M/s Priya Exhibitors Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1707/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61668 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Assessee Lawyers: V K GARG; A K CHOPRA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1707 /DEL/2011 ASSESSMENT YEAR : 2008-09 PRIYA EXHIBITORS PVT. LTD., ACIT, 61-COMMUNITY CENTRE, CIRCLE-14 (1), BASANT LOK, VASANT VIHAR, NEW DELHI. NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACP AAACP AAACP AAACP- -- -3509 3509 3509 3509- -- -N NN N APPELLANT BY : SHRI A.K. CHOPRA, FCA & SHRI V.K. GARG, ADVOCATE. RESPONDENT BY : SHRI K.K. MISHRA, SR. DR ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A)-XVII, NEW DELHI DATED 31.10.2011 FOR ASSESSMEN T YEAR 2008-09. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THAT ON THE FACTS AND LAW INVOLVED THE LD CIT(A) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF `.8,90,039/- OUT OF E XPENSES OTHER THAN INTEREST U/S 14A IN RELATION TO EXEMPT INCOME I. E. DIVIDENDS. ON FACTS, HARDLY ANY EXPENSE OTHER THAN INTEREST WAS IN CURRED FOR EARNING OF NON TAXABLE INCOME I.E. DIVIDEND ON INVE STMENTS. THERE IS NO SPECIFIC IDENTIFICATION OF ANY SUCH EXPEND ITURE FOR ITA NO1707/DEL/2011 2 EARNING OF SUCH NON TAXABLE INCOME IDENTIFIED BY THE ASSESSING OFFICER. AS SUCH AND OTHERWISE TOO THE EXPENDITURE ASSUM ED TO BE INCURRED ON NON TAXABLE INCOME CANNOT BE DISALLOW ED. THAT THE SAID DISALLOWANCE OF EXPENSE HAS BEEN MADE ON ERRON EOUS VIEWS AND/OR NON APPRECIATION OF FACTS, LAW EVIDENCES, SUBMISSIONS AND CASE LAW RELIED UPON BY THE ASSESSEE IN ITS FAVOUR. 2. THAT ON THE FACTS AND IN LAW INVOLVED THE LD CIT(A) HAS ERRED IN APPLYING RULE 8D AND CONFIRMING THE DISALLOWANCE INT ER AL/IA AS UNDER:- I) REJECTING THE APPELLANTS CLAIM WITH REGARD TO EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME WITHOUT GIVING VALID REASONS WHY HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE APPELLANTS CLAIM. II) DETERMINING THE EXPENDITURE IN RELATION TO DIVIDEND INCOME BY RECOURSE TO SUB SECTION (2) OF SECTION 14A READ WITH RULE 8D WITHOUT GIVING ANY VALID REASON WH Y SUCH EXPENDITURE COULD NOT BE DETERMINED OR WAS INCORRECTLY EXCLUDED HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT. 3. THAT THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW NOT DELETING THE INTEREST CHARGED U/S 234D. 4. THAT THE GROUNDS OF APPEAL AS HEREIN ARE WITHOUT PREJ UDICE TO EACH OTHER. 5. THAT THE ASSESSEE RESPECTFULLY CRAVES LEAVE TO ADD, AMEND ALTER AND OR FOREGO ANY GROUND(S) AT OR BEFORE THE TIME OF HEARING. ITA NO1707/DEL/2011 3 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IT HAS FILED ITS RETURN OF INCOM E ON 26.9.2008 FOR THE ASSESSMENT YEAR 2008-09 DECLARING TOTAL INCOME OF ` .1,85,58,070/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD INVESTME NTS OF `.19,09,17,153/- IN SHARES FROM WHICH THE INCOME BEI NG DIVIDENDS IS EXEMPT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THOU GH THE ASSESSEE HAD ITSELF DISALLOWED INTEREST OF `.79,82,413/- B EING DIRECTLY ATTRIBUTABLE TO THE INVESTMENT IN SHARES, IT HAS NOT D ISALLOWED ANY EXPENDITURE RELATING TO ADMINISTRATIVE AND MANAGERIA L SERVICES AND IN VIEW OF THAT HE ADDED BACK AN AMOUNT OF `.8,90,039 /- BEING 0.5% OF AVERAGE INVESTMENT IN SHARES AS PER PROVISIONS CONTAINED IN RULE 8D. 3. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE LD CI T(A) AND SUBMITTED THAT ASSESSING OFFICER HAD MADE DISALLOWANCE WITHOUT ANY BASIS AND PLEADED THAT FROM THE COMBINED READING OF SE CTION 14A AND RULE 8D, IT IS APPARENT THAT THE DISALLOWANCE U/S 14A CAN BE DONE ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CLAIM OF EXPENSES MADE BY ASSESSEE. 4. THE LD AR ALSO PLEADED BEFORE LD CIT(A) THAT SECTI ON 14A IS NOT MANDATORY AS PER THE DECISION OF THE SPECIAL BENCH, MUMBAI IN THE CASE OF DAGA CAPITAL REPORTED IN 312 ITR 1 (ST.) (MU M.) AND ALSO IN VIEW OF THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HI GH COURT REPORTED IN 302 ITR 218. LD AR SUBMITTED THAT ENTIRE INVESTMEN T OF APPELLANT IS IN GROUP COMPANIES AND THESE ARE ONE TIME FIXED INVE STMENTS ONLY. LD AR ALSO ARGUED THAT SIMILAR ADDITION MADE IN ASSESSMENT Y EAR 2007-08 WAS DELETED BY THE TRIBUNAL. 5. THE CIT(A) DID NOT AGREE WITH THE CONTENTION MAD E BY THE ASSESSEE AND UPHELD THE DECISION OF THE ASSESSING OFFICER. T HE RELEVANT PORTION OF CIT(A) ORDER IS REPRODUCED BELO W:- ITA NO1707/DEL/2011 4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE LD AR. IT IS SEEN THAT THE APPEL LANT ITSELF HAS DISALLOWED INTEREST OF `.79,82,413/-. NOW IT IS SETTLED LAW THAT RULE 8D PROVIDES FOR COMPUTATION OF THE DISA LLOWANCE U/S 14A AND RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEA R 2008-09 I.E. THE YEAR UNDER APPEAL. RULE 8D PROVIDE S THE PROCEDURES BY WHICH DISALLOWANCE U/S 14A IS TO BE COMPU TED.. THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE AS PER THE PROCEDURE PROVIDED IN RULE 8D. THE SUBMISSION OF THE APPELLANT THAT THE HON'BLE ITAT HAS DELETED THE ADDITION IN ASSE SSMENT YEAR 2007-08 IS NOT OF MUCH HELP AS RULE 8D WAS NOT AP PLICABLE IN THE ASSESSMENT YEAR 2007-08. THE HON'BLE MUMBAI HIG H COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. HAS HELD THAT THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 HAS TO MADE IN ACCORDANCE WITH RULE 8D. IN THE CASE UNDER CONSIDERATION, THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER RULE 8D BY COMPUTING 0.5% OF AVERAGE INVESTMEN T. I AM OF THE CONSIDERED OPINION THAT RULE 8D HAS BEEN CORRE CTLY APPLIED BY THE ASSESSING OFFICER. THEREFORE, THE PLEA OF THE AP PELLANT CANNOT BE ACCEPTED. IN VIEW OF THE LEGAL POSITION AN D JUDICIAL PRONOUNCEMENTS ON THE ISSUE, I HOLD THAT DISALLOWANCE M ADE BY THE ASSESSING OFFICER UNDER RULE 8D IS CORRECT AND THUS N O INTERFERENCE IS CALLED FOR IN THIS REGARD. ACCORDINGL Y, THESE GROUNDS OF APPEAL ARE REJECTED. 6. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THIS TRIBU NAL. THE LD AR PLEADED THAT NO PARTICULAR EXPENSE WAS BROUGHT BEF ORE THE NOTICE OF ASSESSEE WHICH COULD HAVE BEEN INCURRED FOR THE PURP OSE OF EARNING EXEMPT INCOME. HE TOOK US TO PAGE 23 OF THE PAPER BO OK WHEREIN DETAILS OF ALLOCATION OF EXPENSES WAS PLACED. THE LD A R ALSO TOOK US TO ITA NO1707/DEL/2011 5 PAGE 31 OF PAPER BOOK WHEREIN BREAK UP OF MAJOR HEA D OF EXPENDITURE OF PROFESSIONAL EXPENSES WAS PLACED AND ARGUED THAT THER E IS NO SUCH EXPENSES OF MANAGERIAL NATURE WHICH COULD BE ATTRIBUT ED TOWARDS EARNING OF EXEMPT INCOME. HE FURTHER BROUGHT TO OU R NOTICE THAT EXEMPT INCOME WAS ONLY `.163 /- AGAINST WHICH DISALLO WANCE OF `.8,90,039/- HAS BEEN MADE .LD AR TOOK US TO PAGE 13 OF PAPER BOOK WHEREIN A PORTION OF BALANCE SHEET DATED 31.3.2008 W AS PLACED. HE POINTED OUT THE FACT THAT FROM 1.4.2007 TO 31.3.200 8 NO ACTIVITY OF SALE & PURCHASE WAS DONE IN RESPECT OF SHARES AS THE FIGURES IN VESTMENTS AS ON 31.3.2007 AND 31.3.2008 WAS SAME EXCEPT AN ADDIT ION OF `.2,58,20,400/- IN RESPECT OF PARTLY PAID SHARE WARRA NTS OF PVR LTD. 7. THE LD DR RELIED UPON THE ORDER OF THE ORDER OF THE ASSESSING OFFICER AND REITERATED THAT MANAGEMENT OF SUCH HUGE INVESTMENTS CANNOT BE DONE WITHOUT MAKING ANY EXPENDITURE. AS TH E DECISION OF MAKING INVESTMENT AND SELLING THEREOF ARE TAKEN AT TH E HIGHEST LEVEL OF MANAGEMENT, SOME EXPENSES DEBITED IN THE PROFIT & LOSS A CCOUNT MUST BE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. LD DR FURTHER POINTED OUT THAT LD CIT(A) HAS PASSED THE ORDER AFTER CAREFULLY CONSIDERING THE FACTS OF THE CASE AND IS BASED UPON VARI OUS JUDICIAL PRONOUNCEMENTS. 8. THE LD. COUNSEL INVITED OUR ATTENTION TO WRITTEN SUBMISSIONS FILED BY HIM SAYING THAT SECTION 14A IS NOT MANDATORY AS WAS HELD BY THE SPECIAL BENCH, MUMBAI IN THE CASE OF DAGA CAPITAL PV T. LTD. (SUPRA) AND ALSO ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARYANA LAND RECLAMATION AND DEVELOPMENT V. CIT (SUPRA). HE FURTHER INVITED OUR ATTENTION TO THE CA SE OF HERO CYCLES LTD., REPORTED IN 323 ITR 518 AS DECIDED BY HON'BLE PUNJAB & HARYANA HIGH COURT THAT SECTION 14A REQUIRES FINDING OF INCUR RING OF EXPENDITURE ITA NO1707/DEL/2011 6 AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCO ME, NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S 14A CA NNOT BE MADE. 9. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD. FROM THE BALANCE SHEET AS ON 31.3.2008 FILED IN THE PAPER BOOK AND POINTED OUT BY THE LD AR, IT IS FOUND THAT NO MAJOR ACTIVITY OF SALE & PURCHASE OF SHARES WERE DONE. SIMILARLY, FROM A NALYSIS OF SCHEDULE 12,13 & 5 RELATING TO EXPENDITURE PLACED A T PAGE 10 OF THE PAPER BOOK AND AS HAS BEEN POINTED OUT BY THE LD AR, IT IS OBSERVED THAT NO DIRECT EXPENSE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. MOREOVER, THE ASSESSING OFFICER HAS NOT SPECIFICALLY POIN TED OUT ANY DIRECT EXPENSE AND HAS NOT GIVEN ANY FINDING REGARDIN G THE CORRECTNESS OF CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN I NCURRED FOR EARNING EXEMPT INCOME. HE HAS SIMPLY RELIED UPON THE PLAIN READING OF SECTION 14A READ WITH RULE 8D WITHOUT PROPERLY ANALY SING IT. THE CIT(A) HAS UPHELD THE DECISION OF THE ASSESSING OFFICER REGARDIN G DISALLOWANCE U/S 14A BY RELYING UPON THE HON'BLE BOMB AY HIGH COURT JUDGMENT IN THE CASE OF GODREZ & BOYCE MFG. CO. WHER EIN IT WAS HELD THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXP ENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. WE HAVE GONE THROUGH THE CITATION WHI CH WAS USED BY CIT(A) TO UPHELD THE DECISION OF ASSESSING OFFICER. THE IR LORDSHIPS HAS HELD AS UNDER:- UNDER SUB SECTION (2), THE ASSESSING OFFICER REQUIRED T O DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF T OTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD HAVING REGARD TO THE MEANING OF EXPRESSION PRESCRIBED IN SECTION 2(33) MUST BE PRESCRIBE D BY ITA NO1707/DEL/2011 7 RULE MADE UNDER THE ACT. WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE E XPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FO RM PART OF TOTAL INCOME IN ACCORDANCE WITH THE PRESCRIBED METHO D, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHI CH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME W HICH DOES NOT FORM PART OF TOTAL INCOME. MOREOVER, THE SAT ISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULE STRAIGHTAWAY WITHOUT CONSIDERIN G WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST IN TH E FIRST INSTANCE DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND DETERMINATION MUST BE MADE HAVI NG REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASI S. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW T HE METHOD THAT MAY BE PRESCRIBED. 10. FROM THE CAREFUL STUDY OF THE OBSERVATIONS MADE IN THE ABOVE CASE, IT IS APPARENT THAT FIRST THE ASSESSING OFFICER HAS TO DETERMINE THE CLAIM OF ASSESSEE REGARDING EXPENSES WHICH NEITHER THE ASSE SSING OFFICER NOR THE CIT(A) HAS DONE IN THE PRESENT CASE. IN FACT, THE CITATION CITED BY THE LD CIT(A) GOES AGAINST THE DEPARTMENT IT SELF IN SO FAR AS THEIR LORDSHIPS HAS HELD THAT THE ASSESSING OFFICER MUS T IN THE FIRST INSTANCE DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IS CORRECT AND ITA NO1707/DEL/2011 8 DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCO UNTS OF THE ASSESSEE. THE LEGISLATURE DIRECTS HIM TO FOLLOW RULE 8D ONLY WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF ASSESSEE. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT FULFILLED HIS ONUS OF RECORDING HIS FINDINGS. THIS POINT HAS ALSO BEEN CONSIDE RED IN VARIOUS OTHER JUDICIAL PRONOUNCEMENTS OF HON'BLE HIGH COURT SPECIFICALLY IN THE CASE OF HERO CYCLES CITATION BY HON'BLE PUNJAB & HARY ANA HIGH COURT IN 2009 WHEREIN UNDER SIMILAR CIRCUMSTANCES, IT WAS HELD THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT REQUIRES A C LEAR FINDING OF INCURRING OF EXPENDITURE AND THAT NO DISALLOWANCE C AN BE MADE ON THE BASIS OF PRESUMPTIONS. 11. IN VIEW OF THE ABOVE, WE HOLD THAT NO DISALLOWAN CE U/S 14A READ WITH RULE 8D CAN BE MADE IN THE PRESENT CASE. 12. REST OF THE GROUNDS OF APPEALS ARE CONSEQUENTIAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON THE 11TTH DAY OF MAY, 2012. SD/- SD/- (A.D.JAIN ) (T.S. KAPOOR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 11.5.2012. HMS 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. (ITAT, NEW DELHI). ITA NO1707/DEL/2011 9 ITA NO1707/DEL/2011 10