Acit Cir 35 Kolkata Kolkata v. Smt Madhu Devi Saraf Kolkata

D In The Income Tax Appellate Tribunal Kolkata Bench D Kolkata Before Shri Waseem Ahmed Accountant Member And Shri S S Viswanethra Ravi Judicial Member Ita No 1131 Kol 2015 Assessment Year 2011 12 Asstt Commissioner Of Income Tax Circle 35 Aayakar Bhawan Poorva 8 Th Floor 110 Shantipalli Kolakta 107 V S Smt Madhu Devi Saraf 31 Shakespeare Sarani Jasmine Tower 4 Th Floor Room No 405 A B Kolkata 17 Pan No Alips 0989 F Appellant Respondent By Appellant Shri Arindram Bhattacharjee Addl Cit Dr By Respondent Sri Paras Ntah Keshari Fca Date Of Hearing 23 10 2017 Date Of Pronouncement 26 12 2017 O R D E R Per Waseem Ahmed Accountant Member This Appeal By The Revenue Is Directed Against The Order Of Commissioner Of Income Tax Appeals 10 Kolkata Dated 12 06 2015 Assessm Ent Was Framed By Jcit Range 35 Kolkata U S 143 3 Of The Income Tax Act 1961 Hereinafter Referred To As The Act Vide His Order Dated 24 11 2014 For Asse Ssment Year 2011 128 The Grounds Raised By The Revenue Per Its Appeal Are As Under I On The Facts And Circumstances Of The Case Th E Ld Cit A Has Erred In Deleting The Addition Made U S 14 A Read With Rule 8 D Without Appreciating The Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 2 Verdict Of The Jurisdictional High Court In The Cas E Of Dhanuka Sons Vs Cit 20110 Itr 319 Cal Hc Which Is Squarely Applicab Le In The Present Case Ii On The Facts And Circumstances Of The Case Th E Ld Cit A Has Erred In Deleting The Disallowance Of Expenses Of Rs 15 00 6 32 Claimed On Earning Of Interest Income On Which No Expense Is Admissible Iii On The Facts And Circumstances Of The Case T He Ld Cit A Has Erred In Restricting The Deemed House Property Income At R 4 20 000 Without Any Logic Or On The Basis Of Any Documents Instead Of R S 8 40 000 Determining On The Basis Of Report Of Departmental Inspector Iv The Appellant Craves Leave To Add Alter Or Am End Any Ground Before Or At Any Time Of Hearing Shri Arinram Bhattacharjee Ld Departmental Repres Entative Appeared On Behalf Of Revenue And Shri Paras Nath Kehari Ld Authorized Representative Appeared On Behalf Of Assessee 2 First Issue Raised By Revenue In Ground No I I S That Ld Cit A Erred In Deleting The Addition Made By The Assessing Officer For Rs 74 75 470 U S 14 A R W R Rule 8 D Of The Income Tax Rule 1962 3 Briefly Stated Facts Are That Assessee Is An Ind Ividual Derived Her Income From Investment In Shares Debentures Government Securi Ties Etc The Assessee During The Year Has Earned Dividend Income And Interest On Pub Lic Provident Fund For 1 69 53 044 23 And 4 77 417 Which Are Exempted Income The Assessee In Relation To Such Income Has Made The Disallowance Suo Motu For 15 Lakh Under The Provision Of Section 14 A Of The Act However The Ao Observed That The Disallowance Have Not Been Made In Pursuance To The Provision Of Rule 8 D Of The It Rule 1962 Accordingly Ao Worked Out The Disallowance As Unde R 1 Rule 8 D 2 Ii On Account Of Interest Of Int Exp 63 26 883 2 Rule 8 D 2 Iii On Account Of Administrative E Xpenses 26 48 587 89 75 470 As The Assessee Has Already Made Disallowance 15 Lacs Then The Ao Disallowed The Remaining Expenses Of 74 75 570 And Added To The Total Income Of Assess Ee 4 Aggrieved Assessee Preferred An Appeal Before L D Cit A Who Deleted The Addition Made By The Ao By Observing As Under 4 Section 14 A Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 3 The Ao Has Made Addition Under Rule 8 D 2 Ii 8 D 2 Iii Read With Section 14 A Of It Act Of Rs 63 26 883 And Rs 11 48 587 Respectively The While Making The Above Addition Is That The Appellant Cou Ld Not Establish Whether The Immediate Or Actual Source Of Each Investments In S Hares Is From The Own Fund Or From The Borrowed Fund 4 1 In Para 8 Of The Appeal Order The Cit A Xx In Appellants Case For Assessment Year 2010 11 Has Decided That Since The Net Result Of Interest Income Expenditure Was Positive Income And Further No Head Of Expenditure Was Attributable To Earning Exempt Income The Grou Nd Seeking To Strike Down Disallowance U S 14 A Was To Be Allowed 4 2 In Para 3 2 Of The Assessment Order It Has Been Pointed Out That About Rs 52 97 Crore Was Invested In Assets Yielding Exem Pt Income Whereas The Total Assets Appearing In The Balance Sheet Was Bout Rs 157 31 Core The Interest Has Been Apportioned From The Gross Interest Of Rs 1 87 89 185 A Part Of The Assessees Explanation On Section 14 A Has Been Repr Oduced In Para 3 4 Of The Order 4 3 The Facts Of The Case In The Current Ay 2011 12 Is Very Similar To Those In The Preceding Ay 2010 11 The Interest Expenditure Is Rs 1 87 89 185 Whereas Income By Way Of Interest Is Rs 3 99 83 557 Over Gross Credit Interest Of Rs 5 87 72 742 Thus There Is Net Interest Inc Ome Has Apportioned The Interest Expenditure For The Purpose Of Disallowanc E U S 14 A Rule 8 D Even Though There Is Positive Interest Income Of Rs 3 99 83 557 The Ao Has Been Swayed By The Assessment 2011 11 Which Has Been Rep Roduced Partly In Para 2 1 1 Of The Present Assessment Order The Cit A X X Has Already Decided On Similar Fact In 2010 11 In Favour Of The Appellant Following The Said Appellate Decision In Assessment Year 2010 11 The Ground In R Espect Of Rule 8 D 2 Ii 8 D 2 Iii Is Allowed The Revenue Being Aggrieved Is In Appeal Before U S 5 Ld Dr Before Us Vehemently Relied On The Order Of Ao Whereas Ld Ar For The Assessee Filed Paper Book Which Is Running Pages Fr Om 1 To 99 And Submitted That The Own Capital Of The Assessee Is Exceeding The Amount Of Investment Made In Equity Shares As Well As In Public Pf Fund He In Support Of Assessees Claim Drew Our Attention On The Audited Balance Sheet Of Assessee Which Is Placed On Page 29 Of The Paper Book Ld Ar Further Stated That The Investme Nt In Equity Shares And Ppf Was Made In Earlier Year It Was Also Submitted That No Satisfaction Has Been Recorded By The Ao While Invoking The Provision Of U S 14 A Of The Act The Ld Ar Also Submitted That No Investment Has Been Made During The Year I N The Similar Facts And Circumstances The Honble Itat In Assessees Own Ca Se In Ita No 2216 Kol 2014 For Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 4 A Y 2010 11 Dated 16 08 2017 Has Deleted The Addit Ion Made By Ao The Relevant Operative Portion Of This Order Is Reproduced Below 7 With Regard To Disallowance Made Towards Admini Strative Expenses Under Rule 8 D 2 Iii We Find That The Assessee Had Not Given Any Satisfaction As To How The Said Disallowance Made By The Assessee Is I Ncorrect Having Regard To The Accounts Of The Assessee In Terms Of Ection 14 A 2 Read With Rule 8 D 1 Of The Rule In Our Considered Opinion Without Doing The Same The Ld Ao Cannot Mechanically Resort To Rule 8 D Of The Rules And In The Instant Case The Disallowance Made By The Assessee In The Sum Of Rs 5 Lacs Is Reasonable Having Regard To The Account Of The Assessee And According Ly The Ld Cit A Had Rightly Deleted The Further Disallowance Made By Th E Ld Ao In This Regard Hence We Do Not Find Any Infirmity In The Order Of The Ld Cit A In This Regard Accordingly The Ground Raised By The Reven Ue Are Dismissed Ld Ar Relied On The Order Of Ld Cit A In Rejoin Der Ld Dr Submitted That As Per The Jurisdictional High Court Judgment In The Case Of M S Dhanuka Sons Vs Cit Central In Civil Appeal No 633 Of 2004 It Is The Duty Of Th E Assessee To Demonstrate The Source Of Fund Invested In The Impugned Equity Shares As Well As Ppf Ld Vehemently Relied On The Order Of Ao 6 We Have Heard The Rival Contentions Of Both The Parties And Perused The Material Available On Record In The Instant Case T He Addition Has Been Made By The Ao U S 14 A R W S 8 D As Detailed Under Rule 8 D 2 Ii 63 26 887 Rule 8 D 2 Iii 26 48 587 First We Take Up The Addition Made By The Assessing Officer Under Rule 8 D 2 Ii Of It Rules 1962 It Is Undisputed Fact That Own Capi Tal Of Assessee Exceed The Amount Of Investment Made In The Equity Shares As Well As Ppf On The Same Basis The Honble Co Ordinate Bench Of This Tribunal In Assessee Own Case Supra Has Deleted The Addition In The Immediate Preceding Assessment Year 2010 11 However On Perusal Of This Tribunals Order We Observe That No Reference Was Made To The Judgment Of Jurisdictional High Court In The Case Of M S Dhanuka Sons Vs Cit In Ita No 633 Cal 2004 Reported In 339 Itr 319 Wherein It Was Held As Under 9 In The Case Before Us There Is No Dispute That Part Of The Income Of The Assessee From Its Business Is From Dividend Which Is Exempt From Tax Whereas The Assessee Was Unable To Produce Any Material Before The Authoriti Es Below Showing The Source From Which Such Shares Were Acquired Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 5 10 In Our Opinion The Mere Fact That Those Shares Were Old Ones And Not Acquired Recently Is Immaterial It Is For The Assessee To S How The Source Of Acquisition Of Those Shares By Production Of Materials That Those Were A Cquired From The Funds Available In The Hands Of The Assessee At The Relevant Point Of Time Without Taking Benefit Of Any Loan If Those Shares Were Purchased From The Amount Take N In Loan Even For Instance Five Or Ten Years Ago It Is For The Assessee To Show By Th E Production Of Documentary Evidence That Such Loaned Amount Had Already Been Paid Back And For The Relevant Assessment Year No Interest Is Payable By The Assessee For Ac Quiring Those Old Shares In The Absence Of Any Such Materials Placed By The Assesse E In Our Opinion The Authorities Below Rightly Held That Proportionate Amount Should Be Disallowed Having Regard To The Total Income And The Income From The Exempt Source In The Absence Of Any Material Disclosing The Source Of Acquisition Of Shares Whic H Is Within The Special Knowledge Of The Assessee The Assessing Authority Took A Most R Easonable Approach In Assessment There Is No Presumption Provided In The Income Tax Act 1961 That If The Assessee Has Interest Free Loans His Own Capital As Share Capit Al Reserves And Surpluses And Interest Bearing Loans And Is Earning Exempt And Taxable Inc Ome Then It Should Be Presumed That The Exempt Income Is Out Of Its Own Funds Rul E 8 D 2 Ii Of The I T Rules 1962 Provides Any Expenditure By Way Of Interest Which I S Not Directly Attributable Particular Income Or Receipt Then The Interest Has To Be Calcu Lated As Per Formula Provided Therein Now The Law Has Provided A Specific Method Of Calc Ulation In Rule 8 D 2 Ii Of I T Rules 1961 Relating To Interest Expenditure On Exe Mpted Income From A Y 2008 09 And It Is Applicable Directly In The Case Of The Assess Ee From The Above Judgment We Note That It Is The Dut Y Of Assessee To Justify The Source Of Investment Mad By The Assessee In The Investment Ppf Irrespective Of Fact That The Own Fund Of Assessee Exceeds The Impugned Investmen T In The Light Of Above Judgment Of Honble Jurisdictional High Court Supra We Fi Nd That The Issue Of Disallowance Of Interest Will Accordingly Be Decided After Verifyin G The Details Whether The Impugned Investment Was Made By The Assessee Out Of Her Own Fund Or Borrowed Fund Thus In The Interest Of Justice And Fair Play We Are Inclin Ed To Restore The Issue Back To The File Of Ao With A Direction To Verify The Source Of Inve Stment Made By The Assessee In The Impugned Equity Shares Ppf In Terms Of Above Th Is Ground Of Revenues Appeal Is Allowed For Statistical Purpose 7 Now Coming To Disallowance Made By The Ao Under Rule 8 D 2 Iii Of I T Rules 1962 At The Outside It Was Observed That A Ssessee Has Sum Motu Made The Disallowance Of 15 Lacs Against The Exempted Income Earned By It Du Ring The Year However The Ao Has Invoked The Provision Of Rule 8 D 2 Iii Without Recording The Satisfaction As Envisaged Under The Provision Of Se Ction 14 A Of The Act We Also Find That In Similar Facts And Circumstance The Honble Co Ordinate Bench Of This Tribunal Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 6 In Assessees Own Case In Immediate Preceding Ay 20 10 11 Has Deleted The Addition By Observing As Under 5 Disallowance Of Rs 15 00 632 The Ao Has Added Rs 15 00 632 Out Of Rs 41 49 216 Debited As Business Expenses The Ao Has Argued That The Appellants Income Is Ma Inly Interest Income From Various Instruments And Therefore Did Not Need So M Uch Of Expenses Giving Consideration To The Disallowance Made By The Ao U S 14 A Of Rs 26 48 587 The Ao Made The Disallowance Of The Balance Sum Of R 15 00 632 5 1 In The Submission The Appellant Has Claimed Tha T After Disallowance Of Rs 15 00 000 In The Return Of Income By The Appel Lant The Only Amount That Remained Claimed As Expense In The P L A C Comes To Abut Rs 26 48 000 While Making The Addition The Ao Lost Sight Of Rs 15 00 000 Disall Owance Already Made By The Appellant In Its Return For The Purpose Of Section 1 4 A Thus Irrespective Of The Merit Advanced By The Assessing Officer In Para 4 Of His Order The Proposed Disallowance Of Rs 15 00 6432 Amounts To Double Addition By The S Aid Amount As The Ao Disallowed R 26 48 587 U S 14 A Rule 8 D 2 Iii And The Appel Lant Had Already Made Addition U S 14 A Of R 15 00 000 This Addition Therefore Cannot Be Sustained The Ground In Respect Of The Above Amount Is Allowed We Respectfully Following The Consistent View Of Th E Tribunal Decline To Interfere In The Order Passed By The Ld Cit On This Account Ac Cordingly The Ground Taken By The Revenue Is Partly Allowed For Statistical Purposes 8 Next Issue Raised By Revenue In Ground No Ii In This Appeal Is That Ld Cit A Erred In Deleting The Disallowance Made By T He Ao For 15 00 632 On Account Of No Business Activity 9 The Assessee During The Year Has Shown Interest Income Under The Head Business The Assessee Against Such Business Income Has Cl Aimed An Expense Of 41 49 219 Only However The Ao Was Of The View T Hat Interest Income Of The Assessee Should Be Classified Under The Head Incom E From Other Source Therefore No Such Business Expenses Should Be Allowed In View Of The Fact That No Business Activity Is Carried Out By The Assessee During The Year Under Consideration 9 1 The Ao Further Observed That The Disallowance O F 26 48 587 Has Already Been Made Under The Provision Of Rule 8 D 2 Iii Of It Rules 1962 Therefore The Balance Amount Of 15 00 632 4149219 26485587 Needs To Be Disall Owed Accordingly The Assessing Officer Made The Disallo Wance Of 15 00 632 And Added To The Income Of Assessee Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 7 10 Aggrieved Assessee Preferred An Appeal Before Ld Cit A Who Deleted The Addition Made By The Ao By Observing As Under 5 Disallowance Of Rs 15 00 632 The Ao Has Added Rs 15 00 632 Out Of Rs 41 49 216 Debited As Business Expenses The Ao Has Argued That The Appellants Income Is Ma Inly Interest Income From Various Instruments And Therefore Did Not Need So M Uch Of Expenses Giving Consideration To The Disallowance Made By The Ao U S 14 A Of Rs 26 48 587 The Ao Made The Disallowance Of The Balance Sum Of R 15 00 632 5 1 In The Submission The Appellant Has Claimed Tha T After Disallowance Of Rs 15 00 000 In The Return Of Income By The Appel Lant The Only Amount That Remained Claimed As Expense In The P L A C Comes To Abut Rs 26 48 000 While Making The Addition The Ao Lost Sight Of Rs 15 00 000 Disall Owance Already Made By The Appellant In Its Return For The Purpose Of Section 1 4 A Thus Irrespective Of The Merit Advanced By The Assessing Officer In Para 4 Of His Order The Proposed Disallowance Of Rs 15 00 6432 Amounts To Double Addition By The S Aid Amount As The Ao Disallowed R 26 48 587 U S 14 A Rule 8 D 2 Iii And The Appel Lant Had Already Made Addition U S 14 A Of R 15 00 000 This Addition Therefore Cannot Be Sustained The Ground In Respect Of The Above Amount Is Allowed The Revenue Being Aggrieved Is In Appeal Before U S 11 Before Us Both Parties Relied On The Order Of A Uthorities Below As Favourable To Them 12 We Have Heard The Rival Contentions Of Both The Parties And Perused The Material Available On Record At The Outset It Was Observed That Assessee Has Claimed Total Income Business Expenses In Its Profit And Lo Ss Account For 41 49 216 Only And Following Disallowance Has Already Been Made I Disallowance Of 15 Lakh By The Assessee U S 14 A Of The Act Ii Disallowance Of 26 48 587 By The Assessing Officer Under The Prov Ision Of Section 14 A Of The Act Thus Total Expenses Disallowed By Ao Comes To 41 48 587 Thus In Our Considered View Further Disallowance Of 15 00 632 Will Lead To The Double Addition In The Hands Of Assessee Moreover The Amount Of Disallowance Cannot Exceed The Actual Expense Claimed By Assessee In Its Income Tax Return In This View Of The Above Matter We Do Not Find Any Infirmity In The Order Of Ld Cit A We Uphold The Same Consequently The Ground Raised By Revenue Is Dismissed Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 8 13 Next Issue Raised By Revenue In Ground No Iii Is That Ld Cit A Erred In Restricting The Addition Made By The Ao For 8 40 Lakh To 4 20 Lakh Only 14 During The Course Of Assessment Proceedings Ao Observed That Assessee Was The Owner Of Five Shops But No Rental Income Was Sh Own In Respect Of Such Properties Under The Head Income From House Property Thus The Ao Deputed An Inspector Of Department To Ascertain The Market Value Of Rent Of This Property Who In Turn Submitted That The Fair Market Value Of Rent Is 20 000 Per Month Per Shop Thus The Ao Determined The Fair Market Value Of Rent Of All The Shops For 12 Lakh Per Annum The Ao Against The Fair Market Value Of Rent Has Al Lowed Deduction As Envisaged U S 24 1 Of The Act For 3 60 Lacs And Added The Balance Of 8 40 Lacs To The Total Income Of Assessee Under The Head House Property 15 Aggrieved Assessee Preferred An Appeal Before Ld Cit A Who Granted Relief In Part To The Assessee By Observing As Under 6 2 In My View The Shop Is To Be Taken As House Pr Operty For The Purpose Of Sec 22 Of It Act And The Annual Value In Terms Of Sec 23 Of It Act Has To Be Charged To Tax Once The Shops Are Recorded To Not Have Been Let Ou T The Annual Value Has To Be Determined In Terms Of Sec 23 1 A Of The It Act Which Equates The Annual Value To A Sum For Which The Property Might Reasonably Be Expe Cted To Let Out From Year To Year In The Said Submission The Ar Has Questioned The Ba Sis Of Estimate Of Rental Value At Rs 20 000 Which In Oral Submission Has Been Claim Ed Excessive Impugned Order Therefore Restrict This Addition To Rs 4 20 000 And The Balance Sum Of Rs 4 20 00 Is Deleted The Revenue Being Aggrieved Is In Appeal Before U S 16 Before Us Ld Dr Vehemently Relied On The Orde R Of Ao And Left The Issue To The Discretion Of The Bench On The Other Hand Ld Ar For The Assessee Before U S Submitted That All The Shops Are Commercial Properties And Therefore No Addition Can Be Made Under The Head Income From House Property He Relied On The Order Of Ld Cit A 17 We Have Heard The Rival Contentions Of Both The Parties And Perused The Material Available On Record It Is Undisputed Fact That Impugned Properties Are Commercial Properties And The Assessee Conceded The Addition Made By The Ld Cit A For 4 20 Lacs As The Addition Of The Same Has Not Been Challenged Therefore We Dismiss The Plea Of Ld Ar That No Addition Can Be Made In Respect Of Commercial Property Under The Head House Property Ita No 1131 Kol 2015 A Y 2 011 12 Acit Cir 35 Kol Vs Smt Madhu Dev I Saraf Page 9 Now The Issue Before Us Arises Whether Ld Cit A Was Justified To Reduce He Fair Market Value Of Rent As Suggested By The Inspector Of Department In The Given Facts And Circumstances We Find That Ld Ar Has Not Brou Ght Any Documentary Evidence Suggesting That Fair Market Value As Recommended By The Inspector Of Department Is Not As Per Prevailing Market Rate Thus In This Vie W Of The Above We Find No Infirmity In The Order Passed By Ld Cit A Accordingly We Uphold The Same Hence This Ground Of Revenues Appeal Is Allowed 18 In The Result Revenues Appeal Is Partly Allowed F Or Statistical Purpose Order Pronounced In Open Court On 26 12 2017 Sd Sd S S Viswanethra Ravi Waseem Ahmed Judicial Member Accountant Member Dkp Sr P S 26 12 2017 Kolkata Copy Of Order Forwarded To 1 Appellant Acit Cir 35 Aayakar Bhawan Poorva 8 Th Floor Shanti Pa Lli Kolkata 107 2 Respondent Smt Madhu Devi Saraf 31 Shakespeare Sarania Jasmine Tower 4 Th Floor Room No 405 A B Kolkata 17 3 Concerned Cit 4 Cit A 5 Dr Itat Kolkata 6 2 Guard File By Order True Copy Sr Private Secretary Head Of Office Ddo