SHRI JANMEJAY BAGRODIA, Ujjain V. The DCIT, Circle 2(1), Ujjain

ITA 718/IND/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5703 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHMD JAVED
• Keywords: Earning of tax free income; Question of law; Tax effect
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER SHRI JANMEYJAY BAGRODIA BLOCK NO. 1, CHEMICAL DIVISION, BILAGRAM NAGDA PAN:AEHPB 9716K VS. DY. CIT CIRCLE 2(1) UJJAIN / APPELLANT / RESPONDENT / APPELLANT BY SHRI PAVAN VED, ADVOCATE / RESPONDENT BY SHRI MOHMD. JAVED, SR. (DR) / DATE OF HEARING 17.10.2016 / DATE OF PRONOUNCEMENT 17.10.2016 / O R D E R PER O. P. MEENA, ACCOUTANT MEMEBR. 1. THIS APPEAL IS FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-UJJAIN (HEREIN AFTER REFERRED TO AS THE LD. CIT (A)) DATED 01.08.2014. THIS APPEAL PERT AINS TO ASSESSMENT YEAR 2010-11. THIS APPEAL ARISES OUT OF ASSESSMENT ORDER DTD. 28.03.2013 PASSED U/S. 143(3) OF INCOME TAX ACT, 19 61 [HEREIN AFTER REFERRED TO AS 'THE ACT) BY THE ITO WARD 2(1) UJJA IN [HEREINAFTER REFERRED TO AS THE AO]. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- . . ./ I.T.A. NO. 718 /IND/2014 %' ' / ASSESSMENT YEAR: 2010-11 I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 2 OF 7 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 5,55,368/-, ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX ACT,1961, AND FAILED TO CONSIDER AND APPRECIATE THE DETAILED SUBMISSIONS MADE BEFORE HIM BY THE APP ELLANT, AND THE FACT THAT THE NO DEDUCTION IN RESPECT OF ANY EX PENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS BEEN CLAIMED BY THE APPELLANT. 2. IN THE ALTERNATIVE, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ADDITION CONFIRMED BY THE LD. CIT (A) AT RS.5, 55,368/-ON ACCOUNT OF DISALLOWANCE UN DER SECTION 14A READ WITH RULE 8D OF INCOME TAX ACT, 1961. IS H IGHLY EXCESSIVE AS THE ASSESSEE HAS NOT CLAIMED ANY EXPEN DITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME AND CONSEQUENTLY THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D IS NOT ATTRACTED 3. THE ABOVE GROUNDS OF APPEAL RELATES TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962, HE NCE BEING DEALT WITH TOGETHER. 4. SUCCINCTLY, FACTS OF THE CASE ARE THAT THE ASSESSEE IS INDIVIDUAL AND DERIVES INCOME FROM LETTING OUT OF IMMOVABLE PROPER TIES, AND INCOME FROM INVESTMENT IN SHARES AND MUTUAL FUNDS. THE ASS ESSEE FILED RETURN OF INCOME ON 29.07.2010 DECLARING TOTAL INCOME AT R S. 37, 07,150/-. WHICH HAS BEEN REVISED AT RS. 98, 71,780/- ON 26.03 .2012. IT WAS NOTICED THAT THE ASSESSEE HAS SHOWN INVESTMENT OF R S. 6, 48, 78,737/- AND RS. 5, 31, 84,896/- IN SHARES AND MUTUAL FUNDS RESPECTIVELY AT THE YEAR-END. IT WAS ALSO NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 3 OF 7 INCOME OF RS. 13,30,119/- AND ALSO INCOME FROM LONG TERM CAPITAL GAINS AT RS. 16,36,835/- WHICH IS CLAIMED AS EXEMPT INCOM E UNDER SECTION 10(38) OF THE ACT. IT WAS CLAIMED THAT NO EXPENDITU RE INCURRED FOR EARNING EXEMPT INCOME, HENCE, NO DISALLOWANCE U/S.14A COULD BE MADE. HOWEVER, THE AO DOES NOT SATISFY WITH EXPLANATION A ND INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND MAD E DISALLOWANCE AT RS. 5,55,638/- U/S.14A READ WITH RULE 8D. 5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE LD. CIT (A) NOTED THAT THE ASSESSEE HAS SHOWN A GRICULTURAL INCOME OF RS. 40,0000/- , PPF INTEREST OF RS. 13,936/- AND DI VIDEND INCOME OF RS. 9.76,196/- AGGREGATING TO RS. 10,30,132 AS EXEMPT I NCOME. THE CLAIM OF THE ASSESSEE THAT HE HAS NOT INCURRED ANY EXPENDITU RE TO EARN EXEMPT INCOME IS NOT FOUND ACCEPTABLE ON THE GROUND THAT T HE APPELLANT HAS EARNED DIVIDEND INCOME AND LONG-TERM CAPITAL GAINS AND NOR INCURRING THEREON ANY EXPENDITURE IS NOT JUSTIFIED, HENCE , T HE LD. CIT (A) UPHELD THE ACTION OF THE A.O. 6. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THIS TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED TH AT THE ASSESSEE HAS NOT CLAIMED ANY INTEREST EXPENDITURE IN THE RETURN OF INCOME AND THE ENTIRE AMOUNT OF INTEREST WAS DIRECTLY TAKEN IN TO CAPITAL ACCOUNT. HENCE, THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE. TH E LD. A. R. SUBMITTED THAT IN SIMILAR FACTS THE TRIBUNAL ALLOWED APPEAL O F SMT. SANTOSH DEVI. THE LD. A.R. FURTHER SUBMITTED THAT THE LD. A.O. HA S NOWHERE GIVEN THE I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 4 OF 7 FINDING THAT THERE WAS ANY CLAIM OF EXPENDITURE NOR QUANTIFIED THE AMOUNT CLAIMED OUT OF WHICH DISALLOWANCE TO BE MADE . THE ASSESSEE HAS SHOWN INCOME UNDER THE HEAD OF INCOME FROM HOUSE PR OPERTY, LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS AGAINST WHICH INTEREST IS NOT ALLOWABLE, HENCE IT WAS NOT CLAIMED THEREFORE, INVO CATION OF PROVISIONS OF SECTION 14A READ WITH RULE 8D IS NOT JUSTIFIED. 7. THE LD. SENIOR (DR) RELIED ON THE ORDERS OF LOWER A UTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE ORDERS OF THE LOWER AUTHORITIES, AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 9, 76,196/- AND INTEREST ON PPF AT RS. 13,936/-BESI DE AGRICULTURAL INCOME. HOWEVER, THE EXPENDITURE INCURRED IN RELAT ION TO EARNING SUCH EXEMPT INCOME IS NOT QUANTIFIED DURING THE COURSE O F ASSESSMENT PROCEEDINGS. WE FIND THAT THE CLAIM OF THE ASSESSE E THAT NO EXPENDITURE HAS BEEN CLAIMED HAS NOT BEEN EXAMINED BY THE AO AS HE HAD MADE DISALLOWANCE BY APPLYING RULE 8D OF INCOME TAX RULE S, 1962. OUR ATTENTION WAS DRAWN IN THE CASE OF ACB INDIA (2005) 374 ITR 108 [DEL.] WHEREIN THE HON'BLE HIGH COURT HAS LAID DOWN THE PR INCIPLE AND PROCEDURE TO BE FOLLOWED WHILE CALCULATING THE DISA LLOWANCE U/S.14A OF THE ACT. THE RELEVANT EXTRACT OF SAID DECISION IS R EPRODUCED AS UNDER: 7. THE QUESTION OF LAW URGED ON BEHALF OF THE ASSESSEE IS WHETHER THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL AS TO THE DISALLOWANCE UN DER SECTION 14A OF THE INCOME-TAX ACT, 1961, IS IN ERROR OF LAW IN THE CIRCUMSTA NCES OF THE CASE. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEEWHICH IS MAINLY ENGAGED IN THE BUSINESS OF COAL PREPARATION, I.E., BENEFICIATION OF COAL, TRANSPO RTATION, LOADING OF COAL AND RELATED ACTIVITIES HAD REPORTED A TAX EXEMPT INCOME TO THE TUN E OF RS. 18,26,360 AMONGST I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 5 OF 7 OTHER HEADS OF INCOME. THE ASSESSING OFFICER ADDED BACK RS. 19, 96,242 UNDER SECTION 14A. WHILE DOING SO, THE ASSESSING OFFICER APPLIED RULE 8 D BY TAKING INTO CONSIDERATION THE TOTAL QUANTUM OF INTEREST OTHER THAN THAT INVESTE D UNDER SECTION 14A IN TERMS OF RULE 8D AND ARRIVED AT THE SAID FIGURE AFTER MULTIPL YING IT WITH THE RESULT OF THE AVERAGE VALUE OF INVESTMENTS AND OVER AVERAGE VALUE OF ASSETS DE RIVED BY HIM. HE THUS DETERMINED THE DISALLOWANCE OF RS. 19, 96,242. THE CO MMISSIONER OF INCOME TAX (APPEALS) WENT INTO THE RECORD AND FOUND THAT THE AM OUNT OF INVESTMENT ATTRIBUTABLE TO DIVIDEND AS ON MARCH 31, 2008, WAS RS. 3, 53, 26,800 , WHICH CONSTITUTED LESS THAN 1 PER CENT. OF THE TOTAL SCHEDULED FUNDS. HE, HOWEVER, ACCEPTED THE BASIS OF CALCULATION APPLIED BY THE ASSESSING OFFICER AND DIRECTED A DISALLOW ANCE OF .05 PER CENT. OF THE AMOUNT DETERMINED TO BE AVERAGE INVESTMENT. THE INCOM E- TAX APPELLATE TRIBUNAL TO WHICH THE REVENUE APPEALED, RESTORED THE ASSESSING OFFICER 'S DETERMINATION HOLDING IT TO BE A TRUE CALCULATION IN TERMS OF RULE 8D. IT IS ARG UED BY THE ASSESSEE THAT SINCE THE COMMISSIONER OF INCOME-TAX (APPEALS) CORRECTLY NOTED THE FACTS AS TO THE VALUE OF THE INVESTMENT IN TAX EXEMPT INVESTMENT AND AT THE SAME TI ME NOTICED THAT THE ULTIMATE RESULT ON AN APPLICATION OF .05 PER CENT. DISALLOWANCE W OULD BE THE SAME. COUNSEL FOR THE REVENUE, ON THE OTHER HAND, SUBMITTED THAT GIVEN THE DETERMINATION OF AVERAGE VALUE OF INVESTMENT, THE ASSESSING OFFICER HAD NO CHOICE BU T TO APPLY RULE 8D(2) IN VIEW OF THE MANDATE OF SECTION 14A WHICH REQUIRED HIM TO APPLY THE PRESCRIBED METHOD OF DETERMINING DISALLOWANCE. THE FACTS, AS DISCLO SED BY THE ASSESSING OFFICER, WHO EXPRESSED HIS OPINION THAT THE CLAIM OF THE ASSESSEE FO R NO DISALLOWANCE WAS WARRANTED SINCE NO EXPENDITURE WAS INCURRED, HAD TO BE REJECTED. THEREFORE, THE FIRST CONDITION FOR APPLICATION OF SECTION 14A IN THIS CASE WAS F ULFILLED. IN SUCH EVENTUALITY THE ASSESSING OFFICER IS REQUIRED BY THE MANDATE OF RULE 8D TO FOLLOW RULE 8D(2). CLAUSES (1), (2) AND (3) DETAIL THE METHODOLOGY TO BE ADOPTED. CLAUSES ARE OF IMPORTANCE, THEY READ AS FOLLOWS : '8D. METHOD FOR DETERMINING AMOUNT OF EXPENDITURE I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME.-(1) WHERE THE ASSESSING OFFICE R, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE H AS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF E XPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY :- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO I NCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FO RMULA, NAMELY :- A X B __ C I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 6 OF 7 WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST O THER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM W HICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE- SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE A VERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TH E TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND TH E LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSETS' SHAL L MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.' 8. THE ASSESSING OFFICER, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH INCOME IS NOT PART OF THE TOTAL INCOME, I.E., THE VALU E OF TAX EXEMPT INVESTMENT, CHOSE TO FACTOR IN THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICED THE EXACT VALUE OF THE INVESTMENT W HICH YIELDED TAXABLE INCOME HE DID NOT CORRECT THE ERROR BUT CHOSE TO APPLY HIS OWN EQ UITY. GIVEN THE RECORD THAT HAD TO BE DONE SO TO SUBSTITUTE THE FIGURE OF RS. 38,61,09 ,287 WITH THE FIGURE OF RS. 3,53,26,800 AND, THEREAFTER, ARRIVE AT THE EXACT DISA LLOWANCE OF .05 PER CENT. 9. IN VIEW OF THE ABOVE REASONING, THE FINDINGS OF TH E INCOME-TAX APPELLATE TRIBUNAL AND THE LOWER AUTHORITIES ARE HEREBY SET ASIDE. THE AP PEAL IS ALLOWED AND THE MATTER IS REMITTED TO WORK OUT THE TAX EFFECT TO THE ASSESSING OFF ICER WHO SHALL DO SO AFTER GIVING DUE NOTICE TO THE PARTY. 9. WE FIND THAT THE AO HAS NOT EXAMINED AND QUANTIFIED THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, THEREFORE, FOLLOWING THE RATIO OF ABOVE DECISION, WE REMIT BACK THIS ISS UE TO THE FILE OF THE A.O. TO FIND OUT WHETHER ANY EXPENDITURE IN RELATION TO EXEMPT INCOME HAS BEEN CLAIMED IN RETURN OF INCOME SO FILED OR NOT AN D WORKOUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IF ANY IN ACCORDANCE WITH LAW IN THE LIGHT OF ABOVE DECISION. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. THE ORDER PRONOUNCED IN OPEN COURT ON 17 TH OCTOBER 2016 I.T.A.NO. 718/IND/2014/A.Y.10-11/SHRI JANMEYJAY BAG RODIA PAGE 7 OF 7 SD/- ( . . ) (D.T.GARASIA) JUDICIAL MEMBER SD/- ( . . ) (O.P.MEENA) ACCOUNTANT MEMBER & / DATED : 17 TH OCTOBER, 2016.OPM