Integrated Database India Ltd., New Delhi V. DCIT, New Delhi

ITA 4582/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86598 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Keywords: Opportunity of being heard; Earning of tax free income; Question of law
• Section: 143(3); 14A

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI GEORGE GEORGE K. , JUDICIAL MEMBER AND SHRI T.S. KAPOOR , ACCOUNTANT MEMBER ITA NO. 4582 /DEL/201 3 ASSESSMENT YEAR 200 9 - 10 INTEGRATED DATABASES INDIA. LTD. VS. DCIT, CIRCLE - 11(1 ) K - 9 - BLOCK, CONNAUGHT CIREUS, NEW DELHI. NEW DELHI - 110001 (PAN AA A CI 2809 J ) ( APPELLANT) (RESPONDENT) APPELLANT BY : S H RI SALIL AGARWAL , ADVOCATE AND SHRI SHAILESH GUPTA, CA RESPONDENT BY: SH . ROBIN RAWAL , SR. D.R. ORDER PER SHRI GEORGE GEORGE K , J M : 1. TH IS APPEAL , AT THE INSTANCE OF THE ASSESSEE , IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 10.06.2013 . THE RELEVANT ASSESSMENT YEAR IS 200 9 - 10 . 2. THE EFFECTIVE GROUNDS ARGUED IN THE COURSE OF THE HEARING READS AS FOL LOWS: - 2(A) THAT THE LD. CIT(A) HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVIDEND INCOME; 2(B) THAT THE LD. CIT(A) HAS GONE IN DISALLOWING EXPENSES FOR EARNING DIVIDEND INCOME BY CONSIDERING THOSE INVESTMENT ON WHICH NO DIVIDEND HAS BEEN RECEI VED BY THE ASSESSEE COMPANY DURING THE YEAR. IT A NO. 4582 /DEL /201 3 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS A LIMITED COMPANY. IT IS ENGAGED IN THE BUSINESS OF BOOK PUBLISHING AND EXPORT OF SOFTWARE. THE RETURN OF INCOME WAS FILED ON 29.09.20 09 DECLARING TOTAL INCOME OF RS.1,50,37,780/ - . THE A SSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUING OF NOTICE U/S 143(2) OF THE ACT AND THE SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT (ASSESSMENT ORDER DATED 13.12.2011). IN THE SCRUTINY ASSESSME NT COMPLETED, THE ASSESSING OFFICER HAD MADE A DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 2,34,629/ - . THE RELEVANT OBSERVATION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.2,34,629/ - READS AS FOLLOW: - (AT PAGE 6) DISALLOWANCE UNDER RULE 8D O F IT RULES BEING 0.5% OF THE AVERAGE INVESTMENT I.E. RS.8,20,44,780/ - COMES OUT TO RS.4,10,224/ - . THE ASSESSEE HAS ITSELF DISALLOWED AN AMOUNT OF RS.1,75,592/ - , HOWEVER, THE DIFFERENCE OF RS.2,34,629/ - (410224 - 175595) IS THEREFORE, DISALLOWED AND ADDED BAC K TO THE TOTAL INCOME OF THE ASSESSEE . 4. THE ASSESSEE BEING AGGRIEVED FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE CIT(A) , IT WAS SUBMITTED THAT THE AO IS NOT JUSTIFIED IN INCLUDING INVESTMENT , WHICH HAVE NO T YIELD INCOME , FOR THE PURP OSE OF DISALLOWANCE UNDER RULE 8D(2)(III). THE CIT(A) REJECTED THE CONTENTIONS RAISED BY THE ASSESSEE AND AFFIRMED THE ORDER OF THE ASSESSMENT. HOWEVER, CIT(A) DIRECTED THE AO TO EXCLUDE A SUM OF RS.2.6 CRORES BEING THE MUTUAL FUND , ON WHICH , THE ASSESSEE HAD PAID CAPITAL GAINS TAX UNDER THE HEAD LONG TERM/SHORT TERM CAPITAL GAIN S FOR THE AY S 2008 - 09 AND 2009 - 10. FOR RE - COMPUTATION OF DISALLOWANCE U/S 14A, THE APPEAL OF THE ASSESSEE WAS RESTORED TO THE AO (FOR THE EXCLUSION OF 2.6 CRORES FROM THE AVERAGE I NVESTMENT ). IT A NO. 4582 /DEL /201 3 3 5. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENT ON WHICH NO DIVIDEND/INCOME IS RECEIVED FOR THE CURRENT ASSESSMENT YEAR ARE TO BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) OF THE ACT. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE FOLLOWING JUDICIAL OF PRECEDENTS OF THE HON BLE HIGH COURT AND THE TRIBUNAL HAVE HELD TH AT THE INVESTMENT ON WHICH NO INCOME WAS RECEIVED ARE TO BE EXCLUDED , WH ILE COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III) OF THE IT RULES . I) CIT VS. HOLCIM INDIA P. LTD. IN ITA NO.486/2014 AND 299/2014. II) ACIT VS. M/S COMPUTER AGE MANAGEMENT SERVICES (P) LTD. IN ITA NO. 1236 AND 1240/MDS/2014. III) MITSHUBISHI CORPORATION P VT. LTD. VS. DCIT IN ITA NO. 803/DEL/2014. IV) LG CHEMICAL INDIA (P) LTD. IN ITA NO.331/DEL/2013. V) M/S ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD. VS. DCIT IN ITA NO.220 AND 1043/BANG/2013. 6. LD. D.R. PRESENT WAS DULY HEARD. 7. WE HAVE HEARD THE RIVAL S UBMISSIONS AND PERUSED THE MATERIAL ON RECORD. LD. AR HAS NOT DISPUTED THE APPLICABILITY OF RULE 8D(2)(III) OF THE IT RULES, 1962. THE DISPUTE IS WITH REGARD TO QUANTUM OF COMPUTATION OF DISALLOWANCE BY INVOKING RULE 8D(2)(III) OF THE IT RULES . IT IS A CAS E OF THE ASSESSEE THAT THOSE INVESTMENT S OF SHARES AND MUTUAL FUNDS ON WHICH NO DIVIDEND IS ACTUALLY RECEIVED (THOUGH THE SAME ARE ELIGIBLE FOR DIVIDENDS) OUGHT TO BE EXCLUDED FROM AVERAGE INVESTMENT FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8 D(2)(III) OF IT A NO. 4582 /DEL /201 3 4 THE IT RULES. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA P. LTD. REPORTED IN ITA NO.486/2014 AND 299/2014 HAVE HELD THAT IF THERE IS NO EXEMPT INCOME EARNED DURING THE YEAR , THEY CANNOT BE DISALLOWED BY INVOKING THE PROVI SION OF SECTION 14A OF THE ACT. THE RELEVANT FINDING OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HOLCIM INDIA P. LTD. (SUPRA) READS AS FOLLOWS: PARA 14 ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT REVENUE. NO CONTRARY DECISION OF A HIGH COUR T HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LI MITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME - TAX I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (II) KANPUR, VS. M/S SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISI ON IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOM E IS NOT AN ALLOWAB LE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A ), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER . PARA 15. INCOME EXEMPT UNDER SECTION 10 IN A PART ICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, IT A NO. 4582 /DEL /201 3 5 MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASS ESSMENT YEAR . 8. SIMILARLY THE CHENNAI BENCH OF THE ITAT IN THE CASE OF ACIT VS. M/S COMPUTER AGE MANAGEMENT SERVICES (P) LTD. REPORTED IN ITA NO.1236 AND 1240/MDS/2014 HAS HELD AS FOLLOWS: - PARA 10 . WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTI ES AND PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISION RELIED ON. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE NOT IN AGREEMENT WITH THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN MANAGING THE PORTFOLIO OF THE ASSESS EE. THE ASSESSEE COMPANY IS INTO THE BUSINESS OF REGISTRARS AND SHARE TRANSFER AGENT . IT IS NOT IN DISPUTE THAT MANAGEMENT OF THE ASSESSEE COMPANY PERIODICALLY MONITORS THROUGH ITS BOARD OF DIRECTORS ABOUT THE INVESTMENTS. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT ASSESSEE HAS NOT AT ALL INCURRED ANY EXPENSES IN MANAGING ITS PORTFOLIOS. PARA 11. THE KOLKATA BENCH OF THIS TRIBUNAL IN REI AGRO LTD. VS. D CIT (SUPRA) HELD THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D CAN BE MADE ONLY BY TAKING INT O CONSIDERATION THE INVESTMENTS WHICH HAS GIVEN RISE TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER: - ' 8 . IN RESPECT OF PROVISIONS OF RULE 8D (2)(III) WHICH IS THE SUBJECT MATTER OF THE ASSESS EE'S APPEAL IN THE ASSESSEE'S HAND, A PERUSAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER RULE 8D (2)(III) IS THE AMOUNT EQUAL TO Y2 PERCENTAGE OF THE AVERAGE VALUE OF THE INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF T HE TOTAL INCOME. THUS, UNDER SUB - CLAUSE (III) WHAT IS DISALLOWED IS Y2 PERCENTAGE OF THE NUMERATOR B IN RULE BO(2)(II). AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D (2)(II) OF THE ACT. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D (2) (III) WHICH IS ISSUE IN THE ASSESSEE'S APPEAL IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RECOMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE BD(2)(II) AND (II) CAN BE MADE IN THIS CASE.' PARA 12 . FOLLOWING THE SAID DECISION, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE IT A NO. 4582 /DEL /201 3 6 DISALLOWANCE UNDER RULE 8D(2)(III) BY TAKIN G T HE AM OU NT EQ U A L T O 1/2 PER C EN TA GE OF THE AVERAGE VALUE OF THE INVESTMENT WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM P ART OF TOTAL INCOME. 9 . IN VIEW OF THE ABOVE, JURISDICTION AL PRECEDENTS ON THE SUBJECT, WE DIRECT THE AO TO EXCLUDE FROM THE AVERAGE INVESTMENT THOSE INVESTMENTS ON WHICH NO DIVIDEND/INCOME WAS RECEIVED BY THE ASSESSEE IN THE CURRENT ASSESSMENT YEAR. FOR THE ABOVE SAID PURPOSE, THE ISSUE IS RESTORED TO THE AO. THE AO SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE RE - COMPUT ING DEDUCTION UNDER RULE 8D(2)(III) OF THE IT RULES. IT IS ORDERED ACCORDINGLY. 10 . IN THE RESULT, APPEA L OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY , 201 5 . SD/ - SD/ - ( T.S. KAPOOR ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 6 TH FEBRUARY , 201 5 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI