Vinay Bhasin, New Delhi V. ACIT, Circle- 61(1), New Delhi

ITA 6904/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7878 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 17-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A; 201; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: F, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.6904/DEL./2017 ASSESSMENT YEAR: 2014-15 SHRI VINAY BHASIN, C-14, SOUTH EXTENSION, PART-II, NEW DELHI VS. ACIT, CIRCLE-61(1), NEW DELHI PAN :AAAPB3445J (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 13/10/2017 PASSED BY THE LEARNED CIT(APPEALS)-23, N EW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 201 4-15, RAISING FOLLOWING GROUNDS: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.8,76,091/- FAI LING TO APPRECIATE THAT AFORESAID DISALLOWANCE HAS BEEN MAD E APPELLANT BY SHRI SALIL AGARWAL, ADV. SHRI SHAILESH GUPTA, CA RESPONDENT BY SHRI SARAS KUMAR, SR. DR DATE OF HEARING 24.08.2020 DATE OF PRONOUNCEMENT 27.08.2020 2 ITA NO. 6904/DEL./2017 MECHANICALLY APPLYING THE PROVISIONS OF RULE 8D(2)( III) OF THE INCOME TAX RULES, 1962 AND WITHOUT RECORDING A SATI SFACTION VIS- A-VIS BOOKS OF THE ACCOUNTS OF THE ASSESSEE AS ENVI SAGED UNDER THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTI ON 14A OF THE ACT AND HENCE THE DISALLOWANCE MADE OF RS. 8, 76, 091/- IS WHOLLY UNSUSTAINABLE IN LAW AND DESERVES TO BE DELETED. 1.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE FAILING TO APPRECIAT E THAT WHILE MAKING THE AFORESAID DISALLOWANCE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX HAS NOT ESTABLISHED THE NEXUS BETWEEN THE SPECIFIC EXPENDITURE AND THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME DESPITE THE FACT THAT THE APPELLANT HAS SPECIFICALLY SUBMITTED THAT NO EXPENDITURE HAS BEEN EARNED FOR EARNING THE EXEMPT INCOME. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING AD-HOC DISALLOWAN CE OF RS. 3,95, 539/- ON ACCOUNT OF ALLEGED PERSONAL EXPENDITURE WI TH RESPECT TO TELEPHONE, VEHICLE, DEPRECIATION AND TRAVELLING EXP ENSE. 2.1 THAT IN DOING SO, THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE FACT THAT R EQUISITE DOCUMENTS/EVIDENCES WERE FILED AND EXPLANATION WERE TENDERED BEFORE THE(LEARNED ACIT EXPLAINING THE NATURE AND I NCURRENCE OF AFORESAID EXPENDITURES, BUT THE LEARNED ACIT BASED HIS DECISION PURELY ON SUSPICION, SURMISES AND CONJECTURES AND A S SUCH, THE DISALLOWANCE SO SUSTAINED, IS HIGHLY UNJUST AND UNT ENABLE IN LAW. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS GROSSLY ERRED IN RECORDING ADVERSE FINDINGS WHICH A RE PERVERSE AND HAVE BEEN RECORDED WITHOUT CONSIDERING THE FACT UAL SUBSTRATUM OF THE CASE AND HENCE SUCH FINDINGS ARE VITIATED AND DESERVES TO BE DELETED. IT IS THEREFORE PRAYED THAT THE ADDITIONS/DISALLOWA NCE MADE AND UPHELD BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) IS NOT IN ACCORDANCE WITH LAW AND THEREFORE THE ADDITI ONS SO MADE ALONG-WITH INTEREST LEVIED BE KINDLY DELETED AND AP PEAL OF THE APPELLANT BE KINDLY ALLOWED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIVIDUAL AN ADVOCATE BY PROFESSION. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, FILED ON 22/09/2014 DECLA RING INCOME OF 7,39,62,550/-, WAS SELECTED FOR SCRUTINY ASSESSMEN T AND 3 ITA NO. 6904/DEL./2017 STATUTORY NOTICES WERE ISSUED AND COMPLIED WITH. TH E ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT) WAS COMPLETED ON 18/11/2016 AFTER MAKING CERT AIN ADDITIONS/DISALLOWANCES AND TOTAL INCOME WAS ASSESS ED AT 7,54,64,840/-. THE LD. CIT(A) PARTLY ALLOWED THE AP PEAL FILED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEOCONFE RENCING FACILITY. THE ASSESSEE FILED PAPER-BOOK AND OTHER D OCUMENTS ELECTRONICALLY. 4. IN GROUND NO. 1 TO 1.1, THE ASSESSEE HAS CHALLENGE D DISALLOWANCE OF 8,76,091/- MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 (IN SHORT THE RULES). BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISPUTE IS SQUARELY COVERED BY THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSE E HIMSELF. HE REFERRED TO THE DECISION OF TRIBUNAL IN ITA NO. 227 3/DEL./2017 FOR ASSESSMENT YEAR 2012-13. THE LEARNED DR COULD NOT C ONTROVERT THIS FACT, HOWEVER, HE RELIED ON THE ORDER OF THE L OWER AUTHORITIES. 5. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE. WE FIND THAT IN THE INSTANT CASE THE DI SALLOWANCES HAS BEEN MADE BY THE ASSESSING OFFICER FOR EXPENSES TOW ARDS EARNING EXEMPT INCOME IN TERMS OF SECTION 14A OF THE ACT. DURING THE YEAR, THE ASSESSEE SHOWN EXEMPTED INCOME OF 10,87,838/-FROM DIVIDEND; INCOME OF 8,26,342/- FROM INTEREST FROM TAX-FREE BONDS AND 39,36,670/-FROM LONG-TERM CAPITAL GAIN ON SALE OF LISTED SHARES. THE ASSESSEE CLAIMED THAT NO EXPENDI TURE WAS INCURRED AND CLAIMED IN THE BOOKS OF ACCOUNTS FOR E ARNING THE 4 ITA NO. 6904/DEL./2017 SAID EXEMPTED INCOME. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THIS CLAIM OF THE ASSESSEE AND ACCORDINGLY, HE INVOKED RULE 8D OF THE RULES AND MADE ADDITION FOR 0.5% OF THE A VERAGE VALUE OF THE INVESTMENT TOWARDS ADMINISTRATIVE EXPENSES F OR EARNING EXEMPT INCOME IN TERMS OF RULE 8D(2)(III) OF THE RU LES. THE RELEVANT FINDING OF THE ASSESSING OFFICER IS REPRODUCED AS U NDER: 3.7 THE ASSESSING OFFICER HAS TO ADOPT A REASONABL E BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE AS SESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. IN THE INSTANT CASE , THE ASSESSEE CONTENDED THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME AND THAT NO DISALLOWANCE WAS WARRANT* D. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE IN VIE W OF THE FACT THAT THE INSERTION OF SECTION 14A WAS CURATIVE AND DECLA RATORY. THE ASSESSEE HAS NOT PROVIDED ANY SEPARATE ACCOUNT FOR EARNING OF EXEMPT INCOME. THE ASSESSEE HAS MADE INVESTMENTS FO R EARNING EXEMPT INCOME AND MANAGING SUCH A LARGE PORTFOLIO E NTAIL EXPENSES RIGHT FROM DIVERSION OF MANPOWER/STAFF FOR INDULGIN G IN INVESTMENT ACTIVITIES TO VARIOUS ACTIVITIES LIKE VISITING BANK S, USE OF VEHICLE AND TELEPHONE, USE OF INTERNET IF PORTFOLIO MANAGEMENT IS WEB BASED, COST COMPUTER & ITS DEPRECIATION, COMPUTER OPERATOR, CON SEQUENT ELECTRICITY, USE OF OFFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE) PORTFOLIO RECORD MAINTE NANCE AND ITS TRACKING TO ENSURE TIMELY SALE/PURCHASE OF INVESTME NTS. 3.8 SINCE NO DISALLOWANCE HAS BEEN DONE BY THE ASSE SSEE AND AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE, I HAVE REASONS TO ARRIVE AT THE SATISFACTION FOR DISALLOWANCE U/S 14A OF THE ACT, R/W RULE 8D OF THE RULES, THAT THERE ARE EXPENSES RELATABLE TO THE EARNING OF EXEMPT INCOME BY THE ASSESSEE. SINCE, THE ASSESSEE HAS INVESTED ITS MONEY FOR SUCH INVESTMENT, WHICH IS CAPABLE TO GENE RATE INCOME WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME OF THE ASSESSEE AND INDIRECT COST IN THE FORM OF ADMINISTRATIVE EXP ENDITURES ETC. IS INVOLVED IN THIS PROCESS. THERE IS DIRECT AND PROXI MATE NEXUS BETWEEN THE EXEMPTED INCOME, WHICH THE INVESTMENTS SHALL GENERATE AND THE EXPENDITURES DIRECTLY OR INDIRECTLY INVOLVE D IN EARNING THE SAID INCOME. HENCE, I AM FULY SATISFIED TO INVOKE T HE PROVISIONS OF SECTION 14A READ WITH RULE 8D TO WORK OUT DISALLOWA NCE OF EXPENDITURES. 5 ITA NO. 6904/DEL./2017 5.1 BEFORE THE LD. CIT(A) THE ASSESSEE CONTESTED THAT THE ASSESSING OFFICER HAS NOT RECORDED THE DISSATISFACT ION WHICH WAS REQUIRED IN TERMS OF SECTION 14A(2) FOR INVOKING RU LE 8D OF THE RULES. THE LD. CIT(A) REJECTED THIS CONTENTION OF T HE ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER OBSERVING AS UNDER : 6.4 THEREFORE, THE RELEVANT QUESTION TO BE DECID ED IS AS TO WHETHER THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE WA S NON- SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE (APPELLANT)? 6.5 IT IS UNDISPUTED FACT THAT AS PER THE APPELLAN T NO EXPENSE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME. OBVIOUSLY, IT IS NOT THE CASE OF THE APPELLANT THAT SEPARATE BOOKS ARE MAINT AINED FOR RECORDING THE EXPENSES INCURRED TO EARN EXEMPT INCO ME AND IT IS MATTER A FACT THAT THERE IS NO ENTRY IN THESE BOOKS BECAUSE NO EXPENSE WAS ACTUALLY INCURRED. IT IS ALSO NOT THE C ASE OF THE APPELLANT THAT THOUGH THE BOOKS OF ACCOUNTS OF THE APPELLANT MAINTAIN SEPARATE LEDGERS FOR RECORDING THE EXPENSE S INCURRED TO EARN EXEMPT INCOME AND IT IS MATTER A FACT THAT THE RE IS NO ENTRY IN THESE LEDGER ACCOUNTS BECAUSE NO EXPENSE WAS ACTUAL LY INCURRED. 6.6 IT IS ALSO NOTED THAT IT IS NOT THE CASE OF TH E REVENUE THAT AO IS NOT REQUIRED TO BE NON-SATISFIED REGARDING CORRECTNESS OF EXPENSES CLAIMED BY THE AO. HOWEVER, THE NONSATISFACTION CAN BE INFERRED FROM FACTS AND CIRCUMSTANCES OF THE CASE. IF NON-SA TISFACTION HAS BEEN RECORDED, IT BECOMES PRIMARY BASIS OF SHOWING NON- SATISFACTION. IN THIS CASE THE VERY FACT THAT ASSES SEE CLAIMS THAT NO EXPENDITURE HAS BEEN MADE TO EARN EXEMPT INCOME, INDICATES THAT ANY PERSON OF ORDINARY INTELLIGENCE WOULD BE N ON-SATISFIED ABOUT CORRECTNESS OF APPELLANT'S CLAIM BECAUSE AT L EAST SOME EXPENSES WOULD BE INCURRED INDIRECTLY IN PROCESS OF ADMINISTRATION, SUPERVISION, STATIONARY AND ACCOUNT ING ETC. IN RELATION TO THE INVESTMENT AND DIVIDEND THERE-FROM (MAY BE NIL IN A PARTICULAR YEAR). 6.7 THE ONUS IS UPON THE APPELLANT TO PROVE THAT T HERE WAS NO NON- SATISFACTION OF THE AO BECAUSE AO HAS PROCEEDED TO DETERMINE THE EXPENDITURE AS PER RULE 8D WHICH INDICATES NON-SATI SFACTION OF THE AO. SINCE, IT IS THE APPELLANT WHO ALLEGES THE APPA RENT IS NOT REAL, THEREFORE, THE ONUS LIES ON THE APPELLANT TO PROVE NON-SATISFACTION OF THE AO WAS NOT THERE. THE RELIANCE IS PLACED ON THE RATIO OF C1T V. DAULAT RAM RAWATMULL [1973] 87 ITR 349 (SC). 6.8 THE APPELLANT HAS BEEN TRYING TO JUSTIFY THAT IT HAS GIVEN MONEY TO MUTUAL FUNDS MANAGERS WHO REMIT NET EXPENSES. HOWEV ER, AO 6 ITA NO. 6904/DEL./2017 HAS GIVEN REASONING THAT SUCH JUSTIFICATION OF THE APPELLANT IS NOT ACCEPTABLE (REF. PARA-3.6, 3.7 AND 3,8). THE RATIO OF HONBLE DELHI HIGH COURT IN CASE OF INDIABULLS FINANCIAL SERVICES LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(1) [2 016] 76 TAXMANN.COM 268 (DELHI) IS DIRECTLY APPLICABLE. HON 'BLE DELHI HIGH COURT HAS HELD THAT WHERE THE ELABORATE ANALYSIS CA RRIED OUT BY THE ASSESSING OFFICER AS INDEED THE THREE IMPORTANT STEPS INDICATED BY HIM IN THE ORDER, SHOWS THAT ALL THESE ELEMENTS WERE PRESENT IN HIS MIND, THAT HE DID NOT EXPRESSLY RECO RD HIS DISSATISFACTION IN THESE CIRCUMSTANCES, WOULD NOT P ER SE JUSTIFY THIS COURT IN CONCLUDING THAT HE WAS NOT SATISFIED OR DID NOT RECORD COGENT REASONS FOR HIS DISSATISFACTION TO REJECT TH E ASSESSING OFFICERS CONCLUSION. TO INSIST THAT THE ASSESSING OFFICER SHOULD PAY SUCH LIP SERVICE REGARDLESS OF THE SUBSTANTIAL COMPLIANCE WITH THE PROVISIONS WOULD, IN FACT, DESTROY THE MANDATE OF SECTION 14A (REF. PARA-8 OF THE JUDGMENT). 6.9 IN VIEW OF THE ABOVE, I HAVE NO DOUBT IN HOLDI NG THAT THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE WAS N ON-SATISFIED WITH ABOUT THE CORRECTNESS OF THE CLAIM OF THE APPE LLANT. 6.10 ONCE, THERE IS A NON-SATISFACTION OF THE AO WI TH/ABOUT THE CORRECTNESS OF THE CLAIM OF THE APPELLANT, THE PROV ISIONS CONTAINED IN RULE 8D ARE TRIGGERED AND AS A CONSEQUENCE THE C ALCULATION HAS TO BE MADE AS PER MACHINERY OF RULE 8D, THEREFORE, IN THIS CASE, IN PRINCIPLE, I FIND NO FAULT IN THE ACTION OF THE AO IN APPLYING RULE 8D. 6.11 THE JUDGMENT OF HONBLE DELHI HIGH COURT IN CA SE OF JOINT INVESTMENTS PVT. LTD. VS CIT [2015} 59 TAXMANN.COM 295 (DELHI) HAS BEEN CONSIDERED CAREFULLY. IN PARA-9, IF HAS OB SERVED, THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURE LY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAPPENED IN THIS CASE. ' I HAVE ALSO CAREFULLY CONSIDERED JUDGEMENT HONBLE DELHI HIGH CO URT IN CASE OF CIT VS. HOLCIM INDIA PVT. LTD. [2015] 57 TAXMANN.CO M 28 (DELHI). THE HON'BTE HIGH COURT IN THAT CASE CONSIDERED THE QUESTION AS TO WHETHER SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE EVEN IF NO DIVIDEND INCOME IS EARNED. HONBLE DELHI HIGH COURT REFERRED TO VARIOUS DECISI ON OF OTHER HIGH COURTS INCLUDING THE DECISIONS OF THE PUNJAB AND HA RYANA HIGH COURT IN CASE OF CIT, FARIDABAD VS LAKHANI MARKETIN G INC., CIT VS. HERO CYCLES LTD ITA NO.970/2008. DECIDED ON 02. 04.2014, CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 WHICH HELD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXE MPT INCOME WAS EARNED. HON BLE DELHI HIGH COURT CONCURRED WITH THE RATIO OF THE DECISIONS MENTIONED THEREIN. 6.12 IT IS NOTED THAT IN THIS CASE, THE FOLLOWING A RE THE ITEMS OF EXEMPT INCOME, I) DIVIDEND INCOME RS. 10,87,838/-, 7 ITA NO. 6904/DEL./2017 II) INTEREST INCOME FROM TAX FREE BONDS RS. 8,26,34 2/-, AND III) EXEMPT LTCG RS. 39,36,670/- THE AO HAS MADE DISALLOWANCE OF ONLY RS. 8,76,091/- WHICH IS LESS THAN THE EXEMPT INCOME EARNED. THEREFORE, THE RATIOS OF ABOVE STATED JUDGMENTS ARE NOT APPLICABLE. 5.2 BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE DISSATISFACTION RECORDED BY THE ASSESSING OFFICER I S IDENTICAL TO THE DISSATISFACTION, WHICH WAS RECORDED BY THE ASSESSIN G OFFICER IN ASSESSMENT YEAR 2012-13. THE TRIBUNAL IN ASSESSMENT YEAR 2012- 13, FOLLOWING EARLIER YEARS, HELD THAT THE DISSATIS FACTION RECORDED ON THE CLAIM OF THE ASSESSEE OF NO EXEMPTED INCOME WAS NOT PROPER AND THEREFORE DELETED THE DISALLOWANCE. THE RELEVANT FINDING OF THE TRIBUNAL (SUPRA) IS REPRODUCED AS UN DER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSE SSEE HAS ENGAGED PORTFOLIO MANAGEMENT SERVICE TO MANAGE HIS INVESTME NTS. THE AMOUNT OF EXEMPT INCOME IS RECEIVED AFTER DEDUCTION S EXPENSES BY THE CITI BANK. THEREFORE, THE ASSESSEE HAS NOT CLAI MED ANY EXPENDITURE IN RELATION TO EXEMPT INCOME. WE, FURTH ER FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TRIBUN AL ITA NO.5822/DEL/2015 FOR A.Y. 2011-12 DATED 23.04.2019 IN THE CASE OF ASSESSEE WHEREIN THE ITAT HAS GIVEN ITS FINDING IN PARA 13 TO 17 AS UNDER: 13. ON GROUND NO. 3 ASSESSEE CHALLENGED THE DISALLO WANCE OF RS. 6.08,180/- U/S 14A OF THE ACT READ WITH ROE 8D (2)(III) OF THE ACT. THE AO NOTED THAT ASSESSEE HAS EARNED INCO ME EXEMPT FROM TAX AMOUNTING TO RS.21,26,012/- FROM DI VIDENDS. THE ASSESSEE WAS ASKED TO GIVE DETAILS AND JUSTIFY THE CLAIM IN VIEW OF SECTION 14A. READ WITH RULE 8D WITH REFE RENCE TO THE DIVIDEND INCOME. THE ASSESSEE SUBMITTED THAT HE HAS NOR CLAIMED ANY EXPENSES AGAINST EARNING OF THE SAD INC OME. THEREFORE, ABOVE PROVISIONS ARE NOT APPLICABLE IN T HE CASE OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE FOLLOWIN G DECISIONS: 1.'CIT VS. WIMCO SEEDLINGS - ITA NO. 1367/2008, 1368/2008 & ITA NO. 1391/2008: 8 ITA NO. 6904/DEL./2017 2. ACIT VS. SUN INVESTMENTS PVT. LTD. (2011) 48 SOT 159 (DELHI): 3. RELAXO FOOTWEAR LTD. VS. ADDL. CIT, RANGE-15. NE W DELHI (2012) 50 SOT 102 (DELHI):' 14. THE AO. HOWEVER, NOTED THAT THE BASIC OBJECT OF SECTION 14A IS TO DISALLOW THE DIRECT AND INDIRECT EXPENDIT URE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME. AO REFERRED TO JUDGMENT OF THE SUPREME COUR T IN THE CASE OF CIT VS WALFORT SHARE AND STOCK BROKERS P. L TD. 326 ITR 1. THE AO ALSO NOTED THAT AO HAS TO ADOPT A REA SONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES FOR MAKING A DISALLOWANCE. THE ASSDSS E HAS NOT PROVIDED ANY SEPARATE AMOUNT FOR EARNING OF EXE MPT INCOME. THE ASSESSEE HAS MADE VERY HEAVY INVESTMENT S FOR EARNING EXEMPT INCOME THROUGHOUT THE YEAR. THE AO. THEREFORE, FOLLOWING SECTION 14A READ WITH RULE 8D DISALLOWED EXPENDITURE OF RS. 6,08,180/- WHICH IS ATTRIBUTED T O THE EARNING OF EXEMPT INCOME. 15. THE ADDITION WAS CHALLENGED BEFORE LD. CIT,(A). THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APPELLATE ORDER IN WHICH IT WAS STATED THAT AO HAS NOT SPECIFIED OR POINTED OUT ANY EXPENSES, WHATSOEVER C LAIMED BY ASSESSEE FOR EARNING THE SAID DIVIDEND INCOME. THE ASSESSEE RELIED UPON THE DECISIONS OF DELHI HIGH COURT IN TH E CASES OF CIT VS. TAIKISHA ENGINEERING INDIA LTD. 275 CTR (DE I.) 316 AND JOINT INVESTMENTS (P) LTD. VS. CIT 275 CTR 471. THE LD. CIT (A), HOWEVER CONFIRM THE ADDITION AND DISMISS T HE APPEAL OF ASSESSEE. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ADDITION IS WHOLLY UNJUSTIFIED. LD. COUNSEL FO R ASSESSEE SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY IT A T DELHI V BENCH IN THE CASE OF ASSESSEE FOR AY 2009-10 VIDE O RDER DATED 15.11.2018 (SUPRA) AND SIMILAR ADDITION HAS B EEN DELETED. THE FINDINGS OF THE TRIBUNAL IN PARA 8 OF THE ORDER ABOVE IS REPRODUCED AS UNDER: 8. WE NAVE GENE THROUGH THE FNDINGS OF THE LD. ASS ESSING OFFICER ON THIS ASPECT. LD. ASSESSING OFFICE, RECOR DED THAT THE ASSESSEE MADE HEAVY INVESTMENTS FOR EARNING OF EXEM PT INCOME AND BEING A BUSY PROFESSIONAL, HE REQUIRES T HE MANAGEMENT OF SUCH A PORTFOLIO BY INCURRING EXPENSE S, DIVERSION OF MAN-POWER/STAFF FOR INDULGING IN INVES TMENT ACTIVITIES TO VARIOUS ACTIVITIES LIKE VISITING BANK S, USE OF VEHICLE AND TELEPHONE, USE OF INTERNET IF PORTFOLIO MANAGEM ENT IS WEB- 9 ITA NO. 6904/DEL./2017 BASED, COST OF COMPUTER AND ITS DEPRECIATION, COMPU TER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PRE MISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOLIO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMEL Y SALE/PURCHASE OF MUTUAL FUND UNITS ETC. EXCEPT MAKI NG THIS STATEMENT AND READING ALL THE POSSIBLE EXPENSES THA T INVOLVE IN INVESTMENT PROCESS, LD. ASSESSING OFFICER IS NOT SPECIFIC AS TO WHAT EXACTLY THE PROBABLE EXPENDITURE IN THIS MA TTER THE ASSESSEE COULD HAVE INCURRED. ACCORDING TO THE ASSE SSEE THE INVESTMENT WAS MADE IN MUTUAL FUNDS AND THE EXPENSE S WERE ALREADY DIRECTED BY THE OPERATORS AND A CERTIFICAT E TO THAT EXTENT WAS SUBMITTED BEFORE THE LD., ASSESSING OFFI CER. FURTHER, THE INSTRUCTIONS ARE THAT THE DIVIDEND INC OME WILL BE DIRECTLY CREDITED TO THE BANK ACCOUNT OF THE ASSESS EE SO THAT NO PROBABLE EXPENDITURE AT THE END OF THE ASSESSEE FOR DEPOSIT OF THE ME DIVIDEND IN BANK COULD HAVE OCCURRED. HAV ING REGARD TO THIS SET OF FACTS AND CIRCUMSTANCES INVOL VED IN THIS MATTER, WE ARE OF THE CONSIDERED OPINION THAT INSTE AD OF MAKING A SWEEPING ENUMERATION OF THE PROBABLE EXPEN SES INVOLVED IN INVESTMENT PROCESS, LD. ASSESSING OFFIC ER COULD HAVE TAKEN LEGAL EXERCISE TO VERIFY THE CORRECTNESS OR OTHERWISE OF THE CERTIFICATE THAT WAS ISSUED BY THE ASSET MAN AGEMENT COMPANIES OR THE CITIBANK IN THIS RESPECT. WE, THER EFORE, FIND THAT THERE IS NO PROPER RECORD OF SATISFACTION AS T O THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING THE E XEMPT INCOME. BY FOLLOWING THE DECISION REPORTED IN CIT V S. TAIKISHA ENGINEERING INDIA LTD. 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD. VS. CIT 372 ITR 694 (DEI.), WE ARE OF THE OPINION THAT THE AO AT THE FIRST INSTANCE SHOULD HA VE EXAMINED THE CORRECTNESS OF THE STATEMENT MADE BY THE ASSESS EE THAT NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCO ME DURING THE YEAR AND IF AND ONLY IF THE LD. AO IS NOT SATIS FIED ON THIS ACCOUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, HE IS ENTITLED TO ADOPT THE METHOD UNDER RUE 8D OF THE RULES. WE. THEREFORE, WHILE ALLOWING THE PLEA OF THE ASSESSEE DIRECT THE LD. ASSESSING OFFICER *C DELETE THE ADDITION MADE ON TH IS SCORE ALSO.' COPY OF THE ORDER IS PROVIDED TO THE LA. DR WHO DID NOT DISPUTE FHE SOME. 17. CONSIDERING THE FACTS OF THE CASE, IN THE LIGHT OF THE FINDINGS OF THETRIBUNAL IN AY 2009-10 (SUPRA), WE ARE OF THE VIEW THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE. FOLLOWIN G THE REASONS FOR THE DECISION OF THE SAME, WE SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW AND DELETE THE ADDITION. 10 ITA NO. 6904/DEL./2017 8. ACCORDINGLY, CONSIDERING THE ABOVE FACTS AND IN THE LIGHT OF FINDINGS OF TRIBUNAL FOR A.Y. 2011-12 AND 2009-10 W E ARE OF THE VIEW THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE, THEREFORE, THE DISALLOWANCE MADE BY THE AO ARE ACCORDINGLY DEL ETED, THIS GROUND NO.L OF ASSESSEE APPEAL IS ACCORDINGLY ALLOW ED. 5.3 THE SECTION 14A(2) OF THE ACT HAS PROVIDED RECORDI NG OF DISSATISFACTION BEFORE INVOKING RULE 8D AS UNDER: EXPENDITURE INCURRED IN RELATION TO INCOME NOT INC LUDIBLE IN TOTAL INCOME. 14A. (1) . (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCR IBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT. 5.4 THUS, THE ISSUE-IN-DISPUTE INVOLVED IN THE CASE IS WHETHER THE DISSATISFACTION RECORDED BY THE ASSESSING OFFIC ER ON THE CORRECTNESS OF THE CLAIM OF EXPENDITURE IS PROPER W ITHIN THE REQUIREMENTS OF SECTION 14A(2) OF THE ACT. 5.5 WE FIND THAT THE TRIBUNAL IN THE ASSESSMENT YEAR 2 012-13 HAS FOLLOWED THE FINDING OF THE TRIBUNAL IN THE CAS E OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10, WHEREIN ALSO THE TRIBUNAL HAS FOUND THE DISSATISFACTION RECORDED BY THE ASSES SING OFFICER AS NOT PROPER, WHICH IS REQUIRED UNDER THE PROVISIONS OF THE ACT. IN THE ASSESSMENT YEAR 2009-10, THE ASSESSING OFFICER RECORDED THAT THE ASSESSEE MADE HEAVY INVESTMENT FOR EARNING OF T HE EXEMPT INCOME AND EXPENSES FOR RUNNING THE EXEMPT INCOME L IKE MANPOWER, VEHICLE, TELEPHONE, USE OF INTERNET, COMP UTER AND ITS DEPRECIATION, ELECTRICITY ETC. MUST HAVE BEEN INCUR RED BY THE ASSESSEE. BUT THE TRIBUNAL FOUND THAT THE ASSESSING OFFICER WAS 11 ITA NO. 6904/DEL./2017 NOT SPECIFIC AS TO WHAT EXACTLY THE PROBABLE EXPEND ITURE IN THE MATTER. THE TRIBUNAL ALSO NOTED THAT THE EXPENSES I N RESPECT OF THE MUTUAL FUNDS WERE ALREADY DEDUCTED BY THE RESPE CTIVE OPERATORS. THE TRIBUNAL OBSERVED THAT THE ASSESSING OFFICER WOULD HAVE TAKEN LEGAL EXERCISE TO VERIFY THE CORRECTNESS OR OTHERWISE OF THE CERTIFICATE, THAT WAS ISSUED BY THE ASSET MANAG EMENT COMPANIES OR CITIBANK. WE FIND THAT IN THE YEAR UN DER CONSIDERATION ALSO THE ASSESSING OFFICER HAS RECORD ED SIMILAR DISSATISFACTION AND NOT MADE ANY ATTEMPT TO CARRY O UT THE EXERCISE WHICH WAS PROPOSED BY THE TRIBUNAL IN ASSE SSMENT YEAR 2009-10. IN VIEW OF THE IDENTICAL DISSATISFACTION R ECORDED BY THE ASSESSING OFFICER, WHICH HAS BEEN HELD AS NOT PROPE R BY THE TRIBUNAL(SUPRA), WE RESPECTFULLY FOLLOWING THE FIND ING OF THE TRIBUNAL IN ASSESSMENT YEAR 2009-10, DELETE DISALLO WANCE IN DISPUTE IN INSTANT YEAR. THE GROUND NOS. 1 AND 1.1 OF THE APPEAL ARE ACCORDINGLY ALLOWED. 6. THE GROUND NO. 2 OF THE APPEAL RELATES TO CONFIRMA TION OF THE DISALLOWANCE OF 3,95,539/- ON ACCOUNT OF THE PERSONAL EXPENSES OUT OF THE VEHICLES, DEPRECIATION, TELEPHONE AND TE LEX AND TRAVELLING EXPENSES. 7. THE FACTS QUA THE ISSUE IN DISPUTE ARE THAT THE AS SESSING OFFICER OBSERVED EXPENSES OF 49,61,348/- UNDER VARIOUS HEADS LIKE VEHICLE RUNNING AND MAINTENANCE ( RS.14,52,68 4/-); THE DEPRECIATION ON CAR (RS.12,68,630/-); TELEPHONE AND TELEX EXPENSES (RS.1,81,407/-); TRAVELLING EXPENSES (RS.1 0,52,670) ; CONVEYANCE EXPENSES (RS.4,45,346/-); DIWALI EXPENSE S ( 1,81,230/-) AND REPAIR AND MAINTENANCE EXPENSES (RS.3,79,381/-). THE ASSESSING OFFICER FOUND THAT N O LOGBOOK OF 12 ITA NO. 6904/DEL./2017 THE VEHICLE WAS MAINTAINED AND THE ASSESSEE COULD N OT PRODUCE EVIDENCES THAT THE CAR WAS WHOLLY AND EXCLUSIVELY U SED FOR THE PURPOSE OF THE BUSINESS. AS POSSIBILITY OF PERSONAL USE OF THE EXPENSES WAS NOT RULED OUT, THE ASSESSING OFFICER M ADE DISALLOWANCE OF 10% OF THE ABOVE EXPENSES, WHICH WA S WORKED OUT TO 4,96, 135/-. OUT OF THE DISALLOWANCE OF 4,96,135/-, THE ASSESSEE CHALLENGED DISALLOWANCE OF 3,95,539/- BEFORE THE CIT(A) AND SUBMITTED THAT THE DISALLOWANCE MAY BE RESTRICT ED TO 1/20 TH OF THE EXPENSES ON THOSE ACCOUNT. THE LEARNED CIT(A ) HELD THAT SOME PERSONAL EXPENDITURE HAS BEEN ACCEPTED BY THE ASSESSEE AND THUS HELD THAT ALTHOUGH THE APPELLANT HAD SHOWN NON- SATISFACTION ON THE ESTIMATE MADE BY THE ASSESSING OFFICER, HOWEVER THERE WAS NO SANCTITY OF THE ESTIMATE PROPO SED BY THE ASSESSEE EITHER AND HE UPHELD THE DISALLOWANCE OF R S.3,95,539/-. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT IDENT ICAL DISALLOWANCE HAVE BEEN DELETED BY THE TRIBUNAL IN E ARLIER YEARS. THE LEARNED DR RELIED ON THE ORDER OF THE LOWER AUT HORITIES. 8. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE. THE ASSESSING OFFICER HAS MADE DISALLOW ANCE AT THE RATE OF 1/10 OF THE EXPENSES ON ESTIMATE BASIS IN V IEW OF THE NONPRODUCTION OF THE LOGBOOK OF THE VEHICLES. THE A SSESSING OFFICER HAS NOT POINTED OUT ANY OTHER DEFECTS IN TH E VOUCHERS UNDER OTHER HEADS OF EXPENDITURE. WE FIND THAT THE ASSESSEE HAS ALREADY ADMITTED 1/20 TH OF THE EXPENSES AGAINST THE DISALLOWANCE OF 3,95,539/- MADE UNDER THE HEAD VEHICLE MAINTENANC E, DEPRECIATION TELEPHONE AND TELEX AND TRAVELLING EXP ENSES, THEREFORE WE FEEL IT APPROPRIATE TO RESTRICT THE DI SALLOWANCE TO 1/20 TH OF THE EXPENSES UNDER THE HEADS CORRESPONDING TO THE 13 ITA NO. 6904/DEL./2017 DISALLOWANCE OF 3,95,539/- WHICH WAS MADE BY THE ASSESSING OFFICER. THE GROUND NOS. 2 AND 2.1 OF THE APPEAL AR E ACCORDINGLY PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH AUGUST, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI