Addl. CIT, New Delhi V. M/s. Moser Baer Solar Ltd., New Delhi

ITA 3577/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3593 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV PUNDIR SENIOR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.3577/DEL./2017 (ASSESSMENT YEAR : 2009-10) ADDL.CIT, SPECIAL RANGE 6, VS. M/S. MOSER BAER SOLA R LIMITED, NEW DELHI. 43B, OKHLA INDUSTRIAL AREA, PHASE III, NEW DELHI 110 020. (PAN : AAECP1955A) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI GAURAV PUNDIR, SENIOR DR DATE OF HEARING : 23.09.2021 DATE OF ORDER : 13.10.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ADDL. CIT, SPECIAL RANGE 6, NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILIN G THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 20.02.2017 PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS )-38, NEW DELHI QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUND S INTER ALIA THAT:- ITA NO.3577/DEL./2017 2 1. WHETHER APPLICATION OF RULE 8D OF THE TAX RULES , 1962 (THE RULE) TO COMPUTE QUANTUM OF DISALLOWANCE U/S 1 4A OF THE INCOME TAX ACT, 1961 (THE ACT) IS MANDATORY? 2. WHETHER DISALLOWANCE U/S 14A OF THE ACT HAS TO B E LIMITED TO THE QUANTUM OF INCOME NOT FORMING PAT OF TOTAL I NCOME OF THE ASSESSEE EVEN WHEN CLEAR, EXPLICIT AND UNAMBIGUOUS PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULE DO NOT ST IPULATE SUCH RESTRICTION? 3. WHETHER ON FACTS ARID IN CIRCUMSTANCES OF THE CA SE, THE LD CIT(A) IS LEGALLY JUSTIFIED IN HOLDING THAT QUANTUM OF DISALLOWANCE U/S 14A OF THE ACT COMPUTED UNDER MAND ATORY RULE 8D OF THE RULE HAS TO BE RESTRICTED TO RS.2,33,95,4 28/- I.E. THE QUANTUM OF DIVIDEND INCOME NOT FORMING PART OF TOTA L INCOME OF THE ASSESSEE? 4. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) IS LEGALLY JUSTIFIED IN NOT UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT R.W. R 8D OF THE RULE WITHOUT CO NSIDERING LEGAL PRINCIPLES THAT ALLOWABILITY/DISALLOWABILITY OF EXP ENDITURE UNDER THE ACT IS NOT CONDITIONAL UPON THE EARNING OF THE INCOME AS UPHELD BY HON'BLE SUPREME COURT IN CASE OF CIT VS R AJENDRA PRASAD MOODY (1978) 115 ITR 519? 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE COMPANY IS INTO THE BUSINESS OF MANUFACTURING, MARKETING AND SELLING OF SOLAR CELLS AND MODULES USING THIN FILM TECHNOLOGY. DURING SCRUTINY PROCEE DINGS, ASSESSING OFFICER (AO) NOTICED THAT THE ASSESSEE HA S EARNED DIVIDEND INCOME OF RS.2,33,95,428/- AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT), WITHOUT DISALLOWING ANY EXPENDITURE INC URRED TO EARN THE EXEMPT INCOME. AO BY INVOKING THE PROVISIONS C ONTAINED U/S 14A READ WITH RULE 8D OF THE INCOME-TAX RULES , 1962 (FOR ITA NO.3577/DEL./2017 3 SHORT THE RULES) MADE A DISALLOWANCE OF RS.4,43,4 6,901/- AS PER WORKING GIVEN HEREUNDER :- S. NO. PARTICULARS AMOUNT (I) EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL (II) EXPENDITURE INCURRED BY WAY OF INTEREST (A*B/C) A=AMOUNT OF INTEREST 78655443 B=AVERAGE VALUE OF INVESTMENTS 3236686903 INVESTMENT AS ON 01.04.2008 2864482630 INVESTMENT AS ON 31.03.2009 3608891176 C=AVERAGE OF TOTAL ASSETS 9039478284 TOTAL ASSETS AS ON 01.04.2008 6027405299 TOTAL ASSETS AS ON 31.03.2009 12051551269 A*B/C SUBJECT TO MAXIMUM OF A 28163466 (III) ONE HALF % OF AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME AVERAGE VALUE OF INVESTMENTS 3236686903 ONE HALF % OF AVERAGE VALUE OF INVESTMENT 1618343 5 TOTAL DISALLOWACNE AS PER RULE 8D 4,43,46,901 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING APPEAL WHO HAS RESTRICTED THE DISALLOWANCE T O RS.2,33,95,428/- U/S 14A OF THE ACT BY PARTLY ALLOW ING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE AND CONSEQUENTLY, WE PROCEED ED TO DECIDE THE PRESENT APPEAL WITH THE ASSISTANCE OF THE LD. D R AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE ON THE FILE. ITA NO.3577/DEL./2017 4 5. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE/APPELLANT TO THE APPEAL, GONE THROUGH THE D OCUMENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHOR ITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CAS E. 6. WE HAVE PERUSED THE ORDER PASSED BY THE LD. CIT (A) WHO HAS DECIDED THE ISSUE BY FOLLOWING THE DECISION REN DERED BY HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMEN TS (P.) LTD. VS. CIT 372 ITR 694 AND CIT VS. TAIKISHA ENGINEERIN G INDIA LTD. 370 ITR 338 (DEL.) BY RETURNING FOLLOWING FINDINGS :- 4.3 I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT ON THIS ISSUE. IT IS T HE FACT THAT DURING THE YEAR IN APPEAL APPELLANT HAS EARNED DIVI DEND INCOME OF RS.2,33,95,428/-, WHICH IT HAS CLAIMED EXEMPT U/ S 10(34) OF THE I.T ACT, 1961. IN ITS SUBMISSION DATED 17.02.2017 A PPELLANT HAS SUBMITTED THAT IT EARNED TAX FREE DIVIDEND INCOME O F RS.2,33,95,428/- NET OF FUND MANAGEMENT FEE CHARGED BY MUTUAL FUNDS. IN THE STATEMENT OF FACTS, APPELLANT STATED THAT IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING, MARKETING AND SELLING OF SOLAR CELLS AND MODULES USING THIN FILM TECHNOLO GY. IN ITS SUBMISSION DATED 17.02.2017, APPELLANT ALSO STATES THAT DIVIDEND INCOME EARNED FROM MUTUAL FUNDS WAS ONLY INCIDENTAL TO THE MAIN ACTIVITY OF EARNING PROFITS ON SALE OF MUTUAL FUNDS. 4.3.1 IN GROUND OF APPEAL 2.4 APPELLANT SUBMITS THA T EXPENDITURE ON INTEREST ON LOANS AMOUNTING TO RS.7, 86,55,443/- WERE INCURRED BY THE APPELLANT FOR SPECIFIC PURPOSE OF THE BUSINESS OF THE APPELLANT AND WERE NOT ATTRIBUTED T O EARNING OF EXEMPT INCOME . 4.3.2 IT APPEARS THAT APPELLANT NOT ONLY EARNS INT EREST ON INVESTMENT IN UNQUOTED SHARES, BUT ALSO DOES NOT WA NT TO PAY ANY TAX ON SUCH INCOME. FOLLOWING THE JUDGEMENT OF JURI SDICTIONAL DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS ( P.) VS. CIT : 372 ITR 694, WHEREIN IT HAS BEEN HELD THAT DISALLOW ANCE U/S 14A R.W.R. 8D CANNOT EXCEED THE ENTIRE EXEMPT INCOME EA RNED BY THE ASSESSEE DURING THE RELEVANT YEAR, I RESTRICT THE D ISALLOWANCE U/S 14A TO RS.2,33,95,428/- WHICH IS THE TAX FREE DIVID END EARNED BY ITA NO.3577/DEL./2017 5 APPELLANT DURING THE YEAR IN APPEAL. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 7. WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS DECIDED THE ISSUE IN ACCORDANCE WITH THE LAW LAID DOWN BY H ONBLE DELHI HIGH COURT THAT DISALLOWANCE U/S 14A READ WITH RULE 8D CANNOT EXCEED THE ENTIRE EXEMPT INCOME EARNED BY THE ASSES SEE DURING THE YEAR UNDER CONSIDERATION. SO, WHEN THE ASSESSEE HAS UNDISPUTEDLY EARNED EXEMPT DIVIDEND INCOME OF RS.2, 33,95,428/- DURING THE YEAR UNDER ASSESSMENT THEN HOW THE DISAL LOWANCE OF RS.4,43,46,901/- MADE BY THE AO IS SUSTAINABLE. LD . DR FOR THE REVENUE HAS FAILED TO CONTROVERT THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENTS (P.) LTD. VS. CIT AND CIT VS. TAIKISHA ENGINEERING INDIA LTD. (SUPRA) FOLLOWED BY THE LD. CIT (A) IN PASSING THE IMPUGNED ORDER. SO, IN VIEW OF THE MATTER, FINDING NO ILLEGALITY OR INFIRMITY IN T HE IMPUGNED FINDINGS RETURNED BY THE LD. CIT (A), PRESENT APPEA L FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 13 TH DAY OF OCTOBER, 2021. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 13 TH DAY OF OCTOBER, 2021 TS ITA NO.3577/DEL./2017 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-38, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.