Mukul Rohatgi, New Delhi V. JCIT, New Delhi

ITA 998/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97651 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI LAXMI PRASHAD SAHU ITA NO.998/DEL/2012 ASSESSMENT YEAR: 2008-09 MUKUL ROHATGI, VS. JCIT, 59- SUNDER NAGAR, RANGE-37, NEW DELHI. NEW DELHI. (PAN: AACPR4789B) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P.C. YAD AV, ADV. RESPONDENT BY: SHRI P.DAMKANUNJ NA, SR. DR DATE OF HEARING : 19 .08.2015 DATE OF PRONOUNCEMENT: 14:10.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE FOLLOWING GROUNDS (REVISED) : 1. THAT THE ORDER OF THE LEARNED CIT(APPEALS) IS BAD I N LAW AND ON FACTS: 2. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMI NG THE ASSESSMENT OF THE INCOME OF THE ASSESSEE AT RS.18.6 3,90,250 AS AGAINST THE RETURNED INCOME OF RS.18,54,95,430/-/ 3. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.1,18,675 OUT OF THE INTEREST EXPENSES INCURRED O N BORROWED FUNDS PERTAINING TO HIGHER PURCHASE OF CAR. 2 4. THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,97,684 MADE BY A.O. INVOKING T HE PROVISIONS OF SEC. 14A READ WITH RULE 8D. 5. THE LEARNED CIT(APPEALS) HAS FURTHER FAILED TO APPR ECIATE THAT ASSESSEE HAS INVESTED IN TAX SAVING BONDS IN THE FO RM OF ONE TIME INVESTMENT AND HAS NOT MAINTAIN ANY MANAGERIAL STAF F OR OTHER OFFICE STAFF FOR MANAGING THE INVESTMENT SO MADE. 6. THE LEARNED CIT(APPEALS) HAS FURTHER FAILED TO APPR ECIATE THAT FOR INVOKING THE PROVISIONS OF RULE 8D WITH SECTION 14A THE BURDEN IS ON A.O. TO ESTABLISH A PROXIMATE NEXUS BETWEEN THE EXEMPT INCOME AND THE EXPENSES INCURRED THEREON BEFORE MAKING ANY DISALLOWANCE. 2. BESIDES ABOVE, THE ASSESSEE HAS ALSO MOVED AN AP PLICATION FOR ALLOWING THE FOLLOWING ADDITIONAL GROUND FOR THE AD JUDICATION OF THE ITAT: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWAN CE OF RS.2,97,684 MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIO NS OF SEC. 14A READ WITH RULE 8D. IN SUPPORT OF THE ABOVE APPLIC ATION, THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD RAISED A SIMILAR GROUND BEFORE THE LEARNED CIT(APPEALS) 3. THE LEARNED AR SUBMITTED THAT THE THOUGH THE ABO VE GROUND QUESTIONING THE DISALLOWANCE WAS RAISED BEFORE THE LEARNED CIT(APPEALS) BUT THE SAME HAS BEEN REJECTED BY THE LEARNED CIT(A PPEALS) AS HAS NOT BEEN 3 PRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARING BEFORE HIM WITHOUT ANY INSTRUCTION IN THIS REGARD B Y THE ASSESSEE. 4. WE ARE, HOWEVER, OF THE VIEW THAT SINCE THE ISSU E IS ARISING OUT OF THE FIRST APPELLATE ORDER AND RAISED IN THE REVISED GRO UNDS BEFORE THE ITAT, THERE IS NO NEED TO RAISE IT AGAIN AS ADDITIONAL GR OUND BEFORE THE ITAT, ESPECIALLY WHEN THE LEARNED CIT(APPEALS) HAS DEALT WITH THE ISSUE. AS TO WHETHER THE LEARNED COUNSEL APPEARING BEFORE THE FI RST APPELLATE AUTHORITY WAS AUTHORIZED BY THE ASSESSEE TO WITHDRAW THE ISSU E RAISED IN THE GROUND WILL BE CONSIDERED WHILE DECIDING GROUND NOS. 4 TO 6 OF THE APPEAL. THE APPLICATION FOR ALLOWING THE ADDITIONAL GROUND IS A CCORDINGLY REJECTED. 5. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY T HE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILA BLE ON RECORD AND THE DECISIONS RELIED UPON. 6. THE FACTS IN BRIEF ARE THAT ASSESSEE, A SENIOR A DVOCATE, HAD SHOWN INCOME UNDER THE HEADS INCOME FROM PROFESSION AND INCOME FROM OTHER SOURCES. THE ASSESSEE HAD SHOWN INCOME FROM HOUSE PROPERTY AT RS.4,78,460 AND HAD DEBITED INTEREST EXPENSES OF RS .1,18,675 ON ACCOUNT OF 4 SECURE LOAN TAKEN FOR THE VEHICLE. THE ASSESSING OF FICER ASKED THE ASSESSEE TO JUSTIFY THE CLAIMED EXPENSES IN VIEW OF THE FACT THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCE OF RS.8.89 CRORES. THE ASSESS EE FURNISHED HIS REPLY BUT THE ASSESSING OFFICER DID NOT AGREE WITH IT AND ACC ORDINGLY HE DISALLOWED THE CLAIMED EXPENSES OF RS.1,18,675. 7. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF RS.2,97,684 UNDER SEC. 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. IN THIS REGARD, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD EARNED INCOME EXEMPT FROM TAX AMOUNTING TO RS.8 ,62,86,748. THE ASSESSEE QUESTIONED THE ABOVE DISALLOWANCES BEFORE THE LEARNED CIT(APPEALS) BUT COULD NOT SUCCEED. 8. THE GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE, H ENCE, THESE DO NOT NEED ADJUDICATION. 9. GROUND NO.3 : THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.1,18,675 ON ACCOUNT OF INTEREST PAID TO HDFC BAN K ON CAR LOAN ON THE BASIS THAT THE ASSESSEE HAD MADE HUGE INTEREST FREE ADVANCES. HE DISALLOWED THE PROPORTIONATE INTEREST, WHICH HAS BEEN UPHELD B Y THE LEARNED CIT(APPEALS). 5 10. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBMIT TED THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ASSESSEE HAD DIV ERTED ANY INTEREST BEARING FUNDS TO SOME PARTIES AND HAD NOT CHARGED ANY INTER EST. THE ASSESSEE ADMITTEDLY HAD ADVANCED THE FUND FROM OWN CAPITAL, HENCE, THERE WAS NO ANY QUESTION OF MAKING THE ABOVE DISALLOWANCE. HE REFER RED PAGE NO. 37 OF THE PAPER BOOK I.E. BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2008 TO SUPPORT HIS CONTENTION THAT AS ON THAT DATE THERE WAS OPENING B ALANCE OF THE CAPITAL OF THE ASSESSEE AT RS.21,27,41,082 AND DURING THE YEAR THE ASSESSEE HAD ADVANCED ONLY RS.8,89,40,627. THE LEARNED AR CITED FOLLOWING DECISIONS IN SUPPORT OF HIS ABOVE CONTENTION: I) CIT VS. BHARTI TELEVENTURE LTD. 51 DTR 98 (DE LHI); II) AMWAY INDIA ENTERPRISE VS. ITO 331 ITR 502. 11. THE LEARNED SENIOR DR ON THE OTHER HAND TRIED T O JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. HE CONTENDED TH AT ASSESSEE HAD NOT EXPLAINED WHAT WAS THE NECESSITY TO TAKE THE LOAN F OR PURCHASING OF THE CAR WHEN THE ASSESSEE WAS HAVING SUFFICIENT FUNDS AVAIL ABLE. THUS, TAKING OF THE LOAN WAS NOT COMMERCIAL EXPEDIENCY. 12. CONSIDERING THE ABOVE SUBMISSION, WE ARE OF THE VIEW THAT IT IS NOW A WELL ESTABLISHED PROPOSITION OF LAW THAT WHEN ASSES SEE WAS HAVING AN 6 ADEQUATE NON-INTEREST BEARING FUND, DISALLOWANCE OF INTEREST PAID ON BORROWED FUND CANNOT BE MADE SINCE IN SUCH A CASE, THERE WAS NO NEXUS BETWEEN THE ADVANCE GIVEN AND BORROWALS MADE BY THE ASSESSEE. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE LOAN WAS NOT TAKEN FOR THE BUSINESS PURPOSES. WE THUS WHILE SETTING ASIDE ORDE RS OF THE AUTHORITIES BELOW ON THE ISSUE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1,18,675. THE GROUND NO.3 IS ACCORDINGLY ALLOWED . 13. GROUND NOS. 4 TO 6 : THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.2,97,684 UNDER SEC. 14A READ WITH RULE 8D. THE S AME HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS) WITH THIS FINDING THAT THIS GROUND OF APPEAL RAISED BEFORE HIM WAS NOT PRESSED. 14. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS NEVER INSTRUCTED HIS COUNSEL APPEARING BEFORE THE LEARNED CIT(APPEALS) A S NOT TO CONTEST THE ISSUE OF DISALLOWANCE MADE UNDER SEC. 14A OF THE IN COME-TAX ACT, 1961 READ WITH RULE 8D OF I.T. RULES, 1962. THE LEARNED COUNS EL APPEARING BEFORE THE LEARNED CIT(APPEALS) HAD NOT OBTAINED ANY INSTRUCTI ON FROM THE ASSESSEE BEFORE TAKING HIS DECISION OF NOT CONTESTING THE GR OUND. IN SUPPORT, THE ASSESSEE HAS FILED AN AFFIDAVIT DATED 07.04.2015 TO THIS EFFECT. THE LEARNED 7 AR SUBMITTED THAT ASSESSEE WAS HAVING A STRONG CASE ON THE ISSUE AND THUS THERE WAS NO QUESTION OF NOT CONTESTING THE SAME BE FORE THE LEARNED CIT(APPEALS). IT IS A SETTLED POSITION OF LAW THAT AN ASSESSEE WOULD NOT SUFFER ON ACCOUNT OF THE MISTAKE OF HIS COUNSEL. IN THIS R EGARD, THE LEARNED AR CITED DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF MAHAVIR PRASAD JAIN REPORTED IN 172 ITR 231. THE L EARNED AR SUBMITTED FURTHER THAT IT IS ALSO A SETTLED POSITION OF LAW T HAT THERE WOULD BE NO ESTOPPELS AGAINST THE STATUTE AND IF AN INCOME IS N OT TAXABLE UNDER THE FOUR CORNERS OF INCOME-TAX LAW, THE SAME CANNOT BE MADE TAXABLE BECAUSE OF THE MISTAKE OF THE ASSESSEE. IN SUPPORT, HE CITED THE J UDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. V.MR.P.FIR R EPORTED IN 56 ITR 67 (S.C) WHEREIN THE HON'BLE SUPREME COURT HAS BEEN PL EASED TO RECORD THEIR OBSERVATION THAT THE DOCTRINE OF APPROBATE & REPRO BATE IS ONLY A SPECIES OF ESTOPPELS, IT APPLIES ONLY TO THE CONDUCT OF PARTIE S. AS IN THE CASE OF ESTOPPELS, IT CANNOT OPERATE AGAINST THE PROVISIONS OF A STATUTE. IF A PARTICULAR INCOME IS NOT TAXABLE UNDER THE I.T. ACT, 1961, IT CANNOT BE TAXED ON THE BASIS OF STOPPLES OR ANY OTHER EQUITABLE DOCTRINE. EQUITY IS OUT OF PLACE IN TAX LAW, A PARTICULAR INCOME IS EITHER EXIGIBLE TO TAX UNDER THE TAXING STATUTE OR IT IS NOT. IF IT IS NOT, THE ITO HAS NO POWER TO IMPOS E TAX ON THE SAID INCOME. 8 15. THE LEARNED AR ALSO REFERRED THE DECISION OF HO NBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARAT G ENERAL INSURANCE 81 ITR 303 (DELHI) IN SUPPORT OF THE ABOVE CONTENTIONS . THE LEARNED AR SUBMITTED FURTHER THAT WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATION HAVE PITTED AGAINST EACH OTHER, THEN, THE CAUSE OF SUBSTANTIAL JUSTICE WOULD PREVAIL. 16. ON THE MERIT OF THE DISALLOWANCE IN QUESTION, T HE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAS OBSERVED T HAT THE ASSESSEE HAD EARNED AN AMOUNT OF RS.8,62,86,748 AS EXEMPT INCOME AND HENCE RULE 8D IS APPLICABLE AND AFTER APPLYING RULE 8D, HE HAS MADE THE DISALLOWANCE OF RS.2,97,684 WHICH HAS BEEN AFFIRMED BY THE LEARNED CIT(APPEALS). HE SUBMITTED THAT THE FINDING OF THE ASSESSING OFFICER THAT ASSESSEE HAS EARNED AN AMOUNT OF RS.8.82 CRORES AS EXEMPT INCOME IS FAC TUALLY INCORRECT. HE REFERRED PAGE NO. 21 OF THE PAPER BOOK I.E. COPY O F SCHEDULE E-I OF THE AUDIT REPORT FURNISHING THE DETAILS OF EXEMPT INCOME I.E. INCOME NOT TO BE INCLUDED IN TOTAL INCOME WITH THE SUBMISSION THAT THE ASSESS EE HAD EARNED AN AMOUNT OF RS.15.69 LACS AS DIVIDEND INCOME. HE SUBMITTED T HAT THE DIVIDEND INCOME WAS SHOWN AS NET INCOME AFTER DEDUCTING THE EXPENDI TURE INCURRED ON IT BY THE PROFILE MANAGER OF THE ASSESSEE I.E. SOCIETE GE NERALE (CORPORATE & 9 INVESTMENT BANKING). THUS, WHEN ASSESSEE HIMSELF HA D DISALLOWED EXPENSES ON ACCOUNT OF PERSONAL USE THEN THERE WAS NO QUESTI ON OF MAKING FURTHER DISALLOWANCE UNDER SEC. 14A OF THE ACT READ WITH RU LE 8D OF THE I.T. RULES WITHOUT RECORDING HIS SATISFACTION BY THE ASSESSING OFFICER VIS--VIS THE CORRECTNESS OF THE ACCOUNT OF THE ASSESSEE. HE SUBM ITTED THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE ADMITTEDLY AUDITED. THE LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISION: I) WALLFORT SHARES 310 ITR 421 (S.C); II) SESA GOA LTD. VS. JCIT 60 SOT 121 (PANAJI); III) JOINT INVESTMENT (P) LTD. VS. CIT (2015) 92 CCH 088 (DELHI); 17. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD PRODUCED HIS BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE SAME WERE EXAMINED, HOWEVER, TH E ASSESSING OFFICER DID NOT RECORD ITS SATISFACTION THAT THE BOOK RESUL TS OF THE ASSESSEE ARE NOT TRUSTWORTHY. AS PER THE RATIO OF THE ABOVE CITED DE CISIONS, THE ASSESSING OFFICER BEFORE INVOKING THE PROVISIONS OF RULE 8D H AS TO RECORD HIS SATISFACTION IN TERMS OF SUB-SECTION (2) OF SEC. 14 A OF THE ACT. 10 18. THE LEARNED SR. DR ON THE OTHER HAND PLACED REL IANCE ON THE ORDERS OF THE AUTHORITIES BELOW WITH THIS SUBMISSION THAT UND ISPUTEDLY THE ASSESSEE HAD EARNED EXEMPT INCOME ON WHICH HE MUST HAVE INCURRED EXPENDITURE BY WAY OF TAKING SERVICES OF HIS EMPLOYEES IN HIS OFFICE A ND OTHER SERVICES. 19. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT AS PER THE ABOVE CITED DECISIONS INCLUDING THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENT (P) LTD. VS. CIT (SUPRA), THE ASSESSING OFFICER BEFORE INVOKING THE PROVISIONS OF RULE 8D H AS TO RECORD HIS SATISFACTION IN TERMS OF SUB-SECTION (2) OF SECTION 14A OF THE ACT. IN THE PRESENT CASE, WHEN THE ASSESSEE HIMSELF HAD DISALLO WED THE EXPENDITURE INCURRED ON THE MANAGEMENT OF ITS PORTFOLIO FOR EAR NING THE DIVIDEND INCOME, THE ASSESSING OFFICER HAD TO RECORD HIS SATISFACTIO N FIRST THAT THE EXPENDITURE SHOWN BY THE ASSESSEE FOR EARNING THE DIVIDEND INCO ME WAS NOT SATISFACTORY BEFORE INVOKING THE PROVISIONS OF SECTION 14A OF TH E INCOME-TAX ACT, 1961 READ WITH RULE 8D OF THE I.T. RULES TO MAKE DISALLO WANCE THERE UNDER. IN ABSENCE OF THE COMPLIANCE OF SUCH MANDATORY REQUIRE MENT, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANC E OF RS.2,97,684 UNDER SEC. 14A OF THE ACT READ WITH RULE 8D OF THE I.T. R ULES. WE, THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN TH IS REGARD DIRECT THE 11 ASSESSING OFFICER TO DELETE THE ADDITION OF RS.2,97 ,684 MADE BY WAY OF DISALLOWANCE UNDER THE ABOVE STATED PROVISIONS. THE GROUND NOS. 4 TO 6 ARE THUS ALLOWED. 20. IN RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.2015 ( LAXMI PRASHAD SAHU ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14/10/2015 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR 12 DATE DRAFT DICTATED ON COMPUTER 14.10.2015 DRAFT PLACED BEFORE AUTHOR 14.10.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 14.10.20 15 APPROVED DRAFT COMES TO THE SR.PS/PS 14.10.2015 KEPT FOR PRONOUNCEMENT ON 14.10.2015 FILE SENT TO THE BENCH CLERK 15.10.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.