M/s. Keyman Financial Services (P) Limited, New Delhi V. DCIT, New Delhi

ITA 4043/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4042 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 17-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: D , NEW DELHI BEFORE SHRI R .K. PANDA , ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 4043 /DEL/201 4 A.Y. 20 09 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. 403, PRABHAT KIRAN, 17, RAJENDRA PLACE NEW DELHI 110 008 PAN: AAACK3453G VS . DCIT, CIRCLE 5(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. TARANDEEP SINGH, CA RESPONDENT BY SHRI AMIT JAIN, S R.D.R. DATE OF HEARING 08.01.2018 DATE OF PRONOUNCEMENT 15.01.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 20/05/14 PASSED BY LD. CIT (A) - 8, NEW DELHI FOR ASSESSMENT YEAR 2009 - 10 ON THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) {HEREINAFTER REFERRED TO AS 'CIT(A)'} ERRED IN UPHOLDING ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 2 OF 8 DISALLOWANCE OF RS . 37,22,144/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 1.1 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN N OT APPRECIATING THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE IN ORDER TO EARN DIVIDEND INCOME OF RS . 5,13,682/ - . 1.2. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING ASSUMPTION OF JURISDICTION U/S 14A R/W RULE 8 D (2) BY THE AO. 1.3 THAT ON FACT S AND IN LAW THE CIT(A) ERRED IN APPLYING THE PROVISIONS OF RULE 8 D (2) OF THE INCOME TAX RULES, 1962 . THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND/OR VARY THE GROUND(S) OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. BRIEF FACTS OF THE CAS E ARE AS UNDER . ASSESSEE FILED ITS RETURN OF INCOME ON 12/09/09 WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED , IN RESPONSE TO WHICH R EPRESENTATIVE S OF ASSESSEE ATTENDED PROCEEDINGS FROM TIME TO TIME , AND FURNISHED REQUISITE DETAILS/INFORMATION. BOOKS OF ACCOUNTS PRODUCED BY ASSESSEE WERE EXAMINED ON TEST CHECK BASIS AND THE CASE WAS DISCUSSED. 2.1. DURING ASSESSMENT PROCEEDINGS , LD.AO OBSERVED THAT ASSESSEE IS IN THE BUSINESS OF NON - BANKING FINANCIAL COMPANY. IT WAS OBSERVED THAT ASSESSEE HAD INVESTMENTS IN SHARES AND MUTUAL FUNDS TO AN EXTENT OF RS.72,90,00,000/ - AS ON THE LAST DAY OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CON SIDERATION. LD.AO OBSERVED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 3 OF 8 RS.5,13,682/ - WHICH WAS CLAIMED EXEMPT. LD. AO ACCORDINGLY ISSUED NOTICE, SHOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D OF THE ACT SHOULD NOT BE MADE. 2.2 . ASSESSEE IN RESPONSE , SUBMITTED THAT IT HAD NEITHER INCURRED ANY INTEREST EXPENDITURE NOR ANY OTHER CHARGES FOR INVESTMENT FOR EARNING EXEMPT INCOME . I T WAS SUBMITTED THAT ASSESSEE HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO EARNING OF EXEMPT INC OME AND NO DISALLOWANCE WAS MADE IN THE RETURN OF INCOME. 2.3. LD. AO HOWEVER COMPUTED THE DISALLOWANCE UNDER THE 3 RD LIMB OF R ULE 8D , AT RS. 37, 22,144/ - . 3. AGGRIEVED BY ADDITION MADE BY LD. AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A), WHO CONFIRM ED THE ADDITION MADE BY LD. AO BY OBSERVING AS UNDER: I HAVE PERUSED THE WRITTEN SUBMISSIONS, ASSESSMENT ORDER AND DISCUSSED THE MATTER WITH THE AR VERY CAREFULLY. THE ONLY DISPUTE OF APPELLANT IS ON DISALLOWANCE OF RS.37 ,22,144 / - MADE BY AO U/S 14A/RULE - 8D OF IT ACT AND RULES RESPECTIVELY. THE APPELLANT HAD RECEIVED RS.5,13,682/ - AS DIVIDENDS FROM MFS BUT AO HAD DISALLOWED RS. 37,22,144/ - BEING 1/2% OF AVERAGE INVESTMENT AS PER THIRD LIMB OF RULE 8D. THE AR ARGUED THAT THE APPELLANT HAD NOT BORROWED ANY F UND DURING THE YEAR FOR THE INVESTMENTS, NOR THE APPELLANT HAD PAID ANY INTEREST TO ANYBODY FOR UTILISING ANY BORROWED FUND FOR FRESH INVESTMENTS IN SHARES OR MUTUAL FUNDS DURING THE YEAR. HENCE HE ARGUED THAT THE EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME BE TREATED AS NIL. ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 4 OF 8 SECTION 14A PRESCRIBES FOR DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDED IN TOTAL INCOME (I.E. EXEMPT INCOME). RULE - 8D LAYS DOWN THE PROCEDURE FOR CALCULATING THE AMOUNT OF EXPENDITURE INCURRED IN RELATI ON TO EXEMPT INCOME. SUB - RULE(2) OF RULE - 8D HAVE 3 SUB - CLAUSES: - (I) DIRECT EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. (II) INTEREST EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A FORMULA IS PRESCRIBED. (III)AN AMOUNT EQUAL TO ONE - HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST D AY AND LAST DAY OF THE PREVIOUS YEAR. THUS THE 3RD SUB - RULE (III) ABOVE IS VERY CLEAR AND MANDATORY FOR DISALLOWANCE, IN ALL CASES, IF THERE IS ANY EXEMPT INCOME OR NOT. IT IS CLEAR FROM THE PHRASE DOES NOT OR 'SHALL NOT FORM PART OF THE TOTAL INCOME'. HE NCE DISALLOWANCE U/S 8D(III) MAKES IT MANDATORY FOR EVERY ASSESSEE WHERE THERE IS INVESTMENT IN SHARES AND MFS. THUS IT IS AKIN TO TAXING LIKE WEALTH TAX. THE AR OF THE APPELLANT WAS REQUESTED TO COME FORWARD FOR DISCUSSION IN THE INTERPRETATION OF LAW WHICH HE COULD NOT MAKE AFTER SEVERAL REMINDERS. IN MY OPINION THE ACTION OF THE AO IN DISALLOWING RS. 37,22,144/ - IS JUSTIFIED AS THIS IS A MANDATORY DISALLOWANCE FOR EARNING EXEMPT INCOME AND INCURRING EXPENSES ON IT. HENCE THE ADDITION MADE BY THE AO IS CONFIRMED. 4. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 5. LD.COUNSEL SUBMITTED THAT THERE ARE NO DIRECT EXPENSES WHICH HAVE BEEN INCURRED BY ASSESSEE FOR THE PURPOSES OF EARNING EXEMPT ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 5 OF 8 INCOME. HE SUBMITTED THAT LD.AO HAS CO NSIDERED ONLY THE INVESTMENTS FOR THE PURPOSES OF MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D THEREBY ADMITTING THAT THERE IS NO EXPENDITURE THAT HAS BEEN INCURRED BY ASSESSEE IN ORDER TO EARN EXEMPT INCOME. HE PLACED RELIANCE UPON THE WORKING OF DISALLOWANCE UNDER RULE 14A READ WITH RULE 8D BY THE LD.AO IN THE ASSESSMENT ORDER. LD.COUNSEL SUBMITTED THAT LD.AO HAS ALSO ADMITTED THAT THERE IS NO INTEREST THAT COULD BE ATTRIBUTED FOR MAKING SUCH DISALLOWANCE. 5.1. LD.COUNSEL SUBMITTED THAT IN THE P ROFIT AND L OSS ACCOUNT , THERE IS NO ITEM DEBITED WHICH COULD BE CONSIDERED FOR THE PURPOSES OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE ACT. HE SUBMITTED THAT THE DISALLOWANCE MADE BY LD.AO I S WITHOUT APPLICATION OF MIND AND THEREFORE DES ERVES TO BE DELETED. 6. ON THE CONTRARY LD.DR PLACED RELIANCE UPON THE OBSERVATIONS MADE BY LD.CIT(A). HE PLACED RELIANCE UPON THE DECISION OF HON BLE DELHI HIGH COURT IN CASE OF INDIA BULLS FINANCIAL SERVICES LTD VS. DCIT REPORTED IN (2017) 395 ITR 242 A ND SUBMITTED THAT THE LD.AO IN THE COMPUTATION MADE BY HIM REGARDING DISALLOWANCE UNDER SECTION 14A HAS TAKEN INCOME UNDER DIRECT EXPENSES AND INTEREST INCOME THAT COULD BE ATTRIBUTABLE FOR SUCH DISALLOWANCE AS NIL . HE SUBMITTED THAT THIS ITSELF INDICA TES APPLICATION OF MIND BY LD.AO , THOUGH HE DID NOT EXPRESSLY RECORD HIS DISSATISFACTION. 7. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 6 OF 8 7.1 . ADMITTEDLY ASSESSEE HAS NOT MADE ANY SUO MOTO DISA LLOWANCE FOR EARNING EXEMPT INCOME. THE PRESENT ASSESSMENT YEAR UNDER CONSIDERATION BEING 2009 - 10, ASSESSING OFFICER HAS TO COMPUTE DISALLOWANCE AS PER METHODOLOGY ENACTED UNDER RULE 8D OF INCOME TAX RULES,1963. LD. AO HAS TO APPLY THE FORMULAE. IN THE GIVEN CASE FROM THE PROFIT AND LOSS ACCOUNT WE OBSERVE THAT ASSESSEE HAS NOT INCURRED ANY EXPENSES TOWARDS SALARY, POSTAGE, TELEGRAPH ETC. HOWEVER THERE ARE CERTAIN FINANCIAL CHARGES , BANK CHARGES, DEMAT CHARGES THAT HAVE BEEN DEBITED UNDER S CHEDULE 10 TO P&L ACCOUNT. 7.2. WE DO NOT AGREE WITH ARGUMENTS ADVANCED BY LD.COUNSEL REGARDING SATISFACTION NOT BEING RECORDED AS A REQUIREMENT BEFORE MAKING DISALLOWANCE UNDER SECTION 14A READ WITH R ULE 8D OF THE ACT. IN OUR CONSIDERED VIEW REQUIREMENT FOR RECORDI NG SATISFACTION UNDER SECTION 14A(2) COMES INTO PLAY ONLY WHEN SUO MOTO DISALLOWANCE MADE BY ASSESSEE IS NOT ACCEPTABLE TO LD. AO. 7.3 . AS ASSESSEE HAS EARNED DIVIDEND INCOME FOR WHICH NO DISALLOWANCE HAS BEEN MADE BY ASSESSEE IN THE RETURN OF INCOME FILED, AS PER SECTION 14A(1) OF THE ACT, COMPUTATION HAS TO BE ADOPTED AS PER RULE 8D OF THE INCOME TAX RULES,1963. ON PERUSAL OF THE COMPUTATION MADE BY THE LD.AO, IT IS OBSERVED THAT THE DISALLOWANCE MADE IS MORE THAN EXEMPT INCOME. HON BLE DELHI HIGH C OURT IN THE CASE OF CHEMINVEST PVT. LTD. VS. CIT REPORTED IN (2015 ) 378 ITR 33, WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UNDER RULE 8D CANNOT EXCEED THE EXEMPT INCOME. THEREFORE IN OUR CONSIDERED OPINION THE DISALLOWANCE NEEDS TO BE RECOMPUTED. AS TH ERE ARE NO EXPENSES OTHER THAN THE EXPENSES RECORDED IN S CHEDULE 10 TO P&L ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 7 OF 8 ACCOUNT, WE FIND IT APPROPRIATE TO RESTRICT THE DISALL OWANCE TO A SUM OF RS. 10,000/ - WHICH COULD BE ATTRIBUTED TO EARNING OF EXEMPT INCOME. 7.4. ACCORDINGLY THE GROUNDS RAISED BY ASSESSEE STAND DISMISSED. 8. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 T H J ANUARY, 2018. S D / - S D / - ( R .K. PANDA ) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 5 T H JANUARY, 2018 *MV COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI ITA 4043/DEL/2014 ASSESSMENT YEAR 2009 - 10 KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT, NEW DELHI PAGE 8 OF 8 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER