M/s Rites Ltd., Gurgaon V. DCIT, New Delhi

ITA 1125/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0475 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Competent authority; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND SH. KULDIP SINGH, JUDICIAL MEMBER ITA NO.1125/DEL/2016 ASSESSMENT YEAR: 2010-11 M/S. RITES LTD. RITES BHAWAN PLOT NO.-1 SECTOR-29, GURGAON-122001 HARYANA PAN NO.AAACR0830Q VS DCIT CIRCLE 15 (1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. SATYAJEET GOEL, CA RESPONDENT BY SMT. NAINA SOIN KAPIL, SR. DR SH. J. K. MISHRA, CIT DR DATE OF HEARING: 04/09/2019 DATE OF PRONOUNCEMENT: 13/09/2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 19.01.2016 OF THE CIT(A)-7, NEW DELHI R ELATING TO A. Y. 2010-11. 2. GROUND OF APPEAL NO. 1.1 TO 1.4 ARE AS UNDER :- 1.(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING ADDITION OF RS.201. 66 CRORES AS PAGE | 2 DEEMED INCOME ON MOBILIZATION ADVANCE EVEN THOUGH N O SUCH INCOME HAD ACCRUED OR RECEIVED. (II) THAT IN THE ABSENCE OF ANY LEGAL OR STATUTORY RIGHT OR ACCEPTANCE OF CLAIM BY OTHER PARTY, THERE IS NO CAS E OF ANY SUCH INCOME IN THE LIGHT OF PRINCIPLE LAID DOWN BY SUPRE ME COURT IN THE CASE OF EXCEL INDUSTRIES LTD.(2013)358 ITR 295. (III) THAT ALLEGED CLAIMS IS OF CONTINGENT NATURE AND THE RE IS NO JUSTIFICATION FOR ANY ADDITION ON FACTUAL OR LEGAL BASIS. (IV) THAT IN ANY CASE, IF SUCH ADDITION IS CONSIDERED AS INCOME, DEDUCTION SHOULD BE ALLOWED IN RESPECT OF COUNTER C LAIM BY OTHER PARTY. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF TECHNICAL AND EN GINEERING CONSULTANCY AND EXPORT SALE. IT FILED ITS RETURN O F INCOME ON 27.09.2010 DECLARING TOTAL INCOME OF RS.208,85,63,5 79/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED FROM THE CONSOLIDATED NOTES TO ACCOUNTS POINT NO.12 .0 OF SCHEDULE N THAT INTEREST OF RS.201.66 LACS [ RS.984 .26 LACS 782.60 LACS (PREVIOUS YEAR)] ON MOBILIZATION ADVANC E DUE FROM THE EXECUTING AGENCY HAS NOT BEEN RECOGNIZED AS INCOME ALTHOUGH THE SAME HAS BECOME DUE DURING THE F.Y. 2009-10 RELEVAN T TO A.Y. 2010-11. ACCORDING TO THE ASSESSING OFFICER TH IS AMOUNT SHOULD HAVE BEEN INCLUDED IN THE INCOME OF THE ASSE SSEE. HE, THEREFORE, CONFRONTED THE SAME TO THE ASSESSEE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ABOVE IS IN REFERENCE TO T HE FRAUD COMMITTED BY AN AGENCY IN EARLIER YEAR AND THERE IS ALSO PAGE | 3 UNCERTAINTY ABOUT THE REALIZATION AND THE MATTER IS UNDER ARBITRATION. HOWEVER, THE ASSESSING OFFICER REJECTE D THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE A SSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THEREFO RE, THE AMOUNT OF RS.2,01,66,000/- SHOULD HAVE BEEN RECOGNI ZED BY THE ASSESSEE AS INCOME DURING THE PREVIOUS YEAR RELEVAN T TO A.Y.2010-11. HE ACCORDINGLY MADE ADDITION OF RS.2, 01,66,000/- TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE LD. CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR ASSESSME NT YEAR 2009- 10 CONFIRMED THE ADDITION MADE BY THE ASSESSING OFF ICER. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y.2 008-09 DELETED THE ADDITION SUSTAINED BY THE CIT(A) ON THE GROUND THAT THE AMOUNT HAS NOT BEEN CRYSTALISED AND, THEREFORE, THE SAME CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASS ESSEE. FURTHER THE ASSESSEE BEING A GOVERNMENT UNDERTAKING IS FOLLOWING A SYSTEM OF ACCOUNTING AS PER WHICH THE I TEMS OF INCOME AND EXPENDITURE ARE TREATED AS ACCRUED ONLY AFTER THE APPROVAL IS GRANTED BY THE COMPETENT AUTHORITY. HE SUBMITTED THAT THE DECISION OF THE TRIBUNAL WAS CHALLENGED BY THE REVENUE AND THE HONBLE HIGH COURT IN ITA NO.404/2-16 ORDER DATED 06.12.2016 DISMISSED THE APPEAL FILED BY THE REVENU E. THEREFORE, THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE, PAGE | 4 THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWE D. 6. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON T HE ORDER OF THE ASSESSING OFFICER AND THE CIT(A). SHE HOWEVE R CONCEDED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE FOR A.Y.2008-09 AND 2009-10 AND THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL FOR A .Y.2008-09 HAS BEEN DISMISSED BY THE HONBLE HIGH COURT. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THE ASSESSING OFFICER MADE ADDITION OF RS.2,01 ,66,000/- BEING INTEREST ON MOBILIZATION ADVANCE ON THE GROUN D THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND, THEREFORE, THE AMOUNT OF RS.2,01,66,000/- SHOULD HA VE BEEN RECOGNIZED BY THE ASSESSEE AS INCOME FOR THE IMPUGN ED ASSESSMENT YEAR ON ACCRUAL BASIS. WE FIND THE LD. C IT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER F OLLOWING THE ORDER OF HIS PREDECESSOR FOR A. Y.2008-09 AND 2 009-10. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 20 08-09 HAS DELETED THE ADDITION AND THE APPEAL BY THE REVENUE, THE HONBLE HIGH COURT DISMISSED THE APPEAL OF THE REVE NUE BY OBSERVING AS UNDER :- 3. IT IS URGED BY THE REVENUE THAT THE ITATS REASONIN G IS FLAWED. THE LEARNED COUNSEL CONTENDS THAT RIGHTS OF THE ASS ESSEE TO RECEIVE THE AMOUNT FROM RPCL HAD ACCRUED WHICH MEANT THAT A PPROPRIATE PAGE | 5 RECOGNITION OF THE REVENUE HAD TO BE REFLECTED. IT WAS SUBMITTED THAT ARBITRABILITY OF THE DISPUTE WAS QUESTIONED AS THER E COULD BE NO DOUBT THAT UNDER THE CONTRACT, THE MOBILIZATION ADV ANCE WAS GIVEN BY THE ASSESSEE AND THEREFORE IT WAS ENTITLED TO TH E INTEREST. 4. IT IS EVIDENT FROM THE ABOVE DISCUSSION THAT THE ENTIRE MATTER IS CONTENTIOUS IN THE SENSE THAT THE THIRD PARTY - RPC L - WHICH WAS AWARDED THE CONTRACT CLAIMED THAT IT HAD PERFORMED IT IN ACCORDANCE WITH THE AGREEMENT WITH THE PARTIES. THE ASSESSEE, HOWEVER, FELT OTHERWISE AND TERMINATED THE CONTRACT. THERE COULD BE SEVERAL LIKELY OUTCOMES IN THESE PROCEEDINGS - MANY OF THEM POSSIB ILITY IMPINGING UPON THE RIGHTS OF THE ASSESSEE TO RECEIVE ADVANCE AMOUNT ITSELF ALONG WITH INTEREST EITHER IN WHOLE OR IN PART. IN THESE CIRCUMSTANCES, THE ITATS CONCLUSIONS THAT THERE WAS NO CRYSTALLIZ ED RIGHT TO RECEIVE ANY PARTICULAR AMOUNT OR AMOUNTS, CANNOT BE FAULTED . 8. WE FURTHER FIND THE TRIBUNAL IN ASSESSEES OWN C ASE FOR A.Y2009-10 IN ITA NO.2826/DEL/2014 ORDER DATED 24.0 4.2017 HAS ALSO DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A). IN VIEW OF THE ABOVE D ISCUSSION AND CONSIDERING THE FACT THAT THE ORDER OF THE TRIB UNAL FOR A. Y.2008-09 HAS BEEN UPHELD BY THE HONBLE HIGH COURT , THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 9. GROUND OF APPEAL NO. 2.1 TO 2.2 ARE AS UNDER :- PAGE | 6 2(I). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE U/S. 1 4A READ WITH RULE 8D TO THE EXTENT OF RS. 17,80,998/-. (II). THAT IMPUGNED DISALLOWANCE IS WITHOUT RECORDI NG ANY SATISFACTION IN TERMS OF PROVISIONS OF SUB-SECTION 2 & 3 OF SEC. 14A OF THE INCOME TAX ACT, 1961 OR ANY FINDING REGARDING CLAIM OF ANY SUCH EXP ENSES. 10. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE DURING THE YEAR HAS SHOWN TAX FREE DIVIDEND INCOME OF RS.1,02,89,859/- AND CLAIMED THE SAME AS EXEMPT U/S . 10 (34) OF THE IT ACT. ON BEING QUESTIONED BY THE ASS ESSING OFFICER IT WAS SUBMITTED THAT NO EXPENDITURE HAS BE EN INCURRED TO EARN THE SAID EXEMPT INCOME. HOWEVER, T HE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ABOVE EXPLANATION. APPLYING THE PROVISION OF SECTION 14 A R.W. RULE 8D THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.17,80, 998/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING O FFICER. 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ABSENCE OF RECORDING ANY SATISFACTION THE ASSESSING OFFICER CANNOT MAKE DISALLOWANCE U/S 14A R.W RULE 8D. HE SU BMITTED THAT UNDER IDENTICAL CIRCUMSTANCES THE TRIBUNAL IN ASSESEES OWN CASE FOR A.Y.2009-10 IN ITA NO.2826/DEL/2014 OR DER DATED 24.04.2017 HAS DELETED SUCH DISALLOWANCE. HE PAGE | 7 ACCORDINGLY SUBMITTED THAT THIS BEING A COVERED MAT TER IN FAVOUR OF THE ASSESSEE, THE GROUND RAISED BY THE AS SESSEE SHOULD BE ALLOWED. 13. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE AO AND CIT(A). 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THE ASSESSING OFFICER IN THE INSTANT CASE APPL YING THE PROVISIONS OF SECTION 14 A R.W. RULE 8D DISALLOWED AN AMOUNT OF RS.17,80,998/-BEING THE EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME OF RS.1,02,89,859/-. WE FIND T HE LD. CIT(A) SUSTAINED THE DISALLOWANCE SO MADE BY THE AS SESSING OFFICER. IT IS THE SUBMISSION BY THE LD. COUNSEL FO R THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT RECORDE D HIS SATISFACTION FOR MAKING THE DISALLOWANCE. WE FIND I DENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2009-10. WE FIND THE TRIBUNAL VIDE ITA NO.2826/DEL/2014 ORDER DATED 24.04.2017 WHILE DELET ING THE DISALLOWANCE HAS OBSERVED AS UNDER :- 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION A ND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS A SKED THAT WHY PROVISIONS OF RULE 8D SHOULD NOT BE APPLIED FOR DISALLOWING SOME UNDER SECTION 14 A OF THE INCOME TA X ACT, DESPITE THE CLAIM OF THE ASSESSEE THAT IT HAS NOT IN CURRED ANY PAGE | 8 EXPENDITURE FOR EARNING EXEMPT INCOME. ACCORDING TO THE PROVISIONS OF SECTION 14A(2), THE LD. ASSESSING OFFI CER BEFORE INVOKING THE APPLICABILITY OF RULE 8D SHOULD HAVE EX PLAINED AS TO WHY THE VOLUNTARY DISALLOWANCES OR NO DISALLOWAN CES MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY . WE FAILED TO FIND ANY SUCH SATISFACTION RECORDED BY THE LD. ASSESSING OFFICER. THE SATISFACTION IS MANDATORY IN VIEW OF THE JUDICIAL PRECEDENTS OF THE JURISDICTIONAL HIGH COUR T LAID DOWN BEFORE US BY THE LD. AUTHORIZED REPRESENTATIVE. THERE FORE, RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT OF THE JURISDICTIONAL HIGH COURT WE DIRECT THE LD. ASSESSING OFFICER TO D ELETE THE DISALLOWANCE OF RS.1125844/- UNDER SECTION 14A OF TH E INCOME TAX ACT APPLYING THE PROVISIONS OF RULE 8D OF THE I NCOME TAX RULES, 1962. REVERSING THE FINDING OF THE LD. FIRST APPELLATE AUTHORITY, WE ALLOW GROUND NO. 2 OF THE APPEAL OF TH E ASSESSEE. 15. SINCE, THE FACTS OF THE INSTANT CASE ARE IDENTI CAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL IN ASSESS EES OWN CASE IN THE PRECEDING YEAR, THEREFORE, RESPECTFULLY FOLLOWING THE SAME. THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOW ED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.09.2019. SD/- SD/- (KULDIP SINGH) (R.K PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA* DATE:- 13.09.2019 PAGE | 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 16.09.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER