Rajesh Nanubhai Jhaveri, Ahmedabad V. The DCIT, Cent. Cir. 1(1), Ahmedabad

ITA 315/AHD/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9875 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 06-11-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 30-04-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FORASSESSEENAMELYSHRIRAJESH; SHRIROHITASSUDANI
• Assessee Lawyers: SHRIDEEPAKRSHAH

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’D’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And MsMADHUMITAROY,JUDICIALMEMBER Sr. No. ITANo. Assessment Year NameofAppellant Nameof Respondent 1. No.315/Ahd/2023 A.Y.2018-19 RajeshNanubhaiJhaveri, 21,TapovanSociety,Nr. ManekbaugHall, Ambawadi,Ahmedabad- 3800015 PAN:AAPPJ6927N TheDeputy Commissionerof IncomeTax, CentralCircle-1(1), Ahmedabad 2. No.316/Ahd/2023 A.Y.2018-19 HarshaRajeshbhai Jhaveri, 410,WallStreet-1, Ellisbridge, Ahmedabad-380009 PAN:ADTPJ0160E TheDeputy Commissionerof IncomeTax, CentralCircle-1(1), Ahmedabad 3.No.317/Ahd/2023A.Y.2018-19 SagarRajeshJhaveri, 21,TapovanSociety,Nr. ManekbaugHall, Ambawadi,Ahmedabad- 380015 PAN:AEYPJ3222M TheDeputy Commissionerof IncomeTax,Central Circle-1(1), Ahmedabad 4.No.318/Ahd/2023A.Y.2018-19 VrujalSagarJhaveri, 21,TapovanSociety,Nr. ManekbaugHall, Ambawadi,Ahmedabad- 380015 PAN:AELPV2671M TheDeputy Commissionerof IncomeTax,Central Circle-1(1), Ahmedabad Assesseeby:ShriDeepakRShah,A.R Revenueby:ShriRohitAssudani,Sr.D.R सुनवाईकीतारीख /DateofHearing:07/11/2023 घोषणाकीतारीख /DateofPronouncement:29/11/2023 आदेश /ORDER PERBENCH: Thecaptionedappealshavebeenfiledattheinstanceofthedifferent AssesseeagainstthecommonordersoftheLearnedCIT(Appeals)-11, ITAno.315/AHD/2023with3others A.Y.2018-19 2 Ahmedabad,arisinginthematteroftheorderpassedunders.143(3)ofthe IncomeTaxAct,1961(here-in-afterreferredtoas"theAct"). First,wetakeupITANo.315/AHD/2023,inthecaseofShriRajesh NanubhaiJhaveriasleadcase. 2.TheonlyissueraisedbytheassesseeisthatthelearnedCIT(A)erredin confirmingthedisallowanceundersection14Ar.w.r.8DofIncomeTaxRulefor Rs.2,28,554/-only. 3.Thefactsinbriefarethattheassesseeisanindividualwhoclaimedtobe engagedinthebusinessofshares&securitiestrading.Theassesseeduringthe yearearnedfollowingexemptedincome: (1)DividendRs.64,215/- (2)PPFInterestRs.1,64,329/- TotalRs.2,28,554/- 4.Theassesseeduringtheassessmentproceedingsclaimedthathehasnot incurredanyexpenditureinearningtheexemptedincome.Theassesseealso furnishedbreakupofgeneraladministrativeexpensesaggregatingtoRs. 11,00,526/-andclaimedthatnoexpenseexceptbankchargesforRs.48,308/- (whichincludedematchargesofRs.1914/-)canbelinkedtotheearningofthe exemptedincome.Theassesseefurthercontendedthatintheidenticalfactsno disallowancewasmadeintheimmediatelyprecedingassessmentyear2017-18. TheassesseespecificallyinconnectionwithPPFinterestsubmittedthathehas beenmakinginvestmentinPPFformorethan15yearsandtheinterestthereonis automaticallygetscreditedonthelastdayoffinancialyearforwhichhedoesnot requiretoincuranycostorresourcesinconnectionwithPPFinterest.Therefore, nodisallowancescanbemade. ITAno.315/AHD/2023with3others A.Y.2018-19 3 5.However,theAOwasdissatisfiedwiththeexplanationoftheassesseeand thusresortedtotheprovisionsofsection14A(2)r.w.r.8DoftheIncomeTaxRule forworkingouttheamountdisallowableunderclause(ii)ofrule8D(2)atRs. 5,96,474/-only.However,theAOrestrictedtheamountofdisallowancetothe extentofexemptedincomei.e.Rs.2,28,544/-andaddedthesametototal incomeoftheassessee. 6.TheaggrievedassesseepreferredanappealbeforethelearnedCIT(A)who confirmedtheadditionmadebytheAO.TherelevantfindingofthelearnedCIT(A) readsasunder: “5.3SofarascontentionoftheappellantthatPPFInterestisearnedon balancelyinginsuchaccounthencecannotbesubjecttodisallowanceu/s.14A oftheAct,itisobservedthatrule8Dr.w.s.14AclearlyprovidesthatAOis requiredtomakedisallowance@1%ofaveragemonthlyinvestments.Thereis noprovisionintheActwhichrequiresexclusionofinvestmentinearlieryears whilecalculatingdisallowanceu/s.14AoftheAct.Onthisground,pleaofthe appellantisrejected. 5.4Sofarascontentionoftheappellantthatdividendincomeisearnedinrelationto stockintradewhichinnearlyIncidentalpurchaseandsaleofshares,itisobservedthat whethersharesareacquiredforinvestmentpurposeorstockintrade,disallowanceu/s 14Acanbemadeirrespectiveofthefactthatwhetherdividendisincidentaltosuch activityornot.ItisrelevanttorefertothedecisionoftheHon'bleSupremeCourtinthe caseofMaxoppInvestmentLtd.vs.CommissionerofIncomeTax,NewDelhi [2018]91taxmann.com154(SC)whereintheHon'bleApexCourthasheldasunder:- "Section14A,oftheIncome-taxAct,1961,readwithruleBDoftheIncome-tax Rules,1962-Expenditureincurredinrelationtoincomenotincludibleintotal income(Disallowance)-Assessmentyear2002-03-Whetheronlythat expenditurewhichisinrelationtoearningdividendscanbedisallowedunder section14Aandrule8D-Held,yes-Whetherdominantpurposeforwhich investmentintosharesismadebyassesseemaynotberelevantassection14A appliesirrespectiveofwhethersharesareheldtogaincontrolorasstock-in-trade- Held,yes-Whetherhoweverwheresharesareheldanstockintrade,main purposeistotradeinthosesharesandearnprofitstherefromand,inprocess certaindividendinalsoearnedwhichintaxexemptundersection10(34); expenditureattributabletoexemptdividendincomewillhavetobeappointedto bedisallowedundersection14A-Held,yes(Paras39&40](Partlyinfavourof assessee) 5.4.1Consideringthebindingdecisionreportedsupra,thelegalpleaoftheappellantis rejected. 5.5Sofarascontentionoftheappellantthathehassufficientinterestbearingfund hencenodisallowanceu/s14Acanbemade,itisobservedthatinyearunder consideration,newrule8Disapplicablewhichdoesnotprovidebifurcationof ITAno.315/AHD/2023with3others A.Y.2018-19 4 proportionateinterestdisallowanceandadministrativeexpenditureasprovidedinoldrule 8DwhichwasapplicabletillA.Y.2016-17.Thus,thedecisionrelieduponbytheappellant onthisissuearenotapplicableintheyearunderconsideration. 5.6Onperusaloftheassessmentorder,itisobservedthatAOhimselfhasrestricted disallowanceu/s14AtotheextentofexemptincomeasheldbytheHon'bleVariousHigh Courts." ************************** “5.8Consideringtheelaboratefactsdiscussedhereinaboveandrelyinguponbinding decisionsoftheHon’bleJurisdictionalHighCourtaswellasTribunal,itisheld thatasappellanthasearnedexemptincomeofRs.2,28,544/-andtheAOhad restrictedthedisallowanceu/s.14AuptoexemptincomeofRs.2,28,544/- whichisjustifiedandhenceconfirmed.Accordingly,thedisallowancemadeu/s.14A oftheActisupheldandhenceconfirmed.Thus,thegroundofappealno.1is dismissed.” 7.BeingaggrievedbytheorderofthelearnedCIT(A)theassesseeisin appealbeforeus. 8.ThelearnedARbeforeussubmittedthattheprovisionsofrule8Dof IncomeTaxRulecannotbeappliedautomaticallybytheAOformakingthe disallowanceagainsttheexemptedincome.AsperthelearnedAR,theassessee hasnotincurredanyexpenseinrelationtoexemptedincomeandthereforeno disallowancecanbemadeundertheprovisionsofsection14Areadwithrule8D ofincometaxRules. 9.Withoutprejudicetotheabove,thelearnedARfurthercontendedthatas farastheinvestmentmadeunderPPF,therewasnoexpenditureincurredbythe assessee.Assuch,theassesseehasbeenmakingthedepositsintheaccountof PPFformorethan15yearsandtheinterestthereonisdirectlycreditedinthe bankaccountoftheassesseewithoutanyhumanintervention.Thus,thereisno possibilityofincurringanyexpenseinrelationtotheearningofinterestonthePPF account. ITAno.315/AHD/2023with3others A.Y.2018-19 5 10.Ontheotherhand,theld.DRvehementlysupportedtheorderofthe authoritiesbelow. 11.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Admittedly,theassesseehasearnedexemptincome forRs.2,28,544/-intheformofdividendsandPPFInterest.Theassesseeclaimed thatnoexpenditureinrelationtoexemptedincomewasincurredbyhim.Hence, nodisallowancewasrequiredtobemadeundersection14AoftheAct.However, theAOinvokedtheprovisionsofsection14A(2)r.w.r.8DofIncomeTaxRuleand madedisallowanceofRs.2,28,544/-whichwassubsequentlyconfirmedbythe learnedCIT(A). 11.1Inthememoofgroundsofappealbeforeus,therewerevariouscontention raisedbytheassesseeandonesuchcontentionoftheassesseewasthatthe sharesonwhichdividendincomeaccruedwereheldasstockintradeand dominantpurposewastoearngain/profitontradingofsuchsharesandthe incomefromthetradingofshareswasverymuchtaxable.Wedonotfindany forceinthecontentionoftheassesseeconsideringtheviewtakenbytheHon’ble SupremeCourtinthecaseofMaxoppInvestmentLtdreportedin91taxmann.com 154whichisextractedasunder: “39.Inthosecases,wheresharesareheldasstock-in-trade,themainpurposeistotrade inthosesharesandearnprofitstherefrom.However,wearenotconcernedwiththose profitswhichwouldnaturallybetreatedas'income'underthehead'profitsandgainsfrom businessandprofession'.Whathappensisthat,intheprocess,whenthesharesareheld as'stock-in-trade',certaindividendisalsoearned,thoughincidentally,whichisalsoan income.However,byvirtueofSection10(34)oftheAct,thisdividendincomeisnottobe includedinthetotalincomeandisexemptfromtax.Thistriggerstheapplicabilityof Section14AoftheActwhichisbasedonthetheoryofapportionmentofexpenditure betweentaxableandnon-taxableincomeasheldinWalfortShare&StockBrokers(P.) Ltd.case.Therefore,tothatextent,dependinguponthefactsofeachcase,the expenditureincurredinacquiringthoseshareswillhavetobeapportioned.” 11.2Thenextcontentionoftheassesseeisthatthefundforpurchaseofshares andmakinginvestmentinPPFwasprovidedfromownfundhencenodisallowance ITAno.315/AHD/2023with3others A.Y.2018-19 6 u/s14Aoftheisrequirestobemade.Inthisregardwenotetheprincipleofown fundwasapplicableinthecaseswhereinterestexpenditurewasdisallowedunder oldprovisionofrule8Dwhereasinthecaseoftheassesseethedisallowancewas madeunderamendedprovisionofrule8Dwherethereisnoconceptof disallowanceofinterestexpenses.Thus,wedonotfindforceinthecontentionof theassessee. 11.3Nowcomingtocontentionoftheassesseethatthenoexpenditureexcept dematcharges(partofbankcharges)claimedinprofitlossaccountwhichcanbe identifiedasincurredinrelationto/connectionwiththeexemptedincomeaswell asnodisallowanceinidenticalfactsorrestricteduptodematchargesonlyinthe precedingassessmentyearsinhisowncaseorincaseoffamilymembers.Inthis regard,wenotethattheassesseeintheprofitandlossaccountclaimedgeneral administrativeexpensesforRs.11,00,526/-andbreakupofthesamestandas under: AuditFees20,000 Bank/CreditCard&DematCharges48,308 SecurityTransactionTax(STT)91,810 TransactionCharges86,902 IPOProcessingFees2,26,106 Kasar/Vatav2,464 ConveyanceExpense6,08,034 TelephoneExp.17,712 11,00,526 11.4Fromtheperusalofthebreakupofthegeneraladministrativeexpenses,we areoftheconsideredopinionthatnoneoftheexpensesclaimedbytheassessee canbeattributedorlinkedtothecreditofinterestonaccountofinvestmentin PPF.Theprovisionofsection14AoftheActprovidesthatthedeductionof expenditureincurredinrelationtoincomenotformingpartoftotalincomeshall ITAno.315/AHD/2023with3others A.Y.2018-19 7 notbeallowed.Thus,thefirsttestisthatthereshouldbeexpenditureincurredin relationtoexemptedincome.Whenthereisnoexpenditureincurredinrelationto exemptedincome,therecannotbeanydisallowanceundersection14AoftheAct. Theprovisionofsection14A(2)and14A(3)oftheActprovidethattheAOmay determinetheamountofdisallowanceasperrule8Dofincometaxrulebutsuch powerissubjecttotheconditionthattheAOisnotsatisfiedwiththeclaimofthe assesseethatnoexpenditurewasincurred.Inourconsideredview,such satisfactioncannotbemechanicalorcanbemadeineverycasewherethereis exemptincomeearnedbytheassessee.Whenonperusaloftheprofitloss account,itisprimafacieobservedthatnoexpenditurecanbeattributedtothe earningofexemptedincome,thentheprovisionofrule8D(2)ofITrulecannotbe appliedmerelyonthereasoningthattheAOisnotsatisfiedoramountof disallowancecannotbecomputedrelatingtotheexemptincome.Assuch,therule 8Dcannotberesortedmerelyforthereasonthatthereissomemechanical formulagiventoworktheamountofdisallowanceignoringthefactthatnosuch expenditureattributabletotheexemptedincomeclaimedintheprofitandloss account.Therefore,inourconsideredopinion,nodisallowanceforPPFinterest shallbemadeinthegivenfactsandcircumstances. 11.5Movingtheexpenditureinconnectionwithearningofdividendincome,we notefromtheabovereproducedbreakupofgeneraladministrativeexpenses, thereareexpenseslikeIPOprocessingfee,transactioncharges,bankcharges includingdematchargesetc.whichcanbelinkedtoorattributedtotheearningof dividendincome.Therefore,thedisallowanceundersection14AoftheActr.w.r. 8Disrequiredtobemadebutsuchdisallowancecannotexceedtheamountofthe dividendincome.Thus,weherebydirecttheAOtorestrictthedisallowances undersection14AoftheActtotheextentofdividendincomeonly.Hencethe groundofappealoftheassesseeisherebypartlyallowed. 12.Intheresult,theappealoftheassesseeispartlyallowed. ITAno.315/AHD/2023with3others A.Y.2018-19 8 ComingtoITANo.316to318/Ahd/2023bytheassessees,namely,Shri HarishRanjeshJhaeveri,SagarRajeshJhaveriandVrujalSagarJhaveri 13.Attheoutset,wenotetheissueraisedbythecaptionedassesseesintheir groundsofappealisidenticaltogroundofappealraisedbytheassesseenamely ShriRajeshNanubhaiJhaveriinITANo.315/Ahd/2023.Therefore,thefindings giveninITANo.315/Ahd/2023,shallalsobeapplicableforthecaptionedappeal ofdifferentassessees.TheappealoftheassesseenamelyShriRajeshNanubhai JhaveriinITANo.315/Ahd/2023hasbeendecidedbyusvideparagraphNos.11 to11.5ofthisorderpartlyinfavourofassessee.ThelearnedARandtheDRalso agreedthatwhateverwillbethefindingsforassesseenamelyShriRajesh NanubhaiJhaverishallalsobeappliedforthecaptionedappealsraisedbythe captionedassessees.Hence,thegroundofappealfiledbythecaptioned assessee’sareherebypartlyallowed. 14.Intheresult,theappealsbytheassesseearepartlyallowed. 15.Inthecombinedresult,alltheappealsfiledbythedifferentassesseeare partlyallowed. OrderpronouncedintheCourton29/11/2023atAhmedabad. Sd/-Sd/- (MADHUMITAROY)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated29/11/2023 Manish