Inductis (India) Pvt. Ltd., New Delhi V. ACIT, Circle- 12(1), New Delhi

ITA 1510/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2809 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 05-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR SENIOR
• Assessee Lawyers: A NKIT SAHNI
• Keywords: Earning of tax free income; Wholly owned subsidiary; Rule 8D; Set aside
• Section: 271(1)(c); 234B; 14A; 201; 13; 22; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.1510/DEL./2018 (ASSESSMENT YEAR : 2013-14) ITA NO.5205/DEL./2018 (ASSESSMENT YEAR : 2014-15) M/S. INDUCTIS (INDIA) PRIVATE LTD., VS. DCIT, CIR CLE 12 (1), 414, 4 TH FLOOR, DLF JASOLA TOWER B, NEW DELHI. PLOT NO.10 & 11, DDA DISTRICT CENTRE, JASOLA, NEW DELHI 110 044. (PAN : AAACI8497C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANKIT SAHNI, ADVOCATE REVENUE BY : SHRI RAJESH KUMAR, SENIOR DR DATE OF HEARING : 02.09.2021 DATE OF ORDER : 22.10.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING D ISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DI SCUSSION. 2. APPELLANT, M/S. INDUCTIS (INDIA) PVT. LTD. (HERE INAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEALS SOUGHT TO ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 2 SET ASIDE THE IMPUGNED ORDERS DATED 22.12.2017 & 29 .05.2018 PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS )-4, NEW DELHI & AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO QUA THE AYS 2013-14 & 2014-15 RESPECTIVELY ON THE GROUNDS INTER ALIA THAT:- ITA NO.1510/DEL/2018 (AY 2013-14) 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ['CIT(A)'] ERRED ON THE FACTS OF THE CASE AND IN LA W IN UPHOLDING THE ACTION OF LEARNED ASSESSING OFFICER ['LD. AO'] IN DISALLOWING AN AMOUNT OF RS.2,251,065 UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 ('THE ACT'), READ WITH RULE 8D OF THE INC OME-TAX RULES, 1962 ('THE RULES'). 1.1 THAT THE LD. C!T(A) ERRED ON THE FACTS OF THE CASE AND IN LAW IN UPHOLDING THE ACTION OF THE LD. AO 'IN COMPU TING THE SAID DISALLOWANCE OF RS.2,251,065 AS PER RULE 8D OF THE RULES READ WITH SECTION 14A OF THE ACT, BEING 0.5% OF THE AVER AGE OF OPENING AND CLOSING INVESTMENT IN MUTUAL FUNDS PERTAINING T O FINANCIAL YEAR 2012-13. 1.2 THAT THE LD. C!T(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE AFORESAID DISALLOWANCE WITHOUT APPRE CIATING THAT NO EXPENDITURE WAS ACTUALLY INCURRED IN EARNING THE EXEMPT DIVIDEND INCOME, WHICH WAS ACTUALLY A MERE REINVEST MENT OF UNITS ISSUED AS DIVIDEND TO THE APPELLANT ON MUTUAL FUNDS HELD BY IT. ITA NO.5205/DEL/2018 (AY 2014-15) 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING O FFICER ('LD. AO') IS BAD IN LAW. 2. THAT THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP)/ LD.AO ERRED IN LAW AND ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE IN DISALLOWING AN AMOUNT OF RS.3,575,677 U NDER SECTION 14A OF THE INCOME-TAX ACT, 1961 ('THE ACT') READ WI TH RULE 8D OF THE INCOME-TAX RULES, 1962 ('THE RULES'). 2.1 THAT THE LD. DRP/ LD. AO ERRED IN LAW AND ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN COMPUTING T HE SAID DISALLOWANCE OF RS.3,575,677 AS PER RULE 8D OF THE RULES READ WITH SECTION 14A OF THE ACT, BEING 0.5% OF THE AVER AGE OF OPENING AND CLOSING INVESTMENT IN MUTUAL FUNDS PERTAINING T O FINANCIAL YEAR 2013-14. ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 3 2.2 THAT THE LD. DRP/LD. AO ERRED IN LAW AND ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN DISALLOWING AN AMOUNT OF RS.3,575,677 ON ACCOUNT OF DEEMED EXPENSES BY STATI NG THAT SINCE NO ,SEPARATE INVESTMENT DIVISION OR DIFFERENT INFRA STRUCTURE ESTABLISHMENT HAS BEEN MADE BY THE APPELLANT FOR EA RNING OF DIVIDEND INCOME ON THE INVESTMENTS MADE IN MUTUAL F UNDS, THE DISALLOWANCE IS TO BE MADE IN TERMS OF SECTION 14A READ WITH RULE 8D2(III) OF THE RULES. 2.3 THAT THE LD. DRP/LD. AO ERRED IN LAW AND ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN MAKING THE AFORESAID DISALLOWANCE WITHOUT APPRECIATING THAT NO EXPENDITU RE WAS ACTUALLY INCURRED IN EARNING THE EXEMPT DIVIDEND IN COME, WHICH WAS ACTUALLY A MERE AUTOMATIC REINVESTMENT AS DIVID END ACCRUING TO THE APPELLANT ON MUTUAL FUNDS HELD BY IT. 2.4 THAT THE LD. DRP/LD. AO ERRED IN LAW AND ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN DISALLOWING THE AFORESAID AMOUNT OF DEEMED EXPENSES WITHOUT ESTABLISHING/ SPE CIFYING NEXUS OF SAME WITH EARNING OF EXEMPT INCOME. 2.5 THAT THE LD. DRP/ LD. AO ERRED IN LAW AND ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN RELYING UPO N THE CBDT CIRCULAR NO. 04/2014 WITHOUT APPRECIATING THE FACT THAT THE SAID CBDT CIRCULAR NO. 4/2014 HAVE BEEN OVERRULED BY THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF P CIT VS. IL & FS ENERGY DEVELOPMENT COMPANY LTD.: 399 ITR 483 (DE LHI). 3. THAT THE LD. AO HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT ALLOWING CR EDIT OF MINIMUM ALTERNATE TAX OF RS.20,967,078 AS CLAIMED B Y THE APPELLANT IN THE RETURN OF INCOME. 4. THAT THE LD. AO HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY INITIATING PENA LTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. 5. THAT THE LD. AO HAS ERRED IN LAW AND ON THE FACT S OF THE CASE BY CHARGING INTEREST UNDER SECTION 234B AND 23 4C OF THE ACT. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS INTO PROVIDIN G DECISION ANALYTIC SERVICES FOR CUSTOM-MADE DATA-DRIVEN SOLUT IONS TO A VARIETY OF BUSINESS APPLICATIONS. DURING THE SCRUT INY PROCEEDINGS, ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 4 ASSESSING OFFICER (AO) NOTICED THAT THE ASSESSEE HA S EARNED DIVIDEND INCOME OF RS.3,13,94,353/- & RS.5,34,50,20 1/- FOR AYS 2013-14 & 2014-15 RESPECTIVELY AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(35) OF THE INCOME-TAX ACT, 1961 (F OR SHORT THE ACT), WITHOUT DISALLOWING ANY AMOUNT OF EXPENDITUR E FOR EARNING THIS DIVIDEND INCOME. AO BY INVOKING THE PROVISION S CONTAINED U/S 14A READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) MADE A DISALLOWANCE OF RS.22,60,300/- & RS.35,75,677/- FOR AYS 2013-14 & 2014-15 RESPECTIVE LY ON THE GROUND THAT SINCE THE ASSESSEE HAS NOT MAINTAINED A NY SEPARATE INVESTMENT DIVISION, THE INFRASTRUCTURE AND ESTABLI SHMENT DEVELOPED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF BUSINESS HAS BEEN USED FOR WORK OF INVESTMENT IN EQUITY SHARES. 4. IN AY 2014-15, AO HAS ALSO NOT ALLOWED CREDIT OF MINIMUM ALTERNATIVE TAX (MAT) OF RS.2,09,67,078/- AS CLAIME D BY THE ASSESSEE IN THE RETURN OF INCOME. CONSEQUENTLY, AO FRAMED THE ASSESSMENT ON THE TOTAL INCOME OF RS.14,38,41,103/- & RS.13,62,99,340/- FOR AYS 2013-14 & 2014-15 RESPECT IVELY. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A ) AND LD. DRP BY WAY OF FILING THE APPEALS WHO HAS DELETED/DI SMISSED THE ADDITION/OBJECTIONS BY ALLOWING THE APPEALS. FEELIN G AGGRIEVED, THE ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 5 ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. ASSESSEE BY MOVING APPLICATIONS IN APPEALS PERTA INING TO AYS 2013-14 & 2014-15 SOUGHT TO ADMIT THE ADDITIONA L GROUND OF APPEAL UNDER RULE 11 OF THE INCOME TAX (APPELLATE T RIBUNAL) RULES, 1963, WHICH IS IDENTICAL IN BOTH THE YEARS, AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE EDUCATION CESS (EC) AND SECONDARY AND HIGHER EDUCAT ION CESS (SHEC) ON INCOME-TAX IS AN ALLOWABLE EXPENDITURE FO R COMPUTING TOTAL INCOME AS PER THE PROVISIONS OF THE INCOME-TAX ACT, 1961. ON THE GROUND THAT ADDITIONAL GROUND SOUGHT TO BE R AISED IS PURELY LEGAL IN NATURE AND DOES NOT REQUIRE ANY INVESTIGAT ION OF FACTS. SINCE GROUND SOUGHT TO BE RAISED BY THE ASSESSEE IS LEGAL IN NATURE WHICH CAN BE RAISED AT ANY STAGE OF PROCEEDINGS AND NECESSARY FOR COMPLETE AND FINAL ADJUDICATION OF THE CONTROVERSY AT HAND, THE SAME IS ALLOWED WITHOUT GOING INTO THE MERITS OF TH E CASES. GROUND NOS.1 & 5 (AY 2014-15) 8. GROUND NO.1 OF AY 2014-15 NEEDS NO FINDINGS BEIN G GENERAL IN NATURE AND HAVING NOT BEEN PRESSED BY TH E LD. AR FOR THE ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 6 TAXPAYER. GROUND NO.5 OF AY 2014-15 QUA LEVY OF IN TEREST U/S 234B AND 234C OF THE ACT NEEDS NO SPECIFIC FINDING BEING CONSEQUENTIAL IN NATURE. GROUNDS NO.1, 1.1 & 1.2 (AY 2013-14) GROUNDS NO.2, 2.1, 2.2, 2.3, 2.4 & 2.5 (AY 2014-15) 9. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT THE AO BEFORE INVOKING TH E PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D FAILED TO RECOR D HIS DISSATISFACTION WITH THE WORKING GIVEN BY THE ASSES SEE THAT THEY HAVE NOT INCURRED ANY EXPENDITURE TO EARN THE DIVID END INCOME; THAT NO NEW INVESTMENT HAS BEEN MADE DURING THE YEA RS UNDER CONSIDERATION RATHER DIVIDEND HAS BEEN REINVESTED; THAT ALL THE INVESTMENT HAS BEEN MADE IN THE DEBT ORIENTED FUNDS ; THAT IN THE EARLIER THREE YEARS, IDENTICAL ISSUE HAS ALREADY BE EN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND RELIED UPON THE DECISIONS RENDERED BY HONBLE HIGH COURT IN CASE OF MAXOPP INVESTMENT LTD. (2012) 347 ITR 272 (DEL.) AND THE COORDINATE B ENCH OF THE TRIBUNAL IN CASE OF PETRONET LNG LTD. IN ITA NO.5230/DEL/2015 FOR AY 2009-10 & ORS.. 10. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE ASSES SEE CONTENDED INTER ALIA THAT AO HAS RECORDED SATISFACTION AND HA S DULY DISCUSSED ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 7 THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE; THA T THERE IS HUGE INVESTMENT MADE BY THE ASSESSEE WHICH CANNOT BE MAD E WITHOUT INCURRING ADDITIONAL EXPENDITURE. LD. DR FOR THE RE VENUE TO REPEL THIS ARGUMENT REFERRED TO ASSESSMENT ORDER WHEREIN AO HAS DISCUSSED IN DETAIL THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE COMPANY TO EARN THE DIVIDEND INCOME. LD. DR HAS AL SO REFERRED TO PARA 5.3 OF THE IMPUGNED ORDER PASSED BY THE LD. CI T (A). 11. UNDISPUTEDLY, ASSESSEE COMPANY HAS EARNED DIVID END INCOME OF RS.3,13,94,353/- & RS.5,34,50,201/- IN AY S 2013-14 & 2014-15 RESPECTIVELY, THE YEARS UNDER CONSIDERATION . IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS NOT MADE A NY SUO MOTU DISALLOWANCE FOR INCURRING EXPENSES TO EARN DIVIDEN D INCOME. 12. IT IS CATEGORIC CASE OF THE ASSESSEE COMPANY TH AT THEY HAVE NOT INCURRED ANY EXPENSES TO EARN THE DIVIDEND INCO ME BECAUSE DURING THE YEAR UNDER CONSIDERATION, NO NEW INVESTM ENT HAS BEEN MADE RATHER DIVIDEND HAS BEEN REINVESTED. PERUSAL OF THE COMPLETE FUND STATEMENT, AVAILABLE AT PAGE 59 OF THE PAPER B OOK, SHOWS THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS M ADE INVESTMENT IN THE EQUITY SHARES OF ITS WHOLLY OWNED SUBSIDIARY TO THE TUNE OF RS.42,95,505/- IN AY 2013-14 AND ALSO MADE INVESTME NT OF RS.71,39,10,225/- IN MUTUAL FUND OF ICICI PRUDENTIA L LIQUIDITY FUND. ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 8 13. DURING THE ASSESSMENT PROCEEDINGS, WHEN ASSESSE E COMPANY WAS CALLED UPON TO EXPLAIN AS TO WHY DISALLOWANCE U /S 14A READ WITH RULE 8D SHOULD NOT BE MADE, ASSESSEE COMPANY C ATEGORICALLY BROUGHT ON RECORD THAT, IT HAS NOT INCURRED ANY DIRECT OR INDIRECT EXPENSES IN MAKING THE INVESTMENT NOR THERE IS ANY FINANCIAL COST OF BORROWED FUNDS FOR MAKING THE INVESTMENT. LD. AR FOR THE ASSESSEE ALSO CONTENDED THAT THE AO HAS INVOKED THE PROVISIONS U/S 14A READ WITH RULE 8D WITHOUT RECORDING HIS DISSATI SFACTION THAT ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE T O EARN THE DIVIDEND INCOME AND RELIED UPON MAXOPP INVESTMENT LTD. (SUPRA). LD. AR FOR THE ASSESSEE ALSO CONTENDED TH AT NO INTEREST BEARING FUNDS HAVE EVER BEEN USED FOR INVESTMENT TO EARN THE DIVIDEND INCOME. 14. WHEN WE EXAMINE THE CONTENTIONS RAISED BY THE L D. AR FOR THE ASSESSEE THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO RATHER INVOKED THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D MECHANICALLY IN THE LIGHT OF THE OBSERVATIONS MADE BY THE AO, IT HAS COME ON RECORD THAT GENERIC OBSERVATIONS HAVE B EEN GIVEN BY THE AO WITHOUT DISPUTING THE FINANCIALS OF THE ASSE SSEE COMPANY WHICH ARE AUDITED ONE. WHEN ASSESSEE HAS COME UP W ITH A CATEGORIC DEFENCE THAT NO EXPENDITURE HAS BEEN INCU RRED TO EARN THE DIVIDEND INCOME DURING THE YEARS UNDER ASSESSMENT A ND THAT ALL THE ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 9 INVESTMENT DURING THE YEARS UNDER ASSESSMENT ARE D IVIDEND REINVESTED (DEBT ORIENTED FUNDS) AND THAT NO DIREC T INVESTMENT HAS BEEN MADE RATHER DIVIDEND HAS BEEN REINVESTED B Y THE COMPANY DURING THE YEARS UNDER ASSESSMENT AND HAS BROUGHT O N RECORD COMPLETE FUND STATEMENT ISSUED BY THE ICICI PRUDENT IAL FUND WHEREIN THE ENTIRE INVESTMENT SHOWN IN THE YEAR UND ER CONSIDERATION IS DIVIDEND REINVESTED (DEBT ORIENT ED FUNDS), AO WAS REQUIRED TO RECORD HIS CATEGORIC DISSATISFACTIO N AS TO WORKING OF THE ASSESSEE THAT SUCH AND SUCH EXPENSES HAVE BEEN INCURRED TO EARN DIVIDEND INCOME, BUT NOT SHOWN. 15. FURTHERMORE, WHEN WE EXAMINE SUB-PARA 5.3 OF TH E IMPUGNED ORDER PASSED BY THE LD. CIT (A) HE HAS ALS O FAILED TO BRING ON RECORD THE WORKING FOR INCURRING OF EXPENS ES FOR MAKING INVESTMENT AND EARNING DIVIDEND BY THE ASSESSEE COM PANY RATHER UPHELD THE FINDINGS RETURNED BY AO MECHANICALLY. L D. CIT (A) IN AY 2013-14 OBSERVED THAT:- I HAVE CAREFULLY EXAMINED THE ISSUE. IN A HOTCH- POTCH OF VARIOUS ACTIVITIES BEING CONCOMITANT, IT MAY NOT BE POSSIBLE TO FIND OUT THE ACTUAL EXPENDITURE INCUR RED IN RELATION TO EARNING OF EXEMPT INCOME. UNDER THESE CIRCUMSTANCES, THE A.O. HAS NO OPTION BUT TO RESORT TO SECTION 14A PARTICULARLY WHEN THE ASSESSEE CLAIMS T O HAVE INCURRED NO EXPENDITURE IN THIS REGARD. THERE MAY NOT BE ANY REQUIREMENT OF SEPARATE INVESTMENT DIVISION BUT TO SAY THAT NO RESOURCES WERE UTILIZED TO EARN EXEMPT INCOME AND THE EARNING WAS ON AUTOMATIC MODE IS NOT AN ACCEPTABLE ARGUMENT. EVEN TO KEEP THE INVESTMENT I N AUTOMATIC INCOME EARNING MODE IN ITSELF IS A MAJOR ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 10 BUSINESS DECISION TAKEN BY THE RESOURCE MANAGER OF THE COMPANY. THE QUALITY AND QUANTITY OF RETURN ON INVESTMENT, THE MAGNITUDE AND TIMING OF INVESTMENT AND WHETHER SUCH INVESTMENTS MAKE PRUDENT BUSINESS DECI SION AND IS SYNCHRONIZED WITH THE OVERALL FINANCIAL HEAL TH AND BUSINESS OBJECTIVES OF THE COMPANY THESE DECISION S NEED CONTINUOUS MONITORING AND UPDATION USING VARIOUS RESOURCES OF THE COMPANY. 16. WHEN LD. CIT (A) HIMSELF RECORDED THAT, IT MAY NOT BE POSSIBLE TO FIND OUT THE ACTUAL EXPENDITURE INCURRE D IN RELATION TO THE EARNING OF EXEMPT INCOME, IT IS DIFFICULT TO REJECT THE WORKING BROUGHT ON RECORD BY THE ASSESSEE TOO THAT NO EXPEN DITURE HAS BEEN INCURRED TO EARN DIVIDEND INCOME BY THE ASSESSEE. M OREOVER, THE ENTIRE INVESTMENT MADE BY THE ASSESSEE DURING THE Y EARS UNDER ASSESSMENT IS DIVIDEND REINVESTED AND IN THESE CI RCUMSTANCES, THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D CANN OT BE INVOKED MECHANICALLY. 17. IN AY 2014-15 ALSO, AO HAS MECHANICALLY APPLIED SECTION 14A READ WITH RULE 8D WITHOUT RECORDING ANY DISSATI SFACTION AS TO THE WORKING GIVEN BY THE ASSESSEE AS TO NOT INCURRI NG ANY EXPENSES TO EARN THE DIVIDEND INCOME RATHER BASED HIS FINDIN GS ON THE BASIS OF GENERIC OBSERVATIONS THAT SUCH A HUGE INVESTMENT CANNOT BE MADE WITHOUT INCURRING EXPENDITURE. FOR AY 2014-15 ALSO, ASSESSEE HAS BROUGHT ON RECORD FUND STATEMENT ALSO SHOWING ENTIRE INVESTMENT FOR THE YEAR UNDER ASSESSMENT AS DIVIDE ND REINVESTED ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 11 WHICH RATIFIES THE WORKING GIVEN BY ASSESSEE. LD. DRP ALSO UPHELD THE FINDINGS RETURNED BY THE AO BY HOLDING THAT, THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE INCOME-TAX RULES IS MA NDATORY IN NATURE IN A CASE WHERE THE ASSESSEE HAS CLAIMED EXE MPT INCOME AND CONSEQUENTLY REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE. 18. HONBLE DELHI HIGH COURT IN A CASE CITED AS MAXOPP INVESTMENT LTD. (SUPRA) WHILE DECIDING THE IDENTICAL ISSUE AS TO HOW PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D ARE TO BE INVOKED BY THE AO HELD AS UNDER :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OF FICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE Q UESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSI NG OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF .SUB-SECTION (2) OF SE CTION 14A . PRIOR TO THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRE- RULE 80 PERIOD, WHENEVER THE ISSUE OF SECTION 14A A RISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDI TURE HAS BEEN INCURRED IN' RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICE R WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CA SE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF TH E ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFI CER IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS TH E QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFIC ER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 12 EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF THE O BJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSES SING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPEND ITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE IS REQUIRED T O DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 19. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITUR E INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WH ERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM O F THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSI BLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AN D (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 20. BY FOLLOWING THE LAW LAID DOWN BY HONBLE APEX COURT IN JUDGMENT CITED AS GODREJ & BOYCE MANUFACTURING COMPANY LTD. ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 13 (SUPRA) AND HONBLE HIGH COURT OF DELHI IN MAXOPP INVESTMENT LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT DISALLO WANCE TO THE TUNE OF RS.22,60,300/- & RS.35,75,677/- FOR ASSESSMENT YEAR S 2013-14 & 2014-15 RESPECTIVELY BY MECHANICALLY APPL YING THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D(2) A RE NOT SUSTAINABLE IN THE EYES OF LAW BECAUSE SUB-SECTION (2) & (3) OF SECTION 14A WITH RULE 8D OF THE RULES HAS ONLY PRES CRIBED A FORMULA FOR DETERMINATION OF AN EXPENDITURE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WHICH CAN ONLY BE INVOKED IF THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 21. SO, WE ARE OF THE CONSIDERED VIEW THAT WHEN AO/CIT(A)/DRP HAVE NOT COME UP WITH FACTUAL WORKING THAT SUCH AND SUCH EXPENSES HAVE BEEN INCURRED BY THE ASSESSE E TO EARN THE DIVIDEND INCOME BY RECORDING THEIR DISSATISFACTION WITH THE WORKING OF THE ASSESSEE COMPANY, RATHER MECHANICALL Y INVOKED THE PROVISIONS CONTAINED U/S 14A R/W RULE 8D WHICH IS N OT PERMISSIBLE. MOREOVER, AO HAS NOT FOUND ANY FAULT IN THE AUDITED FINANCIALS OF THE ASSESSEE SHOWING NO EXPENDITURE I N EARNING DIVIDEND INCOME. 22. IT IS A MATTER OF FACT THAT THE ENTIRE INVESTME NT DURING THE YEAR UNDER CONSIDERATION IS ON ACCOUNT OF DIVIDEND REINVESTED ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 14 (DEBT ORIENTED FUNDS) NOT CREATING ANY OCCASION FOR THE ASSESSEE COMPANY TO PUT IN THEIR ADMINISTRATIVE AND MANAGERI AL MANPOWER FOR MAKING INVESTMENT. SO, AO IS DIRECTED TO DELET E THE DISALLOWANCE OF RS.22,60,300/- & RS.35,75,677/- FOR ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY AFTER DUE VERI FICATION THAT APART FROM DIVIDEND REINVESTED NO OTHER INVESTMEN T HAS BEEN MADE BY THE ASSESSEE COMPANY. SO, GROUNDS NO.1, 1. 1 & 1.2 AND GROUNDS NO.2, 2.1, 2.2, 2.3, 2.4 & 2.5 OF AYS 2013- 14 & AY 2014-15 RESPECTIVELY ARE DETERMINED IN FAVOUR OF TH E ASSESSEE. GROUND NO.3 (AY 2014-15) 23. ASSESSEE CHALLENGED THE ORDER PASSED BY THE AO/ CIT(A) IN NOT ALLOWING CREDIT OF MINIMUM ALTERNATE TAX (MAT) OF RS.2,09,67,078/- AS CLAIMED IN THE RETURN OF INCOME . LD. AR FOR THE ASSESSEE BROUGHT TO THE NOTICE OF THE BENCH THA T APPLICATION U/S 154 OF THE ACT HAS ALREADY BEEN FILED WITH THE AO W HICH IS PENDING ADJUDICATION. ACCORDINGLY, WE DIRECT AO TO DECIDE THE APPLICATION MOVED BY THE ASSESSEE U/S 154 OF THE ACT TO DECIDE THE ISSUE ALLOWING CREDIT OF MAT IN ACCORDANCE WITH LAW WITHI N TWO MONTHS. SO, GROUND NO.3 OF AY 2014-15 IS DETERMINED IN FAVO UR OF THE ASSESSEE FOR STATISTICAL PURPOSES. ADDITIONAL GROUND ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 15 24. ASSESSEE BY RAISING ADDITIONAL GROUND IN BOTH T HE APPEALS FOR AYS 2013-14 & 2014-15 SOUGHT TO ALLOW EDUCATION CES S (EC) AND SECONDARY & HIGHER EDUCATION CESS (SHEC) ON INCOME- TAX BEING AN ALLOWABLE EXPENDITURE FOR COMPUTING THE TOTAL IN COME BY RELYING UPON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN CASE OF SESA GOA LIMITED VS. JCIT 117 TAXMANN.COM 9 6 (BOMBAY HC). 25. NOW, IT IS SETTLED PRINCIPLE OF LAW THAT EDUCATION CESS AND SECONDARY & HIGHER EDUCATION CESS PAID ON INCOME-TA X IS AN ALLOWABLE DEDUCTION FOR COMPUTING THE TOTAL INCOME BEING NOT HIT BY THE PROVISIONS CONTAINED U/S 40A(II) OF THE ACT, AS HAS BEEN HELD BY HONBLE BOMBAY HIGH COURT IN CASE OF SESA GOA LTD. (SUPRA). 26. HONBLE HIGH COURT IN SESA GOA LTD. CASE (SUPRA) HELD THAT EDUCATION CESS OR ANY OTHER CESS IS NOT INCLUDED IN CLAUSE (II) OF SECTION 40(A) OF THE ACT SO THERE IS NO PROHIBITION IN CLAIMING DEDUCTION OF SUCH AMOUNTS WHILE COMPUTING THE INCOM E OF THE ASSESSEE UNDER THE HEAD PROFITS & GAINS OF BUSINES S OR PROFESSION. OPERATIVE PART OF THE AFORESAID DECISION RENDERED B Y HONBLE BOMBAY HIGH COURT IS EXTRACTED FOR READY PERUSAL AS UNDER :- 27. THE CBDT CIRCULAR, IS BINDING UPON THE AUTHORI TIES UNDER THE IT ACT LIKE ASSESSING OFFICER AND THE APPELLATE AUTHORITY. THE CBDT CIRCULAR IS QUITE CONSISTENT WITH THE PRIN CIPLES OF ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 16 INTERPRETATION OF TAXING STATUTE. THIS, ACCORDING T O US, IS AN ADDITIONAL REASON AS TO WHY THE EXPRESSION 'CESS' O UGHT NOT TO BE READ OR INCLUDED IN THE EXPRESSION 'ANY RATE OR TAX LEVIED' AS APPEARING IN SECTION 40(A)(II) OF THE IT ACT. 28. IN THE INCOME-TAX ACT, 1922, SECTION 10(4) HAD BANNED ALLOWANCE OF ANY SUM PAID ON ACCOUNT OF 'ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR P ROFESSION'. IN THE CORRESPONDING SECTION 40(A)(II) OF THE IT ACT, 1961 THE EXPRESSION 'CESS' IS QUITE CONSPICUOUS BY ITS ABSEN CE. IN FACT, LEGISLATIVE HISTORY BEARS OUT THAT THIS EXPRESSION WAS IN FACT TO BE FOUND IN THE INCOME-TAX BILL, 1961 WHICH WAS INTROD UCED IN THE PARLIAMENT. HOWEVER, THE SELECT COMMITTEE RECOMMEND ED THE OMISSION OF EXPRESSION 'CESS' AND CONSEQUENTLY, THI S EXPRESSION FINDS NO PLACE IN THE FINAL TEXT OF THE PROVISION I N SECTION 40(A)(II) OF THE IT ACT, 1961. THE EFFECT OF SUCH O MISSION IS THAT THE PROVISION IN SECTION 40(A)(II) DOES NOT INCLUDE , 'CESS' AND CONSEQUENTLY, 'CESS' WHENEVER PAID IN RELATION TO B USINESS, IS ALLOWABLE AS DEDUCTABLE EXPENDITURE. 27. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF SICPA INDIA PRIVATE LTD. VS. ADDL.CIT IN ITA NOS.704/KOL/2015, 1586/KOL/2016 & 7048/KOL/2017 ALSO DECIDED THE IDENTICAL ISSUE BY HOLDING THAT EDUCATION CESS ON INCOME-TAX, DIVID END DISTRIBUTION TAX AND FRINGE BENEFIT TAX IS NOT A DISALLOWABLE EX PENDITURE UNDER SECTION 40(A)(II) OF THE ACT HAVING BEEN EXPRESSLY EXCLUDED FROM SECTION 40(A)(II) OF THE ACT. 28. SO, FOLLOWING THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN CASE OF SESA GOA LTD. (SUPRA) AND ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF SICPA INDIA PVT. LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT EDUCAT ION CESS AND SECONDARY & HIGHER EDUCATION CESS IS AN ALLOWABLE D EDUCTION BEING NOT HIT BY THE PROVISIONS OF SECTION 40(A)(II) OF T HE ACT. WE DIRECT ITA NO.1510/DEL./2018 ITA NO.5205/DEL./2018 17 THE AO ACCORDINGLY. CONSEQUENTLY, ADDITIONAL GROUN D IN THE AYS 2013-14 & 2014-15 IS DETERMINED IN FAVOUR OF THE AS SESSEE. 27. RESULTANTLY, THE APPEAL FOR ASSESSMENT YEAR 201 3-14 BEING ITA NO.1510/DEL/2018 IS ALLOWED AND APPEAL FOR AY 2 014-15 BEING ITA NO.5205/DEL/2018 IS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF OCTOBER, 2021. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF OCTOBER, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-4 NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.