DCIT, CIRCLE- 1(1), GURGAON V. DLF UNIVERSAL LTD., Gurgaon

ITA 2180/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4271 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 28-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J K MI SHRA
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.2180/DEL/2018 ASSESSMENT YEAR: 2014-2015 DCIT, CIRCLE-1(1), GURGAON. VS. DLF UNIVERSAL LTD. (FORMERLY KNOWN AS DLF RETAIL DEVELOPERS LTD.) 3 RD FLOOR, SHOPPING MALL ARJUN MARG, DLF CITY, PHASE-1, GURGAON. TAN/PAN: AAACJ1655P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATYAJEET GOEL, CA RESPONDENT BY: SHRI J.K. MISHRA, CIT-DR DATE OF HEARING: 29 09 2021 DATE OF PRONOUNCEMENT: 29 09 2021 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 22.01.2018, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, GURGAON FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2016-17. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. LD. CIT(A) HAS ERRED ON FACT AND IN LAW IN RES TRICTING THE DISALLOWANCE TO RS.4,30,621/- FROM RS.1,97,67,639/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE I NCOME TAX ACT, 1961. I.T.A. NO.2180/DEL/2018 2 2. LD. CIT(A) HAS ERRED ON FACT AND IN LAW IN IGNO RING CBDT CIRCULAR NO.5 OF 2014 DATED 11.02.2014 CLARIFY ING THAT DISALLOWANCE UNDER RULE 8D READ WITH SECTION 14A OF THE INCOME TAX ACT IS TO BE MADE EVEN WHERE TAXPAYER IN A PARTICULAR HAS NOT EARNED ANY EXEMPT INCOME. 2. AT THE OUTSET, WE FIND THAT, HERE IN THIS CASE, THE LD. ASSESSING OFFICER HAS MADE THE DISALLOWANCE U/S.14A READ WITH RULE 8D OF RS.1,97,67,639/- WHEREAS THE EXEMPT INCOME ITSELF WAS RS.4,30,621/- AS ADMITTED BY THE ASSESSI NG OFFICER IN PARAGRAPH 3 OF ITS ORDER. THE LD. CIT(A) HAS RES TRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME AFTER O BSERVING AND HOLDING AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS. THE APPELLANT HAS CONTENDED THAT THE DISALLOWANCE U /S 14A IF ANY CANNOT EXCEED THE EXEMPT INCOME IN TERMS OF THE VARIOUS JUDICIAL DECISIONS SUBMITTED BY THE APPELLA NT. I AGREE WITH THIS CONTENTION OF THE APPELLANT. REFERENCE IN THIS REGARD MAY BE MADE TO THE DECISION OF THE HONBLE ITAT CHA NDIGARH IN THE CASE OF ARTI STEEL LTD. V/S DCIT, CIRCLE-5 ( LUDHIANA) AY 2009-10 IN ITA NO. 268/CHD./2015 WHEREIN THE ORDER OF CIT(A) WAS REVERSED. IN THIS CASE, THE AO HAD MADE A DISALLOWANCE OF RS. 12,35,568/- UNDER RULE 8D READ WITH SECTION 14A OF THE IT ACT. THE APPELLANT CONTENDED DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE CIT (A) THAT THE DISALLOWANCE U/S 14A OVER AND ABOVE THE AMOUNT OF T AX FREE INCOME EARNED IS LEGALLY NOT TENABLE. THE CIT (A) O BSERVED THAT THE LEGISLATION HAS PROVIDED RULE 8D FOR COMPU TATION OF DISALLOWANCE U/S 14A OF THE IT ACT WHICH DOES NOT P ROVIDE I.T.A. NO.2180/DEL/2018 3 FOR ANY SUCH LIMIT. PROVIDING ANY LIMITATION TO THE DISALLOWANCE, IN THESE CIRCUMSTANCES, BY HOLDING TH AT THE DISALLOWANCE SHOULD NOT EXCEED THE AMOUNTS OF EXEMP T INCOME WOULD TANTAMOUNT TO AMENDING THE PROVISIONS OF RULE 8D. THE DISALLOWANCE MADE BY THE AO WAS ACCORDINGLY CONFIRMED. THE HONBLE ITAT REVERSED THE DECISION B Y RELYING ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S MASCOT FOOD IN ITA NO. 67 OF 20 09 (O&M) DATED 02/04/2014 AND HELD THAT THE DISALLOWANCE MAD E U/S 14A READ WITH RULE 8D SHALL BE LIMITED TO THE A MOUNT OF TAX FREE INCOME EARNED BY THE APPELLANT. SIMILAR IS SUE WAS ALSO CONSIDERED BY THE HON'BLE ITAT CHANDIGARH IN T HE CASE OF M/S PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORAT ION LTD. IN THIS CASE THE HONBLE ITAT VIDE ITS ORDER DATED 10/11/2016 HELD AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THERE IS NO DOUBT ABOU T THE RECORDING OF SATISFACTION BY THE AO IN TERMS OF SEC TION 14A(2). IN SO FAR AS THE QUANTUM OF DISALLOWANCE IS CONCERNED, RULE 8D IS ADMITTEDLY APPLICABLE FROM TH E ASSESSMENT YEAR 2008-09, WHICH IS THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, NO FAULT CAN BE FOUND WITH THE AO/CIT(A) RESORTING TO RULE 8D FOR T HE PURPOSE OF 'KING DISALLOWANCE. THIS DISALLOWANCE HA S BEEN MADE IN TWO PARTS. THE FIRST IS UNDER CLAUSE ( III) OF RULE 8D(2) TOWARDS ADMINISTRATIVE EXPENSES AT THE R ATE OF ONE HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART F THE I.T.A. NO.2180/DEL/2018 4 TOTAL INCOME. THE ADDITION TO THIS EXTENT IS UPHELD AS THE SAME IS IN ACCORDANCE WITH THE STATUTORY MANDATE. AS REGARDS, THE DISALLOWANCE UNDER CLAUSE (II) OF R ULE 8D(2), WE FIND THAT THE ASSESSEE CONTENDED BEFORE T HE LD. CIT(A) THAT SUCH DISALLOWANCE WAS NOT CALLED FOR. I N THIS REGARD WE FIND THAT THE HONBLE BOMBAY HIGH COURT I N CIT V/S RELIANCE UTILITIES AND POWER LTD. (209) 313 ITR 340 (BOM) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND, AT THE SAME TIME, LOAN HAS BEEN RAI SED, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AND, RESULTANTLY, NO DISALLOWAN CE OF INTEREST CAN BE MADE. IN DELETING THE DISALLOWANCE OF INTEREST, THE HONBLE BOMBAY HIGH COURT RELIED ON T HE JUDGMENT OF HONBLE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS V/S CIT (1997) 224 ITR 627 (SC ). IT IS FURTHER NOTICES THAT THE HONBLE BOMBAY HIGH COURT IN CIT V/S HDFC BANK LTD. (2014) 366 ITR 505 (BOM), HAS HELD THAT WHERE ASSESSEES CAPITAL, PROFIT, AND RESERVES ETC. WERE HIGHER THAN THE INVESTMENT IN TA X FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INT EREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND, CONSEQUENTLY, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN IN SEVERAL CAS ES INCLUDING PRINCIPAL CIT V/S INDIA GELATINE & CHEMIC ALS LTD. (2015) 376 ITR 353 (GUJ). IT, ERGO, BECOMES MA NIFEST THAT THE DISALLOWANCE OF INTEREST AS PER CLAUSE (II ) CANNOT BE MADE STRAIGHT WAY WITHOUT EXAMINING THE IMPORTAN T I.T.A. NO.2180/DEL/2018 5 ASPECT AS HAS BEEN DISCUSSED IN THE ABOVE DECISION, WHICH THE LD. CIT(A) FAILED TO TAKE NOTE OF. AS NEC ESSARY INFORMATION ABOUT THE AVAILABILITY OF SHAREHOLDERS FUND VIS-A-VIS THE AMOUNT INVESTED IN SHARES AND OTHER SECURITIES YIELDING EXEMPT INCOME IS NOT AVAILABLE ON RECORD, WE SET ASIDE THE IMPUGNED ORDER AND REMIT T HE MATTER TO FILE OF AO FOR COMPUTING THE DISALLOWANCE UNDER CLAUSE (I) RULE 8D(2), IF ANY, IN CONSONANCE WITH V IEW TAKEN IN RELIANCE UTILITIES (SUPRA) ETC. IT IS HOWE VER MADE CLEAR THAT IN NO CASE, THE TOTAL AMOUNT OF DISALLOW ANCE U/S 14A SHOULD EXCEED THE AMOUNT OF EXEMPT INCOME A S HAS BEEN HELD BY THE ILONBLE DELHI HIGH COURT IN CHEMINVEST LTD. V/S CIT(2015) 378 ITR (DEL) AND CIT V/S HOLCIM INDIA PVT. LTD. (2014) 90 CCII081 DEL. HC. BOTH SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE FOLLOWING TWO YEARS IN APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE ASSESSMENT YEAR 2008-09. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE S ET ASIDE THE IMPUGNED ORDERS FOR THESE TWO YEARS AS WE LL AND REMIT THE MATTER TO THE FILE OF THE AO FOR COMP UTING THE DISALLOWANCE U/S 14A AS DIRECTED ABOVE IN RELAT ION TO THE ASSESSMENT YEAR 2008-09. 3.4 SIMILAR VIEW HAS BEEN HELD BY THE HON'BLE JURISDICTIONAL PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PCIT V. EMPIRE PACKAGE PVT. LTD( 2016) 136 DTR 3 42/ 286 CTR 457 (P &H) (HC). IN THE PRESENT CASE THE TO TAL TAX FREE DIVIDEND INCOME EARNED BY THE APPELLANT IS RS.4,30,621/-. THE DISALLOWANCE IN THE APPELLANTS CASE UNDER RULE 8D READ WITH SECTION 14A SHALL THEREFORE BE I.T.A. NO.2180/DEL/2018 6 NOT MORE THAN 4,30,621/-. ASSESSING OFFICER IS DIRE CTED TO RE-COMPUTE THE DISALLOWANCE ACCORDINGLY. THESE GROU NDS OF APPEAL ARE ACCORDINGLY PARTLY ALLOWED. 3. THE AFORESAID DECISION OF THE LD. CIT(A) IS BASE D ON JUDICIAL PRECEDENTS LAID DOWN BY THE HONBLE PUNJAB A ND HARYANA HIGH COURT IN THE CASE OF CIT VS. MASCOT FOOD (SUPRA) AND ALSO IN THE CASE OF PCIT VS. EMPIRE PACKAGE PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT THE DISALLOWANCE U/S.14A CANNOT BE EXCEEDED TO THE EXEM PT INCOME. ACCORDINGLY, WE DO NOT FIND ANY MERITS IN T HE GROUNDS RAISED BY THE REVENUE AND THE ORDER OF THE LD. CIT( A) IS CONFIRMED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ABOVE DECISION WAS ANNOUNCED ON CONCLUSION OF VIRTU AL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 29 TH SEPTEMBER, 2021 SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 29/09/2021 PKK: