Shri Sharad Shyamsunder Rungta, Ahmedabad V. The Dy.CIT, Circle-11, Ahmedabad

ITA 3431/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7894 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 22-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: G C PIPARA
• Keywords: Salary income; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 3431/AHD/2014 (ASSESSMENT YEAR: 2010-11) SHARAD SHYAMSUNDER RUNGTA 6, DHARNIDHAR SOCIETY, NEW VIKAS GRUH ROAD, PALDI, AHMEDABAD - 380007 APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 11, 1 ST FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD - 380009 RESPONDENT PAN: ABHPR7773D /BY ASSESSEE : SHRI G. C. PIPARA, A.R. /BY REVENUE : SHRI V. K. SINGH, SR. D.R /DATE OF HEARING : 18.12.2017 /DATE OF PRONOUNCEMENT : 29.12.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE CIT(A)-XVI, AHMEDABADS ORDER DATED 05.09.2014 IN C ASE NO. CIT(A)- XVI/DCIT/CIR.11/011/13-14, UPHOLDING ASSESSING OFFI CERS ADDITION MAKING SECTION 14A R.W.S RULE 8D DISALLOWANCE OF RS.115665 IN THE NATURE OF INDIRECT PROPORTIONATE INTEREST IN RELATION TO ITS EXEMPT IN COME FROM DIVIDENDS OF RS.1,64,340/-, IN PROCEEDINGS U/S. 143(3) OF THE IN COME TAX ACT, 1961; IN SHORT THE ACT. ITA NO. 3431/AHD/14 [SHARAD SHYAMSUNDER RUNGTA VS. DCIT] A.Y. 2010-11 - 2 - 2. WE COME TO RELEVANT FACTS. THIS ASSESSEE/INDIVI DUAL DRAWS INCOME FROM SALARY, SHARE OF PROFITS IN PARTNERSHIP FIRM, HOUSE PROPERTY INCOME AND INCOME FROM OTHER SOURCES. HE FILED HIS RETURN ON 14.10.2 010 DECLARING TOTAL INCOME OF RS.20,31,620/-. THE ASSESSING OFFICER NOTICED DURI NG SCRUTINY THAT THE ASSESSEE HAD EARNED EXEMPT INCOME FROM DIVIDENDS OF RS.164340 AS WELL AS CLAIMED INTEREST EXPENDITURE OF RS.3,23,715/-. THE ASSESSING OFFICE R INVOKED SECTION 14A R.W.S RULE 8D OF THE INCOME TAX RULES TO DISALLOW THE IMP UGNED PROPORTIONATE INTEREST EXPENDITURE COMING TO RS.115665/- IN ASSESSMENT ORD ER DATED 01.03.2013. 3. THE CIT(A) AFFIRMS ASSESSING OFFICERS ABOVE FI NDINGS AS FOLLOWS: 5.0 EFFECTIVE GROUND OF APPEAL NO 2 IS REGARDING A DDITION OF RS. 1,15,665/- U/S. 14A OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE HAD SHOWN DIVIDEND INCOME OF RS. 1,64,340/- DURING THE YEAR WHICH WAS CLAIMED AS EXEMPT. THE ASSESSEE HAD ALSO CLAIMED INTEREST EXPENDITURE OF RS. 3, 23, 71 5/-. APPLYING SECTION 14A AND RULE 8D OF THE I T ACT AND RULES, THE A O DISALLOWED RS. 1,15,665/ - U/S. 14AOFTHEACT. 5.1 DURING APPELLATE PROCEEDINGS, THE APPELLANT MAD E WRITTEN SUBMISSIONS, RELEVANT PART OF WHICH IS REPRODUCED AS UNDER :- . 1. AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED ADDITION HAS BEEN MADE ENTIRELY ON THE BASIS OF SURMISES AND CONJECTURES AS WELL AS WITHOUT PROPER CONSIDERATION AND VERIFICATION OF THE FACTS OF THE CASE. IT IS CO NTENDED THAT THE ENTIRE OBSERVATION OF THE A.O. AND THE EXERCISE OF WORKING OUT THE DISALLOWANCE U/S.14A R.W.R. 8D IS BASED ON ASSUMPTIONS AND NOT ON HARD F ACTS: 2. IT IS SUBMITTED THAT THE AO WHILE MAKING THE IMPUGNED DISALLOWANCE ON THE BASIS OF HIS DISCUSSION IN THE ASSESSMENT ORDER HAS CONVE NIENTLY IGNORED THE BINDING DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. WALFORT SHARE & STOCK BROKERS (P.) LTD. 326 ITR 1 (SC). THE AO HAS THUS PROCEEDED TO DISCUSS THE ISSUE ON VARIOUS OBSERVATIONS WHICH PRIMA FACIE APPEARS TO BE TYPED IN A MECHANICAL MANNER WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE PARTICULAR FACTS OF THE APPELLANT'S CASE AND HENCE NOT IN CONSONANCE WITH THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE CITED CASE. 3. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED AT T HE VERY OUTSET THAT AS EVIDENT FROM THE AO'S WORKING OF DISALLOWANCE U/S.14A AT PAGE NO . 5 OF THE ASSESSMENT ORDER, THERE IS NO INVESTMENT DURING THE YEAR. THE AO HAS CATEGORICALLY MENTIONED THAT THE INVESTMENT AS AT 31/03/2010 IS THE SAME FIGURE AS AT 01/04/2009 I.E. RS.48,08,5727-. HENCE, THERE BEING NO INVESTMENT DU RING THE YEAR UNDER CONSIDERATION, THE QUESTION OF INCURRING ANY EXPEND ITURE FOR EARNING EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION DOES NOT ARISE AT ALL. ACCORDINGLY, NO ADDITION IS WARRANTED U/S.14A R.W.R. 8D ON FACTS OF THE APPELLANT'S CASE. 4. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THAT THE SAID INVESTMENTS ARE EVEN OTHER WISE NOT MADE OUT OF BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID BUT ITA NO. 3431/AHD/14 [SHARAD SHYAMSUNDER RUNGTA VS. DCIT] A.Y. 2010-11 - 3 - HAS BEEN MADE OUT OF SUFFICIENT INTEREST FREE FUNDS AND INTERNAL ACCRUALS AVAILABLE AT THE DISPOSAL OF THE APPELLANT IN THE Y EAR OF INVESTMENT. THAT APART, IT IS SUBMITTED THAT NO PART OF BORROWED MONEY HAD ANY DIRECT LINK OR NEXUS WITH THE INVESTMENTS MADE BY THE APPELLANT. THE BORROWIN GS HAVE BEEN UTILIZED FOR BUSINESS PURPOSE BY WAY OF CAPITAL INTRODUCTION IN THE FIRM PAN AQRO AND ALLIED INDS. WHEREIN THE APPELLANT IS A PARTNER. 5. THAT APART, IT MAY BE NOTED THAT THE APPELLANT D ID NOT INCUR ANY SPECIFIC EXPENDITURE IN EARNING OF ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION AS EXPLAINED HEREINABOVE AS WELL AS N O SPECIFIC BORROWING OR EXPENDITURE AS ATTRIBUTABLE TO INVESTMENT ACTIVITIE S IS MADE. HENCE, NO EXPENDITURE CAN BE APPORTIONED TOWARDS EARNING OF E XEMPT INCOME IN THE YEAR UNDER CONSIDERATION. ON PERUSAL OF THE ASSESSMENT O RDER AND THE OBSERVATIONS OF THE AO, IT IS AMPLY CLEAR THAT EXCEPT GENERAL OBSER VATIONS ABOUT THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A AND RULE 8D, THERE IS NOT A WHISPER ABOUT ANY SPECIFIC EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THAT APART, THERE IS NO SATISFACTION OF THE AO THAT THE CLAIM OF THE APP ELLANT IS INCORRECT. 6. THE APPELLANT WOULD NOW LIKE TO DISCUSS THE MERI TS OF THE DISALLOWANCE WORKED OUT BY THE AO ON PAGE NO. 8 OF THE ASSESSMENT ORDER . (A) AS REGARDS DISALLOWANCE AS PER CLAUSE (I) OF RU LE 8D(2), IT IS SUBMITTED THAT THE AO HAS ACCEPTED THAT NO DIRECT EXPENDITURE HAS BEEN INCURRED FOR EARNING OF EXEMPT INCOME. (B) IN AS MUCH AS WORKING OF DISALLOWANCE BEING IN TEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCO ME OR RECEIPT IS CONCERNED AS PER CLAUSE (II) OF RULE 8D(2) IS CONCE RNED, THE AO HAS MADE NO DISALLOWANCE UNDER THIS CLAUSE. (C) COMING TO THE DISALLOWANCE AS PER CLAUSE ( III) OF RULE 8D(2) I.E. ON THE BASIS OF AVERAGE VALUE OF INVESTMENTS, IT IS SUBMIT TED THAT SINCE THERE BEING NO INVESTMENT MADE DURING THE YEAR AS ALSO AD MITTED BY THE AO, THE QUESTION OF INCURRING ANY EXPENDITURE ON SUCH I NVESTMENTS DOES NOT ARISE. AS A CONSEQUENCE, THE APPLICABILITY OF CLAUS E (III) ALSO DOES NOT ARISE AT ALL. 7. WITHOUT PREJUDICE TO ABOVE FACTUAL POSITION, IT IS CONTENDED THAT WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED MET HOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAV E INCURRED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOR EOVER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB SECTION (2) DOES NOT IPSO FACT O ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGH TAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT O F THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. 8. THE ASSESSING OFFICER MUST, IN THE FIRST INS TANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETE RMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFA CTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONL Y WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO ITA NO. 3431/AHD/14 [SHARAD SHYAMSUNDER RUNGTA VS. DCIT] A.Y. 2010-11 - 4 - FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITU ATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASS ESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. IN THE EVENT THAT THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE, HE M UST RECORD REASONS FOR HIS CONCLUSION. IN THE INSTANT CASE, THE A.O. HAS NOT RECORDED ANY SUCH SATISFACTION WITH REFERENCE TO THE FACTS OF THE CASE AND HAVING REGAR D TO THE ACCOUNTS OF THE ASSESSEE AS EXPLAINED HEREINABOVE AND HENCE EVEN OT HER WISE THE DISALLOWANCE MADE IS NOT JUSTIFIED.....' 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT AT THE OUTSET, THE FACTS OF THE CASE IN C IT VS WALFORT SHARES & STOCK BROKERS PVT LTD ARE COMPLETELY DIFFERENT AND ARE NOT APPLIC ABLE TO THE CASE ON HAND. THE CBDT RECENTLY ISSUED CIRCULAR NO. 5/2014, DATED 11TH FEB RUARY, 2014, WHEREIN IT HAS BEEN CLARIFIED THAT DISALLOWANCE UNDER SECTION 14A OF TH E ACT READ WITH RULE-80 OF THE INCOME TAX RULES' 1962 NEEDS TO BE MADE EVEN IN A CASE WHE RE THE ASSESSEE HAS NOT EARNED EXEMPT INCOME DURING A PARTICULAR YEAR. IN THE SAID CIRCULAR, IT HAS, INTER-ALIA, BEEN CLARIFIED THAT USE OF THE WORD 'INCLUDIBLE' IN HEAD ING TO SECTION 14A AND RULE 8D AND USE OF PHRASE 'INCOME UNDER THE ACT' UNDER SECTION 14A OF THE ACT, INSTEAD OF 'INCOME OF THE YEAR', INDICATES THAT FOR INVOKING DISALLOWANCE UND ER SECTION 14A, IT IS NOT MATERIAL THAT ASSESSEE SHOULD HAVE EARNED SUCH EXEMPT INCOME DURI NG THE FINANCIAL YEAR UNDER CONSIDERATION. IT HAS ALSO BEEN CLARIFIED IN THE SA ID CIRCULAR THAT 'LEGISLATIVE INTENT IS TO ALLOW ONLY THAT EXPENDITURE WHICH IS RELATABLE TO E ARNING OF INCOME AND IT THEREFORE FOLLOWS THAT THE EXPENSES WHICH ARE RELATABLE TO EA RNING OF EXEMPT INCOME HAVE TO BE CONSIDERED FOR DISALLOWANCE, 'IRRESPECTIVE' OF THE FACT WHETHER ANY SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT'. THE FACTS OF THIS CASE SHOW THAT THE APPELLANT HAS EARNED EXEMPT INCOME DURING THE YEAR. NO INCOME CAN BE EARNED IN VACUUM, AND THEREFORE PROPORTIONATE EXPENSES NEED TO BE DISALLO WED AS PER PROCEDURE LAID DOWN. THE DISALLOWANCE MADE BY THE A O U/S. 14A IS THEREFORE UPHELD. IN VIEW OF THIS, GROUND OF APPEAL NO 2 IS DISMISSED. 4. HEARD BOTH THE PARTIES VEHEMENTLY REITERATING TH EIR RESPECTIVE STANDS AGAINST AND IN SUPPORT OF THE IMPUGNED INTEREST DISALLOWANC E MADE IN RELATION TO ASSESSEES EXEMPT INCOME ON THE GROUND THAT THE SAM E REPRESENTS PROPORTIONATE INTEREST EXPENDITURE UNDER RULE 8D (2)(II) OF THE I NCOME TAX RULES. WE NOTICE THAT HONBLE JURISDICTIONAL HIGH COURTS RECENT JUD GMENT IN PCIT VS. INDIA GELATINE & CHEMICALS LTD. (2016) 66 TAXMANN.COM 356 (GUJ) HO LDS THAT NO SUCH INTEREST DISALLOWANCE IS TO BE MADE IN CASE AN ASSESSEE IS H AVING SUFFICIENT INTEREST FREE FUNDS. WE KEEP IN MIND THE SAID LEGAL PROPOSITION TO ADVERT TO RELEVANT FACTS ONCE AGAIN. THE ASSESSEES CASE THROUGHOUT HAS BEEN THA T THE RELEVANT INVESTMENT AMOUNT OF RS.48,08,572/- CONTINUED AS IT IS FROM 01 .04.2009 IN THE NATURE OF ITA NO. 3431/AHD/14 [SHARAD SHYAMSUNDER RUNGTA VS. DCIT] A.Y. 2010-11 - 5 - OPENING FIGURE. IT FURTHER EMERGES FROM A PERUSAL OF THE PAPER BOOK THAT ITS CAPITAL ACCOUNT BROUGHT FORWARD IN RELEVANT PREVIOUS YEAR R EADS A FIGURE OF RS.94,09,301.47 FOLLOWED BY CAPITAL ACCOUNT AMOUNT IN THE NATURE OF INTEREST FREE FUNDS OF RS.10,216,690.77 RESPECTIVELY I.E. ADMITTE DLY MORE THAN THE RELEVANT INVESTMENT AMOUNT. THE SAME THEREFORE SUFFICIENTLY INDICATES THAT IT IS MORE THAN INVESTMENT AMOUNT ITSELF EVEN IF IT IS PRESUMED THA T THE IMPUGNED INVESTMENTS HAD BEEN MADE IN THE RELEVANT PREVIOUS YEAR. WE THEREF ORE DRAW SUPPORT FROM HONBLE JURISDICTIONAL HIGH COURTS ABOVE REFERRED DECISION TO DELETE THE DISALLOWANCE IN QUESTION OF RS.115,665/- MADE IN BOTH THE LOWER PRO CEEDINGS U/S.14A R.W. RULE 8D OF THE RULES. THE ASSESSEES SOLE SUBSTANTIVE G ROUND IS THEREFORE ACCEPTED. 5. THIS ASSESSEES APPEAL IS ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF DECEMBER, 2017.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD: DATED 29/12/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0