Late Sh. D.K. Jain, New Delhi V. DCIT, New Delhi

ITA 6551/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7382 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 03-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO. 6551/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 6551/DEL/20 14 (A.Y 2010-11) LATE SH. D. K. JAIN THROUGH LEGAL HIER MRS. USHA JAIN D-19, NIZAMUDDIN EAST NEW DELHI AAKPJ4559P (APPELLANT) VS DCIT CIRCLE-32(1) NEW DELHI. (RESPONDENT) APPELLANT BY SH. VED JAIN, CA RESPONDENT BY MS. ASHIMA NEB, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 19/09/2014 PASSED BY CIT(A)-XXVI, NEW DELHI FOR ASSESSMENT YEA R 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY THE A.O AND THE COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER R EFERRED TO AS CIT(A) ARE BAD IN LAW AND VOID-AB-INITIO. 2. THAT DISALLOWANCE OF RS.31,40,362/- U/S 14A BY T HE A.O AND CONFIRMED BY CIT(A) U/S 57(III) IS ILLEGAL, ARBITR ARY, AGAINST FACTS AND UNJUSTIFIED. THIS NEEDS TO BE DROPPED. 3. THAT THE VARIOUS ADVERSE FINDINGS RECORDED BY TH E LD.CIT(A) ARE TOTALLY AND WHOLLY ARBITRARY IN AS MUCH AS HE H AS FAILED TO APPRECIATE THE SUBMISSIONS AND, EVIDENCE FILED BY T HE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. DATE OF HEARING 14.01.2019 DATE OF PRONOUNCEMENT 16.01.2019 2 ITA NO. 6551/DEL/2014 3. THE ASSESSEE FILED HIS RETURN OF INCOME SHOWING INCOME OF RS.20,783/- WHICH INCLUDED INCOME UNDER ALL HEADS SPECIFIED IN THE INCOME TAX ACT, 1961. THE CASE WAS PICKED UP FOR SCRUTINY. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED ON INCOME OF RS. 2,43,61,150 WHEREIN THE DISALLOWANCE OF RS. 31,40,362/- (RS.26,73,444/- OUT OF INTEREST AND RS . 4,66,718/- OUT OF EXPENSES) U/S 14A/57 WAS MADE. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISS THE APPEAL OF THE A SSESSEE. 5. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE ON BUSINESS INCOME OF RS.4,62,870/- FROM HIS PROPR IETORSHIP M/S LUXAR & COMPANY AND ALSO SHOWN THE INTEREST INCOME OF RS. 1 ,54,02,558/- AFTER CLAIMING THE DEDUCTION U/S 57 (III) OF THE INCOME T AX ACT. THE ASSESSEE ALSO EARNED DIVIDEND INCOME TO THE TUNE OF RS.37,30,753/ - AND INTEREST ON PPF OF RS. 3,65,572/-. THE LD. AR FURTHER SUBMITTED THE A SSESSING OFFICER APPLIED RULE 8D AND MADE THE ADDITION U/S 14A AS UNDER:- A. ADDITION UNDER RULE 8D (II) IS COMPUTED AS UNDE R: I. AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE U/S 5 7 (III) OF THE ACT. RS.1,97,00,913/- II. AMOUNT ATTRIBUTABLE TO INVESTMENT IN SHARES (25% OF RS.1,97,00,913/-) RS. 49,25,228/- III. NET AMOUNT OF ADDITION MADE BY THE A.O APPLYING RULE 8D (II) OF THE ACT OUT OF RS. 49,25,228 IS (A) RS. 26,73,644/- B. ADDITION UNDER RULE 8D(III) IS COMPUTED AS UNDER: ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE IN P & L A/C WAS ADDED BACK BY THE A.O (B) RS. 4,66,718/- TOTAL DISALLOWANCE MADE BY THE A.O (A) +(B) RS . 31,40,362/- 3 ITA NO. 6551/DEL/2014 THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HE LD THAT THE DEDUCTION U/S 57(III) SHALL ALSO BE DISALLOWED TO THE EXTENT OF A DDITION MADE U/S 14A AND THUS NO SEPARATE ADDITION WAS MADE BY ON ACCOUNT OF DEDU CTION U/S 57(III) OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT THE INVESTM ENT IN THESE SHARES WERE MADE OUT OF OWN FUND OF THE ASSESSEE AND, THEREFORE , ADDITION MADE BY THE ASSESSING OFFICER U/S 14A IS UNWARRANTED. REGARDIN G DISALLOWANCE U/S 57(III), THE LD. AR SUBMITTED THAT THESE INVESTMENTS IN FDR S WERE MADE BY THE ASSESSEE FROM THE BORROWED FUNDS AND, THEREFORE, I NTEREST EXPENDITURE CLAIM BY THE ASSESSEE U/S 57(III) WAS INCURRED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INTEREST INCOME. THE LD. AR SUBMITT ED THAT IT IS AN UNDISPUTED FACT BY THE ASSESSING OFFICER AS WELL AS THE CIT(A) THAT THE OWN FUNDS OF THE ASSESSEE ARE MORE THAN THE INVESTMENTS MADE BY TH E ASSESSEE. IT IS A WELL SETTLED LAW THAT WHERE THE ASSESSEE HAS SANCTIONED OWN FUNDS TO MAKE THE INVESTMENTS THEN IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUND S AVAILABLE WITH THE ASSESSEE. THE LD. AR RELIED UPON THE FOLLOWING JUDGMENTS:- CIT VS. MAX INDIA LTD. ITA NO. 186 OF 2013 DATED 6/9/2016(PUNJAB & HARYANA HIGH COURT) CIT VS. HDFC BANK LTD. IN ITA NO. 330 OF 2012 DATED 23 RD JULY 2014 (BOMBAY HIGH COURT0/ [2014] 366 ITR 505 (BOMBA Y) GUJARAT HIGH COURT IN THE CASE OF CIT(A) VS. SUZLON ENERGY LTD. (2013) 354 ITR 630. H. T. MEDIA LTD. VS. PRINCIPAL COMMISSIONER OF INCO ME TAX-IV, NEW DELHI-2017] 399 ITR 576 (DELHI) THE LD. AR FURTHER SUBMITTED THAT THE EXPENSES HAVE BEEN INCURRED ONLY WITH THE MOTIVE OF EARNING THE INTEREST INCOME BY WAY OF INVESTMENT IN FDRS AND ADVANCES GIVEN AND NO DISALLOWANCE WAS CALLED FOR B Y THE ASSESSEE. THE LD. AR SUBMITTED THAT SINCE THE COMPLETE DETAILS OF NEXUS BETWEEN THE FUNDS RAISED FROM THE BANK AND AMOUNT INVESTED WERE ON RECORD BO TH BEFORE THE ASSESSING 4 ITA NO. 6551/DEL/2014 OFFICER AS WELL AS CIT(A). THE SAME SHOULD HAVE BE EN TAKEN INTO ACCOUNT BY BOTH THE REVENUE AUTHORITIES WHICH WAS NOT DONE IN ASSESSEES CASE. THE LD. AR FURTHER SUBMITTED THAT REGARDING THE ADDITION OF RS. 4,66,718/- MADE BY THE ASSESSING OFFICER UNDER RULE 8D (III), THE ASS ESSEE IS RUNNING A PROPRIETORSHIP FIRM IN THE NAME OF LUXAR PEN COMPAN Y. THE ASSESSING OFFICER HAS NOT POINTED OUT THAT THESE EXPENSES HAVE BEEN I NCURRED FOR EARNING ANY EXEMPT INCOME DESPITE THERE BEING LICENSE INCOME OF RS. 5 LACS CREDITED IN PROFIT AND LOSS ACCOUNT. THUS, THE LD. AR SUBMITTE D THAT THE ACTION OF THE ASSESSING OFFICER TREATING THE ENTIRE EXPENSES FOR THE PURPOSE OF EARNING EXEMPT INCOME IS UNJUSTIFIED AND UNTENABLE. THEREF ORE, THE LD. AR SUBMITTED THAT THE ENTIRE ADDITION MADE BY THE ASSESSING OFFI CER HAS TO BE DELETED. 6. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A NEXUS BETWEEN THE INVESTMENT IN RESPECT OF INTEREST INCOM E AND INTEREST EXPENSES. THUS, THE ASSESSING OFFICER HAS TAKEN ALL THE ASPEC TS OF THE PROVISIONS OF SECTION 14A/57(III) BEFORE MAKING AN ADDITION. TH E LD. DR POINTED OUT THAT IN-FACT THE INVESTMENT WAS DECREASED AND BORROWINGS WERE INCREASED IN THE PRESENT ASSESSMENT YEAR. THE LD. DR RELIED UPON TH E DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF A-ONE CYCLES LTD. 228 TAXMAN 368 AND HONBLE SUPREME COURT DECISION IN CASE OF S. A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC). THE LD. DR SUBMITTED THAT NOT CLAIMING EXPENDITURE OF THE INVESTMENT OF RS. 4,00,62,000/- APPROXIMATELY IS NO T TENABLE THAT THERE WAS NO EXPENSES AT ALL. THUS, THE ASSESSING OFFICER AND T HE CIT(A) RIGHTLY MADE ADDITION UNDER RULE 8D (II) &(III). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. SINCE THE COMPLETE DETAILS OF NEXUS BETWEEN THE FUNDS RAISED FROM THE BANK AND AMOUNT INVESTED WERE ON RECORD BOTH BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A), THE SAME SHOULD HAVE BEEN TAKEN INT O ACCOUNT BY BOTH THE REVENUE AUTHORITIES WHICH WAS NOT DONE IN ASSESSEE S CASE. IT IS PERTINENT TO NOTE THAT NO BORROWED MONEY UTILIZED FOR INVESTMENT AND THEREFORE, NO INTEREST 5 ITA NO. 6551/DEL/2014 DISALLOWANCE TO BE MADE. MOREOVER, DURING THE YEAR UNDER CONSIDERATION THE VALUE OF FDR HAS REDUCED BY RS. 10 CRORES WHICH MEA NS THAT THIS MUCH AMOUNT WAS AVAILABLE WITH THE ASSESSEE FOR MAKING I NVESTMENT OUT OF HIS OWN FUNDS. THUS, THE ASSESSING OFFICER IS DIRECTED TO D ELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST INCOME. FURTHER, THE ASSESSING OFFICER HAS NOT POINTED OUT THAT EXPENSES HAVE BEEN INCURRED FOR EARNING ANY EX EMPT INCOME DESPITE THERE BEING LICENSE INCOME OF RS. 5 LACS CREDITED IN PROF IT AND LOSS ACCOUNT. THUS, THE SUBMISSION OF LD. AR THAT THE ACTION OF THE ASS ESSING OFFICER TREATING THE ENTIRE EXPENSES FOR THE PURPOSE OF EARNING EXEMPT I NCOME IS TO SOME EXTENT PLAUSIBLE. BUT WE CANNOT OVERLOOK THE ASPECT THAT F OR SUCH A HUGE INVESTMENT THERE CANNOT BE ADMINISTRATIVE EXPENSES TO MANAGE T HESE INVESTMENTS. THEREFORE WE DIRECT THE ASSESSING OFFICER TO RESTRI CT THE EXPENDITURE CLAIMED BY THE ASSESSEE TO RS. 2,50,000/- TOWARDS ADMINISTRATI VE EXPENSES FOR THESE INVESTMENTS. THUS, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JANUARY, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 16/01/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6 ITA NO. 6551/DEL/2014 ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 14.01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15 .01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 16. 01.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 16.01.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16.01.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK