UPHAR HOMEFIN P.LTD, MUMBAI V. ASST CIT CIR 4(3), MUMBAI

ITA 6071/MUM/2013

• Counselvise Citation: 607119914 RSA 2013
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 17-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 6071/MUM/2013 (ASSESSMENT YEAR: 2010-11) M/S. UPHAR HOMEFIN PVT. LTD. ACIT, CIRCLE - 4(3) 401/402, BUSINESS CLASSIC MUMBAI CHICHOLI BUNDER ROAD VS. MALAD (W), MUMBAI 400064 PAN - AAACV2012P APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL HIRAWAT RESPONDENT BY: MS. SONIA KUMAR DATE OF HEARING: 29.01.2014 DATE OF PRONOUNCEMENT: 29.01.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER PASSED BY THE CIT(A)-8, MUMBAI AND IT PERTAINS TO A .Y. 2010-11. 2. FOLLOWING GROUNDS WERE URGED BY THE ASSESSEE: - 1. ON THE FACTS AND IN LAW, THE LEARNED COMMISSION ER OF INCOME-TAX (APPEALS) HAD FAILED TO APPRECIATE THAT DISALLOWANC E OF RS.78,049/- U/S. 14A R.W.R. 8D IS BAD-IN-LAW. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIREC TED THE ASSESSING OFFICER TO DELETE THE SAID DISALLOWANCE O F RS.78,049/-. 2. ON THE FACTS AND IN LAW, THE LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS) HAD ERRED I NOT DIRECTING THE ASSESSING O FFICER TO DELETE THE INTEREST CHARGED U/S. 234C OF RS.53,994/-. UNDE R THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE D IRECTED THE ASSESSING OFFICER TO DELETE THE INTEREST CHARGED U/ S. 234C OF RS.53,994/-. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRAD ING IN SHARES AND DERIVATIVES. FOR THE YEAR UNDER CONSIDERATION IT DE CLARED TOTAL INCOME OF ` 24,014/- ON WHICH THE TAX PAYABLE WORKS OUT TO ` 7,420/-, WHICH IS LESS ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 2 THAN THE LIMITS STIPULATED UNDER SECTION 208 OF THE ACT WHICH READS AS UNDER: - ADVANCE TAX SHALL BE PAYABLE DURING A FINANCIAL YE AR IN EVERY CASE WHERE THE AMOUNT OF SUCH TAX PAYABLE BY THE ASSESSE E DURING THE YEAR, AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE CHAPTER, IS TEN THOUSAND RUPEES OR MORE. THEREFORE, THE ASSESSEE HAS NOT PAID ANY ADVANCE TA X THEREON BUT FILED RETURN OF INCOME DECLARING THE AFOREMENTIONED INCOM E. THE CASE HAVING BEEN TAKEN UP FOR SCRUTINY THE AO VERIFIED THE RECO RD AND NOTICED THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF ` 1,05,242/- WHICH WAS TREATED AS EXEMPT. SINCE THE ASSESSEE HAS NOT COMPUTED THE AMO UNT OF EXPENSES ATTRIBUTABLE TO EARNING OF THE SAID INCOME, A SHOW CAUSE NOTICE WAS ISSUED CALLING UPON THE ASSESSEE TO FURNISH COMPLETE DETAI LS OF THE INVESTMENTS ON WHICH IT HAD DERIVED THE EXEMPT INCOME AND TO EXPLA IN AS TO WHY SOME PORTION OF THE EXPENDITURE SHOULD NOT BE DISALLOWED BY INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I.T. RULES, 1962. THE ASSESSEE APPEARS TO HAVE SUBMITTED THAT NO EXPENDITURE IS DI RECTLY ATTRIBUTABLE TO EXEMPT INCOME. AS PER THE STATEMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE AN ALTERNATIVE SUBMISSION WAS MADE WHEREBY THE ASSE SSEE FURNISHED DETAILED BREAK UP OF MAN HOURS THAT HAVE BEEN SPENT ON THE ACCOUNTANT FOR MAKING THE ENTRIES, ETC. REFERABLE TO THE DIVIDEND INCOME AND ON THAT BASIS A REQUEST HAS BEEN MADE THAT THE DISALLOWANCE, IF ANY , SHOULD BE RESTRICTED TO THE SAME. SINCE COMPLETE DETAILS OF THE INVESTMENTS , ETC. HAVE NOT BEEN FURNISHED BY THE ASSESSEE, THE AO PROCEEDED ON THE FOOTING THAT SOME EXPENDITURE IS DIRECTLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AND ACCORDINGLY PROCEEDED TO COMPUTE THE DISALLOWANCE I N ACCORDANCE WITH PROVISIONS OF RULE 8D OF THE I.T. RULES. THUS AN AM OUNT OF ` 78,409/- WAS BROUGHT TO TAX AND COMPUTED THE TOTAL INCOME AT ` 1,02,064/-. THE AO LEVIED TAX AND ALSO CHARGED INTEREST UNDER SECTION 234B AN D 234C OF THE ACT. 4. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T THE ASSESSEE WAS NOT HOLDING ANY INVESTMENT IN SHARES. ALL THE SHARE S WERE HELD AS STOCK-IN- TRADE AND ACCORDINGLY THERE SHOULD NOT BE ANY DISAL LOWANCE UNDER SECTION ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 3 14A OF THE ACT. IT WAS FURTHER SUBMITTED THAT CHARG ING OF INTEREST UNDER SECTION 234C IS NOT IN ACCORDANCE WITH LAW. 5. THE LEARNED CIT(A) OBSERVED THAT THE CBDT, VIDE NOT IFICATION NO. 45/2008 DATED 24.03.2008 HAVE PRESCRIBED THE METHOD FOR DETERMINING THE EXPENDITURE RELATING TO INCOME NOT INCLUDABLE IN TO TAL INCOME, WHICH HAS NOW BECOME A PART OF THE I.T. RULE, I.E. RULE 8D. I N OTHER WORDS, WHERE AN ASSESSEE CLAIMS NO EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO IS ENTITLED TO COMPUTE THE DISALLOWANCE AS PER THE METHOD PRESCRIBED UNDER SECTION 14A AND RULE 8D . HE ACCORDINGLY CONFIRMED THE ACTION OF THE AO. WITH REGARD TO THE PLEA THAT INTEREST SHOULD NOT BE CHARGED UNDER SECTION 234C OF THE ACT, THE L EARNED CIT(A) OBSERVED THAT SECTION 234C REFERS TO MANDATORY CHARGING OF I NTEREST ON WHICH NO APPEAL CAN BE PREFERRED AND ACCORDINGLY REJECTED TH E GROUNDS OF THE ASSESSEE. 6. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TOTAL DIVIDEND INCOME IS ONLY ` 1,05,242/- ON A TOTAL INVESTMENT OF ` 3,12,19,391/- WHEREAS BY COMPUTING THE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE I.T. RULES THE DISALLOWANCE IS DISPROPORTIONATE TO THE INCOME IN T HE FORM OF DIVIDEND, WHICH IS NOT IN ACCORDANCE WITH LAW. IT WAS FURTHER SUBMITTED THAT THERE IS NO DIRECT EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME AND HENCE THE ASSESSEE, IN THE RETURN OF INCOME, DID NOT SET OFF ANY EXPENDITURE ON EXEMPT INCOME. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE MERELY TOOK AN ALTERNATIVE PLEA THAT IF AT ALL ANY DISALLO WANCE HAS TO BE MADE IT CAN AT BEST BE REFERABLE TO THE MAN HOURS SPENT BY THE ACCOUNTANT AND OTHERS WITH REGARD TO RECEIPT OF DIVIDED INCOME IN THE FOR M OF CHEQUES, ETC. AND RECORDING THE SAME IN THE BOOKS OF ACCOUNT AND A NO MINAL DISALLOWANCE CAN BE MADE WHEREAS THE AO HAS APPLIED THE STANDARD FOR MULA WHICH IS NOT CALLED FOR. HE PLACED RELIANCE UPON THE FOLLOWING D ECISIONS OF THE ITAT MUMBAI BENCHES WHEREIN THE AO COMPUTED THE DISALLO WANCE WITHOUT RENDERING ANY OPINION ON THE CORRECTNESS OR OTHERWI SE OF ASSESSEES CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDE ND INCOME AND THUS THE ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 4 TRIBUNAL HELD THAT THE DISALLOWANCE COULD NOT HAVE BEEN MADE BY INVOKING RULE 8D AND FOR PROPER APPRECIATION OF THE FACTS TH E MATTER WAS SET ASIDE TO THE FILE OF THE AO: - I. ITANO. 1124/MUM/2012 DATED 08.03.2013 II. ITA NO. 3889/MUM/2011 DATED 25.07.2012 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE INSTANT APPEAL ALSO THE CASE OF THE ASSESSEE IS THAT NO EXP ENDITURE, WHATSOEVER, WAS INCURRED TO EARN DIVIDEND INCOME BUT THE AO CHOSE T O APPLY RULE 8D WITHOUT POINTING OUT ANY REASON REGARDING NON SATISFACTION WITH REGARD TO CORRECTNESS OF CLAIM OF EXPENDITURE. 8. WITH REGARD TO THE INTEREST CHARGED UNDER SECTION 2 34C OF THE ACT THE LEARNED COUNSEL STRONGLY RELIED UPON THE ORDER PASS ED BY THE ITAT MUMBAI BENCH IN THE CASE OF BOMBAY GYMKHANA LTD. 115 TTJ 6 39 WHEREIN THE BENCH OBSERVED THAT THOUGH LEVY OF INTEREST IS MAND ATORY UNDER THE ACT BUT IT IS SUBJECT TO THE CONDITION OF APPLICABILITY OF THE SECTION IN THE GIVEN FACTS. IN OTHER WORDS, SECTION 234C IS APPLICABLE ONLY IF ADVANCE TAX IS PAYABLE ON THE RETURNED INCOME AND IT SHOULD NOT BE WITH REFER ENCE TO THE ULTIMATELY ASSESSED INCOME. IN THE INSTANT CASE THE TAX PAYABL E ON THE RETURNED INCOME IS LESS THAN ` 10,000/- AND AS PER THE PROVISIONS OF SECTION 208 R .W.S. 209 OF THE ACT THERE IS NO LIABILITY TO PAY ADVANCE TAX AN D HENCE THE ASSESSEE HAS CHALLENGED THE VERY LEVY OF INTEREST UNDER SECTION 234C OF THE ACT AND NOT WITH REGARD TO THE CORRECTNESS OF THE COMPUTATION T HEREOF. IT WAS ALSO SUBMITTED THAT RECTIFICATION PETITIONS WERE FILED B EFORE THE AO AS WELL AS THE CIT(A) IN THIS REGARD BUT NO ORDER HAS BEEN PASSED AS YET BY THE TAX AUTHORITIES. HE THUS SUBMITTED THAT CHARGING OF INT EREST UNDER SECTION 234C IS CONTRARY TO LAW. 9. ON THE OTHER HAND THE LEARNED D.R. SUBMITTED THAT S ECTION 14A OF THE ACT COMES INTO PLAY WHEN THE AO, HAVING REGARD TO T HE ACCOUNTS OF THE ASSESSEE, RAISED HIS DISSATISFACTION WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE INSTANT CASE THE DOMINANT INCOME OF THE ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 5 ASSESSEE COMPANY IS ONLY IN THE FORM OF DIVIDEND IN COME AND IT HAS INVESTED MORE THAN ` 3 CRORES ON PURCHASE OF SHARES WHICH RAISES A SUSPI CION WITH REGARD TO CORRECTNESS