Surendra Kumar Joshi, Kolkata V. The ACIT, CIR-40, KOLKATA, Kolkata

ITA 869/KOL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4063 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 09-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2015
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI ABY T.VARKEY, JM & SHRI WASEE M AHMED, AM ] I.T.A NO.869/KOL/2015 ASSESSMENT YEAR : 2010-1 1 SURENDRA KUMAR JOSHI -VS.- A.C.I.T., CIR CLE-40, KOLKATA KOLKATA [PAN : ACPPJ 2620 L] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K.TIBREWAL, FC A & SHRI AMIT AGARWAL, ADVOCATE FOR THE RESPONDENT : NONE DATE OF HEARING : 09.12.2016. DATE OF PRONOUNCEMENT : 28.12.2016. ORDER PER ABY T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-12, KOLKATA DATED 11.03.2015 FOR AY 2010-11. 2. THE SOLE ISSUE BY WHICH THE ASSESSEE IS AGG RIEVED IS IN RESPECT OF CONFIRMATION OF THE DISALLOWANCE OF RS.6,19,150/- MADE BY THE AO U/ S 14A OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT ). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.10,58,005/-. LATER ON THE CASE W AS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESS EE HAS SHOWN RS.20,03,267/- AS DIVIDEND INCOME ON SHARES. SO THE AO TAKING NOTE TH AT THE ASSESSEE HAS CLAIMED EXPENDITURE TO THE TUNE OF RS.55,03,805/- CONFRONTE D THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A OF THE ACT IS NOT MADE. PURSUA NT TO THE SAID NOTICE THE ASSESSEE REPLIED THAT EXPENSES OF RS.55,03,805/- WERE INCURR ED FOR BUSINESS INCOME OF M/S. INDIA RAW SILK EXPORT AND THE SAID EXPENSES IS NOT IN REL ATION TO THE EARNING OF ANY TAX FREE INCOME. ACCORDING TO THE ASSESSEE, NO EXPENSES HAV E BEEN INCURRED FOR EARNING THE EXEMPT INCOME. NOT SATISFIED WITH THE REPLY GIVEN B Y THE ASSESSEE THE AO CALCULATED THE 2 ITA NO.869/KOL/2015 SURENDRA KUMAR JOSHI A.YR.2010-11 2 EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME BY A PPLYING RULE 8D AND WORKED OUT THE DISALLOWANCE TO THE TUNE OF RS.6,69,149/-. AGGR IEVED THE ASSESSE PREFERRED AN APPEAL BEFORE CIT(A), WHO WAS PLEASED TO DISMISS THE SAME. AGGRIEVED BY THE SAID ORDER OF THE LD. CIT(A) THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD THE LD. AR AND HAVE PERUSED T HE RECORDS. WE TAKE NOTE THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.20,03,267/ -. THE AO ASKED THE ASSESSEE AS TO WHY THE EXPENDITURE TO THE TUNE OF RS.55,03,805/- B E DISALLOWED FOR WHICH THE ASSESSEE REPLIED THAT IT WERE INCURRED FOR EARNING BUSINESS INCOME OF M/S. INDIAN RAW SILK EXPORTS AND CLARIFIED THAT THE SAID EXPENSES HAS NO THING TO DO WITH THE EARNING OF EXEMPT INCOME. IT WAS CLARIFIED THAT NO EXPENDITURE HAVE BEEN INCURRED TO EARN THE EXEMPT INCOME. NOT SATISFIED WITH THE REPLY OF THE ASSESSEE THE AO COMPUTED THE DISALLOWANCE BY INVOKING RULE 8D AND DISALLOWED RS. 6,69,149/-. ON APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO BY QUOTING FE W TRIBUNAL ORDERS. AGGRIEVED THE ASSESSEE IS BEFORE US. WE TAKE NOTE THAT THE ASSESS EE HAS RECEIVED THE DIVIDEND INCOME TO THE TUNE OF RS.20,03,267/- FOR WHICH THE ASSESSEE C LAIMED THAT THERE WAS NO EXPENDITURE INCURRED FOR EARNING THE SAID INCOME. THE QUESTION BEFORE US IS WHETHER THE ACTION OF THE AO TO INVOKE RULE 8D WITHOUT RECORDING SATISFACTION AS REQUIRED BY SECTION 14A OF THE ACT IS LEGALLY TENABLE OR NOT. SUB-SECTION (1) OF SECTION 14A CLEARLY STIPULATES THAT FOR THE PURPOSE OF COMPUTATION THE TOTAL INCOME UNDER C HAPTER IV (COMPUTATION OF INCOME) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SUB-SECTION (2) OF SECTION 14A PROVIDES THE MANNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME. THE REQUIREMENT OF THE AO EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME W OULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH TH E CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE COND ITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITU RE INCURRED IN RELATION TO EXEMPT 3 ITA NO.869/KOL/2015 SURENDRA KUMAR JOSHI A.YR.2010-11 3 INCOME IS THAT AO MUST RECORD THAT HE IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THEM THEN HE HAS TO C OMPUTE IN ACCORDANCE WITH THE METHOD PRESCRIBED I.E. AS PER RULE 8D. SUB-SECTION (3) WIL L BE ATTRACTED WHEN THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED FOR EA RNING THE EXEMPT INCOME THEN IN THAT CASE, RECOURSE HAS TO BE TAKEN TO THE PROCEDURE PRE SCRIBED IN SUB-SECTION (2) WHICH MEANS THAT WHEN THE ASSESSEE CLAIMS THAT HE HAS EAR NED THE EXEMPT INCOME AND HAS NOT INCURRED ANY EXPENDITURE THEN WHAT THE AO SHOULD DO IS AS PRESCRIBED IN SUB-SECTION (2) I.E. IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE INCOME THEN HE HAS TO MAKE DISALLOWANCE IN ACCORDAN CE WITH RULE 8D. SO AS PER SECTION 14A(2) THE EXERCISE OF THE COMPUTATION OF RULE 8D C AN BE MADE ONLY IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , IN THIS CA SE, AS TO HIS CLAIM THAT NO EXPENDITURE HAVING BEING INCURRED FOR EARNING THE EXEMPT INCOME . HERE THE MAIN THRUST OF THE ARGUMENT OF THE ASSESSEE IS THAT AO HAS NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT THE CLAIM OF THE ASSESSEE HAVING NOT INCURRED ANY E XPENDITURE FOR EARNING EXEMPT INCOME HAVE BEEN MADE OUT BEFORE INVOKING RULE 8D. WE TAKE NOTE THAT IN ORDER TO INVOKE RULE 8D THE AO SIMPLY HAS MADE A STATEMENT T HAT SINCE THE ASSESSEE HAS SHOWN THE DIVIDEND INCOME OF RS.20,03,267/- WHICH DOES NO T FORM PART OF THE TOTAL INCOME SO IT ATTRACTS SECTION 14A AND RULE 8D. WHEN THE ASSESSE E WAS SHOW CAUSED WHY THE EXPENSES OF RS.50,03,805/- SHOULD NOT BE DISALLOWED U/S 14A, THE ASSESSEE HAS INFORMED THE AO THAT IT HAS NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPT INCOME. WE NOTE THAT THE AO HAD MADE THE COMPUTATION AS PER RULE 8D WITH OUT RECORDING THE SATISFACTION THAT THE CLAIM MADE BY THE ASSESSEE IS INCORRECT. THE AO HAS NOT GIVEN ANY FINDING THAT ANY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IS ATTR IBUTABLE TO EARNING EXEMPT INCOME, WITHOUT WHICH THE AO CANNOT INVOKE RULE 8D. IN OTHE R WORDS WHEN THE AO HAS NOT POINTED OUT THAT CERTAIN EXPENDITURE IS NOT INCURRE D FOR EARNING THE BUSINESS INCOME BUT ARE INCURRED IN RELATION TO THE DIVIDEND INCOME HE CANNOT RESORT TO RULE 8D. THE HONBLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT VS DEEPAK MITTAL [2013] 38 4 ITA NO.869/KOL/2015 SURENDRA KUMAR JOSHI A.YR.2010-11 4 TAXMANN.COM 83 HAS HELD THAT THE AO WITHOUT APPLICA TION OF MIND AND WITHOUT BRINGING ON RECORD ANY EXPENDITURE THAT MAY HAVE BE EN INCURRED BY THE ASSESSEE TO EARN EXEMPT INCOME CANNOT APPLY THE FORMULA SET OUT IN R ULE 8D. THEREFORE BY APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT AND A S PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARE & STOCK BROKERS (P)LTD 326 ITR 1 (SC) AND MAXOPP INVEST LTD VS CIT 347 ITR 272 (DEL) WHEREIN IT HAS BEEN HELD THAT FOR ATTRACTING THE PROVISION OF SECTION 14A THERE S HOULD BE ACTUAL EXPENDITURE IN RELATION TO OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME, NO DISAL LOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. IN THIS CASE THE AO FAILED TO POINT OUT THAT AS TO WHETHER THERE WAS ANY EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING THE EXEMPT INCOME. THEREFORE WE ALLOW THE APPEAL OF THE ASSESSEE AND SET ASIDE THE ORDER OF CIT(A) AND ORDER DELETION OF THE ADDITION MADE BY THE AO. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE COURT ON 28.12.2016. SD/- SD/- [WASEEM AHMED] [ ABY T.VARKEY ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28.12.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.SURENDRA KUMAR JOSHI, 61/C, KESHAV CHANDRA SEN ST REET, KOLKATA-700009. 2. A.C.I.T.-CIRCLE-40, KOLKATA. . 3..CIT(A)-12, KOLKATA 4. CIT 14, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES 5 ITA NO.869/KOL/2015 SURENDRA KUMAR JOSHI A.YR.2010-11 5