PRITISH NANDY, MUMBAI V. ACIT 11(1), MUMBAI

ITA 3889/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2775 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI G. S. PANNU, AM AND SHRI PAWAN SINGH, J M ./ I.T.A. NO. 3889/MUM/2013 ( / ASSESSMENT YEAR: 2008-09) PRITISH NANDY 87/88, MITTAL CHAMBERS, NARIMAN POINT, MUMBAI - 400 021 / VS. ASST. CIT-11(1), MUMBAI-400 001 ./ ./PAN/GIR NO. AAAPN 9949 D ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ASHOK PATIL / RESPONDENT BY : SHRI AMIT KUMAR / DATE OF HEARING : 06.05.2015 !'# / DATE OF PRONOUNCEMENT : 30.06.2016 / O R D E R PER PAWAN SINGH, JM: THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-3, MUMBAI DATED 15.3.2013 RAISING THE FOLLOWING GROUND S OF APPEAL: 1. THE HONORABLE COMMISSIONER OF INCOME TAX APPEALS -3, HAS ERRED IN REJECTING THE CONTENTIONS OF THE APPELLANT AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: A. HAS ERRED IN UPHOLDING THE ADDITIONS MADE BY LEARNE D ACIT BEING MAKING A DISALLOWANCE U/D. 14A IN RESPECT OF EXPENDITURE TREATING THE SAME AS EXPENDITURE INCURRED IN RELATION TO INC OME NOT INCLUDIBLE IN TOTAL INCOME, AS THE APPELLANT HAS NOT TAKEN ANY SE CURED OR UNSECURED 2 ITA NO. 3889/MUM/2013 (A.Y. 2008-09) PRITISH NANDY VS. ASST. CIT LOAN TO INVEST IN SHARES AND MUTUAL FUNDS TO EARN T AX FREE INCOME, ON WHICH BASIS, THIS DISALLOWANCE HAS BEEN ALLEGEDLY M ADE. THE LOAN TAKEN FROM STATE BANK OF INDIA TO PURCHASE A PROPERTY SIT UATED AT FLAT NO. 6, GROUND FLOOR, KAMANI HOUSE, D.G. DESHMUKH MARG, MUR NBAI HAS BEEN DIRECTLY DISBURSED IN THE NAME OF HINDUSTAN LE VER LTD. FROM WHOM THE PROPERTY HAS BEEN PURCHASED AS PER THE PAY ORDER ISSUED BY STATE BANK OF INDIA. HENCE IN REGARDS TO THE ABOVE NO DISALLOWANCE CAN BE MADE. REGARDING OTHER EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT, THE SAME ARE ENTIRELY PERTAINING TO PROFESSIONAL INCOME OF T HE APPELLANT. AS REGARDS INCOME FROM OTHER SOURCES BEING INTEREST ET C., THERE ARE NO EXPENSES CLAIMED EVEN AGAINST TAXABLE INCOME . B. HAS FURTHER ERRED IN UPHOLDING THE ADDITIONS MAD E BY LEARNED ACIT BEING TREATING THE PROPERTY LOCATED AT KHAR AN D GOA AS LET OUT PROPERTY AND TAXING THE INCOME UNDER THE HEAD INCOM E FROM HOUSE PROPERTY ON A NOTIONAL BASIS. THE APPELLANT HAS CLE ARLY SUBMITTED THAT THE ABOVE MENTIONED PROPERTIES WERE USED BY THE APP ELLANT FOR PURPOSE OF WRITING AND HIS PROFESSION, HENCE IT COULD NOT B E GIVEN ON RENT WITH 100% CHARGE TO ANYONE. HENCE THE ABOVE ADDITION MAY BE DELETED. 2. THE LEARNED A CIT 11 (1) ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW: HAS ERRED IN MAKING A DISALLOWANCE U/S 14A IN RESPE CT OF EXPENDITURE TREATING THE SAME AS EXPENDITURE INCURRED IN RELATI ON TO INCOME NOT INCLUDIBLE IN TOTAL INCOME, AS THE APPELLANT HAS NO T TAKEN ANY SECURED OR UNSECURED LOAN TO INVEST IN SHARES AND MUTUAL FUNDS TO EARN TAX FREE INCOME, ON WHICH BASIS, THIS DISALLOWANCE HAS BEEN ALLEGEDLY MADE. THE LOAN TAKEN FROM STATE BANK OF INDIA TO PURCHASE A PROPERTY SITUATED AT FLAT NO. 6, GROUND FLOOR, KAMANI HOUSE, D.G. DES HMUKH MARG, MUMBAI HAS BEEN DIRECTLY DISBURSED IN THE NAME OF H INDUSTAN LEVER LTD. FROM WHOM THE PROPERTY HAS BEEN PURCHASED AS P ER THE PAY ORDER ISSUED BY STATE BANK OF INDIA. H NEE IN REGARDS TO THE ABOVE NO DISALLOWANCE CAN BE MADE. REGARDING OTHER EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT, THE SAME ARE ENTIRELY PERTAINING TO PROFESSIONAL INCOME OF T HE APPELLANT. AS REGARDS INCOME FROM OTHER SOURCES BEING INTEREST ET C., THERE ARE NO EXPENSES CLAIMED EVEN AGAINST TAXABLE INCOME. 3 ITA NO. 3889/MUM/2013 (A.Y. 2008-09) PRITISH NANDY VS. ASST. CIT B. HAS ERRED IN UPHOLDING TREATING THE PROPERTY LO CATED AT KHAR AND GOA AS LET OUT PROPERTY AND TAXING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON A NOTIONAL BASIS. THE APPELL ANT HAS CLEARLY SUBMITTED THAT THE ABOVE MENTIONED PROPERTIES WERE USED BY THE APPELLANT FOR PURPOSE OF WRITING AND HIS PROFESSION ; HENCE IT COULD NOT BE GIVEN ON RENT WITH 100% CHARGE TO ANYONE. HENCE THE ABOVE ADDITION MAY BE DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A DIRECTOR AND NON-EXECUTIVE CHAIRMAN OF PRITISH NANDY COMMUNICATIONS LTD. HE IS ALSO PROVIDING PROFESSIONAL CONSULTANCY SERVICES TO PRITISH NANDY COMMUNICATION S LTD. IN THE FIELD OF MEDIA AND ENTERTAINMENT, FILED A RETURN OF INCOME FOR A.Y. 20 08-09 ON 20.9.2008 DECLARING TOTAL INCOME OF RS.59,28,095/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY DURING THE ASSESSMENT PROCEEDINGS. BESIDE THE OTHER ADDITION/D ISALLOWANCE, THE A.O. MADE DISALLOWANCE OF RS.8,05,816/- U/S. 14A OF THE ACT I N THE ASSESSMENT ORDER DATED 10.11.2010. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). IT WAS DISMISSED VIDE THE IMPUGNED ORDER DATED 15.3.2011 AGAINST WHI CH THE PRESENT APPEAL IS FILED BEFORE US. THOUGH THE ASSESSEE HAS RAISED A NUMBER OF GROUNDS IN THE PRESENT APPEAL, HOWEVER, DURING THE COURSE OF HEARING GROUND NOS. 1 (B) AND 2(A) AND 2(B) WAS NOT PRESSED BY THE LD. AR OF THE ASSESSEE. HENCE, NOW W E ARE DEALING/DISCUSSING WITH GROUND NO. 1(A). 3. WE HAVE HEARD THE LD. AR FOR THE ASSESSEE AND TH E LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASS ESSEE HAS ARGUED THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HA S RECEIVED RS.55,50,000/- AS A PROFESSIONAL CONSULTANCY INCOME FROM PRITISH NANDY COMMUNICATIONS LTD., RS.1,00,000/- FROM DAINIK BHASKAR AND RS.74,000/- F ROM BENNETT COLEMAN AND RS.4,084/- FROM ANANDA PUBLISHERS AS A WRITING INCO ME WHICH IS HIS OTHER OR PROFESSIONAL ACTIVITY. THE ASSESSEE HAS TAKEN A LOA N FROM SBI WHICH WAS DIRECTLY DISBURSED TO THE PARTY FROM WHOM THE PROPERTY WAS P URCHASED. THE ASSESSEE HAS NOT TAKEN ANY LOAN FOR INVESTING IN MUTUAL FUND AND SHA RE FOR EARNING TAX FREE INCOME AND, 4 ITA NO. 3889/MUM/2013 (A.Y. 2008-09) PRITISH NANDY VS. ASST. CIT HENCE, THERE IS NO QUESTION OF APPLICABILITY OF SEC TION 14A OF THE ACT. HENCE, NO DISALLOWANCE CAN BE MADE AGAINST THE ASSESSEE U/S. 14A. THE ASSESSEE HAS ALREADY OFFERED 100% INCOME TO THE TAX WITHOUT CLAIMING ANY EXPENSES. THE A.O. WHILE MAKING THE DISALLOWANCE HAS OBSERVED THAT THE PROVI SION OF SECTION 14A WILL COME AUTOMATIC INTO PLAY IF THE ASSESSEE CONTAINS THAT N O EXPENDITURE HAS BEEN MADE BY THE ASSESSEE TO EARN THE EXEMPT INCOME AND, THEREFORE, TO AVOID ANY ARBITRARINESS IN THE METHOD OF DISALLOWANCE, RULE 8D COME INTO PICTURE A ND, ACCORDINGLY, CALCULATED THE AMOUNT OF DISALLOWANCE OF RS.8,05,816/- AS PER RULE 8D (II) R/W S. 14A OF THE ACT. THE LD. CIT (A) WHILE CONSIDERING THIS GROUND OF AP PEAL HAS OBSERVED THAT THE ASSESSEE HAS DIVIDEND INCOME OF RS.31,69,947/- WH ICH HAS BEEN CLAIMED AS EXEMPT INCOME UNDER THE ACT. THE CIT(A) FURTHER OBSERVED T HAT THE ASSESSEE HAS ALSO DEBITED INTEREST EXPENDITURE OF RS.10,19,000/- IN THE PROFI T AND LOSS ACCOUNT AND CONCLUDED THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING D IVIDEND INCOME WHICH CANNOT BE ACCEPTED. AS IT IS IMPOSSIBLE TO EARN SUBSTANTIAL D IVIDEND INCOME WITHOUT INCURRING ANY EXPENSES AND CONFIRMED THE DISALLOWANCE MADE BY THE A.O. 4. WE HAVE PERUSED THE PAPER BOOK PLACED ON RECORD BY THE ASSESSEE. AT PG. 5 OF THE PAPER BOOK THE ASSESSEE HAS SHOWN DETAILS OF HO USING LOAN AVAILED IT TO PURCHASE PROPERTY, WHEREIN A LOAN OF RS.2 CRORES WAS DISBURS ED IN THE NAME OF HINDUSTAN LIVER ON 30.10.2006. PROFIT AND LOSS ACCOUNT IS ALSO AVAI LABLE AT PGS. 7 AND 8 OF THE PAPER BOOK. WE HAVE PERUSED THE CAPITAL ACCOUNT OF THE AS SESSEE FOR THE YEAR ENDING ON 31.3.2008, WHEREIN THE ASSESSEE WAS HELD CAPITAL AC COUNT OF RS.18,76,57,260/-. WE HAVE NOTICED THAT THOUGH THE ASSESSEE HAS CLAIMED T O EARN EXEMPT INCOME OF RS.31,69,974/- BUT NO VOLUNTARY DISALLOWANCE IS MAD E BY THE ASSESSEE WHILE FILING THE RETURN OF INCOME. NO EXPLANATION IS OFFERED BY THE ASSESSEE AS TO HOW HE HAD NOT INCURRED ANY AMOUNT FOR EARNING THE EXEMPT INCOME. THE A.O. INVOKED THE PROVISION OF SECTION 14A(3) FOR CALCULATING THE DISALLOWANCE IN RESPECT OF EXEMPT INCOME. THE CLAIM OF THE ASSESSEE THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED FOR EARNING 5 ITA NO. 3889/MUM/2013 (A.Y. 2008-09) PRITISH NANDY VS. ASST. CIT DIVIDEND INCOME IS GETTING SUPPORT FROM THE CERTIFI CATE OF SBI DATED27.06.2008,(PAGE 5 OF P/B) THAT BANK HAS GRANTED HOUSING LOAN. AS W E HAVE ALREADY NOTICED THAT THE ASSESSEE OWNED SUFFICIENT FUNDS, THUS FOR THE PURPO SE OF DISALLOWANCE U/S 14A, THE CASE OF ASSESSEE WOULD FALL UNDER RULE 8D (III) OF INCOME TAX RULES 1962. HENCE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER SE CTION 14A, @ 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENT, AS APPEARING IN THE BAL ANCE SHEET OF ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT FINANCIAL YEAR . WE ORDER ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. &#'( )*+& VKF VKFVKF VKF KAD LOHDKJ KAD LOHDKJ KAD LOHDKJ KAD LOHDKJ ,- . ORDER PRONOUNCED IN THE OPEN COURT ON 30.06.2016 SD/- SD/- (G. S. PANNU) (PAWAN SINGH) / ACCOUNTANT MEMBER /) / JUDICIAL MEMBER ' MUMBAI; 1 DATED : 30.06.2016 .)../ ROSHANI , SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 2 ( ) / THE CIT(A) 4. 2 / CIT - CONCERNED 5. 567 ))8* , 8*# , ' / DR, ITAT, MUMBAI 6. 7:+ ; / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , ' / ITAT, MUMBAI