DCIT, New Delhi V. M/s. Jaypee Ventures P Ltd., New Delhi

ITA 4347/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6850 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V K GARG
• Keywords: Depreciation; Rectification of order; Earning of tax free income
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.4347/DEL/2014 ASSESSMENT YEAR: 2010-11 DCIT, CIRCLE-4(1), NEW DELHI. VS. JAYPEE VENTURES PVT. LTD., AMALGAMATED WITH JAYPEE INFRA VENTURES (A PRIVATE CO. WITH UNLIMITED LIABILITY), 1095, SECTOR-A, POCKET-A, VASANT KUNJ, NEW DELHI. TAN/PAN: AAACJ 2356L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AMIT JAIN, SR.D.R. RESPONDENT BY: SHRI V.K. GARG, ADV. DATE OF HEARING: 23 07 2018 DATE OF PRONOUNCEMENT: 25 07 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 16.05.2014, PASSED BY THE CIT (APPEALS)- VIII, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSE D U/S.143(3) FOR THE ASSESSMENT YEAR 2010-11. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANC E FROM RS.4,84,34,962/- TO RS.2,00,00,000/- MADE U/S. 14A R.W.S. RULE 8D? 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPAN Y IS ENGAGED I.T.A. NO.4347/DEL/2014 2 IN THE BUSINESS OF DESIGN ENGINEERING, SOFTWARE DEV ELOPMENT AND CONSULTANCY, CONTRACTING AND MAN POWER SUPPLY. DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED DIVI DEND INCOME OF RS.55,29,23,615/- FROM ONE OF ITS GROUP COMPANY WHICH WAS CREDITED DIRECTLY IN THE BANK ACCOUNT OF THE ASSESS EE. FOR THE PURPOSE OF DISALLOWANCE U/S.14A, THE ASSESSEE HAS G IVEN DETAILED WORKING OF THE EXPENDITURE WHICH COULD BE SAID TO B E ATTRIBUTABLE FOR THE PURPOSE OF EXEMPT INCOME AND HAS WORKED OUT A DISALLOWANCE OF RS.1,89,49,298/- IN THE FOLLOWING M ANNER:- OUT OF PERSONNEL EXPENSES (25%) RS.1,08,05,255 OUT OF ADMINISTRATIVE & OTHER EXPENSES (25%) RS. 76,03,250 OUT OF DEPRECIATION (25%) RS. 5,40,793 3. HOWEVER, THE LEARNED ASSESSING OFFICER WITHOUT E VEN CONSIDERING THE ASSESSEES EXPLANATION AND EXAMININ G THE NATURE OF ACCOUNT AND THE EXPENDITURE DEBITED, PROCEEDED T O APPLY RULE 8D MECHANICALLY ON THE GROUND THAT THE RULE 8D WAS INTRODUCED ONLY FOR THE PURPOSE OF DETERMINING THE AMOUNT OF E XPENDITURE IN RELATION TO THE EXEMPT INCOME. AFTER FOLLOWING THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF M/S. DAGA CAPITAL MANA GEMENT PVT. LTD., 312 ITR (AT) 01 (2009) DELHI SB; AND CHEMINVE ST LTD. VS. ITO, (2009) 317 ITR (AT) 86 (DELHI SPL. BENCH), COM PUTED THE DISALLOWANCE OF RS.14,66,46,420/-; OUT OF WHICH DIS ALLOWANCE ON INTEREST UNDER RULE 8D(2)(II) WAS DETERMINED AT RS.10,99,96,438/-; AND DISALLOWANCE ON INDIRECT EXP ENDITURE UNDER RULE 8D(2)(III) WAS WORKED OUT TO RS.5,55,99, 280/- WHICH AGGREGATED TO RS.16,55,95,718/-. AFTER DEDUCTING TH E AMOUNT DISALLOWED BY THE ASSESSEE AT RS.1,89,49,298/-, HE FINALLY ADDED THE DISALLOWANCE OF RS.14,66,46,420/-. I.T.A. NO.4347/DEL/2014 3 4. THEREAFTER, VARIOUS RECTIFICATION ORDERS WERE PASSED TO RECTIFY THE MISTAKES AND FINALLY THE NET DISALLOWAN CE MADE BY THE ASSESSING OFFICER WAS REDUCED TO RS.4,84,34,982/- A ND THEREBY INTEREST DISALLOWANCE WAS REDUCED TO RS.16,41,412/- AND ADMINISTRATIVE EXPENDITURE WERE REDUCED TO RS.4,67, 93,550/- AND AFTER CONSIDERING ALL THE DISALLOWANCES MADE BY THE ASSESSEE THE FINAL DISALLOWANCE WAS COMPUTED AT RS.4,84,34,962/- . 5. BEFORE LD. CIT(A), THE ASSESSEE SUBMITTED THAT DIVIDEND INCOME OF RS.55,29,23,615/- HAS COME FROM GROUP COM PANY M/S. JAY PRAKASH ASSOCIATES LTD. ON THE INVESTMENT MADE IN THE EARLIER YEARS AND NO FRESH INVESTMENT WAS MADE DURI NG THE YEAR AND NOR ANY FRESH LOAN WAS TAKEN DURING THE YEAR. I N SO FAR AS NATURE AND NEXUS OF INTEREST DEBITED IN THE P & L A CCOUNT ON THE BANK LOAN THE ASSESSEE HAD SUBMITTED AND STATED AS UNDER:- NATURE OF INTEREST INTEREST PAID SANCTION PURPOSE & USE REMARKS TERM LOAN FROM ICICI BANK 16,45,51,542 INVESTMENT I N FOREIGN COMPANY, INDESIGN ENTERPRISES PVT. LTD . INCOME FROM INVESTMENT NOT EXEMPT. NO DISALLOWANCE IN PRIOR YEAR EXCEPT IN ASSESSMENT YEAR 2009-10 WHEREIN THE DISALLOWANCE DELETED BY YOUR GOODSELF. INTEREST DELETED BY ASSESSING OFFICER HIMSELF AS PER HIS ORDER U/S.154. NOT IN ISSUE. ON SERVICE TAX 29,73,410 RELATES TO BUSINESS CANNOT BE ALLOCATED TO EXEMPT INCOME. 6. THEREAFTER, IT WAS SUBMITTED THAT RULE 8D IS NOT MANDATORY AND BEFORE APPLYING RULE 8D, AO HAS TO RECORD HIS SATISFACTION I.T.A. NO.4347/DEL/2014 4 AS TO HOW THE WORKING OF THE DISALLOWANCE MADE BY T HE ASSESSEE IS INCORRECT. IN SUPPORT RELIANCE WAS PLACED ON VAR IOUS DECISIONS INCLUDING THAT OF HON'BLE DELHI HIGH COURT IN THE C ASE OF MAXOPP INVESTMENT LTD. VS. CIT, REPORTED IN (2012) 347 ITR 272 AND CATENA OF OTHER DECISIONS. FURTHER, IT WAS SUBMITTE D THAT ASSESSEE HAS DISALLOWED SUM OF RS.1,89,49,298/- OUT OF INDIR ECT EXPENDITURE AND ASSESSING OFFICER SHOULD HAVE REDUC ED IT FROM DISALLOWANCE OF INDIRECT EXPENDITURE WHICH HE HAS N OT DONE. THE PAST HISTORY OF DISALLOWANCES MADE U/S.14A AND EFFE CT OF THE APPELLATE ORDERS WERE ALSO FILED. 7. LD. CIT(A) HELD THAT PROVISION OF SECTION 14A(2) CLEARLY PROVIDES THAT ASSESSING OFFICER CAN DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME ONL Y WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IF ASSESSEE HAS MADE A CLAIM THAT ONLY A PARTICULAR IN COME HAS TO BE DISALLOWED U/S.14A; AND IF ASSESSING OFFICER IS NOT SATISFIED WITH CORRECTNESS OF SUCH A CLAIM, THEN HE CAN PROPO SED TO INVOKE RULE 8D AFTER HE HAS RECORDED HIS SATISFACTION ON C OGENT REASONS. AFTER ANALYZING THE NATURE OF EXPENDITURE DEBITED A ND DISALLOWANCE OFFERED BY THE ASSESSEE, LD. CIT(A) HE LD THAT THE DISALLOWANCE AS COMPUTED BY THE ASSESSEE HAS A RATI ONAL BASIS AND LOOKING TO THE PAST HISTORY, MORE THAN FAIR AMO UNT HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE ITSELF U/S. 14A. THUS, HE HAS RESTRICTED THE DISALLOWANCE U/S.14A TO A ROUND FIGURE OF RS.2 CRORES. 8. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE F IND THAT IT IS NOT IN DISPUTE THAT ASSESSEE HAS RECEIVED A DIVIDEN D INCOME OF I.T.A. NO.4347/DEL/2014 5 RS.55,29,23,615/- FROM ITS ASSOCIATED COMPANY ON TH E INVESTMENT WHICH WAS MADE IN THE EARLIER YEARS. NEI THER ANY FRESH INVESTMENT HAS BEEN MADE DURING THE YEAR NOR HAS ANY FRESH LOAN BEEN TAKEN. APART FROM THAT, ASSESSEE HA S DULY EXPLAINED THE NATURE OF INTEREST AND THE INTEREST P AID TO THE BANK DEBITED TO THE P&L ACCOUNT AND THE PURPOSE FOR WHIC H THE LOAN HAS BEEN USED AS INCORPORATED ABOVE. THUS, IN SO FA R AS INTEREST EXPENDITURE IS CONCERNED, NO AMOUNT CAN BE SAID TO BE DISALLOWABLE, BECAUSE THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE FOR THE PURPOSE OF DI SALLOWING THE INTEREST EXPENDITURE. ON THE INDIRECT EXPENDITURE, THE ASSESSEE HAS SUO MOTO ATTRIBUTED DISALLOWANCE OF RS.1,89,49,298/- WHICH WAS 25% OF; PERSONNEL EXPENSES; ADMINISTRATIVE AND OTHER EXPENSES; AND DEPRECIATION. SUCH A CLAIM FOR DISALL OWANCE ATTRIBUTABLE FOR EARNING OF EXEMPT INCOME WAS GIVEN BEFORE THE ASSESSING OFFICER ALSO INCLUDING THE CLAIM AS TO WH Y THE INTEREST EXPENDITURE COULD NOT HAVE BEEN DISALLOWED. HOWEVER , THE ASSESSING OFFICER WITHOUT EXAMINING THE NATURE OF A CCOUNTS OR NATURE OF EXPENDITURE DEBITED HAS PROCEEDED TO APPL Y RULE 8D MECHANICALLY IN COMPLETE VIOLATION OF THE MANDATORY REQUIREMENT AS PROVIDED IN SUB SECTION (2) OF SECTION 14A, WHIC H CATEGORICALLY POSTULATES THAT BEFORE APPLYING THE FORMULA PRESCRI BED UNDER RULE 8D, ASSESSING OFFICER HAS TO RECORD HIS SATIS FACTION HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE T HAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT AND SUCH A REQUISITE SATISFACTION SHOULD BE CLEARLY DISCERNIBLE FROM THE ASSESSMENT A ND THEREAFTER ONLY HE CAN PROCEED TO MAKE A DISALLOWANCE UNDER RU LE 8D. BEFORE US, IT HAS BEEN SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, THIS PRECISE ISSUE OF DISALLOWANCE I.T.A. NO.4347/DEL/2014 6 U/S.14A WITHOUT RECORDING OF SATISFACTION HAD BEEN SETTLED BY THE HON'BLE DELHI HIGH COURT VIDE JUDGMENT AND ORDER DA TED 23.01.2018 PASSED IN ITA NO.75/2018, WHEREIN SAME I SSUE OF NON RECORDING OF SATISFACTION IN THE ASSESSMENT ORD ER WAS INVOLVED, WHICH UPHELD BY THE TRIBUNAL. THE HONBLE HIGH COURT AFTER RELYING UPON THE JUDGMENT OF HON'BLE SUPREME C OURT IN THE CASE OF GODREJ & BOYCE VS. DY. CIT & ANR., REPORTED IN (2017) 394 ITR 449 (SC), CONFIRMED THE ORDER OF THE TRIBUNAL. 9. LEARNED DEPARTMENT REPRESENTATIVE, ON THE OTHER HAND, RELYING UPON THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF CIT VS. MAXOPP INVESTMENT LTD. CONTENDED THAT WH ERE THE INVESTMENT HAS BEEN MADE TO THE GROUP COMPANY AS A PART OF STRATEGIC INVESTMENT, THEN ALSO THE DISALLOWANCE UN DER SECTION 14A WILL APPLY ON SUCH STRATEGIC INVESTMENT. 10. SUCH A CONTENTION OF THE LEARNED DEPARTMENT R EPRESENTATIVE AT THE OUTSET IS NOT TENABLE, BECAUSE THE LD. CIT(A ) HAS REDUCED THE DISALLOWANCE ON THE GROUND THAT ASSESSING OFFIC ER HAS NOT COMPLIED WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) AND HAS NOT GIVEN ANY RELIEF ON THE GROUND THAT STRATEG IC INVESTMENT DISALLOWANCE U/S.14A CANNOT BE MADE. WE FIND THAT A LREADY ASSESSEE HAS GIVEN A DETAILED WORKING OF THE DISALL OWANCE MADE U/S. 14A LOOKING TO THE EXEMPT INCOME AND LOOKING T O THE NATURE OF EXPENDITURE DEBITED IT IS STILL ON A HIGHER SIDE AND THAT TOO HAS BEEN SLIGHTLY INCREASED TO RS.2 CRORE BY THE LD. CI T (A). THUS, THERE CANNOT BE ANY INFIRMITY IN SUCH AN ORDER OF T HE LD. CIT (A), BECAUSE NOW IN VIEW OF THE JUDGMENT OF HON'BLE SUPR EME COURT IN THE CASE OF GODREJ & BOYCE (SUPRA), NO ADDITION O R DISALLOWANCE CAN BE MADE WITHOUT APPLYING THE MANDATORY REQUIREM ENT OF SUB I.T.A. NO.4347/DEL/2014 7 SECTION (2) AND (3) OF SECTION 14A. THE RELEVANT OB SERVATION OF THE HON'BLE SUPREME COURT READS AS UNDER:- SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINAT ION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSES SING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER S UCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT TH E LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED B EFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WIT H REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 11. SIMILARLY, THE HON'BLE JURISDICTIONAL HIGH COUR T IN THE CASE OF HT MEDIA LTD. (SUPRA) HAD ALSO REITERATED THE SAME PRINCIPLE IN THE FOLLOWING MANNER:- RULE 8D (1) STATES MORE OR LESS WHAT SECTION 14A(2) OF THE ACT STATES. IT REQUIRES THE ASSESSING OFFICER TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THEN RECORD THAT HE IS NOT SATISFIED W ITH (A) THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF EXPENDITURE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN I NCURRED. UNLESS THIS STAGE IS CROSSED, I.E., THE STAGE OF THE ASSES SING OFFICER RECORDING THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE IN THE MANNER INDICATED, I.E., AFTER EXAMINING THE ASSESSEE'S ACC OUNTS, THE QUESTION OF APPLYING THE FORMULA UNDER RULE 8D (2) DOES NOT ARISE. THAT THIS IS A MANDATORY PRE-REQUISITE FOR APPLYING RULE 8D (2) IS FAIRLY WELL-SETTLED. I.T.A. NO.4347/DEL/2014 8 12. THUS, RESPECTFULLY FOLLOWING THE RATIO LAID DOW N BY THE HON'BLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) AND ALSO SIMILAR PRINCIPLE LAID DOWN BY THE HON'BLE DELHI COURT IN THE CASE OF HT MEDIA LTD. (SUPRA), WE HOLD THAT THE DISALLOWANCE AS CONFIRMED BY THE LD. CIT (A) IS UPHELD AND CONSEQUENTLY THE REVENUES GROUND IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2018. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 TH JULY, 2018 PKK: