M/s. Sandhar Technologies Ltd., New Delhi V. ACIT (LTU), New Delhi

ITA 2767/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4735 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 01-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Assessee Lawyers: S K JAIN
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G: NEW DELHI) BEFORE SHRI. G.D.AGRAWAL, VICE PRESIDENT AND SHRI I.C. SUDHIR, JUDICIAL MEMBER ITA NO.2767 /DEL/ 2012 (ASSESSMENT YEAR :2008-09) SANDHAR TECHNOLOGIES LTD. VS. ACIT (LTU) C-101, ANSAL PLAZA SAKET HUDCO PLACE, KHELGAON MARG NEW DELHI NEW DELHI AAACS0512J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. K. JAIN , C.A REVENUE BY : SMT. RENUKA JAIN GUPTA, SR. D.R ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: THE REVENUE HAS QUESTIONED FIRST APPE LLATE ORDER SOLELY ON THE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS NOT JUSTIFIED IN PARTLY ALLOWING THE DISALLOWANCE OF RS.55,24,439/- MADE U/ S 14A OF THE ACT BY THE A.O. 2. DURING THE YEAR THE ASSESSEE CONTINUED ITS BUS INESS OF MANUFACTURING OF AUTO PARTS AND SUPPLY OF THE SAME TO HERO HONDA MOT ORS LTD, HONDA SIEL CAR LTD, TVS MOTORS COMPANY, EISCHER MOTORS LTD, ASHOK LEYLAND LTD ETC. AGAINST THE RETURNED INCOME OF RS.25,42,40,890/- TH E A.O U/S 143(3) OF THE ACT ITA NO. 2 767/DEL/12 2 ASSESSED, THE ASSESSEES INCOME AT RS.25,97,65,329/ - BY MAKING AN ADDITION OF RS.55,24,439/- ON ACCOUNT OF DISALLOWANCE U/S 14A O F THE ACT. THE ASSESSEE QUESTIONED THE SAID DISALLOWANCE OF RS.55,24,439/- U/S 14A BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IT WAS CONTE NDED THAT THE ASSESSEE HAD MADE INVESTMENT IN THE UNITS OF MUTUAL FUNDS AS WEL L AS IN THE SHARES OF SUBSIDIARY COMPANIES ETC AND THE TOTAL INVESTMENT O F RS.16.32 CRORES MADE AS ON 31 ST MARCH 2008 IS LESS THAN THE PAID UP SHARE CAPITAL AND FREE RESERVATIONS OF THE COMPANY TOTALING TO RS.116.79 CRORES. THUS, THE IN VESTMENT IN SHARES IS OUT OF THE OWN FUNDS AND NOT FROM THE BORROWED FUNDS. IT WAS CONTENDED THAT THE A.O SHOULD HAVE APPLIED PROVISIONS UNDER RULE 8D ONLY I F HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIMED EXPENDITURE OF RS.60 ,000/- AS MENTIONED IN THE RETURNED OF INCOME FILED. RELIANCE WAS PLACED ON S EVERAL CASE LAWS INCLUDING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT, (2011) 247 CTR 162(DELHI), HOLDING THAT IF AN EXPENDITURE HAS THE RELATION OR CONNECTION WITH OR PERTAINS TO EXEMPT INCOME, IT CANNOT BE DISALLOWED AS A DEDUCTION EVEN IF IT OTHERWISE, QUALIFIES UNDER THE OTHER PROVISIONS OF THE SAID ACT. IT WAS FURTHER HELD THAT IT IS ONLY IF THE ASS ESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF EXPENDITURE CLAIMED TO HAVE BEEN INCURRED, THE ASSESSING OFFICER GETS JURI SDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM ITA NO. 2 767/DEL/12 3 PART OF THE TOTAL INCOME UNDER THE SAID ACT, IN ACC ORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD IS THE METHOD STIPUL ATED IN RULE 8D OF THE I.T RULES WHICH IS APPLICABLE FROM ASSESSMENT YEAR 2008 -09. THUS, THE NECESSARY PRE-CONDITION FOR INVOKING SECTION 14A (2) READ WIT H RULE 8D IS SATISFACTION OF THE A.O. ACCEPTING THIS CONTENTION OF THE ASSESSEE THAT THE A.O HAS INVOKED RULE 8D WITHOUT RECORDING HIS SATISFACTION WITH THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE, THE LD. CIT (A) AFFORDED OPPORTUNITY TO T HE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A READ WITH RULE 8D BE NOT M ADE. IN RESPONSE THE ASSESSEE FURNISHED ITS EXPLANATION BEFORE THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) TO WHICH HE WAS NOT SATISFIED WITH AND HE LD THAT FOR THE PURPOSE OF DISALLOWANCE U/S 14A THE PROPORTIONATE INTEREST HAS TO BE CALCULATED IN THE CASE OF THE ASSESSEE. HE, HOWEVER, AGREED WITH THE ASSESSEE S SUBMISSION THAT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D, THE INTEREST COMPONENT DOES NOT INCLUDE THE BANK CHARGES AND FUR THER THE AVERAGE ASSETS SHOULD BE TOTAL ASSETS AND NOT JUST NET ASSETS AS HAS BEEN DONE BY THE A.O. HE ACCORDINGLY DIRECTED THE A.O TO RECOMPUTE THE IN TEREST DISALLOWANCE U/S 14A READ WITH RULE 8D. THUS THE DISALLOWANCE ON ACCOU NT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D (III) MADE BY THE A.O WAS U PHELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NO. 2 767/DEL/12 4 2. BEFORE THE TRIBUNAL THE LD. AR CONTENDED THAT IN CASE OF INVESTMENT IN FOREIGN COMPANY DIVIDEND AND CAPITAL GAIN BOTH ARE TAXABLE. HENCE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. LD. D.R VEHEMENTLY OPPOSED THE ABOVE CONTENTION OF THE LD. AR WITH THIS SUBMISSION THAT IT HAS BEEN RAISED FOR THE FIRST TI ME BEFORE THE TRIBUNAL. 3. WE AGREE WITH THE OBJECTION OF THE LD. DEPARTMEN TAL REPRESENTATIVE THAT THE ABOVE CONTENTION OF THE ASSESSEE WAS NOT RAISED BEFORE THE AUTHORITIES BELOW BUT AT THE SAME TIME UNDISPUTEDLY THE CONTENTION GO ES TO THE ROOT OF THE MATTER AND THERE IS NO NEED TO CONSIDER FRESH MATERIAL OUT SIDE THE RECORD FOR THE ADJUDICATION OF THE SAME. WE THUS IN THE INTEREST OF JUSTICE SET ASIDE THE ISSUE TO THE FILE OF THE A.O FOR HIS ADJUDICATION IN THIS RE GARD AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE BASIS OF MATE RIAL ALREADY AVAILABLE ON THE RECORD. WE FURTHER DIRECT THE A.O THAT IF ON VERIF ICATION OF THE ABOVE CONTENTION OF THE LD. AR ON FACTS HE FINDS IT CORRECT THEN THE RE IS NO NEED TO APPLY SECTION 14A READ WITH RULE 8D ON SUCH DIVIDEND AND CAPITAL GAIN BEING TAXABLE UNDER THE PROVISIONS OF I.T ACT 1961. THE GROUND IS THUS SET ASIDE FOR STATISTICAL PURPOSES. 4. IN RESULT, APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 27/8/2013. SD/- SD/ - (G.D.AGRAWAL) (I.C. SUDHIR) (VICE PRESIDENT) (JUDICIAL MEMBER) ITA NO. 2 767/DEL/12 5 DATED THE 27 TH DAY OF AUGUST , 2013 R. NAHEED COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI.