M/s H.B. Portfolio Ltd., New Delhi V. ACIT, New Delhi

CO 168/DEL/2013

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4077 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 26-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN SENIOR
• Assessee Lawyers: SANTOSH K AGGARWAL
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside; Capital Gains
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND S SS SMT. BEENA A. PILLAI MT. BEENA A. PILLAI MT. BEENA A. PILLAI MT. BEENA A. PILLAI, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 1169/DEL/2013 1169/DEL/2013 1169/DEL/2013 1169/DEL/2013 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007 - -- - 08 0808 08 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -12(1), 12(1), 12(1), 12(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, 10 1010 10 TH THTH TH FLOOR, DCM BUILDING, FLOOR, DCM BUILDING, FLOOR, DCM BUILDING, FLOOR, DCM BUILDING, BARAKHAMBA ROAD, BARAKHAMBA ROAD, BARAKHAMBA ROAD, BARAKHAMBA ROAD, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. PAN : AAACH3112P. PAN : AAACH3112P. PAN : AAACH3112P. PAN : AAACH3112P. (APPELLANT) (RESPONDENT) CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO NONO NO .168/DEL/2013 .168/DEL/2013 .168/DEL/2013 .168/DEL/2013 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007 - -- - 08 0808 08 M/S H.B. PORTFOLIO LIMITED M/S H.B. PORTFOLIO LIMITED M/S H.B. PORTFOLIO LIMITED M/S H.B. PORTFOLIO LIMITED , ,, , H HH H- -- -72, 72, 72, 72, CONNAUGHT CIRCUS, CONNAUGHT CIRCUS, CONNAUGHT CIRCUS, CONNAUGHT CIRCUS, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. PAN : AAACH3112P. PAN : AAACH3112P. PAN : AAACH3112P. PAN : AAACH3112P. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -12(1), 12(1), 12(1), 12(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI T. VASANTHAN, SENIOR DR. ASSESSEE BY : SHRI SANTOSH K. AGGARWA L, ADVOCATE. DATE OF HEARING : 13.07.2016 13.07.2016 13.07.2016 13.07.2016 DATE OF PRONOUNCEMENT : 20.07.2016 20.07.2016 20.07.2016 20.07.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THE APPEAL BY THE REVENUE AND THE CROSS-OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XXVII, NEW DELHI DATED 2 ND NOVEMBER, 2012. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL :- ITA-1169/DEL/2013 & C.O. NO.168/DEL/2013 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE AM OUNT OF DISALLOWANCE U/S 14A OF THE ACT CANNOT BE ADDED TO BOOK PROFIT U/S 115JB DESPITE THE FACT THAT THERE IS A S PECIFIC PROVISION AS PER CLAUSE (F) OF SECTION 115JB. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.1,03,01,375/- MADE IN THE COMPUTATION OF BOOK PR OFIT U/S 115JB ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT RELATING TO DIVIDEND INCOME OF RS.1,79,01,805/- CLA IMED BY THE ASSESSEE AS EXEMPT U/S 10(34). 3. IN THE CROSS-OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT THE ORDER OF THE COMMISSIONER OF INCOME-TA X (APPEALS)-XXVII, NEW DELHI, THE COMMISSIONER (APPEA LS), DATED 02.11.2012, THE IMPUGNED ORDER, IS WRONG ON F ACTS AND BAD IN LAW; 2. THAT COMMISSIONER (APPEALS) ERRED IN NOT DECIDIN G THE ISSUE THAT THE DISALLOWANCE OF EXPENDITURE OF RS.1,03,01,375/- UNDER SECTION 14A OF THE ACT WAS W RONG AND ILLEGAL; 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE COMMISSIONER (APPEALS) FAILED T O APPRECIATE THAT THE DISALLOWANCE OF EXPENDITURE OF RS.1,03,01,375/- UNDER SECTION 14A OF THE ACT WAS W RONG AND ILLEGAL; 2.2 THAT THE COMMISSIONER (APPEALS) FAILED TO APPRE CIATE THAT THE ENTIRE EXPENDITURE WAS INCURRED FOR THE PU RPOSES OF ITS BUSINESS AND NO EXPENDITURE WAS INCURRED FOR THE DIVIDEND INCOME AND/OR CAPITAL GAINS AND AS SUCH TH E PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLI CABLE AND NO DISALLOWANCE UNDER THE SAID PROVISIONS WAS T O BE MADE; 2.3 THAT THE COMMISSIONER (APPEALS) FAILED TO APPRE CIATE THAT THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABLE AFTER RECORDING WITH REASONS AS TO WHY T HE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED O R THE EXPENDITURE INCURRED WAS NOT MORE THAN THE EXPENDIT URE ITA-1169/DEL/2013 & C.O. NO.168/DEL/2013 3 ADDED BY THE APPELLANT FOR THE DIVIDEND INCOME AND/ OR CAPITAL GAINS WAS INCORRECT. HE FAILED TO APPRECIA TE THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS W RONG AS THERE WAS NO SUCH FINDING; 2.4 THAT THE COMMISSIONER (APPEALS) FAILED TO APPRE CIATE THAT THE DISALLOWANCE OF RS.1,03,01,375/- UNDER SEC TION 14A OF THE ACT WAS EXCESSIVE AND UNREASONABLE; 3. THAT THE CONCLUSIONS AND INFERENCES OF THE ASSES SING OFFICER AND/OR COMMISSIONER (APPEALS) ARE BASED IN SUSPICIONS, CONJECTURES, SURMISES AND EXTRANEOUS AN D IRRELEVANT CONSIDERATIONS; 4. THAT THE RELIEFS PRAYED FOR MAY KINDLY BE ALLOWE D AND THE ORDER(S) OF THE ASSESSING OFFICER AND/OR COMMIS SIONER (APPEALS) MAY KINDLY BE QUASHED, SET ASIDE, ANNULLE D OR MODIFIED; 5. THAT THE AFORESAID GROUNDS OF CROSS-OBJECTION AR E WITHOUT PREJUDICE TO EACH OTHER; 6. THAT THE APPELLANT CRAVES LEAVE TO VARY, ALTER, AMEND OR ADD TO THE AFORESAID GROUNDS OF CROSS-OBJECTION BEFORE OR AT THE TIME OF HEARING OF THE ABOVE APPEAL. 4. AT THE TIME OF HEARING BEFORE US, IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT IN THIS CASE, THE ASSESSEE HAD FILED A RETURN DECLARING NIL INCOME UNDER THE REGULAR PROVISIONS O F THE INCOME-TAX ACT AND BOOK PROFIT U/S 115JB AT `12,66,49,549/-. THE ASSESSING OFFICER MADE THE ADDITION OF `1,03,01,375/- TO THE BOOK PRO FIT ON THE GROUND THAT THIS AMOUNT IS DISALLOWABLE U/S 14A. ON APPEA L, LEARNED CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT DISALLOWANCE U/S 14A CANNOT BE ADDED TO BOOK PROFIT . HOWEVER, THE ASSESSEE HAS CHALLENGED THAT THE DISALLOWANCE WORKE D OUT BY THE ASSESSING OFFICER U/S 14A IS NOT IN ACCORDANCE WITH LAW. HE POINTED OUT THAT IN THE PRECEDING YEAR I.E., ASSESSMENT YEAR 20 05-06, IN ASSESSEES OWN CASE IN ITA NO.2241/DEL/2010, THE ITAT SET ASID E THE ISSUE OF WORKING OF THE DISALLOWANCE U/S 14A TO THE FILE OF THE ASSESSING OFFICER. HE REFERRED TO PARAGRAPH 5 OF THE ITATS ORDER AND POINTED OUT THAT THE ITA-1169/DEL/2013 & C.O. NO.168/DEL/2013 4 ITAT HAD SET ASIDE THE MATTER TO THE ASSESSING OFFI CER WITH THE DIRECTION TO RE-WORK THE DISALLOWANCE AS PER THE JU DGEMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE MFG. PVT.LTD. HE FURTHER SUBMITTED THAT NOW, A SIMILAR VIEW IS TAKEN BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT LTD. 347 ITR 272 (DEL). HE ALSO SUBMITTED THAT THE ASSESSME NT YEAR UNDER CONSIDERATION IS 2007-08 AND THEREFORE, RULE 8D WAS NOT APPLICABLE. THE DISALLOWANCE, IF ANY, CAN BE MADE ONLY IN RESPE CT OF THE EXPENDITURE WHICH HAS A NEXUS WITH THE EARNING OF E XEMPT INCOME. HE, THEREFORE, SUBMITTED THAT THE ISSUE OF QUANTIFI CATION OF THE DISALLOWANCE U/S 14A SHOULD BE SET ASIDE TO THE FIL E OF THE ASSESSING OFFICER. 5. LEARNED DR, ON THE OTHER HAND, HAS STATED THAT I F THE ISSUE RELATING TO QUANTIFICATION OF DISALLOWANCE U/S 14A IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER, THEN THE ISSUE WHICH IS A DJUDICATED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE I.E., WHETHER SUCH DISALLOWANCE CAN BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT, SHOULD ALSO BE SET ASIDE. HE STATED THAT WHILE COMPUTING THE INCOME, THE FIRS T STEP IS WORKING OUT OF DISALLOWANCE U/S 14A AND THE SECOND STEP WOU LD BE WHETHER SUCH AMOUNT WHICH IS TO BE DISALLOWED U/S 14A IS TO BE ADDED TO THE BOOK PROFIT OR NOT. IF THE ISSUE AT FIRST STAGE IS SET ASIDE, THEN ALL SUBSEQUENT ISSUES SHOULD ALSO BE SET ASIDE TO THE F ILE OF THE ASSESSING OFFICER. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT LTD. (SUPRA) HELD AS UNDER:- THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURR ED IN ITA-1169/DEL/2013 & C.O. NO.168/DEL/2013 5 RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY I F THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PREC EDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINA TION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RE CORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. 7. ADMITTEDLY, RULE 8D HAS NOT COME INTO EXISTENCE DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR UNDER C ONSIDERATION. THEREFORE, DISALLOWANCE U/S 14A, IF ANY, IS TO BE C OMPUTED IN THE LIGHT OF ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH CO URT. WE ALSO FIND THAT UNDER SIMILAR CIRCUMSTANCES, THE ITAT HAS ALRE ADY SET ASIDE A SIMILAR ISSUE TO THE FILE OF THE ASSESSING OFFICER IN ASSESSMENT YEAR 2005-06. IN VIEW OF THE ABOVE, WE SET ASIDE THE OR DERS OF AUTHORITIES BELOW WITH REGARD TO QUANTIFICATION OF DISALLOWANCE U/S 14A AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER. 8. SINCE THE ISSUE OF QUANTIFICATION OF DISALLOWANC E U/S 14A HAS BEEN SET ASIDE, THE SECOND RELATED ISSUE WHETHER TH E AMOUNT OF DISALLOWANCE U/S 14A IS TO BE ADDED TO THE BOOK PRO FIT OR NOT IS ALSO SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. ACCORD INGLY, ASSESSING OFFICER IS DIRECTED TO READJUDICATE BOTH THESE ISSUES AS PE R LAW AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS-OBJECTION OF THE ASSESSEE BOTH ARE DEEMED TO BE ALLOWED FOR S TATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 20.07.2016 . SD/- SD/- (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. ITA-1169/DEL/2013 & C.O. NO.168/DEL/2013 6 COPY FORWARDED TO: - 1. REVENUE : ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -12(1), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 2. ASSESSEE : M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, M/S H.B. PORTFOLIO LIMITED, H HH H- -- -72, CONNAUGHT CIRCUS, NEW DELHI 72, CONNAUGHT CIRCUS, NEW DELHI 72, CONNAUGHT CIRCUS, NEW DELHI 72, CONNAUGHT CIRCUS, NEW DELHI 110 001. 110 001. 110 001. 110 001. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR