ICDS Limited, Manipal V. ITO, Udupi

ITA 604/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7399 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Earning of tax free income
• Section: 14A

Judgement Text

ITA.604/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL, JUDICIAL MEMBER I.T.A NO.604/BANG/2016 (ASSESSMENT YEAR : 2006-07) ICDS LTD, SYNDICATE HOUSE, MANIPAL 576 104 .. APPELLANT PAN : AAACI4355H V. INCOME-TAX OFFICER, WARD 1, UDUPI .. RESPONDENT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON :31.10.2017 PRONOUNCED ON : 31.10.2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER: THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A), MANGALURU, DT.28.01.2016, FOR THE ASSE SSMENT YEAR 2012- 13. ITA.604/BANG/2016 PAGE - 2 02. THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE U/S.14A R.W. RULE 8D, MADE BY THE AO. 03. BRIEF FACTS ARE THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF LEASE FINANCING AND ACCEPTING DEPOSITS FROM THE PUBLIC. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED THE RET URN OF INCOME DECLARING NIL INCOME. SUBSEQUENTLY THE CASE WAS SE LECTED FOR SCRUTINY AND NOTICES WERE ISSUED TO THE ASSESSEE. AFTER GRA NTING OPPORTUNITY OF HEARING TO THE ASSESSEE, THE AO HAS CONCLUDED THE A SSESSMENT PROCEEDINGS MAKING A DISALLOWANCE U/S.14A R.W. RULE 8D OF AN AMOUNT OF RS.4,49,642/-, AS AGAINST THE EXPENDITURE INCURRED BY THE ASSESSEE TO THE EXTENT OF RS.51,434/-, WHICH WAS DI SALLOWED BY THE ASSESSEE IN THE RETURN OF INCOME FILED BY IT. FEEL ING AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). CIT (A) ALSO UPHELD THE DISALLOWANCE MADE BY THE AO. 04. BEFORE US, IT IS THE CASE OF THE ASSESSEE THAT THE AO IN PARA 3.4 OF HIS ORDER HAS NOT RECORDED THE SATISFACTION WHICH W AS REQUIRED TO BE RECORDED BEFORE INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. FOR THE SAKE OF COMPLETENESS OF RECORD, WE ARE REPR ODUCING PARA.3.4 OF THE ASSESSMENT ORDER HEREIN BELOW : 3.4 ON VERIFICATION OF THE DETAILS FILED THE ASSES SEE HAS DISALLOWED RS.51,434/- TOWARDS EARNING OF EXEMPT INCOME. THIS CLEARLY SHOWS THAT THE ASSESSEE HAS INCURRED SOME EXPENDITURE IN EARNING THE INCOME IN VIEW OF THIS, DISALLOWANCE HAS TO BE MADE U/S.14 A IN THE CASE OF THE ASSESSEE. IT IS ALSO IMPORTANT TO NOTE THAT AS PER THE PROVISIONS OF ITA.604/BANG/2016 PAGE - 3 SEC.14A(3) THE AO SHALL DETERMINE THE AMOUNT OF EXP ENDITURE IN RELATION TO EXEMPT INCOME EVEN WHEN THE ASSESSEE CL AIM THAT NO EXPENDITURE HAS BEEN INCURRED. 05. ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED BY THE LD. AR AS THE AO HAS NOT RECORDED THE SATISFACTION AS REQUIRED UN DER LAW, THEREFORE THE AO WAS NOT HAVING THE JURISDICTION IN TERMS OF SECTION 14A. FOR THE PURPOSES OF THE ABOVE SAID PROPOSITION, THE LD. AR RELIES UPON THE JUDGMENT OF THE HONBLE HIGH COURT IN THE MATTER OF M/S. RELIANCE CAPITAL ASSET MANAGEMENT LTD, IN ITA.487 OF 2015, D T. 19.09.2017, AND SUBMITTED THAT IN THE ABSENCE OF SATISFACTION, NO QUANTIFICATION U/S.14A R.W.RULE 8D CAN BE DONE. 06. ON THE OTHER HAND THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 07. FROM A BARE PERUSAL OF SECTION 14A(2), IT IS CL EAR THAT THE AO BEFORE INVOKING SECTION 14A, IS DUTY BOUND TO RECOR D HIS SATISFACTION WITH RESPECT TO THE CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE AND THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. ON A PERUSAL OF THE ORDER PASSED BY THE AO, IT IS C RYSTAL CLEAR THAT THE AO HAS NOT AT ALL RECORDED HIS SATISFACTION , AS TO HOW THE EXPENDITURE DISALLOWED FOR THE AMOUNT OF RS.51,434/- TOWARDS EA RNING OF THE EXEMPT INCOME , WAS INCORRECT AND FURTHER HAS NOT RECORDED HIS REASONS FOR ARRIVING AT THAT FINDING. THUS THERE I S ERROR IN ASSUMING THE ITA.604/BANG/2016 PAGE - 4 JURISDICTION BY THE AO AS RECORDING OF SATISFACTION IS SINE QUA NON FOR INVOKING RULE 8D. AS THERE IS A JURISDICTIONAL DEF ICIENCY/ INCOMPETENCE IN INVOKING RULE 8D, THEREFORE, THE O RDER PASSED BY AO AND CIT(A) WERE IMPROPER AND WITHOUT JURISDICTION , HENCE LIABLE TO SET ASIDE . ACCORDINGLY WE SET-ASIDE AND CANCEL THE ORDERS PASSED BY AUTHORITIES BELOW. 08. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF OCTOBER, 2017. SD/- SD/- (INTURI RAMA RAO) (LALIE T KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 31.10.2017 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR