M/s Pragati Vanijya Ltd., New Delhi V. ACIT, New Delhi

ITA 2008/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3399 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 11-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Tax effect
• Section: 234B; 14A

Judgement Text

1 ITA NO. 2008/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 2008/DEL/201 1 ( A.Y 2008-09) PRAGATI VANIJYA LTD. 129, TRANSPORT CENTRE, NEW ROHTAK ROAD, PUNJABI BAGH NEW DELHI AAACP1685P (APPELLANT) VS ACIT CIRCLE-14(1) NEW DELHI (RESPONDENT) APPELLANT BY MR. SANAT KAPOOR, ADV RESPONDENT BY SH. ATIQ AHMAD, SR. DR ORDER PER SUCHITRA KAMBLE THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 25/02/2011 PASSED BY CIT(A)-XVII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO OF RS. 12,66,444/- AGAINST THE DIVIDEND OF RS. 3 ,63,450/- U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D WITHOUT ESTA BLISHING THE PROXIMATE CAUSE BETWEEN EXEMPT INCOME AND EXPENSES INCURRED T O EARN SUCH INCOME. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF ALL THE DATE OF HEARING 10.10.2017 DATE OF PRONOUNCEMENT 22.11.2017 2 ITA NO. 2008/DEL/2011 EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT WITHOUT APPRECIATING THE FACT THAT THE EXPENSES OF RS. 12,66,444/- WERE INCURRED TO EARN TAXABLE INTEREST INCOME OF RS. 1,10,27,443/-. 3. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE TH AT INTEREST EXPENSES HAS NO RELATION WITH EXEMPT INCOME EARNED IN VIEW OF THE F ACT THAT EVEN WHEN INVESTMENT ACCOUNT BALANCE AS ON 31.03.2008 WAS THE HIGHEST FOR THE YEAR UNDER APPEAL, THERE WERE NIL AMOUNT OF BORROWED FUN DS. THUS THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND INVESTMENT MADE. H ENCE DISALLOWANCE OF INTEREST U/S 14A OF THE INCOME TAX ACT, 1961 IS NOT WARRANTED. 4. THAT THE LD. CIT(A) HAS NOT APPRECIATED THAT CE RTAIN EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT LIKE DEPRECIATION ETC DO NO T ATTRACT THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961. 5. THE ADDITIONS MADE ARE ILLEGAL AND BAD IN LAW A ND IT ARE BASED ON SURMISES AND CONJECTURES. THE ADDITION MADE CANNOT BE JUSTIF IED BY ANY MATERIAL ON RECORD. 6. THAT THE EXPLANATIONS GIVEN, EVIDENCE PRODUCED AND MATERIAL AVAILABLE ON RECORD HAS NOT BEEN PROPERLY CONSIDERED AND JUDICIA LLY INTERPRETED. 7. THAT THE INTEREST U/S 234B HAS BEEN WRONGLY AND ILLEGALLY CHARGED AS THE APPELLANT COULD NOT HAVE FORESEEN THE ADDITIONS AND AS SUCH THERE IS NO DEFAULT OF ADVANCE TAX. IN ANY CASE THE INTEREST CH ARGED U/S 234B IS ALSO EXCESSIVE. 3. THE ASSESSEE IS IN THE BUSINESS OF PROVIDING LOA NS AND ADVANCES & INTER CORPORATE DEPOSITS. THE ASSESSEE F ILED ITS RETURN OF INCOME ON 22.05.2009 SHOWING TOTAL INCOME OF RS.49, 28,18,382/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME T AX ACT, 1961. CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOT ICE U/S 143(2) OF 3 ITA NO. 2008/DEL/2011 THE ACT WAS ISSUED TO ASSESSEE ON 26.08.2010. DURIN G THE ASSESSMENT PROCEEDINGS, VARIOUS CLAIMS MADE BY THE ASSESSEE WERE EXAMINED AND VARIOUS REPLIES AND EXPLANATION FILED BY THE ASSESSEE WERE CONSIDERED. THE ASSESSING OFFICER MADE AN ADDI TION OF RS.12,66,444/- AND DISALLOWED THE CLAIM OF EXPENSES U/S 14A RULE 8D. THE ASSESSING OFFICER ALSO DISALLOWED BUSINES S LOSS SET OFF AND MADE AN ADDITION OF RS.39,89,557/-. 4. BEING AGGRIEVED BY THE SAME, THE FILED APPEAL BE FORE THE CIT(A). THE CIT(A) HELD THAT THE ASSESSING OFFICER WAS FUL LY JUSTIFIED IN MAKING THE DISALLOWANCE PARTICULARLY BECAUSE ALMOST ALL THE INCOME I.E. AROUND 98% ON INCOME IS OF SUCH A NATURE AGAIN ST WHICH DEDUCTION OF EXPENSE IS NOT ALLOWABLE. 5. THE LD. AR SUBMITTED THAT THERE WAS NO SATISFACT ION GIVEN BY THE ASSESSING OFFICER AS TO WHY EXPENSES HAVE TO BE DISALLOWED. THE LD. AR RELIED ON THE ORDER OF THE HONBLE DELHI HIG H COURT IN CASE OF H T MEDIA LTD VS. PRINCIPAL CIT BEING ITA NO. 548, 549/2015 JUDGMENT DATED 23/8/2017. 6. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE HON'BLE HIGH COURT IN CASE OF H. T. MEDIA LIMITED HELD THAT FOR THE PURPOSE OF RULE 8D (2)(II ), THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE WHETHER THE ASSESS EE HAS INCURRED EXPENDITURE BY WAY OF INTEREST IN THE PREVIOUS YEAR AND SECONDLY 4 ITA NO. 2008/DEL/2011 WHETHER THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME OF RECEIPT. THUS, IT IS THE MANDATORY REQUIR EMENT U/S 14A OF THE ACT, 1961 AND RULE 8D OF THE INCOME TAX RULES, 1962 TO RECORD SATISFACTION, AND IF THE SATISFACTION/REASONS ARE N OT MENTIONED THE QUESTION OF APPLYING RULE 8D DID NOT ARISE. CONSEQ UENTLY, ON THE ASPECT OF ADMINISTRATIVE EXPENSES BEING DISALLOWED SINCE THERE WAS A FAILURE BY THE ASSESSING OFFICER TO COMPLY WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D (1) (A) OF THE RULES RECORD OF SATISFACTION IS REQUIRED THERE UNDER. THE QUESTION OF RE-APPLYING RULE 8D(2) (III) OF THE RUL ES DID NOT ARISE. IN THE PRESENT CASE ALSO, THE SAME DOES NOT ARISE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE FAILED TO TAKE I NTO ACCOUNT THE EXPENSES INCURRED BY THE ASSESSEE AND THERE WAS NO SATISFACTION RECORDED BY THE ASSESSING OFFICER REGARDING INVOCAT ION OF RULE 8D. THE HONBLE HIGH COURT IN CASE OF ACB INDIA LTD. (F ORMERLY M/S ARYAN POL BENEFICIATIONS PVT. LTD.) VS. ACIT BEING ITA NO. 615/2014 DATED 24 TH MARCH, 2015 HELD AS UNDER:- 4. THE A.O, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH INCOME IS NOT PART OF THE TOTAL INCOME I.E THE VALUE OF TAX EXEMPT INVESTMENT, CHOSE TO FACTOR IN THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT(A) NOTICES THE EXACT VALUE OF THE INVESTMENT WHICH YIELDED TAXABLE INCOM E, HE DID NOT CORRECT THE ERROR BUT CHOSE TO APPLY HIS OWN EQ UITY. GIVEN THE RECORD THAT HAD TO BE DONE SO TO SUBSTITUTE THE FIGURE OF RS.38,61,09,287/- WITH THE FIGURE OF RS.3,53,26,800 /- AND THEREAFTER ARRIVE AT THE EXACT DISALLOWANCE OF 0.5% . 5 ITA NO. 2008/DEL/2011 5. IN VIEW OF THE ABOVE REASONING, THE FINDINGS OF THE ITAT AND THE LOWER AUTHORITIES ARE HEREBY SET ASIDE. TH E APPEAL IS ALLOWED AND THE MATTER IS REMITTED TO WORK OUT THE TAX EFFECT TO THE A.O WHO SHALL DO SO AFTER GIVING DUE NOTICE TO THE PARTY. THUS, IN THE PRESENT CASE NO SATISFACTION/REASON RE CORDED BY THE ASSESSING OFFICER AS WELL AS CIT(A) AS TO WHETH ER THE ASSESSEE INCURRED THE EXPENDITURE OR NOT. MERELY COMING TO T HE CONCLUSION THAT THE REVENUE IS NOT SATISFIED THE ASSESSEES CL AIM THAT NO EXPENDITURE WAS INCURRED CAN NOT SUFFICE THE PURPOS E OF THE INVOCATION OF RULE 8D OF THE INCOME TAX RULES, 1962 . THUS, THE ISSUE CONTESTED BY THE ASSESSEE IS SQUARELY COVERED BY THE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE . 14. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND NOVEMB ER, 2017 . (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 22/11/2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR 6 ITA NO. 2008/DEL/2011 ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 11/10/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 11/10/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 22.11.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 2 .11.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 7 ITA NO. 2008/DEL/2011