M/s. Onkareshwar Properties (P) Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 6164/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7193 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 17-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC-2: NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 6164/DEL/2014 A.Y. : 2010-11 M/S ONKARESHWAR PROPERTIES (P) LTD. VS. ADDL. C IT, RANGE-13, FLAT NO. B-14-C, FIRST FLOOR, NEW DELHI FREEDOM FIGHTERS ENCLAVE, NEB SARAI, NEW DELHI (PAN : AAACO7076M) ALSO AT: RAJESH JAIN & ASSOCIATES, 49, PUSHPANJALI, OPP. ANAND VIHAR, VIKAS MARG EXTN., DELHI 92 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAJESH JAIN, CA DEPARTMENT BY : NONE DATE OF HEARING : 17-08-2016 DATE OF ORDER : 02-09-2016 O R D E R THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A)-XVI, DELHI DATED 29.8.2014 RELEVANT FOR ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS OF THE CASE AND AS PER LAW, THE L D. CIT(A) UPHELD THE ORDER OF THE AO IN ASSESSING THE INCOME OF THE APPE LLANT AT RS. 12,30,680/- AGAINST THE RETURNED INCOME OF RS. 7,39 ,000/-, AFTER MAKING THE DISALLOWANCE OF EXPENDITURE OF RS. 4,91, 677/- U/S. 14A OF ITA NO. 6164/DEL/2014 2 THE ACT IN SPITE OF THE FACT THAT THE APPELLANT DID NOT EARN ANY INCOME EXEMPT FROM INCOME TAX WHICH IS A PRECONDITION FOR INVOKING THE PROVISION OF SECTION 14A OF THE ACT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE AO DID NOT CO NTROVERT THE SUBMISSION THAT THE APPELLANT DID NOT MAKE INVESTME NT FOR EARNING INCOME OF THE DIVIDEND AND THE INVESTMENT WAS ONLY STRATEGIC COMMERCIAL DECISION. THAT THE APPELLANT FURTHER STR ESSED THAT THERE IS NO NEXUS OF EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT WITH THE INVESTMENT MADE BY THE APPELLANT AND THEREFORE , THE PROVISION OF SECTION 14A INVOKED BY THE AO AND THE CIT(A) ARE WR ONGLY INVOKED. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE COMPANY DID NOT RECEIVE ANY INCOME WHICH IS EXEMPT FROM TAX DURING THE YEAR UNDER CONSIDERATION. HENCE, HE SUBMITTED THAT THE P ROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE ON FACTS OF THE CASE AN D IN VIEW OF THE VARIOUS JUDICIAL PRECEDENTS INCLUDING THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD. 272 CTR 542 (DEL. ) IT WAS SUBMITTED THAT HON'BLE HIGH COURT HAS HELD THAT WHERE THERE WAS NO EXEMPT INCOME, NO DISALLOWANCE U/S 14A CAN BE MADE. LD. A.R. FURTH ER SUBMITTED THAT THE A.O. WITHOUT PINPOINTING ANY EXPENDITURE RELATABLE TO EX EMPT INCOME, HAS CALCULATED DISALLOWANCE U/S 14A AS PER RULE 8D AND LD. CIT(A) HAS ALSO CONFIRMED THE SAME, WHICH WAS ALSO AGAINST THE LAW. THEREFORE, HE REQUESTED THAT THE AFORESAID DECISION OF THE HONBLE DELHI H IGH COURT MAY BE RESPECTFULLY FOLLOWED AND APPEAL OF THE ASSESSEE MAY BE ALLOWED. 3. NOTICE OF HEARING WAS SENT TO BOTH THE PARTIES AND IN RESPONSE TO THE SAME NONE APPEARED ON BEHALF OF THE DEPARTM ENT, NOR ANY APPLICATION FOR ADJOURNMENT HAS BEEN FILED BY THE D EPARTMENT. ITA NO. 6164/DEL/2014 3 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I AM OF THE CONSIDERED VIEW THAT NO USEFUL PURPOSE WOULD BE SERVED TO SERVE THE NOTICE AGAIN AND AGAIN TO THE DEPARTMENT, THEREFORE, I AM DECIDING THIS APPEAL AS EXPARTE DEPARTMENT, AFTER H EARING THE LD. AR OF THE ASSESSEE AND PERUSING THE RECORDS. 4. I HAVE HEARD THE LD. AR OF THE ASSESSEE AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. I FIND THAT A.O. AS WEL L AS LD. CIT(A) HAS NOT POINTED OUT ANY INCOME EARNED BY ASSESSEE WHICH WAS EXEMPT INCOME. I FIND THAT THERE WAS NO EXEMPT INCOME POINTED OUT BY THE REVENUE AU THORITIES AND A.O. HAD MADE ADDITION HOLDING THAT ASSESSEE HAD SOURCE OF E XEMPT INCOME. SECTION 14A OF THE INCOME TAX ACT CANNOT BE INVOKED WHEN N O EXEMPT INCOME WAS EARNED. I FIND THAT THE CASE OF ASSESSEE IS FULLY COVERED IN ITS FAVOUR BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CA SE OF CIT VS HOLCIM INDIA PVT. LTD. (SUPRA) WHEREIN, THE HONBLE HIGH COURT UNDE R SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: 13. WE ARE CONFUSED ABOUT THE STAND TAKEN BY THE A PPELLANT-REVENUE. THUS, WE HAD ASKED SR. STANDING COUNSEL FOR THE REV ENUE, TO STATE IN HIS SUBMISSION RAISED WAS THAT THE SHARES WOULD HAVE YI ELDED DIVIDEND, WHICH WOULD BE EXEMPT INCOME AND THEREFORE, THE CIT (A) HAD INVOKED SECTION 14A TO DISALLOW THE ENTIRE EXPENDITURE. THE AFORESAID SUBMISSION DOES NOT FIND ANY SPECIFIC AND CLEAR NARRATION IN T HE REASONS OR THE GROUNDS GIVEN BY THE CIT(A) TO, MAKE THE SAID ADDIT ION. POSSIBLY, THE CIT(A), THOUGH IT IS NOT ARGUED BEFORE US, HAD TAKE N THE STAND THAT THE RESPONDENT- ASSESSEE HAD MADE INVESTMENT AND EXPEND ITURE WAS INCURRED TO PROTECT THOSE INVESTMENTS AND THIS EXPE NDITURE CANNOT BE ALLOWED UNDER SECTION 14A. ITA NO. 6164/DEL/2014 4 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE CO ULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DI RECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. MIS. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE' INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014 ] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX ( II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN TH E SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER TH E CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVI DES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME U NDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOM E IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ITA NO. 6164/DEL/2014 5 ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBST ANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03J S2/- MADE BY THE ASSESSING OFFICER WAS IN ORDER' . 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAX ABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUE NT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NOT TAX ABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE O F SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT I S AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY A ND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THERE BY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVAT E PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DI VIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AN D STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSI ST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEN D DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR WHOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT- ASSESSEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS PO SITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FIN DING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THEREFORE, HAD TO INCUR EX PENDITURE FOR THE BUSINESS IN THE FORM OF INVESTMENT IN SHARES OF CEM ENT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPE NDITURE HAD TO BE ITA NO. 6164/DEL/2014 6 ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE G ENUINENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSING OFFICER AND HAS AL SO NOT BEEN DOUBTED BY THE CIT(A). 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE PRESENT APPEALS. THE SAME ARE' DISMISSED IN LIMINE. 5. I HAVE ALREADY NOTED THAT ASSESSEE HAD NOT EARNE D ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE, FOLLOWING THE ABOVE ORDER OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD. (SUPRA), DISALLOWANCE U/S 14A WAS NOT WARRANTED. IN VIEW OF THE ABOVE, GROUNDS R AISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF ASSESSEE STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02-09-2016. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE:02/9/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. D R, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES