Jyotsna Suri, New Delhi V. DCIT, New Delhi

ITA 3640/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0014 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: V K BAJAJ
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.K. GARODIA ITA NOS. 3640 & 3641/DEL/10 ASSTT. YRS: 2005-06 & 2006-07 JYOTSNA SURI, VS. DCIT, CIR. 11(1), PROP. IMPEX TRADING CO., NEW DELHI. B-12, NIZAMUDDIN WEST, NEW DELHI. PAN/ GIR NO. ABLPS7549E ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI V.K. BAJAJ CA RESPONDENT BY : MS. ANUSHA KHURANA SR. DR O R D E R PER R.P. TOLANI, J.M : THESE ARE ASSESSEES APPEALS AGAINST CIT(A)S CO NSOLIDATED ORDER DATED 14-5-2010 RELATING TO A.Y. 2006-07 & 2007-08. FOLLOWING GROUNDS ARE RAISED: 2006-07 : I) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS ERRED IN LAW AND FACTS IN MAKING AN ADHOC AND A RBITRARY DISALLOWANCE OF RS. 2,68,550/- ON PRESUMPTIONS AND ASSUMPTIONS OUT OF TAX FREE INTEREST INCOME OF RS. 26,85,510/- EARNED BY THE ASSESSEE FROM THE RBI TAX FREE BONDS, UTI ARS BONDS, SHARE & MUTUAL FUNDS WITHOUT CONSIDERING THE FACTS THAT NO EXPENDITURE WAS ACTUALLY INCURRED BY THE ASSESSE E FOR EARNING OF SUCH INTEREST AND DIVIDEND INCOME. II) THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS NOT APPRECIATED THE FACT THAT SUB SECTION (2) A ND (3) OF ITA 2528/DEL/04 JAI PRAKASH VS. ITO 2 SECTION 14A WERE INTRODUCED FOR THE 1 ST TIME BY THE FINANCE ACT 2006 W.E.F. 01-04-2007 AND RULE 8D WAS INSERTED FOR THE FIRST TIME W.E.F. 24-03-2008 AND HAS ERRED IN LAW IN GIVI NG THE DIRECTIONS TO LD. ASSESSING OFFICER TO RE-COMPUTE T HE AMOUNT OF DISALLOWANCE UNDER RULE 8D DESPITE THE FACT THAT TH E SAID RULE AND SUB SECTION (2) AND (3) OF SECTION 14A WERE NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER REFERENCE. III) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) WHILE MAKING AN ADDITION OF RS. 2,68,550/- FOR THE EXPENDITURE PRESUMED TO HAVE BEEN INCURRED FOR THE EARNING OF I NTEREST & DIVIDEND INCOME ON TAX FREE RBI BONDS, UTI ARS BOND S AND SHARES & MUTUAL FUNDS ARE VAGUE, DEFECTIVE AND ARE AGAINST THE FACTS OF THE CASE AND ARE BASED ON ASSUMPTIONS AND PRESUMPTIONS ONLY. IV) THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS NOT BROUGHT ANY DOCUMENTARY EVIDENCE TO SHOW TH AT ANY SUCH EXPENDITURE OF RS. 2,68,550/- WAS INCURRED BY THE ASSESSEE FOR EARNING OF THE INTEREST & DIVIDEND INCOME WHILE MAKING THE ABOVE ADDITION. 2007-08: I) . THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN MAKING AN ADHOC AND A RBITRARY DISALLOWANCE OF RS. 3,73,824/- U/S 14A OUT OF TAX F REE INTEREST & DIVIDEND INCOME EARNED BY THE ASSESSEE FROM THE R BI TAX FREE BONDS UNDER CUMULATIVE SCHEME, UTI ARS BONDS, SHARE & MUTUAL FUNDS WITHOUT CONSIDERING THE FACTS THAT NO EXPENDITURE WAS ACTUALLY INCURRED BY THE ASSESSEE FOR EARNING O F SUCH INTEREST AND DIVIDEND INCOME. II) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS NOT APPRECIATED THE FACT THAT SUB SECTION (2) A ND (3) OF SECTION 14A WERE INTRODUCED FOR THE 1 ST TIME BY THE FINANCE ACT 2006 W.E.F. 01-04-2007 AND RULE 8D WAS INSERTED FOR THE FIRST TIME W.E.F. 24-03-2008 AND HAS ERRED IN LAW IN CONF IRMING THE AMOUNT OF DISALLOWANCE UNDER RULE 8D DESPITE THE FA CT THAT THE ITA 2528/DEL/04 JAI PRAKASH VS. ITO 3 SAID RULE AND SUB SECTION (2) AND (3) OF SECTION 14 A WERE NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER REFERENCE. III) THAT THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) WHILE MAKING AN ADDITION OF RS. 3,73,824/- FOR THE EXPENDITURE PRESUMED TO HAVE BEEN INCURRED FOR THE EARNING OF I NTEREST & DIVIDEND INCOME ON TAX FREE RBI BONDS, UTI ARS BOND S AND SHARES & MUTUAL FUNDS ARE VAGUE, DEFECTIVE AND ARE AGAINST THE FACTS OF THE CASE AND ARE BASED ON ASSUMPTIONS AND PRESUMPTIONS ONLY. IV) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS NOT BROUGHT ANY DOCUMENTARY EVIDENCE TO SHOW TH AT ANY SUCH EXPENDITURE OF RS. 3,73,824/- WAS INCURRED BY THE ASSESSEE FOR EARNING OF THE INTEREST & DIVIDEND INCOME WHILE MAKING THE ABOVE ADDITION. 2. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSEE IS AN INDIVIDUAL. SIMILAR TYPE OF DISALLOWANCES WERE MADE BY AO IN THE HANDS OF THE HUSBAND SHRI RAJIVE SURI. THE ITAT DELHI BENCH F VIDE ORDER DATED 28-1-2011, IN ITA NO. 3502/DEL/10 FOR A.Y. 2003-04, AFTER TAKING INTO CONSIDERATION THE RATIO OF DECISION OF HONBLE MUMB AI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (201 0) 328 ITR 81, DELETED THE ADDITION, BY FOLLOWING OBSERVATIONS: 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO G ONE THROUGH THE VARIOUS DOCUMENTS AND PAPERS FILED BY THE ASSES SEE IN THE PAPER BOOK. ON PERUSAL OF THE DETAILS OF INVESTMENT MADE IN RBI TAX FREE RELIEF BONDS, WE FIND THAT THE ASSESSE E MADE INVESTMENT OF RS. 1 CRORE IN THE FY 2001-02 PERTAIN ING TO THE AY 2002-03 I.E. IN THE IMMEDIATELY PRECEDING ASSESS MENT YEAR. THE ASSESSEE HAS COMPUTED THE INTEREST THEREUPON AT THE RATE OF 8.50%. THE ASSESSEE HAS ALSO MADE INVESTMENT OF RS. 4 LAKHS ON 3-4-2002 AND 1-11-2002 I.E. DURING THE CURRENT F INANCIAL YEAR ON WHICH INTEREST AT THE RATE OF 8% AND 7% RESPECTI VELY HAS BEEN SHOWN TO HAVE BEEN ACCRUED. THE ASSESSEE HAS W ORKED OUT ITA 2528/DEL/04 JAI PRAKASH VS. ITO 4 THE TOTAL INTEREST RECEIVABLE FROM RBI TAX FREE REL IEF BONDS AT RS. 8.71,704/-. IT IS NOT THE CASE WHERE ASSESSEE HAS M ADE INVESTMENT IN RBI TAX FREE RELIEF BONDS OUT OF THE INTEREST BEARING FUNDS AND ON WHICH ANY INTEREST HAS BEEN PA ID. IT IS ALSO NOT THE CASE WHERE ASSESSEE HAD TO INCUR ANY EXPEND ITURE FOR THE PURPOSE OF EARNING INTEREST WHICH HAS BEEN MERELY A CCRUED ON THE INVESTMENT MADE IN TAX FREE BONDS AND NOT REALI ZED. 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 N O ACTUAL INTEREST HAS BEEN RECEIVED BUT INTEREST HAS BEEN AC CRUED ON THE INVESTMENT MADE EARLIER. SINCE NO ACTUAL EXPENDITUR E CAN BE SAID TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNI NG INTEREST ON RBI TAX FREE RELIED BONDS, THE QUESTION OF ESTIMATI NG THE REASONABLE EXPENDITURE FOR THE PURPOSE OF EARNING I NTEREST DOES NOT ARISE. WE, THEREFORE, DELETE THE DISALLOWANCE E STIMATED BY THE AO AND FURTHER CONFIRMED BY THE LEARNED CIT(A). BEFORE PARTING WITH THE MATTER, WE MAY OBSERVE THAT THE DE CISION OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMEN T (P) LTD. (SUPRA) HAS BEEN REVERSED BY THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DC IT 328 ITR 81 WHERE IT HAS BEEN HELD THAT RULE 8D IS APPLI CABLE ONLY FROM THE AY 2008-09 ONLY. THEREFORE, BY APPLYING RU LE 8D ALSO, NO DISALLOWANCE CAN BE MADE IN THIS YEAR WHIC H IS RELEVANT TO THE AY 2003-04. THEREFORE, THE DISALLOWANCE MADE BY THE AO STANDS DELETED. 3. LEARNED COUNSEL CONTENDS THAT FACTS AND CIRCUMST ANCES ARE SIMILAR. THE INVESTMENT IN RBI TAX FREE BONDS, UTI ARS BONDS , SHARES & MUTUAL FUNDS ARE OLD AND THEY HAVE BEEN MET OUT BY ASSESSE E OUT OF HER OWN FUNDS AS IN THE CASE OF HER HUSBAND. THESE FACTS HAVE NOT BEEN DISPUTED BY AO. HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA), HAS HELD THAT RULE 8D WAS TO BE APPLICABLE PROSPECTIVELY. THE ASSESSMENT YEARS IN QUESTION FALL PRIOR TO THE AMEN DMENT, THEREFORE, RIGOR OF RULE 8D WILL NOT BE APPLICABLE TO ASSESSEES CASE R ETROSPECTIVELY. THERE BEING NO DIRECT OR INDIRECT EXPENDITURE INCURRED BY THE ASSESSEE, WHICH CAN ITA 2528/DEL/04 JAI PRAKASH VS. ITO 5 BE RELATABLE TO THESE TAX FREE INCOME, FOLLOWING TH E DECISION OF ITAT IN THE CASE OF ASSESSEES HUSBAND (SUPRA), THE UNCALLED FO R DISALLOWANCE U/S 14A MAY BE DELETED. LEARNED COUNSEL FURTHER CONTENDS TH AT 4. THE LEARNED DR IS HEARD. SHE CONTENDS THAT THERE HAS TO BE ALWAYS ELEMENT OF INDIRECT EXPENSES. 5. WE HAVE HEARD RIVAL CONTENTIONS AND HAVE GONE T HROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. IN OUR VIEW, AS THE INVESTMENTS HAVE BEEN MET OUT OF ASSESSEES OWN FUNDS, THE INCOME IS RECURRIN G IN NATURE, THEREFORE, ON AN ASSUMPTION IT CANNOT BE HELD THAT AN ELEMENT OF INDIRECT EXPENSES PERSISTED IN THIS CASE FOR EARNING THE TAX FREE INC OME. INVESTMENT BEING FROM OWN FUNDS, INCOME BEING RECURRING IN NATURE, RESPEC TFULLY FOLLOWING THE DECISION OF ITAT IN ASSESSEES HUSBAND CASE (SUPRA) , WE SEE NO JUSTIFICATION FOR THE DISALLOWANCE OF EXPENDITURE, WHICH IS DELET ED. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31-3-2011. SD/- SD/- ( A.K. GARODIA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31-3-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 2528/DEL/04 JAI PRAKASH VS. ITO 6