Justice Mohan Lal Varma (Retd.), New Delhi V. ACIT, New Delhi

ITA 6067/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4767 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 6067/DEL/2015 A.Y. : 2011-12 JUSTICE MOHAN LAL VERMA (RETD) A-124, NITI BAGH, NEW DELHI 110 024 (PAN: AACPV5024D) VS. ACIT, CIRCLE 63(1), 22 ND FLOOR, E-2 BLOCK, DR. SPM CIVIC CENTRE JLN MARG, NEW DELHI 11 0002 (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SH. SHRAVAN GOTRU, SR. DR ORDER PER H.S. SIDHU : JM ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 01.9.2015 PASSED BY THE LD. CIT(A)-XXVIII, NEW DELH I RELEVANT TO ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS:- 1. THAT THE LEARNED CIT (APPEALS) ERRED IN NOT HOLD ING THAT THE ASSESSMENT PROCEEDINGS BEING UNDER CASS, T HE SCOPE OF ENQUIRY SHOULD HAVE BEEN LIMITED BY THE AO TO SUCH NOTICE AND ANY OTHER VARIATION TO RETURNED INC OME WITHOUT APPROVAL OF CONCERNED SENIOR AUTHORITY IS UNSUSTAINABLE AND THEREFORE FURTHER ERRED IN NOT DE LETING THE SAID ADDITION TO RETURNED INCOME. 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF RS.80,182 AS AGAINST NIL COMPUTED BY THE ASSESSEE TOWARDS EXPENSES CLAIMED A S RELATED TO EARNING OF INCOME ON WHICH TAX IS NOT PAYABLE. 3. THAT THE ORDER OF LEARNED CIT (APPEALS) IS CONTR ARY TO THE LAW LAID DOWN BY DELHI HIGH COURT IN CASE OF MA XOPP INVESTMENT V. CIT (REPORTED IN 203 TAXMAN 364(DELHI ), AND NOT SUSTAINABLE AND VIOLATES THE LETTER AND SPI RIT OF THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE F OR A.Y. 2009-10, AS THE AO HAS NOT EVEN COME TO THE CONCLUSION THAT THE ASSESSEE HAD CLAIMED EXPENSES I N EARNING TAX FREE INCOME AND THEREFORE THE IMPUGNED ORDER IS NON SPEAKING AND IN VIOLATION OF THE TRIBU NAL'S ORDER . 4. THAT THE CIT (APPEALS) ERRED IN NOT HOLDING THAT THE DISALLOWANCE OF RS.80,182 MADE BY AO COULD NOT BE SUSTAINED AS THE AO HAD FAILED TO VERIFY THE VERACI TY OF THE ASSESSEE'S STATEMENT THAT IT HAD NOT CLAIMED AN Y EXPENSE IN THE EARNING OF THE TAX FREE INCOME. 5. THAT THE ORDERS OF THE AUTHORITIES BELOW ARE NOT SUSTAINABLE AS THE DISALLOWANCE OF RS.80,182 IS PUR ELY 3 ON THE BASELESS PRESUMPTION THAT THE ASSESSEE INCUR RED SO MUCH OF AMOUNT FROM THE EXPENSE CLAIMED TOTALLY IGNORING THE POSITIVE STAND AND EXPLANATION OF THE ASSESSEE THAT NO SUCH EXPENDITURE WAS INCURRED TO WARRANT ANY ADDITION U/S 14A OF THE ACT. 6. THAT THE ORDERS OF THE LEARNED AUTHORITIES BELOW BEING CONTRARY THE FACTS AND CIRCUMSTANCES THE CASE AND I N LAW THE APPEAL BE ALLOWED. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE, J USTICE (RETD.) M.L. VARMA, AFTER HAVING RETIRED FROM THE HIGH COURT OF DELHI, IS PRESENTLY CARRYING ON HIS LEGAL PRACTICE IN THE HONBLE SUPRE ME COURT OF INDIA. BESIDES THIS, HE HAS ALSO ADJUDICATES ON ARBITRATIO N PROCEEDINGS OR BY WAY OF APPEARANCES IN HONBLE HIGH COURTS OUTSIDE DELHI . FOR THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD FILED A RETURN OF TOTAL INCOME OF RS. 2,71,92,720/- WHICH HAS BEEN ASSESSED AT RS. 2,72,7 2,90/- VIDE ORDER DATED 12.3.2014 PASSED U/S. 143(3) OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED THE ACT). THE DIFFERENCE BETW EEN ASSESSED INCOME AND RETURNED INCOME OF RS. 80,182/- AROSE ON ACCOUN T OF ADDITION MADE BY WAY OF DISALLOWANCE U/S. 14A READ WITH RULE 8D O UT OF EXPENSES CLAIMED. 3. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 12.3.2 014, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 01.9.2015 HAS PARTLY ALLOWED THE APPEAL. 4 4. AGAINST THE IMPUGNED ORDER DATED 01.9.2015, AS SESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5. IN THIS CASE, NOTICE OF HEARING TO THE ASSESSEE WAS SENT BY THE REGISTERED AD POST, IN SPITE OF THE SAME, ASSESSEE, NOR HIS AUTHORIZED REPRESENTATIVE APPEARED TO PROSECUTE THE MATTE R IN DISPUTE, NOR FILED ANY APPLICATION FOR ADJOURNMENT. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND T HE ISSUE INVOLVED IN THE PRESENT APPEAL, WE ARE OF THE VIEW THA T NO USEFUL PURPOSE WOULD BE SERVED TO ISSUE NOTICE AGAIN AND A GAIN TO THE ASSESSEE, THEREFORE, WE ARE DECIDING THE PRESENT AP PEAL EXPARTE QUA ASSESSEE, AFTER HEARING THE LD. DR AND PERUSING THE RECORDS. 6. LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVA NT RECORDS. AS REGARD THE CONFIRMATION OF DISALLOWANCE AMOUNTING T O RS. 80,182/- MADE U/S. 14A OF THE ACT IS CONCERNED, WE FIND THAT LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE U/S 14A OF RS .80,182 AS AGAINST NIL COMPUTED BY THE ASSESSEE TOWARDS EXPENSES CLAIM ED AS RELATED TO EARNING OF INCOME ON WHICH TAX IS NOT PAYABLE. IN O UR VIEW, THE DISALLOWANCE IS CONTRARY TO THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN CASE OF MAXOPP INVESTMENT V. CIT (REPORTED IN 20 3 TAXMAN 364(DELHI), AND HENCE, NOT SUSTAINABLE, BECAUSE THE AO HAD FAIL ED TO VERIFY THE VERACITY OF THE ASSESSEE'S STATEMENT THAT IT HAD NO T CLAIMED ANY EXPENSE 5 IN THE EARNING OF THE TAX FREE INCOME AND ALSO THE DISALLOWANCE OF RS.80,182 IS PURELY BASED ON PRESUMPTION THAT THE ASSESSEE INCURRED SO MUCH OF AMOUNT FROM THE EXPENSE CLAIMED TOTALLY IGN ORING THE POSITIVE STAND AND EXPLANATION OF THE ASSESSEE THAT NO SUCH EXPENDITURE WAS INCURRED TO WARRANT ANY ADDITION U/S 14A OF THE ACT . IN THIS CONNECTION, THE LEGAL POSITION WITH REGARD TO THE APPLICABILITY OF RULE 8D OF THE IT RULES AND ALSO THE PROVISION OF SECTION 14A OF THE IT ACT IS NOW WELL CRYSTALLIZED BY THE LATER DECISIONS OF THE SUPREME COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS, WHICH HAS BEEN FOLLO WED AND APPLIED BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE A ND THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT. REFERE NCE MAY BE MADE TO CERTAIN OBSERVATIONS OF THE BOMBAY HIGH COURT AND T HE DELHI HIGH COURT IN THE SAID JUDGMENTS WHICH ARE AS UNDER: (I) THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BO YCE HAS HELD AS UNDER: ' ..... IN ORDER TO DETERMINE THE QUANTUM OF THE DISALLOWANCE. THERE MUST BE A PROXIMATE RELATIONSHI P BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME. ONCE SUCH A PROXIMAT E RELATIONSHIP EXISTS. THE DISALLOWANCE HAS TO BE EFF ECTED. ALL EXPENDITURE INCURRED IN THE EARNING OF INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO BE DISALLOWED SUBJECT TO COMPLIANCE WITH THE TEST ADOP TED BY THE SUPREME COURT IN WALFORT AND IT WOULD NOT BE 6 PERMISSIBLE TO RESTRICT THE PROVISIONS OF SECTION 1 4A BY AN ARTIFICIAL METHOD OF INTERPRETATION. .. HENCE, THE INTENTION OF SECTION 14A IS CLEARLY TO D ISALLOW ALL EXPENSES RELATING TO THE NON TAXABLE INCOME, AN D TO CURB THE PRACTICE OF CLAIMING ALLOWANCES FOR EXPENDITURES ON EXEMPT INCOME. ALL THAT IS REQUIRED IS TO SHOW THAT THERE IS A 'PROXIMATE CAUSE' BETWEEN T HE EXPENDITURE INCURRED AND THE EXEMPT INCOME, A 'PROXIMATE CAUSE' CONNOTES A RELATIONSHIP BETWEEN T HE EXPENSE AND THE EXEMPT INCOME (WALFORT) .... '. (II) THE DELHI HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT HELD AS UNDER: '26. IT WAS CONTENDED BY THE LEARNED COUNSEL FOR TH E ASSESSEES THAT THE WORDS 'EXPENDITURE INCURRED' AS APPEARING IN SECTION 14A(1) CLEARLY MEAN THAT THERE MUST BE ACTUAL EXPENDITURE. OF COURSE, THE ACTUAL EXPENDITURE MUST BE FOR EARNING THE EXEMPT INCOME. WE HAVE ALREADY POINTED OUT ABOVE, THAT WE DO NOT SUBSCRIBE TO THE NARROW INTERPRETATION SOUGHT TO GI VEN TO THE WORDS 'IN RELATION TO' WHICH THE LEARNED COU NSEL FOR THE ASSESSEES ARE ESPOUSING. THUS, WE WILL HAVE TO CONSIDER THE ARGUMENT OF THE ASSSESSEES IN RESPECT OF THE EXPRESSION 'EXPENDITURE INCURRED' IN THE CONTEX T OF 7 THE ITA 687/09 & ORS PAGE 25 OF 38 EXPENDITURE BEIN G IN CONNECTION WITH OR PERTAINING TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T. 28. IT WAS CONTENDED THAT UNLESS AND UNTIL THERE WA S ACTUAL EXPENDITURE FOR EARNING THE EXEMPTED INCOME, THERE COULD NOT BE ANY DISALLOWANCE UNDER SECTION 1 4A. WHILE WE AGREE THAT THE EXPRESSION 'EXPENDITURE INCURRED' REFERS TO ACTUAL EXPENDITURE AND NOT TO S OME IMAGINED EXPENDITURE WE WOULD LIKE TO MAKE IT CLEAR THAT THE 'ACTUAL' EXPENDITURE THAT IS IN CONTEMPLAT ION UNDER SECTION 14A(1) OF THE SAID ACT IS THE 'ACTUA L' EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO T HE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE SAID ACT. ' 7.1 NOW APPLYING THE AFORESAID LEGAL POSITION TO TH E FACTS OF THE ASSESSEES CASE, IT IS NOTICED THAT THE ASSESSEE H AS NOT CLAIMED ANY EXPENDITURE AGAINST THE INVESTMENT INCOME. THE AO HAS MADE THE ADDITION ON ESTIMATE BASIS WHICH IS NOT PERMISSIBLE UNDER THE LAW. 7.2 IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE PRECEDENTS AS ABOVE, WE HAVE NO REASON TO DISAGREE WITH THE CLAIM OF THE ASSESSEE THAT NO FURTHER EXPENDITURE OVER AND A BOVE THE EXPENSES ALREADY DISALLOWED IN THE RETURN OF INCOME IS REQUI RED TO BE DISALLOWED 8 UNDER SECTION 14A OF THE IT ACT. ACCORDINGLY, IT IS HELD THAT THE DISALLOWANCE OF RS.80,182/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE IT ACT BY APPLICATION OF RULE 8D OF THE IT RULES IS DIRECTED TO BE DELETED AND ACCORDINGLY, THE GROUNDS RAISED BY T HE ASSESSEE STAND ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/09/2017. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 13/09/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES