ACIT, New Delhi V. M/s B.R. Arora & Associates (P) Ltd.,), New Delhi

ITA 2822/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86496 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 2822 /DEL/201 3 ASSESSMENT YEAR 200 8 - 09 ACIT, CIRCLE 2 (1) VS. M/S. B.R. ARORA & ASSOCIATES ( P) LTD. NEW DELHI. BB - 13 , GREATER KAILASH ENCLAVE II, NEW DELHI - 110013 (PAN AA A CB 4594 K ) ( APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PARWINDER KAUR, SR. D.R. RESPONDENT BY: SH . RAJ KUMAR GUPTA . CA . ORDER PER SHRI GEORG E GEORGE K , J M : 1. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT (A) - V, NEW DELHI DATED 5.2.2013. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09. 2. A SOLITARY ISSUE RAISED BY THE REVENUE IN ITS GROUNDS OF APPEAL IS THAT THE CIT (A) WAS NOT JUSTIFIED IN TAKING A STAND THAT THE ACTIONS OF THE AO IN INVOKING RULE 8D IS NOT (IN) ORDER . 3. BRIEFLY STATED, THE FACTS OF THE ISSUE ARE AS UNDER: THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE COURSE OF AS SESSMENT PROCEEDINGS FOR THE RELEVANT PERIOD UNDER DISPUTE, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.67,709/ - AND LONG TERM CAPITAL GAINS OF RS.27.51 LAKHS WHICH HAVE BEEN CLAIMED AS EXEMPT U/S 10 OF THE ACT. AFTER HAVING CONSIDER ED THE CONTENTIONS OF THE ASSESSEE AS RECORDED IN THE ASSESSMENT ORDER, THE AO HAD OBSERVED AS UNDER: IT A NO. 2822 /DEL /201 3 2 3.6. HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, I AM NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE THAT ASSESSEE HAS NOT INC URRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND, THEREFORE, THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IS DETERMIN ED IN ACCORDANCE WITH THE PROVISIONS OF SUB - RULE (2) OF RULE 8D OF THE I.T. RULES 1962. 3.1. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEFORE THE CIT (A). AFTER DUE CONSIDERATION OF THE ASSESSEE S CONTENTIONS, THE APPEAL OF THE ASSESSEE WAS ALLOWED BY THE CIT (A) FOR THE FOLLOWING REASONS: 5 (I) FROM A PERUSAL OF THE SUBMISSIONS MADE BY THE APPELLANT, IT HAS BEEN SEEN THAT THE VERSION OF THE APPELLANT IS THAT IT HAD SURPLUS FUNDS FROM WHICH INVESTMENTS WERE MADE ON WHICH D IVIDEND INCOME WAS EARNED. FROM A PERUSAL OF THE BALANCE SHEET AS AT 31.3.2008, IT HAS BEEN SEEN THAT THE APPELLANT WAS HAVING RESERVES & SURPLUS AT RS.22.09 CRORES WHEREAS AT 31.3.2007 THIS FIGURE WAS RS.20.18 CRORES; DURING THE PREVIOUS YEAR IT HAS MADE INVESTMENT OF RS.2.85 CRORES ONLY. THEREFORE, THE RATIO OF THE HON BLE HIGH COURT IS SQUARELY APPLICABLE. (II) THE AO HAS NOT RECORDED HIS SATISFACTION AS TO WHY THE VERSION OF THE APPELLANT IS NOT ACCEPTABLE TO IT, HE HAS MECHANICALLY APPLIED RULE 8D. (III) THE IM PLICATIONS OF SEC. 14A R.W.R 8D HAVE BEEN RECENTLY EXAMINED BY THE ITAT DELHI BENCH G, NEW DELHI IN A RECENT ORDER 7.2.2012 IN ITA NO.3001/DEL/2011 ASSESSMENT YEAR 2007 - 08, IN THE CASE OF SRI RAM GLOBAL ENTERPRISES LTD V. JCIT. THE ITAT HAS REFERRED TO TH E JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD V. CIT 203 TAXMAN 364 (DEL) 4. ELABORATELY CITING THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI RAM GLOBAL ENTERPRISES LTD V. JCIT (SUPRA) AND THE JU DGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD V. CIT (SUPRA), THE CIT (A) HAD, FURTHER, OBSERVED AS UNDER: 4. (ON PAGE 5) ... THE RATIO OF THE ORDER OF THE ITAT AND OF THE JUDGMENT OF THE HIGH COURT OF DELHI IS APPLICABLE IN THE CASES PERTAINING TO THE ASSESSMENT YEARS SUBSEQUENT TO THE ASST. YEAR 2007 - 08 ALSO. AS PER THE ORDER OF THE ITAT AND OF THE HIGH COURT, THERE SHOULD BE SATISFACTION OF THE AO IN REJECTING THE APPELLANT S CLAIM ARR IVED AT AFTER OBJECTIVE ANALYSIS OF FACTS. SATISFACTION IS SUBJECTIVE; THEREFORE, THE STANDARD OF NORMAL PRUDENCE IN SIMILAR FACTS AND CIRCUMSTANCES HAS TO BE APPLIED. FROM A PERUSAL OF THE ASST. ORDER, IT HAS BEEN SEEN THAT THE AO HAS NOT GIVEN THE REASONS WHY IT IS NOT ACCEPTING THE VERSION OF IT A NO. 2822 /DEL /201 3 3 THE APPELLANT THE GIST OF WHICH IS NOTED ABOVE. IN VIEW OF THE ABOVE, THE ACTION OF THE AO IN INVOKING RULE 8D IS NOT (IN) ORDER . 5. BEING AGGRIEVED, THE REVENUE HAS COME UP BEFORE US WITH THE PRESEN T APPEAL. DURING THE COURSE OF HEARING, THE LD. D.R SUBMITTED THAT THE CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THE AO HAD NOT RECORDED HIS SATISFACTION AS TO WHY THE VERSION OF THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF THE FACT ON RECORD THAT THE AO HAD DULY RECORDED HIS SATISFACTION IN THE ASSESSMENT ORDER BEFORE DISALLOWING THE CLAIM OF THE ASSESSEE U/S 14A READ WITH RULE 8D. IT WAS, THEREFORE, PLEADED THAT SINCE THE STAND OF THE CIT (A) WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF A. 14A R.W. RULE 8D , THE SAME REQUIRES TO BE ANNULLED. ON THE OTHER HAND, THE LD. AR REITERATED WHAT HAS BEEN REPRESENTED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE, IT WAS CONTENDED THAT (I) THE CLAIM OF THE ASSESSEE IS THAT NO EXPENSES WERE INCURRED FOR EARNING E XEMPTED INCOME; (II) THE AO ALSO DID NOT IDENTIFY/FOUND ANY EXPENDITURE INCURRED FOR EARNING THE EXEMPTED INCOME; (III) NO SUBSTANTIVE / CONSTRUCTIVE SATISFACTION OF AO BASED ON ANY MATERIAL THAT ANY EXPENSE INCURRED FOR EXEMPTED INCOME; (IV) THE MECHANICAL SATISFACTION O F AO AS RECORDED IN THE ORDER WAS A SIMPLICITOR MENTIONING OF WORD SATISFACTION WITHOUT ANY MATERIAL AND ONLY FOR THE REASON, ACCORDING TO AO, S. 14A IS AUTOMATIC IN CASE OF EXISTENCE OF EXEMPTED INCOME. IN VIEW OF THE ABOVE SUBMISSION, IT WAS PLEADED T HAT THE FINDINGS OF THE CIT (A) REQUIRE TO BE SUSTAINED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS COULD BE OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSEE HAD A SUBSTANTIAL I NTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL OF RS.3.98 CRORES AND RESERVE AND SURPLUS OF RS.22.09 CRORES, AGGREGATING TO RS.26.07 CRORES AS ON 31.3.2008 IN ITS KITTY. IT HAD MADE INVESTMENTS IN SHARES TO THE EXTENT OF RS.2.85 CRORES DURING THE PREVIOUS YEAR AND ALSO SOLD INVESTMENTS BROUGHT FORWARD FROM IT A NO. 2822 /DEL /201 3 4 THE EARLIER YEARS. FURTHERMORE, AS RIGHTLY POINTED OUT BY THE CIT (A), THE AO HAD NOT RECORDED HIS SATISFACTION AS TO WHY THE SUBMISSION OF THE ASSESSEE WAS NOT ACCEPTABLE, INSTEAD, HE WENT ON TO APPLY THE PROVISIONS OF S. 14A R.W.R 8D MECHANICALLY. FOR THIS PROPOSITION, WE WOULD LIKE TO POINT OUT THAT S. 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER SUB - SECTION (2) TO S. 14A OF THE ACT, THE AO WAS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WHEN HE WAS NOT SATISFIED WITH THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENSES IN RELATION TO EXEMPT INCOME, THEN ONLY HE/SHE CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED IN RULE 8D. THEREFORE, THE AO WAS, AT THE FIRST INSTANCE, REQUIRED TO EX AMINE THE CLAIM OF THE ASSESSEETHAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME. AFTER DUE EXAMINATION OF SUCH A CLAIM, IF THE AO WAS NOT SATISFIED ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THEN ONLY HE AO WAS REQUIRED TO ADOPT THE ME THOD AS PRESCRIBED IN RULE 8D. THEREFORE, RULE 8D IS NOT ATTRACTED/APPLICABLE TO ALL THE ASSESSEE WHO HAVE EXEMPT INCOME AND IT IS ALSO NOT COMPULSORY/NECESSARY THAT AN ASSESSEE MUST VOLUNTARILY COMPUTE THE DISALLOWANCE AS PER RULE 8D. WHEREVER NIL DIS ALLOWANCE MADE BY THE ASSESSEE WAS FOUND TO BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS OF SUCH ASSESSEE, THEN THE AO WAS REQUIRED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 8D. IN THE INSTANT CASE, NO SUCH EXERCISE WAS DONE BY THE AO, BUT, MEREL Y, THE AO WENT ON TO OBSERVE THAT 3.3. THE INVOCATION (SIC) INVOKING OF SECTION 14A IS AUTOMATIC AND COMES INTO OPERATION WITHOUT ANY EXCEPTION AS SOON AS DIVIDEND INCOME CLAIMED EXEMPT. THE POSSIBILITY OF INCURRING CERTAIN EXPENDITURE UNDER THE HEAD AD MINISTRATIVE EXPENDITURE FOR EARNING DIVIDEND INCOME CANNOT BE RULED OUT . [ COURTESY: PARA 3.3 OF ASST ORDER]. IN THIS CONNECTION, WE REFER TO THE FINDINGS OF THE IT A NO. 2822 /DEL /201 3 5 EARLIER BENCH OF THIS TRIBUNAL, ON AN IDENTICAL ISSUE TO THAT OF THE ISSUE UNDER DISPUTE, IN THE CASE OF SHRI RAM GLOBAL ENTERPRISES LTD V. JCIT (SUPRA). BY REFERRING TO THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD V. CIT (SUPRA), THE EARLIER BENCH HAS OBSERVED AS UNDER: 6 ..IN THE SAID DECISION, IT HAS BEEN HELD THAT EVEN FOR THE PRE - RULE 8D PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN AO, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE AO WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE THE AO IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE AO IS TO ASCERTAIN THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE AO CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEEA REASONABLE OPPORTUNITY, SATISFIED WITH THE C ORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED 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 REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 6.1. SIMILARLY, THE HON BLE ITAT, A BENCH, KOLKATA, IN THE CASE OF DCIT V. REI AGRO LTD, KOLKATA [ITA NO.1423/KOL/2011 DATED: 19.6.2013 A Y 2008 - 09, HAS RECORDED ITS FINDINGS AS UNDER: 6 ..A PERUSAL OF THE PROVISIONS OF SECTION 14A, MORE SPECIFICALLY SUB - SECTION (2), SHOWS THAT IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THEN THE AO SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. FOR THIS, THE METHOD IS PRESCRIBED IN RULE 8D. THE PROVISION OF SECTION 14A, SUB - SECTION (3) SPECIFIES THE PROVISION OF 14A(2) WOULD ALSO APPLY WHERE THE ASSESSEE MAKES A CLAIM THAT THERE IS NO EXPENDITURE INCURRED. THIS IS BECAUSE IF THE ASSESSEE DOES NOT MAKE A DISALLOWANCE UNDER SECTION 14A IN ITS COMPUTATION OF TOTAL INCOME, WHEN FILING THE RETURN, THEN IF SUB - SECTION (3) WAS NOT AVAILABLE, T HE AO MIGHT NOT BE ABLE TO MAKE A DISALLOWANCE UNDER SECTION 14A. THUS, WHERE THE ASSESSEE MAKES A CLAIM THAT ONLY A PARTICULAR AMOUNT IS TO BE DISALLOWED UNDER SECTION 14A OR WHERE THE ASSESSEE DOES NOT MAKE A DISALLOWANCE UNDER SECTION 14A, IF THE AO PR OPOSES TO INVOKE THE SECTION 14A, HE IS TO RECORD A SATISFACTION ON THAT ISSUE. THIS SATISFACTION CANNOT BE A PLAIN SATISFACTION OR A SIMPLE NOTE. IT IS TO BE DONE WITH REGARD TO ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CASE, THERE IS NO SATISFACTION BY THE AO AND, CONSEQUENTLY, IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BALARAMPURCHINI MILLS LTD [140 TTJ (KOL) 73] REFERRED TO SUPRA, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. IT A NO. 2822 /DEL /201 3 6 6.2 PRIMA FACIE, IN THE INSTANT CAS E, THE AO HAD NOT RECORDED THE REASONS FOR HAVING NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE TO ARRIVE AT SUCH A CONCLUSION. 6.3. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DISCUSSED IN THE FORE - GOING PARAGRAPHS AND A LSO IN CONSONANCE WITH (I) THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL (SUPRA) AND (II) THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA), WE ARE OF THE VIEW THAT THE CIT (A) WAS JUSTIFIED IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. IN SUBSTANCE, THE ISSUE IS DECIDED AGAINST THE REVENUE. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT , THE REVENUE S APPEAL IS DISMISSED. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY , 201 5 . S D/ - SD/ - ( N.K. SAINI ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 13 TH JANUARY , 201 5 . AKS/ - DCOM COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI