M/s. Azimuth Investments Ltd., New Delhi V. ACIT, New Delhi

ITA 283/DEL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2820 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SRI S.V.MEHROTRA, AM AND SRI C.M.GARG, JM ITA NO. 283/DEL./2013 : A SSTT. YEAR : 2009-10 AZIMUTH INVESTMENTS LTD. 43, COMMUNITY CENTRE, NEW FRIENDS COLONY NEW DELHI VS ACIT CIRCLE-2(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACB1031F APPELLANT BY : SH. SURENDER KUMAR, CA RESPONDENT BY : SH. K.K.JAIS WAL, DR DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 08.01.2016 ORDER PER S.V.MEHROTRA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 07.11.2012 OF THE LD. CIT(A)-V, NEW DELHI. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, A NON BANKING FINANCIAL COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF INTER-CORPORATE DEPOSITS AND INVESTMENT S OF SURPLUS FUNDS. THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING LOSS OF RS. 3,86,87,237/-. THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT A LOSS OF RS. 3,83,15,120/- INTER- ALIA MAKING DISALLOWANCE U/S 14A OF THE ACT OF RS. 3,64,970/-, AS AGAINST ITA NO. 283/DEL/2013 ZIMUTH INVESTMENTS LTD. 2 THE SUM OF RS. 25,000/- DISALLOWED BY ASSESSEE IN RESPECT OF DIVIDEND INCOME OF RS. 33,59,952/- WHICH IT HAD CLAIMED AS EXEMPT U/S 10(34) OF THE INCOME TAX ACT. THE DISALLOWANCE HAD BEEN MADE BY INVOKING SEC TION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. 3. BEFORE LD. CIT(A) THE ASSESSEE SUBMITTED THAT A O SHOULD BE SATISFIED FIRST WITH THE EXPLANATION OF THE ASSESSEE BEING NOT ACC EPTABLE. LD CIT(A) REFERRED TO THE DECISION IN THE CASE OF RAM GOPAL ENTERPRISES L TD. VS. JCIT WHEREIN THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF MAX OPP INVESTMENT LTD. VS. CIT 203 TAXMAN 364 (DEL) HAD BE EN REFERRED TO WHEREIN IT HAS BEEN HELD THAT AO HAS TO RECORD HIS SATISFACTIO N FIRST REGARDING ASSESSEES CLAIM BEING NOT ACCEPTABLE AND THEN ONLY HE CAN EMB ARK UPON DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTI ON 14A. LD. CIT(A) OBSERVED THAT THOUGH ASSESSEE HAD NOT PROVIDED AS T O WHAT WAS THE BASIS FOR ARRIVING AT SUM OF RS. 25,000/- BUT AT THE SAME TI ME AO HAD ALSO NOT RECORDED HIS SATISFACTION IN THE ASSESSMENT ORDER. HE FURTHE R HELD THAT THE FIRST APPELLATE AUTHORITY HAS COTERMINOUS POWER WITH THE AO AND, TH EREFORE, HE WAS SATISFIED THAT THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPT ABLE. 4. BEING AGGRIEVED WITH THESE FINDINGS THE ASSES SEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL -: THAT THE ORDER DATED 07.11.2012 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS)-V, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN A S MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED ASSIS TANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), NEW DELHI IN ADDING BACK A SUM OF RS. 3,64,917/- ON ACCOUNT OF EXPENDITURE INCURRED BY TH E APPELLANT COMPANY FOR EARNING DIVIDEND BY APPLYING THE PROVIS IONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961 READ TOGETHER WITH RULE 8D OF THE ITA NO. 283/DEL/2013 ZIMUTH INVESTMENTS LTD. 3 INCOME TAX RULES, 1962 AS AGAINST RS. 25,000/- ESTI MATED BY THE APPELLANT COMPANY. 5 . LD. COUNSEL SUBMITTED THAT ADMITTEDLY ASSESSING OFFICER HAD NOT RECORDED THE SATISFACTION AS CONTEMPLATED U/S 14A( 2) AND THIS BASIC FUNCTION ASSIGNED TO A PARTICULAR AUTHORITY BY LEGISLATURE C OULD NOT BE USURPED BY HIGHER AUTHORITIES. 6. LD. DR RELIED ON THE ORDER OF CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD OF THE CASE. THE SHORT ISSUE IS WHETHER THE BASIC FUNCTIO NS ASSIGNED TO THE ASSESSING OFFICER IN THE ACT CAN BE DISCHARGED BY CIT(A) WHIL E EXERCISING HIS COTERMINOUS POWER OR NOT. SECTION 14A(2) READS AS UNDER -: 14A(2) THE ASSESSING OFFICER SHALL DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDAN CE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFIC ER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED W ITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 8. A BARE READING OF THE AFOREMENTIONED PROVISIO N MAKES IT CLEAR THAT THE SATISFACTION IS TO BE RECORDED BY ASSESSING OFFICER AND BY NO OTHER AUTHORITY. UNDER SECTION 251 LD. CIT(A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT IS EMPOWERED TO CONFIRM, REDUCE, ENHANCE OR ANNUL T HE ASSESSMENT BUT IF THE ASSESSMENT ORDER SUFFERS FROM JURISDICTIONAL ERROR S THEN LD. CIT(A) HAS NO POWER TO CORRECT SUCH JURISDICTIONAL ERRORS. THE COTERMINOUS POWERS VESTED IN CIT(A) DOES NOT IMPLY THAT HE CAN CLOTHE HIMSELF WITH POWERS TO CORRECT ITA NO. 283/DEL/2013 ZIMUTH INVESTMENTS LTD. 4 THE JURISDICTIONAL DEFECTS IN THE ASSESSMENT ORDER. IT IS WELL SETTLED LAW THAT WHERE THE VERY INITIATION OF ASSESSMENT PROCEEDINGS BY THE AO WAS INVALID THEN LD. CIT(A) CANNOT DIRECT FOR MAKING A FRESH A SSESSMENT. THE CIT(A) SHOULD ANNUL THE ASSESSMENT WHERE THE ASSESSMENT PR OCEEDING IS A NULLITY IN THE SENSE THAT THE AO HAD NO JURISDICTION AB INITI O TO TAKE THE PROCEEDING. IN THE PRESENT CASE THE AO COULD TAKE UP THE ISSUE REG ARDING DISALLOWANCE U/S 14A ONLY AFTER RECORDING SATISFACTION. NON-RECORDIN G OF SATISFACTION RESULTS INTO CREEPING OF ILLEGALITY IN THE ASSESSMENT ORDER AND NOT A MERE IRREGULARITY. THE JURISDICTION OF RECORDING SATISFA CTION FOR INVOKING SECTION 14A LIES WITH THE ASSESSING OFFICER AND ONCE HE HAS NOT RECORDED SUCH SATISFACTION THEN THE SAID BASIC FUNCTION OF AO WHI CH CLOTHES HIM JURISDICTION TO MAKE DISALLOWANCE U/S 14A CANNOT BE USURPED BY LD. CIT(A). WE, THEREFORE SET ASIDE THE ORDER OF LD. CIT(A). 9. IN THE RESULT THE ASSESSEES APPEAL IS ALLOW ED. (ORDER PRONOUNCED IN THE COURT ON 08 /01/201 6). SD/- SD/- (C.M.GARG) (S.V.MEHROTRA) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 08 / 01/2016 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ITA NO. 283/DEL/2013 ZIMUTH INVESTMENTS LTD. 5 DATE INITIAL 1. DRAFT DICTATED ON 06.01.2016 2. DRAFT PLACED BEFORE AUTHOR 06.01.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.