DEEPEN A PAREKH, MUMBAI V. ACIT CEN CIR 20, MUMBAI

ITA 8131/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4276 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-03-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R M MADHAVI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , , ! '# ! '# ! '# ! '# , ,, , $ $ $ $ % % % % BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 8131/MUM./2011 ( $' ( )( / ASSESSMENT YEAR : 200809 ) MR. DEEPEN A. PAREKH 601 AUTO COMMERCE HOUSE NANA CHOWK, KENNEDY BRIDGE MUMBAI 400 007 .. *+ / APPELLANT ' V/S ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE20, MUMBAI .... ,-*+ / RESPONDENT * . / PERMANENT ACCOUNT NUMBER AAIPP6817G $' (/! 0 1 / ASSESSEE BY : MR. PRAKASH PANDIT 2 0 1 / REVENUE BY : MRS. R.M. MADHAVI ' 0 ! / DATE OF HEARING 02.07.2013 ' 34) 0 ! / DATE OF ORDER 10.07..2013 ' ' ' ' / ORDER ! '# ! '# ! '# ! '# , ,, , $ $ $ $ 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE CHALLENGING THE IMPUGNED ORDER 2 ND SEPTEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS)XXXIX, MUMBAI, FOR THE QUANTUM OF ASSESSM ENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSM ENT YEAR 200809. MR. DEEPEN A. PAREKH 2 2. THE ASSESSEE, IN THIS CASE, HAS RAISED AS MANY AS S EVEN GROUNDS OF APPEAL, HOWEVER, THE MAIN ISSUE FOR OUR ADJUDICATION IS DIS ALLOWANCE OF FOLLOWING EXPENDITURES MADE UNDER SECTION 14A R/W RULE 8D. I) ` 37,885, ATTRIBUTABLE TO INDIRECT INTEREST; II) ` 4,48,753, WORKED OUT ON THE BASIS OF % OF THE AVERAGE INVESTMENT; III) ` 1,15,464 BEING 25% OF THE DIVIDEND INCOME EARNED B Y THE MINOR. 3. FACTS IN BRIEF : ON A PERUSAL OF THE BALANCE SHEET, THE ASSESSING OFFICER OBSERVED THAT THE TOTAL INVESTMENT IN SHARES AND OT HER FINANCIAL INSTITUTIONS, INCOME FROM WHICH DO NOT FORM PART OF THE TOTAL INCOME AS ON 1 ST APRIL 2007, WAS AT ` 17,28,74,558 AND SIMILAR INVESTMENT AS ON 31 ST MARCH 2008 WAS AT ` 17,52,72,590. HE FURTHER NOTED THAT THE ASSESSEE HAS DEBITED INTE REST EXPENDITURE OF ` 73,092, IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE, IN RESPONS E TO THE SHOW CAUSE NOTICE, SUBMITTED THAT THE VALUE OF INVESTMENT IN SHARES AP PEARING IN THE BALANCE SHEET WAS AT ` 9,78,98,385, IN THE EARLIER YEAR WHICH HAS BEEN IN FLATED BECAUSE THE ASSESSEE HAS REVALUED THE SHARES DURING THAT YEAR A ND THE VALUATION HAS INCREASED BY ` 8,43,22,962. THIS VALUE HAS BEEN CREDITED TO THE C APITAL ACCOUNT OF THE ASSESSEE IN THE ASSESSMENT YEAR 200607. IT WAS ALS O PLEADED THAT IF AT ALL ANY DISALLOWANCE IS MADE UNDER SECTION 14A, THEN A HIST ORICAL VALUE OF THE SHARES SHOULD BE TAKEN BECAUSE THE ACTUAL EXPENDITURE WAS INCURRE D AT THE TIME OF ACQUISITION OF THE SHARES. THIS CONTENTION OF THE ASSESSEE WAS ACC EPTED BY THE ASSESSING OFFICER AND THE DISALLOWANCE U/S 14A R/W RULE 8D, WAS COMPU TED IN THE FOLLOWING MANNER: (I) ASSETS AS ON 01/04/2007 (25,47,47,100 8,43,22,962) ` 17,04,24,138 A1 (II) ASSETS AS ON 31/03/2008 (26,02,06,149 8,43,22,962) ` 17,58,83,187 A2 (III) AVERAGE ASSETS ` 17,31,53,663 C = (A1+A2) / 2 (IV) INVESTMENTS AS ON 01/04/2007 (17,28,74,558 8,43,22,962) ` 8,85,51,596 B1 (V) INVESTMENTS AS ON 31/03/2008 (17,52,72,590 8,43,22,962) ` 9,09,49,628 B2 (VI) AVERAGE INVESTMENT ` 8,97,50,612 D = (B1+B2) / 2 (VII) INTEREST ` 73,092 I 1) ATTRIBUTABLE INDIRECT INTEREST ` 37,885 ` 37,885 ` 37,885 ` 37,885 D/C X I 2) % OF AVERAGE INVESTMENT ` `` ` 4,48,753 TOTAL DISALLOWANCE U/S 14A ` 4,86,638 ` 4,86,638 ` 4,86,638 ` 4,86,638 (1) + (2) MR. DEEPEN A. PAREKH 3 4. HE FURTHER NOTED FROM THE COMPUTATION OF THE INCOME FILED BY THE ASSESSEE THAT THE DAUGHTER OF THE ASSESSEE HAS ALSO EARNED D IVIDEND INCOME OF ` 4,61,857 AND, ACCORDINGLY, 25% OF THE DIVIDEND INCOME WAS TA KEN AS EXPENDITURE FOR EARNING OF THE EXEMPT INCOME AND, HENCE, ` 1,15,464, WAS ALSO DISALLOWED UNDER SECTION 14A. THUS, THE TOTAL DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER AGGREGATED AT ` 6,02,102. 5. THE LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESS EE HAS FAILED TO PROVE THAT NO INTEREST BEARING FUNDS WERE USED TO PURCHASE THE SH ARES AS THE INTEREST BEARING FUNDS AND NONINTEREST BEARING FUNDS WERE MIXED UP AND, THEREFORE, INTEREST EXPENDITURE INCURRED IN EARNING OF EXEMPT INCOME CA NNOT BE CORRECTLY DETERMINED. HE FURTHER HELD THAT THE ASSESSEE COULD NOT PROVE T HAT NO INTEREST BEARING FUNDS WERE USED FOR ACQUISITION OF SHARES. LIKEWISE OTHER ADMINISTRATIVE EXPENDITURE AND EXPENDITURE ON MINORS DIVIDEND INCOME DISALLOWED B Y THE ASSESSING OFFICER WAS ALSO CONFIRMED. 6. BEFORE US, THE LEARNED COUNSEL, ON BEHALF OF THE AS SESSEE, SUBMITTED THAT THE ASSESSEE HAS NOT DEBITED INTEREST IN THE PROFIT & L OSS ACCOUNT AND THE SAME WAS DEBITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE WHIC H IS EVIDENT FROM THE COPY OF THE CAPITAL ACCOUNT PLACED IN THE PAPER BOOK AT PAGE6. THUS, NO DISALLOWANCE COULD HAVE BEEN MADE ON ACCOUNT OF INTEREST. FURTHER, THE ASSESSEE HAS ALSO DEBITED SHARE EXPENDITURE IN THE CAPITAL ACCOUNT AND NO DIS ALLOWANCE CAN BE MADE ON THIS SCORE ALSO. THUS, IN THIS MANNER, THE ASSESSEE HAS NOT CLAIMED THESE EXPENDITURES IN THE PROFIT & LOSS ACCOUNT AND OTHER EXPENDITURE CANNOT BE SAID TO BE ATTRIBUTABLE FOR EARNING OF THE DIVIDEND INCOME. THE ASSESSEE HA S MADE INVESTMENT IN THE EARLIER YEARS OUT OF INTEREST FREE LOANS AND NO DIS ALLOWANCE CAN BE MADE UNDER RULE 8D AS DISALLOWED BY THE ASSESSING OFFICER IN THIS Y EAR. LASTLY, REGARDING THE DISALLOWANCE ON ACCOUNT OF DIVIDEND INCOME IN THE M INORS HAND, HE SUBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED OR CLAIMED ON ACCO UNT OF MINORS INCOME, THEREFORE, NO DISALLOWANCE CAN BE MADE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPO N THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS), SUBMITTED THAT THE ASSESSEE HAS TO SHOW A DIRECT NEXUS BETWEEN THE INTEREST FREE LOANS AND THE INVES TMENT MADE IN SHARES, WHICH MR. DEEPEN A. PAREKH 4 HAS NOT BEEN PROVED EITHER BEFORE THE ASSESSING OFF ICER OR BEFORE THE LEARNED COMMISSIONER (APPEALS). THUS, THE DISALLOWANCE ON A CCOUNT OF % OF THE AVERAGE IS FULLY JUSTIFIED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APP EALS) AS WELL AS THE MATERIAL PLACED ON RECORD. INSOFAR AS THE DISALLOWANCE OF IN DIRECT INTEREST EXPENDITURE OF ` 37,885 IS CONCERNED, WE AGREE WITH THE CONTENTIONS OF THE LEARNED COUNSEL THAT THE SAME CANNOT BE DISALLOWED IN THE ASSESSEES CASE, F IRSTLY, THE ASSESSEE HAS NOT CLAIMED ANY INTEREST IN THE PROFIT & LOSS ACCOUNT A ND, SECONDLY, THE SAME HAS BEEN DEBITED TO THE ASSESSEES OWN CAPITAL ACCOUNT. THUS , THE DISALLOWANCE OF ` 37,885, ON ACCOUNT OF INDIRECT EXPENDITURE IS DELETED. AS R EGARDS DISALLOWANCE OF INTEREST ON THE DIVIDEND INCOME EARNED IN THE HANDS OF THE MINO R, NO EXPENDITURE CAN BE DISALLOWED BECAUSE APPARENTLY NO EXPENDITURE HAS BE EN DEBITED TO THE MINORS ACCOUNT. THUS, THE LEARNED COMMISSIONER (APPEALS) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF ` 1,15,464, BEING % OF THE DIVIDEND INCOME EARNED B Y THE MINOR. 9. NOW, COMING TO THE DISALLOWANCE OF ` 4,48,753, BEING ATTRIBUTABLE TO % OF THE AVERAGE INVESTMENT, IT IS NOTICED THAT BEFORE T HE ASSESSING OFFICER, THE ASSESSEE HIMSELF SUBMITTED THAT HISTORICAL VALUE OF THE SHAR ES SHOULD BE TAKEN FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A, WHICH HA S BEEN ACCEPTED BY THE ASSESSING OFFICER. THE LEARNED COMMISSIONER (APPEAL S) HAS ALSO GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS FAILED TO PROVE THAT NO INTEREST BEARING FUNDS WAS USED FOR ACQUISITION OF SHARES WHICH REMAINS UNREB UTTED AT THIS STAGE ALSO. IF THE ASSESSEE IS UNABLE TO SHOW THAT THE SHARES HAVE BEE N ACQUIRED OUT OF SURPLUS FUNDS OR NONINTEREST BEARING FUNDS, THE PROVISIONS OF RU LE 8D HAS TO BE APPLIED AND DISALLOWANCE HAS TO BE WORKED OUT UNDER THE SAID RU LE. TO WRIGGLE OUT FROM THE PROVISIONS OF RULE 8D, THE ASSESSEE HAS TO PLACE SU FFICIENT MATERIAL AND HAS TO PROVE THAT IT HE NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND INVESTMENT HAS BEEN MADE OUT OF INTEREST FREE / SUR PLUS FUNDS. IF THE ASSESSING OFFICER GETS SATISFIED WITH THE SAME, THEN THERE IS NO NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D. HOWEVER, THE LEARNED COUNSEL HAS PL EADED BEFORE US THAT THE ASSESSEE HAS INTEREST FREE FUNDS ALSO AND MOST OF T HE INVESTMENTS HAVE BEEN MADE OUT OF SUCH FUNDS. WE, THUS, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE OF DIS ALLOWANCE UNDER RULE 8D TO THE EXTENT OF % OF THE AVERAGE INVESTMENT TO THE FILE OF THE ASSESSING OFFICER TO MR. DEEPEN A. PAREKH 5 EXAMINE WHETHER OR NOT THE ASSESSEE HAD MADE ACQUIS ITION IN THE INVESTMENT OUT OF INTEREST FREE FUNDS. THE ASSESSEE IS DIRECTED TO PR OVIDE ALL THE NECESSARY DETAILS FOR ADJUDICATION OF THIS ISSUE. CONSEQUENTLY, THE GROUN D RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. / !6 $' (/! 0 70 89: ! ; ' 2! <= > 10. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ' 0 34) ? @'6 10 TH JULY 2013 4 0 A > ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY 2013 SD/- . .. . . . . . R.S. SYAL ACCOUNTANT MEMBER SD/- ! ! ! ! '# '# '# '# $ $ $ $ AMIT SHUKLA JUDICIAL MEMBER MUMBAI, @' @' @' @' DATED: 10 TH JULY 2013 ' 0 ,$! B CB)! / COPY OF THE ORDER FORWARDED TO : (1) $' (/! / THE ASSESSEE; (2) 2 / THE REVENUE; (3) D () / THE CIT(A); (4) D / THE CIT, MUMBAI CITY CONCERNED; (5) BGA ,$!$' , , / THE DR, ITAT, MUMBAI; (6) A( H / GUARD FILE. -B! ,$! / TRUE COPY '' / BY ORDER , 2. IJ / PRADEEP J. CHOWDHURY /K $'2 I / SR. PRIVATE SECRETARY 8 / < 2 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI