Rajive Suri, New Delhi V. ACIT, New Delhi

ITA 3502/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0489 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 16-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: V K BAJAJ; NITIN AGARWAL CAS
• Section: 14A; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH F BENCH F BENCH F BENCH F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 3502/DEL/2010 3502/DEL/2010 3502/DEL/2010 3502/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2003 2003 2003 2003 - -- - 04 0404 04 SHRI RAJIVE SURI, SHRI RAJIVE SURI, SHRI RAJIVE SURI, SHRI RAJIVE SURI, PROP. INTEX TRADES, PROP. INTEX TRADES, PROP. INTEX TRADES, PROP. INTEX TRADES, B BB B- -- -12, NIZAMUDDIN 12, NIZAMUDDIN 12, NIZAMUDDIN 12, NIZAMUDDIN WEST, WEST, WEST, WEST, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN NO. PAN NO. PAN NO. PAN NO.AATPS0683C. AATPS0683C. AATPS0683C. AATPS0683C. VS. VS. VS. VS. ASSTT.COMMISSIONER OF INCOME TAX, ASSTT.COMMISSIONER OF INCOME TAX, ASSTT.COMMISSIONER OF INCOME TAX, ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -11(1), 11(1), 11(1), 11(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.K.BAJAJ AND SHRI NITIN AGARWAL, CAS. RESPONDENT BY : SHRI H.K.LAL, SR.DR. ORDER ORDER ORDER ORDER PER C.L.S PER C.L.S PER C.L.S PER C.L.SETHI ETHI ETHI ETHI, J , J, J , JM : M : M : M : THIS IS AN APPEAL, FILED BY THE ASSESSEE, DIRECTED AGAINST THE LEARNED CIT(A)S ORDER DATED 19.3.2010, PERTAINING TO THE AY 2003-04. 2. THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSE SSEE ARE DIRECTED AGAINST CIT(A)S ORDER IN CONFIRMING THE A D-HOC DISALLOWANCE OF `87,170/- MADE BY THE AO ON ACCOUNT OF ALLEGED EXPE NDITURE PRESUMED TO HAVE BEEN INCURRED FOR EARNING THE INTE REST INCOME ON TAX FREE RBI BONDS. 3. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 4. THE ASSESSEE DERIVES INCOME UNDER THE HEAD SALAR Y, HOUSE PROPERTY, BUSINESS, CAPITAL GAIN AND INCOME FROM OT HER SOURCES. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD SHOWN INTER EST INCOME FROM RBI TAX FREE RELIEF BOND, AMOUNTING TO `8,71,704/- WHICH WAS CLAIMED AS EXEMPT U/S 10 OF THE ACT. AO ASKED THE ASSESSEE AS TO WHY ITA-3502/DEL/2010 2 PROVISIONS OF SECTION 14A SHOULD NOT BE APPLIED WIT H REGARD TO EXPENDITURE INCURRED FOR EARNING INTEREST INCOME FR OM RBI TAX FREE RELIEF BONDS. THE ASSESSEE REPLIED THAT NO EXPENDI TURE WAS ACTUALLY INCURRED BY THE ASSESSEE FOR EARNING THE INTEREST I NCOME FROM RBI TAX FREE RELIEF BOND WHICH HAS BEEN ACCRUED TO THE ASSE SSEE IN THE YEAR ON ACCOUNT OF INVESTMENT MADE EARLIER IN RBI TAX FREE RELIEF BONDS. HOWEVER, THE AO STATED THAT NO INCOME CAN BE DERIVE D WITHOUT INCURRING ANY EXPENSES. AO FURTHER OBSERVED THAT T HE ASSESSEE HAD MADE INVESTMENT OF `1,04,00,000/- IN RBI TAX FREE R ELIEF BONDS AND MUST HAVE INCURRED EXPENSES ON ACCOUNT OF BANK CHAR GES AND BANK INTEREST. AO, THEREFORE, DISALLOWED THE EXPENSES T O THE EXTENT OF 10% OF INTEREST INCOME OF `8,71,704/- WHICH WAS WORKED OUT AT `87,170/- WHICH WAS DISALLOWED ACCORDINGLY. 5. ON AN APPEAL, CIT(A) CONFIRMED THE AOS ACTION F OR THE REASONS GIVEN BY THE AO. THE CIT(A) HAS ALSO APPLIED THE D ECISION OF SPECIAL BENCH OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF D AGA CAPITAL MANAGEMENT (P) LTD. 119 TTJ 289. 6. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS DOCUMENTS AND PAPERS FILED BY THE ASSESSEE IN THE PAPER BOOK. ON PERUSAL OF THE DETAILS OF INVESTMENT MADE IN RBI TAX FREE RELIEF BONDS, WE FIND THAT THE ASSESSEE MADE INVESTMENT OF `1 CRORE IN THE FY 2001-02 PERTAINING TO THE AY 2002-03 I.E. IN THE IM MEDIATELY PRECEDING ASSESSMENT YEAR. THE ASSESSEE HAS COMPUTED THE INT EREST THEREUPON AT THE RATE OF 8.50%. THE ASSESSEE HAS ALSO MADE I NVESTMENT OF `4 LAKHS ON 3.4.2002 AND 1.11.2002 I.E. DURING THE CUR RENT FINANCIAL YEAR ON WHICH INTEREST AT THE RATE OF 8% AND 7% RESPECTI VELY HAS BEEN SHOWN TO HAVE BEEN ACCRUED. THE ASSESSEE HAS WORKE D OUT THE TOTAL ITA-3502/DEL/2010 3 INTEREST RECEIVABLE FROM RBI TAX FREE RELIEF BONDS AT `8,71,704/-. IT IS NOT THE CASE WHERE ASSESSEE HAS MADE INVESTMENT IN RBI TAX FREE RELIEF BONDS OUT OF THE INTEREST BEARING FUNDS AND ON WHICH ANY INTEREST HAS BEEN PAID. IT IS ALSO NOT THE CASE WHERE ASSES SEE HAD TO INCUR ANY EXPENDITURE FOR THE PURPOSE OF EARNING INTEREST WHI CH HAS BEEN MERELY ACCRUED ON THE INVESTMENT MADE IN TAX FREE BONDS AN D NOT REALIZED. THEREFORE, THE QUESTION OF INCURRING ANY EXPENDITUR E FOR EARNING INTEREST ACCRUED ON RBI TAX FREE RELIEF BONDS DOES NOT ARISE. THE FACTS OF THE PRESENT CASE ARE VERY PECULIAR WHERE NO ACTU AL INTEREST HAS BEEN RECEIVED BUT INTEREST HAS BEEN ACCRUED ON THE INVES TMENT MADE EARLIER. SINCE NO ACTUAL EXPENDITURE CAN BE SAID T O HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING INTEREST ON RBI TAX FREE RELIEF BONDS, THE QUESTION OF ESTIMATING THE REASONABLE EXPENDITURE F OR THE PURPOSE OF EARNING INTEREST DOES NOT ARISE. WE, THEREFORE, DE LETE THE DISALLOWANCE ESTIMATED BY THE AO AND FURTHER CONFIRMED BY THE LE ARNED CIT(A). BEFORE PARTING WITH THE MATTER, WE MAY OBSERVE THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMEN T (P) LTD. (SUPRA) HAS BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE - 328 ITR 81 WHERE IT HAS BEEN HELD THAT RULE 8D IS APPLICABLE ONLY FROM THE AY 2008-09 ONLY. THEREFOR E, BY APPLYING RULE 8D ALSO, NO DISALLOWANCE CAN BE MADE IN THIS YEAR W HICH IS RELEVANT TO THE AY 2003-04. THEREFORE, THE DISALLOWANCE MADE B Y THE AO STANDS DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY, 2011. SD/- SD/- (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA ) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI ) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 28.01.2011. VK. ITA-3502/DEL/2010 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR