SHRI DILIP BAID, Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 72/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5141 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 22-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JHA CIT DHK
• Keywords: Earning of tax free income; Rule 8D; Set aside
• 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 BENCHES (SMC), JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA , ACCOUNTANT MEMBER VK;DJ VIHY LA -@ ITA NO. 72/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2013-14 SHRI DILEEP BAID, 618, MAHAVEER NAGAR, TONK ROAD, JAIPUR. C UKE VS. A.C.I.T., CIRCLE-6, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAWPB 2062 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADV) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA JHA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 07/08/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 20/08/2019 VKNS'K@ ORDER PER: R.C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD.CIT(A)-2, JAIPUR DATED 16/11/2017 FOR THE A.Y. 2013-14 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE ASSESSEE IS BASICALLY AGGRIEVED FOR DISALLOWANCE OF RS. 4,58,956/- U/S 14A OF THE ACT. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNER IN THE FIRM M/S GRACE EXPORTS AND M/S JAI SHRI EXIM. THE RETURN OF INCOME WAS FILED ON 30.09.2013 AT TOTAL INCOME OF ITA 72/JP/2018 DILEEP BAID VS ACIT 2 RS. 34,13,530/-. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.9,00,72,977/- AND EARNED EXEMPT INCOME TO THE TUNE OF RS.15,37,926/- IN THE FORM OF DIVIDEND, PPF INTEREST, CAPITAL GAINS U/S 10(38) AND PROFIT FROM PARTNERSHIP FIRMS. THE AO MADE ADDITION OF RS.4,58,956/- BY INVOKING SECTION14A OF THE ACT. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE A.O. AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 3. I HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT IN THE ASSESSMENT ORDER THE AO HIMSELF HAS RECORDED A CATEGORICALLY FINDING OF FACT THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE SO AS TO EARN EXEMPTED INCOME IN THE TABLE PREPARED FOR MAKING A WORKING U/R 8D(2) OF THE IT RULES, AT PAGE 4 OF THE ASSESSMENT ORDER (AND ALSO REPRODUCED AT PAGE 3 OF THE CIT(A) ORDER). THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE IT RULES, 1962 CANNOT BE INVOKED IN A MECHANICAL WAY BY THE A.O.. THE A.O. IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT AND IN ACCORDANCE WITH RULE 8D. IF THE A.O. HAVING REGARD TO THE ACCOUNT, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT ITA 72/JP/2018 DILEEP BAID VS ACIT 3 OF SUCH EXPENDITURE IN RELATION TO SUCH EXEMPT INCOME HE IS EMPOWERED FOR MAKING DISALLOWANCE AS PER RULE 8D OF THE RULES. HOWEVER, IN THE INSTANT CASE, THERE IS NO SUCH SATISFACTION TO THE A.O. WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. 4. FROM THE RECORD, I FOUND THAT THE ASSESSEE HAS NOT AT ALL INCURRED ANY EXPENDITURE TO EARN THE DIVIDEND INCOME OF RS.10,19,070/-, INTEREST RS.1,55,024/-, CAPITAL GAIN (STT) U/S 10(38) RS. 6,836/-, PROFIT FROM FIRM GRACE EXPORT RS.89,382/-, PROFIT FROM FIRM JAI SRI EXIM RS.1,01,494/-, PPF INTEREST (MINOR) RS.1,55,024/-, DIVIDEND (MINOR RS.11,096/- TOTALING TO RS.15,37,926/- AND THIS BEING THE FACTUAL POSITION AND NOT HAVING BEEN REBUTTED BY THE AO IN ANY MANNER, THE PROVISIONS OF S.14A COULD NOT HAVE BEEN INVOKED. THE DISALLOWANCE WAS MADE BY THE AO BY INVOKING PROVISIONS OF S.14 A R/W RULE 8D OF THE RULES BY ALLEGING THAT THE PART OF EXPENDITURE CLAIMED BY THE ASSESSEE HAS BEEN INCURRED FOR EARNING OF TAX-FREE INCOME THOUGH THE ASSESSEE HAD NOT INCURRED ANY EXPENSES TO EARN TAX FREE INCOME. THE AO BEFORE MAKING SAID ADDITION HAS SIMPLY REFERRED TO THE RELEVANT PROVISIONS AND JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS UNITED GENERAL TRUST LTD. 200 ITR 488 (SC) ITA 72/JP/2018 DILEEP BAID VS ACIT 4 WHICH CANNOT BE APPLIED TO THE INSTANT CASE AS THE FACTS OF THE PRESENT CASE ARE TOTALLY DIFFERENT FROM THE ABOVE CASE. 5. THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC) HAS OBSERVED AS UNDER: 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE.' 38. IN THE PRESENT CASE, WE DO NOT FIND ANY MENTION OF THE REASONS WHICH HAD PREVAILED UPON THE ASSESSING OFFICER, WHILE DEALING WITH THE ASSESSMENT YEAR 2002-2003, TO HOLD THAT THE CLAIMS OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND INCOME CANNOT BE ACCEPTED AND WHY THE ORDERS OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS WERE NOT ACCEPTABLE TO THE ASSESSING OFFICER, PARTICULARLY, IN THE ABSENCE OF ANY NEW FACT OR CHANGE OF CIRCUMSTANCES. NEITHER ANY BASIS HAS BEEN DISCLOSED ESTABLISHING A REASONABLE ITA 72/JP/2018 DILEEP BAID VS ACIT 5 NEXUS BETWEEN THE EXPENDITURE DISALLOWED AND THE DIVIDEND INCOME RECEIVED. THAT ANY PART OF THE BORROWINGS OF THE ASSESSEE HAD BEEN DIVERTED TO EARN TAX FREE INCOME DESPITE THE AVAILABILITY OF SURPLUS OR INTEREST FREE FUNDS AVAILABLE (RS. 270.51 CRORES AS ON 1.4.2001 AND RS. 280.64 CRORES AS ON 31.3.2002) REMAINS UNPROVED BY ANY MATERIAL WHATSOEVER. WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT APPLY ASSESSMENT PROCEEDINGS UNDER THE ACT, THE NEED FOR CONSISTENCY AND CERTAINTY AND EXISTENCE OF STRONG AND COMPELLING REASONS FOR A DEPARTURE FROM A SETTLED POSITION HAS TO BE SPELT OUT WHICH CONSPICUOUSLY IS ABSENT IN THE PRESENT CASE. IN THIS REGARD WE MAY REMIND OURSELVES OF WHAT HAS BEEN OBSERVED BY THIS COURT IN RADHASOAMI SATSANG V. CIT [19921193 ITR 321/60 TAXMAN 248 (SC). 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS' 6. THE COORDINATE BENCH IN THE CASE OF M/S RUBY MERRY ENTERPRISES (P) LTD. VS JCIT (OSD) IN ITA BO. 474/JP/2015 VIDE ORDER DATED 14/10/2016 AT PARA 3 HAS HELD AS UNDER: '3. I HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH ORDERS OF TAX AUTHORITIES BELOW. I NOTED THAT THE AO NOTED THAT THE ASSESSEE HAD PAID INTEREST @ 9% ON THE INVESTMENT MADE AGAINST THE SHARE APPLICATION MONEY. THE BANK STATEMENT OF THE ASSESSEE REVEALED THAT THE PAYMENT OF RS. 80,00,000/- WAS MADE BY THE ASSESSEE ON 13.2.2008 AND ANOTHER PAYMENT OF RS. 80,00,000/- WAS MADE ON THE SAME DATE AGAINST THE SHARE APPLICATION MONEY OF M/S. CAREER POINT INFO SYSTEM LTD. NO SHARES WERE ALLOTTED AGAINST THE INVESTMENT IN SHARE APPLICATION MONEY. THE AMOUNT OF RS. 1,60,00,000/- WAS RETURNED BACK ON 28.8.2008. THE AO, THEREFORE, WORKED OUT THE INTEREST @ 9% ON THE INVESTMENT MADE AGAINST SHARE APPLICATION MONEY FROM 1.4.2008 TO 28.8.2008 AT RS. ITA 72/JP/2018 DILEEP BAID VS ACIT 6 6,00,000/- AND DISALLOWED THE SAME UNDER SECTION 14A. IT IS THE UNDISPUTED FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY DISALLOWANCE IN RELATION TO THE INVESTMENT MADE IN SHARE APPLICATION MONEY UNDER THE PROVISIONS OF SECTION 14A. THE PROVISIONS OF SECTION 14A(1) STATES THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SUB-SECTION (2) OF SECTION 14A EMPOWERS THE AO TO DETERMINE THE AMOUNT 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 ITA NO. 474/JP/2015 M/S. RUBY MERRY ENTERPRISES PVT. LTD. VS. JCIT (OSD) CENTRAL CIRCLE- 3, JAIPUR 5 PRESCRIBED, IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. FURTHER, SUB-SECTION (3) OF SECTION 14A EMPOWERS THE AO TO APPLY SUB-SECTION (2) IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THIS CASE I NOTED THAT EVEN THOUGH THE AO HAS MADE THE DISALLOWANCE BY RELYING ON THE PROVISIONS OF SECTION 14A BUT HE DID NOT COMPLY WITH THE CONDITIONS AS STIPULATED IN SECTION 14A(2). HE HAS NOT RECORDED ANY SATISFACTION WITH REGARD TO THE INCORRECTNESS OF CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HAVING NO SUCH EVIDENCE OR MATERIAL BROUGHT TO MY NOTICE BY THE ID. D/R WHICH MAY SHOW THAT THE AO HAS GIVEN A FINDING ON THE BASIS OF ACCOUNTS MAINTAINED BY THE ASSESSEE THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. EVEN THE AO HAS NOT RECORDED THE SATISFACTION AS REGARDS TO THE CLAIM OF THE ASSESSEE. HE IS BOUND TO COMPUTE THE DISALLOWANCE IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. IN THIS REGARD IT IS THE RULE 8D WHICH HAS BEEN NOTIFIED WITH EFFECT FROM 24.03.2008. THE ASSESSMENT YEAR ITA 72/JP/2018 DILEEP BAID VS ACIT 7 INVOLVED IS THE ASSESSMENT YEAR 2009-10. I DO NOT FIND ANY WHISPER WHATSOEVER BY THE AO OR BY THE ID. D/R THAT THE AO HAS COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D. IN VIEW OF THIS FACT, I AM OF THE VIEW THAT IT IS A CASE WHERE NO DISALLOWANCE CAN BE MADE. I ACCORDINGLY SET ASIDE THE ORDER OF ID. CIT (A). 7. IN THE CASE OF DCIT VS. M/S. A.U. FINANCIERS (INDIA) LTD. ITA NO. 122/JP/2015 VIDE ORDER DATED 05 /05/2016, VIDE PARA 2.7 INTERNAL PAGE 9 ALSO, SIMILAR VIEW HAS TAKEN. IN THAT CASE IT WAS HELD AS UNDER: '2.3 THE RELEVANT FINDINGS OF THE COORDINATE BENCH IN DECISION REFERRED SUPRA IS AS UNDER: THE ABOVE FINDING ON FACT BY THE REVENUE IS NOT CONTROVERTED BY PLACING ANY MATERIAL ON RECORD. MOREOVER, THERE IS NO DISPUTE WITH REGARD TO FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 27,006/- AGAINST WHICH DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 42,22,857/- WAS MADE. THE AO HAS NOT RECORDED HIS SATISFACTION AS TO HOW THE EXPENDITURE DISALLOWED BY THE ASSESSEE OF RS.62,9878/- TOWARDS ADMINISTRATIVE EXPENSES IS NOT REASONABLE. FURTHER WE FIND THAT THE ASSESSEE HAS DEMONSTRATED BY PLACING SUFFICIENT MATERIAL ON RECORD THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENT AND WHEREFROM THE EXEMPT INCOME IS EARNED. IN OUR CONSIDERED VIEW, THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, CANNOT BE INVOKED IN MECHANICAL WAY BY AO. AS PER SECTION 14A(2), THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND IN ACCORDANCE WITH RULE 8D OF INCOME TAX RULES, 1962 IF THE AO HAVING REGARD TO THE ACCOUNTS, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ITA 72/JP/2018 DILEEP BAID VS ACIT 8 THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO SUCH EXEMPT INCOME, IS EMPOWERED FOR MAKING DISALLOWANCE AS PER RULE 8D. IN THE CASE IN HAND, NO FINDING IS RECORDED BY THE AO IN THIS REGARD. ON THE CONTRARY, THE ID. CIT(A) HAS GIVEN A FINDING AFTER EXAMINING THE ACCOUNTS OF THE ASSESSEE. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. MOREOVER IT IS NOT IN DISPUTE THAT THE ASSESEE HAS EARNED EXEMPT INCOME OF RS.27,006/- AND EXPENDITURE AMOUNTING TO RS.42,22,857/- IN RELATION TO THIS IS DISALLOWED. THE FINDING OF THE LD. CIT(A) IS NOT REBUTTED BY REVENUE BY PLACING ANY CONTRARY MATERIALS. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE ID. CIT(A). THE SAME IS HEREBY UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED.' 8. APPLYING THE PROPOSITION OF LAW DISCUSSED HEREINABOVE TO THE FACTS OF THE INSTANT CASE, I DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE U/S 14A, THEREFORE, I DIRECT THE A.O. TO DELETE THE SAME. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2019 SD/- JES'K LH 'KEKZ ( RAMESH C SHARMA ) YS[KK LNL; @ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 20 TH AUGUST, 2019 *RANJAN ITA 72/JP/2018 DILEEP BAID VS ACIT 9 VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI DILEEP BAID, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE A.C.I.T., CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 72/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR