M/s. Dell International Services India (P) Ltd., Noida V. Addl. CIT, New Delhi

ITA 5522/DEL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7455 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 02-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N C SWAIN
• Assessee Lawyers: S S TOMAR; G GUPTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, A M AND SMT. BEENA PILLAI, JM ITA NO. 5522/DEL/2011 : ASSTT. YEAR : 2007 - 08 M/S DELL INTERNATIONAL SERVICES INDIA PVT. LTD., (FORMERLY KNOWN AS PEROT SYSTEMS TSI (INDIA) PVT. LTD.), PLOT NO. 3, SECTOR - 125, NOIDA - 201301 VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 14(1), ROOM NO. 415, CENTRAL REVENUE BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA ACH1925Q ASSESSEE BY : SH. VISHAL KALRA, ADV. & SH. S. S. TOMAR, ADV. & SH. G. GUPTA, ADV. REVENUE BY : SH. N. C. SWAIN , CIT DR DATE OF HEARING : 02.08 .201 6 DATE OF PRONOUNCEMENT : 08 .08 .201 6 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 28 . 09.2011 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THI S APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ('AO'), ERRED IN COMPLETING THE ASSESSMENT OF THE APPELLANT AT AN INCOME OF RS 24,909,651 AS AGAINST THE ORIGINAL RETURNED INCOME OF RS 20,799,325. ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 2 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DISPUTE RESOLUTION PANEL ('DRP') HAS ERRED IN MAKING A DISALLOWANCE OF RS 3,725,040 UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME - TAX ACT, 1961 ('ACT'). 1.3 THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE AO / DRP HAS ERRED IN NOT ACCEPTING THE CONTENTION OF THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING DIVIDEND INCOME, WHICH IS NOT INCLUDED IN TOTAL INCOME. 1.4 THAT ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE AO HAS ERRED IN NOT APPRECIATING THAT FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT, SOME EXPENDITURE MUST HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME AND THERE SHOULD BE CLEAR AND DIRECT NEXUS WITH SUCH EXEMPT INCOME AND IN CONCLUDING T HAT SOME EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR EARNING THE TAX EXEMPT DIVIDEND INCOME ON ACCOUNT OF COMMON ADMINISTRATIVE, MANAGERIAL AND INFRASTRUCTURAL SET - UP. 1.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAS ERRED IN ATTRIBUTING AND DISALLOWING, UNDER SECTION 14A OF THE ACT EXPENSES @ 0.5 PERCENT OF THE AVERAGE VALUE OF THE INVESTMENTS HELD BY THE APPELLANT IN AN AD - HOC MANNER. 1.6 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THAT THE AO / DRP HAS ERRED IN NOT AL LOCATING THE AMOUNT OF DISALLOWANCE UNDER SECTION 14A, PROPORTIONATELY OVER THE UNITS ENTITLED TO DEDUCTION ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 3 UNDER SECTION 10A OF THE ACT, FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER THE LATTER SECTION. 1.7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAS ERRED IN NOT INCLUDING AN AMOUNT OF INR 27,510,11, BEING DELAYED EXPORT PROCEEDS FOR WHICH THE APPELLANT HAS FILED APPLICATIONS TO THE AUTHORIZED DEALER BANK FOR POST - FACTO APPROVAL, FOR COMPUTING DEDUCTION UNDER SECTION 10A O F THE ACT. 1.8 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES, LEAVE TO ADD, ALT ER, AMEND OR WITHDRAW ANY GROUND OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. GROUND NO. 1 IS GENERAL IN NATURE, GROUND NO. 1 .7 IS WAS NOT PRESSED SO THESE GROUND S DO NOT REQUIRE ANY COMMENT ON OUR PART. 4. VIDE GROUND NOS. 1.2 TO 1.6, THE GRIEVANCE O F THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.37,25,040/ - UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 4 5. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING AN INCOME OF RS.2,07,99,325/ - WHICH WAS PRO CESSED U/S 143(1) OF THE ACT ON 20.02.2009. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE INVESTMENT AND EARNED DIVIDEND INCOME OF RS.1,00,14,573/ - WHICH HAD BEEN CLAIME D EXEMPT U/S 10(34) OF THE ACT. THE AO WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABLE IN THE CASE OF THE ASSESSEE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE EXPENSES SHOULD NOT BE ATTRIBUTED TOWARDS SUCH INCOME/INVESTMENT U/S 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES, 1962. THE ASSESSEE SUBMITTED AS UNDER: THE COMPANY HAS EARNED A DIVIDEND INCOME OF RS.1,00,14,573/ - FROM THE INVESTMENT IN EQUITY ORIENTED UNITS OF MUTUAL FUND. THE DIVIDEND IN COME RECEIVED WAS EXEMPT FROM TAX AS PER THE PROVISIONS OF SECTION 10(34) OF THE ACT AND ACCORDINGLY NOT INCLUDED IN COMPUTING THE TAXABLE INCOME OF THE RELEVANT PREVIOUS YEAR. THE COMPANY DID NOT INCUR ANY EXPENDITURE IN CONNECTION WITH EARNING THIS DIVID END INCOME AND NO DISALLOWANCE WAS MADE BY THE COMPANY. 6. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 5 IMPULSE INDIA PVT. LTD. VS ACIT 22 SOT 368 (ITAT DEL.) ACIT VS EICHER LTD. 101 TTJ 369 (ITAT DEL.) WIMCO SEEDINGS LTD. VS DCIT 107 ITD 267 (I TAT DEL.) MARUTI UDYOG LTD. VS DCIT 92 ITD 119 (ITAT DEL.) CIT VS HERO CYCLES LTD. 189 TAXMAN 50 (P&H) THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE . 7 . T HE ASSESSEE ALSO RAISED THE OBJECTION BEFORE THE LD. DRP AND SUBMITTED THAT THE ASSE SSEE HAD NOT INCURRED ANY EXPENDITURE TO EARN THIS INCOME. THEREFORE, THE AO WAS NOT JUSTIFIED IN DISALLOWING ANY SUM U/S 14A OF THE ACT. IT WAS ALSO STATED THAT THE RULE 8D OF THE INCOME TAX RULES, 1962 WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CON SIDERATION. THE DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT SIMILAR DISALLOWANCE WAS PROPOSED BY THE AO IN THE ASSESSMENT YEAR 2006 - 07 IN HIS DRAFT ASSESSMENT ORDER AND LD. DRP HAD CONFIRMED THE SAME. ACCORDINGLY, THE DISALLOWANCE P ROPOSED BY THE AO WAS CONFIRMED. ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 6 8. SUBSEQUENTLY, THE AO BY FOLLOWING DIRECTIONS GIVEN BY THE LD. DRP MADE THE DISALLOWANCE OF RS.37,25,040/ - BY OBSERVING IN PARAS 2.7 & 2.8 OF THE IMPUGNED ORDER AS UNDER: 2.7 I T IS PERTINENT TO MENTION THAT THE ASSESS EE IS HAVING COMMON INF R A STRUCTURE AND COMMON PERSONNEL FOR EARNING INCOME UNDER VARIOUS HEADS. THUS, THE COMPANY IS ALSO USING ITS ADMINISTRATIVE MANAGERIAL AND INFRASTRUCTURAL SET UP FOR EARNING INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. THE COMPANY IS INCURRING EXPENDITURE IN QUALITY MANPOWER BOTH ADMINISTRATIVE AND MANAGERIAL, WHICH TAKES THE CRUCIAL AND COMPLICATED DECISIONS REGARDING THE INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME. IT IS AN ACT OF DECISION - MAKING AND CONSULTANCY ; IT SHOULD NOT BE SEEN IN TERMS OF ACTUAL PHYSICAL EFFORTS MADE IN MAKING INVESTMENT AND EARNING INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME. AS SUCH IT IS HELD THAT THE EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IS INBUILT IN THE CASE OF ASSESSEE AND DEBITED UNDER VARIOUS HEAD OF PROFIT AND LOSS ACCOUNT. 2.8 THE ASSESSEE HAS NOT GIVEN ANY CALCULATION/ ANY AMOUNT WHICH IT THINKS IS INCURRED FOR EARNING EXEMPT INCOME. THUS, THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE IN R ELATION OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IS NOT ACCEPTABLE. THEREFORE, EXPENSES ARE DISALLOWED U/S 14A OF RS. 37,25,040, WHICH WORKS OUT @ 0.5 % ON THE AVERAGE INVESTMENT OF RS. 7450.08 LACS AS PER BALANCE SHEET A ND SAME ARE ADDED BACK TO THE ASSESSEE INCOME. ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 7 9. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY EXPENSES TO EARN THE DIVIDEND INCOME EXEMPTED U/S 10(34) OF THE ACT . THEREFORE, THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT WAS NOT JUSTIFIED, PARTICULARLY WHEN, THE AO HAD NOT RECORDED HIS SATISFACTION RELATING TO THE INCURRING OF EXPENSES BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT EVEN IF DISALLOWANCE WAS TO BE MADE THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT WAS TO BE GIVEN TO THE ASSESSEE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: INAUTIX TECHNOLOGIES INDIA (P.) LTD. VS ACIT (2015) 42 ITR(T) 324 (CHENNAI TRIB.) CIT VS GEM PLUS JEWELLERY INDIA LTD. (2011) 330 ITR 175 (BOM) MAXOPP INVESTMENT LTD. VS CIT (2011) 15 TAXMANN.COM 390 (DEL.) 10. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE ASSESSEE EARNED THE EXEMPTED INCOME . THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABLE AND SINCE THE ASSESSEE DID NOT SHOW ANY EXPENSES FOR EARNING THE EXEMPT INCOME, T HE DISALLOWANCE WAS RIGHTLY MADE BY THE AO. IT WAS FURTHER SUBMITTED THAT T HE QUESTION REGARDING THE RECO RDING OF ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 8 SATISFACTION BY THE AO DOES NOT ARISE BECAUSE THE ASSESSEE HAD NOT SHOWN ANY EXPENSES . 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMI TTED FACT THAT THE AO WHILE MAKING THE DISALLOWANCE INVOKED THE PROVISIONS CONTAINED IN SECTION 14A OF THE ACT R.W.R. 8 D OF THE INCOME TAX RULES, 1962, THE PROVISIONS CONTAINED IN RULE 8D ARE APPLICABLE W.E.F ASSESSMENT YEAR 2008 - 09. IN OTHER WORDS, THE PR OVISIONS OF RULES 8D ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION WHICH IS THE ASSESSMENT YEAR 2007 - 08 . IT IS ALSO NOTICED THAT NEITHER THE ASSESSEE GAVE THE DETAILS OF THE EXPENSES INCURRED FOR EARNING THE DIVIDEND INCOME NOR THE AO WORKED OUT THE E XPENSES DIRECTLY RELATED TO EARN THE SAID INCOME. WE, THEREFORE, DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE AO FOR ADJUDICATING THE SAME DE - NOVO BY KEEPING IN VIEW THIS FACT THAT THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND ONLY DISALLOWANCE CAN BE MADE FOR THE EXPENSES WHICH ARE DIRECTLY RELATED TO EARN THE EXEMPT INCOME DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2007 - 08 , IF THERE IS ANY INCREASE IN THE ITA NO. 5522 /DEL /201 1 DELL INTERNATIONAL SERVICES PVT. LTD. 9 BUSINESS PROFIT AFTER MAKING THE DISALLOWANCE THEN THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT IF AVAILABLE IN ACCORDANCE WITH LAW TO THE ASSESSEE IS TO BE GIVEN. 12 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ( ORD ER PRON O UNCE D IN THE COURT ON 08 /08 /2016) SD/ - SD/ - (BEENA PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 08 /08 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR