Saroj Aggarwal, New Delhi V. ACIT, New Delhi

ITA 5138/DEL/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1753 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. A. T. VARKEY , JM ITA NO. 5138/DEL/2011 : ASSTT. YEAR : 2008 - 09 SAROJ AGGARWAL, 2135, MASJID KH AJOOR DHARAM PURA, NEW DELHI - 110006 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 28(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA EPA1489M ASSESSEE BY : SH. H IREN MEHTA , CA REVENUE BY : SH. SUJIT KUMAR , SR. DR DATE OF HEARIN G : 23 .09 .2015 DATE OF PRONOUNCEMENT : 30 .11 .2015 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 15.09.2011 OF LD. CIT(A) - XXV , NEW DELHI . 2. THE ONLY GROUND RAISED IN THIS APPEAL READS AS UNDER: 1. THAT THE LD. CIT(A) WAS NOT JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN CONFIRMING THE ADDITION OF RS. 6,02,399/ - MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ALLEGING THAT PART OF TH E EXPENDITURE CLAIMED BY THE ASSESSEE HAS BEEN INCURRED FOR EARNING OF THE TAX FREE INCOME, THOUGH THE APPELLANT HAD NOT INCURRED ANY EXPENSES TO EARN TAX FREE INCOME. ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 2 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TEX TILE, HANDICRAFT EXPORTS AND FILED THE RETURN OF INCOME DECLARING AN INCOME OF RS. 20,00,674/ - . THE ASSESSEE EARNED EXEMPT INCOME OF RS. 70,02,794.02 WHICH INCLUDED TAX FREE INTEREST. THE AO MADE THE DISALLOWANCE OF RS. 6,02,398.76/ - U/S 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF THE INCOME TAX RULES, 1962. 4 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO CONFIRMED THE DISALLOWANCE MADE BY THE AO BY OBSERVING IN PARA 4.4 OF THE IMPUGNED ORDER AS UNDER: 4.4 I HAVE CONSIDERED T HE ADDITION OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE BUT I DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE ASSESSEE THAT THE PROVISIONS OF RULE 8D IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IT IS APPARENT THAT THE NP OF THE ASSESSEE IS OF RS. 70,11 ,649/ - WHICH INCLUDED THE TAX FREE INTEREST OF RS. 39,36,703/ - , TAX FREE DIVIDEND OF RS. 30,46,090/ - AND INTEREST RECEIPT OF RS. 20,57,504/ - ETC. BUT THE ASSESSEE HAS ALSO CLAIMED THE MAJOR EXPENSES UNDER THE HEAD SALARY OF RS. 5,58,334/ - , TRAVELLING OF RS . 14,71,008/ - , EXPORT PROMOTION EXPENSES OF RS. 4,42,209/ - , POSTAGE AND TELEPHONE OF RS. 4,40,415, FOREIGN TRADE EXPENSES OF RS. 33,54,878/ - AND VEHICLE EXPENSES OF RS. 2,35,037/ - ETC. IF THE INTEREST INCOME OF THE ASSESSEE AND THE TAX FREE INCOME UNDER TH E HEAD INTEREST AND DIVIDEND ARE EXCLUDED THEN THERE WILL BE LOSS OF THE ASSESSEE UNDER THE HEAD BUSINESS INCOME AGAINST THE HUGE TURNOVER OF RS. 1,27,39,703/ - WHEREIN THE GP ITSELF WAS OF RS. 49,40,909/ - . IT IS APPARENT THAT SOME PART OF THE EXPENDITURE C LAIMED BY THE ASSESSEE HAS BEEN INCURRED FOR THE EARNING OF ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 3 THE TAX FREE INCOME AND AS SUCH THE AO IS JUSTIFIED TO INVOKE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 5 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MA DE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN ASSESSEE S FAVOUR VIDE ORDER DATED 23.05.2013 IN ASSESSEE S OWN CASE IN ITA NO. 6263/DEL/2012 FOR THE ASSESSMENT YEAR 2009 - 10. IT WAS ALSO SUBMITTED THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN ASSESSMENT YEAR 2009 - 10 (COPY OF THE SAID ORDER WAS FURNISHED WHICH PLACED ON RECORD). 6 . IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHO RITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT THE IDENTICAL ISSUE WAS A SUBJECT MATTER OF THE ASSESSEE S APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 IN ITA NO. 6263/DEL/2012 WHEREIN VIDE ORDER DATED 23.05.2013, THE SIMILAR ADDITIONS MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) HAS BEEN DELETED. THE RELEVANT FINDINGS HAVE BEEN GI VEN IN PARAS 10 TO 15 WHICH READ AS UNDER: 10. FROM THE BALANCE SHEET AND FINAL STATEMENT OF ACCOUNTS FILED BY THE ASSESSEE, IT IS OBSERVED THAT THE MAJOR ACTIVITY OF ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 4 THE ASSESSEE IS EXPORT BUSINESS FOR WHICH EXPENDITURE HAS BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT. FROM THE FACTUAL MATRIX OF THE CASE, IT IS APPARENT THAT UNDISPUTEDLY THE ASSESSEE WAS HOLDING MUTUAL FUNDS EARNING EXEMPT INCOME AT THE BEGINNING OF THE YEAR OF RS.6,09,15,104 WHICH REDUCED TO RS.4,28,49,384 AT THE END OF THE YEAR AS ON 31. 03.09, MEANING THEREBY NO FRESH INVESTMENT WAS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION EARNING EXEMPT INCOME. MOREOVER, THE ASSESSING OFFICER HAS NOT SPECIFICALLY POINTED OUT AND DIRECT EXPENSES MADE TOWARDS EARNING OF EXEMPT INCOME AND HA S NOT GIVEN ANY FINDINGS REGARDING THE CORRECTNESS OF CLAIM OF ASSESSEE THAT NO EXPENSES BEEN INCURRED FOR EARNING EXEMPT INCOME. 11. THE COMMISSIONER OF INCOME TAX(A) IN THE IMPUGNED ORDER HAS SIMPLY OBSERVED AND HELD THAT IT IS APPARENT THAT SOME PART OF EXPENDITURE CLAIMED BY THE ASSESSEE HAS BEEN INCURRED FOR THE EARNING OF THE TAX FREE AND EXEMPT INCOME BUT THERE IS NO FINDING REGARDING CORRECTNESS OF THE CLAIM OF EXPENSES OF THE ASSESSEE. THE COMMISSIONER OF INCOME TAX(A) HAS ALSO WRONGLY OBSERVED T HAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE ON HIS OWN OR VOLUNTARILY U/S 14A OF THE ACT EVEN THOUGH THE ASSESSEE HAS RECEIVED HUGE TAX FREE INCOME. THESE OBSERVATIONS ARE NOT ACCORDING TO THE LETTER AND SPIRIT OF SECTION 14A OF THE ACT R/W RULE 8D OF T HE RULES. 12. AT THIS STAGE, WE FIND IT APPROPRIATE TO FOLLOW THE RATIO OF THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. P. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: - 'UNDER SUB - SECTION (2), THE ASSESSING OFFICER RE QUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 5 SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD HAVING REGARD TO THE MEANING OF EXPRESSI ON PRESCRIBED IN SECTION 2(33) MUST BE PRESCRIBED BY RULE MADE UNDER THE ACT. WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME I N ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM P ART OF TOTAL INCOME. MOREOVER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB - SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULE STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST IN THE FIRST INSTANCE DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. 13. FROM THE READING OF ABOVE OBSERVATIONS OF HON BLE BOMBAY HIGH COURT COUPLED WITH PROVISIONS OF SECTION 14A OF THE ACT R/W RULE 8D OF THE RULES, IT IS APPARENT THAT FIRSTLY, THE ASSESSING OFFICER HAS TO DETERMINE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING EXPENSES WHICH NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER OF INCOME TAX(A) HAS DONE IN THE PRESENT CASE. IN FAC T, AS PER OBSERVATIONS OF ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 6 HON BLE HIGH COURT AS REPRODUCED HEREINABOVE IN THE CASE OF GODREJ & BOYCE (SUPRA) THEIR LORDSHIPS HAVE HELD THAT THE ASSESSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE AS TO WHETHER THE CLAIM OF THE ASSESSEE IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSING OFFICER IS DUTY BOUND TO EXAMINE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE PERTAINING TO THE EXPENSES INCURRED AND CLAIMED BY THE ASSESSEE AS INCURRED FOR EARNIN G TAXABLE INCOME. THE PROVISIONS OF SECTION 14A OF THE ACT R/W RULE 8D CAN BE INVOKED ONLY WHEN THE ASSESSING OFFICER RECORDED HIS DISSATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THESE PROVISIONS CAN BE INVOKED ONLY WHEN THE ASSESSING O FFICER IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, THEN ONLY THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF REASO NABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. EVEN DURING THE PRE - RULE 8D PERIOD, THE ASSESSING OFFICER WAS DUTY BOUND TO MAKE ABOVE EXERCISE PRIOR TO INVOKE PROVISIONS OF SECTION 14A OF THE ACT. 14. IN VIEW OF ABOVE OBSERVATIONS OF HON BLE BOMBAY HIGH C OURT SUBSECTION (2) OF SECTION 14A OF THE ACT DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY RULE 8D STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THEN THE LEGISLATURE DIRECTS T HE ASSESSING OFFICER TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. 15. IN THE CASE IN HAND, NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER OF INCOME TAX(A) HAS BROUGHT OUT ANY ITA NO . 5138 /DEL /201 1 SAROJ AGGARWAL 7 INCRIMINATING FACT OR MATERIAL TO THIS EFFECT THAT THE CLAIM OF EXPENSES OF THE ASSESSEE IS NOT CORRECT. PER CONTRA, AS PER DETAILS SUBMITTED BY THE ASSESSEE, WE OBSERVE THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS RELATED TO THE EXPORT BUSINESS AD THERE IS NO FRESH INVESTMENT DURING THE YEAR WHICH BRING TAX FREE EXEMPT INCOME FOR THE ASSESSEE. THEREFORE, WE HOLD THAT AS PER FACTUAL MATRIX OF THE PRESENT CASE, THE AUTHORITIES BELOW WRONGLY INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT R/W RULE 8D OF THE RULES FOR MAKING AND CONFIRMING THE ADDITION, WHICH IS NOT SUSTAINABLE A ND WE DELETE THE SAME BY ALLOWING GROUND NO.2 OF THE ASSESSEE. 8 . SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE ASSESSMENT YEAR 2009 - 10. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 23.05.20 13 IN ASSESSEE S OWN CASE IN ITA NO. 6263/DEL/2012 THE IMPUGNED DISALLOWANCE IS DELETED. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ( ORDER PRON OUNCED IN THE COURT ON 30 /11 /2015 ) SD/ - SD/ - ( A. T. VARKEY ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 /11 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR