M/s. KLJ Town Planners (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 308/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7311 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARG
• Assessee Lawyers: VK SABHARWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A .NO.308/DEL/2014 ASSESSMENT YEAR-2009-10 KLJ TOWN PLANNERS (P) LTD., KLJ HOUSE, 63, RAMA MARG, NAJAFGARH ROAD, NEW DELHI. (PAN: AACCK7445E) (APPELLANT) VS ACIT, CENTRAL CIRCLE-04, NEW DELHI. (RESPONDENT) APPELLANT BY SHRI V.K. SABHARWAL, ADV. RESPONDENT BY SHRI RAMAN KANT GARG, SR. DR ORDER PER BEENA A. PILLAI, JM THE PRESENT APPEAL ARISES FROM THE ORDER OF THE LD . CIT(A)- XXXIII, NEW DELHI VIDE ORDER DATED 30.09.2013, FOR ASSESSMENT YEAR 2009-10, ON THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) HAS PASSED THE IMPUGNED ASSESSMENT ORDER WITHOUT TAKING INTO CONSIDERATION ALL THE FACTS BEF ORE HIM WHICH MAKE IT UNREASONABLE, UNJUSTIFIED AND BAD IN LAW. 2. THAT THE ACTION ON THE PART OF THE ASSESSING OFFICER IS HIGHLY ARBITRARY, IMPROPER AND WITHOUT APPLICATION OF MIND, UNREASONABLE, UNJUSTIFIED AND BAD IN LAW AND DESERVES TO BE DELETED, SO THAT PROP ER JUSTICE CAN BE GIVEN TO THE APPLICANT. DATE OF HEARING 5.1.2016 DATE OF PRONOUNCEMENT 18.1.2016 I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 2 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER HAS ERRED WHILE MAKING ADDITION ON ACCOUNT OF SECTION 14A OF RS.5,83,545/- WHICH IS ILLEGAL, UNJUSTIFIED AND REQUIRED TO BE DELETED. 2. BRIEF FACTS OF THE CASE AS RECORDED BY THE LD . ASSESSING OFFICER ARE AS UNDER:- 2.1. THE ASSESSEE FILED ITS RETURN OF INCOME FOR AS SESSMENT YEAR 2009-10 ON 27.09.2009 DECLARING AN INCOME OF RS. 4, 47,36,108/. THE RETURN WAS PROCESSED U/S 143(1) AND THE CASE WA S SELECTED FOR SCRUTINY. ACCORDINGLY, NOTICES WERE ISSUED TO THE ASSESSEE. THE ASSESSEE IS ENGAGED IN REAL ESTATE DEVELOPER, B UILDING ACTIVITY. 2.2. DURING THE ASSESSMENT PROCEEDINGS, THE LD. ASS ESSING OFFICER OBSERVED THAT ALTHOUGH THE ASSESSEE IS A REAL ESTAT E DEVELOPER, NO PROJECT WAS COMPLETED DURING THE YEAR. THE COMPANY HAS SHOWN INCOME FROM RECEIPT OF MANAGEMENT FEE, TRANSFER OF RIGHT IN PARK CENTRE AND INTEREST ON FDR ETC. LD. ASSESSING OFFI CER ASKED THE ASSESSEE TO EXPLAIN WHY EXPENDITURE INCURRED IN REL ATION TO INCOME NOT INCLUDIBLE IN THE TAXABLE INCOME SHOULD NOT BE DISALLOWED AS PER PROVISION OF SECTION 14A OF THE A CT. 2.3. AFTER GOING THROUGH THE SUBMISSIONS OF THE ASS ESSEE, THE LD. ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAS NOT DISALLOWED THE EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME IN VIEW OF THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, AND MADE AN ADDITION OF RS. 5,83,545/-. 3. AGGRIEVED BY THE ORDER OF THE LD.AO, ASSESSEE PR EFERRED AN APPEAL BEFORE THE HONBLE CIT(A). THE LD.CIT(A) HEL D THAT THOUGH DURING THE YEAR, THE ASSESSEE HAD NET PROFITS AMOUN TING TO RS. I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 3 4,29,51,263/-, USE OF BORROWED FUNDS FOR MAKING INV ESTMENT DURING THE YEAR COULD NOT BE RULED OUT. HE ACCORDIN GLY CONFIRMED THE ADDITION MADE BY THE LD.AO. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE US NOW. 4.1. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. HE REITERATED THAT THAT THE ASSESSEE HAS MADE THE INVE STMENTS IN ITS SUBSIDIARY COMPANIES AND OTHER GROUP COMPANIES. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS CAPITAL AND FREE RE SERVES AMOUNTING TO RS.68,41,12,730/- AND THE INVESTMENT D URING THE YEAR AMOUNTS TO RS. 1,75,77,400/- HE FURTHER SUBMIT TED THAT THE ASSESSEE HAD EARNED A NET PROFIT OF RS. 4,29,51,263 /- AND THE NET SURPLUS WAS RS. 2,71,38,381/-. 4.2. THE LD.AR SUBMITS THAT THE ASSESSEE HAD ALSO T AKEN LOAN ON WHICH IT HAS PAID AN INTEREST AMOUNTING TO RS. 2,10 ,93,484/-. THE LD.AR ARGUED THAT THE LD.AO ON HIS WHIMS AND SU RMISES HAS ASSUMED THAT THE INTEREST BEARING FUNDS HAVE BEEN U TILISED FOR THE PURPOSES OF INVESTMENTS WITHOUT ANY COGENT EVID ENCE. 5. ON THE OTHER HAND, LD. DEPARTMENT REPRESENTATIV E RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND OPPOSED THE REQUEST OF THE ASSESSEES COUNSEL. LD. DR REITERATED THE OB SERVATIONS MADE BY AO IN HIS ORDER THAT ASSESSEE HAS SHOWN INV ESTMENTS OF RS. 1,75,77,400/- AS AT 31.3.2009, INCOME FROM WHIC H DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. THE ASSESSE E HAS NOT ATTRIBUTED ANY EXPENDITURE RELATING TO SUCH INVESTM ENT, INCOME I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 4 FROM WHICH IS EXEMPT FROM TAX. THE FURTHER PLACED H IS RELIANCE UPON CIRCULAR NO. 5 OF 2014 DATED 11.2.2014 WHEREIN THE CENTRAL BOARD OF DIRECT TAXES (CBDT) CLARIFIED THAT RULE 8- D READ WITH SECTION 14A PROVIDES FOR DISALLOWANCE OF EXPEN DITURE EVEN WHERE TAX PAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 5.1. THE LD.DR, SUBMITTED THAT THE ASSESSEES STAND IN NOT DISALLOWING ANY EXPENDITURE IN THIS REGARD IS NOT A CCEPTABLE THOUGH NO DIVIDEND INCOME IS EARNED DURING THE PREV IOUS YEAR. THE LD.DR SUBMITTED THAT IN ORDER TO DISALLOW THE E XPENDITURE IT IS NOT NECESSARY THAT EXEMPT INCOME IS EARNED. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECO RDS. WE HAVE ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES, SYNOPSIS, PAPER BOOK FILED BY THE ASSESSEE AND THE CASE LAWS RELIED UPON BY THE ASSESSEE. 6.1. ON PERUSAL OF THE BALANCE SHEET, IT IS OBSERVE D THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. THE ASSE SSEE ALSO HAS SUFFICIENT CAPITAL AND RESERVES FOR MAKING SUCH INVESTMENT. IT IS EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE T HAT, ITS INVESTMENTS IN SHARES WERE ONLY IN ITS SUBSIDIARY C OMPANIES FROM WHERE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCO ME. THE ASSESSEE OVER THE PREVIOUS YEARS HAS MADE INVESTMEN T IN ITS SUBSIDIARY COMPANIES AND GROUP COMPANIES TO AN EXTE NT OF RS. 2,50,51,420/-, UNDER THE SUB HEAD, EQUITY SHARES O F SUBSIDIARIES COMPANIES(UNQUOTED) AND AN AMOUNT OF RS. 2,50,14,000/- UNDER THE SUB HEAD, EQUITY SHARES OF OTHER COMPANIES(UNQUOTED). I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 5 6.2. THE CONTROVERSY RAISED IN THIS CASE IS THAT TH E ASSESSEE HAD NOT EARNED OR RECEIVED ANY DIVIDEND IN THE YEAR UND ER CONSIDERATION AND, THEREFORE, NO DISALLOWANCE CAN B E MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. HONBLE JURISDICTIONAL HIGH COURT HAS RECENTLY DECIDED A SI MILAR ISSUE IN THE CASE OF CHEMINVEST VS. CIT VI, IN ITA NO.749/20 14 VIDE ORDER DATED 02.09.2015. THE QUESTION FOR CONSIDERATION BE FORE THE HONBLE HIGH COURT WAS THAT, WHETHER DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE? 6.3. HONBLE HIGH COURT RELYING UPON THE CASE OF C IT V. HOLCIM INDIA (P) LTD. IN ITA NO. 486/2014, VIDE ORDER DATE D 05.09.2014, HAS ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE . THE HONBLE HIGH COURT HAS ALSO RELIED UPON THE DECISIONS OF; I) COMMISSIONER OF INCOME TAX, FARIDABAD V. M/S. LAKHA NI MARKETING INCL. IN ITA NO. 970/2008 VIDE ORDER DATE D 02.04. 2014 (P7 H) II) CIT V. HERO CYCLES LIMITED, REPORTED [2010] IN 323 ITR 518 III) CIT V. WINSOME TEXTILE INDUSTRIES LTD., REPORTED [2 009] 319 ITR 204. IV) CIT -I V. CORRTECH ENERGY (P) LTD REPORTED [2014] 2 23 TAXMANN 130 (GUJ.) V) CIT, KANPUR V. SHIVAM MOTORS (P) LTD.(ALL) IN ITA N O. 88/2014 VIDE ORDER DATED 05.05.2014. 6.4. AS PER MAXOPP INVESTMENT LTD., (2012) 347 ITR 272 (DEL), THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHIC H DID NOT FORM I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 6 PART OF TOTAL INCOME HAD TO BE FIRST ASCERTAINED AN D IN CASE, THE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING OFFICER SHOULD VERIFY THE CORRECTNESS OF THE CLAIM. HONBLE COURT HELD THAT WHERE THE ASSESSING OFFICER WAS SATISFIED THAT NO EXPENDITURE WAS INCURRED, NO DISALLOWANCE S HOULD BE MADE UNDER SECTION 14A. IN OTHER CASES, THE ASSESSI NG OFFICER WOULD HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO THE INCOME WHICH DID NOT FORM PART OF T HE TOTAL INCOME AND THE SAID BASIS HAD TO BE REASONABLE AND BASED O N THE ACCEPTABLE METHOD OF APPORTIONMENT. EXPOUNDING THE EXPRESSION IN RELATION TO APPEARING IN SECTION 14A AS INTERP RETED IN MAXOPP INVESTMENT LTD. (SUPRA), WOULD INCLUDE IN C ONNECTION WITH OR PERTAINING TO. 6.5. LD.DR HAS PLACED HIS RELIANCE UPON THE CIRCULA R NO 5 OF 2014 DATED 11.2.2014. IN OUR OPINION, THERE IS NO M ERIT IN THE ABOVE SUBMISSIONS OF THE LD. DR IN VIEW OF THE DECI SION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BHARTIA INDUSTRIES LTD. VS CIT (2013) 353 ITR 486(CAL) WHEREIN THE HON 'BLE HIGH COURT HAS OBSERVED AS UNDER:- 'THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE INCOME-TAX ACT, 1961IS MEA NT FOR GUIDING THE OFFICERS OF THE REVENUE FOR ADMINISTRATIVE PURP OSE OF ENFORCING THE PROVISIONS OF THE ACT. BUT WHEN AN AUTHORITY UN DER THE ACT IS REQUIRED TO PERFORM QUASI-JUDICIAL FUNCTIONS, SUCH AUTHORITIES SHOULD BE GUIDED BY THE LAW OF THE LAND AS ENUNCIAT ED ON THE QUESTIONS INVOLVED BY VARIOUS JUDICIAL AUTHORITIES WHICH HAVE BINDING EFFECT. IF AN EXISTING CIRCULAR IS IN CONFL ICT WITH THE LAW OF I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 7 THE LAND LAID DOWN BY THE HIGH COURTS OR THE SUPREM E COURT, THE REVENUE AUTHORITIES WHILE ACTING QUASI-JUDICIALLY, SHOULD IGNORE SUCH CIRCULARS IN DISCHARGE OF THEIR QUASI-JUDICIAL FUNCTIONS.' IN VIEW OF THE ABOVE, CIRCULAR NO 5 OF 2014, DATED 11.2.2014 RELIED ON BY THE LD. DR, IS IN CONFLICT WITH THE LA W LAID DOWN BY THE HIGH COURTS AND, THEREFORE, IT IS JUSTIFIED TO IGNORE THE AFORESAID CIRCULAR WHILE DISCHARGING QUASI-JUDICIAL FUNCTION. 6.6. ALL THE ABOVE HIGH COURTS HAVE CATEGORICALLY H ELD THAT IN THE ABSENCE OF ANY TAX FREE INCOME THE CORRESPONDING EX PENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. IN THE IN STANT CASE ALSO, THE ADMITTED FACT IS THAT ASSESSEE HAS NOT EA RNED ANY TAX FREE INCOME, THEREFORE, CIRCULAR NO. 5 OF 2014 DATE D 11.2.2014 ISSUED BY CBDT IS CONTRARY TO THE LAW LAID DOWN BY THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE IN HAND. IN VIEW OF THE ABOVE DISCUSSION, AND THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST VS. CIT(SUPRA) AND MAXOPP INVESTMENT LTD. (SUPRA), WE H OLD THAT DISALLOWANCE MADE U/S 14A HAS DESERVES TO BE DELETE D, AS THE ASSESSEE HAS NOT EARNED/RECEIVED EXEMPT INCOME DURI NG THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE STA NDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.01.2016 SD/- SD/- (S.V. MEHROTRA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 TH JANUARY 2016 GS I.T.A. NO.308/DEL/2014 ASSESSMENT YEAR 2009-10 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSTT. REGISTRAR