M/S BHANDARI HEALTH CARE PVT. LTD., JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

ITA 665/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6380 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 17-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DHK
• Keywords: Business income; Earning of tax free income; Revised return
• Section: 143(3); 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 665/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. M/S. BHANDARI HEALTH CARE PVT. LTD., A-138, TONK ROAD, GOPALPURA, JAIPUR. CUKE VS. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACB 7547 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SANDEEP JHANWAR (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 02.07.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 05/07/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 29 TH MAY, 2017 OF LD. CIT (A) FOR THE ASSESSMENT YEAR 2012-13 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS)-2, JAIPUR HAS ERRED IN NOT QUASHING THE A SSESSMENT ORDER PASSED BY DCIT, CIRCLE-6, JAIPUR U/S 143(3) O F THE I.T. ACT, 1961 WHICH IS ILLEGAL AND BAD IN LAW. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT (APPEALS)-2, JAIPUR, HAS ERRED IN CONFIRMING THE AD DITION OF RS. 11,413/- MADE BY DCIT, CIRCLE-6 ON ACCOUNT OF MAKIN G DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T, 1961 READ WITH RULE 8D(2) OF THE INCOME TAX RULES, 1962. 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT (APPEALS)-2, JAIPUR, HAS ERRED IN NOT ALLOWING THE ASSESSEES 2 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. CLAIM THAT A SUM OF RS. 3,45,357/- SHOULD HAVE BEEN TREATED AS CAPITAL GAIN AS AGAINST CONSIDERING THE SAME AS BUS INESS INCOME. SHE HAS ERRED IN NOT ADMITTING THE ASSESSEE S CONTENTION THAT INADVERTENT MISTAKE OF ASSESSEE WHI LE FILING THE RETURN OF INCOME SHOULD HAVE BEEN CORRECTED BY THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT OF TOTAL INCOME . SHE HAS ERRED IN HOLDING THAT THE CLAIM HAS RIGHT NOT BEEN ALLOWED BY THE ASSESSING OFFICER. 4. THE ASSESSEE CRAVES THE RIGHT TO ADD, AMEND, ALT ER, OR MODIFY ANY OF THE GROUND OF THE APPEAL. 2. AT THE TIME OF HEARING, THE LD. A/R OF THE ASSES SEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 OF THE ASSESSE ES APPEAL AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. D/R HAS NOT OBJE CTED IF THE GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED. ACCORDINGLY, GROUN D NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. GROUND NO. 2 IS REGARDING DISALLOWANCE OF RS. 11,41 3/- UNDER SECTION 14A OF THE IT ACT. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E SOLD VARIOUS MUTUAL FUNDS. THE AO NOTED THAT THE ASSESSEE HAD MADE CERTAIN INV ESTMENTS DURING THE PERIOD UNDER CONSIDERATION TO GENERATE EXEMPT INCOME AND A LSO CLAIMED SOME EXPENSES WHICH WERE SHOWN AS DEDUCTIONS FROM THE TAXABLE INC OME OF THE ASSESSEE. THE AO HAS ALSO NOTED THAT THE ASSESSEE HAS ALSO EARNED EX EMPT INCOME DURING THE YEAR. ACCORDINGLY, THE AO MADE A DISALLOWANCE ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENSES BEING 0.5% OF THE AVERAGE INVESTMENT AMOUN TING TO RS. 11,413/-. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A), BUT COULD NOT SUCCEED. 3 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. 4. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR UNDE R CONSIDERATION. FURTHER, THE CAPITAL GAIN ARISING FROM THE SALE OF MUTUAL FUNDS IN QUESTION IS A TAXABLE INCOME AND, THEREFORE, IN THE ABSENCE OF ANY EXEMPT INCOME EARNED BY THE ASSESSEE, NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A. IN S UPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISIONS OF HONBLE PUNJAB & HARYA NA HIGH COURT IN CASE OF PRINCIPAL CIT VS. STATE BANK OF PATIALA, 78 TAXMANN .COM 3, CIT VS. HERO CYCLES LTD., 189 TAXMAN 50 AND DECISION OF HONBLE DELHI HIGH CO URT IN CASE OF CHEMINVEST LTD. VS. CIT, 378 ITR 33 (DELHI). 4.1. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED T HAT THE AO HAS GIVEN A FINDING THAT THE ASSESSEE HAS EARNED EXEMPT INCOME DURING T HE YEAR UNDER CONSIDERATION. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES B ELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ONLY INVESTMENT MADE BY T HE ASSESSEE IS IN THE MUTUAL FUNDS WHICH ARE DEBT FUND AND NOT EQUITY FUND AND, THEREFORE, UNTIL AND UNLESS THE AO HAS POINTED OUT A SPECIFIC ITEM OF INCOME WHICH IS EXEMPT, WE DO NOT FIND ANY REASON TO PRESUME THAT THE ASSESSEE HAS EARNED TAX FREE INCOME DURING THE YEAR UNDER CONSIDERATION. FURTHER, WE HAVE EXAMINED THE RECORD AND FIND THAT IN THE RETURN OF INCOME THE ASSESSEE HAS OFFERED THE INCOM E FROM SALE OF MUTUAL FUNDS AS BUSINESS INCOME THOUGH SUBSEQUENTLY THE ASSESSEE CL AIMED THE SAME AS LONG TERM CAPITAL GAIN WHICH IS ALSO NOT EXEMPT FROM TAX. HE NCE IN THE ABSENCE OF ANY EXEMPT INCOME EARNED OR ACCRUED DURING THE YEAR UND ER CONSIDERATION, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED FOR DIS ALLOWANCE OF INDIRECT 4 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. ADMINISTRATIVE EXPENSES. THE HONBLE DELHI HIGH CO URT IN CASE OF CHEMINVEST LTD. VS. CIT (SUPRA) HAS HELD IN PARA 22 AND 23 AS UNDER :- 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO THE DECISION IN MAXOPP INVESTMENT LTD. (SUPRA) AND REMANDED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN M AXOPP INVESTMENT LTD. (SUPRA)WAS WHETHER THE EXPENDITURE (INCLUDING INTER EST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPAN IES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALL OWABLE UNDER SECTION 14 A OF THE ACT. IN THE SAID CASE ADMITTEDLY THERE WAS DIVI DEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS T HE PRESENT, WHERE NO EXEMPT INCOME WAS EARNED IN THE YEAR IN QUESTION. C ONSEQUENTLY, THE SAID DECISION WAS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJECTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBE FORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOE S NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE T OTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWI NG ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER W ORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF PRINCIPAL CIT VS. STATE BANK OF PATIALA (SUPRA). T HOUGH THE HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENT LTD. VS. CIT, 402 ITR 640 (SC) HELD THAT THE DOMINANT PURPOSE OF INVESTMENT IS NOT RELEVANT FOR THE DISAL LOWANCE OF EXPENDITURE UNDER SECTION 14A AND UPHELD THE RULE OF APPORTIONMENT. HOWEVER, THE DECISIONS OF 5 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. HONBLE HIGH COURTS ON THE POINT THAT WHEN NO DIVID END INCOME OR EXEMPT INCOME WAS EARNED DURING THE YEAR THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A HAS NOT BEEN DISTURBED BY THE HONBLE SUPREME COURT . ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENDITURE IN THE ABSENCE OF ANY EXEMPT INCOME IS NOT SUSTAINABLE AND THE SAME IS DELETED. GROUND NO. 3 IS REGARDING THE CLAIM OF RS. 3,45,357 /- AS CAPITAL GAIN WHICH WAS OFFERED TO TAX AS BUSINESS INCOME. 6. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT T HE ASSESSEE HAS MISTAKENLY OFFERED THE SAID AMOUNT OF RS. 3,45,357/- ON ACCOUN T OF SALE OF MUTUAL FUNDS AS BUSINESS INCOME WHEREAS IT IS LONG TERM CAPITAL GAI N. THOUGH THE ASSESSEE HAS NOT FILED ANY REVISED RETURN CLAIMING THE SAID AMOUNT A S LONG TERM CAPITAL GAIN, HOWEVER, WHEN THE VERY NATURE OF THE INCOME IS CAPITAL GAIN AND NOT BUSINESS INCOME THEN THE LD. CIT (A) OUGHT TO HAVE ACCEPTED THE CLAIM OF THE ASSESSEE. THE LD. A/R HAS REFERRED TO THE RELEVANT COMPUTATION AND SUBMITTED THAT EVEN THE ASSESSEE HAS NOT CONSIDERED THE INDEX COST OF MUTUAL FUND FOR COMPUT ING THE CAPITAL GAIN AND IF THE SAME IS TAKEN INTO CONSIDERATION, THE NET RESULT WI LL BE LONG TERM CAPITAL LOSS. HENCE HE HAS SUBMITTED THAT THE MATTER MAY BE REMANDED TO THE RECORD OF THE AO FOR PROPER COMPUTATION OF INCOME OF THE ASSESSEE. HE FU RTHER SUBMITTED THAT THE AO CANNOT TAKE THE ADVANTAGE OF IGNORANCE OF THE ASSES SEE AND HE HAS TO GRANT RELIEF WHICH IS AVAILABLE TO THE ASSESSEE AS PER LAW. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COUR T IN CASE OF CIT VS. SAM GLOBAL SECURITIES LTD. 360 ITR 682 (DELHI). 6 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. 6.1. ON THE OTHER HAND, THE LD. D/R HAS VEHEMENTLY OPPOSED TO THE CONTENTION OF THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE ITSELF HAS OFFERED THE SAID INCOME AS BUSINESS INCOME AND, THEREFORE, IN THE ABSENCE OF R EVISED RETURN, THE AO HAD NO JURISDICTION TO ACCEPT THE CLAIM OF THE ASSESSEE. SHE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT, 284 ITR 323 (SC). FURTHER, THE LD. D/R HAS SUBMITTED THAT THE ASSESSE E IS TRYING TO SET UP A NEW CASE AT THIS STAGE BY CLAIMING THE INDEX COST OF MUTUAL FUND WHEREAS THE ASSESSEE HAS NEVER CLAIMED SO EVEN WHILE OFFERING THE SAID INCOM E AS BUSINESS INCOME. THE LD. D/R HAS FURTHER SUBMITTED THAT THE GROUND NO. 3 OF THE ASSESSEES APPEAL IS ONLY REGARDING THE CLAIM OF CAPITAL GAIN OF RS. 3,45,357 /- WHICH CANNOT BE REVISED TO A NEGATIVE INCOME FROM THE SALE OF MUTUAL FUNDS. HE H AS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT AS PER RETURN OF INCOME AND C OMPUTATION OF INCOME, THE ASSESSEE HAS OFFERED RS. 3,45,357/- AS BUSINESS INC OME UNDER THE HEAD OTHER INCOME. THIS AMOUNT OF RS. 3,45,357/- HAS BEEN COM PUTED BY THE ASSESSEE AS PER THE COST OF MUTUAL FUND AND SALE OF MUTUAL FUND AND , THEREFORE, IN THE ABSENCE OF REVISED RETURN, THE CLAIM OF THE ASSESSEE COULD NOT BE CONSIDERED BY THE AO. HOWEVER, WHEN THIS PLEA WAS RAISED BEFORE THE LD. C IT (A), THE LD. CIT (A) COULD HAVE EXAMINED THE ISSUE WHETHER THE INCOME ARISING FROM SALE OF MUTUAL FUND IS A CAPITAL GAIN OR BUSINESS INCOME. IN CASE THE ASSES SEE IS FOUND TO BE INDULGED IN REGULAR ACTIVITY OF SALE AND PURCHASE OF MUTUAL FUN DS AND HAD CONSIDERED THE SAME AS TRADING ACTIVITY, THEN HAVING REGARD TO THE PAST HISTORY OF THE ASSESSEE THE SAID 7 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. INCOME CAN BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. HOWEVER, IN THE ABSENCE OF SUCH ENQUIRY OR INVESTIGATION AND FURTHE R IN THE ABSENCE OF TREATMENT OF ANY SUCH INCOME IN THE EARLIER ASSESSMENT YEARS, TH IS ISSUE CANNOT BE DECIDED CONCLUSIVELY. AS REGARDS THE OBJECTION OF THE LD. D/R BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GO ETZE (INDIA) LTD. VS. CIT (SUPRA), WE FIND THAT THE HONBLE SUPREME COURT ITSELF HAS T AKEN INTO CONSIDERATION THE DECISION IN THE CASE OF NATIONAL THERMAL POWER COMP ANY LTD. VS. CIT, 229 ITR 383 (SC) AND OBSERVED THAT IT IS OPEN TO THE ASSESSEE T O RAISE THE POINT OF LAW EVEN BEFORE THE APPELLATE AUTHORITY. THE QUESTION INVOL VED IN THIS GROUND IS THE NATURE OF INCOME WHETHER IT IS CAPITAL GAIN OR BUSINESS INCOM E WHICH IS DEPENDENT UPON THE TREATMENT OF THE INVESTMENT IN THE BOOKS OF ACCOUNT S AS WELL AS IN THE EARLIER ASSESSMENT YEARS. ACCORDINGLY, IN THE FACTS AND CI RCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO FOR CONSID ERING THE CLAIM OF THE ASSESSEE BY CONDUCTING A PROPER ENQUIRY AND VERIFICATION OF FAC TS ON THIS ISSUE. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN A PROPER OPPORTUNITY OF HEARI NG BEFORE DECIDING THE ISSUE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/07/201 8. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 05/07/2018. DAS/ 8 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. BHANDARI HEALTH CARE PVT. LT D., JAIPUR. 2. THE RESPONDENT THE DCIT, CIRCLE-6, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 665/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 9 ITA NO. 665/JP/2017 M/S. BHANDRI HEALTH CARE PVT. LTD., JAIPUR.