Divyarth Leasing & Finance P.Ltd, New Delhi V. PrCIT, Central Circle-3, New Delhi

ITA 1183/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2864 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S NAGAR; BIPIN RAM
• Keywords: Revision of order; Rectification of order; Opportunity of being heard; Earning of tax free income; Rule 8D; CHAPTER IV
• Section: 143(3); 153A; 14A; 2(A); 119; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 1179/DEL/2018 : ASSTT. YEAR : 2009-10 ITA NO. 1183/DEL/2018 : ASSTT. YEAR : 2010-11 ITA NO. 1184/DEL/2018 : ASSTT. YEAR : 2011-12 DIVYARTH LEASING & FINANCE PVT. LTD., E-201-202, RAMESH NAGAR, NEW DELHI-110015 VS PR. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, NEW DELHI-110055 (APPELLANT) (RESPONDENT) PAN NO. A A ACD2385C ASSESSEE BY : SH. BIPIN RAM, AR & SH. S. S. NAGAR, ADV. REVENUE BY : SH. JAVED AKHTAR, CIT DR DATE OF HEAR ING: 12 . 10 .20 2 1 DATE OF PRONOUNCEMENT: 18 .10 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AGAINST THE ORDERS OF THE LD. PCIT, NEW DELHI DATED 30.10.2017. 2. SINCE, THE ISSUES INVOLVED IN ALL THESE APPEALS ARE IDENTICAL, WHICH WERE HEARD TOGETHER. 3. IN ITA NO. 1179/DEL/2018, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE REGULAR ASSESSMENT ORDER DATED 27-12-2016 HAD BEEN PASSED BY THE LD. AO AFTER MAKING ALL SUCH ENQ UIRIES AS WERE WARRANTED IN THE CASE AND OBSERVATIONS TO T HE ITA NOS. 1179, 1183 & 1184/DEL/2018 DIVYARTH LEASING & FINANCE PVT. LTD. 2 CONTRARY AND THE LD. PR. CIT WAS NOT JUSTIFIED IN A SSUMING JURISDICTION UNDER SECTION 263 OF THE ACT. 1(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE REGULAR ASSESSMENT ORDER DATED 27.12.2016 AS HA D BEEN PASSED BY THE LD. AO FULLY IN ACCORDANCE WITH THE PROVISIONS OF THE LAW AND THE ORDER IS NEITHER ERRO NEOUS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE HENC E THE SAME COULD NOT HAVE BEEN INTERFERED WITH BY THE LD. PR. CIT IN HIS SUPERVISORY JURISDICTION UNDER SECTION 2 63, PARTICULARLY IN THE PECULIAR FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE. 2(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE PROVISION OF SECTION 14A OF THE ACT IS NOT APPLICABLE IN THIS INSTANT CASE AND THE LD. PR. CIT WAS NOT JUSTIFIED EITHER ON FACTS OR IN LAW TO DIRECT THE L D. AO TO MAKE SUITABLE CHECKS AND VERIFICATION IN THE MATTER . 2(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE NO DISALLOWANCE U/S 14A IS APPLICABLE IN THIS INSTA NT CASE AS THE APPELLANT HAS NOT EARNED ANY EXEMPT INCOME A ND THE LD. PR. CIT WAS NOT JUSTIFIED EITHER ON FACTS O R IN LAW TO DIRECT THE LD. AO TO MAKE SUITABLE CHECKS AND VERIF ICATION IN THE MATTER. 2(C) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE PROVISION OF SECTION 14A ALONG WITH CIRCULAR IS NOT APPLICABLE IN THIS INSTANT CASE AND THE LD. PR. CIT WAS NOT JUSTIFIED EITHER ON FACTS OR IN LAW TO DIRECT THE L D. AO TO MAKE SUITABLE CHECKS AND VERIFICATION IN THE MATTER . 3.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE ORDER HAS BEEN PASSED IN UTTER DISREGARD TO THE PRINCIPAL OF NATURE JUSTICE AND NO OPPORTUNITY WAS PROVIDED TO EXPLAIN THE CASE. 4. THE ORDER PASSED U/S 263 OF THE INCOME TAX ACT, 1961 BY THE LD. PCIT IS REPRODUCED AS UNDER: INCOME TAX RECORD OF M/S DIVYARTH LEASING & FINANC E PVT. LTD. REVEAL, FOR THE ASSESSMENT, YEAR 2009-10, THE A.O., CENTRAL CIRCLE- 27, NEW DELHI PASSED AN ORDER U/S 153A READ WITH SE CTION 143(3) OF THE INCOME-TAX ACT, 1961 ON 27.12.2016, ON THE RETU RNED INCOME OF RS.3 1,57,623/-. ITA NOS. 1179, 1183 & 1184/DEL/2018 DIVYARTH LEASING & FINANCE PVT. LTD. 3 2. IT IS ESTABLISHED THAT THE ASSESSEE COMPANY INVE STED RS.21,08,65,690/- IN SHARES, WHICH COULD RESULT INT O YIELDING EXEMPT INCOME. IN VIEW OF CIRCULAR NO. 5/2014 OF CBDT, THE EXPENSES RELATED TO THE EXEMPT INCOME HAD TO BE CALCULATED A S PER SECTION 14A READ WITH RULE 8D, IT IS NOT MATERIAL THAT: THE ASSESSEE SHOULD HAVE EARNED SUCH EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE AO DID NOT RAISE THIS ISSUE PERT AINING TO SECTION 14A OF THE ACT, AND DID NOT DISALLOW ANY EXPENSES T O EARN EXEMPT INCOME. 3. A SHOW CAUSE NOTICE DATED 10.10.2017 WAS ISSUED AND SERVED UPON THE ASSESSEE THROUGH SPEED POST NO. ED 7874606 42IN AND THE ASSESSEE WAS ASKED TO FILE ANY OBJECTION ON 23.10.2 017, IF ANY, IN RESPECT: OF PROPOSED ACTION U/S 263 OF I.T. ACT. IN RESPONSE TO SHOW CAUSE NOTICE, THE AR OF THE ASSESSEE COMPANY, PRATI KA SINGH APPEARED ON 23.10.2017 AND SUBMITTED HIS SUBMISSION DATED 23.10.2017. 4. THE SUBMISSION OF THE ASSESSEE WAS CONSIDERED AN D IT IS HELD THAT ASSESSEE HAS RELIED UPON THE DECISION OF ITAT DATED 01.09.2017 IN THE CASE OF M/S RELGAN INFRASTRUCTURE LTD. HOWEV ER, IN THE SAID ORDER THE LD. ITAT HAS SPECIFICALLY HELD THAT THE A SSESSEE HAS NOT EARNED EXEMPT INCOME AND HENCE DISALLOWANCE U/S 14A IS NOT WARRANTED. MOREOVER, THE DECISION OF HONBLE ITAT B ENCH DATED 01.09.2017 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE SAME IS BEING CONTESTED IN HIGH COURT. AS FAR AS APPLICA BILITY OF CIRCULAR NO. 5/2014 IS CONCERNED, THE SAID CIRCULAR SPECIFIC ALLY STATES VIDE PARA NO. 6 WHICH IS REPRODUCED BELOW:- CENTRAL BOARD OF DIRECT TAXES, IN EXERCISE OF ITS POWER UNDER SECTION 119 OF THE ACT HEREBY CLARIFIES THAT RULE 8D READ W ITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITUR E EVEN WHERE TAX PAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMP T INCOME. ITA NOS. 1179, 1183 & 1184/DEL/2018 DIVYARTH LEASING & FINANCE PVT. LTD. 4 FURTHER SECTION 263 OF THE I.T. ACT CLEARLY STATES THAT:- THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER. C ONSIDERS THAT ANY ORDER PASSED THEREIN BY THE [ASSESSING OFFICER] OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTA NCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. KEEPING IN VIEW OF THE ABOVE DISCUSSIONS, THE OBJEC TIONS OF ASSESSEE IS HELD NOT TENABLE AND, THEREFORE, REJECTED. 6. THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFF ICER IS FIELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE AND, ACCORDINGLY, THE ASSESSMENT ORDER IS HEREBY CANCELL ED TO THE EXTENT OF DISALLOWANCE OF EXPENSES RELATED TO EXEMPT INCOM E. THE A.O. IS DIRECTED TO DECIDE THE ISSUE AFRESH AND PASS SPEAKI NG ORDER AS PER LAW AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SD/- (HIMALINI KASHYAP) PR. COMMISSIONER OF INCOME-TAX (CENTRAL)-3, NEW DELHI DATED: 30-10-2017 5. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 6. SECTION 14A HAS BEEN INSERTED IN CHAPTER IV OF T HE INCOME TAX ACT BY THE FINANCE ACT, 2001, WITH RETROSPECTIV E EFFECT FROM 01.04.1962. THIS SECTION PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH IS NOT INCLUDED ITA NOS. 1179, 1183 & 1184/DEL/2018 DIVYARTH LEASING & FINANCE PVT. LTD. 5 IN THE TOTAL INCOME OF THE ASSESSEE (I.E. EXEMPT IN COME). THE OPERATIVE PART OF THIS SECTION READS AS UNDER: FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THIS ACT. 7. PROVISO TO THE SECTION WAS ADDED BY THE FINANCE ACT, 2002 W.E.F. 11.05.2001. IT ALSO PROVIDES THAT THE A.O. C ANNOT REOPEN THE ASSESSMENT U/S.147 FOR ANY ASSESSMENT YEAR PRIO R TO A.Y. 2001-02 FOR THIS PURPOSE OR PASS ANY RECTIFICATION ORDER U/S.154 FOR PRIOR YEARS TO DISALLOW ANY SUCH EXPENDITURE. 8. IT HAS BEEN A MATTER OF SEVERAL JUDICIAL PRONOUN CEMENTS AS TO WHETHER THE EXPENSES SHOULD BE DISALLOWED IN CASE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING TH E RELEVANT ASSESSMENT YEAR OR NOT ?. 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S HOLCIM INDIA P. LTD. VS. CIT-IV (ITA NO. 486/2014 & ITA NO . 299/2014) DATED SEPTEMBER 5, 2014 HELD THAT NO DISALLOWANCE C AN BE MADE U/S 14A IF THERE IS NO EXEMPT INCOME IN THE RE LEVANT YEAR. 10. REFERENCE IS ALSO INVITED TO THE DECISION OF TH E HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. LAKHANI MARKETING INC., CIT VS. HERO CYCLES LIMITED , (323 ITR 518), CIT VS. WINSOME TEXTILE INDUSTRIES LTD (319 I TR 204), DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY (P.) LTD. (223 TAXMANN 130) AND THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN CIT VS. SHIVAM MOTORS (P) ITA NOS. 1179, 1183 & 1184/DEL/2018 DIVYARTH LEASING & FINANCE PVT. LTD. 6 LTD. WHEREIN IT WAS HELD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. 11. IN THE INSTANT CASE, THE LD. PCIT HAS NOT DISPU TED THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. HENCE, IN VIEW OF THE JUDICIAL PRONOUNCEMENT, WE HEREBY HOLD THAT THE ORDER THE ASSESSING OFFICER IS NOT PREJUDICIAL TO T HE INTEREST OF THE REVENUE. HENCE, WE HEREBY HOLD THAT THE ORDER P ASSED BY THE LD. PCIT U/S 263 IS LEGALLY NOT SUSTAINABLE. 12. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/10/2021. SD/- SD/- (SUCHITRA KAMBLE) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 18/10/2021 *SUBODH KUMAR, SR. PS(GAZ)* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR