M.A.Alagappan, CHENNAI V. ACIT, CHENNAI

ITA 3280/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4953 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 13-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 05-12-2016
• Court: TRIBUNAL
• Department Lawyers: DURAI
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.3280/MDS./2016 / ASSESSMENT YEAR : 2012-13 MR.M.A.ALAGAPPAN , 10,CHITTARANJAN ROAD, TEYNAMPET, CHENNAI -18 VS. THE ACIT, CORPORATE CIRCLE 3(1), CHENNAI 34. [PAN AACPA 9628 C ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : M.KARUNAKARAN, ADVOCATE /RESPONDENT BY : MR.DURAI PANDIAN, JCIT DEPARTMENTAL REPRESENTATIVE. / DATE OF HEARING : 13.03.2017 / DATE OF PRONOUNCEMENT : 03 - 04 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11, CHENN AI DATED 14.10.2016 PERTAINING TO ASSESSMENT YEAR2012-13. ITA NO3290./16 :- 2 -: 2. THE ONLY ISSUE RAISED IN HIS APPEAL IS WITH REG ARD TO DISALLOWANCE OF ` 12,22,441/- MADE U/S.14A R.W.RULE 8D(2)(III) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD ADMITTED DIVIDEND INCOME WHICH WAS EXEMPT FROM TAX. THEREFOR E, THE AO DISALLOWED U/S.14A BY APPLYING RULE 8D AS FOLLOWS:- ` RULE 8D(2)(II) 3,21,927/- RULE 8D(2)(III) 12,22,441/- 15,44,368/- ON APPEAL THE LD.CIT(A) REMITTED THE ISSUE RELATING TO RULE 8D(2)(II)FOR FRESH CONSIDERATION. HOWEVER, HE CON FIRMED THE ADDITION IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(2)(III). AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.A.R SUBMITTED THAT IN ASSESSMENT YEAR UN DER CONSIDERATION ASSESSEE HAS NOT MADE ANY INVESTMENT YIELDING EXEMPTED INCOME IN THE ASSESSMENT YEAR AND ALSO NOT INCURRED ANY EXPENDITURE TO EARN EXEMPTED INCOME. ACCORDING TO HIM, ALL THE INVESTMENTS WERE MADE BEF ORE STARTING THE PROFESSION OF MANAGEMENT CONSULTATION . ACCORDING TO HIM, THERE IS NO REQUIREMENT OF DISALL OWANCE U/S.14A R.W.RULE RULE 8D(2)(III). THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPTED INCOME. ITA NO3290./16 :- 3 -: RELIED ON THE JUDGMENT OF DELHI HIGH COURT IN THE C ASE OF PRADEEP KHANA VS. ACIT, DELHI IN ITA 953/2015 VIDE ORDER DATED 11.08.2016FOR THE PROPOSITION WHEN THERE IS N O EXPENDITURE INCURRED THAT CANNOT BE ANY DISALLOWANC E UNDER RULE 8D(2)(III). FURTHER, HE PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF JUSTICE SAM P. BHARUCHA VS. ACIT IN ITA NO.3889/MUM/2011 DA TED 25 TH JULY 2012 WHEREIN HELD THAT:- 5.1 THE EXPENDITURE INCURRED IN RELATION TO THE INC OME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS TO BE DISALLOWED. HOWEVER, IT SHOULD BE PROXIMATE RELATIONSHIP BETWEEN THE EXPEND ITURE AND THE INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. O NCE SUCH PROXIMITY RELATIONSHIPS EXIST, THE DISALLOWANCE IS TO BE EFFECTED. IN CASE THE ASSESSEE HAD CLAIMED THAT HO EXPENDITURE H AS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, IT WAS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DID NOT FOR M PART OF TOTAL INCOME AND IF SO TO QUANTIFY THE EXTENT OF DISALLOW ANCE. THUS, IN ORDER TO DISALLOW THE EXPENDITURE UNDER SECTION 1 4 A, THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AN D THE INCOME NOT FORMING PART OF TOTAL INCOME. NO NOTIONAL EXPEN DITURE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT INCOM E UNLESS THERE IS AN ACTUAL EXPENDITURE IN RELATION TO EARNI NG THE INCOME NOT FORMING PART OF TOTAL INCOME. IF THE EXPENDITUR E IS INCURRED WITH A VIEW TO EARN TAXABLE INCOME AND THERE IS APP ARENT DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPEN DITURE INCURRED AND TAXABLE INCOME, THEN NO DISALLOWANCE C AN BE MADE ITA NO3290./16 :- 4 -: UNDER SECTION 1 4A MERELY BECAUSE SOME TAX EXEMPT I NCOME IS RECEIVED BY THE ASSESSEE. 5.2 AVERTING TO THE FACTS OF THE CASE IN HAND, THE ASSESSEE HAD MADE A CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED OR CLAIMED FOR EARNING THE EXEMPT INCOME. FROM THE DETAILS OF THE EXPENDITURE, IT IS CLEAR THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE HAS DIRECT NEXUS WITH THE PROFESSIONAL INCOME OF TH E ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS U SED HIS OFFICIAL MACHINERY AND ESTABLISHMENT FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT AN Y OF THE EXPENDTURE INCURRED AND CLAIMED BY THE ASSESSEE IS ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME. IN OTHER WORDS WHEN THE ASSESSING OFFICER HAS NOT POINTED OUT THAT CERTAIN EXPENDITURE IS NOT INCURRED FOR EARNING THE PROFESSIONAL INCOME; B UT ARE INCURRED IN RELATION TO DIVIDEND INCOME OR SUCH EXPENDITURE IS INCURRED FOR INSEPARABLE AND INDIVISIBLE ACTIVITIES COMPRISING P ROFESSIONAL AS WELL AS THE ACTIVITIES ON WHICH IS EXEMPT INCOME HA S BEEN EARNED BY THE ASSESSEE, THEN IN THE ABSENCE OF ANY SUCH IN STANCE OF EXPENDITURE, FINDING OF ASSESSING OFFICER OR ANY MA TERIAL TO SHOW THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE AS SESSEE AGAINST THE TAXABLE INCOME HAS ANY RELATION FOR EARNING THE EXEMPT INCOME, THE PROVISIONS OF SECTION 14A CANNOT BE APP LIED. 5.3 IN THE CASE OF SILICONE, PERMISSIBLE LAL VERSUS ACIT SUPRA THIS TRIBUNAL HAS CONSIDERED AND DECIDED AN IDENTICAL IS SUE IN PARA 4 AS UNDER: 4. AFTER HEARING THE ASSESSEE IN PERSON AND ARGUME NTS OF THE LEARNED D.R. WE ARE OF THE OPINION THAT NO DISA LLOWANCE IS CALLED FOR UNDER SECTION 14A. OBVIOUSLY THE ASSE SSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR PURPOSE O F BUSINESS AND THESE INVESTMENTS ARE IN HIS PERSONAL CAPACITY. THE A.O. ALSO HAS NOT DISALLOWED ANY EXPE NDITURE OF PERSONAL NATURE OUT OF THE INCOME FROM BUSINESS OR PROFESSION IN THE COMPUTATION OF INCOME IN THE ASSE SSMENT ORDER. IN VIEW OF THIS WE ARE OF THE OPINION THAT T HE EXPENDITURE CLAIMED IN THE BUSINESS OF SHARE DEALIN GS ITA NO3290./16 :- 5 -: CANNOT BE CORRELATED TO THE INCOMES EARNED IN PERSO NAL CAPACITY THAT TOO ON DIVIDEND, PPF INTEREST AND TAX FREE INTEREST ON RBI BONDS. IN VIEW OF THIS, WE ARE OF T HE OPINION THAT ESTIMATION OF EXPENDITURE OF 20,000/- OUT OF BUSINESS EXPENDITURE CLAIMED IN BUSINESS ACTIVITY CANNOT BE CONSIDERED FOR BEING INCURRED FOR THIS EARNING OF T AX FREE INCOME OF ABOVE NATURE. IN VIEW OF THIS DISALLOWANC E SO MADE UNDER SECTION 14A OF 20,000/- IS DELETED. NOT ONLY THAT THE CIT(A) DIRECTED THE A.O. TO CONSIDER THE A LLOWANCE INVOKING RULE 8D. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 I TR 81 HAS CONSIDERED RULE 8D TO BE APPLICABLE PROSPECTIVE AND SINCE THE ASSESSMENT YEAR INVOLVED IS BEFORE THE INTRODUCTION OF SUB-SECTION (2) & (3) OF SECTION 14 A, THERE IS NO QUESTION OF DISALLOWING THE AMOUNTS INVOKING RUL E8D. THEREFORE, THE CIT(A) S DIRECTION ON THIS IS SET A SIDE AND THE ADDITIONS SO MADE BY THE A.O. IN THE COMPUTATIO N OF BUSINESS INCOME IS DELETED. GROUND IS CONSIDERED AL LOWED. 5. THE LD.D.R RELIED ON THE ORDER OF LOWER AUTHORI TIES. 6 . WE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE EXPENDITURE IN CURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE AS SESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTI ON. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCER NED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE COMPUTATI ONS MADE BY AN ASSESSEE, HE SHALL COMPUTE THE QUANTUM IN ACCORD ANCE WITH ITA NO3290./16 :- 6 -: THE METHOD THAT MAY BE PRESCRIBED. FOR THIS MATTER , RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SEC.(3) FURTHER P ROVIDES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXP ENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUM E THE INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB -SEC.(2) READ WITH RULE PRESCRIBED. THEREFORE, IT BECOMES C LEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EX PENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRE SUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVE N BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEM ING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUA L EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESS ING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUT E. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HAVE BEEN INCURRED, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE STATUTORY PRESUMPTION SUBSTITUTES THE REQUIR EMENT OF FACTUAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED A.R. ITA NO3290./16 :- 7 -: 7. FURTHER, LD.A.R RELYING ON THE DECISION OF CO-O RDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF JUSTICE SAM P. BHARUCHA VS. ACIT (SUPRA) IS RELATING TO ASSESSMENT YEAR 2008- 09, WHEN THERE WAS NO RULE-8D OF INCOME TAX RULES, 1962 EXISTED. HENCE, THE RATIO LAID DOWN BY THAT JUDGEME NT OF MUMBAI TRIBUNAL CANNOT BE APPLICABLE TO THE CASE IN HAND. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED ON 03 RD APRIL, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 03 RD APRIL, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF