M/s.. Prime Maxi Promotion Services (p) Ltd., New Delhi V. DCIT, New Delhi

ITA 6008/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8103 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N J SINGH
• Keywords: Earning of tax free income
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6008/DEL/2013 AY: 20 09-10 M/S PRIME MAXI PROMOTION VS DCIT, SERVICES (P) LTD., 115, CENTRAL CIRCLE-20, ANSAL BHAWAN, NEW DELHI. 16, KASTURBA GANDHI MARG, NEW DELHI-110001 (PAN: AAACP6716D) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATYAN SETHI, ADV. RESPONDENT BY : SHRI N.J. SINGH, SR. DR DATE OF HEARING: 11.02.2016 DATE OF PRONOUNCEMENT: 29.04.2016 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THE PRESENT APPEAL IS PREFERRED BY THE ASSESSEE AG AINST THE ORDER DATED 5.8.2013 PASSED BY THE LD. CIT(A)-XXXI, NEW DELHI FOR ASSESSMENT YEAR 2009-10 WHEREIN THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS.45,776/- U/S 14A O F THE INCOME TAX ACT, 1961. 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE DIS ALLOWANCE WAS MADE BY THE ASSESSING OFFICER WITHOUT CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. HE POI NTED OUT THE RELEVANT PAGES IN THE PAPER BOOK WHICH WERE FILED B OTH BEFORE THE I.T.A. NO. 6008/D/2013 ASSESSMENT YEAR 2009-10 2 ASSESSING OFFICER AS WELL AS THE LD. CIT (A) IN SUP PORT OF THE ASSESSEES SUBMISSION THAT THE PROVISION OF THE ACT RELATING TO THE DISALLOWANCE U/S 14A WAS NOT ATTRACTED IN THE CASE OF THE ASSESSEE. IT WAS SUBMITTED THAT THE LD. CIT (A) AL SO DID NOT CONSIDER THE PLEADINGS AND CONFIRMED THE DISALLOWAN CE. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT THE DISALLOWANCE HAD BEEN CORRECTLY MADE AND SUBMITTED THAT THE SAME SHOULD BE UPHELD. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. IT IS SEEN THAT THE ASSESSING OFFICER HA S DEALT WITH THE ISSUE ON PAGE 2 OF HIS ORDER AS UNDER:- THE ASSESSEE HAS SHOWN DIVIDEND INCOME AT RS.24,97,520/- ON THE CREDIT SIDE OF PROFIT AND LOS S ACCOUNT AND CLAIMED THE SAME AS EXEMPT U/S 10(34) OF I. T. ACT, 1961.THE ASSESSEE WAS REQUESTED TO SHOW AS TO WHY T HE DISALLOWANCE IN RESPECT OF EXEMPTED DIVIDEND INCOME OF RS. 24,97,5201- SHOULD NOT BE MADE UNDER SECTION 14A OF INCOME TAX ACT 1961 READ WITH RULE-8D OF INCOME TAX RULES 1962. THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LET TER DATED 2.0.12.2011 WHICH HAS BEEN CONSIDERED AND THE RE IS NO FORCE IN IT. ACCORDINGLY, DISALLOWANCE IS MADE U /S 14A OF I.T.ACT, 1961 READ WITH RULE-8D OF INCOME TAX RULES , 1962 I.T.A. NO. 6008/D/2013 ASSESSMENT YEAR 2009-10 3 AT RS. 45,7751- (BEING 0.5% OF AVERAGE INVESTMENT O F RS.91,55,285/-(RS.91,55.285+ RS.91,55,285/- ).- PENALTY PROCEEDINGS ARE INITIATED U/S 271 (1)(C) OF INCOME TAX ACT 1961 FOR FILING INACCURATE PARTICULARS OF I NCOME/ CONCEALING PARTICULARS OF INCOME. (ADDITION OF RS.45,776/-) 5. THE LD. CIT (A) HAS DEALT THE ISSUE IN PARA 4.1. 1 OF THE IMPUGNED ORDER AS UNDER:- 4.1.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR . THE AO HAS DISALLOWED 0.5% OF AVERAGE INVESTMENT IN THE SHARES AS PER RULE 8D (2). IT IS NOT DENIED THA T THE APPELLANT HAS BEEN MAINTAINING MIXED ACCOUNTS AND HAS BEEN MAKING INVESTMENT IN THE SHARES OF THE COMPANIES. EVEN THOUGH NO SPECIFIC EXPENDITURE OF T HE COMPANY IS ATTRIBUTABLE TO THE EXEMPTED INCOME, IT CANNOT BE DENIED THAT SOME KIND OF EXPENDITURE WILL ALWAYS BE THERE WHEN THE COMPANY HAS MADE SUCH SUBSTANTIAL INVESTMENT IN THE SHARES OF THE COMPANI ES. THIS MAY BE IN THE FORM OF TIME SPENT BY THE EXECUT IVES IN TRACKING THE FATE OF THE INVESTMENTS OR IN THE F ORM OF MAINTAINING BANK ACCOUNT AND OTHER RELATED ACTIVITI ES PERTAINING TO SUCH INVESTMENTS. THE LEGISLATURE IN ITS WISDOM HAS DEEMED IT FIT TO DISALLOW 0.5% OF THE INVESTMENT AS EXPENDITURE RELATED TO EX INCOME UNDE R SECTION 14A R.W.S RULE 8D(2). THEREFORE, I DO NOT F IND ANY DEMERIT IN THE AOS ACTION. THE GROUND IS THERE FORE REJECTED. I.T.A. NO. 6008/D/2013 ASSESSMENT YEAR 2009-10 4 6. ON GOING THROUGH THESE FINDINGS OF THE LOWER AUT HORITIES, IT IS VERY MUCH EVIDENT THAT THE DISALLOWANCE U/S 14A HAS BEEN MADE WITHOUT CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE. 7. THE SCHEME OF SECTION 14A HAS WITHIN IT IMPLICIT NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR THE COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXAB LE AND NON- TAXABLE INCOME IS RECEIVED. BUT WHEN IT IS POSSIBLE TO DETERMINE THE ACTUAL EXPENDITURE IN RELATION TO THE EXEMPT IN COME OR WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME, THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14 A HAS NO APPLICATION. THE OBJECTIVE OF SECTION 14 A IS NOT ALLOWING TO REDUCE TAX PAYABLE ON THE NORMAL EXEMPT INCOME B Y DEBITING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. THUS, THE EXPENSES INCURRED TO EARN EXEMPT INCOME CANNOT BE A LLOWED AND THE EXPENSES SHALL BE ALLOWED ONLY TO THE EXTENT TH EY ARE RELATED TO THE EARNING OF TAXABLE INCOME. IF THERE IS EXPEN DITURE DIRECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME , THE SAME CANNOT BE CLAIMED AGAINST THE INCOME, WHICH IS TAXA BLE AS IT IS HELD BY THE HONBLE SUPREME COURT IN CASE OF COMMIS SIONER OF INCOME-TAX V. WALFORT SHARE AND STOCK BROKERS P. LT D. REPORTED IN 326 ITR 1 (SC) THAT FOR ATTRACTING THE PROVISION S OF SECTION 14 I.T.A. NO. 6008/D/2013 ASSESSMENT YEAR 2009-10 5 A, THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH AS RELATIONSHIP WITH THE TAX EXEMPT INCOME. THE EXPEN DITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF TOTAL INCOME HAS TO BE DISALLOWED. HOWEVER, IT SHOU LD BE PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. ONCE SUCH PROXIMITY RELATIONSHIPS EXIST, THE DISALLOWANCE IS TO BE EFFE CTED. IN CASE THE ASSESSEE HAD CLAIMED THAT NO EXPENDITURE HAS BEEN I NCURRED FOR EARNING THE EXEMPT INCOME, IT IS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN RELATION TO INCOME WHICH DID NOT FOR M PART OF TOTAL INCOME AND IF SO, TO QUANTIFY THE EXTENT OF DISALLO WANCE. THUS, IN ORDER TO DISALLOW THE EXPENDITURE UNDER SECTION 14A , THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AN D THE INCOME NOT FORMING PART OF TOTAL INCOME. NO NOTIONAL EXPEN DITURE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT INCOM E UNLESS THERE IS AN ACTUAL EXPENDITURE IN RELATION TO EARNI NG THE INCOME NOT FORMING PART OF TOTAL INCOME. IF THE EXPENDITUR E IS INCURRED WITH A VIEW TO EARN TAXABLE INCOME AND THERE IS APP ARENT DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPEN DITURE INCURRED AND TAXABLE INCOME, THEN NO DISALLOWANCE C AN BE MADE I.T.A. NO. 6008/D/2013 ASSESSMENT YEAR 2009-10 6 UNDER SECTION 14A MERELY BECAUSE SOME TAX EXEMPT INC OME IS RECEIVED BY THE ASSESSEE. 8. THEREFORE, ON AN OVERALL CONSIDERATION OF THE FA CTS OF THE CASE, IT IS OUR CONSIDERED OPINION THAT THE DISALLO WANCE WAS MADE WITHOUT DUE DELIBERATION AND ANALYSIS BY THE ASSESS ING OFFICER AND WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE DISALLOWANCE U/S 14A AFTE R GIVING DUE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH APRIL, 2016. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: THE 29TH OF APRIL, 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR