Justice Mohan Lal Varma (Retd.), New Delhi V. DCIT, New Delhi

ITA 864/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3616 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 19-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: B K ANAND ICA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O. P. KANT, ACCOUNTANT MEMBER I.T.A. NO.864/DEL/2016 ASSESSMENT YEAR: 2012-13 JUSTICE MOHAN LAL VARMA (RETD.), A-124, NITI BAGH, NEW DELHI. V. DY. COMMISSIONER OF INCOME TAX, CIRCLE-63(1), NEW DELHI. TAN/PAN: AACPV 5024D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B.K. ANAND, ICA RESPONDENT BY: SHRI RAVI KANT GUPTA, SR.D.R. DATE OF HEARING: 30 01 2018 DATE OF PRONOUNCEMENT: 31 01 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 14/12/2015 PASSED B Y THE LD. CIT (APPEALS)-20, NEW DELHI FOR THE QUANTUM OF ASSES SMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. 2. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLEN GED, FIRSTLY, DISALLOWANCE U/S.14A OF RS.93,736/-; AND SECONDLY , DISALLOWANCE OF RS.60,000/- PAID TO SHRI SATYA MITRA, BEING SALARY PAID TO ASSESSEES JUNIOR ON THE GROUND THAT ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE AND THEREBY INVOKING THE PROVISION OF SECTION 40(A)(IA). I.T.A. NO.864/DEL/2016 2 3. THE ASSESSEE RETIRED IS A RETIRED HIGH COURT JUDGE AND IS PRACTICING AS SENIOR ADVOCATE BEFORE THE HON'BLE SUPRE ME COURT. IN THE RETURN OF INCOME ASSESSEE HAS CLAIMED DIVIDEND INCOME AMOUNTING TO RS.17,06,739/- AS EXEMPT. IN RESPONSE TO THE SHOW CAUSE NOTICE BY THE ASSESSING OFFICER, AS TO WHY DISAL LOWANCE SHOULD NOT BE MADE U/S.14A READ WITH RULE 8D, THE ASS ESSEE SUBMITTED THAT NO EXPENDITURE ATTRIBUTABLE FOR EARNING OF E XEMPT INCOME HAS BEEN INCURRED BY THE ASSESSEE. THE ASSESS EE MAIN CONTENTION WAS THAT, THE INVESTMENTS HAVE BEEN MADE OUT O F HIS PERSONAL DRAWINGS AND PERSONAL FUNDS. HOWEVER, THE L EARNED ASSESSING OFFICER, PROCEEDED TO APPLY RULE 8D MECHAN ICALLY, WITHOUT APPLYING WITH THE MANDATORY PROVISION OF SUB -SECTION (2) OF SECTION 14A, I.E., WHETHER THE ASSESSEES CLAIM IS CORRECT HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE. HE C OMPUTED THE DISALLOWANCE OF RS.93,736/- UNDER RULE 8D(2)(III ). 3. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.1,41,500/- PAID TO JUNIOR AD VOCATES ON WHICH NO TDS HAS BEEN DEDUCTED. THE ASSESSEE WAS RE QUIRED TO PRODUCE THE EVIDENCE FOR THE PAYMENT TO THE JUNIOR ADVO CATES AND AS TO WHY TDS HAS NOT BEEN DEDUCTED. IN RESPECT PAYMEN T MADE TO ONE JUNIOR ADVOCATE, SHRI SATYA MITRA, THE ASSESSEE S UBMITTED THAT HE WAS PAID A SALARY @ RS.8000/- PER MONTH AND THEREF ORE, NO TDS WAS REQUIRED TO BE DEDUCTED. HOWEVER, THE ASSESSIN G OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT TDS WAS REQUIRED TO BE DEDUCTED U/S.194J AND AFTER INVOKING THE PROVIS ION OF SECTION 40(A)(IA) HE MADE THE ADDITION OF RS.1,41,500/ -. 4. BEFORE THE FIRST APPELLATE AUTHORITY, SO FAR AS TH E ISSUE RELATING TO THE DISALLOWANCE U/S.14A R.W.S. RULE 8D THE ASSESSEE I.T.A. NO.864/DEL/2016 3 BESIDES VARIOUS LEGAL SUBMISSIONS, SUBMITTED THAT IN THE EARLIER YEAR THE APPEAL IS PENDING BEFORE THE TRIBUNAL AND AS SESSING OFFICER HAS NOT FOLLOWED THE PROPER LEGAL PROCEDURE F OR INVOKING THE PROVISION OF RULE 8D. HOWEVER, LD. CIT (A) CONFIRME D THE ACTION OF THE ASSESSING OFFICER HOLDING THAT RULE 8D WAS REQUIR ED TO BE INVOKED BECAUSE ASSESSEE HAS EARNED EXEMPT INCOME FO R WHICH HE HAS NOT ALLOCATED THE EXPENDITURE. 5. SO FAR AS THE DISALLOWANCE ON ACCOUNT OF PAYMENT M ADE TO JUNIOR ADVOCATES BY INVOKING THE PROVISION OF SECTION 40(A)(IA), THE ASSESSEE SUBMITTED THAT SO FAR AS THE PAYMENT MADE TO SHRI SATYA MITRA, THE SAME WAS ON ACCOUNT OF SALARY AND SINCE HI S INCOME WAS BELOW OF RS.2 LAKHS, THEREFORE, THE TDS WAS NOT RE QUIRED TO BE DEDUCTED. REGARDING PAYMENTS MADE TO OTHER JUNIOR ADVO CATES IT WAS SIMPLY STATED THAT THEY ARE REGULAR TAX PAYERS AND THE Y HAD FILED THEIR TAX RETURNS, HENCE NO DISALLOWANCE SHOULD BE MADE. 6. HOWEVER, THE LEARNED CIT(A) HELD THAT ASSESSING OF FICER HAS RIGHTLY MADE THE DISALLOWANCE U/S.40(A)(IA) AS TH E ASSESSEE HAS NOT FILED ANY DETAILS OF BENEFICIARIES HAVING PAI D TAX ON THE RECEIPT AND UNDER WHICH HEAD. 7. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT SO FAR AS THE DISALLOWANCE U/S.14A IS CONCERN, THE I SSUE HAD COME FOR CONSIDERATION BEFORE THE HON'BLE TRIBUNAL, WHEREI N THE TRIBUNAL HAS DELETED THE SAID DISALLOWANCE ON SIMILA R SET OF FACTS. SO FAR AS THE DISALLOWANCE U/S.40(A)(IA) IS CONCERN, HE SUBMITTED THAT OUT OF DISALLOWANCE OF RS.1,41,500/- THE ASSESSE E IS ONLY CHALLENGING THE DISALLOWANCE OF RS.60,000/- WHICH WA S ON ACCOUNT OF SALARY PAID TO SHRI SATYA MITRA. HE SUBMITTED THAT HE WAS ONLY I.T.A. NO.864/DEL/2016 4 PAID STIPEND/SALARY FOR THE WHOLE YEAR AT RS.60,000/- AND SINCE HIS TAXABLE INCOME WAS MUCH BELOW THE LIMIT OF RS.2 L AC, THEREFORE, TDS WAS NOT REQUIRED TO BE DEDUCTED. 8. LEARNED DR, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT DETAILED REASO NING HAVE BEEN GIVEN FOR HOLDING THE DISALLOWANCE AFTER CONSID ERING THE ENTIRE SUBMISSION PLACED BY THE ASSESSEE. SO FAR AS THE DISA LLOWANCE ON ACCOUNT OF PAYMENT OF RS.60,000/- BY WAY OF SALARY, H E SUBMITTED THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS IN ACCORDANCE WITH LAW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERU SED THE RELEVANT MATERIAL ON RECORD. SO FAR AS THE DISALLOWAN CE U/S.14A OF RS.93,736/- IS CONCERN, WE FIND THAT IN THE ASSESSME NT YEAR 2011-12 ON SIMILAR SET OF FACTS, THE TRIBUNAL AFTER CON SIDERING THE ENTIRE FACTS AND VARIOUS DECISIONS OF THE HON'BLE DEL HI HIGH COURT, HAS DELETED THE SAID ADDITION AFTER HOLDING AS UNDER: 7.1 NOW APPLYING THE AFORESAID LEGAL POSITION TO T HE FACTS OF THE ASSESSEES CASE, IT IS NOTICED THAT THE ASSE SSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST THE INVESTMENT INCO ME. THE ASSESSING OFFICER HAS MADE THE ADDITION ON ESTIMATE BASIS WHICH IS NOT PERMISSIBLE UNDER THE LAW. 7.2 IN VIEW OF THE AFORESAID FACTS AND RESPECTFULL Y FOLLOWING THE PRECEDENTS AS ABOVE, WE HAVE NO REASON TO DISAG REE WITH THE CLAIM OF THE ASSESSEE THAT NO FURTHER EXPENDITURE O VER AND ABOVE THE EXPENSES ALREADY DISALLOWED IN THE RETURN OF IN COME IS REQUIRED TO BE DISALLOWED UNDER SECTION 14A OF THE IT ACT. A CCORDINGLY, IT IS HELD THAT THE DISALLOWANCE OF RS.80,182/- MADE BY T HE ASSESSING OFFICER UNDER SECTION 14A OF THE IT ACT BY APPLICAT ION OF RULE 8D OF I.T.A. NO.864/DEL/2016 5 THE IT RULES IS DIRECTED TO BE DELETED AND ACCORDIN GLY, THE GROUNDS RAISED BY THE ASSESSEE STAND ALLOWED. 10. SINCE SIMILAR FACTS AND ISSUE IS PERMEATING IN TH IS YEAR, THEREFORE, FOLLOWING THE JUDICIAL PRECEDENT, WE ALSO DELETE THE DISALLOWANCE OF RS.93,736/- MADE U/S.14A. 11. SO FAR AS DISALLOWANCE OF RS.60,000/- ON ACCOUN T OF SALARY PAID TO JUNIOR ADVOCATE, SHRI SATYA MITRA ON THE GROUND THAT NO TDS HAS BEEN DEDUCTED, WE FIND THAT THE ASSESSEE HAS P AID STIPEND/SALARY TO THE SAID PERSON @ RS.8000/- PER MONTH AGGREGATING TO RS.60,000/- FOR THE WHOLE YEAR. THE INC OME OF THE SAID JUNIOR ADVOCATE IS MUCH BELOW THE TAXABLE LIMIT OF RS.2 LAKHS; AND IF THIS IS AN UNDISPUTED FACT, THEN OSTENSIBLY NO WITHHOLDING TAX ON SUCH PAYMENT IS REQUIRED. ACCORDINGLY, WE HOLD THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON THE PAYMENT MADE TO THE JUNIOR ADVOCATE TOWARDS SALARY AS HIS INCOME WAS BELOW TAXABLE LIMIT AND CONSEQUENTLY, THE DISALLOWANCE MADE U/S.40(A)(IA) IS DIRECTED TO BE DELETED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST JANUARY, 2018 PKK: