ACIT, Circle- 11(2), New Delhi V. Hindustan EPC Company Ltd., New Delhi

ITA 1421/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1792 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 19-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 139; 143(3); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C” DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.1421/DEL/2019 Assessment Year 2015-16 ACIT, Circle-11(2), New Delhi. v. M/s. Hindustan EPC Company Ltd., 616A, (16A, 6 th Floor), Devika Tower, Nehru Place, New Delhi. TAN/PAN: AAFCM9606E (Appellant) (Respondent) Appellant by: Shri A.T. Panda, Adv. Respondent by: Shri Gurpreet Shah Singh, Sr.DR Date of hearing: 27 07 2022 Date of pronouncement: 29 07 2022 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been at the instance of the Assessee against the order of the Co mmissioner of Inco me Tax (Appeals)-IV, Ne w Delhi [ ‘CI T( A) ’ in short], dated 04.12.2018 arising from the assessment order dated 21.12.2017 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2015-16. 2. As p er its g ro u nds o f ap p eal, th e R ev en u e h as ch alle n g ed th e act io n o f th e CIT(A) in rev ersing th e d isallo wan ce s mad e b y th e Assessin g Officer u n d er Sect io n 1 4 A amo u n tin g to Rs.1 ,6 5 ,1 6 ,1 3 9 /-. I.T.A. No.1421/Del/2019 2 3 . Th e CIT(A) h as d e alt wi th th e issu e h ereu n d er: “ 6 I h a v e c a r e f u l l y c o n s i d e r e d t h e A O ' s v i e w p o i n t co n t a i n e d i n t h e A s s e s s m e n t O r d e r a n d t h e s u b m i s s i o n m a d e b y t h e a p pe l l a n t i n c l u d i n g r e l e v a n t j u d i c i a l d e c i s i o n s i n t h e m a t t e r. T h e a p p e l l a n t , d u r i n g t h e y e a r u n d e r c o n s i d e r a t i o n h a s m a d e i n v e s tm e n t a m o u n t i n g t o R s . 5 , 0 2 , 0 0 , 9 5 , 0 0 0 / - i n t h e o p t i o n a l l y c o n v e r t i b l e p r e f e r e n c e s h a r e s o f M / s H i n d u s t a n C l e a n E n e r g y L t d. b u t h a s n o t r e c e i v e d a n y e x e m p t i n c o m e f r o m s u c h i n v e s t m e n t . T he A O ' s v i e w i s t h a t S e c t i o n 1 4 A i s a t t r a c t e d i n t h i s c a s e i n s p it e o f t h e f a c t t h a t n o e x e m p t i n c o m e h a s b e e n e a r n e d d u r i n g t h e y e a r u nd e r c o n s i d e r a t i o n . T h e b a s i s f o r m a k i n g a d d i t i o n b y A O i s h i s i n t e r p r e t a t i o n o f S e c . 1 4 A a n d C B D T ' s c i r c u l a r o n th e a p p l i c a b i l i t y o f S e c . 1 4 A . T h e d i s a l l o w a n c e m a d e b y A O h a s b e e n ch a l l e n g e d o n v a r i o u s g r o u n d s b u t w r i t t e n s u b m i s s i o n i s c o n f i n e d m a i n l y t o t h e g r o u n d t h a t t h i s i s a c a s e w h e r e n o e x e m p t i n c o m e ha s b e e n r e c e i v e d d u r i n g t h e y e a r u n d e r c o n s i d e r a t i o n a n d h en c e n o d i s a l l o w a n c e i s c a l l e d f o r u / s 1 4 A . M e r e l y o n t h i s g r o u n d , I f i n d t h a t a p p e l l a n t d e s e r v e s r e l i e f f r o m d i s a l l o w a n c e u /s 1 4 A i n v i e w o f b i n d i n g d e c i s i o n s o f j u r i s d i c t i o n a l H i g h C o u r t a s di s c u s s e d b e l o w l e a v i n g o t h e r g r o u n d s o f a p p e a l a s o t i o s e . 6 . 1 T h e j u r i s d i c t i o n a l H o n ' b l e D e l h i H i g h C o u r t i n t h e c a s e o f C h e m n i v e s t L t d . v s . C I T - I V [ 3 7 8 I T R 3 3 ] ( 2 0 1 5 ) ( s u p r a ) w h i l e p l a c i n g r e l i a n c e o n i t s e a r l i e r j u d g e m e n t i n t h e c as e o f H o l c i m I n d i a P v t . L t d . 5 7 T a x m a n n . c o m 2 8 ( 2 0 1 5 ) h a s h e l d t h a t S e c . 1 4 A w i l l n o t a p p l y i f n o e x e m p t i n c o m e i s r e c e i v e d o r r e c e i v a b l e d u r i n g t h e r e l e v a n t p r e v i o u s y e a r . I n t h i s c a s e , i t w a s h e l d t h a t - " t h e e x p r e s s i o n ' d o e s n o t f o r m p a r t o f t h e t o t a l i nc o m e ' i n s e c t i o n 1 4 A e n v i s a g e s t h a t t h e r e s h o u l d b e a n a c t u al r e c e i p t o f i n c o m e , w h i c h i s n o t i n c l u d i b l e i n t h e t o t a l i n c o m e, d u r i n g t h e r e l e v a n t p r e v i o u s y e a r f o r t h e p u r p o s e o f d i s a l l o w in g a n y e x p e n d i t u r e i n c u r r e d i n r e l a t i o n t o t h e s a i d i n c o m e" I.T.A. No.1421/Del/2019 3 6 . 2 I n t h e r e c e n t J u d g e m e n t d t . 1 9 / 0 8 / 2 0 1 7 i n t h e ca s e o f P C I T V s I L &F S E n e r g y D e v e l o p m e n t C o m p a n y L t d . [ 2 0 1 7 ] 8 4 t a x m a n n . c o m 1 8 6 ( D e l h i ) , t h e H o n ' b l e H i g h C o u r t o f D e l h i h a s h e l d t h a t i f t h e r e i s n o e x e m p t i n c o m e e a r n e d i n t he a s s e s s m e n t y e a r i n q u e s t i o n , q u e s t i o n o f d i s a l l o w a n c e o f t h e ex p e n d i t u r e i n c u r r e d t o e a r n e x e m p t i n c o m e i n t e r m s o f S e c t i o n 1 4 A r e a d w i t h R u l e 8 D w o u l d n o t a r i s e . I t h a s f u r t h e r b e e n h e l d th a t t h e w o r d s " i n r e l a t i o n t o i n c o m e w h i c h d o e s n o t f o r m p a r t o f t h e t o t a l i n c o m e u n d e r t h e A c t f o r s u c h p r e v i o u s y e a r " i n t h e R u l e 8D ( 1 ) i n d i c a t e a c o r r e l a t i o n b e t w e e n t h e e x e m p t i n c o m e e a r n e d i n t h e A Y a n d t h e e x p e n d i t u r e i n c u r r e d t o e a r n i t . I n o t h e r w o r d s , t he e x p e n d i t u r e a s c l a i m e d b y t h e A s s e s s e e h a s t o b e i n r e l a t i o n t o t he i n c o m e e a r n e d i n ' i n s u c h p r e v i o u s y e a r ' . 6 . 3 I n t h i s j u d i c i a l p r o n o u n c e m e n t , C B D T ' S C i r c u l a r d t . 1 1 / 0 2 / 2 0 1 4 h a s a l s o b e e n d i s c u s s e d t o h o l d t h a t s a id c i r c u l a r c a n n o t o v e r r i d e t h e e x p r e s s e d p r o v i s i o n s o f S e c t i o n 1 4 A r e a d w i t h R u l e 8 D . T h e H o n ' b l e C o u r t h a s o b s e r v e d t h a t t h e C BD T ' s C i r c u l a r d o e s n o t r e f e r t o R u l e 8 D ( 1 ) o f t h e R u l e s a t a l l b ut o n l y r e f e r s t o t h e w o r d " i n c l u d i b l e " o c c u r r i n g i n t h e t i t l e t o R u le 8 D a s w e l l a s i n t h e t i t l e t o S e c t i o n 1 4 A . T h e C i r c u l a r c o n c l u d e s t h a t i t i s n o t n e c e s s a r y t h a t e x e m p t i n c o m e s h o u l d n e c e s s a r i l y b e i n c l u d e d i n a p a r t i c u l a r y e a r ' s i n c o m e f o r t h e d i s a l l o w a n c e t o b e t r i g g e r e d . I n t h i s c o n n e c t i o n , t h e H o n ' b l e C o u r t ' s v i e w s a r e u n d er : " I n t h e c o n s i d e r e d v i e w o f t h e C o u r t , t h i s w i l l b e a t r u n c a t e d r e a d i n g o f S e c t i o n 1 4 A a n d R u l e 8 D p a r t i c u l a r l y w h en R u l e 8 D ( 1 ) u s e s t h e e x p r e s s i o n ' s u c h p r e v i o u s y e a r ' . F u rt h e r , i t d o e s n o t a c c o u n t f o r t h e c o n c e p t o f ' r e a l i n c o m e ' . I t d oe s n o t n o t e t h a t u n d e r S e c t i o n 5 o f t h e A c t , t h e q u e s t i o n o f t ax a t i o n o f ' n o t i o n a l i n c o m e ' d o e s n o t a r i s e . A s e x p l a i n e d i n Co m m i s s i o n e r o f I n c o m e T a x V . Wa l f o r t S h a r e a n d S t o c k B r o k e r s P vt . L t d [ 2 0 1 0] 3 2 6 I T R 1 ( S C ), t h e m a n d a t e o f S e c t i o n 1 4 A o f t h e A c t i s t o c u r b t h e p r a c t i c e o f c l a i m i n g d e d u c t i o n o f e x p e ns e s i n c u r r e d I.T.A. No.1421/Del/2019 4 i n r e l a t i o n t o e x e m p t i n c o m e b e i n g t a x a b l e i n c o m e an d a t t h e s a m e t i m e a v a i l o f t h e t a x i n c e n t i v e s b y w a y o f e x em p t i o n o f e x e m p t i n c o m e w i t h o u t m a k i n g a n y a p p o r t i o n m e n t o f ex p e n s e s i n c u r r e d i n r e l a t i o n t o e x e m p t i n c o m e . C o n s e q u e n t l y, t h e C o u r t i s n o t p e r s u a d e d t h a t i n v i e w o f t h e C i r c u l a r o f t he C B D T d a t ed 1 1 t h M a y 2 0 1 4 , t h e d e c i s i o n o f t h i s C o u r t i n C h e m i nv e s t L t d . ( s u p r a ) r e q u i r e s r e c o n s i d e r a t i o n . " A l s o t h e H o n ' b l e j u r i s d i c t i o n a l H i g h C o u r t i n J o i n t I n v e s t m e n t P v t . L t d . v s . C I T (2 0 1 5 ) 3 7 2 I T R 6 9 4 ( D e l . ) h a s h e l d t h at d i s a l l o w a n c e u / s 1 4 A c a n n o t e x c e e d t h e e x e m p t i n c o m e . F u r t h e r , re c e n t l y S L P f i l e d a g a i n s t t h e o r d e r o f H i g h C o u r t i n t h e c a s e of C I T v s . C h e t t i n a d L o g i s t i c s ( P ) L t d . [ 2 0 1 7] 8 0 t a x m a n n . c o m 2 2 1 / 2 4 8 T a x m a n 5 5 ( M a d . ) i n w h i c h i t w a s h e l d t h a t w h e r e n o e x e m p t i n c o m e w a s e a r n e d i n r e l e v a n t a s s e s s m e n t y e a r b y a ss e s s e e , s e c t i o n 1 4 A c o u l d n o t b e i n v o k e d , w a s d i s m i s s e d b y H o n ' b l e S u p r e m e C o u r t i n f a v o u r o f a s s e s s e e i n i t s d e c i s i o n d a t e d 0 2 . 0 7 . 2 0 1 8 [ 9 5 t a x m a n n . c o m 2 5 0 ( S C )] . 6 . 4 I n v i e w o f t h e f a c t t h a t a p p e l l a n t d i d n o t e a r n a n y e x e m p t i n c o m e d u r i n g t h e y e a r , t a k i n g c o g n i z a n c e o f t h e a bo v e j u d i c i a l d e c i s i o n s , i t i s h e l d t h a t n o d i s a l l o w a n c e u / s 1 4 A i s c a l l e d f o r i n t h i s c a s e . K e e p i n g i n v i e w o f t h e a b o v e , t h e a d d i t io n m a d e b y t h e A O a m o u n t i n g t o R s 1 , 6 5 , 1 6 , 1 3 9 / - u / s 1 4 A r . w . R u l e 8 D i s h e r e b y d e l e t e d . T h e g r o u n d o f a p p e a l i s a l l o w e d . ” 4 . We h av e h eard the riv al su b miss io n o n th e issu e. It was p o in ted o u t o n b eh alf o f th e assess ee th a t th e a ssess ee h as n o t earn ed an y ex emp t in co me d u rin g th e y ear u n d er rev iew. It is th e case o f th e assesse e th at in th e ab sen ce o f an y ex emp t i n co me th e p ro v isio n s o f Sect io n 1 4 A o f th e A ct co u ld n o t b e in v o k ed . We fin d mer it in th e afo resa id p lea o f th e assesse e. Vari o u s Co urts h av e h eld th at Se ctio n 1 4 A o f th e Act d isa llo wan ce can n o t b e I.T.A. No.1421/Del/2019 5 k ick ed wh en th ere was n o ex emp t in co me earn ed b y the asses see as is th e case in th e p resen t ap p ea ls. Ho n ’b le Delhi Hig h Co u rt in PCIT vs IL &FS En erg y Develo p men t Co mp a n y Ltd . (2 0 1 7) 8 4 Ta xma n .com 18 6 (Delh i) an d th e Hon ’b le Ma d ra s High Co u rt in CIT v. Ch ett in a d Lo g istics (P. ) Lim ited (2 0 1 7 ) 8 0 taxma n n .com 2 2 1 (Ma d ra s) h av e ex p ressed a cle a r d isag reemen t with C BDT Circu lar an d h eld t h at wh ere th ere is n o ex emp t in co me in relev an t y ear th ere can n o t b e a d isa l lo wan ce o f ex p en d itu re u n d er S.1 4 A o f th e Act. Si mi lar p ro p o sitio n h as b een laid d o wn b y th e Ho n’b le Gu jarat Hig h Co u rt in th e cas e o f Co rrtech En erg y (P . ) Ltd (2 0 1 4 ) 4 5 ta xman n .co m. 1 1 6 (Gu j) an d Pr.CIT vs. In d ia Gela tin e a n d Ch emica ls Ltd . (2 0 1 6 ) 6 6 ta xma nn .co m 35 6 (Gu j). Th e afo resa id ju d icia l fia t was re iter ated b y th e Ho n ’b le Delh i Hig h Co u rt in th e case o f Jo in t In vestmen ts Pv t. Ltd . vs. CIT r ep o rted i n 3 7 2 ITR 6 9 2 (Delh i) wh erein Ho n ’b le Delh i Hig h Co u rt h as categ o rica lly ru led th at d isa l lo wan ce u n d er S.1 4A o f th e Act c an no t ex ceed th e amo u n t o f tax ex emp t in co me. No ta b ly , th e SLP fil ed ag ain st th e d ecisio n o f Ho n ’ble M ad ras Hig h Co u rt in Ch et tin a d Log isti cs (su p ra ) h as b een dis miss ed b y Ho n ’ble Su p reme Co u rt in CIT vs. Ch ett in a d Log isti c s (P. ) Ltd . (2 0 1 8 ) 9 5 ta xman n .co m 2 5 0 (S C). Hen ce, in co n fo rmi ty with th e ju d icia l p reced en ts , we fin d su b stan tia l mer it i n th e co n clu sio n d rawn by th e CIT (A) wh ich essen t ial ly h o ld s th at Sect io n 1 4A o f th e Act can be trig g ered o n ly if a ssesse e seek s to sq u are o ff ex p en d itu re ag ain st t h e in co me wh ich d o es n o t fo rm p art o f to ta l in co me u n d er th e Act an d Sect io n 1 4A o f th e Act can n o t b e in v ok ed wh ere n o ex emp t in co me was earn ed in th e relev an t ass essmen t y ears. Th u s, with o u t g o in g in to o th er asp ect o f co n ten t i o n s, in co n so n ance with th e ju d icia l p reced en t s , we d o n o t see an y in fir mity in th e co n clu sion I.T.A. No.1421/Del/2019 6 d rawn by th e CIT(A) fo r n o n app lica b ili ty o f Se ct ion 1 4 A o f th e Act in th e fact s o f th e ca se. 5 . Th e ju d g men t ren dered b y th e Hon ’ble Delh i Hig h Co urt in Jo in t In vestmen t P vt. Ltd . vs . CIT in ITA No .1 1 7 /201 5 ord er d a ted 2 5 .0 2 .20 1 5 , thu s clin ch es th e issu e i n fav o u r o f assessee. Th u s, th e CIT(A) h as rig h tly res tric ted th e d isal lo wan ce to th e ex ten t o f th e ex emp t in co me . Sig n ific an tly , th e Ho n’b le Delh i Hig h Co u rt in th e case o f PCIT vs. M/s . ERA In fr a stru ctu re (In d ia ) Ltd . in ITA No .2 0 4 /2 0 22 a nd CM APPL.3 1 4 4 5 /2 0 2 2 ju d gmen t a n d o rder d a ted 2 0 t h Ju ly, 2 0 22 h ad th e o ccasio n to ex amin e th e law o n ap p licab i l ity o f Se ctio n 1 4 A h av in g reg ard to th e newly in serted Exp la n a tio n to Sec tio n 1 4 A as co d ifi ed b y Fin an ce Act, 2 0 2 2 . The Ho n ’b le Hig h Co u rt h eld th at th e a fo resaid Ex p lan a tio n can n o t b e p resu med to b e ret ro sp ectiv e in o p eratio n . As a co ro lla ry , th e l aw p rev ailin g p rio r to th e in sertio n o f Exp la n a tio n wo u ld co n tin u e to ap p ly an d sh all n o t b e g u id ed b y th e Exp la n a tio n b ein g p ro sp ectiv e. We th erefo re s ee n o reas o n to in ter fere w it h th e o rd er o f th e CIT(A) wh ich is in sy n c with ex tan t law as ex po u nd ed by ju d icia l p reced en ts . 6 . In th e resu l t, th e a p p eal o f th e Rev en u e is d is miss ed . Order was pronounced in the open Court on 29/07/2022. Sd/- Sd/- [KUL BHARAT] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /07/2022 Prabhat