BPTP Ltd., New Delhi V. ACIT, New Delhi

ITA 1992/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3802 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V S RASTOGI
• Keywords: Earning of tax free income

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1992/DEL/2016 (ASSESSMENT YEAR: 2012 - 13 ) BPTP LTD, M - 11, MIDDLE CIRCLE, CONNAUGHT CIRCUS, NEW DELHI PAN:AACCB2442A VS. ACIT, CENTRAL CIRCLE - 32, E - 2, ARA CENTRE, JHANDEWALAN EXTENSION, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. V .S. RASTOGI, ADV REVENUE BY: MR. ARUNKUMAR YADAV, SR DR. DATE OF HEARING 13/11 /2017 DATE OF PRONOUNCEMENT 0 7 / 0 2 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A) - 30, NEW DELHI DATED 25.01.2016 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER PASSED BY THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) - XXX, NEW DELHI ARE BAD IN LAW AND VOID AB INITIO. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISALLOWANCE OF RS. 3435009/ - UPHELD BY THE DL CIT(A) WAS BAD IN LAW, IN AS MUCH AS THE ORDER OF THE LD AO IS TOTALLY BARREN OF RECORDING SATISFACTION BY HIM TO THE EFFECT THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, AND WAS THEREFORE IN VIOLATION OF AND DEROGATION TO THE BINDING JUDGMENT OF JURISDICTIONAL HIGH COURT IN MAX OPP INVESTMENT PVT. LTD VS. CIT 347 ITR 27 2 (DELHI) AND CIT VS. TAIKISHA ENGINEERING INDIA LTD (ITA NO. 115/2014) DECIDED ON 25.11.2014. 3. THAT WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE CIT(A) ERRED IN APPLYING ERRONEOUSLY RULE 8D(2)(III) OF THE IT RULES, 1962 WHICH WAS NOT IN ACCORDANCE WITH THE PRESCRIPTION OF THE SAID RULE. PAGE | 2 3. GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, NO ARGUMENTS ADVANCED BY PARTIES BEFORE US AND THEREFORE SAME IS DISMISSED. 4. NOW ADVERTING TO THE FACTS OF GROUND NO. 2 AND 3 OF THE APPEAL, WE NOTE THAT ASSESSEE IS A COMPANY WHICH FILED ITS RETURN OF INCOME ON 29/9/2012 FOR RS. 1573554000/ . THE ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME TAX ACT WAS PASSED ON 30/3/2015 WHEREIN DISALLOWANCE OF RS. 3 750000/ WAS MADE UNDER SECTION 14 A READ WITH RULE 8D OF THE INCOME TAX RULES 1962 AND THE INCOME OF THE ASSESSEE WAS ASSESSED AT 1577304000/ . 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HAS EARNED TAX - FREE DIVIDEND INCOME OF RS. 3750000/ ON INVEST MENT IN MUTUAL FUND LAND SHARES. AS AT THE END OF THE YEAR THE OUTSTANDING AMOUNT OF THE MUTUAL FUND AND SHARES INVESTMENT IS RS. 8756.10 LACS. THEREFORE IT WAS ASKED BY THE LD. ASSESSING OFFICER ABOUT THE DISALLOWANCE MADE BY THE ASSESSEE ON ACCOUNT OF SE CTION 14 A OF THE INCOME TAX ACT THE ASSESSEE HAS STATED THAT IT IS NOT MADE ANY DISALLOWANCE ON ITS RETURN OF INCOME IN THIS REGARD. THE LD. AO NOTED THAT THE ASSESSEE ITSELF HAS MADE DISALLOWANCE OF RS. 25.98 LAKHS ON THIS ACCOUNT IN THE PRECEDING PREVIO US YEAR. THEREFORE IT WAS NOTED BY THE LD. AO THAT PROVISIONS OF SECTION 14 A READ WITH RULE 8D IS CLEARLY APPLICABLE IN THIS CASE AND THEREFORE THE ASSESSEE WAS REQUESTED TO SHOW CAUSE WHY DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D SHOULD NOT BE MA DE IN THE HANDS OF THE ASSESSEE. IN RESPONSE TO THIS THE ASSESSEE SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF FALSE INDIA LTD DISALLOWANCE UNDER SECTION 14 A IS NOT CALLED FOR AS ASSESSEE HAS MADE THE INVESTMENT . IT WAS FURTHER STATED THAT INVESTMENT IN MUTUAL FUND ALSO DOES NOT MAKE MUCH TIME AND EFFORT WHICH IS LOOKED AFTER BY ONE PERSON AND IS AS ANNUAL SALARY FOR THE YEAR WAS ONLY RS. 24 LACS. IT WAS FURTHER STATED THAT THE INVESTMENT ACTIVITY WAS NOT EVEN 5% OF THE TOTAL WORK IN TERMS OF TIME SPENT. THEREFORE IT WAS SUBMITTED THAT IN THE OPINION OF THE ASSESSEE DISALLOWANCE UNDER SECTION 14 A MAY BE MADE OF RS. 2 40000/ ONLY. PAGE | 3 6. THE LD. ASSESSING OFFICER DISSATISFIED WITH THE EXPLANATION OF THE ASSESSEE APPLIED THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES AND WORKED OUT THE DISALLOWANCE OF RS. 70.74 LACS IN THE HANDS OF THE ASSESSEE. HOWEVER CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF M/S JOINT INVESTMENT PRIVATE LIMITED THE LD. AO R ESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME OF RS. 3 750000/ . CONSEQUENTLY THIS ADDITION WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT (A) CUSSING ALL THE ARGUMENTS OF THE ASSESSEE NOTED IN HIS ORDER WIDE PARA NO. 5.4 HAS CONFIRMED THE D ISALLOWANCE. THEREFORE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. 1 ST APPELLATE AUTHORITY HAS PREFERRED AN APPEAL BEFORE US. 7. THE LD. AUTHORISED REPRESENTATIVE MADE DETAILED SUBMISSIONS BEFORE US ON VARIOUS POINTS STATING THAT DISALLOWANCE CANNOT BE MADE IN THE HANDS OF THE ASSESSEE UNDER SECTION 14 A OF THE INCOME TAX ACT: - I. THAT THERE IS NO OBJECTIVE SATISFACTION OF THE LD. ASSESSING OFFICER THAT WHY EXPLANATION GIVEN BY THE ASSESSEE IS INCORRECT. HE FURTHER RELIED ON THE DECISION OF THE MAXOPP INVESTMENT S LIMITED VERSUS CIT 15 TAXMANN.COM 390, CIT VERSUS TAIKISAH ENGINEERING INDIA LTD (ITA 115/2014 DATED 25/11/2014), JOINT INVESTMENT PRIVATE LIMITED (ITA NO. 117/2015 DATED 25/2/2015). HE THEREFORE SUBMITTED THAT THE REQUIREMENT OF THE LD. AO EMBARKING UPO N A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WOULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE. ACCORDING TO HIM S UCH SATISFACTION IS REQUIRED TO BE BASED ON OBJECTIVE ANALYSIS, IN GOOD FAITH, ON RELEVANT CONSIDERATIONS AND FOR COGENT REASONS. HE SUBMITTED THAT ALL THESE INGREDIENTS ARE MISSING IN THE SATISFACTION RECORDED BY THE LD. AO. HE ALSO STATED THAT THERE IS N O SATISFACTION REQUIRED BY THE LD. ASSESSING OFFICER. II. THAT ASSESSEE HAS NOT MADE ANY BORROWING TO MAKE INVESTMENT IN MUTUAL FUNDS AND THEREFORE THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST. IT WAS FURTHER STATED THAT ASSESSEE HAS INVESTED IN MUT UAL FUND OF RS. 2404650104/ WHICH IS MUCH LESS THAN THE PAGE | 4 APPELLANTS OWN FUNDS COMPRISING OF SHARES CAPITAL AND RESERVE AND SURPLUS OF RS. 1 58377 LACS ON 31/3/2011 AND RUPEES ONE 76734 LACS AS ON 31/3/2012. THEREFORE IT WAS THE CONTENTION OF THE ASSESSEE THAT THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF THE INTEREST EXPENDITURE UNDER SECTION 14 A. III. IT WAS ALSO THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT THERE IS NO OPENING BALANCE AS WELL AS CLOSING BALANCE OF THE FUNDS INVESTED IN THE MUTUAL FUNDS AS WELL AS IN THE SHARES WHICH ARE AND EXEMPT INCOME. IN ABSENCE OF ANY SUCH INVESTMENT AT THE BEGINNING OR AT THE CLOSE OF THE YEAR THE AVERAGE AMOUNT OF INVESTMENT BECOMES 0. AND THEREFORE THE DISALLOWANCE THEREON FOR EXPENDITURE OTHER THAN INTERE ST EXPENDITURE SHOULD ALSO BE 0. HE FURTHER SUBMITTED THAT THERE IS A LACUNA IN THE COMPUTATION PROVISION ABOUT DISALLOWANCE ON ACCOUNT OF EXPENDITURE OTHER THAN INTEREST WHICH HAS BEEN CORRECTED BY AMENDMENT IN RULE 8D (2) W.E.F. 2/6/2016. SUCH AMENDMENT IS NOT RETROSPECTIVE. 8. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT ASSESSEE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14 A DURING THE YEAR UNDER REFERENCE WHEREAS IN PREVIOUS YEAR IT IS A SLOW MOTO MADE DISALLOWANCE OF RS. 2 585710/ . IT WAS FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHEN THE ASSESSEE HAS NOT DISALLOWED ANY SUM ON ACCOUNT OF SECTION 14 A THE ASSESSEE WAS CORNERED BY THE LD. ASSESSING OFFICER AND THE REFORE THE ASSESSEE OFFERED SUO MOTO DISALLOWANCE OF RS. 2.40 LACS ON ACCOUNT OF CERTAIN SUBMISSIONS MADE. HE THEREFORE SUBMITTED THAT AS ASSESSEE HAS NOT DISALLOWED ANY SUM IN THE RETURN OF INCOME AND WHEN ON THE QUESTION ASSESSEE ITSELF COMMITTED THAT IT HAS INCURRED CERTAIN EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INCOME AND ALSO QUANTIFIED SUCH AMOUNT THERE IS NO REASON FOR THE ASSESSING OFFICER TO SHOW THAT THE ASSESSEES ESTIMATE OF DISALLOWING THE NIL EXPENDITURE ON ACCOUNT OF EXEMPT INCOME. HE THEREFORE SUBMITTED THAT ASSESSEE HIMSELF HAS STATED THAT HIS CLAIM THAT IT IS NOT INCURRED ANY EXPENDITURE IS INCORRECT. HENCE HE SUBMITTED THAT ASSESSING OFFICER SHOULD NOT HAVE PAGE | 5 RECORDED ANY OTHER SATISFACTION OTHER THEN WHAT HAS BEEN STATED BY THE ASSES SING CONTRADICTING ITS OWN STAND WHILE FILING THE RETURN OF INCOME. HE FURTHER RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN GODREJ & BOYCE MANUFACTURING CO LTD VERSUS DCIT (2017) 81 TAXMAN.COM 111 (SC). ON THE ISSUE OF RECORDING OF THE SATISFACTI ON HE SUBMITTED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN INDIA BULLS FINANCIAL SERVICES LTD VERSUS DCIT (2016) 76 TAXMANN.COM 268. ON THE ISSUE OF THE QUANTUM OF DISALLOWANCE IS SUBMITTED TH AT RULE 8D IS MANDATORY AND IS A COMPREHENSIVE RULE FOR FOR QUANTIFICATION OF DISALLOWANCE. HE FURTHER SUBMITTED THAT ONCE THE RULE 8D IS APPLICABLE IN CASE OF THE ASSESSEE THERE IS NO OPTION TO ADJUST THE FIGURES ACCORDING TO THE WHIMS AND FANCIES OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THERE IS NOTHING TO BE READ IN RULE 8 D WHICH SAYS THAT IF THE ASSESSEE HAS MORE INTEREST FREE FUNDS AVAILABLE THEN THE AMOUNT OF INVESTMENT MADE, NO DISALLOWANCE CAN BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF INTERE ST. HE FURTHER SUBMITTED THAT FOR THE PURPOSE OF WORKING OUT THE AVERAGE OF THE INVESTMENT THE BALANCE SHEET OF THE COMPANY DOES NOT SUBSTANTIATE WHAT IS STATED BY THE LD. AR. HE FURTHER STATED THAT THERE IS NO SUCH INFORMATION AVAILABLE BEFORE THE ASSESSI NG OFFICER OR BEFORE THE LD. CIT (A). HE FURTHER SUBMITTED THAT THE ARGUMENT OF THE ASSESSEE THAT THE OPENING AND CLOSING BALANCE OF INVESTMENT IN TAX - FREE INCOME EARNING INSTRUMENT IS NIL IS NOT AVAILABLE FROM THE RECORDS AND THE PAPER BOOK SUBMITTED BY T HE ASSESSEE. HE FURTHER SUBMITTED THE LD. ASSESSING OFFICER HAS TAKEN THE FIGURES OF OPENING A SET OF RUPEES FOR 49620.6 LACS AND CLOSING ASSETS OF RS. 5 0 6597.9 LACS THEREFORE IT CANNOT BE VERIFIED FROM HERE THAT WHERE FROM THESE FIGURES HAVE BEEN TAKEN BY THE LD. ASSESSING OFFICER OR SUPPLIED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT ASSESSEE HAS ALSO NOT PRODUCED ANY EVIDENCE THAT INVESTMENT MADE BY HIM IN THE SUBSIDIARY COMPANY IS STRATEGIC INVESTMENT. HE SUBMITTED THAT ASSESSEE FAILED TO SHOW THAT WHAT STRATEGY IT IS ADOPTED IN MAKING INVESTMENT IN THESE COMPANIES AND WHAT IS THE REAL BUSINESS OF THE COMPANIES IN WHICH ASSESSEE HAS MADE INVESTMENT. HE THEREFORE SUBMITTED THAT TILL THE PAGE | 6 ASSESSEE PROVES THE INVESTMENT TO THE STRATEGIC INVESTMENT DISCLO SING THE COMPLETE DETAILS NO SUCH BENEFIT CAN BE GRANTED TO THE ASSESSEE OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF HOLCIM LTD. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE ASSE SSEE HAS ADMITTEDLY EARNED DIVIDEND INCOME OF RS. 3 750, 000/ IS WHICH IS EXEMPT. ON EXAMINATION OF THE RETURN OF INCOME BY THE LD. AO HE DID NOT FIND ANY DISALLOWANCE MADE BY THE ASSESSEE FOR EARNING EXEMPT INCOME. THEREFORE HE RAISED A SPECIFIC QUERY WI DE ORDER SHEET ENTRY DATED 24/2/2015 POINTING OUT TO THE ASSESSEE THAT IN THE PAST YEAR THE ASSESSEE ITSELF HAS MADE DISALLOWANCE OF RS. 2 598710/ UNDER IS SECTION 14 A OF THE INCOME TAX ACT AND WHY THERE IS NO SUCH DISALLOWANCE MADE FOR THE YEAR UNDER CO NSIDERATION. IN RESPONSE TO THIS THE ASSESSEE SUBMITTED ITS REPLY ON 23/3/2015 WHICH IS PLACED AT PAGE NO. 58/61 OF THE PAPER BOOK. THE ASSESSEE SUBMITTED WIDE PARA NO. 8 OF THAT LETTER THAT 8. D IVIDEND INCOME RECEIVED BY THE ASSESSEE IS OF RS. 3 735000/ . THE ASSESSEE SUBMITTED THE COPIES OF STATEMENT OF MUTUAL FUNDS AS AN EVIDENCE. IT WAS FURTHER SUBMITTED THAT NO BORROWING WAS MADE TO MAKE INVESTMENT IN MUTUAL FUND. ONLY SURPASSED FUND AVAILABLE FOR SMALL PERIOD OF TIME WERE USED TO EARN INCOME AS MONE Y LYING IDLE FOR SMALL PERIOD OF TIME IN CURRENT ACCOUNT DOES NOT RESULT INTO ANY INCOME AND AT TIMES SURPLUS MONEY IS INVESTED FOR ONE DAY TO 15 DAYS SM CANT BE INVESTED IN FIXED DEPOSIT RECEIPT AS THERE IS A MINIMUM PERIOD FOR MAKING AMOUNT INVESTMENT I N FIXED DEPOSIT RECEIPTS AND IS MONEY IS WITHDRAWN LESS THAN THAT A MINIMUM PERIOD OF TIME NO INCOME IN THE FORM OF INTEREST IS PAID BY THE BANK. 8.1 YOUR GOOD SELF MAY FIND FROM THE DETAILS AS WELL AS THE BALANCE SHEET THAT THERE WAS NO INVESTMENT IN MUTU AL FUND AS ON 01/04/2011 AND AS ON PAGE | 7 31/3/2012. FURTHER THE DIVIDEND INCOME IS EARNED ONLY IN RESPECT OF INVESTMENT IN MUTUAL FUND AND NO DIVIDEND INCOME WAS EARNED IN RESPECT OF ANY INVESTMENT IN SHARES. AS THERE WERE NO INVESTMENT IN MUTUAL FUND AS ON 01/0 4/2011 AND 31/03/2012, THE AVERAGE OF MUTUAL FUND INVESTMENT IS 0 AND IF 0.5% AS PER RULE 8D OF AVERAGE INVESTMENT IS APPLIED IT WILL WORK OUT 0. 8.2 WE WISH TO DRAW YOUR GOOD SENSE KIND ATTENTION TO THE JUDGMENT OF THE JURISDICTIONAL DELHI HIGH COURT IN C ASE OF M/S HOLCIM INDIA PRIVATE LIMITED VERSUS CIT DATED SEPTEMBER 5/2014 .. COPY OF THE SAID DECISION IS ENCLOSED FOR READY REFERENCE. IT HAS BEEN HELD BY THE HONBLE HIGH COURT THAT NO DISALLOWANCE IS TO BE MADE UNDER SECTION 14 A IF THERE IS NO EXEMPT IN COME IN THE RELEVANT YEAR. IT IS RELEVANT TO REFER TO PARA 14 FROM THE JUDGMENT OF THE HONBLE HIGH COURT WHERE REFERENCE HAS BEEN MADE TO THE DECISION OF PUNJAB AND HARYANA HIGH COURT, GUJARAT HIGH COURT AND ALLAHABAD HIGH COURT WHERE SIMILAR VIEW HAS BEE N TAKEN NAMELY, THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 14 A IF THERE IS NO EXEMPT INCOME IN THE RELEVANT YEAR. 8.3 KIND ATTENTION IS DRAWN TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENTS PRIVATE LIMITED VERSUS CIT IN IT A NO. 117/2015 WIDE ORDER DATED 25/02/2015. IN THAT DECISION IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D CANT EXCEED THE AMOUNT OF DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. A COPY OF THE DECISION IS E NCLOSED HEREWITH FOR YOUR REFERENCE. THE LOGIC OF THE SAID DECISION IS THAT NO PERSON WILL INCUR PAGE | 8 EXPENSES BEYOND THE INCOME EARNED BY INCURRING SUCH EXPENSES. 8.4 IT IS SUBMITTED THAT IN VIEW OF THE JUDGEMENTS OF JURISDICTIONAL DELHI HIGH COURT AND 3 OTHER HIGH COURTS, AND THERE BEING NO CONTRARY DECISION, NO DISALLOWANCE UNDER SECTION 14 A IS CALLED FOR. WEVE IS TO FURTHER SUBMITTED THAT INVESTMENT IN MUTUAL FUNDS DOES NOT MAKE MUCH TIME AND EFFORT. THIS ACTIVITY OF MAKING INVESTMENT IN REDUCTION OF INVES TMENT WORLD LOOKED AFTER BY MR KK KATHURIA IN ADDITION TO BANKING, SERVICE TAX, VAT AND ACCOUNTING. HIS ANNUAL SALARY DURING FINANCIAL YEAR 2014 15 WAS APPROXIMATELY RS. 24 LACS. THE INVESTMENT ACTIVITY WAS NOT EVEN 5% OF TOTAL WORK IN TERMS OF TIME SPEN T. EVEN OTHERWISE IF 10% OF HIS TIME IS ATTRIBUTED TO THE SAID PRIVITY OF INVESTMENT, DISALLOWANCE AT BEST WORKS OUT TO RS. 240000/ . SO IN OUR OPINION DISALLOWANCE UNDER SECTION 14 A MAY AT BEST BE MADE OF RS. 2 40000/ . 10. BASED ON THE ABOVE EXPLANATION THE LD. ASSESSING OFFICER FOUND IT UNTENABLE AND THEN APPLIED PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. PROVISIONS OF SECTION 14 A OF THE ACT PROVIDES THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME THE ASSESSEE SHALL NOT BEEN ALLOWED ANY DEDUCTION IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. THE SUBSECTION 2 PROVIDES THAT THAT LD. ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRE D IN RELATION TO SUCH INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHODS AS MAY BE PRESCRIBED. BUT BEFORE EMBARKING UPON THE COMPUTATION BY THE PRESCRIBED METHOD THE LD. ASSESSING OFFICER SHOULD RECORD SATISFAC TION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. PAGE | 9 THEREFORE ON READING OF THE PROVISIONS O F SECTION 14 A IT IS APPARENT THAT LD. ASSESSING OFFICER IS GIVEN POWER TO INVOKE THE COMPUTATION OF AMOUNT OF DISALLOWANCE IS HE RECORDS THE SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HEN CE IT IS NECESSARY THAT BEFORE JUMPING TO THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES THE LD. ASSESSING OFFICER SHOULD EXAMINE THE ACCOUNTS OF THE ASSESSEE AND RECORD HIS SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH RESPECT TO SUCH EXPENDITURE. IN THE PRESENT CASE AT THE TIME OF MAKING OF THE ASSESSMENT ASSESSING OFFICER EXAMINE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT IS EMPHATICALLY STATED IN PARA NO. 1 OF HIS ASSESSMENT ORDER. FURTHER ON EXAMINATION OF SUCH BOOKS OF ACCOUNT S AND THE RETURN OF THE ASSESSEE IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAS EARNED THE DIVIDEND INCOME OF RS. 37.50 LAKHS ON MUTUAL FUND AND SHARES OF RS. 8 756.10 LACS. IT WAS FURTHER NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAS NOT DISAL LOWED ANY SUM ON ACCOUNT OF PROVISIONS OF SECTION 14 A OF THE INCOME TAX ACT. HE FURTHER NOTED THAT IN THE PAST YEAR THE ASSESSEE HIMSELF HAS MADE THE DISALLOWANCE OF RS. 25.98 LAKHS HOWEVER DURING THE YEAR THERE IS NO DISALLOWANCE OF ANY EXPENDITURE. HE T HEREFORE RAISED A SPECIFIC QUERY. IN RESPONSE TO SUCH QUERY THE ASSESSEE SUBMITTED THAT IT IS NOT INCURRED ANY INTEREST EXPENDITURE BECAUSE OF THE REASON THAT HIS INVESTMENT IN TAX - FREE INCOME GENERATING ASSETS IS LESS THAN THE INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE. WITH RESPECT TO THE EXPENDITURE IT IT WAS NEVER STATED BY THE ASSESSEE THAT IT IS NOT INCURRED ANY EXPENDITURE OTHER THAN INTEREST EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INCOME. CONTRARY IT WAS STATED BY THE ASSESSEE HIMSELF THA T IT IS EMPLOYED MR KK KATHURIA WHO IS CARRYING ON SUCH ACTIVITIES AND IS SALARY IS RS. 24 LACS BUT IS TIME IS CONSUMED NOT MORE THAN 5% OF THE TOTAL WORK. ASSESSEE HIMSELF OFFERED 10% OF HIS TIME ATTRIBUTED TO THE ACTIVITIES OF INVESTMENT AND WERE DOUBT T HE EXPENDITURE ON ESTIMATE BASIS AT RS. 2.40 LACS. ASSESSEE EMPHATICALLY STATED THAT IN HIS OPINION DISALLOWANCE UNDER 14 A MAY AT BEST MAY BE MADE OF RS. 2.40 LACS. THE LD. ASSESSING OFFICER PER USED THE EXPLANATION OF THE ASSESSEE IN TOTO AND THEN APPLIE D RULE 8D AS PAGE | 10 ASSESSEE HAS FAILED TO GIVE THE QUANTUM OF THE EXPENDITURE BUT HAS MERELY ESTIMATED THE EXPENDITURE. THEREFORE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME OF INCURRING NO EXPENDITURE FOR EARNING EXEMPT INCOME WAS ITSELF NEGATED WHEN IT WAS STATED BY ASSESSEE IN REPLY PLACED AT PAGE NO. 58 61 OF THE PAPER BOOK AT PARA NO. 8.4. IN VIEW OF THIS THE ASSESSEE ITSELF HAS GIVEN A GROUND FOR SATISFACTION OF THE ASSESSING OFFICER BY STATING THAT HIS ORIGINAL CLAIM OF NOT INCURRING ANY EXPENDITURE WAS ERRONEOUS. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS RECORDED HIS SATISFACTION AFTER EXAMINING THE BOOKS OF ACCOUNTS AND WERE USING THE EXPLANATION OF THE ASSESSEE WHEREIN ASSESSEE ITSELF AS STAT ED THAT ITS CLAIM AT THE TIME OF FILING OF THE RETURN WAS INCORRECT AND OFFERED DISALLOWANCE ON ESTIMATE BASIS ON ACCOUNT OF SALARY ONLY. IT IS FURTHER TO BE NOTED THAT IN THE PAST YEAR THE ASSESSEE HAS OFFERED DISALLOWANCE OF RS. 25.98 LAKHS. IN OUR VIEW THE SATISFACTION RECORDED BY THE ASSESSING OFFICER WAS ON ANALYSIS OF THE PAST HISTORY OF THE ASSESSMENT IN CASE OF THE ASSESSEE, THE RETURN OF INCOME, THE EXPLANATION FURNISHED BY THE ASSESSEE, THE ADMISSION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER TH AT ORIGINAL CLAIM MADE BY THE ASSESSEE IS INCORRECT AND FOR THE REASON THAT DISALLOWANCE OFFERED BY THE ASSESSEE IS ONLY ON ESTIMATE. HENCE WE REJECT THE 1 ST CONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT RECORDED THE SATISFACTION WHICH IS O BJECTIVE, IN GOOD FAITH, ON THE RELEVANT CONSIDERATIONS AND COGENT REASONS. 11. ON THE ISSUE OF QUANTIFICATION OF THE DISALLOWANCES WE HAVE NOTED THAT AT PAGE NO. 45 OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE THE NON - CURRENT INVESTMENT SHOWS THE BALANCE OF RS . 875.60 MILLION AND AS AT 31/03/2011 OF RS. 1 292.68 MILLION. THE INVESTMENT MADE BY THE ASSESSEE IN MOST OF THE COMPANIES IS HUNDRED PERCENT. HOWEVER THERE IS NO INFORMATION AVAILABLE BEFORE US THAT WHAT KIND OF BUSINESS THE ASSESSEE IS ENGAGED IN AND WHAT KIND OF BUSINESS THESE COMPANIES ARE ENGAGED. IN VIEW OF THIS WE CANNOT SAY THAT THE INVESTMENT MADE BY THE ASSESSEE IS A STRATEGIC INVESTMENT. THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF HOLCIM LTD 57 TAXMANN.COM 28 (DELHI) WHEREIN ASSESS EE PAGE | 11 WAS AN INVESTMENT COMPANY A SUBSIDIARY OF A FOREIGN COMPANY FORMED WITH THE OBJECT OF INVESTMENT IN A DOWNSTREAM MANUFACTURING ENTITY AND DID NOT CARRY ON ANY OTHER BUSINESS OTHER THAN INVESTMENT, IN THAT PARTICULAR CASE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME, AND IN THAT EAR RULE 8D WAS NOT INVOKED, WHERE ENTIRE AND WHOLE EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER, THE DISALLOWANCE MADE BY THE REVENUE WAS DELETED. THE ABOVE FACT IS REQUIRED TO BE SEEN IN THE FACTS BEFORE US. THE HONBL E DELHI HIGH COURT HAS NOT HELD THAT WHILE WORKING OF DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX ACT THERE SHOULD BE ANY EXCLUSION OR INCLUSION OF INVESTMENT WHICH ARE STRATEGIC INVESTMENT BECAUSE ON ISSUE BEFORE THE HONBLE DELHI HIGH COURT RULE 8D WAS NOT AT ALL INVOKED. HENCE WE REJECT THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HONBLE DELHI HIGH COURT. IN VIEW OF THIS WE ALSO REJECT THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT MADE BY THE ASSESSEE AT THE BEGINNING AND CLOSE OF THE YE AR IS NIL. IT IS AN ADMITTED FACT THAT ASSESSEE HAS RECEIVED EXEMPT INCOME DURING THE YEAR AND ASSESSEE HAS INVESTMENT AT THE BEGINNING AND AT THE END OF THE YEAR. HOWEVER ON LOOKING AT THE COMPUTATION OF THE DISALLOWANCE MADE BY THE LD. AO IT IS APPARENT THAT LD. ASSESSING OFFICER HAS COMPUTED THE OPENING ASSETS AT RUPEES FOR 49620.6 LACS AND CLOSING ASSETS AT RS. 4 78109.2 LACS. ON LOOKING AT THE BALANCE SHEET OF THE COMPANY IT IS APPARENT THAT LD. ASSESSING OFFICER HAS COMPUTED TOTAL OF THE BALANCE SHEET AT THE BEGINNING OF THE YEAR ENDED THE CLOSE OF THE YEAR. THE ABOVE FIGURES HAVE ALSO BEEN WRONGLY TAKEN BY THE LD. AO IN FACT HE SHOULD HAVE TAKEN THE AMOUNT OF INVESTMENT AT THE BEGINNING AND AT THE CLOSE OF THE YEAR FOR WORKING OUT DISALLOWANCE AT THE RATE OF 0.5% OF SUCH EXPENDITURE. FURTHER IT IS IMPORTANT TO NOTE HONBLE DELHI HIGH COURT IN CASE OF TAIKISAH ENGINEERING COMPANY LIMITED 370 ITR 338 IN PARA NO. 19 HAS HELD THAT 19. HOWEVER, THE DECISIONS RELIED UPON BY THE TRIBUNAL IN THE CASE OF TIN B OX CO. ( SUPRA ) , RELIANCE UTILITIES AND POWER LTD. ( SUPRA ), SUZLON ENERGY LTD. ( SUPRA ) AND EAST INDIA PHARMACEUTICAL WORKS LTD. ( SUPRA ) COULD NOT BE NOW APPLICABLE, IF WE APPLY AND COMPUTE THE DISALLOWANCE UNDER RULE 8D OF THE RULES.. THEREFORE IT IS APPA RENT THAT WHEN RULE 8D IS APPLIED BY THE LD. ASSESSING OFFICER THEN THERE IS NO EXCEPTION OR EXCLUSION ARE REQUIRED TO BE MADE PAGE | 12 EITHER WITH RESPECT TO THE AMOUNT OF EXPENDITURE AND NATURE OF EXPENDITURE OR THE NATURE OF INVESTMENT. FURTHER LD AR VEHEMENTLY RELIED UP ON THE ORDER OF THE HON SUPREME COURT IN CASE OF GODREJ AND BOYCE LIMITED, SPECIFICALLY PARA NO 5 OF THAT ORDER. WE HAVE PERSUED THE DECISION OF HON. SC. WE NOTE THAT HERE THE QUANTIFICATION IS WITH RESPECT TO RULE 8 D OF THE ACT AND IT WAS NOT AN ISSUE BEFORE THE HON SC . AS NOTED IN PARA NO 2 OF THAT DECISIONS, THE ISSUE BEFORE HON SC WAS RELATING TO THE ADMISSIBILITY OR OTHERWISE OF DEDUCTION OF EXPENDITURE INCURRED IN EARNING DIVIDEND INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE BY VIRTUE OF THE PROVISIONS OF SECTION 10(33) OF THE INCOME TAX ACT, 1961 AS IN FORCE DURING THE RELEVANT ASSESSMENT YEAR I.E. 2002 - 2003. HENCE, RELIANCE ON IT IS MISPLACED. THEREFORE, IN VIEW OF THE BINDING DECISION OF THE HONBLE DELHI HIG H COURT, APPARENT ERROR OF THE AO IN TAKING THE AMOUNT OF INVESTMENT, WE SET ASIDE THE WHOLE ISSUE OF THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D BACK TO THE FILE OF THE LD. AO TO DECIDE A FRESH. WE ALSO DIRECT THE ASSESSEE TO PLAC E ALL ITS OBJECTION ON THE ISSUE OF QUANTIFICATION OF DISALLOWANCE BEFORE THE LD. ASSESSING OFFICER WITHIN 3 MONTHS OF THE DATE OF THIS ORDER. THE AO IS FURTHER DIRECTED TO GRANT PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE. ACCO RDINGLY THE GROUND NO. 2 AND 3 OF THE APPEAL OF ASSESSEE ARE ALLOWED WITH ABOVE DIRECTION. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON 0 7 / 0 2 / 2018 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 7 / 02 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT PAGE | 13 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI