M/s. Delhi Towers Ltd., New Delhi V. DCIT, New Delhi

ITA 6007/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7160 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI L. P. SAHU, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER APPELLANT BY : SH. SATYEN SETHI, ADV. RESPONDENT BY : SH. ANIL KUMAR SHARMA, SR. DR. DATE OF HEARING : 04.01.2017 DATE OF PRONOUNCEMENT: 06.01.2017 ORDER PER BEENA A. PILLAI, JM: 1. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 05.08.2013 PASSED BY LD. CI T (A) 31 FOR ASSESSMENT YEAR 2009-10 ON THE FOLLOWING GROUND S OF APPEAL: 1. THAT ON THE LAW, FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMIN G THE APPLICATION OF SECTION 14A READ WITH RULE 8D IN UTT ER DISREGARD TO THE FACT OF THERE BEING NO NET INTERES T PAYMENT AND NO INTEREST HAVING BEEN DISALLOWED IN T HE PAST. 2. THAT ON THE FACTS OF THE CASE, THE ADDITION SU STAINED BY THE LEARNED CIT(A) IS HIGHLY ARBITRARY AND EXCES SIVE. I.T.A. NO. 6007/DEL/2013 (ASSESSMENT YEAR 2009-10) DELHI TOWERS LTD. 1110-ANSAL BHAWAN, 16-KG MARG, NEW DELHI GIR / PAN : AAACD0082E (APPELLANT) VS. DCIT CENTRAL CIRCLE-20 NEW DELHI. (RESPONDENT) ITA NO. 6007/DEL/2013 PAGE 2 OF 7 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, A LTER OR AMEND OR FOREGO ANY GROUNDS OF APPEAL AT THE TIME O F HEARING. 2. THE ASSESSEE HAS PREFERRED AN APPLICATION UNDER RU LE 11 OF THE INCOME TAX RULES, 1963 FOR ADMISSION OF A DDITIONAL GROUND AS UNDER: THAT THE GROUNDS RAISED DO NOT BRING OUT THE ENTIRE CONTROVERSY, INASMUCH AS, GRIEVANCE OF THE APPELLANT AGAINST MAK ING THE DISALLOWANCE UNDER SECTION 14A WITHOUT RECORDING TH E REQUIRED SATISFACTION WAS NOT SPECIFICALLY RAISED AND THAT N O GROUND AGAINST DISALLOWANCE UNDER RULE 8D(3) WAS RAISED. IN THE CI RCUMSTANCES, THE APPELLANT SEEKS TO RAISE THE FOLLOWING ADDITIONAL G ROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAVING HELD THAT THE REQUISITE SATISFACTION WAS NOT RECORDED BEFORE MAKING THE DISALLOWANCE UNDER SECTION 14A OF THE AC T, HAS ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER? 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D OF IT RULES. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.14,42 ,439/- UNDER SECTION 14A READ WITH RULE 8D(3) OF IT RULES BEING THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEES FILED ITS RETURN OF INCOME ON 23/09/2009 DECLARING A LOSS OF RS. 53,32,256/-. THE RETURN WAS PROCESSED UNDER SECTION 143 (1) AND NOTICE UNDER SE CTION 143 (2) OF THE ACT WAS ISSUED. A DETAILED QUESTIONN AIRE WAS ISSUED ALONG WITH NOTICE UNDER SECTION 143 (2) AND 142 (1) OF THE ACT. IN RESPONSE TO THE NOTICES ISSUED ASSESSEE S REPRESENTATIVES APPEARED BEFORE LD. AO AND SUBMITTE D THE CASE RECORDS. DURING THE ASSESSMENT PROCEEDINGS LD. AO ITA NO. 6007/DEL/2013 PAGE 3 OF 7 OBSERVED THAT ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.39,87,672/-UNDER THE HEAD OTHER RECEIPTS AND HAS CLAIMED THE SAME AS EXEMPT UNDER SECTION 10 (34) OF THE ACT. ASSESSEE WAS ASKED AS TO WHY THE DISALLOWANCE IN RE SPECT OF EXEMPT INCOME SHOULD NOT BE MADE UNDER SECTION 14A READ WITH RULE 8D OF IT RULES 1962. AFTER CONSIDERING VA RIOUS SUBMISSIONS ADVANCED BY ASSESSEES REPRESENTATIVES LD. AO COMPLETED ASSESSMENT UNDER SECTION 143(3) MAKING TH E FOLLOWING ADDITIONS/DISALLOWANCES: (I) DISALLOWANCE OF RS. 26, 70, 398/-UNDER SECTION 14A READ WITH RULE 8D OF IT RULES 1962; (II) ADDITION OF RS.1, 536/-ON ACCOUNT OF PRELIMINARY EXPENSES. