M/s. Sara International Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2168/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3650 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISHA KUMARI
• Assessee Lawyers: SUNIL K KHANNA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 2168/DEL/2015 : ASSTT. YEAR : 2010 - 11 ITA NO. 2169/DEL/2015 : ASSTT. YEAR : 2011 - 12 (I) M/S SARA INTERNATIONAL LTD., A - 31, SARA HOUSE, HAUZ KHAZ, NEW DELHI - 110017 AND (II) M/S SUNIL K KHANNA & CO., 606, CHARANJIV TOWER, 43, NEHRU PLACE, NEW DELHI - 110019 VS ADDL. CIT, CIRCLE - 22(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A ACS18 78B ASSESSEE BY : SH. SUNIL K. KHANNA, CA REVENUE BY : SMT. MANISH A KUMARI, SR. DR DATE OF HEARING : 18 .01 .201 8 DATE OF PRONOUNCE MENT : 31. 01 .201 8 ORDER PER N. K. SAINI, AM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS EACH DATED 10.02.2015 OF LD. CIT(A) - 8, NEW DELHI. 2. SINCE , THE ISSUE INVOLVED IN BOTH THESE APPEALS IS COMMON AND APPEALS WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. IN ITA NO. 2168/DEL/2015, THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPELAS) IS UNJ USTIFIED, ARBITRARY ITA NO S. 2168 & 2169 /DE L/201 5 SARA INTERNATIONAL LTD. 2 AND HAS ERRED UNDER THE LAW BY NOT DELETING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING AUTHORITY. A . ADDITION OF RS.18,86,258/ - TO THE TOTAL INCOME ON ACCOUNT OF DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. B . ANY O THER GROUND OF APPEAL, IF NECESSARY AT THE TIME OF HEARING. AND IT IS THEREFORE PRAYED THAT THE UNJUSTIFIED AND ARBITRARY ADDITIONS TO INCOME BE DELETED AND RELIEF ACCORDINGLY BE GRANTED TO THE ASSESSEE. 2.THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 15.10.2010 DECLARING AN INCOME OF RS.2,81,73,564/ - . THE CASE WAS SELECTED FOR SCRUTIN Y AND THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD DECLARED A DIVIDEND INCOME OF RS.2,64,145/ - WHICH WAS EXEMPTED. THE AO ALSO NOTICED THAT THE ASSESSEE HAD NOT DISALLOWED ANY EXPENDITURE RELATED TO BE ABOVE SAID EXEMPT INCOME. HE, THEREFORE, INVOKED THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF THE INCOME TAX RULES, 1962 AND DISALLOWED RS.18,86,258/ - . 5 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENSES RELATED TO ITS INVESTMENT AND THAT THE VALUE OF PAID UP CAPITAL AND ACCUMULATED RESERVES WAS MORE THAN THE VALUE OF INVESTMENT HELD BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO WAS MORE THAN THE EXEMPT INCOME. ITA NO S. 2168 & 2169 /DE L/201 5 SARA INTERNATIONAL LTD. 3 THE LD. CIT(A), HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT NO WHERE IN SECTION 14A OF THE ACT, T HE DISALLOWANCE WAS RESTRICTED TO THE EXTENT OF EXEMPT INCOME. HE ACCORDINGLY CONFIRMED THE DISALLOWAN CE MADE BY THE AO. 6 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS MADE IN THEIR RESPECTIVE ORDER S . 7. IN HIS RIVAL SUBMISSIONS, THE LD. DR ALTHOUG H SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RE CORD. IN THE PRESENT CASE, THE AO HIMSELF ADMITTED THAT THE ASSESSEE EARNED THE DIVIDEND INCOME OF RS.2,64,145/ - WHICH WAS CLAIMED AS EXEMPT INCOME. NOW, IT IS WELL SETTLED BY THE VARIOUS JUDICIAL PRONOUNCEMENTS THAT THE DISALLOWANCE U/S 14A OF THE ACT CAN NOT EXCEED THE INCOME EARNED WHICH IS CLAIMED AS EXEMPT. THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT - IV (2015) 378 ITR 33 (DEL.) HELD AS UNDER: THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE INCOME - TAX ACT, 1961, ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PRE VIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME. IN OTHER WO RDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. ITA NO S. 2168 & 2169 /DE L/201 5 SARA INTERNATIONAL LTD. 4 9. SO, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE, THE AO IS DIREC TED TO DISALLOW THE EXPENSES OF RS.2,64,145/ - I.E. TO THE EXTENT OF THE EXEMPT INCOME CLAIMED BY THE ASSESSEE. 10 . IN ITA NO. 2169/DEL/2015, THE FACTS ARE IDENTICAL AS WERE INVOLVED IN ITA NO. 2168/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11, THE ONLY DIFFER ENCE IS IN THE AMOUNT OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. THEREFORE, OUR FINDINGS GIVEN IN THE EARLIER PART OF THIS ORDER FOR THE ASSESSMENT YEAR 2010 - 11 SHALL APPLY MUTATIS MUTANDIS FOR THE ASSESSMENT YEAR 2011 - 12 IN ITA NO. 2169/DEL/2015. 11 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. ( ORDER PRON OUNCED IN THE COURT ON 31 /01 / 2018 ) SD/ - SD/ - ( SUCHITRA KAMBLE ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 /01 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR