Yesha Electricals Pvt. Ltd., Baroda V. The ACIT, Circle- 2(1)(2), Baroda

ITA 1350/AHD/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8188 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 21-08-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.S. SHUKLA
• Assessee Lawyers: WAY OF ABUNDANT
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A; 250

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.1350/AHD/2019 / ASSTT. YEAR: 2015-2016 YESHA ELECTRICALS PVT. LTD., C2/18, INDUSTRIAL ESTATE, GORWA ROAD, VADODARA-390016. PAN: AAACY0661L VS. A.C.I.T., CIRCLE-2(1)(2), VADODARA. (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI M.J. SHAH, A.R REVENUE BY : SHRI S.S. SHUKLA, SR.D.R /DATE OF HEARING : 27/07/2021 /DATE OF PRONOUNCEMENT: 04/08/2021 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-8, AHMEDABAD, ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2015-2016. ITA NO.1350/AHD/019 ASSTT. YEAR 2015-16 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: THE APPELLANT COMPANY OBJECT TO THE ORDER U/S 250 DATED 21.06.2019 PASSED BY HON COMMISSIONER OF INCOME TAX (APPEALS)-2, BARODA ON FOLLOWING AMONGST OTHER GROUNDS OF APPEAL. (1) (A) THAT THE HON C IT (APPEALS) HAS ERRED IN CONFIRMING THE APPLICABILITY OF SECTION 14A R W RULE 8D IN THE APPELLANTS' CASE. (B) THAT THE HON C IT (APPEALS) FAILED TO APPRECIATE THE FACT THAT DETERMINATION OF DISALLOWANCE U/S 14A R W RULE 8D CAN ONLY BE UNDERTAKEN IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE APPELLANTS' CLAIM IN RESPECT OF SUCH EXPENDITURE AND THAT THE REJECTION OF SUCH CLAIM HAS TO BE FOR DISCLOSED COGENT REASONS. (C) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IT OUGHT TO BE HELD THAT PROVISION OF RULE 8D ARE NOT APPLICABLE IN THE APPELLANTS' CASE AND THAT THE DISALLOWANCE MADE BY THEM U/S 14A OUGHT TO BE ACCEPTED. WITHOUT PREJUDICE TO THE GROUNDS NO 1 IT IS ALTERNATIVELY CONTENTED (2) (A) THAT THE HON CI T( APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF I T ACT R W RULE 8D OF I T RULES- WHILE COMPLETING ASSESSMENT U/S 143(3) OF THE ACT. (B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND ALSO DETAILED SUBMISSION MADE AT THE TIME OF FIRST APPEAL, IT OUGHT TO HAVE BEEN HELD THAT PROVISION OF RULE 8D ARE NOT APPLICABLE IN CASE OF APPELLANT (BY WAY OF ABUNDANT CAUTION) OUGHT TO BE ACCEPTED AND FURTHER ADDITION OF RS.7,92,784/- MADE BY THE ASSESSING OFFICER OUGHT TO BE TOTALLY DELETED. THE APPELLANT RESERVE RIGHT TO ADD, AMEND AND/OR DELETE ANY GROUNDS OF APPEAL AS AND WHEN THE OCCASION ARISES. 3. THE EFFECTIVE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DISALLOWANCE OF RS. 7,92,784/- UNDER THE PROVISION OF 14A R.W. RULE 8D OF INCOME-TAX RULES. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF CAPACITORS AND CABLE ACCESSORIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SHOWN DIVIDEND INCOME OF RS. 2,01,19,449/- BEING EXEMPTED U/S 10(34) OF THE ACT. THE ASSESSEE AGAINST SUCH INCOME HAS MADE THE DISALLOWANCE OF RS. 5,29,512.00 UNDER THE PROVISION OF SECTION 14A OF THE ACT. HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE DISALLOWANCE HAS NOT BEEN MADE BY THE ASSESSEE IN ITA NO.1350/AHD/019 ASSTT. YEAR 2015-16 3 PURSUANCE OF RULE 8D OF THE INCOME-TAX RULES. ACCORDINGLY, THE AO INVOKED THE SAME AND WORKED OUT DISALLOWANCE AS UNDER: SR.NO. PARTICULARS AMOUNT 1. DIRECT EXPENDITURE 167718 2. INTEREST EXPENSES NIL 3. ADMINISTRATIVE EXPENSES 1154191 4.1 IN VIEW OF THE ABOVE, THE AO MADE THE DISALLOWANCE OF RS.7,92,784/- (13,21,909.00-5,29,125.00) AFTER ADJUSTING THE AMOUNT ALREADY DISALLOWED BY THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A), WHO CONFIRMED THE ORDER OF THE AO. 6. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US . 7. THE LD. AR BEFORE US SUBMITTED THAT THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE (GROUP CASE) IN ITA NO. 2289/AHD/2013 FOR A.Y. 2009-10 INVOLVING THE IDENTICAL FACTS AND CIRCUMSTANCES HAS ALLOWED THE APPEAL OF THE ASSESSEE IN PART. 7.1 ACCORDINGLY, THE LD. AR CONTENDED THAT THE FACTS AND CIRCUMSTANCES BEING IDENTICAL IN THE PRESENT CASE VIS--VIS THE CASE OF EARLIER YEAR, THE SAME FINDINGS CAN BE GIVEN IN THE YEAR UNDER CONSIDERATION. 8. ON THE CONTRARY THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. AT THE OUTSET WE NOTE THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN GROUP CASE BEARING ITA NO. 2280/AHD/2013 PERTAINING THE A.Y. 2009-10, VIDE ORDER DATED 26/10/2020 INVOLVING THE IDENTICAL FACTS AND ITA NO.1350/AHD/019 ASSTT. YEAR 2015-16 4 CIRCUMSTANCES. THE ISSUE WAS PARTLY ALLOWED IN FAVOR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE NOT IN DISPUTE, THEREFORE, WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. THE FIRST ISSUE ARISES FOR OUR CONSIDERATION WHETHER THE ASSESSING OFFICER WAS UNDER THE OBLIGATION TO REJECT THE BASIS ADOPTED BY THE ASSESSEE FOR DISALLOWANCE OF EXPENSES AGAINST THE EXEMPTED INCOME BEFORE RESORTING TO THE PROVISIONS OF SECTION 14A R.W.R. 8D OF INCOME TAX RULE. IN THIS CONNECTION WE NOTE THAT, THE AO HAS CLEARLY RECORDED IN HIS ORDER THAT HE WAS NOT SATISFIED WITH THE BASIS ADOPTED BY THE ASSESSEE FOR MAKING THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AS THE SAME WAS BASED ON THE ESTIMATION I.E. 0.5% OF THE DIVIDEND INCOME. IN OUR CONSIDERED VIEW, THE PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY THE STAND TAKEN BASED ON THE MATERIAL FACTS OR THE PROVISIONS OF LAW. ASSESSEE HAS NOWHERE MADE ANY RATIONAL SUBMISSION FOR ADOPTING THE DISALLOWANCE ON ESTIMATION BASIS. THUS, IN ABSENCE OF ANY MATERIAL BY THE ASSESSEE, WE REJECT THE BASIS ADOPTED BY IT (THE ASSESSEE) IN MAKING THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION READ WITH RULE 8D OF INCOME TAX RULES. 18. THE SECOND QUESTION ARISES WHETHER THE AO IS UNDER THE OBLIGATION ESTABLISH THE NEXUS BETWEEN THE EXPENDITURE INCURRED BY THE ASSESSEE VIZ A VIZ THE EXEMPTED INCOME EARNED BY IT. IN THIS CONNECTION, WE NOTE THAT, PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY BASED ON THE DOCUMENTARY EVIDENCE THAT THE EXPENDITURE CLAIMED BY IT WERE NOT INCURRED IN CONNECTION WITH THE EXEMPTED INCOME. IN THE CASE ON HAND, THE ASSESSEE FAILED TO MAKE ANY SUBMISSION ABOUT THE SAME. AS SUCH THE ONUS SHIFTS FROM THE ASSESSEE UPON THE AO WHEN HE MAKES THE SUBMISSION TO THE AO WITH THE DOCUMENTARY EVIDENCE THAT IT HAS NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH THE EXEMPTED INCOME. BUT, WE FIND THAT THE ASSESSEE HAS NOT MADE ANY SUBMISSION EXCEPT DISALLOWING THE EXPENSES ON ESTIMATION BASIS. AS SUCH WE FIND THAT THE AO HAS DERIVED THE SATISFACTION BY RECORDING IN THE ASSESSMENT ORDER AS DETAILED UNDER: THIS SHOWS THAT THE ASSESSEE ITSELF HAS ADMITTED THAT SOME EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE, WHICH HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT, FOR EARNING THE EXEMPTED INCOME. HOWEVER, THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT. IN THIS CASE, THE ASSESSING OFFICER DOES NOT HAVE TO PROVE THE NEXUS OF SUCH EXPENDITURE WITH THE EXEMPT INCOME AS THE ASSESSEE ITSELF HAS ADMITTED OF HAVING SPENT SOME EXPENDITURE FOR EARNING OF EXEMPTED INCOME BY MAKING A LUMP SUM DISALLOWANCE, WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. 19. WE ALSO NOTE THAT, THE ITAT IN THE OWN CASE OF THE ASSESSEE INVOLVING IDENTICAL FACTS AND CIRCUMSTANCES HAS CONFIRMED THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW IN ITA NO. 2785/AHD/2012 VIDE ORDER DATED 21-06-2013. THE RELEVANT EXTRACT IS REPRODUCED AS UNDER: 6. WE FIND THAT IT IS HELD BY THE TRIBUNAL IN THE CASE CITED BY THE LEARNED AR AND AS PER THE PROVISIONS OF SUB-SECTION 2 OF SECTION 14A ALSO, IT IS REQUIRED THAT AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING EXEMPT INCOME. IN THE PRESENT CASE, THE AO HAS GIVEN A CLEAR FINDING IN PARA 3.5 OF THE ASSESSMENT ORDER THAT THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT. HENCE, IT HAS TO BE ACCEPTED THAT IN THE PRESENT CASE, THE AO HAS RECORDED HIS SATISFACTION THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. HENCE, THIS TRIBUNALS DECISION CITED BY THE LEARNED AR IS NOT APPLICABLE IN THE PRESENT CASE, BECAUSE THE FACTS ARE DIFFERENT. ITA NO.1350/AHD/019 ASSTT. YEAR 2015-16 5 7. WE ALSO FIND THAT THE WORKING OF THE ASSESSEE FOR COMPUTING EXPENSES INCURRED FOR EARNING EXEMPT INCOME ON THE BASIS OF 0.5% OF DIVIDEND INCOME IS NOT PROPER AND CORRECT BECAUSE THE EXPENSES INCURRED FOR EARNING DIVIDEND INCOME CANNOT BE DEPENDENT ON THE AMOUNT OF DIVIDEND INCOME. THE AMOUNT OF DIVIDEND INCOME DEPENDS ON THE PROFITS OF THE COMPANY IN WHICH THE SHARES ARE HELD BY THE ASSESSEE AND THE DECISION IN ANNUAL GENERAL MEETING OF THAT COMPANY REGARDING QUANTUM OF DIVIDEND TO BE DECLARED. THE DIVIDEND DECLARED BY THE CONCERNED COMPANY OR RECEIVED BY THE ASSESSEE MAY VARY FROM YEAR TO YEAR. EVEN, THERE MAY BE CASES WHERE NO DIVIDEND INCOME HAS BEEN EARNED BY THE ASSESSEE AND THIS DOES NOT MEAN THAT IN A YEAR IN WHICH THERE IS NO DIVIDEND INCOME, THERE IS NO EXPENDITURE INCURRED IN THAT REGARD. HENCE, IN OUR CONSIDERED OPINION, THE VERY BASIS ADOPTED BY THE ASSESSEE IN ESTIMATING THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME IS FAULTY. HENCE, WE DO NOT FIND ANY MISTAKE IN THE SATISFACTION OF THE AO THAT THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT. 8. IN A SITUATION WHERE THE AO HAS RECORDED HIS SATISFACTION THAT THE WORKING OF THE ASSESSEE REGARDING EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME IS NOT CORRECT, THEN THE SAME HAS TO BE WORKED OUT AS PER RULE 8D OF THE IT RULES AND THE AO HAS WORKED OUT THE DISALLOWANCE ON THE BASIS OF RULE 8D ONLY. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A). 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. 20. IT IS ALSO IMPORTANT TO NOTE THAT THE LD. AR AT THE TIME OF HEARING CITED VARIOUS ORDERS/JUDGMENTS AS MENTIONED ABOVE, BUT IN OUR CONSIDERED VIEW THESE ARE DISTINGUISHABLE FROM THE PRESENT FACTS OF THE CASE, MORE PARTICULARLY, IN THE EXISTENT SITUATION WHEN THE ITAT IN THE OWN CASE OF ASSESSEE, AS DISCUSSED ABOVE, HAS DECIDED THE ISSUE AGAINST IT (THE ASSESSEE). THEREFORE, WE ARE NOT INCLINE TO RECAPITULATE TO ALL SUCH CITATIONS REFERRED BY THE LD. AR FOR THE ASSESSEE. 21. HOWEVER, WE FIND FORCE IN THE ARGUMENT OF THE LEARNED AR FOR THE ASSESSEE THAT INVESTMENTS WHICH HAVE BEEN MADE THROUGH THE INVOLVEMENT OF THE PMS PROVIDERS SHOULD BE IGNORED WHILE WORKING OUT THE DISALLOWANCE OF THE EXPENSES UNDER RULE 8D OF INCOME TAX RULE. IT IS BECAUSE SUCH INVESTMENTS WERE MADE ON THE ADVICE OF THE PMS AND FOR THIS PURPOSE PMS WAS COMPENSATED BY THE ASSESSEE BY WAY OF FEES PAID TO THEM WHICH HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. THEREFORE, FURTHER CONSIDERATION OF SUCH INVESTMENTS FOR THE PURPOSE OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A R.W.R. 8D WOULD LEAD TO DOUBLE DISALLOWANCE WHICH IS UNWANTED UNDER THE PROVISIONS OF LAW. 22. IT IS ALSO PERTINENT TO NOTE THAT THE DIMINUTION IN THE VALUE OF INVESTMENTS SHOULD ALSO BE CONSIDERED WHILE WORKING OUT THE DISALLOWANCE TO BE MADE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. IT IS BECAUSE SUCH BENEFIT WAS EXTENDED BY THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 10-12-2009 WHICH WAS NOT DISPUTED BY THE LD. DR FOR THE ASSESSEE. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OR THE PROVISIONS OF LAW, IN OUR CONSIDERED VIEW THE PRINCIPLES OF CONSISTENCY SHOULD BE FOLLOWED BY THE REVENUE. ACCORDINGLY, WE DIRECT THE AUTHORITIES BELOW TO EXTEND THE BENEFIT OF THE ASSESSEE ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENTS WHILE WORKING OUT THE DISALLOWANCE TO BE MADE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. 23. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1350/AHD/019 ASSTT. YEAR 2015-16 6 9.1 THE FACT OF THE PRESENT CASE ARE IDENTICAL TO THE FACT OF THE CASE AS DISCUSSED ABOVE. BEFORE US, NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO DEMONSTRATE WHETHER THE ABOVE DECISION OF TRIBUNAL HAS BEEN SET ASIDE / STAYED OR OVERRULED BY THE HIGHER JUDICIAL AUTHORITIES. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO POINT OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION AND THAT OF EARLIER YEARS NOR HAS PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT. THEREFORE RESPECTFULLY FOLLOWING THE SAME WE PARTLY ALLOW THE APPEAL OF THE ASSESSEE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 04/08/2021 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 04/08/2021 MANISH