DCIT, New Delhi V. M/s. Bharti Telecom Ltd., New Delhi

ITA 5667/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3152 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO. 5667/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G. D. AGRAWAL, PRESIDENT AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5667/DEL/201 4 ( A.Y 2011-12) DCIT CIRCLE-2(1) NEW DELHI (APPELLANT) VS BHARTI TELECOM LTD. BHARTI CRESCENT, 1-NELSON MANDELA ROAD, VASANT KUNJ, PHASE-II NEW DELHI AAACB1456G (RESPONDENT) APPELLANT BY SH. RAVI KANT GUPTA, SR. DR RESPONDENT BY SH. ANIL BHALLA, AR ORDER PER SUCHITRA KAMBLE THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 14/08/2014 PASSED BY CIT(A)-V, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,47,21,92 5/- MADE BY THE A.O. U/S 14A IN NORMAL COMPUTATION AS WELL AS UNDER SPEC IAL PROVISIONS OF THE ACT BY IGNORING THE FACT THAT EXPENSES RELATABLE TO EARNING OF EXEMPT INCOME HAVE TO BE CONSIDERED FOR DISALLOWANCE AS PER RULE 8D OF THE L.T. RULES 1962 R.W.S.MA OF THE ACT IRRESPECTIVE WHETHER ANY E XEMPT INCOME HAS BEEN DATE OF HEARING 05.02.2018 DATE OF PRONOUNCEMENT 27.02.2018 2 ITA NO. 5667/DEL/2014 EARNED BY THE ASSESSEE DURING THE YEAR OR NOT. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME B EFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF PROMOTING AND INVESTMENT TELECOM BUSINESS. THE A.O COMPLETED THE ASSESSMENT AT AN INCOME OF RS.7,74,95,320/- UNDER PROVISION OF THE I.T ACT, 1961 AND BOOK PROFIT AT RS.8,22,16,670/- AS AGAINST THE RETURNED INCOME OF RS.1,27,73,395/-. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND HELD THAT THIS IS A FIT C ASE FOR INVOKING THE PROVISIONS OF SECTION 14A(2) OF THE I.T ACT 1961 AN D TO COMPUTE THE EXPENSES IN ACCORDANCE WITH THE RULE 8D OF THE INCOME TAX RULES 1962. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE A SSESSEE. 5. THE LD. DR RELIED UPON THE ASSESSMENT ORDE R. 6. THE LD. AR RELIED UPON THE ORDER OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER:- THE FACTS OF THE CASE LIES IN A NARROW CANVAS. IN THE FACTS OF THE CASE IT IS SEEN THAT THE TOTAL EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT ARE ONLY TO THE EXTENT OF RS. 9,24,840/- OUT OF WHICH RS. 3,43, 030/- HAD ALREADY BEEN DISALLOWED BY THE APPELLANT BY TREATING THE SAME AS RELATED TO EARNING OF 3 ITA NO. 5667/DEL/2014 EXEMPT INCOME IN THE FORM OF DIVIDEND. THE SUM AND SUBSTANCE OF THE APPELLANTS CONTENTION IS THAT THE BALANCE OF THE E XPENSES TOTALING TO RS. 5,18,810/- HAS BEEN INCURRED UNDER THREE HEADS I.E. LEGAL & PROFESSIONAL; STATUTORY AUDIT FEE AND INTERNAL AUDIT FEE AND THAT FROM THE BREAKUP OF THESE EXPENSES IT IS EVIDENT THAT THESE ARE NOT REL ATED TO EARNING OF THE EXEMPT INCOME AND THEREFORE CANNOT BE SUBJECTED TO DISALLOWANCE IN TERMS OF SECTION 14A OF THE ACT. THE OTHER ARGUMENT OF TH E APPELLANT IS THAT IN TERMS OF SECTION 14A (2) THE AO IS MANDATED TO DETE RMINE THE EXPENSES INCURRED IN RELATION TO EXEMPT INCOME IN TERMS OF T HE METHOD PRESCRIBED UNDER RULE 8D ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARDS TO THE ACCOUN T OF THE ASSESSEE. IT HAS THUS BEEN ARGUED THAT SINCE THE AO HAS NOT RECO RDED HIS SATISFACTION FOR INVOKING RULE 8D (HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE), THEREFORE THE DISALLOWANCE CALCULATED IN TERMS OF R ULE 8D(2)(II) AMOUNTING TO RS. 6,47,21,925/- IS A MECHANICAL EXERCISE WHICH IS NOT IN ACCORDANCE WITH LAW. IT HAS ALSO BEEN ALTERNATIVELY ARGUED THA T AT BEST THE DISALLOWANCE CAN EXTEND UPTO THE TOTAL EXPENSES DEB ITED TO THE PROFIT & LOSS ACCOUNT AND CANNOT EXCEED THE SAME. I HAVE GONE THROUGH THE FACTS AND SUBMISSIONS MADE BY THE APPELLANT AND AM OF THE VIEW THAT IN TERMS OF THE DECISION OF HON BLE DELHI HIGH COURT IN CASE OF MAXOPP INVESTMENT LTD VS CIT [2011] 15 TAXM ANN.COM 390 (DELHI) IT IS IMPERATIVE FOR THE AO TO RECORD HIS SATISFACT ION WITH REGARD TO THE CORRECTNESS OF THE ASSESSEES CLAIM WITH REGARD TO SECTION 14A(2) OF THE IT ACT, BEFORE EMBARKING UPON APPLICATION OF RULE 8D(2 )(II). ADDITIONALLY, IT IS ALSO SEEN THAT IN THE FACTS OF THE CASE WHILE THE A SSESSEE HAS MADE A SUO MOTU DISALLOWANCE OF RS. 3,43,030/- BUT THEN THE BA LANCE EXPENSE OF RS. 5,18,810/- CANNOT BE TREATED OR HELD AS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION IN BENGAL & ASSAM CO. LTD. ITA NO 2484/DEL/2012 DATED 22.07.2 014 WHEREIN THE HONBLE ITAT HAS CITED WITH APPROVAL THE DECISION O F ITAT MUMBAI IN THE 4 ITA NO. 5667/DEL/2014 CASE OF UDHAV HOLDINGS PVT. LTD. VS ACIT [2014] 1 T MI 1134- ITAT MUMBAI WHEREIN IT IS HELD THAT THE EXPENDITURE RELATED TO LEGAL & PROFESSION CHARGES, AUDITORS REMUNERATION, DEPRECIATION AND BA NK CHARGES AND RATES AND TAXES ARE IN ANY WAV REQUIRED TO BE INCURRED FO R THE MAINTENANCE AND RUNNING OF CORPORATE OFFICE AND OTHER BUSINESS OF T HE ASSESSEE AND CANNOT BE SAID TO BE ATTRIBUTABLE TO EARNING OF EXEMPT INC OME . FURTHER IN THE CASE OF MODERN INFO TECHNOLOGY LTD IN ITA NO 4294/DEL/20 12 REPORTED IN 2012- TIOL-644_ITAT-DEL. THE HONBLE ITAT HAS HELD THAT D ISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE TOTAL ACTUAL EXPENDIT URE INCURRED AND CLAIMED BY THE ASSESSEE. APPLYING THE RATIO OF THE ABOVE DECISIONS TO THE FACTS OF THE APPELLANT CASE THE APPEAL IS ALLOWED A ND THE EXCESS ADDITIONS MADE IN TERMS OF RULE 8D FOR AN AMOUNT OF RS. 6,47, 21,925/- IS DIRECTED TO BE DELETED. AS A LOGICAL COROLLARY THIS ADDITION WO ULD ALSO BE REQUIRED TO BE DELETED IN COMPUTING BOOK PROFIT UNDER SECTION 115J B OF THE IT ACT THE CIT(A) HAS GIVEN DETAILED FINDING, THERE FORE, THERE IS NO NEED TO INTERFERE WITH THE SAME. THE ORDER OF THE CIT(A) IS UPHELD. 8. IN RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUARY, 2019 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) PRESIDENT JUDICIAL MEMBER DATED: 27/02/2018 R. NAHEED * 5 ITA NO. 5667/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 06/02/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 06/02/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 27.02.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 8 .02.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 6 ITA NO. 5667/DEL/2014