Skyline Engineering Contracts (India) Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5328/DEL/2012

• Counselvise Citation: 532820114 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 01-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income
• Section: 43B; 14A; 194C; 15; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G: NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I. C. SUDHIR, JUDICIAL MEMBER ITA NO. 5328/DEL/2012 ASSESSMENT YEAR: 2009-10 SKYLINE ENGINEERING CONTRACTS (INDIA) PVT. LTD. VS. ACIT PLOT NO. 4, GROUND FLOOR, RANGE -8, KEHAR SINGH ESTATE, SAID-UL-AJAB NEW DELHI. NEW DELHI 110 030 PAN AAACS8955P (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI ATUL PURI , CA RESPONDENT BY : SHRI VIVEK KUMAR , DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPEL LATE ORDER ON THE FOLLOWING GROUNDS :- 1. THAT THE LD. CIT(A) HAS ERRED IN CONFI RMING THE ADDITIONS MADE BY THE AO. 2. THAT THE LD. CIT(A) HAS ERRE D IN MISUNDERSTANDING AND MISINTERPRETING THE PROVISIONS OF SE CTION 43B OF THE INCOME TAX ACT,. 1961 AND CONFIRMED THE DISA LLOWANCE OF RS. 36,61,123/- BEING INTEREST ON SERVICE TAX, OUTST ANDING, AT THE CLOSE OF THE YEAR. 3. THAT THE LD. CIT(A) HAS FURTHER ERRE D IN CONFIRMING THE ADDITION OF RS. 5,05,000/- U/S 40 (A) (IA ) OF THE INCOME TAX ACT 1961, ALTHOUGH THE AMOUNT OUTSTANDING AS O N THE CLOSE OF THE YEAR HAD ITA NO. 5328/DEL/2012 2 BEEN PAID AND EVIDENCE TO THAT EFFEC T FURNISHED. 4. THAT THE LD. CIT(A) HAS FURTHER E RRED IN CONFIRMING THE ADDITION OF RS. 6,09,577/- U/S 14 A OF THE IT ACT, 1961 AS EXPENSE TO EARN AN INCOME OF DIVIDEN D INCOME OF RS. 26,620.00 WITHOUT APPLICATION OF MIND AND IN COMPLETE DISREGARD OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE, FACTS OF THE CASE & PROVISIONS OF LAW. 2. GROUND NO. 1 IS GENERAL IN NATURE. HENCE IT DOES NOT NEED INDEPENDENT ADJUDICATION. GROUND NO. 2 3. THE RELEVANT FACTS ARE THAT THE AO NOTED FROM THE AUDITORS REPORT IN FORM NO. 3CD THAT A SUM OF RS. 36,61,123/- ON ACCOU NT OF INTEREST ON SERVICE TAX HAD NOT BEEN PAID TILL THE DUE DATE OF FILING RETURN OF INCOME. HE REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THIS AMOUNT SHOULD NOT BE DISALLOWED U/S 43B(A) OF THE I.T. ACT. THE ASSESSEE REPLIED THAT INTEREST ON SERVICE TAX OF RS. 36,61,123/- IS OUTSIDE THE PURVI EW OF SECTION 43B. THE AO WAS NOT SATISFIED WITH THE CAUSE SHOWN BY THE ASSES EE AND AFTER DISCUSSING THE CASE IN DETAIL INCLUDING SEVERAL DECISIONS ON T HE ISSUE HE CAME TO CONCLUDE THAT THE CLAIM OF THE ASSESSEE OF DEDUCTIO N OF RS. 36,61,123/- BEING INTEREST ON SERVICE TAX PAYABLE WHICH WAS NOT ACTUALLY PAID BEFORE FILING OF RETURN OF INCOME IS DISALLOWABLE U/S 43B OF THE ACT. HE ACCORDINGLY ADDED THIS AMOUNT TO THE TOTAL INCOME OF THE ASSESS EE. THIS ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A). ITA NO. 5328/DEL/2012 3 4. IN SUPPORT OF THE GROUNDS THE LD. AR REIT ERATED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITI ES BELOW AND THE DECISIONS RELIED UPON BEFORE THEM. HE SUBMITTED THA T THE ISSUE RAISED IN THE GROUND IS FULLY COVERED BY THE DECISION OF HON BLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF SANJAY GHAI (W.P. 5175/ 2012 & C.M APPL. 4936/2012 AND OF HONBLE GUJARAT HIGH COURT IN THE CASE OF MAGANBHAI HANSRAJBHAI PATEL VS. ACIT AND ANOTHER (2012)211 TA XMAN 386(GUJARAT). HE SUBMITTED FURTHER THAT THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF MAHALAXSHMI SUGAR MILLS COMPANY VS. CIT (1980) 123 ITR 492 (SC) RELIED UPON BY THE AO HAVING ALL TOGETHER A DIFFERENT CONT EXT IS NOT HELPFUL TO THE REVENUE. IN THAT CASE THE ISSUE WAS WHETHER THE INT EREST ON CESS IS ALLOWABLE AS A BUSINESS EXPENDITURE OR NOT, WHEREAS THE PROVISIONS U/S 43B ARE ALL TOGETHER ON DIFFERENT REASONING. HE STATED THAT EVEN THE SERVICE TAX ACT DEFINES SERVICE TAX MEANS TAX LEVIABLE UNDER THE PROVISIONS OF THIS CHAPTER. NOWHERE IT IS MENTIONED THAT SERVICE TAX S HALL MEAN AND INCLUDE THE INTEREST ON SERVICE TAX. 5. LD. AR ALSO PLACED RELIANCE ON THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INTERNATIONAL FISHERIE S LTD. (2011) 220 TAXATION 11 (BOM) HOLDING THAT INTEREST PAID ON FUNDS BORRO WED FOR INTEREST AND PENALTY UNDER SALES TAX ACT FOR BELATED PAYMENT IS ALLOWABLE AS BUSINESS EXPENDITURE. HE SUBMITTED THAT THE DISALLOWANCE OF INTEREST ON SERVICE TAX MADE AND UPHELD BY THE AUTHORITIES BELOW SHOULD BE DELETED. ITA NO. 5328/DEL/2012 4 6. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. HE SUBMITTED THAT THE ASSESEE N O WHERE HAS DENIED THAT THE AMOUNT ON INTEREST ON SERVICE TAX WAS NOT PAYABLE AND THUS WHEN THE STATUTORY LIABILITY LIKE SERVICE TAX IS ALLOWED AS A DEDUCTION ONLY ON ACTUAL PAYMENT, THE INTEREST FOR PAYMENT WILL ALSO BE ALLO WED ON ACTUAL PAYMENT ONLY. AN ASSESSEE HAD DEBITED IT TO THE PROFIT AND LOSS ACCOUNT BUT HAD NOT ACTUALLY MADE THE PAYMENT ATTRACTING THE PROVISIONS OF SECTION 43B OF THE ACT. THE AUTHORITIES BELOW THUS HAVE CORRECTLY ADDE D THE AMOUNT OF RS. 3661123/- DUE ON ACCOUNT OF INTEREST ON SERVICE TAX , NOT PAID TILL THE DUE DATE OF FILING RETURN OF INCOME. IN SUPPORT HE PLAC ED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SHANKAR TRADING CO. PVT. LTD. VS. CIT (2012) 342 ITR 81 (DEL). HE SUBMITTED FURTHER T HAT CITED DECISION OF SANJAY GHAI VS. ACIT AND OTHERS (SUPRA) BY THE AR I S ON THE ISSUE OF THE INTEREST IN VIEW OF THE MEANING OF PHRASE TAX DUE FOR THE PURPOSES OF RECOVERY IN CERTAIN CASES PROVIDED U/S 179 OF THE A CT, WHEREAS IN THE PRESENT CASE THE ISSUE INVOLVED IS RELATED TO THE P ROVISIONS LAID DOWN U/S 43B OF THE ACT, HENCE THE SAID DECISION IS NOT HELP FUL TO THE ASSESSEE. HE SUBMITTED THAT THE SECTION 179 OF THE ACT PROVIDES THAT WHERE THE TAX DUE FROM A PRIVATE COMPANY CANNOT BE RECOVERED FROM SU CH COMPANY, THEN THE DIRECTOR (WHO WAS THE DIRECTOR OF SUCH COMPANY DURI NG THE PREVIOUS YEAR TO ITA NO. 5328/DEL/2012 5 WHICH NON-RECOVERY RELATES) SHALL BE JOINTLY AND SE VERALLY LIABLE FOR PAYMENT OF SUCH TAX UNLESS HE PROVES THAT THE NON-RECOVERY OF TAX CANNOT BE ATTRIBUTED TO ANY GROSS NEGLECT MISTAKE OR BREACH O F DUTY ON HIS PART. THIS PROVISION IS INTENDED TO RECOVER OUTSTANDING DEMAND UNDER THE ACT OF A PRIVATE COMPANY FROM THE DIRECTORS OF SUCH COMPANY IN CERTAIN CASE. HOWEVER, SOME COURTS INTERPRETED THE PHRASE TAX DU E USED IN SECTION 179 TO HOLD THAT IT DOES NOT INCLUDE PENALTY, INTEREST AND OTHERS SUM PAYABLE UNDER THE ACT. IN VIEW OF THE ABOVE AMENDMENTS ON T HE SIMILAR LINES FOR CLARIFYING THE EXPRESSION TAX DUE IS PROPOSED TO BE MADE TO THE PROVISIONS OF SECTION 167 C W.E.F 1.6.2013. 7. LD. DR ALSO PLACED RELIANCE ON THE FOLLOWI NG DECISIONS :- SHREE PIPES VS. DCIT (2007) 162 TAXMAN 442 (RAJASTH AN) MEWAR MOTORS VS. CIT (2004) 135 TAXMAN 155 (RAJASTH AN) MAHALAKSHMI SUGAR MILLS CO. VS. VS. CIT (1980) 12 3 ITR 429 (SC) CIT VS. UDAIPUR DISTILLERY (1986) 24 TAXMAN 282 (RA J.) HARSHAD SHANTILAL MEHTA (1998) 99 TAXMAN 216 (SC) SHANKAR TRADING CO. (P) LTD. VS. CIT (2012) 342 IT R 81 (DELHI) 8. LD. DR ALSO REFERRED THE BUDGET SPEECH O F THE THEN FINANCE MINISTER WHILE MOVING FOR INSERTION OF SECTION 43B THROUGH F INANCE BILL, 1983 WHICH IS REPRODUCED HEREUNDER :- SEVERAL CASES HAVE COME TO NOTICE WHERE TAXPAYERS DO NOT DISCHARGE THEIR STATUTORY LIABILITY SUCH AS IN RESP ECT OF EXCISE DUTY, EMPLOYERS CONTRIBUTION TO PROVIDENT FUND, EMP LOYEES STATE INSURANCE SCHEME, FOR LONG PERIOD OF TIME. FO R THE PURPOSE OF THEIR INCOME-TAX ASSESSMENTS THEY NONETH ELESS ITA NO. 5328/DEL/2012 6 CLAIM THE LIABILITY AS DEDUCTION EVEN AS THEY TAKE RESORT TO LEGAL ACTION, THUS DEPRIVING THE GOVERNMENT OF ITS DUES WHILE ENJOYING THE BENEFIT OF NON-PAYMENT. TO CURB SUCH P RACTICES, I PROPOSE TO PROVIDE THAT IRRESPECTIVE OF THE METHO D OF ACCOUNTING FOLLOWED BY THE TAXPAYER, A STATUTORY LI ABILITY WILL BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE PROFITS ONLY IN THE YEAR AND TO THE EXTENT IT IS ACTUALLY P AID. 9. IN THE REJOINDER LD. AR SUBMITTED THAT TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SHANKAR TRADING CO. (P) L TD. (SUPRA) RELIED UPON BY THE LD. DR IS NOT HELPFUL TO THE REVENUE AS IT H AS DISTINGUISHABLE FACTS. IN THAT CASE THE HONBLE HIGH COURT HAS HELD THE INTER EST ON SALES TAX TO BE CONSIDERED FOR ALLOWANCE /DISALLOWANCE U/S 43B OF T HE I.T. ACT IN VIEW OF THE HIMACHAL PRADESH GENERAL SALES TAX 1968 WHICH WAS N OT CONSIDERED BY THE TRIBUNAL IN ITS ORDER. 10. CONSIDERING THE ABOVE SUBMISSION IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIO NS RELIED UPON WE FIND THAT THE DECISION OF HONBLE JURISDICTIONAL DELHI H IGH COURT IN THE CASE OF SANJAY GHAI VS ACIT (SUPRA) RELIED UPON BY THE LD. AR IS BASED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HA RSHAD SHANTILAL MEHTA (SUPRA). THE DECISION IN THE CASE OF SANJAY GHAI (S UPRA) IS ALSO DISTINGUISHABLE AS IT WAS ON THE PROVISIONS LAID DO WN U/S 179 OF THE ACT WHICH ARE ALL TOGETHER DIFFERENT FROM THE MAIN SECT ION 43B OF THE ACT WHICH IS UNDER CONSIDERATION. WE FIND THAT THE HONBLE RA JASTHAN HIGH COURT IN THE CASE OF SHREE PIPES (SUPRA) HAS BEEN PLEASED TO DI SCUSS THE CASE LAW OF HARSHAD SHANTILAL MEHTA. THE RELEVANT EXTRACT OF TH E DECISION OF HONBLE ITA NO. 5328/DEL/2012 7 RAJASTHAN HIGH COURT WHILE DISCUSSING THE DECISION IN THE CASE OF HARSHAD SNATILAL MEHTA (SUPRA) ARE BEING REPRODUCED HEREUND ER :- THE COURT HELD THAT SPECIAL COURT AFTER EXAMINING VARIOUS AUTHORITIES IN PARAGRAPHS 51 TO 70 OF HIS JUDGMENT, HAS COME TO TH E CONCLUSION THAT NEITHER PENALTY NOR INTEREST CAN BE CONSIDERED AS T AX UNDER SECTION 11(2)(A). WE AGREE WITH THE REASONING AND CONCLUSIO N DRAWN BY THE SPECIAL COURT IN THIS CONNECTION. THUS, THIS DECISION AFFIRMS THAT EXPRESSION TAX H AS TO BE CONSTRUED IN THE CONTEXT OF OBJECT IN WHICH THE WORD HAS BEEN USED. AS THE DECISION OF HARSHAD SHANTILAL MEHTAS CASE (SUPRA) WAS RENDERED IN THE CONTEXT OF SPECIAL PROVISIONS OF THE ACT OF 199 2 FOR FIXING PRIORITIES OF CERTAIN LIABILITIES INCURRED DURING SPECIFIED PERIO D ONLY, ITS RATIO DOES NOT GOVERN THE CASE, WHERE RESTRICTION ON ALLOWABILITY OF A CLAIM TO DEDUCTION WHICH IS OTHERWISE ALLOWABLE HAD BEEN PROVIDED WHIC H IS NOT CONFINED TO LIABILITY OF TAX FOR SPECIFIED PERIOD, BUT REFER TO TAXES PAYABLE. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI PI PES HAS FORTIFIED THEIR VIEW BY ITS EARLIER DECISION IN THE CASE OF MEWAR M OTORS (SUPRA) WHEREIN WHILE CONSIDERING THE PROVISIONS OF SECTION 43B OF THE ACT, THE HONBLE COURT HAS OPINED THAT THE OBJECT OF SECTION 43B OF THE I. T. ACT 1961 IS TO CURB THE ACTIVITIES OF THOSE TAXPAYERS WHO DO NOT DISCHARGE THEIR STATUTORY LIABILITY OF PAYMENT OF SALES TAX OR EXCISE DUTY FOR LONG PERIOD , BUT CLAIM DEDUCTION IN THAT REGARD FROM THE INCOME ON THE GROUND THAT THE LIABILITY TO PAY THIS AMOUNT HAD BEEN INCURRED BY THEM IN THE RELEVANT PR EVIOUS YEAR. IT WAS HELD THAT THE INTEREST PAID IS PART OF SALES TAX. T HE INTEREST PAYABLE TO THE SALES TAX DEPARTMENT IS ALSO TAX AND THE PROVISIO NS OF SECTION 43B OF THE ACT ARE APPLICABLE THERETO. THE HONBLE HIGH COURT ACCORDINGLY AGREED WITH THE VIEW EXPRESSED IN THE CASE OF MEWAR MOTORS WITH THIS FINDING THAT INTEREST ACCRUED ON DELAYED PAYMENT OF TAX WHICH IS OTHERWISE ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS OF INCOME TAX ACT WH ILE COMPUTING TOTAL INCOME IS PART OF TAX WITHIN THE MEANING OF SECTION 43B OF THE ACT. BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF SHANKAR TRADING CO. (SUPRA) THE LD. COUNSEL FOR THE ASSESEE HAD DREW OUR ATTENTION TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAHALAKSHMI SU GAR MILLS CO. VS. CIT(SUPRA) IN SUPPORT OF HIS CONTENTION THAT THE IN TEREST PAYABLE ON A TAX WOULD ALSO BE PART OF THE TAX. THEIR LORDSHIP OF TH E HONBLE HIGH COURT DISCUSSING THE SUBMISSION OF THE PARTY INCLUDING TH E ABOVE STATED CONTENTION OF THE ASSESSEE FINALLY CAME TO THE CONC LUSION ITA NO. 5328/DEL/2012 8 HOWEVER, WE FIND THAT SECTION 17A (2) OF THE HIMAC HAL PRADESH GENERAL SALES TAX ACT, 1968, SPECIFICALLY PROVIDES THAT IF THE AMOUNT OF TAX OR PENALTY DUE FROM A DEALER IS NOT PAID BY HIM WITHIN THE PERIOD SPECIFIED IN THE NOTICE OF DEMAND OR, IF NO PERIOD IS SPECIFIED WITHIN THIRTY DAYS FROM THE SERVICE OF SUCH NOTICE, THE DEALER SHALL, IN ADDITI ON TO THE AMOUNT OF TAX OR PENALTY, AS THE CASE MAY BE, BE LIABLE TO PAY SIMPL E INTEREST ON SUCH AMOUNT AT THE RATE OF ONE PERCENTUM PER MONTH FOR T HE FIRST THIRTY DAYS AND FOR THE PERIOD SUBSEQUENT THERETO AT THE RATE OF ON E AND A HALF PERCENTUM PER MONTH. IT IS, THEREFORE, CLEAR THAT WHEN THERE IS A DEMAND OF THE TAX AND THAT IS NOT PAID WITHIN THE PERIOD SPECIFIED IN THE DEMAND OR WITHIN THIRTY DAYS IF NO PERIOD IS SPECIFIED IN THE SAID D EMAND NOTICE, INTEREST IS AUTOMATICALLY PAYABLE BY THE DEALER. THE PRESENT CA SE IS CLEARLY COVERED BY THE SAID PROVISION. IT IS CLEAR THAT ONCE THERE IS A NOTICE OF DEMAND FOR THE TAX AND THE SAME IS NOT PAID, AS INDICATED ABOVE, T HE INTEREST BECOMES AUTOMATICALLY PAYABLE. 11. IN VIEW OF ABOVE DISCUSSION ESPECIALLY THE VERY OBJECT OF SECTION 43B OF THE ACT, WHICH IS TO CURB THE ACTIVITIES OF TH OSE TAXPAYERS WHO DO NOT DISCHARGE THEIR STATUTORY LIABILITY OF PAYMENT OF T AX OR DUTY, FOR A LONG PERIOD BUT CLAIM DEDUCTION FROM THE INCOME ON THE G ROUND THAT THE LIABILITY TO PAY THIS AMOUNT INCURRED BY THEM IN THE RELEVANT PREVIOUS YEAR, WE ARE OF THE VIEW THAT THE INTEREST PAYABLE TO SERVICE TA X IS ALSO A TAX AND THE PROVISIONS OF SECTION 43B OF THE ACT ARE VERY MUCH APPLICABLE THERETO. THE RATIO LAID DOWN IN THE CITED DECISIONS BY THE LD. D R IN THE CASES OF MEWAR MOTORS (SUPRA) AND SHREE PIPES (SUPRA) HOLDING THA T INTEREST PAYABLE TO THE SALES TAX DEPARTMENT IS ALSO TAX AND THE PROVISIO NS OF SECTION 43B OF THE ACT ARE APPLICABLE THERETO IS EQUALLY RELEVANT UNDE R THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ON THE ISSUE AS I T HAS NOT BEEN DISPUTED BY THE ASSESEE THAT PAYMENT OF DUE SERVICE TAX IS A STATUTORY LIABILITY HENCE IN OUR OPINION INTEREST PAYABLE ON THE DELAYED PAYM ENT OF DUE SERVICE TAX ITA NO. 5328/DEL/2012 9 CANNOT BE TREATED AS DIFFERENT FROM THE PAYMENT OF SERVICE TAX BY THE ASSESEE. WE THUS RESPECTFULLY FOLLOWING THE RATIO L AID DOWN BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF SHAN KAR TRADING COMPANY PVT. LTD. (SUPRA) AND OF HONBLE RAJASTHAN HIGH COURT IN THE CASES OF SHREE PIPES (SUPRA) , MEWAR MOTORS (SUPRA) AND UDAIPUR DI STILLERY (SUPRA) HOLD THAT THE PROVISIONS OF SECTION 43B ARE APPLICABLE O N NON PAYMENT OF INTEREST DURING THE YEAR ON THE DELAYED PAYMENT OF DUE SERVI CE TAX. THE AUTHORITIES HAVE THUS RIGHTLY DISALLOWED RS. 36,61,123/- BEING INTEREST ON SERVICE TAX OUTSTANDING UNDER THE PROVISIONS OF SECTION 43B OF THE ACT. THE SAME IS UPHELD. GROUND NO. 2 IS ACCORDINGLY REJECTED. GROUND NO. 3 12. AS PER THE ASSESSMENT ORDER THE AO ON THE BA SIS OF SOFT COPY OF QUARTERLY TDS RETURN OBTAINED FROM THE ASSESSEE AND AFTER EXAMINING THE SAME HE FOUND THAT IN RESPECT OF CERTAIN PAYMENT AL THOUGH THE TDS WAS DEDUCTED IN THE FINANCIAL YEAR 2008-09 BUT IT WAS N OT PAID TO THE CREDIT OF CENTRAL GOVT. AFTER THE DUE DATE FOR FILING RETURN OF INCOME U/S 139 (1) OF THE ACT. HE THEN WORKED OUT THE SAID AMOUNT AT RS. 5,05,000/- AS UNDER :- SL. SECTION NAME OF DEDUCTEE AMOUNT (RS.) DATE OF CREDIT DATE OF PAYMENT 1. 194C GS PILE FOUNDATION 3,00,000 31.03.09 24.01.11 2. 194C SD MARKER & CO. PVT. LTD. 1,40,000 31.03.00 24.01.11 3. 194C ALEE REJA 25,000 31.03.09 24.01.11 4. 194C MD GULAM 25,000 31.03.09 24.01.11 5. 194C RAJ KUMAR SINGH 15,000 31.03.09 24.01.1 1 TOTAL 5,05,000 ITA NO. 5328/DEL/2012 10 13. THE AO ACCORDINGLY DISALLOWED RS. 5,05,000 /- U/S 40(A)(IA) ON THE BASIS THAT THE AMOUNT HAS BEEN PAID TO THE CREDIT O F CENTRAL GOVT. AFTER THE DUE DATE OF FLING RETURN OF INCOME U/S 139(I) OF TH E ACT. THE LD. CIT(A) HAS UPHELD THE SAME. 14. IN SUPPORT OF THE GROUND THE LD. AR SUBMI TTED THAT THE AO HAD DISALLOWED THE AMOUNT U/S 40(A) (IA) OF THE ACT BY REVERSE CALCULATING THE ADDITIONAL DEMAND RAISED BY THE DEPARTMENT ON ACCOU NT OF TDS. THE AO (TDS) HAD POINTED OUT CERTAIN ADDITIONAL DUES AND T HE ASSESSEE HAD FILED RECTIFIED RETURNS. THE AO HAD POINTED OUT THAT THE AMOUNT WERE CREDITED ON 31 ST MARCH, 2009 AND TDS WAS PAID ON 24.1.2011. HAD THI S BEEN THE POSITION, THE AMOUNT OF TDS WOULD HAVE BEEN APPEAR ING OUTSTANDING ON 31.3.2009 IN THE BALANCE SHEET AND THE AUDITORS WOU LD HAVE COMMENTED ON IT. THE LD. AR POINTED OUT THAT BEFORE THE AO COPY OF THE SCHEDULE OF UNPAID STATUTORY DUES ON 31.3.2009 WAS SUBMITTED, W HEREIN THE TDS DUE WAS REFLECTED. THE ASSESSEE HAD ALSO ENCLOSED PHOTO COPIES OF THE CHALLANS FOR PAYMENT OF TDS FROM WHERE IT MAY BE CONFIRMED T HAT WHATEVER AMOUNT OF TDS WAS DUE ON 31.3.2009 WAS DULY PAID BEFORE TH E DUE DATE OF FILING THE RETURN OF INCOME U/S 139 OF THE ACT. THE LD. AR POINTED OUT THAT SIMILAR CONTENTION WAS MADE BEFORE THE LD. CIT(A) WHICH HAS BEEN REPRODUCED WHILE DEALING WITH THE GROUND IN ITS ORDER BUT THE SAME HAS NOT BEEN CONSIDERED BY THE LD. CIT(A). HE SIMILARLY UPHELD T HE ACTION OF THE AO IN ITA NO. 5328/DEL/2012 11 THIS REGARD ON THE BASIS THAT THE AO HAS MADE THE A DDITION ON THIS ACCOUNT AFTER THOROUGH VERIFICATION OF THE FACTS. 15. THE LD. DR ON THE OTHER HAND TRIED TO JUST IFY THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. HE SUBMITTED THAT THE AO HAS MENTIONED THE DATE OF CREDIT AND DATE OF PAYMENT REGARDING TH E AMOUNT WITH THE DETAILS OF THE DEDUCTEES. HENCE IT CANNOT BE STATE D THAT THE AUTHORITIES BELOW HAVE NOT APPLIED THEIR MIND WHILE ADJUDICATIN G UPON THE ISSUE. 16. HAVING GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW IN THIS REGARD WE FIND THAT WHILE DECIDING THE ISSUE THE LD . CIT(A) HAS NOT SPECIFICALLY ADDRESSED THE ABOVE CONTENTION OF THE ASSESSEE WHEREIN IT HAD CLAIMED WITH THE DOCUMENT IN SUPPORT THAT WHATEVER AMOUNT OF TDS WAS DUE ON 31.3.2009 WAS DULY PAID BEFORE THE DUE DATE OF FILING THE RETURN U/S 139 (I) OF THE ACT. WE THUS IN THE INTEREST OF JUST ICE SET ASIDE THE MATTER TO THE FILE OF THE AO TO VERIFY THE ABOVE CONTENTION O F THE ASSESSEE AND DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. GROUND NO. 3 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 4 17. IT IS REGARDING THE ADDITION OF RS. 6,09, 577/- MADE B Y THE AO U/S 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS AO NOTED FROM SCHEDULE 5 TO THE BALANCE SHEET THAT THE ASSES SEE COMPANY HAD INVESTED IN EQUITY SHARES / MUTUAL FUNDS AMOUNTING TO RS. 67,17,353/- AS ON 31.3.2009 AND RS. 67,47,693/- AS ON 31.3.2009 AN D RS. 67,47,693/- AS ITA NO. 5328/DEL/2012 12 ON 31.3.2008. HOWEVER NO DEDUCTION U/S 14A HAD BEEN MADE FOR EXPENSES INCURRED IN RELATION TO INVESTMENTS FROM WHICH EXEM PT INCOME HAS BEEN OR SHALL BE DERIVED. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE VIDE QUESTIONNAIRE DATED 8.12.2011 AS TO WHY APPROPRIATE SUM SHOULD NOT BE DISALLOWED AS PER RULE 8 D OF THE INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT. BEING NOT SATISFIED WITH THE CAUSE SHOWN, THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT NO EXPEN DITURE HAS BEEN INCURRED IN RELATION TO THE INVESTMENTS AND MADE DI SALLOWANCE OF RS. 6,09,577/- UNDER SECTION 14A READ WITH RULE 8D.THIS ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A). 18. IN SUPPORT OF THE GROUND THE LD. AR SUBMI TTED THAT NO EXPENSE IN RELATION TO INCOME FROM INVESTMENT IN EQUITY / MUTU AL FUND HAS BEEN INCURRED AND ACCORDINGLY NOT DEBITED BY THE ASSESSE E IN THE PROFIT AND LOSS ACCOUNT. THE INVESTMENTS WERE OLD INVESTMENT AND TH E DIVIDENDS ARE RECEIVED BY A SINGLE CHEQUE. HE SUBMITTED THAT AS P ER THE SYSTEM FOLLOWED BY THE MUTUAL FUNDS THE DIVIDEND IS DISTRIBUTED AFT ER REDUCING THE EXPENSES INCURRED FOR EARNING THE SAME. HENCE NO DISALLOWANC E U/S 14A BE MADE AND THUS THE WORKING UNDER RULE 8D IS NOT APPLICABLE. H E SUBMITTED FURTHER THAT ONLY THE ACTUAL AMOUNT INCURRED THE ASSESSEE AND ID ENTIFIED DURING THE ASSESSMENT PROCEEDINGS BY THE AO MAY BE DISALLOWED. HE ALSO POINTED OUT THAT THE AO HAS ADDED BACK A SUM OF RS. 6,09,577/- AS EXPENSES ATTRIBUTABLE TO EARNING DIVIDEND INCOME OF RS. 26,6 20/-. HE PLACED RELIANCE ITA NO. 5328/DEL/2012 13 ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. LEENA RAMA CHANDRAN (KERALA), 339 ITR 296 (KERALA). 19. LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON BY THEM. 20. CONSIDERING THE ABOVE SUBMISSION WE FIND T HAT THERE IS NO DISPUTE THAT RULE 8D OF THE I.T. RULES 1962 IS APPLICABLE I N THE ASSESSMENT YEAR UNDER CONSIDERATION. THUS WE HAVE TO EXAMINE THE IS SUE IN VIEW OF THE PROVISIONS LAID DOWN U/S 14A READ WITH RULE 8D. THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA XOPP INVESTMENT LTD. VS. CIT 247 ITR (DEL) 1 IS APPLICABLE IN THE PRESENT CA SE. THE RELEVANT EXTRACT THEREOF IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE :- 30. AS WE HAVE ALREADY NOTICED, SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMI NATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME. THE EXPRESSION USED IS SUCH METHOD AS M AY BE PRESCRIBED. WE HAVE ALREADY MENTIONED ABOVE THAT B Y VIRTUE OF NOTIFICATION NO. 45/2008 DATED 24/03/2008, THE C ENTRAL BOARD OF DIRECT TAXES INTRODUCED RULE 8D IN THE SAI D RULE. THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR IS NOT SATISFIED WITH ( A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE, OR (B) THE CLAIM MADE BY THE ASSESSEE THA T NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT FOR SUCH PREVIOUS YEAR, THE ASSESSING OFFICER SHALL DET ERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOM E IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF R ULE 8D. WE MAY OBSERVE THAT RULE 8D(1) PLACES THE PROVISION S OF ITA NO. 5328/DEL/2012 14 SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHILE DISCUSSING THE PROVISIONS OF SUB- SECTION (2) AND (3) OF SECTION 14A, THE CONDITION P RECEDENT FOR THE ASSESSING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISFACT ION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPE NDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME I N THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION O F THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER R ULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICE R REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. IF ONE EX AMINES SUB-RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FO R DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME. THE SECOND COMPO NENT BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN TH EREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE FORMULA ESSENTIALLY APPORTIO NS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST (OTHER THA N THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. THE THIRD COMPONENT IS AN ARTIFICIAL FIGU RE ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE T OTAL INCOME, I HAVE CONSIDERED THE SUBMISSIONS AND FACTS ON RECORD. 21. THE AO HAS PLACED RELIANCE ON SEVERAL DEC ISIONS WHILE DEALING WITH THE CONTENTION OF THE ASSESSEE THAT ONLY A SMALL DI VIDEND OF RS. 26,620/- WAS EARNED FOR WHICH THE AO HAS PROPOSED DISALLOWAN CE OF RS. 609577/- ITA NO. 5328/DEL/2012 15 U/S 14A OF THE ACT. THESE DECISIONS ARE RENAISSANCE ASSET MANAGEMENT CO. (P) LTD. VS. ASSESSING OFFICER (2010) 2 ITR (TRIB. ) 765 (DELHI) HOLDING THAT ANY EXPENSES WHICH ARE ATTRIBUTED TO INVESTMENT ACT IVITY HAVE TO BE CONSIDERED AS EXPENSES INCURRED FOR EARNING DIVIDEN D INCOME BECAUSE THE INVESTMENT IS MADE TO EARN DIVIDEND INCOME. IT WAS HELD FURTHER THAT IT IS NOT RELEVANT AS TO WHETHER ANY DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE OR NOT AND WHAT WAS THE AMOUNT OF DIVIDEND INCOME. THE AO HAS ALSO RELIED UPON ON THE DECISION OF HONBLE DHANUKA & SONS VS. CIT (2011) 12 TAXMAN 227 (CALCUTTA) HOLDING THAT THE MERE FACT S THAT SHARES WERE OLD ONES AND NOT ACQUIRED RECENTLY WAS IMMATERIAL. IT W AS FOR THE ASSESSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY P RODUCTION OF MATERIALS THAT THOSE SHARES WERE ACQUIRED FROM THE FUNDS AVAI LABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. WE FIND FROM THE ASSESSMENT ORDER THAT DURING THE YEAR THE ASSESSEE HAD DISPOSED SOME INVESTMENTS. THE COMPANY HAD ALSO TAKEN LOANS FROM BANK AND OTHER TO THE EXTENT OF RS. 22,65,18,740/- . THE ASSESSEE HOWEVER COULD NOT DEMONSTRATE BY WAY OF ANY EVIDENCE THAT N ONE OF THE LOAN FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS. UNDER THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE AO HAS RIGHTLY COME TO THE CON CLUSION THAT THE CARRYING COST OF INVESTMENTS IN TERMS OF INTEREST PAID ON LO AN FUNDS TO THE EXTENT OF INVESTMENTS CANNOT BE DENIED. THUS BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT HE HAS RIGHTLY COMPUTED THE EXPENDI TURE TO DISALLOW IN THE ITA NO. 5328/DEL/2012 16 MANNER PROVIDED UNDER RULE 8 D OF THE I.T. ACT 1962 . THE LD. CIT(A) IN OUR VIEW HAS THUS RIGHTLY UPHELD THE ACTION OF THE AO I N THIS REGARD. THE GROUND NO. 4 IS ACCORDINGLY REJECTED. 22. IN THE RESULT APPEAL IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 29 TH .JANUARY, 2014. SD/- SD/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATED 29 TH JANUARY, 2014 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT