Renaissance Asset Management Co. Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 181/DEL/2012

• Counselvise Citation: 18120114 RSA 2012
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 06-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMITABH K SINGHA
• Assessee Lawyers: M L DUJARI
• Keywords: Depreciation; Opportunity of being heard
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH F FF F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.181/DEL/2012 181/DEL/2012 181/DEL/2012 181/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2005 2005 2005 2005- -- -06 0606 06 M/S RENAISSANCE ASSET M/S RENAISSANCE ASSET M/S RENAISSANCE ASSET M/S RENAISSANCE ASSET MANAGEMENT CO.PVT.LTD., MANAGEMENT CO.PVT.LTD., MANAGEMENT CO.PVT.LTD., MANAGEMENT CO.PVT.LTD., 2 22 2 ND NDND ND FLOOR, SH FLOOR, SH FLOOR, SH FLOOR, SHIV MAHAL, IV MAHAL, IV MAHAL, IV MAHAL, B BB B- -- -47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. PAN : AABCR6696K. PAN : AABCR6696K. PAN : AABCR6696K. PAN : AABCR6696K. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -15(1), 15(1), 15(1), 15(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.L.DUJARI, CA. RESPONDENT BY : SHRI AMITABH K.SINGHA, SR.DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : IN THIS APPEAL BY THE ASSESSEE, FOLLOWING GROUNDS ARE RAISED:- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE ` 45,72,144/- FROM THE INCOME ORIGINALLY ASSESSED BEFORE MAKING ADDITION OF ` 14,11,915/- U/S 14A OF THE INCOME TAX ACT, 1961 FOR THE REASON THAT THOUGH THE INCOME TAX APPELLATE TRIBUNAL IN ITS ORDER HAS NOT FOUND ITSELF IN AGREEMENT WITH THE ASSESSING OFFICER ON T HE ISSUE, IT HAS NOT SPECIFICALLY GIVEN RELIEF FOR THIS ADDIT ION WITHOUT APPRECIATING THE FACT THAT ONCE THE ORDER OF THE CIT(APPEALS) AND ASSESSING OFFICER IS SET ASIDE AND RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH SPECIFIC DIRECTIONS TO MAKE A FRESH DECISION, ADDIT ION DISPUTED IN THE APPEAL DOES NOT SUBSIST AND IN LIEU THEREOF ITA NO.181/DEL/2012 2 FRESH DECISION HAS TO BE TAKEN IN ACCORDANCE WITH T HE DIRECTION OF THE TRIBUNAL CONTAINED IN THEIR ORDER. 1.2 THAT HAVING SET ASIDE AND RESTORING THE MATTER INCOME TAX APPELLATE TRIBUNAL IS NOT REQUIRED TO GI VE INDEPENDENT DIRECTIONS TO THE ASSESSING OFFICER TO DELETE THE ADDITION WITH WHICH THE TRIBUNAL HAD NOT FOUND ITSELF IN AGREEMENT WITH THE CIT(APPEALS). 1.3 THAT WITHOUT REDUCING THE INCOME BY AN AMOUNT O F ` 45,72,144/- ORDER DATED 28.12.2010 ASSESSING OFFICE R HAS RESULTED IN ENHANCEMENT OF INCOME, WHEREAS THE INCO ME TAX APPELLATE TRIBUNAL DO NOT HAVE POWER TO ENHANCE THE INCOME. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAVING TAKEN NOTE OF THE DECISION OF THE BOMBAY HIGH COURT IN GODREJ BOYCE MANUFACTURING CO.LTD. VS . DCIT (2010) 328 ITR 81 (BOM) HOLDING THAT RULE 8D IS NOT RETROSPECTIVE IN OPERATION OUGHT TO HAVE HELD THAT THOUGH THE LEARNED INCOME TAX APPELLATE TRIBUNAL HAS DIREC TED FOR DETERMINING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 ON THE BASIS OF THE THEN PREVAILING JUDGE MENT OF THE SPECIAL BENCH OF THE INCOME TAX APPELLATE TRIBU NAL IN ITO VS. DAGA CAPITAL MANAGEMENT PVT.LTD. (2009) 117 ITD 169 FOR ASSESSMENT YEAR 2005-06 ASSESSING OFFICER W AS NOT JUSTIFIED IN APPLYING RULE 8D OF THE INCOME TAX RULES, 1962 AND MAKING DISALLOWANCE U/S 14A IN ACCORDANCE WITH THE SAID RULE FOR ASSESSMENT YEAR 2005-06. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN N OT APPRECIATING THE FACT THAT EVEN IF RULE 8D HAS TO B E APPLIED ITA NO.181/DEL/2012 3 IN THE CASE OF THE APPELLANT FOR DISALLOWANCE U/S 1 4A OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2005-06, S UB RULE (2) OF RULE 8D CANNOT BE APPLIED IGNORING SUB RULE (1) OF THE SAID RULE. 4. THAT THE LEARNED CIT(APPEALS) HAS ACCORDINGLY ER RED IN CONFIRMING ADDITIONAL DISALLOWANCE OF ` 9,03,892/-. 5. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 6. THAT THE APPELLANT CRAVES PERMISSION TO ADD, ALT ER, AMEND, VARY OR DELETE ONE OR MORE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. THE FACTS OF THE CASE ARE THAT FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE FILED THE RETURN DISCLOSING TOTAL INCO ME OF ` 2,27,85,704/-. ORIGINAL ASSESSMENT WAS COMPLETED ON 31 ST OCTOBER, 2007 AT THE TOTAL INCOME OF ` 3,11,76,157/- VIDE ORDER UNDER SECTION 143(3). THE ASSESSEES MAIN SOURCE OF INCOME WAS INCOME FROM CA PITAL GAINS. THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE EXPE NSES AS UNDER:- (I) PROPORTIONATE EXPENSES ALLOCATED TO SPECULATIVE INCOME AS PER PARA 5 3,20,259/- (II) PROPORTIONATE EXPENSES ALLOCATED TO INVESTMENT INCOME (CAPITAL GAINS TAXABLE AS PER PARA 5) 42,52,885/- --------------- TOTAL : 45,73,144/- --------------- 3. THE ASSESSEE CHALLENGED THE ABOVE DISALLOWANCE. WHEN THE MATTER REACHED TO THE ITAT, IT DECIDED THE ISSUE AS UNDER:- ITA NO.181/DEL/2012 4 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE G ONE THROUGH THE MATERIAL AVAILABLE ON RECORD. AFTER GO ING THROUGH THE ASSESSMENT ORDER, WE FIND THAT WHILE WO RKING OUT THE PROPORTIONATE EXPENSES ATTRIBUTABLE TO INVE STMENT ACTIVITY, THE ASSESSING OFFICER HAS CONSIDERED THE AMOUNT OF CAPITAL GAIN AS SHORT TERM AS WELL AS LONG TERM AS THE BASIS FOR WORKING OUT THE PROPORTIONATE EXPENSES. WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER ON THIS ASPECT. WE ARE OF THE OPINION THAT ANY EXPENSES WHICH IS ATTRIBUTED TO INVESTMENT ACTIVITY HAS TO BE CONSIDE RED AS EXPENSES INCURRED FOR EARNING DIVIDEND INCOME BECAU SE THE INVESTMENT IS MADE TO EARN DIVIDEND INCOME AS H ELD BY HONBLE APEX COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY AS REPORTED IN 115 ITR 519 (SC). IN THIS CAS E, NO DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE BUT EXPENDITURE WERE INCURRED ON ACCOUNT OF INTEREST ON BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. UNDER THESE FACTS, IT WAS HELD THAT THE IN TEREST EXPENDITURE IS ALLOWABLE BECAUSE THE SAME WERE INCU RRED FOR EARNING DIVIDEND INCOME AND IT IS NOT RELEVANT AS TO WHETHER DIVIDEND INCOME WAS IN FACT EARNED OR NOT D URING THE RELEVANT YEAR. AS PER THIS JUDGMENT OF HONBLE APEX COURT, IN THE PRESENT CASE ALSO, IT IS NOT RELEVANT AS TO WHETHER ANY DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE OR NOT AND WHAT IS THE AMOUNT OF DIVIDEND INCOME. ANY EXPENDITURE RELATABLE TO INVESTMENT AC TIVITY HAS TO BE CONSTRUED AS EXPENSES INCURRED FOR EARNIN G DIVIDEND INCOME AND THE SAME CANNOT BE ALLOWED AS P ER SECTION 14A BUT FOR WORKING OUT THE SAME, IT IS NOT PROPER TO CALCULATE THE SAME ON THE BASIS OF CAPITAL GAIN EARNED BY THE ASSESSEE BECAUSE EVEN IF THESE INVESTMENTS W ERE NOT SOLD IN THE PRESENT YEAR AND AS A RESULT NO CAP ITAL GAIN ITA NO.181/DEL/2012 5 WOULD HAVE BEEN EARNED, EXPENSES RELATABLE TO INVES TMENT ACTIVITY ARE TO BE DISALLOWED ON THE BASIS THAT THE SAME IS INCURRED FOR EARNING EXEMPT DIVIDEND INCOME. FOR W ORKING OUT THE SAME, THE ASSESSING OFFICER HAS TO APPLY RU LE 8D OF IT RULES, 1962 WHICH WERE INSERTED W.E.F. 24.3.2008 BUT WERE CONSIDERED TO BE RETROSPECTIVE IN NATURE AS PE R THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDE RED IN THE CASE OF ITO V. DAGA CAPITAL INVESTMENT & MANAGE MENT PVT.LTD. AS REPORTED IN 119 TTJ 289 (BOM.)(SPECIAL BENCH). LD. AR OF THE ASSESSEE ALSO AGREED IN THE COURSE OF ARGUMENTS THAT THE MATTER MAY BE RESTORED BACK TO T HE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PE R RULE 8D OF IT RULES. ACCORDINGLY, WE SET ASIDE THE ORDER O F THE LD.CIT(A) ON THIS ISSUES AND RESTORE BACK THE MATTE R TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PER RULE 8D OF IT RULES, 1962 AND THE ASSESSING OFFICER SHOU LD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. FROM THE ABOVE, IT IS EVIDENT THAT THE ITAT WAS OF THE OPINION THAT THE PROPORTIONATE DISALLOWANCE MADE BY THE ASS ESSING OFFICER OUT OF EXPENSES WAS NOT CALLED FOR BUT, AT THE SAME TIM E, DISALLOWANCE IS TO BE MADE AS PER SECTION 14A READ WITH RULE 8D OF THE IT RULES. THE ASSESSING OFFICER GAVE EFFECT TO THE ABOVE ORDER OF THE ITAT VIDE ASSESSMENT ORDER DATED 28.12.2010 IN WHICH THE ASSE SSING OFFICER COMPUTED THE ASSESSEES INCOME AS UNDER:- 8. WITH THESE REMARKS INCOME OF THE ASSESSEE COMPA NY IS COMPUTED AS UNDER:- LOSS : AS PER ORDER U/S 143(3) (-) 3,87,10,858 LESS : RELIEF ALLOWED BY CIT(A)-DEPRECIATION (-) 13,70,000 4,00,80,858 ITA NO.181/DEL/2012 6 LESS : AMT. ALREADY DISALLOWED UNDER RULE 8D (-) 3,83,580 ADD : U/S 14A, AS DISCUSSED ABOVE (+) 14,11 ,915 REVISED LOSS (-) 3,90,52,523 INCOME/(LOSS) FROM SPECULATION BUSINESS TO BE CARRIED FORWARD (AS PER ORDER U/S 143(3)) (-) 27,67,567/- INCOME UNDER THE HEAD CAPITAL GAIN LONG TERM CAPITAL GAIN 2,64,44,315 SHORT TERM CAPITAL GAIN 4,31,93,754 (+) 6,96,38,069 (AS PER ORDER U/S 143(3) INCOME FROM OTHER SOURCES AS PER ORDER U/S 143(3) (+) 2,48,945 ASSESSED INCOME (+)3,08,34,491 5. AT THE TIME OF HEARING BEFORE US, IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT WHILE COMPUTING THE INCOME IN THE ASSESSMENT ORDER DATED 28.12.2010, THE ASSESSING OFFICER HAD T AKEN THE LOSS DETERMINED BY THE ASSESSING OFFICER AS PER ASSESSME NT ORDER DATED 31.10.2007. THAT THE INCOME COMPUTED IN THE ASSESS MENT ORDER DATED 31.10.2007 WAS AFTER THE PROPORTIONATE DISALLOWANCE OF ` 45,73,144/- OUT OF EXPENSES. THUS, BY TAKING THE LOSS AS PER O RIGINAL ASSESSMENT ORDER AND THEN FURTHER MAKING DISALLOWANCE UNDER SE CTION 14A, THERE IS A DOUBLE ADDITION. THE ASSESSING OFFICER REPEAT ED THE DISALLOWANCE OF PROPORTIONATE EXPENSES IN THE ORIGINAL ORDER AND MADE FURTHER DISALLOWANCE UNDER SECTION 14A. HE STATED THAT THE ITAT HAD ALREADY ALLOWED THE RELIEF IN RESPECT OF PROPORTIONATE DISA LLOWANCE, THEREFORE, THE SAME SHOULD BE DELETED. HE, THEREFORE, STATED THAT DISALLOWANCE OF ` 45,73,144/- SHOULD BE DELETED. ITA NO.181/DEL/2012 7 6. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT IN THE ASSESSMENT ORDER DATED 28.12.2010, THE ASSESSING OF FICER STARTED THE COMPUTATION OF INCOME WITH THE LOSS DETERMINED AS P ER ORDER UNDER SECTION 143(3) DATED 31.10.2007 I.E. (-) ` 3,87,10,858/-. FROM A PERUSAL OF THE ASSESSMENT ORDER DATED 31.10.2007, IT IS APP ARENT THAT ABOVE WORKING OF LOSS OF ` 3,87,10,858/- WAS AFTER DISALLOWANCE OF PROPORTIONATE EXPENSES AMOUNTING TO ` 45,73,144/- (3,20,259 + 42,52,885). THE ITAT, IN ITS ORDER DATED 17 TH DECEMBER, 2009 PASSED IN ITA NO.1548/DEL/2009, EXTRACT OF WHICH IS ALREAD Y REPRODUCED BY US IN PARAGRAPH NO.3 ABOVE, HAS HELD THAT THE PROPORTI ONATE DISALLOWANCE OUT OF EXPENSES BY THE ASSESSING OFFICER WAS NOT JU STIFIED AND DISALLOWANCE SHOULD BE WORKED OUT ONLY AS PER SECTI ON 14A READ WITH RULE 8D, THE ASSESSING OFFICER WORKED OUT THE DISAL LOWANCE UNDER SECTION 14A READ WITH RULE 8D BUT, AT THE SAME TIME , HE STARTED THE COMPUTATION AS PER LOSS, ASSESSED IN ORIGINAL ASSES SMENT, WHICH WAS AFTER DISALLOWANCE OF PROPORTIONATE EXPENSES. THUS , IN EFFECT, IN THE FRESH ASSESSMENT AGAIN, PROPORTIONATE EXPENSES OF ` 45,73,144/- WERE DISALLOWED, WHICH IS CLEARLY NOT JUSTIFIED. SINCE THE TRIBUNAL HAS ALREADY DELETED THE PROPORTIONATE DISALLOWANCE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE. GROU ND NO.1 OF THE ASSESSEES APPEAL IS THUS ALLOWED. 8. BY WAY OF GROUND NOS.2, 3 & 4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE UNDER SECTION 14A AND HAS ALSO STATED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M FG.CO.LTD. VS. DCIT 328 ITR 81 (BOM) HAS HELD THAT RULE 8D IS NO T RETROSPECTIVE. THEREFORE, HE CLAIMED THAT THE WORKING OF DISALLOWA NCE UNDER RULE 8D WAS NOT JUSTIFIED. HOWEVER, AS WE HAVE ALREADY STA TED, IN THIS CASE, THE ASSESSING OFFICER HAS ONLY GIVEN EFFECT TO THE ORDER OF THE ITAT. ITA NO.181/DEL/2012 8 THE ITAT HAD DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THEREFORE, THE ASSESSING OFFICER WAS BOUND TO WORK OUT THE DISALLO WANCE ACCORDINGLY. IF ASSESSEE HAD ANY GRIEVANCE AGAINST THE DIRECTION OF THE ITAT, IT COULD HAVE CHALLENGED THE SAME BEFORE THE HONBLE HIGH CO URT. HAVING NOT DONE SO, IN THESE PROCEEDINGS THE ASSESSEE CANNOT C HALLENGE THAT WHILE MAKING THE DISALLOWANCE UNDER SECTION 14A, TH E ASSESSING OFFICER SHOULD NOT HAVE APPLIED RULE 8D. HE HAS ON LY GIVEN EFFECT TO THE ORDER OF THE ITAT. WE, THEREFORE, REJECT GROUN D NOS.2, 3 & 4 OF THE ASSESSEES APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2012. SD/- SD/- ( (( (RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 09.08.2012 VK. COPY FORWARDED TO: - 1. APPELLANT : M/S RENAISSANCE ASSET MANAGEMENT CO. PVT.LTD., M/S RENAISSANCE ASSET MANAGEMENT CO.PVT.LTD., M/S RENAISSANCE ASSET MANAGEMENT CO.PVT.LTD., M/S RENAISSANCE ASSET MANAGEMENT CO.PVT.LTD., 2 22 2 ND NDND ND FLOOR, SHIV MAHAL, FLOOR, SHIV MAHAL, FLOOR, SHIV MAHAL, FLOOR, SHIV MAHAL, B BB B- -- -47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, 47, CONNAUGHT PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. 2. RESPONDENT : ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -15(1), 15(1), 15(1), 15(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR