Eltek SGS Pvt. Ltd, New Delhi V. ACIT, New Delhi

CO 146/DEL/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3447 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 19-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Tax effect
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 2079 /DEL/201 5 A.Y. 20 10 - 11 ACIT, CIRCLE 8(1), NEW DELHI ROOM NO. 415, 4 TH FLOOR, C.R. BUILDING, NEW DELHI VS. M/S ELTEK SGS PVT. LTD., F-225A, SAINIK FARM, NEW DELHI 110 062 (PAN: AAACE2920LL) (APPELLANT) (RESPONDENT) AND CROSS OBJECTION NO. 146 /DEL/201 6 (IN ITA NO. 2079/DEL/2015) A.Y. 2008 - 09 M/S ELTEK SGS PVT. LTD., F-225A, SAINIK FARM, NEW DELHI 110 062 (PAN: AAACE2920LL) VS. ACIT, CIRCLE 8(1), NEW DELHI ROOM NO. 415, 4 TH FLOOR, C.R. BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) DEPARTMENT BY : MS. ASHIMA NEB, SR. DR ASSESSEE BY : SH. ANIL BHALLA, CA ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AND ASSESSEE HA S FILED THE CROSS OBJECTION AGAINST THE IMPUGNED ORDER DATED 08.1.201 5 RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- STATEMENT OF FACTS IN THE INSTANT CASE, THE ASSESSEE IS A COMPANY ENGA GED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ELECTRONIC/ELECTRIC EQUIPMENTS. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT AT RS. 2 41,57,89,0201- ON 31.01.2014 AS AGAINST RETURNED INCOME AMOUNTING TO RS.41,16,39,9101- FILED BY THE ASSESSEE COMPANY ON 24.09.2010. WHILE MAKING ASSESSMENT U/S 143(3) OF THE I.T. ACT, 1961, THE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS/DISALLOWANCES: DISALLOWANCE OF EXPENDITURE U/S 14A R.W. 31 ,99,856/- RULE 8D DISALLOWANCE OF 'ADVANCES WRITTEN OFF' 9,49, 156/- AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A)- 3, NEW DELHI. THE LD. CIT(A) VIDE HIS ORDER DATED 08.01.2015 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE COMPANY. GROUND 1 : DISALLOWANCE ULS 14A R. W. RULE 80 OF RS . 31,99,956/- DURING THE ASSESSMENT PROCEEDINGS IT WA S NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAS RECEIVED DIVIDEND INCOME AMOUNTING TO RS.3,40,29,185/- ON MUTUAL FUNDS AND HAS CLAIMED T HE SAME EXEMPTED U/S 10 OF THE I.T. ACT, 1961. IT IS FURTHER OBSERVED THAT THE ASSESSEE HAS SUO MOTTO DISALLOWED AN AMOUNT OF RS.80,OOO/-- U/S 14A OF THE ACT. THE HOURS DEVOTED BY THE SAID PERSONS HAVE BEE N TAKEN ON ESTIMATED BASIS AND NO RATIONAL BASIS HAS BEEN GIVEN BY THE ASSESSEE. HOWEVER, THERE IS NO REASONING PROVIDED BY THE ASSESSEE COMPANY FOR NOT CONSIDERING CERTAIN EXPENSES TO BE ALLOCATED TO THE INVESTMENT ACTIVITIES SUCH AS RENT OF THE PREMISES, COST OF MANAGEMENT, COST OF STATIONERY AND COST INCURRED FOR ARRANGING THE FUNDS. AFTER EXAMINING THE REPLY OF T HE ASSESSEE, TOTAL DISALLOWANCE U/S 14A IN TERMS OF R ULE 3 80 COMES TO RS.32,79,956/-. SINCE, THE ASSESSEE HAS SUO MOTO DISALLOWED AN AMOUNT OF RS.80,OOOI-, THUS REMAINING AMOUNT OF RS.31,99,956 (32,79,956 - 80,000) IS DISALLOWED U/S 14A IN TERMS OF RULE 80 AND ADDED BACK TO THE TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A), DELHI OBSERVED THAT SECTION 14A(2) PROVIDES THAT THE ASSESSING OFFICER SHALL DETERMIN E THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MA Y BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REG ARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WIT H CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND SE CTION 14A(3) PROVIDES THAT THE PROVISIONS OF SUB SECTION (2) SHALL APPLY IN RELATION TO A CASE WHERE AN ASSESSE E CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THUS, THE ASSESSING OFFICER HAS NOT RECORDED ANY DISSATISFACTION ABOUT THE DISALLO WANCE SUO-MOTO MADE BY THE APPELLANT. STATUTORY PROVISIO NS OF SECTION 14A(2) AND 14A(3) SHOWS THAT THE ASSESSE E OFFERED THE DISALLOWANCE U/S 14A, THE PROVISIONS OF SECTION 14A(2) R.W. RULE 8D CANNOT BE INVOKED UNLES S THE AO IS DISSATISFIED ABOUT THE CORRECTNESS OF THE DISALLOWANCE SO OFFERED. THIS PROPOSITION GETS SUPP ORT FROM THE DECISION OF THE ITAT, KOLKATA BENCH 'B' IN THE CASE OF ACIT VS. CHAMPION COMMERCIAL LTD. ITA NO. 644/KOL/2012. IN VIEW OF THIS, THE DISALLOWANCE OF 4 RS.31,99,956/- MADE BY THE ASSESSING OFFICER UNDER RULE 8D READ WITH SECTION 14A IS DELETED. KEEPING IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DECISION OF THE LD. CIT(A) IS NOT ACCEPTABLE, BECAUSE THE LD. CIT(A) HA S NOT APPRECIATED THE FACT OF THE CASE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND THAT THE ASSESS EE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND SEPARATE BANK ACCOUNTS FOR THE INVESTMENT AND EARN ING OF DIVIDEND INCOME. THERE IS NO LINKING ESTABLISHED BY THE ASSESSEE COMPANY REGARDING THE FUNDING OF THE INVESTMENTS MADE FROM WHICH EXEMPTED INCOME HAS BEEN EARNED. THE PROVISIONS OF SECTION 14A CLEARLY PRESCRIBE THAT NO DEDUCTION SHALL BE ALLOWED IN RES PECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THIS ACT. THE INVOCATION OF SECTION 14A IS AUTOMATIC AND COMES INTO OPERATION, WITHOUT ANY EXCEPTION, AS SOON AS, THE DIVIDEND INCOME IS CLAIM ED EXEMPT. SINCE THE ENTIRE DIVIDEND INCOME HAS BEEN CLAIMED EXEMPT AND IS NOT PART OF THE TOTAL INCOME UNDER THIS ACT, HENCE SECTION 14A IS CLEARLY ATTRAC TED IN THIS CASE AND ANY EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME SHALL HAVE TO BE DISALLOWED. REGARD ING THE OBSERVATION OF LD. CIT(A) THAT THE ASSESSING OF FICER HAS NOT SHOWN THAT HE IS DISSATISFIED ABOUT THE CORRECTNESS OF THE DISALLOWANCES NO EFFECT. IN THE ASSESSMENT ORDER, AND AS CAN BE MADE OUT FROM ITS RECORDS THE AO ONLY AFTER BEING DISSATISFIED ABOUT THE CORRECTNESS OF DISALLOWANCE ASKED THE ASSESSEE FOR COMPLIANCE. THE A.O. CONSIDERED THE SUBMISSION OF T HE 5 ASSESSEE AND HAS BEEN DULY DISCUSSED IN THE ORDER. THE GROUND ON WHICH IT WAS NOT ACCEPTED HAS ALSO BEEN DISCUSSED IN THE ASSESSMENT ORDER. THEREFORE, THE A O CORRECTLY DISALLOWED THE ADDITION OF RS.31 ,99,956/ - UNDER SECTION 14A OF THE I.T. ACT, 1961. GROUND 2: DISALLOWANCE OF 'ADVANCES WRITTEN OFF' OF RS. 9,49,156/- DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS CLAIMED AMOUNT OF RS.9,49,156/- AS 'ADVANCES WRITTEN OFF'. ASSESSEE WAS ASKED TO FURNI SH THE DETAILS OF THE AMOUNT CLAIMED AND JUSTIFY THE S AME BEING REVENUE IN NATURE. HOWEVER, THE REPRESENTATIV E OF THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM. HENC E, THE CLAIM OF THE ASSESSEE REMAINED UNEXPLAINED. IN THE ABSENCE OF ANY DETAILS IN THIS REGARD, 'IT IS NOT F EASIBLE TO ACCEPT THE CLAIM OF THE ASSESSEE BEING. REVENUE IN NATURE. CONSIDERING ALL THESE FACTS OF THE CASE, TH E AMOUNT OF RS.9,49,156/- IS HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE LD.CIT(A) OBSERVED ON THE PERUSAL OF THE DETAIL S THAT THE AMOUNT OF RS.9,49, 156/- CONTAINS THE AMO UNT OF 8,54,998/- WHICH IS IN THE NATURE OF BAD DEBT WH ICH ARE ALLOWABLE U/S 36(I)(VII) OF THE ACT. TO CLAIM AN AMOUNT AS BAD DEBT, IT IS SUFFICIENT IF THE BAD DEB T IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS AND TH E ASSESSEE NEED NOT ESTABLISH THAT THE DEBT HAS BECO ME IRRECOVERABLE. RELIANCE IS PLACE ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF TRF LTD. VS CIT ( CIVIL APPEAL NO.5293 OF 2003, CIVIL APPEAL NO.5294 OF 2003). HOWEVER, THE LD. CIT(A) RESTRICTED THE ADDIT ION TO RS.94,159/-. 6 KEEPING IN VIEW OF THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE OBSERVATION OF THE LD. CIT (A) IS ACCEPTABLE AND THEREFORE THE SECOND APPEAL IS NOT RECOMMENDED ON THIS GROUND. ON GROUND NO.3 REGARDING SHORT TERM CAPITAL GAIN OF RS.83,560/- . THE LD. CIT (A) IN AFORESAID ORDER RA ISED THE QUESTION ABOUT SHORT TERM CAPITAL GAIN. BUT TH E A.O. HAD NOT DISCUSSED IT IN ASSESSMENT ORDER. COMMENTS OF THE ASSESSING OFFICER KEEPING IN VIEW OF THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE DECISION OF THE LD. CIT(A) IS NOT ACCEPTABLE ON THE GROUND NO.1. BESIDES, THE TAX AMO UNT INVOLVED IN THE RELIEF GRANTED BY THE LD. CIT(A) IS ALSO HIGHER THAN THE LIMITS OF RS. 4 LACS PRESCRIBED BY THE CBDT FOR FILLING APPEAL TO THE ITAT VIDE INSTRUCTIO N NO O5/2014 DATED 10,07.2014. THE TAX EFFECT PERTAINING TO THE ISSUE OF GROUND NO.1 AMOUNT TO RS. 9,59,986. IN VIEW OF THIS AND THE ABOVE DISCUSSION, A SECOND APP EAL BEFORE THE HON'BLE ITAT IS RECOMMENDED ON THE GROUN D NO.1 ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.31,99,956/- MADE U/S 14A BY RELYING UPON THE DECISION OF THE ITAT, KOLKATA, BENCH-B IN THE CASE OF ACIT VS CHAMPION COMMERCIAL LTD. ON THE GROUND THAT AO HAS NOT RECORDED ANY DISSATISFACTION WITH THE DISALLOWANCE MADE BY ASSESSEE, IGNORING THE FACT THAT AO ONLY AFTER BEING DISSATISFIED ABOUT THE CORRECTNESS OF DISALLOWANCE INVOLVE THE PROVISION OF RULE 8D. 7 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT{A) ERRED IN RESTRICTING THE ADDITION MADE BY THE AO ON ACCOUNT OF ADVANCES WRITTEN OFF FROM 9,49,156/- TO 94,159/-. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. AFTER PERUSING THE AFORESAID GROUNDS OF APPEAL R AISED BY THE DEPARTMENT, WE ARE OF THE VIEW THAT THE GROUNDS RA ISED BY THE DEPARTMENT ARE NOT ACCORDING TO RULE 8 OF THE INCOM E TAX (APPELLATE TRIBUNAL) RULES, 1963 WHEREIN THE FOLLOWING HAS BE EN STIPULATED:- 8. CONTENTS OF MEMORANDUM OF APPEAL EVERY MEMORANDUM OF APPEAL SHALL BE WRITTEN IN ENGLISH AND SHALL SET FORTH, CONCISELY AND UNDER DISTINCT HEADS, THE GROUNDS OF APPEAL WITHOUT ANY ARGUMENT OR NARRATIVE; AND SUCH GROUNDS SHALL BE NUMBERED CONSECUTIVELY. 3.1 IN VIEW OF THE AFORESAID PROVISIONS, THE APPEAL FILED BY THE DEPARTMENT IS DEFECTIVE AND IS NOT MAINTAINABLE IN THE EYES OF LAW, HENCE, THE SAME IS DISMISSED AS SUCH. BUT IN THE IN TEREST OF JUSTICE, IF SO ADVISED, THE REVENUE IS AT LIBERTY TO FILE THE APPL ICATION TO RECALL THIS ORDER, AFTER RECTIFYING THE DEFECT. 4. AS REGARDS THE CROSS OBJECTION FILED BY THE AS SESSEE IS CONCERNED, SINCE WE HAVE ALREADY DISMISSED THE REVENUES APPEA L BEING DEFECTIVE, AS AFORESAID, THE CROSS OBJECTION FILED BY THE ASSE SSEE HAS BECOME INFRUCTUOUS AND DISMISSED AS SUCH. IT IS MADE CLEA R THAT IF THE DEPARTMENT FILE THE MISC. APPLICATION IN ITS APPE AL FOR RECALLING THIS ORDER AND BENCH RECALLED THE SAME, THEN THIS CROSS OBJECTION WILL BECOME 8 AUTOMATICALLY REVIVED AND ACCORDINGLY, THE REVENUE S APPEAL AS WELL AS ASSESSEES CROSS OBJECTION WILL BE HEARD TOGETHER , AS PER RULES. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A S WELL AS CROSS OBJECTION FILED BY THE ASSESSEE STAND DISMISSED IN THE AFORESAID MANNER. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2018. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 22/01/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES