Shri Shanti Bhushan (Senior Advocate), New Delhi V. JCIT, New Delhi

ITA 949/DEL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6519 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 29-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: B K ANAND
• Keywords: Salary income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO. 949/DEL/2012 A.Y. : 2008-09 SHANTI BHUSHAN 1, JAIPUR ESTATE, NIZAMUDDIN EAST, NEW DELHI 110013 (PAN: AACPB3899E) VS. JCIT, RANGE-37, ROOM NO. 401, N BLOCK, VIKASH BHAWAN, INDRAPRASTHA ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. B.K. ANAND, CA DEPARTMENT BY : SH. S.K. JAIN, SR. DR ORDER PER H.S. SIDHU : JM ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 22.12.2011 PASSED BY THE LD. CIT(A)-XXVIII, NEW DEL HI RELEVANT TO ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S . 14A OF RS. 14,56,385/- AS AGAINST RS. 50,040/- COMPUTED BY THE ASSESSEE AS EXPENSES RELATED TO EARNING OF INCOME O N WHICH TAX IS NOT PAYABLE. 2. THAT THE ORDER OF THE AUTHORITIES BELOW HOLDING THA T RS. 14,56,385/- WAS TO BE DISALLOWED OUT OF THE EXPENS ES INCURRED BY THE ASSESSEE IN THE COURSE OF HIS PRACT ICE AS A 2 SENIOR ADVOCATE IS NOT SUSTAINABLE AS AT NO STAGE H AVE SAID THE AUTHORITIES FOUND ANY DISSATISFACTION AS REGAR DS THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. 3. THAT THE DISALLOWANCE OF EXPENSES U/S. 14A ON SUBJE CTIVE AND PRESUMED FACTS CONTRARY TO THE REALTIES OF THE CASE IS A HYPOTHETICAL DISALLOWANCE WHICH NEEDS TO BE DELET ED. 4. THAT THE ORDERS OF THE LD. AUTHORITIES BELOW BEING CONTRARY THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE APPEAL BE ALLOWED. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA D FILED THE RETURN DECLARING INCOME OF RS. 13,58,38,450/- ON 30.9.2008 . THE CASE WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961 ON 10.1 2.2009. THE CASE OF THE ASSESSE WAS SELECTED FOR SCRUTINY. THE ASSESSIN G OFFICER ISSUED THE NOTICE U/S. 143(2) OF THE ACT DATED 13.8.2009 TO TH E ASSESSEE WHICH WAS SERVED ON THE ASSESSEE. IN RESPONSE THERETO AUTHO RISED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED THE REQUISITE D ETAILS. THE BOOKS OF ACCOUNT ALONGWITH VOUCHERS WERE CALLED FOR AND VERI FIED ON TEST CHECK BASIS. THE ASSESSEE IS A SENIOR ADVOCATE, PRACTICIN G AT THE HONBLE SUPREME COURT OF INDIA AND HAS SHOWN INCOME UNDER T HE HEADS INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY, INCOME FRO M PROFESSION, INCOME FROM CAPITAL GAIN AND INCOME FROM OTHER SOURCES. DU RING THE PREVIOUS YEAR, THE ASSESSEE HAS SHOWN PROFESSIONAL RECEIPTS OF RS. 12.37 CRORES AS AGAINST RS. 10.19 CRORES LAST YEAR. IN THIS CASE, BEFORE THE AO THE ASSESSEE CONTENDED THAT IT HAD ADDED BACK AMOUNT OF RS. 50,400/- FROM 3 THE EXPENSES CLAIMED AS NON-DEDUCTIBLE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS PROVIDED U/S. 14A OF THE ACT. AO OBSERVED THAT ASSESSEE HAS NOT PROVIDED ANY DETAILS OF COST INCURRED AS FEE PA ID TO MUTUAL FUND AGENTS/ PORTFOLIO MANAGERS. AO OBSERVED THAT THE AS SESSEE HAS MADE INVESTMENTS FOR EARNING EXEMPT INCOME THROUGHOUT TH E YEAR. MANAGING SUCH A LARGE PORTFOLIO ENTAIL EXPENSES RIGHT FROM D IVERSION OF MANPOWER / STAFF FOR INDULGING IN INVESTMENT ACTIVITIES TO VA RIOUS ACTIVITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE OF INTERNE T IF PORTFOLIO MANAGEMENT IS WEB BASED, COST OF COMPUTER AND ITS D EPRECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF O FFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/ BANKERS, PORTFOLIO R ECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIME SALE/PURCHASE OF MU TUAL FUND UNITS, ETC. ACCORDINGLY, THE HELD THAT IN VIEW OF PROVISION OF SECTION 14A READ WITH RULE8D OF THE INCOME TAX RULES, 1962, AN EXPENDITUR E OF RS. 14,56,385/- WAS DETERMINED WHICH IS ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME AND ADDED BACK TO THE INCOME OF THE ASSESSEE AND AC CORDINGLY, ASSESSED THE INCOME OF THE ASSESSEE AT RS. 13,78,06,384/- AN D COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 1961 DATED 15.12.2010. 3. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 15.12. 2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 22.12.2011 HAS PARTLY ALLOWED THE APPEAL AND SUSTAINED THE ADDITION OF RS. 14,56,385/-. 4 4. AGAINST THE IMPUGNED ORDER DATED 22.12.2011, A SSESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE STATED THAT AS REGARD TO DISALLOWANCE MADE U/S. 14A OF THE ACT OF RS. 14,56,385/- AS AGAINST RS. 50,400/- COMPUTED BY THE ASSESSEE AS EX PENSES RELATED TO EARNING OF INCOME ON WHICH TAX IS NOT PAYABLE. HE FURTHER STATED THAT DISALLOWANCE OUT OF EXPENSES INCURRED BY THE ASSESS EE IN THE COURSE OF HIS PRACTICE AS A SENIOR ADVOCATE IS NOT SUSTAINABLE AS AT NO STAGE HAVE SAID THE AUTHORITIES FOUND ANY DISSATISFACTION AS REGARD S THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. HE REQUESTED THAT THE ADDITION IN DISPUTE MAY BE DELETED AND THE APPEAL OF THE ASSESSEE MAY B E ALLOWED. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE CASE LAW IN THE CASE OF CIT VS. TAIKISHA ENGINEERING LTD. (DELHI HIGH COURT) IT A NO. 115/2014 & 119/2014 DATED 25.11.2014. 6. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS AVAILABLE WITH ME ESPECIALLY THE ORDERS OF THE REVENUE AUTHOR ITIES. WE FIND THAT DISALLOWANCE MADE U/S. 14A OF THE ACT OF RS. 14,56, 385/- WAS AGAINST RS. 50,400/- COMPUTED BY THE ASSESSEE AS EXPENSES RELAT ED TO EARNING OF INCOME ON WHICH TAX IS NOT PAYABLE IN THE EYES OF L AW. WE FURTHER FIND THAT DISALLOWANCE OUT OF EXPENSES INCURRED BY THE A SSESSEE IN THE COURSE OF HIS PRACTICE AS A SENIOR ADVOCATE IS NOT SUSTAIN ABLE AS AT NO STAGE IT 5 HAS BEEN SAID THAT THE AUTHORITIES FOUND ANY DISSAT ISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. IN VIEW OF ABOVE, NO DISALLOWANCE UNDER SECTION 14A IS SUSTAINABLE IN TH E EYES OF LAW. OUR VIEW IS FORTIFIED BY THE FOLLOWING DECISIONS:- CIT VS TAIKISHA ENGINEERING INDIA LTD. (DELHI HIGH COURT) ITA 115/2014 & 119/2014 DATED 25-11-2014 DISALLOWANCE OF EXPENSES ON EXEMPT INCOME ULS 14A R .W RULE 80 - INVESTMENTS IN SHARES AND MUTUAL FUNDS - HELD THAT:- IN MAXOPP INVESTMENT LTD. VS. COMMISSIONER O F INCOME TAX [2011 (11) TMI 267 - DELHI HIGH COURT] I T HAS BEEN HELD THAT IT IS ONLY WHEN THE AO IS NOT SA TISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATUR E DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCR IBED - THE FINDINGS RECORDED BY THE CIT(A) AND THE TRIBU NAL ARE APPROPRIATE AND RELEVANT - THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS - THE SELF OR VOLUNTARY DEDUCTIONS MAD E BY THE ASSESSEE WERE NOT REJECTED AND HELD TO BE UNSATISFACTORY, ON EXAMINATION OF ACCOUNTS - THE RU LE IN SUB RULE (2) SPECIFICALLY PRESCRIBES THE MODE AND METHOD FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT - UNDER CLAUSE (II) TO RULE 80(2) OF THE RULES, THE AO IS REQUIRED TO EXAMINE WHETHER THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTERES T IN THE PREVIOUS YEAR AND SECONDLY WHETHER THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME OR RECEIPT - THE AMOUNT TO BE DISALLOWED AS EXPENDITUR E RELATABLE TO EXEMPT INCOME, UNDER SUB RULE (2) IS T HE AGGREGATE OF THE AMOUNT UNDER CLAUSE (I), CLAUSE (I I) 6 AND CLAUSE (III) - CLAUSE (I) RELATES TO DIRECT EXP ENDITURE RELATING TO INCOME FORMING PART OF THE TOTAL INCOME AND UNDER CLAUSE (III) AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE AMOUNT OF VALUE OF INVESTMENT, APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF THE ASSESSEE HAS TO BE DISALLOWED - THUS, THE ORDER OF THE TRIBUNAL IS UPHELD - DECIDED AGAINST REVENUE. 7.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORESAID, THE DISALLO WANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS DELETED AND TH E ISSUE IN DISPUTE RAISED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2016. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 14/12/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES 7