Sigma Corporation India Ltd., New Delhi V. DCIT, New Delhi

ITA 4760/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3581 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 06-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BALJIT SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4760/DEL/2014 ASSESSMENT YEAR : 2011-12 SIGMA CORPORATION INDIA LTD., VS DCIT, R-561, SHANKAR ROAD, CIR CLE-8(1), NEW RAJINDER NAGAR, N EW DELHI. NEW DELHI. (PAN: AABCS8026L) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BALJIT SINGH, CA RESPONDENT BY : SHRI ATIQ AHMAD, SR. DR O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER DATED 16.06.2014 PASSED BY THE LD. CIT (A)-XI , NEW DELHI FOR ASSESSMENT YEAR 2011-12 AND THE SOLE ISSUE UNDE R CHALLENGE IS THE DISALLOWANCE OF RS. 3,38,930/- MADE BY THE A SSESSING OFFICER ON ACCOUNT OF EXPENSES INCURRED U/S 14A OF THE INCOME TAX ACT, 1961 AND CONFIRMED BY THE LD. CIT(A). 2. BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF I NCOME WAS FILED DECLARING INCOME OF RS. 2,39,74,228/- AND THE ASSES SMENT WAS COMPLETED AFTER MAKING A DISALLOWANCE OF RS. 3,38,9 30/- U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED TH E ACT). DURING I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 2 THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAD EARNED A DIV IDEND INCOME OF RS. 14,45,500/- WHICH WAS EXEMPT U/S 10(3 4) OF THE ACT. IT WAS FURTHER OBSERVED THAT THE ASSESSEE WAS HAVING INVESTMENT OF RS. 6,77,85,832/- THROUGHOUT THE YEAR . THE ASSESSING OFFICER PROCEEDED TO APPLY RULE 8D AND MA DE A DISALLOWANCE UNDER RULE 8D (2) (III) OF THE INCOME TAX RULES, 1962. 2.1 ON APPEAL BY THE ASSESSEE, BEFORE THE LD. COMMI SSIONER OF INCOME TAX (A), THIS DISALLOWANCE WAS CONFIRMED AND NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT CHALLENGING T HE CONFIRMATION OF THE SAID DISALLOWANCE. 3. IT WAS SUBMITTED BY THE LD. AR THAT BEFORE MAKIN G DISALLOWANCE U/S 14A, IT WAS INCUMBENT UPON THE ASS ESSING OFFICER TO CHECK THE CORRECTNESS OF THE CLAIM, THEN ASCERTAIN THE EXPENDITURE INCURRED AND RECORD SATISFACTION THAT T HE CLAIM OF NO EXPENDITURE HAVING BEEN INCURRED WAS INCORRECT. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD NOT NEGATE D THE ASSESSEES PLEA THAT NO EXPENDITURE HAD BEEN INCURR ED FOR EARNING ANY EXEMPT INCOME. IT WAS FURTHER SUBMITTED THAT T HE FORMULA PRESCRIBED UNDER RULE 8D COULD BE APPLIED ONLY WHEN THE I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 3 ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE CORRECTNESS OF CLAIM OF EXPENSES OR WHERE THE ASSESSEE HAD CLAIMED THAT NO EXPENDITURE HAD BEEN I NCURRED. IT WAS ALSO SUBMITTED THAT AS PER SECTION 14A, ONLY DI RECT EXPENSES INCURRED FOR EARNING EXEMPT INCOME WOULD BE COVERED AND IN ABSENCE OF A CLEAR FINDING BY THE ASSESSING OFFICER , NO DISALLOWANCE WOULD BE MADE IN THIS REGARD. LD. AR PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX REPORTED IN 344 ITR 272(DEL) FOR THE PROPOSITION TH AT THE DISALLOWANCE U/S 14A WOULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RETURNS THE FINDING THAT HE WAS NOT SATISFI ED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH RESPE CT TO THE EXPENDITURE. RELIANCE WAS ALSO PLACED ON THE JUDGM ENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME TAX VS. GLENMARK PHARMACEUTICALS LTD. REPORT ED IN 351 ITR 359 (BOMBAY) FOR THE PROPOSITION THAT WHETHER O R NOT EXPENSES WERE INCURRED FOR EARNING EXEMPT INCOME WA S A QUESTION OF FACT. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF COMMISSIONER OF I NCOME TAX VS. WALFORT SHARE AND STOCK BROKERS (P) LTD. REPORT ED IN 326 ITR 1 I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 4 (SC) FOR THE PROPOSITION THAT FOR ATTRACTING SECTIO N 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS I TS RELATIONSHIP WITH THE EXEMPT INCOME. IT WAS SUBMITTED THAT IN V IEW OF SETTLED JUDICIAL PRECEDENTS, THE DISALLOWANCE WAS BAD IN LA W AND NEEDED TO BE DELETED. 4. IN RESPONSE, THE LD. SR. DR PLACED RELIANCE ON T HE CONCURRENT FINDINGS OF THE ASSESSING OFFICER AS WEL L AS THE LD. COMMISSIONER OF INCOME TAX (A) AND SUBMITTED THAT I T WAS UNDISPUTED THAT THE QUANTUM OF INVESTMENTS HELD BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS HUG E AND DIVIDEND INCOME EARNED WAS ALSO SUBSTANTIAL AND, TH EREFORE, IT WOULD BE UNBELIEVABLE THAT NO ADMINISTRATIVE OR MAN AGERIAL EXPENSES WERE INCURRED IN MANAGING THE INVESTMENTS AND EARNING DIVIDEND INCOME. IT WAS FURTHER SUBMITTED THAT SIN CE THE ACCOUNTS OF THE ASSESSEE DID NOT SEPARATELY REFLECT THE EXPENDITURE INCURRED TOWARDS THE EXEMPT INCOME, THE ASSESSING OFFICERS RECOURSE TO RULE 8D WAS JUSTIFIED. IT WA S PRAYED THAT THE DISALLOWANCE, AS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (A), BE UPHELD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE UNDISPUTED. I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 5 DURING THE YEAR UNDER CONSIDERATION, THE DIVIDEND I NCOME OF RS. 14,45,500/- WAS EARNED WHICH WAS EXEMPT AND THE ASS ESSEE HELD INVESTMENT OF RS. 6,77,85,832/- THROUGHOUT THE YEAR . A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE WAS SPECIFICALLY ASKED VIDE ORDER SHEET ENTRY DATED 6.1.2014 TO EXPL AIN WHY DISALLOWANCE U/S 14A MAY NOT BE MADE AGAINST THE EX EMPT INCOME OF THE ASSESSEE AS THE ASSESSEE HAD NOT SHOW N ANY EXPENSES TOWARDS EARNING OF THE EXEMPT INCOME. HOW EVER, AS PER ASSESSMENT ORDER, THE ASSESSEE DOES NOT SEEM TO HAV E RESPONDED TO THE QUERY AND, THEREFORE, THE ASSESSING OFFICER HAS PROCEEDED TO MAKE A DISALLOWANCE BASED ON AVERAGE VALUE OF IN VESTMENTS HELD DURING THE YEAR. IT IS ALSO SEEN THAT NO DISA LLOWANCE HAS BEEN MADE TOWARDS INTEREST OR OTHER EXPENSES WHICH COULD NOT BE DIRECTLY ATTRIBUTED. THUS, AS PER SCHEME OF THE AC T, THE ASSESSING OFFICER HAS PROCEEDED IN A PROPER MANNER, ESPECIALL Y BECAUSE THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT NO E XPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME WHEN IT WAS SPECIFICALLY ASKED TO DO SO. THE ASSESSEE HAS RELI ED ON A PLETHORA OF CASE LAWS BEFORE US, BUT, AT THE SAME TIME, NO E VIDENCE WAS PUT FORTH BEFORE US TO CORROBORATE THE ASSESSEES CLAIM THAT NO EXPENDITURE HAD BEEN INCURRED TOWARDS EARNING OF EX EMPT I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 6 INCOME. HOWEVER, LOOKING TO THE FACTS AND CIRCUMST ANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ASS ESSEE SHOULD BE GIVEN ONE MORE CHANCE TO DEMONSTRATE WITH AMPLE EVIDENCE, THE VERACITY OF ITS CLAIM THAT NO EXPENDITURE HAD B EEN INCURRED TOWARDS EARNING OF THE EXEMPT INCOME BEFORE THE LD. COMMISSIONER OF INCOME TAX (A). THEREFORE, WE REST ORE THE ISSUE TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX ( A) WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN L IGHT OF DOCUMENTARY EVIDENCES WHICH THE ASSESSEE WILL BE AT LIBERTY TO FILE BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) IN TH IS REGARD AND AS PER LAW. WE ALSO DIRECT THAT SHOULD THE ASSESSE E NOT AVAIL THE OPPORTUNITY BEING GIVEN BY US AT THIS JUNCTURE, THE LD. COMMISSIONER OF INCOME TAX (A) WILL BE AT LIBERTY T O DRAW A NEGATIVE INFERENCE AND PROCEED ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID DIRE CTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 1.11. 2017. SD/- SD/- (PRASHANT MAHARISHI) (SUDHA NSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 01.11.2017 GS I.T.A. NO. 4760/DEL/2014 ASSESSMENT YEAR 2011-12 7 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR