ITO, New Delhi V. M/s International Electron Devices Ltd., New Delhi

ITA 4657/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74128 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NO. 4657/DEL/2013 ASSTT. YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER I.T.A.NO.4657/DEL/2013 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, VS INTERNATIONAL ELE CTRON DEVICES LTD., WARD 11(4), A-208, OKH LA INDL. AREA, PHASE-I, NEW DELHI. NEW DELHI. (PAN: AAACI0075N) (APPELLANT) (RESPONDE NT) APPELLANT BY: SHRI SATPAL SINGH, SR.DR RESPONDENT BY : NONE O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF COMMISSIONER OF INCOME TAX(A)-XV, NEW DELHI DATED 2 5.6.2013 IN APPEAL NO. 516/09-10/C.I.T.(A)-XV FOR AY 2007-08. 2. WHEN THE CASE WAS TAKEN UP FOR HEARING, NEITHER THE ASSESSEE NOR ANY AUTHORIZED REPRESENTATIVE APPEARED BEFORE THIS COUR T AND NO WRITTEN SUBMISSIONS OR APPLICATION FOR ADJOURNMENT WERE FIL ED ON BEHALF OF THE ASSESSEE. ON PERUSAL OF RECORD, WE FIND IT APPROPR IATE TO DECIDE THE APPEAL AFTER HEARING THE DR. THEREFORE, WE PROCEED TO DEC IDE THE APPEAL IN ABSENCE OF ASSESSEE. ITA NO. 4657/DEL/2013 ASSTT. YEAR: 2007-08 2 3. THE SOLE GROUND RAISED BY THE REVENUE IN TH IS APPEAL READS AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,28,614/- OUT OF RS.13,31,354/- MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF DIVIDEND INCOME U/S 14A READ WITH RULE 8D. 4. WE HAVE HEARD ARGUMENTS OF LD. DR AND CAREFULLY PERUSED THE RECORD PLACED BEFORE US. LD. DR SUBMITTED THAT THE ASSESS ING OFFICER RIGHTLY INVOKED RULE 8D OF THE INCOME TAX RULES 1962 R/W SE CTION 14A OF THE INCOME TAX ACT IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE DR FURTHER SUBMITTED THAT AN AMO UNT EQUAL TO 1 OF THE AVERAGE VALUE OF THE INVESTMENTS AND INCOME THEREFR OM DOES NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHE ET OF THE ASSESSEE ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR AND SHALL B E DISALLOWABLE AS PER SECTION 14A OF THE ACT R/W RULE 8D OF THE RULES. T HE DR FURTHER SUPPORTED THE ASSESSMENT ORDER AND SUBMITTED THAT THE COMMISS IONER OF INCOME TAX(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION M ADE IN THIS REGARD. 5. FROM BARE READING OF THE IMPUGNED ORDER, WE OBSE RVE THAT THE COMMISSIONER OF INCOME TAX(A) DELETED THE ADDITION WITH FOLLOWING OBSERVATIONS AND FINDINGS:- BRIEF FACTS OF THE CASE ARE AS UNDER: ITA NO. 4657/DEL/2013 ASSTT. YEAR: 2007-08 3 THE LD. AO DURING THE ASSESSMENT PROCEEDINGS OBSER VED THAT THE APPELLANT HAD EARNED DIVIDEND INCOME OF RS.27,400. HOWEVER, NO DISALLOWANCE UNDER SECTION 1 4A WAS MADE. BASED ON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF ACIT VS. CITI CORP FIN (INDIA) LTD. (20 01) 300 ITR (AT) 398 (MUMBAI), THE LD. AO HELD THAT THE PROVISIONS OF RULE 80 WERE APPLICABLE IN THE CASE O F THE APPELLANT AND ACCORDINGLY ASKED THE APPELLANT TO FU RNISH WORKING OF DISALLOWANCE UNDER RULE 8D. THE LD. ASSESSING OFFICER CONSIDERED THE EXPLANATION OF THE APPELLANT THAT AGAINST THE DIVIDEND INCOME OF RS.27 ,400, DISALLOWANCE OF RS.13,31,354 WAS UNJUSTIFIED BUT HE LD THAT IN VIEW OF THE PROVISIONS OF THE ACT THE SAME CANNO T BE IGNORED. ACCORDINGLY, ADDITION OF RS.13,31,354 WAS MADE TO THE TOTAL INCOME. 5. BEFORE ME THE LD. COUNSEL MADE DETAILED SUBMISSIONS. RELYING UPON THE DECISION OF MUMBAI HI GH COURT IN THE CASE OF DCIT VS GODREJ & BOYCE MFG CO LTD VS MUMBAI (ITA NO.626 OF 2010) (W P NO. 758 OF 2010 ), IT WAS SUBMITTED THAT PROVISIONS OF RULE 8D WAS TO BE APPLIED FOR A.Y.2008-09 ONLY. MY ATTENTION WAS ALSO DRAWN TO THE DECISION OF PUNJAB AND HARYANA IN THE CASE O F CIT VS WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 2 04 (P&H) AND IN THE CASE OF HERO CYCLES LTD. ON THE BA SIS OF WHICH IT WAS SUBMITTED THAT BEFORE MAKING THE DISALLOWANCE UNDER SECTION 14A, THE FINDING OF ACTU AL INCURRING OF EXPENDITURE IS TO BE GIVEN. 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CAS E IN THE LIGHT OF THE SUBMISSIONS BY THE APPELLANT. THE ISSUE RELATING TO APPLICABILITY OF RULE 8D HAS BEEN WELL SETTLED WITH THE DECISION OF THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF M/S GODREJ BOYCE MFG. CO. LTD. (SUPRA) AND OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS M/S MAXOPP INVESTMENT LTD. (ITA NO.687/2009). ACCORDING LY, IT IS HELD THAT THE PROVISIONS OF RULE 8D ARE APPLI CABLE FOR THE A.Y.2008-09 AND FOR SUBSEQUENT A.YRS ONLY. ACCORDINGLY, THESE PROVISIONS ARE NOT APPLICABLE TO THE CURRENT A.Y. HOWEVER, THE HONBLE MUMBAI HIGH COURT ITA NO. 4657/DEL/2013 ASSTT. YEAR: 2007-08 4 HAS HELD THAT THE AO CAN STILL MAKE DISALLOWANCE UN DER SECTION 14A. THE APPELLANT HAS EARNED DIVIDEND INCO ME OF RS.27,400. DURING THE YEAR, OPENING INVESTMENT WAS RS.26,35,65,368 AND CLOSING INVESTMENT WAS RS.26,89,76,362. THEREFORE, DURING THE YEAR THE TOT AL NEW INVESTMENTS MADE BY THE APPELLANT AMOUNTED TO RS.54,10,994 ONLY. THE APPELLANT HAS EARNED DIVIDEN D INCOME OF RS.27,400. SINCE SOME ADMINISTRATIVE EFFO RTS MAY HAVE BEEN INCURRED IN MAKING THE NEW INVESTMENT AND IN MONITORING THE RECEIPT OF DIVIDEND INCOME BY THE APPELLANT, 10% OF THE DIVIDEND INCOME EARNED BY THE APPELLANT AMOUNTING TO RS.2,740/- IS HELD AS EXPENS ES ESTIMATED TO HAVE BEEN INCURRED FOR EARNING THE TAX EXEMPT INCOME. ACCORDINGLY, THE APPELLANT GETS RELIEF OF RS.13,28,614. 6. IN VIEW OF ABOVE, WE HOLD THAT THE COMMISSIONER OF INCOME TAX(A) RIGHTLY FOLLOWED THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF M/S GODREJ BOYCE MFG. CO. LTD. AND DECISION OF HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOME TAX VS M/S MAXOPP INVESTMENT LTD. (SUPRA) AND WAS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF RULE 8D OF THE RULES ARE APPLICABLE F OR AY 2008-09 AND FOR SUBSEQUENT ASSESSMENT YEARS ONLY AND THESE PROVISIO NS ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION IN THIS APPEAL I.E. AY 2007-08. AT THE SAME TIME, WE ALSO OBSERVE THAT THE ASSESSING OFFICER CA N STILL MAKE DISALLOWANCE U/S 14A OF THE ACT BUT THE POWERS ARE NOT DISCRETIO NARY OR ARBITRARY. IN THE CASE IN HAND, THE ASSESSING OFFICER WRONGLY INVOKED RULE 8D OF THE RULES TO MAKE DISALLOWANCE/ADDITION. ON THE OTHER HAND, COM MISSIONER OF INCOME ITA NO. 4657/DEL/2013 ASSTT. YEAR: 2007-08 5 TAX(A) HELD THAT RULE 8D OF THE RULES IS NOT APPLIC ABLE AND COMMISSIONER OF INCOME TAX(A) CALCULATED THE AMOUNT OF DISALLOWA NCE ON ESTIMATED BASIS AS PER DIVIDEND INCOME OF THE ASSESSEE. ACCORDINGL Y, WE ARE UNABLE TO SEE ANY AMBIGUITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX(A), THER EFORE, WE CONFIRM THE SAME. THUS, THE ONLY GROUND OF THE REVENUE BEING D EVOID OF MERITS IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/01/2014. SD/- SD/- (S.V. MEHROTRA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 31ST JANUARY 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR