DEVESH AGARWAL, MUMBAI V. ASST CIT CEN CIR 32, MUMBAI

ITA 4187/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1849 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ITA NO
• Assessee Lawyers: DEVENDRA A MEHTA
• Keywords: Unexplained investment; Search and seizure; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I.T.A. NO.4187/M/11 ( / ASSESSMENT YEAR: 2008-09) SHRI DEVESH AGARWAL C/O. M/S. RAVI & DEV, CHARTERED ACCOUNTANTS, 377-B, FIRST FLOOR, JAGANNATH SHANKAR SETH MARG, CHIRA BAZAR, MUMBAI - 400002 / VS. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 32 MUMBAI. ./ ./ PAN/GIR NO. : AEKPA7464G / I.T.A. NO.4188/M/11 ( / ASSESSMENT YEAR: 2008-09) SHRI DEEPAK AGARWAL C/O. M/S. RAVI & DEV, CHARTERED ACCOUNTANTS, 377-B, FIRST FLOOR, JAGANNATH SHANKAR SETH MARG, CHIRA BAZAR, MUMBAI - 400002 / VS. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 32 MUMBAI. ./ ./ PAN/GIR NO. : AEJPA0731P ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 19.10.2015 !' /DATE OF PRONOUNCEMENT: 16.12.2015 ASSESSEE BY: SHRI DEVENDRA A. MEHTA DEPARTMENT BY: SHRI SANJEEV KASHYAP (CIT- DR) ITA NO. 4187/M/11 & ITA NO. 4188/M/11 A.Y. 2008-09 2 #$ / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL AGAINST THE ORDER OF LEARNED COMM ISSIONER OF INCOME TAX (APPEALS)-41, MUMBAI [HEREINAFTER REFERRED TO AS TH E LEARNED CIT(A)] DATED 28.03.2011 RELEVANT TO THE A.Y. 2008-09. SINCE THE MATTER OF CONTROVERSY IN BOTH THE APPEALS ARE SIMILAR IN NATURE THEREFORE, CAN BE CONVENIENTLY ADJUDICATED TOGETHER. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.90,149/- U/S.14A OF THE INCOME-TAX ACT, 1961 BY THE ASSESSING OFFICER ON TH E BASIS JUDGEMENT OF THE HONOURABLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. D.C.I .T. (328 ITR 81) WITHOUT CONSIDERING THE CRUCIAL FACT THAT N O EXPENDITURE WHATSOEVER WAS INCURRED BY THE ASSESSEE AND CLAIMED AS A DEDUCTION WHILE COMPUTING HIS TOTAL INCOME. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS.1,00,00,000/ - MADE BY THE ASSESSING OFFICER U/S.69B OF THE INCOME-TAX ACT, 19 61 IN RESPECT OF THE INCOME WHICH WAS DECLARED BY THE ASSESSEE DURIN G SEARCH IN HIS STATEMENT UJS.132(4). ISSUE NO. 1: 3. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEAR NED REPRESENTATIVE OF THE PARTIES AND HAVE GONE THROUGH THE CASE FILES CAREFU LLY. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE NEITHER INCURRED ANY EXPENDITURE NOR CLAIMED DEDUCTION IN RESPECT OF EARNING EXEMPTED INCOME OF RS.4,50,744/- WHILE COMPUTING HIS TOTAL INCOME THEREFORE NO DISALLOWANC E WAS WARRANTED U/S. 14A OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT) AND ALSO PLACE RELIANCE UPON THE LAW SETTLED IN FOLLOWING JUDGMENTS:- ITA NO. 4187/M/11 & ITA NO. 4188/M/11 A.Y. 2008-09 3 (A) C.I.T. VS. HERO CYCLES LTD. [2010 189 TAXMAN 50 PUNJ. & HAR.] DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. WHERE IT IS FOUND THAT FOR EARNING EXE MPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A C ANNOT STAND. IN THE INSTANT CASE, FINDING ON THAT ASPECT AGAINST THE REVENUE WA S NOT SHOWN TO BE PERVERSE. CONSEQUENTLY, DISALLOWANCE WAS NOT PERMISSIBLE. (B) C.I.T.VS. METALMAN AUTO(P.)LTD. [[2011] 11 TAXM ANN.COM 51 (PUNJ.& HAR.)] NO DISALLOWANCE U/S.14A CAN BE MADE ON PRESUMPTIVE BASIS AS THE DISALLOWANCE UNDER SECTION 14A REQUIRES A FINDING O F INCURRENCE OF EXPENDITURE FOR EARNING THE EXEMPT INCOME. IN CASE NO EXPENDITU RE HAS BEEN INCURRED, THE DISALLOWANCE UNDER SECTION 14A IS NOT JUSTIFIED. IN OTHER WORDS, THERE CANNOT BE A PRESUMPTION THAT CERTAIN EXPENDITURE IS BOUND TO BE INCURRED FOR EARNING THE EXEMPT INCOME. (C) C.I.T VS. GLENMARK PHARMACEUTICAL LTD.[30 TAXMA NN.COM 167 (BORN)] DISALLOWANCE UNDER SECTION 14A CANNOT STAND WHERE N O EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME AS THE INVES TMENTS WERE MADE FROM ITS OWN FUNDS AND NOT BORROWED FUNDS. ALSO, THE REVENUE HAS NOT BEEN ABLE TO SHOW HOW THE FINDING OF FACT ARRIVED AT BY THE TRIBUNAL THAT NO EXPENSES WERE INCURRED TO EARN THE DIVIDEND INCOME IS EITHER ARBITRARY OR PERVERSE. (D) C.I.T VS. RELIANCE INDUSTRIES LTD. [8 TAXMANN.C OM 218 (BORN)] NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR WHE N THERE IS NO FACT OF HAVING INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME. (E) MODERN INFO TECHNOLOGY PVT. LTD. VS. I.T.O. [I TA NO.4294/DELHI/2012] NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR WHE N THE ASSESSEE HAS NOT INCURRED AND CLAIMED ANY EXPENDITURE FOR EARNING TH E EXEMPT INCOME. (F) JUSTICE SAM P. BHARUCHA VS.ADDL. C.I.T.[(2012) 25 TAXMANN.COM381(MUM)] THE EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS TO BE DISALLOWED. HOWEVER, IT SHOULD BE PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME , WHICH DOES NOT FORM PART OF TOTAL INCOME. ONCE SUCH PROXIMITY RELATIONSHIPS EXI ST, THE DISALLOWANCE IS TO BE EFFECTED. IN CASE THE ASSESSEE HAD CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, IT WAS FOR THE ASSES SING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE I N RELATION TO INCOME WHICH DID NOT FORM PART OF TOTAL INCOME AND IF SO TO QUAN TIFY THE EXTENT OF DISALLOWANCE. THUS, IN ORDER TO DISALLOW THE EXPENDITURE UNDER SE CTION 14A, THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCO ME NOT FORMING PART OF TOTAL INCOME. NO NOTIONAL EXPENDITURE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT INCOME UNLESS THERE IS AN ACTUAL EXPENDITURE IN RELATION TO EARNING THE INCOME NOT FORMING PART OF TOTAL INCOME. IF THE EX PENDITURE IS INCURRED WITH A VIEW TO EARN TAXABLE INCOME AND THERE IS APPARENT D OMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND TAX ABLE INCOME, THEN NO ITA NO. 4187/M/11 & ITA NO. 4188/M/11 A.Y. 2008-09 4 DISALLOWANCE CAN BE MADE UNDER SECTION 14A MERELY B ECAUSE SOME TAX EXEMPT INCOME IS RECEIVED BY THE ASSESSEE. (G) M/S.GOVIND AGARWAL (HUF) VS. A.C.I.T. [I.T.A. N O.217/MUM/2011 DT.17.06.2013] WE FIND THAT THE DIRECT EXPENSE IN THE FORM OF DEMA T CHARGES AND STT ON SHARES AND ALSO BANK CHARGES ARE DEBITED IN THE CAP ITAL ACCOUNT. THE ASSESSEE HAS NOT CLAIMED ANY OF THESE DIRECT EXPENSES. A PERUSAL OF THE CAPITAL ACCOUNT AND THE BALANCE SHEET EXHIBITED AT PAGES 14 & 15 OF THE PAP ER BOOK SHOW THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES THEREFORE, WE DO NOT FIND ANY REASON FOR MAKING ANY DISALLOWANCE U/S. 14A R.W. RULE 8D OF TH E ACT. HOWEVER, TO MEET THE ENDS OF JUSTICE, WE DIRECT THE AO TO RESTRICT THE D ISALLOWANCE TO 5% OF THE EXEMPT INCOME. 4. HOWEVER, ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNED CIT(A). THE LEARNED CIT(A) ORDER IN QUESTION SPEAKS THAT NO EXPENDITURE HAS BEEN DEBITE D TO THE P&L ACCOUNT RELATING TO THE EARNING OF DIVIDEND INCOME TO THE TUNE OF RS . RS.4,50,744/- & RS.11,32,682/- RESPECTIVELY IN APPEAL THE ASSESSMEN T YEARS IN QUESTION. NOW IT IS TO BE SEEN WHETHER NO EXPENDITURE WAS OCCURRED ON A CCOUNT OF EARNING EXEMPT INCOME THEN IN THE SAID CIRCUMSTANCE SECTION 14A R. W. RULE 8D WAS APPLICABLE OR NOT. THIS QUESTION IS NOW BEEN CLARIFIED BY THE NU MBER OF PRONOUNCEMENTS MADE BY THE HIGH COURT OF PUNJAB & HARYANA, ITAT DELHI A ND IN OTHER CASES CITED ABOVE. IT HAS CATEGORICALLY BEEN HELD THAT WHEN IT IS FOUND THAT EARNING EXEMPT INCOME NO EXPENDITURE HAS BEEN INCURRED THEN DISALL OWANCE U/S. 14A OF THE ACT CANNOT BE STAND. 5. THEREFORE, IN THE SAID CIRCUMSTANCE IN THE CASE OF ASSESSEE SPECIFICALLY SHOWS THAT NO EXPENDITURE WAS INCURRED TO EARNING EXEMPT INCOME THEREFORE, UNDOUBTEDLY THE PROVISION U/S. 14A R.W. RULE 8D IS NOT APPLICAB LE TO HIS CASE. HENCE, IN VIEW OF THE SAID CIRCUMSTANCES AND IN VIEW OF THE LAW MENTI ONED ABOVE WE ARE OF THE VIEW THAT THE ORDER OF LEARNED CIT(A) UNDER CHALLENGE IS NOT LIABLE TO SUSTAINABLE IN THE EYES OF LAW THEREFORE WE SET ASIDE THE SAME AND THE APPEAL IS HEREBY RESTORED TO THE ITA NO. 4187/M/11 & ITA NO. 4188/M/11 A.Y. 2008-09 5 FILE OF ASSESSING OFFICER TO REASSESS THE RETURN OF THE INCOME OF THE ASSESSEE WITHOUT APPLICABILITY OF THE PROVISION U/S. 14A R.W . RULE 8D IN ACCORDANCE WITH LAW. ISSUE NO. 2: 6. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS A RGUED THAT THE LEARNED CIT(A) HAS WRONGLY CONFIRMED THE ADDITION OF RS.1,0 0,00,000/- U/S. 69B OF THE ACT IN VIEW OF THE STATEMENT MADE BY THE ASSESSEE U/S. 132(4). AS PER RECORDS SEARCH AND SEIZURE OPERATION U/S. 132(1) OF THE ACT WAS CA RRIED OUT AT THE BUSINESS AND RESIDENCE OF THE ASSESSEE. DURING THE SEARCH AND SE IZURE OPERATION DOCUMENTS RELATING TO THE PURCHASE OF PROPERTY WERE FOUND AND SEIZED AND CONFIRMED BY THE STATEMENT RECORDED U/S. 132(4). SHRI GOVIND AGARWA L HEAD OF FAMILY HAS DECLARED A SUM OF RS.1,00,00,000/- AS UNDISCLOSED INCOME AS THE IMMOVABLE PROPERTY WAS PURCHASED AND THE UNDISCLOSED INCOME OF RS.1,00,00, 000/- WAS DECLARED IN THE INCOME TAX RETURNS. DURING THE ASSESSMENT PROCEEDI NG, THE ASSESSING OFFICER WORK OUT ABOUT THE SOURCE OF EARNING THIS UNDISCLOSED IN COME WHICH WAS NOT SPECIFICALLY PROVED. THEREFORE, THE ASSESSING OFFICER TREATED T HE SAID INCOME AS UNEXPLAINED INVESTMENT U/S. 69B OF THE ACT. NO EVIDENCE OF ANY KIND HAS BEEN SHOWN TO ASSESSING OFFICER TO WHICH IT CAN ASSUME THAT THE S AID AMOUNT OF RS.1,00,00,000/- IS NOT REQUIRED TO DEAL WITH IN VIEW OF THE PROVISI ON U/S. 69B OF THE ACT. SOURCE OF RS.1,00,00,000/- HAS NOT BEEN PROVED NOR THE SAID A MOUNT HAS BEEN DISCLOSED IN THE BOOKS OF ACCOUNT. HOWEVER, IT WAS EXPLAINED THAT T HE SAID AMOUNT WAS PAID TO PURCHASE THE LAND WHICH WAS NOT EFFECT LATER ON BUT IN THIS REGARD THERE IS NO COGENT AND CONVINCING MATERIAL ON RECORD. THEREFORE, IN V IEW OF THE SAID CIRCUMSTANCE WE NOWHERE FOUND ANY ELIGIBILITY OR UNIFORMITY IN THE ORDER OF LEARNED CIT(A) UNDER CHALLENGE. THEREFORE, THE FINDING OF THE LEARNED C IT(A) ON THIS POINT IS HEREBY UPHELD. ITA NO. 4187/M/11 & ITA NO. 4188/M/11 A.Y. 2008-09 6 7. IN THE RESULT, THE BOTH APPEALS OF THE ASSESSE E ARE HEREBY PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER , 2015. SD/- SD/ - (N.K.BILLAIYA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 16 TH DECEMBER, 2015 MP MP MP MP !'#$ %$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. & / BY ORDER, - & //TRUE COPY// '/&( ) (DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI