ANUJ UMESH GOEL,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 7, PUNE

The assessee has raised the following grounds of appeal:- 1) On the facts and in the circumstances of the case and in law, the honourable CIT(A) - 5, Pune has erred in confirming the disallowance of Rs.62,871/- made by the learned AO by applying the provisions of Section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(iii) of the Income Tax Rules,1962 without appreciating that Section 14A is not attracted when the appellant has sufficient own funds and interest free funds to invest in Partnership Firms, LLPs, Companies, PPF and Mutual Funds. The appellant hereby prays that that the disallowance of Rs.62,871/- made under section 14A of the Income Tax Act, 1961 read with rule 8D(2)(iii) of the Income Tax Rules, 1962 may please be deleted. 2) On the facts and in the circumstances of the case and in law, the honourable CIT(A) - 5, Pune has erred in confirming the disallowance of Rs.62,871/- made by the learned AO by applying the provisions of Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 without appreciating the fact that during the year under consideration no expenditure was incurred for earning income which does not form part of total income and hence no disallowance is warranted under provisions of Section 14A of the Income Tax Act, 1961. The appellant hereby prays that the disallowance of Rs.62,871/- may please be deleted. 3) On the facts and in the circumstances of the case and in law, the honourable CIT (A) - 5, Pune has erred in confirming the disallowance of Rs.62,871/- made by the learned AO by applying the provisions of Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 without appreciating the fact that the amount of disallowance far exceeds the amount of expenditure claimed by the appellant that may be even remotely linked to the earning of income not forming part of total income. The appellant hereby prays that the disallowance of Rs.62,871/-may please be deleted. 4) On the facts and in the circumstances of the case and in law, the honourable CIT (A) - 5, Pune is not justified in making an enhancement of assessment by additional disallowance of Rs.6,020/- u/s 14A of the Income Tax Act, 1961 read with rule 8D(2)(i) over and above the disallowance made in the assessment order without providing a reasonable opportunity of showing cause against such enhancement as prescribed u/s 251 of the Income Tax Act, 1961. The appellant hereby prays that the disallowance of Rs.6,020/- under section 14A read with rule 8D(2)(i) may please be deleted. 5) On the facts and in the circumstances of the case and in law, the honourable CIT (A) - 5, Pune has erred in directing the learned AO to make an additional disallowance of Rs.6,020/- u/s 14A of the Income Tax Act, 1961 read with rule 8D(2)(i) without appreciating the facts of the case in proper perspective. The appellant hereby prays that the order directing the learned AO to make a disallowance of Rs.6,020/- under section 14A read with rule 8D(2)(i) may please be set aside. 6) On the facts and in the circumstances of the case, the honourable CIT(A)-5, Pune has erred in directing the learned AO to compute

The first issue raised in the present appeal is against disallowance made under Rule 8D(2)(iii) of the Income Tax Rules, 1962 (in short ‘the Rules’) at ₹ 62,871/-. The linked issue raised vide grounds of appeal No.4 and 5 is against enhancement made by the CIT(A) and making the disallowance under section 14A of the Act read with Rule 8D(2)(i) of the Rules at ₹ 6,020/-. The ground of appeal No.6 is against charging of interest under section 234A and 234B of the Act.

Briefly, in the facts of the case, the assessee is an individual and was engaged in the business of real estate, construction and land dealing. The assessee was partner in number of concerns engaged in the aforesaid business of development of residential and commercial properties. During the year under consideration, in addition to the salary received from the said partnership firms, the assessee had also derived profit from the partnership firms. The assessee had not made any disallowance under section 14A of the Act relatable to the exempt income of profits of partnership concerns. The Assessing Officer show caused the assessee in this regard and was of the view that where the assessee had earned exempt income which was exempt under section 10(2A) of the Act, disallowance under section 14A of the Act was warranted. The Assessing Officer thus, made disallowance under Rule 8D(2)(iii) of the Rules at ₹ 62,871/-.

The CIT(A) upheld the aforesaid disallowance. The assessee while explaining the nature of expenditure booked by it pointed out that at best disallowance of ₹ 6,020/- could be made in the hands of assessee. The CIT(A) first disallowed sum of ₹ 62,871/- under Rule 8D(2)(iii) of the Rules. He further observed at page 18 of appellate order that further disallowance under Rule 8D(2)(i) of the Rules has to be made on account of admission of assessee of direct expenses incurred to earn the exempt income at ₹ 6,020/-. The CIT(A) also upheld the charging of interest under section 234A and 234B of the Act but gave directions to the Assessing Officer to follow the CBDT Circular No.2/2015, dated 10.02.2015.

The assessee is in appeal against the aforesaid order of CIT(A).

The learned Authorized Representative for the assessee strongly objected to the disallowance made under Rule 8D(2)(iii) of the Rules and pointed out that looking at the nature of expenses, there was no merit in the aforesaid disallowance made at ₹ 62,871/-. He further pointed out that while explaining the expenses which have been booked by assessee for the year under consideration and which were claimed as deductible in his hands, the assessee had pointed out that at best expenses for earning share of profits were to be disallowed in his hands to the extent of ₹ 6,020/-. However, the CIT(A) in this regard makes an enhancement and disallowed the same expenditure under Rule 8D(2)(i) of the Rules, which is not warranted.

The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below.

We have heard the rival contentions and perused the record. Coming to the first disallowance made in the hands of assessee under section 14A of the Act read with Rule 8D(2)(iii) of the Rules, the assessee has earned substantial share of profit from partnership concerns and hence, the aforesaid disallowance. As far as the disallowance made under Rule 8D(2)(iii) of the Rules is concerned, then the same is as per provisions of the Act and in view of the exempt income earned by assessee is warranted in the hands of assessee. Accordingly, we uphold the disallowance of ₹ 62,871/- made in the hands of assessee.

Now, coming to enhancement made by CIT(A) in the hands of assessee while explaining the details of expenses debited and its nature, the assessee had pointed out that at best the disallowance under Rule 8D(2)(iii) of the Rules is to be made of expenses totaling ₹ 6,020/-. It was never the case of assessee that the said sum of ₹ 6,020/- is the direct expenditure booked by it for earning the exempt income. In such facts and circumstances, enhancement made by CIT(A) is not warranted. Accordingly, we delete the aforesaid disallowance made under Rule 8D(2)(i) of the Rules.

Now, coming to the last issue raised i.e. charging of interest under section 234A and 234B of the Act. The assessee claims that it had paid self assessment tax in installments of ₹ 68,00,896/- and ₹ 2,06,19,870/-, respectively. The Assessing Officer had erred in charging higher interest under section 234A and 234B of the Act without giving credit for the same. The CIT(A) in para 5 has directed that CBDT Circular No.2/2015, dated 10.02.2015

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