Ganpati Finsec Pvt. Ltd., Rajasthan V. ITO, Ward- 11(3), New Delhi

ITA 6358/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4145 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 13-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R KAUSHIK
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC , NEW DELHI BEFORE SH. N. K. SAINI, A CCOUNTANT M EMBER ITA NO. 6358 /DEL/2017 : ASSTT. YEAR : 2014 - 1 5 GANPATI FINSEC PVT. LTD., C/O VIKAS CHHABRA, CA, 25, PATEL MARKET, SRIGANGANAGAR, RAJASTHAN VS INCOME TAX OFFICER, WARD - 11(3), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A AACG7719B ASSESSEE BY : NONE REVENUE BY : SH. S. R. KAUSHIK , SR. DR DATE OF HEARING : 09.01 .201 8 DATE OF PRONOUNCEMENT : 12 .01 .201 8 ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 24 .07.2017 OF LD. CIT(A) - 35 , NEW DELHI . 2. DURING THE COURSE OF HEARING NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE NEITHER ANY ADJOURNMENT WAS SOUGHT. WE, THEREFORE, PROCEEDED EX - PARTE AND THE APPEAL IS DECIDED ON MERIT AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES. 3. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE LD. A.O. WAS NOT JUSTIFIED I N MAKING THE ADDITIONS U/S 14A AND LD. CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS U/S 14A IGNORING THE SUBMISSIONS, FACTS AND LEGAL POSITION APPLICABLE TO THE ASSESSEE CASE. ITA NO . 6358 /DEL /201 7 GANPATI FINSEC P. LTD. 2 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS U/ S 14A WHEN THE SHARE TRANSACTIONS WERE IN THE NATURE OF TRADING TRANSACTIONS. 3. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS AS PER RULE 8D EVEN WHEN ADDITIONS EXCEEDS THE EXEMPT INCOME. 4. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN S USTAINING THE ADDITIONS U/S 14A IGNORING THE METHOD PRESCRIBED AS PER RULE 8D(II) & 8D(III). 5. THAT THE LD. A.O. WAS NOT JUSTIFIED IN MAKING ADDITIONS AND LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS IGNORING THE INVESTMENT MADE IN SHARES AS STOCK IN TRADE BY ASSESSEE FROM OWN CAPITAL AND RESERVES AND SURPLUS AND OTHER FUNDS. 6. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS U/S 14A EVEN WHEN NO INVESTMENT IN SHARES HAD BEEN MADE BY THE ASSESSEE DURING THE YEAR. 7. THAT TH E LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS MADE U/S 14A EVEN WHEN THE LD. A.O. NOT RECORDED PROPER SATISFACTION OR WRONGLY RECORDED SATISFACTION. 8. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION EVEN WHEN THE LD. A.O. HA S NOT ESTABLISHED / RECORDED SATISFACTION THAT THE ASSESSEE HAD ACTUALLY INCURRED EXPENSES FOR EARNING TAX FREE INCOME. LD. A.O. HAD MECHANICALLY APPLIED RULE 8D FOR DISALLOWANCE U/S 14A. ITA NO . 6358 /DEL /201 7 GANPATI FINSEC P. LTD. 3 9. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITIONS U/S 14A WITHOUT CONSIDERING THE INTEREST INCOME EARNED BY THE ASSESSEE. 10. THE APPELLANT RESERVES THE RIGHT TO ADD, AMEND, ALTER ANY GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF APPEAL. 11. SUCH OTHER RELIEF MAY BE GRANTED AS MAY BE DEEMED FIT. 4 . FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE MAIN GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF ADDITION MADE BY THE AO U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) R.W. RULE 8D OF THE INCOME TAX RULES, 1962. 5 . THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 25.11.2014 DECLARING NET TAXABLE INCOME OF RS.9,75,632/ - WHICH WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE TOTAL INVESTMENT OF THE ASSESSEE IN THE EQUITY SHARES AT THE BEGINNING OF THE YEAR WAS RS.1,60,38,123/ - AND AT THE CLOSE OF THE YEAR WAS RS.2,30,96,388/ - AND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,26,902/ - . THE AO ASKED THE ASSESSEE TO E XPLAIN AS TO WHY THE DISALLOWANCE OF EXPENSES MAY NOT BE MADE U/S 14A OF THE ACT. THE ASSESSEE SUBMITTED THAT IT HAD NOT INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FOR EARNING THE DIVIDEND INCOME. THE AO, HOWEVER, INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D ITA NO . 6358 /DEL /201 7 GANPATI FINSEC P. LTD. 4 OF THE INCOME TAX RULES, 1962 AND MADE THE DISALLOWANCE OF RS.6,56,376/ - . 6 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO SUSTAINED THE DISALLOWANCE MADE BY THE AO. 7 . NOW THE ASSESSEE IS IN APPEAL. THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS MADE IN THEIR RESPECTIVE ORDER. 8 . I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE P RESENT CASE, THE AO HIMSELF ADMITTED THAT THE ASSESSEE EARNED THE DIVIDEND INCOME OF RS.1,26,902/ - WHICH WAS CLAIMED AS EXEMPT INCOME. NOW, IT IS WELL SETTLED BY THE VARIOUS JUDICIAL PRONOUNCEMENTS THAT THE DISALLOWANCE U/S 14A OF THE ACT CANNOT EXCEED THE INCOME EARNED WHICH IS CLAIMED AS EXEMPT . THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT - IV (2015) 378 ITR 33 (DEL.) HELD AS UNDER: THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE INCOME - TAX ACT , 1961, ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PRE VIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME. IN OTHER WORDS, SECTION 1 4A WILL NOT ITA NO . 6358 /DEL /201 7 GANPATI FINSEC P. LTD. 5 APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 9. SO, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE, THE AO IS DIRECTED TO DISALL OW THE EXPENSES OF RS.1,26 ,902/ - TO THE EXTENT OF THE EXEMPT INCOME CLAIMED BY THE ASSESSEE. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . (O RD E R P RON OUNCED IN THE COURT ON 12 /01 /201 8 ) SD/ - (N. K. SAINI) ACCOUNTANT MEMBER DAT ED: 12 /01/2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR