M/s Mount Everest Trading & Investment Ltd., New Delhi V. CIT, New Delhi

ITA 2672/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65271 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 08-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Assessee Lawyers: V K JAIN
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NO. 2672/DEL/11 A.YR: 2006-07 M/S MOUNT EVEREST TRADING & VS. COMMISSIONER OF INCOME-TAX, INVESTMENT LTD. (NOW MERGED WITH DELHI-II, NEW DEL HI. M/S MONNET ISPAT & ENGERGY LTD.) 11, MONNET HOUSE, MASJID MOTH, GREATER KAILASH-II, NEW DELHI. PAN: AADCM-3324-K ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI V.K. JAIN CA RESPONDENT BY : SHRI RAJ TANDON CIT (DR) O R D E R PER K.D. RANJAN, A.M: : THIS APPEAL, BY THE ASSESSEE, ARISES OUT OF THE OR DER OF COMMISSIONER OF INCOME-TAX, DELHI-II, NEW DELHI, PASSED U/S 263 OF THE ACT. 2. IN THIS CASE, ASSESSMENT U/S 143(3) WAS MADE ON 7-7-2008. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED RS. 50,000/- TOWARDS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. SUBSEQUENTLY, LD. COMMISSIONER OF INCOME-TAX, DELHI-II, NEW DELHI , INITIATED PROCEEDINGS U/S 263 ON THE GROUND THAT THE ASSESSING OFFICER H AD DISALLOWED RS. 50,000/- U/S 14A OF THE ACT BEING THE EXPENSES INCU RRED FOR EARNING EXEMPT INCOME I.E. DIVIDEND INCOME U/S 10(33) OF THE ACT, WHEREAS ACCORDING TO RULE 8D OF THE I.T. RULES, 1962, DISALLOWANCE TO BE MADE WAS AT RS. 17,75,748/-. ITA NO. 2672/DEL/11 MOUNT EVEREST TRADING & INVESTMENT LTD. 2 2.1. IN RESPONSE TO SHOW CAUSE ISSUED TO ASSESSEE O N 2-7-2010, IT WAS SUBMITTED BY THE ASSESSEE THAT PROVISIONS OF RULE 8 D WILL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND ONWARDS. SINCE THE ASSE SSMENT YEAR INVOLVED WAS 2006-07, PROVISIONS OF RULE 8D WERE NOT APPLICA BLE. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANR. 328 ITR 81 (BOM.). IT WAS ALSO SUBMITTED THAT IN ASSESSMENT YEAR PRIOR TO 2008-09 ASSESSING OFFICER WAS DUTY BOUND TO DETERMINE THE EXPENDITUR E WHICH HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME BY ADOPTING A REASONABLE BASIS OR METHOD CONSISTENT WITH THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE ASSESSING OFFICER HAD ESTIMATED DISALLOWANCE OF RS . 50,000/- U/S 14A AFTER CONSIDERING SOURCE OF INCOME VIS A VIS NATURE AND Q UANTUM OF EXPENDITURE, THERE WAS NO ERROR IN THE ORDER PASSED BY ASSESSING OFFICER AND THEREFORE THERE WAS NO OCCASION FOR INITIATING PROCEEDINGS U/ S 263 OF THE ACT. 2.2. THE CONTENTION RAISED BY ASSESSEE WAS, HOWEVER , REJECTED BY THE COMMISSIONER ON THE GROUND THAT DISALLOWANCE U/S 14 A READ WITH RULE 8D MUST BE MADE IN THE CASE OF THE ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA CA PITAL MANAGEMENT (P) LTD. 26 SOT 603 (MUM) (SB); AND DECISION OF ITAT DE LHI SPECIAL BENCH B IN THE CASE OF CHEMINVEST LTD. VS. ITO 124 TTJ (DEL.) (SB) 577. LD. COMMISSIONER, THEREFORE, CONCLUDED THAT THE ORDER P ASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE. SHE DIRECTED THE ASSESSING OFFICER TO MAKE DISALLOWANC E U/S 14A READ WITH RULE 8D OF THE I.T. RULES, 1962. 3. BEFORE US, LD. A.R. OF THE ASSESSEE SUBMITTED TH AT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. SINCE THE ASSESSMENT YEAR INVOLVED IS 2006-07, PROVISIONS OF RULE 8D ARE NOT APPLICABLE. HE PLACED ITA NO. 2672/DEL/11 MOUNT EVEREST TRADING & INVESTMENT LTD. 3 RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA). LD. AR OF TH E ASSESSEE FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR PRIOR TO 2008-09 , THE ASSESSING OFFICER IS REQUIRED TO ESTIMATE THE DISALLOWANCE OF EXPENDITUR E RELATING TO THE EXEMPT INCOME. SINCE THE ASSESSING OFFICER HAD DISALLOWED RS. 50,000/- ON ACCOUNT OF EXPENDITURE ON SALARY, ESTABLISHMENT, ADMINISTRA TION AND OTHER EXPENSES, NO FURTHER DISALLOWANCE WAS NECESSARY. HE, THEREFO RE, SUBMITTED THAT PROVISIONS OF SEC. 263 HAVE NOT BEEN INVOKED CORRE CTLY BY THE LD. COMMISSIONER. 4. ON THE OTHER HAND, LD. CIT(DR) SUPPORTED THE ORD ER OF THE CIT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN ORDER TO APPLY THE PROVISIO NS OF SEC. 263, THE ORDER PASSED BY ASSESSING OFFICER SHOULD BE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE. THESE TWIN CONDITIONS ARE TO B E SATISFIED BEFORE ASSUMPTION OF JURISDICTION U/S 263. THIS VIEW IS SU PPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL CO. LTD. VS. CIT 243 ITR 83. 5.1. ITAT DELHI BENCH E THIRD MEMBER IN THE CASE OF WIMCO SEEDLING LTD. VS. DCIT (ASSESSMENT) SPL. RANGE, MORADABAD (2 007) 107 ITD 267 (DEL.) (T.M), HAS HELD THAT ONLY EXPENDITURE WHICH HAS BEEN PROVED TO HAVE BEEN INCURRED IN RELATION TO EARNING OF TAX FREE IN COME, CAN BE DISALLOWED. IT HAS ALSO BEEN HELD THAT BURDEN IS ON ASSESSING OFFI CER TO NOT ONLY SHOW THAT SUCH EXPENDITURE WAS FACTUALLY INCURRED BUT ALSO TO SHOW ITS RELATIONSHIP WITH THE INCOME EXEMPT FROM TAX. THIS DECISION WAS RENDERED ON 21 ST DECEMBER 2006 FOR ASSESSMENT YEAR 1994-95. 5.2. THE ASSESSING OFFICER HAD DISALLOWED ESTIMATE D EXPENSES OF RS. 50,000/- RELATABLE TO EXEMPT INCOME IN HIS ORDER PA SSED ON 7-7-2008. ITA NO. 2672/DEL/11 MOUNT EVEREST TRADING & INVESTMENT LTD. 4 THEREFORE, THE DECISION OF ASSESSING OFFICER IS IN LINE WITH THE DECISION OF ITAT DELHI E BENCH THIRD MEMBER IN THE CASE OF W IMCO SEEDLING LTD. (SUPRA). LD. COMMISSIONER WHILE CANCELING THE ASSE SSMENT U/S 263 HAS RELIED ON THE DECISION OF ITAT SPECIAL BENCH MUMBA I IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA). THIS DECISION WAS PASSED ON 20 TH OCTOBER 2008, WHEREIN IT HAS BEEN HELD THAT RULE 8D WAS RETROSPECTIVE IN NATURE. THE DECISION OF SPECIAL BENCH IN THE CASE O F DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA) HAS BEEN REVERSED BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT RULE 8D WILL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09. IT HAS ALSO BEEN HELD THAT PRIOR TO ASSESSMENT YEA R 2008-09 THE ASSESSING OFFICER IS EMPOWERED TO REASONABLY ESTIMATE THE EX PENDITURE WHICH IS RELATABLE TO EXEMPT INCOME. SINCE THE ASSESSING OFF ICER HAS DECIDED THE ISSUE PRIOR TO DECISION OF SPECIAL BENCH IN THE CAS E OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA). THERE WAS DIFFERENCE O F OPINION ON ALLOWABILITY OF EXPENDITURE U/S 14A OF THE ACT. THE ASSESSING OFFICER HAD DISALLOWED THE EXPENDITURE OF RS. 50,000/- WHICH IS IN LINE WITH THE DECISION OF THIRD MEMBER OF THE ITAT IN THE CASE OF WIMCO SE EDLING LTD. (SUPRA). IN A CASE WHERE THE ISSUE IS DEBATABLE AND ASSESSING O FFICER FOLLOWS ONE OF THE VIEWS, CIT CANNOT SAY THAT ASSESSING OFFICER SHOUL D HAVE DISALLOWED THE EXPENDITURE BASED ON A JUDGMENT WHICH WAS RENDERED SUBSEQUENT TO PASSING OF THE ORDER. WE ALSO FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT 203 TAXMAN 364 HAS RENDERED DECIS ION ON THE LINES OF HONBLE BOMBAY HIGH COURTS DECISION IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. (SUPRA). SINCE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR ASSESSMENT YEAR 2006-07, LD. COMMISSIONER OF INCOME -TAX, DELHI-II, NEW DELHI WAS NOT JUSTIFIED IN CANCELING THE ASSESSMENT U/S 263. WE ACCORDINGLY ITA NO. 2672/DEL/11 MOUNT EVEREST TRADING & INVESTMENT LTD. 5 CANCEL THE ORDER PASSED BY THE LD. COMMISSIONER U/S 263 OF THE ACT AND RESTORE THE ORDER OF ASSESSING OFFICER. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09-08-2012. SD/- SD/- ( R.P. TOLANI ) ( K.D. RANJAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR