Sh. Pradeep Khanna, New Delhi V. ACIT, New Delhi

ITA 6643/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97841 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: RAJESH MAHANA; MANU K GIRI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE: JUDICIAL MEMBER ITA NO. 6643/DEL/2013 ASSTT. YRS: 2008-09 PRADEEP KHANNA, VS. ACIT, W-60, GREATER KAILASH-1, CIRCLE-23(1), NEW DELHI. PAN: AAQPK 0771 J ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI RAJESH MAHANA ADV. & SHRI MANU K. GIRI ADV. RESPONDENT BY : SHRI T. VASANTHAN SR. DR DATE OF HEARING : 08/09/2015. DATE OF ORDER : 05/11/2015. O R D E R PER S.V. MEHROTRA, A.M.. : THIS APPEAL, PREFERRED BY THE ASSESSEE, IS DIRECT ED AGAINST THE ORDER DATED 30-10-2013, PASSED BY THE LD. CIT(A)-XI, NEW DELHI IN APPEAL NO. 202/10/11/(232/13-14), RELATING TO A.Y. 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE TH ROUGH HIS PROPRIETORSHIP CONCERN M/S RAVINA INTERNATIONAL, IN THE RELEVANT A SSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF EXPORT OF LADIES GARMENT S. BESIDES, HE WAS ALSO IN 2 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT RECEIPT OF INSPECTION CHARGES FOR CONSULTANCY/ CERT IFICATION SERVICES. THE ASSESSEE HAD FILED RETURN OF INCOME SHOWING TOTAL INCOME OF RS. 26,76,240/-. THE AO NOTICED THAT ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAIN OF RS. 1,54,011/- ON LISTED SECURITIES AND OFF ERED TO TAX U/S 111A OF THE INCOME-TAX ACT. HE FURTHER NOTICED THAT ASSESSEE HA D CREDITED IN THE P&L A/C A SUM OF RS. 10,87,898/- ON ACCOUNT OF DIVIDEND RECEIVED. BESIDES, LONG TERM CAPITAL GAIN ON SALE OF LISTED SECURITIES AMOU NTING TO RS. 11,36,768/- HAD ALSO BEEN SHOWN. THE DIVIDEND AND LONG TERM CA PITAL GAIN HAD BEEN CLAIMED EXEMPT U/S 10. THE AO NOTICED THAT IN THE P &L A/C THE ASSESSEE HAD CLAIMED ADMINISTRATIVE AND ESTABLISHMENT EXPENSES O F RS. 65,78,808/-. THE AO REQUIRED THE ASSESSEE TO FURNISH DETAILS OF EXPE NDITURE INCURRED IN CONNECTION WITH INCOME CLAIMED EXEMPT. THE ASSESSEE FILED FOLLOWING REPLY: THAT THE ASSESSEE HAS NOT INCURRED EXPENSES IN REL ATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME ARISING BY WA Y OF DIVIDEND ON SHARES AND DIVIDEND ON MUTUAL FUND. INC OME RECEIVED BY WAY OF DIVIDEND ON SHARES AND DIVIDEND ON MUTUAL FUND DURING THE YEAR UNDER CONSIDERATION ON INVESTM ENT MADE BY THE ASSESSEE IN PREVIOUS YEAR. THEREFORE, PROVIS ION OF SECTION 14A DOES NOT APPLICABLE IN THE CASE OF ASSESSEE. CO PY OF ACCOUNT STATEMENT OF MUTUAL FUND IS BEING ENCLOSED. 3. THE AO DID NOT AGREE WITH THE ASSESSEES REPLY A ND OBSERVED AS UNDER: I HAVE CONSIDERED THE SUBMISSION MADE BY LD. COUNS EL BUT DO NOT AGREE WITH THE SAME THAT NO EXPENDITURE RELATIN G TO INVESTMENT ACTIVITIES HAVE BEEN DEBITED IN P&L ALE. THE DETAILS 3 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT OF INVESTMENT OF ASSESSEE WAS CALLED FOR AND ACCORD ING TO THAT. THE INVESTMENT IN SHARES AND MUTUAL FUNDS AS ON 01. 04.2007 WAS RS.2,42,50,82X/-. THE VALUE AS ON LAST DAY OF T HE PREVIOUS YEAR IS RS.2,44,71,202/-. AS PER BALANCE SHEET OF R AVINA INTERNATIONAL, THE TOTAL APPLICATION OF FUND IN THE BUSINESS OF ASSESSEE IS RS.2,32,74,441/-. THE DIFFERENCE IS VIS IBLE AND APPARENT. IT CAN BE VERY WELL SEEN THAT THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION HAS EARNED HUGE EXEMPT INC OME FROM INVESTMENT AND IN FACT THE INCOME FROM BUSINESS IS ALMOST EQUAL TO THE INCOME EXEMPT U/S 10. AS PER THE AIR DETAILS ALSO, THE ASSESSEE DURING THE YEAR HAS MADE INVESTMENT OF RS.1,28,33,890/- IN MUTUAL FUND. IT IS NOT THE QUAN TUM OF EXEMPT INCOME WHICH IS MATERIAL. WHAT IMPORTANT IS THAT WH ETHER OR NOT EXPENDITURE HAS BEEN INCURRED ON EARNING EXEMPT INCOME. 4. HE REFERRED TO RULE 8D AND POINTED OUT THAT IN C ASES WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, TH E AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IS TO BE WOR KED OUT IN ACCORDANCE WITH SUB-RULE (2) OF RULE 8D.HE REFERRE D TO RULE 8D(2)(III) AND POINTED OUT THAT PROPORTIONATE EXPEN SES IS TO BE WORKED OUT AFTER AVERAGING OUT THE TOTAL OF INVESTMENT AS ON THE FIRST AND LAST DAY OF THE RELEVANT PREVIOUS YEAR. THEREFORE, IT WA S NOT NECESSARY TO PIN POINT THE EXPENDITURE IN CASE WHERE ASSESSEE CL AIMS THAT NO EXPENSE HAS BEEN INCURRED FOR EARNING INCOME. HE, A CCORDINGLY, COMPUTED THE EXPENDITURE INCURRED IN RELATION TO EX EMPT INCOME AT RS. 1,21,805/-, AS UNDER: (A) VALUE OF INVESTMENT AS ON FIRST DAY OF THE PREVIOUS YEAR: RS. 2,42,50,827/- (B) VALUE OF INVESTMENT ON THE FIRST DAY OF THE PREVIOU S YEAR: RS. 2,44,71,202/- (C) TOTAL OF THE ABOVE: RS. 4,87,22,029/- (D) AVERAGE VALUE OF INVESTMENT RS. 2,43,61, 014/- 4 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT (E) ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT : RS. 1,21,805/- 5. LD. CIT(A) DISMISSED THE ASSESSEES APPEAL, INTE R ALIA, OBSERVING I PARA 7.2 AS UNDER: 7.2. THE APPELLANT HAS ALSO ARGUED THAT THE AO HAS NOT RECORDED HIS SATISFACTION BEFORE APPLYING THE RULE 8D OF THE IT RULES IN THE APPELLANT'S CASE. THE FACTS NARRATED A BOVE, MAKE IT AMPLY CLEAR THAT SUCH REQUIREMENTS IS MET BY APPELL ATE AUTHORITY AS THE APPELLATE AUTHORITY HAS CO-TERMINUS POWERS W ITH THE AO AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD. VS. CIT & ANOTHER (1991) 187 ITR 688 (SC). 6. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US AND HAS TAKE FOLLOWING GROUNDS OF APPEAL: 1. (A) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN MAKING OF DISALLOWANCE OF EXPENDITURE UNDE R SECTION 14A OF INCOME TAX ACT, 1961 OF RS. 1,21,805/- WITHO UT RECORDING ANY SATISFACTION OR RELYING ON THE EVIDEN CE OF EXPENDITURE SO INCURRED ON THE SCRUTINY OF THE ACCO UNTS. (B) FURTHER THE CIT (A) HAS FURTHER FAILED TO APPRE CIATE THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AGAINST T HE EARNING OF EXEMPTED INCOME AND THE EXPENDITURE CANNOT BE PR ESUMED. 6. THAT THE CIT (A) AND AO BOTH HAVE FAILED TO APPR ECIATE THAT ALL THE INVESTMENT HAVE BEEN MADE BY THE APPEL LANTS OUT OF THE SPARE FUNDS AVAILABLE WITH THE APPELLANTS AND T HERE ARE NO PRESUMPTION OF EXPENDITURE - REFERENCE 5 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT ACIT VS. MAXXOP L TO 347 ITR 272 (DELHI) 3. THE ORDER OF THE CIT (A) AND AO ARE BAD IN LAW A ND AGAINST THE FACTS OF THE CASE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS FAR AS GROUND NO. 1 RAISED BY ASSESS EE IS CONCERNED WE FIND FROM BARE READING OF THE ASSESSMENT ORDER THAT AO H AS CLEARLY RECORDED HIS SATISFACTION THAT THE ASSESSEES STAND THAT NO EXPE NDITURE HAD BEEN INCURRED IN EARNING EXEMPT INCOME WAS INCORRECT AND SUCH ARG UMENTS WERE COMPLETELY MISCONCEIVED. THE OBSERVATIONS HAVE SPEC IFICALLY BEEN MADE IN PARA 7.1 OF THE ASSESSMENT ORDER. HE CLEARLY OBSERV ED THAT THOUGH THERE WERE NO DIRECT EXPENSES SHOWN BY THE ASSESSEE IN HIS BOO KS OF ACCOUNT EXCLUSIVELY FOR EARNING SUCH EXEMPT INCOME, BUT IT CANNOT BE DENIED THAT THE ASSESSEE HAD BEEN UTILIZING ITS ADMINISTRATIVE AS W ELL AS MANAGERIAL MACHINERY FOR EARNING THE EXEMPT INCOME IN A PRUDEN T MANNER. 8. SECTION 14A(3) READS AS UNDER: (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE, WHERE AN ASSESSEE CLAIMS THAT NO EXPENDI TURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 9. IN THE PRESENT CASE ALSO, THE CLAIM OF THE ASSES SEE WAS THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME, BUT ONCE THE AO HAD RECORDED HIS SATISFACTION IN TERMS OF SUB-SECTION (2), THEN THE DISALLOWANCE CAN BE MADE AS PER RULE 8D(2)(III). WE, ACCORDINGLY , DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF LD. CIT(A) ON THIS COUNT. 6 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT 10. AS FAR AS GROUND NO. 2 IS CONCERNED, THE SAME I S MISCONCEIVED BECAUSE AO HAS NOT MADE ANY DISALLOWANCE UNDER RULE 8D(2)(I )/(II). ACCORDINGLY, THE SAME IS DISMISSED. 11. IN VIEW OF ABOVE DISCUSSION, THE ASSESSEES APP EAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 05/11/2015. SD/- SD/- ( SUCHITRA KAMBLE ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 05/11/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. 7 ITA 6643/DEL/13 PRADEEP KHANNA VS. ACIT -+ DATE INITIAL 1. DRAFT DICTATED ON 4 -11.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 5.11.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.