ACIT, Gurgaon V. M/s DLF Universal Ltd.,(formerly DLF Retail Developers Ltd), Gurgaon

ITA 2681/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3011 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.R.R.KUMAR, ACCOUNTANT MEMBER ITA NO. 2681/DEL/2016 ASSESSMENT YEAR: 2012-13 THE ACIT, CIRCLE 1(1), GURGAON. VS. M/S DLF UNIVERSAL LTD. (FORMERLY KNOWN AS DLF RETAIN DEVELOPERS LTD.) 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, GURGAON. PAN : AAACJ1655P (APPELLANT) (RESPONDENT) O R D E R PER DIVA SINGH, J.M. : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE ASSA ILING THE CORRECTNESS OF THE ORDER DATED 02/03/2016 OF CIT(A)-1 GURGAON PERTAINING TO 2012 -13 ASSESSMENT YEAR ON THE FOLLOWING G ROUNDS : 1. LD. CIT(A) HAS ERRED ON FACT AND IN LAW IN DELETING THE DISALLOWANCE OF RS. 1,95,62,312/- MADE BY THE ASSESSING OFFICER UNDER S ECTION 14A OF THE INCOME TAX ACT, 1961. 2. LD. CIT(A) HAS ERRED ON FACT AND IN LAW BY RELYING UPON THE JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. CIT (2010) 328 ITR 81 (BOM.) WHICH PERTAIN TO THE ASSESSMENT YEAR 2002-03 PRIOR TO INTRODUCTION OF RULE 8D W.E.F. A.Y. 2008-09. 3. LD.CLT(A) HAS ERRED ON FACT AND IN LAW IN IGNORING CBDT CIRCULAR NO.5 OF 2014 DATED 11.02.2014 CLARIFYING THAT DISAL LOWANCE UNDER RULE 8D READ WITH SECTION 14A OF THE INCOME TAX ACT IS T O BE MADE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EX EMPT INCOME. 2. LD. SR.DR RELYING UPON THE GROUNDS RAISED INVITED ATTENTION TO THE ASSESSMENT ORDER. CARRYING US THROUGH THE SAME IT WAS HIS SUBMISSION THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESE NT CASE. THE ADDITION HAD BEEN MADE BY THE AO INVOKING RULE 8D OF THE INCOME TAX ACT. THE CIT(A), IT WAS SUBMITTED WAS NOT JUSTIFIED ON FACTS IN DELETING THE ADDITION MADE BY WAY OF A DISALLOWANCE. APPELLANT BY SH. KAUSHLENDRA TIWARI, SR.DR RESPONDENT BY SH.R.S.SINGHVI & SH. SATYAJIT GOEL DATE OF HEARING 12.02.2018 DATE OF PRONOUNCEMENT 19.03.2018 ITA 2681/DE/2016 A.Y. 2012-13 PAGE 2 OF 4 3. THE LD. AR ON THE OTHER HAND CARRYING US THROUGH THE IMPUGNED ORDER SUBMITTED ON FACTS THAT THE ORDER PASSED IN TE RMS OF THE POSITION OF LAW AS HAS BEEN CONSISTENTLY HELD BY DIFFERENT COUR TS DESERVES TO BE UPHELD. ACCORDINGLY, HEAVY RELIANCE WAS PLACED UPON THE IMPUGNED ORDER. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE RELEVANT FACTS OF THE CASE AR E THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND C ONSTRUCTION OF PROPERTIES ETC. WITH ITS ASSOCIATE COMPANIES. THE ASSESS ING OFFICER IN THE COURSE OF THE SCRUTINY PROCEEDINGS REQUIRED THE ASSESSE E TO FILE THE DETAILS OF EXPENSES INCURRED RELATED TO THE EARNING OF DI VIDEND INCOME OF RS. 10,76,583/-. THE EXPLANATION FILED WAS NOT ACCEPTE D BY THE AO. THE ASSESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED WHICH HAVE BEEN SUMMED UP IN PARAGRAPH 4.1 OF THE IMPUGNED ORDER AND FOR THE SAKE OF READY REFERENCE ARE BEING REPRODUCED HEREUNDER : 4.1 IN THE COURSE OF APPELLATE PROCEEDINGS IT W AS CONTENDED THAT AGAINST ABOVE MENTIONED DIVIDEND INCOME OF RS. 10,76,553/- THE APPELLANT HAS ALREADY DISALLOWED RS. 2,62,459/-. NO FURTHER DISALLOWANCE IS PERMITTED FOR THE FOLLOWING REASONS:- A) THE ASSESSING OFFICER DID NOT RECORD SATISFACTION T HAT ALREADY ATTRIBUTED EXPENSE IS INSUFFICIENT. B) THE INVESTMENT MADE IN EQUITY SHARES ARE OUT OF OWN FUNDS AND NO BORROWED CAPITAL HAVE BEEN UTILIZED TO ACQUIRE SUCH ASSETS. C) THE ASSESSING OFFICER APPLIED SECTION 14A AND RULE 8D MECHANICAL MANNER THUS RESULTING IN DISALLOWANCE FAR EXCESS OF TAX FREE INCOME. D) THE EQUITY SHARES OF SUBSIDIARY HAS BEEN ACQUIRED A S STRATEGIC BUSINESS INVESTMENT THUS ALL EXPENSES ARE ALLOWABLE. E) DISALLOWANCE UNDER RULE 8D (2)(I) HAS BEEN INCORREC TLY WORKED OUT AT RS. 2,62,459/-. F) THE CALCULATION OF INTEREST MADE BY THE ASSESSING O FFICER IS INCORRECT. G) DISALLOWANCE UNDER RULE 8D (2)(II) HAS BEEN INCORRE CTLY WORKED OUT AT RS. 1,70,09,003/-. H) DISALLOWANCE UNDER RULE 8D (2)(III) HAS BEEN INC ORRECTLY WORKED OUT AT RS. 22,90,850/-. 4.1 THE RECORD SHOWS THAT CONSIDERING THE FACTS AND THE DECISIONS RELIED UPON RELIEF WAS GRANTED BY THE CIT-A TO THE ASS ESSEE HOLDING AS UNDER : 4.2 I HAVE GIVEN CAREFUL CONSIDERATION TO THE CON TENTION OF THE APPELLANT AND IT IS RELEVANT THAT IN MAXOPP INVESTMENT LTD. VS. COMMISS IONER OF INCOME TAX [2012] 347 ITR 272 (DEL) AND GODREJ & BOYCE MFG. CO. LTD. VS. CIT [2010] 328 ITR 81 (BOM.), IT HAS BEEN HELD THAT UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO EXAMINE THE ACCOUN TS OF THE ASSESSEE AND ONLY WHEN HE ITA 2681/DE/2016 A.Y. 2012-13 PAGE 3 OF 4 IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, THE ASSES SING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWE D IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RULE 8D OF THE RULES. TH EREFORE, THE ASSESSING OFFICER AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCUR RED TO EARN THE EXEMPT INCOME. IF AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFI ED ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT HE IS ENTITLED TO A DOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. THUS, RULE 8D IS NOT ATTRACTE D AND APPLICABLE TO ALL ASSESSEE WHO HAVE EXEMPT INCOME AND IT IS NOT COMPULSORY AND NECESSARY THAT AN ASSESSEE MUST VOLUNTARILY COMPUTE DISALLOWANCE AS PER RULE 8 D OF THE RULES. WHERE THE DISALLOWANCE OR 'NIL' DISALLOWANCE MADE BY THE ASSE SSEE IS FOUND TO BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS, THE ASSE SSING OFFICER IS ENTITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 8D O F THE RULES. THIS PRE-CONDITION AND STIPULATION IS ALSO MANDATED IN SUB RULE (1) TO RULE 8D OF THE RULES. HOWEVER, IN THE PRESENT CASE THERE IS NO SATISFACTION RECORD ED BY THE A.O THAT NIL EXPENSE WAS NOT JUSTIFIED FOR A TAX FREE DIVIDEND INCOME OF RS. 6,84,337/- FOR THE YEAR UNDER CONSIDERATION. IN T AND T MOTORS LTD. V. ADD. CIT (2015) 37 ITR 68 2 (DELHI) (TRIB.), IT HAS BEEN HELD THAT THE DEFICIENCY LEFT BY THE ASSESSING OFFI CER IN RECORDING PROPER SATISFACTION, WAS MADE GOOD BY THE COMMISSIONER (APPEALS). IT IS SETTLED LEGAL POSITION THAT THE FIRST APPELLATE AUTHORITY HOLDS THE SAME POWERS IN THE DISPOSAL OF APPEAL AS THE ASSESSING OFFICER POSSESSES. HE COULD DO WHAT THE A SSESSING OFFICER COULD HAVE DONE. THEREFORE, THE ARGUMENT ABOUT THE NON-RECORDI NG OF SATISFACTION ABOUT THE INCURRING OF EXPENSES IN RELATION TO EXEMPT INCOME WAS NOT TENABLE. IN THIS BACKGROUND THE RECORDING OF SATISFACTION CAN BE UND ERTAKEN BY CIT(A), AND ON APPRECIATION OF THE FACTS OF THE PRESENT CASE WHEN THE TAX FREE INCOME IS ONLY RS. 6,84,337/- AND BY APPLYING RULE 8D(2), DISALLOWANCE OF RS. 43,67,640 WORKS OUT PRIMARILY DUE TO APPLICATION OF SUB-RULE (II) IN RE SPECT OF INTEREST THUS IT IS IMPERATIVE TO EXAMINE THE JUSTIFICATION OF THE SAME. IN JOINT INVESTMENTS PVT. LTD. .V. CIT( 2015) 372 I TR 6947 275 CTR 4717 116 DTR 289(DELHI)(HC), IT WAS HELD THAT U/S 14A OF THE INC OME TAX ACT THE DISALLOWANCE OF EXPENDITURE AGAINST EXEMPT INCOME CAN BE ONLY TO EX TENT OF EXPENDITURE INCURRED BY ASSESSEE IN RELATION TO TAX EXEMPT INCOME AND RULE 8D WOULD NOT BE INTERPRETED TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME CAN BE DISAL LOWED. IT WAS OBSERVED THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D B E INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. T HE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A. AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EX EMPT INCOME'. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWAL LOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. IN THE PRESENT CASE, THE LARGE DISALLOWANCE IS ON A CCOUNT OF RULE 8D(2)(II) WHICH IS RELATED TO CALCULATION OF DISALLOWANCE OF INTERE ST ATTRIBUTABLE TO TAX FREE INCOME. HOWEVER IN THE CASE OF CIT .V. TAIKISHA ENGINEERING INDIA LTD . (DELHI)(HC), (ITA NO. 115/204 & 119/2014, DT. 25/11/2014), THE COURT WHILE DECIDING ON APPLICATION OF RULE HELD THAT THE SAID RULE IN SUB RULE (2) SPECIF ICALLY PRESCRIBES THE MODE AND METHOD FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THUS, THE INTERPRETATION OF CLAUSE (II) TO SUB RULE (2) TO RU LE 8D OF THE RULES BY THE CIT(A) AND THE TRIBUNAL IS NOT SUSTAINABLE. THE SAID CLAUSE EX PRESSLY STATES THAT WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTERES T IN THE PREVIOUS YEAR AND THE INTEREST PAID IS NOT DIRECTLY ATTRIBUTABLE TO ANY P ARTICULAR INCOME OR RECEIPT THEN THE FORMULA PRESCRIBED WOULD APPLY. UNDER CLAUSE (II) T O RULE 8D(2) OF THE RULES, THE ASSESSING OFFICER IS REQUIRED TO EXAMINE WHETHER TH E ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST IN THE PREVIOUS YEAR AND SECONDLY WHETHER THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME OR RECEIPT. IN CASE THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR IN COME OR RECEIPT, THEN THE INTEREST ON LOAN AMOUNT TO THIS EXTENT OR IN ENTIRETY AS THE CASE MAY BE, HAS TO BE EXCLUDED FOR MAKING COMPUTATION AS PER THE FORMULA PRESCRIBED. P ERTINENTLY, THE AMOUNT TO BE DISALLOWED AS EXPENDITURE RELATABLE TO EXEMPT INCOME, UNDER SUB RULE (2) IS THE ITA 2681/DE/2016 A.Y. 2012-13 PAGE 4 OF 4 AGGREGATE OF THE AMOUNT UNDER CLAUSE (I), CLAUSE (I I) AND CLAUSE (III). CLAUSE (I) RELATES TO DIRECT EXPENDITURE RELATING TO INCOME FO RMING PART OF THE TOTAL INCOME AND UNDER CLAUSE (III) AN AMOUNT EQUAL TO 0.5% OF THE A VERAGE AMOUNT OF VALUE OF INVESTMENT, APPEARING IN THE BALANCE SHEET ON THE F IRST DAY AND THE LAST DAY OF THE ASSESSEE HAS TO BE DISALLOWED. IN THE PRESENT CASE, NO EXERCISE TO SEGREGATE THE I NTEREST ATTRIBUTABLE TO OTHER ACTIVITIES HAS BEEN DONE AND THE ENTIRE INTEREST HAS BEEN APPO RTIONED BY APPLYING THE RATIO. IT HAS BEEN HELD IN NUMBER OF CASES THAT APPLICATION O F RULE 8D IS NOT AUTOMATIC (CIT VS. I.P SUPPORT SERVICES (P) LTD. ITA NO. 2837 2014 DEL HI HIGH COURT) AND THIS IS NOT THE ONLY REPOSITORY FOR ATTRIBUTING EXPENSES TOWARDS EA RNING OF TAX FREE INCOME. THE RULE IS TO BE APPLIED WHERE IN THE OPINION OF THE A .O INADEQUATE AMOUNT OF EXPENSE HAS BEEN ATTRIBUTED AND THE NATURE OF TAX FREE INCO ME IS SUCH AGAINST WHICH EXPENSES CANNOT BE CALCULATED EXCEPT BY RESORTING TO RULE 8D . 4.3 IN CONSIDERATION OF THE FACTS ABOVE, THE DISALL OWANCE OF EXPENSES RELATED TO TAX FREE INCOME MADE BY THE APPELLANT IS RS. 2,62,459/- WHICH IS ABOUT 25% OF THE TAX FREE INCOME OF RS. 10,76,533/-. I FIND THE EXPENSE ALREADY DISALLOWED AS SUFFICIENT TO COVER THE REQUIREMENT OF SECTION 14A AND RULE 8D. T HE GROUND OF APPEAL IS ALLOWED. 5. ON GOING THROUGH THIS ABOVE FINDING ON FACTS AS THEY STAND, WE FIND NO GOOD REASON TO INTERFERE WITH THE RELIEF GRANTE D. IN THE ABSENCE OF ANY ARGUMENTS ASSAILING THE FACTS AS CONSIDERED AND THE POSITION OF LAW AVAILABLE THEREON, THE IMPUGNED ORDER IS UPHELD. THE GROUND S RAISED BY THE REVENUE, ACCORDINGLY, DISMISSED. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH,2018. SD/- SD/- (DR.B.R.R.KUMAR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER POONAM(CHD) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6. ASSISTANT REGISTR AR, ITAT N EW DELHI