DCIT, CIRCLE- 7(1), NEW DELHI V. DLF SOUTHERN TOWNS PVT. LTD., NEW DELHI

ITA 4158/DEL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1139 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 22-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. H. S. SIDHU, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 4158/DEL/2017 : ASSTT. YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1), NEW DELHI VS M/S DLF SOUTHERN TOWNS PVT. LTD., 1-E, NAAZ CINEMA COMPLEX, JHANDEWALAN EXTENSION, NEW DELHI-55 (APPELLANT) (RESPONDENT) PAN NO. AA DCP9107F ASSESSEE BY : SH. R. S. SINGHVI, CA REVENUE BY : MS. ASHIMA NEB, SR. DR DATE OF HEARING: 10.12.2019 DATE OF PRONOUNCEMENT: 16.12.2019 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER DATED 16.03.2017 OF THE LD. CIT (A)-3, DE LHI. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. THE LD. CIT (A) ERRED IN DELETING THE ADDITION U/S 14A READ WITH RULE 8D AMOUNTING TO RS.49,44,992/- RELYI NG UPON THE DECISION OF HONBLE DELHI COURT IN THE CASE OF M/S MAXXOP INVESTMENT LTD. AND ORS VS COMMISSIONER OF INCOME T AX REPORTED IN (2012) 247 CTR (DEL) 162. THE ISSUE OF DISALLOWANCE IS 14A IS PENDING FOR ADJUDICATION IN THE HONBLE SUPREME COURT. 3. THE FINANCIAL POSITION OF THE COMPANY RELEVANT T O THE ISSUE IS AS UNDER: 31.03.12 SHARE CAPITAL 2.70 RESERVES & SURPLUS 34,307.92 ITA NO. 4158/DEL/2017 DLF SOUTHERN TOWNS PV T. LTD. 2 TOTAL INTEREST FREE FUNDS AVAILABLE 34,310.62 INVESTMENTS: - MUTUAL FUNDS ON WHICH EXEMPTED INCOME IS GENERATED 164.84 TOTAL INVESTMENTS 164.84 4. FROM THE ABOVE, IT IS CLEAR THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE FAR LESS THAN THE OWN FUNDS AVAILABLE WITH THE ASSESSEE. FURTHER, IT IS FOUND FROM THE RECORD THAT THE ASSES SEE HAS DISALLOWED RS.3,45,654/- ON ACCOUNT OF DISALLOWANCE U/S 14A. B EFORE US IT WAS ARGUED BY THE LD. AR THAT THE ASSESSING OFFICER HAS NOT ME NTIONED ANYTHING ABOUT DISSATISFACTION REGARDING THE DISALLOWANCE MADE BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A(2) AN D THE LD. CIT (A) DELETED THE ADDITION OWING TO NON-ADHERENCE IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 14A(2). THE LD. DR ON THE OT HER HAND, SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT TO I NVOKE RULE 8D(2), NO SATISFACTION IS REQUIRED AS IT IS AN AUTOMATIC PROV ISION FOR DETERMINING THE DISALLOWANCE. 5. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE REASO NS GIVEN BY THE LD. CIT (A) IN DELETING THE ADDITION. THE ADDITION WAS DELETED FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF MAXXOP INVESTMENT LTD. & ORS. 247 CTR 162 (DEL.). THE RELE VANT PORTION IS AS UNDER: 'SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT PR OVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE E XAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSI NG OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITUR E ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS POT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMB ARKING UPON ITA NO. 4158/DEL/2017 DLF SOUTHERN TOWNS PV T. LTD. 3 A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURR ED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASS ESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSIN G OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE A SSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE. SUB- SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTI ON (2) OF SECTION 14A. SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WIT H CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDI TURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLIES TO C ASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCUR RED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSES SING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF T HE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS T HE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUN T OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHO D, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT T HE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE W ITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHILE REJE CTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR N O EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, T HE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR T HE SAME. RULE 8D 30. AS WE HAVE ALREADY NOTICED, SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMI NATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMP T INCOME. THE EXPRESSION USED IS - 'SUCH METHOD AS MAY BE PRE SCRIBED'. WE HAVE ALREADY MENTIONED ABOVE THAT BY VIRTUE OF N OTIFICATION NO.45/2008 DATED 24/03/2008, THE CENTRAL BOARD OF D IRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASSESSING OFFICER, HA VING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITUR E MADE BY THE ITA NO. 4158/DEL/2017 DLF SOUTHERN TOWNS PV T. LTD. 4 ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THA T NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T FOR SUCH PREVIOUS YEAR, THE ASSESSING OFFICER SHALL DETERMIN E THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOME IN AC CORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF RULE 8D. WE MAY O BSERVE THAT RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHILE DISCUSSING THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTI ON 14A, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HI MSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM O F EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURR ED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPE NDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME I N THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RU LES. 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJE CTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. IF ONE EXAMINES SUB -RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FOR DETERMINING TH E EXPENDITURE IN RELATION TO EXEMPT INCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTL Y ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE FORMULA ES SENTIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTE REST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE A SSESSEE. THE THIRD COMPONENT IS AN ARTIFICIAL FIGURE - ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE SHEETS OF THE ASSESSEE, ON THE FIRST DAY AN D THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE AGGREGATE OF THESE THREE COMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE I N RELATION TO EXEMPT INCOME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECTION 14A OF THE SAID ACT. IT IS, THEREFORE, CLEAR THAT IN TERMS OF THE SAID RULE, THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS - (A) DIR ECT AND (B) ITA NO. 4158/DEL/2017 DLF SOUTHERN TOWNS PV T. LTD. 5 INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TA KEN INTO ACCOUNT BY VIRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INTERES T, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATE D ABOVE. AND, IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY W AY OF INTEREST, A RULE OF THUMB FIGURE OF ONE HALF PERCENT OF THE A VERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS TAKEN.' 3.3 I FIND THAT SECTION 14A(2) PROVIDES THAT THE AS SESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH COR RECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT ,OF SUCH EXPENDITU RE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT AND SECTION 14A(3) PROVIDES THAT, 'THE PRO VISIONS OF SUB SECTION (2) SHALL APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT'. WHILE A LOT OF EMPHASIS IS PLACED BY THE COUNSEL ON WORDINGS OF SECTION 14A(2) WHICH REFER TO THE NEED OF ASSESSING OFFICER'S SATISFACTION TO THE EFFECT THAT THE CLAIM MADE BY THE ASSESSEE IS INCORRECT, IT SIMPLY OVERLOOKS THE PROV ISIONS OF SECTION 14A(3) WHICH STATE THAT A DISALLOWANCE U/S 14A(2) C AN ALSO BE MADE IN A CASE IN WHICH ASSESSEE CLAIMS THAT NO EXP ENDITURE HAS BEEN INCURRED FOR EARNING THE TAX EXEMPT INCOME. TH EREFORE, A PLAIN READING OF THE STATUTORY PROVISIONS OF SECTIO N 14A(2) AND (3) SHOWS THAT WHEN ASSESSEE OFFERS A DISALLOWANCE U/S 14A,THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D CANN OT BE INVOKED UNLESS THE ASSESSING OFFICER IS SATISFIED ABOUT INC ORRECTNESS OF THE DISALLOWANCE SO OFFERED, BUT WHEN ASSESSEE DOES NOT OFFER ANY DISALLOWANCE U/S 14A ON HIS OWN, THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D CAN BE INVOKED WITHOUT THERE BEIN G ANY NEED TO EXPRESS SATISFACTION ABOUT THE INCORRECTNESS OF SUCH A CLAIM. IN THE INSTANT CASE, THE APPELLANT HAD MADE A SUO-M OTO DISALLOWANCE OF RS.3,45,654/- AND THE ASSESSING OFF ICER HAS NOT RECORDED THE DISSATISFACTION ABOUT THE DISALLOWANCE SUO-MOTO MADE BY THE APPELLANT AND HAS NOT IDENTIFIED ANY EX PENDITURE WHICH CAN BE CONSIDERED TO BE EXPENDED IN CONNECTIO N WITH THE INVESTMENT ACTIVITY. THE APPELLANT HAS OWN FUNDS OF RS.34,310.62. LACS WHICH ARE FAR MORE THAN THE INVE STMENTS OF RS.164.84 LACS. THE PLAIN READING OF THE STATUTORY PROVISIONS OF SECTION 14A(2) AND 14A(3) SHOWS THAT WHEN THE ASSES SEE OFFERED ITA NO. 4158/DEL/2017 DLF SOUTHERN TOWNS PV T. LTD. 6 THE DISALLOWANCE U/S 14A, THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D CANNOT BE INVOKED UNLESS THE ASSESSING OFFICER IS DISSATISFIED ABOUT THE CORRECTNESS OF THE DISALLOWA NCE SO OFFERED. IN VIEW OF THE ABOVE, THE DISALLOWANCE OF RS. 49,44 ,992/- MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(II)&(III) READ WITH SECTION 14A, IS DELETED. 6. SINCE, THE DECISION OF THE LD. CIT (A) IS BASED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT WHICH IS SQUARELY APPLICA BLE TO THE FACTS OF THE INSTANT CASE, WE HEREBY DECLINE TO INTERFERE WITH T HE REASONED ORDER OF THE LD. CIT (A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2019. SD/- SD/- (H. S. SIDHU) (DR . B. R. R. KUMAR) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: 16/12/2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR