M/s. ACE Insurance Brokers Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 3797/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1377 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2015
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.3797/DEL./2015 (ASSESSMENT YEAR : 2010-12) M/S. ACE INSURANCE BROKERS PVT. LTD., VS. ACIT, CIR CLE 1, B 17, ASHADEEP BUILDING, NEW DELHI. 9, HAILEY ROAD, NEW DELHI 110 001. (PAN : AADCA9488L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.C. AGGARWAL, ADVOCATE REVENUE BY : MS. NAINA SOIN KAPIL, SENIOR DR DATE OF HEARING : 21.08.2019 DATE OF ORDER : 11.09.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. ACE INSURANCE BROKERS PVT. LTD. (H EREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 18.03.2015 PASSED BY THE COMMISSIONER OF INCOME - TAX ( APPEALS ) - I, NEW DELHI QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- 1. THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) TO THE EXTENT IT CONFIRMS DI SALLOWANCE OF RS.2,18,970.00 UNDER SECTION 14A IS BAD IN LAW ON F ACTS AND HAS BEEN PASSED IN A MECHANICAL ORDER ON THE BASIS OF C ONJECTURES AND SURMISES. ITA NO.3797/DEL./2015 2 2. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN DISALLOWING EXPENSES UNDER SECTION 14A WITHOUT APPR ECIATING THAT THE LEARNED A.O HAD APPLIED RULE 8D FOR PURPOS E OF DISALLOWANCE U/S 14A WITHOUT ARRIVING AT SATISFACTI ON OR COMPLYING WITH MANDATORY REQUIREMENT OF SECTION 14A (2) OF RULE 8D (1). 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : DURING THE YEAR UNDER ASSESSMENT, ASSESS EE COMPANY HAS SHOWN DIVIDEND INCOME OF RS.1,91,750/- FROM SHARES AND CLAIMED THE SAME AS EXEMPT INCOME UNDER SECTION 10 OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT). ASSESSING OFFICER (AO) BY I NVOKING THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D PROCEEDED TO MA KE DISALLOWANCE TO THE TUNE OF RS.2,18,970/- ON THE GROUND THAT THE EXPENSES CONNECTED WITH EXEMPT INCOME HAVE TO BE DISALLOWED AND COMPUT ED THE SAME AS UNDER:- CALCULATION OF DISALLOWANCE UNDER RULE 8D I. THE AMOUNT OF EXPENDITURE INCURRED DURING THE YE AR DIRECTLY RELATING TO EXEMPT INCOME - NIL II. THE INTEREST ON BORROWINGS MADE FOR INVESTMENT IN MUTUAL FUNDS - NIL III. 0.5% OF AVERAGE VALUE OF INVESTMENT INCOME FR OM WHICH DOES NOT FORM PART OF TOTAL INCOME ON THE FIRST & L AST DAY' OF THE PREVIOUS YEAR- APPLICABLE ACCORDINGLY, THE DISALLOWANCE UPTO 0.5% OF THE AVER AGE OF THE VALUE OF INVESTMENTS U/S 14A READ WITH RULE 8D IS CALCULATED AS UNDER: OPENING INVESTMENT (A) : RS.2,77,89,926/- CLOSING INVESTMENT (B) : RS.5,97,98,313/- AVERAGE INVESTMENT : RS.4,37,94,119/- ([(A)+(B)] /2) 0.5% OF AVERAGE INVESTMENT : RS.2,18,970/- (0.5% O F RS. 4,37,94,119/-) ITA NO.3797/DEL./2015 3 ACCORDINGLY, AN AMOUNT OF RS.2,18,970/- IS HEREBY DISALLOWED IN VIEW OF THE PROVISION OF SECTION 14A OF THE IT ACT, 1961 AND IS ADDED BACK TO THE INCOME OF THE ASSESSE E. (ADDITION OF RS.2,18,970/-) 3. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS CONFIRMED THE ADDITION BY PARTLY AL LOWING THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UP ON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF TH E FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, ASSESSEE HAS EARNED DIVIDEND INCOM E TO THE TUNE OF RS.1,91,750/- DURING THE YEAR UNDER ASSESSMENT AND CLAIMED THE SAME AS EXEMPT INCOME U/S 10 OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS FILED CATEGORIC REPLY BEFORE AO AS WEL L AS LD. CIT (A) TO THE SHOW-CAUSE NOTICE THAT THE COMPANY HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. 6. WHEN WE EXAMINE THE AFORESAID UNDISPUTED FACTS A ND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE SETTL ED PRINCIPLE OF LAW THAT WITHOUT RECORDING HIS DISSATISFACTION AS TO THE WOR KING OUT MADE BY THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED, PROVI SIONS CONTAINED U/S 14A READ WITH RULE 8D ARE NOT ATTRACTED. IN THE IN STANT CASE, THE AO HAS MERELY RECORDED THE GENERAL PRINCIPLE THAT THE ASSE SSEE HAS HIMSELF TAKEN ITA NO.3797/DEL./2015 4 THE DECISION TO INVEST IN SHARES FOR WHICH BOARD RE SOLUTION IN THIS REGARD HAS BEEN PASSED AND NECESSARY FORMALITIES ARE REQUI RED TO BE PERFORMED AND FOR ALL THESE ACTIVITIES, ASSESSEE MUST HAVE US ED SOME EXPERTS ENTAILING SOME EXPENDITURE. HOWEVER, A WORD HAS NO T BEEN MINCED BY THE AO THAT THE EVIDENCE BROUGHT ON RECORD BY THE A SSESSEE WHEREIN IT IS MENTIONED THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME IS INCORRECT IN HIS SATISFACTION RATHER MECH ANICALLY PROCEEDED TO INVOKE THE PROVISIONS CONTAINED UNDER RULE 8D OF TH E ACT. 7. HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 (DEL.) WHILE DECIDING THE IDENTICAL ISSUE HAS HELD AS UNDER :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINAT ION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. T HE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERM INING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF . SUB- SECTION (2) OF SECTION 14A . PRIOR TO THAT, THE ASS ESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRE-RULE 80 PERIOD, WHENEVER THE ISSUE OF SECTI ON 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST O F ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE 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 CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN' RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE T O VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING O FFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGAR D TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14 A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFIC ER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE AS SESSING ITA NO.3797/DEL./2015 5 OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITE RIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SH ALL 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 AC T. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 8. MOREOVER, BEFORE LD. CIT (A), THE ASSESSEE HAS C OME UP WITH SPECIFIC PLEA THAT IT HAS NOT PAID ANY SITTING FEE TO THE BOARD MEMBERS SO AS TO DECIDE AND MAKING INVESTMENT IN SH ARES BUT THIS CONTENTION OF THE ASSESSEE HAS ALSO NOT BEEN TAKEN INTO ACCOUNT BY THE LD. CIT (A). SO, WHEN THE AO HAS FAILED TO PRO VE ON RECORD MATERIAL TO SHOW THAT SUCH AND SUCH EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE TO EARN EXEMPT INCOME, DISALLOWANCE U/S 14A READ WITH RULE 8D IS NOT PERMISSIBLE. 9. HONBLE HIGH COURT OF PUNJAB & HARYANA IN CASE O F CIT VS. HERO CYCLES LTD. - 323 ITR 518 HELD THAT DISALLOWANCE U/S 14A IS NOT PERMISSIBLE WHERE THERE IS NO NEXUS BETWEEN EXP ENDITURE INCURRED AND INCOME GENERATED BY RETURNING FOLLOWIN G FINDINGS :- HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND TH E INVESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PR OCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SE CTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, WAS A QUES TION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDI RECTLY SOME EXPENDITURE WAS ALWAYS INCURRED WHICH MUST BE DISAL LOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE BUSI NESS INCOME WHICH MAY NULLIFY THE MANDATE OF SECTION 14A, COULD NOT BE ITA NO.3797/DEL./2015 6 ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRED F INDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THA T FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. CO NSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS ERRED IN C ONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D, HENCE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD . CIT (A) IS ORDERED TO BE DELETED. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF SEPTEMBER, 2019. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 11 TH DAY OF SEPTEMBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.