M/s. ACIT, New Delhi V. M/s. Barmalt (India) P Ltd., New Delhi

ITA 5641/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7867 (ITAT-DELHI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `A : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.5641/DEL./2011 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 2(1), VS. BARMALT (INDIA) (P) LTD., NEW DELHI. R.K. PURAM, RING ROAD, NEW DELHI. (PAN/GIR NO.AAACB2825M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADV. WITH SH. P.M. SHASTRI, CA REVENUE BY : SHRI SANJAY PANDEY, SR. DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)-V, NEW DELHI, DATED 21.10.2011, RELEVANT TO ASSESSMENT YEAR 2008-09, WHEREBY ACTION OF CIT(A) IN RESTRICTING THE DISALLOWANCE UNDER SECTIO N 14A TO RS.1,00,000/- AS AGAINST THE DISALLOWANCE OF RS.16,90,103 COMPUTED BY THE ASSESS ING OFFICER HAS BEEN CHALLENGED. 2. FACTS INDICATE THAT ASSESSING OFFICER HAS COMPLE TED THE ASSESSMENT ON 13.12.2010 AT AN INCOME OF RS.53,25,87,649/- AS AGAINST RETURN ED INCOME OF RS.53,09,97,550/- AFTER MAKING THE DISALLOWANCE OF RS.15,90,103/- (1690103- 1,00,000) ALREADY DISALLOWED BY THE ASSESSEE U/S 14A READ WITH RULE 8D OF THE I.T. RULE S. ASSESSING OFFICER IN THIS CASE HAS OBSERVED THAT INVOCATION OF SECTION 14A OF THE ACT IS AUTOMATIC AND COMES INTO OPERATION WITHOUT ANY EXCEPTION AS SOON AS DIVIDEND INCOME IS CLAIMED EXEMPT. I.T.A.NO. 5641/DEL./2011 (A.Y. 2008-09) 2 3. AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER , ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY AND SUBMITTED THAT ASSESS ING OFFICER HAS ERRED IN ENHANCING THE DISALLOWANCE TO RS.16,90,103/- U/S 14A OF THE ACT T OWARDS INDIRECT EXPENSE INCURRED IN EARNING THE DIVIDEND INCOME CLAIMED EXEMPT U/S 10(3 4), AS AGAINST DISALLOWANCE OF RS.1,00,000/-, MADE BY THE ASSESSEE IN THE RETURN O F INCOME, U/S 14A OF THE ACT.. SINCE ENHANCEMENT OF DISALLOWANCE BY THE ASSESSING OFFICE R WAS UNILATERAL, GROSSLY UNJUSTIFIED, ERRONEOUS AND UNSUSTAINABLE, SO IT WAS URGED FOR DE LETION OF THE SAME. 4. LD.AR OF THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF MALT AND MALT EXTRACT AND THE PRODUCTS ARE USED AS INDUSTRIAL RAW MATERIA LS FOR MANUFACTURING OF HEALTH FOODS AND ALCOHOLIC BEVERAGES. DURING THE YEAR THE COMPA NY RECORDED A TURNOVER OF RS.202.60 CRORES WITH A RETURNED INCOME OF RS.53.10 CRORES. THE COMPANY HAS ALSO MADE INVESTMENTS OF ITS SURPLUS FUNDS FROM TIME TO TIME OVER THE YEARS IN SHARES, SECURITIES AND MUTUAL FUNDS FROM WHICH IT EARNED DIVIDEND OF RS.1, 48,16,667/-. THE ASSESSEE COMPANY VIDE ITS LETTER DATED 22.02.2010 SUBMITTED BEFORE T HE ASSESSING OFFICER THAT THE DIVIDEND HAS BEEN EARNED FROM INVESTMENT OF SURPLUS FUNDS AN D NO EXPENDITURE AS SUCH HAS BEEN INCURRED TO EARN THE INCOME EXEMPT FROM TAX, HOWEVE R, A DISALLOWANCE OF RS.1,00,000 HAS BEEN MADE IN THE RETURN OF INCOME U/S 14A OF THE AC T. 5. IT WAS ALSO SUBMITTED BEFORE CIT(A) THAT IN FINA NCIAL MARKET VARIOUS MUTUAL FUNDS, BANKS AND FINANCIAL ADVISORS PERFORM ALL THE NECESSARY FUNCTIONS OF INVESTING ON BEHALF OF THEIR CLIENTS. THE ASSESSEE COMPANY USES THE SERVICES OF SUCH INVESTMENT ADVISORS AND BANKS ETC. IN SOME INSTANCES THE MUTU AL FUNDS CHARGE ENTRY AND EXIT LOADS, WHICH IS IN THE NATURE OF A FEE FOR THE SERVICES RE NDERED BY THEM. THE INVESTMENT ADVISORS I.T.A.NO. 5641/DEL./2011 (A.Y. 2008-09) 3 ETC., HOWEVER DO NOT CHARGE ANY FEE FROM ITS CLIENT S, AS THEY GET THEIR FEES FORM THE ISSUING ENTITIES. IT IS A FACT IN RECORD THAT THE COMPANY HAS OVER A LARGE NUMBER OF YEARS, INVESTED THE SURPLUS FUNDS FROM ITS AFTER TAX PROFITS AND IN TERNAL ACCRUALS IN INCOME YIELDING INVESTMENTS. THUS, IT HAS NOT UTILIZED ANY BORROWE D FUNDS FOR SUCH INVESTMENTS. THE DEPARTMENT HAS ACCEPTED THIS FACT IN A NUMBER OF EA RLIER YEARS. THE ASSESSING OFFICER HAS IGNORED THE FACT THAT THE EARNING OF DIVIDEND INCOM E IS A PASSIVE/DORMANT ACTIVITY AND NO EFFORT IS REQUIRED TO EARN IT AND HENCE THERE IS NO OCCASION TO MAKE AD HOC DISALLOWANCE OF BUSINESS EXPENSES INCURRED WHOLLY FOR BUSINESS PURP OSES. RELIANCE WAS ALSO PLACED ON THE ORDER OF ITAT, DELHI IN THE CASE OF CIT VS. EIC HER LTD., REPORTED IN 160 TAXMAN 80, WHEREIN A QUESTION AROSE WHETHER AN ASSESSING OFFIC ER CAN ESTIMATE A PART OF EXPENDITURE INCURRED TO PRODUCE NON-TAXABLE (OR TAX FREE) INCOM E ON ASSUMPTION THAT A PART OF EXPENDITURE MUST HAVE NECESSARILY BEEN INCURRED TO PRODUCE NON-TAXABLE INCOME AND DISALLOW THE SAID PART OF EXPENDITURE U/S 14A OF TH E ACT. FURTHER, RELIANCE WAS PLACED ON THE DECISIONS OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLE LTD. (2010) 323 I.T.R. 518 AND ANOTHER DECISION IN THE C ASE OF CIT VS. METALMAN AUTO P. LTD. (2011) 336 I.T.R. 434 TO SUPPORT THE PLEA THAT LAW REQUIRES A FINDING OF INCURRENCE OF EXPENDITURE FOR EARNING THE EXEMPT INCOME. 6. CIT(A) WHILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO RESTRICT THE ADDITION AT RS.1,00,000/- (WHICH WAS O FFERED BY THE ASSESSEE ITSELF IN THE RETURN) WHILE REFERRING CASE OF GODREJ & BOYACE MFG . CO. LTD. VS. DCIT, 328 I.T.R. 81 AND ITAT, DELHI D BENCH DECISION IN THE CASE OF D CIT VS. JINDAL PHOTO LTD. AS PER PARA.3.2 OF HIS ORDER. I.T.A.NO. 5641/DEL./2011 (A.Y. 2008-09) 4 8. AGGRIEVED BY THE ACTION OF THE CIT(A), DEPARTMEN T HAS COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS ORDER, IT WA S PLEADED FOR SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. LD.DR HAS FURTHER CONTENDED THAT LATEST DELHI HIGH COURT DECISION IN THE CASE OF MAX OPP INVESTMENT LTD., IS FULLY APPLICABLE TO THE FACTS OF THIS CASE AND IN ANY CAS E, MATTER REQUIRES TO BE REVERSED. IT WAS URGED FOR SETTING ASIDE THE ORDER OF THE CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 8.1 LD.COUNSEL FOR THE ASSESSEE WHILE RELYING UPON THE CIT(A) ORDER, HAS REITERATED THAT THE FIRST APPELLATE AUTHORITY HAS TAKEN A JUST AND APPROPRIATE VIEW BECAUSE NO FURTHER DISALLOWANCE COULD BE MADE, THEREFORE, RELYING UPON THE CIT(A) ORDER, IT WAS PLEADED FOR CONFIRMATION OF THE SAME. 9. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MATERI AL ON RECORD AND THE PRECEDENTS RELIED UPON BY RIVAL SIDES AND FIND THAT SINCE LATEST DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP I NVESTMENT LTD. VS. C.I.T., NEW DELHI (203 TAXMAN 364) HAS COME ACCORDING TO WHICH MATTER REQUIRES TO GO BACK TO THE ASSESSING OFFICER FOR COMPLYING WITH THE DIRECTION AS GIVEN BY THE HONBLE DELHI HIGH COURT IN THAT CASE AS UNDER:- SECTION 14A OF THE INCOME TAX ACT, 1961, READ WIT H RULE 8D OF THE INCOME TAX RULES, 1962 EXPENDITURE INCURRED IN RE LATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME WHETHER IN TERMS OF S ECTION 14A(2) CONDITION PRECEDENT FOR ASSESSING OFFICER TO DETERMINE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT HE MU ST RECORD HIS DISSATISFACTION WITH CORRECTNESS OF CLAIM OF EXPEND ITURE MADE BY ASSESSEE OR WITH CORRECTNESS OF CLAIM MADE BY ASSESSEE NO E XPENDITURE HAS BEEN INCURRED. HELD, YES WHETHER THEREFORE, DETERMIN ATION OF AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RUL E 8D WOULD ONLY COME INTO PLAY WHEN ASSESSING OFFICER REJECTS CLAIM OF ASSESSEE IN THIS REGARD HELD, YES WHETHER RULE 8D, WHICH WAS INTRODUCED BY VIRTUE OF NOTIFICATION NO. 45/2008, DATED 24.3.2008, IS PROSP ECTIVE IN OPERATION AND I.T.A.NO. 5641/DEL./2011 (A.Y. 2008-09) 5 CANNOT BE REGARDED AS BEING RETROSPECTIVE HELD, Y ES WHETHER THOUGH SUB-SECTIONS(2) AND (3) OF SECTION 14A WERE INTRODU CED WITH PROSPECTIVE EFFECT FORM ASSESSMENT YEAR 2007-08 ONWARDS, THEY W OULD BE WORKABLE ONLY WITH EFFECT FROM DATE OF INTRODUCTION OF RULE 8D WHICH GAVE CONTENT TO EXPRESSION SUCH METHOD AS MAY BE PRESCRIBED APPEA RING IN SECTION 14A(2) HELD, YES WHETHER, HOWEVER, FACT THAT SU B-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECT IVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT PRIOR TO THAT P ERIOD ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH CORRECTNESS OF CLAIM OF ASSESSEE WITH REGARD TO SUCH EXPENDITURE HELD, YES WHETHER EVEN FOR PER-RULE 8D PERIOD, WHENEVER ISSUE OF SECTION 14A ARISES BEFORE AN ASSE SSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN CORRECTNESS OF CLAIM OF ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF TOTAL INCOME UNDER ACT AND IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASON THAT AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY ASSESSEE IS NOT CORRECT, HE REQUIRED TO DETERMINE AMOUNT OF SUCH EXPENDITURE ON BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPO RTIONMENT - HELD, YES (PARTLY IN FAVOR OF REVENUE). 10. IN OUR CONSIDERED OPINION, IN THE INTEREST OF J USTICE, THE ISSUE NEEDS TO BE EXAMINED ON THE TOUCHSTONE OF THE EXPOSITION OF HO NBLE JURISDICTIONAL HIGH COURT AS ABOVE, THEREFORE ORDERS OF AUTHORITIES BELOW IN THI S REGARD IS SET ASIDE AND THE ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO C ONSIDER THE ISSUE AFRESH IN LIGHT OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AS AB OVE. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEA RD. 11. AS A RESULT, THE APPEAL FILED BY THE DEPARTMENT GETS ACCEPTED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 15.06.2012. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : JUNE 15, 2012 SKB I.T.A.NO. 5641/DEL./2011 (A.Y. 2008-09) 6 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-V, NEW DELHI. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT