Smt. Shitilesh Sudershan Maheshwari, New Delhi V. M/s. ITO, New Delhi

ITA 6204/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7329 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 29-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: KG SOMANI
• Keywords: Earning of tax free income
• Section: 14A; 147; 148

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC-3: NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 6204/DEL/2014 A.Y. : 2010-11 SH. SHITILESH SUDERSHAN MAHESHWARI VS. ITO, WAR D-30(1), C/O KG SOMANI & CO. DRUM SHAPE BUILDING 3/15, ASAF ALI ROAD, NEW DELHI NEW DELHI (PAN: ADGPM5256P) (APPELLANT) (RESPONDENT) ITA NO. 6205/DEL/2014 A.Y. : 2010-11 SMT. NEHA MAHESHWARI VS. ITO, WARD-30(1), C/O KG SOMANI & CO. DRUM SHAPE BUILDING 3/15, ASAF ALI ROAD, NEW DELHI NEW DELHI (PAN: AIFPM2993P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. KG SOMANI, CA DEPARTMENT BY : SH. KK JAISWAL, SR. DR DATE OF HEARING : 14-6-2016 DATE OF ORDER : 14-6-2016 O R D E R THESE APPEALS FILED BY THE SEPARATE ASSESSEES AGAIN ST THE RESPECTIVE ORDERS OF LD. CIT(A)-XXV BOTH DATED 10. 9.2014 FOR THE ASSESSMENT YEAR 2010-11. SINCE THE ISSUE INVOLVED IN THESE APPEALS ARE COMMON AND IDENTICAL, HENCE, WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE, BY DEALING WITH ITA NO. 6205/DEL/2014(AY 2010-11). 2 2. THE GROUNDS RAISED IN ITA NO. 6205/DEL/2014 (AY 2010-11) READ AS UNDER:- I) THAT THE ORDER PASSED BY THE LD. CIT(A) IS AGAIN ST THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND MUST BE QUA SHED. II) THAT THE ADDITION MADE OF RS. 73,902/- U/S. 14 A READ WITH RULE 8D OF THE INCOME TAX RULES IS UNCALLED FOR, SI NCE THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST TH E INVESTMENT INCOME, EXCEPT MINOR AMOUNT OF RS. 56/- AND, THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT AR ISE AND BE DELETED. III) THAT THE ASSESSEE PRAYS THAT SHE BE ALLOWED TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL, AT THE TIME OF HEARIN G. 3. THE GROUNDS RAISED IN ITA NO. 6204/DEL/2014 (AY 2010-11) READ AS UNDER:- I) THAT THE ORDER PASSED BY THE LD. CIT(A) IS AGAIN ST THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND MUST BE QUA SHED. II) THAT THE ADDITION MADE OF RS. 2,26,813/- U/S. 14A READ WITH RULE 8D OF THE INCOME TAX RULES IS UNCALLED FOR, SI NCE THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST TH E INVESTMENT INCOME, EXCEPT MINOR AMOUNT OF RS. 8,880 /- AND, THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT AR ISE AND BE DELETED. 3 III) THAT THE ASSESSEE PRAYS THAT SHE BE ALLOWED TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL, AT THE TIME OF HEARIN G. ITA NO. 6205/DEL/2014 (AY 2010-11)- MRS. NEHA MAHES HWARI 4. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 WAS FILED ON 26.7.2010 DEC LARING TAXABLE INCOME OF RS. 2,66,350/-. IT WAS OBSERVED BY THE AO THAT INPUTS FROM THE DEPARTMENTAL SYSTEM REVEALED THAT THE ASSESSEE HAS UNDERTAKEN THE TRANSACTIONS AMOUNTING TO RS.47,88,715/- IN TERMS O F INVESTMENT IN MUTUAL FUNDS ETC. NOTICE U/S 148 OF THE IT ACT,1961 WAS ISSUED ON 19.06.2012 AFTER RECORDING THE REASONS THAT INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT,1961 IN THE CASE OF THE ASSESSEE THE ASSESSMENT YEAR 2010-11 AN D DULY SERVED UPON THE ASSESSEE. AFTER PROVIDING A REASONABLE OPPORTUN ITY TO THE ASSESSEE, NOTICE S U/S 142(1)/143(2) OF IT ACT, 1961 WERE ISS UED ON 2.11.2012, WHICH WERE DULY SERVED UPON THE ASSESSESSEE. IN COM PLIANCE TO THE ABOVE REFERRED NOTICES LD. AUTHORISED REPRESENTATIVE OF THE ASSESEE APPEARED FROM TIME TO TIME AND FILED THE REQUISITE DETAILS WHICH WERE EXAMINED WITH REFERENCE TO THE CONTENTS OF THE INPUTS AVAIL ABLE WITH THE AO. THE BOOKS OF ACCOUNTS WERE PRODUCED AND THE SAME WERE E XAMINED ON TEST CHECK BASIS BY THE AO. THEREAFTER, THE AO MADE THE VARIOUS ADDITIONS AND COMPLETED THE ASSESSMENT AT INCOME OF RS. 16,40,250 /- U/S. 147/143(1) OF THE I.T. ACT VIDE HIS ORDER DATED 20.1.2014. 5. AGAINST THE AFORESAID ADDITIONS, ASSESSSEE MADE AN APPEAL BEFORE THE LD. CIT(A) WHO VIDE IMPUGNED ORDER DATED 10.9.2 014 HAS PARTLY 4 ALLOWED THE APPEAL OF THE ASSESSEE, BUT AFFIRMED T HE ADDITION MADE BY THE AO U/S. 14A OF THE INCOME TAX ACT, 1961. 6. AGAINST THE ORDER OF THE LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST TH E INVESTMENT INCOME, EXCEPT THE MINOR AMOUNT OF RS. 56/- AND THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT ARISE AND HENCE, THE ADDITION OF RS. 73,902/- MADE U/S. 14A OF THE ACT MAY BE DELETED. 8. ON THE OTHER HAND, LD. D.R RELIED UPON THE ORDE RS OF AUTHORITIES BELOW AND STATED THAT THE SAME MAY BE UPHELD. 9. I HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. I HAVE ALSO CONSIDERED THE EVIDE NCES FILED BY THE ASSESSEE AND HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE APPELLATE ORDER. ON A CAREFUL PERUSAL OF THE RECORD , IT IS NOTICED THAT THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER IS BASED ON ESTIMATION BASIS UNDER SECTION 14A OF THE I.T. ACT. IN THIS CONNECTI ON, 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 WALFO RT SHARE & STOCK BROKERS, WHICH HAS BEEN FOLLOWED AND APPLIED BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE AND THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT. REFERENCE MAY BE MADE TO CERT AIN OBSERVATIONS OF 5 THE BOMBAY HIGH COURT AND THE DELHI HIGH COURT IN T HE 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 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) .... '. 6 (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 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' 7 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. ' 9.2 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 PRESCRIBED UNDER THE LAW. THERE IS NOTHING ON RECORD TO CONTROVERT THE SUBMISSIONS MAD E ON BEHALF OF THE ASSESSEE. 9.3 IN VIEW OF THE AFORESAID FACTS, I HAVE NO REASO N TO DISAGREE WITH THE CLAIM OF THE ASSESSEE THAT NO FURTHER EXPENDITURE O VER AND ABOVE THE EXPENSES ALREADY DISALLOWED IN THE RETURN OF INCOME IS REQUIRED TO BE DISALLOWED UNDER SECTION 14A OF THE IT ACT. ACCORDI NGLY, IT IS HELD THAT THE DISALLOWANCE OF RS.73,902/- 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. 10. WITH REGARD TO ITA NO. 6204/DEL/2014 (AY 2010-1 1) IS CONCERNED, FOLLOWING THE CONSISTENT VIEW TAKEN BY ME IN ITA NO . 6205/DEL/2014 (AY 2010-11), AS AFORESAID, THE ADDITION INVOLVED IN I TA NO. 6204/DEL/2014 ALSO STANDS DELETED. 8 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE DI FFERENT ASSESSES STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE, 2016. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE:14/6/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. D R, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES