M/s. Amar Packaging Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2358/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8101 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 22-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2358/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. AMAR PACKAGING PVT. LTD., VS. ITO, CO.WARD 1( 4), D 91/4, OKHLA INDL. AREA II, NEW DELHI. NEW DELHI. (PAN : AAACA5760G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE REVENUE BY : SHRI K.K. JAISWAL, DR DATE OF HEARING : 13.04.2016 DATE OF ORDER : 29.04.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. AMAR PACKAGING PVT. LTD. (HEREINAFT ER REFERRED TO AS THE ASSESSEE), BY FILING THE PRESE NT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12.12.2012 PASSE D BY LD. CIT(A)-IV, NEW DELHI QUA THE ASSESSMENT YEAR 2008-0 9 ON THE GROUNDS INTER ALIA THAT:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (APPEALS)-IV ERRED IN CONFIRM ING THE ORDER OF LD. A.O. FOR DISALLOWING THE EXPENSES OF RS.71,44,183/- INCURRED IN RELATION TO EARNING THE TAX FREE ITA NO.2358/DEL./2013 2 INCOME DURING THE YEAR BY INVOKING SECTION 14A R.W. R. 8D OF INCOME TAX ACT, 1961 WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R AND SUBSTITUTE ANY OF THE ABOVE MENTIONED GROUNDS O F APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. BRIEFLY STATED, THE FACTS OF THIS CASE ARE : DUR ING THE SCRUTINY PROCEEDINGS, THE ASSESSEE SHOWN TO HAVE EARNED EXEM PT INCOME IN THE FORM OF DIVIDEND UNDER SECTION 10(34) OF THE IN COME-TAX ACT, 1961 (HEREINAFTER THE ACT) FOR RS.7,01,194/- ON A CCOUNT OF INVESTMENT IN THE SHARES. ON THE QUERY RAISED BY T HE ASSESSING OFFICER, THE ASSESSEE HAS COMPUTED THE EXPENSES REL ATABLE TO THE EXEMPT INCOME AT RS.22,05,762/- AND OFFERED THE SAM E FOR DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, THE AO B Y INVOKING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER THE RULES) DISALLOWED THE AMOUNT OF RS.71,44,183/- BEING THE EXPENSES RELATABLE TO EARNING OF EXEMPT I NCOME U/S 14A READ WITH RULE 8D OF THE ACT AND ASSESSED THE TOTAL INCOME AT RS.20,25,146/- 3. ASSESSEE HAS CARRIED THE MATTER BEFORE THE LD. C IT (A) WHO HAS DISMISSED THE APPEAL. FEELING AGGRIEVED, THE A SSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.2358/DEL./2013 3 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE . 5. THE LD. AR FOR THE ASSESSEE CHALLENGING THE IMPU GNED ORDER CONTENDED INTER ALIA THAT THE ASSESSEE ON ITS OWN S UBMITTED BEFORE THE AO EXPLAINING DISALLOWANCE U/S 14A SHOWN THE DI SALLOWANCE FIGURE AT RS.54,217/- WHILE COMPUTING ITS TAXABLE I NCOME WHICH INCLUDES ONE PERSON SALARY AND ITS CONVEYANCE ALONG WITH PROPORTIONATE CHARGES OF D-MAT CHARGES; THAT THE AO HAS WRONGLY RECORDED THE FIGURE OF RS.54,217/- AS RS.22,05,762/ - AND THIS ERROR HAS FURTHER BEEN PERPETUATED BY THE CIT (A); THAT T HE AO HAS APPLIED THE PROVISIONS OF RULE 8D OF THE RULES WITH OUT RECORDING ITS SATISFACTION AND MADE DISALLOWANCE OF RS.71,44, 183/-; THAT THE DISALLOWANCE CANNOT BE MORE THAN EXEMPT INCOME EARN ED DURING THE YEAR AS HAS BEEN DONE BY THE AO/CIT(A) IN THIS CASE. HOWEVER, ON THE OTHER HAND, THE LD. DR FOR THE REVE NUE RELIED ON THE ORDERS PASSED BY THE AO/CIT(A). 6. UNDISPUTEDLY, ASSESSEE EARNED EXEMPT INCOME BY W AY OF DIVIDEND TO THE TUNE OF RS.7,01,194/- (INCLUSIVE OF RS.55,000/- DIVIDEND FROM THE INVESTMENT IN SHARES AND CLAIMED THE SAME AS EXEMPTED U/S 10(34) OF THE ACT). DETAILED COMPUTAT ION OF INCOME HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE, LYING A T PAGE 1 OF THE PAPER BOOK. ITA NO.2358/DEL./2013 4 7. HOWEVER, THE AO BEING NOT SATISFIED WITH THE COM PUTATION MADE BY THE ASSESSEE MADE THE DISALLOWANCE U/S 14A READ WITH RULE 8D COMPUTED AS UNDER :- RULE 8D (2) : AGGREGATE OF (I) NIL (II) AXB/C A = 1,35,45,453 (NET) INTEREST B = 3,45,71,230 AVERAGE INVESTMENT C = 6,71,72,713 AVERAGE ASSETS 1,35,45,453 X 3,45,71,230 / 6,71,72,713 = 69,71,327 /- (III) % OF AVG INVESTMENT = % OF 34571230 = 172856 TOTAL DISALLOWANCE 69,71,327 + 1,72,856 = 71,44,183 IN VIEW OF THE ABOVE A SUM OF RS.71,44,183/- IS DIS ALLOWED TOWARDS EXPENSES RELATABLE TO EARNING OF EXEMPT INC OME U/S 14A (R/W RULE 8D) OF THE INCOME TAX ACT. 8. PERUSAL OF THE ORDER PASSED BY THE AO AS WELL AS LD. CIT (A) APPARENTLY GOES TO PROVE THAT THEY HAVE COMPUTED TH E DISALLOWANCE WITHOUT RECORDING THEIR SATISFACTION AND WITHOUT RE CORDING REASON TO REJECT THE COMPUTATION MADE BY THE ASSESSEE. SO, W E ARE OF THE CONSIDERED VIEW THAT SINCE THE AO HAS NOT RECORDED OBJECTIVE SATISFACTION AS REQUIRED UNDER SUB-SECTION (2) OF S ECTION 14A THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE QUA THE EXEM PT INCOME AND IN THESE CIRCUMSTANCES, THE AO IS NOT EMPOWERED TO INVOKE RULE 8D TO COMPUTE THE DISALLOWANCE. ITA NO.2358/DEL./2013 5 9. EVEN OTHERWISE, SO FAR AS EXEMPT INCOME IS CONCE RNED, IT IS SETTLED PRINCIPLE OF LAW THAT THE DISALLOWANCE CANN OT EXCEED IN ANY CASE THE EXEMPT INCOME EARNED DURING THE YEAR BY TH E ASSESSEE. IN THE INSTANT CASE, ASSESSEE HAS UNDISPUTEDLY EARNED THE EXEMPT INCOME OF RS.7,01,194/- WHEREAS THE AO HAS COMPUTED THE DISALLOWANCE AT RS.71,44,183/- WHICH EXCEEDS EXEMPT INCOME. THIS ISSUE HAS BEEN DEALT WITH BY THE HONBLE JURIS DICTIONAL HIGH COURT IN JUDGMENT CITED AS JOINT INVESTMENTS PVT. LTD. VS. CIT (2015) 372 ITR 694 (DEL.) . 10. THE OPERATIVE PART OF THE JUDGMENT IN CASE OF JOINT INVESTMENT PVT. LTD. (SUPRA) IS REPRODUCED FOR READY REFERENCE AS UNDER :- DISALLOWANCE UNDER SECTION 14A READ WITH RULE 80 - ASSESSEE VOLUNTEERED RS.2,97,440/- AS ATTRIBUTABL E UNDER SECTION 14A FOR THE PURPOSE OF DISALLOWANCE - AO O N THE BASIS OF HIS OWN UNDERSTANDING OF RULE 8D OF THE IN COME TAX RULES DISALLOWED THE SUM OF RS.52,56,197/- HELD THAT:- IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS.2,97,440/- AS A DISALLOWANCE UNDER SECTION 14A H AD TO BE REJECTED. IN TAIKISHA [2014 (12) TMI 482 - DELHI HIGH COURT] SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEE'S CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOU NTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.48,90,000/-, THE DISALLOWANCE ULTIMATELY DIRECTE D ITA NO.2358/DEL./2013 6 WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SE CTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT TH E ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A , AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'I NCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOM E'. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPP ENED IN THIS CASE. 11. RATIO OF THE JUDGMENT IN CASE OF JOINT INVESTMENT PVT. LTD. (SUPRA) IS APPLICABLE TO THE FACTS AND CIRCUMSTANCE S OF THE CASE BECAUSE, IN THE INSTANT CASE ALSO, THE AO BY COMPUT ING THE DISALLOWANCE EXCEEDED THE AMOUNT OF INCOME EARNED B Y THE ASSESSEE; THAT NO OBJECTIVE SATISFACTION HAS BEEN R ECORDED TO REJECT THE COMPUTATION MADE BY THE ASSESSEE WHO HAS VOLUNT ARILY MADE THE DISALLOWANCE U/S 14A TO THE TUNE OF RS.54,217/- ; THAT THE ASSESSEE HAS SUFFICIENT FUNDS TO INVEST IN THE TAX FREE INVESTMENT WHICH WAS PART OF ITS BUSINESS ACTIVITIES; THAT THE LD. CIT (A) HAS TAKEN HYPOTHETICAL FIGURE OF RS.22,05,762/- AS VOLU NTARY DISALLOWANCE MADE BY THE ASSESSEE U/S 14A AS AGAINS T THE ACTUAL DISALLOWANCE MADE BY THE ASSESSEE U/S 14A TO THE TU NE OF RS.54,217/- AND THIS FACT GOES TO PROVE THAT THE CI T (A) HAS PROCEEDED TO AFFIRM THE DISALLOWANCE MADE BY THE AO WITHOUT GOING INTO THE MERIT. ITA NO.2358/DEL./2013 7 12. IN THE INSTANT CASE, AO WORKED OUT THE DISALLOW ANCE AS PER SECTION 14A READ WITH RULE 8D OF THE INCOME-TAX RUL ES WHICH IS NOT SUSTAINABLE IN THE VIEW OF LAW LAID DOWN BY HON BLE JURISDICTIONAL HIGH COURT IN JUDGMENT CITED AS JOIN T INVESTMENTS PVT. LTD. VS. CIT (SUPRA) DISCUSSED IN PRECEDING PA RA 11, AS THE DISALLOWANCE CANNOT EXCEED THE INCOME CLAIMED BY TH E ASSESSEE AS EXEMPT INCOME. WE, THEREFORE, RESTRICT THE DISALLO WANCE OF RS.7,01,194/-, PARTICULARLY WHEN THE ASSESSEE HAS N OT PROVED ON RECORD AS TO HOW HIS FIGURE OF RS.54,217/- WAS WORK ED OUT. CONSEQUENTLY, THE PRESENT APPEAL FILED BY THE ASSES SEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF APRIL, 2016. SD/- SD/- (N.K. SAINI) (KULDIP SIN GH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF APRIL, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.