DCIT, New Delhi V. M/s. Bharat Hotels Ltd., New Delhi

ITA 4771/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3069 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 02-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PARMITA TRIPATHY
• Keywords: Depreciation; Earning of tax free income; Question of law
• Section: 14A; 10

Judgement Text

1 ITA NO. 4771/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI L. P. SAHU, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE, JUD ICIAL MEMBER ITA NO.4771/DEL/2014 (A.Y 2011-12) DCIT CIRCLE-2(1) NEW DELHI (APPELLANT) VS BHARAT HOTELS LTD. BARAKHAMBA LANE NEW DELHI AAACB1298E (RESPONDENT) APPELLANT BY MRS. PARMITA TRIPATHY, CIT DR RESPONDENT BY SH. K. V. S. R KRISHNA, CA ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 10/06/2014 PASSED BY CIT(A)-V, NEW DELHI FOR THE AS SESSMENT YEAR 2011-2. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DELE TING THE DISALLOWANCE MADE U/S 14A OF THE ACT AMOUNTING TO RS. 4,83,64,71 4/-. 2. THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DELET ING THE DISALLOWANCE OF DEPRECIATION ON WORLD TRADE CENTRE AND WORLD TRA DE TOWER AMOUNTING TO RS.56,268/-. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE WAS NOT THE OWNER OF THE BUILDINGS BUT WAS ONLY AN OCCUPANT. DATE OF HEARING 07.06.2017 DATE OF PRONOUNCEMENT 08.06.2017 2 ITA NO. 4771/DEL/2014 3. THE FIRST GROUND OF THE REVENUE APPEAL IS THAT T HE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE ACT AMOUNTING TO RS.4,83,64,714/-. THE LD. AR SUBMITTED THAT THE DISALLOWANCE U/S 14A IS F ULLY COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER ASSESSMENT YEAR 2009-10 & 2 010-11 IN ASSESSESES OWN CASE. THE LD. AR FURTHER SUBMITTED THAT VARIOUS HI GH COURTS HAVE HELD THAT WHERE DIVIDEND IS NOT RECEIVED DISALLOWANCE U/S 14A CANNOT BE MADE. THE LD. AR SUBMITTED THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 & 2010-11 (ITA NO. 4959/DEL/2012 & 5401/DEL /2013) PARA 5 AND 5.3 OF THE SAID ORDER ARE AS FOLLOWS:- 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROU GH THE MATERIAL PLACED ON RECORD. WE FIND FROM THE FACTS OF THE PRESENT C ASES THAT FOLLOWING ARE THE UNDISPUTED FACTS: I) THE ASSESSEE DID NOT RECEIVE DIVIDEND DURING TH E YEAR UNDER CONSIDERATION. II) THE INVESTMENT WAS MADE BY THE ASSESSEE COMPAN Y IN SUBSIDIARY COMPANIES FOR STRATEGIC PURPOSES. III) THE INVESTMENT DURING THE YEAR WAS MADE IN A SUBSIDIARY COMPANY WHICH WAS SITUATED OUTSIDE INDIA AND, THEREFORE, TH E DIVIDEND INCOME IF ANY RECEIVED FROM FOREIGN COMPANIES WAS NOT EXEMPT. 5.1. WE FIND THAT VARIOUS HIGH COURTS HAVE DEALT WI TH THE ISSUE OF DISALLOWANCE U/S 14A WHERE THERE IS NO RECEIPT OF D IVIDEND. THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF H OLCIM INDIA PVT. LTD. (SUPRA) VIDE PARA 14 TO 17 HAS HELD AS UNDER:- . ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE CO ULD 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 COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDAHAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 3 ITA NO. 4771/DEL/2014 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [ 2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COM MISSIONER OF INCOME TAX-1 VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXM ANN 130 (GUJ.) THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN IN COME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (LI) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISIO N IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION. SECTION I4A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER TH E CHAPTER, NO DEDUCTION SHALL HE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION I4A 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 ALLOWABLE 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 BEE N AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTI AL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS. 2,03 ,7521- MADE BY THE ASSESSING OFFICER WAS IN ORDER '. 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUE NT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NO T TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHAR ES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IM PROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DEC LARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO C ONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJEC TED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR W HOLE EXPENDITURE HAS 4 ITA NO. 4771/DEL/2014 BEEN' DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT-ASSESSEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THEREFORE, HAD T O INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF INVESTM ENT IN SHARES OF CEMENT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THE IR BUSINESS. EXPENDITURE HAD TO HE ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A). 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE PRESENT APPEALS. THE SAME ARE DISMISSED IN LIMINE. ' . 5.3. IN THE PRESENT CASES ALSO, WE NOTE THAT THE A SSESSEE HAD MADE STRATEGIC INVESTMENTS IN SUBSIDIARY COMPANIES AND T HE PURPOSE WAS TO RUN HOTELS AND THE INVESTMENTS WERE NOT MADE FOR THE PU RPOSE OF EARNING DIVIDEND. THEREFORE, ON THE BASIS OF CASE LAWS REL IED UPON BY LD. AR UNDER SUCH CIRCUMSTANCES DISALLOWANCE U/S 14A CANNO T BE MADE. 5.3. FURTHER, WE FIND THAT THE SUBSIDIARY COMPANY I N WHICH THE INVESTMENT WAS MADE DURING THE YEARS WERE SITUATED OUTSIDE INDIA, THUS DIVIDEND IF ANY RECEIVED FROM THEM WOULD NOT HAVE B EEN EXEMPTED. THEREFORE, KEEPING IN VIEW ALL FACTS AND CIRCUMSTAN CES, THE GROUND NO. 1 IN BOTH THE APPEALS ARE DISMISSED. 6. AS REGARDS GROUND NO. 2 WHICH IS RELATING TO THE DISALLOWANCE OF DEPRECIATION ON WORLD TRADE CENTER AND WORLD TRADE TOWER AMOUNTING TO RS. 56,268/-, THE LD. AR SUBMITTED THAT THE SAID ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME ABOVE MENTIONED ITAT ORDER FOR ASSESSMENT YEAR 2009-10 & 2010-11 WHEREBY TRIBUNAL HAD FOLLOWED ASS ESSMENT YEAR 2008-09 ORDER. 5 ITA NO. 4771/DEL/2014 7. THE LD. AR FURTHER SUBMITTED THAT THE TRIBUNALS ORDER FOR ASSESSMENT YEAR 2009-10 & 2010-11 IS CONFIRMED BY THE HON'BLE HIGH COURT IN ASSESSEES CASE. 8. THE LD. DR COULD NOT DISTINGUISH THE SAID ITAT O RDER AS WELL AS HIGH COURT ORDER AND RELIED UPON THE ASSESSMENT ORDER. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT DOCUMENTS PLACED BEFORE US INCLUDING THE CONSOLIDATED ORDER O F THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 AS W ELL AS CONFIRMING THE SAID ITAT ORDER BY THE HONBLE DELHI HIGH COURT. S INCE THE GROUNDS IN THIS PRESENT APPEAL AND IN THE EARLIER APPEALS FOR EARLI ER ASSESSMENT YEARS ARE SIMILAR INCLUDING THE FACTUAL ASPECT. THIS APPEAL IS SQUARELY COVERED BY THE DELHI HIGH COURTS ORDER IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. THEREFORE, THERE IS NO MERIT IN THE REVENUES APPEA L. 10. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JUNE, 2017. SD/- SD/- (L. P. SAHU) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 08/06/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6 ITA NO. 4771/DEL/2014 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 07/06/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 07/06/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 07.06.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 07.06.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.