NESTLE R & D CENTRE INDIA PVT. LTD., NEW DELHI V. DCIT, CIRCLE- 18(1), NEW DELHI

ITA 6010/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0432 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 22-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Unabsorbed depreciation; Rule 8D
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: E NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.6010/DEL./2017 ASSESSMENT YEAR: 2012-13 NESTLE R & D, CENTRE INDIA PVT. LTD., M-5A, CONNAUGHT CIRCUS, NEW DELHI. VS. DCIT, CIRCLE-18(1), NEW DELHI PAN :AAACE2226P (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 24 TH JULY, 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-37, NEW DELHI, [IN SHORT THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 2012-13, RAISING THE FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) [' CIT(A)'] ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER ['AO'] IN DISALLOWING EXPENDITURE OF RS 6,50,090/- UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 ['THE ACT'] READ WI TH RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 ['THE RULES'] APPELLANT BY NONE RESPONDENT BY MS. RINKU SINGH, SR. DR DATE OF HEARING 01.03.2021 DATE OF PRONOUNCEMENT 11.03.2021 2 ITA NO.6010/DEL./2017 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CO NFIRMING THE AFORESAID DISALLOWANCE WITHOUT APPRECIATING THAT NO EXPENDITURE WAS ACTUALLY INCURRED IN EARNING THE EXEMPT DIVIDEN D INCOME. 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT NO SATISFACTION AS REQUIRED BY LAW WAS RECORDED BY THE AO BEFORE RESORTING TO RULE 8D OF THE RULES FOR PURPOSES OF M AKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 1.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT UNDER SECTION 14A OF THE ACT AND ONLY EXPENSES HAVI NG DIRECT/ PROXIMATE NEXUS WITH EARNING OF THE DIVIDEND INCOME COULD BE DISALLOWED. 2. THAT THE CIT(A) GROSSLY ERRED ON FACTS AND IN LA W IN NOT ALLOWING SET OFF OF THE BROUGHT FORWARD BUSINESS LOSS AMOUNT ING TO RS.95,88,851/- AND UNABSORBED DEPRECIATION AMOUNTIN G TO RS. 1,40,47,358/- RETURNED BY THE APPELLANT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN LE VYING INTEREST UNDER SECTION 234B OF THE ACT. THE APPELLANT CRAVE LEAVE TO ADD, TO ALTER, TO AMEN D OR VARY THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HE ARING. 2. DESPITE NOTIFYING, NEITHER ANY ONE APPEARED, NOR A NY ADJOURNMENT APPLICATION HAS BEEN FILED ON BEHALF OF THE ASSESSEE. ON EARLIER DATE, I.E., 28.12.2020, ALSO NONE APPEAR ED ON BEHALF OF THE ASSESSEE, AND THEREFORE, THE ASSESSEE WAS ISSUE D NOTICE THROUGH REGISTERED POST. IT IS SEEN FROM THE RECORD THAT THIS NOTICE DATED 29.12.2020 ISSUED BY THE REGISTRY FOR HEARING ON 01.03.2021 DID NOT RETURN BACK. THUS, IT IS ASSUMED THAT THIS NOTICE WAS DULY SERVED UPON THE ASSESSEE AND NO COM PLIANCE HAS BEEN MADE ON THE PART OF THE ASSESSEE. IN SUCH CIRC UMSTANCES, WE FEEL IT APPROPRIATE TO DECIDE THE APPEAL EX-PARTE . ACCORDINGLY, AFTER HEARING THE ARGUMENT OF THE LEARNED DR, WE PROCEEDE D TO DECIDE THE APPEAL. 3. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 26.11.2012, DECLARING NIL INCOM E AFTER ADJUSTMENT OF BUSINESS INCOME/INTEREST INCOME AMOUN TING TO RS.2,36,36,209/- WITH THE BROUGHT FORWARD BUSINESS 3 ITA NO.6010/DEL./2017 LOSSES/UNABSORBED DEPRECIATION. IN THE SCRUTINY, AS SESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX AC T, 1961 (IN SHORT THE ACT), THE ASSESSING OFFICER MADE DISALL OWANCE UNDER SECTION 14A OF THE ACT AND ALSO DISALLOWED THE ADJU STMENT OF BUSINESS LOSSES/UNABSORBED DEPRECIATION. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A), HOWEVER, IT DID NOT GET ANY RELIEF AND THUS THE ASSESSEE IS BEFORE THE INCOME TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUNAL), RAISI NG THE GROUNDS AS REPRODUCED ABOVE. 4. BEFORE US, THE LEARNED DR APPEARED THROUGH VIDEO CONFERENCING FACILITY AND RELIED ON THE ORDERS OF T HE LOWER AUTHORITIES. 5. WE HAVE HEARD THE SUBMISSION OF THE LEARNED DR AND PERUSED THE RELEVANT MATERIAL ON RECORD. 6. IN GROUND NO. 1, THE ASSESSEE HAS RAISED THE ISSUE OF DISALLOWANCE OF RS.6,50,090/- UNDER SECTION 14A OF THE ACT. 6.1 THE FACTS IN BRIEF QUA THE ISSUE IN DISPUTE ARE TH AT THE ASSESSEE HAD MADE INVESTMENTS IN UNITS OF MUTUAL FU NDS AMOUNTING TO RS.15 CRORES. IN THE IMMEDIATELY PRECE DING YEAR ALSO, THE ASSESSEE HAS SOLD UNITS OF MUTUAL FUNDS A MOUNTING TO RS.4 CRORES. IN THE YEAR UNDER CONSIDERATION, THE A SSESSEE RECEIVED DIVIDEND AMOUNTING TO RS. 1,23,14,237/- ON MUTUAL FUNDS, WHICH IS CLAIMED AS EXEMPT INCOME UNDER SEC TION 10(35) OF THE ACT. IN THE RETURN OF INCOME FILED, THE ASSE SSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE SAID DI VIDEND INCOME. ACCORDING TO THE ASSESSEE, THE DIVIDEND INC OME WAS EARNED IN RESPECT OF LIQUID MUTUAL FUNDS WHICH WERE AUTOMATICALLY RE-INVESTED AND THE SAME WERE RECEIVE D IN BANK 4 ITA NO.6010/DEL./2017 ACCOUNTS, AND NO ADDITIONAL EFFORTS/EXPENSES WERE R EQUIRED TO BE MADE/INCURRED FOR EARNING THE DIVIDEND INCOME. THE ASSESSEE, FURTHER, CONTESTED THAT NO SPECIFIC EMPLOYEE WAS KE PT TO KEEP THE RECORD OF THE DIVIDEND INCOME. THIS CONTENTION OF T HE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND INVOKING RULE 8D OF THE RULES, HE DISALLOWED 0.5% OF THE AVERAGE INVESTMENT UNDER RULE 8D(2)(III) TO RS.6,50,000/-. ON FURTHER APPEAL, THE LEARNED CIT(A) HELD THAT THE ASSESSMENT ORDER SUCCEEDS ON THE CRIT ERIA OF RECORDING DISSATISFACTION ON THE CLAIM OF THE ASSES SEE. THE LEARNED CIT(A) FURTHER UPHELD THE DISALLOWANCE OBSERVING AS UNDER: 5.4 THUS THE THRESHOLD CRITERIA OF RECORDING SATIS FACTION, IN HUMBLE OPINION OF THIS OFFICE HAS BEEN MET BY AO AS CAPTUR ED SUPRA AT PARA 5. NOW COMES THE QUANTUM OF DISALLOWANCE. SINCE, A FORMULAE HAS BEEN PRESCRIBED PRECISELY TO OBLITERATE DISPUTES RE LATING THERETO AS HELD IN APEX COURT DECISION OF GODREJ BOYCE WHICH H AS BEEN APPLIED BY AO, IN INSTANT CASE. THUS, AFTER RENDERING OF AP EX COURT DECISION, IN. HUMBLE OPINION OF THIS OFFICE, THE DISALLOWANCE MADE BY AO IS IN ORDER, MORE SO AS THE DIVIDEND INCOME HAS BEEN EARN ED BY APPELLANT. EVEN A CURSORY LOOK AT THE ANNUAL REPORT , AND ATTENDANT NOTES TO ACCOUNTS AND DETAILS OF OTHER EXPENSES WIL L BELIE THE CLAIM OF APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED W.R.T EARNING OF DIVIDEND INCOME. ITS LIKE-A PERSON SAYING THAT SER VICES OF A GENERAL MANGER (FINANCE) WERE NOT REQUIRED FOR MONITORING O F FINANCIAL ACTIVITY/ INCOME RELATING TO DIVIDENDS AS INVESTMEN TS ONCE MADE NEED NOT-HE MONITORED/ REVIEWED. ITS NOT THE-CASE OF-THE APPELLANT ASSESSEE THAT THE DECISION TO SELL/ INVEST IN MUTUA L FUNDS WAS NOT TAKEN DURING THE YEAR UNDER CONSIDERATION. ONCE THE INVESTMENT/RELATING DECISION (WHETHER TO HOLD/ SELL / ACQUIRE/ MONITOR) IS TAKEN, IT CANNOT BE THEN CANVASSED BY A SSESSEE, AS IS BEING DONE, THAT NO EMPLOYEE WAS NECESSARY FOR SUCH DECISIONS, WHICH PLEA IN ANY CASE IS SURREAL . SIMILAR ANALOGY FOR HOST OF OTHER RELATED- EXPENDITURE HAS BEEN TENDERED BY APPELLANT DEFEATS LOGIC. ITS DIFFICULT TO DISTANCE INDIRECT-NATURE OF EXPEN SE (LIKE RENT/ OUTGO ON OTHER HEADS / SALARY ETC I.E. UNDER SCHEDULE 15, 17 OF NOTES TO ACCOUNTS FOR AY 12-13-REFER PB PAGE 225 ) FROM EAR NING OF DIVIDEND AS ACCOUNTS DEPTT. HAS TO LOOK AFTER ALL FINANCIAL ACTIVITIES AND A HEAD OF ORGANIZATION MONITORS OVERALL . EVEN STATUT ORY AUDIT ASPECT WOULD HAVE TO VERIFY AND VOUCH WHETHER THE AMOUNT O F DIVIDEND RECEIVED FROM (RE) INVESTMENT IN MF IS ACCURATE / P ROPERLY ACCOUNTED FOR/ RECEIVED AND RECONCILED ETC. THUS LOOKED AT FR OM ANY ANGLE, AFTER THE SC DECISION OF 8/5/2017 CITED HEREIN, THE DISALLOWANCE 5 ITA NO.6010/DEL./2017 MADE BY AO IS UPHELD AND APPEAL OF ASSESSEE IS DISM ISSED. FURTHER ITS IMPORTANT TO NOTE THAT IN LATER YEAR TOO, I.E. AY 13-14 OF SAME APPELLANT THE AO HAS MADE DISALLOWANCE UNDER SEC. L 4A R.W. RULE 8D. THE FINDINGS GIVEN FOR GOA NO 2 SUBSUME GOA NO 2.1 & GOA NO 2.2 AND HENCE THE SAID GOAS NO 2, 2.1&2.2 ARE ALSO DISMISSED. ITS PERTINENT TO ADD THAT IN SUCCEEDING YEAR TOO (I.E. AY 13-14) THE AO HAS MADE DISALLOWANCE, DURING WHICH YEAR TOO, THE A PPELLANT HAS EARNED DIVIDEND INCOME; NOWHERE THE APPELLANT HAS S UBMITTED DETAILED ACTIVITY SHEET OF ITS EMPLOYEES TO SUPPORT ITS (ILLOGICAL BIZARRE) HYPOTHESIS THAT NONE OF ITS EMPLOYEES AT A NY POINT OF TIME HAS ANYTHING TO DO WITH INVESTMENT DECISION MAKING ASPECT RELATING TO MFFOREMOST OF ALL TO DECIDE TO INVEST IN MF OR OTHERWISE IS ITSELF AN APPLICATION OF TIME / MONEY/ EMPLOYEE COST ON DE CISION MAKING ACTIVITY RELATED TO INVESTMENTS PER SE, OF WHICH IN VESTMENT IN MF IS A SUBSET THEREOF. AT THIS VERY STAGE ITSELF, AT THRES HOLD, THE PLEA OF APPELLANTS MUST FAIL LOGICALLY. FURTHER THAT, IN E ARLIER YEARS, THERE WAS NO 143(3) OF APPELLANT CASE AND HENCE THIS BEIN G FIRST YEAR, THE MATTER HAS BEEN APTLY APPRECIATED BY AO. 6.2 WE FIND THAT THE CONTENTION OF THE ASSESSEE THAT, NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, H AS BEEN REJECTED BY THE LOWER AUTHORITIES ON THE GROUND THA T SOME MAN POWER MUST HAVE BEEN REQUIRED FOR MONITORING FINANC IAL ACTIVITY OR EARNING OF INCOME RELATING TO DIVIDENDS AS INVES TMENT. THE LOWER AUTHORITIES HAVE HELD THAT EVEN THE STATUTORY AUDIT MUST HAVE ALSO BEEN VERIFIED WHETHER THE AMOUNT OF DIVID END RECEIVED FROM THE INVESTMENT/RE-INVESTMENT IS ACCURATE/PROPE RLY ACCOUNTED FOR IN THE ASSESSEES BOOKS OF ACCOUNTS A ND, THEREFORE, SOME EXPENDITURE OF THE AUDIT ALSO RELATES TO THE A CTIVITY OF EARNING DIVIDEND INCOME. 6.3 IN OUR OPINION, ONCE THE RULE 8D OF THE RULES HAS B EEN MADE APPLICABLE, THE DISALLOWANCE IN TERMS OF RULE 8D(2)(II) IS AUTOMATIC AND THERE IS NO OPTION LEFT WITH THE ASSE SSING OFFICER EXCEPT TO ESTIMATE THE DISALLOWANCE AS PER RULES. 6.4 IN VIEW OF THE DETAILED FINDINGS OF THE LEARNED CI T(A) ON THE ISSUE IN DISPUTE, WE DO NOT FIND ANY ERROR IN THE O RDER OF THE 6 ITA NO.6010/DEL./2017 LEARNED CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. TH E GROUND NO. 1 OF THE APPEAL IS DISMISSED. 7. AS FAR AS THE GROUND NO. 2 IS CONCERNED, THE ASSES SING OFFICER DID NOT ALLOW CARRY FORWARD OF BUSINESS/UNA BSORBED DEPRECIATION IN ABSENCE OF EVIDENCES SUBMITTED BY T HE ASSESSEE. FURTHER, THE LEARNED CIT(A) HAS NOTICED THAT THE AS SESSEE HAS ALREADY FILED RECTIFICATION APPLICATION BEFORE THE ASSESSING OFFICER WHICH WAS PENDING. WE AGREE WITH THE FINDING OF THE LEARNED CIT(A) THAT WHEN THE ISSUE IS ALREADY PENDING BEFOR E THE LEARNED ASSESSING OFFICER FOR RECTIFICATION, IT IS NOT APPR OPRIATE FOR HER TO DECIDE ON THAT ISSUE IN APPELLATE PROCEEDINGS. WE, ACCORDINGLY, CONCUR WITH THE FINDINGS OF THE LEARNED CIT(A) ON T HE ISSUE IN DISPUTE. THE GROUND NO. 2 OF THE APPEAL IS DISMISS ED. 7.1 HOWEVER, BEFORE PARTING WITH THE ORDER, WE DIRECT T HE ASSESSING OFFICER THAT IF THE RECTIFICATION APPLICA TION HAS NOT BEEN DECIDED AS YET, THE SAME MAY BE DECIDED IN THE INTE REST OF JUSTICE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2021 SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH MARCH, 2021. RK/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI