DCIT, New Delhi V. M/s. DBH International Pvt. Ltd., New Delhi

ITA 1389/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86738 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

DELHI BENCH B : NEW DELHI BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 1389 /DEL/ 2013 (ASSESSMENT YEAR: 2008 - 09 ) DCIT CIRCLE - 1 0(1) NEW DELHI VS. D BH INTERNATIONAL PVT. LTD., N - 75, CONNAUGHT PLACE, NEW DELHI PAN:AAACD0085D (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT ARISES FROM THE ORDER OF THE LD CIT(A), VI DATED 17.1 2 .2012 AND RELATES TO ASSESSMENT YEAR 2008 - 09. 2. THE SOLITARY GROUND IS IN RESPECT OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) AMOUNTING TO RS.2,57,62,256/ - A S WORKED OUT BY THE ASSESSING OFFICER AS PER THE PR OVISIONS OF SECTION 14A OF THE A CT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (HEREIN AFTER THE RULES). 3. BRIEF FACTS AS RECORDED BY THE LD CIT(A) IS THAT THE ASSESSEE COMPANY B ELONGS TO THAPAR GROU P AND IS ENGAGED IN THE MINING BUSINESS BESIDES HAVING MADE INVESTMENTS IN GROUP COMPANIES FOR CO NTROL PURPOSES. DURING THE YEAR, THE THAPAR GROUP COMPANIES WERE REORGANIZED INTO SMALLER GROUPS WHEREBY THE SHARES HELD BY THE INDIVIDUALS OR GROUP COMPANIES HANDLED BY THE FAMILY MEMBERS WERE TRANSFERRED TO ANOTHER COMPANY IN THE MANNER THAT CONTROL THEREOF COMES TO THE FAMILY MEMBER WHO IS TO CONTROL THE COMPANY POST RE - ORGANIZATION. THE RE - ORGANIZATION WAS HANDLED BY PROFESSIONALS AND NO PERSON FROM THE COMP ANIES OR ON BEHALF OF THE INDIVIDUALS WAS INVOLVED. IT APPELLANT BY : SMT. PARWINDER KAUR, SR. DR RESPONDENT BY : SH. GURMEET S. GREWAL, CA PAGE 2 OF 6 WAS H A NDLED BY THE PROFESSIONALS BECAUSE OF THE COMPLEXITIES INVOLVED. THE PROFESSIONALS WERE PAID THEIR PROFESSIONAL FEE, INTEREST WAS PAID ON THE BORROWING BESIDES THE DEMAT CHARGES. THE SHARES COMIN G INTO THE COMPANY UNDER CONSIDERATION ARE HELD NOT FOR THE PURPOSES OF TRADING BUT FOR THE PURPOSES OF MANAGEMENT CONTROL. THE ASSESSEE , IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT VOLUNTARILY DISALLOWED EXPENDITURE OF RS . 2,32,27,892/ - INCURRED AS THE INCOME EARNED. 4. HOWEVER THE AO DID NOT AGREE TO THE DISALLOWANCE MADE BY THE ASSESSEE IN RESPECT TO ITS EARNED EXEMPT INCOME. THEREAFTER HE MADE THE FOLLOWING OBSERVATION BEFORE DISALLOWING RS.2,57,62,256/ - IN PLACE OF THE ASSESSEES VOLUNTARY DISA LLOWANCE OF AN AMOUNT OF RS.2,32,27,892/ - . FROM THE READING OF THE ABOVE, PROVISIONS OF AFORESAID SECTIONS ARE CLEARLY ATTRACTED IN THIS CASE. DURING THE ASSESSMENT PROCEEDINGS ASSESSEE WAS ASKED TO GIVE CALCULATION OF EXPENSES (INTEREST ETC) INCURRED IN RELATION TO EXEMPT INCOME AS PROVIDED U/S 14A READ WITH RULE 8D. IN RESPONSE THERETO THE ASSESSEE CLAIMS THAT HE HAS VOLUNTARILY DISALLOWED AN AMOUNT OF RS.2,03,53,938/ - OUT OF INTEREST AND FINANCIAL CHARGES AND RS. 28,73,954/ - OUT OF LEGAL AND PROFESSION AL CHARGES EXPENDITURE. REPLY OF ASSESSEE IS CONSIDERED BUT NOT ACCEPTABLE BECAUSE IT HAS NOT DISALLOWED THE EXPENSE S A S PER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D. THE EXEMPT INCOME OF RS.12,57,14,073/ - HAS DIRECT CORRELATION WITH THE INTEREST AND FINANCIAL EXPENDITURE OF RS.2,03,68,251/ - INCURRED ON UNSECURED/ SECURED LOANS, RS.24,71,495/ - TOWARDS LEGAL AND PROFESSIONAL CHARGES AND RS.19,22,510/ - TOWARDS OFFICE AND OTHER EXPENSES. THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT REA D WITH RULE 8D IS CLEARLY ATTRACT ED IN THIS CASE. PAGE 3 OF 6 5. AGGRIEVED BY SAID ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A), WHO WAS PLEASED TO DELETE THE ADDITION MADE BY THE AO AND HE HELD AS FOLLOWS: - 4.2 NOW ADVERTING TO THE CASE OF THE APPELLANT COMPANY, IT IS SEEN THAT THE APPELLANT COMPANY ITSELF HAS MADE THE DISALLOWANCE OF EXPENDITURE U/S 14A R.W.R. 8D OF RS.2,32,27,892/ - . THE CLAIM OF DISALLOWANCE MADE BY THE APPELLANT COMPANY WAS EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT. THE APPELLANT PRODUCED THE BOOKS OF ACCOUNTS AND THE EVIDENCES, WHICH THE LD ASSESSING OFFICER HAD VERIFIED THE LD AO EXAMINED THE BOOKS OF ACCOUNTS, EVIDENCES AND RECORDS OF THE APPELLANT AND VERIFIED THE VOLUNTARY DISALLOWANCE BY APPELLANT U/S 14A OF THE ACT. THE AO HAS NOT POINTED OUT ANY DEFICIENCY IN THE BOOKS OF ACCOUNTS NOR IN RESPECT OF CLAIM OF THE APPELLANT U/S 14A OF THE ACT. IN OTHER WORDS, THE AO HAS NOT EXPRESSED SATISFACTION THAT THE APPELLANTS CLAIM U/S 14A IS INCORRECT, A PREREQUISITE FOR INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXXOP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 HAS HELD THAT : - THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDI TURE IS THAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INELUCTABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB - RULE (2) OF RULE 8D OF THE SAID RULES. THE HON'BLE COURT ALSO HELD THAT THE ASS ESSING OFFICER SHOULD ASSIGN COGENT REASON FOR ARRIVING AT SUCH SATISFACTION. IT IS OBSERVED THAT THE AO HAS NOT FOUND ANY DEFICIENCY IN THE SUO - MOTO DISALLOWANCE OF RS. 2.32,27,892/ - OF EXPENDITURE U/S 14A MADE BY THE APPELLANT. ON MERITS ALSO IT IS OBSE RVED THAT THE DIFFERENCE OF DISALLOWANCE OF RS.6,45,557/ - ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES BETWEEN THE AO AND THE APPELLANT ARE DUE TO EXPENSES WHICH WERE MADE FOR THE PAYMENT OF CONSULTANTS ENGAGED IN THE MINING OPERATIONS WHICH CANNOT BE ATTR IBUTABLE BY STRETCH IMAGINATION FOR THE INVESTMENTS. SIMILARLY, DISALLOWANCE OF RS.10,00,000/ - ON ACCOUNT OF DONATION HAS BEEN MADE TWICE BY THE AO, SO FAR AS THE FINANCIAL CHARGES ARE CONCERNED THE DIFFERENCE OF RS.14 ,313/ - IS ON ACCOUNT OF INTEREST PAID ON LATE DEPOSIT OF FBT. THE SAME CANNOT BE ATTRIBUTABLE AS EXPENSES FOR THE INVESTMENT OF THE APPELLANT COMPANY. ON THESE FACTS AND CIRCUMSTANCES OF THE CASE THE AO IS DIRECTED TO DELETE THE EXTRA ADDITION OF RS.25,34,364/ - (RS.2,57,62,256/ - - RS.2,32,27,5 95/ - MADE U/S 14A REA D WITH RULE 8D OF THE IT RULES. PAGE 4 OF 6 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND AFTER CAREFULLY PERUSING THE RECORDS, WE FIND THAT THE AO WITHOUT RECORDING HIS SATISFACTION THAT THE CLAIM OF EXPENDITURE IN RELATION TO TAX FREE INCOME HAS NOT BEEN CORRECTLY MADE BY THE ASSESSEE AS ENVISAGED UNDER SECTION 14A(2) HAS INVOKED RULE 8D . SUB - SECTION (2) OF SECTION 14A OF THE ACT PROVIDES THE MANNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE REQUIREMENT OF THE AO EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE AO MUST RECORD THAT HE IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. IN OTHER WORDS, SUB - SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND THE AO, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EX PENDITURE IN ACCORDANCE WITH PRESCRIBED METHOD, AS MENTIONED IN SUB - SECTION (2) OF SEC. 14A OF THE ACT. IT IS ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THAT THE AO GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD STIPULATED IN RULE 8D OF THE RULES. WHILE REJECTING PAGE 5 OF 6 THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOM E, THE AO WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE AO REJECTS THE CLAIM OF THE ASSESSEE IN THI S REGARD. (MAXOPP INVESTMENT LTD. V. CIT (2012) 397 ITR 272 (DEL.). 7 . IN THE LIGHT OF THE ABOVE WELL SETTLED LAW, THE LD. CIT(A) HAS RIGHTLY STATED THAT THE CONDITIONS BEFORE INVOCATION OF RULE 8D WHICH IS REPRODUCED BELOW : - I . THE AO SHOULD BE SATISFIED THAT THE CLAIM OF EXPENDITURE IN RELATION TO TAX FREE INCOME HAS NOT BEEN CORRECTLY MADE BY THE ASSESSEE HAVING REGARD TO HIS ACCOUNTS. II. THE AO SHOULD BE RECORDING HIS SATISFACTION A S TO HOW THE ASSESSEE'S CALCULATION IS INCORRECT. III. EVEN WHERE THE ASSESSEE'S CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IV. IN CASE, THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THEN ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. 8 . THE LD CIT(A) HAS RIGHTLY OBSERVED THAT THE AO DID NO T FIND ANY DEFICIENCY IN THE BOOKS OF ACCOUNT NOR ANY DEFICIENCY IN RESPECT OF THE CLAIM OF THE ASSESSEE U/S 14A OF THE ACT. WE ALSO FIND THAT THE AO HAS NOT EXPRESSED SATISFACTION WITH THE ASSESSEES CLAIM U/S 14A WAS INCORRECT AND WHICH IS A SINE QUO NON E BEFORE INVOKING PROVISIONS OF SECTION 14A OF THE ACT. WE DO NOT FIND ANY INFIRMITY WHATSOEVER IN THE REASONED ORDER PASSED BY THE PAGE 6 OF 6 LD CIT(A) AND THEREFORE WE ARE INCLINED TO CONFIRM THE ORDER OF THE LD CIT(A) AND SO THE DEPARTMENTS APPEAL FAILS AND SO IS DISMISSED. 9 . IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 3 . 0 2 . 2 0 1 5 . - S D / - - S D / - ( S. V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 3 0 2 . 2 0 1 5 * A K KEOT *KAVITA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI