ITO, New Delhi V. M/s. Mohair Investment & Trading Co. Pvt. Ltd., New Delhi

ITA 126/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3155 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2002-2003
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: DEEPIKA AGGARWAL
• Keywords: Principle of natural justice; Earning of tax free income; Question of law; Difference of opinion
• Section: 143(3); 14A; 27

Judgement Text

1 ITA NO. 126/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUN AL DELHI BENCH: E NEW DEL HI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 126/DEL/2015 ( A.Y 200 2-03) ITO WARD-17(1) NEW DELHI (APPELLANT) VS MOHAIR INVESTMENT & TRADING CO. PVT. LTD. 15, AURANGZEB MARG NEW DELHI AAACM0345D (RESPONDENT) APPELLANT BY SH. S.R. SENAPATI, SR DR RESPONDENT BY SH. GAURAV JAIN, ADV & MS. DEEPIKA AGGARWAL, ADV ORDER PER SUCHITRA KAMBLE THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 28/10/2014 PASSED BY CIT(A)-VIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- L. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED BY OBSERVING THAT THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TA X, DOES NOT AFFORD A GROUND FOR LEVY OF PENALTY U/S 271 (1) (C) OF THE INCOME TAX, SINCE THE ISSUE OF DISALLOWANCES WAS A DEBATABLE ONE? 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS A ND IS NOT TENABLE ON FACTS AND IN LAW. DATE OF HEARING 07.02.2018 DATE OF PRONOUNCEMENT 27.02.2018 2 ITA NO. 126/DEL/2015 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3. THE ASSESSEE COMPANY FILED ITS RETURN FOR ASSESS MENT YEAR 2002-2003 ON 24.10.2002 DECLARING A LOSS OF RS.6,43,44,465/-. THE SAME WAS PROCESSED U/S 143(1) ON 07.02.2003 AT RETURNED LOSS. ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 29. 11.2004 AT A LOSS OF RS .2,75,06,595/-. THE ASSESSEE COMPANY HAD CLAIMED DIVIDEND INCOME RECEIV ED OF RS.82,58,472/- AS EXEMPT INCOME, HOWEVER, NO EXPENDITURE ATTRIBUTA BLE TO SUCH EARNING OF INCOME WAS OFFERED AS DISALLOWANCE U/S 14A OF THE A CT AS THE ASSESSEE HAD NO OTHER ACTIVITY. THE EXPENDITURE CLAIMED OF RS.3,68, 15,492/- WAS DISALLOWED U/S 14A OF THE ACT. THE DISALLOWANCE MADE BY THE AO WAS CONFIRMED BY THE CIT(A) VIDE ORDER DATED 07.11.2006 IN APPEAL NO. 16 9/04-05. THE ITAT VIDE ORDER DATED 25.03.2009 IN ITA NO. 788/DEL/2007 DISM ISSED THE APPEAL OF ASSESSEE AND DIRECTED THE AO TO COMPUTE THE DISALLO WANCE U/S 14A R.W.R. 8D. THE ASSESSEE PREFERRED FURTHER APPEAL BEFORE THE HO NBLE HIGH COURT OF DELHI. THE HONBLE HIGH COURT VIDE ORDER IN ITA NO.263/201 0 DATED 18.11.2011 RELYING UPON THE JUDGMENT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. CIT (2010 328 ITR 81 (BOM)) HELD THAT RULE 8D WOULD BE INAPPLICABLE RETROSPECTIVELY AND DIRECTED TO COMPUTE THE DISALLO WANCE ON THE BASIS OF REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE CLAIMED THAT NO EXPENSES WAS BEEN INCURRED TO EARN DIVIDEND INCOME. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE BEING AN INVESTMENT COMPANY, THE BORROWING WAS FOR THE PURPO SES OF THE BUSINESS OF THE ASSESSEE AND THE PROCEEDS OF SUCH BORROWING, WE RE UTILIZED FOR THE PURPOSES OF THE BUSINESS, I.E., LENDING OF MONEY, R EPAYMENTS OF EARLIER LOAN TAKEN, REGULAR EXPENSES AND ACQUISITION OF SHARES E TC. REPLY OF THE ASSESSEE WAS CONSIDERED BUT NOT ACCEPTED BY OBSERVING THAT S ECTION 14A SPECIFICALLY MENTIONS THAT THE PROPORTIONATE DISALLOWANCE OF EXP ENSES AND THE CALCULATION OF DISALLOWANCE IS TO BE MADE. SINCE THE ASSESSEE H AD EARNED DIVIDED INCOME OF SHARES AMOUNTING TO RS.82,58,472/- ON THE SHARES WHICH WERE HELD AS INVESTMENT , DISALLOWANCE U/S 14A WAS REQUIRED TO B E MADE. THE ASSESSEE 3 ITA NO. 126/DEL/2015 COMPANY HAD ACCEPTED IN THEIR WRITTEN REPLY THAT TH E AMOUNT BORROWED WAS ALSO UTILIZED FOR ACQUIRING THE SHARES. ACCORDINGLY DISALLOWANCE OF RS. 3,53,75,223/- WAS MADE U/S 14A OF THE IT ACT,1961 A ND PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME ON THIS GROUND U/S 271(1)(C) WAS ALSO INITIATED. PENALTY NOTICE DATED 19.12.2012 U/S 274 READ WITH SECTION 271 OF THE I.T. ACT 1961 WAS ISSUED FOR CON CEALMENT OF INCOME FIXING THE DATE OF HEARING ON 27.12.2012. IN THEIR REPLY T HE ASSESSEE SUBMITTED THAT NO PENALTY IS LEVIABLE ON THE ADDITION MADE DU RING THE ASSESSMENT PROCEEDINGS ON THE DISALLOWANCE MADE U/S 14A AND CL AIMED THE SAME AS DEBATABLE. IN THE INTEREST OF NATURAL JUSTICE ANOTH ER SHOW CAUSE NOTICE WAS ISSUED ON 10.04.2013 BY SPEED POST FIXING THE HEARI NG FOR 16.04.2012. ASSESSEE FILED ADJOURNMENT LETTER ON 16.04.2013 AND ON HIS REQUEST CASE WAS ADJOURNED TO 18.04.2013. NOBODY APPEARED NOR AN Y APPLICATION FOR ADJOURNMENT HAS BEEN RECEIVED IN THIS OFFICE. FROM THE ABOVE FACTS OF CASE, IT IS VERY CLEAR THAT ASSESSEE HAS NO EXPLANATION T O OFFER. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER OBSERVED THAT SINCE TH E DISALLOWANCE U/S 14A IS A STATUTORY LIABILITY WHICH WAS NOT FULFILLED BY THE ASSESSEE COMPANY WHICH REFLECTS THE CONSCIOUS AND DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO CONCEAL/FURNISH INACCURATE PARTICULARS OF ITS TRUE TAXABLE INCOME. ACCORDINGLY THE PENALTY U/S 271 (1)(C) OF THE IT ACT WAS IMPOSED UPON THE ASSESSEE. 4. BEING AGGRIEVED BY THE PENALTY ORDER THE AS SESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSES SEE. 5. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN OBSERVING THAT THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER PASSED U/ S 143(3) OF THE INCOME TAX ACT, 1961 DOES NOT AFFORD A GROUND FOR LEVY OF PENALTY U/S 261(1)(C) OF THE INCOME TAX ACT, SINCE THE ISSUE OF DISALLOWANC E WAS DEBATABLE ONE. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED RS.3,53,75,223/- U/S 14A OF THE ACT. THE DISALLOWAN CE WAS CONFIRMED BY THE 4 ITA NO. 126/DEL/2015 CIT(A). HOWEVER, THE ITAT DIRECTED THE ASSESSING O FFICER TO COMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE 8D. THE ASSESS EE PREFERRED APPEAL BEFORE THE HONBLE DELHI HIGH COURT AND HONBLE DEL HI HIGH COURT RELYING UPON THE JUDGMENT IN THE CASE OF GODREJ & BOYCEE MA NUFACTURING LTD HELD THAT RULE 8D WOULD BE IN APPLICABLE RETROSPECTIVELY AND FURTHER DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE ON TH E BASIS OF REASONABLE AND IRRESPONSIBLE METHOD OF APPORTIONMENT. THE LD. DR FURTHER SUBMITTED THAT THE PENALTY PROCEEDINGS WERE RIGHTLY INITIATED BY T HE ASSESSING OFFICER. IN- FACT, THE ASSESSEE HAS NOT EXPLAINED ABOUT WHY THE PENALTY SHOULD NOT BE IMPOSED ON THE ASSESSEE. THE ASSESSING OFFICER IN PENALTY ORDER HAS CORRECTLY OBSERVED THAT SINCE THE DISALLOWANCE U/S 14A IS STA TUTORY LIABILITY WHICH WAS NOT INVOLVED BY THE ASSESSSEE COMPANY. THERE IS DE LIBERATE AND CONSCIOUS ATTEMPT ON THE PART OF THE ASSESSEE TO CONCEAL/FURN ISH INACCURATE PARTICULARS OF ITS TRUE TAXABLE INCOME. THEREFORE, THE APPEAL OF THE REVENUE BE ALLOWED AS PER THE SUBMISSIONS OF THE LD. DR. 6. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A ) AND ALSO PERUSED THE DECISION OF THE HONBLE APEX COURT IN CASE OF CIT V S. M/S ESSAR TELEHOLDINGS LTD. (ITA NO. 2165/2012 DATED 31.01.2018) AND SUBMI TTED THAT THE CIT(A) RIGHTLY DELETED THE PENALTY. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO OBSERVE THAT THE MAIN Q UANTUM APPEAL WENT UP TO THE HONBLE DELHI HIGH COURT AND THE CIT(A) HAS TAK EN A PROPER COGNIZANCE OF THE DECISIONS TAKEN BY THE HONBLE JURISDICTIONA L HIGH COURT IN CASE OF CIT VS. LIQUIDATE INVESTMENT AND TRADING COMPANY. (ITA NO. 240/2009 ORDER DATED 5.10.201). THE CIT(A) HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE. I HEREBY FIND THAT THE ASSESSEE HAS DISCLOSE D ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT AT THE TIME OF FILING ITS RETURN OF INCOME WITH DEPARTMENT. THE ISSUE OF DEDUCTION U/S 14A OF THE ACT WAS A DEBATABLE 5 ITA NO. 126/DEL/2015 ISSUE. IN THIS CASE THE DISALLOWANCE U/S 14A OF TH E ACT IS ON ACCOUNT OF DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE. IN THE FACTS OF THE CASE, WE FIND THAT THE DIFFERENCE OF OPINION WITH REGARD TO CALCULATION OF DEDUCTION U/S 14A IS AN HONEST DIFFE RENCE IN OPINION BETWEEN THE ASSESSEE AND DEPARTMENT. FURTHER, I HA VE PLACED RELIANCE ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS LIQUID INVESTMENT & TRADING COMPAN Y (ITA NO. 240/2009) I.E, SISTER CONCERN OF THE ASSESSEE, WHER E PENALTY IMPOSED U/S 271(1)(C) IS HEREBY DELETED BY HONBLE JURISDI CTIONAL HIGH COURT. FROM THE ABOVE FINDINGS AFTER DISCUSSION, I AM OF T HE VIEW THAT THE PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE LEVI ED ON APPRECIATING THE FACTS OF THE CASE. HENCE, THE PENALTY OF RS.1,26,2 8,955/- LEVIED U/S 271(1)(C) BY AO IS DELETED. IN THE RESULT, THE APPEAL IS ALLOWED. FOR THE ASSESSMENT YEAR 2001-02 THE SIMILAR PENALTY ON THE SAME ISSUE WAS DELETING. THE RELEVANT EXTRACT OF THE SAID ORDER I S AS UNDER:- 21. A USEFUL REFERENCE MAY ALSO BE MADE TO THE DE CISION OF APEX COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS PRIVATE LIMITED: 322 ITR 158, WHERE THE DECISION OF BOMBAY HIGH COURT DE LETING THE PENALTY IMPOSED BY THE ASSESSING OFFICER ON THE GRO UND THAT QUANTUM APPEAL WAS ADMITTED BY THE HIGH COURT ON THE GROUND OF INVOLVING QUESTION OF LAW, WAS AFFIRMED BY THE APEX COURT. AN D WE TAKE NOTE THAT VARIOUS OTHER HONBLE HIGH COURTS AND TRIBUNAL S HAVE DECIDED THE AFORESAID ISSUE IN FAVOR OF THE ASSESSEE. WE TA KE NOTE OF THE FACT THAT OTHER HIGH COURTS AND VARIOUS BENCHES OF TRIBU NAL IN THE FOLLOWING CASES HAVE DECIDED THE AFORESAID ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT SECTION 14A CANNOT BE INVOKE D WHERE SHARES ARE HELD AS STOCK-IN-TRADE: CCI LTD. V. JCIT: 250 CTR (KAR.) [REFER PG. 90 TO 9 2 OF CASE LAWS PB1 CIT VS. SMT. LEENA RAMACHANDRAN: 339 ITR 296 (KER.) [REFER PG 94-96 OF CASE LAWS PBI 6 ITA NO. 126/DEL/2015 DCIT V. M/S. INDIA ADVANTAGE: ITA NO. 671/MUM/ 2011 (MUM. TRIB.)- SUBSEQUENTLY AFFIRMED BY THE BOMBAY HIGH COURT IN ITA NO. 1131 OF 2013 [COPY OF THE DECISIONS ATTACHE D HEREWITH) PRESCIENT SECURITIES PVT. LTD. VS. ACIT: ITA NO. 8361/MUM/2011 (MUM TRIB.) [REFER PAGE 97-101 OF CASE LAWS PBI YATISH TRADING V. ACIT: 129 HD 237 (MUM. TRIB.) DCIT VS. GULSHAN INVESTMENT CO LTD.: ITA NO. 666/KOLL2012 (KOL.) [REFER PGS 102- 108 OF CASE LAW S PBI APOORVA PATNI V. ACIT: 54 SOT 9 (PUNE TRIB.) MSA SECURITIES SERVICES P. LTD. V. ACIT: 22 ITR (T) 400 (MAD. TRIB.) ETHIO PLASTICS PVT. LTD. V. DCIT: ITA NO. 8481 AHD L2012 (AHD. TRIB.) FROM THE AFORESAID DECISIONS CITED, IT IS CLEAR THA T THE PRESENT ISSUE, VIZ., APPLICATION OF SECTION 14A, ESPECIALLY IN RELATION TO SHARES HELD AS TRADING ASSETS, WAS CLEARLY DEBATABLE AND SO IT CANNOT BE V ISITED WITH PENALTY UNDER SECTION 271(L)(C) OF THE ACT. 22. FURTHER, WE RELY ON THE FOLLOWING DECISION S WHERE PENALTY UNDER SECTION 27 L(L)(C) HAS BEEN DELETED ON THE ISSUE OF DISALLOWANCE U/S 14A ON THE GROUND THAT THE SAID ISSUE IS CLEARLY DEBATA BLE, WHICH CANNOT BE VISITED WITH PENALTY UNDER THE FORMER SECTION :- CIT V. JINDAL EQUIPMENT LEASING AND CONSULTANCY SER VICES LTD. ITA NO. 68/2012 (DEL) (HC) (REFER PAGES 43-46 OF CA SE LAWS PB) CIT V. LIQUID INVESTMENTS LTD. ITA NO. 2401/2009 (D EL) (HC) (REFER PAGES 47 OF CASE LAWS PB) 7 ITA NO. 126/DEL/2015 DCIT V. NALWA INVESTMENT LTD. ITA NO. 3805/2010(DE L) (ITAT) (REFER PAGES 48-59 OF CASE LAWS PB) ACIT V. A.T. INVOFIN INDIA (P) LTD. ITA NO. 4479/20 13 23. FURTHER WE FIND THAT THE ASSESSEE HAS FURNISHED A LL THE DETAILS RELATING TO THE EARNING OF DIVIDEND INCOME. SO IT C ANNOT BE SAID THAT THE ASSESSEE HAD CONCEALED INCOME OR FURNISHED INACCURA TE PARTICULARS OF INCOME. THE ONLY BASIS OF LEVYING THE PENALTY U/S 2 71(1) (C) OF THE ACT WAS THAT THE CLAIM OF THE ASSESSEE FOR THE DISALLOW ANCE U/S 14A OF THE ACT WAS NOT ACCEPTED BY THE AO, SO IT CAN AT THE MO ST BE A GROUND FOR MAKING THE ADDITION BUT WAS NOT SUFFICIENT TO LEVY THE PENALTY U/S 271(L)(C) OF THE ACT. SO WE FIND MERIT IN THE APPEA L OF THE ASSESSEE AND DIRECT DELETION OF PENALTY LEVIED AGAINST THE ASSES SEE. WE ORDER ACCORDINGLY. 24. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. 9. THUS, THE ASSESSSEES CASE IS GOVERNED BY TH E JURISDICTIONAL HIGH COURT AS WELL AS ITS OWN EARLIER ORDER PASSED BY THE TRIB UNAL. THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE CIT(A). THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUARY, 2019 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/02/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 8 ITA NO. 126/DEL/2015 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 23/02/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 26/02/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .1.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 0 1 .0 3 .2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 9 ITA NO. 126/DEL/2015