(2), CHENNAI. VS. M/S. RAKESH SARIN & SONS (HUF), NO. 15/4, MASILAMANI ROAD, BALAJI NAGAR, ROYAPETTAH, CHENNAI 600 014. [PAN:AAAHR3518N] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI AR.V. SREENIVASAN, ADDL. CIT / RESPONDENT BY : SHRI K. RAVI, ADVOCATE / DATE OF HEARING : 22.10.2020 /DATE OF PRONOUNCEMENT : 28.10.2020 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BOTH THE APPEALS FILED BY THE REVENUE RELATE TO SAME ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 16, CHENNAI, BOTH DATED 31.07.2019 RELEVANT TO THE ASSESSMENT YEARS 2010-11 AND 2009-10. SINCE COMMON GROUND HAS BEEN RAISED IN BOTH THE APPEALS PERTAIN TO SAME ASSESSEE ARE BEING HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF BREVITY. EVEN THOUGH IN BOTH THE APPEALS, THE TAX EFFECT IS LESS THAN THE MONETARY LIMIT PRESCRIBED BY I.T.A. NOS. 3110 & 3111/CHNY/19 2 THE CBDT, WE HAVE TAKEN THE APPEALS FOR ADJUDICATION SINCE THE APPEALS ARE PREFERRED OUT OF RAP OBJECTION. 2. BOTH THE APPEALS FILED BY THE REVENUE ARE DELAYED BY 6 DAYS, FOR WHICH, THE REVENUE HAS FILED A PETITION FOR CONDONATION OF THE DELAY, TO WHICH; THE LD. COUNSEL FOR THE ASSESSEE HAS NOT RAISED ANY SERIOUS OBJECTION. CONSEQUENTLY, SINCE THE REVENUE WAS PREVENTED BY SUFFICIENT CAUSE, THE DELAY OF 6 DAYS IN FILING OF THE APPEAL STANDS CONDONED AND BOTH THE APPEALS ARE ADMITTED FOR ADJUDICATION. 3. THE FIRST COMMON GROUND RAISED IN BOTH THE APPEALS RELATES TO DELETION OF INTEREST ON DEBTORS. BY VIRTUE OF BLOCK ASSESSMENT ORDER DATED 28.02.2007, VARIOUS INVESTMENTS, SUCH AS, INVESTMENT IN RBI RELIEF BONDS, INVESTMENTS IN UTI, IDBI, HDFC RELIEF BONDS, KISAN VIKAS PATRA, RBI RELIEF BONDS ASSIGNED, RBI BONDS ALREADY ASSIGNED, PROMISSORY NOTES & MONEY LENT TO M/S. NADIAWALA GRANDSON WERE ADDED AS UNDISCLOSED INCOME. SINCE THE ASSESSEE HAS NOT REDEEMED THOSE INVESTMENTS, THE ASSESSING OFFICER CONSIDERED THE INTEREST ON THOSE INVESTMENTS AS ACCRUED INCOME DURING THE YEAR AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. RENU SARIN, WIFE OF THE KARTHA OF THE I.T.A. NOS. 3110 & 3111/CHNY/19 3 ASSESSEE HUF IN I.T.A. NOS. 226, 227, 228/CHNY/2015 & 1814 TO 1816/CHNY/2014, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO FOLLOW THE DIRECTIONS GIVEN BY THE ITAT IN THE CASE OF SMT. RENU SARIN, WIFE OF THE KARTHA OF THE ASSESSEE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS. THE LD. DR HAS SUBMITTED THAT SINCE THE ASSESSEE HAS NOT SPECIFICALLY MENTIONED THE METHOD OF ACCOUNTANCY FOLLOWED IN THE RETURN OF INCOME FOR BOTH THE ASSESSMENT YEARS, THE LD. CIT(A) HAS ERRONEOUSLY HELD THAT THE INTEREST ON DEBTORS IS NOT CHARGEABLE ON ACCRUAL BASIS AND THEREFORE, PLEADED FOR CONFIRMING TO TREAT THE INTEREST INCOME AS ACCRUED INCOME OF THE ASSESSEE. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE SIDES THROUGH VIDEO CONFERENCING, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSING OFFICER ESTIMATED THE INTEREST AT 24% ON THE OUTSTANDING SUNDRY DEBTORS. ACTUALLY, IN VIEW OF BLOCK ASSESSMENT ORDER DATED 28.02.2007, VARIOUS INVESTMENTS WERE ADDED AS UNDISCLOSED INCOME AND SINCE THE ASSESSEE HAS NOT REDEEMED THOSE INVESTMENTS, THE ASSESSING OFFICER CONSIDERED THE INTEREST ON THOSE INVESTMENTS AS ACCRUED INCOME. BY REITERATING THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A), THE LD. COUNSEL I.T.A. NOS. 3110 & 3111/CHNY/19 4 FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS NOT RECEIVED ANY INTEREST FROM THE SUNDRY DEBTORS AND THE ASSESSEE FOLLOWS CASH SYSTEM OF ACCOUNTING DUE TO UNCERTAINTY IN THE LINE OF BUSINESS. WE FIND FORCE IN THE ARGUMENTS OF THE LD. COUNSEL. THE DEPARTMENT HAS NOT PLACED ON RECORD ANY EVIDENCE OF RECEIPT OF INTEREST FROM THE SUNDRY DEBTORS, AS THE BURDEN LIES ON THE DEPARTMENT. HOWEVER, THE ASSESSING OFFICER ESTIMATED THE ACCRUED INTEREST AND TREATED IT AS INCOME AND BROUGHT TO TAX. ON AN IDENTICAL ISSUE IN SIMILAR FACTS AND CIRCUMSTANCES IN THE CASE OF SMT. RENU SARIN, WIFE OF THE KARTHA OF THE ASSESSEE HUF (SUPRA), THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD THAT SINCE THE ASSESSEE IS MAINTAIN HER BOOKS OF ACCOUNTS AS PER CASH SYSTEM OF ACCOUNTING, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION MADE BY ESTIMATING THE ACCRUED INTEREST ON THE SUNDRY DEBTORS BY THE LD. REVENUE AUTHORITIES IS NOT WARRANTED BECAUSE THE SAME OUGHT TO BE TREATED AS THE INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR IN WHICH THE ASSESSEE RECEIVED THE INTEREST AS PER CASH SYSTEM OF ACCOUNT. HENCE, WE HEREBY DIRECT THE LD. AO TO DELETE THE ADDITION MADE FOR .31,99,293/- BY ESTIMATING THE ACCRUED INTEREST ON SUNDRY DEBTORS. 6.1 RESPECTFULLY FOLLOWING THE ABOVE FINDINGS OF THE TRIBUNAL, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO FOLLOW THE DIRECTIONS GIVEN BY THE ITAT IN THE CASE OF SMT. RENUE SARIN, WIFE OF THE KARTHA OF THE ASSESSEE. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). ACCORDINGLY, THE COMMON GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS STANDS DISMISSED. I.T.A. NOS. 3110 & 3111/CHNY/19 5 7. THE NEXT GROUND RAISED IN THE ASSESSMENT YEAR 2009-10 RELATES TO DELETION OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT. THE ASSESSEE HAS ADMITTED DIVIDEND INCOME OF .31,498/-. HOWEVER, SINCE THE ASSESSEE HAS NOT SHOWN ANY EXPENSES TO EARN THE DIVIDEND INCOME, BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D, THE ASSESSING OFFICER DETERMINED THE EXPENDITURE TO EARN THE DIVIDEND INCOME AT .1,52,451/- AND BROUGHT TO TAX. 7.1 ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. RENU SARIN, WIFE OF THE KARTHA OF THE ASSESSEE HUF IN I.T.A. NOS. 226, 227, 228/CHNY/2015 & 1814 TO 1816/CHNY/2014, THE LD. CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. 7.2 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. BY REFERRING TO THE GROUNDS OF APPEAL, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES FOR EARNING EXEMPT INCOME. IT WAS FURTHER SUBMISSION THAT THE INFRASTRUCTURE AND STAFF ARE COMMONLY UTILIZED FOR EARNING BOTH EXEMPTED AND NON-EXEMPTED INCOME AND PLEADED FOR CONFIRMING THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). I.T.A. NOS. 3110 & 3111/CHNY/19 6 7.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SINCE THE ASSESSEE HAS EARNED DIVIDEND INCOME AT .31,498/- AND NOT ADMITTED ANY EXPENSES, BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF .1,52,451/-. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AS DEDUCTION. THE ASSESSEE MADE THE INVESTMENT OUT OF OWN FUNDS WITHOUT ANY EXTERNAL OR INTERNAL AID OUT OF OWN INTEREST FREE FUNDS AND THEREFORE, PRAYED FOR CONFIRMING THE DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL. ON AN IDENTICAL ISSUE IN SIMILAR FACTS AND CIRCUMSTANCES IN THE CASE OF SMT. RENU SARIN, WIFE OF THE KARTHA OF THE ASSESSEE HUF (SUPRA), THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD THAT 5.3.1 AT THE OUTSET WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE LD. REVENUE AUTHORITIES BECAUSE FROM THE FACTS OF THE CASE THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAD INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME BECAUSE NO SUCH EXPENDITURE APPEARS TO BE DEBITED TO THE P&L ACCOUNT OF THE ASSESSEE. THE ASSESSEE IS AN INDIVIDUAL AND IT APPEARS THAT SHE HAS MADE THE INVESTMENT BASED ON HER OWN DECISION WITHOUT ANY EXTERNAL OR INTERNAL AID AND FROM HER OWN INTEREST FREE FUNDS. IN SUCH SITUATION NO EXPENDITURE COULD BE ATTRIBUTED FOR MAKING SUCH INVESTMENT. MOREOVER THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAVE CLAIMED ANY EXPENDITURE AS DEDUCTION. WHEN THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE THERE COULD NOT HAVE BE ANY EXPENDITURE THAT IS ATTRIBUTABLE TOWARDS EARNING EXEMPT INCOME. HENCE THE DECISION OF THE HON. APEX COURT RELIED BY THE LD. CIT(A) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE CAN BE MADE U/S.14A OF THE ACT OR BY INVOKING RULE 8D OF THE RULES IN THE CASE OF THE ASSESSEE. HENCE WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION I.T.A. NOS. 3110 & 3111/CHNY/19 7 MADE FOR RS.92,483/- MADE IN THE HANDS OF THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 7.4 RESPECTFULLY FOLLOWING THE ABOVE FINDINGS OF THE TRIBUNAL, THE LD. CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IN THE ASSESSMENT YEAR 2009-10 STANDS DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 28 TH OCTOBER, 2020 IN CHENNAI. SD/- SD/- (G. MANJUNATHA) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 28.10.2020 VM/- /COPY TO: 1. /APPELLANT, 2. / RESPONDENT, 3. ( )/CIT(A), 4. /CIT, 5. /DR & 6. /GF.