M/s Shantiniketan Properties Ltd., New Delhi V. ITO, New Delhi

ITA 2060/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65272 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 17-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHUMANA SEN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2060/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S SHANTNIKETAN PROPERTIES LTD. VS. ITO, WARD 8( 1), 6, COMMUNITY CENTRE, NEW DELHI. SAKET, NEW DELHI. (PAN/GIR NO.AAJCS1509E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH MALHOTRA REVENUE BY :SMT. SHUMANA SEN, DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-XI, NEW DELHI, DATED 11.02.2011, RELEVANT TO ASSESSMENT YEAR 2008-09, WHEREBY CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF SECTION 14A OF THE I.T. ACT, 1961 OF RS.3,29,397/-, WHEN TOTAL CLAIM OF EXPENDITURE WAS TO THE EXTENT OF RS.82,110/- IN THE RETURN OF INCOME, HAS BEEN CHALLENGED. 2. FACTS INDICATE THAT THE ASSESSEE HAS DECLARED DI VIDEND INCOME OF RS.1,87,49,823/- WHICH WAS SHOWN TO BE EXEMPT INCOME. AN OPPORTUNIT Y WAS GIVEN TO THE ASSESSEE AND HIS SUBMISSIONS WERE CONSIDERED BY THE ASSESSING OF FICER, WHO HELD THAT ASSESSEE HAS NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE PERIOD U NDER CONSIDERATION. SO, HE HAS DISALLOWED EXPENSES BY INVOKING RULE 8D TO THE EXTE NT OF RS.3,29,397/-. I.T.A. NO.2060/DEL./2011 (A.Y. : 2007-08) 2 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND TH E ASSESSEE RELIED UPON WRITTEN SUBMISSIONS DATED 22.7.2007 IN THREE PAGES ALONG WI TH SOME ANNEXURE PLACED ON RECORD AND THE LD.AR FURTHER STATED AS BELOW: DISALLOWANCE ON ACCOUNT OF 14A (GR.NO.1): THE APPE LLANT HAS MADE EXEMPTED INCOME OF RS.1,87,49,823 AND CLAIMED EXEMPTION U/S 10(35) OF THE ACT. THE TOTAL EXPENDITURE AS CLAIMED BY THE APPELLANT IN P&L A/C WAS RS.21,42,860/-. OUT OF THE SAME THE APPELLANT HAS ALREADY OFFERED ON ACCOU NT OF FEE PAID FOR INCREASE IN CAPITAL (RS.20,44,550) AND PRELIMINARY EXPENSES WRI TTEN OFF U/S 35D (RS.16,200). HENCE, EFFECTIVE CLAIM OF BALANCE EXPENDITURE BY TH E APPELLANT WAS RS.82,110/-. STILL THE LD.ASSESSING OFFICER HAS DISALLOWED RS.3, 29,397/-. RELIANCE IS PLACED ON MINDA INVESTMENT LTD. VS. DCI T, I.T.A. NO.4046/DEL./09 DATED 13/10/10 WHERE THE JURISDICTIONAL BENCH OF IT AT HAS HELD IN FAVOUR OF THE APPELLANT REFERRING THE DECISION OF HERO CYCLE LTD. (P&H) & GODREJ BOYCE MFG. CO. LTD. (MUM.). THE DISALLOWANCE IS LIABLE TO BE DELETED. 4. LD.CIT(A) CONSIDERING THE PLEA OF THE ASSESSEE H AS CONCLUDED TO CONFIRM THE ACTION OF THE ASSESSING OFFICER AS PER PARA.2.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER: 2.3 EXAMINED THE RIVAL SUBMISSIONS. THE LATEST DE CISION IN THIS CASE IS GODREJ & BOYCE VS. DCIT IN I.T.A. NO.626 OF 2010 AND W.P. NO.758 OF 2010 DATED 12.8.2010. EVEN IN THIS CASE THE HONBLE HIGH COUR T HAS AGREED THAT DISALLOWANCE CAN BE MADE IF THE ASSESSING OFFICER HAS BROUGHT FI NDINGS ON RECORD. HOWEVER, NO DISALLOWANCE CAN BE MADE FOR ANY ASSESSMENT YEAR PR IOR TO ASSESSMENT YEAR 2008- 09 BY INVOKING RULE 8D. IN THE INSTANT CASE FOR TH E ASSESSMENT YEAR 2007-08 THE ASSESSING OFFICER HAS INVOKED RULE 8D. THE ITAT DE LHI B SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. VS. ITO, I.T.A. NO.87/D EL./2008 HAS HELD THAT THE DISALLOWANCE CAN ALSO BE MADE EVEN WHEN THERE IS NO EXEMPTED INCOME. THE ASSESSING OFFICER HAS BROUGHT POSITIVE FINDING ON R ECORD AND I AGREE WITH HIS ACTION ON DISALLOWANCE BUT INVOKING RULE 8D FOR THE PERIOD UNDER CONSIDERATION WAS NOT CORRECT AS PER THE DECISION OF GODREJ & BOY CE (SUPRA). THE APPELLANT HAS MADE EXEMPTED INCOME OF RS.1,87,49,823/- AND CLAIME D EXPENDITURE IN THE P&L ACCOUNT OF RS.21,42,860/-. FOR EARNING INCOME THER E HAS TO BE SOME EXPENDITURE OTHERWISE IT WILL BE A PHYSICAL IMPOSSIBILITY. IN HIS ORDER, THE ASSESSING OFFICER HAS BROUGHT MATERIAL ON RECORD TO ESTABLISH THAT EX PENDITURE WAS INCURRED TOWARDS THAT. THE RELIANCE CAN BE PLACED ON THE DOCTRINE O F RE-IPSA LOQUITUR (THE MATTER SPEAKS FOR ITSELF) WHICH PLACES THE BURDEN OF PROVI NG OTHERWISE ON APPELLANT ONLY. MATHEMATICALLY SPEAKING THE ASSESSING OFFICER HAS D ISALLOWED ON 1.75% OF THE EXEMPTED INCOME. ALTHOUGH, I DO NOT AGREE WITH THE PROPOSITION OF INVOKING OF INVOKING OF RULE 8D YET THE FACT REMAINS THAT THE A PPELLANT HAS INCURRED I.T.A. NO.2060/DEL./2011 (A.Y. : 2007-08) 3 EXPENDITURE FOR EARNING THIS EXEMPTED INCOME. CONS IDERING THE PRESENT FACTS OF THE CASE, I DEEM IT FIT THAT THE DISALLOWANCE TO TH E EXTENT OF RS.3,29,397/- IS CORRECT EVEN OTHERWISE THAN INVOKING OF RULE 8D. HENCE, TH E DISALLOWANCE OF RS.3,29,397/- STANDS CONFIRMED. 5. STILL AGGRIEVED, THE ASSESSEE HAS COME UP IN FUR THER APPEAL AND IT WAS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CI T(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE ON ACCOUNT OF SECTION 14A AMOUNTI NG TO RS.3,29,397/-, WHICH WAS MORE THAN THE TOTAL CLAIM OF EXPENDITURE OF RS.82,1 10/-. SO, ACTION OF THE AUTHORITIES BELOW IS WRONG, ILLEGAL, MIS-CONCEIVED, UNJUSTIFIED AND BAD IN LAW. THEREFORE, ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) REQUIRED TO BE DELETED, WHICH MAY BE DELETED. 6. IT WAS FURTHER SUBMITTED THAT ASSESSEE COMPANY H AS EARNED TOTAL EXEMPT INCOME OF RS.1,87,46,773/- DURING THE YEAR UNDER CONSIDERATIO N, OUT OF WHICH RS.1,87,45,376/- WAS RELATED TO DIVIDEND INCOME WHICH IS EXEMPT U/S 10(3 5) OF THE ACT AND RS.1,397/- WAS INTEREST INCOME OF THE COMPANY. THE ASSESSEE COMPA NY INCURRED TOTAL EXPENDITURE OF RS.21,42,860/- DURING THE YEAR UNDER CONSIDERATION, OUT OF WHICH RS.20,44,550/- WAS RELATED TO FEES PAID FOR VARIOUS SHARE CAPITAL OF T HE COMPANY AND BALANCE EXPENDITURE WAS TO THE EXTENT OF RS.78,060/- AS PAYMENT TO AUDITORS AND RS.20,250/- RELATES TO PRELIMINARY EXPENSES U/S 35D OF THE ACT, AGGREGATING TO RS.98,3 10/-. HOWEVER, WHEN ASSESSEE COMPANY COMPUTED ITS TAX LIABILITY, ASSESSEE ADDED BACK A SUM OF RS.20,44,550/- BEING FEES PAID FOR INCREASE IN SHARE CAPITAL AND FURTHER DISALLOWED THE EXPENDITURE OF RS.16,200/- U/S 35D BECAUSE AS PER SECTION 35D, THE ASSESSEE COMPANY IS ELIGIBLE FOR DEDUCTION OF RS.4,050/- WHICH IS 1/5 TH OF THE TOTAL PRELIMINARY EXPENDITURE OF RS.20,250/ -. HENCE, THERE WAS EFFECTIVE EXPENDITURE WHICH THE CO MPANY CLAIMED WAS RS.82,110/- (RS.98,310-16,200) DURING THE YEAR UNDER CONSIDERAT ION WHEREAS THE ASSESSING OFFICER I.T.A. NO.2060/DEL./2011 (A.Y. : 2007-08) 4 HAS DISALLOWED RS.3,29,397/-. MOREOVER, THE ASSESS ING OFFICER HAS DISALLOWED THE EXPENDITURE WHICH WAS NEITHER COVERED NOR CLAIMED I N ITS RETURN OF INCOME BY THE ASSESSEE COMPANY WHICH WAS UNJUSTIFIED, UNNATURAL A ND BAD AT LAW. PLACING RELIANCE ON GODREJ & BOYCE MFG. CO., LTD. VS. DCIT AND OTHERS ( 2010) 328 I.T.R. 81 (BOMBAY HIGH COURT) IN WHICH IT HAS BEEN HELD THAT ASSESSING OFF ICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFI CER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD AND MOREOVER, RULE 8D IS APPLICABLE FROM ASSESSMENT YEA R 2008-09 AND FURTHER RELIANCE WAS PLACED IN CIT VS. HERO CYCLES LTD. (2010) 189 TAXMA N 50 (P&H) IN WHICH IT IS HELD WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME , NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S 14A CANNOT STAND. FURTHER, IN M/ S SEAVIEW DEVELOPERS LTD. VS. JCIT, RANGE 8, NEW DELHI, I.T.A. NO.2961/DEL./2011 (ITAT, G BENCH, DELHI) HELD THAT WHERE UNDER SIMILAR CIRCUMSTANCES DISALLOWANCE UND ER SECTION 14A WAS DELETED. SO, IT WAS PLEADED FOR DELETION OF THE IMPUGNED ADDITION M ADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 7. LD.DR RELIED UPON THE ORDER OF CIT(A) AND ASSESS ING OFFICER. 8. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AS WELL AS THE PRECEDENTS RELIED UPON BY RIVAL SIDES. IT IS FOUND FROM THE MATERIAL ON RECORD THAT DISALLOWANCE U/S 14A WAS MADE TO THE EXTENT OF RS.3 ,29,397/-, WHEREAS ASSESSEE IS STATED TO HAVE CLAIMED EXPENDITURE OF RS.82,110/-. IT IS ALSO THE MAIN CONTENTION OF THE ASSESSEE THAT RULE 8D COULD NOT BE MADE APPLICABLE FOR THE A SSESSMENT YEAR 2007-08 AS HELD BY I.T.A. NO.2060/DEL./2011 (A.Y. : 2007-08) 5 HONBLE BOMBAY HIGH COURT THAT IT IS EFFECTIVE FROM ASSESSMENT YEAR 2008-09. SINCE REASONABLENESS OF THE EXPENDITURE IS TO BE LOOKED I NTO, AND JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. C.I.T., NEW DELHI (203 TAXMAN 364) HAS EXPOUNDED IN THE HEAD NOTES AS UNDER:- SECTION 14A OF THE INCOME TAX ACT, 1961, READ WIT H RULE 8D OF THE INCOME TAX RULES, 1962 EXPENDITURE INCURRED IN RELATION TO I NCOME NOT INCLUDIBLE IN TOTAL INCOME WHETHER IN TERMS OF SECTION 14A(2) CONDIT ION PRECEDENT FOR ASSESSING OFFICER TO DETERMINE AMOUNT OF EXPENDITURE INCURRE D IN RELATION TO EXEMPT INCOME IS THAT HE MUST RECORD HIS DISSATISFACTION WITH COR RECTNESS OF CLAIM OF EXPENDITURE MADE BY ASSESSEE OR WITH CORRECTNESS OF CLAIM MADE BY ASSESSEE NO EXPENDITURE HAS BEEN INCURRED. HELD, YES WHETHER THEREFORE, DETERMINATION OF AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RUL E 8D WOULD ONLY COME INTO PLAY WHEN ASSESSING OFFICER REJECTS CLAIM OF ASSE SSEE IN THIS REGARD HELD, YES WHETHER RULE 8D, WHICH WAS INTRODUCED BY VIRTUE OF NOTIFICATION NO. 45/2008, DATED 24.3.2008, IS PROSPECTIVE IN OPERATION AND CA NNOT BE REGARDED AS BEING RETROSPECTIVE HELD, YES WHETHER THOUGH SUB-SECT IONS(2) AND (3) OF SECTION 14A WERE INTRODUCED WITH PROSPECTIVE EFFECT FORM ASSESS MENT YEAR 2007-08 ONWARDS, THEY WOULD BE WORKABLE ONLY WITH EFFECT FROM DATE O F INTRODUCTION OF RULE 8D WHICH GAVE CONTENT TO EXPRESSION SUCH METHOD AS MA Y BE PRESCRIBED APPEARING IN SECTION 14A(2) HELD, YES WHETHER, HOWEVER, FACT THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROS PECTIVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT PRIOR TO THAT P ERIOD ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH CORRECTNESS OF CLAIM OF ASS ESSEE WITH REGARD TO SUCH EXPENDITURE HELD, YES WHETHER EVEN FOR PER-RULE 8D PERIOD, WHENEVER ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN CORRECTNESS OF CLAIM OF ASSESSEE IN RESPECT OF EXPE NDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UND ER ACT AND IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASON THAT AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY ASSESSEE IS NOT CORRECT, HE REQUIRED TO DETERMINE AMOUNT OF SUCH EXPENDITURE ON BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT - HELD, YES (PARTLY IN FAVOR OF REVENUE). 9. IN VIEW OF ABOVE NOTED FINDING OF JURISDICTIONAL HIGH COURT CITED SUPRA AND OTHER POINTS RAISED IN THE LIGHT OF SUBMISSION MADE, WE F IND IT JUST AND APPROPRIATE TO SET ASIDE THE ORDER OF AUTHORITIES BELOW IN THIS REGARD AND R ESTORE THE MATTER BACK ON THE FILE OF THE ASSESSING OFFICER FOR RE-DECIDING IT AFRESH AS PER LATEST DECISION IN THIS REGARD AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WE HOLD AND DIREC T ACCORDINGLY. I.T.A. NO.2060/DEL./2011 (A.Y. : 2007-08) 6 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE GETS ACCEPTED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 09.08.2012. SD/- SD/- (B.C. MEENA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : AUG. 09, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XI, DELHI. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT