Shri Vinay Bhasin, New Delhi V. JCIT, New Delhi

ITA 5608/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2146 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.5608/DEL/2015 ASSESSMENT YEAR: 2009-10 MR. VINAY BHASIN, C-14, SOUTH EXTENSION, PART-II, NEW DELHI. PAN: AAAPB3445J VS JT. COMMISSIONER OF INCOME-TAX RANGE-37, NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY SHRI SALIL AGGARWAL, ADVOCATE SHRI SHAILESH GUPTA, CA REVENUE BY SMT. NAINA SOIN KAPIL, SR. DR ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 30.07.2015 IN APPEAL NO. 180/2011-12, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-20, NEW DELHI (LD. CIT(A)), ASSESSEE FILED THIS APPEAL. DATE OF HEARING 13.11.2018 DATE OF PRONOUNCEMENT 15.11.2018 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SENIOR ADVOCATE BY PROFESSION AND HAS BEEN DERIVING INCOME UNDER THE HEADS OF INCOME FROM HOUSE PROPERTY, PROFESSION, CAPITAL GAINS AND OTHER SOURCES. FOR THE ASSESSMENT YEAR 2009-10, ASSESSEE FILED THE RETURN OF INCOME ON 26.09.2009 DECLARING A TOTAL INCOME OF RS. 4,76,80,130/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) BY MAKING CERTAIN ADDITIONS INCLUDING THE ADDITION OF RS.1,39,801/- BY DISALLOWING THE INTEREST ON CAR LOAN AND RS.3,40,944/-BY INVOKING SECTION 14 A OF THE ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES), WHICH ARE RELEVANT FOR THE PURPOSE OF THIS APPEAL. 3. IN RESPECT OF THE DISALLOWANCE OF INTEREST ON THE CAR LOAN, THE LD. ASSESSING OFFICER HAS NOT DISPUTED THAT THE CAR WAS PURCHASED AND USED FOR BUSINESS/PROFESSION PURPOSE BUT DISALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE HAD ALLOWED A SIZEABLE AMOUNT TO BE DIVERTED FOR PERSONAL NEEDS. IN RESPECT OF INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT, LEARNED ASSESSING OFFICER RECORDED THAT THE ASSESSEE HAD MADE VERY HEAVY INVESTMENTS FOR EARNING OF EXEMPT INCOME THROUGHOUT THE YEAR, BUT BEING A BUSY PROFESSIONAL, MANAGING SUCH LARGE PORTFOLIO ENTAIL EXPENSES, THE DIVERSION OF MANPOWER/STAFF FOR INDULGING IN INVESTMENT ACTIVITIES TO VARIOUS ACTIVITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE OF INTERNET IF PORTFOLIO MANAGEMENT IS WEB-BASED, COST OF COMPUTER AND ITS DEPRECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOLIO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMELY SALE/PURCHASE OF MUTUAL FUND UNITS ETC. ON THIS PREMISE LEARNED ASSESSING OFFICER BRUSHED ASIDE THE SUBMISSION OF THE 3 ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME AND PROCEEDED TO MAKE THE ADDITION. 4. IN THE APPEAL PREFERRED BY THE ASSESSEE, LD. CIT(A) WHILE DELETING OTHER ADDITIONS SUSTAINED THESE TWO ADDITIONS. LD. CIT(A) RECORDED IN RESPECT OF THE DISALLOWANCE OF INTEREST ON THE CAR LOAN AND HELD THAT THE ASSESSEE COULD HAVE TAKEN MEASURES FOR RETENTION, PROTECTION, OR ADVANCEMENT OF ITS BUSINESS INTEREST BY BETTER UTILIZATION OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE DURING THE RELEVANT PERIOD, BUT INSTEAD THE ASSESSEE HAD CHOSEN TO UTILIZE THOSE INTERESTED FREE FUND FOR UNGAINFUL PURPOSES. 5. IT IS PERTINENT TO NOTE THAT LD. CIT(A) IN HIS ORDER RECORDED THAT THE ASSESSEE HAD PURCHASED THE CAR BY RAISING INTEREST-BEARING LOAN OF RS. 15 LAKHS; THERE IS NO DISPUTE BY THE LD. ASSESSING OFFICER THAT THE CAR WAS PURCHASED AND USED FOR BUSINESS/PROFESSION PURPOSE; AND INTEREST ATTRIBUTABLE TO SUCH LOAN WAS RS.1,39,801/-. THERE IS NO DENIAL OF THE FACT THAT THE CAR WAS TREATED AS PROFESSIONAL ASSET AND DEPRECIATION WAS ALLOWED THEREON. THERE IS ALSO NO DISPUTE THAT THE CAR WAS PUT FOR THE PROFESSIONAL USE OF THE ASSESSEE. ONLY GROUND FOR DENIAL OF DEDUCTION OF INTEREST ON THIS LOAN WAS THAT THOUGH THE ASSESSEE HAD CERTAIN INTEREST FREE FUNDS WITH HIM BUT INSTEAD OF UTILIZING SUCH INTEREST FREE FUNDS, THE ASSESSEE UTILIZED THE INTEREST-BEARING FUNDS FOR PURCHASE OF THE CAR. 6. LEARNED AR SUBMITTED THAT THIS CAR LOAN WAS THE ONLY INTEREST-BEARING LOAN THAT WAS TAKEN BY THE ASSESSEE DURING THE YEAR AND ALL THE OTHER FUNDS ARE EITHER INTEREST FREE LOANS OR THE BALANCE OF CAPITAL ACCOUNT AVAILABLE WITH HIM. WE FIND FORCE IN THE SUBMISSION OF LD. AR THAT THE CAR LOAN OF RS.50 LACS IS NO 4 MATCH AGAINST THE AMOUNTS ADVANCED DURING THE YEAR UNDER CONSIDERATION WHICH ARE TO THE TUNE OF RS.2.98 CRORES BY THE ASSESSEE. FURTHER, IT IS NOT THE CASE OF THE LEARNED ASSESSING OFFICER THAT THE CAR LOAN WAS DIVERTED FOR ANY OTHER PURPOSE, BECAUSE THERE IS NO DENIAL OF THE STATEMENT OF THE ASSESSEE THAT THE LOAN AMOUNT WAS DIRECTLY DISBURSED TO THE SELLER OF THE CAR. INASMUCH AS THE LOAN WAS FOR THE PURPOSE OF BUSINESS AND NO QUESTION OF DIVERSION OF SUCH FUNDS HAD TAKEN PLACE, MERELY BECAUSE THE ASSESSEE PLACED HIS OWN FUNDS AND ALSO THE INTEREST FREE LOANS FOR SOME OTHER PURPOSES, IS NOT OPEN FOR THE LEARNED ASSESSING OFFICER TO DISALLOW THE INTEREST ON THE AMOUNT TAKEN FOR BUSINESS PURPOSE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITION. 7. IN RESPECT OF THE ADDITION MADE BY INVOKING SECTION 14 A OF THE ACT, IT WAS CONTENDED BEFORE THE LEARNED ASSESSING OFFICER AND ALSO BEFORE THE 1 ST APPELLATE AUTHORITY THAT THE OPERATORS OF THE MUTUAL FUNDS DEDUCTED THE EXPENSES INCURRED ON THE FUNDS, NAMELY, STT ETC AND MANAGEMENT/ ADMINISTRATIVE EXPENSES AND REMIT ONLY THE NET INCOME TO THE ASSESSEE AND THAT DIVIDEND INCOME HAS BEEN DIRECTLY CREDITED BY TRANSFER IN THE ASSESSEES BANK ACCOUNT WITH CITIBANK AS SUCH NO EXPENSES WERE INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT A CERTIFICATE FROM THE PORTFOLIO OPERATORS, NAMELY, CITIBANK CONFIRMING THE FACT THAT NO EXPENSES, WHATSOEVER, ARE INVOLVED IN THE DIVIDENDS DECLARED/DISTRIBUTED BY THE RESPECTIVE ASSET MANAGEMENT COMPANIES WERE ALSO SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER BUT THE LEARNED ASSESSING OFFICER DID NOT ADVERT TO THIS ASPECT AT ALL. 8. WE HAVE GONE THROUGH THE FINDINGS OF THE LEARNED ASSESSING OFFICER ON THIS ASPECT. LEARNED ASSESSING OFFICER RECORDED THAT THE ASSESSEE MADE HEAVY 5 INVESTMENTS FOR EARNING OF EXEMPT INCOME AND BEING A BUSY PROFESSIONAL, HE REQUIRES THE MANAGEMENT OF SUCH A PORTFOLIO BY INCURRING EXPENSES, DIVERSION OF MANPOWER/STAFF FOR INDULGING IN INVESTMENT ACTIVITIES TO VARIOUS ACTIVITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE OF INTERNET IF PORTFOLIO MANAGEMENT IS WEB-BASED, COST OF COMPUTER AND ITS DEPRECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOLIO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMELY SALE/PURCHASE OF MUTUAL FUND UNITS ETC. EXCEPT MAKING THIS STATEMENT AND READING ALL THE POSSIBLE EXPENSES THAT INVOLVE IN INVESTMENT PROCESS, LEARNED ASSESSING OFFICER IS NOT SPECIFIC AS TO WHAT EXACTLY THE PROBABLE EXPENDITURE IN THIS MATTER THE ASSESSEE COULD HAVE INCURRED. ACCORDING TO THE ASSESSEE THE INVESTMENT WAS MADE IN MUTUAL FUNDS AND THE EXPENSES WERE ALREADY DIRECTED BY THE OPERATORS AND A CERTIFICATE TO THAT EXTENT WAS SUBMITTED BEFORE THE LEARNER ASSESSING OFFICER. FURTHER, THE INSTRUCTIONS ARE THAT THE DIVIDEND INCOME WILL BE DIRECTLY CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE SO THAT NO PROBABLE EXPENDITURE AT THE END OF THE ASSESSEE FOR DEPOSIT OF THE DIVIDEND IN BANK COULD HAVE OCCURRED. HAVING REGARD TO THIS SET OF FACTS AND CIRCUMSTANCES INVOLVED IN THIS MATTER, WE ARE OF THE CONSIDERED OPINION THAT INSTEAD OF MAKING A SWEEPING ENUMERATION OF THE PROBABLE EXPENSES INVOLVED IN INVESTMENT PROCESS, LEARNED ASSESSING OFFICER COULD HAVE TAKEN LEGAL EXERCISE TO VERIFY THE CORRECTNESS OR OTHERWISE OF THE CERTIFICATE THAT WAS ISSUED BY THE ASSET MANAGEMENT COMPANIES OR THE CITIBANK IN THIS RESPECT. WE, THEREFORE, FIND THAT THERE IS NO PROPER RECORD OF SATISFACTION AS TO THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. BY FOLLOWING THE DECISION REPORTED IN CIT VERSUS TAIKISHA ENGINEERING INDIA LTD 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD VERSUS CIT 372 ITR 694 6 (DEL), WE ARE OF THE OPINION THAT THE AO AT THE FIRST INSTANCE SHOULD HAVE EXAMINED THE CORRECTNESS OF THE STATEMENT MADE BY THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCOME DURING THE YEAR AND IF AND ONLY IF THE LEARNED AO IS NOT SATISFIED ON THIS ACCOUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, HE IS ENTITLED TO ADOPT THE METHOD UNDER RULE 8D OF THE RULES. WE, THEREFORE, WHILE ALLOWING THE PLEA OF THE ASSESSEE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS SCORE ALSO. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2018. SD/- SD/- (PRASHANT MAHARISHI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15 TH NOVEMBER, 2018 VJ COPY FORWARDED TO: APPELLANT 1. RESPONDENT 2. CIT 3. CIT(APPEALS) 4. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 DRAFT DICTATED ON 15.11.2018 DRAFT PLACED BEFORE AUTHOR 15.11.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.