PUKHRAJ CHUNILAL BAFNA, MUMBAI V. DCIT CEN CIR 20, MUMBAI

ITA 7213/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79145 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: SATISH R MODY
• Keywords: Salary income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUD ICIAL MEMBER . / ITA NO. 7213/MUM./2012 ( / ASSESSMENT YEAR : 200 9 10 ) MR. PUKHRAJ CHUNILAL BAFNA 301, VEENA CHAMBERS 21, DALAL STREET, FORT MUMBAI 400 001 .. / APPELLANT V/S DY. COMMISSIO NER OF INCOME TAX CIRCLE 2 0 , AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABPB9480A / ASSESSEE BY : MR. SATISH R. MODY / REVENUE BY : MR. SANJEEV JAIN / DATE OF HEARING 09 .0 6 .201 4 / DATE OF ORDE R 13.06.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 5 TH OCTOBER 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXIX , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 MR. PUKHRAJ CHUNILAL BAFNA 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2009 10 , ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE TO THE EXTENT OF ` 3,58,661 UNDER SECTION 14A R/W RULE 8D WITHOUT APPRECIATING THE FACTS OF THE CASE AND DEALING WITH THE VARIOUS GROUNDS RAISED BEFORE HIM. 2 . WITHOUT PREJUDICE TO THE ABOVE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT IN H IS PROPRIETARY CONCERN CARRIED ON THE BUSINESS OF TRADING IN SHARES AND THE SAID SHARES WERE HELD AS STOCK IN TRADE AND AS SUCH THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME, WHICH WAS INCIDENTAL. : 3 . FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME UNDER THE HEADS, INCOME FROM SALARY , INCOME FROM HOUSE PROPERTY AND INCOME FROM BUSINESS . DURING THE YEAR, THE ASSESSEE HAS RECEIVED EXEMPT INCOME OF ` 33,21,874, ON ACCOUNT OF DIVIDEN D, INTEREST FROM TAX FREE BONDS AND OTHERS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE FOR EARNING SAID EXEMPT INCOME AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D SHOU LD NOT BE MADE. IN RESPONSE TO THE SAME, THE ASSESSEE SUBMITTED THAT THERE IS NO DIRECT RELATIONSHIP BETWEEN THE EXPENDITURE CLAIM ED BY THE AS SESSEE AND THE INVESTMENTS MADE ON WHICH THE TAX FREE INCOME HAS BEEN EARNED . FURTHER, THERE IS NO SPECIFIC EXPEND ITURE WHICH CAN BE HELD TO BE AN ALLOCABLE EITHER ON ACCOUNT OF INTEREST OR ON ACCOUNT OF ADMINISTRATIVE MR. PUKHRAJ CHUNILAL BAFNA 3 EXPENSE S FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. THE ASSESSING OFFICER, AFTER DETAIL REASONING, HELD THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. H E , ACCORDINGLY, CALCULATED THE DISALLOWANCE AT ` 10,66,680, AS PER RULE 8D AFTER DISALLOWING THE INDIRECT INTEREST ATTRIBUTABLE AT ` 6,74,7472 AND ADMINIST RATIVE EXPENSES OF ` 3,92,208, AFTER TAKING INTO ACCOUNT 0.5% OF THE AVERAGE INVESTMENT. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE FILED DETAIL EXPLANATION, FIRSTLY ON ACCOUNT OF DISALLOWANCE OF INTEREST ON THE GROUND THAT THE LOANS TAKEN BY THE ASSESSEE WERE ENTIRELY UTILISED FOR THE BUSINESS PURPOSE AND THE INVESTMENTS WHICH WERE , MADE WERE OUT OF OWN FUNDS. IT WAS SUBMITTED THAT THE EXEMPT INCOME CONSISTED OF MATURITY PROCEEDS OF LIC AT ` 6,59,904, DIVIDEND OF ` 1,22,894 & INTEREST FROM TA X FREE BONDS AND NO BORROWED FUNDS WERE UTILISED FOR MAKING ANY KIND OF INVESTMENTS. REGARDING EXPENDITURES ALSO, THE ASSESSEE SUBMITTED THAT IT HAS INCURRED EXPENDITURE OF ` 3,12,304, WHICH HAS BEEN DEBITED IN THE BOOKS OF ACCOUNT AND NONE OF THESE EXPENS ES CAN BE SAID TO BE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. THE LEARNED COMMISSIONER (APPEALS) ACCEPTED THE ASSESSEES CONTENTION ON THE ACCOUNT OF DISALLOWANCE OF INTEREST OF ` 6,74,472, AND DIRECTED THE ASSESSING OFFICER TO DELETE THE SAID DISALLOWANC E. HOWEVER, WITH REGARD TO THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES, HE HELD MR. PUKHRAJ CHUNILAL BAFNA 4 THAT FORMULA OF RULE 8D, HAS TO BE APPLIED AND SINCE THE ASSESSEES ADMINISTRATIVE EXPENSES WERE ` 3,58,661, WHICH WAS CLAIMED AS ADMINISTRATIVE EXPENSES, THE SAME AMOUNT SHOUL D BE DISALLOWED. 5 . BEFORE US, THE LEARNED COUNSEL, MR. SATISH R. MODI, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT THE ASSESSEES TAX FREE INCOME IS MAINLY FROM INTEREST ON TAX FREE BONDS, MATURITY FROM LIC AND DIVIDEND INCOME. FOR EARNING OF THIS EXEMPT INC OME, NO EXPENDITURE HAVE BEEN INCURRED AND LOOKING TO THE NATURE OF EXPENSES, AS INCORPORATED IN THE APPELLATE ORDER AT PAGE 3, IT CAN BE SEEN THAT NONE OF THESE EXPENSES CAN BE SAID TO BE REMOTELY ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. THE CONDITIO NS MENTIONED IN SECTION 14A(2) AND 14A(3) ARE NOT FULFILL ED IN ASSESSEES CASE AS THE ASSESSING OFFICER HAS NOT EXAMINED THE ASSESSEES NATURE OF EXPENSES AND HAS SIMPLY PROCEEDED TO INVOKE THE PROVISIONS OF RULE 8D. PROVISIONS OF RULE 8D, CAN ONLY BE INVO KED ONCE, THE CONDITIONS MENTIONED IN SECTION 14A(2) AND 14A(3) ARE FULFILLED. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED THAT THE ASSESSING OFFICER WAS NO T SATISFIED WITH THE CLAIM OF THE ASSESSEE AND, THEREFORE, HE HAD NO OPTION BUT TO APPLY THE PROVISIONS OF RULE 8D, WHICH PRESCRIB ES A CERTAIN FORMULA FOR DISALLOWING THE ADMINISTRATIVE EXPENDITURE. MR. PUKHRAJ CHUNILAL BAFNA 5 7 . AFTER HEARING THE RIVAL CONTENTIONS AND ON A PERUSAL OF THE PROFIT & LOSS ACCOUNT AND THE TRADING ACCOUNT, IT IS EVIDENT THAT THE ASSESSEE IS HAVING INCOME FROM SALE OF SHARES, INTEREST ACCRUED FROM SAVING BONDS AND OTHER INTERESTS, WHICH ARE ON ACCOUNT OF FINANCE BUSINESS. BEFORE US, THE DISALLOWANCE UNDER SEC TION 14A ONLY PERTAINS TO THE ADMINISTRATIVE EXPENSES WHICH HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER AFTER APPLYING THE PROVISIONS OF RULE 8D AND THE SAME HAS BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). ON A PERUSAL OF THE NATURE OF EXPENDIT URE, IT IS EVIDENT THAT MOST OF THE EXPENDITURES ARE DIRECTLY RELATED TO THE ASSESSEES BUSINESS. HOWEVER, THE ASSESSING OFFICER, WITHOUT EXAMINING THE NATURE OF THE EXPENSES DEBITED IN THE ACCOUNTS OF THE ASSESSEE, HAS PROCEEDED TO APPLY THE PROVISIONS OF RULE 8D. THE PROVISIONS OF RULE 8D CAN ONLY BE TRIGGERED FOR THE PURPOSE OF DISALLOWANCE , WHEN THE ASSESSING OFFICER IS NOT SATISFIED HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO EXAMINE THE NATURE OF EXPENDITURE DEBITED IN THE ACCOUNTS , WHETHER THEY ARE IN ANY WAY ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME OR NOT . THE ASSESSEE IS ALSO DI RECTED TO MR. PUKHRAJ CHUNILAL BAFNA 6 EXPLAIN ITS ACCOUNTS AND THE NATURE OF EXPENDITURE TO THE ASSESSING OFFICER. AFTER VERIFYING THE ACCOUNTS AND THE CORRECTNESS THEREOF, THE ASSESSING OFFICER SHALL PROCEED TO DECIDE THE ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE FOR THE P URPOSE OF SECTION 14A IN ACCORDANCE WITH LAW. 8 . 8 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 13 TH JUNE 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 13 TH JUNE 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 13 TH JUNE 2014 / COPY OF T HE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI