Cairn India Ltd., Gurgaon V. ACIT, Gurgaon

ITA 3640/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3371 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KR JIWANI
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. N.K.SAINI, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.3640/DEL/2015 (ASSESSMENT YEAR: 2008-09) CAIRN INDIA LTD. DLF ATRIA BUILDING, JACARANDA MARG-N BLOCK, DLF CITY PHASE-II GURGAON PIN- 122002 VS. ACIT CIRCLE-1(1) GURGAON PAN : AACCC8799D (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. KHIRENDRA MOHAN GUPTA, ADV., MS. POONAM AHUJA, CA REVENUE BY : SH. VIJAY KR. JIWANI, SR. DR DATE OF HEARING : 21.08.2018 DATE OF PRONOUNCEMENT : 23.08.2018 O R D E R PER SUCHITRA KAMBLE , JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 16/03/2015 PASSED BY THE CIT (A)-I, GURGAON FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS : 2 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I , GURGAON [LD. CIT(A)] ERRED ON THE FACTS AND CIRCU MSTANCES OF THE CASE & IN LAW IN CONFIRMING AN ADDITION OF RS. 2,36 ,57,592/- ON ACCOUNT OF NOTIONAL EXPENDITURE INCURRED TO EARN TH E EXEMPT INCOME BY INVOKING SECTION 14A OF THE INCOME TAX AC T, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, 19 62 (THE RULES). 1.1 THAT THE LD. CIT(A) ERRED IN CONFIRMING THE A CTION OF THE LD. AO IN MAKING AN ADDITION UNDER SECTION 14A OF THE A CT WITHOUT CONSIDERING THE APPELLANTS WORKING OF ACTUAL APPOR TIONED COST AMOUNTING TO RS. 176,469, WHICH IN ANY CASE IS SUBS TANTIALLY LOWER THAN THE AMOUNT OF RS. 12,00,000/-, WHICH APP ELLANT SUO MOTO DISALLOWD IN ITS RETURN OF INCOME. 1.2 THAT THE LD. CIT(A) ERRED IN CONFIRMING THE AD DITION UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING THE PRO VISIONS OF SECTION 14A(2) OF THE ACT WHICH PROVIDES THAT THE A DDITION CAN BE MADE ONLY IF AN ASSESSING OFFICER HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF AN ASSESSEE. 1.3 WITHOUT PREJUDICE TO THE CONTENTION OF THE APP ELLANT THAT NO DISALLOWANCE IS WARRANTED UNDER SECTION 14A OF THE ACT, THE CIT(A) ERRED IN NOT DISPOSING OFF ALTERNATIVE GROUN D OF APPEAL NO. 2.2 RAISED BEFORE HIM IN CONTEXT OF MISTAKE IN AMOU NT OF INVESTMENTS TAKEN AND OMISSION OF AVERAGING OF INVE STMENTS AS CONTEMPLATED UNDER THE RULE 8D OF THE RULES. 3 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) 3. CAIRN INDIA LTD. (CIL) IS A COMPANY INCORPORA TED IN INDIA UNDER COMPANIES ACT, 1956 HAVING IT REGISTERED OFFI CE AT 101. WEST VIEW, VEAR SAWARKAR MARG, PRABHADEVI, MUMBAI, MAHARAS TRA 400025. THE CORPORATE OFFICE OF THE CIL IS SITUATED AT 3 RD & 4 TH FLOOR, VIPUL PLAZA, SUNCITY, GURGAON, HARYANA- 122002. CIL WAS INCORPORATED ON AUGUST 21, 2006 AND IS A SUBSIDIAR Y OF CAIN UK HOLDINGS LTD., WHICH IN TURN IS A WHOLLY OWNED SUBSID IARY OF CAIRN ENERGY PLC, UK WHICH IS LISTED ON LONDON STOCK EXCHA NGE. CIL IS LISTED ON THE BOMBAY STOCK EXCHANGE LTD., AND NATIO NAL STOCK EXCHANGE OF INDIA LTD., CIL IS PRIMARILY ENGAGED IN THE BUSINESS OF SURVEYING, PROSPECTING, DRILLING, EXPLORING, ACQUIR ING, DEVELOPING, PRODUCING, MAINTAINING, REFILLING, STORING, TRADING , SUPPLYING, TRANSPORTING, MARKETING, DISTRIBUTING, IMPORTING, E XPORTING AND GENERALLY DEALING IN MINERAL OIL, PETROLEUM, GAS AN D RELATED BY PRODUCTS AND OTHER ACTIVITIES INCIDENTAL TO ABOVE. THE ASSESSEE E- FILED ITS RETURN DECLARING LOSS OF RS. 1221375868/- ON 29.09.2008. THE CASE OF THE ASSESSEE WAS CALLED FOR SCRUTINY. N OTICE UNDER SECTION 143(2) WAS ISSUED ON 17.09.2009 FOR 07.10. 2009 AND DULY SERVED. FURTHER, NOTICES U/S 143(2) / 115WE(2) WAS I SSUED ON 12.07.2010 FOR 19.07.2010 AND DULY SERVED UPON THE ASSESSEE. THE CASE WAS REPRESENTED BY ASSISTANT MANAGER OF ASSESSE E, HE HAS FILED THE REQUIRED PARTICULARS AS PER QUESTIONNAIRE AND O RDER-SHEET. THE BOOKS OF ACCOUNT WERE PRODUCED AND TEST CHECKED BY T HE ASSESSING OFFICER. THE ASSESSING OFFICER OBSERVED THAT FROM T HE AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE YE AR, IT WAS NOTICED THAT THE ASSESSEE INVESTED A SUM OF RS. 497,1,518,4 55/- (VALUE OF 4 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) INVESTMENT AS ON 31.03.2008). THE INVESTMENTS WERE MADE OUT OF THE PROCEEDS OF INITIAL PUBLIC OFFER (IPO) MADE BY THE ASSESSEE DURING THE F.Y. 2006-07. THE ASSESSING OFFICER OBS ERVED THAT DURING THE YEAR, THE ASSESSEE EARNED AN AMOUNT OF R S. 15,98,73,039/- ASSESSEE AS DIVIDEND INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FU RNISH THE DETAILS OF EXPENDITURE EARNED FOR EARNING DIVIDENDS INCOME VIDE ORDER SHEET ENTRY DATED 14.12.2011. IN RESPONSE TO THIS, ASSESSEE FILED ITS REPLY VIDE LETTER DATED 22.12.2011 WHEREIN THE ASSESSEE SUBMITTED THAT EXPENDITURE OF RS. 12,00,000/- WAS CLAIMED ON THE BASIS OF THE QUOTE DATED 04.09.2008 RECEIVED FROM J .M.FINANCIAL GRIEVANCE PVT. LTD. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED THE EXPENDITURE ON THE BASIS OF QUOTATION A ND NOT ON ANY MATERIALIZED CONTRACT. ALSO ASSESSEE COULD NOT PROV IDE DETAILS OF ACTUAL EXPENDITURE MADE FOR EARNING THE DIVIDEND IN COME. HENCE, THE BASIS OF THE EXPENDITURE CLAIMED BY THE ASSESSE D WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND THE EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME WERE CALCULATED AS PER TH E PROCEDURE GIVEN UNDER RULE 8D OF THE ACT READ WITH SECTION 14A THE INCOME TAX ACT, 1961. THE CALCULATION OF THE EXPENDITURE F OR EARNING THE DIVIDEND INCOME WAS CALCULATED BY THE ASSESSING OFFI CER AS UNDER :- AS PER RULE 8D (2)(III) OF = .5/100 X 4971518445/- = 2,48,57,592/- THE INCOME TAX RULES, 1961 LESS : ALREADY DISALLOWED BY THE ASSESSEE : 12,00, 000/- TOTAL : RS. 23657592/- 5 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) HENCE AN AMOUNT OF RS. 23657592/- WAS ADDED BY THE A SSESSING OFFICER AS THE EXPENDITURE INCURRED BY THE ASSESSEE TO EARN EXEMPT INCOME. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESS EE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ISSUE RELATING TO SEC . 14A R.W. RULE 8D IS COVERED AGAINST ASSESSEE BY TRIBUNAL DEC ISION IN ASSESSEES OWN CASE FOR A.Y. 2011-12 BEING ITA NO. 1459/DEL/2016 ORDER DATED 09.10.2017 EXCEPT ISSUE R ELATING TO GROUND NO. 1.3 WHEREIN THE ASSESSEE FILED SECTION 15 4 RECTIFICATION APPLICATION IN CONTEXT OF MISTAKE IN AMOUNT OF INVE STMENTS TAKEN AND OMISSION OF AVERAGING OF INVESTMENTS AS CONTEMP LATED UNDER RULE 8D. THE LD. AR SUBMITTED THAT IN EARLIER YEAR THERE WAS NO DISPUTE IN COMPUTATION, BUT IN THE PRESENT ASSESSME NT YEAR THE RECTIFICATION APPLICATION U/S 154 FOR MISTAKE IN AM OUNT OF INVESTMENT WAS MADE BY ASSESSEE. THEREFORE, THE LD. AR SUBMITTED THAT LIMITED TO CORRECT COMPUTATION OF INVESTMENT T HE MATTER MAY BE REMANDED BACK TO THE FILE OF ASSESSING OFFICER IN R ESPECT OF GROUND NO. 1.3. 6. THE LD. DR DID NOT OPPOSE THE CONTENTION RAISED BY THE LD. AR IN RESPECT OF GROUND NO. 1.3. 6 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.Y. 2011-12 HELD AS UNDER : 6. IT IS THUS DISCERNIBLE FROM PAGE 6 OF THE ASS ESSMENT ORDER THAT THE ASSESSING OFFICER RECORDED PROPER SATISFAC TION WITH REGARD TO THE ASSESSEES COMPUTATION OF DISALLOWANC E AND ONLY THEREAFTER MOVED TO COMPUTE DISALLOWANCE U/S 14A OF THE ACT IN TERMS OF RULE 8D OF THE INCOME-TAX RULES, 1962. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER DID RECOR D PROPER SATISFACTION IN TERMS OF SECTION 14(2) OF THE ACT B EFORE RESORTING TO RULE 8D. THIS CONTENTION OF THE ASSESSEE, THEREF ORE, FAILS. .. 16. ADVERTING TO THE FACTS OF THE INSTANT CASE, W E FIND THAT THE ASSESSING OFFICER, ON BEING DISSATISFIED WITH THE A SSESSEES COMPUTATION OF DISALLOWANCE, EMBARKED ON HIS OWN CO MPUTATION UNDER RULE 8D(2)(III) AT RS. 5,89,98,005/-. THE ASS ESSEE HAS NOT DISPUTED ANY PART OF THE CALCULATION OF SUCH DISALL OWANCE. THIS COMPUTATION OF DISALLOWANCE, HAVING BEEN MADE IN TE RMS OF RULE 8D(2)(III), IS HELD TO HAVE RIGHTLY MADE. THE ASSES SMENT ORDER MAKING DISALLOWANCE OF RS. 5.89 CRORE U/S 14A UNDER THE NORMAL PROVISIONS OF THE ACT IS UPHELD PRO TANTO. THEREFORE AS RELATES TO GROUND NOS. 1, 1.1 AND 1.2 ARE CONCERNED THE SAME ARE COVERED AGAINST ASSESSEE BY THE DECISI ON OF THE TRIBUNAL IN ASSESSEES OWN CASE. HENCE, GROUND NOS. 1, 1.1, & 1.2 ARE DISMISSED. AS RELATES TO GROUND NO. 1.3, THERE IS A DISPUTE OF COMPUTATION RAISED BY ASSESSEE BY FILING RECTIFICAT ION APPLICATION WHICH YET HAVE TO BE DECIDED. THEREFORE, WE ARE REMA NDING BACK 7 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DIRECTING THE ASSESSING OFFICER TO DECIDE THE RECTIFICATION APPLI CATION FILED BY THE ASSESSEE U/S. 154 WITHIN THE REASONABLE TIME. NEEDLE SS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWIN GS PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 1.3 IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2018. SD/- SD/- (N.K.SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL ME MBER DATE: 23.08.2018 BINITA COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER ITAT, NEW DELHI 8 ITA NO.3640/DEL/2015 (CAIRN INDIA LTD.) DATE OF DICTATION 21.08.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.08.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 2 1 . 0 8 . 2 0 1 8 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 2 3 . 0 8 . 2 0 1 8 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 2 3 . 0 8 . 2 0 1 8 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 2 3 .08.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 3 .08.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .08.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER