DR. SHRI DEVKISHIN B. PAHLAJANI, MUMBAI V. ACIT 11(2), MUMBAI

ITA 7166/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75646 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 03-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 7166/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) DR. DEVKISHIN B. PAHLAJANI 3, BHERUMAL BHAVAN, MOGAL LANE, MAHIM, MUMBAI-400 016 VS. ASST. CIT-11(2), AAYAKAR BHAVAN, 4 TH FLOOR, MAHARSHI KARVE ROAD, MUMBAI-400 020 ! ' ./PAN/GIR NO. AACPP 5413 E ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI VIPUL JOSHI & SHRI MAYANK THOSAR $%!#&' / RESPONDENT BY : SHRI B. P. K. PANDA ( )*&+, / DATE OF HEARING : 10.02.2014 -./&+, / DATE OF PRONOUNCEMENT : 21.02.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHO RT) DATED 28.09.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2009-10 VIDE ORDER DATED 27.12.2011. 2. THE ASSESSEES APPEALS RAISES TWO ISSUES, WHICH WE SHALL TAKE UP IN SERIATIM. THE FIRST ISSUE RELATES TO AN ADDITION IN THE SUM OF RS .4,04,445/-, NOT DISCLOSED PER THE RETURN 2 ITA NO. 7166/MUM/2012 (A.Y. 2009-10) DR. DEVKISHIN B. PAHLAJANI VS. ASST. CIT OF INCOME. THE SUM AND SUBSTANCE OF THE ASSESSEES CASE IS THAT THE INCOME UNDER REFERENCE IS ON RRB TAX-FREE BONDS, CARRIED OVER FR OM THE PAST (INVESTED IN OUT OF HIS OWN CAPITAL). THE ASSESSING OFFICER (A.O.) IN FACT INIT IALLY CONSIDERED THE INTEREST INCOME NOT RETURNED BY THE ASSESSEE AT RS.5,12,216/-, I.E., IN CLUSIVE OF INTEREST OF RS.1,05,283/- ON PUBLIC PROVIDENT FUND (PPF), AGAIN TAX-FREE, WHICH THOUGH STOOD EXCLUDED BY HIM ON THE ASSESSEE EXHIBITING THE NATURE OF THE RECEIPT TO TH AT EXTENT, I.E., AS BEING INTEREST ON PPF ACCOUNT. THE ASSESSEES INVESTMENTS AS WELL AS THE NATURE OF THE INCOME ARISING THEREON, I.E., AS TAX-EXEMPT U/S.10, HAVING BEEN DEMONSTRATE D IN NO UNCERTAIN TERMS, THERE IS NO QUESTION OF INCLUSION OF THE SAME IN THE ASSESSMENT OF THE TAXABLE INCOME FOR THE YEAR. TOWARD THIS, THE LD. AUTHORIZED REPRESENTATIVE (AR) WOULD TAKE US TO PGS.31 TO 40 OF THE PAPER BOOK (PB), CONTAINING THE LEDGER ACCOUNTS, BE ARING THE INVESTMENT AS WELL AS THE INTEREST ACCOUNTS, AS WELL AS THE INTEREST CERTIFIC ATES TO DEMONSTRATE THE NATURE AS WELL AS THE QUANTUM OF THE INCOME UNDER REFERENCE, I.E., CL AIMED TAX-EXEMPT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LD. CIT(A) HAS DEALT WITH THE MATTER AS UNDER: 1.3 I HAVE CONSIDERED THE FACTS AND FOUND THAT THE COPY OF INTEREST FREE ACCOUNT SUBMITTED BY THE AR ONLY SHOWS CREDIT OF RS .1,05,283/- IN RESPECT OF PPF INTEREST. THE DETAILS OF BONDS SUBMITTED ONL Y SHOWS INVESTMENT. HOWEVER, THERE ARE NO DETAILS REGARDING CREDIT OF I NTEREST AND EXPLANATION REGARDING AS TO HOW THE AMOUNT OF RS.5,12,216/- WAS CREDITED TO P & L ACCOUNT. IN VIEW OF THESE FACTS, THE DISALLOWANCE O F INTEREST OF RS.1,05,283/- IS DELETED. HOWEVER, BALANCE AMOUNT OF RS.4,04,445/ - (509728 105283) IS CONFIRMED. THIS GROUND OF APPEAL IS, THEREFORE, PAR TLY ALLOWED. WE ARE COMPLETELY UNABLE TO APPRECIATE THE REVENUE S CASE. THE LEDGER ACCOUNTS CLEARLY SHOW THE RECEIPT OF INTEREST UNDER THE ACCO UNT HEAD INTEREST ON BOND (TAX FREE) (PB PG.33), AND WHICH STANDS TRANSFERRED DIRECTLY T O THE CAPITAL ACCOUNT. THE SAME IS THUS CLEARLY ACCOUNTED FOR. THE TRANSFER OF THE INCOME T O THE CAPITAL ACCOUNT IS IRRELEVANT IN VIEW OF ITS DISCLOSURE (IN ACCOUNTS), PARTICULARLY WHEN ITS NATURE IS NOT IN DISPUTE. RATHER, THOUGH THE ACCOUNTING TREATMENT IS NEITHER RELEVANT AS TO THE CHARACTER OF THE INCOME WHICH IS CONTRACTUAL, NOR DETERMINATIVE OF ITS TAX STATUS, THE FACT OF ITS BEING TAX FREE 3 ITA NO. 7166/MUM/2012 (A.Y. 2009-10) DR. DEVKISHIN B. PAHLAJANI VS. ASST. CIT EXPLAINS ITS DIRECT TRANSFER TO THE CAPITAL ACCOUNT , I.E., RATHER THAN BEING ROUTED THROUGH PROFIT AND LOSS ACCOUNT. WE, ACCORDINGLY, FINDING N O MERIT IN THE REVENUES CASE, DIRECT DELETION OF THE BALANCE, IMPUGNED SUM OF RS.4,04,44 5/-. 4.1 THE SECOND ISSUE BEING AGITATED BY THE ASSESSEE IS IN RESPECT OF DISALLOWANCE AT RS.2,61,278/- U/S.14A READ WITH RULE 8D OF THE INCO ME TAX RULES. THIS IS IN RESPECT OF THE INVESTMENT IN SHARES, WHICH IS AT AN AVERAGE OF RS.522.76 LACS, I.E., IN TERMS OF R.8D OR THE SIMPLE AVERAGE OF THE OPENING AND THE CLOSING I NVESTMENT. THE DISALLOWANCE U/S.14A IS ONLY WITH REFERENCE TO R.8D(2)(III), AT 0.5% THE REOF, I.E., TOWARD ADMINISTRATIVE EXPENSES. THE ASSESSEES CLAIM, WITH REFERENCE TO I TS P & L ACCOUNT (PB PG.17), WAS THAT THE ASSESSEE BEING A DOCTOR, NO CHARGES TOWARD THE SAME HAVE BEEN INCURRED; THE OPERATING STATEMENT BEARING ONLY THE EXPENDITURE IN RELATION TO HIS PROFESSION. IT IS ONLY WHERE AND TO THE EXTENT ANY EXPENDITURE HAS BEEN IN CURRED IN RELATION TO THE TAX EXEMPT INCOME THAT SECTION 14A SHALL APPLY, AND TOWARD WHI CH REFERENCE IS MADE TO SECTION 14A(2) AS WELL AS R.8D ITSELF (PER CLAUSE (1)). THE LAW IN THE MATTER IS CLEAR AND UNAMBIGUOUS. THE INITIAL ONUS TO SHOW, WITH REFEREN CE TO ITS ACCOUNTS, THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO AN INCOME NOT FORMING PART OF ITS TOTAL INCOME IS ON THE ASSESSEE. ONCE THE ASSESSEE SO DOE S, IT IS FOR THE REVENUE TO SHOW AS TO WHY IT CONSIDERS THE ASSESSEES CLAIM AS NOT SATISF ACTORY AND, THUS, AS UNACCEPTABLE. REFERENCE FOR THE PURPOSE MAY BE MADE TO THE DECISI ONS IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM) AND MAXOPP INVESTMENT LTD. VS. CIT [2012] 347 ITR 272 (DELHI). IN THE INSTANT CASE, TH E LD. CIT(A), ON CONSIDERING THE ASSESSEES CLAIM, OBSERVES IT TO HAVE BEEN INCURRED EXPENDITURE ON SALARY (RS.5.31 LACS); ASSISTANCE CHARGES (RS.3.20 LACS); OFFICE EXPENSES (RS.0.12 LACS); AND BANK CHARGES (RS.0.04 LACS), SO THAT IT WAS NOT POSSIBLE TO ACCE PT THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE TOWARD THE HOLDING, ACQUISITION OR DISPOSAL OF INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME, PLACI NG RELIANCE ON THE DECISIONS IN THE CASE OF ASST. CIT VS. CITICORP FINANCE (INDIA) LTD. [2007] 108 ITD 457 (MUM) (REFER PARA 2.3 OF THE IMPUGNED ORDER). 4 ITA NO. 7166/MUM/2012 (A.Y. 2009-10) DR. DEVKISHIN B. PAHLAJANI VS. ASST. CIT 4.2 THE ASSESSEE HAS BEFORE US PLACED RELIANCE ON A NUMBER OF ORDERS BY THE TRIBUNAL. THE LAW IN THE MATTER BEING CLEAR AND UNAMBIGUOUS, BESIDES BEING EXPLAINED AT LENGTH BY THE HONBLE COURTS, WE DO NOT CONSIDER IT NECESSARY TO DWELL ON THE AUTHORITIES CITED. THE MATTER IS PRINCIPALLY FACTUAL. THE DISALLOWANCE IS STATUTORY, SO THAT IT WOULD FOLLOW WHERE THE ONUS CAST THEREON BY LAW HAS NOT BEEN DISCHARGE D BY THE ASSESSEE, WHILE NO DISALLOWANCE WOULD ARISE WHERE IT HAS BEEN. THAT IS , THE PRESUMPTION IN LAW AS TO INCURRING OF EXPENDITURE (I.E., TO THE EXTENT PRESC RIBED UNDER R. 8D(2)(III)) WOULD ARISE ONLY WHERE THE ONUS HAD NOT BEEN DISCHARGED BY THE ASSESSEE. REFERENCE IN THIS REGARD IS MADE TO AFL (P.) LTD. VS. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) AND CITICORP FINANCE (INDIA) LTD. (SUPRA), WHERE THIS ASPECT OF THE MATTER HAS BEEN DISCUSSED AT LENGTH. IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE HAS, APART FROM CLAIMING NON-INCURRING OF ANY EXPENDITURE TOWARD TAX-EXEMPT INCOME, AND WHICH IS IN FACT (AS ALSO IN LAW) INDEPENDENT AND IRRESPECTIVE OF THE QUANTUM OF SUCH INCOME, DON E PRECIOUS LITTLE. THE REVENUE HAS ALSO, WE OBSERVE, NOT CALLED UPON IT TO SUBSTANTIAT E ITS CLAIM/S, EVEN AS IT OBSERVES THE ASSESSEE TO HAVE INCURRED EXPENDITURE, WHICH COULD, IF ONLY IN PART, BE RELATABLE TO SUCH INCOME. IN FACT, THE EXPENDITURE STANDS INCURRED ON LEGAL AND PROFESSIONAL CHARGES (AT RS.2.08 LACS) AS WELL, WHICH COULD ALSO RELATE TO S UCH INCOME. THAT IS, THE PROVISIONS OF SECTION 14A(2) AND 14A(3), THOUGH PROCEDURAL, ARE T O BE TAKEN TO THEIR LOGICAL CONCLUSION. IT WOULD NOT SUFFICE FOR THE ASSESSEE TO REST ITS C ASE MERELY BY STATING NON-INCURRING OF ANY EXPENDITURE, AND NEITHER IS THE REVENUE EXPECTED TO PROCEED SOLELY ON PRESUMPTION, IN DISREGARD OF THE MERITS OF THE ASSESSEES CASE, I.E ., WITHOUT SHOWING THE ASSESSEES FAILURE TO PROVE ITS CLAIMS. WHY, IT HAS ITSELF NOT MADE AN Y DISALLOWANCE QUA INTEREST ON INVESTMENT IN PPF, WHICH IS TAX-EXEMPT, AND WHICH W OULD ONLY BE ON THE BASIS OF NO CASE FOR THE SAME BEING MADE OUT. 4.3 UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FI T AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE FIRST APPELLATE AUTHORITY, WHO SHALL DECIDE IN ACCORDANCE WITH THE LAW PER A SPEAKING ORDER AFTER HEARING AND ALLOWING OPPORTUNITY TO BOTH THE PARTIES. THE MATTER BEING PRINCIPALLY FACTUAL, I.E., WHETHER (AN D TO THE EXTENT) ANY EXPENDITURE STANDS 5 ITA NO. 7166/MUM/2012 (A.Y. 2009-10) DR. DEVKISHIN B. PAHLAJANI VS. ASST. CIT INCURRED BY THE ASSESSEE IN RELATION TO THE INVESTM ENT IN SHARES WHICH YIELDS TAX EXEMPT INCOME, WITH THE LAW BEING SUFFICIENTLY EXPLAINED B Y THE HONBLE COURTS OF LAW, SO THAT WE HAVE RESTORED IT BACK, WE DO NOT CONSIDER IT EITHER NECESSARY OR PROPER TO DEAL WITH THE DECISIONS PLACED ON FILE BY THE ASSESSEE, WHICH BEI NG RENDERED IN THE FACTS OF THE CASE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 1/+23451+& 60) 7 +&+8 ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 21, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 9* MUMBAI; : DATED : 21.02.2014 )3 ROSHANI , SR. PS !' # $%&' (!'% COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ;+ < = / THE CIT(A) 4. ( ;+ / CIT - CONCERNED 5. >)?@$3+3A4 ,A4/ ( 9* / DR, ITAT, MUMBAI 6. @5B* GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ( 9* / ITAT, MUMBAI