Income Tax Appellate Tribunal - Delhi
Kiran Kapoor, New Delhi vs Department Of Income Tax on 29 June, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.4275/Del/2011
Assessment year : 2008-09
ACIT, Kiran Kapoor,
Circle-33 (1), 24-West Patel Nagar,
New Delhi. V. New Delhi.
Cross objection No.456/Del/2012
In I.T.A. No.4275/Del/2011
Assessment year : 2008-09
Kiran Kapoor, ACIT,
24-West patel Nagar, Circle-33 (1),
New Delhi. V. New Delhi.
(Appellant) (Respondent)
PAN /GIR/No.ABAPK6377
/GIR/No.ABAPK6377-
ABAPK6377-K
Appellant by : Shri D.K. Mishra, DR.
Respondent by : Shri R.S. Singhvi,.
ORDER
PER TS KAPOOR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A) dated 29.6.2011. The assessee has also filed cross objection to the appeal filed by the revenue. The grounds of appeals taken by the revenue and grounds of cross objections taken by the assessee are as under:-
I.T.A. No.4275/Del/2011:
1. Whether in the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of `.2,71,02,067/- on account 2 ITA No4275-& co 456/Del/11012 of bogus sundry creditors as assessee had not submitted current confirmation and proved genuineness of sundry creditors by holding that filing of confirmation from trade credit is not mandatory under the provisions of the Income Tax Act.
2. Whether in the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of `.1,32,753/- made on account of interest paid by the unsupported by bills and vouchers by holding that the same was legitimate business expenditure.
3. Whether in the facts and circumstances of the case the CIT(A) has erred in deleting the addition of `.3,04,235/- on account of commission expenses paid without any confirmations filed, holding that filing of confirmation from commission agent is not mandatory under the provisions of the Income Tax Act.
4. Whether in the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of `.10,44,715/- on account of expenses and investments as being from undisclosed sources in the absence of source and evidence without verifying the investments in Principal Mutual Fund `.2,50,000/- and `.2,50,000/- from the Mutual Fund Folios and effectively admitting additional evidence viz certificate from Standard Chartered Bank procured after assessment produced before the CIT(A) without following Rule 46A and without affording opportunity to the Assessing Officer to examine the same. Cross Objection No.456/Del/2012 1(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining disallowance of `.1,01,035/- u/s 14A read with Rule 8D.
3 ITA No4275-& co 456/Del/11012
(ii) That the provisions of sec. 14A and Rule 8D have been applied on illegal and arbitrary basis without appreciating the fact that the assessee has neither incurred nor claimed any expenses in relation to investment and consequential dividend income.
(iii) That in any case, the impugned disallowance is illegal, arbitrary and or highly excessive.
2. That the orders of the lower authorities are not justified on facts and same are bad in law.
2. The brief facts of the case are that the assessee is a sole proprietor and is running two proprietary concerns namely M/s Ajanta International and M/s Ajanta Yarn Agencies. The assessee proprietor of these two concerns is authorized distributor of various products of Reliance Industries Limited (RIL). The assessee filed its return of income declaring total income of `.2,03,91,397/- on 29.9.2008. The case was selected for scrutiny under CASS. Therefore, necessary notices u/s 143(2) were issued. During assessment proceedings, the Assessing Officer observed that besides income from business, house property and capital gain, the assessee was having exempt income in the shape of dividend from shares and mutual funds. Therefore, the assessee was show caused as to why disallowance u/s 14A read with Rule 8D be not made in respect of exempt income. The assessee submitted that no expenses were incurred to earn exempt income therefore disallowance u/s 14A was not required. However, the Assessing Officer did not agree with the contentions of assessee and relying upon the provision of section 14A disallowed an amount of `.1,01,035/- The Assessing Officer further made addition of `.1,32,753/-
4 ITA No4275-& co 456/Del/11012 out of interest expenses due to non furnishing of bills and vouchers in support thereof.
3. Further addition of `.2,71,02,067/- was made. This addition was made because of the fact that no confirmation of credit balance relating to one of the sundry creditors i.e. M/s Reliance Industries Ltd. was furnished. A further addition of `.3,04,235/- was made out of aggregate commission expenses of `.14,51,140/- as the assessee could not file confirmation from the payees of commission. Similarly, an addition of `.10,44,715/- was made on the basis of an AIR information which reflected that assessee had made investment in principal mutual funds amounting to `.5 lakhs and further the assessee had incurred an expenditure of `.5,44,715/- through her credit card. These additions were made because as per Assessing Officer the assessee could not file any evidence in support of these investments/expenditures.
4. Aggrieved, the assessee filed appeal before Ld CIT(A) and submitted various submissions in respect of various additions made by the Assessing Officer. With respect to addition made on account of credit balance of M/s Reliance Industries Limited, It was submitted that all details of purchase and sale including freight and cartage expenditure, quantitative details along with the copy of ledger account of M/s Reliance Industries Limited were submitted during assessment proceedings but the Assessing Officer made the addition of entire credit balance outstanding without even calling for information u/s 131 or u/s 133(6) of the Act. It was further submitted that the credit balance outstanding included opening balance of last year also which cannot be said to belong to the year under consideration and moreover all purchases and payments were supported by bills and vouchers and Assessing Officer had accepted the purchases in toto after due verification. It was further submitted that assessee was getting credit 5 ITA No4275-& co 456/Del/11012 from M/s Reliance Industries Limited for the last more than 25 years and in all these years, the genuineness of transactions with M/s Reliance Industries Limited were never disputed. It was further submitted that assessee had been filing monthly statement of all purchases and sales as prescribed by the Value Added Tax (VAT) and Central Sales Tax (CST) and details of statutory C-Forms issued to M/s Reliance Industries Limited against purchase were also produced for verification before the Assessing Officer. Reliance in this respect was placed on a number of case laws. The Ld CIT(A) on the basis of these submissions deleted the addition made by the Assessing Officer.
5. With respect to disallowance of interest amounting to `.1,32,753/- it was submitted that the amount represented adjustment entries to various parties where due to interest claimed or other reasons small debit amounts were outstanding but since these were not recoverable, therefore, these were debited to interest account as not recoverable and hence was a legitimate business expenditure/loss incurred for the purpose of business. The Ld CIT(A) on the basis of these submissions deleted the addition.
6. As regards disallowance of commission amounting to `.3,04,237/- it was submitted that Assessing Officer had made disallowance out of total commission expenses of `.14,51,140/- on account of non furnishing of confirmation from three payees. It was submitted that Assessing Officer had asked to file confirmation of commission paid in respect of payees of more than `.1 lakh, therefore, confirmation from Shri Manish Kumar Girdhar was filed and in respect of other payees since the payments were less than `.1 lakh, therefore the same was not filed. It was further submitted that application u/s 154 was also filed before Assessing Officer which had not been disposed off yet. It was submitted that commission was paid to same person in earlier years also and were allowed during scrutiny 6 ITA No4275-& co 456/Del/11012 assessments. Further it was submitted that assessee had furnished complete details of names, addresses and PAN numbers of payees along with copy of TDS certificates. The Ld CIT(A) deleted this addition also.
7. Regarding investment of `.5 lakhs and expenses incurred through credit card it was submitted that there was an investment of only `.5,00,000/- only and which was made from Punjab National Bank, Savings Bank A/c of the assessee and copy of bank account was duly filed with Assessing Officer. Regarding other investment of `.5,00,000/- it was submitted that the same was duplicate entries as the only investment was `.5,00,000/-.
8. With respect to expenditure incurred through credit card it was submitted that during assessment proceedings it was categorically stated that these entries do not relate to her and at that time the Assessing Officer had assured that he would independently get these entries verified, the assessee also filed a certificate from Standard Chartered Bank which was procured after the assessment certifying that assessee had no credit card account with the bank. In view of these facts and circumstances, the Ld CIT(A) deleted the addition of `.10,44,750/- as duly explained.
9. However, he confirmed the disallowance of `.1,01,135/- u/s 14A read with Rule 8D.
10. The revenue is in appeal before us against the deletion of expenses whereas the assessee has filed cross objection with respect to upholding of addition u/s 14A of the Act.
11. At the outset, the Ld DR submitted that before Ld CIT(A) the Ld AR had submitted that M/s Reliance Industries Limited being one of the biggest companies in India in private sector and therefore identity and creditworthiness was not in dispute but the fact remains that Assessing Officer is authorized to verify genuineness of transaction and without 7 ITA No4275-& co 456/Del/11012 confirmation/verification Assessing Officer is empowered to make the addition. The Ld DR submitted that Ld CIT(A) on the basis of submission of assessee by repeating the same in appellate order has deleted the disallowance without making any independent application of mind. It was submitted that wherever the assessee makes a claim, the Assessing Officer is entitled to call for information and unless it is provided the same can be treated as bogus and addition can be made under deeming provisions. Quoting from para 7.5. of Ld CIT(A)'s order, the Ld DR argued that if the Assessing Officer did not got verification from RIL even ld CIT(A) omitted to do so and simply on the basis of submissions of assessee deleted the addition. Reliance was placed on the case law of Goodyear India Ltd. v. DCIT 246 ITR 116 with the proposition that expenditure not substantiated by vouchers can be disallowed by the Assessing Officer and availability of tax audit report does not preclude Assessing Officer from calling further supporting material from the assessee. It was further submitted that Ld CIT(A) had not applied his mind and no speaking order has been passed and he has just relied upon what assessee submitted and therefore the conclusion arrived at by the Ld CIT(A) is unsustainable. Reliance in this respect was placed on the case law of Vodafone SR Gujarat Ltd. 38 SOT 51 Ahemdabad.
12. With respect to commission payment it was argued that the question as to whether an amount claimed as expenditure was laid out or expanded wholly or exclusively for the purpose of business has to be decided on the facts and in the light of facts and circumstances of each particular case and the final conclusion on the admissibility of an allowance should be as per law. Reliance in this respect was placed on the case law of Swadeshi Cotton Mills Ltd. v. CIT 63 ITR 57 (SC), for the proposition of right of Assessing Officer to verify the genuineness of expenses, the Ld DR further relied upon the following case laws:-
8 ITA No4275-& co 456/Del/11012
1. Schneider Electric India Ltd. v. CIT 304 ITR 360
2. CIT v. Calcutta Agency Ltd. 19 ITR 191 (SC)
3. CIT v. Transport Corporation of India 256 ITR 701.
13. It was contended that in all these judgments, it was held that burden of proving that a particular expenditure has been expanded wholly and exclusively for the purpose of business is on the assessee and if a tax payee does not produce any evidence in support of claim of deduction, the Assessing Officer cannot allow the same.
14. As regards deletion of interest expenditure made by Ld CIT(A), the Ld DR submitted that the Ld CIT(A) on the basis of submission that these were interest not recoverable has deleted the addition but has failed to see as to whether the interest earned in earlier years was credited to the P&L Account and how it has been debited under the head Interest Account. Therefore, it was prayed that this matter may be remitted back so that the Assessing Officer could consider the same after examining the true nature of claim made by the assessee.
15. Regarding deletion of `.10,44,715/-, the Ld DR argued that the information provided under AIR if based on incorrect facts must be verified particularly when a part of it is found to be true and therefore he argued that Ld CIT(A) should have got it verified as to how the information regarding credit card expenses was provided in AIR information relating to assessee.
16. The Ld AR, on the other hand submitted that during assessment proceedings, the complete details regarding month-wise purchase & sale including quantitative details were provided to the Assessing Officer and all these details were checked and verified by Ld Assessing Officer with other documents. All the payments were made to RIL by Account Payee Cheques and complete bank accounts were placed on 9 ITA No4275-& co 456/Del/11012 record and no discrepancy or omission was pointed out. The Ld AO however over-looked all the evidence which was placed on record and proceeded to make such a huge disallowance in a casual manner only on the basis that confirmation was not filed. It was further submitted that the closing balance of RIL included the opening balance as well as purchases made during the year and payments made during the year. The Ld Assessing Officer has accepted the purchases in toto and similarly he accepted all the payments made through proper banking channels, therefore, he cannot hold the same creditor from whom purchases were made to be bogus. It was further submitted that the assessee is engaged into the business with M/s RIL for the last 25 years and nowhere in any year the identity and creditworthiness and genuineness of RIL was doubted and therefore, genuineness of transactions in this year are also not in dispute. Moreover, it was submitted that the assessee was maintaining regular books of accounts and were subjected to audit under section 44AB of the Act and no discrepancy whatsoever was pointed out by the auditor. Continuing his arguments it was submitted that assessee was registered with Delhi Value Added Tax (VAT) & and Central Sales Tax (CST) and had been filing month wise and party wise details along with regular sales tax return which were subject to verification by VAT authorities. It was further argued that if any addition was to be made by the Assessing Officer then that cannot include the opening balance and it should have been only of increase in credit balance during the year under consideration. Moreover, it was submitted that Assessing Officer had ignored debit balance in another proprietary concern of assessee. Reliance in this respect was placed on the following case laws:-
1. DCIT v. Divine Leasing & Finance Ltd. 299 ITR 268 .
10 ITA No4275-& co 456/Del/11012
2. CIT v. Ritu Anurag Agarwal 2 DTLONLINE 134.
3. CIT v. Pancham Dass Jain 156 Taxman 507.
4. Win Win Traders Pvt. Ltd. v. ITO in I.T.A. No.4882/Del/2010 The Ld AR also disputed the amount of addition and argued that addition if any could have been only of increase in credit during the year and relied upon a number of case laws.
17. Regarding DR's argument that expenses were not substantiated by vouchers and Ld CIT(A) had not passed a speaking order, it was argued that Ld CIT(A) has made reference to various documents in support of purchases and trading activities and conclusion was in the context of various documents on record. He further argued that Ld DR has not disputed the fact that various documentary evidences referred to para 7.6. of appellate order were before Assessing Officer and he could have verified the information by issuing of notices u/s 133(6) or u/s 131 of the Income Tax Act, 1961 . It was further submitted that in assessee's own case for assessment year 2007-08 and in assessment year 2009-10 where assessments were completed u/s 143(3) and balance in respect of RIL was duly accepted. Regarding disallowance of interest, the Ld AR submitted that the amount of `.1,32,753/- written off was in the nature of bad debts and therefore was a genuine business expenditure. Reliance in this respect was placed on judgment of Hon'ble Supreme Court in the case of TRF Ltd. 323 ITR 397. It was argued that considering the extent of business activity and audited accounts of the assessee, the Ld DR's argument for restoring the matter back to the file of Assessing Officer is not justified.
18. Regarding disallowance of commission, the Ld AR submitted that Assessing Officer had required confirmation of commission payments exceeding `.1 lakh only and therefore the confirmation relating to Madan Gopal HUF and Madan Gopal Nayar were not furnished as these 11 ITA No4275-& co 456/Del/11012 were below `.1 lakh. However, the confirmation of payment to Shri Manish Kumar Girdhar for `.1,80,575/- was filed which Assessing Officer had over looked and assessee had filed rectification application u/s 154 and our attention was invited to paper book page 32. It was argued that Assessing Officer had disallowed the amount of `.3,04,235/- out of total claim of commission of `.14,51,140/- even though the nature of claim was same. Moreover, it was submitted that genuineness of claim was supported by the fact that particulars of TDS and PAN numbers of payees were submitted. Therefore, in view of the above, it was submitted that the Assessing Officer had made additions merely on technical grounds and Ld CIT(A) has rightly deleted the same.
19. As regards the disallowance of `.10,44,715/- it was submitted that assessee had invested only `.5 lakhs in Principal Mutual Fund and the other entries of `.5,00,000/- were a repeat of the same entries. It was submitted that during assessment proceedings, statement of reconciliation of all entries of AIR were duly filed vide letter dated 2.11.2010 and assessee had explained the sources of all entries. Our attention was invited to paper book pages 19 to 24 where copy of reconciliation statement was placed on record and also our attention was invited to paper book pages 25 to 27 where copy of AIR was placed. It was further submitted that both these investments are of the same date and for the same mutual fund and the above position was also clarified vide application for rectification u/s 154 of the Act, a copy of which was placed on paper book pages 28 to 32. It was submitted that A.O. has not yet disposed off rectification application.
20. As regards addition on account of expenditure incurred through credit cards, the Ld AR argued that assessee did not have any credit card of Standard Chartered Bank and during assessment proceedings it was conveyed to the Assessing Officer also and a certificate from 12 ITA No4275-& co 456/Del/11012 Standard Chartered Bank was also obtained after assessment order and therefore the ld CIT(A) has rightly deleted the addition. Arguing upon the assessee's appeal, the Ld AR submitted that the assessee had made investments in her personal capacity and out of her Savings Bank Account and no expenditure was debited in the business account of the assessee and since there was no finding regarding any expenses relatable to dividend income, the disallowance as per provision of section 14A of the Act was not warranted.
21. The Ld DR in his rejoinder submitted that the revenue is not saying that party was bogus but in the absence of confirmation of statement of accounts entries can be bogus and moreover the addition was under deeming provisions of section 68 to 69C of the Act. It was further submitted that confirmation is considered as primary evidence and assessee has to prove the genuineness of entries appearing in the books of accounts. Regarding disallowance of interest it was submitted that for write off there is a procedure for writing off and Ld CIT(A) without examining the nature of these entries had made the deletion. As regards disallowance on the basis of AIR information, the Ld DR submitted that assessee had already applied for rectification u/s 154 so the Assessing Officer could be directed to look into the matter and for credit card expense some further enquiries should have been done as the information was obtained from the same AIR. Therefore this matter should also be remitted back to Assessing Officer for further enquiries. Replying upon the assessee's appeal regarding disallowance u/s 14A, the Ld DR submitted that Rule 8D is applicable from assessment year 2008-09 and Ld CIT(A) has rightly upheld the disallowance made by Assessing Officer.
22. We have heard the rival submissions of both the parties and have gone through the material available on record. First we take up the revenue's appeal. The major grievance of revenue is regarding 13 ITA No4275-& co 456/Del/11012 deletion of addition made by the Assessing Officer for non filing of confirmation of credit balance. The case was earlier heard on 7.8.2013 However, while dictating the order it was felt that copy of accounts of M/s RIL for the year under consideration as well as for further two years was required to scrutinize entries in the ledger. Therefore, the case was again fixed for hearing on 20.9.2013 and was finally heard on 4.10.2013. While going through the ledger account of RIL for the assessment year 2009-10 we find that assessee had taken the opening balance as on 1.4.2008 from 31.3.2008 and the balance was converted into debit balance as on 7.7.2008 after various entries were passed during the said year which shows that the outstanding balance as on 31.3.2008 was paid in the succeeding year and therefore the action of Assessing Officer in treating the entire credit balance as income of the assessee was not justified especially keeping in view the fact that Assessing Officer could himself have got verification done by issuance of notice u/s 133(6) of the Act. Moreover, we find that assessee had during assessment proceedings placed on record books of accounts including purchase bills & vouchers etc. and same were test checked by Assessing Officer and no discrepancy was pointed out during assessment proceedings. The assessee is in this business for the last 25 years and is maintaining a running account with RIL. The case laws relied upon by Ld AR also supports the case of assessee that sundry creditors outstanding at the end of year cannot be added simply because confirmation was not filed. At the same time the case of the revenue is that authenticity of transaction can only be counter-checked if confirmation of other party or copy of confirmed transaction is filed with the Assessing Officer. Though we agree with the contentions of Ld DR yet in a case where assessee does not file such confirmation or expenses it's inability to file the same, the Assessing Officer has powers to cross verify any transaction in the books of accounts of 14 ITA No4275-& co 456/Del/11012 assessee by calling information directly from such party. The Assessing Officer in the present case did not exercise such powers. The Ld AR has filed a ledger account of M/s Reliance Industries Limited for subsequent years at the direction of Bench and from the examination of which we find that account of supplier i.e. RIL was a running account and was converted into debit balance in next year. The Ld AR has also placed on record copy of assessment order for preceding year and succeeding year in the case of assessee herself in which the assessments were completed u/s 143(3) and facts remained same i.e. the assessee continued to remain in the same business and no such addition of credit balance was made in these years.. The Hon'ble Delhi High Court in the case of CIT v. Ritu Anurag Agarwal under similar circumstances has held that where the creditor's outstanding related to purchases and trading results were accepted and no corresponding disallowance on account of purchases were made, the addition u/s 68 cannot be made. The operative part of Hon'ble High Court judgment is as per para 3 & 4 of the said order which reads as under:-
"3. This finding of Assessing Officer remained undisturbed before the CIT(A) as well as has been accepted by the ITAT. Proceeding on this basis, the ITAT observed that the sale, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer.
4. Once this is accepted, we are of the opinion that the approach of ITAT was correct inasmuch the Assessing Officer did not consider this aspect while making addition of the sundry creditors under section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchases, no addition could be made u/s 68 inasmuch it is not in dispute that
15 ITA No4275-& co 456/Del/11012 the creditor's outstanding related to purchases and the trading results were accepted by the Assessing Officer."
In the present case also, the Assessing Officer has accepted purchases and sales and no discrepancy in the books of account was pointed out. The Assessing Officer has made the addition by observing as under:-
"Vide order sheet entry dated 2.12.2010 the assessee was asked to submit confirmation in respect of sundry creditors more than `.10 lakhs. However, it is seen that in respect of RIL account PTY sundry creditors `.2,71,02,067/- no confirmation was submitted. Accordingly, the assessee has not been able to file current information and prove genuineness of sundry creditors. Accordingly, sundry creditors for the said amount of `.2,71,02,067/- held to be bogus and are added to the income of the assessee.
23. The Assessing Officer thus has not pointed out any defect in the books of accounts and made the addition just because confirmation was not filed. The reliance of Ld DR on the case law of Godrej India Ltd. 245 ITR 116 does not apply to the facts & circumstances of the present case as in that case the assessee had not furnished vouchers in support of expenses whereas in the present case original bills were produced and verified on test basis. The other contentions of Ld DR on the basis of judgment in the case law of Vodafone Essar Gujarat Ltd. 38 SOT 51 also does not held force in view of the fact that in the present case the Ld CIT(A) after going through the detailed submissions of assessee and making it a part of his order arrived at the conclusion that addition was not justified. Therefore, keeping in view the facts and circumstances of the present case and in view of various judicial
16 ITA No4275-& co 456/Del/11012 pronouncements relied upon by Ld AR, we do not find infirmity in the order of Ld CIT(A) to this effect. Therefore, ground No. 1 of I.T.A. No.4275/Del/2011 is dismissed.
24. As regards ground No.2, we find that assessee had debited an amount of `.1,32,715/- in the interest expense account whereas during assessment proceedings it was explained that it was not interest but was part of petty amounts which remained un-collected and which represented interest charged from these parties in earlier years. The assessee vide letter dated 13..12.2010 vide reply to Point No.2 had submitted that the details of `.1,32,753/- to Assessing Officer and had claimed this to be interest paid to suppliers. However, before Ld CIT(A) the assessee had explained that the amount represented adjustment entry of various parties where due to interest claimed and other reasons small debits were outstanding and were not recoverable and hence were debited to interest account and before us, Ld AR argued that in view of judgment of TRF Ltd, pronounced by the Hon'ble Supreme Court the write off represented the legitimate business expenditure. The Ld CIT(A) has deleted the addition by holding that such expenditure was genuine business expenditure without examining it. Therefore, ground No.2 needs re-adjudication by Assessing Officer who will allow/disallow the claim of assessee on the basis of his fresh examination. In view of above, ground No.2 is allowed for statistical purposes.
25. As regards commission of `.3,04,325/- we find that the assessee had deducted TDS on the commission payment and the confirmation was also filed with the Assessing Officer for one of payees and for the remaining two payees, the confirmation was not filed as it was not required by the Assessing Officer. However, the action of Assessing Officer to disallow the expenses in the absence of confirmation is not justified especially in view of the fact that TDS was deducted and 17 ITA No4275-& co 456/Del/11012 assessee had furnished PAN numbers, names & addresses of the payees. The assessee vide letter dated 20.10.2010 placed at paper book page 7 & 8 had also filed copies of TDS certificates on such payments. Therefore, we do not find any infirmity in the order of Ld CIT(A) on this account and therefore ground No.3 is dismissed.
26. As regards the deletion of addition of `.10,44,715/- on account of expenses and investments, we find that Ld CIT(A) had accepted the certificate from Standard Chartered Bank which was procured after assessment without confronting it to the Assessing Officer for examination. We further find that as per assessee one part of AIR information relating to investments related to her whereas credit card entries did not relate to her. Moreover there is dispute regarding entries of investment also which the assessee claims to be on account of double entries. Moreover the application for rectification u/s 154 as claimed by the assessee is pending before Assessing Officer, therefore, in our view, the Assessing Officer should re-adjudicate on this addition on the basis of further verification as regards investments and expenditure reported in AIR. In view of the above, ground No.4 is allowed for statistical purposes.
27. In view of the above, the appeal filed by the revenue is partly allowed for statistical purposes.
28. As regards the cross objection of the assessee regarding disallowance u/s 14A we find that Ld Assessing Officer has made addition u/s 14A without establishing any nexus between expenditure debited by the assessee and exempt income. The Assessing Officer has not specifically pointed out any direct expense and has not given any finding regarding correctness of claim of the assessee that no expenditure has been incurred for earning exempt income. He has simply relied upon the plain reading of section 14A read with Rule 8D 18 ITA No4275-& co 456/Del/11012 without properly analysizing the expenditure incurred by the assessee. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company has held as under:-
"Under sub section (2), the Assessing Officer required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of total income under the Act in accordance with such method as may be prescribed. The method having regard to the meaning of expression prescribed in section 2(33) must be prescribed by Rules made under the Act. What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of total income in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at having regard to the accounts of the assessee. Hence, sub section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rule straightaway without considering whether the claim made by the assessee in respect of expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must in the first instance determine whether the claim of the assessee in that regard is correct and determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of
19 ITA No4275-& co 456/Del/11012 the assessee that the legislature directs him to follow the method that may be prescribed".
Similar findings were made by Hon'ble Punjab & Haryana High Court in CIT v. Hero Cycles in 328 ITR 518 where it was held that disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and no disallowance can be made on the basis of presumption only.
In the present case the assessee has submitted that she has made investment out of her personal savings and no expense has been debited in the P&L Account. The Assessing Officer has not pointed out any expenditure which assessee might have incurred to earn exempt income. Therefore, in view of the above facts, we are of the considered opinion that Ld CIT(A) erred in upholding the disallowance u/s 14A.
29. In view of the above, the cross objection filed by the assessee is allowed.
30. In the result, the appeal filed by the revenue is partly allowed for statistical purposes and the cross objection filed by the assessee is allowed.
31. Order pronounced in the open court on 18th day of October, 2013.
Sd/- Sd/-
(RAJPAL YADAV ) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. 18.10.2013.
HMS
20 ITA No4275-& co 456/Del/11012
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing 4.10.2013 Date of Dictation 9.10.2013 Date of Typing 10.10.2013 Date of order signed by 18.10.2013 both the Members & pronouncement. Date of order uploaded on net & sent to the Bench concerned.