Rayala Corporation (P) Ltd., CHENNAI V. DCIT, CHENNAI

ITA 908/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96258 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 12-10-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 23-04-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Earning of tax free income; Question of law; Initiation of penalty proceedings
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL ME MBER I.T.A. NO. 908 /MDS/2015 ASSESSMENT YEAR : 20 11 - 12 M/S. RAYALLA CORPORATION (P) LTD., 144/7, OLD MAHABALIPURAM ROAD, KOTTIVAKKAM, CHENNAI 600 041. [PAN: A A BCR7230D ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX , CO MPANY CIRCLE 5 (1), CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE / RESPONDENT BY : SHRI, A.V. SREEKANTH , J CIT / DATE OF HEARING : 1 2 . 1 0 .201 5 / DATE OF P RONOUNCEMENT : 16 . 1 0 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 3 , C HENNAI , DATED 04 . 0 2 .20 1 5 RELEVANT TO T HE ASSESSMENT YEAR 20 11 - 12 . 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF LETTING OUT OF PROPERTIES AND FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SEC TION 143(3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] BY ASSESSING I.T.A. NO . 908 /M/ 15 2 INCOME FROM LETTING OUT OF PROPERTY UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS OR PROFESSION . 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E LD. CIT(A) AND THE LD. CIT(A) BY FOLLOWING THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09 IN I.T.A. NO. 1464/MDS/2011 ORDER DATED 06.02.2012, CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED FOR THE ASSESSMENT YEAR 2001 - 02, THE ITAT IN ITS ORDER IN I.T.A. NO. 103/MDS/2005 DATED 24.04.2007 AND I.T.A. NOS. 387 & 388/MDS/2006 DATED 22.09.2006, DECIDED THE ISSUE IN FAV OUR OF THE REVENUE BY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. CHENNAI PROPERTIES AND INVESTMENTS 266 ITR 685. THE VERY SAME DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT HAS BEEN REVERTED BY THE HON BLE SUP REME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD. V. CIT 373 ITR 673 AND THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT THE SAME MAY BE FOLLOWED AND THE ORDER OF THE LD. CIT(A) MAY BE REVERTED. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE FIRST ISSUE INVOLVED IN THIS APPEAL I.T.A. NO . 908 /M/ 15 3 IS WHETHER THE INCOME FROM LETTING OUT OF THE PROPERTY HAS T O BE CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS OR PROFESSION . IN EARLIER ASSESSMENT YEAR 2001 - 02, THE ITAT, BY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. CHENNAI PROPERTIES A ND INVESTMENTS (SUPRA) DECIDED THE APPEAL AGAINST THE ASSESSEE. ACCORDINGLY IN THE ASSESSMENT YEAR 2008 - 09 IN I.T.A. NO. 1464/MDS/2011, THE TRIBUNAL BY FOLLOWING ITS DECISION IN ASSESSMENT YEAR 2001 - 02, DECIDED THE APPEAL IN FAVOUR OF THE REVENUE. WE FIND THAT THE VERY SAME DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT HAS BEEN REVERTED BY THE HON BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD. V. CIT (SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON BLE SUPREM E COURT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE IN RESPECT OF RS.1,30,649/ - UNDER SECTION 14A READ WITH RULE 8D. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS EAR NED EXEMPT DIVIDEND INCOME OF .50,611/ - . THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIVIDEND. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE UNDER SECTION 14A R.W.R. 8D. THE ASSESSEE IN HIS LETTER DATED 12.01.2013 HAS STATE D THAT WE HAVE CLAIMED .34,513/ - , THE MANAGEMENT FEE PAID TO HDFC ASSET I.T.A. NO . 908 /M/ 15 4 MANAGEMENT COMPANY LIMITED TOWARDS MANAGEMENT OF OUR INVESTMENT PORTFOLIO. AS THE INVESTMENT IS OUT OF INTERNAL ACCRUALS, QUESTION OF INVOKING SECTION 14A WILL NOT ARISE. HOWEVER, T HE ASSESSING OFFICER HAS NOT ACCEPTED THE REPLY GIVEN BY THE ASSESSEE AND BY INVOKING SECTION 14A R.W.R. 8D, DISALLOWED AN AMOUNT OF .1,30,649/ - . 9. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. 10. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS MORE THAN THE EXEMPT INCOME EARNED BY THE A SSESSEE AND THEREFORE, SUBMITTED THAT THE DISALLOWANCE CANNOT BE MORE THAN THE EXEMPT INCOME IN VIEW OF THE DECISION IN THE CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 (DELHI). 11. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF AUTHORI TIES BELOW. 12. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF .50,611/ - AND THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIV IDEND. THE ASSESSING OFFICER, BY INVOKING SECTION 14A R.W.R. 8D MADE DISALLOWANCE OF .1,30,649/ - AND THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I N SIMILAR FACTS I.T.A. NO . 908 /M/ 15 5 AND CIRCUMSTANCES, THE HON BLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE HEAD - NOTES ARE AS UNDER: INCOME - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - DISALLOWANCE - ASSESSEE WAS ENGAGED IN DIVERSE INVESTMENT ACTI VITIES AND IN THE COURSE OF ITS BUSINESS DERIVED INCOME FROM RENT, SALE OF INVESTMENTS, DIVIDEND AND INTEREST - FOR AY 2009 - 10, ASSESSEE HAD REPORTED A LOSS OF SPECIFIED AMOUNT - ASSESSEE DECLARED TAX EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF RS.4 8 , 90,000 - ASSESSEE VOLUNTEERED RS.2,97,440 AS ATTRIBUTABLE U/S14A FOR THE PURPOSE OF DISALLOWANCE - AO ON THE BASIS OF HIS OWN UNDERSTANDING OF RULE 8 D OF THE INCOME TAX RULES DISALLOWED THE SUM U/S 14A READ WITH RULE 8 D - ASSESSEE CLAIMED THAT THE ENTIRE TAX EXE MPT INCOME OF RS.48,90,000 WAS LOWER THAN THE DISALLOWANCE - CIT(A) AND ITAT UPHELD AO'S ORDER - HELD, IN CASE OF CIT(A) V. TAIKISHA ENGINEERING INDIA LTD., IT WAS HELD BY PRESENT COURT THAT IN VIEW OF THE PECULIAR WORDING OF SECTION 14A (2) THAT COMPUTATION O R DISALLOWANCE OF THE ASSESSEE, OR CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME SHOULD BE EXAMINED WITH REFERENCE TO THE ACCOUNTS AND ONLY IF THE ASSESSEE'S EXPLANATION WAS UNSATISFACTORY, CAN THE AO PROCEED FURTHER - IN THE PRESENT CASE, FIRSTLY IT WAS NOT DISCLOSED BY THE AO THAT THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS.2,97,440 AS A DISALLOWANCE U/S 14A HAD TO BE REJECTED - SECONDLY, THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO AN ASPECT WHIC H WAS COMPLETELY UNNOTICED BY THE CIT(A) AND THE ITAT - THIRDLY, AN IMPORTANT ANOMALY WHICH INSTANT COURT CANNOT BE UNMINDFUL OF WAS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME WAS RS.48,90,000, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PERC ENT OF THAT SUM, THAT IS RS.52,56,197 - BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME WAS TO BE DISALLOWED - THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTION 14A, AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME' - THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE - ITAT AS WELL AS THE AO AND CIT(A) HA D ESCAPED THE MANDATE OF SECTION 14A(2) - IMPUGNED ORDER OF THE ITAT WAS SET ASIDE - QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSESSEE - ORDER OF THE AO WAS SET ASIDE - INITIATION OF PENALTY PROCEEDINGS ALSO WAS SET ASIDE - MATTER WAS REMITTED TO THE AO FOR FR ESH I.T.A. NO . 908 /M/ 15 6 CONSIDERATION IN ACCORDANCE WITH THE ABOVE DIRECTIONS ASSESSEE S APPEAL ALLOWED. 13. IN THE PRESENT CASE, THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF .50,611/ - . THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIVIDEND INCOME. THE ASSESSING OFFICER DISALLOWED THE EXPENSES TO THE TUNE OF .1,30,649/ - BY INVOKING SECTION 14A R.W.R. 8D. BY TAKING INTO CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND KEEPING IN VIEW OF THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING EXCESSIVE DISALLOWANCE. THEREFORE, WE RESTRICT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AND ORDERED ACCORDINGLY. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 16 TH O F OCTOBER , 2015 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 1 0 .201 5 VM/ - I.T.A. NO . 908 /M/ 15 7 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.