JAGDISH G. JHAWAR, MUMBAI V. ITO 9(1)(4),

ITA 4354/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9320 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 26-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C.SHARMA , ACCOUNTANT MEMBER ITA NO.4354/MUM/2013(A.Y. 2008-09) SHRI JAGDISH G. JHAWAR, 502, SOMESH BLDG., LIBERTY GARDEN CROSS ROAD NO.4, MALAD (W), MUMBAI 400 064. PAN: AAJPJ 6969F (APPELLANT ) VS. INCOME TAX OFFICER 9(1), MUMBAI. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI AKH ILENDRA P. YADAV DATE OF HEARING : 11/03/2015 DATE OF PRONOUNCEMENT : 11 /03/2015 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-19, MUMBAI DATED 03/04/2013 FOR ASSES SMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 19, MUMBAI [LD. CIT(A)] ERRED IN CONFIRMING THE ASSESSING OFFICER S ACTION TO ADD RS.3,11 989/- BY U/S.14A. IT IS RESPECTFULLY SUBMITTED THAT APPELLANT HAS MAD E INVESTMENT AND RECEIVED EXEMPT INCOME OF RS.1,19,908/- BY WAY OF DIVIDEND O N SHARES AND MUTUAL FUND. DIVIDEND EARNED BY THE APPELLANT IS INCIDENT AL TO APPELLANTS BUSINESS OF SALE OF SHARES AS SHARES WERE RETAINED NOT WITH THE INTENTION TO EARN ITA NO.4354/MUM/2013(A.Y. 2008-09) 2 DIVIDEND INCOME BUT TO TRADE N THEM AND THEREFORE, SECTION 14A SHOULD NOT BE INVOKED TO APPORTION EXPENDITURE INCURRED IN PUR CHASING SHARE BETWEEN DIVIDEND AND SHARE TRADING PROFIT AND DISALLOW EXPE NDITURE PROPORTIONATE TO DIVIDEND INCOME. 2. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.1,19,9 08/- FROM SHARES AND MUTUAL FUNDS. THE AO CALCULATED DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT A SUM OF RS.3,11,989/-. THE CALCULATION MADE BY TH E AO IS AS UNDER: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. - - (II) PROPORTIONATE OF INTEREST EXPENDITURE COMPUTED IN ACCORDANCE WITH THE FORMULA GIVEN IN RULE 8D(2)(II) (AXB/C) RS. 2,97,039/- (III) AMOUNT TO ONE-HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 0.5% OF RS.29,90,108 RS. 14,950/- TOTAL EXPENDITURE DISALLOWED U/S.14A RS. 3,11,98 9/- 2.1 ACCORDINGLY, THE RETURNED INCOME OF RS.9,82,38 0/- WAS ASSESSED AT RS.12,94,369/-. THE AFOREMENTIONED ADDITION WAS AG ITATED IN THE APPEAL FILED BEFORE LD. CIT(A) AND ONE OF THE CONTENTIONS RAISED BEFORE LD. CIT(A) IS THAT ASSESSEE DID NOT INCUR EXPENDITURE TO EARN EXEMPT I NCOME AND MORE PARTICULARLY ASSESSEE DID NOT INCUR ANY INTEREST AS THE INVESTME NT WAS MADE OUT OF OWN FUNDS. HOWEVER, LD. CIT(A) HAS REJECTED SUCH CONTENTION OF THE ASSESSEE AS PER HIS OBSERVATION IN PARA 3.3.16 OF HIS ORDER, WHICH IS R EPRODUCED BELOW FOR THE SAKE OF CONVENIENCE. ITA NO.4354/MUM/2013(A.Y. 2008-09) 3 3.3.16 THE DISALLOWANCE WORKED OUT AND MADE BY THE ASSESSING OFFICER U/S.14A R.WR.8D IS RS. 3,11,989/-. DURING THE APPE LLATE PROCEEDING, THE APPELLANT APART FROM RELYING ON CASE LAWS DID NOT S TATE THAT IN WHAT WAY THE ASSESSING OFFICER HAS COMMITTED AN ERROR WHILE MAKI NG COMPUTATION OF DISALLOWANCE U/S,14A R,W.R,8D. IT IS EVIDENCED THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS OF EXPENSES INCURRED F OR EARNING OF EXEMPT INCOME, THAT ASSESSEE HAD ALSO NOT MAINTAINED ANY S EPARATE RECORDS ON ACCOUNT OF EXPENDITURE HAVING BEEN INCURRED FOR EAR NING OF DIVIDEND INCOME, THAT THE APPELLANT HAD FAILED TO PRODUCE ANY CASH F LOW STATEMENT OR ANY OTHER MATERIAL WHICH COULD ESTABLISH THAT BORROWED FUND HAD NOT BEEN UTILIZED FOR EARNING OF EXEMPT INCOME, THAT MERELY ON THE BASIS OF BALANCE OF OWN FUND AND BORROWED FUND AS ON THE DATE OF THE BA LANCE SHEET IT COULD NOT BE PRESUMED THAT BORROWED FUND HAD NOT BEEN UTILIZE D FOR EARNING OF EXEMPT INCOME, THAT THE APPELLANTS CONTENTION THAT NO EXP ENDITURE HAD BEEN INCURRED TO EARN EXEMPT INCOME WAS NOT ACCEPTABLE, THAT THE ASSESSEE BEING A SHARE TRADE UNDERTOOK TRANSACTIONS OF SHARE WHICH SUBSEQUENTLY YIELDED DIVIDEND OF CAPITAL GAIN AND SAME WAS EXEMPT, THAT THE EXPENSES INCLUDING INTEREST AND ADMINISTRATIVE EXPENSES DEBITED TO PRO FIT AND LOSS ACCOUNT INCLUDED EXPENDITURE INCURRED FOR UNDERTAKING TRANS ACTIONS OF SHARES WHICH YIELDED EXEMPT INCOME. IN THE CASE OF RKBK FISCAL S ERVICES PVT. LTD., ON THE DIRECTION OF HONBLE SUPREME COURT, THE HONBLE KOL KATA HIGH COURT HAS HELD THAT ONUS IS ON THE ASSESSEE TO BIFURCATE EXPE NDITURE ON EXEMPT INCOME. 2.2 THE INTEREST EXPENSES OF THE ASSESSEE AND THE P ARTICULARS OF INVESTMENTS ARE SPECIFIED IN THE FOLLOWING TABLE WHICH IS REPRODUCE D AT PARA 3.3.15 OF THE IMPUGNED ORDER PASSED BY LD. CIT(A) AND IS ALSO REPRODUCED B ELOW: (A) INTEREST EXPENSES RS. 6,96,787 INVESTMENTS AT BEGINNING OF THE YEAR RS. 27,88,07 7 INVESTMENTS AT THE END OF THE YEAR RS. 31,92,138 (B) AVERAGE VALUE OF INVESTMENTS RS. 29,90,108 (C) TOTAL ASSETS RS. 70,14,122 3. THIS CASE WAS EARLIER FIXED FOR HEARING ON 5/2/2 015 WHEN NONE APPEARED ON BEHALF OF THE ASSESSEE AND THE MATTER WAS ADJOURNED TO 11/3/2015 AND DATE WAS ANNOUNCED IN THE OPEN COURT. ON 11/3/2015 NO ONE A PPEARED ON BEHALF OF THE ITA NO.4354/MUM/2013(A.Y. 2008-09) 4 ASSESSEE. AS THE ISSUE RAISED IS SMALL WE PROCEED TO DECIDE THE PRESENT APPEAL EX- PARTE QUA THE ASSESSEE ON MERITS. 4. LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD . CIT(A) AND PLEADED THAT ACCORDING TO THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF GODREJ & BOYCE MFG. COMPANY LTD., VS. DCIT, 328 ITR 81(BOM) RULE 8D IS APPLICABLE W.E.F. ASSESSMENT YEAR 2008-09 AND THUS, HE SUBMITT ED THAT NO ERROR HAS BEEN COMMITTED BY LD. CIT(A) IN HIS ORDER VIDE WHICH DI SALLOWANCE CALCULATED AS PER RULE 8D HAS BEEN CONFIRMED. 5. WE HAVE HEARD LD. DR. WE HAVE ALSO CAREFULLY GO NE THROUGH THE ORDERS PASSED BY AO AS WELL AS LD. CIT(A). THE ASSESSEE A S WELL AS DEPARTMENT DID NOT FILE BALANCE SHEET ALONGWITH APPEAL TO ASCERTAIN T HE AVAILABILITY OF OWN FUNDS. HOWEVER, AS NOTED EARLIER, IT WAS ONE OF THE CONTE NTION OF THE ASSESSEE THAT HE DID NOT INCUR ANY EXPENDITURE ON ACCOUNT OF INTEREST AS HIS OWN CAPITAL WAS SUFFICIENT TO MEET THE INVESTMENT MADE IN THE SHARES AND SECURITI ES FROM WHICH EXEMPT INCOME HAS BEEN EARNED. SUCH CONTENTION OF THE ASSESSEE H AS BEEN RECORDED BY LD. CIT(A) IN PARA 3.3.16. THE SAID PARA HAS ALREADY BEEN REP RODUCED ABOVE. LD. CIT(A) HAS OBSERVED THAT MERELY ON THE BASIS OF BALANCE OF OWN FUNDS AND BORROWED FUNDS AS ON THE DATE OF BALANCE SHEET IT COULD NOT BE PRESUM ED THAT BORROWED FUNDS HAD NOT BEEN UTILIZED FOR EARNING OF THE EXEMPT INCOME. TH US, FROM THESE OBSERVATIONS OF LD. CIT(A) IT CAN BE INFERRED THAT ASSESSEE WAS HAV ING SUFFICIENT OWN FUNDS TO MEET THE INVESTMENT IN SHARES AND SECURITIES FROM W HICH THE ASSESSEE HAD EARNED TAX FREE INCOME. IF IT IS SO, THEN ACCORDING TO TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VS. HDFC BANK LTD ., 366 ITR 505 (BOM) NO ADDITION CAN BE MADE ON ACCOUNT OF INTEREST AS IT W OULD BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INT EREST FREE FUNDS AVAILABLE WITH ITA NO.4354/MUM/2013(A.Y. 2008-09) 5 THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THEIR L ORDSHIPS FROM THE SAID DECISION ARE REPRODUCED BELOW: 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE S QUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWE R LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CA SE IS THAT THE ASSESSEES OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASS ESSEES CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. IN VIEW OF T HIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVE STMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AV AILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSI ON OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEA L OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 5.1 HOWEVER, AS MENTIONED ABOVE THE RELEVANT FIGURE S OF ASSESSEES OWN FUNDS ARE NOT AVAILABLE ON OUR RECORD. THEREFORE, WE ARE OF THE OPINION THAT IT WOULD SERVE THE INTEREST OF JUSTICE IF THE MATTER IS REST ORED BACK TO THE FILE OF AO FOR THE LIMITED PURPOSE TO VERIFY THE FACT THAT THE OWN FUN DS OF THE ASSESSEE ARE IN EXCESS OF INVESTMENT MADE BY THE ASSESSEE IN THE SHARES AND S ECURITIES FROM WHICH INTEREST FREE INCOME HAS BEEN EARNED AND IF OWN CAPITAL OF T HE ASSESSEE EXCEEDS SUCH INVESTMENT, THEN NO DISALLOWANCE ON ACCOUNT OF INTE REST SHOULD BE MADE AND ADDITION OF RS.2,97,039/- MADE ON ACCOUNT OF INTERE ST SHOULD BE DELETED. ACCORDINGLY, FOR LIMITED PURPOSE OF CONSIDERING THE QUESTION REGARDING DISALLOWANCE ON ACCOUNT OF INTEREST, THE MATTER IS RESTORED BACK TO THE FILE OF AO. ITA NO.4354/MUM/2013(A.Y. 2008-09) 6 6. SO FAR AS IT RELATES TO ANOTHER COMPONENT I.E. 0 .5% DISALLOWANCE OF RS.14,950/- WHICH IS ON ACCOUNT OF OTHER EXPENSES, WE DECLINE TO INTERFERE AND DISALLOWANCE TO THIS EXTENT IS CONFIRMED. 7. IN VIEW OF THE ABOVE DISCUSSIONS APPEALS FILED B Y THE ASSESSEE IS TREATED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANN ER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 11/03/2015 11/03/2015 SD/- SD/- ( . . /R.C.SHARMA ) ( . . / I.P. BANSAL ) /ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; '# DATED 11/03/2015 / COPY OF THE ORDER FORWARDED TO : 1. $ %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. )* ( $ ) / THE CIT(A)- 4. )* / CIT 5. +, '*#-. , $/ $-. , / DR, ITAT, MUMBAI 6. 0 / GUARD FILE. / BY ORDER, ( +* '* //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . # . ./ VM , SR. PS ITA NO.4354/MUM/2013(A.Y. 2008-09) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 11/03/2015 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 11/03/2015 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER