LEENA KASBEKAR, MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 5620/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9764 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 04-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Earning of tax free income; Onus to prove
• Section: 143(3); 142(1); 14A

Judgement Text

1 ITA 5620 & 5621/MUM/2013 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO. 5620 & 5621 /MUM/2013 (ASSESSMENT YEARS 2007-08 TO 2009-10) M/S LEENA KASBEKAR SHETH NIWAS, 2 ND FLOOR TEJPAL ROAD, OPP. NEW ERA SCHOOL, MUMBAI-7 PAN : AAPPK0104L VS ACIT, CIR. 112),MUMBAI APPELLANT RESPONDENT APPELLANT BY MS MRUGAKSHI JOSHI RESPONDENT BY SHRI RAJESH KUMAR YADAV DATE OF HEARING 24 -07-2017 DATE OF PRONOUNCEMENT 28- 07-2017 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF CIT(A)-3, MUMBAI DATED 25-0 7-2013 AND 31-07- 2013 FOR THE ASSESSMENT YEARS 2009-10 & 2010-11. SI NCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY WERE HEARD TO GETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA NO. 5620/MUM/2013 2 ITA 5620 & 5621/MUM/2013 FOR AY 2009-10 ARE THAT THE ASSESSEE, AN INDIVIDUAL AND ADVOCATE BY PROFESSION, FILED HER RETURN OF INCOME ON 31-07-200 8 DECLARING TOTAL INCOME OF RS.27,82,472. THE CASE WAS SELECTED FOR SCRUTINY UN DER CASS AND ACCORDINGLY, STATUTORY NOTICES U/S 143(2) AND 142(1) WERE ISSUED . IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTEN DED FROM TIME TO TIME AND FURNISHED NECESSARY DETAILS, AS CALLED FOR. THE ASS ESSMENT WAS COMPLETED U/S 143(3) ON 22-11-2010, DETERMINING TOTAL INCOME AT R S.34,42,550, INTERALIA MAKING ADDITIONS TOWARDS DIFFERENCE ON ACCOUNT OF A IR INFORMATION, DISALLOWANCE OF EXPENDITURE INCURRED T O EARN EXEMPT INCOME U/S 14A OF THE ACT AND ADHOC DISALLOWANCE OF CERTAI N EXPENDITURES. AGGRIEVED BY THE ASSESSMENT ORDER ASSESSEE PREFERRE D APPEAL BEFORE CIT(A). 3 . BEFORE CIT(A), THE ASSESSEE HAS CHALLENGED THE AD DITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF EXPENDITURE U/S 14A. THE AS SESSEE SUBMITTED THAT SHE HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO EAR NING EXEMPT INCOME AND THE AO HAS FAILED TO ESTABLISH NEXUS BETWEEN THE EX PENDITURE INCURRED AND THE EXEMPT INCOME BEFORE DISALLOWING EXPENDITURE BY INV OKING PROVISIONS OF RULE 8D. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSI ONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS, OBSERVED THAT THE AO IS UNDER NO OBLIGATION TO RECORD SATISFACTION, WHERE THE ASSESS EE HAS CLAIMED THAT NO 3 ITA 5620 & 5621/MUM/2013 EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME. THE CIT(A) FURTHER HELD THAT ONUS TO PROVE THAT THE EXPENDITURE INCURR ED BY THE ASSESSEE ARE DIRECTLY RELATED TO HER PROFESSIONAL INCOME IS ON T HE ASSESSEE. IN THE ABSENCE OF ANY SUCH EVIDENCE, THE AO WAS WELL WITHIN HIS JURIS DICTION TO INVOKE THE PROVISIONS OF RULE 8D. IN THE CIRCUMSTANCES, THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF RULE 8D(2)(1II) TO DISALLOW EXPENDITU RE INCURRED IN RELATION TO EXEMPT INCOME. AGGRIEVED BY THE ORDER OF CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 4 . THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) ERRED INCONFIRMING THE ADDITIONS MADE BY THE AO IN MAKING ADHOC DISALLOWANCE U/S 14A WITHOUT THERE BEING ANY NEXUS BETWEEN THE EXPEN DITURE CLAIMED BY THE ASSESSEE AND EARNING EXEMPT INCOME. THE LD.AR FURTH ER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT F OR HER PROFESSION WHICH IS EVIDENT FROM THE FACT THAT ALL EXPENDITURE DEBITED TO P&L ACCOUNT ARE DIRECTLY ATTRIBUTABLE TO HER PROFESSION AND NO PART OF THE E XPENDITURE IS RELATABLE TO EARNING EXEMPT INCOME. THE AO, WITHOUT RECORDING HI S SATISFACTION AS TO THE INCORRECTNESS OF CLAIM MADE BY THE ASSESSEE SIMPLY INVOKED THE PROVISIONS OF RULE 8D(2) TO DISALLOW ON ADHOC BASIS WHICH IS INCO RRECT. IN SUPPORT OF HER ARGUMENT, SHE RELIED UPON THE DECISION OF HON'BLE S UPREME COURT IN THE CASE 4 ITA 5620 & 5621/MUM/2013 OF RAJASTHAN WAREHOUSING CORPORATION VS CIT 242 ITR 450 (SC) AN ALSO THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES (2010) 323 ITR 518 (P&H). 5. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDER OF THE CLT(A). THE LD.DR FURTHER SUBMITTED THAT THE AO I S UNDER NO OBLIGATION TO RECORD A SATISFACTION WHERE THE ASSESSEE HAS CLA IMED THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE HAS EARNED EXEM PT INCOME; HOWEVER, FAILED TO DISALLOW ANY EXPENDITURE IN RELA TION TO EARNING EXEMPT INCOME WHICH IS MANDATORY IN NATURE EVEN THO UGH THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED FOR EA RNING EXEMPT INCOME IN VIEW OF THE SPECIFIC PROVISIONS PROVIDED U/S 14A(3). THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF RULE 8D(2)(II I) TO DISALLOW EXPENDITURE AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE AO INVOKED PROVISIONS OF RULE 8D(2)(III ) AND DISALLOWED 0.5% OF AVERAGE VALUE OF INVESTMENTS TOWARDS EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME. ACCORDING TO THE AO, FROM AY 2008-09 ONWARDS, IN VIEW OF SPECIFIC PROVISIONS PROVIDED BY WAY OF RULE 8D(2) TO 5 ITA 5620 & 5621/MUM/2013 DETERMINE THE DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, THE ASSESSEE CANNOT TAKE A STAND THA T THERE IS NO EXPENDITURE INCURRED TO EARN EXEMPT INCOME. THE AS SESSEE CLAIMS THAT SHE HAD NOT INCURRED ANY EXPENDITURE TO EARN E XEMPT INCOME AND THE EXPENDITURE CLAIMED IN THE P&L ACCOUNT IS DIREC TLY ATTRIBUTABLE TO HER PROFESSIONAL INCOME. THE ASSESSEE FURTHER CLAIMS T HAT THE AO HAS NOT ARRIVED AT A SATISFACTION BEFORE INVOKING THE PROVISIONS OF RU LE 8D WHICH IS A PRE-CONDITION FOR DETERMINATION OF DISALLOWANCE, AS PER THE PROV ISIONS OF RULE 8D WHEN THERE IS NO EXPENDITURE IS CLAIMED AGAINST EARNING EXEMPT INCOME. IN THE ABSENCE OF ANY SATISFACTION AS TO INCORRECTNESS OF CLAIM OF TH E EXPENDITURE, THE AO CANNOT DETERMINE DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISIONS OF RULE 8D(2). WE FIND FORCE IN THE ARGU MENT OF THE ASSESSEE FOR THE REASON THAT THE PROVISIONS OF SECTION 14A(2) MAKES IT MANDATORY ON THE PART OF THE AO TO ARRIVE AT A SATISFACTION WITH REG ARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IN THIS CASE, THE ASSESSEE CLAIMS THAT SHE DID NOT INCUR ANY EXPENDITURE TO EA RN EXEMPT INCOME. WHEN THE ASSESSEE CLAIMS NO EXPENDITURE HAS BEEN INCURRE D TO EARN EXEMPT INCOME, THE AO HAS TO ESTABLISH A NEXUS BETWEEN EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXEMPT INCOME. IN THIS CASE, ON PERUSAL OF THE DETAILS FILED BY THE 6 ITA 5620 & 5621/MUM/2013 ASSESSEE, WE FIND THAT THE ASSESSEE HAS MAINTAINED SEPARATE B OOKS OF ACCOUNT FOR HER PROFESSIONAL INCOME. WE FURTHER OBSERVE THA T THE ASSESSEE HAS NOT CLAIMED ANY INDIRECT EXPENDITURE IN RELATION TO EAR NING EXEMPT INCOME. ON FURTHER VERIFICATION OF THE P&L ACCOUNT, WE FIND TH AT THE ASSESSEE HAS CLAIMED A MINIMUM EXPENDITURE OF RS.3 LAKHS AGA INST GROSS RECEIPT OF RS.28,25,000 WHICH ARE IN THE NATURE OF ADMINISTRATIVE EXPENSES DIRECTLY ATTRIBUTABLE TO HER PROFESSIONAL ACTIVITY EXCEPT DEMAT CHARGES OF RS.574. THEREFORE, WE ARE OF THE V IEW THAT IN THE ABSENCE OF ANY DIRECT NEXUS BETWEEN EXPENDITURE CLA IM TO THE EXEMPT INCOME, THE AO CANNOT INVOKE THE PROVISIONS OF SECTION 14A R.W.R. 8D(2) TO DISALLOW EXPENDITURE. HENCE, WE DIR ECT THE AO TO DELETE DISALLOWANCES MADE U/S 14A R.W.R. 8D EXCEPT DEMAT CHARGES OF RS.574 WHICH IS DIRECTLY INCURRED IN RELATION TO EA RNING EXEMPT INCOME. ON FURTHER VERIFICATION OF THE P&L ACCOUNT, WE FIND TH AT THE ASSESSEE HAS CLAIMED A MINIMUM EXPENDITURE OF RS.3 LAKHS AGAINST GROSS REC EIPT OF RS.238,25,000 WHICH ARE IN THE NATURE OF ADMINISTRATIVE EXPENSES DIRECTLY ATTRIBUTABLE TO HER PROFESSIONAL ACTIVITY EXCEPT DEMAT CHARGES OF RS.57 4. THEREFORE, WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY DIRECT NEXUS BETWEE N EXPENDITURE CLAIM TO THE EXEMPT INCOME, THE AO CANNOT INVOKE THE PROVISIONS OF SECTION 14A R.W.R. 8D(2) TO DISALLOW EXPENDITURE. HENCE, WE DIRECT THE AO TO DELETE DISALLOWANCES MADE 7 ITA 5620 & 5621/MUM/2013 U/S 14A R.W.R. 8D, EXCEPT DEMAT CHARGES OF RS.574 W HICH IS DIRECTLY INCURRED IN RELATION TO EARNING EXEMPT INCOME. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.562 0/MUM/2013 IS PARTLY ALLOWED. 8. WITH REGARD TO THE OTHER APPEAL IN ITA NO.5621/MUM/ 2013 FOR AY 200910, THE FACTS ARE IDENTICAL TO ITA NO.5620/M UM/2013, WHERE WE HAVE HELD THAT DISALLOWANCE MADE U/S 14A R.W.R.8D EXCEPT DEMAT CHARGES WHICH IS DIRECTLY INCURRED IN RELATION TO EARNING E XEMPT INCOME, SHOULD BE DELETED. THEREFORE, SINCE THE FACTS ARE IDENTICAL, FOLLOWING OUR ORDER FOR AY 2008-09, WE DIRECT DELETION OF DISALLOWANCES MADE U /S 14A R.W.R. 8D, EXCEPT DEMAT CHARGES OF RS.574 WHICH IS DIRECTLY INCURRED IN RELATION TO EARNING EXEMPT INCOME, SHOULD BE DELETED. THEREFORE, SINCE THE FACTS ARE IDENTICAL, FOLLOWING OUR ORDER FOR AY 2008-09, WE DIRECT DELET ION OF DISALLOWANCES MADE U/S 14A R.W.R.8D, EXCEPT DEMAT CHARGES WHICH IS DIR ECTLY INCURRED IN RELATION TO EARNING EXEMPT INCOME. 8 ITA 5620 & 5621/MUM/2013 9. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IN ITA N O5621/MUM/2013 FOR AY 2009-10 IS ALSO PARTLY ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 28 TH JULY, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI