M/s Letul Investment Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4822/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4235 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL I.T.A. NO. 4822(DEL)/2010 ASSESSMENT YEAR: 2006-07 LETUL INVESTMENT PVT. LTD., ASSISTANT COMMISSIONER OF 2/19, KALKAJI EXTN., VS. INCOME-TAX, CIRCLE 4(1), NEW DELHI. NEW DELHI. PAN-AAACL0021D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.V.S.R. KRISHNA, C .A. RESPONDENT BY : SHRI A.K . MONGA, SR. DR ORDER PER K.G. BANSAL : AM THE ASSESSEE HAS TAKEN UP SIX GROUNDS IN THE APPEAL, THE SUM AND SUBSTANCE OF WHICH IS THAT THE LD. CIT(APPEALS) E RRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF RS. 2,58,416/- BY I NVOKING THE PROVISION CONTAINED IN SECTION 14A. IT IS MENTIONED T HAT HE DID NOT APPRECIATE THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSE E FOR EARNING THE EXEMPT INCOME. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN ON 29.11.2006 DECLARING TOTAL INCOME OF RS. 66,38, 210/-. IN THE COURSE OF ASSESSMENT, IT WAS FOUND THAT IT IS ENGAGED IN TH E BUSINESS OF PURCHASE AND ITA NO. 4822(DEL)/2010 2 SALE OF SECURITIES. THE ASSESSEE EARNED DIVID END OF RS. 12,40,743/-, WHICH IS NOT LIABLE TO BE INCLUDED IN ITS TOTAL I NCOME U/S 10 OF THE ACT. THEREFORE, THE ASSESSEE WAS REQUIRED TO EXPLAIN A S TO WHY AN APPROPRIATE AMOUNT MAY NOT BE DISALLOWED IN COMPUTING THE INC OME, REPRESENTING THE EXPENDITURE INCURRED ON EARNING THE EXEMPT INCOM E. IT WAS SUBMITTED THAT NO PART OF THE EXPENDITURE INCURRED BY THE ASSESSEE CAN BE SAID TO BE RELATABLE TO EARNING OF THE DIVIDEND INCOME. THE REFORE, NO PART OF THE EXPENDITURE CAN BE ATTRIBUTED TOWARDS EARNING THE EXEMPT INCOME. IT WAS FURTHER SUBMITTED THAT 68% OF THE EXEMPT I NCOME REPRESENTS DIVIDENDS RECEIVED FROM ONE COMPANY. DIVIDENDS FROM OTHER COMPANIES WERE DIRECTLY CREDITED TO THE ACCOUNT OF THE AS SESSEE. NO EXPENDITURE CAN BE SAID TO HAVE BEEN INCURRED FOR DEPOSITING A FEW CHEQUES IN THE BANK ACCOUNT. THE AO CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS MADE BEFORE HIM. HE REFERRED TO THE PROVISION CONTAI NED IN SECTION 14A AND MENTIONED THAT THE EXPENDITURE INCURRED FOR EARNI NG EXEMPT INCOME HAS TO BE DISALLOWED. HE COMPUTED AN AMOUNT OF RS. 2,7 9,630/- AS DISALLOWABLE ON A PROPORTIONATE BASIS. 3. THE MATTER WAS AGITATED BEFORE THE LD. CIT( APPEALS). HE IS OF THE VIEW THAT THE ASSESSEE HAS INCURRED EXPENDITURE O N RENT, TAXES, SALARIES, ITA NO. 4822(DEL)/2010 3 INTEREST, AUDITORS REMUNERATION ETC. A PART O F THE EXPENDITURE CAN VERY WELL BE ATTRIBUTED TO THE EARNING OF THE EXEMPT INCOME. HE COMPUTED THE TOTAL EXPENDITURE AT RS. 21,66,139/-, A PAR T OF WHICH COULD BE ATTRIBUTED TO THE DIVIDEND INCOME ON A PROPORTIONA TE BASIS. SUCH AN EXPENDITURE WAS COMPUTED AT RS. 2,58,416/-. THERE FORE, THE ASSESSEE WAS GRANTED A RELIEF OF RS. 21,214/-. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE NOS. 11 TO 13 OF THE PAPER BOOK, WHICH ACCORDING TO HIM SH OW THAT INVESTMENT IN SHARES WAS PRIMARILY OUT OF THE FUNDS RECEIVED ON REDEMPTION OF UNITS OF VARIOUS MUTUAL FUNDS. THEREFORE, HIS CASE IS T HAT NO DISALLOWANCE COULD BE MADE AT ALL AS THE OWN FUNDS WERE USED FOR MAKING SUCH INVESTMENTS. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT A REASONABLE DISALLOWANCE CAN BE MADE FROM THE EXPENDITURE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT, (2010) 194 TAXMAN 203. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE DECISION IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) IS THAT SECTION 14A AND RULE 8D AR E NOT ULTRA VIRES. HOWEVER, ITA NO. 4822(DEL)/2010 4 RULE 8D COMES INTO OPERATION FROM ASSESSMENT Y EAR 2008-09. IN ASSESSMENTS OF THE EARLIER PERIODS, THE AO CAN M AKE A REASONABLE DISALLOWANCE AFTER CONSIDERING ALL THE FACTS OF T HE CASE. THE EFFECT OF THIS JUDGMENT IS THAT IF NO INTEREST IS RELATABLE TO T HE EXEMPT INCOME, THEN THE SAME OR PART THEREOF CANNOT BE DISALLOWED. HO WEVER, THE AO CAN LOOK INTO ALL EXPENSES AND EXAMINE WHETHER ANY OF THE M CAN BE ATTRIBUTED TO THE EXEMPT INCOME. IF SO, THE PART OF THE EXP ENDITURE WHICH CAN BE RELATED TO EARNING THE EXEMPT INCOME CAN BE DI SALLOWED. HOWEVER, THE FACTS REGARDING THIS ASPECT ARE TO BE ASCERT AINED, ALTHOUGH THE EXPENDITURE CANNOT BE DISALLOWED ON A PROPORTION ATE BASIS. SINCE THIS EXERCISE HAS NOT BEEN DONE, THE MATTER IS RESTO RED TO THE FILE OF THE AO FOR DECIDING IT AFRESH AS PER LAW AND AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 1 APRIL, 2011. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21ST APRIL, 2011. SP SATIA ITA NO. 4822(DEL)/2010 5 COPY OF THE ORDER FORWARDED TO: LETUL INVESTMENTS PVT. LTD., NEW DELHI. ACIT, CIRCLE 4(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.