M/s. Amar Packagings Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 3793/DEL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1744 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVINDER MAINI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 3793 /DEL/201 3 ASSESSMENT YEAR: 2009 - 10 M/S AMAR PACKAGINGS PVT. VS. CIT(A) - IV, I.P. ESTATE, LTD., D - 91/4, OKHLA INDL. AREA - II, NEW DELHI NEW DELHI (PAN: AAACA5760G ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT . RANO JAIN, CA RESPONDENT BY: SH. RAVINDER MAINI, SR. DR DATE OF HEARING: 06.07.2015 DATE OF PRONOUNCEMENT: 12.08.2015 ORDER PER INTURI RAMA RAO, A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 AGAINST THE ORDER OF LEARNED CIT(A), DT. 19.03.2013, ON THE FOLLOWING GROUNDS OF APPEAL: I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) - IV ERRED IN PARTLY CONFIRMING THE ORDER OF LD. A.O. F OR DISALLOWING THE EXPENSES OF RS. 20,90,006/ - INCURRED IN RELATION TO EARNING THE TAX FREE INCOME DURING THE YEAR BY INVOKING SECTION 14A R.W.R 8D OF INCOME TAX ACT, 1981 WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. II. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER AND SUBSTITUTE ANY OF THE ABOVE MENTIONED GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A COMPANY ENGAGED IN THE BUS INESS OF PURCHA SE AND SALE OF SHARES AND SECURITIES. IT HA D FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 ON 23.09.2009, DECLARING LOSS OF RS. 7,65,00,819/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCO ME - TAX ACT, 1961 (FOR SHORT THE ACT ) VIDE ORDER DATED 28.11.2011 , AT A TOTAL INCOME OF RS. 7,27,98,893/ - . WHILE DOING SO, THE ASSESSING OFFICER MADE DISALLOWANCE OF R S. 37,01,926/ - UNDER SECTION 14A OF THE ACT. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE CIT(A) WHO DISMISSED THE SAME VIDE ORDER DATED 19 TH MARCH, 2013. NOW, THE ASSESSEE IS BEFORE US WITH THE PRESENT APPEAL AGAINST THE ORDER OF CIT(A). 3. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ITSELF MADE A SUO MOT O DISALLOWANCE O F INTEREST EXPENDITURE OF RS. 1,69,34 , 038/ - OUT OF TOTAL INTEREST EXPENDITURE OF RS. 3,42,41,892/ - AND ADMINIS TRATION EXPENSES OF RS. 1,81,913 / - . THE ASSESSING OFFICER WITHOUT RECORDING ANY SATISFACTION AS TO HOW DISALLOWANCES OFFERED BY THE ASSESSEE IS N OT SATISFACTORY AND THEREFORE, THE ADDITION SHOULD BE DELETED. IN SUPPORT OF THIS PROPOSITION, HE RELIED UPON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TAIKISHA ENGINEERING INDIA LTD., (2015) 370 ITR 0338 (DEL.). HE SUBMITTED THAT THE DISALLOWANCES MADE CANNOT STAND THE TEST OF THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE ABOVE DECISION. 4. ON THE OTHER HAND, LEARNED CIT - DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE NOTICED FROM THE MATERIAL ON RECORD THAT THE APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND INCOME AS WELL AS NON - EXEMPT INCOME WHICH IS OFFERED TO TAX. THE A SSESSEE COMPANY HAD OFFERED SUO MOTU DISALLOWANCES OF RS. 1,69,34,038/ - OUT OF THE TOTAL EXPENDITURE. THE ASSESSING OFFICER WITHOUT RENDERING THE FINDING AS TO HOW THE DISALLOWANCES OFFERED BY THE ASSESSEE IS UNSATISFACTORY , PROCEEDED TO MAKE THE DISALLOWA NCES UNDER SECTION 14A OF THE ACT. THIS KIND OF APPROACH OF THE ASSESSING OFFICER IS FOUND TO BE ILLEGAL BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT, (2010) 328 ITR 81 (BOM.). THIS DECISION WAS FOLLOWED BY THE HO N BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TAIKISH ENGINEERING INDIA LTD, 370 ITR 338 (DEL.) WHEREIN THE HIGH COURT HELD AS UNDER: SECTION 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURR ED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RULE 80 O F THE RULES (QUOTED AND ELUCIDATED BELOW). THEREFORE, THE ASSESSING OFFICER AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME. IF AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT HE IS ENTITLED TO ADOPT THE METHOD AS PRESCRIBED I. E. RULE 8D OF THE RULES. THUS, RULE 8D IS NOT ATTRACTED AND APPLICABLE TO ALL ASSESSEE WHO HAVE EXEMPT INCOME AND IT IS NOT COMPULSORY AND NECESSARY THAT AN ASSESSEE MUST VOLUNTARILY COMPUTE DISALLOWANCE AS PER RULE 80 OF THE RULES. WHERE THE DISALLOWANCE OR 'NIL' DISALLOWANCE MADE BY THE ASSESSEE IS FOUND TO 4 BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS, THE ASSE SSING OFFICER IS ENTITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 8D OF THE RULES. THIS PRE - CONDITION AND STIPULATION AS NOTICED BELOW IS ALSO MANDATED IN SUB RULE (1) TO RULE 8D OF THE RULES. ------------------------- SUB RULE (1) CATEGORICAL LY AND SIGNIFICANTLY STATES THAT THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE AND ON NOT BEING SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED IN RELATION TO IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, CAN GO ON TO DETERMINE THE DISALLOWANCE UNDER SUB RULE (2) TO RULE 8D OF THE RULES. SUB RULE (2) WILL NOT COME INTO OPERATION UNTIL AND UNLESS THE SPECIFIC PRE - CONDITION IN SUB RULE (1) IS SA TISFIED. THUS, SECTION 14A(2) OF THE ACT AND RULE 80(1) IN UNISON AND AFFIRMATIVELY RECORD THAT THE COMPUTATION OR DISALLOWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME MUST BE EXAMINED WITH REFERENCE TO THE ACCO UNTS, AND ONLY AND WHEN THE EXPLANATION / CLAIM OF THE ASSESSEE IS NOT SATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RULE 80 OF THE RULES IS TO BE MADE. 13. WE NEED NOT, THEREFORE, GO ON TO SUB RULE (2) TO RULE 80 OF THE RULES UNTIL AND UNLESS THE ASSESS ING OFFICER HAS FIRST RECORDED THE SATISFACTION, WHICH IS MANDATED BY SUB SECTION (2) TO SECTION 14A OF THE ACT AND SUB RULE (1) TO RULE 80 OF THE RULES. 20. HOWEVER, IN THE PRESENT CASE WE NEED NOT REFER TO SUB RULE (2) TO RULE 80 OF THE RULES AS CONDIT IONS MENTIONED IN SUB SECTION (2) TO SECTION 14A OF THE ACT READ WITH SUB RULE (1) TO RULE 80 OF THE RULES WERE NOT SATISFIED AND THE ASSESSING OFFICER ERRED IN INVOKING SUB RULE (2), WITHOUT ELUCIDATING AND EXPLAINING WHY THE VOLUNTARY DISALLOWANCE MADE B Y THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY. WE DO NOT FIND ANY SUCH SATISFACTION RECORDED IN THE PRESENT CASE BY THE ASSESSING OFFICER, BEFORE HE INVOKED SUB RULE (2) TO RULE 8D OF THE RULES AND MADE THE RE - COMPUTATION. THEREFORE, THE RESPONDENT AS SESSEE WOULD SUCCEED AND THE APPEAL SHOULD BE DISMISSED.' 6. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE TWO CASES AND IN THE ABSENCE OF SATISFACTION RECORDED BY THE ASSESSING OFFICER AS TO HOW THE DISALLOWANCES OFFERED BY THE ASSESSEE COMPAN Y IS NOT SATISFACTORY, THE 5 DISALLOWANCE CANNOT BE SUSTAINED AND THEREFORE, WE ALLOW THE GROUND S OF APPEAL FILED BY THE ASSESSEE COMPANY. 7. IN THE RESULT, THE APPEAL IS ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 2 T H A U G U S T , 2015. S D / - S D / - ( I.C. SUDHIR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 2 T H A U G U S T , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI