DCIT, New Delhi V. M/s Vinita Pahwa, New Delhi

ITA 5246/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58751 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 01-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENU JAUHRI
• Assessee Lawyers: SHAILENDER K BAJAJ
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `H : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.5246/DEL./2011 (ASSESSMENT YEAR : 2006-07) DCIT, CIRCLE 3(1), VS. MRS. VINITA PAHWA, NEW DELHI. 20, RAJPUR ROAD, NEW DELHI. (PAN/GIR NO.AAIPP2658M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHAILENDER K. BAJAJ, CA. REVENUE BY : SMT. RENU JAUHRI, SR.(DR) ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST T HE ORDER PASSED BY CIT(A)VI, NEW DELHI DATED 20.09.2010 RELEVANT TO ASSESSMENT Y EAR 2006-07, WHEREBY DELETION OF ADDITION OF RS.9,89,447/- MADE ON ACCOUNT OF DISALL OWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME U/S 14A OF THE I.T. ACT, 1961 HAS BEE N CHALLENGED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY HAS CLAIMED DIVIDEND INCOME OF RS.71,81,538/- AS EXEMPT INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESS EE TO EXPLAIN WHY THE PROPORTIONATE ADMINISTRATIVE AND MANAGEMENT EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A. THE ASSESSEE SUBMITTED THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING DIVIDEND INCOME. HOWEVER, ASSESSING OF FICER WAS OF THE VIEW THAT TO MONITOR THE INVESTMENT MADE BY THE ASSESSEE AND THE EXEMPT INCOME EARNED IN THE FORM OF DIVIDEND INCOME, UNDOUBTEDLY MANAGEMENT/ESTABLIS HMENT EXPENSES AND OTHER OFFICE OVER HEADS MUST HAVE BEEN INCURRED TO TAKE CARE OF INCOME RECEIVED, INVESTMENT MADE AND OTHER ALLIED ACTIVITIES INVOLVED. HE, THEREFOR E, INVOKED THE PROVISIONS OF SECTION 14A I.T.A. NO.5246/DEL./2010 (A.Y. : 2006-07) 2 OF THE I.T. ACT, 1961 AND IN THE ABSENCE OF DETAILS , HE MADE DISALLOWANCE OF RS.9,89,447/- ON PROPORTIONATE BASIS. 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND SU BMITTED BEFORE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE IS ENGAGED EXCLUSIVELY IN THE BUSINESS OF EXPORT. THE EXPENSES ARE WHOLLY AND EXCLUSIVELY INCURRED FOR RUNNING AND MANAGING THE BUSINESS OF EXPORT. THE ASSESSEE IS OWNING THE SHARES OF THE COMPANIES AS INVESTMENT SINCE LONG. THE ASSESSEE IS NOT A TRADER IN SHARES AND DIVIDEND INC OME ACCRUED OUT OF HER LONG INVESTMENT IN THE SHARES. THE ASSESSEE DID NOT INCUR ANY DIRE CT OR INDIRECT EXPENSES TOWARDS EARNING THE DIVIDEND INCOME. FURTHER, THE ASSESSEE HAS NOT TAKEN ANY LOAN FOR ACQUIRING THE SHARES. THE ASSESSEE HAS NOT EVEN INCURRED ANY INT EREST EXPENDITURE FOR HER BUSINESS WHICH COULD BE ALLOCATED TOWARDS EARNING THE DIVIDE ND INCOME. SO, NO EXPENSES CAN BE ATTRIBUTED/ALLOCATED OR APPORTIONED TOWARDS EARNING SUCH INCOME. SINCE THERE IS NO CO- RELATION BETWEEN THE EXPENSES AND THE DIVIDEND INCO ME. SO, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON PROPORTIONATE BASIS WITHOU T ESTABLISHING ANY RELATIONSHIP WITH EARNING OF EXEMPT INCOME IS UNWARRANTED AND UNCALLE D FOR. THE RELIANCE HAS BEEN PLACED ON WALFORT SHARES & STOCK BROKERS (P) LTD., 192 TAX MAN 211(SC) IN WHICH IT HAS BEEN CLEARLY STATED : FOR ATTRACTING SECTION 14A OF THE ACT, THERE HAS B EEN APPROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. FURTHER, RELIANCE WAS PLACED ON SPECIAL BENCH DECISION IN TH E CASE OF DAGGA CAPITAL, 117 ITD 169 AND BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ & BOYACE MFG. CO. LTD. VS. DCIT & ANOTHER, I.T.A. NO.629 OF 2010 AND W.P. NO.758 OF 2010. IT IS IN THE CASE OF WIMCO SEEDLINGS LTD. VS. DCIT, 107 ITD 267 AND ACIT VS. EICHER LTD., 101 TTJ 369 TO PLEAD FOR DELETION OF T HE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. THE CIT(A) WHILE CONSIDERING AND ACCEPTING THE P LEA OF THE ASSESSEE HAS CONCLUDED TO DELETE THE IMPUGNED ADDITION. AGAINST WHICH DEPARTMENT HAS COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS O RDER, LD.DR. SUBMITTED FOR SETTING ASIDE THE ORDER OF THE ASSESSING OFFICER AND RESTOR ING THAT OF THE ASSESSING OFFICER WHEREAS, LD.COUNSEL FOR THE ASSESSEE RELIED UPON TH E ORDER OF CIT(A) AND OTHER DECISION CITED BY THE CIT(A) TO DISMISS THE APPEAL. THEREFO RE, IT WAS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. I.T.A. NO.5246/DEL./2010 (A.Y. : 2006-07) 3 5. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD. SO FAR AS DISALLOWANCE U/S 14A OF THE ACT MADE BY THE ASSESSI NG OFFICER IS CONCERNED, CIT(A) HAS CONCLUDED TO DELETE IMPUGNED ADDITION AS PER PARA. 4 OF HIS ORDER, WHICH IS REPRODUCED AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. AR & HAVE GONE TJ1ROUGH THE ASSESSMENT ORDER. I FIND THAT THE SIMILAR ISSUE WAS INVOLVED IN APPELLANT'S CASE FOR ASSESSMENT YEAR 2004-05 & 2005-06 WHEREIN HON'B LE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF ASSESSING OFFICER, AFTER CONSIDERING THE RATIO OF DAGA INVESTMENTS AND ALSO THE FACTS OF THE CASE. I FURTH ER FIND THAT THE DECISION OF HON'BLE SPECIAL BENCH OF ITAT IN THE CASE OF DAGA C APITAL, 117 ITD 169 HAS BEEN OVERRULED BY HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V DCIT, ITA NO. 626 OF 2010 AND W. P. NO. 758 OF 2010 WHEREIN IT HAS BEEN HELD THAT THE PROVISIONS OF RULE 80 OF INCOME TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE MUMB AI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., SUPRA, RULE 80 IS NOT APPLICABLE FOR THE YEAR UNDER REFERENCE. I FURTHER FIND THAT THE ASSESSING OFFICER HAS MADE A PROPORTIONATE DISALLOWANCE OF PERSONAL EXPENSES & ADMINISTRATIVE EXPENSES. HOWEVER, NEITHER ANY SPECIFIC CLAIM HAS BEEN IDENTIFIED AND LINKED U P WITH THE EXEMPT INCOME, NOR ANY OTHER MATERIAL HAS BEEN BROUGHT ON RECORD TO SU BSTANTIATE THAT ANY PARTICULAR EXPENDITURE WAS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. THE DISALLOWANCE HAS BEEN MADE PURELY ON ESTIMATE BASIS . I FURTHER FIND THAT THE SIMILAR ISSUE CAME UP IN THE CASE OF MIS CHEMICAL & METALLURGICAL DESIGN CO. LTD. IN ITA NO. 803/2008, WHEREIN IT HAS BEEN HELD BY HON'BLE DELHI HIGH COURT VIDE ORDER DATED 15.07.2008 AS UNDER: THE REVENUE'S APPEAL BEFORE THE INCOME TAX APPELLAT E TRIBUNAL WAS REJECTED BY THE SAID TRIBUNAL BY THE IMPUGNED ORDER DATED 7.12.2007 WHEREIN IT WAS OBSERVED AS UNDER: 'WE HAVE CAREFULLY CONSIDERED THE ENTIRE MATERIAL O N RECORD AND THE RIVAL SUBMISSIONS. THE AO HAS NOT ASSIGNED ANY COGENT REA SON TO DISALLOW THE PROPORTIONATE EXPENDITURE. THE AO COULD HAVE MADE F URTHER INQUIRY IF THE ASSESSEE DID NOT FURNISH THE REQUIRED DETAILS. IN A NY CASE, IN ABSENCE OF ANY MATERIAL ON RECORD AND WITHOUT THERE BEING ANY BASI S FOR DISALLOWANCE, THE PROPORTIONATE DISALLOWANCE MADE ON ESTIMATE BASIS C ANNOT BE JUSTIFIED. THE CONTENTION OF THE ASSESSEE WAS THAT IT WAS CARRYING ON VARIOUS ACTIVITIES AND FOR I.T.A. NO.5246/DEL./2010 (A.Y. : 2006-07) 4 INVESTMENT IN SHARES, NO SEPARATE OFFICE WAS REQUIR ED. AFTER CONSIDERING THE VOLUME OF TRANSACTIONS IN THE BUSINESS AND THE QUAN TUM OF DIVIDEND INCOME, THERE IS NO JUSTIFICATION FOR MAKING DISALLOWANCE OF EXPE NDITURE ON PROPORTIONATE BASIS. WE, THEREFORE, DO NOT FIND ANY SCOPE TO INTERFERE I N THE ORDER OF ID. CIT(A) AND REJECT THE GROUND TAKEN BY THE REVENUE. ' THE AFORESAID CIRCUMSTANCES CLEARLY INDICATE THAT T HE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THA T OF THE INCOME TAX APPELLATE TRIBUNAL TURNED ENTIRELY UPON FACTS AND N O QUESTION OF LAW, WHAT TO SPEAK OF A SUBSTANTIAL QUESTION OF LAW, ARISES FOR CONSIDERATION OF THIS COURT. THE APPEAL IS DISMISSED. SINCE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE ARE IDENTICAL, RESPECTIVELY FOLLOWING THE DECISION OF HON'BLE DELH I HIGH COURT, THE ADDITION IS DIRECTED TO BE DELETED . 6. AFTER PERUSAL OF THE ABOVE SAID FINDING AND THE CONCLUSION AS DRAWN BY THE CIT(A) IN THE LIGHT OF FACTS, CIRCUMSTANCES AND PRECEDENTS RELIED UPON BY CIT(A), WE FIND THAT THE BASIS AND REASONING GIVEN BY CIT(A) IN DELETING THE IMPUGNED ADDITION ARE SOUND AND CONVINCING. NEITHER ANY CONTRARY MATERIAL HAS BEEN PLACED ON RECORD NOR ANY HIGHER COURTS DECISION HAS BEEN CITED. LD.DR HAS ALSO NO T POINTED OUT ANY INFIRMITY OF FLAW IN THE IMPUGNED ORDER SO, WHILE CONCURRING THE CONCLUS ION AS DRAWN BY THE CIT(A), WE UPHOLD HIS ORDER AND DISMISS THE APPEAL OF THE REVE NUE BEING DE VOID OF ANY MERITS. 7. AS A RESULT THE APPEAL OF THE REVENUE GETS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON SOON AFTER THE CO NCLUSION OF THE HEARING ON 1 ST MARCH, 2012. SD/- SD/- (K.D. RANJAN) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : MARCH 1, 2012 SKB I.T.A. NO.5246/DEL./2010 (A.Y. : 2006-07) 5 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-VI, NEW DELHI. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT