M/s Mayank Auto Engineers (P) Ltd., Delhi V. DCIT, New Delhi

ITA 1567/DEL/2013

• Counselvise Citation: 156720114 RSA 2013
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 11-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Earning of tax free income; Question of law
• Section: 234B; 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E, NEW DELHI) BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1567 /DEL/2013 ASSESSMENT YEAR : 2009-10 M/S. MAYANK AUTO ENGINEER (P) LTD., VS. DCIT, CIR CLE 6(1), A-15, ASHOK VIHAR, PHASE I, NEW DELHI DELHI 110 052 GIR / PAN:AACCM0011C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI TANEJA, ADV. RESPONDENT BY : SHRI P. DAM KANUNJHA, SR. DR DATE OF HEARING : 11.03.2015 DATE OF PRONOUNCEMENT : 25.03.2015 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY ASSESSEE AGAINST HT ORD ER OF LD. CIT(A) DATED 29.01.2013. THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS: 1. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTAN CES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRM ING THE ACTION OF LD. A.O. IN DISALLOWING A SUM OFRS.5,56,067/- U/S 1 4A OF THE ACT. 2. WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) HAS E RRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTION OF LD. A.O . IN WRONGLY COMPUTING THE DISALLOWANCE UNDER RULE 8-D OF INCOME TAX RULES. 3. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REV ERSING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B OF THE INCOME TAX ACT, 1961. 2. AT THE OUTSET, LD. A.R. SUBMITTED THAT THE ASSES SEE HAD NOT EARNED ANY EXEMPT INCOME AND IN VIEW OF THE JUDGMENT OF HON'BL E DELHI HIGH COURT IN ITA NO.1567/DEL/2013 2 THE CASE OF CIT VS HOLCIM INDIA PVT. LTD. IN I.T.A. NO. 486/2014 AND 299/2014 (90CCH081 DEL. HIGH COURT), THE CASE OF AS SESSEE IS FULLY COVERED IN ITS FAVOUR. IT WAS SUBMITTED THAT HON'BLE HIGH COURT HAS HELD THAT WHERE THERE WAS NO EXEMPT INCOME, NO DISALLOWANCE U/S 14A CAN BE MADE. LD. A.R. FURTHER SUBMITTED THAT THE A.O. WITHOUT PINPOI NTING ANY EXPENDITURE RELATABLE TO EXEMPT INCOME, HAS CALCULATED DISALLOW ANCE U/S 14A AS PER RULE 8D AND LD. CIT(A) HAS ALSO CONFIRMED THE SAME, WHIC H WAS ALSO AGAINST THE LAW. 3. LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDER S OF AUTHORITIES BELOW. 4. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT A.O. HAS NOT POINTED OUT A NY INCOME EARNED BY ASSESSEE WHICH WAS EXEMPT NEITHER LD. CIT(A) HAS HE LD THAT A PARTICULAR INCOME WAS EXEMPT. LD. A.R. HAS SUBMITTED THAT THE RE WAS NO EXEMPT INCOME EARNED BY ASSESSEE. THE FACT THAT ASSESSEE DID NOT HAVE EXEMPT INCOME ALSO BECOMES CLEAR FROM THE NOTINGS OF LD. C IT(A) AS CONTAINED IN PARA 7 WHICH IS REPRODUCED BELOW: AS STATED IN PARA 4, THE SATISFACTION OF THE A.O. AS PER SECTION 14A(2) IS ON RECORD. ONCE, IT IS SEEN THAT THE ASSESSEE I S IN POSSESSION OF A SOURCE OF INCOME THAT WHEN IT YIELDS INCOME SHALL B E EXEMPT INCOME, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE ATTRACTED. FROM ASSESSMENT YEAR 2008-09 THE A.O. DOES NOT HAVE POWE R TO CALCULATE THE RELATED EXPENDITURE IN ANY FASHION OTHER THAN T HE CALCULATION PROVIDED AS PER RULE 8D. 4.1 THEREFORE, IN VIEW OF THE ABOVE, WE FIND THAT T HERE WAS NO EXEMPT INCOME AND A.O. HAD MADE ADDITION HOLDING THAT ASSE SSEE HAD SOURCE OF EXEMPT INCOME. WE FIND THAT THE CASE OF ASSESSEE I S FULLY COVERED IN ITS FAVOUR BY THE ORDER OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS HOLCIM INDIA PVT. LTD. (SUPRA) WHICH UNDER SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: 13. WE ARE CONFUSED ABOUT THE STAND TAKEN BY THE A PPELLANT-REVENUE. THUS, WE HAD ASKED SR. STANDING COUNSEL FOR THE REV ENUE, TO STATE IN ITA NO.1567/DEL/2013 3 HIS SUBMISSION RAISED WAS THAT THE SHARES WOULD HAV E YIELDED DIVIDEND, WHICH WOULD BE EXEMPT INCOME AND THEREFOR E, THE CIT(A) HAD INVOKED SECTION 14A TO DISALLOW THE ENTIRE EXPE NDITURE. THE AFORESAID SUBMISSION DOES NOT FIND ANY SPECIFIC AND CLEAR NARRATION IN THE REASONS OR THE GROUNDS GIVEN BY THE CIT(A) TO, MAKE THE SAID ADDITION. POSSIBLY, THE CIT(A), THOUGH IT IS NOT A RGUED BEFORE US, HAD TAKEN THE STAND THAT THE RESPONDENT- ASSESSEE HAD M ADE INVESTMENT AND EXPENDITURE WAS INCURRED TO PROTECT THOSE INVES TMENTS AND THIS EXPENDITURE CANNOT BE ALLOWED UNDER SECTION 14A. 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE CO ULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPE NDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HI GH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AN D HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. MIS. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04 .2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COUR T IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINS OME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE' INVOKED WHEN NO EXEMPT INCOME WAS EARNED . THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSION ER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXM ANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT I N INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX ( II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVI DES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, T HE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOM E. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING E XPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT G IVE RISE TO ANY ITA NO.1567/DEL/2013 4 SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03JS2/- MADE BY THE ASSESSING OFFICER WAS IN O RDER' . 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAX ABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUE NT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NO T TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVA TE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TA X. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHAR ES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IM PROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DEC LARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED , IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEA BLE IS THAT THE ENTIRE OR WHOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THER E WAS NO EXPENDITURE INCURRED BY THE RESPONDENT-ASSESSEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE B USINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. TH E RESPONDENT- ASSESSEE, THEREFORE, HAD TO INCUR EXPENDITURE FOR T HE BUSINESS IN THE FORM OF INVESTMENT IN SHARES OF CEMENT COMPANIES AN D TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUIN ENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR B USINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSING OFFICER AND HAS AL SO NOT BEEN DOUBTED BY THE CIT(A). 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE PRESENT APPEALS. THE SAME ARE' DISMISSED IN LIMINE. 5. WE HAVE ALREADY NOTED THAT ASSESSEE HAD NOT EARN ED ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE, FOLLOWING THE ABOVE ORDER OF HON'BLE DELHI HIGH COURT, DISALLOWANCE U/S 14A WAS NOT WARR ANTED. IN VIEW OF THE ABOVE, GROUNDS 1 & 2 ARE ALLOWED. GROUND NO.3 IS C ONSEQUENTIAL AND DOES NOT REQUIRE ADJUDICATION. ITA NO.1567/DEL/2013 5 6. IN VIEW OF ABOVE, APPEAL OF ASSESSEE STANDS ALLO WED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2015. SD./- SD./- ( G. C. GUPTA) (T.S. KAPOO R) VICE PRESIDENT ACCOUNTANT MEMBER DATE: 25 TH MARCH, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 12/3 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12, SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 25/3 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 25/3 SR. PS/PS 7 FILE SENT TO BENCH CLERK 25/3 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER