M/S. Zeno Traders and Services Ltd., Kanpur V. INCOME TAX OFFICER-6(5), Kanpur

ITA 725/LKW/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4524 (ITAT-LUCKNOW)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 08-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

I.T.A. NO.725/LKW/2017 ASSESSMENT YEAR:2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.725/LKW/2017 ASSESSMENT YEAR:2014-15 M/S ZENO TRADERS AND SERVICES LTD. 7/125, C-2, SWAROOP NAGAR, KANPUR. PAN:AADCN 0133 D VS. INCOME TAX OFFICER - 6(5), KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A)-II, KANPUR DATED 06/09/2017. THE ONLY ISSUE RAISED IN THIS APPEAL IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIR MED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. 2. AT THE OUTSET, LEARNED A. R. INVITED OUR ATTENTI ON TO COPY OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT PLACED AT PAGES 9 T O 23 OF THE PAPER BOOK AND OUR SPECIFIC ATTENTION WAS INVITED TO PAGE 20 W HERE THE ASSESSEE HAS DECLARED A DIVIDEND INCOME OF RS.570/-. LEARNED A. R. SUBMITTED THAT AGAINST THE DIVIDEND INCOME OF RS.570/- THE ASSESSI NG OFFICER HAS MADE APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY S MT. NEELAM AGARWAL, D.R. DATE OF HEARING 01/08/2018 DATE OF PRONOUNCEMENT 03/08/2018 I.T.A. NO.725/LKW/2017 ASSESSMENT YEAR:2014-15 2 DISALLOWANCE OF RS.76,485/- BY APPLYING THE PROVISI ONS OF RULE 8D. LEARNED A. R. SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE WITH RESPECT TO EARNING OF EXEMPT INCOME AS IS APPARENT FROM THE COPY OF PROFIT & LOSS ACCOUNT PLACED AT PAGE 16 OF THE PAPER BOOK WHEREIN THE FINANCE COST AMOUNTING TO RS.871/- HAS BEEN BOOKED AS EXPENDITU RE WHICH ITSELF IS NOT INTEREST COST BUT IS BANK CHARGES AS IS APPARENT FR OM PAGE 20 OF THE PAPER BOOK. INVITING OUR ATTENTION TO OTHER EXPENDITURE LEARNED A. R. SUBMITTED THAT NONE OF THE EXPENSES RELATE TO THE EARNING OF EXEMPT INCOME. MOREOVER, IT WAS SUBMITTED THAT NO NEW INVESTMENT W AS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, ALL T HE INVESTMENTS WERE OLD INVESTMENTS AND IN THIS REGARD OUR ATTENTION WAS IN VITED TO PAGE 15 OF THE PAPER BOOK WHERE A COPY OF BALANCE SHEET OF THE ASS ESSEE WAS PLACED. LEARNED A. R. IN THIS RESPECT RELIED ON THE JUDGMEN T OF HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT IN CIVIL APPEAL NOS. 104 TO 109 OF 2015 WHEREIN THE HON'BLE HIGH COURT HAS H ELD THAT INCURRING OF EXPENDITURE IN RELATION TO EARNING OF EXEMPT INCOME IS NECESSARY CONDITION FOR DISALLOWING CLAIM U/S 14A OF THE ACT. OUR SPEC IFIC ATTENTION WAS INVITED TO PARA 31 & 32 OF THE ORDER. LEARNED A. R. FURTHE R SUBMITTED THAT HON'BLE TRIBUNAL VIDE ORDER DATED 15/03/2017 HAS HELD THE D ISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME AND THEREFORE, IT W AS PRAYED THAT DISALLOWANCE, IF ANY, HAS TO BE RESTRICTED TO RS.57 0/- WHICH IS THE EXEMPT INCOME OF THE ASSESSEE. 3. LEARNED D. R., ON THE OTHER HAND, PLACED RELIANC E ON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN ADMITTED F ACT THAT THE ASSESSEE RECEIVED DIVIDEND TO THE TUNE OF RS.570/- ONLY WHIC H IS APPARENT FROM PAGE I.T.A. NO.725/LKW/2017 ASSESSMENT YEAR:2014-15 3 20 OF THE PAPER BOOK. THIS FACT HAS ALSO BEEN ADMI TTED BY THE ASSESSING OFFICER IN HIS ORDER. THIS IS ALSO AN ADMITTED FAC T THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE IN THE FORM OF INTEREST WHICH IS APPARENT FROM THE COPY OF PROFIT & LOSS ACCOUNT PLACED AT PAGE 16 OF THE PAPER BOOK. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE DID NOT MAKE ANY INVESTMENT IN THE FORM OF SHARES DURING THE YEAR UNDER CONSIDERATION AS TH E FIGURES OF INVESTMENT IN PREVIOUS YEAR AND CURRENT YEAR ARE SAME WHICH FACT IS VERIFIABLE FROM PAGE 15 OF THE PAPER BOOK. THE ANALYSIS OF PROFIT & LOS S ACCOUNT PLACED AT PAGE 16 OF THE PAPER BOOK ALSO DID NOT MENTION ANY AMOUN T OF EXPENDITURE WHICH CAN BE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. THE ASSESSING OFFICER ALSO IN HIS ORDER DID NOT MAKE ANY SATISFACTION FOR NOT ACCEPTING THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED. HON 'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) VIDE PAR A 32 HAS HELD THAT IF AN EXPENDITURE HAS NO CAUSAL CONNECTION WITH THE EXEMP TED INCOME, THEN SUCH AN EXPENDITURE WOULD BE ALLOWED AS BUSINESS EXPENDI TURE. THE FINDINGS OF HON'BLE COURT ARE REPRODUCED BELOW: 32. IN THE FIRST INSTANCE, IT NEEDS TO BE RECOGNIS ED THAT AS PER SECTION 14A(1) OF THE ACT, DEDUCTION OF THAT EX PENDITURE IS NOT TO BE ALLOWED WHICH HAS BEEN INCURRED BY THE AS SESSEE 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. AXIOMATICALLY, IT IS THAT E XPENDITURE ALONE WHICH HAS BEEN INCURRED IN RELATION TO THE IN COME WHICH IS INCLUDIBLE IN TOTAL INCOME THAT HAS TO BE DISALL OWED. IF AN EXPENDITURE INCURRED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN EXPENDITURE WOULD OBV IOUSLY BE TREATED AS NOT RELATED TO THE INCOME THAT IS EXE MPTED FROM TAX, AND SUCH EXPENDITURE WOULD BE ALLOWED AS BUSIN ESS EXPENDITURE. TO PUT IT DIFFERENTLY, SUCH EXPENDITUR E WOULD THEN BE CONSIDERED AS INCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS PART OF THE TOTAL INCOME. 4.1 WE FURTHER FIND THAT HON'BLE CHENNAI BENCH OF T HE TRIBUNAL IN ITS ORDER DATED 15/03/2017 HAS HELD THAT THE DISALLOWAN CE U/S 14A CANNOT I.T.A. NO.725/LKW/2017 ASSESSMENT YEAR:2014-15 4 EXCEED THE EXEMPT INCOME. IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DIS ALLOWANCE U/S 14A TO THE EXTENT OF RS.570/- WHICH IS THE EXEMPT INCOME OF TH E ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 03/08/2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:03/08/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. R EGISTRAR