SHRI SIDDHARTH KOTHARI, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

ITA 827/JPR/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6126 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 08-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI JCIT DHK
• Assessee Lawyers: MANIESH AGARWAL
• Keywords: Salary income; Earning of tax free income
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 827 & 947/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2012-13 & 13-14. SHRI SIDDHARTH KOTHARI, 11, SWASTI, HOSPITAL ROAD, C-SCHEME, JAIPUR. CUKE VS. THE DCIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ACQPK 2809 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANIESH AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.04.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 27.04.2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST TWO SEPARATE ORDERS OF LD. CIT (A)-2, JAIPUR DATED 17.08.2017 AND 27.1 0.2017 FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 RESPECTIVELY. THE ASSESSEE HAS RAISED THE COMMON GROUNDS IN THESE APPEALS EXCEPT THE QUANTUM OF DISALLOWANCE. THE GROUNDS FOR THE ASSESSMENT YEAR 2012-13 ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANC E OF RS. 2,85,892/- MADE BY LD. AO BY INVOKING PROVISIONS OF RULE 8D OF INCOME TAX RULES 1962 ARBITRARILY. 1.1 THAT LD. CIT (A) ERRED IN MAKING DISALLOW3ANCE MADE BY LD. AO BY IGNORING THE FACT THAT ASSESSEE HIMSELF HAD DISA LLOWED EXPENSES TO THE TUNE OF RS. 29,87,484/- U/S 14A, WH ICH HAS NOT BEEN PROVED WRONG BY LD. AO BY RECORDING PROPER SAT ISFACTION. 2 ITA NOS. 827 & 947/JP/2017 SHRI SIDDHARTH KOTHARI, JAIPUR. APPELLANT PRAYS DISALLOWANCE SO CONFIRMED DESERVES TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LD. CIT (A) ERRED ION CONFIRMING DISALLOW3ANCE MADE LD. AO, BEING .5% OF AVERAGE INVESTMENT, BY COMPLETELY IGNORING THE F ACT THAT SHARES HELD BY ASSESSEE PERTAINED TO PATRIKA GROUP COMPA NIES FOR WHICH NO EXPENSES WHATSOEVER WERE INCURRED. IT IS THUS PR AYED THAT DISALLOWANCE CONFIRMED BY LD. CIT (A) DESERVES TO B E DELETED. 3. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELETE, AMEND OR ABANDON ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE SOLITARY COMMON ISSUE RAISED BY THE ASSESSEE IN BOTH THE APPEALS IS REGARDING THE DISALLOWANCE MADE BY THE AO UNDER SEC TION 14A READ WITH RULE 8D OF I.T. RULES ON ACCOUNT OF COMMON INDIRECT ADMINISTRA TIVE EXPENSES. THE ASSESSEE IS AN INDIVIDUAL AND DERIVED INCOME FROM SALARY AND GU ARANTEE COMMISSION FROM RAJASTHAN PATRIKA LTD. AS WELL AS INTEREST INCOME A ND INCOME FROM HOUSE PROPERTY. THE ASSESSEE FILED HIS RETURN OF INCOME ON 29.09.20 12 DECLARING TOTAL INCOME OF RS. 84,29,340/-. DURING THE COURSE OF SCRUTINY ASSESSM ENT, THE AO NOTED THAT THE ASSESSEE HAS MADE INVESTMENTS IN EQUITY INSTRUMENTS OF ASSOCIATE COMPANIES OF RS. 6,51,31,837/-. THE AO FURTHER NOTED THAT THE ASSESS EE HAS CLAIMED EXPENSES WHICH WERE SHOWN AS DEDUCTION FROM TAXABLE INCOME AND ACC ORDINGLY THE AO PROPOSED TO DISALLOW THE EXPENSES UNDER SECTION 14A OF THE IT A CT. IN RESPONSE, THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS ITS OWN CAPITAL OF RS. 4,23,80,124/- WHICH WAS APPLIED IN THE INVESTMENT OF SHARES. FURTHER, THE ASSESSEE HIMSELF HAS COMPUTED THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE AS SOME BORROWED FUNDS WERE ALSO APPLIED FOR ACQUISITION OF SHARES. THE AO ACCEPTED THE EXPLANATION OF THE ASSESSEE 3 ITA NOS. 827 & 947/JP/2017 SHRI SIDDHARTH KOTHARI, JAIPUR. AS REGARDS THE INTEREST EXPENDITURE. HOWEVER, THE A O PROCEEDED TO MAKE THE DISALLOWANCE ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENSES BY APPLYING THE FORMULA UNDER RULE 8D BEING .5% OF THE AVERAGE INVESTMENT. ACCORDINGLY, THE AO MADE A DISALLOWANCE OF RS. 2,85,892/- FOR THE ASSESSMENT Y EAR 2012-13 AND RS. 3,26,109/- FOR THE ASSESSMENT YEAR 2013-14. THE ASSESSEE CHAL LENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) AND CONTENDED THAT THE ASSES SEE HAS NOT INCURRED ANY EXPENDITURE AND ALSO NOT CLAIMED ANY EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THEREFORE, THERE CANNOT BE ANY DISALLOWA NCE UNDER SECTION 14A OF THE ACT. THE LD. CIT (A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS REFER RED TO THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE AND SUBMITTED T HAT THE ASSESSEE HAS CLAIMED ONLY EXPENDITURE ON ACCOUNT OF FINANCE EXPENSES WHI CH INCLUDES INTEREST, BROKERAGE AND BANK CHARGES. THUS THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE WHICH CAN BE ALLOCATED TO THE EXEMPT INCOME AND, THEREFORE, NO D ISALLOWANCE IS CALLED FOR UNDER SECTION 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 3.1. ON THE OTHER HAND, THE LD. D/R HAS RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. SO FAR AS THE DISALLOWANCE UNDER SECTION 14 A ON ACCOUNT OF INTEREST EXPENDITURE IS CONCERNED, THE AO HAS ACCEPTED THE E XPLANATION OF THE ASSESSEE AS WELL AS SELF DISALLOWANCE MADE BY THE ASSESSEE ON A CCOUNT OF INTEREST EXPENDITURE. THE ONLY DISPUTE IS REGARDING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADMINISTRATIVE EXPENSES BEING .5% OF AVERAGE INVEST MENT. THE ASSESSEE CLAIMED 4 ITA NOS. 827 & 947/JP/2017 SHRI SIDDHARTH KOTHARI, JAIPUR. THAT HE HAS NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AND FURTHER THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITUR E WHICH CAN BE ATTRIBUTED FOR EARNING THE EXEMPT INCOME. WE NOTE THAT THE ASSESSE E HAS CLAIMED ONLY EXPENDITURE IN THE INCOME AND EXPENDITURE ACCOUNT WHICH IS ON A CCOUNT OF FINANCE EXPENSES. AS PER THE SCHEDULE-11 OF THE INCOME AND EXPENDITURE, WE FURTHER NOTE THAT THE FINANCE EXPENSES COMPRISE OF INTEREST, BROKERAGE AN D BANK CHARGES. THEREFORE, OTHER THAN THE INTEREST, BROKERAGE AND BANK CHARGES , ASSESSEE HAS NOT CLAIMED ANY OTHER EXPENDITURE AGAINST THE INCOME WHICH IS CHARG EABLE TO TAX. SECTION 14A THOUGH ENVISAGES THE RULE OF APPORTIONMENT, SO FAR AS THE EXPENDITURE WHICH IS INCURRED BOTH FOR EARNING THE TAXABLE INCOME AS WEL L AS THE INCOME WHICH IS NOT FORMING PART OF THE TAXABLE INCOME HOWEVER, WHEN TH E ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE WHICH CAN BE ATTRIBUTABLE OR HAVE ANY C ONNECTION WITH THE EXEMPT INCOME THEN THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED FOR MAKING THE DISALLOWANCE BY APPLYING THE FORMULA PROVIDED UNDER RULE 8D. THE AO HAS TO FIRST IDENTITY THE EXPENDITURE WHICH IS CLAIMED BY THE AS SESSEE AND IS ALLOCABLE FOR EARNING THE EXEMPT INCOME AND THEN ONLY TO PROCEED WITH THE DISALLOWANCE MADE UNDER SECTION 14A AS WELL AS RULE 8D OF THE IT RULES. UN DISPUTEDLY, IN THE CASE IN HAND THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, THEREFORE, NO PROPORTIONATE DISALLOWANCE IS CALLED FOR. THE ACTUAL EXPENDITURE AND CLAIM OF EXPENDITURE IS THE PRE-REQUISITE CONDITION FOR INVOKING THE PROVISIONS OF SECTION 14A. IN A CASE WHERE NO ACTUAL EXPENDITURE IS INCURRED, THE AO CANNOT MAKE A DISALLOWANCE UNDER SECTION 14A. FURTHER, THE ASS ESSEE IS AN INDIVIDUAL AND, THEREFORE, EVEN IF THE ASSESSEE HAS DEVOTED SOME TI ME FOR MAKING INVESTMENT, THE PERSONAL CONTRIBUTION OF HIS LABOUR AND TIME CANNOT BE A BASIS FOR DISALLOWANCE WHEN 5 ITA NOS. 827 & 947/JP/2017 SHRI SIDDHARTH KOTHARI, JAIPUR. ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE ON THAT AC COUNT. ACCORDINGLY, IN THE ABSENCE OF ANY ACTUAL EXPENDITURE CLAIMED BY THE AS SESSEE ON ACCOUNT OF COMMON ADMINISTRATIVE EXPENSES, THE DISALLOWANCE MADE BY T HE AO IS NOT JUSTIFIED AND DESERVES TO BE DELETED. WE HOLD ACCORDINGLY. 5. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27/04 /2018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 27/04/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI SIDDHARTH KOTHARI, JAIPUR. 2. THE RESPONDENT THE DCIT, CIRCLE-6, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 827 & 947/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 6 ITA NOS. 827 & 947/JP/2017 SHRI SIDDHARTH KOTHARI, JAIPUR.