S. KRISHNMURTHY, MUMBAI V. ACIT 11(HQ), MUMBAI

ITA 6207/MUM/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3625 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO 6207/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) S. KRISHNAMURTHY, 301, SWASTIK CHAMBERS, 3 RD FLR, CST RD, CHEMBUR, MUMBAI-400 071. / VS. ACIT 11 (HQ) MUMBAI. ./ ./PAN/GIR NO. AABPS 4021L ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI HARESH P. SHAH / RESPONDENT BY : SHRI J. SARAVANAN / DATE OF HEARING : 17/12/2015 !'# / DATE OF PRONOUNCEMENT : 15/01/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09-08-2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (HER EINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 2009-10. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT APPEALS ERRED IN PASSING AN ORDER CONFIRMING TH E ORDER PASSED BY THE ACIT U/S 143(3) OF THE IT ACT, 1961, WITHOUT FULLY AND PROPERLY APPRECIATING THE PREVALENT FACTS AS SUBMITTED DURING THE COURSE OF THE HEARING PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT APPEALS ERRED IN CONFIRMING THE ORDER PASSED BY THE ACIT U/S 143(3) OF THE IT ACT, 1961, WITHOUT FULLY AND PROPERLY APPREC IATING THE WRITTEN SUBMISSION SUBMITTED DURING THE COURSE OF HEARING P ROCEEDINGS ALONG WITH RELEVANT JUDGEMENTS WHICH JUSTIFY THE APPELLANTS AR GUMENTS. 3. THE LEARNED CIT APPEALS HAS CONFIRMED THE ADDITION MADE BY THE ACIT U/S 14A OF RS.289992/- ON ACCOUNT OF EXPENSES DEEMED TO HAVE BEEN INCURRED FOR EARNING OF DIVIDEND (EXEMPT) INCOME FOR REASONS WHICH ARE UNREASONABLE AND UNJUSTIFIED AND THE APPELLANT IS A GGRIEVED OF THE SAME. HENCE THIS APPEAL. 2. THE COMMON ISSUE RAISED IN ALL THE GROUNDS OF APPEA L IS AGAINST THE CONFIRMATION OF ADDITION BY THE CIT(A) OF RS.2,89,9 92/- MADE BY THE AO U/S 14A R.W. RULE 8D. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 22.09.2009 DECLARING AN INCOME OF RS.90,3 2,010/-. DURING THE YEAR THE ASSESSEE HAD INCOME BY WAY OF DIVIDEND OF RS.5,91,3 33/- AND INTEREST ON PPF AT RS.2,09,015/-. THE ASSESEE DID NOT DISALLOW ANY EXP ENSES U/S 14A R.W. RULE 8D OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DUE NOTICES U/S 143(2) & 142(1) WERE ISSUED AND SERVED ON THE ASESS EE. DURING THE COURSE OF ASSESSMENT THE AO NOTICED THAT THE ASSESSEE DID NOT DISALLOW ANY EXPENSES WHICH WERE ATTRIBUTABLE TO THE EXEMPT INCOME, NOT FORMING PART OF THE ASSESSEES TOTAL INCOME AND THEREFORE, ISSUED THE SHOW CAUSE NOTICE. IN RESPONSE TO SAID NOTICE THE 3 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT ASSESSEE REPLIED THAT HE HAD NOT MADE ANY BORROWING FOR THE PURPOSE OF INVESTMENT IN SHARES NOR INCURRED ANY EXPENDITURE RELATING TO THE DIVIDEND INCOME AND INTEREST ON PPF WHICH IS COVERED BY THE PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT. THE LD. AO BY APPLYING THE PROVISIONS OF SECTION 14 A RULE 8D(2)(III) DISALLOWED SUM OF RS. 2,89,992/- ON THE BASIS OF AVERAGE INVES TMENTS AND ASSESSED INCOME OF RS.93,21,998/- VIDE ASSESSMENT ORDER DATED 19.12.20 11. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A) WHO UPHELD THE ORDER OF THE AO BY OBSERVING AS UNDER. I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERI AL ON RECORD. IT IS SEEN THAT THE APPELLANT HAS EARNED DIVIDEND INCOME OF RS.5,91,333 AND INTEREST ON PPF AT RS.2,09,015 WHICH ARE CLAIME D AS EXEMPT UNDER THE INCOME-TAX ACT, 1961. THE APPELLANT HAS D EBITED EXPENDITURE OF RS.1,741 BEING DEMAT CHARGES AGAINST INCOME FROM OTHER SOURCE AND TRANSFERRED NET INCOME OF RS.12,64 ,818 TO CAPITAL ACCOUNT. SIMILARLY, THE APPELLANT HAS ALSO DEBITED REPAIRS AND MAINTENANCE EXPENSES OF RS.7,447, CONVEYANCE EXPENS ES OF RS.1757 TAX EXPENSES OF RS.1281, OFFICE EXPENSES OF RS.6165 PRINTING & STATIONERY EXPENSES OF RS.5,305, TELEPHONE EXPENSES OF RS.31,539 AND PROFESSIONAL CHARGES OF RS.5,000 AS REFLECTED IN TH E PROFIT AND LOSS 4 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT ACCOUNT. THEREFORE, THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING DIVIDEND INCOME CANNO T BE ACCEPTED AS IT SIS IMPOSSIBLE TO EARN SUBSTANTIAL DIVIDEND INCO ME WITHOUT INCURRING ANY EXPENSES. THIS VIEW IS ALSO FORTIFIED BY DECISION IN THE CASE OF CITICORP FINANCE (INDIA) LTD. (2007) 108 IT D 471 (MUM) WHEREIN IT WAS HELD THAT IT IS DIFFICULT TO ACCEP T THE HYPOTHESIS THAT ONE CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT IN CURRING ANY EXPENSES, WHATSOEVER, INCLUDING MANAGEMENT OR ADMIN ISTRATIVE EXPENSES AND GUJARAT GAS FINANCIAL SERVICES LTD V A CIT (2008) 14 DTR (AHD) (SB) 481) WHEREIN IT WAS HELD THAT THERE IS NO DISPUTE AND THERE CANNOT BE ANY DOUBT, THAT SOME EXPENDITUR E IS INCURRED FOR MAKING OR EARNING THE INCOME FROM DIVIDEND. I FIND THAT THE AO HAS MADE DISALLOWANCE ON THE BASIS OF RULE8D WHICH IS V ERY MUCH APPLICABLE FOR AY UNDER CONSIDERATION AS HELD BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO. LTD V DCIT(2010) 328 ITR 81 (BOM). THE HONBLE HIGH COURT FURTHER LAY DOWN THAT THE ASSESSING OFFICER CAN ADO PT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. THEREFORE, FOLLOWING THE ABOVE DECISION IT WOULD BE REASONABLE TO MAKE THE D ISALLOWANCE AS PER SECTION 14A OF THE ACT AND READ WITH RULE 8D IN COME-TAX RULES 1962. THEREFORE, THE DISALLOWANCE MADE AT RS.2,89,9 92 AS PER RULE 5 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT 8D OF THE INCOME-TAX RULES 1962 BY THE AO IS CORRE CT AND VALID HENCE SAME ARE SUSTAINED. THEREFORE, GROUND NO. 1TO 3 OF APPEAL IS DISMISSED. 4. THE LD. AR SUBMITTED BEFORE US THAT THE EXPENSES DISALLOWED BY THE AO AND CONFIRMED BY THE CIT(A) WERE EXCESSIVE AND UNREASON ABLE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. AO HAD NOT GIVEN ANY CALCULA TION OF THE SAID DISALLOWANCE. THE LD. COUNSEL FURTHER ARGUED THAT THE ASSESEE HA D INVESTMENTS WHICH INCLUDED THOSE INVESTMENTS WHICH DID NOT YIELD ANY TAX FREE DIVIDEND DURING THE YEAR AND FURTHER SUBMITTED THAT WHILE WORKING OUT THE DISALL OWANCE U/S 14A R.W. RULE 8D(2)(III) ONLY DIVIDEND YIELDED INVESTMENTS SHOULD BE TAKEN AND NOT THE ENTIRE INVESTMENTS. THE LD. COUNSEL RELIED HEAVILY ON THE JUDGEMNENT OF DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD. VS. ASSISTANT COMMISS IONER OF INCOME-TAX [2015] 62 TAXMANN.COM71 (DELHI) AND ULTIMATELY PRAYED THAT THE DISALLOWANCE BE WORKED OUT BY EXCLUDING THOSE INVESTMENTS WHICH DID NOT YI ELD ANY DIVIDEND DURING THE YEAR. PER CONTRA, THE LD. DR RELIED ON THE AUTHORIT IES BELOW AND PRAYED FOR UPHOLDING THE SAME. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE NO DOUBT THAT THE DISALLOWANCE U/S 14A R.W. RU LE8D (2) (III) WERE APPLICABLE TO THE ASSESSMENT YEAR 2009-10 WHICH IS BEFORE US H OWEVER WE FIND A MERIT IN THE 6 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE HA S TO BE WORKED OUT ON THE BASIS OF INVESTMENTS WHICH YIELDED DIVIDEND DURING THE YE AR AND NOT BY FACTORING IN THE TOTAL AMOUNT OF INVESTMENTS. IN THE CASE OF ACB IND IA LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX [2015] 62 TAXMANN.COM71 (DELHI) (SUPRA). THE HONBLE DELHI HIGH COURT HAS HELD THAT WHILE CALCUL ATING DISALLOWANCE U/S 14A R.W. RULE8D (2)(III) ONLY THOSE INVESTMENTS WHICH Y IELDED DIVIDEND SHOULD BE TAKEN INTO ACCOUNT AND NOT THOSE INVESTMENTS WHICH DID NO T EARN ANY DIVIDEND DURING THE YEAR. WE, THEREFORE, RESPECTFULLY FOLLOWING THE RAT IO LAID DOWN IN THE ABOVE DECISION SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO WORK OUT THE DISALLOWANCE U/S14A R.W. RULE8D(2)(III) BY TAKING T HOSE INVESTMENTS WHICH YIELDED DIVIDEND DURING THE YEAR BY GIVING REASONAB LE AND PROPER OPPORTUNITY TO THE ASSESSEE. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH JANUARY, 2016 SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED : 15.01.2016 PS. ASHWINI GAJAKOSH 7 ITA NO. 6207/MUM/2012 (A.Y. 2009-10) S. KRISHNAMURTHY, VS. ACIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI