M/s. PPC Business & Products Pvt. Ltd., Delhi V. DCIT, New Delhi

ITA 5232/DEL/2012

• Counselvise Citation: 523220114 RSA 2012
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER I.T.A. NO.5232/DEL/2012 ASSESSMENT YEAR : 2008-09 M/S. P.P.C. BUSINESS& PRODUCTS DY. COMMISSIONER O F INCOME-TAX, PVT. LTD., (NOW AMALGAMATED VS. CENTRAL CIRCLE- 25, NEW DELHI. WITH THE COMPANY M/S. SURYA VINAYAK HOSPITALITIES PVT. LTD.), 13-B, 3 RD FLOOR, NETAJI SUBHASH MARG, DARYAGANJ, NEW DELHI-110002. PAN : AABCF2577M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV SAXEN A, ADVOCATE. RESPONDENT BY : SHRI RAJESH KUMAR, SR. DR. DATE OF HEARING : 11-12-2012 DATE OF PRONOUNCEMENT : 11-12-2012 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 11 TH JULY, 2012 PASSED BY THE LEARNED FIRST APPELLATE AUTHORITY, NE W DELHI. THE ASSESSEE ITA NO.5232/DEL/2012 2 HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE OF RS.2,71,690/- MADE UNDER SEC. 14A OF THE INCOME-TAX ACT, 1961 (THE ACT ). 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHR I RAJIV SAXENA, LEARNED COUNSEL FOR THE ASSESSEE AND SHRI RAJESH KU MAR, LEARNED SR. DR. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT WHILE MAKING THE DISALLOWANCE THE LEARNED AO HAS IGNORED THE CONDITI ONS ENSHRINED UNDER RULE 8D BY FURTHER SUBMITTING THAT NO NOTING HAS BE EN MADE BY THE AO REGARDING CORRECTNESS/INCORRECTNESS OF THE ACCOUNT, NEITHER ANY LOAN WAS TAKEN NOR ANY INTEREST WAS PAID. THE LEARNED COUNS EL RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL (ITA N O.3889/MUM./2011, ORDER DATED 25 TH JULY, 2012). ON THE OTHER HAND, THE LEARNED SR. D R STRONGLY DEFENDED THE ORDER OF THE LEARNED CIT(A). OUR ATTE NTION WAS INVITED TO VARIOUS PAGES OF THE PAPER BOOK AND MORE SPECIFICAL LY PAGES 38 & 39. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF ARE THAT T HE ASSESSEE DECLARED INCOME OF RS.1,18,230/- FILED ON 26 TH SEPTEMBER, 2008. THE ASSESSEE VIDE QUESTIONNAIRE DATED 23 RD SEPTEMBER, 2010 WAS ASKED TO FILE REPLY WITH REFERENCE TO DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D. THE ASSESSEE MADE INVESTMENT IN SHARES. THE ASSESSING OFFICER W AS OF THE VIEW THAT THE EXPENSES RELATABLE TO ASSET GENERATING INCOME FROM SHARES CANNOT BE ITA NO.5232/DEL/2012 3 ALLOWED. IT WAS CLAIMED BY THE ASSESSEE THAT NO IN COME WAS EARNED FROM DIVIDEND AND EVEN OTHERWISE IT IS AN EXEMPT INCOME. THE AO PLACED RELIANCE UPON VARIOUS DECISIONS ALONG WITH THE DECI SION IN THE CASE OF DAGA CAPITAL MANAGEMENT (2009) 117 ITD 169 AND CONCLUDED THAT THE DISALLOWANCE UNDER SEC. 14A IS TO COMPASS NOT ONLY INDIRECT INCOME BUT ALSO INDIRECT EXPENDITURE, WHICH HAS ANY RELATION TO THE EXEMPT INCOME. THE LEARNED AO APPLIED THE PROVISIONS OF SEC. 14A READ WITH RULE 8D AND DISALLOWED THE AMOUNT OF RS.2,71,690/-. ON APPEAL SUCH DISALLOWANCE WAS AFFIRMED BY THE LEARNED CIT(A) WHICH IS UNDER CHALL ENGE BEFORE THIS TRIBUNAL. WE FIND THAT AS ON 31.03.2008 (AS PER AS SESSMENT ORDER) THE TOTAL INVESTMENT MADE BY THE ASSESSEE WAS TO THE TUNE OF RS.7,63,85,500/- AND RS.7,63,85,500/- AS ON 31.03.2007. THUS THE TOTAL INVESTMENT MADE BY THE ASSESSEE IS RS.15,27,71,000/-. WE FURTHER FIND THA T NO DISALLOWANCE HAS BEEN MADE BY THE AO AS PER RULE 8D(2)(II) OF THE INCOME- TAX RULES AND AS PER RULE 8D(III), % OF THE AVERAGE OF THE VALUE OF INV ESTMENT, WHICH COMES TO RS.3,81,927/- HAS BEEN MADE. FINALLY THE AMOUNT OF RS.2,71,690/- HAS BEEN DISALLOWED UNDER SEC. 14A OF THE ACT. UNDER THE CI RCUMSTANCES NOW QUESTION ARISES WHETHER THE PRINCIPLE OF APPORTIONM ENT, EMBEDDED IN SEC.14A HAS ANY APPLICATION WHERE NO EXPENDITURE HA S BEEN CLAIMED TO HAVE BEEN INCURRED IN RELATION TO EXEMPT INCOME. ADMIT TEDLY SECTION 14A IS ITA NO.5232/DEL/2012 4 APPLICABLE WHERE ANY EXPENDITURE IS INCURRED WHERE TAXABLE AND NON-TAXABLE INCOME IS RECEIVED BUT WHEN IT IS POSSIBLE TO DETER MINE THE ACTUAL EXPENDITURE IN RELATION TO EXEMPT INCOME OR WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME, THEN THE PRI NCIPLE OF APPORTIONMENT HAS NO APPLICATION. THE OBJECT OF SEC. 14A IS NOT TO ALLOW TO REDUCE TAX PAYABLE ON THE NORMAL EXEMPT INCOME BY DEBITING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. THUS, THE EXPENSES INCU RRED TO EARN EXEMPT INCOME CANNOT BE ALLOWED AND THE EXPENSES SHALL BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATED TO EARNING OF TAXABLE INCOM E. IN ORDER TO DISALLOW THE EXPENDITURE UNDER SEC. 14A, THERE MUST BE A LIVE NE XUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PAR T OF THE 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 THE TOTAL INCOME. I F THE EXPENDITURE IS INCURRED WITH A VIEW TO EARN TAXABLE INCOME AND THE RE IS APPARENT DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE IN CURRED AND THE TAXABLE INCOME THEN NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER SEC. 14A OF THE ACT MERELY BECAUSE SOME TAX-EXEMPTED INCOME IS RECE IVED. A BARE PERUSAL OF THE PROVISION INDICATES THAT THE AO SHALL DETERM INE THE AMOUNT DISALLOWABLE AS PER RULE 8D, IF HE IS NOT SATISFIE D WITH THE CORRECTNESS OF THE ITA NO.5232/DEL/2012 5 CLAIM OF THE ASSESSEE , IN RESPECT OF SUCH EXPENDI TURE IN RELATION TO EXEMPT INCOME. EVEN IF THE ASSESSEE CLAIMS THAT NO EXPEND ITURE WAS INCURRED IN RESPECT OF EXEMPT INCOME, THE AO IS SUPPOSE TO FOLL OW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE MEANING THEREBY DISALLOWANCE UNDER SEC. 14A IS CALL ED FOR WHEN AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE OF HAVING INCURRED NO EXPENDITURE OR SOME AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT IN COME. SUCH SATISFACTION CAN BE REACHED AND SHOULD BE RECORDED ON VERIFICATI ON OF THE CLAIM. WE HAVE PERUSED THE BALANCE-SHEET OF THE ASSESSEE AS O N 31 ST MARCH, 2008 (PAGE 38 OF THE PAPER BOOK) AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING ON 31 ST MARCH, 2008 (PAGE 39) WHEREIN TOTAL EXPENDITURE IT SELF HAVE BEEN CLAIMED AT RS.2,85,795/- WHICH ARE IN RESPECT TO ADMINISTRATIV E EXPENSES, FINANCE EXPENSES, DEPRECIATION AND PRELIMINARILY EXPENSES. THE AO HAS NOT MADE ANY NOTING REGARDING CORRECTNESS OR INCORRECTNESS O F THE ACCOUNT. IT WAS ALSO CLAIMED BY THE ASSESSEE THAT NEITHER ANY LOAN WAS T AKEN NOR ANY INTEREST WAS PAID. THEREFORE, KEEPING IN VIEW THE TOTALITY OF F ACTS WE FIND MERIT IN THE SUBMISSION OF THE ASSESSEE. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 4. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.5232/DEL/2012 6 5. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN T HE PRESENCE OF THE LEARNED REPRESENTATIVES FROM BOTH SIDES AT THE CONC LUSION OF THE HEARING ON 11 TH DECEMBER, 2012. SD/- SD/- ( B.C. MEENA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11 TH DECEMBER, 2012. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.