OF EXPENDITURE AND THE ASSESS ING OFFICER CALLED UPON THE ASSESSEE TO FURNISH COMPLETE DETAILS OF THE INV ESTMENTS ON WHICH IT HAD DERIVED EXEMPT INCOME AND TO EXPLAIN WHY DISALLOWAN CE OF EXPENDITURE SHOULD NOT BE MADE UNDER SECTION 14A OF THE ACT REA D WITH RULE 8D BUT THE ASSESSEE APPEARS TO HAVE NOT FURNISHED ANY SATISFAC TORY EXPLANATION AND, THEREFORE, THE AO WAS JUSTIFIED IN INVOKING PROVISI ONS OF SECTION 14A TO COMPUTE THE DISALLOWANCE UNDER RULE 8D OF THE I.T. ACT. SHE THUS JUSTIFIED THE ACTION OF THE AO. WITH REGARD TO CHARGING OF IN TEREST UNDER SECTION 234C OF THE ACT THE LEARNED D.R. RELIED UPON THE ORDERS OF THE TAX AUTHORITIES. 10. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS A ND PERUSED THE RECORD. AS REGARDS THE FIRST ISSUE, I.E. COMPUTATIO N OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE I.T. RULES, I AM OF THE OPINION THAT THE ORDER PASSED BY THE AO AS WELL AS THE CIT(A) DOES N OT CALL FOR ANY INTERFERENCE BECAUSE IT IS WELL SETTLED THAT EXPEND ITURE INCURRED NEED NOT BE PROPORTIONATE TO THE INCOME EARNED BY THE ASSESSEE. IN THE CASE OF CIT VS. PRASAD MOODY 115 ITR 519, THE HON'BLE SUPREME COURT OBSERVED THAT EVEN IF THERE IS NO INCOME IN A PARTICULAR YEAR EXPENDIT URE INCURRED WITH REFERENCE TO A PARTICULAR ACTIVITY CAN BE CLAIMED AS DEDUCTIO N. IN OTHER WORDS, IT IS NOT LINKED TO THE EARNING OF INCOME IN A PARTICULAR YEA R. THERE ARE MANY SITUATIONS WHERE THE ASSESSEE MIGHT HAVE INCURRED L OSSES IN A PARTICULAR BUSINESS WHICH IS POSSIBLE ONLY WHEN THE EXPENDITUR E INCURRED IS MORE THAN THE INCOME EARNED BUT THAT MAY NOT BE THE BASIS TO HOLD THAT ASSESSEE SHOULD NOT HAVE INCURRED MORE EXPENDITURE. IT IS FO R THE ASSESSEE TO SHOW THAT NO EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING INCOME. THE INITIAL BURDEN IS UPON THE ASSESSEE TO PROVE THAT T HE EXPENDITURE CLAIMED AS DEDUCTION IS NOT EITHER DIRECTLY OR INDIRECTLY RELA TED TO EARNING OF EXEMPT INCOME. THE AO CALLED FOR THE DETAILS TO VERIFY THE SAME BUT THE ASSESSEE APPEARS TO HAVE NOT FURNISHED THE DETAILS WHICH HAS COMPELLED THE AO TO INVOKE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE AO MAY NOT BE EXPECTED TO HAVE A FIRST HAND IDEA OF THE FACTS WHI CH ARE WITHIN THE KNOWLEDGE OF THE ASSESSEE. THEREFORE, THE INITIAL B URDEN IS UPON THE ASSESSEE ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 6 TO PROVE, BY FURNISHING THE DETAILS, THAT THE EXPEN DITURE CLAIMED AS DEDUCTION AGAINST OTHER INCOME IS NOT RELATABLE TO EARNING OF EXEMPT INCOME AND THE INVESTMENTS MADE ARE NOT OUT OF BORROWED FU NDS AND NO PAID EMPLOYEE OR OTHERS ARE INVOLVED IN EARNING OF DIVID END INCOME SO AS TO ATTRIBUTE A PORTION OF THE TOTAL EXPENDITURE TO EAR NING OF EXEMPT INCOME. BEARING IN MIND THE DIFFICULTY IN PROVING THESE SUB TLE FACTS THE LEGISLATURE, IN ITS WISDOM, HAS PROVIDED A FORMULA UNDER RULE 8D , WHICH WAS APPLIED BY THE AO TO ARRIVE AT THE EXPENDITURE RELATABLE TO EA RNING OF DIVIDEND INCOME. EVEN AT THIS STAGE NO MATERIAL, WHATSOEVER, WAS FUR NISHED BY THE ASSESSEE TO PROVE THAT THE IMPUGNED EXPENDITURE WAS DIRECTLY RE LATABLE TO THE INCOME TAXABLE UNDER THE ACT AND IT IS NO WAY RELATED TO T HE EXEMPT INCOME. IN THE CASES CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE , THE AO HAS NOT MADE ANY EXERCISE OF CALLING UPON THE ASSESSEE TO FURNIS H THE DETAILS, ETC. AND MERELY PROCEEDED TO INVOKE PROVISIONS OF SECTION 14 A AND UNDER SUCH CIRCUMSTANCES THE TRIBUNAL THOUGHT IT FIT TO RESTOR E THE MATTER TO THE FILE OF THE AO FOR RECONSIDERATION ACCORDING TO LAW. NEEDLE SS TO OBSERVE THAT IN THE INSTANT CASE THE AO CALLED UPON THE ASSESSEE TO FUR NISH THE DETAILS OF EXPENDITURE BUT THE ASSESSEE HAVING NOT TENDERED PR OPER EXPLANATION DISALLOWANCE WAS COMPUTED IN ACCORDANCE WITH SECTIO N 14A READ WITH RULE 8D OF I.T. RULES WHICH, IN MY OPINION, IS IN ACCORD ANCE WITH LAW. I, THEREFORE, CONFIRM THE ACTION OF THE FIRST APPELLATE AUTHORITY . 11. AS REGARDS INTEREST CHARGED UNDER SECTION 234C OF T HE ACT THE PLEA OF THE ASSESSEE IS THAT SECTION 234C IN TURN SPEAKS OF ADVANCE TAX PAYABLE UNDER SECTION 208 OF THE I.T. ACT WHEREIN THE LEGIS LATURE USED THE EXPRESSION TAX PAYABLE BY THE ASSESSEE DURING THAT YEAR, AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER, IS TEN THOUSAND RUPEES OR MORE. NO ASSESSEE CAN FORESEE AS TO WHAT WOULD BE THE TAX PAYABLE IN THE FIRST QUARTER OF THE PREVIOUS YEAR. THEREFORE, ON A RATIONALE INTERPRETATION IT HAS TO BE ASSUMED THAT THE EXPRESSION TAX PAYABLE BY THE ASSESSEE SHOULD BE READ AS TAX PAYABLE AS PER THE COMPUTATION OF T HE ASSESSEE. IN THE INSTANT CASE THE RETURNED INCOME ITSELF IS ` 24,015/- ON WHICH TAX PAYABLE WORKS OUT TO ` 7,420/-, WHICH IS LESS THAN THE FIGURE MENTIONED IN SECTION 208 OF THE ACT IN WHICH EVENT THERE IS NO NEED FOR PAYMENT OF ANY ADVANCE ITA NO. 6071/MUM/2013 M/S. UPHAR HOMEFIN PVT. LTD. 7 TAX INSTALMENT. IN OTHER WORDS, THERE IS NO LIABILI TY TO PAY ADVANCE TAX AND CONSEQUENTLY INTEREST CANNOT BE CHARGED UNDER SECTI ON 234C OF THE ACT MERELY BECAUSE THE ULTIMATE ASSESSED INCOME IS HIGH ER. IN THE LIGHT OF WHAT IS STATED ABOVE AND ALSO IN THE LIGHT OF THE DECISI ON OF THE ITAT MUMBAI BENCH IN THE CASE OF BOMBAY GYMKHANA LTD. (SUPRA) I HOLD THAT THE INTEREST CHARGED BY THE AO UNDER SECTION 234C OF THE ACT IS NOT IN ACCORDANCE WITH LAW AND HENCE IT DESERVES TO BE DELETED. ORDERED AC CORDINGLY. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2014. SD/- (D. MANMOHAN) VICE PRESIDENT MUMBAI, DATED: 29 TH JANUARY, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 8, MUMBAI 4. THE CIT 4, MUMBAI CITY 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.