M/s. Cosmos International Ltd., New Delhi V. ACIT, New Delhi

ITA 2836/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6629 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT JAIN SENIOR
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2836/DEL./2015 (ASSESSMENT YEAR : 2008-09) M/S. COSMOS INTERNATIONAL LTD., VS. ACIT, RANGE 3, 1, ARADHANA COLONY, NEW DELHI. SECTOR 13, R.K. PURAM, NEW DELHI 110 021. (PAN : AACCC7895A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE REVENUE BY : SHRI AMIT JAIN, SENIOR DR DATE OF HEARING : 18.07.2018 DATE OF ORDER : 19.07.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. COSMOS INTERNATIONAL LIMITED (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FIL ING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATE D 27.02.2015 PASSED BY LD. CIT (APPEALS)-2, NEW DELHI QUA THE AS SESSMENT YEAR 2008-09 ON THE GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYE OF LA W AND ON FACTS. ITA NO.2836/DEL./2015 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN PASSING THE ORDER WITHOUT GIVING ASSESSEE AN OPPORTUNITY OF BEING HEARD, IN CLEAR VIOLATION OF T HE PRINCIPLE OF NATURAL JUSTICE. 3(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.21,92,022/- MADE BY AO INVOKING THE PROVISION OF SECTION 14A OF THE ACT. (II) THAT THE OWNED FUNDS BEING MORE THAN THE INVESTMENTS DURING THE YEAR, NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE. (III) THAT, IN ANY CASE, THE DISALLOWANCE UNDER SE CTION 14A CANNOT BE MORE THAN THE TAX FREE INCOME EARNED BY THE ASSESSEE. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS INTO THE BUSINESS OF EXPORT OF GOODS AGAINST INTERNATIONAL TENDERS FROM DIFFERE NT COUNTRIES AND COMMODITIES TRADING OF FUTURE MARKET THROUGH NCDEX. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE HAS ALLEGED LY CLAIMED EXEMPTION OF DIVIDEND INCOME OF RS.7,25,936/- UNDER SECTION 10(34) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT), WHICH FACT HAS BEEN DENIED BY THE ASSESSEE THAT NO DIVIDEND IS DISTRIBUTED BY THE VARIOUS MUTUAL FUNDS IN WHICH INVESTMENT HAS BE EN MADE AND AS SUCH, NO DISALLOWANCE IS APPLICABLE U/S 14A OF T HE ACT. HOWEVER, DECLINING THE CONTENTION RAISED BY THE ASS ESSEE, AO INVOKED THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D OF THE ITA NO.2836/DEL./2015 3 INCOME-TAX RULES, 1962 AND MADE A DISALLOWANCE WITH REGARD TO THE EXPENSES INCURRED IN EARNING EXEMPT INCOME TO T HE TUNE OF RS.21,92,022/- AND MADE ADDITION THEREOF TO THE TOT AL INCOME OF THE ASSESSEE. 3. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS CONFIRMING THE ADDITION BY DISMISSI NG THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER CONTENDED THAT SINCE THE ASSESSEE HAS NOT EARNED AN Y DIVIDEND INCOME DURING THE YEAR UNDER ASSESSMENT, THE PROVIS IONS CONTAINED U/S 14A READ WITH RULE 8D OF THE RULES ARE NOT ATTR ACTED. HOWEVER, ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS PASSED BY AO AS WELL AS LD. CIT (A). 6. UNDISPUTEDLY, THE ANNUAL ACCOUNTS, TAX AUDIT REP ORT AND BOOKS OF ACCOUNT FURNISHED BY THE ASSESSEE COMPANY HAVE NOT BEEN DISPUTED BY THE AO. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS ALSO CLAIMED NO EXPENDITURE TO EARN THE EXEMPT DIVI DEND INCOME ITA NO.2836/DEL./2015 4 DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS.3,34,41,350/-. 7. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S, WHEN WE EXAMINE COMPUTATION OF INCOME BROUGHT ON RECORD BY THE ASSESSEE COMPANY, AVAILABLE AT PAGE NO.2 OF THE PAPER BOOK, IT GOES TO PROVE THE CONTENTION RAISED BY THE ASSESSEE COMPANY AS TO DECLARING TOTAL INCOME AT RS.3,34,41,350/- AS WELL AS NOT TO EARNIN G ANY EXEMPT INCOME. FURTHERMORE, PROFIT AND LOSS ACCOUNT AS ON 31.03.2008, AVAILABLE AT PAGE 4 OF THE PAPER BOOK, ALSO GOES TO PROVE THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURIN G THE YEAR UNDER ASSESSMENT. HOWEVER, IT IS VERY SURPRISING A S TO FROM WHERE THE AO HAS PICKED UP THE FIGURE AS TO EARNING EXEMP T DIVIDEND INCOME OF RS.7,25,936/- BY THE ASSESSEE AS RECORDED IN PARA 3 OF THE ASSESSMENT ORDER. IT APPEARS THAT THIS FIGURE HAS BEEN TAKEN FROM SOME OTHER CASE AND HAS PROCEEDED TO COMPUTE T HE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE ACT. 8. PARA 4.2 OF LD. CIT (A)S ORDER ALSO GOES TO PRO VE THAT THE ENTIRE DISALLOWANCE HAS BEEN MADE U/S 14A READ WITH RULE 8D ON THE BASIS OF ASSUMPTION THAT, THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.2,00,00,000/- IN THE MUTUAL FUND AT VARIOUS T IMES AND BY GROWTH FUND, IT IMPLIES THAT THE DIVIDEND EARNED EV ERY YEAR IS REINVESTED IN THE FUNDS. WHEREAS THE DISALLOWANCE IS TO BE MADE ITA NO.2836/DEL./2015 5 ONLY WHEN THE DIVIDEND IS EARNED AND THE DISALLOWAN CE MADE ON THE BASIS OF ASSUMPTION IS NOT SUSTAINABLE IN THE EYES OF LAW. 9. IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO.772/DEL/2013 WHEREIN SIMILAR DISALLOWANCE MADE BY THE AO AND DELETED BY THE LD. CIT (A) WAS UPHELD BY THE TRIBUNAL. 10. HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS MAXOPP INVESTMENT LTD. & ORS. VS. CIT - (2012) 247 CTR 162 HELD THAT EXPENDITURE INCURRED IN RELATION TO SECTION 14A ARE TO BE ACTUAL EXPENDIUT4E AND NOT THE IMAGINED EXPENDITURE. THE OPERATIVE PART OF THE JUDGMENT IS AS UNDER :- THE EXPRESSION EXPENDITURE INCURRED REFERS TO AC TUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE BU T THE ACTUAL EXPENDITURE THAT IS IN CONTEMPLATION U NDER S.14A (1) IS THE ACTUAL EXPENDITURE IN RELATION T O OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. TH E COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCU RRED IN RELATION TO THE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE UNDER S.14A. 11. FURTHERMORE, THE AO WITHOUT RECORDING DISSATISF ACTION AS TO THE WORKING OUT MADE BY THE ASSESSEE THAT NO EXPEND ITURE HAS BEEN INCURRED NOR EARNED ANY DIVIDEND INCOME PROCEEDED T O INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D IN A MECHANICAL MANNER WHICH IS NOT PERMISSIBLE. ITA NO.2836/DEL./2015 6 12. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FO R THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQU ISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT T HE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, A S EARLIER PREVAILING, WOULD BECOME APPLICABLE. 13. BY FOLLOWING THE LAW LAID DOWN BY HONBLE APEX COURT IN JUDGMENT CITED AS GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) AND HONBLE HIGH COURT OF DELHI IN MAXOPP INVESTMENT LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE FIN DINGS RETURNED BY AO THAT WHEN THE ASSESSEE HAS EARNED AN Y DIVIDEND INCOME FORMING PART OF THE TOTAL INCOME DURING THE ASSESSMENT YEAR, SECTION 14A READ WITH RULE 8D IS NOT ATTRACTE D. SO, IN THESE ITA NO.2836/DEL./2015 7 CIRCUMSTANCES, THE AO AS WELL AS LD. CIT (A) HAVE E RRED IN MAKING/ CONFIRMING ADDITION OF RS.21,92,022/- ON ACCOUNT OF DISALLOWANCE MADE U/S 14A READ WITH RULE 8D, HENCE THE SAME IS O RDERED TO BE DELETED. CONSEQUENTLY, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 19 TH DAY OF JULY, 2018. SD/- SD/- (N.K. BILLAIYA) (KULDIP SING H) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 19 TH DAY OF JULY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-2, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.