Pavani Parameswara Rao, New Delhi vs Assessee

Shri Pavani Parameswara Rao, vs. ACIT, Circle 37 (1), Senior Advocate, New Delhi. 82, Lawyers Chamber, New Delhi.

(PAN : AACPR8466P)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Girish K. Shukla, Advocate REVENUE by : Shri Vikram Sahay, Senior DR

DATE OF HEARING : 19.02.2015 DATE OF PRONOUNCEMENT : 27.02.2015

ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

This appeal filed by the assessee emanates from the order of the CIT

(Appeals)-XXVII, Delhi dated 14.01.2013 for the assessment year 2009-10.

2. The assessee has filed return of income on 29.09.2009 declaring total

income of Rs.4,99,67,330/-. The assessee is an Advocate and earning income

under the head 'Business & Profession' and other sources. The Assessing

Officer made a disallowance invoking the provisions of section 14A of the

Income-tax Act, 1961 read with Rule 8D of Income-tax Rules, 1962 of 2 ITA NO.1640/Del/2013

Rs.8,43,616/-. The CIT (A) upheld the addition. Now, the assessee is in appeal

by taking the following grounds of appeal :-

"The appellant humbly craves leave to respectfully object to the impugned order of the ld. Commissioner of Income Tax (Appeals) dated 14.01.2013 upholding the assessment order of the Id. Assessing Officer impugned in appeal before him on the following grounds:-

1. That the ld. CIT (Appeals) has erred on facts and in law in dismissing the appeal before her and upholding the assessment order of the ld.

Assessing Officer, disallowing a sum of Rs.8,43,616/- by invoking Sec. 14A of the Income Tax Act, 1961 and adding back the said amount to the total income of the appellant.

2. That the finding of the ld., CIT (Appeals) and the Id. Assessing Officer before her is without any cogent material, basis and is contrary to the facts of the appellant's case and the arguments on appellant's behalf presented before her in his detailed written submissions.

The appellant craves leave to reserve a right to add to, delete from, amend, alter or modify the grounds of appeal before or at the time of hearing."

3. As per Rule 8D (2)(iii) of Income-tax Rules, 1962, an amount equal to

one-half per cent of the average of the value of investment, income from which

does not or shall not form part of the total income, as appearing in the balance

sheet of the assessee, on the first day and the last day of the previous year, shall

not be allowed. As per Rule 8D, the Assessing Officer, having regard to the

accounts of the assessee of a previous year, is not satisfied with the correctness

of the claim of the expenditure made by the assessee, or the claim made by the

assessee that no expenditure has been incurred, in relation to income which does 3 ITA NO.1640/Del/2013

not form part of the total income under the Act for such previous year, shall be

determined and shall not be allowed. In the present case, the assessee has

claimed that he has not incurred any expenditure relatable to the income which

is not forming part of the total income. Therefore, this Rule cannot be invoked.

He pleaded to set aside the order of authorities below.

4. We have heard both the sides on the issue. The CIT (A) has simply relied

on the order of the Assessing Officer in which he has relied on the decision of

Hon'ble Bombay High Court in the case of Godrej & Boyce vs. DCIT, 328 ITR

81 (Mum.). Nothing has been brought on record to establish that assessee claim

is not correct that no expenditure was incurred on investments from where non-

taxable income was earned. CIT (A) has made an observation that there is direct

and proximate nexus between the exempted income and the expenditure is

without any basis. There are no specific instances referred by authorities below

with regard to the expense relatable to the exempted income. They have been

failed to pinpoint any expenditure which can be directly or indirectly related to

the earning of the exempted income. Thus, Assessing Officer acted without

satisfying himself about the incorrectness of the claim of the assessee that no

expenditure has been incurred in earning the income, which is not forming part

of the total income. The Assessing Officer has made wild assertion without any

basis with regard to the expenditure incurred, relatable to the income which is

not forming part of the total income. The main object behind the insertion of

section 14A in the Act is that certain incomes which are not included while 4 ITA NO.1640/Del/2013

working out the total income as these are exempt under various provisions of

Act the expenditure incurred in respect of such exempt income should not be

allowed to the assessee as such claim is against the basic principles of taxation,

where only the net income which is equal to gross income minus the

expenditure is taxed. Expenditure incurred with regard to the exempted income

cannot be allowed and only the expenditure relatable to the earning of taxable

income is to be allowed. This was the intention of the legislature. Since the

assessee has claimed that no expenditure incurred relatable to exempted income

then it is on the revenue to establish that some expenditure was incurred which

has been debited towards the taxable income then only provisions of Rule 8D

can be invoked. In the absence of any such findings, we allow the appeal of the

assessee.

5. In the result, the appeal of the assessee is allowed.

Order pronounced in open court on this 27TH day of February, 2015.

SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated the 27TH day of February, 2015 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-XXVII, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.