CAPRICON REALTY LTD., MUMBAI V. DCIT ,CIRCLE -2(1)(1), MUMBAI

ITA 2954/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5422 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 08-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP LD
• Assessee Lawyers: TANMAY PHADKELD
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.2954/MUM/2018 ( / ASSESSMENT YEAR: 2014-15) CAPRICON REALTY LTD. 6 TH FLOOR, SHRI VITHALDAS CHAMBERS 16, MUMBAI SAMACHAR MARG FORT, MUMBAI 400 001 / VS. D CIT - CIR. 2(1)(1) 5 TH FLOOR, AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 ! ./ ./PAN/GIR NO. AAACC-4297-J ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI TANMAY PHADKE-LD. DR DEPARTMENT BY : SHRI NEIL PHILIP LD. DR / DATE OF HEARING : 14/05/2019 / DATE OF PRONOUNCEMENT : 20/05/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [I N SHORT REFERRED TO AS AY] 2014-15 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-4, MUMBAI, [IN SHORT REFERRED TO AS CIT( A)], APPEAL NO. CIT(A)- 4/E-FILING-111/DCIT 2(1)(1)/2016-17 DATED 27/03/201 8 QUA CONFIRMATION OF CERTAIN DISALLOWANCE U/S 14A. 2 2.1 FACTS ON RECORD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED AS PROPERTY DEVELOPER WAS ASSESSED U/S 143(3) ON 28/12/2016 WHEREIN THE ASSESSEE WAS SADDL ED WITH DISALLOWANCE U/S 14A FOR RS.6.80 LACS. DURING ASSESSMENT PROCEED INGS, IT TRANSPIRED THAT THE ASSESSEE EARNED AGGREGATE EXEMPT INCOME OF RS.2 2.02 LACS AND OFFERED SUO-MOTO DISALLOWANCE AGAINST THE SAME U/S 14A IN ITS COMPUT ATION OF INCOME FOR RS.1.93 LACS, THE WORKING OF WHICH WA S FURNISHED DURING ASSESSMENT PROCEEDINGS. HOWEVER, FINDING MISTAKE IN THE SAME, LD. AO COMPUTED ADDITIONAL DISALLOWANCE OF RS.6.80 LACS U/ R 8D(2)(III) WHICH WAS NOTHING BUT 0.5% OF AVERAGE INVESTMENTS AS PER FORM ULA PRESCRIBED UNDER THE RULE. 2.2 BEFORE, LD. FIRST APPELLATE AUTHORITY, THE ASSE SSEE SUBMITTED THAT SUO- MOTO DISALLOWANCE MADE BY THE ASSESSEE WAS SUFFICIENT AN D LD. AO, WITHOUT REJECTING THE SAME AND RECORDING REQUISITE SATISFACTION, COULD NOT PROCEED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D. THE ATTENTION WAS DRAWN TO THE FACT THAT COMPUTATIONS MADE BY LD. AO WERE ERRONEOUS. THE LD. FIRST APPELLATE AUTHORITY, WHILE UPHOLDING THE ACTION OF LD. AO IN APPLYING RULE 8D, DIRECTED LD. AO TO WORK OUT CORRECT COMPUT ATIONS AS SUBMITTED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR] SUBMITTED THAT LD. AO ERRED IN APPLYING RULE 8D WITHOUT RECORDING REQUISITE SATISFACTION AS TO HOW THE DISALLOWANCE COMPUTED BY THE ASSESSEE WA S NOT CORRECT. THE SUBMISSIONS ARE SOUGHT TO BE FORTIFIED BY DRAWING O UR ATTENTION TO THE FACT THAT THE ASSESSEE HAD MADE DISALLOWANCE OF RS.0.90 LACS ON ACCOUNT OF INDIRECT EXPENDITURE WHICH LD. AO FAILED TO TAKE NO TE OF. LASTLY, IT HAS BEEN 3 POINTED OUT THAT THE COMPUTATIONS MADE BY LD. AO WE RE ERRONEOUS SINCE VALUE OF INVESTMENTS INCLUDE INVESTMENT IN PROPERTY WHICH WERE NOT CAPABLE OF YIELDING EXEMPT INCOME. THE CORRECT DISALLOWANCE , AS PER LD. AR, BY EXCLUDING THESE INVESTMENTS, WOULD WORK OUT TO RS.6 .06 LACS AS AGAINST RS.8.74 LACS WORKED OUT BY LD. AO. THE LD. DR SUPPO RTED THE STAND IN THE IMPUGNED ORDER. 4. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS. W E FIND THAT ASSESSEE HAD OFFERED SUO-MOTO DISALLOWANCE OF RS.1.93 LACS WHICH COMPRISED-OFF OF DIRECT EXPENDITURE FOR RS.1.03 LACS AND INDIRECT EX PENDITURE FOR RS.0.90 LACS. THE LD. AO, ASSUMING THE SAME TO BE DIRECT EX PENDITURE AND TERMING THE ASSESSEES COMPUTATION AS ERRONEOUS, PROCEEDED TO APPLY RULE 8D. THE SAID VERY FACT WOULD REVEAL THAT THE DISALLOWAN CE MADE BY THE ASSESSEE WAS NOT APPRECIATED BY THE LD. AO AND THE ACTION OF LD. AO IN PROCEEDING TO APPLY RULE 8D COULD NOT BE SAID TO BE IN ACCORDANCE WITH LAW. THE LD. AO, DISREGARDING THE ASSESSEES COMPUTATION S, PROCEEDED TO COMPUTE DISALLOWANCE U/S 14A WITHOUT RECORDING REQU ISITE SATISFACTION AS TO HOW THE AFORESAID ESTIMATED DISALLOWANCE MADE BY TH E ASSESSEE WAS NOT CORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE. THE PROVISIONS OF RULE 8D, IN OUR OPINION, COULD NOT BE APPLIED MECHA NICALLY AND STRAIGHTWAY WITHOUT CONSIDERING THE COMPUTATIONS MADE BY THE AS SESSEE BUT THE APPLICATION OF THE AFORESAID RULE, FIRST, HAD TO CR OSS THE BARRIER OF REQUISITE SATISFACTION BY LD. AO AS TO HOW THE DISALLOWANCE W ORKED OUT BY THE ASSESSEE WAS NOT CORRECT OR REASONABLE, HAVING REGA RD TO HIS ACCOUNTS. OUR VIEW IS FORTIFIED BY TWO LEADING JUDGEMENTS OF HON BLE APEX COURT RENDERED UNDER IDENTICAL CIRCUMSTANCES WHICH COULD BE CITED AS FOLLOWS: - 4 (I) GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. D CIT [2017] 81 TAXMANN.COM 111 (II) MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 T AXMANN.COM 154] IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LIMITED (SUPRA ) , THE HONBLE COURT HAS OBSERVED AS UNDER: - 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIO NS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESC RIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OF FICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE M ADE 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 B EFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATI ON, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 38. IN THE PRESENT CASE, WE DO NOT FIND ANY MENTION OF THE REASONS WHICH HAD PREVAILED UPON THE ASSESSING OFFICER, WHILE DEALING WITH THE ASSESSMENT YEAR 2002-2003, TO HOLD THAT THE CLAIMS OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND INCOME CANNOT BE ACCEPTED AND WHY THE ORDERS OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS WERE NOT ACCEPTABLE TO THE ASSESSI NG OFFICER, PARTICULARLY, IN THE ABSENCE OF ANY NEW FACT OR CHANGE OF CIRCUMSTANCES. NEITHER ANY BASIS HAS BEEN DISCLOSED ESTABLISHING A REASONABLE NEXUS BETWEEN T HE EXPENDITURE DISALLOWED AND THE DIVIDEND INCOME RECEIVED. THAT ANY PART OF THE BORR OWINGS OF THE ASSESSEE HAD BEEN DIVERTED TO EARN TAX FREE INCOME DESPITE THE AVAILA BILITY OF SURPLUS OR INTEREST FREE FUNDS AVAILABLE (RS. 270.51 CRORES AS ON 1.4.2001 AND RS. 280.64 CRORES AS ON 31.3.2002) REMAINS UNPROVED BY ANY MATERIAL WHATSOEVER. WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT APPLY TO ASSESSMENT PROCEEDINGS UNDER THE ACT, THE NEED FOR CONSISTENCY AND CERTAINTY AND EXISTENCE OF STRONG A ND COMPELLING REASONS FOR A DEPARTURE FROM A SETTLED POSITION HAS TO BE SPELT O UT WHICH CONSPICUOUSLY IS ABSENT IN THE PRESENT CASE. IN THIS REGARD WE MAY REMIND OURS ELVES OF WHAT HAS BEEN OBSERVED BY THIS COURT IN RADHASOAMI SATSANG V. CIT [1992] 1 93 ITR 321/60 TAXMAN 248 (SC). 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UN IT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUN DAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 39. IN THE ABOVE CIRCUMSTANCES, WE ARE OF THE VIEW THA T THE SECOND QUESTION FORMULATED MUST GO IN FAVOUR OF THE ASSESSEE AND IT MUST BE HE LD THAT FOR THE ASSESSMENT YEAR IN QUESTION I.E. 2002-2003, THE ASSESSEE IS ENTITLED T O THE FULL BENEFIT OF THE CLAIM OF DIVIDEND INCOME WITHOUT ANY DEDUCTIONS 5 SIMILAR ARE THE OBSERVATIONS IN MAXOPP INVESTMENT LTD. VS CIT [SUPRA] WHEREIN IT HAS BEEN HELD AS UNDER: - 41) HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING T HE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE T O RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATUR E OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHAR ES IS TO BE EXAMINED BY THE AO. RESPECTFULLY FOLLOWING THE SAME, WE CONCLUDE THAT L D. AO, WITHOUT HAVING RECORDED REQUISITE SATISFACTION AS TO HOW THE COMPU TATIONS MADE BY THE ASSESSEE WERE NOT CORRECT, COULD NOT BE CLINCHED WI TH THE BLANKET JURISDICTION TO APPLY RULE 8D. THEREFORE, THE ADDIT IONAL DISALLOWANCE MADE BY LD. AO COULD NOT BE SUSTAINED UNDER LAW. BY DELE TING THE ADDITIONAL DISALLOWANCE OF RS.6.80 LACS, WE ALLOW THE APPEAL. 5. RESULTANTLY, THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 20/05/2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 20/05/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )& * , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE 6 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI