Rapid Estates Private Ltd., New Delhi V. DCIT, New Delhi

ITA 4137/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7548 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 05-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAKHI BIM AL
• Assessee Lawyers: SAJEVE DEORA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO. 4137/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTA NT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A .NO. 4137 /DEL/2013 (ASSESSMENT YEAR:- 2009-10 RAPID ESTATES PVT. LTD. H-65, CONNAUGHT CIRCUS NEW DELHI AAACR4421P (APPELLANT) VS DCIT CIRCLE-15(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. SAJEVE DEORA, FCA RESPONDENT BY MS. RAKHI BIMAL, SR. DR ORDER PER CHANDRA MOHAN GARG, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XVIII, NEW DEL HI DATED 19/4/2013 PASSED IN FIRST APPEAL NO. 389/2011-12 FOR ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED AS MANY AS SIX GROUNDS BUT EXCEPT GROUND NO 2.1 OTHER GROUNDS ARE ARGUMENTATIVE AND SUPPORTIVE TO THE MAIN GROUND NO. 2.1 WHICH READS AS UNDER:- DATE OF HEARING 11.05.2016 DATE OF PRONOUNCEMENT 30.05.2016 2 ITA NO. 4137/DEL/2013 2.1. THAT WITHIN THE FACTS AND CIRCUMSTANCES OF TH E CASE AND LAW ON THE POINT, THE LD.CIT(A) HAS ERRED IN DISALLOWING THE E XPENSES OF RS. 2,50,674.00/- U/S 14A WITH W.R.T RULE 8D OF THE INC OME TAX ACT, 1961 (ACT) WITHOUT APPRECIATING THAT THE APPELLANT HAD EARNED DIVIDEND ON INVESTMENT MADE IN 1996 AND FURTHER DIVIDEND INCOME WAS CREDIT ED DIRECTLY TO THE BANK ACCOUNT WITHOUT ANY MANUAL INTERVENTION AND NO EXPE NSES WERE INCURRED BY THE APPELLANT TO EARN SUCH DIVIDEND INCOME AND THAT FOR SUCH REASON NO DISALLOWANCE U/S 14A OF THE ACT IS WARRANTED. 3. WE HAVE HEARD ARGUMENT OF BOTH THE SIDES AND CAR EFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD BEFORE US. THE LD. AS SESSEES REPRESENTATIVE (AR) DRAWN OUR ATTENTION TOWARDS RELEVANT OPERATIVE PARA 4.1 OF THE FIRST APPELLATE ORDER AND SUBMITTED THAT THE CIT(A) NOTED THE CLAIM OF THE ASSESSEE THAT NO DIVIDEND INCOME WAS RECEIVED DURING THE RELEVANT AS SESSMENT YEAR, THEREFORE, NO DISALLOWANCE WAS CALLED FOR. THE LD. AR FURTHER PO INTED OUT THAT, HOWEVER, THE ASSESSING OFFICER CALCULATES DISALLOWANCE OF RS. 14 ,86,131/- BUT SINCE THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE AS PER P & L AC COUNT WAS RS. 2,50,674/- , THE DISALLOWANCE WAS RESTRICTED TO THIS EXTENT ONLY. T HE LD. AR SUBMITTED THAT AS PER SECTION 14A (2) OF THE ACT BEFORE MAKING ANY DISALL OWANCE UNDER THIS PROVISION THE ASSESSING OFFICER IS DUTY BOUND TO RECORD THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED WITH THE CORREC TNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. THE LD. AR FU RTHER DRAWN OUR ATTENTION TOWARDS ENTIRE ASSESSMENT ORDER PARA 1 TO 3.1 AND S UBMITTED THAT NO SATISFACTION AS REQUIRED BY THE SAID MANDATE OF SUB SECTION 2 OF SECTION 14A OF THE ACT HAS BEEN RECORDED BY THE A.O. THEREFORE, NO DISALLOWAN CE CAN BE MADE. THE LD. AR ALSO POINTED OUT THAT THE CIT(A) IGNORED THIS IMPOR TANT FACT THAT THE ASSESSEE MADE SUO MOTO DISALLOWANCE OF RS. 7,20,/- AS PER R ULE 8D (II) AS PER WORKING 3 ITA NO. 4137/DEL/2013 FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS BUT THE A.O HAS NOT CONTROVERTED THIS CLAIM OF THE ASSESSEE BY RECORDIN G HIS DISSATISFACTION ABOUT THE CORRECTNESS OF THE SUO MOTO DISALLOWANCE OF THE ASS ESSEE. 4. THE LD. COUNSEL DRAWN OUR ATTENTION TOWARDS REC ENT JUDGMENT OF HONBLE JURISDICTION HIGH COURT OF DELHI DATED 24/9/2015 IN CASE OF CIT(A) VS. I.P ESTATE SUPPORT SERVICES INDIA PVT. LTD PASSED IN ITA NO. 2 83/2014 AND SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT AFTER CONSIDE RING ITS EARLIER DECISION IN THE CASE OF MAXCOPP INVESTMENT (P) LTD. VS. CIT (2012) 347 ITR 272 (DEL), CATEGORICALLY HELD THAT THE COURT DISAPPROVED OF A.O INVOKING SEC TION 14A RULE 8D (2) OF THE I.T RULES 1962 WITHOUT RECORDING HIS SATISFACTION AND NOTED THAT THE RECORDING OF SATISFACTION AS TO WHY THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY WHICH IS A MANDATO RY REQUIREMENT OF LAW. THE LD. COUNSEL ALSO POINTED OUT WHEN THE CIT(A) HIMSEL F NOTED THAT NO DIVIDEND WAS RECEIVED DURING THE RELEVANT PERIOD THEN NO DISALLO WANCE COULD BE MADE AS PER DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD DATED 5/9/2014 IN ITA NO. 486/2014 AND 299/2014. TH E LD. AR ALSO HAS DRAWN OUR ATTENTION TOWARDS RECENT JUDGMENT OF HONBLE DELHI H IGH COURT IN CASE OF CHEMNIVEST LTD. VS. CIT REPORTED AS 378 ITR 33 (DE LHI) AND CONTENDED THAT THE ORDER OF THE ITAT DELHI IN THE CASE OF CHEMNIVEST L TD VS. ITO REPORTED AS 124 TTJ 577, WHICH HAS BEEN RELIED BY THE AUTHORITIES BELOW , HAS BEEN REVERSED BY THE JURISDICTIONAL HIGH COURT WHEREIN IT WAS HELD THAT N O EXEMPT INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT IN DOU BT, THEN NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. 4 ITA NO. 4137/DEL/2013 4. ON CAREFUL CONSIDERATION AND SUBMISSION OF BOTH THE SIDE, IN THE PRESENT CASE ON VIGILANT PERUSAL OF THE RELEVANT OPERATIVE PART OF THE ASSESSMENT ORDER, IT IS AMPLY CLEAR THAT THE ASSESSING OFFICER HAS NOT A CCORDED ANY SATISFACTION ALLEGING THE CORRECTNESS OF THE CLAIM OF EXPENDITURE OR SUO MOTO DISALLOWANCE MADE BY THE A.O. IN THIS SITUATION AS PER JUDGMENT OF HON BLE HIGH COURT OF DELHI IN CASE OF CIT VS. I.P SUPPORT SERVICES INDIA PVT. LTD(SUPRA) THE A.O NO EMPOWERED TO INVOKE SECTION 14A READ WITH RULE 8D OF THE I.T RULES 1962 . THE RELEVANT OPERATIVE PART OF THIS JUDGMENT OF HONBLE JURISDICTIONAL HIGH COUR T READS AS UNDER: 8. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES , THE COURT FINDS THAT THE AO HAS INDEED PROCEEDED ON THE ERRONEOUS PREMISE THAT THE INVOCAT ION OF SECTION 14A IS AUTOMATIC AND COMES INTO OPERATION AS SOON AS THE DIVIDEND INCOME IS CL AIMED EXEMPT. IN MAXOPP INVESTMENT (P) LTD. (SUPRA) THIS COURT HELD: 30. SUB-SECTION (2) OF SECTION 14A OF THE SAID AC T PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMI NE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME W OULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE COND ITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD TH AT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUB-SEC TION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED HTTP:/ /WWW.ITATONLINE.ORG ITA 283/2014 PAGE 5 OF 6 IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE A SSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB- SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE 5 ITA NO. 4137/DEL/2013 SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER IS NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFF ICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD . THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF TH E SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPEN DITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. (EMPHASIS SUPPLIED) 9. IN CIT V. TAIKISHA ENGINEERING INDIA LTD. 370 IT R 338 (DEL.), IN SIMILAR CIRCUMSTANCES, THE COURT DISAPPROVED OF AN AO INVOKING SECTION 14A READ WITH RULE 8D (2) OF THE RULES WITHOUT RECORDING HIS SATISFACTION AND NOTED THAT THE RECORDING OF SA TISFACTION AS TO WHY THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY IS A MANDATORY REQUIREMENT OF THE LAW. 5. IN VIEW OF ABOVE, THE DISALLOWANCE MADE BY THE A SSESSING OFFICER WITHOUT RECORDING ANY SATISFACTION AS REQUIRED BY THE MANDA TE OF SUB SECTION (2) OF SUB SECTION 14 A OF THE ACT CANNOT BE HELD AS SUSTAINAB LE. 6. THE NEXT QUESTION FOR ADJUDICATION BEFORE US IS T HAT WHETHER ANY DISALLOWANCE CAN BE MADE BY THE ASSESSING OFFICER I N A SITUATION WHEN THE ASSESSEE CLAIMED THAT NO EXEMPT DIVIDEND INCOME WAS RECEIVED DURING THE PERIOD UNDER CONSIDERATION, THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT WAS CALLED FOR. IN THIS CASE IN HAND NEITHER THE A.O NOR THE CIT(A) HAS CONTROVERTED THIS FACT THAT THE ASSESSEE HAS NOT EARNED AND CLAIMED ANY EXEMPT DIVIDEND INCOME DURING THE YEAR. AT THIS JUNCTURE, IT WOULD BE RELEVANT APPROP RIATE TO CONSIDER THE RATIO OF THE RECENT DECISION OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF CHEMNIVEST LTD VS. CIT(A) (SUPRA) WHEREIN THEIR LORDSHIPS SPEAKING FOR THE JURISDICTIONAL HIGH COURT HELD THAT WHEN NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR, AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN NOT IN DOUBT THEN NO DISALLOWANC E COULD BE MADE U/S 14A OF THE ACT. 6 ITA NO. 4137/DEL/2013 7. RESPECTFULLY, FOLLOWING THE DICTA LAID DOWN BY T HE HON'BLE HIGH COURT, WE ARE INCLINED TO HOLD THAT DISALLOWANCE BY THE ASSES SING OFFICER AND UPHELD BY THE CIT(A) IS NOT SUSTAINABLE AS PER PROVISIONS OF THE ACT AND RATIO OF THE DECISION BY THE HON'BLE HIGH COURT OF DELHI IN CASE OF CHEMNIVE ST LTD VS. CIT (SUPRA). THUS, WE DIRECT THE A.O TO DELETE THE SAME. ACCORDINGLY, MAIN GROUND OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER POUNCED IN THE OPEN COURT ON 30/05/2016. SD/- SD/- (S.V.MEHROTRA) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/05/2015 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 4137/DEL/2013 DATE 1. DRAFT DICTATED ON 24.05.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 25.05.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30.05.20 16 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 30.05.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 8 ITA NO. 4137/DEL/2013