DCIT, New Delhi V. M/s Seaview Developers Ltd., New Delhi

ITA 2187/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58733 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG
• Assessee Lawyers: RAJESH MALHOTRA
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.D.RANJAN, ACCOUNTANT MEMBER ITA NO: 2187/DEL/2011 A.Y. : 2007-2008 DCIT, CIRCLE 8(1) VS. M/S SEAVIEW DEVELOPERS LTD. C.R.BLDG., I.P.ESTATE BASEMENT 6, COMMUNITY CENTR E NEW DELHI SAKET, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ROHIT GARG, D.R. RESPONDENT BY : SHRI RAJESH MALHOTRA, A.R. O R D E R PER DIVA SINGH, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER DT. 11.2.2011 OF CIT(A)-XI, NEW DELHI PERTAINING TO A.Y . 2007-08 AGITATES AGAINST THE ACTION OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 14A TO RS. 6,87,009/- AND THEREBY ASSAILING THE RELIEF GRA NTED TO THE EXTENT OF RS. 11,71,447/-. 2. THE ASSESSEE IS A COMPANY INCORPORATED ON 21.2.2 005 IN DELHI AND WAS ENGAGED IN THE BUSINESS OF REAL ESTATE SEZ. TH E ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCO ME AT RS.2,84,32,571/-. THE RETURN WAS PROCESSED U/S 143 (1) OF THE ACT. OPPORTUNITY WAS GRANTED, SUBMISSION OF THE ASSESSEE WAS CONSIDERED AND THEREAFTER THE ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT ON 24.12.2009 COMPUTING TOTAL INCOME AT RS. 3,02,91,03 0/- AS AGAINST ITA 2187/DEL/2011 PA GE 2 OF 4 A.Y. 2006-07 SEAVIEW DEVELOPERS LTD. RETURNED INCOME OF RS.2,84,32,571/-. THEREBY INCLU DING AN ADDITION/DISALLOWANCE INTERLIA U/S 14A OF RS.18,58 ,456. 3. IN APPEAL BEFORE THE CIT(A) THE ASSESSEE MADE TH E FOLLOWING CONTENTION ON FACTS, SAME ARE REPRODUCED HEREUNDER . 2.2. SUBMISSION OF THE APPELLANT: SHRI AJAY RASTOG I, FCA & AR OF THE APPELLANT APPEARED AND RELIED UPON THE WRITTEN SUBMISSION FILED DT. 22.7.2007 IN 3 PAGES A LONG WITH SOME ANNEXURES-PLACED ON RECORD. SHRI RASTOGI, THE LD.A.R. STATED AS BELOW. DISALLOWANCE ON ACCOUNT OF 14A: GROUND NO.1: THE APPELLANT HAS MADE EXEMPTED INCOME OF RS. 68,70,092/- AND CLA IMED EXEMPTION U/S 10(35) OF THE ACT. THE TOTAL EXPENDI TURE AS CLAIMED BY THE APPELLANT IN P&L ACCOUNT WAS RS. 2,9 2,374/- OUT OF THE SAME THE APPELLANT HAS ALREADY OFFERED O N ACCOUNT OF FEE PAID FOR INCREASE IN CAPITAL (RS. 2, 19,250/-) AND PRELIMINARY EXPENSES WRITTEN OFF U/S 35D (RS.15 ,920/-). HENCE EFFECTIVE CLAIM OF BALANCE EXPENDITURE BY THE APPELLANT WAS RS.57,204/-. STILL THE LDAO HAD DIS ALLOWED RS.18,58,456/-. RELIANCE IS PLACED ON MINDA INVESTMENT LTD. VS DC IT ITA NO.4046/DEL/09 DATED 13.10.2010FOR A.Y. 2006-07 WH ERE THE JURISDICTIONAL BENCH OF ITAT HAS HELD IN FAVOUR OF THE APPELLANT REFERRING THE DECISION OF HERO CYCLE LTD. (P&H) (2010) 189 TAXMAN 50 (P&H) & GODREJ BOYCE MFG. CO.L TD. VS. DY.CIT AND OTHERS (2010) 328 ITR 81 (MUM). THE DISALLOWANCE IS LIABLE TO BE DELETED. 4. CONSIDERING THE SAME THE CIT(A) HELD THAT RULE 8D COULD NOT BE INVOKED BY THE A.O. IN TERMS OF THE JUDGEMENT OF T HE HONBLE HIGH COURT IN THE CASE OF GODREJ& BOYCE VS. ACIT. HOWEVER B EING OF THE VIEW THAT SOME EXPENDITURE NECESSARILY MUST HAVE BEEN INCURRE D HE RESTRICTED THE DISALLOWANCE TO 10% OF THE EXEMPTED INCOME THEREBY RESULTING IN ITA 2187/DEL/2011 PA GE 3 OF 4 A.Y. 2006-07 SEAVIEW DEVELOPERS LTD. RESTRICTING THE DISALLOWANCE TO RS.6,87,009/- OUT OF THE DISALLOWANCE OF RS.18,58,456/- MADE BY THE A.O. 5. AT THE TIME OF HEARING WHEREAS THE LD.D.R. PLACE D RELIANCE UPON THE ASSESSMENT ORDER. THE LD.A.R. PLACING RELIANCE UPO N THE IMPUGNED ORDER QUA THE RELIEF GRANTED. IT WAS FURTHER SUBMITTED THAT THE CROSS APPEAL FILED BY THE ASSESSEE ON THE SAID ISSUE AGAINST THE RELIEF SUSTAINED HAS BEEN HEARD BY THE CO-ORDINATE BENCH ON 9 TH DECEMBER,2011 AND THE ORDER IS AWAITED. AS SUCH IT WAS CONTENDED THAT TH E COPY OF THE SAME MAY BE ALLOWED TO BE FILED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE CO-ORDINA TE G BENCH IN ITA 2061/DEL/2011 IN THE CASE OF THE ASSESSEE AGAINST I MPUGNED ORDER I.E. DT. 11.2.2011 OF THE CIT(A) HAS ALLOWED THE APPEA L OF THE ASSESSEE ON FACTS HOLDING THAT NO DISALLOWANCE COULD BE MADE. FOR READY REFERENCE WE REPRODUCE PARA 5 OF THE SAID ORDER HEREUNDER. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE (SUPRA) HAS HELD THAT RULE 8D IS NOT APPLICABLE IN A.Y. 2007-08. LD.FIRST APPELLATE AUT HORITY HAS ACCEPTED THIS CONTENTION OF THE ASSESSEE. THUS, IN THE ABSENCE OF RULE 8D, THE EXPENSES ATTRIBUTABLE TO EARNING OF TA X FREE INCOME IS TO BE IDENTIFIED BY KEEPING IN VIEW THE SURROUNDING CIRCUMSTANCES. LD.FIRST APPELLATE AUTHORITY HAS ESTIMATED SUCH EXP ENSES AT 10% OF THE DIVIDEND INCOME BUT HAS NOT REFERRED ANY DET AILS HOW HE CONSTRUED THOSE EXPENSES. THE ASSESSEE IS NOT CLAI MING 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 ADMINISTRATIV E EXPENDITURE, SOME EXPENSES FOR SALARY OR STAFF ETC. WERE DEBITED BY THE ASSESSEE, ONE CAN SAY THAT OUT OF THESE EXPENSES SO ME OF THE EXPENSES MUST BE RELATING TO THOSE PERSONS WHO HAVE DEVOTED ITA 2187/DEL/2011 PA GE 4 OF 4 A.Y. 2006-07 SEAVIEW DEVELOPERS LTD. ENERGY FOR KEEPING TRACK ON THE INVESTMENT RESULTIN G TO DIVIDEND INCOME BUT NO SALARY EXPENSE HAVE BEEN CLAIMED. SI MILARLY, NO INTEREST EXPENSES HAVE BEEN CLAIMED. IN SUCH SITUA TION, IT IS DIFFICULT TO PRESUME THAT 10% OF THE DIVIDEND INCOM E IS TO BE ESTIMATED AS EXPENSES FOR EARNING SUCH DIVIDEND INC OME. IN OTHER WORDS, IT WILL AMOUNT TO TAX A NOTIONAL INCOME, THE REFORE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE DISALLOWA NCE. 7. IN THE AFORE MENTIONED PECULIAR FACTS AND CIRCUM STANCES THERE IS NO MERIT IN THE APPEAL FILED BY THE REVENUE. RESPE CTFULLY FOLLOWING THE COORDINATE BENCH ON THE VERY SAME ISSUE THE DEPART MENTAL APPEAL IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2012. SD/- SD/- (K.D.RANJAN) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND MARCH, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR