ACIT, New Delhi V. Shri Ashwani Khurana, New Delhi

ITA 2799/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3509 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEDHI SRIVASTAVA
• Keywords: Capital asset; Earning of tax free income
• Section: 56(2); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AN D SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.2799/DEL./2015, A.Y. 2010-11 D.C.I.T VS. SH. ASHWANI KHURANA CENTRAL CIRCLE -20, 5, GRE EN AVENUE, NEW DELHI VASANT KUNJ, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. ASHOK KHUR ANA, ADV. REVENUE BY : SHRI NEDHI SRIVASTAV A, CIT- DR DATE OF HEARING : 24.01.2019 DATE OF ORDER : 26.02.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT DY. COMMISSIONER OF INCOME T AX, NEW DELHI (HEREINAFTER REFERRED TO AS 'THE REVENUE') BY FILIN G THE AFORESAID APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 27/02 /2015 PASSED BY LD. COMMISSIONER OF INCOME TAX(APPEALS), NEW DELHI QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT : 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN L AW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE DISALLOWANC E OF RS. 23,28,214/- DISALLOWED BY THE A.O. U/S 14A READ WIT H RULE ITA NO. 2799/DEL./2015 2 8D. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 2,76,17,625/- MADE BY THE A.O. ON ACCOUNT OF CAPITA L GAIN. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ANY / A LL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F THE HEARING OF THE APPEAL. 2. BRIEFLY STATED THAT FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : AO NOTICED THAT THE ASSE SSEE HAS SHOWN DIVIDEND INCOME OF RS. 21,90,904/- UNDER THE HEAD OTHER RECEIPTS ON THE CREDIT SIDE OF P & L ACCOUNT AND CLAIMED THE SA ME AS EXEMPT U/S 10(34) OF THE ACT. HOWEVER, THE AO DISAGREEING WITH THE CLAIM OF THE ASSESSEE AS THE EXEMPTION U/S 10(34) OF THE ACT PRO CEEDED TO INVOKE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D OF T HE ACT AND PROCEEDED TO MAKE DISALLOWANCE OF RS. 23,28,214/- A ND MADE ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSEE. AO ALS O MADE ADDITION OF RS. 2,76,17,625/- ON ACCOUNT OF CAPITAL GAIN QUA THE PR OPERTY SOLD BEARING NO. 56 GOLF LINKS, NEW DELHI BY DECLING THE CONTENT ION RAISED BY THE ASSESSEE THAT FORFEITED AMOUNT AGAINST A PROPERTY H AS TO BE TAXED AS A CAPITAL GAIN. 3. ASSESSED CARRIED THE MATTER BEFORE THE LD. CIT(A ) BY WAY OF FILING THE APPEAL WHO HAS DELETED THE ADDITION BY ALLOWING THE APPEAL FILED BY THE ASSESSEE. 4. WE HAVE HEARD THE LD. DR FOR THE REVENUE AND GON E THROUGH THE ORDER PASSED BY THE LOWER REVENUE AUTHORITY. 5. GROUND NO. 1 ITA NO. 2799/DEL./2015 3 GROUND NO. 1 IS GENERAL IN NATURE, HENCE, NEED NO SPECIFIC FINDINGS. 6. GROUND NO. 2 UNDISPUTEDLY THE ASSESSEE HAS EARNED A DIVIDEND IN COME OF RS. 21,90,904/- DURING THE YEAR UNDER ASSESSMENT. IT IS ALSO NOT IN DISPUTE THAT THERE IS NO EXPENSES CLAIMED BY ASSESSEE IN TH E PROFIT AND LOSS ACCOUNT EXCEPT AUDIT FEE. HOWEVER, AO BY INVOKING T HE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D (II) MADE ADDIT ION OF RS. 23,28,214/- AS AGAINST THE DIVIDEND INCOME OF RS. 2 1,90,904/-. 7. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT(A) RELIED ASSESSMENT ORDER PASSED BY THE AO BY RELYING ON THE DECISION RENDERED BY HONBLE SUPREME COURT OF INDIA IN CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME T AX, NEW DELHI (2018) 402 ITR 640(SC) . HOWEVER, ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE CONTENDED THAT AO PROCEEDED TO INV OKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D WITHOUT RECORDI NG HIS DISSATISFACTION AS TO THE WORKING OF COMPUTATION OF INCOME GIVEN BY THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE TO EARN THE EXEMPT INCOME AND ALSO RELIED UPON MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX, NEW DELHI (SUPRA). 8. THE LD. CIT(A) AFTER PERUSING THE P & L ACCOUNT HAS PROCEEDED TO HOLD THAT ALL THE EXPENDITURE DEBITED TO P & L ACCO UNT HAVE BEEN SUO MOTO ADDED BACK BY THE ASSESSEE IN THE COMPUTATION OF INCOME AND HAS ALSO EXAMINED COMPUTATION OF INCOME (COI) WHICH EX PLAINS ASSESSEE HAD ADDED BACK AUDIT FEE OF RS. 20,00,000/-, MUNICI PAL FEE OF RS. 62,707/- AND DONATION OF RS. 14,72,900/- AND NOTHIN G ELSE WAS THERE TO BE TREATED AS EXPENDITURE. ITA NO. 2799/DEL./2015 4 8. HONBLE DELHI HIGH COURT IN JUDGMENT CITED AS MAXOPP INVESTMENT LTD. HELD THAT IN CASE THE ASSESSING OFFICER IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE H E SHALL HAVE TO REJECT THE CLAIM AND RECORD THE REASON FOR DOING SO BY TUR NING FOLLOWING FINDINGS :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUBSE CTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST RE JECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPE NDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS . IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE B Y THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF A DOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF .SUB-SECTION (2) OF SECTION 14A . PRIOR TO THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRERULE 80 PERI OD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE C LAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN IN CURRED IN' RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRE CTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO E XPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE U NDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSIN G OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESS ING OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITERIA AND AFTER GI VING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORREC TNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSES SING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRE D IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REAS ONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 9. SO, IN THIS CASE AO WITHOUT RECORDING HIS DISSAT ISFACTION / REASONS AS TO HIS SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE MECHANICALLY PROCEEDED TO INVOKE THE PROVISIONS CON TAINED U/S 14A WITH ITA NO. 2799/DEL./2015 5 RULE 8D WHICH IS NOT PERMISSIBLE UNDER LAW. MOREOVE R THE LD. CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF FACTS THAT EXP ENDITURES DEBITED TO P & L ACCOUNT BY THE ASSESSEE HAVE BEEN SUO MOTO ADDE D BACK BY THE ASSESSEE IN THE COMPUTATION OF INCOME. SO, WE FIND NO SCOPE TO INTERFERE INTO THE FINDINGS RETURNED BY LD. CIT(A). CONSEQUENTLY GROUND NO. 2 IS DETERMINED AGAINST THE REVENUE. 10. GROUND NO. 3 UNDISPUTEDLY ASSESSEE HAD ENTERED INTO AN AGREEMENT TO SELL QUA HIS PROPERTY BEARING NO. 56 GOLF LINKS, NEW DELHI WITH ONE SANJAY PASHI AFTER ACCEPTING THE EARNEST MONEY OF RS. 4,62,50,00 0/-, WHICH WAS SUBSEQUENTLY FORFEITED AS THE PROSPECTIVE BUYER SAN JAY PASHI HAS FAILED TO PERFORM HIS PART OF THE CONTRACT. IT IS ALSO NOT IN DISPUTE THAT THE PROPERTY IN QUESTION WAS ULTIMATELY SOLD BY ASSESSE E TO M/S. HAP APPAREL PVT. LTD. FOR RS. 21.75 CRORE, (ASSESSEES SHARE 50%). IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS ALREADY OFFERED CA PITAL GAIN ON THE SALE PROCEED OF RS. 21.75 CRORE. 11. HOWEVER ASSESSEE HAS DEDUCTED RS. 4,62,50,000/- THE AMOUNT OF SALE PROCEEDS FORFEITED FROM THE COST OF ACQUISITIO N OF THE PROPERTY IN QUESTION U/S 51 OF THE ACT AND TREATED THE EXCESS O F FORFEITED AMOUNT AND COST OF ASSETS I.E. 2,76,17,652/- AS CAPITAL RE CEIPTS. 12. THE LD. CIT(A) HAS DECIDED THE ISSUE BY DISCUSS ING SECTION 51 OF THE ACT AND HAS ALSO REACHED THE CONCLUSION THAT U /S 56(2) A NEW SUB- SECTION (IX) HAS BEEN INSERTED WITH EFFECT FROM 01. 04.2015 TO TREAT THE FORFEITED SUM AS INCOME FROM OTHER SOURCES, BUT IT IS NOT APPLICABLE TO THE YEAR UNDER ASSESSMENT WHICH IS A.Y 2010-11. 13. A CO-ORDINATE BENCH OF TRIBUNAL IN CASE CITED A S RANDHIR SINGH KADAN VS. DEPARTMENT OF INCOME TAX DECIDED THE IDENTICAL ISSUE BY ITA NO. 2799/DEL./2015 6 TREATING THE EARNEST MONEY RECEIVED AND FORFEITED B Y THE ASSESSEE IN RESPECT OF ANY NEGOTIATION FOR TRANSFER OF CAPITAL ASSETS TO BE DEDUCTED FROM THE COST OF ASSETS. SINCE IN A.Y. 10-11 THERE WAS NO PROVISION UNDER THE ACT FOR TREATING THE FORFEITURE OF EARNEST MONE Y RECEIVED DURING THE NEGOTIATION OF A CAPITAL ASSETS AS INCOME FROM OTHE R SOURCES, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. THE ISSUE IN CONTROVERSY IS ALSO COVERED BY DECISION RENDERED BY CO-ORDINATE BENCH O F TRIBUNAL IN CASE OF VIJAY SINGH (SUPRA). CONSEQUENTLY GROUND NO. 3 I S DETERMINED AGAINST THE REVNUE. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, SO, F INDING NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER PASSED BY LD. C IT(A), THE PRESENT APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 26 TH FEBRUARY, 2019. SD/- SD/- (B.R.R.KUMAR) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 26/02/ 2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXVI, NEW DELHI. 5. CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI ITA NO. 2799/DEL./2015 7 DATE OF DICTATION 18.0 2 .2019 DATE ON WH ICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.0 2 .2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 26.02.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 26.02.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 26.02.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DAT E ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER