T & T Motors Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5096/DEL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69630 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 04-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: V K AGGARWAL
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.5096/DEL/2011 ASSESSMENT YEAR : 2008-09 T&T MOTORS LIMITED, VS ADDL.COMMISSIONER OF INC OME TAX, 212. OKHLA INDUSTRIAL ESTATE, RAGE-16, NEW DELHI. PHASE-III, NEW DELHI-110020 (PAN: AAACT5980F) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V.K. AGGA RWAL RESPONDENT BY : SHRI SAMEER SHARMA, SR. DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-XIX, NEW DELHI DATED 01.08.2011 IN APPEAL NO.76/2010-11 FOR AY 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER :- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLATE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(A) IS ILLEGAL BEING AGAINST THE PRINCIPL ES OF NATURAL JUSTICE AD AGAINST THE PROVISIONS OF IT ACT , 1961. 2. THE LD. COMMISSIONER OF INCOME TAX(A) HAS GROSS LY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.458112/- UNDER RULE 8D READ WITH SECTION 14A OF THE IT ACT. ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 2 3. APROPOS THESE GROUNDS, WE HAVE HEARD RIVAL ARGUM ENTS OF BOTH THE PARTIES AND CAREFULLY PERUSED THE RECORD AND PAPER BOOK FILED BY THE ASSESSEE SPREAD OVER 31 PAGES. ON BEHALF OF THE ASSESSEE, T HE LD. ASSESSEES REPRESENTATIVE HAS SUBMITTED A BRIEF SYNOPSIS OF SU BMISSIONS AND CITATIONS RELIED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.4,58,112/- U/S 14A OF THE I NCOME TAX ACT, 1961 R/W RULE 8D OF THE INCOME TAX RULES. THE AR FURTHE R SUBMITTED THAT NO EXPENDITURE WAS INCURRED FOR EARNING TAX FREE INCOM E AND THEREFORE DISALLOWANCE U/S 14A OF THE ACT CANNOT BE MADE. TH E AR POINTED OUT PAGE 3 OF THE ASSESSMENT ORDER AND REITERATED THE MAIN C ONTENTION OF THE ASSESSEE THAT NO EXPENDITURE INCURRED AND CLAIMED BY THE ASS ESSEE WAS RELATED TO EARNING OF TAX FREE INCOME. THE AR SUBMITTED THAT AS PER JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF MAXOPP INVESTMENT LTD. VS C.I.T. (2012) 247 CTR (DELHI) 16 2, WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITUR E OR NO EXPENDITURE AS THE CASE MAY BE IN RELATION TO EXEMPT INCOME, THE ASSES SING OFFICER WOULD HAVE TO INDICATE COGENT REASON FOR THE SAME. THE AR FUR THER SUBMITTED THAT THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTER ING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION T O EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SA TISFIED WITH THE CORRECTNESS ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 3 OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXP ENDITURE AND THEN THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH THE PRESCRI BED METHOD STIPULATED IN RULE 8D OF THE RULES. 4. THE AR SUBMITTED A COPY OF THE ORDER OF THE ITAT D BENCH MUMBAI IN ITA NO. 5491/MUM/2011 FOR THE AY 2008-09 DATED 16.1.2013 WHEREIN IT HAS BEEN HELD:- QUA MERITS, WE FIND MUCH FORCE IN THE ASSESSEE'S ARGUMENT THAT SHARE APPLICATION MONEY', TO THE EXT ENT IT IS ACTUALLY SO, SO THAT IT ONLY REPRESENTS AMOUNTS PAI D BY WAY OF APPLICATION FOR ALLOTMENT OF SHARES, THE SAME CA NNOT BE REGARDED AS AN INVESTMENT IN SHARES, OR AN ASSET (O R ASSET CLASS) YIELDING TAX-FREE INCOME, AND NEITHER IS IT CAPABLE OF YIELDING ANY TAX-FREE INCOME. THE SAME WOULD, THERE FORE, IN OUR CLEAR VIEW, HAVE TO BE EXCLUDED IN WORKING O UT THE DISALLOWANCE ULR. 8D. FURTHER, THOUGH THE REVENUE H AS NOT DISPUTED THE SUMS REFLECTED AS 'SHARE APPLICATION M ONEY' IN THE ASSESSEE'S BALANCE-SHEET, THE AO, TO WHOM THE M ATTER IS TO BE IN ANY CASE RESTORED FOR WORKING OUT THE DISA LLOWANCE BY EXCLUDING THE SAME, SHALL, IN THE SET ASIDE PROC EEDINGS, ALSO EXAMINE THE VERACITY OF THE ASSESSEE'S CLAIM W ITH REGARD TO THE SAME BEING 'SHARE APPLICATION MONEY'. 5. THE AR FURTHER POINTED OUT THAT THE SHARE APPLIC ATION MONEY IS TO BE EXCLUDED UNDER RULE 8D OF THE RULES AND THE SAME CA NNOT BE REGARDED AS INVESTMENT YIELDING TAX FREE INCOME. THE AR POINTE D OUT THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ONLY FROM TWO COMPANIES AND MUTUAL FUND AND ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 4 DRAWN OUR ATTENTION TOWARDS PAGE 12 OF PAPER BOOK W HEREIN SCHEDULE 6 ATTACHED TO THE BALANCE SHEET OF THE ASSESSEE HAS B EEN SUBMITTED. THE AR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS RELIANCE INDU STRIES LTD. (2011) 339 ITR 632 (BOMBAY) AND SUBMITTED THAT IF THERE IS NO FACT OF HAVING INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME, THE DISALLOWANCE U/S 14A OF THE ACT R/W RULE 8D IS MISC ONCEIVED. THE AR ALSO POINTED OUT THAT THE INTEREST PAID BY THE ASSESSEE ON VEHICLE LOAN AND CASH CREDIT AND TERM LOAN FROM BANKS CANNOT BE DISALLOWE D AND THIS INTEREST CANNOT BE ATTRIBUTED TO THE TAX FREE INCOME WHICH D OES NOT FORM PART OF THE INCOME. 6. THE AR POINTED OUT VARIOUS LEGAL PROPOSITIONS AN D CITATIONS MENTIONED IN THE SYNOPSIS OF THE SUBMISSIONS AND SU BMITTED THAT THE ASSESSING OFFICER HAS NOT PROPERLY CONSIDERED THE R ATIO OF THE RELATED JUDGMENTS AND THE ASSESSING OFFICER HAS NOT FOLLOWE D A PROPER PROCEDURE PRESCRIBED IN THE STATUTORY PROVISIONS OF THE ACT F OR MAKING DISALLOWANCE U/S 14A OF THE ACT R/W RULES 8D OF THE INCOME TAX RULES . 7. REPLYING TO THE ABOVE, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS DEALT WITH THE SITUATION WHERE THE ASSESSEE IS CARRYING ON ONE INDIVIDUAL BUSINESS AND THE EXPENDITURE INCURRED BY THE ASSESS EE IS RELATED TO THE ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 5 TAXABLE AND TAX EXEMPT INCOME. THE DR FURTHER CONT ENDED THAT IN SUCH A SITUATION, APPLYING THE PRINCIPLE OF APPORTIONMENT OF EXPENDITURE, THE EXPENDITURE ATTRIBUTABLE TO THE INCOME WHICH IS TAX EXEMPT HAS TO BE ALLOWED. THE DR POINTED OUT OBSERVATIONS AND FINDI NGS OF THE ASSESSING OFFICER AND SUBMITTED THAT SINCE THE ASSESSEE HAS S TATED IN HIS LETTER THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING OF TAX FR EE INCOME, THEREFORE, THE ASSESSING OFFICER HAD NO OPTION BUT TO INVOKE SECTI ON 14A OF THE ACT R/W RULE 8D OF THE RULES. 8. ON CAREFUL CONSIDERATION OF ABOVE CONTENTIONS AN D SUBMISSIONS OF BOTH THE PARTIES, WE OBSERVE THAT ADMITTEDLY, THE A SSESSEE EARNED INCOME INCLUDING A PART OF TAX FREE INCOME DURING THE YEAR UNDER CONSIDERATION. AS PER DECISION OF HONBLE JURISDICTIONAL HIGH COURT O F DELHI IN THE CASE OF MAXOPP INDUSTRIES LTD. (SUPRA), A CONDITION PRECEDE NT HAS BEEN GIVEN IN PARA 29 OF THIS DECISION WHICH READS AS UNDER:- '29. SUB-S. (2) OF S. 14A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME THEREFORE, THE CONDITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCU RRED IN RELATION TO EXEMPT INCOME IS THAT THE AD MUST RE CORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUREIT IS ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE AO GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 6 INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCO RDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD B EING THE METHOD STIPULATED IN R. 8D OF THE SAID RULES. W HILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE AO WOULD HAVE TO IND ICATE COGENT REASONS FOR THE SAME. 9. WE ALSO TAKE COGNIZANCE OF THE JUDGMENT OF ITAT D BENCH MUMBAI IN THE CASE OF RAINY INVESTMENTS PVT. LTD. (SUPRA). IT HAS BEEN HELD THAT THE SHARE APPLICATION MONEY CANNOT BE REGARDED AS AN IN VESTMENT IN SHARES OR AN ASSET YIELDING TAX FREE INCOME AND NEITHER IT IS CA PABLE OF YIELDING ANY TAX FREE INCOME. IN THE PRESENT CASE, THE ASSESSING OF FICER HAS IGNORED ABOVE LEGAL PROPOSITION WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT R/W 8D OF THE RULES. DURING THE FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX(A) HAS EXAMINED THE CLAIM OF THE ASSESSE E BUT HAS NOT CONSIDERED ABOVE LEGAL PROPOSITIONS AND RATIO OF TH E RELATED JUDGMENTS. THE COMMISSIONER OF INCOME TAX(A) HAS DECIDED THE ISSUE IN THE SAME FASHION WHICH THE ASSESSING OFFICER ADOPTED. 10. ADMITTEDLY, THERE WAS AN AMOUNT OF SHARE APPLIC ATION MONEY WHICH WAS REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE AND WHICH DOES NOT YIELD ANY TAX FREE INCOME DURING THE YEAR UNDER CONSIDERA TION. FURTHER, WE ALSO OBSERVE THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE CLAIM OF THE ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 7 ASSESSEE AS PER RATIO OF THE JUDGMENTS OF HONBLE H IGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA). UNDER THESE CIRCUM STANCES, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS INVOKED THE PRO VISIONS OF SECTION 14A R/W RULE 8D OF THE INCOME TAX RULES BUT THE DISALLO WANCE HAS NOT BEEN MADE AS PER RATIO OF THE JUDGMENT OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT (SUPRA). THEREFORE, WE FIND IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE BY CONSID ERING DETAILED SYNOPSIS OF THE SUBMISSION OF THE ASSESSEE DE NOVO AFTER AFF ORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN VIEW OF ABOVE, THE GRO UNDS OF THE ASSESSEE ARE DISPOSED OF AND MAY BE TREATED AS ALLOWED FOR STATI STICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22.11.2013. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 22ND NOVEMBER 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ITA NO. 5096/DEL/2011 ASSTT.YEAR: 2008-09 8 ASSTT.REGISTRAR