ASSISTANT COMMISSIONER OF INCOME TAX, KOTA V. SMT. MANISHA AGARWAL, KOTA

ITA 340/JPR/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6131 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH HKKXPUN KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 340/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2011-12. THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTA. CUKE VS. SMT. MANISHA AGARWAL, 12-A, TALAWANDI, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ABJPA 3031 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJ MEHRA (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : NONE LQUOKBZ DH RKJH[K@ DATE OF HEARING : 15.05.2018. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 16/05/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 7 TH DECEMBER, 2017 OF LD. CIT (A), KOTA FOR THE ASSESSM ENT YEAR 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT (A) HAS ERRED IN :- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 84,289/- MADE BY THE AO U/S 14A R.W. RULE 8D. (II) THE APPELLANT CRAVES LIBERTY TO RAISE ADDITION AL GROUND AND TO MODIFY/AMEND THE GROUND OF APPEAL AT THE TIME OF HE ARING. 2 ITA NO. 340/JP/2018 SMT. MANISHA AGARWAL, KOTA. THE ISSUE FALLS UNDER EXCEPTION AS MENTIONED IN PAR A 8(B) OF BOARDS CIRCULAR NO. 21/2015. 2. NONE HAS APPEARED ON BEHALF OF THE ASSESSEE WHEN THIS APPEAL WAS CALLED FOR HEARING DESPITE THE NOTICE ISSUED TO THE ASSESS EE THROUGH RPAD. ACCORDINGLY WE PROPOSE TO HEAR AND DISPOSE OFF THE APPEAL EX PA RTE. 3. WE HAVE HEARD THE LD. D/R AND CAREFULLY CONSIDER ED THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE AO NOTED THAT AS PER THE BALANCE SHEET AS ON 31 ST MARCH, 2011 THERE WAS AN INVESTMENT TO THE TUNE OF RS.1,31,36,659/- AND INCOME FROM THE SAID I NVESTMENT IS NOT TAXABLE. THEREFORE, THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY AN ADDITION UNDER SECTION 14A OF THE INCOME TAX ACT SH OULD NOT BE MADE. IN REPLY, THE ASSESSEE POINTED OUT THAT THE FIGURE AS MENTION ED IN THE SHOW CAUSE NOTICE REGARDING EXEMPTED INVESTMENT IS NOT CORRECT BECAUS E THE INTEREST INCOME ON MOST OF THE INVESTMENTS ARE TAXABLE. THE ASSESSEE HAS FURTHER EXPLAINED THAT ONLY THE INVESTMENT TO THE TUNE OF RS. 84,28,973/- IS EXEMPTED INVESTMENT. THE ASSESSEE FURTHER CONTENDED THAT NO ADDITION IS REQU IRED UNDER SECTION 14A AS THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RESPEC T OF THE SAID INVESTMENT AND FURTHER THE ASSESSEE HAS MAINTAINED SEPARATE FINANC IAL STATEMENTS OF BUSINESS INCOME AS WELL AS PERSONAL AFFAIRS, INVESTMENT AND BALANCE SHEET. THE AO ACCEPTED THE CORRECTNESS OF THE AMOUNT OF INVESTMEN T. HOWEVER, HE MADE A DISALLOWANCE OF RS. 84,289/- UNDER SECTION 14A READ WITH RULE 8D ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENDITURE BEING 1% OF AVE RAGE INVESTMENT. ON APPEAL, 3 ITA NO. 340/JP/2018 SMT. MANISHA AGARWAL, KOTA. THE LD. CIT (A) HAS DELETED THE ADDITION ON THE GRO UND THAT THE ASSESSEE HAS NOT EARNED ANY INCOME DURING THE YEAR UNDER CONSIDERATI ON. THE RELEVANT FINDING OF THE LD. CIT (A) IS AT PAGES 16 TO 18 AS UNDER :- AS REGARDS GROUND OF APPEAL NO 4, IT IS SEEN THAT THE APPELLANT HAS NOT EARNED ANY EXEMPT INCOME BUT THE A.O HAS STILL MADE A PRO RATA DISALLOWANCE. HIGH COURT OF MADRAS IN COMMISIONER OF INCOME-TAX; CENTRAL 1, CHENNAI V. CHETTINAD LOGISTICS (P) LTD 80 TAXMANN.COM 221 (MADRAS) RECENTLY HELD- SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RELATION TO INCOME N OT INCLUDIBLE IN TOTAL INCOME (GENERAL PRINCIPLE) - ASSESSMENT YEAR 2011-12 - WHE THER SECTION 14A CAN ONLY BE TRIGGERED, IF, ASSESSEE SEEKS TO SQUARE OFF EXPENDI TURE AGAINST INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER ACT; RULE 8D ON LY PROVIDES FOR A METHOD TO DETERMINE AMOUNT OF EXPENDITURE INCURRED IN RELATIO N TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME OF ASSESSEE AND IT CANNOT GO BEYOND WHAT IS PROVIDED IN SECTION 14A - HELD YES - WHETHER WHERE NO EXEMPT IN COME I.E., DIVIDEND, WAS EARNED IN RELEVANT ASSESSMENT YEAR BY ASSESSEE, SEC TION 14A COULD NOT BE INVOKED - HELD YES THE HIGH COURT ELABORATED AS UNDER- THE PROVISIONS OF SECTION 14A WERE INSERTED AS A RE SPONSE TO THE JUDGMENTS OF THE SUPREME COURT IN COMMISSIONER OF INCOME TAX V. MAHA RASHTRA SUGAR MILLS LIMITED F19711 82 ITR 452 AND RAJASTHAN STATE WARE HOUSING CORPORATION V. COMMISSIONER OF INCOME-TAX /20021 242 17'R 450 IN TERMS OF WHICH, EXPENDITURE INCURRED BY AN ASSESSEE CARRYING ON A COMPOSITE BUS INESS GIVING RISE TO BOTH TAXABLE AS WELL AS NON-TAXABLE INCOME, WAS ALLOWABL E IN ENTIRETY WITHOUT APPORTIONMENT. IT WAS THUS THAT S.14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURR ED IN RELATION TO THE EARNING OF INCOME EXEMPT FROM TAXATION. AS OBSERVED BY THE SUP REME COURT IN THE JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. WALFORT S HARE AND STOCK BROKERS (P) LTD. 120101 326 ITR 1 .... THE MANDATE OF S.14A IS CLEAR. IT DESIRES TO C URB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME A GAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF AN E XEMPTION OF EXEMPT INCOME 4 ITA NO. 340/JP/2018 SMT. MANISHA AGARWAL, KOTA. WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURR ED IN RELATION TO EXEMPT INCOME.' 10.THE PROVISION THIS IS CLEARLY RELATABLE TO THE E ARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME. THE SUBMISSION OF T HE DEPARTMENT TO THE EFFECT THAT S.14A WOULD BE ATTRACTED EVEN TO EXEMPT INCOME 'INC LUDABLE' IN TOTAL INCOME WOULD ENTAIL THE ASSESSMENT OF NOTIONAL INCOME, ASSUMED T O BE EXEMPT IN THE FUTURE, IN THE PRESENT ASSESSMENT YEAR. THE COMPUTATION OF TOTAL I NCOME IN TERMS OF S. 5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SANCTION IN LAW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTICULARLY IN THE CONTEXT OF EFF ECTING A DISALLOWANCE IN CONNECTION THEREWITH. 11. THE COMPUTATION OF DISALLOWANCE IN TERMS OF RULE 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. T HUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN ARTIFI CIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THIS WOULD BE CARRYING THE ARTIFICE TOO FAR. (EMPHASIS IS OURS)' THE ITAT DELHI BENCH 'A' IN THE CASE OF MS. AMITA V ERMA V. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-13, NEW DELHI71 TAXMANN.COM 91 (DELHI - TRIB.) HELD THAT- SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (DIVIDEND) - ASSESSM ENT YEARS 2006-07 TO 2010-11 - ASSESSEE CONTENDED THAT DURING YEAR IT HAD NO EXEMP T INCOME AND, THEREFORE, NO DISALLOWANCE UNDER SECTION 14A COULD BE MADE - ASSE SSING OFFICER RELYING UPON DECISION OF TRIBUNAL RENDERED IN CASE OF CHEMINVEST LTD. V. ITO 120091 121 ITD 318 (DELHI) (SB) REJECTED ASSESSEE'S CONTENTION - WHETHER SINCE ABO VE DECISION OF TRIBUNAL HAD BEEN REVERSED BY JURISDICTIONAL HIGH COURT IN C ASE OF CHEMINVEST LTD. V. CIT 12015] 378 ITR 33/234 TAXMAN 761/ 61 TAXINANN.CORN 118 (DELHI), IT WOULD HAVE TO BE HELD THAT NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE, WHERE THERE IS NO EXEMPT INCOME - HELD, YES THUS RELYING ON THE POSITION IN THIS REGARD AS WAS ALSO APPLICABLE FOR THE YEAR UNDER APPEAL, I AM OF THE VIEW THAT THE DISALLOWANCE COUL D NOT BE MADE AS THE APPELLANT HAD NOT EARNED ANY EXEMPT INCOME IN THE YEAR. THE DISALLOWANCE OF RS. 84,289/- IS DIRECTED TO BE DELETED. 5 ITA NO. 340/JP/2018 SMT. MANISHA AGARWAL, KOTA. THUS IT IS CLEAR THAT THE LD. CIT (A) HAS DECIDED T HIS ISSUE BY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. CHETTI NAD LOGISTICS (P) LTD., 80 TAXMANN.COM 221 (MADRAS) AS WELL AS THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT, 378 ITR 33 (DELHI) . HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND SINCE THE ASSESSEE HA S NOT EARNED ANY EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION, THEREFO RE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF LD. CIT (A). 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 16/05/20 18. SD/- SD/- HKKXPUN FOT; IKY JKWO (BHAGCHAND) ( VIJAY PAL RAO ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 16/05/2018. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-THE ACIT CIRCLE-1, KOTA. 2. IZR;FKHZ@ THE RESPONDENT-SMT. MANISHA AGARWAL, KOTA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 340/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 6 ITA NO. 340/JP/2018 SMT. MANISHA AGARWAL, KOTA. 6