AJIT SINGH ARORA, MUMBAI V. JCIT 20(1), MUMBAI

ITA 4062/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8618 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR RADAV
• Assessee Lawyers: V P JOSHI
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./4062/MUM/2014, /ASSESSMENT YEAR:2009-10 AJIT SINGH ARORA PLOT NO.94, ROAD NO.16 MIDC,ANDHERI (E),MUMBAI-400 093. PAN:ASSESSEEBPA 1472 B VS. JCIT-20(1), 6TH FLOOR PIRAMAL CHAMBERS, LALBAUG MUMBAI-400013. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SHRI RAJESH KUMAR RADAV- DR /ASSESSEE BY: SHRI V.P. JOSHI / DATE OF HEARING: 19/01/2017 / DATE OF PRONOUNCEMENT:10.02.2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 30.03.2014,OF THE CIT(A )-31,MUMBAI,THE ASSESSEE HAS FILED PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF INDUSTRIAL GEARS AND LABOUR JOB.RETURN OF INCOME WA S FILED ON 21/09/2011,DECLARING TOTAL INCOME OF RS.2.52 CRORES.THE ASSESSING OFFICER(AO)C OMPLETED THE ASSESSMENT U/S. 143 (3) OF THE ACT ON 23/12/2011,DETERMINING HIS INCOME AT RS. 2.66 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE M ADE U/S.14A OF THE ACT R.W.R.8D AMOUNTING TO RS.6.04 LAKHS.DURING THE ASSESSMENT P ROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD EARNED DIVIDEND INCOME AND HAD CLAIMED THE SAME AS EXEMPT.HE OBSERVED THAT ORDINARILY SOME EXPENDITURE WOULD HAVE BEEN INCURRED FOR EARNI NG EXEMPT INCOME,THAT IN THE P&L ACCOUNT CERTAIN EXPENSES HAD BEEN CLAIMED.REFERRING TO THE PROVISIONS OF SECTION 14A R.W.R 8D(2),HE MADE A DISALLOWANCE OF RS.6,04,709/-. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM IT WAS ARGUED THAT THE EXPENDITURE CLAIMED IN THE P&L ACCOUNT INCLUDED ONLY THOSE EXPENSES WHICH WERE DIR ECTLY RELATED TO BUSINESS INCOME, THAT NONE OF THEM RELATED DIRECTLY/INDIRECTLY TO EXEMPT INCOME, THAT THE AO HAD NOT POINTED OUT ANY EXPENDITURE WHICH COULD BE RELATED TO TAXABLE A S WELL AS TAX EXEMPT RECEIPT, THAT HE HAD NOT BROUGHT ON RECORD NOT PRODUCED ANY FIGURE TO SU BSTANTIATE THAT THE ASSESSEE HAD INFACT ANY EXPENDITURE FOR EARNING EXEMPT INCOME.AFTER CONSIDE RING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD M ADE THE DISALLOWANCE W.R.T. INDIRECT EXPENDITURE I.E. 0.5% OF THE AVERAGE VALUE OF THE I NVESTMENT, THAT THERE WAS DIFFERENCE 4062/M/14(09-10)- AJIT SINGH ARORA 2 BETWEEN THE OPENING AND CLOSING BALANCES OF THE INV ESTMENTS DURING THE YEAR UNDER CONSIDERATION,THAT THE ASSESSEE HAD NOT MADE ANY DI SALLOWANCE ON ITS OWN.FINALLY,THE FAA UPHELD THE ORDER OF THE AO. 3. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR)STATED THAT ASSESSEE HAD SUFFICIENT OWN FINDS TO MAKE INVESTMEN T, THAT AO HAD NOT RECORD THE SATISFACTION BEFORE INVOKING THE PROVISIONS OF RULE 8D(2)(III), THAT THE TOTAL INVESTMENT HAD REDUCED FROM RS.13.53 CRORES TO RS.10.62CRORES.HE REFERRED TO PA GE NO.47 AND 48 OF THE PB.HE RELIED UPON THE CASES OF WALFORT SHARE & STOCK BROKERS LTD.(32 6 ITR 1),NICHOLAS PIRAMAL (INDIA) LTD. (69TAXMANN.COM164).THE DEPARTMENTAL.REPRESNTATIVE(D R)RELIED ON THE ORDER OF THE FAA . 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST EX EMPT INCOME,THAT AO HAD MADE A DISALLOWANCE OF RS.6.04 LAKHS INVOKING PROVISIONS O F SECTION 14A R.W.R.8D,THAT THERE WAS REDUCTION IN INVESTMENT MADE BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THAT THE AO HAD INCLUDED ALL THE INVESTMENTS I.E. PERSONAL AND BUSINESS INVESTMENTS,WHILE MAKING THE DISALLOWANCE.SECTION 14A STIPULATES THAT NO EXPENDI TURE COULD BE ALLOWED AGAINST EXEMPT INCOME.THE BASIC PURPOSE BEHIND THE INTRODUCTION OF THE SECTION WAS TO PREVENT THE DOUBLE DEDUCTION AVAILED BY THE ASSESSEES I.E.CLAIMING EXP ENDITURE AGAINST EXEMPT INCOME.TO PREVENT THE MISUSE OF EXEMPTIONS IT WAS STIPULATED THAT NO EXPENDITURE WOULD BE ALLOWED IF INCOME DOES NOT FORM PART OF TAXABLE INCOME.HOWEVER ,INCURRING OF EXPENDITURE IS PRE- REQUISITE FOR MAKING ANY DISALLOWANCE.WE WOULD LIKE TO REPRODUCE CERTAIN PARAGRAPHS OF THE JUDGMENT OF HONBLE SUPREME COURT DELIVERED IN THE CASE OF WALFORT SHARE & STOCK BROKERS LTD.(SUPRA) AND IT READS AS UNDER : SECTION 14A OF THE INCOME-TAX ACT, 1961, CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNIN G OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO EXEMPT INCOME AND PARTLY TO TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A , THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF SECTION 14A IS CLEAR : IT DESIRES TO CURB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONME NT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INSERTION OF SE CTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME BECAUSE THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE ACT. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET I NCOME, I.E., GROSS INCOME MINUS EXPENDITURE.ON THE SAME ANALOGY, EXEMPTION IS ALSO IN RESPECT OF NET INCOME. THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NO N-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A . 4062/M/14(09-10)- AJIT SINGH ARORA 3 A PAY BACK IS NOT AN EXPENDITURE IN THE SCHEME OF S ECTION 14A ;FOR ATTRACTING SECTION 14A THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS IN RELATIONSHIP WITH THE TAX EXEMPT INCOME. PAY BACK OR RETURN OF INVESTMENT IS NOT SUCH PROXIMATE CAUSE. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,ESPECIALLY THE FACT THAT THERE WAS NO PROXIMATE CAUSE OF DISALLOWANCE,WE HOLD THAT F AA WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO.SO, REVERSING HER ORDER ,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSE. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. !'# $'%''&'''()'' '*+ . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY ,2017. 10 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 10.02.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.