M/s Juhi Investment Company Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 81/DEL/2011

• Counselvise Citation: 8120114 RSA 2011
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 11-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.81/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S. JUHI INVESTMENT COMPANY PVT. LTD., VS. DCIT, C IRCLE 4 (1), C/O O.P. SAPRA & ASSOCIATES, ADVOCATES, NEW DELHI. C 763, NEW FRIENDS COLONY, NEW DELHI 110 025. (PAN : AAACJ2146B) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : MS. Y. KAKKAR, DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER OF CIT (APPEALS)-VII, NEW DELHI DATED 21.09.2010. THE GR OUNDS OF APPEAL READ AS UNDER :- 1) THAT THE DISALLOWANCE OF RS.3,00,000/- SUSTAINE D BY THE LD. CIT (A) U/S 14A OF I.T. ACT IS UNJUSTIFIED AND AT ANY RATE, WITHOUT PREJUDICE, VERY EXCESSIVE. VARIOUS OBSERVATIONS MADE BY THE AUTHORITIES BELOW IN THEIR RESPECTIVE ORDERS WHILE MAKING/CONFIRMING DISALLOWANCE U/S 14A OF I.T. ACT ARE EITHER IGNORED OR ARE UNTENABLE. ITA NO.81/DEL./2011 2 2. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, AM END/MODIFY THE GROUNDS OF APPEAL. 2. THE ONLY ISSUE INVOLVED IS SUSTAINING THE ADDITI ON OF RS.3 LACS TOWARDS THE DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT. 3. NONE ATTENDED ON BEHALF OF THE ASSESSEE. WE HAV E HEARD THE LEARNED DR. 4. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF R S.4,02,081/- BY HOLDING AS UNDER :- DURING THE ASSESSMENT PROCEEDINGS IT WAS SEEN THAT ASSESSEE HAS MADE INVESTMENT IN SHARES, INCOME FROM WHERE DOES N OT FORM PART OF TAXABLE INCOME. DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D IS MADE AS UNDER: - S.NO. DISALLOWANCE AMOUNT (RS.) 1. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 0 2. 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 FORMULA - AX BIC WHERE A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (1) INCURRED DURING THE PREVIOUS YEAR B= THE AVERAGE OF VALUE OF INVESTMENT, A=0 B=0 C=0 HENCE, DISALLOWANCE=0 ITA NO.81/DEL./2011 3 INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE LAST DAY AND THE LAST DAY OF THE PREVIOUS YEAR C= THE AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 3. AN AMOUNT EQUAL TO ON-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH 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 1/2% OF [(89937887 + 70894850 )/2 )= RS. 80416369] = 4,02,0811- TOTAL DISALLOWANCE 4,02,981/- ACCORDINGLY AN AMOUNT OF RS.4,02,081/- IS DISALLOWE D FROM UNDER SECTION 14A OF THE I.T. ACT, 1961. THE ASSESSEE VIDE ORDER SHEET QUERY DATED 17.11.200 9 WAS ALLOWED AN OPPORTUNITY TO EXPLAIN WHY THE ABOVE ADDITIONS S HOULD NOT BE MADE TO THE NET TAXABLE INCOME OF THE YEAR. IN RESPONSE TO THE SAID QUERY THE ASSESSEE FILED A REPLY DATED 20.11.2009. THE SUBMISSIONS FILED BY THE ASSESSEE HAVE BEEN EXAMINED AND CONSIDERED. IN THE LIGHT OF DECISION OF THE HON'BLE ITAT, DELHI SPECIAL BENCH IN THE CASE OF ITO VS. CH EMINVEST 317 ITR AN ADDITION OF RS.4,02,081/- IS ADDED TO THE NE T TAXABLE INCOME OF THE ASSESSEE. 5. THE CIT (A) GRANTED THE PART RELIEF BY HOLDING A S UNDER :- 3.4 IN THE LIGHT OF THE JUDGMENTS CITED ABOVE, IT CAN BE CONCLUDED THAT (A)WHEN THE DIVIDEND IS NOT TAXABLE AT ALL, THE EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC . PERTAINING TO THAT WOULD ALSO NOT BE ALLOWABLE BECAUSE. THERE IS NO TAXABLE INCOME OF THE ASSESSEE AGAINST WHICH SUCH EXPENDITU RE CAN BE ITA NO.81/DEL./2011 4 ALLOWED;(B)THE DISALLOWANCE UNDER SECTION 14A COULD BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSESSEE; (C) THE ALLOWANCE OF EXPENDITURE I N RELATION TO DIVIDEND INCOME WOULD NOT BE ADMISSIBLE IN COMPUTIN G THE INCOME OF AN ASSESSEE UNDER THE ACT IN BOTH THE SIT UATIONS, WHETHER THE SHARES ARE HELD AS INVESTMENT OR HELD O N TRADING ACCOUNT AS STOCK-IN-TRADE; (D) THE PROVISIONS OF RU LE 8D OF THE INCOME TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFE CT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008- 09 AND (E) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, W HEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR T HAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE TH E EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AS SESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CON SISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURN ISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. FOR ALL THESE REASONS, THE PROPOSAL OF THE ASSESSING OFFICER FOR ENHANCEMENT OF INCOME CANNOT BE ENTERTAINED. HOWEVER, THE EXPENDITURE WHICH HAS BEE N INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT HAS TO BE DETERMINED. IT IS AN ADMITTED FACT THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF IN VESTMENT IN SALE & PURCHASE OF SHARES AND SHARES ARE SHOWN IN C LOSING STOCK OR STOCK-IN-HAND DURING THE YEAR UNDER CONSIDERATIO N. THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT REVEALS THAT AN AMOUNT OF RS.42,22,346/-HAS BEEN SHOWN UNDER THE HEAD 'EXPEND ITURE' BY THE APPELLANT. IT IS ALSO OBSERVED THAT THE ASSESSE E HAS EARNED DIVIDEND INCOME OF RS.2,250/- DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THERE HAS BEEN FRESH INVEST MENT IN SHARES TO THE EXTENT OF RS.L,90,43,037/- DURING THE YEAR UNDER CONSIDERATION. AFTER HAVING CONSIDERED THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PROPORTIONATE DI SALLOWANCE UNDER SECTION 14A OF THE ACT IS RESTRICTED TO RS.3, 00,000/-. AS A RESULT, THE APPELLANT GETS A RELIEF OF RS.1,02,081/ - (RS.4,02,081/-MINUS RS.3,00,000/-) AND GROUNDS OF A PPEAL NO.1 TO 1.4 ARE PARTLY ALLOWED. 6. WE HAVE HEARD BOTH THE SIDES IN DETAIL. FROM TH E RECORDS AVAILABLE, WE FIND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME O F RS.2,250/- DURING THE ITA NO.81/DEL./2011 5 YEAR. THE EXPENDITURE DEBITED IN THE PROFIT AND LO SS ACCOUNT WAS RS.42,22,346/-. THE ASSESSEE HAS MADE FRESH INVEST MENT IN THE SHARES OF RS.1,90,43,037/- DURING THE YEAR UNDER CONSIDERATIO N. THE ASSESSEE IS ALSO SHOWING SHARES AS INVESTMENT. THE CIT (A) HAS ADOP TED A REASONABLE BASIS OR METHOD TAKING IN VIEW THE RELIABLE FACTS OF THE CAS E. CONSIDERING ALL THESE REASONS, WE FIND NO NECESSITY TO INTERFERE WITH THE ORDER OF THE CIT (A). THE CIT (A) HAS CONSIDERED THE DECISION OF HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. D CIT WHILE ARRIVING AT THE DECISION. THEREFORE, WE SUSTAIN THE ORDER OF C IT (A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 13 TH DAY OF JANUARY, 2012. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 13 TH DAY OF JANUARY, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.