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFER RED AN APPEAL BEFORE THE LD. CIT (A) WHO UPHELD THE ADD ITIONS MADE BY THE LD. AO. AGGRIEVED BY THE ORDER OF THE L D. CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US NOW. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS IN RESPECT OF SATISFACTION NOT BEING RECORDED BY THE ASSESSING OF FICER BEFORE MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. L D.AR SUBMITTED THAT ASSESSING OFFICER HAS NOT ASSUMED JURISDICTION, AS HE HAS FAILED TO RECORD SATISFACTI ON AS REQUIRED UNDER SECTION 14A BEFORE CALCULATING THE DISALLOWANCE OF EXPENSES FOR EARNING THE EXEMPT INC OME. 5. LD. AR SUBMITTED THAT DISALLOWANCE UNDER RULE 8D H AS BEEN MECHANICALLY MADE BY LD.AO, AS NO PART OF ITA NO. 6007/DEL/2013 PAGE 4 OF 7 ADMINISTRATIVE EXPENSES COULD BE DIRECTLY ATTRIBUTA BLE TO THE INVESTMENTS IN SHARES AND THAT DURING THE YEAR UNDE R CONSIDERATION NO FRESH INVESTMENTS HAS BEEN MADE BY THE ASSESSEE. IT HAS BEEN SUBMITTED BY LD. AR THAT INTE REST PAID WAS LESS THAN THE INTEREST INCOME EARNED BY THE ASS ESSEE ON THE LOANS AND ADVANCES AND THEREFORE NO DISALLOWANC E WAS WARRANTED UNDER SECTION 14 A OF THE ACT. 6. ALTERNATIVELY, LD. AR ALSO SUBMITTED THAT, IN THE EVENT OF COMPUTING THE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D, AN AMOUNT OF RS. 4 CRORES CANNOT BE CONSID ERED, AS THE SAID SUM WAS ADVANCED TO A PARTICULAR PARTY (PE AREY LAL & SONS (E.P) LTD.), ON WHICH ASSESSEE HAD EARNED IN TEREST OF RS.37,35,752/-. HE HAS ALSO PLACED RELIANCE ON THE CALCULATION MADE BY ASSESSEE BY APPLYING RULE 8D (M ORE PARTICULARLY PLACED AT PAGE 4 OF PAPERBOOK) BY EXCL UDING SUCH SUM FOR ARRIVING AT DISALLOWANCE FROM THE AVER AGE VALUE OF INVESTMENT AND AVERAGE VALUE OF TOTAL ASSETS, HE LD BY ASSESSEE AS ON 31/03/2009. 7. ON CONTRARY LD. DR OBJECTED FOR THE ADMISSION OF ADDITIONAL GROUND. HE PLACED RELIANCE UPON PARA 4.8 OF THE ORDER PASSED BY LD.CIT(A) AND SUBMITTED THAT AS ASS ESSEE HAS FAILED TO DISALLOW EXPENDITURE SUO MOTO, AND ASSESSING OFFICER WAS RIGHT IN COMPUTING THE DISALLOWANCE, AS FOR THE YEAR UNDER CONSIDERATION, RULE 8D WAS VERY MUCH APP LICABLE. 8. WE HAVE PERUSED THE RECORDS PLACED BEFORE US IN TH E LIGHT OF THE SUBMISSIONS ADVANCED BY BOTH THE SIDES . ITA NO. 6007/DEL/2013 PAGE 5 OF 7 WE SHALL 1 ST ADDRESS THE ADDITIONAL GROUND RAISED BY ASSESSEE. BEING A LEGAL ISSUE THE SAME IS ADMITTED. RULE 8D HAS BEEN INSERTED IN IT RULES W.E.F. 24.03. 2008 FOR PURPOSE OF DETERMINING THE AMOUNT OF EXPENDITUR E IN RELATION TO EXEMPT INCOME, AS ENVISAGED IN 14A. THE AO OUGHT TO ADOPT THE METHOD OF CALCULATION AS PRESCRI BED IN RULE 8D, POST THE INSERTION. THE LANGUAGE OF SECTIO N 14A(1) DIRECTS AO TO COMPUTE DISALLOWANCE OF EXPENSES INCU RRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT I NCOME WHEREAS SECTION 14A(2) REQUIRES AO HAS TO ADDUCE SO ME REASONS IF HE IS NOT SATISFIED WITH THE AMOUNT OFFE RED BY WAY OF DISALLOWANCE BY THE ASSESSEE . AT THE SAME TIME SECTION 14A (1) & (2) READ WITH RULE 8D(I), LEAVE AO WITH N O CHOICE, AND MANDATES A PARTICULAR METHODOLOGY ENACTED, SHOU LD BE FOLLOWED. IN OTHER WORDS, AO IS UNDER A MANDATE TO APPLY THE FORMULAE AS IT WERE UNDER RULE 8D. IF IN A GIVEN CA SE, THEREFORE, NO AMOUNT HAS BEEN SUO MOTO DISALLOWED BY ASSESSEE FOR THE PURPOSES OF THIS SECTION OR IS CON FRONTED WITH A FIGURE WHICH, PRIMA FACIE, NOT IN ACCORDANCE WITH WHAT SHOULD APPROXIMATELY BE THE FIGURE ON A FAIR WORKIN G OUT OF THE PROVISIONS, THE AO IS BOUND TO CALCULATE THE DI SALLOWANCE OR REJECT IT AS THE CASE MAY BE. IN SUCH CIRCUMSTAN CES THE AO ORDINARILY WOULD EXPRESS HIS OPINION BY REJECTING T HE DISALLOWANCE/SUBMISSION OFFERED, AND PROCEED TO WOR K OUT THE METHODOLOGY ENACTED. ITA NO. 6007/DEL/2013 PAGE 6 OF 7 9. IN THIS INSTANCE FACTS BEFORE US, ASSESSEE HAS NOT MADE ANY DISALLOWANCE IN RESPECT OF EXPENDITURE, THAT MA Y BE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. ADMIT TEDLY ASSESSEE HAS EARNED DIVIDEND TO AN EXTENT OF RS.39, 87,672/-, FROM THE INVESTMENTS MADE. THE METHODOLOGY OF CALCU LATION ADOPTED BY LD. AO IN THE ORDER, SHOWS THAT ALL THES E ELEMENTS WERE PRESENT IN HIS MIND, THAT HE DID NOT EXPRESSLY RECORD HIS SATISFACTION IN THESE CIRCUMSTANCES, WOU LD NOT PER SE JUSTIFY IN CONCLUDING THAT HE WAS NOT SATISFIED TO REJECT THE AOS CONCLUSION. TO INSIST THAT THE AO SHOULD PAY S UCH LIP SERVICE REGARDLESS OF THE SUBSTANTIAL COMPLIANCE WI TH THE PROVISIONS WOULD, DESTROY THE MANDATE OF SECTION 14 A. 10. IN VIEW OF THE ABOVE DISCUSSION WE DISMISS THE ADDITIONAL GROUND RAISED BY ASSESSEE. 11. IN RESPECT OF THE MERITS OF THE CASE IT IS OBSERVE D THAT THE ASSESSEE HAS SUBMITTED A CALCULATION OF DISALLO WANCE UNDER SECTION 14A READ WITH RULE 8D AT PAGE 4 OF TH E PAPER BOOK. AS FROM THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNTS, IT IS OBSERVED THAT THERE IS NO FRESH INV ESTMENT THAT HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THAT THE DIVIDEND INCOME HAS BEEN EARNED FROM THE OLD INVESTMENTS. WE AGRE WITH THE SUBMISSI ON OF LD. AR THAT INTEREST RECEIVED ON LOANS ADVANCED IS MUCH MORE THAN THE INTEREST PAID ON THE LOANS TAKEN AND THAT AN AMOUNT OF RS. 4 CRORES ADVANCED TO PEAREY LAL & SON S (E.P) LTD., MAYBE A EXCLUDED, AS THE INTEREST EARNED FROM THE ITA NO. 6007/DEL/2013 PAGE 7 OF 7 ADVANCE CANNOT BE ATTRIBUTED TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE. WE THEREFORE DO NOT AGREE WITH THE LD.CIT(A), IN CONFIRMING THE ENTIRE DISALLOWANCE MA DE BY LD.AO, AND RESTRICT THE DISALLOWANCE AS COMPUTED BY THE ASSESSEE TO AN EXTENT OF RS.8,54,102/-. ACCORDINGLY APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2017. SD/- SD/- (L. P.SAHU) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 06.01.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI)