TTGA, Delhi V. Addl. CIT, New Delhi

ITA 3530/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4031 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 11-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN T & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-3530/DEL/2014 ( ASSESSMENT YEAR: 2009-10) TTGA (FORMERLY KNOWN AS TIP TOP GENERAL AGENCIES (P) LTD.), C/O KAPIL GOEL, ADV., F-26/124, SECTOR-7, ROHINI, DELHI. AAACT1696G VS ADDL. CIT RANGE-16 NEW DELHI. ASSESSEE BY SH. KAPIL GOEL, ADV. REVENUE BY SH. ARUN KUMAR YADAV, SR. DR ORDER PER SHRI K.N. CHARY, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE CHALLENGING THE O RDER DATED 26.02.2014 IN APPEAL NO. 336/11-12 PASSED BY THE LD . COMMISSIONER OF INCOME TAX (APPEALS)-19, NEW DELHI (HEREINAFTER FOR SHORT CALLED AS THE LD. CIT (A)). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF PROVIDING REPAIRS & MAINTENANCE SERVICE S OF EARTH MOVERS DATE OF HEARING 21.09.2017 DATE OF PRONOUNCEMENT 09.10.2017 2 ITA NO. 3530/DEL/2014 TYRES, COVEYOR BELTS, TRADING IN COLD VALCUNISING P RODUCTS, TYRES AND RUN FLAT SYSTEM. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE AO AMONG OTHERS MADE AN ADDITION OF RS. 9,73,343/- BY INVOKI NG THE PROVISIONS U/S 14A READ WITH RULE 8D OF THE RULES. IN APPEAL LD. CIT (A) CONFIRMED THE SAME BY WAY OF IMPUGNED ORDER. HENCE THIS APPEAL. THOUGH SEVERAL GROUNDS ARE RAISED IN THE APPEAL, AT THE TIME OF HE ARING LD. AR SUBMITTED THAT EXCEPT GROUNDS NO. 1 & 2 RELATING TO THE ADDIT ION U/S 14A READ WITH RULE 8D OF THE RULES, THEY ARE NOT PRESSING THE OTH ER GROUNDS. 2. AS COULD BE SEEN FROM THE ASSESSMENT ORDER, DURI NG THE SCRUTINY PROCEEDINGS AO OBSERVED THAT THE ASSESSEE DERIVED D IVIDENDS FROM SALE AND MUTUAL FUNDS TO A TUNE OF RS. 1,02,28,175/- AND WHILE CLAIMING THE DEDUCTION OF THE ENTIRE AMOUNT BEING EXEMPT U/S 10( 34) AND 10(35) OF THE INCOME TAX ACT, 1961 (FOR SHORT CALLED AS THE ACT ), DISALLOWANCE OF EXPENSES ON ACCOUNT OF THIS EXEMPT INCOME WAS MADE AS FOLLOWS: I. PORTFOLIO MANAGEMENT SERVICES (PMS) - RS. 2,10,2 94/- II. SECURITY TRANSACTION TAX (STT) - RS. 63,532 /- TOTAL - RS. 2,73,826/- HOWEVER, THE AO ISSUED NOTICE AS TO WHY THE DISALLO WANCE BE NOT MADE AS PER RULE 8D OF THE RULES, AND NOT BEING SATISFIE D WITH THE EXPLANATION 3 ITA NO. 3530/DEL/2014 OF THE ASSESSEE AO PROCEEDED TO CALCULATE THE DISAL LOWANCE UNDER RULE 8D AND DISALLOWED A SUM OF RS. 9,73,343/-. LD. CIT (A) HELD THAT SINCE THE AO HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE AS TO WHY THE DISALLOWANCE BE NOT MADE AS PER RULE 8D, AND WORKED OUT THE DISALLOWANCE UNDER RULE 8D, IT IS DEEMED THAT THE D ISSATISFACTION REQUIRED U/S 14A(2) OF THE ACT WAS DULY RECORDED AND ACCORDI NG TO HIM SINCE THERE IS NO PRESCRIBED FORMAT FOR RECORDING THE DISSATISF ACTION THE ORDER HAS TO BE READ AS A WHOLE. FURTHER ACCORDING TO THE LD.CI T (A) SINCE THE CIT (A) HAS ALL THE POWERS OF ASSESSING OFFICER HE CAN RECO RD THE DISSATISFACTION AS TO THE CORRECTNESS OF THE CLAIM FOR DISALLOWANCE MADE BY THE ASSESSEE AND RECORDED HIS DISSATISFACTION. 3. LD. AR BASED HIS ARGUMENTS MAINLY ON TWO POINTS. FIRSTLY, THOUGH THERE IS NO FORMAT FOR RECORDING THE SATISFACTION/D ISSATISFACTION, THE ORDER OF ASSESSMENT SHALL READ CLEARLY THE REASONS FOR THE A O NOT TO ACCEPT THE DISALLOWANCE WORKED OUT BY THE ASSESSEE, WHICH IS C ONSPICUOUSLY ABSENT IN THIS CASE. SECOND POINT IS THAT WHEN THE STATUT E REQUIRED THE SATISFACTION/DISSATISFACTION HAD TO BE RECORDED BY A PARTICULAR AUTHORITY, ALL OTHER AUTHORITIES ARE PRECLUDED FROM DOING SO. IN THIS MATTER STATUTE CONFERS THE POWERS OF THE AO WHICH THE AO ALONE HAS TO DO BUT NOT CIT 4 ITA NO. 3530/DEL/2014 (A). LD. DR STRONGLY SUPPORTED THE ORDERS OF THE A UTHORITIES BELOW FOR THE REASONS STATED THEREIN. 4. AS COULD BE SEEN FROM THE ASSESSMENT ORDER, VIDE PARAGRAPH NO. 3.1 AO DIRECTLY JUMPED TO ISSUANCE OF NOTICE AS TO WHY THE DISALLOWANCE BE NOT MADE UNDER RULE 8D, AND FINDING THE EXPLANAT ION OF THE ASSESSEE AS NOT ACCEPTABLE, LD. AO PROCEEDED TO APPLY RULE 8 D. HOWEVER, THE LAW IS OTHERWISE. FIRST THE AO HAS TO RECORD HIS REASO NS FOR NOT AGREEING WITH THE DISALLOWANCE WORKED OUT BY THE ASSESSEE. HERE IN THIS MATTER THAT WAS NOT DONE. STRAIGHTWAY THE AO ISSUED A NOTICE A S TO WHY RULE 8D SHALL NOT BE APPLIED. 5. IN EICHER MOTORS LTD VS. CIT, ITA NO. 136/2017 D ECIDED ON 15.09.2017 THE HONBLE JURISDICTIONAL HIGH COURT HE LD AS FOLLOWS: 13. AS REGARDS THE DISALLOWANCE OF EXPENDITURE FO R EARNING EXEMPT INCOME IN TERMS OF SECTION 14A OF THE ACT, THE SETT LED LEGAL POSITION IS THAT THE AO HAD TO RECORD REASONS FOR DISAGREEING WITH T HE SUBMISSION OF THE ASSESSEE THAT IT HAD INCURRED NO EXPENDITURE FOR EA RNING SUCH EXEMPT INCOME. THIS IS PLAIN EVEN FROM RULE 8D(1) WHICH R EQUIRES THE AO TO MANDATORILY RECORD HIS SATISFACTION THAT THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IS INCORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IN THIS CASE, A PERUSAL OF THE AOS REASONING SHOWS THAT THE AO HAS MERELY CONJECTURED THAT THERE IS AN INBUILT COST EVEN IN PASSIVE INVESTMENT AS ALSO INCIDENTAL EXPEN DITURE LIKE COLLECTION, TELEPHONE, FOLLOW UP ETC. THE AO THUS, CONCLUDES T HAT THE EXPENSES ARE EMBEDDED AS INDIRECT EXPENSES. THIS IS NOT AS PER THE REQUIREMENTS OF RULE 8D. THERE IS NO SATISFACTION RECORDED BASED O N THE ACCOUNTS OF THE ASSESSEE. THE AO SIMPLY PRESUMES THAT SINCE THE EX EMPT INCOME EXISTS AND IS BEING CLAIMED BY THE ASSESSEE, SOME PORTION OF THE EXPENSES OUGHT TO BE ADDED BACK. THIS IS NOT SUFFICIENT AS PER THE LAW. 5 ITA NO. 3530/DEL/2014 6. FURTHER, STATUTE CONFERS THE POWERS ON THE AO TO RECORD SATISFACTION, WHICH THE AO ALONE HAS TO DO BUT NOT CIT (A). IN VI EW OF THIS SETTLED LAW IN EICHER MOTORS LTD VS. CIT (SUPRA), WE FIND IT DIFFI CULT TO SUSTAIN THE ADDITION MADE BY THE AO TO A TUNE OF RS. 8,73,343/- BY INVOK ING RULE 8D OF THE RULES. WE, THEREFORE, DIRECT THE AO TO DELETE THE SAME. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.10.2017 SD/- SD/- (G.D. AGRAWAL) (K.N. CHARY) PRESIDENT JUDICIAL MEMBER DATED: 09.10.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 6 ITA NO. 3530/DEL/2014