M/s. Hero Honda Finlease Ltd., New Delhi V. ACIT, New Delhi

CO 293/DEL/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7646 (ITAT-DELHI)
• Duration Of Justice: 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 21-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 14A

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 G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.3320/DEL/2012 3320/DEL/2012 3320/DEL/2012 3320/DEL/2012 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 HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 057. 110 057. 110 057. 110 057. PAN : AAACH0157J. PAN : AAACH0157J. PAN : AAACH0157J. PAN : AAACH0157J. (APPELLANT) (RESPONDENT) CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO. NO. NO. NO.293/DEL/2012 293/DEL/2012 293/DEL/2012 293/DEL/2012 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007- -- -08 0808 08 M/S HERO HONDA FINLEASE M/S HERO HONDA FINLEASE M/S HERO HONDA FINLEASE M/S HERO HONDA FINLEASE LT LTLT LTD., D.,D., D., (NOW KNOWN AS HERO FINCORP (NOW KNOWN AS HERO FINCORP (NOW KNOWN AS HERO FINCORP (NOW KNOWN AS HERO FINCORP LTD.), LTD.), LTD.), LTD.), 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 057. 110 057. 110 057. 110 057. PAN : AAACH0157J. PAN : AAACH0157J. PAN : AAACH0157J. PAN : AAACH0157J. 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 SATPAL SINGH, SR.DR. ASSESSEE BY : SHRI AJAY VOHRA, ADVOCATE. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF LEARNED CIT(A)-XXVII, NEW DELHI DATED 9 TH MARCH, 2012 FOR THE AY 2007- 08. ITA-3320/DEL/2012 & C.O.293/DEL/2012 2 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL REA D AS UNDER:- 1. WHETHER LD.CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN RESTRICTING THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5.5 LACS AGAIN ST DISALLOWANCE OF RS.32,69,000/- MADE BY THE AO. 2. WHETHER LD.CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS.43,00,000/- MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO DIRECTOR. 3. AT THE TIME OF HEARING, IT WAS POINTED OUT BY TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE RAISED IN GROUND NO.1 OF T HE REVENUES APPEAL IS REGARDING DISALLOWANCE MADE UNDER SECTION 1 4A READ WITH RULE 8D OF INCOME-TAX RULES, 1962. THE ASSESSING OFFICER HAS MADE DISALLOWANCE U/S 14A WITH REFERENCE TO RULE 8D OF `32 ,69,000/- AND THE LEARNED CIT (A) HAS UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 5,50,000/-. IT WAS SUBMITTED BY THE LEARNED COUNSEL THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-DETERMINE THE DISALLO WANCE AS PER THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF M AXOPP INVESTMENT LIMITED VS. CIT - 247 CTR 162 (DEL). HE SUBMITTED TH AT IN THE SAID DECISION, ADMITTEDLY, RULE 8D HAS BEEN HELD TO HAVE N O RETROSPECTIVE EFFECT, HENCE, THE SAME WILL NOT BE APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 4. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDER OF LEARNED CIT(A). ITA-3320/DEL/2012 & C.O.293/DEL/2012 3 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND T HAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVEST MENT LIMITED (SUPRA) HAS HELD THAT SUB-SECTIONS (2) & (3) OF SECTION 14A AS WELL AS RULE 8D ARE PROSPECTIVE AND NOT APPLICABLE RETROSPECT IVELY. THEREFORE, RULE 8D WOULD NOT BE APPLICABLE FOR THE YEAR UNDER APPEAL BEFORE US. HOWEVER, THE HONBLE JURISDICTIONAL HIGH COURT HAS GI VEN THE DETAILED GUIDELINES HOW TO WORK OUT THE DISALLOWANCE UNDER SEC TION 14A FOR THE PERIOD PRIOR TO INTRODUCTION OF RULE 8D, IN PARAGRA PH NOS.41 & 42 OF THE JUDGMENT, WHICH ARE REPRODUCED BELOW FOR READY REFE RENCE:- HOW IS S. 14A TO BE WORKED FOR THE PERIOD PRIOR TO T HE INTRODUCTION OF R. 8D? 41. SUB-S.(2) OF S. 14A, AS WE HAVE SEEN, STIPULATES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INC URRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TH E TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. OF COURSE, THIS DETERMINATION CAN ONLY B E UNDERTAKEN IF THE AO IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF S. 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLICIT IN S. 14A(1) (AS IT NOW STANDS) AS ALSO IN ITS INITIAL AVATAR AS S. 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHIC H WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, S. 14A, E VEN PRIOR TO THE INTRODUCTION OF SUB-SS. (2) AND (3) WOULD REQUIRE THE AO TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH RE GARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE AO ITA-3320/DEL/2012 & C.O.293/DEL/2012 4 WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-S. (2) OF S. 14A. PRIOR TO THAT, THE ASSESSING AUTHORITY WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SS. (2) AND (3) OF S. 14A AND R. 8D WOULD OPERATE PROSPECTIVELY ( AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE AO IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFI ED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON T HE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSI S AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITUR E AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUIRED T O DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPR EME COURT IN WALFORT (SUPRA) TO THE FOLLOWING EFFECT: THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S. 14A. SO, EVEN FOR THE PRE-R. 8D PERIOD, WHENEVER THE ISSUE OF S. 14A ARISES BEFORE AN AO, HE HAS, FIRST OF ALL, TO ASCER TAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT . EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM P ART OF ITA-3320/DEL/2012 & C.O.293/DEL/2012 5 TOTAL INCOME, THE AO WILL HAVE TO VERIFY THE CORREC TNESS OF SUCH CLAIM. IN CASE, THE AO IS SATISFIED WITH THE CLA IM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE AO IS TO ACCEPT T HE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER S. 14A IS CONCERNED. IN SUCH EVENTUALITY, THE AO CANNOT EMBARK UPON A DETERMINAT ION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF S. 14 A(1). IN CASE, THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITE RIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE , HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASO NS FOR DOING SO. HAVING DONE SO, THE AO WILL HAVE TO DETERM INE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER T HE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 6. ACCORDINGLY, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER TO THE FILE OF THE ASSESSIN G OFFICER FOR WORKING OUT THE DISALLOWANCE UNDER SECTION 14A AS PER THE ABOVE GUIDELINES OF THE HONBLE JURISDICTIONAL HIGH COURT. NEEDLESS TO MENTION THAT THE ASSESSING OFFICER WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE READJUDICATING THE ISSU E. 7. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE AC TION OF LEARNED CIT(A) IN DELETING THE ADDITION OF ` 43,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION PAID TO THE D IRECTOR. ITA-3320/DEL/2012 & C.O.293/DEL/2012 6 8. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED BY THE REVENUE RELATING TO COMMISSION PAID TO T HE DIRECTOR IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT DATED 27 TH APRIL, 2012 RENDERED IN ASSESSEES OWN CASE IN ITA NO.4329/DEL/2 010. THE COPY OF THE SAID ORDER HAS ALSO BEEN FILED IN ASSESSEES PA PER BOOK AT PAGES 91 TO 109. 9. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS OBSERVED THAT THE ISSUE RELATING TO PAYMENT OF COMMISSION TO THE DIRECTOR IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT DATED 27 TH APRIL, 2012 RENDERED IN ASSESSEES OWN CASE CITED SUPRA BY THE LEARNE D COUNSEL. IN THE SAID CASE, DELHI C BENCH OF ITAT, AFTER CONSI DERING VARIOUS CASE LAW CITED BY BOTH THE SIDES AND THE PROVISIONS OF THE A CT, HAS HELD THAT THE COMMISSION PAID TO THE DIRECTOR WAS ALLOWABLE. RE SPECTFULLY FOLLOWING THE SAID DECISION OF ITAT, WE UPHOLD THE OR DER OF LEARNED CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE REVE NUES APPEAL. 11. IN THE CROSS-OBJECTION, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) TO THE E XTENT OF ` 5,50,000/- UNDER SECTION 14A OF THE ACT. 12. SINCE WE HAVE ALREADY RESTORED THE SAID ISSUE TO TH E FILE OF THE ASSESSING OFFICER WHILE ADJUDICATING UPON GROUND NO.1 O F THE REVENUES APPEAL IN PARAGRAPH NO.5 ABOVE, THE CROSS-OB JECTION OF THE ASSESSEE HAS BECOME ONLY ACADEMIC IN NATURE. THE SAME IS TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. ITA-3320/DEL/2012 & C.O.293/DEL/2012 7 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREAT ED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE CROSS-OBJECT ION OF THE ASSESSEE IS TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER, 2012. SD/- SD/- ( (( (A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 07.09.2012 VK. COPY FORWARDED TO: - 1. REVENUE : 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), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 2. ASSESSEE : M/S HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., M/S HERO HONDA FINLEASE LTD., (NOW KNOWN AS HERO FINCORP LTD.), (NOW KNOWN AS HERO FINCORP LTD.), (NOW KNOWN AS HERO FINCORP LTD.), (NOW KNOWN AS HERO FINCORP LTD.), 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 057. 110 057. 110 057. 110 057. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR