M/s AR Infrastructures & Projects Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5409/DEL/2013

• Counselvise Citation: 540920114 RSA 2013
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 04-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A , NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5409/DEL/2013 ASSESSMENT YEAR : 2010 A R INFRASTRUCTURES & VS. ITO, WARD 1(1), PROJECTS PVT. LTD., NEW DELHI 305, 3 RD FLOOR, BHANOT CORNER, PAMPOSH ENCLAVE, G.K.I, NEW DELHI 110 048 GIR / PAN:AAECA9081A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURESH ANANTHARAMAN, CA RESPONDENT BY : SHRI Y KAKKAR, DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL OF THE ASSESSEE AGAINST THE ORDE R OF LD. CIT(A) DATED 05.07.2013. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THE ACTION OF LD. CIT(A) BY WHICH HE HAD CONFIRMED THE DISALLOWANCE M ADE BY THE A.O. U/S 14A OF THE INCOME TAX ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING ASSE SSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME WHEREAS NO DISALLOWANCE WAS MADE BY IT U/S 14A OF THE ACT. TH EREFORE, THE ASSESSEE WAS SHOW CAUSED AS TO WHY DISALLOWANCE MAY NOT BE M ADE AS PER THE PROVISIONS OF SECTION14A READ WITH RULE 8D. THE AS SESSEE IN REPLY SUBMITTED THAT RULE 8D IS NOT APPLICABLE AND NO DIS ALLOWANCE IS WARRANTED. HOWEVER, THE A.O. WAS NOT SATISFIED AND HE CALCULAT ED DISALLOWANCE AS PER 2 ITA NO.5409/DEL/2013 PROVISIONS OF RULE 8D AT RS.79,900/- BUT RESTRICTED IT TO RS.66,826/- BEING THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE IN ITS P & L ACCOUNT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND REI TERATED ITS SUBMISSIONS MADE BEFORE THE A.O. LD. CIT(A) BEING NOT SATISFIE D, UPHELD THE DISALLOWANCE MADE BY THE A.O. AGGRIEVED, THE ASSES SEE IS IN APPEAL BEFORE US. 3. AT THE OUTSET, LD. A.R. INVITED OUR ATTENTION TO THE P & L ACCOUNT OF THE ASSESSEE AND SUBMITTED THAT NO SALARY AND DIREC TORS REMUNERATION WAS INCURRED BY THE ASSESSEE AND THE EXPENSES INCURRED WERE ONLY BARE MINIMUM EXPENSES WHICH WERE NECESSARY TO MAINTAIN THE STATU S OF THE ASSESSEE AS A COMPANY. LD. A.R. SUBMITTED THAT FROM THE P & L AC COUNT OF THE ASSESSEE, IT IS APPARENT THAT NO EXPENSES WERE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND, THEREFORE, NO DISALLOWANCE WAS REQUIRED . RELIANCE IN THIS RESPECT WAS PLACED ON THE DELHI BENCH ITAT DECISION IN THE CASE OF PRIYA EXHIBITORS (P) LTD. VS CIT, 54 SOT 356. 4. LD. D.R. ON THE OTHER HAND RELIED UPON THE ORDER OF MAXOPP INVESTMENTS DELIVERED BY HON'BLE DELHI HIGH COURT A ND ARGUED THAT EVEN IF NO EXPENSES WERE INCURRED BY THE ASSESSEE, THE DISA LLOWANCE HAS TO BE MADE IN ACCORDANCE WITH RULE 8D OF THE ACT. LD. D.R. AL SO RELIED UPON THE TRIBUNAL DECISION IN THE CASE OF GEBR PFEIFFER (I) P. LTD. VS ACIT, 47 TAXMAN.COM 237 AND ARGUED THAT IN THE ABOVE NOTED C ASE, IT WAS HELD THAT EVEN IF NO EXPENDITURE WAS INCURRED, THE DISALLOWAN CE UNDER RULE 8D HAS TO BE MADE. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND FROM THE P & L ACCOUNT FIELD BY THE ASSESSEE PLACED AT 3 ITA NO.5409/DEL/2013 PAPER BOOK PAGE 4 THAT ASSESSEE HAD INCURRED PRINTI NG & STATIONERY, FILING FEE, SECURITY TRANSACTION TAX, GENERAL EXPENSES AND LEGAL AND PROFESSIONAL EXPENSES AND NO EXPENSES IN RESPECT OF SALARY, RENT , ELECTRICITY EXPENSES OR ANY EXPENSE OF GENERAL NATURE HAS BEEN INCURRED BY THE ASSESSEE. THE BREAKUP OF SUCH EXPENSES IS PLACED AT PAPER BOOK PA GE 9. FROM THE BREAK UP PLACED AT PAGE 9, WE FIND THAT OUT OF RS.66,826/-, RS.53,104/- ARE THE EXPENSE WHICH ARE EITHER IN THE FORM OF STATUTORY EXPENSE O R NECESSARY EXPENSES SUCH AS AUDITORS FEE, CERTIFICATION FEE, SECRETARIAL AU DIT FEE, MCA FILING FEE ETC. THESE EXPENSES ARE BARE MINIMUM EXPENSE, WHICH ARE REQUIRED TO BE INCURRED BY A CORPORATE ASSESSEE TO MAINTAIN ITS EX ISTENCES. NO PARTICULAR EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR E ARNING THE EXEMPT INCOME EXCEPT DEMAT EXPENSES INCLUDED UNDER THE HEAD GENER AL EXPENSES AND SECURITY TRANSACTION TAX DEBITED IN THE PROFIT & LO SS ACCOUNT. THE LD. D.R.S RELIANCE ON THE ITAT ORDER IN THE CASE OF GEBR PFEI FFER (I) PVT. LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS IN THAT CASE, THE TRIBUNAL HAD MADE THE FINDING THAT ASSESS EE WAS NOT ABLE TO SUPPORT ITS CLAIM FROM THE BOOKS OF ACCOUNTS THAT IT HAD NO T INCURRED ANY EXPENDITURE WITH RESPECT TO EXEMPT INCOME WHICH IS APPARENT FRO M PARA 5.4 OF THE SAID ORDER. WHEREAS, IN THE PRESENT CASE, AS IS APPAREN T FROM P & L ACCOUNT ASSESSEE HAD NOT INCURRED ANY EXPENSES WHICH CAN BE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME EXCEPT DEMAT EXPENSE AMOUN TING TO RS.2,206/- AND SECURITY TRANSACTION TAX AMOUNTING TO RS.7,222/ -. THOUGH SECURITY TRANSACTION TAX IS RELATED TO PURCHASE/SALE OF SHAR ES, YET IT CAN BE INDIRECTLY RELATED TO EARNING OF EXEMPT INCOME. THEREFORE, TH E DISALLOWANCE IF ANY IS REQUIRED TO BE RESTRICTED TO THESE TWO ITEMS OF EXP ENDITURE. THE CASE LAW 4 ITA NO.5409/DEL/2013 RELIED UPON BY THE LD. A.R. IS SQUARELY APPLICABLE AND FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE SAME IS RE PRODUCED BELOW: 9. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD. FROM THE BALANCE SHEET AS ON 31.03.2008, F ILED IN THE PAPER BOOK AND POINTED OUT BY THE LD. AR, IT IS FOUND THA T NO MAJOR ACTIVITY OF SALE & PURCHASE OF SHARES WERE DONE. SIMILARLY, FORM ANALYSIS OF SCHEDULES, 12, 13 AND 5 RELATING TO EXPENDITURE PLA CED AT PAGE 10 OF THE PAPER BOOK AND AS HAS BEEN POINTED OUT BY THE L D. AR, IT IS OBSERVED THAT NO DIRECT EXPENSE HAS BEEN INCURRED F OR EARNING EXEMPT INCOME. MOREOVER, THE ASSESSING OFFICER HAS NOT SP ECIFICALLY POINTED OUT ANY DIRECT EXPENSE AND HAS NOT GIVEN ANY FINDIN G REGARDING THE CORRECTNESS OF CLAIM OF THE ASSESSEE THAT NO EXPEND ITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. HE HAS SIMPLY RELIED UPON THE PLAIN READING OF SECTION 14A READ WITH RULE 8D WITH OUT PROPERLY ANALYZING IT. THE CIT(A) HAS UPHELD THE DECISION O F THE ASSESSING OFFICER REGARDING DISALLOWANCE U/S 14A BY RELYING U PON THE HONBLE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DY. CIT (2010) 194 TAXMAN 203 WHEREIN I T WAS HELD THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. WE HAVE GONE THROUGH THE CITATION WH ICH WAS USED BY CIT(A) TO UPHELD HT DECISION OF A.O. THEIR LORDSHIP S HAS HELD AS UNDER:- UNDER SUB-SECTION (2), THE A.O. REQUIRED TO DETERM INE HT AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RE LATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UND ER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD HAVING REGARD TO THE MEANING OF EXPRESSION PRESCRIB ED IN SECTION 2(33) MUSTS BE PRESCRIBED BY RULE MADE UNDER HT ACT . WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE A.O. TO DE TERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF TOTAL INCOME IN ACCORDANCE WITH THE PRESCRI BED METHOD, ARISES IF THE A.O. IS SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T OTAL INCOME. MOREOVER, THE SATISFACTION OF THE A.O. HAS TO BE AR RIVED AT HAVING 5 ITA NO.5409/DEL/2013 REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB -SECTION (2) DOES NOT IPSO FACTO ENABLE THE A.O. TO APPLY THE METHOD PRESCRIBED BY THE RULE STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE C LAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELA TION TO INCOME WHICH IS NOT FORM PART OF THE TOTAL INCOME IS CORRE CT. THE A.O. MUST IN THE FIRST INSTANCE DETERMINE WHETHER THE CLAIM OF T HE ASSESSEE IN THAT REGARD IS CORRECT AND DETERMINATION MUST BE MADE HA VING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE A.O. MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. THUS ONLY WHEN T HE A.O. IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THE LEGIS LATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. 10. FROM THE CAREFUL STUDY OF THE OBSERVATIONS MADE IN THE ABOVE CASE, IT IS APPARENT THAT FIRST THE A.O. HAS TO DET ERMINE THE CLAIM OF THE ASSESSEE REGARDING EXPENSES WHICH NEITHER HT A.O. N OR THE CIT(A) HAS DONE IN THE PRESENT CASE. IN FACT, THE CITATION CIT ED BY THE LD. CIT(A) GOES AGAINST THE DEPARTMENT ITSELF INSOFAR AS THEIR LORDSHIPS HAS HELD THAT THE A.O. MUST IN THE FIRST INSTANCE DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IS CORRECT AND DETERMINATION MUSTS BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE LEGISL ATURE DIRECTS HIM TO FOLLOW RULE 8D ONLY WHERE THE A.O. IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. IN THE PRESENT CASE, THE A.O. HAS NO T FULFILLED HIS ONUS OF RECORDING HIS FINDINGS. THIS POINT HAS NOT BEEN CO NSIDERED IN VARIOUS OTHER JUDICIAL PRONOUNCEMENTS OF HIGH COURT SPECIFI CALLY IN THE CASE OF HERO CYCLES LTD.S CASE (SUPRA) CITATION OF HON 'BLE PUNJAB & HARYANA HIGH COURT IN 2009 WHEREIN UNDER SIMILAR CI RCUMSTANCES, IT WAS HELD THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT REQUIRE A CLEAR FINDING OF INCURRING OF EXPENDITURE AND THAT NO DISALLOWANCE CAN BE MADE ON THE BASIS OF PRESUMPTIONS. 6. IN THE PRESENT CASE, THE A.O. HAS NOT ANALYZED P ROFIT AND LOSS ACCOUNT AND HAS NOT POINTED OUT ANY EXPENDITURE, WHICH WAS INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. HE HAS SIMPLY REJECTED T HE CONTENTION OF ASSESSEE AND CALCULATED THE DISALLOWANCE U/S 14A OF THE ACT, AS PER PROVISIONS OF RULE 8D. THE ONLY EXPENDITURE WHICH CAN BE RELATED TO 6 ITA NO.5409/DEL/2013 EARNING OF EXEMPT INCOME IS DEMAT EXPENSES AMOUNTIN G TO RS.2,206/- AND SECURITY TRANSACTION TAX AMOUNTING TO RS.7,222/- WH ICH CAN BE DISALLOWED U/S 14A. THEREFORE, KEEPING IN VIEW THE FACTS AND CIRC UMSTANCES OF THE PRESENT CASE, WE RESTRICT THE DISALLOWANCE TO RS.9,428/-. 7. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT., 2014. SD./- SD./- (DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE:21 ST OCT., 2014 SP COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER