Nucleus Software Exports Ltd, New Delhi V. Addl. CIT, New Delhi

ITA 4396/DEL/2009

• Counselvise Citation: 439620114 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE G.D. AGRAWAL, HON'BLE VICE-PRESIDENT AND SHR I RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO.4396/DEL/2009 ASSESSMENT YEAR: 2005-06 NUCLEUS SOFTWARE EXPORTS LTD., VS. ADDITIONAL CIT , R/O 33-35, THYAGRAJ NAGAR MKT., RANGE-13, NEW DELHI. NEW DELHI. (PAN: AAACN5382P) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VI NOD GUPTA, CA RESPONDENT BY: SHRI RS NEGI, SR.DR ORDER PER RAJPAL YADAV:JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(APPEALS) DATED 3 RD SEPTEMBER,2009 PASSED FOR ASSESSMENT YEAR 2005- 06. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS.21,05,679 AD DED BY THE ASSESSING OFFICER UNDER SEC. 14A OF THE INCOME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF BANKING, NBFC SOFTWARE PROJECT, PRO DUCTS AND CONSULTANCY. IT HAS FILED ITS RETURN OF INCOME ON 31.10.2010 DEC LARING AN INCOME OF RS.2,48,25,464 INCLUDING LONG TERM CAPITAL GAIN OF RS.91,25,498. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND A NOTICE UNDER SEC. 2 143(2) WAS SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAS EARN ED DIVIDEND INCOME OF RS.31,42,614 WHICH IS TAX FREE. THE ASSESSEE HAS NO T DEBITED EXPENDITURE TOWARDS EARNING OF TAX FREE INCOME. ASSESSING OFFIC ER SOUGHT THE EXPLANATION OF THE ASSESSEE AS TO WHY DISALLOWANCE UNDER SEC. 14A BE NOT MADE IN ACCORDANCE WITH RULE 8D OF THE INCOME-TAX R ULES, 1962. THE ASSESSEE CONTENDED THAT WHEN IT FILED THE RETURN, R ULE 8D WAS NOT ON THE STATUTE BOOK. IT FURTHER SUBMITTED THAT IT HAS NOT USED ANY BORROWED FUNDS. IT HAS USED ITS OWN FUND AND, THEREFORE, DID NOT INCUR ANY EXPENDITURE WHICH CAN BE ATTRIBUTED TOWARDS EARNING OF DIVIDEND INCOM E. ASSESSING OFFICER DID NOT LOOK INTO THESE ASPECTS. HE STRAIGHT WAY PROCEE DED TO APPLY RULE 8D AND WORKED OUT THE DISALLOWANCE AT RS.21,05,678. 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE REPORTED I N 328 ITR 81 HAS HELD THAT RULE 8D WILL BE APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 BECAUSE IT WAS INTRODUCED ON 24.3.2008, THEREFORE, NO DISALLOW ANCE COULD BE WORKED 3 OUT WITH THE HELP OF RULE 8D IN THIS ASSESSMENT YEA R I.E. ASSESSMENT YEAR 2005-06. HE FURTHER CONTENDED THAT IN THE ABSENCE O F RULE 8D, THE DISALLOWANCE CAN BE RESTRICTED TO 10% OF THE DIVIDE ND INCOME. FOR BUTTRESSING HIS CONTENTION, HE REFERRED ITATS ORD ER IN THE CASE OF NCDC VS. DCIT IN ITA NO.4707/DEL/09 PASSED IN ASSESSMENT YEAR 2007-08. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD T O THE PROPOSITION THAT HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & B OYCE (SUPRA) HAS HELD THAT RULE 8D WILL BE APPLICABLE PROSPECTIVELY. WITH THE ASSISTANCE OF RULE 8D, DISALLOWANCE CANNOT BE MADE IN THE PRESENT ASSE SSMENT YEAR. LEARNED CIT(APPEALS) CONFIRMED THE DISALLOWANCE ON THE STRE NGTH OF SPECIAL BENCH DECISION OF THE ITAT, MUMBAI IN THE CASE OF DAGA CA PITAL MANAGEMENT REPORTED IN 117 ITD 169 BUT THE CONCLUSION OF THE S PECIAL BENCH IN THIS DECISION COULD NOT MET THE APPROVAL OF HON'BLE MUM BAI HIGH COURT IN THE SUBSEQUENT DECISION RENDERED IN THE CASE OF GODREJ & BOYCE. AS FAR AS THE SECOND FOLD OF CONTENTIONS RAISED BY THE LEARNED CO UNSEL FOR THE ASSESSEE IS CONCERNED, WE ARE OF THE VIEW THAT IN THE ABSENCE O F RULE 8D, DISALLOWANCE OF ANY AMOUNT, IF HAS TO BE MADE UNDER SECTION 14A THEN IT HAS TO BE MADE 4 ON THE BASIS OF SURROUNDING CIRCUMSTANCES. ASSESSIN G OFFICER HAS TO LOOK INTO WHETHER ANY BORROWED FUND WAS USED BY THE ASSE SSEE FOR EARNING DIVIDEND INCOME. THE INTEREST EXPENSES IS ONE OF ES SENTIAL COMPONENTS WHICH IS TO BE LOOKED INTO. APART FROM THIS ONE ASP ECT, THERE ARE VARIOUS FACTORS. NEITHER THE ASSESSING OFFICER NOR THE LEAR NED CIT(APPEALS) HAS CONSIDERED SUCH FACTS. THEY SIMPLY PROCEED IN ACCOR DANCE WITH RULE 8D. WE HAVE CONFRONTED THE LEARNED COUNSEL FOR THE ASSESSE E TO SHOW THE BASIS FOR ESTIMATING THE DISALLOWANCE AT 10% OF THE DIVIDEND INCOME. IN A GIVEN CASE, IT MAY BE A RELEVANT YARD STOCK BUT IT CANNOT BE A THUMB RULE. IN THE CASE OF NCDC OR IN ANY OTHER CASE, AFTER LOOKING INTO THE V ARIOUS FACTORS, ITAT MIGHT HAVE REACHED ON THE CONCLUSION THAT 10% OF TH E DIVIDEND INCOME WOULD BE SUFFICIENT EXPENDITURE FOR EARNING TAX FRE E INCOME. SUCH DECISIONS ARE QUESTION OF FACTS AND CORROBORATIVE FACTORS FOR CONSIDERATION IN ANY OTHER CASE BUT IT CANNOT BE THE BASIS TO BE APPLIED IN EV ERY CASE. THE RELEVANT FACTS HAVE NOT BEEN DISCUSSED BY EITHER OF THE AUTHORITIE S, WHICH CAN ENABLE US TO ADOPT ANY BENCHMARK FOR WORKED OUT THE DISALLOWANCE . THEREFORE,WE SET ASIDE THIS ISSUE TO THE FILE OF THE A.O. FOR READJU DICATION. IT IS NEEDLESS TO SAY THAT THE OBSERVATIONS MADE BY US WILL NOT IMPAI R OR INJURE THE CASE OF A.O. OR WOULD NOT CAUSE ANY PREJUDICE TO THE DEFENC E/EXPLANATION OF THE 5 ASSESSEE. ASSESSING OFFICER SHALL GRANT DUE OPPORTU NITY OF HEARING TO THE ASSESSEE BEFORE READJUDICATING THE ISSUE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 20.10.2011 SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE- PRESIDENT JUDICIAL MEMBER DATED: 20/10/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR