M/s Sea View Developers Ltd., New Delhi V. JCIT, New Delhi

ITA 2061/DEL/2011

• Counselvise Citation: 206120114 RSA 2011
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 09-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Assessee Lawyers: SSH RAJESH M ALHOTRA; P SETH CAS
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA ITA NO. 2061/DEL/2011 ASSESSMENT YEAR: 2007-08 M/S. SEAVIEW DEVELOPERS LTD., VS. JOINT CIT, 6-COMMUNITY CENTRE, SAKET, RANGE-8, NEW DELHI-1100 17. NEW DELHI. (PAN: AAJCS4143C) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. RAJESH M ALHOTRA & P.SETH, CAS RESPONDENT BY: SHRI S. MOHANTHY, DR DATE OF HEARING : 09.12.2011 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 11.02.2011 PASSED FOR ASSESSMENT YEAR 2007-08. THE GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(APPEA LS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.6,87,009 UNDER SE C. 14A OF THE INCOME- TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY AT THE RELEVANT TIME WAS ENGAGED IN THE DEVELOPMENT OF SPE CIFIED ECONOMIC ZONE IN NOIDA SECTOR 135. IT HAS FILED ITS RETURN OF INCOME -TAX ON 30 TH OCTOBER, 2 2007 DECLARING TOTAL INCOME AT RS.2,84,32,571. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE ACT WAS ISSUED ON 24 TH SEPTEMBER 2008 WHICH WAS SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVELED TO THE ASSESSI NG OFFICER THAT THE ASSESSEE HAS DECLARED DIVIDEND INCOME OF RS.68,70,092. IT HA S NOT SHOWN ANY EXPENSES ATTRIBUTABLE TO THIS INCOME. LD ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE WITH THE HELP OF RULE 8D AND MADE AN A DDITION OF RS.18,58,456. 3. DISSATISFIED WITH THE ACTION OF THE ASSESSING OF FICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS ). IT HAS POINTED OUT TO THE LEARNED CIT(APPEALS) THAT ASSESSEE HAS INCURRED TOTAL EXPENDITURE OF RS.2,92,374 IN THIS ASSESSMENT YEAR. OUT OF THIS, A SUM OF RS.2,19,250 IS THE FEES AND TAXES WHICH HAVE BEEN ADDED BACK BY THE AS SESSEE IN ITS RETURN. THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IS OF RS.39 80 ONLY. IN SUCH SITUATION, LEARNED ASSESSING OFFICER OUGHT TO HAVE NOT MADE A DISALLOWANCE OF RS.18,58,456. IT WAS ALSO CONTENDED THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE REPORTED IN 328 ITR 81 H AS HELD THAT RULE 8D WILL BE APPLICABLE PROSPECTIVELY FROM ASSESSMENT YE AR 2008-09 BECAUSE IT HAS BEEN BROUGHT ON THE STATUTE BOOK W.E.F. 24.3.20 08. LEARNED FIRST 3 APPELLATE AUTHORITY HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE DISALLOWANCE UNDER SEC. 14A IN THE PRESENT ASSESSM ENT YEAR CANNOT BE MADE WITH THE HELP OF RULE 8D. LEARNED FIRST APPELLATE A UTHORITY HAS RESTRICTED THE DISALLOWANCE TO 10% OF THE DIVIDEND INCOME ON THE GROUND THAT IT WILL BE IMPOSSIBLE TO EARN A DIVIDEND INCOME OF RS.68,70 ,092 WITHOUT INCURRING ANY EXPENDITURE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF THE REVENUE AUTHORITIES, TOOK US THROUGH COMPUTATIO N OF INCOME FILED ALONG WITH THE RETURN WHICH IS AVAILABLE AT PAGE 2 OF THE PAPER BOOK. HE ALSO DREW OUR ATTENTION TOWARDS PAGE 9 OF THE PAPER BOOK WHER EIN PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.3.2007 IS AVAILABLE. ON THE STRENGTH OF THESE DETAILS, HE POINTED OUT THAT ASSESSEE HAD AN INTERE ST INCOME OF RS.2,84,89775. IT HAS DIVIDEND INCOME OF RS.68,70,092. THE TOTAL E XPENSES DEBITED IN THE P & L ACCOUNT IS RS.2,92,374 AND OUT OF THESE A SUM O F RS.2,19,250 IS TOWARDS PAYMENT OF FEES FOR INCREASE IN CAPITAL. THIS AMOUN T HAS ALREADY BEEN ADDED BACK TO THE INCOME OF THE ASSESSEE. THUS, THE ONLY EXPENDITURE REMAINED IS RS.57,204 OUT OF THAT RS.53,224 IS FEE FOR AUDIT. I N SUCH SITUATION, HOW HYPOTHETICAL EXPENSES CAN BE CONSTRUED AND ADDED TO THE INCOME OF THE 4 ASSESSEE. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE (SUPRA) HAS HELD THAT RULE 8D IS NOT APPLICABLE IN ASSESSMENT YEAR 2007-08. LEARNED FIRST APPELLATE AUTHORITY HAS ACCEPTED THIS CONTENTION OF THE ASSESSEE. THUS, IN THE ABSENCE OF RULE 8D, THE EXPE NSES ATTRIBUTABLE TO EARNING OF TAX FREE INCOME IS TO BE IDENTIFIED BY K EEPING IN VIEW THE SURROUNDING CIRCUMSTANCES. LEARNED FIRST APPELLATE AUTHORITY HAS ESTIMATED SUCH EXPENSES AT 10% OF THE DIVIDEND INCOME BUT HAS NOT REFERRED ANY DETAILS HOW HE CONSTRUED THOSE EXPENSES. THE ASSESSEE IS NO T CLAIMING ANY EXPENDITURE FOR EARNING SUCH DIVIDEND INCOME THEN H OW HYPOTHETICAL AVAILABILITY OF SUCH EXPENDITURE WOULD BE PRESUMED. WE COULD UNDERSTAND THAT IF UNDER THE ADMINISTRATIVE EXPENDITURE, SOME EXPENSES FOR SALARY OR STAFF ETC. WERE DEBITED BY THE ASSESSEE, ONE CAN SA Y THAT OUT OF THESE EXPENSES SOME OF THE EXPENSES MUST BE RELATING TO THOSE PERS ONS WHO HAVE DEVOTED ENERGY FOR KEEPING TRACK ON THE INVESTMENT RESULTIN G TO DIVIDEND INCOME BUT NO SALARY EXPENSE HAVE BEEN CLAIMED. SIMILARLY, NO INTEREST EXPENSES HAVE BEEN CLAIMED. IN SUCH SITUATION, IT IS DIFFICULT TO PRESUME THAT 10% OF THE 5 DIVIDEND INCOME IS TO BE ESTIMATED AS EXPENSES FOR EARNING SUCH DIVIDEND INCOME. IN OTHER WORDS, IT WILL AMOUNT TO TAX A NOT IONAL INCOME, THEREFORE, WE ALLOW THE APPEAL F THE ASSESSEE AND DELETE THE D ISALLOWANCE. ORDER PRONOUNCED IN THE OPEN COURT ON 13/01/2012. SD/- SD/- ( A.N. PAHUJA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 /01/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR