Lodhi Property Company Ltd., New Delhi V. DCIT, Circle- 7(1), New Delhi

ITA 3719/DEL/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9687 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 17-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL
• Assessee Lawyers: R S SINGH SH SATYJEET GOYAL
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3719/DEL./2018 (ASSESSMENT YEAR : 2014-15) LODHI PROPERTY COMPANY LTD. VS . DCIT, (SUCCESSOR TO DLF HOTEL HOLDINGS LTD.), CIRCLE-7(1) THE LODHI, LODHI ROAD, NEW DELHI NEW DELHI. NEW DELHI (PAN : AACCD5033D) APPELLANT RESPONDENT ASSESSEE BY : SH. R.S. SINGH, SH. SATYJEET GOYAL, CA REVENUE BY : SMT. NAINA SOIN KAPIL, SR. DR DATE OF HEARING : 05.12.2018 DATE OF ORDER : 14 .12.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, LODHI PROPERTY COMPANY LTD., NE W DELHI (HEREINAFTER REFERRED TO AS THE ASSESSEE), BY FIL ING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 27.03.2018 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- 3, NEW DELHI , FOR THE ASSESSMENT YEAR 2014-15 ON THE G ROUNDS INTER ALIA THAT :- 1. (I) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) WAS NOT JUSTIFIED IN PASSING EX-PARTE ORDER AND DISMISSING THE APPEAL OF THE ASSESSEE WITHOUT PROPE R OPPORTUNITY AND ADJUDICATION IN TERMS OF PROVISIONS OF SECTION ITA NO.3719/DEL./2018 2 250(4) OF THE INCOME TAX ACT, 1961. (II) THAT IN THE ABSENCE OF PROPER AND REASONABLE O PPORTUNITY, THE IMPUGNED ORDER IS PASSED IN CONTRAVENTION TO PR INCIPELS OF NATURAL JUSTICE AND NOT SUSTAINABLE UNDER THE LAW. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE OF RS. 6,64,325/- U/S 14A READ WITH RULE 8D IN TOTAL DISREGARD TO FAC TS OF THE CASE THAT APPELLANT HAS NOT EARNED ANY DIVIDEND INCOME. 3. THAT THE IMPUGNED APPELLATE ORDER, BEING WRONG O N FACTS AND BAD IN LAW, DESERVES TO BE QUASHED OR, ALTERNATIVEL Y, SET ASIDE. 2. BRIEFLY STATED THAT FACTS NECESSARY FOR AD JUDICATION OF THE CONTROVERSY AT HAND ARE : THAT THE ASSESSEE IS INT O BUSINESS OF HOSPITALITY AND HOTEL MANAGEMENT SERVICES WHO HAS M ADE INVESTMENT IN EQUITY SHARES OF DOMESTIC SUBSIDIARIE S COMPANIES. AO WHILE EXAMINING THE INVESTMENT MADE BY THE ASSES SEE IN THE LIGHT OF THE PROVISIONS CONTAINED U/S 14A OF THE AC T CALLED UPON THE ASSESSEE TO EXAPLAIN AS TO WHY DISALLOWANCE U/S 14 A OF THE ACT SHOULD NOT BE MADE AS PER RULE 8D OF THE INCOME TAX RULES 1962 (FOR SHORT THE RULES) QUA THE INVESTMENT SHOWN IN T HE BALANCE SHEET. AO BEING DISSATISFIED WITH THE EXPLANATION F URNISHED BY THE ASSESSEE COMPANY PROCEEDED TO COMPUTE THE DISALLOWA NCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES AS UNDER :- ITA NO.3719/DEL./2018 3 CALCULATION OF DISALLWOANCE UNDER RULE 8D S.NO. PARTICULARS AMOUNT (I) EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME (II) EXPENDITURE INCURRED BY WAY OF INTEREST (A*B/C) A=A MOUNT OF INTEREST* NIL *INTEREST EXPENSES 32,77,83,081 LESS: INTEREST INCOME 74,76,74,966 NET INTEREST EXPENSES/(NET INTEREST INCOME (41,98,91,885) B=AVERAGE VALUE OF INVESTMENTS** 13,28,65,000 INVESTMENT AS ON 01.04.2013 19,55,72,500 INVESTMENT AS ON 31.03.2014 7,01,57,500 C=AVERAGE OF TOTAL ASSETS 1555,53,49,044 TOTAL ASSETS AS ON 01.04.2013 1683,13,57,013 TOTAL ASSETS AS ON 31.03.2014 1427,93,41,075 A*B/C SUBJECT TO MAXIMUM OF A NIL (III) ONE HALF % OF AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME 6,64,325 TOTAL DISALLOWANCE AS PER RULE 8D 6,64,325 PARTICULARS 31.03.2014 31.03.2013 TOTAL INVESTMENT 1062,63,70,415 1075,17,85,415 LESS : INVESTMENT IN EQUITY SHARE OF DLF GLOBAL HOSPITALITY LTD., CYPRUS AS DIVIDEND INCOME THERE FROM IS CHARGEABLE TO TAX. 1055,62,12,915 1055,62,12,915 NET INVESTMENT 7,01,57,500 19,55,72,500 (DISALLOWANCE OF RS. 6,64,325/ -) ITA NO.3719/DEL./2018 4 3. SO, ON THE BASIS THE AFORESAID CALCULATION, AO P ROCEEDED TO MAKE DISALLOWANCE TO THE TUNE OF RS. 6,64,325/- U/S 14A READ WITH RULE 8D. 4. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT(A) WHO HAS DISMISSED THE APPEAL EX PART E. FEELING AGGRIEVED THE ASSESSEE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT(A) . 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. UNDISPUTEDLY ASSESSEE HAS NOT EARNED ANY DIVIDEN D / EXEMPT INCOME DURING THE YEAR UNDER ASSESSMENT ON THE INVE STMENT MADE BY IT AS IS APPARENT FROM AUDITORS REPORT PLACED O N FILE BY THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT AO WITHOU T RECORDING DISSATISFACTION AS TO THE WORKING OUT MADE BY THE A SSESSEE THAT NO EXPENSES HAVE BEEN INCURRED NOR EARNED ANY DIVIDEN D / EXEMPT INCOME, PROCEEDED TO INVOKE THE PROVISIONS CONTAINE D U/S 14A READ WITH RULE 8D IN A MECHANICAL MANNER. 7. HONBLE DELHI HIGH COURT IN CASE CITED AS CHEMINVEST ITA NO.3719/DEL./2018 5 LTD. VS. COMMISSIONER OF INCOME TAX [2015] 378 IT R 33 (DELHI) WHILE INTERPRETING APPLICABILITY OF SECTION 14A HELD AS UNDER : THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSE E IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE GENUINEN ESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT IN DOUBT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 14A. 8. HONBLE DELHI HIGH COURT WHILE DECIDING THE IDEN TICAL ISSUE WITH REGARD TO SECTION 14A READ WITH RULE 8D IN CAS E CITED AS MAXOPP INVESTMENT LTD. VS. CIT(2012) 347 ITR 272 (D ELHI) HELD AS UNDER :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OF FICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUEST ION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF .SUB-SECTION (2) OF SECTION 14A . PRIOR T O THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEP TABLE METHOD. SO, EVEN FOR THE PRERULE 80 PERIOD, WHENEVE R THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFF ICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIM S THAT NO EXPENDITURE HAS BEEN INCURRED IN' RELATION TO IN COME ITA NO.3719/DEL./2018 6 WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE A SSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE C LAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPEN DITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACC EPT THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUC H EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UP ON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITERIA AND AFT ER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WI TH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO . HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABL E AND ACCEPTABLE METHOD OF APPORTIONMENT. 9. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT - 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER : 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITUR E INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WH ERE THE ITA NO.3719/DEL./2018 7 ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM O F THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE 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 ACCOUNT S OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSI BLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AN D (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND BY FOLLOWING THE LAW LAID DOWN BY HON'BLE APEX COURT AND HIGH C OURTS IN JUDGMENTS CITED AS CHEMINVEST LTD., GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) AND MAXOPP INVESTMENT LTD. (SUPRA) , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS RETURNED BY AO THAT, MAKING DISALLOWANCE U/S 14A BY THE AO BY RELYING UPON CBDT CIRCULAR DATED 05/2014 DATE D 11.02.14 THAT DISALLOWANCE U/S 14A IS TO BE MADE EVEN IF NO EXEMPT INCOME HAS EARNED DURING THE YEAR UNDER CONSIDERATION, IS NO LONGER A GOOD LAW BECAUSE WHERE THE ASSESSEE HAS NOT EARNED ANY D IVIDEND INCOME FORMING PART OF THE TOTAL INCOME DURING THE YEAR UNDER ASSESSMENT, SECTION 14A READ WITH RULE 8D IS NOT AT TRACTED. SO MAKING DISALLOWANCE U/S 14A READ WITH RULE 8D IN A MECHANICAL ITA NO.3719/DEL./2018 8 MANNER WITHOUT RECORDING ANY DISSATISFACTION AS TO THE WORKING OUT MADE BY THE ASSESSEE THAT HE HAS NOT INCURRED ANY E XPENSES NOR EARNED ANY DIVIDEND INCOME DURING THE YEAR UNDER AS SESSMENT IS NOT PERMISSIBLE UNDER LAW. SO CONSEQUENTLY AO AS WE LL AS CIT(A) HAVE EARED IN DISALLOWING/CONFIRMING THE ADDITION MADE U/S 14A READ WITH RULE 8D, WHICH IS ORDER TO BE DELETED. 11. HENCE, APPEAL FILED BY THE ASSESSEE IS HEREBY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF DECEMBER, 2018. SD/- SD/- (N.K.BILLAIYA) (KUL DIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14/12/2018 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DEL HI. ITA NO.3719/DEL./2018 9 DATE OF DICTATION 05 .12.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06.12.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 06.12.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 14.12.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 14.12.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 14.12.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 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